PROGRAM MBA

SEMESTER 4th

SUBJECT CODE & NAME

MB0053 – INTERNATIONAL BUSINESS MANAGEMENT

Ques 1 : Explain the different international trade theories

A) Mercantilism- Mercantilism is the main economic system used during the sixteenth to eighteenth centuries. The main goal was to increase a nation's wealth by imposing government regulation concerning all of the nation's commercial interests. MERCANTILISM is one of the great whipping boys in the history of economics. The school, which dominated European thought between the 16th and 18th centuries, is now considered no more than a historical artefact—and no self-respecting economist would describe themselves as mercantilist. The dispatching of mercantilist doctrine is one of the foundation stones of modern economics. Yet its defeat has been less total than an introductory economics course might suggest.

At the heart of mercantilism is the view that maximising net exports is the best route to national prosperity. Boiled to its essence mercantilism is “bullions”: the idea that the only true measure of a country’s wealth and success was the amount of gold that it had. If one country had more gold than another, it was necessarily better off. This idea had important consequences for economic policy. The best way of ensuring a country’s prosperity was to make few imports and many exports, thereby generating a net inflow of foreign exchange and maximising the country’s gold stocks.

B) Absolute advantage theory - In economics, the principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources. Adam Smith first described the principle of absolute advantage in the context of international trade, using labor as the only input. Since absolute advantage is determined by a simple comparison of labor productiveness, it is possible for a party to have no absolute advantage in anything in that case, according to the theory of absolute advantage, no trade will occur with the other party. It can be contrasted with the concept of comparative advantage which refers to the ability to produce specific goods at a lower opportunity cost. Smith argued that it was impossible for all nations to become rich simultaneously by following mercantilism because the export of import and instead stated that all nations would gain simultaneously if they practiced free trade and specialized in accordance with their absolute advantage.[1] Smith also stated that the wealth of nations depends upon the

goods and services available to their citizens, rather than their gold reserves. While there are possible gains from trade with absolute advantage, the gains may not be mutually beneficial. Comparative advantage focuses on the range of possible mutually beneficial exchanges.

C) Comparative advantage theory- The classical theory of international trade

is popularly known as the Theory of Comparative Costs or Advantage. It was

formulated by David Ricardo in 1815.

The classical approach, in terms of comparative cost advantage, as presented

by Ricardo, basically seeks to explain how and why countries gain by trading.

The idea of comparative costs advantage is drawn in view of deficiencies

observed by Ricardo in Adam Smith’s principles of absolute cost advantage in

explaining territorial specialisation as a basis for international trade.

Being dissatisfied with the application of classical labour theory of value in the

case of foreign trade,

Ricardo developed a theory of comparative cost advantage to explain the

basis of international trade as under:

Ricardo’s Theorem:

Ricardo stated a theorem that, other things being equal, a country tends to

specialise in and export those commodities in the production of which it has

maximum comparative cost advantage or minimum comparative

disadvantage. Similarly, the country’s imports will be of goods having relatively

less comparative cost advantage or greater disadvantage.

To explain his theory of comparative cost advantage, Ricardo

constructed a two-country, two-commodity, but one-factor model with

the following assumptions:

1. Labour is the only productive factor.

2. Costs of production are measured in terms of the labour units involved.

3. Labour is perfectly mobile within a country but immobile internationally.

4. Labour is homogeneous.

5. There is unrestricted or free trade.

6. There are constant returns to scale.

7. There is full employment equilibrium.

8. There is perfect competition.

Under these assumptions, let us assume that there are two countries A and В

and two goods X and Y to be produced.

D) Product lifecycle theory - The International product life cycle, which was developed by the economist Raymond Vernon in 1966, is still a widely used model in economics and marketing.

Products enter the market and gradually disappear again. According to Raymond Vernon , each product has a certain life cycle that begins with its development and ends with its decline.

According to Raymond Vernon there are four stages in a product’s life cycle: “introduction”, “growth”, “maturity” and “decline”. The length of a stage varies for different products, one stage of the product life cycle may last some weeks while others even last decades. This shows that the product life cycle is very similar to the diffusion of innovation model  that was developed by Everett Rogers in 1976. The life span of a product and how fast it goes through the

entire cycle depends on for instance market demand and how marketing instruments are used.

