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BA9209- INTERNATIONAL BUSINESS MANAGEMENT PART B 16 marks

1.Discuss the international business environment for an industry of yourchoice in India.

2. Difference between Protectionism and Liberalization.

1 B.Narayanan, Assistant Professor, Shivani School of Business Management

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3. Explain the advantages and disadvantages of International Business:Advantages:Maximum Utilization of NaturalResourcesEconomic GrowthEncouragement of IndustrializationEstablishment of InternationalCooperationDevelopment of Transport andCommunicationEmploymentGreater CompetitionSecurity from famineStability in pricesEconomies of scaleEarning of Foreign exchangeLess Cost due to use of modern

techniques

Higher standard of LivingInternational BrotherhoodUpgrading of technologyEscape from domestic competition

Disadvantages:Increased costsDelay in PaymentsExhaustion of Natural ResourcesMarket competition in hostLack of Home country supportForeign regulations and standardsComplex organizational structuresCultural DifferencesNational ControlsDependence

Loss of Agricultural countries

4.How to assess the country attractiveness for business opportunities?Explain with examples.

Market Potential

Political, Legal and Financial Environment of the Country

Marketing support infrastructure in the country

Brand/Company franchise relative to competing products/companies

Degree of Market fit with company policies, goals and recources

5. Explain the Globalization and its impact in International business.Globalization: the ongoing social, economic, and political process that deepens andbroadens the relationships and inter-dependencies amongst nationstheir people,their firms, their organizations, and their governments

International business facilitates globalization process

Four Dimension of Globalization Index are: Economic, Technological, PersonalContact, and Political

The Forces Driving Globalization


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Increased in and expansion of technology

Liberalization of cross-border trade and resource movements

Development of services that support international business

Growing consumer pressures

Increased global competition

Changing political situations

Expanded cross-national cooperation

Criticisms of Globalization Threats to national sovereignty

Economic growth and environmental stress

Growing income inequality and personal stress

6. Promotion of Global Business

7.Explain the role of GATT and WTO. What are the challenges for globalbusiness?GATT/ GENERAL AGREEMENT ON TARIFFS AND TRADEThe General Agreement on Tariffs and Trade (GATT) was first signed in 1947.Was designed

To provide an international forum

That encouraged free trade between member states

By regulating and reducing tariffs on traded goods

Providing a common mechanism for resolving trade disputes Was the outcome of the failure of negotiating governments to create the ITO

The Bretton Woods Conference introduced the idea for an organization to regulatetrade as part of a larger plan for economic recovery after World War II

As governments negotiated the ITO(International Trade Organization) , 15negotiating states began parallel negotiations for the GATT as a way to attain earlytariff reductions

Once the ITO failed in 1950, only the GATT agreement was left.

Basic Principles of GATT

Four Principles: Member countries will consult with each other trade problems

Agreement provides legal instrument for negotiation

Countries should protect domestic industries through tariffs, no restrictive devicessuch as quotas


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Trade should be conducted on a non-discriminatory basis

OBJECTIVES OF GATT

To provide equal opportunities to all countries in international marketing withoutany favour

To increase the effective demand for real income growth and goods

To minimize tariffs and other restrictions on trade for ensuring mutual benefits

To provide solution to the disputes by giving cooperation and advices to membercountries

To ensure a better living standards in the world as a whole

WORLD TRADE ORGANISATIONThe WTO was established on January 1, 1995 by the Final Act of the Uruguay Round

of negotiationsThe World Trade Organization (WTO) is the only global international organizationdealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of theworlds trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importersconduct their business.Location: Geneva, SwitzerlandEstablished: 1 January 1995Created by: Uruguay Round negotiations (198694)Membership: 148 countries (since 13 October 2004)Budget: 169 million Swiss francs for 2005Secretariat staff: 630Head: Pascal Lamy (director-general)

In brief, the World Trade Organization (WTO) is the only international organizationdealing with the global rules of trade between nations.

Its main function is to ensure that trade flows as smoothly, predictably and freely aspossible.

The multilateral trading systemare the WTOsagreements, negotiated and signed by a largemajority of the worlds trading nations and ratified intheir parliaments.

These agreements are the legal ground-rules forinternational commerce.

Essentially, they are contracts, guaranteeingmember countries important trade rights.

They also bind governments to keep their tradepolicies within agreed limits to everybodys benefit.

The agreements were negotiated and signed bygovernments. But their purpose is to help producersof goods and services, exporters, and importersconduct their business.

The goal is to improve the welfare of the peoplesof the member countries.

