UNIT-1Meaning of international business: International business is a term used rarely to describe all describe all commercial transactions (private and governmental, sales, investments, logistics, and transportation) that take place between two or more regions, countries and nations beyond their political boundary. Usually private companies undertake such transactions for profit: governments undertake them for profit and for political reasons. It refers to all those business activities which involve cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking , insurance, construction etc.Definations:1. The exchange of goods and services among individuals and businesses in multiple countries.2. A specific entity such as a multinational corporation or international business company that engages in business among multiple countries.Nature of International Business:1. Accurate information2. Information not only accurate but should be timely3. The size of the international business should be large.4. Market segmentation based on geographic segmentation5. International markets have more potential than domestic markets.Scope of international Business: 1. International marketing 2. International finance and investments3. Global HR 4. Foreign ExchangeNeed for International Business:1. To achieve higher rate of profits 2. Expanding the production capacity beyond the demand of the domestic country.3. Serve competition in the home country4. Limited home market5. Political conditions6. Availability of technology and managerial competence7. Cost of manpower, transportation8. Nearness to raw material9. Liberalization privatization and Globalization (LPG)10. To increase market share

Problems in international business:1. Political factors2. High foreign investments and high cost3. Exchange instability4. Entry requirements5. Tariffs, quota etc6. Corruption and bureaucracy7. Technological policyTypes of international Business:1) Importing and Exporting : importing and exporting are often 2) Importing is the purchasing abroad either directly from target suppliers or indirectly through sales agents and distributors.3) Exporting is the selling abroad either directly to target customers or indirectly by retaining foreign sales agents and distributors. 1. IMPORTING AND EXPORTING : Importing and exporting are often the simplest ways a business may go global. Importing is the purchasing abroad, either directly from target suppliers or indirectly through sales agents and distributors. Exporting is the selling abroad, either directly to target customers or indirectly by retaining foreign sales agents and distributors.2. Licensing: Licensing is an arrangement whereby a firm (the licensor) grants a foreign firm (the licensee) the right to use intangible property such as a patent, logo, formula, process, etc. The licensee pays a royalty or percent of the profits to the licensor. Licensing allows a business to go global relatively rapidly and simply.3. Franchising: Franchising is a form of licensing in which the parent company (Franchisor) offers some combination of trademark, equipment, materials, managerial guidelines, consulting advice, and cooperative advertising to the investor ( Franchisee) for a fee and/or percentage of revenues (royalties) .4. Foreign direct investment: Foreign direct investment occurs when a company invests resources and personnel to build or purchase an operation in another country. This turns the firm into a multinational company (MNC). 5. Joint ventures and strategic alliances : Joint ventures and strategic alliances are somewhat different from foreign direct investment in that we are not talking about creating wholly owned subsidiaries. Yet, they can be excellent, strategic ways to penetrate different global markets around the world while limiting exposure at the entry phase.

International Business Environment: BUSINESS ENVIRONMENT

External Environment Internal Environment

Macro EnvironmentMicro Environment 1.Mission andObjectives

Suppliers of inputsCustomersMarketing intermediariesCompetitorspublicsEconomicPolitical&legalTechnologicalGlobalSocio-culturalDemographicNaturalEcological2. Organizational structure3.Co-operative culture4.Quality of human resources5.Labour unions6.Physical Resources and technical capabilities7.Value systemMicro Environment: Micro environment of business becomes from internal part of company. This environment includes different factors which can be controlled by company. Following are the main factors of micro environment1. Suppliers : These people supply the goods to company. We can control them, if we pay them on the time. We should also keep contacts with multiple sources because it is very less risky. If one supplier stops to supply us, we can get raw material from other supplier.2. Customers: Customers also affect on companys business. If we do not care our customers, our customers will buy from other company. Due to this, our sale will decrease. We should make good relation with our customers.3. Market Intermediaries: Middlemen, physical distribution firms and marketing service agencies are main market intermediaries. We should choose best market intermediaries for fast distribution of our products.4. Competitions: company also have to face competition. If company has to win competition, it has to sell good quality product at lower price.5. Public: Public is any group that has an actual or potential interest in or impact on an organizations ability to achieve its interests. Examples area) Mediab) Citizenc) Local publicMacro Environment: Macro environment factors are uncontrollable external forces that affect how a business operates. They are largely out of the control of the business, and often require changes in operating, management, production, and marketing. Analysts often categorize them using the acronyms PEST or PESTEL. Broken down, PEST stands for political ,economic, social, and technological concerns. PESTEL also includes environmental and legal factors.Political: Political macro environment factors include things like tax policies, government issued safety regulations, the availability of government contracts, and even shifts in the controlling political party.Economic: A market boom, recession, or growing inflation problem can all change the way an organization plans for the future and operates in the present. Economic factors are often difficult to assess, since economic forecasts and analyses vary widely between experts.Social : The mood and demographics of the population make up the social area of macro environment factors. For example, a society that places an emphasis on self guided jobs with room for creativity may cause organizations to redefine job descriptions and adapt the model of the workplace to attract workers.Technological: Technological macro environment factors can influence how an organization does business. A new type of machinery, computer, chip, or product created through research and development can help a company stay modernized and ahead of the market value.Legal: legal factors can limit or change how a business operates. For example, they may have to hire additional supervisory staff or purchase safety equipment after a new health and safety law is passed. Child labor laws often limit the hours a minor can work and require set break period

What Is International Business?Dealing with so many different cultures and with extensive field experience, I tend to apply the simplest of definitions:International business =Business transactions crossing national borders at any stageof the transaction.

Today, business is acknowledged to be international and there isa general expectation that this will continue for the foreseeable future.International business may be defined simply as business transactions that take place across national borders. This broad definition includes the very small firm that exports (orimports) a small quantity to only one country, as well as thevery large global firm with integrated operations and strategic alliances around the world. Within this broad array, distinctions are often made among different types of international firms, and these distinctions are helpful in understanding a firm's strategy, organization,and functional decisions (for example, its financial, administrative,marketing, human resource, or operations decisions)One distinction that can be helpful is the distinction between multi-domestic operations, with independent subsidiaries which act essentially as domestic firms, and global operations, with integrate subsidiaries which are closely related and inter connected. These maybe thought of as the two ends of a continuum, with many possibilities in between. Firms are unlikely to be at one end of the continuum, though, as they often combining aspects of multi-domestic operations with aspects of global operations. International business grew over the last half of the twentieth century partly because of liberalization of both trade and investment ,and partly because doing business internationally had become easier. In terms of liberalization, the General Agreement on Tariffs and Trade(GATT) negotiation rounds resulted in trade liberalization, and this was continued with the formation of the World Trade Organization (WTO) in1995. At the same time, worldwide capital movements were liberalized by most governments, particularly with the advent of electronic funds transfers. In addition, the introduction of a new European monetaryunit, the euro, into circulation in January 2002 has impacted international business economically. The euro is the currency of the European Union, membership in March 2005 of 25 countries, and the euro replaced each country's previous currency. As of early 2005, the United States dollar continues to struggle against the euro and the impacts are being felt across industries worldwide. In terms of ease of doing business internationally, two major forces are important:1. technological developments which make global communication and transportation relatively quick and convenient; and2. the disappearance of a substantial part of the communist world, opening many of the world's economies to private business.

