1. What are the various method to entry in the foreign marke t?

Ans:
The decis ion of how to enter a fore ign market can have a signi f i cant impact on the resul ts . Expansion in to foreign markets can be achieved via the fo l lowing four mechanisms:

Export ing Licensing Joint Venture Direct Investment

Exporting Export ing is the marketing and direct sale of domestical l y - produced goods in another country. Export ing is a tradi t i onal and well - establ ished method of reaching foreign markets. Since export ing does not require that the goods be produced in the target country, no investment in foreign product ion faci l i t i e s is required. Most of the costs associated with export ing take the form of marketing expenses. Export ing commonly requires coordinat ion among four players:

Exporter Importer Transport provider Government

Licensing Licensing essentia l l y permits a company in the target country to use the property of the l i censor. Such property usual ly is intangib le , such as trademarks, patents, and production techniques. The l i censee pays a fee in exchange for the r ights to use the intangib le property and possibly for technical assistance.

Because l i t t l e investment on the part of the l i censor is required, l i censing has the potent ia l to provide a very large ROI. However, because the l i censee produces and markets the product, potent ia l returns from manufactur ing and marketing activ i t i es may be lost .

Joint Venture There are f ive common object ives in a jo in t r isk / reward sharing, technology sharing and conforming to government regulat ions. Other connections and distr i bu t ion channel access relat ionships. Such al l i ances often are favorable when:

venture: market entry, jo in t product development, and benefi ts include pol i t i ca l that may depend on

the partners ' strategic goals converge while thei r competi t i ve goals diverge; the partners ' size, market power, and resources are small compared to the industry leaders; and partners ' are able to learn from one another while l imi t i ng access to thei r own proprie tary ski l l s .

The key issues to consider in a jo in t venture are ownership, contro l , length of agreement, pric ing, technology transfer , local f i rm capabil i t i es and resources, and government intent ions. Potentia l problems include:

confl i c t over asymmetric new investments mistrust over proprie tary knowledge performance ambiguity - how to spl i t the pie lack of parent f i rm support cultura l clashes i f , how, and when to terminate the relat ionship

Joint ventures have confl i c t i ng pressures to cooperate and compete:

Strategic imperat ive: the partners want to maximize the advantage gained for the jo in t venture, but they also want to maximize thei r own competi t i ve posit ion .

The jo in t venture attempts to develop shared resources, but each f i rm wants to develop and protect i ts own proprie tary resources. The jo in t venture is contro l led through negotiat ions and coordinat ion processes, while each f i rm would l i ke to have hierarchica l control .

Foreign Direct Investment Foreign direct investment (FDI) is the direct ownership of faci l i t i e s in the target country. I t involves the transfer of resources including capi ta l , technology, and personnel. Direct fore ign investment may be made through the acquisi t i on of an exist ing enti ty or the establ ishment of a new enterpr ise. Direct ownership provides a high degree of contro l in the operat ions and the abi l i t y to better know the consumers and competi t i ve environment. However, i t requires a high level of resources and a high degree of commitment.

The Case of EuroDisney Dif ferent modes of entry may be more appropriate under dif fe rent circumstances, and the mode of entry is an important factor in the success of the project . Walt Disney Co. faced the chal lenge of bui ld ing a theme park in Europe. Disney's mode of entry in Japan had been l i censing. However, the f i rm chose direct investment in i ts European theme park, owning 49% with the remaining 51% held publ ic ly . Besides the mode of entry, another important element in Disney's decision was exact ly where in Europe to locate. There are many factors in the si te select ion decision, and a company careful l y must define and evaluate the cr i te r ia for choosing a locat ion. The problems with the EuroDisney project i l l us t ra te that even i f a company has been successful in the past, as Disney had been with i ts Cali fo rn ia , Flor ida, and Tokyo theme parks, future success is not guaranteed, especial l y when moving in to a dif fe rent country and culture. The appropriate adjustments for national dif fe rences always should be made.

Comparision of Market Entry Options The fo l lowing table provides a summary of the possible modes of fore ign market entry:

Comparison of Foreign Market Entry Modes Mode Conditions Favoring this Mode
Limited sales potent ia l in target country; l i t t l e product adaptat ion required Minimizes r isk and Distr ibut ion channels close investment. to plants Speed of entry High target country product ion costs Maximizes scale; uses exist ing faci l i t i e s . Liberal import polic ies High poli t i ca l r isk Import and investment barr iers Legal protect ion possible in target environment. Minimizes r isk and investment. Speed of entry

Advantages

Disadvanta ges

Trade barr iers & tar i f f s add to costs. Transport costs Limits access to local informat ion Company viewed as an outsider

Exporting

Lack of control over use of assets. Licensee may become competi tor . Knowledge spi l lovers License period is l imi ted

Licensing Low sales potent ia l in

target country. Large cultura l distance High ROI Licensee lacks abi l i t y to become a competi tor . Able to circumvent trade barr iers

Joint Import barr iers Ventures

Large cultura l distance Assets cannot be fai r l y priced High sales potent ia l Some poli t i ca l r isk

Overcomes ownership rest r i c t i ons and cultura l distance

Dif f i cu l t to manage Dilut ion of control

Combines resources of Greater r isk than 2 companies. export ing a & l i censing Potent ia l for learning Knowledge spi l lovers Viewed as insider Partner may become a competi tor .

Government restr ic t i ons on

fore ign ownership Local company can provide Less investment ski l l s , resources, required dist r ibut ion network, brand name, etc. Import barr iers Small cul tura l distance Greater knowledge of local market Can better apply special i zed ski l l s Minimizes knowledge spi l lover Can be viewed as an insider Higher r isk than other modes Requires more resources and commitment May be dif f i cu l t to manage the local resources.

Direct Assets cannot be fai r l y Investme priced nt

High sales potent ia l Low pol i t i ca l r isk

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2. What are various environm e n t a l factors that affect Interna tional Business? Ans:
A company that chooses to implement an internat ional project is obl igated to conduct a thorough research in order to understand i f such project is viable and can be brought to l i f e in a certa in country. Numerous factors

