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Roll No: 511010554 Center Code: 1976 Ketan Ramesh Borse Center: Thane.

Semester 4

MB0053 Learning Master of Business Administration – MBA

MB0053 – International Business Management– 4 Credits (Book ID: B1315) Assignment Set – 1 (60 Marks) Note: - Each question carries 10 marks. Answer all the questions. Q.1 What is globalization? What are its benefits? How does globalization help in international business? Give some instances? Ans:- Globalization describes the process by which regional economies, societies, and cultures have become integrated through a global network of political ideas through communication, transportation, and trade. The term is most closely associated with the term economic: the integration of national economies into the international economy through trade, investment, capital, migration, the spread of technology, and military presence. However, globalization is usually recognized as being driven by a combination of economic, technological, socio cultural, political, and biological factors. The term can also refer to the transnational circulation of ideas, languages, or culture through acculturation. An aspect of the world which has gone through the process can be said to be globalized. Against this view, an alternative approach stresses how globalization has actually decreased inter-cultural contacts while increasing the possibility of international and intra-national conflict. Globalization has various aspects which affect the world in several different ways. • Industrial - emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies. Particularly movement of material and goods between and within national boundaries. Trade-in manufactured goods increased more than 100 times (from $95 billion to$12 trillion) in the 50 years since 1955.China's trade with Africa rose sevenfold during 2000-07 alone. • Financial - emergence of worldwide financial markets and better access to external financing for borrowers. By the early part of the 21st century more than

$1.5 trillion in national currencies were traded daily to support the expanded levels of trade and investment • Economic - realization of a global common market, based on the freedom of exchange of goods and capital • Job Market- competition in a global job market. In the past, the economic fate of workers was tied to the fate of national economies. With the advent of the information age and improvements in communication, this is no longer the case. Because workers compete in a global market, wages are less dependent on the success or failure of individual economies. This has had a major effect on wages and income distribution • Political - some use "globalization" to mean the creation of a world government which regulates the relationships among governments and guarantees the rights arising from social and economic globalization. Politically, the United States has enjoyed a position of power among the world powers, in part because of its strong and wealthy economy. With the influence of globalization and with the help of the United States ‘own economy, the People's Republic of China has experienced some tremendous growth within the past decade. If China continues to grow at the rate projected by the trends, then it is very likely that in the next twenty years, there will be a major reallocation of power among the world leaders. China will have enough wealth, industry, and technology to rival the United States for the position of leading world power. Most of us assume that international and global business are the same and that any company that deals with another country for its business is an international or global company. In fact, there is a considerable difference between the two terms. International companies – Companies that deal with foreign companies for their business are considered as international companies. They can be exporters or importers who may not have any investments in any other country, apart from their home country. Global companies – Companies, which invest in other countries for business and also operate from other countries, are considered as global companies. They have multiple manufacturing plants across the globe, catering to multiple markets. The transformation of a company from domestic to international is by entering just one market or a few selected foreign markets as an exporter or importer. Competing on a truly global scale comes later, after the company has established operations in several countries across continents and is racing against rivals for global market leadership. Thus, there is a meaningful distinction between a company that operates in few selected foreign countries and accompany that operates and markets its products across several countries and continents with manufacturing capabilities in several of

these countries. Companies can also be differentiated by the kind of competitive strategy they adopt while dealing internationally. Multinational strategy and global competitive strategy are the two types of competitive strategy.· Multinational strategy – Companies adopt this strategy when each country’s market needs to be treated as self contained. It can be for the following reasons:° Customers from different countries have different preferences and expectations about a product or a service.° Competition in each national market is essentially independent of competition in other national markets, and the set of competitors also differ from country to country.° A company’s reputation, customer base, and competitive position in one nation have little or no bearing on its ability to successfully compete in another nation. Some of the industry examples for multinational competition include beer, life insurance, and food products.· Global competitive strategy – Companies adopt this strategy when prices and competitive conditions across the different country markets are strongly linked together and have common synergies. In a globally competitive industry, a company’s business gets affected by the changing environments in different countries. The same set of competitors may compete against each other in several countries. In a global scenario, a company’s overall competitive advantage is gauged by the cumulative efforts of its domestic operations and the international operations worldwide. A good example to illustrate is Sony Ericsson, which has its headquarters in Sweden, Research and Development setup in USA and India, manufacturing and assembly plants in low wage countries like China, and sales and marketing worldwide. This is made possible because of the ease in transferring technology and expertise from country to country. Industries that have a global competition are automobiles, consumer electronics (like televisions, mobile phone), watches, and commercial aircraft and so on. Table 1 portrays the differences in strategies adopted by companies in international and global operations. Table 1: Differences between International and Global Strategies. Strategy International Selected target countries & trading areas Custom strategies to fit the circumstances of each host country situation Global Most global businesses operate in North America, Europe, Asia Pacific, and Latin America Same basic strategy worldwide with minor country customization where necessary

Location

Business

Product-Line

Adopted to local culture and particular needs and expectations of local buyers

Production Source of supply of raw materials Marketing & distribution

Plants scattered across many host countries, each producing versions suitable for the surrounding environment. Suppliers in host country preferred. Adapted to practices and culture of each host country Efforts made to transfer ideas, technologies, competencies and capabilities that work successfully in one country to another country whenever such a transfer appears advantageous Form subsidiary companies to handle operations in each host country; each subsidiary operates more or less autonomously to fit host country conditions

Mostly standardized products sold worldwide, moderate customization depending on the regulatory framework Plants located on the basis of maximum competitive advantage (in low cost countries close to major markets, geographically scattered to minimize shipping costs, or use of a few world scale plants to maximize economies of scale) Attractive suppliers from across the world Much more worldwide coordination; minor adaptation to host country situations if required Efforts made to use almost the same technologies, competencies, and capabilities in all country markets (to promote use of a mostly standard strategy), new successful competitive capabilities are transferred to different country markets All major strategic decisions closely coordinated at global headquarters; a global organizational structure is used to unify the operations in each country

Cross country connections

Company organization

Benefits of globalization We have moved from a world where the big eat the small to a world where the fast eat the slow", as observed by Klaus Schwab of the Davos World Economic Forum. All economic analysts must agree that the living standards of people have considerably improved through the market growth. With the development in technology and their introduction in the global markets, there is not only a steady increase in the demand for commodities but has also led to greater utilization. Investment sector is witnessing high infusions by more and more people connected

to the world’s trade happenings with the help of computers. As per statistics, everyday more than $1.5 trillion is now swapped in the world's currency markets and around one-fifth of products and services are generated per year are bought and sold. Buyers of products and services in all nations comprise one huge group who gain from world trade for reasons encompassing opportunity charge, comparative benefit, economical to purchase than to produce, trade’s guidelines, stable business and alterations in consumption and production. Compared to others, consumers are likely to profit less from globalization. Another factor which is often considered as a positive outcome of globalization is the lower inflation. This is because the market rivalry stops the businesses from increasing prices unless guaranteed by steady productivity. Technological advancement and productivity expansion are the other benefits of globalization because since 1970s growing international rivalry has triggered the industries to improvise increasingly. Globalization can be described as a process by which the people of the world are unified into a single society and functioning together. This process is a combination of economic, technological, socio cultural and political forces. Globalization, as a term, is very often used to refer to economic globalization that is integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and spread of technology. The word globalization is also used, in a doctrinal sense to describe the neoliberal form of economic globalization. Globalization is also defined as internationalism; however such usage is typically incorrect as "global" implies "one world" as a single unit, while "international" (between nations) recognizes that different peoples, cultures, languages, nations, borders, economies, and ecosystems exist (http://en.wikipedia.org/ Globalization has two components: the globalization of market and globalization of production.... Some other benefits of globalization as per statistics • Commerce as a percentage of gross world product has increased in 1986 from 15% to nearly 27% in recent years. • The stock of foreign direct investment resources has increased rapidly as a percentage of gross world products in the past twenty years. • For the purpose of commerce and pleasure, more and more people are crossing national borders. Globally, on average nations in 1950 witnessed just one overseas visitor for every 100 citizens? By the mid-1980s it increased to six and ever since the number has doubled to 12. • Worldwide telephone traffic has tripled since 1991. The number of mobile subscribers has elevated from almost zero to 1.8 billion indicating around 30% of the world population. Internet users will quickly touch1 billion. • Promotes foreign trade and liberalization of economies.

and standardized delivery models across countries. . customer services. . .Provides better quality of products. digital communication.. . travel and so on. Outsourcing helps the companies to be competitive by keeping the cost low. · Causes ecological damage as the companies set up polluting production plants in countries with limited or no regulations on pollution. transportation. which in turn leads to a flourishing travel and hospitality industry across the world.Increases the living standards of people in several developing countries through capital investments in developing countries by developed countries. which facilitates international trade. with increased productivity. Leads to free flow of information and wide acceptance of foreign products. Benefits customers as companies outsource to low wage countries. · Increases sales as the availability of cutting edge technologies and production techniques decrease the cost of production · Provides several platforms for international dispute resolutions in business. globalization has improved our lives in various fields like communication. · Promotes better education and jobs. healthcare. · Influences political decisions in foreign countries. The MNCs increasingly use their economical powers to influence political decisions. · Gives better access to finance for corporate and sovereign borrowers. and education. · Leads to the misuse of IPR. Some of the ill-effects of globalization are as follows: · Leads to exploitation of labor in several cases. ethics. Causes unemployment in the developed countries due to outsourcing. · Harms the local businesses of a country due to dumping of cheaper foreign goods. In spite of its disadvantages. copyrights and so on due to the easy availability of technology. ideas. · Causes destruction of ethnicity and culture of several regions worldwide in favor of more accepted western culture. best practices. and culture. . · Leads to adverse health issues due to rapid expansion of fast food chains and increased consumption of junk food.· Increases business travel.

which human has created. What is culture and in the context of international business environment how does it impact international business decisions? Ans: Culture is defined as the art and other signs or demonstrations of human customs. other than their culture. customs. The following are the four factors that question assumptions regarding the impact of global business in culture . and systems must be modified . It is the duty of people to respect other cultures. arts. · The consumers across the world do not use same products. · Globalization is only one of many processes involved in cultural change . Culture is an important factor for practicing international business. even though the marginalized groups represent a majority or a minority in the society. Before manufacturing any product. civilization. the organization has to be aware of the customer choice or preferences · The organization must manage and motivate people with broad different cultural values and attitudes. The following are the factors which a company must consider while dealing with international business. morals. Culture is very important to understand international business. This is due to varied preferences and tastes. Research shows that national ‘cultures’’ generally characterize the dominant groups’ values and practices in society. Culture determines every aspect that is from birth to death and everything in between it. beliefs. and the way of life of a specific society or group. The company must modify the product to meet the demand of the customers in a specific location and use different marketing strategy to advertise their product to the customers. practices. and other abilities and habits gained by people as part of society . laws. · Culture is not similar to cultural practice · Globalization does not characterize a rupture with the past but is a continuation of prior trends. Adaptations must be made to the product where there is demand or the message must be advertised by the company. Cultural differences affect the success or failure of multinational firms in many ways. Culture is the part of environment. National cultures are not homogeneous and the impact of globalization on heterogeneous cultures is not easily predicted.Q2. and not of the marginal aged groups. This shows a close relation between culture and international business . Culture affects all the business functions ranging from accounting to finance and from production to service. Hence the management style. it is the total sum of knowledge.

Also. To motivate employees in North America. which help the candidate to work in a foreign environment. India. Product differentiation and marketing – As there are differences in consumer tastes and preferences across nations. however the production levels stayed high. This study showed the fact that it is tough for Japanese workers to change jobs. · The increased diversity within cultures and geographies . discontent might not impact their level of production. · The organization must consider the concept of international business and construct guidelines that help them to take business decisions. South Korea. As such.° Manage employees – It is said that employees in Japan were normally not satisfied with their work as compared with employees of North America and European countries. the demand for luxury products is limited. These models show that there is a relation between job satisfaction and production. particularly those with an ancient cultural heritage. they know that the management style and practices will be quite alike to those found in their present firm.· The organization must identify candidates and train them to work in other countries as the cultural and corporate environment differs. values and viewpoints. even if Japanese workers were not satisfied with the specific aspects of their work. · The trend is Asia centric and not European or American centric. For example. The following are the three mega trends in world cultures: · The reverse culture influence on modern Western cultures from growing economies. While this trend is changing. because of the growing economic and political power of China. in underdeveloped countries. and perform activities as they are different in different nations. Thus. The training may include language training. the fact that job turnover among Japanese workers is still lower than the American workers is true. training them on the technology and so on. The kinds of products and services that consumers can afford are determined by the level of per capita income. one’s own upbringing. The following are the two main tasks that a company must perform. and Japan and also the ASEAN. they have come up with models. product differentiation has become business strategy all over the world. . corporate training. they know that the conditions may not change considerably at another place. . The following are the necessary implications in international business: · Avoid self reference criterion such as. even if a worker can go to another Japanese entity.

