B0053 International Business Management

Q1 Environment scanning is an important part of international business. Explain your views

on this statement and discuss what factors need to be scanned.
Any organisaton planning to go international should need to take into account the following factors
before entering into international arena.
Culture is one of the most important considerations in doing international business. It encompasses a
wide range of elements, including language, social situations, religion, political philosophy, economic
philosophy, education, manners and customs.
The political and legal environment creates vastly different business situations as well as market
opportunities. Political stability, trade barriers such as tariffs, price fluctuations, business laws, types of
ownership and organizational forms, property rights, contract and patent laws, and enforcement all
need to be carefully considered in any decision involving international market selection and
expansion.
The economic system and its stage of development also affect the global entrepreneur. There are
different problems in doing business in controlled or developing economies, particularly in converting
currency, the differences in accounting systems and the repatriation of profits.
The technological environment, similarly, can make it difficult to achieve a level of quality and to
produce standardized, uniform products or services.
The countrys infrastructure also is important. Roads, electricity, gas, communication systems,
educational systems, banking systems and distribution systems vary widely from those in the U.S. The
state of development of each of these impacts the way business is done.

Legal factors The current legal regulations has to be worked out before plan to go international so
that the expatriate company may not find any problem with the laws of the land ((host country) in
dealing with various issues especially employees.

Q2. What is FDI? Why is it considered as the best option for a developing country like India?

The Foreign Direct Investment means cross border investment made by a resident in one economy in
an enterprise in another economy, with the objective of establishing a lasting interest in the investee
economy.
FDI is also described as

investment into the business of a country by a company in another

country. Mostly the investment is into production by either buying a company in the target country
or by expanding operations of an existing business in that country.

Such investments can take place

for many reasons, including to take advantage of cheaper wages, special investment privileges (e.g.
tax exemptions) offered by the country.
Benefits of FDI
1. Source of external capital and increased revenue- FDI can be a tremendous source of
external capital for a developing country, which can lead to economic development.
For example, if a large factory is constructed in a small developing country, the country will typically
have to utilize at least some local labor, equipment and materials to construct it. This will result in new
jobs and foreign money being pumped into the economy. Once the factory is constructed, the factory
will have to hire local employees and will probably utilize a least some local materials and services.
This will create further jobs and maybe even some new businesses. These new jobs mean that locals
have more money to spend, thereby creating even more jobs.
Additionally, tax revenue is generated from the products and activities of the factory, taxes imposed on
factory employee income and purchases, and taxes on the income and purchases now possible because
of the added economic activity created by the factory. Developing governments can use this capital
infusion and revenue from economic growth to create and improve its physical and economic
infrastructure such as building roads, communication systems, educational institutions and subsidizing
the creation of new domestic industries.
2. Development of new industries- Remember that a MNE doesn't necessary own all of the
foreign entity. Sometimes a local firm can develop a strategic alliance with a foreign investor
to help develop a new industry in the developing country. The developing country gets to
establish a new industry and market, and the MNE gets access to a new market through its
partnership with the local firm.
3. Learning- This is more of an indirect advantage. FDI exposes national and local governments,
local businesses and citizens to new business practices, management techniques, economic
concepts, and technology that will help them develop local businesses and industries

4. Integration into global economy - Developing countries, which invite FDI, can gain access to
a wider global and better platform in the world economy.
5. Economic growth - This is one of the major sectors, which is enormously benefited from
foreign direct investment. A remarkable inflow of FDI in various industrial units in India has
boosted the economic life of country.
6. Trade - Foreign Direct Investments have opened a wide spectrum of opportunities in the
trading of goods and services in India both in terms of import and export production. Products
of superior quality are manufactured by various industries in India due to greater amount of
FDI inflows in the country.
7. Technology diffusion and knowledge transfer FDI apparently helps in the outsourcing of
knowledge from India especially in the Information Technology sector. Developing countries
by inviting FDI can introduce world-class technology and technical expertise and processes to
their existing working process. Foreign expertise can be an important factor in upgrading the
existing technical processes.

