International Trade and Global Business International Business Environment Global Economy and Regional Economic Integration

1. International Business
BUSS 5425
Himalayan College of Management
3rd
Semester
Infrastructure University

2. Contents
Chapter 1: International Trade and Global Business .................................................................. 7
GLOBALIZATION................................................................................................................... 7
FORMS OF GLOBALIZATION ............................................................................................... 7
METHODS OF GLOBALIZATION .......................................................................................... 7
CAUSES OF GLOBALIZATION.............................................................................................. 8
EFFECTS OF GLOBALIZATION............................................................................................ 8
What is INTERNATIONAL BUSINESS ? ................................................................................ 9
FEATURES OF IB.................................................................................................................. 9
Going International ................................................................................................................10
IMPORTANCE OF IB ............................................................................................................10
APPROACHES OF IB ...........................................................................................................10
PROBLEMS OF IB ................................................................................................................11
REASON FOR RECENT GROWTH IN IB .............................................................................11
Domestic Business VS International Business.......................................................................12
Chapter 2: International Business Environment.........................................................................13
Internal Marketing..................................................................................................................14
External Environment ............................................................................................................15
Micro/Specific/Task Environment .......................................................................................15
Macro/General Environment ..............................................................................................15
Socio-Cultural Environment...................................................................................................16
TECHNOLOGICAL ENVIRONMENT.....................................................................................17
Chapter 3: Global Economy and Regional Economic Integration ..............................................18
Structure of global economy..................................................................................................18
1. Facilitators of Global economy comprises......................................................................18
2. Role Players:..................................................................................................................18
3. International Movements................................................................................................18
4. Marginalized Group........................................................................................................19
5. Global GDP....................................................................................................................19
Changing demographics of global economy ..........................................................................19
Changing pattern of global trade........................................................................................19
Changing pattern of key players in global trade .................................................................19
Changing pattern of foreign direct investment ....................................................................20

3. Changing patterns of MNEs: Four phases of growth pattern of MNEs................................20
Concept and nature of regional economic integration ........................................................20
Concept and nature of regional economic integration ........................................................20
Stages of Regional Economic Integration..............................................................................21
1.Preferential Trading Area: ...............................................................................................21
2. Free Trade Area (FTA)...................................................................................................21
3. Custom Union: ...............................................................................................................21
4. Common Market (Single Market)....................................................................................21
5. Economic Union:............................................................................................................21
6. Political-economic Union................................................................................................22
Nepal’s participation in regional trading system – SAFTA and BIMSTEC ..............................22
Critical Evaluation of BIMSTEC..........................................................................................23
Critical Evaluation of SAFTA and BIMSTEC ......................................................................23
Free trade policies of WTO ................................................................................................24
WTO Provision for subsidy (WTO box Subsidy).................................................................24
Chapter 4: International Monetary and Financial Systems ........................................................25
Instrument and Areas of Monetary System............................................................................25
Money Supply ....................................................................................................................25
Inflation..............................................................................................................................25
Credit Availability and Interest Rates..................................................................................26
Foreign Currency and Exchange Rate Systems ....................................................................26
Foreign Exchange Rate Determination or Systems............................................................26
Exchange control and liberalization....................................................................................27
Currency Convertibility.......................................................................................................27
Exchange Terminology..........................................................................................................27
Instruments in For-Ex Markets...............................................................................................29
Nature of Foreign Exchange Market......................................................................................29
Currency Risk Management ..................................................................................................29
Transaction Exposure ........................................................................................................29
Translation Exposure .........................................................................................................30
Economic Exposure...........................................................................................................30
International Payment System...............................................................................................30
A. Terms and Conditions of Trade and Payments – Inco-terms .........................................31

4. B. Rules for any Mode or Modes of Transport....................................................................31
Modes of Payment in International Trade ..............................................................................32
Selecting the Correct Method of Payment:................................................................................33
The Global capital markets....................................................................................................34
Chapter 5: International Business Environment and strategic Management..............................37
Learning Objectives are to:....................................................................................................37
Nature and Complexity of IB Environment.............................................................................37
International Business Environment ......................................................................................38
Analysis of Environmental Forces..........................................................................................38
1. Purposes of Understanding and Analysis....................................................................38
2. Need for Information ...................................................................................................39
3. Tools and Techniques of Analysis...............................................................................39
4. Methods or Techniques of Environmental Analysis.....................................................39
Socio-Cultural Forces – Dimensions and Components..........................................................39
Socio-Cultural Dimensions.................................................................................................40
Why Culture Matters in IB?....................................................................................................40
Implications and Complexities of Doing Business Cross Culture........................................41
Political Forces – Risk Assessment .......................................................................................41
Political Risks – Planning to Reduce .....................................................................................42
Macro or Long–term Measures ..........................................................................................42
Micro or Short Term Measures...........................................................................................42
Legal Systems: Principles & Managerial Concerns ............................................................42
Managerial Analysis of Regulations.......................................................................................42
Areas of Managerial Concerns ..............................................................................................43
Strategic Concern ..............................................................................................................43
Operational Concern..........................................................................................................43
Strategy and Opportunity and Role of Strategy in IB..............................................................43
Strategic Opportunities and Subjects.....................................................................................43
Strategic Opportunity Assessment- Techniques ....................................................................44
Role of Strategy in International Business .............................................................................44
Choosing an IB Strategy........................................................................................................44
Estimating Market Potential - Info. Required are:...................................................................45
Entry Strategies: Types of Organizations in IB.......................................................................45

5. Entry Mode - Market Entry Decisions.....................................................................................45
There are six phases to enter into IB .....................................................................................46
Collaborative Venture and Strategic Alliances .......................................................................46
Licensing...............................................................................................................................46
Franchising............................................................................................................................46
Global Outsourcing................................................................................................................47
Chapter 6: Functional areas of International Business ..............................................................47
International Business Management......................................................................................47
Global Production..................................................................................................................48
Features of Marketing Plan and Strategies ........................................................................48
International Marketing Research and Development (R&D)...................................................49
International marketing research ...........................................................................................49
Complexities of International Marketing.................................................................................49
Marketing Research Process and Methodologies- Step by Step............................................50
Global Segmentation.............................................................................................................50
Global Targeting....................................................................................................................50
Global Product Positioning ....................................................................................................51
Branding................................................................................................................................51
Product Development Strategy..............................................................................................51
Regulatory Considerations.................................................................................................51
Strategic Alternatives .........................................................................................................51
Pricing Strategy.....................................................................................................................52
Factors Influencing Pricing.................................................................................................52
Communication Strategy .......................................................................................................52
Advertisement .......................................................................................................................53
Face to Face or Personal Selling...........................................................................................53
Trade Fairs and Exhibitions...................................................................................................53
Other Market Promotion Means.............................................................................................53
Distribution Strategy ..............................................................................................................54
Distribution Channels have two functions ..............................................................................54
Channel Selection .................................................................................................................54
Information Required for the Selection of Appropriate Channel .............................................55
Information required to set up a subsidiary in a foreign country .............................................55

6. Physical Distribution ..............................................................................................................55
Global E-Business and E-Marketing ......................................................................................55
International Human Resource Management.........................................................................56
Global HRM Functions and Complexities ..............................................................................56
Staffing Policies, Diversity Management and Labour Relations .............................................56
Economic And Commercial Diplomacy..................................................................................57
Economic Diplomacy .........................................................................................................57
Commercial Diplomacy ......................................................................................................57
Negotiation – Dimension and Importance..............................................................................57
Mid Term...................................................................................................................................58
Assignments .............................................................................................................................62
Prepare a project report in the following topic: (35 Marks) “The effect of Covid 19 in
Nepalese Economy and its International Business.”........................................................62
Case Study (20 Marks)..........................................................................................................65
Identify the key environmental forces that affect the investment situation of Nepal..66
Recommend the key actions for the investment improvement in Nepal. ....................67

7. Chapter 1: International Trade and Global Business
GLOBALIZATION
Globalization is the process of spreading the scope of international business activities through
interaction among people, companies and governments and optimum use of resources.
Globalization is the integration of economic, political and cultural system across the globe.
It ensures free flow of ideas, goods and services all over the world.
According to IMF, “Globalization refers to the growing economic interdependence of countries
worldwide through the increasing volume and variety of cross border transactions in goods and
services and of international capital flows , and also through the more rapid and widespread
diffusion of technology.
FORMS OF GLOBALIZATION
Economic globalization: It is the integration of national economies into the international
economy. The development of modern and liberal market economy, modern means of
transportation and communication system have facilitated the economic globalization .The
means of economic globalization involves international trade, FDI, capital flows etc
Political globalization: Many countries, these days, come under a common macro-political
foundation. They have common perception regarding democracy, good governance, human
rights, legal system etc. Countries failing to accept these perceptions may be isolated from the
world community.
Cultural globalization: The development of modern means of communication and
transportation system has tied the people of the world having different culture together. People
have started to exchange their views , ideas and cultural values which help to understand each
other and their culture.
Environmental globalization: The development of economic activities raised the problem of
global pollution, global warming etc. which affects negatively the day to day life of people. At
present government of many countries have come into a common platform to maintain and
protect environment
METHODS OF GLOBALIZATION
● Exporting

