MAY-2006 TOTAL MARKS-100

(3 HOURS)

N.N.: 1. Question No. 1 is compulsory.

2. Attempt any four questions out of rest.

3. All questions carry equal marks.

4. Draw suitable diagrams to support your answers.

1. Analyse the case given below and answer the questions using the concepts of International Business.

DIXON INC.

Dixon Inc. is one of the oldest companies in U.S. with a flagship product of pencil which was introduced
in 1913. The turnover in 1995 was U.S.$ 100 million. The Americans bought an estimated 4.2 billion
pencils in 1999 which was 53% higher than 1991; but an increasing proportion of these came from China.

China entered the American pencil market in 1991 and by 1994 had 20% share of American market. In
1995 U.S. government was persuaded by Dixon to levy Anti Dumping Duty on Chinese imports of pencil
and the imports temporarily fell, but the Chinese kept on making better and cheaper pencils and by 1997
achieved the market share levels of 1994. The Chinese were aggressive in marketing pencils in U.S. and to
add to the problems exports of Dixon Inc. also fell drastically by about 200 million units in 1999 as
compared to 1991 figures.

By 1999, U .S. imported 50% of its requirement of pencils from China which forced the U.S. Government
to impose a whooping 53% Anti Dumping Duty in 2000 on Chinese pencils. However, it did not give
major boost to Dixon as expected.

Dixon Inc. during the decade tried to experiment with cheaper ways to make pencils. The company shifted
from California incense cedar wood (which was expensive raw material) to Indonesia jelutong wood.
Dixon also started buying erasers for its pencils from a Korean supplier instead of traditional local source.

During all this time it not only lost its share to cheap imports but was also losing money and it
strategically started a lie new manufacturing unit in Mexico a NAFTA partner. The original idea was to
supplement the U.S. set up but with a view to be more aggressive it expanded Mexico's unit and started
reducing the production of its home base, U.S.

In the year 2001, Dixon created a wholly owned subsidiary in China to manufacture wooden slats - a
processed raw material for manufacturing pencils. These slats were exported by Dixon from China to
Mexico where they were turned into pencils. The graphite lead for pencils is still made in USA; but
erasers arc shipped from Korea. .

The Chinese subsidiary of Dixon also produces and sells its products internationally. By 2003 Dixon's
performance registered a significant improvement but, the company decided to be aggressive in
International business and it shut down its U.S manufacturing base at Sandusky, Ohio and expanded it
production in Mexico and have also started manufacturing pencils from it's China venture.

Questions:

a) Why do you think that the Chinese apparently have a cost advantage in the production of pencils?

b). Do you think that lobbying in the U.S. government to imposing antidumping duties on imports of
pencils from China is a good way to protect U.S. jobs? Who benefits most from such duties? Who loses?

c) Why has Dixon become a. multinational company? What are the economic benefits to Dixon of going
global?

d) Why does it not simply import finished pencils from China to the United States, instead of making
those pencils in Mexico?

e). What is the role of tariff and non-tariff barrier in the whole process?

2. State the objectives of International Business. Give an overview of various methods of doing
International Business with suitable practical examples

3. State the advantages and disadvantages of FDI to the home and host country? List out the problems
faced by MNEs in the home country and the problems faced by host country due to MNEs.

4. Risks arc inevitable in International Business. The success is totally depending on the techniques of
handling, risks at every stage. Justify with examples.

5. WTO was formed to foster International Trade. State principle objectives of WTO and list at least 10
activities monitored by WTO. Discuss the impact of WTO on India find other developing nations with
special reference to Hong Kong Ministerial Conference.

6.What is the meaning of globalization? Categorize manufacturing and service sectors of India having
global competitive advantages.

7. Write short notes on:-

a. Explain salient features of any two Regional Trade Agreements (RTA).

b. Discuss general characteristics of Intellectual Property Rights (IPR).

8. Write short notes on:-

a. David Ricardo' s Two Country - Two Product Theory,

b. Purchasing Power Parity Theory