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Unit 4International Environment Q1) WRITE A NOTE ON INTERNATIONAL ENVIRONMENTA1) The international environment of business comprises of a country's foreign policy, bilateral relations, international agreements (like WTO), the policies of trading blocs (like European Union, NAFTA ASEAN, etc.), the import export policy, monetary policies etc., other factors like war, civil disturbances, political instability etc. have also an effect on international environment.Business units engaged in import or export trade or domestic units using imported raw materials, technology or machinery are affected more by a minor change in international environment. Further, business units engaged in export marketing are influenced by depression or boom in international market.In recent years, the international environment has changed significantly. The developments in transport and communication systems have brought countries closer to each other. Today, global market is emerging out together single market. Under such situations, companies like multinational corporations are likely to dominate the world market.The present international environment is not favorable for business growth and expansion due to recession in Europe and other countries. Business units particularly connected with import-export should continuously monitor the international environment, identify and make use of opportunities for the betterment of company and country. Q2) WRITE A NOTE ON GATT WITH ITS OBJECTIVESA2) The General Agreement on Tariffs and Trade (GATT) has its origin in 1947 at a conference in Genera where negotiations between some 23 nations resulted in an intensive set of bilateral trade concession which were then extended to all participants and incorporated during a General Agreement. GATT was founded at the wake of world war II so as to stop the recurrence of protectionism policies of the then industrialized states which had resulted prolonged recession within the West before the war.Objectives:The main objectives with which GATT was founded included:(a) Raising standard of living;(b) Ensuring full employment and a large and steadily growing volume of real income and effective demand;(c) Developing the total use of the resources of the globe and(d) Expansion of production and international trade. The negotiating and contracting parties to the general Agreement aim at contributing to the objectives, given above, by stepping into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discrimination in international trade. Thus the GATT aimed toward fulfilling its objectives through the promotion of free and multilateral trade. at the present, altogether 132 countries including India are the members of GATT.Fundamental Principle:The final aim of GATT in to determine a free multilateral trading system and liberalisation of international trade, elimination of discrimination in international trade and also by reducing all kinds of trade barriers. so as to achieve such objective, GATT has adopted certain principles to forbid unfair trade practices and also to set a code of conduct for all the participants of trading activities.The following are a number of these fundamental principles:(i) Trade should be conducted on non-discriminatory basis.(ii) All quantitative restrictions on trade are to be prohibited.(iii) All trade disputes should be settled through consultations within GATT’s framework.(iv) Through a series of multilateral negotiations of GATT rounds tariff reductions are to be accomplished. Q3) WRITE A NOTE ON WTO A3) The World Trade Organisation (WTO) came into existence on January 1, 1995 replacing GATT, with a membership of 81 countries. The membership has since increased to 164 countries.Principles of WTO The important principles governing the WTO are the following:1. Non-discrimination: The principle of non-discrimination has two dimensions, that is, the most favoured nation (MFN) and the national treatment.(a) Most-favoured Nation (MFN): It means treating other people equally. The essence of WTO is a commitment on the part of each signatory to give all other signatories the MFN status. MFN means that each member should treat all the other members equally as the most favoured trading partner. Thus, product made in members' own countries are treated no less favourably than goods originating from any other country. The MFN rule forbids discrimination between the national or other member.(b) National Treatment: It refers to treating foreigners and locals equally. The national treatment clause forbids discrimination between a member s own nationals and the nationals of other members. Each member should accord to the nationals of other member’s treatment no less favourable than that it gives to its own nationals with respect to copyrights, patents, trademarks, etc. The foreign products should not be treated less favourably than identical domestic products. Thus, it becomes very difficult for a contracting party to prevent foreign products from competing with domestic products.2. Freer Trade: Lowering trade barriers is one of the most important means of encouraging trade. The WIO agreements allow countries to introduce changes gradually, through "progressive liberalisation". Developing countries are usually given longer time to fulfil their obligations.3. Predictability: The multilateral trading system is an attempt by governments to make the business environment stable and predictable. The predictability is achieved through binding and transparency. In the WTO, when countries agree to open their markets tor goods and services, they "bind their commitments. For goods, these bindings amount to ceilings on customs tariff rates. A country can change its bindings but only after negotiating with its trading partners, which could mean compensating them for loss of trade.The system tries to improve predictability and