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PROGRAM

MBA

SEMESTER

4th

SUBJECT CODE &


NAME

MB0053 INTERNATIONAL BUSINESS


MANAGEMENT

Ques 1 : Explain the different international trade theories


A) Mercantilism- Mercantilism is the main economic system used during
the sixteenth to eighteenth centuries. The main goal was to increase a
nation's wealth by imposing government regulation concerning all of the
nation's commercial interests. MERCANTILISM is one of the great
whipping boys in the history of economics. The school, which
dominated European thought between the 16th and 18th centuries, is
now considered no more than a historical artefactand no selfrespecting economist would describe themselves as mercantilist. The
dispatching of mercantilist doctrine is one of the foundation stones of
modern economics. Yet its defeat has been less total than an
introductory economics course might suggest.
At the heart of mercantilism is the view that maximising net exports is the best
route to national prosperity. Boiled to its essence mercantilism is bullions: the
idea that the only true measure of a countrys wealth and success was the
amount of gold that it had. If one country had more gold than another, it was
necessarily better off. This idea had important consequences for economic
policy. The best way of ensuring a countrys prosperity was to make few
imports and many exports, thereby generating a net inflow of foreign
exchange and maximising the countrys gold stocks.
B) Absolute advantage theory - In economics, the principle of absolute
advantage refers to the ability of a party (an individual, or firm, or country) to
produce a greater quantity of a good, product, or service than competitors,
using the same amount of resources. Adam Smith first described the principle
of absolute advantage in the context of international trade, using labor as the
only input. Since absolute advantage is determined by a simple comparison of
labor productiveness, it is possible for a party to have no absolute advantage
in anything in that case, according to the theory of absolute advantage, no
trade will occur with the other party. It can be contrasted with the concept of
comparative advantage which refers to the ability to produce specific goods at
a lower opportunity cost. Smith argued that it was impossible for all nations
to become rich simultaneously by following mercantilism because the export
of import and instead stated that all nations would gain simultaneously if they
practiced free trade and specialized in accordance with their absolute
advantage.[1] Smith also stated that the wealth of nations depends upon the

goods and services available to their citizens, rather than their gold reserves.
While there are possible gains from trade with absolute advantage, the gains
may not be mutually beneficial. Comparative advantage focuses on the range
of possible mutually beneficial exchanges.
C) Comparative advantage theory- The classical theory of international trade
is popularly known as the Theory of Comparative Costs or Advantage. It was
formulated by David Ricardo in 1815.
The classical approach, in terms of comparative cost advantage, as presented
by Ricardo, basically seeks to explain how and why countries gain by trading.
The idea of comparative costs advantage is drawn in view of deficiencies
observed by Ricardo in Adam Smiths principles of absolute cost advantage in
explaining territorial specialisation as a basis for international trade.
Being dissatisfied with the application of classical labour theory of value in the
case of foreign trade,
Ricardo developed a theory of comparative cost advantage to explain the
basis of international trade as under:
Ricardos Theorem:
Ricardo stated a theorem that, other things being equal, a country tends to
specialise in and export those commodities in the production of which it has
maximum comparative cost advantage or minimum comparative
disadvantage. Similarly, the countrys imports will be of goods having relatively
less comparative cost advantage or greater disadvantage.
To explain his theory of comparative cost advantage, Ricardo
constructed a two-country, two-commodity, but one-factor model with
the following assumptions:

1. Labour is the only productive factor.


2. Costs of production are measured in terms of the labour units involved.
3. Labour is perfectly mobile within a country but immobile internationally.
4. Labour is homogeneous.
5. There is unrestricted or free trade.
6. There are constant returns to scale.
7. There is full employment equilibrium.
8. There is perfect competition.
Under these assumptions, let us assume that there are two countries A and
and two goods X and Y to be produced.

