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ASSIGNMENT SOLUTIONS GUIDE (2014-2015)

I.B.O-1
International Business Environment
Disclaimer/Special Note: These are just the sample of the Answers/Solutions to some of the Questions given in the
Assignments. These Sample Answers/Solutions are prepared by Private Teacher/Tutors/Auhtors for the help and Guidance
of the student to get an idea of how he/she can answer the Questions of the Assignments. We do not claim 100% Accuracy
of these sample Answers as these are based on the knowledge and cabability of Private Teacher/Tutor. Sample answers
may be seen as the Guide/Help Book for the reference to prepare the answers of the Question given in the assignment. As
these solutions and answers are prepared by the private teacher/tutor so the chances of error or mistake cannot be denied.
Any Omission or Error is highly regretted though every care has been taken while preparing these Sample Answers/
Solutions. Please consult your own Teacher/Tutor before you prepare a Particular Answer & for up-to-date and exact
information, data and solution. Student should must read and refer the official study material provided by the university.
Attempt all the questions.
Q. 1. Define international business environment. How does the home country environment influence foreign
business operations of a firm? Explain.
Ans. International business environment refers to totality of all the factors viz. geographic, economic, financial,
socio-cultural, political, legal, technological and ecological which are external to and beyond the control of individual
business enterprises. International business environment is more complex than the business environment because international business environment consists of foreign and global factors, which are external to domestic environment. A firm is
generally familiar with the factors operating at the national level but a firm has to be aware of various factors operating in
a country of trading partner. Thus, international business environment is sum total of domestic, foreign and global environments. A firm has to go through the foreign country environment.
International business environment consists of a number of micro-level and macro-level factors operating at domestic
level, foreign level and global level. Accordingly various factors constituting business environment may be grouped as under:
(i) Domestic Environment
(ii) Domestic Environment
(iii) Global Environment
Domestic Environment: Domestic environment means the environmental factors and forces existing and operating
at national level. Domestic environment includes economic, financial, political, legal and technological factors operating
within the political boundary of a country. Domestic environment affects firms domestic as well as international business.
Domestic environment of international business consists of the following:
(i) Competitive structure
(ii) Economic climate
(iii) Political and legal forces
Business firms are generally familiar with the factors constituting domestic environment. Therefore, business firms
are in a position to adopt itself to them. For example, if there is lack of demand for a firms products or there is intense
competition in the domestic market, the firm may formulate a strategy to go for international business. Similarly, if the
government offers incentives for exports, the firms may like to go for exporting.
Foreign Environment: Foreign environment means the factors and forces operating in a foreign country or countries
with whom a firm in domestic economy wants to have international business. Foreign environment consists of the following:
(i) Geographic environment
(ii) Ecological environment
(iii) Legal environment
(iv) Political environment
(v) Socio-cultural environment
(vi) Economic and financial environment

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Since foreign environment is related to foreign country or countries. Firms in domestic economy may not be fully
aware of factors constituting foreign environment. Foreign environment offers a number of opportunities but with some
constraints. Hence, a business firm should carefully analyze the foreign environment. If a firm intends to operate in
number of foreign markets. The problem of analyzing foreign environment becomes more complicated because the
environment prevailing in one country is generally not the same in another country. As a result, strategies adopted for one
foreign market may not give same results in second foreign market. Since most of the factors constituting foreign
environment are dynamic, a firm has to be careful in monitoring the changes in foreign environment.
Global Environment: Global environment means the factors operating on worldwide basis or regional basis. Global
environment is not confined to just one country but entire world or a group of countries. Hence, the impact of global environment
is visible in a home country as well as foreign countries. Global environment consists of following factors and forces:
(i) International economic conditions like worldwide economic recession.
(ii) International financial institutions and system like international financial liquidity or stability, International
Monetary Fund and World Bank.
(iii) International trade organization and agreements like World Trade Organization (WTO), United Nation Conference
on Trade and Development (UNCTAD), Agreement on Textiles and Clothing (ATC), Generalized System of
Preferences (GSP) and International Commodity Agreements.
(iv) Regional economic groups and agreement like European Union (EU), North American Free Trade Association
(NAFTA) and Association of South East Asian Nations (ASEAN).
The various factors constituting international business environment may be shown as under:

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Q. 2. (a) There is a view that the future of world trade is going to be one of trade among trade blocks rather
than trade among nations. Give reasons for your answer.

