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International Business Environment

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International Business Environment
Course Code: COM154205

Credits: 3

Compiled By:

Surjit Singha

M.Com, MBA, M.Phil, UGC-NET, (Ph.D.)

Asst. Professor

Dept. of Commerce, Kristu Jayanti College (Autonomous)

K Narayanapura, Kothanur Post, Bengaluru 560077, India

Unit 1: Globalization and International Business

Unit 2: MNCs and International Business

Unit 3: International Marketing & Intelligence

Unit 4: International Human Resource Management

Unit 5: Economic Integration for Borderless Trade

Model Question Paper

Blue Print

1
International Business Environment

Not For Sale

For Private Circulation Only

The following study materials are produced for the students of Kristu Jayanti College, Required
reference are cited wherever possible; Students are requested to refer the prescribed text
books as per the University or the Institute. Every best possible steps are taken in order to
produce it without any typographical error or omission.

The following study material may not cover the entire topics of IBE; Students are advised to
refer Prescribed Reference Text books for better understandings of the topics in details.

Compiled By

Surijt Singha

M.Com, UGC-NET, MBA, M.Phil, (Ph.D)

surjitsingha@kristujayanti.com

surjitsingha@gmail.com

2
Unit 1: Globalization and International Business

Meaning: International Business

International business comprises all commercial transactions (private and governmental, sales,
investments, logistics, and transportation) that take place between two or more regions,
countries and nations beyond their political boundaries. Usually, private companies undertake
transactions for profit; governments undertake them for profit and for political reasons. The
term "international business" refers to all those business activities which involve cross-border
transactions of goods, services, and resources between two or more nations. Transactions of
economic resources include capital, skills, people etc. for the purpose of the international
production of physical goods and services such as finance, banking, insurance, construction etc.

International Business conducts business transactions all over the world. These transactions
include the transfer of goods, services, technology, managerial knowledge, and capital to other
countries. International business involves exports and imports.

Objectives and Importance of International Business

1. To achieve higher rate of profits: The basic objective of business is to achieve profits. When
the domestic markets do not promise a higher rate of profits, business firms search for foreign
markets that hold promise for higher rates of profits. Thus the objective of profit affects and
motivates the business to expand operations to foreign countries.

2. Expanding the production capacities beyond the demand of the domestic country: Some of
the domestic companies expand their production capacities more than the demand for the
product in domestic countries. These companies, in such cases, are forced to sell their excess
production in foreign developed countries. Toyota of Japan is an example.

3. Severe competition in the Home Country: The countries oriented towards market
economies since 1960s experienced severe competition from other business firms in the home
countries. The weak companies which would not meet the competition of the strong
companies in the domestic country started entering the markets of the developing countries.

3
4. Limited Home Market: When the size of the home market is limited either due to the smaller
size of the population or due to lower purchasing power of the people or both, the companies
internationalize their operations. Example, most of the Japanese automobiles and electronic
firms entered USA, Europe and even African markets due to smaller size of the home market.
Similarly, the mere six million population of Switzerland is the reason for Ciba-Geigy to
internationalize its operations.

5. Political stability vs. Political instability: Political stability does not simply mean that
continuation of the same party in power, but it does mean that continuation of the same
policies of the Government for a quite longer period.

6. Government incentives: It compromises of programs and measures that promotes and

develop trade with other countries. Export promotion leads to expansion of goods for the
foreign market, these goods can earn foreign exchange that can be used to facilitate
development. Therefore it includes all regulations and practices that will increase exports.

7. Removal of barriers to entry: Barriers to entry are obstacles that make it difficult to enter a
given market. Different barriers are encountered by business enterprises that trade
internationally compared to domestic business. These barriers arise due to government
intervention in areas like industry regulation, legislative limitations on new firm, requirements
for license and permits are access to natural resources.

8. Resource access and cost savings: Some companies go internationally to locate resources
that are difficult to obtain in their home market or that can be obtained at a better price
internationally. The resources here refers to natural resources, human resources, financial
resources, managerial expertise and technical, further internationalization can provide cost
saving for a company by helping it to achieve certain economies of scale by expanding the
production scale.

4
Importance of International Business

1. Earn foreign exchange: International business exports its goods and services all over the
world. This helps to earn valuable foreign exchange. This foreign exchange is used to pay for
imports. Foreign exchange helps to make the business more profitable and to strengthen the
economy of its country.

2. Optimum utilization of resources: International business makes optimum utilization of

resources. This is because it produces goods on a very large scale for the international market.
International business utilizes resources from all over the world. It uses the finance and
technology of rich countries and the raw materials and labor of the poor countries.

3. Achieve its objectives: International business achieves its objectives easily and quickly. The
main objective of an international business is to earn high profits. This objective is achieved
easily. This it because it uses the best technology. It has the best employees and managers. It
produces high-quality goods. It sells these goods all over the world. All this results in high
profits for the international business.

4. To spread business risks: International business spreads its business risk. This is because it
does business all over the world. So, a loss in one country can be balanced by a profit in another
country. The surplus goods in one country can be exported to another country. The surplus
resources can also be transferred to other countries. All this helps to minimize the business
risks.

5. Improve organization’s efficiency: International business has very high organization

efficiency. This is because without efficiency, they will not be able to face the competition in
the international market. So, they use all the modern management techniques to improve their
efficiency. They hire the most qualified and experienced employees and managers. These
people are trained regularly. They are highly motivated with very high salaries and other
benefits such as international transfers, promotions, etc. All this results in high organizational
efficiency, i.e. low costs and high returns.

6. Get benefits from Government: International business brings a lot of foreign exchange for
the country. Therefore, it gets many benefits, facilities and concessions from the government. It
gets many financial and tax benefits from the government.

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7. Expand and diversify: International business can expand and diversify its activities. This is
because it earns very high profits. It also gets financial help from the government.

8. Increase competitive capacity: International business produces high-quality goods at low

cost. It spends a lot of money on advertising all over the world. It uses superior technology,
management techniques, marketing techniques, etc. All this makes it more competitive. So, it
can fight competition from foreign companies.

Problems of International business

1. Legal issues: When you conduct trade in another country, you'll have to be familiar with that
country's laws. You may also have to pay additional taxes and import duties in the United States
if you are importing products from other countries. The legal complexities of international
business can be challenging, and without proper legal advice you might be subject to fines and
penalties. Make sure you have excellent international lawyers who have a firm grounding in the
laws of their home countries.

2. Language Issues: Language barriers are an obvious downside to doing business

internationally. You may need to rely on translators when speaking to business contacts and
the intricacies of what your contacts say may be lost in translation. If you are outsourcing
customer service to another country, your customers may struggle to understand people whose
first language is different than your own.

3. Cultural Barriers: Different cultures have different values, and sometimes these differences
can be stark. Gender, for example, could prove problematic in countries where women are not
given equal rights to men. You may find yourself wondering if you can safely send female
employees to certain countries. Marketing styles in other countries may differ, and polite
behavior in the United States may be impolite elsewhere. Some cultures don't take contracts as
seriously as others, and many cultures view the group as more important than the individual.
It's important to learn the cultural intricacies of the places you do business.

6
4. Supervisory Oversight: Whether you're opening a factory in another country or simply
buying and selling property, distance reduces your oversight. It's wise to employ people who
can tell you about the status of your business in other countries and who can warn you of any
potential problems. Without proper oversight, you may find you're paying for sweatshop labor
or signing an unfair deal. There have been instances involving unsafe products imported from
other countries, and it's vital to ensure the products for which you are paying don't put your
customers in danger.

5. Political Problems: Many people are strongly opposed to outsourcing, globalization and
other international business practices. You may lose some of your customer base if you begin
trading in other countries. Moreover, if your company is involved in human rights abuses in
other countries -- even if you had no idea these abuses were occurring -- you may be subject to
an onslaught of bad publicity and lost business.

Factors That Affect a Multinational Corporation

Political Factors
Political factors concern government policies, laws and administrative orientations of different
countries and regional economic blocks. The political factors form the basis for regulating
international trade with respect to tariffs, quotas and technical standards. For example, the
European Union has regulations that guarantee preferential trade treatment for member
countries. Political stability is also an important aspect of the international business
environment. Frequent political unrest and military coups could force a multinational
cooperation to suspend or close operations.

Economic Factors
Rates of economic growth influence the levels of demand for your goods or services in
international markets. However, economic growth rates may be high in some countries and low
in others. For example, the 2010-2012 Eurozone debt crisis slowed down economic growth in
many European countries at a time when countries in other regions were experiencing an
economic boom. Consider such disparities of economic growth in the operational and planning
activities of a multinational corporation.

7
Technological Factors
The availability of technological infrastructure and technical capacities determine the prosperity
of a multinational corporation in host countries. Factors such as broadband connectivity and
technical training have become essential ingredients of successful operations in the modern
business world. Moreover, the levels of technological developments in a given country
determine the scope of technical understanding among its population. While it may be easier to
establish and maintain technical operations in high-technology countries, the same cannot be
said of low-technology countries.

Social Factors
Demographic factors such as religion and culture affect the types, quality, functional features
and demand levels of your products in international markets. Cultures attach different
meanings to time, objects, names, color and attitudes. For example, General Motors suffered
low sales when it introduced the Nova car in Latin American markets because the car name
translated to “it does not move” in Spanish. Therefore, a multinational corporation must have
the ability to interpret and understand varying cultural cues and patterns that are characteristic
of the international business environment.

8
Modes of Entry into International Markets (Place)

Modes of entry

How does an organization enter an overseas market?

Modes of entry into an international market are the channels which your organization
employs to gain entry to a new international market. This lesson considers a number of
key alternatives, but recognizes that alternatives are many and diverse. Here you will
be consider modes of entry into international markets such as the Internet, Exporting,
Licensing, International Agents, International Distributors, Strategic Alliances, Joint
Ventures, Overseas Manufacture and International Sales Subsidiaries. Finally we
consider the Stages of Internationalization.

1. Licensing :
In this mode of entry, the domestic manufacturer leases the right to use its intellectual property
technology, copy rights ,brand name etc. to a manufacturer in a foreign country for a fee. Here
the manufacturer in the domestic country is called licensor and the manufacturer in the foreign
is called licensee. The cost of entering market through this mode is less costly. The domestic
company can choose any international location and enjoy the advantages without incurring
any obligations and responsibilities of ownership, managerial, investment etc.

2. Franchising
It involves the organization (franchiser) providing branding, concepts, expertise, and in fact
most facets that are needed to operate in an overseas market, to the franchisee. Management
tends to be controlled by the franchiser. Examples include Dominos Pizza, Coffee Republic and
McDonald’s Restaurant.

3. Turnkey Project :
A turnkey project is a contract under which a firm agrees to fully design, construct and equip a
manufacturing/ business/services facility and turn the project over to the purchase when it is
ready for operation for a remuneration like a fixed price , payment on cost plus basis. This form
of pricing allows the company to shift the risk of inflation enhanced costs to the purchaser. Eg
nuclear power plants, airports, oil refinery, national highways, railway line etc. Hence they are
multiyear project.

9
 4. International Agents and International Distributors
Agents are often an early step into international marketing. Put simply, agents are individuals
or organizations that are contracted to your business, and market on your behalf in a particular
country. They rarely take ownership of products, and more commonly take a commission on
goods sold. Agents usually represent more than one organization. Agents are a low-cost, but
low-control option. If you intend to globalize, make sure that your contract allows you to regain
direct control of product. Of course you need to set targets since you never know the level of
commitment of your agent. Agents might also represent your competitors – so beware conflicts
of interest. They tend to be expensive to recruit, retain and train. Distributors are similar to
agents, with the main difference that distributors take ownership of the goods. Therefore they
have an incentive to market products and to make a profit from them. Otherwise pros and cons
are similar to those of international agents.

5. Strategic Alliances (SA)

Strategic alliances are a term that describes a whole series of different relationships between
companies that market internationally. Sometimes the relationships are between competitors.
There are many examples including:

 Shared manufacturing e.g. Toyota Ayago is also marketed as a Citroen and a Peugeot.
 Research and Development (R&D) arrangements.
 Distribution alliances e.g. iPhone was initially marketed by O2 in the United Kingdom.
 Marketing agreements.
Essentially, Strategic Alliances are non-equity based agreements i.e. companies remain
independent and separate.

6. Joint Ventures (JV)

Joint Ventures tend to be equity-based i.e. a new company is set up with parties owning a
proportion of the new business. There are many reasons why companies set up Joint Ventures
to assist them to enter a new international market:

 Access to technology, core competences or management skills. For example, Honda’s

relationship with Rover in the 1980’s.
 To gain entry to a foreign market. For example, any business wishing to enter China
needs to source local Chinese partners.
 Access to distribution channels, manufacturing and R&D are most common forms of
Joint Venture.

10
7. Overseas Manufacture or International Sales Subsidiary

A business may decide that none of the other options are as viable as actually owning an
overseas manufacturing plant i.e. the organization invests in plant, machinery and labor in the
overseas market. This is also known as Foreign Direct Investment (FDI). This can be a new-build,
or the company might acquire a current business that has suitable plant etc. Of course you
could assemble products in the new plant, and simply export components from the home
market (or another country). The key benefit is that your business becomes localized – you
manufacture for customers in the market in which you are trading. You also will gain local
market knowledge and be able to adapt products and services to the needs of local consumers.
The downside is that you take on the risk associated with the local domestic market. An
International Sales Subsidiary would be similar, reducing the element of risk, and have the same
key benefit of course. However, it acts more like a distributor that is owned by your own
company.

8. Internationalization Stages

So having considered the key modes of entry into international markets, we conclude by
considering the Stages of Internationalization. Some companies will never trade overseas and
so do not go through a single stage. Others will start at a later or even final stage. Of course
some will go through each stage as summarized now:

 Indirect exporting or licensing

 Direct exporting via a local distributor
 Your own foreign presences
 Home manufacture, and foreign assembly
 Foreign manufacture
It is worth noting that not all authorities on international marketing agree as to which mode of
entry sits where. For example, some see franchising as a stand-alone mode, whilst others see
franchising as part of licensing. In reality, the most important point is that you consider all
useful modes of entry into international markets – over and above which pigeon-hole it fits
into. If in doubt, always clarify your tutor’s preferred view.

11
9. The Internet

The Internet is a new channel for some organizations and the sole channel for a large number
of innovative new organizations. The e-Marketing space consists of new Internet companies
that have emerged as the Internet has developed, as well as those pre-existing companies that
now employ e-Marketing approaches as part of their overall marketing plan. For some
companies the Internet is an additional channel that enhances or replaces their traditional
channel(s). For others the Internet has provided the opportunity for a new online company.

10. Exporting

There are direct and indirect approaches to exporting to other nations. Direct exporting is
straightforward. Essentially the organization makes a commitment to market overseas on its
own behalf. This gives it greater control over its brand and operations overseas, over and above
indirect exporting. On the other hand, if you were to employ a home country agency (i.e. an
exporting company from your country – which handles exporting on your behalf) to get your
product into an overseas market then you would be exporting indirectly. Examples of indirect
exporting include:

 Piggybacking whereby your new product uses the existing distribution and logistics of
another business.
 Export Management Houses (EMHs) that act as a bolt on export department for your
company. They offer a whole range of bespoke or a la carte services to exporting
organizations.
 Consortia are groups of small or medium-sized organizations that group together to
market related or sometimes unrelated products in international markets.
 Trading companies were started when some nations decided that they wished to have
overseas colonies. They date back to an imperialist past that some nations might prefer
to forget e.g. the British, French, Spanish and Portuguese colonies. Today they exist as
mainstream businesses that use traditional business relationships as part of their
competitive advantage.

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 Stages of Internationalization:
The stages of internationalization have been changing at a fast rate after 1900s. Many factors
contributed to the changing scenario of internationalization. These factors include:

INTERNATIONALISATION STAGES

Domestic Company: Most international companies have their origin as domestic companies.
The orientation of a domestic company essentially is ethnocentric. A purely domestic company
“operates domestically because it never considers the alternative of going international. The
growing stage-one company, when it reaches growth limits in its primary market, diversifies
into new markets, products and technologies instead of focusing on penetrating international
markets.

A domestic company may extend its products to foreign markets by exporting licensing and
franchising. The company, however is primarily domestic and the orientation essentially is
ethnocentric.

International Company: International company is normally the second stage in the

development of a company towards the transnational corporation. The orientation of the
company is basically ethnocentric and the marketing strategy is extension, i.e, the marketing
mix ‘developed’ for the home market is extended into the foreign markets.

Multinational Company: When the orientation shifts from ethnocentric to polycentric, the
international company becomes multinational. In other words, “when a company decides to
respond to market differences, it evolves into a stage-three company is multinational that
pursues a multi-domestic strategy. The focus of the stage-three company is multinational or, in
strategic terms, multi-domestic (that is, the company formulates a unique strategy for each
country in which it conducts business).

13
Global/Transnational Company: According to Keegan, global company represents stage four
and transnational company stage five in the evolution of companies.

The global company will have either a global marketing strategy or a global sourcing strategy
but not both. It will either focus on global markets and source from the home or a single
country to supply these markets, or it will focus on domestic market and source from the world
to supply its domestic channel.