D) Product lifecycle theory - The International product life cycle, which was
developed by the economist Raymond Vernon in 1966, is still a widely used
model in economics and marketing.
Products enter the market and gradually disappear again. According to
Raymond Vernon, each product has a certain life cycle that begins with its
development and ends with its decline.
According to Raymond Vernon there are four stages in a products life cycle:
introduction, growth, maturity and decline. The length of a stage varies
for different products, one stage of the product life cycle may last some weeks
while others even last decades. This shows that the product life cycle is very
similar to the diffusion of innovation model that was developed by Everett
Rogers in 1976. The life span of a product and how fast it goes through the

entire cycle depends on for instance market demand and how marketing
instruments are used.
There are three stages of product lifecycle -When an organization has
developed a product successfully, it will be introduced into the national (and
international) outlet. In order to create demand, investments are made with
respect to consumer awareness and promotion of the new product in order to
get sales going. At this stage, profits are low and there are only few
competitors. When more items of the product are sold, it will enter the next
stage automatically.
Growth
In this stage the demand for the product increases sales. As a result, the
production costs decrease and high profits are generated. The product
becomes widely known, and competitors will enter the market with their
own version of the product. Usually, they offer the product at a much lower
sales price. To attract as many consumers as possible, the company that
developed the original product will still increase its promotional spending.
When many potential new customers have bought the product, it will enter
the next stage
Maturity
In the maturity stage of the Product life cycle, the product is widely known
and is bought by many consumers. Competition is intense and a company
will do anything to remain a stable market leader. This is why the product is
sold at record low prices. Also, the company will start looking for other
commercial opportunities such as adaptations or innovations to the product
and the production of by-products. Furthermore, consumers will also be
encouraged to replace their current product with a new one. There is fear
of decline of the product and therefore all the stops will be pulled out in
order to boost sales. The marketing and promotion costs are therefore very
high in this stage.
decline

At some point, however, the market becomes saturated and the product is
no longer sold and becomes unpopular. This stage of the Product life cycle
can occur as a natural result but can also be stimulated by the introduction
of new and innovative products. Despite its decline in sales, companies
continue to offer the product as a service to their loyal customers so that
they will not be offended.

E) Porters diamond model- Porter called the answers to these


questions the determinants of national competitive advantage. He
suggested that there are four main factors which determine national
competitive advantage and expressed them in the form of a diamond.

Favourable factor conditions include the following:


(i)physical resources such as land, minerals and weather
(ii) capital
(iii)human resources such as skills, motivation, price and industrial relations
(iv)knowledge that can be used effectively

(v) infrastructure.
Porter also found that countries with factor disadvantages were forced to
innovate to overcome these problems, e.g.Japanese firms experienced high
energy costs and were forced to develop energy efficient products and
processes that were subsequently demanded worldwide.
Demand Conditions
There must be a strong home market demand for the product or service.
This determines how industries perceive and respond to buyer needs and
creates the pressure to innovate. A compliant domestic market is a
disadvantage because it does not force the industry to become innovative and
excellent.
Related and supporting industries
The success of an industry can be due to its suppliers and related industries.
Sweden's global superiority in its pulp and paper industries is supported by a
network of related industries including packaging, chemicals, woodprocessing, conveyor systems and truck manufacture. Many of these
supporting industries have also achieved leading global positions.
Firm strategy, structure and rivalry
Organisational goals can be determined by ownership structure. Unquoted
companies may have slightly longer time horizons to operate in because their
financial performance is subject to much less scrutiny than quoted companies.
They may also have different 'return on capital' requirements.
Porter found that domestic competition was vital as a spur to innovation and
also enhanced global competitive advantage. Conversely, where governments
have encouraged mergers to get the critical mass required to be a global
player, these national monopolies have not, on the whole, been successful in
establishing a global position.
Ques.2- Hofstede said Culture is more often a source of conflict than of
synergy. Discuss this statement and explain the five cultural dimensions.
Ans- Hofstede's cultural dimensions theory is a framework for crosscultural communication, developed by Geert Hofstede. It describes the effects
of a society's culture on the values of its members, and how these values
relate to behavior, using a structure derived from factor analysis.[1]