8. ● Licensing and Franchising
● Direct Investment
● Joint Venture
● Mergers and acquisition
● Strategic Alliances
CAUSES OF GLOBALIZATION
Improved Communication: The development of communication technologies such as internet,
mobile phones have been vital to the growth of globalization because they help MNCs to
operate through the world.
Improved Transport: The development of refrigerated and container transport, bulk shipping
and improved air transport has allowed the easy mass movement of goods throughout the
world. This assist globalization.
Free Trade Agreement: MNCs and rich capitalist countries have always promoted global free
trade as a way of increasing their own wealth and influence. WTO and IMF also promote free
trade.
Global Banking: Modern communication technologies allow vast amounts of capital to flow
freely and instantly throughout the world.
The growth of MNCs: The rapid growth of big MNCs such as Microsoft, McDonalds, Nike is a
cause as well as a consequences of globalization. Globalization allows MNCs to produce goods
and services and to sell products on a massive scale throughout the world.
EFFECTS OF GLOBALIZATION
Positive Effect
● Increase in employment
● Develops Living Standard
● Transfer of capital and technology
● Elimination of trade barriers
● Promote international co-operation
● Support for industrialization
Negative Effect
● Displacement of local industries
● Creates threats to social and cultural values

9. ● Economic exploitation
● Deterioration of National Sovereignty
● Unequal distribution of income
● Increases competition
What is INTERNATIONAL BUSINESS ?
The exchange of goods and services, Resources, Knowledge, & skills among individuals and
business in two or more countries.
Transaction that are carried out across national borders to satisfy the objectives of individual
and organization
All commercial transactions that take place between two or more countries
● Private and Government
● Sales
● Investment
● Logistics
● Transportation
FEATURES OF IB
● Large scale operations
● Integration of economies
● Dominated by developed countries and MNCs
● Benefits to participating countries
● Keen competition
● Special role of science and technology
● International restrictions

10. Going International
IMPORTANCE OF IB
● Earn foreign exchange
● Optimum utilization of resources
● To spread business risks
● Improve organization’s efficiency
● Get benefits from government
● Expand and diversity
● Increase competitive capacity
APPROACHES OF IB
● Ethnocentric Approach
● Polycentric Approach
● Regiocentric Approach
● Geocentric Approach
Ethnocentric Approach:
Under this approach, target market is own country. Excessive production will export due to
change in customer taste, preferences.

11. Domestic Companies view foreign market as an extension to domestic markets
Polycentric Approach:
Under this approach, the company customizes the marketing mix to meet the taste,
performance and needs of the customers of each international market.
Companies establish foreign subsidiaries and empower its executive
Regiocentric Approach:
Under this approach, the company operating successfully in a foreign country thinks of
exporting other neighboring countries of the host country.
At this stage, the concerned subsidiary considers the regional environment(such as laws,
culture, policies etc) for formulating the policies & strategies.
Geocentric Approach:
Under this approach, the company analyzes the tastes, preferences and needs of the
customers in all foreign markets and then adopts a standardized marketing mix for all the
foreign markets.
Companies view the entire world as a single unit
PROBLEMS OF IB
● Political factors
● High foreign investments and high cost
● Exchange instability
● Entry requirements
● Tariffs, quota etc.
● Corruption and bureaucracy
● Technological policy
● Quality Management
REASON FOR RECENT GROWTH IN IB
1. Expansion of technology
2. Business is becoming more global because
● Transportation is quicker
● Communications enable control from far
● Transportation and communications costs are more
● conducive for international operations
3. Liberalization of cross-border movements
● Lower Governmental barriers to the movement of goods, services, and resources enable
Companies to take better advantage of international opportunities
4. General agreement on Tariff and trade(GATT)

12. ● An international financial formed to reduce or eliminate tariff and other barrier to
international trade
5. International Monetary Fund(IMF)
● An international financial organization that lend money to countries in conducting
international trade
6. World Bank
● An international financial organization that lend money to underdeveloped and
developing countries for development
7. Economic Communities
● World Trade Organization (WTO)
● European Community (EC)
● North American Free Trade Agreement (NAFTA)
● Asian Free Trade Agreement (AFTA)
Domestic Business VS International Business
Dimensions Domestic Business Operations International business Operations
Environment The economic, political-legal,
socio-cultural, competitive and
technology environments are
known, hence one can take
necessary precautions
The environment is not fully known.
Innumerable hidden factors which
may emerge at times to pose threats
Competition The maximum domestic
competitive forces operate and
one can understand their
movement
International competitive forces play
a vital role and it is very difficult to
understand their motive and
movement
Currency Local currency is used for
transactions. Costing, pricing,
revenue and margins are
computed in single currency
Transactions are carried out in
various currencies.
Fluctuations in cross country
movement and associated risks are
common.
Business Risks Comparatively one can predict
future risk and shock and they will
not have a major impact on the
business houses
Very difficult to predict and risks may
crop up any time, due to the political
situation, the society itself or other
unknown factors
Research It is reasonable and easy to
conduct business research,
demand analysis and customer
Very difficult and costly to conduct.
Reliability depends on individual
countries and the output has no

13. survey. It is also reliable for
business ventures
uniformity
Human
Resource
Due to past laurels and established
systems, corporate can succeed
even if the human resources have
minimum skills and knowledge
Multilingual, multi strategic and
multicultural HR are necessary and
they should be able to withstand
large risks
Investment Depending on the size of the
business one can start with a
minimum investment. Involvement
of regulatory bodies is minimal.
All overseas operations except
exports, call for huge investments to
set up and expand the business in
many countries.
Pricing A majority of companies use cost
plus margin pricing or competitive
pricing.
Companies use marginal cost pricing
or competitive pricing or transfer
pricing to succeed
Distribution The business houses can use its
discretion to select any channel to
reach the customer
The distribution channel is governed
by the government or market
practice. Cash and carry, shopping
malls and mail order services are
becoming popular in international
business
Chapter 2: International Business Environment
Business environment is the sum total of all external and internal forces that influence the
business decisions. Business Environment refers to the set of all business conditions that have
direct or indirect bearing on the growth and development of a business organization
According to Keith Davis, “ Business Environment is the aggregate of all conditions, events and
influences that surround and affect it.”
There are two types of business environment
1. Internal Environment
2. External Environment

14. Internal Marketing
All conditions and forces within the organization affecting a business operation is internal
environment. Such environmental components can be controlled by the management
The internal environment consist of owners or shareholders, board of directors, resources,
organizational structure and organization culture.
1. Owners: owners are the investors who have direct interest in the welfare and prosperity
of a business organization. They have the legal right on the property and assets of the
business.
2. Board of Directors: Members of BOD are the representative of shareholders who are
directly involves in the day-to-day operations of the company. Their responsibility is to
run the business in the best interest of shareholders and other stakeholders.
3. Organizational Resources: Organizational resources consist of physical, financial ,
human and informational resource. The success and failure of the organization depends
upon the effective and efficient utilization of these resources.
4. Organizational Structure: Organizational structure involve job definition, division of
work, hierarchy of authority and responsibility and coordination among all the
departments and members. It defines the formal relationship between executives and
subordinates.
5. Organizational Culture: Organization culture is a set of values that helps its members
understand what the organization stands for, how it does things and what it considers
important. It is a system of shared beliefs held by the organizational members.

15. External Environment
The external environment of an organization refers to forces and institutions outside the
organization that potentially can affect the organization’s performance. The external
environment is made up of two components
1. Micro/ Specific/Task Environment
2. Macro/General Environment
Micro/Specific/Task Environment
these are the environment which have a direct and immediate impact on the managerial
decision and directly affect the achievement of organizational goals. The task environment
consist of the following components:
1. Customers: Customers are the main source of revenue for the organization. They
represent potential uncertainty to an organization because their tastes and preferences
may change with the change in time and fashion.
2. Suppliers: Suppliers are parties and institutions that supply materials, machines and
other resources to organization. If suppliers do not supply materials in time and also
charge high price, it reduces the organizational effectiveness.
3. Competitors: Competitors are rivals that compete with an organization for resources.
No business organization can ignore its competitors and their business strategies.
4. Pressure Groups: Pressure groups are special interest groups, which may also create
problems and difficulties in business activities. These pressure groups consist of labor
unions affiliated with political parties, consumer’s association, human right activists,
environmental associations etc.
5. Financial Institutions: These are the firms which supply short and long term credit to
business organization. Their credit policy directly affect the operation, expansion and
diversification of business activities.
Macro/General Environment
General environment refers to broad external conditions that may affect business activities of an
organization. It is uncontrollable and requires proper monitoring of the components to adapt on
the basis of emerging changes. It creates opportunities and threats to the business
organization. The components of General environment are
1. Political: The political –legal force refers to government regulations and the legal
system for business. The following are the common components of political-legal
environment:

16. 2. Constitution: It is the fundamental law acceptable to all the people of the nation. It
defines a framework within which all the people have to perform their activities including
business.
3. Political Philosophy: It is an ideology that a state has adopted. There are three types of
political ideology: democratic, socialism and mixed.
4. Political Parties: political parties are an indispensable component of a democratic
system. They try to implement their declarations when they form the government, which
may affect in the business activities of many organizations.
5. Political Institutions: It consist of legislative, executive and judiciary. Legislature enact
rules, regulation and laws whereas executives implement them. Judiciary ensures
whether rules and laws are effectively implemented or not.
6. Legal Institutions: These institutions are different levels of courts consisting of District
Courts, Appeal Courts and Supreme Courts. These institutions provide judgment and
define unclear laws and regulations.
7. Economic Environment: Economic forces refer to all factors, which give shape and
form to the development of economic activities. These factors consist of interest rates,
inflation, stock market fluctuation, stages of business cycle etc. These factors affect
demand of product and services in the market. The major component of economic
environment are:
a. Economic System: It is the economic philosophy adapted by the government.
There are three models of economic system: open market economy, state owned
economy and mixed economy. In open market economy more emphasis is given
to private sectors and in state owned economy, the government directly involves
in all the economic activities of the nation. In mixed economy both state and
private sectors involve in economic activities.
b. Economic Policies: these are the guidelines adopted by the government for
economic prosperity of the nation. These policies consist of industrial policy,
commercial policy, monetary policy and fiscal policy
c. Economic Condition: It focuses on the economic strength and weaknesses of
the nation in which organization perform their business. These involves per
capita income, economic growth rate, business cycle, inflation and stages of
economic development.
d. Capital Market: The development of capital market shows the shape of
economic environment of the nation. Capital market involves banks including
central bank, finance companies, insurance, stock market etc.
e. Globalization: It is the integration of the world into a huge market. It
concentrates on free flow of goods and services throughout the world without any
administrative restriction.
Socio-Cultural Environment
Socio cultural environment includes the total social forces within which an organization
operates. All the elements of socio cultural environment are adaptable , shared and inter-
related. The following are the common elements of socio cultural environment

17. 1. Demography: It focuses on the composition of population of the country. It consist of
size and distribution of population, age groups, urbanization, migration of people etc.
The composition of population affect business activities of organization
2. Lifestyle: It is the pattern and living standard of people. The change in level of income,
fashion, education and social inter relationship and media change the life style of the
people.
3. Social Values: social values are the beliefs and norms of the society. Different society
has different social values. It affects the attitude towards organization and work itself
4. Social Institutions: Social institution involves basic components of society like family,
reference groups and social class. The division of social institution changes the attitudes
and belief of the people, which also affect business of organization.
5. Religion: Religion is the belief and trust that groups of people have accepted since long
ago. It provides the foundation of perception that a group of people has accepted the
norms and values of the society. It differentiates the behavior and attitude of people.
TECHNOLOGICAL ENVIRONMENT
Technology is the method or process of converting inputs into outputs. It refers to the systematic
application of organized knowledge essential to do things. It focuses on machines and
equipments, transmission of information, new techniques and processes, research and
development necessary to transform resources into finished products and services.
The following are the components of technological environment:
1. Nature of Technology: Technology may be manual or automatic. Manual technology is
labor based whereas automatic is capital based.
2. Pace of technological change: The change in technology leads to immediate impact in
business of an organization. A business can only be successful if it is able to grab the
opportunities created by the changing technology.
3. Technology Transfer: Since technology is an ever changing concept, no organization is
self sufficient in modern technology. It is essential to get transfer of technology from
technologically advanced countries to the developing countries.
4. Research and Development Budget: It is essential to invest a certain part of the
budget of the firm in research and development work. It is helpful in innovation of new
knowledge and technology in production and distribution system to cope with changes.

18. Chapter 3: Global Economy and Regional Economic
Integration
Structure of global economy
Global economy refers to all of the economic activity within each country and between countries
around the world. It is an area of the production, distribution, or trade and consumption of goods
and services by different agents from different parts of the world.
1. Facilitators of Global economy comprises
Governments of all countries, International and regional blocs that play role in global economy
like making favorable economic policies, reducing trade barriers, encouraging good governance,
developing infrastructures for economic growth, promoting peaceful growth among nations.
2. Role Players:
MNCs and business enterprises that produce goods, services, technology, capital etc.
Financial Institutions: IMF, ADB, WB, central and commercial banks that provide financial
support, multilateral payment system etc.
Human Resources: Workers who work in MNCs and business enterprises at different level
constitute HR. They use their skill, knowledge. Some technically sound and skillful labor plays
vital role in the whole economy.
Logistic Providers: Those who play major role in the movement of the goods and services
from point of origin to point of consumption. These include 1PL, 2PL, 3PL and other logistic
providers.
Consumers: Those who consume final goods and services from different parts of the world.
3. International Movements
It refers to the commercial transactions between two or more parties of different nations.
1. Merchandise: It refers to movement of all commodities and manufactured goods majorly
electrical machinery, petroleum product, vehicles, precious metals, minerals etc.
2. Intellectual Properties: These includes international movements of human intellect
including concepts, inventions, skills, industrial models, product design, marketing
strategies, trademark, patents through the licensing, franchising, turnkey projects and
management contracts.

19. 4. Marginalized Group
It refers to the groups of people who influence the global economy negatively. Their activities
put economies in risk and unpredictable.
1. Marketers (grey and black): grey marketers are those manufacturers, distributors or
agents who sell product through a distribution channel which has not been authorized to
sell that good by original manufacturer. Similarly black marketers are those who
manufacturers, distributors or agents who sell products outside of official economy.
2. Syndicates, Cartels, Money Launderers: Syndicates involves a group of individuals or
organizations formed for the purpose of handling a large transaction that would be hard
or impossible for the entities involved to handle individually Cartels are group of
independent producers whose goal is to maximize profit through price fixing, limiting
output and other practices Money Launderers: Conceal origin of money obtained illegally
by passing through a complex sequence of banking or commercial transaction
5. Global GDP
Global GDP is the standard measures of the value of final goods and services produced by all
countries around the world. According to WB, GDP of world in 2017 stands at $80 trillion, GDP
growth rate 4.4%, GDP per capita, $5054. USA, China, Japan, Germany, UK, France are major
contributors.
Changing demographics of global economy
Changing pattern of global trade
Past few decades have seen important trade that have reshaped the global trade landscape. As
a share of global output, trade is now at almost three times the level of in the early 1950s.
Trade between developing countries are dominating world trade.
A clear regional pattern has emerged in manufacturing is concentrated in Asia, agriculture in
Americas and resources based in Africa. South Africa, Brazil and China are major centers.
Changing pattern of key players in global trade
In 1970s, trade was largely confined to a handful advanced economies, notable USA, Germany
and Japan. By 1990, the global trading landscape had become more diversified especially in
east Asia. By 2010, China has become the second largest trading partner after
USA overtaking Japan and Germany.

20. Changing pattern of foreign direct investment
Tremendous growth in FDI with tremendous explosion in transportation and communication due
to continuous liberalization. Comparative cost has become the main driving factor of production
in host countries causing FDI.Among various nations, China is winning the race of FDI receiving
country.
Changing patterns of MNEs: Four phases of growth pattern of MNEs
First phase lasted up to 1st World war. The field was captured mostly by the European
companies such as Imperial Tobacco, Dunlop, Philips During the second phase, in 1950s and
60s, American MNCs such as General Motors, Ford, IBM emerged.
Third phase of growth of MNCs began since 1970s. This new era belonged to European,
German and Japanese MNCs.
The fourth phase in recent years, MNCs have emerged from developing nations such as India,
China, Brazil, South Africa, South Korea, Singapore, Hong Kong and Indonesia.
Developing nations are becoming attractive destination of MNCs because of availability of
resources, growing market, availability of institutional finances and comparatively flexible
taxation rules in home country.
Concept and nature of regional economic integration
Regional economic integration is association of different countries situated in particular region
whereby they come a common agreement to remove trade barriers among them, Achieving
economic integration in neighboring countries and promote economic co-operation. It helps in
increasing intra-regional trade and investment.
In 2017, South-east Asian economies got a big lift from China as the export to china grew 20-40
%. Similarly Chinese investment grew in the region. Many Chinese tourists were seen in beach,
temples and shopping mall around the region.
Concept and nature of regional economic integration
Regional economic integration is association of different countries situated in particular region
whereby they come a common agreement to remove trade barriers between them.

