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Q1. The world economy is globalizing at an accelerating pace. What do you mean by globalization? Discuss the merits and demerits of Globalization. Ans. Globalization Globalization is a process where businesses are dealt in markets around the world, apart from the local and national markets. According to business terminologies, globalization is defined as the worldwide trend of businesses expanding beyond their domestic boundaries. It is ad antageous for the economy of countries because it promotes prosperity in the countries that embrace globalization. !enefits of globalization !romotes foreign trade and liberalization of economies. Increases the li ing standards of people in se eral de eloping countries through capital in estments in de eloping countries by de eloped countries. "enefits customers as companies outsource to low wage countries. #utsourcing helps the companies to be competiti e by keeping the cost low, with increased producti ity. !romotes better education and $obs. %eads to free flow of information and wide acceptance of foreign products, ideas, ethics, best practices, and culture. !ro ides better &uality of products, customer ser ices, and standardized deli ery models across countries. Gi es better access to finance for corporate and so ereign borrowers. Increases business tra el, which in turn leads to a flourishing tra el and hospitality industry across the world. Increases sales as the a ailability of cutting edge technologies and production techni&ues decrease the cost of production. Demerits of globalization %eads to exploitation of labour in se eral cases. 'auses unemployment in the de eloped countries due to outsourcing. %eads to the misuse of Intellectual !roperty (ights )I!(*, copyrights and so on due to the easy a ailability of technology, digital communication, tra el and so on. Influences political decisions in foreign countries. +he ,-'s increasingly use their economical powers to influence political decisions. 'auses ecological damage as the companies set up polluting production plants in countries with limited or no regulations on pollution. .arms the local businesses of a country due to dumping of cheaper foreign goods. %eads to ad erse health issues due to rapid expansion of fast food chains and increased consumption of $unk food.

'auses destruction of ethnicity and culture of se eral regions worldwide in fa our of more accepted western culture. Q,. The international trade theories e1plain the basics behind international trade. $ompare the Absolute and comparati2e cost ad2antage theories with the help of e1ample. Ans. Absolute ad2antage theoryIn one of the most notable book /ealth of -ations in 0112, Adam 3mith attacked the mercantilism and argued that countries differ in their ability to produce goods and ser ices efficiently due to ariety of reasons. At that time, 4ngland, by irtue of their superior manufacturing processes, were the worlds most efficient textile manufacturers of the world. +his was due to combination of se eral factors such as fa orable climate, good soils, skilled manpower and accumulated experience and expertise in textile production. #n the other hand, the 5rench had one of the most efficient wine industries of the world. +hus, 4ngland had an absolute ad antage in the manufacturing of textiles and 5rance had an absolute ad antage in the production of wine. Adam 3mith argued that a country has an absolute ad antage if it has one of the most efficient and cost effecti e product in comparison to any other country producing it. 3mith argued that countries should specialize in production and manufacturing of goods and ser ices in which they ha e an absolute ad antage. 3uch cost effecti e and efficient products can be traded with goods from other countries in which that country has an absolute ad antage. +he crux of 3miths absolute ad antage theory is that a country should not produce goods at home in which it does not ha e cost ad antage6 instead it should import from other countries. Absolute ad antage theory was based on positi e sum game where countries benefit from trade unlike mercantilism theory which was based on zero game. $omparati2e ad2antage theory 7a id (icardo, in his notable book !rinciples of !olitical 4conomy published in 0801 came up with an impro ement on Adam 3miths absolute ad antage theory. (icardo argued what might happen if one country has an absolute ad antage in the production of all goods. Adam 3miths theory suggests that such a country might not ha e benefited from international trade as trade is positi e sum game and countries prosper only if they exchange the goods in which they ha e absolute ad antage. (icardo argued that it was not the case and showed that countries should trade goods with each other where they ha e comparati e cost ad antage. 5or a sustainable economic system, (icardo argued that a country should specialize in the production of those goods that it can produce most efficiently and import the goods which it produces less efficiently e en if it has absolute cost ad antage in the production of those goods.

Q+. $ulture is more often a source of conflict than synergy. As an 0ndian manager3 what management style and corporate culture you should be aware of while tra2eling to 4apan and to 5"A?

Ans. $omparison of $orporate $ultures 6 $ountry !asis of approach to corporate culture 9apan (elationship must come before business. !usiness structure %anagement style Team wor7

.ierarchically structured, based on harmony and co:operation, with indi iduals aware of their position within a group.

