1. SMU
ASSIGNMENT
SEMESTER – 4
MB0053
SUBMITTED BY:
DEVESH NIDARIA (MBA)
ROLLNO:-581125616

2. Q1 Write a short note on GATT and WTO, highlighting the difference
between the two.
Ans:
WTO
World Trade Organisation (WTO). WTO was established on 1st January 1995. In April 1994, the Final Act
was
signed at a meeting in Marrakesh, Morocco. The Marrakesh Declaration of 15th April 1994 was formed to
strengthen the world economy that would lead to better investment, trade, income growth and employment
throughout the world. The WTO is the successor to the General Agreement of Tariffs and Trade (GATT).
India is
one of the founder members of WTO. WTO represents the latest attempts to create an organisational focal
point for
liberal trade management and to consolidate a global organisational structure to govern world affairs. WTO
has
attempted to create various organisational attentions for regulation of international trade. WTO created a
qualitative
change in international trade. It is the only international body that deals with the rules of trades between
nations.
General Agreement on Tariffs and Trade (GATT) - GATT is a multilateral
agreement among countries providing a framework for conducting international trade.
GATT is regarded as an international institution governing international trade relations. It
consists of disciplines on governments and matters related to import and export of
goods. It was established to promote international trade by reducing tariff and non-tariff
restrictions on imports imposed by member nations. Tariff barrier refers to imposing
import duty and non-tariff barriers means restricting imports through import licensing and
by banning the imports. GATT provides a framework for negotiations on the level of
tariff. It promotes multilateral trade among member nations. It provides protection
against unfair trade and obstructions to trade.
Objectives and functions
The key objective of WTO is to promote and ensure international trade in developing countries. The other
major
functions include:
· Helping trade flows by encouraging nations to adopt discriminatory trade policies.
· Promoting employment, expanding productions and trade and raising standard of living and income and
utilising
the world’s resources.
· Ensuring that developing countries secure a better share of growth in world trade.
· Providing forum for trade negotiations.
· Resolving trade disputes.
The important functions of the WTO as stated in the WTO agreement are the following:
· Developing transitional economies – Majority of the WTO members belong to developing
countries. The

3. developing countries such as India, China, Mexico, Brazil and others have an important role in the
organisation. The
WTO helps in solving the problems of developing economies. The developing states are provided with
trade and
tariff data. This depends on the country’s individual export interest and their participation in WTO-bodies.
The new
members benefit hugely from these services.
· Providing help for export promotion – The WTO provides specialised help for export promotion
to its members.
The export promotion is done through the International Trade Center established by the GATT in 1964. It
is
operated by the WTO and the United Nations. The center accepts requests from member countries, usually
developing countries for support in formulating and implementing export promotion programmes. The
center
provides information on export market and marketing techniques. The center also provides assistance in
establishing
export promotion and marketing services. Through this WTO proves its commitment in the upliftment of
the world
economy.
· Cooperating in global economic policy-making – The main function of the WTO is to
cooperate in global
economic policy-making. In the Marrakesh Ministerial Meeting in April 1994, a separate declaration was
adopted to
achieve this objective. The declaration specifies the responsibility of WTO as, to improve and maintain the
cooperation with international organisations such as the World Bank, International Monetary Fund (IMF)
that are
involved in monetary and financial matters. WTO analyses the impact of liberalisation on the growth and
development of national economies which is the important factor in the success of the economy.
· Monitoring implementation of the agreement – The WTO administers sixty different
agreements that have the
statue of international legal documents. The member-governments sign and confirm all WTO agreements
on
attainment.
· Providing forum for negotiations – The WTO provides a permanent forum for negotiations
among members. The
negotiations can be on matters already in the WTO agreements or matters not addressed in the WTO law.
· Administrating dispute settlement – The important function of WTO is the administration of the
WTO dispute
settlement system. It helps in settling multilateral trading dispute. A dispute arises when a member country
adopts a
trade policy and other fellow members consider it as a violation of WTO agreements. The Dispute
Settlement Body
(DSB) is responsible for the settlement of disputes. The dispute settlement system is prohibited from
adding or
deleting the rights and obligations provided in the WTO agreements. The WTO dispute settlement system
helps to:
° Preserve the rights and responsibilities of the members.
° Clarify the current provisions of the agreements.
Structure
The structure of the WTO consists of the Ministerial Conference, which is the highest authority. This body
consists
of the representatives from all WTO members. The WTO members meet in every two years and take
decisions on
all matters under the multilateral trade agreements. The daily activities of the WTO are conducted by
subsidiary

