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Q1. “Environment scanning is an important part of international business”. Explain your view on this statement and discuss what factors need to be scanned.
Ans: - Environment scanning is one essential component of the global environmental analysis. Environmental monitoring, environmental forecasting and environmental assessment complete the global environmental analysis. The global environment refers to the macro environment which comprises industries, markets, companies, clients and competitors. Consequently, there exist corresponding analyses on the micro-level. Suppliers, customers and competitors representing the micro environment of a company are analyzed within the industry analysis.
It can be defined as ‘the study and interpretation of the political, economic, social and technological events and trends which influence a business, an industry or even a total market’. The factors which need to be considered for environmental scanning are events, trends, issues and expectations of the different interest groups. Issues are often forerunners of trend breaks. A trend break could be a value shift in society, a technological innovation that might be permanent or a paradigm change factors:
• Economic Factors: It refers to the economic conditions under which a business operates and takes into account all factors that have affected it. It includes prime interest rate, legislation concerning employment of foreigners, return of profits, safety of country, political stability and so on.
• Political Factors: It influences the economic and legal environment in which the business operates to a larger extent, especially in contract law and rules on advertising and consumer protection. It also affects the business practices, restrictions on market entry, tariffs charged and ability to repatriate profits.
• Legal Factors: International businesses confront different sets of laws in various countries of operation. IB must not only abide by the domestic laws of each nation but also by the supranational laws which impose obligations beyond those of national legal systems.
• Demographic Factors: It helps firm understand the various demographic factors such as gender; age; religious background and ethnicity. Firms use demographic environments to identify target markets for specific products it wishes to cater.
• Socio-Cultural Factors: The cultural and social norms of people differ worldwide in all key markets. The customers/consumers of a particular country/region become conditioned to accept certain things as per conditioned behavior. The increasingly competitive international business environment necessitate the exporters/companies doing business overseas to customize their organizational policies keeping in mind the local cultural norms.
Q2. What is FDI? Why is it considered as the best option for a developing country like India?
Ans: - FDI is an important component of a country's national financial accounts. “Foreign direct investment is an investment by foreign investors into the assets of the host country’s structures, real estate, roads, ports, rail, plants and machinery, equipment, financial institutions such as opening a new bank/insurance company and sometimes in organizations like investment in Indian Premier League (IPL) by foreign counties”. FDI is a form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up. In addition to building new facilities, most parent companies also create new long-term jobs in the foreign country by hiring new employees. FDI investments are most welcome in any country of the world, be it developed or developing as the primary target of green field investments is to create new production capacity and jobs, transfer technology and know-how in the host country. A Greenfield investment starts with bare ground and builds up from there. FDI does not include foreign investment into the stock markets of host countries that is separately treated as portfolio investment. FDI for any country of the world is thought to be more useful and beneficial than the investment being made in the equity/stocks of host country companies. FDI in contrast is for long term, durable and is generally more useful. It is completely unaffected by the conditions in the host country.
Benefits of Foreign direct investment (FDI):-
• You will achieve economies of scale and scope in production, marketing, finance, research and development, transportation and purchasing.
• You will have greater control of all aspects of the business.
• You will be able to implement the best long-term strategy.
• Commitment to the market will be solid.
• Vendor financing is often available.
• You can work with the relevant authorities from the beginning.
• You will have control over your brand.
• You will have control over your staff.
• There will be press opportunities.
• Provides maximum design flexibility to meet project requirements
• New facility will reduce required maintenance
• Can be designed to meet current and future needs
• Opportunity to improve corporate image
• Suitable for either lease or own option
Ans: - “Regional integration can be defined as the unification of countries into a larger whole”. It also reflects a country’s willingness to share or unify into a larger whole. The level of integration of a country with other countries is determined by what it shares and how it shares. Regional integration requires some compromise on the part of participating countries. It should aim to improve the general quality of life for the citizens of those countries.
Different types of regional integration are:
1. Preferential trading agreement
Preferential trading agreement is a trade pact between countries. It is the weakest type of economic integration and aims to reduce taxes on few products to the countries who sign the pact. The tariffs are not abolished completely but are lower than the tariffs charged to countries not party to the agreement.
2. Free trade area
Free Trade Area (FTA) is a type of trade bloc and can be considered as the second stage of economic integration. It comprises of all countries that are willing to or agree to reduce preferences, tariffs and quotas on services and goods traded between them. Countries choose this kind of economic integration if their economical structures are similar. If countries compete among themselves, they are likely to choose customs union.
3. Custom union
Custom Union is an agreement among two or more countries having already entered into a free trade agreement to further align their external tariff to help remove trade barriers. Custom union agreement among negotiating countries may encompass to reduce or eliminate customs duty on mutual trade. Under customs union agreement, countries generally impose a common external -tariff (CTF) on imports from non-member countries. Such common external tariff helps the member countries to reap the benefits of trade expansion, trade creation and trade diversification.
4. Common market
Common market is a group formed by countries within a geographical area to promote duty free trade and free movement of labour and capital among its members. Common markets levy common external tariff on imports from non-member countries.
A single market is a type of trade bloc, comprising a free trade area with common policies on product regulation, and freedom of movement of goods, capital, labor and services, which are known as the four factors of production.
A common market is the first step towards a single market. It may be initially limited to a FTA with moderate free movement of capital and services, but it is not capable of removing the other trade barriers.
