INTERNATIONAL

BUSINESS
PROF: VIJU NAVARE
MAHESH KADAM- B57
PRATIK MISHRA- A60
CHANAKUMAR KAREMOL- A35
VIKRAM SINGH- B45
SURAJ SHARMA- B39
VINISHA JADHAV- A27

Q1) WHAT IT IS COUNTRY RISK:

Country risk is the risk that a foreign government will default on its bonds or
other financial commitments. Country risk also refers to the broader notion of the
degree to which political and economic unrest affect the securities of issuers
doing business in a particular country.
HOW IT WORKS (EXAMPLE):
Let's assume that you are considering purchasing either a bond issued by the
government of Canada or a bond issued by the government of Nigeria. Both
governments intend to use the funds for similar projects. Which bond is more
likely todefault? That depends in part on your assessment of country risk
.Political and economic instability are two of the biggest reasons countries
default on their bonds, so the question of determining country risk is at least
partially a matter of comparing these factors for Canada and
Nigeria. Analysts scrutinize tax systems, the influence of certain political parties,
evidence of corruption, inflation rates, education systems, demographics, and a
wide variety of other factors to determine and predict sources of instability.
WHY IT MATTERS :Country risk is a concern because political and economic
unrest create volatility. In turn, investors demand higher returns as compensation
for this added risk. As you can imagine, Canada would have much less country
risk than Nigeria, but in exchange for this peace of mind,
Canadian bonds will yield less than the Nigerian bonds. As a result, the presence
and degree of country risk makes it more expensive for many emerging
economies or struggling countries to borrow money.
ECONOMIC AND POLITICAL RISK :Two main risk sources need be considered
when investing in a foreign country:

Economic risk: This risk refers to a country's ability to pay back its debts.
A country with stable finances and a stronger economy should provide
more reliable investments than a country with weaker finances or an
unsound economy.

Political risk: This risk refers to the political decisions made within a
country that might result in an unanticipated loss to investors. While
economic risk is often referred to as a country's ability to pay back its
debts, political risk is sometimes referred to as the willingness of a country
to pay debts or maintain a hospitable climate for outside investment. Even
if a country's economy is strong, if the political climate is unfriendly (or
becomes unfriendly) to outside investors, the country may not be a good
candidate for investment.

Q2) explain issues involved in subcontracting and international

procurement
2. Sub-contracting :

1. Subcontract type:
2. Compensation:
3. Payment:
4. Management of the project:
5. Dispute resolution:
6. Liability for owner back-outs, weather problems.
7. Performance delays:
8. Error correction and work acceptance:
9. Termination of work:

Issues Involved In International Procurement

1: Misaligned KPIs
2: Lack of Internal Engagement
3: Capacity Issues
4: Skills Gap
5: Risks on company radar
6: Sustaining ethics boosts bottom line
7.Lack of or poor implementation of global sourcing plans.
8. Lack of procurement code of ethics.
9. Loss of goods as a result of fire whilst in transit.
11. Loss of goods as a result of adverse weather conditions heavy
rainstorms and fluctuating temperature
12. Fluctuating demand and ever-changing customer preferences.
13.Increased foreign bad debt.

3Q. Steps to emerge as global corporation

Become market leader in own country
Organization should enter in foreign market in low scale and gradually
established itself
Research related to religion, habits, earning power of citize
4Q. Merits & Demerits permitting MNCs & FDI
Merits
Increase in investment level

Transferring the technology

Improving the balance of payment

Integrating national economy

Implementing new innovation

Demerits

May acquire monopoly power

Underestimate the local culture

think about profit rather than host country interest

Inflexibility in terms and condition

Heavy use of non-renewable of natural resources

Q5). ADVANTAGE OF FDI

1. Economic Development Stimulation.
2. Easy International Trade.
3. Employment and Economic Boost.
4. Development of Human Capital Resources.
5. Tax Incentives.
6. Resource Transfer.
7. Reduced Disparity Between Revenues and Costs.
8. Increased Productivity.
9. Increment in Income.
DISADVANTAGE OF FDI
1. Hindrance to Domestic Investment.
2. Risk from Political Changes.
3. Negative Influence on Exchange Rates.
4. Higher Costs.
5. Economic Non-Viability.
6. Expropriation.
7. Negative Impact on the Countrys Investment.
8. Modern-Day Economic Colonialism.

