1st assignment of international budiness

Q#1

Define foreign exchange Market, Discuss the function and importance of Foreign Exchange
Market.

Ans:

Definition

Foreign Exchange Market is the market where the buyers and sellers are involved in the
buying and selling of foreign currencies. Simply, the market in which the currencies of different
countries are bought and sold is called as a foreign exchange market. The buyers and sellers
include individuals, firms, foreign exchange brokers, commercial banks and the central bank.

Functions of foreign exchange

The following are the important functions of a foreign exchange market:

1. To transfer finance, purchasing power from one nation to another. Such transfer is affected
through foreign bills or remittances made through telegraphic transfer. (Transfer Function).

2. To provide credit for international trade. (Credit Function).

3. To make provision for hedging facilities, i.e., to facilitate buying and selling spot or forward
foreign exchange. (Hedging Function).

Transfer Function: 

The basic and the most visible function of foreign exchange market is the transfer of funds
(foreign currency) from one country to another for the settlement of payments. It basically
includes the conversion of one currency to another,wherein the role of FOREX is to transfer the
purchasing power from one country to another.

For example, If the exporter of India import goods from the USA and the payment is to be made
in dollars, then the conversion of the rupee to the dollar will be facilitated by FOREX. The
transfer function is performed through a use of credit instruments, such as bank drafts, bills of
foreign exchange, and telephone transfers.

Credit Function: 

FOREX provides a short-term credit to the importers so as to facilitate the smooth flow of goods
and services from country to country. An importer can use credit to finance the foreign
purchases. Such as an Indian company wants to purchase the machinery from the USA, can pay
for the purchase by issuing a bill of exchange in the foreign exchange market, essentially with a
three-month maturity.

Hedging Function:

 The third function of a foreign exchange market is to hedge foreign exchange risks. The parties
to the foreign exchange are often afraid of the fluctuations in the exchange rates, i.e., the price of
one currency in terms of another. The change in the exchange rate may result in a gain or loss to
the party concerned.

Importance of foreign exchange market

Foreign exchange is important for one major reason: it determines the value of foreign
investment. A volatile exchange rate discourages foreign investment, as does a high, stable one.
A low, stable exchange rate, however, encourages foreign investment, but at the price of the low-
valued currency's economy.

Volatile Exchange Rate

If an exchange rate is volatile, foreign investors cannot accurately predict their investment
returns. Even if they invest in holdings that give stable, consistent returns in a foreign currency,
if that foreign currency is liable to dramatically change its value, then the investment is similarly
volatile.

Stable, High Value

A high value currency encourages import markets while discouraging export markets. This is
because foreign investors can increase their return on investment (ROI) by making money in a
currency that goes far in their country. Exports, however, are harmed, as they are not worth as
much overseas as they are at home.

Stable, Low Value

A currency that has a low value encourages exports and discourages imports. This is because
goods sold overseas for higher-value currencies are worth even more than their face value solely
because of the currency value. Conversely, there is little incentive for importers to bring goods
into a country, and if they do, importers must mark these goods up in order to recoup their losses
due to the low currency rate.
Q#2

Define the international Business. Discuss the nature and scope of international business.

Ans:

Definition

International Business conducts business transactions all over the world. These transactions

include the transfer of goods, services, technology, managerial knowledge, and capital to other
countries. International business involves exports and imports.

Nature of International Business

1. Accurate Information
2. Information not only accurate but should be timely
3. The size of the international business should be large
4. Market segmentation based on geographic segmentation
5. International markets have more potential than domestic markets

Scope of International Business

1. International Marketing
2. International Finance and Investments
3. Global HR
4. Foreign Exchange

Q#3

Explain the factors influencing international business environment.

Ans:
The Economic Environment

This element comprises the nature of the economic system and institutions of a particular country
or region. It also takes into account the nature of human and natural resources within the target
market. A firm will function very differently in a libertarian environment than within a highly
statist one. Here, the activities and functions of local economic elites are also very important.

The Political Environment

Closely tied to the economic environment is the political one, itself also dealing with the nature
of systems and institutions. Many variables to consider here are the stability of the political
system, the existence of local or international conflict, the role of state enterprises and the nature
of the bureaucracy.

The Legal Environment

The existence of bureaucratic systems and cultures is central in making the decision to invest
globally. The nature of corruption, local values and assumptions that are built into national
ideologies are major variables in this field. A great concern is the extent to which there is a
culture of law or a culture of personal patronage, where negotiations are done on a personal
rather than a legal basis. The impact of international lending agencies such as the International
Monetary Fund or the World Bank is also important in creating a legal culture that a business
will have to take seriously.

