August/Fall 2012 Master of Business Administration - MBA Semester IV MB0053– International Business Management - 4 Credits (Book ID: B1315

) Assignment Set- 1 (60 Marks) Note: Each question carries 10 Marks. Answer all the questions. Q.1 Write a short note on ‘Globalization’ (10 Marks) Ans.:- The term "globalization" has acquired considerable emotive force. Some view it as aprocess that is beneficial – a key to future world economic development – and alsoinevitable and irreversible. Othe rs regard it with hostility, even fear, believing that iti n c r e a s e s i n e q u a l i t y w i t h i n a n d b e t w e e n n a t i o n s , t h r e a t e n s e m p l o y m e n t a n d l i v i n g standards and thwarts social progress. This brief offers an overview of some aspects of g l o b a l i z a t i o n a n d a i m s t o i d e n t i f y w a y s i n w h i c h c o u n t r i e s c a n t a p t h e g a i n s o f t h i s process, while remaining realistic about its potential and its risks.Globalization offers extensive opportunities for truly worldwide development but it is notprogressing evenly. Some countries are becoming integrated into the global econom ymore quickly than others. Countries that have been able to integrate are seeing faster growth and reduced poverty. Economic "globalization" is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around theworld, particularly through trade and financial flows. The term sometimes also refers tot h e m o v e m e n t o f p e o p l e ( l a b o r ) a n d k n o w l e d g e ( t e c h n o l o g y ) a c r o s s i n t e r n a t i o n a l borders. There are also broader cultural, political and environmental dimensions of globalization that are not covered here.At its most basic, there is nothing m ysterious about globalization. The term has come into common usage since the 1980s, reflecting technological advances that have madeit easier and quicker to complete international transactions – both trade and financial flows. It refers to an extension beyond national borders of the same market forces thathave operated for centuries at all levels of human economic activity – village markets,urban industries, or financial centers.Globalization is not just a recent phenomenon. Some analysts have argued that theworld economy was just as globalized 100 years ago as it is today. But today commerceand financial services are far more developed and deeply integrated than they were atthat time. The most striking aspect of this has been the integration of financial marketsmade possible by modern electronic communication.There are four aspects of globalization: 1.Trade: Developing countries as a whole have increased their share of world trade –from 19 percent in 1971 to 29 percent in 1999. For instance, the newly industrializedeconomies (NIEs) of Asia have done well, while Africa as a whole has fared poorly.The composition of what countries export is also important. The strongest rise by far has been in the export of manufactured goods. The share of primary commodities inworld exports – such as food and raw materials – that are often produced by the poorest countries, has declined. 2.Capital movements: G l o b a l i z a t i o n s h a r p l y i n c r e a s e d p r i v a t e c a p i t a l f l o w s t o developing countries during much of the 1990s. It also shows that: •the increase followed a particularly "dry" period in the 1980s; •net official flows of "aid" or develo pment assistance have fallen significantlysince the early 1980s; and •t h e c o m p o s i t i o n o f p r i v a t e f l o w s h a s c h a n g e d d r a m a t i c a l l y . D i r e c t f o r e i g n invest ment has become the most important category. Both portfolio investmentand bank credit rose but they have been more volatile, falling sharply in the wake of the financial crises of the late 1990s. 3. Movement of people: W o r k e r s m o v e f r o m o n e c o u n t r y t o a n o t h e r p a r t l y t o f i n d better employment opportunities. The numbers involved are still quite small, but in the period 1965-90, the

I n t h e s e c o u n t r i e s . New jobs are created for unskilled workers. would gain most from agriculturalliberalization in in d u s t r i a l c o u n t r i e s b e c a u s e o f t h e g r e a t e r r e l a t i v e i m p o r t a n c e o f agriculture in their economies. Overall. For instance. Developing countries can ill-afford the large implicit subsidies. O p e n i n g u p t h e i r e c o n o m i e s t o t h e g l o b a l e c o n o m y h a s b e e n e s s e n t i a l i n e n a b l i n g many developing countries to develop competitive advantages in the manufacture of c e r t a i n p r o d u c t s . often overlooked. Developing countries would gain about equally from liberalization of manufacturing and agriculture. In contrast. and it represents a highly valuable resource for the developing countries Q. Moreover. but also technical innovation. arecalled for to remove the trade barriers facing developing countries. often channeled to narrow privileged interests that trade protection provides. S i m i l a r l y . Although quotas under the so-called Multi-fiber Agreement are due tube phased out by 2005. M o s t m i g r a t i o n o c c u r s b e t w e e n d e v e l o p i n g countries. Further liberalization – by both industrial and developing countries – will be needed tor e a l i z e t r a d e ’ s p o t e n t i a l a s a d r