MMS Sem.

III

International Business
I.B.
 What is International Business?

International business covers all commercial activities undertaken to

promote the transfer of goods, services, resources, people, ideas, and
technologies across national boundaries.
International business takes place in different formats:
• The movement of goods from country to another (Exporting,
Importing (Trade)
• Contractual agreements that allow foreign firms to use products,
services, and processes from other nations (licensing, franchising)
• The formation and operations of sales, manufacturing, research and
development, and distribution facilities in foreign markets
 International Trade, International Marketing
International Business
• International Trade : Export or Import by a country to/from another
country. e.g., Export of Cotton , Jute or Iron ore by India to nearby
countries.
• International Marketing : Try and Create market / demand for your
products in other countries, and arrange appropriate distribution
channels etc.
• International Business : Both the above and going beyond the above
two and start manufacturing goods in other country, set up
factories, and even export to other countries from there.
Examples : MNCs having operations in many countries. HUL,
P&G ,Ford, GM, Toyota, Honda, LG, Coca Cola, Pepsi etc.
International
Trade

International
marketing

International
Business
 Scope of International Business

• The scope of International Business is much broader

than international trade.

• It includes not only international trade (i.e., export and

import of goods and services)
but also
a wide variety of other ways in which the firms operate internationally.
( Like Joint Ventures (JV) , Strategic Alliances Franchising, Licensing,
Management Contracts, contract manufacturing etc)
Difference between Domestic Business International Business

Domestic Business International Business

1.Operates within the nation. 1.Operates also in other countries.
2.Approach : 2. Approach :
Strategies for national markets, Strategies for other countries,
customers, competition. forms subsidiaries, export to other
countries.
3. Scans (Analyses) international
3. Scans (Analyses) domestic
business environment.
business environment.

4. I.B has to operate within

4. Quotas/Restrictions not affecting quota/restrictions of various countries.
the business.
Continued : Difference between Domestic Business International Business
Domestic Business
5.Tariffs (duties) of various countries :
D.B. not directly and significantly
affected
6.Forex Rates: D.B. not directly and
significantly affected by fluctuations in
Forex Rates.
7.D.B. Business procedure and process
simple to operate
International Business
5. Tariffs (duties) of various countries :
I.B is directly and significantly affected
6. Forex Rates: I.B. directly and
significantly affected by fluctuations in
Forex Rates.
7.I.B. influenced by Business procedures
and processes of other countries.
Continued : Difference between Domestic Business
International Business
Domestic Business International Business
8. Culture : only domestic culture 8. Culture : culture of several
affects the Domestic Business countries affects the I.B.

9.H.R.: In Domestic Business , HR 9. H.R. In I.B , HR Task more

Task not complicated since the
manpower mainly from own country.
complicated since the manpower
mainly from different countries.

10. Comparatively Low Risk in

Domestic Business 10. Comparatively high Risk in I.B.
 Advantages of International Business to the company
1. Managing the Life Cycle of the product. A product in decline stage in
your country can be in the growth stage in some other
underdeveloped country.
2. Geographical expansion as a growth strategy, explore untapped
market. Taking advantage of specific market for company’s product
in foreign countries.
3. Access to new technologies in developed countries.
4. Economy of scale. Taking advantage of your excess capacities and
growth in demand in other countries.
5. Cost advantage for certain products.
6. Wider Market and reduced risk of business cycles.
7. Improving Brand Image for the company’s products.
8. Earning foreign exchange for the company and country.
 Advantages of International Business to the country
• Forex earning for the country, To achieve forex policy targets of foreign exchange
earnings.
• Get advantage of core competencies of the country, produce huge quantities,
export, and earn foreign exchange.
• To get returns from developed infrastructure in the country, by producing for
international market with wider scope.
• Access to foreign goods whose characteristics are often different from locally
produced goods which might be required in the country and may improve standard
of living.
• MNC’s investment in country may offer advantages like employment.
• To improve national image through presence in the large international market.
• Helps in developing diplomatic relations with other countries by way of trade in
various strategic goods and services.
 Some of Disadvantages of International Business

• Various risks are involved in International Business e.g. political risk,

exchange risk, credit risks, market risk , war risk etc.
• Domestic companies may face uneven competition from foreign
goods and may struggle to survive.
• Labour migration, skilled personnel migration to another country.
• Exploitation of developing countries possible.
• Pollution and ecological issues may arise in the countries due to
overproduction of certain products by MNCs.
Barriers to International trade
 Continued: Barriers to International trade
• Tariff Barriers
• Import Tariff is a tax on imports collected by importing government .
• Due to this tariff ( import duty / customs duty) , the cost of goods
increases and thus price to customers. Example : Customs duty
• Non Tariff barriers :
• Quotas and Restrictions : Quotas are limit of amount
/volumes/quantity that can be imported or exported from the
country .
• Embargo/Ban : Total Ban on certain imports/exports
• Cultural/Social /Political Barriers.
New Topic
MODES OF ENTRY INTO INTERNATIONAL BUSINESS

1. EXPORTING : Direct Exporting

Indirect Exporting
2. LICENSING
3.FRANCHISING
4.MERGERS & ACQUISITIONS
5.JOINT VENTURE
6.CONTRACT MANUFACTURING
7.STRATEGIC ALLIANCE
8. GREEN FIELD PROJECTS
Continued :MODES OF ENTRY INTO INTERNATIONAL
BUSINESS
• EXPORTING : Direct Exporting
Indirect Exporting
Direct exporting – No intermediaries (Agents etc.) involved .
A company establishes a proper system for organizing export functions and
procuring foreign sales through their representatives or appointed distributors in
other countries.
Example : Reliance exports Polymers to customers in Indonesia.
Advantages :It helps in the distribution of surplus. It is less risky. Under direct
export, the exporter has control over the selection of market
It helps in fast market access.
Disadvantages :High start-up cost in case of direct exports, Time taking
exercise to establish in the market, manpower requirement.
Continued :MODES OF ENTRY INTO INTERNATIONAL BUSINESS

Indirect exporting
Involves exporting through domestically based export intermediaries
like export trading cos, merchant exporters.
Example: Export of fresh mangos thru agents at Vashi , Mumbai to
USA.
• Advantages: Low risk, Fast market access, not required to handle
export procedures.
• Disadvantages : Very little control over the product in other countries
Inadequate feedback, Risk of wrong ( unreliable) agent selection.
 International LICENSING
International Licensing involves leasing of rights to use is a method in which a firm
gives permission to other entity to use its international properties like legally
protected product or technology , brand name , trade mark etc. by a domestic
manufacturer to a manufacturer in foreign country for an agreed period of time and
within an agreed territory.
Domestic company is Licensor , Foreign company is Licensee
Licensee pays fees to Licensor to use such intellectual properties.
Advantages
Less investment is involved. Issues , political risks are less , since the licensee is local .
Extra Income to Licensee for just know-how sharing, opens up future opportunities for
licensor for business.

Disadvantages
This method is time-consuming due to legal formalities., Lower income compared to other
modes, Decline in product quality may harm the reputation of licensor , Licensee may
emerge as future competitor.
Examples : Indian cos in Fertilizer, Petrochem use foreign company’s process licenses.
 International FRANCHISING

• FRANCHISING
• It is a system in which semi-independent business owners (franchisees) pay fees and
royalty to a parent company (franchiser) in return for the right to be identified by its
trademark, to sell its product or services, and often to use its business format or
system.
• Example: Burger king, McDonald etc.
• Advantages 
It is less risky. Low investment for franchiser.
Advantage of expertise of franchiser.

