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Question 1: Write a note on GATT and WTO, highlight the difference between two.

The World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.The organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements, which are signed by representatives of member governments[6]:fol.9-10 and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (19861994). The General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating international trade. According to its preamble, its purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis." It was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed in 1947 and lasted until 1994, when it was replaced by the World Trade Organization in 1995. Difference between GATT and WTO: In 1993, the GATT was updated (GATT 1994) to include new obligations upon its signatories. One of the most significant changes was the creation of the World Trade Organization (WTO). The 75 existing GATT members and the European Communities became the founding members of the WTO on 1 January 1995. The other 52 GATT members rejoined the WTO in the following two years. Since the founding of the WTO, 21 new non-GATT members have joined and 29 are currently negotiating membership. There are a total of 157 member countries in the WTO, with Russia and Vanuatu being new members as of 2012. Of the original GATT members, Syria and the SFR Yugoslavia have not rejoined the WTO. Since FR Yugoslavia, (renamed to Serbia and Montenegro and with membership negotiations later split in two), is not recognized as a direct SFRY successor state; therefore, its application is considered a new (non-GATT) one. The General Council of WTO, on 4 May 2010, agreed to establish a working party to examine the request of Syria for WTO membership. The contracting parties who founded the WTO ended official agreement of the "GATT 1947" terms on 31 December

1995. Serbia and Montenegro are in the decision stage of the negotiations and are expected to become the newest members of the WTO in 2012 or in near future. Whilst GATT was a set of rules agreed upon by nations, the WTO is an institutional body. The WTO expanded its scope from traded goods to include trade within the service sector and intellectual property rights. Although it was designed to serve multilateral agreements, during several rounds of GATT negotiations (particularly the Tokyo Round) plurilateral agreements created selective trading and caused fragmentation among members. WTO arrangements are generally a multilateral agreement settlement mechanism of GATT.

Question 2: Describe various Entry strategies when it enters into the Foreign Market. Answer:
When a company wants to enter into expand its business internationally, there are following strategies available to the companies:

Export strategy: Licensing:

Its a merely extension of domestic operations Minimize risk component as well as capital requirement A domestic company may give license to foreign firm to use the companys technology or product and distribute the companys product. No risk and cost to enter into the foreign markets, still can earn Royalty income. Franchising is like a Licensing. The franchisee bears almost all the cost of establishing foreign operations. Maintaining quality poses the biggest challenge to the franchiser. FDI is the investment made by a company in a foreign country to start its operations.


Foreign Direct Investment(FDI): Wholly owned subsidiary

This option is available if company is willing to take all the risk. A subsidiary is formed abroad.

Joint Venture:

This is a very popular mode of entry in the foreign market. It involves minimum risk and investment.

Merger or Acquisition:

A company can acquire or merge with the existing foreign company which already has established business in the foreign country.

Strategic Investment:

Question 3: Write a note on Globalization. Answer:

Any company can purchase a stake in the foreign company, whereby they are entitled to a share in the profit, if any.

Globalization is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. Globalization describes the interplay across cultures of macro-social forces. These forces include religion, politics, and economics. Globalization can erode and universalize the characteristics of a local group. Advances in transportation and telecommunications infrastructure, including the rise of the Internet, are major factors in globalization, generating further interdependence of economic and cultural activities. Though several scholars place the origins of globalization in modern times, others trace its history long before the European age of discovery and voyages to the New World. Some even trace the origins to the third millennium BCE. Since the beginning of the 20th century, the pace of globalization has proceeded at a rapid rate. The term globalization has been in increasing use since the mid 1980s and especially since the mid 1990s. In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization: trade and transactions, capital and investment movements, migration and movement of people and the dissemination of knowledge. Further, environmental challenges such as climate change, cross-boundary water and air pollution, and over-fishing of the ocean are linked with globalization. Globalizing processes affect and are affected by business and work organization, economics, socio-cultural resources, and the natural environment.

Humans have interacted over long distances for thousands of years. The overland Silk Road that connected Asia, Africa and Europe is a good example of the transformative power of international exchange that existed in the "Old World. Philosophy, religion, language, the arts, and other aspects of culture spread and mixed as nations exchanged products and ideas. In the 15th and 16th centuries, Europeans made important discoveries in their exploration of the oceans, including the start of transatlantic travel to the "New World" of the Americas. Global movement of people, goods, and ideas expanded significantly in the following centuries. Early in the 19th century, the development of new forms of transportation (such as the steamship and railroads) and telecommunications that "compressed" time and

space allowed for increasingly rapid rates of global interchange. In the 20th century, road vehicles and airlines made transportation even faster, and the advent of electronic communications, most notably mobile phones and the Internet, connected billions of people in new ways leading into the 21st century.

Question 4: What does FDI stands for? Why MNCs do chose, FDI to enter into international market? Answer: FDI stands for Foreign Direct Investment.
Foreign direct investment (FDI) is a direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds.

Foreign direct investment has many forms. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra-company loans." In a narrow sense, foreign direct investment refers just to building new facilities. The numerical FDI figures based on varied definitions are not easily comparable.

