international business(rev)

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Biyani's Think TankConcept based notes

International BusinessBBA

Mr ManishDeptt. of Commerece and Management

Biyani Girls College, Jaipur


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International Business 7

Published by :

Think TanksBiyani Group of Colleges

Concept & Copyright :

Biyani Shikshan SamitiSector-3, Vidhyadhar Nagar,

Jaipur-302 023 (Rajasthan)

Ph : 0141-2338371, 2338591-95 Fax : 0141-2338007

E-mail : [email protected] :www.gurukpo.com; www.biyanicolleges.org

Edition : 2012

Leaser Type Setted by :Biyani College Printing Department

While every effort is taken to avoid errors or omissions in this Publication, any mistake oromission that may have crept in is not intentional. It may be taken note of that neither thepublisher nor the author will be responsible for any damage or loss of any kind arising to

anyone in any manner on account of such errors and omissions.


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Preface

I am glad to present this book, especially designed to serve the needs of thestudents. The book has been written keeping in mind the general weakness inunderstanding the fundamental concepts of the topics. The book is self-explanatory andadopts the Teach Yourself style. It is based on question -answer pattern. The languageof book is quite easy and understandable based on scientific approach.

Any further improvement in the contents of the book by making corrections,omission and inclusion is keen to be achieved based on suggestions from the readers

for which the author shall be obliged.I acknowledge special thanks to Mr. Rajeev Biyani, Chairman& Dr. Sanjay Biyani,

Director (Acad.) Biyani Group of Colleges, who are the backbones and main conceptprovider and also have been constant source of motivation throughout this endeavour.They played an active role in coordinating the various stages of this endeavour andspearheaded the publishing work.

I look forward to receiving valuable suggestions from professors of variouseducational institutions, other faculty members and students for improvement of thequality of the book. The reader may feel free to send in their comments and suggestionsto the under mentioned address.

Author


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International Business


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Unit I

Introduction

After studying this unit you will be able to know-

a. What is International Businessb. The significance and scope of International Businessc. Difference between Domestic and International Businessd. Various forces for International Business

Q.1 What is International Business?Ans International business is that trading which opens a cross border transactions

between two countries. No matters these countries are developed, developing orunderdeveloped. These all transactions take place with the collaboration ofhighly skilled labour, capital, technology, transportation etc. In the other wordsit is an activity which increases foreign investment.

Q.2 What is the importance of I.B.?

Ans In the era of globalization, every country tries to expand its internationalbusiness. For this purpose every country must be efficient majorly in two factorsi.e. finance and production. We all know that International Business is abackbone for any developing, developed or underdeveloped country. The reasonbehind it is the importance of International Business.Now we move ahead with some of the focal points which discuss its importancein the modern world:-1. Cross border trading:- International Business is a transaction between two

countries. One country is will be called exporting country and other countryis named as importing country.2. Includes exchange of goods and services: -International Business involves

various transactions worldwide on the basis of goods and services. These all


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transactions take place for the purpose to improve economic condition or toearn money.

3. Two major activities:-International Business Involves two specific activitiessuch as; Export/Import by the countries and Foreign Direct Investment byany organization.

4. Decreases Monopoly:- International Business gives an option to internationalbusiness entity to explore domestic market. This option is quite helpful whenwe concern about monopoly by domestic organizations. Internationalbusiness entity will always enter in the domestic market with cheap pricesand elite quality.

5. Develop economy:- International Business develops the economic conditionsof targeting nations. Most of the underdeveloped and developing countries

are being developed by international organizations.6. Increase standard of living:- When an economy develops, it also develops

the per capita income and if the earning capacity of natives increase, theystart spending or investing money. Ultimately a positive relationship emergesbetween International Business and standard of living.

7. Utilization of resources of domestic market:- Resources show highimportance in any business. Most of the countries have various resources butthey do not have such technology, skill or manpower to explore it.International Business opens an option to explore those resources for thebetterment of trade.

8. Earning FOREX:- It means earning foreign exchange with the help ofInternational trading of goods or services. It is a positive aspect for thedevelopment of economic status.

9. Expansion of business:- International Business provides a door to expanddomestic organizations business worldwide. This business expansion createsopportunities in the field of investments, jobs, technology etc.

10.High quality products:- It is a common fact that every internationalorganization will try to eradicate business roots of domestic organizations.This can be happen with high quality products having low prices.

Q.3 What is the scope of International BusinessAns Going global is the Mantra of todays economy. In the game of globalization,

Multinational Enterprises are those actors who perform their task with full oftheir efficiency. Most of the Multinational Enterprises perform different activities


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and operations in other nations. These activities are generally assorted in twocategories:-

i. Exports and importsii. Foreign Direct Investments

(i) Exports and imports:- The meaning of export inferred from the termshipment of goods and services out of the nation. This transaction must belegitimate and fulfill all the requirements of different laws. In the other wordsit is a task to provide goods and services to foreign customers/consumers bythe domestic manufacturers/traders.On the other hand import is an activity where a domestic buyer gets goodsfrom the seller who is not trading in that domestic economy. In this activityinternational products and services are availed by the domestic users.

To reduce the fall off in any economy, both export and import must bebalanced. These two are major driving forces of any economy. Countries likeChina reached at its high economic conditions just because of its exports indifferent nations. This all could take place due to International Business.

(ii)Foreign Direct Investment:- In the very general sense Foreign DirectInvestment is an act to do investments in other countries by anyMultinational Enterprise. There can be various ways to do this investmentsuch as- investments in the process of productions, acquiring an organizationin target nation, by acquiring shares etc.

Foreign Direct Investment is a major tool for any nation to inflowinternational capital. It also enhances technical advancements and jobopportunities in different streams.

Foreign Direct Investment can be further classified in two types:-

a. Inward foreign direct investment- It is an investment where MultinationalEnterprises invest foreign capital in different local resources.

b. Outward foreign direct investment- It is a protective mode by thegovernment where government protects investors from all associated risks.

Q.4 What are the major differences between Domestic Business and InternationalBusiness?

Ans Before differentiate these both terms we should be aware with their meanings.We just studied what International Business is. Now we move towards theDomestic Business. Domestic Business is a business where all business activities


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take place within the country. These activities include manufacturing, processingand transferring products/services to customers.

Major differences between Domestic Business and International Business areas follows:-

Bases DomesticBusiness

InternationalBusiness

1. Culture It deals only in a singleculture as it has limitedregions.

There are no boundariesfor it. The entire world isopen for trade.

2. JurisdictionSystem

It follows singlejurisdiction system of

country.

It has to follow variousinternational laws.

3. TechnologySharing

It does not allow vastsharing of technology.

It always welcomestechnology sharing indifferent domains.

4. Entry inMarket

Entry in a domesticmarket is always easyfor any enterprise.

There is a complexprocedure to workglobally.

5. Focus It focuses on domesticconsumers needs.

It has a strategic focus oninternational markets.

6. MarketingEnvironment

There is a stability orbit fluctuations inmarketingenvironment.

It deals with pure flexiblemarket without anystability.

7. FinancialEnvironment

It refers uniformity infinancial climate.

It is full with deviatedfinancial climate.

8. PoliticalEnvironment

It is not muchinfluenced by politicalenvironment.

Political environmentplays a crucial role in it.

9. FOREX This concept does notfollow in it.

It always increases

foreign exchange.10. Credit Risks There are least credit

risks due to smallregion.

Credit risks are alwayshigher in it.


