MB0053-Set-1 & 2

1

Spring 2012

Master of Business Administration - Semester 4

MB0053: “International Business Management”

(Book ID: B1315)

ASSIGNMENT- Set 1

Q 1 - What is globalization and what are its benefits?

Ans - Globalization is a process where businesses are dealt in markets around the world, apart

from the local and national markets. According to business terminologies, globalization is defined

as ‘the worldwide trend of businesses expanding beyond their domestic boundaries’. It is

advantageous for the economy of countries because it promotes prosperity in the countries that

embrace globalization. In this section, we will understand globalization, its benefits and

challenges.

Benefits of globalization

The merits and demerits of globalization are highly debatable. While globalization creates

employment opportunities in the host countries, it also exploits labor at a very low cost compared

to the home country. Let us consider the benefits and ill-effects of globalization.

Benefits of globalization are as follows: ·

1. Promotes foreign trade and liberalization of economies.

· Increases the living standards of people in several developing countries through capital

investments in developing countries by developed countries.

· Benefits customers as companies outsource to low wage countries

. Outsourcing helps the companies to be competitive by keeping the cost low, with

increased

2. Productivity.

· Promotes better education and jobs.

· Leads to free flow of information and wide acceptance of foreign products, ideas, ethics,

and best practices and culture.

·Provides better quality of products, customer services, and standardized delivery models

across countries.

· Gives better access to finance for corporate and sovereign borrowers.

· Increases business travel, which in turn leads to a flourishing travel and hospitality

industry across the world.

2

· Increases sales as the availability of cutting edge technologies and production

techniques decrease the cost of production.

· Provides several platforms for international dispute resolutions in business, which

facilitates international trade.

Q2 - Discuss in brief the Absolute and comparative cost

advantage theories.

Ans – Absolute Advantage:

Adam Smith (a social philosopher and a pioneer of political economics) argued that nations differ

in their ability to manufacture goods efficiently and he saw that a country gains by trading. If the

two countries exchanged two goods at ratio of 1:1, country I gets one unit of goods B by

sacrificing only 10 units of labor, whereas it has to give up 20 units of labor if it produced the

goods itself. In the same manner country II gives up only 10 units of labour to get one units of

goods A, whereas it has to give 20 units of labour if it was made by itself. Hence it was

understood that both countries had large amount of both goods by trading.

Comparative Advantage:

Ricardo (English political economist) questioned Smith’s theory stating if one country is more

productive than the other in all lines of production and if country I can produce all goods with less

labour costs, will there be a need for the countries to trade. The reply was affirmative.

He used England and Portugal as examples in his demonstration the two goods they produced

being wine and cloth. This case is explained using following table:

Labour cost of production (in hours)

1 unit of wine 1 unit of cloth

Portugal 70 80

England 110 90

According to him Portugal has an advantage in both areas of manufacture. To demonstrate that

trade between both countries will lead to gains, the concept of opportunity cost (OC) is

introduced.

3

Q3. How is culture an integral part of international business. What

are its elements?

Ans - Culture is defined as the art and other signs or demonstrations of human customs,

civilization, and the way of life of a specific society or group. Culture determines every aspect that

is from birth to death and everything in between it. It is the duty of people to respect other

cultures, other than their culture. Research shows that national ‘‘cultures’’ generally characterize

the dominant groups’ values and practices in society, and not of the marginalized groups, even

though the marginalized groups represent a majority or a minority in the society. Culture is very

important to understand international business. Culture is the part of environment, which human

has created, it is the total sum of knowledge, arts, beliefs, laws, morals, customs, and other

abilities and habits gained by people as part of society.

Culture is an important factor for practicing international business. Culture affects all the business

functions ranging from accounting to finance and from production to service. This shows a close

relation between culture and international business.

Cultural elements that relate business

The most important cultural components of a country which relate business transactions are:

Language.

Religion.

Conflicting attitudes.

Cross cultural management is defined as the development and application of knowledge about

cultures in the practice of international management, when people involved have diverse cultural

identities.

International managers in senior positions do not have direct interaction that is face-to-face with

other culture workforce, but several home based managers handle immigrant groups adjusted

into a workforce that offers domestic markets.

The factors to be considered in cross cultural management are:

Cross cultural management skills

The ability to demonstrate a series of behavior is called skill. It is functionally linked to achieving a

performance goal.

4

The most important aspect to qualify as a manager for positions of international responsibility is

communication skills. The managers must adapt to other culture and have the ability to lead its

members.

