MB0053 International Business Management Q.1. Write a note on globalization. Ans.

Globalization is process where businesses are dealt in markets around the world, apart from the local and national markets. According to business terminologies, globalization is defined as the worldwide trend of businesses expanding beyond their domestic boundaries. Global companies companies which invest in other countries for business and also operate from other countries, are considered as global companies. They have multiple manufacturing plants across the globe, catering to multiple markets. The transformation of a company from domestic to international is by entering just one market or a few selected foreign markets as an exporter or importer. Benefits of Globalisation: Globalisation creates employment opportunities in the host countries; it also exploits labour at a very low cost compared to home country. Some of the benefits of globalisation are as follows: Promotes foreign trade and liberalization of economies. Increases the living standards of people in several developing countries through capital investment in developing countries by developed countries. Benefits customers as companies outsource to low wage countries. Outsourcing helps the companies to be competitive by keeping the cost low, with increased productivity. Promotes better education and jobs. Leads to free flow of information and wide acceptance of foreign products, ideas, ethics, best practices and culture. Provides better quality of products, customer services, and standardized delivery models across countries. Gives better access to finance for corporate and sovereign borrowers. Increases business travel, which in turn leads to a flourishing travel and hospitality industry across the world. Increases sales as the availability of cutting edge technologies and production techniques decrease the cost of production.

 Provides several platforms for international dispute resolutions in business, which facilitates international trade. Some of the ill effects of globalisation are as follows: Leads to exploitation of labour in several cases. Causes unemployment in the developed countries due to outsourcing. Influences political decisions in foreign countries. Causes ecological damage. Harms the local businesses of a country due to dumping of cheaper foreign goods.

In spite of its disadvantages, globalisation has improved our lives through various fields like communication, transportation, healthcare and education.

Q.2. Why does nations trade? Discuss the relevance of porters diamond model in todays business context. Answer. The answer to above questions would be that countries world over are endowed with different natural, human and capital resources. Each country varies from other in combining these resources. In a globalisation set up, every country cannot be as efficient as the best in producing the goods and services that their residents demand. As a result, they have to trade off their decisions to produce any good or service based on opportunity cost. The production decision of the country depends on whether it is more efficient to produce the goods and services with lower opportunity cost with increased and specialized production, or to trade those goods of higher opportunity cost. If a country can produce more of any goods or services with the same resources used by any other country, it is said to have an absolute cost advantage in the production of those goods or services. Opportunity cost and efficiency in production varies from country to country as countries have different endowments of productive resources like land, labour and capital. Trade is also affected as different countries are endowed with different natural resources and climate zones, longer growing seasons for a produce, highly educated and skilled workers and larger quantities of sophisticated machinery.

Porters Diamond Model In 1990, Michael Porter analyzed the reason behind some nations success and others failure in international competition. He outlined four broad attributes that shape the environment in which local firms compete and these attributes promote the creation of competitive advantage. They are explained as follows: Factor endowments Characteristics of production were analyzed in detail. There are basic factors like natural resources, climate and location and so on and advanced factors like communication infrastructure, research facilities. Demand conditions The role of home demand in improving competitive advantage is emphasized since firms are most sensitive about the needs of their closest customers. Relating and supporting industries The presence of suppliers or related industries is advantageous since the benefits of investment in advanced factors of production spill over to these supporting industries. Firm strategy, structure and rivalry Domestic rivalry creates pressure to innovate, improve quality and reduce costs which in turn helps create worldclass competitors. Q.3.Why do firms pay so much attention to economic factors while entering in particular market? Justify your answer with practical examples. Answer. The economic environment refers to the economic conditions under which a business operates and takes into amount all factors that have affected it. Following are various economic factors:a. National Economic Policies- All governments aspire to achieve four major economic objectives: Full employment A high economic growth rate A low rate of inflation Absence of deficit in the countrys balance of payments. b. Economic structure- key variables that need to be examined include Gross Domestic Product (GDP) per capita, regional distribution of GDP, levels of investment, consumer expenditure, labour costs, inflation and unemployment. Variables that are examined when assessing national economic environments include:

 Economic structure- The structure of a nations economy is determined by the size and the rate of its population growth, income levels and distribution of income, natural resources, agricultural, manufacturing and services sector. Industry structure- The structure of an industry is determined by factors such as : 1. Entry and exit barriers 2. Number of competing firms 3. Market share among firms in that sector. 4. Average size of competing units. Market growth- It is measured in terms of local currency and adjusted for inflation. Local currency is used because conversations into other currencies are affected by exchange rate fluctuations. Income levels- It is taken as the GDP per capita and GDP is directly proportional to the productivity of the country. Sector wise trends- Growth activity in a country might vary significantly among certain industries. Openness of the economy- The ratio of a countrys imports and exports to its Gross National Product indicates its vulnerability to fluctuations in international trade International debt- Foreign exchange reserves should not be less than outstanding short-term debts.

c. Balance of payments Importance Balance of payments is a record of all economic transactions that occur between residents of a country and foreigners over a specific period of time. Balance of payment account These accounts attempt to identify the reasons behind various categories of international receipts and payments, making possible to establish the values payments by domestic residents to foreigners, Deficit and surplus current account deficit records physical imports and exports along with international transactions in invisibles, that is non-physical items such as residents pensions from abroad.

Q.4.How has India reacted towards regional integration? Discuss briefly the trade agreements signed by India. Answer. Regional integration can be defined as the unification of countries into a large whole. In recent years, it has been seen more and more countries moving towards regional integration to strengthen their ties and relationship with other countries. Following is a list of regional trade integration initiatives taken by India:-

Existing 1. Bangkok Agreement 2. Global Systems of Trade Preferences. 3. SAARC Preferential Trading Agreement 4. India-Sri lanka FTA 5. India-Thailand FTA 6. India Singapore Comprehensive Economic Cooperation 7. Indo-Nepal Trade Treaty 8. India-Mauritius PTA 9. India-Chile PTA

Ongoing 1. Indo-ASEAN CECA 2. South Asian Free Trade Agreement 3. BIMSTEC( Bay of Bengal Initiative for Multi-Sectoral Technical & Economic Cooperation)

FTAs/PTAs under study & consideration 1. Gulf Cooperation Council 2. China 3. South Korea 4. Japan 5. Malaysia 6. Pakistan 7. South African Customs Union 8. Egypt 9. Israel 10. Russia 11. Australia

India and Trade Agreements India considers Regional Trading Arrangements as the building blocks towards the objective of trade liberalization. Following are some of the major agreements signed by India:1. Asia-Pacific Trade Agreement (APTA) The Asia-Pacific Trade Agreement, previously known as Bangkok Agreement, was signed on 31st July 1975, as an initiative of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). 2. Bay of Bangal Initiative for Multi-Sect oral Technical and Economic Cooperation (BIMSTEC) BIMSTEC, a sub-regional economic cooperation grouping, was formed in Bangkok in June 1997. It is considered as a bridging link between the two major regional groupings that is, ASEAN and SAARC.

