National Institute of Management Solutions Question Paper Set 1

INTERNATIONAL BUSINESS Submitted by: - _______________________ 100 Max. Marks: -

All the questions are compulsory. The first five questions shall be of 16marks each and the last questions shall be of 20 marks. Q1 (a) What are the basic elements of social responsibility?

Answer: The basic elements of social responsibility are social sciences: political science, law, anthropology, sociology, psychology, economics, and geography. Politics helps shape business worldwide because the political leaders control whether and law international business takes place. For e.g. Lacasfilm cannot distribute attack of the clones in Cuba because political conflict between Cuba and the United States has led to trade restrictions. Domestic and international law determines legally what the managers of a company operating internationally can do. Domestic law includes regulations in both the home and host countries on such matters as taxation, employment and foreign exchange transactions. For eg: Japanese law determines how lucafilm revenues from Japanese screenings are taxed and how they can be exchanges from yen to US dollars. International lawin the form of legal agreements between two countries governs how the earnings are taxed by both. Physical and societal factors: 1. 2. 3. 4. Political policies and legal practices. cultural factors economic forces geographical influences

The related sciences of anthropology, sociology and psychology describe in part, peoples social and mental development, behavior and interpersonal activities. By studying these sciences, managers can better understand societal values, attitudes and beliefs concerning and others. Economics explains the other concepts such as why countries exchange foods and services with each other and why capital and people travel among countries in the cause of business and why one countrys currency has a different value compared to another. Manages who know geography can better determine the location, quantity and availability of the world resources as well as the best way to exploit them. The uneven distribution of resources results in different products and services being produced or offered in different parts of the world.

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National Institute of Management Solutions Q1 Question Paper Set 1 (b) How can you remove cross-cultural illiteracy?

Answer: Although the openings case illustrates the advantages of adjusting, such as Harvey Nicholas providing drivers lounges and prayers rooms in its Saudi Arabian department store, international companies sometimes have succeeded in introducing new products, technologies and operating procedures to foreign countries with little adjustments. That because the host society is willing to accept foreign customs as a trade off for other advantages. Often local society on foreigners and its own citizens differently. For eg: western female flight attendants are permitted to wear jeans and Tshirts in public when staying overnight in Jaddah, Saudi Arabia, even though local women a can not. Members of the host society may even feel they are being stereyo typed in an uncomplimentary way when foreigners adjust too much moreover western female managers in Hong Kong say local people see them primarily as foreigners, not as women. These and elsewhere they are accepted more as manager rather than the local women. We now look at the problems on communication- translating spoken and written language. These problems occur not only in moving from one language to other but also in communicating from one country to the other that has the same official language. Second we discuss communication outside the spoken and the written language the sol called silent languages. Spoken and written language translating one language directly into another can be difficult, making international business communication difficult. First some words do not have a direct transaction, for e.g. there is no one word in Spanish for every one word works in a business. Secondly languages and the common meaning of words are constantly evolving. Q2 (a) What are the limitations of social responsibility?

Answer: Limitations of social responsibility are as follows: i.to operate with in a companys external environment, its managers should have in addition to knowledge of business operations, a working knowledge of the basic social sciences. ii.Political disputes particularly those that result in military conflicts can disrupt trade and investment. Even small conflicts can have far reaching effects. iii.US law in turn determines how and when the losses or earnings from Japan are treated for tax process in the United States. iv.International law may also determine how and whether companies can operate in certain locales. For example, companies from most countries suspend sales to Iraq because of UN trade sanctions over Iraqs failure to allow to weapons inspectors. How laws are enforces also effects operations. For example US movie companies estimate that they lose $3 billion a year to pirated copies of their films. This is the fact
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National Institute of Management Solutions Question Paper Set 1 influenced Lucas films decision to debut attack of the clones in so many countries simultaneously companies should understand the treaties among countries and the laws of each country in which they want to operate as well as the how laws are enforced to operate profitably abroad. v.Managers can obtain the analytical tools needed to determine the impact of an international company on the economies of the host and home countries and the effect of a countrys economic polices and conditions on the company. vi.The probability of natural disasters and adverse climatic conditions such as hurricanes, floods or freezing weather make it riskier to invest in some area than in other. These factors also affect the availability of supplies and the process of products. For example New Zealand droughts in 2001 and 2002 caused farmers there to reduce their stocks of sheep which led to global short ages and rising process of lamb and wool. The political, legal, social, economic and geographic environments affect how a company operates and the amount of adjustment I must make to its operations in a particular country such as how it produces and markets its production staffs its operations and maintain its accounts, Q2 (b) How is environmental scanning useful to international business?

