international business management sem iii

04/12/23 Kartikeya Singh

INTERNATIONAL BUSINESS MANAGEMENT

By,–Kartikeya Singh–Assistant Professor–Dewan Institute of Management


Syllabus:-

Unit I - International Business Environment – Globalisation forces, Meaning, dimensions and stages in Globalisation. Introduction to theories of international trade.

Unit II - Country Risk Analysis :- Political Social and Economic Cultural and ethical practices, Hallstead Model. Responsibilities of International Business.

Unit III - Managing Multinational Enterprises :- Problems and Potential, Multinational Service Organisations, Indian Context – Potential, Need, Problems.

Unit IV - Introduction to International Finance Management:- Balance of trade and balance of payment, International Monitory Fund, Asian Development Bank, and World Bank, Financial Markets and Instruments, Introduction to Export and Import Finance, Methods of Payment in international trade, Introduction to Current EXIM policy.

Unit V - Bilateral and Multilateral Trade Laws :- World trade organisation (WTO), IPR, TRIPS,TRIMS,GATS –Ministerial Conferences, Global Sourcing and its impact on Indian Industry – Globalisation and Internal reform Process. India’s Competitive advantage in industries like IT, Textiles, Gems and Jewellary etc. – Potential and Threat.

Case studies. Suggested Readings:-

– 1. International Business Environment – Sundaram and Black– 2. International Business Environment – Bhalla and Raju.– 3. International Business – Rao and Rangachari– 4. International Business Management – Mrs. Jotwani.


Unit I - International Business Environment

Unit I - International Business Environment – Globalisation forces, Meaning, dimensions and stages in Globalisation. Introduction to theories of international trade.



Globalisation – – Charles Hills defines globalization as "The shift towards a more integrated

and interdependent world economy". Globalization has two main components - the globalization of markets and the globalization of production.

– According to International Monetary Fund, globalization means "the growing economic interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital flows and also through the more rapid and widespread diffusion of technology. Interdependency and integration of individual countries of the world is also called as globalization. Globalization integrates not only economies but also societies. The globalization process includes :

Globalization of markets, Globalization of production, Globalization of technology, Globalization of investment.



Characteristics of Globalization :– Difference between domestic market and foreign market tends to

disappear.– Expand the business activities throughout the world.– Buying and selling of goods takes place from and to any country of

the world.– Decision to make any product takes place by considering entire

world as a market.– Necessary inputs are obtained from the entire world.– Formulation of strategies, is based on global approach – It results into rapid increase in interdependence between different

countries in the world.



Characteristics of Globalization– On account of global markets, Customers tend to get highest

value for money. – Globalization promotes formation of trade blocks– On account of liberalization, the focus will be shifted from the

bureaucrat to the businessmen.– Rapid increase in mobility of resources takes place under

globalization. – It tends to remove international trade barriers.– It tends to drive out sick and inefficient companies, but provides

tremendous scope for sound companies.



Advantages or Merits of Globalization :– Affirmation of citizen power .– Access of less developed countries to international market .– The worldwide growing identity crisis .– The emergence of transnational market segments. – Growing power of the large international distributors – The adoption of the socio-ecological view of consumption.– The emergence of an inter-connected Global Economy. – The development of good Corporate Citizenship behavior .



Disadvantages or Demerits of Globalization– It kills domestic business.– It exploits human resources.– It leads to unemployment and under-employment.– It results into decline in demand for domestic products.– It may result into decrease in income. – It widens gap between rich and poor.– It may result into exploitation of natural resources in under-

developed countries.– It may lead to national sovereignty at stake.– It may result into commercial and political colonization.



Stages in Globalisation.– Domestic Company (Stage-

I) – International Company

(Stage-II) – Multinational Company

(MNC) (Stage-III) – Global Company (Stage-

IV) – Transnational Company

(TNC) (Stage-V)



Theories of International Business – Adam Smith's Theory of International Trade.– Ricardian Theory of International Trade.– Hecksher Ohlin Theory of International Trade.– Adam Smith Theory Vs Ricardian Theory

Unit I - International Business Environment – Adam Smith Theory


Country Commodity X Commodity Y

A 10 5

B 5 10

Unit I - International Business Environment - Ricardian Theory of International Trade

Figure pending



Unit II - Country Risk Analysis

Unit II - Country Risk Analysis :- Political Social and Economic Cultural and ethical practices, Hafstead Model. Responsibilities of International Business.


