1.

Perlmutter EPRG Framework

Anatomy of this Framework

a. How strategic decisions are made in a Company and how relations are shaped /
maintained between HO and Subsidiaries

b. How Companies and Leadership view / evaluate the World – International business
orientation

c. Four stages in International operations adopted by Companies :

i. Ethnocentric Approach

ii. Polycentric Approach

iii. Regiocentric Approach

iv. Geocentric Approach

Ethnocentric Approach

d. The World thru “H.O” lenses – Seek similarity of Home country with Target market

e. Does not believe in “Adaptation” –Tailor-making products to Target market local

taste / preferences / requirements

f. No R&D / Product – Customer analysis

g. HO dominates / dictates Subsidiary operations

h. Belief that their products which are successful in home country can be sold in
International markets without any need for modification

i. Subsidiary entities have no powers as HO dictates

j. Examples : Nissan Cars / Trucks – Japan / North America winters ; BOSCH – same
products sold everywhere

Polycentric Approach

k. Each Country / Geography is unique and requires customized solutions

l. Subsidiaries / local companies can undertake business better aligned to local realities

m. Subsidiaries to develop tailor-made strategies

n. HO should act as a “mentor”

o. Examples – PANASONIC Washing machines for India, Unilever / P&G products for
India

p. McDONALD :
 i. Beer in Germany Aloo tikki in India

ii. Wine in France Lobsters in Canada

iii. Mutton pies in Australia

Regiocentric Approach

q. Study similarities / differences of Regions / Countries in geographical proximity

r. Prepare Strategies accordingly – political , economic, social, cultural etc and satisfy
similar needs / demands

s. Examples:

t. India / Pakistan/ Bangladesh / Sri Lanka

u. Norway / Sweden / Spain-Portugal

v. Thailand / Vietnam / Lao / Cambodia

w. Kenya / Uganda / Tanzania

x. West Indies – Trinidad and Tobago/ Guyana / Barbados

Geocentric Approach

y. Collaborate with Regional HQ

z. Detailed SWOT / PESTLE

aa. Align Products / Services

bb. Balance both global integration ( quality standards, IT backbone ) and local
responsiveness ( pricing , product mix )

cc. Examples :

i. Apple , Samsung, Unilever, P&G , Nestle , John Derre

2. Managing MNCs – Characteristics / Role / Business Models / Advantages – Disadvantages of

MNCs / Governance Guidelines ( UN / OECD)

MNC’s – International Corporations Transnational/Global Corporations

 • U.N defines MNC’s as “ Enterprises which own or control production or facilities outside
the country in which they are based”

According to ILO : “The essential nature of the multinational enterprises lies in the fact that its
managerial headquarters are located in one country , while the enterprise carries out operations in a
number of other countries”

Some of the criteria used to define “Multinationality”…a Company must…

• Produce ( rather than just “distribute”) abroad as well as home country

• Operate in certain minimum number of countries / control equity

• Derive some minimum percentage of income from foreign operations – say 25%

• Have a certain number of foreign employees / assets

• Possess a global management team

• Supply chain linkages

• Global “Brand” and emphasis on R&D

Merits / Positives of MNC’s

• MNC’s help increase Investments and Incomes and generate Economic activity and
Employment

• Vehicle for transfer of technology especially to developing countries

• Breeding ground for managerial talent

• Promote intra-firm trade

• Generate global trade / global presence

• Help optimize production / manufacturing

• Promote innovation / R&D / pioneer new business models

• Help increase competition / Break domestic monopolies

• Develop robust supply chain , logistics, distribution

• Build brands / Inspire local companies

Bane / Negatives of MNC’s

• Business model designed for profit maximization and not for developing local economies

• Use clout / influence and financial muscle to evade / undermine national economic autonomy

• Destroy domestic competition / indulge in dumping and acquire monopoly status

• Manipulate selling price in intra-company deals

 • Undue influence on local culture

• Trigger labour problems via discriminatory wages

• MNC’s have been accused for:

• Supporting repressive regimes

• Destabilize local Governments

• Bribery and corruption

• Abuse of human rights

• Locate polluting industries

• Environmental damage – logging , mining etc

UN Code of Conduct for MNC’s

• Respect national sovereignty of home country

• Adhere to host country’s economic goals , development objectives , social values etc

• Respect human rights and domestic laws

• Non – interference in politics

• Not to engage in corrupt practices

• Be a good corporate citizen – payment of taxes, fair wages, environmental protection , not to
indulge in unfair trade practices / anti-competitive practices

OECD Code of Practice for MNC’s

• Contribute to socio-economic development

• Transfer latest technology

• Encourage local talent / leadership

• Consider host countries economic circumstances / BOP etc

• Practice fair trade

• Encourage Corporate Governance / CSR

• Transfer best practices

• Leverage host country opportunities

• Promote trade of host country

• Not to scuttle local competition

3. Pankaj Ghemawat’s CAGE Framework

• “International interactions are dampened by distance along Cultural, Administrative and

Geographical dimensions are often affected by Economic distance as well’
• Distance theory proves that UK exports more to Ireland than China, despite China being 40
times larger than Ireland
• Germany’s merchandise exports ( 2015) more significant in EU than US (10%) /China (6%)
– France-9%,UK-7%, Netherlands -7%, Italy-5%,Autria-5%,Poland-4%,Switzerland-
4%,Belgium-3%
• Germany’s exports ( and imports from ) to Switzerland and Austria benefit from common
language and other cultural similarities

• Cultural Distance (Country )

