Expert: Leo Lingham - 9/9/2009

Question
Q.1) 'The Theory of Comparative Cost Advantage is an improvement over the Theory of Absolute Cost Advantage'. Briefly Discuss.
Q.2) Explain the evolutionary pattern of MNE's from purely domestic company to a transnational corporation.
Q.3) 'There is a need for control in international business operations'. Why? Explain with the help of examples.
Q.4) Discuss the role of World Bank affiliates in promoting international business.
Q.5) 'Human Resource is considered crucial for sucess in MNE's enterprise'. Discuss this statement in the light of importance given to human resources.
Q.6) Write short notes on
   a) Globalisation of Business
   b) Strategic alliances
   c) Management Practices of MNC'S.

Answer
GURMEET,
HERE  IS SOME  USEFUL MATERIAL.

SOME  ANSWERS  HELD UP  DUE TO  LACK OF  SPACE
FOR UPLOADING.


REGARDS
LEO LINGHAM
==============================
1.      Explain the evolutionary pattern of MNEs from purely domestic company to a transnational corporation.

Multinational Corporations
Definition Economists are not in agreement as to how multinational or transnational corporations should be defined. Multinational corporations have many dimensions and can be viewed from several perspectives (ownership, management, strategy and structural, etc.)  
Ownership criterion: some argue that ownership is a key criterion. A firm becomes multinational only when the headquarter or parent company is effectively owned by nationals of two or more countries. For example, Shell and Unilever, controlled by British and Dutch interests, are good examples. However, by ownership test, very few multinationals are multinational. The ownership of most MNCs are uninational. (see videotape concerning the Smith-Corona versus Brothers case) Depending on the case, each is considered an American multinational company in one case, and each is considered a foreign multinational in another case. Thus, ownership does not really matter.
Nationality mix of headquarter managers: An international company is multinational if the managers of the parent company are nationals of several countries. Usually, managers of the headquarters are nationals of the home country. This may be a transitional phenomenon. Very few companies pass this test currently.
Business Strategy: global profit maximization
Multinational companies may pursue policies that are home country-oriented.
or host country-oriented or world-oriented. Perlmutter uses such terms as ethnocentric, polycentric and geocentric.However, "ethnocentric" is misleading because it focuses on race or ethnicity, especially when the home country itself is populated by many different races, whereas "polycentric" loses its meaning when the MNCs operate only in one or two foreign countries.
MNC is a parent company that
engages in foreign production through its affiliates located in several countries,
exercises direct control over the policies of its affiliates,
implements business strategies in production, marketing, finance and staffing that transcend national boundaries.
In other words, MNCs exhibit no loyalty to the country in which they are incorporated.

Three Stages of Evolution
1. Export stage
initial inquiries ⇒ firms rely on export agents
expansion of export sales
further expansion ⇒ foreign sales branch or assembly operations (to save transport cost)
2. Foreign Production Stage
There is a limit to foreign sales (tariffs, NTBs). Wages and land rents might be lower in the foreign countries.
DFI versus Licensing
Once the firm chooses foreign production as a method of delivering goods to foreign markets, it must decide whether to establish a foreign production subsidiary or license the technology to a foreign firm.
Licensing
Licensing is usually first experience (because it is easy)
e.g.: Kentucky Fried Chicken in the U.K.
it does not require any capital expenditure
there is little financial risk
payment = a fixed % of sales
Problem: the mother firm cannot exercise any managerial control over the licensee (it is independent)
Risk: The licensee may transfer industrial secrets to another independent firm, thereby creating a rival.
Direct Investment
It requires the decision of top management because it is a critical step.
it is risky (lack of information)
plants are established in several countries
licensing is switched from independent producers to its subsidiaries.
export continues
3. Multinational Stage
The company becomes a multinational enterprise when it begins to plan, organize and coordinate production, marketing, R&D, financing, and staffing. For each of these operations, the firm must find the best location.
Rule of Thumb
A company whose foreign sales are 25% or more of total sales. This ratio is high for small countries, but low for large countries, e.g. Nestle (98%: Dutch), Phillips (94%: Swiss).
Examples: Manufacturing MNCs
24 of top fifty firms are located in the U.S.
9 in Japan
6 in Germany.
Petroleum companies: 6/10 located in the U.S.
Food/Restaurant Chains. 10/10 in the U.S.
US Multinational Corporations Exxon, GM, Ford, etc.