The Transnational Corporation is much more than a company with sales, investments and
operations in many countries. This company, which is increasingly dominating markets and
industries around the world, is an integrated world enterprise that links global resources with
global markets at a profit.

Stage 5
Stage 4 Transnational
Company
Stage 3 Global
Company
Stage 2 Multinational
Company
Stage 1 International
Company
Domestic
Company

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Meaning of globalization

Globalization is a process of interaction and integration among the people, companies, and
governments of different nations, a process driven by international trade and investment and
aided by information technology. This process has effects on the environment, on culture, on
political systems, on economic development and prosperity, and on human physical well-being
in societies around the world.

Globalization is not new, though. For thousands of years, people—and, later, corporations—
have been buying from and selling to each other in lands at great distances, such as through the
famed Silk Road across Central Asia that connected China and Europe during the Middle Ages.
Likewise, for centuries, people and corporations have invested in enterprises in other countries.
In fact, many of the features of the current wave of globalization are similar to those prevailing
before the outbreak of the First World War in 1914.

The main features of Globalization:

1. Globalization involves expansion of business operations throughout the world.

2. It leads to integration of individual countries of the world into one global market thereby
erasing differences between domestic markets and foreign markets.

3. It creates interdependency between nations.

4. Buying and selling of goods and services takes place from to/any country in the world.

5. Manufacturing and marketing facilities are set up anywhere in the world n the basis of their
feasibility and viability rather than on national considerations.

6. Products are planned and developed for the world market.

7. Factors of production like raw materials, labour, finance, technology and managerial skills are
sourced from the entire globe.

8. Corporate strategies, organizational structures, managerial practices have a global

orientation. The entire globe is viewed as a single market.

9. Globalization does not take place overnight. It proceeds gradually through several stages of
internationalization.

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Essential conditions for globalization

1. Business freedom: There should not be unnecessary government restrictions which come in
the way of globalization, like import restrictions, restrictions on sourcing finance or other
factors from abroad, foreign investments, etc.

2. Facilities: The extent to which an enterprise can develop globally from home country base
depends on the facilities available like the infrastructural facilities.

3. Government support: Although unnecessary government intervention is a hindrance to

globalization, government support can encourage Globalization. Government support may take
the form of policy and procedural reforms, development of common facilities like
infrastructural facilities, R and D support, financial market reforms and so on.

4. Resources: Resources is one of the important factors which often decides the ability of a firm
to globalize. Resourceful companies may find it easier to thrust ahead in the global market.
Resources include finance, technology, R and D capabilities, managerial expertise, company and
brand image, human resource, etc.

5. Competitiveness: The competitive advantage of the company is very important determinant

of success in global business. A firm may derive competitive advantage from any one or more of
the factors such as low costs and prices, product quality, product differentiation, technological
superiority, after sales service, marketing strength, etc.

6. Orientation: A global orientation on the part of the business firms and suitable globalization
strategies are essential for globalization.

16
Impact of globalization in India

Positive impacts of Globalization

Globalization is the new catchphrase in the world economy, dominating the globe since the
nineties of the last century. People relied more on the market economy, had more faith in
private capital and resources, international organizations started playing a vital role in the
development of developing countries. The impact of globalization has been fair enough on the
developing economies to a certain extent. It brought along with it varied opportunities for the
developing countries. It gave a fillip for better access to the developed markets. The technology
transfer promised better productivity and thus improved standard of living.

Negative impacts of Globalization

Globalization has also thrown open varied challenges such as inequality across and within
different nations, volatility in financial market spurt open and there were worsening in the
environmental situation. Another negative aspect of globalization was that a majority of third
world countries stayed away from the entire limelight. Till the nineties, the process of
globalization in the Indian economy had been guarded by trade, investment and financial
barriers. Due to this, the liberalization process took time to hasten up. The pace of globalization
did not start that smoothly.

Economic integration by 'globalization' enabled the cross country free flow of information,
ideas, technologies, goods, services, capital, finance and people. This cross border integration
had different dimensions - cultural, social, political and economic. More or less the economic
integration happened through four channels -

1. Trade in goods and services

2. Movement of capital
3. Flow of finance
4. Movement of people

17
Advantages of globalization

The gains from globalization can be cited in the context of economic globalization:

1. Trade in Goods and Services- From the theoretical aspect, international trade ensures
allocating different resources and that has to be consistent. This specialization in the processes
leads to better productivity. We all know from the economic perspective that restrictive trade
barriers in emerging economies only impede growth. Emerging economies can reap the
benefits of international trade if only all the resources are utilized in full potential. This is where
the importance of reducing the tariff and non-tariff barriers crop up.

2. Movement of Capital- The production base of a developing economy gets enhanced due to
capital flows across countries. It was very much true in the 19th and 20th centuries. The
mobility of capital only enabled savings for the entire globe and exhibited high investment
potential. A country's economic growth doesn't, however, get barred by domestic savings.
Foreign capital inflow does play an important role in the development of an economy. To be
specific, capital flows either can take the form of foreign direct investment or portfolio
investment. Developing countries would definitely prefer foreign direct investment because
portfolio investment doesn't have a direct impact on the productive capacity expansion.

3. Financial Flows - The capital market development is one of the major features of the process
of globalization. We all know that the growth in capital and mobility of the foreign exchange
markets enabled better transfer of resources cross borders and by large the global foreign
exchange markets improved. It is mandatory to go in for the expansion of foreign exchange
markets and thus facilitate international transfer of capital. The major example of such
international transfer of funds led to the financial crisis - which has by now become a worrying
phenomenon.

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Merits and Demerits of Globalization

Merits

1. Wider Markets
Globalization offers larger markets to domestic producers. Domestic firms can export their
surplus output. They can understand the nature of foreign markets through direct and indirect
marketing channels. Domestic firms can realize higher prices from foreign markets. Global
operations help to improve public image which is helpful in attracting better talent.

2. Rapid Industrialization
Globalization helps in the free flow of capital and technology between countries. Global firms
can acquire finance at lower cost of capital. Free flows of capital and technology from advanced
countries help the developing countries to boost up their industrialization. Industrialization of
developing countries leads to balanced development of all the countries.

3. Greater Specialization
Globalization enables the domestic firms to specialize in areas where they enjoy competitive or
comparative advantage. By focusing on the functions or products of their core competence
domestic firms can compete successfully in the international markets. Specialization also helps
to save resources and promote exports of the country.

4. Competitive Gains
Globalization increase competition for domestic firms through imports and multinational
corporations. Domestic firms learn about new products, new technologies and new
management systems. They are under pressure to increase efficiency, introduce innovations
and reduce costs. The domestic entrepreneurs who fail to learn from their foreign rivals suffer
in the long run.

5. Higher Production
Globalization leads to spread up o manufacturing facilities in different countries. Firms with
worldwide contacts can outsource funds, technology, distribution and other functions from
anywhere in the world. They can negotiate subcontracting to remain focused on areas of their
core competence. International outsourcing and subcontracting help to improve operational
efficiency and o reduce costs.

6. Price Stabilization
Globalization can reduce price differences between countries. Free trade and international
competition help to equalize price levels in international markets. Countries with a high degree
of globalization can attract greater foreign investment which supplements domestic funds,
brings in foreign and improves balance of payments.

19
7. Increase in Employment and Income
Globalization creates job opportunities in developing countries and the incomes of people
increases due to increased industrialization.

8. Higher Standards of Living

Lower prices, better quality and higher incomes help to enhance consumption and living
standards of people particularly in developing countries. Moreover, increased economic
development enables the governments of these countries to provide better welfare facilities
like education, health, sanitation, etc. There is all round increase in welfare and prosperity of
public.

9. International Economic Cooperation

Globalization improves economic cooperation between nations in the form of trade
agreements, international treaties, standardization of commercial procedures, avoidance of
double taxation, intellectual property protection and so on. International cooperation also
helps countries to harmonize their macroeconomic policies for their mutual benefit.

10. World Peace

Globalization promotes cultural exchange and mutual understanding among different nations.
International cooperation and brotherhood contribute to peace and prosperity in the world.

Demerits

1. Interdependence
Globalization increases interdependence between nations of the world. As a result, economic
sovereignty and control over the domestic economy are reduced. There is a danger of foreign
economic dominance over the developing economies.

2. Threat to Domestic Industry

Globalization leads to the establishment of manufacturing and marketing facilities by
multinationals n developing countries. The domestic firms in these countries fail to face the
onslaught of multinationals. As a result they sell out to foreign firms. Cheap imports from china
and other countries also kill domestic business particularly in the small sector. Availability of
high quality foreign products reduces the demand for domestic products and domestic
production is eroded.

3. Unemployment
Globalization leads to restructuring of industry. Technology upgradation and focus on areas of
comparative advantage create unemployment and underemployment among low skilled
workers. As a result income inequality, poverty and social unrest may increase.

20
4. Drain of Basic Resources
Globalization results in exploitation of natural resources and basic raw materials in developing
countries. These countries are often the sellers of agricultural and other inputs and buyers of
finished products. Talented human resources are also transferred to developed nations which
offer better remuneration and career prospects. Economic underdevelopment of poor
countries is the result of exploitative character of international trade.

5. Technological Dependence
Globalization offers readymade foreign technology which scuttles domestic research and
development. Foreign technologies are available at a high cost and often are not adaptable to
local conditions. Developing countries become technologically dependent on developed
countries.

6. Alien Culture
Globalization promotes consumption patterns and lifestyles which are inconsistent with the
local culture and values. It may lead to shift in the industrialization pattern contrary to the
national priorities. Now after looking at Globalization from both supportive and contradicting
point of view; we can now take a stand on whether the claims against globalization are
sustainable or not. Based on the above points, we can firmly say that globalization is not
responsible fully for the global economic situations alone. It might have played a part in the
crisis, but it did not start the fire.

The one reason which can be held responsible for the mishap is the repeal of Glass – Steagall
Act. The claims that globalization is the culprit are true but only to little extent. The sub - prime
mortgage crisis spread around the globe because of globalization and as a result, led to a sharp
surge in the inflation rates.

Conclusion

The implications of globalization for a national economy are many. Globalization has intensified
interdependence and competition between economies in the world market. This is reflected in
Interdependence in regard to trading in goods and services and in movement of capital. As a
result domestic economic developments are not determined entirely by domestic policies and
market conditions. Rather, they are influenced by both domestic and international policies and
economic conditions. It is thus clear that a globalizing economy, while formulating and
evaluating its domestic policy cannot afford to ignore the possible actions and reactions of
policies and developments in the rest of the world. This constrained the policy option available
to the government which implies loss of policy autonomy to some extent, in decision-making at
the national level.

21
Unit 2: MNCs and International Business

Multinational Corporation (MNC)

An enterprise operating in several countries but managed from one (home) country. Generally,
any company or group that derives a quarter of its revenue from operations outside of its home
country is considered a multinational corporation.

There are four categories of multinational corporations:

(1) A multinational, decentralized corporation with strong home country presence
(2) A global, centralized corporation that acquires cost advantage through
centralized production wherever cheaper resources are available
(3) An international company that builds on the parent corporation's technology or R&D
(4) A transnational enterprise that combines the previous three approaches. According to
UN data, some 35,000 companies have direct investment in foreign countries, and the largest
100 of them control about 40 percent of world trade.

Global Companies
Global multinational enterprises (MNEs) are companies that operate on a global scale, as
opposed to MNEs that are regionally focused. There are various definitions of what constitutes
a truly ‘global’ company, but one way to interpret this is a company that has at least 20% of its
sales in each of at least three different continental markets.

So, a company where 70% of their sales are generated in Asia would not be considered a global
MNE even though they might have significant operations in more than one country, but one
where 30% of sales are from each of Asia, Africa and Europe would be considered a global MNE.

Example

Companies who are MNEs such as McKinsey, Unilever and Wipro generate sales and profits in
multiple locations across the world.

22
Distinction among Indian Companies, MNC, Global Companies and TNC.

TNC vs MNC

International corporations have several categories depending on the business structure,

investment and product/ service offerings. Transnational companies (TNC) and multinational
companies (MNC) are two of a these categories. Both MNC and TNC are enterprises that
manage production or delivers services in more than one country. They are characterized as
business entities that have their management headquarters in one country, known as the home
country, and operate in several other countries, known as host countries.

Commission on Transnational Corporations and Investment as ‘enterprises which own or

control production or service facilities outside the country in which they are based.” The
committee has also placed its preference on the term TNC. MNC, on the other hand, is the
older term and popularly remains to be the generic label for firms similar to TNC and MNC.
Here’s the significant difference, though. Multinational companies (MNC) have investment in
other countries, but do not have coordinated product offerings in each country. They are more
focused on adapting their products and service to each individual local market.

1) Multinational (MNC) and Transnational (TNC) companies are types of international

corporations. Both maintain management headquarters in one country, known as the home
country, and operate in several other countries, known as host countries.
2) Most TNC’s and MNC’s are massive in terms of budget and are highly influential to
globalization. They are also considered as main drivers of the local economy, government
policies, environmental and political lobbying
3) An MNC have investment in other countries, but do not have coordinated product offerings
in each country. It is more focused on adapting their products and service to each individual
local market. A TNC, on the other hand, have invested in foreign operations, have a central
corporate facility but give decision-making, R&D and marketing powers to each individual
foreign market.

23
MNC vs Global Company

A multinational corporation or company (MNC) is an enterprise or corporation which is involved

in the manufacture of goods and services in two or more countries. It is also known as an
international corporation or company. Its headquarters is located in a certain country which is
called its home country, and it has offices in several other countries called the host countries
where it also operates. It must adhere to the policies of the host countries and adapt its
products to cater to the needs of the host countries.

A global company or corporation, on the other hand, is an enterprise or company which is also
involved in trade relations with other countries. Unlike MNCs, global companies do not have
official headquarters, and they are composed of autonomous units which are parts of one
parent or global company. Each unit in a certain area or country handles their individual
concerns, and the parent company handles concerns which involve the overall global company.
Like MNCs, they hire the local workforce, but they usually pay local workers a higher salary.

1. A multinational corporation, or MNC, is a company which produces goods and services

and has offices in several other countries while a global corporation or company is a
company which also has trade relations with several other countries.
2. MNCs usually pay local workers a lower salary rate than global companies.
3. MNCs have official headquarters while global companies do not.
4. Global companies sell the same product with their characteristic image while MNCs
adapt their products to the needs of the host countries.

24
The Organizational Structure of a Multinational Company

1. Line Organizational Structure:

A line organization has only direct, vertical relationships between different levels in the firm.
There is only line departments-departments directly involved in accomplishing the primary goal
of the organization. For example, in a typical firm, line departments include production and
marketing. In a line organization authority follows the chain of command.

Exhibit 10.3 illustrates a single line organizational structure.

Features:
Has only direct vertical relationships between different levels in the firm.

Advantages:
1. Tends to simplify and clarify authority, responsibility and accountability relationships

2. Promotes fast decision making

3. Simple to understand.

Disadvantages:
1. Neglects specialists in planning

2. Overloads key persons.

25
Some of the advantages of a pure line organization are:

(i) A line structure tends to simplify and clarify responsibility, authority and accountability
relationships. The levels of responsibility and authority are likely to be precise and
understandable.

(ii) A line structure promotes fast decision making and flexibility.

(iii) Because line organizations are usually small, managements and employees have greater
closeness.

However, there are some disadvantages also. They are:

(i) As the firm grows larger, line organization becomes more ineffective.

(ii) Improved speed and flexibility may not offset the lack of specialized knowledge.

(iii) Managers may have to become experts in too many fields.

(iv) There is a tendency to become overly dependent on the few key people who an perform
numerous jobs.

2. Staff or Functional Authority Organizational Structure

The jobs or positions in an organization can be categorized as:

(i) Line position:

A position in the direct chain of command that is responsible for the achievement of an
organization’s goals and

(ii) Staff position:

A position intended to provide expertise, advice and support for the line positions.

The line officers or managers have the direct authority (known as line authority) to be exercised
by them to achieve the organizational goals. The staff officers or managers have staff authority
(i.e., authority to advice the line) over the line. This is also known as functional authority.

An organization where staffs departments have authority over line personnel in narrow areas of
specialization is known as functional authority organization. Exhibit 10.4 illustrates a staff or
functional authority organizational structure.

26
In the line organization, the line managers cannot be experts in all the functions they are
required to perform. But in the functional authority organization, staff personnel who are
specialists in some fields are given functional authority (The right of staff specialists to issue
orders in their own names in designated areas).

The principle of unity of command is violated when functional authority exists i.e., a worker or a
group of workers may have to receive instructions or orders from the line supervisor as well as
the staff specialist which may result in confusion and the conflicting orders from multiple
sources may lead to increased ineffectiveness. Some staff specialists may exert direct authority
over the line personnel, rather than exert advice authority (for example, quality control
inspector may direct the worker as well as advise in matters related to quality).