PROBLEMS FACE BY HOME COUNTRY

Forced to find new jobs
Pay cuts

Union degradation
Lack of bargaining power
Problem Faced By Host Country
MNCs may transfer technology
MNCs may pose threat to economy
MNCs may kill the domestic industry by monopolizing the host country
market.
MNCs may use natural resources of the home country and cause depletion
of theresources
A large sum of money flows to foreign countries in terms of payments
towards profits
dividends and royalty

Q6). Important Of FDI

Resources for economic growth
Money inflows from overseas
Business grows in several countries
Opportunities
Competitive requirements.
ComparisionOf India And China
Indicat
ors
Politica
l
System

India

China

MultiParty
Democrac
y

Speed
Of
Growth

Economic
Reforms
Started
In1991.
Average 6
% Growth
Rate In
Past
Twodecad
es

Areas
Of
Speciali
zation

Rising
Power In
Software,
Design
Services.

One
Party
Authori
tarian
Rule
Econom
ic
Reform
s
Started
In
1978.
Averag
e 9.5%
Growth
Rate In
Past
Two
Decade
s.
Domina
nt In
Mass
Manufa
cturing,
Electro
nics

Gini
Index(S
tandar
d
Measur
e Of
Inequal
ity)
Foreign
Direct
Invest
ment
Future
Areas
Of
Growth

36.8

6.8%
(Upto
From
0.3% In
2004)
R&D ,
Biotechno
logy,High
Valued IT
Enabled
Services,
Agro
Based
Industry

And
Industri
al
Plants
47.0(Up
to 10
Points
From15
Yrs
Ago)
17.8%

IT
Busines
s,
Service
s And
Continu
ed
Manufa
cturing

How Can India Attract More FDI

Political restructuring
Promote agro based export industries
Remove corruption
Increase infrastructure investment
Accelerate privatization efforts
Improve educational fitness
Remove fdi hurdles

Q7) The degree of change in leadership profiles from past or present to the
future has interesting implications for leadership development, with both
consistent themes and emerging trends. Many qualities of effective leadership
characteristics such as communicating a shared vision, demonstrating integrity,
focusing on results, and ensuring customer satisfactionwill never change.
however, five factors, discussed in the following sections, have emerged as
clearly more important in the future:
1
2
3
4
5

Thinking globally
Appreciating cultural diversity
Developing technological savvy
Building partnerships and alliances
Sharing leadership

Thinking Globally
The trend toward globally connected markets will become stronger. Leaders will
need to understand the economic, cultural, legal, and political ramifications.
Leaders will need to see themselves as citizens of the world with an expanded
field of vision and values. Two factors making global thinking a key variable for
the future are the dramatic projected increases in global trade and integrated
global technology, such as e-commerce
Appreciating Cultural Diversity: Future leaders will also need to appreciate
cultural diversity, defined as diversity of leadership style, industry style,
individual behaviors and values, race, and sex. They will need to understand not
only the economic and legal differences, but also the social and motivational
differences that are part of working around the world and across nations, states,
and regions of diverse peoples and cultures. Understanding other cultures is not
just good business practice; it is a key to competing successfully in the future.
Developing Technological Savvy: As organizational change couples with
technological innovation in products, planning, managing, communicating,
producing, and delivering effectively, the global organization becomes a virtual
network operating through technology. Information and communication systems
are becoming the backbone of the global enterprise
Building Partnerships and Alliances: More organizations are forming
alliances today. This trend will be even more dramatic in the future.
Reengineering, restructuring, and downsizing are leading to a world in which
outsourcing of all but core, brand-related activities may become the norm. The
ability to negotiate complex alliances and manage complex networks of
relationships is becoming increasingly important. Joint leadership of new
business models is vital to a successful global venture.
Sharing Leadership: Sharing leadership may be a requirement, not an option.
In an alliance structure, telling partners what to do and how to do it may quickly
lead to having no partners
SHORT NOTES:
1 TRIPS:
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
is an international agreement administered by the World Trade Organization
(WTO) that sets down minimum standards for many forms of intellectual property
(IP) regulation as applied to nationals of other WTO Members
The TRIPS agreement introduced intellectual property law into the international
trading system for the first time and remains the most comprehensive
international agreement on intellectual property to date. In 2001, developing
countries, concerned that developed countries were insisting on an overly narrow
reading of TRIPS, initiated a round of talks that resulted in the Doha Declaration.
The Doha declaration is a WTO statement that clarifies the scope of TRIPS,
stating for example that TRIPS can and should be interpreted in light of the goal
"to promote access to medicines for all."
2 Reasons for increased M & A activities of companies from BRICS
countries