DOMESTIC VS. INTERNATIONAL BUSINESSDomestic and international enterprises, in both the public and private sectors, share the business objectives of functioning successfully to continue operations. Private enterprises seek to function profitably as well. Why, then, is international businessdifferent from domestic? The answer lies in the differences across borders. Nation states generally have unique government systems laws and regulations, currencies, taxes and duties, and so on, as well as different cultures and practices. An individual traveling from his home country to a foreign country needs to have the properdocuments, to carry foreign currency, to be able to communicate in the foreign country, to be dressed appropriately, and so on. Doing business in a foreign country involves similar issues and is thus more complex than doing business at home. The following sections will explore some of these issues. Specifically, comparative advantage is introduced, the international business environment is explored, and forms ofinternational entry are outlined.THEORIES OF INTERNATIONAL TRADE AND INVESTMENTIn order to understand international business, it is necessary to have a broad conceptual understanding of why trade and investment across national borders take place. Trade and investment can be examined in terms of the comparative advantage of nations. Comparative advantage suggests that each nation is relatively good at producing certain products or services. This comparative advantage is based on the nation's abundant factors of production land, labor, and capitaland a country will export those products/services that use its abundant factors of production intensively. Simply, consider only two factors of production, labor and capital, and two countries, X and Y. If country X has a relative abundance of labor and country Y a relative abundance of capital, country X should export products/services that use labor intensively, country Y should export products/services that use capital intensively. This is a very simplistic explanation, of course. There are many more factors of production, of varying qualities, and there are many additional influences on trade such as government regulations. Nevertheless, it is a starting point for understanding what nations are likely to export or import. The concept of comparative advantage can also help explain investment flows. Generally, capital is the most mobile of the factors of production and can move relatively easily from one country to another. Other factors of production, such as land and labor, either do not move or are less mobile. The result is that where capital is available in one country it may be used to invest in other countries to take advantage of their abundant land or labor. Firms may develop expertise and firm specific advantages based initially on abundant resources at home, but as resource needs change, the stage of the product life cycle matures, and home markets becomesaturated, these firms find it advantageous to invest internationally.THE INTERNATIONAL BUSINESS ENVIRONMENTInternational business is different from domestic business because the environment changes when a firm crosses international borders. Typically, a firm understands its domestic environment quite well, but is less familiar with the environment in other countries and must invest more time and resources into understanding the newenvironment. The following considers some of the important aspects of the environment that change internationally. The economic environment can be very different from one nation to another. Countries are often divided into three main categories: the more developed or industrialized, the less developed or third world, and the newly industrializing or emerging economies. Within each category there are major variations, but overall the more developed countries are the rich countries, the less developed the poor ones, and the newly industrializing (those moving from poorer to richer). Thesedistinctions are usually made on the basis of gross domestic product per capita (GDP/capita). Better education, infrastructure, and technology, health care, and so on are also often associated with higher levels of economic development. In addition to level of economic development, countries can be classified as free-market, centrally planned, or mixed. Free-market economies are those where government intervenes minimally in business activities, and market forces of supply and demand areallowed to determine production and prices. Centrally planned economies are those where the government determines production and prices based on forecasts of demand and desired levels of supply. Mixed economies are those where some activities are left to market forces and some, for national and individual welfare reasons, are government controlled. In the late twentieth century there has been a substantial move to free-market economies, but the People's Republic of China, the world's most populous country, along with a few others, remained largely centrally planned economies, and most countries maintain some government control of business activities. Clearly the level of economic activity combined with education, infrastructure, and so on, as well as the degree of government control of the economy, affect virtually all facets of doing business, and a firm needs to understand this environment if it is to operate successfullyinternationally.The political environment refers to the type of government, the government relationship with business, and the political risk in a country. Doing business internationally thus implies dealing with different types of governments, relationships, and levels of risk. There are many different types of political systems, for example, multi-party democracies, one-party states, constitutional monarchies, dictatorships (military and nonmilitary). Also, governments change in different ways, for example, by regular elections, occasional elections, death, coups, war. Government-business relationships also differ from country to country. Business may be viewed positively as the engine of growth, it may be viewed negatively as the exploiter of the workers, orsomewhere in between as providing both benefits and drawbacks. Specific government-business relationships can also vary from positive to negative depending on the type of business operations involved and the relationship between the people of the host country and the people of the home country. To be effective in a foreign location an international firm relies on the goodwill of the foreign government and needs to have a good understanding of all of these aspects of the political environment. A particular concern of international firms is the degree of political risk in a foreign location. Political risk refers to the likelihood of government activity that has unwanted consequences for the firm. These consequences can be dramatic as in forced divestment, where a government requires the firm give up its assets, or more moderate, as in unwelcome regulations or interference in operations. In any case the risk occurs because of uncertainty about the likelihood of government activity occurring. Generally, risk is associated with instability and a country is thus seen as more risky if the government is likely to change unexpectedly, if there is social unrest, if there are riots, revolutions, war, terrorism, and so on. Firms naturally prefer countries that arestable and that present little political risk, but the returns need to be weighed against the risks, and firms often do business in countries where the risk is relatively high. In these situations, firms seek to manage the perceived risk through insurance, ownership andmanagement choices, supply and market control, financing arrangements, and so on. In addition, the degree of political risk is not solely a function of the country, but depends on the company and its activities as wella risky country for one company may be relatively safe for another.

The cultural environment is one of the critical components of the international business environment and one of the most difficult to understand. This is because the cultural environment is essentially unseen; it has been described as a shared, commonly held body of according to Kluckhohn and Strodtbeck. National culture is described as the body of general beliefs and values that are shared by a nation. Beliefs and values are generally seen as formed by factors such as history, language, religion, geographic location, government, and education; thus firms begin a cultural analysis by seeking to understand these factors. Firms want to understand what beliefs and values they may find in countries where they do business, and a number of models of cultural values have been proposed by scholars. The most well-known is that developed by Hofstede in1980. This model proposes four dimensions of cultural values including individualism, uncertainty avoidance, power distance and masculinity. Individualism is the degree to which a nation values and encourages individual action and decision making. Uncertainty avoidance is the degree to which a nation is willing to accept and deal with uncertainty. Power distance is the degree to which a national accepts and sanctions differences in power. And masculinity is the degree to which a nation accepts traditional male values or traditional female values. This model of cultural values has been used extensively because it provides data for a wide array of countries. Many academics and managers found this model helpful in exploring management approaches that would be appropriate in different cultures. For example, in a nation that is high on individualismone expects individual goals, individual tasks, and individual reward systems to be effective, whereas the reverse would be the case in a nation that is low on individualism. While this model is popular, there have been many attempts to develop more complex and inclusive models of culture.

The competitive environment can also change from country to country. This is partly because of the economic, political, and cultural environments; these environmental factors help determine the type and degree of competition that exists in a given country. Competition can come from a variety of sources. It can be public or private sector, come from large or small organizations, be domestic or global, and stem from traditional or new competitors. For the domestic firm the most likely sources of competition may be well understood. The same is not the case when one moves to compete in a new environment. For example, in the 1990s in the United States most business was privately owned and competition was among private sector companies, while inthe People's Republic of China (PRC) businesses were owned by the state. Thus, a U.S. company in the PRC could find itself competing with organizations owned by state entities such as the PRC army. This could change the nature of competition dramatically. The nature of competition can also change from place to place asthe following illustrate: competition may be encouraged and accepted or discouraged in favor of cooperation; relations between buyers and sellers may be friendly or hostile; barriers to entry and exit may be low or high; regulations may permit or prohibit certain activities. To be effective internationally, firms need to understand these competitiveissues and assess their impact. An important aspect of the competitive environment is the level, and acceptance, of technological innovation in different countries. The last decades of the twentieth century saw major advances in technology, and this is continuing in the twenty-first century.

Technological environment:Technology often is seen as giving firms a competitive advantage ;hence, firms compete for access to the newest in technology, and international firms transfer technology to be globally competitive. It is easier than ever for even small businesses to have a global presence thanks to the internet, which greatly expands their exposure, their market, and their potential customer base. For economic, political, and cultural reasons, some countries are more accepting of technological innovations, others less accepting.

