MASTER OF BUSINESS

ADMINISTRATION
ASSIGNMENT
SEMESTER - 4

SUBJECT :- MBA 523 (INTERNATIONAL

BUSINESS ENVIRONMENT)

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Q.1- Discuss the scope of International Business?
Ans. The significance of international business is better than ever as companies around the
world become enhanced connected. It is always played a major role in a country’s growth and
economy. International business is very important for the sustenance of a country as the gross
domestic product or the GDP is reliant on good foreign business. It is a very broad term
because it holds various types of rules and regulations. It refers to business activities that take
place transversely national frontiers.
The scope of International Business
International business is much broader than international trade. It includes not only
international trade (i.e., export and import of goods and services) but also a wide variety of
other ways in which the firms operate internationally. International Management
professionals are familiar with the language, culture, economic and political environment,
and business practices of countries in which multinational firms actively trade and invest.
Major forms of business operations that constitute international business are as follows.
 Merchandise exports and imports
Merchandise means goods that are tangible, i.e., those that can be seen and touched. When
viewed from this perceptive, it is clear that while merchandise exports mean sending tangible
goods abroad, merchandise imports means bringing tangible goods from a foreign country to
one’s own country.
 Service exports and imports
Service exports and imports involve trade in intangibles. It is because of the intangible aspect
of services that trade in services is also known as invisible trade.
 Licensing and franchising
Permitting another party in a foreign country to produce and sell goods under your
trademarks, patents or copyrights in lieu of some fee is another way of entering into
international business. It is under the licensing system that Pepsi and CocaCola are produced
and sold all over the world by local bottlers in foreign countries.
 Foreign investments
Foreign investment is another important form of international business. Foreign investment
involves investments of funds abroad in exchange for financial return. Foreign investment
can be of two types: direct and portfolio investments.
 Monopoly Power
It might arrive from patent rights, technological advantages, product segregation etc. Another
reason for internationalization is limited market information.
 Benefiting from currency exchange
Those who add an international business to their assortment may also advantage from
currency fluctuations. For example, when the U.S. dollar is down, you might be able to
export more as foreign customers benefit from the favorable currency exchange rate.

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  Limitations of Domestic Market
Some demographic trends such as a contraction in birth rate decline in domestic demand,
fully tapped market potential have adverse effects on some businesses. When the domestic
market is small, international business is the option for growth. Depression in the home
market drives companies to explore foreign markets.
 Increased revenues
One of the top advantages of international business is that you may be capable to enlarge
your number of probable clients. Each country you add to your list can open up a new path to
business growth and increased revenues.
 Growth opportunities
Foreign markets both developed country and developing country provide considerable
expansion opportunities for the firms from a developing country. MNCs are interested in no.
of developing countries due to initially increasing in their income and population of the
predictable 1 billion increases in world population during 2000 to 2015; only about 3% will
be in the high-income countries, foreign markets, both developed and developing countries
after ample opportunities for developing country firms also.
 Expand and diversify
International business can enlarge and expand its activities. This is because it earns very high
profits. It also gets financial help from the government.
 Opportunity to specialize
International markets can open up avenues for a new line of service or products. It can also
give you an opportunity to specialize in a different area to serve that market.

Q.2- Discuss the concept of Micro and Macro Environment?

Ans. Every business organization is a part of the business environment, within which it
operates. No entity can function in isolation because there are many factors that closely or
distantly surrounds the business, which is known as a business environment. It is broadly
classified into two categories, i.e. micro environment, and macro environment. The former
affects the working of a particular business only, to which they relate to, while the latter
affects the functioning of all the business entities, operating in the economy.
While microenvironment has a direct impact on the business activities, the macro
environment is a general business environment, which influences all business groups at large.
It is important to learn the business environment, so as to understand the effect of various
forces on business. Take a read of the given article to know the difference between micro
environment and macro environment.

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Definition of Micro Environment
Microenvironment refers to the environment which is in direct contact with the business
organization and can affect the routine activities of business straight away. It is associated
with a small area in which the firm functions.
Microenvironment is a collection of all the forces that are close to the firm. These forces are
very particular for the said business only. They can influence the performance and day to day
operations of the company, but for a short term only. Its elements include suppliers,
competitors, marketing intermediaries, customers and the firm itself.

