Section – ‘A’

1. Define International Business. Explain the challenges of abroad business

International business relates to any situation where the production or distribution of goods or
services crosses country borders. International business encompasses all commercial activities
that take place to promote the transfer of goods, services, resources, people, ideas, and
technologies across national boundaries.
Some such examples are Amazon, Citigroup, Coca-Cola, etc. These companies have independent
operations in each country, and each country has its own set of offices, employees, etc.

Advantages of International Business are:

• Increased revenues.
• Decreased competition.
• Longer product lifespan.
• Easier cash-flow management.
• Better risk management.
• Benefiting from currency exchange.
• Access to export financing.
• Disposal of surplus goods.

The challenges/issues of abroad business are:

Language barrier: It not only create a problem in communication but one also has to consider
the brand name that fits in foreign language. For example, Mercedes-Benz, when entering China,
chose a local name, which was similar to “Benz”: Bēnsǐ. However, in the local language, it
meant “rush to death.” The automaker then has to change its name to Bēnchí, meaning ‘run.’
Cultural differences: While conducting foreign operations, one always has to respect the culture
of other countries. For example, McDonald’s’ doesn’t serve beef or pork in India for religious
reasons.
Managing global team: It includes employees from different backgrounds which requires
frequent communication for better coordination.
Exchange rate and inflation rate: Fluctuations in currency rate is to be considered before
taking any financial decision and inflation rate while pricing a product.
Product Pricing: Setting the product price in the overseas market is a big challenge. To set the
right price, a company must consider its costs, logistics cost, as well as the price of the same
products from local competitors. Moreover, when pricing your product, you also need to
consider how you plan to position your product – as a low-cost product or a luxury brand.
Payment methods: A company should opt for method which is secure and economical and
globally available.
Company structure: One requisite of making big at the international stage is to decide on a
company structure that is efficient. one important thing to consider is the location of the
headquarters and the number of offices a company would have. For example, Coca-Cola has
one of the most efficient company structures worldwide.
Environmental concerns: When a company starts operating in a foreign country, it is very
important that it follows the environmental norms. Moreover, it should take extra efforts to
reduce environmental concerns in the regions it operates.

2. State the positive and negative impact of Globalization.

Positive impacts of Globalization are:
1.Global Market
Most successful emerging markets in developed countries are a result of privatization of state-
owned industries. In order for these industries to increase consumer demand many of them are
attempting to expand and extend their value chain to an international level. The impact of
globalization on business management is seen by the sudden increase of number of transactions
across the borders.
2. Foreign trade
Globalization has created and expanded foreign trade in the world. Things that were only found
in developed countries can now be found in other countries across the world. People can now get
whatever they want and from any country. Through these developed countries can export their
goods to other countries
3. Resource Imperative
Developed countries need natural and human resources of the developing countries while
developing countries need capital, technology and brainpower of the wealthier countries.
Developed countries’ economies are increasingly dependent on the natural and human resources
of the developing nations.
4.Foreign investment
The population of developed countries prefers to invest money in profitable businesses rather
than deposit it in banks. The reason is, they strive to earn for a living remotely because
investments assure, they will gain good profits without any efforts
5. Competition
Competition is a healthy way of doing business. Without it, companies would not pioneer some
innovations in cross-border trade. It is the main reason why the quality of goods and services
improve as well as why the prices drop. Competition affected industries in some developed
countries to source cheap raw materials and labor to decrease prices.
Negative Effects of Globalization are:
1.Terrorism
It is a significant problem in most developed countries. Due to worldwide integration, people
travel a lot. Some of them move abroad for studying, business, visiting relatives, work and
access hospitals services. Lots of terrorists came to a foreign country with a worker visa having a
hidden goal to perform a terrorist attack.
2.Jobs Insecurity
Before globalization, skilled people got employment in government sectors and companies
where they received high salaries. Job opportunities were waiting for those who completed
colleges and earned a degree. Due to globalization, there are many people seeking employment
all over the world. Employers take advantage of cheap labor.
3.Fluctuation currency.
International trade buys and sells products using the US dollar. The price of dollar fluctuates
day-to-day in developing countries, this results in imbalanced economy and unnormal prices for
goods and services. National currencies are affected the most by IGOs.
4.Price Instability
Price instability is a significant effect of globalization on business. Some people establish
industries overseas where they get cheap raw materials and labor. They can cut production costs
and sell their goods at a low price. Due to competition, some high-quality products differ in
prices.