– Different languages
– Different ethnicities , lack of connective ethnic /social networks
– Different religions
– Lack of Trust
– Different Values , Norms and dispositions
– Traditionalism / Insularity
• Cultural Distance ( Industry) – Cultural differences matter the most when:
– Products have high linguistic content (TV programs)
– Products matter to cultural or national identity ( food)
– Product features vary in terms of size ( cars) or standards ( Electrical equipment)
– Products carry country –specific quality associations ( wines )
• Administrative Distance
– Lack of colonial ties – Commonwealth
– Lack of shared regional trading bloc
– Lack of common currency
– Political hostility
– Closed economy
– Extent of home bias
– Lack of membership in international organizations
– Weak institutions , corruption
• Administrative Distance (Industry) – Government involvement is high in industries that are :
– Producers of staple goods ( electricity)
– Producers of other key products ( drugs)
– Large employers ( farming)
– Large suppliers to the government (Mass transportation)
– National champions ( Aerospace)
– Vital to national security ( Telecom)
– Exploiters of natural resources (Oil, Mining)
– Subject to high sunk costs ( Infrastructure)
• Geographic Distance
– Physical distance
– Lack of land border
– Differences in time zones
 – Differences in climates and disease environment
– Landlocked geographies
– Lack of internal navigability
– Geographic size
– Geographic remoteness
– Weak inland transportation and communication links
• Geographic Distance (Industry) – Geography plays a more important role when:
– Products have a low-value to weight or value to bulk ratio (cement)
– Products are fragile or perishables ( glass, fruit)
– Local supervision and operational requirements are high (many services)
• Economic Distance
– Rich – Poor differences
– Levels of Economic and Technological status
– Economic size
– Low per-capita income / PP
– Other differences in cost or quality of natural resources , financial resources, human
resources , infrastructure , information or knowledge
• Economic Distance ( Industry) – Economic differences make the biggest impact when:
– Nature of demand varies with income levels ( cars)
– Economics of standardization or scale are limited (cement)
– Labour and other factor cost differences are salient ( garments)
– Distribution or business systems are different ( Insurance)
– Companies need to be response and agile ( home appliances)

4. Detailed PESTLE Analysis

• P – Political
• E – Economic
• S – Social /Cultural
• T – Technological
• L – Legal / Regulatory
• E – Ecological/Environmental
• Why should we undertake PESTLE analysis ?
– Global Scenario – Regulations, Customers, Competitors , Technology etc
– Company performance impacted by local , national and global events
– Realistic strategic planning to capture product/market needs etc
– “Change” - an inevitable aspect of human activities
– International Business Environment – Internal and External factors
– Impact of Globalisation

Political Environment
• Political factors are critical for taking business decisions more so in global operations
• Political systems impact how Government functions and how economic and trade polices
evolve – Protectionism Vs Free Trade
• Role of Ideologies in human societies
• Pluralistic societies in modern times – Dilemmas of Political parties
• Impact of Religion , Language , Ethnicity etc
• Political Spectrum
– Democracy – Origins, Forms, Characteristics
– Freedom and Liberty , Civil Liberties , Free Press and Judiciary, Equality under Law,
Adult franchise
– Citizens to participate in the political processes
– Constitutional mechanism for transfer of power
– Control Structure in Democratic Countries – Canada / USA ( Decentralized
provinces)
– Japan / France ( Centralized Centre )

Key Political Risks

• Uncertainty / Instability of the Government
• Breach of Contracts by the Government
• Restriction on Currency transfers and Convertibility
• Expropriation / Nationalization ( Hugo Chevaz – Venezuela)
• Political Violence – War , Civil disturbance , Terrorism etc
• Non-honouring of Government guarantees and financial obligations
• Adverse regulatory changes
• Restrictions on In-bound/Out-bound investments

Economic Factors
• Economic Systems – Open - Private sector / State Control/Mixed
• Economic Development – Rich, Poor, Emerging nations , Market economies, Developing ,
HIPC
• Standard of living – Demographics, distribution of income , purchasing power, Disposal of
incomes, purchasing decisions
• Industry / Agriculture/Services – Share in GDP
• Balance of Payments – Exports/Imports
• Fiscal/Monetary polices – Currency , Inflation , Deficits
• Forex
• Debt / Borrowings / Aid / Grants

Social / Cultural Factors

• Cultural Forces – Family, Religion, Education, Language , Social factors etc
• Cultural Messages – Morality, Behavioural role , Ethical values etc
• Consumer decision process – Determine wants and needs , consumption patterns
• Cultural Synopsis – Impact of Language, Religion , Education , Attitudes and values ,
cultural influences etc

Hofstede’s Five Cultural dimensions

• Power distance index – Gap between “haves” and “have nots” , Rich/Poor, Rigid hierarchies
• Individualism / Collectivism – Individual opinion Vs Obligations to others / Family
• Masculinity / Aggressive – Ambition, goals, dominant , success / winner – Femininity –
Quality of life
• Uncertainty Avoidance – predictable regime , laws, rules SOPs
• Long term orientation – Future vision , links with past, legacy issues (“karma”)
 Technological Factors
• Technology climate – Skill levels , Literacy, Institutional support
• Manufacturing capabilities – R&D, Knowledge, Assimilation , Training and Quality culture
• Availablity of raw material, power, labour and other bank credit
• Cost of manufacturing
• Innovation
• Competence – Patents , patnerships , technology transfers etc

Challenges of Technology
• The Speed of change – shorter planning cycles & faster product innovations
• E-markets
• High start – up and Innovation costs
• Risk of failure
• Competitor moves
• Piracy / cyber crimes
System break-down

Legal Environment – Overview

• All nations regulate business activities to some degree . Companies are subject to laws of the
country from where they operate.
• Some nations have “hands off” policies . Companies are free to pursue their legitimate
commercial interests.
• Most countries have detailed legislation covering: Permissions/Licenses/Health & Safety/
Labour/ Tariffs/ Taxes/ Forex /IP laws / Environment

HOFSTEDE AND TROMPEENAR CULTURAL DIMENSIONS

Hofstede

Hofstede’s (1984) study entitled as ‘Culture’s Consequences’ investigates into the field of studying
multinational companies and international organizations. Hofstede collected and analysed data
collected from different countries to formulate concrete theoretical framework for the analysis of
culture on various aspects of organisation.
The dimensions are:

Individualism-collectivism: the kind of relationship an individual has with him or herself and with
others in every culture.