stability by discouraging the use of quotas and other measures used to set limits on quantities of imports, and also by making countries' trading rules as clear and transparent (public) as possible.4.Promoting Fair Competition: The WTO is sometimes described as a “free trade” institution, but that is not entirely accurate. The system does allow tariffs and, in limited circumstances, other forms of protection. More accurately, WTO is a system of rules dedicated to open, fair and undistorted competition.5.Encouraging Development and Economic Reforms: WTO system contributes to development and economic reform in the developing countries. The WIO agreements themselves inherit the earlier provisions of GATT that allow for special assistance and trade concessions for developing countries. The WTO has special concern for developing countries, especially least developed countries. They have been given more time to adjust, greater flexibility and special privileges. Q4) WRITE A NOTE ON FUNCTIONS OF WTO.A4) 1. Administrative Functions: WTO facilitates the implementation, administration, and operation and further the objectives of WTO and Multilateral Trade Agreements and also provides framework for the implementation, administration and operation of Plurilateral Trade Agreements.2. Platform for negotiations: WTO provides a platform for negotiations among the members concerning their multilateral trade relations in matters dealt under WTO agreements.3. Execution: WTO has to administer the understanding on Rules and Procedures governing the settlement of Disputes.4. Administering TPRM: WTO has to administer the Trade Policy Review Mechanism (TPRM).5. Economic Coherence: WTO works with a view to achieving greater economic coherence in global economic policy making, cooperating as appropriate, with IMF and World Bank.The Organisation: The WTO is run by its member governments. All major decisions are made by the members as a whole, either by ministers (who meet at least once in every two years) or by their administers or delegates (who meet regularly in Geneva). Decisions are normally taken by consensus. The last Ministerial Conference was held in Buenos Aires, Argentina, 10-13 December, 2017.Status: WTO is officially defined as "the legal and institutional foundation of the multilateral trading system". Unlike GATT, the WTO is a permanent organisation created by international treaty ratified by the governments and legislatives of member countries.As the principal international body concerned with solving trade problems between countries and providing a forum for multilateral trade negotiations, it has global status similar to that of the International Monetary Fund and the World Bank. But unlike them it is not a United Nations agency although it has a co-operative relationship with the United Nations.The WTO is different from the World Bank and the IMF. In the WTO power is not delegated to a board of directors or the organisations head. When WTO rules impose disciplines on countries policies that is the outcome of negotiations among WIO members. Thus, at resent, the WTO is member-driven, consensus-based organisation. WTO Structure: The WIO is headed by a director general who has four deputies from different member states. The WTOs ruling body is the General Council comprising each member country's permanent envoys. It sits in Geneva on an average of once a month. Its supreme authority is the Ministerial Conference.The Ministerial Conference is composed of representatives of all WTO members. It is required to be held every two years. The First Ministerial conference was held in Singapore on 9-13 December 1996.It can take decisions on all matters under any of the multilateral trade agreements. Q5) WRITE A NOTE ON TRIPS TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS AGREEMENTA5) The WTO's Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs) introduced intellectual property rules into the multilateral trading system for the first time.Ideas and knowledge are increasingly important part of trade. Mo of the value of new medicines and other high technology product lies in the amount of invention, innovation, research, design and testing involved. Films, music recordings, books, computer software and on-line services are bought and sold because of the information and creativity they contain. Many products that used to be trade as low-technology goods or commodities now contain a higher proportion of invention and design in their value.The "intellectual property rights" take a number of forms such a copyright, patent, trademarks, geographical indications, industrial design, lay-out designs and so on. Developed countries are mostly the owners of intellectual property while developing countries are mostly the users of intellectual property.The extent of protection and enforcement of these rights varied widely around the world. The WIOs TRIPs Agreement is an attempt to narrow the gaps in the way these rights are protected around the world, and to bring them under common international rules. Establishes minimum levels of protection that each government has to give to the intellectual property of fellow WTO membersThe Agreement on TRIPs provides norms and standards for all area of intellectual property including copyrights and related rights, trade marks, geographical indications, industrial designs, patents, layout designs of integrated circuits and protection of undisclosed information. Patents will be available for any invention whether product or process in all fields of industrial technologies. Patent protection is also extended to microorganisms, non-biological and micro-biological processes and plant varieties. Thus, the entire industrial and agricultural sectors and to some extent the bio technology sector will also be covered under the patent protection.Each country is required to build adequate procedures and remedies into its domestic laws to ensure the effective enforcement of IPRs Such remedies must be made available to foreign property right holders. Disputes over the TRIPs agreement are to be governed by the WIO dispute settlement procedures.When the WTO agreements took effect on 1 January 1995, developed countries were given one year to ensure that their laws and practices conform with the TRlP's Agreement. Developing countries were given five years, until 2000. Least developed countries have 11 years, until 2006 which was extended to 2016 for pharmaceutical patents. If a developing country did not provide product patent protection in a particular area of technology when the TRIPs Agreement came into force, it has up to 10 years to introduce the protection.Impact on Developing Countries: Stricter IPR regime under their TRI's agreement can have the following effects on the developing countries.