INTERNATIONAL BUSINESS-BBA

Class Room Handout

BY
M. Atiqur Rahman (Atik)
arahman.pstu@prothom-alo.info
Patuakhali Science & Technology University, Patuakhali, Bangladesh-8602

CHAPTER-02: GLOBAL MARKET PLACE AND BUSINESS CENTERS

Q.1 What is traid and Quad ?Why are they important?

Ans. Traid : Now a days world economy is very much challenging. Much of world's current economic activities are
concentrated in a group of countries called the Traid.The members of Traid are-Japan,The Europian union, and the
United states.
Quad: Now a days world economy is very much challenging. Much of world's current economic activities are
concentrated in a group of countries called the Traid.The members of Traid are-Japan,The Europian union,the United
states, and Canada.
They are important to international business because together the 820 million residents pf the Quad countries produce
73 percent of the worlds gross domestic product(GDP).Major corporations must be competitive throughout the Quad.

Reasons for importance:

Traid and Quad are also important to international business. Because the worlds GDP are increased to the contribution
of Traid and Quad countries. This is not to suggest that international managers can ignore markets outside the Quad;
during the past decades many of these markets have been growing much faster than those of the Quad countries. The
Global strategic thinking of Traid and Quad are attracting to the world business. Together (Traid and Quad) the 820
million residents of the Quad countries produce 73% of the worlds GDP.

Q-2: How do differences income levels and income distribution among countries?

Ans: Countries differentiation based on income levels and income distribution

One important source of income statistics is the World Bank, which divides the world’s countries into 3 categories-
• High income
• Middle income
• Low income
High income countries
• High income countries are those that enjoy annual per capita incomes of at least $9206.
• Per capita income is usually measured by dividing a country's GDP by its population.
• The high income group comprises three clusters of countries.1st cluster is the organization for economic
cooperation and development (OECD),2nd cluster is comprises oil-rich Kuwait and the United Arab Emirates,
and 3rd cluster consists of smaller industrialized countries Hong Kong, Israel, Singapore and Taiwan.
Middle income countries
• Middle income countries have per capita incomes of more than $745 but less than $9206.
• Most of the former Soviet bloc is included of middle income countries.

Lower income countries

• Lower income countries often called developing countries have per capita incomes of 745 or less.
• This category includes India and Indonesia.
• These countries have the potential for above average economic growth.
• They are less attractive to international business because they offer less consumer demand and lack
the public infrastructure.
• These countries are growing substantially because of external aid, sound domestic economic policies,
foreign direct investment.

Q-3: Who are the 4 tigers? Why are they important to international business?
Answer:
Pacific Asia is one of the World’s most rapidly industrializing region. There are 4 tigers-Souths Korea, Taiwan,
Singapore and Hong Kong.

Four Tigers
South Korea, Taiwan, Singapore and Hong Kong in particular have made such rapid strides since 1945 that they are
collectively known as the “four Tigers”. They are also referred to as the newly industrialized countries (NICs)or the
newly industrialized economics(NIEs)

Reasons for importance of South Korea in international business:

South Korea has been one of the world’s fastest growing economics. This country is important to international
business because they promote their different sectors that is-
• To promote economic development.
• Korea relied on tight cooperation between the government and private owned organization.
• Korea Government tried to follow the economic path established by the Japanese.
• Many of the chacbol seemed to be more interested in size than profitability and borrowed money to enter
industries already burdened by over capacity.

Reasons for importance of Taiwan in international business:

South Korea has been one of the world’s fastest growing economics during the past 3 decades. This country is
important to international business because they promote their different sectors that is-
• Taiwan's economic development has been so fast paced that it can no longer compete as a low-wage
manufacturing center.
• Taiwanese business more recently have focused on high-value-added industries such as electronics and
automotive products.
• Taiwanese businesses increasingly are investing in factories and assembly plants in China to access the low-
wage workers they need.

Reasons for importance of Singapore in International business:

# To combat the chronic unemployment.
# To emphasized development of labor-intensive industries.
# Their economic policy proved to higher- value –added activities such as oil refining and chemical processing and
high tech industries.
# To take firms advantage of the country’s excellent port facilities to import foreign goods.
# Singapore provides sophisticated communication and financial services for firms in Pacific Asia and is well on its
way to becoming the region’s high technology centre.

Reasons for importance of Hong Kong in International business:

# Hong Kong designated a special administrative region that enjoys a fair degree of autonomy.
# For this, economic freedom, free port status and a separate taxation system are more comfortable for international
business.
# Hong Kong attractiveness to international business lies in its deep, sheltered harbor and its role as entry point
mainland china.
# Hong Kong people offers highly educated, highly productive labor for industries.
# Hong Kong entrepreneurs often act as intermediaries for companies around the Worlds.

Q-4 : Describe the United States role in the World business .

Answer:
United States has only the World’s third largest population and fourth largest landmass, yet it processes the largest
economy.

The role of United states in the World business;

* It is the prime market for lower income countries trying to raise their standards of living through export oriented
economic development strategies.
* It is also the prime market for firms from higher income countries trying to attract business from its large, well
educated middle class.
* The United States enjoys the highest per capita income of the North American countries.
* The United States occupies a unique position in the World economy because of its size and its political stability.

CHAPTER 03: THE CULTURAL ENVIRONMENT FACING BUSINESS

1. What is culture? What are the primary characteristics of culture?
Answer:
Culture: culture is the collection of values, beliefs, behaviors, customs, and attitudes that distinguish one society from
another.
In other sense we can define culture is the complexity of learned meanings, values, norms, and customs shared by
members of a society.
Several characteristics of culture that are commonly mark able are given below which is known as the primary
characteristics of culture-
• Learned behavior:
Culture reflects learned behavior that is transmitted from one member of a society to another.
Example: Some elements of culture are transmitted intergeneration ally, as when parents teach their children some
common manner. Other elements are transmitted intergenerational its comes from other outsider source.
• Interrelated: The other characteristics of culture are interrelated.
Example: Japan’s group- oriented.
• Adaptive:
Culture is learned behavior, it is adaptive.
Example: culture change in response to external forces that affect the society. After World War II Germany was
divided into free market oriented.
• Shared:
Culture is shared by members of the society and indeed defines the membership of the society.
Example: Individual who share a culture are members of a society; those who do not are outside of the boundaries of
the society.