INTERNATIONAL ENTRY CHOICES

International firms may choose to do business in a variety of ways. Some of the most common include exports, licenses, contracts and turnkey operations, franchises, joint ventures, wholly owned subsidiaries, and strategic alliances. Exporting is often the first international choice for firms, and many firms rely substantially on exports throughout their history. Exports are seen as relatively simple because the firm is relying on domestic production, can use a variety of intermediaries to assist in the process, and expects its foreign customers to deal with the marketing and sales issues. Many firms begin by exporting reactively; then become proactive when they realize the potential benefits of addressing a market that is much larger than the domestic one. Effective exporting requires attention to detail if the process is to be successful; for example, the exporter needs to decide if and when to use different intermediaries, select an appropriate transportation method, preparing export documentation, prepare the product, arrange acceptable payment terms, and so on. Most importantly, the exporter usually leaves marketing and sales to the foreign customers, and these may not receive the same attention as if the firm itself under-took these activities. Larger exporters often undertake their own marketing and establish sales subsidiaries in important foreignmarkets. Licenses are granted from a licensor to a licensee for the rights to some intangible property (e.g. patents, processes, copyrights, trademarks) for agreed on compensation (a royalty payment). Many companies feel that production in a foreign country is desirable but they do not want to undertake this production themselves. In this situation the firm can grant a license to a foreign firm to undertake the production. The licensing agreement gives access to foreign markets through foreign production without the necessity of investing in the foreign location. This is particularly attractive for a company that does not have the financial or managerial capacity to invest and undertake foreign production. The major disadvantage to a licensing agreement is the dependence on the foreign producer for quality, efficiency, and promotion of the productif the licensee is not effective this reflects on the licensor. In addition, the licensor risks losing some of its technology and creating a potential competitor. This means the licensor should choose a licensee carefully to be sure the licensee willperform at an acceptable level and is trustworthy. The agreement is important to both parties and should ensure that both parties benefit equitably. Contracts are used frequently by firms that provide specialized services, such as management, technical knowledge, engineering, information technology, education, and so on, in a foreign location for a specified time period and fee. Contracts are attractive for firms thathave talents not being fully utilized at home and in demand in foreign locations. They are relatively short-term, allowing for flexibility, and the fee is usually fixed so that revenues are known in advance. The major drawback is their short-term nature, which means that the contracting firm needs to develop new business constantly and negotiate new contracts. This negotiation is time consuming, costly, and requires skillat cross-cultural negotiations. Revenues are likely to be uneven and the firm must be able to weather periods when no new contracts materialize. Turnkey contracts are a specific kind of contract where a firm constructs a facility, starts operations, trains local personnel, then transfers the facility (turns over the keys) to the foreign owner. Thesecontracts are usually for very large infrastructure projects, such as dams, railways, and airports, and involve substantial financing; thus they are often financed by international financial institutions such as the World Bank. Companies that specialize in these projects can be very profitable, but they require specialized expertise. Further, theinvestment in obtaining these projects is very high, so only a relatively small number of large firms are involved in these projects, and often they involve a syndicate or collaboration of firms. Similar to licensing agreements, franchises involve the saleofthe right to operate a complete business operation. Well-known examples include independently owned fast-food restaurants like McDonald's and Pizza Hut. A successful franchise requires control over something that others are willing to pay for, such as a name, set of products, or a way of doing things, and the availability of willing and able franchisees. Finding franchisees and maintaining control over franchisable assets in foreign countries can be difficult; to be successful at international franchising firms need to ensure they can accomplish both of these.

Joint ventures involve shared ownership in a subsidiarycompany.A joint venture allows a firm to take an investment position in a foreign location without taking on the complete responsibility for the foreign investment. Joint ventures can take many forms. For example, there can be two partners or more, partners can share equally or have varying stakes, partners can come from the private sector or the public, partners can be silent or active, partners can be local or international. The decisions on what to share, how much to share, with whom to share, and how long to share are all important to the success of a joint venture. Joint ventures have been likened to marriages, with the suggestion that the choice of partner is critically important. Manyjoint ventures fail because partners have not agreed on their objectives and find it difficult to work out conflicts. Joint ventures provide an effective international entry when partners are complementary, but firms need to be thorough in their preparation fora joint venture. Wholly-owned subsidiaries involve the establishment ofbusinesses in foreign locations which are owned entirely by the investing firm. This entry choice puts the investor parent in full control of operations but also requires the ability to provide the needed capital and management, and to take on all of the risk. Where control is important and the firm is capable of the investment, it is often thepreferred choice. Other firms feel the need for local input from local partners, or specialized input from international partners, and opt for joint ventures or strategic alliances, even where they are financially capable of 100 percent ownership.