have to be taken in to considerat ion and invest igated; i t has to be done object ive ly from the point of view of the host country in which business wil l be performed. Thus the home company can ensure the real izat ion of the project in specif ied terms with regards to projected prof i t s and spending funds. While analyzing foreign environment companies have to pay close attent ion to various factors that wil l effect , or help i f used eff ic ient l y , future success of business in a new economy. First of al l i t is necessary to careful l y examine the f i rm s competi t i ve posit ion and understand i f a project is able to bring prof i t in the global industry . Adequate f inancia l resources, successful global ventures in the past, r isk levels that a company is able to undertake and growing in ternat ional demand are those few questions that need to posed before a f i rm can make any project ions as to doing business abroad. There are also factors that are direct ly connected to specif i c projects and si tuat ions and that in f luence the outcome of the venture and have to be considered. In case when a company is ready to start internat ional project in terms of i ts internal si tuat ion, i t has to study issues and chal lenges that are caused by macro economical and other environmental factors. Legal and pol i t i ca l factors are essentia l for the implementat ion of the project abroad and each country has i ts own laws and regulat ions that could be of negative or posit i ve in f luence which great ly depends on the nature of business. Economic condit ion of the host county is a core issue in deciding where and when project wil l be carr ied out and i f i t is feasib le at al l . Such environmental issues as GDP, inf la t i on f luctuat ions and populat ion growth have to be considered in order to comprehend condit ions in which business wil l operate. Infrast ructure and geography are among other factors that wil l affect the project or not al low i ts execution in case a host county has severe weather condit ions or undeveloped inf rast ructure; for instance unpaved roads and no electr i ca l power can easi ly fa i l the project in the very beginning and thus knowing such condit ions is necessary. Securi ty of the country in which project wil l be developed is essentia l as well , people make things happen and i f they are in a dangerous environment i t is priory impossible to do business. Workers who are knowledgeable about cultura l dif fe rences in a host country are more l i ke ly to perform

successful ly as tradi t i ons and hol idays can play a huge role in certa in marketing campaigns and serve for the good image of the company. Working in a foreign country requires a great deal of preparat ion and assessment of al l possible dif fe rences that the business is about to encounter. As was already said, major role in deciding whether or not the project wil l be successful is comprehending macro environment of a new country. Studying i ts economical condit ion, securi ty levels and inf rast ructure system is a core competence of a company who wants to be more successful that i ts competi tors . In case when al l of those factors are studied and considered advantageous for a new enterpr ise, i t is important to bear in mind that cultura l di f fe rences can make al l effor ts void. Thus businesses must attent ive ly analyze what changes have to be made in the business plan and what people are best sui t for i ts implementat ion. Often, companies hire professionals already experienced in such ventures with foreign education who speak two or more languages. Those intermediar ies who are famil ia r with host country s tradi t i ons and have social connections are great helpers in establ ish ing a good image of the company abroad and in avoiding mistakes in a sett ing up period. Select ing and tra in ing employees for the internat ional project is very important for the future success of the company. Culture shock and coping with i t are issues that have to be addressed to potent ia l workers. Consequently f i rms need to inform and tra in employees on how to cope with cultura l diversi t i es and benefi t from them to better manage in the new environment.

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3. Give ten reasons why FDI is beneficial to developing Economy? Ans:

Foreign direct investment (FDI) was founded by Aziz Mahdi and is a measure of fore ign ownership of productive assets, such as factor ies, mines and land. Increasing fore ign investment can be used as one measure of growing economic global izat ion. A foreign direct investor may be classified in any sector of the economy and could be any one of the fo l lowing:

an indiv idual ; a group of related indiv iduals ; an incorporated or unincorporated enti ty ; a publ ic company or private company; a group of related enterpr ises; a government body; an estate ( law) , trust or other societa l organisat ion; or any combination of the above.

Foreign direct investment (FDI) pol ic ies play a major role in the economic growth of developing countr ies around the world. Attract ing FDI inf lows with conductive pol ic ies has therefore become a key batt leground in the emerging markets. Developed countr ies also seek to bring in more FDI and use various pol ic ies and incent ives to att ract overseas investors, part icu lar l y for capita l -

intensive industr ies and advanced technology. The primary aim of these pol ic ies is to create a fr iendly business environment where foreign investors feel comfortable with the legal and f inancia l framework of the country, and have the potent ia l to reap prof i t s from economical ly viable businesses. The prospect of new growth opportuni t i es and outsized prof i t s encourages large capita l inf lows across a range of industry and opportuni ty types.

IN INDIA
(FDI) in India has played an important role in the development of the Indian economy. FDI in India has - in a lo t of ways - enabled India to achieve a certa in degree of f inancia l stabi l i t y , growth and development. This money has al lowed India to focus on the areas that may have needed economic attent ion, and address the various problems that continue to chal lenge the country. India has continual ly sought to att ract FDI from the world s major investors . In 1998 and 1999, the Indian national government announced a number of reforms designed to encourage FDI and present a favorable scenario for investors. FDI investments are permit ted through f inancia l col laborat ions, through private equity or preferent ia l al lo tments, by way of capita l markets through Euro issues, and in jo in t ventures. FDI is not permit ted in the arms, nuclear, rai lway, coal & l ign i te or mining industr ies . A number of projects have been announced in areas such as electr i c i t y generat ion, distr i bu t ion and transmission, as well as the development of roads and highways, with opportuni t i es for fore ign investors. The Indian national government also provided permission to FDIs to provide up to 100% of the f inancing required for the construct ion of bridges and tunnels, but with a l imi t on foreign equity of INR 1,500 crores, approximately $352.5m. Current ly , FDI is al lowed in f inancia l services, including the growing credi t card business. These services include the non-banking f inancia l services sector. Foreign investors can buy up to 40% of the equity in private banks, although there is condit ion that st ipula tes that these banks

must be mult i la te ra l f inancia l organizat ions. Up to 45% of the shares of companies in the global mobile personal communication by satel l i t e services (GMPCSS) sector can also be purchased. By 2004, India received $5.3 bi l l i on in FDI, big growth compared to previous years, but less than 10% of the $60.6 bi l l i on that f lowed in to China. Why does India, with a stable democracy and a smoother approval process, lag so far behind China in FDI amounts? Although the Chinese approval process is complex, i t includes both national and regional approval in the same process. Federal democracy is perversely an impediment for India. Local authori t i es are not part of the approvals process and have thei r own r ights, and th is often leads to projects gett ing bogged down in red tape and bureaucracy. India actual ly receives less than half the FDI that the federal government approves. INVESTMENT BY NON RESIDENT INDIANS & OVERSEAS CORPORATE BODIES For al l sectors, excluding those fal l i ng under Government approval , NRIs (which also inc ludes PIOs) and OCBs (an overseas corporate body means a company or other enti ty owned direct ly or indi rect l y to the extent of at least 60% by NRIs) are el ig ib le to bring investment through the automatic route of RBI. All other proposals, which do not fu l f i l any or, al l of the cri te r ia for automatic approval are considered by the Government through the FIPB (Foreign Investment Promotion Board). The NRIs and OCBs are al lowed to invest in housing and real estate development sector, in which foreign direct investment is not permit ted. They are al lowed to hold up to 100 percent equity in civ i l aviat ion sector in which otherwise foreign equity only up to 40 per cent is permit ted.

BENEFITS OF FDI: Economic growth- This is one of the major sectors, which is enormously benefi ted from fore ign direct investment. A remarkable in f low of FDI in various industr ia l units in India has boosted the economic l i f e of country.