2. Describe the difference between high contest and low context culture.
Answer:
One useful way of characterizing differences in cultures is the low context – high context approach developed by
Fdward and Mildred Hall.
Difference between high-context and low-context culture:
High-context culture Low-context culture
1. In a high-context culture the context in 1. In low context culture the words used by
which a conversation occurs is just as the speaker explicitly convey the speaker’s
important as the words that are actually message to the listener. USA and Germanic
spoken and cultural clues are important in countries are good example of low context
understanding what is being culture.
communicated. Arab and Japan are the
example of high context culture

2. High context cultures advertising is more 2. Low-context cultures advertising is more

emotion oriented. fact oriented.
 3. High context cultures place higher value on 3. Low-context cultures place more
interpersonal relations in deciding whether importance on the terms of a transaction.
to enter into a business arrangement. Here No value in terms of interpersonal relation.
trust is more and each other work
comfortably.

4. In high context culture the presence of a 4. In low context culture lawyers are often
lawyer, particularly at the initial meeting of presented at negotiations to ensure that
the participants, would be viewed as a sign their clients interested are protected.
of distrust.

5. In high text culture always believe long 5. In low context culture they believe
term relationship. contractual relation or short term relation

German Swiss Scandinavian British Italian Spanish Japanese Korean Chinese

3. Discuss the difference between USA and Japanese firms.

Answer:
International firms must be aware of differences in the social orientations of countries. Nepotism is often frowned on
in individualistic cultures but may be a normal hiring practice in collectivistic cultures.
The differences between USA and Japanese firms are given below;

USA firms Japanese firms

1. Here individualism is a cultural norm; here 1. In Japan follows collectivism and here
workers believe they should be worker believe they should be compensated
compensated according to their individual according to their group performance
achievements.

2. U.S firms spend much time and resources 2. Japanese firms spend much time and
assessing individual performance in order resources assessing group performance in
to link pay and performance. order to link pay and performance.

3. In group oriented Japan the CEO’s pay 3. In the United states the CEO’s pay is
symbolically reflects the performance of presented to measure the CEO’s
the group contribution to the firm

4. In the United States a person’s failure to 4. In collectivistic cultures such as Japan

accept a better paying job at another firm changing jobs is often interpreted as
raises suspicions about the person’s reflecting disloyalty to the collective good
ambition, motivation, and dedication to his and may rand the person as unworthy of
or her career. trust.

5. Job mobility is USA is much higher. 5. Job mobility in Japan is much lower.

4. To what extent is there difference culturally determined difference in negotiation style among culture?
Answer:
The negotiation style in culture of different areas is given below-
JAPANESE NORTH AMERICAN LATIN AMERICAN
1. Emotional sensitivity highly valued. Emotional sensitivity not highly Emotional sensitivity valued.
valued.
2. Hiding of emotions. Dealing straightforwardly or Emotional passionate.
impersonally.
 3. Subtle power plays; conciliation. Litigation not as much as Great power plays; use of
conciliation. weakness.

4. Loyalty to employer. Lack of commitment to Loyalty to employer (who is

Employer takes care of its employee. employer. Breaking of ties by often family).
either if necessary.

5. Group decision making consensus. Teamwork provides input to a Decision comes down from
decision maker. one individual.

6. Face saving crucial. Decision often Decision made on a cost benefit Face saving crucial in decision
made on basis of saving someone basis. Face saving does not making to preserve honor;
embarrassment. always matter. dignity.

7. Decision makers openly influenced Decision makers influenced by Execution of special interests
by special interests. special interests but often this is of decision maker expected,
not considered ethical. condoned.
8. Not argumentative, Quiet when right. Argumentative when right or Argumentative when right or
wrong, but impersonal. wrong, passionate.
9. What is down in writing must be Great importance given to Impatient with documentation
accurate, valid. documentation as evidential as obstacle to understanding
proof. general principles.

10. Step-by –step approach to decision Methodically organized decision Impulsive, spontaneous
making. making. decision making

11. Good of group is ultimate aim Profit motive or good of What is good for the group is
individual ultimate aim good for the individuals.
12. Cultivate a good emotional social Decision making impersonal. Personalism necessary for
setting for decision making. Get to Avoid involvements, conflicts of good decision making.
know decision maker. interest.

5. what are cultural clusters?

Answer:
The cultural cluster approach is another technique for classifying and making sense of national cultures. Similarities
exist among many cultures, thereby reducing some of the need to customize business practices to meet the demand of
local cultures.
Anthropologists, sociologists, and international business scholars have analyze such factors as job satisfaction, work
roles, and interpersonal work relations in an attempt to identify cluster of countries that share similar cultural values
that can affect business practices.
A cultural cluster comprises countries that share many cultural similarities, although differences do remain. Example:
Spain and the countries of Latin America share many culture values, as do Israel and US.

6. discuss the Hofstede’s five dimensions of culture.

Answer:
The most influential studies analyzing cultural differences and cultural similarities are performed by Greet Hofstede’s,
a Dutch researcher who studied 116,000 people working in dozens of difference countries. Although Hofstede’s work
has been criticized for methodological weakness and his own cultural basis, it remains the largest and most
comprehensive work of its kind. His work identified five important dimensions along which people seem to differ
across cultures.

1. Social Orientation:
The first dimension identified by Hofstede’s is social orientation. Social orientation is a person’s believe about the
relative importance of the individual and the groups to which that person belongs.
Individualism: It is cultural belief that the person comes first. Key values of individualistic people include a high
degree of self-respect and independence. These people often put their own career interests before the good of their
organizations, and they tend to assess decision in terms of how those decisions affect them as individuals.
Collectivism: The opposite of individualism, is the belief that the group comes first. Societies that tend to be
collectivistic are usually characterized by well defined social networks, including extended families, tribes, and co-
worker. People are expected to put the group ahead of their own personal welfare, interests, or success.

2. Power Orientation:
Power orientation the second dimension refers to the beliefs that people in a culture hold about the appropriateness of
power and authority differences in hierarchies such as business organization.
Power respect: people in a culture tend to accept power and authority of their superiors simply on the basis of the
superior’s positions in the hierarchy. These same people also tend to respect the superior’s right to that power.
Power Tolerance: Attach much less significance to a person’s positions in the hierarchy. These people are more
willingly to question a decision or mandate from someone at a higher level or perhaps even refuse to accept it. They
are willing to follow a leader when that leader is perceived to be right or when it seems to be in their own self interest
to do so but not because of the leader’s intangible right to issue orders.

3. Uncertainty Orientation:
The third basic dimension of individual differences Hofstede’s studied is uncertainty orientation. Uncertainty
orientation is the feelings people have regarding uncertain and ambiguous situations.
By uncertainty acceptance are stimulated by change and thrive on new opportunities. In this culture certainty carries
with a sense of monotony, routineness, and overbearing structure.
Uncertainty acceptance: positive response to change and new opportunity.
Uncertainty avoidance: prefer structure and a constant routine.