• Disadvantages
Difficulty in keeping trade secrets.
Franchisee may become a future competitor.
A wrong franchisee may ruin company’s name, reputation and goodwill.
 International MERGERS & ACQUISITIONS

MERGERS
• A merger is a combination of two or more distinct entities into one, the
desired effect being accumulation of assets and liabilities of distinct
entities and several other benefits such as economies of scale, tax
benefits, fast growth, synergy, and diversification, etc. The merging
entities cease to be in existence and merge into a single servicing
entity.
Example: Vodafone and Idea formed a new company
Advantages and Disadvantages of mergers

Advantages of mergers
• Economy of scale. Increase in investment for research
and development. Operation cost decreases. Duplication
is avoided. Non-profitable businesses can be saved from
bankruptcy.
Disadvantages of mergers
• Increase in unemployment, Communication and
coordination between employees can be difficult,
• Decrease in competition, increase in monopoly in market
• Choice for consumers will decrease
 International ACQUISITIONS

ACQUISITIONS
• Acquisition implies the acquisition of controlling interest in a company by another
company. It does not lead to dissolution of company whose shares are acquired. It may
be a friendly or hostile acquisition or a bail-out takeover. An acquisition is when one
company purchases most or all of another company's shares to gain control of
that company. Purchasing more than 50% of a target firm's stock and other
assets allows the acquirer to make decisions about the newly acquired assets 
Example: Tata Group’s acquisitions :Jaguar and Land Rover,  and Anglo-Dutch steel maker
Corus.
• Advantages
Quick control may be obtained on technologies, factories, employees. Development
of medium and small-scale industries.
New market , new product can be obtained quickly.
Disadvantages 
– Difficulty in maintaining quality standards. Employees of acquired company may
protest.
– Local manufacturers in foreign market may lose business
Merger and Acquisition
 Mergers and Acquisitions

Merger Acquisition

Two or more firms combine their One giant company takes over a small
Meaning assets and resources to form a business entity by purchasing its
single business unit. stocks or assets.

The acquirer is larger than the

Both merging companies have
similar size and scale of operation target—in size and scale of
Firm Size
operation

Type of Decision Mutual Friendly or hostile

Formation of New Firm Yes No

Power Equal power to the involved parties Acquirer holds the power

Legal Procedure Lengthy Comparatively quick

 Joint Ventures
What is the concept of Joint Venture ?
• A limited and B limited have both different skill sets. A has a spare land where
also he has manpower and labor supply in abundance. On the other hand, B
limited has expertise in the construction of commercial and residential complexes
for housing but needs land to construct in upon. Hence this becomes a pure
example of a true joint venture where A Limited and B Limited decide to enter
into a joint venture agreement and do business.
• Entering into a joint venture agreement provides with the following benefit:
• Diversification of business product line and entrance into new markets and
geographical locations.
• It helps the company to establish a new relationship and acquire new customers,
associates, and referrals.
• A joint venture agreement normally does not require a long-term commitment and
it is also for a limited duration which provides no bounding on both the parties.
• The risk and rewards are shared between the companies.
 International JOINT VENTURES

•JOINT VENTURES
•It is a strategy used by companies to enter a foreign market by joining
hands and sharing ownership and management with another company. It
is used when two or more companies want to achieve some common
objectives and expand international operations.
The common objectives for Joint Ventures are –
Foreign market entry, Risk/reward sharing, Technology sharing
Joint product development. It is useful to meet shortage of financial
resources, physical or managerial resources.
•Advantages
Technological competence , Optimum use of resources, Partners are
able to learn from each other
•Disadvantages
Conflicts over asymmetric investment, Cultural and political stability
 Examples of JOINT VENTURES
•Examples:
1.Caradigm
In 2012, technology giant Microsoft and world energy leader General Electric (GE)
created a joint venture aimed at using data to improve healthcare quality and patient
experience.
The venture, named Caradigm, Its objective was to bring together Microsoft’s strengths
creating large-scale data platforms with GE’s experience in developing healthcare
applications, to form a child company that would be able to act more effectively than
either of the parent companies.
2. Vistara (Tata SIA Airlines Ltd) a JV between India’s Tata Sons and
Singapore Airlines (SIA).,
3. Mahindra-Renault Ltd : Mahindra & Mahindra and world-renowned vehicle maker,
Renault SA of France.
 CONTRACT MANUFACTURING

• CONTRACT MANUFACTURING
• When a foreign firm hires a local manufacturer to produce their product or a part of their
product it is known as contract manufacturing. This method utilizes the skills of a local
manufacturer and helps in reducing cost of production. The marketing and selling of the
product is the responsibility of the international firm.
• Example: Foxconn Technology (Taiwanese) group that supplies product to high profile
companies like Microsoft. Apple and Amazon.
• Nike has contracted South East Asian countries for athletic footwear
1. 1. Low cost of production.
2. Development of medium and small scale industries in host country.
3. Contracting company can get local advantages of host country.
4. Contracting company can concentrate on marketing .
• Disadvantages
1. Difficulty in maintaining quality standards , control difficult.
2. Local manufacturers in foreign market may lose business.
3.Poor host country can affect the image of main company by poor working conditions.
4. Manufacturer knows the secrets of the product / technology.
 International STRATEGIC ALLIANCE

• It is a voluntary formal agreement between different independent

companies to pool their resources to achieve a common set of
objectives while remaining independent entities. Shared research, or
some specific technological development.
• The firms are normally from industrialized countries.
• Focus is on developing new technology, product
• Normally short duration of alliance.
• In this , the firms want to achieve jointly with other firms which they
can not achieve alone.
 STRATEGIC ALLIANCE
Advantages
• Technology exchange can happen in pharma, IT, electronics etc.
• Getting access to major breakthrough technologies
• To remain competitive in global competition , though remaining
independent.
Disadvantages
Difficult to find good partner for alliance, risk of unequal partnership,
Firms may lose control over their important technologies / secrets
Fear of competition in areas other than alliance areas.
Example: Eddie Bauer provides luxury features to Ford vehicles
Spotify provides some features to Uber cars.
 Turnkey Projects
What is Turnkey Projects?
• Turnkey operations are a type of collaborative arrangement in which
one company contracts with another to build complete, ready-to-
operate facilities. Turnkey Projects or operations are common in
international business in supply, erection and commissioning of plants.
• Turnkey operations are generally done in the areas of industrial
equipment manufacturing and construction.
•  A firm handles all the details for the host country client. Once
the project is completed the host country client is handed the key to
the new plant or company. This is common with chemical and
pharmaceutical companies. When there is a possibility of knowledge
exploitation.
 continued: Turnkey Projects

Advantages of Turnkey Projects

• Turnkey projects are a way of earning great economic returns from the
know-how required to assemble and run a technologically complex
process.

• Turnkey projects make sense in a country where the political and

economic environment is such that a longer term investment might
expose the firm to unacceptable political and/or economic risk.
 continued: Turnkey Projects
Disadvantages of Turnkey Projects
• The firm that enters into a turnkey project may create a competitor.

If the firm’s process technology is a source of competitive advantage,

then selling this technology through a turnkey project is also selling
competitive advantage to potential and/ or actual competitors.
 Greenfield Project

• A greenfield project means “ starting from scratch”…The project

where the land on which the project is to be built has never been
utilized before, and there is no existing structure to be demolished. 
• It is a project that is created from the ground without the restrictions of
previous work on the land, such as an existing building or
infrastructure.
• Typically, what a greenfield project entails is development on a
completely vacant site.
• Some examples of greenfield projects are new factories, power plants
or airports which are built from scratch.
Continued: Greenfield Projects
Advantages:
Co. can choose best possible location, latest buildings, technology, with
their own policies.
Disadvantages:
Longer gestation period,
Facing restriction while getting land, has to face restrictions of host
country.
Examples
Apollo Tyres : greenfield project in Hungary for tyres
Adani Ports : greenfield project in Malaysia for port.
 Students Exercise / Group Discussion
• A small Indian firm that has developed valuable new medical products using its
unique biotechnology know-how is trying to decide how best to serve the U.S.
market. Its choices are given below.
• The cost of investment in manufacturing facilities will be a major one for the Indian
firm, but it is not outside its reach.
• If these are the firm's only options, which one would you advise it to choose? Why?
• (a) Manufacture the products at home and let foreign sales agents handle marketing.
• (b) Manufacture the products at home and set up a wholly owned subsidiary in U.S.
to handle marketing.
• (c) The products would be manufactured in U.S. by the 50/50 joint venture and
marketed by the U.S. firm
 New Topic International Business Environment , PEST, Risks.
PESTEL analysis (or PEST analysis)
• It is a framework that helps organizations/business to analyze the impact of ‘external’ factors on their
resources, capabilities, and core competencies.
• PESTEL factors play significant role in defining/changing the dynamics for a specific market:

P for Political,
E for Economic,
S for Social,
T for Technological,
E for Environmental
L for Legal.
Objectives to conduct PESTEL analysis:
• To Determine the ‘current’ major external factors that are impacting an organization
• Identify the significant external factors that may impact the organization in the future
• Strategizing how to exploit the current and future external factors to use it to maximum
advantage
• Planning how to handle the risks posed by the dynamic external factors
 PESTEL FACTORS

• 1: Political Factors
• Political factors denote the amount of influence that a government may have on an industry or
line of business. E.g., Labour laws may define the amount of time the workforce can work in a
factory, and the fiscal policy may impact the way a company is taxed. We are talking about tax
policies, welfare policies, labor laws, foreign trade policies, Medicaid, environmental policies,
energy policy, and local laws.