The managers cannot expect to force members of other culture to fit into their cultural customs,

which is the main assumption of cross cultural skills learning. Any organization that tries to

enforce its behavioral customs on unwilling workers from another culture faces conflict. The

manager has to possess the skills linked with the following:

Providing inspiration and appraisal systems.

Establishing and applying formal structures.

Identifying the importance of informal structures.

Formulating and applying plans for modification.

Identifying and solving disagreements.

Handling cultural diversity

Cultural diversity in a work group offers opportunities and difficulties. Economy is benefited when

the work groups are managed successfully. The organization’s capability to draw, save, and

inspire people from diverse cultures can give the organization spirited advantages in structures of

cost, creativity, problem solving, and adjusting to change Cultural diversity offers key chances for

joint work and co-operative action. Group work is a joint venture where, the production of two or

more individuals or groups working in cooperation is larger than the combined production of their

individual work.

Q4. Describe the tools and methods of country risk analysis.

Ans - Country risk analysis is the evaluation of possible risks and rewards from business

experiences in a country. It is used to survey countries where the firm is engaged in international

business, and avoids countries with excessive risk. With globalization, country risk analysis has

become essential for the international creditors and investors. Country Risk Analysis (CRA)

identifies imbalances that increase the risks in a cross-border investment. CRA represents the

potentially adverse impact of a country’s environment on the multinational corporation’s cash

flows and is the probability of loss due to exposure to the political, economic, and social

upheavals in a foreign country. All business dealings involve risks. An increasing number of

companies involving in external trade indicate huge business opportunities and promising

markets.

Methods of Country risk Analysis:

5

Fully qualitative method – The fully qualitative method involves a detailed analysis of a country.

It includes general discussion of a country’s economic, political, and social conditions and

prediction. Fully qualitative method can be adapted to the unique strengths and problems of the

country undergoing evaluation.

Structured qualitative method – The structured method uses a uniform format with

predetermined scope. In structured qualitative method, it is easier to make comparisons between

countries as it follows a specific format across countries. This technique was the most popular

among the banks during the late seventies.

Checklist method – The checklist method involves scoring the country based on specific

variables that can be either quantitative, in which the scoring does not need personal judgment of

the country being scored or qualitative, in which the scoring needs subjective determinations.

Delphi technique – The technique involves a set of independent opinions without group

discussion. As applied to country risk analysis, the MNC can assess definite employees who

have the capability to evaluate the risk characteristics of a particular country.

Inspection visits – Involves travelling to a country and conducting meeting with government

officials, business executives, and consumers. These meetings clarify any vague opinions the

firm has about the country.

Other quantitative methods – The quantitative models used in statistical studies of country risk

analysis can be classified as discriminate analysis, principal component analysis, and logic

analysis and classification and regression tree method.

Tools of country risk analysis:

The risk management demands a regular follow up regarding governmental policies, external and

internal environment, outlook provided by rating agencies, and so on. Following are the tools

recommended:

Chain of value – Includes the main countries that sustain trade relationships with the nation,

broken by sectors and products.

Strength and weakness chart – Focus the key aspects that warn the country.

Table of financial markets performance – Follow up the behavior of bonds and stocks already

issued and to be issued.

Table of macroeconomic variables – Provides alert signals when the behavior of any ratio

presents a relevant change.

Q5. Write short notes on:

6

a. Spot and forward contracts

A spot contract is a binding obligation to buy or sell a certain amount of foreign currency at the

current market rate, for settlement in two business days' time. To enter into a spot deal you

advise us of the amount, the two currencies involved and which currency you would like to buy or

sell. For a company to use only the spot market for its foreign currency requirements may be a

high risk strategy because exchange rates could move significantly in a short period of time.

Forward contracts

A forward exchange contract (or forward contract) is a binding obligation to buy or sell a certain

amount of foreign currency at a pre-agreed rate of exchange, on a certain future date. To take

out a forward contract you need to advise us of the amount, the two currencies involved, the

expiry date and whether you would like to buy or sell the currency. It can be possible to build in

some flexibility to allow the purchase or sale of the currency between two pre-defined dates

rather than a single maturity date.

b. Foreign currency derivatives

Currency derivative is defined as s financial as a financial contract in order to swap two

currencies at a predestined rate. It can also be termed as the agreement where the value can be

determined from the rate of exchange of two currencies at the spot. The currency derivative

trades in markets correspond to the spot (cash) market. Hence, the spot market exposures can

be enclosed with the currency derivatives. The main advantage from derivative hedging is the

basket of currency available.