(a) It may result in price increases in areas where IPR protection has been strengthened. The impact on prices is likely to be more on pharmaceuticals and chemical products.(b) Better IPR protection could exert a favourable effect on the supply of innovations.(c) Developing countries could benefit to the extent that they are actual or potential producers of new technology.(d) The transfer of technology intensive stages of production to developing countries may have been hindered by weak IPR protection regime. The IPR protection could help the transfer of R&D.In spite of its possible benefits, it is generally believed that the short run impact of the TRIPs agreement on the developing countries is likely to be negative. Q6) WRITE A NOTE ON GATS (GENERAL AGREEMENTS ON TRADE SERVICES)A6) The General Agreement on Trade in Services (GATS) is the first and only set of multilateral rules governing international trade in services. It was incorporated in response to the huge growth of the services economy over the past 30 years and the greater potential for trading services brought about by the communications revolution.The General Agreement on services has two major across the board requirements. The first is non-discrimination on the basis of the most favoured nation (MFN) and the second is transparency. There is no requirement for an across the board opening up of the services sector. Prior to the Uruguay Round, there was no common set of rules and disciplines governing trade in services.Objectives: The agreement has 3 main objectives: (i) To create a multilateral framework of principles and rules for trade in services, including the elaboration of possible disciplines for individual sectors.(ii) To expand trade in services under conditions of transparency and progressive liberalisation.(iii) To promote the economic growth of all trading partners and the development of developing countries.Important Features of Agreement 1. The General Agreement on Trade in Services (GATS) provides a set of multilateral rules which should govern trade in services under conditions of transparency and progressive liberalisation.2. It spells out certain general obligations such as extension of MFN principles maintenance of transparency and progressive liberalisation.3. Complete coverage of all service sectors with no service activity being excluded.4. An obligation to provide national treatment and market access to service suppliers of other members.5. An obligation not to discriminate between service suppliers of other members (the MFN obligation).6. Increasing participation in world trade in services for developing countries.7. Members are free to decide which services will be subject to market access and national treatment commitments in their national schedules.The Agreement provides flexibility for developing countries to pursue their own development priorities and to open fewer sectors or to liberalize fewer types of transactions in further negotiations.Narrow Impact: The scope and potential impact of GATS is quite narrow due to the adoption of "positive list" approach to negotiations. Under this approach, countries volunteer the sectors that they wish to open up, as well as the nature of concessions they propose to grant. The positive list approach was favoured by developing countries, since it allowed them to choose the sectoral coverage and extent of liberalisation depending on their development policy objectives.Countries were required to make binding commitments in terms o market access and national treatment. It is up to each country to decide how far it wishes to go on specific commitments. The initial result of commitments is to introduce transparency, and their binding nature is an assurance that these rules cannot be arbitrarily tightened. All commitments under GATS are non-discriminatory.There were only limited results achieved by GATS at the Uruguay Round. Therefore, it was decided to continue negotiations in at least three areas i.e., movement of natural persons, financial services and basic telecommunications.Impact on developing countries: A number of developing countries have taken the opportunity the GATS provides to schedule commitments thereby binding their own domestic reform process. Improvements in the quality of services that will result from liberalization and increased competition will contribute more generally to improved efficiency, consumer welfare and growth in developing countries.Further, most developing countries have committed themselves to bind or liberalize tourism and travel services, including the liberalisation of foreign investment restrictions for hotel and resort operations. These commitments are likely to improve the supply capacity of this key sector which provides the major source of foreign exchange earnings in a number of island developing countries and least-developed countries.Shortcomings: GAIS has several shortcomings. They are: (1) An important short coming of positive list is that it does not prevent an increase in restrictions on categories that have not been included.