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MB0037 INTERNATIONAL BUSINESS MANAGEMENT 1. Describe the pros and cons of globalization?


Pro-globalization: Globalization advocates to the above average drop in poverty rates in countries, such as China, where globalization has taken a strong foothold, compared to areas less affected by globalization, such as Sub-Saharan Africa, where poverty rates have remained stagnant. Globalization increases economic prosperity as well as opportunity, especially among developing nations, enhances civil liberties and leads to a more efficient allocation of



resources. Economic theories of comparative advantage suggest A that free trade leads to a


a more efficient allocation of resources, with all countries involved ar in the trade benefiting. In Sh

general, this leads to lower prices, more employment, higher by output and a higher standard of

y sit om r c e . l v > Libertarians, ai Proponents of laissez-faire capitalism, and say that higher degrees ni some 9 m U 0 g l 2democracy 0 of political and economic freedom in the form and capitalism in the developed / 4@ pa of i 5 8 n 0 a a e/ lvhigher world are ends in themselves and also levels of material wealth. They see M produce n a u h J m t i < ra and capitalism. globalization as the beneficial spread kk of liberty i ha S s : Supporters of globalization argue that the anti-globalization movement uses anecdotal to ail d e m evidence to support their itt protectionist E- view, whereas worldwide statistics strongly support m b globalization: FromSu1981 to 2001, according to World Bank figures, the number of people living for those in developing countries.

living on $1 a day or less declined from 1.5 billion to 1.1 billion in absolute terms. At the same time, the world population increased, so in percentage terms the number of such people in developing nations declined from 40% to 20% of the population. With the greatest improvements occurring in economies rapidly reducing barriers to trade and investment; yet, some critics argue that more detailed variables measuring poverty should be studied instead. The percentage of people living on less than $2 a day has decreased greatly in areas affected by globalization, whereas poverty rates in other areas have remained largely stagnant. Life expectancy has almost doubled in the developing world since World War II and is starting to close the gap between itself and the developed world where the improvement has been smaller. Even in Sub-Saharan Africa, the least developed region, life expectancy increased from 30 years before World War II to about a peak of about 50 years before the

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MB0037 INTERNATIONAL BUSINESS MANAGEMENT AIDS pandemic and other diseases started to force it down to the current level of 47 years. Infant mortality has decreased in every developing region of the world. Feminism has made advances in areas such as Bangladesh through providing women with jobs and economic safety. The proportion of the world's population living in countries where per-capita food supplies are less than 2,200 calories (9,200 kilojoules) per day decreased from 56% in the mid-1960s to below 10% by the 1990s.

Anti-globalization: The Anti-globalization movement is a term used to describe the political group who oppose the neoliberal version of globalization, while criticisms of globalization are some of the reasons used to justify this groupâ&#x20AC;&#x2122;s stance.




a taken by a state in order "Anti-globalization" may also involve the process or actions ar Sh

y to demonstrate its sovereignty and practice democratic bdecision-making. Anti-globalization y

t m may occur in order to maintain barriers to the international of people, goods and otransfer rsi

c ve il. m l U 200 @gto the WTO. In either case, participants standipina opposition the unregulated political power of 5/ 84 n 0 a e/ lva large, multi-national corporations, asMthe ncorporations exercise power through leveraging u tha J m < radamage the democratic rights of citizens, the trade agreements which in somekkiinstances i ha S s : environment particularly airto quality iindex and rain forests[citation needed], as well as al d e m national government's sovereignty itt E-to determine labor rights, including the right to form a m b union, and health and Su safety legislation, or laws as they may otherwise infringe on cultural beliefs, particularly free market deregulation, encouraged ni 9> bya organizations such as the IMF or

practices and traditions of developing countries. The anti-globalization movement developed in opposition to the perceived negative aspects of globalization. The term 'anti-globalization' is in many ways a misnomer, since the group represents a wide range of interests and issues and many of the people involved in the anti-globalization movement do support closer ties between the various peoples and cultures of the world through, for example, aid, assistance for refugees, and global environmental issues. While it is true that globalization encourages free trade among countries, there are also negative consequences because some countries try to save their national markets. The main export of poorer countries is usually agricultural goods. Larger countries often subsidize