Functions of WTOHelping developing and transition economies: most of the developing countries in transition phase They are shifting from planned economic system to market based economic system


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Specialized help for export It provides information and advice on export market and techniques It assist in establishing export promotion and marketing services and in training thepersonnelWTO in Global Economic Policy Making: Co-operates with other Multilateral Institutions to achieve greater coherence inglobal economic policy making

To carry out this objective separate declarationTaking / Gathering information: Takes regular information from the member countries regarding the policies andtariffs It keeps as updated regarding developments and disseminates information to themember countries , help them to increase exportsGiving /Disclosing information to public: Also disclose to the general public about the developments of the WTO and also themember countries through its publications and websitesEncouraging development and Economic reform: To adjust to the more unfamiliar and difficult framework

At the end of the rounds, better off countries should accelerate implementingmarket access countries on goods exported by LDCs

8. Explain the Theories of International Trade and Investment.

FDI BASED EXPLANATIONS

MONOPOLISTIC ADVANTAGE THEORY The firm controls one or more resources Offers relatively unique products and services Provide it a degree of monopoly power relative to foreign market and competitors Firm can operate foreign subsidiaries more profitably than the local compete in theirown markets Advantages must be economies of scale, superior technology in marketing,management or finance FDI as an internationalization strategy tend to control certain resources andcapabilities that give the power of monopolyINTERNALIZATION THEORY The firm acquires and retains one or more value-chain activities within the firm Minimizes the disadvantages of relying on intermediaries , collaborations and otherexternal partners Ensures greater control over foreign operations


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Helping to maximize product quality, reliable manufacturing processes and soundmarketing practices

DUNNING ECLECTIC PARADIGM Ownership Specific Advantage

- The firm own knowledge, skills, capabilities, processes or physical assets- To ensure international success, substantial enough to offset the cost in

establishing and operating foreign operations- Must be specific to the MNE that possess and not readily transferable to otherfirms

- Unique to the firm, successful to enter and conduct business in a foreign market Location Specific Advantage

- Comparative advantage that exist in individual foreign countries- Each country possess a unique set of advantages from which companies can

derive specific advantages- For example natural resources, skilled labour, low- cost labour and inexpensive

capital- It must be profitable for the firm to locate abroad, to utilize its ownership specific

advantage Internalization Advantage

- The firm benefits from internalizing foreing manufacturing, distributing or othervalue-chain activities

- advantages include the ability to control how the firms products are produced ormarketed

- ability to reduce buyer uncertainty about the value or products the firm offers

NON-FDI BASED EXPLANTIONS International Collaborative Ventures

- A collaborative venture is a form of cooperation between two or more firms.- the firm may gain access to foreign partners know-how, capital, distribution

channels, marketing assets- By partnering, the firm can better position itself to create new products and enter

new products- Willingness to cooperate in R&D, manufacturing , design or other value adding

activites Network and Relational Assets

- represents the stock of the firms economically beneficial long-term relationship- with other business entities such as manufactures, distributors, suppliers, retailers,

consultants, banks, transportation suppliers., governments and other orgn. Provide

needed capabilities.- Network linkages represent a key route for many firms expand their businessabroad, develop new markets and new products

- mutually beneficial and enduring strategic relationships provide real advantages topartners and reduce uncertainty and transactions costs

9.Discuss Regional Trade blocks role in international business. What are itsadvantages and disadvantages? Intergovernmental agreement, often part of aregional intergovernmental organization, where regional barriers to trade (tariffs andnon-tariff barriers) are reduced or eliminated among the participating states Bilateral agreements can occur either between neighbours or between countriesthat are far removed from one another Near 50%t of world trade is now conducted within these preferential tradearrangements, the most significant exception to the WTO's principle of non-discrimination


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Governments have often entered regional economic agreements primarilymotivated by political rather than economic considerations

A hierarchy of regional economic arrangements A free trade - ccountries remove tariffs and non-tariff barriers to the freemovement of goods and services between them (90% of RTB) A customs union includes agreement on a common external tariff on all extra-

regional imports A common market includes a CU plus free movement of labour and capital An economic union - a common market plus a common currency and/or theharmonization of monetary, fiscal, and social policies.

Why do RTB exist? An economy's welfare can be maximized, if governments lower trade barriers on anon-discriminatory basis (through unilateral action or through negotiations at theglobal level) RTAs can reduce global welfare by distorting the allocation of resources, and maylead to welfare losses for members

The costs and benefits of preferential trade agreements: trade diversion and tradecreation (J. Viner, 1950) Trade creation - imports from a regional partner displace goods that have beenproduced domestically at higher cost Trade diversion occurs when imports from a regional partner displace thoseoriginated outside the regional arrangement. If trade diversion outweighs trade creation then the net effect of RTB on itsmembers' welfare can be negative.