4. bodies and principally by the General Council which is composed of WTO members. The members report
to the
Ministerial Conference. The General Council on behalf of the Ministerial Conference administers as the
Dispute
Settlement Body to manage the dispute settlement procedures. It also acts as the Trade Policy Review Body
that
conducts regular reviews of the trade policies of the individual WTO members.
The General Council delegates responsibility to other major bodies. They are:
· Council for Trade in Goods manages the implementation and functioning of all agreements covering trade
in
goods.
· Trade in Services and Trade of Intellectual Property Rights are the two councils that have responsibility
for their
respective WTO agreements and can establish their own subsidiary bodies if required.
· The Committee on Trade and Development manages issues relating to the developing countries.
· The Committee on Balance of Payments conducts consultations between WTO members and countries
that take
trade-restrictive measures to handle balance-of-payments difficulties.

5. Q 2 Describe various entry strategies available to a firm when it wants
to enter a foreign market.
Ans: International marketing refers to marketing of goods and products by companies overseas or
across national
borderlines. The techniques used while dealing overseas is an extension of the techniques used in
the home country
by the company.
Taking into account the various conditions on which markets vary and depend, appropriate
marketing strategies
should be devised and adopted. Like, some countries prevent foreign firms from entering into its
market space
through protective legislation. Protectionism on the long run results in inefficiency of local firms
as it is inept
towards competition from foreign firms and other technological advancements. It also increases
the living costs and
protects inefficient domestic firms.
To counter this scenario firms must learn how to enter foreign markets and increase their global
competitiveness.
Firms that plan to do business in foreign land find the marketplace different from the domestic
one. Market sizes,
customer preferences, and marketing practices all vary; therefore the firms planning to venture
abroad must analyse
all segments of the market in which they expect to compete.
The decision of a firm to compete internationally is strategic; it will have an effect on the firm,
including its
management and operations locally. The decision of a firm to compete in foreign markets has
many reasons. Some
firms go abroad as the result of potential opportunities to exploit the market and to grow globally.
And for some it is
a policy driven decision to globalise and to take advantage by pressurising competitors.
But, the decision to compete abroad is always a strategic down to business decision rather than
simply a reaction.
Strategic reasons for global expansion are:
· Diversifying markets that provide opportunistic global market development.
· Following customers abroad (customer satisfaction).
· Exploiting different economic growth rates.
· Pursuing a global logic or imperative to harvest new markets and profits.
· Pursuing geographic diversification.
· Globalising for defensive reasons.
· Exploiting product life cycle differences (technology).
· Pursuing potential abroad.
Likewise, there can be other reasons like competition at home, tax structures, comparative
advantage, economic
trends, demographic conditions, and the stage in the product life cycle. In order to succeed, a firm
should carefully
look at their geographic expansion and global marketing strategy. To a certain extent, a firm
makes a decision about
its extent of globalisation by taking a stance that may span from entirely domestic to a global
reach where the

6. company devotes its entire marketing strategy to global competition. In the process of developing
an international
marketing strategy, the firm may decide to do business in its home-country (domestic operations)
only or hostcountry
(foreign country) only.