• 2: Economic Factors
• All organizations and businesses operate within an economy and are affected by the state of the
economy. Thus, economic factors consist of any and every activity that impacts the
production and consumption of goods and services. For e.g., Inflation impacts the way people
choose to spend their money and thus may result in sales fluctuations for a company. Other factors
include Exchange rates, Recession, Demand & Supply, Taxes, etc..
 PESTEL FACTORS

• 3: Social Factors
• Social factors are sometimes known as socio-cultural factors and encompass the social environment,
beliefs, and attitudes of the general population of an area, city, or country. Social factors are of
importance to the marketers as based on the prevalent social customs and behavior, the organizations would
want to tweak their marketing strategy in order to stay ahead of its competition.
• These factors include (but are not limited to) cultural beliefs, population distribution, population growth
rate, education levels, lifestyle changes, income distribution, etc.. For e.g., McDonald’s adapt and change
their menu based on the local taste and cuisine preferences of the country in which they serve.
• 4: Technological Factors
• Every 12-18 months, computers double their processing capabilities, and so do the technologies that are
powered by them. In order to keep up with the rapid advancements in technical innovations, every
organization and industry should consider the technological factors that will impact their product or
services.
• For instance, when a new disruptive technology comes, an organization may decide to launch a new product
using that tech to capture the market. Other technological factors include compatibility of the device and
platform against technology, Technological awareness of an organization/market, rate of technological
change, the complexity of the technology, etc..
• When companies perform a thorough analysis, technological factors like above provide a lot of insights into
decisions like ‘buy vs. build’ and ‘enter vs. leave a market’.
 PESTEL FACTORS

• 5: Environmental Factors
• Natural and human-made activities are continually modifying the surrounding environment and
the overall ecology of the planet. As a result, companies are now considering environmental
and ecological aspects that impact their business decisions. For e.g., Owing to Coronavirus
(COVID), sectors like tourism, hospitality, and leisure are forced to change their existing ways of
operations.
• Other factors like climatic changes, extreme weather, greenhouse effects are increasingly
impacting, both localized and nationalized businesses, and organizations now consider these
factors much more seriously while planning and mapping out business decisions.

• 6: Legal Factors
• All organizations, irrespective of their size, are expected to abide by the state and national
law. While foraying into a new market or contemplating to introduce a new product,
companies must ascertain what is legal and permitted as per the rules. For instance,
Companies might need to revise their internal employment policy and guidelines owing to the
changes in the employment laws in their country. Other examples of legal factors include
Contract Laws, Import/Export law, Trade regulations, Retirement laws, etc.
 The Atlas of Economic Complexity
•The Atlas of Economic Complexity is an award-winning data visualization tool that allows people to explore
global trade flows across markets, track these dynamics over time and discover new growth opportunities for
every country. Built at the Harvard Kennedy School of Government, The Atlas is powered by 
Harvard’s Growth Lab’s research and is the flagship tool of The Viz Hub, the Growth Lab’s portfolio of
visualization tools.
•The Atlas places the industrial capabilities and knowhow of a country at the heart of its growth prospects, where
the diversity and complexity of existing capabilities heavily influence how growth happens. The tool combines
trade data with synthesized insights from the Growth Lab’s research in a way that is accessible and interactive. As
a dynamic resource, the tool is continually evolving with new data and features to help answer questions such as:
•What does a country or region import and export?
•How has its trade evolved over time?
•What are the drivers of export growth?
•Which new industries are likely to emerge in a given location? Which are likely to disappear?
•What are the GDP growth prospects of a given country in the next 5-10 years, based on its productive capabilities?
•The original online Atlas was launched in 2013 as a companion tool to the book, 
The Atlas of Economic Complexity: Mapping paths to Prosperity. Today, The Atlas is used worldwide by
policymakers, investors, entrepreneurs, academics and the general public as an important resource for
understanding a country’s economic structure.
New Topic
Risks in International Business

Business risk implies the possibility of some unfavourable happening .It

is the possibility of loss due to some uncertain future occurrence.
Though the possibility of profit growth is more in I.B., the changes in
international environment and difference in economic systems can
create problems and issues. There are various types of risks in I.B.
Risks in International Business
Political/
country
Risk
Exchange Cultural
Risk Risk

Credit Risks in
War Risk
Risk International
Business

Transpor Legal
t Risk Risk
Market
Risk
 Risks in International Business
Two Major Risks
• Political Risk / Country Risk
• Exchange Risk.
1. Political Risk / Country Risk / War risk
Due to uncertain political activities and events , unstable political atmosphere in host country,
turbulence, change of government and policies.
• Geopolitical risk, also known as political risk, transpires when a country's government
unexpectedly changes its policies, which now negatively affect the foreign company. These
policy changes can include such things as trade barriers, which serve to limit or prevent
international trade.
• Some governments will increase tariffs for import of items into their country. Tariffs and 
quotas are used to protect domestic producers from foreign competition. This also can have a
huge effect on the profits of an organization because the cost increases and it restricts the
amount of revenues that can be earned.
Caution : Stability of politics and attitude towards foreign investments to be assessed before
entering into business. Assessment of current economic situation like GDP, Employment data,
Purchasing power, inflation etc. to judge the economic situation in the target country.
 continued: Risks in International Business
2. Exchange Risk
Each country has its own currency. Exchange rate fluctuations can be
unfavourable to importer /exporter and cause loss to the company. This
is thus important risk to be assessed.
For example, assume a U.S. car company receives a majority of its
business in Japan. If the Japanese yen depreciates against the U.S.
dollar, any yen-denominated profits the company receives from its
Japanese operations will yield fewer U.S. dollars compared to before the
yen's depreciation. Foreign exchange risk typically affects businesses
that export and/or import their products, services, and supplies.
 Other Risks in International Business

3. Credit Risk : It is a risk of loss due to non-payment of credit amount and

receivables to the exporter. It is difficult to ascertain the credit worthiness of a party
in international market. In case importer turns bankrupt an exporter can suffer big
loss if he has extended the credit
4.Transport Risk : Imports/exports involve long distances transport by vessels
hence loss of accidents and other damages to the goods in them. (Most exports
/imports are through Sea Vessels only very few by air transport)
5.Market Risk :Market conditions change very frequently in various countries. The
firm may not remain competitive for long time in one market.
6.Cultural Risk : Due to different cultures there may be non acceptance of certain
goods / in certain periods as per countries cultural norms.
7.War Risk : War or Warlike situation in target country can adversely affect the I.B.
8.Legal Risk : Due to difference in legal procedures, product liability laws,
taxation laws, contract laws in various countries.
 How to manage risks in International Business
•Some organisations are having separate Risk assessment officer appointed to study and advise on
various risks involved in I.B.
Political and Country Risks :
If you have an option of taking cover of any insurance against some specific risks , you may opt
for appropriate insurance cover.
Study the political situation of target country.
Credit Risk :
•Exporter should insist for confirmed , irrevocable LC (Letter of Credit) through high rated banks.
•You may opt for advance remittance terms for exports if agreeable to importer. ( This may not be
easy)
Currency Exchange Risk
•If you have the option of selecting currency for billing and pricing, select your national currency
to conduct the business. Or you can add margin buffer to any invoice /bid quoted in foreign
currency to absorb the fluctuation in forex rate.
•You may add a clause in the contract, to share the risk of significant fluctuation in currency
during the execution period.
•Use of financial instruments to cover the exchange risk. e.g.
Currency forward contracts, futures and options contracts, currency swaps etc can be used relevant
to the transaction.
 Covering Political Risk
• Political risk insurance protects investors, financial institutions and international companies
in case of events promoting financial loss, such as acts of expropriation, domestic or
international political unrest and violence (including war and terrorism), capital
repatriation, and debt default.
• Insurance is taken to protect investor's investments in overseas market against unpredictable losses
due to specified political perils. The intent of this policy is to protect investor's rights, assets and
investment against the negative effects of arbitrary government action. 
• If you do go ahead and enter a country considered at-risk, one of the better solutions is to
purchase political risk insurance. Multinational companies could go to one of the many
organizations that specialize in selling political risk insurance and purchase a policy that
would compensate them if an adverse event occurred.
• Companies like multinational corporations, exporters, banks, and infrastructure developers
take political insurance . Political risk insurance policies can be locked in for an extended
period of time, reducing the risk of doing business abroad.