Micro Environment
 Suppliers are the ones who provide inputs to the business like raw material,
equipment and so on.
 Competitors are the rivals, which compete with the firm in the market and resources
as well.
 Marketing intermediaries may include wholesalers, distributors, and retailers that
make a link between the firm and the customers.
 Customers / Consumers are the ones who purchase the goods for their own
consumption. They are considered as the king of business.
 The firm itself is an aggregate of a number of elements like owners like shareholders
or investors, employees and the board of directors.
Definition of Macro Environment
The general environment within the economy that influences the working, performance,
decision making and strategy of all business groups at the same time is known as Macro
Environment. It is dynamic in nature. Therefore it keeps on changing.
It constitutes those outside forces that are not under the control of the firm but have a
powerful impact on the firm’s functioning. It consists of individuals, groups, organizations,
agencies and others with which the firm deals during the course of its business.
The study of Macro Environment is known as PESTLE Analysis. PESTLE stands for the
variables that exist in the environment, i.e. Population & Demographic, Economic, Socio-
Cultural, Technological, Legal & Political and Environmental. These variables, consider both
economic and non-economic factors like social concerns, government policies, family
structure, population size, inflation, GDP aspects, income distribution, ethnic mix, political
stability, taxes, and duties, etc.

Key Differences between Micro Environment and Macro Environment

The following are the major difference between micro and macro environment:

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 1. Microenvironment is the environment which is in immediate contact with the firm.
The environment which is not specific to a particular firm but can influence the
working of all the business groups is known as Macro Environment.
2. The factors of the microenvironment affect the particular business only, but the macro
environmental factors affect all the business entities.
3. The microenvironmental factors are controllable by the business. However, the
macroeconomic variables are uncontrollable.
4. The elements of the microenvironment affect directly and regularly to the firm which
is just opposite in the case of the macro environment.
5. The study of the microenvironment is described as COSMIC analysis. Conversely,
PESTLE Analysis is a study of the macro environment.
Conclusion
Microenvironment and macro environment, both cover the overall environment of business.
So, they are more complementary rather than contradictory. The study of these environments
will help to know the strength, weakness, opportunity and threat of business.

Q.3- Explain the origin, objectives and functions of the World Bank.
Ans. The International Bank for Reconstruction and Development (IBRD), commonly
referred to as the World Bank, is an international financial institution whose purposes include
assisting the development of its member nation’s territories, promoting and supplementing
private foreign investment and promoting long-range balance growth in international trade.
The World Bank was established in December 1945 at the United Nations Monetary and
Financial Conference in Bretton Woods, New Hampshire. It opened for business in June
1946 and helped in the reconstruction of nations devastated by World War II. Since 1960s the
World Bank has shifted its focus from the advanced industrialized nations to developing
third-world countries.
Organization and Structure:
The organization of the bank consists of the Board of Governors, the Board of Executive
Directors and the Advisory Committee, the Loan Committee and the president and other staff
members. All the powers of the bank are vested in the Board of Governors which is the
supreme policy making body of the bank.
The board consists of one Governor and one Alternative Governor appointed for five years by
each member country. Each Governor has the voting power which is related to the financial
contribution of the Government which he represents.
The Board of Executive Directors consists of 21 members, 6 of them are appointed by the six
largest shareholders, namely the USA, the UK, West Germany, France, Japan and India. The
rest of the 15 members are elected by the remaining countries.

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Each Executive Director holds voting power in proportion to the shares held by his
Government. The board of Executive Directors meets regularly once a month to carry on the
routine working of the bank.
The president of the bank is pointed by the Board of Executive Directors. He is the Chief
Executive of the Bank and he is responsible for the conduct of the day-to-day business of the
bank. The Advisory committees appointed by the Board of Directors.
It consists of 7 members who are expects in different branches of banking. There is also
another body known as the Loan Committee. This committee is consulted by the bank before
any loan is extended to a member country.
Capital Resources of World Bank:
The initial authorized capital of the World Bank was $ 10,000 million, which was divided in
1 lakh shares of $ 1 lakh each. The authorized capital of the Bank has been increased from
time to time with the approval of member countries.
On June 30, 1996, the authorized capital of the Bank was $ 188 billion out of which $ 180.6
billion (96% of total authorized capital) was issued to member countries in the form of
shares.
Member countries repay the share amount to the World Bank in the following ways:
1. 2% of allotted share are repaid in gold, US dollar or Special Drawing Rights (SDR).
2. Every member country is free to repay 18% of its capital share in its own currency.
3. The remaining 80% share deposited by the member country only on demand by the World
Bank.
Objectives:
The following objectives are assigned by the World Bank:
1. To provide long-run capital to member countries for economic reconstruction and
development.
2. To induce long-run capital investment for assuring Balance of Payments (BoP) equilibrium
and balanced development of international trade.
3. To provide guarantee for loans granted to small and large units and other projects of
member countries.
4. To ensure the implementation of development projects so as to bring about a smooth
transference from a war-time to peace economy.
5. To promote capital investment in member countries by the following ways;
(a) To provide guarantee on private loans or capital investment.
(b) If private capital is not available even after providing guarantee, then IBRD provides
loans for productive activities on considerate conditions.

