Sikkim Manipal University-DE

Student Name: Manisha Verma

Course: MBA (HR)

Registration Number: 521112626

LC Code: 3034

Subject Name: International Business Management

Subject Code: MB0053

Q1- Write a note on Globalization.

Answer 1- Globalisation is a process where businesses are dealt in markets around the World,
apart from the local and national markets. According to business Terminologies,
globalisation is defined as the worldwide trend of businesses expanding beyond their
domestic boundaries. As The International Monetary Fund defines it: The process through
which an increasingly free flow of ideas, people, goods, services and capital leads to the
integration of economies and societies
Globalization is a process that leads to some significant changes for markets and businesses
like an expansion of trade in goods and services between countries the internationalisation of
products and services and the development of global brands. Shifts in production and
consumption e.g. the expansion of outsourcing and off shoring of production and support
services. Increased levels of labour migrationA key result of globalization is the increasing
inter-dependence of economies.
Globalization offers many advantages to the people and businesses. It provides greater
employment opportunities for people. Makes available greater variety of goods and services
to the consumers. Offers more competitive price to the competitors. Enables companies to
achieve lower costs. Enables faster and wider spread of new technologies across the world.
Globalization has some disadvantages also. Unrestricted globalization can hamper the
development of less developed countries. Smaller firms may lack the resources to compete
internationally and therefore may be forced out of business. Countries become increasingly
dependent on other countries for meeting their needs for goods and services. This can become
a major disadvantage in situations like war. Adverse economic condition in one country can
escalate to other countries and may even adopt global proportion.
Globalization has made way for free trade and business. It has also helped improve
communication around the globe. It can be summarised that it has potential to make this
world a better place to live in.
Q2 Why do nations trade? Discuss the relevance of Porters diamond model in todays
Business context.
Answer 2- In 1776 Adam Smith stated, "If a foreign country can supply us with a commodity
cheaper than we ourselves can make it, better buy it of them with some part of the produce of
our own industry, employed in a way in which we have some advantage." This sentence
shows basic principle on which the world trade is based. Countries buy and sell goods abroad
to achieve the best possible cost-effectiveness.
Countries world over are endowed with different natural, human, and capital resources. Trade
is necessary, because the scare resources are distributed unevenly between different countries
and thus some countries are better producing some products than other. In a globalised set-up,
every country cannot be as efficient as the best in producing the goods and services that their
residents demand. 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
specialised production, or to trade those goods, with goods of higher opportunity cost. This is
also referred to as Opportunity cost model, which helps to understand the choice of
producing one good or another. If a country can produce more of any goods or services

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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.
For example, India has absolute cost advantage in cutting and polishing of diamond. On the
other hand, India would import items which can be imported at a lower cost than it would
take to manufacture these items locally, for example Swiss watches where Switzerland has
absolute advantage. Thus countries trade their production decision based on absolute cost
advantages.
Nations even if they have an absolute cost advantage in the production of Goods that are to
be traded Vis a Vis its counterpart, would like to specialise in higher opportunity cost
products. For example India and Thailand have signed a Free Trade Agreement. Thailand is
cost efficient in both auto component and pharmaceuticals. India would like to import auto
component and would export pharmaceuticals to Thailand.
Opportunity cost and efficiency in production varies from country to country as countries
have different endowments of productive resources like land, labour and capital. For
example, US is a capital rich country thus will specialise in production of aeroplanes and
India, rich in labour pool will specialise in rendering of information technology
services .At times the easy availability of natural resources in a country too facilitates trade
between the countries, for example Saudi Arabia will export oil, India will export mica, iron
ore and information Technology, Brazil will export coffee and Thailand will export rice. As
they are endowed with abundance of these resources.
Porters Diamond Model: Michael Porter introduced a model that allows analyzing why
some nations are more competitive than others are, and why some industries within nations
are more competitive than others are, in his book The Competitive Advantage of Nations".
This model of determining factors of national advantage has become known as Porters
Diamond. It suggests that the national home base of an organization plays an important role
in shaping the extent to which it is likely to achieve advantage on a global scale.
Porter distinguishes four determinants:
Factor Conditions: The situation in a country regarding production factors, like skilled
labour, infrastructure, etc., which are relevant for competition in particular industries.
These factors can be grouped into human resources (qualification level cost of labour,
commitment etc.), material resources (natural resources, vegetation, space etc.), knowledge
resources, capital resources, and infrastructure. They also include factors like quality of
research on universities, deregulation of labour markets, or liquidity of national stock
markets.
Home Demand Conditions: Describes the state of home demand for products and services
produced in a country. Home demand conditions influence the shaping of particular factor
conditions. They have impact on the pace and direction of innovation and product
development. According to Porter, home demand is determined by three major
characteristics: their mixture (the mix of customers needs and wants), their scope and growth
rate, and the mechanisms that transmit domestic preferences to foreign markets
Related and Supporting Industries: The existence or non-existence of internationally
competitive supplying industries and supporting industries. One internationally successful
industry may lead to advantages in other related or supporting industries. Competitive
supplying industries will reinforce innovation and internationalization in industries at later
stages in the value system. Besides suppliers, related industries are of importance. These are
industries that can use and coordinate particular activities in the value chain together, or that
are concerned with complementary products (e.g. hardware and software).
Firm Strategy, Structure, and Rivalry The conditions in a country that determine how
companies are established, are organized and are managed, and that determine the

