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Mb0037 I

  1. 1. MB0037 INTERNATIONAL BUSINESS MANAGEMENT 1. Describe the pros and cons of globalization? Answer: Pro-globalization: Globalization advocates to the above average drop in poverty rates in countries, such as China, where globalization has taken a strong foothold, compared to areas less affected by globalization, such as Sub-Saharan Africa, where poverty rates have remained stagnant. Globalization increases economic prosperity as well as opportunity, especially among developing nations, enhances civil liberties and leads to a more efficient allocation of resources. Economic theories of comparative advantage suggest that free trade leads to a more efficient allocation of resources, with all countries involved in the trade benefiting. In general, this leads to lower prices, more employment, higher output and a higher standard of living for those in developing countries. Proponents of laissez-faire capitalism, and some Libertarians, say that higher degrees of political and economic freedom in the form of democracy and capitalism in the developed world are ends in themselves and also produce higher levels of material wealth. They see globalization as the beneficial spread of liberty and capitalism. Supporters of globalization argue that the anti-globalization movement uses anecdotal evidence to support their protectionist view, whereas worldwide statistics strongly support globalization: From 1981 to 2001, according to World Bank figures, the number of people living on $1 a day or less declined from 1.5 billion to 1.1 billion in absolute terms. At the same time, the world population increased, so in percentage terms the number of such people in developing nations declined from 40% to 20% of the population. With the greatest improvements occurring in economies rapidly reducing barriers to trade and investment; yet, some critics argue that more detailed variables measuring poverty should be studied instead. The percentage of people living on less than $2 a day has decreased greatly in areas affected by globalization, whereas poverty rates in other areas have remained largely stagnant. Life expectancy has almost doubled in the developing world since World War II and is starting to close the gap between itself and the developed world where the improvement has been smaller. Even in Sub-Saharan Africa, the least developed region, life expectancy increased from 30 years before World War II to about a peak of about 50 years before the Page 1 of 13
  2. 2. MB0037 INTERNATIONAL BUSINESS MANAGEMENT AIDS pandemic and other diseases started to force it down to the current level of 47 years. Infant mortality has decreased in every developing region of the world. Feminism has made advances in areas such as Bangladesh through providing women with jobs and economic safety. The proportion of the world's population living in countries where per-capita food supplies are less than 2,200 calories (9,200 kilojoules) per day decreased from 56% in the mid-1960s to below 10% by the 1990s. Anti-globalization: The Anti-globalization movement is a term used to describe the political group who oppose the neoliberal version of globalization, while criticisms of globalization are some of the reasons used to justify this group’s stance. "Anti-globalization" may also involve the process or actions taken by a state in order to demonstrate its sovereignty and practice democratic decision-making. Anti-globalization may occur in order to maintain barriers to the international transfer of people, goods and beliefs, particularly free market deregulation, encouraged by organizations such as the IMF or the WTO. In either case, participants stand in opposition to the unregulated political power of large, multi-national corporations, as the corporations exercise power through leveraging trade agreements which in some instances damage the democratic rights of citizens, the environment particularly air quality index and rain forests[citation needed], as well as national government's sovereignty to determine labor rights, including the right to form a union, and health and safety legislation, or laws as they may otherwise infringe on cultural practices and traditions of developing countries. The anti-globalization movement developed in opposition to the perceived negative aspects of globalization. The term 'anti-globalization' is in many ways a misnomer, since the group represents a wide range of interests and issues and many of the people involved in the anti-globalization movement do support closer ties between the various peoples and cultures of the world through, for example, aid, assistance for refugees, and global environmental issues. While it is true that globalization encourages free trade among countries, there are also negative consequences because some countries try to save their national markets. The main export of poorer countries is usually agricultural goods. Larger countries often subsidize Page 2 of 13