i v i n g f o r c e f o r e c o n o m i c g r o w t h a n d d e v e l o p m e n t . t h e e l i m i n a t i o n o f t a r i f f p e a k s a n d e . the increased growth that results from free trade itself tends to increase the incomes of the poor in roughly the same proportion as those of the population as a whole. Spread of knowledge (and technology): Information exchange is an integral.T h e g r o u p o f l o w income countries. Freeing trade frequently benefits the poor especially. The evidence on this is clear. without being open to the rest of the world." the number of people in absolute poverty declined by over 120 million (14percent) between 1993 and 1998. countriesb e n e f i t m o s t f r o m l i b e r a l i z i n g t h e i r o w n m a r k e t s .proportion of labor forces round the world that was foreignb o r n i n c r e a s e d b y a b o u t o n e h a l f . d e f i n e d b y t h e W o r l d B a n k a s t h e " n e w globalizers. aspect of globalization. (10 Marks) Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth. Although there are benefits from improved access to other countries’ markets. direct foreign investment brings not only an expansion of the physical capital stock. Countries that have opened their economies in recent years. Greater efforts by industrial countries and the international community more broadly. No country indecent decades has achieved economic success. however. But the flow of migrants to advanced economies is likely to provide a means through which global wages converge. There is also the potential for skills tobe transferred back to the developing countries and for wages in those countries torise. trade opening (along with opening to foreign direct investment) has been an important element in the economic success of East Asia. T h e m a i n b e n e f i t s f o r i n d u s t r i a l countries would come from the liberalization of their agricultural markets. reflecting more rapid economic growth in developing countries. speedier liberalization of textiles and clothing and of agriculturei s p a r t i c u l a r l y i m p o r t a n t . On average. one finding is that the benefits of trade liberalization can exceed the costs by more than a factor of 10. have experienced faster growth and more poverty reduction. Indeed. export markets and economic policies is available at very low cost. particularly thepoorest countries. management techniques. in terms of substantial increases in living standards for its people. including India. knowledge about production methods.2 Describe the positives of trade liberalization. raising them into the middle class. Vietnam. 4. inequality among countries has been on the decline since1990.There is considerable evidence that more outward-oriented countries tend consistently to grow faster than ones that are inward-looking. in part the result of trade liberalization. those developing countries that lowered tariffs sharply in the 1980s grew more quickly in the1990s than those that did not. More generally. and Uganda.

a n d accompanied by simple. Q. transparent rules of origin. in its 47 years. international investment and services. The tarif f concessions and rules together became known as the General Agreement on Tariffs and Trade and entered into force in January 1948. The recent market-opening initiatives of the EU and some other countries are important steps in this regard. This wou l d g i v e t h e p o o r e s t countries the confidence to persist with difficult domestic reforms and ensure effective use of debt relief and aid flows. Much of this was achieved through aseries of "trade rounds".s c a l a t i o n i n agriculture and manufacturing also needs to be pursued. W hen the United States’ government announced. H i g h r a t e s o f u n e m p l o y m e n t a n d c o n s t a n t f a c tory closures ledgovernments in Europe and North America to s e e k b i l a t e r a l m a r k e t .The limited achievement of the Tokyo Round. Offering the poorest countries duty – and quota – free access to world markets would greatly benefit these countries at little cost to the rest of the world.Although. The Charter was intended to provide not only world trade disciplines but alsocontained rules relating to employment. It was alsoagreed that the value of these concessions should be protected by early and largely"provisional" acceptance of some of the trade rules in the draft ITO Charter. was asign of difficult times to c ome. Enhanced market access for the poorest developing countries would provide them with the means to harness trade for development and poverty reduction. in 1950.The original 23 GATT countries were among over 50 which agreed a draft Charter for an International Trade Organization (ITO) – a new specialized agenc y of the UnitedNations. restrictive business practices. Despite its provisional nature.000tariff concessions affecting $10 billion or about one-fifth – of world trade. To be completelye f f e c t i v e .that it would not seek Congressional ratification of the Havana Charter. t h e r e w e r e a d d i t i o n s i n t h e f o r m o f " p l u r a l l a t e r a l ” v o l u n t a r y m e m b e r s h i p agreements and continual efforts to reduce tariffs. drovegovernments to devise other forms of protection for sectors facing increased overseasc o m p e t i t i o n . the ITO waseffectively dead. outside the tariff reduction results. GATT’s