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characteristics of domestic competition Here, cultural aspects play an important role. In
different nations, factors like management structures, working morale, or interactions
between companies are shaped differently. This will provide advantages and disadvantages
for particular industries.
Q3- Why do firms pay so much attention to economic factors while entering in
Particular market? Justify your answer with practical examples.
Answer-3 Penetrating foreign markets is a long-term commitment that demands a lot of time,
effort and money. International trade can be a great way to grow a company, but it also entails
risk. Any entrepreneur looking to expand into foreign markets must first gather information,
prepares an export plan, make a series of key decisions and line up the necessary financing. It
is essential for firms to have a clear understanding of the culture, customs and economic
conditions of the country where they want to do business. To that end, research is needed as
to various socio- political factors affecting a countrys economic environment.
The economic environment refers to the economic conditions under which a business
operates and takes into account all factors that have affected it. It includes prime interest
rates, legislation concerning employment of foreigners, return of profits, safety of country,
political stability etc.
National economic policies
National economic policies depend on a countrys socio-economic and cultural background.
All governments aspire to achieve four major economic Objectives:
1. Full employment.
2. A high economic growth rate.
3. A low rate of inflation.
4. Absence of deficit in the countrys balance of payments.
In deciding to engage in international business, individual firms must first determine whether
a market exists for their products abroad either in their current form or with adaptations to
suit foreign demands. If so, firms must also assess whether they have the expertise to manage
international trade. Finally, firms must evaluate whether the conditions of each country they
plan to enter are conducive to international trade. A companys level of global involvement
will directly affect its organizational strategy. Options include use of independent agents,
licensing arrangements, branch offices, strategic alliances, and direct investment. Depending
on local conditions, a companys international organizational strategy may well vary for
different foreign countries.
Several barriers can inhibit global trade. Social and cultural differences include language,
social values, and traditional buying patterns. Economic differences may compel companies
to form close relationships with foreign governments in order to do business abroad. Political
and legal differences can take a range of forms. Quotas, tariffs, subsidies, and local content
laws are designed to protect domestic industries. Furthermore, local business practice laws
can make practices that are standard in one country illegal in another.
Key variables that need to be examined include Gross Domestic Product (GDP) per capita,
regional distribution of GDP, levels of investment, consumer expenditure, labor
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 rate
of its population growth, income levels and distribution of income, natural resources,
agricultural, manufacturing and services sector. Economic infrastructure is the sum of all the
external facilities and services that support the work of firms including communication,
transportation, electricity supply, banking and financial services.

