ASSIGNMENT

INTERNATIONAL BUSINESS MANAGEMENT

1) “The world economy is globalizing at an accelerating pace”.

Discuss this statement and list the benefits of globalization.
 Discuss the statement.
The world economy is globalizing at an accelerating pace as
countries previously closed to foreign companies have opened up
their markets. Geographic distance is shrinking because of the
Internet, as the ambitious companies aim for global leadership. All
this is possible because of booming international business.
International business is mainly concerned with the issues that are
related to international companies and governments’ cross border
transactions. International business involves multiple countries to
satisfy the objectives of every individual as well as the organisations.
International business management is a process of achieving the
global objectives of a firm by effectively managing the human,
financial, intellectual and physical resources. we learnt the various
aspects of international business. We will now broaden our
perspective and examine globalisation. Globalisation is a process
where businesses are dealt in markets around the world, apart from
the local and national markets. According to business terminologies,
globalisation 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 globalisation.

 Benefits of globalization.
The merits and demerits of globalisation are highly debatable. While
globalisation creates employment opportunities in the host
countries, it also exploits labour at a very low cost compared to the
 home country. Let us consider the benefits and ill-effects of
globalisation. Some of the benefits of globalisation are as follows:
 Promotes foreign trade and liberalisation 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 productivity.
 Promotes better education and jobs.
 Leads to free flow of information and wide acceptance of foreign
products, ideas, ethics, best practices, and culture.
 Provides better quality of products, customer services, and
standardised 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.
 Increases sales as the availability of cutting edge technologies and
production techniques decrease the cost of production.

2) Discuss the role of demographic environment in international

business.
 Demographic environment.
In international business; scanning of demographic environment plays an
important role as it helps firm understand the various demographic factors such
as gender; age; religious background and ethnicity. Firms; while appraising
international markets for new business opportunity or product launch; use
demographic environments to identify target markets for specific products or
services it wishes to cater. There are both advantages and disadvantages in
scanning the demographic environment of the country. One has to understand
both sides of the demographic environment while planning strategy for
international markets.
 Segment selection
Demographic profiling of the country helps us select the right segments for which
we should offer its products or services. By properly appraising demographic
factors such as age; gender; ethnicity; education background; cultural & religious
background; income group, etc., the firm can plan good marketing standpoint of
sales. Without proper focus on target groups the firm may end up spending on
advertising, sales promotion, etc., on groups that has no interest in the product.
Branding and strategy
Scanning of demography provides specific information about different consumer
groups. Once the firm has this data, it can develop well-defined marketing
strategies to reach to target audience and position products better. Appraising of
demographic environment also helps the firm to develop their brands thus
generating better sales and ensuring sustainability of the product in market. For
example, mobile companies are launching a series of products for the teenage
group with appealing advertisement campaign and some of them have been
successful to establish their products as brands.
Market trending and comparison among products
A firm can find out the general trends about a product in a market by collecting
demographic data over extended periods of time and comparing such information
at different points and angles. Firm can do generalisations based on such trends
after cross comparing its product with similar products in the markets and it can
plan a corrective action on time including launching of new products.
Assumption of country culture
Marketers face problems during the demographic profiling of customers in
different cultures like the assumptions taken about consumers or predictions
made about what will happen with a particular consumer group in a particular
country. Reading people minds and cultural background is a tough job and it
becomes even tougher if it has to be done for different global markets. A case let
on assumptions of different cultures about numbers is tabled below and is self
explanatory.
Understanding demographic changes
The demographic environment never remains constant as people migrate from
place to place in search of better opportunity. Moreover, there will be changes in
birth and death rates in due course along with economic development.
Marketers; especially in international business have to constantly update such
information in order to have a realistic picture of what is happening at given point
in particular a market. This requires a great deal of effort and it is a constant
expense to a business.