4. Goal orientation:
What motives people to achieve different goals. Different people have different goals according to their different
motives. Motivation is the incentive for that people tries to achieve his personal goal.
Aggressive goal behavior: value material possessions money and assertiveness.
Passive goal behavior: value social relevance, quality of life, and the welfare of others

5. Time orientation:
The extent to which members of a culture adopt a long term or a short term outlook on work and life.
Long term outlook: value dedication and hard work.
Short term outlook: value tradition, social obligations.

CHAPTER-04: LEGAL ENVIRONMENT

1. DEFINE LEGAL ENVIRONMENT?
Legal environment refers all laws and customs that have considerable impact on business. A domestic firm
follows the laws and customs of its home country. An international business faces a more complex task: It
must obey the laws not only of its home country but also the laws of all the host countries in which it
operates. Both home and home country laws can critically affect the way international firms conduct their
business. These laws determine the markets firms may serve, the prices they can charge for their goods, and
the cost of necessary inputs such as labor, raw materials, and technology. The laws may also affect the
location of economic activity.

2. DESCRIBE THE FOUR DIFFERENT TYPES OF LEGAL SYSTEMS WHICH

INTERNATIONAL BUSINESS MUST DEAM?

Differences in legal systems are four types-National legal systems vary dramatically for historical, cultural,
political, and religious reasons. The rule of law, the role of lawyers, the burden of proof, the right to judicial
review, and, of course, the laws themselves differ from country to country.
a. Common law:
Common law is the foundation of the legal systems in the United Kingdom and its former colonies,
including the United States, Canada, Australia, India, New Zealand, Barbados, Saint Kitts and Nevis, and
Malaysia. Common law is based on the cumulative wisdom of judges’ decisions on individual cases through
history. These cases create legal precedents, which other judges use to decide similar cases.
b. Civil law:
Another common form of legal systems, civil law, is based on a codification, or detailed listing, of what is
and is not permissible. The civil law systems originated in biblical times with the Romans, who spread it
throughout the Western world.
c. Religious law:
Religious law is based on the officially established rules governing the faith and practice of a particular
religion. A country that applies religious law to civil and criminal conduct is called a theocracy. In Iran, for
example, a group of mullahs, or holy men, determine legality or illegality through their interpretation of the
Koran, the holy book of Islam. Religious laws can create interesting problems for firms. Consider the
teaching of the Muslim holy book, the Koran, which denounces charging interest on loans as an unfair
exploitation of the poor. Muslims firms and financial institutions have had to develop alternative financing
arrangements to acquire and finance capital. Muslim businesses often rely on leasing arrangements, rather
than borrowing money, to obtain long-term assets.

d. Bureaucratic law:
The legal system in communist countries and in dictatorships is often described as bureaucratic law.
Bureaucratic law is whatever the country’s bureaucrats say it is, regardless of the formal law of the land.
Contracts can be made or broken at the whim of those in power.

3. DEFINE TECHNOLOGICAL ENVIRONMENT?

Technological environment exercises considerable influences on business. Technology is understood as the
systematic applications of scientific or other categorized language to practical tasks. It is through business
that technology reaches to people. Another important dimensions of a country’s is its resource base. The
availability or unavailability of resources affects what products are made in a given country. Because of their
abundance of fertile land, Australia, Argentina, and Thailand are major exports of agricultural goods.
Similarly the easy availability of low cost labor allows firms in China and Indonesia to produce labor-
intensive products for the world market. Conversely firms in Iceland and New Zealand are net importers of
such products because these firms lack low-cost labor, which hinders their ability to manufacture labor-
intensive goods profitably.

4. WHAT IS THE DIFFERENCE BETWEEN FIRST TO INVENT AND FIRST TO FILE PAYMENT
SYSTEM?

International conflicts often develop because intellectual property laws are not consistent. For example, the
United States follows a “first to invent” patent policy, as do Canada and the Philippines. This system focuses
on protecting the rights of the “true” inventor. Unfortunately it also encourages much litigation as competing
patent applicants attempt to prove they were the first to invent the product. The “first to file” system adopted
by other countries avoid this litigation by unambiguously assigning rights to the first patent application.
However it also puts a premium on speed in applying and favors larger firms with deeper pockets.
Differences in patent practices can also lead to conflicts. for example, Japanese firms tend to file numerous
patents each of which may reflect only a minor modification of an existing patent. Conversely U.S patent
law requires that patentable inventions be new, useful, and no obvious.

5. THE IMPACT OF MNC ON HOST COUNTRIES?

Firms establishing operations beyond the borders of their home country affect and are affected by the
political, economic, social, and cultural environments of the host countries in which the firms operates. To
compete effectively in the markets and maintain productive relationships with the governments of the host
countries, managers of MNC s must recognize how they and their firms should interact with the national and
local environments.

Economic and political impacts :

MNC s affect every local economy in which they compete and operate .Many of the effects are positive.
MNC s may make direct investments in new plants and factories, thereby creating local jobs. Such
investments provide work for local contractors, builders, and suppliers. MNC s also pay taxes which benefit
the local economy, and help to improve educational, transportation, and other municipal services.

MNC s may also have negative effects on the local economy. To the extent that MNC s compete directly
with local firms, the MNC s may cause these firms to lose both jobs and profits.

MNC s also may have a political impacts, either intentionally or unintentionally. Their sheer size often gives
tremendous power in each country on which they operate. Furthermore, there is always the possibility that
this power may be misused.

Cultural impacts:
MNC s also can exert a major influence on the cultures in which they operate. As they raise local standard of
living and introduce new products and services previously unavailable. people in the host cultures develop
new norms, standards, and behavior. some of these changes are positive, such as the introduction of safer
equipment and machinery, better health care and pharmaceuticals, and purer and more sanitary food
products. Other changes are not positive.

6. DEFINE POLITICAL ENVIRONMENT?

A country’s political environment has enormous implications to managers and companies. Our look at China
showed that its political systems create the freedom for foreign investors to enter the market, design
operations, manage activity, and ultimately earn profits. For our purposes, a political system is the complete
set of institution, political organizations, interest groups, the relationships between those institutions, and the
political norms and rules that govern their functions.

The general purpose of the political system has been debated since Plato’s Republic and Aristotle’s Politics.
While different views of the specific purposes of a political system still persist, most agree that it integrates
different groups into a functioning, and self-governing society. Creating legitimate consensus among people
in a society can create many powerful, positive benefits that attracts foreign investors and spur international
trade. As such the ultimate test of a political system is it stability to unite a society in the face of the divisive
pressures of competing ideas and outlooks.
Differing views of the role of the governments within a society ,such as happened in the former Soviet
Union, can effectively break a country apart. The resulting political instability can penalize companies
currently operating in that market as well as discourage potential foreign investors.

7. THE POLITICAL SYSTEM AND ITS FUNCTION?

The general purpose of the political system has been debated since Plato’s Republic and Aristotle’s Politics.
While different views of the specific purposes of a political system still persist, most agree that it integrates
different groups into a functioning, and self-governing society. Creating legitimate consensus among people
in a society can create many powerful, positive benefits that attract foreign investors and spur international
trade.
Political process functions include
• Interest articulation.
• Interest aggregation.
• Policy making.
• Policy implementation and adjudication

8. BASIC POLITICAL IDEOLOGIES?

Political ideology – a body of constructs (complex ideas), theories, and aims that constitute a sociopolitical
program.
Political ideology is the collection of ideas that expresses the goals ,theories, and aims that constitute a
sociopolitical program. The liberal principles of the Democratic party and the conservative doctrine of the
Republican Party of United States are examples of political ideologies. Most modern scientists are
pluralistic politically-that is different group champion competing ideologies. Pluralism arises because groups
within countries can differ from each other in language(e. g Belgium),class structure(e. g United
Kingdom),ethnic background(e. g South Africa),tribal groups(e. g Afghanistan) ,or religion(e. g India).These
are similar dimensions influence the conduct of the political system.

9. THE IMPACT OF THE POLITICAL SYSTEMS ON MANAGEMENT DECISSION ?

TYPE IMPACT ON FIRMS

Expropriation Loss of future profits

Confiscation Loss of assets

Loss of future profits

Campaigns against foreign goods Loss of sales

Increased cost of public relation efforts to
improve public image
Mandatory labor benefits legislation Increased operating cost

Kidnappings, terrorist other forms of Disrupted production

violence Increased security costs
Increased managerial costs
Lower productivity

Civil wars Destruction of properties

Lower sales
Disruption of production
Increased security costs
Lower productivity

Inflation Higher operating costs

Repatriation Inability to transfer funds freely

Currency devaluation Reduced value of repatriated earnings

Increased taxation Lower after- tax profits

CHAPTER-05: THE ECONOMIC ENVIRONMENT

Question no-01: Define economic environment.

Answer: Economic environment refers to all those economic factors which have a bearing on the functioning of a
business unit. Business depends on the economic environment for all the needed inputs. It also depends on the
economic environment to sell the finished goods.

Question no-02: Discuss the different economy system.

Answer: An economic system is the set of structures and processes that guides the allocation of resources and shapes
the conduct of business activities.
The principles of capitalism and communism to analyze prevailing types of economic systems:
►A market economy
►A command economy
►A mixed economy
That economic system defines economic environments across the world. These economic system discuss in below-
Market economy: A market economy gives individuals the freedom to decide where to work doing what , how to
spend or save money, and whether to consume now or later. The theoretical principles that define free-market
economies are based on the principle of laissez-faire( nonintervention by government in economic matters). This
principles has two general features:
1. producers, spurred by the profit motive, efficiently make products that consumers want.
2. consumers, by virtue of what they do and do not buy, determine the relationships among price, quantity,
supply and demand so that capital and labor are allocated productively.
Command economy: A command economy, also known as a centrally planned economy, describes the economic
system whereby the government owns and controls all resources. The government commands all authority to decide
what goods and services a country will produce, the quantity in which they are produced and the price at which they
are sold to consumers.
Centrally planned economies have a range of telltale features. The government owns the means of production-land,
farms, factories, bank, stores, hospitals and so forth that are then managed by employees of the state.
Mixed economy: A mixed economy is a system where economic decisions are largely market driven and ownership is
largely private, but the government intervenes in many private economic decisions. The mixed economic system has
elements of both market and central planning economies-the government owns key factors of production, Yet
consumer and private producers still influence price and quantity.

Question no-03: Discuss the key economic issues that influence international business.
Answer: The key issues are….
Inflation
Inflation is the pervasive and sustained rise in the aggregate level of prices measured by an index of the cost of various
goods and services. Inflation results when aggregate demand grows faster than aggregate supply- essentially, too many
people are trying to buy too few goods, thereby creating demand that pushes prices up faster than incomes grow.
Consider the impact of inflation on the cost of living. Rising prices make it more difficult for consumers to buy
products unless their incomes rise at the same or faster pace. Sometimes it is practically impossible. Either alone or
together, these measures slow or stop economic growth.
Unemployment
The unemployment rate is the number of unemployed workers divided by the total civilian labor force, which
includes both the unemployed and those with jobs. In practice, measuring the number of unemployed workers actually
seeking work in various countries is difficult given the lack of a standard measurement method. Generally, people out
of work and unable to find jobs depress economic growth, create social pressure, and provoke political uncertainty.
Debt
Debt, the sum total of government’s financial obligations, measures the state’s borrowing from its population, from
foreign organizations, from foreign governments, and from international institutions. More recently, many countries
have borrowed from international lenders to finance their movement to freer markets, a process of economic
transition. Many countries that began with this ambition but that eventually failed then increasingly had to rely on
foreign debt.
Income Distribution
GNI or PPP, even weighted by the size of the population, can misestimate the relative wealth of a nation’s citizens.
Uneven income distribution is not a problem of poorer nations. There is a strong relationship between skewed income
distributions and the split between those who live in urban settings versus those who live in rural areas.
Poverty
A related but separate issue concerns poverty- the state of having little or no money, few or no material possessions,
and little or no resources to enjoy a reasonable standard of life. In many parts of the world, workers and consumers
struggle for food, shelter, clothing, clean water, health services, to say nothing of safety, security, and education.
Failure results in suffering, malnutrition, mental illness, death epidemics, famine, and war.
The Balance of Payments
The balance of payments(BOP), officially known as the statement of International Transactions, records a country’s
international transactions that take place between companies, governments, or individuals. Managers use the BOP as a
comprehensive indicator of a country’s economic stability.

CHAPTER-6: ETHICS AND SOCIAL RESPONSIBILITY IN INTERNATIONAL BUSINESS

Question-01: What do you understand by ethics?
Answer:
Ethics refers to a system of moral principles a sense of right and wrong and goodness and badness of actions and their
motives and consequences.

Question-02 Why is ethics important for business?

Answer:
Ethics is important to business for several reasons as stated below:
A. Ethics corresponds to basic human needs
B. Values create credibility with the public
C. Values give management credibility with employees
D. Values help better decision making
E. Ethics and profit
F. Law can not protect society, ethics can

Question-03 Explain and state the sources of business ethics.

Answer:
Managers in every society are influenced by three repositories of ethical values: religion, culture and law. These
repositories contain unique systems of values that exert varying degrees of control over managers.
The major sources of business ethics are given below:
Religion:
One of the oldest sources of ethical inspiration is religion. More than 100000 different religions exist across the globe.
The great religious preach the necessity for an orderly social system and emphasis social responsibility in such a way
so as to contribute to the general welfare.
Cultural Experience:
Culture, refers to a set of values, rules and standards transmitted among generations and acted upon to produce
behaviors that fall within acceptable limits.
Two centuries ago, society entered an industrial stage of cultural experience, and ethical systems once more began
evolving to reflect the changing physical, cultural, institutional and intellectual environment.
The legal system:
Laws are rules of conduct, approved by legislatures that guide human behavior in any society. They codify ethical
expectations and keep changing as new evils emerge. But laws cannot cover all ethical expectations of society.

Question-04 Distinguish between ethical and unethical behavior.

Answer:
Ethics is an individual’s personal beliefs about whether a decision, behavior, or action is right or wrong.
The major difference between Ethical behavior and Unethical behavior are:
Ethical behavior usually refers to behavior that conforms to generally accepted social norms.
Unethical behavior, then, is behavior that does not conform to generally accepted social norms.

Question 5: How does organization attempt to manage ethical behavior approach?

Answer:
Organization attempts to mandate and regulate ethical behavior by business. Some laws and regulations are published
to manage ethical behavior in organization environment. Here describe a few of the more important and representative
regulations.
1. The Foreign corrupt practices Act (FCPA) :

• It was passed by the U.S congress in 1977.

• The FCPA prohibits U.S firms, their employees, and agents acting on their behalf from paying.

2. The Alien Tort Claims Act:

• It was passed in the United States in 1789.

• But the recently emerged as a potentially significant law affecting U.S. multinationals.
 3. The Anti-Bribery Convention of the Organization for Economic Cooperation and Development:
• it was developed in and first approved in Canada in 2000.

• It has been approved in 33 other countries.

• The convention is an attempt to eliminate corruption in international business transaction.

4. The International Labor Organization(ILO):

• It has become a major watchdog for monitoring working conditions in factories in developing
countries.

• ILO has begun to systematically inspect working conditions in countries such as Bangladesh,
Cambodia and the Philippines.

Question 6: Difference in social responsibilities and Ethics?

Answer:
We isolate some differences between social responsibilities and ethics.
Social responsibility:
Social responsibility is the set of obligations an organization undertakes to protect and enhance the society in which it
functions.
Ethics:
Ethics is an individual’s personal belief about whether a decision, behavior, or action is right or wrong.

Social responsibility Ethics

Social responsibility is Diversity Responsibility to the employer
It is Environment response Conflict of interest involved in ethics.
Financial responsibility involve social Confidential and proprietary information indicates
responsibility the ethics.
Human right finds in social responsibility. Ethics is moral relationship
Safety development program to the social people, Ethics is moral development personal norms,
environment and economics. characteristics, behavior.

Question 7: Identify major areas of social responsibility for international business?

Answer:
In international business organization may exercise social responsibility to the three major areas toward stakeholders,
toward the natural environment, and toward general social welfare.
1. Organizational stakeholders:

• The organizational stakeholders are directly affected by the practices of an organization.

• Organizations that are responsible to their customer strive to treat them fairly and honestly.

• They pledge to charge fair prices, to honor product warranties, to meet delivery commitment and to
stand quality of products.

2. Natural environment :

• Social responsibility relates to the natural environment. Many organizations indiscriminately dumped
sewage, waste products from production, and trash into streams and rivers, into the air, and on vacant
land.

• Many laws regulate the disposal of waste materials.

• In many instances companies themselves have become more socially responsible in their release of
pollutants and general treatment of the environment.
3. Social Welfare:
• Business organizations also should promote the general welfare of society.

• They include making contributions to charities, philanthropic organizations, and non-profit organizations and
associations.

• They become sponsor in museums, symphonies, public radio and television.

• The organizations take role in improving public health and education.

• Some people also believe that organizations should act more broadly to correct political and social inequities
that exist in the world.

CHAPTER-07 (International Trade)

Question-1: Define international trade and discuss the roll of mercantilism in international trade.

Answer:
International trade:
International trade is the branch of economics concern with the exchange of goods is services with foreign countries.
International trade has become an even more important topic now that so many countries have begun to move from
state run to market driven economics. In this regard international commitment to a free market will bring prosperity to
the world economic system.
Mercantilism held that a country’s wealth was measured by its holdings of its treasure, which usually meant its gold.
According to the theory, countries should export more than they import and if successful receive gold from countries
that run deficits.

Role of Mercantilism in Modern International Trade:

Mercantilism is a trade theory that formed the foundation of economic thought from about 1500 to 1800. Mercantilism
held that a country’s wealth was measured by its holding of treasure which usually meant its gold. According to the
theory, countries should export more than they import and if successful receive gold from countries that run deficits.
To export more than they imported, government imposed restrictions on most imports, and they subsidized production
of many products that could authorize not compete in domestic and export markets. Some countries used their colonial
possessions to support these trade objectives. Colonies supplied many commodities that the colonizing country might
otherwise have had to purchase from a no associated country. Second, the colonial powers sought to run trade
surpluses with their own colonies as an additional way to obtain revenue.

Some terminology of the mercantilist era has endured. A favorable balance of trade, for example still indicates that a
country is exporting more than its importing. An unfavorable balance of trade indicates the opposite, which is known
as a deficit. It is not necessarily beneficial to run a trade surplus nor is it necessarily disadvantageous to run a trade
deficit. A country that is running a surplus, or a favorable balance of trade, is for the time being, importing goods &
services of less value than it is exporting.

Question-2: Contrast the theory of absolute advantage and the theory of comparative advantage.

Answer:

Absolute Advantage:

• Adam Smith developed the theory of absolute advantage.

• The theory holds that different countries produce some goods more efficient than other countries, thus, global
efficient can increase through free trade.
• Based on this theory, he questioned why the citizens of any country should have to buy domestically produce
goods when they could buy those goods more cheaply from abroad. If trade unrestricted, each country would
specialized in those products that gave it a competitive advantage.
• Each country’s resources would shift to the efficient industries because the country could not compete in the
inefficient ones.
• Though specialization, labor become more skilled by repeating the same tasks.
• Though specialization, labor would not lose in switching from the production of one kind of product to
another.
• Though specialization, long production runs would provide incentives for the development of more effective
working methods.

Comparative Advantage:

• Absolute advantage in often confused with and called comparative advantage.

• David Ricardo developed the theory of comparative advantage.
• David Ricardo examined the question, “what happens when one country can produce all products at an
absolute advantage?” before developed the comparative advantage.
• This theory says that global efficiency gains may still result from trade if a country specializes in those
products that it can produce more efficiently than other products regardless of whether other countries can
produce those same products even more efficiently.
• The comparative advantage theory is accepted by most economists and is influential in promoting policies for
free trade.