3. Describe the Regional Economic Integration. Explain about economic.

Regional economic integration is a process in which two or more countries agree to eliminate
economic barriers, with the end goal of enhancing productivity and achieving greater economic
interdependence. Regional integration helps countries overcome divisions that impede the flow
of goods, services, capital, people and ideas. These divisions are a constraint to economic
growth, especially in developing countries.
There are four main types of regional economic integration.
Free trade area. This is the most basic form of economic cooperation. Member countries
remove all barriers to trade between themselves but are free to independently determine trade
policies with nonmember nations. An example is the North American Free Trade Agreement
(NAFTA).
Customs union. This type provides for economic cooperation as in a free-trade zone. Barriers to
trade are removed between member countries. The primary difference from the free trade area is
that members agree to treat trade with nonmember countries in a similar manner.
Common market. This type allows for the creation of economically integrated markets between
member countries. Trade barriers are removed, as are any restrictions on the movement of labor
and capital between member countries. Like customs unions, there is a common trade policy for
trade with nonmember nations. The primary advantage to workers is that they no longer need a
visa or work permit to work in another member country of a common market. An example is the
Common Market for Eastern and Southern Africa (COMESA).
Economic union. This type is created when countries enter into an economic agreement to
remove barriers to trade and adopt common economic policies. An example is the European
Union (EU).
Regional integration allows countries to overcome these costly divisions integrating goods,
services and factors' markets, thus facilitating the flow of trade, capital, energy, people and ideas.
Regional integration can be promoted through common physical and institutional infrastructure.

4. What is International Strategic management? Mention any two Modes

of entering and operating in international markets.
International Strategic Management is a planning process of developing international strategy in
the direction of achieving strategic-fit between the organization’s competence & resources and
the global environment under which it tends to operate. It is an ongoing process that adhere an
organization to compete in an international scenario. International Strategic Management (ISM)
is an ongoing management planning process aimed at developing strategies to allow an
organization to expand abroad and compete internationally. Strategic planning is used in the
process of developing a particular international strategy.

The most common modes of entering and operating in international trade are:
1. Equity based
i. Wholly owned subsidiaries
A wholly owned subsidiary is a company whose common stock is 100% owned by a parent
company. Wholly owned subsidiaries allow the parent company to diversify, manage, and
possibly reduce its risk.

ii. Acquisition
Strategic acquisition is a method that one company uses to gain or purchase another, hoping the
consolidation of both companies can prove to be more profitable than one by itself.
 iii. Greenfield venture
Greenfield Venture is a form of market entry strategy with establishment of a new wholly
owned subsidiary in a foreign country by constructing its facilities from start. Through Greenfield
Venture, a business enters a new market without the help of another business which is already
present there.

iv. Equity alliances

v. Joint venture

2. Contractual based
i. Licensing
Licensing is a limited, legal business relationship where a specific party is granted rights to use
certain registered trademarks of a brand. The business relationship is between the licensor (the
one who owns the trademarks) and licensee (the one who is granted rights to use them).

ii. Franchising
A franchise is a business agreement between a franchisor and a franchisee. The franchisor is the
owner of a business. The franchisor sells the rights to their brand including products and
services, intellectual property and more to a franchisee, who will open up a separate branch
under that brand’s name.

iii. Turnkey operations

Turnkey Projects or operations are common in international business in supply and
commissioning of plants. Turnkey operations are a type of collaborative arrangement in which
one company contracts with another to build complete, ready-to-operate facilities.

iv. BOT
A build-operate-transfer (BOT) contract is a model used to finance large projects, typically
infrastructure projects developed through public-private partnerships. Under a BOT contract, an
entity grants a concession to a private company to finance, build and operate a project.

v. Management contract
 Section- ‘B’
5. Write any five differences between Domestic and International Business.
S.No. DOMESTIC BUSINESS INTERNATIONAL BUSINESS

Domestic business refers to the International business refers to the

business where economic business where economic
transactions are conducted within transactions are conducted across
the geographical boundaries of the border with several countries in the
01. one country. world.

In Domestic business buyer and In International business buyer and

02. seller belong to same country. seller belong to different countries.

Domestic business is limited to

03. territory. International business is quite wide.

In Domestic business selling In International business selling

04. procedure remain unaltered. procedure changes.

Quality of product or standards Quality of product or standards are

05. may be lower. expected and enforced.

In international business, business

In domestic business it is very research is very expensive and hard
06. easy to conduct business research. to conduct.

07. It deals with single currency. It deals with multiple currencies.

In domestic business capital In international business capital

08. investment is less. investment is huge.

There are few restrictions on There are a lot restrictions on

09. domestic business. international business.
 The nature of customers in The nature of customers in
domestic business is international business is
10. homogeneous. heterogeneous.

