UNIVERSITY OF MUMBAI

SGSJK‟s Aruna Manharlal Shah Institute of Management and Research

SUBJECT: INTERNATIONAL BUSINESS ASSIGNMENT SUBMITTED BY GR-B8 ANJALEE PRASAD POOJA SUKALI ANKITA APHALE SUMEET MAYEKAR - 1214AMS067 - 1214AMS078 - 1214AMS005 - 1214AMS049

International Business

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PART - A

Q.1 By using appropriate examples, explain various modes of entry in to International Business .

The six major modes of international business are imports and exports, tourism and transportation, licensing and franchising, turnkey operations, management contracts, and direct and portfolio investment. Imports And Exports: Imports and exports are the most common mode of international business, particularly in smaller companies even though they are less likely to export. Large companies are more likely to engage in other modes of international business in conjunction with importing and exporting. Companies may import and export merchandise, defined as tangible goods brought into or out of (respectively) a country. While exports and imports apply mainly to goods, they can also apply to services, or non-products. Tourism And Transportation: Most service imports and exports revolve around tourism and transportation. The revenue gained from international tourism and transportation is best seen in hotels, airlines, travel agencies, and shipping companies. For many countries, especially in the Caribbean and Southeast Asia, their income on foreign tourism is more important than their income from exports. The same holds true in countries such as Norway and Greece, who earn a considerable amount from foreign shipping.

International Business

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Licensing And Franchising: Many companies enter into international licensing agreements, allowing other countries around the world to use their assets (ie: trademarks, patents, copyrights, or expertise) under contract, receiving royalty payments in return. Similarly, many companies engage in franchising, a mode of business where the franchisor allows the franchisee to use a trademark that is an essential part of the franchisee's business. For example, Gloria Vanderbilt has franchised her name out to several clothing companies, forming the Gloria Vanderbilt line . The franchisor also assists on a continuing basis in the operation of the business-for example, by providing components, management services, and technology. Turnkey Operations And Management Contracts: Companies also pay fees that may be incurred on an international level for engineering services handled through turnkey operations and management contracts. A turnkey operation involves construction of facilities, performed under contract, which is then transferred to the owner when the company is ready to begin operating. Management contracts are initiated when one company supplies personnel to perform general or specialized management functions for another company. This is most evident in Disney's theme parks in France, Japan, and

China. Direct And Portfolio Investment: Finally, international business occurs within direct and portfolio investments. By investing in a foreign company, the investor takes ownership in a foreign property for a financial
International Business Page 3

Germany‘s closely similar marginal tax rate of 45% has not hurt the nation‘s economy. Europe‘s biggest and the world‘s fourth largest. Belgium taxpayers are taxed a marginal rate of 54. a portfolio investment is a non controlling interest in a company that usually involves either taking stock in a company or making loans to a company in the form of bonds. The International Business Page 4 . Denmark nevertheless prospers. The country‘s growing unemployment and a lackluster economy have attributed to its high taxes. at 27%. China‘s. was a relatively low 6. Portfolio investments are particularly popular with multinational enterprises as they offer a safe means towards short-term financial gain. bills. has the world‘s biggest economy. Q. The next largest economy. has one of the world‘s lowest marginal income tax rates. When a government joins a company in an FDI. regard themselves as happy and content. the world‘s fifth highest. Right behind Germany with a marginal tax rate of 44.6%. reportedly the world‘s fourth highest. the nation‘s economy is vigorous and unemployment as of mid-Oct. by comparison with the high rates cited above.return. the U. A foreign direct investment (the more common of the two) gives the investor a controlling interest in the foreign company. Finland taxes citizens at a marginal rate of 46. the U. it is known as a joint venture. Nevertheless. seems a relatively low rate. On average. Despite endless American complaints about over-taxation. or notes that the investor purchases.4%. Germany continues to flourish economically. Along with what. has been imposed on the citizens of Belgium. Danish workers. despite their heavy tax burden.400 billion. with a GDP of over $1. measured by gross domestic production (GDP).S. according to economists. Conversely.S. is only one third as large.8%. 2011. When two or more companies share in an FDI.2 What are usual responses to the differences in the taxation regimes in different countries. according to an ABC News story of 2007. it becomes a mixed venture. Despite providing extensive and costly social safety to its citizens. and the highest of Western European countries.9%. One of the world‘s highest tax rates.

but if you‘re living in the U. taxes are inevitable. as of Oct. as of 2009. the lowest since 2008.5% marginal tax rate on workers. Canada has struggled with an unemployment rate of 7. has one of the lowest marginal tax rates on working people. your share of the tax burden is among the world‘s lowest.S. Therefore. and an ongoing unemployment rate of about 9% threatens to further damage the economy. The country encourages entrepreneurship and business investment. Like the U. Although Canada‘s tax rate is relatively low. and all the other essential functions of government. Switzerland. long a tax haven for the wealthy and a nation with once inflexible banking laws regarding secrecy. maintaining a military. Taxation.S. at 20%. and has performed throughout the recent recession better than most other economically developed countries. 2011. stood at less than three percent. International Business Page 5 . Unemployment in the nation.S.U.10%.S. imposes a marginal tax rate of 31.2% on its labor force. Australia imposes a 31. Canada. The cost of running a country. is immensely expensive. along with selling government bonds.. supporting and repairing the infrastructure. national debt. however. which have contributed to Australia‘s general economic health. U. the nation offers a program of national health care. are the principal means by which governments raise money to meet these expenses. neighbor.. is now seen as an impediment to economic growth. assessing fees and imposing tariffs. providing services.

direct exporters and indirect exporters. Most important trade partners are China and the USA. Direct exporters sell directly to foreign buyers and may have sales teams in those countries. The company must simply manufacture products that can then be shipped to the foreign country. pharmaceuticals and fine chemicals. Taiwan. International Business Entry And Operation Strategies 1. 2. available for entry and operation in International Business? Give suitable example for every strategy. a company is able to enter this country without actually establishing itself in the country. Indirect exporters rely on domestic intermediaries who broker the relationship with foreign buyers. gems and jewellery. Licensing Licensing is a good strategy for a company that has an in demand product or brand. textile goods.Q. but lacks the resources to expand internationally. electronic devices and computers. When a company licenses its products in a foreign country. India exports numerous leather products. Thailand and Germany. International Business Page 6 . drugs. Singapore.3 What are various strategies. Example: Japan's main export goods are cars. Exporting: Exporting is the simplest method of entering a foreign market. machinery and instruments. it sells the rights to manufacture the product in a foreign country to another manufacturer. By exporting to a foreign country. Hong Kong. petroleum like crude and products. This means that a company does not need to invest in developing the market but can simply collect payment from a foreign firm. followed by South Korea. Exporters can take two forms.

laws or culture. SpongeBob Square pants. Harry Potter. and Shrek at your favorite department store or toy store. because it allows toy manufacturers to come out with many new toys each year. 3. Star Wars. You may see licensed toys from Batman Begins. This means that there is less risk of failing due to an inability to understand local customs. The disadvantage of a joint venture is that it does not give a company total control over the operation. Joint ventures have the advantage of providing companies with a partner who knows the local environment well. Joint Venture A joint venture involves entering a new market with a local partner. Example: SONY-ERICSSON is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications Page 7 International Business . the firm must be able to work well with its foreign partner to succeed.Example: Licensing is very popular in the TOY INDUSTRY. Even toys based on popular movies and television shows are licensed from their inventors.

Two caveats are required when considering using the franchise model. The stated reason for this venture is to combine Sony's consumer electronics expertise with Ericsson's technological leadership in the communications sector. Virgin Mobile India Limited is a cellular telephone service provider company which is a joint venture between Tata Tele service and Richard Branson's Service Group.company Ericsson to make mobile phones. Example MCDONALD'S is the leading global food-service retailer in the world. 5. The first is through what is called green field development. This involves creating a new organization in the foreign country International Business Page 8 . with more than 30. Franchising Franchising works well for firms that have a repeatable business model (eg. the company uses Tata's CDMA network to offer its services under the brand name Virgin Mobile. 4. The first is that your business model should either be very unique or have strong brand recognition that can be utilized internationally and secondly you may be creating your future competition in your franchisee. Currently. food outlets) that can be easily transferred into other markets. There are two ways of doing this. Wholly Owned Subsidiary Entering a foreign market with a wholly owned subsidiary involves creating a local firm without the aid of a local partner.000 restaurants located in more than 100 countries.

Example: AMERICAN BROADCASTING COMPANY (better known as ABC TV) is a wholly owned subsidiary of COMPANY since Walt Disney is the sole owner of ABC The WALT DISNEY International Business Page 9 . Brownfield developments can be beneficial because they offer local expertise. This involves purchasing an existing company in a foreign country. but they can be difficult because there may be resistance from those in the company to new ownership. The second method is what is referred to as brown field development.from the ground up.

) International Business Page 10 .... preferences.Q. and incomes. the clones of the early IBM PCs were not produced in the US. national) needs.4 Explain with practical illustration „international product life cycle theory‟ propounded by raymond.. and new products are first exported to similar countries. (E. Stage 1: Introduction: New products are introduced to meet local (i. If we also presume similar evolutionary patterns for all countries. Discuss similarities and contrast aspects of PLC theory with David Ricardo‟s 2 product and 2 country model. (E. (E. usually on the basis of cost of production. then products are introduced in the most advanced nations.e. 1966) The logic here is straight forward --there are four stages in a product's life cycle: Introduction Growth Maturity and Decline and the location of production depends on the stage of the cycle.. THE PRODUCT LIFE CYCLE (Raymond Vernon. the IBM PCs were produced in the US and spread quickly throughout the industrialized countries Stage 2: Growth A copy product is produced elsewhere and introduced in the home country (and elsewhere) to capture growth in the home market. countries with similar needs..g.g. the many clones of the PC are made almost entirely in lowest cost locations.) Stage 3: Maturity The industry contracts and concentrates -. This moves production to other countries.e. i.g.the lowest cost producer wins here.

A better example is textiles. For example. Determination Of Trading Partners Country Differences Theory "The greater the differences the greater the amount of trade.) International Business Page 11 .e. advanced by Jean Monnet of France. For example.. and vice versa. The generally agreed upon view is that interdependence diminishes the likelihood of both economic and conventional war. the similarity of demand in two countries might induce trade. in the past China and Japan.network of mutual trade exchanges. These two countries are strikingly similar. we have the Country Similarity Theory "The greater the similarities the greater the amount of trade. approximately 80% of the revenues of H-P are from products they did not sell five years ago." Differences are due to various factors. (E. by riding the waves.) Interdependence . Independence.Stage 4: Decline Poor countries constitute the only markets for the product. And Dependence Independence . recently we had Albania. (This is the heart of the argument." This is a small leaps theory. This theory is too simple. including climate. that led to founding of what has become the European Union. the next best place to sell it is the most similar country. and innovative capabilities.. i. PCs are a very poor example here. (E. factor endowments.a country alone and apart with respect to trade.. Therefore almost all declining products are produced in LDCs.)Note that a particular firm or industry (in a country) stay in a market by adapting what they make and sell. the largest trading partner for the US is Canada. Interdependence. mainly because there is weak demand for computers in LDCs. Therefore.g.g. If a product is developed in one country. For example.