 Social environment

The country’s social environment affects the functioning of the business since it determines the
value system of the society. Sociological factors establish the culture of work, labor mobility,
work groups etc, hence, business operation of an enterprise. These factors include cost structure,
customs and conventions, cultural heritage, peoples’ view towards wealth and income and
scientific methods, seniority respect, mobility of labor (Shaikh 2010). All these factors have big
impact on the business.

Technological environment

          Technological factors affects business concerning technological investment, technological

application and the effect of technology on markets.  Therefore, any technological advancement
affects highly the business in a country. The type and quality of goods and services to be
produced and the type and quality of plant and equipment to be used in a company, is determined
by the kind of technology employed by that company (Mühlbacher, Dahringer & Leihs 2006).
Burberry is extending its web reach so that its customers worldwide can view its brands.
Q#4

What is meant by "globalization of business" What implications it has for problems if any,
created by globalization of business?

Ans:

Definition

Globalization refers to the changes in the world where we are moving away from self-contained
countries and toward a more integrated world. Globalization of business is the change in a
business from a company associated with a single country to one that operates in multiple
countries.

Globalization is a leading concept which has become the main factor in business life during the
last few decades. This phenomenon affects the economy, business life, society and environment
in different ways, and almost all corporations have been affected by these changes. These
changes are mostly related to increasing competition and the rapid changes of technology and
information transfer. To challenge these changes, companies need to keep in mind various
aspects of the main effects of globalization.

Competition

Globalization leads to increased competition. This competition can be related to product and
service cost and price, target market, technological adaptation, quick response, quick production
by companies etc. When a company produces with less cost and sells cheaper, it is able to
increase its market share.

Customers have a large multitude of choices in the market and this affects their behaviors: they
want to acquire goods and services quickly and in a more efficient way than before. They also
expect high quality and low prices. All these expectations need a response from the company,
otherwise sales of company will decrease and they will lose profit and market share.

Exchange of Technology

One of the most striking manifestations of globalization is the use of new technologies by
entrepreneurial and internationally oriented firms to exploit new business opportunities. Internet
and e-commerce procedures hold particular potential for SMEs seeking to broaden their
involvement into new international markets.
Technology is also one of the main tools of competition and the quality of goods and services.
On the other hand it necessitates quite a lot of cost for the company. The company has to use the
latest technology for increasing their sales and product quality. Globalization has increased the
speed of technology transfer and technological improvement. Customer expectations are
directing markets.

Knowledge/Information transfer

Information is a most expensive and valuable production factor in the current environment.
Information can be easily transferred and exchanged from one country to another. If a company
have a chance to use knowledge and information then it means that it can adapt to this global
changing. This issue is similar with the technology transfer issue in global markets. The rapid
changing of the market requires also quick transfer of knowledge and efficient using of that
knowledge and information.

Unemployment

Globalization is a blame to world's unemployment situation though it brought some jobs

opportunities. Despite the fact that it brought jobs opportunities to the global but it is still a
blame to the current situation. "It 's true that global economic integration and increased travel
have resulted in increased competitiveness at the national and enterprise levels, forcing
producers to find ways to cut costs, improve efficiency, and raise productivity

Western culture.

Globalization has led to the spread of western culture and influence at the expense of local
culture in developing countries like Africa. Most people now in developing countries cop what
people in developed countries do. So, its like they ignore their own culture and practice western
culture ( Goyal K.A., 2006). For example dressing styles and eating habits, language. All these
can affect management in one way or another example it can cause misunderstandings because
of language barrier.

Trade

Average tariff rates continue to be high in many developing countries, including some that have
recently implemented trade reforms. Example,India. Trade policy continues to be an important
aspect in globalization at least in some of the lower income developing countries.

Wide spread use of computers, faxes and mobile phones, introduction of the internet and e-
commerce, and quicker and cheaper means of transportation in some cases offered opportunities
to developing countries, but in many cases deepened the gap between global firms and traditional
industries globalization opened up new opportunities for developing countries to create jobs and
expand exports.

JOBS INSECURITY.

