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INTERNATIONAL BUSINESS MANAGEMENT SUBJECT CODE MB0053 Ques.1.

. Write a short note on GATT and WTO, highlighting the difference between the two. Ans: General Agreement on Tariffs and Trade (GATT) GATT is a multilateral agreement among countries providing a framework for conducting international trade. GATT is regarded as an international institution governing international trade relations. It consists of disciplines on governments and matters related to import and export of goods. It was established to promote international trade by reducing tariff and non-tariff restrictions on imports imposed by member nations. Tariff barrier refers to imposing import duty and non-tariff barriers means restricting imports through import licensing and by banning the imports. GATT provides a framework for negotiations on the level of tariff. It promotes multilateral trade among member nations. It provides protection against unfair trade and obstructions to trade. WTO was established on 1st January 1995. In April 1994, the Final Act was signed at a meeting in Marrakesh, Morocco. The Marrakesh Declaration of 15th April 1994 was formed to strengthen the world economy that would lead to better investment, trade, income growth and employment throughout the world. The WTO is the successor to the General Agreement of Tariffs and Trade (GATT). India is one of the founders of WTO. WTO represents the latest attempts to create an organizational focal point for liberal trade management and to consolidate a global organizational structure to govern world affairs. WTO has attempted to create various organizational attentions for regulation of international trade. WTO created a qualitative change in international trade. It is the only international body that deals with the rules of trades between nations. The WTOs overriding objective is to help trade flow smoothly, freely, fairly and predictably. It does this by: Administering trade agreements Acting as a forum for trade negotiations Settling trade disputes Reviewing national trade policies
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Assisting developing countries in trade policy issues, through technical assistance and training programs Cooperating with other international organizations

Difference between WTO and GATT:The World Trade Organization is not a simple extension of GATT; on the contrary, it completely replaces its predecessor and has a very different character. Among the principal differences are the following: a. The GATT was a set of rules, a multilateral agreement, with no institutional foundation, only a small associated secretariat which had its origins in the attempt to establish an International Trade Organization in the 1940s. The WTO is a permanent institution with its own secretariat. b. The GATT was applied on a "provisional basis" even if, after more than forty years, governments chose to treat it as a permanent commitment. The WTO commitments are full and permanent. c. The GATT rules applied to trade in merchandise goods. In addition to goods, the WTO covers trade in services and trade-related aspects of intellectual property. d. While GATT was a multilateral instrument, by the 1980s many new agreements had been added of a plural-lateral, and therefore selective, nature. The agreements which constitute the WTO are almost all multilateral and, thus, involve commitments for the entire membership. The WTO dispute settlement system is faster, more automatic, and thus much less susceptible to blockages, than the old GATT system. The implementation of WTO dispute findings will also be more easily assured. Ques.2. Describe various entry strategies available to a firm when it wants to enter a foreign market. Ans:- The firms sustainable competitive advantages shall be based on the assessment and appraisal that how effectively such facets of competitive advances shall synchronise with key and important features of that market. Scanning the global markets as per the key competitive strength of the firm will be the key decision, as it will provide firm sustainable environment for
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growth expansion and diversification. It is difficult to analyze and generalize the factors which may be of help for the firm in an international market, but a reference can essentially be made to the following elements while arriving on decision to enter into that market for international trade. These elements of information are as follows: The decision element for getting started Decision criteria Assessment of international market keeping in mind the competitive advantages and synergy with overall competitive strategy in light of local and international competition compared to domestic opportunities. Economy rate of growth and structure, bureaucracy, capital, economic and trading bloc, legal system, political regime and laws, regulation for investment and operations, political ideology and stability, type and structure of competition, etc. Political/legallaws, regulations, investment, climate, government ideology, stability. Competitiontype, structure, strategy plans, programmes, mergers. operations, acquisitions,

The decision to go international or not

Scanning the market

Modes of entering into markets

Targeting the markets

Competition in international markets

Analysing various elements which define the nature of competition in target market. Formalities to be completed for getting exportimport license, registration cum membership certificate, excise code, etc.