Companies offering risk covers ; HDFC ERGO , AIG etc.

 Letter of Credit (Documentary Credit)

• A letter of credit (LC), or documentary credit or "credit letter" is a

letter from a bank guaranteeing that a buyer's payment to a seller will
be received on time and for the correct amount. In the event that the
buyer is unable to make a payment on the purchase, the bank will be
required to cover the full or remaining amount of the purchase.
• Letters of credit are often used within the international trade industry.
There are many different letters of credit .
• Seller , after exporting the goods, should present the documents
required as per the terms of the LC , generally : BL (Bill of Lading) ,
Invoice, Packing List, Test Certificate, Inspection Certificate, etc.
• These ensure that the exporter receives its payment from the bank as
per the usance period of LC i.e. at sight, 30 days, 60 days etc.
• There are several types of LC s used in I.B.
Letter of Credit (Documentary Credit)
(for conceptual understanding)
 Currency Forward Contract (For Conceptual Understanding only )

• It is a contract between the two parties in which the conversion of currencies

would take place at future date at a rate of exchange fixed in advance between
two parties , say the bank and customer. Say for example, customer is
exporter or importer.
• The objective of entering into a forward contract is to fix the exchange rate in
advance and thereby avoid the exchange rate risk.
Forward Rates = spot rate +/- premium/discount
Forward contract is used for hedging the foreign exchange risk for future
settlement.
• For example, An importer or exporter may lock in current exchange rate by
entering into forward contract with the bank to avoid adverse rate movement.
Customer may book forward contracts in all the major currency pairs, as USD,
EUR, GBP, JPY, AUD, CAD, and INR etc.
Simple example of Forward contract ( just for conceptual understanding)
• Vikram exported consignment of Indian spices to US on 25 th July 2021 , and will get
his payment in the bank after 60 days in currency USD. He will get USD 100000/- on
25th Sept.2021 through bank.
• Suppose current ex rate (spot rate) is 1 USD = Rs. 74/- and he is not sure whether the
rate may go down or up in 60 days hence wants to fix exchange rate for avoiding
exchange risk and safeguard against adverse fluctuation in ex rate.
• He enters Forward contract with bank at current forward rate of Rs.76/- per USD for 25 th
Sept. 2021. He will surely get Rs. 7600000/- on 25th Sept.2021
Now in real life situation three scenarios possible.
• Consider--On 25th Sept 2021 the ex rate may be 78/-(up), 76/(same as forward contract
rate) or 74/ (down)and if not entered forward contract, Vikram would have got Rs.
7800000/- , 7600000/- or 7400000/- respectively So either he loses 200000/- , or No
profit no loss, or gains 200000/- by way of Forward Contract.
• however Vikram has safeguarded the risk by fixing the rate in advance
through Forward Contract which and got Rs 7600000/-
Exercise on Forward Contract
(only for conceptual understanding)

• Mr. Sinha, an chemicals agent, based at Kolkata imports certain pharma

products from US and one of his consignment is due to arrive on 5 th
September 2021. The value of the same is USD 100000/- So he will need
USD 100000/- to pay through bank on 5th September 2021. . If he enters
Forward contract, he gets the rate of 75/ per 1 USD for 5th Sept.
• But assume He does not enter a Forward Contract since he feels that the
rupee may appreciate against dollar and the rate would be lower on 5 th
Sept.
Actual ex rate on 5th Sept turns out to be Rs.76/- per USD.

Q: Did Mr. Sinha benefitted from his decision of not entering a forward
contract? Explain.
Exercise on Forward Contract
(only for conceptual understanding)

• Mr. Gautam, a chemicals agent, based at Chennai , exports certain pharma products to
US and one of his payment for exported consignment is due to be received on 5 th
September 2021. The value of the same is USD 100000/- So he will get USD 100000/-
through bank on 5th September 2021.
• For safety ,he enters Forward contract, he gets the rate of Rs.75/ per 1USD for 5th
Sept. for forward contract and makes sure that he will receive Rs.7500000/- on 5 th Sept

The ex rate on 5th Sept turns out to be Rs.76/- per USD.

Q: Did Mr. Gautam benefitted from his decision of entering a forward contract? Explain.
 Advantages and Disadvantages of Forward Contracts
Advantages of Forward Contracts.
• By entering into forward contract the firm can ensure that the
liabilities or receivables in future are protected from currency
exchange rate fluctuations.
• Helps in better planning of cash flows of future.
Disadvantages of Forward Contracts.
They are customised and not tradable on exchanges
In case of cancellation , if at all, the contract has to be honoured any
way .In such case another contract has to be entered to offset the effect
of the cancelled contract. This incurs bank fees etc for both the
contracts.
Currency Futures Contracts and Currency Options contracts
Currency Futures Contracts.: These specify the price at which the
currency can be bought or sold at future date. The contract gives the buyer
the obligation to either buy or sell the currency at future date.
• These are standardised contracts and tradable on exchanges.
• These can be closed earlier that the maturity date by taking opposite
position.
Currency Options contracts
Currency option contract gives the purchaser the right but not obligation to
buy or sell a given currency at a specified ex rate during the specified
period of time. A premium is paid for this. You can exercise your option
anytime during the tenure of the contract.
These are standardised contracts and tradable on exchanges.
 Foreign Currency Swap (For Conceptual Understanding only )

• A foreign currency swap, also known as an FX swap, is an agreement to 

exchange currency between two foreign parties. The agreement consists of
swapping principal and interest payments on a loan made in one currency
for principal and interest payments of a loan of equal value in another
currency. One party borrows currency from a second party as it
simultaneously lends another currency to that party.
• Examples of Foreign Currency Swaps
• A common reason to employ a currency swap is to secure cheaper debt. For
example, European Company A borrows USD100 million from U.S.
Company B; concurrently, European Company A lends 100 million euros to
U.S. Company B.
• The deal allows for borrowing at the most favorable rate.
 International Management Orientations
New topic
EPRG Framework (Perlmutter’s EPRG model)

• The way businesses and staff view the world is described as

international management orientations. Howard Perlmutter
identified a way of classifying alternative management orientations,
which is commonly referred as Perlmutter’s EPRG model.
• It is designed to be used in an internationalization process of businesses
and mainly addresses how companies view international management
orientations. According to the EPRG Framework (or the EPRG Model),
there are four management approaches that an organization can take to
get more involved in international business substantially.
EPRG Framework
EPRG Framework
Ethnocentric
Advantages and Disadvantages of Ethnocentric Orientation

 Advantages of Ethnocentric Orientation

 There is better coordination between the home and host country as strategic decisions are taken
centrally for all subsidiaries.

 Saves cost of hiring top level management in international market as officials can migrate from the
home country whenever required.

 The parent company can have a better watch on the operations and hence exercise an effective
control over the subsidiary.

• Disadvantages of Ethnocentric Orientation

• It shows cultural short-sightedness of the organization.
• The failure rate of business decisions under this approach is high.
• Example of Ethnocentrism
• Nissan’s earliest exports from Japan were automobiles designed for mild Japanese winters. When
exported to USA, a company with extreme winters, these vehicles were difficult to start. This could
not work.
Polycentric
 Advantages & Disadvantages of Polycentric Orientation

• Advantages of Polycentric Orientation

 Lower manpower cost as it does not require specialized officials from home country to run
operations.