There are three stages of product lifecycle -When an organization has developed a product successfully, it will be introduced into the national (and international) outlet. In order to create demand, investments are made with respect to consumer awareness and promotion of the new product in order to get sales going. At this stage, profits are low and there are only few competitors. When more items of the product are sold, it will enter the next stage automatically.

GrowthIn this stage the demand for the product increases sales. As a result, the production costs decrease and high profits are generated. The product becomes widely known, and competitors will enter the market with their own version of the product. Usually, they offer the product at a much lower sales price. To attract as many consumers as possible, the company that developed the original product will still increase its promotional spending. When many potential new customers have bought the product, it will enter the next stage

MaturityIn the maturity stage of the Product life cycle, the product is widely known and is bought by many consumers. Competition is intense and a company will do anything to remain a stable market leader. This is why the product is sold at record low prices. Also, the company will start looking for other commercial opportunities such as adaptations or innovations to the product and the production of by-products. Furthermore, consumers will also be encouraged to replace their current product with a new one. There is fear of decline of the product and therefore all the stops will be pulled out in order to boost sales. The marketing and promotion costs are therefore very high in this stage.

declineAt some point, however, the market becomes saturated and the product is no longer sold and becomes unpopular. This stage of the Product life cycle can occur as a natural result but can also be stimulated by the introduction of new and innovative products. Despite its decline in sales, companies

continue to offer the product as a service to their loyal customers so that they will not be offended.

E) Porter’s diamond model- Porter called the answers to these questions the determinants of national competitive advantage. He suggested that there are four main factors which determine national competitive advantage and expressed them in the form of a diamond.

Favourable factor conditions include the following:

(i)physical resources such as land, minerals and weather

(ii) capital

(iii)human resources such as skills, motivation, price and industrial relations

(iv)knowledge that can be used effectively

(v) infrastructure.

Porter also found that countries with factor disadvantages were forced to innovate to overcome these problems, e.g.Japanese firms experienced high energy costs and were forced to develop energy efficient products and processes that were subsequently demanded worldwide.

Demand Conditions

There must be a strong home market demand for the product or service.

This determines how industries perceive and respond to buyer needs and creates the pressure to innovate. A compliant domestic market is a disadvantage because it does not force the industry to become innovative and excellent.

Related and supporting industries

The success of an industry can be due to its suppliers and related industries.

Sweden's global superiority in its pulp and paper industries is supported by a network of related industries including packaging, chemicals, wood-processing, conveyor systems and truck manufacture. Many of these supporting industries have also achieved leading global positions.

Firm strategy, structure and rivalry

Organisational goals can be determined by ownership structure. Unquoted companies may have slightly longer time horizons to operate in because their financial performance is subject to much less scrutiny than quoted companies. They may also have different 'return on capital' requirements.

Porter found that domestic competition was vital as a spur to innovation and also enhanced global competitive advantage. Conversely, where governments have encouraged mergers to get the critical mass required to be a global player, these national monopolies have not, on the whole, been successful in establishing a global position.

Ques.2- Hofstede said “Culture is more often a source of conflict than of synergy”. Discuss this statement and explain the five cultural dimensions.

Ans- Hofstede's cultural dimensions theory is a framework for cross-cultural communication, developed by Geert Hofstede. It describes the effects of a society's culture on the values of its members, and how these values relate to behavior, using a structure derived from factor analysis.[1]

Hofstede developed his original model as a result of using factor analysis to examine the results of a world-wide survey of employee values by IBM between 1967 and 1973. It has been refined since. The original theory proposed four dimensions along which cultural values could be analyzed: individualism-collectivism; uncertainty avoidance; power distance (strength of social hierarchy) and masculinity-femininity (task orientation versus person-orientation). Independent research in Hong Kong led Hofstede to add a fifth dimension, long-term orientation, to cover aspects of values not discussed in

the original paradigm. In 2010 Hofstede added a sixth dimension, indulgence versus self-restraint.