7. Segmentation
Firms that serve global markets can be segregated into several clusters based on their similarities.
Each such cluster
is termed as a segment. Segmentation helps the firms to serve the markets in an improved way.
Markets can be
segmented into nine categories, but the most common method of segmentation is on the basis of
individual
characteristics, which include the behavioural, psychographic, and demographic segmentations.
The basis of
behavioural segmentation is the general behavioural aspects of the customers. Demographic
segmentation considers
the factors like age, culture, income, education and gender. Psychographic segmentation takes
into account: beliefs,
values, attitudes, personalities, opinions, lifestyles and so on.
Market positioning
The next step in the marketing process is, the firms should position their product in the global
market. Product
positioning is the process of creating a favourable image of the product against the competitor’s
products. In global
markets product positioning is categorised as high-tech or high–touch positioning.
One challenge that firms face is to make a trade-off between adjusting their products to the
specific demands of a
country and gaining advantage of standardisation such as the maintenance of a consistent global
brand image and
cost savings. This is task is not easy.
International product policy
Some thinkers of the industry tend to draw a distinction between conventional products and
services, stressing on
service characteristics such as heterogeneity (variation in standards among providers, frequently
even among
different locations of the same firm), inseparability from consumption, intangibility, and
perishability. Typically,
products are composed of some service component like, documentation, a warranty, and
distribution. These service
components are an integral part of the product and its positioning.
Firms have a choice in marketing their products across markets. Many a times, firms opt for a
strategy which
involves customisation, through which the firm introduces a unique product in each country,
believing that tastes
differ so much between countries that it is necessary to create a new product for each market. On
the other hand,
standardisation proposes the marketing of one global product, with the belief that the same
product can be sold in
different countries without significant changes. For example, Intel microprocessors are the same
irrespective of the
country in which they are sold.
Finally, in most cases firms will go for some kind of adaptation. Here, when moving a product
between markets
minor modifications are made to the product. For example, in U.S. fuel is relatively cheap,
therefore cars have larger

8. engines than the cars in Asia and Europe; and then again, much of the design is identical or
similar.
International pricing decisions
Pricing is the process of ascertaining the value for the product or service that will be offered for
sale.
In international markets, making pricing decisions is entangled in difficulties as it involves trade
barriers, multiple
currencies, additional cost considerations, and longer distribution channels. Before establishing
the prices, the firm
must know its target market well because when the firm is clear about the market it is serving,
then it can determine
the price appropriately. The pricing policy must be consistent with the firms overall objectives.
Some common
pricing objectives are: profit, return on investment, survival, market share, status quo, and
product quality.
The strategies for international pricing can be classified into the following three types:
· Market penetration· Market holding: · Market skimming:
The factors that influence pricing decisions are inflation, devaluation and revaluation, nature of
product or industry
and competitive behaviour, market demand, and transfer pricing.
The approach taken by company towards pricing when operating in international markets are
ethnocentric,
polycentric, and geocentric.
Transfer pricing is the process of setting a price that will be charged by a subsidiary (unit) of a
multi-unit firm to
another unit for goods and services, which are sold between such related units.
Transfer pricing is determined in three ways: market based pricing, transfer at cost and cost-plus
pricing. The Arm’s
Length pricing rule is used to establish the price to be charged to the subsidiary.
Many managers consider transfer pricing as non-market based. The reason for transfer pricing
may be internal or
external. Internal transfer pricing include motivating managers and monitoring performance.
External factors
include taxes, tariffs, and other charges.
Transfer Pricing Manipulation (TPM) is used to overcome these reasons. Governments usually
discourage TPM
since it is against transfer pricing, where transfer pricing is the act of pricing commodities or
services. However, in
common terminology, transfer pricing generally refers TPM.
International advertising
International advertising is usually associated with using the same brand name all over the world.
However, a firm
can use different brand names for historic reasons. The acquisition of local firms by global
players has resulted in a
number of local brands. A firm may find it unfavourable to change those names as these local
brands have their own