Cultural differences are a trouble and always a disaster. In these societies equality and opportunity is stressed for everyone. Individualism – This dimension focuses on the extent to which the society reinforces individual or collective achievement and interpersonal relationships. Later. Professor Hosted carried out a detailed study of how values in the workplace are influenced by culture. Hofstadter’s cultural dimensions According to Dr. Professor Hofstede established a model using the results of the study which identifies four dimensions to differentiate cultures.· Masculinity – This focuses on the extent to which the society supports or discourages the traditional masculine work role model of male achievement. people. The following are the five cultural dimensions: Power Distance Index (PDI) – This focuses on the level of equality or inequality. Geert Hofstede. and control. men dominate a major part of . between individuals in the nation’s society. A country with high power distance ranking depicts that inequality of power and wealth has been allowed to grow within the society. A country with high masculinity ranking shows the country experiences high level of gender differentiation. At that time he gathered and analyzed data from many people from several countries. These cultures support extended families and collectives where everyone takes responsibility for fellow members of their group. In these cultures. and culture. A country with low power distance ranking depicts the society and de-emphasizes the differences between its people’s power and wealth. · Discover and identify global segments and global niche markets. Individuals in these societies form a larger number of looser relationships. A high individualism ranking depicts that individuality and individual rights are dominant within the society. and making them accessible so that. Allow individualism ranking characterizes societies of a more collective nature with close links between individuals. power. a fifth dimension called ‘long-term outlook’ was added. capital. He worked as a psychologist in IBM from 1967 to 1973. as national markets are diverse with growing mobility of products. · Grow the total share market by innovating affordable products and services. These societies follow caste system that does not allow large upward mobility of its people. they are affordable for even subsistence level consumers rather than fighting for market share · Organize global enterprises around global centers of excellence.· Follow a philosophical viewpoint that considers that many perspectives of a single observation or phenomenon can be true. ‘Culture is more often a source of conflict than of synergy.

Cadbury which were in complete extremes in terms of culture. A country with low uncertainty avoidance ranking shows that the country has less concern about ambiguity and uncertainty and has high tolerance for a variety of opinions. A country with low masculinity ranking shows the country. and have thrift for investment. and masculinity dimension rank is 62. · Conflicting attitudes. In low masculinity cultures. laws. Cultural elements that relate business The most important cultural components of a country which relate business transactions are: · Language. Every society has its own unique culture. and takes greater risks reflects a low uncertainty avoidance ranking. Many western cultures score considerably low on this dimension. having a low level of differentiation and discrimination between genders. Culture must not be imposed on individuals of different culture. trust in absolute truth is conventional and traditional. Cultures recording little on this dimension. Cross cultural management is defined as the development and application of knowledge about cultures in the practice of international management. A society which is less rule-oriented. · Religion. based company Kraft acquired the British chocolate giant. In India. A country with high uncertainty avoidance ranking shows that the country has low tolerance for uncertainty and ambiguity. accept change easily. in which a U. They have a small term orientation and a concern for stability. women are treated equal to men in all aspects of the society. A rule-oriented society that incorporates rules. . and controls is created to minimize the amount of uncertainty. regulations. The Asian countries are scoring high on this dimension. For example. Let us discuss the major cultural elements that are related to business. with women being controlled and dominated by men. when people involved have diverse cultural identities. believe in many truths. LTO dimension rank is 61. PDI is the highest Hosted dimension for culture with a rank of 77. the Cadbury Kraft Acquisition.S. readily agrees to changes.· Uncertainty Avoidance Index (UAI) – This focuses on the degree of tolerance for uncertainty and ambiguity within the society that is unstructured situations. 2009 was a landmark international deal.the society and power structure. These countries have a long term orientation. Long-Term Orientation (LTO) – Describes the range at which a society illustrates a pragmatic future oriented perspective instead of a conventional historic or short term point of view.

and adjusting to change. Cultural diversity offers key chances for joint work and co-operative action. The most important aspect to qualify as a manager for positions of international responsibility is communication skills. Economy is benefited when the work groups are managed successfully. the production of two or more individuals or groups working in cooperation is larger than the combined production of their individual work. · Identifying and solving disagreements. The organization’s capability to draw. · Formulating and applying plans for modification. The managers must adapt to other culture and have the ability to lead its members.International managers in senior positions do not have direct interaction that is face-to-face with other culture workforce. racial. Any organization that tries to enforce its behavioral customs on unwilling workers from another culture faces conflict. the work experience helps to overcome gender. save. and inspire people from diverse cultures can give the organization spirited advantages in structures of cost. and . Diverse groups require time to solve issues of working together. but several home based managers handle immigrant groups adjusted into a workforce that offers domestic markets. over time. problem solving. The factors to be considered in cross cultural management are: Cross cultural management skills The ability to demonstrate a series of behavior is called skill. · Establishing and applying formal structures. creativity. The managers cannot expect to force members of other culture to fit into their cultural customs. Group work is a joint venture where. · Identifying the importance of informal structures. which is the main assumption of cross cultural skills learning. Handling cultural diversity Cultural diversity in a work group offers opportunities and difficulties. The manager has to possess the skills linked with the following: · Providing inspiration and appraisal systems. Factors controlling group creativity On complicated problem solving jobs diverse groups do better than identical groups. It is functionally linked to achieving a performance goal. In diverse groups.

· Value the chance for crosscultural learning. It is better to ignore. Diverse groups do well when the members · Assist to make group decisions. They also provide diversity training. In such cases. Ignore diversity It may be difficult to manage diversity. and gives time for the group to overcome the usual process difficulties. which is an alternative. Negative stereotypes are emphasized if it fails. · Tolerate uncertainty and try to triumph over the inefficiencies that occur when members of diverse cultures work together. confusion occurs when the diverse value systems are not identified that are held by different staff groups. The top management level provides its moral and administrative support. and the group members are rewarded for their commitment. Strategies to ignore diversity may be possible when culture groups are given various jobs. and sharing required resources are independent in the workplace. But the impact cannot be evaluated and there is always risk in creating a diverse group.· Identifies diversity but does not have the skill to manage the diversity. A successful group is profitable with respect to quick results and the creation of concern for the future. Groups and group members are equally incorporated and work together.· Down-play the importance of cultural diversity. · Identifies that the job provides no chances for drawing advantages from diversity. · Value the exchange of different points of view. A diverse group is known to be more creative. · Thinks the likely benefits of identifying and managing diversity do not validate the expected expenses. This rejection to identify diversity happens when management:· Fails to have sufficient awareness and skills to identify diversity. Cosmos Limited wants to enter international markets. Q3. Factors related with the industry and company culture are also important. where the members are tolerant of differences.organizational and functional discriminations.· Recognizes the negative consequences of identifying diversity probably cause greater issues than ignoring it. Will country risk analysis help Cosmos Limited to take correct decisions? Substantiate your answer . The management must:· Ignore cultural diversity within the employees. · Respect each other’s skills and share their own.

All business dealings involve risks. Analysts have categorized country risk into following groups:· Economic risk – This type of risk is the important change in the economic structure that produces a change in the expected return of an investment. . currencies. policies. With globalization. It misanalyses as a function of a country’s ability to earn foreign currency. economic. The CRAmonitors the potential for these risks to decrease the expected return of a cross-border investment. and geography. These additional risks are called country risks which include risks arising from national differences in socio-political institutions. international.· Exchange risk – This risk occurs due to an unfavorable movement in the exchange rate. Whenever investors or companies have assets or business operations across national borders. it implies that effort in earning foreign currency increases the possibility of capital controls. It is used to survey countries where the firm is engaged in international business. the financial markets are being refined with the introduction of new products. Therefore. they face currency risk if their positions are not hedged. An increasing number of companies involving in external trade indicate huge business opportunities and promising markets. economic structures. and social upheavals in a foreign country. a multinational enterprise (MNE) that sets up a plant in a foreign country faces different risks compared to bank lending to a foreign government. Since the 1980s. It includes effects caused by problems in a region or in countries with similar characteristics. monetary. Risk arises from the negative changes in fundamental economic policy goals (fiscal. Some categories relevant to a plant investment contain a much higher degree of risk because the MNE remains exposed to risk for a longer period of time. Exchange risk can be defined as a form of risk that arises from the change in price of one currency against another. they bring additional risks compared to those in domestic transactions. country risk analysis has become essential for the international creditors and investors Overview of Country Risk Analysis Country Risk Analysis (CRA) identifies imbalances that increase the risks in a crossborder investment.· Location risk – This type of risk is also referred to as neighborhood risk. CRA represents the potentially adverse impact of a country’s environment on the multinational corporation’s cash flows and is the probability of loss due to exposure to the political. For example.· Transfer risk – Transfer risk arises from a decision by a foreign government to restrict capital movements.Answer: Country risk analysis is the evaluation of possible risks and rewards from business experiences in a country. or wealth distribution or creation). When business transactions occur across international borders. and avoids countries with excessive risk. The MNE must consider the risks from a broader spectrum of country characteristics.

For example. Country risk is determined by the costs and benefits of a country’s repayment and default strategies. Country detailed risk refers to the unpredictability of returns on international business transactions in view of information associated with a particular country. tariffs. The ways of evaluating country risks by different firms and financial institutions differ from each other. It is essential to analyze the sustainable amount of funds a country can borrow. CRA regulates the estimated cash flows and explores the main techniques used to measure a country’s overall riskiness.Location risk includes effects caused by troubles in a region. The techniques used by the banks and other agencies for country risk analysis can be classified as qualitative or quantitative. Risk assessment requires analysis of many factors. It is mainly used by MNCs. corruption and bureaucracy also contribute to the element of political risk. The assessment of country risk is used to incorporate country risk in capital budgeting and modify the discount rate. Sovereign risk is closely linked to transfer risk in which a government may run out of foreign exchange due to adverse developments in its balance of payments. including the decision-making process in the government. Country risk is composed of all the uncertainty that defines the risk of country exposure. Analyzing the country risk helps in evaluating the risk for a planned project considered for a foreign country and assesses gain and loss possibility outcomes of cross. The international trade growth and the financial programs development demand periodical improvement of risk methodology and analysis of country risks. or in countries with similar perceived characteristics. in trading partner of a country. investment projects and their cash flows. war. Country risk is due to unpredicted events in a foreign country affecting the value of international assets. Sovereign risk – This risk is based on a government’s inability to meet its loan obligations. The analysis of country risks distinguishes between the ability to pay and the willingness to pay. A survey conducted by the US . It can be used to monitor countries where the MNC is engaged in international business. or restriction in repatriation of profits.border investment or export strategy. tax laws. It also relates to political risk in which a government may decide not to honor its commitments for political reasons· Political risk – This is the risk of loss that is caused due to change in the political structure or in the politics of country where the investment is made. in order to avoid countries with excessive risk. Many agencies merge both qualitative and quantitative information into a single rating. Purpose of Country Risk Analysis Risk arises because of uncertainty and uncertainty occurs due to the lack of reliable information. expropriation of assets. relationships of various groups in a country and the history of the country.

are associated with the country’s real ability to repay its commitments. Fully qualitative method can be adapted to the unique strengths and problems of the country undergoing evaluation. the MNC can assess definite employees who have the capability to evaluate the risk characteristics of a particular country. Therefore. consistent and comparable. in which the scoring needs subjective determinations. In structured qualitative method. The MNC gets responses from its evaluation and then may determine some opinions about the risk of the country. The economic. The standard economic variables that are found mainly in the varied approach adopted by financial institutions and rating agencies. business executives. in which the scoring does not need personal judgment of the country being scored or qualitative. it is easier to make comparisons between countries as it follows specific formatacross countries. political. The standard variables are used to maintain the regular analysis comparable with similar works of other countries. All items are scaled from the lowest to the highest score. financial and currency risk components are based on the variables (quantitative and qualitative variables). This technique was the most popular among the banks during the late seventies.EXIM bank classified the various methods of country risk assessment used by the banks into four types. principal component analysis. Checklist method – The checklist method involves scoring the country based on specific variables that can be either quantitative.The basic data is important to analyze a country. and social conditions and prediction. The sum of scores is then used to determine the country risk.· Delphi technique – The technique involves a set of independent opinions without group discussion. As applied to country risk analysis.· Structured qualitative method – The structured method uses a uniform format with predetermined scope. It includes general discussion of a country’s economic. Inspection visits – Involves travelling to a country and conducting meeting with government officials. The balance of payments (summary account of economic transactions among a country and the others nations of the world. They are:· Fully qualitative method – The fully qualitative method involves a detailed analysis of a country. the first step is to make sure that the historical series of official data are reliable. The variables must consider the particularities of each country and the needs of the model used. during a period) and its evolution through the years means a strong source of data. These meetings clarify any vague opinions the firm has about the country· Other quantitative methods – The quantitative models used in statistical studies of country risk analysis can be classified as discriminate analysis. . and consumers. log it analysis and classification and regression tree method Data sourcing .

