Roll Number:

Thapar Institute of Engineering & Technology, Patiala

LM Thapar School of Management
MBA (IV-Semester) IM-5307: Global Business Environment
July, 2021
Time: July 19-July, 24, 2021 (Monday- Saturday) Name of Faculty: Professor Ravi Kiran
M Marks: 60 Dr. S. C. Bose
Note: All questions are compulsory. Try to be creative and answer in your own words. Plagiarism
rules apply.

Question Question Marks

No
Q1 Discuss the role and functions of ASEAN. Keeping in view Myanmar Crisis, is ASEAN’s [10]
credibility at stake? How the limitations of Regional Trading Agreements may be tackled to
deal with such issues?

Q2 a) Many economists today question the approach to planning formulated by Mahalanobis. Do you [10]
think he played a vital role in putting India on the road to economic progress? How do you take
the transition from the first plan and initial focus on socialistic approach to finally adopting
LPG? Can we say the five-year plans were a success?
b) The World Intellectual Property Organization (WIPO) released the Global Innovation Index [5]
2020. The GII rankings were topped by Switzerland, Sweden, U.S., U.K. and Netherlands,
while India, China, the Philippines, and Viet Nam have been listed as the economies with most
significant progress in their GII innovation ranking over the years. How do you relate the rating
with India’s Innovativeness?
Q3 a) In view of Porter’s Diamond model, discuss why some nations are competitive and others are [10]
not? Discuss this with reference to India and China.
b) Conduct a PESTLE Analysis of Online Learning. In view of your results discuss your [5]
recommendations.

Q4 Case Study 1 [The Asian Crisis] [10]

The 1997 Asian crisis began when speculators attacked Baht, the Thai currency. Thailand, like
many Asian economies, had a fixed exchange rate system whereby the Baht was fixed relative
to the US dollar. The country was running substantial balance of payments deficits and was
losing reserves as it was defending the exchange rate against the dollar. As markets realized
that the government could not sustain the exchange rate any longer, investors shifted to other
hard currencies. The Thai stock market index plunged by 50 per cent within a year and banks
were in danger of collapse as they had loaned funds using inflated assets as collateral.
The domino effect also hit the other Asian economies as they were experiencing similar
problems. Investors fled from the Philippines, Malaysia, and Indonesia, as expectations of a
fall in their exchange rates grew stronger. The authorities in these countries were forced to
abandon the exchange rate peg and, at the same time, Taiwan and Singapore also abandoned
their fixed exchange rates. The United States was also affected by fears of a widespread
financial crisis and the Dow Jones plunged 554 points in October 1997. The selling spell spread
from Asia to Russia and Brazil.
The governments of the affected countries had to generate recessions, with disastrous
consequences in terms of lost output and unemployment, by raising interest rates to stop capital
outflows and by resorting to devaluations in order to restore international competitiveness. In
doing so, the prices of imports rose and so did domestic inflation. In addition, as these countries
had resorted to heavy foreign borrowing, devaluation raised the cost of repaying international
debt as its value in terms of domestic currency was also raised.

i. Was the Asian Crisis resolved? How? Please conduct outside research to support your
answer

1
Q5 Case Study 2 [Trading Coffee]
[5*2]
After oil, coffee is the most traded commodity and the largest source of export earnings in the
developing world. Yet coffee farmers are hurting. They are paid record-low prices, due both to
a global market glut and to modest consumption growth. Some analysts say coffee, like any
other commodity, is simply subject to the swings of a competitive market. This notion is cold
comfort to countries such as Nicaragua and Burundi, which rely heavily on coffee exports. The
coffee cartel of the 1980s failed. What now? Producing countries are urging coffee companies
to help find ways to stabilize the market, including a fund to help small farmers.

Because coffee bushes are perennials, production may keep rising for two to three years in the
face of falling prices. In the last five years, production grew an average 3 per cent annually,
adding 9 million bags of excess supply to the unprecedented 27 million bags already in stock.
Over the same period, total consumption grew at only 1.5 per cent. Further, per capita
consumption of coffee in importing countries—where young people are more inclined to soft
drinks—actually decreased.

An estimated 100 million people directly depend on coffee for their livelihoods, including
farmers and their families, coffee pickers, market intermediaries, and industry employees. And
almost 25 million people are coffee farmers, most of them cultivating less than 10 hectares
apiece in about 80 countries in Africa, Asia, Latin America, and the Caribbean. These small
landholders provide around 70 per cent of the world’s coffee supply.
Unskilled labour accounts for more than 60 per cent of the total production cost on coffee
farms. This characteristic, plus coffee’s ease of cultivation, makes coffee production very
attractive for poorer countries such as Vietnam, whose government decided in the early 1990s
to promote coffee production and export. In 2000, Vietnam became the world’s second largest
coffee producer, displacing Colombia.

Five traders dominate 48 per cent of the world market, five importers manage 46 per cent of
the total coffee exports, and five roasters control 55 per cent of this volume. In Germany, Kraft
Jacobs Suchard and Tchibo/Eduscho control 56 per cent, and in Japan, Ueshimo Coffee and
Key Coffee hold 43 per cent of the market. US brands Maxwell House (Kraft Foods) and
Folgers (Procter & Gamble) represent 56 per cent of the US market.
Most coffee is still consumed at breakfast in homes and restaurants; the ubiquitous Starbucks
Coffee Company buys less than 1 per cent of the world’s coffee supply. One of the reasons
Starbucks profits in its niche is because the price of coffee is a small component of the final
product’s price. Even if Starbucks adjusts its final price when coffee prices change, these
changes are so small they do not affect demand.

International prices have fallen by two thirds since 1997, and no significant recovery is
expected any time soon. As a consequence of low price and low demand, farmers have become
poorer. Non-governmental organizations (NGOs) such as TransFair had led a “fair trade”
campaign to increase the price paid to small growers. Under this initiative, small cooperatives
themselves distribute the coffee they grow, and consumers are encouraged to patronize
companies that buy this coffee. Certified importers pay the fair trade price ($1.26 per pound).
Certified roasters pay TransFair a licensing fee of 10 cents per pound of green coffee to use its
fair trade-certified label. Yet a minuscule 0.2 per cent of the coffee consumed in the United
States and 0.9 per cent of that consumed in the European Union is sold under the certification
program. Other suggested remedies include persuading MNCs to set up a fund that helps small
farmers improve quality and productivity and enter more lucrative specialty-coffee niches.

i. What issues of international trade are addressed in this case?

ii. What international trade theories are implied?