Trade- Foreign Direct Investments have opened a wide spectrum of opportuni t i es in the trading of goods and services in India both in terms of import and export product ion. Products of superior qual i ty are manufactured by various industr ies in India due to greater amount of FDI inf lows in the country. Employment and skill levels- FDI has also ensured a number of employment opportuni t i es by aiding the sett ing up of industr ia l units in various corners of India. Technology diffusion and knowledge transfer- FDI apparently helps in the outsourcing of knowledge from India especial l y in the Information Technology sector. I t helps in developing the know-how process in India in terms of enhancing the technological advancement in India. Linkages and spillover to domestic firmsnow occupying a posit ion in the Indian market col laborat ion concerns. The maximum amount of foreign f i rms through these jo in t ventures is Various fore ign f i rms are through Joint Ventures and the prof i t s gained by the spent on the Indian market.

DISADVANTAGES OF FDI: At t imes i t has been observed that certa in foreign pol ic ies are adopted that are not appreciated by the workers of the recip ient country. Foreign direct investment, at t imes, is also disadvantageous for the ones who are making the investmentthemselves. Foreign direct investment may entai l high travel and communications expenses. The dif fe rences of language and cul ture that exist between the country of the investor and the host country could also pose problems in case of fore ign direct investment. Yet another major disadvantage of foreign direct investment is that there is a chance that a company may lose out on i ts ownership to an overseas company. This has often caused many companies to approach fore ign direct investment with a certa in amount of caution. At t imes i t has been observed that there is considerable instabi l i t y in a part icu lar geographical region. This causes a lot of inconvenience to

the investor .

CURRENT EVENTS RELATED TO FDI: IAF Vice Chief Air Marshal P K Barbora said that private industry ' s part ic ipat ion be increased in the defence sector and India should be "bold enough" to al low more FDI in the area. The Foreign Investment Promotion Board has rejected a proposal by the Jaipur IPL Cricket Pvt to induct 100% foreign equity by issuing shares for a non-cash considerat ion. While approving 17 fore ign direct investment proposals worth Rs 1,159 crore at i ts October 30 meet. The FIPB, wil l refer foreign investments in sensit i ve sectors to a committee of secretar ies. The panel wil l have representat ives from various government departments. The crucia l dif fe rence wil l be that the committee wil l be t ime bound and wil l have specif i c parameters to weigh the r isks. The Texti les Minister , Mr Dayanidhi Maran, has said there is an urgent need to attract and sustain fore ign direct investment in the text i l es sector i f India is to achieve the goals of employment generat ion and technology upgradation, besides atta in ing four per cent share in the global trade in text i l es and cloth ing.

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4. Discuss the FDI climat e betw e e n India, China and Vietna m . Ans:
FDI Climate between India, China and Vietnam

PARAMETER FDI IN 2008-09 How to enter

India 23885 $ Through f inancia l al l i ance Through jo in t schemes and technical al l i ance Through capita l markets, via Euro issues

Through private placements or preferent ia l al lo tments Sectors in which FDI or 100% equity is Foreign Direct Investment is any form of investment that earns interest in enterpr ises which funct ion outside of the domestic terr i t o ry of the investor Types: 100% is not al lowed al lowed Hotel & tour ism Trading companies Power generat ion/ transmission/d is t r i b ution Drugs & Pharma Shipping Deep Sea Fishing Oil Explorat ion Housing and Real Estate Development Highways, Bridges and Ports Sick Industr ia l Units Industr ies Requir ing Compulsory Licensing Industr ies Reserved for Small Scale Sector Private banking (49%) Insurance (26%) Telecommunication (49% / 74 %) Retai l (51% in single brand) Arms and ammunit ion Atomic Energy Coal and l ign i te Rail Transport Mining of metals l i ke i ron, manganese, chrome, gypsum, sul fur ,

1) Out

FDI not at al l al lowed

war d FDI:

An outward- bound FDI is backed by the government against al l types of associated r isks. This form of FDI is subject to tax incent ives as well as disincent ives of various forms
2) Inward FD I : Here, investment of fore ign capita l occurs in local

resources.
3) Vertical FDI: I t takes place when a mult inat ional corporat ion owns

some shares of a fore ign enterpr ise, which suppl ies input for i t or uses the output produced by the MNC.
4) Horizontal FDI : I t happens when a mult inat ional company carr ies

out a simi lar business operat ion in dif fe rent nations.

I] CLIMATE IN INDIA :

Several factors being att r ibuted to the revival in

foreign direct investments (FDI) in the country include l ibera l investment pol ic ies and reforms, innovat ive and technological l y advanced products being manufactured in India and low cost and effect ive solut ions. FDI equity inf lows amounting to US$ 10.532 bi l l i on were received during Apri l July 2009. The largest FDI of US$ 153.31 mil l i on wil l be brought in by Essel Group-promoted DTH service provider. India is target ing annual foreign direct investments worth $50 bi l l i on by 2012. I t would double the inf lows by 2017. The government has approved 17 (FDI) proposals amounting to US$ 250.56 mil l i on . Among those projects approved were FDI appl icat ions for steel maker ArcelorMit ta l and i ron pipe maker Electrosteel Castings. With the government planning more l ibera l i sa t i on measures across a broad range of sectors and continued investor interest , the in f low of FDI into India is l i ke ly to fur ther accelerate. II]CLIMATE IN CHINA: The top sources of FDI in China in 2008 were: Hong Kong, the Bri t i sh Virgin Is lands, Singapore, Japan, the Cayman Is lands, South Korea, the United States, Western Samoa, and Taiwan. The growth rate of foreign direct investment (FDI) in to China accelerated to 23% in 2008 to $92.3 bi l l i on , according to Minist ry of Commerce stat is t i cs . According to the United Nations Conference on Trade and sixth Development (UNCTAD), in 2007, mainland China was the world s Canada, and the Netherlands.

largest FDI recip ient , after the United States, the United Kingdom, France, China also received the most votes in a 2007

