International Business Management
ANTIM PRAHAR
The Most Important Questions
By
Dr. Anand Vyas
1 Describe the characteristics and role of MNCs. And
Challenges
Characteristics of MNCs.
• Very high assets and turnover
• Network of branches
• Control
• Sophisticated technology
• Right skills
• Forceful marketing and advertising
• Good quality products
Role of MNCs.
• Promotion Foreign Investment:
• Technology Transfer:
• Promotion of Exports:
• Investment in Infrastructure:
Challenges
• Varied Demographics.
• Cultural Differences.
• Infrastructure.
• Price Centric Customers.
• Recruitment.
2 international product life cycle.
International Product life cycle Theory
• The International Product Life Cycle Theory was authored by
Raymond Vernon in the 1960s to explain the cycle that products go
through when exposed to an international market. The cycle
describes how a product matures and declines as a result of
internationalization. There are three stages contained within the
theory.
3 What is international segmentation? Explain the types
of segmentation.
International Segmentation,
Market segmentation is a marketing strategy which involves separating a wide target market into
subsets of customers, enterprises, or nations who have, or are perceived to have, common
requirements, choices, and priorities, and then designing and executing approaches to target them.
• Geographic Segmentation
Dealers can segment market according to geographic criterion that is nations, states, regions, countries,
cities, neighborhoods, or postal codes.
• Demographic Segmentation
Segmentation on the basis of demography relies on variables like age, gender, occupation and education
level or according to perceived advantages which an item or service may provide.
• Occasional Segmentation
Occasion segmentation is dividing the market into segments on the basis of the different occasions
when the buyers plan to buy the product or actually buy the product or use the product. Some products
are specifically meant for a particular time or day or event
4 Discuss the various types of exchange rate regimes
Foreign Exchange Determination Systems:
• Foreign Exchange Rate is the amount of domestic currency that must be paid in order to get a
unit of foreign currency. According to Purchasing Power Parity theory, the foreign exchange rate
is determined by the relative purchasing powers of the two currencies.22-Sept-2017
• Now two pertinent questions that usually arise in the foreign exchange market are to be
answered now. First, how is the equilibrium exchange rate determined, and secondly, why does
exchange rate move up and down?
• There are two methods of foreign exchange rate determination. One method falls under the
classical gold standard mechanism and another method falls under the classical paper currency
system. Today, gold standard mechanism does not operate since no standard monetary unit is
now exchanged for gold. All countries now have paper currencies not convertible to gold.
Various types of Exchange Rate Regimes,
• There are three broad exchange rate systems—currency board, fixed exchange
rate and floating rate exchange rate. A fourth can be added when a country does
not have its own currency and merely adopts another country’s currency. The fixed
exchange rate has three variants and the floating exchange rate has two variants.
• In reality, there are only two types of exchange rate regimes, which are possible
viz. the fixed regime and the floating regime. However, these two systems have
several variations within them. Each of these systems is commonly associated with
the degree of liberalization of the underlying economy.
• This consists of – (i) managed float and (ii) free float.
5 Explain the factors affecting foreign exchange rate.
1. Inflation Rates
2. Interest Rates
3. Country’s Current Account / Balance of Payments
4. Government Debt
5. Political Stability & Performance
6. Recession
6 The objectives and functions of IMF.
• The International Monetary Fund (IMF) is an international organization
of 189 countries, working to foster global monetary cooperation, secure
financial stability, facilitate international trade, promote high employment
and sustainable economic growth, and reduce poverty around the world. It
now plays a central role in the management of balance of payments
difficulties and international financial crises. The IMF also works to improve
the economies of its member countries.
• The organization’s objectives stated in the Articles of Agreement are:
• To promote international monetary co-operation, international trade, high
employment, exchange-rate stability, sustainable economic growth, and
making resources available to member countries in financial difficulty
Objectives/Functions IMF
• It works to foster global growth and economic stability
• It helps to achieve macroeconomic stability and reduce poverty
• The IMF provides alternate sources of financing
• It oversee the fixed exchange rate arrangements between countries
• It helps national governments to manage their exchange rates and allowing these governments to prioritise
economic growth
• It helps to provide short-term capital to aid the balance of payments.
