answer sheet assisgnment mb0053

7/25/2019 Answer Sheet Assisgnment Mb0053

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DRIVE Fall 2015PROGRAM MBA SEM 4

SUBJECT CODE & NAME MB0053 Int!nat"#nal B$%"n%%Mana'nt

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Answer :

Gl#al"%at"#nGlobalisation is a process where businesses are dealt in markets around the world,apart from the local and national markets. According to business terminologies,globalisation is defined as the worldwide trend of businesses expanding beyond theirdomestic boundaries. It is advantageous for the economy of countries because itpromotes prosperity in the countries that embrace globalisation.

Globalisation involves companies that invest and operate in other countries. It promoteseconomic growth and prosperity in the countries that embrace globalisation. ome of thebenefits of globalisation include liberalisation of economies and the free flow ofinformation.Gl#al .#'an"%! "ompanies, which invest in other countries for business and alsooperate from other countries, are considered as global companies. #hey have multiplemanufacturing plants across the globe, catering to multiple markets.#he transformation of a company from domestic to international is by entering $ust onemarket or a few selected foreign markets as an exporter or importer. "ompeting on atruly global scale comes later, after the company has established operations in severalcountries across continents and is racing against rivals for global market leadership.#hus, there is a meaningful distinction between a company that operates in few selected

foreign countries and a company that operates and markets its products across severalcountries and continents with manufacturing capabilities in several of these countries."ompanies can also be differentiated by the kind of competitive strategy they adoptwhile dealing internationally. %ultinational strategy and global competitive strategy arethe two types of competitive strategy.

Bn"t% # l#al"%at"#n&utsourcing to low wage economies, increased living standards in developing countries,competitive pricing of products and services, easy access to finance and globaleducational opportunities are some benefits of globalisation.

#he merits and demerits of globalisation are highly debatable. 'hile globalisation

creates employment opportunities in the host countries, it also exploits labour at a verylow cost compared to the home country. (et us consider the benefits and ill)effects ofglobalisation. ome of the benefits of globalisation are as follows*

+romotes foreign trade and liberalisation of economies.

Increases the living standards of people in several developing countries throughcapital investments in developing countries by developed countries.

enefits customers as companies outsource to low wage countries. &utsourcinghelps the companies to be competitive by keeping the cost low, with increased


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productivity.

+romotes better education and $obs.

(eads to free flow of information and wide acceptance of foreign products, ideas,ethics, best practices, and culture.

+rovides better -uality of products, customer services, and standardised delivery

models across countries.Gives better access to finance for corporate and sovereign borrowers.

Increases business travel, which in turn leads to a flourishing travel and hospitalityindustry across the world.

Increases sales as the availability of cutting edge technologies and productiontechni-ues decrease the cost of production.

+rovides several platforms for international dispute resolutions in business, whichfacilitates international trade.

($%t"#n 2) C#'a! t+ A-a' S'"t+ an- Da6"- R".a!-#7% t+#!"% # "nt!nat"#nal

t!a- ,"t+ 8a'l%Answer *A-a' S'"t+7% t+#!/ )mith said that countries should specialise in the production and manufacturing of goodsand services in which they have an a%#l$t a-6anta.

A%#l$t a-6anta t+#!/In one of the most notable book 'ealth of ationsin /001, Adam mith attacked themercantilism and argued that countries differ in their ability to produce goods and servicesefficiently due to variety of reasons. At that time, 2ngland, by virtue of their superiormanufacturing processes, were the worlds most efficient textile manufacturers of the world.#his was due to combination of several factors such as favourable climate, good soils,skilled manpower and accumulated experience and expertise in textile production. &n the

other hand, the 3rench had one of the most efficient wine industries of the world. #hus,2ngland had an absolute advantage in the manufacturing of textiles and 3rance had anabsolute advantage in the production of wine. Adam mith argued that a country has anabsolute advantage if it has one of the most efficient and cost effective product incomparison to any other country producing it.mith argued that countries should specialise in production and manufacturing of goodsand services in which they have an absolute advantage. uch cost effective and efficientproducts can be traded with goods from other countries in which that country has anabsolute advantage. According to mith, 2ngland should specialise in the production oftextiles and 3rance should specialise in the production of wine. oth countries shouldexchange such products of absolute advantage with each other, i.e. 2ngland should selltextiles to 3rance and 3rance should sell wine to 2ngland.

