Questions till date_solutions.docx

8/13/2019 Questions till date_solutions.docx

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Q1. Define Globalization

Globalization refers to international integration. It means a company venturing into international

market and spreading its business operations across various countries to satisfy the need of global

consumers.

Globalization happens due to the offsetting the supply of domestic products with respect to

catering the additional demand in the international market. Along with this, governmentsliberalized policies, economic conditions, and foreign needs for the product, returns in terms of

foreign currencies, declining trade and investment barriers, technology change and various other

factors constituting it.

Globalization has 4 factors namely:

o Globalization of market

o Globalization of production

o Globalization of technology

o Globalization of Finance

In Globalized market, trade is govern by WTO which is primarily responsible for policing the

world trading system and making sure nations-states adhere to the rules laid down in trade treatiessigned by WTO.

The process of international integration arising from the interchange of world views, products,

ideas, and other aspects of culture.

Product presence in different markets of the world, Production base across the globe,

Investments, Transactions involving intellectual properties

Eg: FDI, FII, Joint venture

Drivers of Globalization

Developing markets have huge markets Developing countries offer opportunities to

increase sales & profits

Many MNCs are locating their subsidiaries in low wage countries to take advantage of low

cost production

Changing demographics

Trading blocs like WTO, EU, NAFTA, & MERCASUR Removing trade & investment

barriers

Technology advancementrevolution

Money in international business

Resource seeking

Internationalization is triggered by world bodies & institutionsWTO

Restraining forces of globalization

Different Culture

Market differences

Costs

Domestic focus

Trade barrierstariff & non tariffs

Unemployment


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Q2. Transnational Corporation

Any corporation that is registered and operates in more than one country at a time also called a

multinational corporation

A transnational, or multinational, corporation has its headquarters in one country and operates

wholly or partially owned subsidiaries in one or more other countries Some critics argue that transnational corporations exhibit no loyalty to the countries in which they

are incorporated but act solely in their own best interests

An example of a TNC is Nestl who employ senior executives from many countries and try to

make decisions from a global perspective rather than from one centralized headquarters

Q3. Various market entry strategies in IB?

Market Entry Strategy it is planned method of delivering goods or services to the target market &

distributing them there.

Any enterprise planning to go global needs to be clear about the following strategies:

1. Deciding whether to go global

2. Deciding which markets to go volume of foreign sales, number of countries to enter, and the

type of countries to make or foray into

3. Deciding when to enterfirst mover, early mover, and late mover into foreign markets

4. Deciding how to enter: -

Exporting

Direct exportingmeans you export directly to a customer interested in buying your product.

You are responsible for handling the market research, foreign distribution, and logistics of

shipment and for collecting payment.The advantages of this method are:

1. Your potential profits are greater because you are eliminating intermediaries.

2. You have a greater degree of control over all aspects of the transaction.

3. You know who your customers are.

4. Your customers know who you are. They feel more secure in doing business directly with you.

5. You know whom to contact if something isn't working.

6. Your customers provide faster and more direct feedback on your product and its performance in

the marketplace.

7. You develop a better understanding of the marketplace.

8. As your business develops in the foreign market, you have greater flexibility to improve orredirect your marketing efforts.

The disadvantages:

1. It takes more time, energy and money than you may be able to afford.

2. It requires more "people power" to cultivate a customer base.

3. Servicing the business will demand more responsibility from every level of your organization.

4. You are held accountable for whatever happens. There is no buffer zone.

5. You may not be able to respond to customer communications as quickly as a local agent can.


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6. You have to handle all the logistics of the transaction.

7. If you have a technological product, you must be prepared to respond to technical questions, and

to provide on-site start-up training and ongoing support services.

Indirect Export- Products are sold through intermediaries such as agents and trading companies.

Agents may represent one or more indirect exporters in return for commission on sales.

Foreign direct Investment

Purchase of a significant number of share of a foreign company in order to get certain degree of

management control

FDI are investments made to acquire a lasting interest by a resident entity in one economy in an

enterprise resident in another economy.

This has happened due to changes in technologies, improved trade and investment policies of

governments, regulatory environment in terms of liberalization and easing of restrictions on

foreign investments and acquisitions, and deregulation and privatization of many industries.

Advantages:

It can provide a firm with new markets and marketing channels, cheaper production facilities,

access to new technologies, capital process, products, organizational technologies and

management skills.

FDI can provide a strong impetus to economic development of the host country. This is all the

more true when large MNCs enter developing nations through FDI.

FDI allows companies to avoid foreign government pressure for local production.

It allows making the move from domestic export sales to a locally based national sales office.

Capability to increase total production capacity.

Licensing

Licensing is a legal agreement between the owner of intellectual property such as a copyright, patent or

trademark and someone who wants to use that IP. The licensee pays rent to the licensor for the use of

an idea/product/process that is otherwise protected by IP law. Like a lease on a building, the license is for

a specific period of time. The licensee uses that idea/product/process to sell products or services and earns

money.

Example: Xerox in Japan licensed to Fuji Xerox where Fuji Xerox paid royalty fee of 5% of their

net sales in Japan.

Advantages:

It does not require large capital investment not detailed involvement with foreign customers.

Provides a way of testing foreign markets without significant resources.

Licensor continues to enjoy long term income for a particular period

Can be used as preemption major in new market before the entry of competition.

Limitations:

Limited form of market entry which does not guarantee a basis for expansion.


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Licensor may create more competition in exchange of royalty.

Franchising

Franchising involves granting of rights by a parent company to another (franchisee) to do business in a

prescribed manner. This right can take the form of selling the franchisers products, using its name,

production and marketing techniques or using its general business approach.

It allows provides a network of interdependent business relationships that allows a number of people to

share:

A. Brand identification

B. Successful method of doing business

C. Proven marketing and distribution system

Franchise agreement typically requires the payment of a fee upfront and then a percentage on sales . In

return, the franchiser provides assistance and at times may require the purchase of goods or supplies toensure the same quality of goods or services worldwide.

Franchising is adaptable to international arena and requires minor modification for the local market. It can

be beneficial to both groups. Franchiser has a new stream of income and the franchisee gets time proven

concept/product which can be quickly bought to the market.

Major Forms of Franchising:

- manufacturer-retailer system (e.g. car dealership)

- manufacturer-wholesaler system (e.g. soft-drink companies)

- service firmretailer system (fast-food, hotel) e,g, McDonalds, Burger King

Joint Ventures

A joint venture is an agreement involving two or more organizations that arrange to produce a product or

service through a collectively owned enterprise. It has been one of the most popular way of entering a

new market.