 Local officials have knowledge about the local market and hence take market centric decisions.

• Disadvantages of Polycentric Orientation

 Lower control of headquarters over host country management.

• Overall cost of the company generally tends to rise due to targeted offerings and promotions
• Example of Polycentricism
• McDonald’s is a prominent example of a firm following polycentric approach. Having originated in
USA, its menu in USA is centred around their local preference. When coming to India, came up with
vegetarian offerings.
Regiocentric
 Advantages &Disadvantages of Regio centric Orientation

• Advantages of Regiocentric Orientation

 Cultural fit is the biggest advantage of regiocentricism as managers find it convenient to
communicate with each other and other employees.

 The customers from the same region have similar likabilites and hence it is easy to communicate
and deliver to them.

• Disadvantages of Regio centric Orientation

• It may lead to confusion between regional objectives and global objectives. The true essence of
globalization may become blurry.
• Example of Regio centricism
• Goodyear International, the tire major also has clubbed various countries with similar policies and
economic landscape. Asia-Pacific is one region, Europe is another and the rest of the world is
divided into Latin America, North America, Middle East and Africa.
Geocentric
 Advantages & Disadvantages of Geocentric Orientation

• Advantages of Geocentric Orientation

• A geocentric approach makes it possible for businesses to be competitive wherever they
are launched.
• It’s a win-win situation for both the firm and the international markets as it is standardized
but at the same time very agile.
• Disadvantages of Geocentric Orientation
• It is a challenge to find a management that is capable of adapting to multiple styles at
once.
• There is a benefit lost in terms of being experts in one country or domain.
• Example of Geocentricism
• KFC has a ‘vegetarian thali’ and a Chana snacker to cater to vegetarians in India.
• Viacom’s MTV channels are branded according to the country they are operated in
namely MTV India, MTC China, MTV Korea and many more. It hires more people from
these nationalities and plays according to respective cultures.
Characteristics
 New Topic
Foreign Direct Investment (FDI)
• What is Foreign Direct Investment (FDI) ?
• A foreign direct investment (FDI) is an investment made by a firm or
individual in one country into business interests located in another
country. Generally, FDI takes place when an investor establishes
foreign business operations or acquires foreign business assets in a
foreign company.
• However, FDIs are distinguished from portfolio investments in which
an investor merely purchases equities of foreign-based companies.
 FDI
• India has attracted total FDI inflow of about $80 bn during April to
March 2021.
• Countries making FDI in India
• Singapore, US , Mauritius , Germany, Japan, UK, and others
• Among industries, computer software and hardware topped the
investment chart in FY21 accounting for 44% share of the total FDI
inflow. It is followed by construction (infrastructure) activities which
accounted for 13% and services that accounted for 8% respectively,
 Factors Influencing the F.D.I.

Factors in the target (Host) Country

• 1. Supply Factors : Production Cost, Resources availability

Logistics, Access to technology.

2. Demand Factors : Demand (volume) , Customer access,

customer mobility ( major customers)
competitive advantage (to drive the demand)

3. Political Factors : Less impact of trade barriers ,

Economic development incentives available,
 FDI IN INDIA --- ROUTES

• Government/Approval route FDI under the Automatic route is where

the foreign investor or the Indian company does not need to take any
approval from the Government of India before making an investment,
whereas under the FDI approval route, also called
the Government route, a prior permission must be taken from the
Government.
 Automatic Route FDI

• Automatic Route FDI

• In the automatic route, the foreign entity does not require the prior
approval of the government or the RBI.
• Examples:
• Medical devices: up to 100%,Thermal power: up to 100%,Services under
Civil Aviation Services such as Maintenance & Repair Organizations,
Insurance: up to 49%,Infrastructure company in the securities market: up
to 49%,Ports and shipping, Railway infrastructure, Pension: up to 49%,
Petroleum Refining (By PSUs): up to 49%
 Government Route FDI

• Government Route FDI

• Under the government route, the foreign entity should compulsorily take the
approval of the government. It should file an application through to the respective
ministry or department, which then approves or rejects the application.
• Examples:
• Broadcasting Content Services: 49%,Banking & Public sector: 20%,Food Products
Retail Trading: 100%,Core Investment Company: 100%,Multi-Brand Retail Trading:
51%,Mining & Minerals separations of titanium bearing minerals and ores: 100%
• Print Media (publications/printing of scientific and technical magazines /
speciality journals/periodicals100%,Satellite (Establishment and operations): 100%
• Print Media (publishing of newspaper, periodicals and Indian editions of foreign
magazines dealing with news & current affairs): 26%
 Advantages of FDI to Host Country

• FDI is responsible for capital inflows into the host country. The host
country gets returns from the capital investment in terms of taxes.
• Increase in Forex reserves for host country.
• FDI facilitates job creation in the host country. It reduces the rate of
unemployment in the host country.
• FDI creates better jobs in the host country in terms of technology
when they bring advanced technologies in home country.
• The host country benefits from tax revenues due to increased
employment and high incomes.
• Techology and knowledge transfer.
• Higher Product varieties availability ( Retail FDI)
 Disadvantages of FDI to Host Country
Infrastructure may come under extra strain ( Power, Traffic, Roads)

• Possible overexploitation of labour / raw material sources

• If FDI is capital intensive, then the employment opportunities would be less.

• Foreign companies may create monopoly if there is no government control.

• Domestic companies may have to shut down due to competition

( Retail sector –Kirana shops)
 ADR , GDR , Eu Bonds and FPI

ADR stands for American Depository Receipts while GDR is Global Depository Receipts.
Depository Receipt is a type of negotiable (transferable) financial security that is traded on a local stock
exchange but represents a security (usually equity) that is issued by a foreign publicly listed company.
American Depository Receipts (ADR)
• ADR is a negotiable certificate issued by US bank representing specified number of shares in a foreign
stock that is traded on a US exchange, denominated in US Dollars.
• (Some of Indian cos having ADRs : Tata Motors, Wipro, HDFC Bank, ICICI Bank, Infosys etc )
Global Depository Receipts : (GDR)
• GDR is a bank certificate issued in more than one country representing shares in a foreign company.
These trade as domestic shares offered for sale through various bank branches globally.
• What Is the Difference Between an ADR and a GDR? An American depositary receipt represents shares
in a foreign company and is listed only on American exchanges. A GDR represents shares in a foreign
company and is listed on various foreign stock exchanges
Eurobonds
• A eurobond is an international bond that is denominated in a currency not native to the country
where it is issued. They are also called external bonds. They are usually categorised according to
the currency in which they are issued: eurodollar, euroyen, and so on.
 Foreign Portfolio Investment : (FPI)

Foreign Portfolio Investment : (FPI)

Foreign portfolio investment (FPI) consists of securities and other financial assets held
by investors in another country. It does not provide the investor with direct ownership of
a company's assets and is relatively liquid investment.
It is a method of investment that allows the investor to hold significant assets in a foreign
country. In most cases, an FPI comprises several types of assets including bonds, stocks,
and ‘cash equivalents. Cash equivalents may include Government-issued Treasury and
Savings Bonds, T-Bills, Marketable Securities, and ‘Money Market Funds’.
• Together with FDI or Foreign Direct Investment, FPIs present one of the easiest ways to
invest in a foreign country. Unlike FDI, the investor does not have direct access to, or
control over, the assets of the company in which they have invested.  FPIs are thus
categorised as indirect and hands-off investment techniques meant solely for greater
returns. 
 Offshore Banking
• An offshore bank account refers to the use of banking services in a foreign
jurisdiction; ( the individual resides outside the jurisdiction where the bank is
located) If you are a UK person with a bank in the U.S. for example, you are using
offshore banking. The term offshore is just used to separate domestic and foreign
banks.
Advantages of Offshore banking
• Greater Privacy, Little or no taxation, protection against local (political financial)
instability,
Disadvantages of Offshore banking
• Lesser financial security, cost of opening and operating an account,
higher scrutiny, being seen as associated with hidden income, etc.
Class Exercise
In which country you would like to invest ?
•Country A
Country A has a diversified portfolio of developmental sectors. Domestically, the levels of private business
investments are high. This has been attributed to the decline in government spending and an increase in the
domestic private investments. Foreign investments look promising and because of the diversification the
foreign direct investments are expected to grow. Political climate is likely to influence the economic growth
of the country especially since a change in the political leadership is expected. There is sort of slight political
uncertainty in the country prior to elections.
 