Multinational companies choose the FDI which may be for the following reasons:

Low corporate tax and individual income tax rates Tax holidays Other types of tax concessions Preferential tariffs Special economic zones EPZ Export Processing Zones Bonded Warehouses Maquiladoras Investment financial subsidies Soft loan or loan guarantees Free land or land subsidies Relocation & expatriation Infrastructure subsidies

R&D support Derogation from regulations (usually for very large projects)

Importance of FDI:
The rapid growth of world population since 1950 has occurred mostly in developing countries. This growth has not been matched by similar increases in per-capita income and access to the basics of modern life, like education, health care, or - for too many even sanitary water and waste disposal. FDI has proven when skillfully applied to be one of the fastest means of, with the highest impact on, development. However, given its many benefits for both investing firms and hosting countries, and the large jumps in development were best practices followed, eking out advances with even moderate long-term impacts often has been a struggle. Recently, research and practice are finding ways to make FDI more assured and beneficial by continually engaging with local realities, adjusting contracts and reconfiguring policies as blockages and openings emerge.

Question 5: What is need to understand Cultural differences? Explain Hofstedes Cultural Dimensions. Answer:
Culture is defined as the art and other signs or demonstrations of human customs, civilization and the way of life of a specific society or group.

Need to understand cultural differences: Cultural differences affect the success or failure of the business in many ways. The company must modify the product according to demand of the specific location and use the different marketing strategy to advertise their product to the customers.

Hofstedes cultural dimensions:

According to Dr Geert Hofstede, Culture is more often a source of conflicts than of synergy. Cultural differences are a trouble and always a disaster.

The following are five cultural dimensions:

Power disaster index: This focuses on the level of equality or inequality, between individuals in the nations society. Individualism:

This dimension focuses on the extent to which the society reinforces individual or collective achievement and interpersonal relationships. Masculinity: This focuses on the extent to which the society supports or discourages the traditional masculine work role model of male achievement, power and control. Uncertainty Avoidance Index(UAI): This focuses on the degree of tolerance for uncertainty and ambiguity within the society that is unstructured situation. Long-term Orientation(LTO): This describes the range at which a society illustrates a pragmatic future oriented perspective instead of a conventional historic or short term point of view.

Question 6: (a) Ethnocentric Approach:

EPG Model is an International Business model including three dimensions Ethnocentric, Polycentric and Geocentric. It has been introduced by Howard V. Perl mutter within the journal article "The Tortuous Evolution of Multinational Enterprises" in 1969. These three dimensions allow executives to more accurately develop their firm's general strategic profile. There is no international firm today whose executives will say that ethnocentrism is absent in their organization. The word ethnocentrism derives from the Greek word "ethnos", meaning nation or people, and the English word center or centrism. A common phrase set for ethnocentrism is tunnel vision. In this context, ethnocentrism is the view that a particular ethnic groups system of beliefs and values is morally superior to all others. Ethnocentrism is characterized by or based on the attitude that ones own group is superior to others. The ethnocentric attitude is found in many companies that have many nationalities and culture groups working together. It is a natural tendency for people to act ethnocentrically because it is what they feel comfortable with. It is based on past experiences and learned behaviors and norms. The ethnocentric attitude is seen often when home nationals of various countries believe they are superior to, more trustworthy and more reliable than their foreign counterparts. Ethnocentric attitudes are often expressed in determining the managerial process at home and overseas. There is a tendency towards ethnocentrism in relations with subsidiaries in developing countries and in industrial product divisions. Organizations that are designed with an ethnocentric focus will portray certain tendencies. These include an organizations headquarters thats decision-making authority is relatively high. Home standards are applied to the evaluation and control of the organization. These standards are to ensure performance and product quality. Ethnocentric attitudes can be seen in the organizations communication process. This is

evident when there is constant advice, and counsel from the headquarters to the subsidiary. This advice usually bears the message, This works at home; therefore it must work in your country". Organizations that portray ethnocentrism usually identify themselves with the nationality of the owner For example, Wal-Mart is seen as an American company because its headquarters are located in America. The crucial critical concept of ethnocentrism in international organizations is the current policy that recruits from the home country are hired, and trained for key executive position in the organization. The ethnocentric attitude is a centralized approach. With the centralized approach, the training originates at the headquarters and then corporate trainers travel to the subsidiaries, and often adapt to local situations.

(b)Polycentric Approach:
Polycentrism is one of the three legs in the EPG framework that identifies one of the attitudes or orientations toward internationalization that is associated with successive stages in the evolution of international operations Polycentrism can be defined as a host country orientation; which reflects host countries goals and objectives with respect to different management strategies and planning procedures with regard to international operations. Under a polycentric perspective, a companys management team believes that in international business practices local preferences and techniques are usually found most appropriate to deal with the local market conditions. In the most extreme views of polycentrism, it is the attitude that culture of various countries are different, that foreigners are difficult to understand and should be left alone as long as their work is profitable. Although there is great benefit to taking into consideration local preferences in the host country when it comes to international business practices, a polycentric approach has its obstacles once implemented. A polycentric approach gives rise to the problems of coordination and control. Management usually loses coordination of its international subsidiaries usually because they are forced to operate independently of one another, and establish separate objectives and plans which meet the host countries criteria. Marketing of the companys products are organized on a country-by-country basis, and marketing research is conducted independently in each country. Management is unable to have total control over the company in the host country because it is found that local nationals have a better understanding and awareness of national market conditions, more so than home office personnel. This is very accurate in several aspects of the products delivery including pricing, customer service and wellbeing, market research, and channels of distribution. Therefore, the majority of control in the host countries practices is lost, and the company is forced to manage its

operations from the outside. Local nationals occupy virtually all of the key positions in their respective local subsidiaries, and they appoint and develop their own people.