(2) The leeway given to governments to specify different types of restrictions according to modes of supply could create incentives to design restrictions so as to divert investment. (3) The decision to focus negotiations on specific sectors is a recognition of the inherent difficulty of reaching a broad-based agreement given heterogeneous modes of delivery. Q7) EXPLAIN THE DIFFERENCE BETWEEN GATT & WTOA7) The WTO isn't an extension of the GATT but succession to the GATT. It completely replaces GATT and features a very different character. The key differences between the two are:1. The GATT had no status whereas the WTO features a legal status. it's been created a by international treaty ratified by governments and legislatures of member states.2. The GATT was a collection of rules and procedures concerning multilateral agreements of selective nature. there have been separate agreements on separate issues, which weren't binding on members. Any member could stay out of the agreement. The agreements, which form a part of the WTO, are permanent and binding on all members.3. The GATT dispute settlement system was dilatory and not binding on the parties to the dispute. The WTO dispute settlement mechanism is quicker and binding on all parties.4. GATT was a forum where the member countries met once in a decade to discuss and solve world trade problems. The WTO, on the opposite hand, is a properly established rule based World Trade Organization where decisions on agreement are time bound.5. The GATT rules applied to trade in goods. Trade in services was included within the Uruguay Round but no agreement was received. The WTO covers both trade in goods and trade in services.6. The GATT had a small secretariat managed by a Director General. But the WTO contains a large secretariat and a large organizational setup. Q8) WRITE A SHORT NOTE ON FEATURES OF GLOBALISATION.A8) 1. Liberalisation:It stands for the liberty of the entrepreneurs to establish any industry or trade or business venture, within their own countries or abroad.2. Free trade:It stands for free flow of trade relations among all the nations. Each state grants MFN (most favoured nation) status to other states and keeps its business and trade faraway from excessive and hard regulatory and protective regimes.3. Globalisation of Economic Activity:Economic activities are be governed both by the domestic market and also the world market. It stands for the method of integrating the domestic economy with world economies.4. Liberalisation of Import-Export System:It stands for liberating the import- export activity and securing a free flow of products and services across borders.5. Privatisation:Keeping the state away from ownership of means of production and distribution and letting the free flow of commercial, trade and economic activity across borders 6. Increased Collaborations:Encouraging the method of collaborations among the entrepreneurs with a view to secure rapid modernisation, development and technological advancement7. Economic Reforms:Encouraging fiscal and financial reforms with a view to offer strength to Free World trade, free enterprise, and market forcesGlobalisation accepts and advocates the value of Free World trade, freedom of access to world markets and a free flow of investments across borders. It stands for integration and democratization of the world’s culture, economy and infrastructure through global investments. Q8) EXPLAIN LPG MODEL IN DETAIL.A8) Liberalization, Privatisation and GlobalisationEconomic environment is additionally called business environment and are used interchangeably. So as to solve the economic problem of our country, the Govt. has taken several steps including control by the State of certain industries, central planning and reduced importance of the private sector.Accordingly, the most objectives of India’s development plans set were to: a. Initiate rapid economic growth to lift the standard of living, reduce the widespread unemployment and poverty stalking the land;b. Become self-reliant and established a strong industrial base with emphasis on heavy and basic industries;c. Achieve balanced regional development by establishing industries across the country;d. Reduce inequalities of income and wealth;e. Adopt a socialist pattern of development — based on equality and stop exploitation of man by man.With the above objectives in view, the Govt. of India as a part of economic reforms announced a new industrial policy in July 1991.The broad features of this policy were as follows:1. The Govt. reduced the amount of industries under compulsory licensing to 6 only.2. Disinvestment was administered in case of the many public sector industrial enterprises.3. Policy towards foreign capital was liberalized. The share of foreign equity participation was increased and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted.4. Automatic permission was now granted for technology agreements with foreign companies.5. Foreign Investment Promotion Board (FIPB) was set up to market and channelize foreign investment in India.There were three major initiatives taken by the Govt. of India to introduce the much debated and discussed economic reforms to transform Indian economy from closed to open market economy. These are generally abbreviated as LPG, i.e. Liberalization, Privatization and Globalization.Liberalization:Liberalization of the Indian economy contained the subsequent features:a. The economic reforms that were introduced were aimed toward liberalizing the Indian business and industry from all unnecessary controls and restrictions.b. They indicate the end of the license-permit-quota raj.c. Liberalization of the Indian industry has taken place with respect to:(i) Abolishing licensing requirement in most of the industries except a brief list,(ii) Freedom choose the scale of business activities i.e., no restrictions on expansion