Some of the risks associated with currency derivatives are:

Credit risk takes place, arising from the parties involved in a contract.

Market risk occurs due to adverse moves in the overall market.

Liquidity risks occur due to the requirement of available counterparties to take the other

side of the trade.

Settlement risks similar to the credit risks occur when the parties involved in the contract

fail to provide the currency at the agreed time.

Q6. Discuss the importance of transfer pricing for MNCs.

7

Ans - Transfer pricing is the process of setting a price that will be charged by a subsidiary (unit)

of a multi-unit firm to another unit for goods and services, which are sold between such related

units.

Transfer pricing is a critical issue for a firm operating internationally. Transfer pricing is

determined in three ways: market based pricing, transfer at cost and cost-plus pricing. The Arm’s

Length pricing rule is used to establish the price to be charged to the subsidiary.

Transfer pricing can also be defined as the rates or prices that are utilized when selling goods or

services between a parent company divisions and departments that may be across many

countries. The price that is set for the exchange in the process of transfer pricing may be a rate

that is reduced due to internal depreciation or the original purchase price of the goods in

question. When properly used, transfer pricing helps to efficiently manage the ratio of profit and

loss within the company. Transfer pricing is a relatively simple method of moving goods and

services among the overall corporate family.

Many managers consider transfer pricing as non-market based. The reason for transfer pricing

may be internal or external. Internal transfer pricing include motivating managers and monitoring

performance. External factors include taxes, tariffs, and other charges.

Transfer Pricing Manipulation (TPM) is used to overcome these reasons. Governments usually

discourage TPM since it is against transfer pricing, where transfer pricing is the act of pricing

commodity or services. However, in common terminology, transfer pricing generally refers TPM.

TPM assists in saving the organization’s tax by shifting accounting profits from high tax to low tax

jurisdictions. It also enables to fix transfer price on a non-market basis and thus enables to save

tax. This method facilitates in moving the tax revenues of one country to another. A similar trend

can be observed in domestic markets where different states try to attract investment by reducing

the Sales tax rate, and this leads in an outflow from one state to another. Therefore, the

Government is trying to implement a taxing system in order to curb tax evasion.

8

Spring 2012

Master of Business Administration - Semester 4

MB0053: “International Business Management”

(Book ID: B1315)

ASSIGNMENT- Set 2

Q1. Write a note on strategic objectives.

Ans: Strategic objectives

Strategic objectives assist in the implementation process of the organisation’s objectives or

goals. While implementing an international strategy, an organisation has to identify the

opportunities present in these countries, explore the various resources available, their

strengths and capabilities and plan to work on their core competencies. The objective should

be formed in a way that it is not deficient or immeasurable. The strategic objectives must help

the organisation to achieve their mission and vision.

Most of strategic objectives focus on producing greater profits and returns for the business

owners; others focus on customers or society at large. The strategic objectives are as

follows:

1. Measurable – To measure progress against fulfilling the objective there must be at

least one indicator.

2. Specific – A clear message as to what needs to be achieved is provided.

3. Appropriate – With the given vision and mission of the organisation, objectives must

be consistent.

4. Realistic – Objectives must be an achievable target given the organisation’s abilities

and opportunities in the environment. This means that objectives must be challenging

and attainable.

5. Timely – To accomplish the objective there need to be a time frame.

When strategic objectives are thoroughly implemented, it will result in strategic

competitiveness that improves the performance and innovation of these organisations. When

9

objectives fulfil the above conditions, there are many profits for the organisation. The profits

are:

1. First, they help guide employees throughout the organisation towards achieving the

common goals. This aids the organisation to concentrate and conserve valuable

resources and to work together in a timely manner.

2. Second, challenging objectives help encourage and inspire employees throughout the

organisation to higher levels of commitment and effort. A research has supported the

concept that individuals work harder when

3. they are motivated toward specific goals, instead of being asked simply to do their

best.

4. Third, for different parts of an organisation there is always the potential to follow their

own goals rather than the overall company goals. Though these intentions are good,

these may work at cross purposes to the organisation as a whole. Thus, meaningful

objectives help resolve divergence when they occur.

5. Finally, appropriate objectives offer a standard for rewards and incentives. They not

only result in higher levels of motivation by employees but they will also help ensure a

greater sense of equity or fairness when rewards are allocated.

