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Q.1 What is globalization?

Globalization: Globalization is a process where businesses are dealt in markets around the world, apart from the local and national markets. According to business terminologies, globalization defined as, the worldwide trend of businesses expanding beyond their domestic boundaries. It is advantageous for the economy of the countries because it promotes prosperity in the countries that embrace globalization. . Globalization describes the process by which regional economies, societies, and cultures have become integrated through a global network of political ideas through communication, transportation, and trade. The term is most closely associated with the term economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, the spread of technology, and military presence.However, globalization is usually recognized as being driven by a combination of economic, technological, sociocultural, political, and biological factors.The term can also refer to the transnational circulation of ideas, languages, or popular culture through acculturation. An aspect of the world which has gone through the process can be said to be globalized. Against this view, an alternative approach stresses how globalization has actually decreased inter-cultural contacts while increasing the possibility of international and intra-national conflict.

Globalization has various aspects which affect the world in several different ways

Industrial - emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies. Particularly movement of material and goods between and within national boundaries. International trade in manufactured goods increased more than 100 times (from $95 billion to $12 trillion) in the 50 years since 1955.China's trade with Africa rose sevenfold during 2000-07 alone . Financial - emergence of worldwide financial markets and better access to external financing for borrowers. By the early part of the 21st century more than $1.5 trillion in national currencies were traded daily to support the expanded levels of trade and investment Economic - realization of a global common market, based on the freedom of exchange of goods and capital . Job Market - competition in a global job market. In the past, the economic fate of workers was tied to the fate of national economies. With the advent of the information age and improvements in communication, this is no longer the case. Because workers compete in a global market, wages are less dependent on the success or failure of individual economies. This has had a major effect on wages and income distribution .

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SEM-4 MB0053 Political - some use "globalization" to mean the creation of a world government which regulates the relationships among governments and guarantees the rights arising from social and economic globalization. Politically, the United States has enjoyed a position of power among the world powers, in part because of its strong and wealthy economy. With the influence of globalization and with the help of the United States own economy, the People's Republic of China has experienced some tremendous growth within the past decade. If China continues to grow at the rate projected by the trends, then it is very likely that in the next twenty years, there will be a major reallocation of power among the world leaders. China will have enough wealth, industry, and technology to rival the United States for the position of leading world power . Most of us assume that international and global business are the same and that any company that deals with another country for its business is an international or global company. In fact, there is a considerable difference between the two terms .

International Vs. Global Business

Most of us assume that international and global business are the same and that any company that deals with another country for its business is an international or global company. In fact there is a considerable difference between the two terms . International Companies: Companies that deal with foreign companies for their business are considered as international companies. They can be exporters or importers who may not have any investments in any other country, apart from their home country . Global Companies: Companies, which invest in other countries for business and also operates from other countries, are considered as global companies. They have multiple manufacturing plants across the globe, catering to multiple markets . The transformation of a company from domestic to international is by entering just one market or a few selected foreign markets as an exporter or importer. Competing on a truly global scale comes later, after the company has established operations in several countries across continents and is racing against rivals for global market leadership. Thus, there is a meaningful distinction between a company that operates in a few selected foreign countries and a company that operates and market its products across several countries and continents with manufacturing capabilities in several of these countries . Companies can also be differentiated by the kind of competitive strategy they adopt while dealing internationally. Multinational strategy and global competitive strategy are the two types of competitive strategy . a. Multinational Strategy: Companies adopt this strategy when each countries market needs to be treated as self contained. It can be for the following reasons : : Dheeraj kumar Roll No.- 511121896

SEM-4 MB0053 Customers from different countries have different preferences and expectations about a product or service. . Competition in each national market is essentially independent of competition in other national markets and the set of competitors also differ from country to country . A companys reputation, customer base, and competitive position in one nation have little or no bearing on its ability to successfully compete in another market . Some of the industry example for multinational competition includes beer, life insurance and food products . b. Global Competitive Strategy: Companies adopt this strategy when prices and competitive conditions across the different countries are strongly linked together and have common synergies. In a globally competitive industry, a companys business gets affected by the changing environment in different countries. The same set of competitors may compete against each other in several countries. In a global scenario, a companys overall competitive advantage is gauged by the cumulative efforts of its domestic operations and the international operations worldwide. A good example to illustrate is Sony Ericssson, which has its headquarters in Sweden, Research and Development setup in USA and India, manufacturing and Assembly plants in low wage countries like China and sales and marketing worldwide. This is made possible because of the ease in transferring technology and expertise from country to country. Industries that have a global competition are automobiles, consumer electronics, watches and commercial aircraft and so on .