Typically, it is a 50-50 joint venture in which each of the party holds 50% ownership stake and

contributes a team of managers to share operating control. At times, this stake can be a majority one so as

to ensure tighter control.

Advantages:

A. Domestic company brings in the knowledge of the domestic market.

B. The risk is divided between joint-venture partners.

C. Normally, foreign partner has an option to sell its stake in the venture to another entity.

Limitations:


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A. Limited control over business approach for foreign entity.

B. Profits have to be shared.

e.g. Danone-Brittania, Hero Honda, Maruti Suzuki

Wholly Owned Subsidiaries

In a wholly owned subsidiary, the company owns 100% of the equity. Establishing a wholly owned

subsidiary in a foreign market can be done in 2 ways:

1. Set up of new operation

2. Acquisition of established firm.

WOS allows a foreign firm complete control and freedom to execute its business strategy in the foreign

country. This freedom is accompanied by a greater risk due to lack of knowledge of the market.

Acquisition of an established company can reduce this risk to an extent.

Examples: ING entered US market by acquiring established US enterprises rather than building its

business operations from the ground floor.

Q4. Why FDI is important in Host & Home Country?

Any foreign companies that buy at least 10% of the share of a domestic company is titled to be as FDI.

Once a firm undertakes FDI, it becomes multinational enterprise. FDI has 2 forms:

1. Greenfield investment

2. Acquiring and merging with the existing firm in the foreign country

Importance in Host Country

1. Technological Gap

2. Exploitation of Natural Resources

3. Employment Generation

4. Development of managerial pool

Importance in Home country

1. Cost advantage

2. New markets

3. Exposure to other countries

4. International relations

FDI in India

1. During 2012-13, India attracted FDI worth US$ 22.42 billion. Hotels and tourism,

pharmaceuticals, services, chemicals and construction received highest amount of FDI. The major

contributors to the Indian FDI were Singapore, Mauritus, the Neitherland, and the US.

2. Since India allowed 100% FDI in most of the sectors in 2000, the inflow of foreign funds has

progressively increased from $9 billion in 2005-06 to $46 billion in 2011-12.


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3. Telecom100%, Insurance49%, 100% FDI in single brand retail, 100% in Construction

4. India is the 3rdbiggest economy of the world in terms of purchasing power parity and is thus a

popular destination when it comes to FDI

5. India has a large pool of skilled managerial and technical expertise

6. During last 10 years, the country attracted $178 billion as FDI

7. The total FDI equity inflow into India in 2008-09 stood at 122,919 crore (US $27.41 billion), agrowth of 25% in rupee terms over the previous period

8. Following are the major economic sectors where it can attract investment

Telecommunication

Apparels

Information Technology

Pharmaceuticals

Auto components

Chemicals

Aviation

9. A recent UNCTAD survey projected India as the second most important FDI destination (afterchina)

How to attract FDI in your region

InwardFDI is encouraged by:

Tax breaks, subsidies, low interest loans, grants, lifting of certain restrictions

The thought is that the long term gain is worth more than the short term loss of income

FDI VS FII

FDI is an investment that a parent company makes in a foreign country. On the contrary, FII is an

investment made by an investor in the markets of a foreign nation.

FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit

that easily.

Foreign Direct Investment targets a specific enterprise. The FII increasing capital availability in

general.

The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor

While the FDI flows into the primary market, the FII flows into secondary market. While FIIs are

short-term investments, the FDIs are long term.

Q5. How can Porters Diamond model of national competitive advantage be used to assess strategic

advantage for India in agro based products?

Ans. The Diamond - Four Determinants of National Competitive Advantage

a. Factor Conditions


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Factor conditions refers to inputs used as factors of production - such as labour, land, natural

resources, capital and infrastructure. This sounds similar to standard economic theory, but

Porter argues that the "key" factors of production (or specialized factors) are created, not

inherited. Specialized factors of production are skilled labour, capital and infrastructure.

"Non-key" factors or general use factors, such as unskilled labour and raw materials, can be

obtained by any company and, hence, do not generate sustained competitive advantage. However,specialized factors involve heavy, sustained investment. They are more difficult to duplicate. This

leads to a competitive advantage, because if other firms cannot easily duplicate these factors, they

are valuable.

Porter argues that a lack of resources often actually helps countries to become competitive (call it

selected factor disadvantage). Abundance generates waste and scarcity generates an innovative

mindset. Such countries are forced to innovate to overcome their problem of scarce resources.

How true is this?

I ndian Context:India has abundant key/specialized factors of production like abundant skilled

labour in urban India. Land is also available for production but mostly outside Urban India. India

lacks in factors of production like capital and infrastructure. Talking about non key factors, India

is rich of unskilled and semi-skilled labour as 70% of its population resides in rural areas and for

raw materials, it depends from industry to industry.

b. Demand Conditi ons

Porter argues that a sophisticated domestic market is an important element to producing

competitiveness. Firms that face a sophisticated domestic market are likely to sell superior

products because the market demands high quality and a close proximity to such consumers

enables the firm to better understand the needs and desires of the customers

If the nations discriminating values spread to other countries, then the local firms will becompetitive in the global market.

One example is the French wine industry. The French are sophisticated wine consumers. These

consumers force and help French wineries to produce high quality wines.

I ndian Context: Indian economy is dominated by agricultural and service industry. This are the

key factors contributing for Indias GDP. Being a rich country for agro products, domestic

demand is not very influential for agro products in India rather than international countries having

low production facilities of agro products and therefore high demand for such products drives the

need for exporting agro products worldwide. This drives the need for high quality agro products

produced by India.Eg. Indian spices.

c. Related and Support ing I ndustr ies

Porter also argues that a set of strong related and supporting industries is important to the

competitiveness of firms. This includes suppliers and related industries. This usually occurs at a

regional level as opposed to a national level. Examples include Silicon valley in the U.S., Detroit

(for the auto industry) and Italy (leather-shoes-other leather goods industry).


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The phenomenon of competitors (and upstream and/or downstream industries) locating in the

same area is known as clustering or agglomeration. What are the advantages and disadvantages of

locating within a cluster? Some advantages to locating close to your rivals may be

i. potential technology knowledge spillovers,

ii. an association of a region on the part of consumers with a product and high quality andtherefore some market power, or

iii. an association of a region on the part of applicable labour force.

Some disadvantages to locating close to your rivals are

i. potential poaching of your employees by rival companies and

ii. obvious increase in competition possibly decreasing mark-ups.

Indian Context: Agro industry is supported by seeding industry, chemical industry, agro based

technology, etc. India is primarily supporting its agro industry with domestic as well as international

factors supporting efficient functioning of agro industry.

d. Fi rm Strategy, Structure and Rivalry

1. Strategy

(a) Capital Markets

o Domestic capital markets affect the strategy of firms. Some countries capital markets

have a long-run outlook, while others have a short-run outlook. Industries vary in

how long the long-run is. Countries with a short-run outlook (like the U.S.) will tend to

be more competitive in industries where investment is short-term (like the computer

industry). Countries with a long run outlook (like Switzerland) will tend to be more

competitive in industries where investment is long term (like the pharmaceutical

industry).

(b) Individuals Career Choices

o Individuals base their career decisions on opportunities and prestige. A country will be

competitive in an industry whose key personnel hold positions that are considered

prestigious.

2. Structure

Porter argues that the best management styles vary among industries. Some countries may be

oriented toward a particular style of management. Those countries will tend to be more

competitive in industries for which that style of management is suited.

For example, Germany tends to have hierarchical management structures composed of managers

with strong technical backgrounds and Italy has smaller, family-run firms.


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3. Rivalry

Porter argues that intense competition spurs innovation. Competition is particularly fierce in

Japan, where many companies compete vigorously in most industries.

International competition is not as intense and motivating. With international competition, there

are enough differences between companies and their environments to provide handy excuses tomanagers who were outperformed by their competitors.

I ndian context:

Capital market for agro products is not cash rich in context to India. Huge potential lies for advancement

in this industry. Career choices for this industry is mostly dominated by unskilled and semi-skilled

labours. A farmer son will become farmer only. This is the trend here. For rivalry, domestic market has

many rivals due to large population doing the same business but while in international market, level of

rivalry tends to be less due to demand for Indian agro products is very high over there.

Q6. World Trade Organization (WTO)

WTO is the Successor organization to the GATT

It came into effect on 1stJanuary, 1995 as a result of the conclusion of Uruguay Round of Multilateral

Trade Negotiations

India is a founder member of both GATT in 1947 and the WTO in 1995

Trade-related issues like trade-related investments (TRIMS) and trade-related intellectual property

rights (TRIPS) are also covered

India was one of the 76 countries that signed the accession to the WTO and is one of the founder

members of the WTO.

Objectives of WTO

1. Promotes trade flows by encouraging nations to adopt nondiscriminatory and predictable

trade policies

2. Raising standard of living & income

3. Introduce sustainable development

4. Promoting full employment, optimum utilization of world resources and expanding

production and trade

5. Establish procedure for resolving trade disputes among members

Functions of WTO

WTO is based in Geneva, Switzerland, its function is: Seeking to resolve trade disputes

Technical assistance and training for developing countries

Expert panel of WTO scan the world economic environment, and make observation on

contemporary issues

Constantly examining the trade regimes of individual members

Providing the forum for negotiations among its members concerning their multilateral trade

relations


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Benefits:

1. Garment exports: The Multi Fiber Arrangement (MFA) that required Indian garment exporters to

have quotas for exporting to developed countries was phased out in 2005.

2. Market access: as a signatory to the WTO India automatically gets the MFN (most favored nation)

status. This gives India access to markets in Europe and US in sectors like automobiles and

engineering

3. Anti Dumping measures: India suffered from persistent dumpingby Romanian and Russian steel

majors in the areas of steel casings, pipes affecting Indian domestic industry greatly. Also India

suffered from dumping by Chinese steel industry. The anti dumping provisions and countervailing

duties lend security to Indias domestic industries.

4. The Agreement on Agriculture: the AoA stipulates that the developed countries will reduce tariffs

on agriculture imports (up to 35%) thus helping Indias agriculture exports. It also promises

reduction of domestic subsidiesin the developed countries helping exports from India.

5. Competitive advantage: India has competitive advantage in the areas of merchandise trade. India

can utilize its competitive advantage in processing, beverages, gems and jeweler compared to the

traditional centers in Europe like Amsterdam or Manchester etc increasing its trade with both theEuro region and the US.

Disadvantages:

1. TRIPS: the Indian Patent Act is not compatible with the TRIPS agreement under the WTO. The

Indian Patent Act allows only process patents in areas of foods, chemicals and medicines. Under the

TRIPS the IPA will have to modify to allow product patents also. Also products developed outside

India can claim international patents applicable to India. This will hurt our agriculture foods. E.g. the

Alphanso mango and the Basmati strand controversy.

2. Drug prices:the granting of the product patents in India will hurt the Indian generic drugs industry

and benefit the foreign pharma companies that own the formulation patents. This will lead to increase

in drug prices in India. (This resulted in regulatory intervention in the recent budget in life saving

drugs) e.g. the Pfizer controversy

3. Genetics: Indian seed and genetic research organizations are Government funded and will not be

able to compete with the MNCs like Montessanto etc that have economies of scale. This will increase

seed prices for Indian farmers and also lend our genetic resources to the MNCs

4. Services: the opening up of the banking sector in 2009 will affect Indian banks due to the foreign

banks with huge balance sheets.

5. TRIMS: the Trade Related Investment Measures resulted in problems in trade in investment issues

like transit charges, formalities etc. together called as Singapore issues. Indian companies would have

to lose in the differential charges that are applied. These issues were dropped in the Chachun

ministerial conferences.6. Anti dumping:the anti dumping rules were imposed on Indian linen in EU. Similarly Indian textiles

faced anti dumping regulations in US. There is no mechanism to resolve anti dumping duties issues.

TRIMs (Trade Related Investment measures)

Restrictions on investments

Affect trade of goods & services


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This agreement does not set a broad rules for investors, it simply prohibits laws and regulations that

condition a firms right to import foreign goods based on the volume of goods exported

TRIPs (Trade Related aspects of Intellectual Property)

Protection of intellectual property rightsnot understood

Principles of WTO

1. Transparencypublishing of laws, regulations, rate of duty, taxes or other charges affecting

company

2. MFN Treatmentall members are granted most favored nation status, no discrimination in trade

3. National Treatmentimported and locally produced goods should be equally treated

4. Free Trade Principles - Lowering trade barriers

5. Competitionopen and fair competition

6. Environmental Protection

Q7. Intellectual Property Rights.

Ans: Property that results from peoples intellectual talents and abilities is called intellectual property and

includes design, novels, patents, trademarks, copyrights, computer software, and secret formulae such as

one used for making coca cola.

It is possible to establish ownership rights over intellectual property through patents, trademark, and

copyrights

TYPES/TOOLs OF IPRs:

Patents: A patent is an exclusive rightgranted for an invention, which is a product or a process that

provides a new way of doing something, or offers a new technical solution to a problem. It providesprotection for the invention to the owner of the patent. The protection is granted for a limited period,

i.e 20 years.

Trademarks: A trademark is a distinctive sign that identifies certain goods or services as those

produced or provided by a specific person or enterprise. It may be one or a combination of words,

letters, and numerals. It helps consumers identify and purchase a product or service because its nature

and quality, indicated by its unique trademark, meets their needs. Registration of trademark is prima

facie proof of its ownership giving statutory right to the proprietor. Trademark rights may be held in

perpetuity. The initial term of registration is for 10 years; thereafter it may be renewed from time to

time.

Copyrights and related rights: Copyright is a legal term describing rights given to creators for their

literary and artistic works. The kinds of works covered by copyright include: literary works such as

novels, poems, plays, reference works, newspapers and computer programs; databases; films, musical

compositions, and choreography; artistic works such aspaintings, drawings, photographs and

sculpture; architecture; and advertisements, maps and technical drawings.

Q8. THE PRODUCT LIFE CYCLE (Raymond Vernon, 1966)


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Stage 1: Introduction

New products are introduced to meet local (i.e., national) needs, and new products are first exported to

similar countries, i.e., countries with similar needs, preferences, and incomes. (E.g., the IBM PCs were

produced in the US and spread quickly throughout the industrialized countries.)

Stage 2: Growth

As the product picks up in consumer acceptance and popularity demand for its rises both in domestic as

well as in foreign markets. The innovating firm sets up manufacturing facility abroad to expand

production capacity, and to meet demand of both domestic as well as foreign consumers.

Stage 3: Maturity

The industry contracts and concentrates -- the lowest cost producer wins here. (E.g., the many clones of

the PC are made almost entirely in lowest cost locations.)

Stage 4: Decline

Poor countries constitute the only markets for the product. Therefore almost all declining products are

produced in LDCs. (E.g., PCs are a very poor example here, mainly because there is weak demand for

computers in LDCs. A better example is textiles.)

Q9: Purchasing Power Parity

According to PPP theory, when exchange rates are of a fluctuating nature, the rate of exchange

between two currencies in the long run will be fixed by their respective purchasing powers in

their own nations.

When home currency is exchanged for any foreign currency

This exchange of the purchasing power takes place at some specified rare where purchasing of

two currencies nations gets equalized.

e.g., Suppose certain bundle of goods/ services in U.S.A. costs U.S. $ 10 and the same bundle in

India costs, Rs. 450/- then the exchange rate between Indian Rupee and U.S. Dollar is $1 = Rs.

45. Because this is the exchange rate at which the parity between the purchasing power of two

nations is maintained.

A change in the purchasing power of any currency will reflect in the exchange rates also. Hence

under this theory the external value of the currency depends on the domestic purchasing power of

that currency relative to that of another currency.

Q10. Most Favored Nations (MFN)

1. It is a status or level of treatment accorded by one state to another in international trade.

2. The term means the country which is the recipient of this treatment must receive equal trade

advantages as the most favoured nation by the country granting such treatment (trade advantage

include low tariffs or high import quota)

3. Under the Most-Favoured-Nation rule, should WTO Member state A agree in negotiations with state

B, which needs not be a WTO Member, to reduce the tariff on the same product X to five percent, this


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same "tariff rate" must also apply to all other WTO Members as well. In other words, if a country

gives favourable treatment to one country regarding a particular issue, it must handle all Members

equally regarding the same issue.

Q11. Multinational Cooperation

A corporation that has its facilities and other assets in at least one country other than its home country.

Such companies have offices and/or factories in different countries and usually have a centralized head

office where they co-ordinate global management. Very large multinationals have budgets that exceed

those of many small countries. Sometimes referred to as a "transnational corporation".

The following are the benefits/merits ofMNCs:

1. Economic Development: -The Developing countries need both foreign capital and technology to make

use of available resources for economic and industrial growth. MNCs canprovide the required financial,

technical and other resources to needy countries in exchange for economic gains.

2. Technology Gap: - MNCs are the instruments of transfer of technology to the host country.

Technology is necessary to bring down cost of production and produce quality goods on a large scale. The

services of MNCs can be of great help to bridge the technological gab between developed and developing

countries.

3. Industrial Growth: -MNCs are dynamic and offer growth opportunities for domestic industries. MNCs

assist local producers to enter the global markets through their well-established international network of

production and marketing. And there by ensure industrial growth.

4. Marketing Opportunities: -MNCs have access to many markets in different countries. They have the

necessary skills and expertise to market products at international level. For example, an Indian Company

can enter into Joint Venture with a foreign company to sell its product in the international market.

5. Work Culture: -MNCs introduces a work culture of excellence, professionalism and fairness in deals.

The sole objective of Multinational is profit maximization. To achieve this, the Multinationals use various

strategies like product innovation, technology up gradation, professional management etc.

6. Export Promotion: -MNCs assist developing countries in earnings foreign exchange. This can be done

by promoting and developing export oriented and import substitute industries.

7. Research and Development: -The resources and experience of MNCs in the field of research enablesthe host country to establish efficient research and development system. It is a fact that many MNCs are

now shifting their research units to countries like India to avail of monetary incentives and cheap labour.

The following are the De-meritsMNCs


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1. Problem of Technology: - Technology developed by MNCs from developed countries does not fully fit

in the needs of developing countries. This is because, such technology is mostly capital intensive.

2. Political Interference: -The MNCs from developed countries are criticised for their interference in the

political affairs of developing nations. Through their financial and other resources, they influence the

decision-making process of the governments of developing nations.

3. Self-Interest: -MNCs work towards their own self-interest rather than working for the development of

host country. They are more interested in making profits at any cost.

4. Outflow of foreign Exchange: -The working of MNC is a burden on the limited resources of

developing countries. They charge high price in the form of commission and royalty paid by local

subsidiary to its parent company. This leads to outflow of foreign exchange.

5. Exploitation: -MNCs are criticised for exploiting the consumers and companies in the host country.

MNCs are financially very strong and adopt aggressive marketing strategies to sell their products, adopt

all means to eliminate competition and create monopoly in the market.

6. Investment: -MNCsprefer to invest in areas of low risk and high profitability. Issues like social welfare,

national priority do not find any place on the agenda of MNCs.

7. Artificial Demand: -MNCs are criticised on the ground that they create artificial and unwarranted

demand by making extensive use of the advertising and sales promotion techniques

Q12: Country risk and Political risk studies are important before entering International Business.

Explain in detail process of country and political risk analysis. PEST

Any business is affected by its external environment. The major macroeconomic factors in the external

environment that affect the business are political, environmental, social and technological.

A. Political Environment

The political environment of a country greatly influences the business operating in those countries or

business trading with those countries. The success and growth of international business depends on the

stable, collaborative, conducive and secure political system in the country.

The following factors affect the political environment in a country.

1. Tax Policy: The tax policy of a country affects the profitability of the business there. The

Corporate Taxation laws affect the profitability directly. The direct taxation laws also affect thebusiness because it influences consumer spending. The structure of indirect taxation in a country

like its excise duty structure, customs and sales tax greatly affects the input costs of a business.

For e.g. Countries like UAE have very low direct taxation levels inducing great spending and hence

trading and marketing based business are successful. But due to very high indirect taxation levels the

manufacturing business is not very successful.


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2. Government support:One of the most important political factor is the Government support to

international businesses. Business can be successful only if the local government provides

support in terms of infrastructure, license clearing if required, transparent policy and quick

dispute resolution mechanism. Also the nature of the political system i.e. democracy,

communism etc. in the country influences the Government support.

For e.g. the RBI has provided single window clearance for FDI and hence has greatly increased the FDIlevels in our country.

3. Labor Laws:the labor laws in a country affect the viability of a business in that country. The

pension laws also play a critical role especially in cross border acquisitions. Many businesses had

to be withdrawn or closed because of the labor unrest in the country.

For e.g.: Withdrawal of Premier Automobiles due to union strikes in our country.

The problems faced by doctors and nurses in UK due to the restrictive laws in that country.

4. Environmental policy: The countries environmental policy (under the Kyoto Protocol or

otherwise) affects many business like chemicals, refineries and heavy engineering.

5. Tariffs and duty structure: The level of duties and tariffs that are imposed by the country

influence its imports and exports greatly. Some countries follow a protectionist policy to the

domestic industry by raising import barriers For e.g. India in the pre liberalization era, Russia.

B. Economic factors

The economic factors in a country greatly influence the business in that country. The following factors are

important in the macroeconomic environment.

1. Economic system: the economic system in a country i.e. capitalism/ communism/ mixed

economy (India) is important for deciding the nature of the businesses. The nature of the system

decides the allocation of resources. Due to globalization there is a gradual shift toward market

forces to allocate resources even in the communist countries like China.2. Interest rates:The interest rates in the country affect the cost of capital (if raised locally) and the

operational costs. Interest rates also determine the confidence of the Government in the economy

and consumer spending.

3. Exchange rates: The exchange rates affect international trade and capital inflows in the country.

4. Income levels and spending pattern:Though it is more of a demographic parameter has is very

important bearing on the sell side of all international businesses. For e.g. In a country like India,

with rising aspirer population there is a market opportunity for products like IPod (considered

luxury items till now)

C. Social factors

Businesses are driven by people both as human capital and as consumers. It is necessary for an

international businessman to understand the social and cultural aspects of the country they operate in.The following are the important social factors.

1. Age distribution:the age distribution of the population is important to consider the consumption

patterns in the markets. Age distribution also determines the mindset of the market and helps

segmentation of the market accordingly. It also has a bearing on the employee quality. A young

population also determines a workforce.


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2. Family system:the family system has a bearing on the decision makers in consumption. For e.g.

in Islamic countries women have a less say in making consumption decisions. In emerging

economies like India children are gaining important role in consumption. This helps in

positioning of products.

3. Cultural aspects:The cultural aspects influence the way the business is conducted in countries.

In Japan there is a different way in which contracts are signed and executed. In Russia being acommunist oriented mindset the business is conducted in a closed manner. Italians have a

seemingly lazy way of doing business and hence it is very difficult to conduct business in the

pacyUS way.

4. Career attitudes:the career attitude of the workforce is important social aspect.

D. Technological Factors

Technology has a very important role to play in determining the success of international businesses

because technology has made international business possible. The following are the technological factors

that influence the business.

1. R&D:the support that the Government gives to R&D encourages setting up R&D business levels.Also the ease of a qualified local workforce influence business. For e.g. the semiconductor

industry in Taiwan

2. Technology transfer: The ease of technology transfer influences the business climate. The

environment where the technology transfer is not viable gradually loses out on business from

emerging countries that seek technology transfers. For e.g. in the early 40s countries like

Czechoslovakia (the Czech Republic) was a very technologically advanced country but had very

low business interest due to the less chances of technology transfers. For e.g. GE withdrew

operations from a JV as there as they could not access local expertise)

Q13: The Association of Southeast Asian Nations or ASEAN was established on 8 August 1967 inBangkok by the five original Member Countries, namely, Indonesia, Malaysia, Philippines, Singapore,

and Thailand, have been joined by Brunei, Vietnam, Myanmar, Cambodia and Laos

OBJECTIVES

The ASEAN Declaration states that the aims and purposes of the Association are:

(i) To accelerate the economic growth, social progress and cultural development in the region

through joint endeavors.

(ii) To promote regional peace and stability through abiding respect for justice and the rule of law in

the relationship among countries in the region and adherence to the principles of the United

Nations Charter.

(iii) To maintain close cooperation with the existing international and regional organizations with

similar aims.


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WORKING OF ASEAN

The member countries of ASEAN have Preferential Trading Arrangements (PTA), which reduces tariffs

on products traded among member countries. In 1992, ASEAN developed a Common Effective

Preferential Tariffs (CEPT) plan to reduce tariffs systematically for manufactured and processed products.

The members have also established a series of co-operative efforts to encourage joint participation in

industrial, agricultural and technical development projects and to increase foreign investments in their

economies. These efforts include an ASEAN finance corporation, the ASEAN Industrial Joint Ventures

Programme (AJIV) etc. ASEAN nations have introduced some programmes for greater diversification in

their economies.

India and ASEAN

India is interested in maintaining close economic relations with the members of ASEAN, as these

countries are closer to India. The ASEAN countries are offering co-operation to India in the field of trade,

investment, science and technology and training of personnel. Also, Indias trade with ASEAN countries

is satisfactory in recent years.