Advantages of RTB

Transaction costs will be eliminated

Price transparency

Uncertainty caused by exchange ratefluctuations eliminated

Single currency in single marketmakes sense

Prevent war

Increased trade and reduced costs tofirms

Protection against an aggressiveglobal market

Disadvantages of RTB

the instability of the system

overestimation of trade benefits

loss of sovereignty

countries which are left out of theblock can obtain lower welfare

trade deflection will lead to a loss oftariff revenue for the economies withhigher tariffs. To prevent FTA from tradedeflection their members typically

adopt rules of origin

Regional Trade Blocks Across the Globe Brief History

Economic Integration

European Union

Nafta

Asean

European Free Trade Association

Latin American Integration Association

Saarc Escap

Apec

Mercosur


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10. Explain the 12 Pillars of Global CompetitivenessCompetitiveness is the contribution of a countrys assets either inherited (eg. Naturalresources) or created (eg. Infrastructure) and the processes (eg. Manufacturing) whichtransform them into economic results.A nations competitiveness is the degree to which it can under free and fair marketconditions, produce goods and services


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11. Illustrate the Organizational Issues in International Business.

Organization Issues in International business:Centralization versus Decentralization:

When designing its organization, an MNC must make a particularly crucial decision,one that involves the level of autonomy, power, and control it desires to grant to itssubsidiaries.Decentralization allows managers of subsidiaries to make decisions which servehost country needs best, but overall interests of the firm are compromised.Centralization of decision-making helps the firm retain control at headquarters andprotect the overall interests of the company, but the ability of subsidiary managers torespond quickly and effectively to changes in their local market conditions in curbed.

Use of subsidiary Board of Directors:

Subsidiary of any international firm, particularly fully owned, will have its own board ofdirectors to oversee the activities of the top level managers in that subsidiary.Four major areas in which MNCS use subsidiary boards have been identified:a)To advice, approve, and appraise local management

b)To help the unit in responding to local conditions.

c) To assist in strategic planning.

d)To supervise the subsidiarys ethical conduct.

Non-traditional organizational Arrangements:

In recent years. MNCs have increasingly expanded their operations in ways thatdiffer from those used in the past. These includes acquisitions and joint ventures.

Role of Information technology :

International businesses rely heavily on information technology because it lends

competitive advantage to them. In fact, it is the search for competitive advantage thatis driving the rapid development and adoption of IT. IT reduces the need for hierarchyand this helps bring down bureaucratic cost.

Integrating Mechanism:


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One of the issues relating to international business relates to the need for co-ordination among different subsidiaries and all of them with the parent company. Theneed for co-ordination is not felt much in multi-domestic companies as they arebasically concerned with responding to local needs. The firm look towards integratingmechanism, both formal and informal, to help achieve co-ordination:i. Formal integrating Mechanisms:

a) Direct contact

b) Liaison Roles

c) Teams

d) Matrix structures

ii. Informal integrating mechanisms:

Many international firms also rely heavily on informal co-ordination mechanisms.Informal management networks can be very effective.Control system:

A major task of an MNCs leadership is to control the various subsidiaries whetherthey are defined on the basis of function, product division, or geographical area toensure their actions are consistent with the firms overall strategic and financialobjectives.a)Distanceb)Diversityc) Degree of uncertaintyd)Differences in ApproachCulture in International Business :Corporate culture is the set of shared values that defines for its members what the

organization stands for, how it functions, and what it considers important.Managing Change in International business:Change is common in any business, more so in overseas business. Change takes

place because of environmental changes and change in technology and culturalvalues and mores.

12. Explain the types of Organisational Structures.Initial Division Structures

Subsidiary

Common for financial andother service firms where

main export is expertise Export Arrangements

Common amongmanufacturing firms,especially those withtechnologically advancedproducts

On-site ManufacturingOperations

Responds to local

government pressures andcompetition Reducestransportation costsInternational DivisionStructure


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Description

Handles all international operations out of a division created for thispurpose

Advantages

Assures that international focus receives top management attention

Unified approach to international operations

Often adopted by firms still in the developmental states of international

business operations Disadvantages

Separates domestic from international managers

May find it difficult to think and act strategically, or to allocate resourceson a global basis

Global Product Division

Description

Domestic divisions givenworldwide responsibility

for product groups Global product divisions

operate as profit centers

Advantages

Helps manage product,technology, customerdiversity

Ability to cater to localneeds

Marketing, production and finance can be coordinated on a product-by-product global basis

Disadvantages

Duplication of facilities and staff personnel within divisions

Division manager may pursue currently attractive geographic prospectsand neglect others with long-term potential

Division managers my spend too much time tapping local rather thaninternational markets

Global Area Division

Description

Global operations areorganized on a geographicrather than a product basis

Advantages

International operations areput on the same level asdomestic operations

Global division managersare responsible for allbusiness operations in their

designated geographic area Often used by firms in

mature businesses withnarrow product lines


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By manufacturing in a region, the firm is able to reduce cost per unit andprice competitively

Disadvantages

Difficult to reconcile a product emphasis with a geographic orientation

New R&D efforts often ignored because divisions are selling in maturemarket

Global Functional Division Description

Organizes worldwideoperations primarily basedon function and secondarilyon product

