MB0053 - International Business Management - Set 2

SIKKIM MANIPAL UNIVERSITY

DEPARTMENT OF DISTANCE EDUCATION

ASSIGNMENT

SEMESTER 4

NAME : ABHISHEK JAIN

ROLL NUMBER : 511035358

LEARNING CENTER : 02882

SUBJECT NAME :

INTERNATIONAL BUSINESS

MANAGEMENT (MB0053)

MODULE NO : SET 2

DATE OF SUBMISSION AT THE

LEARNING CENTRE : 31-MAY-11

FACULTY SIGNATURE :

MBA 4th Sem Assignment International Business Management – MB0053 – Set 2

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Master of Business Administration-MBA Semester 4

International Business Management – MB0053 Assignment Set - 2

Q1 .What is WTO? Explain its objectives, functions and structure.

Ans: World Trade Organization (WTO). WTO was established on 1st January 1995. In April 1994, the

Final Act was signed at a meeting in Marrakesh, Morocco. The Marrakesh Declaration of 15th April

1994 was formed to strengthen the world economy that would lead to better investment, trade,

income growth and employment throughout the world. The WTO is the successor to the General

Agreement on Tariffs and Trade (GATT). India is one of the founder members of WTO. WTO represents

the latest attempts to create an organizational focal point for liberal trade management and to

consolidate a global organizational structure to govern world affairs. WTO has attempted to create

various organizational attentions for regulation of international trade. WTO created a qualitative

change in international trade. It is the only international body that deals with the rules of trades

between nations.

The WTO agreements are a set of rules that are followed by the member governments while

formulating policies and practices in the area of international trade. The agreements mainly cover

goods, services and intellectual property. The agreements comprise the rights and obligations of the

government that are enforceable in multilateral framework. The agreement supports individual

countries’ commitments to lower customs tariffs and other trade barriers, and to open services

markets. The agreements recommend governments to make their trade policies transparent.

According to the agreement, the government must notify the WTO about the measures adopted to

make their trade policies transparent

Objectives and functions

The key objective of WTO is to promote and ensure international trade in developing countries. The

other major functions include:

Helping trade flows by encouraging nations to adopt discriminatory trade policies.

Promoting employment, expanding productions and trade and raising standard of living and

income and utilizing the world’s resources.

Ensuring that developing countries secure a better share of growth in world trade.

Providing forum for trade negotiations.

Resolving trade disputes.

The important functions of the WTO as stated in the WTO agreement are the following:

Developing transitional economies – Majority of the WTO members belong to developing

countries. The developing countries such as India, China, Mexico, Brazil and others have an

important role in the organization. The WTO helps in solving the problems of developing

economies. The developing states are provided with trade and tariff data. This depends on the

country’s individual export interest and their participation in WTO-bodies. The new members

benefit hugely from these services.

Providing help for export promotion – The WTO provides specialized help for export promotion to

its members. The export promotion is done through the International Trade Center established by

the GATT in 1964. It is operated by the WTO and the United Nations. The center accepts requests

from member countries, usually developing countries for support in formulating and

implementing export promotion programmes. The center provides information on export market

and marketing techniques. The center also provides assistance in establishing export promotion

and marketing services. Through this WTO proves its commitment in the upliftment of the world

economy.

Cooperating in global economic policy-making – The main function of the WTO is to cooperate

in global economic policy-making. In the Marrakesh Ministerial Meeting in April 1994, a separate

declaration was adopted to achieve this objective. The declaration specifies the responsibility of

WTO as, to improve and maintain the cooperation with international organizations such as the

World Bank, International Monetary Fund (IMF) that are involved in monetary and financial

matters. WTO analyses the impact of liberalization on the growth and development of national

economies which is the important factor in the success of the economy.

Monitoring implementation of the agreement – The WTO administers sixty different agreements

that have the statue of international legal documents. The member-governments sign and

confirm all WTO agreements on attainment.


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Providing forum for negotiations – The WTO provides a permanent forum for negotiations among

members. The negotiations can be on matters already in the WTO agreements or matters not

addressed in the WTO law.

Administrating dispute settlement – The important function of WTO is the administration of the

WTO dispute settlement system. It helps in settling multilateral trading dispute. A dispute arises

when a member country adopts a trade policy and other fellow members consider it as a

violation of WTO agreements. The Dispute Settlement Body (DSB) is responsible for the settlement

of disputes. The dispute settlement system is prohibited from adding or deleting the rights and

obligations provided in the WTO agreements. The WTO dispute settlement system helps to:

o Preserve the rights and responsibilities of the members.

o Clarify the current provisions of the agreements.

Structure

The structure of the WTO consists of the Ministerial Conference, which is the highest authority. This

body consists of the representatives from all WTO members. The WTO members meet in every two

years and take decisions on all matters under the multilateral trade agreements. The daily activities

of the WTO are conducted by subsidiary bodies and principally by the General Council which is

composed of WTO members. The members report to the Ministerial Conference. The General

Council on behalf of the Ministerial Conference administers as the Dispute Settlement Body to

manage the dispute settlement procedures. It also acts as the Trade Policy Review Body that

conducts regular reviews of the trade policies of the individual WTO members.

The General Council delegates responsibility to other major bodies. They are:

Council for Trade in Goods manages the implementation and functioning of all agreements

covering trade in goods.

Trade in Services and Trade of Intellectual Property Rights are the two councils that have

responsibility for their respective WTO agreements and can establish their own subsidiary bodies if

required.

The Committee on Trade and Development manages issues relating to the developing countries.

The Committee on Balance of Payments conducts consultations between WTO members and

countries that take trade-restrictive measures to handle balance-of-payments difficulties.

Committee on Budget and Administration manages issues relating to financing and budget of

WTO.

Q.2 Explain briefly the nature of e-business and the challenges involved.