Individualism - individuals are expected to take attention and upkeep of themselves and their
immediate family, societal values are of less significance for their consuming habits, the management
style revolves around the self-efficiency which is driven by motives of promotions and development.

Collectivistic- large traditional societies, focus has been on societal good and community’s welfare,
consumers’ behavior is largely dependent on societal approval for the consumption of goods and
services being offered by various companies, organizational styles are deep rooted into efficiency, but
they also take into consideration the cultural values.

Power Distance

The costs of discrimination found in the authority and power relations within a specific society. For
example power within a family rests on the male his decisions will be regarded as the most influential
with regard to what is to be bought. Applying similar analogy at organizational level, in such societies
the organizational structure is predicated on gender relations which value more to male workers.

Uncertainty Avoidance

The necessity to formulate rules and regulation for prescribed and proscribed behavior of people
against their sense of uncertainty. Countries marked with political stability and strong sense of
cultural identity score low on this dimension as they feel usually secure. However, countries like those
of Latin America score high on this dimension because people (consumers) feel insecure about
political climate which adversely affect their collective psyche.

Masculine and Feminine

Masculine cultures the dominant values are success and achievement, which propels the values of
competition, progress and organizational efficiency. However, contrary to this finding, the feminine
cultures put a great of emphasis on the concern for others and focuses on social responsibility.

Long term orientation

Long-term collective vision, their main thrust is on saving for the future; therefore consumer
behaviour in those societies is usually tilted towards lower levels of consumptions, usually found in
emerging economies like China and India.

TROMPEENAR

This culture resembles like a leaderless and shudder less team. It implies that prevalence of informal
relations and low level of centralization at organizational level. In this culture, the role and
responsibilities are not well defined and there can be serious infringes on the overall organization’s
motivations.

• Universalism Vs Particularism
o U – Ideas can be applied any place, Distinction between right and wrong , Standards
and Values are important
 o P – Circumstances decide how ideas can be applied , Personal relationships /
obligations play important role when making ethical decisions , Status is important
• Individualism Vs Communitarianism
o I – Individuals influenced by ideas of Western world
• C – Culture linked to non-western world , cultures change continuously
• Neutral Vs Emotional
o N – Emotions are controlled – Japanese , Koreans, Chinese

o E – Open , expressive, demonstrative – laughing loudly, gesturing , loud emotional

outbursts – Spain , Mexico
• Specific Vs Diffused
o S – Individuals have personal space to express
D - Individuals are more formal
• Achievement Vs Ascription
o A – Self-worth, status, career position ( US / EU )
o A - Age and experience matters ( Japanese)
• Sequential Vs Synchronous time
o S – Time is money , Focus on time lines
o S – Rhythm, Body language , emotional alignment , feelings
• Internal direction Vs External direction
o I – Threat perception, Inward orientation
o E- Western world outward orientation

International market research and competitor analysis

International market research

International marketing research is the systematic design, collection, recording, analysis,

interpretation, and reporting of information pertinent to a particular marketing decision facing a
company operating internationally. International Market Research is a particular discipline of Market
Research, focusing on certain geographical areas. International Market Research is concerned with
consumer goods, but also with any resource or service within a value chain which will be
commercially utilized or further processed – which is the area of industrial goods and B2B-Marketing.

Competitor analysis

Reason

• Helps management to appreciate relative SWOT of the Company and that of competitors
• Understand the future projections / strategies of Competitors
• How does the Company develop a competitive advantage and provide a Differentiated value
Proposition to the existing/potential Customers
• How would a rival respond to a Company’s new product launch or new market entry or a new
promotion
STEPS – 3 STEPS

• Company
– SWOT / Capabilities / Core Competencies / Gaps
– Company’s USP / Competitive advantage
– Future strategies anticipating changing Customer behaviour
– What are Customers’ inputs / feedback telling the Company
– How does the Company leverage technology , social media etc
– Relationships of the Company with its partners
• Customers
– Customer database
– Segments / Preferences / Engagement processes
– Listening and Learning processes
– Are we sure we would continue to serve existing Customers in the future .If not how
is tomorrow’s Customer going to be?
– Why do Consumers deal with rivals?
– Channels for reaching the future Customer
– Customer who does not exist??
• Competitors
– Who are current Competitors .Why do Customers choose them?
– Competitor SWOT – Their strategies and future
– What is the basis of Competition – Pricing , Product range, Geographic reach ,
Innovation, Customization, Commercial terms , Customer care
– How is the Competitive environment and external environment suiting the Company /
Competitor
– What is Competitors’ USP?
COMPETITOR DETAILS REQUIRED

• Sales – Turnover / margins / Geography reach

• Cost structures
• Customer satisfaction levels
• Technology / R&D / Innovations
• Distribution methods
• New product pipeline
• Advertising effectiveness
 • Future business projections
• Contractual terms with channel partners
• Strategic partnerships
• Market pulse
Sources of data

• Published data – Private / Government

• Websites / Company brochures
• Databases
• Media reports / Publications
• Regulatory filings
• Channel partners
• Banks
• Logistics companies
• Trade Fairs – Buyer – Seller Meets
• Conferences / Seminars
• Placement agencies
• Social events
LEARNINGS

• Analyse Successful Competitors

• Analyse Unsuccessful Competitors
• Look for Benchmarks
– Competitors’ Resource Profile and Business culture and Market reputation
– Key Success Factors / USP in market place
– Current and Future strategies
– Predict Competitors’ future road map???