6. Explain about SAFTA.

SAFTA stands for South Asian Free Trade Area
The South Asian Free Trade Area (SAFTA) is the free trade arrangement of the South Asian
Association for Regional Cooperation (SAARC).
The purpose of the SAFTA is to encourage and elevate common contract among countries such
as medium and long-term contracts. Contracts involving trade operated by states, supply and
import assurance in respect of specific products etc. The South Asian Association for Regional
Cooperation (SAARC) is an economic and political organization of eight countries in South
Asia. It was established in 1985 when the Heads of State of Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan and Sri Lanka formally adopted the charter.
SAARC has the following structure: Council – It is the apex policy-making body. The council is
represented by government heads of the respective member countries. Council of Ministers –
The Council of Ministers comprises the foreign ministers and they meet generally two times
annually.

7. Describe about Political environment on international business.

The political environment in international business consists of a set of political factors and
government activities in a foreign market that can either facilitate or hinder a business' ability to
conduct business activities in the foreign market. The political environment in international
business consists of a set of political factors and government activities in a foreign market that
can either facilitate or hinder a business' ability to conduct business activities in the foreign
market. There is often a high degree of uncertainty when conducting business in a foreign
country, and this risk is often referred to as political risk or sovereign risk. Political Environment
is the state, government and its institutions and legislations and the public and private
stakeholders who operate and interact with or influence the system. The political atmosphere
should be good and very stable for a firm to operate successfully.

8. Write the meaning of intellectual property rights.

The definition of intellectual property rights is any and all rights associated with intangible assets
owned by a person or company and protected against use without consent. Intangible assets refer
to non-physical property, including right of ownership in intellectual property . Examples of
intellectual property rights include:
• Patents
• Domain names
• Industrial design
• Confidential information
• Inventions
• Moral rights
• Database rights
• Works of authorship
• Service marks
• Logos
• Trademarks
• Design rights
• Business or trade names
• Commercial secrets
• Computer software
The significant violations of intellectual property consist of infringement, counterfeiting, and
misappropriation of trade secrets. Violations of intellectual property include:
➢ Creating a logo or name meant to confuse buyers into thinking they’re buying the original
brand
➢ Recording video or music without authorization or copying copyrighted materials (yes,
even on a photocopier, for private use)
➢ Copying another person’s patent and marketing it as a new patent
➢ Manufacturing patented goods without a license to do so

9.Explain about level of economic development.

The economic development level of a country refers to the measure of the progress in an
economy that could be measured, especially through GDP or GDP per capita. The level of these
indicators can be influenced by many factors as a large scale, from social and economical to
environmental and government policies factors.

Level of economic development are:

1.Developed countries
• High GDP per capita, High standard of living, High HDI
• Examples: USA, UK
• High rate of employment and manufacturing ( focus on services industry)
 • Political stability
• Knowledge economy
2. Developing countries
• Low GDP per capita and standard of living
• For example: Afghanistan, Albania, Algeria etc.
• High population growth in part due to lack of education for girls and
• women
• Income inequality due to the vast differences between the owners of
the factors of production and worker
3. Emerging countries
• Transitioning to become more economically developed countries
• High economic growth,
• Expecting high rates of growth and some are transitioning to market economies
• For example: India, China, Brazil, Russia
• Rapidly growing population and large percentage of population under 40 year

10. Mention the modes of payment in international trade.

The most common method of payment in international trade are:
1. Cash in Advance
➢ The cash in advance method is the safest for exporters because they are securely paid before goods
are shipped and ownership is transferred.
➢ Typically, payments are made by wire transfers or credit cards.
➢ This is the least desirable method for importers because they have the risk of goods not being
shipped, and it is also not favorable for business cash flow

2. Open Account terms

An open account is a sale in which the goods are shipped and delivered before payment is due
usually in 30, 60, or 90 days. This is one of the most advantageous options to the importer, but it is
a higher-risk option for an exporter.

3. Consignment
Consignment is similar to an open account in some ways, but payment is sent to the exporter only
after the goods have been sold by the importer and distributor to the end customer.
4. Documentary Collection
A documentary collection is when the exporter instructs their bank to forward documents related
to the sale to the importer’s bank with a request to present the documents to the buyer as a request
for payment, indicating when and on what conditions these documents can be released to the buyer

5. Letters of credit
➢ A letter of credit, or documentary credit, is basically a promise by a bank to pay an exporter
if all terms of the contract are executed properly. This is one of the most secure methods
of payment.
➢ It is used if the importer has not established credit with the exporter, but the exporter is
comfortable with the importers bank.

