MB0053 – INTERNATIONAL BUSINESS MANAGEMENT

Question 1 - “The world economy is globalizing at an accelerating pace”. Discuss this
statement and list the benefits of globalization.
The world economy is globalising at an accelerating pace as countries previously closed to
foreign companies have opened up their markets. Geographic distance is shrinking because of
the Internet, as the ambitious companies aim for global leadership. All this is possible
because of booming international business.
International business is mainly concerned with the issues that are related to international
companies and governments’ cross border transactions. International business involves
multiple countries to satisfy the objectives of every individual as well as the organisations.
International business management is a process of achieving the global objectives of a firm
by effectively managing the human, financial, intellectual and physical resources.
Most of us assume that international and global business are the same and that any company
that deals with another country for its business is an international or global company. In fact,
there is a considerable difference between the two terms.
International companies – Companies that deal with foreign countries for their business are
considered as international companies. They can be exporters or importers who may not have
any investments in any other country, apart from their home country.
Global companies – Companies, which invest in other countries for business and also
operate from other countries, are considered as global companies. They have multiple
manufacturing plants across the globe, catering to multiple markets.
A good example to illustrate is Sony Ericsson, which has its headquarters in Sweden,
Research and Development setup in USA and India, manufacturing and assembly plants in
low-wage countries like China, and sales and marketing worldwide. This is made possible
because of the ease in transferring technology and expertise from country to country.
Industries that have a global competition are automobiles, consumer electronics (like
televisions, mobile phone), watches, and commercial aircraft and so on.
Benefits of globalisation
The merits and demerits of globalisation are highly debatable. While globalisation creates
employment opportunities in the host countries, it also exploits labour at a very low cost
compared to the home country. Some of the benefits of globalisation are as follows:

best practices. A country with high power distance ranking depicts that . and culture. which in turn leads to a flourishing travel and hospitality industry across the world. which facilitates international trade. and standardised delivery models across countries. Later.  Promotes better education and jobs. Promotes foreign trade and liberalisation of economies. a fifth dimension called ‘long-term outlook’ was added. Discuss this statement and explain the five cultural dimensions View on Hofstede Statement Professor Hofstede carried out a detailed study of how values in the workplace are influenced by culture.  Leads to free flow of information and wide acceptance of foreign products.  Increases the living standards of people in several developing countries through capital investments in developing countries by developed countries. ideas. customer services.  Gives better access to finance for corporate and sovereign borrowers.  Provides better quality of products.  Benefits customers as companies outsource to low wage countries. He worked as a psychologist in IBM from 1967 to 1973. Question 2 – Hofstede said “Culture is more often a source of conflict than of synergy”. ethics. Five cultural dimensions Power Distance Index (PDI) – This focuses on the level of equality or inequality between individuals in a nation’s society. Professor Hofstede established a model using the results of the study which identifies four dimensions to differentiate cultures. with increased productivity.  Increases business travel.  Provides several platforms for international dispute resolutions in business. Outsourcing helps the companies to be competitive by keeping the cost low.  Increases sales as the availability of cutting edge technologies and production techniques decrease the cost of production. At that time he gathered and analysed data from many people in several countries.

Japan and Eastern Europe score high on this. Individuals in these societies form a larger number of looser relationships. A ruleoriented society that incorporates rules. . A country with low power distance ranking depicts a society which de-emphasises the differences between its people’s power and wealth. laws. A low individualism ranking (Asian and African countries like Indonesia and Colombia) characterises societies of a more collective nature with close links between individuals. regulations. India and China. and control. with women being controlled and dominated by men. Hungary) depicts that individuality and individual rights are dominant within the society. men dominate the society and power structure. Uncertainty Avoidance Index (UAI) – This focuses on the degree of tolerance for uncertainty and ambiguity within the society. Germany. Denmark and China. Those with low score are Australia and Japan. In these societies equality and opportunity is stressed for everyone.inequality of power and wealth has been allowed to grow within the society. Countries with high PDI index are Arab countries. Countries with low UAI score are Sweden. and controls is created to minimise the amount of uncertainty. A country with high masculinity ranking (like Japan. A high individualism ranking (western countries. These societies follow caste system that does not allow upward mobility of its people. Canada. Latin American countries. power. A country with high uncertainty avoidance ranking shows that the country has low tolerance for uncertainty and ambiguity. A country with low uncertainty avoidance ranking shows that the country has fewer concerns about ambiguity and uncertainty and has high tolerance for a variety of opinions. and takes greater risks. readily agrees to changes. These cultures support extended families and collectives where everyone takes responsibility for fellow members of their group. Venezuela. Masculinity – This focuses on the extent to which the society supports or discourages the traditional masculine-work role model of male achievement. A society which is less rule-oriented. Russia. Individualism – This dimension focuses on the extent to which the society reinforces individual or collective achievement and interpersonal relationships. Belgium. A country with low masculinity ranking (like Norway and Sweden) shows a low level of differentiation and discrimination between genders – women are treated equal to men in all aspects of the society. Hungary) shows the country experiences high level of gender differentiation. In these cultures.