Country/ product selection process for market entry

a. Product selection
• Trade data and direction of exports
• Product identification / selection process – Product strength , Customer preference and
demand, scope for modification, production capacity and availability sourcing ease
 • Trade restrictions / import duties
• Packaging norms
• Ease of shipments / Logistic issues
• Nature of competition
• Pricing challenges
• Incentives available
• Understanding Industry trends
• Value chain involvement

b. Market selection
• PESTLE inputs
• Political scenario – India’s trade ties
• Economic scenario / Purchasing power / BOP
• Market access issues - EODB
• Demand analysis / Consumption patterns
• Documentation issues
• Local Government regulations
• Shipping and Logistics
• Customer buying habits / segments / demographic
• Competition
• Trade Support – Trade fairs / Trade associations
• Banking system
• Legal System
• Channel partners – Mode of entry
• Health and Safety issues
• Terms of trade / payment / promotion practices
• International Relations / Trade Blocks / Trade practices

MODES OF MARKET ENTRY:

A. EXPORTING
 Indirect exporting
 Exporting the products either in original form or modified form to a foreign company
through another domestic company. For example one publisher in India sells it to
another publisher in India who later exports it to other foreign countries.

 Direct exporting
Selling the products directly to the foreign country through its distribution
arrangement or through a host country’s company. For example Baskin Robbins
exported its ice cream to Russia in 1990 but later on it opened its 74 outlets with
Russian partners.

 Intracorporate transfers
Selling of products by a company to its affiliated company in the host country. For
example HUL India sells its products to HUL USA.

B. LICENSING – INTERNATIONAL LICENSING

The domestic manufacturer(LICENSOR) leases the right to use its intellectual property i.e,
technology, work methods, patents, copy rights, brand names, trademarks, etc, to a
manufacturer in the foreign country(LICENSEE) for a fee.
It is comparatively less costly. Example Microsoft Office.

C. FRANCHISING – INTERNATIONAL FRANCHISING

An independent organization called the franchisee operates the business under the name of
another company called the franchisor. The franchisee pays fee to the franchisor. The
franchisor can exercise more contro lover the franchised as compared to licensing. Eg
Macdonalds

D. SPECIAL MODES
 Contract manufacturing
Some companies outsource their part of or complete production and concentrate on
marketing operations. For example nike has contracted with various factories in south
east-asia to produce its athletic shoes and it concentrates its marketing.

 Management contracts
 The company with low level technical expertise and managerial skills may seek
assistance from the foreign companies. The foreign companies provide technical and
managerial assistance. This arrangement is called managerial contracts. For example
Delta, Air France and KLM often provide technical and managerial assistance to
small airlines owned by govt.

 Turnkey projects
A contract under which a firm agrees to fully design, construct and equip a
manufacturing/business/service facility and turn the project over to the purchaser
when it is ready for operation for a remuneration. These projects include nuclear
power plants, airports, national highways, railway lines etc.

E. FOREIGN DIRECT INVESTMENTS WITHOUT ALLIANCES

 Green field strategy
It means starting the operations of the country from scratch in a foreign market. The
company conducts market survey, selects the location, buys or leases land, creates
new facilities, erects machinery, transfers human resources and starts operations and
marketing activities. For example Mercedes Benz locating its auto plant in Alabama,
Nissan its factory in Sunderland, England.

F. FOREIGN DIRECT INVESTMENT WITH ALLIANCES

 Mergers and acquisitions
Merger of domestic and foreign company to enter international market. For example
coca cola entered indian market by acquiring parle and its bottling units.

 Joint ventures
2 or more firms join together to create a new business entity that is legally separate
from its parent companies. For example American motor corp entered into a joint
venture with Beijing Automotive works called Beijijng jeep to enter the Chinese
market.
Q. Legal aspect of international business

https://www.linkedin.com/pulse/international-business-law-understanding-legal-aspects-tyler-rauert/

 In order to help demystify the process, here are the big legal questions that every company
contemplating global expansion should consider:

1. Labour and Employment Law

No matter what business you are in, you can only operate through your people.  If your international
opportunity involves hiring or subcontracting to hire employees in the foreign country you will be
subject to that country’s labor and employment laws which are almost certainly very different from
the ones you’re used to in the US.  Even if you’re not hiring employees, it is often much more
difficult to get rid of under-performing agents and distributors in foreign countries so you will want to
pick these partners carefully.

2.   International Trade Compliance – Import/Export, Sanctions, and Corruption

Whenever business crosses borders it invokes the national security and economic interests of at least
two countries so, depending on the venture, you will probably have to navigate regulations on getting
products out of one country (export) and getting them into another (import).  US businesses also have
to be careful who they do business with.  Some countries (like Iran and North Korea) and individuals
(like terrorists, drug dealers, and dictators) are basically off limits.  And no matter what the expected
business practices are in a foreign country, US persons can be fined or serve jail time for bribing
foreign officials.  Yikes!

3.  Corporate Structure for Doing Business

If your proposed business goes beyond making sales in a foreign country you will probably need to
consider the best in-country corporate structure to achieve your purposes.  This can run the gamut
from contracting for a foreign subsidiary as a service or working with an international PEO to
establishing your own branch, subsidiary, or representative office.  Each option carries its own unique
costs, timelines, capital requirements, and tax consequences, depending on the country.

4.  Taxes

Speaking of taxes…some of the greatest threats and opportunities in global business show up in the
form of taxes, particularly at the corporate entity level.  You will want to carefully examine whether
the foreign country has a tax treaty with the US and what the particular tax consequences are of doing
business there.  In some cases tax treatment can be the difference between the success or failure of a
venture.

5.  Intellectual Property

Whether in the form of patents, copyrights, trademarks, or trade secrets, some of the most valuable
assets of a company are often its intellectual property (IP).  The first thing you should realize is that,
by-and-large, your IP protections in the US won’t help you abroad.  The cost of securing and then
enforcing those rights overseas can be expensive.  However, your IP risks can also be mitigated
through carefully crafted licenses, employment agreements, and a host of other contractual
arrangements designed to protect your IP.