Country analysis basically examines the economic strategy of a particular country.

It takes holistic approach to understand how a country and particularly its government behaved in the past and is behaving and how it will behave in future.

As the government is responsible for providing the framework its working needs to be monitored.

The country analysis basically studies HOW A PARTICULAR GOVERNMENT DOES ITS JOB.



The Concept of Risk : The Oxford English Dictionary defines `risk' as "exposure to a peril". From investor's point of view, risk is exposure to loss.– Country risk may be defined as, an exposure to a loss

in cross border lending, caused by events in a particular country. These events must be at to some extent, under the control of government of that country.



Need for Country Risk Analysis : – To anticipate the behavior of a country.– Estimating the future of any countries prospect.– Try to utilise the opportunity available in the country

otherwise it would be an opportunity loss.– Policy makers also need to do this to attract foreign

investment.– Lending firms usually do this to secure their lending. – Consultant Firms also do this and give rating to the country

and as per their rating firms tend to invest.



Factors Essential for Proper Assessment of Country Risk :

– Conceptual awareness of the factors that have a bearing on country risk.

– Analytical ability to access how these factors work.– Detailed knowledge of the country understudy.– Specialised expertise to predict political variables.– Expertise in using economic forecasting technique to make

short-term and long-term projections. – Skill and experience to draw conclusions about debt

servicing



Political, Social, Cultural and Economical Practices affecting Country Risk Analysis.


Political Factors

Domestic International

A) Political systemB) The political party in powerC) Opposition partiesD) The government system

A) Possibility of system disrupting conflict arising from outside the country

(i) Due to country's own problems.

(ii) Due to treaty and other complications

B) Relations with major trading Partners.C) Relations of the company's home country


Socio Cultural Factors


A. Social GroupsI. Homogeneity of population

a) Ethnicb) Religiousc) Linguisticd) Class

II. Extent of Cohesiveness or diversiveness.

B. General psychology of population.C. Unemployment.D. Political Division of Population.E. Extent of social unrest.

A. Cross Border Ties.I. EthnicII. ReligiousIII. LinguisticIV. Historical.

B. Cross Border ThreatsC. Economic Factors

I. Recession.II. Strikes.III. Lockouts.IV. Rapid increase in costs of

production,

04/12/23Kartikeya Singh


Economic Factors Affecting Country Risk :


A. Growth of economy. B. Trends of investments and savings. C. Frequency of business cycles.D. Extent of economic diversification. E. Inflation

I. Monetary policy. II. Fiscal policy.

F. Strength of local Financial market.

A. Balance of payments.B. International Trade.

I. Importance of foreign trade in GDP.

II. Stability of Trade Earnings.a) Diversity of exportsb) Elasticity of Export

Demand.c) Elasticity of import

Demand.



Economic Factors :

International Capital :

A. Currency : (a) Strength, (b) Stability, (c) Quality of exchange markets, (d) Depth of exchange markets, (e) Extent of controls over exchange markets.

B. Debt : (a) Total, (b) Short-term as percentage of total debt, (c) Debt Service ratio,(d) Debt-Service schedule.

C. International Financial Resources : a) International Revenues, b) International Borrowing capacity.

a) History of depth repayment, b) Credit rating, c) Autonomous capital inflows.




