Master of Business Management Semester IV

MB0053 – International Business Management - 4Credits Assignment Set- 1 (60 Marks)

MANISH RAJAN RAJPUT IVth Semester, Operational Roll No -571012050

we will understand globalization. According to business terminologies. In this section. Let us consider the benefits and ill-effects of globalization. While globalization creates employment opportunities in the host countries. 12 13  Provides better quality of products.1 Q. and standardized delivery models across countries. with increased productivity. 14 15  Gives better access to finance for corporate and sovereign borrowers. 8 9  Promotes better education and jobs. 4 5  Increases the living standards of people in several developing countries through capital investments in developing countries by developed countries. apart from the local and national markets. 6 7  Benefits customers as companies outsource to low wage countries. 1. What are its benefits? Answer: Globalization is a process where businesses are dealt in markets around the world. 16 17  Increases business travel. its benefits and challenges. Outsourcing helps the companies to be competitive by keeping the cost low. globalization is defined as ‘the worldwide trend of businesses expanding beyond their domestic boundaries’. 10 11  leads to free flow of information and wide acceptance of foreign products. ideas. customer services. best practices. 18 . ethics. it also exploits labor at a very low cost compared to the home country. Define ‘Globalization’. and culture. which in turn leads to a flourishing travel and hospitality industry across the world. Benefits of globalization The merits and demerits of globalization are highly debatable. It is advantageous for the economy of countries because it promotes prosperity in the countries that embrace globalization. Some of the benefits of globalization are as follows: 1 2 3  Promotes foreign trade and liberalization of economies.

banking and financial services. electricity supply. and higher imports. Developing countries offer a lot of incentives for FDI. Due to increased consumer expenditure the country’s balance of trade worsens. The Government of the host countries often formulate new or special regulatory framework to attract FDI. Variables that are examined when assessing national economic environments include: Economic structure – The structure of a nation’s economy is determined by the size and rate of its population growth. manufacturing and services sector. natural resources. an ownership of 10% or more of voting rights in the target enterprise. which facilitates international trade. 20 21  provides several platforms for international dispute resolutions in business. It is also required that such an enterprise holds directly or indirectly. FDI policy. Economic infrastructure is the sum of all the external facilities and services that support the work of firms including communication. 4  Absence of deficit in the country’s balance of payments. Effective FDI policies help the host country to portray itself as an attractive investment destination. particularly in capital intensive sectors like power. income levels and distribution of income. National economic policies National economic policies depend on that country’s socio-economic and cultural background. transport. . infrastructure. Discuss the impact of economic environment on international business? Answer: The economic environment refers to the conditions under which a business operates and takes into account all factors that have affected it.19  Increases sales as the availability of cutting edge technologies and production techniques decrease the cost of production. consumer expenditure. which is dictated by the Government of the host country. legislation concerning employment of foreigners. The host country often needs to invest in development of domestic infrastructure to make it investor friendly. Measures such as low interest rates. All governments aspire to achieve four major economic objectives: 1  Full employment. increase in wage. levels of investment. safety of country. labor costs. 2  A high economic growth rate. It includes prime interest rates. agricultural. Key variables that need to be examined include Gross Domestic Product (GDP) per capita. return of profits. Main objectives of FDI policy are to provide and facilitate investor friendly business environment. so that the foreign investors feel safe with the financial and legal framework of the country. Foreign Direct Investment (FDI) Policy Foreign direct investment (FDI) is an investment made with an intention of establishing a long term interest by a business enterprise in another country. So the issue lies in balancing the effects of the policies to achieve the four given objectives. inflation and unemployment. Attracting FDI inflows with constructive policy is a challenge for any nation. construction. tax cuts and increase in public spending creates jobs and stimulates growth but also causes inflation. transportation. plays a vital role in the economic growth of that country. political stability and so on. 3  A low rate of inflation. 2 Q2. Economic structure IB managers need to understand and assess international economic forces at work. regional distribution of GDP. The basic problem is that the first two objectives work against the last two.