success in reducing tariffs to such a low level. the GATT remained the only multilateralinstrument governing international trade from 1948 until the establishment of the WTO. highlighting the difference between the two. In turn.T h e b i g g e s t l e a p s f o r w a r d i n i n t e r n a t i o n a l t r a d e l i b e r a l i z a t i o n h a v e c o m e t h r o u g h multilateral trade negotiations. commodity agreements. developing countries w o u l d s t r e n g t h e n t h e i r o w n e c o n o m i e s ( a n d t h e i r t r a d i n g p a r t n e r s ’ ) i f t h e y m a d e a sustained effort to reduce their own trade barriers further. the basic legal text of the GATT remained much as it was in1 9 4 8 . (10 Marks) G e n e r a l A g r e e m e n t o n T a r i f f a n d T r a d e ( GATT) Ans.s h a r i n g arrangements with competitors and to embark on . :. e x t e n d e d t o a l l g o o d s .A l t h o u g h t h e I T O C h a r t e r w a s f i n a l l y a g r e e d a t a U N C o n f e r e n c e o n T r a d e a n d Employment in Havana in March 1948.The GATT. This first round of negotiations resulted in 45. ratification in national legi s l a t u r e s p r o v e d impossible in some cases.combined with a series of economic recessions in the 1970s and early 1980s. s u c h a c c e s s s h o u l d b e m a d e p e r m a n e n t . or "trade rounds".In an effort to give an early boost to trade liberalization after the Second World War and to begin to correct the large overhang of protectionist measures which remained inplace from the early 1930s -tariff negotiations were opened among the 23 foundingGATT "contracting parties" in 1946. under the auspices of GATT – theUruguay Round was the latest and most extensive. was established on a provisional basis after the Second W orld W ar in thew a k e o f o t h e r n e w m u l t i l a t e r a l i n s t i t u t i o n s d e d i c a t e d t o i n t e r n a t i o n a l e c o n o m i c cooperation – notably the "Britton W oods" institutions now known as the W orld Bankand the International Monetary Fund.3 Write a short note on GATT and WTO.

WTO W orld Trade Organization came into existence in 1995 after the desolation of GeneralAgreement on Tariff and Trade (GATT).The GATT was applied on a "provisional basis" even if. Services Council and Intellectual Property (TRIPS) Council report to theGeneral Council. h a s a r o u n d 6 0 0 s t a f f a n d i s h e a d e d b y a director-general.Numerous specialized committees. Its annual budget is roughly 160 million Swiss francs. through technic a l assistance and training programs Cooperating with other international organizationsThe WTO has nearly 150 members.The WTO’s top level decision-making body is the Ministerial Conference which meetsat least once every two years. The W TO’sagreements have been ratified in all members’ parliaments. Below this is the General Council which meets severaltimes a year in the Geneva headquarters. Around 30others are negotiating membership. The W TO is a permanent institution with its own secretariat. itcompletely replaces its predecessor and has a very different character.a subsidies race to maintain their h o l d s o n a g r i c u l t u r a l t r a d e . f r e e l y . D e c i s i o n s a r e normally taken by consensus. The General Council also meets as the TradePolic y Review Body and the Dispute Settlement Body. either by ministers (who meet at least once every two years) or b y t h e i r a m b a s s a d o r s o r d e l e g a t e s ( w h o m e e t r e g u l a r l y i n G e n e v a ) .T h e W T O ’ s o v e r r i d i n g o b j e c t i v e i s t o h e l p t r a d e f l o w s m o o t h l y . development. GATT. working groups and working parties deal withthe individual agreements and other areas such as the environm ent. Since decisions are taken by the members themselves. B o t h t h e s e c h a n g e s u n d e r m i n e d t h e c r e d i b i l i t y a n d effectiveness of GATT. after more than forty years. It does not havebranch offices outside Geneva. a m u l t i l a t e r a l a g r e e m e n t . Decisions are made by the entire membership. Thisis typically by consensus. Among the principal differences are the following:a . At the n ext level. b a s e d i n G e n e v a .b. accounting for over 97% of world trade. A majority vote is also possible but it has never been used inthe W TO. and was extremely rare under the W TO’s predecessor.T h e W T O S e c r e t a r i a t . It does this by: Administering trade agreements Acting as a forum for trade negotiations Settling trade disputes Reviewing national trade policies Assisting developing countries in trade policy issues. T h e G A T T w a s a s e t o f r u l e s . . on the contrary.t h e S e c r e t a r i a t d o e s n o t h a v e t h e d e c i s i o n m a k i n g r o l e t h a t o t h e r i n t e r n a t i o n a l bureaucracies are given with. the GoodsCouncil. Difference between WTO and GATT:The W orld Trade Organization is no t a simple extension of GATT. only a small associated secretariat which had its origins in the attempt to establish an International Trade Organization in the 1940s. f a i r l y a n d predictably. A l l m a j o r d e c i s i o n s a r e m a d e b y t h e membership as a whole.T h e W T O i s r u n b y i t s m e m b e r g o v e r n m e n t s . w i t h n o i n s t i t u t i o n a l foundation.membership applications and regional trade agreements.