The BRICs are an increasingly important arena for M&A, for the simple reason
that they are increasingly important to the global economy. These countries are
home to 40 percent of the worlds population, and over the past decade they
have become a major driver of economic growth, with their share of global GDP
climbing from 8 percent in 2000 to 25 percent in 2010. The sheer scale of
economic activity ensures that the BRIC countries will remain a nexus for M&A
for some time to come.
Maps of the inbound and outbound investments of the BRIC countries since 1990
offer a glimpse of their investment strategies and priorities, as well as the
strategies and priorities of the developed-economy acquirers flocking to their
shores. (See Exhibits 4 and 5.) Clearly, inbound M&A is no longer motivated
solely by dealmakers seeking cheap resources and labor. An increasing amount
of inbound activity is aimed at establishing a foothold in the fast-growing
consumer markets and financial systems of the BRICs.
It has not escaped the notice of acquirers from developed economies that per
capita incomes have risen rapidly, with some year-to-year fluctuations, in each
BRIC country. According to the latest data from the World Bank, per capita
income in Brazil was $11,340 in 2012, up from $8,623 in 2008. Russias climbed
to $14,037 from $11,700, while Indias improved to $1,489 from $1,042. China
showed the most dramatic increase, with its income per capita rocketing to
$6,091 in 2012 from $3,414 in 2008. The resulting increased purchasing power
has, not surprisingly, caugh
3 WTO Negotiations.
The Doha Development Round or Doha Development Agenda (DDA) is the latest
trade-negotiation round of the World Trade Organization (WTO) which
commenced in November 2001 under then director-general Mike Moore. Its
objective was to lower trade barriers around the world, and thus facilitate
increased global trade.
The Doha Round began with a ministerial-level meeting in Doha, Qatar in 2001.
Subsequent ministerial meetings took place in Cancn, Mexico (2003), and Hong
Kong (2005). Related negotiations took place in Paris, France (2005), Potsdam,
Germany (2007), and Geneva, Switzerland (2004, 2006, 2008);
Progress in negotiations stalled after the breakdown of the July 2008
negotiations over
disagreements
concerning
agriculture,
industrial tariffs and non-tariff barriers, services, and trade remedies. The most
significant differences are between developed nations led by the European Union
(EU), the United States (USA), and Japan and the major developing countries led
and represented mainly by India, Brazil, China, and South Africa. There is also
considerable contention against and between the EU and the USA over their
maintenance of agricultural subsidies seen to operate effectively as trade
barriers.

Since the breakdown of negotiations in 2008, there have been repeated attempts
to revive the talks, so far without success. Intense negotiations, mostly between
the USA, China, and India, were held at the end of 2008 seeking agreement on
negotiation modalities, an impasse which was not resolved. In April 2011, then
director-general Pascal Lamy "asked members to think hard about 'the
consequences of throwing away ten years of solid multilateral work'." ] A report to
the WTO General Council by Lamy in May 2012 advocated "small steps,
gradually moving forward the parts of the Doha Round which were mature, and
re-thinking those where greater differences remained." Adoption of the Bali
Ministerial Declaration on 7 December 2013 for the first time successfully
addressed bureaucratic barriers to commercea small part of the Doha Round
agenda. However, as of January 2014, the future of the Doha Round remains
uncertain.

