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Strategic Management & Business Policy

Q.1 What are the 4 four main areas of Strategic Alliances among two or more
Companies? Explaining the purpose/s of each, briefly.

Strategic Alliances
Strategic alliances constitute another viable alternative. Companies can develop
alliances with the members of the strategic group and perform more effectively.
These alliances may take any of the following forms:
a) Product and/or service alliance: Two or more companies may get together to
synergise their operations, seeking alliance for their products and/or services. The
product or service alliance may take any of the following forms:
A manufacturing company may grant license to another company to produce its
products. The necessary market and product support, including technical know-
how, is provided as part of the alliance. Coca-cola initially provided such support
to Thums Up.
Two companies may jointly market their products which are complementary in
nature. Chocolate companies more often tie up with toy companies. TV Channels
tie-up with Cricket boards to telecast entire series of cricket matches live.
Two companies, who come together in such an alliance, may produce a new
product altogether. Sony Music created a retail corner for itself in the ice-cream
parlours of Baskin-Robbins.
IBM Expand Global Services Alliance to Collaborate on Maintenance Services
in 46 New Countries
"IBM have been working together on these service offerings in the United States
for the past three years and are excited to offer a broader global customer
experience by expanding our efforts into additional markets around the world,"
said Robert Kritzer, vice president, IBM-Cisco Strategic Alliance, IBM Global
Technology Services. "Our relationship with Cisco allows us to provide our
customers with a single resource to seamlessly and rapidly integrate business
processes, industry knowledge, information technologies and the intelligence of the
network."
"The 'IBM managed maintenance solution for Cisco products' provides us with a
single escalation point for maintenance services across multiple vendor products
that comprise our global reservation system," said Charlie Majane, director of
technical services at Carey International, a leading global provider of limousine
services and luxury ground transportation. "Our clients count on Carey's
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reservations specialists and customer care representatives 24 hours a day, 365 days
a year. IBM and Cisco's collaborative service relationship has simplified our
billing and service delivery processes spanning 65 countries."
IBM will market and sell this services offering under the name "IBM managed
maintenance solution for Cisco products," while collaboratively delivering the
service with Cisco. IBM will provide the customer with consolidated call
management for all networking devices and will retain responsibility for resolving
customer issues. Technical support will be provided via IBM Technical Support
Centers by highly experienced network specialists, trained by Cisco, who have
access to IBM's technical support resource base. Cisco will provide, through IBM,
such benefits as worldwide, 24x7 escalation to the Cisco Technical Assistance
Center, access to cisco.com, ongoing operating system updates, advance hardware
replacement, and tools and best practices to address network issues. Specific
details regarding the "IBM managed maintenance solution for Cisco products".

b) Promotional alliance: Two or more companies may come together to promote

their products and services. A company may agree to carry out a promotion
campaign during a given period for the products and/or services of another
company. The Cricket Board may permit Coke’s products to be displayed during
the cricket matches for a period of one year.
c) Logistic alliance: Here the focus is on developing or extending logistics support.
One company extends logistics support for another company’s products and
services. For example, the outlets of Pizza Hut, Kolkata entered into a logistic
alliance with TDK Logistics Ltd., Hyderabad, to outsource the requirements of
these outlets from more than 30 vendors all over India – for instance, meat and
eggs from Hyderabad etc.
d) Pricing collaborations: Companies may join together for special pricing
collaborations. It is customary to find that hardware and software companies in
information technology sector offer each other price discounts. Companies should
be very careful in selecting strategic partners. The strategy should be to select such
a partner who has complementary strengths and who can offset the present
weaknesses. The acid test of an alliance is greater sales at lesser cost. It is a
common practice to develop organisational structures or modify them, if necessary,
to support the alliances and make them successful.
Logistic Alliance
· Pizza Hut restaurants do not stock more than three days of their
inventory.
· The standard for distribution centres or warehouses is a
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stringent 14 days, to minimise the costs and optimise quality

control. This involves round-the-clock monitoring of pick-ups
and truck movements.
· Most of the items are perishable and the company’s standards
cover the entire delivery schedules.
· For in-city delivery, the truck is monitored from the time it
leaves the distribution centre till it reaches the restaurant. Not just
that – the time taken in offloading is noted too.
· The restaurant gives a strict 30 minutes window in which time
the delivery is to be completed.

Q.2 You have taken over as CEO of a Company and have formulated a
Strategy document to improve its share value by 50% in 3 years. What steps
would you follow in the implementation of the Strategy?

If I have taken over as CEO of a Company and have formulated a Strategy

document to improve its share value by 50% in 3 years.
Then steps would you follow in the implementation of the Strategy:

a) Identification of mission and objectives

b) Environment scanning
c) Generic strategy alternatives
d) Strategy variations
e) Strategic choice
f) Allocation of resources and formulation of organisational structure
g) Formulation of plans, policies, programmes and administration
h) Evaluation and control
Generic Strategy Alternatives
They refer to the strategy alternatives in broader terms. After the nature of the
business of the firm is defined, the next task is to focus on the type of strategic
alternative, in general, the firm should pursue. The strategist seeks to identify the
right alternative through questions such as:
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1. Should we get out of this business entirely?

2. Should we try to expand?
There are four strategy alternatives available to a firm or business:
a) To expand
b) To wind up or retrench
c) To stabilize, and
d) To continue its operations pertaining to its products, markets or functions.
a) Expansion strategy can be adopted in the case of highly competitive and volatile
industries, particularly, if they are in the introduction stage of product / service life
cycle.
b) Stability strategy is a better choice when the firm is doing well, the environment
is relatively less volatile, and the product / service has reached the stability or
maturity stage of the life cycle.
c) Retrenchment strategy is the obvious choice when the firm is not doing well in
terms of sales and revenue and finds greater returns elsewhere, or the product /
service is in the finishing stage of the product life cycle.
d) Combination strategy is not a new strategy as it combines the other strategies.
However, it is to be noted that it is better to evolve individual strategies and
combine them rather than trying to evolve a complex combination strategy which
could be cumbersome with loss of precious business time. It is best-suited to
multiple SBU firms in times of economic transition and also when changes occur
in the product / service life cycle. If a firm realises that some of its main product
lines have outlived their lives, it may not be profitable to continue investment in
the same product or SBU. The firm may choose to withdraw its resources from this
area (or SBU) (Retrenchment strategy) and follow an Expansion strategy in a new
product area. Combination strategy is best suited when the firm finds that its
product-wise performance is uneven, or all or most of its products differ in their
future potential.

