Running head: GLOBAL DIMENSIONS OF MANAGEMENT AND INTERNATION

BUSINESS 1

Global Dimensions of Management and International Business

Prof. Ramesh N
Kakali Kayal
Reg. No. 1801016190155
Alliance University
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Global Dimensions of Management and International Business

Q1. Explain the terms GDP, GDP-P and PPP. Bring in a correlation between the three through an example
Ans.
Gross Domestic Product(GDP): GDP is the total market value of total goods and services produced within a
country, no matter whether it is generated by a domestic or foreign owned enterprise, over a fixed period of
time(generally one year).

GDP Per Capita(GDP-P): is the measure of the total output of a country that takes the GDP and divides it by the
number of people in the country;
GDP Per Capital = Real GDP / population. As it shows the relative performance of the country, GDP-P is useful
while comparing one country to another.
Purchasing Power Parity(PPP): provides a method of measuring the relative purchasing power of different
countries’ currencies for the same basket of goods and services. On the other way it states that exchange rates
between currencies are in equilibrium when their purchasing power is same in each of the two countries. For an
example, price of a burger in US is 3.99 USD = (3.99*65) = 260 INR[at actual exchange rate 1USD=65INR], but the
same burger cost 183 INR in India; So Purchasing power in India is less than US, 1USD=45INR.

Correlation between GDP, GDP-P and PPP: GDP, GDP-P are directly correlated with each other, the GDP per
Capital is dependent on the actual GDP of the country and total population; for an example, by analysis of IMF
World Economic data source, according to GDP forecast 2019, India’s GDP to reach 2,958 billion USD, whereas
population 1,352 million, which is 29.6% or total world’s population; eventually because of huge population
India’s GDP per capital is quite low, 2,188 USD, though it’s GDP is quite high.
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On the other hand in order to factor in the impact of difference in price of goods and services, GDP is measured
in terms of PPP exchange rate (which is more accurate) instead of market exchange rate; for an example, the
nominal GDP of India is USD 2,958 billion when measured in terms of exchange rate but when measured in terms
of PPP, it shoots up to USD 11,413 billion and becomes the third largest economy of the world.

Q2. What are the three key learnings from the study of the Airtel Africa case.
Ans.
Following are the mistakes done by Airtel which turn into disaster in Africa:
1) Airtel paid a lot of money to enter into Africa; Airtel invested 9 billion USD among which 8.5 billon USD they
borrowed from outside and invested in local African currencies, and local currencies are falling down.
2) Entered into wrong countries; Airtel gets attracted to high GDP (2.3 T USD) of Africa, but the GDP of Africa is
not uniformed everywhere and Airtel targeted the wrong countries with GDP of bellow 1200.
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3) Airtel entered into Africa in wrong time; they entered when Africa were facing depreciation because of oil
price collapsed and most of them are the oil producing nation.
4) Cost of acquisition per customer was very high; Airtel spent $252 per subscriber to acquire 42 million of users,
when the average minutes of use per subscriber in a month was just 100 compared to 350-400 in India.
5) Marketing Strategy was wrong; the marketing was controlled from India, and Airtel appointed north African
actor/actress and advertise in southern Africa.

So, the main key learnings from above case:

1) Targeted market and current market situation should be analysed very carefully before entering into
the business.
2) Investment plan for the targeted market and the cost of acquisition for the business should be realistic
and futuristic
3) It is very important to have a proper knowledge of the culture of the targeted countries; the culture
and general behaviour of the people plays a big role for design of the product/ service and also have a
huge impact on marketing strategy.

Q3. Name two countries each of High and Low Context Societies. What are the three typical characteristics of
these societies?
Ans.
High Context Culture: High context societies are those countries who pursue a cooperative business culture and
work as a team more than individual; they build up a relationship based work culture and focus on non-verbal
communication rather than verbal. For an example countries like China, Japan, India, France; 80% of countries
in world follow High context culture.
Low Context Culture: On the other side Low context countries are those where people are more competitive,
Task oriented, and work as individual rather than as a team. Also people prefer verbal communication over non-
verbal. For an example countries like US, UK, Germany, Canada, Norway etc; 20% of countries in world follow
Low context culture.
High Context Low Context
Cooperative Competitive Business outlook
Relationship-oriented Task-oriented Work ethic
Team-oriented Individualistic Work style
Non-verbal over verbal Verbal over non-verbal Communication