While this type of organizational structure overcomes the disadvantages of a pure line
organizational structure, it has some major disadvantages:

They are: (i) the potential conflicts resulting from violation of principle of unity of command and
(ii) the tendency to keep authority centralized at higher levels in the organization.

27
3. Line and Staff Organizational Structure:
Most large organizations belong to this type of organizational structure. These organizations
have direct, vertical relationships between different levels and also specialists responsible for
advising and assisting line managers. Such organizations have both line and staff departments.
Staff departments provide line people with advice and assistance in specialized areas (for
example, quality control advising production department).

Exhibit 10.5 illustrates the line and staff organisational chart. The line functions are production
and marketing whereas the staff functions include personnel, quality control, research and
development, finance, accounting etc. The staff authority of functional authority organisational
structure is replaced by staff responsibility so that the principle of unity of command is not
violated.

28
Three types of specialized staffs can be identified:

(i) Advising,

(ii) Service and

(iii) Control.

Some staffs perform only one of these functions but some may perform two or all the three
functions. The primary advantage is the use of expertise of staff specialists by the line
personnel. The span of control of line managers can be increased because they are relieved of
many functions which the staff people perform to assist the line.

Some advantages are:

(i) Even through a line and staff structure allows higher flexibility and specialization it may
create conflict between line and staff personnel.

(ii) Line managers may not like staff personnel telling them what to do and how to do it even
though they recognize the specialists’ knowledge and expertise.

(iii) Some staff people have difficulty adjusting to the role, especially when line managers are
reluctant to accept advice.

(iv) Staff people may resent their lack of authority and this may cause line and staff conflict.

Features:
1. Line and staff have direct vertical relationship between different levels.

2. Staff specialists are responsible for advising and assisting line managers/officers in
specialized areas.

3. These types of specialized staff are (a) Advisory, (b) Service, (c) Control e.g.,

(a) Advisory:
Management information system, Operation Research and Quantitative Techniques, Industrial
Engineering, Planning etc

(b) Service:
Maintenance, Purchase, Stores, Finance, Marketing.

29
(c) Control:
Quality control, Cost control, Auditing etc. Advantages’

(i) Use of expertise of staff specialists.

(ii) Span of control can be increased

(iii) Relieves line authorities of routine and specialized decisions.

(iv) No need for all round executives.

Disadvantages:
(i) Conflict between line and staff may still arise.

(ii) Staff officers may resent their lack of authority.

(iii) Co-ordination between line and staff may become difficult.

Committee Organisational Structure Features:

(a) Formed for managing certain problems/situations

(b) Are temporary decisions.

Advantages:
1. Committee decisions are better than individual decisions

2. Better interaction between committee members leads to better co-ordination of activities

3. Committee members can be motivated to participate in group decision making.

4. Group discussion may lead to creative thinking.

Disadvantages:
1. Committees may delay decisions, consume more time and hence more expensive.

2. Group action may lead to compromise and indecision.

3. ‘Buck passing’ may result.

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4. Divisional Organizational Structure:
In this type of structure, the organization can have different basis on which departments are
formed. They are:

I. Function,
II. Product,
III. Geographic territory,
IV. Project and
V. Combination approach.
Exhibit 10.6 illustrates organizational structures formed based on the above basis of
departmentation.

31
5. Project Organisational Structure:
The line, line and staff and functional authority organisational structures facilitate
establishment and distribution of authority for vertical coordination and control rather than
horizontal relationships. In some projects (complex activity consisting of a number of
interdependent and independent activities) work process may flow horizontally, diagonally,
upwards and downwards. The direction of work flow depends on the distribution of talents and
abilities in the organisation and the need to apply them to the problem that exists. The cope up
with such situations, project organisations and matrix organisations have emerged.

A project organisation is a temporary organisation designed to achieve specific results by using

teams of specialists from different functional areas in the organisation. The project team
focuses all its energies, resources and results on the assigned project. Once the project has
been completed, the team members from various cross functional departments may go back to
their previous positions or may be assigned to a new project. Some of the examples of projects
are: research and development projects, product development, construction of a new plant,
housing complex, shopping complex, bridge etc.

Exhibit 10.7 illustrates a project organisational structure.

Feature:
Temporary organisation designed to achieve specific results by using teams of specialists from
different functional areas in the organisation.

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Importance of Project Organisational Structure:
Project organisational structure is most valuable when:

(i) Work is defined by a specific goal and target date for completion.

(ii) Work is unique and unfamiliar to the organisation.

(iii) Work is complex having independent activities and specialized skills are necessary for
accomplishment.

(iv) Work is critical in terms of possible gains or losses.

(v) Work is not repetitive in nature.

1. direction and control of the project manager.

6. Matrix Organisational Structure:

It is a permanent organisation designed to achieve specific results by using teams of specialists
from different functional areas in the organisation. The matrix organisation is illustrated in
Exhibit 10.8.

Feature:
Superimposes a horizontal set of divisions and reporting relationships onto a hierarchical
functional structure

Advantages:
1. Decentralised decision making.

2. Strong product/project co-ordination.

3. Improved environmental monitoring.

4. Fast response to change.

5. Flexible use of resources.

6. Efficient use of support systems.

33
Disadvantages:
1. High administration cost.
2. Potential confusion over authority and responsibility.
3. High prospects of conflict.
4. Overemphasis on group decision making.
5. Excessive focus on internal relations.
This type of organisation is often used when the firm has to be highly responsive to a rapidly
changing external environment.

In matrix structures, there are functional managers and product (or project or business group)
managers. Functional manager are in charge of specialized resources such as production,
quality control, inventories, scheduling and marketing. Product or business group managers are
incharge of one or more products and are authorized to prepare product strategies or business
group strategies and call on the various functional managers for the necessary resources.

The problem with this structure is the negative effects of dual authority similar to that of
project organisation. The functional managers may lose some of their authority because
product managers are given the budgets to purchase internal resources. In a matrix
organisation, the product or business group managers and functional managers have somewhat
equal power. There is possibility of conflict and frustration but the opportunity for prompt and
efficient accomplishment is quite high.

34
7. Hybrid Organisational Structure:
Exhibit 10.9 (a) illustrates the hybrid organisational structure.

Exhibit 10.9 (b) illustrates a combination structure

35
Advantages:
1. Alignment of corporate and divisional goals.

2. Functional expertise and efficiency.

3. Adaptability and flexibility in divisions.

Disadvantages:
1. Conflicts between corporate departments and units.

2. Excessive administration overhead.

3. Slow response to exceptional situations.

36
Unit 3: International Marketing & Intelligence

Definition
International marketing (IM) or global marketing refers to marketing carried out by
companies overseas or across national borderlines. This strategy uses an extension of the
techniques used in the home country of a firm.

It refers to the firm-level marketing practices across the border including market identification
and targeting, entry mode selection, marketing mix, and strategic decisions to compete in
international markets.

According to the American Marketing Association (AMA) "international marketing is the

multinational process of planning and executing the conception, pricing, promotion and
distribution of ideas, goods, and services to create exchanges that satisfy individual and
organizational objectives.”

Information Required
International business firms require a large variety of data and information, such as markets,
customers, market intermediaries like wholesalers and retailers, competitors, foreign exchange,
resource information and general conditions.

1. Markets:
 Day to day changes in demand due to competitors’ products, promotional
programmes, shift in government policies, changes in consumer incomes, change
in technology and the like.
 Consumer Behaviour: Shifts in consumer behavior caused due to cultural
variations, shifts in social institutions and other factors.
 Products: Product features, product uses, development of new products,
introduction of new products and changes to the existing products of
competitors
 Marketing channels: Shifts in the preference over channels in the consumer
preferences, shifts in channel preferences and used by competitors, levels of
satisfaction of the existing market intermediaries etc.
 Communication Media Availability: International marketing managers need to
data and information about the availability and intensity of communication
media. This information is useful to plan for promotional programmes. They also
need information regarding the efficiency of media in reaching targeted
consumers and its cost.

37
  Market Responsiveness: Information is needed regarding the responsiveness of
different parties in the market regarding the product, price, promotion and
channels of the international business firms. Rate of market responsiveness of
different parties enable international markets to make decisions more
accurately.

Sources of Information:
International Marketing - Characteristics

International marketing can be described as the various activities designed in the

planning process. Activities such as fixing pricing structures to suit local needs, formulating
promotional offers and assuring that the products and services are available to customers
residing in the home country as well as the foreign country. Identifying and satisfying the
consumer needs globally are the major functions to be taken care of.

Given below are some points that describe the basic characteristics of international
marketing −

 Broader market is available

A wide platform is available for marketing and advertising products and services. The market is
not limited to some precise local market or for people residing in a particular place, region or
country but is free for all. People from different nations sharing different cultures and traditions
can actively participate in it.

 Involves at least two set of uncontrollable variables

By uncontrollable variables, we mean the geographical factors, political factors prevailing in

different countries. At the global level, all the companies have to face uncontrollable variables
from different countries. While establishing business globally, a company has to learn to deal
with these variables.

 Requires broader competence

International market requires more expertise and special management skills and wider
competence to deal with various circumstances and handle different situations like changes in
the strategies of the government, the mindset of the people and many other such factors.

 Competition is intense

Competition is very tough in international market, as the organizations at the global level have
to compete with both competitors in their home countries and also in the foreign lands.

38
Competition is high because the clash is between developed & developing countries and both
have different standards and are unequal partners.

 Involves high risk and challenges

International marketing with its own advantages is also prone to different and tangible risks
and challenges. These challenges come in the form of political factors, regional and cultural
differences, changing fashion trends, sudden war situation, revision in government rules and
regulations and communication barriers

The nature of international marketing is dependent on various factors and conditions and
above all, it is dependent on the policies framed by different countries which are active
participants in international marketing. International marketing tends to ensure balanced
import and export to all countries big or small, rich or poor, developed or developing.

Management of international market is tough and requires thorough market research. It is a

predefined process which is directed towards designing and delivering products based on the
demands from the overseas customers. Proper management also helps the company attain its
objectives.

 Large-scale operation

Large-scale operations involve relative amount of labor and capital to cater to the needs such
as transportation, and warehousing.

 Domination of multinationals and developed countries

International marketing is highly dominated by multinational corporations due to their

worldwide reach. These organizations apply efficient and effective business practices to all their
business operations. They have a stable position and with their global approach find themselves
fitting into the arena of international marketing.

 International restrictions

The international market needs to abide by different tariff and non-tariff constraints. These
constraints are regulated because different countries follow different regulations. All nations
tend to rationally abide by tariff barriers. All the imports and exports between the nations
participating in international marketing follow some restrictions in foreign exchange.

 Sensitive character

International marketing is highly sensitive and flexible. The demand for a product in a market is
highly influenced by political and economic factors. These factors can create as well as decrease

39
the demand for a product. In fact, use of advanced technology by a competitor or the launch of
a new product by another competitor may affect the sale of a particular firm’s product
worldwide.

 Importance of Advanced Technology

International market is dominated by developed countries like the USA, Japan, and Germany as
they use highly advanced technology in production, marketing, advertising and establishing a
brand name. They provide admirable quality of products at reasonable prices. Presently,
Japanese products have got substantial existence in markets around the world. The Japanese
could achieve this only because of automation and effective use of advanced computer
technology.

 Need for specialized institutions

Marketing at global level is highly prone to risks & is very complex and knotty. It undergoes
lengthy and time taking procedures & formalities. Competent expertise is required for handling
various sections of international marketing.

 Need for long term planning

International marketing calls for long term planning. Marketing practices differ from nation to
nation influenced by social, economic & political factors.

 Lengthy & Time Consuming

The activities in international marketing are very time-consuming and knotty or complex. The
main cause of these difficulties are the local laws and policies enforced on different nations,
issues in payment as different countries use different currencies, distance between the
participating nations and time taking formalities involved therein.

The current trend of globalization does not limit companies to their national borders and invites
them for marketing on a higher platform, i.e., international platform. Every nation is free to
trade with any nation. New markets are indicating signs of growth and are marking signs of
development in economies like China, Indonesia, India, Korea, Mexico, Chile, Brazil, Argentina,
and many other economies all over the world.

40
Marketing Research
Marketing research is "the process or set of processes that links the consumers, customers, and
end users to the marketer through information — information used to identify and define
marketing opportunities and problems; generate, refine, and evaluate marketing actions;
monitor marketing performance; and improve understanding of marketing as a process.
Marketing research specifies the information required to address these issues, designs the
method for collecting information, manages and implements the data collection process,
analyzes the results, and communicates the findings and their implications. It is the systematic
gathering, recording, and analysis of qualitative and quantitative data about issues relating to
marketing products and services. The goal of marketing research is to identify and assess how
changing elements of the marketing mix impacts customer behavior. The term is commonly
interchanged with market research; however, expert practitioners may wish to draw a
distinction, in that market research is concerned specifically with markets, while marketing
research is concerned specifically about marketing processes.

International Marketing System

A system that analyzes and assesses marketing information, gathered continuously from
sources inside and outside an organization. Timely marketing information provides basis for
decisions such as product development or improvement, pricing, packaging, distribution, media
selection, and promotion. See also market information system.

According to Robert Harmon (2003), MIS systems are composed on four components: (1) user
interfaces, (2) applications software, (3) databases, and (4) systems support. The following is a
description of each one of these components.

1. User interfaces. The essential element of the MkIS is the managers who will use the system
and the interface they need to effectively analyze and use marketing information. The design of
the system will depend on what type of decision managers need to make.

2. Application software. These are the programs that marketing decision makers use to collect,
analyze, and manage data for the purpose of developing the information necessary for
marketing decisions.

3. Database marketing. A marketing database is a system in which marketing data files are
organized and stored.

4. System support. This component consists of system managers who manage and maintain the
system assets including software and hardware network, monitor its activities and ensure
compliance with organizational policies.

41
Nature of International Marketing
International marketing is a broader concept and includes export marketing. Export marketing
is concerned with the production of good in one country and marketing them in different
countries of the world while international marketing is a boarder concept and includes
globalization.

International Marketing is essential for all countries-small & big; developed & developing and
rich & poor. This is because no country in the world is self-sufficient as regard all the
requirements and no country can live in complete economic and political isolation. Every
country has to import something from other country and has to export whatever surplus
available. The natural resources are not divided equally among the countries of the world.
There is disparity among countries as regards geographical area, population, climate condition,
availability of natural resources, economic growth, technology development, production
activities and so on. Such disparity leads to inter dependent of countries. It is this situation
which serves as base for the conduct of large scale international marketing activities.

OBJECTIVES

1) To bring countries closer for trading purpose and to encourage large scale free trade
among the countries of the world.
2) To bring integration of economies of different countries and thereby to facilitate the
process of globalization of trade.
3) To establish trade relations among the nations and thereby to maintain cordial relations
among nations for maintaining world peace.
4) To facilitates and encourage social and cultural exchange among different countries of
the world.
5) To provide assistance to developing countries in their economic and industrial growth
and thereby to remove gap between the developed and developing countries.
6) To ensure optimum utilization of resources at global level.
7) To encourage world export trade and to provide benefits of the same to all participating
countries.
8) To offer the benefits of comparative cost advantage to all countries participating in
international marketing.
9) To keep international trade free and fair to all countries by avoiding trade barriers

42
Advantages of International Marketing
1) Market Expansion

The most obvious advantage of marketing internationally is the expansion of a company's

market. Expanding the places where a company does business and advertises its products and
services opens up a larger customer base and potentially greater profit margins. While small
businesses may find that marketing internationally is cost prohibitive, technology such as social
media and online newspapers and advertising services have made the process of international
marketing even more attractive. Customers can now buy from virtually anywhere in the world
via the Internet, making market expansion through international marketing a highly useful skill
for businesses to master.

2) Brand Reputation

International marketing can have a unique advantage of helping to boost a brand's reputation.
Right or wrong, customers perceive a brand that's selling in multiple markets to be of higher
quality and better service than brands that just sell locally. Major technology companies, global
automobile models and multinational banks are proof of this. People are keen to buy products
that are widely available.

3) Global Networking

Expanding into a global market gives a business the distinct advantage of connecting with new
customers and new business partners. A company doing business in Eastern Europe, for
instance, may find a cheaper workforce, less-stringent tax laws or even less-expensive modes of
advertising in local newspapers, television stations and radio programs. In other words, the
opportunities for networking internationally are limitless. The logic behind this is simple: the
more "places" your business is, the more connections it can make.

4) Opening the Door for Future Opportunities

International marketing can also open the door to future business expansion opportunities. Not
only does global marketing expand a company's sales base, it also helps the business to connect
to new vendors, a larger workforce and new technologies and ways of doing business.
American companies investing in Japan, for instance, have found programs such as Six Sigma
and Theory Z to be highly useful in shaping their business strategies. Being in a new market
improves the business's efficiency and helps open the management's eyes to previously
undiscovered opportunities for growth.

43
Difference between International Marketing and Domestic Marketing

Dimensions International Marketing Domestic Marketing

Meaning International marketing refers to the Domestic marketing refers to the

activities which come about into activities which come about into
exchanges of items and services from exchanges of items and services
one nation to another or transfer goods inside the nation itself.
across the border.