Answer: International companies rely on environmental scanning, which is the systematic assessment of the external conditions that might affect their operations. For eg: a company might assess societal attitudes that could fore shadow legal changes. Most MNCs employ at least one executive to conduct environmental scanning continuously. The most sophisticated of these companies tie the scanning to the planning process and integrate information in their scanning process and they depend heavily on managers based abroad to supply them with information. They are also useful in allocation operational emphasis among countries, but there are other factors companies need to consider. We shall now discuss three of them Reinvestment versus harvesting, the interdependence of location, and diversification versus concentration. A company usually makes new foreign investments by transferring capital abroad. Reinvestment versus harvesting if the investment is successful the company will earn money that it may remit back to head quarters or reinvest to increase the value of the investment. Over time most of the values of a companys foreign investment comes from reinvestment. If the investment is unsuccessful or if its output is less than possible investments in other countries the many consider harvesting the earnings to use else where or even to discontinue the investment.
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National Institute of Management Solutions Question Paper Set 1 Interdependence of locations: the derivation of meaningful financial figures is not easy when foreign operations are concerned. Profit figures from individual operations may obscure the real impact those operations have an overall value of a foreign investment realistically, particularly if it bases part of the net value on exported capital equipment that is obsolete at home and useless expect in the country where it is being shipped. By stating a high value, a govt. may permit its company to repatriate a larger portion of its earnings, Geographic diversification versus concentration: ultimately a company may gain a sizable presence and commitment in most countries however there are different paths to that position. Although any move abroad means some geographic diversification. The term diversification strategy describes when the company moves rapidly into many foreign markets, gradually increasing its commitments within each one. A company can do this. For example through a liberal licensing policy to ensure sufficient resources for the initial widespread expansion

Q3 (a) What factors must a firm consider while addressing the make or Buy decision? Answer: International Operations management and corporate strategy: Operations management of an International business needs to be integrated with the firms corporate strategy. The central role of operations management is to create the potential for achieving superior value for the firm. If operations management takes Rs. 100 worth of inputs and brings out product worth Rs. 150, it has crated considerable value for the firm. However, if it requires Rs. 140 worth of inputs to obtain the same output, value creation does take place, but is very little. Therefore, the way in which the firm structures and manages its operations management function both influences and is influenced by strategies. In fact, the corporate strategy of the firm should set the tone and tenor for planning and implementation of activities relating to operations management. For example, if a firm is pursuing a differentiation strategy, the operations management function must be able to create goods or services that are distinct from those of competitors. This effort may require a greater investment in high quality resources and equipment with cost being a secondary consideration. For a firm following a cost leadership strategy, the operations management function must be able to reduce the costs of creating goods or services to the absolute minimum so that the firm can lower its prices while still earning a reasonable level of profit. Here, major consideration shall be cost and price, quality being relegated to the background. Therefore, the firms corporate strategy decides strategies relating to its operations management. Specifically, corporate strategies decide where to source, where to locate operations, logistic management, and other related activities. Strategic issues:In operations management, an MNC needs to make decisions on several strategic issues, more important of them being:
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National Institute of Management Solutions Question Paper Set 1 International sourcing and vertical integration Standardization of production facilities International facilities location Contract manufacturing Strategic role of foreign plants Supply chain management Managing service operations International quality standards Internationalization of R&D Managing technology transfers