Why Companies Trade Companies trade so as to increase revenues.e. Long term growth is often a reason to enter a foreign market. then the market was flooded. companies seek to increase production and sales. baby food). To use excess capacity. Similarly. Companies increase profitability through international sales because the same item often fetches a higher profit elsewhere.) Dependence is dangerous because the dependent player is vulnerable.g. many US and European reclamation companies have entered the Eastern European market because it provides a vast number of opportunities.) * Monopsonist = single buyer.g. If you price at the marginal cost of the last item produced. has no diversification for safety. reduce costs. Future growth .. and/or mitigate risk. then you get remarkable growth in revenue and market share if marginal cost is dropping. Companies reduce risk through international sales by diversification. Finally.Dependence . The best example is DRAM chips--a great strategy for a while. To reduce costs. many large firms are attempting to enter Eastern Europe (particularly Poland and Hungry). (Others may lose interest in producing the good.. or have entered Russia and China in anticipation of the coming changes.. companies seek to increase (world) market share. International Business Page 12 . many have entered Spain and Ireland in an effort to gain relatively low cost entry to the European Union. cosmetics) or demographics (e. For example. (Others will find a substitute. You also gamble that these revenues will cover costs.there are two kinds of one-way dependence * Monopolist = single supplier.firms must adapt to changing markets and maturing products. i. and thereby reduce the per unit cost. due to differences in life cycle (e.

licensing agreements. the business environment. Knowing how to manage risk in international business can help to keep your company profitable around the world.com. If the business environment in a specific country turns sour. Other risks stem from limitations in legal jurisdiction. and the social culture are an ever present reality.Q. Factory output from a given nation. Pay careful attention to exchange rates. Do not place all of your foreign investment in one country. Study the histories of local and international companies in the specific country and industry to gain deeper insight into what your own experience may be like. Assess political risks and the legal environment as well as the business and competitive environment. Be patient if environmental risk factors are currently unfavorable. or spread among several factories. and contracts with local suppliers or customers. if you decide to pull out of the given nation. Partner with local organizations. Risks associated with the political and legal climate. Much of the risk of uncertainty can be curtailed by cooperating with local organizations to take advantage of their market-specific expertise and local reputation. According to 12manage. for example. the economy. your business can benefit from having an established presence in one or more additional countries. If the business environment becomes unfavorable.5 Risks are inevitable in International Business the success is totally depending on the techniques of handling risk at every stage justify with example. and consider pulling out of a market if conditions become extremely adverse. These firms will have thorough knowledge of the challenges and opportunities presented to international businesses in their specific country. International Business Page 13 . do not hesitate to move your operations to a friendlier climate. Do not enter any nation without being fully aware of the unique risks and issues presented by that nation. since international customers may not be subject to the same laws and enforcement mechanisms as their foreign suppliers. Do your homework before entering a foreign market. Utilize the services of local consulting firms specializing in international investment. can be shifted to a factory in a different country. Conducting international business requires the proactive management of diverse and uncertain variables. and develop strategies to minimize or circumvent these risks. effective cooperation strategies include joint ventures. including their histories and expected future actions.

and international credit transactions are available to companies with exposure to international markets. or declining the transaction. global property damage and liability. and workers' compensation can be included as well. Local groups regularly launch attacks against company compounds and kidnap foreign oil workers. Accept only letters of credit from trusted banks. According to castlerockinternational. Oil companies operating in these areas. demanding that more oil revenue be spent in the local area. as in the oil-rich region of the Niger Delta in Nigeria. if at all possible. If your customer is only willing to use a foreign bank that is unknown to your own.com. consider requiring a significant initial payment when offering a credit arrangement. such as Shell Oil. Example: Political risk can take the form of violence against employees.Purchase an international business insurance policy. International Business Page 14 . and by negotiating to create schools. often manage these risks by hiring security firms to protect workers. Insurance policies covering political risk. terrorism risk. international coverage for additional issues such as auto insurance. Deal with banks with which your own bank has had positive dealings in the past. medical expenses. hospitals and jobs for locals.

6 Discuss the contemporary theories of international trade with suitable examples. country-based trade theories. automobiles from Unlike the country-based theories. How can the porter‟s diamond model of competitive advantage be used to assess competitive advantage for India for fresh fruits and vegetables? In contrast to classical. The firm-based theories evolved with the growth of the multinational company (MNC). For example. When they explore exporting. offer the most potential for success. including brand and customer loyalty. and intra-industry trade will be common. Japan exports TOYOTA vehicles to Germany and imports MERCEDES-BENZ Germany. in terms of customer preferences. This theory International Business Page 15 . the category of modern. firm-based theories incorporate other product and service factors. The country-based theories couldn‘t adequately address the expansion of either MNCs or intra-industry trade. technology. Country Similarity Theory: Swedish economist Steffan Linder developed the country similarity theory in 1961. Linder‘s country similarity theory then states that most trade in manufactured goods will be between countries with similar per capita incomes. In this firm-based theory. the companies often find that markets that look similar to their domestic one. firm-based theories emerged after World War II and was developed in large part by business school professors. Linder‘s theory proposed that consumers in countries that are in the same or similar stage of development would have similar preferences.Q. which refers to trade between two countries of goods produced in the same industry. and quality. into the understanding of trade flows. as he tried to explain the concept of intra-industry trade. Linder suggested that companies first produce for domestic consumption. not economists.

US manufacturing was the globally dominant producer in many industries after World War II. and the majority of manufacturing and production process is done in low-cost countries in Asia and Mexico. developed the product life cycle theory in the 1960s. Global Strategic Rivalry Theory: Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. Countries prefer to export to the neighbouring countries in order to have the advantages of less transportation cost. In the 1960s this was a useful theory to explain the manufacturing success of the United States. (2) maturing product. It has also been used to describe how the personal computer (PC) went through its product cycle. among the Asian countries. Even though research and development is typically associated with the first or new product stage and therefore completed in the home country. The PC was a new product in the 1970s and developed into a mature product during the 1980s and 1990s. stated that a product life cycle has three distinct stages: (1) new product. these developing or emerging-market countries. and among the Islamic countries. Finland is a major exporter to Russia due to less transportation costs. The theory assumed that production of the new product will occur completely in the home country of its innovation. the PC is in the standardized product stage. such as India and China. global companies even conduct research and development in developing markets where highly skilled labor and facilities are usually cheaper. a Harvard Business School professor. Product Life Cycle Theory: Raymond Vernon. offer both highly skilled labor and new research facilities at a substantial cost advantage for global firms. and (3) standardized product. The theory. Exports and imports among European countries. For example. originating in the field of marketing. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. between USA and Canada.is often most useful in understanding trade in goods where brand names and product reputations are important factors in the buyers‘ decision-making and purchasing processes. Today. For example. Firms will encounter International Business Page 16 . The product life cycle theory has been less able to explain current trade patterns where innovation and manufacturing occur around the world.

Porter identified four determinants that he linked together. (2) local market demand conditions. they must develop competitive advantages. and (4) local firm characteristics. The four determinants are (1) local market resources and capabilities. The barriers to entry refer to the obstacles a new firm may face when trying to enter into an industry or new market. Michael Porter of Harvard Business School developed a new model to explain national competitive advantage in 1990. The barriers to entry that corporations may seek to optimize include:  research and development.  unique business processes or methods as well as extensive experience in the industry.global competition in their industries and in order to prosper. (3) local suppliers and complementary industries. To explain his theory. and  the control of resources or favorable access to raw materials. International Business Page 17 . Porter‘s theory stated that a nation‘s competitiveness in an industry depends on the capacity of the industry to innovate and upgrade.  the ownership of intellectual property rights. His theory focused on explaining why some nations are more competitive in certain industries. Porter‟s National Competitive Advantage Theory: In the continuing evolution of international trade theories.  economies of scale. The critical ways that firms can obtain a sustainable competitive advantage are called the barriers to entry for that industry.

2. Porter added to these basic factors a new list of advanced factors. thereby creating a sustainable competitive advantage. Porter recognized the value of the factor proportions theory. investments in education. Companies whose domestic markets are sophisticated. thus creating a sustainable competitive advantage in software products and services. Porter believed that a sophisticated home market is critical to ensuring ongoing innovation. technology.g. Many sources credit the demanding US consumer with forcing US software companies to continuously innovate. Local market resources and capabilities (factor conditions). and infrastructure. He perceived these advanced factors as providing a country with a sustainable competitive advantage.1.. International Business Page 18 . which considers a nation‘s resources (e. trendsetting. natural resources and available labor) as key factors in determining what products a country will import or export. Local market demand conditions. and demanding forces continuous innovation and the development of new products and technologies. which he defined as skilled labor.

4. large global firms benefit from having strong. efficient supporting and related industries to provide the inputs required by the industry. Certain industries cluster geographically. Local strategy affects a firm‘s competitiveness. In addition to the four determinants of the diamond. increase the competitiveness of firms and occasionally entire industries. Local firm characteristics include firm strategy. Local suppliers and complementary industries. which provides efficiencies and productivity. A healthy level of rivalry between local firms will spur innovation and competitiveness. Porter also noted that government and chance play a part in the national competitiveness of industries. along with the other modern. firm-based theories. Nevertheless. Governments can. they remain relatively new and minimally tested theories. International Business Page 19 . Local firm characteristics. offers an interesting interpretation of international trade trends. and industry rivalry. To remain competitive. Porter‘s theory.3. by their actions and policies. industry structure.

greater prospects of growth and creation of employment opportunities. but also trade in services. Domestic business have lesser benefits when compared to the former.  To the nations: Through international business nations gain by way of earning foreign exchange. this will probably be much easier than trying to expand your market place in your ―home‖ country. way out to intense competition in domestic market and improved business vision. Grow your business: When trading internationally the ―universe‖ of potential clients and suppliers will increase significantly. Domestic business as it is conducted locally there would be no much involvement of foreign currency. greater utilization of production capacities. Scope: Scope of international business is quite wide. when opportunities are available in domestic market. Benefits: International business benefits both the nations and firms. It includes not only merchandise exports. Profits in domestic trade are always lesser when compared to the profits of the firms dealing transactions globally. International Business Page 20 . Domestic business pertains to a limited territory. more efficient use of domestic resources.7 Companies and countries enter into international business. In all likelihood. Though the firm has many business establishments in different locations all the trading activities are inside a single boundary.Q. Just imagine increasing the number of potential clients by 100% each time you start selling in a new country. licensing and franchising as well as foreign investments.  To the firms: The advantages to the firms carrying business globally include prospects for higher profits. It can create employment opportunities too and the most important part is business since carried locally and always dealt with local resources the perfection in utilization of the same resources would obviously reap the benefits.

which may be viewed as comparable to others in the UK. In fact. Pricing pressure could be less and it could also reduce seasonal market fluctuations. this task is made easier. earthquakes and unrest in the Middle East) over the last few years and the drastic impacts these have had on markets. turn out to be a unique product or service not to be missed. Less competition: The ability to stand out amongst competitors is a crucial factor in business. By making the product or service available to worldwide buyers. you may find new products to sell abroad that you don‘t offer where you are based. but your business may be saved by the business it generates overseas. Just look at the number of unprecedented global ―disasters‖ (financial meltdown. You can offer a much wider range of products when you market globally. you instantly create another life line for the business by being in less competition and increasing the possibility of standing out. You don‘t have to dump unsold inventory at deep discounts. When there are fewer competitors.Diversify risk: The idea that a business relies solely on one market and directs all its resources into a single currency may prove to be more risky than it may first seem. Your home market could contract or even disappear. you may well enjoy better margins. may. Sterling which is currently weak may give you a head start when exporting. You can search for new markets where your products can sell for even higher prices than they did in your local market. Product Flexibility: If you have products that don‘t sell well in your local or regional market. when placed in a larger and more diverse environment. This will in turn boost sales potential and allow your business to flourish. Better margins: As well as seeing increased sales. you may find greater demand abroad. International Business Page 21 . Your business.

For example. International Business Page 22 . you could discover that your home country frowns upon drinks that offer extra calories. you learn new ways of doing things. but you can compensate by focusing your sales efforts in another part of the world. This product can now be marketed to parts of the U. Learning New Methods: When you do business in another country.or "hard" -.Protection From National Trends and Events: When you market to several countries. that have similar water problems.water. if you sell soft drinks with high sugar content. You can apply this new knowledge to other markets. you are not as vulnerable to events in any one country.S. according to the Cite Sales website. In addition. a natural disaster in any one market can disrupt business. Unilever discovered a market for laundry detergent that would function in Europe‘s high-mineral-content -. You may be able to sell the same product in another country that has a much different attitude toward these drinks. For example.

The Country Risk Analysis monitors the potential for these risks to decrease the expected return of a crossborder investment. Country Risk Analysis identifies imbalances that increase the risks in a cross-border investments. For example. currencies. With globalization. economic. All business dealings involve risks.its important while entering in International Business. The MNE must consider the risks from a broader spectrum of country characteristics. they bring additional risks compared to those in domestic transactions. and avoids countries with excessive risk. Some categories relevant to a plant investment contain a much higher degree of risk because the MNE remains exposed to risk for a longer period of time. Country Risk Analysis represents the potentially adverse impact of a country‘s environment on the multinational corporation‘s cash flows and is the probability of loss due to exposure to the political. Globalization a) Define and explain process in detail b) Stage and phases c) Role of FDI in globalization. policies.8 Explain country risk and political risk analysis . These additional risks are called country risks which include risks arising from national differences in sociopolitical institutions. country risk analysis has become essential for the international creditors and investors.Q. a multinational enterprise (MNE) that sets up a plant in a foreign country faces different risks compared to bank lending to a foreign government. and geography. It is used to survey countries where the firm is engaged in international business. and social upheavals in a foreign country. Country Risk Analysis: Country Risk Analysis is the evaluation of possible risks and rewards from business experiences in a country. An increasing number of companies involving in external trade indicate huge business opportunities and promising markets. economic structures. International Business Page 23 . When business transactions occur across international borders.