The GATT rules applied to trade in merchandise goods. The W T O commitments are full and permanent.The WTO dispute settlement system is faster. It requires the decision of top management because it is a critical step. more automatic.g. i n v o l v e commitments for the entire membership. marketing. whereas "polycentric" loses its meaning when the MNCs operate only in one or two foreign countries. Singer Manufacturing Comp any established itsforeign plants in Scotland and Australia in the 1850s) plants are established in several countries licensing is switched from independent producers to its subsidiaries.K. According to Franklin Root (1994). b y t h e 1 9 8 0 s m a n y n e w a g r e e m e n t s had been added of a plural-lateral. especially when the home country itself is populated by many different races.Multinational Stage: .Secondly. t h u s .Perl mutter uses such terms as ethnocentric.Export stage •initial inquiries .implements business strategies in production. NTBs).e. “ethnocentric" is misleading because it focuses on race or ethnicity. theWTO covers trade in services and trade-related aspects of intellectual property. than the old GATT system. finance and staffing thattranscend national boundaries. nature.thereby creating a rival.Foreign Production Stage There is a limit to foreign sales (tariffs. and thus much lesssusceptible to blockages. The agreementsw h i c h c o n s t i t u t e t h e W T O a r e a l m o s t a l l m u l t i l a t e r a l a n d .4 Think of any MNC and analyze its business strategy orientation. c. e x e r c i s e s d i r e c t c o n t r o l o v e r t h e p o l i c i e s o f i t s a f f i l i a t e s . In addition to goods. The next stage for supplementing any particular business strategy i s Investments involved. i t m u s t d e c i d e whether to establish a foreign production subsidiar y or license the technology to a foreign firm. export continues 3. Q. The implementation of WTOdispute findings will also be more easily assured.firms rely on export agents •expansion of export sales •f u r t h e r e x p a n s i o n f o r e i g n s a l e s b r a n c h o r a s s e m b l y o p e r a t i o n s ( t o s a v e transport cost) 2.Once the firm chooses foreignpr oduction as a method o f d e l i v e r i n g g o o d s t o f o r e i g n m a r k e t s . (10 Marks) Ans. Business strategy of a MNC can be analyzed with the help of Three Stages of Evolution 1. polycentric and geocentric. W h i l e G A T T w a s a m u l t i l a t e r a l i n s t r u m e n t .c. However.engages in foreign production through its affiliates located in several countries.d .Licensing is usually first experience (because it is easy) •it does not require any capital expenditure •it is not risky •payment = a fixed % of sales e. Problem that may arise while following a particular business strategy: Them o t h e r f i r m m a y f i n d i t d i f f i c u l t i n e x e r c i s e o f a n y m a n a g e r i a l c o n t r o l o v e r t h e licensee (as it is independent). it is risky (lack of information) (for exampleU S f i r m s t e n d t o e s t a b l i s h subsidiaries in Canada first.b . the licensee may transfer industrial secrets to another independent firm.Multinational companies (MNC) may pursue business strategies that are Home country – oriented or Host country – oriented or World – oriented . an MNC is a parent company thata.governments chose to treat it as a permanent commitment. and therefore selective.: Kentucky Fried Chicken in the U.