or contraction of business activities,(iii) Removal of restrictions on the movement of products and services,(iv) Freedom in fixing the prices of products and services,(v) Reduction in tax rates and lifting of unnecessary controls over the economy,(vi) Simplifying procedures for imports and exports, and(vii) Making it easier to draw in foreign capital and technology to India.Privatisation:Privatization was characterized by the subsequent features:a. The new set of economic reforms aimed toward giving greater role to the private sector in the nation building process and a reduced role to the public sector.b. to attain this, the Govt. redefined the role of the public sector within the New Industrial Policy of 1991.c. the aim of the same, according to the Govt., was mainly to enhance financial discipline and facilitate modernization.d. it was also observed that non-public capital and managerial capabilities might be effectively utilized to enhance the performance of the PSUs.e. the Govt. has also made attempts to enhance the efficiency of PSUs by giving them autonomy in taking managerial decisions.Globalisation:Globalisation of the Indian economy contained the subsequent characteristics:a. Globalization is the outcome of the policies of liberalisation and privatization already initiated by the Govt.b. Globalisation is generally understood to mean integration of the economy of the country with the world economy. it's a complex phenomenon to understand and apply into practice.c. it's an outcome of the set of varied policies that are aimed toward transforming the world towards greater interdependence and integration.d. It involves creation of networks and activities transcending economic, social and geographical boundaries.e. Globalisation involves an increased level of interaction and interdependence among the varied nations of the global economy.f. Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer during a distant geographical market across the world. Q9) WRITE A NOTE ON MULTINATIONAL CORPORATION (MNCS)A9) • As the word also suggests, MNC is a company that owns or controls production in more than one nation.• MNCs establish its offices and factories for production in regions where they will get cheap labour and other resources.• MNCs choose such multi nation location so on avail low cost of production thus earning greater profits.A “multinational corporation” is additionally named as an international, transactional or global corporation. For enlarging the business organisation, multinational is a beginning step, because it helps you become transnational thus leading you to go global.Some popular samples of multinationals are given below:
Features of MNCsFollowing are the main features of MNCs:• Location – MNCs have their headquarters in home countries and have their operational division spread across foreign countries to reduce the cost.• Capital Assets – Major portion of the capital assets of the parent company is owned by the citizens of the company’s home country.• Board of Directors – Majority of the members of the Board of Directors are citizens of the house country.• MNCs are large-sized corporation and exercise an excellent degree of economic dominance.We all are quite conscious of the bottom line of any business. Every business has the ultimate goal of creating profit. Businesses always seek to sell more products and services so on bring in more revenue and generate profits for its owners.Advantages of MNCs• Access to Consumers – Access to consumers is one among the primary advantages that the MNCs enjoy over companies with operations limited to smaller region. Increasing accessibility to wider countries allows the MNCs to possess a larger pool of potential customers and help them in expanding, growing at a faster pace as compared to others.• Accesses to Labour – MNCs enjoy access to cheap labour, which is a great advantage over other companies. A firm having operations spread across different geographical areas can have its production unit created in countries with cheap labour. a number of the countries where cheap labour is accessible is China, India, Pakistan etc.• Taxes and Other Costs – Taxes are one among the areas where every MNC can benefit. Many countries offer reduced taxes on exports and imports so as to increase their foreign exposure and international trade. Also countries impose lower excise and custom duty which ends up in high margin of profit for MNCs. Thus taxes are one of the area of creating money but it again depends on the country of operation.• Overall Development – The investment level, employment level, and income level of the country increases because of the operation of MNC’s. Level of commercial and economic development increases because of the growth of MNCs• Technology – The industry gets latest technology from foreign countries through MNCs which help them improve on their technological parameter.• R&D – MNCs help in improving the R&D for the economy.• Exports & Imports – MNC operations also help in improving the Balance of payment. This will be achieved by the rise in exports and reduce in the imports.•MNCs help in breaking protectionism and also help in curbing local monopolies, if at all it exists in the country.Disadvantages of MNCs for the Host Country• Laws – one of the main disadvantages is that the strict and stringent laws applicable in the country. MNCs are subject to more laws and regulations than other companies. it's seen that certain countries don't allow companies to run its operations because it has been doing in other countries, which end in a conflict within the country and leads to problems in the organization.• Intellectual Property – Multinational companies also face issues concerning the intellectual property that's not always applicable in case of purely domestic firms• Political Risks – as the operations of the MNCs is wide spread across national boundaries of several countries they'll end in a threat to the economic and political sovereignty of host countries.