SET – 1

Q.1 What is globalization? What are its benefits? How does

globalization help in international business? Give some
instances.
Economic "globalization" is a historical process, the result of human
innovation and technological progress. It refers to the increasing integration
of economies around the world, particularly through trade and financial
flows. The term sometimes also refers to the movement of people (labor)
and knowledge (technology) across international borders. There are also
broader cultural, political and environmental dimensions of globalization
that are not covered here.
At its most basic, there is nothing mysterious about globalization. The term
has come into common usage since the 1980s, reflecting technological
advances that have made it easier and quicker to complete international
transactions – both trade and financial flows. It refers to an extension beyond
national borders of the same market forces that have operated for centuries
at all levels of human economic activity – village markets, urban industries,
or financial centers.
Here are several benefits of globalization that you should know: opportunity
costs, trade terms, balance trades, comparative advantages, changes in
consumption and production, and how much cheaper it is to purchase than to
produce.
The United States of America is a primary exporter of agricultural products
and raw materials, import large volumes of various services. The market is
very efficient when it comes to trading as it concentrates mostly on
specialization. Due to concentration, the costs are minimized while profits,
production and efficiency are all maximized. Specialization can be achieved
whenever participating countries choose to shift their rare resources to
creating services and goods where they have comparative advantages over
other countries, in turn increasing their goods consumption.
When it comes to workers, this might not make a lot of sense, most of all if
they lose jobs; however, organizations happen to be in business, so they can
make money. Therefore, they understand what needs to be done and how
long it would take to break-even and make these profits. Businesses never
intentionally hurt their workers by firing them. They would rather keep their
jobs within the United States of America since, by keeping them here, they
can save themselves from the hassles of talking to multi-lingual people
worldwide and moving there. However, organizations operate businesses as
if they were puzzles. For every puzzle, many pieces are required to complete
the puzzle. Therefore, going global would be of the utmost essence for the
majority of organizations in order to properly compete and control both
produce and costs in an efficient manner.
Nothing is created within global trading but winners since selling products
creates increase in demand for those products because the foreigners ’
net demand will be added onto the domestic demand. So, with a demand
increase, prices will rise. Still, purchasing products will create increases
within product supply since net foreign supply will be added onto the
domestic supply. Therefore, with this supply increase, the prices will drop.
Nobody will lose. It is definitely a win-win situation for every country that
participates.
Because of technological changes, continuous development and research, the
market economy remains to be dynamic. Because of this, people have to
keep up with this overall movement and change, as well, by attending
seminars and going through training on a regular basis. The traditional kind
of static markets is long gone.
There are worries regarding exploitation of poorer people within developing
countries, however. This even went further as their wages were compared to
slave ’s wages. The truth is: whenever developing countries get the
chance to get jobs to earn more than before, improvement happens. A lot of
people from these countries happen to be illiterate and have no idea how
important education is. Because of this, they send their kids off to work at
production plants. Before sending their kids to school, however, they have to
be educated on how important education is and stop sending their kids these
production plants.

Q.2 What is culture and in the context of international business

environment how does it impact international business
decisions?
Culture is defined as the shared patterns of behaviors and interactions,
cognitive constructs, and affective understanding that are learned through a
process of socialization. These shared patterns identify the members of a
culture group while also distinguishing those of another group.
the word "culture" is most commonly used in three basic senses:
* Excellence of taste in the fine arts and humanities, also known as high
culture
* An integrated pattern of human knowledge, belief, and behavior that
depends upon the capacity for symbolic thought and social learning
* The set of shared attitudes, values, goals, and practices that characterizes
an institution, organization or group

In this new millennium, few executives can afford to turn a blind eye to
global business opportunities. Japanese auto-executives monitor carefully
what their European and Korean competitors are up to in getting a bigger
slice of the Chinese auto-market. Executives of Hollywood movie studios
need to weigh the appeal of an expensive movie in Europe and Asia as much
as in the US before a firm commitment. The globalizing wind has broadened
the mindsets of executives, extended the geographical reach of firms, and
nudged international business (IB) research into some new trajectories. One
such new trajectory is the concern with national culture. Whereas traditional
IB research has been concerned with economic/ legal issues and
organizational forms and structures, the importance of national culture –
broadly defined as values, beliefs, norms, and behavioral patterns of a
national group – has become increasingly important in the last two decades,
largely as a result of the classic work of Hosted (1980). National culture has
been shown to impact on major business activities, from capital structure
(Chui et al., 2002) to group performance (Gibson, 1999). For reviews, see’
Boyacigiller and Adler’ (1991) and ‘Earley and Gibson’ (2002).