Describe in brief the various types of regional integrations. They have a small term orientation and a concern for stability. Regional integration induces reduction on tariffs and prohibitions. Discuss this statement. they are likely to choose customs union. The transfer of technology is also faster. and have thrift for investment. Honk Kong) score high on this dimension. India is in PTA with countries like Afghanistan. Question 3 – Regional integration is helping the countries in growing their trade. Cultures recording little on this dimension. The tariffs are not abolished completely but are lower than the tariffs charged to countries not party to the agreement. The introduction of PTA has generated an increase in the market size and resulted in the availability and variety of new products. The Asian countries (China. It comprises of all countries that are willing to or agree to reduce preferences. Views on the statement Regional integration results in the creation and diversion of trade. and are conventional and traditional. therefore. These countries have a long term orientation. It spreads goodwill among member countries and also helps in reducing the chances of conflict. trust in absolute truth. Chile and South Common Market (MERCOSUR). If countries compete among themselves. Countries choose this kind of economic integration if their economic structures are similar. Free trade area Free Trade Area (FTA) is a type of trade bloc and can be considered as the second stage of economic integration. results in tougher competition. accept changes easily. tariffs and quotas on services and goods traded between them. It supports overall growth of the region. believe in many truths. coupled with efficient trading practices. It is the weakest type of economic integration and aims to reduce taxes on few products to the countries who sign the pact. Types of regional Integration Preferential trading agreement Preferential trading agreement is a trade pact between countries. Japan.Long-Term Orientation (LTO) – It describes the range at which a society illustrates a pragmatic future oriented perspective instead of a conventional historic or short term point of view. Trade creation increases production and income and also leads to new entrants in the market and. The importers must obtain product information from all suppliers within the supply chain in order to determine .

Custom union is third stage in level of economic integration and is followed only after free trade agreement among participating countries. Common markets levy common external tariff on imports from non-member countries. comprising a free trade area with common policies on product regulation. Common market Common market is a group formed by countries within a geographical area to promote duty free trade and free movement of labour and capital among its members. Custom union agreement among negotiating countries may encompass to reduce or eliminate customs duty on mutual trade. fiscal and physical barriers among the member countries are eliminated considerably as these barriers hinder the freedom of movement of the four factors of production. A single market is a type of trade bloc. It comprises of a common market with a customs union. Such common external tariff helps the member countries to reap the benefits of trade expansion. The importers product is qualified individually by the FTA. which are known as the four factors of production. common product regulations and a common external trade policy. After receiving the supplier documentation. Custom union Custom Union is an agreement among two or more countries having already entered into a free trade agreement to further align their external tariff to help remove trade barriers. In the absence of common external tariff. Economic union Economic union is a type of trade bloc and is instituted through a trade pact. . The purpose of an economic union is to promote closer cultural and political ties while increasing the economic efficiency between the member countries. Under customs union agreement. European community is an example of common market. trade creation and trade diversification. capital. labour and services. and freedom of movement of goods. The countries that are part of an economic union have common policies on the freedom of movement of four factors of production. The technical. countries generally impose a common external -tariff (CTF) on imports from non-member countries. The product should have a minimum percentage of local content for it to be qualified. the importer must evaluate the eligibility of the product depending on the rules pertaining the products.the eligibility for a Free Trade Agreement (FTA). there is a possibility that countries with lower custom duties may become conduits for members which has higher custom duty. This agreement aims at making the movement of four factors of production between the member countries easier.