• Loss to Local Businesses – MNCs products sometimes cause the killing of the domestic company operations. The MNCs establishes their monopoly in the country where they operate thus killing the local businesses which exists in the country.• Loss of Natural Resources – MNCs use natural resources of the house country in order to create huge profit which ends up in the depletion of the resources thus causing a loss of natural resources for the economy• Money flows – As MNCs operate in several countries a large sum of money flows to foreign countries as payment towards profit which ends up in less efficiency for the host country where the MNCs operations are based.• Transfer of capital takes place from the house country to the foreign ground which is unfavourable for the economy. Q10) WRITE A NOTE ON FOREIGN DIRECT INVESTMENT A10) When an investment is done by an investor in physical assets of the foreign country it's termed as Foreign Direct Investment (FDI), subject to the internal control being retained by the investor. Foreign portfolio investments (FPI) indicate the investments are made in financial securities of the foreign country.Foreign Portfolio investments differ from foreign direct investments in two ways: First, FDI is made in physical assets and not in financial assets; while in case of FPI investments are made in financial assets. Secondly, FDI has complete managerial control over the firm during which investments are made.FDI is also in type of investments in plants and machineries, equipment’s, lands and buildings, etc. in the case of FPI investments are made in the financial securities like shares, debentures, bonds, etc., of a company in other country.FDI is done in many ways; few of these commonly used are as follows:1. Setting up a new corporate in the foreign country either as a branch or a subsidiary. The subsidiary could also be established either in its own capacity, or through some kind of agreement viz. joint venture; or2. To make further investment in the foreign branch or subsidiary; or3. By acquiring an existing business in the foreign country.Reasons for FDI:Firms and corporate are making investment in foreign physical assets on account of following few illustrative reasons: 1. Economies of Scale:The firm would like have continuity of business for longer life period, hence once the local market has been achieved; the potential source of growth is achieved only through entering in to the global or world market. By entering in to the global market, through establishment of structure and channels for operational management supports to attain the economies of scales such strategy supports the firm to survive in a competitive market.2. Need to Get Around Trade Barriers:Each and every country of the world, prefer to protect the interest of their nationals, and industry, trade and services. to attain the objective, the govt of the country, would like to put some restrictions, and trade barriers for import and export of products. this is often done to main the political power by ruling government too. So, firm got to achieve through tapping of that country market, and decide for FDI and its seems to be workable solutions in such probable position.3. Comparative Cost Advantage:Once the firm decides to determine the market, they avail the location benefits like proximity of raw materials, procurements of input resources, like materials, labour, etc., at a cheaper rate, etc. This supports the firm to stand in the competitive market during a better way.4. Vertical Diversification:The vertical integration indicates the diversification in to the activities regarding import of the firm, or output market. When the firm is in a position to accumulate sufficient supply of raw materials, components, etc. from overseas market, then rather than going for bargaining, they try to undertake a firm in foreign country. this will be done through FDI.Same way if firm determine good quantity market in a particular country, rather than exporting the goods, and commodities to the foreign country, they establish the plant therein country. for instance, General Motors have established their plant in Gujarat, with an intention to capture the India’s prospective market.5. General Diversification Benefits:The FDI also supports the firm for acquiring the benefits across the varied markets. A firm in this way gets the advantage of nearby country’s market. for instance, there's a possibility that, General Motors in future get the advantage of exporting the cars manufactured in India to Nepal. FDI also supports the firm to expect a steadier or a higher stream of income, and thereby diversify the risk.6. Attacking Foreign Competition:When the foreign corporate is entering into local market, and creating a competitive position for the local firm, in such cases local firms may have an incentive to determine production bases in the competitors’ countries. Such actions supports the local firm to have cost advantages as their competitors in foreign market, and competitors’ attention moves on protecting their market shares in their own home market.7. Extension of Existing International Operations:By establishing a branch or foreign affiliates within the foreign country, a firm establishes natural extension in overseas market. this example in turn supports the firm to have licensee or franchisee agreements, and eventually overseas full-fledged production facilities and capacities.8. Product Life Cycle:Once the product reach to the saturation stage, the firm likes to avail the advantage of untapped market. In such cases, firm will put up plant in lower developing country and underdeveloped country with an intention to pass on the standardized production practices and avail the benefit of cheap input sources like cheap labour, and firm will be able to reap