Answer: The e-business denotes a major trend in the management like any other trends such as the

supply chain management, mail order service or the service economy. The e-business is done by

many asynchronous experts across the globe. The suppliers, customers and also the competitors

coordinate the e-business.

Nature of E-Business

E-business can be defined as "the use of networks and information technology in order to

electronically design, market, buy, sell and deliver products and services worldwide". E-business,

meaning ‘electronic-business’, deals with application of information and communication

technologies, in short an electronic medium in support of all the activities of business.

The e-business mainly stands for the internet enabled business. There are four entities in the internet

enabled business. These four entities are as shown in the figure 1.

The Challenges of E-Business

In the previous section, we have studied about the e-business models. In this section let us learn

about the challenges of e-business. As the e-business is growing, there are many technical and

business trends that are associated with it. Some important trends in e-business are explained below.

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E-business is crucial to business success. Many companies come out with changes that are

necessary for e-business to become profitable. The process of e-business is long lasting than that of

the re-engineering. There are some important trends in the e-business that are described as follows:

Technology focus is on e-business – The hardware, software, and network vendors, focus on

providing the tools for e-business. The e-business is mainly the extension of the products and

services.

E-business produces cumulative effects – E-business is long lasting. The relationship with

customers, suppliers, and employees changes as we implement e-business.

E-business implementation effects success and failure of a business – There will be both the

success and the failures that are associated with any kind of business. The failures become

dramatic with e-business as it is more visible externally.

There are some major success factors for e-business. These factors include the strategic factors,

structural factors and the management oriented factors. These factors are explained as follows:

Strategic factors.

o The technologies related to the internet are used as a complement for the existing

technologies.

o The basis of competition that is not shifted from traditional competitive advantages such

as cost, profit, quality, service and features.

o The new competitors and market shares are tracked.

o The web centric marketing strategy.

o The strategic position of the company in the market has strengthened.

o The frequent review of the distribution and supply chain model is done in order to

maximize the company’s gain.

o The buyer’s behavior and the customer personalization.

o The first-mover advantage and quick time to start.

o The e-business offered good products and services.

o The innovation was allowed when risks are low.

o The customer’s and partner’s expectations from the well managed.

Structural factors.

o Correct digital infrastructure.

o Good e-business education and training to employees, management and customers.

o Current systems expanded to cover entire supply chain.

o Good cost control.

Management-oriented factors.

o The organization wide commitment to e-business leadership.

o The necessary support for e-business from the top management.

o The awareness and understanding of capabilities of technology by executives.

o The top management has to communicate about the value of e-business throughout the

organization.

The e-business is facing challenges mainly in the areas of technology, logistics, and legal issues.

These areas are explained in the following sections.

Technology

The technology plays a major role in the concept of new economy. The technology has two

dimensions; one is the shift from manufacturing to services and second is the shift from physical

resources to the knowledge resources. There are so many mechanisms for technology innovation

and diffusion, both within and outside the countries. Many of the organizations will include different

technologies both for quantitative and qualitative terms.

Small scale enterprises play a vital role in the implementation of new technologies. They have

added more value in terms of population, employment, and services that they are offering. Internet

also plays a vital role as it helps the small and medium enterprises in providing the cost effective

possibilities to advertise their products. Internet also provides the contacts to buyers and suppliers on

a global basis. E-business is helps the radical transformation in the way that the business is done. The

introduction of technologies like the common database, electronic networks and value added

services are helpful for speeding up the transactions and these are fundamental at the industrial

level. The e-business has to undergo lot of challenges in implementing the technologies that are

helpful for the organization since many of the people in the organization will not be interested to shift

to the new technology and learn the new skills.

Logistics


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The logistics is defined as the planning framework for maintaining the material, information, and

capital flow. The logistics includes the complex information, communication and control systems

required in the business environment. The logistics presents e-business with challenges that exceeds

the expectations of the customers with a reasonable cost. Now–a-day, attempt has been made to

reduce the inventory costs. In order to meet the high expectations of the customers, an e-business

needs the special infrastructure for tuning and managing the interactions. The interactions can be in

between the shippers, logistic providers, shipping companies, and also the customers.

Legal concerns

As there is tremendous usage of internet, it is better to consider the legal concerns behind the

internet. This is because whatever is printed on the net will be accessed by public throughout the

world. We also have an option of going back and seeing the basics of that information. Now-–a-day

with the help of wireless phones, Personal Digital Assistants (PDAs), internet can be accessed from

anywhere in the world. As a result the customers must be provided proper security and privacy to

access internet. It becomes very difficult to trust the actual with the unethical, illegal, internet

marketing and advertising frauds and e-business email scams and hence one must be careful while

performing e-business.

It is necessary to concern the privacy and legal matters while writing a copy and maintaining a

client’s e-business.

There are uncertainties in e-business when compared with direct business. The uncertainties are

related to the security, privacy, credit and debit card handling. The security is the primary concern in

e-business. The PCI Data Security standard (PCI DSS) needs to be followed by one who handles the

credit card information. E-business is all about the trust between buyer and the seller so one must be

careful while dealing with the transactions which involve the handling of credit and debit cards.

There will also be copyright issues that is copying something from other sites and presenting the same

content as their own. It is important to check for plagiarism when the company is publishing their

own articles. When some concepts are copyright then it is necessary to credit the original authors.

Disclaimer notice is required at the start of any business website.

If the webmasters include some unethical information about the client then that can cause

everlasting negative consequences for the client. The legal action is taken against the false

advertisements also.

The risks associated with conducting e-business over the internet are explained as follows:

Jurisdiction – Contracting over the cyberspace is a challenge for the website owners and the

internet is the form of communication that rises above the spatial boundaries. There is a

jurisdiction problem in the disputes between the buyer and seller regarding where the contract

was formed and which state law applies for the contract.

Contact validity – The emerging issue is the legal validity of web wrap or click on contracts. This

type of contract is mainly found on the web site that offers goods and services for the sale. This

e-business creates the legal relationship between the seller and buyer.