2. Barriers International trade is characteristics by Domestic marketing has no such

tariff and non-tariff barriers. restrictions.

3. Currencies It involves exchange on the basis of It involves exchange in the basis of

different currencies. same currencies.

4.Government Exchange takes place under government Government in interference is zero

rules and regulations. There is high or minimum only in case of essential
Interference
degree of government interference. commodities.

5. Culture Trade should be done taking diverse into Culture does not affect in domestic
consideration. Even things like colour marketing.
combination can be affect the trade.2

6.Mode of Letter of credit is normally as mode of Cash, Cheques, DD’s are the most
Payment payment. common.

7.Mobility of Factors of Production are relatively Domestic Trade enjoys greater

Factors of immobile as compared to domestic mobility in factors of production.
Production marketing.

8. Competition International Trade is subject to intense Competition is not as intense as it is

competition. in international marketing.

9. Documentation International Marketing is subject to Domestic trade does not involve

complex documentation much of documentation.

10. Risk International Marketing is subject to high Domestic Marketing is also subject
risk. Political, foreign exchange risk, bad to risk but not as high as

44
 debt risk are few of them. international marketing.

11.Role of Politics Political factors play a vital role Political factors are of minor
importance

12.Market aspect Market is much more homogenous and Different or diverse markets
different segments fragmented in nature

13.Product mix, Product mix, Product planning& Product mix, Product planning&
Product planning& development is decided according to development is decided according
development international market to domestic market

International Marketing Benefits

The attainment of business exercises monitoring, directing and controlling the channel of a
company’s products and services to its customers at the global level to earn profit and satisfy
the demands internationally is the motto of international marketing.

The main advantages of international marketing are discussed below –

Provides higher standard of living

International marketing ensures high standard life style & wealth to citizens of nations
participating in international marketing. Goods that cannot be produced in home country due
to certain geographical restrictions prevailing in the country are produced by countries which
have abundance of raw material required for the production and also have no restrictions
imposed towards production.

Ensures rational & optimum utilization of resources

Logical allocation of resource & ensuring their best use at the international level is one of the
major advantages of international marketing. It invites all the nations to export whatever is
available as surplus. For example, raw material, crude oil, consumer goods & even machinery &
services.

45
Rapid industrial growth

Demand for new goods is created through international market. This leads to growth in
industrial economy. Industrial development of a nation is guided by international marketing.
For example, new job opportunities, complete utilization of natural resources, etc.

Benefits of comparative cost

International marketing ensures comparative cost benefits to all the participating countries.
These countries avail the benefits of division of labor & specialization at the international level
through international marketing.

International cooperation and world peace

Trade relations established through international marketing brings all the nations closer to one
another and gives them the chance to sort out their differences through mutual understanding.
This also encourages countries to work collaboratively with one another. This thereby designs a
cycle wherein developed countries help developing countries in their developmental activities
and this removes economic disparities and technological gap between the countries.

Facilitates cultural exchange

International marketing makes social & cultural exchange possible between different countries
of the world. Along with the goods, the current trends and fashion followed in one nation pass
to another, thereby developing cultural relation among nations. Thus, cultural integration is
achieved at global level.

Better utilization of surplus production

Goods produced in surplus in one country are shipped to other countries that have the need for
the goods in international marketing. Thus, foreign exchange of products between exporting
country & importing countries meets the needs of each other. This is only possible if all the
participating countries effectively use surplus goods, service, raw material, etc. In short, the
major advantages of international marketing include effective utilization of surplus domestic
production, introduction of new varieties of goods, improvement in the quality of production &
promotion of mutual co-operation among countries.

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Availability of foreign exchange

International marketing eases the availability of foreign exchange required for importing capital
goods, modern technology & many more. Essential imports of items can be sponsored by the
foreign exchange earned due to exports.

Expansion of tertiary sector

International marketing promotes exports of goods from one country to another encouraging
industrial development. Infrastructure facilities are expanded through international marketing.
It indirectly facilitates the use of transport, banking, and insurance in a country ensuring
additional benefits to the national economy.

Special benefits at times of emergency

Whenever a country faces natural calamities like floods & famines, it is supported by other
countries in the international market. The international market provides emergency supply of
goods and services to meet urgent requirements of the country facing the calamity. This
distribution can only be facilitated by a country which has surplus imports.

A company exporting goods to other foreign countries earns substantial profit through export
operation as domestic marketing is less profitable than international marketing. The loss a
company suffers in domestic marketing can be compensated from the profit earned through
exports in international marketing. Foreign exchange can be earned by exporting goods to
foreign countries. Thus, the profit earned can be used for the import of essential goods, new
machinery, technology, etc. This would further facilitate large-scale export in future.

Market assessment1

Market assessment is a detailed and objective evaluation of the potential of a new product,
new business idea or new investment.

It is a comprehensive analysis of environment forces, market trends, entry barriers,

competition, risks, opportunities and the company’s resources and constraints. Whether you
are thinking of venturing into a new market or launching a new product, conducting a
marketing assessment is the crucial first step in determining if there is a need or a potential
customer base for your product.

1
http://web.smu.edu.sg/spring/market-assessment/what-is-market-assessment/#sp-content

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A well-executed market assessment will enable your company to decide where to use limited
resources and to go after markets and opportunities that will provide the best returns on
investments.

Failure to conduct proper market assessment could result in wastage of resources, missed
opportunities, poor returns on investments and even substantial financial losses which could be
detrimental to the future of your company.

How do I conduct market assessment?

An assessment of the market should be done in a systematic manner. The process can be
broken down into the following steps.

First, understand market conditions.

Gather basic information about your intended market – size, competition, potential customers
and income levels. You will also need information about the business environment – political,
economic, social and technological.

Next, identify market risks and opportunities.

Gather more targeted information about potential risks or opportunities in the potential
market. Other information required includes data on market growth, trends, opportunities,
risks and key players in the market.

Finally, you need to analyse the overall picture.

You need to put together all the information you have collected and determine if your business
venture is still viable. Once you are confident that you should proceed with the venture, you
can start developing your marketing plan.

PEST analysis is an important step in understanding market conditions.

In a PEST analysis, you need to look at political and legal, economic, social, technological (and
natural) factors. These may shape opportunities or create threats and can affect your
company’s ability to build customer relationships. With proper external analysis, you will gain
an overview of the different macro environmental factors that you need to take into
consideration before venturing into a new business area or new market.

In analysing key players in the market, you will gain a better understanding of suppliers,
intermediaries, customers, competitors and the public and how they may work with or against
your company.

48
A detailed assessment of all these forces will help you determine the potential of prospective
markets. With this information on hand, you are now a step closer to making more informed
decisions about your business ventures. A brief summary of all these factors are shown in the
tables overleaf.

SWOT analysis seeks to provide information that is helpful in matching your company’s
resources and capabilities to the competitive environment in which you operate.

It involves defining the objective of your venture and identifying both internal and external
factors that are favourable and unfavourable in your journey to achieve that objective. A SWOT
analysis is instrumental in helping you assess the potential of prospective markets.

First, define the objective of your venture. An example would be “to open a branch in Vietnam
by 2018 and to achieve sales revenue of $1 million by 2020.”

Next, understand the 4 main classifications of internal and external factors. Then identify the
SWOTs based on your intended venture.

SWOT

Finally, evaluate the SWOTs and determine if your objective is attainable. If your objective
appears no longer attainable, then you must identify a different objective or venture and
repeat the SWOT analysis.

STRENGTHS

 A strong brand name

 Patents
 Extensive knowledge about target market
 Exclusive access to natural resources
 Strong business connections

OPPORTUNITIES

 Removal of trade barriers

 Identification of unmet need
 Positive changes in legislations
 Emergence of new technologies
 First mover advantage

WEAKNESSES

 Weak brand name

 Poor reputation
 Weak intellectual property protection

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  High operating costs
 Lack of access to best natural resources
 Lack of access to distribution network

THREATS

 Establishment of new trade barriers

 Shift in consumer preference and taste
 Emergence of substitute products

Marketing Mix – The 4 p’s of marketing2

The Marketing mix is a set of four decisions which needs to be taken before launching any new
product. These variables are also known as the 4 P’s of marketing. These four variables help the
firm in making strategic decisions necessary for the smooth running of any product /
organization.

If you ask What is the marketing mix?

Then in summary these 4 variables comprise the Marketing mix.

1. Product – What the company is manufacturing?

2. Price – What is the pricing strategy used by the company?
3. Place – Where is the company selling?
4. Promotions – How is the company promoting the product?

What are the two types of Marketing mix?

1) Product marketing mix – Comprised of Product, price, place and promotions. This marketing
mix is mainly used in case of Tangible goods.

2) Service marketing mix – The service marketing mix has three further variables included
which are people, physical evidence and process.

2
http://www.marketing91.com/marketing-mix-4-ps-marketing/

50
Having the right marketing mix at the start of the marketing plan is absolutely essential. Over
time the concept of marketing mix has provided a steady platform for the launch of a new
product or business.

As mentioned before, the marketing mix is characterized by four different but equally
important variables. These variables are never constant and may be changed over time.
However, a change in one of the variables may cause a change in all the other variables as well.

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The Variables of Marketing mix are as follows

1) Product in the Marketing mix

The first thing you need, if you want to start a business, is a product. Therefore Product is also
the first variable in the marketing mix. Product decisions are the first decisions you need to take
before making any marketing plan.

Before deciding on the product component there are some questions which you need to ask
yourself.

o What product are you selling?

o What would be the quality of your product?
o Which features are different from the market?
o What is the USP of the product?
o Whether the product will be branded as sub brand or completely new?
o What are the secondary products which can be sold along with primary
(Warranty, services)

2) Pricing in the Marketing mix

Pricing of a product depends on a lot of different variables and hence it is constantly updated.
Major consideration in pricing is the costing of the product, the advertising and marketing
expenses, any price fluctuations in the market, distribution costs etc. Many of these factors can
change separately.

Along with the above factors, there are also other things which have to be taken in
consideration when deciding on a pricing strategy. Competition can be the best example.
Similarly, pricing also affects the targeting and positioning of a product. Pricing is used for sales
promotions in the form of trade discounts. Thus based on these factors there are several pricing
strategies, one of which is implemented for the marketing mix.

3) Place in the Marketing mix

Place refers to the distribution channel of a product. If a product is a consumer product, it

needs to be available as far and wide as possible. On the other hand, if the product is a
Premium consumer product, it will be available only in select stores. Similarly, if the product is a
business product, you need a team which interacts with businesses and makes the product
available to them. Thus the place where the product is distributed, depends on the product and
pricing decisions, as well as any STP decisions taken by a firm.

Distribution has a huge affect on the profitability of a product. Consider a FMCG company
which has national distribution for its product. An increase in petrol rates by 10 rs will in fact
bring about drastic changes in the profitability of the company. Thus supply chain and logistics

52
decisions are considered as very important costing decisions of the firm. The firm needs to have
a full proof logistics and supply chain plan for its distribution.

4) Promotions in the Marketing mix

Promotions in the marketing mix includes the complete integrated marketing communications
which in turn includes ATL(Above The Line) and BTL(Below The Line) advertising as well as sales
promotions. Promotions are dependent a lot on the product and pricing decision. What is the
budget for marketing and advertising? What stage is the product in? If the product is
completely new in the market, it needs brand / product awareness promotions, whereas if the
product is already existing then it will need brand recall promotions.

Promotions also decide the segmentation targeting and positioning of the product. The right
kind of promotions affect all the other three variables – the product, price and place. If the
promotions are effective, you might have to increase distribution points, you might get to
increase the price because of the rising brand equity of the product, and the profitability might
support you in launching even more products. However, the budget required for extensive
promotions is also high. Promotions is considered as marketing expenses and the same needs
to be taken in consideration while deciding the costing of the product.

Thus as we see from the above diagram, all the four variables of marketing mix are inter related
and affect each other. By increasing the pricing of the product, demand of the product might
lessen, and lesser distribution points might be needed. On the other hand, the product USP can

53
be such that maximum concentration is on creating brand awareness, thereby increasing need
of better pricing and more promotions. Finally, the overall marketing mix can result in your
customer base asking for some improvement in the product, and the same can be launched as
the upgraded product.

The role of Four P’s of marketing in Strategy – Marketing mix plays a crucial role while deciding
the strategy of an organization. It is the first step even when a marketing plan or a business
plan is being made. This is because, your marketing mix decision will also affect segmentation,
targeting and positioning decisions. Based on products, segmentation and targeting will be
done. Based on the price, positioning can be decided. And these decisions will likely affect the
place and promotion decisions. Thus, the marketing mix strategy goes hand in hand with
segmentation targeting and positioning.

The above four P’s of marketing give you an overall look at the product marketing mix. If your
product is a service then there are 3 further P’s taken into consideration namely – people,
physical evidence and process.

International Market Assessment

A market analysis studies the attractiveness and the dynamics of a special market within a
special industry. It is part of the industry analysis and thus in turn of the global environmental
analysis. Through all of these analyses the strengths, weaknesses, opportunities and threats
(SWOT) of a company can be identified. Finally, with the help of a SWOT analysis, adequate
business strategies of a company will be defined. The market analysis is also known as a
documented investigation of a market that is used to inform a firm's planning activities,
particularly around decisions of inventory, purchase, work force expansion/contraction, facility
expansion, purchases of capital equipment, promotional activities, and many other aspects of a
company.

PRODUCT MIX DECISION

Product mix or product assortment refers to the number of product lines that an organisation
offers to its customers. Product line is a group of related products manufactured or marketed
by a single company. Such products function in similar manner, sold to the same customer
group, sold through the same type of outlets, and fall within a same price range .

Product mix consists of various product lines that an organisation offers, an organisation may
have just one product line in its product mix and it may also have multiple product lines. These
product lines may be fairly similar or totally different, for example - Dish washing detergent
liquid and Powder are two similar product lines, and both are used for cleaning and based on
same technology; whereas Deodorants and Laundry are totally different product lines.

54
PROMOTION DECISIONS

Promotion plays a vital role in providing information of the product to the foreign customers. It
also creates the desirability of the product among foreign potential buyers. Foreign companies
desire to communicate with their marketing intermediaries and potential buyers to ensure
favorable sentiment toward themselves and their products. Promotion is more culture bound
than other Ps.

Hence, the foreign companies must take special care in promoting the product in the host
country.

The promotion mix include:

1. Advertising
3. Sales Promotion, and
2. Personal Selling
4. Public Relations

PRICING DECISIONS
Though the pricing is significant among the 4 Ps, it receives the least attention in the
international marketing. Pricing decisions can be studied from the following approaches:
• Supply and Demand
• Cost
• Elasticity or Cross Elasticity of Demand
• Exchange Rates
• Market Share
• Tariffs and Distribution Costs
• Culture
• Purchasing Power

PRICING POLICIES
The pricing policies of international companies include:
• Standard price policy
• Two-tiered pricing
• Market pricing.

Standard price policy: Under the standard price policy, the international company sells the
product at the same price for the customers of any country or nationality. Crude oil producers
like Kuwait Oil, Aramco and Pemex sell their products to all customers at price determined by
supply of and demand for crude oil in the world crude oil market. .

55
Two-tiered pricing policy: International Company under this policy sells its product at two
prices, viz., one price for domestic sales and another price for the foreign sales. This policy is
adopted due to the involvement of shipping costs, tariffs and foreign distribution costs.

Marketing pricing policy: International companies following this policy customise their pricing
on a market-by-market basis in order to maximise their profits in each market. Japanese
automobiles follow this policy in pricing their cars.

Alternative pricing strategies: There are a number of alternative pricing strategies in addition to
the above-mentioned strategies. These include:
Discounts (cash, quantity, functional etc.)
Financing or credit terms
Bundle or unbundle.

DISTRIBUTION DECISIONS
Distribution decisions focus on establishing a system that, at its basic level, allows customers to
gain access and purchase a marketer’s product. However, marketers may find that getting to
the point at which a customer can acquire a product is complicated, time consuming, and
expensive. The bottom line is a marketer’s distribution system must be both effective (i.e.,
delivers a good or service to the right place, in the right amount, in the right condition) and
efficient (i.e., delivers at the right time and for the right cost). Yet, as we will see, achieving
these goals takes considerable effort.

Distribution decisions are relevant for nearly all types of products. While it is easy to see how
distribution decisions impact physical goods, such as laundry detergent or truck parts,
distribution is equally important for digital goods (e.g., television programming, downloadable
music) and services (e.g., income tax services). In fact, while the Internet is playing a major role
in changing product distribution and is perceived to offer more opportunities for reaching
customers, online marketers still face the same distribution issues and obstacles as those faced
by offline marketers.