Both country risk studies and business risk analysis enhances wealth from the available resources.The risk management demands a regular follow up regarding governmental policies. life expectancy. Tools . Corporate risk . natural resources. The analysis must consider the historical behavior of the exchange rate and the policy which made clear whether the country follows a rational economics approach or it uses the exchange rate as a tool to maintain a forced macroeconomic equilibrium.· Table of financial markets performance – Follow up the behavior of bonds and stocks already issued and to be issued. as it balances the transactions (balances the prices of goods. The content of country risk analysis mainly involves country history. Following are the tools recommended. broken by sectors and products. ratios for economic risk evaluation and strength and weakness chart. inflation rate and so on. level of literacy and so on. external and internal environment. corporate risk.The exchange rate (currency risk) is another important variable considered. Table of macroeconomic variables – Provides alert signals when the behavior of any ratio presents a relevant change. the private sector. The social-political aspects are necessary for all kind of analysis as they describe the whole setting of the running economy. outlook provided by rating agencies. rate of birthday. GDP or GNP. consumption. The main historical data provides a good understanding of the key factors which draw the behavior of the society. . dependency level.The historical brief helps to identify aspects that interfere in the future behavior of the country. level of investments. Chain of value – Includes the main countries that sustain trade relationships with the nation. Strength and weakness chart – Focus the key aspects that warn the country. political. The analysis must be accomplished with qualitative variables. and capital) between residents and non-residents. the government. Apart from the macroeconomic variables which deal with the external sector of the economy. internal savings. and the relationships to neighbor nations and the world as a whole. This clarifies that those kind of analysis procures extensive knowledge from the business approach for companies. in terms of capital. the economical. which consider social aspects as population. rate of unemployment. money supply. technology and labor forces. external environment. domestic financial system. Country history . public debt and its service. including financial theory. and so on. there are some other relevant variables such as the interest rate. the legal environment. services. reducing the ability to payback any external commitment.

from the principal banks of the country. An economy which presents less instability in its prices of goods and services. External environment . When domestic banks do not have a consistent risk management policies and adequate provisions to theirs credits. the improvement of the economic blocks. Therefore. The figures must be presented in historic series (at least five years) to provide information about its progress. Ratios for economic risk evaluation . All these aspects are significant to identify the dependency level of the country. In this case. a complete vision on economic trends. the analysis must consider the health of the domestic financial system.Cross-border economic risk analysis evaluates the probable macroeconomic ratios among some variables. Globalization has brought international business to the center of the discussions and the external environment has become vital for all countries. which can be real values. provides huge facilities to decision makers based on their predictions to expected returns of . Thus.The banking sector has implemented many actions to avoid losses. Apart from those procedures. economic block in which it belongs to. by evaluating information provided by the Central Banks and. The monetary policy is essential as it deals with the price stability. Domestic financial system . financial crisis and international liquidity is a framework over which the analysis must start. the country risk happens to be the worst.The external trade is an important factor to the development of societies. The international banks had developed many tools to deal with international crisis. the level of openness of the world economy. the behavior of financial markets.Dependency level . Basel Committee has defined some strong measures to be followed by the financial houses and Central Banks are trying to monitor their jurisdictions. percentages. or relations.The next step after the history in brief. the maturity of debts (internal and external) and the available sources of financing also help to measure the freedom grades of the country. is a clear definition about how the country is positioned in the world in terms of its wide relationships. They can be separated into two groups such as domestic and external. the forecasts for conflicts among nations. The mainly used ratios and variables in case of domestic economy are the following:· Gross domestic product (GDP) –· GDP per capita –· GDP growth rate –· Unemployment rate –· Internal savings or GDP –· Investment or GDP –· Gross domestic fixed investment or variation of GDP– Gini Index –·Growth domestic fixed investment or gross domestic savings–. after the international crisis. recently Asia and Turkey crisis have shown that the inspection is not enough to keep the reliability of some domestic system. The financial dependency to meet the needs of a country is also a strong concern for the analyst. importance of international trade and so on.·Budget deficit or GDP–·Internal debt or GDP. Accessing Centrals Bank policies and supervising procedures also help to evaluate the health of the financial system.

Q4. agriculture phase. Despite the differences in religious teachings. and standards of human conduct and its application in daily life to determine acceptable human behavior. and the industrial phase. and is a matter of concern in the corporate world. but in the pursuit . the strength and weakness chart can be used to merge each strength and weakness with the related scenario. religions agree on the fundamental principles and ethics. principles. Real interest rate – Percentage increase in the money supply The mainly used ratios and variables in case of external economy are the following:· External debt or GDP – Short term debts and reserves –Exchange currency rate – External debt services and exports Strength and weakness chart . Every organization is expected to abide the law. for example dishonesty. an orderly social system. applies to business as well. These values and standards are important because the code of conduct of people reflects on the culture they belong to. and stress on social responsibility as contributing factors to general well-being. These phases reflect the changing economic and social arrangements in human history. All major religions preach the need for high ethical standards. Managers are influenced by three factors affecting ethical values. Behavior that is considered unethical and immoral in society. Business ethics pertains to the application of ethics to business. economical and political environment. Law – Law refers to the rules of conduct. is a model of relationships among several variables(quantitative and qualitative) to show their interdependency and the complexity of analysis. Culture – Culture refers to a set of values and standards that defines acceptable behavior passed on to generations.In order to explain the significant aspects provided by the analysis. Business ethics is almost similar to the generally accepted norms and principles. Religion – Religion is one of the oldest factors affecting ethics. All these aspects request a systematic approach over price indicators such as the following. Laws change and evolve with emerging and changing issues. approved by the legal system of a country or state that guides human behavior. Civilization is the collective experience that people have passed on through three distinct phases: the hunting and gathering phase.investments and a firm social. These factors have unique value systems that have varying degrees of control over managers. How can managers in international companies adjust to the ethical factors influencing countries? Is it possible to establish international ethical codes? Briefly explain? Ans: Ethics can be defined as the evaluation of moral values.

These ethical issues create complications to Multi-National Companies (MNCs) while dealing with other countries for business. but are practiced differently. Employees feel proud to be a part of an organization that is respected by the public. The role of business ethics is evident from the conception of an idea to the sale of a product. organizations must ascertain that they are honest in their transactions. and disregard for environmental protection laws. Hence. Ethics is significant in all areas of business and plays an important role in ensuring a successful business. a business that is inspired by ethics is a profitable business. customer service. and accounting and taxation has to follow certain ethics. The services or products of a business affect the lives of thousands of people. and the public. Ethical decisions take into account various social. Costs of audit and investigation are lower in an ethical company. A company that practices good ethical creates a positive impression among its stakeholders. every division such as sales and marketing. Public image – In order to gain public confidence and respect. issues related to ethical values and traditions become more common. Profit maximization – Companies that emphasize on ethical conduct are successful in the long run. organization ethics is equally significant. It is important for the top management to impart high ethical standards to their employees. many companies have formulated well-designed codes of conduct to help . economic and ethical factors. even though they lose money in the short run. With the rise in global firms. its employees. who develop these services or products. Protection of society – In the absence of proper enforcement. laws are frequently violated. producing inferior quality goods. Most countries have similar ethical values. In an organization. and their ethically acceptable behavior. This section deals with the way individuals in different countries approach ethical issues. People tend to favor the products and services of such organizations. Management’s credibility with employees – Common goals and values are developed when employees feel that the management is ethical and genuine. Thus. companies benefit from being ethical because they attract and retain good and loyal employees. Thus. Generous compensations and effective business strategies do not always guarantee employee loyalty. a business organization can save government resources and protect the society from exploitation. Better decision-making – Decisions made by an ethical management are in the best interests of the organization. A company that is ethically and socially responsible has a better public image. Hence.of profit. Investors’ trust is just as important as public image for any business. Management’s credibility with employees and the public are intertwined. organizations are responsible to practice ethics and ensure mechanisms to prevent unlawful events. finance. by propagating ethical values. The most common breach of law in business is tax evasion.

Some of the ethical requirements for international companies are as follows: · Respect basic human rights. we believed that ethics is a prerogative of individuals. and hence. For example. · Maintain high standards of local political involvement. Culture is a major factor which influences marketing decisions and practices in a foreign country. or soliciting something of value for the purpose of influencing the action of officials in the discharge of their duties. · Transfer technology. · Protect the consumer. in the middle-eastern countries the prior approval of the governing authorities should be taken if a firm plans to advertise a product . The issue arises when there are differences in perception in different countries. but now this perception has immensely changed. Corruption is the abuse of public office for personal gain. Worker compensation – Businesses invest in production facilities abroad because of the availability of low-cost labor. considered unlawful. in the Middle East. Bribery and corruption – Bribery can be defined as the act of offering.their employees. · Minimize any negative impact on local economic policies. When a manager of an international firm faces an ethical problem. Two of the most prominent issues that managers in MNCs operating in foreign countries face are bribery and corruption and worker compensation. · Employ labor practices that are not exploitative. In Britain it is considered as an attempt to bribe the official. For example. Code of conduct for MNCs -The code of conduct for MNCs refers to a set of rules that guides corporate behavior. Many companies use management techniques to encourage ethical behavior at an organizational level. The disparity arises due to the differences in the regulatory standards in the two countries. · Protect the environment. accepting. it is perfectly acceptable to offer an official a gift. certain models help in solving these ethical issues. which enables them to offer goods and services at a lower price than their competitors. The issue arises when workers are exploited and are underpaid compared to the workers in the parent country who are paid more for the same job. These rules prescribe the duties and limitations of a manager. The top management must communicate the code of conduct to all members of the organization along with their commitment in enforcing the code. Earlier.

the decision to compete abroad is always a strategic down to business decision rather than simply a reaction.5 Discuss the international marketing strategies. It also increases the living costs and protects inefficient domestic firms. some countries prevent foreign firms from entering into its market space through protective legislation. economic trends. Some firms go abroad as the result of potential opportunities to exploit the market and to grow globally. comparative advantage. Market sizes. · Pursuing potential abroad. · Globalizing for defensive reasons. Taking into account the various conditions on which markets vary and depend. · Exploiting product life cycle differences (technology).· Exploiting different economic growth rates.· Following customers abroad (customer satisfaction). demographic conditions. How is it different from domestic marketing strategies? Ans:. Like. The decision of a firm to compete in foreign markets has many reasons. tax structures. But. appropriate marketing strategies should be devised and adopted. and the stage in . there can be other reasons like competition at home. The decision of a firm to compete internationally is strategic.International marketing refers to marketing of goods and products by companies overseas or across national borderlines. And for some it is policy driven decision to globalize and to take advantage by pressurizing competitors. including its management and operations locally. therefore the firms planning to venture abroad must analyze all segments of the market in which they expect to compete. Protectionism on the long run results in inefficiency of local firms as it is inept towards competition from foreign firms and other technological advancements.related to women’s apparel. · Pursuing geographic diversification. Firms that plan to do business in foreign land find the marketplace different from the domestic one. customer preferences. Strategic reasons for global expansion are:· Diversifying markets that provide opportunistic global market development. The techniques used while dealing overseas is an extension of the techniques used in the home country by the company. and marketing practices all vary. it will have an effect on the firm. Likewise. Q. To counter this scenario firms must learn how to enter foreign markets and increase their global competitiveness. as showcasing some aspects of women clothing is considered immodest and immoral. · Pursuing a global logic or imperative to harvest new markets and profits.