Sourcing and vertical integration: Sourcing, also called producing. Refers to a series and processes of a firm uses to acquire the different components it needs to produce its own goods and services. The famous make or buy decision becomes relevant in this context. An International firm can make, in house, all its needed parts or may decide to outsource them from suppliers who can provide them more efficiently, regardless of where they are geographically located. Make or buy decisions are important factors in operations strategies. In the automobile industry, for example, the typical car contains more than 10,000 components, so automobile firms frequently face make or buy decisions. Ford of Europe, for example, produces only about 45 percent of the value of the Fiesta in its own plants. The remaining 55 percent mainly comprising components come from independent suppliers. Make or buy decisions pose many problems for purely business but even more problems for multinational business. These decisions in the International arena are complicated by volatility of countries political economies, exchange rate movements, changes in relative factor costs, and the like. Through deciding on make or buy in practice is highly difficult, theoretically, the issue involves consideration of the pros and cons of the few choices to manufacture in-house or outsourcing the needed components. The arguments to make and or to buy: If the International business decides to make all the components in-house, it is having vertical integration. Vertical integration means owning or controlling all the supply sources or the channels through which the firms products or services are distributed. The former is called backward integration, while the latter is called forward integration. The arguments that support vertical integration and the risks associated with outsourcing. The risks of outsourcing are incidentally the supportive arguments for any decisions to make. Reasons for Outsourcing: 1. Strategic flexibility-switching orders between suppliers as circumstances dictate 2. Cost reduction 3. Focus on core competencies 4. Minimize inventory, materials handling, and other non-value-added costs.
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National Institute of Management Solutions Question Paper Set 1 5. Reduce development and production cycle times 6. Improve efficiency 7. Possibility of obtaining orders from the country where suppliers are located. Risks of Outsourcing 1. Loss of control 2. Conversion costs 3. Possibility of being tied to obsolete technology 4. Exposure to supplier risks; financial strength, loss of commitment to outsourcing, slow implementation, promised features not available, lack of responsiveness poor quality 5. Loss of protection over proprietary technology 6. Denial of the possibility of specialized investments Trade-offs is always involved in make or buys decisions. The benefits of manufacturing components in house seem to be very strong when highly specialized assets are involved, when firm is simply more efficient than external suppliers at performing a particular activity. When these conditions are not present, the risks of strategic inflexibility and organizational problems suggest that it may be better contract out manufacturing components to independent suppliers. Since issues of strategic flexibility and organizational control loom even larger for International business than purely domestic ones, an MNC should be particularly wary of vertical integration into component manufacturing. The make or buy issue does not end with making a choice of either. Assuming that the firm decides to manufacture its components in house, it has the option of making the parts by itself, or in partnership with others. If partnership is the choice, yet another decision is required as to the degree of control the firm wants to exercise. Similarly, when the firm decides to buy rather than to make, there need to choose between long-term and short-term supplier relationships. Outsourcing when an International business decides to buy a service or process, it is resolving to what is known as an outsourcing strategy. Outsourcing is the act of moving some of the firms internal activities and decision responsibility to external service providers. If a B-school, for example, assigns house-keeping of the school to an external contractor, it is outsourcing the work of house keeping. Complete responsibility for house keeping equipment for scrubbing, mowing, washing, dusting, staff is taken over by the service provider. The reasons why a company decides to outsource can vary. Outsourcing allows a firm to focus on activities that represent its core competencies. Thus, a firm can create a competitive advantage while reducing cost. Outsourcing has its flip side too. There is fear of losing jobs, sensitive information may be lost there can also be back of psychological acceptance questionable quality and ethics of the vendors. An entire function, or some elements of an activity, may be outsourced, with the rest kept in-house. For example, some of the elements of information technology may be strategic, some may be critical, and some may be performed less expensively by a third party. Identifying a function as a potential outsourcing target, and then breaking that function into its components allows decision makers to determine which activities are strategic or critical and should remain
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National Institute of Management Solutions Question Paper Set 1 in-house and which can be outsourced. Outsourcing has become extremely popular in the business of computer manufacturing. Components makers (E.g. Intel in microprocessors, Seagate in hard disk drives) supply to big and small manufacturers worldwide. Computer companies buy components from these manufacturers, assemble them in their own factories, and sell complete systems to buyers. A related concept in the computer industry is known as stealth manufacturing which calls for outsourcing the actual assembly of the computers themselves, as well as the job of shipping them to distributors and other intermediaries. Outsourcing is highly visible in the information technology (IT) sector. It has been estimated that worldwide Outsourcing of the IT related activities (activities relating to creation, storing and dissemination of Information) was about $50 billion in the mid-1990s and the figure is growing. The market for IT Outsourcing is expected to exceed $125 billion in the year 2005. Human resource function is another area involved in outsourcing. Potential activities include payroll, benefits administration, and contract staffing. More than 72 percent of the Indian companies are Outsourcing their HR functions. Outsourcing has found a new area of application-defense. The US government is increasing relying on private firms to fight the war in Iraq. It is estimated that civilian contractors are handling 20-30 percent of essential military support services in Iraq. These civilian contractors are called Private Military Companies (PMCs). The popular PMCs across the world are DynCorp, Vinnell, Military Professional Resources, and Aecom Govt. Services. The services provided by these PMCs include training, oil field repairs, maintenance of war logistics, food, shelter, medicine, intelligence, security for heads of governments, and the like. Outsourcing of military services is providing to be less expensive and the only out way for a country like the US where the number of military personnel is too small compared to its International obligations and requirements.

Basic Make or Buy options Country factors Technology factors Product factors Government policies Organizational issues