Contract information – The advent of the e-business over the net is responsible for various legal

issues regarding the formation of the electronic contracts.

There is a need for matching both the e-customers and e-merchants with the legally responsible

parties in the real world. There is a need for on cryptographic methods for reducing the risks

associated with the identification and authentication. The cryptographic methods for eliminating

the risks those are associated with the non repudiation and security.

Q3. Mention the relevance of these terms in International business - Letter of credit, Bill of Lading and

Factoring.

Ans: Letter of credit: A standard, commercial letter of credit (LC) is a document issued mostly by a

financial institution, used primarily in trade finance, which usually provides an irrevocable payment

undertaking.

The letter of credit can also be source of payment for a transaction, meaning that redeeming the

letter of credit will pay an exporter. Letters of credit are used primarily in international trade

transactions of significant value, for deals between a supplier in one country and a customer in

another. In such cases the International Chamber of Commerce Uniform Customs and Practice for

Documentary Credits applies (UCP 600 being the latest version).[2] They are also used in the land

development process to ensure that approved public facilities (streets, sidewalks, storm water

ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive

the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the

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beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or

canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if

any. In executing a transaction, letters of credit incorporate functions common to giros and

Traveler's cheques. Typically, the documents a beneficiary has to present in order to receive

payment include a commercial invoice, bill of lading, and documents proving the shipment was

insured against loss or damage in transit.

Letters of credit (LC) deal in documents, not goods. The LC could be irrevocable or revocable. An

irrevocable LC cannot be changed unless both the buyer and seller agree. Whereas in a revocable

LC changes to the LC can be made without the consent of the beneficiary. A sight LC means that

payment is made immediately to the beneficiary/seller/exporter upon presentation of the correct

documents in the required time frame. A time or date LC will specify when payment will be made at

a future date and upon presentation of the required documents.

Negotiation means the giving of value for draft(s) and/or document(s) by the bank authorized to

negotiate, viz the nominated bank. Mere examination of the documents and forwarding the same

to the letter of credit issuing bank for reimbursement, without giving of value / agreed to give, does

not constitute a negotiation.

After a contract is concluded between buyer and seller, buyer's bank supplies a letter of credit to

seller.

All the charges for issuance of Letter of Credit, negotiation of documents, reimbursements and other

charges like courier are to the account of applicant or as per the terms and conditions of the Letter

of credit. If the letter of credit is silent on charges, then they are to the account of the Applicant. The

description of charges and who would be bearing them would be indicated in the field 71B in the

Letter of Credit.

A bill of lading (BL - sometimes referred to as BOL or B/L) is a document issued by a carrier to a

shipper, acknowledging that specified goods have been received on board as cargo for

conveyance to a named place for delivery to the consignee who is usually identified. A through bill

of lading involves the use of at least two different modes of transport from road, rail, air, and sea. The

term derives from the verb "to lade" which means to load a cargo onto a ship or other form of

transportation.

A bill of lading can be used as a traded object. The standard short form bill of lading is evidence of

the contract of carriage of goods and it serves a number of purposes:

It is evidence that a valid contract of carriage, or a chartering contract, exists, and it may

incorporate the full terms of the contract between the consignor and the carrier by reference

(i.e. the short form simply refers to the main contract as an existing document, whereas the long

form of a bill of lading (connaissement intégral) issued by the carrier sets out all the terms of the

contract of carriage);

It is a receipt signed by the carrier confirming whether goods matching the contract description

have been received in good condition (a bill will be described as clean if the goods have been

received on board in apparent good condition and stowed ready for transport); and

It is also a document of transfer, being freely transferable but not a negotiable instrument in the

legal sense, i.e. it governs all the legal aspects of physical carriage, and, like a cheque or other

negotiable instrument, it may be endorsed affecting ownership of the goods actually being

carried. This matches everyday experience in that the contract a person might make with a

commercial carrier like FedEx for mostly airway parcels, is separate from any contract for the sale

of the goods to be carried; however, it binds the carrier to its terms, irrespectively of who the

actual holder of the B/L, and owner of the goods, may be at a specific moment.


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The BL must contain the following information:

Name of the shipping company;

Flag of nationality;

Shipper's name;

Order and notify party;

Description of goods;

Gross/net/tare weight; and

Freight rate/measurements and weighment of goods/total freight

While an air waybill (AWB) must have the name and address of the consignee, a BL may be

consigned to the order of the shipper. Where the word order appears in the consignee box, the

shipper may endorse it in blank or to a named transferee. A BL endorsed in blank is transferable by

delivery. Once the goods arrive at the destination they will be released to the bearer or the

endorsee of the original bill of lading. The carrier's duty is to deliver goods to the first person who

presents any one of the original BL. The carrier need not require all originals to be submitted before

delivery. It is therefore essential that the exporter retains control over the full set of the originals until

payment is effected or a bill of exchange is accepted or some other assurance for payment has

been made to him. In general, the importer's name is not shown as consignee. The bill of lading has

also provision for incorporating notify party. This is the person whom the shipping company will notify

on arrival of the goods at destination. The BL also contains other details such as the name of the

carrying vessel and its flag of nationality, the marks and numbers on the packages in which the

goods are packed, a brief description of the goods, the number of packages, their weight and

measurement, whether freight costs have been paid or whether payment of freight is due on arrival

at the destination. The particulars of the container in which goods are stuffed are also mentioned in

case of containerized cargo. The document is dated and signed by the carrier or its agent. The date

of the BL is deemed to be the date of shipment. If the date on which the goods are loaded on

board is different from the date of the bill of lading then the actual date of loading on board will be

evidenced by a notation the BL. In certain cases a carrier may issue a separate on board certificate

to the shipper.