There are other objectives that are even more specific. These are commonly referred to as

short-term objectives that are essential components of action plans. They are critical in

implementing an organisation’s chosen strategy.

Q2. Discuss in brief the role of WTO in promoting international

business.

Ans: WTO was established on 1st January 1995. In April 1994, the Final Act was signed at a

meeting in Marrakesh, Morocco. The Marrakesh Declaration of 15th April 1994 was formed to

strengthen the world economy that would lead to better investment, trade, income growth and

employment throughout the world. The WTO is the successor to the General Agreement of

Tariffs and Trade (GATT). India is one of the founder members of WTO. WTO represents the

latest attempts to create an organisational focal point for liberal trade management and to

consolidate a global organisational structure to govern world affairs. WTO has attempted to

create various organisational attentions for regulation of international trade. WTO created a

10

qualitative change in international trade. It is the only international body that deals with the

rules of trades between nations.

1. Objectives and functions

The key objective of WTO is to promote and ensure international trade in developing

countries. The other major functions include:

a. Helping trade flows by encouraging nations to adopt discriminatory trade policies.

b. Promoting employment, expanding productions and trade and raising standard of living

and income and utilising the world’s resources.

c. Ensuring that developing countries secure a better share of growth in world trade.

d. Providing forum for trade negotiations.

e. Resolving trade disputes.

The important functions of the WTO as stated in the WTO agreement are the following:

Developing transitional economies – Majority of the WTO members belong to developing

countries. The developing countries such as India, China, Mexico, Brazil and others have an

important role in the organisation. The WTO helps in solving the problems of developing

economies. The developing states are provided with trade and tariff data. This depends on

the country’s individual export interest and their participation in WTO-bodies. The new

members benefit hugely from these services.

a. Providing help for export promotion – The WTO provides specialised help for export

promotion to its members. The export promotion is done through the International

Trade Center established by the GATT in 1964. It is operated by the WTO and the

United Nations. The center accepts requests from member countries, usually

developing countries for support in formulating and implementing export promotion

programmes. The center provides information on export market and marketing

techniques. The center also provides assistance in establishing export promotion and

marketing services. Through this WTO proves its commitment in the upliftment of the

world economy.

b. Cooperating in global economic policy-making – The main function of the WTO is

to cooperate in global economic policy-making. In the Marrakesh Ministerial Meeting in

April 1994, a separate declaration was adopted to achieve this objective. The

11

declaration specifies the responsibility of WTO as, to improve and maintain the

cooperation with international organisations such as the World Bank, International

Monetary Fund (IMF) that are involved in monetary and financial matters. WTO

analyses the impact of liberalisation on the growth and development of national

economies which is the important factor in the success of the economy.

c. Monitoring implementation of the agreement – The WTO administers sixty different

agreements that have the statue of international legal documents. The member-

governments sign and confirm all WTO agreements on attainment.

d. Providing forum for negotiations – The WTO provides a permanent forum for

negotiations among members. The negotiations can be on matters already in the WTO

agreements or matters not addressed in the WTO law.

e. Administrating dispute settlement – The important function of WTO is the

administration of the WTO dispute settlement system. It helps in settling multilateral

trading dispute. A dispute arises when a member country adopts a trade policy and

other fellow members consider it as a violation of WTO agreements. The Dispute

Settlement Body (DSB) is responsible for the settlement of disputes. The dispute

settlement system is prohibited from adding or deleting the rights and obligations

provided in the WTO agreements. The WTO dispute settlement system helps to:

1. Preserve the rights and responsibilities of the members.

2. Clarify the current provisions of the agreements.

Q3. Write a note on various export promotion schemes by GOI.

Ans: Export promotion schemes are the incentive programs that are developed to attract

more firms into exporting. It helps in identification of the product and market. This also helps

in pre-shipment and post-shipment financing, training, payment guarantee schemes, trade

fairs, trade visits, and foreign representation and so on.

India being a developing economy, export promotion schemes are needed to give a boost for

our economy.

The needs of the export promotion scheme are explained as follows:

12

As the economy of the country is progressing with the increase in terms of population, there

is a need for more number of imports. We need to have surplus exports to pay our imports.

1. It is not wise to depend on the other external assistances for financing essential

imports, rather exportable surplus needs to be created.

2. In any country, there are some capital goods, machinery and raw materials that cannot

be produced for some more time and it has to be

3. imported from the other countries. In order to pay for such imports, the country needs

to have sufficient funds so that the country has to promote for its exports.