4 Foreign Risk.
Foreign-exchange risk is the risk that an asset or investment denominated in a
foreign currency will lose value as a result of unfavorable exchange
rate fluctuations between the investment's foreign currency and the investment
holder's domestic currency.

Holders of foreign bonds face foreign-exchange risk, because those types of bonds make
interest and principal payments in a foreign currency. For example, let's assume XYZ
Company is a Canadian company and pays interest and principal on a $1,000 bond with a
10% coupon rate in Canadian dollars (CAD). If the exchange rate at the time of purchase is
$1 CAD: $1 USD, then the 10% coupon payment is equal to $100 Canadian, and because of
the exchange rate, it is also equal to US$100.Now let's assume a year from now the exchange
rate is 1:0.85. Now the bond's 10% coupon payment, which is still $100 Canadian, is worth
only US$85. Despite the issuer's ability to pay, the investor has lost a portion of his return
because of the fluctuation of the exchange rate.

5 NAFTA Trade Bloc.

NAFTA is an agreement signed by Canada, Mexico, and the United States,

creating a trilateral trade block in north America.The North American Free
Trade Agreement (NAFTA) is an agreement signed by the governments of
Canada, Mexico, and the United States, creating a trilateral trade bloc in
North America.

NAFTA came into effect on January 1, 1994 and superseded the Canada
United States Free Trade Agreement.
Within 10 years of the implementation of NAFTA, all U.S.-Mexico tariffs are
to be eliminated except for some U.S. agricultural exports to Mexico which
will be phased out within 15 years.

Most U.S. - Canada trade was duty free before NAFTA.

NAFTA also seeks to eliminate non-tariff trade barriers and to protect
the intellectual property right of the products.
When viewing the combined GDP of its members, as of 2010 NAFTA is the
largest trade block in the world
PART B

Q:1) Discouraging process in International Business:

Strategic:

A firm must be prepared, aware for the competition and ready to face it in
the international market.

Several companies (competitor) would be good to be the substitute for

products or services of an unpopular firm.

A brilliant and innovative strategy will help and make successful a firm.

Operational risk:

A company have to be conscious about the production costs to not waste

time and money.

If the expenditures and costs are controlled, it will create an efficient

production and help for the internationalization.
Political risk:

How a government governs a country can affect the operations of a firm.

The government might be corrupted, hostile, totalitarian, etc. that has a

negative image around the globe.

A firms reputation can change if it operates in a country controlled by that

type of government.

Also, an unstable political situation can be a risk for multinational firms.

Elections, any other political event that is unexpected can change a

country situation and put a firm in an awkward position.
Technological risk:

Technological progress bring many benefits, but some disadvantages.

Indeed lack of security in electronic transactions, the cost of developing

new technology, and the fact that these new technology may fail, and
when all of these are coupled with the outdated existing technology, the
result may create a dangerous effect in doing business in the international
arena.
Environmental Risk:

Companies that establish subsidiary or factory abroad need to be

conscious about the externalities they will produce.

Negative externalities can be noise, pollution, etc.

The population might want to fight against the company to keep a natural
and healthy environment/country.

This situation can change the customers perception on the firm and
create a negative image of it.
Economic risk:

The changing of foreign-investment or/and domestic fiscal or monetary

policies.

The effect of exchange-rate and interest rate make it difficult to conduct

international business.

Moreover, it can be a risk for a company to operate in a country and they

experience an unexpected economic crisis after establishing the
subsidiary.
Financial risk:

The taxes that a company has to pay might be advantageous or not.

It might be higher or lower in the host countries. The risk that a

government will discriminatorily change the laws, regulations, or contracts
governing an investment or will fail to enforce them in a way that reduces
an investors financial returns is what we call "policy risk."

Terrorism:

A terrorist attack against a company or country is meant to hurt or

damage it by violence.

It is hate that push people to do it and it is usually based on a religion,

culture, political ideas, etc.

A company has to choose the right location for the subsidiary abroad.

It needs to make the right choice before outsourcing or offshoring its

activities.