Case Study :-Tata Motors is going places. The company is in the process of becoming a global player. The initiative in this strategy followed by the company is unique as far as Indian industry is concerned.The company has signed an agreement with Rovers U.K. to sell 1,00,000 cars to them in the next five years to be sold under the brand name of Rovers. At the same time, the company is going to sell Indica cars in the European markets under its own brand name as well. Selling cars in Europe is a tough job as it is a well-developed market. Tata's are however confident that this strategy that they are following will definitely work. They have presence in Europe and have been selling Tata Safari and other cars in these markets for sometime now and have a dealer's network and service back up in some countries in this region.On the other hand, the company has just acquired the unit of Daewoo Motors in Korea for making trucks. The acquisition is the first of its kind for the company. This gives the company unrestricted use of Daewoo's brand name, which is popular in China and the South East Asian countries. This acquisition will also help the company take on the challenge posed in the Indian markets by Volvo in truck and passenger bus segments. The company can import the higher range vehicles to India from this Korean facility. The Indian market is on the threshold of growth due to the road projects that are being implemented in the country and also due to the fact that old vehicles are being phased out due to the environmental problems.The company also is seriously planning to enter Chinese markets soon and is negotiating a big tender for supply of trucks to South Africa. Following facts give an idea as to what the company is up to :New-age Tata trucks to roll out in a range of emerging markets like South Africa, China, Brazil and Indonesia. Global sales to contribute 10% of total commercial vehicle business by 2010.Low cost manufacturing base to be leveraged to offer models at prices that are expected to be atleast 25% lower than offered by global majors. On fuel efficiency, A six member team with Italian experts is working on a new design for the cabins. something that European Focus manufacturers do not focus on. Offerings will be in the range of 9 to 49 tones payloads. Acquisition of local companies wherever required. Thus, Tata Motors has developed strategies to be a global player in the near future.


Questions :

1. Analyse the case and state what it means to Indian industries at large.2. Comment on the strategies of the company. Do you think that these strategies will be successful ? Why ?

Unit II – Hofsteade Model

Hofstede's Model of National Culture:

– There is no such thing as a universal management method or management theory, valid across the whole world.

– Even the word management has different origins and meanings in countries throughout the world.

– Management is not a phenomenon that can be isolated from other processes taking place in the society.

– It interacts with what happens in the family, at school, in politics and government.

– It is obviously also related to religion and to beliefs about science.


Unit II – Hofstede Model

The Five Cultural Dimensions of Hofstede :1. Power distance

2. Individualism versus collectivism

3. Masculinity versus femininity

4. Uncertainty avoidance.

5. Long-term versus Shortrterm orientation


Unit II – Hofstede Model


Case incident – 2Seven months after taking over as President of General Motors Asia Pacific, Frederick Henderson came for a visit to India and announced, that his dreamwas to turn the world's biggest car manufacturer into the biggest car marketer in India. G. M. India is a very small player in India right now. It has a plant to produce 25,000 cars, but last fiscal sold only 8,473 cars. It seems to be struck in the slow lane in India. In what will be a first in the Indian automotive industry, G. M. Plans to use its 21 year old global alliance with Suzuki, and a more recent one with Fiat to move into gear. What helps is that G. M. owns 20% stake in both the companies. Combined in India, their purchasing will soar over Rs. 6,1000 crores a year, the dealership and service network will jump to 360, and make it an alliance with the widest range of passenger cars.Apparently, the idea is to create an Indian version of the Global Alliance that the three already have. They can now develop new products, sale each others cars in various market source components together and even enter into joint ventures. In India the alliance will form on the companies sharing each other's products, buying components together in order to cut both components and souring costs, working on the engines and transmissions together, and entering into cross branding agreements.


Ctd..The Indian Automobile Industry is in for a big change. Under the new scheme of things, three players out of 12 players would, for all practical purposes play the game as one. The Alliance could bring to India the world's largest car marker's vast portfolio of brands. And the volumes of Maruti will give the alliance the leeway with vendors to source components cheap and expand markets through Maruti's wide network. Fiat can help Maruti with its quest for Diesel engines, for cars. G. M. and Fiat auto plan to invest $ 1.00 million at Fiat's Ranjangaon facility in order to produce new models and power trains. The Equally Owned joint venture, details of which are being worked out could also become a global ;source of powertrains for small and mid-sized cars. There is little reason to doubt the partnership rolling in India. The Asia-Pacific region is after all, the fastest growing car market. Ravi Khanna, country President arid M. D. Delphi Automotive Systems (INDIA), "Globally, the auto industry is now more agile as a result of consolidation. In India, circumstances may be peculiar or unique, but the pattern can be seen quite clearly.


1. Analyse the case from the Globalization point of view.2. What opportunities do you see for Indian companies in

this ?3. How do you think other MNC's in this market

will/should react to this development?