These will help to increase the funds of foreign currency from the cheapest sources. These will help the businessmen to enhance their foreign exchange dealings. The currency derivative trades in markets that correspond to the spot (cash) market. The authority to buy or sell the foreign currencies in future at a specified rate is provided by currency option. Question 4 – Write short note on: a) Foreign currency derivatives Currency derivative is defined as a financial contract that seeks to swap two currencies at a predetermined rate. These are usually traded through organised exchanges. Hence. A political union can also be termed as a legislative union or state union. The members of an economic union share some elements associated with their national economic jurisdictions. which consists of smaller countries/nations.Economic unions are established by means of a formal intergovernmental legal agreement among independent countries with the intention of fostering greater economic integration. the spot market exposures can be enclosed with the currency derivatives. In the foreign exchange market. Political union A political union is a type of country. Here. The main advantage from derivative hedging is the basket of currency available.  Market risk occurs due to adverse moves in the overall market. The standard agreement made in order to buy or sell foreign currencies in future is termed as currency futures. the individual nations share a common government and the union is acknowledged internationally as a single political entity. currency derivatives like the currency features. . currency options and currency swaps are usually traded. The agreement undertaken to exchange cash flow streams in one currency for cash flow streams in another currency in future is provided by currency swaps. Example for Foreign Currency Derivatives Some of the risks associated with currency derivatives are:  Credit risk takes place. The derivatives can be hedged with other derivatives. It can also be termed as the agreement where the value can be determined from the rate of exchange of two currencies at the spot. arising from the parties involved in a contract.

As an alternative. What are the types of strategic planning? Compare Top-down Vs Bottom-up planning .Strategic planning involves allocation of resources to firms to fulfil their long term goals. the requirements of foreign tax credits may be formed in the domestic tax system. the corporate structures will help to reduce the overall tax burden to the enterprise. The concept of equity can be perceived in two ways..  Legal risks pertain to the counterparties of currency swaps that go into receivership while the swap is taking place. Such an environment will allow capital to move from a nation with lesser return to a nation with higher return. The ability to pay means the one with greater ability is likely to pay a larger amount of tax. double taxation occurs if the recipient of posttax income in a foreign country is taxed again. There also exist some tax laws which prevent the tax through artificial transactions such as transfer pricing. Tax equity – The principle of tax equity states that all equally positioned tax players contribute in the cost of operating the government according to the equal rules. Liquidity risks occur due to the requirement of available counterparties to take the other side of the trade. Avoidance of double taxation – The avoidance of double income asserts that one must not be taxed twice for the same income. In addition. The second maintains that the contribution of each tax player must be in terms of their ability to pay. For the nationality of the investor or the locality of the investment not to be influenced. resulting in well allocated resources that will ensure a high gross world output. b) Bases of international tax systems The bases of international tax system are: Tax neutrality – To keep the economic efficiency from being affected the international tax system should remain neutral. Question 5 . a neutral tax is important. It is assert by the first view that the input of each tax player must be consistent with the amount of public services as received. However.  Operational risks are one of the biggest risks that occur in trading derivatives due to human error. .  Settlement risks similar to the credit risks occur when the parties involved in the contract fail to provide the currency at the agreed time.

Senior-level managers have to be very specific when laying out expectations because the people following the plan are not involved in the planning process. Any business plan can be classified into three types. Goals and allowances are established at the highest level. They are: Strategic planning: This planning process is the best among the three business planning processes. bottom-up planning Top-down planning Top-down planning is a common strategy that is used for project planning. Whereas. Top-down vs. Strategic planning fulfils the mission and the overall goals of the firm. they are motivated only through fear or incentives. It is very important to keep the morale of the employees high and motivate them to perform the job. Management must choose techniques to align projects and goals with top-down planning. Some think that the top-down planning process is the right way to make a plan. They outline the manner in which the strategic plan is pursued. and that the plan development is not important. Intermediate plans are often used for campaigns with the purpose and goal of supporting the trades’ long-term goals. the other two are rather more short-term and are used sometimes without any relation to the longterm business goals. However these three kinds of planning work well when used within a strategic plan. The benefit of talented employees with prior experience on definite aspects of the project are not utilised based on the assumption that the management can plan and perform a project better without the inputs from these employees. and then break the work into smaller executable parts of the project. It permits the management to segregate a project into steps. Simultaneously. It involves detailing out the functioning of a strategic plan on a daily basis. It also determines a gateway for business owners for achieving their goals. the work that is broken down is analysed . Intermediate planning: This planning process is for six months to two years. Since employees are not included in any of the decision making processes. Resources are allocated for business management and development that takes place daily within the strategic plan. Management alone is held responsible for the plans set and the end result.Strategic planning process involves allocation of resources to firms to fulfil their long-term goals. It is a long-term process that the business owners utilise to unveil their business’ vision and mission. It helps maintain the decision making process at the senior level. Short-term planning: This planning process involves planning for few weeks or at least for a year.