21. Nature
It is an agreement between groups of countries in a geographic region, to reduce and ultimately
remove tariff and non-tariff barriers to the free flow of goods, services, and factors of production
between each other. It can broaden markets, boost employment, and spur political cooperation.
It reduces costs for both consumers and producers and increase trade between the countries
involved in the agreement. It leads to trade diversion and the erosion of national sovereignty.
Stages of Regional Economic Integration
1.Preferential Trading Area:
Member countries give preferential treatment to each other by reducing tariffs. This stage is the
most preliminary level of promoting economic integration through trade. In the very stage,
countries reduce tariffs applicable to member countries to show their preferential trading facility
to members. Some expert even do not recognize PTA as first stage of economic integration.
Example SAPTA (South Asian Preferential Trading Arrangement)
2. Free Trade Area (FTA)
In this stage, countries goal is to eliminate all tariffs and other barriers to trade in products and
services within the bloc, but the countries maintains its own external tariffs against non-FTA
countries. The associated countries gradually eliminate trade barriers in the FTA.
SAFTA and NAFTA are examples of it.
3. Custom Union:
The member countries eliminate internal tariffs, member countries adopt common tariffs and
non-tariff barriers on import from non-member countries. They formulate similar external trade
policies to their trade with non-member countries. MERCOSUR, an economic bloc in Latin
America adopted common custom tariff system.
4. Common Market (Single Market)
A common market creates free mobility of factors of production such as labor, technology,
capital etc. In absence of the common market arrangement, workers have to apply immigration
for visa and work permit that might be difficult.
5. Economic Union:
In this stage, member countries create economic union by integrating economic policies so that
there can be free flow of goods and services and factors of production across the borders.

22. Harmonization of economic policies among the member nations take place. Trade policies,
monetary and fiscal policies are harmonized. European Union has done economic union as they
use common currency.
6. Political-economic Union
The final and ultimate development of the economic union takes form of a Political Union where
member countries decide to shed their national political status but share the single political
identity. There may exist a common parliament with representatives from member nations who
work in synchronization with every member nations’ legislature.
EU has already started the process. The EU has set up institutions required to become a
political entity of the state: EU parliament as legislature, EU council of ministers as executive,
European Commission as Bureaucracy and European Court of Justice as Judiciary.
Nepal’s participation in regional trading system – SAFTA and
BIMSTEC
Nepal’s participation in regional trading system Nepal and SAFTA: Joining SAFTA helped Nepal
not only to expand its international trade but also to diversify exports to countries other than
India. But Nepal’s contribution to intra-regional trade in the last 20 years has been minimal.
Nepal and BIMSTEC:Nepal joined BIMSTEC in February 2004. Its main priority sector is
poverty alleviation.
On 6 June 1997, a new sub-regional grouping was formed in Bangkok under the name BIST-EC
(Bangladesh, India, Sri Lanka, and Thailand Economic Cooperation).[8][9] Following the
inclusion of Myanmar on 22 December 1997 during a special Ministerial Meeting in Bangkok,
the Group was renamed ‘BIMST-EC’ (Bangladesh, India, Myanmar, Sri Lanka and Thailand
Economic Cooperation). In 1998, Nepal became an observer. In February 2004, Nepal and
Bhutan become full members.
On 31 July 2004, in the first Summit the grouping was renamed as BIMSTEC or the Bay of
Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation.[10]
Objectives of BIMSTEC
● To create an enabling environment for rapid economic development
● To accelerate social progress in the sub-region
● To promote active collaboration and mutual assistance on matters of common interest
● To provide assistance to each other in the form of training and research facilities
● To cooperate more effectively in joint efforts that are supportive of, and complementary
to, national development plans of member states,

23. ● To maintain close and beneficial cooperation with existing international and regional
organizations and
● To cooperate in projects that can be dealt with most productively on a sub-regional basis
and which make best use of available synergies
Critical Evaluation of BIMSTEC
Positive Impact/ Opportunities
1. Trade Expansion
2. Greater Potential for investments
3. Cooperation in infrastructure development
4. Low cost transactions
5. Prospects of tourism and
6. Buddhist Pilgrimage Tourism
7. Triangle
Negative Impact/ Challenges
1. No special Privileges to LDCs like Nepal
2. Increased competition
3. Challenge to manage transit and smuggling problems on the border
4. Challenges to find out comparative advantage areas
5. Limited Factors of production
Critical Evaluation of SAFTA and BIMSTEC
Advantages
1. Market Enlargement
2. Investments
3. Growth of Trade
4. Cooperation in sectors such as energy and electricity
Challenges/Negative Impact
1. Increased competition
2. Revenue loss
3. Deficits in BoP
4. Little Investment
5. Linkage with political Problems
6. Transit problem
7. Poor Mobility of People
Economic integration in different conditions
1. Trade without discrimination

24. 2. Freer trade
3. Transparency
4. Encourage development
5. Promote fair competition
6. Predictable and growing access to markets
Free trade policies of WTO
Assisting developing and transition economies
Specialized help for export promotion
Cooperation in global economic policy
Routine notification when members introduces new trade measures or alter old
Principles of WTO
1. Trade without discrimination
2. Freer trade
3. Transparency
4. Encourage development
5. Promote fair competition
6. Predictable and growing access to markets
WTO Provision for subsidy (WTO box Subsidy)
Subsidy must be reduced within limit
Allowed subsidy Developed country: 5% and developing can provide 10%,
Green Box: this type of subsidy is non trade-distorting subsidy or creates minimum distortion in
trade. Generally provided to agriculture, crop loss, flood control, train to farmer, R&D, insurance.
Blue box: Limiting production (Norway, Iceland provides): Trade-distorting: Non-trade objective
is important
Amber Box: Trade distorting subsidy:
Input based: Fertilizer, seeds
Price Based: MSP- Minimum support price,

25. Chapter 4: International Monetary and Financial
Systems
Monetary system is the institutional and regulation management money supply, price, interest
rate and foreign exchange to achieve macro-economic stability, that is concerned with inflation,
consumption, economic growth and liquidity.
The objectives of the monetary policy are:
1. To ensure price and economic stability by monitoring inflationary pressure, liquidity,
consumption growth, and economic deflation;
2. To maintain full employment (as many jobs available as there are people seeking to jobs
or absence of unemployment); and
3. To retain foreign exchange stability and monitor its supply.
Instrument and Areas of Monetary System
Money Supply
Geoffrey Crowther defines money “as anything that is generally acceptable as a means of
exchange (i.e. as a means of settling debts) and that at the same time acts as a measure of
value (unit of account) and as a store of value.
Supply of money (M) is the total currency in circulation (C) + the demand deposit with the
commercial banks (D) or M=C+D.
It means price level increases or decreases at the same level with the increase or decrease in
money supply and purchasing power of money decrease with the increase in money supply and
purchasing power of money increases with the decrease in money supply.
Inflation
Inflation is records of changes in average general prices of basic consumer goods (a basket of
goods and services). Inflation is one of the external forces completely uncontrollable to a
business firm and it directly impact on the business transactions in different forms.
1. Inflation makes expenditure plan more risky
2. Inflation rate determines the cost of borrowing
3. Inflation causes rise in demand for an increase in supply of money, increase in
government budget, and increase in prices of almost everything, increase in
interest rate (cost of borrowing), encourage export (temporarily), and discourage
import.
4. Sudden rise in inflation rate makes it difficult in planning capital expenditure or
further investment.

26. 5. Higher the inflation in a country less become the goods and services competitive
in the foreign market and ultimately it will discourage further investment in a
country.
Credit Availability and Interest Rates
An IB manager should be able to assess the credit availability and cost of such credit (interest)
situations of the host country and make strategies for utilization of credit facilities as
economically as possible.
Data are normally available in the annual and periodical reports of the Ministry of Finance and
the Central Bank of a particular country.
Foreign Currency and Exchange Rate Systems
● There is no common currency acceptable to all countries.
● Foreign exchange is a payment mechanism for international transactions.
● Foreign exchange can be defined as a system of conversion of a national currency into
other foreign currencies or an exchange of one money for another.
● Foreign exchange rate is the number of units of one currency needed to buy one unit of
another currency. It is the price of one currency expressed in terms of another currency.
● When transactions are effected between two countries having different currency systems
payments are made through an agreed foreign currency.
● Fluctuation in the foreign exchange rate affects directly the domestic price level
particularly when a country's economy is highly dependent on international trades.
● An IB Manager should try to minimize the holding of weaker currencies, and try to
maintain the cost of production and cost of capital as low as possible.
Foreign Exchange Rate Determination or Systems
1.Equilibrium Foreign Exchange Rate or General Theory of Value:
Foreign exchange rate in the free and competitive market is determined by the interaction of the
two forces – the demand for and supply of exchange in a particular country.
2. Purchasing Power Parity (PPP) Theory :
This theory established a linkage between a country’s price level or inflation rates (relative to
another country’s) as the prevalent exchange rates between the two countries.
The value of a country's currency is based on the internal purchasing power of the country's
currency. The equilibrium rate of exchange between the two currencies is determined by "the
ratio between the respective home purchasing power of the two currencies".
3. Balance of Payments Theory
An unfavorable situation in the Balance of Payments (BOPs) leads to a fall in value of currency
or depreciation in the exchange rate and a favorable situation in the BOPs will strengthen the