Motives for Foreign Direct Investment (FDI)

New MNCs do not pop up randomly in foreign nations. It is the result of conscious planning by corporate managers. Investment flows from regions of low anticipated profits to those of high returns.
Growth motive: A company may have reached a plateau satisfying domestic demand, which is not growing. Looking for new markets.
Protection in the importing countries
Foreign direct investment is one way to expand. FDI is a means to bypassing protective instruments in the importing country.
European Community: imposed common external tariff against outsiders. US companies circumvented these barriers by setting up subsidiaries.
Japanese corporations located auto assembly plants in the US, to bypass VERs.
High Transportation Costs
Transportation costs are like tariffs in that they are barriers which raise consumer prices. When transportation costs are high, multinational firms want to build production plants close to either the input source or to the market in order to save transportation costs. Multinational firms (e.g. Toyota) that invest and build production plants in the United States are better off selling products directly to American consumers than the exporting firms that utilize the New Orleans port to ship and distribute products through New Orleans.
Exchange Rate Fluctuations
Japanese firms (e.g., Komatsu) invest here to produce heavy construction machines to avoid excessive exchange rate fluctuations. Also, Japanese automobile firms have plants to produce automobile parts. For instance, Toyota imports engines and transmissions from Japanese plants, and produce the rest in the U.S. Toyota is behind GM and Volkswagen in China, and plans to expand its production in China and has no plans to build more plants in North America. (China's autoparts are cheaper.) It may have been a mistake for Toyota to overexpand its plants in the US. GM and Volkswagen have expanded their production plants in Shanghai.
Market competition
The most certain method of preventing actual or potential competition is to acquire foreign businesses.
GM purchased Monarch (GM Canada) and Opel (GM Germany). It did not buy Toyota, Datsun (Nissan) and Volkswagen. They later became competitors.
Labor Costs and Taxes
A foreign country may have cheap labor or land. Taxes may be lower in foreign countries. United Fruit has established banana-producing facilities in Honduras.
Due to high transportation costs, FPE does not hold. ⇒Cheap foreign labor. Labor costs tend to differ among nations. MNCs can hold down costs or avoid high taxes by locating part or all their productive facilities abroad. (Maquildoras)

Supplying Products to Foreign Buyers
Export versus Direct Foreign Investment
Foreign production is not always an answer. Foreign markets can be better served by exporting, rather than by creating a foreign subsidiary if there are economies of scale. If large scale production reduces unit cost, it is better to concentrate production in one place.
MES is the minimum rate of output at which Average Cost (AC) is minimized. If minimum efficient scale (MES) is not achieved, then export.
In other words, if there exists excess capacity, why not utilize it and export outputs to other countries? There is no point in creating another plant overseas when domestic capacity is not fully utilized.
If foreign demand exceeds the minimum efficient scale, then FDI.
images/fi39.jpg
International Joint Ventures
JV is a business organization established by two or more companies that combines their skills and assets.
A JV is formed by two businesses that conduct business in a third country. (US firm + British firm jointly operate in the Middle East)
joint venture with a local firm (GM + Shanghai Automotive Industry Corporationi (SAIC))
joint venture includes local government.
Bechtel Company, US
Messerschmitt-Boelkow-Blom, Germany => Iran Oil Investment Company
National Iranian Oil Company
Why?
Large capital costs - costs are too large for a single company
Protection - LDC governments close their borders to foreign companies
bypass protectionism.
e.g.: US workers assemble Japanese parts. The finished goods are sold to the US consumers.
Problems
Control is divided. The venture serves "two masters"
Welfare Effects
The new venture increases production, lowers price to consumers.
The new business is able to enter the market that neither parent could have entered singly.
Cost reductions (otherwise, no joint ventures will be formed) increased market power => not necessarily good.
Where are MNCs?
Their offices are located in major international cities, metropolitan areas, and port cities to meet local consumer demands and to acquire resources such as materials and laborers.