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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 conversions 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. Net income is another important variable and is without tax
payments from individual gross incomes.
Sector wise trends Growth activity in a country might vary significantly among certain
industries. For example, India has a vibrant software services industry.
Openness of the economy The ratio of a countrys imports and exports to its Gross
National Product (GNP) indicates its vulnerability to fluctuations in international trade. A
nation with a high foreign trade or GNP depends heavily on the economic well-being of the
nations it exports to. Conversely, closed economies have a high degree of control over the
economy.
International debt An outstanding loan that one country owes to another country or
institutions within that country. Foreign debt also includes due payments to international
organizations. Foreign exchange reserves should not be less than outstanding short-term
foreign debts. On the other hand, a
High foreign debt servicing requirement maybe a positive indicator, suggesting that a country
has borrowed heavily to invest in its future.
Degree of urbanization This is an important factor because there are major differences in
incomes and lifestyles between urban and rural areas in most countries such as:
1. Shopping patterns shopping frequency, average purchase value.
2. Nature of goods bought.
3. Expectations in quality and technical sophistication.
4. Education levels.
5. Ease of distribution.
6. Loans and changes in the countrys gold and forex reserves.
Question 4- How has India reacted towards regional integration? Discuss briefly the
trade agreements signed by India.
Answer 4- Regional integration has been defined as an association of states based upon
location in a given geographical area, for the safeguarding or promotion of the participants,
an association whose terms are fixed by a treaty or other arrangements.
Regional integration is necessary to improve the relationship between countries and to
promote trade. The overall development of the region is the principal behind regional
integration. There are different types of regional integration such as free trade area, customs
union, common market, economic union, political union, preferential trading agreement and
free trade area. The different regional integration agreements are NAFTA, APEC, EU, EFTA,
AFTA, GCC, SAFTA and MERCOSUR,
Some of the major agreements India has signed are:
Asia-Pacific Trade Agreement (APTA)
The Asia-Pacific Trade Agreement (APTA), previously known as the Bangkok Agreement,
was signed on 31st of July 1975, as an initiative of the United Nations Economic and Social
Commission for Asia and the Pacific (ESCAP).

Sikkim Manipal University-DE

The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) is
the regional development arm of the United Nations for the Asia-Pacific region. It focuses on
issues that are most effectively addressed through regional cooperation and include:1. The issues that all or a group of countries in the region face, for which it is necessary
to learn from each other;
2. The issues that benefit from regional or multi-country involvement;
3. The issues that are trans boundary in nature, or that would benefit from collaborative
inter-country approaches;
The original signatories to the Agreement were Bangladesh, India, Lao Peoples Democratic
Republic, the Republic of Korea and Sri Lanka. Lao PDR has not issued customs notification
on the tariff concessions granted, and hence to this extent, is not an effective participating
member. China's accession to the Agreement was accepted at the Sixteenth Session of the
Standing Committee of the Bangkok Agreement in April 2000. Thus, it is considered as a
bridging link' between the two
BIMSTEC (Bay of Bengal Initiative for Multi-Sect oral Technical and Economic
Cooperation)
A sub-regional economic collaboration consortium was formed in Bangkok in June 1997.
Myanmar connected to the alliance later in December 1997. Bhutan and Nepal too united
with the alliance in February 2004. Its membership involves five members of SAARC (India,
Bangladesh, Bhutan, Nepal & Sri Lanka) and two members of ASEAN (Thailand, Myanmar).
Thus, it is pictured as a bridging link' between the two major regional groupings i.e. ASEAN
and SAARC. Its chairmanship of BIMSTEC revolves amongst the member countries in
alphabetical array. The immediate priority of the grouping is combining of its activities and
making it striking for economic cooperation.
At its first summit held in Bangkok on July 31, 2004, the acronym BIMSTEC was renamed
as Bay of Bengal Initiative for Multi Sect oral Technical and Economic Cooperation.
In the beginning, cooperation was planned into six sectors. However, throughout the 11th
Senior Official Meeting in New Delhi in August 2006, it was decided that the areas of
cooperation should be prolonged to 13 sectors and each sector will be lead by members in a
deliberate manner.
Framework Agreement on Comprehensive Economic Co- Operation between India and
the Association of South East Asian Nations
Look East Policy led India to engage with the Association of South East Asian
Nations (ASEAN) and it started in the year 1991. While, ASEAN looks to utilize and access
Indias technical and professional wealth, India and ASEAN look forward to strengthen the
security in the region.
ASEAN was established on 8th August 1967 in Bangkok by the five original Member
countries, namely, Indonesia, Malaysia, Philippines, Singapore, and Thailand. Now, it has a
membership of 10 countries namely Brunei, Darussalam, Cambodia, Indonesia, Lao PDR,
Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. India is one of the four
'Summit level Dialogue Partners' of ASEAN.
An agreement on Comprehensive Economic Cooperation between ASEAN and India was
signed on 8th October 2003 in Bali (Indonesia). The key elements of the agreement are,
FTA in services, goods and investment as well as in the areas of economic cooperation.
Agreement on South Asia Free Trade Area (SAFTA): The Agreement on South Asian Free
Trade Area (SAFTA) was signed by all the member States of the South Asian Association for
Regional Cooperation (SAARC) during the twelfth 'SAARC Summit' held in Islamabad on 46th January, 2004. As a result, SAFTA came into force from 1st January, 2006.SAARC was
recognized in Dhaka on December 7-8, 1985 with the intentions of:- promoting the profit of
people of South Asia; hastening economic growth and social progress; promoting active