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2. Define various driving forces to International BusinessThere are different driving forces which impacts directly or indirectly oninternational business. These forces includes:-

a. Liberalization: This term is heavily used by different governments.GATT/WTO, Foreign Direct Investments are the major tools in it.Liberalization allows Multinational Enterprises to work freely. Governmentprotects them from credit risks. They are also free to enter in any businessmarket. Liberalization is fostering the global market since 1980s and now ithas become a universal concept for every economic country.

b. Technology: For globalization, technology plays a vital role. This role isplayed by optimizing various technical resources, by considering transfers oftechnology, by increasing competition etc. there is a drastic change in

International Business after technological advancements. Even somecountries have their monopoly in different segment only with the positivesupport of technology.

c. Economic trends of the world: It is also a fostering force for InternationalBusiness. Developing economies are threat for every nation. Underdevelopednations have to depend only on imports. Developed nations believe inexports. In fact every economy tries to develop their economic status and thisincreases the chances of International Trade.

d. Consumer needs: Consumer is the king of present global market. They arementally, financially and psychologically eminent to take any buying decision

on any product or service. This trend of them opens different options ofInternational Business. Variety of products and services are demanded byconsumers and seller is supposed to satisfy their desires. Ultimately thisdevelops an opportunity for International Business.

e. Revolution in transportation system: before some decades it was anightmare to export goods safely to the other country. Now the accelerationof technological up gradation increases it smoothly. Cargo transportation isthe fastest way to export products. Besides that shipment is also used for safeand bulk transportation.

f. Product development cost: It is a cost which is included to develop aproduct. Every organization tries to reduce its cost in high extent. Any newproduct will always need a high cost to invest but that high cost can berecovered with opening a new market in another economy.


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g. Communication improvements: Communication was the biggest obstaclebefore some decades. International Business was not running smoothly dueto lack of communication medium. But now steeply improvements takingplace in making International Business. E-mail, fax teleconferencing are themajor tools and techniques in it.

h. MNCs:Multinational Corporations are one of the most powerful forces forglobalization. The whole economy of a nation can be fixed by MNCs. Theseare those organizations which connects all of its resources, skills, technology,objectives with the conjunctions of world market and it directly increases thechances of revenue generation.

Q.5 What are major restraining forces to International Business?

Ans There are also some forces that restrain International Business/Globalization.These all forces restrain MNCs to Go Global. Restraining forces can be furtherdivided into two categories:-i. External Factorsj. Internal FactorsExternal Factors include:-

i. Policies of the Governmentii. Political opposition

iii. Social oppositioniv. Government controlv. Economic environment

Internal Factors include:-

i. Management myopiaii. Organizational culture

iii. Internal code of conductiv. Work forcev. Product cost


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MCQs

1. International business includes a type of business activity that cross:-a. National Bordersb. State Bordersc. Regional Bordersd. Local Borders2. What is the biggest threat to companys Domestic Market?a.

Low Productivity by domestic firmb. Government Policy

c. Better Products by Global firms with cheap ratesd. International Market instability3. LPG stands for:-a. Liberal Political Governanceb. Least Protective Globalizationc. Liberal Policy of Governmentd. Liberalization, Privatization, Globalization4. Which is not a driving force to International Business?a. Regional Economic Agreementsb. Leveragec. Huge foreign indebtednessd. Market needs and wants5. Who developed the concept of International Business as a field of management

training?a. Bennettb. Rughman and Hodgettsc. Rebock and Simmondsd. Philip Kotler6. In the EPRG framework, what G stands for:-a. Governance


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b. Geometricc. Geocentrismd. Globalization7. Which is a restricting forces to International Business:-a. National Controlb. Competitionc. Product Development Costsd. World Economic Integration


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Unit II

Cultural Environment

After studying this unit you will be able to know-a. What is culture and its impact on International Business.b. Elements of culture

Q.1 What is culture? What are its characteristics in International Business?

Ans Although there are many definitions on culture but according to my concept it isa psychology of a human being. The psychology to select the group, thepsychology of ways of living, the psychology to transform or to be transformedetc.In the other words, it is a set of knowledge, values, beliefs that determines apersonality of a person and allows him to transfer all those aspects in his furthergeneration.Characteristics of Culture for International Business:-

a. Continuous or Dynamic Process:It is a dynamic process because it is directlyrelated to human lives. Non human beings do not have their culture.

b. Assist to know market:Culture helps to know market. Who are consumers,who are competitors, product related concepts etc. This always gives a strong

back to marketer.c. Broad scope: Culture is always having broad scope. It includes whole

community at a large. It is not an individualistic approach. That is why it isuseful to judge market and its culture.

d. Effective in International Business:The cultural responsive environment ofany organization impacts a lot on its growth. If organization culture is notsuitable in the economy then there wont be much scope for doingInternational Business.

e. Cultural element should be evaluated: Any organizations marketingstrategies are based on some focal points such as; workforce, technology,

objectives, organization culture etc. Out of that cultural elements should beevaluated time by time so that other forces could work properly.

f. Basis of success:If any organization is going global then it is required for it tofind the fundamental differences between global economies. Products which


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are highly demanded in United States can easily be rejected by China due tocultural perspective.

g. To judge satisfaction level:For long term staying in International market, afirm will have to satisfy its end users with consumption, living styles, needetc. this can happen only when a firm pursue whole cultural knowledge of atarget nation.

h. Includes religion: culture also includes religion and it gives a positiveapproach to marketers. Marketers always follow religious standards ortargeting nation and it increases their goodwill. For example McDonald doesnot sell its food with beef in India.

i. Different in all countries:every country has its own culture and sub culture.It is favorably depends on the marketer to whom he is targeting. Then he will

have to adopt all cultural aspect of that nation.j. Cultural lag:This concept defines those different parts of modern culture that

never change at the same rate. Any change in a one part always needs anadjustment in another part.

Q.2 Discuss various elements of culture.

Ans There are different elements available that affects culture. Although culture isvery wide term with complexities yet its elements are useful for everyorganization. Culture encompasses following elements:-1. Social institutions-It includes all those institutions from where we learn, we

adopt and we change our whole personality. These include family, mediaeffect, political structure, education. Every human being is taught by theseinstitutions.

2. Material culture- It includes:-a. Technology- It is an aspect for the people by the people. The technical

knowhow relates to the advancements of products.b. Economics- For the purpose of benefits people add their skills and talent

towards work. These all activities comprise production of goods andservices, distribution of it by various channels, consumption by the enduser, income and means of exchange.

c.

Man and the Universe- This element is based on religious belief of anindividual. As we know religion plays a crucial role in determining moralvalues and ethical values. There is always a positive relationship betweenhuman consumption habits and their attitudes towards goods and services.


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d. Aesthetics- This feeling of aesthetics creates positive attitude in humanbeings. This notion is always suitable for every international marketer. Hewill have to be sensitive to the aesthetics of community. This will help himto take all decisions related with product, its distribution etc.

e. Language- To communicate with any person, we need a language tosupport. The dealings like bargaining, negotiating are the key elements inInternational Business. Language can also be a hurdle in InternationalBusiness, if it is not managed properly.

Case study

Ban on leather goods from India

Indian leather export, an important foreign exchange earner, has been reportedlyhit hard by the decision of some major US retail chains like Eddie Bauer, L.LBean, Timberland and Casual Corner and a German company Bader to boycottleather goods from India in protest against the ill-treatment of animals here. Aban by US based animal rights group People for Ethical Treatment of Animals(PETA) also developed a negative impact on trading. Following this many of theIndian leather industries started outsourcing leather from other countries to

manufacture products.Q.1 Do social activity groups impact negatively on International trading?Q2. How can government of India help Indian organizations to overcome

from this problem?


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MCQs

1. How many social institutions are available to influence values and behavior?a. 5b. 7c. 4d. 22. Ethnocentrism is:-a. Judging another culture by values of own cultureb. To develop a new culturec. To add values in own cultured. To follow culture as it is described3. Consumer preferences, habits and beliefs are the part of:-a. Religionb. Culturec. Organizationd. Market4. Etiquette does not include:-a. The way of meeting and greeting peopleb. Table mannersc. Discomfort while listening to othersd. Method of showing respect5. Which is not the component of culture?a. Aestheticsb. Social institutionsc. Man and the Universed. Competition6. Chinese culture is based on:-a. Informal relationshipsb. Direct and confrontationalc. More intuitive


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d. Independent and individualistic7. The _____________ consists of the factors that affect consumer purchasing power and

spending patterns.a. Economic environmentb. Cultural environmentc. Consumer environmentd. Demographic environment8. Which of the following is not the part of the microenvironment-a. Customer marketsb. Suppliersc. Cultural forcesd. Marketing channel firms.9. Which of the following factor does not affect the economic environment for

organization.a. Value added taxb. Donations to charitiesc. Exchange ratesd. Inflation10. Which of the following statements regarding environmental factors is incorrect?

a. Increasing global population growth.. Decreased pollution.

c. There are shortages of raw materials.d. Increasing ecological awareness.