In developed countries people have jobs insecurity. People are losing their jobs. Developed
nations have outsourced manufacturing and white collar jobs. That means less jobs for their
people. This is because the manufacturing work is outsourced to countries where the costs of
manufacturing goods and wages are lower than in their countries. They have outsourced to
developing countries like China and India. Most people like accountants, programmers, editors
and scientists have lost jobs due to outsourcing to cheaper locations like India.

FLUCTUATION IN PRICES.

Globalization has led to fluctuation in price. Due to increase in competition, developed countries
are forced to lower down their prices for their products, this is because other countries like China
produce goods at a lower cost that makes goods to be cheaper than the ones produced in
developed countries. So, in order for the developed countries to maintain their customers they are
forced to reduce prices of their goods. This is a disadvantage to them because it reduces the
ability to sustain social welfare in their countries.

Q#5

Explain the theory of "Comparative cost advantage" How do firms in two different
countries benefit from international trade in terms of this theory? Explain with examples.

Ans:

Ricardo considered what goods and services countries should produce, and suggested that they
should specialise by allocating their scarce resources to produce goods and services for which
they have a comparative cost advantage. There are two types of cost advantage – absolute, and
comparative.

Absolute advantage means being more productive or cost-efficient than another country whereas
comparative advantage relates to how much productive or cost efficient one country is than
another.

Theory of Comparative advantage:

David Ricardo developed the classical theory of comparative advantage in 1817 to explain why
countries engage in international trade even when one country's workers are more efficient at
producing every single good than workers in other countries.

Comparative vs. Absolute Advantages

Comparative advantage is contrasted with absolute advantage. Absolute advantage refers to the

ability to produce more or better goods and services than somebody else. Comparative advantage
refers to the ability to produce goods and services at a lower opportunity cost, not necessarily at a
greater volume.

To see the difference, consider an attorney and her secretary. The attorney is better at producing
legal services than her secretary and is also a faster typist and organizer. In this case, the attorney
has an absolute advantage in both the production of legal services and secretarial work.

What is 'Comparative Advantage’

Comparative advantage is an economic law referring to the ability of any given economic actor
to produce goods and services at a lower opportunity cost than other economic actors. The law of
comparative advantage is popularly attributed to English political economist David Ricardo and
his book “Principles of Political Economy and Taxation” in 1817, although it is likely that
Ricardo's mentor James Mill originated the analysis.

Ricardo's example:
In a famous example, Ricardo considers a world economy consisting of two
countries, Portugal and England, which produce two goods of identical quality. In Portugal,
the a priori more efficient country, it is possible to produce wine and cloth with less labor than it
would take to produce the same quantities in England. However, the relative costs of producing
those two goods differ between the countries.

Hours of work necessary to produce one unit

Country Cloth Wine

England 100 120

Portugal 90 80
In this illustration, England could commit 100 hours of labor to produce one unit of cloth, or
produce  units of wine. Meanwhile, in comparison, Portugal could commit 90 hours of labor to
produce one unit of cloth, or produce  units of wine. So, Portugal possesses
an absoluteadvantage in producing cloth due to fewer labor hours, and England has
a comparativeadvantage due to lower opportunity cost.
In the absence of trade, England requires 220 hours of work to both produce and consume one
unit each of cloth and wine while Portugal requires 170 hours of work to produce and consume
the same quantities. England is more efficient at producing cloth than wine, and Portugal is more
efficient at producing wine than cloth. So, if each country specializes in the good for which it has
a comparative advantage, then the global production of both goods increases, for England can
spend 220 labor hours to produce 2.2 units of cloth while Portugal can spend 170 hours to
produce 2.125 units of wine

Q#6

(a)What are the dimensions of international business?

Ans.

International business refers to any business activities conducted across national boundaries.
There are number of ways to internationalizing the business. Business can choose among these
five basic activities to start.

1. Importing & exporting

Imports: a good or service brought into one country from another.

Exports: a good or service produced in one country then get marketed to other country.
Import-export is the most fundamental and the largest international business activity, and it is
often the first choice when the businesses decide to expand abroad as it is the easiest way to enter
the market with a small outlay of capital.

2. Licensing

Licensing is one of other ways to expand the business internationally. Licensing is the
arrangement between a firm, called licensor, allows another one to use its intellectual propert
Imports: a good or service brought into one country from another.
Exports: a good or service produced in one country then get marketed to other country.
such as brand name, copy right, patent, technology, trademark and so on for a specific period of
time. The licensor gets benefits in term of the royalty. The company may choose to sell the
products under the licensing when the domestic production costs are too high, strict government
regulations, or the company wants to sell and produce standardized products everywhere.