Socio-cultural environment
The cultural and social norms of people differ worldwide in all key markets as they
have been shaped over centuries passing from one generation to another.
Language, material culture, customs, aesthetics, religious beliefs, attitudes, values
and social organisation has been important for survival and development of
societies globally. Due to these socio-cultural factors, the customers/consumers
of a particular country/region become conditioned to accept certain things as per
conditioned behaviour. The increasingly competitive international business
environment necessitate the exporters/ companies doing business overseas to
customize their organisational polices keeping in mind the local cultural norms.
For example, Coca-Cola has to sweeten its drinks in India as Indians have an
affinity towards sweet taste. Indian meat exporters export only “HALAL” meat to
Arab countries with the inscription “FIT FOR ISLAMIC USE” during packing. If a
firm fails to adapt their business approach to the culture and traditions of specific
foreign markets or is unwillingness to do, its survival may be under danger. In the
context of the socio-cultural environment, there are a number of factors that firm
has to consider while foraying into international markets.

3) Regional integration is helping the countries in growing their trade.

Discuss the statement. Describe in brief the various types of regional
integration.
 Regional integration.
Regional integration can be defined as the unification of countries
into a larger whole. It 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
participating 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 o f integration as
Regional Trade Agreements (RTA).

 Types of regional integration.

A whole range of regional integrations exist today. Different types of
regional integration are discussed in this section.
Preferential trading agreement
Preferential trading agreement is a trade pact between countries. It
is the weakest type of economic integration and aims to reduce 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.
Free trade area
Free Trade Area (FTA) is a type of trade bloc and can be considered
as the second stage of economic integration. It comprises of all
countries that are willing to or agree to reduce preferences, tariffs
and quotas on services and goods traded between them. Countries
choose this kind of economic integration if their economical
structures are similar. If countries compete among themselves, they
are likely to choose customs union.
The importers must obtain product information from all 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 pertaining the products. The importers product is
qualified individually by the FTA. The product should have a
minimum percentage of local content for it to be qualified.
Custom union
 Custom Union is an agreement among two or more countries having
already entered into a free trade agreement to further align their
external tariff to help remove trade barriers. Custom union agreement
among negotiating countries may encompass to reduce or eliminate
customs duty on mutual trade. Under customs union agreement,
countries generally impose a common external -tariff (CTF) on imports
from non-member countries.
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. 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
these barriers, have a political will and formulate common economic policies.
A common market is the 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 the other 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 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 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.

4) Write short notes on:

a) Foreign currency derivatives.
b) Bases of international tax systems.
  Meaning and role of foreign currency derivatives.
Currency derivative is defined as a financial contract that seeks to
swap two currencies at a predestermined 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 that 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. The derivatives can be hedged with other
derivatives. In the foreign exchange market currency derivatives like the currency
features, currency options and currency swaps are usually traded. The standard
agreement made in order to buy or sell foreign currencies in future is termed as
currency futures. These are usually traded through organised exchanges. The
authority to buy or sell the foreign currencies in future at a specified rate is
provided by currency option. These will help the businessmen to enhance their
foreign exchange dealings. The agreement undertaken to exchange cash flow
streams in one currency for cash flow streams in another currency in future is
provided by currency swaps. These will help to increase the funds of foreign
currency from the cheapest sources.
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.

 Bases of international tax systems.

The bases of international tax system are:
Tax neutrality – To keep the economic efficiency from being affected the
international tax system should remain neutral.For the nationality of the invester
or the locality of the investment not to be influenced, a neutral tax is important. .
Such an environment will allow capital to move from a nation with lesser return
to a nation with higher return, resulting in well allocated resourses that will
ensure a high gross world output..
Tax equity – The principle of tax equity states that all equally positioned tax
players contribute in the cost of operating the government according to the equal
rules. The concept of equity can be perceived in two ways. It is assert by the first
view that the input of each tax player must be consistent with the amount of
public services as received. The second maintains that the contribution of each
tax player must be in terms of their ability to pay. The ability to pay means the
one with greater ability is likely to pay a larger amount of tax.
Avoidance of double taxation – The avoidance of double income asserts that one
must not be taxed twice for the same income. However, double taxation occurs if
the recipient of post-tax income in a foreign country is taxed again. As an
alternative, the requirements of foreign tax credits may be formed in the
domestic tax system. There also exist some tax laws which prevent the tax
through artificial transactions such as transfer pricing. In addition, the corporate
structures will help to reduce the overall tax burden to the enterprise.