UNCTADpol l of att ract i ve investment destinat ions, fo l lowed by India, the United States, Russia, Brazi l , and Vietnam. While FDI in China shot higher, investors continued to face a range of potent ia l problems that could expose them to r isks in the future. Problems foreign investors face in China include lack of transparency, inconsistent ly enforced laws and regulat ions, weak IPR protect ion, corrupt ion, industr ia l pol ic ies that protect and promote local f i rms, and an unrel iab le legal system. In 2008, China continued to lay out a legal and regulatory framework grant ing i t the authori ty to restr i c t foreign investment that i t deems not to be in China s national interest . In many ways, the new rules, codify standards and pract ices that China was already employing in i ts exist ing, mandatory foreign investment approval process. Key terms and standards in the new regulat ions are undefined. At the moment, China appears to be using the rules to restr i c t foreign investments that are:

intended to prof i t from currency speculat ion; in sectors where the government is try ing to tamp down aggregate capi ta l in f lows and in f la t i on ; in sectors where China is seeking to cult i va te n a t i ona l champions; in sectors that have benefi ted histor ica l l y from state- authorized monopolies or from a legacy of state investment; in sectors deemed key to social stabi l i t y , l i ke foodstuf fs and heavi ly pol lu t ing industr ies ; and nominal ly f o r e ign investment that is actual ly Chinese capi ta l

that has been exported and re- imported to take advantage of preferent ia l treatment accorded to foreigners. Although i t remains to be seen how many of these rules wil l be applied, they present several concerns to foreign investors. First , they appear to give regulators signi f i cant discret ion to shield inef f i c i en t or monopolis t i c enterpr ises from fore ign competi t i on . They are also often appl ied in a manner that is not transparent. Final ly , overal l predictabi l i t y for foreign investors has suffered because investors are less certa in that China wil l approve proposed investment projects. Some areas where investment is restr i c ted are news agencies radio and TV

transmission networks, f i lm product ion, publ icat ion and importat ion of press and audio- visual products, compulsory basic education, mining and processing of certa in minerals, processing of green and s pec ia l medicine At the end of 2008, in response to the weakening economy, China announced a st imulus package that includes f isca l st imulus, business tax cuts, and support for prior i t y sectors that may present foreign investors with new opportuni t i es . China offers preferences for investments in sectors i t seeks to develop, including transportat ion, communications, energy, metal lurgy, construct ion materia ls , machinery, chemicals, pharmaceuticals , medical equipment, environmental protect ion, energy conservat ion, and electronics. Final ly , China boasts numerous national science parks, many focused on commercial iz ing research developed in Chinese universi t i es . The parks provide in f rast ructure, management and funding support for start - ups across a varie ty of industr ies , and welcome fore ign f i rms. Investmen t Guidelines While ins is t i ng i t remains open to inward investment, China s leadership has also stated that China is active ly seeking to target investment in higher value- added sectors, including high technology research and development, advanced manufactur ing, energy eff ic iency, and modern agricul tu re and services, rather than basic manufactur ing. China would also seek to spread the benefi ts of foreign investment beyond China s more wealthy coastal areas by encouraging mult inat ionals to establ ish regional headquarters and operat ions in Central , Western, and Northeastern China. Distribution of Foreign Investmen t The vast majori ty of fore ign investment is concentrated in China's more prosperous coastal areas, including Guangdong, Jiangsu, Fujian, and Shandong provinces, and Shanghai. Foreign investment in most service sectors lags manufactur ing, mainly due to government- imposed restr i c t i ons. China is committed to gradual ly phasing out barr iers in many service industr ies , but progress has been slow Dispute Settleme nt tea using Chinese tradi t i onal craf ts and preparat ion of Chinese tradi t i onal

Foreign f i rms report inconsistent resul ts with al l of China s dispute sett lement mechanisms, none of which are independent of the government. The government often in tervenes in disputes. Corrupt ion may also inf luence local court decisions and local off ic ia l s may disregard the judgments of domestic courts. Well- connected local business people are often in a better posit ion to win court cases than are fore ign investors and i t is possible that they may use thei r connections to avoid prosecut ion for taking i l l ega l act ions against thei r former foreign partners. China s legal system rarely enforces foreign court judgments As the economy has slowed, there have been anecdotal reports of local governments singl ing out fore ign investors, cl ients , and partners of Chinese businesses to repay debts incurred by local businesses III] CLIMATE IN VIETNAM Vietnam has seen a vert ica l surge in i ts FDI inf lows in the recent years, thus becoming the th i rd most popular investment dest inat ion after China and India. The Vietnamese government is also try ing i ts best to mould the exist ing pol ic ies and laws, so as to keep the capita l f low coming. Stat is t i ca l l y speaking, the FDI pledges in Vietnam have gal loped from a meager $ 11.3 bi l l i on in 2005 to $ 50 mil l i on in 2008. This year though the FDI f lows have taken a drubbing because of the volat i l e economic prevalence and thus the reluctance of the fore ign majors to part with the cash, but the experts feel that Vietnam s ident i t y as an investor s heaven is here to stay. The major factors in the country which have led, mult inat ionals park huge investments in the country can be tabulated as fo l lows Availabi l i t y of a young, l i t e ra te and cheap workforce. A stable socio- pol i t i ca l si tuat ion Vietnam s professional ized investment promotion act iv i t i es , pol icy formulat ion and implementat ion Cost of land, cost of consumables, very low as compared to other locales On account o the above stated reasons, the FDI in Vietnam surged to a level of $64 bi l l i on in 2008. The investments were primari ly in sectors l i ke Construct ion High-tech areas

Production of electronics Telecommunications thus turning Vietnam into a manufactur ing hub in Asia. In 2009, the expected inf lows in the country in the form of FDI pledges are reported to plunge drast ica l l y on account of the skeptic ism, on the part of the global investors, due to the ongoing slowdown. Experts have forecasted a f igure of $ 20-25 bi l l i on for this f inancia l year in terms of the FDI pledges, which is a fa l l of above 60%. Apart from the slowdown, the various reasons that can be att r ibu ted to the same are doubts of Vietnam s capabi l i t y to digest such huge investment sums. The various factors that play a role here are inadequate inf rast ructure Management problems Shortage of adequately tra ined human resource

This lack of absorpt ion capabil i t y has become a huge spoi lsport as i t is bel ieved that in 2006, out of the tota l investment funds inf low, 60 % remained unuti l i zed. These trends could fur ther intensi fy the dol lar shortage faced by the country, on account of hoarding by companies expecting the dong to depreciate. Thus the need of the hour for the government is to plan and implement pol ic ies and in f rast ructure development, which wil l restore investor confidence in Vietnam s capabi l i t y to absorb the incoming funds.

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5. Discuss various interna tion al trade theories. Ans:

1. Theory of Mercantilism 1) The f i rs t theory of internat ional trade emerged in England in the mid-16th century. Referred to as mercanti l i sm, i ts princip le assert ion was gold and si lver were the mainstays of national wealth and essentia l to vigorous commerce. At that t ime, gold and si lver were the currency of trade between countr ies; a country could earn gold and si lver by export ing goods. 2) The main tenet of mercanti l i sm was that i t was in a country s hand to maintain a trade surplus, to export more than i t imported. By