Information flows from the bottom of the company to the top. Implementation of decisions has been acti ely in ol ed in the modeling of policy. Indi idual !ersonality is not seen as the re&uisite for effecti e leadership. ,anagement style is indi idualistic in approach6 managers are responsible for the decisions made within their regions of responsibility. Important decisions are discussed in open en ironment and the responsibility for the concerns of the decision lies with the manager.

'onsensus: building process is used to define an agreement before a formal meeting to a oid any conflict. !eople are expected be ,odest and self: promotion is not encouraged.

;3A

4 ery aspect of commercial life is studied and analyzed.

+he company is an entity in its own right and sur i es independently from its workers. 3enior management is more rooted in the personality at the top. Americans like to know where exactly they are, what are their responsibilities and to whom they report.

Groups of indi iduals are brought together to complete a gi en task. 7uring that period the group is together, e erybody is committed to the common goals, and work with dedication to assure that the goals are accomplished. +eams are assumed to be temporary in nature.

Q.. &egional integration is the bonding between nations and states through political3 cultural and economic cooperation. A whole range of regional integration e1ists today. Discuss these 8 types in brief. Ans. Types of 0ntegration 9referential trading agreement !referential trading agreement is a trade pact between countries. It is the weakest type of economic integration and aims to reduce taxes on few products to the countries who sign the pact. +he tariffs are not abolished completely but are lower than the tariffs charged to countries not party to the agreement. :ree trade area 5ree +rade Area )5+A* is a type of trade bloc and can be considered as the second stage of economic integration. It comprises of all countries that are willing to or agree to reduce preferences, tariffs and &uotas on ser ices and goods traded between them. 'ountries choose this kind of economic integration if their economical structures are similar. If countries compete among themsel es, they are likely to choose customs union. +he importers must obtain product information from all suppliers within the supply chain in order to determine the eligibility for a 5ree +rade Agreement )5+A*. After recei ing the supplier documentation, the importer must e aluate the eligibility of the product depending on the rules pertaining the products. +he importers product is &ualified indi idually by the 5+A. +he product should ha e a minimum percentage of local content for it to be &ualified. $ustom union 'ustom ;nion is an agreement among two or more countries ha ing already entered into a free trade agreement to further align their external tariff to help remo e trade barriers. 'ustom union agreement among negotiating countries may encompass to reduce or eliminate customs duty on mutual trade. ;nder customs union agreement, countries generally impose a common external :tariff )'+5* on imports from non: member countries. 3uch common external tariff helps the member countries to reap the benefits of trade expansion, trade creation and trade di ersification. In the absence of common external tariff, there is a possibility that countries with lower custom duties may become conduits for members which has higher custom duty. $ommon mar7et 'ommon market is a group formed by countries within a geographical area to promote duty free trade and free mo ement of labour and capital among its members. 4uropean community is an example of common market. 'ommon markets le y common external tariff on imports from non:member countries. A single market is a type of trade bloc, comprising a free trade area with common policies on product regulation, and freedom of mo ement of goods, capital, labour and ser ices, which are known as the four factors of production. +his agreement aims at making the mo ement of four factors of production between the member countries easier. +he technical, fiscal and physical barriers among the member countries are eliminated considerably as these barriers hinder the freedom of mo ement of the four factors of production. +he member countries must come forward to eliminate these barriers, ha e a political will and formulate common economic policies.

;conomic union 4conomic union is a type of trade bloc and is instituted through a trade pact. It comprises of a common market with a customs union. +he countries that are part of an economic union ha e common policies on the freedom of mo ement of four factors of production, common product regulations and a common external trade policy. +he purpose of an economic union is to promote closer cultural and political ties while increasing the economic efficiency between the member countries. 9olitical union A political union is a type of country, which consists of smaller countries<nations. .ere, the indi idual nations share a common go ernment and the union is acknowledged internationally as a single political entity. A political union can also be termed as a legislati e union or state union. Q'. The decision of a firm to compete internationally will be strategic. While formulating global mar7eting strategies3 how should a firm deal with segmentation3 mar7et positioning and international product policy? Ans. "egmentation 5irms that ser e global markets can be segregated into se eral clusters based on their similarities. 4ach such cluster is termed as a segment. 3egmentation helps the firms to ser e the markets in an impro ed way. ,arkets can be segmented into nine categories, but the most common method of segmentation is on the basis of indi idual characteristics, which include the beha ioural, psychographic and demographic segmentations. +he basis of beha ioural segmentation is the general beha ioural aspects of the customers. 7emographic segmentation considers the factors like age, culture, income, education and gender. !sychographic segmentation takes into account=beliefs, alues, attitudes, personalities, opinions, lifestyles and so on. #nce you are done with the segmentation of market, you can choose one or more segments to carry out trade. +his process of selecting or choosing the potential market segment is known as targeting. +he three basic criteria for targeting are = potential competition, the current size and growth rate of the market and compatibility and feasibility. After the target market has been ascertained, firms should select a global marketing strategy. %ar7et positioning +he next step in the marketing process is, the firms should position their product in the global market. !roduct positioning is the process of creating a fa ourable image of the product against the competitor>s products. In global markets, product positioning is categorized as high:tech or high=touch positioning. #ne challenge that firms face is to make a tradeoff between ad$usting their products to the specific demands of a country and gaining ad antage of standardization, such as the maintenance of a consistent global brand image and cost sa ings. 0nternational product policy