There are many criteria to take into account :if there is enough labour
force that could work for the firm, the regulations, laws and policies of the
host country, if the area is safe, etc.

It is important to know the data of the host country, such as, the crime
rate.

Also, the host country citizens are willing to have this foreign company on
their territory or not.

Bribery:

Bribery is a worldwide phenomenon.

Multinational enterprises must be conscious and concerned about it.

Companies operating on the international market have a role on

combating bribery, also, with governments, trade unions, etc. because the
countries participating in the international trade need to prevent, not
support it, offer it, give, promise, combat, etc.

Q:2(A) International Business Expansion Pattern:

In order to perform internationalization process the company has to follow
several steps:
Passive to Active Expansion:
Most new companies are established in response to domestic needs and
they frequently think only of domestic opportunities until a foreign
opportunity presents itself to them.
Often these companies have no idea of how their products became known
abroad, but at this juncture, they must make a decision to export or not.
Even large companies may move from passive to active expansion with
aspects of their business.
External to Internal Handling of Operations:
A company commonly uses intermediaries to handle foreign operations
during early stages of international expansion because it minimizes risk.
It commits fewer of its resources to international endeavours and relies on
intermediaries that already know how to operate in the foreign market.
But if the business grows successfully, the company will usually want to
handle the operations with its own staff.

 Deepening Mode of Commitment:

At an early stage of international involvement, importing and exporting
require the least commitment and least risk to the companys resources,
such as capital, personnel, equipment and production facilities.
A company often moves into some type of foreign production after
successfully building an export market.
A company initially does not abandon its early modes of operating abroad,
such as importing and exporting, when it adopts other means of operating
internationally.
Rather, it usually either continues them by expanding its trade to new
markets or complements them with new types of business activities.
Geographic Diversification:
When companies first move internationally, they are most apt to do
business in only one or very few foreign locations.
The patterns most companies have followed in their international
expansion are not necessarily optimal for their long-range performance.
The initial movement into a nearby country, such as a U.S. country moving
into Canada, may delay into faster growing markets.
There is however, evidence that many new companies are starting out
with a global focus because of the technological advancements, especially
in communications and the World Wide Web, these start-up companies
have a better idea of where their markets are globally and how they may
gain resources from different countries.
International Business Expansion Pattern Examples:

Passive to Active Expansion:

Indian Mangoes, Papads&Pickle
External to Internal Handling of Operations:
Indian Textiles
Bajaj Auto
Deepening Mode of Commitment:
Tata Motors (South Korea)
Suzuki (India)
Videocon
Geographic Diversification:
Pepsi/Coke in Asia
Parle

(B) Philosophy:
The three most prevalent philosophies of international business strategy are:

industry-based: which argues that conditions within a particular industry

determine strategy.

resource-based: which argues that firm-specific differences determine

strategy.

institution-based: which argues that the industry- and resource-based

views need to be supplemented by accounting for relevant societal
differences of the types of strategies.

(C)Strategies adopted by International Business:

Multinationals Strategy:
The multinational strategy focuses on local responsiveness.
Subsidiaries operate autonomously or in a loose federation.
The advantage of this type of approach is that the firm can quickly
respond to different local needs and opportunities.
This strategy reduces the need for communications because local
subsidiaries can make many decisions.
There are heavy reporting requirements though, as the results from the
subsidiaries have to be monitored at a headquarter location.
Global Strategy:
A global strategy stresses efficiency because there is strong central
control from headquarters.
Economics come from standard product designs and global manufacturing.
An extensive communications and control system is necessary to centrally
manage the global firm.
International Strategy:
The international strategy is much like the multinational as there are
autonomous local subsidiaries.
However, these subsidiaries are very dependent on headquarters for new
processes and products.
A good example is a pharmaceuticals company.
The research labs in the headquarter company develop products for
introduction around the world.
Local subsidiaries stress product approval by local governments and local
marketing.
Transnational Strategy:
The transnational firm attempts to do everything!
It seeks global efficiency while retaining local responsiveness.
The firm integrates global activities through cooperation among
headquarters and foreign same time that it obtains the advantage of
global integration, efficiency, and innovation.

