Suman Kari

Roll Number: 571012496

International Business Management Subject Code: MB0053 (Book ID: B1315) Assignment 2
Q.1 what is globalization? What are its benefits? Ans: Globalization: Describes the process by which regional economies, societies, and cultures have become integrated through a global network of political ideas through communication, transportation, and trade. The term is most closely associated with the term economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, the spread of technology, and military presence. However, globalization is usually recognized as being driven by a combination of economic, technological, socio cultural, political, and biological factors. The term can also refer to the transnational circulation of ideas, languages, or popular culture through acculturation. An aspect of the world which has gone through the process can be said to be globalized Against this view, an alternative approach stresses how globalization has actually decreased inter-cultural contacts while increasing the possibility of international and intra-national conflict. Globalization has various aspects which affect the world in several different ways Industrial - emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies. Particularly movement of material and goods between and within national boundaries. International trade in manufactured goods increased more than 100 times (from $95 billion to$12 trillion) in the 50 years since 1955.China's trade with Africa rose sevenfold during 2000-07 alone. Financial - emergence of worldwide financial markets and better access to external financing for borrowers. By the early part of the 21st century more than $1.5 trillion in national currencies were traded daily to support the expanded levels of trade and investment Economic - realization of a global common market, based on the freedom of exchange of goods and capital Job Market- competition in a global job market. In the past, the economic fate of workers was tied to the fate of national economies. With the advent of the information age and improvements in communication, this is no longer the case. Because workers compete in a global market, wages are less dependent on the success or failure of individual economies. This has had a major effect on wages and income distribution Political - some use "globalization" to mean the creation of a world government which regulates the relationships among governments and guarantees the rights arising from social and economic globalization. Politically, the United States has enjoyed a position of power among the world powers, in part because of its strong and wealthy economy. With the influence of globalization and with the help of the United States own economy, the People's Republic of China has experienced some tremendous growth within the past

International Business Management (MB0053/ B1315) Assessment -2

Page- 1

Suman Kari

Roll Number: 571012496

decade. If China continues to grow at the rate projected by the trends, then it is very likely that in the next twenty years, there will be a major reallocation of power among the world leaders. China will have enough wealth, industry, and technology to rival the United States for the position of leading world power. Most of us assume that international and global business are the same and that any company that deals with a no ther country for its business is an international or global company. In fact, there is a considerable difference between the two terms. International companies: Companies that deal with foreign companies for their business are considered as international companies. They can be exporters or importers who may not have any investments in any other country, apart from their home country. Global companies: Companies, which invest in other countries for business and also operate from other countries, are considered as global companies. They have multiple manufacturing plants across the globe, catering to multiple markets. The transformation of a company from domestic to international is by entering just one market or a few selected foreign markets as an exporter or importer. Competing on a truly global scale comes later, after the company has established operations in several countries across continents and is racing against rivals for global market leadership. Thus, there is a meaningful distinction between a company that operates in few selected foreign countries and a company that operates and markets its products across several countries and continents with manufacturing capabilities in several of these countries. Companies can also be differentiated by the kind of competitive strategy they adopt while dealing internationally. Multinational strategy and global competitive strategy are the two types of competitive strategy. Multinational strategy: Companies adopt this strategy when each countrys market needs to be treated as self contained. It can be for the following reasons: Customers from different countries have different preferences and expectations about a product or a service. Competition in each national market is essentially independent of competition in other national markets, and the set of competitors also differ from country to country. A companys reputation, customer base, and competitive position in one nation have little or no bearing on it stability to successfully compete in another nation. Some of the industry examples for multinational competition include beer, life insurance, and food products. Global competitive strategy: Companies adopt this strategy when prices and competitive conditions across the different country markets are strongly linked together and have common synergies. In a globally competitive industry, a companys business gets affected by the changing environments in different countries. The same set of competitors may compete against each other in several countries. In a global scenario, a companys overall competitive advantage is gauged by the cumulative efforts of its domestic operations and the international operations worldwide. -----------------------------------------------------------------------------------------------------------

International Business Management (MB0053/ B1315) Assessment -2

Page- 2

Suman Kari
Q.2. Describe the theories of international business.