This is task is not easy. the firms should position their product in the global market. stressing on service characteristics such as heterogeneity (variation in standards among providers. and perish ability. To a certain extent. Product positioning is the process of creating a favorable image of the product against the competitor’s products. standardisation proposes the marketing of one global product. personalities. Markets can be segmented into nine categories. lifestyles and so on. documentation. In the process of developing an international marketing strategy. These service components are an integral part of the product and its positioning. education and gender. Intel microprocessors are the same irrespective of the country in which they are sold. Demographic segmentation considers the factors like age. and distribution. Firms have a choice in marketing their products across markets. frequently even among different locations of the same firm). with the belief that the same product can be sold indifferent countries without significant changes. the firm may decide to do business in its homecountry (domestic operations) only or host-country (foreign country) only. firms opt for a strategy which involves customization. On the other hand. For example. a warranty. a firm should carefully look at their geographic expansion and global marketing strategy.Some thinkers of the industry tend to draw a distinction between conventional products and services. Psychographic segmentation takes into account: beliefs. attitudes. intangibility. . income. which include the behavioral. a firm makes a decision about its extent of globalization by taking a stance that may span from entirely domestic to a global reach where the company devotes its entire marketing strategy to global competition. Typically. values. In order to succeed.Firms that serve global markets can be segregated into several clusters based on their similarities. Many a times. Segmentation . Segmentation helps the firms to serve the markets in an improved way. opinions. through which the firm introduces a unique product in each country.the product life cycle. psychographic. International product policy .The next step in the marketing process is. believing that tastes differ so much between countries that it is necessary to create a new product for each market. culture. but the most common method of segmentation is on the basis of individual characteristics. Each such cluster is termed as a segment. Market positioning . In global markets product positioning is categorized as high-tech or high–touch positioning. inseparability from consumption. One challenge that firms face is to make a trade-off between adjusting their products to the specific demands of a country and gaining advantage of standardization such as the maintenance of a consistent global brand image and cost savings. products are composed of some service component like. The basis of behavioral segmentation is the general behavioral aspects of the customers. and demographic segmentations.

fuel is relatively cheap.Pricing is the process of ascertaining the value for the product or service that will be offered for sale. and transfer pricing. much of the design is identical or similar. The strategies for international pricing can be classified into the following three types: · Market penetration· Market holding: · Market skimming: The factors that influence pricing decisions are inflation. The Arm’s Length pricing rule is used to establish the price to be charged to the subsidiary. and product quality.S. and then again. In international markets. The pricing policy must be consistent with the firms overall objectives. market share. some of them are:· “Sticker” price changes–. when moving a product between markets minor modifications are made to the product. . and geocentric. which are sold between such related units. survival. Price can be defined by the following equation Price = Resonance given up Goods Received : The pricing decision enables us to change the price in many ways. devaluation and revaluation. Here. additional cost considerations. and longer distribution channels. nature of product or industry and competitive behavior. polycentric. market demand. therefore cars have larger engines than the cars in Asia and Europe.Finally. International pricing decisions . transfer at cost and cost-plus pricing. then it can determine the price appropriately. multiple currencies. the firm must know its target market well because when the firm is clear about the market it is serving. status quo. Some common pricing objectives are: profit. making pricing decisions is entangled in difficulties as it involves trade barriers. The approach taken by company towards pricing when operating in international markets are ethnocentric. return on investment. For example. Transfer pricing is determined in three ways: market based pricing. in most cases firms will go for some kind of adaptation. ·Change quantity –· Change quality –· Change terms – Transfer pricing Transfer pricing is the process of setting a price that will be charged by a subsidiary (unit) of a multi-unit firm to another unit for goods and services. in U. Before establishing the prices.

However. in common terminology. The target audience differs from country to country in terms of the response towards humor or emotional appeals. · Promoting sale of goods to the customer. . and other charges. values. Some companies directly perform the distribution service by contacting others whereas a few companies take help from other companies who perform the distribution services. · The assembly of an attractive assortment of goods. External factors include taxes. In other cases. International advertising is a business activity and not just a communication process. The acquisition of local firms by global players has resulted in a number of local brands. A firm may find it unfavorable to change those names as these local brands have their own distinctive market . Internal transfer pricing include motivating managers and monitoring performance. and consumption patterns. International advertising is also reckoned as a major force that mirrors both social values. tariffs. globalised firms use the same advertising agencies and centralise the advertising decisions and budgets.Many managers consider transfer pricing as non-market based.International advertising is usually associated with using the same brand name all over the world. Transfer Pricing Manipulation (TPM) is used to overcome these reasons. This industry is growing worldwide. The distribution services include:· The purchase of goods. However. Companies have their own ways of distribution. Governments usually discourage TPM since it is against transfer pricing. perception or interpretation of symbols and stimuli and level of literacy. It involves advertisers and advertising agencies that create ads and buy media in different countries. a firm can use different brand names for historic reasons. local subsidiaries handle their budget. and propagates certain values worldwide. International promotion and distribution Distribution of goods from manufacturer to the end user is an important aspect of business. Sometimes. International advertising can be thought of as a communication process that transpires in multiple cultures that vary in terms of communication styles. · Holding stocks. transfer pricing generally refers TPM. resulting in greater use of local advertising agencies. The reason for transfer pricing may be internal or external.The purpose of international advertising is to reach and communicate to target audiences in more than one country. International advertising : . where transfer pricing is the act of pricing commodities or services.

This approach is termed ‘re geocentric approach’. the marketing is for the domestic operations of the firm in that country. there is no international phenomenon. And hence.· The physical movement of goods. In international marketing. Sri lanka and Pakistan.Domestic marketing refers to the practice of marketing within a firm’s home country. This is a very basic stage of global marketing. . companies usually take the advantage of other countries for the distribution of their products. that is. International marketing . Hence. In domestic marketing a firm has insight of the marketing practices.· International marketing – Now. foreign marketing deals with these questions and tries to find answers according to the foreign market conditions and it provides a micro view of the market at the firm’s level. Domestic marketing finds the "how" and "why" a product succeeds or fails within the firm’s home country and how the marketing activity affects the outcome. The stages that have led to achieve global marketing are: · Domestic marketing – Firms manufacture and sell products within the country. Domestic vs. Selecting the distribution channel is very important for agents and distributors.· Global marketing – Company operating in various countries opts for a common single product in order to achieve cost efficiencies. the products are developed based on the company’s domestic market although the goods are exported to foreign countries. a firm may decide to sell same products in India. The distribution channel is also dependent on the way to manage and control the channel. Here. making different products for different countries. This is achieved by analyzing the requirements and the choice of the customers in those countries. the number of countries in which the firm is doing business gets bigger than that in the earlier stage. Whereas. customer preferences. culture. Multinational marketing – In this stage. assuming that the people living in this region have similar choice and at the same time offering different product for American countries. while it is not totally aware of the policies and the market conditions of the foreign country. Firms start to sell products to various countries and the approach is ‘polycentric’. This approach is called ‘Geocentric approach’. The selection of distribution channel is helpful to gain the competitive advantage. the company identifies the regions to which the company can deliver same product instead of producing different goods for different countries. Whereas International or foreign marketing is the practice of marketing in a foreign country. For example. Export marketing – Firms start exporting products to other countries. climate and so onof its home country.

The Financial Management can be categorized into domestic and international financial management. When the doors of liberalization opened. the product will be considered as genuine and original in some countries. International trade gave way for the growth of international business. The firm is not considered as the corporate citizen of the world as it has a home base. Culture is a major factor which influences marketing decisions and practices in a foreign country. It also means recording of transactions in a standard manner that will show the financial position and performance of the organization. The main aim of international finance management is to maximize the organization’s value that in turn will increase the impact on the wealth of the stockholders. Q. A firm that is successful internationally first obtains success locally . The rise in significance and complexity of financial administration in a .Few approaches that you can consider for an international marketing are:· Advertise as a foreign product– By doing so. entrepreneurs capitalized the opportunity to step their foot to conduct business in different parts of the world. because there are differences between the target markets (that is domestic or international markets).6 Explain briefly the international financial management components with examples and applicability. Licensing – You can sell the rights of your product to a foreign firm. Joint partnership with a local firm – finding a firm that has already established credibility will benefit a lot. The domestic financial management refers to managing financial services within the country.The practice of marketing at the international stage does not designate any country as domestic or foreign. Ans: The term ‘Financial Management’ refers to the proper maintenance of all the monetary transactions of the organization. The firm must not have a ’single marketing plan’. Here the problem is that the firm may not maintain the quality standard and therefore may hurt the image of the brand. For example. as showcasing some aspects of women clothing is considered immodest and immoral. For a corporation to be successful. International financial management refers to managing finance and share between the countries. The product will be considered as a local product by following this marketing approach. in the middle-eastern countries the prior approval of the governing authorities should be taken if a firm plans to advertise a product related to women’s apparel. it is vital to manage the finance and business accounts appropriately. There should never be a rigid marketing campaign.

the differences between the countries have persisted that has given rise to the prevalence of market imperfections Components of International Financial Management Foreign exchange market The Foreign exchange or the forex markets facilitates the participants to obtain. commercial companies. central banks. investment management firms and retail foreign exchange brokers and investors. The trading in the foreign exchange market may take place in the following forms:· Outright cash or ready – foreign exchange currency deals that take place on the date of the deal. but is created from a global network of computers that connects the participants from all over the world.· Next day – foreign exchange currency deals that take place on the next working day.global environment creates a great challenge for financial managers.· Swap – Simultaneous sale and purchase of identical amounts of currency for different maturities. The participant in a foreign exchange market will normally ask for a price. It carries the greatest risk of exchange rate fluctuations due . The foreign exchange market consists of banks. trade. hedge funds. and trade in services and currency speculation. The advantage of spot dealing has resulted in a simplest way to deal with all foreign currency requirements. A forward contract is a binding obligation to buy or sell definite amount of foreign currency at the pre-agreed rate of exchange. on or before a certain date. The foreign exchange market is immense in size and survives to serve a number of functions ranging from the funding of cross-border investment. Furthermore.· “Spot” and “Forward” contracts – A Spot contract is a binding obligation to buy or sell a definite amount of foreign currency at the existing or spot market rate. exchange and speculate foreign currency. This phenomenon is also called as liberalization. loans. The firms of all types are now opting to operate their business and deploy their resources abroad. But after the end of the Second World War. It is vital to realize that the foreign exchange is not a single exchange. international stock listing. The International Financial Management (IFM) came to its existence when the countries all over the world started opening their doors for each other. It is considered to be the leading financial market in the world. and multicurrency bonds have necessitated the accurate management of the flow of international funds through the study of international financial management. The contributions of different financial innovations like currency derivative. trade in goods. the integration in terms of foreign activities has grown substantially.

the demand and supply of currency being traded and the amount to be dealt. The main advantage from derivative hedging is the basket of currency available. the spot market exposures can be enclosed with the currency derivatives. This is often referred to as ‘Economic’ foreign exchange and most difficult to protect a business. It will permit gains if the markets move as per the expectations. The spot deal will come to an end in two working days after the deal is struck. The three ways of managing risks are as follows: Choosing to manage risk by dealing with the spot market whenever the need of cash flow rises. This will help to fix the exchange rate immediately and will give a clear idea of knowing the exact cost of foreign currency and the amount to be received at the time of settlement whenever this due occurs. Managing the business becomes difficult if it depends on the selling or buying the currency in the spot market. The currency derivative trades in markets correspond to the spot (cash) market. Often banks provide currency options which will ensure protection and flexibility. The duration will be up to two years for a forward contract. . A forward rate is based on the existing spot rate plus a premium or discounts which are determined by the interest rate connecting the two currencies that are involved. This will result in a high risk and speculative strategy since one will not know the rate at which a transaction is dealt until the day and time it occurs. Foreign currency derivatives Currency derivative is defined as a financial contract in order to swap two currencies at a predestined rate. a currency option is often demonstrated as a forward contract that can be left if it is not followed. For example. A forward market needs a more complex calculation. A currency option will prevent unfavorable exchange rate movements in the similar way as a forward contract does.to lack of certainty of the rate until the deal is carried out. It can also be termed as the agreement where the value can be determined from the rate of exchange of two currencies at the spot. Hence. The spot rate that is intended to receive will be set by current market conditions. A variation in foreign exchange markets can be affected to any company whether or not they are directly involved in the international trade or not. The premium involved might be a cash amount or it could also influence into the charge of the transaction. In general. but the likely problem to arise is the involvement of premium of particular kind. a better spot rate can be received if the amount of dealing is high. For this base. the interest rates of UK are higher than that of US and therefore a modification is made to the spot rate to reflect the financial effect of this differential over the period of the forward contract. The decision must be made to book a foreign exchange contract with the bank whenever the foreign exchange risk is likely to occur.

currency derivatives like the currency features. These will help to increase the funds of foreign currency from the cheapest sources. currency options and currency swaps are usually traded. The derivatives can be hedged with other derivatives. . . The agreement undertaken to exchange cash flow streams in one currency for cash flow streams in another currency in future is provided by currency swaps. Legal risks pertain to the counterparties of currency swaps that go into receivership while the swap is taking place. In the foreign exchange market. · Settlement risks similar to the credit risks occur when the parties involved in the contract fail to provide the currency at the agreed time. Figure 1: Example for Foreign Currency Derivatives Some of the risks associated with currency derivatives are : · Credit risk takes place. These are usually traded through organized exchanges. The standard agreement made in order to buy or sell foreign currencies in future is termed as currency futures. · Market risk occurs due to adverse moves in the overall market. · Operational risks are one of the biggest risks that occur in trading derivatives due to human error. arising from the parties involved in a contract.Figure 1 describes the examples of currency derivatives. · Liquidity risks occur due to the requirement of available counterparties to take the other side of the trade. These will help the businessmen to enhance their foreign exchange dealings. The authority to buy or sell the foreign currencies in future at a specified rate is provided by currency option.