Main types of bill

Straight bill of lading

In this importer/consignee/agent is named in the bill of lading, it is called straight bill of lading. It is a

document, in which a seller agrees to use a certain transportation to ship a good to a certain

location, where the bill assigned to a certain party. It details to the quality and quantity of goods.

Order bill of lading

This bill uses express words to make the bill negotiable, e.g. it states that delivery is to be made to the

further order of the consignee using words such as "delivery to A Ltd. or to order or assigns".

Consequently, it can be indorsed (legal spelling of endorse, maintained in all statute, including Bills

of Exchange Act 1909 (CTH)) by A Ltd. or the right to take delivery can be transferred by physical

delivery of the bill accompanied by adequate evidence of A Ltd.'s intention to transfer.

Bearer bill of lading

This bill states that delivery shall be made to whosoever holds the bill. Such bill may be created

explicitly or it is an order bill that fails to nominate the consignee whether in its original form or

through an endorsement in blank. A bearer bill can be negotiated by physical delivery.

Surrender bill of lading

Under a term import documentary credit the bank releases the documents on receipt from the

negotiating bank but the importer does not pay the bank until the maturity of the draft under the

relative credit. This direct liability is called Surrender Bill of Lading (SBL), i.e. when we hand over the

bill of lading we surrender title to the goods and our power of sale over the goods.

A clean bill of lading states that the cargo has been loaded on board the ship in apparent good

order and condition. Such a BL will not bear a clause or notation which expressively declares a

defective condition of goods and/or the packaging. Thus, a BL that reflects the fact that the carrier

received the goods in good condition. The opposite term is a soiled bill of lading, which reflects that

the goods are received by the carrier in anything but good condition.

Factoring is a financial transaction whereby a business job sells its accounts receivable (i.e., invoices)

to a third party (called a factor) at a discount in exchange for immediate money with which to

finance continued business. Factoring differs from a bank loan in three main ways. First, the emphasis

is on the value of the receivables (essentially a financial asset), not the firm’s credit worthiness.


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Secondly, factoring is not a loan – it is the purchase of a financial asset (the receivable). Finally, a

bank loan involves two parties whereas factoring involves three.

It is different from forfeiting only in the sense that forfeiting is a transaction-based operation involving

exporters in which the firm sells one of its transactions, while factoring is a Financial Transaction that

involves the Sale of any portion of the firm's Receivables.

Factoring is a word often misused synonymously with invoice discounting - factoring is the sale of

receivables, whereas invoice discounting is borrowing where the receivable is used as collateral.

The three parties directly involved are: the one who sells the receivable, the debtor, and the factor.

The receivable is essentially a financial asset associated with the debtor's liability to pay money

owed to the seller (usually for work performed or goods sold). The seller then sells one or more of its

invoices (the receivables) at a discount to the third party, the specialized financial organization (aka

the factor), to obtain cash. The sale of the receivables essentially transfers ownership of the

receivables to the factor, indicating the factor obtains all of the rights and risks associated with the

receivables. Accordingly, the factor obtains the right to receive the payments made by the debtor

for the invoice amount and must bear the loss if the debtor does not pay the invoice amount.

Usually, the account debtor is notified of the sale of the receivable, and the factor bills the debtor

and makes all collections. Critical to the factoring transaction, the seller should never collect the

payments made by the account debtor, otherwise the seller could potentially risk further advances

from the factor. There are three principal parts to the factoring transaction; a.) the advance, a

percentage of the invoice face value that is paid to the seller upon submission, b.) the reserve, the

remainder of the total invoice amount held until the payment by the account debtor is made and

c.) the fee, the cost associated with the transaction which is deducted from the reserve prior to it

being paid back the seller. Sometimes the factor charges the seller a service charge, as well as

interest based on how long the factor must wait to receive payments from the debtor. [5] The factor

also estimates the amount that may not be collected due to non-payment, and makes

accommodation for this when determining the amount that will be given to the seller. The factor's

overall profit is the difference between the price it paid for the invoice and the money received

from the debtor, less the amount lost due to non-payment.

In the United States, under the Generally Accepted Accounting Principles receivables are

considered sold when the buyer has "no recourse,"[6] or when the financial transaction is substantially

a transfer of all of the rights associated with the receivables and the seller's monetary liability under

any "recourse" provision is well established at the time of the sale. Otherwise, the financial

transaction is treated as a loan, with the receivables used as collateral.

Factoring is a method used by a firm to obtain cash when the available cash balance held by the

firm is insufficient to meet current obligations and accommodate its other cash needs, such as new

orders or contracts. The use of factoring to obtain the cash needed to accommodate the firm’s

immediate Cash needs will allow the firm to maintain a smaller ongoing Cash Balance. By reducing

the size of its cash balances, more money is made available for investment in the firm’s growth. A

company sells its invoices at a discount to their face value when it calculates that it will be better off

using the proceeds to bolster its own growth than it would be by effectively functioning as its

"customer's bank."[8] Accordingly, Factoring occurs when the rate of return on the proceeds invested

in production exceed the costs associated with Factoring the Receivables. Therefore, the tradeoff

between the return the firm earns on investment in production and the cost of utilizing a Factor is

crucial in determining both the extent Factoring is used and the quantity of Cash the firm holds on

hand.

Many businesses have Cash Flow that varies. A business might have a relatively large Cash Flow in

one period, and might have a relatively small Cash Flow in another period. Because of this, firms find

it necessary to both maintain a Cash Balance on hand, and to use such methods as Factoring, in

order to enable them to cover their Short Term cash needs in those periods in which these needs

exceed the Cash Flow. Each business must then decide how much it wants to depend on Factoring

to cover short falls in Cash, and how large a Cash Balance it wants to maintain in order to ensure it

has enough Cash on hand during periods of low Cash Flow.