Strategic alliances are arrangements among companies tocooperate for strategic purposes. Licenses and joint ventures are forms of strategic alliances, but are often differentiated from them. Strategic alliances can involve no joint ownership or specific license agreement, but rather two companies working together to develop a synergy. Joint advertising programs are a form of strategic alliance, as are joint research and development programs. Strategic alliances seem to make some firms vulnerable to loss of competitive advantage, especially where small firms ally with larger firms. In spite of this, many smaller firms find strategic alliances allow them to enter the international arena when they could not do so alone. International business grew substantially in the second half of the twentieth century, and this growth is likely to continue. The international environment is complex and it is very important for firmsto understand this environment and make effective choices in this complex environment. The previous discussion introduced the concept of comparative advantage, explored some of the important aspects of the international business environment, and outlined the major international entry choices available to firms. The topic of international business is itself complex, and this short discussion serves only tointroduce a few ideas on international business issues.Internationalizing business-Advantages Internationalization can provide firms numerous benefits, including the ability to sell to a larger market, utilization of location economies, using experiences learned in various markets to enhance core competencies, and development and transfer of skills between subsidiaries and headquarters. Although Internationalization provides all the above mentioned advantages, these advantages themselves bring in certain problems that constraint the ability of a firm to fully reap its benefits. For example, a company might have successfully developed a product for the domestic market, and believes that there is a large consumer base for the product across the globe. Even though the product may have a large consumer base, the tastes and preferences of consumers may vary across nations to force the company to customize its product in order to be successful. Differentiation of products would lead to cost escalation, and result in erosion of profit margins. Since localization leads to higher costs, companies wishing to internationalize with a generic or a commodity product would be at a significant disadvantage. Another problem arising out of internationalization is the use of location economies to maximize production element of global value chain. India along with China may seem like an ideal location for placing production part of the value chain, but there are some caveats with these choices as well. India for example has a vast labor pool and low costs, but its archaic labor laws, excessive bureaucracy, and indifferent government makes it a poor choice. Internationalization can also lead to headquarters and subsidiary conflict. A Headquarters with a fully centralized decision making process would allow for a streamlined and coordinated decision making process, but at the same time would also inhibit subsidiaries from innovating and taking risks which could have benefitted the corporation. A decentralized decision making on the other hand would allow subsidiaries to respond quickly to the needs of their local market, but at same time could also lead to lack of coordination among various parts of value chain, and might even cause subsidiaries to carry out activities that might run counterto the benefit of the firm as a whole. It can be stated that Procter & Gamble historically followed a "localization" strategy while internationalizing. As stated by its first vice-president of overseas operations Walter Lingle, "We must tailor our products to meet consumer demands in each nation." Such customization and country-specific divisions meant that the company would have numerous subsidiaries, which would also end up duplicating numerous elements of the value chain process. Although the localization strategy was successful in its earlier, a combination of events, including the fall of trade barriers in Europe meant that the nature of the competitive market also changed makinglocalization strategy being pursued by Procter & Gamble prohibitively expensive for the firm. Since the structure and strategy of the company were inconsistent with the nature of the market, the company's CEO Jager introduce a vision that would align thecompany's strategy and structure with the new realities of the market. Along with alignment of strategy and structure, the vision - Organization 2005 (O2005) would attempt to change the way the company innovated, produced, and marketed its products. The Organizational 2005 vision could be described as the movement of thecompany from localization strategy to transnational strategy. Since the implementation of vision O2005 was a work in progress during the events of the case, I will discuss numerous measures that the company could have implemented to strengthen the vision. In case of Procter & Gamble, the process through which the SK-II product was created can be described as an excellent path for the company to follow to maximize global value chain activities, and at the same time provide tailored products to individual markets. The SK-II development process utilized globally standardized "shells" or"chassis" cleansing product that would allow for utilization of economies of scale and location economies. The creation of SK-II product involved a global development process which was created once a consumer researcher found that despite regional differences, there was an opportunity worldwide for facial cleansing. A technologyteam was assembled drawing personnel from various divisions of the company throughout the world. This technology team developed a new facial cleansing product that would serve as a foundation for Procter & Gamble to customize and market in various nations. For example, the Japanese team added attributes to the foundation or "chassis" product that would satisfy the needs of the Japanese consumers. The U.S.developing team on the other hand added attributes to the "chassis" product that would meet the requirements of the American consumers. This development process essentially allowed the company to build 1 globally standardized product - the "chassis", which utilized location and economies of scale to reduce costs, and at the same the time allowed for the differentiation of the product through addition of various attributes suitable to the local market. The adoption of this strategy throughout Procter & Gamble would allow the company to find a balance between localization and standardization.Since the competitive nature of the market changed, the prior organizational structure Procter & Gamble followed became a liability. A new organizational structure would require the company's strategy and organizational culture to be aligned with the demands of the new competitive market. The current organizational structure of Procter & Gamble revolved around the 4 regional organizations which were tasked with profit responsibility. Under vision O2005, the profit responsibility shifted from regional organizations to global business units (GBUs), who were also tasked with managing of product development, manufacturing, and marketing of their respective categories worldwide. Under this structure, the cosmetics business unit would be entirely responsible for profitability, manufacturing, and marketing of products under its unit worldwide. The product based divisional structure would streamline the decision making process, by placing decision making authority under those who are focused only on that product division, as opposed to a country a manager who has a broader scope. The problem with this organizational structure is that it reduces the role of national managers who could have provided the company the best input in terms of customization of a product for the local market. One of the ways that Procter & Gamble could balance theproblem is by involving country managers in the post-chassis development process. With the foundation "chassis" product on hand, the product division managers could involve country managers in providing input that would allow the "chassis" product to be adapted to the local needs. Procter & Gamble could also establish a knowledgenetwork where informal contacts are encouraged and maintained throughout the company to allow free transmitting of ideas. For example, a country manager may realize that there is a need that is not being satisfied by current products in the market. A knowledge network or informal web of network may allow a country manager toget in touch with other relevant members in the organization morequickly cutting through bureaucratic hurdles, and pave the way for a development process that would lead to creation of new products. As has been stated in the case, Procter & Gamble had numerous issues in dealing with its various subsidiaries. One of the problems that arise during internationalization is the subsidiary-headquarter conflict.Procter & Gamble has to balance between decentralization that would lead to innovation and risk taking, and centralization that would lead to greater coordination among various divisions of the firm. In order to ensure innovation, risk taking, efficient coordination, and buy-in by the various subsidiaries, Procter & Gamble could project its headquarters as "first among equals", rather than the absolute authority in all decision making process. Since SK-II was an endeavor of the Japanese division, Procter & Gamble would be well advised to realize that new product innovations don't have to come just from the headquarters, but could also come from other divisions. Encouraging initiatives like internationalization of SK-II would also encourage greater organizational buy-in from other subsidiaries. Upward mobilization of personnel throughout the firm rather than being restricted to one geographic region would also encourage the belief among subsidiaries that they are part of a larger "organism", rather than an isolated entity. Encouraging and nurturing informal networks across subsidiaries, and at the same time creating interdependence - whether in terms of production or R&D process would allow the subsidiaries and employees to look at the best interests of the firm rather than their immediate division. Since the organizational culture, and culture of the nation thefirm is located in affects the performance of the firm, Procter & Gamble would be well encouraged to recruit employees that are a "fit" to culture being encouraged by the firm. A strong organizational culture would ensure that employees have a strong identity regarding the values, ideals, rituals, and goals of the firm.

What are the advantages and disadvantages of doing businessinternationally?AdvantagesFaster growth: Firms that have operate internationally tend to develop at a much quicker pace than those operating locallyAccess to cheaper inputs: Operating internationally may enable the firm to source raw materials or labor at lower pricesIncreased quality and efficiency: Exposure to foreign competition will encourage increased efficiency. Doing business in the international market allows firms to improve the quality of their product in order to gain a competitive advantage.New market opportunities: International business presents firms with new market opportunities. These new markets provide more opportunities for expansion, growth, and income. A bigger market means more customers, increased revenue, a larger profit margin, and allows the business to realize economies of scale.Diversification: As the firm diversifies its market, it becomes less vulnerable to changes in local demand. This reduces wild swings in a company's sales and profits.DisadvantagesIncreased costs: There are increased operating expenses including the establishment of facilities abroad, the hiring of additional staff, traveling of personnel, specialized transport networks, information and communication technology.Foreign regulations and standards: The firm may need to conform to new standards. This may require changes such as in the production process, inputs and packaging, incurring additional costs.Delays in payments: International trade may cause delays in payments, adversely affecting the firm's cash flow.Complex organizational structure: International business usually requires changes to the firms operating structure. Training/retraining of management may be necessary to facilitate restructuring.Factors causing Globalization of business It means businesses are shifting their boundaries from domesticto international ones. The rapid growth of business globalization rises some questions to research. One of them is why business is becoming global? The main and important causes for the recent business globalization are: increase in global competition, rapid increase and expansion of technology, liberalization of cross border movement anddevelopment of supporting services. The pressure of increased foreign competition can force a company to expand its business into international market. Now days companies can respond rapidly to many foreign sales opportunities. They can exchange productionquickly among countries if they are experienced in foreign market and because they can transport goods efficiently from one place to other. The pace of the technology advances has accelerated to greaterheights and the knowledge of product and services is available more quickly and due to communication and transportation technology. By increasing the demand of new products and services, Technology has tremendous impact on International business as the demand increases and so do the number of International business transactions.The World Trade Organizations (WTO) in 1995 made some rules due to which the restrictions imposed on international trade are diminishing. Banks have developed efficient means for companies to receive payments for their foreign sales, some examples are Western union money transfer, different countries bank in one country. Most producers can be paid relatively easily for goods and services sold abroad because of financial facilities. The considerable number of facilities and services has grown up so quickly and are now developing and advancing their quality that business globalization will inevitably remain one of the most rapid and successful events in the twenty first century.What is globalization?Definition: globalization is the trend toward a more integratedglobal economic system.The rate at which this shift is occurring has been accelerated recently.Globalization has two faces:a) Globalization of marketsb) Globalization of productionGlobalization of markets:Globalization of markets refers to the fact that in many industries historically distinct and separate national markets are merging into one huge global marketplace. There is a movement towards a globalization of markets, as thetastes and preferences of consumers in different nations are beginning to converge upon some global norm. The global acceptance of Coca- Cola, Levis jeans, Sony Walkmans, and McDonalds hamburgers are all examples. By offering a standard product worldwide, they are helping to create a global market. Even smaller companies can get the benefits from the globalization of markets. Despite the global prevalence of global brands such as Levis, City Bank, Pepsi etc, national markets are not disappearing. There are still significant differences - Germany still leads in per capita beer consumption, with a local pub on almost every corner and in some cities, women selling beer out of their front windows to passers by on the street. The French lead in wine consumption, and the consumption of wine is a natural part of life anywhere in France. Italians lead in pasta eaten, and these differences are unlikely to be eliminated any time soon. Hence, often there is still a need for marketing strategies and product features to be customized to local conditions.Globalization of production:The globalization of production refers to the tendency among many firms to source goods and services from different locations around the globe in an attempt to take advantage of national differences in the cost and quality of factors of production. (labor, energy, land and capital)Through this companies hope to lower their overall cost structure and or improve the quality or functionality of their product, thereby allowing them to compete more effectively against their rivals. The examples of Boeing and Swan Optical illustrate how production is dispersed. Boeing Companys commercial jet airliner, Boeing 777 contains132,500 major components parts that are produced around the world by 545 different suppliers. Eight Japanese suppliers make parts of fuselage, doors and wings, a supplier in Singapore make the doors for the nose landing gear, three suppliers in Italy manufacture wing flaps etc.The result of having a global web of suppliers is a better final product, which enhances the chances of Boeing wining a greater share of aircraft orders than its global rival Airbus. While part of the rationale is based on costs and finding the bestsuppliers in the world, there are also other factors. In Boeings case, if it wishes to sell airliners to countries like China, these countries often demand that domestic firms be contracted to supply portions of the plane - otherwise they will find another supplier (Airbus) who is willing to support local industry.What are causes of globalisation?(a) Technology allows ideas to cheaply travel faster, further and to more people(b) Mass transport allows people and goods also to cheaply travel faster and further(c) Education around the world skills workers to do the work previously limited to the developed worldHowever, for globalization to work there needs to be:(d) Laws allowing countries to invest and export to each other