Advantages

Emphasizes functionalexpertise, centralizedcontrol, and relatively leanmanagerial staff

Favored by firms that

Need tight, centralizedcoordination and control ofintegrated productionprocesses

Are involved in transporting products and raw materials betweengeographic areas

Disadvantages

Approach not used except by extractive companies such as oil and miningfirms

Coordination of manufacturing and marketing often is difficult Managing multiple product lines can be very challenging because of the

separation of production and marketing into different departments

Mixed or Matrix Structures

Description

Combination of globalproduct, area, andfunctional arrangements

Cross-cuttingcommittee structures

Matrix structures

Advantages

Structure can be designed to best meet needs

Promotes an integrated strategic approach tailored to local needs andpriorities

Disadvantages

As the matrix designs complexity increases, coordinating the personnel

and getting everyone to work toward common goals often become difficult Too many groups go their own way

13. How do you manage the global portfolio in the organization? Explain thedifferent Strategies available for managing global portfolio.


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Global Portfolio ManagementGPM, International Portfolio Mgt, Foreign Portfolio Mgt means a grouping of investmentassets that focuses on securities form foreign markets rather than domestic ones.Examples of portfolio mgt: Purchase of shares in a foreign company Purchase of bonds issued by a foreign government Acquisition of assets in a foreign company

Factors affecting Global Portfolio InvestmentTax rates on Interest or dividends: Investors prefer to invest in a country where taxes on the interest or dividend is low Assess their potential after-tax earnings from investment in foreign securitiesInterest rates: Money tend to flow to countries with high interest rates as long as the localcurrencies are not expected to weaken Exchange Rates: When investors invest in security in a foreign country, their return is affected by: The change in the value of security The change in the value of currency in which security is determined

If a countrys home currency is expected to weaken, foreign investors may decideto purchase securities in other countries.Modes of Global Portfolio ManagementBuying foreign securities or depository receipts directly from the domestic stockexchange Portfolio Equity Portfolio bondsApproaching Global Mutual Funds

-Investor buys the shares of internationally diversified mutual funds- There are many open ended mutual funds available

- They prefer liquidity and try to allocate portfolio in proportion to the marketcapitalizationApproaching close-end country

- Close end funds are different from open ended- former makes and investment in internationals securities against the portfolio

Buying directly the securities of domestic companies having global operations- Indirect way of participating in global economy-Investor does not have ample scope for reaping diversification benefits, in so far

as the systematic risk cannot be reduced to that extentProblems of Global Portfolio ManagementUnfavorable Exchange rate movement

- Cannot ignore the possibility of exchange rate changes- Changes influence the value of foreign portfolio as well as the earnings- If the Indian rupee depreciates, the value of Indian securities in terms of U.S dollar

will be lowerFrictions in International Financial Market

- Market frictions manifesting in Governmental control, varying tax laws andexplicit and implicit transaction costs.

- Government try to administer international financial flows, through differentforms of control mechanisms such as taxes on international flows and restrictions onoutflow of funds.Manipulation of Security Prices

- In real world, it is government and also the big brokers that influence the securityprices.

- government influence them through monetary and fiscal policy- Public sector institutions and bank big chunk of securities traded on stock

exchange


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Unequal access to information- wide cross cultural differences that inhibit global portfolio investment- It is difficult to collect the information by the international investor- In the absence of desired information, it is difficult to act rationally

14. Discuss the various approaches to control the international businesswith suitable examples.CONTROLLING OF IB For achieving the goals predefined processes and instruments are required whichinfluences the performance of the organization Control is essentially concerned with regulating the activities within the organizationso that they are accord with the expectations established in policies , plans andpractices. A major task of the firms leadership is to control on various basis of function,

product, geographical and overall strategic and financial objectives. Objectives of Control It supply data for top management for monitor, evaluate and adjust Provide the means for coordination of the units toward common objectives It provide the basis for evaluatingthe performance of the units andmanagers at each levelPersonal Controls:- Personal contact with the

subordinates- Most widely used in the small

firms, where direct supervision- Also structures the

relationships between managers atdifferent levels in MNE- CEO may use a deal of personal

contact to influence the behaviourof his immediate subordinates.Bureaucratic Controls A System of rules and procedure that directs the actions of sub-units Capital spending rules require headquarters management to approve exceed

certain limitOutput Controls It involves setting goals for subsidiaries to achieve the objectives Objectives criteria Productivity, Profitability, Growth, Market share and qualityCultural Controls It exists when employees buy into the norms and value systems of the firm Employees tend to control their own behaviour which reduces need for direct

supervision In a firm with strong culture, self control reduces the need for other control

systemsApproaches to Control

Market Approach- External market forces allowed to

control the behaviour of the managementwithin the units of MNs

- Organisation are decentralized and


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transfer prices are freely negotiated- The decisions are largely directed by the market