This in turn has resulted in the lowered value of domestic currency. the International Monetary Fund (IMF) was created at the ‘Bretton Woods international Conference’ held in 1944.the gold convertibility was abandoned by the United States leaving the world without a single international monetary system. the IMF in 1976 decided to be in agreement on the float exchange rates. Later in 1971. the standard provided for the free circulation between nations of gold coins of standard specification. at the same time the US dollar diminished its . International monetary systems provide the mode of payment acceptable between buyers and sellers of different nationality. Most of the nations fixed their currency to the US dollar funds in the United States. the value of the currency is fixed by the nations with respect to some foreign currency but not with respect to gold. This standard was substituted by the gold bullion standard during the 1920s. reversed their currencies with gold bullion and determined to buy and sell the bullion at a fixed cost. In this system. This system was also discarded in the 1930s.International monetary system’s . The drain on the US gold reserves continued up to the 1970s. Any nation which exports more than its import would receive gold in payment of the balance. Thereby it can be operated successfully. which in turn will result in the increase of price abruptly.After the abundance of the gold convertibility by the US. It also consists of set of rules that govern international scenario. The gold standard was suspended and the values of different currencies were determined in the market. Instead. The gold and gold bullion standards The gold standard was the first modern international system. with addition to deferred payment. With a view to maintain stable exchange rate at the global level. supporting institutions which will facilitate the worldwide trade. The global balance can be corrected by providing sufficient liquidity for the variations occurring in trade. The sudden increase in the supply of gold may be due to the discovery of rich deposit. the investment across crossborders and the reallocation of capital between the states. thereby the nations no longer minted gold coins. It was operating during the late 19th and early 20thcenturies. The higher prices lead to the decreased demands for exports.The international monetary systems represent the set of rules that are agreed internationally along with its conventions. Floating exchange rates and recent development . The gold happened to be the only standard of value under the system. The ‘Japanese yen’ and the ‘German Deutschmark’ strengthened and turned out to be increasingly important in international financial market. The gold-exchange system Trading was conducted internationally with respect to the gold-exchange standard following World War II. The advantages of this system depend in its stabilizing influence.

The Euro was set up in financial market in 1999 as a replacement for the currencies. This is also termed as the Euro currency markets which constitute an enormous financial market that is beyond the influence and supervision of world financial and government authorities. bonds and equities are included in the international security market. Also. The private placements. the capital market that flows in to the Euro markets. international money markets. Many large companies opt to use euro rather than the dollar in bond trading with a goal to receive better exchange rates. it became the second most commonly used currency after the dollar in the international market. fixed or floating interest rates and maturities varying from one month to thirty years in an international capital markets. International financial markets . The purpose of the foreign currency markets. The greater part of the worlds that deal in foreign currencies is still taking position in the cities where international financial activity is centered. Hence.International foreign markets provide links connecting the financial markets of each country and independent markets external to the authority of any one country.significance. This means that there exists no central place where the trading can take place. Hence the purchase of goods and services is preceded by the purchase of currency. The Euro currency market is a money market for depositing and borrowing money located outside the country where that money is officially permitted tender. international capital markets and international securities markets are as follows:· The foreign currency markets – The foreign currency market is an international market that is familiar in structure. deposits or deposits that include maturities of one year or less. Iraq have opted to trade petroleum in Euro than in Dollar.· International security markets – The banks have experienced the greatest growth in the past decade because of the continuity in providing large portion of the international financial needs of the government and business. It also comprises a separate market of their own. . · International capital markets – The international capital provides links among the capital markets of individual countries. Very recently the some of the members of Organization of Petroleum Exporting Countries (OPEC) such as Saudi Arabia. The heart of the international financial market is being governed by the market of currency where the foreign currency is denominated by the international trade and investment. International money markets – A money market can be conventionally defined as a market for accounts. Euro currencies are bank deposits and loans existing outside any particular country. The firms enjoy the freedom to raise capital. The ’market’ is actually the telecommunications like among financial institutions around the globe and opens for business at any time. debit.

The majority of the deregulation that has differentiated government policy over the past 10 to 15 years. This has resulted greatly to the capacity of individuals on these markets to accomplish instantaneous arbitrage.– The financial markets have become increasingly unstable over recent years. adding to the enthusiasm for moving further capital at faster rates. . Market upswings . it is extremely simple to move the currencies and capital around the globe.The following are the reasons given for the enormous growth in the trading of foreign currency. There are faster swings in the stock values and interest rates. financing decisions and taxation.· Gain in technology and transaction cost efficiency – The advancements in technology is not only taking place in the distribution of information. Deregulation of international capital flows – Without the major government restrictions. The scope of international financial management includes management of working capital. in addition to the performance of exchange or trading.

Ans – WTO World Trade Organization (WTO). and to open services markets. Semester 4 MB0053 Learning Master of Business Administration – MBA MB0053 – International Business Management– 4 Credits (Book ID: B1315) Assignment Set – 2 (60 Marks) Note: . India is one of the founder members of WTO. The Marrakesh Declaration of 15th April 1994 was formed to strengthen the world economy that would lead to better investment. WTO represents the latest attempts to create an organizational focal point for liberal trade management and to consolidate a global organizational structure to govern world affairs. It is the only international body that deals with the rules of trades between nations. income growth and employment throughout the world. The agreements recommend governments to make their trade policies transparent. 1 . the Final Act was signed at a meeting in Marrakesh. The agreements comprise the rights and obligations of the government that are enforceable in multilateral framework. The WTO is the successor to the General Agreement of Tariffs and Trade (GATT). WTO was established on 1st January 1995.What is WTO? Explain its objectives. the government must notify the WTO about the measures adopted to make their trade policies transparent . WTO has attempted to create various organizational attentions for regulation of international trade.Roll No: 511010554 Center Code: 1976 Ketan Ramesh Borse Center: Thane. The WTO agreements are a set of rules that are followed by the member governments while formulating policies and practices in the area of international trade. According to the agreement. Answer all the questions. The agreements mainly cover goods. functions and structure. The agreement supports individual countries’ commitments to lower customs tariffs and other trade barriers. In April 1994.Each question carries 10 marks. trade. services and intellectual property. Morocco. WTO created a qualitative change in international trade.

. In the Marrakesh Ministerial Meeting in April 1994. China. The center also provides assistance in establishing export promotion and marketing services. Monitoring implementation of the agreement – The WTO administers sixty different agreements that have the statue of international legal documents. The developing countries such as India. TheWTO helps in solving the problems of developing economies. expanding productions and trade and raising standard of living and income and utilizing the world’s resources. Brazil and others have an important role in the organization. · Ensuring that developing countries secure a better share of growth in world trade. The developing states are provided with trade and tariff data. The center accepts requests from member countries. Mexico. The export promotion is done through the International Trade Center established by the GATT in 1964.· Providing help for export promotion – The WTO provides specialized help for export promotion to its members. to improve and maintain the cooperation with international organizations such as the World Bank. The new members benefit hugely from these services. It is operated by the WTO and the United Nations. The important functions of the WTO as stated in the WTO agreement are the following:· Developing transitional economies – Majority of the WTO members belong to developing countries.Objectives and functions The key objective of WTO is to promote and ensure international trade in developing countries. International Monetary Fund (IMF) that are involved in monetary and financial matters. The declaration specifies the responsibility of WTO as. Through this WTO proves its commitment in the upliftment of the world economy. WTO analyses the impact of liberalization on the growth and development of national economies which is the important factor in the success of the economy. · Providing forum for trade negotiations. a separate declaration was adopted to achieve this objective. The center provides information on export market and marketing techniques.· Promoting employment.· Cooperating in global economic policy-making – The main function of the WTO is to cooperate in global economic policy-making. · Resolving trade disputes. This depends on the country’s individual export interest and their participation in WTO-bodies. usually developing countries for support in formulating and implementing export promotion programmes. The member-governments sign and confirm all WTO agreements on attainment. The other major functions include:· Helping trade flows by encouraging nations to adopt discriminatory trade policies.

The General Council on behalf of the Ministerial Conference administers as the Dispute Settlement Body to manage the dispute settlement procedures. It also acts as the Trade Policy Review Body that conducts regular reviews of the trade policies of the individual WTO members. The daily activities of the WTO are conducted by subsidiary bodies and principally by the General Council which is composed of WTO members. · The Committee on Trade and Development manages issues relating to the developing countries.Providing forum for negotiations – The WTO provides a permanent forum for negotiations among members. . The Dispute Settlement Body(DSB) is responsible for the settlement of disputes. The WTO dispute settlement system helps to: . The dispute settlement system is prohibited from adding or deleting the rights and obligations provided in the WTO agreements. The WTO members meet in every two years and take decisions on all matters under the multilateral trade agreements. Administrating dispute settlement – The important function of WTO is the administration of the WTO dispute settlement system. It helps in settling multilateral trading dispute. This body consists of the representatives from all WTO members. They are: · Council for Trade in Goods manages the implementation and functioning of all agreements covering trade in goods. Structure . . The members report to the Ministerial Conference. The General Council delegates responsibility to other major bodies. · Committee on Budget and Administration manages issues relating to financing and budget of WTO.The structure of the WTO consists of the Ministerial Conference. · Trade in Services and Trade of Intellectual Property Rights are the two councils that have responsibility for their respective WTO agreements and can establish their own subsidiary bodies if required. Clarify the current provisions of the agreements. which is the highest authority. Preserve the rights and responsibilities of the members. The negotiations can be on matters already in the WTO agreements or matters not addressed in the WTO law. . A dispute arises when a member country adopts a trade policy and other fellow members consider it as a violation of WTO agreements.The Committee on Balance of Payments conducts consultations between WTO members and countries that take trade-restrictive measures to handle balance-ofpayments difficulties.

