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What is the definition of international business?
The exchange of goods and services amongst individuals and businesses across multiple countries.
Which of the following are drivers of international business? (Select all that apply)
The spread of financial products, goods, technology, information, and jobs across national borders is known as ______.
globalization
Globalization makes the world less accessible to everyone.
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What are the main functions of the United Nations Conference on Trade and Development (UNCTAD)?
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What is one objective of the International Monetary Fund (IMF)?
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Which of the following is NOT a function of the International Monetary Fund (IMF)?
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What does the International Bank for Reconstruction and Development (IBRD) aim to reduce?
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HMT Watches Ltd. was examined in the study as a reference for analyzing business sickness.
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The primary sector of India's economy refers to the service sector.
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Industrial sickness is identified as a significant issue that hampers the growth of the economy.
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The study claims that good corporate governance can help mitigate industrial sickness.
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India's planning commission states that the country has achieved its status as a developed nation.
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Study Notes
Definition of International Business
- The exchange of goods, services, technology, managerial expertise, and capital between individuals and businesses across multiple countries.
Drivers of International Business
- Developing markets offer significant opportunities for businesses to expand profits and sales.
- Multinational corporations (MNCs) often locate subsidiaries in low-wage countries to benefit from reduced production costs.
- Trading blocks aim to facilitate international business by eliminating trade and investment barriers.
- Shifting demographics contribute to increased globalization.
International Business Environment: Factors of Change
- Political Factors: Influence from power dynamics and government policies.
- Economic Factors: Availability of resources, functioning capital markets, and economic stability.
- Socio-cultural Factors: Impact of social habits, cultural differences, and consumer preferences.
- Technological Factors: Advancements in communication and innovation.
- Environmental Factors: Concerns related to ozone depletion, recycling, and green technologies.
Globalization
- Describes the widespread flow of financial products, goods, technology, information, and jobs across national borders and cultures.
What is Globalization?
- Represents a rapid integration of economies, cultures, and institutions across nations.
- Driven by trade liberalization, investment deregulation, technological advancements, and pressure to adopt international standards.
- Enhances global accessibility.
The Nature of Globalization
- Financial Globalization: Interconnectedness of world stock markets, where events in one market inevitably affect others.
- Economic Globalization: Companies operate independently from specific countries, relocating production, capital, and seeking markets for optimal benefit.
Seven Trends in Global Business Strategies
- Corporate Strategy: Focused on restructuring business models, brands, and operations.
- Global Strategy: Involves relocating production and research & development facilities.
- Competitive Strategy: Emphasizes partnerships within and between industries, convergence of technologies and functions, and offering low-cost, competitive products and services.
Benefits of Globalization
- Increased access to diverse goods from around the world.
- Enhanced global connectivity through technologies like Facebook, cellphones, and Skype.
- Advancements in information technology, medicine, and engineering.
- Higher average standards of living worldwide.
- Accelerated pace of economic development.
United Nations Conference on Trade and Development (UNCTAD)
- Its primary functions include promoting international trade, formulating trade and development policies, coordinating activities with other UN organizations, and serving as a repository of trade-related materials.
International Monetary Fund (IMF)
- An international organization dedicated to promoting global economic growth, financial stability, international trade, and poverty reduction.
Objective of The IMF
- Encouraging international monetary cooperation, promoting balanced trade growth, stabilizing exchange rates, and eliminating capital flow restrictions.
Functions of The IMF
- Serves as a guardian of financial conduct in balance of payments management.
- Advocates for tariff reduction and trade restriction elimination.
- Provides technical advice to member countries on monetary and fiscal policies.
- Operates as a lender of foreign currencies.
- Facilitates international liquidity.
what the imf does
- The IMF promotes international monetary cooperation and exchange rate stability, facilitates the balanced growth of international trade, and provides resources to help members in balance of payments difficulties or to assist with poverty reduction.
International Bank for Reconstruction and Development (IBRD)
- A development institution focused on assisting its member countries in reconstruction, development, and promoting private foreign investment.
Functions of The IBRD
- Facilitating balanced international trade, assisting in transitioning from wartime to peaceful economies, and reducing poverty in developing nations.
Industrial Sickness in India
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Industrial sickness is a significant issue in India, hindering industrial growth and negatively impacting the economy.
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The issue of industrial sickness arises from various factors, including outdated technology, low capacity utilization, poor efficiency, excess workforce, inadequate business planning, weak debt-equity structure, high-interest rates, debt burdens, intense competition, reliance on government contracts, resource scarcity, and high input costs.
Impact of Industrial Sickness in India
- Public Sector Undertakings (PSUs) are categorized as Central Public Sector Enterprises (CPSEs) and State Level Public Enterprises (SLPEs).
- CPSEs are controlled by the Ministry of Heavy Industries and Public Enterprises and represent at least 51% of the central government's holdings.
- By March 2016, India had established 320 CPSEs (excluding seven insurance companies), totaling Rs. 11,71,844 crores in investment. These companies generated net profits of Rs. 1,15,767 crores.
- However, 65 CPSEs were registered with the Board for Industrial and Financial Reconstruction (BIFR), indicating their sick status.
- These sick entities faced huge losses, totaling Rs. 51,670 crores during 2015-16.
Defining Sick Units
- According to the Indian Companies Act Section 2(57) of 2013, a Central Public Sector Enterprise (CPSE) is considered "sick" if it meets one or both of the following criteria:
- The company's net worth is negative.
- The company is classified as sick upon a demand by secured creditors holding at least 50% of the payable debt. This classification occurs under the following conditions:
- Failure to repay debt within 30 days of receiving a demand notice.
- Failure to settle the debt to the satisfaction of the creditors.
Case Study: HMT Watches Ltd.
- HMT Watches Ltd., a prominent Indian watch brand, experienced financial struggles and eventually shut down.
- The company suffered losses starting in 2000, hindering its ability to meet employee salaries.
Reasons for HMT's Failure:
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Technology Stagnation: HMT focused on mechanical watches and failed to adapt to technological advancements in the watch industry. The rise of Quartz watches posed considerable competition, hurting HMT's market share.
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Ignorance of Customer Needs: While conducting market research, HMT missed the evolving needs of its customers. Their Quartz watches were positioned at a premium price point, making them inaccessible to the middle class. This resulted in lower sales, forcing price reductions and ineffective marketing campaigns aimed at younger audiences.
Financial Position of HMT Watches Ltd.
- Table 2 showcases a consistent decline in HMT's earnings after taxes between 2002-03 and 2011-12.
- Interest on loans escalated rapidly, growing from Rs. 38.63 crores in 2002-03 to Rs. 156.88 crores in 2011-12, placing a significant burden on the company's total revenue.
HMT's Financial Ratios
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Table 3 highlights HMT's poor financial position, as indicated by several key ratios:
- Current Ratio: Below the ideal 2:1, indicating weak liquidity and difficulty meeting short-term obligations.
- Return on Capital: Consistently negative, highlighting the lack of profitability.
- Debt Equity Ratio: Always below the ideal 2:1, reflecting a high debt burden and poor solvency.
- Net Profit Ratio: Significantly negative, signifying substantial losses despite sales fluctuation.
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These ratios demonstrate HMT's inability to generate profits, manage finances effectively, and repay debts, ultimately contributing to the company’s failure.
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Description
Explore the key concepts and drivers of international business, including the influence of political, economic, socio-cultural, and technological factors. This quiz covers the dynamics that shape global trade and corporate strategies, especially for multinational corporations. Test your understanding of how these elements interact in the international business environment.