In order to facilitate an effective and efficient distribution system many decisions must be made
including (but certainly not limited to):

 Assessing the best distribution channels for getting products to customers

 Determining whether a reseller network is needed to assist in the distribution process
 Arranging a reliable ordering system that allows customers to place orders
 Creating a delivery system for transporting the product to the customer
 For tangible and digital goods, establishing facilities for product storage

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Product Life Cycle in International Context3
Stage 1: Introduction

During the introduction stage, products are developed in industrialized countries and supported
by firm’s substantial research and development budgets and by highly skilled product research
teams. To quickly recover the high costs of product development and launching, a firm markets
products in industrialized countries to consumers who can afford the high prices charged to
recover the high costs, while it still has control of the market (it is the only manufacturer or one
of the few manufacturers of the product). According to the initial IPLC theory these products
were first marketed in the products country of origin. Assuming a reasonable adoption rate in
highly industrialized countries, the product also becomes available in developing countries,
where it is exported by the firm. (E.g., the IBM PCs were produced in the US and spread quickly
throughout the industrialized countries)

Introduction and Early Maturity: Late Maturity: Decline:

Growth stages:
MNC moves Developing Developing
MNC production to country country markets
manufactures developing competitor remain viable
product in country; begins exports product target markets
developed importing to to MNC home for MNC; MNC
countries; home country country; home country
exports to competes with market is
developing MNC imports diminishing
countries

3
Umair, M. (2014). International Business (pp. 1.66-1.68). Bangalore, India: Skyward Publishers.

57
Stage 2: Maturing product

Exports to markets in advanced countries further increase through time making it economically
possible and sometimes politically necessary to start local production. The product’s design and
production process becomes increasingly stable. A copy product is produced elsewhere and
introduced in the home country (and elsewhere) to capture growth in the home market. This
moves production to other countries, usually on the basis of cost of production. (E.g, the clones
of the early IBM PCs were not produced in the U.S)

Stage 3: Late Maturity

In this stage of the international product life cycle characterized by a slowdown in sales growth
as the product is adopted by most target consumers and by a leveling or decline in profits
primarily due to intense price competition. The firm begins to focus on the reduction of process
cost rather than the addition of new product features. As a result, the product and its
production process become increasingly standardized. Consequently, production shifts to low-
income countries where competitors enjoy low-cost advantages and can economically serve
export markets worldwide. Eventually, the country that invented the product becomes a net
importer.

Stage 4: Decline

The stage of the international product life cycle in which products are rapidly losing ground to
new technologies or product alternatives, causing a decrease in sales and profits. Whatever
market is left becomes shared between competitors who are predominately foreign. A MNC
will internally maximize “offshore” production to low-wage countries since it can move capital
and technology around, but not labor. As a result, the domestic market will have to import
relatively capital intensive products from low income countries. This machines that operate
these plants often remain in the country where the technology was first invented.

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 Unit 4: International Human Resource Management

Introduction
International Human Resource Management (IHRM) is a new and rapidly changing area of
specialist and generalist practice. It is also a lively and growing academic subject having links
with many different disciplines including economics, international business, strategy,
communications, political science and public policy.

The origins of IHRM can be traced back to the growth of international business operations and
the development of multinational enterprises (MNEs) with their formal and informal
approaches to staffing, personnel administration and personnel management.

Objectives of global HRM as follows:

 Create a local appeal without compromising upon the global identity.

 Generating awareness of cross cultural sensitivities among managers globally and hiring
of staff across geographic boundaries.
 Training of cultures and sensitivities of the host country.
 IHRM includes typical HRM functions such as recruitment, selection, training and
development, performance appraisal and dismissal done at international level and
additional activities such as global skills management, expatriate management and so
on.
 IHRM has concerned with managing additional activities such as expatriate
management.
 Domestic HRM is less complicated due to less influence from the external environment.
IHRM is very complicated as it is affected heavily by external factors such as cultural
distance and institutional factors.

59
Comparison between IHRM and Domestic HRM
Broader Perspective

Due to the diversity of employees in an international environment, HR managers are required

to have broader perspective on all the HR activities to ensure equity of treatment for different
groups. For instance, a broader view that all expatriate employees should receive special
benefits such as health insurance and expatriate premium for taking on international
assignments.

More Involvement in Employees’ Lives

For domestic HRM, involvement with employee’s personal lives is only confined to issues such
as providing employee insurance programmes and offering assistance in relocating. However,
the involvement with staff’s family member is limited. This is unlikely for firms operating
internationally. IHRM must involve broader compensation, including transportation,
recreational programmes, housing, children education, spouse employment and family
healthcare for expatriate and local staff.

Effects of Expatriates and Local Workforce Mix

The complex workforce mix is another factor that contributes to the complexity of IHRM. HR
managers in MNCs must deal with the issues of political, economic, cultural, ethical, religious
and legal differences. Moreover, they are also required to focus on various HR activities change.
For example, since more well trained local staffs and managers available, companies are
encouraged to bring high-potential local workers to corporate headquarters.

Risk Exposure

Expatriate failure is a high-cost problem for MNCs. Due to the changeable foreign exchange
rate and location of assignment, the direct costs such as salary, travel, training and relocation
expenses can be over three times higher than the costs spend in domestic environment.
Indirect costs such as reputation damage and loss of market share are also with high cost risk.
Other aspects of risk exposure are terrorism and political instability. For example, the tragic
9/11 attack in New York, civil and social upheavals, and military conflicts. In order to ensure
physical safety of employees, HR department also have to consider dynamic political and
environmental risk when arranging international meetings and may design emergency
evacuation procedures for highly volatile working locations.

60
Broader External Influences

IHRM activities are also influenced by more external forces. For example, government factors
such as Malaysia force HR managers to set affirmative action to provide equal employment
opportunity for the workforce and intend to increase employment and skill level of nationals.
State economy is an important factor for HR department to consider. Issues include expensive
labour cost in developed countries but cheap labour in developing countries. HR managers
operating activities in an international environment also need to concern their ways of conduct.
For instance, they have to understand the local ways of doing business and follow local
government regulations when dealing with the issues regard to labour relations, health and
safety, and taxation.

Global Recruitment4
Recruitment means the searching for prospective candidates and stimulating them to apply for
jobs. Recruitment attracts a large number of qualified applicants who desire to work in the
company. The recruitment information given by the global companies helps the qualified
candidates who are willing to work to send their resume, along with a letter expressing their
desire to work. It also helps the unqualified candidates to self select themselves out of the job
candidacy. Thus, the accurate information provided by the global company attracts the
qualified and repels the unqualified candidates.

Thus, recruitment helps the global company in finding out potential candidates for actual or
anticipated vacancies in the company.

Sources of Global Recruitment

Sources of global recruitment include: Parent country nationals, Host country nationals and
Third country nationals.

i) Parent Country Nationals

Parent country nationals are employees (of a company or its subsidiaries located in various
countries) who are the citizens of the country where the company’s headquarters are located.
Parent country nationals in the international business normally are managers, heads of
subsidiary companies, technicians, trouble-shooters and experts. They visit subsidiary
companies and operations-

4
International Recruitment. (n.d.). In whatishumanresource. Retrieved April 6, 2017, from
http://www.whatishumanresource.com/international-recruitment

61
  To help them in carrying out their operations
 To make sure that they run smoothly
 To provide advice and control them

However, sending parent country nationals involves cost and causes ego and cultural problems.

ii) Host Country Nationals

Host country nationals are the employees of the company’s subsidiary who are the citizens of
the country where the subsidiary is located.

Employing host country nationals is advantageous as:

 They are familiar with native culture.

 They are familiar with local business norms and practices
 They manage and motivate the local workers efficiently
 They are familiar with local bureaucrats, market intermediaries and suppliers and inputs

Familiar with the taste and preference of the local customers

However, there are certain disadvantages associated with the host country nationals. They
include:

 They are not familiar with the objectives, goals and strategies of the parent company
 They are unaware of the needs of the headquarters
 They view the company only from the local perspective rather than from the global
prospective
 It would be difficult to train the host country nationals due to variations in the views
about achievement, equity, the work ethic and productivity of the host country
nationals from those of the parent country nationals.

iii) Third Country Nationals

For example, Mr. Akhil – an Indian citizen – is working for an American subsidiary in France. Mr.
Akhil is called third country national. Third country national is an employee of a company’s
subsidiary located in a country, which is not his home country. The software professionals of
India who work in American subsidiaries located in various countries of Europe are called third
country nationals.

62
The advantages of employing third country nationals include:

 Less cost with required expertise, skill knowledge and foreign language skills
 Less risk of employing an Indian third country national who speak English fluently
 They have a cultural fit due to their work experience in multicultural environment

However, the local government may impose conditions and regulate in employing third country
nationals.

Global Selection Approaches

Global business firms need people with higher order skills, balanced emotions, ability to adjust
to multi-cultural recruitment, etc. Hence, the selection process of global companies varies from
that of a domestic company.

Selection policy is vital in global business as it deals with the various types of people, jobs and
placement. In fact, selection policy contributes for the achievement of the strategic goal of
global business i.e, “Think globally and act locally”.

Ethnocentric approach

When a company follows the strategy of choosing only from the citizens of the parent country
to work in host nations, it is called an ethnocentric approach. Normally, higher-level foreign
positions are filled with expatriate employees from the parent country. The general rationale
behind the ethnocentric approach is that the staff from the parent country would represent the
interests of the headquarters effectively and link well with the parent country. The recruitment
process in this method involves four stages: self-selection, creating a candidate pool, technical
skills assessment, and making a mutual decision. Self-selection involves the decision by the
employee about his future course of action in the international arena. In the next stage, the
employee database is prepared according to the manpower requirement of the company for
international operations. Then the database is analyzed for choosing the best and most suitable
persons for global assignments and this process is called technical skills assessment. Finally, the
best candidate is identified for foreign assignment and sent abroad with his consent.

63
The ethnocentric approach places natives of the home country of a business in key positions at
home and abroad. In this example, the U.S. parent company places natives from the United
States in key positions in both the United States and Mexico.

64
Polycentric approach

When a company adopts the strategy of limiting recruitment to the nationals of the host
country (local people), it is called a polycentric approach. The purpose of adopting this
approach is to reduce the cost of foreign operations gradually. Even those organizations which
initially adopt the ethnocentric approach may eventually switch over the polycentric approach.
The primary purpose of handing over the management to the local people is to ensure that the
company understands the local market conditions, political scenario, cultural and legal
requirements better. The companies that adopt this method normally have a localized HR
department, which manages the human resources of the company in that country. Many
international companies operating their branches in advanced countries like Britain and Japan
predominantly adopt this approach for recruiting executives lo manage the branches."

The polycentric approach uses natives of the host country to manage operations in their country and
natives of the parent country to manage in the home office. In this example, the Australian parent
company uses natives of India to manage operations at the Indian subsidiary. Natives of Australia
manage the home office.

65
Geocentric approach

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. Since the HR operations are constrained by several factors like political and ethnical
factors and government laws, it is difficult to adopt this approach. However, large international
companies generally adopt the geocentric strategy with considerable success.

For international recruitment, especially on foreign soil, organizations generally use manpower
agencies or consultants with international connections and repute to source candidates, in
addition to the conventional sources. For an effective utilization of the internal source of
recruitment, global companies need to develop an internal database of employees and an
effective tracking system to identify the most suitable persons for global postings.

The geocentric approach uses the best available managers for a business without regard for
their country of origin. In this example, the UK parent company uses natives of many countries
at company headquarters and at the U.S. subsidiary.

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Need of Induction and Orientation for International Employees

A workplace induction introduces the international employee to the processes, procedures and
people that they will be encountering at work.

A new overseas worker may need a more detailed and longer induction to ensure they are
comfortable with unfamiliar workplace jargon, practices and procedures.

It is a good idea for employers to put an induction handbook together for all new employees.
Typically an induction handbook will include:

• A new employee can feel welcomed to a company if the welcome is extended by the
executive staff. When executives take the time to introduce themselves to the new hire class, it
gives the new hires a feeling that the company is accessible

• A human resources associate should take the new hire class on a tour of the office.

• An introduction to policies and procedures (both general and job-specific), the company
name directory and company history. It serves as a valuable reference tool and can be used as a
teaching aid during new employee orientation.

• Payroll, superannuation, emergency contacts and other Human Resources forms

• Health and safety procedures

• A general orientation program and needs to be followed up by a departmental

orientation have new employees shadow existing employees

• Key contacts

Employers may also like to organize regular orientation catch-ups to support your new
employee during their first few weeks in the workplace. This is a good way to ensure that the
new employee is settling in and to provide them with any additional information or assistance
they may need.

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International Adjustment Stages5
The international adjustment is the degree to which the expatriate feels comfortable living and
working in the host culture. This significantly influences job performance. The expatriate is
completely new to the host country environments, social rules, norms etc. The expatriates
have a strong desire to reduce psychological uncertainty in the new environment. Psychological
uncertainty is also called cultural shock.

Researchers found that to a large degree culture shock follows the general pattern of a U-
shaped curve. This figure presents the relationship between culture shock and the length of
time the expatriate has been working in the host country’s culture. The ‘U’ is divided into four
stages, viz., honeymoon, culture shock, adjustment and mastery.

Honeymoon stage: The expatriate and his family members are fascinated by the culture of the
host country, the accommodation, the transportation facilities, educational facilities to the
children etc., during the early stage of arrival. This stage lasts up to 2-3 months period.

Culture shock stage: The Company takes care of the new arrivals and completely neglects the
previously arrived employee and his family after three months. During this stage, the employee
has to take care of himself and his family members. Expatriate gets frustrated, confused and
unhappy with living and working abroad. His social relations are disillusioned during this stage.
He gets the shock of the existing culture.

5
Rao, P. (2009). International Business Environment (2nd ed., pp. 201-211). Mumbai, India: HPH.

68
Adjustment stage: The expatriate slowly learns the values, norms, behavior, of the people,
their culture etc. He slowly adjusts himself to the culture of the foreign country.

Mastery stage: The expatriate after adjusting himself with the culture of the foreign country,
can concentrate on working efficiently. He learns and adapts to the new environment
completely and becomes like a citizen. He behaves and functions like a citizen at this stage.

Need and Importance of Training for Global Jobs

Importance of Training and Development for Global Jobs

Even the most valuable employees in the global companies fail to work and stay with the
company due to poor training and development efforts. Global companies should make not
only the employees, but also his family members more comfortable with the company, people
and the country. Hence, training and development assume greater significance in global
companies.

Training and development are the most important techniques of human resource development.
Training and development lead to:

 Improved job knowledge and skills at all levels of the organization

 Improved morale of the human resources
 Improved profitability and/ or more positive attitudes towards profit orientation
 Improved relationship between boss and subordinate
 Improved understanding of culture of various countries

Need for Training and Development for Global Jobs

Training and development for global jobs are necessary due to the following reasons:

 To match employee specifications with the job requirements and organizational needs
 To achieve organizational viability and the transformation process
 To meet the challenges of technological advances
 To understand the organizational complexity
 To make the employee and his family members familiar with the language, customs,
traditions etc., of the foreign country.

After the employee is inducted into the company, his skills, knowledge and attitudes are
molded and developed. Training is the organized procedure by which people learn knowledge
and or skills for a definite purpose. Training improves changes and molds the employee’s

69
knowledge, skills, behavior, aptitude and attitude towards the job and organizational
requirements.

In case of international business, training and development refer to the development of

expatriate not only towards job and organizational requirements, but also towards the host
country’s culture, environment and requirement. Therefore, cross cultural training assumes
greater significance in international business.

EXPATRIATE FAILURE

Reasons for expatriate failure6 7

Expatriate failure occurs when an expatriate is forced to return to his or her home
organization before the expected duration of the foreign assignment is completed. Selecting
suitable managers is the logical first steps but that alone does not ensure success.

Expatriate failure is usually defined as a posting that either ends prematurely or is considered
ineffective by senior management. Most research into the matter has come to the conclusion
that failure rates are high and can vary between 20% and 50% depending on the country.
Emerging countries such as those of Southeast Asia are considered higher risk than so-called
advanced nations.

The costs of failure have been estimated by numerous means with widely varying results.
Despite the lack of clarity, it is clear that a failed assignment in an overseas location is
considerably more expensive than one occurring closer to home.

Major causes of expatriate failure in International HRM are follows:

Reason 1: Family Stress

Most expatriate managers are challenged and excited to be in their new postings. They need
to spend a lot of time at work since they are under pressure to adapt to the new culture and
their overall responsibilities are often larger than they have experienced before.
As a result, spouse or dependents of the expatriates spend a lot of time by themselves, a
dependent wife who is accompanied are cut off from their own family and friends. The

6
Main Reasons For Expatriate Failure. (n.d.). In Chalre Associates. Retrieved March 5, 2017, from
http://www.chalre.com/hiring_managers/reasons_expat_failure.htm

7
Rajshekar, V. (n.d.). 7 Major Causes of Expatriate Failure in International HRM. In shareyouressays. Retrieved
March 5, 2017, from http://www.shareyouressays.com/94687/7-major-causes-of-expatriate-failure-in-
international-hrm

70
dependent family members of wife might have been told that internet connectivity is available
but then finds it takes 6 months to install. All through this, she will probably discover that
suitable employment for herself is next to impossible in an emerging country-seriously
damaging her own long-term career. Expatriates marriages may fail due to the stress of
offshore postings. The consequence is that many expatriate postings are either terminated
early or the performance of the expatriate managers is reduced.