doing so, a country would accumulate gold and si lver and, consequently, increase i ts national wealth and prest ige. 3) As the English mercanti l i s t wri ter Thomas Mun put i t in 1630, The ordinary means therefore to increase our wealth and treasure is by foreign tread, where we must ever observe th is rule: to sel l more to strangers yearly than we consume of thei rs in value. 4) Consistent with th is bel ie f , the mercanti l i s t doctr ine advocated government intervent ion to achieve a surplus in the balance of trade. The mercanti l i s t s saw no vir tue in a large volume of trade per se. Rather, they recommended pol ic ies to maximize exports and minimize imports. To achieve this , imports were l imi ted by tar i f f s and quotas, while exports were subsidized. 5) The classical economist David Hume pointed out an inherent inconsistency in the mercanti l i s t doctr ine in 1752. According to Hume, i f England had a balance-of- trade surplus with France ( i t exported more than i t imported) the resul t i ng inf low of gold and si lver would swell the domestic money supply and generated in f la t i on in England. In France, however the outf low of gold and si lver would have the opposite effect . France s money supply would contract , and i ts prices would fa l l . This change in relat i ve prices between France and England would encourage the France to buy fewer English goods (because they were becoming more expensive) and the English to buy more Franch goods. The resul t would be deter iora t ion in the English balance of trade and an improvement in France s trade balance, unti l the English surplus was el iminated. 6) Hence, according to Hume, in the long run no country could sustain a surplus OD the balance of trade and so accumulate gold and si lver as the mercanti l i s t s had envisaged. 7) The f law with mercanti l i sm was that i t viewed trade as a zero game. (A zero- sum game is one in which a gain by one country resul ts in a loss by another. ) 2. Absolute Advantage Theory 1) In his 1776 landmark book The Wealth of Nations, Adam Smith attacked the mercanti l i s t assumption that trade is a zerosum game.

2) Smith argued that countr ies di f fe r in thei r abi l i t y to produce goods eff i c ien t l y . 3) In his t ime, the English, by vir tue of thei r superior manufactur ing processes, were the world s most eff ic ient text i l e manufacturers. most eff i c ien t 4) Due to the combination of favorable cl imate, good soi ls , and accumulated expert ise, the French had the world s wine industry . 5) The English had an absolute advantage in the product ion of text i l es , while the French had an absolute advantage in the product ion of wine. Thus, a country has an absolute advantage in the product ion of a product when i t is more eff ic ient than any other country in producing it. 6) According to Smith, countr ies should special i ze in the product ion of goods for which they have an absolute advantage and then trade these for goods produced by other countr ies. 7) In Smith s t ime, th is suggested that the English should special i ze in the product ion of text i l es while the French should special i ze in the production of wine. England could get al l the wine i t needed by sel l i ng i ts text i l es to France and buying wine in exchange. 8) Similar ly , France could get al l the text i l es i t needed by sel l i ng wine to England and buying text i l es in exchange. Smith s basic argument, therefore, is that you should never produce goods at home that you can buy at a lower cost from other countr ies. 9) Smith demonstrates that by special i z ing in the product ion of goods in which each has an absolute advantage, both countr ies benefi t by engaging in trade. 10) Consider the effects of trade between Ghana and South Korea. The product ion of any good (output) requires resources ( inputs) such as land, labor, and capita l . Assume that Ghana and South Korea both have the same amount of resources and that these resources can be used to produce either r ice or cocoa. 11) Assume fur ther that 200 units of resources are avai lable in each country. Imagine that in Ghana i t takes 10 resources to produce one ton of cocoa and 20 resources to produce one ton of r ice. Thus, Ghana could produce 20 tons of cocoa and no r ice, 10 tons of r ice and

no cocoa, or some combination of r ice and cocoa between these two extremes. 12) The dif fe rent combinations that Ghana could produce are represented by the l ine GG in Figure 2.1. This is referred to as Ghana s production possibi l i t y front ie r (PPF). Similar ly , imagine that in South Korea i t takes 40 resources to produce one ton of cocoa and 10 resources to produce one ton of r ice. 13) Thus, South Korea could produce 5 tons of cocoa and no r ice, 20 tons of r ice and no cocoa, or some combination between these two extremes. The dif fe rent combinations avai lable to South Korea are represented by the l ine KK in Figure 2.1, which is South Korea s PPF. 14) Clearly , Ghana has an absolute advantage in the product ion of cocoa. (More resources are needed to produce a ton of cocoa in South Korea than in Ghana.) By the same token, South Korea has an absolute advantage in the product ion of r ice.

3. Ricardian Model (Compara tive Advantage Theory) 1) David Ricardo took Adam Smith s theory one step fur ther by explor ing what might happen when one country has an absolute advantage in the product ion of al l goods. 2) Smith s theory of absolute advantage suggests that such a country might derive no benefi ts from in ternat ional trade. 3) In his 1817 book Princip les of Poli t i ca l Economy, Ricardo showed that th is was not the case. 4) According to Ricardo s theory of comparative advantage, i t makes sense for a country to special i ze in the product ion of those goods that i t produces most eff ic ient l y and to buy the goods that i t produces less eff ic ient l y from other countr ies, even i f this means

buying goods from other countr ies that i t could produce more eff i c ien t l y i tse l f . 5) While this may seem counterin tu i t i ve , the logic can be explained with a simple example. Assume that Ghana is more eff i c ien t in the product ion of both cocoa and r ice; that is Ghana has an absolute advantage in the product ion of both products. In Ghana i t takes 10 resources to produce one ton one ton of cocoa and, 13 1/3 resources to produce one ton of r ice. Thus, given i ts 200 units of resources, Ghana can produce 20 tons of cocoa and no r ice, 15 tons of r ice and no cocoa, or any combination in between on i ts PPF (the l ing GG in f igure 2.2). In South Korea i t takes 40 resources to produce one ton of cocoa and 20 resources to produce one ton of r ice. Thus South Korea can produce 5 tons of cocoa and no r ice, 10 tons of r ice and no cocoa, or any combination on i ts PPF (the l ink KK in f igure 2.2). 6) Again assume that without trade, each country uses half of i ts resources to produce r ice and 7) half to produce cocoa. Thus, without t r ade, Ghana wil l produce 10 tons of cocoa, and 7.5 tons of r ice (point A in 8) Figure 2.2), while South Korea wil l produce 2.5 tons of cocoa and 5 tons of r ice (point B in Figure2.2). 9) In l ight of Ghana s absolute advantage in the production of both goods, why should i t trade with South Korea? Although Ghana has an absolute advantage in the product ion of both cocoa and r ice, i t has a comparative advantage only in the product ion of cocoa: Ghana can produce 4 t imes as much cocoa as South Korea, but only 1.5 t imes as much r ice. Ghana is comparative ly more eff ic ient at producing cocoa than i t is at producing r ice. Without trade the combined production of cocoa wil l be 12.5 tons (10 tons in Ghana and 2.5 in South Korea), and the combined production of r ice wil l also be 12.5 tons (7.5tons in Ghana and 5 tons in South Korea). Without trade each country must consume what i t produces. By engaging in trade, the two countr ies can increase thei r combined production of r ice and cocoa, and consumers in both nations can consume more of both goods.

