HANIKA ARORA GDIB ASSIGNMENT#3

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GLOBAL DIMENSIONS OF MANAGEMENT AND INTERNATIONAL BUSINESS ASSIGNMENT

Section A
1. Full form of GDP and what is the difference between GDP and GDP per Capita
Gross Domestic Product is a measure describing the value of a country as economy

GDP refers to and measures the domestic levels of production in a country. It represents the monetary
value of all goods and services produced within a nation's geographic borders over a specified period of
time. GDP is often used to indicate the health of a nation’s economy. Investors use this figure to make
decisions about investment in a particular nation, while governments use it for drafting policies.
GDP takes into account all of the goods produced and services made available in a country over a
specific period of time. Often, GDP is obtained quarterly and annually.

GDP per capita is a measure of the total output of a country that takes the gross domestic product
(GDP) and divides it by the number of people in that country. The per capita GDP is especially useful
when comparing one country to another, because it shows the relative performance of the countries. A
rise in per capita GDP signals growth in the economy and tends to reflect an increase in productivity

National income is naturally proportional to its population so it is only fitting that with the increase of
the number of people, there is also an increase in GDP. However, it does not entirely mean that with
high GDP, a high standard of living also results.

A country with high GDP but with an overwhelmingly large population will result in a low GDP per
capita; thus indicating a not so favorable standard of living since each citizen would only get a very small
amount when wealth is being evenly distributed. A high GDP per capita, on the other hand, simply
means that a nation has a more efficient economy.

GDP per capita is a more reliable measure for determining the economic state of a nation in an
individual perspective. India may have a very high GDP but the standard of living is rather low because
of the nation. As extremely large population.

GDP GDP Per Capita

The total value of goods produced and
services provided in a country during one year
A measure of total output of a country in a year
As its only output it can’t be used to
calculate relative performance
A measure of the total output of a country that
takes the gross domestic product (GDP) and
divides it by the number of people in the country.
Is a measure of total output of a country in a year
divided by the number of people in the country
Helpful to calculate relative performance of
countries

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2. Define or explain Purchase Power Parity in two lines

Purchasing power parity is used worldwide to compare the income levels in different countries.
Purchasing power parity (PPP, thus makes it easy to understand and interpret the data of each country.

Purchasing power parity (PPP) states that exchange rates between currencies are in equilibrium when
their purchasing power is the same in each of the two countries. This means that the exchange rate
between two countries should equal the ratio of the two countries' price level of a fixed basket of goods
and services. When a country's domestic price level is increasing (i.e., a country experiences inflation),
that country's exchange rate must depreciated in order to return to PPP

The relative version of PPP is calculated with the following formula:

S = P1/ P2
Where: S = exchange rate of currency 1 to currency 2
P1 = the cost of good x in currency 1
P2 = the cost of good x in currency 2
Example: Let's say that a pair of shoes costs Rs 2500 in India. Then it should cost $50 in America when
the exchange rate is 50 between the dollar and the rupee.

3. Which of these are Formal Institutions and Informal Institutions?

a. Laws = Formal Institution
b. Ethics = Informal Institution
c. Culture = Informal Institution
d. Regulations = Formal Institution
e. Norms = Informal Institution
f. Rules = Formal Institution

4. Name two countries under Theocratic Laws

Theocracy is a form of government which defers not to civil development of law, but to an
interpretation of the will of a God as set out in religious scripture and authorities. Law in a theocracy
must be consistent with religious text the ruling religion abides by. In a theocracy, the courts are usually
presided over by religious officials, who are taken as more versant in the applicable legal texts.
Contemporary examples of theocracies include Saudi Arabia, Iran
Islam is the official religion of the country, with the major foundations of the political institution
of country being based on Islamic sharia law. The ultimate aim of the country’s fundamentalist regime is

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to unify the people under a common religious law. Political power lies almost exclusively in the hands of
the religious leaders of the fundamentalist regime.