For example, the civilian nuclear deal led to transfer of nuclear energy know-how between the USA
and India.
8. Increased competition - FDI increases the level of competition in the host country. Other
companies will also have to improve on their processes and services in order to stay in the
market. FDI enhanced the quality of products, services and regulates a particular sector.
Linkages and spillover to domestic firms- Various foreign firms are now occupying a position
in the Indian market through Joint Ventures and collaboration concerns. The maximum amount
of the profits gained by the foreign firms through these joint ventures is spent on the Indian
market.
9. Human Resources Development - Employees of the country which is open to FDI get
acquaint with globally valued skills.
10. Employment - FDI has also ensured a number of employment opportunities by aiding the
setting up of industrial units in various corners of India.
Q3 Regional integration is helping the countries in growing their trade. Discuss this statement.
Describe in brief the various types of regional integrations.
The European Union (EU)

The European Union (EU) is an economic and political union established in 1993. This came into
effect because of the Treaty of Maastricht, signed on 7th February 1992 by the European
Communities. The EU comprises of 27 member states committed to regional integration. The EU has
developed a single market for all the member states and sixteen member states have adopted a
common currency called the Euro. The member states sign an agreement called Schengen Agreement,
which ensures the free movement of people, goods, capital and services, including the abolition of
passport controls. The agreement enacts legislation in justice and home affairs, and maintains common
policies on trade, agriculture, fisheries and regional development.

European Free Trade Association (EFTA)

The European Free Trade Association (EFTA) is a free trade organization established in 1960 between
four European counties, Norway, Switzerland, Iceland and Liechtenstein. The EFTA was formed at the
Stockholm Convention between seven countries, presently only four countries remain as the members
of EFTA. The EFTA was formed as an alternative to EU, allowing countries to join EFTA if they were
not willing to join EU. It operates parallel to the EU. The Stockholm Convention was replaced by the
Vaduz.
North American Free Trade Agreement (NAFTA)
The North American Free Trade Agreement (NAFTA) was signed in 1994 by three governments,
Canada, Mexico and the United States. This trade agreement is the largest in the world in terms of
combined purchasing power parity Gross Domestic Product (GDP) and second largest by nominal
GDP comparison. The NAFTA is divided into two sections, the North American Agreement on
Environmental Cooperation (NAAEC) and the North American Agreement on Labour Cooperation
(NAALC).
Southern Common Market (MERCOSUR)
MERCOSUR is a trade pact between Argentina, Brazil, Paraguay and Uruguay. It was established in
1991 to promote free trade and a smooth movement in currency, goods and people between these
nations. The act helps reduce tariffs between the nations by 90 percent. MERCOSUR was initiated in
1985 when the Presidents of Argentina and Brazil signed the Argentina-Brazil Integration and
Economics Cooperation Program. Since then, other countries like Bolivia, Chile, Columbia, Ecuador

and Peru have become members in this pact. In the 2004 presidential summit, it was agreed that it
should have 18 representatives from each country by 2010.
ASEAN Free Trade Area (AFTA)
AFTA is a trade agreement formulated by the Southeast Asian Nations association that supports local
manufacturing in all the ASEAN countries. The AFTA agreement was signed in Singapore on 28th
January, 1992. Initially when the AFTA agreement was signed, ASEAN comprised of six members:
Thailand, Singapore, Philippines, Malaysia, Indonesia and Brunel. Then Vietnam joined the AFTA
agreement in 1995, followed by Myanmar and Laos in 1997 and Cambodia in 1999. Now, AFTA
consists of ten ASEAN countries. The four latecomers had to sign the AFTA agreement to join
ASEAN; however, they were given longer time duration to meet the tariff reduction obligations of
AFTA.
Asia-Pacific Economic Cooperation (APEC)
The Asia-Pacific Economic Cooperation (APEC) is the best forum for assisting investment, trade,
cooperation and economic growth in the AsiaPacific region. APEC is the sole inter-governmental
grouping in the world functioning on the basis of equal respect, open dialogue and non-binding
commitments for the views of its participants. Unlike WTO and the other multilateral trade bodies,
APEC does not have any treaty obligation for their participants. The decisions within APEC are
finalised by commitments and consensus undertaken on voluntary basis.
South Asian Free Trade Area (SAFTA)
South Asian Free Trade Area (SAFTA) agreement was initiated at the 12 th SAARC summit on 6th
January, 2004 in Pakistan. This agreement envisaged the creation of a free trade zone model in its
seven member nations. The seven member nations consist of nearly 1.4 billion people from various
countries like:

Nepal.
Maldives.
Bhutan.
Bangladesh.
Pakistan.
India.