• The IMF was also intended to help mend the pieces of the international economy after the Great Depression
and World War II
• To provide capital investments for economic growth and projects such as infrastructure
• To examining the economic policies of countries with IMF loan agreements to determine if a shortage of
capital was due to economic fluctuations or economic policy.
• The IMF also researched what types of government policy would ensure economic recovery.
• A particular concern of the IMF was to prevent financial crisis, from spreading and threatening the entire
global financial and currency system
7 The objectives and functions of WTO.
• During great depression of 1930s the international trade was badly affected and various
countries imposed import restriction for safeguarding their economies. This resulted in
a sharp decline in the world trade in 1945. USA put forward many proposals for
extending international trade and employment. On October 30, 1947, 23 countries at
Geneva, signed an agreement related to tariffs imposed on trade.
• This agreement is known as General Agreement on Tariffs and Trade (GATT). It came
into force on January 1, 1948. Initially GATT was established in the form of a temporary
arrangement but later on it took the shape of a permanent agreement. GATT’s
headquarter was in Geneva. On December 12, 1995, GATT was abolished and replaced
by World Trade Organisation (WTO), which came into existence on January 1, 1995.
• Functions of WTO:
• i) The WTO shall facilitate the implementation, administration and operation, and
further the objectives of the Multilateral Trade Agreements, and shall also provide the
framework for the implementation, administration and operation of Plurilateral Trade
Agreements.
• ii) The WTO shall provide the forum for negotiations among its members concerning
their multilateral trade relations in matters dealt with under the Agreements.
• iii) The WTO shall administer the ‘Understanding on Rules and Procedures Governing
the Settlement of Disputes’.
• iv) The WTO shall administer the ‘Trade Review Mechanism’.
• v) With a view to achieve greater coherence in global economic policy making, the WTO
shall co-operate, as appropriate, with the IMF and IBRD and its affiliated agencies.
8 What are the key issues in international labor relations
• International labor relations practices are diverse. Labor unions,
organizations, and collective bargaining practices are as varied as
nations. Not only are there differences in worldwide industrial
relation practices, but the degree of unionization varies as well.
• national dissimilarities in economics, political, and legal
systems create diverse labour-relations system across countries,
MNCs HQs typically delegate the control over labour relations to their
foreign subsidiaries
International Labor Relations Key issues
Issue 1: Who should handle Labour Relations – Headquarter or the
subsidiary in the concerned country.
Issue 2: Trade Union Tactics.
Issue 3: Political.
Issue 4: Social and Identity.
Issue 5: Power and knowledge.
9 Expatriate Management
EXPATRIATES
(An expatriate (in abbreviated form, expat) is a person temporarily or
permanently residing in a country and culture other than that of the person’s
upbringing.) (A person who leave one’s native country to live elsewhere)
Many MNEs use expatriates to ensure that foreign operations are linked
effectively with the parent corporations. Generally, expatriates also are used
to develop international capabilities within an organization. Experienced
expatriates can provide a pool of talent that can be tapped as the
organization expands its operations more broadly into even more countries.
Japanese-owned firms with operations in the United States have rotated
Japanese managers through U.S. operations in order to expand the
knowledge of U.S. business practices in the Japanese firms.
• Volunteer expatriates: These are persons who want to work abroad for
a period of time because of career or self-development interests. Often,
these expatriates volunteer for shorter-term assignments of less than a
year so that they can experience other cultures and travel to desired
parts of the world.
• Traditional expatriates: These are professionals and managers assigned
to work in foreign operations for one to three years. They then rotate
back to the parent corporation in the home country.
• Career development expatriates: These individuals are placed in foreign
jobs to develop the international management capabilities of the firm.