5) Strategic planning involoves allocation of resources to firms to

fulfill their long term goals. What are the types of strategic
planning? Compare top down vs bottom up planning.
a) Types of strategic planning.
b) Top down vs bottom up planning.

Types of strategic planning.

Strategic planning involves the structured efforts of an organisation to
effectively recognise its purposes for existing, the direction that the organisation
will pursue, and how that direction will allow the entity to achieve its short-term
and long-term goals. Strategic planning is an important element in all kinds of
organisations and is applied by governments, non-profit agencies, individuals and
businesses. During the strategic planning process, experts employ many ways,
and sometimes break down each process into a series of steps. The complexity of
the exact approach used frequently comprises of the nature of the organisation,
the kind of goals laid down and the resources needed to attain those goals .
Types of planning
Strategic planning process involves allocation of resources to firms to fulfil their
long-term goals. Any business plan can be classified into three types. They are:
 Strategic planning: This planning process is the best among the three business
planning processes. It is a long-term process thatthe business owners utilise to
unveil their business’ vision and mission. It also determines a gateway for
business owners for achieving their goals. Strategic planning fulfills the mission
and the overall goals of the firm.
sometimes without any relation to the long-term business goals. However these
three kinds of planning work well when used within a strategic plan.
 Intermediate planning: This planning process is for six months to two years.
They outline the manner in which the strategic plan is pursued. Intermediate
plans are often used for campaigns with the purpose and goal of supporting the
trades’ long-term goals.
 Short-term planning: This planning process involves planning for few weeks or
at least for a year. It involvesdetailing out the functioning of a strategic plan on a
daily basis. Resources are allocated for business management and development
that takes place daily within the strategic plan.
 Top down vs bottom up planning.
Top-down planning
Top-down planning is a common strategy that is used for project planning. It
helps maintain the decision making process at the senior level. Goals and
allowances are established at the highest level. Senior-level managers have to be
very specific when laying out expectations because the people following the plan
are not involved in the planning process. It is very important to keep the morale
of the employees high and motivate them to perform the job.Since employees are
not included in any of the decision making processes, they are motivated only
through fear or incentives.
Management must choose techniques to align projects and goals with top-down
planning. Management alone is held responsible for the plans set and the end
result. The benefit of talented employees with prior experience on definite
aspects of the project are not utilised based on the assumption that the
management can plan and perform a project better without the inputs from these
employees. Some think that the top-down planning process is the rightway to
make a plan, and that the plan development is not important. It permits the
management to segregate a project into steps, and then break the work into
smaller executable parts of the project. Simultaneously, the work that is broken
down is analysed until all the steps could be studied, due-dates are precisely
assigned, and then parts of the project are given to employees. However, the
focus is on long-term goals and the short-term and uncertain goals can get lost.
This approach is best applicable for small projects.
 Bottom-up planning
Bottom-up planning is commonly referred to as tactics. With bottom-up planning,
an organisation gives its project deeper focus because each organisation has a
huge number of employees involved, and each employee is an expert in their own
area. Team members work side-by-side and contribute during each stage of the
process. Plans are developed at the lowest levels, and then passed on to each of
the subsequent higher levels. Finally, it then reaches the senior management for
approval.
Lower-level employees take personal interest in a plan that they are involved in
planning. Employees are more encouraged which in turn improves their morale.
Project managers are responsible for the successful completion of the project. Let
us now consider the key points of top-down and bottom-up planning.