Q.3 Explain the main features of a Business Plan for a Company with
production and marketing operations.
A good business plan will help attract necessary financing by demonstrating the
feasibility of your venture and the level of thought and professionalism you bring
to the task.
The first step in planning a new business venture is to establish goals that you seek
to achieve with the business. You can establish these goals in a number of ways,
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but an inclusive and ordered process like an organizational strategic planning

session or a comprehensive neighborhood planning process may be best. The board
of directors of your organization should review and approve the goals, because
these goals will influence the direction of the organization and require the
allocation of valuable staff and financial resources. Your goals will serve as a filter
to screen a wide range of possible business opportunities. If you fail to establish
clear goals early in the process, your organization may spend substantial time and
resources pursuing potential business ventures that may be financially viable but
do not serve the mission of your organization in other important ways. A liquor
store on the corner may be a clear money-maker; however, it may not be the retail
to assist your community desires.
The following are examples of goals you may seek to achieve through the creation
of a new business venture:
Revenue Generation – Your organization may hope to create a business that will
generate sufficient net income or profit to finance other programs, activities or
services provided by your organization.
Employment Creation – A new business venture may create job opportunities for
community residents or the constituency served by your organization.
Neighborhood Development Strategy – A new business venture might serve as
an anchor to a deteriorating neighborhood commercial area, attract additional
businesses to the area and fill a gap in existing retail services. You may need to
find a use for a vacant commercial property that blights a strategic area of your
neighborhood. Or your business might focus on the rehabilitation of dilapidated
single family homes in the community.
Establish Goals
Once you have identified goals for a new business venture, the next step in the
business planning process is to identify and select the right business. Many
organizations may find themselves starting at this point in the process. Business
opportunities may have been dropped at your doorstep. Perhaps an entrepreneurial
member of the board of directors or a community resident has approached your
organization with an idea for a new business, or a neighborhood business has
closed or moved out of the area, taking jobs and leaving a vacant facility behind.
Even if this is the case, we recommend that you take a step back and set goals.
Failing to do so could result in a waste of valuable time and resources pursuing an
idea that may seem feasible, but fails to accomplish important goals or to meet the
mission of your organization.
Depending on the goals you have set, you might take several approaches to
identify potential business opportunities.
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Local Market Study: Whether your goal is to revitalize or fill space in a

neighborhood commercial district or to rehabilitate vacant housing stock, you
should conduct a local market study. A good market study will measure the level
of existing goods and services provided in the area, and assess the capacity of the
area to support existing and additional commercial or home-ownership activity.
This assessment is based on the shopping and traffic patterns of the area and the
demographic and socio-economic characteristics of the community.
Analysis of Local and Regional Industry Trends: Another method of
investigating potential business opportunities is to research local and regional
business and industry trends. You may be able to identify which business or
industrial sectors are growing or declining in your city, metropolitan area or
region. The regional or metropolitan area planning agency for your area is a good
source of data on industry trends.
Internal Capacity: The board, staff or membership of your organization may
possess knowledge and skills in a particular business sector or industry. Your
organization may wish to draw upon this internal expertise in selecting potential
business opportunities.
Internal Purchasing Needs / Collaborative Procurement: Perhaps, your
organization frequently purchases a particular service or product. If nearby affiliate
organizations also use this service or product, this may present a business
opportunity. Examples of such products or services include printing or copying
services, travel services, transportation services, property management services,
office supplies, catering services, and other products. You will still need to conduct
a complete market study to determine the demand for this product or service
beyond your internal needs or the needs of your partners or affiliates.
Identify Business Opportunities
Buying an Existing Business: Rather than starting a new business, you may wish
to consider purchasing an existing business. Perhaps a local retail or small light
manufacturing business that has been an anchor to the local retail area or a much-
needed source of jobs in the neighborhood is for sale. Its closure would mean the
loss of jobs and services for your neighborhood. Your organization might consider
purchasing and taking over the enterprise instead of starting a new business. If you
decide to pursue this option, you still need to go through the steps of creating a
business plan. However, before moving ahead, these are just a few important areas
to research in assessing the business you plan to purchase:
Advisory
You have decided on a business opportunity that meets the goals of your
organization. Now you are ready to test the feasibility of the venture and to present
your business concept to the world. A solid business plan will clearly explain the
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business concept, describe the market for your product or service, attract
investment, and establish operating goals and guidelines.
The first step in writing your business plan is to identify your target audience. Will
this be an internal plan the board will use to assess the feasibility and
appropriateness of the business? Or will this plan be distributed to a larger external
audience such as funding sources, commercial lenders or the community to gain
financial backing and political support for the proposed venture? The content and
emphasis of the plan will shift according to the audience.

Q.4 What are the three types of capital needed for a start-up Company?
Capital Requirements.

