1. Master of Business Administration- MBA Semester 4
MB0053-International Business Management
Q1 “Environment scanning is an important part of international business”. Explain your
views on this statement and discuss what factors need to be scanned.
Ans.Discuss the statement
It is one essential component of the global environmental analysis. Environmental
monitoring, environmental forecasting and environmental assessment complete the
global environmental analysis. The global environment refers to the macro
environment which comprises industries, markets, companies, clients and competitors.
Consequently, there exist corresponding analyses on the micro-level. Suppliers,
customers and competitors representing the micro environment of a company are
analyzed within the industry analysis.
It can be defined as ‘the study and interpretation of the political, economic, social and
technological events and trends which influence a business, an industry or even a total
market’. The factors which need to be considered for environmental scanning are
events, trends, issues and expectations of the different interest groups. Issues are often
forerunners of trend breaks. A trend break could be a value shift in society, a
technological innovation that might be permanent or a paradigm change
• Economic Factors: It refers to the economic conditions under which a business
operates and takes into account all factors that have affected it. It includes prime
interest rate, legislation concerning employment of foreigners, return of profits, safety
of country, political stability and so on.
• Political Factors: It influences the economic and legal environment in which the
business operates to a larger extent, especially in contract law and rules on advertising
and consumer protection. It also affects the business practices, restrictions on market
entry, tariffs charged and ability to repatriate profits.
2. • Legal Factors: International businesses confront different sets of laws in various
countries of operation. IB must not only abide by the domestic laws of each nation but
also by the supranational laws which impose obligations beyond those of national legal
• Demographic Factors: It helps firm understand the various demographic factors such
as gender; age; religious background and ethnicity. Firms use demographic
environments to identify target markets for specific products it wishes to cater.
• Socio-Cultural Factors: The cultural and social norms of people differ worldwide in
all key markets. The customers/consumers of a particular country/region become
conditioned to accept certain things as per conditioned behavior. The increasingly
competitive international business environment necessitate the exporters/companies
doing business overseas to customize their organizational policies keeping in mind the
local cultural norms.
Q2.What is green field investment? Why is it considered as the best option for a developing
country like India?
Ans.Green Field Investment:-
When the FDI comes into new facilities or expansion of existing facilities, it is known
as ‘green field investment’. Greenfield investment is a form of foreign direct
investment where a parent company starts a new venture in a foreign country by
constructing new operational facilities from the ground up. In addition to building new
facilities, most parent companies also create new long-term jobs in the foreign country
by hiring new employees. Greenfield investments are most welcome in any country of
the world, be it developed or developing as the primary target of green field
investments is to create new production capacity and jobs, transfer technology and
know-how in the host country. Brown field investments, on the other hand refer to ‘the
purchasing of an existing production or business facility that has become sick or its
products do not have significant demand in the markets or its sales are on decline due
to variety of factors like obsolete technology, higher unit cost, poor distribution etc.’
Such a firm is acquired by companies or government agencies for the purpose of
starting new product production activity. This type of investment does not involve
3. construction of plant operation facilities. A Greenfield investment starts with bare
ground and builds up from there. Coca Cola, McDonald’s and Starbucks are great
examples of US firms that have invested in Greenfield projects around the world.
Benefits of Greenfield Investment:
• You will achieve economies of scale and scope in production, marketing, finance,
research and development, transportation and purchasing.
• You will have greater control of all aspects of the business.
• You will be able to implement the best long-term strategy.
• Commitment to the market will be solid.
• Vendor financing is often available.
• You can work with the relevant authorities from the beginning.
• You will have control over your brand.
• You will have control over your staff.
• There will be press opportunities.
• Provides maximum design flexibility to meet project requirements
• New facility will reduce required maintenance
• Can be designed to meet current and future needs
• Opportunity to improve corporate image
• Suitable for either lease or own option
Q3. Regional integration is helping the countries in growing their trade. Discuss this
Statement. Describe in brief the various types of regional integrations?