Rules Approach- Rules oriented organization- Greater reliance on strongly imposed rules and procedures- Highly developed planning and budgeting system with extensive formal

reporting- This types of control uses both the input and output controls in highly

formalized way.Corporate Culture Approach- The members of the organization internalize the goals by developing a strong

set of beliefs and values which influence their operations- Though the orgn.have strong norms of

behaviour they are informal and less explicit- Major changes naturally takes more time to

bring the needed organizational changes oradjustmentsReports

- Powerful control mechanism- Allocate resources/monitor the

performance- Reward personnel- Reports must be frequent, accurate and

up-to-dateVisit to Subsidiaries

- Not all the information exchange through- Corporate staff often visit subsidiaries to confer and socialize with local

managers- Visit can serve the goal of controlling foreign operations because they enable

the visitors to collect information and offer advice and directives. Management Performance Evaluation

- Evaluate subsidiary managers separately from their subsidiary performance- Because of decision making authority differences something are beyond the

control- Slow growth and risky economical and political environment- The company should still reward the countrys managers for doing a good job in

the face of diversity Cost and Accounting Comparisons

- Different cost among subsidiaries

- Meaningful comparison of their operating performance- Set of book that are consistent with home country principles another to meet localreporting requirements

15. Explain the performancemeasurement of globalbusiness.

Establish Standard of Performance

Standard of performance applyto many aspect of the orgn.

Such as cost, quality, andcustomer service

Incorporate more than onestandard since they reflectexpected levels of Mfg.


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performance such as process yields, product quality, overhead spending levelsetc.

Measure Actual Performance Measures the actual results of the process Manual or Automated data collection system are requied to gather information

Standard cost system includes labour hours, machine hours, material usage etc.Analyze the Performance and Compare it with standards Measures the actual results of the process Manual or Automated data collection system are requied to gather information Standard cost system includes labour hours, machine hours, material usage etc.

Construct and Implement an Action Plan Variance analysis will highlight potential problem areas Indentify the source of the problem and develop plans to correct or improve the

situation Effectiveness of performance system depends upon managements ability to act

on the information provided

Review and Revise Standards Modern organizations are in a constant state of change Update periodically to reflect these changes Standards are updated once in a year during the standard setting process However if the variances are significant, the performance standards should be

revised during the interim periods Effective Performance Measurement System Must be integrated with overall strategy of the business Be a system of regular feedback and review of actual results against original

plan and performance Must be comprehensive, needs t include the factors that contribute to the

organizations success such as competitive performance, quality of services andinnovation

Requires the range of financial and non-financial indicatorsEffective Performance Measurement System

Owned and supported throughout the organization, the implementation must betop-down

Measures must be fair and achievable System and results reporting must be simple, clear and understandable Need to prioritize and focus so that only the key performance indicators for the

business in strategic terms are measured

Performance Evaluation System The periodic review of operations to ensure that the objectives of the

enterprise are being accomplished The MNC must have an accounting information to evaluate domestic and foreign

operations The proper measurement of the performance of an individual, a division, a

subsidiary or even a company as a whole is not simpleObjectives of Performance Evaluation

To evaluate the economic performance of its international operations To evaluate the units management performance To monitor progress toward corporate objectives including strategic goals To assist the efficient allocation of resources Various Performance Indicators Financial Measures

- ROI (Return on Investment)- ROI = Division return(Segment Margin)


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Investment In division- ROI = Division controllable return(Managers Contribution

Controllable Investment Most common method to evaluate the return on investment Relation ship of profit to invested capital It encompasses all the important factors in a single measure Logical motivator of the managers since they are evaluated by ROI, they will act

to maximize the ROI of their units Budget as Success indicator- Budget as a accepted tool for controlling operations and forecasting future

operations- Clearly set out objectives of the entity- Budget gives the managers to set their own performance standards- Headquarters must rely to greater extent on good local or regional budgets

which help facilitate the strategic planning process Non Financial Measure

- Market Share- Percentage of Sales

- Exchange Variations- Quality Control- Productivity Improvement

Types of Performance Evaluation System Budget Programming

- Prepared for planning and financial control- Easy to compute the variance- To measure current performance in relation to comparable performance in the

past

Management Audit- Extended financial audit system- Monitors the quality management decisions in financial operations- It appraises and audits the functioning of the management

Types of Performance Evaluation System PERT(Programme Evaluation Review Technique)

- It is based on CPM(Critical Method)- It delineates a given project or program into network of activities or sub-activities

with a view to optimize the time- The performance is measured by comparing the scheduled time and cost inputs

with the actual time and cost inputs

Management Information System- Ongoing information system designed to plan, operate, appraise, monitor,

control and redirects the totalmanagement towards the determinedtargets and goals

-MIS is all pervasive and encompassthe financial, physical budgeting,management audit and control systems ofthe PERT

16. Explain the Global Supply Chain

Management


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17. Discuss the various risk involved in the global business.1) Strategic Risk(2) Operational Risk(3) Political Risk(4) Country Risk(5) Technological Risk

(6) Environmental Risk(7) Economic Risk(8) Financial Risk(9) Terrorism Risk

Strategic Risk: The ability of a firm to make a strategic decision in order torespond to the forces that are a source of risk. These forces also impact thecompetitiveness of a firm. Porter defines them as: threat of new entrants in theindustry, threat of substitute goods and services, intensity of competition within theindustry, bargaining power of suppliers, and bargaining power of consumers.