Generally, the variability in the cash flow will determine the size of the Cash Balance a business will

tend to hold as well as the extent it may have to depend on such financial mechanisms as

Factoring. Cash flow variability is directly related to 2 factors:

1. The extent Cash Flow can change,

2. The length of time Cash Flow can remain at a below average level.

If cash flow can decrease drastically, the business will find it needs large amounts of cash from either

existing Cash Balances or from a Factor to cover its obligations during this period of time. Likewise,

http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-CPA-4

http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-NoRecourse-5

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the longer a relatively low cash flow can last, the more cash is needed from another source (Cash

Balances or a Factor) to cover its obligations during this time. As indicated, the business must

balance the opportunity cost of losing a return on the Cash that it could otherwise invest, against

the costs associated with the use of Factoring.

The Cash Balance a business holds is essentially a Demand for Transactions Money. As stated, the

size of the Cash Balance the firm decides to hold is directly related to its unwillingness to pay the

costs necessary to use a Factor to finance its short term cash needs. The problem faced by the

business in deciding the size of the Cash Balance it wants to maintain on hand is similar to the

decision it faces when it decides how much physical inventory it should maintain. In this situation, the

business must balance the cost of obtaining cash proceeds from a Factor against the opportunity

cost of the losing the Rate of Return it earns on investment within its business.[9] The solution to the

problem is:

where

CB is the Cash Balance

nCF is the average Negative Cash Flow in a given period

i is the [Discount Rate] that cover the Factoring Costs

r is the rate of return on the firm’s assets

Q.4 a) Explain the role played by EXIM bank.

Ans: Export-Import Bank of India is the premier export finance institution of the country, set up in 1982

under the Export-Import Bank of India Act 1981.

Exim Bank is managed by a Board of Directors, which has representatives from the Government,

Reserve Bank of India, Export Credit Guarantee Corporation of India, a financial institution, public

sector banks, and the business community.

The Bank's functions are segmented into several operating groups including:

Corporate Banking Group which handles a variety of financing programmes for Export Oriented

Units (EOUs), Importers, and overseas investment by Indian companies.

Project Finance / Trade Finance Group handles the entire range of export credit services such as

supplier's credit, pre-shipment Agri Business Group, to spearhead the initiative to promote and

support Agri-exports. The Group handles projects and export transactions in the agricultural

sector for financing.

Small and Medium Enterprise: The group handles credit proposals from SMEs under various

lending programmes of the Bank.

Export Services Group offers variety of advisory and value-added information services aimed at

investment promotion.

Export Marketing Services Bank offers assistance to Indian companies, to enable them establish

their products in overseas markets.

Besides these, the Support Services groups, which include: Research & Planning, Corporate Finance,

Loan Recovery, Internal Audit, Management Information Services, Information Technology, Legal,

Human Resources Management and Corporate Affairs.

b) What are B2B and C2B business models?

Ans: Business-to-business (B2B) describes commerce transactions between businesses, such as

between a manufacturer and a wholesaler, or between a wholesaler and a retailer. Contrasting

terms are business-to-consumer (B2C) and business-to-government (B2G).

The volume of B2B (Business-to-Business) transactions is much higher than the volume of B2C

transactions. The primary reason for this is that in a typical supply chain there will be many B2B

transactions involving sub components or raw materials, and only one B2C transaction, specifically

sale of the finished product to the end customer. For example, an automobile manufacturer makes

several B2B transactions such as buying tires, glass for windscreens, and rubber hoses for its vehicles.

The final transaction, a finished vehicle sold to the consumer, is a single (B2C) transaction.

B2B is also used in the context of communication and collaboration. Many businesses are now using

social media to connect with their consumers (B2C); however, they are now using similar tools within

the business so employees can connect with one another. When communication is taking place

amongst employees, this can be referred to as "B2B" communication

http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-8


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The term "business-to-business" was originally coined to describe the electronic communications

between businesses or enterprises in order to distinguish it from the communications between

businesses and consumers (B2C). It eventually came to be used in marketing as well, initially

describing only industrial or capital goods marketing. Today it is widely used to describe all products

and services used by enterprises. Many professional institutions and the trade publications focus

much more on B2C than B2B, although most sales and marketing personnel are in the B2B sector.

Although the exploitation of Internet technologies at the business-to-business level is in its infancy, a

number of models have begun to emerge that manage transactions between buyers and suppliers:

Established Buyer-Supplier Relationship

This is a pre-determined one-to-one relationship between a buyer and supplier that is supported by

electronic commerce technologies. Due to the aforementioned limitations associated with EDI,

companies have now turned their attention towards the Internet to support these types of buyer-

supplier relationships. Companies are now pursuing a more intensive and interactive relationship with

their suppliers, impacting upon the buyer-supplier relationship in a number of areas, including the

integration of manufacturing systems and supplier involvement in new product development.

Exchanging information via extranets costs less and is more effective than through older traditional

methods such as faxes and voicemail. For example, NEC has developed an advanced information

system to carry out a large part of its procurement activities, ranging from procurement notices to

settlement on the Internet.

3. Supplier-Oriented Marketplace

In this model, both organizations and consumers use the supplier-provided marketplace. This is the

most common type of B2B model. In this model, both business buyers and individual consumers use

the same supplier-provided marketplace. An example of this model is RS Components (rswww.com).

RS Components is a leading distributor of electronic, electrical, and mechanical components,

instruments, and tools in Europe. The marketplace provides fast search and retrieval of 100,000

products, combined with personalized customer promotions based on the buying profiles of its major

customers. A supplier-oriented marketplace may also provide an auctioning facility to offload

surplus inventory or offer discounts to customers.

4. Buyer-Oriented Marketplace

Under this model, a buyer opens an electronic market on its own server and invites potential

suppliers to bid on the announced Requests for Quotation (RFQs). One company that has

successfully exploited this model is GE Lighting. The purchasing department receives electronic

requisitions from internal customers that are then sent to potential suppliers over the Internet. Within

two hours of the purchasing department starting the process, suppliers are notified of incoming RFQs

and are given seven days to prepare bids and send them back over the extranet to GE. With the

transaction handled electronically, the procurement function has been able to concentrate on

more strategic activities rather than clerical and administration tasks.