Regional integration can be defined as the unification of countries into a larger whole. It also
reflects a country’s willingness to share or unify into a larger whole. The level of integration
of a country with other countries is determined by what it shares and how it shares. Regional
integration requires some compromise on the part of participating countries. It should aim to
improve the general quality of life for the citizens of those countries.
In recent years, we have seen more and more countries moving towards regional integration to
strengthen their ties and relationship with other countries. This tendency towards integration
4. was activated by the European Union (EU) market integration. This trend has influenced both
developed and developing countries to form customs unions and Free Trade Areas (FTA).
Types of regional integration:-
In the previous section an overview and the need for regional integration was covered. A
whole range of regional integrations exist today. Different types of regional integration are
discussed in this section.
Preferential trading agreement
Preferential trading agreement is a trade pact between countries. It is the weakest type of
economic integration and aims to reduce taxes on few products to the countries who sign the
pact. The tariffs are not abolished completely but are lower than the tariffs charged to
countries not party to the agreement. India is in PTA with countries like Afghanistan, Chile
and South Common Market (MERCOSUR). The introduction of PTA has generated an
increase in the market size and resulted in the availability and variety of new products.
Free trade area
Free Trade Area (FTA) is a type of trade bloc and can be considered as the second stage of
economic integration. It comprises of all countries that are willing to or agree to reduce
preferences, tariffs and quotas on services and goods traded between them. Countries choose
this kind of economic integration if their economical structures are similar. If countries
compete among themselves, they are likely to choose customs union. The importers must
obtain product information from all suppliers within the supply chain in order to determine the
eligibility for a Free Trade Agreement (FTA). After receiving the supplier documentation, the
importer must evaluate the eligibility of the product depending on the rules pertaining the
products. The importers product is qualified individually by the FTA. The product should
have a minimum percentage of local content for it to be qualified.
Custom Union is an agreement among two or more countries having already entered into a
free trade agreement to further align their external tariff to help remove trade barriers. Custom
union agreement among negotiating countries may encompass to reduce or eliminate customs
duty on mutual trade. Under customs union agreement, countries generally impose a common
external -tariff (CTF) on imports from non-member countries. Such common external tariff
helps the member countries to reap the benefits of trade expansion, trade creation and trade
diversification. In the absence of common external tariff, there is a possibility that countries
with lower custom duties may become conduits for members which has higher custom duty.
Common market is a group formed by countries within a geographical area to promote duty
free trade and free movement of labor and capital among its members. European community is
an example of common market. Common markets levy common external tariff on imports
from non-member countries. A single market is a type of trade bloc, comprising a free trade
area with common policies on product regulation, and freedom of movement of goods, capital,
labor and services, which are known as the four factors of production. This agreement aims at
making the movement of four factors of production between the member countries easier. The
5. technical, fiscal and physical barriers among the member countries are eliminated
considerably as these barriers hinder the freedom of movement of the four factors of
Q4 Write short note on:
a) Foreign Subsidiary Structure
b) International Matrix Structure
Ans. (A)Foreign Subsidiary Structure:-
In this structure, each of the company’s foreign subsidiary reports directly to the
headquarters. This structure eliminates the necessity of a regional manager. Though
strategic decisions are taken at the headquarters, each subsidiary acts autonomously for
their local operations. Figure depicts the foreign subsidiary structure in an
Foreign Subsidiary Structure
From the figure you can see subsidiaries based in USA, UK, France, and Japan report
directly to the headquarters in India.
Small businesses grow by exploring local, regional, national and foreign markets. The
developing markets of Asia and Latin America offer some of the best growth prospects
for U.S. and European companies. A small business has several options for entering
foreign markets, including exporting its products through wholesalers, exploring
strategic alliances with local companies and establishing subsidiaries. A parent
company usually has a controlling ownership interest in each one of its subsidiaries.
(B) International Matrix Structure:
This structure is the most complex organizational structure. This form of structure is
suitable where several functional divisions from across the globe performing related
duties are grouped together into an international product division. These product
divisions can then plan, design, develop, produce the products or services required.