 Transfer risk: Transfer risk arises from a decision by a foreign government to restrict capital movements. Whenever investors or companies have assets or business operations across national borders. corruption and bureaucracy also contribute to the element of political risk. expropriation of assets. including the decision making process in the government.  Location risk: This type of risk is also referred to as neighborhood risk. tariffs. It also relates to political risk in which a government may decide not to honor its commitments for political reasons.Analysts have categorized country risk into following groups:  Economic risk: This type of risk is the important change in the economic structure that produces a change in the expected return of an investment. or restriction in repatriation of profits. war. monetary. they face currency risk if their positions are not hedged. Therefore. Exchange risk can be defined as a form of risk that arises from the change in price of one currency against another. It is analyzed as a function of a country‘s ability to earn foreign currency. Sovereign risk is closely linked to transfer risk in which a government may run out of foreign exchange due to adverse developments in its balance of payments. international. relationships of various groups in a country and the history of the International Business Page 24 .  Exchange risk: This risk occurs due to an unfavorable movement in the exchange rate. It includes effects caused by problems in a region or in countries with similar characteristics. it implies that effort in earning foreign currency increases the possibility of capital controls.  Political risk: This is the risk of loss that is caused due to change in the political structure or in the politics of country where the investment is made. tax laws. in trading partner of a country.  Sovereign risk: This risk is based on a government‘s inability to meet its loan obligations. Risk arises from the negative changes in fundamental economic policy goals (fiscal. For example. or in countries with similar perceived characteristics. Location risk includes effects caused by troubles in a region. or wealth distribution or creation). Country risk assessment requires analysis of many factors.

often on the PhD. Although political risk analysis has been developing as a field since the 17th century. Political Risk Analysis: The term ‗political risk‘ refers to the possibility that investors will lose money or make less money than expected due to political decisions. three departments within most large banks perform political risk analysis: credit. ‗ political risk analysts ‘ gather information on an area or a country. Level. rating services. Typically. and expropriation. Additionally. today‘s analysts may find employment with international organizations. It is essential to analyze the sustainable amount of funds a country can borrow. Specific problems include government instability. lending institutions and organizations such as the State Department may be required to make in depth economic analysis and would be International Business Page 25 . Country risk is due to unpredicted events in a foreign country affecting the value of international assets. Additionally.country. While the political risk divisions of large consulting and insurance companies have traditionally been most involved with this field. The equity department supports equity research analysts by forecasting key economic variables and may require advanced economic skills. for example and land rights issues when evaluating the level of risk associated with any investment. energy firms. currency inconvertibility. political risk analysis examines social conditions such as crime levels – the number of recent kidnappings. and online sites specializing in the sale of political risk information. investment projects and their cash flows. The analysis of country risks distinguishes between the ability to pay and the willingness to pay. Analysts may also be asked to prescribe risk management solutions and to offer recommendations to clients hoping to invest in a specific area of the world. Country risk is determined by the costs and benefits of a country‘s repayment and default strategies. nationalization. conditions or events occurring in the country or emerging market in which they have invested. fixed income and equities. smaller financial companies. Those employed in rating agencies. The international trade growth and the financial programs development demand periodical improvement of risk methodology and analysis of country risks. determine the causes and sources of any rel ated risks and forward their findings to those making investment decisions. The ways of evaluating country risks by different firms and financial institutions differ from each other. it has seen a dramatic increase in importance only in the past 20 years.

Prior experience is becoming increasingly important in finding employment in certain organizations.$ 50. the increasing number and types of firms practicing political risk analysis ensure that this field will be attractive to many different types of people. may be helpful when working in a position that is focused on a particular region. Additionally. and decision making abilities as well as good communication and writing skills are necessary to succeed in this field. intelligence. The smaller firms and governmental organizations offer anywhere from$30. international relations or related areas but may also have backgrounds in law. legal systems and business practices may find employment with smaller consulting companies that gather and analyze information and then sell their findings to others.classified as ‗specialists‘.000 . especially in reading and speaking. Excellent research.000 for an entry position. analysis. journalism or law enforcement. International Business Page 26 .  Career Paths and Salaries: Internships are strongly recommended. Language skills. such as the World Bank. particularly those that are Internet based.000 and above.  Qualifications Necessary to Enter the Field: Political risk analysts typically hold degrees in business. especially if they strengthen accounting and financial skills or offer some insight into the political process. Companies look for well informed people who themselves may bedescribed as ―intelligent risk takers‖. Salaries are competitive but vary widely depending on experience and on the type of organization. forecasts for jobs in this field seem strong. Banking experience is always beneficial and may be required for those students hoping to work in a financial company. and larger consulting and insurance firms pay $60. Requirements appear to be more flexible for employment with smaller companies.  Demand: With globalization and increasing levels of foreign direct investment. Representation of investigative journalists and former intelligence agents is particularly high in online companies specializing in political risk in formation. Analysts with more general knowledge about countries. but the lack of such skills will not preclude one from employment in the field in general.

international monetary system and country risk analysis. on culture. This process has effects on the environment. companies. For much less than it has cost in the past.In addition to language skills. new communication technology has allowed people to instantly contact friends and family on the other side of the world through a variety of media. Advances in technology have meant that people. companies and nations are no longer restricted by national borders and geographical distance. telephones. as a result. facsimile machines. Therefore. monetary economics. Globalization is a broad term which is often used to describe the way that the cultural. and on human physical well-being in societies around the world. The world is more closely connected and. many analyst positions will focus on more than one area of the world. trade and political science. including text messages. web cameras and instant messaging. The latter will be most useful for entry level positions. understand a country‘s balance of payments or offer insight into the politics of a particular region will be very useful. it is recommended that students interested in pursuing a career in political risk analysis take classes in finance. International Business Page 27 . it is often thought to be a 'smaller place'. and governments of different nations. Although concentrating in an area of study will certainly be useful. Successful analysts excel at adapting their knowledge to new and uncertain situations. on political systems.The ability to decipher a balance sheet. on economic development and prosperity. some positions may require knowledge of a region that can only be obtained from having lived or worked there for a longer period of time. a process driven by international trade and investment and aided by information technology. political. Specific classes that were named include the following: accounting. while business related classes will help those pursuing a more specialized track. private sector project finance. technological and economic domains of countries are rapidly expanding outside of their own nations and on to an international level. Globalization: Globalization is a process of interaction and integration among the people. Additionally. corporate finance. employers will value the analyst‘s ability to write concise and lucid reports.

electrical and electronic infrastructure. for companies to become interested in expanding their business by operating in the markets of foreign nations. slave trade.The process of globalization: During the late 20th century. Developments in communication and transport. globalization rapidly expanded to resemble the form which it is commonly known as today. that since the process of globalization results in the world becoming increasingly integrated. Africa. soon made it possible for these companies to carry out their plans. church constructions abroad. International standards were also devised in the areas of telegraphy and signalling. Evidence to support this rests on the knowledge that. inventions in the high-capacity transportation. however. European countries began to expand and colonise the continents of Australia. The period of economic depression (the 'Depression') between WWI and WWII slowed down progress towards globalization when a number of countries introduced anti-free trade measures in an attempt to stimulate their own economies. creating transnational corporations (businesses with a base in one country but conducting operations in a number of other countries) the way of the future. Stages and phases: Continuing globalization process may be divided into many stages encompassing colonization. The world was further united when the Gregorian calendar was adopted. North America and South America. world trade and investment experienced rapid expansion. then it must have existed since the beginning of man. Towards the end of the 19th century. It did not take long. highway constructions among provinces and countries. International Business Page 28 . industrialization. The process of globalization is said to have existed at least several hundred years ago. The development of the internet continued to assist these companies. particularly that of air travel. however. The International Date Line. around that time. Some suggest. Prime Meridian and world time zones were also established at that time. On the other hand Robertson claims that globalization which is thought to be peculiar to present day is in fact a process began before the modernity and capitalism and divides this process into five stages and suggests that the last stage started in 1960 is full of ambiguities.

Profit and then explorers. then therefore countrywide spontaneous military occupation companies and finally effect occupation Highest level of civilization. The discoveries were followed by the establishment of colonial empires. Second Stage (1890): Second extension of the West started after 1870 and institutionalized in 1890s. Disappearance of Competitors of the West in 1990s Process Medium Evangelists. globalization: for everyone‘s interest Empires Colonization Colonialism and Nation States Imperialism Regional Integrations Globalization and Economic Political Structure Result First Stage (1490): Started with the overseas discoveries of the West. ―invisible hand‖ of the pagans racialist theories market. Stages of Globalization: First Stage 1490 Nautical developments Second Stage 1890 Third Stage 1990 Stages Impulse Multi-National Companies in Industrialization and its 1970s. Communication Reform in requirements 1980s. The utilized technology after the industrial revolution generated high imbalances between the West and the rest of the world. Increased competition resulted in conflicts and the First World War. International Business Page 29 . This competition previously had remained at the firm level as the land and resources abounded but later on as the free lands become scarce it raised to the national level. A merciless competition that curtails profit rates started. humane mission.A commonly accepted division divides the globalization process into three stages. community. This difference was resulted with the deployment of Western countries into the markets of countries that had not experienced the industrial revolution and exploitation of the resources in these countries. then Cultural-Ideological effect. To get the God‘s Burden of the white governance of international religion to the man.

communication satellites. First. Identity conflicts reached to peak in the underdeveloped countries. internet in 1980s and disappearance of power balances with the dissolution of the USSR and Europe‘s turning up as the only focus of power again in 1990s. access to new technology. Role of FDI in globalization: Foreign direct investment plays an extraordinary important role in inclusive globalization. One of them was USA and the other was USSR. When economic and political balances changed. products. Reacting to changes in International Business Page 30 . markets were desired to expand in order to encompass the whole world. It can provide a firm with new markets and marketing channels. and skills and financing. The number of independent states increased. It is dramatically increasing in the age of globalization. communication revolution created by putting technological inventions of the West like optical cable. balances that collapsed and changed were the former economic powers and political authorities connected to these powers. social and cultural values and balances disappeared. But during the Second World War major changes occurred. Therefore globalization has become a process that can not be reversed and it should be accorded and strategies should be developed against the process. conflicts increased and accelerated. In this process there were no competitors against the West like the ones in 1490 and 1890 stages because the third stage both was the factor that engendered the collapse of Soviet Bloc and the West was left alone to conquer the world as a result of this collapse. computers. Third Stage (1990): In the first two stages instable balances aroused. It has played important role for economic growth in this global process. Almost all the ordinary balances collapsed and a new formation in the world started. FDI has come to play a major role in the internationalization of business. widespread and faster than the first two stages because of the hegemony of MNCs on the world economy started in 1970s. When the vast part of Europe was ruined. cheaper production facilities. The national markets of the West were insufficient.The world changed in many respects after the First and Second World Wars. industrial economy in USA experienced a huge growth. The empires and monarchies and their colonies which are the power source and scattered into various continents diffused one by one through declarations of independence. The third stage was more powerful. the newly gaps were closed by new balances. Thereby two poles and two blocs formed in the world.

FDI has become a prominent source of external finance for developing countries. That is why creativity and innovation are now moving to the top of the agenda for organizations around the world. innovation is of prime importance to any company for performing well. To beat the competition one business organization has to use innovative ways in business. At present. joint venture with local partners etc. FDI plays important role in global business world. machinery. In the past decade. creativity and innovation is a prerequisite for survival. global world. Human resource development etc. In present competitive scenario. tariff liberalization. Smaller and weaker economies and can drive out much local competition. The purpose is solved by FDI in host country by various developed countries. Today. After globalization. In today's competitive and At constantly changing global economy. Foreign Direct Investment allows companies to accomplish several tasks like avoiding foreign Government pressure on local production. requires huge capital investment. opportunities for coproduction. and changes in capital markets profound changes have occurred in the size. FDI represents an opportunity to become more actively involved in international business activities. In the modern world of globalization. leading companies are becoming increasingly aware that real growth in the future will come from innovation rather than from mergers and acquisitions…and even less from 'business as usual'. International Business Page 31 .technology. there is cut throat competition in whole business world. making the move from domestic export sales to a locally-based national sales office. fast paced business environment. and the deregulation and privatization of many industries. innovation plays great role for the growth of business. growing liberalization of the national regulatory framework governing investment in enterprises. For small and medium sized companies. foreign direct investment has expanded its role by change in trade policy. capability to increase local production capacity. easing of restrictions on foreign investment and acquisition in many nations. it is the time of using innovative techniques in business for global competitiveness. New information technology systems. FDI provide opportunities to host countries to enhance their economic development and opens new opportunities to home countries to optimize their earnings by employing their ideal resources. production ways. Innovation in technology. decline in global communication costs have made management of foreign investments far easier than in the past. Innovation is about creating something new out of nothing. investment policy. scope and methods of FDI.