There are some important trends in the e-business that are described as follows. there are many technical and business trends that are associated with it. market. The Challenges of E-Business . The process of e-business is long lasting than that of the re-engineering. suppliers. The relationship with customers. Technology focus is on e-business – The hardware. and network vendors.E-business can be defined as "the use of networks and information technology in order to electronically design.Q. The ebusiness mainly stands for the internet enabled business. The e-business is done by many asynchronous experts across the globe. Nature of E-Business . Ans . buy. There are four entities in the internet enabled business. The suppliers. Some important trends in e-business are explained below. As the e-business is growing. These four entities are as shown in the figure.The e-business denotes a major trend in the management like any other trends such as the supply chain management. and employees changes as we implement ebusiness. In this section let us learn about the challenges of ebusiness. in short an electronic medium in support of all the activities of business. Many companies come out with changes that are necessary for e-business to become profitable.In the previous section.2 Explain briefly the nature of e-business and the challenges involved. deals with application of information and communication technologies. mail order service or the service economy. software. The e-business is mainly the extension of the products and services. sell and deliver products and services worldwide". E-business. E-business is crucial to business success. meaning ‘electronicbusiness’. focus on providing the tools for e-business. E-business implementation effects success and failure of a business – There will be both the success and the failures that are associated with any kind of . customers and also the competitors coordinate the e-business. we have studied about the e-business models. E-business produces cumulative effects – E-business is long lasting.

business. The basis of competition that is not shifted from traditional competitive advantages such as cost. quality. . The customer’s and partner’s expectations from the well managed. The e-business offered good products and services. management and customers. . .. There are some major success factors for e-business. profit. . service and features. The new competitors and market shares are tracked . The failures become dramatic with e-business as it is more visible externally. The buyer’s behavior and the customer personalization. . Good e-business education and training to employees. These factors are explained as follows: · Strategic factors . The organization wide commitment to e-business leadership . . The necessary support for e-business from the top management. . Correct digital infrastructure. The technologies related to the internet are used as a complement for the existing technologies. The web centric marketing strategy. . The frequent review of the distribution and supply chain model is done in order to maximize the company’s gain.The innovation was allowed when risks are low. Good cost control. .Current systems expanded to cover entire supply chain. These factors include the strategic factors. . · Structural factors. structural factors and the management oriented factors. The first-mover advantage and quick time to start . . . The strategic position of the company in the market has strengthened. · Management-oriented factors.

As a result the customers must be provided proper security and privacy to access internet. logistics. The PCI Data Security standard (PCI DSS) needs to be followed by one who handles the credit card information. employment. Many of the organizations will include different technologies both for quantitative and qualitative terms. These areas are explained in the following sections. Personal Digital Assistants (PDAs). one is the shift from manufacturing to services and second is the shift from physical resources to the knowledge resources. and services that they are offering. internet can be accessed from anywhere in the world. The uncertainties are related to the security. Legal concerns . Ebusiness is helps the radical transformation in the way that the business is done. and legal issues. Technology . There are uncertainties in e-business when compared with direct business. We also have an option of going back and seeing the basics of that information.The technology plays a major role in the concept of new economy. privacy. There are so many mechanisms for technology innovation and diffusion. . both within and outside the countries. Internet also provides the contacts to buyers and suppliers on a global basis. The top management has to communicate about the value of e-business throughout the organization.. internet marketing and advertising frauds and e-business email scams and hence one must be careful while performing e-business. The technology has two dimensions. The e-business has to undergo lot of challenges in implementing the technologies that are helpful for the organization since many of the people in the organization will not be interested to shift to the new technology and learn the new skills. Ebusiness is all about the trust between buyer and the seller so one must be careful . it is better to consider the legal concerns behind the internet. The awareness and understanding of capabilities of technology by executives. It becomes very difficult to trust the actual with the unethical. Internet also plays a vital role as it helps the small and medium enterprises in providing the cost effective possibilities to advertise their products. credit and debit card handling. Now-–a-day with the help of wireless phones. illegal. It is necessary to concern the privacy and legal matters while writing a copy and maintaining a client’s e-business. This is because whatever is printed on the net will be accessed by public throughout the world. electronic networks and value added services are helpful for speeding up the transactions and these are fundamental at the industrial level.As there is tremendous usage of internet. The introduction of technologies like the common database. They have added more value in terms of population.The e-business is facing challenges mainly in the areas of technology. The security is the primary concern in e-business. . Small scale enterprises play a vital role in the implementation of new technologies.

There is a need for on cryptographic methods for reducing the risks associated with the identification and authentication. Letters of credit are used primarily in international transactions of significant value. Bill of Ladingand Factoring. which usually provides an irrevocable payment undertaking. The letter of credit can also be source of payment for a transaction. There is a jurisdiction problem in the disputes between the buyer and seller regarding where the contract was formed and which state law applies for the contract. The legal action is taken against the false advertisements also. The cryptographic methods for eliminating the risks those are associated with the non repudiation and security.· There is a need for matching both the e-customers and e-merchants with the legally responsible parties in the real world. This e-business creates the legal relationship between the seller and buyer. It is important to check for plagiarism when the company is publishing their own articles. Q3.· Contact validity – The emerging issue is the legal validity of web wrap or click on contracts.Letter of credit: A standard. When some concepts are copyright then it is necessary to credit the original authors. meaning that redeeming the letter of credit will pay an exporter. There will also be copyright issues that is copying something from other sites and presenting the same content as their own. Jurisdiction – Contracting over the cyberspace is a challenge for the website owners and the internet is the form of communication that rises above the spatial boundaries. This type of contract is mainly found on the web site that offers goods and services for the sale. If the webmasters include some unethical information about the client then that can cause everlasting negative consequences for the client.while dealing with the transactions which involve the handling of credit and debit cards. Mention the relevance of these terms in International business . In such cases the International Chamber of Commerce Uniform applies (UCP 600 being the latest version).They are .Letter of credit. used primarily intrade finance. The risks associated with conducting e-business over the internet are explained as follows. Ans . Disclaimer notice is required at the start of any business website. Contract information – The advent of the e-business over the net is responsible for various legal issues regarding the formation of the electronic contracts. commercial letter of credit (LC )is a document issued mostly by financial. for deals between a supplier in one country and a customer in another.

letters of credit incorporate functions common togirosandTraveler's cheques. the issuing bank and the confirming bank. Whereas in a revocable LC changes to the LC can be made without the consent of the beneficiary. without giving of value / agreed to give.e..also used in the land development process to ensure that approved public facilities (streets. and a document proving the shipment was insured against loss or damage in transit. The parties to a letter of credit are usually a beneficiary who is to receive the money. buyer's bank supplies a letter of credit to seller. not goods. storm water ponds. if any. etc. i. A sight LC means that payment is made immediately to the beneficiary/seller/exporter upon presentation of the correct documents in the required time frame. the issuing bank of whom the applicant is a client.) will be built. lading. and the advising bank of whom the beneficiary is a client. In executing a transaction. the documents a beneficiary has to present in order to receive payment include a commercial. cannot be amended or canceled without prior agreement of the beneficiary. After a contract is concluded between buyer and seller. Mere examination of the documents and forwarding the same to the letter of credit issuing bank for reimbursement. sidewalks. Letters of credit (LC) deal in documents. Almost all letters of credit are irrevocable. An irrevocable LC cannot be changed unless both the buyer and seller agree. A time or date LC will specify when payment will be made at a future date and upon presentation of the required documents Negotiation means the giving of value for draft(s) and/or document(s) by the bank authorized to negotiate. . The LC could be irrevocable or revocable. Typically. viz the nominated bank. does not constitute a negotiation.

The term derives from the verb "to lade" which means to load a cargo onto a ship or other form of transportation. the short form simply refers to the main contract as an existing document. and. A bill of lading (BL. then they are to the account of the Applicant. it binds the carrier to its terms.All the charges for issuance of Letter of Credit. A through bill of lading involves the use of at least two different modes of transport from road. and •It is also a document of transfer. •Shipper's name. reimbursements and other charges like courier are to the account of applicant or as per the terms and conditions of the Letter of credit.e. i. is separate from any contract for the sale of the goods to be carried. •It is a receipt signed by the carrier confirming whether goods matching the contract description have been received in good condition (a bill will be described as clean if the goods have been received on board in apparent good condition and stowed ready for transport). •Flag of nationality. whereas the long form of a bill of lading (connaissement integral) issued by the carrier sets out all the terms of the contract of carriage). however. . it may be endorsed affecting ownership of the goods actually being carried. irrespectively of who the actual holder of the B/L. The description of charges and who would be bearing them would be indicated in the field 71B in the Letter of Credit. rail. •Order and notify party. and it may incorporate the full terms of the contract between the consignor and the carrier by reference (i. like a cheque or other negotiable instrument. it governs all the legal aspects of physical carriage. A bill of lading can be used as a traded object. This matches everyday experience in that the contract a person might make with a commercial carrier like FedEx for mostly airway parcels. and owner of the goods. The standard short form bill of lading is evidence of the contract of carriage of goods and it serves a number of purposes: •It is evidence that a valid contract of carriage. may be at a specific moment.e.sometimes referred to as BOL or B/L) is a document issued by a carrier to a shipper acknowledging that specified goods have been received on board as cargo for conveyance to a named place for delivery to the consignee who is usually identified. and sea. If the letter of credit is silent on charges. being freely transferable but not a negotiable in the legal sense. exists. negotiation of documents. The BL must contain the following information: •Name of the shipping company. air. or a chartering contract.

their weight and measurement. In certain cases a carrier may issue a separate on board certificate to the shipper. a BL may be consigned to the order of the shipper. it can be indorsed (legal spelling of endorse. in which a seller agrees to use a certain transportation to ship a good to a certain location. Consequently. Once the goods arrive at the destination they will be released to the bearer or the endorsee of the original bill of lading. whether freight costs have been paid or whether payment of freight is due on arrival at the destination. it states that delivery is to be made to the further order of the consignee using words such as "delivery to A Ltd.• Description of goods. including Bills of Exchange Act 1909 (CTH)) by A Ltd. it is called straight bill of lading. where the bill assigned to a certain party. and • Freight rate/measurements and weighment of goods/total freight While an air(AWB) must have the name and address of the consignee. In general. The carrier need not require all originals to be submitted before delivery. the number of packages. The bill of lading has also provision for incorporating notify party. The particulars of the container in which goods are stuffed are also mentioned in case of containerized cargo. The date of the BL is deemed to be the date of shipment. Main types of bill Straight bill of lading In this importer/consignee/agent is named in the bill of lading. the shipper may endorse it in blank or to a named transferee. It is a document. It details to the quality and quantity of goods. The document is dated and signed by the carrier or its agent.g. A BL endorsed in blank is transferable by delivery. the importer's name is not shown as consignee. . If the date on which the goods are loaded on board is different from the date of the bill of lading then the actual date of loading on board will be evidenced by a notation the BL.s intention to transfer. The carrier's duty is to deliver goods to the first person who presents any one of the original BL. maintained in all statute. It is therefore essential that the exporter retains control over the full set of the originals until payment is effected or a bill of exchange is accepted or some other assurance for payment has been made to him. the marks and numbers on the packages in which the goods are packed. or to order or assigns". • Gross/net/tare weight. This is the person whom the shipping company will notify on arrival of the goods at destination. or the right to take delivery can be transferred by physical delivery of the bill accompanied by adequate evidence of A Ltd. a brief description of the goods. The BL also contains other details such as the name of the carrying vessel and its flag of nationality. Where the word order appears in the consignee box. e. Order bill of lading This bill uses express words to make the bill negotiable.

Secondly. while factoring is a Financial Transaction that involves the Sale of any portion of the firm's Receivables. which reflects that the goods are received by the carrier in anything but good condition. the specialized financial organization (aka the factor).. Factoring is a transaction whereby a business job sells its accounts (i. the emphasis is on the value of the receivables (essentially a financial). not the firm’s credit. Finally. the account debtor is notified of the sale of the receivable. The three parties directly involved are: the one who sells the receivable.factoring is the sale of receivables.A clean bill of lading states that the cargo has been loaded on board the ship in apparent good order and condition. A bearer bill can be negotiated by physical delivery.Bearer bill of lading This bill states that delivery shall be made to whosoever holds the bill. The opposite term is a soiled bill of lading. and the factor bills the debtor and makes all .e. the debtor . a BL that reflects the fact that the carrier received the goods in good condition. invoices) to a third party (called a factor) at discounting exchange for immediate money with which to finance continued business. the factor obtains the right to receive the payments made by the debtor for the invoice amount and must bear the loss if the debtor does not pay the invoice amount. a bank loan involves two parties whereas factoring involves three. First. Such bill may be created explicitly or it is an order bill that fails to nominate the consignee whether in its original form or through an endorsement in blank. when we hand over the bill of lading we surrender title to the goods and our power of sale over the goods . i.e. This direct liability is called Surrender Bill of Lading (SBL). The receivable is essentially a financial associated with the debtor'sliabilityto pay money owed to the seller (usually for work performed or goods sold). Accordingly. indicating the factor obtains all of the rights and risks associated with the receivables. to obtain cash. The seller then sells one or more of its invoices (the receivables) at a discount to the third party. It is different from forfeiting only in the sense that forfeiting is a transaction-based operation involving exporters in which the firm sells one of its transactions. Surrender bill of lading Under a term import documentary credit the bank releases the documents on receipt from the negotiating bank but the importer does not pay the bank until the maturity of the draft under the relative credit. factoring is not a loan– it is the purchase of a financial (the receivable). Thus. whereas invoice discounting is borrowing where the receivable is used ascollateral. and the factor. Factoring differs from a loan in three main ways. Usually. The sale of the receivables essentially transfers ownership of the receivables to the factor. Factoring is a word often misused synonymously within voice discounting. Such a BL will not bear a clause or notation which expressively declares a defective condition of goods and/or the packaging.

