International Business Solved Question Papers 2013 2006

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International Marketing
INTERNATIONAL BUSINESS
1. CALCULATE CIFC 10 Dubai in case of the following situations:
a. F.O.B Mumbai U.S. $ 10,000
b. Net Weight of the Cargo 14 metric tonnes
c. Gross Weight of the Cargo 14 metric tonnes
d. Dimensions of the cargo 2 meters x 2 meters x 2 meters
e. Freight Rate U.S. $ 60 per metric tonne and U.S. $ 100 per cubic meter
f.
Commission Payable to Agent 10% on F.O.B Mumbai
g. Insurance at 2% of CIF. Insure for 120% of CIF
2. CALCULATE CIFC 10% Dubai for the following:

a. F.O.B Mumbai Price INR 100,000 per MT
b. Net Weight of the Goods exported 10,000 KGS
c. Gross Weight of the Goods exported 14,000 KGS
d. Volume of the cargo 15 cubic meters
e. Freight Rate U.S. $ 50 per metric tonne and U.S. $ 60 per cubic meter
f.
Insurance at 2% of CIF. Insure for 120% of CIF
g. U.S $1 = INR 50
(Q.5, 2013; Q.2a, 2007)
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3. Discuss the best payment terms for the following situations.

Bring out the MERITS & DEMERITS to the exporter
SITUATION # 1:
a. You are negotiating an export order with a customer. You have to extend 120 days credit to get
the order. This is a must to bag the order
b. Business is not possible unless you extend a credit of 120 days. You do not know the customer,
your margins are meager, ECGC is reluctant to cover insurance
c. You are negotiating an export order with a customer. Your credit limits are totally exhausted
and bill discounting is out of the question
d. You are negotiating an export order with a customer. The customer is not allowing the use of
his credit limits for discounting
e. You are negotiating an export order with a customer. The order is a matter of survival for you
f.
You are negotiating an export order with a customer. You are not able to get a loan from any
source
g. You are getting an order from Nigeria for $100,000. Nigeria has a bad reputation on payments.
You want the order badly. Multiple terms are possible
h. Company is exporting a power project which will be completed in 3 years
i.
You are in a working capital jam but extending credit is a must. All your bank limits are
exhausted. Needless to say, you want the business
j.
You have been dealing with a German firm for several years through Letter of Credit & usuance
letter of credit. The customer is now requesting for change in the credit terms. The customer
wants 120 days free credit but you are reluctant
k. Shipment has to be effected every month for the next 12 months in equal installments. The
customer wants to avoid L/C opening every month. You do not want to forgo the comfort given
by L/C
SITUATION # 2: Your overseas customer wants to get into a rate contract with you for supply of
goods worth $ 100,000 every month for the next 12 months. You are required to ship the goods by
10th of every month to his country. These goods are made to the specifications of the customer. This
is your first transaction with the customer. You have sketchy information about his
creditworthiness.
(Q.5, 2012; Q.3, 2009, Q.5, 2008; Q.5, 2006; Q.2, 2005)
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4. LETTER OF CREDIT
The documentary letter of credit is supposed to balance the Interests and Concerns of Importer and
Exporter. List the needs of both. Which is the best L/C
What are the Pros and Cons of the following?
a. Sight Draft/Documents on presentation also called as Cash against documents
b. Documents on Acceptance 120 days D/A
L/C is the most used payment term in International Trade. L/C is a perfect procedure to equally protect
your (seller) interests and your buyer's interests. Using L/C as a term of payment, you risk almost nothing
and at the same time it ensures the buyer that goods are shipped before the payment has occurred.
However, you only will be paid if all terms stipulated in the L/C are met and all documents specified in the
L/C strictly comply with agreed conditions and are presented in time.
Before choosing L/C as a term of trade, you must understand what it is, how it works and what you can
do to minimize risks involved in the L/C payment process.
L/C, ITS FORMS AND TYPES:
In "plain English", L/C is a conditional bank guarantee of payment for supplied goods. "Conditional" means
that to get paid you have to present the bank-guarantor with documents, which strictly comply with the
terms and conditions specified in the L/C.
There are different forms and types of L/C, which you may (or should not) use in your operations, viz.:
Revocable and Irrevocable L/C:
"A revocable L/C may be amended or cancelled by the Issuing Bank at any moment and without prior
notice to the Beneficiary." (UCP 500, Article 8, a). This is as simple, as that. Never accept this form of L/C
in your export arrangements.
Agree that the L/C is irrevocable before you go any further in your L/C negotiations. Although UCP 500
requires that L/C should indicate whether it is revocable or irrevocable (Article 6, b), it also says "in the
absence of such indication the Credit shall be deemed to be irrevocable." (Article 6, c)
Confirmed L/C:
When you export to a country with economic or political instability or if you are unfamiliar with the Issuing
Bank, you should require that the L/C be confirmed by a first-class bank. If L/C is confirmed, the confirming
bank is liable for the payment.
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Transferable L/C:
Transferable L/C is a perfect financial tool for middlemen to secure their margin without involving any
funds. It allows dealing with more than one beneficiary. When a transferable L/C is issued in your favor,
you can transfer it to your seller and use it as a payment.
L/C "can be transferred only if it is expressly designated as "transferable" (UCP 500, Article 48, b).
Transferable L/C must correspond with the original L/C, "with the exception of:
the amount of the L/C,
any unit price,
the expiry date,
the last date for presentation of documents,
the period for shipment,
Any or all of which may be reduced or curtailed." (UCP 500, Article 48, h)
L/C payable at sight
"Payable at sight" means that you'll be paid "immediately" (in fact, it may take up to 7 days) after
presentation of the documents stipulated in the L/C to the Issuing Bank or to the Confirming Bank if it was
confirmed.
L/C payable on the maturity date
If deferred payment was agreed, you'll be paid on the maturity date indicated in the L/C after presentation
of the documents stipulated in the L/C to the Issuing Bank. Don't forget to specify the date from which
the deferring period starts (e.g. 90 days after date of transport document).
The payments under L/C are usually made by the bank upon receipt of the documents stipulated in the
L/C and a bill of exchange issued by you.
The bill of exchange (the draft) is an unconditional order in writing, signed and addressed by the drawer
(you) to the drawee (the paying bank), requiring the drawee to pay the drawer a certain sum of money
according to the terms of the L/C.
Under L/C, always draw the draft on the bank, not on the buyer.
How L/C works:
There are at least four participants, when dealing with L/C:
The buyer the Applicant
You - the Beneficiary
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Bank, the payment will come from the Issuing Bank

Bank, the payment will go to the Advising Bank.
a. D/P (documents against payment) a.k.a Cash against documents

The exporter (we) makes shipment and sends the shipping documents to the exporter's bank (the Bank
of China) for collection. The Bank of China then sends the shipping documents along with a collection
letter to the importer's bank, who then sends a collection notice to the importer. The importer makes
payment upon receiving the notice, and only after payment does the importer receive the original
shipping documents with which you take the physical possession of the goods.
The major advantage of the use of a cash against documents payment is the low cost, versus using a letter
of credit. But, this is offset by the risk that the importer will for some reason reject the documents (or
they will not be in order). Since the cargo would already be loaded (to generate the documents), we have
little recourse against the importer in cases of non-payment. So, a payment against documents
arrangement involves a high level of trust between the exporter and the importer.
b. D/A (documents against acceptance)