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Functions:
World Bank is playing main role of providing loans for development works to member
countries, especially to underdeveloped countries. The World Bank provides long-term loans
for various development projects of 5 to 20 years duration.
The main functions can be explained with the help of the following points:
1. World Bank provides various technical services to the member countries. For this purpose,
the Bank has established “The Economic Development Institute” and a Staff College in
Washington.
2. Bank can grant loans to a member country up to 20% of its share in the paid-up capital.
3. The quantities of loans, interest rate and terms and conditions are determined by the Bank
itself.
4. Generally, Bank grants loans for a particular project duly submitted to the Bank by the
member country.
5. The debtor nation has to repay either in reserve currencies or in the currency in which the
loan was sanctioned.
6. Bank also provides loan to private investors belonging to member countries on its own
guarantee, but for this loan private investors have to seek prior permission from those
counties where this amount will be collected.

Q.4- What are the political risks of Global Business?

Ans. International trade can be a risky business at the best of times even in the most
developed markets, but Canadian exporters need to be extra vigilant when venturing into
emerging markets where the political risk may be more difficult to discern and deal with.
The challenge has become more pronounced in recent years with the rise in trade between
Canada and many of the world’s emerging markets. It’s estimated that Canada’s total
merchandise exports to emerging markets could increase to 31% by 2025 from just 13% in
2017. While political risk is unavoidable in the global marketplace, risk also comes with
reward. These emerging markets are becoming major consumption hubs with attractive
opportunities for Canadian businesses.
Common types of political risks
To better understand the impact that certain political risks can have on your business, let’s
look at three of the most common types and real-world examples.
Expropriation/government interference
For no apparent reason or with no justification, foreign governments can seize, confiscate or
otherwise expropriate a company’s investment. They can even adopt a series of measures that
have the effect of expropriation. In either case, the result is that a firm could lose overseas
investments or assets.

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Real-world example: Following a coup attempt in 2016, the Turkish government has
targeted those domestic companies associated with the Gulen movement, which it claims was
behind the attempt. The actions have included arbitrary impositions of regulatory
requirements up to outright expropriation. The impact to Canadian companies has been that
they have needed to add a further level of counterparty due diligence to any business dealings
with Turkish companies to determine their relationship with the government.
Transfer and Conversion
During an economic crisis, foreign governments or central banks may decide to impose
restrictions or prohibitions on the conversion of the local currency to hard currency or may
prevent hard currency from leaving the country.
Real-world example: Faced with lower oil prices and consequently dwindling foreign
exchange reserves, in 2015 the Nigerian government started imposing capital controls and
prevented Nigerian importers from obtaining foreign currency through the banking system.
By 2016, this resulted in Nigerian companies being unable to pay Canadian suppliers in a
timely manner.
Political violence
Political terrorism, war, civil strife or other forms of political violence can damage or destroy
a company’s assets and prevent it from conducting operations essential to doing business.
Real-world example: Starting in September 2017, violence erupted in parts of Ethiopia as
certain ethnic groups demonstrated against state discrimination. Following months of
confrontations between security forces and protests, the country had to declare multiple state
of emergencies. Some international companies, who are perceived as receiving favouritism
from the state, were specifically targeted by protesters. One lesson for Canadian companies
has been the importance of working with local communities and not just government.
Preparing and protecting yourself against political risk
The impact of any one of these events on a Canadian exporter’s business is unlikely to be
isolated or short-lived, and may ripple across the entire company, aggravating other types of
risk all the way back to Canada.
So how can Canadian exporters prepare for what may be sudden and unexpected political
risks?
 Due diligence, ongoing research and political risk analysis are perhaps the most
important foundational elements of any emerging market business strategy. Speak
with EDC and the Canadian Trade Commissioner Service who have experts on the
ground in most emerging markets.
 Consider diversifying your overseas investments so that all your risk isn’t
concentrated in just one or two emerging markets. Have a clear and current political
risk mitigation strategy based on the “what ifs” in your market. Know ahead of time
how you’ll respond to a range of risks.

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  If possible, involve your key external stakeholders in political risk mitigation. Brief
customers, suppliers and agents on your contingency plans for dealing with
unexpected political risk and if appropriate, co-ordinate your risk response.
 Recovering from an adverse political event is likely to be quicker and easier if you
prepared for it ahead of time and can co-ordinate your response with your most
important stakeholders.
Trading in emerging markets can be daunting, which is why having a detailed plan and risk
mitigation strategy in place from the outset is essential.

