1. Devang Metals Private Ltd.

(DMPL) is a specialty aluminium products manufacturer from

India that produces corrugated aluminium sheets that find commercial transport applications. The
proprietor of RMPL, Devang Patel, is evaluating a global expansion strategy into one of the
following four European Markets, each of which have promised a five-year tax holiday for
manufacturers of non-ferrous1 metals on the condition that they should cater to the domestic
demand in their respective countries.

Bulgaria Romania Slovakia Belarus

R&D Expenses (Median) of firms in
the Non-Ferrous Metal €123,561 €417,544 €101,761 €83,226
Manufacturing Industry in
Revenues (Median) of firms in the
Non-Ferrous Metal Manufacturing €643,176 €1,342,871 €759,038 €549,111
Industry in
Profitability (Median) of firms in
the Non-Ferrous Metal €21,579 €106,398 €34,121 €17,838
Manufacturing Industry in

From the data given above, and assuming all other things to be equal, which country should
DMPL consider entering if they wish to create value by achieving a higher willingness to pay for
their products?

A. Belarus
B. Bulgaria
C. Romania
D. Slovakia

Answer 1: Since DMPL is considering achieving a higher willingness to pay by catering to the
domestic demand in each of these countries, we have to look at the R&D intensity (R&D / Sales)
values in each of the target markets. The values are: Bulgaria (0.19), Romania (0.31), Slovakia
(0.13) and Belarus (0.15). The value is high for Romania, which indicates a possibility of
generating higher WTP through differentiation in that market.

2. Which of the following examples stated below does not support Theodore Levitt’s view of
globalization of markets?

A. New Hollywood releases premièring in the same week around the world
B. The organized smuggling of premium perfumes and their sale in third world markets
C. KFC outlets in Shanghai serving dumplings and soup in addition to their standard
US-menu
D. The emergence of global brands such as Samsung, Lenovo and Haier from Asia

1
Non-ferrous metals refer to those metals that do not contain Iron (Ferrum).

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Answer 2: New Hollywood releases premiering in the same week indicates convergence of
customer preferences for watching a movie at the same point of time. The organized smuggling
of perfumes to third world countries mean that the customers there (illegally or legally) want the
same attractions as that of their developed world counterparts. The emergence of global brands
such as Samsung, Lenovo and Haier indicate the convergence of preferences for consumer
electronics and white goods. Only the KFC option indicates adaptation (serving of dumplings
and soup over and above the standard US-menu).

3. US-based Innogen Pharma Inc., a global player in haematopoietic2 biopharmaceuticals,

acquired Spain-based Lazarus Biosciences for an undisclosed sum of money in an all-cash deal.
This acquisition was completed in 2019 with a view to get a foothold into the cut-throat global
market for thrombolytic biopharmaceuticals. Innogen began the work of identifying a suitable
target in 2017 when their rival entered Spain through a wholly-owned subsidiary. Innogen
enlisted Verispire Consulting LLC to assist them in the acquisition process. As a member of
Verispire’s research team, Lokesh has listed down the following as potential cost factors that
would influence Innogen’s ability to create value in global markets.

i. The premium paid to acquire Lazarus Biosciences

ii. The costs of integrating Lazarus’ Spanish operations with Innogen’s US
operations

Based on the description provided above, which cost element is definitely missing from Lokesh’s
list?

A. The cultural adaptation costs of adapting thrombolytic products to various markets

B. The timing of Innogen’s acquisition of Lazarus Biosciences
C. The opportunity cost of unused production capacity in Innogen’s manufacturing
facility in US
D. R&D cost synergies resulting for Innogen from the Lazarus acquisition

Answer 3: Lokesh has already factored in the premium paid for acquisition and the cost of
integration into the analysis. The description mentions that the market for thrombolytic
biopharmaceuticals is global. Thus, the product does not entail any cultural adaptation costs. The
description also mentions that haematopoietic and thrombolytic biopharmaceuticals are produced
in different manufacturing facilities and have different approaches to R&D. That would mean
there are no cost synergies in aggregating these operations across borders as they do not share
resources or activities. ‘B’ is the correct answer because Innogen has made the entry two years
after their rival entered Spain in 2017. Given that the competition in the industry is cut-throat, the
delay of two years will manifest as cost disadvantage.

4. To escape stringent regulations imposed on the sale of tobacco products by the Department of
Health and Family Welfare (Government of India), Dharamchand Ltd., India’s market leader in

2
Haematopoietic biopharmaceuticals stimulate stem cell colony formation. Thrombolytic biopharmaceuticals are
tissue plasminogen activators. Both are usually produced in different manufacturing facilities and require different
approaches to R&D.