marketing.Cost reduction: United Fruit has established banana-producing facilities in Honduras. to bypass VERs. MNCs can hold down costs by locating part of all their productive facilities abroad. W h e n t r a n s p o r t a t i o n c o s t s a r e h i g h . A l s o . Dotson (Nissan) and Volkswagen. Multinational firms that invested and built productionplants in the United States are better off than the exporting firms that utilized New Orleans port to ship and distribute products through New Orleans. Looking for new markets. Labour costs tend to differ among nations. andstaffing. For each of these operations. New MNCs do not pop up randomly in foreignnations. 3. 6. T h e s e c o n d i s b a s e d o n S c h e i n ’ s ( 1 9 9 2 ) m o d e l v i e w i n g c u l t u r e as a m u l t i – l a y e r construct .Growth motive : A company may have reached a plateau satisfying domesticdemand. Q.The company becomes a multinational enterpr ise when itbegins to plan. UScompanies c i r c u m v e n t e d t h e s e b a r r i e r s b y s e t t i n g u p s u b s i d i a r i e s . One is a Multi-level approach . 4. 2. which is not growing. Toyota imports engines and transmissions from Japanese plants. describe various levels it consists of. For instance. GM purchased Monarch (GM Canada)and Opel (GM Germany).The main reasons for MNCs to opt for FDI to enter international market is stated as follows: 1. organize and coordinate production.Market competition: T h e m o s t c e r t a i n m e t h o d o f p r e v e n t i n g a c t u a l o r p o t e n t i a l competition is to acquire foreign businesses.5 What does FDI stand for? Why do MNCs opt for FDI to enter international market? (10 Marks) Ans.6 Viewing culture as a multi-level construct. Investment flowsf r o m r e g i o n s o f Low a n t i c i p a t e d p r o f i t s t o t h o s e o f high r e t u r n s .Protection in the importing countries : F o r e i g n d i r e c t i n v e s t m e n t i s o n e w a y t o expand.Cheap foreign labour. J a p a n e s e corporations located auto assembly plants in the US.viewing culture as a multi-level construct that consists of various levels nested within each other from the most macro-level of a global culture. and cultural values that are represented in theself at the individual level. organizational cultures. FDI is a means to bypassing protective instruments in the importing country.S. the firm must find the best location.E u r o p e a n C o m m u n i t y i m p o s e d c o m m o n e x t e r n a l t a r i f f a g a i n s t o u t s i d e r s . provided that theybuilt plants in a safe area. 5.This is how a MNC decides its business strategy orientation. (10 Marks) Ans. It is the result of conscious planning by corporate managers. It did not buy Toyota. FDI stands for Foreign Direct Investment. (Maquildoras) Q. They later became competitors. W h e n M N C incorporated in one country. through national cultures.Exchange Rate Fluctuations: Japanese firms invest here to produce heavyconstruction machines to a v o i d e x c e s s i v e e x c h a n g e r a t e f l u c t u a t i o n s . R&D. Japanese automobile f irms have plants to produce automobile parts. it is said that the FDI has flowedinto the other country from some foreign origin. invests in another country. and produce the rest in the U. group cultures.High Transportation Costs : Transportation costs are like tariffs in that they areb a r r i e r s w h i c h r a i s e c o n s u m e r p r i c e s . financing. multinational firm s want to build production plants close to the market in order tosave transportation costs.There are two kinds of approach construct of culture.

either above it through top-down processes or below it through bottom-up processes. R e c i p r o c a l l y . Further down are local organizations. h a v i n g l o c a l o r g a n i z a t i o n s j o i n a g l o b a l c o m p a n y m a y introduce changes into the global company because of its need to function effectivelyacross different cultural boarders. the most macro -level is that of a global culture being created by globalnetworks and global institutions that cross national and cultural borders. changes at each level affect lower levels through a top-down process. Thus. when shared by individuals who belong tothe same cultural context. W i t h i n e a c h o r g a n i z a t i o n a r e s u b u n i t s a n d g r o u p s t h a t s h a r e t h e common national and organizational culture. Groups that share similar values create the organizational culture through a process of aggregation. and local organizations that share similar values create the national culture that is different from other national cultures. the type of ownership. but that differ from each other in their unitculture on the basis of the differences in their functions (e. and then. or nations). and upper levels through a bottom-up process of aggregation. they var y in their local organizational cultures. the values of thef o u n d e r s .their leaders’ values.Below the global level are nested organizations and networks at the national level withtheir local cultures varying from one nation or network to another. Both top-down and bottom-up processes reflect the dynamic nature of culture. which differentiate them from other organizational units. a c c e p t a n c e a n d t o l e r a n c e o f diversity. Given the dominance of Western MNCs. Similarly. R&D vs manufacturing). individual rights. which are also shapedby the type of industr y that they represent. Atthe bottom of this structure are individuals who through the process of socializationacquire the cultural values transmitted to them from higher levels of culture. and openness to change. and.The present model proposes that culture as a multi – layer construct exists at all levels – from the global to the individual – and that at each level change first occurs at themost external layer of behaviour. multinatio n a l companies that operate in the global market develop common rules and cultural values that enable them to create a synergy between the various regions. employees of an R&D unit are selected into the unitbecause of their creative cognitive style and professional expertise. they shape the localo r g a n i z a t i o n s . Figure-1: The dynamic of top-down–bottom-up processes across levels of culture. and although all of them share some common values o f t h e i r national culture. which is testable by social consensus.In the model. For example. organizations. the deeper level of values.g. T h a t m e a n s t h a t t h e r e i s a c o n t i n u o u s reciprocal process of shaping and reshaping organizations at both levels. Individualswho belong to the same group share the same values that differentiate them from other groups and create a group – level culture through a bottom-up process of aggregationof shared values. it becomes a shared value that characterizes the aggregatedunit (group. Their leader alsotypically facilitates the display of these personal characteristics because they are crucialfor developing innovative products.consisting of the most external layer of observed artifacts and behaviours.. T h e s e g l o b a l r u l e s a n d v a l u e s f i l t e r d o w n t o t h e l o c a l organizations that constitute the global company. over time. all members of this unit share similar core values. d e m o c r a c y . which is invisible and taken for granted. and different parts of t h e m u l t i n a t i o n a l c o m p a n y . and the professional and educational level of their members. . e t c . and the deepest levelof basic assumption. respect of freedom of choice. the values that dominate the global context areo f t e n b a s e d o n a f r e e m a r k e t e c o n o m y . For example. Global organizations and networks are being formed by having local-level organizations j o i n t h e g l o b a l a r e n a . andexplain how culture at different levels is being shaped and reshaped by changes that occur at other levels.