27. value of currency or appreciate the rate of exchange.
4. Determination of currency Value in the medium to long-run
Major determinates of the currency value are:
1. A country’s level of economic activities (GDP,GNP),
2. Money supplies (Ms) and demand (Md),
3. Nominal and real interest rates (r n AND r r),
4. Productivity (n),
5. Inflation rates (i r),
6. Trade and current account balances (X-M), etc.
Exchange control and liberalization
Foreign currency are considered as important resources for means of exchange for important
essentials to a country. Almost all the countries in the world have got foreign exchange control
policies, regulations rules and control mechanism.
Search provisions differ from country to country depending on the level of economic
development and on the type of spending requirements. Most developed economics have very
few control mechanism on currency movement and the exchange but many developing and
least developed countries have imposed stringent exchange control system.
Currency Convertibility
Currency convertibility means free and unrestricted convertibility of a national currency into any
foreign currency for trade, services or capital flows between the two countries for any kind of
transaction. There should be total absence of foreign exchange control or restriction for capital
movements or international transactions.
Exchange Terminology
1. Fixed Exchange Rate:
Fixed exchange rate ensures certainty and confidence on the currency and thereby promotes
foreign business, long term investment, etc. Since 1960s Nepal has fixed exchange rate system
for Nepali and Indian Rupees and current rate of NRs. 160 = IRs100 is effective since 1993.
2. Floating or Flexible Exchange Rate:
It is also called floating or fluctuating rate. It is determined by the market conditions of demand
for and supply of foreign exchange. Flexible exchange rates are more prevalent in market or
free economies. For example the foreign exchange rates of US Dollar and other currencies in
Nepal (excluding Indian Rupees) are determined under the floating rate system.
3. Instruments of Payments:

28. There are many types of instruments for payment in foreign exchange markets. Some of these
are: gold, paper money (cash), bank draft, telegraphic transfer, electronic transfer, personal
cheques, letter of credits (L/C), traveller's cheques, credit cards, bill of exchange, money order,
etc.
4. Foreign Exchange Rate:
Foreign exchange rate is "the nominal price of one nation's money in terms of another" or it is
"the price to be paid in local currency for a unit of foreign currency". For example, it is the
number of Nepalese Rupees we pay to buy each US Dollar or say Rs. 115.00 we pay to buy Us
Dollar one.
5. Foreign Exchange Quotations:
Direct Quote (e) is to quote in terms of units of national currency it takes to buy each unit of
foreign currency. For example Nepalese Rupees 115 = US Dollar 1.00. Indirect Quote is the
number of units of foreign currency it takes to pay each unit of home currency. For example US
Dollar per Nepalese Rupee, that means US Dollar 0.0087 per Nepalese Rupee one (Rs.1.00).
6. Currency Depreciation
If direct quote (e) increases it is called depreciation of currency value. It means if spot rate today
is Rs.115 per US Dollar and tomorrow we have to pay Rupees 120 to buy US Dollar one, then
the value of Nepalese Rupees depreciated against the US Dollar.
7. Currency Appreciation:
It is opposite to currency depreciation. In the above case if next day we have to pay Rs.110 to
buy US dollar one then the value of Nepalese Rupees appreciated against the US Dollar.
Currency values appreciation or depreciation is determined by the market forces or by the
demand for the currency and supply of currency in the market.
8. Arbitrage:
Arbitrage is the simultaneous buying and selling of foreign currencies in different markets for
making profits from the differences in exchange rates. For example if the exchange rate in Hong
Kong is Euro 1.00 = US $ 1.50 and in Dubai or Bahrain Euro 1.00 - US $ 1.55. In this situation
you can purchase Euro at your bank in Hong Kong and transfer it to your bank account in
Bahrain or Dubai where you can receive US Dollar 1.55 for each Euro.
9. Currency Devaluation and Revaluation:
Currency devaluation is a reduction in the value of a currency as against other country's
currency. In implies an official lowering of the value of a country's currency by the Government
within a fixed exchange rate system, by which the monetary authority formally sets a new fixed
rate with respect to a foreign reference currency.

29. Instruments in For-Ex Markets
The most important instruments used in the foreign exchange market for transactions are:
1. Spot Rate / spot transaction: Spot rate is the exchange rate between two currencies
for their immediate trade or delivery within two business days.
2. Outright forward transactions/rates involve agreement on a price today for settlement
at some date in the future.
3. The forward exchange rates are determined mostly by the demand for and supply of
foreign exchanges. When demand exceeds supply higher rates are quoted.
4. Swap transactions involve an agreement to buy or sell in the spot market, with a
simultaneous agreement to reserve the trade in outright forward market.
5. Exchange Rate Swap involves swapping exclusively cash flows without the associated
6. interest payments.
7. Foreign Exchange Options: Currency options have asymmetric payoffs and thus allow
the firms to benefit from an opposite movement in exchange rates.
Nature of Foreign Exchange Market
1. processes (a) conversion of one national currency into another and (b) transfers money
from one country to another country.
2. operates almost 24 hours a day.
3. is considered the largest market in the world in terms of volume and value of
transactions (US $ 5.1 Trillion/ day in 2016).
4. operates without any control as it has no government intervention and no government
regulatory mechanisms.
5. is the most liquid financial market of the world evolving and growing every day.
6. The Most Tradable Currencies are US $, Euro, JPY, GBP, CHF, C $, A $, CHY and
ZAR.
Currency Risk Management
Companies normally run into three kinds of risks from thecurrency fluctuations:
Transaction Exposure
Transaction exposure occurs due to the exchange rate fluctuations between the time the
contract is done and the time payment is made. There are many ways or techniques to hedge
the possible risk of loss through currency fluctuations.
1. Forward market hedge: In forward market hedging foreign currency can be or bought
forward in order to protect against currency fluctuation. A company can sell advance
(forward) its foreign currency receivables matching the time forward to the due date of
the receivables. For example if Surya Nepal has to receive US $ 100,000 from the sale
of garments from US in 90 days it can hedge the risk of possible depreciation of tis

30. Dollar by negotiating with the bank for forward contract at a specified forward rate) to
sale its receivables of $ 100,000 after 90 days. Such type of forward market hedging is
widely used all over the world.
2. Currency option hedge: Foreign currency option means a company has option to buy
or sell a specific amount of currency at a specific time, but the option can be exercised
or not. These hedges are calls - or contracts with an option to buy - for foreign currency,
payables and puts - or contracts to sell - for foreign currency receivables. These are
options; if the market is not favourable for a company it can use the contract. But it the
market if favourable a company don't need to use the option.
3. Money market hedge: A company hedge foreign currency fluctuation or exposure by
borrowing and lending in the domestic or foreign money markets. In the earlier case,
Surya Nepal can borrow US Dollar 100,000 in an US bank for a period of 90 days that
matches the payable due dates for sale of garments or shirts. It can invest the same for
three months till the payment receivable is due.
4. Swap contract: Swap contract is a simultaneous agreement to buy and sell currencies
at specified rates and on a specified date or sequence of dates so as to hedge the
foreign currency fluctuation risk.
Translation Exposure
Translation exposures are the potential changes in the value of a company's financial records
that arise during the account consolidation process. A company's subsidiaries are working in
different countries and they operate business in different currencies, when the subsidiary's
financial records are translated into home currency to prepare company's consolidated financial
status the exchange rate fluctuations will have substantial impacts on the values of such
financial statements. The currency rate fluctuations highly affect the earnings, expenditures and
values of the assets or liabilities. The accountant of a company faces a problem of choosing the
rates to convert or translate the financial statements into home country's currency.
Economic Exposure
The impacts of currency fluctuations or movements on price, cost, competitive, or cost flow are
concerned with economic exposure of foreign exchange market. Economic exposure occurs at
the operational level. Its effects are of long term in nature. A company can manage economic
exposure through (a) revenue and pricing decision abroad, (b) cost and sourcing decisions
abroad and (c) competitive strategies.
International Payment System
Uncertainties and risks created by the fluctuations of currency values are real, ubiquitous and
unpredictable. It is the responsibility of a manager to manage and plan for the effects of such
uncertainty on the operations and performance of a company.

31. A. Terms and Conditions of Trade and Payments – Inco-terms
Incoterms: are internationally recognized standard trade terms used in sales contracts. They’re
used to make sure buyer and seller know.
● who is responsible for the cost of transporting the goods, including insurance, taxes and
duties;
● where the goods should be picked up from and transported to;
● who is responsible for the goods at each step during transportation; and
● At what point the ownership is transferred from seller to buyer.
B. Rules for any Mode or Modes of Transport
1. EXW/Ex Works (named place): "Ex Works': means that the seller delivers when it
places the goods at the disposal of the buyer at the seller's premises or at another
named place (i.e. works, factory, warehouse, etc.). The seller does not need to load the
goods on any collecting vehicle, nor does it need to clear the goods for export, where
such clearance is applicable. The buyer arranges the pickup of the freight from the
supplier's designated ship site, owns the in-transit freight, and is responsible for clearing
the goods through Customs. The buyer is also responsible for completing all the export
documentation..
2. FCA Free Carrier (named place of delivery): "Free Carrier" means that the seller
delivers the goods to the carrier or another person nominated by the buyer at the seller's
premises or another named place. The parties are well advised to specify as clearly as
possible the point within the named place of delivery, as the risk passes to the buyer at
that point. The seller delivers the goods, cleared for export, at a named place. This can
be to a carrier nominated by the buyer, or to another person nominated by the buyer.
3. CPT Carriage Paid To (named place of destination): "Carriage Paid To" means that
the seller delivers the goods to the carrier or another person nominated by the seller at
an agreed place (if any such place is agreed between parties) and that the seller must
contract for and pay the costs of carriage necessary to bring the goods to the named
place of destination.
4. CIP Carriage And Insurance Paid To (named place of destination): "Carriage Paid
To" means that the seller delivers the goods to the carrier or another person nominated
by the seller at an agreed place (if any such place is agreed between parties) and that
the seller must contract for and pay the costs of carriage necessary to bring the goods to
the named place of destination.
5. DAT Delivered At Terminal (named terminal at port or place of destination):
"Delivered at Terminal" means that the seller delivers when the goods, once unloaded
from the arriving means of transport, are placed at the disposal of the buyer at a named
terminal at the named port or place of destination. "Terminal" includes a place, whether
covered or not, such as a quay, warehouse, container yard or road, rail or air cargo
terminal. The seller bears all costs and risks involved in bringing the goods to and
unloading them at the terminal at the named port or place of destination.