Question-3: Contrast the factor endowment theory & the Heckscher and Bertil Ohlin theory.

Answer:
Eti Heckscher and Bertil Ohlin developed the factor proportion’s theory.
• This theory based on countries production factors – land, labor and capital (funds for investment in plant &
equipment)
• This theory said the differences in countries endowments of labor compared to their endowments of land or
capital explained differences in the cost of production factors.
• These economists proposed that if labor were abundant in comparison to land and capital, labor costs would
be low relative to land and capital costs.
• If labor were scarce, labor costs would be high in relation to land and capital costs.
• Casual observation of manufacturing locations also seems to substantiate the theory.

Question-4: Explain some of the most commonly used barriers to trade and other economic developments that
affect international economics.
Answer:

A trade barrier is a general term that describes any government policy or regulation that restricts international trade.
There are a variety of barriers that deter the free flow of international goods and services. The following presents six
of the most commonly used barriers.
Price-based barriers:
Imported goods and services sometimes have a tariff added to their price. Quite often this is based on the value of the
goods. For example, during the last caretaker govt. in Bangladesh impose 200% VAT on the tobacco products. For this
reason, the British American Tobacco (BAT), Dhaka Tobacco and others tobacco industries facing huge trade barriers.
This is a price based barriers. But the ultimate victims of the price-based barriers are the consumers. But govt. collect
a large amount of funds form this techniques.

International price fixing:

Price fixing is an agreement between business competitors to sell the same product or service at the same price. In
general, it is an agreement intended to ultimately push the price of a product as high as possible, leading to profits for
all the sellers. They control the price of this specific goods or services. It’s known as cartel and an illegal practice. A
well known example is OPEC (Organization of Petroleum Exporting Country), which consists of Saudi Arabia,
Kuwait, Iran, Iraq, and Venezuela among others. By controlling the supply of oil it provides, and they seek to control
the price and profit.

Quantity limits
Quantity limits, often known as quotas, restrict the number of the units that can be imported or the market share that is
permitted. For example, in US market the ready made garments product of China and Russia are only having the 5%
entrance facility. Using the quantity limits product entrance US control the China and Russia readymade industry.

Non-tariff barriers
Non-tariff barriers to trade (NTB's) are trade barriers that restrict imports but are not in the usual form of a tariff. Govt.
rules and regulation, bureaucratic red tape that delay the purchase and process of international trade are considered as
non-tariff barriers. In Bangladesh the govt. having a negative rules and regulation on production of hard drinks likes
whiskey, Ram, Sham pane or vodka. For this reason, these international hard drinks brands never felt privilege to trade
it in Bangladesh.

Financial Limits
There are a number of different financial limits. One of the most common is exchange control that restricts the flow of
currency. Many countries restrict to control the currency. Many Latin American countries privilege the export than
import. Bangladesh govt. impose restrictions for the local tourists who visit others countries. Only a tourist can take
$200 if he wants to visit India. Some countries also restrict the export and import limit to privilege its infant industry.

Foreign investment controls

Foreign investment controls are limits on foreign direct investment (FDI) or the transfer or remittance of funds. Three
ways foreign investment are controlled by the govt. (a) requiring foreign investors to take a minority ownership
position (b) limiting profit remittance (c) Prohibiting royalty payments to parent companies.

These barriers can greatly restrict international trade and investment. However, it must be realized that these barriers
are created for what governments believes are very impartment reasons.

Question-05: Discuss some of the reasons for the tensions between the theory of free trade and the wide spread
practice of national barriers to trade.

Answer:
The free trade and the trade restricted nations face the challenge of the others free trade zones, counter trade and trade
in services. Free trade zones practice trade only for their own regions but they are not free for whole the world. This
create problem for the free trade nations and the trade restricted regions. The challenges of the free trade and trade
restricted regions are described below.

Counter trade:
Counter trade is essentially barter trade in which the exporting firm receives payment in terms of products from the
importing country. Countertrade forms a major component of east-west trade. It’s tends to decrease the efficiency of
world trade because it substitutes barter for exchange of goods by the price system. For example, US exporter of
machinery to Indonesia may have to take payment in an “equivalent value” of palm oil or rattan. The exporting firm
will then either have to sell these products for which it has no expertise itself or sell them through a broker or other
firm.

Trade in services:
International trade in services has received relatively little attention from governments or trade economists during
trade negotiations. Reliable statistics are seldom collected. However, as high income countries move toward a service
economy, trade in services has grown and become a significant component of the current accounts of many countries.
Government faces may problems to prohibit this industry to the international business as the world is connected
through high quality telecommunication and internet facility. For example, Telemedicine service cannot be prohibit the
govt. because it’s very complicated to be restricted. Many of Bangladeshi take the telemedicine service form the US
and Singapore doctors.

Free Trade Zones:

A free trade zone is a designated area where importers can defer payment of customs duty while further processing of
products takes place. Thus the free trade zone serves as an “offshore assembly plant”, employing local workers and
using local financing for a tax-exempt commercial activity. The economic activity in a free trade zones takes place in a
restricted area such as an industrial park since this land is often being supplied at a subsidized rate by a local host
government that is interested in the potential employment benefits of the free trade zone. Free trade zones only traded
their goods and services in a specific area. Govt. of free trade nations cannot access their products in this area. The
international trade syndication or free trade zones also burning issue for the trade restricted area.

The free trade nations always want to access all the markets and trade restricted nations wants to restrict all the
international business activity. But free trade zones, service trade and countertrade may be a tension for the free and
restricted trade regions.

CHAPTER-08: International Strategic Management

Question-1: Discuss the components of Industrial Strategy?

Answer:
After determining the overall international strategies philosophy of their firm, managers who engage in international
strategies planning then need to address the four basic components of strategy development. The components are
given bellow.

Distinctive Competence:
The first component of international strategy, answer the question “What do we do exceptionally well, especially as
compares to our competitors?” A firms distinctive competence may be cutting-edge technology, efficient distribution
networks, superior organization practices, or well respected brand names.

Without a distinctive competence, a foreign firm will have difficulty- competing with local Firms that are presumed to
knots the local market better. The Disney name, image, and portfolio of characters, for example, is a distinctive
competence that allows the firm to succeed in foreign markets. Similarly, the ready availability of software programs
compatible with windows operating gives Microsoft in advantage in competing with local firms outside the United
States.

Scope of Operations:
The second component, the scope of operations, answers the question "Where are we going to conduct business"
Scope maybe defined in terms of geographical regions, such as countries, regions within a country, and/or clusters of
countries. Or it may focus on market or product niches within one or more regions, such as the premium-qualm mar-
ket niche, the low-cost market niche, or other specialized market niches. Because all firms have finite resources and
because markets differ in their relative attractiveness for various products, managers must decide which markets are
most attractive to their firm.