Roll Number: 571012496

Ans: International business is a broad term, collectively used to describe all commercial transactions (private, government and semi-government) that take place between two or more nations. International business is a newly coined term, but the concept is quite traditional. Actually, the term international business is derived from international trade. In ancient days, producers of a country used to export their surplus production to neighboring countries and later with the further development of trade they started exporting goods to far off countries as well. This was the establishment of an era of international trade. With further developments, more competitors came into the international markets, as a result of which producers started marketing their goods at international levels; this was the time when international trade turned into international marketing. With further advancements, producers started establishing their production facilities in foreign countries and the era of globalization arrived; this was the time when researchers coined the term international business. There are many thinkers who have worked in the field of international business and they have put forward various theories in order to justify the concept of international business. These theories collectively explain why business firms of one country should go to another country, although the industries of that country also produce the same goods and market them. So these theories explain the basis for international business. Some of the most important theories of international business are given below: The absolute advantage theory: The absolute advantage theory was given by Adam Smith in 1776; according to the absolute advantage theory each country always finds some absolute advantage over another country in the production of a particular good or service. Simply because some countries have natural advantage of cheap labour, skilled labour, mineral resources, fertile land etc. these countries are able to produce some specific type of commodities at cheaper prices as compared to others. So, each country specializes in the production of a particular commodity. For example, India finds absolute advantage in the production of the silk saris due to the availability of skilled workers in the field, so India can easily export silk saris to the other nations and import those goods in which other countries find absolute advantages. But this theory is not able to justify all aspects of international business. This theory leaves no scope of international business for those countries that are having absolute advantage in all fields or for those countries that are having no absolute advantage in any field The comparative cost theory: After 40 years of absolute advantage theory, in order to provide the full justification of international business David Richardo presented the Richardian modelcomparative cost theory. According to the comparative cost theory, two countries should do business with each other if one country is having an advantage in the ability of producing one good relative to another good as compared to some other countrys relative ability of producing same goods. It can be well understood by taking an illustration-

International Business Management (MB0053/ B1315) Assessment -2

Page- 3

Suman Kari

Roll Number: 571012496

If USA could produce 25 bottles of wine and 50 pounds of beef by using all of its production resources and France could yield 150 bottles of wine and 60 pounds of beef by using the same resources, then according to absolute advantage theory France finds clear advantage over USA in the production of both beef and wine. So, there should not be any business activity between the two countries. But this is not the case according to the comparative cost theory. Comparative cost theory suggests relative comparing of the beef and wine production. In relative comparing we can find that France sacrifices 2.5 bottles of wine for producing each pound of beef (150/60) and USA sacrifices 0.5 bottles of wine for producing each pound of beef (25/50). So, we can see that production of beef is more expensive in France as compared to USA. Comparative cost theory suggests USA to import wine from France instead of producing it and in similar manner theory suggests France to import beef from USA instead of producing it. In this way, comparative cost theory well explains the driving forces behind international business. Opportunity cost theory: The opportunity cost theory was proposed by Gottfried Haberler in 1959. The opportunity cost is the value of alternatives which have to be forgone in order to obtain a particular thing. For example, Rs. 1,000 is invested in the equity of Rama News Limited and earned a dividend of six per cent in 1999, the opportunity cost of this investment is 10 per cent interest had this amount been deposited in a commercial bank for one year term. Another example is that, India produces textile garments by utilizing its human resources worth of Rs. 1 billion and exports to the US in 1999. The opportunity cost of this project is, had India developed software packages by utilizing the same human resources and exported the same to USA in 1999, the worth of the exports would have been Rs. 10 billion. Opportunity cost approach specifies the cost in terms of the value of the alternatives which have to be foregone in order to fulfil a specific art. Thus, this theory provides the basis for international business in terms of exporting a particular product rather than other products. The previous example suggests that it would be profitable for India to develop and export software packages rather than textile garments to the USA. The vent for surplus theory: International trade absorbs the output of unemployed factors. If the countries produce more than the domestic requirements, they have to export the surplus to other countries. Otherwise, a part of the productive labor of the country must cease and the value of its annual produce diminishes. Thus, in the absence of foreign trade, they would be surplus productive capacity in the country. The surplus productive capacity is taken by another country and in turn gives the benefit under international trade. According to this theory, the factors of production of developing countries are fully utilized. The unemployed labor of the developing countries is profitably employed when the surplus is exported. -----------------------------------------------------------------------------------------------------------