Monopoly Theory of Advantage: Horizontal Foreign Investment: Is explained by the monopolistic advantage theory. transport equipment.9 Explain various theories of foreign direct investment. It was also observed in the case of US firms in International Business Page 32 .Q. Theory of Monopolistic Advantage 2. Superior Knowledge: It refers to all intangible skills-intellectual capital plus advanced technologic possessed by the firm that confer a competitive advantage. The Major Theories of FDI Explained Below: 1. Eclectic theory 1. This permits the firm to create unique product differentiation. pharmaceuticals. Economies of scale. Product Life Cycle Model 4. Superior knowledge and Advance Technology. The firm enjoys monopolistic advantage on two counts: 1. 1978) Empirically. The theory states that the investing firm possesses relative monopolistic advantage abroad against the completive local firms. The marginal cost of transfer of its superior knowledge asset to foreign countries will be much low in comparison to the local firms which. Give example for each. Oligopoly Theory of Advantage 3. 2. (Roots. need to invest the full cost to create such asset. chemicals.the monopolistic advantage suggested horizontal foreign direct investments of the US firms' knowledge technology intensive industries such as petroleum referring.

petroleum companies tend to land invested in crude oil refineries as well as marketing out-lets. For this reason. specialises and exports. monopolistic advantage theory explains first course of investment of a business firm in a foreign country. A firm's relative rate of growth determines its relative size and relative market power. it produces at home enjoying its monopolistic advantage in the export market. the multi-national firm can yield the production-scale economies and comparative cost advantage resulting into over all competitive advantage.high-level marketing skill-oriented industries such as cosmetics and fast-food abroad. Initially a firm when innovate a product. Through vertical direct foreign investment they trend to capture and enlarge market share into the global market. The oligopoly multi-national firm can internalise external economies of scale by advantage of backward integration to forward integration. thus. They do not want new competitors to enter by allowing the market vacuum. Oligopoly Theory of Advantage: Vertical FDI is explained by the oligopoly theory of advantage. thus. want growth maximisation of the firm. 1978) 2. By adding a time dimension to the theory of monopolistic advantage. Besides. The oligopolistic big firms tend to dominate in the global market on account of entry barriers such as: 10 points mistake The big firms intend to retain their monopoly power by sustaining these entry barriers. In short. They. Product Life Cycle Model: Vermon (197l)'s Product Life Cycle Model (PLCM) can explain both trade and FDI. The oligopoly theory thus. 3. explains defensive investment behaviour of a multinational firm. (See Root. The oligopoly theory explain the defensive investment behaviour in terms of oligopolistic reaction to retain the monopoly power of the firm. Once the product International Business Page 33 . thorough horizontal and vertical integration in FDI. the PLCM can explain a firm's shift from exporting to FDI.

location variables refer to: 1. Country-specific 2. taxation and fiscal policy 5. the political environment 3. International Business Page 34 . cultural environment 7. 4. analytic approach for FDI and organisational issues of the MNCs relating to foreign production. the government's regulatory framework 4. Eclectic Theory: Eclectic theory. The country-specific. production and transportation costs 6..becomes standardised in its growth product phase. research and development advantages. Relating to trade and FDI. the geographical environment 2. Company-specific Internalization 3. is a wholictic. the firm may tend to invest abroad and export from there to retain its monopoly power. propounded by Dunning (1988). 4.e. In short. i. Eclectic paradigm considers the significance of three variables: 1. a synthesis of international trade and investment theories can better explain the complexities of international business and marketing behavior. The rivals from the home country may also follow to invest in the same foreign country's oligopolistic market.

stated that: "it is simply not possible to maintain substantial market standing in an important area unless one has physical presence as a producer" in a global economy. FDI rather than foreign trade. The company-specific paradigm relates to ownership and managerial variables: 1. The internalization variable refers to the firm's inherent flexibility and output cum marketing capabilities on: Peter Drucker (1992). process 4.5. 6. the management Guru. International Business Page 35 . structure 3. managerial effectiveness 2. is a major driving Force and an engine of growth of an economy under global setting. technology advantages. in modern times.

but their weakness may be much more damaging now than ever before. According to a survey only 17 countries control 72% of the world trade.10 “WTO is more complex than removing non tariff barriers and reducing tariff barriers” explain above statement in the context of its various provisions impacting developing countries. Again. because of three newly emerging features. and the issues raised by them are not being addressed. Third and perhaps the most important. Second. the impact of the agreements of the WTO (as compared to the GATT) and their operation is much wider and deeper for the economies of countries. has not reaped plausible benefits under WTO regime. subsidies. A major dilemma faced by the developing countries in the trade liberalisation process is that a country may be able to control the speed of trade liberalisation. First. the economies of the developing countries are much more vulnerable at present than before because of their own weakness and also exposure to the uncertain external environment. Developing countries have never had a decisive role in the General Agreement on Tariffs and Trade (GATT)/World Trade Organisation (WTO) system. customs valuation and import licensing procedures. Major share of the world trade is controlled by the developed world. antidumping. but cannot determine by itself how fast its exports should grow. International Business Page 36 . They also have a strong feeling that their voice is not being heard. The developing world. particularly the developing countries. The developing countries under the new WTO regime are faced with a considerable increase in their obligations particularly in respect of government procurements. However. which consists of two-third majority of the total WTO membership. the new obligations that they have accepted in the area of services and intellectual property rights could have adverse economic impact on their development. the WTO is increasingly spreading its coverage to new areas. some noticeable change of strategy at the WTO seems to have taken place in recent years.Q.

human resources. IMF or regular dole from rich nations. dishonesty. While. though. the developed world itself continues to follow protectionist policies in the case of agriculture to safeguard its costly products against cheaper foodstuff from the developing world. Continue to improve productivity in agriculture / fishing in order to remain self reliant in food production and earn good value for their exports. Even the Indian economy has grown rapidly over the past decade with real GDP growth averaging some 6% annually.4% during the fiscal year 2004International Business Page 37 . The developing countries cannot prosper on the prescriptions laid down by the World Bank. price and competitiveness of exportable commodities. But. on the other hand. Singapore. Apart from raising hue and cry for better treatment by the WTO and the developed world it should have its own strategy for economic development.Exports performance depends on quality. Also. unfortunately. Improve efficiencies. which is a long-term process and not easily achieved. Following are the suggestions for the developing countries: Identification of core strengths and competitive edge. technology. and enterprise capacity for new exports. South Asian economies. to become competitive. Develop human resource through education. corruption. In recent years. South Korea and China are a glaring example of what can be achieved through following a pragmatic path. in part due to continued structural reform. Suggestions to the Developing Countries: The developing world has tried to raise its voice on various forums but without much success. and The Government should reduce its role in running business. lower costs and upgrade quality of products in order to be able to make them export oriented to earn valuable foreign exchange. The interesting phenomenon is that the developed world continues to insist on free trade and services and bringing down the tariffs in order to ensure fair competition between local and imported products. most of the developing countries to-day is plagued by inefficiency. training. healthcare and social justice.Concentrate mainly on industries which use local raw material. Pakistan has also shown a remarkable performance in real GDP growth rate: 8. low productivity and a lack of will and desire on the part of elected representatives to improve the status quo. investment is required in developing the infrastructure. Develop small and medium enterprises. including trade liberalisation. especially Malaysia.

6.5% excluding China against 2% of the rich countries. But currently products of developing countries face many obstacles in entering the markets of rich countries.05. If they do not take corrective measures they will be rendered producers of raw materials and operating locally produced agrobased industries only. He believes that there is solid evidence available to prove that this has happened due to participation in the free trade and globalisation process. Rich counties need to do more to reduce trade-distorting subsidies and dismantle their existing barriers on competitive exports from developing countries. obviously. According to a research report by David Dollar of the World Bank. but yet there are many reforms to be made especially in manufacturing and service sectors. the growth rate of the developing countries during 1990s has been 5% (3. According to WTO Annual Report 2002.1% during 2002-03. The developing countries have a tough task ahead. miss the opportunity to benefit from global trade. They will. poor countries need to grow their way out of poverty and trade can serve as a key engine of that growth.4% during 2003-04 and 5. International Business Page 38 .

 More than the downsizing itself. what this implies is a significant drop in new hiring -.  The fear of a recession looms over the United States.  This is evident from the way the Indian markets crashed taking a cue from a probable recession in the US and a global economic slowdown. but for the rest of the world too.  And as the cliche goes.  Indian companies with big tickets deals in the US are seeing their profit margins shrinking.  More people have sold the shares in the indian share market than they bought in the recent weeks. the world catches a cold. US RECESSION AND ITS IMPACT ON INDIA Recession: A significant decline in activity across the economy.11 Short notes with examples A. real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP).  India's exports to the US have also grown substantially over the years. International Business Page 39 . not just for India.Q. which may not involve large numbers. This has added to the fall of sensex to lower points. and reports of quiet downsizing in many other fields as companies cut costs. There is already anecdotal evidence of this in the IT and financial sectors. whenever the US sneezes. lasting longer than a few months. employment. although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession.  One danger meanwhile is of a dip in the employment market. Impact on India:  A slowdown in the US economy is bad news for India. It is visible in industrial production.  Indian companies have major outsourcing deals from the US.and that will change the complexion of the job market.  Weakening of the American economy is bad news.

but there is not enough evidence of that happening. and also not allow the credit market to overshoot by taking interest rates up too high.among others) will all have an element of sanity restored. International Business Page 40 .  What the RBI needs to do. Many companies has laid off their staffs.  And for importers. or companies that are stuck with cash flow issues on businesses that are yet to reach break even. though buyers overseas may now become more scarce. real estate. is to neutralize the outflow of FII money by unwinding the market stabilization securities that it had used to sterilize the inflows when they happened.  The only way out of the mess is for builders to drop prices. the oil price fall (and the general fall in commodity prices) will neutralize the impact of the dollar's decline against the rupee. government and other private companies are reluctant in starting new ventures and starting new projects etc.  Meanwhile. as events unfold. there is an upside to be considered as well.  If done sensibly.  This will mean drawing down the dollar reserves.  Consumers are also frozen in this sudden glare of the headlights. More expensive money means that floating rate loans begin to bite even more. which had reached unrealistic levels and assumed the characteristics of a property bubble.  one of the casualties this time could be real estate. will run out of cash.  The falling rupee (against the dollar.  Overheated markets in general (stocks. so as to bring buyers back into the market. where building projects are half-done all over the country and in this tight liquidity situation developers find it difficult to raise finances.  Projects that are halfway to completion. even those not caught in such a pincer will decide that purchases of durables and cars are not desperately urgent.  At the heart of the problem lie questions of liquidity and confidence. it would prevent a sudden tightening of liquidity. but that is the logical thing to do at such a time. the number of tourists inflow to india has come down. companies have cut down compensations and perks etc. more than against other currencies) will mean that exporters who felt squeezed by the earlier rise of the currency can breathe easy again. employment.

Even if you do not have a stand. You will. Others again avoid being associated with one of the giants Germany . You may prefer Eastern European countries to benefit directly from low set-up and low employment cost. Austria) you can find the most important trade shows listed. Turkey and Russia are. France and UK and instead position themselves in between the Netherlands or Belgium .g. the largest market and the doorstep to low costs in Eastern Europe . International Business Page 41 . Simply follow the links. at present. This is particularly true for the European Union as once you are in one of the Member States it is easy to migrate or expand into the next one. Many companies start in the UK or Ireland because of language reasons and then transfer across to continental Europe . simply by being the third largest economy in the world.B. If you have exported or invested into other parts of the world. however. Germany is often the first point of entry. the pattern of market entry is not much different in Europe . you can simply observe and get a feeling for the industry in Europe . Germany has by far the most and the largest trade shows in Europe and in fact in the world. Trade Shows are often very well organised and you need thorough preparation if you do not want to waste time and money. DOING BUSINESS WITH EXPANDED EUROPE Thousands of companies have made it into Europe and many more are going to make it. For each of the countries covered in the lower section of this publication (e. have to develop a strategy of where to start your European conquest. Once you have used this publication properly you will be able to make a profound and informed decision. Trade show: Many companies start obtaining a personal impression by presenting at a Trade Show. Where to position yourself will mainly depend on the market for your product. A trade show gives you the opportunity to understand many things about your market. the fastest growing economies. This interactive publication allows you to find your way into Europe and to find your way within Europe .

Europe in general has low tariffs and once you have entered the European Union. the difference of the Common Law and Civil Law and the impact that this has for your entry or expansion strategy. You will find the specifics in the section down below. The EU regulations on Product Liability might be of particular importance to you if you manufacture goods. Franchising Franchising is an option for many as it allows for return straight away. so each Member State will have their own provisions. General information about Corporate Governance and Statues/Articles of Association in Europe or the Limited in Civil law countries should be taken into account.Distributor: After a trade show. there will be no further customs. You might also decide on some specific European organization like the Economic Interest Group or the European Corporation (Societies European). airports and at customs regulations. International Business Page 42 . You may wish to consider how many distributors you need for the whole of Europe or if one person can cover a number of countries simultaneously. many companies want to appoint an agent or a distributor in Europe . You can find out much more about the concept of the European Law. By that stage you will want to ensure that your intellectual property protection and CE-Marking is in place. then those which you might be used to. Logistics: Once you start exporting you will also have to have a look at the logistics of ports. Franchising is an area. which is not harmonised within the European Union. say for Ireland. If you are more established. Entities and Board structures for each country are listed in the country particulars. Please be aware that other rules apply when you terminate agents or distribution contracts in Europe . The Limited company table and the Public company table give you an overview of what and how long it takes to found a company in all these countries. you will be looking to enter into a Joint Venture or to found your own Company.

