MB0053 –International Business Management
Q1. Write a note on Globalisation.
Ans. Globalisation means integrating the domestic economy with the world economy. It is
a process which draws countries out of their insulation and makes them join rest of the
world in its march towards a new world economic order. It involves increasing interaction
among national economic systems, more integrated financial markets, economies of
trade, higher factor mobility, free flow technology and spread of knowledge throughout
the world. It is the process by which an activity becomes worldwide in scope. It refers to
the absence of borders and barriers to movement to all factors of production across
Globalisation refers to both an increasing flow of goods and services and resources across
national borders and to the emergence of complementary set of organizational structure
to manage expanding network of international economic activity and transaction. A
global economy is one where firm and financial institutions operate trans nationally.
Globalisation is a new phenomenon at the firm level or at economy level. The process of
globalization of the economy and the firm may be said to have begun around 1880. The
post war period witnessed tremendous growth of globalization. It implies opening up of
the economy to FDI by providing requisite facilities removing administrative and other
constraints allowing Indian companies to enter into joint ventures and foreign
collaborations bringing down quantitative and non-quantitative restrictions to trade
diluting the role of public sector and encouraging privatization.
Technological revolutions in transport and communication have integrated the world
economy and brought people of the world closer. Technological revolution has been
rapidly transforming all productive systems and facilitating the process of globalization.
Q2.Why do nations trade? Discuss the relevance of Porter’s diamond model in today’s business
Ans. Countries trade with each other for several reasons. It expands the range of available
goods. Every country cannot be as efficient as the best in producing the goods that their
residents demand. As a result, they have to trade off their decisions to produce any good based
on opportunity cost. Some countries are better at producing some goods than others. For
example, one country may be blessed with lots of oil like Saudi Arabia. Another country may be
blessed with lots of farmland.
Opportunity cost model helps us understand the choice of producing one good or the other. The
production decision of the country depends on whether it is more efficient to produce the
goods and services with lower opportunity cost with increased and specialized production, or to
trade those goods, with goods of higher opportunity cost.
If a country like India can produce more of any goods or services with the same resources used
by any other country, it is said to have an absolute cost advantage in the production of those
goods or services, like cutting and polishing of diamonds. India would import items like Swiss
watches which can be imported at a lower cost than it would take to manufacture them locally.
India and Thailand have signed a free trade agreement. Thailand is cost efficient in auto
components and pharmaceuticals. India would like to import auto components and would
export pharmaceuticals to Thailand. This will be beneficial to India as it will benefit from the
economies of scale with higher production of pharmaceuticals.
Porter in 1990, analyzed the success and the failure of the nations in the international business
competition. He gave four broad attributes in which local firm compete and these attributes promote the
creation of competitive advantage.
Factor endowments—Features of production were studied in detail. There are basic factors such as
natural resources, climate and location and advanced factors like communication, infrastructure, and
Demand conditions—The role of home demand in improving competitive advantage is emphasized since
are cautious about the requirements of their customers.
Relating and supporting industries—The presence of suppliers is a vital advantage since the benefit of
investment in the factors of production spill over to these supporting industries.
Firm strategy, structure and rivalry—Domestic industries are in the competition to improve their
products, services, quality and reduce the cost to compete globally.
Q3.Why do firms pay so much attention to economic factors while entering in
particular market? Justify your answer with practical examples.
Ans. Economic environment is the most important indicator of the global market potential. It refers to
the economic conditions under which a business is carried on. National economic policies depend on a
country’s social economic and cultural background. Economic environment enables a firm to know how
big is the market and what its nature is. Various dimensions one needs to consider while attempting an
analysis of economic environment in the particular market.
a)Economic structure: The structure of the economy is judged by the size, rate, income levels, distribution
of income, natural and agricultural resources, manufacturing and the service sector.
b)Industry structure: The structure of the industry is studied by the factors such as entry and exit barriers,
number of competing firms in the industry, market share among the firms, and the average size of
c)Income levels: It is a important indicator of the country’s level of development and its market size. Gross
national product and per capita income are the major measures of income. Besides income, one should also
acquire information about the sectoral distribution of the GNP as it is an important determinant of the
types of goods in demand in a country.
d)Market growth: It is measured in terms of local currency which is used because conversions into other
currencies are affected by exchange rate fluctuations.
e)International debt: An outstanding loan that one country owes to another country or the institution within
that country. Foreign debt also includes due payments to international organizations. A high foreign debt
servicing requirement may be a positive indicator, suggesting that a country has borrowed heavily to invest
Q.4.How has India reacted towards regional integration? Discuss briefly the trade agreements signed by
Ans: Regional integration can be defined as the unification of countries into a larger whole. Regional
integration 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 countries. It should aim to improve the general
quality of life for the citizens of those countries.
India considers Regional Trading Arrangements as building blocks towards the objective of trade
liberalization. Therefore, India is participating in a number of RTAs, which include Free Trade
Agreements, Preferential Trade Agreements and so on. These agreements take place bilaterally or in a
regional grouping. Some of the major agreements signed by India are as following:
Asia-Pacific Trade Agreement (APTA): The Asia-Pacific Trade Agreement (APTA) was signed on 31st of
July 1975, as an initiative of the United Nations Economic and Social Commission for Asia and the Pacific
The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) is the regional
development arm of the United Nations for the Asia-Pacific region. It focuses on issues that are most
effectively addressed through regional cooperation and include the issue that:
a)All or a group of countries in the region face, for which it is necessary to learn from each other.
b) Benefit from regional or multi-country involvement.
c) Cut across boundaries, or that would benefit from collaborative inter-country approaches.
d) Are sensitive or emerging and require further advocacy and negotiation.