Hofstede developed his original model as a result of using factor analysis to


examine the results of a world-wide survey of employee values by IBM
between 1967 and 1973. It has been refined since. The original theory
proposed four dimensions along which cultural values could be analyzed:
individualism-collectivism; uncertainty avoidance; power distance (strength of
social hierarchy) and masculinity-femininity (task orientation versus personorientation). Independent research in Hong Kong led Hofstede to add a fifth
dimension, long-term orientation, to cover aspects of values not discussed in
the original paradigm. In 2010 Hofstede added a sixth dimension, indulgence
versus self-restraint.
Hofstede's work established a major research tradition in cross-cultural
psychology and has also been drawn upon by researchers and consultants in
many fields relating to international business and communication. The theory
has been widely used in several fields as a paradigm for research, particularly
in cross-cultural psychology, international management, and cross-cultural
communication. It continues to be a major resource in cross-cultural fields. It
has inspired a number of other major cross-cultural studies of values, as well
as research on other aspects of culture, such as social beliefs
Five cultural dimensions are:
Power distance index (PDI): The Power Distance Index is defined as
the extent to which the less powerful members of organizations and
institutions (like the family) accept and expect that power is distributed
unequally. In this dimension, inequality and power is perceived from the
followers, or the lower level. A higher degree of the Index indicates that
hierarchy is clearly established and executed in society, without doubt
or reason. A lower degree of the Index signifies that people question
authority and attempt to distribute power.

Individualism vs. collectivism (IDV): This index explores the degree


to which people in a society are integrated into groups. Individualistic
societies have loose ties that often only relates an individual to his/her
immediate family. They emphasize the I versus the we. Its
counterpart, collectivism, describes a society in which tightly-integrated
relationships tie extended families and others into in-groups. These ingroups are laced with undoubted loyalty and support each other when a
conflict arises with another in-group.

Uncertainty avoidance index (UAI): The Uncertainty Avoidance Index


is defined as a society's tolerance for ambiguity, in which people

embrace or avert an event of something unexpected, unknown, or away


from the status quo. Societies that score a high degree in this index opt
for stiff codes of behavior, guidelines, laws, and generally rely on
absolute Truth, or the belief that one lone Truth dictates everything and
people know what it is. A lower degree in this index shows more
acceptance of differing thoughts/ideas. Society tends to impose fewer
regulations, ambiguity is more accustomed to, and the environment is
more free-flowing.
Masculinity vs. femininity (MAS): In this dimension, masculinity is
defined as a preference in society for achievement, heroism,
assertiveness and material rewards for success. Its counterpart
represents a preference for cooperation, modesty, caring for the weak
and quality of life. Women in the respective societies tend to display
different values. In feminine societies, they share modest and caring
views equally with men. In more masculine societies, women are more
emphatic and competitive, but notably less emphatic than the men. In
other words, they still recognize a gap between male and female values.
This dimension is frequently viewed as taboo in highly masculine
societies.

Long-term orientation vs. short-term orientation (LTO): This


dimension associates the connection of the past with the current and
future actions/challenges. A lower degree of this index (short-term)
indicates that traditions are honored and kept, while steadfastness is
valued. Societies with a high degree in this index (long-term) views
adaptation and circumstantial, pragmatic problem-solving as a necessity.
A poor country that is short-term oriented usually has little to no
economic development, while long-term oriented countries continue to
develop to a point.
Indulgence vs. restraint (IND): This dimension is essentially a
measure of happiness; whether or not simple joys are fulfilled.
Indulgence is defined as a society that allows relatively free
gratification of basic and natural human desires related to enjoying life
and having fun. Its counterpart is defined as a society that controls
gratification of needs and regulates it by means of strict social norms.
Indulgent societies believe themselves to be in control of their own life
and emotions; restrained societies believe other factors dictate their life
and emotions.

Q3. Regional integration is helping the countries in growing their trade.


Discuss this statement. Describe in brief the various types of regional
integrations.

Answer 3:
Regional integration:
Regional integration is the process by which two or more nation-states agree
to co-operate and work closely together to achieve peace, stability and wealth.
It results in the creation and diversion of trade. It supports overall growth of
the region, coupled with efficient trading practices. Trade creation increases
production and income and also leads to new entrants in the market and,
therefore, results in tougher competition. The transfer of technology is also
faster.
It includes reduction on traffic and prohibitions. It spread goodwill among
member countries and also helps in reducing the chances of conflict.
Types of Regional Integration:
1. Preferential trading agreement: It gives preferential access to certain
products from the participating countries. This can be called as a limited or
sector based free trade area.
2. Free trade area: It includes the reciprocal removal of tariffs on member
countries goods. In an FTA, each member is free within the limits specified by
the
GATT/WTO system on deciding the level of external tariffs that will be applied
to
nonmembers. As there is flexibility on the interactions with the third countries,
the
members in an FTA are free to establish or join other FTAs.
3. Custom union: It is a type of agreement that include determination of the
common external tariff (CET), in addition to the elimination of the internal tariff
rates. Generally, determination of the CET is done through taking an average
of all partners before union tariff levels.
4. Common market: It is where there is free factor mobility capital,
investment and labor in addition to the customs union requirements that
determine free flows of goods and services. This integration requires