UNIT-11COUNTRY EVALUATION AND SELECTIONMode of Entry In to International Market:Introduction:A mode of entry into an international market is the channel which your organization employs to gain entry to a new international market. This lesson considers a member of key alternatives, but recognize that alternatives are many and diverse. Here you will be consider modes of entry into international markets such as the internet, Exporting, Licensing, International agents, International distributors, strategic Alliances, Joint ventures, overseas, Manufacture and International sales subsidiaries. Finally we consider the stages of internationalization.EXPORTING: Exporting is the process of selling of goods and services produced in one country to other countries.There are two types of exporting :Direct exporting and indirect exportingDirect exports represent the most basic mode of exporting made by a (holding) company. Capitalizing on economies of scale in production concentrated in the home country and affording better control over distribution. Direct export works the best if the volumes are small. Large volumes of export may trigger protectionism.Sales Representatives :Sales representatives represent foreign suppliers/ manufacturers in their local markets for an established commission on sales. Provide support services to a manufacturer regarding local advertising, local sales presentations, customs clearance formalities, legal requirements. Manufacturers of highly technical services or products such as production machinery benefit the most form sales representation.Importing Distributors:Importing distributors purchase product in their own right and resell it in their local markets to wholesalers, retailers or both. Importing distributors are a good market entry strategy for products that are carried in inventory, such as toys, appliances, prepared food.Pros: Control over selection of foreign markets and choice of foreign representative companies Good information feedback from target market. Better protection of trademarks, patents, goodwill and other intangible propertyCons : Higher start up costs and higher risks as opposed to indirect exporting Greater information requirements Longer time to market as opposed to indirect exportingIndirect export is the process of exporting through domestically based export intermediaries. The exporter has no control over its products in the foreign market.Export Trading companies (ETCs)These provide support services of the entire export process for one or more suppliers. Attractive to suppliers that are not familiar with exporting as ETC does usually perform all the necessary work. Locate overseas trading partners, present the product, quote on specific enquiries etc.Export Management companies (EMCs): These are similar to EICs in the way that they usually export for producers. Unlike ETCs they rarely take on export credit risks and carry one type of product, not representing competing ones. Usually, EMCs trade on behalf of their suppliers as their export departments.Export Merchants: Export merchants are wholesale companies that buy unpackaged products from suppliers/manufacturers for resale overseas under their own brand names. The advantage of export merchants is promotion. One of the disadvantages for using export merchants result in presence of identical products under different brand names and pricing on the markets, meaning that export merchants activities may hinder manufacturers exporting efforts.Confirming Houses:These are intermediate sellers that work for foreign buyers. They receive the product requirements from their clients, negotiate purchase, make delivery, and pay the suppliers/manufacturers. An opportunity here arises in the fact that if the client likes the product it may become a trade representative. A potential disadvantage includes suppliers unawareness and lack of control over what a confirming house does with their product.Nonconforming Purchasing Agents: These are similar to confirming houses with the exception that they do not pay the suppliers directly- payments take place between a supplier/manufacturer and a foreign buyerAdvantages: Fast market Access Concentration of resources for production Little or no financial commitment. The export partner usually covers most expenses associated with international sales. Low risk exists for those companies that are still developing their R&D, marketing , and sales strategies. The management team is not distracted No direct handle of export processes.Disadvantages: Higher risk than with direct exporting. Little or no control over distribution, sales, marketing, etc. As opposed to direct exporting Inability to learn how to operate overseas Wrong choice of market and distributor may lead to inadequate market feedback affecting the international success of the company. Potentially lower sales as compared to direct exporting, due to wrong choice of market and distributors by export partners.Those companies that seriously consider international markets as a crucial part of their success would likely consider direct exporting as the market entry entry tool. Indirect exporting is preferred by companies who would want to avoid financial risk as a threat to their other goals.LICENSING:An international licensing agreement allows foreign firms, either exclusively or non exclusively to manufacture a proprietors product for a fixed term in a specific market.Summarizing, in this foreign market entry mode, a licensor in the home country makes limited rights or resources available to the licenses in the host country. The rights or resources may include patents, trademarks, managerial skills, technology, and others that can make it possible for the license to manufacture and sell in the host country a similar product to the one the licensor has already been producing and selling in the home country without requiring the licensor to open a already been producing and selling in the home country without requiring the licensor to open a new operation overseas. The licensor earnings usually take forms of one time payments, technical fees and royalty payments usually calculated as a percentage of sales. As in this mode of entry the transference of knowledge between the parental company and the licensee is strongly present, the decision of making an international license agreement depend on the respect the host government show for intellectual property and on the ability of the licensor to choose the right partners and avoid them to compete in each other market. Licensing is a relatively flexible work agreement that can be customized to fit the needs and interests of both, licensor and licensee. Following are the main advantages and reasons to use an international licensing for expanding internationally:Advantages:1. A license allows a company to take a product to market without the expense of setting up locally and all the risks and costs associated with that.2. A larger and more powerful licensee in a new market can provide instant market access and deter competitors and imitators.3. A license can be used to enable products to be supplied locally where there is no opportunity to manufacture in the locality.4. It is possible with the right kind of license and overseas business partner to create an extensive market presence very early on in the products life cycle.Reasons:1. It is important for the company to find the right partner to license with in a local situation. Understanding what an overseas partner can do is essential to making licensing a success.UK Trade& Investment can help in finding the right individual or company.2. It is important to ensure that there are proper control provisions in the license. It is especially important with licensing to have a well drafted license drawn up by experts. The license should contain things such as full audit provisions and as licensor it may be important to police those audit provisions.3. In the long term, royalty payments from a license may not provide the maximum for a licensor. It could be that setting up locally can generate better profits in the long run.Franchise Meaning: Franchise is a local representative of any organization who markets and conducts the entire marketing activity under complete guide line and support of franchisor in the area allotted to the franchisee. It is kind of authorization granted to an individual or corporation by a franchisor to sell its goods or services in a defined way.Franchise is a system of distribution through which the owner of product approaches independent businessmen in selected territories, appoint them as sole franchisee for particular areas and retains control over the technique or style with which the product is merchandises are expected to promote the sale in a specific mannerDefinition of Franchise:Franchise means expanding the business in the new market by transferring trademark and goodwill to franchisee by charging fees.Features of Franchise:1. Well established business:A franchise is a readymade and well established business that needs expansion. It is a ready form of business seeking expansion in new market areas with the help of a local representative.2. Needs limited investment:As franchise business is already set up by the franchisor, the initial investment required by the franchisee to enter and establish is relatively low.3. Easy entry in new markets:As the goodwill and reputation is already set up in other countries, franchisor does not require more efforts to enter in new markets. He is easily accepted in the new markets.4. Business has large establishments:Franchise has large establishments around the world and operates through a network of local representatives in different market areas.5. Helps in diverting business risks:By establishing outlets in different parts of the world franchise helps the owner of the firm to diversify his business risks.6. Results in a large turnover:Franchise results in large volume of sales. Society is benefited by the management of franchisor and service skills of franchisee. Brand name and bumper publicity results in a large turnover.7. Separates labour and specialization:Franchise results in division of labour and specialization. The franchisor concentrates on production, whereas franchisee looks after distribution and service at a unit level. The advantages of division of labour and specialization benefit both.8. Allows use of brand name and trademark:In franchise selling the franchisor allows the franchisee to use his brand name, trademark, service mark and management skills for developing and expanding franchise business.