Q:3Meaning of PEST analysis:

PEST analysis describes a framework of macro-environmental factors

used in the environmental scanning component of strategic management.
It is part of an external analysis when conducting a strategic analysis or
doing market research, and gives an overview of the different macroenvironmental factors to be taken into consideration.
It is a strategic tool for understanding market growth or decline, business
position, potential and direction for operations.

PEST factors:To get the most out of a PEST analysis, businesses should
Political:
This factor looks at how government regulations
and legal issues affect a company's ability to be
profitable and successful.
Issues that must be considered include tax
guidelines, copyright and property law
enforcement, political stability, trade
regulations, social and environmental policy,
employment laws and safety regulations.

Companies should also consider their local and

federal power structure, and discuss how

understand each of the four factors:

Economic:

This factor examines the outside economic issues that can play a role in a
company's success.

Items to consider include economic growth, exchange, inflation and

interest rates, economic stability, anticipated shifts in commodity and
resource costs, unemployment policies, credit availability and
unemployment policies

Social:

This issue analyzes the demographic and cultural aspects of the

company's market.

These factors help businesses examine consumer needs and determine

what pushes them to make purchases.

Among the items that should be examined are demographics, population

growth rates, age distribution, attitudes toward work, job market trends,
religious and ethical beliefs, lifestyle changes, educational and
environmental issues and health consciousness.

Technological:

This factor takes into consideration technology issues that affect how an
organization delivers its product or service to the marketplace.

Among the specific items that need to be considered are technological

advancements, government spending on technological research, the life
cycle of current technology, the role of the Internet and how any changes
to it may play out, and the impact of potential information technology
changes.

In addition, companies should consider how generational shifts, and their

related technological expectations, are likely to affect those who will use
their product and how it is delivered.

(A)PEST example:To better understand how a PEST analysis should be

conducted and the benefits it offers, businesses can examine numerous
examples. It examined the various political, economic, social and technological
factors that a potential restaurant owner needs to consider when entering the
industry:

Political factors:
Government regulations regarding employee hygiene, health and food
regulations, food standards, etc.
Government policies regarding the restaurant industry and
managing eateries. These may include licenses, inspections by health and food
departments, etc.
Economic factors:
Interest rates would affect the cost of capital, the rate of interest being
directly proportionate to the cost of capital.
Rate of inflation determines the rate of remuneration for employees and
directly affects the price of the restaurant's products. Again, the proportion
between the inflation rate and wages/prices is direct.
Economic trends act as an indicator of the sustainability and profitability of
your business in the chosen region and help you in deciding your marketing
strategy.
Social factors:
Eating habits of the people in your chosen business environment may, and
certainly will, affect your marketing decisions.
Ratio of people preferring to eat out regularly.
Technological factors:
A good technical infrastructure would lead to better production,
procurement and distribution logistics, resulting in reduced wastage and lower
costs.
Effective technology may be a decisive factor for food technology
innovation, better presentation, more effective business marketing, etc.
(C)Environmental Factors:

The location of countries influence on the trades the businesses do.

Adding to that, many climatic changes alter the trade of industries and the
way consumers react towards a certain offering that is launched in the
market.
The environmental factors include geographical location, the climate,
weather and other such factors that are not just limited to climatic
conditions.
These in particular affect the agri-businesses, farming sectors, etc.

CASE STUDY
Q1)
1
2

Making changes in the existing product to suit the need of this fast
growing overseas
market.
Assembling the parts of product by local or export from home country.

3
4

Launching a 3 wheeler product in the market

Main focus on the mileage and product quality of the product

Q2)
1
2
3

Technological mode - quality product

Cost - cost of the product should be minimum
Convenience - after sale service

Q3) Advantages to the company from locals and foreign players

1
2
3

Less fixed cost

Less establishment cost/ Labour cost
Just in time concept depending upon demand, this saves holding cost
and carrying cost

Q4)
1
2
3
4
5

Penetration selling(massive cost/price reduction)

Political relationship between 2 countries
Laws of the foreign country for allowing new companies into the market
Employee cost including technical capabilities
Availability of bank loans for MNC