governments to employ coordinated actions in order to ensure the equal


treatment for all factors in the member countries of the CM.
5. Economic union: It results from the enlargement of a common market with
the additional requirement of the harmonization of economic policies, both
monetary and fiscal. It further involves the creation of an independent regional
central bank that has control over exchange rate policy and inflation rates.
6. Political union: It is a type of agreement which includes the
harmonization of economic and political policies, and so as to become a single
state. This kind of integration necessitates the loss of sovereignty and the
creation
of domestic institutions on the international level.
Ques 4- Write short note on:
a) Foreign currency derivatives - foreign exchange derivative is a financial
derivative whose payoff depends on the foreign exchange rate(s) of two (or
more) currencies. These instruments are commonly used for currency
speculation and arbitrage or for hedging foreign exchange risk. Currency
derivative is defined as s financial as a financial contract in order to swap two
currencies at a predestined rate. It can also be termed as the agreement
where the value can be determined from the rate of exchange of two
currencies at the spot. The currency derivative trades in markets correspond
to the spot (cash) market. Hence, the spot market exposures can be enclosed
with the currency derivatives. The main advantage from derivative hedging is
the basket of currency available.
Some of the risks associated with currency derivatives are:
Credit risk takes place, arising from the parties involved in a contract.
Market risk occurs due to adverse moves in the overall market.
Liquidity risks occur due to the requirement of available counter parties
to take the other side of the trade.
Settlement risks similar to the credit risks occur when the parties
involved in the contract fail to provide the currency at the agreed time.
b) bases of international tax systems- Countries that tax income generally use
one of two systems: territorial or residential. In the territorial system, only local
income income from a source inside the country is taxed. In the residential
system, residents of the country are taxed on their worldwide (local and
foreign) income, while nonresidents are taxed only on their local income. In

addition, a very small number of countries, notably the United States, also tax
their nonresident citizens on worldwide income.
The bases of international tax system are:
Tax neutrality- The neutrality of international tax system is important
because it must not affect the economic efficiency. If the tax is neutral then
it will not influence the locality of the investment or nationality of the
investor. The capital can shift from a nation with lesser return to a nation
with higher return. Therefore, resources will be allocated well, and the
gross world output in turn will be high.
Tax equity- The principle of tax equity states that all equally positioned tax
players contribute in the cost of operating the government according to the
equal rules. The idea of equity can be understood in two ways. The first
one states that the input of each tax player must be consistent with the
amount of public services as received. The second idea is that the
contribution of each tax player must be in terms of their ability to pay. The
ability to pay means the one with greater ability is likely to pay a larger
amount of tax.
Avoidance of double taxation- The avoidance of double income states
that one must not be taxed twice for the same income. However, if the
post-tax income is sent to the foreign countries then in that case the receiver
of such income is taxed again. This implies the same income is
subjected to double taxation. As an alternative, the requirements of foreign
tax credits may be formed in the domestic tax system. There also exist
some tax laws which prevent the tax through artificial transactions such as
transfer pricing. In addition, the corporate structures will help to reduce the
Ques-5 Strategic planning involves allocation of resources to firms to fulfil their
long term goals. What are the types of strategic planning? Compare Top-down
Vs Bottom-up planning.
Answer 5:
There are three main types of plans that a manager will use in his or her
pursuit
of company goals, which include
[A]Strategic : Strategic plans are designed with the entire organization in mind
and begin with an organization's mission. Top-level managers, such as CEOs
or
presidents, will design and execute strategic plans to paint a picture of the
desired future and long-term goals of the organization. Essentially, strategic
plans
look ahead to where the organization wants to be in three, five, even ten
years.
Strategic plans, provided by top-level managers, serve as the framework for