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Tobacco products, entered Cambodia in 2004. Smoking in Cambodia was highly common, with
an estimated market size of 18 million spread across men and women smokers. Image-conscious
Cambodians also exhibited a peculiar habit of buying mouth freshening confectionery along with
cigarettes. In the first ten years of its operations, Dharamchand made extensive investments in
Cambodia to build distribution channels that connected the company to stores in remote
locations of the country. In 2015, the company extended its famed ‘HELO’ brand of
confectionery items to Cambodia. By 2018, Dharamchand held 50% of the confectionery market
there and became the most profitable overseas operation for Dharamchand Ltd.

Mukesh Kumar, a PGP student at IIM Trichy applied the ADDING Value scorecard to explain
the success of Dharamchand’s confectionery business in Cambodia. He noted down the
following reasons corresponding to the ADDING Volumes section:

i. Dharamchand benefited by expanding to Cambodia via Economies of Scale advantages

ii. Dharamchand benefited by expanding to Cambodia via Economies of Scope advantages
iii. Dharamchand benefited from hedging domestic regulatory risks by entering a market
with no regulation and growth potential

Which of Mukesh’s reasons is/are definitely wrong?

A. iii
B. ii
C. i
D. All options are wrong

Answer 4: Mukesh is filling up the ‘ADDING Volumes’ section of the scorecard. Option III
talks about normalizing regulatory risks, which has got nothing to do with scale/scope of cross-
border operations. Option I talks about cost reductions stemming from accessing a volume of 18
million smokers. Option II talks about cost reductions accruing to the confectionery business by
sharing channels of distribution with the cigarettes business.

5. Industry A is a sub-segment within the food additives industry which sells its products
primarily to B2B customers. Which among the following statements present conclusive evidence
that industry A is semi-global?

A. The demand for the Industry A’s products varies from one country to another
B. The products made by Industry A require significant adaptation to each of its target
markets
C. A key input to the product sold by the Industry A is manufactured by a single global
seller
D. Industry A is fragmented with none of the players holding more than 5% of the share
of the market

Answer 5: Demand variation from one country to another is a function of the size of the market,
its maturity and prevailing macroeconomic conditions. This does not indicate the degree of
globalization. A single global supplier accounting for production of key input indicates that the
supplier industry is global. It does not mean the downstream industry has to be global.

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Fragmentation is an indication of market share and not globalization. The correct answer is B as
products requiring significant adaptation is an indication of semi-globalization. This option
confirms that CAGE distance matters between countries, thereby making the industry semi-
global.

6. The table below provides information about the cement industry in India and some select
South Asian Markets. All other things being equal, which global market should Nagraj cement, a
specialty cement maker from India, target in its attempts to go global?

Parameters India Sri Lanka Nepal Thailand

Projected Growth of
5% 15% 15% 12.5%
Industry Profitability in
Four firm concentration
0.65 0.54 0.14 0.38
Ratio in

A. Sri Lanka
B. Nepal
C. Thailand
D. None of the above

Answer 6: The question mentions “all other things being equal”. So, we should assume that the
market size is the same across all consideration markets. When going global to improve industry
attractiveness, it is preferable to target a market which has a higher growth rate and low rival
concentration ratio. By that logic, Nepal qualifies as a suitable market from among the options
provided.

7. Boeing has continually protested over launch aid in the form of credits to Airbus, while Airbus
has argued that Boeing receives illegal subsidies through military and research contracts and tax
breaks.

The following excerpt [edited] appeared in ‘The Bloomberg’ on May 28, 2018:

“Airbus SE is ready to tell the World Trade Organization that the threat posed to Boeing Co. by
its most ambitious program ever, the double-decker A380 jetliner, is so marginal that any U.S.-
led sanctions against the European Union over illegal aid should be minimal.

Airbus is on the backfoot after Boeing last week won the latest in a series of disputes over illegal
subsidies for the A380 and A350 spanning more than a decade. The WTO ruled that the
Toulouse, France-based planemaker failed to adequately address what amounts to billions of
dollars in funding from state backers, opening a route for President Donald Trump’s
administration to levy tariffs against EU goods.

The U.S. is expected to begin those proceedings in coming weeks, setting up the next stage of
arguments: how much financial damage Airbus’s subsidized jets have done to Boeing. That
process could take years, Hennessee said.”

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From the above description, which dimension of distance is found to significantly affect value
creation in the global aerospace industry?