3. Framework Agreement on Comprehensive Economic Cooperation between India and the Association of South East Asian Nations ASEAN was established on 8th august 1967 in Bangkok by five original member countries, namely, Indonesia, Malaysia, Philippines, Singapore and Thailand. 4. India- MERCOSUR Preferential Trade Agreement (PTA) The objective of this agreement is to create an environment for negotiations in the first stage. Few other agreements include: India and Singapore Comprehensive Economic Cooperation Agreement (CECA). India Sri lanka Free Trade Agreement (ISFTA) India Chile Preferential Trade Agreement (PTA) India Bhutan Trade Agreement India Nepal Trade Treaty. Free Trade Agreement (FTA) between India and Gulf Cooperation Council (GCC). Trade Agreement between India and Bangladesh. Comprehensive Economic Cooperation and Partnership Agreement (CECPA) between India and Mauritius. Q. 5. What is global sourcing? What makes India so attractive for global sourcing? Answer. Globalisation of the world economy under the WTO has opened abundant opportunities of cost cutting, gaining competitive advantage and saving time for industries worldwide. Global sourcing is defined as the practice of sourcing cost effective and best goods and services across geopolitical boundaries in order to cater to global markets. Global sourcing strategy is aimed at exploiting global efficiencies in all areas of manufacturing, trading and services to enable offering clients and customer the best possible product or service. Global sourcing is often associated with a centralized procurement strategy for a multinational, wherein a central buying organization seeks economies of scale through corporate-wide standardization and benchmarking. A definition focused on this aspect of global sourcing is: "proactively integrating and coordinating common items and materials, processes, designs, technologies, and suppliers across worldwide purchasing, engineering, and operating locations Some advantages of global sourcing, beyond low cost, include: learning how to do business in a potential market, tapping into skills or resources unavailable domestically, developing alternate supplier/vendor sources to stimulate competition, and increasing total supply capacity. Some key disadvantages of global sourcing can include: hidden costs associated with different cultures and time zones, exposure to financial and political risks in countries with (often) emerging economies, increased risk of the loss of intellectual property, and increased monitoring costs relative to domestic supply.

India, an attraction for global sourcing Indian industries have successfully levered global sourcing strategies in their global trade operations and sourcing has been the driving force behind the development. Global sourcing strategy has made Indian industry more globalised as buyers from all over the world are bidding for Indian goods, particularly services, to enable executing their contracts on time, reduce prices and generate efficiency in the system through increased competition. India, with its demographic dividends has been benefitted from all such developments as the level of skill and knowledge held by Indian professionals allows them to provide high quality services to their clients in developed countries. E.g. India has been successful in software development, BPO services, and KPO services and in areas like Engineering Process Outsourcing, Analysis Process Outsourcing. Global sourcing has helped Indian companies in the generation of additional revenue and profits, precious foreign exchange, scalable business operations and employment. Q.6. Write short notes. Ans. Cross Cultural management In International management, where people are from different cultures, people have to develop and apply their knowledge about cultures and not use a standard process for everyone. This is called as cross cultural management. The factors to be considered in cross cultural management are: Cross cultural management skills The most important aspect to qualify as a manager for positions of international responsibility is communication skills. The managers must adapt to other cultures and have the ability to lead its members. Handling cultural diversity Cultural diversity in a work group offers opportunities and difficulties. The organizations capability to draw, save, and inspire people from diverse cultures can give the organization spirited advantages in structures of cost, creativity, problem solving and adjusting to change. Factors controlling group creativity- Diverse groups require time to solve issues of working together. The work experiences helps to overcome gender, racial, organizational and functional discriminations. A diverse group is known to be more creative, where the members are tolerant to differences Ignoring diversity- It may be difficult to manage diversity. It is better to ignore, which is also an alternative. The management must : 1. Ignore cultural diversity within the employees. 2. Down-pay the importance of cultural diversity Strategies to ignore diversity may be possible when culture groups are given various jobs and sharing required resources are independent in the workplace.

 WTO WTO was established on 1st January 1995. In April 1994, the final Act was signed at a meeting in Morocco. It was formed to strengthen the world economy that would lead to better investment, trade, income growth and employment throughout the world. The WTO is the successor to the General Agreement on Tariffs and Trade (GATT). WTO represents the latest attempts to create an organizational focal point for liberal trade management and to consolidate a global organizational structure to govern world affairs. It is the only international body that deals with the rules of trades between nations. Objectives and functions The other major functions include: Helping trade flows by encouraging nations to adopt discriminatory trade policies. Promoting employment, expanding productions and trade and raising standard of living and income and utilizing the worlds resources. Ensuring that developing countries secure a better share of growth in world trade. Providing forum for trade negotiations. Resolving trade disputes