Balance of payments is a record of all transactions that occur between residents of that country and foreigners over a specific period of time. Market growth – It is measured in terms of local currency and adjusted for inflation.Current account deficit. India has a vibrant software services industry. for purchase of imports. or direct foreign investment. 3  Market share among firms in that sector. Balance of payment account . and so on. International debt . interest and royalties from abroad. 4  Average size of competing units. Conversely. making it possible to establish the values of payments by domestic residents to foreigners. 2  Number of competing firms. import restrictions and policies such as tax increases and interest rate hikes. and vice versa. . use of services. lending. net position as a lender or borrower and trends in economic relationships with the world. Degree of urbanization . Sector wise trends – Growth activity in a country might vary significantly among certain industries. Local currency is used because conversions into other currencies are affected by exchange rate fluctuations. Balance of payments Importance . that is non-physical items such as residents’ pensions. records physical imports and exports along with international transactions in invisibles.Industry structure – The structure of an industry is determined by factors such as: 1  Entry and exit barriers. Deficits and surpluses . the likelihood of the country’s government imposing forex frequency. quarterly or annually. 2  Nature of goods bought. Net income is another important variable and is without tax payments from individual gross incomes. Openness of the economy – The ratio of a country’s imports and exports to its Gross National Product (GNP) indicates its vulnerability to fluctuations in international trade. The balance of payments is a good overall indicator of its economic health. and involves goods and services. 5  Ease of distribution. domestic firm’s fees for the movement of goods in other countries. The account is divided into categories for long and short term financial transactions which is initiated by the national monetary body. 3  Expectations in quality and technical sophistication. closed economies have a high degree of control of the economy.This is an important factor because in most countries there are important differences in incomes and lifestyles between urban and rural areas.These accounts attempt to identify the reasons behind various categories of international receipts and payments. Income levels – It is taken as the Gross Domestic Product (GDP) per capita and GDP is directly proportional to the productivity of the country. The accounts show the structure of the external trade. a high foreign debt servicing requirement maybe a positive indicator. For example. On the other hand. The balance of trade within the current account is the balance on physical (visible) imports and exports. average purchase value.The comparison of a nation’s obligations to service and repay foreign debt with its forex earnings shows its ability to remain solvent. 4  Education levels. Major dissimilarities are: 1  Shopping patterns . The balance is shown monthly. suggesting that a country has borrowed heavily to invest in its future. A nation with a high foreign trade or GNP depends heavily on the economic well-being of the nations it exports to.

To prevent the local currency from depreciating too far. the organization has to be aware of the customer choice or preferences. values and viewpoints. 4  The organization must consider the concept of international business and construct guidelines that help them to take business decisions. . Before manufacturing any product. and Japan and also the ASEAN. for example. and perform activities as they are different in different nations. practices. product differentiation has become business strategy all over the world. While this trend is changing. Reserves will decline if there is. however the production levels stayed high. movements in short-term assets.It is said that employees in Japan were normally not satisfied with their work as compared with employees of North America and European countries. this is only a temporary measure. 2  The trend is Asia centric and not European or American centric. Thus. they know that the management style and practices will be quite alike to those found in their present firm. Hence the management style. As such. which help the candidate to work in a foreign environment. even if Japanese workers were not satisfied with the specific aspects of their work. This is due to varied preferences and tastes. The following are the two main tasks that a company must perform: 0  Product differentiation and marketing . What is the need to understand cultural differences in international business 3 context? Answer: Need to understand cultural differences Cultural differences affect the success or failure of multinational firms in many ways. 3  The organization must identify candidates and train them to work in other countries as the cultural and corporate environment differs. South Korea. particularly those with an ancient cultural heritage. These models show that there is a relation between job satisfaction and production. 2  The organization must manage and motivate people with broad different cultural values and attitudes. The kinds of products and services that consumers can afford are determined by the level of per capita income. the demand for luxury products is limited.The other major grouping is the capital account which shows the balance of transactions in financial assets.As there are differences in consumer tastes and preferences across nations. India. but since it is limited. and systems must be modified. in underdeveloped countries. For example. The following are the necessary implications in international business: 1  Avoid self reference criterion such as. training them on the technology and so on. The following are the factors which a company must consider while dealing with international business: 1  The consumers across the world do not use same products. 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. Also. inter-governmental loans and changes in the country’s gold and forex reserves. even if a worker can go to another Japanese entity. The training may include language training. The following are the three mega trends in world cultures: 1  The reverse culture influence on modern Western cultures from growing economies. the fact that job turnover among Japanese workers is still lower than the American workers is true. some foreign currency reserves will be sold. 3  The increased diversity within cultures and geographies. a current account deficit which in turn affects the currency rate. because of the growing economic and political power of China. including direct investments in foreign financial instruments. discontent might not impact their level of production. This study showed the fact that it is tough for Japanese workers to change jobs. To motivate employees in North America. they know that the conditions may not change considerably at another place. Adaptations must be made to the product where there is demand or the message must be advertised by the company. Q3. they have come up with models. corporate training. one’s own upbringing. 0  Manage employees .