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MB0037 INTERNATIONAL BUSINESS MANAGEMENT their farmers which lowers the market price for the poor farmer's crops compared to what it would be under free trade. The deterioration of protections for weaker nations by stronger industrialized powers has resulted in the exploitation of the people in those nations to become cheap labor. Due to the lack of protections, companies from powerful industrialized nations are able to offer workers enough salary to entice them to endure extremely long hours and unsafe working conditions, though economists question if consenting workers in a competitive employers' market can be decried as "exploited". It is true that the workers are free to leave their jobs, but in many poorer countries, this would mean starvation for the worker, and possible even his/her family if their previous jobs were unavailable. The low cost of offshore workers have enticed corporations to buy goods and services



from foreign countries. The laid off manufacturing sector workers A are forced into the service


a sector where wages and benefits are low, but turnover is high. ar This has contributed to the Sh

deterioration of the middle class which is a major factor in bythe increasing economic inequality


t in the United States. Families that were once part of om class are forced into lower rsi the middle

c ve il. U 0 gm al /20 4out in the lower class have a much harder timeipclimbing 5 8 @ of poverty because of the absence of n 0 a / a the middle class as a stepping stone. M ne alv u th im of<Jeconomic a k Critiques of the current wave globalization typically look at both the ar k i h S s damage to the planet, in terms unsustainable harm done to the biosphere, as to of the aperceived il: d e m well as the perceived human itt costs, E- such as poverty, inequality, miscegenation, injustice and m b the erosion of traditional culture which, the critics contend, all occur as a result of the Su i > country. a positions by massive layoffs and outsourcing to nanother This also means that people 9

economic transformations related to globalization. They challenge directly the metrics, such as GDP, used to measure progress promulgated by institutions such as the World Bank, and look to other measures. They point to a "multitude of interconnected fatal consequences-social disintegration, a breakdown of democracy, more rapid and extensive deterioration of the environment, the spread of new diseases, increasing poverty and alienationâ&#x20AC;? which they claim are the unintended but very real consequences of globalization.

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MB0037 INTERNATIONAL BUSINESS MANAGEMENT 2. Describe the dynamics of culture as a multi-level, multi- layer construct.

Answer: The proposed model consists of two building blocks. One is a multi-level approach, viewing culture as a multi-level construct that consists of various levels nested within 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, as portrayed. The second is based on Schein’s (1992) model viewing culture as a multilayer construct consisting of the most external layer of observed artifacts and behaviors, 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 Athe individual and that at


a each level change first occurs at the most external layer of behavior, and then, when shared ar Sh

by individuals who belong to the same cultural context, by it becomes a shared value that


t characterizes the aggregated unit (group, organizations, om rsi or nations).

c ve il. U 0 gm al /20 4and networks and global institutions that crossipnational 5 8 @ cultural borders. As exemplified by n 0 a a e/ global the effort of the Davos group discussedMearlier, n alv organizational structures need to adopt u m J ath common rules and procedures inkkiorder< toarhave a common ‘language’ for communicating h Si s across cultural borders. Giventothe dominance of Western MNCs, the values that dominate the il: a d e global context are often itt based Eon-m a free market economy, democracy, acceptance and m b tolerance of diversity, Su respect of freedom of choice, individual rights, and openness to a culture being created by global In the model, the most macro-level is that ni of9a> global

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, their leaders’ values, and the professional and educational level of their members.

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MB0037 INTERNATIONAL BUSINESS MANAGEMENT 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. 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 A nature of culture, and


a by changes that occur at explain how culture at different levels is being shaped and reshaped ar Sh

other levels, either above it through top-down processes by or below it through bottom-up


t processes. Similarly, changes at each level affect lower rsi levelsomthrough a top-down process,

c ve il. gm l U 200could @ cultures observed by Ingle hart and Bakeripa(2000) 5/ 84 serve as an example for top-down n 0 a e/ lva effects of economic growth, enhancedMby nglobalization, on a cultural shift from traditional u tha J m i < a values to modernization. However, kk in lineharwith Schein (1992), the deep basic assumptions i S s the broad cultural heritage of a society. :by still reflect the traditional values l to shaped i a ed and-mnetworks Global organizations are being formed by having local-level itt E m b u global arena. That means that there is a continuous reciprocal process organizations join Sthe a and upper levels through a bottom-up process The changes in national ni of9>aggregation.

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. The broad ideological framework of a country, corporation, or situation is the most important determinant of the cultural identity that people develop in a given locale. The â&#x20AC;&#x2DC;melting potâ&#x20AC;&#x2122; ideology suggests that each cultural group loses some of its dominant characteristics in order to become main stream: this is assimilation, or what Triandis (1994)

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MB0037 INTERNATIONAL BUSINESS MANAGEMENT calls subtractive multiculturalism. In contrast, when people from a cultural group add appropriate skills and characteristics of other groups, it may be called integration, or additive multiculturalism. Both of these processes are essential for cultural convergence to proceed. However, if there is a significant history of conflict between the cultural groups, it is hard to initiate these processes, as in the case of Israelis and Palestinians. In general, although there has been some research on the typology of animosity against other nations, we do not know much about how emotional antagonism against other cultural groups affects trade patterns and intercultural cooperation in a business context. The issues of cultural identity and emotional reactions to other cultural groups in an IB context constitute a significant gap in our research effort in this area.




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y sit om r c e . l v ni 9> mai U l 00 g pa 5/2 84@ i an /0 a M une alv m J h ki < arat k Si sh : l to ai d e m t it E m



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MB0037 INTERNATIONAL BUSINESS MANAGEMENT 3. Describe the advantages and disadvantages of international trade?

Answer: Advantages & Disadvantages of International Trade: International trade allows countries to exchange good and services with the use of money as a medium of exchange. Several advantages can be identified with reference to international trade. However international trade does have its limitations as well. Discussed below are both advantages and disadvantages of international trade.

Advantages: •




Greater variety of goods available for consumption a–rainternational trade brings in


different varieties of a particular product frombydifferent destinations. This gives


m consumers a wider array of choices which will rsi not only co improve their quality of life

ve > ail. U 009 gm l a • Efficient allocation and better utilization since countries tend to produce 4@ ip 05/2of 8resources n a e/ lva goods in which they have a comparative M n advantage. m <Ju atha i r • When countries produceikkthrough acomparative advantage, wasteful duplication of h S s : l the environment from harmful gases being leaked to It helpsaisave resources is prevented. d e m itt and also into the atmosphere E- provides countries with a better marketing power. m b • Promotes efficiency in production as countries will try to adopt better methods of Su ni but as a whole it will help the country grow.

production to keep costs down in order to remain competitive. •

Countries that can produce a product at the lowest possible cost will be able to gain a larger share in the market. Therefore an incentive to produce efficiently arises.

This will help standards of the product to increase and consumers will have a good quality product to consume.

More employment could be generated as the market for the countries’ goods widens through trade. International trade helps generate more employment through the establishment of newer industries to cater to the demands of various countries. This will help countries bring down their unemployment rates.

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The tough competition in the global market is the greater threat for the existence of the financially weaker organizations.

It could lead to a more rapid depletion of exhaustible natural resources.

You may need to wait for long term gains. The tight competition in the global market results in shortcomings in the short run profits of the businesses.

Hire staff to launch international trading.

Need to modify products or packaging to meet the global requirements.

There is a necessity to develop new promotional materials.

The administrative costs of the international trade become costlier.

a lv A • Requirements to deal with special licenses and regulations th such as, patents, copy ra a rights, etc. Sh y b y t i om rs c e . l v ni 9> mai U l 00 g pa 5/2 84@ i an /0 a M une alv m J h ki < arat k Si sh : l to ai d e m t it E m b u S •

Balance of payments becomes the major headache.

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MB0037 INTERNATIONAL BUSINESS MANAGEMENT 4. What are the benefits of trade liberalization? Describe.

