Ib

Biyani's Think Tank
Concept based notes
International Business
BBA
Mr Manish
Deptt. of Commerece and Management
Biyani Girls College, Jaipur

6
Published by :
Think Tanks
Biyani Group of Colleges
Concept & Copyright :
Biyani Shikshan Samiti
Sector-3, Vidhyadhar Nagar,
Jaipur-302 023 (Rajasthan)
Ph : 0141-2338371, 2338591-95 Fax : 0141-2338007
E-mail : acad@biyanicolleges.org
Website :www.gurukpo.com; www.biyanicolleges.org
Edition : 2012
Leaser Type Setted by :
Biyani College Printing Department
While every effort is taken to avoid errors or omissions in this Publication, any mistake or
omission that may have crept in is not intentional. It may be taken note of that neither the
publisher nor the author will be responsible for any damage or loss of any kind arising to
anyone in any manner on account of such errors and omissions.

International Business 7
Preface
I am glad to present this book, especially designed to serve the needs of the
students. The book has been written keeping in mind the general weakness in
understanding the fundamental concepts of the topics. The book is self-explanatory and
adopts the “Teach Yourself” style. It is based on question-answer pattern. The language
of book is quite easy and understandable based on scientific approach.
Any further improvement in the contents of the book by making corrections,
omission and inclusion is keen to be achieved based on suggestions from the readers
for which the author shall be obliged.
I acknowledge special thanks to Mr. Rajeev Biyani, Chairman & Dr. Sanjay Biyani,
Director (Acad.) Biyani Group of Colleges, who are the backbones and main concept
provider and also have been constant source of motivation throughout this endeavour.
They played an active role in coordinating the various stages of this endeavour and
spearheaded the publishing work.
I look forward to receiving valuable suggestions from professors of various
educational institutions, other faculty members and students for improvement of the
quality of the book. The reader may feel free to send in their comments and suggestions
to the under mentioned address.
Author

Unit I
Introduction
After studying this unit you will be able to know-
a. What is International Business
b. The significance and scope of International Business
c. Difference between Domestic and International Business
d. Various forces for International Business
Q.1 What is International Business?
Ans International business is that trading which opens a cross border transactions
between two countries. No matters these countries are developed, developing or
underdeveloped. These all transactions take place with the collaboration of
highly skilled labour, capital, technology, transportation etc. In the other words
it is an activity which increases foreign investment.
Q.2 What is the importance of I.B.?
Ans In the era of globalization, every country tries to expand its‟ international
business. For this purpose every country must be efficient majorly in two factors
i.e. finance and production. We all know that International Business is a
backbone for any developing, developed or underdeveloped country. The reason
behind it is the importance of International Business.
Now we move ahead with some of the focal points which discuss its importance
in the modern world:-
1. Cross border trading:- International Business is a transaction between two
countries. One country is will be called exporting country and other country
is named as importing country.
2. Includes exchange of goods and services: - International Business involves
various transactions worldwide on the basis of goods and services. These all

10
transactions take place for the purpose to improve economic condition or to
earn money.
3. Two major activities:- International Business Involves two specific activities
such as; Export/Import by the countries and Foreign Direct Investment by
any organization.
4. Decreases Monopoly:- International Business gives an option to international
business entity to explore domestic market. This option is quite helpful when
we concern about monopoly by domestic organizations. International
business entity will always enter in the domestic market with cheap prices
and elite quality.
5. Develop economy:- International Business develops the economic conditions
of targeting nations. Most of the underdeveloped and developing countries
are being developed by international organizations.
6. Increase standard of living:- When an economy develops, it also develops
the per capita income and if the earning capacity of natives increase, they
start spending or investing money. Ultimately a positive relationship emerges
between International Business and standard of living.
7. Utilization of resources of domestic market:- Resources show high
importance in any business. Most of the countries have various resources but
they do not have such technology, skill or manpower to explore it.
International Business opens an option to explore those resources for the
betterment of trade.
8. Earning FOREX:- It means earning foreign exchange with the help of
International trading of goods or services. It is a positive aspect for the
development of economic status.
9. Expansion of business:- International Business provides a door to expand
domestic organization‟s business worldwide. This business expansion creates
opportunities in the field of investments, jobs, technology etc.
10. High quality products:- It is a common fact that every international
organization will try to eradicate business roots of domestic organizations.
This can be happen with high quality products having low prices.
Q.3 What is the scope of International Business
Ans Going global is the Mantra of today‟s economy. In the game of globalization,
Multinational Enterprises are those actors who perform their task with full of
their efficiency. Most of the Multinational Enterprises perform different activities

and operations in other nations. These activities are generally assorted in two
categories:-
i. Exports and imports
ii. Foreign Direct Investments
(i) Exports and imports:- The meaning of export inferred from the term
shipment of goods and services out of the nation. This transaction must be
legitimate and fulfill all the requirements of different laws. In the other words
it is a task to provide goods and services to foreign customers/consumers by
the domestic manufacturers/traders.
On the other hand import is an activity where a domestic buyer gets goods
from the seller who is not trading in that domestic economy. In this activity
international products and services are availed by the domestic users.
To reduce the fall off in any economy, both export and import must be
balanced. These two are major driving forces of any economy. Countries like
China reached at its high economic conditions just because of its exports in
different nations. This all could take place due to International Business.
(ii) Foreign Direct Investment:- In the very general sense Foreign Direct
Investment is an act to do investments in other countries by any
Multinational Enterprise. There can be various ways to do this investment
such as- investments in the process of productions, acquiring an organization
in target nation, by acquiring shares etc.
Foreign Direct Investment is a major tool for any nation to inflow
international capital. It also enhances technical advancements and job
opportunities in different streams.
Foreign Direct Investment can be further classified in two types:-
a. Inward foreign direct investment- It is an investment where Multinational
Enterprises invest foreign capital in different local resources.
b. Outward foreign direct investment- It is a protective mode by the
government where government protects investors from all associated risks.
Q.4 What are the major differences between Domestic Business and International
Business?
Ans Before differentiate these both terms we should be aware with their meanings.
We just studied what International Business is. Now we move towards the
Domestic Business. Domestic Business is a business where all business activities

12
take place within the country. These activities include manufacturing, processing
and transferring products/services to customers.
Major differences between Domestic Business and International Business are
as follows:-
Bases Domestic
Business
International
Business
1. Culture It deals only in a single
culture as it has limited
regions.
There are no boundaries
for it. The entire world is
open for trade.
2. Jurisdiction
System
It follows single
jurisdiction system of
country.
It has to follow various
international laws.
3. Technology
Sharing
It does not allow vast
sharing of technology.
It always welcomes
technology sharing in
different domains.
4. Entry in
Market
Entry in a domestic
market is always easy
for any enterprise.
There is a complex
procedure to work
globally.
5. Focus It focuses on domestic
consumer‟s needs.
It has a strategic focus on
international markets.
6. Marketing
Environment
There is a stability or
bit fluctuations in
marketing
environment.
It deals with pure flexible
market without any
stability.
7. Financial
Environment
It refers uniformity in
financial climate.
It is full with deviated
financial climate.
8. Political
Environment
It is not much
influenced by political
environment.
Political environment
plays a crucial role in it.
9. FOREX This concept does not
follow in it.
It always increases
foreign exchange.
10. Credit Risks There are least credit
risks due to small
region.
Credit risks are always
higher in it.

2. Define various driving forces to International Business
There are different driving forces which impacts directly or indirectly on
international business. These forces includes:-
a. Liberalization: This term is heavily used by different governments.
GATT/WTO, Foreign Direct Investments are the major tools in it.
Liberalization allows Multinational Enterprises to work freely. Government
protects them from credit risks. They are also free to enter in any business
market. Liberalization is fostering the global market since 1980‟s and now it
has become a universal concept for every economic country.
b. Technology: For globalization, technology plays a vital role. This role is
played by optimizing various technical resources, by considering transfers of
technology, by increasing competition etc. there is a drastic change in
International Business after technological advancements. Even some
countries have their monopoly in different segment only with the positive
support of technology.
c. Economic trends of the world: It is also a fostering force for International
Business. Developing economies are threat for every nation. Underdeveloped
nations have to depend only on imports. Developed nations believe in
exports. In fact every economy tries to develop their economic status and this
increases the chances of International Trade.
d. Consumer needs: „Consumer‟ is the king of present global market. They are
mentally, financially and psychologically eminent to take any buying decision
on any product or service. This trend of them opens different options of
International Business. Variety of products and services are demanded by
consumers and seller is supposed to satisfy their desires. Ultimately this
develops an opportunity for International Business.
e. Revolution in transportation system: before some decades it was a
nightmare to export goods safely to the other country. Now the acceleration
of technological up gradation increases it smoothly. Cargo transportation is
the fastest way to export products. Besides that shipment is also used for safe
and bulk transportation.
f. Product development cost: It is a cost which is included to develop a
product. Every organization tries to reduce its cost in high extent. Any new
product will always need a high cost to invest but that high cost can be
recovered with opening a new market in another economy.

