I. Discuss the relationship between international business and international organizations.

What could be
the objectives of going international?
Relationship between international business and international organizations
International business is increasing day by day and its importance is widely recognized. A number of
international organizations have been setup to facilitate, regulate, measure and even finance international
trade. Some of these organizations are worldwide and some are regional organizations. Some international
organizations have governmental powers and act as supranational entities. It is important for people involved
in international business to understand the impact these international organizations have on international
business. Some of these organizations are:i) United Nations (UN): UN has been responsible for creation of number of international
organizations that facilitate business transactions around the world such as the International
Telecommunication Union, the International Trade Centre, The International Civil Aviation Organization,
etc.
ii) The World Bank and other Multilateral Development Banks: Multilateral Development Banks
refer to the Bank for Reconstruction and Development (World Bank); the African Development Bank, the
Asian Development Bank, the European Bank for Reconstruction and Development and the Inter-American
Development Bank. They provide financing for development activities through various financial facilities.
iii) International Monetary Fund (IMF): IMF primarily deals with governments, however, its policies
and actions have a profound impact on international business.
iv) The World Trade Organization (WTO): WTO provides rules of trade between nations. The goal
of WTO is to assist producers of goods and services, exporters and importers to conduct their business by
reducing or eliminating trade barriers and restrictions worldwide. WTO is replacement of GATT which
existed up to 1995.
v) Organization of Petroleum-Exporting Countries (OPEC): OPEC is primarily formed by oil
exporting countries to enhance their bargaining power.
vi) Association of Southeast Asian Nations (ASEAN): ASEAN was formed in 1967 with a purpose
to promote economic growth and peace in the region.
Objectives of going international
Companies across the world engage in international business keeping in view the following objectives:
i) To expand sales When a company enters into international business it increases its customers and
ultimately the sales expand. Increased sales are a major objective of any business intending to become
global. Many multinational companies derive major sales from international sales.
ii) To acquire resources Some companies enter international business to acquire resources which
are readily not available in their home country. Acquiring resources from abroad may enable a company to
improve its product quality and gain an edge over their competitors.

iii) To minimize risk Companies enter foreign markets to minimize risk and take advantage of
business cycles-recession and expansion. All the countries of the world may not face recession at the same
time. Seasons also vary in different countries at different times.

II. Discuss the following theories of international trade:

a) Comparative cost advantage theory
b) Porters theory
a) Comparative cost advantage theory
David Ricardo in 1817 advocated that even though a nation held an absolute advantage in production
of two goods, the two countries could still trade with mutual benefit. Two countries could both benefit from
trade if each had a relative advantage in production. In simple terms it can be said that a country specializes
in production of those commodities where it has comparative cost advantage, i.e, where its costs are less
than in other country. The Ricardian theory of Comparative Cost is based on only one factor of production
namely labour. This theory has certain limitations. First, it takes into account only one factor of production
and ignores other factors and technical advances. Secondly, the theory does not provide explanation to why
labour productivity differs from country to country.
b) Porters theory
Porters competitive Advantage of Nations theory states that the ability of the local firms in a country
to utilize the countrys resources to gain a competitive advantage is influenced by four kinds of variables
such as:i) Demand conditions: If the customers of a firm demand, it will produce high quality and innovative
products. This provides a global competitive advantage to the firm.
ii) Factor conditions-Availability of skilled labour, road and rail infrastructure, natural resources in a
country enable their industries to be competitive globally.
iii) Firm strategy, structure and rivalry-The organization and management of companies and the
extent of domestic competition force them to improve their efficiency. As a result , they became
more competitive globally.
iv) Related and supporting industries: A nations ability to compete internationally is affected by
extent of supply industries, ancillary business services and so forth.

