1. Why do countries need international business?

Some important benefits of International Trade

• Enhances the domestic competitiveness
• Takes advantage of international trade technology
• Increase sales and profits
• Extend sales potential of the existing products
• Maintain cost competitiveness in your domestic market
• Enhance potential for expansion of your business
• Gains a global market share
• Reduce dependence on existing markets
• Stabilize seasonal market fluctuations

2. Trace the growth of globalization, the causes and drivers?

Globalization is a process of interaction and integration among the people, companies, and
governments of different nations, a process driven by international trade and investment and aided
by information technology.
The causes are….
• Trade Barriers
• Customer Demands
• Globalization of Competitors
• Regulations and Restrictions
• market, cost, Government and competition
The drivers are….
• Business Environment
• Culture
• political systems
• economic development
• Demands

3. What makes international business different?

• Scope
• Benefits
• Market Fluctuations
• Modes of entry
• Purvey
• Sharing of Technology
• Political relations

4. Discuss the advantage and challenges of globalization?

Advantages of Globalization

o Goods and people are transported with more easiness and speed
o the possibility of war between the developed countries decreases
o free trade between countries increases
o global mass media connects all the people in the world
o as the cultural barriers reduce, the global village dream becomes more realistic
o there is a propagation of democratic ideals
o the interdependence of the nation-states increases
o as the liquidity of capital increases, developed countries can invest in developing ones
o the flexibility of corporations to operate across borders increases
o the communication between the individuals and corporations in the world increases
o environmental protection in developed countries increases

Challenges of globalization

• Poverty and inequality

• Integration into the global economy
• Management of international financial system
• Unfairness of the global trading system
• Unbalanced Distribution of Benefits
• Financial Volatility

5. What are the different modes of international business

• Exporting
• Turnkey Projects
• Licensing
• Franchising
• Joint Ventures
• Wholly Owned Subsidiaries
6. “Ultimately the study if international business is no different from the study of domestic
business. Thus there is no point in having a separate course on international business”. Evaluate
this statement

The study of international business differs from the study of domestic business. The benefits
off studying international business are as follows...…
• It gives the knowledge of International POLITICAL ENVIRONMENT
• It gives the Knowledge of International ECONOMIC ENVIRONMENT
• It gives the Knowledge of International FOREIGN EXCHANGE
• It gives the knowledge of International TAX BENEFITS
• It gives the knowledge of GLOBAL CURRENCY
• It gives the knowledge of INTERNATIONAL TRADE TECHNOLOGY
• It provides an overview of SHARED INTERNATIONAL CULTURE
• It provides EXTEND SALES POTENTIAL
• Provides information of INTERNATIONAL SCENARIO OF BUSINESS
• It gives an idea REDUCING DEPENDENCY on existing markets
7. What are some of the ill effects of globalization?
• Developed nations have outsourced manufacturing and white collar jobs.
• Globalization has led to exploitation of labor
• Job insecurity
• causing pollution in countries
• foreign cultures are affecting the local cultures
• Local industries are being taken over by foreign multinationals
• influencing political decisions

8. The components of political legal and economical environment of a country that influences
international business.

Political legal environment ……..

• Ideology
• Nationalism
• Stability
• International relations
• Incentives
• International law
• Types of duty
• Other import charges

Economical environment…….

• income distribution and disposable income

• productivity
• inflation,
• interest rates,
• availability of credit

9. What are some of the cultural dimensions and values that differentiate people of different
nation and cultures
• Modernization versus westernization
• Individualism Vs Collectivism in decision making
• Specific Vs General
• Attitudes towards Time
• Attitudes towards Environment
10. Outline why the culture of a country might influence the costs of doing business in that
country
Elements of culture
• Social structure
• Religion
• Language
• Education
• Economic philosophy
• Political philosophy
Culture affects
• Consumer behavior
• Local demand
• Buying decisions
• Brand Image
• Culture influences managerial styles and management decisions
• Culture affects the nature of business negotiations