The product divisions are dissolved or the teams are assigned to some other division
after work. Matrix demands an open and transparent organizational culture. People
working for the same project should share same incentives despite which part of the
6. organization they belong. The incentives are based on openly communicated targets
and guidance metrics. Figure gives you an idea of the international matrix structure.
International Matrix Structure
In the matrix structure, you can see that different product managers work with different
departments across the globe, breaking all the divisional barriers.
Q5. Explain the top-down and bottom-up approach of planning.
Ans. Top-down Planning:
Top-down planning is a common strategy that is used for project planning. It helps
maintain the decision making process at the senior level. Goals and allowances are
established at the highest level. Senior-level managers have to be very specific when
laying out expectations because the people following the plan are not involved in the
planning process. It is very important to keep the morale of the employees high and
motivate them to perform the job. Since employees are not included in any of the
decision making processes, they are motivated only through fear or incentives.
A top-down approach is essentially the breaking down of a system to gain insight into
its compositional sub-systems. In a top-down approach an overview of the system is
formulated, specifying but not detailing any first-level subsystems. Each subsystem is
then refined in yet greater detail, sometimes in many additional subsystem levels, until
the entire specification is reduced to base elements. A top-down model is often
specified with the assistance of “black boxes”, these make it easier to manipulate.
However, black boxes may fail to elucidate elementary mechanisms or be detailed
enough to realistically validate the model. Top down approach starts with the big
picture. It breaks down from there into smaller segments.
A bottom-up approach is commonly referred to as tactics. It is the piecing together of
systems to give rise to more complex systems, thus making the original systems sub-
systems of the emergent system. Bottom-up processing is a type of information
7. processing based on incoming data from the environment to form a perception.
Information enters the eyes in one direction (input), and is then turned into an image by
the brain that can be interpreted and recognized as a perception (output). In a bottom-
up approach the individual base elements of the system are first specified in great
detail. These elements are then linked together to form larger subsystems, which then
in turn are linked, sometimes in many levels, until a complete top-level system is
formed. This strategy often resembles a “seed” model, whereby the beginnings are
small but eventually grow in complexity and completeness. However, “organic
strategies” may result in a tangle of elements and subsystems, developed in isolation
and subject to local optimization as opposed to meeting a global purpose.
Q6 Discuss the importance of ethics in international business.
Ans .The importance of ethics in international business:-
The importance of international business ethics has been rising steadily along with the
growth of international business. Technologies like the Internet have made
international business all the more viable, and many companies can only find the
desirable growth and profit they seek by expanding into new markets. This means that
just as business ethics domestically have grown in importance along with the power
and significance of major businesses, so must international business ethics take center
stage as a major concern of the modern era.
• Public Image: In order to gain public confidence and respect, organizations must
ascertain that they are honest in their transactions. The services or products of a
business affect the lives of thousands of people. It is important for the top management
to impart high ethical standards to their employees, who develop these services or
A company that is ethically and socially responsible has a better public image. People
tend to favor the products and services of such organizations. This in turn will help
gain investors’ trust-a company that practices good ethical creates a positive
impression among its stakeholders.
• Management’s Credibility with Employees: Common goals and values are developed
when employees feel that the management is ethical and genuine. Management’s
credibility with employees and public are interrelated. Employees feel proud to be a
8. part of an organization that is respected by the public. Generous compensations and
effective business strategies do not always guarantee employ loyalty, organizational
ethics is equally significant. Thus, companies benefit from being ethical because they
attract and retain good and loyal employees.
• Better Decision-making: Decision made by an ethical management is in the best
interest of the organization, its employees, and the public. Ethical decisions take into
account various social, economic and ethical factors.
• Profit Maximization: Companies that emphasis on ethical conduct is successful in the
long run, even though they lose money in the short run. Hence, a business that is
inspired by ethics is a profitable business. Costs of audits and investigation are lower in
an ethical company.
• Protection of Society: In the absence of proper enforcement, organizations are
responsible to practice ethics and ensure mechanisms to prevent unlawful events. Thus,
by propagating ethical values, a business organization can save the resources of the
government and protect the society from exploitation.