lower-level planning. Example is Tommy is a top-level manager for Nino's


Pizzeria. As a top-level manager, Tommy must use strategic planning to
ensure
the long-term goals of the organization are reached. For Tommy, that means
developing long-term strategies for achieving growth, improving productivity
and
profitability, boosting return on investments, improving customer service and
finding ways to give back to the community in which it operates.
[B]Operational: Operational plans sit at the bottom of the totem pole; they are
the plans that are made by front-line, or low-level, managers. All operational
plans are focused on the specific procedures and processes that occur within
the
lowest levels of the organization. Managers must plan the routine tasks of the
department using a high level of detail. Frank, the front-line manager at Nino's
Pizzeria, is responsible for operational planning. Operational planning
activities
for Frank would include things like scheduling employees each week;
assessing,
ordering and stocking inventory; creating a monthly budget; developing a
promotional advertisement for the quarter to increase the sales of a certain
product (such as the Hawaiian pizza) or outlining an employee's performance
goals for the year. Operational plans can be either single-use or ongoing
plans.
Single-use plans are those plans that are intended to be used only once. They
include activities that would not be repeated and often have an expiration.
Creating a monthly budget and developing a promotional advertisement for
the
quarter to increase the sales of a certain product are examples of how Frank
would utilize single-use planning.
[C]Tactical: Tactical plans support strategic plans by translating them into
specific plans relevant to a distinct area of the organization. Tactical plans are
concerned with the responsibility and functionality of lower-level departments
to
fulfill their parts of the strategic plan. For example, when Martha, the middlelevel
manager at Nino's, learns about Tommy's strategic plan for increasing
productivity, Martha immediately begins to think about possible tactical plans
to
ensure that happens. Tactical planning for Martha might include things like
testing
a new process in making pizzas that has been proven to shorten the amount
of
time it takes for prepping the pizza to be cooked or perhaps looking into
purchasing a better oven that can speed up the amount of time it takes to
cook a

pizza or even considering ways to better map out delivery routes and drivers.
As
a tactical planner, Martha needs to create a set of calculated actions that take
a
shorter amount of time and are narrower in scope than the strategic plan is but
still help to bring the organization closer to the long-term goal.
Compare Top-down Vs Bottom-up planning?
1. Executive Decision Making
In a top down strategic management model, ownership or high-level
management personnel determine objectives and how the rest of the business
will work toward accomplishing those objectives. As a small business owner,
this
puts all the responsibility on you and your management team to come up with
how you will make your company successful and how each employee will
contribute to that success.
2. Advantages and Disadvantages
If you want to direct every aspect of how your business operates to
accomplish
its goals and objectives, a top down strategic management model can provide
you with the necessary level of control. This ensures your small business
operates exactly to your specifications. Problems can arise with this strategic
management model because your company's success rides directly on the
shoulder's of your business savvy.
3. Workforce Strategy Development
By contrast, a bottom up strategic management model seeks to develop ideas
using the brainpower of your entire workforce. You, as the small business
owner,
still determine the overall goals for your company along with the dates you'd
like
to see these goals accomplished, but your employees of all levels assist in
developing the mechanisms to reach those goals. Your management team
compiles all the ideas from group brainstorming sessions and departmental
meetings to allow you to select the strategies showing the most promise.
4. Benefits and Problems
Involving your entire workforce in a bottom up strategic management model
can
build morale and a sense of ownership of your company's direction among
employees of all levels. Your employees will be more actively engaged in the
work and strive harder to reach objectives. This strategic model can also
cause a
logjam of ideas on your desk and make it difficult to sort through the
information
to come up with an effective plan for reaching company goals