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Ans. Yes, we agree with the view that the future of world trade is going to be one of the trade among trade blocks rather
than trade among nations. There is a worldwide trend towards forming new regional arrangements and strengthening the
existing ones. Inspired by European Union (EU), several regional integration schemes have been formed by the developing
countries. Today regionalism is gaining ground. In its current incarnation, regionalism has engulfed all major players in the
world economy. The possibility of the division of the world into three major trading blocks is widely talked out:
(1) America
(2) Europe and
(3) East Asia.
If we see the present position of world trade, we find, intra-trade is increasing. Intra-trade has grown faster than
extra-trade. Regional trade blocs have succeeded as far as stepping up intra-trade is concerned, more among developed
countries than among developing countries. Developing countries are also realizing the importance of trade blocks. The
future of regional trade grouping is bright.
(b) Discuss Indias strategy to deal with Regional Economic Groupings.
Ans. Regional economic groupings are expected to stay at least for the time being. Therefore, policy makers and
business enterprises of India should take the advantages of positive aspects of regional groupings and try to minimise the
harmful effects of negative aspects. For this following options are available:
(i) Product-wise strategy
(ii) Market segmentation strategy
(iii) Entry Strategy
(iv) FDI strategy
(v) Strategic alliance strategy
There should be clear identification of the products in demand in the groupings and formulation of appropriate
strategy to market them. Secondly, market should be segmented on a regional basis rather than on a country basis. Thirdly,
efforts for gaining entry into the regional market should be made through softest entry point and entering into strategic
alliance with local parties.
An Indian firm can take advantage of the positive aspects of a regional grouping to step up its exports by adopting
following strategies:
(1) Product-wise strategy: First of all an Indian firm should make a clear identification of the products in demand
in the groupings. Accordingly, the firm should devise appropriate strategies for effectiving marketing of such items. As
far as possible, the company should aim at promoting standardized items on large scale. Indian firm will be getting the
advantage of large scale production if items are also sold on large scale. For this, Indian firms may have collaboration
arrangements or strategic alliances with local firms.
(2) Market Segmentation: Market segmentation means dividing a market into various homogeneous parts on the
basis of some common attributes. The Indian firm should make market segmentation region-wise rather than countrywise.
It is so because market segmentation facilities effective marketing of standardized products and products of mass
consumption.
(3) Entry Strategy: One of the implication of a regional grouping is that if the Indian firms is able to enter one
country in the region on the basis of one approval of one set of documents by one set of authorities, it can safely be
assumed that it will be able to reach his products to other countries in the grouping. Hence, the Indian firm should make
a clear identification of relatively easier entry points in respect of each regional grouping. The Indian firm should enter
the more difficult markets in the grouping through the point of entry.
(4) Strategic Alliance: Strategic alliance refers to an alliance between/among specific independent firms to achieve
certain objectives. The Indian firms should also evolve an effective strategy of strategic alliances with firms in the region
to take advantage of local presence of the local firms to promote its products.
(5) Foreign Direct Investment Strategy: As a result of regional grouping, the size of the market increases manifold.
To top the growing market of its products, the Indian firm may decide to become multi-national. Indian firm should search
out the possibility of foreign direct investment.
Q. 3. Comment on the following:
(a) The TRIPS agreement is directed to discourage research and innovation.
Ans. TRIPsTRIPs is a multilateral agreement to protect the interests of producers and users of technology. According to TRIPs, the obligation of each member country is to accord protection of intellectual property provided for under the
agreement, to the persons of other members. Members are required to see that the protection under their national laws do
not contravene the provisions of this agreement. Like the pre-existing international agreements on IPRs, the TRIPs
agreement is a minimum standards agreement. Members may provide more extensive protection, if they so need, either

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because of domestic needs or because of other agreements they entered into; provided that such protection does not
contravene the provisions of the agreement.TRIPs provides following:
(i) Stronger protection of trade marks
(ii) Greater protection of industrial designs, especially within the textile and clothing industry.
(iii) Introduction of patent protection in all countries for pharmaceutical and chemical products.
(iv) Extension to a worldwide level of semi-conductor protection.
(v) Prohibition of appropriation and misuse of geographical appellations.
(vi) Establishment of a clear set of principles for the enforcement of IPRs through the national courts. Breaches
will be subject to sanctions under the dispute settlement procedure.
(vii) Setting up of a council for TRIPs to oversee the smooth running of the agreement and
(viii) Establishment of the rules on compulsory licensing necessary for developing countries
(ix) Protection for patents for 20 years and for copyrights for 50 years.
The agreement provides a mechanism whereby a country seeking to take action against such practices involving the
companies of another member country can enter into consultations with that other member and exchange publicly available
non-confidential information of relevance to the matter in question and of other information available to that member;
subject to the domestic law and to the conclusion of mutually satisfactory agreement concerning the safeguarding of the
confidentiality by te requesting member. Similarly it provides that a country whose companies are subject to such action
in another member country, can enter into consultation with that member under the same conditions.
The provisions enforcement have tow basic objectives:
(i) To ensure that effective means of enforcement are available to rights holders; and
(ii) To ensure that enforcement procedures are applied in such a manner as to avoid the creation of barriers to
legitimate trade and to provide safeguards against their abuse. They recognize basic differences between national legal
systems, while being sufficienctly precise to provide for effective enforcement action as well as safeguards against abuse
in the use of enforcement provisions.
(b) Per Capita income is not a fool proof measure of countrys development and prosperity.
Ans. Neoclassical economics has traditionally posited that the process of development entails changes in incomes
over time. Larger income levels achieved via positive economic growth, appropriately discounted for population growth,
would constitute higher levels of development. As many have noted, however, the income measure fails to adequately
reflect development in that per-capita income, in terms of its levels or changes to it, does not sufficiently correlate with
measures of (human) development, such as life expectancy, child/infant mortality and literacy.
The United Nations Development Programmes (UNDP) Human Development Index (HDI) constitutes an improved
measure for development. HDI has been modified to be gender-sensitive with variants that reflect gender inequality.
Various measures reflecting Sen's capability concept, such as civil and political rights, have also been incorporated.
Countries where the level of poverty is relatively large tend also to exhibit low values of human development, thus
lowering the mean values of the development measures. Where inequalities of development indicators are very large,
however, the average values may not sufficiently reflect the conditions of the poor, requiring the need to concentrate on
poverty per se.
The most recognized indicator of (income) poverty is the headcount ratio, which simply measures the proportion of
the population considered to earn an income less than the standard required for basic needs (the other poverty measures
are those for the depth and severity of poverty). This poverty line may vary from country to country and over time.
However, to simplify comparability across countries and over time, the poverty line has been standardized as a daily
income of US$ 1 at international standards. As an indicator of extreme poverty, this poverty rate is also the yardstick for
Goal 1 of the Millennium Development Goals (MDGs).
The above measures do not necessarily reflect deprivation in human development. Thus, in 1997 the UNDP introduced the Human Poverty Index (HPI) for developing countries. This measure is intended to reflect deprivations in the
three indexes of human development: long and healthy life, knowledge and a decent standard of living. For more developed countries, HPI is further modified to reflect social exclusion.
(c) Advertising laws are not very strict in West Germany.
Ans. During the post World War II period, the West Germany media was subject to censorship by the Allied occupational forces. Criticism of the occupational forces and of the emerging government was not tolerated. Publications which
were expected to have a negative effect on the general public were not printed. A list of over 30,000 titles, including
works by such authors as Carl von Clausewitz, was drawn up. All the millions of copies of these books were to be
confiscated and destroyed. The representative of the Military Directorate admitted that the order in principle was no
different from the Nazi book burnings.

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When the official government, the Federal Republic of Germany (Bundesrepublik Deutschland) took over, these
limits were relaxed. The new German constitution guaranteed freedom of press, speech, and opinion.
An index of harmful materials listed those subjects and materials which are restricted in publishing and exhibition.
These restrictions focused largely on material which could be harmful tominors, and included protections of personal
dignity. Materials written or printed by organizations ruled to be anti-constitutional, such as Nazi organizations or the Red
Army Faction (Baader-Meinhof Gang), were placed on the index.
The government also passed laws restricting the trade of materials considered Volksverhetzung and forbidding the
public expression of Holocaust denial.
Since Germany kept the West German constitution after East Germany joined its jurisdiction, the same protections
and restrictions in West Germany apply to contemporary Germany. Continued globalization and the advent of Internet
marketing present a new host of complications to German censorship and information laws.
(d) Free trade is always better than no trade.
Ans. This is the same argument that was made in post WWI Germany. In other cases, one country gains at the
expense of another. In some cases trade is worse than no trade. That was the same rationale Germany used to invade it's
neighbours: to achieve their individually best outcome. Well, of course, the robber is worse off if he is prevented from
taking by force the property of another.
First off, PCR lacks a fundamental understanding of what trade is and why it occurs. Trade is not based on the
principle of comparative advantage of factors of production costs. Division of labour is based on the principle of comparative advantage of factors of production costs. Trade is fundamentally based on both parties to a trade both increasing
their subjective utilities from the exchange. Otherwise, trade would not occur, no matter what the comparative factors of
production costs. He substitutes his own personal subjective valuation of what is important industry and erroneously
conceptualizes subjective individual preferences as objective preference policy goals of countries.
Conflict is inherent in international trade only from the point of view of various governments competing with force
against each other to alter the workings of the free market. By definition of trade, people are worse off, when they are
artificially prevented from doing so. Some may be better off as the robber is better off after completing the theft, Foreign
cheap labour workers are portrayed as somehow less deserving or less human than domestic high wage workers.
Q. 4. Distinguish between:
(a) GATT and WTO
Ans.
Basis of
Distinction
(1) Nature
(2) Member
(3) Domestic