International Business Management (MB0053/ B1315) Assessment -2

Page- 4

Suman Kari
Q.3: Explain the importance of ethics in international business.

Roll Number: 571012496

Ans: When business are engaged in multinational activities, a variety of important issues arise that do not have the same easy answers as are offered by doing business in only one area of legal jurisdiction or nation. Because of this dilemma that is increasingly plaguing the large multinational corporations; international business ethics has arisen to help address these sticky subject matters. International business ethics attempts to deal with questions of what to do in situations where ethical morals come into conflict as a result of the differing cultural practices. There are many international business ethics discussions going on that believe the question of how to behave in the home country versus the host country are the central point. The argument in favor of behaving according to host country socially accepted morals shows respect both to the citizens and the culture of the hosting country in which the business is conducting affairs. Such an argument would tell the business to follow the ancient world adage: When in Rome, do as the Romans do, not simply for etiquette, but also for business ethics. The other side of the argument counters with questions of what a business representative should do when socially accepted norms are morally repugnant to the cultural values of the business' home. As an example, in many Latin American countries, bribing public officials is necessary for doing business. Does this countenance the multinational corporation representatives doing the same out of respect for the host country, or instead argue against participating as it is morally repugnant to the home country of the business in question? A middle ground approach emerges as central to international business ethics. This lies in creating a list of internationally accepted morals that should be consulted in the performance of multinational business dealings. As an example, the United National Global Compact, or the older UN Universal Declaration of Human Rights, would be put forward as an appropriate conduct guide for international business ethics. The United Nations Global Compact encourages business everywhere to advance and honor the internationally accepted human rights, to uphold the right of collective bargaining, to avoid being involved with human rights' abuses, to have no part in compulsory human labor, to do away with child labor, to support a caring and cautious approach to the environment, to reduce any kind of employment discrimination, to encourage the creation of technologies that are friendly to the environment, to encourage more significant personal environmental responsibility, and to work to stamp out corruption in all of its many ugly guises, such as bribery and extortion. Other justice or moral ground theories create different lists of ethical practices for multinational corporations conducting business in countries featuring lower levels of development. One source, DeGeorge, called in 1993 for ten guidelines for the behavior of multinational corporations in other countries. Among these were avoiding harm, honoring human rights, affecting good, respecting local cultures, accepting the responsibilities for individual behaviors, working fairly with honorable institutions and governments, and ensuring that dangerous technologies and factories are made safe for workers and the community.