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g. Communication improvements: Communication was the biggest obstacle
before some decades. International Business was not running smoothly due
to lack of communication medium. But now steeply improvements taking
place in making International Business. E-mail, fax teleconferencing are the
major tools and techniques in it.
h. MNC’s: Multinational Corporations are one of the most powerful forces for
globalization. The whole economy of a nation can be fixed by MNC‟s. These
are those organizations which connects all of its resources, skills, technology,
objectives with the conjunctions of world market and it directly increases the
chances of revenue generation.
Q.5 What are major restraining forces to International Business?
Ans There are also some forces that restrain International Business/Globalization.
These all forces restrain MNC‟s to „Go Global‟. Restraining forces can be further
divided into two categories:-
i. External Factors
j. Internal Factors
External Factors include:-
i. Policies of the Government
ii. Political opposition
iii. Social opposition
iv. Government control
v. Economic environment
Internal Factors include:-
i. Management myopia
ii. Organizational culture
iii. Internal code of conduct
iv. Work force
v. Product cost

MCQ’s
1. International business includes a type of business activity that cross:-
a. National Borders
b. State Borders
c. Regional Borders
d. Local Borders
2. What is the biggest threat to company‟s Domestic Market?
a. Low Productivity by domestic firm
b. Government Policy
c. Better Products by Global firms with cheap rates
d. International Market instability
3. LPG stands for:-
a. Liberal Political Governance
b. Least Protective Globalization
c. Liberal Policy of Government
d. Liberalization, Privatization, Globalization
4. Which is not a driving force to International Business?
a. Regional Economic Agreements
b. Leverage
c. Huge foreign indebtedness
d. Market needs and wants
5. Who developed the concept of International Business as a field of management
training?
a. Bennett
b. Rughman and Hodgetts
c. Rebock and Simmonds
d. Philip Kotler
6. In the EPRG framework, what „G‟ stands for:-
a. Governance

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b. Geometric
c. Geocentrism
d. Globalization
7. Which is a restricting forces to International Business:-
a. National Control
b. Competition
c. Product Development Costs
d. World Economic Integration

Unit II
Cultural Environment
a. What is culture and its impact on International Business.
b. Elements of culture
Q.1 What is culture? What are its characteristics in International Business?
Ans Although there are many definitions on culture but according to my concept it is
a psychology of a human being. The psychology to select the group, the
psychology of ways of living, the psychology to transform or to be transformed
etc.
In the other words, it is a set of knowledge, values, beliefs that determines a
personality of a person and allows him to transfer all those aspects in his further
generation.
Characteristics of Culture for International Business:-
a. Continuous or Dynamic Process: It is a dynamic process because it is directly
related to human lives. Non human beings do not have their culture.
b. Assist to know market: Culture helps to know market. Who are consumers,
who are competitors, product related concepts etc. This always gives a strong
back to marketer.
c. Broad scope: Culture is always having broad scope. It includes whole
community at a large. It is not an individualistic approach. That is why it is
useful to judge market and its culture.
d. Effective in International Business: The cultural responsive environment of
any organization impacts a lot on its growth. If organization culture is not
suitable in the economy then there won‟t be much scope for doing
International Business.
e. Cultural element should be evaluated: Any organization‟s marketing
strategies are based on some focal points such as; workforce, technology,
objectives, organization culture etc. Out of that cultural elements should be
evaluated time by time so that other forces could work properly.
f. Basis of success: If any organization is going global then it is required for it to
find the fundamental differences between global economies. Products which

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are highly demanded in United States can easily be rejected by China due to
cultural perspective.
g. To judge satisfaction level: For long term staying in International market, a
firm will have to satisfy its end users with consumption, living styles, need
etc. this can happen only when a firm pursue whole cultural knowledge of a
target nation.
h. Includes religion: culture also includes religion and it gives a positive
approach to marketers. Marketers always follow religious standards or
targeting nation and it increases their goodwill. For example McDonald does
not sell its food with beef in India.
i. Different in all countries: every country has its own culture and sub culture.
It is favorably depends on the marketer to whom he is targeting. Then he will
have to adopt all cultural aspect of that nation.
j. Cultural lag: This concept defines those different parts of modern culture that
never change at the same rate. Any change in a one part always needs an
adjustment in another part.
Q.2 Discuss various elements of culture.
Ans There are different elements available that affects culture. Although culture is
very wide term with complexities yet its elements are useful for every
organization. Culture encompasses following elements:-
1. Social institutions- It includes all those institutions from where we learn, we
adopt and we change our whole personality. These include family, media
effect, political structure, education. Every human being is taught by these
institutions.
2. Material culture- It includes:-
a. Technology- It is an aspect for the people by the people. The technical
knowhow relates to the advancements of products.
b. Economics- For the purpose of benefits people add their skills and talent
towards work. These all activities comprise production of goods and
services, distribution of it by various channels, consumption by the end
user, income and means of exchange.
c. Man and the Universe- This element is based on religious belief of an
individual. As we know religion plays a crucial role in determining moral
values and ethical values. There is always a positive relationship between
human consumption habits and their attitudes towards goods and services.

d. Aesthetics- This feeling of aesthetics creates positive attitude in human
beings. This notion is always suitable for every international marketer. He
will have to be sensitive to the aesthetics of community. This will help him
to take all decisions related with product, its distribution etc.
e. Language- To communicate with any person, we need a language to
support. The dealings like bargaining, negotiating are the key elements in
International Business. Language can also be a hurdle in International
Business, if it is not managed properly.
Case study
Ban on leather goods from India
Indian leather export, an important foreign exchange earner, has been reportedly
hit hard by the decision of some major US retail chains like Eddie Bauer, L.L
Bean, Timberland and Casual Corner and a German company Bader to boycott
leather goods from India in protest against the ill-treatment of animals here. A
ban by US based animal rights group „People for Ethical Treatment of Animals
(PETA)‟ also developed a negative impact on trading. Following this many of the
Indian leather industries started outsourcing leather from other countries to
manufacture products.
Q.1 Do social activity groups impact negatively on International trading?
Q2. How can government of India help Indian organizations to overcome
from this problem?

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MCQ’s
1. How many social institutions are available to influence values and behavior?
a. 5
b. 7
c. 4
d. 2
2. Ethnocentrism is:-
a. Judging another culture by values of own culture
b. To develop a new culture
c. To add values in own culture
d. To follow culture as it is described
3. Consumer preferences, habits and beliefs are the part of:-
a. Religion
b. Culture
c. Organization
d. Market
4. Etiquette does not include:-
a. The way of meeting and greeting people
b. Table manners
c. Discomfort while listening to others
d. Method of showing respect
5. Which is not the component of culture?
a. Aesthetics
b. Social institutions
c. Man and the Universe
d. Competition
6. Chinese culture is based on:-
a. Informal relationships
b. Direct and confrontational
c. More intuitive

d. Independent and individualistic
7. The _____________ consists of the factors that affect consumer purchasing power and
spending patterns.
a. Economic environment
b. Cultural environment
c. Consumer environment
d. Demographic environment
8. Which of the following is not the part of the microenvironment-
a. Customer markets
b. Suppliers
c. Cultural forces
d. Marketing channel firms.
9. Which of the following factor does not affect the economic environment for
organization.
a. Value added tax
b. Donations to charities
c. Exchange rates
d. Inflation
10. Which of the following statements regarding environmental factors is incorrect?
a. Increasing global population growth.
a. b. Decreased pollution.
b. c. There are shortages of raw materials.
c. d. Increasing ecological awareness.