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Unit III

The Global Economic Environment

After studying this unit you will be able to know-a. Meaning of global economy.b. Various systems of global economy.

c. Different economic policy.

Q.1 What do you mean by Global Economy?Ans In the era of globalization, it is required to know what Global Economy is. It is

and economic integration of world for the development of InternationalBusiness. Free trade agreements, transnationality of workforce, goods andservices etc. are some of the examples of it. Every country needs to expand theireconomic condition and this can be happened with expansion of domesticbusiness. In short, Global Economy is a way of development of economictransactions with the transfer of good, services etc.

Q.2 Discuss various economic systems.

Ans To think about the international transactions, every marketer tries to judge theeconomic system of the target nations. Economic system defines the structure ofeconomy whether economy is private owned, government owned or acombination of both.

Economic systems are of there types:-

a. Market allocation:-This system is called capitalism. In this system the wholeeconomic plan is decided by the consumers. It increases business competition.This system allows freedom of choice for both consumers and companies.

This system emphasis the philosophy of individualism believing in privateownership of all agents of production, in private sharing of distributionprocesses that determine the functional rewards of each participants and inthe individual expression of consumer choice, through a free market place.Example:South Africa, Australia.


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b. Command allocation:-This system strongly explains the power of state forpublic interest. The government decides all production decisions. In thissystem consumer is not the king of market. Although they are free to spendtheir amount to buy any product or to avail any services.Example:China, Cuba, North Korea.

c. Mixed economy:-As its name suggests, it is a combination of both economicsystem. Every economic activity is performed jointly by state and privateownership. In this system consumers get benefits from producers because thecontrol of state will never allow monopoly. It results in a healthy competitionthat creates favourable effects on consumer buying.Example:India, Japan, Mexico.

Q.3 Discuss various economic policies.

Ans There are different policies which plays an important role in InternationalBusiness. Major economic policies are-a. Industrial policy:This policy discusses scope and role of various sectors such

as private, joint, public, co-operative, large, medium, small, tiny. This scopeenhanced in India after liberalization. Government decided several policiesthat increased competition, tending to make survival of the fittest. Economicdevelopment in the past decade is the result of industrial policy.

b. Trade policy: There can be various policies for international trade. Thesepolicies are developed for the purpose to protect domestic industries frominternational market risks. Most of the time these policies are integrated withthe industrial policy. These policies also monitor and control the domesticbusiness. Control and monitoring over quality, cost, marketing, after salesservices are the key portions of these policies.

c. Foreign Exchange Policy:It is also called cross border movement of capital.These policies control FOREX of the country. It is linked with the monetaryand the trade policy of the domestic country. Foreign exchange policy can beconducted unilaterally or as part of a mutual agreement between twocountries.

d.

Fiscal Policy:It is the policy where government influences the economy byusing collection of revenue and expenditure from it. The major elements offiscal policy are Revenue and Expenditure. In fact the system of expendituremay affect the development of any economy. On the other hand at the time of


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industrial crisis, reduce in taxes may help in improvement of the economicconditions.

e. Monetary policy: In this policy, the monetary authority of the countrycontrols the supply of money. It is different from fiscal policy, which is basedon expenditure and revenue. Monetary policy rests on the relationshipbetween the rates of interest in an economy. In short it is based on the conceptof monetary transactions of the country.

CaseSouth East Asian Economic Crisis

There was a big economic crisis in Thailand in mid-1997. Later it spreaded inMalaysia, Philippines and South Korea. Economists found several reasonsbehind it such as-

Persistence of large current account deficit.

Large foreign debt and high proportion of short term debt.

Lack of transparency in the economic system.

Over investment in several sectors.

Imprudent lending by international lenders.

Large real effective exchange rate appreciation.

Because of the appreciation of the Yen against US Dollar, Japanese exports werebecoming costlier and hence Japanese firms were on the lookout for cheapmanufacturing loction. The cheap Thai labour attracted a lot in FDI from Japanand other countries. The high returns on short term investments attracted largeportfolio investments and short term funds to Thailand. It opened lots of fundproviding options to the economy. Indiscriminate lending by banks resulted overexpansion of several industries. This ultimately turned into inability to repayresulted with economic crisis. Al last short term foreign investors began towithdraw their money and the worst economic crisis began in Japan.Q.1. Discuss the possible impact of the South East Asian Economic crisis on-

a. Export/Import of India to South East Asiab. Global trade of South East Asia

Q.2. Discuss whether there is a possibility of South East Asian type crisisoccurring in India.


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MCQs

1. GNP per capita is primarily used as a predictor of peoples-a. Buying motivesb. Buying habitsc. Ability to buyd. Work hours

2. Africas biggest economy is-a. Nigeriab. South Africac. Ethiopiad. Ghana

3. The economic system that relies upon consumers to determine the allocation ofresources is known as a _____________ system.

a. Socialistb. Market allocationc. Capitalistd. Command allocation

4. Global marketers should be aware that the majority of the worlds populationlives in-

a. Lower-middle income countriesb. Highest income countriesc. Low income countriesd. High income countries

5. A global marketer must know how to interpret political factors because theyprovide a good indication of-

a. National controls and/or other trade barriersb. The potential political risk and stability in each countryc. Government policies on trade and product standards and employmentd. All of the above

6. Which is the monetary measure to control inflation


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a. Increase in taxb. Decrease n taxc. Soft credit polityd. Hard credit policy

7. Which factor is not related to economic developmenta. Continuous processb. Long run and continuous increasec. Compulsory change in economic welfared.Increase in real national income

8. Process of economic development means

a. Economic changeb. Social changec. Ethical, institutional and cultural changed. All of the above


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Unit IVPolitical Environment

After studying this unit you will be able to know-a. Meaning of political environment.b. Various political systems.c. National Prestige.

Q.1 Define political environment of International Business and its importance for

International Business.Ans. The political environment includes the concept of political parties within the

nation and its impact on International Business. Most of the policies such asindustrial policy, policy for international trade, fiscal policies etc are developedby political parties. In fact political and economic environment are related witheach others.

Importance of political environment for International Business-

a. It develops a regulatory structure for international trading.b. It controls trade related activities done by MNCs.c.

It decides need and importance of various pressure groups within a nation.d. It restricts trade related transactions with enemy nations for the purpose ofnational security.

e. It monitors legality of international trading.f. It increases economic stability by development of different policies.g. It develops trading options with different countries.

Q.2. Discuss various types of government/political system.

Ans. Government can be classified in two segments-a. Parliamentary or open government- It includes natives of the country in it.

Time by time consultations with the citizens for the purpose of learning, takesplace in this type of government.

b. Absolutist or closed- As the name suggests, it is a closed system whereconsideration of citizens is a dream. Monarchies, aristocracy, democracy,theocracy are the major parts of it.


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Monarchy:- It is the oldest form of government. It is based on heredity. A

single person holds his office by virtue of heredity succession. The personmay be a king, an emperor, a czar etc in this system. The United Kingdom isone of the best example for that. There could be various merits of this systemsuch as stable government, promptness, stable political order etc but it canalso harm political environment by providing no place for self rule,inefficiency, corruption, dishonesty etc.

Aristocracy:- This is described as a rule of selection of few people to controlthe political environment. The selection of people is based on theirskills/talents/status etc. It is considered as a natural form of government. Italso gives importance to the element of quality and provides a stablegovernment but on the other hand, it can be harmful on the basis of wrongassumptions, exclusiveness and conservation.Democracy:- It is a form of state, government, society, ethical idea. This is theelected form of ruling in a nation where people decide what is to be done. Inthis system public has a right to express their opinion freely, it is a democraticstructure of the government. But it also brings instability in economysometimes. It is also an expensive form of government ruling.