Many businesses have Cash Flow that varies.) the reserve. the cost associated with the transaction which is deducted from the reserve prior to it being paid back the seller. the financial transaction is treated as a loan.payment. The use of factoring to obtain the cash needed to accommodate the firm’s immediate Cash needs will allow the firm to maintain a smaller ongoing Cash Balance. A business might have a relatively large Cash Flow in one period. the seller should never collect the payments made by the account debtor. Otherwise.) the advance. a percentage of the invoice face value that is paid to the seller upon submission. b.collections. Factoring occurs when the rate of return on the proceeds invested in production exceed the costs associated with Factoring the Receivables. Critical to the factoring transaction." Accordingly. in order to enable them to cover their Short Term cash needs in those periods in which these needs exceed the Cash Flow.) the fee. more money is made available for investment in the firm’s growth. the tradeoff between the return the firm earns on investment in production and the cost of utilizing a Factor is crucial in determining both the extent Factoring is used and the quantity of Cash the firm holds on hand. under the Principles receivables are considered sold when the buyer has "no recourse. the remainder of the total invoice amount held until the payment by the account debtor is made and c. a. such as new orders or contracts. A company sells its invoices at a discount to their face value when it calculates that it will be better off using the proceeds to bolster its own growth than it would be by effectively functioning as its “customer’s bank. firms find it necessary to both maintain a Cash Balance on hand. less the amount lost due to non-payment . as well as interest based on how long the factor must wait to receive payments from the debtor. Therefore. There are three principal parts to the factoring transaction. The factor also estimates the amount that may not be collected due to non. and makes accommodation for this when determining the amount that will be given to the seller." or when the financial transaction is substantially a transfer of all of the rights associated with the receivables and the seller's monetary liability under any "recourse" provision is well established at the time of the sale. otherwise the seller could potentially risk further advances from the factor. and might have a relatively small Cash Flow in another period. with the receivables used as collateral. Each business must then . Sometimes the factor charges the seller a service charge.In the States. By reducing the size of its cash balances. Because of this. Factoring is a method used by a firm to obtain cash when the available cash balance held by the firm is insufficient to meet current obligations and accommodate its other cash needs. and to use such methods as Factoring. The factor’s overall profit is the difference between the price it paid for the invoice and the money received from the debtor.

2. the longer a relatively low cash flow can last. The extent Cash Flow can change.4 a) Explain the role played by EXIM bank. As indicated. the variability in the cash flow will determine the size of the Cash Balance a business will tend to hold as well as the extent it may have to depend on such financial mechanisms as Factoring. the business will find it needs large amounts of cash from either existing Cash Balances or from a Factor to cover its obligations during this period of time. If cash flow can decrease drastically. Cash flow variability is directly related to 2 factors: 1.decide how much it wants to depend on Factoring to cover short falls in Cash. Generally. The solution to the problem is: Where •CB is the Cash Balance • nCF is the average Negative Cash Flow in a given period •i is the [Discount Rate] that cover the Factoring Costs •r is the rate of return on the firm’s assets Q. and how large a Cash Balance it wants to maintain in order to ensure it has enough Cash on hand during periods of low Cash Flow. the more cash is needed from another source (Cash Balances or a Factor) to cover its obligations during this time. against the costs associated with the use of Factoring. the business must balance the cost of obtaining cash proceeds from a Factor against the opportunity cost of the losing the Rate of Return it earns on investment within its business. . The length of time Cash Flow can remain at a below average level. Likewise. the business must balance the opportunity of losing a return on the Cash that it could otherwise invest. the size of the Cash Balance the firm decides to hold is directly related to its unwillingness to pay the costs necessary to use a Factor to finance its short term cash needs. In this situation. The problem faced by the business in deciding the size of the Cash Balance it wants to maintain on hand is similar to the decision it faces when it decides how much physical inventory it should maintain. The Cash Balance a business holds is essentially a Demand As stated.

Exim Bank is managed by a Board of Directors. Loan Recovery. and overseas investment by Indian companies. For example. Management Information Services.Ans. specifically sale of the finished product to the end customer. and rubber hoses for its vehicles. is a single (B2C) transaction. •Export Marketing Services Bank offers assistance to Indian companies. and only one B2C transaction. The primary reason for this is that in a typical supply there will be many B2B transactions involving subcomponents or raw materials. Reserve India. pre-shipment Agri Business Group. an automobile manufacturer makes several B2B transactions such as buying tires. The volume of B2B (Business-to-Business) transactions is much higher than the volume of B2C transactions. Corporate Finance. such as between a manufacturer and a wholesaler. or between a wholesaler and a retailer. set up in 1982 under the Export-Import Bank of India Act 1981. •Besides these. Export. Contrasting terms are business-to-consumer (B2C) and business-togovernment (B2G). to spearhead the initiative to promote and support Agri-exports. •Small and Medium Enterprise: The group handles credit proposals from SMEs under various lending programmes of the Bank. . which has representatives from the Government. The Group handles projects and export transactions in the agricultural sector for financing. The Bank's functions are segmented into several operating groups including: • Corporate Banking Group which handles a variety of financing programmes for Export Oriented Units (EOUs). a financial. Internal Audit. glass for windscreens. Human Resources Management and Corporate Affairs. The final transaction. public sector banks. Legal. • Project Finance / Trade Finance Group handles the entire range of export credit services such as supplier’s credit. the Support Services groups. and the business community. Information Technology. to enable them establish their products in overseas markets. which include: Research & Planning. •Export Services Group offers variety of advisory and value-added information services aimed at investment promotion. Importers. a finished vehicle sold to the consumer.Export-Import Bank of India is the premier export finance institution of the country. b) What are B2B and C2B business models? Business-to-business (B2B) describes commerce transactions between businesses.

a buyer opens an electronic market on its own server and invites potential suppliers to bid on the announced Requests for Quotation (RFQs). Exchanging information via extranets costs less and is more effective than through older traditional methods such as faxes and voicemail. The marketplace provides fast search and retrieval of 100. combined with personalized customer promotions based on the buying profiles of its major customers. Many businesses are now using social media to connect with their consumers (B2C). electrical. ranging from procurement notices to settlement on the Internet. This is the most common type of B2B model. An example of this model is RS Components (rswww. although most sales and marketing personnel are in the B2B sector. Although the exploitation of Internet technologies at the business-tobusiness level is in its infancy.This is a pre-determined one-toone relationship between a buyer and supplier that is supported by electronic commerce technologies. and mechanical components. The purchasing department receives electronic requisitions . impacting upon the buyer-supplier relationship in a number of areas. Buyer-Oriented Marketplace Under this model. When communication is taking place amongst employees. For example.In this model.B2B is also used in the context of communication and collaboration. 2. Supplier-Oriented Marketplace .RS Components is a leading distributor of electronic. A supplier-oriented marketplace may also provide an auctioning facility to offload surplus inventory or offer discounts to customers. The term “business-to-business" was originally coined to describe the electronic communications between businesses or enterprises in order to distinguish it from the communications between businesses and consumers (B2C). companies have now turned their attention towards the Internet to support these types of buyer-supplier relationships.000 products. this can be referred to as"B2B" communication. Companies are now pursuing a more intensive and interactive relationship with their suppliers. both business buyers and individual consumers use the same supplier-provided marketplace. however.com). Today it is widely used to describe all products and services used by enterprises. It eventually came to be used in marketing as well. In this model. and tools in Europe. Many professional institutions and the trade publications focus much more on B2C than B2B. initially describing only industrial or capital goods marketing. including the integration of manufacturing systems and supplier involvement in new product development. Established Buyer-Supplier Relationship . Due to the aforementioned limitations associated with EDI. a number of models have begun to emerge that manage transactions between buyers and suppliers: 1. NEC has developed an advanced information system to carry out a large part of its procurement activities. both organizations and consumers use the supplier-provided marketplace. they are now using similar tools within the business so employees can connect with one another. 3. instruments. One company that has successfully exploited this model is GE Lighting.

the procurement function has been able to concentrate on more strategic activities rather than clerical and administration tasks. with the marketplace itself acting as a trusted intermediary.com. In relation to payment. and utilities. some intermediaries may charge a flat fee per transaction to both the buyer and suppliers. In the context of competitive advantage and the influence of the Internet. as well as those of their customers.or open to all-comers. which acts as an intermediary between buyers and suppliers of used capital equipment in different industries. and Vertical Net that provides intermediaries for many industries including electronics. These B2B hubs tend to focus mainly on non-core items that may range from stationery and computers to catering services and travel. Supply-side intermediaries may be run by consortia of manufacturers such as Chemed that acts as an intermediary for suppliers to the life sciences industry. suppliers. and competitors. It is established by an electronic intermediary that runs a marketplace where suppliers and buyers have a central point to come together. to achieve maximum benefit the intermediary should be linked seamlessly to the buyer’s purchasing and the suppliers’ systems so that the entire purchasing process can be executed electronically. With the transaction handled electronically. suppliers are notified of incoming RFQs and are given seven days to prepare bids and send them back over the extranet to GE. Alternatively. It is important to note that intermediaries may be biased towards either buyers or suppliers.makers and customers. There are two types of hubs: •Vertical -focuses on an industry and provide content that is specific to the industry’s value system of buyers and suppliers.where members and trading partners are vetted for legal and financial probity . customer/supplier lifecycle is a useful framework for understanding an organization’s business processes. buy-side intermediaries may be run by a consortia of customers such as Covisint for car makers or by independent organizations such as Achilles for utilities. 4. Similarly. A successful . telecommunications. Examples include e-Steel that acts as an intermediary between steel. and what they term ‘Touch Points’ in the company. Within two hours of the purchasing department starting the process. • Horizontal . These intermediaries may attempt to aggregate demand for buyers in order to obtain reduced prices and more favorable terms from suppliers. An intermediary may be closed .provide the same function for a variety of industries. process.from internal customers that are then sent to potential suppliers over the Internet. a percentage may be charged in the case of value-added services such as auctions. In the case of large. An example is iMark. Business-to-Business Intermediary This model is sometimes referred to as a ‘hub’ or ‘exchange’. repetitive transactions. This framework provides a way of distinguishing between buying and selling activities to better understand the interrelationships between customers and suppliers’ business processes.

the "consumer" can be: •A webmaster/ blogger offering advertising service (through Google program for example or amazon. The individual is paid for the work provided to the companies. Here are some examples of potential companies which can be such clients: • Any company which wants to fill a job (through referral hiring sites) .We can see this example in blogs or forums where the author offers a link back to an online business facilitating the purchase of some product (like a book onAmazon. and the author might receive affiliate revenue from a successful sale. This kind of economic relationship is qualified as an inverted business type. Consumer A consumer in the C2B business model can be any individual who has something to offer either a service or a good. high performance computer.com). or the buyer-supplier relationship.comor h3.electronic business strategy will alter the nature of the product or service being offered. its value in the marketplace. This business model is a complete reversal of traditional business model where companies offer goods and services to consumers ( businessto-consumer = B2C).comaffiliation program) •A photographer or a designer offering stock images to companies by selling his artwork throughFotoliaor istockphotofor example •Any individual answering a poll through a survey site •Any individual with connections offering job hiring service by referring someone through referral sites like jobster. powerful software)models like most of C2C models like EBay are based on 3 players: a consumer acting as seller. • Decreased cost of technology : Individuals now have access to technologies that were once only available to large companies ( digital printing and acquisition technology. a business acting as buyer and an intermediary dealing with the connection between sellers and buyers. Consumer-to-business (C2B) is an electronic commerce business model in which consumers (individuals) offer products and services to companies and the companies pay them. The advent of the C2B scheme is due to major changes: • Connecting a large group of people to a bidirectional network has made this sort of commercial relationship possible. The large traditional media outlets are one direction relationship whereas the internet is bidirectional one.com Business Business in the C2B business model represents any companies buying goods or services to individual through intermediaries. Depending on the model.

technical expertise •It offers buyers a contact to a mass of individuals and takes care of money transactions and legal aspects We can notice that some intermediaries prefer creating two different accesses one for buyers and one for sellers (Google Ad words for advertiser . It offers what individuals can't do themselves: large promotion. We can differentiate two kinds of intermediaries: •Extern intermediary: they act as a extern agent within the relation between companies and individual (ex: referral hiring site) •Intern intermediary: they play the role both of business and intermediary. The intermediary plays two roles: •It promotes goods and services offered by individuals by proposing a distribution channel.The Intermediary is the crucial element since it creates the connection between business which needs a service or a good and a mass of individuals.com through its affiliation program. it is the case of amazon. For example. Flash animations Job Hiring Service Q.Google Ad sense for web publisher) whereas other companies like Fotolia have only one access because buyers and sellers can be the same.5 What kind of impact will globalization and international business environment create onIndian businesses? . Amazon pays individual to promote its own products. Vectors. Fotolia Shutter stock Istockphoto H3 Josbster Jobmeereters What do they sell? Advertising services through search engines & websites Stock Photos. Few types of intermediaries Intermediary Advertising Site Micro stock Site Referral Hiring Site Examples Google Ad words/ Ad sense Trade doubleness commission Junction. logistic and financial support.• Any company needing to advertise online (through Google program for example) •Any advertising agency which needs to buy a stock photo (through micro stock sites) Intermediary . Intermediary is usually a portal both for buyers (businesses) and seller (individuals).