A. Economic Distance
B. Administrative Distance
C. Cultural Distance
D. Geographic Distance

Answer 7: Aircraft manufacturers are considered ‘National Champions’ by their respective

countries (See Table 2-3 in Chapter 2 of your textbook). Administrative distance stems from the
desire of governments to protect domestic industries. The billions of dollars of funding received
from the state indicate the importance given by France and US to their respective national
champions.

8. Read the following excerpt [edited] that appeared in the ‘The Hindu’ on April 23, 2019 and
answer the questions below:

“Negotiations between Indian and U.S. negotiators continued until mid-April, but the Trump
administration made it clear that it would make no concessions on its demand that India “zero
out” oil imports from Iran, to which India acceded, sources privy to the talks confirmed.”

“In addition, the U.S. has also stipulated that India’s “escrow account” used for Rupee-Rial trade
cannot be operated after its May 2 deadline. However, there is no change in the exemption given
for India’s investments in Chabahar port of Iran as a trade route to Afghanistan.”

Iran is India's third-largest oil supplier after Iraq and Saudi Arabia, according to Indian
government data. India is currently buying about 700,000 barrels per day from Iran, a critical and
strategic source of supply to meet India's growing demand for energy.

“Indian officials said that eventually, the cost of importing Iranian oil would be much higher than
other sources of oil that it would be unviable. From a purely commercial perspective, India will
eventually “zero out” its oil intake from Iran.”

From the above description, which dimension of distance significantly impacts the profitability
of Indian refineries sourcing crude oil from Iran?

A. Economic Distance
B. Administrative Distance
C. Geographic Distance
D. Cultural Distance

Answer 8: India has been building the Chabahar port in Iran to gain a foothold at the mouth of
the strategic Straits of Hormuz, through which a third of all the world’s sea-borne oil passes. The
port will also serve as a trade route to land-locked Afghanistan. Once India is forced to stop
buying oil from Iran, it has to rely on Iraq and Saudi Arabia for imports – countries that are
geographically farther from India. This would accentuate the costs of transporting oil hinterland
by trucks and then through oil tankers over sea. Thus, geographic distance here will unilaterally
affect the margins of Indian refineries by increasing the cost of inbound logistics.
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9. India's FDI policy for retail trade has taken numerous twists and turns in the last decade. In
2006, foreign companies were given permission to own 100 per cent of a wholesale cash and
carry business in India. However, to prevent foreign-owned wholesalers from engaging in retail
trade, the government prohibited them from generating more than 25 per cent of their sales from
‘group companies’ (companies that are owned or controlled by the same corporate parent or
individual). Several foreign retailers pursued strategies that relied on apparent loopholes opened
up by unclear language in the regulations. Many of them formed joint ventures with Indian
partners to become back-end wholesale suppliers to their partners' retail businesses. This
effectively enabled the foreign partner to reap economic benefits as if it owned the retail
businesses directly. Unsurprisingly, the Indian government eventually determined that these
structures violated the intentions of the regulations, and many of the foreign partners had to exit
these joint ventures.

Which aspect of administrative institutions in India, as mentioned in the description above, led to
the pulling out of foreign players from Indian retail trade?

A. Government Effectiveness
B. Voice and Accountability
C. Rule of Law
D. Control of Corruption

Answer 9: ‘Voice and Accountability’ deals with democracy, freedom of expression and free
media. ‘Rule of Law’ deals with confidence in the legal system, quality of contract enforcement,
and the likelihood of crime and violence. ‘Control of Corruption’ measures to what extent public
power is utilized for private gain. Only ‘Government Effectiveness’ deals with quality of policy
formation and implementation and commitment to such policies. In this case, India has
demonstrated better effectiveness by amending the FDI rules to plug existing loopholes.

10. The article on Diaspora Marketing makes the following observation about Dabur’s
international success:

“In the 1980s, Dabur consciously started exporting products to the Indian diaspora in the United
Arab Emirates – a promising gambit because there are more than 5 million Indians in the Gulf
region. The company soon realized that the personal care products appealed to Arab Women too.
This was due to the use of Bollywood stars in Dabur’s campaign – who were popular among the
Arab women.”

From the description given above, which option given below accurately explains the success of
Dabur’s personal care products among the Arab Women?

A. Positive country-of-origin effects

B. Common socio-economic profile with Diaspora (“Homophily”)
C. Superior product performance
D. Compelling value

Answer 10: The description above clearly talks about the popularity stemming from
endorsement by Bollywood stars. Options ‘C’ and ‘D’ are ruled out as there is no indication

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about the product features or performance in the description. The fact that Indian women share a
common socio-economic profile with the Arab women is not leading to product diffusion. It is
the positive country of origin effect generated by Bollywood that explains the success.

**End of Paper**

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