International Business Management (MB0053/ B1315) Assessment -2

Page- 5

Suman Kari

Roll Number: 571012496

Although such intentions are good and honorable, there are still three different problems with such approaches to international business ethics. First, they ignore or avoid the reality of competition. A real life example involves a company trying to do business honorably in a country that takes and accepts bribes as a regular part of doing business. The business wants to help improve the environment as they do their business, but refuses to pay the government officials bribes. Licenses cannot be secured form the governmental officials since no bribes are paid. Market share begins to erode, along with the purpose for having operations placed in the country, as competitors without scruples pay their bribes without any moral restrictions. The company will have to decide which moral is more important, refusing to endorse corruption in paying bribes, or staying to help improve the environment and employ the locales through paying the necessary bribes. A second limitation to such list approaches lies in them only replicating the home country versus host country question that they are supposed to answer. Since the one list advocated working with just institutions and governments, the argument comes full circle again. Whose morals or sense of justice will determine if such entities are just and should be cooperated with or not? Finally, respect for moral norms and local cultures have to come from some culture's concept of justice. Those of the west for ethics, fairness, and justice in general are the ones that are commonly sourced. Clashes between host and home countries must be resolved by some culture's guidelines, whether Western or non-Western. As the process of globalization has increased its pace and depth, the problem and need for international business ethics has only intensified. With falling communication and transaction costs that are encouraged by telecommunication and computer technology advances, the global market has recently become a truly global marketplace. Multinational business is more often the standard and not the exception. This is particularly the case where the production of cars, clothes, shoes, and commodity types of goods are concerned. ----------------------------------------------------------------------------------------------------------Q.4: what do you understand by regional integration? List its type. Ans: Regional integration has been defined as an association of states based upon location in a given geographical area, for the safeguarding or promotion of the participants, an association whose terms are fixed by a treaty or other arrangements [citation needed]. Philippe De Lombaerde and Luk Van Langenhove define regional integration as a worldwide phenomenon of territorial systems that increase the interactions between their components and create new forms of organization, co-existing with traditional forms of state-led organisation at the national level.[1] According to Hans van Ginkel, regional integration refers to the process by which states within a particular region increase their level of interaction with regard to economic, security, political, and also social and cultural issues.

International Business Management (MB0053/ B1315) Assessment -2

Page- 6

Suman Kari

Roll Number: 571012496

In short, regional integration is the joining of individual states within a region into a larger whole. The degree of integration depends upon the willingness and commitment of independent sovereign states to share their sovereignty. Deep integration that focuses on regulating the business environment in a more general sense is faced with many difficulties.

Regional integration initiatives, according to Van Langenhove, should fulfil at least eight important functions: The strengthening of trade integration in the region The creation of an appropriate enabling environment for private sector development The development of infrastructure programmes in support of economic growth and regional integration The development of strong public sector institutions and good governance; The reduction of social exclusion and the development of an inclusive civil society Contribution to peace and security in the region The building of environment programmes at the regional level The strengthening of the regions interaction with other regions of the world.[4]

The crisis of the post-war order led to the emergence of a new global political structure. This new global political structure made obsolete the classical Westphalian concept of a system of sovereign states to conceptualise world politics. The concept of sovereignty becomes looser and the old legal definitions of an ultimate and fully autonomous power of a nation-state are no longer meaningful. Sovereignty, which gained meaning as an affirmation of cultural identity, has lost meaning as power over the economy. All regional integration projects during the Cold War were built on the Westphalian state system and were to serve economic growth as well as security motives in their assistance to state building goals. Regional integration and globalisation are the two phenomena challenging the existing global order based upon sovereign states at the beginning of the twenty-first century. The two processes deeply affect the stability of the Westphalian state system, thus contributing to both disorder and a new global order. Closer integration of neighbouring economies is seen as a first step in creating a larger regional market for trade and investment. This works as a spur to greater efficiency, productivity gain and competitiveness, not just by lowering border barriers, but by reducing other costs and risks of trade and investment. Bilateral and sub-regional trading arrangements are advocated as development tools as they encourage a shift towards greater market openness. Such agreements can also reduce the risk of reversion towards protectionism, locking in reforms already made and encouraging further structural adjustment. In broad terms, the desire for closer integration is usually related to a larger desire for opening to the outside world. Regional economic cooperation is being pursued as a means of promoting development through greater efficiency, rather than as a means of disadvantaging others. Most of the members of these arrangements are genuinely hoping that they will succeed as building