Major measures initiated as a part of the liberalization and globalization strategy in the early nineties included scrapping of the industrial licensing regime. airports. data and ideas but also infections. Stephen Gill: defines globalization as the reduction of transaction cost of Trans border movements of capital and goods thus of factors of production and goods. goods. amendment of the monopolies and the restrictive trade practices act. capital. start of the privatization programme. Over the years there has been a steady liberalization of the current account transactions. a process of structural adjustment spurred by the studies and influences of the World Bank and other International organizations have started in many of the developing countries. volatility in financial market and environmental deteriorations. development of advanced means of communication. The response was a slew of Domestic and external sector policy measures partly prompted by the immediate needs and partly by the demand of the multilateral organizations. growing importance of MNC's. But globalization has also thrown up new challenges like growing inequality across and within nations. roads. Another negative aspect of globalization is that a great majority of developing countries remain removed from the process. The new policy regime radically pushed forward in favor of a more open and market oriented economy. ports.Globalization is the new buzzword that has come to dominate the world since the nineties of the last century with the end of the cold war and the break-up of the former Soviet Union and the global trend towards the rolling ball. internationalization of financial markets. . Till the nineties the process of globalization of the Indian economy was constrained by the barriers to trade and investment liberalization of trade. population migrations and more generally increased mobility of persons. Also Globalization has brought in new opportunities to developing countries. more and more sectors opened up for foreign direct investments and portfolio investments facilitating entry of foreign investors in telecom. reduction in the number of areas reserved for the public sector. Though the precise definition of globalization is still unavailable a few definitions worth viewing. Guy Brain ant: says that the process of globalization not only includes opening up of world trade. investment and financial flows initiated in the nineties has progressively lowered the barriers to competition and hastened the pace of globalization. reduction in tariff rates and change over to market determined exchange rates. insurance and other major sectors. The frontiers of the state with increased reliance on the market economy and renewed faith in the private capital and resources. diseases and pollution Impact on India: India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch that dragged the economy close to defaulting on loans. Greater access to developed country markets and technology transfer hold out promise improved productivity and higher living standard.

poverty remains one of the most serious international challenges we face up to 1.The Indian tariff rates reduced sharply over the decade from a weighted average of 72. new prospects in rural areas and privatization of financial institutions. and Mexico was more than twice that of India.8 billion people still live in extreme poverty.2 billion of the developing world 4. But it is not the only reason for this often unrecognized progress.6 in 1996-97. Growth rates have slowed down since the country has still bee able to achieve 5-6% growth rate in three of the last six years.Though tariff rates went up slowly in the late nineties it touched 35. Despite this progress.6% in 1990-91 to a peak level of 77. The areas like technological entrepreneurship. new business openings for small and medium enterprises.India is Global: The liberalization of the domestic economy and the increasing integration of India with the global economy have helped step up GDP growth rates. good national polices . When GDP is calculated on a purchasing power parity basis. India is committed to reduced tariff rates. importance of quality management. sound institutions and domestic political stability also matter. If the proportion living in poverty had not fallen since 1987 alone a further 215million people would be living in extreme poverty today. A Global comparison shows that India is now the fastest growing just after China.Globalization in the form of increased integration though trade and investment is an important reason why much progress has been made in reducing poverty and global inequality over recent decades. Korea. Though India's average annual growth rate almost doubled in the eighties to 5. The pickup in GDP growth has helped improve India's global position. Though growth rates has slumped to the lowest level 4. Indonesia.1% in 2001-02. Consequently India's position in the global economy has improved from the 8th position in 1991 to 4th place in 2001.3% in 2002-03 mainly because of the worst droughts in two decades the growth rates are expected to go up close to 70% in 2003-04. Globalization and Poverty . . But the proportion of the world population living in poverty has been steadily declining and since 1980 the absolute number of poor people has stopped rising and appears to have fallen in recent years despite strong population growth in poor countries.8% in 1996-97. Peak tariff rates are to be reduced to be reduced to the minimum with a peak rate of 20%. including almost all quantitative restrictions . The manufacturing of technology and management of technology are two different significant areas in the country.9% it was still lower than the growth rate in China.5% in 1991-92 to24. This is major improvement given that India is growth rate in the 1970's was very low at 3% and GDP growth in countries like Brazil. in another 2 years most non-tariff barriers have been dismantled by march 2002. Korea and Indonesia. India has to concentrate on five important areas or things to follow to achieve this goal. which picked up from 5.

It may be organized in a collective way with the help of co-operatives to meet the global demand. The growth of Indian economy very much depends upon rural participation in the global race. The global economy experienced an overall deceleration and recorded an output growth of 2. tea and coffee are the other prominent products each of which accounts fro nearly 5 to 10%of the countries total agricultural exports. President Bush's recent proposal to eliminate all tariffs on all manufactured goods by 2015 will do it. Whereas FDI inflows into China now exceeds US $ 50 billion annually. For all nations to reap the full benefits of globalization it is essential to create a level playing field. oil seeds. Cereals (mostly basmati rice and non. In fact it may exacerbate the prevalent inequalities. It is only US $ 4billion in the case of India. Agriculture exports account for about 13 to 18% of total annual of annual export of the country. Many Indian companies have started becoming respectable players in the International scene. Over the past decade FDI flows into India have averaged around 0. tariffs of 5% or less on all manufactured goods will be eliminated by 2005 and higher than 5% will be lowered to 8%.basmati rice). Starting 2010 the 8% tariffs will be lowered each year until they are eliminated by2015. Domestic output and Demand conditions were adversely affected by poor performance in agriculture in the past two years. .4% as per the Economic Survey in 2000-01. Marine products in recent years have emerged as the single largest contributor to the total agricultural export from the country accounting for over one fifth of the total agricultural exports.5% for Brazil.362 million respectively. . In 2000-01 Agricultural products valued at more than US $ 6million were exported from the country 23% of which was contributed by the marine products alone.4% during the past year growth in real GDP in 200102 was 5. GDP Growth rate . After implementing the new economic policy the role of villages got its own significance because of its unique outlook and branding methods.There will be new prospects in rural India.The Indian economy is passing through a difficult phase caused by several unfavorable domestic and external developments.5% of GDP against 5% for China 5. For example food processing and packaging are the one of the area where new entrepreneurs can enter into a big way. Let’s look at a few indicators how much we lag. Where does Indian stand in terms of Global Integration? India clearly lags in globalization.572 and 38. The performance in the first quarter of the financial year is5.India's Export and Import in the year 2001-02 was to the extent of 32. large part of east and far east Asia and Eastern Europe.8% and second quarter is 6. Numbers of countries have a clear lead among them China. According to this proposal. Understanding the current status of globalization is necessary for setting course for future.1%. Export and Import .

Over the same period China's share has tripled to almost 4%.It is interesting to note the remark made last year by Mr. in decision-making at the national level. Bimal Jalan. Despite all the talk. This constrained the policy option available to the government which implies loss of policy autonomy to some extent. . denting of political and economic sovereignty and greater acceptance of democracy as a way of life.Consider global trade India's share of world merchandise exports increased from . greater trade linkages. assimilate and contribute. .however we look at it.The European Union (EU) is an economic and political union established in 1993. cultural and economic cooperation. India under trades by 70-80% given its size. This goes without saying even as we move into what is called a globalised world which is distinguished from previous eras from by faster travel and communication. It is thus clear that a globalizing economy. Regional Trading Arrangements The European Union (EU) . 05% to . as a geographical.Discuss any 3 regional trading agreements and its effect on international business. In fact we are one of the least globalised among the major countries . and many other have pointed out that India.India's share of global trade is similar to that of the Philippines an economy 6 times smaller according to IMF estimates. It has to adapt. Consequences: The implications of globalization for a national economy are many.. As a result domestic economic developments are not determined entirely by domestic policies and market conditions. Governor of RBI. they are influenced by both domestic and international policies and economic conditions. Ans . .Regional integration is bonding between nations and states through political. As Amartya Sen. Globalization has intensified interdependence and competition between economies in the world market. Rather. This is reflected in Interdependence in regard to trading in goods and services and in movement of capital. 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. Q6. proximity to markets and labor cost advantages. politico-cultural entity has been interacting with the outside world throughout history and still continues to do so. This came into effect because of the Treaty of . we are now where ever close being globalised in terms of any commonly used indicator of globalization. The cooperation is overseen by rules and regulations decided upon by the states entering into an understanding.07%over the past 20 years.

European Free Trade Association (EFTA) . the European Council.The European Free Trade Association (EFTA) is a free trade organization established in 1960 between four European counties. This trade agreement is the largest in the world in terms of combined purchasing power parity Gross Domestic Product (GDP) and second largest by nominal GDP comparison. Important organizations of the EU include the European Commission. Switzerland established a number of bilateral agreements with the EU. The EU has developed a single market for all the member states and sixteen member states have adopted a common currency called the Euro. WTO. Canada. the Court of Justice of the European Union. G8 and G-20 summits. capital and services. The EU comprises of 27member states committed to regional integration. The EU has established diplomatic missions around the world and they represent the member states at the United Nations. The EFTA was formed at the Stockholm Convention between seven countries. the EFTA states have jointly arranged free trade agreements with many other countries. which ensures the free movement of people. signed on 7th February 1992 by the European Communities. The agreement enacts legislation in justice and home affairs. The member states sign an agreement called Schengen Agreement. Iceland and Liechtenstein. allowing countries to join EFTA if they were not willing to join EU. In addition. fisheries and regional development. In 1999. three of the EFTA countries signed European Economic Area (EEA) agreement and became a part of the European Union Internal Market. goods. including the abolition of passport controls. and the United States. agriculture. In 1994. presently only four countries remain as the members of EFTA. covering a wide range of areas. This agreement prompted the EFTA states to modernize their convention to guarantee that it will continue to provide guidelines for the expansion and liberalization of trade among them and with the rest of the world. Switzerland opted to arrange bilateral agreements with the EU. transport and technical barriers to trade. and the European Central Bank. Switzerland. The Stockholm Convention was replaced by the Vaduz Convention. The EFTA was formed as an alternative to EU. EU has also devised a common foreign and security policy for its member states. North American Free Trade Agreement (NAFTA) . The EU citizens select the European Parliament every five years. the Council of the European Union. It operates parallel to the EU. and maintains common policies on trade.The North American Free Trade Agreement (NAFTA) was signed in 1994 by three governments. including movement of persons. Norway. . This Convention provides a framework for a free and liberal trade amongst its member states.Maastricht. Mexico.EU ambassadors head the EU delegations.

. the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labour Cooperation (NAALC). The agreement comprises of a declaration of objectives and principles regarding conservation and the protection of the environment. It is an environmental agreement between the United States of America. Mexico and Canada. The Commission for Environmental Cooperation (CEC) was set up as part of the agreement.The North American Agreement on Environmental Cooperation (NAAEC) was established in 1994.Promote a set of guiding labor principles. ·Encourage cooperation to promote innovation. . North American Agreement on Labour Cooperation (NAALC) was also established in 1994 to achieve the following goals. and consultations for achieving the above goals. · Improve the levels of productivity and quality. .The NAFTA is divided into two sections. . NAALC provides various means such as exchanges of information. technical assistance. Improve working conditions and living standards.