9. distinctive market.
The purpose of international advertising is to reach and communicate to target audiences in more
than one country.
The target audience differ from country to country in terms of the response towards humour or
emotional appeals,
perception or interpretation of symbols and stimuli and level of literacy. Sometimes, globalised
firms use the same
advertising agencies and centralise the advertising decisions and budgets. In other cases, local
subsidiaries handle
their budget, resulting in greater use of local advertising agencies.
International advertising can be thought of as a communication process that transpires in multiple
cultures that vary
in terms of communication styles, values, and consumption patterns. International advertising is a
business activity
and not just a communication process. It involves advertisers and advertising agencies that create
ads and buy media
in different countries. This industry is growing worldwide. International advertising is also
reckoned as a major
force that mirrors both social values, and propagates certain values worldwide.
International promotion and distribution
Distribution of goods from manufacturer to the end user is an important aspect of business.
Companies have their
own ways of distribution. Some companies directly perform the distribution service by contacting
others whereas a
few companies take help from other companies who perform the distribution services. The
distribution services
include:
· The purchase of goods.
· The assembly of an attractive assortment of goods.
· Holding stocks.
· Promoting sale of goods to the customer.
· The physical movement of goods.
In international marketing, companies usually take the advantage of other countries for the
distribution of their
products. The selection of distribution channel is helpful to gain the competitive advantage. The
distribution channel
is also dependent on the way to manage and control the channel. Selecting the distribution
channel is very important
for agents and distributors.

10. Q 3. Write a note on ‘Globalization’.
Ans: Globalization describes the process by which regional economies, societies, and cultures have
become integrated
through a global network of political ideas through communication, transportation, and trade. The term is
most
closely associated with the term economic globalization: the integration of national economies into the
international
economy through trade, foreign direct investment, capital flows, migration, the spread of technology, and
military
presence.However, globalization is usually recognized as being driven by a combination of economic,
technological,
sociocultural, political, and biological factors.The term can also refer to the transnational circulation of
ideas,
languages, or popular culture through acculturation. An aspect of the world which has gone through the
process can
be said to be globalized.
Against this view, an alternative approach stresses how globalization has actually decreased inter-cultural
contacts
while increasing the possibility of international and intra-national conflict.
Globalization has various aspects which affect the world in several different ways
• Industrial - emergence of worldwide production markets and broader access to a range of foreign
products
for consumers and companies. Particularly movement of material and goods between and within national
boundaries. International trade in manufactured goods increased more than 100 times (from $95 billion to
$12 trillion) in the 50 years since 1955.China's trade with Africa rose sevenfold during 2000-07 alone.
• Financial - emergence of worldwide financial markets and better access to external financing for
borrowers.
By the early part of the 21st century more than $1.5 trillion in national currencies were traded daily to
support the expanded levels of trade and investment
• Economic - realization of a global common market, based on the freedom of exchange of goods and
capital
• Job Market- competition in a global job market. In the past, the economic fate of workers was tied to the
fate of national economies. With the advent of the information age and improvements in communication,
this is no longer the case. Because workers compete in a global market, wages are less dependent on the
success or failure of individual economies. This has had a major effect on wages and income distribution
• Political - some use "globalization" to mean the creation of a world government which regulates the
relationships among governments and guarantees the rights arising from social and economic globalization.
Politically, the United States has enjoyed a position of power among the world powers, in part because of
its strong and wealthy economy. With the influence of globalization and with the help of the United States’
own economy, the People's Republic of China has experienced some tremendous growth within the past
decade. If China continues to grow at the rate projected by the trends, then it is very likely that in the next
twenty years, there will be a major reallocation of power among the world leaders. China will have enough
wealth, industry, and technology to rival the United States for the position of leading world power.
Most of us assume that international and global business are the same and that any company that deals with
another country for its business is an international or global company. In fact, there is a considerable
difference between the two terms.
International companies – Companies that deal with foreign companies for their business are
considered as
international companies. They can be exporters or importers who may not have any investments in any
other
country, apart from their home country.
Global companies – Companies, which invest in other countries for business and also operate from
other countries,