Tax Policy towards MNCs
Operating in many countries, MNCs are subject to multiple tax jurisdictions, i.e., they must pay taxes to several countries. National tax systems are exceedingly complex and differ between countries.
Differences among national income tax systems affect the decisions of managers of MNCs, regarding the location of subsidiaries, financing, and the transfer prices (the prices of products and assets transferred between various units of MNCs)
Multiple Tax Jurisdictions creates two problems, overlapping and underlapping jurisdictions. When overlapping occurs, two or more governments claim tax jurisdictions over the same income of an MNC. The overlapping may result in double taxation.
Conversely, when underlapping occurs, an MNC falls between tax jurisdictions and escape taxation. Underlapping encourages tax avoidance.
National governments may choose a territorial jurisdiction or national tax jurisdiction or both.

Territorial Tax Jurisdiction: The government taxes business income that is earned on the national territory.
Any business income earned on the US territory is subject to income tax, regardless of whether the business is owned by foreigners.
any foreign source income earned by the nationals are exempt from taxation. This approach is used by France, Italy, Netherlands. About 30 countries

Tax comptition: Since countries have different tax rates, multinational companies choose low tax countries to save, invest, and produce. Governments may compete to attract multinational enterprises by offering them lower tax rates and other incentives. This is called tax competition. Since high tax countries lose lucrative businesses, they want to harmonize tax rates, especially within a free trade area or customs union

National Tax Jurisdiction: Both domestic and foreign source income of national companies are subject to income tax.

OTHERS FACTORS TO CONSIDER

Economics/TRADE
Historical Basis for Trade: Throughout history, countries have tended to trade with each other, but usually to a much lesser extent than they do today. There are several reasons:
Difficulties in transportation and communication made it difficult to transport manufactured goods which would, in any event, arrive with long delays after manufacturing;
Border disputes, a history of invasions, and other tensions between countries discouraged trade with historical or potential enemies; and
Paper money was less readily available, so it was more difficult to match products for barter between the same buyer and sellers.
Nevertheless, countries did have to trade with each other to a more limited extent since:
Certain natural resources (e.g., iron, gold) were not readily available in some countries;
Some countries did not have the technology to produce certain goods (e.g., when steel was introduced, it could be made only in some countries);
In some countries, there was a demand for certain specialized goods, but not enough of a market to justify local production within reasonable economies of scale.
Today, trade is necessitated by several factors:
Technological advances are so fast that, at any point, a different country may have the latest and most effective technology in compelling areas (e.g., computers, medical);
Certain product lines (e.g., automobiles) require tremendous economies of scale to be cost effective, so these costs must be spread over several different markets;
With advances in transportation, it becomes essential to take advantage of relative strengths that different countries have (e.g., technological leadership, low labor costs).
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Protectionism:

Although trade generally benefits a country as a whole, powerful interests within countries frequently put obstacles—i.e., they seek to inhibit free trade. There are several ways this can be done:
Tariff barriers: A duty, or tax or fee, is put on products imported. This is usually a percentage of the cost of the good.
Quotas: A country can export only a certain number of goods to the importing country. For example, Mexico can export only a certain quantity of tomatoes to the United States, and Asian countries can send only a certain quota of textiles here.
"Voluntary" export restraints: These are not official quotas, but involve agreements made by countries to limit the amount of goods they export to an importing country. Such restraints are typically motivated by the desire to avoid more stringent restrictions if the exporters do not agree to limit themselves. For example, Japanese car manufacturers have agreed to limit the number of automobiles they export to the United States.
Subsidies to domestic products: If the government supports domestic producers of a product, these may end up with a cost advantage relative to foreign producers who do not get this subsidy. U.S. honey manufacturers receive such subsidies.
Non-tariff barriers, such as differential standards in testing foreign and domestic products for safety, disclosure of less information to foreign manufacturers needed to get products approved, slow processing of imports at ports of entry, or arbitrary laws which favor domestic manufacturers.
Justifications for protectionism: Several justifications have been made for the practice of protectionism. Some appear to hold more merit than others:
Protection of an "infant" industry: Costs are often higher, and quality lower, when an industry first gets started in a country, and it thus be very difficult for that country to compete. However, as the industry in the country matures, it may be better able to compute. Thus, for example, some countries have attempted to protect their domestic computer markets while they gained strength. The U.S. attempted to protect its market for small autos American manufacturers were caught unprepared for the switch in demand away from the larger cars caught U.S. auto makers unprepared. This is generally an accepted reason in trade agreements, but the duration of this protection must be limited (e.g., a maximum of five to ten years).
Resistance to unfair foreign competition: The U.S. sugar industry contends that most foreign manufacturers subsidize their sugar production, so the U.S. must follow to remain competitive. This argument will hold little merit with the dispute resolution mechanism available through the World Trade Organization.
Preservation of a vital domestic industry: The U.S. wants to be able to produce its own defense products, even if foreign imports would be cheaper, since the U.S. does not want to be dependent on foreign manufacturers with whose countries conflicts may arise. Similarly, Japan would prefer to be able to produce its own food supply despite its exorbitant costs. For an industry essential to national security, this may be a compelling argument, but it is often used for less compelling ones (e.g., manufactures of funeral caskets or honey).
Intervention into a temporary trade balance: A country may want to try to reverse a temporary decline in trade balances by limiting imports. In practice, this does not work since such moves are typically met by retaliation.
Maintenance of domestic living standards and preservation of jobs. Import restrictions can temporarily protect domestic jobs, and can in the long run protect specific jobs (e.g., those of auto makers, farmers, or steel workers). This is less of an accepted argument—these workers should instead by retrained to work in jobs where their country has a relative advantage.
Retaliation: The proper way to address trade disputes is now through the World Trade Organization. In the past, where enforcement was less available, this might have been a reasonable argument.
Note that while protectionism generally hurts a country overall, it may be beneficial to specific industries or other interest groups. Thus, while sugar price supports are bad for consumers in general, producers are an organized group that can exert a great deal of influence. In contrast, the individual consumer does not have much of an incentive to take action to save about $5.00 a year.
Effects of protectionism: Protectionism tends to lead to additional tariffs or other protectionist measures by other countries in retaliation, reduced competition (which results in inflation and less choice for consumers), a weakening of the trade balance (due in part to diminished export abilities resulting from foreign retaliations and in part because of the domestic currency loses power as there is less demand for it). An overall effect may be a vicious cycle of trade wars as each country responds to the other with a "tit for tat."
Efforts to encourage trade: The General Agreement on Trade and Tariffs (GATT), which was negotiated at the Bretton Woods Conference in 1947, sought to encourage international trade following World War II, when many countries were in bad shape after the war. There were several objectives:
To encourage trade in general;
To replace non-tariff barriers with tariff barriers—i.e., it is acceptable but not encouragable to impose some burden on foreign products, but this must be in the form of a readily identifiable duty rather than a more vague restriction which is less transparent;
Reciprocity: Countries should respond in kind when other countries reduce tariffs or barriers;
Providing the most favorable trade terms offered to anyone to all members of the agreement.
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CURRENCY / EXCHANGE issues:
"Open" vs. "closed" currencies. Not all currencies can be freely traded—some countries prohibit their currencies from leaving their borders, although this is mostly confined to developing countries that want to encourage tourists to spend their remaining currency rather than converting it back to their own currencies and spending it in their home countries. There are, however, some currencies for which international markets are not readily available, because the demand for those currencies is limited.
Exchange rates come in two forms:
"Floating"—here, currencies are set on the open market based on the supply of and demand for each currency. For example, all other things being equal, if the U.S. imports more from Japan than it exports there, there will be less demand for U.S. dollars (they are not desired for purchasing goods) and more demand for Japanese yen—thus, the price of the yen, in dollars, will increase, so you will get fewer yen for a dollar.
"Fixed"—currencies may be "pegged" to another currency (e.g., the Argentinian currency is guaranteed in terms of a dollar value), to a composite of currencies (i.e., to avoid making the currency dependent entirely on the U.S. dollar, the value might be 0.25*U.S. dollar+4*Mexican peso+50*Japanese yen+0.2*German mark+0.1*British pound), or to some other valuable such as gold. Note that it is very difficult to maintain these fixed exchange rates—governments must buy or sell currency on the open market when currencies go outside the accepted ranges. Fixed exchange rates, although they produce stability and predictability, tend to get in the way of market forces—if a currency is kept artificially low, a country will tend to export too much and import too little.
Trade balances and exchange rates: When exchange rates are allowed to fluctuate, the currency of a country that tends to run a trade deficit will tend to decline over time, since there will be less demand for that currency. This reduced exchange rate will then tend to make exports more attractive in other countries, and imports less attractive at home.
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Culture
Dealing with culture. Culture is a problematic issue for many marketers since it is inherently nebulous and often difficult to understand. One may violate the cultural norms of another country without being informed of this, and people from different cultures may feel uncomfortable in each other’s presence without knowing exactly why (for example, two speakers may unconsciously continue to attempt to adjust to reach an incompatible preferred interpersonal distance).
Warning about stereotyping. When observing a culture, one must be careful not to over-generalize about traits that one sees. Research in social psychology has suggested a strong tendency for people to perceive an "outgroup" as more homogenous than an "ingroup," even when they knew what members had been assigned to each group purely by chance. When there is often a "grain of truth" to some of the perceived differences, the temptation to over-generalize is often strong. Note that there are often significant individual differences within cultures.