Q14. European Union (EU)

The European Union (EU) is a political and economic union of 27 member states, located primarily in

Europe. The EU generates an estimated 30% share of the world's nominal gross domestic product

(US$16.8 trillion in 2007).

The EU has developed a single market through a standardised system of laws which apply in all member

states, guaranteeing the freedom of movement of people, goods, services and capital. It maintains a

common trade policy. Fifteen member states have adopted a common currency, the euro.

Objectives of the EU:Its principal goal is to promote and expand cooperation among members states in

economics, trade, social issues, foreign policies, security, defense, and judicial matters. Another major

goal of the EU is to implement the Economic and Monetary Union, which introduced a single currency,

the Euro for the EU members.

The single market refers to the creation of a fully integrated market within the EU, which allows for free

movement of goods, services and factors of production. The EU, in conjunction with Member States, has

a number of policies designed to assist the functioning of the market. Some of the policies are given

below:

Competition Policy: The main competition lied in energy and transport sector. The union designed this

strategy to prevent price fixing, collusion (secret agreement), and abuse of monopoly.

Free movement of goods: A custom union covering all trade in goods was established and a common

customs tariff was adopted with respect to countries outside the union.

Services: Any member nation has a right to provide services in other Member States.

Free movement of persons: Any citizen of EU member state can live work in any other EU member state


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Capital: There are no restrictions on the movement of capital and on payments with the EU and between

member states and third countries.

Trade between the European Union and India

India was one of the first Asian nations to accord recognition to the European Community in 1962. The

EU is Indias largest trading partner and biggest source of FDI. It is a major contributor of developmental

aid and an important source of technology. Over the years, EU India trade has grown from 4.4 bn to

28.4 bn US$.

Top items of trade between India and EU

Indias exports to EU % Indias Imports from EU %

Textile and clothing 35 Gemstones and jewellery 31

Leather and leather products 25 Power generating equipment 28

Gemstones and jewelery 12 Chemical products 15

Agriculture products 10 Office machinery 10

Chemical products 9 Transport equipment 6

India is EUs 17thlargest supplier and 20thlargest destination for exports.

Tariff and non-tariffs have been reduced, but compared to International standards they are still high.

Under the Bilateral trade between India and EU, it accounts for 26% of Indias exports and 25% of its

imports.

The European Union (EU) and India agreed on September 29,2008 at the EU-India summit in

Marseille, France's largest commercial port, to expand their cooperation in the fields of nuclear

energy and environmental protection and deepen their strategic partnership.

Trade between India and the 27-nation EU has more than doubled from 25.6 billion euros ($36.7

billion) in 2000 to 55.6 billion euros last year, with further expansion to be seen.

Mercosur

Mercosur is a regional trade agreement among Argentina, Brazil ,Paraguay & Uruguay founded in 1991

by the Treaty of Asuncin, which was later amended and updated by the 1994 Treaty of Ouro Preto. Its

purpose is to promote free trade and the fluid movement of goods, people, and currency. Bolivia, Chile,

Colombia, Ecuador and Peru currently have associate member status. Venezuela signed a membership

agreement on 17 June 2006, but before becoming a full member its entry has to be ratified by the

Paraguayan and the Brazilian parliaments.

The bloc comprises a population of more than 263 million people, and the combined Gross Domestic

Product of the full-member nations is in excess of US$2.78 trillion a year (Purchasing power parity, PPP)

according to International Monetary Fund (IMF) numbers, making Mercosur the fifth largest economy in

the World.

Objectives of MERCOSUR


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Free transit of production goods, services and factors between the member states with inter alia, the

elimination of customs rights and lifting of nontariff restrictions on the transit of goods or any other

measures with similar effects;

Fixing of a common external tariff (TEC) and adopting of a common trade policy with regard to

nonmember states or groups of states, and the coordination of positions in regional and international

commercial and economic meetings; Coordination of macroeconomic and sectorial policies of member states relating to foreign trade,

agriculture, industry, taxes, monetary system, exchange and capital, services, customs, transport and

communications, and any others they may agree on, in order to ensure free competition between

member states; and

The commitment by the member states to make the necessary adjustments to their laws in pertinent

areas to allow for the strengthening of the integration process. The Asuncion Treaty is based on the

doctrine of the reciprocal rights and obligations of the member states.

MERCOSUR initially targeted free-trade zones, then customs unification and, finally, a common market,

where in addition to customs unification the free movement of manpower and capital across the member

nations' international frontiers is possible, and depends on equal rights and duties being granted to allsignatory countries. During the transition period, as a result of the chronological differences in actual

implementation of trade liberalization by the member states, the rights and obligations of each party will

initially be equivalent but not necessarily equal. In addition to the reciprocity doctrine, the Asuncion

Treaty also contains provisions regarding the most-favored nation concept, according to which the

member nations undertake to automatically extend--after actual formation of the common market--to the

other Treaty signatories any advantage, favor, entitlement, immunity or privilege granted to a product

originating from or intended for countries that are not party to ALADI.

SAARC

The South Asian Association for Regional Cooperation (SAARC) is an economic and politicalorganization of eight countries in Southern Asia. It was established on December 8, 1985 by India,

Pakistan, Bangladesh, Sri Lanka, Nepal, Maldives and Bhutan. In April 2007, at the Association's 14th

summit, Afghanistan became its eighth member.Sheelkant Sharma is the current secretary & Mahinda

Rajapaksa is the current chairman of SAARC which is headquartered at Kathmandu.

Objectives of SAARC:

to promote the welfare of the peoples of South Asia and to improve their quality of life;

to accelerate economic growth, social progress and cultural development in the region and to

provide all individuals the opportunity to live in dignity and to realize their full potential;

to promote and strengthen collective self-reliance among the countries of South Asia; to contribute to mutual trust, understanding and appreciation of one another's problems;

to promote active collaboration and mutual assistance in the economic, social, cultural, technical

and scientific fields;

to strengthen cooperation with other developing countries;

to strengthen cooperation among themselves in international forums on matters of common

interest; and

to cooperate with international and regional organizations with similar aims and purposes.


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Free Trade Agreement

Over the years, the SAARC members have expressed their unwillingness on signing a free trade

agreement. Though India has several trade pacts with Maldives, Nepal, Bhutan and Sri Lanka, similar

trade agreements with Pakistan and Bangladesh have been stalled due to political and economic concerns

on both sides. India has been constructing a barrier across its borders with Bangladesh and Pakistan. In

1993, SAARC countries signed an agreement to gradually lower tariffs within the region, in Dhaka.