2 Discuss the strategic management process in an MNC. (10 Marks) Ans. through.Master of Business Administration . the Government is trying toimplement a taxing system in order to curb tax evasion.The price that is set for the exchange in the process of transfer pricing may be a rate that isreduced due to internal depreciation or the original purchase price of the goods in question. However. a schedule of costs for services supplied or to be supplied. Q. It also enables to fix transfer price on a nonmarket basis and thus enables to save tax. in common terminology. Transfer pricing is a critical issue for a firmoperating internationally. transfer pricinggenerally refers TPM.Transfer Pricing Manipulation (TPM) is used to overcome these reasons. Externalfactors include taxes.which are sold between such related units. their intended destination. Many managers consider transfer pricing asnon-market based.1 (60 Marks) Note: Each question carries 10 Marks. The reason for transfer pricing may be internal or external.When properly used. TPM assists in saving the organisation‟s tax by shifting accounting profits from high tax to low tax jurisdictions. tariffs. The term derives from the noun” bill". A similar trend can be observed in domestic marketswhere different states try to attract investment by reducing the Sales tax rates. a B i l l o f L a d i n g i n d i c a t e s t h e particular vessel on which the goods have been placed.MBA Semester IV MB0053– International Business Management . where transfer pricing is the actof pricing commodities or services. Answer all the questions. This method facilitates in moving the taxrevenues of one country to another. Product communications extension- . transfer pricing helps to efficiently manage the ratio of profit and losswithin the company. and from the verb "to lade" which means to load a cargo onto a ship or other form of transport. and airway bill are the names given to bills of lading Q. transfer at cost and costplus pricing. (10 Marks) A Bill of Lading is a t ype of docum ent that is used to acknowledge the receipt o f a shipment of goods and is an essential document in transporting goods overland to the exporter’s international carrier. (10 Marks) Answer : -Transfer pricing is the process of setting a price that will becharged by a subsidiary (unit) of a multi-unit firm to another unit for goods and services. What product strategy of international marketing do you think will be suitable for its product? (10 Marks) Q. Governmentsusually discourage TPM since it is against transfer pricing.3 A Europe based MNC wants to introduce its fruit juice drinks in India. Inland. Transfer pricing can also be defined asthe rates or prices that are utilized when selling goods or services between a parentcompany and a subsidiary or company divisions and departments that may be across manycountries. A through Bill of Lading involves the use of at least two different modes of transport from road.Internal transfer pricing include motivating managers and monitoring performance. Transfer pricing is determined in three ways: market basedpricing. Q. Transfer pricing is a relatively simple method of moving goods andservices among the overall corporate family. There are five major product strategies in international marketing.4 Credits (Book ID: B1315) Assignment Set. Therefore.1 Write a short note on Bill of Lading. I n a d d i t i o n t o a c k n o w l e d g i n g t h e r e c e i p t o f g o o d s . ocean. rail. and thisleads in an outflow from one state to another. The Arm‟s Length pricing rule is used to establish the price to be charged to the subsidiary.4 Discuss the need for regional integration. and the terms for transporting the shipment to its final destination. air and sea. and other charges. a.