Learned. Culture is not genetically based—if that were the case cultures across the World would have been much more similar to each other. We learn what is considered appropriate in our culture through trial and error. If a child engages in competitive behavior, this might be rewarded in the United States with the expression of parental approval, while in Japan it might result in subtle shows of disapproval, such as lack of attention.
Shared. The beliefs, interpretations, and behaviors are shared by all or most of the people within the culture, so that it becomes a truly society-wide phenomenon.
Compelling: Culture must have implications (such as social disapproval if contradicted) in order to be considered important.
Interrelated. Although there may be conflicts between elements of culture (e.g., respect for seniority may come into conflict with a growing value of achievement in Singapore), for the most part, elements of culture constitute a coherent and relatively consistent whole. For example, the tendency for Japanese business people to bow when meeting each other and the tendency of lower level Japanese employees to show great deference to their superiors are both manifestations of a strong emphasis on respect.
Beliefs. While Americans may attribute success to hard work or skill, it may be attributed to luck or connections in other cultures.
Attitudes. Beliefs, feelings, and behavioral intentions may differ. While the American may appreciate getting a bargain in a sale, this may conjure up images of not being able to afford the full price in other cultures.
Goals. While "progress" (having new and improved products, for example) is considered a good thing in the U.S., many Japanese parents are concerned that the "wa-pro" leaves their children unable to write the traditional Japanese pictographs.
Values. In the U.S., individual uniqueness is generally considered a good thing while in some cultures fitting in with the group is a higher priority. Thus, for example, an American may enjoy wearing relatively innovative clothing, which may be frowned upon in a more collectivistic society.
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Laws across borders.
When laws of two countries differ, it may be possible in a contract to specify in advance which laws will apply, although this agreement may not be consistently enforceable. Alternatively, jurisdiction may be settled by treaties, and some governments, such as that of the U.S., often apply their laws to actions, such as anti-competitive behavior, perpetrated outside their borders (extra-territorial application). By the doctrine known as compulsion, a firm that violates U.S. law abroad may be able to claim as a defense that it was forced to do so by the local government; such violations must, however, be compelled—that they are merely legal or accepted in the host country is not sufficient.
The reality of legal systems. Some legal systems, such as that of the U.S., are relatively "transparent"—that is, the law tends to be what its plain meaning would suggest. In some countries, however, there are laws on the books which are not enforced (e.g., although Japan has antitrust laws similar to those of the U.S., collusion is openly tolerated). Further, the amount of discretion left to government officials tends to vary. In Japan, through the doctrine of administrative guidance, great latitude is left to government officials, who effectively make up the laws.
One serious problem in some countries is a limited access to the legal systems as a means to redress grievances against other parties. While the U.S. may rely excessively on lawsuits, the inability to effectively hold contractual partners to their agreement tends to inhibit business deals. In many jurisdictions, pre-trial discovery is limited, making it difficult to make a case against a firm whose internal documents would reveal guilt. This is one reason why personal relationships in some cultures are considered more significant than in the U.S.—since enforcing contracts may be difficult, you must be sure in advance that you can trust the other party.
The reality of legal systems. Some legal systems, such as that of the Legal systems of the World. There are four main approaches to law across the World, with some differences within each:
Common law, the system in effect in the U.S., is based on a legal tradition of precedent. Each case that raises new issues is considered on its own merits, and then becomes a precedent for future decisions on that same issue. Although the legislature can override judicial decisions by changing the law or passing specific standards through legislation, reasonable court decisions tend to stand by default.
Code law, which is common in Europe, gives considerably shorter leeway to judges, who are charged with "matching" specific laws to situations—they cannot come up with innovative solutions when new issues such as patentability of biotechnology come up. There are also certain differences in standards. For example, in the U.S. a supplier whose factory is hit with a strike is expected to deliver on provisions of a contract, while in code law this responsibility may be nullified by such an "act of God."
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THE  STRATEGIC  MANAGEMENT  PROCESS  HELPS  TO  UNDERSTAND