The purpose of this Unit is to provide a state-of-the-art review of several

recent advances in culture and IB research, with an eye toward productive
avenues for future research. It is not our purpose to be comprehensive; our
goal is to spotlight a few highly promising areas for leapfrogging the field in
an increasingly boundary-less business world. We first review the issues
surrounding cultural convergence and divergence, and the processes
underlying cultural changes. We then examine novel constructs for
characterizing cultures, and how to enhance the precision of cultural models
by pinpointing when the effects of culture are important. Finally, we
examine the usefulness of experimental methods, which are rarely employed
in the field of culture and IB. A schematic summary of our coverage is given
in Table 2.1, which suggests that the topics reviewed are loosely related, and
that their juxtaposition in the present paper represents our attempt to
highlight their importance rather than their coherence as elements of an
integrative framework.
Q.3 Explain the meaning of the term ‘trade liberalization’ and
advantages. Also, identify some commonly observed mistakes
in international trade.
Trade Liberalization is the removal or reduction of restrictions or barriers on
the free exchange of goods between nations. This includes the removal or
reduction of both tariff (duties and surcharges) and non-tariff obstacles (like
licensing rules, quotas and other requirements). The easing or eradication of
these restrictions is often referred to as promoting "free trade."
The Benefits of Trade Liberalization
Policies that make an economy open to trade and investment with the rest of
the world are needed for sustained economic growth. The evidence on this is
clear. No country in recent decades has achieved economic success, in terms
of substantial increases in living standards for its people, without being open
to the rest of the world. In contrast, trade opening (along with opening to
foreign direct investment) has been an important element in the economic
success of East Asia, where the average import tariff has fallen from 30
percent to 10 percent over the past 20 years.
Opening up their economies to the global economy has been essential in
enabling many developing countries to develop competitive advantages in
the manufacture of certain products. In these countries, defined by the World
Bank as the "new globalizes," the number of people in absolute poverty
declined by over 120 million (14 percent) between 1993 and 1998.
There is considerable evidence that more outward-oriented countries tend
consistently to grow faster than ones that are inward-looking. Indeed, one
finding is that the benefits of trade liberalization can exceed the costs by
more than a factor of 10. Countries that have opened their economies in
recent years, including India, Vietnam, and Uganda, have experienced faster
growth and more poverty reduction. On average, those developing countries
that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than
those that did not.
Freeing trade frequently benefits the poor especially. Developing countries
can ill-afford the large implicit subsidies, often channeled to narrow
privileged interests that trade protection provides. Moreover, the increased
growth that results from free trade itself tends to increase the incomes of the
poor in roughly the same proportion as those of the population as a whole.
New jobs are created for unskilled workers, raising them into the middle
class. Overall, inequality among countries has been on the decline since
1990, reflecting more rapid economic growth in developing countries, in
part the result of trade liberalization.
The potential gains from eliminating remaining trade barriers are
considerable. Estimate of the gains from eliminating all barriers to
merchandise trade range from US$250 billion to US$680 billion per year.
About two-thirds of these gains would accrue to industrial countries. But the
amount accruing to developing countries would still be more than twice the
level of aid they currently receive. Moreover, developing countries would
gain more from global trade liberalization as a percentage of their GDP than
industrial countries, because their economies are more highly protected and
because they face higher barriers.
Although there are benefits from improved access to other countries’
markets, countries benefit most from liberalizing their own markets. The
main benefits for industrial countries would come from the liberalization of
their agricultural markets. Developing countries would gain about equally
from liberalization of manufacturing and agriculture. The group of low-
income countries, however, would gain most from agricultural liberalization
in industrial countries because of the greater relative importance of
agriculture in their economies.
Mistakes:

· Failure to obtain export counseling and to develop a master international

marketing plan before starting an export business:
· Insufficient commitment to overcome the initial difficulties and financial
requirements of exporting:
· Failure to have a solid agent and or distributor’s agreement:
· Blindly chasing orders from around the world
· Failure to understand the connection between country risk and the
Probability of getting export financing
· Failure to understand Intellectual Property Rights (IPR):
· Insufficient attention to marketing and advertising requirements:
· Lack of attention to product adaptation and preparation needs
· Failure to obtain legal advice
· Failure to understand export licensing requirements.