6.  Payment, Finance, and Exchange Controls

Payment rarely requires the use of much brainpower in domestic transactions – although brawn can
sometimes help speed things up.  The currency and method of payment are commonly assumed or
easy to facilitate.  However, the movement of money across borders adds some complexity to an
otherwise simple exchange.  The potential pitfalls in this area can be handled without excessive
concern and they need not impede otherwise beneficial trade but they can prove costly if ignored.
Foreign currency exchange controls and more secure methods of payment (letters of credit, split
payments by wire transfer, etc.) are some examples of the areas where it is advisable to focus on
getting the details right.

7.  Termination of the Business

No one likes to talk about how a business relationship will be terminated when they are popping the
champagne to celebrate a deal being struck but this is one of the areas that can get messy quickly if
not addressed early on.  For example, it can be a lengthy and costly process to wind up a business in
many foreign countries.  Government approvals might be necessary and there could be significant tax
consequences, not to mention creditors’ and even employees’ rights upon termination.  Therefore, it is
usually best to consider an exit strategy at the outset of an international venture.

Q: International Supply Chain – Off-shoring / Outsourcing

Outsourcing

Outsourcing is about moving internal operations to a third-party. This can come in the form of selling
physical plant to a supplier, to buy back goods or services, or shifting an entire business division to a
third-party and again buying the service back. The basic philosophy being: To move transactional
activities to the experts in order to give an organization the capacity to focus on its expertise.

The pattern of decades worth of trade has been based upon this ideal. Almost every company has
'spun off' its functions and sort greater specialization on the areas which earns the most profit. In turn,
outsourcing has generated fantastic wealth for the global economy.

There are down-sides. Although a company can expect to see a reduced cost profile, it does lose its
own capabilities. Once you move your productive facilities to a supplier, you also outsource all the
knowledge and human capital to make those goods. Such capabilities may have taken decades to
create. Once lost, they are hard to return.

Critics also argue that outsourcing equates job losses. The act of outsourcing is, generally, laying-off a
number of people (as well as selling property). These workers face an uncertain future of possibly
retaining their jobs with the new supplier, or perhaps being made completely redundant.

Offshoring
Unlike outsourcing, offshoring is primarily a geographic activity. In the West, goods are expensive
because the staff required to produce and distribute them are costly. In the developing world, by
contrast, vast inexpensive labor pools provide an easy bedrock for a low-cost economy.

Offshoring takes advantage of these cost differentials by relocating factories from costly countries to
the cheaper economies in order to sell the goods back in the West at a hefty discount (and profit).
Alongside technological improvements, it has been the decades of productive offshoring that has
lowered the costs of consumer goods such as clothing and electronics.

Offshoring does not only relate to the production of physical goods, but also services. The Indian IT
industry, for instance, has been powered by waves of offshoring by technological companies in the
West.

As with outsourcing, the activity has the potential to save money for both seller and consumer.
Advocates also argue that these actions can stimulate wealth in some of the world’s poorest countries
and provide jobs for those who are in the deepest need of aid.

Critics contend that this is merely self-serving rhetoric and that offshoring is a device to exploit some
of the world’s most vulnerable populations. Workers from such countries have no legal protection and
face either harsh conditions or hunger. Examples such as Apple’s supplier Foxconn, which experience
a speight of suicides at its Chinese facilities testifies to the severity of treatment.

Combining offshoring and outsourcing

The ultimate means to save a significant amount of money is to combine offshoring with outsourcing.
That is move production to a third-party that is based in an overseas location. This has been an
activity in which American corporations have been engaged for many decades. Last swatches of US
industry has been relocated under the production of overseas entities, mainly in China.

Although double the savings may be enjoyed here, so are double the cost. Opponents argue that the
costs are not only felt by companies, but by entire nations. The dramatic change in the American
political climates, for instance, is partly attributable to the enormous public opposition to outsourcing
to offshore locations.

It is important to know the difference between these terms when engaged in the political debate on
business strategies. There are both moral and economic implications of offshoring and outsourcing,
but they are distinct. And an enriched discussion will be mindful of these differences.

Q: Hr challenges

 Org Design
 VMV / Leadership
 Business model
 Org culture – Ethics / compliance
 Core competencies
 Business Environment
 Strategic Challenges
 Domestic / international footprint
 Hr function / Mandate
 Organogram – business vertical / function
Hr Agenda

 Workforce capability as per business

 Global social & cultural environment
 Training & learning
 Change management
 Employee integrity
 Career progression path
 M&A integration challenges
 Leadership development / Succession planning
 Employee benefit
 Performance culture

Q: Financial aspects of international business:

1. Financial Strategy - What are the country risks – check the big picture/local politics which affect
doing business and getting your money out. Which type of approach will you adopt to start up – e.g.
exporting direct to customers or finding a local partner or even setting up a local operation – financing
each is different. Your business plan must include the financial strategy and your sources of funding.

2. Market Knowledge - Researching local markets is business critical – how much to spend finding
buyers? Make visits. Use the UK Government assistance and support.

3. Winning the Work - How to make good proposals and win tenders. Meeting the customer’s
financial requirements in their documents such as: in a project terms of reference or a specification or
a supply contract. Satisfy the criteria for International Agency contract bids e.g. Technical, Quality,
Experience, Performance, Price.

4. Pricing - How to set your price? Every business I have worked in has trouble with pricing – even
more so overseas. Simplistically one of three methods are often used:

A. Charge what the market will bear

B. Calculate a target mark up or gross margin. (Accountants’ approach) e.g.

Cost of product 5.00

Mark up “on cost “of 50% 2.50

Selling price 7.50

Gross margin “on selling price” 33.3 %

C. Sell “on value” i.e. sell the benefits adopt the classic marketing approach. …..and most importantly
what is the competition pricing.
5. Delivery - How will the product be shipped and stored and who pays what cost at what stage?
Insurance? How will you manage, budget and control your delivery process remotely and in country
and the track costs very closely. What quality control. What and when does the customer sign off?