Country factors: Several features of countries can influence their attraction as sites for locating International facilities. Resource availability is one such factor. The availability and cost of resources is a primary factor which determines whether a country is suitable for location or not. As advocated by classical trade theorists countries that enjoy large low cost endowments of a factor of production will attract firms needing that factor of production. The trend now being witnessed is the physical proximity between the just-in-time manufacturing techniques. Because of this trend, US firms are reconsidering decisions to locate offshore. Infrastructure comprising construction materials and equipment, electricity, water, transportation, telephone, medical care, education, housing,
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National Institute of Management Solutions Question Paper Set 1 entertainment, and other services will also determine the attractiveness of a country as a site for a location. Culture of the land, particularly living circumstances for foreign workers and their dependents, religious, religious holidays and traditions, will have an impact on facility location. Finally, country-of-origin that is brand preferences of local customers should also be considered. Often, an International business needs to counter negative sentiments such as not made in this country or Swadeshi. Technological Factors: The type of technology a firm uses in its production process can be decisive in location decisions. Technological constraints may render it feasible to perform certain manufacturing activities in only one location and serve the world market from there. Fixed costs of setting up a manufacturing plant are so high that a firm must serve the world market form a single location or from very few locations. For example, it can cost more than $1 billion to setup a plant to manufacture semiconductor chips. In such cases, a single plant makes sense. Technology may also render or feasible to perform an activity from multiple locations. This is particularly true when fixed costs to setup the facility are low. Multiple locations are advantageous as they permit accommodating demands for local responsiveness. Manufacturing in multiple locations may also help the firm avoid becoming too dependant on one needs. Product Factors: Product related factors may also influence the location decision. Among the more important of these are the products values to weight ratio and if it is serving universal needs. Value to weight ratio refers to the share of transportation costs in the total costs. Electronic components and pharmaceuticals have high value to weight ratios; they are expensive but do not weigh much. Even if they are shipped halfway around the world their transportation costs account for a very small percentage of total costs. Obviously, there is compulsion to manufacture these items at an optimum location and serve the world market from there. Iron ore, cement, coal, bulk, chemicals, and agricultural commodities have low value to weight ratio and they tend to be produced in multiple locations to minimize transportation costs. The second product feature that can influence location decision is whether the product serves Universal needs, needs that are same all over the world. Such products include calculators and personal computers. Since there are few national differences in consumer tastes and preferences for such products, the need for local responsiveness is reduced. This increases the attractiveness of concentrating manufacturing at an optimal location. Government policies will exercise considerable impact on location decisions. Government related factors include policies on foreign ownership of production facilities, extent of indigestion, import restrictions, currency restrictions, environment regulations, local product standards, stability issues, labour legislations and the like. Related to government policies is the emergence of trading blocks. Trade agreements among the countries influence location decisions, both within and outside trading bloc countries. Firms typically locate, or relocate, within a block to take advantage of new market opportunities or lower total costs afforded by the trading agreement. Others firms (those outside the trading block) decide on
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National Institute of Management Solutions Question Paper Set 1 locations within the bloc so as not to be disqualified from competing in the new market. Examples include the location of various Japanese auto manufacturing plants in Europe before 1992 as well as recent moves by many communications and financial services companies into Mexico in a post-NAFTA environment. Organizational Issues: A firms business strategy, organization structure, and Inventory management are also determines of facility location. A firms business strategy affects its location decisions in several ways. A firm that adopts a price leadership strategy must seek low cost location, while the one that focuses on product quality should locate facilities in areas that have adequate skilled labour and managerial talent. A firm may choose to concentrate production geographically to better meet Organizational goals. Fisher and Paykel do this with its New Zealand production facilities to achieve better control of product design and quality. So is the case with Boeing, which has concentrated its final aircraft assembly operations in the Seattle area to take advantage of the skilled aviation machinist and engineering talent in the area. Several other firms seek to disperse their facilities to different foreign locations in order to meet their strategic goals. Intel has, manufacturing plants in the US, Ireland, Puerto Rico, Israel, Malaysia, and the Philippines to take advantage of the relatively low cost resources available in each of those markets. Delphi Corporations Indian subsidiary has plants to export half-shafts to North America, though the worlds biggest and most diversified automotive components and systems vendor has operations in North America it self. The Indian plant of Delphi has adopted the same level of technology and yet has far lower staff costs than an American plant. Even if the logistics cost and higher transaction costs are factored in, India will be still cheaper as a production centre in International market by as two-digit percentage factor. Organizational structure of a firm also influences its location decisions. For example, adoption of a global area structure decentralizes authority to area managers. These managers, seeking to maintain control over their area, likely to favour locating factories within their area to produce the goods sold there. Location decisions are affected by inventory management policies of a firm, Inventory management is a complex area, which all operations managers must confront. They must balance the costs of maintaining inventory against the risks of running out of stock of finished goods. Good inventory management is often the mark of well-run organizations. Facility location affects the level of inventory that firms must hold because of the distances and transit times involved in shipping goods. For example, the Daewoo auto major selected Chennai for locating its facility in India because the city is flush with manufacturers of auto-parts. Compaq computer has chosen to locate its primary assembly plants in the US, Scotland, Singapore, and Brazil so as to improve service to its North American, European, Asian, and South Asian customers respectively, while minimizing overall inventory levels. Factory location becomes particularly critical when a firm adopts the JIT inventory management system as is done in Toyota. Make or Buy Decision at the Boeing Company: The Boeing Company is the worlds largest manufacturer of commercial jet aircraft with a 55 to 60 percent share of the global market. Despite its large
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National Institute of Management Solutions Question Paper Set 1 market share, in recent years Boeing has found the going tough competitively. The companys problems are two-fold. First, Boeing faces very aggressive competition from Europes Airbus industry. The dogfight between Boeing and Airbus for market share has enabled major airlines to play the two companies off against each other in an attempt to bargain down the price for commercial jet aircraft. Secondly, several of the worlds major airlines have gone through some very rough years during the 199s and man lack the financial resources required to purchase new aircraft. Instead, they are holding onto their used aircraft for much longer than has typically been the case. Thus, while the typical service life of Boeing 737 was once reckoned to be about 15 years, many airlines are flow making the aircraft last as long as 25 years. This translates into lower orders for new aircraft. Confronted with this new reality, Boeing has concluded that the only way it can persuade cash-starved airlines to replace their used airlines with new aircraft is if it prices very aggressively. Thus, Boeing has had to face up to the fact that its ability to raise prices for commercial jet aircraft, which was once quite strong, has now been severely limited. Failing prices might even be the norm. If prices are under pressure, the only way Boeing can continue to make a profit is if it also drives down its cost structure. With this in mind, in the early part of the 1990s, Boeing undertook a companywide review of its make or buy decisions. The objective was to identify activities that could be outsourced to subcontractors, both in the United States and abroad to drive down production costs. When making these decisions, Boeing applied a number of criteria. First, Boeing looked at the basic economics of the Outsourcing decision. The issue here was whether an activity could be performed more cost-effectively by an outside manufacturer or by Boeing. Secondly, Boeing considered the strategic risk associated with Outsourcing an activity. Boeing decided that it would not outsource any activity that it deemed to be part of its long-term competitive advantage. For example, the company decided not to outsource the production of wings because it believed that doing so might give away valuable technology to potential competitors. Thirdly, Boeing looked at the operational risk associated with outsourcing an activity. The basic objective was to make sure Boeing did not become too dependent on a single outside supplier for critical components. Boeings philosophy is to hedge operational risk by purchasing from two or more suppliers. Finally, Boeing considered whether it made sense to outsource certain activities to a supplier in a given country to help secure orders for commercial jet aircraft from that country. This practice known as offsetting is common in many industries. For example, Boeing decided to outsource the production of certain components to China. This decision was influenced by the fact that current forecasts suggest that the Chinese will purchase over $100 billion worth of commercial jets over the next 20 years. Boeings hope is that pushing some subcontracting work Chinas way will help it gain a larger share of this market than its global competitor, Airbus. Once of the first decisions to come out of this process was the decision to outsource the production of insulation blankets for 737 and 757 aircraft to suppliers in Mexico. Insulation blankets are wrapped around the inside of the fuselage of an aircraft to keep the interior warm at high altitudes, Boeing has traditionally made these blankets in-house, but it found that it can save $50 million per year by Outsourcing production to a Mexican supplier. In total, Boeing reckons that Outsourcing is complete the amount of an aircraft that Boeing builds will have been reduced from 52 percent to 48 percent.