The first signatories to the agreement were Bangladesh, India, Lao People’s Democratic Republic, the
Republic of Korea and Sri Lanka. China's accession to the agreement was accepted at the 16th Session of
the Standing Committee of the Bangkok Agreement in April 2000.
The objective of this agreement is to encourage economic development gradually through trade expansion
among the developing member countries of ESCAP and to further international economic cooperation
through the adoption of mutually beneficial trade liberalization measures.
Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) :
Bangladesh India Myanmar Sri Lanka and Thailand Technical and Economic Cooperation (BIMSTEC), a
sub-regional economic cooperation grouping, was formed in Bangkok in June 1997. Myanmar joined the
grouping later in December 1997. Bhutan and Nepal too joined in February 2004. Its membership involves
five members of SAARC (India, Bangladesh, Bhutan, Nepal and Sri Lanka) and two members of ASEAN
(Thailand, Myanmar). Thus, it is considered as a bridging link between the two major regional groupings
that is, ASEAN and SAARC. The chairmanship of BIMSTEC rotates among the member countries in
alphabetical order. The immediate priority of the grouping is to merge its activities to make it attractive for
Initially, cooperation was proposed into six sectors. But, during the 11th Senior Official Meeting in New
Delhi on August 2006, it was agreed that the areas of cooperation should be expanded to 13 sectors and
each sector will be led by members in a voluntary manner.
The member countries proposed cooperation in sectors such as::
a) Trade and Investment (Bangladesh).
b) Technology (Sri Lanka).
c) Energy (Myanmar).
d) Transport and Communication (India).
e) Tourism (India).
f) Fisheries (Thailand).
g) Cultural Co-operation (Bhutan).
h) Environment and Disaster Management (India).
i) Poverty Alleviation (Nepal).
j) Counter-Terrorism and Trans-national Crimes (India).
India-MERCOSUR Preferential Trade Agreement (PTA) :
India and MERCOSUR signed a framework agreement was on 17th June 2003. The objective of this
agreement is to create an environment for negotiations in the first stage, by granting mutual tariff
preferences, and in the second stage, to negotiate a FTA between the two parties in conformity with the
rules of the WTO. As a follow up to the framework agreement, a Preferential Trade Agreement (PTA) was
signed in New Delhi on January 25, 2004. The aim of this PTA is to expand and strengthen the existing
relations between MERCOSUR and India and promote the expansion of trade by granting mutual fixed
tariff preferences with the ultimate objective of creating a free trade area between the parties.
Q.5. What is global sourcing? What makes India so attractive for global sourcing?
Ans: Global sourcing is the practice of sourcing from the global market for goods and services
across geopolitical boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a
product or service. These efficiencies include low cost skilled labour, low cost raw material and other
economic factors like tax breaks and low trade tariffs.
Common examples of globally sourced products or services include: labour-intensive manufactured
products produced using low-cost Chinese labour, call centers staffed with low-cost English speaking
workers in India, and IT work performed by low-cost programmers in India and Eastern Europe. Global
sourcing is not limited to low-cost countries only.
It is commonly found that global sourcing initiatives and programs form an integral part of the strategic
sourcing plan and procurement strategy of many multinational companies.
Indian industries have experienced developments as India is a member of WTO since its inception in
1995.India has been successful in software development, BPO services, and in areas like Engineering
Process Outsourcing, Analysis Process Outsourcing, content development and website designing.
India is preferred in global sourcing for the factors as labour arbitrage, focus on core business, cost re-
structuring, skilled and knowledgeable manpower, better capacity management and improved goods and
its service quality. India is widely recognized due to the dependence of many countries for Indians skilled
Q.6.Write short note on:
a) Cross cultural management: The way of doing things in one culture may not be the way in other
culture. What is good in one culture , may be bad in other culture. Some time the activities are all the same
in two different cultures, but two different meanings and different interpretations.
When person from one cultural background interact with person from other cultural background. This is
termed as cross-cultural management. Cross cultural management is defined as the development and
application of knowledge about cultures in the practice of international management, when people
involved have diverse cultural identities.
International managers in senior positions do not have direct interaction that is face-to-face with other
culture workforce, but several home based managers handle immigrant groups adjusted into a workforce
that offers domestic markets.
b) WTO: The World Trade Organization came into existence on 1st
January, 1995. WTO gave a real push
to the process of globalization. It is a powerful body which broadly aims at making the whole world a big
village where there is a free flow of goods and services and there are no barriers to trade. It is the only
global, international organization which deals with the rules of trade between nations. I t is the main organ
of implementing Multilateral Trade Agreements. WTO present membership is 153 countries and with
many other considering accession. WTO has a far wider scope that its predecessors GATT. It is a full
fledged international organization in its own right. The representatives of the members and the officials of
WTO enjoy international privileges.WTO handles trade disputes and monitors national trade policies. It
also facilitates the implementation, administration and operation of world trade agreements.