Q4. Explain the term “Pure Economy”. What is good about such an economy additionally name a few pitfalls.
Ans.
Pure Economy: Pure Economy is the market where business owner have the freedom to decide what to produce,
how to produce, for whom to produce and what should be the price. It is determined by the consumer’s
preferences, govt. is not involved.
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Pros of Pure Economy:

 Consumer demand will start increasing and create a business scope.
 If come up with a good product which meets the demand; business owner of the product can drive
quick profits, and can create a Monopoly market.
 Drive for a better product, because if the product is not that good somebody else will enter into the
market with new product and capture the market.
Pitfalls of Pure Economy:
 Because the pure economy creates a monopoly market, there is no control on the price, and any price
can be charged to the consumer. Example: In a movie theatre consumer do not have any control on the
price for the popcorn or the snacks, they gets inside the theatre and the popcorn outlet can charge any
price whatever they decide.

Q5. Why should India open it borders and businesses for International trade. How does it help the nation. What
should India be mindful of as it opens to the World for trade.
Ans.
Any country’s growth depends on trade made by the country locally and globally. India is a fast developing
country and there are many foreign companies eyeing opportunity in India. Earlier India use to play a closed
economy before 1991, before the globalization period started in India. In 1991 economic liberalisation was
initiated and India started developing a mixed economy. A lot has already been done since 1991 and now it is
the world's seventh-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP);
and become the most open economy in the world. From past experience only we can easily make out how India
started growing its economy, and reach to the position where it is now. So it is more important for India to open
more its business for international trade to grow faster.
Trade is the key of ending global poverty. Countries like India those are open to international trade, are tend to
grow faster, innovate new things, improve productivity, and provide higher income. It also create more job
opportunity for the people. Open trade also benefits lower-income households as it offer consumers more
affordable goods and services and drive economic growth and reduce poverty.
Following things India should be mindful of as it opens to the world for trade;
 Trade facilitation, logistics, and border management: helping countries integrate into global value
chains through targeted reforms and investments;
 Trade agreements: advising countries on their technical details and supporting implementation of
commitments made through these agreements;
 Emphasizing trade and competitiveness at the core of national development strategies
 Aid for Trade: Among multilateral institutions, the Bank Group is the largest provider of “Aid for Trade,”
a multilateral initiative designed to assist developing countries like India, spur growth by integrating
into the world economy.
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 Markets and competition policy: encouraging growth and shared prosperity by opening and
transforming markets.

Q6. Name typical three modes of entry in International Business. Explain any two.
Ans.

There are 4 ways a company can enter in International Business; 1) Exporting, 2) Contractual agreement, 3)
Strategic alliances, 4) Ownership. Following are some detailing about contractual agreement and strategic
alliances

Contractual agreement: Long term non-equity relationship between the foreign company and host company.
Contractual agreement can be of four types,
 Licencing: Example of pharma companies; host company gives license or patent to another company
to manufacture the drugs and host company will give some percentage of revenue to the manufacturer
company on the number of drugs produced by the manufacturing company. The main problem with
licencing is the host company will have a very limited control over the manufacturing company and
pirating of licencing may happen.
 Franchising: The goods and services provided, is exactly same for all the brunches or outlet and same
as the main brunch in the host country; example, Starbucks, KFC. The main disadvantage is it can harm
the main brand image if the quality of the product or service is fallen down in any franchised outlet.
 Contract manufacturing: A process that establishes a working agreement between two companies and
as part of agreement one company will produce parts of other materials on behalf of their client. The
main disadvantage is less management control, complexity and quality issue.
 Management contracting: An agreement where the operational control of the enterprise is vested by
contract to a separate enterprise which performs necessary managerial functions in return of a fee;
example, few companies contract with other companies for multiple functions like HR, marketing,
training etc. The main disadvantages are loss of control, time delay, quality issue and compliances issue.
Strategic alliances: Strategic alliances are the co-operative agreements between potential or actual
competitors, it is a business relationship by two or more companies to co-operate out of mutual need and to
share risks of achieving a common objectives and increases competitive strengths. There are two types of
strategic alliances; joint venture and consortia. Some advantages of strategic alliances are, 1) opportunity to
expand new market, 2) access to new technology, 3) efficiency, 4) reduced marketing cost, 5) Additional
resources. Example; Vistara has a joint venture between Tata and Singapore Airlines.
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References
1) https://mgmresearch.com/g20-nations-gdp-rankings-2019/