#he crux of miths absolute advantage theory is that a country should not produce goodsat home in which it does not have cost advantage4 instead it should import from othercountries. Absolute advantage theory was based on positive sum game where countriesbenefit from trade unlike mercantilism theory which was based on 5ero game. "aselettabled as under illustrates the benefits of absolute advantage theory.

Da6"- R".a!-#7% C#'a!at"6 a-6anta t+#!/

6icardo argued that a country should specialise in the production of those goods that it can


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produce '#%t "."ntl/ an- "'#!t t+ ##-% !#' an#t+! .#$nt!/which produces itless efficiently even if it has absolute cost advantage in the production of those goods.

7avid 6icardo, in his notable book +rinciples of +olitical 2conomy published in /8/0 cameup with an improvement on Adam miths absolute advantage theory. 6icardo arguedwhat might happen if one country has an absolute advantage in the production of all goods.

Adam miths theory suggests that such a country might not have benefitted frominternational trade as trade is positive sum game and countries prosper only if theyexchange the goods in which they have absolute advantage.6icardo argued that it was not the case and showed that countries should trade goods witheach other where they have comparative cost advantage. 3or a sustainable economicsystem, 6icardo argued that a country should specialise in the production of those goodsthat it can produce most efficiently and import the goods which it produces less efficientlyeven if it has absolute cost advantage in the production of those goods. +ractical case oncomparative cost advantage is tabled as under*

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D"%.$%% t+"% %tat'nt D%.!" "n !" t+ 6a!"#$% t/% # !"#nal "nt!at"#n%An%,!)6egional integration is the bonding between nations and states through political,cultural and economic cooperation. #he cooperation is overseen by rules and regulationsdecided upon by the states entering into an understanding.6egional integration facilitates the growth of trade, ensures peace and security of the regionand binds different countries together.6egional integration is necessary to improve the relationship between countries and topromote trade. #he overall development of the region is the principal behind regionalintegration.

O6!6", # R"#nal Int!at"#n6egional integration can be defined as the unification of countries into a larger whole. It also

reflects a countrys willingness to share or unify into a larger whole. #he level of integrationof a country with other countries is determined by what it shares and how it shares.6egional integration re-uires some compromise on the part of participating countries. Itshould aim to improve the general -uality of life for the citi5ens of those countries.#his tendency towards integration was activated by the 2uropean 9nion :29; marketintegration. #his trend has influenced both developed and developing countries to formcustoms unions and 3ree #rade Areas :3#A;. #he 'orld #rade &rganisation :'#&; termsthese agreements of integration as 6egional #rade Agreements :6#A;.I'a.t # "nt!at"#n6egional integration results in the creation and diversion of trade. It supports overall growth ofthe region, coupled with efficient trading practices. #rade creation increases production andincome and also leads to new entrants in the market and, therefore, results in tougher

competition. #he transfer of technology is also faster.6egional integration induces reduction on tariffs and prohibitions. It spreads goodwill among

member countries and also helps in reducing the chances of conflict.

T/% # Int!at"#n#here are different types of regional integration such as free trade area, customs union,common market, economic union, political union, preferential trading agreement and free tradearea.


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#he different regional integration agreements are A3#A, A+2", 29, 23#A, A3#A,%26"&96, G"" and A3#A.1 P!!nt"al t!a-"n a!'nt+referential trading agreement is a trade pact between countries. It is the weakest type ofeconomic integration and aims to reduce taxes on few products to the countries who sign thepact. #he tariffs are not abolished completely but are lower than the tariffs charged to countries

not party to the agreement. India is in +#A with countries like Afghanistan, "hile and outh"ommon %arket :%26"&96;. #he introduction of +#A has generated an increase in themarket si5e and resulted in the availability and variety of new products.2 F! t!a- a!a3ree #rade Area :3#A; is a type of trade bloc and can be considered as the second stage ofeconomic integration. It comprises of all countries that are willing to or agree to reducepreferences, tariffs and -uotas on services and goods traded between them. "ountries choosethis kind of economic integration if their economical structures are similar. If countries competeamong themselves, they are likely to choose customs union.#he importers must obtain product information from all suppliers within the supply chain in orderto determine the eligibility for a 3ree #rade Agreement :3#A;. After receiving the supplierdocumentation, the importer must evaluate the eligibility of the product depending on the rules