  3. 3. MB0037 INTERNATIONAL BUSINESS MANAGEMENT their farmers which lowers the market price for the poor farmer's crops compared to what it would be under free trade. The deterioration of protections for weaker nations by stronger industrialized powers has resulted in the exploitation of the people in those nations to become cheap labor. Due to the lack of protections, companies from powerful industrialized nations are able to offer workers enough salary to entice them to endure extremely long hours and unsafe working conditions, though economists question if consenting workers in a competitive employers' market can be decried as "exploited". It is true that the workers are free to leave their jobs, but in many poorer countries, this would mean starvation for the worker, and possible even his/her family if their previous jobs were unavailable. The low cost of offshore workers have enticed corporations to buy goods and services from foreign countries. The laid off manufacturing sector workers are forced into the service sector where wages and benefits are low, but turnover is high. This has contributed to the deterioration of the middle class which is a major factor in the increasing economic inequality in the United States. Families that were once part of the middle class are forced into lower positions by massive layoffs and outsourcing to another country. This also means that people in the lower class have a much harder time climbing out of poverty because of the absence of the middle class as a stepping stone. Critiques of the current wave of economic globalization typically look at both the damage to the planet, in terms of the perceived unsustainable harm done to the biosphere, as well as the perceived human costs, such as poverty, inequality, miscegenation, injustice and the erosion of traditional culture which, the critics contend, all occur as a result of the economic transformations related to globalization. They challenge directly the metrics, such as GDP, used to measure progress promulgated by institutions such as the World Bank, and look to other measures. They point to a "multitude of interconnected fatal consequences-- social disintegration, a breakdown of democracy, more rapid and extensive deterioration of the environment, the spread of new diseases, increasing poverty and alienation” which they claim are the unintended but very real consequences of globalization. Page 3 of 13
  4. 4. MB0037 INTERNATIONAL BUSINESS MANAGEMENT 2. Describe the dynamics of culture as a multi-level, multi- layer construct. Answer: The proposed model consists of two building blocks. One is a multi-level approach, viewing culture as a multi-level construct that consists of various levels nested within each other from the most macro-level of a global culture, through national cultures, organizational cultures, group cultures, and cultural values that are represented in the self at the individual level, as portrayed. The second is based on Schein’s (1992) model viewing culture as a multi- layer construct consisting of the most external layer of observed artifacts and behaviors, the deeper level of values, which is testable by social consensus, and the deepest level of basic assumption, which is invisible and taken for granted. The present model proposes that culture as a multi-layer construct exists at all levels – from the global to the individual and that at each level change first occurs at the most external layer of behavior, and then, when shared by individuals who belong to the same cultural context, it becomes a shared value that characterizes the aggregated unit (group, organizations, or nations). In the model, the most macro-level is that of a global culture being created by global networks and global institutions that cross national and cultural borders. As exemplified by the effort of the Davos group discussed earlier, global organizational structures need to adopt common rules and procedures in order to have a common ‘language’ for communicating across cultural borders. Given the dominance of Western MNCs, the values that dominate the global context are often based on a free market economy, democracy, acceptance and tolerance of diversity, respect of freedom of choice, individual rights, and openness to change. Below the global level are nested organizations and networks at the national level with their local cultures varying from one nation or network to another. Further down are local organizations, and although all of them share some common values of their national culture, they vary in their local organizational cultures, which are also shaped by the type of industry that they represent, the type of ownership, the values of the founders, etc. Within each organization are sub-units and groups that share the common national and organizational culture, but that differ from each other in their unit culture on the basis of the differences in their functions, their leaders’ values, and the professional and educational level of their members. Page 4 of 13
  5. 5. MB0037 INTERNATIONAL BUSINESS MANAGEMENT At the bottom of this structure are individuals who through the process of socialization acquire the cultural values transmitted to them from higher levels of culture. Individuals who belong to the same group share the same values that differentiate them from other groups and create a group-level culture through a bottom-up process of aggregation of shared values. For example, employees of an R&D unit are selected into the unit because of their creative cognitive style and professional expertise. Their leader also typically facilitates the display of these personal characteristics because they are crucial for developing innovative products. Thus, all members of this unit share similar core values, which differentiate them from other organizational units. Groups that share similar values create the organizational culture through a process of aggregation, and local organizations that share similar values create the national culture that is different from other national cultures. Both top-down and bottom-up processes reflect