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Unit III
The Global Economic Environment
a. Meaning of global economy.
b. Various systems of global economy.
c. Different economic policy.
Q.1 What do you mean by Global Economy?
Ans In the era of globalization, it is required to know what Global Economy is. It is
and economic integration of world for the development of International
Business. Free trade agreements, transnationality of workforce, goods and
services etc. are some of the examples of it. Every country needs to expand their
economic condition and this can be happened with expansion of domestic
business. In short, Global Economy is a way of development of economic
transactions with the transfer of good, services etc.
Q.2 Discuss various economic systems.
Ans To think about the international transactions, every marketer tries to judge the
economic system of the target nations. Economic system defines the structure of
economy whether economy is private owned, government owned or a
combination of both.
Economic systems are of there types:-
a. Market allocation:- This system is called capitalism. In this system the whole
economic plan is decided by the consumers. It increases business competition.
This system allows freedom of choice for both consumers and companies.
This system emphasis the philosophy of individualism believing in private
ownership of all agents of production, in private sharing of distribution
processes that determine the functional rewards of each participants and in
the individual expression of consumer choice, through a free market place.
Example: South Africa, Australia.

b. Command allocation:- This system strongly explains the power of state for
public interest. The government decides all production decisions. In this
system consumer is not the king of market. Although they are free to spend
their amount to buy any product or to avail any services.
Example: China, Cuba, North Korea.
c. Mixed economy:- As its name suggests, it is a combination of both economic
system. Every economic activity is performed jointly by state and private
ownership. In this system consumers get benefits from producers because the
control of state will never allow monopoly. It results in a healthy competition
that creates favourable effects on consumer buying.
Example: India, Japan, Mexico.
Q.3 Discuss various economic policies.
Ans There are different policies which plays an important role in International
Business. Major economic policies are-
a. Industrial policy: This policy discusses scope and role of various sectors such
as private, joint, public, co-operative, large, medium, small, tiny. This scope
enhanced in India after liberalization. Government decided several policies
that increased competition, tending to make survival of the fittest. Economic
development in the past decade is the result of industrial policy.
b. Trade policy: There can be various policies for international trade. These
policies are developed for the purpose to protect domestic industries from
international market risks. Most of the time these policies are integrated with
the industrial policy. These policies also monitor and control the domestic
business. Control and monitoring over quality, cost, marketing, after sales
services are the key portions of these policies.
c. Foreign Exchange Policy: It is also called cross border movement of capital.
These policies control FOREX of the country. It is linked with the monetary
and the trade policy of the domestic country. Foreign exchange policy can be
conducted unilaterally or as part of a mutual agreement between two
countries.
d. Fiscal Policy: It is the policy where government influences the economy by
using collection of revenue and expenditure from it. The major elements of
fiscal policy are Revenue and Expenditure. In fact the system of expenditure
may affect the development of any economy. On the other hand at the time of

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industrial crisis, reduce in taxes may help in improvement of the economic
conditions.
e. Monetary policy: In this policy, the monetary authority of the country
controls the supply of money. It is different from fiscal policy, which is based
on expenditure and revenue. Monetary policy rests on the relationship
between the rates of interest in an economy. In short it is based on the concept
of monetary transactions of the country.
Case
South East Asian Economic Crisis
There was a big economic crisis in Thailand in mid-1997. Later it spreaded in
Malaysia, Philippines and South Korea. Economists found several reasons
behind it such as-
Persistence of large current account deficit.
Large foreign debt and high proportion of short term debt.
Lack of transparency in the economic system.
Over investment in several sectors.
Imprudent lending by international lenders.
Large real effective exchange rate appreciation.
Because of the appreciation of the Yen against US Dollar, Japanese exports were
becoming costlier and hence Japanese firms were on the lookout for cheap
manufacturing loction. The cheap Thai labour attracted a lot in FDI from Japan
and other countries. The high returns on short term investments attracted large
portfolio investments and short term funds to Thailand. It opened lots of fund
providing options to the economy. Indiscriminate lending by banks resulted over
expansion of several industries. This ultimately turned into inability to repay
resulted with economic crisis. Al last short term foreign investors began to
withdraw their money and the worst economic crisis began in Japan.
Q.1. Discuss the possible impact of the South East Asian Economic crisis on-
a. Export/Import of India to South East Asia
b. Global trade of South East Asia
Q.2. Discuss whether there is a possibility of South East Asian type crisis
occurring in India.

MCQ’s
1. GNP per capita is primarily used as a predictor of people‟s-
a. Buying motives
b. Buying habits
c. Ability to buy
d. Work hours
2. Africa‟s biggest economy is-
a. Nigeria
b. South Africa
c. Ethiopia
d. Ghana
3. The economic system that relies upon consumers to determine the allocation of
resources is known as a _____________ system.
a. Socialist
b. Market allocation
c. Capitalist
d. Command allocation
4. Global marketers should be aware that the majority of the world‟s population
lives in-
a. Lower-middle income countries
b. Highest income countries
c. Low income countries
d. High income countries
5. A global marketer must know how to interpret political factors because they
provide a good indication of-
a. National controls and/or other trade barriers
b. The potential political risk and stability in each country
c. Government policies on trade and product standards and employment
d. All of the above
6. Which is the monetary measure to control inflation

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a. Increase in tax
b. Decrease n tax
c. Soft credit polity
d. Hard credit policy
7. Which factor is not related to economic development
a. Continuous process
b. Long run and continuous increase
c. Compulsory change in economic welfare
d. Increase in real national income
8. Process of economic development means
a. Economic change
b. Social change
c. Ethical, institutional and cultural change
d. All of the above

Unit IV
Political Environment
a. Meaning of political environment.
b. Various political systems.
c. National Prestige.
Q.1 Define political environment of International Business and its importance for
International Business.
Ans. The political environment includes the concept of political parties within the
nation and its impact on International Business. Most of the policies such as
industrial policy, policy for international trade, fiscal policies etc are developed
by political parties. In fact political and economic environment are related with
each others.
Importance of political environment for International Business-
a. It develops a regulatory structure for international trading.
b. It controls trade related activities done by MNC‟s.
c. It decides need and importance of various pressure groups within a nation.
d. It restricts trade related transactions with enemy nations for the purpose of
national security.
e. It monitors legality of international trading.
f. It increases economic stability by development of different policies.
g. It develops trading options with different countries.
Q.2. Discuss various types of government/political system.
Ans. Government can be classified in two segments-
a. Parliamentary or open government- It includes natives of the country in it.
Time by time consultations with the citizens for the purpose of learning, takes
place in this type of government.
b. Absolutist or closed- As the name suggests, it is a closed system where
consideration of citizens is a dream. Monarchies, aristocracy, democracy,
theocracy are the major parts of it.

28
Monarchy:- It is the oldest form of government. It is based on heredity. A
single person holds his office by virtue of heredity succession. The person
may be a king, an emperor, a czar etc in this system. The United Kingdom is
one of the best example for that. There could be various merits of this system
such as stable government, promptness, stable political order etc but it can
also harm political environment by providing no place for self rule,
inefficiency, corruption, dishonesty etc.
Aristocracy:- This is described as a rule of selection of few people to control
the political environment. The selection of people is based on their
skills/talents/status etc. It is considered as a natural form of government. It
also gives importance to the element of quality and provides a stable
government but on the other hand, it can be harmful on the basis of wrong
assumptions, exclusiveness and conservation.
Democracy:- It is a form of state, government, society, ethical idea. This is the
elected form of ruling in a nation where people decide what is to be done. In
this system public has a right to express their opinion freely, it is a democratic
structure of the government. But it also brings instability in economy
sometimes. It is also an expensive form of government ruling.
Theocracy:- In this system only the religious leaders holds all power. All rules
and regulations are developed by those religious leaders. This system was
available in Afghanistan and Iran before sometime.
Q.3. What is Political Risk?
Ans. Political risk can be determined as an adverse effect of governmental/political
action. When a business organization conduct its business in international
market then there is always a political risk in the ways of threatening the market
of an exporter, production facilities of a manufacturer, tax related problems,
profit distribution etc. Political risk directly affects the long term profitability of a
firm.
Q.4. How do MNC’s reduce its political risk?
Ans. Political risk is a big threat for any business entity. But it is possible for them to
reduce this risk by using some methods such as-
a. By developing joint venture- This take place in target nation. It is suitable
when there is low financial exposure or company wants to minimize its anti-
MNC feelings.

b. By licensing policy- It takes place when the organization uses unique
technology and the risk is high.
c. By using planned domestication- It is a long range solution of political risk.
The government decides a planned base domestication and it induce foreign
investors to invest in the country.
Q.5. Define political sovereignty.
Ans. In the very common words, it is an absolute power to coerce and to control
citizens.
It is a supreme and independent political authority. Sovereign state is free from
any external control. It is a power to govern territory. Some of the essential
characteristics of sovereignty may be-
a. Absoluteness
b. Universality
c. Permanence
d. Inalienability
e. Indivisibility
Q.6. Discuss National Prestige/National Interest/Nationalism.
Ans Every country has its own national pride/prestige. It is a combination of
cultures, backgrounds, perceptions, experiences, technological know-how,
political stability etc. the feeling of national interest can be manifested in a
variety of ways. For example-a cell to buy those products which are developed in
country itself. This feeling can be found in those countries which are prosperous
in economic backgrounds. The reason behind it is that, the developing countries
have to depend on imports from another country.
In short, nationalism is a part of political environment. No country will entertain
any organizational firm which is perceived a social, cultural or economic threat.
That is the reason why the concept of national prestige is appreciated.
Q.7. How does International Business affect the national security?
Ans While dealing with different nations, every country concern about its national
security. This security is in the term of protection of interest in economic
transactions such as export or import, foreign direct investment etc.

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All states protect national security by following ways:-
a. By recognizing their liability to maintain law and order.
b. By providing protection to various industries.
c. By strengthening economic structure of the country.
d. By avoiding foreign trade with suspicious countries.
Case
Wal-Mart in India
Wal-Mart is one of the biggest market player in retail segment. Most of the
countries are being benefited with the services of it. They have a strategy of EDL
concept i.e. “everyday low prices”. It faced a big problem to expand their global
market in India. Regulatory problems, political considerations were the major
hurdles in it. Foreign retailers are not welcomed by Indian market so after a long
period the managed to develop a Joint venture with Bharti Retail.
Before some time there was a big yes by the ruling party for foreign direct
investment. A big protest of this ordinance also increased with it. Opposition
party started agitation against this ordinance and there was no further
proceedings in it. The major objects by the opposition was –
Wal-Mart will destroy Indian Market
There will be a full hold of Wal-Mart on Indian Retail Market.
Still picture is not clear by the government. Government opines it a big deal
which will change the scenario of Indian Retail Market but protest by opposition
and domestic retailers is also legal.
Q.1 Should Government allow Wal-Mart in Indian economy?
Q.2 What will be the future of domestic retailers of India?

MCQ’s
1. Which is the largest country within the EU by size of the population?
a. Germany
b. France
c. Poland
d. United Kingdom
2. China is an example of ______________.
a. Market capitalism
b. Market socialism
c. Centrally planned socialism
d. Centrally planned capitalism
3. The EU is an example of-
a. Economic union
b. Free trade area
c. Monetary union
d. Common market
4. Among the factors that affect the balance of trade figures are:-
a. Exchange rates, taxes, tariffs and trade measures
b. Trade barriers and agreements
c. The business cycle at home or abroad
d. All of the above
5. What is not a type of government?
a. Monarchy
b. Dictatorship
c. Democracy
d. Bureaucracy
6. Political sovereignty is-
a. Supreme and independent political authority
b. Responsibility of government
c. Part of culture environment
d. Legal system obtained by the country

32
7. How many industries were reserved for the public sector before policy changes in
1991?
a. 19
b. 14
c. 17
d. 12

Unit V
Legal Environment
a. Meaning of Legal Environment.
b. Different legal systems.
c. Dimensions of legal system.
d. Intellectual Property Rights.
Q.1. What is legal environment? Define its importance in international Business.
Ans Legal environment is a framework of legal system in a country. Rules,
regulations, laws, code of conducts are the major parts of it. A company is not
only bound by the laws of its home country but by the laws of host country too.
The different laws must be understood by the marketers if they want to organize
a successful business enterprise.
Importance of legal environment
a. It is an instrument of social and economical justice.
b. It is a command of the sovereign.
c. It is related with international transactions.
d. For setting of various international standards.
e. It develops status quo in society by ensuring stability.
f. In increases uniformity.
g. It maintains trust in investors.
h. It gives rights of trading.
i. It also binds states.
j. It deals with critical issues such as nuclear deal, poverty, refugees problem
etc.
Q.2. What is legal system? Discuss its different kinds.
Ans. The legal system can be classified into 3 categories-
a. Common law- It is based on tradition, past practices and legal precedents
set by the courts. It is an interpretation through the past decisions of
higher courts. Only established and customary principles are interpreted
in it.

34
b. Code law- It is a legacy of Roman law, which defines written rules (codes)
of law. The code law is divided into three separate codes i.e. commercial,
civil and criminal. It is required for any entrepreneur to understand which
type of legal system will establish the contract.
c. Theocratic law- The basis of theocratic law is religion. Every community
has its own code of conducts but these codes are not the part of law. The
best example for theocratic law is Islamic Law. This law is found in
Muslim countries. It is derived from Koran.
Q.3. Define various dimensions of legal environment in International Business.
Ans. There are following 3 dimensions of legal environment in International Business-
a. Local Domestic Laws- These are the laws of home country, related to
International Business. For example – To control and protect International
Business of India, FEMA (Foreign Exchange Management Act) plays a
vital role. Besides that customs act 1962 for custom clearance, coffee act
1942 for regulation on export of coffee, tea act 1953 for regulation of export
of tea etc performs.
b. International laws, treaties, conventions- To govern International
Business, various International laws are available. International laws are
set of principles and rules that bind two states to perform legitimately.
These laws can be purposed in several areas such as- covering piracy and
hijacking, international agreements, harmonization of legal system,
patents, trademark, copyright related terms etc.
c. Laws of foreign countries- These are laws related to product, labeling and
packaging, promotion, trade practices etc. For international trade every
marketer is bound to deal with all foreign laws of the target country.
Q,.4. Write short notes on:-
a. Jurisdiction
b. Conflict of Law
c. Corruption
Ans Jurisdiction- It is an authority given to a legal body in a defined area of
responsibility. In the other words “It is an authority of a sovereign power to
control, to govern a specific area”.
Conflict of law- These are those rules and regulations that shapes which
jurisdiction will be applied to a mentioned dispute. This term is emerged from

the conditions where the notion of any dispute is based o the application of
certain law. There are three branches of conflict of laws:-
a. Jurisdiction
b. Choice of aw
c. Foreign judgment
Corruption- It is a serious problem in International Business which harms
business at large. It is an act performed by government officials for illegitimate
gains. It is a misuse of authority for personal benefits. There can be many forms
of corruption such as- bribery, extortion, nepotism, embezzlement etc.
Q.5 Discuss agreements and conventions.
Ans Agreements- In general terms, it is an act of being agreed.
According to Section 2 (e) of Indian Contract Act, 1872, “Every promise and
every set of promises, forming the consideration for each other is called
agreement.”
Section 2 (b) defines promise, “When the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted.” Proposal when
accepted becomes a promise.
Convention- In the context of International Business, convention is an expressed
agreement in international law. The two parties in it is sovereign states and
international organization. It is also known as treaty, international agreements,
exchange of letters etc.
Q.6 Explain Intellectual Property Rights.
Ans According to WTO, “International Property rights are the rights given to person
over the creations of their minds. They usually give the creator an exclusive right
over the use of his/her creation for a certain period of time.
In the other words it is a property of intellectual mind. Many designs, patents,
copyrights, trademarks, novels etc. are the emergence of that intellectual mind.
Major difference between copyright, trademark and patents.
Copyright is a security and protection for any creativity. It can be in books,
photo, painting etc. It is a restriction by the holder to everyone. No one can
utilize any of it without the consent of the holder.
Trademark comprises all symbols used as a logo, sign of any product/services in
which company deals. It cannot be used by any other trader if it is registered.

36
Patents are generally obtained after an innovation or new invention. It restricts
anyone to develop that type of product without the prior concern of the
innovators/inventor.
Case
Ban on Unethical products
In most of the countries, product promotion is subject to various types of
controls. In India, Doordarshan does not entertain advertisements of certain
products such as alcoholic drinks; cigarettes, cigars, beedies and pan masala,
baby food. Alcoholic drinks are not allowed to be advertised in other media too.
In many countries, including India, the package and advertisements of cigarettes
shall carry the statutory warning that cigarette smoking is injurious to health.
Baby food marketers are not allowed to promote the product as a substitute for
breastfeeding.
Q.1. What is the impact of these sort of advertisements on youngsters?
Q.2. Is legal warning is the solution to stop that kind of advertisements?

MCQ’s
1. ________________ is a feature of the macro environment in a organization.
a. Distributors
b. Customers
c. Laws
d. Competitors
2. Globalization is an example of which environment factor?
a. Legal
b. Technological
c.Economic
d. Political
3. Islamic law is a comprehensive code based in part on:-
a. Roman law and Napoleonic law
b. The Koran
c.Anglo-Saxon common law
d. EU law
4. Who stated that “ there are two categories of international law : public law and
international commercial law”
a. Cateora and Graham
b. Keegan
c. Stephen P.Robbins
d. Terpstra
5. The treaty of Rome held in-
a. 1954
b. 1965
c. 1957
d. 1959
6. Which is not a dimension of international legal environment?
a. Local domestic law
b. Global law

38
c. International law
d. Domestic law

KeyTerms
1. International Business
International business is that trading which opens a cross border
transactions between two countries. No matters these countries are
developed, developing or underdeveloped. These all transactions take
place with the collaboration of highly skilled labour, capital, technology,
transportation etc. In the other words it is an activity which increases
foreign investment.
2. Culture
It is a set of knowledge, values, beliefs that determines a personality of a
person and allows him to transfer all those aspects in his further
generation.
3. Liberalization
This term is heavily used by different governments. GATT/WTO,
Foreign Direct Investments are the major tools in it. Liberalization allows
Multinational Enterprises to work freely. Government protects them from
credit risks. They are also free to enter in any business market. Liberalization
is fostering the global market since 1980‟s and now it has become a universal
concept for every economic country.
4. Political system
Political system can be classified in two segments-
a. Parliamentary or open government- It includes natives of the country in it.
Time by time consultations with the citizens for the purpose of learning,
takes place in this type of government.
b. Absolutist or closed- As the name suggests, it is a closed system where
consideration of citizens is a dream. Monarchies, aristocracy, democracy,
theocracy are the major parts of it.
5. Monarchy
It is the oldest form of government. It is based on heredity. A single
person holds his office by virtue of heredity succession. The person may

40
be a king, an emperor, a czar etc in this system. The United Kingdom is
one of the best example for that. There could be various merits of this
system such as stable government, promptness, stable political order etc
but it can also harm political environment by providing no place for self
rule, inefficiency, corruption, dishonesty etc.
6. Aristocracy
This is described as a rule of selection of few people to control the political
environment. The selection of people is based on their
skills/talents/status etc. It is considered as a natural form of government.
It also gives importance to the element of quality and provides a stable
government but on the other hand, it can be harmful on the basis of
wrong assumptions, exclusiveness and conservation.
7. Democracy
It is a form of state, government, society, ethical idea. This is the elected
form of ruling in a nation where people decide what is to be done. In this
system public has a right to express their opinion freely, it is a democratic
structure of the government. But it also brings instability in economy
sometimes. It is also an expensive form of government ruling.
8. Sovereignty
It is a supreme and independent political authority. Sovereign state is free
from any external control. It is a power to govern territory. Some of the
essential characteristics of sovereignty may be absoluteness, universality,
permanence, inalienability, indivisibility etc.
9. National security
Every country has its own national pride/prestige. It is a combination of
cultures, backgrounds, perceptions, experiences, technological know-how,
political stability etc. the feeling of national interest can be manifested in a
variety of ways. For example-a cell to buy those products which are
developed in country itself. This feeling can be found in those countries
which are prosperous in economic backgrounds. The reason behind it is
that, the developing countries have to depend on imports from another
country.

10. Comman law
It is based on tradition, past practices and legal precedents set by the
courts. It is an interpretation through the past decisions of higher courts.
Only established and customary principles are interpreted in it.
11. Code Law
It is a legacy of Roman law, which defines written rules (codes) of law.
The code law is divided into three separate codes i.e. commercial, civil
and criminal. It is required for any entrepreneur to understand which type
of legal system will establish the contract.
12. Theocratic law
The basis of theocratic law is religion. Every community has its own code
of conducts but these codes are not the part of law. The best example for
theocratic law is Islamic Law. This law is found in Muslim dominated
countries. It is derived from Koran.
13. Intellectual property laws
According to WTO, International Property rights are the rights given to
person over the creations of their minds. They usually give the creator an
exclusive right over the use of his/her creation for a certain period of time.
In the other words it is a property of intellectual mind. Many designs,
patents, copyrights, trademarks, novels etc. are the emergence of that
intellectual mind.
14. Copyright
Copyright is a security and protection for any creativity. It can be in
books, photo, painting etc. It is a restriction by the holder to everyone. No
one can utilize any of it without the consent of the holder.
15. Trademark
Trademark comprises all symbols used as a logo, sign of any
product/services in which company deals. It can not be used by any other
trader if it is registered.

42
16. Patent
Patents are generally obtained after an innovation or new invention. It
restricts anyone to develop that type of product without the prior concern
of the innovators/inventor.
17. Political risk
Political risk can be determined as an adverse effect of
governmental/political action. When a business organization conduct its
business in international market then there is always a political risk in the
ways of threatening the market of an exporter, production facilities of a
manufacturer, tax related problems, profit distribution etc. Political risk
directly affects the long term profitability of a firm
18. Jurisdiction
It is an authority given to a legal body in a defined area of responsibility.
In the other words “It is an authority of a sovereign power to control, to
govern a specific area”.
19. Market allocation
This system is called capitalism. In this system the whole economic plan is
decided by the consumers. It increases business competition. This system
allows freedom of choice for both consumers and companies. This system
emphasis the philosophy of individualism believing in private ownership
of all agents of production, in private sharing of distribution processes
that determine the functional rewards of each participants and in the
individual expression of consumer choice, through a free market place.
20. Command allocation
This system strongly explains the power of state for public interest. The
government decides all production decisions. In this system consumer is
not the king of market. Although they are free to spend their amount to
buy any product or to avail any services.
Example: China, Cuba, North Korea.

21. Mixed economy
As its name suggests, it is a combination of both economic system. Every
economic activity is performed jointly by state and private ownership. In
this system consumers get benefits from producers because the control of
state will never allow monopoly. It results in a healthy competition that
creates favourable effects on consumer buying.
22. Fiscal policy
It is the policy where government influences the economy bye using
collection of revenue and expenditure from it. The major elements of fiscal
policy are Revenue and Expenditure. In fact the system of expenditure
may affect the development of any economy. On the other hand at the
time of industrial crisis, reduce in taxes may help in improvement of the
economic conditions.
23. Monetary policy
In this policy, the monetary authority of the country controls the supply of
money. It is different from fiscal policy, which is based on expenditure
and revenue. Monetary policy rests on the relationship between the rates
of interest in an economy. In short it is based on the concept of monetary
transactions of the country.
24. Social institutions
It includes all those institutions from where we learn, we adopt and we
change our whole personality. These include family, media effect, political
structure, education. Every human being is taught by these institutions.
25. MNC
Multinational Corporations are one of the most powerful forces for
globalization. The whole economy of a nation can be fixed by MNC‟s.
These are those organizations which connect all of its resources, skills,
technology, objectives with the conjunctions of world market and it
directly increases the chances of revenue generation.
26. EU
European Union is a combination of six nations i.e Belgium, France,
Federal Republic of Germany, Italy, Luxembourg and the Netherlands.

44
There are trade agreements between these countries for the purpose of
increase international business with elimination of tariffs, quotas and
other barriers.
27. FTA
It is called Free Trade Agreements. These are those agreements which are
total free from all barriers to trade. Such as tariffs, exchange controls,
quantitative restrictions etc. It is the most productive way to utilize
resources.
28. NAFTA
It is North American Free Trade Agreement. This agreement was signed
between United States and Canada in 1988. It covers market access, trade
rules, services, investments, intellectual property, dispute settlement etc.
29. SAARC
It is South Asian Association for Regional Cooperation. It includes seven
countries i.e. India, Bangladesh, Pakistan, Nepal, Bhutan, Sri Lanka and
Maldives. The objective of its emergence was to welfare of public,
economic growth, mutual trust, cooperation in common interests etc.
30. Values
Values are a framework of philosophy of an individual. It is the major
force to shape human behavior. Values are part of culture. It is a learned
response represented by human beings.
31. Attitude
It is an invisible force that is acquired through learning. It is a response by
an individual in a positive or negative way in an environment. Every
individual has some kind of attitude towards the objects in his
environment.
32. WTO
It is World Trade Organization. Previously it was GATT- General
Agreement on Tariffs and Trade but in Jan.1995 it was transformed
into WTO. The object of it is to raise standard of living, ensure full
employment, optimum utilization of resources etc.

33. ASEAN
It is the Association of South East Asian Nations. It was formed in
Bangkok Declaration 1967 by 5 countries viz. Indonesia, Malaysia,
Philippines, Singapore and Thailand. Brunei became the part of this
association in 1984. The major object of ASEAN is to accelerate economic
progress.
34. FDI
It is Foreign Direct Investment which refers to an investment in a foreign
country for the purpose of economic benefits, long term relationships,
transfer of technology etc. It can be done in the form of starting a
subsidiary, acquiring stake in existing firm, starting joint venture etc.
35. Pricing
It is a combination of Cost + Profits in the context of goods. It is a major
tool of International Business. Besides that if price incur full cost of
production and marketing then there will be less chances of losses to a
firm.
36. Distribution
It is a system where title of products transfers from one person to another
by a channel. That channel of distribution comprises two categories of
middlemen, viz., merchants and agents.
37. TRIM
It is Trade Related Investment Measures which refers to those conditions
and restrictions which are concerned with foreign investment in the
country.
38. TRIP
It is Trade Related Aspects of Intellectual Property Rights. These rights are
developed to protect the intellectual property rights. These are those
rights which are given to persons for creativity of their minds.

46
39. Balance of payment
It is a statistical statement that defines economic transaction of an
economy with rest of the world in a specific time period. The basic
components of it are – current account, capital account, unilateral
payments account, official reserves assets account.

Solved Paper - 2010
Time allowed: 3 Hours Max. Marks: 100
Attempt five questions in all. Question nos. 1 and 2 are compulsory.
Part- I
Q.1 Answer all the ten questions. All questions carry equal marks. (Answer limit up
to 50 words each). 2 x 10 = 20
i. Give any two features of International Business.
Ans. International Business is full with lots of growth perspective. Such as-
a. It provides economic growth by accelerating trading with different countries.
That develops immense options of gathering foreign exchange from
international market.
b. It increases standard of living and technological advancements as the
organizations have to deal with various economies. Betterment in any
economy surely prospers the living standard.
ii. Define culture.
Ans. Culture is a combination of different components such as beliefs, values,
attitudes, customs etc. It is a psychology of a human being to be affiliated in a
certain group. Culture‟s components determines a personality of a person and
allows him to transfer all those aspects in his further generations.
iii. Write any four features of mixed economic system.
Ans. Mixed economic system is an association of two major ownership i.e. private and
state. It is beneficial due to the reasons of-
a. This economic system tries to develop an even patter of regional economic
development.
b. It maintains a low rate of inflation.
iv. What are the indicators of Political instability?
Ans. Political instability can take place due to certain reasons such as-

48
a. Instability in economic environment of the nation resulted discrimination in
taxes, unfair competition etc.
b. Social untrust can also be a reason which determines lack of trust on
government
c. Domestication is also a symbol of instability where foreign companies
transfer their investments to national control and ownership.
v. Differentiate between bilateralism and multilateralism.
Ans. Bilateralism is a term in which major exporter and importer of a commodity
enters into an agreement/contract to purchase or sell certain quantity. This
procedure can be converted into multilateralism. When more than one party
enter into agreement/contract.
vi. What are the significant features of TRIMs?
Ans. Trade Related Investment Measures (TRIMs) refers to a imposition of certain
restrictions by government concerned with foreign investments. Its features are-
a. Government allows certain amount of local inputs. It can be used by traders
in products.
b. There is restriction on imports that it will not exceed a certain proportion of
exports.
c. There will be a balance between trade and foreign exchange.
d. Al l the organizations are required not to sell a certain proportion of its
output locally.
vii. Write different modes of entry to International Business.
Ans. There are various modes of entering into an International Market. Such as-
a. Licensing/franchising
b. Exporting
c. Contract manufacturing
d. Management contracting
e. Strategic alliance
f. Turnkey contracts
g. Assembly operations
h. Joint ventures
i. Mergers and acquisitions
j. Counter trade

viii. How does culture affects International Business?
Ans. Culture affects International Business by following ways-
a. Culture has a broad scope and it covers each and every aspect of society‟s
behavior.
b. Eminent International Behaviour always depends on culturally responsive
environment of the company.
c. Marketer is supposed to obtain high information about target nation‟s culture
to get maximum profits at the time of competition.
ix. What is FOB?
Ans. If the loading expenditures are added into free alongside ship, then there will be
development of new price quotation that is FOB. In this quotation all
expenditures after loading goods will be paid by the importer only.
x. Tariff vs. Quota.
Ans. Tariffs are those duties or taxes which are imposed on international trade goods
when these goods cross the national boundaries.
Quotas are such restrictions by the government on export which takes place
when the government thinks that there is excess export and it is not in the favour
of domestic consumer.
Q.2. Answer all the questions. All questions carry equal marks. (Answer limit up to
100 words each). 5 x 4 = 20
i. Which factors affect International pricing?
Ans. There are several factors that affect international pricing such as-
a. International marketing objective- What is the objective of international
marketing always determines international pricing of the products. It can be
market penetration, market skimming, price at new product development etc.
b. Cost- It is the most important factor of deciding price. All organizations want
to cover its cost of production, transportation and marketing cost and they
decide their product price accordingly.
c. Competition- Tough or low competitions are also a big determinant while
deciding price. Competitors‟ price definitely helps to capture market because
marketer wants to keep his price low and quality high as compare to
competitors.

50
d. Product differentiation- More strong and unique features in a product gives
marketers a freedom to get high prices. This is a positive aspect of particular
goods that increases its value.
ii. Differentiate between balance of trade and balance of payment.
Ans. Balance of Trade- It includes every transaction between exporter and importer
which is based on visible item i.e good. Any invisible item is not the part of it.
Such as insurance, banking, payment of interest etc.
Balance of Payment involves both exchanges of visible and invisible items (the
current and capital account items) such as foreign investment, external
assistance, debt services etc.
iii. Differentiate between GATT and WTO.
Ans. GATT- Under the old system GATT was classified into two GATTs-
a. GATT -The agreement, i.e. The agreements between contracting parties
(governments)
b. GATT-The organization, i.e. an international organization which discusses
and administers agreements.
GATT was small and provisional and not even recognized by the law as an
international org. GATT was amended into WTO.
WTO- It has more powers than GATT. It performs a major role in International
economic matters. It administers trade agreements, provides negotiations, and
monitors trade policies at vast levels. It also includes laws related to intellectual
property.
iv. What type of relationship exists between the headquarters and subsidiaries?
Ans. Corporate Headquarters are just like spinal cord of an any organization.
Strategies, policies, objectives are developed by it. It provides idea, techniques,
resources to subsidiary. It coordinates each and every market program with
subsidiary. The subsidiary reports Headquarters about distribution channels,
local market risks and opportunities etc.
v. How two legal systems i.e. common law and code law differs?
Ans. Common law: it is constituted in English and it is available in countries where
strong English influence. It is a traditional system and deals with only those
decisions which had taken place previously or by customs or usages.

Code law: it is a legacy of Roman law. It deals in European nations mostly. There
are certain subject matters available into a code in it which describes the whole
law. Code law nations are more numerous than common law nations.
Part II
Attempt any three questions. Each question carries 20 marks.
Q.3 What is Foreign Direct Investment? What are the advantages and
disadvantages of foreign investment?
Ans. In the very general sense Foreign Direct Investment is an act to do investments
in other countries by any Multinational Enterprise. There can be various ways to
do this investment such as- investments in the process of productions, acquiring
an organization in target nation, by acquiring shares etc.
Foreign Direct Investment is a major tool for any nation to inflow international
capital. It also enhances technical advancements and job opportunities in
different streams.
Foreign Direct Investment can be further classified in two types:-
a. Inward foreign direct investment- It is an investment where Multinational
Enterprises invest foreign capital in different local resources.
b. Outward foreign direct investment- It is a protective mode by the
government where government protects investors from all associated risks.
Advantages of Foreign Direct Investment:
a. Many international organizations bring capital in the targeting nations. They also
get new technology and methods to develop the economy.
b. It can force to proper utilization of national resources in target nations.
c. There can be economic growth in international trading of nation.
d. It develops more competition which is beneficial for the consumers
e. It brings external resources in country.
f. With Foreign Direct Investment, there can be a potential balance of payment
g. Export of the nation can be expanded with Foreign Direct Investment
h. It fulfills the domestic human resource needs.
i. It develops an eminent network in targeting nation.
j. It provides good quality products to consumers with low prices.