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National Institute of Management Solutions Question Paper Set 1 Q3 (b) Why are brand names an important marketing tool for international business?

Answer: A brand is an identifying mark for products or services. When a company registers a brand legally it is a trade mark. A brand gives a product or service instant organization and may save promotional costs. MNCs must make four major bonding decisions. 1. 2. 3. 4. Brand versus no brand manufactures brand versus private brand one brand versus multiple brands worldwide brand versus local brands,

The international environment substantially affects only the last of these branding decisions. Some companies such as coca-cola have opted to use the same brand and logo globally. Other companies such as Nestle associate many of their products under the same family of brands such as the Nestea and Nescafe brands. In order to make sure that these brands all share in the companies good will. There are number of problems in trying to use uniform brands internationally. Much international expansion takes place through the acquisition of companies in foreign that already have branded products. For example, when Avon acquired Justine in South Africa it kept Justine name because the brand was well known and respected. Companies should consider whether to create a local or a foreign image for their products. The products of some countries particularly developed countries tend to have a higher quality image than do those from other countries, for example Czech associate locally made products with poor quality, so P & G has added German words to the labels of detergent it makes in the Czech republic but images can change, consider that for many years various Korean companies sold abroad under private labels or under contract with well known companies. Some of these Korean companies such as Samsung now emphasize their own trade names and the quality of Korean products. Companies want their product names to become household words but so much that competitors can use trade mark brand names to describe their similar products. Q4 (a) Why do home countries oppose export of technology?

Answer: Detractors cite examples of advanced technology that has been at least partially developed through government contracts and then transferred abroad. In fact some US MNCs move their newest technology abroad before they do so in the United States. An example is Boeing transfer of aerospace technology to china to produce aircraft parts. According to critics of Boeing did not transfer the technology china would have had to purchase the products in the US their by increasing employment and o/p their, these critics further agree that technology transfer will speed the process of chinas gaining control of future global aircraft sales. Alternatively other countries that have Boeing not found a way to make the sale then china might have bought aircraft from airbus industries or independently developed the technology itself. Another question is whether outsourcing production causes wages to decline in
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National Institute of Management Solutions Question Paper Set 1 the home country. Anecdotal evidence suggests it does. For example call handlers salaries are 85 to 95% lower in India, total operating costs in India are 35% lower than in the UK. Consequently British unions attack on declining wage levels in the UKs 3500 call centers met the warning that British operators must improve their service quality or else loose their jobs. In contrast evidence suggests that moving jobs to over wage countries increases the overall home country demand and wages for labor. MNCs can use the cost savings that result from producing abroad to lower prices that in turn generate more demand, for example Nike uses inexpensive overseas labor to make its shoes and increases demand. Nike needs higher skilled and higher paid managerial personnel in the US. Q4 (b) How are product decisions made in international business?