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collaboration in the economic, social, cultural, technical and scientific fields; increasing
cooperation in international forums on matters of common interest; and cooperating with
international and regional organizations with similar goals and principles.
Its members include Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
The objectives of SAFTA are to endorse and augment mutual trade and economic cooperation
among the 'Contracting States' by inter-alia: Eradicating barriers to trade in, and assisting the cross-border progress of goods between the
territories of the Contracting States;
Encouraging conditions of fair competition in the free trade area, and ensuring equitable
benefits to all Contracting States, taking into account their respective levels and pattern of
economic development;
Creating successful methods for the execution and application of this Agreement, for its joint
administration and for the resolution of disputes; and
Creating a framework for additional regional cooperation to develop and enhance the
common benefits of this Agreement.
India-Mercosur Preferential Trade Agreement (PTA)
A Framework Agreement was signed between India and MERCOSUR on 17th June 2003.
The aim of this Framework Agreement is to generate conditions and methods for negotiations
in the first stage, by granting reciprocal tariff inclinations and in the second stage, to negotiate
a free trade area between the two parties in conventionality with the rules of the World Trade
Organization. As a follow up to the Framework Agreement, a Preferential Trade Agreement
(PTA) was signed in New Delhi on January 25, 2004.
The aim of this Preferential Trade Agreement is to enlarge and reinforce the existing relations
between MERCOSUR and India and endorse the extension of trade by granting reciprocal
fixed tariff preferences with the ultimate objective of creating a free trade area between the
parties. MERCOSUR is a trading bloc in Latin America formed in 1991 and comprising
Brazil, Argentina, Uruguay and Paraguay. It was formed with the objective of making
possible the free movement of goods, services, capital and people among the four member
countries.
Question 5- What is global sourcing? What makes India so attractive for global
sourcing?
Answer 5- Global sourcing is described 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. Usually, efficiencies that prompt firms for global sourcing are low cost skilled labor,
low cost raw material, proximity to key markets, time zone differences and other economic
factors such as tax exemption and low trade tariffs. Common examples of globally sourced
products or services include: labor-intensive manufactured products produced using low-cost
Chinese labor, call centers staffed with low-cost English speaking workers in the Philippines
and India, and IT work performed by low-cost programmers in India and Eastern Europe.
While these examples are examples of Low-cost country sourcing, global sourcing is not
limited to low-cost countries. Majority of companies today strive to harness the potential of
global sourcing in reducing cost. Hence, it is commonly found that global sourcing initiatives
and programs form an integral part of the strategic sourcing plan and procurement strategy of
many multinational companies. 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

