NEPAL OPEN UNIVERSITY

Faculty of Management and Law

Office of the Dean

Program: Master of Business Administration (MBA) Full Marks: 80

Semester: Third Time: 4 hrs
Subject: International Business (IB)

Group A
Q.No.1. Case Analysis [25]

Attempt All questions under this section.

Read the case given below and critically analyze it and answer the questions that follow:

Rise of Bangladesh’s Textile Trade

Bangladesh one of the world’s poorest countries has long depended on heavily on exports of
textile products to generate income, employment and economic growth. Most of these exports
are low – cost finished garments sold to mass – market retailed in the West such as Walmart.
For decades, Bangladesh was able to take advantage of a quota system for textile exports that
gave it and other poor countries, preferential access to rich markets such as the USA and the
European Union.

On January 2005, however that system was scrapped in favor of one that was based on free
trade principles. From them on, exporters scrapped in favor of one that was based on free
trade principles. From then on, exporters in Bangladesh would have to compete for business
against producers from other nations such as China and Indonesia. Many analysts predicted
the quick collapse of Bangladesh’s textile industry. The predicted a sharp jump in
unemployment, a decline in the country’s balance of payments (BoP) accounts and a negative
impact on economic growth.

The collapse didn’t happen. Bangladesh’s exports of textiles continued to grow, even as the
rest of the world plunged into an economic crisis in 2008. Bangladesh’s exports of garments
rose to US $ 10.7 billion in 2008 up from $9.3 billion in 2007 and $8.9 billion 2006.
Apparently, Bangladesh has an advantage in the production of textile – it is one of the
world’s low cost products and this is allowing the country to grow its share of world markets.

As a deep economic recession took hold in developed nations during 2008-09, big importers
such as Walmart increased their purchases of low-cost garments from Bangladesh to better
serve their customers, who were looking for low-cost garments from Bangladesh to better
serve their customers, who were looking for low prices. Li &Fund, a Hong Kong based
company that handles sourcing and apparel manufacturing, stated its production in
Bangladesh jumped percent in 2009, while production in China, its biggest supplier, slipped 5
percent.

Bangladesh’s advantage is based on a number of factors, first labor costs are low in part due
to low hour wage rates and in part due to investment by textile manufactures in productivity –
boosting technology during the past decade. Today, wage rates in the textile industries in
Bangladesh are about $50-$60 a month, less than half the minimum wage in China. While
this pay rate seems dismally low by Western standards in a country where the gross national
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income per capital is only $470 a year, it is a living wage and source of employment for some
3 million people. 85 percent of whole are women with few alternative employment
opportunities.

Another source of advantages for Bangladesh is that it has a vibrant network of supporting
industries that supply inputs to its garment manufacturers. Some three quarters of all inputs
are made locally.

This saves garment manufacturers transport and stage costs, import duties and the long lead
time that come with the imported woven fabrics used to make shirts and trousers. In other
words, the cola supporting industries help to boost the productivity of Bangladesh’s garment
manufacturers, giving them a cost advantage that goes beyond low wage rates. Bangladesh
also has the advantages of not being China. Many importers in the West have grown cautious
about becoming too dependent on China for import of specific good for fear that if there was
disruption, economic or other their supply chains would be declined unless they had an
alternative source of supply. Thus Bangladesh has benefitted from the trend by Western
importers to diversify their supply sources.

Although China remains the world’s largest exporter of garments with exports of 120 billion
2008, wage rates are rising quite fast, suggesting the trend to shift textile products away from
China may continue.

Bangladesh, however does have some negatives, most notable are the constant disruption
electricity because the government has under-invested in power generation and distribution
infrastructure. Road and ports are also inferior to those in China.

Source – Charles W H Hill, International Business

Read the above case carefully and answer the question given below -

a) What was the reason of shift to a free trade regime in the textile industry goods for
Bangladesh? [8]
b) Who reaped benefit when retailers in the USA source textile from low wage countries
such as Bangladesh? Who suffered a loss? Did the gains outweigh the losses?
Explain.

[8]

c) What international trade theory/ies best explain the rise of Bangladesh as a textile
exporting powerhouse [9]

Group B

Situational analysis/ Issue based question [25]

Facts show that Nepal has not been able to reap benefits from multilateral trading
arrangement such as the membership of the World Trade Organization (WTO) and for
regional trading arrangements such as – South Asian Free Trade Area and Bay of Bengal
Initiatives for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). How do you
examine the situation with regard to the issue of developing Nepal’s competitiveness in
international business? Support your views with theoretical justification and examples.
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 Group C

Long Answer Question [25]

Q.No.2. Justify the significance of trade theories. Compare and contrast Ricardo’s
Comparative Advantage Theory with that of Adam Smith’s Absolute Advantage
Theory with examples and diagrams.

Or

What role does the foreign exchange play in International Business? Discuss some of
the major key factors that affect the value of currency.

Group D

Short Answer Questions (Attempt any five):

[5x5=25]

Q.No.3. What is International Business? Briefly discuss some of its key features.
Q.No.4. Why is globalization a necessary condition for international business?
Q.No.5. How do international business firms formulate their strategy?
Q.No.6. What are implications of trade theories in international trade?
Q.No.7. How do you explain H-O Theory? Is it more scientific than other trade theories?
Q.No.8. Discuss the role of foreign investment in International Business.
Q.No.9. Briefly discuss how foreign exchange affect International Business.
Q.No.10. Outline some major assumptions of Michael Porter’s National Competitive
Advantage theory.

Guideline for doing questions

1) In Case Study (Group –A) try to answer the questions with theoretical justifications.
2) In Case Study – please try to relate the story with theory
3) In situational analysis/ Issue based (Group – B) question give justification with the
support of theory and information.
4) In Group C (Long answer question) – you should compare and analyze outcome.
5) In group D – (Short answer question) – your answer should be based on facts.