4. The earning of the exports need to be raised to create the purchasing power in order to

import the essential goods.

5. We need to explore the foreign markets in order to expand the capacities of the

existing units and find market for the new units.

6. To tap our export potentials completely, we need to focus on our strengths like, price

stability, low wages and the industrial bases to increase its exports.

7. The deficits of payments in Indian economy can be resolved through funds received

through the foreign assistance. We need to create the repaying capacity with the help

of exports.

8. The below figure shows the three main categories that are associated with the export

promotion measures.

The export promotion measures are explained as follows:

1. Export production - For gearing up the production, we need to sharpen the

competitive edge and upgrade the technology to get a better quality.

2. Liberalisation - The policies like the trade and industrial licensing are oriented towards

exports.

13

3. Supply of raw materials - There are some license free import goods such as the raw

materials, intermediates, components, consumables, spares, part accessories and

other items that are not regulated by negative list of imports.

There are many export promotion schemes and Export Promotion Capital Goods (EPCG) is

one of the export promotion schemes.

Export Promotion Capital Goods (EPCG) scheme

This scheme allows import of the capital goods at the reduced rate of 15percent customs

duty. The goods can be both new and second hand goods and to the Services sector.

This scheme has even extended to the services sector. These are explained as follows:

1. Import of second hand capital goods – The import of second hand goods that have

the minimum residual life of five years are allowed free of licence but is subjected to

actual user conditions.

2. Duty exemption scheme - This scheme aims at import of duty free goods. The goods

that can be imported by this way include raw materials, components, consumables,

accessories, computer software. They can be imported under various schemes.

3. Investment in plant and equipment - The investments beyond 75 lakhs is permitted

for the small scale industrial sectors.

4. Processing zones for export - The establishment of the Export Processing Zones

(EPZ), Export Oriented Units (EOU), Electronic Hardware Technology Parks (EHTP)

and Software Technology Parks (STP) helps in facilitating the export production in

non-traditional sectors.

5. Quality - The central government helps in modernising and upgrading the test houses

and laboratories in order to bring the standards so that the certifications from such test

houses are very well recognised within and outside the country.

14

Q4. What do you understand by regional integration? List its types.

Ans: Regional integration can be defined as the unification of countries into a larger whole.

Regional integration also reflects a country’s willingness to share or unify into a larger whole.

The level of integration of a country with other countries is determined by what it shares and

how it shares. Regional integration requires some compromise on the part of countries. It

should aim to improve the general quality of life for the citizens of those countries.

In recent years, we have seen more and more countries moving towards regional integration

to strengthen their ties and relationship with other countries. This tendency towards

integration was activated by the European Union (EU) market integration. This trend has

influenced both developed and developing countries to form customs unions and Free Trade

Areas (FTA). The World Trade Organisation (WTO) terms these agreements of integration as

Regional Trade Agreements (RTA).

Types of Integration

In the previous section an overview and the need for regional integration was covered. A

whole range of regional integrations exist today. Different types of regional integration are

discussed in this section.

1. Preferential trading agreement

Preferential trading agreement is a trade pact between countries. It is the weakest type of

economic integration and aims to reduce the taxes on few products to the countries who sign

the pact. The tariffs are not abolished completely but are lower than the tariffs charged to

countries not party to the agreement. India is in PTA with countries like Afghanistan, Chile

and South Common Market (MERCOSUR). The introduction of PTA has generated an

increase in the market size, and resulted in the availability and variety of new products.

2. Free trade area

Free Trade Area (FTA) is a type of trade bloc and can be considered as a second stage of

economic integration. It is made up of all the countries that are willing to or agree to reduce

preferences, tariffs and quotas on most of the services and goods traded between them.

Countries choose this kind of economic integration if their economical structures are similar. If

the countries compete among themselves, they are likely to choose customs union. The

15

importers must obtain product information from all the suppliers within the supply chain, in

order to determine the eligibility for a Free Trade Agreement (FTA). After receiving the

supplier documentation, the importer must evaluate the eligibility of the product depending on

the rules surrounding the products. The importers product is qualified individually by the FTA.

The basis on which the product will be qualified is that the finished product should have a

minimum percentage of local content.

3. Common market

Common market is a group formed by countries within a geographical area to promote duty

free trade and free movement of labour and capital among its members. European

community is an example of common market. Common markets levy common external tariff

on imports from non-member countries.