The D/A transaction utilizes a term or time draft. In this case, the documents required to take possession
of the goods are released by the clearing bank only after the buyer accepts a time draft drawn upon him.
In essence, this is a deferred payment or credit arrangement. The buyers assent is referred to as a trade
acceptance.
D/A terms are usually after sight, for instance at 90 days sight, or after a specific date, such as at 150
days bill of lading date.
As with open account terms, there are some inherent risks in selling on D/A:
As with a D/P, the importer can refuse to accept the goods for any reason, even if they are in good
condition.
The buyer can default on the payment of a trade acceptance. Unless it has been guaranteed by the
clearing bank, the seller will need to institute collection procedures and/or legal action.
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5. CASE STUDY KABABS AND MORE (2013)

a. DEVELOP A GLOBAL BUSINESS ARCHITECTURE FOR CREATING WEALTH IN THE SELECTED MARKETS
AND IDENTIFY WHICH BUSINESS SYSTEM ATTRIBUTES NEED TO BE CREATED TO GENERATE
VOLUMES, CONTRIBUTION, MARGINS AND IDENTIFICATION OF NEW PRODUCT SEGMENTS ON AN
ONGOING BASIS?
WEALTH CREATION:
WEALTH = Volumes (Units per year) x Contribution Margin (USD per unit) x Market Segment (PLC in years)
VOLUMES = Volumes/use x No. of uses/year x No. of users/market segment x No. of Market Segments
FIVE COUNTRIES ARE: UK (London), USA (New York), UAE (Dubai), South Africa (Johannesburg), Canada
(Toronto)
REASONS FOR CHOOSING:
All of the above mentioned locations either have a good Indian population base or people who
predominantly are interested in good international cuisine.
IDENTIFY ANY TWO MOST IMPORTANT KASH+CV FACTORS FOR NURTURING IN YOUR EMPLOYEES THAT
WILL MAKE YOU A GLOBAL LEADER EVENTUALLY
i.
Knowledge (a) Companys vision (b) Product
About products/ markets/ consumers/ competition/ substitutes/ technology/ sales/ distribution/ digital
marketing/ Finance/ HR/ PR
ii.
Attitudes (a) To remain on top of their job thus passionate (b) open to new ideas/ culture, etc. by
keeping customer in mind always.
List the Must haves and the Must not haves

iii.
Skills (a) Good communication (b) Team work
Job related and soft skills

i.
Habits (a) Hard working (b) Give feedback
Lifestyle changes that your business requires / Answer That one thing question. Daily dose of motivation
ii.
Character (a) Motivating (b) Focused
Self-igniting / Motivating / Positive Thinking / Robust Physically and Mentally

iii.
Values (a) Disciplined (b) Ethical
Ethical / Bulb Principle

iv.
Create Vision, Mission and Goals Focus on Mission and Get Result as by product
v.
Create a rich organizational culture conducive to growth
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6. DAVAR AND FROST FRAMEWORK PARAMETERS assets/competencies transferrable abroad and

pressure in the industry to globalize.
Following liberalization in 1991 when Indian borders were thrown open to imports with removal of
barrier and very low import duties, India has witnessed massive entry of MNCs and their products. The
market shares of companies in the domestic market are under threat. The Indian firms have no option
but to start looking outside India & step up International activities while simultaneously protecting
home turf
Explain with examples the strategies available to Indian Firms in the DAVAR and FROST framework
parameters viz. Assets/Competencies transferrable abroad and pressure in the Industry to
globalize. Cite Examples of Each Strategy suggested by you. (Q.2, 2012)
Explain the positioning for emerging market companies using DAVAR and FROST framework which
comprises of (a) Competitive Assets (b) Pressure to Globalize in the Industry (Q.3, 2010)
Discuss the DAVAR and FROST framework in terms of the competitive assets and the pressure to
globalize in the industry. Examine in detail the strategic options available to Indian companies (Q.1,
2007)
Discuss the Hexagon of Competitive advantage proposed by DAVAR and FROST which could help
Indian firms to go Global. Discuss at least four of the six hexagon points in detail with specific Indian
& International examples (Q.6, 2009; Q.3, 2013)
GEORGE YIP ARTICLE:
In todays open economy with foreign companies coming to India, local companies have to not only
defend their turf but also enter markets outside India. Currently most Indian companies operate at the
bottom of the global value chain by selling components or unbranded products; their challenge is to
develop business capabilities that equip them to compete at the top of the value chain. In this article we
shall focus on global strategies that will help companies participate in international markets.
But how does a company decide whether it is ready for global expansion? N Dawar and T Frost of Harvard
Business School have developed a framework that can help companies make this decision. According to
this matrix (Figure 01) companies should first consider whether the pressure to globalize is high or low.
Whether their industry is a local industry or can it go global? Then they should consider the competitive
assets of the company. Are the assets customized to the local market or can they be transferred abroad?
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This framework throws up four positions (D-C-D-E) that emerging market companies can adopt in the
open economy.
01 DODGER: (Kwality Walls & Vist)
(Focus on creating a synergy viz. by entering into a joint venture with the multinational, or allow to be
acquired by the multinational.)
Companies that have a high pressure to globalize, or are vulnerable to global competition, and do not
have a transferable competitive advantage, have no other option but to dodge competition. These
companies focus on a locally oriented link in the value chain, enter a joint venture, or sell out to a
multinational.
For example, Kwality, a dominant player in the Indian ice-cream market sold its brands and manufacturing
assets to Unilever, making Kwality-Walls the market leader in the Indian ice-cream market.
Similarly, when the Iron Curtain came down, Vist, a Russian PC manufacturer did not compete with
American or Japanese companies, but shifted focus to PC distribution. This was an artful move because
distribution in Russia was ridden with corruption and foreign companies faced difficulties in distributing
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products. As a result of this today they form an important link and support the Japanese and American
MNCs in their business.
02 CONTENDER: (Sundaram Fasteners & Bharat Forge)
(Focus on upgrading the company's capabilities and resources so as to be able to match foreign nationals
or multinationals globally, often by concentrating to niche markets.)
Companies that have competitive advantages that can be leveraged abroad and also have a high pressure
to globalize can compete aggressively in global markets. They focus on upgrading capabilities and resources to match multinationals globally, often by keeping to niche markets.
For example, Sundram Fasteners competes in global markets for niche auto components like radiator
caps. A measure of its global competitiveness is the fact that it won the General Motors', 'Supplier of the
Year' award for five consecutive years.
Similarly, Bharat Forge, the second largest forging company in the world, competes by being a global
supplier of specialized engine and chassis components for trucks and passenger cars. One out of every
two trucks in the US uses front axles made at Bharat Forge.
03 DEFENDER: (Shanghai Jahwa & Grupo Industrial Bimbo & Videocon)

(Focus on supplying local assets in segments where multinationals are not doing too well or weak)
Companies should adopt this position when they have low pressure to globalize and their competitive
assets are customized to the local market. This is a defensive strategy that focuses on leveraging local
assets in market segments where multinationals are weak.
For example, when Western cosmetic giants entered the Chinese market, Shanghai Jahwa, the local
cosmetic company did not compete with them head on by targeting their global product ranges. Instead
they responded by developing products that would suit the local complexion and appeal to local people.
Similarly Grupo Industrial Bimbo, a Mexican food company responded to global competition by defending
their distribution system, which could reach the remote rural areas of the country.
In India Videocon developed semi-automatic washing machines that were targeted at the value conscious
Indian consumer and has successfully countered MNC competition by focusing on this segment.
04 EXTENDER: (Televisa & Jollibee Foods)
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(Focus on expanding into international markets similar to those of the local market, using the
competencies that had been developed at home.)
Companies that possess competitive assets, that can be transferred abroad, can adopt this position when
the pressure to globalize is low. They focus on expanding into markets similar to those of the home base,
using competencies developed at home.
Televisa, a Mexican media company globalized by making their Spanish language products available to
the Spanish speaking population across the world.
Another good example would be the case of Jollibee foods, a Philip-pines fast food chain that faced off
McDonald's by developing spicier products better suited to the Filipino palate. They then followed the
Filipino population across the world to globalize.
DEFINING COMPETITIVE ADVANTAGE
Once a company has decided which position to adopt in the global scenario the next step is to identify its
inherent competitive advantage. To globalize successfully it is critical to have a strong basis of competitive
advantage that can be leveraged internationally. For newly internationalizing firms an initial competitive
advantage is the single greatest determinant of international success.
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7. MODES OF ENTRY IN INTERNATIONAL MARKETS:

<<From LEAST RISK to MAX RISK>>s
MODE
CONDITIONS FAVOURING
ADVANTAGES
DISADVANTAGES
THIS MODE
EXPORTING
Limited Sales Potential In Minimizes

The Target Country
Risk
And Trade Barriers And Tariffs
Investments
May Be Imposed
Little Product Adaptation Speed Of Entry
Transportation Costs
Required
Distribution
Channels No Gestation Period
May
Available Close To Home
LICENSING
Exports
Unviable
Liberal Import Policies Of Maximizes

The Target Market
Render
Capacity Limited Access To Local
Utilization
Information
High Political Risk For Lower Overall Costs
Company Viewed As An
Other Modes
Outsider
Import Barriers,
Minimizes
Investment Barriers
Investment
Risk
And Lack Of Control Over Use

Of Assets
Local Protection Possible In Speed Of Entry --Relatively Non-Adherence

Target Markets
Speaking
To
Quality By Licensee
Low Sales Potential In Able To Circumvent Trade Knowledge Spillover And

