JUNE 2014 EXAMINATION

IB 06/eIB 06
INTERNATIONAL BUSINESS
Time: Three Hours
Maximum Marks: 100
Note:
1.
2.
3.
4.

The paper is divided in three sections: SECTION-A, SECTIONB and SECTION-C.

There are seven questions in SECTION-A.
Students are
required to attempt ANY FOUR.
SECTION-B has five questions, attempt ANY THREE.
All the questions of SECTION-C (Case Study) are compulsory.

Section-A (10 Marks each)

1.
What are the challenges of International
environmental differences?

Business

due

the

2.

Trading blocs creates obstacles to free international trade. Critically

examine the statement.

3.

Discuss the conditions where a multi-domestic or regional strategy

might perform better than a transnational or international strategy.

4.

The foreign exchange market is where these currency exchanges take

place. Explain. Discuss why such market exists and why it is
necessary for international trade and commerce.

5.

Explain the term cross cultural differences. How can one prepare
against making wrong assessments of culture?

6.

What is the role of India in WTO? Why WTO agreement in Bali has
helped developing countries?

7.
Describe the choices in the marketing mix in relationship to the
global-local dilemma.
8.

Section-B (15 Marks each)

Identify some local business that may have potential for international
operations. What entry strategy would you advise and why?

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9.

Write
a)
b)
c)

Short notes on the following:

Polycentrism
Ethnocentrism
Multinational Corporation
(3x5=15)

10.

Discuss the human resource management function. How is

international human resource management different from domestic
human resource management?

11.

In deciding whether to export from another country or build their own

sales or production site, based on your knowledge of trade theory and
theories of FDI what are the major considerations for international
managers making this choice?

12.

Describe the foreign exchange market. Discuss why it exists and why it
is necessary for international trade and commerce.
Section-C (15 Marks)
Case Study (Compulsory)

India: The Employment Black Hole?

After independence from GreatBritain in 1947, India established a socialist
oriented government that discouraged foreign investment. Major industries
were state-owned and government heavily regulated private businesses.
Westerners viewed India as a very poor country with little to offer the
international business community. In 1991, India experienced a currency
crisis and was forced to fly its remaining stock of gold to London as collateral
for an IMF loan. Faced with a very difficult situation, India then began to
reform its economy.
Since the early 1990s the Indian economy has
transformed itself into a very competitive global competition. With an
abundance of workers and very low wage levels, India is competitor. With an
abundance of workers and very low wage levels, India is attractive to
international companies for low-end manufacturing and service delivery, of
special interest is the recent outsourcing of service jobs that can be
performed over satellite and fiber-optics communication channels.
India produce over three million college graduates a year. With high
unemployment, companies have no difficulty in finding young college
graduates who are content to handle customer service for American and
European companies, at a fraction of the cost of their American and
European counterparts. Typical of this new approach is AOL which now
employs 1,500 people in India to answer its calls for customer service. Even
though AOL is not available in India, AOL customers in the US and elsewhere
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call an 800 number and may never realize that they are talking with
someone halfway around the world. AOL reports much lower operating costs
and lower turnover in its India call center than it experience in the United
States. Costs are lower, even though training costs are higher and the
company must provide employees with transportation to and from work.
Like AOL, other well-known American companies have beaten a path to India
to outsource their back-office services. Recently, Microsoft announced that it
was moving some of its customer service jobs to India. Microsoft joins a long
list of American companies already operating back office operations in India,
such as Oracle, IBM, Intel and HP Lloyds TSB, one of the UKs largest banks,
has announced the closing of call center in England and movement to India.
Lloyds TSB call center workers in the UK earn on average ten times the
wages to be paid to their Indian substitutes. Even the World Bank has
moved its accounting function from Washington to India.
American
businesses are realizing that almost any back-office or service job can be
moved overseas.
While the call center and other lower-level service jobs which have moved to
India are becoming commonplace, India is also embarking on a much more
ambitious approach to job creation. India has attracted work from the United
States and Europe in software development, chip design, IT consulting,
financial services, and drug research. An estimated 20,000 US tax returns
were prepared in India last year and the number is expected to skyrocket to
200,000 this year. The returns are prepared by Indian accountants familiar
with the US tax code and are signed by CPA in the United States. Indians
now process mortgage applications, do legal and medical transportation, and
book travel reservations. The management consulting firm McKinsey now
outsources to India the design of its Power Point presentations that it shows
its clients.
The skill level of jobs being outsourced is increasing. GE has established the
jack Welch Technology Center in India and employs 1,800 engineers, many
with doctoral degrees, top conduct basic research. The game here really
isnt about saving costs but to speed innovation and generate growth for the
company. Nevertheless, a top-of-the-line electrical engineer in India earns
only about US$ 10,000 a year, a fraction of the salary of an American or
European with the same qualifications.
India has the advantage of having, an educated workforce that can speak
English and is willing to work for a fraction of the wage level of developed
country workers. It does, however, have a number of disadvantages to
consider when companies decide to outsource work. India has experienced
very impressive economic growth in the years since economic liberalization,
however, it is still very much a less developed country. An estimated onethird of the population is illiterate, and only the higher classes speak English
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well. The official language of India is not English but Hindi. And India still
possesses a very poor infrastructure with unreliable power sourcing and
frequent flooding Government bureaucracy is still very much a factor in
business activity and presently Indias fiscal deficit is running at over 10
percent of GDP. While India has made great strides in eliminating excessive
government, much improvement needs to be made. In addition to concerns
over budget deficits, political tensions are also troublesome. India has an
uneasy relationship with its neighbor Pakistan and the tension between
Muslims and Hindus produces violent conflict at times.
At the present time, India is the lead country in attracting service
outsourcing, but other countries are now beginning to compete. Like India,
the Philippines is an English-speaking country with a low wage level. Unlike,
India the Philippines, a former colony of the United States, is closer to the US
in language and culture. While the number of jobs outsourced to the
Philippines is currently much lower, estimated to be around 30,000, the
number is expected to grow rapidly.
An additional factor which may slow the growth of outsourcing to India is the
political backlash caused by job losses in the United States and Great Britain.
In the United States, the state of Indiana cancelled a $15 million contract
with the software arm of large Indian company, Tata Group, over fears of
unemployment in the United States. Protection of domestic jobs is a very
strong political motive and one that will likely be raised as more and more
jobs are outsourced to India. Many will argue the costs and benefits of
overseas outsourcing. A study by the McKinsey Global Institute found that for
every dollar invested in overseas outsourcing $1.25 returned to the United
States. Supporters of foreign outsourcing argue the benefits of free trade
and comparative advantage, while critics argue that foreign workers are
taking jobs and potentially destroying the countrys technical competitive
advantage.
13.

Case Questions:
(a)
From
the
companies, analyze the
work to India.

perspective
of
American
and European
advantages disadvantages of outsourcing
(10)

(b)
What would you recommend to Indian Government officials to
ensure continued
job creation?
(5)

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