SAFTA agreement was formulated to levy zero customs duty for trading products by 2012. This
agreement was implemented after confirming its compliance by governments of seven member
nations.
Q4 Write short note on:
a) Licensing
b) Joint venture
a) meaning and examples of licensing
b) Meaning and examples of joint venture
Licensing
Licensing is also an easy, risk free and costless method to enter into international markets. Licensing
operate in a way that it permits another company in the target country to use its property as a licensee
and in exchange, pays a fee or royalty on sales so incurred. The property of licensor is intangible, such
as trademarks, patents, copy rights, technical know-how and production techniques. The licensee has
to pay the fee in exchange for the rights to use the intangible property as granted by the licensor.
Licensing is very preferred way of market entry into international market in globalised era as it
requires little investment on the part of the licensor. Licensing, if effectively used as an entry mode,
has the potential to provide good return to the licensor, but usually it has been seen that licensee who
produces and markets the product takes away returns from manufacturing and marketing activities due
to vague regulatory law in developing countries
Joint ventures
Joint ventures are market entry options whereby firm and another company or firm in target market
may join together to form a new incorporated company for business operations in that market. In joint
ventures, both the parties are supposed to provide capital and resources in the agreed proportion and
accordingly they will represent and share profits and loses. Such mode of entry is popular in countries
where there are restrictions on foreign ownership. For example Venezuela, China, Vietnam. Joint
venture is also a preferred way of market entry as it is good tradeoff between potential risks and
returns and usually joint ventures is manifested with the following common objectives for market
entry in globalised era. They are:

a. Market entry into potential market.

b. Risk/reward sharing between parties.
c. Technology sharing between parties.
d. Joint product development between parties.
e. Conforming to government regulations.
f. Possible advantages from political connections

Q5 Explain the Top-down and Bottom-up approach of planning.

Top-Down Planning
Top-down planning is referred to as strategy. Top-down project planning is focused on keeping the
decision making process at the senior level. Goals and quotas are established at the highest level, and
those at the top are not often willing to take advice or any guidance from lower level employees.
Senior-level managers need to be as specific as possible when laying out expectations since those
following the plan are not involved in the planning process. Because employees are not included in
any of the decision making process and are often only motivated through either fear or incentives,
moral can become an issue.
With top-down planning, management must choose techniques to align projects and goals.
Management holds the sole responsibility for the plans set forth and for the end result. This way of
thinking assumes that management knows best how to plan and carry out a project, thus not taking

advantage of talented employees who may have more experience with certain aspects of the project.
Some see the top-down planning process as a way to make a plan, and not about who develops the
plan. It allows management to divide a project into steps, and then into still smaller steps. This
continues until the steps can be studied, due-dates can be accurately assigned, and then parts of the
project can be assigned to an employee. However, the focus is on long-term goals, and the here-andnow goals can get lost. Often, this approach is applied best to very small projects.

Bottom-Up Planning
Bottom-up planning is referred to as tactics. With bottom-up planning, you give your project deeper
focus because you have a larger number of employees involved, each with their own area of
expertise. Team members work side-by-side and have input during each stage of the process. Plans are
developed at the lowest levels and are then passed on to each next higher level. It then reaches senior
management for approval.
Lower-level employees are more likely to take personal stock in a plan that they are involved in
planning. Employees are more motivated and morale improves. While project managers are ultimately
responsible for the completion of the project, no matter the steps taken it is management that
ultimately must be the final step in the system of checks and balances.
Q6 Discuss the importance of ethics in international business.
Importance of business ethics in international business
Ethics is significant in all areas of business and plays an important role in ensuring a successful
business. The role of business ethics is evident from the conception of an idea to the sale of a product.
In an organisation, every division such as sales and marketing, customer service, finance, and
accounting and taxation has to follow certain ethics. If a company pursue with ethical standards
internationally it will have the following advantages.
Public image In order to gain public confidence and respect, organisations must ascertain that they
are honest in their transactions. The services or products of a business affect the lives of thousands of
people. It is important for the top management to impart high ethical standards to their employees,
who develop these services or products. A company that is ethically and socially responsible has a
better public image. People tend to favour the products and services of such organisations. This in turn

will help gain investors trusta company that practices good ethical creates a positive impression
among its stakeholders.
Managements credibility with employees Common goals and values

are developed when

employees feel that the management is ethical and genuine. Managements credibility with employees
and the public are interrelated.Employees feel proud to be a part of an organisation that is respected
by the public. Generous compensations and effective business strategies do not always guarantee
employee loyalty, organisational ethics is equally significant. Thus, companies benefit from being
ethical because they attract and retain good and loyal employees.
Better decision-making Decisions made by an ethical management are in the best interest of the
organisation, its employees, and the public. Ethical decisions take into account various social,
economic and ethical factors.
Profit maximisation Companies that emphasise on ethical conduct are successful in the long run,
even though they lose money in the short run. Hence, a business that is inspired by ethics is a
profitable business. Costs of audit and investigation are lower in an ethical company.
Protection of society In the absence of proper enforcement, organisations are responsible to practice
ethics and ensure mechanisms to prevent unlawful events. Thus, by propagating ethical values, a
business organisation can save the resources of the government and protect the society from
exploitation.