5. Business-to-Business Intermediary

This model is sometimes referred to as a ‘hub’ or ‘exchange’. It is established by an electronic

intermediary that runs a marketplace where suppliers and buyers have a central point to come

together. These B2B hubs tend to focus mainly on non-core items that may range from stationery

and computers to catering services and travel. There are two types of hubs:

Vertical - focus on an industry and provide content that is specific to the industry’s value system

of buyers and suppliers. Examples include e-Steel that acts as an intermediary between steel-

makers and customers, and VerticalNet that provides intermediaries for many industries including

electronics, process, telecommunications, and utilities.

Horizontal - provide the same function for a variety of industries. An example is iMark.com, which

acts as an intermediary between buyers and suppliers of used capital equipment in different

industries.

An intermediary may be closed - where members and trading partners are vetted for legal and

financial probity - or open to all-comers, with the marketplace itself acting as a trusted intermediary.

It is important to note that intermediaries may be biased towards either buyers or suppliers. Supply-

side intermediaries may be run by consortia of manufacturers such as Chemdex that acts as an

intermediary for suppliers to the life sciences industry. Similarly, buy-side intermediaries may be run by

consortia of customers such as Covisint for car makers or by independent organizations such as

Achilles for utilities. These intermediaries may attempt to aggregate demand for buyers in order to

obtain reduced prices and more favorable terms from suppliers. In relation to payment, some

intermediaries may charge a flat fee per transaction to both the buyer and suppliers. Alternatively, a

percentage may be charged in the case of value-added services such as auctions. In the case of

http://www.rswww.com/


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large, repetitive transactions, to achieve maximum benefit the intermediary should be linked

seamlessly to the buyer’s purchasing and the suppliers’ systems so that the entire purchasing process

can be executed electronically.

In the context of competitive advantage and the influence of the Internet, customer/supplier

lifecycle is a useful framework for understanding an organization’s business processes, as well as

those of their customers, suppliers, and competitors. This framework provides a way of distinguishing

between buying and selling activities to better understand the interrelationships between customers

and suppliers’ business processes, and what they term ‘TouchPoints’ in the company.

A successful electronic business strategy will alter the nature of the product or service being offered,

its value in the marketplace, or the buyer-supplier relationship.

Consumer-to-business (C2B) is an electronic commerce business model in which consumers

(individuals) offer products and services to companies and the companies pay them. This business

model is a complete reversal of traditional business model where companies offer goods and

services to consumers (business-to-consumer = B2C). We can see this example in blogs or internet

forums where the author offers a link back to an online business facilitating the purchase of some

product (like a book on Amazon.com), and the author might receive affiliate revenue from a

successful sale.

This kind of economic relationship is qualified as an inverted business type. The advent of the C2B

scheme is due to major changes:

Connecting a large group of people to a bidirectional network has made this sort of commercial

relationship possible. The large traditional media outlets are one direction relationship whereas

the internet is bidirectional one.

Decreased cost of technology : Individuals now have access to technologies that were once

only available to large companies ( digital printing and acquisition technology, high

performance computer, powerful software)

C2B business models like most of C2C models like EBay are based on 3 players: a consumer acting as

seller, a business acting as buyer and an intermediary dealing with the connection between sellers

and buyers.

Consumer

A consumer in the C2B business model can be any individual who has something to offer either a

service or a good. The individual is paid for the work provided to the companies. Depending on the

model, the "consumer" can be:

A webmaster/ blogger offering advertising service (through Google Adsense program for

example or amazon.com affiliation program)

A photographer or a designer offering stock images to companies by selling his artwork

through Fotolia or istockphoto for example

Any individual answering a poll through a survey site

Any individual with connections offering job hiring service by referring someone through

referral hiring sites like jobster.com or h3.com

Business

Business in the C2B business model represents any companies buying goods or services to individual

trough intermediaries. Here are some examples of potential companies which can be such clients:

Any company which wants to fill a job (through referral hiring sites)

Any company needing to advertise online (through Google Adwords program for example)

Any advertising agency which needs to buy a stock photo (through microstock sites)

Intermediary

The Intermediary is the crucial element since it creates the connection between business which

needs a service or a good and a mass of individuals. Intermediary is usually a portal both for buyers

(businesses) and seller (individuals).

The intermediary plays two roles:

It promotes goods and services offered by individuals by proposing a distribution channel. It

offers what individuals can't do themselves : large promotion, logistic and financial support,

technical expertise

It offers buyers a contact to a mass of individuals and takes care of money transactions and

legal aspects

We can notice that some intermediaries prefer creating two different accesses one for buyers and

one for sellers (Google Adwords for advertiser - Google Adsense for web publisher) whereas other

companies like Fotolia have only one access because buyers and sellers can be the same.

We can differentiate two kinds of intermediaries:


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Extern intermediary : they act as a extern agent within the relation between companies and

individual (ex : referral hiring site)

Intern intermediary: they play the role both of business and intermediary. For example, it is the

case of amazon.com through its affiliation program. Amazon pays individual to promote its

own products.

Few types of intermediaries

Intermediary Examples What do they sell?

