Oct 2009

Q1. When domestic business offers all the business opportunities to grow and prosper, why
do Indian companies resort to International Business?

Companies engage in international business for variety of reasons, but the main goal is typically
company growth or expansion. Whether a company hires international employees or searches for
new markets abroad, an international strategy can help diversify and expand a business.
1. Many companies look to international markets for growth. Introducing new products
internationally can expand a company's customer base, sales and revenue.
2. Companies go international to find alternative sources of labor. Some companies look
to international countries for lower-cost manufacturing, technology assistance and other
services in order to maintain a competitive advantage.
3. Some companies go international to locate resources that are difficult to obtain in their
home markets, or that can be obtained at a better price internationally.
4. Companies go international to broaden their work force and obtain new ideas. A work
force comprised of different backgrounds and cultural differences can bring fresh ideas
and concepts to help a company grow.
5. Some companies go international to diversify. Selling products and services in multiple
countries reduces the company's exposure to possible economic and political instability in
a single country
Reactive reasons for going international include:

Market - the company is responding to demand it discovers in another location

Competitive Environment - it sees competitors going to a particular place
Political Environment changes - Trade Barriers
Tariff or non-tariff barriers: If an exporting company finds that the government in the
recipient country starts to build tariff or non-tariff barriers to block the export, then it
might be a reason for the exporter to set up a manufacturing operation overseas in order
to avoid the tariffs.

Political Environment changes - Regulations

Environmental regulations or changes in work/safety regulations may cause the company
to go overseas to a less restrictive location

Economic Environment changes

Costs of production at home increase, forcing the company to find a cheaper place to
produce

Companies who are proactive in international business are, in most cases, better positioned than
companies that simply react. If you simply react you might make a mistake and not do things
properly because you are stressed for time, money or manpower.
Proactive reasons for going international include:

Expanding sales by strategically seeking out advantages

Launch an offensive into a new market before competitor does

Power and prestige

Incentives: sometimes the host government will offer special tax breaks to entice an
investment

Lower costs of labour, production and energy

Less stringent rules and regulations effecting pollution and labour

Minimizing risk: International operations may reduce operating risk by smoothing sales
and profits and from competitors gaining advantage.

Q2. Enumerate different methods of entry in international business, their growth prospects
and pitfalls in each method.
Modes of entry into an International Business:There are some basic decisions that the firm must take before foreign expansion like:
Which markets to enter, When to enter those markets, and on What scale.
Which foreign markets?
-The choice based on nations long run profit potential.
-Economic and political factors which influence foreign markets.
-Long run benefits of doing business in a country depends on following factors:
- Size of market (in terms of demographics)
- The present wealth of consumer markets (purchasing power)
- Nature of competition
Timing of entry:The advantage is when firms enters early in the foreign market commonly known as first-mover
advantage.
First mover advantage;1. Its the ability to prevent rivals and capture demand by establishing a strong brand name.
2. Ability to build sales volume in that country.so that they can drive them out of market.
3. Ability to create customer relationship.
Disadvantage:
1. Firm has to devote effort, time and expense to learning the rules of the country.
2. Risk is high for business failure(probability increases if business enters a national market after
several other firms they can learn from other early firms mistakes)
1. Exporting:
Exporting is the process of selling of goods and services produced in one country to other
countries.
There are two types of exporting: direct and indirect.
Direct exports:
Direct exports represent the most basic mode of exporting made by a (holding) company,
capitalizing on economies of scale in production concentrated in the home country and affording
better control over distribution. Direct export works the best if the volumes are small. Large
volumes of export may trigger protectionism.
Types:
1) Sales representatives:
Sales representatives represent foreign suppliers/manufacturers in their local markets for an
established commission on sales. Provide support services to a manufacturer regarding local
advertising, local sales presentations, customs clearance formalities, legal requirements.
2) Importing distributors