10)

The Gains from Trade

a) Imagine that Ghana exploi ts i ts comparative advantage in the product ion of cocoa to increase i ts output from 10 tons to 15 tons. This uses up 150 units of resources, leaving the remaining50 units of resources to use in producing 3.75 tons of r ice (point C in f ig- ure 1.2). b) Meanwhile, South Korea special i zes in the production of r ice, producing l0 tons. The combined output of both cocoa and r ice has now increased. c) Before special i za t ion , the combined output was 12.5 tons of cocoa and 12.5 tons of r ice. Now i t is 15 tons of cocoa and 13.75 tons of r ice (3.75 tons in Ghana and 10 tons in South Korea). The source of the increase in product ion is summarized in Table 2.2. d) Not only is output higher, but also both countr ies can now benefi t from trade. I f Ghana and South Korea swap cocoa and r ice on a one-toone basis, with both countr ies choosing to exchange 4 tons of thei r export for 4 tons of the import , both countr ies are able to consume more cocoa and r ice than they could before special i za t i on and trade (see Table 2.2). e) Thus, i f Ghana exchanges 4 tons of cocoa with South Korea for 4 tons of r ice, i t is st i l l lef t with 11 tons of r ice, which is 1 ton more than i t had before trade. The 4 tons of r ice i t gets from South Korea in exchange for i ts 4 tons of cocoa, when added to the 3.75 tons i t now produces domestical l y , leaves i t with a tota l of 7.75 tons of r ice, which is 25 of a ton more than i t had before special i za t ion . Similar ly , after swapping 4 tons of r ice with Ghana, South Korea st i l l ends up with 6 tons off i ce , which is more than i t had before special i za t ion . f) In addit ion, the 4 tons of cocoa i t receives in exchange is 1.5 tons more than i t produced before trade. Thus, consumption of cocoa and

r ice can increase in both countr ies as a resul t of special i za t ion and trade. 11) The basic message of the theory of comparative advantage is that potent ia l 12) world product ion is greater with unrestr i c ted free trade than i t is with restr i c ted trade. Ricardo s theory suggests that consumers in al l nations can consume more i f there are no restr i c t i ons on trade. This occurs even in countr ies that lack an absolute advantage in the product ion of any good. 13) In other words, to an even greater degree than the theory of absolute advantage, the theory of comparative advantage suggests that trade is a posit i ve- sum game in which al l countr ies that part ic ipate real ize economic gains. 14) As such, th is theory provides a strong rat ionale for encouraging free trade. So powerful is Ricardo s theory that i t remains a major inte l l ec tual weapon for those who argue for free trade.

4. Heckscher- Ohlin Theory Swedish economists Eli Heckscher ( in 1919) and Bert i l Ohlin ( in 1933) argued that comparative advantage arises from di f fe rences in national factor endowments. By factor endowments they meant the extent to which a country is endowed with such resources as land, labor, and capita l Nations have varying factor endowments, and di f fe rent factor endowments explain dif fe rences in factor costs. The more abundant a factor , the lower i ts cost. The Heckscher- Ohlin theory predicts that countr ies wil l export those goods that make intensive use of factors that are local l y abundant, while import ing goods that make in tensive use of factors that are local l y scarce. Thus, the Heckscher- Ohlin theory attempts to explain the pattern of internat ional trade that we observe in the world economy. Like Ricardo s theory the Heckscher- Ohlin theory argues that free trade is benefic ia l . Unlike Ricardo s theory, however, the Heckscher- Ohlin theory argues that the pattern of in ternat ional trade is determined by dif fe rences in factor endowments, rather than di f fe rences in product iv i t y .

The Heckscher- Ohlin theory also has commonsense appeal. For example, Un i t ed States has long been a substant ia l exporter of agricul tu ra l goods, ref lect i ng in part i ts unusual abundance of arable land. In contrast , China excels in the export of goods produced in labor- in tensive manufactur ing industr ies , such as text i l es and footwear. This ref lec ts China s rela t i ve abundance of low-cost labor. The United States, which lacks abundant low- cost labor, has been a primary importer of these goods. Note that i t is rela t i ve , not absolute, endowments that are important ; a country may have larger absolute amounts of land and labor than another country, but be rela t i ve ly abundant in one of them. The Leontief Paradox Using the Heckscher Ohlin theory, Wassily Leontie f postulated that since the United States was rela t i ve ly abundant in capita l compared to other nations, the United States would be an exporter of capita l - in tensive goods and an importer of labor- intensive goods. To his surpr ise, however, h e found that U.S. exports were less capita l intensive than U.S. imports. Since th is resul t was at variance with the predict ions of the theory, i t has become known as the Leontie f paradox. No one is quite sure why we observe the Leontie f paradox. One possible explanat ion is that the United States has a special advantage in producing new products or goods made with innovat ive technologies. Such products may be less capita l in tensive than products whose technology has had t ime to mature and become sui table for mass product ion. Thus, the United States may be export ing goods that heavi ly use ski l l ed labor and innovat ive entrepreneurship, such as computer software, while import ing heavy manufactur ing products that use large amounts of capita l . What is Leontief Paradox? Wassily Leontie f (winner of the Nobel Prize in economics in 1973), many of these tests have raised quest ions about the val id i t y of the HeckscherOhlin theory. As per Heckscher- Ohlin theory Leontie f postulated that since the uni ted States was relat i ve ly abundant in capi ta l compared to other nat ions, the uni ted States would be an exporter of capita l - in tensive goods and an importer of labor- intensive goods. To his surpr ise, however, h e found

that U.S. exports were less capita l in tensive than U.S. imports. Since th is resul t was at variance with the predict ions of the theory, i t has become known as the Leontie f paradox. No one is quite sure why we observe the Leontie f paradox. One possible explanat ion is that the United States has a specia l advantage in producing new products or goods made with innovat ive technologies. Such products may be less capi ta l in tensive than products whose technology has had t ime to mature and become sui table for mass product ion. Thus, United States may be export ing goods that heavi ly use ski l l ed labor and innovat ive entrepreneurship, such as computer software, while import ing heavy manufactur ing products that use large amounts of capita l . Example : As per the theory, United States exports commercial aircra f t and imports automobiles not because i ts factor endowments are especial l y sui ted to aircraf t manufacture and not sui ted to automobile manufacture, but because the United States is more eff i c i en t at producing aircra f t than automobiles. A key assumption in the Heckscher- Ohlin theory is that technologies are . the same across countr ies. This may not to be the case, and dif fe rences in technology may lead to di f fe rences in product iv i t y , which in turn, drives in ternat ional t rade patterns . 5. The Product Life Cycle Theory Raymond Vernon in i t i a l l y proposed the product l i f e - cycle theory in the mid-1960s. Vernon s theory was based on the observat ion that for most of the 20th century a very large proport ion of the world s new products had been developed by U.S. f i rms and sold f i r s t in the U.S. market (e.g.massproduced automobiles, te lev is ions, instant cameras, photocopiers, personal computers, and semiconductor chips) . To explain th is , Vernon argued that the wealth and size of the U.S market gave U.S. f i rms a strong incent ive to develop new consumer products. Inaddi t ion , the high cost of U.S. labor gave U.S. f i rms an incent iveto develop cost- saving process innovat ions. - Just because a new product is developed by a U.S. f i rm and f i r s t sold in the U.S. market, i t does not fo l l ow that the product must be produced in the United States. I t could be produced abroad at some low- cost locat ion and then exported back into the United States. However, Vernon argued that most new products were in i t i a l l y products were in i t i a l l y produced- in