Company structure and Corporate Governance as well as with Competition law. International Business Page 43 . If you are intending to acquire another company in Europe you will need to be familiar with the above mentioned contributions on Companies.often amongst Eastern European countries .Our various outlines on taxation and on employment costs will provide you further guidance for your strategy. Incentives offered by the European Union or by one of the Member States might also influence your decision.are mentioned under the specific country. Specific country incentives such as setting up in a special economic zone . Please note that it is now possible to transfer losses within European Union companies of one group.

They usually give the creator an exclusive right over the use of his/her creation for a certain period of time. sculpture. actors. provided the sign in question continues to be distinctive. musical compositions.  The protection of such distinctive signs aims to stimulate and ensure fair competition and to protect consumers. The protection may last indefinitely. design and the creation of technology. Industrial property  Industrial property can usefully be divided into two main areas:  One area can be characterized as the protection of distinctive signs. in particular trademarks (which distinguish the goods or services of one undertaking from those of other undertakings) and geographical indications (which identify a good as originating in a place where a given characteristic of the good is essentially attributable to its geographical origin). International Business Page 44 . In this category fall inventions (protected by patents).C.  Also protected through copyright and related (sometimes referred to as ―neighboring‖) rights are the rights of performers (e. singers and musicians). for a minimum period of 50 years after the death of the author. GENERAL CHARECTARISTICS OF IPRS What are intellectual property rights? Intellectual property rights are the rights given to persons over the creations of their minds. producers of phonograms (sound recordings) and broadcasting organizations.g. The main social purpose of protection of copyright and related rights is to encourage and reward creative work. industrial designs and trade secrets. computer programs and films) are protected by copyright.  Other types of industrial property are protected primarily to stimulate innovation. by enabling them to make informed choices between various goods and services. Intellectual property rights are customarily divided into two main areas: Copyright and rights related to copyright  The rights of authors of literary and artistic works (such as books and other writings. paintings.

device. artistic work. name. etc.  A functioning intellectual property regime should also facilitate the transfer of technology in the form of foreign direct investment. dramatic work. thus giving the incentive and means to finance research and development activities. it is very important for a would-be exporter to identify himself/herself to different intellectual property categories. Copyrights: Copyright acts protect a creator from having his creation (literary work. Trade Marks: In simple term. 2. label. cinematographic film. and often most neglected. Several researches have revealed that businesses that dedicate time and resources to protecting their intellectual property assets can increase their competitiveness in a variety of ways. they are 1. etc. sound recording.  The protection is usually given for a finite term (typically 20 years in the case of patents).  While the basic social objectives of intellectual property protection are as outlined above. Therefore. International Business Page 45 . joint ventures and licensing. Considering Intellectual Property Rights (IPR) While dealing with overseas clients. musical work. one of the most important. aimed at fine-tuning the balance that has to be found between the legitimate interests of right holders and of users. The social purpose is to provide protection for the results of investment in the development of new technology. it should also be noted that the exclusive rights given are generally subject to a number of limitations and exceptions. numerals. a trade mark (or brand name) is nothing but a visual symbol or sign such as signature. which distinguishes the creator's goods or services or other articles from other similar goods or services created by others. issue is Intellectual Property Rights (IPR).) copied or exploited by someone without the creator's permission.

or manufactured in the territory of a country. 6. separate or combined. where a given quality. or a region or locality in that territory. 4. they need protection. whether manual. by any industrial process or means. Patents: Patents allow the inventor of an invention to exert monopoly of the invention and thus to fetch adequate commercial value for a period of 20 years. International Business Page 46 . an invention must be new. inventive and capable of industrial application. configuration. Industrial Designs: The term 'design' is defined as "only the features of shape. Trade Secrets Or Know How‟s: Trade Secrets or Know How‘s are confidential information which may be commercially or technically valuable.3. Geographical Indications: The term 'geographical indication' (in relation to goods) means an indication which identifies goods as originating. which in the finished article appeal to and are judged solely by the eye. and therefore. ornament or composition of lines or colors applied to any article whether in two dimensional or three dimensional or in both forms. 5. mechanical or chemical. To gain patent. pattern. reputation or other characteristic of such goods is essentially attributable to its geographical origin.

Legal and Illegal Trade Barriers Through the World Trade Organisation (WTO) and agreements made by the EU with other countries. TRADE BARRIERS What is a trade Barrier: Trade barriers are measures that governments or public authorities introduce to make imported goods or services less competitive than locally produced goods and services. or  Legal . Sometimes it may also be possible to assist companies that face obstacles to trade that do not fall under the definition of actual trade barriers. International Business Page 47 .E. A barrier can also be of an administrative nature. special international ground rules have been agreed. As such a trade barrier may either be:  Illegal . Not everything that prevents or restricts trade can be characterised as a trade barrier. Trade barriers within the EU are subject to special rules that apply to the internal market of the EU.it does not violate rules and agreements. A trade barrier may be linked to the very product or service that is traded. for example technical requirements. some general rules have been established for trade with countries outside the EU. It means that some barriers are legal while others are illegal. which limit the ways in which countries can regulate trade. for example rules and procedures in connection with the transaction.it violates international agreements and rules. In a number of areas. These ground rules set the limits as to what trade barriers can be put in place.

health protection.Nevertheless. in some areas there are international standards that must be complied with. they may be illegal. state aid. In some instances. for example for the purpose of consumer protection. International agreements also contain rules for what can be done if these agreements are not complied with. if the conditions on which a decision was based have changed. etc. but a burden on trade. a measure may become illegal. for instance. whether legal or not. However. For example: Customs duties: If they exceed an agreed level ("bound duty rates"). which functions much like a court. With regard to other types of trade barriers. etc. the Dispute Settlement Body has been established. and the protection of the environment. and there may also be special procedural rules. In the WTO. but still be open to criticism. procedures have been laid down which countries must comply with in regard to measures relating to trade. they are illegal. A barrier may be legal in principle. trade barriers prevent or restrict imports or investments to the market in questions. it can be more difficult to draw a clear line between what is legal and illegal. standards. If they are not complied with. International Business Page 48 . They are in principle legal. or rules relating to the provision of services. Customs procedures: They are in principle legal. If they are below the agreed level. but trade restrictive. This is the case. Technical regulations. If procedures become more burdensome than necessary. including intellectual property rights. they are legal.

Information about current international trade rules are available from the Technical Export Advice Unit of the Trade Council. FIVE ENVIRONMENTAL FACTORS IN INTERNATIONAL BUSINESS Basic Issues The Economic Environment The Political Environment The Legal Environment SOCIAL STRUCTURE Basic issues: International Business Page 49 . F. information is available about duty rates and about notified technical trade restrictions. From the World Trade Organization (WTO). The EU Commission‘s website on market access presents information about applied duty rates and about import formalities.

The central issues for the decision to go global are concerned with minimizing risk. A company, when considering the environment that it will deal with when entering a new market, has to deal with certain variables. These concern, for example, the cultural barriers to investment, the ability to reach a competitive edge with new investments and the strategic use of new technologies and natural resources that international investment might bring.

The economic environment This element comprises the nature of the economic system and institutions of a particular country or region. It also takes into account the nature of human and natural resources within the target market. A firm will function very differently in a libertarian environment than within a highly statist one. Here, the activities and functions of local economic elites are also very important. The Political Environment Closely tied to the economic environment is the political one, itself also dealing with the nature of systems and institutions. Many variables to consider here are the stability of the political system, the existence of local or international conflict, the role of state enterprises and the nature of the bureaucracy. The Legal Environment The existence of bureaucratic systems and cultures is central in making the decision to invest globally. The nature of corruption, local values and assumptions that are built into national ideologies are major variables in this field. A great concern is the extent to which there is a culture of law or a culture of personal patronage, where negotiations are done on a personal rather than a legal basis. The impact of international lending agencies such as the International Monetary Fund or the World Bank is also important in creating a legal culture that a business will have to take seriously. Social Structure

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Experts such as Robert Brown and Alan Gutterman hold that social structure comprises the basic values of a people and transcends the institutions mentioned above. Issues such as the relation between the individual and the collective, religion, family life and even time concepts and gender roles are all significant in terms of dealing with a new population. Being sensitive to these might be the difference between success and failure.

G. PRODUCT LIFE CYCLE THEORY IN INTERNATIONAL TRADE Product life cycle theory divides the marketing of a product into four stages: introduction, growth, maturity and decline. When product life cycle is based on sales volume, introduction and growth often become one stage. For internationally available products, these three remaining stages include the effects of outsourcing and foreign production. When a product grows rapidly in a home market, it experiences saturation when low-wage countries imitate it and flood the international markets. Afterward, a product declines as new, better products or products with new features repeat the cycle. General Theory When a product is first introduced in a particular country, it sees rapid growth in sales volume because market demand is unsatisfied. As more people who want the product buy it, demand and sales level off. When demand has been satisfied, product sales decline to the level required for product replacement. In international markets, the product life cycle accelerates due to the presence of "follower" economies that rarely introduce new innovations but quickly imitate the successes of others. They introduce low-cost versions of the new product and precipitate a faster market saturation and decline

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Growth.

Maturity.

Decline.

The three stages of the product life cycle: GROWTH An effectively marketed product meets a need in its target market. The supplier of the product has conducted market surveys and has established estimates for market size and composition. He introduces the product, and the identified need creates immediate demand that the supplier is ready to satisfy. Competition is low. Sales volume grows rapidly. This initial stage of the product life cycle is characterized by high prices, high profits and wide promotion of the product. International followers have not had time to develop imitations. The supplier of the product may export it, even into follower economies. MATURITY In the maturity phase of the product life cycle, demand levels off and sales volume increases at a slower rate. Imitations appear in foreign markets and export sales decline. The original supplier may reduce prices to maintain market share and support sales. Profit margins decrease, but the business remains attractive because volume is high and costs, such as those related to development and promotion, are also lower.
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In September 2009. The original supplier can no longer produce the product competitively but can generate some return by cleaning out inventory and selling the remaining products at discontinued-items prices.C. further depressing sales and prices. the G20 Leaders agreed to regulate the hedge-funds and the rating companies. the Leaders established a Financial Stability Board to implement financial reforms. Also they took decisions to regulate tax heavens. The follower economies have developed imitations as good as the original product and are able to export them to the original supplier's home market. The forum has come into existence with the first summit of the Leaders of G20 held in Washington D. sales volume decreases and many such products are eventually phased out and discontinued. Through consultations and cooperation. The European Union is represented in G20 by the President of the European Council. the forum played a major role as a crisis manager and successfully contributed in averting further serious consequences of the global financial crisis.DECLINE In the final phase of the product life cycle. and more than deserving executive International Business Page 53 . Frequently organised Leaders‘ summits of G20 in 2008. in November 2008 in the wake of global financial crisis. the forum met biannually in 2009 and 2010 and annually since 2011. and sought to strengthen standards for accounting and derivatives. Some major decisions in these regards are worth mentioning. the Leaders pledged $1 trillion to the IMF and the World Bank to help emerging market countries to offset the effects of recession. H. In April 2009. G20-& ITS IMPACT ON INDIAN FOREING TRADE G20 is a forum of the Heads of Governments of the 19 major economies and the EU for global cooperation on international economic and financial issues. Subsequently. 2009 and 2010 resulted in a momentum of its influence because of significant decisions that were taken to avert the impact of Global financial crisis of 2008. In November 2008.

pay increase in the banks and financial institutions. In June 2010, the Leaders agreed to cut their budget deficits to half by 2013 and to eliminate deficits altogether three years later. In November 2010, the G20 Leaders agreed to bring Development agenda under the G20 discussions. G20 is now perceived as a global decision making forum for contextual critical global issues that are important for achieving sustainable growth and maintaining stability. G20 is working towards strengthening the financial system and fostering financial inclusion to promote economic growth, improving the international financial architecture in an interconnected world, enhancing food security and addressing commodity price volatility; and to promote sustainable development, green growth and the fight against climate change. The key challenge for the G20 at the current juncture is to ensure that international policy cooperation is sustained and enhanced in a coordinated manner to be coherent and consistent with the business cycles. G20 also aims to foster and adopt internationally recognized standards through the example set by its members in areas such as the transparency of fiscal policy and combating money laundering and the financing of terrorism. Over the last few years of its existence, G20 has developed a system and process of working. G20 does not have any permanent Secretariat. The Presidency is held on rotation by the member countries. The current presidency in 2013 is held by Russia. In 2012, Mexico held the G20 Presidency. In the next year in 2014 Australia will host the G20 Presidency. These three countries, therefore, constitute what is known as ―Troika‖ in G20 that represents previous Chair, current chair and the future chair. There are broadly two channels through which discussions are held and recommendations are arrived at: (i) The Finance Channel and (ii) Sherpa‘s Channel. The finance Channel comprises of the Finance Ministers and Central Bank Governors and their Deputies. In the Sherpas channel, every member country of G20 has nominated a Sherpa to lead the Development agenda discussions. The Sherpas have been tasked by their Leaders to negotiate the Summits documents on their behalf. Thus, Leaders‘ Declarations are finalised by Sherpas. The Presidency of the G20 invites non-member countries and institutions to attend Leaders' summit. Invitation to non-member countries is not guided by any formal rule. There is some informal understanding on this. The number of invited non-member countries normally
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does not exceed five. Invitation is extended to give a fair and balanced geographical representation to non-members. Countries presiding over regional forums, such as the African Union, ASEAN, APEC, etc., are invited. So far Spain has always been invited in all the meetings. In the Seoul summit, it was formalized that among the five non-member invitees at least two must be from African countries. Invitees attend Leaders‘ meetings and take part in the Finance Ministers‘ meetings. They are also involved in drafting of Summit decisions, and are invited to take part in the Working Group meetings. The G20 maintain close association with International Organizations. On the request of G20, these organizations provide expert support and advice as per their respective competence. They provide reports and position papers relating to the Agenda Items. The International Organizations which have been involved are International Monetary Fund (IMF), the World Bank (WB), the Financial Stability Board, the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), the United Nations, UNCTAD and International Labor Organization (ILO). These and other international organizations are also frequently invited to participate in the premier forum and G20 Working Groups meetings. The objectives of the g20 are:  Coordination among its members in order to achieve global economic stability and sustainable growth;  To promote financial regulations that reduce risks and prevent future financial crises; and  To create a new international financial architecture. These objectives are pursued through common agenda that are continued and followed up over years. In addition, each year, the G20 Presidency has the privilege to decide its priorities within these broad objectives. The priorities are announced by the Presidency after assuming the Chair. These priorities then shape focus in G20 meetings in the year.