Importing distributors purchase product in their own right and resell it in their local markets
to wholesalers, retailers, or both. Importing distributors are a good market entry strategy for
products that are carried in inventory, such as toys, appliances, prepared food.
Advantages:
Control over selection of foreign markets and choice of foreign representative companies
Good information feedback from target market
Better protection of trademarks, patents, goodwill, and other intangible property
Potentially greater sales than with indirect exporting.
Disadvantages:
Higher start-up costs and higher risks as opposed to indirect exporting
Greater information requirements
Longer time-to-market as opposed to indirect exporting.
Indirect exports:
An indirect export is the process of exporting through domestically based export intermediaries.
The exporter has no control over its products in the foreign market.
Types:
Export trading companies (ETCs)
These provide support services of the entire export process for one or more suppliers. Attractive
to suppliers that are not familiar with exporting as ETCs usually perform all the necessary work:
locate overseas trading partners, present the product, quote on specific enquiries, etc.
Export management companies (EMCs)
These are similar to ETCs in the way that they usually export for producers. Unlike ETCs, they
rarely take on export credit risks and carry one type of product, not representing competing ones.
Usually, EMCs trade on behalf of their suppliers as their export departments.
Export merchants:
Export merchants are wholesale companies that buy unpackaged products from suppliers/
manufacturers for resale overseas under their own brand names. The advantage of export
merchants is promotion. One of the disadvantages for using export merchants result in presence
of identical products under different brand names and pricing on the market, meaning that export
merchants activities may hinder manufacturers exporting efforts.
Confirming houses
These are intermediate sellers that work for foreign buyers. They receive the product
requirements from their clients, negotiate purchases, make delivery, and pay the suppliers/
manufacturers. An opportunity here arises in the fact that if the client likes the product it may
become a trade representative. A potential disadvantage includes suppliers unawareness and
lack of control over what a confirming house does with their product.
Nonconforming purchasing agents
These are similar to confirming houses with the exception that they do not pay the suppliers
directly payments take place between a supplier/manufacturer and a foreign buyer.
Advantages

Fast market access

Concentration of resources for production
Little or no financial commitment. The export partner usually covers most expenses
associated with international sales
Low risk exists for those companies who consider their domestic market to be more
important and for those companies that are still developing their R&D, marketing, and
sales strategies.
The management team is not distracted
No direct handle of export processes.
Disadvantages
Higher risk than with direct exporting
Little or no control over distribution, sales, marketing, etc. as opposed to direct exporting
Inability to learn how to operate overseas
Wrong choice of market and distributor may lead to inadequate market feedback
affecting the international success of the company
Potentially lower sales as compared to direct exporting, due to wrong choice of market
and distributors by export partners.
Those companies that seriously consider international markets as a crucial part of their success
would likely consider direct exporting as the market entry tool. Indirect exporting is preferred by
companies who would want to avoid financial risk as a threat to their other goals
1. Licensing :
In this mode of entry,the domestic manufacturer leases the right to use its intellectual property
(i.e.) technology, copy rights, brand name etc to a manufacturer in a foreign country for a fee.
Here the manufacturer in the domestic country is called licensor and the manufacturer in the
foreign is called licensee. The cost of entering market through this mode is less costly. The
domestic company can choose any international location and enjoy the advantages without
incurring any obligations and responsibilities of ownership, managerial,investment etc.
Advantages;
1. Low investment on the part of licensor.
2. Low financial risk to the licensor
3. Licensor can investigate the foreign market without much effort on his part.
4. Licensee gets the benefits with less investment on research and development
5. Licensee escapes himself from the risk of product failure.
Disadvantages:
1. It reduces market opportunities for both
2. Both parties have to maintain the product quality and promote the product. Therefore one
party can
affect the other through their improper acts.
3. Chance for misunderstanding between the parties.
4. Chance for leakages of the trade secrets of the licensor.
5. Licensee may develop his reputation
6. Licensee may sell the product outside the agreed territory and after the expiry of the contract.
2. Franchising

Under franchising an independent organization called the franchisee operates the business under
the name of another company called the franchisor under this agreement the franchisee pays a
fee to the franchisor.
The franchisor provides the following services to the franchisee.
1. Trade marks
2. Operating System
3. Product rotation
4. Continuous support system like advertising, employee training, reservation services quality
assurances program etc.
Advantages:
1. Low investment and low risk
2. Franchisor can get the information regarding the market culture,customs and environment of
the
host country.
3. Franchisor learns more from the experience of the franchisees.
4. Franchisee gets the benefits of R& D with low cost.
5. Franchisee escapes from the risk of product failure.
Disadvantages:
1. It may be more complicating than domestic franchising.
2. It is difficult to control the international franchisee.
3. It reduce the market opportunities for both
4. Both the parties have the responsibilities to maintain product quality and product promotion.
5. There is a problem of leakage of trade secrets.
3. Turnkey Project:
A turnkey project is a contract under which a firm agrees to fully design, construct and equip
a manufacturing/ business/services facilityand turn the project over to the purchase when it is
ready for operation for remuneration like a fixed price, payment on cost plus basis. This form
of pricing allows the company to shift the risk of inflation enhanced costs to the purchaser. Eg
nuclear power plants, airports, oil refinery, national highways, railway line etc. Hence they are
multiyear project.