11. are considered as global companies. They have multiple manufacturing plants across the globe, catering to
multiple
markets.
The transformation of a company from domestic to international is by entering just one market or a few
selected
foreign markets as an exporter or importer. Competing on a truly global scale comes later, after the
company has
established operations in several countries across continents and is racing against rivals for global market
leadership.
Thus, there is a meaningful distinction between a company that operates in few selected foreign countries
and a
company that operates and markets its products across several countries and continents with manufacturing
capabilities in several of these countries.
Companies can also be differentiated by the kind of competitive strategy they adopt while dealing
internationally.
Multinational strategy and global competitive strategy are the two types of competitive strategy.
· Multinational strategy – Companies adopt this strategy when each country’s market needs to be
treated as self
contained. It can be for the following reasons:
° Customers from different countries have different preferences and expectations about a product or a
service.
° Competition in each national market is essentially independent of competition in other national markets,
and the
set of competitors also differ from country to country.
° A company’s reputation, customer base, and competitive position in one nation have little or no bearing
on its
ability to successfully compete in another nation.
Some of the industry examples for multinational competition include beer, life insurance, and food
products.
· Global competitive strategy – Companies adopt this strategy when prices and competitive
conditions across the
different country markets are strongly linked together and have common synergies. In a globally
competitive
industry, a company’s business gets affected by the changing environments in different countries. The same
set of
competitors may compete against each other in several countries. In a global scenario, a company’s overall
competitive advantage is gauged by the cumulative efforts of its domestic operations and the international
operations
worldwide.
A good example to illustrate is Sony Ericsson, which has its headquarters in Sweden, Research and
Development
setup in USA and India, manufacturing and assembly plants in low wage countries like China, and sales
and
marketing worldwide. This is made possible because of the ease in transferring technology and expertise
from
country to country.

12. Q 4 What does FDI stands for? Why do MNCs opt for FDI to enter
international market?
Ans: Foreign Direct Investment (FDI) Policy
Foreign direct investment (FDI) is an investment made with an intention of
establishing a long term interest by a business enterprise in another country. It is
also required that such an enterprise holds directly or indirectly, an ownership of
10% or more of voting rights in the target enterprise.
FDI policy, which is dictated by the Government of the host country, plays a vital role
in the economic growth of that country. Attracting FDI inflows with constructive policy
is a challenge for any nation. Developing countries offer a lot of incentives for FDI,
particularly in capital intensive sectors like power, infrastructure, transport,
construction. Effective FDI policies help the host country to portray itself as an
attractive investment destination.
Main objectives of FDI policy are to provide and facilitate investor friendly business
environment, so that the foreign investors feel safe with the financial and legal
framework of the country. The Government of the host countries often formulate new
or special regulatory framework to attract FDI. The host country often needs to invest
in development of domestic infrastructure to make it investor friendly.
Export orientation of multinational corporations (MNCs) has seldom been incorporated in
the analysis of spillovers from foreign direct investment (FDI). Also, until recently
empirical research dealt mainly with intra-industry spillovers from FDI with restrictive
treatment of inter-industry effects. Yet, to the extent that local producers are not in the
competitive fringe of MNCs, both spillovers from export oriented subsidiaries and inter-
industry spillovers may be more likely. First, when MNCs use the host country as export
platform, domestic firms are by and large not competitors to subsidaries. Then, there
would be no incentives to restrict technical information flows. As an example, results
using panel data from Venezuelan manufacturing point to FDI spillovers, mainly between
but also within industries, from export-oriented MNCs to large domestic firms. Second,
MNCs that outsource have an incentive to transfer technical knowledge to local upstream
suppliers. When this allows for spillovers to take place across sectors, we find evidence
that backward linkages are a channel of technology diffusion from export-oriented MNCs
to domestic manufacturers. Furthermore, small and medium plants do not experience
productivity gains ensuing FDI while large domestic producers experience higher
productivity growth, suggesting the importance of differences in absorptive capacity.
Basically the local industry is demolished by unfair competition, international

