Fall 2016

MBA Semester 4

MB0053: International Business Management

Q1. Write down the difference between international Vs global business? And what
are the benefits of globalization?

Globalization is a process where businesses are dealt in markets around the world, apart
from the local and national markets. Most of us assume that international and global
business are the same and that any company that deals with another 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 countries 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.

International 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 its ability to successfully compete in another nation.

Global competitive strategy Companies adopt this strategy when prices and competitive
conditions across the different country markets are strongly linked 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.

Benefits of globalization
The merits and demerits of globalization are highly debatable. While globalization creates
employment opportunities in the host countries, it also exploits labour at a very low cost
compared to the home country.
Promotes foreign trade and liberalization of economies.
Increases the living standards of people in several developing countries through
capital investments in developing countries by developed countries.
Promotes better education and jobs.
 Leads to free flow of information and wide acceptance of foreign products, ideas,
ethics, best practices, and culture.
Provides better quality of products, customer services, and standardised delivery
models across countries.
Gives better access to finance for corporate and sovereign borrowers.
Increases business travel, which in turn leads to a flourishing travel and hospitality
industry across the world.
Increases sales as the availability of cutting edge technologies and production
techniques decrease the cost of production.
Provides several platforms for international dispute resolutions in business, which
facilitates international trade.

Q2. Elaborate in detail comparative study on cultures of Japan, China, Brazil and
France.

Companies with prospects of business in other countries should be sensitive to that

particular countrys culture and business environment. Every country has its own style of
communication, the way they treat women in business and dressing style. The business
culture followed by different nations with respect to communication styles, women in
business, and dress code. The table shows how the business cultures differ from one nation
to another nation.

Country Communication Women in business Business dress

style code
Japan It is difficult if Discrimination The Japanese
Japanese language towards women in mainstream business
is not known. The the workplace still follows a
combination of exists. Women are conventional
vagueness and lack assigned to perform business dress code
of understanding of lower grade tasks. of dark suit, shirt and
the language results Women from western tie. Business dress
in problems which countries working in must be restrained
make decision- Japan probably face and formal for
making very difficult. difficulties working women. In business,
Body language is with Japanese male women do not wear
very minimal and co-workers. trousers.
hence difficult to read
for an untrained
observer. The
Japanese sit in a
formal upright
posture and look still.
Visibility of reaction
or emotion is rare.
China Translators are Women have equal Men wear suits and
required if Chinese rights in the ties and women wear
language is not workplace. But, skirts and blouses. It
known. The body traditional Confucian is sensible to have
language of people thinking does not smart business
from Chinese is very agree to gender clothing.
restricted. equality.
Businesswomen
from foreign
countries are treated
with great respect
and courtesy.
Brazil Ability to speak Businesswomen Men are advised to
Brazilian is an from foreign wear conservative
advantage, even countries are treated dark suits. Women
though English is fairly and with are less conservative
spoken and respect. in their dressing
understood by when compared with
people in Brazil. The women from other
body language plays countries.
a vital role in normal
communication. Eye
contact is also very
important while
speaking to people.
France The French have Women are gaining With position, dress
great love and high position in codes differ within
respect for the use of French business life, the company,
language. The logical particularly with industrial sector, and
exposition of strong representation region in France.
welldefined ideas is in retail and service People in higher
admired by the industries. The positions within a
French. The requirement for larger organisation
comment given by success is to have a follow a very formal
them clearly states suitable level of dress code. In
their mind. It is education for southern region the
important that women. business dress code
anything sent in is informal.
writing is thoroughly
checked.
Q3. Write a short note on Advantages of foreign direct investment and types of
foreign direct investment.

Advantages of foreign direct investment:

a. Easier integration into global economy: A developing country like India is keenly
interested to have foreign investment in their economy as it can gain greater access and
foothold in other economies of the world. Foreign investor may manufacture the products
that may be meant for global markets resulting in greater exports of the country and
improving the employment scenario in the country.

b. Upgradation in technology and advancement in technical knowhow: Foreign

investment facilitates the transfer of advanced level of technology mainly from developed
countries to developing countries.

c. Increased competition improved productivity: Foreign investment from the foreign

players brings in advances in technology, technical knowhow and processes. This helps in
increasing competition and resultant productivity in the domestic economy of the developing
country. As a catalysing effect, its competitors in the domestic markets also start improving
their technology or start tying up with foreign players in search of technology.

d. Improvement in human development skills: There comes a significant improvement in

human resources skills of the country that attracts foreign investment as its employees get
exposure to globally valued skills. Foreign investors come with improved skill set to perform
in a particular industry. Thus the host country is benefitted from the training and skills
upgradation of the foreign investor. For example in the automobile sector in India, Japan has
contributed various aspects on quality improvement of the employee.