Target Market To Justify Barriers
Leakage
Investment
Large Cultural Distance
High Return On Investment
Licensee May Become

Competitor
Licensee Does Not Have Brand Presence May Be Limited Timeframe

the Potential To Become A Sustained
Competitor
JOINT VENTURE
Import Barriers
Overcomes
Ownership Conflict Of Interest
Restrictions
Large Cultural Distance
Reduces Cultural Distance
Management
Philosophies May Differ
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High Sales Potential
Combines Resources Of Two
Dilution Of Control
firms
Low Political Risk
Greater
Risk
Than
Exporting And Licensing

Government
Restrictions
Potential For Learning
On Foreign Ownership
Local Partner Can Provide Closeness To Market
Knowledge
Skills/Resource,
And Technology Leakage
Distribution,
Brand
Spillovers
Network,
Name,
Political
Connections
Sharing Financial Risks
Viewed As Insider
JV Partner May Become

Competitor
Lower Investment Required-- Possibility Of Paralyses By

Relatively
Analyses
Management Control
Delays
In
Decision
Making
Exploit Product
WHOLLY OWNED
Import Barriers
Loss Of Opportunities
Greater Knowledge Of Local Highest
SUBSIDIARY-
Market
Financial
And
Political Risk
W.O.S
Small Cultural Distance
Minimizes
High Sales Potential
Spillovers And Leakage
Required
Low Political Risk
Can Be Viewed As An Insider
Cultural Shocks Possible
No
Possibility
Nationalization
Knowledge Greater
Of Quick Decision Making

And/or
Difficult To Manage Local

Resources
Expropriation
Greater And Absolute Control
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Resources
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8. STRATEGIES FOR FIRM TO GO INTERNATIONAL

i.
What are the entry strategies available for the firm to go International? Start with the Lowest Risk
(MINIMAL INVOLVEMENT) and move to the highest risk (MAXIMUM INVOLVEMENT). Explain the
merits, advantages and disadvantages of each strategy? (Q.3, 2012; Q.2, 2010)
ii.
Explain and compare the following for going international / global. Bring out the merits and
demerits of the same
a. Waterfall Strategy
b. Sprinkler Strategy
c. Wave Strategy of Christopher Lymbersky (Q.2, 2013)
iii.
Examine the pros & cons of Waterfall & Sprinkler strategies, cross subsidization and standardization
(Q.1, 2005; Q.4, 2007)
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CROSS SUBSIDIZATION
Use cash flow generation or accrual in one market to fight competition in another.
For Example, Japan selling products internationally at low prices, particularly in the U.S.A.
Japan Causing the demise of the American Consumer Electronics Industry.
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9. You are a bicycle manufacturer in India for last several years and had a very successful run a few
years ago. What problems you could be facing in todays business environment in India particularly
after Liberalization, Privatization and Globalization commenced in 1991, why?
You have neither resources nor the inclination to manufacture motorized two-wheelers but wish to
continue in the bicycle business.
You want to explore the international market but you are a conservative firm you want to go from
least risk to higher risk levels. The pricing in the International markets will be taken care of by the
Importer in the respective overseas and so will be the distribution. You may be required to
change/adapt/modify the product and the communication mix. Apply WARREN KEAGANS
PRODUCT & COMMUNICATION ADAPTATION STRATEGIES as you go from the least risk to the
highest risk
Discuss Merits & Demerits of each strategy. Explain the concept of Environmental sensitivity to
products with examples. Is it relevant in the above situation?
(Q. 1 2012; Q.1, 2009; Q.3, 2005)
Once a decision for a market entry mode has been made, a firm must decide how much, if any, to adapt
its marketing mixproduct, promotion, price, and distributionto a foreign market. Warren J. Keegan
(1995) distinguished five adaptation strategies of product and communication to a foreign market (see
Table 1). These strategies are discussed briefly below:
STRAIGHT EXTENSION
In straight extension the same product is marketed to all countries (a "world" product), except for labeling
and language used in the product manuals. The assumption behind this strategy is that consumer needs
are essentially the same across national boundaries. Straight extension can be successful when products
are not culture sensitive and economies of scale are present. The Philip Morris USA tobacco company
used this strategy successfully with its Marlboro brand cigarette. The strategy has also been successful
with cameras, consumer electronics, and many machine tools.
PRODUCT MODIFICATION/ADAPTATION
A product modification strategy keeps the physical product essentially the same; modifications, however,
are made to meet local conditions or preference in package sizes or colors. Manufacturers of computers,
copiers, cars, and calculators have been successful in using this strategy. Companies may develop a
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country-specific product. If this strategy is employed, the product is substantially altered or new products
are produced across countries. For example, hand-powered washing machines have been successfully
marketed in Latin America.
COMMUNICATION ADAPTATION
It is extremely difficult to standardize advertising across countries because of variations in economic,
social, and political environments. Companies, however, can use one message everywhere, varying only
the language or color. Marlboro and Camel cigarettes, for example, essentially use the same message in
their international promotion programs. Transferability of an advertising message is still a difficult
problem even when the primary benefits of the product remain intact across national boundaries.
Some promotional blunders are well known to marketing students. Coors's slogan "Turn it loose" in
Spanish was read by some as "suffer from diarrhea"; in Spain, Chevrolet's Nova translated as "it doesn't
go"; and a laundry soap ad claiming to wash "really dirty parts" was translated in French-speaking Quebec
to read "a soap for washing private parts."
DUAL ADAPTATION
The fourth strategy, dual adaptation, involves altering both the product and the communications. The
classic example comes from National Cash Register, which manufactured a crank-operated cash register
and promoted it to businesses in less-developed countries.
PRODUCT INVENTION/INNOVATION
When products cannot be sold as they are, product invention strategy may be used. Ford and other
automakers have sold completely different makes of cars in Europe than the ones they sell in the United
States. Brewing companies have sold alcohol-free beer in countries where sales of alcoholic beverages are
prohibited.
PRICE STRATEGY
Multinational companies find it difficult to adopt a standardized pricing strategy across countries because
they have to deal with fluctuating exchange rates, differences among countries in transportation costs,
governmental tax policies, and controls (such as dumping and price callings).
Keegan proposed three global pricing alternatives:
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The first policy is called EXTENSION/ETHNOCENTRIC. Under this policy, the firm sets the same price
throughout the world and the customers absorb all freight and import duties. The main advantage of
this policy is its simplicity, but its weakness is its failure to take into account local markets' demand
and competitive conditions.
The second alternative is called ADAPTIVE/POLYCENTRIC. Under this policy, local management
establishes whatever price it deems appropriate at any particular time. This policy is sensitive to local
conditions; nevertheless, it may favor product arbitrage where differences in price between markets
exceed the freight and duty cost separating the markets.
The last alternative is called INVENTION/GEOCENTRIC PRICING. This policy is an intermediary
position. It neither sets a single worldwide price nor relinquishes total control over prices to local
management. This policy recognizes both the importance of local factors (including costs) and the
firm's market objectives.
CHANNELS OF DISTRIBUTION
Two major types of international alternatives are available to a domestic producer:

The first is the use of domestic middlemen who provide marketing services from their domestic
base. If this arrangement is chosen, there are several domestic middlemen available from which the
companies may choose. Export management companies, manufacturers' export agents, trading
companies, and complementary marketers are possible alternatives.
If a company is unwilling to deal with domestic middlemen, it may decide to deal directly with
middlemen in foreign countries. This alternative shortens the channel of distribution, thereby
bringing the manufacturer closer to the market. The main drawback of this alternative is that foreign
middlemen are some distance away and, therefore, more difficult to control than domestic ones.
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10. ENVIRONMENTAL SENSITIVITY:

Explain the concept of Environmental sensitivity to products with examples. Is it relevant in the above
situation?
Environmental sensitivity is the extent to which products must be adapted to the culture-specific needs
of different needs of different national markets. Environmental sensitivity can be measured by viewing
product on an environmental sensitivity continuum. At one end of the continuum are environmentally
insensitive products that do not require significant adaptation to the environments of local markets in the
world. At the other end of the continuum are products that are highly sensitive to different environmental
factors. A firm with environmental insensitive products will spend less time determining the specific
conditions of local markets as the product in question is universal in nature. In case of environmentally
sensitive products, managers need to address country-specific economic, regulations, technological,
social and cultural environmental conditions.
Computers have low levels of environmental sensitivity but variations in country voltage requirements
require some adaptation. At the top right of the figures we have products with high environmental
sensitivity. For example, food is highly sensitive to climate and culture.
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11. RAYMOND VERNON PRODUCT LIFECYCLE THEORY:

Explain Raymond Vernon Product Life Cycle Theory of Going Global. Cite Examples to support. (Q.4,
2012)
Vernon's international product life cycle theory (1996) is based on the experience of the U.S. market. At
that time, Vernon observed and found that a large proportion of the world's new products came from the
U.S. for most of the 20th century. It was concluded that U.S. was the first to introduce technological driver
products.
Vernon theory was used to explain certain types of foreign direct investment made by the U.S. companies
after the Second World War in the manufacturing industry.
The U.S. has become a major importer of many of the goods that had once developed, produced and
exported. Vernon's international product life cycle is used to attempt to explain why this happened.
According to Vernon, in the first stage the U.S. transnational companies create new innovative products
for local consumption and export the surplus in order to serve also the foreign markets.
According to the theory of production cycle, after the Second World War in Europe has increased demand
for manufactured products like those proposed in USA. Thus, America firms began to export, having the
advantage of technology on international competitors.
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In the first stage of production cycle, manufacturers have an advantage by possessing new technologies.
However at these early stages of production, the products were not standardized as the nature of the
goods has implications such as price elasticity, the communication throughout the industry and also the
location of the product itself.
As the product starts to mature, the conditions also start to change. A certain degree of standardization
takes place and the demand of the products appeared elsewhere. As demand has increased, overseas
markets were imitating those products at a cheaper labor and overall cost. The U.S. firms were forced to
perform production facilities on the local markets to maintain their market shares in those areas.
Consequently the U.S. exports were limited.
As the markets in the U.S. and these other developed countries mature, the product became standardized.
The developments of the life cycle were once again changed. There were more demand and cheaper labor
costs from overseas countries, the pricing became the main competitive tool and cost became more of an
issue than previously. The producers internationally based in advanced countries then had the
opportunity to export back to U.S. This has led to the undeveloped countries offering competitive
advantage for the location of production and finally they became exporters.
This evidence suggests that the more a product is standardized; the location of production is more likely
to change. At the same time there is also evidence that unstandardized products will maintain their
location in more phosphorus location.
This also explains; 1950 to 1970 there were certain types of investments in Europe Western made by U.S.
companies. There were areas where Americans have not possessed the technological advantage and
foreign direct investments were made during that period.
He believes that there are four stages of production cycle and the location of production depends on the
stage of the cycle:
STAGE 1: INTRODUCTION
New products are introduced to meet local needs, and new products are first exported to similar countries
i.e. countries with similar needs, preferences and incomes.
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STAGE 2: GROWTH
A copy product is produced elsewhere and introduced in the home country to capture growth in the home
market. This moves production to other countries, usually on the basis of cost of production.
STAGE 3: MATURITY
The industry contracts and concentrates and the lowest cost producer will win.
STAGE 4: DECLINE
Poor countries constitute the only markets for the product. Therefore almost all declining products are
produced in LDCs.
Vernon's product life cycle model can explain both trade and FDI. By adding a time dimension to the theory
of monopolistic advantage, the product life cycle model can explain a firm's shift from exporting to FDI.
Initially a firm when innovate a product, it produces at home enjoying its monopolistic advantage in the
export market, thus specializes and exports. Once the product becomes standardized in its growth product
phase, the firm may tend to invest abroad and export from there to retain its monopoly power. The rivals
from the home country may also follow to invest in the same foreign country's oligopolistic market.
Vernon's theory implies that overtime the main exporter may change from exporter to importer. This
leads to the low cost producers becoming exporters.
One weakness of this theory can be that Vernon's view is ethnocentric. It can also be said that many new
products are now produced in advanced economies such as Japan.
Globalization means that there is more dispersed and simultaneous production of comparative
advantage.
The final weakness of this theory is that this study was carried out in the 60s. The world's trading importing
and exporting has changed immensely over the years.
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12. DAVID RICARDO Theory of Comparative Cost/Advantage

What are the CLASSICAL THEORIES OF INTERNATIONAL TRADE based on? Is David Ricardo theory still
relevant, if so, why so? If not, why not? Cite examples in both cases from Indian perspective. (Q.4, 2012)
RICARDIAN THEORY ASSUMES THAT:

1. Labor is the only productive factor.
2. Costs of production are measured in terms of the labor units involved.
3. Labor is perfectly mobile within a country but immobile internationally.
4. Labor 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.
For further details, read: http://www.yourarticlelibrary.com/international-trade/theory-of-comparativeadvantage-of-international-trade-by-david-ricardo/26013/
13. CLASSICAL THEORIES OF INTERNATIONAL TRADE:

Adam Smith (1776) & David Ricardo (1817) developed theories to explain International Business &
Marketing. What were the basis of their theories and their limitations? Does Ricardian theory have
any validity/relevance today? If so, why so? If not, why not? Cite Examples. Michael Porters theory of
National Competitive advantage is very different from the classical theories. Explain Michael Porters
theory and cite examples (Q.1, 2010)
Classical Theories of International Trade propose that comparative advantage resides in the factor
endowments that a country may be fortunate enough to inherit. Factor endowments include land,
natural resources, labor and size of local population.
http://cis01.central.ucv.ro/iba/files/int_ec2.pdf
MERCANTILISM
THE
ADVANTAGE
By Whom
William Petty, Thomas Mun and Adam Smith

Antoine de Montchrtien
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ABSOLUTE THE
COMPARATIVE
ADVANTAGE
David Ricardo
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When
300 years ago
Basis of Theory
The base of this theory was the Adam Smiths theory starts Each
commercial
1776
1815
country
revolution, the with the idea that export is specialize
should
in
the
transition from local economies profitable if you can import production for which it
to national economies, from goods that could satisfy has less opportunity cost.
feudalism to capitalism, from a better the necessities of
rudimentary trade to a larger consumers
international trade.
instead
of
producing them on the

internal market.
Theory States
The theory states that the world The essence of Adam Smith David
Ricardo
theory
only contained a fixed amount of theory is that the rule that demonstrates
that
wealth and that to increase a leads the exchanges from countries can gain from
country wealth; one country had any market, internal or trade even
to take some wealth from external, is to determine if one of them is less
another, either through having a the value of goods by productive than another
higher import/export ratio. So, measuring
the
this tendency, to export more incorporated in them.
labor to
all
goods
that
produces
and import less and to receive in

exchange gold (the deficit is paid
in gold) is called MERCANTILISM
Advantages
Disadvantages
14. MICHAEL PORTERS NATIONAL COMPETITIVE ADVANTAGE

Explain the Michael Porter Diamond of National Competitive Advantage with examples. Is David
Ricardos theory of comparative costs relevant in todays International environment?
(Q.6, 2007)
http://www.quickmba.com/strategy/global/diamond/
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it
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15. ECGC and DUTY DRAWBACK:

What are the risks covered (export insurance bases) under ECGC? (Q.7, 2009; Q.7, 2010; Q.7, 2006)
What are the risks not covered under ECGC? (Q.6, 2012; Q.6, 2013; Q.7, 2006)
RISKS COVERED:
Risks covered by Standard Policies fall into two categories Commercial Risks and Political Risks.
Commercial Risks which includes Insolvency of the buyer, Protracted default in payment (Importer has to
pay within four months of due date) and under special circumstances specified in the policy, buyers
failure to accept the goods though there is no fault on the part of exporter.
Political Risks
What are the clauses included in Political Risks under policies issued by ECGC?
There are mainly 6 types of covers included under political risks policies under ECGC.
i.
Imposition of restrictions in buyers country by the Government for remittance sale proceeds
which may block or delay the payment to the exporter;
ii.
War, revolution or civil disturbances in the buyers country;
iii.
New import restrictions in the buyers country of cancellation of valid import license after the
date of shipment or contract, as applicable;
iv.
Cancellation of valid export license or imposition of new licensing restrictions after the date of
contract, applicable under Contracts Policy;
v.
Payment of additional transportation and insurance charges occasioned by interruption or

diversion of voyage which cannot be recovered from the buyer and
vi.
Any other loss that has occurred in buyers country, which is not covered under general insurance
and beyond the control of exporter and / or the buyer.
In case, where the buyer happens to be foreign Government or Government department and it refuses to
pay, the default will fall under the category of political risks.
RISKS NOT COVERED:

i.
Commercial disputes including the quality disputes raised by the buyer, unless the exporter obtains a
decree from a competent court in the importers country in his favor
ii.
Causes inherent in the nature of the goods;
iii.
Buyers failure to obtain import license or exchange authorization in his country
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iv.
Insolvency or default of an agent of the exporter or the collecting banks;
v.
Losses or damages which can be covered by commercial insurers; and
vi.
Foreign Exchange fluctuations.
ECGC does not cover those risks that are covered by the commercial insurers. Exporter can take
comprehensive policy that covers both commercial and political risks. If the exporter wants, he can take
only policy that covers political risks, depending on the requirements. However, it is important to note
ECGC does not issue the policy covering only commercial risks.
If the goods are confiscated by the customs on charges of smuggling, then insurance does not cover.
DUTY DRAWBACK:
Concept of Duty Drawback / Duty Drawback Scheme (Q.6, 2013; Q.6, 2012; Q.6, 2008)
A refund that can be obtained when an import fee has already been paid for a good, but the good is then
subsequently exported. In order to obtain a duty drawback, a business does not have to have paid the
import duty, nor do they have had to perform the product's exportation, they only need to be assigned
the drawback from those to whom it would typically be due.
The term drawback is applied to a certain amount of duties of Customs and Central Excise, sometimes the
whole, sometimes only a part remitted or paid by Government on the exportation of the commodities on
which they were levied. To entitle goods to drawback, they must be exported to a foreign port, the object
of the relief afforded by the drawback being to enable the goods to be disposed of in the foreign market
as if they had never been taxed at all. For Customs purpose drawback means the refund of duty of customs
and duty of central excise that are chargeable on imported and indigenous materials used in the
manufacture of exported goods. Goods eligible for drawback applies to
a.) Export goods imported into India as such;
b.) Export goods imported into India after having been taken for use
c.) Export goods manufactured / produced out of imported material
d.) Export goods manufactured / produced out of indigenous material
e.) Export goods manufactured /produced out of imported or and indigenous materials. The Duty
Drawback is of two types: (i) All Industry Rate (AIR) and (ii) Brand Rate.
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The All Industry Rate (AIR) is essentially an average rate based on the average quantity and value of inputs
and duties (both Excise & Customs) borne by them and Service Tax suffered by a particular export product.
The All Industry Rates are notified by the Government in the form of a Drawback Schedule every year and
the present Schedule covers 2837 entries. The legal framework in this regard is provided under Sections
75 and 76 of the Customs Act, 1962 and the Customs and Central Excise Duties and Service Tax Drawback
Rules, 1995.
The Brand Rate of Duty Drawback is allowed in cases where the export product does not have any AIR of
Duty Drawback or the same neutralizes less than 4/5th of the duties paid on materials used in the
manufacture of export goods. This work is handled by the jurisdictional Commissioners of Customs &
Central Excise. Exporters who wish to avail of the Brand Rate of Duty Drawback need to apply for fixation
of the rate for their export goods to the jurisdictional Central Excise Commissionerate. The Brand Rate of
Duty Drawback is granted in terms of Rules 6 and 7 of the Drawback Rules, 1995
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16. EPRG SCHEMA

Discuss EPRG schema of Yoran, Wind and Perlmutter and the organizations required as one moves from
E to G in the schema. Examine the characteristics of each orientation. Give examples of each type of
company
Generally speaking, no company is strictly global but has elements of Multi Domestic Market Extension
concept. Comment and Discuss
(Q.2, 2008)
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17. MNCS AND CAPITAL FORMATION:

Less developed countries need capital / asset formation in a big way. Why?
What are the threats posed by MNCs?
Examine all sources of Capital Formation and their advantages and disadvantages of each.
Which is the best source and why?
(Q.4, 2010; Q.7 2006)
Capital formation refers to net additions of capital stock such as equipment, buildings and other
intermediate goods. A nation uses capital stock in combination with labor to provide services and produce
goods; an increase in this capital stock is known as capital formation.
Generally, the higher the capital formation of an economy, the faster an economy can grow its aggregate
income. Increasing an economy's capital stock also increases its capacity for production, which means an
economy can produce more. Producing more goods and services can lead to an increase in national
income levels.
MNCs bring in:
Brings in much needed Capital required for capital Formation. The capital brought in has longterm perspective and the WEALTH GENERATION ability stays in the country even after the foreign
partner decides to leave the country. The capital has very low flight potential.
Brings in latest and modern technology vital for growth. MNC/TNC is the ideal vehicle for the
same.
Skills upgradation and training to employees
Efficient Resource Utilization
Improved Productivity
Import Of High Tech Proprietary Equipment
Favorable Balance Of Payments
Access To Export Markets
Re-ploughing Of Profits
Ancillary Industries Development
No Repayment Of Principal Amount As These Are Not Debts
Permanency Of Assets Formed
Even after the exit of the foreign partner, the employment generation continues.
Local partner may provide marketing know-how and political collections
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THREATS POSED - Disadvantages of MNC:
May throttle/Pre-empt competition
Over dependence on technology and in some cases managerial expertise
Exploitation by paying poor prices for inputs
Profiteering
Fear of endangering host countries sovereignty
Low transfer prices
Overpricing of imports
Under-pricing of exports to principals
No incentive for local R and D
Automation may defeat goal of employment generation
Dependence on critical imports
Export Restrictions
Political power with Money power
Neo-Colonialism
SOURCES OF CAPITAL FORMATION:

(A) CREATION OF SAVINGS:
An increase in the volume of real savings so that resources, that would have been devoted to the
production of consumption goods, should be released for purposes of capital formation.
Savings are done by individuals or households. They save by not spending all their incomes on consumer
goods. When individuals or households save, they release resources from the production of consumer
goods. Workers, natural resources, materials, etc., thus released are made available for the production of
capital goods.
The level of savings in a country depends upon the power to save and the will to save. The power to save
or saving capacity of an economy mainly depends upon the average level of income and the distribution
of national income. The higher the level of income, the greater will be the amount of savings.
The countries having higher levels of income are able to save more. That is why the rate of savings in the
U.S.A. and Western European countries is much higher than that in the under-developed and poor
countries like India. Further, the greater the inequalities of income, the greater will be the amount of
savings in the economy. Apart from the power to save, the total amount of savings depends upon the will
to save. Various personal, family, and national considerations induce the people to save.
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People save in order to provide against old age and unforeseen emergencies. Some people desire to save
a large sum to start new business or to expand the existing business. Moreover, people want to make
provision for education, marriage and to give a good start in business for their children.
Further, it may be noted that savings may be either voluntary or forced. Voluntary savings are those
savings which people do of their own free will. As explained above, voluntary savings depend upon the
power to save and the will to save of the people. On the other hand, taxes by the Government represent
forced savings.
Moreover, savings may be done not only by households but also by business enterprises and
government. Business enterprises save when they do not distribute the whole of their profits, but retain
a part of them in the form of undistributed profits. They then use these undistributed profits for
investment in real capital.
The third source of savings is government. The government savings constitute the money collected as
taxes and the profits of public undertakings. The greater the amount of taxes collected and profits made,
the greater will be the government savings. The savings so made can be used by the government for
building up new capital goods like factories, machines, roads, etc., or it can lend them to private enterprise
to invest in capital goods.
(B) MOBILIZATION OF SAVINGS:

A finance and credit mechanism, so that the available resources are obtained by private investors or
government for capital formation.
The next step in the process of capital formation is that the savings of the households must be mobilized
and transferred to businessmen or entrepreneurs who require them for investment. In the capital market,
funds are supplied by the individual investors (who may buy securities or shares issued by companies),
banks, investment trusts, insurance companies, finance corporations, governments, etc.
If the rate of capital formation is to be stepped up, the development of capital market is very necessary.
A well- developed capital market will ensure that the savings of the society-will be mobilized and
transferred to the entrepreneurs or businessmen who require them.
(C) INVESTMENT OF SAVINGS:

The act of investment itself so that resources are actually used for the production of capital goods.
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For savings to result in capital formation, they must be invested. In order that the investment of savings
should take place, there must be a good number of honest and dynamic entrepreneurs in the country
who are able to take risks and bear uncertainty of production.
Given that a country has got a good number of venturesome entrepreneurs, investment will be made by
them only if there is sufficient inducement to invest. Inducement to invest depends on the marginal
efficiency of capital (i.e., the prospective rate of profit) on the one hand and the rate of interest, on the
other.
But of the two determinants of inducement to invest-the marginal efficiency of capital and the rate of
interestit is the former which is of greater importance. Marginal efficiency of capital depends upon the
cost or supply prices of capital as well as the expectations of profits.
Fluctuations in investment are mainly due to changes in expectations regarding profits. But it is the size
of the market which provides scope for profitable investment. Thus, the primary factor which determines
the level of investment or capital formation, in any economy, is the size of the market for goods.
Foreign Capital:
Capital formation in a country can also take place with the help of foreign capital, i.e., foreign savings.
Foreign capital can take the form of:
(a) Direct private investment by foreigners,
(b) Loans or grants by foreign governments,
(c) Loans by international agencies like the World Bank.
There are very few countries which have successfully marched on the road to economic development
without making use of foreign capital in one form or the other. India is receiving a good amount of foreign
capital from abroad for investment and capital formation under the Five-Year Plans.
Deficit Financing:
Deficit financing, i.e., newly-created money is another source of capital formation in a developing
economy. Owing to very low standard of living of the people, the extent to which voluntary savings can
be mobilized is very much limited. Also, taxation beyond limit becomes oppressive and, therefore,
politically inexpedient. Deficit financing is, therefore, the method on which the government can fall back
to obtain funds.
However, the danger inherent in this source of development financing is that it may lead to inflationary
pressures in the economy. But a certain measure of deficit financing can be had without creating such
pressures.
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There is specially a good case for using deficit financing to utilize the existing under-employed labor in
schemes which yield quick returns. In this way, the inflationary potential of deficit financing can be
neutralized by an increase in the supply of output in the short-run.
Disguised Unemployment:
Another source of capital formation is to mobilize the saving potential that exists in the form of disguised
unemployment. Surplus agricultural workers can be transferred from the agricultural sector to the nonagricultural sector without diminishing agricultural output.
The objective is to mobilize these unproductive workers and employ them on various capital creating
projects, such as roads, canals, building of schools, health centers and bunds for floods, in which they do
not require much more capital to work with. In this way, the hitherto unemployed, labor can be utilized
productively and turned into capital, as it were.
Capital Formation in the Public Sector:
In these days, the role of government has greatly increased. In an under-developed country like India,
government is very much concerned with the development of the economy. Government is building dams,
steel plants, roads, machine-making factories and other forms of real capital in the country. Thus, capital
formation takes place not only in the private sector by individual entrepreneurs but also in the public
sector by government.
There are various ways in which a government can get resources for investment purposes or for capital
formation. The government can increase the level of direct and indirect taxation and then can finance its
various projects. Another way of obtaining the necessary resources is the borrowing by the Government
from the public.
The government can also finance its development plans by deficit financing. Deficit financing means the
creation of new money. By issuing more notes and exchanging them with the productive resources the
government can build real capital. But the method of deficit financing, as a source of development finance,
is dangerous because it often leads to inflationary pressures in the economy. A certain measure of deficit
financing, however, can be had without creating such pressures.
Another source of capital formation in the public sector is the profits of public undertakings which can be
used by the government for further investment. As stated above, government can also get loans from
foreign countries and international agencies like World Bank. India is getting a substantial amount of
foreign assistance for investment purposes under the Five-Year Plans.
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18. MOTIVATIONS TO GO GLOBAL

PUSH FACTORS
o
Perceived/imminent saturation in domestic market
Spreading of risk
Consolidation of buying power
Public policy constraints
Economic conditions
Maturity of format
Increased taxes
PULL FACTORS
o
Perceived/imminent
Unexploited markets
Pre-emption of rivals
Higher profit margins
Consumer market segments not yet exploited
Access to new management
Reaction to manufacturer internalization
Following existing customers abroad
FACILITATING FACTORS
o
Use of surplus capital/access to cheaper sources of capital
Entrepreneurial vision
Inducement from supplier to enter new markets
Removal of barriers to entry
Lower tariffs
MOTIVATIONS UNDERLYING GLOBAL STRATEGIES

o
Obtaining Economies Of Scale
Create Global brand Associations
Access to low cost of labor and raw materials
Access to National Investment Incentives
Cross subsidizations
Dodge Trade barriers
Access to strategically Important markets
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Overcome Xenophobia
Be considered an insider and not an alien.
19. ADVANTAGES AND DISADVANTAGES OF STANDARDIZATION

ADVANTAGES OF STANDARDIZATION
DISADVANTAGES
COST REDUCTION - E.G. ECONOMIES OF SCALE
LACK OF UNIQUENESS - EXCLUSIVITY MAY BE

BEHIND PURCHASE DECISION
IMPROVED QUALITY - RESOURCES CAN BE FOCUSSED
OFF-TARGET - MISS THE CUSTOMER TARGET

COMPLETELY
ENHANCED
CUSTOMER
PREFERENCE
POSITIVE VULNERABLE TO TRADE BARRIERS - LOCAL
EXPERIENCES LEAD TO GLOBAL BRAND LOYALTY
PRODUCTION MAY BE NECESSARY, SO ECONOMY

OF SCALE BENEFITS ARE LOST
GLOBAL CUSTOMERS - UNIFORM QUALITY AND STRONG LOCAL COMPETITION - CUSTOMISATION

SERVICES
BY COMPETITORS, LACK OF LOCAL KNOWLEDGE
GLOBAL SEGMENTS - E.G. SOFTWARE, CAMERAS.
20. ADVANTAGES AND DISADVANTAGES OF CUSTOMIZATION

ADVANTAGES of CUSTOMISATION
DISADVANTAGES
REFLECTS DIFFERENT CONDITIONS OF PRODUCT USE
INCREASES MARKETING COSTS
ACKNOWLEDGES LOCAL LEGAL DIFFERENCES
INHIBITS CENTRALISED CONTROL OF MARKETING
ACCOUNTS FOR DIFFERENCES IN BUYER BEHAVIOURS
CREATES
INEFFICIENCY
IN
RESEARCH
DEVELOPMENT
PROMOTES LOCAL MARKETING ACTIVITIES
REDUCES SCALE ECONOMIES IN PRODUCTION
ACCOUNTS FOR DIFFERENCES IN INDIVIDUAL MARKETS
IGNORES GLOBALISATION TRENDS
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21. BUYERS CREDIT

What is buyers credit? Examine the role of EXIM bank in extending buyers credit
(Q.3a, 2007)
A loan facility extended to an importer by a bank or financial institution to finance the purchase of capital
goods or services and other big-ticket items. Buyers credit is a very useful mode of financing in
international trade, since foreign buyers seldom pay cash for large purchases, while few exporters have
the capacity to extend substantial amounts of long-term credit to their buyers. A buyers credit facility
involves a bank that can extend credit to the importer, as well as an export finance agency based in the
exporter's country that guarantees the loan. Since buyers credit involves multiple parties and crossborder legalities, it is generally only available for large export orders, with a minimum threshold of a few
million dollars.
Buyers credit benefits both the seller (exporter) and buyer (importer) in a trade transaction. The
exporter is paid in accordance with the terms of the sale contract with the importer, without undue
delays. The availability of buyers credit also makes it feasible for the exporter to pursue large export
orders. The importer obtains the flexibility to pay for the purchases over a period of time, as stipulated
in the terms of the buyers credit facility, rather than up front at the time of purchase. The importer can
also request funding in a major currency that is more stable than the domestic currency, especially if the
latter has a significant risk of devaluation.
The export finance agency's involvement is critical to the success of the buyers credit mechanism, since
its guarantee protects the bank or financial institution that makes the loan to the foreign buyer from the
risk of non-payment by the buyer. The export finance agency also provides coverage to the lending bank
from other political, economic and commercial risks. In return for this guarantee and risk coverage, the
export agency charges a fee or premium that is borne by the importer.
The buyers credit process typically has the following steps: The exporter enters into a commercial
contract with the foreign buyer that specifies the goods or services being supplied, prices, payment
terms, etc. The buyer obtains credit from a bank or financial institution to finance the purchase. An export
credit agency based in the exporters country provides a guarantee to the lending bank covering the risk
of default by the buyer. Once the exporter ships the goods, the lending bank pays the exporter as per
the terms of the contract with the buyer. The buyer makes principal and interest payments to the lending
bank according to the terms of the loan agreement until the loan has been repaid in full.
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Benefits to Foreign Customers
Enables overseas buyers to obtain medium-and long-term financing
Competitive interest rate against host country's high cost of borrowing;
Eligibility:
Buyer's Credit is extended to a foreign project company that intends to award the project execution to an
Indian project exporter. The financing will be available to all kinds of projects and service exports from
India.
Facility is available for development, upgrading or expansion of infrastructure facilities; financing of public
or private projects such a plants and buildings; professional services such as surveyors, architecture,
consultations, etc.
22. REASONS FOR INDIAN FOREX RESERVES TO SWELL:

iv.
From a low of US $1.10 billion in January 1991, the Indian forex reserves have swollen to close to
US $ 250 billion. Examine the factors responsible for this phenomenal growth (Q.1b, 2007; Q.1,
2008)
v.
Discuss the reasons for recent weakening of Indian rupee vis--vis the U.S Dollar and its positive &
negative fallout. Recommend ideas to reverse the trend.
The recent global meltdown has resulted in the reserves going down some U.S dollars 260 billion.
Is this a cause for concern? (Q.1, 2008)
"The primary reason for the hike in reserves can be attributed to the Reserve Bank of India (RBI)
buying US dollars to prevent rupee from causing damage to our exports"
Realignment of exchange rates especially, non-US currencies decline may have increased reserve
value"
(Foreign Currency Assets) FCAs, expressed in dollar terms, include the effect of appreciation and
depreciation of non-US currencies such as the euro, pound and the yen, held in the reserves.
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23. IMPACT OF RUPEE RISE:

As the rupee rises against the dollar (or conversely the dollar weakens) Indian exports firms earn less
and thus begin to lose their competitive edge -- whether it be textile, jewelry, software, drugs or
automobiles.
The impact is seen through:
Lower exports, as exporters are unable to maintain necessary profit margins if their dollar-linked
earnings fall. Analysts now predict that India's export target of $160 billion may not be met. A
more 'realistic' export target for this year has been pegged at $135-140 billion.
If the rupee continues to gain against the dollar, India's competitive strength in world trade (which
is already negligible) will weaken. This, in turn, shrinks new job avenues.
Exporters are keener to sell their product/services locally, if possible. This would increase local
supplies and lower prices and inflation. With factors suggesting that the rupee could rise, we
could see a scenario of an increasing percentage of goods and services being offered locally, which
would lead to lower prices and hence curb inflation further.
Companies will see their net income fall with rupee rise if they bill their clients in dollar terms.
Example: India's 'big four' in the software pack -- Infosys, TCS, Wipro and Satyam have already
seen their net income in the first quarter ending June, fall due to the sharp rupee rise.
A weak dollar thus hits currency-linked earnings.
However, a stronger rupee will benefit importers such as the oil marketing companies and airlines.
While exporters like software, textiles, drugs and auto components will be adversely impacted by the
stronger rupee, for global cyclicals, lower prices of landed imports will create downward pressure on
local prices, the brokerage told its clients, in a latest note.
How will the Rupee surge impact individuals?
Industries, where domestic prices are linked to the cost of imported raw material -- like metals,
have and will lead to further lowering of input cost of imported aluminum and copper. A reduction
in the domestic prices is expected. Obviously, importing price-sensitive electronics and gadgets
would also be cheaper, as would other retail items.
An appreciating rupee shows the strength of the economy, which can be seen when one travels
overseas, if you try to convert what the dollar is worth. So maybe you should plan your overseas
trip now, if you have enough disposable income.
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You obviously have concerns if you are an exporter or work in an export-house. Another groups
of people who may not be happy to see the rupee rising, would be those who hold dollardenominated accounts.
24. SELF REFERENCE CRITERIA

What are the pros and cons of Self Reference Criteria? (Q.6, 2013)
Not understanding the cultural differences and not appreciating them is called SELF REFERENCE
CRITERIAS.R.C.
S.R.C. is looking at things from your own perspective and is a subconscious reference to ones own
cultural values.
S. R. C. leads to business problems such as:
1. Delay in Deal closure
2. Non-closure of Deals
3. Upsetting the customers
4. Sending wrong Signals
5. Poor Positioning
6. Misunderstanding Subordinates and failure to develop them or alienating them
7. Product not meeting market requirements
8. Inadequate or erroneous market assessment
9. Inaccurate or incorrect interpretation of laws
10. Poor positioning
11. Wrong research results
WHERE CAN SRC BE SEEN?

A successful strategy in one culture could flop in another cultural environment. For Example
Kellogg and McDonald in early years in India.
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What is acceptable in one culture may be taboo in another. For ExampleHandshake with
women
Interpretation and implication of colors
Attitudes towards Humor
Subtle differences or not so subtle differences in Habits, Ethics, Attitudes, Mannerisms,
Etiquettes.
STEPS TO ELIMINATE SELF REFERENCE CRITERIA
Define the problem or goal in terms of the host country culture, habits and norms
Make no judgments based on your own culture and habits
Isolate S R C influence. This is similar to Zero Based Budgeting.
Solve the problem for the Host Country.
Suspend assumptions based on previous experience
Be prepared to acquire new knowledge about human behavior and motivation.
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25. COUNTERVAILING DUTIES

What is countervailing duty and its rationale? (Q.6, 2012; Q.7, 2010; Q.7, 2009)
Tariffs levied on imported goods to offset subsidies made to producers of these goods in the exporting
country. (An import tax imposed on certain goods in order to prevent dumping or counter export subsidies.)
Countervailing duties (CVD) are meant to level the playing field between domestic producers of a product
and foreign producers of the same product who can afford to sell it at a lower price because of the subsidy
they receive from their government. If left unchecked, such subsidized imports can have a severe effect
on domestic industry, forcing factory closures and causing huge job losses. As export subsidies are
considered to be an unfair trade practice, the World Trade Organization (WTO) which deals with the
global rules of trade between nations has detailed procedures in place to establish the circumstances
under which countervailing duties can be imposed by an importing nation.
Consider the following example of countervailing duties: Assume Country A provides an export subsidy
to widget makers in the nation, who export widgets en masse to Country B at $8 per widget. Country B
has its own widget industry and domestic widgets are available at $10 per widget. If Country B
determines that its domestic widget industry is being hurt by unrestrained imports of subsidized widgets,
it may impose a 25% countervailing duty on widgets imported from Country A, so that the resulting cost
of the imported widgets is also $10. This eliminates the unfair price advantage that widget makers in
Country A have due to the export subsidy from their government.
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26. GATT / WTO:

Discuss the two main principles of GATT/WTO
(Q.3, 2008; Q.5; 2007; Q.4b, 2009)
Most Favored Nation Treatment (MFN)
All WTO members are bound to grant each other treatment as favorable as they give to any other
member in the application and administration of import and export duties and charges
National Treatment
The national treatment principle outlaws discrimination between imports and locally produced goods or
services and service suppliers or between foreign and national holders of intellectual property rights. Once
duties have been paid, imported goods must be given the same treatment as like domestic products in
relation to any charges, taxes or administrative or other regulations (GATT Article III)
Transparency
WTO members are obliged to publish and notify to the WTO Secretariat their trade- related laws and
regulations.
Notification requirements
Trade Policy Review Mechanism
Stability and Predictability of trade regulation
Predictable and growing access to markets is ensured through binding of tariffs
Bindings are undertakings under the WTO legal framework NOT to raise tariffs beyond an agreed level
Tariff Bindings
Tariff bindings are the central guarantee of market access within the WTO legal framework.
Once a rate of duty is bound, it may not be raised without compensating the affected parties
Binding is particularly important to free trade because it gives some assurance to importers and exporters
that they would not be subject to arbitrary tariff changes
CEILING Bindings: Bindings at levels higher than applied rates
Use of tariffs as instruments of protection
Any protection must be provided in the most visible and transparent form
Ad valorem tariffs have the important advantage of transparency, more predictability, non-discrimination,
being easier to bind or reduce, and less susceptibility to corruption than QRs (QUANTITY RESTRICTIONS)
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27. INDIRECT EXPORTING--PROS AND CONS