Answer: The product decisions are made in international business using these polices which are explained in details as follows: 1) production orientation with orientation companies focus primarily on production either or high quality with little emphasis on marketing, there is little emphasis on marketing, there is little analysis of customer want lower process or higher quality. Although this approach has largely gone out of vague, it is used internationally for certain cases including a. Commodity sales, especially those for which there is little need or possibility of product differentiation by country. b. Passive experts particularly those that serve to reduce surpluses with in the domestic market, c. Foreign market segments or niches that may resemble the market at which the product is aimed initially 2) Sales orientation: internationally sales orientation means company tries to sell abroad what it can sell domestically on the assumption that consumers are sufficiently similar globally. A company may make this assumption because of its ethnocentricity or because it lacks sufficient information about the foreign market, 3) Customer orientation: sometimes a company wants to penetrate markets in a given country because of the countrys, general potential proximity to home operations, currency or political stability, or any of a host of the reasons. In the extreme of this approach a company would move to products completely unrelated to its existing product lines. 4) Strategic marketing Orientation: Most companies committed to continuous rather than Sporadic foreign sales adopt a strategy that combines production, sales and customer orientations. Companies that dont makes changes to accommodate the needs of foreign markets may lose too many sales especially if aggressive competitors are willing to make desired adaptations. B. societal marketing orientation: Companies realize that successful international marketing requires serious consideration of potential environment health, social and work related problems that may arise when selling or making their products abroad. Q5 (a) How do international businesses seek to minimize foreign exchange risks?

Answer: Global cash management strategy focuses on the flow of money for specific operation objectives. Another important objective of an MNCS is financial
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National Institute of Management Solutions Question Paper Set 1 strategy is to protect against the foreign exchange risks of investing abroad. The strategies that on MNC adopt to do this mean the internal movement of funds as well as the use of one or more of foreign exchange instruments, such as options and forward contracts. If all exchange rates were fixed in relation to one another, there would be no foreign exchange risk. However rates are not fixed and currency values change frequently. Instead of infrequent one way changes, currencies fluctuate often and both up and+ down. A change in the exchange rate can result in 3 different exposures for a company: 1. Translation exposure: Foreign currency financial statements are translated into the reporting currency of the parent company so that they can be combined with financial statements of other companies in the corporate group to form the consolidated financial statements. Exposed a/cs those translated at the balance sheet rate are current exchange rate either gain or lose value in dollars when the exchange rate changes. 2. Translation Exposure: Denominating the transaction in a foreign currency represents foreign exchange risks because the company has a/cs receivable or payable in foreign currency that must be settled eventually. 3. Economic exposure: It is also known as operating exposure which is the potential for change in expected cash flows. It arises from the pricing of products, the sourcing and costs of I/Ps and the location of Investments. Q5 (b) What is FDI? Why is it preferable to other routes of international business?

Answer: FDI (foreign Direct Investment), it is an investment that gives the investor a controlling interest in a foreign company. FDI is a way to fulfill any one of the three major operating objectives that may lead companies to engage in international business: 1. To expand their sales. 2. To acquire resources. 3. To minimize competitive risk. In addition govts may own FDI or influence their home based companies to establish FDI because of political motives. Companies can pursue operating modes other than FDI such as exporting, Importing from another company, or collaborating with another company to handle operations on its behalf. These modes are less risky than FDI because a company has to expose fever resources in a foreign country where it has a liability of foreigners. Thus, companies must posses some advantage to companys are for the liability so why should a company risk operating in an environment less familiar than the one at home. Some of the factors which affect the choice of FDI for sales expansion are: 1. Transportation: When companies add the cost of transportation to production costs some products become impractical to ship over great distances a few of those products and those investing companies are newspapers, magazines, dynamite and soft drinks. These companies must produce abroad if they are to sell abroad. 2. Excess capacity:
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National Institute of Management Solutions Question Paper Set 1 It leads to exporting rather than direct investment. It may be competitive because of variable cost pricing. 3. Scale economics and product attritions: In large scale process technology companies exports reduce costs by spreading fixed costs over more units of output. In small scale process technology companies country by country production reduces costs by minimizing transportation expenses. 4. Trade restrictions: If imports are highly restricted companies Often produce locally to serve the local market. Are more likely to produce locally if market potential is high relative to scale economics 5. Country of origin effects: Consumers sometimes prefer domestically produced goods because of o Nationalism o A belief that these products are better. o A fear that foreign made goods may not be delivered on time. 6. Changes with comparative costs: The least cost production location changes because of inflation, regulation and productivity. Q6 (a) Is TKMs ambition of capturing 33per cent of the Indian car Market reliable? If yes, how? If no, why?