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PART B
Q.16 A. PRODUCT LIFE CYCLE THEORY

Every product has a life cycle that is a period of time during which it appeals to the consumer, i.e. it sells. But during the period of the Product Life Cycle sales are not constant, there are variations in levels of demand, the amount of competition in the market place, consumer understanding and liking of the product and the share of the market the product captures. Normally five separate stages of a products life cycle are recognized, and these are:

Introduction.

Growth.

Maturity.

Saturation

Decline.

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but advertis-ing expenditure is still high. Brand image should be maintained. Profits are often low or losses are being made. Profits may be maintained. International Business Page 57 . Marketing is used to try to establish or strengthen the brand and develop an image for the product. Price can be high. but can start to fall. Profits may start to be earned. but this should not be done at the expense of quality. (for example new computer games) and sales may be restricted to early adopters (those consumers that must have new technology. few potential consumers know of its existence. Alternatively the brand can move down market. MATURITY The product range may be extended. or market niches. and advertising expenditure can be high. Some products are introduced to the market in a splash of publicity.The stages of the product life cycle: INTRODUCTION The product is new to the market. gadgets. Sales are at their peak. this is because development costs have to be repaid. by adding both width and depth. SATURATION Very few new customers are gained. Advertising should be used to reinforce the image of the product in the consumer‘s minds. and in so doing full value is taken from the brand. replacement purchases are the trend. Firms should try to reduce their costs. GROWTH The product is becoming more widely known and consumed. capturing new markets. or fashions first). Competition will increase and this has to be responded to. Prices may fall as the first competitors enter the market. profits should be high. so that pricing strategies can be more flexible. hoping to capture as large a market share as soon as is possible.

but by concentrating on remaining market niches there should be some price stability. International Business Page 58 . But overall.DECLINE Sales can now fall fast. with the firm concentrating on core products. and attempts will be made to mop-up what is left of the potential market. total profits will fall. and as a result the range sold is likely to be reduced. Price is also likely to fall. Each product sold could be quite profitable as development costs have been paid back at an earlier stage in the life cycle. Advertising costs will be reduced.

In this case the product. so once they have their customer Dixons are likely to keep him. saw competition entering the market. secondly because it offered an efficient and well designed product. International Business Page 59 . the first free ISP (Internet Service provider) entered the market with a massive amount of publicity. The company were successful in doing this by using it‘s large number of distribution channels. But Freeserve was able to maintain its market position. The third stage. firstly through availability of the product (software CD‘s) through it‘s Dixons. tailored to it‘s users needs. and thirdly ISP users are inclined to remain with the same provider rather than switch providers. Within 2 or 3 months Free serve became the UK‘s largest Internet Service provider. and new market entrants coming to the market with a similar business model to Freeserve. Currys and PC World outlets.EXAMPLE OF LIFE CYCLE Dixons‟ Freeserve. with the objective of capturing as much market share as possible. with existing ISP‘s re-pricing their products. Maturity. The Introduction stage was very short. and growth took off virtually immediately. and a loss leader pricing strategy. Eventually Freeserve was sold to Wannadoo.

Investing in research and development. R&D is perspiration with flash of inspiration. Owning intellectual property rights: Intellectual property laws confer a bundle of exclusive rights in relation to the particular form or manner in which ideas or information are expressed or manifested. International Business Page 60 . inventors and other intellectual property holders may hold and exercise. R&D capability is needed.‘ It explores the notion that in order to stay viable. To excel rivals. Achieving economies of scale or scope. and not the intellectual work itself. American firms spend around $500 billion on R&D annually. American firms know this very well. Thomas Alva Edison said. innovation and patent ownership. Exploiting the experience or learning curve. firms should exploit their competitive advantage globally and try to keep it sustainable. He encouraged all people to offer hard work. much of it on computing and communications.B. It is this difference which works as strategic rivalry. IBM. GLOBAL STRATEGIC RIVALRY THEORY The Global Strategic Rivalry theory of international trade was developed in the 1980s as a means to ‗examine the impact on trade flows arising from global strategic rivalry between Multi-National Corporations. and not in relation to the ideas or concepts themselves. GE and Microsoft are leaders in their chosen field because of their R&D commitments. Genius = 1 percent inspiration + 99 percent perspiration. Owning intellectual property rights boosts one‘s worth. these include. Most of this money went into making small incremental improvements and getting new ideas to market fast. Forging strategic alliances and Strategic mergers and acquisitions. Investing in research and development: Investment in research and development is the surest way to reach the top of invention. There are many ways in which a firm can hold a competitive advantage. The term ―intellectual property‖ denotes the specific legal rights which authors. Owning intellectual property rights.

Headquartered in New York.000th patent. At its Zurich Research Laboratory around 300 scientists representing over 20 nationalities concentrate on areas such as microelectronics. It boasts another 300 around the world. It believes in. each with its own personality and expertise. In the real world. IBM knows it must add intellectual property to its offerings. GE has more than 3. China and Germany. It is delivering the innovations and breakthroughs that are driving growth for GE‘s businesses and revolutionizing markets. it also has facilities in India. ‗imaginations = innovations‘. Microsoft Research houses 400 researchers in Redmond. has eight laboratories on three continents. Washington. Microsoft has a team of a dozen people whose sole responsibility International Business Page 61 . Researchers are judged on the basis of patents and papers.000 of the best and brightest researchers spread out at four multi-disciplinary facilities around the world. Nearly all of its budget is spent on commercially orientated projects. By 1978 itself GE was first to reach 50. nanotechnology and computer security.EXAMPLES IBM. But Microsoft also works with its product teams to move those technologies into its products. Starting with his invention of the light bulb. world leader in IT. The company performs basic research. it is not just a big ‗D‘ and a big ‗R‘—it‘s a continuum. Thomas Edison ignited General Electric‘s (GE) spirit of innovation and discovery.

Sometimes researchers move from the laboratories to work with product teams. The International Business Page 62 . A cognitive psychological concept. rise in dexterity levels and nuances of handling shop floor issues. Businesses that use learning curve excel well as they learn to cut cost and add value faster than other and outsmart competitors. if the first unit costs $ 1000. over time the phrase has acquired a broader interpretation. capital equipment. if learning curve effect works well. and ―efficiency curve‖ are often used interchangeably. Thus these successful companies invest in R&D to grow strategic in a world full of rivals vying to outwit others. So cost leadership results from learning curve effect which could be a strategic advantage. ―improvement curve‖. So. etc help reduce cost per unit.hyperbolic fall in fixed cost of production per unit. ―progress curve‖/‖progress function‖. Achieving economies of scale or scope: Achieving economies of scale or scope is in fact leveraging your existing strengths. to pursue a common goal or meet a critical business need while remaining independent organizations. Such cost advantages would threaten new entrants.is to handle technology transfer. One alliance partner might bring products. the next costs $ 700 to $ 800. Strategic Alliance: A Strategic Alliance is a formal relationship formed between two or more parties. or intellectual property. distribution channels or manufacturing capability and the other project funding. ―start-up curve‖. Learning Curve. It is very important that your capacity is fully utilized. the fourth unit costs $ 490 to $ 640 and so on. ―cost improvement curve‖. A company can reduce overall unit cost by 20 to 30% each time it doubles output. Scale economies help reduce cost. pass the benefit to consumers and expand market share. knowledge. Exploiting the Learning Curve: Learning curve refers to a relationship between the duration of learning or experience and the resulting progress. A host of factors. quantity discounts on purchase owing to large volume orders. depending on the context. and expressions such as ―experience curve‖. usually those in the same business line (i) as horizontals competing with each other in the same or different geographies or (ii) as verticals serving each other in complementary mode. like rectangle. expertise.

is the alliance between Qantas and British Airways. and North America. selling and combining of different companies that can form a new company to usher in a fast track collective growth. also known as a takeover. refers to deals involving buying. An acquisition may be friendly or hostile. A smaller firm may also acquire a larger or longer established company and keep its name for the combined entity. likewise British airways had strong network within Europe. is the buying of one company (the ‗target‘) by another. This is known as a reverse takeover. North Atlantic‘s. International Business Page 63 . Qantas is the largest private airline in Australia and has solid air route throughout the Asia Pacific region. sweeping through the corporate. A good example of strategic alliance. An acquisition. Merger is a tool used by companies for the purpose of expanding their operations often aiming at an increase of their long term profitability. both companies strategically positioned themselves to have a strong worldwide network Mergers and Acquisitions: The strategy of Mergers and Acquisitions.alliance‘s emphasis is ‗synergy‘ and ‗competitive advantage‘. By forming an alliance in 1993.

management has to look at an international business environment.). which are relevant for competition in particular industries. buyers. hence. It suggests that the national home base of an organization plays an important role in shaping the extent to which it is likely to achieve advantage on a global scale. in his book The Competitive Advantage of Nations.). PORTER'S NATIONAL COMPETITIVE ADVANTAGE THEORY Attempts to analyze the reasons for a nation's competitive advantage in a particular industry Increasingly. Michael Porter introduced a model that allows analyzing why some nations are more competitive than others are. agricultural countries (large countries with fertile soil). This explains the existence of so-called low-cost-countries (low costs of labor). deregulation of labor markets. or liquidity of national stock markets. knowledge resources. sellers. Each country has its own particular set of factor conditions.. Even if an organization does not plan to import or to export directly. new entrants of providers of substitutes may influence the domestic market. This model of determining factors of national advantage has become known as Porters Diamond. space etc. which are subsequently built upon. and infrastructure. which support or hinder organizations from building advantages in global competition. cost of labor. They also include factors like quality of research on universities. material resources (natural resources. in each country will develop those industries for which the particular set of factor conditions is optimal.C. These factors can be grouped into human resources (qualification level. like skilled labor. vegetation. Porter distinguishes four determinants: Factor Conditions The situation in a country regarding production factors. infrastructure. etc. and why some industries within nations are more competitive than others are. corporate strategies have to be seen in a global context. commitment etc. These national factors often provide initial advantages. capital resources. or the start-up culture in the United States (well developed venture capital market). International Business Page 64 . This home base provides basic factors. in which actions of competitors. Information technology is reinforcing this trend.

Political initiatives. hardware and software). Normally. Competitive supplying industries will reinforce innovation and internationalization in industries at later stages in the value system. Related and Supporting Industries The existence or non-existence of internationally competitive supplying industries and supporting industries. They have impact on the pace and direction of innovation and product development. and the mechanisms that transmit domestic preferences to foreign markets. technological progress or socio-cultural changes. A good example is the discussion on the ethics of genetic engineering and cloning that will influence knowledge capital in this field in North America and Europe. They may develop and change. home demand is determined by three major characteristics: their mixture (the mix of customers needs and wants). related industries are of importance. International Business Page 65 .Porter points out that these factors are not necessarily nature-made or inherited. According to Porter. or that are concerned with complementary products (e.g. for instance. These are industries that can use and coordinate particular activities in the value chain together. Home demand conditions influence the shaping of particular factor conditions. Besides suppliers. One internationally successful industry may lead to advantages in other related or supporting industries. their scope and growth rate. if home demand provides clearer and earlier signals of demand trends to domestic suppliers than to foreign competitors. may shape national factor conditions. Home Demand Conditions Describes the state of home demand for products and services produced in a country. Porter states that a country can achieve national advantages in an industry or market segment. home markets have a much higher influence on an organization's ability to recognize customers' needs than foreign markets do.