 3. Franchising

Franchising is closely related to licensing. Franchising is  a parent company (franchiser) gives

right to another company (franchisee) to do business using the franchiser’s name and products in
a prescribed manner. Franchising is different from the licensing in terms of the franchisees have
to follow much stricter guidelines. Moreover, licensing is more about the manufacturers while
franchising is more popular with restaurants, hotels, and rental services. For example,
McDonald, KFC, Pizza Hut and so on.

4. strategic partnerships & Joint venture

A strategic partnership or alliance is a positive aspect of the cooperation of two or more

companies in different countries are joined together for mutual gain. A joint venture is a special
type of strategic alliance, where the partners across globe collectively found a company to
product goods and services. The cooperation between the companies allow them to share the
production cost, technologies, development, and sales networks. The resources will be pooled to
mutual advantages and put the companies in win-win situations. For example, Motorola and
Toshiba joined a strategic partnership to develop manufacturing processes for microprocessors.

5. foreign direct investment (fDI)

Foreign direct investment is a company’s physical investment such as into the building and
facilities in the foreign country, and acts as a domestic business with a full scale of activity.
Companies practice FDI to get benefits from cheaper labor costs, tax exemptions, and other
privileges in that foreign country. The host country will get benefits by the introduction of new
products, services, technologies and managerial skills.  Also, FDI helps facilitate progressive
internal policy reforms of the host country, and enhance the economic situation. For example,
Intel, which is United States based company, has made the FDI in many countries in Southeast
Asian.

(b) Discuss the factors that have led to the globalization of business.

Containerization. The costs of ocean shipping have come down, due to containerization, bulk
shipping, and other efficiencies. ...

Technological change. ...

Economies of scale. ...

Differences in tax systems. ...

Less protectionism. ...

Growth Strategies of Transnational and Multinational Companies.

Containerization

The costs of ocean shipping have come down, due to containerisation, bulk shipping, and other
efficiencies. The lower unit cost of shipping products around the global economy helps to bring
prices in the country of manufacture closer to those in export markets, and it makes markets
more contestable globally

Technological change

Rapid and sustained technological change has reduced the cost of transmitting and
communicating information – sometimes known as “the death of distance” – a key factor behind
trade in knowledge products using web technology

Economies of scale

Many economists believe that there has been an increase in the minimum efficient scale (MES)
associated with some industries. If the MES is rising, a domestic market may be regarded as too
small to satisfy the selling needs of these industries. Many emerging countries have their own
transnational corporations

Differences in tax systems

The desire of businesses to benefit from lower unit labour costs and other favourable production
factors abroad has encouraged countries to adjust their tax systems to attract foreign direct
investment (FDI). Many countries have become engaged in tax competition between each other
in a bid to win lucrative foreign investment projects.

Less protectionism

Old forms of non-tariff protection such as import licensing and foreign exchange controls have
gradually been dismantled. Borders have opened and average import tariff levels have fallen.

That said, it is worth knowing that, in the last few years, there has been a rise in non-tariff
barriers such as import quotas as countries have struggled to achieve real economic growth and
as a response to persistent trade and current account deficits.

Growth Strategies of Transnational and Multinational Companies

In their pursuit of revenue and profit growth, increasingly global businesses and brands have
invested significantly in expanding internationally. This is particularly the case for businesses
owning brands that have proved they have the potential to be successfully globally, particularly
in faster-growing economies fuelled by growing numbers of middle class consumers.

Q#7

(a) Discuss the various factors that influence foreign investment decisions..

Ans:

Foreign direct investment  Decision (FDI) means companies purchase capital and invest in a
foreign country. For example, if a US multinational, such as Nike built a factory for making
trainers in Pakistan; this would count as foreign direct investment.

In summary, the main factors that affect foreign direct investment are

Infrastructure and access to raw materials

Communication and transport links.

Skills and wage costs of labour

Factors affecting foreign direct investment

1. Wage rates

A major incentive for a multinational to invest abroad is to outsource labour intensive production
to countries with lower wages. If average wages in the US are $15 an hour, but $1 an hour in the
Indian sub-continent, costs can be reduced by outsourcing production. This is why many
Western firms have invested in clothing factories in the Indian sub-continent.

However, wage rates alone do not determine FDI, countries with high wage rates can still attract
higher tech investment. A firm may be reluctant to invest in Sub-Saharan Africa because low
wages are outweighed by other drawbacks, such as lack of infrastructure and transport links.