32. 6. DAP Delivered At Place (named place of destination): "Delivered at Place" means
that the seller delivers when the goods are placed at the disposal of the buyer on the
arriving means of transport ready for unloading at the named place of destination. The
seller bears all risks involved in bringing the goods to the named place. Can be used for
any transport mode, or where there is more than one transport mode. Duties are not
paid by the seller under this term. Insurance is also not covered under this term.
7. DDP Delivered Duty Paid (named place of destination): "Delivered Duty Paid" means
that the seller delivers the goods when the goods are placed at the disposal of the buyer,
cleared for import on the arriving means of transport ready for unloading at the named
place of destination. The seller bears all the costs and risks involved in bringing the
goods to the place of destination and has an obligation to clear the goods not only for
export but also for import, to pay any duty for both export and import and to carry out all
customs formalities. The seller is not responsible for unloading. This term is often used
in place of the non-Incoterm "Free In Store (FIS)". This term places the maximum
obligations on the seller and minimum obligations on the buyer.
Modes of Payment in International Trade
For international trade ranked in order from most secure for the exporter to least secure, the
basic methods of payment are:
1. Cash-in-Advance (CIA):
With cash-in-advance payment terms the buyer makes payment first and waits for the seller to
forwards the goods. The exporter can avoid credit risk because payment is received before the
ownership of the goods is transferred. Wire transfers through banks or money exchanger and
credit cards are the most commonly used cash-in-advance options available to exporters.
2. Letters of Credit (L/C):
Letters of credits (L/Cs) are one of the most secure instruments available to international
traders. An LC is a commitment by a bank on behalf of the buyer that payment will be made to
the exporter, provided that the terms and conditions stated in the L/C have been met, as verified
through the presentation of all required documents. The buyer pays his or her bank to render
this service.
3. Documentary Collections (DC):
A documentary collection (D/C) is a transaction whereby the exporter entrusts the collection of a
payment to the remitting bank (exporter's bank), which sends documents to a collecting bank
(importer's bank), along with instructions for payment. Funds are received from the importer and
remitted to the exporter through the banks involved in the collection in exchange for those
documents. D/Cs involve using a draft that requires the importer to pay the face amount either
at sight (document against payment) or on a specified date (document against acceptance).
4. Open Account (OA):

33. An open account transaction is a sale where the goods are shipped and delivered before
payment is due, which is usually in 30 to 90 days. Obviously, this option is the most
advantageous option to the importer in terms of cash flow and cost, but it is consequently the
highest risk option for an exporter. Because of intense competition in export markets, foreign
buyers often press exporters for open account terms since the extension of credit by the seller
to the buyer is more common abroad.
5. Consignment:
Consignment in international trade is a variation of open account in which payment is sent to the
exporter only after the goods have been sold by the foreign distributor to the end customer. An
international consignment transaction is based on a contractual arrangement in which the
foreign distributor receives, manages, and sells the goods for the exporter who retains title to
the goods until they are sold.
Selecting the Correct Method of Payment:
1. The country risk:
The buyer's country has the ultimate control over the exchange and release of dollars, which of
course is what an exporter would like in exchange for their goods. Many developing nations
implement import regulations and exchange control mechanisms that can make a payment, in a
hard currency like the dollar, difficult at times. This is because they like to hold onto certain
minimums of hard currencies, like the dollar, to be able to pay off foreign debts and obtain other
financing.
2. The buyer's bank's reputation:
If the payment is by a letter of credit, or draft with the bank as the drawee, or if the bank is in
any way obligated to pay you, their reputation and financial stability is an issue. Again, proper
research done on the buyer's bank and advice from your own international banker can assist
you in deciding whether to work with them or not. Occasionally, an exporter's strategy includes
requiring the buyer to use a bank recommended by your own bank in order to complete the
transaction.
3. The credit worthiness of the buyer:
In some rare cases, international credit reports on foreign firms are vague, difficult to obtain, too
expensive or non-existent. This is why you should ask forboth trade and financial references in
your potential distributor evaluation form, and insist on adequate credit and credit history before
ever selling on open account. If the buyer has good credit, they' usually are readily able to prove
it.
4. The competition:
It is difficult to compete for business if others interested in selling similar products are offering
more favorable credit terms. Naturally, most importers are interested in obtaining open account
status if they are able to. If the business is promising and you can properly insure your
receivables, you might consider it. However, if there is any doubt in your mind about the risk of
non-payment, consider holding your ground or even passing on the business. If the buyer really

34. wants the product they might agree to your terms over the competition. Your international bank
can be of great assistance in guiding you in those decisions.
5. The volume and value of the shipment:
In most cases, the larger the shipment, the higher the value. That means most of the costs
associated in exporting the goods are also more expensive. Lower value shipments, less
expensive to ship may call for a more lenient credit position, such as cash in advance, or
open account. But if the value of the shipment is going to have an adverse effect on your daily
operations, you need to carefully consider asking for cash in advance, at least partially by
deposit, or a letter of credit.
The Global capital markets
Eurocurrencies Markets: All deposits of US Dollars or other currencies in London banks are
offshore markets for a US company or all deposits of foreign currencies in Hong Kong by a
Nepali company are Euro currencies. The Euro Currency market is a wholesale market. A Euro
credit is a type of loan available to MNEs.
International Bond Markets: Japan, the USA and Europe have active bond markets. These
markets can be divided into
1. foreign bonds: Foreign bonds are sold outside of the country of the borrower but in the
currency of the country of issue.
2. Eurobonds and
3. global bonds.
Equity Securities and Stock Exchange Markets (SEM): Companies can raise new capital by
listing their shares on a stock exchange markets at home and foreign countries. The largest
SEMs in the world are the New York Stock Exchange (NYSE), NASDAQ (US), Tokyo Stock
Exchange (TYSE), London Stock Exchange (LSE), etc.
International Financial Institutions:
1. The World Bank (WB):
2. International Finance Corporation
3. International Monetary Fund
4. Asian Development Bank
5. Asian Infrastructure Investment Bank
The World Bank (WB):
The World Bank (WB) is an international financial institution owned by 184 developed and
developing member countries. The World Bank often lends at little or no interest to member
countries that are unable to raise money for development anywhere else and loans have a
much longer period to repay than the loans of commercial banks. In some cases, borrowing
countries don’t have to start repaying for a decade.
The WB Missions are:

35. 1. Introduce poverty free world and improve the standard of living of people,
2. Fight poverty with passion and professionalism, and
3. Help people help themselves and their environment by providing resources, sharing
knowledge, building capacity and forging public and private partnerships.
The World Bank Management
1. Board of Governors (BOG). Each member appoints a Governor and an Alternate
Governor having ultimate decision making power. The BOG meets twice a year- Fall and
Spring.
2. Most of the powers are delegated to the Board of Executive Directors.
3. The Board of Executive Directors (BOED) is constituted by the five largest shareholders
– USA (16.41%), Japan (7.87%), Germany (4.49%), UK (4.31%), and France (4.31%) –
each appoints an Executive Director.
4. Other members are represented by 19 Executive Directors elected by the groups of
countries.
Five Associated Institutions of the WB
1. IBRD: International Bank for Reconstructionand Development
2. IDA: International Development Association
3. IFC: International Finance Corporation
4. MIGA: Multilateral Investment Guarantee Agency
5. ICSID: International Centre for Settlement of Investment Disputes
The World Bank Focuses on:
1. Investment in people (Human Development)
2. Agricultural development and environment protection
3. Private sector growth
4. Promote economic policy reforms
5. Fighting corruption for good governance
6. Infrastructure development
7. Others, including resolving conflicts, combating HIV/AIDS and leveraging investment.
Some of the projects in Nepal supported by the WB in Nepal concerned with are: Infrastructure,
Education, Health, and Post conflict work
An Overview of the International Monetary Fund (IMF) – Est. 1944.
It is an agreed on a framework for international economic and monetary cooperation to avoid a
repetition of the disastrous economic policies that had led to the Great Depression of the 1930s.
How it serves?
1. Advice on Policies and Global Oversight
a. Country surveillance,
b. Global surveillance and
c. Regional surveillance.