13. corporations grow an extra market, infiltrates the local government and end up by
exploiting all the local resources at a fraction of price due to prior commitments which
cannot be honoured e.g. repaiments of debt.
The main purpose of the FDI is actually to control some of the rich in resources
countries. Most of the so called "International help" is designed to generate long term
problems for the goverments who are accepting the contracts, also the MNCs are the next
level tool in extracting resources of any kind from the international market.
If the local government fails to cooperate (in most of the cases to become corrupt)
diferrent atctics are being utilised as in popular revolt, negative PR, or even assasination
of course in all the times would look like an accident.
As the third and the last option due to some "scarry" acts and fabricated but confirmed
intel, then the army is being sent. Of course before hand a full campaign of mass mental
preparation is activated, inclusive of conspiracy theory movements which are also
multicorporative managed.
To make a long story short, most of the MNCs are in partenership with the FDI and they
are part of the same plan, that is why MNCs are using the FDI.

14. Q5 What is the need to understand cultural Differences?
Explain Hofstede’s cultural Dimensions.
Ans: Cultural differences affect the success or failure of multinational firms in many
ways. The company must modify the product to meet the demand of the customers
in a specific location and use different marketing strategy to advertise their product to
the customers. Adaptations must be made to the product where there is demand or
the message must be advertised by the company. The following are the factors
which a company must consider while dealing with international business:
· The consumers across the world do not use same products. This is due to varied
preferences and tastes. Before manufacturing any product, the organisation has to
be aware of the customer choice or preferences.
· The organisation must manage and motivate people with broad different cultural
values and attitudes. Hence the management style, practices, and systems must be
modified.
· The organisation must identify candidates and train them to work in other countries
as the cultural and corporate environment differs. The training may include language
training, corporate training, training them on the technology and so on, which help
the candidate to work in a foreign environment.
· The organisation must consider the concept of international business and construct
guidelines that help them to take business decisions, and perform activities as they
are different in different nations. The following are the two main tasks that a
company must perform:
° Product differentiation and marketing - As there are differences in consumer tastes
and preferences across nations; product differentiation has become business
strategy all over the world. The kinds of products and services that consumers can
afford are determined by the level of per capita income. For example, in
underdeveloped countries, the demand for luxury products is limited.
° Manage employees - It is said that employees in Japan were normally not satisfied
with their work as compared with employees of North America and European

15. countries; however the production levels stayed high. To motivate employees in
North America, they have come up with models. These models show that there is a
relation between job satisfaction and production. This study showed the fact that it is
tough for Japanese workers to change jobs. While this trend is changing, the fact
that job turnover among Japanese workers is still lower than the American workers is
true. Also, even if a worker can go to another Japanese entity, they know that the
management style and practices will be quite alike to those found in their present
firm. Thus, even if Japanese workers were not satisfied with the specific aspects of
their work, they know that the conditions may not change considerably at another
place. As such, discontent might not impact their level of production.
The following are the three mega trends in world cultures:
· The reverse culture influence on modern Western cultures from growing
economies, particularly those with an ancient cultural heritage.
· The trend is Asia centric and not European or American centric, because of the
growing economic and political power of China, India, South Korea, and Japan and
also the ASEAN.
· The increased diversity within cultures and geographies.
The following are the necessary implications in international business:
· Avoid self reference criterion such as, one’s own upbringing, values and viewpoints.
· Follow a philosophical viewpoint that considers that many perspectives of a single
observation or phenomenon can be true.
· Discover and identify global segments and global niche markets, as national
markets are diverse with growing mobility of products, people, capital, and culture.
· Grow the total share market by innovating affordable products and services, and
making them accessible so that, they are affordable for even subsistence level
consumers rather than fighting for market share.
· Organise global enterprises around global centres of excellence.

