International Business Assignment no 4 (GR5)

Institute name: Aruna Manharlal Shah Institute of

Management and Research
Subject: International Business Assignment

Names and Roll numbers of the students:

1) Neha Maheshwari (AMS2123024),
2) Nishi Mandavia (AMS2123025),
3) Munish Raju (AMS2123023)
Group: Group no. 4
 Part A
Q.1. New trade theory (NTT) suggests that a critical factor in determining international patterns of trade are the
very substantial economies of scale and network effects that can occur in key industries. These economies of
scale and network effects can be so significant that they outweigh the more traditional theory of comparative
advantage. Reasons- A). New trade theory is not primarily about advocating government intervention in
industry; it is more a recognition that economies of scale are a key factor in influencing the development of
trade. B). It also suggests that free trade and laissez-faire government intervention may be much less desirable
for developing economies who find themselves unable to compete with established multi-nationals.

Q.2. Elasticity of offer curve & point of Equilibrium (offer curve A)

As we can see in the graph that:
Case 01
i. If A's demand for product Y increases, A
would be willing to import more of Y.
ii. In this scenario, Offer curve of A shift from A
to A1.
iii. Here, the offer curve is more elastic.
iv. Volume of Trade increases here but Terms of
Trade becomes unfavorable

Case 02
If A's demand for Product Y decreases, A will import
less of Y. in this case Offer curve shifts to A2 from A.
here the offer curve is less elastic.
Point of equilibrium is C
So, there is shift from the point of equilibrium C to C1
in case 01 and to C2 in case 02. Volume of Trade
Decreases here but Terms of Trade becomes
favorable.
Terms of trade (TOT)
TOT at C = Qm/Qx
Qm is the Quantity of Imports & Qx is the Quantity of Exports of the country.
Conditions:
Qm > Qx (unfavourable TOT)
Qm < Qx (favourable TOT)
Elasticity of offer curve & point of Equilibrium (offer curve B) vice versa of above
CONCLUSION: The theory points out a few things like
i. Equilibrium exchange rate is determined by the elasticity of offer curve
ii. J.S.Mill emphasized too much over the demand side;
iii. If one country is small and another country is large then the gain from trade will go to the smaller
country.

Q.3. Answer- In developing economies, big multinationals can use their economies of scale to push local firms
out of business. In the pursuit of profit, multinational companies often contribute to pollution and use of non-
renewable resources which is putting the environment under threat. This statement applies to the Pyramidal
model as according to this model the MNCs operates as it has strong headquarters but weak subsidiaries, all
decisions are made at the headquarters and imposed on subsidiaries, they may be quite old fashioned in their
functioning and due to this rigidity in functioning, such organizations may invite opposition from citizens in the
developing countries at any time.
 Q.4. Answer-

MODES MEANING EXAMPLES

Joint Venture Joining hands when two or more Bayer Zydus Pharma JV with Cadila
companies have to achieve common Healthcare Ltd
objective and expand

Outsourcing Efficient strategy to reduce costs by Amazon.com – Customer service to

transferring work to outside supplier India

Franchising Semi-independent business owners pay Dominos, Maggie, Nestle

fees & royalty to parent company

Turn Key Points Delivery of operating industrial part to Taco Bell

the client without any active
participation

Foreign direct investment Controlling ownership in a business in Shares, properties & assets
one country by an entity based in
another country.

Cross border merger & acquisition M- Combination of 2 or more distinct M- Vodafone Idea
entities into one A - Walmart Acquisition of Flipkart
A - When one co. purchases and gains
control over another co.

Licensing Firm gives permission to a person to Trademarks & Copyrights

use its legally protected product or
technology

Contract Manufacturing Foreign firm hires local manufacturer Varun Beverages - produces, bottles
to produce their product/part of the and distributes beverages of PepsiCo
product

Strategic Alliance Voluntary formal agreement between 2

companies to pool their resources to
achieve a common set of objectives

Q.5. Principal objectives of WTO- A). To improve the standard of living of people in the member countries.
B) To ensure full employment and broad increase in effective demand. C). To enlarge production and trade of
goods. ADVERTISEMENTS: D). To increase the trade of services. E). To ensure optimum utilization of world
resources.

 10 activities monitored by WTO-A) It negotiates any reduction or elimination of the obstacles in a trade
like import taxes and other barriers. B). WTO also monitors and administers the application of WTO rules
in trading goods, trade-related intellectual properties, and service trades. C). Also, it settles the disputes
between the member nations about the application and interpretation of the agreements. D). WTO reviews
and monitors various policies of trade to its members. E). It helps build the capacity of a developing nation
 and its government officials in the matters of international trade. F). It also collects and conducts economic
research by disseminating the trade data in the support of its other main activities'). India decides to launch a
safe investigation for unwrought aluminum. H). The Trade Monitoring Exercise of the WTO provides
regular and up-to-date information on global trends in trade measures and trade policy making. I). India
notified the committee of WTO on safeguard in April 2016 related to safety investigation done by WTO on
unwrought aluminum on April 19, 2016.K). India is a member of WTO since its formation as well as a
member of GATT since 1948.
 The impact of WTO on India and other developing nations with special reference to 'Hong Kong
Ministerial Conference. -The meeting was seen by most as a useful, but modest step forward. The Hong
Kong Ministerial Conference represented a modest but useful step forward in the Doha Round.
Q.6. Ans- The rupee strengthened with respect to the dollar in the last few weeks due to the following
reasons (as on 28th December 2022). Exporters holding their dollars are likely making sales as it is the end of
the quarter, but due to the absence of many market participants the moves would remain rangebound, said a
foreign exchange trader. Markets are likely "digesting the fact that the initial stages of China re-opening will
necessarily entail outbreaks in a thus-far cocooned population," Vishnu Varathan, head of economics and
strategy at Mizuho Bank, wrote in a note.
Tools available to Indian export companies to protect them from the risk of a falling dollar
Currency Hedging is one of the best options to protect your export import business cause of foreign exchange
derivatives. In a simple word when you did export shipment, and you are waiting for your $ Doller payment.
Suppose your invoice value is USD 50,000 and you have given 30- or 60-days credit. Meanwhile in your
waiting period if USD is weakened against the rupee than you will be received fewer rupees after the
conversation. In this case Importer in the profit but as an exporter exchange rate is unfavorable for you. Because
of this foreign exchange rate big exporter & importer are facing risk.
Q.7. Answer- Modern Trade Theories
1. Product Life Cycle Theory- The theory, originating in the field of marketing, stated that a product life cycle
has three distinct stages: (1) new product, (2) maturing product, and (3) standardized product. The theory
assumed that production of the new product will occur completely in the home country of its innovation. The
product life cycle theory has been less able to explain current trade patterns where innovation and
manufacturing occur around the world. It has also been used to describe how the personal computer (PC) went
through its product cycle. The PC was a new product in the 1970s and developed into a mature product during
the 1980s and 1990s. Today, the PC is in the standardized product stage, and the majority of manufacturing and
production process is done in low-cost countries in Asia and Mexico.
2. Country similarity theory- Steffan Linder, a Swedish economist, was the founder of this theory.  The theory
marked its emergence in the year 1961 and explained the concept of in-train industry trade. Linder suggested
that countries that are in a similar phase of development will probably have similar preferences. The suggestion
proposed by Linder was that companies first produce goods for their domestic consumption and later expand
production, thereby exporting those products to other countries where customers have similar preferences.
Linder suggested that most of the trade in manufactured goods, in most circumstances, will be between
countries with similar per capita incomes and that the in-train industry trade will thus be common among them.
This theory is generally more applicable in understanding trade where buyers mainly decide on the basis of
brand names and product reputations. 
3. Porter’s national competitive advantage theory- The theory emerged in the 1990s with the aim of
explaining the concept of national competitive advantage. The theory proposes that a nation’s competitiveness
majorly depends upon the capability and capacity of the industry to come up with innovations and upgrades.
This theory attempted to explain the reason behind the excessive competitiveness of some nations as compared
to others. The main determinants proposed in this theory were local market resources and capabilities, local
market demand conditions, local suppliers and complementary industries, and local firm characteristics. The
theory also mentioned the crucial role of government in forming the competitive advantage of the industry.

Q.8. Short Notes with Examples-

1) Doing Business with expanded ASEAN- Association of South East Asian Nations (ASEAN) was
established on 8th August 1967 in Bangkok, Thailand. There are 10 member countries of ASEAN including
Brunei, Malaysia, Singapore, Vietnam, Indonesia, Laos, Cambodia, Thailand, Philippines and Myanmar.
The main goals of ASEAN are to increase economic growth, social progress and promote regional space
and stability. It aims to transform ASEAN into a single entity. Singapore is the biggest trading market of
ASEAN countries. As per the trade map, ASEAN exports of goods to the global market worth USD 890
billion and imports worth USD 846 billion in the year 2017. However, the exports were USD 1183 billion
and imports were USD 1105 billion during 2016.
2)  David Ricardo's 2 Country - 2 Product Theory- Comparative advantage, economic theory, first
developed by 19th-century British economist David Ricardo, that attributed the cause and benefits
of international trade to the differences in the relative opportunity costs (costs in terms of other goods given
up) of producing the same commodities among countries. In Ricardo’s theory, which was based on
the labour theory of value (in effect, making labour the only factor of production), the fact that one country
could produce everything more efficiently than another was not an argument against international trade.
3) Political Risk Analysis - A Political Risk Analysis studies the various external factors in an investment
project. These are usually political or social problems that could happen when one invests in another
country. A political risk analysis reviews the various factors affecting your project. A political assessment
helps you understand how changes in government, environmental or social conditions may affect your
business. Political risk is the possibility of an adverse effect on economic value due to political change or
uncertainty. Political risks affect countries, companies, and industries differently depending on the country’s
development level and exposure to external factors.
4) Three Different Modes of Doing International Business Other Than Imports & Export - A) Licensing
and Franchising - Companies which want to establish a retail presence in an overseas market with minimal
risk, the licensing and franchising strategy allows another person or business assume the risk on behalf of
the company. B) A joint venture is one of the preferred modes of entry into international business for
businesses who do not mind sharing their brand, knowledge, and expertise. Companies wishing to expand
into overseas markets can form joint ventures with local businesses in the overseas location, wherein both
joint venture partners share the rewards and risks associated with the business. C) Strategic Acquisitions -
Strategic acquisition implies that your company acquires a controlling interest in an existing company in the
overseas market. This acquired company can be directly or indirectly involved in offering similar products
or services in the overseas market.
5) SAARC and SAFTA- the South Asian Association for Regional Cooperation (SAARC) was established on
8 December 1985. The Secretariat of the Association was set up in Kathmandu, Nepal, on 17 January 1987.
SAARC has eight-member countries (Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan
and Sri-Lanka). The objectives of the Association are: to promote the welfare of the peoples of South Asia
and to improve their quality of life; to accelerate economic growth, social progress and cultural development
in the region and to provide all individuals the opportunity to live in dignity and to realize their full
potentials. SAARC also aims to strengthen cooperation with other developing countries and to cooperate
with international and regional organizations with similar aims and purposes. The South Asian Free Trade
Area (SAFTA) is the free trade arrangement of the SAARC. The agreement came into force in 2006, succeeding
 the 1993 SAARC Preferential Trading Arrangement. SAFTA signatory countries are Afghanistan, Bangladesh,
Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The members of SAARC signed the agreement in
order to promote and sustain mutual trade and economic cooperation within the region.
6) Current Trends and Application of Purchasing Power Parity Theory- The concept of purchasing power
parity (PPP) has two applications in economics. The first use is as a conversion factor to transfer data from
denomination in one national currency to another. The data are generally in a national accounts framework,
but the level of detail can range from the gross domestic product (GDP) itself to highly disaggregate
categories of expenditure. This use of PPP boasts a body of theory (mainly index-number theory) and
applications (predominantly to intercountry comparisons of GDP and its components) that have steadily
improved over the years, and path breaking studies in the area continue to appear.
7) Offshoring in International Business- Offshoring is a practice of processing business operations from one
country to another, usually from developed industrialized countries to less-developed/developing countries,
with the motive of cutting down the cost of doing business, enjoying tax benefits, and complying with less
stringent requirements regulations. Offshore business generally occurs among foreign banks, deposits,
investments, corporations, etc. Examples- WhatsApp Messenger, in its early days, the founders of
WhatsApp had offshored its services to developers in Russia to create the application at a low cost. Later,
Facebook acquired the company for $16 billion as it grew successful. Samsung Electronics Co., Ltd.
a South Korean multinational company that makes electronic and smart appliances has offshored its
manufacturing to USA, a huge consumer of its products. It has offshored its customer support for Australian
Samsung mobile users to the Philippines.
8) Dumping & Anti-Dumping Measures- “Dumping” is defined as a situation in which the export price of a
product is lower than its selling price in the exporting country. Dumping measures to provide relief to
domestic industries injured by imports. The country's imposition of an anti-dumping duty is determined by
the dumping margin the difference between the export price and the domestic selling price in the exporting
country. Anti-dumping duties are typically levied when a foreign company is selling an item significantly
below the price at which it is being produced.
Q.9. a) Define- “International Business focuses on any commercial activity or transaction between companies,
organizations, individuals, or government entities that crosses borders into different countries and regions.” By
Pearson Pathways.
b) State Objectives- Earn profits and expand sales, Acquire resources, and Minimize risk
c) Overview- entities engaged in international business often face difficulties than the entities that conduct
domestic business. Although international business has large customer base as they operate in multiple
countries as compared to domestic business’s customer base. Due to changes in political, economic, socio-
cultural environment across the nations, most business entities find it difficult to expand their business globally.
d) Comparison-
 Aspects Domestic Business International Business

Meaning 1 Involves those economic transactions that 1 This involves those economic transactions
take place within the geographical that take place outside the geographical
boundaries of a country boundaries of a country
Area 2 Carried out within the national or 2 Carried out across borders and national
geographic borders of the country. territories of a country.
Business risk 3 Predictable, less risk 3 Unpredictable, high risk
Market research 4 Easy to conduct research, low cost is 4 It is complex and expensive
Currency required
Pricing 5 Deals in single currency 5 Deals in multiple currency
6 Same price is charged for similar 6 Price differentiation is carried out
Investment products, competitive pricing
Quality 7 7 Huge capital investment
Less capital investment
standards 8 8 Very high
Significantly low
Nature of
customers 9 9 Heterogeneous
Homogeneous
Mobility of
factors of 10 Free
10 Restricted
production

Q.10. Ricardo’s Theory of Two Products – Two Country Model. 

Answer- A country has absolute advantage over the other if it is more efficient at producing both goods than the
other country. A country has comparative advantage in producing a certain good if the opportunity cost of
producing that good is lower than in the other country. Ricardo observes that an absolute advantage does not
necessarily imply a comparative advantage. As long as the relative cost of production is different in the 2
countries, comparative advantage exists.
Under autarky condition (no trade), each of the two countries produces some combination of the two goods.
Once trade becomes possible, they are motivated to specialize fully in the production of the good in which they
have a comparative advantage, thus allocating their scarce resources (labor) to its most productive uses. In the
aggregate, people in both countries end up consuming more of both goods than they did in the absence of trade.
Since more consumption means greater satisfaction trade allow both countries to improve their welfare. The
Ricardian Model concludes therefore that international trade benefits all participants.
Limitations of the Model: The model is limited in several ways: 1. Having only 1 factor of production is way
too simplistic a view of manufacturing. 2. In real world, almost no country produces only the goods in which
they have a comparative advantage. 3. Opportunity costs between goods are unlikely to be constant, but should
rather be increasing. 4. Most significantly, the model does not explain the source of comparative advantage:
why can some countries produce some goods more cheaply than other countries

Q.11.The World Trade Organization (WTO) is a multilateral organization headquartered in Geneva,

Switzerland. It came into existence on January 1, 1995, as a successor to the General Agreement on Tariffs and
Trade (GATT). The organization functions as a central body that facilitates global trade. The WTO provides a
common platform to negotiate trade agreements among member countries and to resolve any trade disputes. It
manages 60 global and about 300 regional trade agreements. The 60 trade agreements are accorded the status of
international law. The WTO comprises 164 member states. There are also observer states that are not
signatories to the WTO agreements, and they do not participate in free trade.

Q.12 A) How Are They Different from Domestic Companies?

1) MNC (Multinational corporations) operate their production across various countries while Domestic
companies restrict their operations to a single country.
2) The production is organized in a complex way whereas in Domestic companies, the production is organized
in a simple way.
3) Foreign trade and Foreign investment are essential features of an MNC, while they are not in the case of
other companies.
4) MNCs are usually large companies in terms of cost and production while other companies may not be such.
5) MNCs are responsible for the globalization of the economy while other companies are not.
6) They have the capacity to invest a huge amount while other companies have limited capacity to invest.
7) Example- MNCs: Pepsi, Samsung, Apple, etc., Domestic companies: JK Tyres, etc.
B) How MNCs Take Advantage in Emerging Economies Like India?
EMNCs are building their competitive advantage based on business models, not industry structure or resources.
These business models are built on action: they are built on giving the company the best chance of recognizing
and pouncing on technological or environment shifts, for example, before their MNC counterparts, who are
typically slow-moving, secure in the comfort of their incumbent advantage. These effective business models are
created in response to (not in spite of) the difficulties that EMNCs face in their domestic markets. For example,
the limited if non-existent institutions in their home markets require emerging market companies to become
more flexible, innovative and resilient than companies working within a well-established and stable institutional
structure. Thus, emerging market companies prefer to be generalists, refusing to overcommit to one particular
strategy: they don’t want to specialize in certain assets or resources that could make them vulnerable to
capricious institutions.

C) How MNCs Also Benefit Emerging Economies? –

Ans - Multinational companies like Nike, Sony, Apple, Toyota, Coca-Cola all have investments and operations
in developing economies. This can lead to both benefits and disadvantages for developing economies
a. Multinationals provide an inflow of capital into the developing country. E.g. the investment to build the
factory is counted as a capital flow on the financial account of the balance of payments. This capital
investment helps the economy develop and increase its productive capacity.
b. The Harrod-Domar model of growth suggests that this level of investment is important for determining the
level of economic growth. One of the best ways to increase the level of economic growth is to provide an
inflow of capital from abroad.
c. The inflows of capital help to finance a current account deficit. (Basically, this means that foreign
investment enables developing countries to buy imports.)
d. Multinational corporations provide employment. Although wages seem very low by Western standards,
people in developing countries often see these new jobs as preferable to working as a subsistence farmer
with even lower income.
e. Even liberal economists like Paul Krugman and Jeffrey Sachs have defended ‘sweatshop lab our’ arguing
that although employers are paying too low wages. Often sweatshop lab our is better than the alternative of
scavenging or no paid employment. Economies in south-east Asia have seen rising wages in recent decades
– showing that low wage economies can develop.
f. Multinational firms may help improve infrastructure in the economy. They may improve the skills of their
workforce. Foreign investment may stimulate spending in infrastructure such as roads and transport.
g. Multinational firms help to diversify the economy away from relying on primary products and agriculture –
which are often subject to volatile prices and supply.

Part B
 Q.13. Answer- The political environment means the political risk, the government’s relationship with a
business, and the type of government in the country. 
A) Types of Political Environments- There are different types of political systems, such as one-party states,
multi-party democracies, dictatorships (military and non-military) and constitutional monarchies.
B) Various Political risks- Actions of legitimate governments- control on prices, outputs, activities, and
currency and remittance restrictions. Events outside of government controls such as war, revolution,
terrorism, labor strikes, and extortion, border disputes. Trade barriers serve to limit or prevent international
trade. E.g. Russia cutting off the Gas to Europe, Asian Territorial disputes, etc.
C) Strategies to manage political risks are-
1) Political Lobby support e.g. Coke (in India)
2) Bear CSR e.g. Microsoft (in India)
3) Local economy simulation- priority area investment e.g. Tata Power
4) Local employment e.g. British Textiles, Tobacco
5) Share ownership e.g. MUL (Maruti Udyog Limited, India)
Q.14.
A. Legal environment and its example - Business must function within the framework of laws and regulations
of the country. It exercises a significant influence on business activities. Some of the examples are: Safety
regulations, Pollution control laws, Judicial system of the country, etc.
B. Factors Affecting International Environment
 Sociocultural Environment-
 Legal Environment-
 Customers’ Security-
 Technological Environment.
 Political Environment-

Q.15. " Government's Influences on International Trade". Reasons and influences.

Reasons Example

Political intervention To protect jobs and overall industries U.S. market with their sugar, then
from international business domestic producers would lose business
The protection of national security Semiconductors or aerospace

Economic intervention To protect new industries from fierce Due to protectionism, Brazil was able to
competition develop the world's tenth largest auto
industry

A- There are actually two reasons for government in international trade: political and economic. 
Governments can create subsidies, taxing the public and giving the money to an industry, or tariffs, adding
taxes to foreign products to lift prices and make domestic products more appealing. For Example, BP
Deepwater Horizon oil spill on April 20, 2010.

Part C
Q .16. 1] SARRC & SAFTA, ASEAN & EU/ European Union
2] Following Zones-
Antarctica ocean & Arctic Ocean- C:\Users\HP\Documents\Antarctica & Arctic ocean.png
OPEC Nations (Yellow) - Venezuela, Algeria, Libya, Nigeria, Gabon, Congo, Equatorial Guinea, Angola, Iraq,
Iran, Kuwait, Saudi Arabia, United Arab Emirates. 
Mauritius (blue)
Mexico & South Sudan (Green) - C:\Users\HP\Documents\World Map.h

Case Study Solution-

Q. 1. Answer- A company must have these strengths before entering into global market. There are six factors
that a company should consider before beginning to work internationally- time zones, language, culture,
legalities, payment, communication. There are skills that are needed for the companies to have before going
global like- Cross- cultural communication skills, Excellent networking abilities, Collaboration Interpersonal
influence, Adaptive thinkers, Emotional intelligence and Resilience, Adapting the Trends and Changes in every
country. For an example: Zara, This European company has succeeded in taking over the world despite the
competitive market. Their secret is in copying high-end latest fashion trends and making them affordable for a
larger mid-price market no matter which country is in question. Zara is committed to adjusting to a broad
spectrum of consumers, spread across different cultures and age groups. They put emphasis on these core
values: beauty, clarity, functionality, and sustainability. Zara recognizes the customer as its most valuable brand
asset and that is why they grant amazing customer service in every store in the world.
Q.2. Answer- Of the two types of complementary needs, indirect compatibility is shown to have more of an
effect on relationships. Research projects which look at both direct and indirect compatibility effects show that
indirect compatibility has significantly higher relationship satisfaction rates. This means indirect compatibility
has better results than direct compatibility in developing relationships. The Saver and The Spender-Saving
money is functional in a relationship when the spender needs to save enough money to be able to spend without
reservation. In a complementary way, spending money is functional in a relationship when the saver has been
saving enough money for them to feel comfortable spending without worry.
Q.3. Answer- Product localization strategy is the process of adapting a product to satisfy the language and
cultural needs of customers in new markets. It can be done through translating text, altering packaging, or
modifying content on websites so that it is appropriate for international customers. There are many benefits that
come with implementing a good product localization strategy including increased customer satisfaction, an
expanded customer base, and making transitions to new markets easier. Starbucks, for example, was localizing
its brand and adapting to Indian culture in India. It presents various goods with an Indian flavor and emphasizes
tea over coffee since Indians are more associated with tea. In the United Kingdom, Starbucks adapted to local
tastes by including scones and bacon butties on select menus.
Q.4. Answer- Some of the lessons learned in this process of strengthening local leaders are: - Developing and
sharing step-by-step guides and standard operating procedures with partners really helps with facilitating
trainings and handing over roles/responsibilities. One example of this type of WhatsApp supervision is sharing
photos to document how activities are being implemented on the ground – enabling quick feedback based on the
practices that are being observed. Not to mention, just the ability to provide quick communication support helps
partner staff feel more confident in making decisions for themselves.