Describe the amount and type of financing you are seeking for your business. Are
you looking for debt from a lender or equity from an investor? Refer to your start
up budget and cash flow statement presented earlier. Discuss how and when you
will draw on these funds and how they will affect the bottom line. Also describe
any commitments or investments that you may have already secured.
If you are seeking investors, such as venture capitalists, describe what they will
receive in return for their capital. What is the repayment period and the expected
return on investment? Also discuss the nature of their ownership share and how it
may change with future investments. Equity investors are looking for rates of
return higher than rates offered by banks or other business lenders. The level of
risk in your business and industry will help to determine the actual market rate, as
will the availability of equity dollars. Check with other businesses (although not
direct competitors) to see what return on investment their investors demanded. Be
prepared to negotiate. And make sure you research the investment market
carefully; several socially minded investment pools exist and more are in
development. or lenders, describe the type of financing you are seeking:
· Seed Capital – Short-term financing to cover start-up costs.
Seed capital enables businesses to launch a new product or service without
depending fully on a business loan. The funds for this form of financing are
typically provided by private investors who are looking for a high return on their
investment of at least 30 percent. The investors look to invest in an industry with a
market of at least $1 billion, and they also want an industry with few competitors
for your business.
Businesses that typically obtain seed capital are young companies around one year
of age that have not produced a product or service for commercial sale yet. The
companies are so new, so it can be difficult to obtain a regular commercial loan
that is sufficient for covering all of the related start up expenses. Regular lending
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institutions also don't like taking large risks in companies, but an investor will take
a risk for the hope of a high return on the investment.
There are some things about seed capital that are extremely important for a
business owner to understand. An investor often will want partial control of the
business, so you have to be willing to give up a portion of your business if you
want financing from an investor. Another thing to keep in mind when seeking
investors is that you will have to share confidential information about your
business with them.
To help you find investors for your business we offer the business capital search
engine. There are over 4,000 sources ready to help your business obtain the
financing you want. You can find investors or lenders by conducting a free search.

· Fixed Asset Financing – Longer-term financing for property, building

improvements, equipment or vehicles. The asset being purchased is usually
pledged as security for the loan.
· Working Capital – Short-term financing to cover operating expenses and to
bridge gaps in cash flow.
Working capital, also known as net working capital or NWC, is a financial
metric which represents operating liquidity available to a business. Along with
fixed assets such as plant and equipment, working capital is considered a part of
operating capital. It is calculated as current assets minus current liabilities. If
current assets are less than current liabilities, an entity has a working capital
deficiency, also called a working capital deficit.
Working Capital = Current Assets − Current Liabilities
A company can be endowed with assets and profitability but short of liquidity if its
assets cannot readily be converted into cash. Positive working capital is required to
ensure that a firm is able to continue its operations and that it has sufficient funds
to satisfy both maturing short-term debt and upcoming operational expenses. The
management of working capital involves managing inventories, accounts
receivable and payable and cash.

Q.5 You are the Marketing Head of a multi product marketing company for
consumer goods in South India. Explain the method and elements of a Sales
projection for the following budget year
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Projection of sales is an important part of the plan. Part of the sales projection
work is planning for a better performance in the future and correcting past
performance with which you are not satisfied. You do this by finding out what
profit contribution each sales representative makes. One goal of measuring a sales
representative's performance is improvement assistance. This is done in the
marketing personnel section of the marketing plan.
Talk to your sales managers and get their agreement about goals to attain for the
next year. You can agree on total profit contribution in currency, in numbers and a
number of other variable parameters. You should include these expectations for
each major product line, for each major market (industry, geography, demography,
etc.) or even for each major account.
Reach an agreement on the expenses as well. This is handled in the marketing
budget section. Think of total sales budget in currency for travel, cars, customer
entertainment (lunches, dinners), telephone and other expenses.
In the Budgeting and Control section you can include measurement of the
projected sales figures, costs and other parameters included. Have regular meetings
with your sales staff, your sales management, marketing management and other
personnel responsible for your sales.
Additional costs such as price cuts, non-reimbursed overtime, claims or credits due
to errors, and their expenses reduce the sales force's profit contribution. Consider
all these variables when projecting your sales for the next three or five years. Be as
specific as possible.
We've found that doing two forecasts is best, a very optimistic one and a worst
case scenario. Then try to average between the two. We've been successfully using
this for years.
Use the Estimate Sales tables to help you calculate the total sales and the cost of
goods sold for each product each year. Enter the units to be sold and the sales price
per unit. Enter the cost of goods sold per unit. The actual sales and cost of goods
total are automatically calculated.
Estimate Sales

The cost of goods per product unit are calculated in a separate table to the right
(see below), and are automatically added to the Estimate Sales table in the column
'Cost of goods per units'.

The above information is automatically inserted into the Sales Projection

worksheet. Enter the sales per month by taking the total yearly amount from the
Estimate Sales and divide it using a weighing percentage for each month. All other
data is automatically calculated from the information entered.
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Q.6 A Business Continuity Plan is a Disaster Management Plan. Discuss this

statement, explaining how such a plan could be useful for a business affected by
recession.
Business continuity planning lifecycle