5. Name at least two of the three kinds of economies

Economic systems are defined by the method that a nation uses to allocate its goods and services.
These systems have varying degrees of government control, and range from free market economies to
those that have total control of ownership, taxation and resources.

Free Market Economy

A free market economy begins to take over, as traditional values change. In a free market, consumers
become the dominant force, and producers make products that people want to buy. Production is based
solely on the demands of the marketplace.

In a market economy, the government does not control which goods and services are produced. All
resources are owned by private individuals. Production and buying decisions are driven by the desire to
make a profit.

Command Economy

In a command economy, the government controls everything. It decides which products are produced,
how they are made and who gets to receive them. The government makes these decisions based on its
perception of what is best for society.

If everything worked perfectly, a command economy would provide jobs for all of its citizens. However,
workers must take whatever jobs the government decides is best. The government sets prices for all
products and allocates enough resources to satisfy its people.

Mixed Economy

As the name implies, a mixed economy is a blend between a command system and an entirely free
market. Consumers and businesses control the economy in the private sector. The government is the
owner and decision-maker for the public sector.

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Section B

1. Name two characteristics each of Low Context and High Context cultures
A low-context culture relies on explicit communication. In low-context communication, more of the
information in a message is spelled out and defined. Cultures with western European roots, such as the
United States and Australia, are generally considered to be low-context cultures.
 Association: Relationships begin and end quickly. Productivity depends on procedures and
paying attention to the goal. The identity of individuals is rooted in themselves and their
accomplishments. Social structure is decentralized.
 Interaction: Nonverbal elements are not significant. Verbal messages are explicit, and
communication is seen as a way of exchanging information, ideas and opinions. Disagreement is
depersonalized; the focus is on rational (not personal) solutions. An individual can be explicit
about another person’s bothersome behavior.
 Territoriality: Space is compartmentalized. Privacy is important, so people stand farther apart.
 Temporality: Events and tasks are scheduled and to be done at particular times. Change is fast,
and time is a commodity to be spent or saved. One’s time is one’s own.
 Learning: One source of information is used. Thinking proceeds from specific to general. Learning
occurs by following the explicit directions and explanations of others. Individual orientation is
preferred, and speed is valued.

A high-context culture relies on implicit communication and nonverbal cues. In high-context

communication, a message cannot be understood without a great deal of background information.
Asian, African, Arab, central European and Latin American cultures are generally considered to be high-
context cultures.
 Association: Relationships build slowly and depend on trust. Productivity depends on
relationships and the group process. An individual’s identity is rooted in groups (family, culture,
work). Social structure and authority are centralized.
 Interaction: Nonverbal elements such as voice tone, gestures, facial expression and eye
movement are significant. Verbal messages are indirect, and communication is seen as an art
form or way of engaging someone. Disagreement is personalized, and a person is sensitive to
conflict expressed in someone else’s nonverbal communication.
 Territoriality: Space is communal. People stand close to each other and share the same space.
 Temporality: Everything has its own time, and time is not easily scheduled. Change is slow, and
time is a process that belongs to others and nature.

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 Learning: Multiple sources of information are used. Thinking proceeds from general to specific.
Learning occurs by observing others as they model or demonstrate and then practicing. Groups
are preferred, and accuracy is valued.