They may serve one to three “tours” in different countries, so that they
can develop a broader understanding of international operations.
• Global expatriates: The broadcast category comprises those individuals
who move from one country to another. Often, they prefer to work
internationally rather than in the home country.
10 Describe the different types of tariffs.
• Trade barriers are restrictions imposed on movement of goods
between countries. Trade barriers are imposed not only on imports
but also on exports. The trade barriers can be broadly divided into
two broad groups:
• (a) Tariff Barriers, and (b) Non-tariff Barriers.
• Specific Duty
• Anti-dumping Duty
(b) Non-tariff Barriers.
• Quota System
• Product Standards
• Packaging Requirements
11 Mercantilism theory / eclectic theory in international
business
Mercantilism
• Mercantilism is an economic policy that is designed to maximize the
exports and minimize the imports for an economy. It promotes imperialism,
colonialism, tariffs and subsidies on traded goods to achieve that goal.
• Mercantilism is an economic theory and practise where the government
seeks to regulate the economy and trade in order to promote domestic
industry – often at the expense of other countries. Mercantilism is
associated with policies which restrict imports, increase stocks of gold and
protects domestic industries.
• Mercantilism stands in contrast to the theory of free trade – which argues
countries economic well-being can be best improved through the reduction
of tariffs and fair free trade.
Eclectic Theory Free Theory: Advantages
• This paradigm assumes that institutions will avoid transactions in
the open market if the cost of completing the same actions
internally, or in-house, carries a lower price. It is based on
internalization theory and was first expounded upon in 1979 by the
scholar John
12 SAARC /BRICS
South Asian Association for Regional Cooperation (SAARC)
The South Asian Association for Regional Cooperation (SAARC) was established with the signing
of the SAARC Charter in Dhaka on 8 December 1985.
The idea of regional cooperation in South Asia was first raised in November 1980. After
consultations, the foreign secretaries of the seven founding countries—Bangladesh, Bhutan,
India, Maldives, Nepal, Pakistan, and Sri Lanka—met for the first time in Colombo in April 1981.
Afghanistan became the newest member of SAARC at the 13th annual summit in 2005.
The Headquarters and Secretariat of the Association are at Kathmandu, Nepal.
Principles
• Cooperation within the framework of the SAARC shall be based on:
• Respect for the principles of sovereign equality, territorial integrity, political independence,
non-interference in the internal affairs of other States and mutual benefit.
• Such cooperation shall not be a substitute for bilateral and multilateral cooperation but shall
complement them.
• Such cooperation shall not be inconsistent with bilateral and multilateral obligations.
• The Objectives of the SAARC
• To promote the welfare of the people of South Asia and to improve their quality of life.
• To accelerate economic growth,social progress and cultural development in the region
and to provide all individuals the opportunity to live in dignity and to realize their full
potentials.
• To promote and strengthen collective self-reliance among the countries of South Asia.
• To contribute to mutual trust,understanding and appreciation of one another’s
problems..
• To promote active collaboration and mutual assistance in the economic, social,
cultural, technical and scientific fields.
BRICS
• BRICS is an acronym for the grouping of the world’s leading emerging economies, namely Brazil,
Russia, India, China and South Africa.
• The BRICS Leaders’ Summit is convened annually.
Salient Features
• Together, BRICS accounts for about 40% of the world’s population and about 30% of the GDP
(Gross Domestic Product), making it a critical economic engine.
• It’s an emerging investment market and global power bloc.
Objectives
• The BRICS seeks to deepen, broaden and intensify cooperation within the grouping and among
the individual countries for more sustainable, equitable and mutually beneficial development.
• BRICS takes into consideration each member’s growth, development and poverty objectives to
ensure relations are built on the respective country’s economic strengths and to avoid
competition where possible.
• BRICS is emerging as a new and promising political-diplomatic entity with diverse objectives, far
beyond the original objective of reforming global financial institutions.