America. Apparently , the pioneering f i rms bel ieved i t was better to keep product ion faci l i t i e s close the market and to the f i rm s center of decis ion making, given the uncerta in ty and r isks inherent in in t roducing new products. Also, the demand for most new products tends to be based on nonprice factors. Consequently , f i rms can charge relat i ve ly high prices for new products, which obviate the need to look for low cost product ion si tes in other countr ies . Vernon went on to argue that early in the l i f e cycle of a typica l new product, demand is star t i ng to grow rapid ly in the United States, demand in other advance countr ies is l imi ted to highincome groups. The l imi ted in i t i a l demand in other advanced countr ies does not make i t worthwhi le for f i rms in those countr ies to star t producing the new product, but i t does necessi ta te some exports f rom the United States to those countr ies. Over t ime, demand for the new product starts to grow in other advanced countr ies (e.g. , Great Bri ta in , France, Germany, and Japan). As i t does, i t becomes worthwhile for fore ign producers to begin producing for thei r home markets. In addit ion , U.S.f i rms might set up product ion faci l i t i e s in those advanced countr ies where demand is growing. Consequently , product ion within other advanced countr ies begins to l imi t the potent ia l for exports from the United States. As the market in the United States and other advanced nations matures, the product becomes more standardized, and price becomes the main competi t i ve weapon. As th is occurs, cost considerat ions star t to play a greater role in the competi t i ve process. Producers based in advanced countr ies where labor costs are lower than in the United States (e.g. , I ta ly , Spain) might now be able to export to the United States. I f cost pressures become in tense, the process might, not stop there. The cycle by which the United States lost i ts advantage to other advanced countr ies might be repeated once more, as developing countr ies (e.g. , Thailand) begin to acquire a product ion advantage over advanced countr ies . Thus, the locus of global product ion in i t i a l l y switches from the United States to other advanced nat ions and then from those nat ions to developing countr ies.

The consequence of these trends for the pattern of world trade is that is over t ime the United States switches, f rom being an exporter of the Product to an importer of product as product ion becomes concentrated in lower- cost fore ign locat ions. Figure 2.5 shows the growth of product ion and consumption over t ime in the United States, other advanced countr ies, and developing countr ies.

6. New Trade Theory New Trade Theory (NTT) is the economic cr i t i que of internat ional free trade f rom the perspect ive of increasing returns to scale and the network effect 1. New Trade theor is ts chal lenge the assumption of diminish ing returns to special i za t i on used in in ternat ional t rade theory. I t argues that increasing returns to special i za t ion might exist in some industr ies . 2. New t rade theory also argues that i f the output required to real ize signi f i cant scale economies represents a substant ia l proport ion of

tota l world demand for that product the world market may be able to support only a l imi ted number of f i rms based in a l imi ted number of countr ies producing that product Example: The commercial aerospace industry , which is current ly dominated by just two f i rms, Boeing and Airbus, is a good example of th is theory. Economies of scale in th is industry come from the abi l i t y to spread f ixed costs over a large output. Impl icat ion : "NTD" was the r igor of the mathematical economics used to model the increasing returns to scale, and especial l y the use of the network effect to argue that the formation of important industr ies was path dependent in a way which industr ia l might contro l . The model they developed was highly technical , industr ia l world. The story of and predicted the industr ia l possibi l i t i e s of national special i za t i on- by- industry observed in the path- dependent concentrat ions sometimes leads to monopolis t i c competi t i on . Econometric evidence: The econometric evidence for NTT was mixed, and again, highly planning and jud ic ious tar i f f s

technical . Due to the t ime- scales required and the part icu la r nature of product ion in each 'monopol izable ' sector , stat i s t i ca l judgements have been hard to make. In many ways, there is too l imi ted a dataset to produce a rel iab le test of the hypothesis which doesn' t require arbi t ra ry judgements from the researchers. Japan is ci ted as evidence of the benefi ts of " in te l l i gent " protect ion ism, but cr i t i c s of NTT have argued that the empir ica l support post- war Japan offers for benefic ia l protect ion ism is unusual, and that the NTT argument is based on a select ive sample of histor i ca l cases. Although many examples ( l i ke Japanese cars) can be ci ted where a 'protected ' industry subsequently grew to world status, regressions on the outcomes of such " industr ia l pol ic ies" ( inc lud ing the fa i lu res) have been less conclusive

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6.Discuss the impact of WTO on Indias trade policy. Ans:

Agreemen t Provisions Impact Policy issue

General Agreement on Trade'" Tari f f . (GATT)

Prohibi ts : - Actions of Government I Organisat ions that distor t normal - Discriminat ion between Member nations - Discriminat ion between domestic and lawful l y imported foreign goods

Binding of tar i f f l ines. (India is committed to a bind tar i f f l ines at 40 per cent on f in ished goods and 2S per cent on intermediate goods. machinery and equipment; phased reduct ion by 2005). - Quanti ta t i ve restr i c t i ons of imports to be phased out by 1.4.2000 (or ig ina l deadl ine set was 2003. but India has lost in the Disputes Sett lement Case). - Create freer trade regime.

- Competit ion from fore ign goods. - This affects eff i cacy of Reservat ion Policy. Need for Reservat ion Policy to move in tandem with OGL l i s t , with greater emphasis on competi t i veness. - Need to strengthen competi t i veness among domestic SSI through modernisat ion and technology development.

Agreement on valuat ion of Goods

Agreement on Pre- shipment inspect ion (PSI)

Agreement on Technical ; Barr iers to Trade (TBT)

Countries to fo l low uniform procedures in respect of customs formal i t i es . To check arbi t ra ry ways of PSI companies in valuat ion of goods. - Conformity with internat ional standards - Checks on misuse of mandatory products standards - Establ ishment of enquiry points

Agreement on Sanitary and Phytosanitary Measure. (SPM)

Agreement on import l i censing

Same as above except that countr ies can deny import from certa in region/country on the ground of pest I disease Transparency and t ime bound

- Greater transparency - Benefic ia l to both importers and exporters Indian companies export ing to countr ies using PSI companies to benefi t - Indian exporters to benefi t . As import by other countr ies are subject to mandatory product standards. - Enquiry points help faci l i t a t i on . - Process and product ion methods can be used to discr iminate against Indian exports. Internat ional standards to be adopted

India bas amended the Customs Act in conformity with the Agreement. India does not use services of PSI companies.