http://importexport.about.com/od/DevelopingSalesAndDistribution/a/Indirect-Exporting-AdvantagesAnd-Disadvantages-To-Indirect-Exporting.htm
Indirect exporting means selling to an intermediary, who in turn sells your products either directly to
customers or to importing wholesalers. The easiest method of indirect exporting is to sell to an
intermediary in your own country. When selling by this method, you normally are not responsible for
collecting payment from the overseas customer, nor for coordinating the shipping logistics.
An export management company (EMC) is one such intermediary. A good one will act in all respects
as a global extension of your own sales-and-service presence -- more or less what you are attempting
to do on behalf of a manufacturer! EMCs offer a wide range of services, but most specialize in
exporting a specific range of products to a well-defined customer base in a particular country or
region. Generally, the EMC buys the product from a manufacturer and marks up the price to cover
their profit. This is called a buy-resell arrangement. Other common compensation structures used by
EMCs include both commission and buy-and-resell, start-up or project fee only, fee plus commission,
or fee plus commission and buy-and-resell.
Export Trading Company (ETC). ETCs are virtually identical to EMCs, but they tend to function on a
more demand-driven basis, by which the demand of the market compels them to buy specific
commodities. They usually have long-standing customers for whom they source products on a regular
basis. For example, they might get a request from a customer to find a supplier of canned sweet peas
who can provide twenty container loads a month for a given number of months. The ETC will then
seek out a reputable manufacturer who can handle the demand at an economical price, and then
arrange for the transport of the goods to the customer. You can track down a good ETC via the same
channels recommended above for finding an EMC.
Indirect exporting can also involve selling to an intermediary in the country where you wish to
transact business, who in turn sells your products directly to customers or to other importing
distributors (wholesalers). Under these circumstances, you will not know who your ultimate
consumers are. When selling by this method, you are normally responsible for collecting payment
from the overseas customer and for coordinating the shipping logistics. In some instances, the
overseas agent might request that they be allowed to handle the shipping, usually because they
receive special transportation rates from carriers with whom they've done volume business for years.
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The advantages are:
It's an almost risk-free way to begin.
It demands minimal involvement in the export process.
It allows you to continue to concentrate on your domestic business.
You have limited liability for product marketing problems -- there's always someone else to point
the finger at!
You learn as you go about international marketing.
Depending on the type of intermediary with which you are dealing, you don't have to concern
yourself with shipment and other logistics.
You can field-test your products for export potential.
In some instances, your local agent can field technical questions and provide necessary product
support.
The disadvantages are:
Your profits are lower.
You lose control over your foreign sales.
You very rarely know who your customers are, and thus lose the opportunity to tailor your
offerings to their evolving needs.
When you visit, you are a step removed from the actual transaction. You feel out of the loop.
The intermediary might also be offering products similar to yours, including directly competitive
products, to the same customers instead of providing exclusive representation.
Your long-term outlook and goals for your export program can change rapidly, and if you've put
your product in someone else's hands, it's hard to redirect your efforts accordingly
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28. INCOTERMS
International Commercial Terms (Incoterms) are internationally recognized standard trade terms used
in sales contracts. Theyre used to make sure buyer and seller know:
Who is responsible for the cost of transporting the goods, including insurance, taxes and duties
Where the goods should be picked up from and transported to
Who is responsible for the goods at each step during transportation
Incoterms are used in contracts in a 3-letter format followed by the place specified in the contract (e.g.
the port or where the goods are to be picked up).
There are different terms for sea and inland waterways (e.g. rivers and canals) compared to all other
modes of transport. VAT isnt covered by Incoterms - you need to specify who pays the VAT on both
imports and exports.
i.
EXW (Ex Works)
The seller makes the goods available to be collected at their premises and the buyer is responsible for all
other risks, transportation costs, taxes and duties from that point onwards. This term is commonly used
when quoting a price.
ii.
FCA (Free Carrier)
The seller gives the goods, cleared for export, to the buyers carrier at a specified place. The buyer is then
responsible for getting transported to the specified place of final delivery. This term is commonly used for
containers travelling by more than one mode of transport.
iii.
FAS (Free Alongside Ship)
The seller puts the goods alongside the ship at the specified port theyre going to be shipped from. The
seller must get the goods ready for export, but the buyer is responsible for the cost and risk involved in
loading them.
This term is commonly used for heavy-lift or bulk cargo (e.g. generators, boats), but not for goods
transported in containers by more than one mode of transport (FCA is usually used for this).
iv.
FOB (Free on Board)
The seller must get the goods ready for export and load them onto the specified ship. The buyer and seller
share the costs and risks when the goods are on board. This term is not used for goods transported in
containers by more than one mode of transport (FCA is usually used for this).
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v.
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CFR (Cost and Freight)
The seller must pay the costs of bringing the goods to the specified port. The buyer is responsible for risks
when the goods are loaded onto the ship.
vi.
CIF (Cost, Insurance and Freight)
The seller must pay the costs of bringing the goods to the specified port. They also pay for insurance. The
buyer is responsible for risks when the goods are loaded onto the ship.
vii.
CPT (Carriage Paid To)
The seller pays to transport the goods to the specified destination. Responsibility for the goods transfers
to the buyer when the seller passes them to the first carrier.
viii.
CIP (Carriage and Insurance Paid)
The seller pays for insurance as well as transport to the specified destination. Responsibility for the goods
transfers to the buyer when the seller passes them to the first carrier.
CIP (Carriage and Insurance Paid) is commonly used for goods being transported by container by more
than one mode of transport. If transporting only by sea, CIF is often used
ix.
DAT (Delivered at Terminal)
The seller pays for transport to a specified terminal at the agreed destination. The buyer is responsible for
the cost of importing the goods. The buyer takes responsibility once the goods are unloaded at the
terminal.
x.
DAP (Delivered at Place)

The seller pays for transport to the specified destination, but the buyer pays the cost of importing the
goods. The seller takes responsibility for the goods until theyre ready to be unloaded by the buyer.
xi.
DDP/DTP (Delivered Duty Paid)
The seller is responsible for delivering the goods to the named destination in the buyers country, including
all costs involved.
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29. BUSINESS IN CHINA - CHALLENGES

<<FIND ANSWER>>
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Commission Payable to Agent 10% on F.O.B Mumbai

g. Insurance at 2% of CIF. Insure for 120% of CIF

2. CALCULATE CIFC 10% Dubai for the following:

Insurance at 2% of CIF. Insure for 120% of CIF

3. Discuss the best payment terms for the following situations.

Bank, the payment will come from the Issuing Bank

a. D/P (documents against payment) a.k.a Cash against documents

b. D/A (documents against acceptance)

5. CASE STUDY KABABS AND MORE (2013)

Knowledge (a) Companys vision (b) Product

List the Must haves and the Must not haves

Skills (a) Good communication (b) Team work

Job related and soft skills

Habits (a) Hard working (b) Give feedback

Character (a) Motivating (b) Focused

Self-igniting / Motivating / Positive Thinking / Robust Physically and Mentally

Values (a) Disciplined (b) Ethical

Ethical / Bulb Principle

Create a rich organizational culture conducive to growth

6. DAVAR AND FROST FRAMEWORK PARAMETERS assets/competencies transferrable abroad and

GEORGE YIP ARTICLE:

03 DEFENDER: (Shanghai Jahwa & Grupo Industrial Bimbo & Videocon)

04 EXTENDER: (Televisa & Jollibee Foods)

7. MODES OF ENTRY IN INTERNATIONAL MARKETS:

Limited Sales Potential In Minimizes

And Trade Barriers And Tariffs

Little Product Adaptation Speed Of Entry

Channels No Gestation Period

Available Close To Home

Liberal Import Policies Of Maximizes

Capacity Limited Access To Local

High Political Risk For Lower Overall Costs

And Lack Of Control Over Use

Local Protection Possible In Speed Of Entry --Relatively Non-Adherence

Low Sales Potential In Able To Circumvent Trade Knowledge Spillover And

High Return On Investment

Licensee May Become

Licensee Does Not Have Brand Presence May Be Limited Timeframe

Ownership Conflict Of Interest

Reduces Cultural Distance

Combines Resources Of Two

Exporting And Licensing

Potential For Learning

And Technology Leakage

JV Partner May Become

Lower Investment Required-- Possibility Of Paralyses By

Greater Knowledge Of Local Highest

High Sales Potential

Spillovers And Leakage

Low Political Risk

Can Be Viewed As An Insider

Cultural Shocks Possible

Of Quick Decision Making

Difficult To Manage Local

8. STRATEGIES FOR FIRM TO GO INTERNATIONAL

Two major types of international alternatives are available to a domestic producer:

10. ENVIRONMENTAL SENSITIVITY:

11. RAYMOND VERNON PRODUCT LIFECYCLE THEORY:

12. DAVID RICARDO Theory of Comparative Cost/Advantage

RICARDIAN THEORY ASSUMES THAT:

For further details, read: http://www.yourarticlelibrary.com/international-trade/theory-of-comparativeadvantage-of-international-trade-by-david-ricardo/26013/

13. CLASSICAL THEORIES OF INTERNATIONAL TRADE: