International Business

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Running head: INTERNATIONAL BUSINESS
International business
Name of the Student
Name of the University
Author Note

INTERNATIONAL BUSINESS
Table of Contents
Assignment 1:.............................................................................................................................3
Answer to question 1:.................................................................................................................3
Answer to question 2:.................................................................................................................3
Answer to question 3:.................................................................................................................3
Answer to question 4:.................................................................................................................3
Answer to question 5:.................................................................................................................3
Answer to question 6:.................................................................................................................3
Assignment 2:.............................................................................................................................3
Answer to question 1:.................................................................................................................3
Answer to question 2:.................................................................................................................3
Answer to question 3:.................................................................................................................3
Answer to question 4:.................................................................................................................3
Answer to question 5:.................................................................................................................3
Answer to question 6:.................................................................................................................3
Answer to question 7:.................................................................................................................4

INTERNATIONAL BUSINESS
Assignment 1:
Answer to question 1:
Description of Foreign direct investment and difference between FDI and FPI:
Foreign direct investment is an investment made by investor from foreign country in a
business in the form of controlling ownership that is the foreign investor would have control
over the company in which they are investing. Foreign portfolio investment is the investment
made by foreign companies via purchase into stock market or bond market of another
country.
Difference between FDI and FPI:
Foreign direct investment (FDI) Foreign portfolio investment (FPI)
FDI is a long term process where investment is
made by foreign country for gaining substantial
interest in the firm of other country.
FPI is a short term process where investors make
investment in the financial assets such as
debenture, bond and stocks of company.
In this type of investment, investor enjoys high
degree of control as their role is negative.
Low degree of control is enjoyed by investors as
their role is passive.
This type of investment results in transferring of
funds, technology and other resources.
This type of investment only results in inflow of
capital.
Japan has made direct investment into economy of Australia as it is the second largest
market of exports and largest source of such investment. The traditional sector of Australia
such as energy, agriculture, resources, information and communication technology, financial
services and renewable has been diversified by the investment made by Japan. The FDI made

INTERNATIONAL BUSINESS
by the stock of Japan in Australia had reached at level of A $ 91 billion in year 2016 that is
an increase by 78% compared to year 2010.
Answer to question 2:
The Heckscher Ohlin theory of international trade says that the difference in
comparative cost arises due to difference in factor proportions required for producing
commodities and difference in two countries factor endowment. Labor and capital are the two
factors of endowment in the Ohlin theory and the gist of the theory is that differences in
factor endowment why two different countries are involved in trade as that differences leads
to differences in commodity prices because of the difference in the relative prices of
commodity. A country having dear labor and cheap capital is considered as capital intensive
country irrespective of ratio of total capital quantity in relation to labor with other country.
The comparative advantage of any country is impacted by the factor endowment by
affecting opportunity cost of specialization in producing any particular goods in relation to
other goods. A country enjoys comparative advantage when the opportunity cost of
specializing is less compared to other nations.
The international trade pattern in China can be explained by identifying whether the
agricultural foreign trade pattern is consistent with the theory of factor endowment. One of
the critical considerations for competitiveness in China is supply of products that meet the
specifications of world with respect to quality, design and technological content. The growing
competitiveness of Chinese industry is represented by this important step. A special
competitive advantage is offered by China over other East Asian region countries and entry
of any country into China is viewed as producers of export so that they are able to sell in
growing domestic market of China. China is regarded as one of the dominant recipient of FDI
in China that has also led to flow of management skills and technology.

INTERNATIONAL BUSINESS
Answer to question 3:
Organizational design can be defined as the strategic process of globally shaping the
structure of organization so that their capabilities are optimized for competition. One of the
important factor that is taken into account for organizational deign is the technology. Such
design is intended to facilitate the implementation of strategy of organization by focusing
narrowly on the structure of organization to broad conceptualization as a system of process,
people and structure as a whole.
The dimension of organization structure helps in constructing profile characteristics of
organization by directly comparing with other organization. The two primary dimensions that
are considered by international companies in their organizational design are centralization
and formalization. Formalization is about defining, mentioning and standardizing the
instruction, rules, activities and procedures in any organization. The formalization degree is
directly proportional to level of authority delegation, degree of division of labor and degree
of span of control and departmentalization. Any unpredictability in the operations of
organization at international level is reduced via formalization. Centralization on other hand
is the process of centralizing the decision making in the organization. Organization operation
in the competitive market undertakes centralization for centralizing their decision making to
the operational level.
Answer to question 4:
International trade is influenced in the cultural context that is considered as one of the
main decisive factors that helps in contributing to the capacity and national economic
performance of international companies. Any investor intending to conduct business in other
country take into account its cultural environment. Understanding the cultural environment
helps business to understand the market and whether the customers are satisfied. The

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effectiveness of international business is affected by culture as they contribute to their
decision making. Culture is the representation of people from different countries and
understanding the culture differences of international investor would help in adding a
significant advantage to the business. Culture is the learned behavioral traits that are shared
by the members of society.
The outcome of negotiation of investing company in South America is wholly
affected by its culture. Some of the countries like South America and Sweden have specific
characteristics that are required to be considered when setting up business. A normal business
setting would require a firm handshake accompanies with appropriate greeting and smile. In
South America, after years of relationship, a handshake can be done by a friendly tap on
shoulder while in Sweden, it is required to handshake after first meeting, however, the
greetings does not involve any handshaking when after fist meeting. Furthermore, the process
of negotiation is dependent upon the person who is sitting in the meeting. South America
negotiators have some characteristics and any investor should take keep in mind.
Answer to question 5:
There are several ways by which foreign companies can penetrate the international
market and the type of mode to enter the market is dependent upon the commitment level in
the international market. Joint venture and licensing are the two most common mode used by
companies to penetrate the market.
Joint venture- Joint venture is a type of partnership that helps in creating a new
company by the involvement of local and foreign companies sharing control and ownership.
Equity joint venture and contractual joint venture are the two types of joint venture that is
used by organization for penetrating the international market.

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Licensing- Licensing is the arrangement of doing business by giving licensee certain
resources and rights for marketing of certain product in the host country. A company under
licensing is allowed to use trademark, copyright, deigns, patent and any other intellectual
exchange in return for a fee or a given percentage of revenue.
The luxury car maker of Britain Jaguar Land Rover has been involved in joint venture
with one of the automobile companies of China that is Chery automobile. Total amount of
investment worth £ 1.1 billion has been market via such joint venture in the second largest
economy of the world. Such joint venture has provided engine production facility and new
research and development. Consumers of China are provided with advanced and relevant
models by harnessing the respective companies’ capabilities. Despite the Eurozone crisis
hitting the automobile markets, a record of £ 1.5 billion of profit was made by company for
the year ending 2012.
Answer to question 6:
The competitiveness of one country over other is determined by the model of porter
national competitive advantage structure. Model says that there are four basic factors
provided by the home base that hinders and support the organization. These factors comprise
of demand conditions, factor conditions, supported and relating industries and firm strategy,
rivalry and structure.
Each country has their own factor conditions and they would have comparative
advantage in developing those industries for which their factors are optimal. The factor
condition of country is shaped by the technological progress, political conditions and changes
in socio cultural factors. The knowledge capital in the Europe and North America is
influenced by the ethics of cloning and also genetic engineering.

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Assignment 2:
Answer to question 1:
Trunkey projects- Trunkey project is the contractual project where the project is
fully turned over to the purchaser by firm by constructing, designing and manufacturing the
service, business facility. It is a process that is used for exporting the technology and process
of a foreign company to other countries by installing the plant in the other country in return
for remuneration. China has a supply of Trunkey optical materials plants.
Licensing- Licensing is the international agreement that gives foreign firm permission
to manufacture the product in a specific market for a fixed term. In this mode of entry,
limited rights are made by the licensor in the home country to the licensee in the home
country. One of the examples is the ASUS laptop from Taiwan.
Management contracts- Management contract is the entry mode where the
management services are provided by an exporter for the company which the importer owns.
Under such contract, there is low commitment of capital and it can be considered as substitute
type of foreign entry. Example of first Tier Company includes Hilton and Accor.
Contract manufacturing- It is an entry mode under which the local producer under
the contract produces the product of certain firm in the foreign market. Since, only
manufacturing is covered under the contract, the sales subsidiary of the firm handles the
marketing activities that help in gaining control over the market. The emphasis of Balsara on
products private lable and contract manufacturing resulted in increasing business of European
market and North America.

INTERNATIONAL BUSINESS
Answer to question 2:
Factor conditions-A company uses the factor condition such an infrastructure and
skilled labor for gaining competition in particular industries. Industries that are competitive in
supplying will help in reinforcing internationalization and innovation at later stage. Such
industries help in coordinating and using particular activities. An example is the leather and
shoe industry in Italy. Italy is successful in producing related services and products such as
design and working machinery along with relate services and products.
Demand conditions- A company is able to grow innovate and improve quality when
there is a presence of sophisticated demand from the customers. Home demand providing
domestic demand signal for suppliers would help them in achieving national advantage in
market segment and industry.
Related and supporting industries- An industry can excel in the presence of
supporting and relevant industries and in order to become competitive, companies are
dependent upon alliances and partnership with other countries. Silicon Valley can be seen as
the example where there is a clustering of entire region and nation for stimulating innovation
and sharing ideas.
Firm strategy, rivalry and structure- For gaining international competitiveness, one
of the instrumental factors are domestic rivalry as it pushes the company to develop
sustainable and unique capabilities and strength. One of the examples is Japanese automobile
industry that has intense rivalry between Honda, Nissan, Subaru and Suzuki. Such companies
are able to compete easily in foreign market because of fierce domestic competition.

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Answer to question 3:
There are various drivers of globalization such as technology, political, market,
competitive and cost.
Technological drivers- The foundation of modern globalization is driven by the
technological factors and the revolution in industry by way of innovation in transportation
technology.
Cost driver- There is variation in sourcing cost and efficiency from country to
country and firm can take advantage of this fact.
Market driver- There is limited growth in opportunities as the market becomes more
saturated. For choosing internationalization, global marketing channel are used to meet the
need of customers.
Competitive driver- Organization is forced to play international with increase in
global firm competition. This driver is supported by strong interdependence among countries,
FDI actions and two way trades.
Explanation of main concern of globalization:
The main concern of globalization is increasing inequalities and losing jobs in
developed countries that are being transferred to low cost countries. In order to evade tax,
large multinationals are exploiting tax havens ability in other countries.
Africa is the country that has been negatively impacted by the globalization. It is so
because there was widening of existing inequalities and slower economic growth. Other
country where an increased openness to international trade has created negative impact is
Latin America.

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Answer to question 4:
Multinational company uses different international strategies for supporting their
growth and they are as follows:
Growth strategy- Growth strategy is used by firms for adding new feature to the
products by implementation or finding of new product. A company is required to find new
market for its product for implementing growth strategy. For instance, mobile companies are
required to add new features to the existing products by way of discovering new technology.
Price skimming strategy- It is a strategy that is used for charging higher prices for its
product during the introductory phase compared to the competitors. Price skimming strategy
is used by company to derive the cost of advertising and production cost. Some of the
example includes electronic products such as Sony play station 3 and Apple I pad.
Product differentiation strategy- Companies can achieve competitive advantage by
using strategy of differentiating its product such as superior service and quality. This
particular strategy helps organization to build its brand image. For instance, manufacturer of
air purifier can differentiates from competitors using superior engineering design. Customer
chooses I phone over an android phone as they have the belief that it has an easier interface.
Acquisition strategy- Acquisition strategy is used by an organization with enough
capital. In such strategy, the major policy used by company is one or more product line or
purchasing another company. For instance, the part of growth and acquisition strategy of
Facebook is its acquisition by Watsapp.

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Answer to question 5:
One of the keys topics to the success of global organizations is the ability to
understand the culture of international business. In many countries, culture factor is
considered very crucial as it influences the way of doing business. One of the great effects on
the international business is the language of particular country. This is so because language is
regarded as crucial medium for communicating with business partners as it enable them to
understand the ideas. A wide range of expertise is provided by cultural differences and
understanding the culture helps in coping up with the international business regarding culture
and communication.
While engaging in international business, firms face several risks due to political,
economic, environmental and the overall business risks can be reduced by taking some
precautionary measures.
It is important for any firm to take considerable amount of time before trusting
commercial clients and partners. Therefore, it is required for business to start slow before
engaging in any international transactions. Facilitation of commercial exchange becomes
priceless by building a trusting and solid relationship. When venturing into the international
market, one of the essential elements to be considered is the management of risk by
structuring the transactions so that the level of risks can be reduced.
For example, guests in South Korea expect to engage in karaoke and being at karaoke
establishment would require people to sing. Germany on other hand at the side of doing blunt
in business dealings requires having direct communication.
Answer to question 6:
Training and development- Training and development are considered important
factor for creating working environment by creating objective of making skilled workers

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available within the organization. Large and medium companies in China have created
special facilities and training program intended to create team. On other hand, the training
and development attribute of human resource management are paid less attention on part of
multinational firms operating in Japan.
Performance and Appraisal- The firm operating at the global level tends to conduct
performance review on periodic basis. Workers are provided with the opportunity to prepare
themselves for meeting the future goals of the firm using performance appraisal. Difference
in the attributes of performance and appraisal can be explained with the help of example. The
importance of behavior in relation to corporate values are emphasized by US companies
whereas lower importance rating to qualitative and quantitative evolution criteria by the
Japanese companies.
Limitations of the approaches:
Under training and development approach, it is the trainer who set the objectives
instead of learner and beyond an event or course, the learner fails to follow through learning.
The responsibility of development by workers on their own comes with little acceptance.
There are frequent flaws in executing the performance appraisal programs by
multinational companies. Such limitations include forming an inaccurate judgment about
performances, lack of clarity about the appraisal purpose, invalid performance indicators and
criteria and ineffective feedback. Moreover, there is limited understanding of the appraisal
rationale and lack of follow up.
Answer to question 7:
A country is said to have absolute advantage in the production of certain goods if it is
efficient in producing that good compared to other country. It means if the country make use

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of fewer resource to produce that good compared to other country, then the country enjoys
absolute advantage over other country. The natural endowment of the country can result in
country having an absolute advantage. For example, oil extraction in country like Saudi
Arabia does not require exploration and it is just a matter of drilling compared to any other
country that would require implementation of costly technologies and considerable amount of
exploration. Therefore, for producing oil, Saudi Arabia needs fewer labor or worker hours
and also for oil production, they need to give up less in terms of other good.
Comparative advantage on other hand is the advantage enjoyed by company when
the goods can be produced at lower cost in terms of other good. That is the country is
relatively efficient compared to other country in the production of that particular good. The
efficiency in producing goods is measured in terms of relative magnitudes as the country has
limited level of technology and resources. The source of competitive advantage can be
attributable to anything that leads to productivity difference. It can be observed that the
comparative advantage idea is based on the opportunity cost. The concept of comparative
advantage can be explained with the help of an example. The resources of Zambia such as
labor, financial and copper intended to produce copper cannot be used for producing goods
such as corn. In such case, Zambia is giving up the opportunity to produce corn. It is so
because for producing corn, Zambia is required to have more labor. Zambia has comparative
advantage in producing goods as it can produce corn at lower cost compared to other goods.
A country would benefit from trade if it specializes in the production of goods having
comparative advantage and is not involved in producing any other good.

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