Hofstede's work established a major research tradition in cross-cultural psychology and has also been drawn upon by researchers and consultants in many fields relating to international business and communication. The theory has been widely used in several fields as a paradigm for research, particularly in cross-cultural psychology, international management, and cross-cultural communication. It continues to be a major resource in cross-cultural fields. It has inspired a number of other major cross-cultural studies of values, as well as research on other aspects of culture, such as social beliefs

Five cultural dimensions are:

Power distance index (PDI): The Power Distance Index is defined as “the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally.” In this dimension, inequality and power is perceived from the followers, or the lower level. A higher degree of the Index indicates that hierarchy is clearly established and executed in society, without doubt or reason. A lower degree of the Index signifies that people question authority and attempt to distribute power.

Individualism vs. collectivism (IDV): This index explores the “degree to which people in a society are integrated into groups.” Individualistic societies have loose ties that often only relates an individual to his/her immediate family. They emphasize the “I” versus the “we.” Its counterpart, collectivism, describes a society in which tightly-integrated relationships tie extended families and others into in-groups. These in-groups are laced with undoubted loyalty and support each other when a conflict arises with another in-group.

Uncertainty avoidance index (UAI): The Uncertainty Avoidance Index is defined as “ a society's tolerance for ambiguity,” in which people embrace or avert an event of something unexpected, unknown, or away from the status quo. Societies that score a high degree in this index opt for stiff codes of behavior, guidelines, laws, and generally rely on absolute Truth, or the belief that one lone Truth dictates everything and people know what it is. A lower degree in this index shows more acceptance of differing thoughts/ideas. Society tends to impose fewer regulations, ambiguity is more accustomed to, and the environment is more free-flowing.

Masculinity vs. femininity (MAS): In this dimension, masculinity is defined as “a preference in society for achievement, heroism, assertiveness and material rewards for success.” Its counterpart represents “a preference for cooperation, modesty, caring for the weak and quality of life.” Women in the respective societies tend to display different values. In feminine societies, they share modest and caring views equally with men. In more masculine societies, women are more emphatic and competitive, but notably less emphatic than the men. In other words, they still recognize a gap between male and female values. This dimension is frequently viewed as taboo in highly masculine societies.

Long-term orientation vs. short-term orientation (LTO): This dimension associates the connection of the past with the current and future actions/challenges. A lower degree of this index (short-term) indicates that traditions are honored and kept, while steadfastness is valued. Societies with a high degree in this index (long-term) views adaptation and circumstantial, pragmatic problem-solving as a necessity. A poor country that is short-term oriented usually has little to no economic development, while long-term oriented countries continue to develop to a point.

Indulgence vs. restraint (IND): This dimension is essentially a measure of happiness; whether or not simple joys are fulfilled. Indulgence is defined as “a society that allows relatively free gratification of basic and natural human desires related to enjoying life and having fun.” Its counterpart is defined as “a society that controls gratification of needs and regulates it by means of strict social norms.” Indulgent societies believe themselves to be in control of their own life and emotions; restrained societies believe other factors dictate their life and emotions.

Q3. Regional integration is helping the countries in growing their trade. Discuss this statement. Describe in brief the various types of regional integrations.

Answer 3:

Regional integration:

Regional integration is the process by which two or more nation-states agree to co-operate and work closely together to achieve peace, stability and wealth. It results in the creation and diversion of trade. It supports overall growth of the region, coupled with efficient trading practices. Trade creation increases production and income and also leads to new entrants in the market and, therefore, results in tougher competition. The transfer of technology is also faster.

It includes reduction on traffic and prohibitions. It spread goodwill among member countries and also helps in reducing the chances of conflict.

Types of Regional Integration:

1. Preferential trading agreement: It gives preferential access to certain products from the participating countries. This can be called as a limited or sector based free trade area.

2. Free trade area: It includes the reciprocal removal of tariffs on member countries’ goods. In an FTA, each member is free within the limits specified by theGATT/WTO system on deciding the level of external tariffs that will be applied tononmembers. As there is flexibility on the interactions with the third countries, themembers in an FTA are free to establish or join other FTAs.