Benefits of Globalization:

The merits and demerits of globalization are highly debatable. While globalization creates employment opportunities in the host countries, it also exploits labour at a very low cost compared to home country. . Some of the benefits of globalization are as follows: . Commerce as a percentage of gross world product has increased in 1986 from 15% to nearly 27% in recent years. . The stock of foreign direct investment resources has increased rapidly as a percentage of gross world product in the past twenty years. . For the purpose of commerce and pleasure, more and more people are crossing national borders. Globally, on average nations in 1950 witnessed just one overseas visitor for every 100

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SEM-4 MB0053 citizens. By the mid-1980s it increased to six and ever since the number has doubled to 12. Worldwide telephone traffic has tripled since 1991. The number of mobile subscribers has elevated from almost zero to 1.8 billion indicating around 30% of the world population. Internet users will quickly touch 1 billion. . Promotes foreign trade and liberalization of economies. .

Increases the living standards of people in several developing countries through the capital investments in developing countries by developed countries. . Benefits customers as companies outsource to low wage countries. Outsourcing helps the companies to be competitive by keeping the cost low with increased productivity. Promotes better education and jobs. .

Leads to free flow of information and wide acceptance of foreign products, ideas, ethics, best practices and culture. . Provides better quality of products, customer services and standardised delivery model across countries. Give better access to finance for corporate and sovereign borrowers. .

Increase business travel, which in turn leads to flourishing travel and hospitality industry across the world. . Incease sales as the availability of cutting edge technologies and production techniques decrease the cost of production. . Provide several platforms for international dispute resolutions in business, which facilitates international trade. .

Q.2 Describe the positives of trade liberalization.


Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth. The evidence on this is clear. No country in recent decades has achieved economic success, in terms of substantial increases in living standards for its people, without being open to the rest of the world. In contrast, trade opening (along with opening to foreign direct investment) has been an important element in the economic success of East Asia.

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SEM-4 MB0053 Opening up their economies to the global economy has been essential in enabling many developing countries to develop competitive advantages in the manufacture of certain products. In these countries, defined by the World Bank as the "new globalizers," the number of people in absolute poverty declined by over 120 million (14 percent) between 1993 and 1998. There is considerable evidence that more outward-oriented countries tend consistently to grow faster than ones that are inward-looking. Indeed, one finding is that the benefits of trade liberalization can exceed the costs by more than a factor of 10. Countries that have opened their economies in recent years, including India, Vietnam, and Uganda, have experienced faster growth and more poverty reduction. On average, those developing countries that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than those that did not. Freeing trade frequently benefits the poor especially. Developing countries can ill-afford the large implicit subsidies, often channeled to narrow privileged interests that trade protection provides. Moreover, the increased growth that results from free trade itself tends to increase the incomes of the poor in roughly the same proportion as those of the population as a whole. New jobs are created for unskilled workers, raising them into the middle class. Overall, inequality among countries has been on the decline since 1990, reflecting more rapid economic growth in developing countries, in part the result of trade liberalization. Although there are benefits from improved access to other countries markets, countries benefit most from liberalizing their own markets. The main benefits for industrial countries would come from the liberalization of their agricultural markets. Developing countries would gain about equally from liberalization of manufacturing and agriculture. The group of low-income countries, however, would gain most from agricultural liberalization in industrial countries because of the greater relative importance of agriculture in their economies. Further liberalization by both industrial and developing countries will be needed to realize trades potential as a driving force for economic growth and development. Greater efforts by industrial countries and the international community more broadly, are called for to remove the trade barriers facing developing countries, particularly the poorest countries. Although quotas under the so-called Multi-fibre Agreement are due to be phased out by 2005, speedier liberalization of textiles and clothing and of agriculture is particularly important. Similarly, the elimination of tariff peaks and escalation in agriculture and manufacturing also needs to be pursued. In turn, developing countries would strengthen their own economies (and their trading partners) if they made a sustained effort to reduce their own trade barriers further. Enhanced market access for the poorest developing countries would provide them with the means to harness trade for development and poverty reduction. Offering the poorest countries duty and quota free access to world markets would greatly benefit these countries at little cost to the rest of the world. The recent market-opening initiatives of the EU and some other countries are important steps in this regard. To be completely effective, such access should be made permanent, extended to all goods, and accompanied by simple, transparent rules of origin. This would give the poorest countries the confidence to persist with difficult domestic reforms and ensure effective use of debt relief and aid flows.