It is totally right that Business Continuity Plan is a Disaster Management Plan

Because:
Recent world events have challenged us to prepare to manage previously
unthinkable situations that may threaten an organization’s future. This new
challenge goes beyond the mere emergency response plan or disaster management
activities that we previously employed. Organizations now must engage in a
comprehensive process best described generically as Business Continuity. It is no
longer enough to draft a response plan that anticipates naturally, accidentally, or
intentionally caused disaster or emergency scenarios.
Today’s threats require the creation of an on-going, interactive process that serves
to assure the continuation of an organization’s core activities before, during, and
most importantly, after a major crisis event.
In the simplest of terms, it is good business for a company to secure its assets.
CEOs and shareholders must be prepared to budget for and secure the necessary
resources to make this happen. It is necessary that an appropriate administrative
structure be put in place to effectively deal with crisis management. This will
ensure that all concerned understand who makes decisions, how the decisions are
implemented, and what the roles and responsibilities of participants are. Personnel
used for crisis management should be assigned to perform these roles as part of
their normal duties and not be expected to perform them on a voluntary basis.
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Regardless of the organization – for profit, not for profit, faith-based, non-
governmental – its leadership has a duty to stakeholders to plan for its survival.
The vast majority of the national critical infrastructure is owned and operated by
private sector organizations, and it is largely for these organizations that this
guideline is intended. ASIS, the world’s largest organization of security
professionals, recognizes these facts and believes the BC Guideline offers the
reader a user-friendly method to enhance infrastructure protection.
Business continuity planning
Business Continuity Plan, Business Impact Analysis, Crisis Management Team,
Critical Functions, Damage Assessment, Disaster, Evaluation and Maintenance,
Mitigation Strategies, Mutual Aid Agreement, Prevention, Readiness,
Recovery/Resumption, Resource Management, Response, Risk Assessment,
Testing and Training.
Business continuity covers all things that affect business
Crisis – Any global, regional, or local natural or human-caused event or business
interruption that runs the risk of (1) escalating in intensity,
(2) adversely impacting shareholder value or the organization’s financial position,
(3) causing harm to people or damage to property or the environment, (4) falling
under close media or government scrutiny,
(5) interfering with normal operations and wasting significant management time
and/or financial resources, (6) adversely affecting employee morale, or (7)
jeopardizing the organization’s reputation, products, or officers, and therefore
negatively impacting its future.
Crisis Management – Intervention and co-ordination by individuals or teams
before, during, and after an event to resolve the crisis, minimize loss, and
otherwise protect the organization.
Crisis Management Center – A specific room or facility staffed by personnel
charged with commanding, controlling, and coordinating the use of resources and
personnel in response to a crisis.
Crisis Management Planning – A properly funded ongoing process supported by
senior management to ensure that the necessary steps are taken to identify and
analyze the adverse impact of crisis events, maintain viable recovery strategies,
and provide overall coordination of the organization’s timely and effective
response to a crisis.
Crisis Management Team – A group directed by senior management or its
representatives to lead incident/event response comprised of personnel from such
functions as human resources, information technology facilities, security, legal,
communications/media relations, manufacturing, warehousing, and other business
critical support functions.
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Critical Function – Business activity or process that cannot be interrupted or

unavailable for several business days without having a significant negative impact
on the organization.
Critical Records – Records or documents that, if damaged, destroyed, or lost,
would cause considerable inconvenience to the organization and/or would require
replacement or recreation at a considerable expense to the organization.
Damage Assessment – The process used to appraise or determine the number of
injuries and human loss, damage to public and private property, and the status of
key facilities and services resulting from a natural or human-caused disaster or
emergency.
Disaster – An unanticipated incident or event, including natural catastrophes,
technological accidents, or human-caused events, causing widespread destruction,
loss, or distress to an organization that may result in significant property damage,
multiple injuries, or deaths.
Disaster Recovery – Immediate intervention taken by an organization to minimize
further losses brought on by a disaster and to begin the process of recovery,
including activities and programs designed to restore critical business functions
and return the organization to an acceptable condition.
Emergency – An unforeseen incident or event that happens unexpectedly and
demands immediate action and intervention to minimize potential losses to people,
property, or profitability.
Evacuation – Organized, phased, and supervised dispersal of people from
dangerous or potentially dangerous areas.
Evaluation and Maintenance – Process by which a business continuity plan is
reviewed in accordance with a predetermined schedule and modified in light of
such factors as new legal or regulatory requirements, changes to external
environments, technological changes, test/exercise results, personnel changes, etc.
Exercise – An activity performed for the purpose of training and conditioning
team members and personnel in appropriate crisis responses with the goal of
achieving maximum performance.
Mitigation Strategies – Implementation of measures to lessen or eliminate the
occurrence or impact of a crisis.
Mutual Aid Agreement – A pre-arranged agreement developed between two or
more entities to render assistance to the parties of the agreement.
Prevention – Plans and processes that will allow an organization to avoid,
preclude, or limit the impact of a crisis occurring. The tasks included in prevention
should include compliance with corporate policy, mitigation strategies, and
behavior and programs to support avoidance and deterrence and detection.
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Readiness – The first step of a business continuity plan that addresses assigning
accountability for the plan, conducting a risk assessment and a business impact
analysis, agreeing on strategies to meet the needs identified in the risk assessment
and business impact analysis, and forming Crisis Management and any other
appropriate response teams.
Recovery/Resumption – Plans and processes to bring an organization out of a
crisis that resulted in an interruption. Recovery/resumption steps should include
damage and impact assessments, prioritization of critical processes to be resumed,
and the return to normal operations or to reconstitute operations to a new
condition.
Response – Executing the plan and resources identified to perform those duties
and services to preserve and protect life and property as well as provide services to
the surviving population. Response steps should include potential crisis
recognition, notification, situation assessment, and crisis declaration, plan
execution, communications, and resource management.
Risk Assessment – Process of identifying internal and external threats and
vulnerabilities, identifying the likelihood of an event arising from such threats or
vulnerabilities, defining the critical functions necessary to continue an
organization’s operations, defining the controls in place or necessary to reduce
exposure, and evaluating the cost for such controls.
Shelter-in-Place – The process of securing and protecting people and assets in the
general area in which a crisis occurs.
Simulation Exercise – A test in which participants perform some or all of the
actions they would take in the event of plan activation. Simulation exercises are
performed under conditions as close as practicable to ‘‘real world’’ conditions.
Tabletop Exercise – A test method that presents a limited simulation of a crisis
scenario in a narrative format in which participants review and discuss, not
perform, the policy, methods, procedures, coordination, and resource assignments
associated with plan activation.
Testing – Activities performed to evaluate the effectiveness or capabilities of a
plan relative to specified objectives or measurement criteria. Testing usually
involves exercises designed to keep teams and employees effective in their duties
and to reveal weaknesses in the Business Continuity Plan.
Training – An educational process by which teams and employees are made
qualified and proficient about their roles and responsibilities in implementing a
Business Continuity Plan.
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Vital Records – Records or documents, for legal, regulatory, or operational

purposes, that if irretrievably damaged, destroyed, or lost, would materially impair
the organization’s ability to continue business operations.