Porter argues that domestic rivalry and the search for competitive advantage within a nation can help provide organizations with bases for achieving such advantage on a more global scale. are organized and are managed. They are heavily influenced by structures of ownership and control. Typical corporate objectives in relation to patterns of commitment among workforce are of special importance. Porters NATIONAL COMPETITIVE ADVANTAGE THEORY has been used in various ways. According to Porter. working morale. and Rivalry The conditions in a country that determine how companies are established. Familybusiness based industries that are dominated by owner-managers will behave differently than publicly quoted companies. On national level. Italy is not only successful with shoes and leather.A typical example is the shoe and leather industry in Italy. cultural aspects play an important role. design. which enable industries in their country to develop a strong competitive position globally. In different nations. and that determine the characteristics of domestic competition Here. Organizations may use the model to identify the extent to which they can build on home-based advantages to create competitive advantage in relation to others on a global front. International Business Page 66 . Structure. or encouraging vertical co-operation between suppliers and buyers on a domestic level etc. or interactions between companies are shaped differently. governments can (and should) consider the policies that they should follow to establish national advantages. governments can foster such advantages by ensuring high expectations of product performance. safety or environmental standards. etc. This will provide advantages and disadvantages for particular industries. factors like management structures. Firm Strategy. but with related products and services such as leather working machinery.

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A.  Further. in India it takes 100 units of labor to produce 1 unit of cloth while the same cloth is produced using only 90 units of labor in England. it is seen in some cases that country A enjoys a produces all commodities at a cost lesser than country B. Will England import anything from India in such a situation? International Business Page 68 . However. The Comparative Cost Advantage theory can be explained by way of the following example – EXAMPLES Bread India England 120 80 Cloth 100 90 In the above example –  In India it takes 120 units of labor to produce 1 unit of bread while England requires only 80 units of labor to produce the same bread.  Clearly England has advantage in production of both cloth as well as bread. According to this theory. Ricardo explained this using his theory of Comparative Cost Advantage. But. despite this country A ends up importing some commodities from country B. country A may still import those commodities from country B where ‗opportunity cost‘ of producing a good is higher in country A than in country B. COMPARATIVE COST ADVANTAGE WITH MONEY THEORY COMPARATIVE COST ADVANTAGE THEORY According to Smith‘s Theory trade would take place between countries only if the country enjoys an absolute cost advantage in production of a particular commodity over another.

i.20 units of cloth when we produce 1 unit of bread.83 120 units of labor can produce 1 unit of bread of alternatively be used to produce 1.12  Thus we see that the opportunity cost of producing bread in England is less than in India. while India would specialize in production of cloth and import bread from England. N the other hand the opportunity cost of producing cloth is more in England than in India. Opportunity cost of Bread Opportunity cost of Cloth India 120/100 = 1.20 units of cloth.88 90/80 = 1. Thus we sacrifice 1. England 80/90 = 0.  England would thus specialize in production of bread and import cloth from India.20 100/120 = 0. To see that we need to compare the opportunity cost of producing each of the commodities in both the countries.e.e. amount of production of Cloth to be sacrificed for production of bread and vice-versa. labor (b) Tastes and preferences in both countries are similar and constant (c) All labor units are homogenous (d) Supply of labor is unchanged International Business Page 69 . Assumptions of Comparative Cost Advantage Theory – (a) 2 countries – 2 commodities model – 1 factor of production i.

a question recently addressed in the move towards a single European currency. (i) Free Trade (j) No transportation costs (k) Perfect competition. A central concern is the way in which world financial markets contribute to growth and development as well as serve as a means by which economic disruptions may be transmitted across national boundaries. and the appropriate role of international institutions like the IMF. the appropriate exchange rate regime. MONEY THEORY This field focuses on the macroeconomic performance of countries that are integrated with the world economy both through trade in goods and services and through the exchange of assets.(e) Full employment (f) Production under constant returns to scale (g) No currency – barter trade (h) Factors of production (labor) perfectly mobile within country but no mobility between countries. an issue that is currently facing the United States. the causes and consequences of large trade deficits. Some of the issues addressed include: exchange rate and financial crises like those in Asia and Latin America in the 1990s. International Business Page 70 .

B. The basic vehicle for developing this theory is the Heckscher-Ohlin-Samuelson model.k. Done for 4 reasons: 1. Heckscher-Ohlin theory. a twocountry version of the standard two-sector neoclassical model. 4. International Business Page 71 . 2. and the Modern Theory of International Trade) is a ―modern‖ extension of the classical approach and attempts to explain the pattern of comparative advantage. Does this by hypothesizing that comparative advantage is ultimately due to international differences in relative factor endowments.Courses in this field offer both theory that provides students with frameworks for understanding issues and presentation of timely policy issues and recent experience that provides a context for the use of economic models. RELATIVE FACTOR ENDOWMENT / HUKSCHER – OWEN THEORY The factor endowments theory (a. Very useful theoretically for linking trade to internal income distribution. Natural extension of the classical theory which sees international factor immobility as the basis for trade. This model dominated international trade theory from the fifties into the eighties and remains central today. Seems important in practice. 3. growth. and so on. but its practical relevance has always been a central controversy in the field.a. factor movements. Can define ―factor‖ broadly.

In this diagram we have two countries. Botswana has a lot of labor and not much land. 2 goods.EXAMPLES Supposed a world of 2 countries. two goods. In the HeckscherOhlin-Samuelson (HOS) model we have a world with 2 countries. International Business Page 72 . shoes and potatoes. and two factors. The only point of contact between countries is trade in goods: factors can not move between countries. Potatoes need a lot of land and only some labor. but a lot of labor. Angola and Botswana. Shoes are a relatively labor-intensive good. Note that in this diagram the two countries differ by theor relative endowments of factors: Angola has a lot of land and not much labor. requiring only a little land to graze cattle for hides. and 2 factors. We assume that technologies are identical. land and labor. 2 goods. and 1 factor of production. but that each good uses one of the factors more intensively. Each country has a free-market economy consisting of consumers and competitive firms. In this picture they do not trade.

Basically. which had previously sealed their borders. Here is how the diagram would change: International Business Page 73 .Now these two countries. begin trading. each specializes. The country with a lot of labor specializes in the labor-intensive good. and vice versa.

The pointed out reason is that no historic ties amongst the countries. COUNTRY SIMILARITY THEORY Country similarity theory was developed by a Swedish economist named Steffan Linder. both of course catering to similar need satisfaction. The reasoning is that a developed country introduces a new product and similarly developed countries find the product quite useful and hence go for the same. technological or other basis may not trade. the traditional trade theories are built upon differences. Cross country offerings are more. hence people‘s spend power is high. The industrialized countries produce more. This is because needs become more or less common in countries with similar levels of development. 8 out of top 10 trading partners of the USA are developed economies. Hence the similarity in development pace decides trade between countries. rites. Perhaps the traders do not want to taste new shores. rituals. Country similarity refers to what? Is it similarity of location or culture or political/ economic interests or technological capability (that is acquired advantage) or natural advantage or lack of it? Traditional trade theories speak of difference in demand or supply conditions or both as a necessary condition for trade between countries. countries in the southern hemisphere do not trade intensively.C. While countries in the northern hemisphere trade intensively inter se. Countries with no similarity either by cultural. But thecountry similarity theory is built of identical features of nations in trade. religious ceremonies and so on. Developed countries trade more with developed countries: Developed countries trade more with developed countries: Products of a developed country match demand and user conditions of another developed country only. Countries in same cultural milieu trade more amongst themselves: Countries in same cultural milieu trade more amongst themselves: Countries in same cultural milieu will have similar demands as for as cultural products/services like family functions. entertainments. Globally 11 out of 12 largest players in world trade are developed nations. International Business Page 74 . That is. the power is apportioned between domestic and foreign goods.

but product differentiation is built through top gear promotion. quite a lot of intra-industry trade among these similarly placed countries happens. cuba and us are in the same continent. needs are same across the nations. eu countries amongst themselves pulled down all protectionist impediments to trade and intra-regional trade is highest. because they have similar geo-features. us exports good lot of road vehicles and imports much road vehicles as well too. but due topolitical ideological differences they scarcely trade for over 5 decades. offerings are also same across the nations.Countries in similar geo-features trade inter se more: Countries in similar geo-features like ecological or climatic factors will mutually cater to cross border demands. therefore the country similarity theory consists of the value that most trade in manufactured goods should be between nations with similar per capita income. a kind of cross-border monopolistic competition emerges with firms vying for cross-country market share with the thrust on product differentiation. and that intra industry trade in manufactured goods should be common. intra industry trade accounts for approximately 40 per cent of world trade. Countries with similar political and economic interests trade more inter se: Trade between countries with similar political and economic interests is more common than between countries that differ. steffan linder believed that international trade of manufactured goods occurred between countries at the same stage of economic development that shared the same consumer preferences. but us prefers not to taste cuban sugar. so. International Business Page 75 . Intra-industry trade abetted by similarity factor: Intra-industry trade abetted by similarity factor: similarly placed countries‘ capabilities as well as needs happen to be similar. cuba is a good source of supply of sugar. intra industry trade happens because of sheer dispersed desire for foreign brands.

Prepare product for export. Business plan for accessing global markets. Plan at least a two-year lead-time for world market penetration. International Business Page 76 . Find cross-border customers. Product or service to take Data need to be predict how product will sell in a specific geographic location. Afford to invest in your international expansion efforts.1 What are crutial strengths company must have before going global with examples? company-wide commitment.MITTAL’S GLOBILISING Q.

You're all in it for the long haul. An international business plan is important in order to define your company's present status and internal goals and commitment. You can't be all things to all people. purchasing. Will it be based on ten percent of your domestic business profits or on a pay-as-you-can-afford process Plan Plan at least a two-year lead-time for world market penetration. from the executive suite to customer service through engineering. It takes time and patience to build a great. Afford to invest Determine how much you can afford to invest in your international expansion efforts. so be patient and plan for the long haul. International Business Page 77 . Data need to be predict how product will sell in a specific geographic location Search out the data you need to predict how your product will sell in a specific geographic location. Business plan For accessing global markets. Then stick with it. production and shipping. Product or service to take overseas Pick a product or service to take overseas. but it's also necessary if you plan to measure your results. enduring global enterprise. Decide on something.Company-wide commitment Every employee should be a vital member of your international team. Do you want to sell a few units to a customer in Australia or ten 40-foot containers on a monthly basis to retailers in France? Doing your homework will enable you to find out how much you'll be able to sell over a specific period of time.

Find cross-border customers. Packaging plays a vital role in enabling international connections. procurement of raw materials. However. Find cross-border customers. You should expect to adapt your product to some degree for sale outside your domestic markets before you make your first sale. 2012) and the kind of damage that they have had on the corporate image.Prepare product for export Prepare your product for export. world-wide reach. and service standards could be seen through the glasses of pluses and minuses. Make yours the best in its class. intellectual property and its having mastered the game of franchising. the main strengths of the business could be seen as its leadership. band value. human resource management. outbound logistics marketing and sales. 2002) that the company faces in terms of customers complaining against obesity and the coffee lawsuits (Chicago tribune. There is no business overseas for you unless you can locate customers first. International Business Page 78 . Corporate Branding: In terms of the corporate brand. where the different aspects of the business ranging from the corporate brand. Example: McDonald‟s internal environment could be analysed using Value Chain Analysis. operations. inbound logistics. technology adaptation. and you'll be able to sell it anywhere in the world. the major weaknesses involve the large number of lawsuits (BBC.

the quality control measures involved in ensuring that the product and the package reach their destinations in proper shape and at the right time. with Just-in-Time Delivery (Small Business) and the economies of scale that it reaps on account of its global presence exerting considerable influence on suppliers. the standardisation achieved by McDonald‘s throughout the distribution system. The company has its unrelenting focus on speed. the high turnover rates found in fast food industry (Chicago Tribune. and ensuring freshness of food throughout the distribution process are challenges that McDonald‘s has been able to live up to. Outbound Logistics: The franchise agreements that the company has been able to successfully form among the entire gamut of distribution network. the company has invested heavily in information technology. Further. to provide services that are at par with the best in the industry. serving as its strength. However.Supply Chain – Inbound Logistics: The company‘s recognition as having one of the best supply chains in the world speaks for itself in terms of the strengths of the company in the area. Sales and Marketing: Most aspects of the marketing mix seem to be perfectly in place. 2007) means that the company should keep struggling against the trend and try to keep staff stick to the company and invest heavily in investment in people and in training. Operations: In terms of operations. The price leadership. which would prove to be one of the key strengths of the company. and the range of promotions that the company is able International Business Page 79 . the distribution network and the reach that the company has worldwide. as seen in the state-of-the-art order processing systems and the high end communication equipment that the staffs are armed with. enforcing its codes of conduct among the extensive network of franchisees would count as its strength.