11. What are the various dimensions of Hofstede’s cultural consequences? Explain them

The five dimensions are:

a) Power/Distance (PD) - This refers to the degree of inequality that exists - and is accepted -
among people with and without power. A high PD score indicates that society accepts an unequal
distribution of power and people understand "their place" in the system. Low PD means that power
is shared and well dispersed. It also means that society members view themselves as equals.
b) Individualism (IDV) - This refers to the strength of the ties people have to others within
the community. A high IDV score indicates a loose connection with people. In countries with a
high IDV score there is a lack of interpersonal connection and little sharing of responsibility,
beyond family and perhaps a few close friends. A society with a low IDV score would have strong
group cohesion, and there would be a large amount of loyalty and respect for members of the
group. The group itself is also larger and people take more responsibility for each other's well
being.
c) Masculinity (MAS) - This refers to how much a society sticks with, and values, traditional
male and female roles. High MAS scores are found in countries where men are expected to be
tough, to be the provider, to be assertive and to be strong. If women work outside the home, they
have separate professions from men. Low MAS scores do not reverse the gender roles. In a low
MAS society, the roles are simply blurred. You see women and men working together equally
across many professions. Men are allowed to be sensitive and women can work hard for
professional success.
d) Uncertainty/Avoidance Index (UAI) - This relates to the degree of anxiety society
members feel when in uncertain or unknown situations. High UAI-scoring nations try to avoid
ambiguous situations whenever possible. They are governed by rules and order and they seek a
collective "truth". Low UAI scores indicate the society enjoys novel events and values differences.
There are very few rules and people are encouraged to discover their own truth.
e) Long Term Orientation (LTO) - This refers to how much society values long-standing -
as opposed to short term - traditions and values. This is the fifth dimension that Hofstede added in
the 1990s after finding that Asian countries with a strong link to Confucian philosophy acted
differently from western cultures. In countries with a high LTO score, delivering on social
obligations and avoiding "loss of face" are considered very important.

12. a) Explain’ Balance of payments’ b) FDI c) Balance of trade d) Write short note on IMF

Balance of payments

A balance of payments (BOP) sheet is an accounting record of all monetary transactions between
a country and the rest of the world. These transactions include payments for the
country's exports and imports of goods, services, and financial capital, as well as financial
transfers. The BOP summarizes international transactions for a specific period, usually a year.

FDI

Foreign direct investment (FDI) refers to long term participation by country A into country B. It
usually involves participation in management, joint-venture, transfer of technology and expertise.
There are three types of FDI: inward foreign direct investment and outward foreign direct
investment, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct
investment", which is the cumulative number for an given period. Direct investment
excludes investment through purchase of shares.

IMF

The International Monetary Fund (IMF) is the intergovernmental organization that oversees
the global financial system by following the macroeconomic policies of its member countries; in
particular those with an impact on exchange rate and the balance. It is an organization formed with
a stated objective of stabilizing international exchange rates and facilitating development through
the enforcement of liberalizing economic policies on other countries as a condition for loans,
restructuring or aid. It also offers highly leveraged loans, mainly to poorer countries. Its
headquarters is in Washington, D.C., United States.

13. Discuss India’s competitiveness in software industry using the framework of Porters
Diamond

National Competitiveness: a nation’s relative ability to design, produce, distribute, or service

products while earning increasing returns on resources

• Demand conditions
• Factor Conditions
• Related and supporting industries
• Firm strategy, structure, and rivalry
14. The world’s poorest countries are at a competitive disadvantage at every sector of their
economies. They have little to export Thy have no capital; their land is of poor quality, they often
have too many people given available work opportunities and they are poorly educated. Free trade
cannot be in the interest of such nations. Discuss

Free trade is a system of trade policy that allows traders to act and or transact without interference
from government. According to the law of comparative the policy permits trading partner’s
mutual gains from trade of goods and services.

Free trade implies the following

• trade of goods without taxes (including tariffs) or other trade barriers (e.g., quotas on
imports or subsidies for producers)
• trade in services without taxes or other trade barriers
• The absence of "trade-distorting" policies (such as taxes, subsidies, regulations, or laws)
that give some firms, households, or factors of production an advantage over others
• Free access to markets
• Free access to market information
• Inability of firms to distort markets through government-imposed monopoly or oligopoly
power
• The free movement of labor between and within countries
• The free movement of capital between and within countries

15. Discuss the international product life cycle theory with suitable examples

International Product Life Cycle Theory;-

• International product life cycle theory proposed by Vernon explains various stages
of international product life cycle in international trade.
 • In this process it considers technological innovation and market structure as two
important factors. This theory is based on following principles:

• New products are developed as a result of technological innovations.

• Trade patterns are determined by the market structure and the phase in a new
product’s life.