2. Expand SWOT and VRIO

SWOT analysis (Strengths, Weaknesses, Opportunities and Threats analysis) is a framework for identifying
and analyzing the internal and external factors that can have an impact on the viability of a project,
product, place or person.
SWOT analysis is most commonly used by business entities, but it is also used by nonprofit organizations
and, to a lesser degree, individuals for personal assessment. Additionally, it can be used to assess
initiatives, products or projects.
The framework is credited to Albert Humphrey, who tested the approach in the 1960s and 1970s at the
Stanford Research Institute. Developed for business and based on data from Fortune 500 companies, the
SWOT analysis has been adopted by organizations of all types as an aid to making decisions.
A SWOT analysis is often used at the start of or as part of a strategic planning exercise. The framework is
considered a powerful support for decision-making because it enables an entity to uncover opportunities
for success that were previously unarticulated or to highlight threats before they become overly
burdensome
Elements of a SWOT analysis:
As its name states, a SWOT analysis examines four elements:
 Strengths : Internal attributes and resources that support a successful outcome.
 Weaknesses : Internal attributes and resources that work against a successful outcome.
 Opportunities : External factors that the entity can capitalize on or use to its advantage.
 Threats : External factors that could jeopardize the entity's success.
Entities undertaking a SWOT analysis can opt to use any one of the various SWOT analysis templates in
existence; these templates are generally variations of the standard four-quadrant SWOT matrix.

VRIO Analysis is an analytical technique brilliant for the evaluation of company’s resources and thus the
competitive advantage. VRIO is an acronym from the initials of the names of the evaluation dimensions:
Value, Rareness, Limitability, and Organization.
VRIO is perfect for evaluation of the company’s resources. One you know your resources you can better
understand your competitive advantages or weaknesses. The VRIO considers for each type of the resource

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the following questions (called evaluation dimension) both for your company and for your competitors.
The dimensions of VRIO are:
 Value - How expensive is the resource and how easy it to obtain on the market is.
 Rareness - How rare or limited is the resource.
 Imitability - How difficult is it to imitate the resource.
 Organization - Is the resource supported by any existing arrangements and can the organization
use it properly.

3. Name at least two out of 3 each of the Classic Based Theories and Firm Based
Theories
Classic Based Theories: Developed in sixteenth century, focused on the individual country in examining
pattern of export and import. These theories are particularly useful for describing trade in commodities,
which are standardized, undifferentiated goods that are typically bought on the basis of price rather than
brand name.
The Classic Based Theories are as follows:
1. Mercantilism
2. Absolute Advantage
3. Comparative Advantage
4. Relative Factor Endowments
Firm Based Theories: Firm based were developed after World War II and are used to describe trade
patterns of differentiated goods, for which brand name is an important component of the customer’s
purchase decision.
The Firm Based Theories are as follows:
1. Country Similarity Theory
2. Product Life Cycle Theory
3. Global Strategic Rivalry Theory
4. Porter’s National Competitive Advantage

4. Difference between Horizontal and Vertical FDI

Foreign Direct Investment, popularly known by its acronym FDI, is a key component in global economic
integration.

FDI is a form of cross-border investment with the objective of establishing a lasting interest that a
resident enterprise based in one country might have in an enterprise operating in another country.

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FDIs can be achieved by one of two strategies:

1. First FDI Strategy:

The first FDI strategy is for the company to set up new factories and plants from the ground up. This
method is called a ‘Greenfield investment’. Companies like McDonald's and Starbucks tend to use
the Greenfield approach when expanding overseas.

2. Second FDI strategy:

The second FDI strategy is through cross-border mergers and acquisitions that involve acquiring an
existing foreign enterprise in the country of interest. This method is called a ‘Brownfield
investment’. An example of a Brownfield investment occurred in 2008, when the Indian truck
company Tata Motors acquired Land Rover and Jaguar from Ford. Tata Motors didn't have to build
those factories from scratch.

Horizontal FDI refers to the type of direct investment between industrialized countries as ways to avoid
trade barriers, gain better access to the local economy, or draw on technical expertise in the area by
locating near other established firms.

Example: - A company investing in the same business abroad that it operates domestically is a case of a
horizontal FDI

Vertical FDI, by contrast, occurs when a firm in an industrialized country lowers cost by relocating the
production process to low-wage. Example: - If a company invests in a business that plays the role of a
supplier or a distributor.

Comparison Chart

BASIS FOR
HORIZONTAL INTEGRATION VERTICAL INTEGRATION
COMPARISON

Meaning When two firms combine, whose Vertical Integration is when a

products and production level is firm takes over another firm
same, then this are known as or firms that are at different
Horizontal Integration. stage on the same production
path.