Answer: Recent decades have seen rapid growth of the world economy. This growth has been driven in part by the even faster rise in international trade. The growth in trade is in turn the result of both technological developments and concerted efforts to reduce trade barriers. Some developing countries have opened their own economies to take full advantage of the opportunities for economic development through trade, but many have not. Remaining trade barriers in industrial countries are concentrated in the agricultural products and labor-



intensive manufactures in which developing countries have a comparative advantage. Further A


a trade liberalization in these areas particularly, by both industrial ar and developing countries, Sh

y also benefiting the industrial would help the poorest escape from extreme poverty bwhile

y sit om r c e . l v > investment ai Policies that make an economy open to trade with the rest of the world ni 9and m U 0 g 0 al evidence are needed for sustained economic growth.ipThe /2 4@ on this is clear. No country in recent 5 /0 vaof8 substantial increases in living standards anin terms e decades has achieved economic success, M un al J ath m kito the< rest for its people, without being open r of the world. In contrast, trade opening (along k ha Si s with opening to foreign direct to investment) il: has been an important element in the economic a d e m success of East Asia, where itt the average E- import tariff has fallen from 30 percent to 10 percent m b over the past 20 years. Su countries themselves.

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.

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MB0037 INTERNATIONAL BUSINESS MANAGEMENT Freeing trade frequently benefits the poor especially. Developing countries can illafford the large implicit subsidies, often channeled to narrow privileged interests that trade protection provides. Moreover, the increased growth that results from freer 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. The potential gains from eliminating remaining trade barriers are considerable. Estimates of the gains from, eliminating all barriers to merchandise trade range from US$250 billion to US$680 billion per year. About two-thirds of these gains would accrue to industrial countries. But the amount accruing to developing countries would still be more than twice the



level of aid they currently receive. Moreover, developing countries A would gain more from


a global trade liberalization as a percentage of their GDP than ar industrial countries, because Sh

their economies are more highly protected and because they by face higher barriers.


t m other countries' markets, Although there are benefits from improved rsi access oto

c ve il. gm l U 2of 00 their a @ countries would come from the liberalization agricultural markets. Developing ip 05/ 84 n a e/ lva of manufacturing and agriculture. The countries would gain about equally from M liberalization n m <Ju atha i group of low-income countries, however, would r gain most from agricultural liberalization in kk ha Si s industrial countries becauseto of the igreater relative importance of agriculture in their l: a d e m economies. itt Em b Su countries benefit most from liberalizing their own ni markets. 9> a The main benefits for industrial

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MB0037 INTERNATIONAL BUSINESS MANAGEMENT 5. Compare the product life cycle theory with the Hecksher Ohlin theory.

Answer: The product life-cycle theory looks at the potential export possibilities of a product in five discrete stages in its life-cycle

Stage 1: Introduction: A new product is manufactured in the innovating country and sold primarily in that domestic market. Any overseas sales are generated through exports to other markets. At this stage the innovating company has little competition in markets abroad.


a arena. At this point, the firm begins some production abroad, ar to serve foreign markets and to counter the competition.



Stage 2: Expansion: Sales increase, but so doe’s competitionAas other firms enters the




t Stage 3: Maturity: Exports from the home country decrease, because of increased om rsi

c ve il. 0 gm l U 2a0critical a maturity and sales decline. Price has become ip 05/ 84@ determinant of competitiveness, so n a e/ lva Production may shift to less developed minimizing costs becomes an important M unobjective. m <J atha i countries to take advantage ofkklower labour r costs. At this point, domestic production may ha Si s cease and the product is imported by to il: the home market. a d e Stage 4: Decline: This itt occursE-mbecause competitors have achieved economies of scale bm innovator. u equal to those of the S i > a with the vertical line between production in overseas locations. On the nintersection 9

Stage 5: Recovery: The innovator may cease production and leave the declining market to imitators. Typically, the product's popularity has also ceased and consumers seek other products.

The product life-cycle theory has been found to hold primarily for products such as consumer durables, synthetic fabrics and electronic equipment; that is, those products which have a long time-span from innovation to eventual peak consumer demand. The theory does not hold for products with a short time-span between innovation and obsolescence, for example, kitchen gadgets such as electric can openers and ice-cream makers.