Resource Development:
Resource deployment answers the question "Given that we are going to compete in these markets, how will we
allocate our resource; to them" For example, even though Disney will soon have theme park operations in tour
countries, the firm does not have an equal resource commitment to each market. Disney invested nothing
in Tokyo. Disneyland, limited its original investment in Disneyland Paris to 49 percent of its equity, and will cap
its investment in Hong Kong as well.
Resource development might be specified along product lines, geographical lines, or both.'' This part of strategic
planning determines relative priorities for a firm's limited resources.

Synergy:
The goal of synergy is to create a situation where the whole greater than the sum of the parts.

Question- 2: How you will develop international strategy for your organization?
Answer:
Developing international strategies is not a one-dimensional process. Firms generally carry out international
strategic management in two broad stages: strategy formulation and strategy implementation. Simply put, strategy
formulation is deciding what to do and strategy implementation is actually doing it.

While every strategic planning process is in many ways unique, there is nevertheless a set of general steps that
managers usually follow as they set about developing their strategies. These steps are discussed next.
Mission Statement:
Most organizations begin the international strategic planning process by creating a mission statement, which
clarifies the organization's purpose, values, and directions. The mission statement is often used as a way of
communicating with internal and external constituents and stakeholders about the firm's strategic direction. It may
specify such factors as the firm's target customers and markets, principal products or services, geographical domain,
core technologies, concerns for survival, plans for growth, and profitability; basic philosophy, and desired public image.
For example, the mission statement of Hershey Foods includes the goal of being die "No. I confectionery company in
North America, moving toward worldwide confectionery market share leadership;".

Environment Scanning and the SWOT Analysis:

The second step in developing a strategy is conducting a SWOT analysis. SWOT is an acronym for
"Strengths, Weakness, Opportunities, and Threats." A firm typically initiates its SWOT analysis by performing an
environmental scan, a systematic collection of data about all elements of the firms external and internal
environments including markets, regulatory issues, competitors action, production cost and labor
productivity.
When members of a planning stuff scan the external environment, they try to identify both the
opportunities (the O in SWOT) and the threats (the T in SWOT) confronting the firm.
External environmental scanning also yields data about environmental threats to the firm, such as shrinking markets,
increasing competition, the potential for new government regulation, political instability in key markets, and the
development of new technologies that could make the firm's manufacturing facilities or product lines obsolete.

In conducting a SWOT analysis, a firm's strategic managers must also assess the firm's internal environment, that
is, its strengths and weaknesses (the S and 1 W in SWOT). Organizational strengths are skills, resources, and other
advantages the firm possesses relative to its competitors. Potential strengths, which form the basis of a firm's
distinctive competence, might include an abundance of managerial talent, cutting-edge technology, well-known n
brand names, surplus cash, a good public image, and strong market shares in key countries.

Strategic Goal:
With the mission statement and SWOT analysis as contest, international strategic planning is largely
framed by the setting of strategic goal. Strategic goals are the major objective the firm wants to accomplish
through pursuing a particular course of action. By definition, they should be measurable, feasible, and time-
limited.

Tactics:
Tactics usually involve middle managers and focus on the details of implementing the firms’ strategic goals.

Control Framework:
The final aspect of strategy formulation is the development of a control framework set of managerial and
organizational processes that keep the firm moving towards its goals. For example, Disneyland Paris had a first-year
attendance goal of 12 millions. When it became apparent that this goal would not be met, the firm incurs
advertising to help boost attendance and temporarily closed one of its hotels to cut costs.

Question: 3-Discuss the levels of international strategy. What is international strategic management?
Answer:
There are mainly three levels of international strategy. They are
• Corporate Strategy
• Business Strategy
• Functional Strategies

Short description of these three are given bellow,

1. Corporate Strategy:
Corporate strategy attempts to define the domain of businesses the firm intends to operate. Consider three Japanese
electronics firms: Sony competes in the global market for consumer electronics and entertainment but has not
broadened its scope into home and kitchen appliances. Corporation focuses only on electronic audio and video
products. Each firm has answered quite differently the question of what constitutes its business domain. Their
divergent answers reflect their differing corporate strengths and weaknesses, as well as their differing assessments
of the opportunities and threats produced by the global economic and political environments.
A. The single- Business Strategy: The single-business strategy calls for a firm to rely on a single business,
product, or service for all its revenue. The most significant advantage of this strategy is that the fine can
concentrate all its resources and expertise on that one product or service. However, this strategy also increases the
firm's vulnerability to its competition and to changes in the external environment. For example, for a firm
producing only VCRs, a new innovation such as the DVD player makes the firm's single product obsolete, and it
may be unable to develop new products quickly enough to survive.

B. Related Diversification: Related diversification, the most common corporate strategy,, calls for the firm to
operate in several different but fundamentally related businesses, industries, or markets at the same time. This
strategy allows the firm to leverage a distinctive competence in one market in order to strengthen its
competitiveness in others. The goal of related diversification and the basic relationship linking various
operations are often defined in the firm's mission statement. Related diversification has several
advantages.
First, the lien depends less on a single product or service, so it is so it is less vulnerable to competitive or
economic threats.
Second, related diversification may produce economic of sale of a firm.

Third, related diversification may allow a firm to use technology or expertise developed in one market to enter a
second market more cheaply and easily.

C. Unrelated Diversification: A third corporate strategy international business may use is unrelated
diversification, whereby a firm operates in several unreleated industries and markets. For example, Casino
Guichard-Perrachon, a Frenchfirm, owns businesses that compete in the financial services, image
processing, supermarket, wine production, and convenience store industries. During the 1960s, unrelated
diversification was the most popular investment strategy. Many large firms, such as ITF, Gulf and
Western, and Textron became conglomerates, the term used for firms comprising unrelated businesses.
Nonetheless, the creation of conglomerates through the unrelated diversification strategy is out of favor
today primarily because of the lack of potential synergy across unrelated businesses. Since the businesses
are unrelated, no one operation can regularly sustain or enhance the others.

2. Business Strategy:
Whereas corporate strategy deals with the overall organization, business strategy focuses on specific businesses,
subsidiaries, or operating units within the firm. Business strategy seeks to answer the question “How should we
compete in each market we have chosen to enter ”
Firms that pursue corporate strategies of related diversification or unrelated diversification tend to
bundles sets of businesses together into strategic business units. In firms that follow the related
diversification strategy, the products and services of each SBU are somewhat similar to each other.

Differentiation: Differentiation strategy is a very commonly used business strategy. It attempts to

establish and maintain the image that the SBU’s products or services are fundamentally unique from of
other product and services in the same market.