Regulatory formalities for getting started

An organisation aspiring to get started in international marketing should address, appraise and analyse the issues in advance in a careful and comprehensive way. The success in international marketing largely depends on the fact that firm shall exploit its opportunities handsomely, use its strengths smartly and address and improve its weakness patiently which may come on its way. While scanning the international markets, the firms shall properly study all the aspects of
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economic data which may be specific or general or both and can be effectively used for making decisions on whether to enter markets or not. Such data analysis can also help the firm to understand the various aspects of risks and can guide in the degree of its engagement in that market. Q.3 Write a note on Globalization. Ans: Globalization is a process where businesses are dealt in markets around the world, apart from the local and national markets. According to business terminologies, globalization is defined as the worldwide trend of businesses expanding beyond their domestic boundaries. It is advantageous for the economy of countries because it promotes prosperity in the countries that embrace globalization. In this section, we will understand globalization, its benefits and challenges. International vs. global business Most of us assume that international and global business are the same and that any company that deals with another country for its business is an international or global company. In fact, there is a considerable difference between the two terms. International companies Companies that deal with foreign companies for their business are considered as international companies. They can be exporters or importers who may not have any investments in any other country, apart from their home country. Global companies Companies, which invest in other countries for business and also operate from other countries, are considered as global companies. They have multiple manufacturing plants across the globe, catering to multiple markets. Global competitive strategy Companies adopt this strategy when prices and competitive conditions across the different country markets are strongly liked and have common synergies. A good example to illustrate is Sony Ericsson, which has its headquarters in Sweden, Research and Development setup in USA and India, manufacturing and assembly plants in low-wage countries like China, and sales and marketing worldwide. This is made possible because of the ease in transferring technology and expertise from country to country. Industries that have a global competition are automobiles, consumer electronics (like televisions, mobile phone), watches, and commercial aircraft and so on. Q.4 What does FDI stand for? Why do MNCs opt for FDI to enter international market? Ans: FDI in todays globalised era plays an extraordinary and growing role in the expansion and diversification of global business particularly for developing countries like India which lacks capital back home for efficient and proper management of physical and manpower resources. Foreign investments help the company in accessing new markets, exploring new marketing channels, exploring cheaper production facilities in low cost destinations, accessing new and
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advanced technology, planning differentiated high quality products, upgradation of skills and financing for future forays. Foreign investment also benefits the host country or the foreign firm by investing which provides a source of new technologies, capital, processes, products, organisational technologies and management skills. Foreign investment has been used like catalyst by developing countries for strong impetus to economic development. Foreign investment, in its classic definition, is defined as a company from one country making a physical investment into building a factory in another country. In an era of global economic liberalisation, privatisation and globalisation, the definition of foreign investment has been broadened to include the acquisition of a lasting management interest in a company or enterprise outside the investing firms home country. As such, foreign investment in another country or foreign firm may take many forms, such as a direct acquisition/purchase of a foreign firm, completely new construction of a facility in form of green field investments, or investment in a joint venture with foreign firm. Foreign investment may also be in the form of strategic alliance with a foreign firm with attendant input of technology/technical knowhow, licensing of intellectual property, or entering into management contract or turnkey projects. Motivations for foreign investment for any country can be broadly classified and understood in three broad categories, discussed as under:

Political motives: Countries, usually do not allow foreign investment mainly because of political motives. Countries which have a colonial past are usually apprehensive of foreign investment and are convinced that it is in their best interest to not allow import from abroad. For example, India did not liberalise its market to open it to foreign competition. This is due to the governments fear of foreign investment.

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Economic motives: Most notable motives for seeking or planning foreign investment are economic factors. Some companies plan foreign investment in the expectation that they can obtain substantial economies of scale and scope in emerging and developing markets. Conglomerates are usually convinced to invest abroad as they desire to reap benefits in areas such as research and development, marketing, distribution, financing, and production by operating at volumes that can be justified only by a worldwide market. Competitive motives: Another important motive for making or seeking foreign investment is the competitive advantages that the company will enjoy in foreseeable future in target markets. Competitive motives for foreign investment are resultant of economic and political motives. A company may make foreign investment in overseas markets for which there are no immediate economic or political gains. Q5. What is the need to understand to understand cultural differences? Explain Hofstedes cultural dimensions. Ans: Cultural differences affect the success or failure of multinational firms in many ways. The company will have to modify the product to meet the demand of the customers in a specific location and use different marketing strategies to advertise their product to the customers. Adaptations must be made to the product where there is demand or the message must be advertised by the company. The following are the factors which a company must consider while dealing with international business: The consumers across the world do not use similar products. This is due to varied preferences and tastes. Before manufacturing any product, the organisation has to be aware of the customer choice or preferences in that geography. The organisation must manage and motivate people with different cultural values and attitudes. Hence the management style, practices, and systems must be modified accordingly. The organisation must identify candidates and train them to work in other countries because the cultural and corporate environment differs in each country. The training may include language training, corporate training, and training on technology and so on, which will help the candidate to work in a foreign environment. The organisation must consider the concept of international business and must construct guidelines that help them take business decisions, and perform activities. The following are the two main tasks that a company must perform: o Product differentiation and marketing As there are differences in consumer tastes and preferences across nations, product differentiation has become a business strategy all over the world. The kinds of products and services that consumers can afford are determined by the level of per capita income. For example, in underdeveloped countries, the demand for luxury products is limited.