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Q.3 Write a short note on GATT and WTO, highlighting the difference between the two.
General Agreement on Tariff and Trade(GATT): The GATT, was established on a provisional basis after the Second World War in the wake of other new multilateral institutions dedicated to international economic cooperation notably the "Britton Woods" institutions now known as the World Bank and the International Monetary Fund. The original 23 GATT countries were among over 50 which agreed a draft Charter for an International Trade Organization (ITO) a new specialized agency of the United Nations. The Charter was intended to provide not only world trade disciplines but also contained rules relating to employment, commodity agreements, restrictive business practices, international investment and services. In an effort to give an early boost to trade liberalization after the Second World War and to begin to correct the large overhang of protectionist measures which remained in place from the early 1930s-tariff negotiations were opened among the 23 founding GATT "contracting parties" in 1946. This first round of negotiations resulted in 45,000 tariff concessions affecting $10 billion or about one-fifth of world trade. It was also agreed that the value of these concessions should be protected by early and largely "provisional" acceptance of some of the trade rules in the draft ITO Charter. The tariff concessions and rules together became known as the General Agreement on Tariffs and Trade and entered into force in January 1948. Although the ITO Charter was finally agreed at a UN Conference on Trade and Employment in Havana in March 1948, ratification in national legislatures proved impossible in some cases. When the United States government announced, in 1950, that it would not seek Congressional ratification of the Havana Charter, the ITO was effectively dead. Despite its provisional nature, the GATT remained the only multilateral instrument governing international trade from 1948 until the establishment of the WTO.

Although, in its 47 years, the basic legal text of the GATT remained much as it was in 1948, there were additions in the form of "plural-lateral voluntary membership agreements and continual efforts to reduce tariffs. Much of this was achieved through a series of "trade rounds". The biggest leaps forward in international trade liberalization have come through multilateral trade negotiations, or "trade rounds", under the auspices of GATT the Uruguay Round was the latest and most extensive. The limited achievement of the Tokyo Round, outside the tariff reduction results, was a sign of difficult times to come. GATTs success in reducing tariffs to such a low level, combined with a series of economic recessions in the 1970s and early 1980s, drove governments to devise other forms of protection for sectors facing increased overseas competition. High rates of unemployment and constant factory closures led governments in Europe and North America to seek bilateral market-sharing arrangements with competitors and to embark on a subsidies race to maintain their holds on agricultural trade. Both these changes undermined the credibility and effectiveness of GATT.

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SEM-4 MB0053 WTO World Trade Organization came into existence in 1995 after the desolation of General Agreement on Tariff and Trade (GATT). The WTOs overriding objective is to help trade flow smoothly, freely, fairly and predictably. It does this by: Administering trade agreements Acting as a forum for trade negotiations Settling trade disputes Reviewing national trade policies Assisting developing countries in trade policy issues, through technical assistance and training programs Cooperating with other international organizations

The WTO has nearly 150 members, accounting for over 97% of world trade. Around 30 others are negotiating membership. Decisions are made by the entire membership. This is typically by consensus. A majority vote is also possible but it has never been used in the WTO, and was extremely rare under the WTOs predecessor, GATT. The WTOs agreements have been ratified in all members parliaments. The WTOs top level decision-making body is the Ministerial Conference which meets at least once every two years. Below this is the General Council which meets several times a year in the Geneva headquarters. The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body. At the next level, the Goods Council, Services Council and Intellectual Property (TRIPS) Council report to the General Council. Numerous specialized committees, working groups and working parties deal with the individual agreements and other areas such as the environment, development, membership applications and regional trade agreements. The WTO Secretariat, based in Geneva, has around 600 staff and is headed by a directorgeneral. Its annual budget is roughly 160 million Swiss francs. It does not have branch offices outside Geneva. Since decisions are taken by the members themselves, the Secretariat does not have the decision-making role that other international bureaucracies are given with. The WTO is run by its member governments. All major decisions are made by the membership as a whole, either by ministers (who meet at least once every two years) or by their ambassadors or delegates (who meet regularly in Geneva). Decisions are normally taken by consensus. Difference between WTO and GATT:The World Trade Organization is not a simple extension of GATT; on the contrary, it be completely replaces its predecessor and has a very different character. Among the principal differences are the following:

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SEM-4 MB0053 a. The GATT was a set of rules, a multilateral agreement, with no institutional foundation, only a small associated secretariat which had its origins in the attempt to establish an International Trade Organization in the 1940s. The WTO is a permanent institution with its own secretariat. b. The GATT was applied on a "provisional basis" even if, after more than forty years, governments chose to treat it as a permanent commitment. The WTO commitments are full and permanent. c. The GATT rules applied to trade in merchandise goods. In addition to goods, the WTO covers trade in services and trade-related aspects of intellectual property. d. While GATT was a multilateral instrument, by the 1980s many new agreements had been added of a plural-lateral, and therefore selective, nature. The agreements which constitute the WTO are almost all multilateral and, thus, involve commitments for the entire membership. e. The WTO dispute settlement system is faster, more automatic, and thus much less susceptible to blockages, than the old GATT system. The implementation of WTO dispute findings will also be more easily assured.

Q.4 Think of any MNC and analyze its business strategy orientation.
Multinational companies (MNC) may pursue business strategies that are home country oriented or host country oriented or world oriented. Perlmutter uses such terms as ethnocentric, polycentric and geocentric. However, "ethnocentric" is misleading because it focuses on race or ethnicity, especially when the home country itself is populated by many different races, whereas "polycentric" loses its meaning when the MNCs operate only in one or two foreign countries. According to Franklin Root (1994), an MNC is a parent company that a. engages in foreign production through its affiliates located in several countries, b. exercises direct control over the policies of its affiliates, c. implements business strategies in production, marketing, finance and staffing that transcend national boundaries. Business strategy of a MNC can be analyzed with the help of Three Stages of Evolution 1. Export stage initial inquiries - firms rely on export agents expansion of export sales

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SEM-4 MB0053 further expansion - foreign sales branch or assembly operations (to save transport cost) 2. Foreign Production Stage There is a limit to foreign sales (tariffs, NTBs).Once the firm chooses foreign production as a method of delivering goods to foreign markets, it must decide whether to establish a foreign production subsidiary or license the technology to a foreign firm. Licensing is usually first experience (because it is easy) it does not require any capital expenditure it is not risky payment = a fixed % of sales e.g.: Kentucky Fried Chicken in the U.K. Problem that may arise while following a particular business strategy: The mother firm may find it difficult in exercise of any managerial control over the licensee (as it is independent). Secondly, the licensee may transfer industrial secrets to another independent firm, thereby creating a rival. The next stage for supplementing any particular business strategy is Investments involved. It requires the decision of top management because it is a critical step. it is risky (lack of information) (for example-US firms tend to establish subsidiaries in Canada first. Singer Manufacturing Company established its foreign plants in Scotland and Australia in the 1850s) plants are established in several countries licensing is switched from independent producers to its subsidiaries. export continues 3. Multinational Stage: The company becomes a multinational enterprise when it begins to plan, organize and coordinate production, marketing, R&D, financing, and staffing. For each of these operations, the firm must find the best location. This is how a MNC decides its business strategy orientation.

Q.5 What does FDI stand for? Why do MNCs opt for FDI to enter international market?
FDI stands for Foreign Direct Investment. New MNCs do not pop up randomly in foreign nations. It is the result of conscious planning by corporate managers. Investment flows from regions of low anticipated profits to those of high returns. When MNC incorporated in one country, invests in another country, it is said that the FDI has flowed into the other country from some foreign origin. The main reasons for MNCs to opt for FDI to enter international market is stated as follows: 1. Growth motive : A company may have reached a plateau satisfying domestic demand, which is not growing. Looking for new markets.