the dynamic nature of culture, and explain how culture at different levels is being shaped and reshaped by changes that occur at other levels, either above it through top-down processes or below it through bottom-up processes. Similarly, changes at each level affect lower levels through a top-down process, and upper levels through a bottom-up process of aggregation. The changes in national cultures observed by Ingle hart and Baker (2000) could serve as an example for top-down effects of economic growth, enhanced by globalization, on a cultural shift from traditional values to modernization. However, in line with Schein (1992), the deep basic assumptions still reflect the traditional values shaped by the broad cultural heritage of a society. Global organizations and networks are being formed by having local-level organizations join the global arena. That means that there is a continuous reciprocal process of shaping and reshaping organizations at both levels. For example, multinational companies that operate in the global market develop common rules and cultural values that enable them to create a synergy between the various regions, and different parts of the multinational company. These global rules and values filter down to the local organizations that constitute the global company, and, over time, they shape the local organizations. Reciprocally, having local organizations join a global company may introduce changes into the global company because of its need to function effectively across different cultural boarders. The broad ideological framework of a country, corporation, or situation is the most important determinant of the cultural identity that people develop in a given locale. The ‘melting pot’ ideology suggests that each cultural group loses some of its dominant characteristics in order to become main stream: this is assimilation, or what Triandis (1994) Page 5 of 13
  6. 6. MB0037 INTERNATIONAL BUSINESS MANAGEMENT calls subtractive multiculturalism. In contrast, when people from a cultural group add appropriate skills and characteristics of other groups, it may be called integration, or additive multiculturalism. Both of these processes are essential for cultural convergence to proceed. However, if there is a significant history of conflict between the cultural groups, it is hard to initiate these processes, as in the case of Israelis and Palestinians. In general, although there has been some research on the typology of animosity against other nations, we do not know much about how emotional antagonism against other cultural groups affects trade patterns and intercultural cooperation in a business context. The issues of cultural identity and emotional reactions to other cultural groups in an IB context constitute a significant gap in our research effort in this area. Page 6 of 13
  7. 7. MB0037 INTERNATIONAL BUSINESS MANAGEMENT 3. Describe the advantages and disadvantages of international trade? Answer: Advantages & Disadvantages of International Trade: International trade allows countries to exchange good and services with the use of money as a medium of exchange. Several advantages can be identified with reference to international trade. However international trade does have its limitations as well. Discussed below are both advantages and disadvantages of international trade. Advantages: • Greater variety of goods available for consumption – international trade brings in different varieties of a particular product from different destinations. This gives consumers a wider array of choices which will not only improve their quality of life but as a whole it will help the country grow. • Efficient allocation and better utilization of resources since countries tend to produce goods in which they have a comparative advantage. • When countries produce through comparative advantage, wasteful duplication of resources is prevented. It helps save the environment from harmful gases being leaked into the atmosphere and also provides countries with a better marketing power. • Promotes efficiency in production as countries will try to adopt better methods of production to keep costs down in order to remain competitive. • Countries that can produce a product at the lowest possible cost will be able to gain a larger share in the market. Therefore an incentive to produce efficiently arises. • This will help standards of the product to increase and consumers will have a good quality product to consume. • More employment could be generated as the market for the countries’ goods widens through trade. International trade helps generate more employment through the establishment of newer industries to cater to the demands of various countries. This will help countries bring down their unemployment rates. Page 7 of 13
  8. 8. MB0037 INTERNATIONAL BUSINESS MANAGEMENT Disadvantages: • The tough competition in the global market is the greater threat for the existence of the financially weaker organizations. • It could lead to a more rapid depletion of exhaustible natural resources. • You may need to wait for long term gains. The tight competition in the global market results in shortcomings in the short run profits of the businesses. • Hire staff to launch international trading. • Need to modify products or packaging to meet the global requirements. • There is a necessity to develop new promotional materials. • The administrative costs of the international trade become costlier. • Balance of payments becomes the major headache. • Requirements to deal with special licenses and regulations such as, patents, copy rights, etc. Page 8 of 13