the benefits.9. Non-Transferable Knowledge:When the product characteristics, process techniques are unique, then the firm doesn't like to transfer it to foreign producers for a price (unlike a trade mark or a patent) because of the reluctance of the firm to share secrets.So, firm would feel the need to set-up overseas operations. this is often done with a specific intention to take advantage of the benefits in foreign markets. Example, the Coca-Cola Company has got to set-up its own operations everywhere with an intention to maintain the secrecy of formulations of its soft drinks.10. Brand Equity:To achieve the benefits of reputations of brand name across the world, firm have an incentive to expand overseas. Levi has set-up operations in India to take advantage of its international reputation as a producer of good quality denim clothes i n one of the instance.11. Protection of brand Equity:To maintain the company’s strict quality standards, within the product, firm don't like to enter in to license or franchisee arrangement, in such situation firm set-up its own manufacturing unit abroad.12. Following the Clients or Major Customers:Few major component suppliers, Original Equipment Manufacturer suppliers, or service provider firms expand their activities in overseas market, because the main customer has opened centres in abroad. Example, the major auditing firms generally extend their operations to countries where their clients are headed because of their clients’ need to have a single audit firm across the world. Q11) EXPLAIN THE CHALLENGES OF INTERNATIONAL BUSINESS A11) 1. Tariff Barriers:Tariff barriers indicate taxes and duties imposed on imports. Marketers of guest countries find it difficult to earn adequate profits while selling products within the host countries. 2. Administrative Policies:Bureaucratic rules or administrative procedures – both in guest countries and host countries – make international (export and/or import) marketing harder. Some countries have too lengthy formalities that exporters and importers have to clear. Unjust dealings to induce the formalities/ matters cleared create many problems to some international players. International marketers need to accustom with legal formalities of several courtiers where they wants to operate.3. Considerable Diversities:Different countries have their own unique civilization and culture. They pose special problems for international marketers. Global customers exhibit considerable cultural and social diversities in term of needs, preferences, habits, languages, expectations, buying capacities, buying and consumption patterns, then forth. Social and personal characteristics of consumers of various nationalities are real challenges to know and incorporate. Compared to local and domestic markets, it's harder to understand behaviour of consumers of other countries.Language and religious diversities are the important challenge for international business players. There are 6000 languages in the world. China (20%) is that the largest in term of native speakers, followed by English (6%), and followed by Hindi (5%). Yet English is recognized as global business language.English speaking countries can contribute the biggest share (40%) in global business. Religious diversities seem difficult to deal with as they determine needs and desires of individuals. at present Christianity is the largest within the world (1.7 billion), followed by Islam (1.0 billion), followed by Hinduism (750 million), and followed by Buddhism (350 million).4. Political Instability or Environment:Different political systems (democracy or dictatorship), different economics systems (market economy, command economy, and mixed economy), and political instability are some of real challenges that international markers need to face. Political atmosphere in several courtiers offer opportunities or pose challenges to international marketers.Governments in several nations have their priorities, philosophies, and approaches to the international trades. they'll adopt restrictive (protectionist) or liberal approach to international business operations. Especially, political approaches of dominant nations have more influence in international marketing activities.5. Place Constraints (Diverse Geography):Trade in foreign countries of far distance itself practically difficult. in case of perishable products, it's a true challenge. Exporting and importing products via sea route and making arrangements for effective selling involves more time as well risks. Segmenting and selecting international markets require the marketers to be more careful.6. Variations in Exchange Rates:Every nation has its currency that's to be exchanged with currencies of other nations. Currencies are traded every day and rates are subject to vary . Indian rupee , European Dollar, US Dollar, Japanese Yen, etc., are appreciated or discounted at national and international markets against other currencies. in case of extraordinary and unexpected moves (ups and downs) in currency/exchange rates between two courtiers create serious settlement problems.7. Norms and Ethics Challenges:Ethics refers to moral principles, standards, and norms of conduct governing individual and firm’s behaviour. they're deeply reflected in formal laws and regulations. in several parts of the world, different codes of conduct are specified that each international business player has got to observe. However, globalization process has emphasized some common ethics worldwide. Corruption is another issue concerning business ethics.8. Terrorism and Racism:Terrorism is a global issue, a worldwide problem. People of the world live under constant fear of terrorists attracts anywhere within the world. To trade internationally isn't economically risky, but there's the threat to life. Racism also restricts international trade activities.
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