16. Hofstede’s cultural dimensions
According to Dr. Geert Hofstede, ‘Culture is more often a source of conflict than of
synergy. Cultural differences are a trouble and always a disaster.’
Professor Hofstede carried out a detailed study of how values in the workplace are
influenced by culture. He worked as a psychologist in IBM from 1967 to 1973. At that
time he gathered and analysed data from many people from several countries.
Professor Hofstede established a model using the results of the study which
identifies four dimensions to differentiate cultures. Later, a fifth dimension called
‘long-term outlook’ was added.
The following are the five cultural dimensions:
· Power Distance Index (PDI) – This focuses on the level of equality or
inequality, between individuals in the nation’s society. A country with high power
distance ranking depicts that inequality of power and wealth has been allowed to
grow within the society. These societies follow caste system that does not allow
large upward mobility of its people. A country with low power distance ranking
depicts the society and de-emphasises the differences between its people’s power
and wealth. In these societies equality and opportunity is stressed for everyone.
· Individualism – This dimension focuses on the extent to which the society
reinforces individual or collective achievement and interpersonal relationships. A
high individualism ranking depicts that individuality and individual rights are dominant
within the society. Individuals in these societies form a larger number of looser
relationships. A low individualism ranking characterises societies of a more collective
nature with close links between individuals. These cultures support extended families
and collectives where everyone takes responsibility for fellow members of their
group.
· Masculinity – This focuses on the extent to which the society supports or
discourages the traditional masculine work role model of male achievement, power,
and control. A country with high masculinity ranking shows the country experiences
high level of gender differentiation. In these cultures, men dominate a major part of
the society and power structure, with women being controlled and dominated by

17. men. A country with low masculinity ranking shows the country, having a low level of
differentiation and discrimination between genders. In low masculinity cultures,
women are treated equal to men in all aspects of the society.
· Uncertainty Avoidance Index (UAI) – This focuses on the degree of tolerance
for uncertainty and ambiguity within the society that is unstructured situations. A
country with high uncertainty avoidance ranking shows that the country has low
tolerance for uncertainty and ambiguity. A rule-oriented society that incorporates
rules, regulations, laws, and controls is created to minimise the amount of
uncertainty. A country with low uncertainty avoidance ranking shows that the country
has less concern about ambiguity and uncertainty and has high tolerance for a
variety of opinions. A society which is less rule-oriented, readily agrees to changes,
and takes greater risks reflects a low uncertainty avoidance ranking.
· Long-Term Orientation (LTO) – Describes the range at which a society
illustrates a pragmatic future oriented perspective instead of a conventional historic
or short term point of view. The Asian countries are scoring high on this dimension.
These countries have a long term orientation, believe in many truths, accept change
easily, and have thrift for investment. Cultures recording little on this dimension, trust
in absolute truth is conventional and traditional. They have a small term orientation
and a concern for stability. Many western cultures score considerably low on this
dimension.