  9. 9. MB0037 INTERNATIONAL BUSINESS MANAGEMENT 4. What are the benefits of trade liberalization? Describe. Answer: Recent decades have seen rapid growth of the world economy. This growth has been driven in part by the even faster rise in international trade. The growth in trade is in turn the result of both technological developments and concerted efforts to reduce trade barriers. Some developing countries have opened their own economies to take full advantage of the opportunities for economic development through trade, but many have not. Remaining trade barriers in industrial countries are concentrated in the agricultural products and labor- intensive manufactures in which developing countries have a comparative advantage. Further trade liberalization in these areas particularly, by both industrial and developing countries, would help the poorest escape from extreme poverty while also benefiting the industrial countries themselves. Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth. The evidence on this is clear. No country in recent decades has achieved economic success, in terms of substantial increases in living standards for its people, without being open to the rest of the world. In contrast, trade opening (along with opening to foreign direct investment) has been an important element in the economic success of East Asia, where the average import tariff has fallen from 30 percent to 10 percent over the past 20 years. Opening up their economies to the global economy has been essential in enabling many developing countries to develop competitive advantages in the manufacture of certain products. In these countries, defined by the World Bank as the "new globalizers," the number of people in absolute poverty declined by over 120 million (14 percent) between 1993 and 1998. There is considerable evidence that more outward-oriented countries tend consistently to grow faster than ones that are inward-looking. Indeed, one finding is that the benefits of trade liberalization can exceed the costs by more than a factor of 10. Countries that have opened their economies in recent years, including India, Vietnam, and Uganda, have experienced faster growth and more poverty reduction. On average, those developing countries that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than those that did not. Page 9 of 13
  10. 10. MB0037 INTERNATIONAL BUSINESS MANAGEMENT Freeing trade frequently benefits the poor especially. Developing countries can ill- afford the large implicit subsidies, often channeled to narrow privileged interests that trade protection provides. Moreover, the increased growth that results from freer trade itself tends to increase the incomes of the poor in roughly the same proportion as those of the population as a whole. New jobs are created for unskilled workers, raising them into the middle class. Overall, inequality among countries has been on the decline since 1990, reflecting more rapid economic growth in developing countries, in part the result of trade liberalization. The potential gains from eliminating remaining trade barriers are considerable. Estimates of the gains from, eliminating all barriers to merchandise trade range from US$250 billion to US$680 billion per year. About two-thirds of these gains would accrue to industrial countries. But the amount accruing to developing countries would still be more than twice the level of aid they currently receive. Moreover, developing countries would gain more from global trade liberalization as a percentage of their GDP than industrial countries, because their economies are more highly protected and because they face higher barriers. Although there are benefits from improved access to other countries' markets, countries benefit most from liberalizing their own markets. The main benefits for industrial countries would come from the liberalization of their agricultural markets. Developing countries would gain about equally from liberalization of manufacturing and agriculture. The group of low-income countries, however, would gain most from agricultural liberalization in industrial countries because of the greater relative importance of agriculture in their economies. Page 10 of 13
  11. 11. MB0037 INTERNATIONAL BUSINESS MANAGEMENT 5. Compare the product life cycle theory with the Hecksher Ohlin theory. Answer: The product life-cycle theory looks at the potential export possibilities of a product in five discrete stages in its life-cycle • Stage 1: Introduction: A new product is manufactured in the innovating country and sold primarily in that domestic market. Any overseas sales are generated through exports to other markets. At this stage the innovating company has little competition in markets abroad. • Stage 2: Expansion: Sales increase, but so doe’s competition as other firms enters the arena. At this point, the firm begins some production abroad, to serve foreign markets and to counter the competition. • Stage 3: Maturity: Exports from the home country decrease, because of increased production in overseas locations. On the intersection with the vertical line between maturity and sales decline. Price has become a critical determinant of competitiveness, so minimizing costs becomes an important objective. Production may shift to less developed countries to take advantage of lower labour costs. At this point, domestic production may cease and the product is imported by the home market. • Stage 4: Decline: This occurs because competitors have achieved economies of scale equal to those of the innovator. • Stage 5: Recovery: The innovator may cease production and leave the declining market to imitators. Typically, the product's popularity has also ceased and consumers seek other products. The product life-cycle theory has been found to hold primarily for products such as consumer durables, synthetic fabrics and electronic equipment; that is, those products which have a long time-span from innovation to eventual peak consumer demand. The theory does not hold for products with a short time-span between innovation and obsolescence, for example, kitchen gadgets such as electric can openers and ice-cream makers. Page 11 of 13