9. Business is based on mutual agreement:Franchise business is based on mutual agreement or contract setting out terms and conditions for franchising. Agreement is based on the understanding between franchisor and franchisee. To avoid disputes, agreement should be drafted in a detailed manner.10. Success needs a long term relationship:For the successful functioning of a franchise business, both franchisor and franchisee have to remain committed in their long term relationship, only then business will be mutually rewarding.Export:The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an exporter who is based in the country of export where as the overseas based buyer is referred to as an importer. In international trade, exports refers to selling goods and services produced in the home country to other markets.Export of commercial quantities of goods normally requires involvement of the customs authorities in both the country of export and the country of import.Definition of Export: A function of international trade whereby goods produced in one country are shipped to another country sale or trade. The sale of such goods adds to the producing nations gross output. If used for trade, exports are exchanged for other products or services.Nature and characteristics of exporting:1. Export Potential:To be successful you must decide if the export business is for you. Ask if your company, the management as well as owners of the company are committed towards exporting and if your companys products/services are ready for the export market.2. Export Readiness:Review your companys current resources, do you have the financial resources, staff dedicated to exports, suitable sales literature, business card, price lists, website and intellectual property (ip) registration.3. Select product and target market: Understand the markets rules of doing business, particularly on issues such as duties and paperwork. You may also want to visit the market and/or your prospective distributors/representatives.4. Research your Overseas Market:Identity your product and target market and gather data to plan for your export. Market research identify your product and target market, competitors in the market, competitors in the market, customers, distribution channels and the best way to promote your product.

5. Export business plan:Planning is essential to any organization . Before embarking on an all-out marketing plot, it is vital for companies to draw up an export business plan as this document can support a loan application, outlines in detail the direction of the business.6. Sales and Marketing:Sales and marketing allows your customers to be aware of your business as well as your products or services. It is through sales and marketing that people know what your company has to offer.7. Export pricing:Companies must identity the most appropriate export pricing mechanism for their business. As pricing generates revenue for the company, it is important to learn how to effectively choose a pricing strategy so that profit margin is maximized.8. Secure Export Orders:This is an important elements for any company that wishes to retain their customer loyalty and sustain their business presence. A typical order cycle would normally end with securing orders in most cases, re-ordering.9. Export Transactions And Documentations:You will need to know the export documentations required to export your products or services, as this may differ according to certain industries and/or international markets.Advantages:1. Ownership advantages are the firms specific assets, international experience, and the ability to develop either low-cost.2. The location advantages of a particular market are a combination of market potential and investment risk.3. Internationalization advantages are the benefits of retaining a core competence with in the company and threading it though the value chain rather than obtain to license, outsource, or sell it.4. If the company and its products are equipped with ownership advantage and internalization advantage.5. Exporting allows managers to exercise operation control but does not provide them the option to exercise as much marketing control.Features:For small and medium enterprises (SME) with less than 250 employees, selling goods and services to foreign markets seems to be more difficult than serving the domestic market.1. Financial management effort: To minimize the risk of exchange rate fluctuation and transactions processes of export activity the financial management needs more capacity to cope the major effort.2. Customer demand: International customers demand more services demand more services from their vendor like installation and startup of equipment, maintenance or more delivery services.3. Communication technologies improvement: The improvement of communication technologies in recent years enable the customer to interact with more suppliers while receiving more information and cheaper communications cost.4. Management mistakes: The management might tap in some of the organizational pitfalls, like poor selection of oversea agents or distributors or chaotic global organization.Export Promotion Council:The Export Promotion Council of Kenya (EPC): Kenyas premier institution in the development and promotion of export trade in the country trade in the country. Established in 1992, EPCS primary objective was to address bottlenecks that were facing exporters and producers and producers of export goods and services with a view to increasing the performance of the export sector. The council was therefore established for the purpose of giving an outward orientation to an economy that was hitherto inward looking. Over time, the EPC has fully embraced the mandate of co-ordination and harmonizing export development and promotion activities in the country, providing leadership to all national export programmes. Today, EPC is the focal point for export development and promotion activities in the country.Meaning of Export Promotion:Export promotion refers to that policy of the government that offers encouragement to the exporters with a view to enhance the export of the country. In order to achieve this objective they are give numerous incentives and facilities.Export promotion strategy:1. Earning of foreign exchange: Export promotion leads to expansion of goods for the foreign market. These goods earn foreign exchange that can be used to facilitate development.2. Greater Utilization of Resources: Export promotion industries have a wide market for their produce for both domestic and foreign markets. They are therefore able to produce for both domestic and foreign markets. They are therefore able to produce for a greater capacity, production for export enables them to increase utilization of locally available resources that would otherwise be idle.3. Full Utilization of plant capacity: Due to the fact that export promotion industries have a wide market they are able to fully utilize the existing plant capacity. In this way they can take advantage of large scale production. This will lead to lower production costs.4. Addition of value to primary exports: By establishing export oriented industries, a country is able to process its primary products instead of exporting them in their raw form. This adds value to primary exports, hence increasing foreign exchange earnings.5. Creation of employment: Generation of employment opportunities is a major consideration in any industrialization strategy. For example people will be employed directly in a particular export promotion industry.6. Encouragement of efficiency in production: Since export promotion industries are exposed to competition from foreign producers, they are likely to strive for greater efficiency in production and higher quality of goods.EXPORT PROMOTION AND IMPORT SUBSTITUTION IN INDIA:India has been unable to display significant strength in manufacturing exports or to use export oriented manufacturing sectors as a launch pad for economic development the way several export oriented manufacturing sectors as a launch pad for economic development the way several East Asian and south East Asian countries have been able to do. Indias Export emphasis in the last two decades has been in the area of software which tends to employ people who have a substantial amount of education and who have the specific ability to write software. Not surprisingly, therefore, the export sector has been unable to be a mechanism for lifting large percentages of the population from poverty in India, as it has been in south East Asian countries, Taiwan, Korea and China.The export sectors in these other Asian countries were able to absorb vast amounts of semi skilled and unskilled labor. Therefore in these countries the export oriented sector become a way for bringing about inclusive growth, a term that is much discussed in the Indian context, but which has not materialized in India to any significant extent.The elitist bias in Indias export policy is just one aspect of the overall elitist bias in the policies being followed by the Indian political establishment. In the absence of good mechanisms to ensure rapid absorption of unskilled and semiskilled labor, economic growth in India has displayed several undesirable characteristics. Indias manufacturing sector has languished while Indias service sector has grown the fastest and the service sector has grown in a way that has not provided the kind of rapid absorption of labor from the agricultural sector that is needed in order to provide a sustainable mechanism for lifting people out of poverty. More than sixty years after independence, sixty percent of the population still relies on agriculture for its livelihood and most of this population tends to live in rural areas. Not only are per capita incomes lower in this sector than in other sectors but the growth rate of per capita income has been negligible in the last two decades in this sector. The service sector has grown the fastest, providing rapid increase in income and wealth to those who are already well-off and who tend to be urbanites. The growth in the manufacturing sector has been lackluster. Moreover, there are some disturbing recent trends where Indias manufacturing sector has tended to become less labor intensive and more capital intensive, with higher amount of automation. So, India has neither an export-oriented policy nor a domestic policy that encourages inclusive growth or the creation of jobs for unskilled and semi-skilled labor.