- Bureau of Indian Standards (SIS) conforms to Agreement. - SIS in conformity with Internat ional standards. - BIS to serve as enquiry point .

Most of Indian standards in conformity with Internat ional standards.

Benefic ia l to small businesses, as they are usual ly at the receiv ing end of restr i c ted pract ices.

Delays, discret ion and misuse of l i censing procedures to be cut.

Rules Applicable on Exports

- Allows export (to be rel ieved of indi rect taxes (e.g. Excise Duty). - Prohibi ts direct tax benefi ts (e.g. Income Tax waiver on export earnings). - Allows levy of duties on exports

- Neutral isa t ion of indi rect taxes good. - Present schemes providing waiver of Income Tax on export earnings to be scrapped. Would affect price competi t i veness

- EXIM pol icy provides scheme for neutra l i sa t ion of incidence of indi rect taxes (e.g. Duty drawback, advance l i censes etc.) - Review of direct tax benefi ts .

Agreement on Subsidies and Countervai l i ng Measures (SCM)

- Prohibi ts export subsidies - Phasing out by 2003. - Permits permissible subsidies.

Agreement on Safeguard Measures

Agreement on Anti- Dumping Measures (ADP)

Allows countr ies to take act ion against undue import surge in jur ious to domestic industry during transi t i on period. Measures can include Quanti ta t i ve Restr ic t i ons (QRs), duty enhancement beyond bound rates etc. period extendable Allows counter ing Helpful provis ion unfair trade pract ices.

- Subsidies given to small businesses are usual ly permissible and non-act ionable. - Import ing countr ies can countervai l subsidies that are act ionable. Will make Indian exports more expensive. - Small businesses have to become more competi t i ve . Helpful provis ion

EXIM Policy to be made WTO compatible .

Minist ry of Commerce & Industry is putt ing required system in place.

Trade Related Prohibi ts Investment Measures countr ies from (TRIMS) imposing condit ions such as local i sa t i on , export obl igat ion on investors.

Market Access Negotiat ions

Binding of tar i f f l ines

- Affects FOREX posi t ion. - Affects Government fore ign Investment Policy - Enhances competi t ion to domestic industry - Increased competi t ion from fore ign goods.

Directorate of Anti- Dumping establ ished in Minist ry of Commerce & Industry. Measures underway to terminate noti f i ed TRIMs such as Dividend Balancing

India fo l lowed the WTOt ime- table in terms of reduct ion

Most Favoured Nation Treat m en t (MFN): No discr iminat ion between member nations. National Treatme n t : No discr iminat ion between domestic products and lawful l y imported products. Subsidies: Permissib le - Actionable and non-actionable; non-permissib le .

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7. Discuss the various organisa tional structure in Interna tional Business. Ans:
There are f ive types of organizat ional structures: Internat ional Divis ion Structure, Internat ional Area Structure, Global Product Structure, Global Matrix Structure, and Global Functional Design Structure.

INTERNATIONAL AREA STRUCTURE

The one that would be optimal for a company that is just expanding is the Internat ional Area Structure. The reason this would be optimal is because a company is new to sel l i ng internat ional l y . "In th is organizat ional structure, the company is organized in to countr ies or geographic regions." This would be a benefi t to have the organizat ional in th is manner because i t would al low a company to focus on the region of the world we are sel l i ng to and ta i lo r the needs of mobil i t y products to that area. As a company grows internat ional l y we can expect to see a companies organizat ion grow as well . Using the Internat ional Area Structure wil l al low a company to hire managers who special i ze in understanding the cul tura l , commercial , social

and economic condit ions we wish to expand to. By using the Internat ional Area Structure, this is going to al low the company to adapt addit ional marketing strategies, without disrupt ing the ones company managers have worked so hard for . In addit ion, "an internat ional f i rm must address i ts coordinat ion needs" Meaning, a company must l ink and in tegrate funct ions and act iv i t i es of dif fe rent divis ions of the company.

Worldwide area structure Favored by f i rms with low degree of diversi f i ca t i on & domestic structure based of funct ion World is divided in to autonomous geographic areas Operational authori ty decentral i zed Faci l i t a tes local responsiveness Fragmentat ion of organizat ion can occur Consistent with mult i - domestic strategy

INTERNATIONAL DIVISION STRUCTURE

When a company has a branch that is located abroad and that abroad company is said to be attached with the orig inal company, then this is an internat ional divis ion structure. The abroad unit is required to contro l al l the activ i t i es which are to be performed in ternat ional l y . I t is usual ly based on the character is t i cs l i ke a funct ion, product or on geography. This structure is designed do that the mult inat ional wil l have a free access to explore the resources that are present internat ional l y .

Adopted in early stages of in ternat ional business operat ions Coordinate al l IB activ i t i es Develop internat ional expert ise & ski l l s Develop a global/ in te rnat ional mindset Champion of foreign business Favored by f i rms with low degree of diversi f i ca t i on .

Area is usual ly a country. Largely autonomous. Faci l i t a tes local responsiveness

GLOBAL PRODUCT STRUCTURE

The product divis ion structure is popular with large conglomerates with mult ip le , unrelated business. Under th is structure dif fe rent subsidiar ies pertain ing to di f fe rent products with in the same foreign country report to the head of dif fe rent product groups at the head quarters. The product divis ion structure enhances coordinat ion between dif fe rent areas for any one product l ine but i t reduces coordinat ion of al l product l ines within each zone.

Adopted by f i rms that are reasonably diversi f i ed Original domestic f i rm structure based on product divis ion

Value creat ion activ i t i es of each product divis ion coordinated by that divis ion worldwide Help real ize locat ion and experience curve economies Faci l i t a te transfer of core competencies Problem: area managers have l imi ted control , subservient to product divis ion managers, leading to lack of local responsiveness

GLOBAL MATRIX STRUCTURE

Over t ime, we can expect to see a company grow into a Global Matrix Structure. "In th is organizat ional structure, the chain of command is spl i t between product managers and area managers." As we develop the sales in areas of the world, we can expect to see the chain of command spl i t between product managers and area managers.

Helps to cope with confl i c t i ng demands of earl ie r strategies

Two dimensions: product divis ion and geographic area Product divis ion and geographic areas given equal responsibi l i t y for operat ing decisions Problems: Bureaucrat ic structure slows decision making Confl ic t between areas and product divis ions Dif f i cu l t to make one party accountable due to dual responsibi l i t y

GLOBAL FUNCTIONAL DESIGN STRUCTURE

Under the funct ional structure, the head of funct ional areas, such as product ion, marketing, f inance and personnel, are responsible for the worldwide operat ions of thei r own funct ional areas. In certa in industr ies l i ke energy and mining, a varia t ion of the funct ional structure known as the process structure, which uses processes as the basis for the structure, is common.

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