Assignment Code: MMPC-016/TMA/ JULY/2023

Course Code: MMPC-016

Assignment Name: International Business Management

Year: 2023

Verification Status: Verified by Professor

Q1) What are the elements of International Business Environment? Explain them with the help of examples.

Ans) The international business environment is a complex and dynamic system influenced by several factors that impact organizations engaged in global commerce. Understanding the elements of the international business environment is crucial for firms to navigate challenges and leverage opportunities in the global marketplace.

1. Political Environment: The political environment refers to the impact of government policies, stability, and relations between nations on international business. Political instability in a country may lead to uncertainty for businesses. For instance, political unrest in the Middle East can disrupt supply chains and affect the operations of multinational corporations (MNCs) operating in the region.

2. Economic Environment: The economic environment includes factors such as economic systems, economic policies, exchange rates, and economic indicators that affect international business. Fluctuations in exchange rates can significantly impact the profitability of global businesses. For instance, a sudden depreciation of a host country's currency may increase the cost of imported goods for a multinational company.

3. Social and Cultural Environment: Social and cultural factors encompass cultural norms, values, demographics, and societal trends that influence international business practices. For example, McDonald's adapts its menu and marketing strategies to local tastes and cultural preferences in different countries. For instance, in India, where most of the population does not consume beef, McDonald's offers a menu featuring chicken and vegetarian options.

4. Technological Environment: The technological environment includes advancements and innovations that impact how businesses operate globally. For example, E-commerce has revolutionized international trade, allowing businesses to reach customers worldwide. Amazon, for example, has leveraged technology to create a global platform for buying and selling goods.

5. Legal Environment: The legal environment involves laws and regulations in different countries that affect international business transactions. For example, Intellectual property laws vary across countries. Companies must navigate these differences to protect their patents, trademarks, and copyrights. For example, pharmaceutical companies must be aware of patent laws when introducing new drugs globally.

6. Ethical Environment: The ethical environment encompasses the moral principles and values that guide business conduct on a global scale. For example, Multinational corporations must adhere to ethical standards in their operations worldwide. Nike faced ethical challenges related to labour practices in its overseas factories, leading the company to implement reforms to address these concerns.

7. Competitive Environment: The competitive environment includes the level of rivalry among businesses, the bargaining power of buyers and suppliers, and the threat of new entrants or substitutes in the global market. For example, The airline industry is highly competitive globally. Airlines must continually innovate and differentiate their services to remain competitive and attract international travellers.

8. Natural Environment: The natural environment refers to factors such as climate change, sustainability, and environmental regulations that impact international business operations. For example, businesses are increasingly recognizing the importance of sustainability. Companies like Unilever have implemented sustainability initiatives across their global supply chains to address environmental concerns and consumer preferences.

Q2) List and explain different types of Trade Blocs.

Ans)The diverse types of trade blocs are the following:

1. Preferential Trading Arrangements (PTAs): PTAs provide preferential access to certain products among member countries. Tariffs and non-tariff barriers are reduced only on specific traded goods. This serves as the initial stage of economic integration.

2. Free Trade Area/Agreement (FTA): FTAs remove all tariffs and non-tariff barriers among member states, except for certain agreed-upon items. Rules of Origin (RoO) are established to determine the criteria for value addition, preventing abuse by non-member countries.

3. Customs Union (CU): In a customs union, member states harmonize external tariffs against non-members. It features a common external tariff (CET), eliminating the need for rules of origin to prevent "backdoor" imports from non-member countries. An example is the South African Customs Union (SACU).

4. Common Market: Building on a customs union, a common market includes free movement of labour and capital within the regional economic grouping. It maintains a common external tariff and eliminates tariff and non-tariff barriers. The Central American Common Market is an example.

5. Economic Union: An economic union encompasses features of a common market, harmonizing and unifying economic policies. This includes coordinated trade policies, common external tariffs, free movement of labour and capital, and shared banking and monetary policies. The European Union (EU) is moving towards economic union with a common currency (Euro) and central bank.

6. Political Union: The highest level of economic integration, political union combines economic and political harmonization. Member states in a political union aim for a single government, president, foreign policy, and defence policy, becoming one country.

Examples:

Economic Union: The EU represents an economic union with a common currency (Euro) and coordinated economic policies. The Maastricht Treaty facilitated this transition.

Customs Union: SACU, comprising countries like South Africa and Namibia, is a customs union where external tariffs are harmonized among member states.

Common Market: The Central American Common Market involves Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. It includes free movement of labour and capital, along with the elimination of tariffs.

FTA: The North American Free Trade Agreement (NAFTA), now replaced by the United States-Mexico-Canada Agreement (USMCA), is an example of an FTA. It eliminates tariffs and non-tariff barriers among the member countries.

PTA: The India-Sri Lanka Free Trade Agreement is an example of a PTA. It provides preferential access to certain products for both countries.