UNIT-111 BALANCE OF PAYMENTS ACCOUNTSForeign Exchange Market Mechanism:Introduction: The foreign exchange market (forex , or currency market) is a form of exchange for the global decentralized trading of international currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market assists international trade and investment by enabling currency conversion. For example, it permits a business in the united states to import goods from the European Union member states especially Euro zero members and pay Euros, even though its income is in United states dollars. It also supports direct speculation in the value of currencies, and the carry trade, speculation based on the interest rate differential between two currencies.The foreign exchange market is unique because of the following characteristics:1. Its Huge Trading volume representing the largest asset class in the world leading to high liquidity.2. Its Geographical Dispersion3. Its continuous operation : 24 hours A day Except Weekends.4. The variety of factors that affect exchange rates.5. The low margins of relative profit compared with other markets of fixed income.6. The use of leverage to enhance profit and loss margins and with respect.DEFINITION: Global market in convertible currencies are traded and their conversion rates are determined. It is the worlds largest financial market in which every day, on average, some one and one-half trillion dollar worth of currencies are brought and sold.Advantages of Forex Market:1. Minimal or no commissions- There are no clearing fees, no exchange fees, no government fees and no brokerage fees.2. Easy access : If compare the money you need on the market in comparison with the amount needed for entering the stock, options or futures market, its a huge difference.3. No middleman: Spot currency trading is decentralized and eliminates middlemen, allowing you to trade directly.4. Lots of free courses and demo possibilities: On the internet you can find huge opportunities for learning how the Forex market works and what you need to become a good trader.5. Time and location flexibility: The market is open 24 hours each day, so you dont have to match your schedule with the one of the market.6. Low transaction costs: The transaction cost determined by the did/ask spread, is usually less than 0.1% and it can go even lower in the case of large dealers.7. A high liquidity market: The market is huge, so is extremely liquid. Around 4 trillion dollars are exchanged every day, according to the latest figures released by the Bank of International Settlements (BIS)8. Leverage: With a little investment you can move large amounts of money. Leverage gives the trader the ability to make nice profits and keep risk capital to a minimum.9. No forced deadlines: No one and no rule is forcing you to close a position. You can stay open as long as you consider necessary.10. No fixed lot size requirements: Your contract size its your decision and you are the only one who determines your own lot.11. Transparency: Due to multi- day market movement, its size and the high number of participants, it is virtually impossible to market manipulation.DISADVANTAGES:1. Differences between retail and wholesale pricing: Around two thirds of the traders are made between dealers and large organizations such as hedge funds and banks.2. Risk of choosing an inexperienced broker: You can find on the internet many people who are targeting fraud so be careful when choosing the broker.3. Where there is a winner, there is also a looser: Dont expect necessarily to win lots of money. Remember that for someone to get rich, another has to lose money on the Forex market.4. Requires knowledge and time: Without completely knowing the markets rules and without having patience, your investment might very well soon vanish.Exchange rate: In finance, an exchange rate ( also known as a foreign exchange rate, forex rate. Fx rate or aglo) between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one countrys currencys currency in terms of another currency.In the retail currency exchange market a different buying rate and selling rate will be quoted by money dealers. Most trades are to or from the local currency. The buying rate is the rate at which money dealers will buy foreign currency, and the selling rate is the rate at which they will sell the currency.The quoted rates will incorporate an allowance for a dealers margin in trading, or else the margin may be recovered in the form of a commission or in some other way. Different rates may also be quoted for cash a documentary form or electronically.Types of Exchange Rates: These are some of the exchange rates which are followed everywhere.1. Fixed and Floating Exchange rates:Fixed exchange rate is the official rate set by the monetary authorities of the Governance for one or more currencies.Under floating exchange rate, the value of the currency is decided by supply and demand factors 2. Direct and indirect exchange rates:Direct method : under this, a given number of units of local currency per unit of foreign currency is quoted. They are designated as direct/certain rates because the rupee cost of single foreign currency unit can be obtained directly. Direct quotation is also called home currency quotation.Indirect method: under this, a given number of units of foreign currency per unit of local currency is quoted. Indirect quotation is also called foreign currency quotation3. Buying and selling:Exchange rates are quoted as two way quotes for purchase and sale transactions by the Bank 4. Spot and forward: The delivery under a foreign exchange transaction can be settled in one of the following ways Spot: To be settled on the second working day from the date of contractForward: To be settled at a date farther than the spot date. ROLE OF MNC COMPANIES IN INTERNATIONAL:Introduction: A multinational corporation (MNC) or multinational enterprise (MNE) is a corporation that is registered in more than one country or that has operations in more than one country. It is a large corporation which both produces and sells goods or services in various countries. It can also be referred to as an international corporation. They play an important role in globalization. The first multinational company was the British East India company, founded in 1600.Strategies: 1. Corporations may make a foreign direct investment. Foreign direct Investment is direct investment into one country by a company in production located in another country either by buying a company in the country or by expanding operations of an existing business in the country.2. A subsidiary or daughter company is a company that is completely or partly owned and wholly controlled by another business that owns more than half of the subsidiarys stock.3. A corporation may choose to locate in a special economic zone, which is a geographical region that has economic and other laws that are more free-market oriented than a countrys typical or national laws.CONFLICT OF LAWS:Conflict of laws is a set of procedural rules that determines which legal system and which jurisdictions applies to a given dispute.The term conflict of laws itself originates from situations where the ultimate outcome of a legal dispute depended upon which law applied, and the common law courts manner of resolving the conflict between those laws.The three branches of the conflicts of laws are:a) Jurisdiction : where the forum court has the power to resolve the dispute at hand b) Choice of Law: The law which is being applied to resolve the dispute.c) Foreign judgments: the ability to recognize and enforce a judgment from an external forum within the jurisdiction of the adjudicating forum.Importance:The establishment of multinational companies has been good boon all over the world. Some of its importance are as follows.1. TRANSFER OF CAPITAL AND TECHNOLOGY: The multinational companies transfer investment, advance technology to developing countries through establishing branches and subsidiaries. Therefore developing countries like Nepal get benefited of receiving Advanced technology and capital investment through such companies.2. Mass Production: With help of advanced technology the can produce quality goods and products at cheaper price. Due to job innovation and specialization help to produce more consumption increase as production in more unit reduce cost.3. Increase In Employment Opportunity: A multinational company requires a large number of skilled as well as unskilled employees to operate its activities. Thus it provides employment opportunity to the people of host country as a result economic standard of society is improved.4. Increase in Government Revenue: A multinational company is a large scale business. It pays a large amount of duties, income tax, vat, etc to government. Therefore Government revenue is increased due to operation of such companies.5. Research and Development: In complete world, it is need of research and Development. To meet international standard of its products and services, a multinational company conducts several research and development activities. Constantly such programs are beneficial to society. It helps to develop better equipments, quality products and advanced technology in production.6. Good international relation: A multinational company recognizes the country in the international market. It creates harmonious relation between parent company and subsidiary countries. It recognizes exporting country to all over the worldGlobal Competition: Introduction: In the modern world businesses are increasingly affected by the actions of international competitors as a result of the globalization process. Globalization occurs because of the shrinking of business distance so that it is much easier to access markets in far flung parts of the world. For example, a company like Cadburys or BIC has production units around the world giving access to global markets. Fast internet connections developed by companies enable the shrinking of communication time bringing together buyers and sellers on opposite sides of the globe within seconds. In addition global marketing and advertising has enabled the development of global brands and the communication of global messages.The result of this globalization process has been that multinational companies are increasingly targeting the whole or substantial parts of the globe as their domestic markets.There are two main ways to respond:1. To increase your global presence by operating in more and more overseas markets. This can be done by setting up overseas plant, and hiring overseas specialists directly or developing joint ventures with overseas partners.2. Another related approach is to develop global power brands. This is where a company will focus on the range of brands in which it has greatest competitive advantage, and will sell off non core brands.3. A power brand is a strong brand that a company is particularly good at producing and marketing, and is well known in a range of global markets.4. A multinational is a company that operates across international frontiers and typically has its head office in a particular country where its shares are quoted on the national stock exchange.