52
Disadvantages of Foreign Direct Investment:
a. In some extent it interferes the national politics which is harmful for national
prestige.
b. MNC‟s invest only in profitable areas not in priority sectors
c. There can be unethical attempts by MNC‟s while doing direct investment.
d. Unfair trade practices can take place to stay alive in domestic competition.
e. Foreign Direct Investment can be harmful for the domestic market.
Q.4. Discuss competitive advantages and problems of International Business.
Ans. Before finding out the advantages and problems of International Business, we
should get the meaning of International Business.
International business is that trading which opens a cross border transactions
between two countries.
No matters these countries are developed, developing or underdeveloped.
These all transactions take place with the collaboration of highly skilled labour,
capital, technology, transportation etc. In the other words it is an activity which
increases foreign investment.
Advantages of International Business:
countries. One country is will be called exporting country and other country is
named as importing country.
various transactions worldwide on the basis of goods and services. These all
transactions take place for the purpose to improve economic condition or to earn
money.
3. Two major activities:- International Business Involves two specific activities
such as; Export/Import by the countries and Foreign Direct Investment by any
organization.
4. Decreases Monopoly:- International Business gives an option to international
business entity to explore domestic market. This option is quite helpful when we
concern about monopoly by domestic organizations. International business
entity will always enter in the domestic market with cheap prices and elite
quality.
5. Develop economy:- International Business develops the economic conditions of
targeting nations. Most of the underdeveloped and developing countries are
being developed by international organizations.
6. Increase standard of living:- When an economy develops, it also develops the
per capita income and if the earning capacity of natives increase, they start

spending or investing money. Ultimately a positive relationship emerges
between International Business and standard of living.
7. Utilization of resources of domestic market:- Resources show high importance
in any business. Most of the countries have various resources but they do not
have such technology, skill or manpower to explore it. International Business
opens an option to explore those resources for the betterment of trade.
domestic organization‟s business worldwide. This business expansion creates
opportunities in the field of investments, jobs, technology etc.
10. High quality products:- It is a common fact that every international organization
will try to eradicate business roots of domestic organizations. This can be happen
with high quality products having low prices.
Disadvantages of International Business:
a. International Business fails to adapt the product to the market.
b. It increases political instability by foreign direct investment.
c. Cultural differences can be the part of International Business.
d. International Business fails to achieve domestic market trust.
e. MNCs invest only in profitable market not in priority sectors.
f. There is high industrialization but low growth rate in developing
countries by International Business.
g. It increases corruption sometimes.
h. There is a chance of technical piracy.
Q.5. What is regional economic integration? Discuss the advantages and
disadvantages of it.
Ans. The goals which can not be achieved by single country/organizations, promotes
regional economic integration. There are some rules and regulations that increase
integration of economy. It is done for the purpose of mutual economic benefits to
reduce regional trade and tariff barriers.
Advantages:

54
a. It reduces trade barriers between countries.
b. It increases political harmony between member nations.
c. It is one of the most important way in present global economy to strengthen
economy.
d. There is a mutual achievement of goals by integration.
e. It develops a huge market with collaboration of different countries.
f. It facilitates cross border transactions.
g. It is helpful to shift business in other country with integration of economies.
h. It has its own rules and regulations.
i. It is a symbol of fastest economic growth.
j. It gives challenges to rest of the world.
Disadvantages:
a. There is limited trade opportunities as limited number of countries are the part
of every integration.
b. Problem of similar products is also a genuine disadvantage.
c. There are fewer resources available in limited countries.
d. There can be inappropriate macroeconomic policies in it.
e. Chances of intra-regional conflicts are more in it.

Solved question paper of year 2011
Time allowed: Three Hour Maximum Marks: 100
Attempt five questions in all. Question Nos. 1 and 2 are compulsory.
Part - 1
Q.1 Answer all the ten questions. All questions carry equal marks. (Answer limit
up o 50 words each) 2x10=20
i. Why do we study International Business? (Any four reasons).
We study International Business because of-
a. To know about economic environment
b. To find out patterns of International Business
c. To seek knowledge of various International Investment Organizations
d. To get the details of legal environment of trade
ii. Two misconceptions about culture.
Two misconceptions about culture are-
a. Culture is just a composition of cast and religion.
b. Culture has low impact on International Business.
iii. What is cultural lag?
The concept of cultural lag was developed by W.F. orgburn who stated
that various parts of modern culture do not change at the same rate.
Adjustments take place when there is a rapid change in one part.
iv. Differentiate between Common Law and Code Law.
Common law is based on previous court decisions, usage and customs
Code law is based on extensive and presumably, comprehensive set of
laws organized by subject matter into code.
v. Concept of Product Liability.

56
It is a liability of a product concerned with its quality, quality and all
standards which are followed by its origin.
vi. Regulatory role of the Government in International Business.
Government plays a role of controller and as a monitoring agency in
International Business. This role is performed by several laws and
regulations.
vii. Any four features of free economy.
Free economy has various features. Such as-
a. Utilization of Natural Resources
b. Better division of labour
c. Breaks domestic monopolies
d. Low chances of corruption
viii. Any four impact of foreign direct investment on country development.
There is a favourable impact of foreign direct investment on development
on country. Such as-
a. Foreign direct investment shifts the burden of risk of an investment
from domestic to foreign investors
b. It determines foreign policy of a country
c. It develops new technologies in country
d. It accelerates economic status of country
ix. Theocracy vs. Monarchy.
Monarchy is a political system in which control is possessed by king,
emperor. They pursue supreme power to control on public.
Theocracy is a also a political system in which control is possessed by
religious leaders. They hold all supreme power in their hands.
x. Differentiate between International Company and Multinational
Company.
International Company- It is a domestic entity which operates all of its
production procedures and market its products beyond national
boundaries.

Multinational Company- It is a developed organization which invest in
several countries for the purpose of production and market it in all around
the world.
Q 2. Answer all the five questions. All questions carry equal marks (Answer limit up
to 100 words each). 5 x 4 = 20
i. Write about the components of culture.
There are different elements available that affects culture. Although
culture is very wide term with complexities yet its elements are useful for
every organization. Culture encompasses following elements:-
o Social institutions- It includes all those institutions from where we
learn, we adopt and we change our whole personality. These include
family, media effect, political structure, education. Every human being
is taught by these institutions.
o Material culture- It includes:-
a. Technology- It is an aspect for the people by the people. The
technical knowhow relates to the advancements of products.
b. Economics- For the purpose of benefits people add their skills and
talent towards work. These all activities comprise production of
goods and services, distribution of it by various channels,
consumption by the end user, income and means of exchange.
c. Man and the Universe- This element is based on religious belief of
an individual. As we know religion plays a crucial role in
determining moral values and ethical values. There is always a
positive relationship between human consumption habits and their
attitudes towards goods and services.
d. Aesthetics- This feeling of aesthetics creates positive attitude in
human beings. This notion is always suitable for every
international marketer. He will have to be sensitive to the aesthetics
of community. This will help him to take all decisions related with
product, its distribution etc.
e. Language- To communicate with any person, we need a language
to support. The dealings like bargaining, negotiating are the key
elements in International Business. Language can also be a hurdle
in International Business, if it is not managed properly.

58
ii. Write and define any four foreign market entry strategies.
These are those strategies which are available to enter in a new business
market. Some of the important market strategies are-
i. Licencing :- It is an easy process to enter in international market. In
this policy a firm of a country allows other firm to use its
intellectual property by providing them licence. The licensor firm
charges royalty or fees which the licensee pays.
ii. Contract manufacturing: - In this strategy an organization dealing
with international market contracts with foreign organization‟s
firms to manufacture or to assemble the products. This is a very
common practice in international business.
iii. Joint venture: - Joint venture is entering strategy of a firm in
international market. It is an association between two firms which
implies collaboration for a specific time period.
iv. Third country location: - It takes place when there is a political
difference between those two countries which want to do business.
At that moment countries do their business with the support of
third country.
iii. Differentiate between fixed exchange rate and floating exchange
rate.
Fixed exchange rate- It is also called stable exchange rate. In this
system the countries change their value only at fairly intervals,
when the economic conditions change. Stability in exchange rate is
necessary for development and growth in international trade.
Floating exchange rate- In this system there is no stability in
exchange rates. Exchange rates are determined in an open market.
There are also negative arguments for floating exchange rate
system but it is essential for the economy because the surplus in
balance of payments increases exchange rate and deficit decreases
in it.
iv. Any four assumptions of comparative cost advantage theory of
international trade.
This theory defines that every nation should product those products
which they have the greatest relative advantages. The theory of
comparative cost advantage has following assumptions-
a. Labour is the only productive factor

b. There are constant returns to scale
c. There is full employment equilibrium
d. Cost of production is measured in terms of the labour units involved
v. Any four features of FEMA.
Features of FEMA:-
a. FEMA supports trade structure of a country.
b. Sections relating to dealing in foreign exchange have been simplified
with FEMA
c. It controls Foreign Exchange of India.
d. It regulates and monitors the Foreign Exchange of India
Part - II
Q. 3 (a) How is International Business broader in scope compared to
international trade and international market? Analyze.
International business is that trading which opens a cross border
transactions between two countries. No matters these countries are
developed, developing or underdeveloped. These all transactions take
place with the collaboration of highly skilled labour, capital, technology,
transportation etc. In the other words it is an activity which increases
foreign investment.
Scope of International Business is broader as compared to international
trade and international marketing because it includes both of these
activities in a different form i.e. Exports & Imports and Foreign Direct
Investment.
Exports & imports are the most important activity in International
Business. Export takes place when one country manufactures products
and send it to another country for the purpose of to earn profits.
Import on the other hand is buying of goods from other countries to fulfill
the requirements of domestic consumers.
Foreign Direct Investment is an act to do investments in other countries by
any Multinational Enterprise. There can be various ways to do this
investment such as- investments in the process of productions, acquiring
an organization in target nation, by acquiring shares etc.
International Business holds more trade related activities such as:-