Answer: Yes, its Reliable. The power of empowering others: My sore Kirloskar, a Rs. 16 crore loss making company, had been focusing on making high technology machines without proper technical expertise. Instead of managing customer complaints and warrant claims, CEO TKM decided to go in for simple lathes where the company had the expertise. This kept the workshop buzzing, while the services section phone stopped ringing. With an accountants precision he revamped the systems and procedures in the company, but at the same time he decided to empower officials down the line, opening up internal communication channels. I believe in the power of empowering others, says CEO TKM. The change in business focus and the internal revamp coupled with a Rs. 160 crore order to chum out simple lathes turned Mysore Kirloskars fortunes around. The first year of CEO TKMs stewardship saw the company booking a Rs. 1 crore profit. This went up to Rs. 5 crore and Rs. 9 crore in the second and the third year, respectively. The macro view: Although CEO TKM came from a hardcore finance background, he easily adjusted to his new role at Toyota, which is known for its production systems. After all there are several finance professionals heading automobile companies. Take Toyota itself for example, the chairman is an accounting professional Similarly General Motors Indias (President and MD) Aditya Vij is also a chartered
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National Institute of Management Solutions Question Paper Set 1 accountant, says CEO TKM. What is needed at the top management level is not engineering detail but a broad business outlook to set the direction and strategies. The Qualis story: When TKM decided to launch the 15 year old breadbox, the Kijang Model, under the Qualis brand, the Indian auto industry was stumped. Why the Kijang of all the models in Toyotas portfolio? But Toyota was just following its usual procedure of testing the waters before plunging in. Toyotas philosophy is very basic minimize the initial risk and then improve step by step, explains CEO TKM. More ever, when TKM entered the market, all the global auto majors had a presence in all the segments So it was logical for Toyota to decide that the Indian arm should first build its technical capability while looking for vulnerable points in the Multi Utility Vehicle (MUV) segment. We need time to learn and understand the market, the vendors and dealers, Says CEO TKM. To cut the initial investments, the company decided to import engines from Thailand and gearboxes from the Philippines. The company till date has sold 65, 000 units of the Qualis and recently came out with an upgraded version at an additional capital expenditure of Rs 44 crore. The initial target was to capture 33 percent of the MUV market. We exceeded that to touch 42 percent, says CEO TKM. Simultaneously, TKM broke even at the end of the third year, which was again as planned. In the sixth year we will recover all our accumulated losses, says CEO TKM. Changing lanes: But the man now steering TKM started his career in a completely different lane. After clearing the chartered accountancy final exams with flying colors in 1978, CEO TKM joined the Karnataka State Industries Department as an advisor. For the seventh and last child of CV Krishna CEO TKM, an ICS officer, going into the government service seemed the logical thing to do. Two of his elder brothers were also in the central government service at that time. During the seventies, the Indian private sector was not vibrant and a government job was prized, says the 47 year old Mysorean. But CEO TKM soon changed lanes to join Hindustan Machine Tools, a public sector giant, as an accounts officer, a highly respected position. Three years later he moved again this time to Hyderabad Allwyn in Hyderabad, where he got his first feel of an automobile project, the Allwyn Nissan light commercial vehicle. He was then the deputy finance manager, in charge of project financing. The offer of a finance managers position saw CEO TKM return to his native place in 1986. Seven years later he became vive president (Finance) and looked at new business developments and projects. The next turning point in his life came when he was offered the post of CEO at Mysore Kirloskar, a path that eventually led to TKM. Q6 (b) Write notes on: (1) International division structure. (2) Worldwide functional structure.
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National Institute of Management Solutions Question Paper Set 1 Answer: (a) International division structure. In the International division structure, the overseas unit is an adjunct to the parent company. It handles all the International activities, which may be organized by function, product or geographic area. All of the overseas subsidiaries are under the authority of the International division head (usually vice president), who coordinates the overseas activities. The international division allows the MNC to concentrate resources and create specialized programs and activities targeted on International operations, while simultaneously keeping such activities are under one head, control and communication are easy. The structure can also respond quickly to the changes in the International business environment. Use of this structure has drawbacks too. The structure separates the domestic and international managers, which can result in two different camps with divergent objectives. As overseas operations expand and diversify, this design fails to cope with the new demands. Finally, most research and development efforts are domestically oriented, or ideas for new products and process in the International market are given low priority. Below figure illustrates the International division structure. Grouping each international business activity into its own division put internationally specialized personal together to handle such diverse matters as export documentation foreign exchange transactions and relations with foreign govts. This strategy prevents duplication of these activities in more than one place in the organization. It also creates a critical mass that is large enough to enable personnel with in the division to wield power with in the organization so that they can push for international expansion. However and international division might have to depend on the domestic divisions for products to sell, personnel technology and other resources. Given the separation between domestic and foreign operations this structure is probable best suited for multi domestic strategies those in which there is little integration and structurisaation between domestic and foreign operations. (b) Worldwide Functional Structure. In this, each functional department or division is responsible for its activities around the world. For example, the manufacturing department is responsible for worldwide manufacturing activities, so also with finance, marketing, R&D, and human resource management. This design used by MNCs that have narrow or similar product lines. It results in what is often called a U-form organization, where U stands for Unity. Below figure illustrates the functional structure. British Airways is the next example for the U form of organization design. British Airways is essentially a single business firm (it provides air transport services) and has company wide functional operations dedicated to marketing and operations, public affairs, engineering, corporate finance, human resource, and other basic functions. Since each functional area deals with global market, specialization and concentration of functional expertise can be taken advantage of. Control of various functions can be exercised relatively easily. The global functional design focuses attention on the key functions of the firm. Managers can easily isolate a problem in marketing and distinguish it firm activities in other functional areas.
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National Institute of Management Solutions Question Paper Set 1 Q6 (c) What is social responsibility? Advocate why social responsibility is important?