Eleven years later, at the 12th SAARC Summit at Islamabad, SAARC countries devised the South Asia

Free Trade Agreement which created a framework for the establishment of a free trade area covering 1.4

billion people. This agreement went into force on January 1, 2006. Under this agreement, SAARC

members will bring their duties down to 20 per cent by 2007.

The last summit (15th) was held in Colombo where four major agreements - the SAARC development

fund, the establishment of a SAARC standard organization, the SAARC convention on mutual legal

assistance in criminal matters, and the protocol on Afghanistan's admission to the South Asia Free Trade

Agreement (SAFTA) were adopted with emphasis on region-wide food security.

NAFTA

The North American Free Trade Agreement (NAFTA) is a trilateral trade bloc in North America created

by the governments of the United States, Canada, and Mexico. In terms of combined purchasing power

parity GDP of its members, as of 2007 the trade bloc is the largest in the world and second largest by

nominal GDP comparison. It also is one of the most powerful, wide-reaching treaties in the world.

The North American Free Trade Agreement (NAFTA) has two supplements, the North American

Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor

Cooperation (NAALC).

Implementation of the North American Free Trade Agreement (NAFTA) began on January 1, 1994. This

agreement will remove most barriers to trade and investment among the United States, Canada, and

Mexico.

Under the NAFTA, all non-tariff barriers to agricultural trade between the United States and Mexico were

eliminated. In addition, many tariffs were eliminated immediately, with others being phased out over

periods of 5 to 15 years. This allowed for an orderly adjustment to free trade with Mexico, with full

implementation beginning January 1, 2008.

The agricultural provisions of the U.S.-Canada Free Trade Agreement, in effect since 1989, were

incorporated into the NAFTA. Under these provisions, all tariffs affecting agricultural trade between the

United States and Canada, with a few exceptions for items covered by tariff-rate quotas, were removed byJanuary 1, 1998.

Mexico and Canada reached a separate bilateral NAFTA agreement on market access for agricultural

products. The Mexican-Canadian agreement eliminated most tariffs either immediately or over 5, 10, or

15 years.


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U.S. trade with Mexico and Canada has grown more rapidly than total U.S. trade since 1994. The

automotive, textile, and apparel industries have experienced the most significant changes in trade flows,

which may also have affected employment levels in these industries. The five major U.S. industries that

have high volumes of trade with Mexico and Canada are automotive industry, chemicals and allied

products, computer equipment, textiles and apparel, and microelectronics.

The effects of NAFTA, both positive and negative, have been quantified by several economists. Some

argue that NAFTA has been positive for Mexico, which has seen its poverty rates fall and real income rise

(in the form of lower prices, especially food), even after accounting for the 19941995 economic crisis.

Others argue that NAFTA has been beneficial to business owners and elites in all three countries, but has

had negative impacts on farmers in Mexico who saw food prices fall based on cheap imports from U.S.

agribusiness, and negative impacts on U.S. workers in manufacturing and assembly industries who lost

jobs. Critics also argue that NAFTA has contributed to the rising levels of inequality in both the U.S. and

Mexico.

Ten reasons why FDI happens

1. Foreign Direct Investments (FDI) as defined in the BOP Manual, are investments made to acquire a

lasting interest by a resident entity in one economy in an enterprise resident in another economy. The

purpose of the investor is to have a significant influence, an effective voice in the management of the

enterprise. The definition of the Organization for Economic Cooperation and Development (OECD)

which considers as direct investment enterprise an incorporated or unincorporated enterprise in which

a direct investor who is resident in another economy owns ten percent or more of the ordinary shares

or voting power (for incorporated enterprise) or the equivalent (for an unincorporated enterprise).

2. It provides a firm with new markets and marketing channels, cheaper production facilities, access to

new technology, products, skills and financing. For a host country or the foreign firm which receives

the investment, it can provide a source of new technologies, capital, processes, products,

organizational technologies and management skills, and as such can provide a strong impetus toeconomic development.

3. FDI inflows are considered as channels of entrepreneurship, technology, management skills, and of

resources that are scarce in developing countries. Hence, they could help their host countries in their

industrialization.

4. For small and medium sized companies, FDI represents an opportunity to become more actively

involved in international business activities. In the past 15 years, the classic definition of FDI as

noted above has changed considerably, over 2/3 of direct foreign investment is still made in the form

of fixtures, machinery, equipment and buildings.

5. FDI is viewed as a basis for going global. FDI allows companies to accomplish following tasks:

Avoiding foreign government pressure for local production

Circumventing trade barriers, hidden and otherwise

Making the move from domestic export sales to a locally-based national sales office

Capability to increase total production capacity.

Opportunities for co-production, joint ventures with local partners, joint marketing arrangements,

licensing, etc

6. Foreign direct investment is viewed as a way of increasing the efficiency with which the world's

scarce resources are used. A recent and specific example is the perceived role of FDI in efforts to


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stimulate economic growth in many of the world's poorest countries. Partly this is because of the

expected continued decline in the role of development assistance (on which these countries have

traditionally relied heavily), and the resulting search for alternative sources of foreign capital.

7. FDI enables the firm owns assets to be profitably exploited on a comparatively large scale, including

intellectual property (such as technology and brand names), organizational and managerial skills, and

marketing networks. And it is more profitable for the production utilizing these assets to take place indifferent countries than to produce in and export from the home country exclusively.

8. FDI may result in a greater diffusion of know-how than other ways of serving the market. While

imports of high-technology products, as well as the purchase or licensing of foreign technology, are

important channels for the international diffusion of technology, FDI provides more scope for

spillovers. For example, the technology and productivity of local firms may improve as foreign firms

enter the market and demonstrate new technologies, and new modes of organization and distribution,

provide technical assistance to their local suppliers and customers, and train workers and managers

who may later be employed by local firms.

9. FDI increases employment in host country. Inflows of FDI also increase the amount of capital in the

host country. Even with skill levels and technology constant, this will either raise labor productivity

and wages, allow more people to be employed at the same level of wages, or result in some

combination of the two.

10.Proponents of foreign investment point out that the exchange of investment flows benefits both the

home country (the country from which the investment originates) and the host country (the

destination of the investment). Opponents of FDI note that multinational conglomerates are able to

wield great power over smaller and weaker economies and can drive out much local competition. The

truth might lie somewhere in between but they surely become reasons for companies to invest in

foreign markets.