Advertising Site Google Adwords/Adsense Tradedoubler

Commission Junction

Advertising services through search

engines and websites

Microstock Site Fotolia Shutterstock Istockphoto Stock Photos, Vectors, Flash

animations

Referral Hiring

Site H3 Josbster Jobmeeters Job Hiring Service

September 24, 2005 in C2B Business Model | Permalink | Comments (2) | TrackBack (0)

C2B vs. B2C : Graphical Representation

Q.5 What kind of impact will globalization and international business environment create on Indian

businesses? [10 marks]

Ans: Globalisation is the new buzzword that has come to dominate the world since the nineties of

the last century with the end of the cold war and the break-up of the former Soviet Union and the

global trend towards the rolling ball. The frontiers of the state with increased reliance on the market

economy and renewed faith in the private capital and resources, a process of structural adjustment

spurred by the studies and influences of the World Bank and other International organisations have

started in many of the developing countries. Also Globalisation has brought in new opportunities to

developing countries. Greater access to developed country markets and technology transfer hold

out promise improved productivity and higher living standard. But globalisation has also thrown up

new challenges like growing inequality across and within nations, volatility in financial market and

environmental deteriorations. Another negative aspect of globalisation is that a great majority of

developing countries remain removed from the process. Till the nineties the process of globalisation

of the Indian economy was constrained by the barriers to trade and investment liberalisation of

trade, investment and financial flows initiated in the nineties has progressively lowered the barriers to

competition and hastened the pace of globalisation

Though the precise definition of globalisation is still unavailable a few definitions worth viewing,

Stephen Gill: defines globalisation as the reduction of transaction cost of transborder movements of

capital and goods thus of factors of production and goods. Guy Brainbant: says that the process of

globalisation not only includes opening up of world trade, development of advanced means of

communication, internationalisation of financial markets, growing importance of MNC's, population

migrations and more generally increased mobility of persons, goods, capital, data and ideas but

also infections, diseases and pollution

Impact on India:

India opened up the economy in the early nineties following a major crisis that led by a foreign

exchange crunch that dragged the economy close to defaulting on loans. The response was a slew

of Domestic and external sector policy measures partly prompted by the immediate needs and


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partly by the demand of the multilateral organisations. The new policy regime radically pushed

forward in favour of a more open and market oriented economy.

Major measures initiated as a part of the liberalisation and globalisation strategy in the early nineties

included scrapping of the industrial licensing regime, reduction in the number of areas reserved for

the public sector, amendment of the monopolies and the restrictive trade practices act, start of the

privatisation programme, reduction in tariff rates and change over to market determined exchange

rates.

Over the years there has been a steady liberalisation of the current account transactions, more and

more sectors opened up for foreign direct investments and portfolio investments facilitating entry of

foreign investors in telecom, roads, ports, airports, insurance and other major sectors.

The Indian tariff rates reduced sharply over the decade from a weighted average of 72.5% in 1991-

92 to 24.6 in 1996-97.Though tariff rates went up slowly in the late nineties it touched 35.1% in 2001-02.

India is committed to reduced tariff rates. Peak tariff rates are to be reduced to be reduced to the

minimum with a peak rate of 20%, in another 2 years most non-tariff barriers have been dismantled

by March 2002, including almost all quantitative restrictions.

India is Global:

The liberalisation of the domestic economy and the increasing integration of India with the global

economy have helped step up GDP growth rates, which picked up from 5.6% in 1990-91 to a peak

level of 77.8% in 1996-97. Growth rates have slowed down since the country has still been able to

achieve 5-6% growth rate in three of the last six years. Though growth rates has slumped to the

lowest level 4.3% in 2002-03 mainly because of the worst droughts in two decades the growth rates

are expected to go up close to 70% in 2003-04. A Global comparison shows that India is now the

fastest growing just after China.

This is major improvement given that India is growth rate in the 1970's was very low at 3% and GDP

growth in countries like Brazil, Indonesia, Korea, and Mexico was more than twice that of India.

Though India's average annual growth rate almost doubled in the eighties to 5.9% it was still lower

than the growth rate in China, Korea and Indonesia. The pickup in GDP growth has helped improve

India's global position. Consequently India's position in the global economy has improved from the

8th position in 1991 to 4th place in 2001. When GDP is calculated on a purchasing power parity basis.

Globalisation and Poverty:

Globalisation in the form of increased integration though trade and investment is an important

reason why much progress has been made in reducing poverty and global inequality over recent

decades. But it is not the only reason for this often unrecognised progress, good national policies,

sound institutions and domestic political stability also matter.

Despite this progress, poverty remains one of the most serious international challenges we face up to

1.2 billion of the developing world 4.8 billion people still live in extreme poverty.

But the proportion of the world population living in poverty has been steadily declining and since

1980 the absolute number of poor people has stopped rising and appears to have fallen in recent

years despite strong population growth in poor countries. If the proportion living in poverty had not

fallen since 1987 alone a further 215million people would be living in extreme poverty today.

India has to concentrate on five important areas or things to follow to achieve this goal. The areas

like technological entrepreneurship, new business openings for small and medium enterprises,

importance of quality management, new prospects in rural areas and privatisation of financial

institutions. The manufacturing of technology and management of technology are two different

significant areas in the country.

There will be new prospects in rural India. The growth of Indian economy very much depends upon

rural participation in the global race. After implementing the new economic policy the role of

villages got its own significance because of its unique outlook and branding methods. For example

food processing and packaging are the one of the area where new entrepreneurs can enter into a

big way. It may be organised in a collective way with the help of co-operatives to meet the global

demand.


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Understanding the current status of globalisation is necessary for setting course for future. For all

nations to reap the full benefits of globalisation it is essential to create a level playing field. President

Bush's recent proposal to eliminate all tariffs on all manufactured goods by 2015 will do it. In fact it

may exacerbate the prevalent inequalities. According to this proposal, tariffs of 5% or less on all

manufactured goods will be eliminated by 2005 and higher than 5% will be lowered to 8%. Starting

2010 the 8% tariffs will be lowered each year until they are eliminated by 2015.

GDP Growth rate:

The Indian economy is passing through a difficult phase caused by several unfavourable domestic

and external developments; Domestic output and Demand conditions were adversely affected by

poor performance in agriculture in the past two years. The global economy experienced an overall

deceleration and recorded an output growth of 2.4% during the past year growth in real GDP in

2001-02 was 5.4% as per the Economic Survey in 2000-01. The performance in the first quarter of the

financial year is5.8% and second quarter is 6.1%.

