MBAR International Business

Paper Code: MBA- 209    Paper Title:         INTERNATIONAL BUSINESS

 (i)           What is the difference between global and international business?

ANS- Global marketing and international marketing aren't the same thing, even though many marketers treat them the same way, as I witness every day. International marketing means that marketing decisions are made in the individual countries, with staff who is the most knowledgeable about the target markets. Global marketing views the whole world as one, and creates products that will only require weeks to fit into any regional marketplace.

(ii)    State the difference between centralized and decentralized structure.

ANS-                 Centralized organizational structures rely on one individual to make decisions and provide direction for the company. Small businesses often use this structure since the owner is responsible for the company’s business operations.

Decentralized organizational structures often have several individuals responsible for making business decisions and running the business.

(iii)          What is balance of payment?

ANS- According to the RBI, balance of payment is a statistical statement that shows

1. The transaction in goods, services and income between an economy and the rest of the world,

2. Changes of ownership and other changes in that economy’s monetary gold, special drawing rights (SDRs), and financial claims on and liabilities to the rest of the world, and

3. Unrequited transfers

(iv)          Write any two barriers of international business?

ANS- Cultural and social barriers:

  A nation’s cultural and social forces can restrict international business. Culture consists of a country’s general concept and values and

tangible items such as food, clothing, building etc. Social forces include family, education, religion and custom. Selling products from one country to another country is sometimes difficult when the culture of two countries differ significantly. 2.

Political barriers:

The political climate of a country plays a major impact on international trade. Political violence may change the attitudes towards the foreign firms at any time. And this impact can create an unfavorable atmosphere for international business.

(v)           Write any two importance of logistic management?

ANS- An effective logistics management operation should yield 4 key results:

1. Increase revenue
2. Improve operating cost structure
3. Reduce overall transportation costs
4. Improve customer service

When the stars align and all of your logistics processes are streamlined, you should expect to see these results where they matter most: your bottom line.  

Q. 2.        Explain the economic and political environment which effect international business.

ECONOMIC ENVIRONMENT

Consumer Confidence

Consumer confidence is an economic indicator that measures overall consumer optimism about the state of the economy. Confident consumers tend to be more willing to spend money than consumers with low confidence, which means businesses are more likely to prosper when consumer confidence is high. Periods of high consumer confidence can present opportunities for new businesses to enter the market, while period of low confidence may force companies to cut costs to maintain profits.

Employment

The economy tends to follow a business cycle of economic booms followed by periods of stagnation or decline. During boom periods, jobs tend to be plentiful, since companies need workers to keep up with demand. When unemployment is low, consumer spending tends to be high because most people have income to spend, which is good for businesses and helps drive growth. When unemployment is high, consumer spending tends to be low because unemployed people don't have excess income to spend.

Interest Rates

An interest rate is the amount that a lender charges an individual or business to borrow money. Some small businesses rely on loans from banks or other financial institutions as a source of financing. Higher interest rates result in higher total business expenses for companies with debt. High interest rates can also reduce consumer spending, because high rates make it more expensive for consumers to take out loans to buy things like cars and homes.

Inflation

Inflation is the rate at which prices in the economy are increasing. Inflation causes increases in business expenses such as rent, utilities, and cost of materials used in production

 POLITICAL ENVIRONMENT

There are many external environmental factors that can affect your business. It is common for managers to assess each of these factors closely. The aim is always to take better decisions for the firm’s progress. Some common factors are political, economic, social and technological (known as PEST analysis). Companies also study environmental, legal, ethical and demographical factors.

The political factors affecting business are often given a lot of importance. Several aspects of government policy can affect business. All firms must follow the law. Managers must find how upcoming legislations can affect their activities.

The political environment can impact business organizations in many ways. It could add a risk factor and lead to a major loss.  You should understand that the political factors have the power to change results. It can also affect government policies at local to federal level. Companies should be ready to deal with the local and international outcomes of politics.

Q. 3.        Explain global business planning system in detail.

Global business plans resemble local and regional business plans in format. Global business plans differ from other business plans by serving as a company's communications vehicle for its global operations. Components of a global business plan, which differ from other focus on global customers, global pricing and currency issues, and international market legal factors, to name a few distinctions listed by Allegro Invest. The University of Houston Small Business Development Center offers workshops and seminars on all aspects of small business development, including creating business plans (See References). Executive Summary Component

An executive summary describes the owner's goals and targets. An executive summary includes components, including but not limited to, a business overview, which describes the company, the projected market and the intended product or service. Include financial results, such as capital growth and profits, advises Allegro Invest. Provide any investment requirements for business operations. In an example offered by the website, BPlansWest, Pacific Marketing opens its Executive Summary, "West Pacific Marketing Consultants aims to provide marketing services to targeted business environments in Indonesia, Asia, and the west Pacific region."

Market Description

A market description for a global business reflects an in-depth international market study and offers analysis of the study findings. Key factors in a market description for an international company include "market size, share positioning of products, and competition, explains Allegro Invest. Allegro Invest advises entrepreneurs and executives to energetically research their targeted international market (See References).

Operations And Management Component

An Operations and Management Plan discusses operation factors. Operations components include, but are not limited to supply, production, marketing and distribution. This section will distinguish itself from a non-global business plan. You will discuss your research into the complexities of the global markets you are targeting, including how you plan to supply your product or service in targeted countries. If you plan to produce your product overseas, explain that dynamic here. Explain how you plan to market to the countries you will initially introduce your company. 