3. Custom union: It is a type of agreement that include determination of the common external tariff (CET), in addition to the elimination of the internal tariff rates. Generally, determination of the CET is done through taking an average of all partners before union tariff levels.

4. Common market: It is where there is free factor mobility –capital, investment and labor– in addition to the customs union requirements that determine free flows of goods and services. This integration requires governments to employ coordinated actions in order to ensure the equal treatment for all factors in the member countries of the CM.

5. Economic union: It results from the enlargement of a common market with the additional requirement of the harmonization of economic policies, both monetary and fiscal. It further involves the creation of an independent regional central bank that has control over exchange rate policy and inflation rates.

6. Political union: It is a type of agreement which includes theharmonization of economic and political policies, and so as to become a single

state. This kind of integration necessitates the loss of sovereignty and the creationof domestic institutions on the international level.

Ques 4- Write short note on: a) Foreign currency derivatives - foreign exchange derivative is a financial derivative whose payoff depends on the foreign exchange rate(s) of two (or more) currencies. These instruments are commonly used for currency speculation and arbitrage or for hedging foreign exchange risk. Currency derivative is defined as s financial as a financial contract in order to swap two currencies at a predestined rate. It can also be termed as the agreement where the value can be determined from the rate of exchange of two currencies at the spot. The currency derivative trades in markets correspond to the spot (cash) market. Hence, the spot market exposures can be enclosed with the currency derivatives. The main advantage from derivative hedging is the basket of currency available.

Some of the risks associated with currency derivatives are:

Credit risk takes place, arising from the parties involved in a contract. Market risk occurs due to adverse moves in the overall market. Liquidity risks occur due to the requirement of available counter parties

to take the other side of the trade. Settlement risks similar to the credit risks occur when the parties

involved in the contract fail to provide the currency at the agreed time.

b) bases of international tax systems- Countries that tax income generally use one of two systems: territorial or residential. In the territorial system, only local income – income from a source inside the country – is taxed. In the residential system, residents of the country are taxed on their worldwide (local and foreign) income, while nonresidents are taxed only on their local income. In addition, a very small number of countries, notably the United States, also tax their nonresident citizens on worldwide income. The bases of international tax system are: Tax neutrality- The neutrality of international tax system is important because it must not affect the economic efficiency. If the tax is neutral thenit will not influence the locality of the investment or nationality of the investor. The capital can shift from a nation with lesser return to a nation with higher return. Therefore, resources will be allocated well, and the gross world output in turn will be high. Tax equity- The principle of tax equity states that all equally positioned taxplayers contribute in the cost of operating the government according to theequal rules. The idea of equity can be understood in two ways. The first one states that the input of each tax player must be consistent with the amount of public services as received. The second idea is that the

contribution of each tax player must be in terms of their ability to pay. The ability to pay means the one with greater ability is likely to pay a larger amount of tax. Avoidance of double taxation- The avoidance of double income states that one must not be taxed twice for the same income. However, if the post-tax income is sent to the foreign countries then in that case the receiver of such income is taxed again. This implies the same income is subjected to double taxation. As an alternative, the requirements of foreigntax credits may be formed in the domestic tax system. There also exist some tax laws which prevent the tax through artificial transactions such astransfer pricing. In addition, the corporate structures will help to reduce the

Ques-5 Strategic planning involves allocation of resources to firms to fulfil their long term goals. What are the types of strategic planning? Compare Top-down Vs Bottom-up planning.