  12. 12. MB0037 INTERNATIONAL BUSINESS MANAGEMENT The Hecksher-Ohlin model: The Hecksher-Ohlin model (H-O model) is a general equilibrium mathematical model of international trade, developed by Eli Hecksher and Bertil Ohlin at the Stockholm School of Economics. It builds on David Ricardo's theory of comparative advantage by predicting patterns of commerce and production based on the factor endowments of a trading region. The model essentially says that countries will export products that utilize their abundant and cheap factor(s) of production and import products that utilize the countries' scarce factor(s). Features of the model Relative endowments of the factors of production (land, labor, and capital) determine a country's comparative advantage. Countries have comparative advantages in those goods for which the required factors of production are relatively abundant locally. This is because the prices of goods are ultimately determined by the prices of their inputs. Goods that require inputs that are locally abundant will be cheaper to produce than those goods that require inputs that are locally scarce. For example, a country where capital and land are abundant but labor is scarce will have comparative advantage in goods that require lots of capital and land, but little labor - grains, for example. If capital and land are abundant, their prices will be low. As they are the main factors used in the production of grain, the price of grain will also be low - and thus attractive for both local consumption and export. Labor intensive goods on the other hand will be very expensive to produce since labor is scarce and its price is high. Therefore, the country is better off importing those goods. Theoretical development of the model The Ricardian model of comparative advantage has trade ultimately motivated by differences in labour productivity using different technologies. Hecksher and Ohlin didn't require production technology to vary between countries, so (in the interests of simplicity) the H-O model has identical production technology everywhere. Ricardo considered a single factor of production (labour) and would not have been able to produce comparative advantage without technological differences between countries. The H-O model removed technology variations but introduced variable capital endowments, recreating endogenously the inter-country variation of labour productivity that Ricardo had imposed exogenously. With international variations in the capital endowment (i.e. infrastructure) and goods Page 12 of 13
  13. 13. MB0037 INTERNATIONAL BUSINESS MANAGEMENT requiring different factor proportions, Ricardo's comparative advantage emerges as a profit- maximizing solution of capitalist's choices from within the model's equations. 6. Describe the structure of world trade organization. Answer: The structure of the WTO is dominated by its highest authority- the Ministerial Conference. This body is composed of representatives of all WTO members. It meets at least two years and is empowered to make decisions on all matters under any of the multilateral trade agreements. The day-to-day work of the WTO is entrusted to a number of subsidiary bodies; principally, the General Council, also composed of all WTO members, which is required to report to the Ministerial Conference. The General Council also convenes in two particular forms- as the Dispute Settlement Body and the Trade Policy Review Body. The former overseas the dispute settlement procedures and the latter conduct regular reviews of trade policies of individual WTO members. The General Council delegates responsibility to three other bodies- namely the Councils for Trade in Goods, Trade in Services and Trade- Related Aspects of Intellectual Property Rights. The Council for Goods overseas the implementation and functioning of all the agreements covering trade in goods, though many such agreements have their own specific overseeing bodies. The latter two Councils have responsibility for their respective WTO agreements and may establish their own subsidiary bodies as deemed necessary. Three other bodies are established by the Ministerial Conference who report to the General Council. The Committee on Trade and Development is concerned with issues relating to the developing countries and especially, to the ‘least developed’ among them. The Committee on Balance of Payments is responsible for consultations among WTO members and countries which resort to trade restrictive measures in order to cope with their balance of payments difficulties. Finally, issues relating to WTO’s financing and budget are dealt with by a Committee on Budget, Finance and Administration. Each of the multi-lateral agreements of the WTO – those on civil aircraft, government procurement, dairy products and bovine meat-establish their own management bodies which are required to report to the General Council. Page 13 of 13