36. 2. Lending in Hard Currency: The IMF's lending falls into three different categories.
a. Stand by arrangements
b. Extended Fund Facilities
c. Poverty Reduction and Growth Faciities
How IMF is organized?
1. The Board of Governors, represented by all members decides on major policy issues, is
the highest authority governing the IMF.
2. International Monetary and Financial Committee Key policy issues relating to the
international monetary system are considered twice-yearly.
3. The Executive Board consists of 24 Executive Directors, with the Managing Director as
chairman and three Deputy Managing Directors. The Executive Board usually meets
three times a week.
Asian Development Bank (ADB)
ADB is a multilateral financial institution established in 1966 as a regional development bank to
promote economic and social development in Asia and Pacific regions. The ADB is driven by an
inspiration and dedication to improving people’s lives in Asia and the Pacific.
By targeting investments wisely, the ADB can alleviate poverty and help create a world in which
everyone can share in the benefits of sustained and inclusive growth.
Organization and Strategy
Organization of ADB
The Board of Governors composed of one representative from each member state. The BOG, in
turn, elect among themselves the 12 members of the Board of Directors and their deputy, The
Board of Governors also elects the bank's President who is the chairperson of the Board of
Directors and manages ADB.
ADB’s Strategy 2020
The Long-Term Strategic Framework of the Asian Development Bank 2008-2020 reaffirms both
ADB's vision of an Asia and Pacific free of poverty and its mission to help developing member
countries improve the living conditions and quality of life of their people.
Asian Infrastructure Investment Bank (AIIB)
The AIIB is a multilateral development bank established in January 2016 and with an objective
of improving social and economic outcomes in Asia. It is headquartered in Beijing and has 93
approved members worldwide till February 2019. It also aims at investing in sustainable
infrastructure and productive sectors in Asia and beyond.
An administrative budget of USD149.9 million has been approved to support the realization of
AIIB’s institutional priorities and work programs as outlined in the 2019 Business Plan.

37. Chapter 5: International Business Environment and
strategic Management
Learning Objectives are to:
● Elaborate the nature and complexity of IB environment;
● Analyze the environmental forces;
● Appreciate the complexities of doing business cross cultures;
● Understand the importance and implications of socio-cultural dimensions of IB;
● Understand the possibility of several political risks and planning risks;
● Comprehend the general principles and types of laws, acts, and regulations;
● Understand the strategic opportunity assessment process;
● Comprehend the roles of strategy in IB;
● Elaborate the process of choosing a strategy;
● Describe the process of estimating marketing potentials;
● Understand the types of organizations involved in IB; and
● Appreciate and elaborate the modes of entry and operation of international business.
Nature and Complexity of IB Environment
● Business environment is a total situation of all factors or forces surrounding and
influencing operation and development of a business firm or company.
● Basically differences and complexities arise as IB takes place across the international
boundaries and payments for transactions are in foreign exchange.
● The most imperative environmental forces are physical/geographical, economical,
political, legal, financial, monetary, foreign exchange, socio-cultural, commercial, labour
and technological. These forces are different and complex for IB entrepreneurs.

38. International Business Environment
Analysis of Environmental Forces
Analysis of environmental forces is a strategic tools and process to assess external and internal
forces that affect the operation of a business organization.
1. Purposes of Understanding and Analysis
Assessing and Analyzing Market
● Market Selection
● Segment Selection
● Estimating Market
Conducting Marketing Research
● Market Nature
● Product Required
● Marketing Practices
Determining Business Strategies
● Market Entry

39. ● Production and Management
● Marketing
2. Need for Information
● Factors that affects demands.
● Market- size and trends
● Consumption patterns
● Factors to which market respond directly.
● Market access and preferential trading arrangements
3. Tools and Techniques of Analysis
● PEST analysis,
● PESTLL analysis
● STEEPLE analysis
● SLEPT analysis
● STEPE analysis
● ETPS analysis
4. Methods or Techniques of Environmental Analysis
● Environmental Scanning
● SWOT Analysis
● Business Forecasting
● Benchmarking
● Market Screening
Socio-Cultural Forces – Dimensions and Components
● An extensive orientation is needed to a new international business manager on socio-
cultural
● components of a host or foreign country.
● He/she must get acquainted with the cultural sensitivity and must realize his or her
presence in a country having different cultures.
● The components of culture can be broadly grouped into two
○ Surface cultural components that are easily visible and understood and
○ deep cultural components that are under the surface and takes time to
understand perfectly.

40. Socio-Cultural Dimensions
Why Culture Matters in IB?
A culture is a sum of lifestyle, value, attitudes, beliefs, rules of conduct and behaviours,
techniques, aesthetics, and artefacts which are common and acceptable to members of a social
institution or society. There are different cultural dimensions
1. "Ways of living" or "unique lifestyle" of society or Social institutions like family,
educational, religious, kinship and extended family, governmental and business or
corporate.
2. Changing socio-cultural environment
3. Cultural Universals and Standardization may be possible adaptations are required.
4. Cultural Empathy: The “ways of thinking” and "way of living" are also different in different
geographical regions.

41. 5. Power Distance: The complexities are normal because of power distances that results
many issues between individualism vs collectivism, masculinity vs femininity, employers
vs employees, developed countries vs developing countries and rich vs poor.
6. High-Context Cultures: In high context culture a person’s word is his bond. Less
information is contained in verbal part of communication.
7. Low Context Culture: Words carry most of the information in communication. There is a
contract thorough legal writing and signed paper.
8. Communication and Negotiation: Any mistake in communicating will prove costly for a
firm.
9. Social Behaviours: Different counties have different ways to present good behaviours.
10. Intercultural Socialization: There is always some logic behind different behaviours, habits
and actions.
Implications and Complexities of Doing Business Cross Culture
1. Production
2. Finance
3. Personnel
4. Marketing
5. Communication
6. Negotiation and Bargaining
7. Timing and content
8. Location of stage
9. Participants
10. Decision Making
Political Forces – Risk Assessment
1. National Security: Wars, Revolution, Coups, etc.
2. Expropriation and State Ownership or Nationalization or investor's properties
3. Investment Guarantee and Dispute Settlements
4. Privatization of public enterprises
5. Political Embargoes and Sanctions
6. Economic Risks and Labour Conditions
7. Activisms and Movements - Political, Economic, Social and Environment
8. Lobbying is also a Kind of Persuasion Activism
9. Violence and Terrorism

42. 10. Hostilities
Political Risks – Planning to Reduce
Macro or Long–term Measures
1. Creating Positive Attitude about Foreign Investment
2. Careful Selection of Entry Strategy
3. Technology transfer and management only
4. Insurance of Investment
5. Strong Bilateral Agreement
Micro or Short Term Measures
1. Negotiation to phase-out
2. Political Lobbying and Bribery
Legal Systems: Principles & Managerial Concerns
The government differentiates between the domestic and foreign firms and transactions mainly
through regulatory measures. Porf. Kindleberger has stated that “regulation is what adds a
political dimension to businesses taking place between different nations”.
The general principles and features of a legal system are:
1. Foundation
2. Political Ideology
3. Citizen’s Rights
4. Society’s Views
5. Modes and Conducts
6. Penalties
Managerial Analysis of Regulations
● Managerial analysis of the laws and regulations affecting the business operations are
required proper consideration before the business plans are made and strategies are
determined.
● Such areas of legal concerns are grouped into two: strategic concerns and operational
concerns

43. Areas of Managerial Concerns
Strategic Concern
● Product Safety, Liability and National Standards
● Marketing Related Regulation
● Local Content Requirement
● Jurisdiction and Arbitration
● Protection of IPRs
● Antitrust Laws
● Ownership Laws
● Foreign Exchange
● Environmental
● Non-equity Investment
● Taxations
Operational Concern
● Registration
● Contract Enforcement
● Financial Flows
● Pricing and Wages
● Hiring and Firing
● Bribery & Corruption
● Closing Down or Bankruptcy
Strategy and Opportunity and Role of Strategy in IB
Strategy is concerned with how MNEs can achieve their objective of increasing in profitability
and profit growth by expanding their business operation abroad. Strategy in the context of IB
can be defined as several activities that the managers carry out abroad to meet the objective of
an MNE by reducing global risks and staying competitive.
The following areas could be focused while formulating strategies and their plan of action.
1. Value retention
2. Value addition
3. Value creation
Strategic Opportunities and Subjects
These areas are;
1. Global investment, production and trade
2. Mode of entry options

44. 3. Global marketing opportunities
4. Organizational Approach Options
5. Efficiency and Cost Reduction
6. International Finance
7. Operational Management
8. Institutional Developments
Strategic Opportunity Assessment- Techniques
Some of such techniques are:
1. Environmental Scanning
2. SWOT Analysis
3. Business Forecasting
4. Benchmarking
5. Market Screening and Segment Screening
Role of Strategy in International Business
● Since early 1990s the global markets have become highly competitive.
● Each of nation, independent firm and MNC are trying to grab the world market
opportunities created by liberalized trade and investment related rules and business
friendly environments.
● A firm can increase its profitability, and competitiveness only when it reduces the cost of
the value creation (lower the cost) and / or when it differentiates the product or service in
such a manner the consumers value that more (or raise value) than the product offered
by competitors.
Choosing an IB Strategy
Choosing a strategy is a process where a decision is taken to choose a particular option from
the available alternatives for each strategic opportunity or subject.
The decision on the final choice should be taken with due diligence considering certain
parameters like:
1. Authenticity
2. Believability
3. Communicability
4. Deliverability

45. Estimating Market Potential - Info. Required are:
a. total market volume and value, market growth rates, and unit prices of the product or
services;
b. buyer’s profiles, preferences, tastes and requirements;
c. competitor’s profiles, their production and marketing strategies and strengths and
weaknesses;
d. distributor’s profiles, nature, strategies and other systems;
e. prevailing price structures and normal margin of channels of distribution;
f. effective strategies for market penetration;
g. product characteristics, consumer’s reactions and attitudes to existing products; and
h. logistics and infrastructures.
Entry Strategies: Types of Organizations in IB
A: Global and International Company
The global company views the world as a single market and tries to create standardized goods
and services and integrate operations worldwide.
B: Multi-domestic Company
The multi-domestic company has affiliates or subsidiaries in many countries, each of them
operate more independently and formulate business strategies based on the perceived market
features and requirements.
C: Transnational or Multi-national Company
The transnational company is a worldwide company. It has combination of benefits of global
scale efficiency with local responsiveness. It helps to achieve global integration while permitting
to retain local flexibility.
Entry Mode - Market Entry Decisions
Choice of an entry mode depends on many factors such as:
a. Types of product or service of a company.
b. Extent of location advantages – availability of market, low cost labour and raw materials.
c. Level of technology to be used or company’s market expansion strategies.
d. Competitive advantage or competency of a foreign firm or company
e. Investment environment in a host country.
f. Analysis of advantages and disadvantages of entry modes.

46. There are six phases to enter into IB
There are six phases are grouped into two
(A) Produce at home and market abroad
● Manufacturing and indirect exporting
● Exporting directly
● Shipping to subsidiary
(B) Produce as well as market abroad
● Joint Venture/ Strategic alliance
● Wholly owned subsidiary
● Venture without capital investment like licensing, franchising, contract manufacturing,
management contract, foreign share, etc.
Collaborative Venture and Strategic Alliances
Strategic alliance is a business-to-business collaboration or partnership to pursue a set of
agreed upon goals or to meet a critical business need. In collaborative efforts their original
identities are retained.
It can be
● a joint venture, an independent company, to share some of scare resources and
capabilities to achieve a competitive advantage;
● an Equity strategic alliance with different percentage share;
● a Non-equity strategic alliance to share unique resources and capabilities; and
● a Global Strategic Alliances to work across national boundaries.
Licensing
A domestic company (Licensor) enters into a contract with the foreign company (Licensee) to
perform certain specified tasks.
Normally under such an arrangement a firm grants access, right, or permission to use its
processes, copy-right, patents, trademarks, trade secrets, design, or technology to another
foreign enterprise for a fee.
Franchising
Franchising is also a form of license that permits selling of goods or services in foreign market
under a well known logo, brand name, trademarks, or well proven procedures.

47. Global Outsourcing
Outsourcing involves the contracting a part of business operation or process or non-core
function to another company or supplier.
There are following benefits to outsourcing global trade management operations:
1. Cost Reducing and Controlling
2. Improving corporate focus on core competency
3. Access to Professional Services and reduced IT infrastructure overhead
4. Enhanced supply chain efficiency
5. Improved regulatory compliance
Chapter 6: Functional areas of International
Business
Learning Objectives are to:
1. understand the concept of IB management;
2. describe the global production, outsourcing, logistics and supply chain management;
3. elaborate the recent status of global value chains (GVCs);
4. comprehend the global marketing plan and strategy and international marketing
research process;
5. elaborate the global market segmentation, targeting and positioning;
6. describe the international marketing strategies;
7. elaborate the global e-business and e-marketing systems;
8. understand the complexities of HRM in IB; and
9. comprehend the importance of economic and commercial diplomacy in international
business management.
International Business Management
International business management is a critical element and highly specialized task. It is a risk
inherent and challenging task regulated by many country rules and complex maze of
regulations, different cultures, currencies, languages and time zones. Some of the important
factors are:
1. Management’s goals, plans strategies, priorities
2. Management and organization
3. Manufacturing capacity
4. Financial resources
5. Technical knowledge and R&D
6. Marketing know

48. 7. Foreign exchange management
8. Experience of IB
Global Production
The modern global production system embraces most sophisticated technologies including ICT,
digitalized machineries, electronic equipment, trade-in-services, intellectual properties,
outsourcing, global value chains (GVCs), and logistics supports with multi-domestic (polycentric)
and trans-national (geo-centric) management approaches.
The global market or global village has emerged with shifting marketing focus from a micro-
economy to managing strategic partnerships and positioning the firm between vendors and
customers with the aim of creating more value for customers
Logistics and Supply Chain and Its Management
Logistics are the activities that facilitate physical movements or transmission of product or
services in the supply chain process from preparation for farming or production to distribution to
consumers or from point of origin to the point of consumption.
Logistics as well as supply chain management are controllable forces of a business house as
these occur within the preview of a business organization. Supply chain management (SCM) is
an integrated planning and implementation process and it involves demand planning (sourcing/
procurement), inventory management, production and product development, logistics
management, financial management, coordination and marketing and customer relations of
companies that work together and coordination of such actions from point of origin to point of
customers in markets.
Global Marketing Plan (GMP) and Strategies
Global marketing is the process of earning profits by selling products/services in foreign
markets.The first step is to assess the export potential that is the company’s ability to take
advantage of its business opportunities abroad.
Strategy is a blueprint for competing with the competitors on target export markets. It involves
selection of target market and determination of product, price, promotion and distribution
policies. When a strategy with specific objective has been formulated action, plan must be
developed for each strategic element. Thus, the marketing plan is a step-by-step guide to
strategy implementation.
Features of Marketing Plan and Strategies
Formulation of GMP is a creative process – customized to a particular company, particular
product and to a particular market. Components of a comprehensive plan include:

49. ● Company Background: mission, objectives, resources, products, target markets and
competition
● SWOT Analysis
● Marketing Strategy: choice of market, channels, product adaptation, pricing, promotion
means, negotiations, research, etc.
● Action programme: product, distribution, pricing and promotion
● Budget and timetable.
International Marketing Research and Development (R&D)
Marketing is the process of planning, coordinating, and executing the conception, pricing,
promotion and distribution of goods, services and intellectual properties.
It involves:
● Ascertaining of the needs and wants,
● Creating exchanges,
● Satisfying customers' objectives and needs,
● Retaining customers,
● Building customer’s equity, and
● Recognizing the constraints arising from the external environmental forces.
International marketing research
International marketing research is a systematic process of assessing a foreign market with a
view to
● finding out sales prospects for a particular or a group of products or services and
● determining effective and practical market entry and penetration strategies.
Importance of the international marketing research:
◼ Helps to avoid costly mistakes by providing true market picture.
◼ Provides basis for decision making on marketing policies and strategies before any
commitments are made.
◼ Answers important questions such as (i) whether to enter foreign market or not?, (ii) which
market to enter? (iii) how is a priority market? (iv) what product is required? (v) how are the
marketing practices?
◼ Guides planning of export marketing and formulating strategies, and
◼ Helps in making important investment decisions.
Complexities of International Marketing
International marketing is more complex than domestic marketing. The areas that indicate the
complexities in international marketing include:
a. Exposure to uncontrollable external environmental forces

50. b. All the payments for cross border transaction involve exposures to foreign exchange
risks.
c. Controllable forces also vary from country to country as a company has to adapt its
marketing mix strategies
Marketing Research Process and Methodologies- Step by Step
Marketing research process is a systematic approach that guides through
(A) Conceptualization,
(B) Planning and Designing,
(C) Implementation, and
(D) Analysis and Presentation of Result of a research project.
The approach must be consistent with the purpose and scope of the research. Findings should
be valuable for making appropriate marketing decisions.
Global Segmentation
Global market segmentation is the process of sub-dividing the world market into groups of
customers that have similar requirements and same behaviour or responses.
The multinational corporations segment the world market based on certain criteria like
1. Geographic segmentation
2. Demographic segmentation
3. Psychographic segmentation
4. Behaviour segmentation
5. Benefit segmentation
Global Targeting
Global targeting is the process of evaluating and comparing identified groups or segments and
then choosing one or more having maximum potential.
A marketing mix is then devised or marketing strategies are decided that give the highest return
on sales through maximum value creation to customers.
Three basic criteria of global market targeting are:
A. Growth potential of current segment size,
B. Potential competition
C. Compatibility or feasibility