Q.4 Explain the product life cycle theory.

Product Life Cycle Theory

Life cycle theory has been used since the 1970s to describe the behavior of a
product or service from design to obsolescence.
The typical pattern of a product is represented by a curve divided into four
distinct phases: introduction, growth, maturity, and decline. Recent research
in the area has focused on its use in decision making in areas ranging from
those as broad as overall strategy to those as narrow as equipment
replacement.
But does the product life cycle, or PLC, really tell the entire story? Consider
the Ford Mustang. Since its 1964 introduction, the automobile has
undergone several changes. Performance was increased with the addition of
the 428 Cobra Jet in 1968 and Mach I styling in 1969. Another substantial
change took place in 1971 with the introduction of the high-performance
Boss 351. Then a true muscle car, the Mustang was detuned in 1974, when
oil prices forced a more fuel-efficient redesign, called Mustang II. The
fourth generation Mustang, introduced as the 1994 model, has been further
refined and is more aerodynamic than its immediate predecessor. Yet it still
shares roots with earlier models. A 302 V-8 is still offered, the wheelbase is
similar, and if one looks closely enough, one can see its genesis in the 1964
model. The pattern evidenced by the life of the Mustang, then, is several
curves of introduction, growth, maturity, and decline.

. Conventional Life Cycle Theory

In the introductory phase, sales are slow. The strategy is to create

widespread awareness. Costs are incurred in building distribution and
increasing awareness through heavy promotion. It is hoped that the
investments made in new product introduction pay off and the product or
service moves to the growth phase.
The firm may either build market share or profitability in the growth phase.
Strategies here are to make differential changes that add value to the product
and to target new markets. Marketing moves away from promotion through
personal selling toward more mass media advertising. Just as predators react
to attractive targets, competition begins to build as awareness increases and
sales momentum builds. Unit manufacturing costs begin to fall as fixed costs
are spread over more production units and workers move down the learning
curve. The firm attempts to stay in the growth stage as long as possible.
Sales growth slows at maturity and the firm moves to defend market
position. This is where marketing managers must pay the most attention.
Promotion costs increase significantly. Cost reduction is crucial as
competitors begin to lower prices and introduce improved versions of the
product. With the lower prices come lower profits, and competitors begin to
drop out. This is typically the longest lasting stage, with some market
leaders holding their position over several decades.
The final stage is decline. Here the firm may continue to market the product
hoping that competitors will discontinue their products. Other strategies are
to maximize profit by eliminating as many product costs as possible as sales
slow, or else to eliminate the product altogether.

· Life Cycle Elements

Design engineering, process engineering, product marketing, and production

have been recurring elements in each stage of the product life cycle. In
addition, end-of-life (EOL) issues must be addressed when the product
approaches obsolescence. These elements vary in importance as the product
or service moves through its life, thus creating waves of activity. The fact
that they change in importance and magnitude requires that they be closely
managed. Let’s begin our discussion of the individual elements with design
engineering.

· Design Engineering

Design engineering is involved in the five phases of the new product

introduction (NPI) process. Idea validation is first. Engineers take informal
ideas and study the market for needs that are not being met by products
currently being offered or planned. Technology, manufacturing capabilities,
competition, and potential revenues are analyzed in the review.

· Process Engineering

The process engineering function is responsible for the production system.

To that end, process engineers specify the type of system, equipment,
tooling, layout, and flow used in manufacturing or service operations. Their
task is to ensure the efficient production of each part or component.
Traditionally, the first step is a review of the end item bill of materials,
which identifies all the separate parts that make up the product or service to
be produced in, or to flow through, the operation area. Once the bill of
materials analysis is completed, the problem of which type of production
system to employ may be tackled.