Answer 5:

There are three main types of plans that a manager will use in his or her pursuit of company goals, which include[A]Strategic : Strategic plans are designed with the entire organization in mind and begin with an organization's mission. Top-level managers, such as CEOs or presidents, will design and execute strategic plans to paint a picture of the desired future and long-term goals of the organization. Essentially, strategic planslook ahead to where the organization wants to be in three, five, even ten years. Strategic plans, provided by top-level managers, serve as the framework for lower-level planning. Example is Tommy is a top-level manager for Nino's Pizzeria. As a top-level manager, Tommy must use strategic planning to ensure the long-term goals of the organization are reached. For Tommy, that means developing long-term strategies for achieving growth, improving productivity and profitability, boosting return on investments, improving customer service and finding ways to give back to the community in which it operates.[B]Operational: Operational plans sit at the bottom of the totem pole; they are the plans that are made by front-line, or low-level, managers. All operational plans are focused on the specific procedures and processes that occur within thelowest levels of the organization. Managers must plan the routine tasks of the department using a high level of detail. Frank, the front-line manager at Nino's

Pizzeria, is responsible for operational planning. Operational planning activities for Frank would include things like scheduling employees each week; assessing, ordering and stocking inventory; creating a monthly budget; developing a promotional advertisement for the quarter to increase the sales of a certain product (such as the Hawaiian pizza) or outlining an employee's performance goals for the year. Operational plans can be either single-use or ongoing plans. Single-use plans are those plans that are intended to be used only once. They include activities that would not be repeated and often have an expiration. Creating a monthly budget and developing a promotional advertisement for the quarter to increase the sales of a certain product are examples of how Frank would utilize single-use planning.[C]Tactical: Tactical plans support strategic plans by translating them into specific plans relevant to a distinct area of the organization. Tactical plans are concerned with the responsibility and functionality of lower-level departments to fulfill their parts of the strategic plan. For example, when Martha, the middle-level manager at Nino's, learns about Tommy's strategic plan for increasing productivity, Martha immediately begins to think about possible tactical plans to ensure that happens. Tactical planning for Martha might include things like testinga new process in making pizzas that has been proven to shorten the amount of time it takes for prepping the pizza to be cooked or perhaps looking into purchasing a better oven that can speed up the amount of time it takes to cook a pizza or even considering ways to better map out delivery routes and drivers. As a tactical planner, Martha needs to create a set of calculated actions that take a shorter amount of time and are narrower in scope than the strategic plan is but still help to bring the organization closer to the long-term goal.Compare Top-down Vs Bottom-up planning?1. Executive Decision MakingIn a top down strategic management model, ownership or high-level management personnel determine objectives and how the rest of the business will work toward accomplishing those objectives. As a small business owner, this puts all the responsibility on you and your management team to come up with how you will make your company successful and how each employee will contribute to that success.

2. Advantages and DisadvantagesIf you want to direct every aspect of how your business operates to accomplish its goals and objectives, a top down strategic management model can provide

you with the necessary level of control. This ensures your small business operates exactly to your specifications. Problems can arise with this strategic management model because your company's success rides directly on the shoulder's of your business savvy. 3. Workforce Strategy DevelopmentBy contrast, a bottom up strategic management model seeks to develop ideas using the brainpower of your entire workforce. You, as the small business owner, still determine the overall goals for your company along with the dates you'd like to see these goals accomplished, but your employees of all levels assist in developing the mechanisms to reach those goals. Your management team compiles all the ideas from group brainstorming sessions and departmental meetings to allow you to select the strategies showing the most promise.4. Benefits and ProblemsInvolving your entire workforce in a bottom up strategic management model can build morale and a sense of ownership of your company's direction among employees of all levels. Your employees will be more actively engaged in the work and strive harder to reach objectives. This strategic model can also cause alogjam of ideas on your desk and make it difficult to sort through the information to come up with an effective plan for reaching company goals

There are three main types of plans that a manager will use in his or her pursuit of company goals, which include[A]Strategic : Strategic plans are designed with the entire organization in mind and begin with an organization's mission. Top-level managers, such as CEOs or presidents, will design and execute strategic plans to paint a picture of the desired future and long-term goals of the organization. Essentially, strategic planslook ahead to where the organization wants to be in three, five, even ten years. Strategic plans, provided by top-level managers, serve as the framework for lower-level planning. Example is Tommy is a top-level manager for Nino's Pizzeria. As a top-level manager, Tommy must use strategic planning to ensure