•Country B
The economy of country B is not yet stable. Levels of infrastructure development are low. The government
has more influence in the market. The government controls the interest rates and consumer prices. The
consumption levels of the country are high. Import levels are low owing to the country being endowed with
abundant natural resources. The government revenue is low due to the low level of economic growth. Foreign
investments are yet to pick up though there is a scope in some sectors like manufacturing high technology
products.
 
new topic
Multinational Corporations or
Multinational Companies or
Multinational Enterprises

What Is A Multinational Corporation (MNC)?

• A multinational corporation (MNC) has facilities and other assets in at
least one country other than its home country. A multinational
company generally has offices and/or factories in different countries
and a centralized head office where they coordinate global
management.
 Home country and Host country
(in the context of International Business)

•  In International Business, ’Home country’ refers to the country where the

headquarters is located whereas ‘Host country’ refers to the foreign countries
where the company invests .  This is the key difference between home country
and host country.
• Examples : Foreign MNCs in India
• HUL(Hindustan Unilever Ltd) Home country : UK Host Country : India
• P & G India Home country : US Host Country : India
 MNC Structures
Organizational structures of MNCs
Organizational structures of MNCs is a reporting structure in an
MNC hierarchy)
Factors considered for Organizational structure :
1. External Business Environment : PESTEL factors.
2. Specific Objectives of MNC.
3. Horizontal or Vertical structure?
4. Organization climate , Job structure, management style.
5. Geographic dispersion and number of products.
 Tall or Flat organization

• Tall: Multiple layers of hierarchy , less autonomy , decisions delayed

• Flat: Few layers of hierarchy , more autonomy , quick decisions
 MNC Organization Structures

• There are many types of organization structures of MNCs , however

we will discuss four major types of structures.

1. Product organization Structure

2. Geographical organization Structure
3. Functional organization Structure
4. Matrix organization Structure
 Product Organization Structure
Various product divisions , all have different functions of production, marketing, finance, HR etc
within each division.
Advantages: Easy to meet customers’ needs effectively, encourages competition within divisions
Disadvantages : Duplication of functions in divisions.
 GEOGRAPHICAL ORGANIZATION STRUCTURE
Divisions are based on geographical regions
Individual division has all the functions required to produce and market the products .

Advantages: separate strategy possible, better co-ordination within markets , advantage of local
factors
Disadvantages: Difficult to maintain consistent image of company , duplication of staff.
CONTD:GEOGRAPHICAL ORGANIZATION
STRUCTURE

• This type of structure is well-suited to businesses

like hospitality, retail and transportation that need to be near
customers or sources of supply. For a more immediate
example, take a multinational organization like Starbucks.
 FUNCTIONAL ORGANIZATION STRUCTURE
Reporting Relationship based on speciality area. e.g. HR, Marketing, Finance, Production
Advantages : Function controlled by experienced person in domain., staff can move up in the
functional area, allows knowledge sharing
Disadvantages: Difficulty for staff to work with other functional area, When company
grows large ,managing function becomes difficult due to size., Functions may get distracted by
own functional goals than organization’s common goal
 MATRIX ORGANIZATION STRUCTURE
Reporting relationship in grid / matrix structure. Employees have Dual reporting , to functional head and project
head. The definition of a matrix organization structure is where people report formally to more than one manager. 
Advantages: decisions based on what is best for organisation, encourages consensus, best use of functional
expertise.
Disadvantages : Complex to manage, against unity of command principle, slow decision process.
 MATRIX ORGANIZATION
STRUCTURE

• Successful Businesses which use the Matrix Organizational

Structure. Some successful organizations which have used a
Matrix Organizational structure include; Phillips, Caterpillar,
and Texas Instruments have all used the Matrix Structure at
some point in time
 Indianisation of Global Companies
Flexibility of MNC depends on how much diversity it can accommodate and how many of its global standards it
needs to maintain. They have an option of maintaining rigid global template or part localization in some areas. They
follow part localization to be successful in Indian market.

MNC Global Template Deviation for India

Pepsi Co. Maintain uniform brand image Indianized positioning and ads
Control country budgets strictly Free hand on investments
Depute managers from HO Operate through local managers
Enter market on its own terms Deviate for fast entry

Hyundai Premium end market Enter with small cars

Stay only with imports Indigenised manufacturing
Emphasize Korean Engineering as USP Local stars for endorsement
Use global business models Develop new business models for India
MNC
 Advantages of MNC’s for the home country
Advantages of MNC’s for the home country
MNC’s home country has the following advantages.
1. MNC’s create opportunities for marketing the products produced in the
home country throughout the world.
2. They create employment opportunities to the people of home country
both at home and abroad.
3. It gives a boost to the industrial activities of home country.
4. MNC’s help to maintain favourable balance of payment of the home
country in the long run.
5. Home country can also get the benefit of foreign culture brought by
MNC’s.
MNC
Globalization
New Topic Globalization
What is Globalization?

• Globalization , in broad sense is the shift towards a more integrated and

interdependent world economy. It is a process by which diverse world is
unified.
• Globalization process is mainly influenced by, Political factors,
Economic factors , Social factors among others.
• Corporations gain a competitive advantage on multiple fronts through
globalization. They can reduce operating costs by manufacturing abroad,
buy raw materials more cheaply because of the reduction or removal of 
tariffs, and most of all, they gain access to millions of new consumers.
New Topic Globalization

What is Globalization?

• Globalization , in broad sense is the shift towards a more integrated and

interdependent world economy. It is a process by which diverse world is
unified.
• Globalization process is mainly influenced by, Political factors, Economic
factors , Social factors amomg others.
• Corporations gain a competitive advantage on multiple fronts through
globalization. They can reduce operating costs by manufacturing abroad,
buy raw materials more cheaply because of the reduction or removal of 
tariffs, and most of all, they gain access to millions of new consumers.
Continued Globalization
• Economic Globalization is characterized as long distance flows of goods ,
capital, as well as information. It is indexed based on trade, FDI ,payment to
foreign nationals, import barriers, tariff rate, taxes on international trade
etc.
• Political Globalization is characterized by the government policies of
country towards embassies, membership of international trade
organizations, and participation in UN security council missions and
international treaties.
• Social Globalizations is effect of above two types of globalizations. It is
expressed as spread of ideas, information, images, telephone traffic and
communication, tourism across nations, foreign nationals living in the
country etc. Internet based media has reduced the barriers between the
nations. Social Globalization is evident in similarities and social trends
between cultures, art, humanities. Example: popularity of Mc Donald’s or
certain fashions across countries..
 Global Manager

Who is global Manager ?