A single market is a type of trade bloc, comprising a free trade area with common policies on

product regulation, and freedom of movement of goods, capital, labour and services, which

are known as the four factors of production. This agreement aims at making the movement of

four factors of production between the member countries easier. The technical, fiscal and

physical barriers among the member countries are eliminated considerably as these barriers

hinder the freedom of movement of the four factors of production. The member countries

must come forward to eliminate the barriers, have a political will and formulate common

economic policies.

A common market is a first step towards a single market. It may be initially limited to a FTA

with moderate free movement of capital and services, but it is not capable of removing rest of

the trade barriers.

Benefits and costs

A single market has many advantages. The freedom of movement of goods, capital, labour

and services between the member countries, results in the efficient allocation of these

production factors and increases productivity.

A single market presents a challenging environment for businesses as well as for customers,

making the existence of monopolies difficult. This affects the inefficient companies and

hence, results in a loss of market share and the companies may have to close down.

However, efficient companies can gain from the increased competitiveness, economies of

16

scale and lower costs. Single market also benefits the consumers in a way that the

competitive environment provides them with inexpensive products, more efficient providers of

products and increased variety of products.

A country changing over to a single market may experience some short term negative effects

on the national economy due to increased international competition. The national companies

that earlier benefited from market protection and subsidies, may find it difficult to cope with

their efficient peers. If the companies fail to improve their methods, they may have to close

down leading to migration and unemployment.

4. Economic union

Economic union is a type of trade bloc and is instituted through a trade pact. It comprises of a

common market with a customs union. The countries that are part of an economic union have

common policies on the freedom of movement of four factors of production, common product

regulations and a common external trade policy.

The purpose of an economic union is to promote closer cultural and political ties, while

increasing the economic efficiency between the member countries.

Economic unions are established by means of a formal intergovernmental legal agreement,

among independent countries with the intention of fostering greater economic integration.

The members of an economic union share some elements associated with their national

economic jurisdictions. These include the free movements of:

1. Goods and services within the union along with a common taxing method for imports

from non-member countries.

2. Capital within the economic union.

3. Persons within the economic union. Some form of cooperation usually exists when

framing fiscal and monetary policies.

5. Political union

A political union is a type of country, which consists of smaller countries/nations. Here, the

individual nations share a common government and the union is acknowledged

internationally as a single political entity. A political union can also be termed as a legislative

union or state union.

17

Q5. What are the challenges faced by Indian businesses in global market?

Ans: Challenges for Indian Businesses

India is a developing country and every developing country has its own organisational

problems. In the past decade, some Indian companies have made remarkable progress by

reaching the international platform in short time. India has transformed from being primarily

domestic players into confident global corporations. The TATA Jaguar deal was one

prominent example of an Indian global power house to acquire an internationally reputed

automotive company

1. Brand India

Brand India is a phrase that describes the campaign which projects India as an emerging

destination for business in various fields such as information technology, manufacturing,

infrastructure, service sector and so on. Country names can amount to brand names and

assist consumers in evaluating the products before purchasing them. Brand India is receiving

a positive response. However, Brand India is weak in many ways. In developed countries,

people are yet to associate India with world-class standards. The initial market entry strategy

of a company from a developing country is to offer cheaper products of acceptable quality,

example, China and Korea. The customers of developed countries buy those products only

on the basis of price. Brand India is comprised of a large number of sub-brands that are

relatively established. It reflects the economic reforms and liberalisation process that Indian

economy has undergone. The famous brands from India are Indian information technology

(IT) companies such as Infosys, Wipro and Tata. The positive image of these companies help

in changing consumer perceptions and also help in re-branding India as a leading

manufacturing and service hub by improving India’s brand equity.

Brand equity is the worth derived from the goodwill and name recognition acquired over a

period of time. It improves sales volume and profit margins. The India Brand Equity

Foundation (IBEF) was established to promote brand India.

2. Government and bureaucracy

The political environment of a country influences the business to a large extent. The political

environment includes political stability in the country, nature and extent of bureaucracy,

ideology of government, party in power and so on. Another challenge that influences

18

business is bureaucracy. Industrial incentives are administered by an elaborate and

expensive bureaucracy. The relationship of government to international business is based on

the concept of sovereignty. The concept identifies that the nation has complete control over

the international affairs. The infrastructure such as airport, road or port upgradation takes

years for completion or are stalled for many years. This affects the business in India

negatively.

Government policy and procedures in India are very complex and confusing. Government

policy and bureaucratic culture in India do not encourage international business.