the long-term goals of the organization are reached. For Tommy, that means developing long-term strategies for achieving growth, improving productivity and profitability, boosting return on investments, improving customer service and finding ways to give back to the community in which it operates.[B]Operational: Operational plans sit at the bottom of the totem pole; they are the plans that are made by front-line, or low-level, managers. All operational plans are focused on the specific procedures and processes that occur within thelowest levels of the organization. Managers must plan the routine tasks of the department using a high level of detail. Frank, the front-line manager at Nino's Pizzeria, is responsible for operational planning. Operational planning activities for Frank would include things like scheduling employees each week; assessing, ordering and stocking inventory; creating a monthly budget; developing a promotional advertisement for the quarter to increase the sales of a certain product (such as the Hawaiian pizza) or outlining an employee's performance goals for the year. Operational plans can be either single-use or ongoing plans. Single-use plans are those plans that are intended to be used only once. They include activities that would not be repeated and often have an expiration. Creating a monthly budget and developing a promotional advertisement for the quarter to increase the sales of a certain product are examples of how Frank would utilize single-use planning.[C]Tactical: Tactical plans support strategic plans by translating them into specific plans relevant to a distinct area of the organization. Tactical plans are concerned with the responsibility and functionality of lower-level departments to fulfill their parts of the strategic plan. For example, when Martha, the middle-level manager at Nino's, learns about Tommy's strategic plan for increasing productivity, Martha immediately begins to think about possible tactical plans to ensure that happens. Tactical planning for Martha might include things like testinga new process in making pizzas that has been proven to shorten the amount of time it takes for prepping the pizza to be cooked or perhaps looking into purchasing a better oven that can speed up the amount of time it takes to cook a pizza or even considering ways to better map out delivery routes and drivers. As a tactical planner, Martha needs to create a set of calculated actions that take a

shorter amount of time and are narrower in scope than the strategic plan is but still help to bring the organization closer to the long-term goal.Compare Top-down Vs Bottom-up planning?1. Executive Decision MakingIn a top down strategic management model, ownership or high-level management personnel determine objectives and how the rest of the business will work toward accomplishing those objectives. As a small business owner, this puts all the responsibility on you and your management team to come up with how you will make your company successful and how each employee will contribute to that success. 2. Advantages and DisadvantagesIf you want to direct every aspect of how your business operates to accomplish its goals and objectives, a top down strategic management model can provide BOTTOM -UP

Flexibility Team Work Project is team driven Lack of long -term vision. High level of team motivation. Employee feel valued.

TOP - DOWN Goals are determined early in process Inflexibility. Lack of employee participation. Process imposed by management. Lack of motivation. Employees feel there input not valued.

Ques 6- Explain the function of human resource planning Discuss the scope of International Human Resource Management

Ans- Human Resource Management has come to be recognized as an inherent part of management, which is concerned with the human resources of an organization. Its objective is the maintenance of better human relations in the organization by the development, application and evaluation of policies, procedures and programs relating to human resources to optimize their contribution towards the realization of organizational objectives. The various features of HRM include:

• It is pervasive in nature as it is present in all enterprises. • Its focus is on results rather than on rules.

• It tries to help employees develop their potential fully. • It encourages employees to give their best to the organization. • It is all about people at work, both as individuals and groups. • It tries to put people on assigned jobs in order to produce good results. • It helps an organization meet its goals in the future by providing for competent and well-motivated employees. • It tries to build and maintain cordial relations between people working at various levels in the organization. • It is a multidisciplinary activity, utilizing knowledge and inputs drawn from psychology, economics, etc.

The scope of IHRM is very wide:

1. Personnel aspect-This is concerned with manpower planning, recruitment, selection, placement, transfer, promotion, training and development, layoff and retrenchment, remuneration, incentives, productivity etc.

2. Welfare aspect-It deals with working conditions and amenities such as canteens, creches, rest and lunch rooms, housing, transport, medical assistance, education, healthand safety, recreation facilities, etc.

3. Industrial relations aspect-This covers union-management relations, joint consultation, collective bargaining, grievance and disciplinary procedures, settlement of disputes, etc.

- See more at: http://www.hr.com/en/app/blog/2012/10/human-resource-management---nature-scope-objective_h86amp3f.html#sthash.QidSbg3I.dpuf