Bottom-up planning Bottom-up planning is commonly referred to as tactics. This approach is best applicable for small projects. Bottom-up planning Bottom-up planning helps:  As there are no long term vision here. it then reaches the senior management for approval. Find how management imposes the processes. . and then passed on to each of the subsequent higher levels. Lower-level employees take personal interest in a plan that they are involved in planning. Project managers are responsible for the successful completion of the project. Plans are developed at the lowest levels. an organisation gives its project deeper focus because each organisation has a huge number of employees involved.  Identify the lack of ground level staff participation. Employees are more encouraged which in turn improves their morale.  Identify whether the project is team driven.  Encourage teamwork. due-dates are precisely assigned. Team members work side-by-side and contribute during each stage of the process.  Determine whether team motivation is of high level. With bottom-up planning.until all the steps could be studied. Let us now consider the key points of top-down and bottom-up planning.  Find whether the staff feels valued or not. Top-down planning Top-down planning helps:  Determine all the goals at the initial stage of the process.  Find whether the staffs feel that their input is valued or not.  Determine the lack of motivation.   Estimate the inflexibility. Finally.  Estimate flexibility. the focus is on long-term goals and the short-term and uncertain goals can get lost. and then parts of the project are given to employees. However. and each employee is an expert in their own area.

This is the least attractive method for many of the buyers as it creates cash flow problems. Documentary collections and the Open Account. Letter of Credit. The document contains information about the payment. Apparently the most secure methodologies that work for the exporter is not safe for the importer. This includes the Cash-in-advance method. The buyers are concerned about the quality/quantity and delivery of the goods that are not sent if the payment is made in advance. This is the commitment made by the bank that the payment will be made to the exporter if the terms and conditions are met. In the same way. the letter of credit and cash in advance are less secure and the documentary collection and open account are more secure. By this method.Question 6 . in exchange for the documents. Letters of credit The letter of credit is the most secure instrument available for international traders. Both seller and trader should be careful about the method of payment as they are at different locations and transactions happen without face-to-face interaction. . The terms and conditions of the payment are explained in the required documents. For exporters. documentary collection and open account are less secure and letter of credit and cash in advance are more secure methods. Which is the safest method and why? Since international trade deals with exchange of goods. The funds are collected from the importer and paid to the exporter through the banks involved in the collection.Discuss the various payment terms in international trade. Documentary collections Documentary collection is a transaction in which. There are four methods of payment for the international transactions. Cash-in-advance Cash-in-advance helps in removing the risks of credit by the exporter. with respect to the importer. The figure compares and contrasts the most suitable methodology from the perspective of importer and exporter. the exporter's bank (remitter bank) sends the documents to the importer's bank (collecting bank). These terms are explained as follows. there are various ways in which the payment terms (finance) will be handled. exporter receives the payment before the transfer of goods. There is uncertainty during the time when payment transactions happen between importer and exporter. The options that are available with the cash-in-advance method include wire transfers and credit cards.

The payment is due usually from 30 to 90 days. the bank promises that it will honour the drafts drawn on it if the seller confirms to the specific conditions that are set forth in the letter of credit. This is advantageous for the importer in cash flow and cost terms. political instability and lack of familiarity by the transacting parties. Buyers from abroad stress on open accounts since the extension of credit from the seller to the buyer are more common in many countries. It is written by the financial institution in favour of the importer of goods to the seller. Exporters who avoid extending credit may face loss in the sale because of competitors in the market. It is a document that is issued by the bank that guarantees payment to a beneficiary.Open account The open account transaction involves the shipping and delivery of goods in advance. . Letter of credit assumes significance since it can be used to mitigate risk. laws. but at the same time it is very risky for the exporters. In the letter. Safest Mode and Reason International Trade is affected by distance.