6. Invoicing and Accounting - Preparing correct export paperwork is a major factor for success. A
properly authorised purchase order from your customer is required. Always invoice promptly, never
never delay. Keep proper books and accounts. Follow up checks and after sales service/guarantees.

7. Payment and Legal - Getting paid is a key challenge. Which currency to choose? Use of different
payment methods including documentary letters of credit. Stage or phasing of payments helps.
Consider the use of credit insurance. Prompt credit control follows up. Legal advice may be
appropriate at certain steps e.g. contracts.

Ease of doing business parameters

 Starting a business
 Dealing with licenses
 Employing workers
 Registering property
 Getting credit
 Protecting investors
 Paying taxes
 Trading across borders
 Enforcement of contracts
 Closing of business
FUNCTIONS OF WTO IN GLOBAL TRADE AND SERVICES:

 Administering WTO trade agreements

 Forum for trade negotiations
 Handling trade disputes
 Monitoring trade policies
 Technical assistance and training for developing economies
 Cooperation with other international organizations eg. IMF

TRADING BLOCS:

FTA- A free trade agreement is a pact between two or more nations to reduce barriers to imports and
exports among them. Under a free trade policy, goods and services can be bought and sold across
international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit
their exchange.

RTA- Regional trade agreements (RTAs) are treaties among two or more governments that agree to
offer more favorable treatment to trade between themselves than they do to goods imported from
outside the region. This preferential treatment usually takes the form of the removal or reduction of
tariffs on imports from regional partners, thereby creating a free trade area. RTAs are typically
classified in a hierarchy that ranges from this most basic form, the free trade area, to customs union, to
common market, and ultimately to economic union

INDIAS ECONOMIC DIPLOMACY- The economic diplomacy objectives for India revolve around
five key goals:

1. to secure market access for its goods and services

2. ensure global labor mobility
3. develop physical connectivity that ensures energy and resource security
4. prevent restrictions on free flow of data
5. ensure access to technology and knowledge for Indian industry.

The central tenet of Modi’s foreign policy is economic diplomacy—a vision to attract foreign
investment while strengthening ties with other countries. Following on this theme, Modi has reached
out to regional powers such as China, Japan, and Australia and has been promised over $55 billion in
foreign investment over the next five years.

Modi has made clear that a significant part of his economic diplomacy will focus on India’s
immediate neighborhood. He invited leaders of Afghanistan, Bangladesh, Bhutan, Maldives, Nepal,
Pakistan, and Sri Lanka to his inauguration, made Bhutan and Nepal his first international stops, and
resolved a seven-decade-long territorial dispute with Bangladesh in December. At the November
summit of the South Asian Association for Regional Cooperation in Nepal, India backed three pacts
to enhance connectivity and energy cooperation in the region. The agreements fell through when
Pakistan dissented, but reports suggest that the rest of India’s neighbors are exploring the possibility
of bilateral agreements with India.
Modi’s regional outreach is likely to expand beyond South Asia in 2015. He unveiled India’s “Act
East” policy at the Association of Southeast Asian Nations (ASEAN) Summit in November. This is
an evolved version of the “Look East” policy that India introduced over two decades ago and commits
India to greater engagement and stronger trade ties with Southeast Asian countries. Major challenges
for the Modi government in 2015 will include managing the relationships with Pakistan and China.

The main advantages of trade blocks results from an increase in FDI (Foreign Direct Investment) and
tariffs are removed. Trade blocs are special type of economic cooperation and also protects its
member countries within that region to imports from non-member countries. Let’s take a look at the
trade analysis of major regional trade blocks.

ASEAN – Association of South East Asian Nations

ASEAN was established on 8th August 1967 in Bangkok, Thailand. There are 10 member countries of
ASEAN including Brunei, Malaysia, Singapore, Vietnam, Indonesia, Laos, Cambodia, Thailand,
Philippines and Myanmar. The main goals of ASEAN are to increase economic growth, social
progress and promote regional space and stability. It aims to transform ASEAN into a single entity.
Singapore is the biggest trading market of ASEAN countries. As per the trade map, ASEAN exports
of goods to the global market worth USD 890 billion and imports worth USD 846 billion in the year
2017. However, the exports were USD 1183 billion and imports were USD 1105 billion during 2016.

APEC – Asia Pacific Economic Cooperation

APEC also referred to member economies and accounting approximately 60% of the world’s GDP. It
is responsible for facilitating economic growth, cooperation, trade and investment in this region.
APEC consists of 21 member countries including Brunei Darussalam, Canada, Chile, China, Hong
Kong, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru,
Philippines, Russia, Singapore, Taipei, Thailand, United States and Vietnam. APEC exports of goods
stood at USD 8021 billion and imports stood at USD 7997 billion during the year 2016. China and
United States are the biggest trading countries.

BRICS

BRICS is an association of five national economies such as Brazil, Russia, India, China and South
Africa. However, South Africa has joined this group in the year 2010 and earlier it was known as
BRIC. The total exports of BRICS amounted to USD 2902 billion and imports amounted to USD
2339 billion during 2017. China is the largest trading country in terms of both imports and exports
among these countries and recorded 70% of BRICS exports and 65% of BRICS imports.

EU – European Union

European Union is the most integrated trade block in the world and formed in the year 1951. It has
built a single Europe-wide market and also launched Euro as a single currency for regional trading.
European Union goods exports to the global market worth USD 5887 billion and imports worth USD
5785 billion during the year 2017.
EU consists of 28 member countries which are Austria, Belgium, Bulgaria, Denmark, Finland,
Germany, France, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Romania, Spain,
Sweden, United Kingdom, Cyprus, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania,
Malta, Poland, Slovakia and Slovenia. European Union comprises five EU institutions namely
European Parliament, Council of the EU, European Commission, Court of Justice and Court of
Auditors.