International Business Management

Q1. Are crises, as the recent recession of 2008 shows, the essential feature of
globalization?

Year 2008 witnessed what is being called the worst financial crisis since the Great
Depression of 1929-30. The first indications of a serious crisis appeared in
January 2008. On 15 January, news of a sharp drop in the profits of the Citigroup
banking led to a sharp fall on the New York Stock Exchange. On 21 January a
spectacular fall in share prices occurred in all major world markets, followed by a
series of collapses. A number of American and European banks declared massive
losses in their 2007 end of the year results.

Later months of the year witnessed the bankruptcy of Lehman Brothers, a 158-year
old investment bank, the takeover of the stock-broking firm and investment bank
Merrill Lynch, and the move by Goldman Sacks and Morgan Stanley to seek
banking status in order to receive protection from bankruptcy. During the same
weeks, the remaining four investment banks on the Wall Street all went under in
one way or another. To stop further collapse and to ward off total economic
catastrophe, the US government made its most dramatic interventions in financial
markets since the 1930s. Only the infusion of hundreds of billions of dollars into
the US banking system, coinciding with equally colossal interventions in Europe,
staved off an entire crash of the world’s financial markets.
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The collapse of financial markets is now being matched up by the decline of the
real economy. The world appears headed for a period of inevitable economic
stagnation/recession (a period of negative economic growth). After a year of
financial shock and sharp economic loss, 2009 is likely to be extremely difficult
for the global economy. Many observers commented that the turmoil in world
financial markets has lead to a severe and still unfolding economic downturn in
most of the Western economies, and as a result, the world has come on the brink of
the ‘worst economic downturn’ since the Second World War. In November 2008
the IMF released an update to its October 2008 World Economic Outlook in which
it highlighted the fast deteriorating economic environment and downgraded global
real GDP growth forecasts for 2008-2009.(1) Many developed countries are now
expected to face a deeper recession than had been anticipated. IMF downgraded
its predictions for economic growth in 2008 and 2009, with world GDP growth
expected to be 2.2% in 2009 instead of 3.0% predicted in October, and 3.7% in
2008 instead of 3.9% predicted in October. In the new forecast, the advanced
economies are expected to contract by ¼ percent on an annual basis in 2009. This
would mark the first annual contraction in the post-WW II period for these
countries as a group. There are substantial downgrades for 2009 real GDP growth
even for the emerging economies, which are expected to see overall growth of
5.1% in 2009, compared to 6.1% forecast in October 2008. The US economy is
predicted to shrink by -0.7% in 2009 while the UK is set to be the worst affected of
Western European countries with a contraction of -1.3% in 2008. Thus, it is
expected that emerging economies will account for 100 percent of global growth
next year. The IMF report indicates that the economic performance of the
emerging economies will be critical in order to attain the hoped-for revival of
global growth after 2010
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The financial crisis was not widely predicted by mainstream economists, who
instead spoke of The Great Moderation. A number of heterodox economists
predicted the crisis, with varying arguments. Dirk Bezemer in his research[106]
credits (with supporting argument and estimates of timing) 12 economists with
predicting the crisis: Dean Baker (US), Wynne Godley (US), Fred Harrison (UK),
Michael Hudson (US), Eric Janszen (US), Steve Keen (Australia), Jakob Brøchner
Madsen & Jens Kjaer Sørensen (Denmark), Kurt Richebächer (US), Nouriel
Roubini (US), Peter Schiff (US), and Robert Shiller (US). Examples of other
experts who gave indications of a financial crisis have also been given.[107][108][109]
A cover story in BusinessWeek magazine claims that economists mostly failed to
predict the worst international economic crisis since the Great Depression of
1930s.[110] The Wharton School of the University of Pennsylvania's online business
journal examines why economists failed to predict a major global financial crisis.
[111]
Popular articles published in the mass media have lead the general public to
believe that the majority of economists have failed in their obligation to predict the
financial crisis. For example, an article in the New York Times informs that
economist Nouriel Roubini warned of such crisis as early as September 2006, and
the article goes on to state that the profession of economics is bad at predicting
recessions.[112] According to The Guardian, Roubini was ridiculed for predicting a
collapse of the housing market and worldwide recession, while The New York
Times labelled him "Dr. Doom".[113]
Within mainstream financial economics, most believe that financial crises are
simply unpredictable,[114] following Eugene Fama's efficient-market hypothesis and
the related random-walk hypothesis, which state respectively that markets contain
all information about possible future movements, and that the movement of
financial prices are random and unpredictable.

Q2. Will culture be eroded in the wake of globalization?

Globalization refers to a ‘growing economic interdependence among countries, as

reflected in the increased cross-border flow of three types of entities: goods and
services, capital, and know-how’ (Govindarajan and Gupta, 2001, 4). Few spoke of
‘world economy’ 25 years ago, and the prevalent term was ‘international trade’
(Drucker, 1995). However today, international trade has culminated in the
emergence of a global economy, consisting of flows of information, technology,
money, and people, and is conducted via government international organizations
such as the North American Free Trade Agreement (NAFTA) and the European
Community; global organizations such as the International Organization for
Standardization (ISO); multinational companies (MNCs); and cross – border
alliances in the form of joint ventures, international mergers, and acquisitions.
 17