60
a. Import Trade: In import trade goods are imported from various
countries and it is then after sold to the local consumers. It takes
place when there is non-availability of goods in sufficient quantity.
b. Re-export Trade: In this system raw products are imported by
organization from other exporting country and converted into
finished goods. Then these finished goods are exported to other
countries.
c. Export Trade: In export trade firm exports its products to other
country. This can be done by different ways such as- by opening a
branch, by licensing, by joint venture, by sub contracting etc.
(b.) Discuss the nature of International Business.
Nature of International Business:
countries. One country is will be called exporting country and other
country is named as importing country.
various transactions worldwide on the basis of goods and services. These
all transactions take place for the purpose to improve economic condition
or to earn money.
3. Two major activities:- International Business Involves two specific
activities such as; Export/Import by the countries and Foreign Direct
Investment by any organization.
4. Decreases Monopoly:- International Business gives an option to
international business entity to explore domestic market. This option is
quite helpful when we concern about monopoly by domestic
organizations. International business entity will always enter in the
domestic market with cheap prices and elite quality.
5. Develop economy:- International Business develops the economic
conditions of targeting nations. Most of the underdeveloped and
developing countries are being developed by international organizations.
6. Increase standard of living:- When an economy develops, it also develops
the per capita income and if the earning capacity of natives increase, they
start spending or investing money. Ultimately a positive relationship
emerges between International Business and standard of living.
7. Utilization of resources of domestic market:- Resources show high
importance in any business. Most of the countries have various resources
but they do not have such technology, skill or manpower to explore it.

International Business opens an option to explore those resources for the
betterment of trade.
domestic organization‟s business worldwide. This business expansion
creates opportunities in the field of investments, jobs, technology etc.
10. High quality products:- It is a common fact that every international
organization will try to eradicate business roots of domestic
organizations. This can be happen with high quality products having low
prices.
Q.4 What is political environment? How does it affect International
Business?
Ans. The political environment includes the concept of political parties within
the nation and its impact on International Business. Most of the policies
such as industrial policy, policy for international trade, fiscal policies etc
are developed by political parties. In fact political and economic
environment are related with each others.
Importance of political environment for International Business-
o It develops a regulatory structure for international trading.
o It controls trade related activities done by MNC‟s.
o It decides need and importance of various pressure groups within a nation.
o It restricts trade related transactions with enemy nations for the purpose of
national security.
o It monitors legality of international trading.
o It increases economic stability by development of different policies.
o It develops trading options with different countries.
o It develops stability in International Business.
o It defines various tax and tariffs.
o It saves economy from economic crisis.

62
Q.5 “Some argue that WTO is the third pillar of global business. But many
argue that WTO is the Wrong Trade Organization”. Critically comment.
Ans. World Trade Organization is beneficial for International Business. WTO is
treated as a pillar of global economy because it helps trade flows as freely
as possible. It helps to administer the world trade agreements, provide
negotiations, monitors national trade policies etc. On the other hand it is
treated as an organization that promotes wrong trade practices. There are
several criticisms of WTO which are stated as follows:-
a. Most of the negotiations and decisions are controlled and monitored by
only developed nations. They hold their command on developing and
underdeveloped countries.
b. WTO points out commercial interests over development. Priority sectors of
countries are overlapped by profitable sectors.
c. It is treated as a tool of powerful lobbies.
d. No organizational discipline has been imposed by WTO.
e. It is benefiting only developed countries. Developing countries just get raw
deals from it.
In short, we can say that WTO has a positive impact on global economy but it
also harms the world economy by above mentioned reasons.
Q.6 Describe briefly the main channels of distribution used in export
markets. Which one you recommend for the product of a small
manufacture and why?
Ans. Distribution may be defined as a tool to transfer title of goods from
producer to end user. In other words it is set of firms or individuals that
transfer titles of goods or services to the consumer.
Major channels of distribution are:-
Producer  Merchant/Agent  Importer/Agent/Broker 
Wholesaler/Distributor  Retailer/Foreign Market Middlemen 
Consumer/Institutional User.
There are two alternative channels available for exporting-
o Marketing Middlemen- It is a combination of two important
middlemen i.e. merchants and agents. Merchants take title to the
product he sells while agent does not do.
o Cooperative organization- It carries export related activities on behalf
of several manufacturers. It has two types i.e. piggyback marketing
and exporting combination.

For a small manufacturer, direct exporting is the best way. It is so because
small manufacturer has not high networks. They cannot be a part of
indirect exporting because it needs high contacts with the consumers.
Although it can be costly for them to do direct exporting due to different
middlemen. But it is the effective channel for them as they can cover their
cost by providing goods/services to a vast market. This coverage cannot
take place in indirect exporting.
.

64
Top 15 books on International Business
1. Managing Across Borders: The Transnational Solution by Christopher A Bartlett,
Sumantra Ghoshal-Published by Harvard Business School Press.
2. International Business: Competing in the Global Marketplace by Charles W.L.Hill-
Published by McGraw-Hill College.
3. Competing for the Future by Gary Hamel, C.K.Prahalad- Published by Harvard Business
Review Press.
4. Rethinking the Future: Rethinking Business, Principles, Competition, Control &
Complexity, Leadership, Markets, and the World by Rowan Gibson- Published by
Nicholas Brealey Publishing.
5. Oxford Handbook of International Business by Alan M. Rugman, Thomas L. Brewer-
Published by: Oxford University Press, USA.
6. Smart Globalization: Designing Global Strategies, Creating Global Networks (The MIT
Sloan Management Review Series) by Anil K. Gupta- Published by Jossey –Bass A
Willy Imprint.
7. International Business by Charles W. Hill published by McGraw Hill/Irwin.
8. International Business by John Daniels, Lee Radebough, Daniel Sullivan Published
by Prentice Hall.
9. Doing Business in India by Rajesh Kumar, Anand Sethi Published by Palgrave
Macmillan.
10. The Elephant and the Dragon: The Rise of India and China and what it means for all of
us by Robyn Meredth Published by W.W.Nortan and Company.
11. Foreign Trade Management in India by M.L.Verma published by Vikas Publishing
House.
12. Managing for the Future by Peter F Drucker Published by Butterworth
Heinemann.
13. Global Marketing Management by Warren Kegan published by Prentice-Hall.
14. International Marketing by Philip R.Cateora and John L.Graham published by Tata
McGraw Hill.
15. International Business by Oded Shenkar, Yadong Luo- Published by John W.Ley
and Sons Inc.
Websites
2. www.fita.org/ FITA (The Federation of International Trade Associations)

This website discusses about FITA. The FITA Global Trade Portal is the
source for international import export trade leads, events, and links to
8,000 international trade (export import) related Websites.
3. www.investinginindia.in/
This website discusses about the opportunities to invest in India. It also describes
the scope of foreign direct investment in India.
4. www.wto.org/ World Trade Organization
This website defines about WTO. The WTO is a rules-based, member-
driven organization. The member countries develop a positive scenario of
International Trade.
5. www.aseansec.org/ Association of Southeast Asian Nations
This website defines ASEAN. ASEAN works for the acceleration of the
economic growth in Southeast Asian Nations. It also promotes
collaboration and economic peace in between member countries.
6. www.saarc-sec.org/ South Asian Association for Regional Cooperation
This website details SAARC. SAARC encourages peace between member
countries. Besides that economic, social and technical cooperation among
the countries of SOUTH ASIA is also prior for it.
7. www.europa.eu European Union
This website details about European Union. It is an integration of different
nations for doing Free International Trade.
Journals
2. Business Ethics Quarterly
 Publisher:- Philosophy Documentation Center
3. European Journal of International Management
 Publisher:- Inderscience
4. International Marketing Review
 Publisher:- Emerald Group Publishing
5. Journal of International Business Studies
 Publisher:- Palgrave Macmillan
6. Management International Review
 Publisher:- Gabler Verlag
7. Proceedings of the International Association for Business and Society
 Publisher:- Philosophy Documentation Center

66
8. World Competition
 Publisher:- Wolters Kluwer
9. Journal of International Business and Cultural Studies
 Publisher:- Academic and Business Research
Institute(AABRI)
10. International Journal of Business
 Publisher:- Craig School of Business
11. Journal of International Business Education
 Publisher:- Neilson Journals Publishing

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