11. Explain the Factors affecting exchange rate.

The factors affect exchange rate are:
1.Inflation
Inflation causes the purchasing power of a currency to decline, making a representative basket of
goods and services increasingly more expensive.
2.Interest rates
Higher interest rates cause an appreciation. Cutting interest rates tends to cause a depreciation.
3.Speculation
If speculators believe the sterling will rise in the future, they will demand more now to be able to
make a profit. This increase in demand will cause the value to rise.
4.Government debt
Under some circumstances, the value of government debt can influence the exchange rate. If
markets fear a government may default on its debt, then investors will sell their bonds causing a
fall in the value of the exchange rate.

5. Economic growth/recession
A recession may cause a depreciation in the exchange rate because during a recession interest
rate usually fall. However, there is no hard and fast rule.
12. Explain in brief about franchising and management contract.
Franchising: A franchise is a business agreement between a franchisor and a franchisee. The
franchisor is the owner of a business. The franchisor sells the rights to their brand including
products and services, intellectual property and more to a franchisee, who will open up a separate
branch under that brand’s name. As part of the franchise agreement, the franchisee will pay fees
to the franchisor to open a franchise, use their brand and for advice and business support. The
franchisor loans their brand for a fee and provides training, as well as expertise, to the franchisee.
Example: One of the most famous examples of a franchise is McDonald’s. From a modest start,
the McDonald’s franchise now has more than 36,000 restaurants around the world. Other famous
franchise businesses include: Burger King, Pizza Hut, 7-Eleven etc

Management Contract: Management contract is an agreement between investors or owners of a

project, and a management company hired for coordinating and overseeing a contract. The
company assists its client for a specified period for a fee. A company usually enters into a
management contract when it believes a foreign company can manage its existing or new operation
more efficiently. For example, the British Airport Authority (BAA) has contracts to manage
airports in Indianapolis (US), Naples (Italy) and Melbourne (Australia) because it has developed
successful airport management skills. A management contract will always consist of three core
components:
➢ The conditions of the contract
➢ The duration of the agreement
➢ The method of computing the management fees

13. Mention about the managing global supply chain.

Global supply chain management is the process of ensuring the secure and timely delivery of
everything from raw materials to finished consumer goods as they travel from manufacturers and
suppliers to wholesalers, retailers, and other distribution points.
Points to manage global supply are:
1.Diversify Suppliers
2.Strengthen Relationships
3.Source Locally
4.Ask Experts
5.Establish Schedules
14. Describe the Geocentric approach in operation of International Business.
✓ When a company adopts the strategy of recruiting the most suitable persons for the
positions available in it, irrespective of their nationalities, it is called a geocentric
approach.
✓ Companies that are truly global in nature adopt this approach since it utilizes a globally
integrated business strategy.
✓ Large international companies generally adopt the geocentric strategy with considerable
success.
✓ The geocentric approach uses the best available managers for a business without regard
for their country of origin. For example: UK parent company uses natives of many
countries at company headquarters and at the U.S. subsidiary.

15. Explain about global production strategies.

1. Location
➢ Country factors: A firm should locate it various manufacturing activities in those
locations where economic, political, and cultural conditions are most conductive to the
performance of that activity. Also, regulations affecting FDI and trade can significantly
affect the appropriateness of specific countries, as can expectations about future exchange
rate changes
➢ Technology factors: The type of technology a firm uses in its manufacturing can affect
location decisions. The level of fixed costs, its minimum efficient scale and flexibility are
important characteristics of a manufacturing technology.
➢ Product factors: The product’s value to weight ratio and universal need of the product
impact location decision. If the ratio is high, it is practical to produce the product in a
single location and export it to other parts of the world. Also, if there are few national
differences in consumer taste and preference for such products, the need for local
responsiveness is reduced, increasing the attractiveness of concentrating manufacturing in
a central location.

2. Outsourcing Strategy: Make or Buy Decision

✓ Should an international business make or buy the component parts to go into their final
product?
✓ Make or buy decisions are important factors in many form’s manufacturing strategies.
Advantages of Make
- Is associated with lower costs
 - Facilitates investments in highly specialized assets
- Protects proprietary technology
- Facilitates the scheduling of adjacent processes

3. Managing Supply Chain

✓ Supply chain management is the management of the flow of goods and services and
includes all processes that transform raw materials into final products. It involves the
active streamlining of a business's supply-side activities to maximize customer value and
gain a competitive advantage in the marketplace.
✓ The logistics refer to the procurement and physical transmission of the material through
the supply chain, from suppliers to custoers.
✓ Logistics encompasses the activities necessary to get materials to a manufacturing
facility,
✓ The logistics function is complicated in an international business by factors such as
distance, time, exchange rate, and customs barriers