III. Many countries are apprehensive about permitting MNCs operations. What are the possible reasons
for this?

Case against MNCs

MNCs are not widely welcome by many host countries. The critics of MNCs argue their case on
following grounds:
i) On political grounds, it is argued that MNCs indulge in violation of human rights, promotion of
corruption among politicians, support to terrorist groups and sometimes even in destabilizing the
government in the host countries. There is a great fear that all these mal-practices may result in
challenge to the sovereignty of smaller nation states.
ii) On sales and marketing grounds, MNCs are accused for misleading and deceitful advertising,
destroying the cultures and traditions by using ubiquitous advertising and marketing methods. It is
alleged that MNCs utilize the resources of the host country in promoting goods not required by local
people.
iii) On technology grounds, MNCs are criticized for transfer of old and inappropriate technology to
the host nation. It is alleged that they do not promote research and development facilities and charge
very heavy fees for transfer of technology. It is frequently alleged that they do not train the local
labour force in their technology.
iv) Environmentalists of host countries argue that MNCs use the resources of their countries without
caring for environmental damage and pollution. It is alleged that MNCs are quite often using host
countries as dumping grounds for their products which are not environment friendly.
v) On personnel management and industrial relations front, MNCs are accused of ignoring
occupational health and safety needs, exploitation of host country labour, refusal to recognize trade
unions and not providing top management positions to the local employees.
vi) On economic grounds, MNCs are criticized for creating balance of payments problem in host
countries because of large import of inputs from their home countries, inequalities in the distribution
of income.

IV. Compare the management styles in USA and Japan.

Management styles in USA
U.S.A. being a democratic country, US managers are often under pressure to show better financial
results. Americans usually stay in their managerial positions only a relatively short time. American
management style can be described as individualistic in approach, in so far as managers are accountable for
the decisions made within their areas of responsibility. Although important decisions might be discussed in
open forum, the ultimate responsibility for the consequences of the decision lies with the boss. Decisions are
made primarily by individuals and usually only a few people are involved. In this way making of decisions is
fast.

Titles can be very confusing within American organizations with bewildering array of enormously
important-sounding job descriptions on offer such as Second Vice-President etc. Titles, in any case, tend to
be poor reflection of the relative importance of an individual within a company. Importance is linked to
power, which could be determined by a number of factors such as head-count responsibility, profitability of
sector or strategic importance to the organization at that point in time.
The management of human resource in U.S.A is quite different from other countries. American firms also
recruit employees from other companies. If the performance does not meet the companys expectations
employment may be terminated.
In U.S. Companies, leaders are seen as decision makers heading the group. Leaders are expected to
be directive, strong, firm and determined. They are expected to integrate diverse values, but emphasis on
individualism quite often hinders co-operation.
Management styles in Japan
Features of Japanese management styles and practices are:

Long term orientation

Slow decision making

Collective decision making

Paternalistic leadership style

Control by peers

Saving face

Planning in Japanese companies often requires a long time from conception to implementation which is
not in the interests of shareholders. Japanese management is characterized by lifetime employment, a
seniority wage system, vague job classification and groupism. In Japan, planning is based on co-operation
between the government and business.

Paternistic leadership approach used by Japanese Managers is greatly concerned for the welfare of subordinate. An environment of team work is built by managers. Managers normally avoid face-to faceconfrontation. Japanese management contributed Z theory of management to the world. This model was
named by Ouchi. The Z theory advocates a combination of all thats best about theory Y and modern
Japanese management, which places a large amount of freedom and trust with workers and is based on the
assumption that workers have a strong loyalty and interest in team working and the organization.

V. Explain the scope of comparative management.

Comparative managements scope
The scope of comparative management in managing multinational companies is discussed below:

(i) Ability to manage cultural diversity: Managers face difficulties when they work in another
culture. People, having different mental programmes, see situations differently and apply different
approaches and solutions to problems. When a person starts to function internationally, an
understanding of culture and its effect on behaviour, particularly management behaviour and
practices, becomes essential. Global aptitude requires foreign experience and sensitivity to other
cultures. Managers working globally must have the ability to recognize that cultural difference
operate internally and externally. They must understand that when dealing with foreign affiliates the
home office way of doing things may not be appropriate in all instances.
(ii) Build Global Team: Team working is a means to an end. It enables organizations to employ a
range of other techniques for improving quality and reducing unit costs. Teams provide the platform
on which to build continuous improvement, just in time production systems, an empowered,
motivated and self managed workforce committed to common goals. Teams enable these things to
happen. The importance of team work was realized even before the advent of global companies. In
fact, teams, committees and task forces were among the devices used to accomplish the desired
integration. The ability to work effectively with other people and in teams will be critical to the
successful implementation of a global strategy. Participation in global teams should, therefore, occur
early in the careers of young managers so as to transform them into globally effective managers. This
is possible with adoption of comparative management.
iii) Think globally and act locally: Multinational companies by adopting comparative management
can find the best management approach. Managers in such new environment will respond fast, be
comfortable with cross-cultural influences and be entrepreneurial and flexible. They will require
knowledge of international relationships, foreign affairs, global financial markets and exchange rates
movements. Managers having this type of global perspective will have to strike a balance between
national responsiveness and exploitation of global economies of scale.
(iv) Forming Multinational Corporations: There is a need for frequent reorganization of resources,
human networks, technology and marketing and distribution systems in order to have balance
between global and local pressures under changing competitive conditions. The change is accelerated
by shortening of product life cycles due to technological change in products and how they are
manufactured and delivered. Comparative management technique requires that global managers must
have the skills to manage the transition from independence or dependence to interdependence, from
control to co-ordination and cooperation and from symmetry to differentiation because of new
challenges and uncertainties in global operations. Global managers require significantly increased
creativity in organizational design. It is necessary that the organization supports global management.
Global managers are therefore required to design and operate the very organisation structures that
will help them to be more effective.
(vi) Ability to communicate: in global environment managers need ability to communicate with
different groups of people across the world. This will require multinational skills and high levels of

cross-cultural awareness and sensitivity. Sensitive communication will help in building trust and a
common message can help in building a strong corporate culture with emphasis on shared global
value system.
(vii) Ability to learn and transfer learning: Diverse market requirements, technological advances,
innovations need managers to have the ability to learn and transfer this learning to the organization.
This is key to global success. In a global environment, the ability of people to learn from diverse
sources and to transfer knowledge within their organisation is essential for success.

VI. Write short notes on:

a) Ethical issues in international management.
b) Social responsibility.
(a) Ethical issues in international management
There are a number of ethical issues which international managers are facing. The important among
them are:(i) Bribery and Corruption
Bribery is the main root of corruption in many countries, particularly so in developing and
underdeveloped countries. Bribery has different meaning in different countries. A practice which is
bribery in one country may be considered a normal business culture in another country.
(ii) Work practices and Work Remuneration
The greatest dilemma of an MNC is to choose an appropriate technology, i.e., labour intensive or
capital intensive. In a poor country, capital intensive technology may be considered unethical as it
does not create more employment for the local nationals. Similarly, there may be issues relating to
employment of children in industries. In some countries it may be treated as unethical.
Workers remuneration policies of MNCs may also become ethical issues in some countries. MNCs
are often blamed for exploiting workers in host countries, particularly least developed countries.
(iii) Other Issues which are involved are:
a) Selling products which are less in demand in home countries in less developed countries (LDCs)
b) Selling prohibited goods in LDCs
c) Dumping
d) Restrictive trade practices
b) Social responsibility
Every action of a business firm has social implications, as the society is affected in one way or the
other. Therefore, a business manager should keep in mind his social responsibility before taking any
business decision. Social responsibility implies that decision should be in the interest of the society as a

whole. Any business which pursues its goals at the cost of the society will find its success short-lived. It is
only a healthy society which is in the interest of business.
Areas of Social Responsibility
i) A socially responsible firm earmarks large amount of money for community development and
welfare.
ii) Social Responsibility may concern natural resources, protection of endangered species, protection
from pollution etc.
iii) It may relate to promotion of education by opening schools. An educated society is in the interest
of business.
iv) A concern for the rights of the consumers by ensuring high quality, safety and truthful
advertising. This makes the customer a loyal customer.