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MB0037 INTERNATIONAL BUSINESS MANAGEMENT The Hecksher-Ohlin model: The Hecksher-Ohlin model (H-O model) is a general equilibrium mathematical model of international trade, developed by Eli Hecksher and Bertil Ohlin at the Stockholm School of Economics. It builds on David Ricardo's theory of comparative advantage by predicting patterns of commerce and production based on the factor endowments of a trading region. The model essentially says that countries will export products that utilize their abundant and cheap factor(s) of production and import products that utilize the countries' scarce factor(s). Features of the model Relative endowments of the factors of production (land, labor, and capital) determine a country's comparative advantage. Countries have comparative advantages in those goods



for which the required factors of production are relatively abundant A locally. This is because


ra inputs. Goods that require the prices of goods are ultimately determined by the prices of atheir Sh

inputs that are locally abundant will be cheaper to produce by than those goods that require

y sit om r c e . l v > areaiabundant but labor is scarce will For example, a country where capital and ni land U 09 gm l 0 a /2 lots have comparative advantage in goods thatiprequire 5 84@ of capital and land, but little labor n 0 a e/ lva their prices will be low. As they are the grains, for example. If capital and landMare nabundant, m <Ju atha i main factors used in the production r the price of grain will also be low - and thus kk of grain, ha Si s attractive for both local consumption l: export. Labor intensive goods on the other hand to iand a d e m labor is scarce and its price is high. Therefore, the will be very expensive to itt produceE-since m b country is better offSuimporting those goods. inputs that are locally scarce.

Theoretical development of the model The Ricardian model of comparative advantage has trade ultimately motivated by differences in labour productivity using different technologies. Hecksher and Ohlin didn't require production technology to vary between countries, so (in the interests of simplicity) the H-O model has identical production technology everywhere. Ricardo considered a single factor of production (labour) and would not have been able to produce comparative advantage without technological differences between countries. The H-O model removed technology variations but introduced variable capital endowments, recreating endogenously the inter-country variation of labour productivity that Ricardo had imposed exogenously. With international variations in the capital endowment (i.e. infrastructure) and goods

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MB0037 INTERNATIONAL BUSINESS MANAGEMENT requiring different factor proportions, Ricardo's comparative advantage emerges as a profitmaximizing solution of capitalist's choices from within the model's equations. 6. Describe the structure of world trade organization.


The structure of the WTO is dominated by its highest authority- the Ministerial Conference. This body is composed of representatives of all WTO members. It meets at least two years and is empowered to make decisions on all matters under any of the multilateral trade agreements.



The day-to-day work of the WTO is entrusted to a number A of subsidiary bodies;


ra principally, the General Council, also composed of all WTO amembers, which is required to Sh

report to the Ministerial Conference. The General Council by also convenes in two particular


t forms- as the Dispute Settlement Body and the Trade omReview Body. The former rsi Policy c ve il. l U 200 @gm a policies of individual WTO members. p / ni /05 a84 a e v The General Council delegates to three other bodies- namely the M responsibility un thal J m i < ra and Trade- Related Aspects of Intellectual Councils for Trade in Goods, Trade kk in Services i ha S s : Property Rights. The Councilto for Goods overseas the implementation and functioning of all ail d e the agreements covering itt trade inE-mgoods, though many such agreements have their own m b specific overseeingSubodies. The latter two Councils have responsibility for their respective > aconduct regular reviews of trade overseas the dispute settlement procedures andnithe9latter

WTO agreements and may establish their own subsidiary bodies as deemed necessary. Three other bodies are established by the Ministerial Conference who report to the General Council. The Committee on Trade and Development is concerned with issues relating to the developing countries and especially, to the ‘least developed’ among them. The Committee on Balance of Payments is responsible for consultations among WTO members and countries which resort to trade restrictive measures in order to cope with their balance of payments difficulties. Finally, issues relating to WTO’s financing and budget are dealt with by a Committee on Budget, Finance and Administration. Each of the multi-lateral agreements of the WTO – those on civil aircraft, government procurement, dairy products and bovine meat-establish their own management bodies which are required to report to the General Council.

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