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o Manage employees It is said that employees in Japan were normally not satisfied with their work as compared with employees of North America and European countries; however the production levels stayed high. To motivate employees in North America, a study was conducted on this issue. Hofstedes cultural dimensions According to Dr. Geert Hofstede, Culture is more often a source of conflict than of synergy. Cultural differences are a trouble and always a disaster. Professor Hofstede carried out a detailed study of how values in the workplace are influenced by culture. He worked as a psychologist in IBM from 1967 to 1973. At that time he gathered and analysed data from many people in several countries. Professor Hofstede established a model using the results of the study which identifies four dimensions to differentiate cultures. Later, a fifth dimension called long-term outlook was added. The following are the five cultural dimensions: Power Distance Index (PDI) This focuses on the level of equality or inequality between individuals in a nations society. A country with high power distance ranking depicts that inequality of power and wealth has been allowed to grow within the society. These societies follow caste system that does not allow upward mobility of its people. Individualism This dimension focuses on the extent to which the society reinforces individual or collective achievement and interpersonal relationships. A high individualism ranking (western countries, Canada, Hungary) depicts that individuality and individual rights are dominant within the society. Individuals in these societies form a larger number of looser relationships. Masculinity This focuses on the extent to which the society supports or discourages the traditional masculine-work role model of male achievement, power, and control. A country with high masculinity ranking (like Japan, Venezuela, Hungary) shows the country experiences high level of gender differentiation. In these cultures, men dominate the society and power structure, with women being controlled and dominated by men. Uncertainty Avoidance Index (UAI) This focuses on the degree of tolerance for uncertainty and ambiguity within the society. A country with high uncertainty avoidance ranking shows that the country has low Q6. Write short notes on: a) Ethnocentric approach b) Polycentric approach Ans : Ethnocentric approach : Human resource management (HRM) refers to the activities an organization carries out to utilize its human resources effectively, including determining the
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firm's human resource strategy, staffing, performance evaluation, management development, compensation, labor relations. The staffing activity is concerned with the selection of employees who have the suitable skills required to perform a particular job. To perform staffing function effectively, there are three main approaches within international business identified: the ethnocentric approach, the polycentric approach, the geocentric approach (Dowling PJ, Festing M and Engle AD, 2008). In the article, the ethnocentric approach will be comprehensively and deeply analyzed, and then the advantages and disadvantages of ethnocentric approach will be figured out. Combined with analyzing the case of Hilton Group, we will see that the reason why the ethnocentric approach to HRM for multinational company (MNC) is out, that how an international human resource management (IHRM) effectively plays its part under the global context. Polycentric approach: The broad recruitment strategy determines the nature of the international manager development program and the type of IMD, suggested by Perlutter (1969) and later on by D'Annunzio-Green (1997). Besides the ethnocentric approach which tends to use expatriates in key positions abroad, there are other two different approaches available for managing and staffing companies' subsidiaries, the polycentric approach and geocentric approach. The polycentric approach tends to use local nationals wherever possible and the polycentric approach tends to use a mixture of nationals, expatriates and third country nationals (Treven S., 2001; Datamonitor, 2004). For the ethnocentric approach, the cultural values and business practices of the home country put a predominant influence on the subsidiaries. The corporation headquarter determines all the standards of evaluation and controls the branch's management practice in the form of orders and commands (Miles, 1965; Malkani, 2004). For the polycentric approach, it is just direct opposite to the ethnocentric approach. The corporation headquarter allows its subsidiaries to develop locally but the corporation headquarter will supervise the local managers. However, this results in little communication between the corporation headquarter and its subsidiaries. For the geocentric approach, it combines the advantages of ethnocentric approach and polycentric approach. The selection of manager is based on competency rather than nationality and organizations try to combine the best from both the corporation headquarter and its subsidiaries. With regard to Hilton Hotel Group, it tries to integrate different parts of the group through the cooperation between headquarter and subsidiaries, and then implement combined standard of both universal side and local side for evaluation and management (Johnson, 2003). And at the same time, Hilton has attempted to recruit and develop a group of international managers from diverse countries for many years. These international managers constitute a mobile base for a variety of management facilities as the need arises.

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