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BASIS FOR
HORIZONTAL INTEGRATION VERTICAL INTEGRATION
COMPARISON

Figure

Objective Increasing the size of the business Strengthening the supply

chain

Consequence Elimination of competition and Reduction of cost and

maximum market share. wastage.

Capital Higher Lower

Requirement

Self-sufficiency No Yes

Strategy used to Market Industry

exercise control
over

5. In foreign exchange terminology what is spot and forward

Spot Foreign Exchange: A spot foreign exchange rate is the rate of a foreign exchange contract for
immediate delivery (usually within two days). The spot rate represents the price that a buyer expects to
pay for a foreign currency in another currency. These contracts are typically used for immediate
requirements, such as property purchases and deposits, deposits on cards, etc. You can buy a spot
contract to lock in an exchange rate through a specific future date. Or, for a modest fee, you can purchase
a forward contract to lock in a future rate.
Example: if one US dollar can be purchased for Rs 70 at the point of time in the foreign exchange market,
it will be called spot rate of foreign exchange.

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Forward Foreign Exchange: A forward foreign exchange is a contract to purchase or sell a set amount of
a foreign currency at a specified price for settlement at a predetermined future date (closed forward) or
within a range of dates in the future (open forward). Contracts can be used to lock in a currency rate in
anticipation of its increase at some point in the future. The contract is binding for both parties.
It deals with transactions (sale and purchase of foreign exchange) which are contracted today but
implemented sometimes in future. This rate is settled now but actual transaction of foreign exchange
takes place in future. The forward rate is quoted at a premium or discount over the spot rate.

Section C
1. Draw a 5 point VRIO chart for Swiggy
Resource/Capability Valuable Rare Imitable Organization Value Creation
Wide range of Restaurants YES:
Available YES NO More advantage YES Sustainable
Fast & Free Delivery YES NO YES YES Parity
Yes:
Up to certain
Wider distance covered YES YES extent YES Sustainable
Wide Selection Options in
food YES NO YES YES Parity
No Minimum Order YES YES YES YES Sustainable
Customer Care YES YES YES YES Sustainable

2. Explain the impact both negative and positive on a strong rupee on Indian
Economy
Price/exchange rate for any currency is driven by a simple demand and supply rule. Currency is nothing
but just another commodity that we need if we have to do business with other countries.
As more and more Dollar flows to India, its supply exceeds demand and result in depreciation
against Indian Rupee. As most of India's trade is through US Dollar, continuous appreciation of Indian
Rupee against US Dollar has a significant impact on exports.

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When one weighs the relative benefits of a strong INR versus a weak INR, there appears to be clear
benefits favor a strong INR. For India, a strong INR is favorable not only for its macros, but also for its
capital and portfolio flows.

Positive Impact:

 Import intensive sectors tend to benefit. A stronger rupee makes imports more favorable and is
especially suitable for sectors like capital goods and telecom where there is a strong import
component.

 However, in case of industries like gems & jewellery and textiles, where there is an export
component, the benefits of cheaper imports tend to get neutralized.

 Indian Economy relies on import for more than 80 % of its daily crude requirement. A stronger
rupee means lower landed cost of crude oil. A lower landed cost of oil will be anti-inflationary
and will also reduce the burden on the government finances.

 Lower oil import bill means that India can afford to run a lower revenue deficit as well as a lower
fiscal deficit. When fiscal deficit and revenue deficit are in control, it is positive from the
perspective of external credit ratings for the economy.

 A strong rupee means that FPIs do not lose out their nominal gains due to currency depreciation.
A strengthening INR induces FPIs to rush into India as they get the dual benefit of above average
nominal returns and currency dividends.

 This works as a cycle wherein a strong rupee attracts more FPI flows and these FPI flows in-turn
make the INR stronger.

Negative Impact:

 Export driven sectors like IT, textiles and pharmacy tend to suffer from a strong rupee.