5. Economic union
Economic union is a type of trade bloc and is instituted through a trade pact. It comprises of a common market with a customs union. The countries that are part of an economic union have common policies on the freedom of movement of four factors of production, common product regulations and a common external trade policy.
The purpose of an economic union is to promote closer cultural and political ties while increasing the economic efficiency between the member countries.
6. Political union
A political union is a type of country, which consists of smaller countries/nations. Here, the individual nations share a common government and the union is acknowledged internationally as a single political entity. A political union can also be termed as a legislative union or state union.
Q4. Write short note on:
a) Licensing
b) Joint Venture
Ans:-
a) Licensing
Licensing is a contractual agreement in which a licencor allows a licensee to use patents, trademarks, trade secrets, technology and other non-material assets in return for royalty payments or other forms of compensation. The duration of the licensing agreement and the amount of royalties a company can receive is commercially negotiated between the two parties i.e., the licencor and the licensee. There are no governmental restrictions on royalty remittances abroad. However, in many countries these elements of licensing are regulated by the government.
Important areas of concern in licensing are:
1. Analysis of assets offered by a firm for license,
2. Pricing of the assets,
3. Whether to grant only the right to make the product or to grant the right to use and sell the product,
4. The right to sub-license.
Licensing is fraught with danger because it has the potential to create a competitor, if there is none or increase the number of competitors, if there is already one or more. Hence, licensors should be careful enough to protect their competitive advantage and to ensure a sustainable
competitive advantage; the only price the licensor should be willing to pay is in the form of continuous innovation. Else, the licensor may become history.
b) Joint Venture
Joint ventures are market entry options whereby firm and another company or firm in target market may join together to form a new incorporated company for business operations in that market. In joint ventures, both the parties are supposed to provide capital and resources in the agreed proportion and accordingly they will represent and share profits and losses. Joint venture is manifested with the following common objectives for market entry in globalized era. They are:
1. Market entry into potential market.
2. Risk/reward sharing between parties.
3. Technology sharing between parties.
4. Joint product development between parties.
5. Conforming to government regulations.
6. Possible advantages from political connections.
Q5. Explain the top-down and bottom-up approach of planning.
Q5. Explain the top-down and bottom-up approach of planning.
Ans: - Top-down planning
Top-down planning is a common strategy that is used for project planning. It helps maintain the decision making process at the senior level. Goals and allowances are established at the highest level. Senior-level managers have to be very specific when laying out expectations because the people following the plan are not involved in the planning process. It is very important to keep the morale of the employees high and motivate them to perform the job. Since employees are not included in any of the decision making processes, they are motivated only through fear or incentives.
Top-down planning helps:
1. Determine all the goals at the initial stage of the process.
2. Identify the lack of ground level staff participation.
3. Estimate the inflexibility.
4. Find how management imposes the processes.
5. Determine the lack of motivation.
6. Find whether the staffs feel that their input is valued or not.
Bottom-up planning
Bottom-up planning is commonly referred to as tactics. With bottom-up planning, an organization gives its project deeper focus because each organization has a huge number of employees involved, and each employee is an expert in their own area. Team members work side-by-side and contribute during each stage of the process. Plans are developed at the lowest levels, and then passed on to each of the subsequent higher levels.
Bottom-up planning helps:
1. as there are no long term vision here.
2. Encourage teamwork.
3. Estimate flexibility.
4. Determine whether team motivation is of high level.
5. Identify whether the project is team driven.
6. Find whether the staff feels valued or not.
Q6. Discuss the importance of ethics in international business.
Ans: - “Ethics is significant in all areas of business and plays an important role in ensuring a successful business”. The role of business ethics is evident from the conception of an idea to the sale of a product. In an organization, every division such as sales and marketing, customer service, finance, and accounting and taxation has to follow certain ethics. The importance of international business ethics has been rising steadily along with the growth of international business. Technologies like the Internet have made international business all the more viable, and many companies can only find the desirable growth and profit they seek by expanding into new markets. This means that just as business ethics domestically have grown in importance along with the power and significance of major businesses, so must international business ethics take centre stage as a major concern of the modern era.
Public image – In order to gain public confidence and respect, organizations must ascertain that they are honest in their transactions. The services or products of a business affect the lives of thousands of people. It is important for the top management to impart high ethical standards to their employees, who develop these services or products.
A company that is ethically and socially responsible has a better public image. People tend to favor the products and services of such organizations. This in turn will help gain investors’ trust-a company that practices good ethical creates a positive impression among its stakeholders.
Management’s credibility with employees – Common goals and values are developed when employees feel that the management is ethical and genuine. Management’s credibility with employees and public are interrelated. Employees feel proud to be a part of an organization that is respected by the public. Generous compensations and effective business strategies do not always guarantee employ loyalty, organizational ethics is equally significant. Thus, companies benefit from being ethical because they attract and retain good and loyal employees.
Better decision-making – Decision made by an ethical management is in the best interest of the organization, its employees, and the public. Ethical decisions take into account various social, economic and ethical factors.
Profit maximization – Companies that emphasis on ethical conduct are successful in the long run, even though they lose money in the short run. Hence, a business that is inspired by ethics is a profitable business. Costs of audits and investigation are lower in an ethical company.
Protection of society – In the absence of proper enforcement, organizations are responsible to practice ethics and ensure mechanisms to prevent unlawful events. Thus, by propagating ethical values, a business organization can save the resources of the government and protect the society from exploitation.
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