pertaining the products. #he importers product is -ualified individually by the 3#A. #he productshould have a minimum percentage of local content for it to be -ualified.3 C$%t#' $n"#n"ustom 9nion is an agreement among two or more countries having already entered into a free

trade agreement to further align their external tariff to help remove trade barriers. "ustom union

agreement among negotiating countries may encompass to reduce or eliminate customs duty

on mutual trade. 9nder customs union agreement, countries generally impose a common

external )tariff :"#3; on imports from non)member countries. uch common external tariff helps

the member countries to reap the benefits of trade expansion, trade creation and trade

diversification. In the absence of common external tariff, there is a possibility that countries with

lower custom duties may become conduits for members which has higher custom duty. "ustom

union is third stage in level of economic integration and is followed only after free tradeagreement among participating countries.

4 C#''#n 'a!9t"ommon market is a group formed by countries within a geographical area to promote duty freetrade and free movement of labour and capital among its members. 2uropean community is anexample of common market. "ommon markets levy common external tariff on imports from non)member countries.

A single market is a type of trade bloc, comprising a free trade area with common policies onproduct regulation, and freedom of movement of goods, capital, labour and services, which areknown as the four factors of production. #his agreement aims at making the movement of fourfactors of production between the member countries easier. #he technical, fiscal and physical

barriers among the member countries are eliminated considerably as these barriers hinder thefreedom of movement of the four factors of production. #he member countries must comeforward to eliminate these barriers, have a political will and formulate common economicpolicies.

A common market is the first step towards a single market. It may be initially limited to a 3#A

with moderate free movement of capital and services, but it is not capable of removing the other

trade barriers.


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E.#n#'". $n"#n2conomic union is a type of trade bloc and is instituted through a trade pact. It comprises of acommon market with a customs union. #he countries that are part of an economic union havecommon policies on the freedom of movement of four factors of production, common productregulations and a common external trade policy.#he purpose of an economic union is to promote closer cultural and political ties while

increasing the economic efficiency between the member countries.

2conomic unions are established by means of a formal intergovernmental legal agreementamong independent countries with the intention of fostering greater economic integration. #hemembers of an economic union share some elements associated with their national economic

$urisdictions.#hese include the free movements of*

Goods and services within the union along with a common taxing method for imports fromnon)member countries.

"apital within the economic union.

+ersons within the economic union. ome forms of cooperation usually exist while framing

fiscal and monetary policies.

P#l"t".al $n"#nA political union is a type of country, which consists of smaller countries


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elimination of restrictions applied to service products entering the country and is applicable tointernational service suppliers who are carrying out business in various modes. According to theGA#, %3 status and transparency is applicable to all services. &ther commitments such asnational treatment and market access are only applicable to services that are opened accordingto the specified negotiated commitments. GA# covers services known as consumptionabroad where services such as e)commerce are used by the consumers in a host country and

citi5ens of a country travel overseas to consume products such as tourism or education.Int!nat"#nal =a#$! O!an"%at"#n "%t#!/#he I(& was created in /C/C, after the 3irst 'orld 'ar. #he ideas of the International

Association for (abour (egislation were incorporated in the "onstitution of the International(abour &rganisation. #he initial motivation of the I(& was humanitarian because the workers

were exploited without any improvement in their health and family. #he preamble of theconstitution of the I(& states the conditions of labour and the in$ustice and privation to largenumber of people. #he economic factor was the second motivation as it has a certain effect onthe cost of production. #he failure of a nation to adopt humane conditions of labour affects theeconomic situation of the country adversely.

#he I(& constitution was written in April /C/C by the (abour "ommission that was set up by the+eace "onference. #he first annual International (abour "onference had two representativesfrom the government. It included one representative from the employers organisations andanother representative from the workers organisations of each member state. #he first six


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International (abour "onventions that dealt with working hours in industry, minimum age,unemployment, maternity protection and night work for women and night work for youngpersons in was implemented in the first annual International (abour "onference. Albert #homaswas chosen as the first 7irector of the International (abour &ffice by the Governing ody. 3romthe beginning, he drove organisation with a strong motivation. /1 International (abour"onventions and /8 6ecommendations were adopted in years. In /C?, the I(& head-uarters

was set up in Geneva.