There are three main types of plans that a manager will use in his or her
pursuit
of company goals, which include
[A]Strategic : Strategic plans are designed with the entire organization in mind
and begin with an organization's mission. Top-level managers, such as CEOs
or
presidents, will design and execute strategic plans to paint a picture of the
desired future and long-term goals of the organization. Essentially, strategic
plans
look ahead to where the organization wants to be in three, five, even ten
years.
Strategic plans, provided by top-level managers, serve as the framework for
lower-level planning. Example is Tommy is a top-level manager for Nino's
Pizzeria. As a top-level manager, Tommy must use strategic planning to
ensure
the long-term goals of the organization are reached. For Tommy, that means
developing long-term strategies for achieving growth, improving productivity
and
profitability, boosting return on investments, improving customer service and
finding ways to give back to the community in which it operates.
[B]Operational: Operational plans sit at the bottom of the totem pole; they are
the plans that are made by front-line, or low-level, managers. All operational
plans are focused on the specific procedures and processes that occur within
the
lowest levels of the organization. Managers must plan the routine tasks of the
department using a high level of detail. Frank, the front-line manager at Nino's
Pizzeria, is responsible for operational planning. Operational planning
activities
for Frank would include things like scheduling employees each week;
assessing,
ordering and stocking inventory; creating a monthly budget; developing a
promotional advertisement for the quarter to increase the sales of a certain
product (such as the Hawaiian pizza) or outlining an employee's performance
goals for the year. Operational plans can be either single-use or ongoing
plans.
Single-use plans are those plans that are intended to be used only once. They
include activities that would not be repeated and often have an expiration.
Creating a monthly budget and developing a promotional advertisement for
the
quarter to increase the sales of a certain product are examples of how Frank
would utilize single-use planning.
[C]Tactical: Tactical plans support strategic plans by translating them into
specific plans relevant to a distinct area of the organization. Tactical plans are
concerned with the responsibility and functionality of lower-level departments
to

fulfill their parts of the strategic plan. For example, when Martha, the middlelevel
manager at Nino's, learns about Tommy's strategic plan for increasing
productivity, Martha immediately begins to think about possible tactical plans
to
ensure that happens. Tactical planning for Martha might include things like
testing
a new process in making pizzas that has been proven to shorten the amount
of
time it takes for prepping the pizza to be cooked or perhaps looking into
purchasing a better oven that can speed up the amount of time it takes to
cook a
pizza or even considering ways to better map out delivery routes and drivers.
As
a tactical planner, Martha needs to create a set of calculated actions that take
a
shorter amount of time and are narrower in scope than the strategic plan is but
still help to bring the organization closer to the long-term goal.
Compare Top-down Vs Bottom-up planning?
1. Executive Decision Making
In a top down strategic management model, ownership or high-level
management personnel determine objectives and how the rest of the business
will work toward accomplishing those objectives. As a small business owner,
this
puts all the responsibility on you and your management team to come up with
how you will make your company successful and how each employee will
contribute to that success.
2. Advantages and Disadvantages
If you want to direct every aspect of how your business operates to
accomplish
its goals and objectives, a top down strategic management model can provide
BOTTOM -UP
Flexibility
Team Work
Project is team driven
Lack of long -term vision.
High level of team motivation.
Employee feel valued.
TOP - DOWN
Goals are determined early in process
Inflexibility.
Lack of employee participation.
Process imposed by management.
Lack of motivation.

Employees feel there input not valued.


Ques 6- Explain the function of human resource planning
Discuss the scope of International Human Resource Management
Ans- Human Resource Management has come to be recognized as an
inherent part of management, which is concerned with the human
resources of an organization. Its objective is the maintenance of better
human relations in the organization by the development, application and
evaluation of policies, procedures and programs relating to human
resources to optimize their contribution towards the realization of
organizational objectives.
The various features of HRM include:
It is pervasive in nature as it is present in all enterprises.
Its focus is on results rather than on rules.
It tries to help employees develop their potential fully.
It encourages employees to give their best to the organization.
It is all about people at work, both as individuals and groups.
It tries to put people on assigned jobs in order to produce good results.
It helps an organization meet its goals in the future by providing for
competent and well-motivated employees.
It tries to build and maintain cordial relations between people working at
various levels in the organization.
It is a multidisciplinary activity, utilizing knowledge and inputs drawn from
psychology, economics, etc.
The scope of IHRM is very wide:
1. Personnel aspect-This is concerned with manpower planning,
recruitment, selection, placement, transfer, promotion, training and
development, layoff and retrenchment, remuneration, incentives,
productivity etc.
2. Welfare aspect-It deals with working conditions and amenities such as
canteens, creches, rest and lunch rooms, housing, transport, medical
assistance, education, healthand safety, recreation facilities, etc.
3. Industrial relations aspect-This covers union-management relations, joint
consultation, collective bargaining, grievance and disciplinary procedures,
settlement of disputes, etc.
- See more at: http://www.hr.com/en/app/blog/2012/10/human-resource-

management---nature-scopeobjective_h86amp3f.html#sthash.QidSbg3I.dpuf

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