 A strong rupee implies that exports become more expensive and that is normally a case of
losing competitiveness to other competing nations.

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Today the financial monetary system is backed by dollars and most countries do their business in US
dollars even if the trade is between 2 non US countries ex India and Iran. And also the GDP and overall
value and economy of country is measured in terms of US dollars worldwide, and therefore when we are
at an international platform we always project our economy and financial figures in US dollars and not
rupees or any other local currency of the nation.
In last couple of years in India, we are working on lot of trade deals and bilateral business contracts with
countries. Ex one of our highest imported product is Oil and Petrol which we import in huge volume from
Middle East. Recently India and Iran agreed on trade deal whereby Iran agreed to accept payments for Oil
sold to India in Rupees instead of US dollars. With this move our overall need for US dollar was cut down
substantially and this had made rupee stronger against dollar, as our demand for dollar has come down.
At the same time many more MNC are now looking forward to reap the benefits of fastest growing Indian
economy. Therefore many foreign companies are coming and investing in India. These companies are
coming with US dollar and need rupee to do business in India and therefore demand for rupee is now
coming up against US dollar. This is also playing an important role in making rupee stronger against US
dollar. It’s all basically the game of demand and supply.
Stronger rupee is favorable for our country. Weak local currency against dollar is good for exporting
nations such as China, as they are net exporters of products and services and they convert US dollars
earned through such exports to local currency. So a weak Yen against USD shall give china more Yen for
same value of USD.
On the other hand for net importing nations like India, where we are major imports for all products a
stronger rupee shall turn into cheaper imports for us. Thus for ex. if we need to purchase xyz commodity
for 1000$ and value of INR against dollar is 70, then we would have to pay 70k INR in local currency, on
the other hand if the same is 60 then we will be paying 60k for the same product priced at same value in
terms of US dollars.
A strong rupee on the other hand shall also adversely impact the services that we export primarily IT
services. As in case of this IT companies the value of the services exported by they shall turn into lower
value in INR it otherwise would have if the dollar was strong. But considering our current position where
we are a net importing nation with huge current account deficits I believe reducing our budget deficits by
strong rupee is in larger interest for our economy.

3. Explain the role of informal institutions in the growth of business in any country

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Compared with advanced nations in which market mechanisms function effectively, “institutional voids”
concept begins by clarifying the institutional problems that beset emerging nations. Accordingly, the
institutional market is an important topic studied within institutional economics, though these studies
only incorporate a portion of the framework and does not incorporate informal institutions such as social
codes of conduct and practices. Let us now consider their implications in terms of global strategy.
First, we must emphasize the necessity of strengthening our understanding of institutions, including
informal rules such as codes of conduct and practices in corporate economic activities, in addition to
explicit rules such as economic laws that are part of economic institutions in target countries. In particular,
informal rules are structured over time in the process of economic development, and reflect the historical
background and political systems of that country. Thus, they are a critical factor underlying economic
activities. In this regard, the desire of the government is clearly reflected in various aspects of corporate
economic transactions.
Next, the relationship with the government is particularly important for businesses in emerging markets.
A common fact among emerging markets is that local government policies and decision-making have a
significant impact on global business. If a country has many institutional voids, but industrial policies such
as government regulations and regional revitalization rules are making actual economic activities possible
by filling market mechanism voids. In emerging nations with slow development of the private sector,
government is often the partner of businesses.
In addition to revitalizing regional economies, local governments enforce policies with various goals such
as providing stable living environments for citizens and improving the environment. It is important to
consider business strategies that not only generate profitability but also contribute to these government
objectives, or in other words, contribute to the value proposition for the government. Investment
decisions for a global business must consider various risks such as local macroeconomic environments,
exchange rates, and other economic risks; labor relations, procured parts quality, and other operational
risks; and societal risks such as opposition to foreign firms. It is possible to deal with economic risks to a
certain extent using financial instruments such as futures trading and options.

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