SECTION A

1. Explain the terms GDP, GDP-P and PPP. Bring in a correlation between the three
through an example. (Max 5-7 lines)

Answer.

Gross domestic Product (GDP) represents an accounting of the total value of all final
goods and services produced in a geographic region over a specific period, usually
one year. A nominal measure of GDP does not account for changes in the relative
purchasing power of a good across time; it ignores inflation and deflation.

GDP (Gross Domestic Product) is the total market value of all final goods and
services produced in a country in each period. Each country reports its data in its
own currency. To compare the data, each country's statistics must be converted into
a common currency. The two most common methods to convert GDP into a common
currency are nominal and purchasing power parity (PPP).

Nominal GDP estimates are commonly used to determine the economic

performance of a whole country or region, and to make international comparisons. It
is the original concept of GDP. In Nominal method, market exchange rates are used
for conversion. It does not consider differences in the cost of living in different
countries. Fluctuations in the exchange rates of the country's currency may change a
country's ranking from one year to the next, even though they often make little or no
difference to the standard of living of its population.

Purchasing Power Parity (PPP) compares how many goods and services an
exchange-rate-adjusted unit of money can purchase in different countries.

Purchasing power parity (PPP) is a popular metric used by macroeconomic analysts

that compares different countries' currencies through a "basket of goods" approach.

Purchasing power parity (PPP) allows for economists to compare economic

productivity and standards of living between countries.

Some countries adjust their gross domestic product (GDP) figures to reflect PPP.

To better understand how GDP paired with purchase power parity works, suppose it
costs $10 to buy a shirt in the U.S., and it costs €8.00 to buy an identical shirt in
Germany. To make an apples-to-apples comparison, we must first convert the €8.00
into U.S. dollars. If the exchange rate was such that the shirt in Germany costs
$15.00, the PPP would, therefore, be 15/10, or 1.5.

In other words, for every $1.00 spent on the shirt in the U.S., it takes $1.50 to obtain
the same shirt in Germany buying it with the euro.

2. What are the three key learnings from the study of the GM and LG India Approach
case.(Max 5-7 lines)
Answer.

3. Name two countries each of High and Low Context Societies .What are the three
typical characteristics of these societies

Answer.

The two countries with the high context societies are China and Japan and the two
countries with the low context societies are USA and Germany. Some of the typical
characteristics of the high context societies are

· They are less verbally explicit communication and has less written or formal
information.

· They have more internalized understanding about what is been communicated.

· The strong boundaries which is accepted as the belonging against who is

considered as an outsider.

· The high context refers to societies or groups where people have close connections
over a period.
· many aspects of cultural behaviour are not made explicit because most members
know what to do and what to think from years of interaction with each other. The
concept of family is probably a best example of a high context environment. Some of
the typical characteristics of the Low context societies are as below.

· the low context societies are mainly rule oriented and people play by external rules.

· it provides More knowledge which is codified,public,external and accessible.

· It gives more interpersonal connections of shorter durations.

· The low context refers to the societies where the people tend to have many
connections but of shorter duration or for some specific reason in these societies.
Cultural and beliefs may need to be spelled out explicitly so that those coming into
the cultural environment know how to behave.

4. Explain the term “Pure Economy”. What is good about such an economy
additionally why do most countries have a Hybrid or Mixed Economy

Answer.

An economy or economic system that relies exclusively on the markets to allocate

resources and to answer all three questions of allocation. The theoretical ideal has
no governments. Markets are used to make all allocation decisions. Then contrasting
theoretical ideal is a pure command economy in which governments make all
allocation decisions. There is no government intervention in a pure market economy.
However no truly free market economy exists in the world. As America is a capitalist
nation, our government still regulates or attempts to control fair trade, government
programs, honest business,monopolies.etc. in this type of economy there is a
separation of the government and the market. This separation prevents the
government from becoming too powerful and keeps their interests aligned with that
of the markets. The main advantage of the pure economy are below

· The consumers pay the highest price they want to, and the businesses only
produce which is the profitable goods and services. There is a lot of incentive for
entrepreneurship.

· This competition for resources leads to the most efficient use of the factors of
production since businesses are very competitive.

· Businesses invest heavily in research and development. There is an incentive for

constant innovation as companies compete to provide better business in the market.

 
 

5. Why should India open it borders and businesses for International trade. How
does it help the nation. What should India be mindful of as it opens to the World for
trade. (Max 5-7 lines)

Answer.