Types of foreign direct investments

a. Greenfield Investments: When the FDI comes into new facilities or expansion of existing
facilities, it is known as green field investment. Greenfield investments are most welcome in
any country of the world, be it developed or developing as the primary target of green field
investments is to create new production capacity and jobs, transfer technology and know-
how in the host country.

b. Mergers and acquisitions: Mergers and acquisition can happen in several ways like
transfer of existing assets from local firms to foreign firms whereby local firm sell its assets to
foreign firm. Due to waves of globalisation, there is a trend for consolidation of business
through measures such as cross-border mergers which helps in establishing a new legal
entity by combining the assets and operation of firms from different countries.

c. Joint ventures: A joint venture is a sort of business agreement in which two or more
parties agree to establish and develop a new entity for a finite time with the objective of
making profits, increased sales, and expansion of firms long term goal. The risks,
responsibility, management and profits of the contributing parties will be equal to the
proportion of capital they have contributed to form this new entity. Joint ventures are popular
in the economies that are opening themselves up for foreign investment and wish to provide
a level playing field to domestic business vis a vis foreign players.

Q4. What are the key objectives and function of World Trade organization?

The key objective of WTO is to promote and ensure international trade in developing
countries. The other major functions include:
Helping trade flows by encouraging nations to adopt discriminatory trade policies.
Promoting employment, expanding productions and trade and raising standard of
living and income and utilising the worlds resources.
Ensuring that developing countries secure a better share of growth in world trade.
Providing forum for trade negotiations.
Resolving trade disputes.

The important functions of the WTO as stated in the WTO agreement are the following:
Developing transitional economies Majority of the WTO members are the
developing countries. The developing countries such as India, China, Mexico, Brazil
and others have an important role in the organisation. The WTO helps in solving the
problems of developing economies. The developing states are provided with trade
and tariff data. This depends on the countrys individual export interest and their
participation in WTO-bodies. The new members benefit hugely from these services.
Providing help for export promotion The WTO provides specialised help for
export promotion to its members. The export promotion is done through the
International Trade Center established by the GATT in 1964. It is operated by the
WTO and the United Nations. The International Trade Center accepts requests the
member countries, usually developing countries in assisting to plan and execute
programmes for export promotion. The center provides information on export market
and marketing techniques. The center also provides assistance in establishing export
promotion and marketing services. The WTO proves its commitment in the upliftment
of the world economy through this.
Cooperating in global economic policy-making The main function of the WTO is
to cooperate in global economic policy-making. In the Marrakesh Ministerial Meeting
in April 1994, a separate declaration was adopted to achieve this objective. The
declaration specifies the responsibility of WTO as, to improve and maintain the
cooperation with international organisations such as the World Bank and
International Monetary Fund (IMF) that are involved in monetary and financial
matters. WTO analyses the impact of liberalisation on the growth and development of
national economies which is the important factor in the success of the economy.
Monitoring implementation of the agreement The WTO administers sixty
different agreements that have the statue of international legal documents. The
member-governments sign and confirm all WTO agreements on attainment.
Providing forum for negotiations The WTO provides a permanent forum for
negotiations among members. The negotiations can be on matters already stated in
the WTO agreements or matters not addressed in the WTO law.
 Administrating dispute settlement The important function of WTO is the
administration of the WTO dispute settlement system. It helps in settling multilateral
trading dispute. A dispute arises when a member country adopts a trade policy and
other fellow members consider it as a violation of WTO agreements. The Dispute
Settlement Body (DSB) is responsible for the settlement of disputes. The dispute
settlement system is prohibited from adding or deleting the rights and obligations
provided in the WTO agreements.

Q5. Explain in detail about international regulatory Bodies.