These inter – relationships have enhanced participation in the world economy, and
have become a key to domestic economic growth and prosperity (Drucker, 1995,
153).
‘Universal culture’ often refers to the assumptions, values, and practices of people
in the West and some elites in non-Western cultures. Huntington (1996) suggested
that it originates from the intellectual elites from a selected group of countries who
meet annually in the World Economic Forum in Davos, Switzerland. These
individuals are highly educated, work with symbols and numbers, are fluent in
English, are extensively involved with international commitments, and travel
frequently outside their country. They share the cultural value of individualism,
and believe strongly in market economics and political democracy. Although those
belonging to the Davos group control virtually all of the world’s important
international institutions, many of the world’s governments, and a great majority of
the world’s economic and military capabilities, the cultural values of the Davos
group are probably embraced by only a small fraction of the six billion people of
the world.
Popular culture, again mostly Western European and American in origin, also
contributes to a convergence of consumption patterns and leisure activities around
the world. However, the convergence may be superficial, and have only a small
influence on fundamental issues such as beliefs, norms, and ideas about how
individuals, groups, institutions, and other important social agencies ought to
function. In fact, Huntington (1996, 58) noted that ‘The essence of Western
civilization is the Magna Carta, not the Magna Mac. The fact that non-Westerners
may bite into the latter has no implications for their accepting the former’. This
argument is obvious if we reverse the typical situation and put Western Europeans
and Americans in the shoes of recipients of cultural influence. For instance, while
Chinese Kung Fu dominates fight scenes in Hollywood movies such as Matrix
Reloaded, and Chinese restaurants abound in the West, it seems implausible that
Americans and Europeans have espoused more Chinese values because of their
fondness of Chinese Kung Fu and food. A major argument against cultural
convergence is that traditionalism and modernity may be unrelated (Smith and
Bond, 1998). Strong traditional values, such as group solidarity, interpersonal
harmony, paternalism, and feminism, can co-exist with modern values of
individual achievement and competition. A case in point is the findings that
Chinese in Singapore and China indeed endorsed both traditional and modern
values (Chang et al., 2003; Zhang et al., 2003). It is also conceivable that, just as
we talk about Westernization of cultural values around the world, we may also talk
about Easternization of values in response to forces of modernity and consumption
values imposed by globalization (Marsella and Choi, 1993).
 18

Although the argument that the world is becoming one culture seems untenable,
there are some areas that do show signs of convergence. We explore in the
following the roles of several factors that simultaneously cause cultures of the
world to either converge or diverge, in an attempt to identify several productive
avenues for future research.
Role of multiculturalism and cultural identity
The broad ideological framework of a country, corporation, or situation is the most
important determinant of the cultural identity that people develop in a given locale
(Triandis, 1994). The ‘melting pot’ ideology suggests that each cultural group loses
some of its dominant characteristics in order to become the mainstream: this is
assimilation, or what Triandis (1994) calls subtractive multiculturalism.
In contrast, when people from a cultural group add appropriate skills and
characteristics of other groups, it may be called integration, or additive
multiculturalism. Both of these processes are essential for cultural convergence to
proceed. However, if there is a significant history of conflict between the cultural
groups, it is hard to initiate these processes, as in the case of Israelis and
Palestinians. In general, although there has been some research on the typology of
animosity against other nations (e.g., Jung et al., 2002), we do not know much
about how emotional antagonism against other cultural groups affects trade
patterns and intercultural cooperation in a business context. The issues of cultural
identity and emotional reactions to other cultural groups in an IB context constitute
a significant gap in our research effort in this area.

Q3. ‘A world wide standardization is a major issue in the wake of

globalization’ Discuss.

Worldwide Standardization :
In the software industry, "simultaneous worldwide release" has become a mantra to
keep increasingly Internet-enabled consumers buying. In the recreational products
industry, companies want a "global brand" and position, regardless of local
eccentricities. Instituting a consistent, dependable localization methodology is a
sure-fire way to maintain high global standards for product introductions and
continued high levels of product service.
Whether outsourcing, vending, or managing the process internally, leading
companies are consolidating their previously disparate localization activities into
one coordinated process with a senior management sponsor. They are reaping
paybacks in lower costs, higher velocity, and sustainable quality.
 19

Successful global companies have recognized the need for localized product user
interfaces. They know that the days are gone when Americans heavy manufactured
exports only needed their "on-off" switch translated into different languages. With
software and semiconductors permeating everything from PCs to refrigerators to
automobiles, companies must adopt more pervasive product localization programs
than ever before.
For instance, a 1998 sports utility vehicle has more computing power than the
original PC. As a result, dashboard displays, controls, brochures and the traditional
glove box material all constitute part of the "user interface." The challenge for
automotive manufacturers is to break the localization activities for each of these
parts away from their production or functional operating groups, and centralize
localization in order to achieve consistent terminology and an even "look and feel"
for the product.
Developing a Repeatable Localization Methodology
By internationalizing products at the design phase, companies can communicate
the need for consistent standardization to their R& D organization, development
partners, and subcontractors. Engineers can design everything from product
screens, to help files, and systems diagnostics to be double byte enabled in order to
accommodate the extra space needs of Asian characters. This will ensure speedy
product deployment for that "big Asian order" without expensive and episodic
internationalization campaigns.
Product globalization also includes every step in the sales channel. This means that
both hard copy and on-line versions of sales, dealer and service/support materials
will contribute to the "feel" of your corporation and reinforce the "ethic" of your
product. This attention also ensures consistent terminology, which reinforces the
verbal "identity" of the company, throughout the book-to-deliver process. Since the
purchase and delivery process constitutes an increasingly large percentage of a
product’s perceived value, a consistent channel experience will directly affect
product pricing leverage and after-sale customer satisfaction.
When a company decides to open a direct office or establish new market segments,
the worst case scenario is the discovery that its individual distributors now "own"
the localized version. Equally disconcerting is a localized product that is
undocumented, inconsistent and imprecise.
Distributors’ efforts are nearly always under-managed, which results in variations
from release to release, a tarnished image and uncoordinated release dates from
country to country. Altogether, these drawbacks will undermine a corporate
globalization focus. By centralizing localization activities, a company can avoid
the confusion that results when individual distributors try to localize a product on a
site-by-site basis.
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Q4. How has WTO benefitted economies? Discuss briefly