2. Labor skills

Some industries require higher skilled labour, for example pharmaceuticals and electronics.
Therefore, multinationals will invest in those countries with a combination of low wages, but
high labour productivity and skills. For example, India has attracted significant investment in call
centres, because a high percentage of the population speak English, but wages are low. This
makes it an attractive place for outsourcing and therefore attracts investment.

3. Tax rates

Large multinationals, such as Apple, Google and Microsoft have sought to invest in countries
with lower corporation tax rates. For example, Ireland has been successful in attracting
investment from Google and Microsoft. In fact it has been controversial because Google has
tried to funnel all profits through Ireland, despite having operations in all European countries.

4. Transport and infrastructure

A key factor in the desirability of investment are the transport costs and levels of infrastructure.
A country may have low labour costs, but if there is then high transport costs to get the goods
onto the world market, this is a drawback. Countries with access to the sea are at an advantage to
landlocked countries, who will have higher costs to ship goods.

5. Size of economy / potential for growth

Foreign direct investment is often targeted to selling goods directly to the country involved in
attracting the investment. Therefore, the size of the population and scope for economic growth
will be important for attracting investment. For example, Eastern European countries, with a
large population, e.g. Poland offers scope for new markets. This may attract foreign car firms,
e.g. Volkswagen, Fiat to invest and build factories in Poland to sell to the growing consumer
class. Small countries may be at a disadvantage because it is not worth investing for a small
population. China will be a target for foreign investment as the new emerging Chinese middle
class could have very strong demand for the goods and services of multinationals.

6. Political stability / property rights

Foreign direct investment has an element of risk. Countries with an uncertain political situation,
will be a major disincentive. Also, economic crisis can discourage investment. For example, the
recent Russian economic crisis, combined with economic sanctions, will be a major factor to
discourage foreign investment. This is one reason why former Communist countries in the East
are keen to join the European Union. The EU is seen as a signal of political and economic
stability, which encourages foreign investment.

Related to political stability is the level of corruption and trust in institutions, especially judiciary
and the extent of law and order.

7. Commodities

One reason for foreign investment is the existence of commodities. This has been a major reason
for the growth in FDI within Africa – often by Chinese firms looking for a secure supply of
commodities.
8. Exchange rate

A weak exchange rate in the host country can attract more FDI because it will be cheaper for the
multinational to purchase assets. However, exchange rate volatility could discourage investment.

9. Clustering effects

Foreign firms often are attracted to invest in similar areas to existing FDI. The reason is that they
can benefit from external economies of scale – growth of service industries and transport links.
Also, there will be greater confidence to invest in areas with a good track record. Therefore,
some countries can create a virtuous cycle of attracting investment and then these initial
investments attracting more. It is also sometimes known as an agglomeration effect.

10. Access to free trade areas.

A significant factor for firms investing in Europe is access to EU Single market, which is a free
trade area but also has very low non-tariff barriers because of harmonisation of rules, regulations
and free movement of people. For example, UK post-Brexit is likely to be less attractive to FDI,
if it is outside the Single Market.

11: Evaluation

There are many different factors that determine foreign direct investment (FDI) and it is hard to
isolate individual factors, given there are many different variables. It also depends on the type of
industry. For example, with manufacturing FDI, low wage costs tend to be the most important, as
they are a labour intensive industry. For service sector FDI, macro-economic stability and
political openness tend to be more important.

(b) State the various distinguishing features of Transaction Cost Approach of FDI.

Ans:

A theory accounting for the actual cost of outsourcing production of products or services
including transaction costs, contracting costs, coordination costs, and search costs. The inclusion
of all costs are considered when making a decision and not just the market prices. Essentially this
theory illustrates the make versus buy decision for companies.

Core company assets

The factors above will all potentially increase the external transaction costs, where it may
become rather expensive for a company to control these factors. Therefore, it may very well be
more economic to maintain the activity in-house, so that the company will not use resources on
e.g. contracts with suppliers, meetings, supervision etc.

Therefore, if companies see the environmental uncertainty as high, they might choose to not
outsource or exchange resources with the environment.

Example: 
If a company is thinking about outsourcing its production of a given product, it may assess the
costs related to such a transaction with the environment. If the company sees it as difficult to
formulate a contract that controls the uncertainties related to the exchange, the company may
regard it as to costly to outsource the production. This is because the transaction costs of
monitoring the exchange are perceived to be higher, than the bureaucratic costs of performing
the activity in-house.