In this case the Euopean MNC should undertake the P r o d u c t a d a p t a t i o n – communications adaptation strategy. b u t d i f f e r e n t p r o d u c t functions have to be identified and a suitable communications mix developed. However.The development costs may be high. b. A g a i n t h i s i s a l o w c o s t s t r a t e g y . India. Product adaptation–communications adaptation-: B o t h p r o d u c t a n d communication strategies need attention to fit the peculiar need of the market e. In the past decade. whose preferences are quite dissimilar from Europe. At the same time as culturally India is different from Europe there is need for adaptation in communications also as the product will get exposed to a whole new market segment Q. TheTATA Jaguar deal was one prominent example of an Indian global power house to acquirean internationally reputed automotive company 1. CPC International believed the US consumer would take to dry soups. The customers of developedcountries buy . Product inventionThis needs a totally new idea to fit the exclusive conditions of themarket. However. China and Korea. This is very much a strategy which could be ideal in a Third World situation. Brand India: Brand India is a phrase that describes the campaign which projectsIndia as an emerging destination for business in various fields such as informationtechnology. them a r k e t d e f i n e d i n t e r m s o f t h e c o n d i t i o n s u n d e r w h i c h t h e p r o d u c t i s u s e d . Country names canamount to brand names and assist consumers in evaluating the products before purchasingthem Brand India is receiving a positive response. which dominate the European market.and the costs of adaptation and manufacture to the company considering these product – communications approaches.T h i s s t r a t e g y i s v e r y l o w c o s t a n d m e r e l y takes the same product and communication strategy into other markets. example.In developed countries. manufacturing. c. India hastransformed from being primarily domestic players into confident global corporations. Brand India is weak in many ways. t h e preferences of the potential customers and the ability to buy the product in question. but the advantages are also very high. Extended product – communications adaptationIf the product basically fits the different needs or segments of a market it may need an adjustment in marketingc o m m u n i c a t i o n s o n l y . For example. Product adaptation – communications extension: The product is adapted to fit usage conditions but the communication stays the same. service sector and so on.5 What are the key factors affecting the recruitment of expats? (10 Marks) Answer: India is a developing country and every developing country has its ownorganisational problems. d. people are yet to associate India with world-class standards. The assumption is that thep r o d u c t w i l l s e r v e t h e s a m e f u n c t i o n i n f o r e i g n m a r k e t s u n d e r d i f f e r e n t u s a g e conditions. it can be risky if misjudgments are made. Theinitial market entry strategy of a company from a developing country is to offer cheaperproducts of acceptable quality. It did not work. This is because the fruit drink is entering atonally a new market. some Indian companies have maderemarkable progress by reaching the international platform in short time. infrastructure.The choice of strategy will depend on the most appropriate product/market analysis andis a function of the product itself defined in terms of the function or need it serves.

Changes in government and political instability disruptbusiness. Unnecessary government interference can hinderglobalisation. Governmentsupport is extended in the form of policy reforms. Brand India is comprised of a largenumber of subbrands that are relatively established. .This affects the business in India negatively. Another challenge that influences business is bureaucracy. Ethical leadership isimportant for the business to be conducted by meeting the expectations of all thestakeholders. Corporate governance: Corporate governance is a process of promotingcorporate transparency and accountability. The new emerging corporate India needsguiding principles for corporate governance. The ethical norms varyfrom country to country. corporate governance initiatives are undertaken byMinistry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI). The political environment includes political stability in thecountry. Managers make decisions based on a set of values andprinciples that are influenced by the culture of the organisation. Ethics is a generalised value system avoiding discrimination inrecruitment and adopting fair business practices. 3. In India. Wipro and Tata.Brand equity is the worth derived from the goodwill and name recognition acquired over aperiod of time. The varying ethical norms and socialvalues make international business environment complex.Ethics is related to the code of values and principles that helps a person to choosebetween right or wrong. R&D support and so on. party in power and soon. Industrial incentives areadministered by an elaborate and expensive bureaucracy. It is set of policies that affect the way acompany is administered and controlled. The infrastructure such asairport.those products only on the basis of price. nature and extent of bureaucracy. ideology of government. Government policy and procedures in India arevery complex and confusing. Government support is essential to encourage globalisation. The India Brand EquityFoundation (IBEF) was established to promote brand India. financialmarket. road or port upgradation takes years for completion or are stalled for many years. The famous brands from Indiaare Indian information technology (IT) companies such as Infosys. The relationship of government tointernational business is based on the concept of sovereignty. Government and bureaucracy: The political environment of a country influencesthe business to a large extent. The common aspects for the failure of corporate governance are misuse of power. Quality corporate governance is a tool for socio-economic development. Government policy and bureaucratic culture in India do notencourage international business.Good corporate governance promotes accountability in relation to public satisfaction andresponsive delivery of service. frauds. It improves sales volume and profit margins. misappropriation of funds and so on. Thepositive image of these companies help in changing consumer perceptions and also help inre-branding India as a leading manufacturing and service hub by improving India‟s brand equity. The concept identifies thatthe nation has complete control over the international affairs. Business ethics provide a generalguidelines within which a management can operate. It reflects the economic reforms andliberalisation process that Indian economy has undergone. An organisation has to be ethicalbecause it has to exist in the competitive world. Ethics: Corporate governance is about ethical conduct of the business. Corporate governance is the ethical framework under which corporatedecisions are taken. Corporate governance deals with power and accountability for thesafety of assets and resources entrusted to the operating team of the firm. Good business thrives on predictability which is lacking in India. development of infrastructure.The objective of the corporate governance is to attain highest standards of procedures andpractices that are followed by the corporate world. 2.