4  Grow the total share market by innovating affordable products and services. It includes effects caused by problems in a region or in countries with similar characteristics. Country Risk Analysis (CRA) identifies imbalances that increase the risks in a cross-border investment. 1 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. economic structures. and social upheavals in a foreign country. 3  Exchange risk – This risk occurs due to an unfavourable movement in the exchange rate. 6  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. as national markets are diverse with growing mobility of products. policies. the financial markets are being refined with the introduction of new products. 5  Sovereign risk – This risk is based on a government’s inability to meet its loan obligations. An increasing number of companies involving in external trade indicate huge business opportunities and promising markets. currencies. Exchange risk can be defined as a form of risk that arises from the change in price of one currency against another. monetary.2  Follow a philosophical viewpoint that considers that many perspectives of a single observation or phenomenon can be true. capital. For example. 5 Q4. and culture. 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. international. The analysis of country risks distinguishes between the ability to pay and . or restriction in repatriation of profits. they face currency risk if their positions are not hedged. war. 2  Transfer risk – Transfer risk arises from a decision by a foreign government to restrict capital movements. a multinational enterprise (MNE) that sets up a plant in a foreign country faces different risks compared to bank lending to a foreign government. The MNE must consider the risks from a broader spectrum of country characteristics. Whenever investors or companies have assets or business operations across national borders. Risk assessment requires analysis of many factors. and making them accessible so that. in trading partner of a country. relationships of various groups in a country and the history of the country. including the decision-making process in the government. economic. or in countries with similar perceived characteristics. tax laws. 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. corruption and bureaucracy also contribute to the element of political risk. Location risk includes effects caused by troubles in a region. For example. Country risk is due to unpredicted events in a foreign country affecting the value of international assets. 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. When business transactions occur across international borders. Explain country risk analysis. tariffs. people. they bring additional risks compared to those in domestic transactions. they are affordable for even subsistence level consumers rather than fighting for market share. It also relates to political risk in which a government may decide not to honor its commitments for political reasons. or wealth distribution or creation). Risk arises from the negative changes in fundamental economic policy goals (fiscal. All business dealings involve risks. investment projects and their cash flows. and geography. 4  Location risk – This type of risk is also referred to as neighborhood risk. expropriation of assets. These additional risks are called country risks which include risks arising from national differences in socio-political institutions. 3  Discover and identify global segments and global niche markets. The CRA monitors the potential for these risks to decrease the expected return of a cross-border investment. it implies that effort in earning foreign currency increases the possibility of capital controls. It is analyzed as a function of a country's ability to earn foreign currency. Therefore. Since the 1980s.

infant mortality rate. the government. dependency level. Country risk is composed of all the uncertainty that defines the risk of country exposure. corporate risk. Country risk is determined by the costs and benefits of a country’s repayment and default strategies. the private sector. importance of international trade and so on. Contents of Analysis The content of country risk analysis mainly involves country history. The geographic positioning and its related strengths and weaknesses are also critical aspects. including financial theory. 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-border investment or export strategy. in terms of capital. composition of the population and life expectancy. the economical. unemployment ratio. technology and labor forces. All these aspects are significant to identify the dependency level of the country. Purpose of country risk analysis. It can be used to monitor countries where the MNC is engaged in international business. ratios for economic risk evaluation and strength and weakness chart. . Dependency level The next step after the history in brief. CRA regulates the estimated cash flows and explores the main techniques used to measure a country’s overall risk iness. in order to avoid countries with excessive risk. political. Country history The historical brief helps to identify aspects that interfere in the future behavior of the country. domestic financial system. The main historical data provides a good understanding of the key factors which draw the behavior of the society. is a clear definition about how the country is positioned in the world in terms of its wide relationships. natural resources. The financial dependency to meet the needs of a country is also a strong concern for the analyst. This clarifies that those kind of analysis procures extensive knowledge from the business approach for companies. Corporate risk Both country risk studies and business risk analysis enhances wealth from the available resources. In this case. The assessment of country risk is used to incorporate country risk in capital budgeting and modify the discount rate. The political forces which act in the country. the maturity of debts (internal and external) and the available sources of financing also help to measure the freedom grades of the country. 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. their representatives and the main national issues must be focused. reducing the ability to payback any external commitment. The other considerations include social aspects and their key-indicators like population growth rate. The organization of the government and its features like political and administrative organization are also relevant aspects to be approached. external environment. economic block in which it belongs to. the legal environment. The international trade growth and the financial programs development demand periodical improvement of risk methodology and analysis of country risks. It is mainly used by MNCs. and the relationships to neighbor nations and the world as a whole. Risk arises because of uncertainty and uncertainty occurs due to the lack of reliable information.the willingness to pay.