Theocracy:- In this system only the religious leaders holds all power. All rulesand regulations are developed by those religious leaders. This system wasavailable in Afghanistan and Iran before sometime.

Q.3. What is Political Risk?Ans. Political risk can be determined as an adverse effect of governmental/political

action. When a business organization conduct its business in internationalmarket then there is always a political risk in the ways of threatening the marketof an exporter, production facilities of a manufacturer, tax related problems,profit distribution etc. Political risk directly affects the long term profitability of afirm.

Q.4. How do MNCs reduce its political risk?

Ans. Political risk is a big threat for any business entity. But it is possible for them toreduce this risk by using some methods such as-a. By developing joint venture-This take place in target nation. It is suitable

when there is low financial exposure or company wants to minimize its anti-MNC feelings.


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b. By licensing policy-It takes place when the organization uses uniquetechnology and the risk is high.

c. By using planned domestication-It is a long range solution of political risk.The government decides a planned base domestication and it induce foreigninvestors to invest in the country.

Q.5. Define political sovereignty.Ans. In the very common words, it is an absolute power to coerce and to control

citizens.It is a supreme and independent political authority. Sovereign state is free fromany external control. It is a power to govern territory. Some of the essentialcharacteristics of sovereignty may be-

a. Absolutenessb. Universalityc. Permanenced. Inalienabilitye. Indivisibility

Q.6. Discuss National Prestige/National Interest/Nationalism.Ans Every country has its own national pride/prestige. It is a combination of

cultures, backgrounds, perceptions, experiences, technological know-how,

political stability etc. the feeling of national interest can be manifested in avariety of ways. For example-a cell to buy those products which are developed incountry itself. This feeling can be found in those countries which are prosperousin economic backgrounds. The reason behind it is that, the developing countrieshave to depend on imports from another country.In short, nationalism is a part of political environment. No country will entertainany organizational firm which is perceived a social, cultural or economic threat.That is the reason why the concept of national prestige is appreciated.

Q.7. How does International Business affect the national security?

Ans While dealing with different nations, every country concern about its nationalsecurity. This security is in the term of protection of interest in economictransactions such as export or import, foreign direct investment etc.


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All states protect national security by following ways:-

a. By recognizing their liability to maintain law and order.b. By providing protection to various industries.c. By strengthening economic structure of the country.d. By avoiding foreign trade with suspicious countries.

CaseWal-Mart in India

Wal-Mart is one of the biggest market player in retail segment. Most of thecountries are being benefited with the services of it. They have a strategy of EDLconcept i.e. everyday low prices. It faced a big problem to expand their globalmarket in India. Regulatory problems, political considerations were the majorhurdles in it. Foreign retailers are not welcomed by Indian market so after a longperiod the managed to develop a Joint venture with Bharti Retail.Before some time there was a big yes by the ruling party for foreign directinvestment. A big protest of this ordinance also increased with it. Oppositionparty started agitation against this ordinance and there was no furtherproceedings in it. The major objects by the opposition was

Wal-Mart will destroy Indian Market

There will be a full hold of Wal-Mart on Indian Retail Market.Still picture is not clear by the government. Government opines it a big dealwhich will change the scenario of Indian Retail Market but protest by oppositionand domestic retailers is also legal.Q.1 Should Government allow Wal-Mart in Indian economy?Q.2 What will be the future of domestic retailers of India?


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MCQs

1. Which is the largest country within the EU by size of the population?a. Germanyb. Francec. Polandd. United Kingdom

2. China is an example of ______________.a. Market capitalismb. Market socialismc. Centrally planned socialismd. Centrally planned capitalism

3. The EU is an example of-a. Economic unionb. Free trade areac. Monetary uniond. Common market

4. Among the factors that affect the balance of trade figures are:-a. Exchange rates, taxes, tariffs and trade measuresb. Trade barriers and agreementsc. The business cycle at home or abroadd. All of the above

5. What is not a type of government?a. Monarchyb. Dictatorshipc. Democracyd. Bureaucracy

6. Political sovereignty is-a. Supreme and independent political authorityb. Responsibility of governmentc. Part of culture environmentd. Legal system obtained by the country


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7. How many industries were reserved for the public sector before policy changes in1991?a. 19b. 14c. 17d. 12


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Unit VLegal Environment

After studying this unit you will be able to know-a. Meaning of Legal Environment.b. Different legal systems.c. Dimensions of legal system.d. Intellectual Property Rights.

Q.1. What is legal environment? Define its importance in international Business.Ans Legal environment is a framework of legal system in a country. Rules,

regulations, laws, code of conducts are the major parts of it. A company is notonly bound by the laws of its home country but by the laws of host country too.The different laws must be understood by the marketers if they want to organizea successful business enterprise.

Importance of legal environment

a. It is an instrument of social and economical justice.b. It is a command of the sovereign.c. It is related with international transactions.d. For setting of various international standards.e. It develops status quo in society by ensuring stability.f. In increases uniformity.g. It maintains trust in investors.h. It gives rights of trading.i. It also binds states.j. It deals with critical issues such as nuclear deal, poverty, refugees problem

etc.Q.2. What is legal system? Discuss its different kinds.

Ans. The legal system can be classified into 3 categories-

a. Common law-It is based on tradition, past practices and legal precedentsset by the courts. It is an interpretation through the past decisions ofhigher courts. Only established and customary principles are interpretedin it.


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b. Code law-It is a legacy of Roman law, which defines written rules (codes)of law. The code law is divided into three separate codes i.e. commercial,civil and criminal. It is required for any entrepreneur to understand whichtype of legal system will establish the contract.

c. Theocratic law-The basis of theocratic law is religion. Every communityhas its own code of conducts but these codes are not the part of law. Thebest example for theocratic law is Islamic Law. This law is found inMuslim countries. It is derived from Koran.

Q.3. Define various dimensions of legal environment in International Business.

Ans. There are following 3 dimensions of legal environment in International Business-a. Local Domestic Laws- These are the laws of home country, related to

International Business. For example To control and protect InternationalBusiness of India, FEMA (Foreign Exchange Management Act) plays avital role. Besides that customs act 1962 for custom clearance, coffee act1942 for regulation on export of coffee, tea act 1953 for regulation of exportof tea etc performs.

b. International laws, treaties, conventions- To govern InternationalBusiness, various International laws are available. International laws areset of principles and rules that bind two states to perform legitimately.These laws can be purposed in several areas such as- covering piracy andhijacking, international agreements, harmonization of legal system,

patents, trademark, copyright related terms etc.c. Laws of foreign countries- These are laws related to product, labeling and

packaging, promotion, trade practices etc. For international trade everymarketer is bound to deal with all foreign laws of the target country.

Q,.4. Write short notes on:-a. Jurisdictionb. Conflict of Lawc. Corruption

Ans Jurisdiction- It is an authority given to a legal body in a defined area of

responsibility. In the other words It is an authority of a sovereign power tocontrol, to govern a specific area.Conflict of law- These are those rules and regulations that shapes whichjurisdiction will be applied to a mentioned dispute. This term is emerged from


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the conditions where the notion of any dispute is based o the application ofcertain law. There are three branches of conflict of laws:-a. Jurisdictionb. Choice of awc. Foreign judgment

Corruption- It is a serious problem in International Business which harmsbusiness at large. It is an act performed by government officials for illegitimategains. It is a misuse of authority for personal benefits. There can be many formsof corruption such as- bribery, extortion, nepotism, embezzlement etc.

Q.5 Discuss agreements and conventions.

Ans Agreements- In general terms, it is an act of being agreed.