Reason 2: Cultural Inflexibility

It is common for inexperience expatriate managers to face cultural shock at the posted country.
Expatriate managers may find that after an open conversation about improvements which need
to be made, staffs members may not show up for work for 2 days. If the expatriate managers
want to be successful, he may need to learn how to adapt to common agreement, which is
important in Asia. Expatriates also need to realize that transforming their staff into Americans
or Japanese workers has been tried and it doesn’t work.

Southeast Asia has a rich variety of cultures. The differences in religion are one example.
Thailand is graciously Buddhist, Indonesia is gently (but intensely) Islamic and Philippines is
completely Catholic. As for Singaporeans, some say their only religion is work. Managing such
varied peoples obviously requires very different tactics.

Reason 3: Emotional Immaturity

If the expatriate is a middle manager in their home country and once relocated to Asia, they are
suddenly into the national spotlight as the Country Manager of a high profile multinational
organization. They may have more people reporting to them than ever and often have more
control over them.
The combination of greatly expanded responsibility and social status can be difficult to handle
for people lacking emotional maturity. It is not uncommon for expatriates to either destroy
their career opportunities and/or marriages by ignoring responsibilities and surrendering to
self-destructive temptations.

71
Reason 4: Responsibility Overload
In most of the cases the responsibilities of the expatriates in the emerging countries will be
larger than they used to be, expatriates may supervise 5 to 10 times more people than ever
before in the emerging countries of Southeast Asia.
A German IT Manager who used to manage 15 people in his home country could have 100
people under him in Malaysia. An American call center manager with 100 people in the US may
find himself soon overseeing 800 people under him in Philippines.
The increase in responsibility becomes difficult for anyone to handle. Added to that, are the
new challenges of managing expectations of head office managers and clients in other
countries and who may not understand the cultural differences that are impacting results.

Reason 5: Physical Breakdown

Expatriates are generally motivated to be successful and excited about gaining international
experience. As a result, they often work long hours in the early part of their postings to do
“whatever it takes” to be successful.
The family members of the dependent expatriates are going through their own severe cultural
adjustments and may be demanding time and attention to help them through the difficulties.

The combination of emotional depression and physical exhaustion from higher stress levels and
overwork is a common problem for new expatriates can be also termed as burn-out. If the
situations are not improved, the subsequent result may be reduced effectiveness at work place.

Other Causes:

1. Selection based on headquarters criteria rather than assignment needs.

2. Inadequate preparation, training, and orientation prior to assignment.

3. Alienation or lack of support from headquarters.

4. Inability to adapt to local culture and working environment.

5. Problems with spouse and children – poor adaptation, family unhappiness.

6. Insufficient compensation and financial support.

7. Poor programmes for career support and repatriation.

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The failure of an expatriate can have disastrous results.

1. There are substantial monetary costs associated with sending expatriates abroad, bringing
them back to the home country and finding replacements.

2. The poor performance of an expatriate may damage the firm’s image in the host country.

3. There are also personal tragedies of employees who may have sold their homes, left jobs
they liked and find themselves back in the home country branded as failures.

4. Damage to the firm’s reputation, loss of employee morale, and disrupted relationships with
local nationals.

Therefore care should be taken to choose the expatriate after careful selection based on the
specific assignment and the long-run plans of both the organization and the candidate, plans
must be made for the preparation, training and development of expatriate managers.

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 REPATRIATION 8
Process of Repatriation

Repatriation generally refers to the termination of the overseas assignment and coming
back to the home country or to the country where the HQ is located or to the home subsidiary
from where he/she was expatriated So, Expatriation process also includes repatriation:

The activity of bringing the expatriate back to the home country.

Therefore, Repatriation may be defined as the activity of bringing an expatriate back to the
home country and Repatriation is the final step in the expatriation process

(recruitment & selection → pre departure training → foreign assignment → repatriation or

reassignment)

Reasons of Repatriation?

1. Most common Reason: the period of posting got over

2. Second common Reason: The expats want their children study in a home country
school.
3. Third common Reason: the need for the expats to move on to another global
assignment of a similar kind – where he/she would have the opportunity to use the skills
and expertise acquired.
4. Forth com. Reason: the assignees are not happy in their overseas assignment.
Un-happiness can be result of:
 Inability to adjust to host country environment
 Spouse’s or children’s unwillingness to stay
 Lack of moral support from HQ at the time of crisis.
5. Fifth Com. Reason: Expats return because of failure to do the assigned job.

8
Dowling, P. J., & Welch, D. E. (1999). International Human Resource Management (4th ed., pp. 160-178). New
Delhi, India: South Western Cenegage Learning.

74
Repatriation Process: Repatriation process has a sequence of four phases:

1. Preparation – Approx. 5-3 month before the expatriate returns to the home country, he or
she should be taken through a re-entry phase, followed by actual repatriation.

This involves developing plans for the future and collecting information about the new position
the expat is likely to occupy after returning home.

During the pre re-entry phase, the mentor can play an advisory role in finding the expat a
suitable position within the organization. The company may provide a checklist of items to be
considered while leaving the host country.

2. Physical Relocation – This stage involves removal of personal belongings, breaking ties with
colleagues and friends and traveling to the next posting, usually the home country.
Professional re-entry training should also be given to expat and his or her family that covers
social cultural contrast orientation, an updated political and social issues and changes in the
home country, job opportunities for the partner, an evaluation of the experiences in the host
culture and the psychological aspects of repatriation.

3. Transition – Phase in which the expatriate and his or her family readjust to their return to the
home country. Some companies hire relocation consults to assist in this phase. Typical activities
include acquiring temporary accommodation, making arrangements for housing and schooling,
performing necessary administrative tasks (e.g. renewing driver’s license, applying for medical
insurance, opening bank accounts)

4. Readjustment – This phase involves coping with reverse culture shock and the expatriate’s
career demands on the organization. Generally, the more the host country culture differs from
the home country culture, the more difficult the re integration process will be. Likewise, the

75
more successful the expat was in the host culture, the more difficult it is to adjust to the work
environment at the home base.

Challenges of effective Repatriation? Based on three factors:

• Organizational Factors:
• Individual Factors:
• Social- cultural Factors:
1. Organizational Factors:
 Recent research indicates that the majority of organizations have no formal repatriation
programme to help expatriates readjust on return to the home country
 Only a small proportion of the repatriation programmes have consideration for the
spouse
 Typical reasons given by organizations for not having a repatriation programme include:
 Lack of the requisite expertise ƒ Programme cost ƒ Lack of a perceived need by top
management
 Some organizations provide a form of repatriation assistance in the form of a “mentor”
 The mentor is usually a superior to the expatriate and provides assistance in the form of
information, by maintaining regular contact with the expatriate, and by taking the
expatriates interests regarding promotion and job placement on return etc. into account
 Research indicates that the likelihood of an organization using mentors depends on the
size of the expatriate workforce, the organizational unit responsible for handling
expatriates and the nationality of the organization.

2. Individual relations – Job Related factors

• Career anxiety

o No post-assignment guarantee of employment

o Loss of visibility and isolation
o Changes in the home workplace

• Work adjustment

o The employment relationship and career expectation

o Re-entry position
o Devaluing of the international experience

• Coping with new role demands

o Role behavior
o Role clarity

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 o Role discretion
o Role conflict

• Loss of status and pay

o Autonomy
o Responsibility
o Lower pay in absolute terms
o Drop in housing conditions

3. Social – cultural factors

• If an expatriate served in a foreign assignment in a high-profile position where he or she

enjoyed considerable and sustained interaction with the social, economic and political elites of
the host country, a feeling of disappointment may emerge after return to the home country.

• In addition to the expatriate’s social readjustment problems, the social readjustment

problems of his or her accompanying family members must also be taken into consideration as
well.

• Reestablishment of social networks in the home country may be difficult if, for e.g., the
expatriate and family are repatriated to another locality in the home country. It may be that
friends have moved away while the expatriate was on assignment and that other friends may
have joined the workforce and have no time for social activities

• Children may encounter social readjustment problems in school because they are not update
on latest trends, and may have problems adjusting to their home country educational system

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Unit 5: Economic Integration for Borderless Trade

Economic integration 9
Economic integration is the unification of economic policies between different states through
the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them
prior to their integration. This is meant in turn to lead to lower prices for distributors and
consumers with the goal of increasing the level of welfare, while leading to an increase of
economic productivity of the states.

Economic integration is an economic arrangement between different regions, marked by the

reduction or elimination of trade barriers and the coordination of monetary and fiscal policies.
The aim of economic integration is to reduce costs for both consumers and producers, and to
increase trade between the countries taking part in the agreement.

There are varying levels of economic integration, including preferential trade agreements (PTA),
free trade areas (FTA), customs unions, common markets, economic and monetary unions, and
political unions. The more integrated the economies become, the fewer trade barriers exist,
and the more economic and political coordination there is between the member countries.

Pros and Cons of Economic Integration

As with most things in economics, there are potential benefits and costs of economic
integration. The advantages of economic integration tend to fall into three categories: (1) trade
benefits, (2) employment, and (3) political cooperation. More specifically, economic integration
typically leads to a reduction in the cost of trade; improved availability and wider selection of
goods and services; and efficiency gains that lead to greater purchasing power. Employment
opportunities tend to improve as trade liberalization leads to market expansion, sharing of
technology, and cross-border flows of investment. Political cooperation can also improve with
stronger economic ties, which can help resolve conflicts peacefully and lead to more stability.

Despite the benefits, however, economic integration can also have a cost. Some of the
potential downsides include trade diversion and the erosion of national sovereignty. For
example, trade unions could divert trade away from non-members even if it were a more
economically efficient outcome. Also, members of economic unions are typically required to
adhere to rules on trade, monetary policy and fiscal policy, which are established by an external
policymaking body not elected by citizens of a particular country. Sovereignty, in fact, was one
of the key debates in the United Kingdom's decision to leave the European Union (EU) in 2016.

9
Economic Integration. (n.d.). In Investopedia. Retrieved April 3, 2017, from
http://www.investopedia.com/terms/e/economic-integration.asp

78
 Different kinds of Economic Integration 10

There are several stages in the process of economic integration, from a very loose association
of countries in a preferential trade area, to complete economic integration, where the
economies of member countries are completely integrated.

A regional trading bloc is a group of countries within a geographical region that protect
themselves from imports from non-members in other geographical regions, and who look to
trade more with each other. Regional trading blocs increasingly shape the pattern of world
trade - a phenomenon often referred to as regionalism.

Stages of integration

10
Economic integration. (n.d.). In economicsonline. Retrieved April 3, 2017, from
http://www.economicsonline.co.uk/Global_economics/Economic_integration.html

79
Preferential Trade Area

Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to
reduce or eliminate tariff barriers on selected goods imported from other members of the area.
This is often the first small step towards the creation of a trading bloc. Agreements may be
made between two countries (bi-lateral), or several countries (multi-lateral).

Free Trade Area

Free Trade Areas (FTAs) are created when two or more countries in a region agree to reduce or
eliminate barriers to trade on all goods coming from other members. The North America Free
Trade Agreement (NAFTA) is an example of such a free trade area, and includes the USA,
Canada, and Mexico.

Customs Union

A customs union involves the removal of tariff barriers between members, together with the
acceptance of a common (unified) external tariff against non-members.

Countries that export to the customs union only need to make a single payment (duty), once
the goods have passed through the border. Once inside the union goods can move freely
without additional tariffs. Tariff revenue is then shared between members, with the country
that collects the duty retaining a small share.

The advantages of a customs union

Without a unified external tariff, trade flows would become distorted. If, for example,
Germany imposes a 10% tariff on Japanese cars, while France imposes a 2% tariff, Japan
would export its cars to French car dealers, and then sell them on to Germany, thereby
avoiding 80% of the tariff. This is avoided if a common tariff is shared between Germany
and France (and other members of the customs union.)

A common external tariff effectively removes the possibility of arbitrage and, some
would argue, is one of the fundamental building blocks of economic integration.

The disadvantages of a customs union

Union members must negotiate collectively with non-members or organisations like the
WTO as a single group of countries. While this is essential to maintain the customs
union, it means that members are not free to negotiate individual trade deals.

80
 For example, if a member wishes to protect a declining or infant industry it cannot do so
through imposing its own tariffs. Equallly, if it wishes to open up to complete free trade,
it cannot do so if a common tariff exists.

Also, it makes little sense for a particular member to impose a tariff on the import of a
good that is not produced at all within a that country.

For example, the UK does not produce its own bananas, so a tariff on banana imports
only raises price and does not protect domestic producers. The current EU tariff on
bananas imported from outside the EU is 10.9%.

There is also a potential disadvantage to a single member in how the tariff revenue is
allocated. Members that trade relatively more with countries outside the union, such as
the UK, may not get their 'fair share' of tariff revenue.

The UK's status as a customs union member is one of the dilemmas facing the UK as a
result of Brexit. If it wishes to create individual trade deals with, say the USA and China,
it cannot retain its currret status as a full member of the customs union.

Common Market

A common (or single) market is the most significant step towards full economic integration. In
the case of Europe, the single market is officially referred to a the 'internal market'.

The key feature of a common market is the extension of free trade from just tangible goods, to
include all economic resources. This means that all barriers are eliminated to allow the free
movement of goods, services, capital, and labour.

In addition, as well as removing tariffs, non-tariff barriers are also reduced and eliminated.

For a common market to be successful there must also be a significant level of harmonisation of
micro-economic policies, and common rules regarding product standards, monopoly power and
other anti-competitive practices. There may also be common policies affecting key industries,
such as the Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP).

Full Economic Union

Economic union is a term applied to a trading bloc that has both a common market between
members, and a common trade policy towards non-members, although members are free to
pursue independent macro-economic policies.

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The European Union (EU) is the best known Economic union, and came into force on November
1st 1993, following the signing of the Maastricht Treaty (formally called the Treaty on
European Union.)

Monetary Union

Monetary union is the first major step towards macro-economic integration, and enables
economies to converge even more closely. Monetary union involves scrapping individual
currencies, and adopting a single, shared currency, such as the Euro for the Euro-17 countries,
and the East Caribbean Dollar for 11 islands in the East Caribbean. This means that there is a
common exchange rate, a common monetary policy, including interest rates and the regulation
of the quantity of money, and a single central bank, such as the European Central Bank or the
East Caribbean Central Bank.

Fiscal Union

A fiscal union is an agreement to harmonise tax rates, to establish common levels of public
sector spending and borrowing, and jointly agree national budget deficits or surpluses. The
majority of EU states agreed a fiscal compact in early 2012, which is a less binding version of a
full fiscal union.

Economic and Monetary Union

Economic and Monetary Union (EMU) is a key stage towards compete integration, and involves
a single economic market, a common trade policy, a single currency and a common monetary
policy.

Complete Economic Integration

Complete economic integration involves a single economic market, a common trade policy, a
single currency, a common monetary policy, together with a single fiscal policy, including
common tax and benefit rates – in short, complete harmonisation of all policies, rates, and
economic trade rules.

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 European Union
The European Union is a unique economic and political union between 28 European countries
that together cover much of the continent.

The EU was created in the aftermath of the Second World War. The first steps were to foster
economic cooperation: the idea being that countries that trade with one another become
economically interdependent and so more likely to avoid conflict.

The result was the European Economic Community (EEC), created in 1958, and initially
increasing economic cooperation between six countries: Belgium, Germany, France, Italy,
Luxembourg and the Netherlands. Since then, a huge single market has been created and
continues to develop towards its full potential.

From economic to political union

What began as a purely economic union has evolved into an organization spanning policy areas,
from climate, environment and health to external relations and security, justice and migration.
A name change from the European Economic Community (EEC) to the European Union (EU) in
1993 reflected this.

The EU is based on the rule of law: everything it does is founded on treaties, voluntarily and
democratically agreed by its member countries.

The EU is also governed by the principle of representative democracy, with citizens directly
represented at Union level in the European Parliament and Member States represented in the
European Council and the Council of the EU.

Mobility, growth, stability and a single currency

The EU has delivered more than half a century of peace, stability and prosperity, helped raise
living standards and launched a single European currency: the euro. In 2012, the EU was
awarded the Nobel Peace Prize for advancing the causes of peace, reconciliation, democracy
and human rights in Europe.

Thanks to the abolition of border controls between EU countries, people can travel freely
throughout most of the continent. And it has become much easier to live, work and travel
abroad in Europe.

The single or 'internal' market is the EU's main economic engine, enabling most goods, services,
money and people to move freely. Another key objective is to develop this huge resource also

83
in other areas like energy, knowledge and capital markets to ensure that Europeans can draw
the maximum benefit from it.

Human rights and equality

One of the EU's main goals is to promote human rights both internally and around the world.
Human dignity, freedom, democracy, equality, the rule of law and respect for human rights:
these are the core values of the EU. Since the Lisbon Treaty's entry in force in 2009, the EU's
Charter of Fundamental Rights brings all these rights together in a single document. The EU's
institutions are legally bound to uphold them, as are EU governments whenever they apply EU
law.