Managers must therefore weigh the internal transaction costs against the external transaction
costs, before the company decides whether or not to keep some activity in-house, or to e.g.
outsource the activity to the environment.

An important factor that has contributed significantly to China's economic growth over the past
two decades has been the dramatic increase of foreign direct investment in China. Based on the
observation that overseas Chinese have been the dominant supplier of foreign direct investment
in China, this paper employs the transaction cost approach to provide an explanation as to why
China has been successful in attracting foreign direct investment. It first describes and analyzes
the economic ‘institution’ in China. Then it shows that overseas Chinese have a competitive
advantage in investing in China because they have the experience and knowledge of operating
their business in an ‘institution’ that is similar to the ‘institution’ in China. Finally, the paper
argues that some policies in China, such as the flexible contractual forms (particularly joint
ventures) and the establishment of special economic zones, further reduce the transaction cost of
doing business in China and contributed to attracting foreign direct investment.

Q#8

(a) Explain the different approaches to control in multi-national enterprises.

Ans:

A company wants to venture into the international marketplace, it can use several different
methods. In each case, the levels of risk and control move together. The four most common
approaches include the following:

1: Exporting 
The selling of an organization's products to a foreign broker or agent is known as exporting. The
organization has virtually no control over how products are marketed after the foreign broker or
agent purchases them. Because the investment is relatively small, exporting is a low‐risk method
of entering foreign markets. The only real danger here is what the foreign agent might do with
the products to hurt the organization's or product's image.

2: Licensure approach 

This approach allows a foreign firm to either manufacture or sell products, or the right to place a
brand name or symbols on products. Disney World, for example, has licensure agreements with
many foreign firms. This approach provides more control than an export sale, as a firm can
require that certain specifications be met, yet it is still not the manufacturer in the foreign market.

3: Multinational approach. 

With this approach, a firm is willing to make substantial commitment to a foreign market.
Normally, products or services are modified to meet the foreign market demands, and in many
cases, substantial fixed investments are made in plants and equipment. The most common ways
to become a multinational firm are to form joint ventures or global strategic partnerships, or to
establish wholly‐owned subsidiaries.

4: Joint ventures 

when a company forms a partnership with a foreign firm to develop new products or to give each
other access to local markets. Normally, the roles and responsibilities of each organization are
clearly spelled out in the joint‐venture agreement. This approach increases both control and risk.

5: Global strategic partnerships

There are   much larger than a simple joint venture. Two firms join together and make a long‐
term commitment, in the form of time and investments, to develop products or services that will
dominate world markets. This approach does not modify products for a particular market but
develops a single product market strategy that can be utilized in all markets in hopes of
dominating the worldwide market for that product.

6: Wholly‐owned subsidiaries 

when a firm purchases either controlling interest or all of a foreign firm. Often, the subsidiary
firm is given considerable freedom in terms of how to operate in the foreign market, and heavy
use of foreign managers and employees is very common. The owning firm does have the most
control, but it also has substantial investment risk.

7:Vertically integrated wholly‐owned subsidiaries 

 It is exist where a firm owns not only the foreign manufacturer but the foreign distributors and
retailers as well. Again, the main emphasis is on dominating a worldwide product or service area
with a single product market strategy. True global products are very difficult to develop, and it is
even more difficult to dominate all global markets.

Of these approaches

8:Multinational corporations,

 defined as organizations operating facilities in one or more countries, are major forces in the
movement toward the globalization of businesses. Common characteristics of successful
multinational corporations include the following:

Creation of foreign affiliates

Global visions and strategies

Engagement in manufacturing or in a restricted number of industries

Location in developed countries

Adoption of high‐skills staffing strategies, cheap labor strategies, or a mixture of both.

(b) It has been said that MNCs often introduce new efficiency oriented management
practices. What can developing host country learn from the MNCs in this respect?