I f m i n i m u m efficient scale (MES) is not achieved. financing. The new business is able to enter the market that neither parent could have entered singly.Q. why not utilize that and export outputs toothier countries? There is no point in creating another plant overseas when domestic capacity is not fully utilized. no joint ventures will be formed) Increased market power 3.: US workers assemble Japanese parts. they must pay taxes to several countries. Figure -2 : Minimum efficient scale and FDI. e. then export. Iran Oil Investment Company. These are Large capital costs – costs are too large for a single company Protection – LDC governments close their borders to foreign companies Bypass protectionism. If the foreign demand exceeds the minimum efficient scale. then FDI.e. i. regarding the location of subsidiaries. The new venture increases production. 2.g. I f l a r g e s c a l e p r o d u c t i o n reduces unit cost. MES is them i n i m u m r a t e o f o u t p u t a t w h i c h A v e r a g e C o s t ( A C ) i s m i n i m i z e d . National tax systems are exceedingly complex and differ between countries. and the transfer prices (the prices of products and assets transferred between various units of MNCs). The finished goods are sold to the US consumers. In other words. it is better to concentrate production in one place.6 Describe various entry strategies available to a firm when it wants to enter a foreign market. Germany. lowers price to consumers. National Iranian Oil Company)International JV has certain benefits.International Joint Ventures: JV is a business organization established by two or more companies that combines their skills and assets.. Cost reductions (otherwise. Foreign markets can be better served by exporting. (10 Marks) The various strategies available to a firm when it enters a foreign market a r e a s follows:1. Supplying Products to Foreign Buyers: F o r e i g n p r o d u c t i o n i s n o t a l w a y s a n answer. Messerschmitt – Below – Bloom. if there is excess capacity. (US firm + British firm jointly operate in the Middle East) Joint venture with a local firm (GM + Shanghai Automobile Company) Joint venture may include local government (Bechtel CompanyU S . M N C s a r e s u b j e c t t o multiple tax jurisdictions. Tax Policy towards MNCs: O p e r a t i n g i n m a n y c o u n t r i e s .Multiple Tax Jurisdictions creates two . A JV is formed by two businesses that conduct business in a third country. Differences among national income tax systems affect the decisions of managers of MNCs. rather than by creating f o r e i g n s u b s i d i a r y i f t h e r e a r e e c o n o m i e s o f s c a l e .

Under lapping encourages tax avoidance? National governments may choose a territorial jurisdiction or national tax jurisdiction or both. overlapping and under lapping j u r i s d i c t i o n s .problems. W h e n o v e r l a p p i n g o c c u r s .Transfer Pricing: MNCs try to reduce their overall tax burden. t w o o r m o r e g o v e r n m e n t s c l a i m t a x jurisdictions over the same income of an MNC. 4. a n d overprice its imports from the subsidiary in order to lower tax. A s s u m e b o t h c o u n t r i e s h a v e t h e s a m e corporate tax rates = 40%US Canada Pretax profits 10% 12%Tax 4% 4.Conversely. An MNC reports most of its profits in a low – tax country. Purpose is to manipulate prices between headquarter and the subsidiaries so that profits are highest in the low tax country. even though the actual profits are earned in high tax country’s p= tax rate in the parent country.2% (because US government gets nothing). a multinational company’s overall tax could be paid at the minimum of all tax rates of the countries in which it operates. A firm has to evaluate all such kinds of complex factors to fix up any strategy before choosing to enter a foreign market .The tax revenue which could have been used to build US highways would be used by Canadian government to build their highways. Total Gains from foreign investment = 7. an MNC falls between tax jurisdictions and escape taxation.8%Net to investors 6% 7. Taxation and Gains from Factor Mobility: It is seen that US firms invest overseasb e c a u s e t h e r e t u r n s a r e h i g h e r t h e r e . Thus. The overlapping may result in doubletaxation. 5. when under lapping occurs. t h e n u n d e r p r i c e i t s e x p o r t s t o t h e s u b s i d i a r y i n t h e h o s t c o u n t r y .2% Total Gains from domestic investment = 10% (= 4% + 6%) because tax revenues can be used for public purposes. t h = tax rate in the host country If t p >t h .