16. Discuss absolute advantage and comparative advantage with suitable examples

absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce
more of a good or service than competitors, using the same amount of resources. Adam Smith first
described the principle of absolute advantage in the context of international trade, using labor as
the only input.
Example 1

Party B has the absolute advantage.

 Party A can produce 5 widgets per hour with 3 employees.

 Party B can produce 10 widgets per hour with 3 employees.
Assuming that the employees of both parties are paid equally, Party B has an absolute advantage
over Party A in producing widgets per hour. This is because Party B can produce twice as many
widgets as Party A can with the same number of employees.
Comparative advantage refers to the ability of a party (an individual, a firm, or a country) to
produce a particular good or service at a lower opportunity cost than another party. It is the ability
to produce a product with the highest relative efficiency given all the other products that could be
produced. It can be contrasted with absolute advantage which refers to the ability of a party to
produce a particular good at a lower absolute cost than another.
Example 1
Two men live alone on an isolated island. To survive they must undertake a few basic economic
activities like water carrying, fishing, cooking and shelter construction and maintenance. The first
man is young, strong, and educated. He is also faster, better, and more productive at everything. He
has an absolute advantage in all activities. The second man is old, weak, and uneducated. He has
an absolute disadvantage in all economic activities. In some activities the difference between the
two is great; in others it is small.
Despite the fact that the younger man has absolute advantage in all activities, it is not in the
interest of either of them to work in isolation since they both can benefit from specialization and
exchange. If the two men divide the work according to comparative advantage then the young man
will specialize in tasks at which he is most productive, while the older man will concentrate on
tasks where his productivity is only a little less than that of the young man. Such an arrangement
will increase total production for a given amount of labor supplied by both men and it will benefit
both of them.

17. What are the different stages of regional economic integration.

Economic integration refers to trade unification between different states by the partial or full
abolishing of customs tariffs on trade taking place within the borders of each state. This is meant in
turn to lead to lower prices for distributors and consumers (as no customs duties are paid within the
integrated area) and the goal is to increase trade. The trade stimulation effects intended by means
of economic integration are part of the contemporary economic.

The degree of economic integration can be categorized into six stages:

a) Preferential trading area:- A Preferential trade area is a trading bloc which gives
preferential access to certain products from the participating countries. This is done by
reducing tariffs, but not by abolishing them completely. A PTA can be established through a trade
pact. It is the first stage of economic integration.
b) Free trade area:- Free trade area is a type of trade bloc, a designated group of countries
that have agreed to eliminate tariffs, quotas and preferences on most (if not all) goods and services
traded between them. It can be considered the second stage of economic integration.
c) Customs union:- A customs union is a type of trade bloc which is composed of a free trade
area with a common external tariff. The participant countries set up common external trade policy,
but in some cases they use different import quotas. Common competition policy is also helpful to
avoid competition deficiency.
d) Single market: A single market is a type of trade bloc which is composed of a customs
union with common policies on product regulation, and freedom of movement of the factors of
production (capital and labor) and of enterprise. The goal is that the movement of capital, labor,
goods, and services between the members is as easy as within them.
e) Economic and monetary union:- An economic and monetary union is a type of trade
bloc which is composed of a single market with a common currency. It is to be distinguished from
a mere currency union (e.g. the Latin Monetary Union in the 1800s), which does not involve a
single market. This is the fifth stage of economic integration.
f) Complete economic integration:- Complete economic integration is the final stage
of economic integration. After complete economic integration, the integrated units have no or
negligible control of economic policy, including full monetary union and complete or near-
complete fiscal policy harmonization.
18. Discuss the background that led to the creation of WTO and elaborate its role as a
Global Police
WTO: - An organization for liberalizing trade. Main purpose is to reduce imperfections and
promote free trade for more economic efficiency. Deals with the rules of trade between
nations at a global or near-global level. A rule-based, member-driven organization. Decisions
and rules are the outcomes of negotiations. A place for settlement of trade disputes, etc

General Agreement on Tariffs and Trade: The GATT's main objective was the reduction of
barriers to international trade. This was achieved through the reduction of tariff barriers,
quantitative restrictions and subsidies on trade through a series of agreements. The GATT
was a treaty, not an organization. The functions of the GATT were taken over by the World
Trade Organization which was established during the final round of negotiations in early
1990s
The history of the GATT can be divided into three phases:
* Ist Phase: from 1947 until the Torquay Round, largely concerned which commodities
would be covered by the agreement and freezing existing tariff levels.
* IInd Phase: encompasses three rounds, from 1959 to 1979, focused on reducing tariffs.
* IIIrd Phase: The third phase, consisting only of the Uruguay Round from 1986 to
1994, extended the agreement fully to new areas such as intellectual property, services,
capital, and agriculture. Out of this round the WTO was born.