Unnecessary government interference can hinder globalisation. Government support is

essential to encourage globalisation. Government support is extended in the form of policy

reforms, development of infrastructure, financial market, R&D support and so on. Changes in

government and political instability disrupt business. Good business thrives on predictability

which is lacking in India.

3. Corporate governance

Corporate governance is a process of promoting corporate transparency and accountability. It

is set of policies that affect the way a company is administered and controlled. Quality

corporate governance is a tool for socio-economic development. Corporate governance deals

with power and accountability for the safety of assets and resources entrusted to the

operating team of the firm.

The objective of the corporate governance is to attain highest standards of procedures and

practices that are followed by the corporate world. The new emerging corporate India needs

guiding principles for corporate governance. The common aspects for the failure of corporate

governance are misuse of power, frauds, misappropriation of funds and so on. Good

corporate governance promotes accountability in relation to public satisfaction and

responsive delivery of service. In India, corporate governance initiatives are undertaken by

Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI).

Ethics

Corporate governance is about ethical conduct of the business. Ethics is related to the code

of values and principles that helps a person to choose between right or wrong. Managers

make decisions based on a set of values and principles that are influenced by the culture of

19

the organisation. Ethical leadership is important for the business to be conducted by meeting

the expectations of all the stakeholders. Corporate governance is the ethical framework

under which corporate decisions are taken. Ethics is a generalised value system avoiding

discrimination in recruitment and adopting fair business practices. Business ethics provide a

general guidelines within which a management can operate. An organisation has to be ethical

because it has to exist in the competitive world. The varying ethical norms and social values

make international business environment complex. The ethical norms vary from country to

country.

Labour practices

Ethical concerns are at the core of dispute regarding the labour practices. The multinational

enterprises are charged of unjust treatment of workers in developing nations. The labour law

enforcement is weak. The laws that force firms to obtain permission from the government

prior to retrenchment are not enforced properly. Hiring labors to contractor and

subcontracting non-core activities to other companies provides flexibility to the firms that seek

to manage their labour force in volatile context. Child labour is used in the manufacture of

exports from the developing countries is criticised by people in the developed countries. For

example, in India the carpet industry uses child labour and social activists in developed

nations demand ban on the import goods embodying child labour. Consumers tend to boycott

such goods and this in turn adversely affects the business.

4. Managing diversity

Most of the international businesses face problems in managing multicultural diversity.

Previously, MNCs had a country specific business strategy but now it is moving towards a

global one. Managing diversity is a process of establishing workforce to perform in an

unbiased environment where no member has an advantage or disadvantage. For an

international manager, managing diversity is a challenge. The challenge is to create a work

environment where every person performs to his full potential and compete for rewards and

promotions that based on merits. The success of an MNC is determined by its ability to

manage diversity. In an international organisation, the workforce consists of variety of

cultures. Today, a typical firm is a combination of diverse workforce in terms of gender, race

and so on. Most companies encourage exchange programs where employees from one

20

country come and interact with employees of other countries. There are some practical steps

taken by managers to manage diversity. They are:

1. Focusing on bringing in best talent.

2. Establishing programmes among employees of same and different race.

3. Developing an age, gender and race profile of the workforce.

4. Promoting minorities and other sections to decision-making positions.

5. Providing extended leaves, flexible time, and job sharing opportunities.

Q6. Discuss the various e- business models.

Ans. E-Business Models

In the previous section, you have studied about the e-business strategy. In this section let us

learn about the e-business models. The business model describes the manner in which an

organisation creates, delivers and captures the value. The values can be social, economic

forms of value. The design of the business model is part of the business strategy.

1. Business to business model

The business to business (B2B) model describes the transactions between the buyers,

suppliers, manufactures, resellers, distributors, and trading partners. This involves the

transactions that involve the products, services, and the information. Internet based e-

business is carried out through the industry sponsored marketplaces and private exchanges

that are conducted by the large companies. The B2B model is shown in the figure.

The above diagram indicates direct business to business model. In this direct business, the

selling enterprise includes wholesaler, retailer or manufacturers who sell to the buyers of

other business.

The main reason behind introducing this B2B model is to overcome the problems met by

industry sponsored marketplaces in approaching buyers and sellers. Most of the companies

do not want to get customised designs through marketplaces as they do not want to expose

proprietary information on a site that is shared by competitors. Therefore, companies use

21

such marketplaces mainly to purchase products, manage their supply chains, and conduct

indirect procurement transactions, as these are not related to their core business.