According to Section 2 (e) of Indian Contract Act, 1872, Every promise andevery set of promises, forming the consideration for each other is calledagreement.Section 2 (b)defines promise, When the person to whom the proposal is madesignifies his assent thereto, the proposal is said to be accepted. Proposal whenaccepted becomes a promise.Convention-In the context of International Business, convention is an expressedagreement in international law. The two parties in it is sovereign states andinternational organization. It is also known as treaty, international agreements,exchange of letters etc.

Q.6 Explain Intellectual Property Rights.Ans According to WTO, International Property rights are the rights given to person

over the creations of their minds. They usually give the creator an exclusive rightover the use of his/her creation for a certain period of time.In the other words it is a property of intellectual mind. Many designs, patents,copyrights, trademarks, novels etc. are the emergence of that intellectual mind.Major difference between copyright, trademark and patents.Copyright is a security and protection for any creativity. It can be in books,photo, painting etc. It is a restriction by the holder to everyone. No one can

utilize any of it without the consent of the holder.Trademarkcomprises all symbols used as a logo, sign of any product/services inwhich company deals. It cannot be used by any other trader if it is registered.


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Patentsare generally obtained after an innovation or new invention. It restrictsanyone to develop that type of product without the prior concern of theinnovators/inventor.

CaseBan on Unethical products

In most of the countries, product promotion is subject to various types ofcontrols. In India, Doordarshan does not entertain advertisements of certainproducts such as alcoholic drinks; cigarettes, cigars, beedies and pan masala,

baby food. Alcoholic drinks are not allowed to be advertised in other media too.In many countries, including India, the package and advertisements of cigarettesshall carry the statutory warning that cigarette smoking is injurious to health.Baby food marketers are not allowed to promote the product as a substitute forbreastfeeding.Q.1. What is the impact of these sort of advertisements on youngsters?Q.2. Is legal warning is the solution to stop that kind of advertisements?


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MCQs

1. ________________ is a feature of the macro environment in a organization.a. Distributorsb. Customersc. Lawsd. Competitors

2. Globalization is an example of which environment factor?a. Legalb. Technologicalc.Economicd. Political

3. Islamic law is a comprehensive code based in part on:-a. Roman law and Napoleonic lawb. The Koranc.Anglo-Saxon common lawd. EU law

4. Who stated that there are two categories of international law : public law andinternational commercial law

a. Cateora and Grahamb. Keeganc. Stephen P.Robbinsd. Terpstra

5. The treaty of Rome held in-a. 1954b. 1965c. 1957d. 1959

6. Which is not a dimension of international legal environment?a. Local domestic lawb. Global law


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c. International lawd. Domestic law


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KeyTerms

1. International BusinessInternational business is that trading which opens a cross bordertransactions between two countries. No matters these countries aredeveloped, developing or underdeveloped. These all transactions takeplace with the collaboration of highly skilled labour, capital, technology,transportation etc. In the other words it is an activity which increasesforeign investment.

2. CultureIt is a set of knowledge, values, beliefs that determines a personality of aperson and allows him to transfer all those aspects in his furthergeneration.

3. LiberalizationThis term is heavily used by different governments. GATT/WTO,

Foreign Direct Investments are the major tools in it. Liberalization allowsMultinational Enterprises to work freely. Government protects them fromcredit risks. They are also free to enter in any business market. Liberalization

is fostering the global market since 1980s and now it has become a universalconcept for every economic country.

4. Political systemPolitical system can be classified in two segments-a. Parliamentary or open government- It includes natives of the country in it.

Time by time consultations with the citizens for the purpose of learning,takes place in this type of government.

b. Absolutist or closed- As the name suggests, it is a closed system whereconsideration of citizens is a dream. Monarchies, aristocracy, democracy,theocracy are the major parts of it.

5. MonarchyIt is the oldest form of government. It is based on heredity. A singleperson holds his office by virtue of heredity succession. The person may


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be a king, an emperor, a czar etc in this system. The United Kingdom isone of the best example for that. There could be various merits of thissystem such as stable government, promptness, stable political order etcbut it can also harm political environment by providing no place for selfrule, inefficiency, corruption, dishonesty etc.

6. AristocracyThis is described as a rule of selection of few people to control the politicalenvironment. The selection of people is based on theirskills/talents/status etc. It is considered as a natural form of government.It also gives importance to the element of quality and provides a stablegovernment but on the other hand, it can be harmful on the basis of

wrong assumptions, exclusiveness and conservation.

7. DemocracyIt is a form of state, government, society, ethical idea. This is the electedform of ruling in a nation where people decide what is to be done. In thissystem public has a right to express their opinion freely, it is a democraticstructure of the government. But it also brings instability in economysometimes. It is also an expensive form of government ruling.

8. SovereigntyIt is a supreme and independent political authority. Sovereign state is freefrom any external control. It is a power to govern territory. Some of theessential characteristics of sovereignty may be absoluteness, universality,permanence, inalienability, indivisibility etc.

9. National securityEvery country has its own national pride/prestige. It is a combination ofcultures, backgrounds, perceptions, experiences, technological know-how,political stability etc. the feeling of national interest can be manifested in avariety of ways. For example-a cell to buy those products which are

developed in country itself. This feeling can be found in those countrieswhich are prosperous in economic backgrounds. The reason behind it isthat, the developing countries have to depend on imports from anothercountry.


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10. Comman lawIt is based on tradition, past practices and legal precedents set by thecourts. It is an interpretation through the past decisions of higher courts.Only established and customary principles are interpreted in it.

11. Code LawIt is a legacy of Roman law, which defines written rules (codes) of law.The code law is divided into three separate codes i.e. commercial, civiland criminal. It is required for any entrepreneur to understand which typeof legal system will establish the contract.

12. Theocratic lawThe basis of theocratic law is religion. Every community has its own codeof conducts but these codes are not the part of law. The best example fortheocratic law is Islamic Law. This law is found in Muslim dominatedcountries. It is derived from Koran.

13. Intellectual property lawsAccording to WTO, International Property rights are the rights given toperson over the creations of their minds. They usually give the creator anexclusive right over the use of his/her creation for a certain period of time.In the other words it is a property of intellectual mind. Many designs,

patents, copyrights, trademarks, novels etc. are the emergence of thatintellectual mind.

14. CopyrightCopyright is a security and protection for any creativity. It can be inbooks, photo, painting etc. It is a restriction by the holder to everyone. Noone can utilize any of it without the consent of the holder.

15. TrademarkTrademark comprises all symbols used as a logo, sign of any

product/services in which company deals. It can not be used by any othertrader if it is registered.


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16. PatentPatents are generally obtained after an innovation or new invention. Itrestricts anyone to develop that type of product without the prior concernof the innovators/inventor.

17. Political riskPolitical risk can be determined as an adverse effect ofgovernmental/political action. When a business organization conduct itsbusiness in international market then there is always a political risk in theways of threatening the market of an exporter, production facilities of amanufacturer, tax related problems, profit distribution etc. Political riskdirectly affects the long term profitability of a firm

18.JurisdictionIt is an authority given to a legal body in a defined area of responsibility.In the other words It is an authority of a sovereign power to control, togovern a specific area.

19.Market allocationThis system is called capitalism. In this system the whole economic plan isdecided by the consumers. It increases business competition. This system

allows freedom of choice for both consumers and companies. This systememphasis the philosophy of individualism believing in private ownershipof all agents of production, in private sharing of distribution processesthat determine the functional rewards of each participants and in theindividual expression of consumer choice, through a free market place.

20. Command allocationThis system strongly explains the power of state for public interest. Thegovernment decides all production decisions. In this system consumer isnot the king of market. Although they are free to spend their amount to

buy any product or to avail any services.Example: China, Cuba, North Korea.


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21. Mixed economyAs its name suggests, it is a combination of both economic system. Everyeconomic activity is performed jointly by state and private ownership. Inthis system consumers get benefits from producers because the control ofstate will never allow monopoly. It results in a healthy competition thatcreates favourable effects on consumer buying.