International Business Management (MB0053/ B1315) Assessment -2

Page- 7

Suman Kari

Roll Number: 571012496

blocks for progress with a growing range of partners and towards a generally freer and open global environment for trade and investment. Integration is not an end in itself, but a process to support economic growth strategies, greater social equality and democratisation. Regional integration arrangements are a part and parcel of the present global economic order and this trend is now an acknowledged future of the international scene. It has achieved a new meaning and new significance. Regional integration arrangements are mainly the outcome of necessity felt by nation-states to integrate their economies in order to achieve rapid economic development, decrease conflict, and build mutual trusts between the integrated units. The nation-state system, which has been the predominant pattern of international relations since the Peace of Westphalia in 1648 is evolving towards a system in which regional groupings of states is becoming more important than sovereign states. There is a powerful perception that the idea of the state and its sovereignty has been made irrelevant by processes that are taking place at both the global and local level. Walter Lippmann believes that, "the true constituent members of the international order of the future are communities of states."[5] E.H. Carr shares Lippmann view about the rise of regionalism and regional arrangements and commented that, "the concept of sovereignty is likely to become in the future even more blurred and indistinct than it is at present. ----------------------------------------------------------------------------------------------------------Q.5: what are the challenges faced by Indian business in global market? Ans: Companies that want to survive in the 21st century must confront the all encompassing force of globalization that pervades every aspect of business. In a wide range of industries from automobiles to food and clothing, Indian companies face the pressures of global competition at home as well as in international markets. Choosing not to participate in global markets is no longer an option. All companies, regardless of their size, have to craft strategies in the broader context of world markets to anticipate, respond and adapt to the changing configuration of these markets. Companies initially entering international markets will be more concerned with learning about international markets, selecting an appropriate arena to compete, and determining how to leverage core competencies in international markets. Once in international markets, companies have to build their position in these markets, establishing a strong local presence by developing new products and adapting to local tastes and preferences. As the companies expand internationally, it will need to move away from country-centred strategies and improve integration and coordination across national markets, leveraging its competencies and skills to develop a leadership position. After 2 decades of economic liberalization, Indian companies are now working aggressively in going global. These companies have realized the business potential of global markets, for which they are making all the efforts both internally and externally to achieve this objective. -----------------------------------------------------------------------------------------------------------

International Business Management (MB0053/ B1315) Assessment -2

Page- 8

Suman Kari
Q.6: Write a short note on WTO.

Roll Number: 571012496

Ans: The World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. The organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (19861994). The organization is attempting to complete negotiations on the Doha Development Round, which was launched in 2001 with an explicit focus on addressing the needs of developing countries. According to a European Union statement, "The 2008 Ministerial meeting broke down over a disagreement between exporters of agricultural bulk commodities and countries with large numbers of subsistence farmers on the precise terms of a 'special safeguard measure' to protect farmers from surges in imports. The position of the European Commission is that "The successful conclusion of the Doha negotiations would confirm the central role of multilateral liberalisation and rule-making. It would confirm the WTO as a powerful shield against protectionist backsliding. An impasse remains. As of June 2012, the future of the Doha Round remains uncertain: The work programme lists 21 subjects in which the original deadline of 1 January 2005 was missed (So was the next unofficial target of the end of 2006.) The further imposition of free trade on industrial goods and services and the protectionism on farm subsidies to domestic agricultural sector requested from the developed countries, and the substantiation of the international liberalization of fair trade on agricultural products from developing countries that remain the major obstacles and the points of contention that hinder any progress to launch new WTO negotiation(s) (officially called "Round") between the Members of WTO since the Doha Round, though compromised as "Doha Development Round" but with no avail and the WTO has since stalled. Many developed countries have then turned to the Free Trade Agreement regime. WTO's current Director-General is Pascal Lamy. -----------------------------------------------------------------------------------------------------------

International Business Management (MB0053/ B1315) Assessment -2

Page- 9