Transparent and democratic institutions

The enlarged EU remains focused on making its governing institutions more transparent and
democratic. More powers have been given to the directly elected European Parliament, while
national parliaments play a greater role, working alongside the European institutions. In turn,
European citizens have an ever-increasing number of channels for taking part in the political
process.

Countries

The EU was not always as big as it is today. When European countries started to cooperate
economically in 1951, only Belgium, Germany, France, Italy, Luxembourg and the Netherlands
participated.

Over time, more and more countries decided to join. The Union reached its current size of 28
member countries with the accession of Croatia on 1 July 2013.

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The 28 member countries of the EU

Austria Italy
Belgium Latvia
Bulgaria Lithuania
Croatia Luxembourg
Cyprus Malta
Czech Republic Netherlands
Denmark Poland
Estonia Portugal
Finland Romania
France Slovakia
Germany Slovenia
Greece Spain
Hungary Sweden
Ireland United Kingdom

Countries using the euro

The euro (€) is the official currency of 19 out of 28 EU member countries. These countries are
collectively known as the Eurozone.

The euro is the most tangible proof of European integration – the common currency in 19 out
of 28 EU countries and used by some 338.6 million people every day. The benefits of the
common currency are immediately obvious to anyone travelling abroad or shopping online on
websites based in another EU country.

EU monetary cooperation

The Economic and Monetary Union involves the coordination of economic and fiscal policies, a
common monetary policy and the euro as the common currency. The euro was launched on 1
January 1999 as a virtual currency for cash-less payments and accounting purposes. Banknotes
and coins were introduced on 1 January 2002.

Which countries use the euro?

The euro (€) is the official currency of 19 out of 28 EU member countries. These countries are
collectively known as the Eurozone.

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Eurozone Countries:

Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland,

Italy,

Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia,

Slovenia,

Spain

Purpose of the euro

A single currency offers many advantages, such as eliminating fluctuating exchange rates and
exchange costs. Because it is easier for companies to conduct cross-border trade and the
economy is more stable, the economy grows and consumers have more choice. A common
currency also encourages people to travel and shop in other countries. At global level, the euro
gives the EU more clout, as it is the second most important international currency after the US
dollar.

Managing the euro

The independent European Central Bank is in charge of monetary issues in the EU. Its main goal
is to maintain price stability. The ECB also sets a number of key interest rates for the euro area.
Although taxes are still levied by EU countries and each country decides upon its own budget,
national governments have devised common rules on public finances to be able to coordinate
their activities for stability, growth and employment.

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The Economic and Financial Crisis

The economic crisis has prompted intense and sustained action by the EU's national
governments, the European Central Bank and the Commission since it erupted worldwide in
2008. All have been working closely together to support growth and employment, protect
savings, maintain a flow of affordable credit for businesses and households, ensure financial
stability, and put in place a better governance system for the future.

EU symbols

The EU is recognisable by several symbols, the most well-known being the circle of yellow stars
on a blue background.

The European flag

The European flag symbolises both the European Union and, more broadly, the identity and
unity of Europe.

It features a circle of 12 gold stars on a blue background. They stand for the ideals of unity,
solidarity and harmony among the peoples of Europe.

The number of stars has nothing to do with the number of member countries, though the circle
is a symbol of unity.

Money and the EU

The EU budget is funded from sources including a percentage of each member country's gross
national income. It is spent on efforts as diverse as raising the standard of living in poorer
regions and ensuring food safety. The euro is the common currency of most EU countries.

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 SAARC

INTRODUCTION

Established

1985

Membership

Eight states―Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.
Six observers—China, Japan, European Union, Republic of Korea, United States, Iran

The idea of regional cooperation in South Asia was first raised in November 1980. After
consultations, the foreign secretaries of the seven founding countries—Bangladesh, Bhutan,
India, Maldives, Nepal, Pakistan, and Sri Lanka—met for the first time in Colombo in April 1981.
This was followed a few months later by a meeting of the Committee of the Whole, which
identified five broad areas for regional cooperation. The foreign ministers, at their first meeting
in New Delhi in August 1983, adopted the Declaration on South Asian Association for Regional
Cooperation (SAARC) and formally launched the Integrated Program of Action (IPA) in the five
agreed areas of cooperation: agriculture; rural development; telecommunications;
meteorology; and health and population activities. Later, transport; postal services; scientific
and technological cooperation; and sports, arts, and culture were added to the IPA. Afghanistan
became the newest member of SAARC at the 13th annual summit in 2005. China and Japan
were granted observer status at the same.

The South Asian Association for Regional Cooperation (SAARC) comprises Afghanistan,
Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka. SAARC is a
manifestation of the determination of the peoples of South Asia to work together towards
finding solutions to their common problems in a spirit of friendship, trust and understanding
and to create an order based on mutual respect, equity and shared benefits. The main goal of
the Association is to accelerate the process of economic and social development in member
states, through joint action in the agreed areas of cooperation.

EVOLUTION

The idea of regional cooperation in South Asia was first mooted in November 1980. After
consultations, the Foreign Secretaries of the seven countries met for the first time in Colombo,
in April 1981. This was followed, a few months later, by the meeting of the Committee of the
Whole, which identified five broad areas for regional cooperation. The Foreign Ministers, at
their first meeting in New Delhi, in August 1983, formally launched the Integrated Programme
of Action (IPA) through the adoption of the Declaration on South Asian Regional Cooperation
(SARC).

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At the First Summit held in Dhaka on 7-8 December 1985, the Charter establishing the South
Asian Association for Regional Cooperation (SAARC) was adopted.

OBJECTIVES

The objectives, principles and general provisions, as mentioned in the SAARC Charter, are as
follows :

- To promote the welfare of the peoples of South Asia and to improve their quality of life;
- To accelerate economic growth, social progress and cultural development in the region and to
provide all individuals the opportunity to live in dignity and to realize their full potentials;
- To promote and strengthen collective self-reliance among the countries of South Asia;
- To contribute to mutual trust, understanding and appreciation of one another's problems;
- To promote active collaboration and mutual assistance in the economic, social, cultural,
technical and scientific fields;
- To strengthen cooperation with other developing countries;
- To strengthen cooperation among themselves in international forums on matters of common
interests; and
- To cooperate with international and regional organizations with similar aims and purposes.

PRINCIPLES

- Cooperation within the framework of the Association is based on respect for the principles of
sovereign equality, territorial integrity, political independence, non-interference in the internal
affairs of other states and mutual benefit.
- Such cooperation is to complement and not to substitute bilateral or multilateral cooperation.
- Such cooperation should be consistent with bilateral and multilateral obligations of the
member states.

- Decisions at all levels in SAARC are taken on the basis of unanimity.

- Bilateral and contentious issues are excluded from its deliberations.

Organization Structure of SAARC

The SAARC comprises five layers of organizational structure:

1. Council: At the top, there is the Council represented by the heads of the government of the
member countries. The council the apex policy making body. It meets once in 2 years time.

2. Council of Minister: It is to assist the council. It is represented by the foreign minister of the
member countries. Its functions include:

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 1. Formulation of policies
2. Review of functioning
3. Deciding new areas of cooperation
4. Chalk our additional mechanism
5. Decide about general issues of common of interest of the SAARC member.

3. Standing Committee: It is comprised by the foreign secretariat of the member government.

Its major functions are:

1. To monitor and co-ordinate the programmes

2. To determine inter-sectored priorities
3. To mobilise cooperation within and outside the region
4. To deal with the modalities of financing.

4. Programming Committee: It consist of the senior official of the member governments. Its
functions include:

1. Scrutinizing the budget of the secretarials

2. Finalizing the annual schedule
3. External activities assigned by the standing committee
4. Analyses the respects of the technical committee.

5. Technical Committee: It consist of the represented of the member nations. Its function are:

1. To formulate project and programmer

2. To monitor and execute the projects
3. To submit reports.

The Technical Committee convers the areas such as: Agriculture, Communication, Environment,
Rural Development, Health and Population, Science and Technology, Tourism and Transport.

6. Secretarial: The SAARC secretarials is located in Nepal. Its function include:

1. Coordination, execution and monitoring of SAARC activities

2. Servicing the SAARC meetings

3. Work as communication link between the SAARC and other international forum.

The secretarials is headed by the secretary-General appointed by the Council of Ministers.

These are 7 Director (One from each member nation) and the general service staff.

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 BRICS

BRICS is the acronym for an association of five major emerging national economies: Brazil,
Russia, India, China and South Africa. Originally the first four were grouped as "BRIC" (or "the
BRICs"), before the induction of South Africa in 2010. The BRICS members are all leading
developing or newly industrialized countries.

As of 2015, the five BRICS countries represent over 3.6 billion people, or half of the world
population; all five members are in the top 25 of the world by population, and four are in the
top 10.

History

The term "BRIC" was coined in 2001 by then-chairman of Goldman Sachs Asset Management,
Jim O'Neill, in his publication Building Better Global Economic BRICs. The foreign ministers of
the initial four BRIC states (Brazil, Russia, India, and China) met in New York City in September
2006 at the margins of the General Debate of the UN General Assembly, beginning a series of
high-level meetings. A full-scale diplomatic meeting was held in Yekaterinburg, Russia, on 16
June 2009.

BRICS - Objectives, Summits, Need and Disparities

About BRICS

– BRICS is a acronym for an association of five major emerging national economies: Brazil,
Russia, India, China and South Africa

– Originally called as BRIC as South Africa was not included till 2010.

– The term "BRICS" was coined in 2001 by then-chairman of Goldman Sachs Asset
Management, Jim O'Neill

– Common characteristics are large, fast-growing economies all developing or newly

industrialized countries.

Importance of BRICS

– As of 2014, the five BRICS countries represent almost 3 billion people, or approximately 40%
of the world population.
– The five nations have a combined nominal GDP of US$16.039 trillion, equivalent to

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approximately 20% of the gross world product,
– They have an estimated US$4 trillion in combined foreign reserves.

Summits

1. Yekaterinburg Summit (2009)

Consensus on improving the global economic situation and reforming financial institutions.
BRIC nations announced the need for a new global reserve currency, which would have to be
"diversified, stable and predictable"

2. Brasilia Summit (2010)

South Africa officially became a member nation. Iran and nuclear weapons, development, the
furtherance of the BRIC as an international body, the global economic situation at the time,
reform of financial institutions, the financial G20, and cooperation and issues related to global
governance.

3. Sanya Summit (2011)

Economics, anti-terror law under UN auspices,United Nations Security Council reform,decision

to cease mutual trade payments in U.S. dollars and instead henceforth give credits to one
another in their national currencies alone.

4. New Delhi summit (2012)

A proposal to create a joint BRICS development bank that would finance investments in
developing nations

5. Durban Summit (2013)

Negotiations for setting up the bank.

6. Fortaleza Summit (2014)

Creation of two financial institutions: the New Development Bank (NDB) to finance
infrastructure and “sustainable development” projects, with $50 billion in capital to start with,
and the $100 billion Contingent Reserve Arrangement (CRA), to tide over members in financial
difficulties.
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7. Ufa Summit (2015)

The 7th BRICS summit was the seventh annual diplomatic summit of the head of states or
government of the BRICS member states. It was held in the Russian city of Ufa in Bashkortostan
on 8–9 July 2015

8. The 2016 BRICS summit was the eighth annual BRICS summit, an international relations
conference attended by the heads of country or heads of government of the five member
countries Brazil, Russia, India, China and South Africa. The summit was held from 15 to 16
October 2016 at the Taj Exotica hotel in Benaulim, Goa, India.

Disparities with BRICS

1. The dominance of China in BRICS is problem for others. The Chinese economy is now not only
the second largest in the world but also larger than the economies of all the BRICS together.

2. China's political aspiration creates a challenges that has made it difficult for it to make
consensus.

3. China’s manipulation of its currency has resulted in significant problems for the
manufacturing sectors of other emerging powers. Central banks of other countries have
registered protest against undervalued yuan

4. There is doubt if BRICS can emerge as a unified political force.

5. BRICS is a loose grouping of countries that share interests in particular areas but that play by
different rules. It is not a formal international alliance.
6. It maintains a low profile on security issues. BRICS will never attempt to make the group into
a traditional security framework.
7. With the exception of the NDB and the CRA, the BRICS framework has not proven very
efficient or substantive.
8. The BRICS have little in common. The Chinese economy is 28 times the size of South Africa’s.
Income per person in India is one-tenth that in Russia.
9. Brazil, India, South Africa are democratic countries while Russia, China are authoritarian
regimes

10. Russia, Brazil and South Africa export different commodities, while China exports
manufactured goods and India exports services.

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BRICS Bank

Structure

- New Development Bank will have an initial subscribed capital of $50 billion which will be
raised to $100 billion.
- The five members will have an equal share for each in the bank, so no one member dominates
the institution.
- Headquarters – Shanghai
- Bank will have African Regional Center in South Africa
- India will assume the first presidency of the bank.
- Chairman of Board of governance will be Russian
- The emergency reserve fund - which was announced as a "Contingency Reserve Arrangement"
will also have $100bn and will help developing nations avoid short-term liquidity pressures.
- It will have $41 billion from China, $5 billion from South Africa and $ 18 billion from remaining
nations.

Need of a BRICS bank

1. Global financial institutions like IMF and world bank are dominated by U.S and western
countries

2. IMF and world bank follows different voting power based on quota system. Though China is
second largest economy after U.S it has fewer voting rights.

3. The financial institution created by BRICS will reduce the importance of US dollar as a global
currency and eventually it will increase importance of Yuan

4. IMF cash assistance program is conditional. If a country's foreign policy clashes with US then
it will be difficult to obtain a loan.

5. It will provide resources for infrastructure development of developing countries.

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 North American Free Trade Agreement 11 12

In 1994, the North American Free Trade Agreement (NAFTA) came into effect, creating one of
the world’s largest free trade zones and laying the foundations for strong economic growth and
rising prosperity for Canada, the United States, and Mexico. Since then, NAFTA has
demonstrated how free trade increases wealth and competitiveness, delivering real benefits to
families, farmers, workers, manufacturers, and consumers.

The North American Free Trade Agreement (NAFTA) is an agreement signed by Canada, Mexico,
and the United States, creating a trilateral trade bloc in North America. The agreement came
into force on January 1, 1994. It superseded the Canada–United States Free Trade Agreement
between the U.S. and Canada.

NAFTA has two supplements: the North American Agreement on Environmental Cooperation
(NAAEC) and the North American Agreement on Labor Cooperation (NAALC).

Most economic analyses indicate that NAFTA has been a small net positive for the United
States, large net positive for Mexico and had an insignificant impact on Canada.

The Agreement

The North American Free Trade Agreement (NAFTA) is a comprehensive agreement that
sets the rules for international trade and investment between Canada, the United States, and
Mexico. The Agreement is a complex and lengthy document that includes eight sections, 22
chapters, and some 2,000 pages. Some of the most important provisions are highlighted below.

Market Access for Goods

 The elimination of duties on thousands of goods crossing borders within North America.
 Phased-in tariff reductions – now complete – and special rules for agricultural,
automotive, and textile and apparel products.
 Important rights for NAFTA services providers and users across a broad spectrum of
sectors.
 Special commitments regarding telecommunications and financial services.
 Formal dispute resolution processes that help resolve differences that arise in the
interpretation or application of NAFTA’s rules.

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North American Free Trade Agreement (NAFTA). (n.d.). In USTR. Retrieved April 3, 2017, from
https://ustr.gov/trade-agreements/free-trade-agreements/north-american-free-trade-agreement-nafta
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NAFTA. (n.d.). In Nafta Now. Retrieved April 3, 2017, from http://www.naftanow.org/default_en.asp

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Protection for Foreign Investment

 Commitment to treat each others’ investors and their investments in the territory of the
host NAFTA country no less favorably than their own domestic investors.
 Commitment to provide NAFTA investors with the best treatment given to foreign
investors from beyond North America.
 A transparent and binding dispute resolution mechanism specially designed to deal with
investment.

Protection for Intellectual Property

 Adequate and effective protection and enforcement of a broad range of intellectual

property rights (including through patents, trademarks, copyrights, and industrial
designs), while ensuring that the measures that enforce these rights do not themselves
become barriers to legitimate trade.

Easier Access for Business Travelers

 Easier access for business professionals in hundreds of different professions so that they
can travel for business throughout the continent.

Access to Government Procurement

 Access to government procurement opportunities at the federal levels in Canada,

Mexico, and the United States.

Rules of Origin

 NAFTA rules of origin are used to determine whether a good is eligible for preferential
treatment under NAFTA.
 At various times since NAFTA came into effect, the partners have implemented
measures to liberalize or expand the list of products that qualify for preferential
treatment. Since 2005, for example, the NAFTA partners have implemented two sets of
changes to make it easier for traders to qualify for duty-free treatment under NAFTA.

Side Agreements

The NAFTA partners also negotiated two side agreements: the North American Agreement on
Environmental Cooperation and the North American Agreement on Labor Cooperation.