22.Fiscal policyIt is the policy where government influences the economy bye usingcollection of revenue and expenditure from it. The major elements of fiscalpolicy are Revenue and Expenditure. In fact the system of expendituremay affect the development of any economy. On the other hand at the

time of industrial crisis, reduce in taxes may help in improvement of theeconomic conditions.

23. Monetary policyIn this policy, the monetary authority of the country controls the supply ofmoney. It is different from fiscal policy, which is based on expenditureand revenue. Monetary policy rests on the relationship between the ratesof interest in an economy. In short it is based on the concept of monetarytransactions of the country.

24. Social institutionsIt includes all those institutions from where we learn, we adopt and wechange our whole personality. These include family, media effect, politicalstructure, education. Every human being is taught by these institutions.

25. MNCMultinational Corporations are one of the most powerful forces forglobalization. The whole economy of a nation can be fixed by MNCs.These are those organizations which connect all of its resources, skills,technology, objectives with the conjunctions of world market and it

directly increases the chances of revenue generation.

26. EUEuropean Union is a combination of six nations i.e Belgium, France,Federal Republic of Germany, Italy, Luxembourg and the Netherlands.


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There are trade agreements between these countries for the purpose ofincrease international business with elimination of tariffs, quotas andother barriers.

27.FTAIt is called Free Trade Agreements. These are those agreements which aretotal free from all barriers to trade. Such as tariffs, exchange controls,quantitative restrictions etc. It is the most productive way to utilizeresources.

28. NAFTAIt is North American Free Trade Agreement. This agreement was signed

between United States and Canada in 1988. It covers market access, traderules, services, investments, intellectual property, dispute settlement etc.

29. SAARCIt is South Asian Association for Regional Cooperation. It includes sevencountries i.e. India, Bangladesh, Pakistan, Nepal, Bhutan, Sri Lanka andMaldives. The objective of its emergence was to welfare of public,economic growth, mutual trust, cooperation in common interests etc.

30. ValuesValues are a framework of philosophy of an individual. It is the majorforce to shape human behavior. Values are part of culture. It is a learnedresponse represented by human beings.

31. AttitudeIt is an invisible force that is acquired through learning. It is a response byan individual in a positive or negative way in an environment. Everyindividual has some kind of attitude towards the objects in hisenvironment.

32.WTO It is World Trade Organization. Previously it was GATT- General

Agreement on Tariffs and Trade but in Jan.1995 it was transformedinto WTO. The object of it is to raise standard of living, ensure fullemployment, optimum utilization of resources etc.


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33. ASEANIt is the Association of South East Asian Nations. It was formed inBangkok Declaration 1967 by 5 countries viz. Indonesia, Malaysia,Philippines, Singapore and Thailand. Brunei became the part of thisassociation in 1984. The major object of ASEAN is to accelerate economicprogress.

34. FDIIt is Foreign Direct Investment which refers to an investment in a foreigncountry for the purpose of economic benefits, long term relationships,transfer of technology etc. It can be done in the form of starting a

subsidiary, acquiring stake in existing firm, starting joint venture etc.

35. PricingIt is a combination of Cost + Profits in the context of goods. It is a majortool of International Business. Besides that if price incur full cost ofproduction and marketing then there will be less chances of losses to afirm.

36. DistributionIt is a system where title of products transfers from one person to anotherby a channel. That channel of distribution comprises two categories ofmiddlemen, viz., merchants and agents.

37. TRIMIt is Trade Related Investment Measures which refers to those conditionsand restrictions which are concerned with foreign investment in thecountry.

38. TRIPIt is Trade Related Aspects of Intellectual Property Rights. These rights aredeveloped to protect the intellectual property rights. These are thoserights which are given to persons for creativity of their minds.


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39. Balance of paymentIt is a statistical statement that defines economic transaction of aneconomy with rest of the world in a specific time period. The basiccomponents of it are current account, capital account, unilateralpayments account, official reserves assets account.


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Solved Paper - 2010Time allowed: 3 Hours Max. Marks: 100Attempt five questions in all. Question nos. 1 and 2 are compulsory.

Part- I

Q.1 Answer all the ten questions. All questions carry equal marks. (Answer limit upto 50 words each). 2 x 10 = 20

i. Give any two features of International Business.

Ans. International Business is full with lots of growth perspective. Such as-a. It provides economic growth by accelerating trading with different countries.

That develops immense options of gathering foreign exchange frominternational market.

b. It increases standard of living and technological advancements as theorganizations have to deal with various economies. Betterment in anyeconomy surely prospers the living standard.

ii. Define culture.

Ans. Culture is a combination of different components such as beliefs, values,attitudes, customs etc. It is a psychology of a human being to be affiliated in acertain group. Cultures components determines a personality of a person andallows him to transfer all those aspects in his further generations.

iii. Write any four features of mixed economic system.

Ans. Mixed economic system is an association of two major ownership i.e. private andstate. It is beneficial due to the reasons of-a. This economic system tries to develop an even patter of regional economic

development.b. It maintains a low rate of inflation.

iv. What are the indicators of Political instability?

Ans. Political instability can take place due to certain reasons such as-


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a. Instability in economic environment of the nation resulted discrimination intaxes, unfair competition etc.b. Social untrust can also be a reason which determines lack of trust ongovernment

c. Domestication is also a symbol of instability where foreign companiestransfer their investments to national control and ownership.

v. Differentiate between bilateralism and multilateralism.

Ans. Bilateralism is a term in which major exporter and importer of a commodityenters into an agreement/contract to purchase or sell certain quantity. Thisprocedure can be converted into multilateralism. When more than one partyenter into agreement/contract.

vi. What are the significant features of TRIMs?

Ans. Trade Related Investment Measures (TRIMs) refers to a imposition of certainrestrictions by government concerned with foreign investments. Its features are-a. Government allows certain amount of local inputs. It can be used by traders

in products.b. There is restriction on imports that it will not exceed a certain proportion of

exports.c. There will be a balance between trade and foreign exchange.d. Al l the organizations are required not to sell a certain proportion of itsoutput locally.

vii. Write different modes of entry to International Business.

Ans. There are various modes of entering into an International Market. Such as-a. Licensing/franchisingb. Exportingc. Contract manufacturingd. Management contractinge. Strategic alliancef. Turnkey contractsg. Assembly operationsh. Joint venturesi. Mergers and acquisitionsj. Counter trade


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viii. How does culture affects International Business?Ans. Culture affects International Business by following ways-

a. Culture has a broad scope and it covers each and every aspect of societysbehavior.

b. Eminent International Behaviour always depends on culturally responsiveenvironment of the company.

c. Marketer is supposed to obtain high information about target nations cultureto get maximum profits at the time of competition.

ix. What is FOB?

Ans. If the loading expenditures are added into free alongside ship, then there will bedevelopment of new price quotation that is FOB. In this quotation all

expenditures after loading goods will be paid by the importer only.

x. Tariff vs. Quota.Ans. Tariffs are those duties or taxes which are imposed on international trade goods

when these goods cross the national boundaries.Quotas are such restrictions by the government on export which takes placewhen the government thinks that there is excess export and it is not in the favourof domestic consumer.

Q.2. Answer all the questions. All questions carry equal marks. (Answer limit up to100 words each). 5 x 4 = 20

i. Which factors affect International pricing?

Ans. There are several factors that affect international pricing such as-a. International marketing objective- What is the objective of international

marketing always determines international pricing of the products. It can bemarket penetration, market skimming, price at new product development etc.

b. Cost- It is the most important factor of deciding price. All organizations wantto cover its cost of production, transportation and marketing cost and theydecide their product price accordingly.

c.

Competition- Tough or low competitions are also a big determinant whiledeciding price. Competitors price definitely helps to capture market becausemarketer wants to keep his price low and quality high as compare tocompetitors.


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d. Product differentiation- More strong and unique features in a product givesmarketers a freedom to get high prices. This is a positive aspect of particulargoods that increases its value.

ii. Differentiate between balance of trade and balance of payment.