Ans. 1. G. M. India is a very small player in India right now. It has a plant to produce 25,000 cars, but last fiscal sold only 8,473 cars. It seems to be struck in the slow lane in India.In what will be a first in the Indian automotive industry, G. M. plans to use its 21 year old global alliance with Suzuki, and a more recent one with Fiat to move into area. What helps is that G. M, owns 20% stake in both the companies. Combined in India, their purchasing. wi11 soar over Ps. 6,1000 crores a year, the dealership and service network will jump to 360, and make it an alliance with the widest range of passenger cars. Apparently, the idea is to create an Indian version of the global alliance that the three already have. They can now develop new products, sale each others. cars in various market source components together and even enter into joint ventures. In India the alliance will form on the companies sharing each other's products, buying components together in order to cut both components and sourcing costs, working on the engines and transmissions together, andentering into cross branding agreements.General Motor adopted this alliance strategy due to the various benefits of Globalization offered to it., viz. (a) Access to wide range of markets. (b) Acquiring the benefits of economies of large scale. (c) Specialised division of labour. (d) Optimum use of global resources. (e) Eliminating the Stiff Competition. (f) Reduced impact of business cycles.


Ans 2.Opportunities for Indian Companies in this Alliance :1.The Alliance could bring to India the world's largest car. maker's vast portfolio of brands.2.The Alliance could provide opportunities to the domestic companies in die form of modern technology, market intelligence, product development, management expertise etc.3.The Alliance could provide the competitive strength to the Indian companies.4.The Alliance could provide sound base for the development of the ancillary industries in a country like India in a significant way.Ans 3.Other MNCs in the Car Segment/Car Market definitely react to the strategic alliance of General Motor with Maruti Suzuki and Fiat. Many other MNCs in this field may also adopt the same strategy to expand their market base and to achieve the -following objectives :1.To meet the import needs.2.To increase the production.3.To reduce the cost drastically.4.To finance the development plans and mobilization of domestic sources.5.To have optimum utilization of resource etc.


Unit II - Responsibilities of International Business

Global Markets Global Technology

Markets Global Production

Resources Global Competition Time based Global

Competition Global Customers Government Actions



Relaaaaxxxxx....End of Unit 2….!!!

Unit III

Managing Multinational Enterprises :- Problems and Potential, Multinational Service Organisations, Indian Context – Potential, Need, Problems.


Unit III - Multinational Enterprise/Multinational Corporations (Meaning)

A multinational Enterprise is an organization, which carries on business activities in many countries.

Multinational Enterprise are giant enterprises, which have headquarters in one country, mostly in developed capitalist country and their business activities are spread not only within the country of origin but also in other countries


Unit III – Nature and scope of Multinational Enterprises.

Scarce Capital Transfer of Technology Core Sector lines which

requires huge investment. Export oriented

production. Employment

Opportunities Latest Technology /

Increase in Standard of Living

Improvement in the Balance of Payment

Adequate Achievement Corporate Objectives Increase Industrial

Productions and National Productivity

Large Scale. Production Profit-making Enterprises Industrial Development Manpower Development Potential of Diversification Development of

Professionalism


Unit III – Factors responsible for the growth of multinational enterprises.

Product Innovation Technological

Superioritya) Severe Competitionb) Solution for

underdevelopment.c) Insufficient resourcesd) Inability to exploit

manpower, materials, money etc.

Market Superiorities Financial

Superiorities Expansion of

market.


Unit III – Importance of multinational enterprises.

Transfer of Capital. Transfer of super

technology. Effect on balance of

payment. Linkage effects. Development of Human

Resources Capital. Employment

Opportunities. Overall development of

the economy.


Unit III - Problems of Multinational Enterprises

Transfer of Technology a Costly Affair

Profit Oriented Production of Non-

essential Goods Promote Regional

Disparities Corrupt Practices Exploitation of Labour Exploitation of natural

resources.


Unit III - Features of Multinational Enterprises

Giant Size Centralized

Management Number of Activities

Undertaken Dominate Global Trade Governed by Local

Laws Competitive Prices Excellent Quality


Unit III - Indian Companies Becoming Multinational – Growth Story

A growth story :- See text box for the story…


Unit III - Various Problems Faced by Indian Companies while becoming Multinationals

1. Managing in Multinational Environment.2. Heading Differences.3. Adjusting Management Process.

a) Planningb) Organisingc) Staffingd) Controllinge) Leadershipf) The Internationalization of Management


Unit III – Multinational Service Organisation.