• A global manager is characterised by nature of the work he does , typically within an
organization within global organization. He has the capability of to manage amid the
complexity of the business that is conducted across divergent cultures and time
zones.
Skills required by Global Manager
1. Cross cultural communication skills : working with diverse cultures.
2. Excellent networking abilities : developing networks of business related
connections across nations.
3. Collaboration : Ability to Work together for common objectives.
4. Interpersonal Influence: Ability to influence and persuade.
5. Adaptive thinking : Adapting to everchanging business environment.
6. Emotional Intelligence : Self aware and in control of their emotions. Able to
react calmly to critical or stressful business conditions . Having high EQ.
7. Resilience : To be tough to failures and setbacks , ability to rise to
challenges of global business, recover quickly from failures/setbacks.
 Advantages and Disadvantages of Globalization

Advantages
• Increased Free trade between the nations.
• Increased liquidity of capital to enable investment by developed countries
into developing countries.
• Enhanced flow of communication enabling sharing vital information between
countries .
• Knowledge and technology transfer.
Disadvantages
• Some companies may have to struggle because of greater competition on
international scale.
• Preserving cultural heritage by some societies may hinder the process.
• Possible Environmental harm due to rapid industrialization
• Possible Exploitation of poorer labour markets.
 new topic –International organizations : WTO, WB, IMF, ADB
WTO – World Trade Organization
WTO regulates international trade. World Trade Organization (WTO) headquarters at
Geneva, Switzerland

WTO
• World Trade Organization, was established in 1995 as the heir organization to
the GATT (General Agreement on Trade and Tariff).
• WTO is required to build a rule-based trading government in which countries
cannot place unreasonable constraints on trade.
• In addition, its mission is to increase stock and trade of services, to assure
maximum utilization of world resources and to preserve the environment. The
WTO deals include trade in commodities as well as services to promote
international trade (bilateral and multilateral) through the elimination of the
tax as well as non-tariff obstacles and implementing greater marketplace
access to all member nations.
 Structure

The highest authority of the WTO is the Ministerial

Conference, which must meet at least every two
years.
The daily work is handled by three bodies
The General Council
The Dispute Settlement Body
The Trade Policy Review Body
WTO Structure
 Objectives of WTO

Major Objectives of WTO

• To set and execute rules for international trade of Goods and Services ,To
solve trade conflicts, To improve the clarity of decision-making methods.
• To reduce Tariff and Non-Tariff barrier. To eliminate discriminatory
treatment in international trade relationships.
• Co-ordination between trade policies, environmental policies and
sustainable development
• To improve standard of living of member countries by optimum
utilization of world resources.
 Functions Of WTO

(1)The WTO provides the framework for implementation, administration and operation
of multilateral trade agreements .
(2) The WTO provides the forum for further negotiations among its member states
concerning their multilateral trade relations with regard to the matters included in the
agreements
(3) The WTO undertakes the task of settlement of disputes among the member states,
which arise from their different understandings of the rules and procedure agreed upon.
(4) The WTO administers the ‘ Trade Review Mechanism.’
(5) In order to evolve a coherent global economic policy to promote free and fair trade
among the different countries,
WTO cooperates in an appropriate manner with the IMF; World Bank and its affiliated
agencies.
TRIPS AGREEMENT:
Trade-Related Aspects of Intellectual Property Rights

• The Agreement on Trade-Related Aspects of Intellectual Property

Rights is an international legal agreement between all the
members.
• The TRIPS Agreement is a minimum standards agreement, which allows
Members to provide more extensive protection of intellectual property
if they so wish.
• Members are left free to determine the appropriate method of implementing
the provisions of the Agreement within their own legal system and practice.
• The TRIPS Agreement plays a critical role in facilitating trade in
knowledge and creativity, in resolving trade disputes over intellectual
property, and in assuring WTO members the latitude to achieve their
domestic objectives.
The Agreement on Trade-Related Investment Measures
(TRIMS) 
• The Agreement on Trade-Related Investment Measures
(TRIMS) recognizes that certain investment measures can restrict
and distort trade. It states that WTO members may not apply any
measure that discriminates against foreign products or that leads to
quantitative restrictions, both of which violate basic WTO principles.
• Trade-Related Investment Measures is one of the four principal legal
agreements of the WTO trade treaty. TRIMs are rules that restrict
preference of domestic firms and thereby enable international firms
to operate more easily within foreign markets.
 Anti-Dumping Duty
Anti-Dumping Duty
• An anti-dumping duty is a protectionist tariff that a domestic government
imposes on foreign imports that it believes are priced below fair market
value.
• Dumping is a process wherein a company exports a product at a price that is
significantly lower than the price it normally charges in its home (or its
domestic) market.
• The World Trade Organization (WTO)– an international organization that
deals with the rules of trade between nations–also operates a set of
international trade rules, including the international regulation of anti-
dumping measures
• In order to protect their respective economy, many countries impose duties
on products they believe are being dumped in their national market
because these products have the potential to undercut local businesses and
the local economy.
Porter Diamond- National Competitive Advantage theory
 The Porter Diamond
• The Porter Diamond suggests that countries can create new factor
advantages for themselves, such as a strong technology industry,
skilled labor, and government support of a country's economy. Most
traditional theories of global economics differ by mentioning
elements, or factors, that a country or region inherently possesses,
such as land, location, natural resources, labor, and population size
as the primary determinants in a country's competitive economic
advantage. Another application of the Porter Diamond is in
corporate strategy, to use as a framework to analyze the relative
merits of investing and operating in various national markets.
Porter Diamond- National Competitive Advantage theory

• The Porter Diamond model explains the factors that can drive
competitive advantage for one national market or economy over
another.
• It can be used both to describe the sources of a nation's competitive
advantage and the path to obtaining such an advantage.
• The model can also be used by businesses to help guide and shape
strategy regarding how to approach investing and operating in
different national markets.
 Country Risk Analysis

• Country risk assessment, also known as country risk analysis, is the process of
determining a nation's ability to transfer payments. It takes into account
political, economic and social factors, and is used to help organizations make
strategic decisions when conducting business in a country with excessive risk.
 new topic International Logistics and Supply Chain

• What is global manufacturing?

• A Global Manufacturer is a company that manufactures components, sub-
assemblies, assemblies, and finished products by leveraging raw material,
manufacturing capabilities, cost, and an efficient supply chain that spans
across the world
• International supply chain management.
• International supply chain management and logistics makes reference to
the management or control of both physical and information flow concerning a
wide variety of goods, tracking them from the point of their origin and until they
reach the destination.
• Logistics management is the part of Supply Chain Management (SCM)
 that plans, implements, and controls the efficient, effective forward, and
reverse flow and storage of goods, services, and related information
between the point of origin and point of consumption to meet customer's
requirements.
Supply Chain Framework
Supply Chain Management (SCM)  
International Logistics
 Global Supply Chain Management

• What is the global supply chain?

• A global supply chain is an international system that businesses use to produce and distribute
goods and services. This network starts with raw materials and ends when the final product or
service is delivered to customers. 
• Many entities make up a global supply chain, including suppliers, manufacturers, freight
forwarders, warehouses, distributors, and retailers. These entities facilitate the movement of
information and resources around the world.
• Most global supply chains span across multiple continents and countries, taking advantage of
relatively low materials, labour, and manufacturing costs.
• What is global supply chain management?
• Global supply-chain management (also known as global SCM) is the process of administering
and directing a network of entities to produce and distribute goods and services internationally.
The core aims of global supply chain management are to maximise profit, reduce inefficiencies,
and deliver goods and services timely.
 SCM

• Transportation: Physical movement of Goods, (sub - part of logistics).

• Logistics is a sub-part of the Supply Chain. Logistics is a Part of the End-to-End
Supply Chain Process, Logistics Plans, Implements, and Controls.
• Logistics Moves Goods from Place to Place, Logistics Stores Goods Until They Are
Needed, Logistics Distributes Products to the End Customer
• Supply Chains are the Overarching Framework for Sourcing, Manufacturing and
Supplying Products
• Supply Chain Management Works Across Multiple Organizations
• Suppliers: Produce raw materials or parts that can be manufactured into products
• Manufacturers: Create parts or products from raw materials and other inputs
• Logistics: Transports and stores goods as they move through the supply chain
• Wholesalers: Purchases goods for onward distribution to stores or other sales outlets
• Retailers: Sells finished products to end customers
Other functions of SCM
• Supply chain management often controls other aspects of the order, inventory
and supply chain process.
• Fosters collaboration and partnerships: Provides links and better ways for
different supply chain organizations to work together
• Inventory management: Identifying when the stock of particular products is
falling and arranging to procure new items
• Order management: Raising orders with suppliers, manufacturers and other
organizations in the supply chain
• Order, and shipment tracking: Following the flow of orders, goods and other
assets through the global supply chain
• Visibility: Reporting on the flow of goods through the supply chain
• Troubleshooting: Identifying and resolving issues with the speed, cost, quality
or other aspects of goods moving through the supply chain
 Supply Chain Challenges

10 top supply chain challenges to overcome:

1.Cash flow
2.Lead times
3.Delays
4.Data management
5.Exposure to risks
6.Accountability and compliance
7.Quality control and defects
8.Language barriers
9.Time zones
10.Exchange rate and foreign transaction costs
• Though global supply chains present several complex challenges, they also
provide compelling advantages, such as more sourcing options, lower labour
costs, and opportunities to expand internationally.
 International HR management
What is international HRM?
International HRM is the process of acquiring, allocating, and
utilizing human resources in a global business to achieve the
stated objectives. Because of global context, international HRM is
the interplay of three dimensions- HR activities, type of
employees, and countries of operations.
The global Human Resource Management should develop and
implement those policies and procedures that cover the
fundamental issues of the expatriate assignments. These
effective HR policies must be related to selection, training, career
development, and compensation.
 Terms : Personnel Management & Human Resource Management

• Personnel Management
The term personnel management was traditionally used to refer to the set of activities
concerning the workforce which included staffing, payroll, contractual obligations and other
administrative tasks. In this respect, personnel management covers the range of
activities relating to managing the workforce rather than resources.
Personnel Management is more administrative in nature and the Personnel Manager’s main job is to ensure
that the needs of the workforce as they pertain to their immediate concerns are taken care of. Further,
personnel managers typically played the role of mediators between the management and the employees and
hence
there was always the feeling that personnel management was not in tune with the objectives of the management.
• Human Resource Management
With the advent of resource centric organizations in recent decades, it has become imperative to put “people first”
as well as secure management objectives of maximizing the ROI (Return on Investment) on the resources. This
has led to the development of the modern HRM function which is primarily concerned with ensuring the
fulfillment of management objectives and at the same time ensuring that the needs of the resources are taken
care of. In this way,
HRM differs from personnel management not only in its broader scope but also in the way in which its
mission is defined.
• HRM goes beyond the administrative tasks of personnel management and covers a broad vision of
how management would like the resources to contribute to the success of the organization.
 Challenges of International HRM

Challenges are faced in following areas of International HRM

• Human resource planning , Staffing Policy, Fight for Talent
• Performance management, Training and development,
• Compensation and Benefits and employee relations
• Social, Cultural and Language Factor in various countries
• Managing health and security in Global space.
• Legal and regulatory factors in various countries
 Offshoring vs Outsourcing

• Offshoring occurs when a company re-establishes a business unit, process or function in a

country where the costs of fulfilling the work are lower. It's important to know that in offshoring, the
rest of the company's business functions continue to operate in their country of origin .
• Advantages : Lower operational costs, labor costs, easier access to the global workforce, ever-increasing
competition, and greater quality of services are some of the major reasons why businesses look for offshore
outsourcing.
• Disadvantages: Time Zone Differences and Proximity. One of the biggest disadvantages of offshoring
is time zone differences. Communication and Language Issues. ...Cultural and Social
Differences. ...Geopolitical Unrest. ...
• --------------------------------------------------------------------------------------------------------------------------------------------

• Outsourcing is the business practice of hiring a party outside a company to perform services or create
goods that were traditionally performed in-house by the company's own employees and staff. Outsourcing
is a practice usually undertaken by companies as a cost-cutting measure .
• Advantages Of Outsourcing. ...You Don't Have To Hire More Employees. ...Access To A Larger Talent
Pool. ...Lower Labor Cost.
• Disadvantages Of Outsourcing: Lack Of Control. ...Communication Issues. ...Problems With Quality.
 Types of Foreign subsidiaries and Staffing

• What is a foreign subsidiary?

• A foreign subsidiary is a company operating overseas that is part of a larger corporation with
headquarters in another country, often known as a parent company or a holding company.
• What are the two types of subsidiary?
• Subsidiaries can be both wholly-owned and not wholly-owned, With a regular subsidiary, the parent
company's ownership stake is more than 50%. A wholly-owned subsidiary, on the other hand, is fully
owned by the parent. This means that the parent holds 100% of this subsidiary's common stock.
• Multinational corporation ( MNC ) is an organization who have branches in many different countries but
managed wholly from one country i.e., home country. Hence, centralized control in MNC's implies control
exercised by the headquarters.
Multinational companies use a wide range of mechanisms to keep control over a subsidiary abroad such as the
share of capital in the case of international joint ventures, expatriation, active participation in the board of
directors, staffing key management positions, training and socialization of employees, technology 
• There are four primary approaches that multinational companies use in staffing decisions, including geocentric,
ethnocentric, polycentric, and regio-centric approaches
Foreign subsidiaries : Advantages -Disadvantages
• Advantages for subsidiary companies
• Brand recognition. ..
• Risk reduction. ...
• Increased efficiencies and diversification. ...
• Tax benefits. ...Easier mergers and acquisitions. ...
• Disadvantages of owning a subsidiary are:
• More legalities: Owning multiple firms and their assets can cause legal
concerns. ...
• Complex financials: Accounting becomes more difficult when
organizing and consolidating a subsidiary's financials.
 Cross Cultural Management

• Cultural differences can act as a barrier to communication, and that

they could affect his ability to build connections and motivate people.
So, One has to understand these differences and work effectively with
people from different cultures?
 Importance of Cross-Cultural Management
•Cultural norms play a large part in interpersonal relationships at work. When you grow
up in a certain culture, you take the behavioral norms of your society for granted. You
don't have to think about your reactions, preferences and feelings, provided that you
don't deviate too much from your society's central tendency.

•When you step into a foreign culture, things suddenly seem different, and you don't
want to cause offense. By using Hofstede's Cultural Dimensions as a starting point,
you can evaluate your approach, your decisions, and your actions – based on a general
sense of how people in a particular society might think and react.

•However, everybody is unique, and no society is uniform. But you can use the
Hofstede model to make the unknown less intimidating, to help you to avoid making
mistakes, and to provide a much-needed confidence boost when you're working in an
unfamiliar country.
 What Are Hofstede's Six Dimensions of Culture?

• Psychologist Dr. Geert Hofstede published his cultural dimensions

model at the end of the 1970s, based on a decade of research. Since
then, it's become an internationally recognized standard for
understanding cultural differences.
1.Power Distance Index (high versus low).
2.Individualism Versus Collectivism.
3.Masculinity Versus Femininity.
4.Uncertainty Avoidance Index (high versus low).
5.Long- Versus Short-Term Orientation.
6.Indulgence Versus Restraint.
Hofstede's Cultural Dimensions
Hofstede's Cultural Dimensions
 The CAGE Distance Framework
Professor Pankaj Ghemawat  

• The CAGE Framework was developed by Professor Pankaj Ghemawat, a

renowned Professor of Global Strategy at IESE Business School in
Barcelona, Spain. He was convinced that one should look beyond mere
sales potential and analyze the impact of distance.
• The CAGE Distance Framework identifies Cultural, Administrative,
Geographic and Economic differences or distances between countries
that companies should address when crafting international strategies.
It may also be used to understand patterns of trade, capital, information.
• To apply the CAGE framework, identify locations that offer low raw material costs,
access to markets or consumers, or other key decision criteria. You might, for
instance, determine that you're interested in markets with strong consumer buying
power, so you would use per capita income as your first sorting criterion.
The CAGE Distance Framework
 GLOBE study

• The GLOBE Project (Global Leadership and Organizational Behavior

Effectiveness Project) is a study of cross-cultural leadership that spans
over 60 countries and cultures. The project was founded in 1993 by
Robert J. House to analyze the organizational norms, values, and beliefs
of leaders in different societies.
 How does the GLOBE study relate to culture

• How does the GLOBE study relate to culture?

• The GLOBE project is an international research project aimed at creating,
testing, and validating theories retailed to the relationship between culture
and societal, organizational, and leadership effectiveness.
• An additional cultural dimension analyzed in the GLOBE study is in-group
collectivism. Such cultural characteristic marks the degree to which individuals in
a culture value and take care of their in-groups. In-groups are close circles of
people we feel attached to, and with whom we form close relationships.
• What is the benefit of the GLOBE study and its impact on leadership?
• The significance of the GLOBE study is that it helps leaders to understand the
role of culture in leadership. By understanding one's culture, as well as that of
others, it brings you to awareness of different perceptions of leadership and how
cultures come to understand leaders.