The WTO’s overriding objective is to help trade flow smoothly, freely, fairly and
predictably
Benefits of WTO
1. The system helps to keep the peace
This sounds like an exaggerated claim, and it would be wrong to make too much of
it. Nevertheless, the system does contribute to international peace, and if we
understand why, we have a clearer picture of what the system actually does.
Peace is partly an outcome of two of the most fundamental principles of the trading
system: helping trade to flow smoothly and providing countries with a
constructive and fair outlet for dealing with disputes over trade issues. It is also
an outcome of the international confidence and cooperation that the system
creates and reinforces.
2. The system allows disputes to be handled constructively
As trade expands in volume, in the number of products traded, and in the numbers
of countries and companies trading, there is a greater chance that disputes will
arise. The WTO system helps resolve these disputes peacefully and constructively.
There could be a down side to trade liberalization and expansion. More trade
means more possibilities for disputes to arise. Left to themselves, those disputes
could lead to serious conflict. But in reality, a lot of international trade tension is
reduced because countries can turn to organizations, in particular the WTO, to
settle their trade disputes.
Before World War 2 that option was not available. After the war, the world’s
community of trading nations negotiated trade rules which are now entrusted to the
WTO. Those rules include an obligation for members to bring their disputes to the
WTO and not to act unilaterally.
3. A system based on rules rather than power makes life easier for all
The WTO cannot claim to make all countries equal. But it does reduce some
inequalities, giving smaller countries more voice, and at the same time freeing the
major powers from the complexity of having to negotiate trade agreements with
each of their numerous trading partners
Decisions in the WTO are made by consensus. The WTO agreements were
negotiated by all members, were approved by consensus and were ratified in all
members’ parliaments. The agreements apply to everyone. Rich and poor countries
alike have an equal right to challenge each other in the WTO’s dispute settlement
procedures.
 21

4. Freer trade cuts the cost of living

We are all consumers. The prices we pay for our food and clothing, our necessities
and luxuries, and everything else in between, are affected by trade policies.
Protectionism is expensive: it raises prices. The WTO’s global system lowers trade
barriers through negotiation and applies the principle of non-discrimination. The
result is reduced costs of production (because imports used in production are
cheaper) and reduced prices of finished goods and services, and ultimately a lower
cost of living.
There are plenty of studies showing just what the impacts of protectionism and of
freer trade are. These are just a few figures:
Food is cheaper
Clothes are cheaper
The same goes for other goods
… and services
Liberalization in telephone services is making phone calls cheaper – in the 1990s
by 4% per year in developing countries and 2% per year in industrial countries,
taking inflation into account.
In China, competition from a second mobile phone company was at least part of
the reason for a 30% cut in the price of a call. In Ghana the cut was 50%.
The group of economists led by Robert Stern estimates that lowering services
barriers by one third under the Doha Development Agenda would raise developing
countries’ incomes by around $60 billion.
And so it goes on. The system now entrusted to the WTO has been in place for
over 50 years.
In that time there have been eight major rounds of trade negotiations. Trade
barriers around the world are lower than they have ever been in modern trading
history. They continue to fall, and we are all benefiting.
5. It gives consumers more choice and a broader range of qualities to choose
from
Think of all the things we can now have because we can import them: fruits and
vegetables out of season, foods, clothing and other products that used to be
considered exotic, cut flowers from any part of the world, all sorts of household
goods, books, music, movies, and so on.
Think also of the things people in other countries can have because they buy
exports from us and elsewhere. Look around and consider all the things that would
disappear if all our imports were taken away from us. Imports allow us more
 22

choice – both more goods and services to choose from, and a wider range of
qualities. Even the quality of locally – produced goods can improve because of the
competition from imports.
6. Trade raises incomes
Lowering trade barriers allows trade to increase, which adds to incomes –
national incomes and personal incomes. But some adjustment is necessary.
The WTO’s own estimates for the impact of the 1994 Uruguay Round trade deal
were between $109 billion and $510 billion added to world income (depending on
the assumptions of the calculations and allowing for margins of error).
7. Trade stimulates economic growth and that can be good news for
employment
Trade clearly has the potential to create jobs. In practice there is often factual
evidence that lower trade barriers have been good for employment. But the picture
is complicated by a number of factors. Nevertheless, the alternative –
protectionism – is not the way to tackle employment problems.
8. The basic principles make the system economically more efficient, and they
cut costs
Many of the benefits of the trading system are more difficult to summarize in
numbers, but they are still important. They are the result of essential principles at
the heart of the system, and they make life simpler for the enterprises directly
involved in trade and for the producers of goods and services.
Trade allows a division of labour between countries. It allows resources to be used
more appropriately and effectively for production. But the WTO’s trading system
offers more than that. It helps to increase efficiency and to cut costs even more
because of important principles enshrined in the system.
9. The system shields governments from narrow interests
The GATT – WTO system which evolved in the second half of the 20th Century
helps governments take a more balanced view of trade policy. Governments are
better – placed to defend themselves against lobbying from narrow interest groups
by focusing on trade – offs that are made in the interests of everyone in the
economy
One of the lessons of the protectionism that dominated the early decades of the
20th Century was the damage that can be caused if narrow sectoral interests gain
an unbalanced share of political influence. The result was increasingly restrictive
policy which turned into a trade war that no one won and everyone lost.
10. The system encourages good government
 23

Under WTO rules, once a commitment has been made to liberalize a sector of
trade, it is difficult to reverse. The rules also discourage a range of unwise
policies. For businesses, that means greater certainty and clarity about trading
conditions. For governments it can often mean good discipline.
The rules include commitments not to backslide into unwise policies.
Protectionism in general is unwise because of the damage it causes domestically
and internationally, as we have already seen.
Particular types of trade barriers cause additional damage because they provide
opportunities for corruption and other forms of bad government.