Ans. Balance of Trade- It includes every transaction between exporter and importerwhich is based on visible item i.e good. Any invisible item is not the part of it.Such as insurance, banking, payment of interest etc.Balance of Payment involves both exchanges of visible and invisible items (thecurrent and capital account items) such as foreign investment, externalassistance, debt services etc.

iii. Differentiate between GATT and WTO.

Ans. GATT- Under the old system GATT was classified into two GATTs-a. GATT -The agreement, i.e. The agreements between contracting parties

(governments)b. GATT-The organization, i.e. an international organization which discusses

and administers agreements.

GATT was small and provisional and not even recognized by the law as aninternational org. GATT was amended into WTO.WTO- It has more powers than GATT. It performs a major role in International

economic matters. It administers trade agreements, provides negotiations, andmonitors trade policies at vast levels. It also includes laws related to intellectualproperty.

iv. What type of relationship exists between the headquarters and subsidiaries?Ans. Corporate Headquarters are just like spinal cord of an any organization.

Strategies, policies, objectives are developed by it. It provides idea, techniques,resources to subsidiary. It coordinates each and every market program withsubsidiary. The subsidiary reports Headquarters about distribution channels,local market risks and opportunities etc.

v. How two legal systems i.e. common law and code law differs?Ans. Common law: it is constituted in English and it is available in countries where

strong English influence. It is a traditional system and deals with only thosedecisions which had taken place previously or by customs or usages.


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Code law: it is a legacy of Roman law. It deals in European nations mostly. Thereare certain subject matters available into a code in it which describes the wholelaw. Code law nations are more numerous than common law nations.

Part II

Attempt any three questions. Each question carries 20 marks.

Q.3 What is Foreign Direct Investment? What are the advantages anddisadvantages of foreign investment?

Ans. In the very general sense Foreign Direct Investment is an act to do investments

in other countries by any Multinational Enterprise. There can be various ways todo this investment such as- investments in the process of productions, acquiringan organization in target nation, by acquiring shares etc.Foreign Direct Investment is a major tool for any nation to inflow internationalcapital. It also enhances technical advancements and job opportunities indifferent streams.Foreign Direct Investment can be further classified in two types:-

a. Inward foreign direct investment- It is an investment where MultinationalEnterprises invest foreign capital in different local resources.

b. Outward foreign direct investment- It is a protective mode by thegovernment where government protects investors from all associated risks.

Advantages of Foreign Direct Investment:

a. Many international organizations bring capital in the targeting nations. They alsoget new technology and methods to develop the economy.

b. It can force to proper utilization of national resources in target nations.c. There can be economic growth in international trading of nation.d. It develops more competition which is beneficial for the consumerse. It brings external resources in country.f. With Foreign Direct Investment, there can be a potential balance of paymentg. Export of the nation can be expanded with Foreign Direct Investmenth.

It fulfills the domestic human resource needs.i. It develops an eminent network in targeting nation.

j. It provides good quality products to consumers with low prices.


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Disadvantages of Foreign Direct Investment:

a. In some extent it interferes the national politics which is harmful for nationalprestige.

b. MNCs invest onlyin profitable areas not in priority sectorsc. There can be unethical attempts by MNCs while doing direct investment.d. Unfair trade practices can take place to stay alive in domestic competition.e. Foreign Direct Investment can be harmful for the domestic market.

Q.4. Discuss competitive advantages and problems of International Business.Ans. Before finding out the advantages and problems of International Business, we

should get the meaning of International Business.International business is that trading which opens a cross border transactions

between two countries.No matters these countries are developed, developing or underdeveloped.These all transactions take place with the collaboration of highly skilled labour,capital, technology, transportation etc. In the other words it is an activity whichincreases foreign investment.

Advantages of International Business:

1. Cross border trading:- International Business is a transaction between twocountries. One country is will be called exporting country and other country isnamed as importing country.

2. Includes exchange of goods and services: - International Business involvesvarious transactions worldwide on the basis of goods and services. These alltransactions take place for the purpose to improve economic condition or to earnmoney.

3. Two major activities:- International Business Involves two specific activitiessuch as; Export/Import by the countries and Foreign Direct Investment by anyorganization.

4. Decreases Monopoly:- International Business gives an option to internationalbusiness entity to explore domestic market. This option is quite helpful when weconcern about monopoly by domestic organizations. International businessentity will always enter in the domestic market with cheap prices and elitequality.

5. Develop economy:- International Business develops the economic conditions oftargeting nations. Most of the underdeveloped and developing countries arebeing developed by international organizations.

6. Increase standard of living:- When an economy develops, it also develops theper capita income and if the earning capacity of natives increase, they start


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spending or investing money. Ultimately a positive relationship emergesbetween International Business and standard of living.

7. Utilization of resources of domestic market:- Resources show high importancein any business. Most of the countries have various resources but they do nothave such technology, skill or manpower to explore it. International Businessopens an option to explore those resources for the betterment of trade.

8. Earning FOREX:- It means earning foreign exchange with the help ofInternational trading of goods or services. It is a positive aspect for thedevelopment of economic status.

9. Expansion of business:- International Business provides a door to expanddomestic organizations business worldwide. This business expansion createsopportunities in the field of investments, jobs, technology etc.

10.High quality products:- It is a common fact that every international organizationwill try to eradicate business roots of domestic organizations. This can be happenwith high quality products having low prices.

Disadvantages of International Business:

a. International Business fails to adapt the product to the market.b. It increases political instability by foreign direct investment.c. Cultural differences can be the part of International Business.d.

International Business fails to achieve domestic market trust.e. MNCs invest only in profitable market not in priority sectors.

f. There is high industrialization but low growth rate in developingcountries by International Business.

g. It increases corruption sometimes.h. There is a chance of technical piracy.

Q.5. What is regional economic integration? Discuss the advantages anddisadvantages of it.

Ans. The goals which can not be achieved by single country/organizations, promotesregional economic integration. There are some rules and regulations that increase

integration of economy. It is done for the purpose of mutual economic benefits toreduce regional trade and tariff barriers.

Advantages:


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a. It reduces trade barriers between countries.b. It increases political harmony between member nations.c. It is one of the most important way in present global economy to strengthen

economy.d. There is a mutual achievement of goals by integration.e. It develops a huge market with collaboration of different countries.f. It facilitates cross border transactions.g. It is helpful to shift business in other country with integration of economies.h. It has its own rules and regulations.i. It is a symbol of fastest economic growth.j. It gives challenges to rest of the world.

Disadvantages:a. There is limited trade opportunities as limited number of countries are the part

of every integration.b. Problem of similar products is also a genuine disadvantage.c. There are fewer resources available in limited countries.d. There can be inappropriate macroeconomic policies in it.e. Chances of intra-regional conflicts are more in it.


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Solved question paper of year 2011

Time allowed: Three Hour Maximum Marks: 100

Attempt five questions in all. Question Nos. 1 and 2 are compulsory.

Part - 1

Q.1 Answer all the ten questions. All questions carry equal marks. (Answer limitup o 50 words each) 2x10=20

i. Why do we study International Business? (Any four reasons).We study International Business because of-

a. To know about economic environmentb. To find out patterns of International Businessc. To seek knowledge of various International Investment Organizationsd. To get the details of legal environment of trade

ii. Two misconceptions about culture.Two misconceptions about culture are-a. Culture is just a composition of cast and religion.b. Culture has low impact on International Business.

iii. What is cultural lag?The concept of cultural lag was developed by W.F. orgburn who statedthat various parts of modern culture do not change at the same rate.Adjustments take place when there is a rapid change in one part.

iv. Differentiate between Common Law and Code Law.Common law is based on previous court decisions, usage and customs

Code law is based on extensive and presumably, comprehensive set oflaws organized by subject matter into code.

v. Concept of Product Liability.