4. Mergers &Acquisitions:
A domestic company selects a foreign company and merger itself with foreign company in order
to enter international business. Alternatively the domestic company may purchase the foreign
company and acquires it ownership and control. It provides immediate access to international
manufacturing facilities and marketing network.
Advantages:
1. The company immediately gets the ownership and control over the acquired firms factories,
employee, technology, brand name and distribution networks.
2. The company can formulate international strategy and generate more revenues.
3. If the industry already reached the stage of optimum capacity level or overcapacity level in the
host
country. This strategy helps the host country.
Disadvantages:

1. Acquiring a firm in a foreign country is a complex task involving bankers, lawyers regulation,
mergers
and acquisition specialists from the two countries.
2. This strategy adds no capacity to the industry.
3. Sometimes host countries imposed restrictions on acquisition of local companies by the
foreign
companies.
4. Labour problem of the host countrys companies are also transferred to the acquired company.
5. Joint Venture
Two or more firm join together to create a new business entity that is legally separate and
distinct from its parents. It involves shared ownership.Various environmental factors like social ,
technological economic and political encourage the formation of joint ventures. It provides
strength in terms of required capital. Latest technology required human talent etc. and enable the
companies to share the risk in the foreign markets. This act improves the local image in the host
country and also satisfies the governmental joint venture.
Advantages:
1. Joint ventures provide large capital funds suitable for major projects.
2. Spreads the risk between or among partners.
3. Provides skills like technical skills, technology, human skills, expertise, marketing skills.
4. Makes large projects and turn key projects feasible and possible.
5. Synergy due to combined efforts of varied parties.
Disadvantages:
1. Conflict may arise
2. Partner delay the decision making once the dispute arises. Then the operations become
unresponsive
and inefficient.
3. Life cycle of a joint venture is hindered by many causes of collapse.
4. Scope for collapse of a joint venture is more due to entry of competitors changes in the
partners
strength.
5. The decision making is slowed down in joint ventures due to the involvement of a number of
parties.
6. Wholly Owned Subsidiary:
Subsidiary means individual body under parent body. This Subsidiary or individual body as per
their own generates revenue. They give their own rent, salary to employees, etc. But policies
and trademark will be implemented from the Parent body. There are no branches here. Only the
certain percentage of the profit will be given to the parent body.
A subsidiary, in business matters, is an entity that is controlled by a bigger and more powerful
entity. The controlled entity is called a company, corporation, or limited liability company, and
the controlling entity is called its parent (or the parent company). The reason for this distinction
is that a lone company cannot be a subsidiary of any organization; only an entity representing
a legal fiction as a separate entity can be a subsidiary. While individuals have the capacity
to act on their own initiative, a business entity can only act through its directors, officers and

employees.
The most common way that control of a subsidiary is achieved is through the ownership of
shares in the subsidiary by the parent. These shares give the parent the necessary votes to
determine the composition of the board of the subsidiary and so exercise control. This gives
rise to the common presumption that 50% plus one share is enough to create a subsidiary.
There are, however, other ways that control can come about and the exact rules both as to
what control is needed and how it is achieved can be complex (see below). A subsidiary may
itself have subsidiaries, and these, in turn, may have subsidiaries of their own. A parent and
all its subsidiaries together are called a group, although this term can also apply to cooperating
companies and their subsidiaries with varying degrees of shared ownership.
Subsidiaries are separate, distinct legal entities for the purposes of taxation and regulation. For
this reason, they differ from divisions, which are businesses fully integrated within the main
company, and not legally or otherwise distinct from it.
Subsidiaries are a common feature of business life and most if not all major businesses organize
their operations in this way. Examples include holding companies such as Berkshire Hathaway,
Time Warner, or Citigroup as well as more focused companies such as IBM, or Xerox
Corporation. These, and others, organize their businesses into national or functional subsidiaries,
sometimes with multiple levels of subsidiaries.

Q3) Write Short Notes on:

a) Comparative Advantage:
Comparative advantage exists when a country has a margin of superiority in the production of a
good or service i.e. where the opportunity cost of production is lower.
The basic theory of comparative advantage was developed by David Ricardo
Ricardo's theory of comparative advantage was further developed by Heckscher, Ohlin and
Samuelson who argued that countries have different factor endowments of labour, land and
capital inputs. Countries will specialise in and export those products which use intensively the
factors of production which they are most endowed.
If each country specialises in those goods and services where they have an advantage, then total
output and economic welfare can be increased (under certain assumptions). This is true even if
one nation has an absolute advantage over another country.
Assumptions underlying the concept of comparative advantage
Perfect occupational mobility of factors of production - resources used in one industry
can be switched into another without any loss of efficiency
Constant returns to scale (i.e. doubling the inputs in each country leads to a doubling
of total output)
No externalities arising from production and/or consumption
Transportation costs are ignored
If businesses exploit increasing returns to scale (i.e. economies of scale) when they specialise,
the potential gains from trade are much greater. The idea that specialisation should lead to
increasing returns is associated with economists such as Paul Romer and Paul Ormerod.
What determines comparative advantage?
Comparative advantage is a dynamic concept. It can and does change over time. Some
businesses find they have enjoyed a comparative advantage in one product for several years only
to face increasing competition as rival producers from other countries enter their markets.
For a country, the following factors are important in determining the relative costs of production:
The quantity and quality of factors of production available (e.g. the size and
efficiency of the available labour force and the productivity of the existing stock of
capital inputs). If an economy can improve the quality of its labour force and increase the
stock of capital available it can expand the productive potential in industries in which it
has an advantage.
Investment in research & development (important in industries where patents give
some firms significant market advantage) - for more information on this have a look
at this page
Movements in the exchange rate. An appreciation of the exchange rate can cause
exports from a country to increase in price. This makes them less competitive in
international markets.
Long-term rates of inflation compared to other countries. For example if average
inflation in Country X is 4% whilst in Country B it is 8% over a number of years, the
goods and services produced by Country X will become relatively more expensive over
time. This worsens their competitiveness and causes a switch in comparative advantage.

Import controls such as tariffs and quotas that can be used to create an artificial
comparative advantage for a country's domestic producers- although most countries agree
to abide by international trade agreements.
Non-price competitiveness of producers (e.g. product design, reliability, quality of
after-sales support)

b) Purchasing power parity:

According to PPP theory, when exchange rates are of a fluctuating nature, the rate
of exchange between two currencies in the long run will be fixed by their respective
purchasing powers in their own nations.
Foreign currency is demanded by the people because it has some purchasing power in its
own nation. Also domestic currency has a certain purchasing power, because it can buy
some amount of goods/services in the domestic economy.
Thus, when home currency is exchanged for any foreign currency, in fact the domestic
purchasing is being exchanged for the purchasing power, because it can buy some
amount of goods/ services in the domestic economy. Thus, when home currency is
exchanged for any foreign currency, in fact the domestic purchasing power is being
exchanged for the purchasing power of that foreign currency.
This exchange of the purchasing power takes place at some specified rare where
purchasing of two currencies nations gets equalized. Thus, the relative purchasing power
of the two currencies determines the exchange rate.
The exchange rate under this theory is in equilibrium when their domestic purchasing
powers at that rate of exchanges are equivalent e.g., Suppose certain bundle of goods/
services in U.S.A. costs U.S. $ 10 and the same bundle in India costs, Rs. 450/- then
the exchange rate between Indian Rupee and U.S. Dollar is $1 = Rs. 45. Because this is
the exchange rate at which the parity between the purchasing power of two nations is
maintained.
A change in the purchasing power of any currency will reflect in the exchange rates
also. Hence under this theory the external value of the currency depends on the domestic
purchasing power of that currency relative to that of another currency.

c) Competitive advantage of nations:

The Diamond model of Michael Porter for the Competitive Advantage of Nations offers a model
that can help understand the competitive position of a nation in global competition. This model
can also be used for other major geographic regions.
Traditionally, economic theory mentions the following factors for comparative advantage for
regions or countries:
A. Land
B. Location