(4) Power
(5) Blocking of
Devision
(6) Framework

(7) Role

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WTO

GATT

GATT was ad-hoc and provisional.

WTO and its agreements are permanent.

GATT has contracting parties. Its scope

was limited.

WTO has more than 150 members. Its scope

is farwider than under the GATT.

GATT allowed existing domestic

legislation to continue even if it violated
a GATT agreement.

WTO does not permit any domestic legislation

contrary to WTO.

GATT was less powerful and, dispute

settlement was slow and less efficient.

WTO is more powerful than GATT and,

dispute mechanism is faster and more efficient.

Under the GATT dispute panel findings

could be easily blocked.

WTO members can not block decisions arrived

at under the dispute settlement mechanism.

GATT allowed for the existence of a

number of important side agreements
negotiated and concluded in various
GATT rounds.
Its role was confined to oversee
international trade in goods.

WTO provides a unified package of

agreements to which all members are
committed.
WTO has expanded the role of GATT by
including Trade in services and intellectual
property rights within the multilateral trading
system. It includes environment as one of the
major item.

Structure of the WTOThe structure of WTO may be shown as under:

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Ministerial Conference

General Council meeting as

Dispute Settlement
Body

General Council meeting as

Trade Policy Review
Body

General Council

Trade Negotiations
Committee

Appellate Body
Dispute Settlement panels

Committees on
Trade and Environment
Trade and Development
Subcommittee on LeastDeveloped Countries
Regional Trade Agreements
Balance of Payments
Restrictions
Budget, Finance
and Administration
Working party on
Accession
Working groups on
the Relationship between
Trade and investment
the interaction between
Trade and Competition Policy
Transparency in Government
Procurement
Trade, Debt and Finance
Trade and Transfer of
Technology

Council for Trade

in Goods

Council for
Trade-Related Aspects
of Intellectual
Property Rights

Committees on
Market Access
Agriculture
Sanitary and Phytosanitary
Measures
Technical Barriers to Trade
Subsidies and Countervailing
Measures
Anti-Dumping Practices
Customs Valuation
Rules of Origin
Import Licensing
Trade-Related Investment
Measures
Safeguards
Textiles Monitoring Body
Working party on
State-Trading Enterprises

Committees on
Trade in Financial Services
Specific Commitments
Working parties on
Domestic Regulation
GATS Rules

Plurilaterals
Committee on Trade in Civil
Aircraft
Committee on Government
Procurement

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Committee of Participants on
the Expansion of Trade in
Information Technology
Products

Key

Council for Trade

in Services

Council for Trade in Services,

Special Session
Negotiating Group on Market
Access
Negotiating Group on Rules
Committee on Trade and
Environment, Special Session
Council for TRIPs, Special
Session
Dispute Settlement Body,
Special Session
Committee on Agriculture,
Special Session
Committee on Trade and
Development, Special Session

The apex WTO body responsible for decision-making is the Ministerial Conference. It is expected to meet every
two years. The first WTO Ministerial conference is scheduled to be held in Singapore before the end of 1996.
During the two years between meetings, the functions of the Conference are perfomed by the General General Council.
The General Council meets as a Dispute Settlement Body when it considers complaints and takes necessary steps to
settle disputes between member countries. It is also responsible for carrying out reviews of the trade policies individual
countries on the basis of the reports prepared by the WTO secretariat.
The General Council is assisted in its work by the:
Council for Trade in Goods, which oversees the implementation and operation of GATT 1994 and its associate
agreements;
Council for Trade in Services, which oversees the implementation and operation of GATS; and
Council for TRIPs which oversees the operation of the agreement on TRIPs.

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It also indicates the various committees established by the WTO Agreement itself and the other committees that
have been established for detailed work at the operational level under the various associate agreements.
Functions of WTO: The Agreement establishing WTO provides that it should perform the following four functions:
(1) First, it shall facilitate the implementation administration and operation of the Uruguay Round legal instruments
and of any new agreements that may be negotiated in the future.
(2) Second, it shall provide a forum for further negotiations among member countries on matters covered by the
agreements as well as on new issues falling within its mandate.
(3) Third, it shall be responsible for the settlement of differences and disputes among its member countries.
(4) Fourth, it shall be responsible for carrying out periodic reviews of the trade policies of its members countries.
(b) Void and Illegal Agreement
Ans. Differences between Void and Illegal Agreements:
(1) An illegal agreement is narrower in scope than a void agreement. All illegal agreements are void but all void
agreements are not illegal. The object or consideration of an agreement may not be illegal but still be void. An agreements
with minor is void but not illegal.
(2) An illegal agreement is wider in effect in relation to collateral transactions than a void agreement. Agreements
incidental or collateral to illegal agreements are treated to be illegal and hence void.
On the other hand, when an agreements is void but not illegal, agreements collateral to it are not void but valid.
Difference between Void Agreement and Void Contract
Void agreement is void from the very beginning while a void contract is valid at the time when it is made, but
becomes void later, because of some subsequent events. Void agreement is altogether void and it does not create any right.
In case of void agreements, restitution is always allowed unless the illegality or void nature of the argument was known.
In case of void agreements as well as in case of void contracts, collateral transactions shall not become void unless the
argument has also been illegal.
(d) Current Account and Capital Account of Balance of Payments
Ans. Current Account of Balance of Payment records imports and exports of goods and services and unilateral
transfers which include government and privates gifts and grants. On the other hand, Capital Account of Balance of
Payment records all international transactions that involves a resident of the domestic country changing his assets with a
foreign resident or his liabilities to a foreign resident. It implies that Current Account represents flow items pertaining to
specific period of time while Capital Account represents changes in stock magnitudes concerning capital receipts and
capital payments.
Q. 5. Write short notes on:
(a) Globalization
Ans. We are living in the age of technology when distances of time and space have shrunk and the vast big world of
ours has become one global village. Hence, the concept of globalization has emerged. Globalization has been defined as
a process which draws countries out of their insulation and makes them join the rest of the world in its march towards a
new world order. According to Deepak Nayyar Globalization can be defined simply as the expansion of economic
activities across political boundaries of nation states. It refers to a process of deepening economic integration, increasing
economic openness and growing economic interdependence between countries in the world economy.
Following are some of the important forces of globalization:
(1) International Trade
(2) International Capital Flows
(3) Revolution of Technology.
1. Globalization has witnessed a phenomenal expansion in international trade flows. Interestingly, growth in world
trade is significantly higher than growth in world output. Similarly international investment flows expanded at an equally
amazing scale. Advances in IT technology, capital movements and geographical extension of banking business have
become the new engines of global integration. Technology has become one of the most important element of the
competitiveness. Now, technology is being sold in the world market. Further, the globalization of technology is taking
place in the establishment of R&D centres.
Globalization has brought a variety of changes presenting opportunities as well as risks both in economies and
financial systems throughout the world. Following are some of the important effects of globalization on the world economy:
(1) There is integration of world markets.
(2) The volume of world trade has increased tremendously.

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(3) There is free flow of goods, services and capital as a result of lessor barriers on the international trade.
(4) There is an increased competition through lower costs and higher market efficiency.
(5) There is rapid technological change leading to innovations.
(6) There is an overall improvement in the standard of living.
(7) Many developing countries are actively participating in the world trade and global economy.
Levels of Globalization
We can discuss the globalization at two levels:
(1) At the macro level
(2) At the micro level.
(b) Michael Porters view of Globalization
Ans. Porters ApproachPorter belongs to a school of thought professing the issue of whether and how nations
themselves compete and how they provide the context in which firms undertaking the process of globalization are helped
or hindered. Porters view of globalization is based on the assumption that comparative advantage and factor endowments are not just inherited or given at the country level but rather created by the firms that undertake innovation in these
countries. According to Porter an industry can be called global if there is some competitive advantage to integrating
activities on a worldwide basis. Porter argued that in the process a pattern of country based competitiveness emerges and
identified four determinants of this competitive advantage of nations:
(i) Factor Conditions
(ii) Demand Conditions
(iii) Related and Supporting Industries
(iv) Firm structure, strategy and rivalry.
The way in which a firm coordinates and configures its value chain is an important determinant of how the firm
creates value and incurs costs in each part of its value chain. The optimal coordination and configuration needs of the
value chain across the world are often determined by the industry structure and industry economies. Industries globalize
when the benefits of configuration and coordination globally exceed the costs of doing so. Further, in global competition
a country must be viewed as a platform and not as the place where all activities of a firm are performed.

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