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International Business

International Business

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Published by atakhi

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Published by: atakhi on Jul 25, 2010
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05/17/2013

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Quest 1 (a): What are the dimensions of International Business?Answer – In today’s rapidly ever evolving and changing business world, whereglobalisation is the key for the success of any business, nearly all businessenterprises big or small are inspired to carry on business across the globe. The basic tasks and functions of international business are almost the same asdomestic business, but there is great difficulty in performing the functionseffectively and integrating them to serve organisational objective. The internationalisation of business can be viewed as a four dimensionalconstruct based on the premise that an enterprise can be more or less globalalong each of four major characteristics/dimensions:-
First Dimension
Globalisation of market presence
- It refers to the extent to which a companytargets customers in all major markets within its industry throughout the world.For example, in 1993, NTT of Japan had no presence at all either in NorthAmerica or in Europe. In comparison, IBM, Sun Microsystems and Canon were themost globalised firms.
Second Dimension-
Internationalisation of supply chain
– It refers to the extent to which thecompany is accessing the most optimal locations for the performance of variousactivities in its supply chain. It may be possible for a firm to have a fairly regionalmarket presence and yet a highly globalised supply chain or vice versa. ForExample, Toyota has a good supply chain. In 1965, Toyota produced about two-thirds of all its cars in Japan: the remaining one third was produced in itsaffiliates spread over 25 countries in America, Europe and Asia. Furthermore, thecompany exported 38% of its domestic production to foreign markets. Thecompany have not only taken access to various locations but have at the sametime created a flow of capital, goods and know how between Japan and overseasaffiliates.
Third Dimension-
Globalisation of capital base
– It refers to the extent to which the company isaccessing optimal sources of capital on a worldwide basis. The Hong Kong basedinternet service provided China.com represents a good example of how acompany can be ‘local’ in terms of market presence as well as supply chain andyet have a highly globalised capital base.
Fourth Dimension-
Globalisation of corporate mindset
- It refers to the ability of the company tounderstand and integrate diversity across cultures, and markets. General Electric(GE) serves as a good example of a firm with an increasingly global mindset. Thehuman capital of GE is highly globalised, it has strong worldwide corporate
 
culture and the composition of the leadership is increasingly diverse in terms of nationalities.
A representation of inter-relation between variouscharacteristics of globalisation
Quest 1(b): Discuss the factors that have led to the globalization of business.Answer – International business is not a new phenomenon. However the volumeof international trade and the number of players in it have increaseddramatically over the last decade. A number of developments around the worldhave helped to fuel this activity. These reasons are summarised below.1.Developing markets have huge markets. For companies, mostly in thedeveloped countries, which have been operating below their capacities,the developing markets offer immense opportunities to increase theirsales and profits.2.Many Multinational Companies (MNCs) are locating their subsidiaries inlow wage and low cost countries to take advantage of low cost of production. This not only helps the MNCs to operate on a more costefficient model but at the same time, provide benefits of employment andprofit sharing to these countries.3.Changing demographics also adds to increasing globalisation. As statedabove, demographic changes are more visible in India. In the days tocome, richer countries will face shortage of working-age people while IndiaGlobalisationof CapitalGlobalisationof Supply ChainGlobalisationof MarketPresenceGlobalisationof CorporateMindset
 
will have a surplus. It is not just the number of people that India has, butalso its quality of the people. India has a high availability of engineers,producing 400,000 every year; in addition to engineers India produces850,000 graduates and 70,000 diploma holders every year.4.Regional trading blocks are adding to the pace of globalisation. WTO(World Trade Organisation), EU (European Union), NAFTA (North AmericanFree Trade Agreement) and FTAA (Free Trade Area of Americas) are themajor alliances among countries. Trading blocks seek to promoteinternational business by removing trade and investment barriers.Integration among countries results in efficient allocation of resourcesthroughout the trading area, promoting growth of some businesses anddecline of others, development of new technologies and products andelimination of old.5.Declining trade and investment barriers have vastly contributed toglobalisation. The early period of the 20
th
Century witnessed high levels of barriers on trade and investment. The aim of such restrictions was toprotect domestic industries from foreign competition underlying theargument for protection of domestic industries. Each country startedimposing tariffs on the goods of the other countries. This led to thecumulative curtailment of demand resulting in the Great Depression of the1930s. The depression was characterised by a vicious circle: no jobs whichled to no income which led to no demand which led to no supply andwhich again led to no income. In order to break this circle, free flow of goods, services and capital across the globe was thought necessary. Thuscame the free trade regime resulting in the WTO.6.The most powerful instrument that triggered globalisation is technology.Revolution is probably the right word which can best describe the pace atwhich technology has changed in the recent past and is continuing tochange.Ques 5: Explain the following:(a)MNEs and New International Economic Order(b)Dynamics of regional trade groupings(c)WTO and the promotion and regulation of world tradeAnswer (b)All over the world, economic centres of gravity are emerging - the US-CanadaFree

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