WTO Features
• It is a negotiating forum
• It is a set of rules
• It helps to settle disputes
Operational Features
• Decisions by consensus among all member countries
• Decisions ratified by members’ parliaments
• Trade friction is channeled into the WTO’s dispute settlement process
19. What are the essential differences of GATT and WTO
The World Trade Organization is not a simple extension of GATT; on the contrary, it completely
replaces its predecessor and has a very different character. Among the principal differences are the
following:

• GATT was a set of rules, a multilateral agreement, with no institutional foundation,

only a small associated secretariat which had its origins in the attempt to establish an
International Trade Organization in the 1940s. The WTO is a permanent institution with
its own secretariat.
• GATT was applied on a "provisional basis" even if, after more than forty years,
governments chose to treat it as a permanent commitment. The WTO commitments are
full and permanent.
• The GATT rules applied to trade in merchandise goods. In addition to goods, the
WTO covers trade in services and trade-related aspects of intellectual property.
• While GATT was a multilateral instrument, by the 1980s many new agreements had
been added in a plurilateral, and therefore selective, manner. The agreements which
constitute the WTO are almost all multilateral and, thus, involve commitments for the
entire membership.
• The WTO dispute settlement system is faster, more automatic, and thus much less
susceptible to blockages, than the old GATT system. The implementation of WTO
dispute findings will also be more easily assured.
• GATT lives on as "GATT 1994", the amended and up-dated version of GATT
1947, which is an integral part of the WTO Agreement and which continues to provide
the key disciplines affecting international trade in goods.

20. What are some ‘learning curve effects and economies of scale obtained by international
trade?

Learning Curve Effects

• Labor efficiency
• Standardization, specialization, and methods improvements
• Technology-Driven Learning
• Better use of equipment
• Changes in the resource mix
• Product redesign
• Network-building and use-cost
• Shared experience effects

21. Discuss some of the international business entry modes and strategies- their advantages and
disadvantages

Exporting: -Exporting is selling goods in foreign markets as a way to earn profits. An

Export Business is a venture where a firm buys or represents products or services
produced in one country and sells them in other countries
 Advantages:

• Avoids cost of establishing manufacturing operations

• May help achieve experience curve and location economies
Disadvantages:
• May compete with low-cost location manufacturers
• Possible high transportation costs
• Tariff barriers
• Possible lack of control over marketing reps
• Local Agent Problems
Turnkey Projects:- Contractor agrees to handle every detail of project for foreign client

Advantages:

• Can earn a return on knowledge asset

• Less risky than conventional FDI
Disadvantages:

• No long-term interest in the foreign country

• May create a competitor
• Selling process technology may be selling competitive advantage as well
Licensing: - Agreement where licensor grants rights to intangible property to another
entity for a specified period of time in return for royalties.
Advantages:

• Reduces development costs and risks of establishing foreign enterprise.

• Lack capital for venture.
• Unfamiliar or politically volatile market.
• Overcomes restrictive investment barriers.
• Others can develop business applications of intangible property.
Franchising: - Franchiser sells intangible property and insists on rules for operating
business
Advantages: Reduces costs and risk of establishing enterprise
Disadvantages:
• May prohibit movement of profits from one country to support operations in
another country
• Quality control
Joint Ventures: - A joint venture is a legal entity formed between two or more parties to
undertake an economic activity together. The JV parties agree to create, for a finite time, a
new entity and new assets by contributing equity. They then share in the revenues,
expenses, and assets and "control" of the enterprise.
Advantages:

• Benefit from local partner’s knowledge.

 • Shared costs/risks with partner.
• Reduced political risk.
Disadvantages:
• Risk giving control of technology to partner.
• May not realize experience curve or location economies.
• Shared ownership can lead to conflict
Wholly Owned Subsidiaries: - Subsidiaries could be Greenfield investments or
acquisitions
Advantages:

• No risk of losing technical competence to a competitor

• Tight control of operations.
• Realize learning curve and location economies.
Disadvantage:

• Bear full cost and risk

22. Discuss the four basic strategies of international business and their applicability under
different conditions

International: - Create value by transferring skills to local markets where skills are not present.