NAFTA – North America Free Trade Agreement

NAFTA was established on 1st January 1994 and comprises three giant member countries which are
Canada, United States and Mexico. USA and Canada provide highly industrialized environment for
manufacturing & services growth while Mexico provides cheaper resources. NAFTA is responsible to
eliminate trade barriers among its member countries, promote a free trade environment and to increase
investment opportunities.

NAFTA goods exports stood at USD 2376 billion and imports stood at USD 3262 billion during the
year 2017. United States is the largest trading country among NAFTA countries.

CIS – Commonwealth of Independent States

CIS group was founded in the year 1991 and it is a group of 12 member countries including
Azerbaijan, Armenia, Russia, Ukraine, Kazakhstan, Belarus, Turkmenistan, Uzbekistan, Georgia,
Moldova, Kyrgyzstan and Tajikistan. According to CIS countries trade data, the contribution of CIS
nations in the world’s exports was 2.6% in 2016, which declined from 2015’s 3%. And in world’s
imports, countries of CIS region contributed 2% in both the years.

COMESA – Common Market for Eastern and Southern Africa

COMESA exists as an organization of independent sovereign states that have agreed to cooperate in
developing the regional or global trade. It is an economic union of southern and eastern African
countries. It consists of 19 member countries such as Burundi, Comoros, DR Congo, Djibouti, Egypt,
Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan,
Swaziland, Uganda, Zambia and Zimbabwe. COMESA exports recorded USD 65.93 billion and
imports recorded USD 142.29 billion during the year 2016. Egypt is the largest trader among
COMESA countries.

SAARC – South Asian Association for Regional Cooperation

SAARC provides a platform for the people of South Asian countries to work together in a spirit of
trust and understanding. It was founded on 8th December 1985 and its member states include
Afghanistan, Bangladesh, Bhutan, India, Nepal, Maldives, Pakistan and Sri Lanka. SAARC exports of
goods to the world worth USD 330 billion and imports worth USD 481 billion in the year 2016. India
is the biggest trading country in both imports and exports among SAARC members. SAARC organize
summits annually and the country hosting the summit holds the chair of the association.

MERCOSUR

MERCOSUR stands for Mercado Comun del Cono Sur which means Southern Common Market and
it was established on 26th March 1991. It is tariff union of South American countries covering the
market of Brazil, Argentina, Venezuela, Paraguay and Uruguay. Its associate members include
Bolivia, Chile, Colombia, Ecuador and Peru. Its main goals are to accelerate sustained economic
development.

MERCOSUR is one of the fastest growing trading blocks in the world. Spanish and Portuguese are
the major languages spoken in this region. MERCOSUR global exports worth USD 292 billion and
imports worth USD 237 billion during the year 2017.

IOR-ARC – Indian Ocean Rim Association for Regional Cooperation

IOR-ARC comprises 21 member countries such as Australia, Bangladesh, Comoros, India, Indonesia,
Iran, Kenya, Madagascar, Malaysia, Mauritius, Mozambique, Oman, Seychelles, Somalia, Singapore,
South Africa, Sri Lanka, Tanzania, Thailand, UAE and Yemen. Initially IOR ARC consisted of 7
countries only but it has expanded to include other countries as well. It aims to promote sustainable
growth and development of its members. IOR-ARC exports worth USD 1875 billion and imports
worth USD 1847 billion during 2016.

DIRECTION OF INDIAS EXPORT IMPORT

Change in the Composition of Exports:

Since independence, composition of export trade of India has undergone a change. Prior to
independence, India used to export agricultural products and raw materials, like jute, cotton, tea, oil
seeds, leather, food grains, cashew nuts, and mineral products. It also exported manufactured goods.

Change in the Composition of Imports:

Since Independence, composition of India’s import trade has also witnessed a sea change. Prior to
Independence, India used to import mostly consumption goods like medicines, cloth, motor vehicles,
electrical goods, iron, steel, etc.

Direction of Foreign Trade:

It refers to the countries with whom a country trade. Main changes in the direction of foreign trade are
as under:

In the year 1990, in exports the maximum share, i.e., 17.9 per cent was that of Eastern Europe, i.e.,
Romania, East Germany, and U.S.S.R., etc. In import trade, maximum share, i.e., 16.5 per cent was
that of OPEC, i.e., Iran, Iraq, Saudi Arabia, Kuwait, etc. In 2008-09, the largest share in India’s
foreign trade (both imports and exports) was that of European Union (EU), i.e., Germany, Belgium,
France, U.K., etc., and developing countries. Now, U.A.E., China and U.S.A. have occupied
important place in India’s foreign trade. The importance of England, Russia, etc., has declined.
Exports to US, Europe rise, while exports to Asia decline

The data from the Export Import (EXIM) Bank of India highlights that the exports to North American
and European countries have increased. Although the majority of India’s exports continue to go to
Asian countries, it has declined in the last five years. Asia’s share in India’s overall exports fell from
48.52 percent in 2014-15 to 47.62 percent in FY2018-19. While North America’s share increased
from 18.16 percent to 19.49 percent, and Europe’s from 15.31 percent to 17.9 in the same period.

Within Asia, India exported less to West Asia in 2018-19, as compared to 2015-14; the region’s share
in India’s exports declined from 19.48 percent in 2014-15 to 15.9 percent in 2018-19. However, the
share of exports to ASEAN, South Asia, and North East Asia increased during the same period.
India’s key exports in FY2018-19 were petroleum products, followed by pearls, precious,
semiprecious stones, drug formulations and biologicals, gold and other precious metal jewelry, iron
and steel, as well as organic chemicals. Together, these top ten commodities accounted for about 46
percent of India’s total export.

