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Fundamentals of International Business
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Fundamentals of International Business
by Sumati Varma
Fundamentals of International Business
Cover
About Pearson
Title Page
Contents
Preface to the First Edition
Preface to the Fourth Edition
Acknowledgements
About the Author
1. Globalization and International Business
Journey of the Wimbledon Tennis Ball
Introduction
Elements of Globalization
Economic Globalization
Cultural Globalization
Political Globalization
International Business
TNCs – A Classification
Growth of International Business
Economic Forces
Political Forces
Technological Forces
Impact of Globalization
International Versus Domestic Business
Motives for Firm Internationalization
International Orientations
Ethnocentric Orientation
Polycentric Orientation
Regiocentric Orientation
Geocentric Orientation
Modes of Entry
Trade-related Entry Modes
Contractual Entry Modes
Investment-related Entry Modes
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
2. Economic and Political Environment
The Sharing Economy
Introduction
Economic Environment
Economic Systems
Economic Indicators
Demographic Environment
Population Size
Age Distribution
Demographic Dividend
Rural–Urban Distribution
Political Environment
Political Ideologies and Systems
Political Risk
International Business Negotiation
Objectives of International Business Negotiation
Bargaining Power of the TNC
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
3. Cultural and Legal Environment
Chocolate Fries and Pikachu Help McDonalds
Introduction
Elements of Culture
Language
Non-verbal Communication
Religion
Values and Attitudes
Customs and Manners
Aesthetics
Legal Environment
Global Legal Systems
Legal Jurisdiction
Ethics in International Business
Chapter Summary
Key Terms
Discussion Questions
Examination Question
4. International Trade Theories
The Logitech Mouse
Introduction
International Trade Theories
Mercantilist Doctrine
Classical Approach
Factor Proportions Theory
Leontief Paradox
Linder’s Income-preference Similarity Theory
Product Life Cycle Theory
The New Trade Theory
National Competitive Advantage
Theory Assessment
Developments in World Trade
World Trade Trends
Volume of Trade
Composition of World Trade
Direction of World Trade
Trade in Services
Digital Trade
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
5. Commercial Policy Instruments
US Embargo on Kinder Joy Chocolate
Introduction
Government Intervention in Trade
Economic Rationale
Non-economic Rationale
Instruments of Trade Control
Tariff Barriers
Non-tariff Barriers
Analysis of India’s Foreign Trade
Volume of India’s Foreign Trade
Composition of India’s Foreign Trade
Direction of India’s Foreign Trade
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
6. Multilateral Regulation of Trade
Trade Wars
Introduction
General Agreement on Tariffs and Trade (GATT)
Objectives and Principles
Uruguay Round
GATT: An Evaluation
World Trade Organization (WTO)
WTO Agreements
General Agreement on Tariffs and Trade (GATT)
General Agreement on Trade in Services (GATS)
Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS)
Agreement on Trade-related Investment Measures (TRIMS)
Organizational Structure of WTO
Principles of WTO
Most-Favoured-Nation (MFN)
National Treatment
Functions of WTO
WTO: An Evaluation
Developing Country Issues
Dispute Resolution Mechanism
Subsidies in Agriculture
Future Challenges for WTO
WTO Achievements
United Nations Conference on Trade and Development (UNCTAD)
Functions of UNCTAD
UNCTAD: An Assessment
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
7. International Trade Finance and Promotion
The New Indian Trade Policy
Introduction
International Trade Payment
Cash in Advance
Letter of Credit (L/C)
Documentary Collection
Open Account
Terms of Trade
Free on Board (FOB)
Free Alongside Ship (FAS)
Cost, Insurance, and Freight (CIF)
Cost and Freight (CFR)
Delivered at Frontier (DAF)
International Trade Finance
Private Sources
Government sources
International Trade Credit
Trade Promotion in India
Organizations for Export Promotion
Export Incentives
Marketing Assistance
Market Development Assistance
Market Access Initiative
Foreign Exchange
Trade Fairs and Exhibitions
Export Risk Insurance
Production Assistance/Facilities
Special Economic Zones (SEZs)
Export Processing Zones
Free Trade Zone (FTZ)
Export-oriented Unit (EOU)
Export Houses
Special Economic Zone
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
8. Foreign Direct Investment
TECNO Captures the African Market
Introduction
FDI: A Classification
Asset-based View
Nature of Business Activity
Motive-based View
Modes of FDI Entry
Branch Office
Strategic Alliances
Wholly Owned Subsidiary
Forms of Wholly Owned Subsidiaries: Greenfield Investment versus Mergers and Acquisitions
Umbrella Holding Company
Differences Between Joint Ventures and Mergers
FDI: An Evaluation
Host-country Perspective
Home-country Perspective
Global FDI Patterns
Trends in FDI
Direction of FDI
FDI Outflows
Foreign Investment in India
Policy Perspective
Sectoral Dimensions of FDI Flows
FDI Policy Changes
Geographical Composition
Outward Indian FDI
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
9. Regional Economic Integration
Brexit Spells Doom for Wine, Ham and Cheese
Introduction
Levels of Economic Integration
Free Trade Area (FTA)
Customs Union
Common Market
Economic Union
Political Union
Effects of Integration
Trade Creation and Trade Diversion
Reduced Import Prices
Increased Competition and Economies of Scale
Higher Factor Productivity
Regional Trading Agreements—A Global Overview
European Union (EU)
Euro
North American Free Trade Agreement (NAFTA)
NAFTA Provisions
Importance of NAFTA
Implications of a New Agreement
Association of Southeast Asian Nations (ASEAN)
Objectives of ASEAN
ASEAN Evolution and Growth
ASEAN Achievments