Ans:

Multinational Corporations' have played help in improving productivity, making local people
become competitive or improving the quality of life of people, the contribution of MNCs has
been praiseworthy. MNCs most often introduce new efficiency-oriented" management practices.
Thus a developing host country can learn a, good 
deal from the MNCs in this respect. MNCs Business Culture One of the major areas of
controversy is the impact of MNCs on host countries 'culture. This has several dimensions which
we shall discuss :

Market Promotion and Advertising:

It is known that MNCs rely heavily on advertising and market promotion to retain and enhance
their market share. These advertisements and market promotion techniques very often have their
basis in the advertisement and market promotion techniques and approaches adopted in home
countries of the parents.. Their advertisements and sales promotions have very often distorted
local cultural preferences and thus created substantial confusion result to the MNC as has been
the experience in the fields of food, drinks and clothes. While the local enterprises are imitating
the MNCs in respect of advertisement and market promotion, MNCs are also fast learning the
necessity of adapting their promotion campaigns consistent with a host country's culture
although

MNCs and Social Responsibility:

Modern business is expected not to overlook its social responsibility. While the government's
intervention is disliked, there is increasing realization that modern business must realize its social
responsibility. The. MNCs may have different perceptions of social responsibility. In the home
country, they can be more sensitive to the national responsibility whereas in the host country,
especially in a developing country, it could be less.

MNCs and Environment Protection in Host Countries

MNCs are under increasing pressure by their home governments to give up the technologies
which damage the environment. Hence MNCs are choosing countries where environment
regulations are weak. It is likely that MNCs are not mindful of the environmental disaster they
create in a host country. What is more concerning is an intellectual support to such a shift as has
been argued by the Vice-President of the World Bank, Professor Lawrence Summers. According
to him the harm from the shifting of environmentally pollution prone industries to the developing
countries will be far less than if these industries were operated in the developed countries for the
population of developed countries has lower limits of tolerance of environmental pollution and
higher level of health consciousness than in the

Restrictive Business Practices

One of the important aspects of the MNCs' operation has been their restrictive business practices
which affect the free
operation of their subsidiaries, affiliates and branches in host countries. These restrictive
business practices include typing imports to specific sources of interest to MNCs, conditions of
technology transfer, price fixation, exports, restrictive use of brand names and trademarks etc.

Efforts at De-stabilization
The history of MNCs shows that they have at times taken recourse to de stabilization of
inconvenient governments especially in developing countries However, MNCs have been found
not to be indulging in political de-stabilization in the developing countries during the latter half
of the seventies and the eighties. The absence of such a phenomenon now can be attributed to a
few main factors:
(i)The MNCs no longer needed to indulge in political de-stabilization as the international
ideological environment in the eighties had been such that there seemed no basic contradiction
between the objectives of the MNCs and the governments of most host developing countries.

(ii)The MNCs appreciated the fact of independent governments in the developing countries.
These governments have developed the capacity to cope with such situations or contingencies.
Similarly, the host developing countries also recognized the need to adhere to the commitments
made by them. Therefore, in the eighties one witness substantially lesser numb

iii)The MNCs were not very much interested in raw materials in the eighties. They were steadily
withdrawing from these sectors, thus removing the prime cause of confrontation between the
host country governments and the MNCs

.(iv)The emerging importance of smaller MNCs in their own countries has also contributed to
the growth of confidence of developing countries in the MNCs.

Q#9

Write a comprehensive note on collectivism, Socialism, communism, social democrats and

democracy. Do you think that a democratic political system is an essential condition for
sustainable economic progress? Discuss.

Ans:

Collectivism

 Refers to a society, a culture, or an economy that values groups over individual interests.
Collectivism is often understood in contrast to individualism, which privileges the individual
interests over the group. Community is not valued as highly in very individualistic societies.
Collectivism, on the other hand, is a stance that argues for the importance of group identities and
allegiance over individual values. It stresses joint decision-making and group goals. In this way
of thinking, your particular needs and interests are not any more important than the needs or
interests of anyone else.

Socialism

This  is a political term applied to an economic system in which property is held in common and
not individually, and relationships are governed by a political hierarchy. Common ownership
doesn't mean decisions are made collectively, however. Instead, individuals in positions of
authority make decisions in the name of the collective group. Regardless of the picture painted of
socialism by its proponents, it ultimately removes group decision making in favor of the choices
of one all-important individual.

Socialism originally involved the replacement of private property with a market exchange, but
history has proven this ineffective. socialism cannot prevent people from competing for what is
scarce. Socialism, as we know it today, most commonly refers to "market socialism," which
involves individual market exchanges organized by collective planning.

Communism 

Communism is a political ideology that believes that societies can achieve full social equality by
eliminating private proper Communism is a political ideology that believes that societies can
achieve full social equality by eliminating private property. The concept of communism began
with Karl Marx and Friedrich Engels in the 1840s but eventually spread around the world, being
adapted for use in the Soviet Union, China, East Germany, North Korea, Cuba, Vietnam, and
elsewhere.. The concept of communism began with Karl Marx and Friedrich Engels in the
1840s but eventually spread around the world, being adapted for use in the Soviet Union, China,
East Germany, North Korea, Cuba, Vietnam, and elsewhere.