Operational Risk: This is caused by the assets and financial capital that aid inthe day-to-day business operations. The breakdown of machineries, supply anddemand of the resources and products, shortfall of the goods and services, lack ofperfect logistic and inventory will lead to inefficiency of production. By controllingcosts, unnecessary waste will be reduced, and the process improvement may enhancethe lead-time, reduce variance and contribute to efficiency in globalization.

Political Risk: The political actions and instability may make it difficult forcompanies to operate efficiently in these countries due to negative publicity andimpact created by individuals in the top government. A firm cannot effectively operate

to its full capacity in order to maximize profit in such an unstable country's politicalturbulence. A new and hostile government may replace the friendly one, and henceexpropriate foreign assets.

Country Risk: The culture or the instability of a country may create risks thatmay make it difficult for multinational companies to operate safely, effectively, andefficiently. Some of the country risks come from the governments' policies, economicconditions, security factors, and political conditions. Solving one of these problemswithout all of the problems (aggregate) together will not be enough in mitigating thecountry risk.

Technological Risk: Lack of security in electronic transactions, the cost ofdeveloping new technology, and the fact that these new technology may fail, andwhen all of these are coupled with the outdated existing technology, the result maycreate a dangerous effect in doing business in the international arena.


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Environmental Risk: Air, water, and environmental pollution may affect thehealth of the citizens, and lead to public outcry of the citizens. These problems mayalso lead to damaging the reputation of the companies that do business in that area.

Economic Risk: This comes from the inability of a country to meet its financialobligations. The changing of foreign-investment or/and domestic fiscal or monetarypolicies. The effect of exchange-rate and interest rate make it difficult to conductinternational business.

Financial Risk: This area is affected by the currency exchange rate, governmentflexibility in allowing the firms to repatriate profits or funds outside the country. Thedevaluation and inflation will also impact the firm's ability to operate at an efficientcapacity and still be stable. Most countries make it difficult for foreign firms torepatriate funds thus forcing these firms to invest its funds at a less optimal level.Sometimes, firms' assets are confiscated and that contributes to financial losses.

Terrorism Risk: These are attacks that may stem from lack of hope; confidence;differences in culture and religious philosophy, and/or merely hate of companies by

citizens of host countries. It leads to potential hostile attitudes, sabotage of foreigncompanies and/or kidnapping of the employers and employees. Such frustratingsituations make it difficult to operate in these countries.

18. Explain the factors in selection of expatriate managersTechnical competence / ability:Naturally, the persons ability to perform the required tasks in an importantconsideration. Technical andmanagerial skills are therefore an essential criterion.Indeed, research findings consistently indicate that multinationals place heavyreliance on relevant technical skills during the expatriate selection process.

Adaptiveness:Every expatriate gains some adaptive characteristics through different cultures wherethey come into the contact of new environment and culture, and the MNCS selectthese expatriates on the basis of their Adaptiveness. Three types of adaptivecharacteristics influence an expatriates success when entering a new culture.

Self-maintenance

Developing satisfactory relationship

Interpreting the immediate environment

Leadership Ability :It is increasingly seen as a key to an expatriates success since expatiates often

assume a greaterbreadth and depth of leadership responsibility on a foreignassignment than they likely would in the home country. Communication skills,motivation, self-reliance, courage, risk-taking and diplomacy become essentialqualities for success. Skills and attitudes such as optimism, drive, adaptabilityforesight, experience, resilience, sensitivity, and organization are necessary forexpatriates to be successful.

Cross-Cultural suitability :The cultural environment in which expatriates operate is an important factor in

determining successful performance. A part form the obvious technical ability and

managerial skills, expatriates require cross-cultural abilities that enable the person tooperate in a new environment. There appears to be a consensus that desirableattributes should include cultural empathy, adaptability, diplomacy, language ability,positive attitude, emotional stability and maturity.


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Family requirements :The contribution that the family, particularly the spouse, makes to the success of

the overseas assignment is now well documented, in relation to the impact of theaccompanying spouse/partner on early return.MNE Requirements :

Situational factors often have an influence on selection decisions. For example,MNE may consider the proportion of expatriates to local staff when making selectiondecisions, mainly as an outcome of its staffing philosophy.