C. Natural resources (minerals, energy)

D. Labor
E. Local population size.
As a rule Competitive Advantage of nations has been the outcome of 4 interlinked advanced
factors and activities in and between companies in these clusters. These can be influenced in a
pro-active way by government. These interlinked advanced factors for Competitive Advantage
for countries or regions in Porters Diamond framework are:
1. Firm Strategy, Structure and Rivalry: Porter argues that the best management styles vary
among industries. Some countries may be oriented toward a particular style of management.
Those countries will tend to be more competitive in industries for which that style of
management is suited. Also Porter argues that intense competition spurs innovation. Competition
is particularly fierce in Japan, where many companies compete vigorously in most industries
2. Demand Conditions: Michael Porter argues that a sophisticated domestic market is an
important element to producing competitiveness. Firms that face a sophisticated domestic
market are likely to sell superior products because the market demands high quality and a close
proximity to such consumers enables the firm to better understand the needs and desires of the
customers
3. Related Supporting Industries: Porter also argues that a set of strong related and supporting
industries is important to the competitiveness of firms. This includes suppliers and related
industries.
4. Factor Conditions: Factor conditions refers to inputs used as factors of production - such
as labour, land, natural resources, capital and infrastructure. This sounds similar to standard
economic theory, but Porter argues that the "key" factors of production (or specialized factors)
are created, not inherited. Specialized factors of production are skilled labour, capital and
infrastructure.

Q6) WTO-Doha Round:

Launched in Doha, Qatar, in November 2001, at the WTOs Fourth WTO Ministerial
Conference.
Goal: Reduce trade barriers in order to expand global economic growth, development,
and opportunity.
Negotiations offered an opportunity to revive confidence in global trade and to lay the
groundwork for the robust global trading system of tomorrow.
The negotiations focused on the following areas:
a. Agriculture
b. Services
c. Trade facilitation
d. Development
US Feels that the developing countries were not reciprocating on trade concessions
Developed countries majorly the US wanted what would seem like a fair deal: rich
countries open their market, and poor countries do the same in return.
On the contrary developing countries advocated that market access would displace
millions of farmers.
Problems developing countries are having in implementing current trade obligations.
Lack of media attention.

The negotiations collapsed on 29 July over issues of agricultural trade between the United States,
India, and China. In particular, there was insoluble disagreement between India and the United
States over the special safeguard mechanism (SSM), a measure designed to protect poor farmers
by allowing countries to impose a special tariff on certain agricultural goods in the event of
animport surge or price fall.
Several countries blamed each other for the breakdown of the negotiations. The United States
and some European Union members blamed India for the failure of the talks. India claimed that
its position (i.e. that the U.S. was sacrificing the world's poor for U.S./European commercial
interests) was supported by over 100 countries. Brazil, one of the founding members of the G-20,
broke away from the position held by India.
Developing countries claim that they have had problems with the implementation of the
agreements reached in the earlier Uruguay Round because of limited capacity or lack of technical
assistance. They also claim that they have not realized certain benefits that they expected from
the Round, such as increased access for their textiles and apparel in developed-country markets.
They seek a clarification of language relating to their interests in existing agreements.
Agriculture has become the most important and controversial issue. Agriculture is particularly
important for developing countries, because around 75% of the population in developing
countries live in rural areas, and the vast majority are dependent on agriculture for their
livelihoods
The United States is being asked by the European Union (EU) and the developing countries,
led by Brazil and India, to make a more generous offer for reducing trade-distorting domestic

support for agriculture. The United States is insisting that the EU and the developing countries
agree to make more substantial reductions in tariffs and to limit the number of import-sensitive
and special products that would be exempt from cuts. Import-sensitive products are of most
concern to developed countries like the European Union, while developing countries are
concerned with special products those exempt from both tariff cuts and subsidy reductions
because of development, food security, or livelihood considerations.
These were the major issues which lead to the failure of the Doha Round.

Q7) FDI-Parameters the Investors must consider.

1)Adequacy of cash flows in the sector

Investors give clear priority to adequate cash flows for ensuring a reasonable prospect of
recovering costs and making an investment a success. Investors considered payment discipline
and enforcement even more important in determining the success ofan investment. Adequate
cash flows in the sector are a high priority forboth firms with investments in distribution and
those withinvestments in generation. Even though firms investing in generation are at a remove
from retail customers, experience has led them to be more cautious about investing in sectors
where collections are a problem. Some of the other factors considered are Nonpayment by
customers is a problem that investors cannot fix without the governments commitment to
payment enforcement. A track record of improving payment discipline can lead investors to
seriously consider bids for distribution concessions. Investors would like some security to cover
the risk of nonpayment.