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It is a liability of a product concerned with its quality, quality and allstandards which are followed by its origin.

vi.Regulatory role of the Government in International Business.Government plays a role of controller and as a monitoring agency inInternational Business. This role is performed by several laws andregulations.

vii. Any four features of free economy.Free economy has various features. Such as-a. Utilization of Natural Resourcesb. Better division of labourc. Breaks domestic monopoliesd. Low chances of corruption

viii. Any four impact of foreign direct investment on country development.There is a favourable impact of foreign direct investment on developmenton country. Such as-a. Foreign direct investment shifts the burden of risk of an investment

from domestic to foreign investorsb. It determines foreign policy of a countryc. It develops new technologies in countryd. It accelerates economic status of country

ix. Theocracy vs. Monarchy.Monarchy is a political system in which control is possessed by king,emperor. They pursue supreme power to control on public.Theocracy is a also a political system in which control is possessed byreligious leaders. They hold all supreme power in their hands.

x. Differentiate between International Company and MultinationalCompany.

International Company- It is a domestic entity which operates all of itsproduction procedures and market its products beyond nationalboundaries.


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Multinational Company- It is a developed organization which invest inseveral countries for the purpose of production and market it in all aroundthe world.

Q 2. Answer all the five questions. All questions carry equal marks (Answer limit upto 100 words each). 5 x 4 = 20

i. Write about the components of culture.There are different elements available that affects culture. Althoughculture is very wide term with complexities yet its elements are useful forevery organization. Culture encompasses following elements:-o Social institutions- It includes all those institutions from where we

learn, we adopt and we change our whole personality. These includefamily, media effect, political structure, education. Every human beingis taught by these institutions.

o Material culture- It includes:-a. Technology- It is an aspect for the people by the people. The

technical knowhow relates to the advancements of products.b. Economics- For the purpose of benefits people add their skills and

talent towards work. These all activities comprise production ofgoods and services, distribution of it by various channels,consumption by the end user, income and means of exchange.

c. Man and the Universe- This element is based on religious belief ofan individual. As we know religion plays a crucial role indetermining moral values and ethical values. There is always apositive relationship between human consumption habits and theirattitudes towards goods and services.

d. Aesthetics- This feeling of aesthetics creates positive attitude inhuman beings. This notion is always suitable for everyinternational marketer. He will have to be sensitive to the aestheticsof community. This will help him to take all decisions related withproduct, its distribution etc.

e. Language- To communicate with any person, we need a languageto support. The dealings like bargaining, negotiating are the keyelements in International Business. Language can also be a hurdlein International Business, if it is not managed properly.


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ii. Write and define any four foreign market entry strategies.

These are those strategies which are available to enter in a new businessmarket. Some of the important market strategies are-i. Licencing :- It is an easy process to enter in international market. In

this policy a firm of a country allows other firm to use itsintellectual property by providing them licence. The licensor firmcharges royalty or fees which the licensee pays.

ii. Contract manufacturing: - In this strategy an organization dealingwith international market contracts with foreign organizationsfirms to manufacture or to assemble the products. This is a verycommon practice in international business.

iii.

Joint venture: - Joint venture is entering strategy of a firm ininternational market. It is an association between two firms whichimplies collaboration for a specific time period.

iv. Third country location: - It takes place when there is a politicaldifference between those two countries which want to do business.At that moment countries do their business with the support ofthird country.

iii. Differentiate between fixed exchange rate and floating exchangerate.

Fixed exchange rate- It is also called stable exchange rate. In this

system the countries change their value only at fairly intervals,when the economic conditions change. Stability in exchange rate isnecessary for development and growth in international trade.Floating exchange rate- In this system there is no stability inexchange rates. Exchange rates are determined in an open market.There are also negative arguments for floating exchange ratesystem but it is essential for the economy because the surplus inbalance of payments increases exchange rate and deficit decreasesin it.

iv. Any four assumptions of comparative cost advantage theory of

international trade.This theory defines that every nation should product those products

which they have the greatest relative advantages. The theory ofcomparative cost advantage has following assumptions-a. Labour is the only productive factor


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b. There are constant returns to scalec. There is full employment equilibriumd. Cost of production is measured in terms of the labour units involved

v. Any four features of FEMA.

Features of FEMA:-a. FEMA supports trade structure of a country.b. Sections relating to dealing in foreign exchange have been simplified

with FEMAc. It controls Foreign Exchange of India.d. It regulates and monitors the Foreign Exchange of India

Part - IIQ. 3 (a) How is International Business broader in scope compared to

international trade and international market? Analyze.

International business is that trading which opens a cross bordertransactions between two countries. No matters these countries aredeveloped, developing or underdeveloped. These all transactions takeplace with the collaboration of highly skilled labour, capital, technology,transportation etc. In the other words it is an activity which increases

foreign investment.Scope of International Business is broader as compared to internationaltrade and international marketing because it includes both of theseactivities in a different form i.e. Exports & Imports and Foreign DirectInvestment.Exports & imports are the most important activity in InternationalBusiness. Export takes place when one country manufactures productsand send it to another country for the purpose of to earn profits.Import on the other hand is buying of goods from other countries to fulfillthe requirements of domestic consumers.Foreign Direct Investment is an act to do investments in other countries by

any Multinational Enterprise. There can be various ways to do thisinvestment such as- investments in the process of productions, acquiringan organization in target nation, by acquiring shares etc.International Business holds more trade related activities such as:-


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a. Import Trade: In import trade goods are imported from variouscountries and it is then after sold to the local consumers. It takesplace when there is non-availability of goods in sufficient quantity.

b. Re-export Trade: In this system raw products are imported byorganization from other exporting country and converted intofinished goods. Then these finished goods are exported to othercountries.

c. Export Trade: In export trade firm exports its products to othercountry. This can be done by different ways such as- by opening abranch, by licensing, by joint venture, by sub contracting etc.

(b.) Discuss the nature of International Business.Nature of International Business:

1.Cross border trading:- International Business is a transaction between twocountries. One country is will be called exporting country and othercountry is named as importing country.

2.Includes exchange of goods and services: - International Business involvesvarious transactions worldwide on the basis of goods and services. Theseall transactions take place for the purpose to improve economic conditionor to earn money.

3.Two major activities:- International Business Involves two specificactivities such as; Export/Import by the countries and Foreign DirectInvestment by any organization.

4.Decreases Monopoly:- International Business gives an option tointernational business entity to explore domestic market. This option isquite helpful when we concern about monopoly by domesticorganizations. International business entity will always enter in thedomestic market with cheap prices and elite quality.

5.Develop economy:- International Business develops the economicconditions of targeting nations. Most of the underdeveloped anddeveloping countries are being developed by international organizations.

6.Increase standard of living:- When an economy develops, it also developsthe per capita income and if the earning capacity of natives increase, they

start spending or investing money. Ultimately a positive relationshipemerges between International Business and standard of living.7.Utilization of resources of domestic market:- Resources show high

importance in any business. Most of the countries have various resourcesbut they do not have such technology, skill or manpower to explore it.


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International Business opens an option to explore those resources for thebetterment of trade.

8.Earning FOREX:- It means earning foreign exchange with the help ofInternational trading of goods or services. It is a positive aspect for thedevelopment of economic status.

9.Expansion of business:- International Business provides a door to expanddomestic organizations business worldwide. This business expansioncreates opportunities in the field of investments, jobs, technology etc.

10.High quality products:- It is a common fact that every internationalorganization will try to eradicate business roots of domesticorganizations. This can be happen with high quality products having low

prices.

Q.4 What is political environment? How does it affect InternationalBusiness?

Ans. The political environment includes the concept of political parties withinthe nation and its impact on International Business. Most of the policiessuch as industrial policy, policy for international trade, fiscal policies etcare developed by political parties. In fact political and economicenvironment are related with each others.

Importance of political environment for International Business-o It develops a regulatory structure for international trading.o It controls trade related activities done by MNCs.o It decides need and importance of various pressure groups within a nation.o It restricts trade related transactions with enemy nations for the purpose of

national security.o It monitors legality of international trading.o It increases economic stability by development of different policies.o It develops trading options with different countries.o

It develops stability in International Business.

o It defines various tax and tariffs.o It saves eco

international business(rev)

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