Country / cultural requirements:International firms are usually required to demonstrate that a HCN is not available

before the host government will issue the necessary work permit and entry visa forthe desired PCN or TCN.

LANGUAGE :The ability to speak the local language is an aspect often linked with cross-

cultural ability. However, have been chosen to stress language as situation determined in terms of its importance as a factor in the selection decision.

19. Discuss the various ethical issues involved in international businesswith current examples.

ETHICAL ISSUES IN INTERNAIONAL BUSINESS:

sexual and racial discrimination :Various U.S. and European laws prohibit business from discriminating on the basis ofsex, race, religion, or disabilities in their hiring, firing and promotion decisions.However , the problem of discrimination is still a reality in the world.

Human Rights :Corporate concern for global human rights emerged in the1990s as news stories

depicting the opportunistic use of child labor, payment of low wages, and abuses inforeign factories helped to re-shape the attitudes about acceptable behavior fororganizations.

price discrimination ;A major ethical issue in international business is how products sold in other countriesare priced, when a firm charges different prices to different groups of customers, itmay be accused of price discrimination.

Bribery:In many cultures, giving bribes also known as facilitating payments is an acceptablebusiness practice. In mexico, a bribe is called la mordida while south Africans call itdash. In the middle east, India and Pakistan a tip or gratuity given by a superior, is

widely used. The germans call it schimengeld grease money and the Italians call itbustarella a little envelope.

Ethical dimensions of labor conditions:A major challenge facing MNEs is the globalization of the supply chain and the workingconditions of laborers. Pressures from external stakeholders to adopt responsibleemployment practices in overseas operations are extensive.

Harmful products: Governments in advanced industrialized nations have banned

the sale of certain products considered harmful. However, some companies in thosenations continue to sell such products in other countries where they remain legal.

Environmental issues and ethics ;

Whereas many legal and ethical violations have limited impacts in the case ofenvironmental issues the effects of abuses can be far-reaching and long-term.

Telecommunications issues:With the advent of satellites, e-mail and the internet, information can be accessed ina matter of seconds instead of weeks and as a result businesses can become the


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victims as well as the perpetrators of unethical actions. The ease of informationaccess poses ethical issues, particularly with regard to privacy, that can differ bycountry. Some internet-based firms have responded to privacy issues responsibslywhereas others have not.

Intellectual property protection:Intellectual property refers to the ideas and creative materials people develop to solveproblems carry out applications, educate, and entertain others. It is generally

protected through patents, copyright, and trademarks.

20. Discuss the role of negotiations in international business.Role of international agencies in negotiation:

Role of international finance corporation-IFC performance standards, common approaches, equator principles-opportunity toraise standards.-Importance of conflict risk-social and environmental risksRole of multilateral Investment Guarantee Agency:MIGA promotes foreign direct investment into developing countries by insuring

investors against political risk, advising governments on attracting investment,sharing information through online investment information services, and mediatingdisputes between investors and governments.

Role of international center for settlement of investment disputes (ICSID) innegotiation: The international center for settlement of investment disputes,was foundin 1966 pursuant to the convention on the settlement of Investment disputes betweenstates and nationals of other states. Its an institution of the World Bank group. Intotal, 155 countries had signed the ICSID convention. ICSID has an administrativecouncil, chaired by the World Banks president, and a secretariat.

Role of international chamber of commerce in negotiation:The international chamber of commerce is an international organization that works to

promote and support global economy, in the interest of economic growth, job creation,and prosperity. As a global business organization, made-up of member states, it helpsthe development of global outlooks on business matters.1. ICC international court of arbitration2. World council, national committees, and international secretariat3. Business actions stopping counterfeit and piracy (BASCAP)

Role of world trade organization in negotiation:

Step: 1 Consultation- up to 60 daysStep: 2 The panel-up to 45 days for a panel to appointed, plus 6 months for the panelto conclude:

Before the first hearing

First hearing

Rebuttals

Experts

First draft

Interim report

Review

Final reportCross cultural negotiation strategies:1. Competitive negotiation2. Problem-solving negotiation.


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21. Discuss the ethical issues in international business management.ETHICAL ISSUES IN INTERNAIONAL BUSINESS:a. sexual and racial discrimination :Various U.S. and European laws prohibit business from discriminating on the basis ofsex, race, religion, or disabilities in their hiring, firing and promotion decisions.However, the problem of discrimination is still a reality in the world.b. Human Rights :