18. Q 6 Write short notes on:
a) Ethnocentric Approach
b) Polycentric Approach
Ans: Ethnocentric Approach: There is no international firm today whose executives
will say that ethnocentrism is absent in their organization. The word ethnocentrism
derives from the Greek word "ethnos", meaning “nation” or “people,” and the English
word center or centrism. A common phrase set for ethnocentrism is “tunnel vision.” In
this context, ethnocentrism is the view that a particular ethnic group’s system of beliefs
and values is morally superior to all others. Ethnocentrism is characterized by or based on
the attitude that one’s own group is superior to others. The ethnocentric attitude is found
in many companies that have many nationalities and culture groups working together. It
is a natural tendency for people to act ethnocentrically because it is what they feel
comfortable with. It is based on past experiences and learned behaviors and norms.
The ethnocentric attitude is seen often when home nationals of various countries believe
they are superior to, more trustworthy and more reliable than their foreign counterparts.
Ethnocentric attitudes are often expressed in determining the managerial process at home
and overseas. There is a tendency towards ethnocentrism in relations with subsidiaries in
developing countries and in industrial product divisions.
Organizations that are designed with an ethnocentric focus will portray certain
tendencies. These include an organizations headquarters that’s decision-making authority
is relatively high. Home standards are applied to the evaluation and control of the
organization. These standards are to ensure performance and product quality.
Ethnocentric attitudes can be seen in the organizations communication process. This is
evident when there is constant advice, and counsel from the headquarters to the
subsidiary. This advice usually bears the message, “This works at home; therefore it must
work in your country". Organizations that portray ethnocentrism usually identify
themselves with the nationality of the owner. For example, Wal-Mart is seen as an
American company because its headquarters are located in America. The crucial critical
concept of ethnocentrism in international organizations is the current policy that recruits
from the home country are hired, and trained for key executive position in the
organization. The ethnocentric attitude is a centralized approach. With the centralized
approach, the training originates at the headquarters and than corporate trainers travel to
the subsidiaries, and often adapt to local situations.
There are many costs that ethnocentrism can incur on an international organization.
Using the centralized approach can cause inefficient staffing problems in the
organization, this is because the employed staff will incur high financial costs to the
global business as they have to pay for the transfer costs of the staff coming from the
home country to overseas. This also could bring inefficiency to the business if the new
staff is not able to fit in and be culturally compatible in their newly situated location.

19. Polycentric Approach:
Polycentrism is one of the three legs in the EPG framework that “identifies one of the
attitudes or orientations toward internationalization that is associated with successive
stages in the evolution of international operations”
Polycentrism can be defined as a host country orientation; which reflects host countries
goals and objectives with respect “to different management strategies and planning
procedures with regard to international operations.” Under a polycentric perspective, a
company’s management team believes that in international business practices local
preferences and techniques are usually found most appropriate to deal with the local
market conditions. In the most extreme views of polycentrism, it is the “attitude that
culture of various countries are different, that foreigners are difficult to understand and
should be left alone as long as their work is profitable.”
Although there is great benefit to taking into consideration local preferences in the host
country when it comes to international business practices, a polycentric approach has its
obstacles once implemented. A polycentric approach “gives rise to the problems of
coordination and control.” Management usually loses coordination of its international
subsidiaries usually because they are forced to operate independently of one another, and
establish separate objectives and plans which meet the host countries criteria. “Marketing
of the company’s products are organized on a country-by-country basis, and marketing
research is conducted independently in each country.”
Management is unable to have total control over the company in the host country because
it is found that “local nationals have a better understanding and awareness of national
market conditions, more so than home office personnel.” This is very accurate in several
aspects of the products delivery including pricing, customer service and well-being,
market research, and channels of distribution. Therefore, the majority of control in the
host countries practices is lost, and the company is forced to manage its operations from
the outside. “Local nationals occupy virtually all of the key positions in their respective
local subsidiaries, and they appoint and develop their own people.”
There are a few other drawbacks to the polycentric approach which may restrict a
multinational company from completely realizing its full potential in the host country.
The first drawback of a polycentric approach is that the “benefits of global coordination
between subsidiaries such as the development of economies of scale cannot be realized.”
This basically restricts the company for mass production of its products, as they are
forced to manufacture its products with the local preferences being the priority of
production. Secondly, the fact that because all of the subsidiaries work independently of
one another, learning across geographic regions is not applied to one another. Therefore
knowledge that could be beneficial across all regions is lost, and subsidiaries could be
worse off than if they had obtained the knowledge. Lastly is that the “treating of each
market as unique may lead to the duplication of facilities.” By focusing on the business
practices of local preferences and techniques which pertain to the local market

20. conditions, the subsidiary in the host country could mimic that of local companies and
appear less appealing to local consumers.
In concluding, a polycentric approach should only be used within a company in which
there is a certain amount of comfort in allowing the host country to make all major
decisions, following their own procedures and objectives. It must be understood that there
is limited control or communication between the home and host-country, and products
and distribution may vary across countries. Companies should evaluate all legs of the
EPG model before implementing a strategy, as all companies differ in international
strategy among industry and region.