Overall Cost Leadership: The overall cost leadership strategy calls for a firm to focus on achieving highly efficient
operating procedures so that its costs are lower than its competitors'. ']'his allows it to sell its goods or services for lower
prices. A successful overall cost leadership strategy may result in lower levels of unit profitability due to lower prices but
higher total profitability due to increased sales volume.
Focus: A focus strategy calls for a firm to target specific types of products for certain customer groups or regions.
Doing this allows the firm to match the features of specific products to the needs of specific consumer groups.

3. Functional Strategies:

Functional strategies attempt to answer the question "How will we manage the functions of finance, marketing,
operations, human resources, and research and development (R&D) in ways consistent with our international corporate
and business strategies?"

International financial strategy deals with such issues as the firm's desired capital structure, investment policies,
foreign-exchange holdings, risk-reduction techniques, debt policies, and working-capital management.
International operations strategy deals with the creation of the firm's products or services. It guides decisions
on such issues as sourcing, plant location, plant layout and design, technology, and inventory management.

CHAPTER: FOREIGN MARKET ANALYSIS

Question: 1- What are the steps in conducting a foreign market analysis?

Answer:
International businesses have the fundamental goals of expanding market share, revenues, and profits. They often
achieve these goals by entering new markets or by introducing new products into markets in which they already have
a presence. A firm’s ability to do this effectively hinges on its developing a through understanding of a given
geographical or product market. To successfully increase market share, revenue, and profits, firms must normally
follow three steps,
• Assess alternative markets
• Evaluate the respective costs, benefits, and risks of entering each, and
• Select those that hold the most potential for entry or expansion.

• Assessing alternative foreign markets

In assessing alternative foreign market a firm must consider a variety of factor including the current and potential
sizes of the markets, the levels of competition the firm will face, their legal and political environment, and socio-
cultural factors that may affect the firm’s operations and performance. Information about some of these factors is
relatively objective and easy to obtain.

 Market potential : The first step in foreign market selection is assessing market potential. Many
publications such as those listed in “Building Global Skills” provide data about population, GDP, per
capita GDP, public infrastructure, and ownership of such goods as automobiles and televisions.
The decisions a firm draws from these information often depend upon the positioning of its products
relative to those of the competitors. A firm producing high quality products at premium prices will find
richer market attractive but may have more difficulty penetrating a poorer market. Conversely a firm
specializing in low priced, lower quality goods may find the poorer market even more lucrative than the
richer market.

 Level of competition
Firm must consider in selecting a foreign market is the level of competition in the market both the current
level and the likely future level. To assess the competitive environment it should identify the number and sizes
of firms already competing in the market, their relative market share, their pricing and their distribution
strategies, and their relative strength and weaknesses, both individually and collectively. It must then weigh
these factors against actual market conditions and its own competitive position.

 Legal and political environment

A firm contemplating entry into a particular market also needs to understand the host country’s trade policies
and its general legal and political environment. A firm may choose to forgo exporting its goods to a country
that has high tariffs and other trade restriction in favor of exporting to one that has fewer or less significant
barriers. Government stability is an important factor in foreign market assessment.

 Socio-cultural influences
 Manger assessing foreign markets must also consider socio-cultural influences, because of their subjective
nature, are often difficult to quantify. To reduce the uncertainty associated with these factors, firms often focus
their initial internationalization in countries culturally similar to their home markets.

• Evaluating costs, benefits, and risks

The next step in foreign market assessment is a careful evaluation of the costs, benefits, and risks associated with
doing business in a particular foreign market.
 Costs
Two types of costs are relevant at this point: direct and opportunity. Direct costs are those firm incurs in
entering a new foreign market and include costs associated with setting up a business operation, transferring
managers to run it, and shipping equipment, and merchandise. The firm also incurs opportunity costs, because
the firm has limited resources, entering one market may preclude or delay its entry in another.
 Benefits

Among the most obvious potential benefits are the expected sales and profits from the markets. Other includes
lower acquisition and manufacturing costs, foreclosing of markets to competitors, competitive advantage,
access to new technology, and the opportunity to achieve synergy with other operations.

 Risks

Of course, few benefits are achieved without some degree of risk. Generally, a firm entering a new market incurs
the risk of exchange rate fluctuation, additional operating complexity, and direct financial losses due to inaccurate
assessment of market potential. In extreme cases, it also faces the risk of loss through government seizure of
property or due to war or terrorism.

• Most potentiality for entry or expansion

The factors of ownership advantages, location advantages and internationalization advantages are the most
potentiality for an organization for entry or expansion. Other factors to be considered include the firm’s need for
control, the availability of resources, and the firm’s global strategy.

Question: 2-Discuss the various modes of entry for doing international business?

Answer:

After deciding which market to enter the firms faced another decision with which mood of entry should they use. The
electric theory considers three factors: the factors of ownership advantages, location advantages and
internationalization advantages. Other factors to be considered include the firm’s need for control, the availability of
resources, and the firm’s global strategy.
Decision Factors
ownership advantages
location advantages
internationalization
advantages
other factors
need for control
the availability of resources
global strategy

Exporting Foreign Direct

Specialized Moods
Indirect exports International International Contract manufacturing Investment
Direct exports Licensing Franchising Management contracts
Turnkey projects
Greenfield strategy
Acquisition strategy
Intracorporate transfers
Joint venture

Fig: A mode of entry

• Exporting:
Exporting can be either direct or indirect. With direct exporting the company sells to a customer in another
country. This is the most common approach employed by companies taking their first international step because
the risk of financial loss can be minimized. In contrast, indirect exporting usually means that the companies sell to
a buyer (importer or distributor) in the home country who in turn exports the product. Exporting is also a common
approach for mature international companies.
• International licensing:
A means of establishing a foothold in foreign markets without large capital outlays is licensing. Patent rights,
trademarks rights, and the rights to use technological processes are granted in foreign licensing.
• International Franchising:
Franchising is a rapidly growing form of licensing in which the franchisor provides a standard package of
products systems, and management services, and the franchisee provides market knowledge, capital and personal
involvement in management.

• Specialized Moods:

A strategic mood is a business relationship established by two or more companies to cooperate out of mutual need
and to share risk in achieving a common objectives. Contract manufacturing, management contracts, turnkey
projects grew in importance over the last few decades as a competitive strategy in global marketing management.

• Foreign Direct Investment:

A fifth means of mood to enter in the international business is direct foreign investment, that is, investment within
a foreign country. Companies may manufacture locally to capitalize on low cost labor to avoid high import taxes,
to reduce the high cost of transportation to market, to gain access to raw materials, or as a means of gaining
market entry.