South Asian Association for Regional Cooperation (SAARC)
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
10. International Financial Environment
Venezuela’s Experiments with the Bolivar
Introduction
International Financial System
Foreign Exchange Markets
Functioning of the Foreign Exchange Market
Foreign Exchange Risk and Exposure
International Capital Market
International Money Markets
International Bond Markets
International Stock Markets
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
11. Exchange Rate Determination
The Falafel Index
Basics of Foreign Exchange
Exchange Rate Determination
Demand for a Currency
Supply of a Currency
Fixed and Flexible Exchange Rate Systems
Currency Convertibility
Factors Affecting the Exchange Rate
Relative Inflation Rates
Relative Interest Rates
Relative Economic Growth Rates
Political and Economic Risk
Expectations and the Asset Market Model of Exchange Rates
Central Bank Reputations and Currency Values
Theories of Exchange Rate Determination Interest Rate Parity
Purchasing Power Parity
Fisher Effect
Evolution of the Global Monetary System
The Gold Standard (1876–1914)
The Inter-war Years and World War II (1914–44)
The Bretton Woods System (1944–73)
The Post-Bretton Woods System: 1973–Present
Contemporary Exchange Rate Systems
Fixed Exchange Rate System
Independent Float System
Currency Board Arrangement
Soft Pegs
Crawling Peg
Pegged Exchange Rates within Horizontal Bands
Floating Arrangements
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
12. International Financial Institutions
The New BRICS Bank
Introduction
International Monetary Fund (IMF)
Objectives of IMF
Functions of the IMF
World Bank Group
Loans
Grants
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
13. International Balance of Payments
Customs Duty to Curtail Balance of Payments Difficulties 215
Introduction
Fundamentals of Balance of Payments Accounting
Defining International Economic Transactions
The BOP as a Cash Flow Statement
BOP Accounting: Double Entry Bookkeeping
Components of the Balance of Payments Account
Current Account
Capital and Financial Account
Net Errors and Omissions
Official Reserves Account
The Balance of Payments in Totality
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
14. International Marketing
Selling Cookies in China
Introduction
International Market Assessment
The Marketing Mix
Market Segmentation
Product
Producer Goods
Consumer Goods
Determinants of Product Adaptation
Brand Management
New Product Development
Promotion Strategy
Pricing Strategy
Distribution
Chapter Summary
Key Terms
Discussion Questions
Examination Question
15. International Human Resource Management
IKEA Says ‘No’ to Child Labor
Introduction
Recruitment and Selection
Ethnocentric Approach
Polycentric Approach
Geocentric Approach
Regiocentric Approach
Training and Development
Cross-cultural Training
Language Training
Specific Skills Training
Compensation
International Labor Relations
International Labor Standards
Chapter Summary
Key Terms
Discussion Questions
16. International Production and Supply Chain Operations
The Pharma Supply Chain
Introduction
Supply-Chain Management
Objectives of Supply Chain Management
International Logistics
Systems Concept
Total Cost Concept
Trade-off Concept
Global Supply Chain Decisions
Quality
Third-party Logistics (3PL)
Location Decisions
Production Decisions
Purchasing Decision
Inventory Decisions
International Packaging Issues
International Storage Issues
Transportation Decisions
Transportation Infrastructure
Chapter Summary
Key Terms
Discussion Questions
Examination Question
17. Global E-commerce
The Changing Online Marketplace
Introduction
E-commerce versus E-business
Types of E-commerce
B2B E-commerce
B2C E-commerce
B2G E-commerce
C2C E-commerce
C2B E-commerce
M-Commerce
E-commerce—An Evaluation
E-commerce Advantages
Disadvantages of E-commerce
Drivers of E-commerce
Global Factors
Demographic Factors
Economic and Financial Resources
Information Infrastructure
Industry Structure
Firm Size
Entrepreneurial Environment
Consumer Preferences
National Policy
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
18. Environmental Issues in International Business
Sustainability Initiatives at McDonald’s
Introduction
Climate Change
Transboundary Pollution
International Legal Frameworks for Environmental Protection
Kyoto Protocol
International Emissions Trading
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
19. Global Outsourcing
Past, Present and Future of Outsourcing
Introduction
Forms of Outsourcing
Drivers of Outsourcing
Theory of Comparative Advantage
Concentration on Core Competency
Developments in Technology
Existence of Low-cost and Skilled Manpower
Changes in Regulatory Environment
Infrastructural and Institutional Development
Factors Behind a Decision to Outsource
Technical and Institutional Separability
Standardization and Automation
Cost Minimization
Market Size
Software Industry in India
Large Skilled English Speaking Work Force
Time Advantage
Location Advantage
Growth Drivers of India’s ITES–BPO Sector
Abundant Talent
Sustained Cost Competitiveness
Continued Focus on Quality
World Class Information Security Environment
Rapid Growth in Key Business Infrastructure
Enabling Business Policy and Regulatory Environment
Problems and Pitfalls of the ITES–BPO Industry
Changing Value of the Rupee
Poor Infrastructure
Increasing Demand for Trained Manpower
Employee Dissatisfaction and High Attrition Rates
Intensifying Competition
Future Threats
Chapter Summary
Key Terms
Discussion Questions
Examination Questions
Model Question Papers
Index
Copyright
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14. International Marketing
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15. International Human Resource Management
1
The World’s Most Valuable Brands,
https://www.forbes.com
, last accessed on 27 September 2018.
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