Q.5- What is Multilateral Investment Guarantee Agency?

Ans. Considerable attention has been focused in recent years on the need to remove barriers
impeding the growth of foreign investment in developing countries. Many countries have
enacted new laws to promote foreign investment and entered into bilateral investment treaties
with capital-exporting countries for this purpose.
The concept of providing foreign investors with financial guarantees against non-commercial
risks in developing countries has emerged as a means of improving the investment climate in
these countries and, hence, of stimulating investment flows to them.
Almost all developed countries and two developing countries have established official
schemes to provide guarantees against noncommercial risks to their nations for investments
into developing countries. In addition, the Inter Arab Investment Guarantee Corporation
provides guarantees on a regional basis.
A private political risk insurance market has also been operating internationally for over a
decade. The activities of these entities are subject to several limitations and the perception of
political risk remains a significant barrier to investment in developing countries.
There is need for a multilateral investment guarantee agency to complement these schemes
and improve the investment climate by issuing guarantees and engaging in other investment
promotion activities.
The idea of establishing a multilateral investment guarantee agency emerged in the 1950s. It
was discussed in the International Bank of Reconstruction and Development (referred to in
the Commentary as the Bank) on several occasions during the 1962-1972 periods, but no
decision was taken about creating such, an agency.
President Clausen revived the concept in his first address to the Bank s Annual Meeting in
1981. After detailed studies by the Bank staff and informal discussions with the Bank’s
Executive Directors, a paper entitled “Main Features of a Proposed Multilateral Investment
Guarantee Agency” was distributed to the Executive Directors in May 1984.
The paper presented a number of key features distinguishing the proposal from the schemes
previously discussed in the Bank. This proposal, with modifications following discussions
with the Executive Directors, was subsequently embodied in a “Draft Outline of the
Convention Establishing the Multilateral Investment Guarantee Agency,” which was
circulated in October 1984.

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On the basis of that document, consultations were held with member governments of the
Bank. These consultations resulted in a revised draft of the Convention which was circulated
to the member governments in March 1985.
Between June and September 1985, the Executive Directors, assisted by experts from
member governments, convened in a Committee of the Whole to discuss the draft
Convention. In September 1985, the Executive Directors finalized the draft Convention and
recommended to the Board of Governors that it adopt a resolution opening the Convention
for signature.
Mission:
As a member of the World Bank Group, MIGA’s mission is to promote Foreign Direct
Investment (FDI) into developing countries to help support economic growth, reduce poverty
and improve people’s lives.
Membership and Capital:
(a) Membership:
Membership in the Agency is open to all members of the Bank and to Switzerland. There is,
however, no obligation for Bank members to join the Agency. The Convention recognizes the
importance attached to participation by both capital-exporting and capital-importing members
particularly in the provisions for its entry into force and for voting. At present 173 countries
are members.
(b) Capital:
Earlier Bank proposals envisaged the Agency as having no share capital and conducting its
operations on behalf of the member countries which would sponsor investments for guarantee
by the Agency.
Under the convention the Agency will have a share capital and can issue guarantees in its
own right which will be supplemented by guarantees issued for investments sponsored by
members; with respect to the latter, the Agency will act only as administrator. The subscribed
capital can be leveraged, allowing for guarantee coverage several times its size.
MIGA AND FDI:
Concerns about investment environments and perceptions of political risk often inhibit
foreign direct investment (FDI), with the majority of flows going to just a handful of
countries and leaving the world’s poorest economies largely ignored.
MIGA addresses these concerns by providing three key services: political risk insurance for
foreign investments in developing countries, technical assistance to improve investment
climates and promote investment opportunities in developing countries and dispute mediation
services, to remove possible obstacles to future investment.
MIGA’s operational strategy plays to our foremost strength in the marketplace, attracting
investors and private insurers into difficult operating environments. The agency’s strategy
focuses on specific areas where we can make the greatest difference:

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Infrastructure development is an important priority for MIGA, given the estimated need for
$230 billion a year solely for new investment to deal with the rapidly growing urban centers
and underserved rural populations in developing countries.
Frontier markets high-risk and/or low-income countries and markets represent both a
challenge and an opportunity for the agency. These markets typically have the most need and
stand to benefit the most from foreign investment, but are not well served by the private
market.
Investment into conflict-affected, countries is another operational priority for the agency.
While these countries tend to attract considerable donor goodwill once conflict ends, aid
flows eventually start to decline, making private investment critical for reconstruction and
growth. With many investors wary of potential risks, political risk insurance becomes
essential to moving investments forward.
South investments (investments between developing countries) are contributing a greater
proportion of FDI flows. But the private insurance market in these countries is not always
sufficiently developed and national export credit agencies often lack the ability and capacity
to offer political risk insurance.
MIGA offers comparative advantages in all of these areas, from our unique package of
products and ability to restore the business community’s confidence, to our ongoing
collaboration with the public and private insurance market to increase the amount of
insurance available to investors.
Organization and Management:
The basic structure of the Agency follows that of other international financial institutions,
especially the Bank and the International Finance Corporation. The Agency has a three-tier
structure, consisting of a Council of Governors, a Board of Directors and a President and
staff.
The Council is composed of one Governor from each member and his Alternate. The
Convention does not place any restriction on members in the appointment of their Governors
and Alternates. The Council meets at least annually and can be convened at any other time by
the Council or the Board.
The Council is vested with all the powers of the Agency, except those specifically conferred
by the Convention on another organ of the Agency. However, the Council may delegate to
the Board the exercise of any of its powers except the specific powers listed in Article 31 (a)
reserved to the Council, such as, admission and suspension of members, Classification of
members for voting purposes or as developing member countries, changes in capitalization,
increases of the ratio provided in Article 22 (a), determination of Directors’ compensation,
amendments to the Convention, cessation of operations and liquidation of the Agency and
distribution of assets to members upon liquidation.
The Board is elected in accordance with Article 41 (a) and Schedule В and is responsible for
the general operations of the Agency (Article 32 (a)), a responsibility which covers all
matters related to the Agency’s policies and regulations but not its day today management
which is the responsibility of the President and staff.

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The Board may take any action required or permitted under the Convention. The Council
determines the term of office of Directors under Article 32 (c). The Board will consist of not
less than twelve Directors. The Council will determine the number of Directors, which it may
adjust to take into account changes in membership.
Of the total number of Directors, one fourth would be elected separately, one by each of the
members having the largest number of shares. The remaining Directors would be elected by
the other members (Schedule B).
Each Director may appoint an Alternate (Article 32 (b)). The Board will meet at the initiative
of the Chairman or at the request of three Directors (Article 32 (d)). It is anticipated that
during the formative years of the Agency, the volume of business might not justify a Board
sitting in continuous session.
This would reduce administrative costs since, under those circumstances, the Directors and
Alternates would receive compensation only for attendance at the meetings and the discharge
of other specific official functions (Article 32 (e)).
The President of the Agency is appointed by the Board. The Board would decide on this
appointment on the Chairman’s nomination (Article 33 (b)). The President is responsible for
conducting the ordinary business of the Agency under the general control of the board and for
the appointment, organization and dismissal of staff (Article 33 (a)).
It is intended that the number of staff would be kept small to increase the Agency’s
effectiveness and viability. The salary and terms of the contract of the President are to be
determined by the Council (Article 33 (b)). This follows the practice of the Bank.
The principal office of the Agency will be located in Washington, D.C., unless the Council,
by special majority, decides to establish it in another location (Article 36 (a)). In addition, the
Agency may, under Article 36 (b), establish such other offices as may be necessary for its
work.
MIGA’s Development Impact and Priorities:
Since its inception in 1988, MIGA has issued nearly 900 guarantees worth more than $17.4
billion for projects in 96 developing countries. MIGA is committed to promoting socially,
economically and environmentally sustainable projects that are above all, developmentally
responsible.
They have widespread benefits, for example, generating jobs and taxes and transferring skills
and know-how. Local communities often receive significant secondary benefits through
improved infrastructure.
Projects encourage similar local investments and spur the growth of local businesses. We
ensure that projects are aligned with World Bank Group country assistance strategies and
integrate the best environmental, social and governance practices into our work.
MIGA specializes in facilitating investments in high-risk, low-income countries; such as in
Africa and conflict-affected areas. By partnering with the World Bank and others, MIGA is
able to leverage finance for guarantee trust funds in these difficult or frontier markets. The
agency also focuses on supporting complex infrastructure projects and promoting investments
between developing countries.
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MIGA s technical assistance services also play an integral role in catalyzing foreign direct
investment by helping developing countries define and implement strategies to promote
investment.
MIGA develops and deploys tools and technologies to support the spread of information on
investment opportunities. Thousands of users take advantage of our suite of online
investment information services, which complement country-based, capacity-building work.
The agency uses its legal services to further smooth possible impediments to investment.
Through its dispute mediation program, MIGA helps governments and investors resolve their
differences and ultimately improve the country’s investment climate.

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