Understanding these levels of economic integration is essential for businesses and policymakers as they navigate the complexities of international trade agreements and collaborations. Each type of trade bloc comes with its advantages and challenges, influencing the economic and political dynamics among participating nations.

Q3) Describe the comprehensive model of strategic alliances and Networks as given by M W Peng.

Ans) The strategic alliance concept is underpinned by considerations rooted in the Industry-Based View, Resource-Based View, and Institution-Based View.

Industry-Based View: In the Industry-Based View, firms are perceived as independent entities seeking to maximize their profits. Collaboration within the industry often takes the form of horizontal alliances to enhance competitive advantage.

Firms may form alliances to overcome high entry barriers, with suppliers cartelizing to gain market entry. Distribution alliances, or downstream alliances, are established to bind local firms, buyers, and distributors together. Additionally, the market potential of substitute products can motivate firms to form strategic alliances and networks.

Resource-Based View: The Resource-Based View, as part of the VRIO framework, emphasizes creating value, rarity, imitability, and organizational considerations. Strategic alliances should generate value, reducing costs and risks, and facilitating the tapping of complementary assets for innovation and learning.Rarity involves both the rarity of capabilities within the firm (capability rarity) and the uniqueness of potential partners (partner rarity). Imitability is considered at both the firm and alliance/network levels, focusing on how well resources and capabilities are imitated and the importance of trust and understanding within the alliance. The organizational aspect involves the mechanisms and systems that organizations develop to manage alliances efficiently, particularly in large and varied operations.

Institution-Based Considerations: Institution-Based Considerations encompass both formal and informal aspects. Formal institutions, operating within regulatory frameworks, influence antitrust concerns, entry mode requirements, sanctions, and minimum entry requirements. Informal institutions rely on collective norms supported by normative pillars and stress the cognitive pillar, which involves internalizing values and beliefs guiding firm behaviour.

Examples:

Industry-Based View: In the automobile industry, manufacturers often collaborate on research and development projects to enhance technological capabilities and remain competitive. Car manufacturers may form alliances to share the costs of developing electric vehicles, leveraging each other's expertise.

Resource-Based View: Apple's strategic alliance with Intel for chip manufacturing is an example of creating value through complementary assets. Apple's design expertise combined with Intel's manufacturing capabilities enhances the overall value proposition of their products.

Institution-Based Considerations: In the pharmaceutical industry, firms form strategic alliances to navigate complex regulatory environments. Partnerships are influenced by formal regulations regarding drug approvals and informal norms within the industry, emphasizing ethical research practices.

Q4) Differentiate between the Global functional Structure and the Matrix Division Structure in organizations.

Ans) The difference between the global functional Structure and the matrix division structure in organizations are the following:

Q5) What are the different elements of cross-cultural diversity? How can they be managed in Multinational Organizations? Explain.

Ans) Cross-cultural diversity encompasses various elements, each playing a crucial role in understanding and navigating diverse cultural landscapes.

Elements of Cross-Cultural Diversity:

Spoken Language: Belgium, with two distinct cultures based on French and Dutch languages, illustrates how linguistic differences can create cultural diversity. In the business world, knowledge of the local language is essential for collecting firsthand information, gaining a market advantage, and understanding the business context.

Unspoken Language (Non-verbal Communication): Non-verbal cues such as facial expressions, gestures, and proximity convey beliefs, values, and attitudes. Hand gestures, although expressive, can have different meanings in diverse cultures, emphasizing the importance of understanding unspoken language.

Hand Gestures and Symbolism: Hand gestures vary in meaning across cultures, leading to potential misinterpretations. Colour symbolism, another aspect, can be perplexing; for instance, the colour red symbolizes love in Chinese culture but represents death in some African cultures. Understanding these nuances is crucial for effective communication.

Managing Cross-Cultural Diversity:

Effectively managing cross-cultural diversity is essential for building a robust and inclusive workforce that can navigate global markets.

Cultural Diversity Programmes: Firms need comprehensive programmes to manage cultural diversity, facilitating effective planning for recruitment and selection. A culturally diverse workforce enhances the company's ability to understand and cater to diverse markets, leading to improved advertising and marketing strategies.

Cross-Cultural Training: Cross-cultural training programmes help employees develop sensitivity to other cultures. Cultural assimilation training, where trainees respond to scenarios in specific countries, has proven successful in various cultural contexts like Arab countries, Iran, Thailand, Central America, and Greece.

Managing Individual and Workforce Diversity: Beyond cultural diversity, managing individual and workforce diversity requires specific skills to address unique differences among individuals.

Challenges and Solutions: Managing diverse individuals may lead to challenges such as miscommunication and mistrust. Well-integrated systems that address training, development, awareness, and assimilation needs are critical for overcoming these barriers. Continuous efforts to assess training needs, flexible recruitment and retention programmes, and support for family needs contribute to successful diversity management.