Service Sector Entry Mode

Hotels, Restaurants, Fast food Management contract or Franchising

Engineering or Agricultural Services Partnership or Minority Joint Venture

Professional Services Like Accounting, Consulting or legal Services

Non – Equity arrangement like Partnership

Banking Services, Insurance Services. Franchising.


Unit III – Relax – End of Unit III.


Relaaaaxxxxx…….

Unit V – Bilateral and Multilateral Trade Laws.

Bilateral and Multilateral Trade Laws :- World trade organisation (WTO), IPR, TRIPS,TRIMS,GATS –

Ministerial Conferences Global Sourcing and its

impact on Indian Industry – Globalisation and Internal reform Process. India’s Competitive advantage in industries like IT, Textiles, Gems and Jewellary etc. – Potential and Threat.

Case studies.



A bilateral trade agreement usually includes a broad range of provisions regulating the conditions of trade between the contracting parties. These include

– stipulations governing customs duties and other levies on imports and exports,

– commercial and fiscal regulations, – transit arrangements for merchandise, – customs valuation bases, – administrative formalities, – quotas, and – various legal provisions



Multilateral trade agreements are between many nations at one time. For this reason, they are very complicated to negotiate, but are very powerful once all parties sign the agreement. The primary benefit – is that all nations get treated equally,– and so it levels the playing field, – especially for poorer nations that are less

competitive by nature.


Unit V - Bilateral and Multilateral Trade Laws


Unit V – GATT – General agreement on Tariff and Trade.

The prolonged recession before the World war II in the west was due to the decades of protectionism followed by the industrialized countries. This led to conduct of negotiations in 1947 among 23 countries in order to prevent the protectionist policies and to revive the economies from the recession. These negotiations of the conferences resulted in the General Agreement on Tariffs and Trade (GATT) among the participating countries. Thus GATT has its origin in 1947 at the conference of Geneva.


Unit V – GATT – General agreement on Tariffs and Trade.


URUGUAY ROUND AND ARTHUR

DUNKEL PROPOSAL


Unit V – Uruguay Round Package

The draft proposals proposed by Arthur Dunkel in the Uruguay Round of GATT include1. Market Access.2. Agriculture.3. Trade Related Intellectual Property

Rights(TRIPs).4. Trade Related Investment Measures (TRIMs)5. Trade in Services.6. Textile.7. Institutional Matter.


Unit V – Uruguay Round Package – 1.Market Access

– Arthur Dunkel suggested that the Government control in marketing activities and operation will have to be slackened. The member Governments will have to abolish the barriers related to the market access.

– First, Both developing and developed countries agreed to significantly increase their share of industrial product imports.

– Second, The average tariff on developed countries’ imports of industrial products was cut by 40 per cent on imports from all sources, and by 37 per cent on imports from developing countries.

– Third, substantial progress was made with regard to non-tariff barriers


Unit V – Uruguay Round Package – 2. Agriculture

Member Government are suggested to reduce the subsidy on fertilizers, seeds and other inputs and eliminate the administered pricing in respect to agricultural sector.

The proposal include :- How a country can remove his subsidy in different phases. A supplementary agreement on the modalities by which

subsidy would be removed. A decision on application of sanitary and phycosanitary

measures and A declaration on measures to assist for food importing

countries.


Unit V – Uruguay Round Package – 2. Agriculture


Total Aggregate Measurement of Support (AMS)

De Minimis –Minimum Limit

5% - Developed Countries

10% - Developing Countries

Unit V – Uruguay Round Package - 3. TRIPs Trade Related Intellectual Property Rights

Dunkel proposal regarding trade intellectual property rights (TRIPs) in respect of business and commerce include :– Protection of patents – 20 years– Copy rights – 50 years– Design – 10 years– Trade Marks – 7 years– Trade Secrets -


Unit V – Uruguay Round Package – 4. TRIMS - Trade Related Investment Measures

– Abolition of Restrictions imposed on foreign capital.– Offering equal rights to the foreign investor equal to

those of the domestic investor.– No restriction on investment– No limitations or ceiling on the quantum of foreign

investment.– Granting of permission without restrictions to import

raw materials and other companies.– No force on the foreign investors to use total products

or materials.