Top-down planning
Top-down planning helps:
 Determine all the goals at the initial stage of the process.
 Identify the lack of ground level staff participation.
 Estimate the inflexibility.

 Find how management imposes the processes.

 Determine the lack of motivation.
 Find whether the staffs feel that their input is valued or not.
Bottom-up planning
Bottom-up planning helps:
 As there are no long term vision here.
 Encourage teamwork.
 Estimate flexibility.
 Determine whether team motivation is of high level.
 Identify whether the project is team driven.
 Find whether the staff feels valued or not.

Finally, a combination of these two project management methods is most

effective. Using the positive aspects of each, the organisation can align each step
so that the requirements of the project are met. An organisation can determine
the top requirements of the project and allow accountability to get down with the
lower levels. With this combination, the vision of senior management with the
skills of lower level employees is merged. This helps in completion of the project
more efficientlyusing the best employees of the organisation.

6) Discuss the various payment terms in international trade. Which

is the safest mode and why?
a) The modes of payment.
b) Safest mode.
 The modes of payment.
For successfully conducting international trade in today’s competitive
international environment, it is essential for the exporters to offer attractive sales
terms and payments to importers so as to woo them for business. One of the
major concerns for en exporter is to choose the appropriate payment method in
order to minimise risks related to payments of trade transaction. Payment should
be done after understanding the economic scenario of importer’s country,
importer credit worthiness and to certain extent accommodating the needs of the
importer. Exporter can choose any mode of payment depending on risk
perception, size of deal, importer credit worthiness and economic situation in
importer’s country. In case of domestic business, main factor driving salesman’s
decision criteria for realisation of payments is based on the buyer's ability,
willingness and honesty to make payment coupled with exporter trust on buyer.
Usually sale in domestic market are on open account and in certain cases it can be
on cash in advance. Such methods also depend on buyer’s and seller’s power to
negotiate and nature of competition such as:
 Monopoly condition will favour to the seller.
 Perfect competition will favour to the buyers.
Payment terms
Since international trade deals with exchange of goods, there are various ways in
which the payment terms (finance) will be handled.
Bothe seller and trader should be careful about the method of payment as they
are at different locations and transactions happen without face-to-face
interaction. There are four methods of payment for the international
transactions. This includes the Cash-in-advance method, Letter of Credit,
Documentary collections and the Open Account. For exporters, documentary
collection and open account are less secure and letter of credit and cash in
advance are more secure methods. In the same way, with respect to the
importer, the letter of credit and cash in advance are less secure and the
documentary collection and open account are more secure. These terms are
explained as follows.
Cash-in-advance
Cash-in-advance helps in removing the risks of credit by the exporter. By this
method, exporter receives the payment before the transfer of goods. The options
that are available with the cash-in-advance method include wire transfers and
credit cards. This is the least attractive method for many of the buyers as it
creates cash flow problems. The buyers are concerned about the quality/quantity
and delivery of the goods that are not sent if the payment is made in advance.
Letters of credit
The letter of credit is the most secure instrument available for international
traders. This is the commitment made by the bank that the payment will be made
to the exporter if the terms and conditions are met. The terms and conditions of
the payment are explained in the required documents.
Documentary collections
Documentary collection is a transaction in which, the exporter's bank (remitter
bank) sends the documents to the importer's bank (collecting bank). The
document contains information about the payment. The funds are collected from
the importer and paid to the exporter through the banks involved in the
collection, in exchange for the documents.
Open account
The open account transaction involves the shipping and delivery of goods in
advance. The payment is due usually from 30 to 90 days. This is advantageous for
the importer in cash flow and cost terms, but at the same time it is very risky for
the exporters. Buyers from abroad stress on open accounts since the extension of
credit from the seller to the buyer are more common in many countries.
Exporters who avoid extending credit may face loss in the sale because of
competitors in the market.