Q8. Organizational Structures in International Business

Douglas Wind and Pelmutter advocated four approaches of international business. They are:

1. Ethnocentric Approach

The domestic companies normally formulate their strategies, their product design and their operations

towards the national markets, customers and competitors. But, the excessive production more than the

demand for the product, either due to competition or due to changes in customer preferences push the

company to export the excessive production to foreign countries. The domestic company continues

the exports to the foreign countries and views the foreign markets as an extension to the domestic

markets just like a new region. The executives at the head office of the company make the decisions

relating to exports and, the marketing personnel of the domestic company monitor the exportoperations with the help of an export department. The company exports the same product designed

for domestic markets to foreign countries under this approach. Thus, maintenance of domestic

approach towards international business is called ethnocentric approach.


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2. Polycentric Approach

The domestic companies, which are exporting to foreign countries using the ethnocentric approach,

find at the latter stage that the foreign markets need an altogether different approach. Then, the

company establishes a foreign subsidiary company and decentralists all the operations and delegate

decision making and policy-making authority to its executives. In fact, the company appoints

executives and personnel including a chief executive who reports directly to the Managing Director of

the company. Company appoints the key personnel from the home country and the people of the host

country fill all other vacancies.

3. Regiocentric ApproachThe company after operating successfully in a foreign country thinks of exporting to the neighboring

countries of the host country. At this stage, the foreign subsidiary considers the regions environment (for

example, Asian environment like laws, culture, policies etc.) for formulating policies and strategies.

However, it markets more or less the same product designed under polycentric approach in other

countries of the region, but with different market strategies.


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4. Geocentric approach

Under this approach, the entire world is just like a single country for the company. They select the

employees from the entire globe and operate with a number of subsidiaries. The headquarters

coordinate the activities of the subsidiaries. Each subsidiary functions like an independent and

autonomous company in formulating policies, strategies, product design, human resource policies,

operations etc.

. Effect of Current Economic Meltdown on International Business

1. Slower global growth: Global growth stood at 5 percent in 2007, but the IMF expects world growth to

slow to 3 percent in 2009 - 0.9 percentage points lower than forecasted in July 2008.

2. Economic contraction in some countries: In G7 countries except for the United States and Canada,

GDP growth was slower in Q2 of 2008 compared to Q1. Three major European economies (Italy,

France and Germany) experienced negative GDP growth in Q2, and forecasts are for a continued

decline in Q3. The IMF forecasts around 0 percent growth for advanced economies in 2009.

3. Depth of slowdown: It is observed that economic slowdowns, preceded by financial stress tend to be

more severe. Although employment has contracted in several countries in recent months, it has notbeen as severe as that during 1990-91.

4. Financing challenges for governments: State and local governments may be faced with financial

crisis. Even administrative costs may be difficult to come by. The governments would be hard pressed

for funds for guarantees and development work. For e.g. In the case of Iceland the banking sector has

assets of around 300% of GDP, something no government could ever guarantee, at least not on a

short-term basis.

5. Rising unemployment: According to IMF, unemployment in the advanced economies will rise from

5.7 percent in 2008 to 6.5 percent in 2009.

6. Large employment losses in sectors: Some sectors like construction, real estate services will

experience disproportionate employment declines. In addition there will be significant job losses in

the financial sector.

7. Reduced world trade volume: According to the IMF, the world trade will grow only at the rate of

1.9% as against the earlier estimate of 4.1% for 2009. A drop in exports, as well as capital inflow,

may trigger a falloff in investments.

8. Rising income insecurity and disproportionate impact on low-income groups: As stock markets

around the world have eroded trillions of dollars in wealth and rolled back some of the investment

gains of the past 5 years, the investment and retirement savings of many individuals have lost

significant value. There is a risk that low-income countries and lower-income groups within countries

will bear the brunt of challenges, as the most poor are the most defenseless, says World Bank

President Robert Zoellick.

9. Return to Tariff and Non-Tariff Barriers: Developed economies in order to ward off unemploymentand financial crisis may erect barriers to free trade. This might start a local business environment. For

e.g. President-elect Barrack Obama has already announced his intention to reduce outsourcing from

US by 30%.

10.Surplus Production Capacities: In line with demand destruction, many branded products may face

surplus capacities. For e.g. Car, Steel & Aircrafts manufacturers are already staring at excess

capacity.


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11.Increase in Government Controls: In order to bail out sinking Corporates the governments, would

buy out or control the operations of large companies. For e.g. AIG and Citibank

12.Impact on India:

a. BPO Operations: India is likely to face a severe crunch on the IT and ITes services, rendered by

Indian BPO Companies.

b. Increase in Trade Deficit: Already in the last quarter, Indias trade deficit has grown whereexports are not meeting the set targets while imports continue to grow.

c. Falling Currency: as the demand for dollars increases the Indian rupee is likely to weaken. The

rupee has already depreciated to Rs. 50 a dollar.

d. Pressure on Services Sector: As the demand for services is destroyed, these sunshine industries

such as BPOs, Airlines, and Telecommunication etc. will face salary and employment cutbacks.

Difference between International & Domestic Business

S.No International Business Domestic Business

1. It is extension of Domestic Business and MarketingPrinciples remain same.

The Domestic Business Follow the marketing Principles

2. Difference is customs, cultural factors No such difference. In a large countries languages

likeIndia, we have many languages.

3. Conduct and selling procedure changes Selling Procedures remain unaltered

4. Working environment and management practices

change to suit local conditions.

No such changes are necessary

5. Will have to face restrictions in trade practices, licenses

and government rules.

These have little or no impact on Domestic trade.

6. Long Distances and hence more transaction time. Short Distances, quick business is possible.

7. Currency, interest rates, taxation, inflation and economy

have impact on trade.

Currency, interest rates, taxation, inflation and economy

have little or no impact on Domestic Trade.

8. MNCs have perfected principles, procedures and

practices at international level

No such experience or exposure.

9. MNCs take advantage of location economies wherever

cheaper resources available.

No such advantage once plant is built it cannot be easily

shifted.

10. Large companies enjoy benefits of experience curve It is possible to get this benefit through collaborators.

11. High Volume cost advantage. Cost Advantage by automation, new methods etc.

12. Global Standardization No such advantage

13. Global business seeks to create new values and global

brand image.

No such advantage

14. Can Shift production bases to different countries

whenever there are problems in taxes or markets

No such advantage and get competition from some

spurious or SSI Unit who get patronage of Government.

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