MAY-2003 TOTAL MARKS-100

(3 HOURS)

N.B.:1. Question No. 1(case) is compulsory. There are two cases in Question No. 1.
Attempt any one case.

2. Attempt any four questions out of following.

3. All questions carry equal marks (20 marks for each question).

1.

MARKET IS UP FOR GRABS

Indonesian market is thriving. Global giants are finding a rich market and are calling is a
costumer heaven. This may not seem like an ideal market for consumer goods, for a
country whose currency has deprecated by 76% in the last six years and per capita
income is just $ 760 per annum. To reach its population you have to transverse 5000 kms.
across thousands of islands. But why are large multinationals like Unilever, Danone and
H.J.Heinz spending close to $ 1 billion in the last five years to market sauce to toilet bowl
cleaners? The reasons are not far so seek, despite political turmoil, poverty, religious
strife, people still consume. The number of households using branded FMCG products is
increasing.

The country with 220 Million people is the fourth largest in the world. Other factors are
making it attractive, too. The drop in the value of Rupiah means it is cheaper to buy such
as 49% limit on foreign share holding in Indonesian companies and a ban on foreign
investment in the distributed business. Indonesian is becoming attractive as an export
base as new trade agreement with the southeast Asian have lowered tariffs on most
products to 55% or less.

As a result most of Indonesia's leading households brands are in foreign hands these days.
Danone owns the top selling bottled water. Unilever has the leading soy sauce, Bangso
and the best selling tea, Sariwangi. The second biggest maker of cookies and crackers,
Helios Amou's Indonesia is owned by Campbell Soup Co.

These brands are fattening the profits of MNC's. Unilever's earnings are likely to go up
by 24% this year to $109 Million (on sales of 780 Million) doubling the growth in profits.
San Husada, Indonesia's largest infant formula maker bought by Dutch giant Royal
Numico in 1998 will see increase in profits by 15% to 33 Million on sales of 148 Million.
The industry watchers expect profit growth of10-20% this year. Some of these brands
like Aqua will have significant affect on the principal's earnings.

The challenge now is to keep growth on track. Indonesia has been a shaky place to do
business after the fall of Suharto in 1998. Things are getting more difficult now.
Multibillion-dollar investment in infrastructure, mining and petroleum are on hold
because of concerns about terrorism and political instability and that is stifling creating of
new jobs. The labor-intensive factories are shutting shop because of competition from
China, creating labor unemployment. Government is planning to shut subsidies for
gasoline, kerosene and electrical utilities by 40% resulting in higher households bills. The
private consumption growth, which had nearly doubled in 2001, is likely to fall.
According to head of Research firm in Indonesia “Consumers buying power is being
eroded by the Government's fiscal policy”.

Multinationals are preparing for the downturn by implementing strategies to keeps profits
growing even as the demand slows. The distribution is being spread to remote areas
places that lack passable roads and reliable electricity. Unilever has recently signed
started selling bottled Lipton iced tea from motorcycle saddlebags in villages, where the
lanes are too narrow for cars. Such non-traditional selling accounts for 72% of its sales.
Aggressive advertising and sales promotion, campaigns are being implemented to keep
the sales growing.

With labor costs 25-50% lower than in other S. E. Asian nations, plus the reduced tariffs
Indonesia is becoming an export base for multinationals. Last year Unilever transferred
Lipton tea production from Australia to Jakarta, which now supplies to rest of S. E. Asia.
Heinz exports ketchup from its Jakarta plant. Campbell is setting up sales and distribution
networks in Philippines and Indonesia for cookies and crackers made in Indonesia.

Judging from the investment plans of Unilever, Coke and other MNC's they are keen on
expanding their sales in Indonesia. They see lot of opportunities. There are news of other
acquisitions deals like the one for buying stake in Uluajaya Milk, which has a 62%
market share of the long life sterilized milk market in a country where ownership of
refrigerators in not very high. So is the market up for grabs?

Questions:

1. Do a SWOT of Indonesia as a destination for International Business.

2. If an Indian FMCG company wishes to enter Indonesia Business, what are the
strategic options open to the company, which option will you select and why?

Note* indicate question were not visible in Xerox.

OR

ABC Company has received an export order for intermediate shipment to USA worth US
$ 2,10,000. FOB Mumbai payable after one year (one year credit). The present exchange
rate is 1 US $= Rs.50. It is expected that rupee will be weaker after 1 year and the
exchange rate after one year could be as follows

1$ = Rs.50 with a probability of 0.5

1$ = Rs.55 with a probability of 0.3

1$ = Rs.60 with a probability of 0.2

The export proceeds also can be forward booked at the rate of Rs.55 to a US$ and the
total commission for forward booking would be Rs1 Lakh.

The ABC Company can obtain a foreign Loan from USA and pay the entire loan
alongwith Interest after one-year 3r with the expert proceeds of US$ 2,10,000 and the
loan could be invested for one year in Indian currency at Interest rate of 10% per annum
(Net of tax). The interest rate in USA is 5 percent per annum.

Alternately the company could execute the same ordered quantity by selling to a SEZ in
India, which will fetch an amount of Rs.114 Lakhs after one year (Net of tax).

The company can also consider the option of selling to a domestic customer the entire
contract quantity at a price of Rs, 120 Lakhs to be received after one year. The profit
margin would be about 25% and the profit would be subjected to a tax of 30%.

[P.S, The tax implication in the case is only on sale to Domestic area]

Evaluate the following five options and advise ABC.

Should the ABC Company

a. Execute the order and garner proceeds after one year.

b. Do forward booking.
c. Execute the contract. Take foreign currency loan convert it at spot rate and realize
higher proceeds by investing locally in India,
d. Sell to SEZ
e. Sell to Domestic customer.

Support your evaluation with justification of importance of International Business.

2. Define International Business. State basic objectives of International Business and its
merits and demerits. How is International Business different from Domestic Business?

3. Define Country Risk. Explain the framework of analysis of studying a country for the
purpose of international Business and evaluation of Country Risk.

4. State Basic Principles of WTO. What arc the key subject areas of WTO? Explain the
general impact of WTO provisions on India and specific impact on pharmaceutical
industry. Briefly state the positive and negative points of the Fourth Ministerial level
Meeting held at Doha during November 2001.

5. Write Notes on any two of the following:

a) NAFTA

b) ASEAN and APEC

c) European Union

6. Describe in detail preferably with illustration any two International trade theories.

7. How Multinational Enterprises can be classified. State features of MNE's. Explain

briefly International Subsidiary strategy.

8. Discuss the importance of FDI in enhancing the Globalization, process of India.

Highlight advantages and disadvantages of FDI.

9. Write short notes on any four of the following:

a) Political Risk

b) Futures and Options.

c) International Purchasing Parity

d) Entry Barriers in International Trade.

e) International Product Life cycle

f) Counter Trade.