Certain regulatory bodies are active in bringing out harmonisation of accounting standards.
Efforts of some of the bodies are explained here.
European Union
European Union is pro-active in the harmonisation process. European Commission sets
directives, which are orders to the member countries, to bring their laws inline with EU
needs, within some transition period. The earlier accounting directives are:
The nature and design of financial statements.
The measurement support on which the financial statements are to be organised.
The significance of consolidated financial statements.
The need that auditors should ensure that the financial statements reflect a true
perspective of the organisations operations.

Though the EU has enhanced the comparability of financial statements, the directives do
not cover several essential issues. Additionally, some directives provide options, but member
countries understand the directives differently. Thus, EU organisations listing outside their
home-countries must supply the following two sets of financial statements, they are:
Home-country statements.
Reconciliation statements.

United Nations
The United Nations is interested in international accounting since the early 1970s and has
been operating under a 'Group of Eminent Persons'. This further led to the establishment of
Intergovernmental Working Group of Experts on International Standards of Accounting and
Reporting (ISAR) by the UN Economic and Social Council.
The ISAR attempts to support the developing countries, by creating recommendations on
the accessibility and comparability of information disclosed by international businesses.

Organisation for Economic Cooperation and Development (OECD)

The OECD was established by world's 24 developed countries, of which some are Australia,
Austria, Belgium, and Canada. This was set up for promoting world trade and international
economic growth. This looks at matters from the perspective of economically developed
countries. The council of OECD has established a committee on International Investment
and Multinational Enterprises (MNEs). This committee in turn has established a Working
Group on Accounting Standards. The Working Group has recently published a 'Clarification
of the OECD Guidelines', and published reports as an element of an 'Accounting Standards
Harmonisation' series. Most recently, the OECD has established a 'Centre for European
Economies in Transition', which along with Working Group has prepared workshops,
seminars, and meetings, to recognise the purpose and constituents of accounting systems in
these countries.

International Accounting Standards Committee (IASC)

International Accounting Standards Committee was created in the year 1973. It has issued a
series of standards to harmonise management of accounting issues globally. The chief
objective of IASC is the encouragement of comparability of financial statements between
countries, by establishing standards for inventory assessment, depreciation, delayed income
taxes, and so on.

The International Federation of Accountants (IFA)

The International Federation of Accountants was founded in the year 1977. It completely
supports the work of the IASC, and recognises the IASC as having responsibility and
authority to issue rules on international accounting standards. IFA has parallel responsibility
of IASCs objective of developing international guidelines for auditing, ethics, education and
management accounting.

Q6 What are the various export promotion schemes offered by government in order to
promote export from the country?

Government, in order to promote the exports from the country, offers some export assistance
and export promotion schemes so that exporters can benefit from them. They can improve
their key weaknesses and stand up to compete in the international market by offering quality
Indian products and services. Such export-promotion measures can be divided into direct
and indirect assistance or programmes from the government agencies to enable Indian
exporters to standardise the products and services as appropriate for the international
quality and aesthetic appeal. Such measures may be targeted on any of the combination of
the following:
i. Market Access Initiatives (for studies, brochures etc.).
ii. Marketing Development Assistance for participation in trade fairs etc.
iii. Providing services to international market.
iv. Marketing in difficult markets like certain African, Latin American and Commonwealth of
Independent States (CIS) markets.
v. Marketing difficult products like those from rural areas.
vi. Special agricultural products and rural industrial products.
vii. High-technology products

India being a developing economy, export promotion schemes are needed to give a boost to
our economy. The needs of the export promotion scheme are explained below.
As the economy of the country is progressing with the increase in population, there is a
need for more number of imports. We need to have surplus exports to pay our imports.
 It is not wise to depend on external assistances for financing essential imports,
instead exportable surplus needs to be created.
In any country, there are some capital goods, machinery and raw materials that
cannot be produced for some time and it has to be imported from other countries. In
order to pay for such imports, the country needs to have sufficient funds so that the
country has to pay for its exports.
The earning from the exports needs to be increased to generate purchasing power in
order to import the essential goods.
We need to explore the foreign markets in order to expand the capacities of the
existing units and find a market for new units.
To tap our export potentials completely, we need to focus on our strengths like, price
stability, low wages and the industrial bases to increase its exports.
The deficits of payments in Indian economy can be resolved using funds received
through foreign assistance. We need to create the repaying capacity with the help of
exports.