Answer: Social responsibility and International business: An International business faces several challenges while undertaking social actions. One such challenge relates to managing the type of government obtaining in a host country where subsidiary of an MNC is located. Militarized non-democratic governments operate in many countries of the world. Central America, for example, has been the scene of powerful military rules and attempted takeovers in nations such as Panama, Nicaragua, Guatemala, and Elsalvador. A small, wealthy class is sometimes allied with the military government, with its members serving in high level government posts. Human rights and democratic freedoms are generally curtained by the government. Labour unions, religious organizations and other interest groups are watched carefully by the government authorities to keep them from becoming political opponents. Military regimes present serious conflicts and strategies problems for International business leaders. In an effort to generate economic activity, such regimes may make attractive deals with foreign firms. Low taxes, low wages, freedom from criticism in the press, and weak environment rules and regulations are among the attractions that a military regime can create through its power. Still, if a company knows that human rights are suppressed, that military leaders are filling their own pockets with money that should go to the country, an that corruption and abuse of power are part of the standard operating procedure, business leaders must pause and think about long term consequences. The strategic issue in this context is: Do the benefits of doing business in such a system outweigh the economic, human and social costs? Secondly, relations between home country and host country pose challenge to the International business. If two countries are at war, for example, there will be no trade between them. When Great Britain and Argentina went to war over ownership of the Falkland Islands, British companies, such as Unilever, found themselves in a serious dilemma. Unilever subsidiaries conducted business in Argentina but were barred by the government from doing business with the enemy Great Britain. Similarly, Great Britain ordered all British companies to cease commercial transactions with the enemy Argentina. Unilever was, therefore, under orders from the warning governments not to send or receive messages between its headquarters and all its Argentinean business. The dilemma facing Unilevers managers was resolved when it was determined that the headquarters and business units could both report to Unilevers office in a neutral country (e.g. Brazil) without violating the dealing with the enemy rules of the two warring nations. Thirdly, social actions of an International business are influenced by host governments attitude towards foreign investment. Host countries use a variety of sanctions and incentives (sticks and carrots) to shape and regulate foreign investment, attempting to, lure investors but also trying to prevent excessive manipulation by them. Host country governments use laws, rules, and regulations to ensure that International business do not engage in certain types of conduct. These standards usually apply to all companies in a nation or to a specific industry. In some countries, however, national governments may wish to o single out MNCs for special treatment.
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National Institute of Management Solutions Question Paper Set 1 However international businesses can meet the challenges if they design a corporate social strategy. The following questions are a good place to start the process: Are we being socially responsible in what we do? Do we meet the expectations of our host-country as well as our home country? Would stakeholders in either country question our behavior? Are we responsive to the stakeholders in each country where we do business? Do we treat employees, customers, suppliers, local communities, and others in a fair and just way? Do we recognize emerging issues, as well as immediate social issues, in the countries and communities where we operate? Are we anticipating change rather than just reacting to it? Do we abide by the host governments regulations and policies? Do we have good systems for ensuring that our employees and the agents who represent us follow our corporate policies? Do we conduct business in ways that respect the values, customs, and moral principles of each society? Do we recognize that there may be times when they conflict with principles of other societies? Are we ready to address these conflicts in positive ways? Firms that address these questions before trouble strikes are better prepared to react to global challenges to corporate responsibility. They are better prepared to prevent cries, anticipate changes, and avoid situations that compromise the values and principles for which the firm stands. A corporate social strategy helps International managers achieve both the economic and the social goals of the firm. International business and Ethics: Two ethical issues are prominent in International business: bribery and corruption and work practices and worker remuneration. Bribery and corruption: Bribery is a deliberate attempt to persuade someone (usually in position of power and authority) to act improperly in favour of the root of the bribery by offering money or gifts or any other material gain. Bribery has been at the root of corruption in many countries. Corruption is understood as the abuse of public office for private gain. The issue of bribery is controversial mainly because it depends on how it is defined and practiced. In some Middle East Countries, it would be perfectly acceptable to give a gift to, an official or host as a token of appreciation for the time and consideration given. Work practices and worker remuneration: One of the main reasons for International firms to invest in production facilities abroad is to take advantage of the availability of relatively low cost labour in order to remain competitive in International markets. Indeed, they are actively encouraged to do so by host governments. The ethical dilemma facing an International firm is what type of technology it should employ in the host country. Inappropriate technology, especially in a third world country, may fall to make sufficient use of the host countrys resources and increase its technology dependence. Because of the cultural differences explained thus far, one might expect an International firm to vary its work practices to suit the local culture and avoid ethnocentrism. But does this mean the firm should.

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