Unit V – Uruguay Round Package – 5. Trade in Services.

Trade in services like, insurance, travel, tourism, hotel, banking, maritime, transportation, mobility of human resources etc. have been included in the proposal

GATS – General agreement in Trade in services provides a multilateral framework of principles and services.

GATS governs trade in services.


Unit V – Uruguay Round Package – 6. Textile.

An attempt was made to re-integrate textile into GATT in order to do away with Multi Fiber Arrangement.(MBA).

Textile was included in Dunkel Proposal

Developed countries dismantled the import quotas on garment and textile from 1st January, 2005.

Strategies for Textile firms.

– Product Specialization– Cross-border cooperation– Improve sourcing skills – Focus on higher value

products– More flexible rules of

origin– Interregional Cooperation– Creation of Conducive

Environment.


Unit V – Uruguay Round Package – 7. Institutional Matter.

It handles the grievances of two participating nations.

Try to remove barriers to trade Try to implement guidelines of the

WTO/GATT. Takes care of the breach of the law.


Unit V – WTO – 1st Ministerial Conference

Singapore, 9th December, 1996.(128 countries)

Reaffirmation of International labour organisation work.

Rejected the use of labour standards for projectionist purposes.

Understanding of dispute settlement procedure.

Work group for conducting a study on transparency in government procurement practices,

Establish a working group to examine the relation between trade and investment.

Organise a meeting with UNCTAD(UN conference on trade development), to help developing countries.

Talks related to TRIMs


Unit V – WTO – 2nd Ministerial Conference

Geneva, 18th May, 1998 (132 countries)– Setting up of a mechanism to

ensure full and faithful implementation of existing multilateral agreements.

– Rejection of projectionist measures and accepting for open and transparent rule-based trading system.


Unit V – WTO – 3rd Ministerial Conference

Seattle, 3rd December, 1999, (135 countries).

– This meeting was a failure.– Dispute erupted on transparency and

imposition of the views of the rich countries.– Major contention was of exploitation.– Protestors called it a “wrong trade

organisation”.– Reason for the failure:-

American reluctance on inclusion of labour standards

European Union was reluctant to liberalise agriculture.


Unit V – WTO – 4th Ministerial Conference

Doha, Qatar, 9-13 November, 2001,(142 countries).

Declaration included :– Reduction in Industrial tariffs– Phasing out of agriculture export subsidies.– Promoting the trade in services– Providing special and differential treatment

for developing countries.– Negotiations on setting up a multilateral

agreement on transparency in government procurement.

– Negotiations to further expedite movement, release and clearance of goods.



Cancun, Mexico, 10 to 14 September 2003,

– TRIPS and public health– Geographical indications in general– Geographical indications: the

multilateral register for wines and spirits

– Geographical indications: extending the “higher level of protection” beyond wines and spirits

– Reviews of TRIPS provisions.– Non-violation complaints.– Technology transfer



Hong Kong on December – 13-18, 2005.


Unit V – WTO and the India.

A growth Story….


Unit V – WTO and India

Favorable Impact :- a) Increase in export earnings

• Growth in merchandise exports.• Growth in Service exports.

b) Agricultural Exportc) Textile and clothingd) Foreign Direct Investmente) Multilateral rule and discipline.


Unit V – WTO and India

Unfavorable Impact :-I. TRIPS

Pharma companies Agricultural output. Micro ornanism

II. TRIMSIII. GATS.IV. Trade and Non-Tariff BarrierV. LDC Exports..


Unit V – WTO and Anti Dumping Measures.

Dumping :- The sale of goods abroad at a price which is lower than the selling price of same goods at the same time in the same circumstances at home, taking account of difference in transport costs.

Dumping means selling the product at below the on going market price and or at the price below the cost of production.


Unit V – Impact of Globalisation


Unit V – WTO members..

List of WTO Members


international business management sem iii

Documents

international market

international companystage

international business

international trade

globalization of markets

globalization process

globalization of technology

globalization of production