Q5. Show your understanding of regional economic integration

Regional Economic Integration

Regional integration can take many forms, and nowhere is this more evident than
in the vastly different integration processes taking place in the regions of Europe
and East Asia. The subject of this paper is regional integration as it has developed
in East Asia with a focus on the drivers of that integration. While the paper is not
intended as a direct comparison of integration in East Asia and Europe, it will
include some comparisons between the two regions.
Integration in East Asia has progressed very slowly and is still in an early stage
despite that the process has continued for decades. In fact, it could be said that the
process began centuries ago – even as far back as the 15th century. By comparison,
European integration has progressed steadily and has gradually deepened over the
last 50 years to reach an advanced stage today with a common currency and well-
developed regional institutions. Thus, the speed of progression and the level of
integration attained in the two regions are quite dissimilar.
In addition to these differences, the drivers behind the integration process in each
region are different. In Europe, the origins of integration have been institutional in
nature, and the development of institutions has been prominent throughout the
process. Thus, regional institutions have been the driving force behind integration
in Europe. In East Asia, the development of regional institutions has also occurred;
however, progress in this area has been slow and the few existing institutions are
fairly weak and ineffective. Nevertheless, regional integration is taking place in
East Asia, but the driving force is the market rather than policy or institutions.
Corporations and the production networks they have established are driving
integration in East Asia.
Finland: Regional Economic Integration
 24

Until 1917 the Grand Duchy of Finland enjoyed a privileged position as a

relatively advanced part of the Russian Empire, supplying metal products and ships
in exchange for agricultural goods. These ties collapsed, however, when political
tensions between the Bolshevik regime and the Finnish Republic precluded
commercial agreements. The interwar pattern was reversed in the years following
World War II, as reparations payments and barter trade grew into a close trading
relationship in which Finland exported industrial goods, especially capital goods,
in exchange for raw materials and fuels – an arrangement roughly parallel to that
which had existed before 1917.
Starting in the late 1950s, however, Finland broke away from its dependence on
the Soviet market, successfully opening its economy to the two West European
trading blocks, the European Economic Community (EEC – see Glossary) and the
European Free Trade Association
(EFTA – see Glossary). Expanded trade with the West did not imply renunciation
of profitable exchanges with the East, however, because Finnish commercial ties
with the Soviet Union and with the other members of the Council for Mutual
Economic Assistance (CMEA, CEMA, or
Comecon – see Glossary) deepened after 1960. By the late 1980s, Finland
provided a unique example of a neutral country with a free-market economy that
had developed increasing economic interdependence with both the market
economies of Western Europe and the planned economies of Eastern Europe.

Q6. Describe the current issues in globalization

current issues in globalization

Foreign Aid for Development Assistance
In 1970, the world’s rich countries agreed to give 0.7% of their gross national
income as official international development aid, annually.
Since that time, billions have certainly been given each year, but rarely have the
rich nations actually met their promised target.
Furthermore, aid has often come with a price of its own for the developing nations.
Common criticisms, for many years, of foreign aid, have included the following:
Today, over 24,000 children died around the world
Over 24,000 children die every day around the world.
That is equivalent to:
• 1 child dying every 3.6 seconds
 25

• 16-17 children dying every minute

• A 2010 Haiti earthquake occurring almost every 9-10 days
• A 2004 Asian Tsunami occurring almost every 10 days
• An Iraq-scale death toll every 16–40 days
• Just under 9 million children dying every year
• Some 79 million children dying between 2000 and 2007
The silent killers are poverty, easily preventable diseases and illnesses, and other
related causes. In spite of the scale of this daily/ongoing catastrophe, it rarely
manages to achieve, much less sustain, prime-time, headline coverage.
Women’s Rights
Women’s rights around the world is an important indicator to understand global
well-being.
A major global women’s rights treaty was ratified by the majority of the world’s
nations a few decades ago.
Yet, despite many successes in empowering women, numerous issues still exist in
all areas of life, ranging from the cultural, political to the economic. For example,
women often work more than men, yet are paid less; gender discrimination affects
girls and women throughout their lifetime; and women and girls are often are the
ones that suffer the most poverty.
Gender equality furthers the cause of child survival and development for all of
society, so the importance of women’s rights and gender equality should not be
underestimated.
Poverty Around The World
Around the world, in rich or poor nations, poverty has always been present.
In most nations today, inequality—the gap between the rich and the poor—is quite
high and often widening.
The causes are numerous, including a lack of individual responsibility, bad
government policy, exploitation by people and businesses with power and
influence, or some combination of these and other factors.
Many feel that high levels of inequality will affect social cohesion and lead to
problems such as increasing crime and violence.
Inequality is often a measure of relative poverty. Absolute poverty, however, is
also a concern. World Bank figures for world poverty reveals a higher number of
people live in poverty than previously thought.
 26

For example, the new poverty line is defined as living on the equivalent of $1.25 a
day. With that measure based on latest data available (2009), 1.4 billion people live
on or below that line.
Furthermore, almost half the world—over three billion people—live on less than
$2.50 a day and at least 80% of humanity lives on less than $10 a day:

Obesity
Obesity typically results from over-eating (especially an unhealthy diet) and lack
of enough exercise.
In our modern world with increasingly cheap, high calorie food (example, fast food
— or junk food), prepared foods that are high in things like salt, sugars or fat,
combined with our increasingly sedentary lifestyles, increasing urbanization and
changing modes of transportation, it is no wonder that obesity has rapidly
increased in the last few decades, around the world.
The number of people overweight or obese is now rivaling the number of people
suffering from hunger around the world. Obese people were thought to be mainly
from richer countries or wealthier segments of society, but poor people can also
suffer as the food industry supplies cheaper food of poorer quality.
Environmental, societal and life-style factors all have an impact on obesity and
health. While individuals are responsible for their choices, other actors such as the
food industry are also part of the problem, and solution. Unfortunately, the food
industry appears reluctant to take too many measures that could affect their bottom
line, preferring to solely blame individuals instead.
27