· Production
Production activity follows demand for the product or service; both are
linked by manufacturing planning and control systems. Activity begins in
earnest during production ramp-up. Equipment processes, and trained
production personnel must be in place. Targets for product cost,
conformance to specification, and overall quality must be met. As customer
sales begin to speed up production, overhead per-unit costs decrease and
direct costs increase.

· Relationships
Design engineering, process engineering, and production are all related. The
purpose of presenting the traditional relationship here is to facilitate later
comparisons with the five-element wave. The model is illustrated in Figure
3, which shows that traditional product engineering follows a linear path.
The first step is design engineering, in which the good or service is taken
from concept and detail design to prototyping. The product moves to process
engineering, where technologies and production methods are evaluated as a
system is set into motion. Finally, the product flows to production, where
down-stream manufacturing activities, such as production planning and
scheduling, take place. This is known as the over-the-wall method of product
design and development, with each stage separate from the next.

· Product Marketing
New products are usually supported with high advertising budgets to build
awareness and encourage an initial purchase. If the target is the entire
market, a typical first strategy is to attack it with one theme. When resources
are relatively limited, the business may choose to identify smaller, more
homogenous concentrations within the market and tailor the advertising to
those groups. Once the product becomes established, fewer advertising
dollars per sales unit are required to encourage demand.

· End of Life
This element considers what happens when sales decline to the point at
which revenues drop to a level that supposedly precludes continued
production of a good by the firm. One strategy is to cease production and
allow inventory levels to drop to zero. An alternative tactic is to attempt to
give new life to the product and risk succumbing to what is known as "The
Thomas Lawson Syndrome."

Q.5 Discuss the implications of Heckscher-Ohlin theory model.

Q.6 Do you think WTO is helpful for promoting international
business? Give reasons for your answer.
WTO is helpful for promoting international business in the following ways:

1. The system helps to keep the peace

This sounds like an exaggerated claim, and it would be wrong to make too
much of it. Nevertheless, the system does contribute to international peace,
and if we understand why, we have a clearer picture of what the system
actually does.

2. The system allows disputes to be handled constructively

As trade expands in volume, in the number of products traded, and in the
numbers of countries and companies trading, there is a greater chance that
disputes will arise. The WTO system helps resolve these disputes peacefully
and constructively.

3. A system based on rules rather than power makes life easier for all
The WTO cannot claim to make all countries equal. But it does reduce some
inequalities, giving smaller countries more voice, and at the same time
freeing the major powers from the complexity of having to negotiate trade
agreements with each of their numerous trading partners

4. Freer trade cuts the cost of living

We are all consumers. The prices we pay for our food and clothing, our
necessities and luxuries, and everything else in between, are affected by
trade policies.

5. It gives consumers more choice and a broader range of qualities to choose

from
Think of all the things we can now have because we can import them: fruits
and vegetables out of season, foods, clothing and other products that used to
be considered exotic, cut flowers from any part of the world, all sorts of
household goods, books, music, movies, and so on.

6. Trade raises incomes

Lowering trade barriers allows trade to increase, which adds to incomes –
national incomes and personal incomes. But some adjustment is necessary.

7. Trade stimulates economic growth and that can be good news for
employment
Trade clearly has the potential to create jobs. In practice there is often
factual evidence that lower trade barriers have been good for employment.
But the picture is complicated by a number of factors. Nevertheless, the
alternative – protectionism – is not the way to tackle employment problems.

8. The basic principles make the system economically more efficient, and
they cut costs
Many of the benefits of the trading system are more difficult to summarize
in numbers, but they are still important. They are the result of essential
principles at the heart of the system, and they make life simpler for the
enterprises directly involved in trade and for the producers of goods and
services.

9. The system shields governments from narrow interests

The GATT – WTO system which evolved in the second half of the 20th
Century helps governments take a more balanced view of trade policy.
Governments are better – placed to defend themselves against lobbying from
narrow interest groups by focusing on trade – offs that are made in the
interests of everyone in the economy

10. The system encourages good government

Under WTO rules, once a commitment has been made to liberalize a sector
of trade, it is difficult to reverse. The rules also discourage a range of unwise
policies. For businesses, that means greater certainty and clarity about
trading conditions. For governments it can often mean good discipline.