Access to international markets plays an important role in an economy’s

development. While tariffs are still among the policy instruments most widely used to
promote or restrict trade, their relative importance has declined.1 Other factors,
namely trade-related transaction costs, have taken precedence. Logistics and freight
expenses, customs administrative fees and border costs have become more
important for small traders. While the significance of small and medium-size
enterprises (SMEs) in the overall economy is widely recognized, until recently SMEs
were largely absent from trade debates. Many studies suggest that one important
channel by which international trade leads to economic growth is through imports of
technology and associated gains in productivity. The relationship between trade and
economic growth can also be observed at the firm level. Substantial evidence
suggests that knowledge flows from international buyers and competitors help
improve the performance of exporting firms. While access to international markets is
important for all economies, developing economies are uniquely impacted by trade
policy. Because they are skewed toward labour-intensive activities, their growth
depends on their ability to import capital-intensive products. Without access to
international markets, developing economies must produce these goods themselves
and at a higher cost, which pulls resources away from areas where they hold a
comparative advantage. In addition, low income per capita limits domestic
opportunities for economies of scale. A trade regime that permits low-cost producers
to expand their output well beyond local demand can, therefore, boost business
opportunities. Thus, while international trade can benefit developed and developing
economies alike, trade policy is clearly inseparable from development policy. In
many economies, inefficient processes, unnecessary bureaucracy and redundant
procedures add to the time and cost for border and documentary compliance.
Evidence from a study investigating delays in customs procedures shows that
customs-driven delays have a significant negative impact on firms' foreign sales
through a reduced number of shipments and buyers as well as exports per buyer.

6. Name typical three modes of entry in International Business. Explain any two.

Answer.

Exporting            

Fast entry, low risk          

Low control, low local knowledge, potential negative environmental impact of
transportation

Licensing and Franchising

Fast entry, low cost, low risk       

Less control, licensee may become a competitor, legal and regulatory environment
(IP and contract law) must be sound

Partnering and Strategic Alliance

Shared costs reduce investment needed, reduced risk, seen as local entity

Higher cost than exporting, licensing, or franchising; integration problems between

two corporate cultures

Exporting

Exporting is the marketing and direct sale of domestically produced goods in another
country. Exporting is a traditional and well-established method of reaching foreign
markets. Since it does not require that the goods be produced in the target country,
no investment in foreign production facilities is required. Most of the costs associated
with exporting take the form of marketing expenses.

While relatively low risk, exporting entails substantial costs and limited control.
Exporters typically have little control over the marketing and distribution of their
products, face high transportation charges and possible tariffs, and must pay
distributors for a variety of services. What is more, exporting does not give a
company first-hand experience in staking out a competitive position abroad, and it
makes it difficult to customize products and services to local tastes and preferences.

Exporting is a typically the easiest way to enter an international market, and

therefore most firms begin their international expansion using this model of entry.
Exporting is the sale of products and services in foreign countries that are sourced
from the home country. The advantage of this mode of entry is that firms avoid the
expense of establishing operations in the new country. Firms must, however, have a
way to distribute and market their products in the new country, which they typically
do through contractual agreements with a local company or distributor. When
exporting, the firm must give thought to labelling, packaging, and pricing the offering
appropriately for the market. In terms of marketing and promotion, the firm will need
to let potential buyers know of its offerings, be it through advertising, trade shows, or
a local sales force.

Licensing and Franchising

A company that wants to get into an international market quickly while taking only
limited financial and legal risks might consider licensing agreements with foreign
companies. An international licensing agreement allows a foreign company (the
licensee) to sell the products of a producer (the licensor) or to use its intellectual
property (such as patents, trademarks, copyrights) in exchange for royalty fees.

Licensing essentially permits a company in the target country to use the property of
the licensor. Such property is usually intangible, such as trademarks, patents, and
production techniques. The licensee pays a fee in exchange for the rights to use the
intangible property and possibly for technical assistance as well. Because little
investment on the part of the licensor is required, licensing has the potential to
provide a very large return on investment. However, because the licensee produces
and markets the product, potential returns from manufacturing and marketing
activities may be lost. Thus, licensing reduces cost and involves limited risk.
However, it does not mitigate the substantial disadvantages associated with
operating from a distance. As a rule, licensing strategies inhibit control and produce
only moderate returns.

Another popular way to expand overseas is to sell franchises. Under an international

franchise agreement, a company (the franchiser) grants a foreign company (the
franchisee) the right to use its brand name and to sell its products or services. The
franchisee is responsible for all operations but agrees to operate according to a
business model established by the franchiser. In turn, the franchiser usually provides
advertising, training, and new-product assistance.