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SEM-4 MB0053 2. Protection in the importing countries : Foreign direct investment is one way to expand. FDI is a means to bypassing protective instruments in the importing country. European Community imposed common external tariff against outsiders. US companies circumvented these barriers by setting up subsidiaries. Japanese corporations located auto assembly plants in the US, to bypass VERs. 3. High Transportation Costs : Transportation costs are like tariffs in that they are barriers which raise consumer prices. When transportation costs are high, multinational firms want to build production plants close to the market in order to save transportation costs. Multinational firms that invested and built production plants in the United States are better off than the exporting firms that utilized New Orleans port to ship and distribute products through New Orleans, provided that they built plants in a safe area. 4. Exchange Rate Fluctuations: Japanese firms invest here to produce heavy construction machines to avoid excessive exchange rate fluctuations. Also, Japanese automobile firms have plants to produce automobile parts. For instance, Toyota imports engines and transmissions from Japanese plants, and produce the rest in the U.S. 5. Market competition: The most certain method of preventing actual or potential competition is to acquire foreign businesses. GM purchased Monarch (GM Canada) and Opel (GM Germany). It did not buy Toyota, Datsun (Nissan) and Volkswagen. They later became competitors. 6. cost reduction: United Fruit has established banana-producing facilities in Honduras. Cheap foreign labour. Labour costs tend to differ among nations. MNCs can hold down costs by locating part of all their productive facilities abroad. (Maquildoras)

Q.6Viewing culture as a multi-level construct, describe various levels it consists of.


There are two kinds of approach construct of culture. One is a multi-level approach , viewing culture as a multi-level construct that consists of various levels nested withi each other from the most macro-level of a global culture, through national cultures, organizational cultures, group cultures, and cultural values that are represented in the self at the individual level. The second is based on Scheins (1992) model viewing culture as a multi layer construct consisting of the most external layer of observed artifacts and behaviours, the deeper level of values, which is testable by social consensus, and the deepest level of basic assumption, which is invisible and taken for granted. The present model proposes that culture as a multi layer construct exists at all levels from the global to the individual and that at each level change first occurs at the most external layer of behaviour, and then, when shared by individuals who belong to the same cultural context, it

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SEM-4 MB0053 becomes a shared value that characterizes the aggregated unit (group, organizations, or nations). In the model, the most macro-level is that of a global culture being created by global networks and global institutions that cross national and cultural borders.

Figure-1: The dynamic of top-downbottom-up processes across levels of culture. The dynamic of top-downbottom-up processes across levels of culture. Given the dominance of Western MNCs, the values that dominate the global context are often based on a free market economy, democracy, acceptance and tolerance of diversity, respect of freedom of choice, individual rights, and openness to change. Below the global level are nested organizations and networks at the national level with their local cultures varying from one nation or network to another. Further down are local organizations, and although all of them share some common values of their national culture, they vary in their local organizational cultures, which are also shaped by the type of industry that they represent, the type of ownership, the values of the founders, etc. Within each organization are sub-units and groups that share the common national and organizational culture, but that differ from each other in their unit culture on the basis of the differences in their functions (e.g., R&D vs manufacturing), their leaders values, and the professional and educational level of their members. At the bottom of this structure are individuals who through the process of socialization acquire the cultural values transmitted to them from higher levels of culture. Individuals who belong to the same group share the same values that differentiate them from other groups and create a group level culture through a bottom-up process of aggregation of shared values. For example, employees of an R&D unit are selected into the unit because of their creative cognitive style and professional expertise.

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SEM-4 MB0053 Their leader also typically facilitates the display of these personal characteristics because they are crucial for developing innovative products. Thus, all members of this unit share similar core values, which differentiate them from other organizational units. Groups that share similar values create the organizational culture through a process of aggregation, and local organizations that share similar values create the national culture that is different from other national cultures. Both top-down and bottom-up processes reflect the dynamic nature of culture, and explain how culture at different levels is being shaped and reshaped by changes that occur at other levels, either above it through top-down processes or below it through ottom-up processes. Similarly, changes at each level affect lower levels through a top-down process, and upper levels through a bottom-up process of aggregation. Global organizations and networks are being formed by having local-level organizations join the global arena. That means that there is a continuous reciprocal process of shaping and reshaping organizations at both levels. For example, multinational companies that operate in the global market develop common rules and cultural values that enable them to create a synergy between the various regions, and different parts of the multinational company. These global rules and values filter down to the local organizations that constitute the global company, and, over time, they shape the local organizations. Reciprocally, having local organizations join a global company may introduce changes into the global company because of its need to function effectively across different cultural boarders.

Dheeraj kumar

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