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Commitment to the Environment

The NAFTA partners signed a parallel agreement addressing environmental issues, the North
American Agreement on Environmental Cooperation (NAAEC). Under the NAAEC, the United
States, Canada and Mexico have committed to take certain steps to protect the environment,
including the obligation that each of the parties will not fail to effectively enforce its
environmental laws. A party’s failure to meet this environmental obligation is subject to the
same type of dispute resolution mechanism that is included in the NAFTA for commercial
obligations. In addition, the NAAEC has created a mechanism that allows any citizen or non-
governmental organization to make a submission concerning whether a party is failing to
effectively enforce its environmental law. In contrast, commercial obligations are not subject to
this type of independent review.

Under the NAAEC, the parties also agreed to work cooperatively to address regional
environmental concerns, to help prevent potential trade and environmental conflicts, and to
promote the effective enforcement of environmental law, among other things. In order to
assist with the parties’ efforts to fulfill these commitments, the partners created an
international institution, the Commission for Environmental Cooperation (CEC).

Commitment to Labor Cooperation

The NAFTA partners signed a parallel agreement on labor cooperation designed to promote the
effective enforcement of each country’s labor laws and regulations and to facilitate further
cooperation between NAFTA partners on labor matters.

The North American Agreement on Labor Cooperation (NAALC) established the Commission for
Labor Cooperation (CLC), consisting of a Ministerial Council and a Secretariat. In the
implementation of the NAALC, the CLC is assisted by National Administrative Officers (NAOs) in
each of the three countries.

The current work program for labor cooperation focuses on occupational safety and health,
employment and job training, labor law, and workers’ rights and productivity.

Dispute Settlement

The North American Free Trade Agreement (NAFTA) includes impartial, rules-based
dispute resolution mechanisms to provide the assurance of fairness and predictability that
North American businesses need to engage in commercial exchanges. Under NAFTA, our
businesses can trade and invest with the knowledge that rules exist to ensure fair treatment
and that procedures are in place to settle disputes impartially, on the rare occasions when they
occur.

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Today, the vast majority of trade and investment among the NAFTA partners takes place in
accordance with the clear and well-established rules of NAFTA and the World Trade
Organization. While disputes rarely emerge, NAFTA directs those concerned to try to resolve
their differences through NAFTA committees and working groups or through other
consultations. If no mutually acceptable solution is found, NAFTA also provides for specific
formal mechanisms as follows:

Chapter 19 on Anti-dumping and Countervailing Duties

 Chapter 19 offers exporters and domestic producers an effective and direct route to
make their case and appeal the results of trade-remedy investigations before an
independent and objective binational panel. This process is an alternative to judicial
review of such decisions before domestic courts. This mechanism has been effective in
providing for the efficient and impartial review of trade remedy determinations made
by the investigating authorities of all three NAFTA partners. To date, panels have
sustained some decisions made by domestic investigating authorities, but have also
remanded others for reconsideration.
 The NAFTA Secretariat is responsible for the administration of the Chapter 19 dispute
settlement process.

Chapter 20 on General Dispute Settlement

 Chapter 20 offers a three-step process for resolving disputes regarding the

implementation or interpretation of NAFTA provisions:
1. The first step is the consultation process where the disputing parties formally
discuss the disagreement.
2. If the first step does not resolve the dispute, ministers will try to reach
agreement at a Free Trade Commission meeting.
3. If the second step does not resolve the dispute, the complainant can request
that a panel be set up to review the dispute and issue a binding decision.
 The NAFTA Secretariat is responsible for the administration of the Chapter 20 dispute
settlement process.

Chapter 11 on foreign investment

 Chapter 11 establishes a mechanism for the settlement of investment disputes between

investors and NAFTA partners. This process assures both equal non-discriminatory
treatment among NAFTA investors (in accordance with the principle of international
reciprocity) and due process before an impartial tribunal.

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 WTO
The World Trade Organization (WTO) is an intergovernmental organization which regulates
international trade. The WTO officially commenced on 1 January 1995 under the Marrakesh
Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs
and Trade (GATT), which commenced in 1948. The WTO deals with regulation of trade between
participating countries by providing a framework for negotiating trade agreements and a
dispute resolution process aimed at enforcing participants' adherence to WTO agreements,
which are signed by representatives of member governments and approved by their
parliaments.

Members and Observers

164 members since 29 July 2016

Objectives

The WTO has six key objectives:

a. To set and enforce rules for international trade,

b. To provide a forum for negotiating and monitoring further trade
liberalization,
c. To resolve trade disputes,
d. To increase the transparency of decision-making processes,
e. To cooperate with other major international economic institutions
involved in global economic management, and
f. To help developing countries benefit fully from the global trading system.

Role of WTO in development of International Business

World Trade organization (WTO) has a crucial role to play in the international trade, global
economics, political and legal issues arising in the international business because of the
globalization.

WTO has emerged as a world’s most powerful institutions for reducing trade related barriers
between the countries and opening new markets. World Trade Organization is the only
International governing body that World Trade Organization replaces General Agreement on
Tariffs and Trade (GATT) which was created in the year 1948.

The goal of WTO is to provide a fair platform for its member countries to help in services like
exports, imports and conduct their business in a peaceful manner.
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The advantage to the countries being members in the WTO is that that they lower trade related
barriers among themselves. In contrary to this the countries which are not part of WTO must
negotiate trade related agreements independently with their trading partners.

Almost all the industrial and agriculture sectors have been affected by trade barriers between
the countries. USA considered being a free trade country because of less number of trade
barriers for importing, but still it has got many.

Role of WTO in international business

 WTO facilitates implementation, administration and smooth operations of trade

agreements between the countries.
 It provides a forum for the trade negotiations between its member countries.
 Settlements of disputes between the member countries through the established rules
and regulations.
 It cooperates with the IMF(International Monitory Fund) and World Bank in terms of
making cohesiveness in making global economic policies.

Overall WTO was set up to play a very important role in the world economics though settling
trade related disputes through rules, regulations and consensus based agreement mechanisms
that would prevent trade related wars between powerful countries.

Through resolving trade related disputed WTO has got the potential to maintain world peace
and bilateral relations between its member countries thorough following negotiations,
consultations and mediations.

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Export and Import Trade

Export 13

An export is a function of international trade whereby goods produced in one country are
shipped to another country for future sale or trade. The sale of such goods adds to the
producing nation's gross output. If used for trade, exports are exchanged for other products or
services in other countries.

Exports are one of the oldest forms of economic transfer and occur on a large scale between
nations that have fewer restrictions on trade, such as tariffs or subsidies. Most of the largest
companies operating in advanced economies derive a substantial portion of their annual
revenues from exports to other countries. The ability to export goods helps an economy to
grow, by selling more overall goods and services. One of the core functions of diplomacy and
foreign policy within governments is to foster economic trade in ways that benefit both parties
involved.

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Import 14

An import is a good or service brought into one country from another. The word "import" is
derived from the word "port," since goods are often shipped via boat to foreign countries.
Along with exports, imports form the backbone of international trade; the higher the value of
imports entering a country, compared to the value of exports, the more negative that country's
balance of trade becomes.

Countries are most likely to import goods that domestic industries cannot produce as efficiently
or cheaply but may also import raw materials or commodities that are not available within its
borders. For example, many countries have to import oil because they cannot produce it
domestically or cannot produce enough of it to meet demand. Free trade agreements and tariff
schedules often dictate what goods and materials are less expensive to import. With
globalization and the increasing prevalence of free trade agreements between the United
States and other countries and trading blocks, U.S. imports have increased from $473 billion in
1989 to $2.24 trillion in 2015.

Export Procedure

• Preliminaries

• Registration for export trade

• Prospecting importer

• Concluding export deal

• Executing export deal

• Compiling documents prior shipment

• Shipment

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Import. (n.d.). In Investopedia. Retrieved April 3, 2017, from http://www.investopedia.com/terms/i/import.asp

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 1. Preliminaries

To get an edge over the competition in export trading, a firm must have all the relevant analysis
of its competencies. The first step is to think about the resources and knowledge a firm’s
business already has. The below exhibit provides an analytical approach for a firm to determine
its competitive ability to access global markets through export trade.

 Is your firm ready to start exporting?

 Do you have clear and achievable export objectives
 Understanding what may require to succeed international marketplace
 Transportation
 HR requirement
 Local representatives
 Financial and legal resources
 Exporting services
 Competitiveness
 Capacity
2. Registering for export trade
a. Obtaining IEC number: The Customs Authorities will now allow the exporter to export or
import goods into or from India unless he holds a valid IEC number. Importer Exporter
Code Number is unique 10 digit code issued by DGFT- Director General of Foreign Trade
part of Ministry of Commerce, Government of India to Indian Companies. Before
applying for IEC number it is necessary to open a bank account in the name of the
company with any commercial bank authorized to deal in foreign exchange.
b. Registration with EPC: In order to enable the exporter to obtain benefits/ concessions
under the Foreign Trade Policy, the exporter is required to register himself with an
appropriate export promotion agency by obtaining registration-cum-membership
certificate.
c. Registration with sales tax authorities: Goods that are to be shipped out of the country
for export are eligible for exemptions from both Sales Tax and Central Sales Tax. For this
purpose, exporter should get himself registered with the Sale Tax Authority of its state
by following the procedures prescribed under the Sales Tax Act applicable to his state.
3. Prospecting importer

In exporting a company need not do any marketing or production overseas, it just exports a
product from its home base. Often, the exported product is fundamentally the same as the one
marketed in the home market. Many export transactions, particularly initial export
transactions, begin with the receipt of an inquiry from abroad that is followed by a request for a
quotation. Based on the inquiry made by the prospective importer a proposal letter is sent to

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the importer. An import proposal is more than just a price quote or a brochure. The proposal is
customized according to the specific importers needs and explains in detail what exporter has
to offer and how it will benefit the importer.

 Exporters profile
 Description of products
 Pricing info
 Terms of sale
 Payment terms
4. Concluding export deal

If the importer is satisfied with the export proposal, the exporter must acknowledge the export
order and then proceed to examine carefully terms of deal in detail in respect of pricing,
specification, pre-shipment inspection, payment conditions, special packaging, labeling and
marketing requirements, shipment and delivery date, marine insurance, documentation etc. to
be in safer position the exporter should conclude the deal with a written contract and not just
verbal agreements, this is important to avoid future disputes. For this purpose, export contract
should be carefully drafted incorporating comprehensive terms and all relevant and important
conditions of the trade deal. The contract should be carefully scrutinized to ensure compliance
with legal provisions of both the countries of export and import. Necessary amendments should
be made to abide by the legislative provisions.

 Sellers and buyers name and address

 Buyers reference number and date of inquiry
 Listing of requested products and brief description
 terms of payment – Amount/Mode and Currency
 Trade discount (if applicable)
 Delivery point
 Terms of sale
 Insurance and shipping costs
 Total charges to be paid by customer
 Estimated shipping date
 Document requirements
 Packaging, Labeling and Marking
 Disputes settlement procedures and remedies

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 5. Executing export order

After confirmation of the export order and contract execution, immediate step should be for
procurement or manufacture of the export goods. In executing the order the following are key
elements to be focused on

a. Pre-shipment inspection
Pre-shipment inspection is undertaken by the exporter to ensure that exports comply
with government regulations. A physical inspection of goods is carried out to establish
the exact nature of the goods; invoice and other documents are then scrutinized. Pre-
shipment is mandatory as per government norms to identify correct assessment of
customs duties and taxes of the shipment value for foreign exchange control. Pre-
shipment inspection is also key to helping governments maintain compliance with the
WTO Agreement on Customs Valuation. The inspection is carried out by expert agencies
and once the inspection is complete a certificate is issued in compliance with rules and
regulation of the exporting countries.

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Course Title: International Business Environment
Course Code: COM154205
Unit 1: Globalization and International Business

Section A
1. Define International Business.
2. How international business is different from international trade?
3. Define international marketing.
4. Why is India the world’s favorite outsourcing destination?
5. Give the meaning of International relations
6. What is outsourcing?
7. Define globalization?
8. Is globalization the solution to profitability?
9. Give the meaning of open market.
10. Enlist a few trade barriers in globalization process.
11. Give three reasons why it is important to study global business.

Section B
12. Mention the advantages and disadvantages of outsourcing.
13. Outline key risks involved in international business.
14. Summarize the differences between international and domestic business.
15. Enlist the advantages and disadvantages of joint venture.
16. Elucidate various approaches to International Business.
17. Briefly explain the features of globalization
18. What are the pros and cons of globalization?

Section C
19. Describe the Nature of International Business
20. Write a note on forms of International Business
21. Explain the Objectives of International Business
22. Discuss various modes of entry into international business
23. Elucidate the barriers to globalization in India
24. What are the essential conditions for Globalization? Explain.
25. Explain the importance of globalization.
26. Explain the positive implications of globalization on Indian economy.
27. Discuss the consequences of globalization on Indian culture.

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Unit 2: MNCs and International Business

Section A
1. What is Multi National Corporation?
2. Why do firm internationalize?
3. List any four MNCs operating in India.
4. State any two differences between MNC and TNC
5. Define international company.
6. What is a global company?
7. Give the meaning of TNC.
8. Name any four Indian MNCs.
9. What is SBU?
10. Define Polycentric firm.
11. What is functional organizational structure? Give examples.

Section B
12. What is Matrix organization? Explain its merits and demerits.
13. Analyze the role of MNCs in development of Indian business.
14. Bring out the benefits and limitations of MNCs to Home country
15. What are the political challenges faced by MNCs in International business?
16. Briefly explain the features of MNCs.
17. Enlist advantages and disadvantages of MNCs to Host country.
18. Highlight the challenges faced by MNCs in India.

Section C
19. Discuss the differences between domestic company and international company
20. Elaborate the role of MNCs in development of International business.
21. Explain in detail Geographic organizational structure.
22. Critically examine Product organization structure.
23. Discuss various types of MNCs.

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Unit 3: International Marketing & Intelligence

Section A
1. What is the difference between data and information?
2. Define international marketing research.
3. Define marketing intelligence
4. What is the difference between a data warehouse and data mining?
5. Define marketing research.

Section B
6. Summarize the differences between secondary data and primary data.
7. What happens if an international company does not takes up marketing research prior to
entering a new market?
8. What are the various information required by International business firms?

Section C
9. What are some advantages and disadvantages of telephone interviews, mail questionnaires,
face-to-face interviews, and online interviews?
10. Explain the importance of International marketing research.
11. Describe the various primary data collection techniques.
12. Explain the role of a marketing information system in international marketing decision making.
13. Describe various secondary data sources.
14. Enumerate the limitations of International marketing research.
15. Elucidate process of International Marketing Information System.
16. Analyze the need of International Marketing Intelligence
17. Explain the steps involved in marketing research.

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Unit 4: International Human Resource Management

Section A
1. Define IHRM.
2. What do you mean by global recruitment?
3. What is a selection process?
4. Give the meaning of induction.
5. Define orientation.
6. Define training.
7. Who is an expatriate?
8. What do you mean by repatriation?
9. What is a cross cultural training?

Section B
10. What are the similarities and differences between domestic and international HRM?
11. Explain the process of repatriation of an employee.
12. Why induction and orientation for international employees is important?
13. Describe the need and importance of training for global jobs.

Section C
14. What are the various reasons for the failure of the expatriate?
15. Explain in details various sources of global recruitment.
16. What are the various international adjustment stages an expatriate goes through? Explain in
details.

109
Unit 5: Economic Integration for Borderless Trade

Section A
1. What do you mean by economic integration?
2. Define trading block.
3. Expand SAARC, BRICS, NAFTA
4. Define Export.
5. Define Import

Section B
6. What is economic integration? What are the various kinds of economic integration?
7. What are the advantages and disadvantages of economic integration?
8. What are the various activities of the European Union?
9. Discuss Export trade procedure
10. Discuss Import Procedure

Section C
11. Write a note on the Following:
European Union and SAARC
12. Write a short note on NAFTA and its Objective.
13. State the objectives of SAARC and details note about SAARC.
14. Explain the role of WTO in the development of International Business.

110
 IV Semester B.Com

COM154205: INTERNATIONAL BUSINESS ENVIRONMENT

Blue Print

Maximum Marks : 70

Duration : 3 hours

Course Code : COM154205

Course Title : INTERNATIONAL BUSINESS ENVIRONMENT

Section A : 7 Questions of 10, each carrying 2 marks ( 7 x 2 = 14)

Section B : 4 Questions of 7, each carrying 5 marks ( 4 x 5 = 20)

Section C : 3 Questions of 5, each carrying 12 marks ( 3 x 12 = 36)

Distribution of Marks

Hours No. of Questions & Marks Distribution

Allotted Section A Section B Section C
Unit Total
in the (No. of Total Marks (No. of (No. of Total Marks
Marks
Syllabus Questions) Questions) Questions)
I 10 2 4 1 5 1 12
II 10 2 4 1 5 1 12
III 10 2 4 1 5 1 12
IV 10 2 4 2 10 1 12
V 10 2 4 2 10 1 12
VI
Total 20 35 60
10
(Total Marks 7 Questions (Total 5 Questions (Total
Questions
including (including Marks (including Marks
50 Hours (including
Choice in Choice in including Choice in including
Choice in
Section A) Section B) Choice in Section C) Choice in
Section A)
Section B) Section C)

111
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