Corporate concern for global human rights emerged in the1990s as news storiesdepicting the opportunistic use of child labor, payment of low wages, and abuses inforeign factories helped to re-shape the attitudes about acceptable behavior fororganizations.c. price discrimination ; A major ethical issue in international business is how products sold in othercountries are priced, when a firm charges different prices to different groups ofcustomers, it may be accused of price discrimination.d. Bribery: In many cultures, giving bribes also known as facilitating payments is an acceptable

business practice. In mexico, a bribe is called la mordida while south Africans call itdash. In the middle east, India and Pakistan a tip or gratuity given by a superior, iswidely used. The germans call it schimengeld grease money and the Italians call itbustarella a little envelope.e. Ethical dimensions of labor conditions: A major challenge facing MNEs is the globalization of the supply chain and theworking conditions of laborers. Pressures from external stakeholders to adoptresponsible employment practices in overseas operations are extensive.f. Harmful products: Governments in advanced industrialized nations havebanned the sale of certain products considered harmful. However, some companies inthose nations continue to sell such products in other countries where they remain

legal.g. Environmental issues and ethics ;

Whereas many legal and ethical violations have limited impacts in the case ofenvironmental issues the effects of abuses can be far-reaching and long-term.h. Telecommunications issues: With the advent of satellites, e-mail and the internet, information can be accessedin a matter of seconds instead of weeks and as a result businesses can become thevictims as well as the perpetrators of unethical actions. The ease of informationaccess poses ethical issues, particularly with regard to privacy, that can differ bycountry. Some internet-based firms have responded to privacy issues responsibsly

whereas others have not.i. Intellectual property protection: Intellectual property refers to the ideas and creative materials people develop tosolve problems carry out applications, educate, and entertain others. It is generallyprotected through patents, copyright, and trademarks.

j. world trade organization : The world trade organization was established in 1995 at the Uruguay round ofnegotiations of the general agreement on Tariffs and Trade (GATT). Today, the WTOhas 133 member nations and an additional 33 nation that have applied formembership and hold observer status. On behalf of its membership, the WTOadministers its own trade agreements. Facilitates future trade negotiations, settles

trade disputes and monitors the trade policies of member nations.

22. What are the sources of conflict and explain the conflictresolution techniques in the international business scenario.

HOST COUNTRY FACTORS: Size and equity


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Sovereignty

Information disclosure

Visibility

Regulation and

competition

Employment

Technology

Balance payment

Taxation

Specific concerns of theless developed countries.

HOME COUNTRY FACTOR:

National security

Dumping

Embargos andsanctions

Exports and importscontrol

BOP

Local industry

Local jobs

COMBINED FACTORS:

Nationality

Business practices

Taxation Local laws

CONFLICT RESOLUTION ACTIONS IN INTERNATIONAL BUSINESSCONTRACT:

It is essential that conflicts in international business e avoided to the extent possible.One of the best ways to avoid conflicts in international business is to have a clearlydrafted contract with all terms and conditions well-understood by both parties.

Resolving dispute:Despite the insertion of all precautionary clauses into a contract , disputes mayemerge. Usually, the method adopted to deal with such situations is either arbitrationor litigation, but there are some interim dispute resolution methods that quicker andless expensive.Local courts. Local remedies :If dispute are not resolved by the informal methods, parties to the contracts have atleast two possible paths of dispute resolution to pursue, commercial litigation andinternational arbitration , which assume that other method of dispute resolution havebeen ineffective.

Principle of comity:The principle of sovereignty provides for international etiquette in the form ofcountries reciprocal respect for each others laws and powers regarding the actions ofcitizens aboard.Litigation :The litigation of international disputes involves the use of courts to apply bothdomestic and international law to resolve conflicts between parties.

23. Explain the role of international agencies in negotiation:Role of international finance corporation-IFC performance standards, common approaches, equator principles-opportunity to

raise standards.-Importance of conflict risk-social and environmental risks

Role of multilateral Investment Guarantee Agency:MIGA promotes foreign direct investment into developing countries by insuringinvestors against political risk, advising governments on attracting investment,sharing information through online investment information services, and mediatingdisputes between investors and governments.

Role of international center for settlement of investment disputes (ICSID) innegotiation: The international center for settlement of investment disputes,wasfound in 1966 pursuant to the convention on the settlement of Investment disputesbetween states and nationals of other states. Its an institution of the world bankgroup. In total, 155 countries had signed the ICSID convention. ICSID has an


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administrative council, chaired by the world Banks president, and a secretariat.

Role of international chamber of commerce in negotiation:The international chamber of commerce is an international organization that works to

promote and support global economy, in the interest of economic growth, jobcreation, and prosperity. As a global business organization, made-up of memberstates, it helps the development of global outlooks on business matters.1. ICC international court of arbitration2. World council, national committees, and international secretariat3. Business actions stopping counterfeit and piracy (BASCAP)

Role of world trade organization in negotiation:Step: 1 Consultation- up to 60 daysStep: 2 The panel-up to 45 days for a panel to appointed, plus 6 months for the panelto conclude:

Before the first hearing

First hearing

Rebuttals

Experts

First draft

Interim report

Review

Final report

Documents

IBM 16 marks