2)Stability and enforcement of laws and contracts

For international investors the test of a good legal framework is its clarity and the enforceability
of contracts, particularly contracts with government agencies. Investors base long-term
investment decisions on the reliability, applicability, and enforceability of laws and contracts.
To have some assurance that these investments will succeed, investors want to see that the rights
and obligations of private investors are clearly defined and that applicable laws and contracts are
enforced. Indeed, investors rated a legal framework that clearly defines the rights and obligations
of private investors as by far the most important factor in decisions to invest in a developing
country.
3)Government responsiveness to the needs and time frames of investors
Delays in government approvals and licensing have an opportunity cost for international
investors responding to concession auctions and solicitations for bids. The survey responses
indicate that this opportunity cost is significant in the power sectors of developing countries.
Governments of developing countries need to be aware that international investors are less likely
than domestic investors to continue to put up with the costs of administrative inefficiency.
4)Investors control over their investments
A key issue is the demand for transparency from investors (known as Limited Partners, or also
LPs), as well as for sector specific investments and a shortened time frame within which they
can exit their investments. Investors today hesitate to make blind pool investments. They want
industry specific investment. The entire money coming into a PE fund is pooled and invested at
the discretion of the fund managers, usually in proportion to the contribution of investors. But
now investors want to be involved in the process of investment. The desire to exercise greater

control over investment is a result of high expectations and the promise from private equity
in 2007, which unfortunately got short-circuited by the financial crisis. Many high net-worth
individuals (HNIs) are stuck with their earlier investments. Also, HNIs who have made money
from being entrepreneurs in control of finances do not want to lose control of their investments.
One of the concerns LPs have is the lack of knowledge and the status of their investment over the
years.
5) Regulatory independence
In theory, independent regulators differ from other regulatory institutions with regard to
their tasks, their basis of legitimacy, the way they are held accountable to the public and how
their relations with both the regulated industry and government are organised. Therefore,
an understanding of the particular characteristics of independent regulators is important to
understand their role in the regulation of liberalised markets. Although correcting market failure
is often the most important task for independent regulators, the main reason why they are given
independence is their role in limiting government failure. Control and the separation of the state
as owner or potential seller of utilities and the state as regulator is extremely important for the
liberalisationprocess to be credible.Thus independent regulators often stress that such regulators
can limit political interference in business decisions and regulatory risks.

Q8) Case Study:

A) Political risks
Political risk is a type of risk faced by investors, corporations, and governments. It is a risk that
can be understood and managed with reasoned foresight and investment.
Broadly, political risk refers to the complications businesses and governments may face as a
result of what are commonly referred to as political decisionsor any political change that
alters the expected outcome and value of a given economic action by changing the probability
of achieving business objectives. Political risk faced by firms can be defined as the risk
of a strategic, financial, or personnel loss for a firm because of such nonmarket factors as
macroeconomic and social policies (fiscal, monetary, trade, investment, industrial, income, labor,
and developmental), or events related to political instability (terrorism, riots, coups, civil war,
and insurrection)
Succession Politics:
The politics of determining who will fill the vacancies when the current president steps down is
increasingly preoccupying decision-makers, slowing policymaking and deterring the government
from taking significant decisions.
Social unrest, Ethnic unrest, Economy
Protests and strikes put the government on edge. Flare-ups of ethnic discontent.Chinese
government efforts to contain sources of protest, which could also affect companies, especially
Internet and telecoms ones like Durby Telecom Ltd. Such pressures encourage a mixture of
tough security and aversion to policy gambles and could be risky for Durby Ltd.
International Relations
Chinas political equation with India remains on the knife-edge be it the Kashmir visa issue,
the construction of dams to block to flow of water in the Bramaputra river, continuing and
undeterring support of Pakistan by supplying various arms and ammunitions to their army or the
Arunachal Pradesh Land dispute. All these factors lead to a very fragile relationship between the
two governments. As a result any dispute between the two governments can have adverse effects
on Durby Ltd or any other company which invests in China.