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common items and materials, processes, designs, technologies, and suppliers across
worldwide purchasing, engineering, and operating locations. (Source: Wikipedia) Indian
industries have successfully levered global sourcing strategies in their global trade operations
and sourcing has been the driving force behind the development and expansion of Indian
foreign trade in the recent past. 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. Indian Industries, in order to reap
the benefits of sourcing opportunities, has opened global offices and subsidiaries to tap
opportunities on all fronts, i.e., manufacturing, trading, skilled services and call centers. Due
to different factor endowments of countries, the costs of labor and materials may differ, For
example, labor cost is far lower in developing countries like India than in North America and
Europe. For companies that have labor-intensive work, this difference in costing results into
significant savings in terms of salaries, Wages, post retirement benefits, fringe benefits and
other benefits. India is emerging as a global hub in gems and jeweler, oil refining,
engineering equipments, textiles, sports goods, auto components, etc.
India, with its demographic dividends has been benefitted From all such
developments as the level of skill and knowledge held by Indian professional allows
them to provide high quality services to their Clients in developed countries. For
example, India has been successful in Software development, BPO services, and KPO
services and in the recent past in areas like, Engineering Process Outsourcing, Analysis
Process Outsourcing, content development, and website designing.
Global sourcing has both benefits and risks for the Indian industry. Global Sourcing has
helped Indian companies in the generation of additional Revenue and profits, precious
foreign exchange, scalable business Operations and employment. There are spillover effects
of outsourcing to India and its economy has grown additionally by emerging as lower cost
Suppliers of merchandise and services. Brand India is widely recognized in the silicon
valley and the Indian governments bargaining power has increased due to the dependence of
many countries for Indian services.
Q6- Write short notes on:
Answer 6-Cross cultural management
The ability to demonstrate a series of behavior is called a skill. It is functionally linked to
achieving a performance goal. 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. The managers cannot expect to force
members of other culture to fit into their cultural customs. This is the main assumption of
cross-cultural skills learning. Any organization that tries to enforce its behavioral customs on
unwilling workers from another culture faces conflict. The manager has to possess the skills
linked with the following:
1. Providing inspiration and appraisal systems.
2. Establishing and applying formal structures.
3. Identifying the importance of informal structures.
4. Formulating and applying plans for modification.
5. Identifying and solving disagreements.
Human races came with different background. "Cultural background". The way of doing
things in one culture may not be the way in other culture. What is good in one culture may be
bad in other culture. Some time the activities are all the same in two different cultures, but
two different meanings, two different interpretations. When person from one cultural
background, meet, interact with, understand and deal with person from other cultural

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background. That is cross-cultural management. It is extremely important because of the
ethnic and cultural diversity that exists within our organizations today. In addition, many
companies are global with divisions all over the world. One must understand the cultures
involved for the organization to run as proficiently and efficiently as possible. What works
for one group, may not work for another. One critical objective is to get a culture to mirror
organizational culture so that there is no misalignment, gaps, and disconnects. Everything
must work coordinated, and in harmony for the organization's stability and survivability.
Demographics continually change; therefore, organizations must be flexible and ready to
address that change. To not address that change would put the organization itself at risk of
future failure. Today, organizations must understand that if there is anything that is steadfast
and unchanging, it is change itself. Change is inevitable, it will always occur. How
organizations deal with that change can determine success or failure. Cultural management is
key to success.
WTO
WTO was established on 1st January 1995. In April 1994, the Final Act was signed at a
meeting in Marrakesh, Morocco. The Marrakesh Declaration of 15th April 1994 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). India is one of the founders of WTO. 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. WTO has attempted to
create various organizational attentions for regulation of international trade. WTO created a
qualitative change in International trade. The only international body deals with the rules of
trades between nations.
Objectives and functions: The key objective of WTO is to promote and ensure international
trade in developing countries. 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, 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.
The WTO has about 150 members, accounting for about 95% of world trade. Around 30
others are negotiating membership. The structure of the WTO consists of the Ministerial
Conference, which is the highest authority. This body consists of the representatives from all
WTO members. The members meet once in every two years and decisions on all matters
regarding the multilateral trade agreements are taken. Subsidiary bodies and the General
Council composing of WTO members undertake the daily activities of the WTO. The
members report to the Ministerial Conference. On behalf of the Ministerial Conference, the
General Council administers as the Dispute Settlement Body to handle the dispute settlement
procedures. It also acts as the Trade Policy Review Body that regularly reviews the trade
policies of individual WTO members.