UNIT-4ECONOMIC INTEGRATION&INTERNATIONAL INSTITUTIONSSome countries create business opportunities for themselves by integrating their economies in order to avoid unnecessary competition among themselves and also from other countries. Economic integration among countries takes several forms. It covers different kinds of arrangements between or among countries by which two or more countries link their economies closer either in part of total. They maintain the cohesiveness among or between the countries through tariffs. They discriminate against the other countries which are not parties to the agreement, through tariffs. They also discriminate against the goods produced by other countries. Economic integration varies in degrees.Different kinds of economic integration:Economic integration among the world economies varies in degree. They are:Free Trade Area: If a group of countries agree to abolish all trade restrictions and barriers among or charge low rates of tariffs in carrying out international trade, such a group is called, free trade area. These counties impose trade barriers and restrictions with regard to trade with countries other than the members of the group independently.Customs Union: The member countries of the customs union have two basic features. They are (i) the member countries abolish all the restrictions and barriers on trade among themselves or charge low rates of tariffs and (ii) they adopt a uniform commercial policy of barriers and restrictions jointly with regard to the trade with the non-member countries. Thus, customs union is advanced in degree compared to a free trade area.Common Market: Common market has three basic characteristics. They are (i) All member countries abolish all the restrictions and barriers on trade among themselves or charge low rates of tariffs. (ii) They adopt a uniform commercial policy of barriers and and restrictions jointly with regard to the trade with the non- member countries, and (iii) They allow free movement of human resources and capital among the member countries. Thus common market is superior to customs union.Economic Union: Economic union has four basic characteristics. They are : (i) All member countries abolish all the restrictions and barriers on trade among themselves or charge low rates of tariffs. (ii) They adopt a uniform commercial policy of barriers and and restrictions jointly with regard to the trade with the non- member countries, and (iii) they allow free movement of human resources and capital among the member countries. (iv) They achieve uniformity in monetary policy and fiscal policy among the member countries. Thus, economic union is superior to common market. In a nutshell, ECONOMIC UNION> COMMON MARKET> CUSTOMES UNION> FREE TRADE AREA.

Regional Approach: As we have discussed, economic integration takes different forms like free trade area, customs union, common market and economic union. The member countries of the group adopt a system of preferential tariffs like lower rates of duty on imports. For example, the UK and its commonwealth countries operated a system of reciprocal tariff preferences after 1919.In a free trade area, the members charge low rates of tariff or abolish them regarding the trade among themselves and different countries charge different rates to non-members. European Free Trade Association is an example. As stated earlier, the members charge uniform rates of tariffs with regard to non-member countries. The 19th century German Zollverein is an example of customs union.The approach towards regional integration has been increasing throughout the globe. Economic integration results in grouping up of smaller economies into a larger and single economy and market. Economic integration minimizes the economic consequences of politically independent countries and political boundaries.Advantages Of Integration:The economic integration of the countries of the same region or areas increases the size of market, aggregate demand for products and services, quantity of production, employment and ultimately the economic activity of the region. Further, the people of the region get a variety of products at comparatively lower process. This factor, in turn, enhances the purchasing power and living standards of the people. The resources of the region are pooled. In other words the factors of productions of the countries are combined. The pooling increases efficiency of output or productivity due to large-scale economies. Further, it enables to have economies of division of labor and specialization. Rapid technological innovations and development and consequent large size operations demand heavy investment. Economic integration enables the group of countries to pool required financial resources for the large-scale operations. Internal reallocation of financial resources takes place based on the reallocation of manufacturing facilities and consumption pattern. The elimination or reduction of tariffs and barriers reduces the import duties and thereby reduces the prices of the product/services. Customer gets the advantage of having the product at lesser price.TRADE CREATION AND DIVERSION:The trade impacts of trade blocks are normally measured by weighing the benefits of trade creation against the adverse effects of trade diversion. Trade creation occurs when lower-cost partner country imports displace within the country. Trade diversion happens when lower-cost imports from outside the block are displaced by higher cost imports from within the block.Generally, trade creation and welfare benefits are greater, the higher the trade barriers being reduced and the larger the reduction in barriers, the larger the partner countries: the larger the member of partners: the more diversified the economies of the partner countries: and the close the partners prices are to world prices or the more competitive they are compared to countries outside the block. Benefits are also grater when the partner country is not only large and rich, and has a complementary trading pattern, but is also fast growing. The following example clarifies the trade diversion concept. Suppose the home country can import a can of beer from a potential partner country at $1 per can. Having discussed the different types of economic integration, regional approach and the advantages of economic integration, now we shall discuss different economic integrations or trade blocks. The most important trade blocks include: EU, NAFTA, ASEAN, and SAARC.EUROPEAN UNION (EU):The origin of the European Union goes back to the goes to the European Coal and Steel Community which was formed with then west Germany, France, Italy, Belgium, Netherlands and Luxembourg in 1952. The aim of the ECSC was to eliminate import duties and quotas on coal, Luxembourg in 1952. The aim of the ECSC was to eliminate import duties and quotas on coal, iron ore, steel and scrap regarding the international trade among the member countries. The successful functioning of ECSC stimulated the member countries to extend this facility to all commodities by the Treaty of Rome in 1957. This Treaty gave birth to European Economic Community. The European Economic Community is also known as European Common Market. Originally six countries, viz., France, Federal Republic of Germany, Italy, Belgium, Netherlands and Luxembourg formed into the European Economic Community (EEC) by the Treaty of Rome, 1957. It came into being on 1st January 1958. The number of member countries of the EEC increased from six to nine on January 1958. The number of member countries of the EEC increased from six to nine on January 1, 1973 as united kingdom, Ireland and Denmark joined in 1984. Australia, Finland and Sweden joined the EEC in 1981and Portugal and spain joined in 1984. Austria , Finland and Sweden joined the community on january1, 1986.With the introduction of uniform monetary policy, common currency and fiscal policy among the member countries the EEC became European Union (EU). On May 1, 2004, 10 more countries viz., cypurs, slovakia,The european union is an economic and political union of 27 member states that are located primarily in Europe. The EU operates through a system of supranational independent institutions and intergovernmental negotiated decisions by the member states. Institutions of the EU include the European commission, the council of the European union, the European council, the court of justice of the European union, the European central bank the court of auditors and the European parliament. The European parliament is elected every five years by EU citizens. The EUs de facto capital is Brussels.The EU traces its origins from the European coal and steel commun