2011) in the company.explain complementary needs & strength of both. when dealing with varied eating habits associated with different cultures. is a task at hand. there have been frequent cases of product failures (Business Insider. TATAs /ESSAR/ RANBAXY/MITTALS/VEDANT etc. However. driving standardisation across the globe. with so much emphasis on speed. there are also gaps in the process. Q. Service Standards: With all the investments made in customer service in terms of technology.to come up with vouch for the effectiveness of the sales and marketing apparatus. caught in the crowd. aggressively globalizing in western part of the world. accuracy of order processing and speed of delivery. which is a reason for worry. since the company focuses on volume and turnover for business success. International Business Page 80 . Naturally. there would be little to focus on in terms of customer service and satisfaction.2 Indian companies. with many customers feeling left out and neglected. Further.

where it bought Betapharm for $572m. leaner and more productive. was also busy last year snapping up companies in markets including Germany. In the outsourcing industries. Describing his role as ―spearheading the company‘s management and global operations‖. says: ―After the restructuring. the country‘s third largest drugs maker. the new chairwoman of PepsiCo. Other acquisitive Indian chief executives include Malvinder Singh. Prasad.V. This was followed by the emergence of ―global Indians‖ – businesspeople such as Lakshmi Mittal. While the country is at the same time beginning to face a shortage of suitably qualified engineers.‖ A range of reasons have been advanced for what Indian companies are doing that makes them competitive overseas. entry-level software engineers are still at least 40 per cent cheaper than they are in the west. most of whose operations remain in developed economies even though they are trying to move more tasks to lower-cost countries such as India. including four in Europe and one in the US. Indian IT companies are moving some of their operations overseas but usually to other low-cost destinations and. Behind this ability to expand lies the achievements of such companies at home in building scale and improving productivity.7 per cent. such as TCS. pay levels help. chief executive of DrReddy‘s Laboratories. in tackling the millennium bug. the chief executive of Ranbaxy Laboratories.The rise in confidence of the country‘s entrepreneurs started with the success of its information technology outsourcing companies. a business whose main overheads are people. India‘s biggest pharmaceutical company. even then. and Indra Nooyi. Certainly. praising the manufacturing performance achieved since 2003. the problem is nothing compared with that of the west. G. His rival. whose Mittal Steel bought Arcelor of Luxembourg last year. Infosys Technologies and Wipro. That prompted Goldman Sachs recently to raise its estimate of the country‘s so-called ―potential‖ or sustainable long-term economic growth rate to 8 per cent a year until 2020. are careful to keep the bulk of their labour in India. Mr Singh led Ranbaxy to acquire six companies last year. Goldman.2bn. compared with an original projection of 5. which is locked in a bidding war for Germany‘s Merck that could cost up to $5. when they won a multitude of contracts. the private sector emerged fitter. India‘s IT companies also do not have the so-called ―legacy structures‖ of their western peers. International Business Page 81 .

‖ says Yezdi Nagporewalla. Sweden and China. The company also enjoys access to cheaper raw materials because of India‘s state-controlled allocations of low-cost iron ore to steel producers.000]. says Mr Tata. So you‘re always thinking of how to address that segment of the market. contrary to what everyone believes. Companies such as Bharat Forge.―India is a proven place from a cost perspective.‖ says S. Other businessmen attribute their success to the very conditions that foreign investors complain about – India‘s bumpy roads. Scotland. which has risen to become the second largest forging company in the world.? Mahalingam. low-cost talent still plays a large part in the Indian success story but less so. International Business Page 82 . its edge. A European or US producer with their high cost bases simply could not compete against a project like his ―one lakh car‖ [a lakh is a unit of 100. because the buying power in this country is so low. It has subsidiaries in Germany. has been to move up the value chain by installing technology and acquiring small companies in developed markets near its clients. the automotive unit of the Tata group. under which he is seeking to bring to market a $2. ―Being in this market. analysts say. Bharat Forge‘s chief achievement. the US. making crankshafts and other automotive components. as a result. those companies that source from India are extremely competitive.000 passenger vehicle.‖ he says. national industry director for KPMG in India. In manufacturing. however. initially benefited from regulatory arbitrage. There is no place that is better than India right now. ―It‘s growing more and more expensive to run forging companies internationally and. The ability to innovate around these obstacles is what gives companies such as Tata Motors. Higher European environmental standards made it prohibitive for forging companies to operate on the continent at a time when there were fewer restrictions in India. you always need to be more competitive than what you have to be outside. chief financial officer of TCS. poor infrastructure and red tape.

This process has left Indian corporate balance sheets in robust health.‖ says Adil Zainulbhai. So there is an opportunity for Indian banks to go and seize market share. Banking may be the next frontier for Indian acquirers. The existing banks there haven‘t gone yet through consolidation and restructuring. If shares went through a prolonged slide. among other measures. . The costs per transaction of India‘s private-sector banks are only about 10 per cent of those of the west due to their use of the latest technology at fractions of the prices of developed markets. Two years you grow at 8 per cent. at what they see as nationalist euphoria over mergers and acquisitions and over the record levels being achieved on the stock market. ―If one year your economy grows at 8 per cent. managing director of McKinsey & Co in India. the company will ship kits en masse to warehouses where dealers can pick them up. however. some analysts maintain. Tata Motors plans to cut costs by changing the supply chain. for example. Some market participants are concerned. national industries director of financial services for KPMG in India. it could be a fluke. Indian banks could make headway in the fragmented but liberalised markets of Europe. With this kind of back office. you can gain access to wider European markets. Rather than trucking finished cars from the factory to the dealer.As part of the ―one lakh car‖ mission.‖ s ays Sanjay Aggarwal. International Business Page 83 . ―With the relaxation in regulatory environment in Europe . A sample of 90 leading listed Indian companies tracked by Morgan Stanley reported a record 57 per cent increase in net profit for the quarter that ended last December. Helping its domestic companies has been India‘s robust economic growth. people say: ‗Huh‘. the large amounts in convertible bonds issued last year by midsized companies to fund overseas expansion could come back to haunt their balance sheets. . which in turn has fuelled a threefold increase in stock market capitalisation in the past three years. Three years of high growth and people start to believe.

Even the long-established Tata group.3 “LOACALISING PRODUCTS FOR CUSTOMER NEEDS” is winning strategy for suceess.‖ Then there are the obstacles well-known in India: not only poor infrastructure but also rapidly rising property prices and shortages of talent. is also more heavily geared than before to the steel cycle and to the risks associated with integrating a large acquisition. explain. But a Mumbai banker observes: ―It takes one bad steel cycle for all this to come home. though that will take time. which if not solved would put a brake on companies‘ ability to grow. Mr Tata says he intends to restore the balance of the group through an expansion in the automotive and other divisions. for example. with examples WHAT IS LOCALISATION? International Business Page 84 . Q.

products and services to consider cultural and political sensitivities. Ring tones. food. Many communities on the planet find themselves on the wrong side of the ―digital divide‖ with vital (hygiene. Language translation is only a small part of localisation – it also involves modifying content. health. date. by doing just that. localisation enables companies to launch their products in markets for which their original product would not be suitable. social factors and legal requirements of the country for which they are being adapted. time and currency formats. GOAL The goal is to enable people to use content. according to their own culture and according to their own personal needs. However.) information not available in their local languages. Current estimates put the value of the localisation sector in Ireland alone at over €680 million annually. BENEFITS Localisation – The Benefits to Industry and Society Ever hear the expression ―think global. International Business Page 85 . localising software for a mobile phone might require adding a predictive text tool that recognises words in the local language. it is big business. For this reason. products and services in their own language. colours and sounds.Localisation is the process of adapting digital products and services to the needs of global users. the true potential of localisation goes beyond opening up business opportunities across the globe. FOR EXAMPLE For example. games and many other elements might need to be altered to appeal to the tastes and preferences of customers in the target country. education. act local?‖ Well. etc. Localisation technologies and processes have the potential to make a considerable contribution to bridging this divide by overcoming the language and cultural barriers to life-saving and life-enhancing information. colour schemes.

research has shown that even fluent English speakers are much more likely to buy a product when it is in their native tongue. This is important because although English is the international business language.LAGUAGE BUSINESS LOCALISATION COMPUTING CULTURE Localisation brings added value as it enables companies to introduce their products to foreign markets. This means that the company can benefit from having access to a whole new pool of potential customers. The more valuable an item. Proper localisation means adapting the product seamlessly. the more likely it is that someone will want to read about the product and buy it in their own language. as if it was created locally in its destination market. International Business Page 86 .

translates to “it doesn‟t go. then putting the shirt into the washing machine with Tide detergent.” Very soon the company realised its mistake and renamed the model Caribe in Spanish- speaking countries. International Business Page 87 . clean clothes! The Chevrolet Nova car sold poorly countries spaced in Spanish-speaking its name. Examples such as these might seem funny but the financial loss and damage to the company‘s reputation can be serious if they get localisation wrong. she holds up the now-clean shirt. so the tide advert suggested that the detergent will dirty your nice. Finally.FOR EXAMPLE The Tide detergent company sought to overcome the language barrier by using picture-only adverts in a number of countries. So proper location of product is winning strategy for success of organization. These adverts showed a woman with a dirty shirt. literally because “NOVA”. The only problem with the advert was that in arabic-speaking countries images and text are read from right to left.

Most of the world‘s large software and web companies have a presence in Ireland. Allianz. Citi Group. Bausch & Lomb. Among the international financial services and medical device companies with a major presence in Ireland are Abbott. PayPal and Symantec. Oracle. The financial services and medical device industries rely heavily on localisation to bring their products to foreign markets. MBNA and Zurich. Ireland is a giant in localisation. International Business Page 88 . with the bulk of their localisation and multilingual customer support being managed from here. Boston Scientific. Microsoft. Baxter Healthcare. Apple.IRELAND – WORLD LEADER IN LOCALISATION Despite the country‘s small size. Facebook. The localisation industry was practically invented in Ireland in the 1990s and the country continues to play a global leadership role. IBM. These include Amazon. LinkedIn.

‖ Problems are a gift International Business Page 89 . there top management walks shoulder to shoulder with operating people to get things cleared including attending meetings with government officials. However. We will not hold it against you if a project gets delayed or we lose money.Q. Whenever they get stuck.4 BUILDING LOCAL LEADERSHIP – adopted by mittal‟s in more than 19 global project To safeguards companies from corruption and fraud are soft factors namely strong local leadership. Over time. not take shortcuts. and a culture of compliance. The tone local leadership sets is critical. They ask people to persist and prevail. companies must pay attention to the small things. and he has clear views on leadership and on change: ―Always think outside the box and embrace opportunities that appear . appropriateness of business expenses. Few companies discuss the character of leaders during the appraisal process. Global companies must hold their country CEOs accountable for compliance with their policies and codes of conduct as well as Indian laws. do what is right. "One thing we must appreciate is that in a hierarchical culture. A zero-tolerance policy is vital. Social memory is many times more effective than a bunch of policies. like a fire clearance for a building or an issue with the electricity board. bribery and corruption depend largely on the tone from the top. hitting the numbers is para-mount. and the personal use of company assets. Acceptance of change Lakshmi Mittal is Britain‘s wealthiest man and a non-resident Indian who heads up the world‘s biggest steel manufacturer. The message is simple: we will work alongside you.wherever they might be. ArcelorMittal." points out a leading fraud expert. like segregation of personal phone calls. Must found a sense of entitlement in small things to be a predictor of bigger problems. however small the matter. not what is convenient. people will know what is acceptable here and what's not.

geographic reach and diversification – we are industry leaders in terms of new technology. we are committed to developing the next generation of leaders through initiatives such as ArcelorMittal University‘s leadership academy and the global employee development programme (GEDP) We want to ensure there is a succession of motivated employees capable of becoming the next generation of leaders." The Indian born Lakshmi Mittal. head of Arcelor Mittal. it is a measure of your determination and dedication how you deal with them and how you can come through them. Through good leadership. This means providing inspiring and effective leadership. a consistent management strategy that focuses on product diversity. knows about tough times and has this view: ―Everyone experiences tough times. recognises and rewards individual performance. contractors and the communities in which it operates. As part of our leadership role. head of Arcelor Mittal. it is a measure of your determination and dedication how you deal with them and how you can come through them. transparent communication and excellent learning and development opportunities. together with a diverse and highly skilled workforce that can help us meet our business and organisational needs around the world. sustainability and corporate responsibility. We strive to improve management and leadership capabilities from within. and create opportunities for those employees who have been identified as future leaders through professional and personal growth. International Business Page 90 .The Indian born Lakshmi Mittal. including employees. we also recognise that the company has a duty to its stakeholders to operate in a responsible and transparent manner and to safeguard the wellbeing of all its stakeholders.‖ The next generation To safeguard the future of ArcelorMittal. we aim to nurture a culture that values. knows about tough times and has this view: ―Everyone experiences tough times. open.

International Business Page 91 .

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