Int!nat"#nal =a#$! C#-#he International (abour "ode is composed of "onventions and 6ecommendations adopted bythe International (abour "onference. In /CC0, the "ode contained /8/ conventions and /88recommendations that covered important sub$ects in labour and social fields. #he main functionof the I(& is to set international labour standards by adopting conventions andrecommendations covering the ma$or labour)related issues which are referred to as theInternational (abour "ode. #he "onference adopts conventions and recommendations which isprepared by the International (abour &ffice and the governing body. #he representatives of themember nations bring the conventions and recommendations to the notice of the authorities. C#n6nt"#n%! #hese treaties are not bound to a country unless they are approved by that

country. I(& conventions that have secured a two)third ma$ority should be presented by themember country in the "onference. #he I(& conventions are approved as written and withoutreservations. 3lexibility clauses are included in the conventions to accommodate differentclimatic conditions or states of development of particular countries.

R.#''n-at"#n%! 'hen state practices vary largely, non)binding guidelines known asrecommendations are issued. 6ecommendations are issued when the sub$ect is*

DEery technical and cannot be handled by a convention.

Already covered by a convention but needs to be addressed in more detail.

%ember states are re-uired to bring recommendations to the attention of their governments.

#he I(& manages work through three main bodies, namely International (abour "onference,

Governing ody and International (abour &ffice.

#he International (abour "ode is composed of conventions and recommendations adoptedby the International (abour "onference.

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Answer* Int!nat"#nal A..#$nt"n Stan-a!-%Accounting is understood as the language of business. International Accounting tandardsstate how should different types of transactions and events be recorded in financial statements.International accounting refers to international comparative analysis, accountingmeasurements, and reporting issues distinctive to multinational business connections. It also

refers to harmonisation of global accounting and financial reporting through political,organisational, professional, and standard)setting activities.

Accounting tandards are the key mandatory and regulatory mechanisms for training onfinancial reports and conducting successful audit for the same. It is used almost in all countriesthroughout the world. #hey are concerned with the structure of measurement, rules forpreparation and arrangement of financial statements. #hey emerge as a set of authoritativestatements related to exact type of transactions, events, and other costs that are recognisedand reported in the financial statements. #hey are designed to supply practical information to


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diverse users of the financial statements such as shareholders, creditors, lenders, organisation,investors, suppliers, competitors, researchers, regulatory bodies. #hese statements aredesigned and approved to develop and benchmark the -uality of financial reporting.

A financial reporting system of international standard is re-uired to attract foreign and presentand potential investors at home, which can be achieved by harmonising the accountingstandards.

D#'%t". 6% "nt!nat"#nal a..#$nt"n7ifferent countries whether domestic or international, have different accounting standards. Acommon belief is that these differences reduce the -uality and importance of accountinginformation. Accounting standards determine the financial reporting -uality and providesseparately verified information about an organisationFs financial performance to investorscreditors.#hough there are differences in accounting methods, domestic businesses are not affected. #heaccounting system of a domestic organisation must meet the specialised and regulatorystandards of its home country. ut, an %" and its subsidiaries must meet differing accountingand auditing standards of all the countries in which it operates. #his leads to a need forcomparability between businesses in the group. In order to successfully manage and organisetheir operations, local managers re-uire accounting information, which should be prepared

according to the local accounting concepts and denomination in the local currency. et, forfinancial controllers, to measure the foreign subsidiarys performance and worth, thesubsidiarys accounts must be translated into the organisations home currency. #his translationis done using accounting concepts and measures, which are detailed by the organisation.Investors worldwide look for the highest possible returns on their capital, in order to interpret thetrack record, though they use a currency and an accounting system of their own. #heorganisation also has to pay taxes to the countries where it does business, based on theaccounting statements prepared in these countries. esides this, when a parent corporationtries to combine the accounting records of its subsidiaries to produce consolidated financialstatements, extra complexities occur because of the changes in the value of the host and homecurrencies.#here are many differences between International Accounting tandards :IA; and 7omestic

Accounting tandards :7A;. &n the basis of difference between the two, two indices, namelyFdivergenceF and FabsenceF, are created. Absence is the difference between 7A and IA4 therules on certain accounting issues are missed out in 7A and covered in IA. 7ivergencerepresents the differences between 7A and IA4 the rules on the same accounting issue differin 7A and IA.