B2B e-commerce differs from business-to-consumer e-commerce in many ways. Business to

consumer merchants sells on a first-come, first-serve basis. Most B2B transactions are done

through negotiated contracts that allow the seller to think and plan for how much the buyer is

likely to purchase. In most of the cases, B2B model mainly focus on maintaining relationship

with the business partners.

We will now discuss about business to customer model.

2. Business to consumer model

The activities that serve the business customers with the products and services are described

in the business to consumer model.

The best example we can give for the business to consumer (B2C) transaction is the person

buying a pair of shoes from the retailer. The manufacture of the shoes performs many

transactions such as the purchase of leather, laces, rubber and other raw materials.

There are two models of implementation related to the business to consumer. They are

described as follows:

a. Generic B2C model - The generic model is mainly designed for the small and medium

enterprises. The third party e-market place is used to help the enterprises for selling the

products online.

b. Dedicated B2C model - Many of the large enterprises use the dedicated B2C model. The

enterprise itself owns the e-market place to sell service and support the customers online.

As the name indicates this model is fully dedicated to the customers and is almost

equivalent to the customer relationship management.

c. There are some e-commerce constituents with the B2C model. These constituents are

explained as follows:

d. Commerce - This involves the process like the catalog, compare, products and a service,

advertisements, order status and also enables the online payment.

22

e. Personalisation - This involves the activities like profile matching that matches the web

content to specific profiles and gets the feedback from the customers and deals with the

events, calendaring, and registration.

f. Community services - These include the services that are dealt for the whole

community. The community services can be chat, message boards, e-mail services,

subscriptions, and newsletters.

g. Customer services - This process involves the services that are helpful for the

customers. These include the activities such as the product support, online support like

the call centers and telephony integration.

h. The products that are browsed and mostly sold over the internet are explained as follows:

i. Computer hardware and software - Most of the people buy software products online.

The major online retailers of computer hardware and software are Dell and Gateway.

j. Consumer electronics - The second largest product category sold online is electronics.

Some of the electronics items shopped or purchased online are digital cameras, printers,

scanners, and wireless devices like mobile phones, pen drives and so on. For example,

www.ebay.com

k. Sporting goods - Sports related items like cricket bats, tennis bats, golf accessories like

clubs, golf balls are some of the sporting goods which are sold online. Examples for this

include sites like www. summitonline.com, www.dicksportinggoods.com and so on.

l. Office supplies - Business to consumer sales of office supplies are increasing all over

the world. For example, www.officedepot.com alone reached over 10,000 crores in 2002.

3. Consumer to consumer model

The consumer to consumer (C2C) model involves the transaction between the customers

through the third party. This can be explained by taking the example of online auction where

the customer posts an item for sale and other customer purchases the product. But in

between the third party charges a commission for the sale. C2C is also called as Peer to

Peer (P2P) exchanges. The C2C transaction includes the classifieds, music and file sharing,

and also the personal services. There will be million consumers those who want to sell their

23

products in the e-business field. Equally on the other side there are million people who want

to purchase the products and services. Finding each other are beneficial for both the retailer

and the consumers and this can happen many times only with the help of third party that act

as the intermediaries. The intermediaries in the C2Cbusiness model charge the sellers. The

intermediaries charge because they bring the customers and sellers to one marketplace.

C2C e-business has created a new dimension in online shopping business. C2C e-business

gives many small business owners a way to sell their products without running a highly profit

draining bricks-and-mortar store. The efficient C2C businesses involve items like handmade

gifts, personal artwork, clothing design, and collectables.

4. Consumer to business model

A consumer to business (C2B) model is the electronic business model, in which the

consumers offer products and services to the enterprises. This is called as the inverted

business model since the process operates completely in the opposite direction of the

traditional e-business model, in which the organisations offer the goods and services to the

consumers.

The C2B model involves consumers themselves presenting as a group and provides the

goods and services to the enterprise. For example, www.speakout.com. This site provides

consumers market strategies and businesses and it also makes them familiar with the

requirements of the various businesses. A concrete example of this is when competing

airlines gives a traveler best travel and ticket offers in response to the traveler’s post.

This C2B model is advantageous because of the following reasons. The model helps:

In connecting large group of people by the bidirectional network. Many of the traditional

media is of unidirectional but the internet is the bidirectional media.

Individuals to access the technologies that were once available only for the large

companies.