Pharmaceutical products, automobile, transport equipment, machinery, and readymade garments are
also major exports for India.

BREXIT

Reasons for Brexit

•Britain did not get their money back. In cash terms, Britain is the second biggest contributor to the
EU budget after Germany.
• Britain could decide who comes into the country.

• Britain could make their own laws again

• Britain wouldn’t have to accept decisions forced on us by other countries • Britain could set their
own tax rates

• Britain could have blue passports again instead red one.

• Britain wouldn't have to fund EU foreign aid

Global Impact

• To forecast the consequences of the UK leaving the EU, assumptions about how trade costs change
following Brexit because there is a lack of clarity over the consequences of Brexit for trade costs
between the UK and the EU

• There would be two scenarios: an optimistic scenario in which the increase in trade costs between
the UK and the EU is small, and; a pessimistic scenario with a larger rise in trade costs.

(i) Higher tariffs on imports;

(ii) Higher non-tariff barriers to trade (arising from different regulations, border controls,
etc.)
(iii) The UK may not participate in future steps that the EU takes towards deeper integration
and the reduction of non-tariff barriers within the EU.

• Trading freely with EU allows UK business to grow and create jobs. Therefore leaving EU might
pull this at risk.

• Small markets saying access to EU is important to their future growth, therefore leaving the EU may
suffer losses to them. Even also 70% major business also think they might suffer loss if UK leaving
EU.

• As per TTIP and CETA deal between US-UE and UE-Canada will not benefit UK if they leave EU.

• All EU members are worse off: Ireland suffers the largest proportional losses from Brexit, alongside
the Netherlands and Belgium. Countries that lose the most are those currently trading the most with
the UK. Some countries outside the EU, such as Russia and Turkey, gain as trade is diverted towards
them and away from the EU.

Impact on Currency

• The Sterling Pounds is falling against all major currencies.

Economic Impact
One in Every ten UK jobs are linked to the trade with the EU. Therefore Brexit might affect jobs
directly or indirectly.

61% of UK small business exports go to the EU. Being able to trade freely with EU countries, with no
tariffs, helps small businesses in the UK grow and create jobs. This might be affected.

Impact of Brexit could lead into lower trade between EU and UK generating complications.

It could also affect FDI, immigration and economic regulation of UK.

Impact on India

• This will make dollar stronger thus lead to inflation. • Negative impact on the Indian firms in
UK(TATA). • It will negatively affect the markets by hike in crude oil and gold. • Scope for increased
investment in India firms by foreign nations.

Why is it such a big deal?

Europe is Britain’s most important export market and its biggest source of foreign investment, and
membership in the bloc has helped London cement its position as a global financial center.

An announcement, or at least a threat, from a major business to leave Britain because of Brexit is a
regular occurrence. The list of companies that are thinking about relocating includes Airbus, which
employs 14,000 people and supports more than 100,000 other jobs.

The government has projected that in 15 years, the country’s economy will be 4 percent to 9 percent
smaller under Brexit than it would inside the bloc, depending on how it leaves.

Mrs. May had promised that Brexit would end free movement, the right of people from elsewhere in
Europe to live and work in Britain, and vice versa. That was a triumph for some working-class people
who see immigration as a threat to their jobs, but dispiriting for young Britons hoping to study or
work abroad.

US-CHINA TRADEWAR

WHY US HAS A PROBLEM WITH CHINA?

While US have threatened most of the EU and NAFTA nations with tariffs, the real target was
obviously China. After all, the US was running a $375 billion annual trade deficit with China (graph
above) and that was something US President Trump always had his eyes on. He announced tariffs
specifically targeted at China and these were intended to impact nearly $50 billion worth of Chinese
imports to begin with.

BACKGROUND OF US CHINA TRADE WAR

The trade war between the two superpowers, USA and China emanated when the US imposed three
rounds of tariffs on Chinese products this year, totaling $250bn worth of goods. ⊸ It followed up with
US announcing a list of 1,300 Chinese exports which the country plans to hit with 25% tariffs. ⊸ The
imposition of tariffs was planned to punish Beijing for restricting US investment in China.

The combined US tariffs applicable exclusively to China are of US$250 billion. ⊸ China retaliated in
kind by announcing tariffs worth US$110 billion. ⊸ In the case of a trade war , it just doesn't affect
the two economies involved but all the economies open to world trade. Due to this, India too could
find some changing dynamics in its economy.

The US-China trade war is indirectly helping India boost its exports ⊸ The Chinese are seen
substituting their cotton imports from US to India and other Asian economies. ⊸ India’s trade deficit
with China has shrunk over the last two months. The trade war between China and the US has led to
tariffs on goods treaded between the countries

The US tariffs on China resulted in India gaining $755 million in additional exports to the US in the
first half of 2019 by selling more chemicals ($243 million), metals and ore (USD181 million),
electrical machinery ($83 million) and various machinery($68 million) as well as increased exports in
areas such as agri-food, furniture, office machinery, precision instruments, textiles and apparel and
transport equipment, UNCTAD said.

The study, Trade and trade diversion effects of United States tariffs on China, shows that the ongoing
US-China trade war has resulted in a sharp decline in bilateral trade, higher prices for consumers and
trade diversion effects - increased imports from countries not directly involved in the trade war.

The study puts the trade diversion effects of the US-China tariff war for the first half of 2019 at about
$21 billion, implying that the amount of net trade losses corresponds to about $14 billion.

The US tariffs on China have made other players more competitive in the US market and led to a
trade diversion effect. These trade diversion effects have brought substantial benefits for Taiwan
(province of China), Mexico, and the European Union.

Trade diversion benefits to Korea, Canada and India were smaller but still substantial, ranging from
$0.9 billion to $1.5 billion," it said. The remainder of the benefits were largely to the advantage of
other South East Asian countries.