Global: - Increase profitability through cost reductions from experience curve effects and location
economies.
Multidomestic:- oriented toward achieving maximum local responsiveness.
Transnational:- Exploit experienced based cost and location economies, transfer core competencies
within the firm, and pay attention to local responsiveness needs.)
• Value Creation
• Strategic Positioning
• Operations: The Firm as a Value Chain
• Organization: The Implementation of Strategy

23. write notes on 1) NAFTA, 2) Mercosur 3) ASEAN

NAFTA: - The North American Free Trade Agreement or NAFTA is an agreement signed by
the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North
America. The agreement came into force on January 1, 1994. It superseded the Canada-United
States Free Trade Agreement between the U.S. and Canada.

Mercosur:- is a Regional Trade Agreement (RTA) between Argentina, Brazil, Paraguay and
Uruguay founded in 1991 by the Treaty of Asunción, which was later amended and updated by the
1994 Treaty of Ouro Preto. Its purpose is to promote free trade and the fluid movement of goods,
people, and currency.

ASEAN:- The Association of Southeast Asian Nations is a geo-political and economic

organization of 10 countries located in Southeast Asia, which was formed on 8 August 1967 by
Indonesia, Malaysia, the Philippines, Singapore and Thailand. Since then, membership has
expanded to include Brunei, Burma (Myanmar), Cambodia, Laos, and Vietnam. Its aims include
the acceleration of economic growth, social progress, cultural development among its members,
the protection of the peace and stability of the region, and to provide opportunities for member
countries to discuss differences peacefully.

24. Discuss the EU- Discuss the course of it becoming a economic union

Background

• The European Economic Community (EEC) had been founded in 1957-58 to

oversee the economic integration of the nations of Western Europe.
• In 1967 the EEC joined together with the European Coal and Steel Community and
other community.
• The success of the liberalized trade and internal market policies sponsored by the
EEC (or EC) in the 1960s, '70s, and '80s made its members more receptive to the
greater integration of the EC.
• Subsequent efforts toward greater economic and political union of the EC's
members eventually yielded the Treaty on European Union (Maastricht Treaty),
concluded in December 1991
• The treaty's enactment (Nov. 1, 1993) created the European Union out of the
European Community; in addition, the European Economic Community was
renamed the European Community, and the EC's Council of Ministers was
renamed the Council of Ministers of the European Union.

Objectives

• to promote social and economic progress,

• to establish an area of freedom, security and justice,
• to enhance the environment of Europe and the world,
• To secure and defend the Union.

25. what are some of the strategic benefits of having a foreign factory

• free flow of capital

• technology transfer
• increase total production capacity
• understanding the way of doing business
• taxes (e.g. corporation tax, excise duty, sales tax, income tax, ground rent)
• Foreign Aid
• Cost-benefit
• Job opportunity
• joint marketing arrangements
• Opportunities for co-production
• greater local consumption
26. How does an MNC make the choice of an optimal production location. What factors must
be considered
The factors are as follows …
Revenue Factors
• Market:- type of demand, size of market, stability of market, income or economic strength
• Competition

Cost Factors
• Labor :- supply, wages and benefits, skills, - unionization/right-to-work
• Land
• Transportation
• Raw materials
• Buildings and equipment
• Taxes
• Government regulations
• Capital

Indirect Factors
• Owner preferences
• Climate condition
• Amenities.

27. What factors affect the effectiveness of global advertising what precautions need to be
undertaken when designing advertising for different nations?

Factors affect the effectiveness of global advertising

• Creativity challenges
• Language limitations
• Cultural diversity
• Media limitation
• Media planning and analysis
• Values and beliefs of consumes

Precautions need to be undertaken when designing advertising for different nations

• Advertisement should be very creative, interesting and new.
• Language should be regional/ local.
• Understand cultural aspect of country.
• Choose an appropriate medium to convey your message
• Don't judge the price of the ad by the amount alone
• Develop a relationship with your customers
• Be relevant with the product
• Feel The Need: - Advertising does not create demand. It can only direct people who already
feel that need to buy from you rather than from someone else.
 28. What are some of the problems in international relations due to the massive shift of
jobs from US to countries like India?

29. Give a profile of any country other than India. Discuss the ways of doing business with
them
30. Discuss WTO –GATT provisions and regulations on products and services