and geocentric approach. It would be convenient to get the ratio between the trade balance and the GDP (sum of imports and exports over the GDP). international subsidiary structure. International Human Resource Management (IHRM) is the process of recruiting and managing the services of an organization’s personnel across the globe. product structure. 5  Settle disputes and negotiate on wages and working conditions. The purpose of HRM is to make the most use of the firm’s human resources so that both employer and employee benefit from their association. to achieve its goals. The four approaches are ethnocentric. the one that best aligns the needs of the parent country and employees in foreign subsidiaries is the one that yields the best results. Human resource activities . the analyst can break the GDP`s economic sector. allocation. identifying its composition and level of concentration (percent and value). 2  Educate and train employees for career development. countries and economic blocks. you will learn about the ways in which HRM deals with workforce management and its relationship with the organization. The following are some of the functions of HRM: 1  Plan. goods. IHRM helps deal with the factors that make the workforce more efficient and the organization more competitive. recruit and terminate employees. and international matrix structure. 4  Though there are many strategies and policies regarding the deployment of personnel across various countries. In this section. 2  Countries of operation. These functions in turn cover all the six activities of human resources . 2  The different types of international organizational structures are export structure. 3  Origin of employees. and utilization of workforce.In case of output spread throughout the economy. 5  International staffing policies depend on the approach adopted by an organization. 3  IHRM is a vital component in the functioning of a multinational enterprise. The same approach can be made in case of the international trade where the analyst must break up each part of the trade balance in sectors. 1 The structure of an organization plays a vital role in HRM. Business strategy plays an important role in the structure of an organization. The three main dimensions of international human resources management are as follows: 1  Human resource activities. regional structure. international division structure. Scope of International Human Resource Management In the previous section we studied the role and other aspects of selecting expatriate employees. polycentric. Q5. Write a brief note on international human resource management Answer: In the previous section you learned about international business organizational structures.HR activities in an IHRM context involves procurement. we will discuss the scope of IHRM. 3  Provide compensation and terms of employment for employees. region-centric. 4  Facilitate communication between employers and employees. functional structure. It is similar to corporate approach when analyzing the income structure. evaluate its composition in terms of values of participation of each one and the level of regional concentration. In this section. Internal and external environment contribute the structure of an organization.

3  The importance of market forces when deciding remuneration and employment conditions. Origin of employees .1 National differences in HRM practices In this section. commitment.4. . the same jobs can vary with respect to motivation. host country nationals. 4  Approach to problem solving. performance management. let us discuss the factors that determine human resources management practices in each country. 6  Importance given to management models and techniques. 7  Attitude to risk. 2  Values and ethics. remuneration. 5  Expectations in relation to remuneration. human resource planning. expectation regarding working hours.The origin of the workforce of an international business can be classified into three types .management. pay scale. and third country nationals. business Stakeholders. 6. and so on. The attitude of managers from different countries also varies in many aspects.The countries of operation in an IHRM perspective involves the host country in which the overseas operation is located. cultural. Some of these aspects include the following: 1  Management style. skill set. and education. Across various countries. Differences that arise at a national level are as follows: 1  Degree of employee participation in decision-making by the management. and other countries that supply labor and finance. legal. 4  Cultural background of the key people involved in human resources management. role of the state. 2  Legal regulations of employee relations and rights of employees. hiring. 3  Approach to decision making. that is. and employee relations. the home country that houses the headquarters of the company. social. labor market. Countries of operation . training and development. the workforce and so on. The different factors are economic. age and gender. Other factors that determine national differences are length of employment that has an effect on the attitude of personnel towards the organization.parent country nationals.

The main advantage from derivative hedging is the basket of currency available.Q6. The currency derivative trades in markets correspond to the spot (cash) market. These will help the businessmen to enhance their foreign exchange dealings. currency options and currency swaps are usually traded. In the foreign exchange market. The authority to buy or sell the foreign currencies in future at a specified rate is provided by currency option. 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. These will help to increase the funds of foreign currency from the cheapest sources. currency derivatives like the currency features. Hence. the spot market exposures can be enclosed with the currency derivatives. Describe foreign currency derivatives Answer: Foreign currency derivatives Currency derivative is defined as a financial contract in order to swap two currencies at a predestined rate. . 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. The derivatives can be hedged with other derivatives. 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.

6  Legal risks pertain to the counterparties of currency swaps that go into receivership while the swap is taking place. 5  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. 4  Settlement risks similar to the credit risks occur when the parties involved in the contract fail to provide the currency at the agreed time. . 2  Market risk occurs due to adverse moves in the overall market.Example for Foreign Currency Derivatives Some of the risks associated with currency derivatives are: 1  Credit risk takes place. 3  Liquidity risks occur due to the requirement of available counterparties to take the other side of the trade.

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