3ome theorists of the industry feel that there is a difference between con entional products and ser ices, stressing on ser ice characteristics, such as heterogeneity ) ariation in standards among pro iders and different locations of the same firm*, inseparability from consumption, intangibility and perishability. +ypically, products are composed of some ser ice component like documentation, warranty and distribution. +hese ser ice components are an integral part of the product and its positioning. 5irms ha e a choice in marketing their products across markets. ,any a times firms opt for a strategy which in ol es customization through which the firm introduces a uni&ue product in each country. #n the other hand, standardization proposes the marketing of one global product with the belief that the same product can be sold in different countries without significant changes. 5or example Intel microprocessors are the same irrespecti e of the country in which they are sold.

Q8. Global sourcing industry is on a growth run as there are sound business reasons to it. Discuss these reasons with e1amples. Ans. &easons for Global "ourcing -ower salary and wages +he foremost reasons for global sourcing has been the financial incenti e of outsourced operations to low cost labour destinations such as India, !hilippines, !oland and (omania. 7ue to the different stages of economic de elopment, labour cost of workers in any de eloped countries is far higher than their counterparts. &egulatory costs in business An underappreciated incenti e in global sourcing to de eloping countries including India has seen significant difference in the regulatory cost of business. Attorneys in India charge a fraction of the cost compared to those in the ;3, hence, law firms in the ;3 get their law related work done in India. ,oreo er, cost of employment in ;3 is far higher as companies ha e to offer legally complying pay packages which include social security, medical care, post retirement benefits, entertainment allowances, employee group insurance, unemployment insurance, etc. 3uch components may not exist in countries like India. %ayoff expenditure in ;3 are far higher than in India, thus, companies outsource their business operations to countries like India, 'hina, ?ietnam, +hailand, 3outh Africa, -igeria and "razil. Ta1 brea7s and benefits 7e eloping countries like India offer tax breaks for new entrants thus offering cost sa ings for these companies. 5or example, .yundai was offered a tax break )?A+* of @ years by the +amilnadu go ernment for setting up a plant. -okia shifted its plant from Germany to (omania as it had low labour cost coupled with tax breaks offered by go ernment.

0mpro2ed performance 7e eloped countries usually outsource their business operations to de eloping countries like India which is at the bottom of their core operations, monotonous and

re&uire huge labor. 3uch work can be done by dedicated outsourced labour force in de eloping country at a fraction of the cost of de eloped countries. It is found that such bottom of the pyramid, monotonous and repetiti e work has far better performance in de eloping countries due to specialization and dedicated expertise for the work. :aster turnaround time 'ompanies as well as go ernment are outsourcing their non core operations to low cost countries as it helps not only to focus on core acti ities but to also get the re&uired $ob done much faster with reduced time and accuracy. In business, time is money as the saying goes, thus, firms outsource some of their business operations for faster and &uicker turnaround time. 5ncertainty o2er political<business climate Another ad antage of global sourcing is that companies want to e ade their political and business risks by locating their business operations at arious parts of the world. If political or economic problems occur in any region, the company will be able to continue its operations without disruption by fulfilling their needs from other global sourcing location. 5or example, auto companies worldwide ha e in ested in India as well as in +hailand for supply of auto components as both are low cost countries ha ing specialization in the auto component industry. If there is a problem in India supplies can be taken from +hailand or ice ersa. 9ro1imity to 7ey mar7ets In an era of globalization, firms ha e outsourced their business operations close to their key markets. 5or example, it is cheaper to manufacture goods in +hailand or 'hina and then ship them to 9apan than to ship them from ;3 or 4urope. ,ultination organizations ha e resorted to global sourcing to countries like India to fulfill their markets demand not only for 3outh Asia but also for 4ast Asia, ,iddle:4ast and 4astern Africa.