Internal Assignment No. 2

Q. 1.        Answer all the questions:

(i)            Write any two motivating factors of international business.

Growth and Profitability - A lot of companies turn to global markets for growth. 

Economics of Scale - Expanding size and scope of markets help to achieve economies of scale. International approaches give economies of scale while sharing of costs and risks between markets. Economies of scale occur when the unit cost of a product declines as production volume increases

(ii)           Define small scale industry?

Small scale industries (SSIs) also known as MSMEs are defined & categorized by the Micro, Small & Medium Enterprises Development Act, 2006. The act categorizes different scale of industries on the basis of investment in plant & machinery in case of manufacturing industries and on the basis of investment in equipment in case of service sector industries. Small Scale Enterprise: Manufacturing enterprises in which investment in plant & machineries is more than Rs 25.00 lakhs but does not exceed Rs 5.00 crores and service sector industries in which investment in equipment is more than Rs 10.00 lakhs but does not exceed Rs 2.00 crores are termed as small-scale enterprises.

(iii)          What is FDI?

Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company. Foreign direct investments are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies.

(iv)          Write any two characteristics of ethnocentrism.

Ethnocentrism is judging another culture solely by the values and standards of one's own culture. Ethnocentric individuals judge other groups relative to their own ethnic group or culture, especially with concern for language, behavior, customs, and religion. These ethnic distinctions and subdivisions serve to define each ethnicity's unique cultural identity. William G. Summer defined it as "the technical name for the view of things in which one's own group is the center of everything, and all others are scaled and rated with reference to it.

He further characterized ethnocentrism as often leading to pride, vanity, belief in one's own group's superiority, and contempt of outsiders.This may occur because of the differences of people between in-groups and out-groups. Ethnocentrism is explained in the social sciences and the genetics

(v)           What is trade block?

Historic trading blocs include the Hanseatic League, a Northern European economic alliance between the 12th and 17th centuries, and the German Customs Union, formed on the basis of the German Confederation and subsequently the German Empire from 1871. Surges of trade bloc formation occurred in the 1960s and 1970s, as well as in the 1990s after the collapse of Communism. By 1997, more than 50% of all world commerce was conducted within regional trade blocs. Economist Jeffrey J. Schott of the Peterson Institute for International Economics notes that members of successful trade blocs usually share four common traits: similar levels of per capita GNP, geographic proximity, similar or compatible trading regimes, and political commitment to regional organization.

Note: Answer any two questions. Each question carries 5 marks (Word limits 500)

Q. 2.        Explain various stages of international business.

Stage 1: Domestic-market establishment The domestic market is often an appropriate place to test products and fine-tune performance before tackling the complexities of international trade. It can also give a good indication of performance.

Stage 2: Export research and planning When companies begin trading abroad, they often target a country similar to their own in language, financial structures, legal and economic systems or culture.

Stage 3: Initial export sales When implementing an export plan, it’s advisable to begin modestly by testing the market. A graduated strategy enables the novice exporter to acquire practical experience in a market without incurring unnecessary or unmanageable risk.

Stage 4: Expansion of international sales If initial sales have been good, planning for larger orders and expanded activity should follow. This stage is usually accompanied by intensified market research, more aggressive participation in international trade shows and other marketing activities and greater emphasis on strengthening networks and contacts in the target market.

Stage 5: Investment abroad If sales are brisk, profits encouraging and opportunities promising, the company may choose to expand its presence in the target market. It can, for example, open a local office, tighten relations with local partners, buy an existing local company, form a joint venture or invest in R&D or production facilities.

Q. 3.        Explain the problems and remedial measures of small scale industry.

Small Scale Industries do not enjoy much of the advantages enjoyed by large scale enterprises because of their nature and size. Though they have made significant contribution to economic development, they have not realized their full potential. They face many problems in their functioning and many Small Scale Industries are sick.

The government had reserved certain items for exclusive production by Small Scale Industries. Large scale enterprises were not allowed to produce the items which were reserved for the SSI sector. With the opening up of the economy and following the principles of liberalization and globalization, many items have been successively De-reserved. Therefore Small Scale Industries have to now counter the twin forces of competition from Indian large scale enterprises as well as foreign competitors.

Problems faced by Small Scale Industries

The following are the problems faced by Small Scale Industries:

1. Poor capacity utilization

In many of the Small Scale Industries, the capacity utilization is not even 50% of the installed capacity.

2. Incompetent management

Many Small Scale Industries are run in an incompetent manner by poorly qualified entrepreneurs without much skill or experience.

3. Inadequate Finance

Many Small Scale Industries face the problem of scarcity of funds. They are not able to access the domestic capital market to raise resources. 

4. Raw material shortages

Raw materials are not available at the required quantity and quality. Since demand for raw materials is more than the supply, the prices of raw materials are quite high which pushes up the cost.

5. Lack of marketing support

Small Scale Industries lack market knowledge with regard to competitors, consumer preferences, market trends. Since their production volume is small and cannot meet demand for large quantities their market is very restricted

In this connection, the following measures may be suggested:

1. Equitable allocation of raw materials, imported components and equipment.

2. Improvement in the methods and techniques of production.

3. Provision for adequate finance.

4. Marketing assistance.

5. Provision for industrial education and training.

6. Demarcating spheres for large-scale and small-scale units.