Export and Import:

India's Export and Import in the year 2001-02 was to the extent of 32,572 and 38,362 million

respectively. Many Indian companies have started becoming respectable players in the

International scene. Agriculture exports account for about 13 to 18% of total annual of annual export

of the country. In 2000-01 Agricultural products valued at more than US $ 6million were exported

from the country 23% of which was contributed by the marine products alone. Marine products in

recent years have emerged as the single largest contributor to the total agricultural export from the

country accounting for over one fifth of the total agricultural exports. Cereals (mostly basmati rice

and non-basmati rice), oil seeds, tea and coffee are the other prominent products each of which

accounts for nearly 5 to 10% of the country’s total agricultural exports.

Where does Indian stand in terms of Global Integration?

India clearly lags in globalisation. Number of countries has a clear lead among them China, large

part of east and far east Asia and Eastern Europe. Let’s look at a few indicators how much we lag.

Over the past decade FDI flows into India have averaged around 0.5% of GDP against 5% for

China 5.5% for Brazil. Whereas FDI inflows into China now exceeds US $ 50 billion annually. It is

only US $ 4billion in the case of India

Consider global trade - India's share of world merchandise exports increased from .05% to .07%

over the past 20 years. Over the same period China's share has tripled to almost 4%.

India's share of global trade is similar to that of the Philippines and economy 6 times smaller

according to IMF estimates. India under trades by 70-80% given its size, proximity to markets and

labour cost advantages.

It is interesting to note the remark made last year by Mr. Bimal Jalan, Governor of RBI. Despite all

the talk, we are now where ever close being globalised in terms of any commonly used indicator

of globalisation. In fact we are one of the least globalised among the major countries - however

we look at it.

As Amartya Sen and many other have pointed out that India, as a geographical, politico-

cultural entity has been interacting with the outside world throughout history and still continues to

do so. It has to adapt, assimilate and contribute. This goes without saying even as we move into

what is called a globalised world which is distinguished from previous eras from by faster travel

and communication, greater trade linkages, denting of political and economic sovereignty and

greater acceptance of democracy as a way of life.

Consequences:

The implications of globalisation for a national economy are many. Globalisation has intensified

interdependence and competition between economies in the world market. This is reflected in

Interdependence in regard to trading in goods and services and in movement of capital. As a result

domestic economic developments are not determined entirely by domestic policies and market

conditions. Rather, they are influenced by both domestic and international policies and economic

conditions. It is thus clear that a globalising economy, while formulating and evaluating its domestic


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policy cannot afford to ignore the possible actions and reactions of policies and developments in

the rest of the world. This constrained the policy option available to the government which implies

loss of policy autonomy to some extent, in decision-making at the national level.

Q.6 Discuss any 3 regional trading agreements and its effect on international business

Ans: Regional integration is bonding between nations and states through political, cultural and

economic cooperation. The cooperation is overseen by rules and regulations decided upon by the

states entering into an understanding.

Regional Trading Arrangements

The European Union (EU)

The European Union (EU) is an economic and political union established in 1993. This came into

effect because of the Treaty of Maastricht, signed on 7th February 1992 by the European

Communities. The EU comprises of 27 member states committed to regional integration.

The EU has developed a single market for all the member states and sixteen member states have

adopted a common currency called the Euro. The member states sign an agreement called

Schengen Agreement, which ensures the free movement of people, goods, capital and services,

including the abolition of passport controls. The agreement enacts legislation in justice and home

affairs, and maintains common policies on trade, agriculture, fisheries and regional development.

EU has also devised a common foreign and security policy for its member states. The EU has

established diplomatic missions around the world and they represent the member states at the

United Nations, WTO, G8 and G-20 summits. EU ambassadors head the EU delegations.

Important organizations of the EU include the European Commission, the Council of the European

Union, the European Council, the Court of Justice of the European Union, and the European Central

Bank. The EU citizens elect the European Parliament every five years.

European Free Trade Association (EFTA)

The European Free Trade Association (EFTA) is a free trade organization established in 1960 between

four European counties, Norway, Switzerland, Iceland and Liechtenstein. The EFTA was formed at the

Stockholm Convention between seven countries, presently only four countries remain as the

members of EFTA. The EFTA was formed as an alternative to EU, allowing countries to join EFTA if they

were not willing to join EU. It operates parallel to the EU. The Stockholm Convention was replaced by

the Vaduz Convention. This Convention provides a framework for a free and liberal trade amongst

its member states.

In 1994, three of the EFTA countries signed European Economic Area (EEA) agreement and became

a part of the European Union Internal Market. Switzerland opted to arrange bilateral agreements

with the EU. In addition, the EFTA states have jointly arranged free trade agreements with many

other countries. This agreement prompted the EFTA states to modernize their convention to

guarantee that it will continue to provide guidelines for the expansion and liberalization of trade

among them and with the rest of the world.

North American Free Trade Agreement (NAFTA)

The North American Free Trade Agreement (NAFTA) was signed in 1994 by three governments,

Canada, Mexico, and the United States. This trade agreement is the largest in the world in terms of

combined purchasing power parity Gross Domestic Product (GDP) and second largest by nominal

GDP comparison.

The NAFTA is divided into two sections, the North American Agreement on Environmental

Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).

The North American Agreement on Environmental Cooperation (NAAEC) was established in 1994. It

is an environmental agreement between the United States of America, Mexico and Canada.

North American Agreement on Labor Cooperation (NAALC) was also established in 1994 to achieve

the following goals:

Improve working conditions and living standards.

Promote a set of guiding labor principles.

Encourage cooperation to promote innovation.

Improve the levels of productivity and quality.

NAALC provides various means such as exchanges of information, technical assistance, and

consultations for achieving the above goals.

MB0053 - International Business Management - Set 2

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