Ma%$!'nt # -"!n.% t,n IAS an- DASou can measure the differences between IA and 7A in the following way* ="t!at$! #n "nt!nat"#nal a..#$nt"n -"!n.% 6eferring to earlier reportson international accounting could give more information about the sub$ect. %ost of the earlierreports understand international accounting differences as various options adopted by nationsfor the similar accounting problems, which correspond to divergence concept.

DF!a',#!9 # anal/%"% (inks between variations in accounting standards and financialreporting -uality of various countries could be clearly seen from the reports published earlier.'e should consider the institutional determinants of accounting differences such as legal origin,governance structure, economic development, and e-uity market.

7ifferences in accounting standards exist because of diverse political, legal, economic, andcultural systems of the countries. Accounting standards and practices are also pre$udiced by the


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sources of capital used to fund business.

Accounting systems were influenced by private ownership, industrialisation, inflation, and so on.

'hen there are differences in economic conditions, it is not surprising to find differences in

accounting practices. =owever, there are other influencing elements apart from economic

factors. #hese are legal systems, educational systems, socio cultural features, and political

systems. #hese also influence the need for accounting, speed and direction of its development.

7ue to the increasing trend in globalisation of business, understanding various accounting

system is important.

($%t"#n @) D"%.$%% t+ 6a!"#$% a/'nt t!'% "n "nt!nat"#nal t!a- :+".+ "% t+ %a%t't+#- an- ,+/?An%,!)Un-!%tan-"n Pa/'nt M.+an"%' "n F#!"n T!a-3or successfully conducting international trade in todays competitive international environment,it is essential for the exporters to offer attractive sales terms and payments to importers so as towoo them for business. &ne of the ma$or concerns for en exporter is to choose the appropriatepayment method in order to minimise risks related to payments of trade transaction. +aymentshould be done after understanding the economic scenario of importers country, importer creditworthiness and to certain extent accommodating the needs of the importer. 2xporter can chooseany mode of payment depending on risk perception, si5e of deal, importer credit worthiness andeconomic situation in importers country.

Fa.t#!% t# .#n%"-!- #! .+##%"n a/'nt t!'%

Fa.t#! R$"! =tt!# C!-"t

C#n%"-!D#.$'nta!/C#ll.t"#nAa"n%tPa/'nt

C#n%"-!On A..#$nt

#ype of thecustomer

9ndetermined Acceptable 2xcellent


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6elationship ew 2stablished 2stablished2conomicstability

9nstable table Eery stable

#ype of order "ustom 6egularproduction

In stock

#ransaction

i5e

(arge %oderate mall

"ash flow Always ever ever

In case of international trade, exporter has to take more precautions as some methods of

payment are uni-ue and usually used in case of international trade only. Hey consideration

while deciding upon a payment term in foreign trade is elaborated as under.

A. ome of the ma$or risks involved in realisation of payments in international trade can beeither at importer, importer bank and importers country such as insolvency and default byimporter, insolvency of importer bank and exchange control restrictions, inconvertibility issueswith importers country. ..

. ome of the risks involved in international trade in (iberalisation, +rivatisation andGlobalisation era can be under control of exporter but some cannot be. 3or example, credit riskwhich arises from a change inthe credit worthiness of importer can be covered by 2"G". 2xchange 6ate 3luctuation risk canbe covered by hedging the currency invoiced in forward contract market but risk such as 3orce%a$eure which arises from change in policy of a country, which in turn affects the tradecapability, and by a natural disaster cannot be anticipated in complex internationalenvironments1 &ther risks mainly arises due to a difference in culture, law, or language arealso beyond exporter control.". International #rade &perations offers different types, -uantum and location of risks, therebyconfusing the exporter with uncertainty over realisation of payments and timing of paymentsbetween the exporter and importer.

7. 3or exporters, any international sale will be e-uivalent to gift until he has not realised thepayment from the importer. 3or importer any payment is donation until he has received thecargo as sent by exporter.

2. 2xporter will always be interested to receive the payments as soon as he

answer sheet assisgnment mb0053

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