Social democracy

Social democracy, political ideology that originally advocated a peaceful evolutionary transition

of society from capitalism to socialism using established political processes. In the second half of
the 20th century, there emerged a more moderate version of the doctrine, which generally
espoused state regulation, rather than state ownership, of the means of production and
extensive social welfare programs. Based on 19th-century socialism and the tenets of Karl
Marxand Friedrich Engels, social democracy shares common ideological roots
with communism but eschews its militancy and totalitarianism. Social democracy was originally
known as revisionismbecause it represented a change in basic Marxist doctrine, primarily in the
former’s repudiation of the use of revolution to establish a socialist society.

Democratic political system is an essential condition for sustainable economic progress

A democratic political system is an essential condition for sustained economic progress.

Totalitarian nations such as Singapore, Hong Kong and China have had considerable economic
growth over a period of time.
Typically the advantage of the free market economy coupled with a democratic political system
is best suited for sustained economic progress. The free market economy offers basic incentives
for entrepreneurship versus a state-owned which would offer nothing. The sustainabilit
competition which also would be non-existent in a state owned economy. Hill the author, claims
China, South Korea, Taiwan, Singapore, and Hong Kong have ally will be a direct derivative of
been exceptions to the rule citing each fostering a market economy with strong property rights
protection. Hill continues to tell us that a democracy may not b a condition of economic
stimulation but subsequent growth may follow with a democratic re imagin

Q#10

Explain the common ethical issues in international business.

Ans:

When markets in foreign countries offer a higher profit potential than your home market, it
makes sense to expand internationally. As you prepare your expansion and research target
markets in other countries, you will often find that the legal structures and ethical frameworks
differ substantially from those in the United States. You have to address the legal and ethical
issues of your entering these markets to make your expansion a success.

Employment

Wages and the working environment in overseas locations are often inferior to those in the
United States, even when you fulfill all local legal requirements. If you hire workers there, you
face the issue of what pay levels and working conditions are acceptable. Applying U.S. standards
is usually not realistic and often simply disrupts the established market. An effective approach is
to develop company standards which protect workers while fitting into the local economy. Your
standards have to guarantee a living wage, protect the safety of your workers and establish a
reasonable number of hours for the work week.

Corruption

Companies making payments to secure business that they would not otherwise obtain are guilty
of illegal actions under the U.S. Foreign Corrupt Practices Act. The payments, even if they seem
to be customary, are usually illegal under local laws as well. When your company makes such
payments, it is encouraging a local system of corruption through unethical behavior. Smaller
gifts, of a size that would not normally influence a major decision, are considered ethical in some
societies and may be legal under local and U.S. laws. If you find that large sums are routinely
required to do any business in a country, you may want to reevaluate your decision to enter that
market.
Human Rights

The country into which you are expanding may not respect basic human rights. The ethical issue
facing your company is whether your presence supports the current abusive regime or whether
your presence can serve as a catalyst for human rights improvements. If you find that you are
supporting a regime that oppresses its citizens, engages in discrimination and does not recognize
basic freedoms, the ethical action is to withdraw from the market. If you find that the regime
allows you to observe human rights within your organization and that your presence moderates
human rights abuses, you may actively work to improve local conditions.

Pollution

Not all foreign countries have environmental legislation that makes it illegal to pollute.
Companies may discharge harmful materials into the environment and avoid costly anti-pollution
measures. An ethical approach to your expansion into such markets is to limit your
environmental footprint beyond what is required by local laws. An ethically operating company
ensures its operations don't have harmful effects on the surrounding population. Since your
company has the knowledge and expertise to operate within U,S. environmental regulations, it is
ethical to apply similar standards in your new locations.

Moral Obligations

Some of the modern philosophers argue that the power of MNCs brings with it the social
responsibility to give resources back to the societies. The idea of Social Responsibility arises due
to the philosophy that business people should consider the social consequences of their actions.

They should also care that decisions should have both meaningful and ethical economic and
social consequences. Social responsibility can be supported because it is the correct and
appropriate way for a business to behave. Businesses, particularly the large and very successful
ones, need to recognize their social and moral obligations and give resources and donations back
to the societies.