HOW  YOU ADAPT THE PRODUCT TO THE NEEDS OF THE CONSUMERS.
FACTORS TAKEN INTO CONSIDERATION IN VARIOUS  COUNTRIES
IN  INTERNATIONAL  MARKETING

*needs of the consumer
*demand for the product
*market potential
*cultural
-culture
-social class
*social
-household type
-reference groups
*psychological
-motivation
-perception
-beliefs
-attitudes
*personal
-age brackets
-occupations
-educations
*economy
*technology
*political
*trade
-import/export laws
-tariff
-local laws
*environment
*competition
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THE ADAPTATION OF THE PRODUCT IS CARRIED OUT
FOR THE FOLLOWING REASONS:
-to meet the local regulations.
-to meet the customs/ beliefs.
-to meet the customer needs.
-to meet the customer wants.
-to meet the customer satisfaction.
-to meet the challenge of the competition.
-to increase the sales volume.
-to increase the market share.
-to increase the profit.
-to improve / increase the return on investment
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2.‘There is a need for control in international business operations.’ Why? Explain with the help of examples.

One of the key requisites to successfully manage the risks associated with running a business is to have a sound and effective control framework. The existence of such a framework in an organisation encourages a sound control environment in which the business operates. With the increasing levels of corporate governance, the CFO and the CEO are being held accountable for the effectiveness and efficiency of their control environment.
There  should be  some minimum controls that have to be in place to ensure that key strategic, operational and financial risks of the company are managed.

The areas for discussion are:
Control Environment
General Accounting control.
Revenue Cycle  control.
Expenditure Cycle control.
Bank and Cash  control.
Fixed Assets Management  control.
Inventory, Logistic and Distribution control.

Control Environment of a company and is segregated into the following categories:
General,
Delegation of Duties,
Risk Management,
Management Information Systems.

Control Environment
(a) General

In the Control Environment, generally, certain minimum key salient features should at least be there:
there should be a champion at the director level within the organisation who strongly and clearly supports a strong control culture and environment,
a clear policy statement on controls should be issued to all staff,
there should be a company-wide framework of policies and procedures documented in a comprehensive manual,
there should be clear policies and procedures in place to ensure that staffs fully declare all related party transactions and potential conflict of interest situations on a periodic basis.
(b) Delegation of Authority (DOA)
an overall delegation of authority guideline should be documented for all functions and operations,
in particular, delegation of authority guidelines must be documented for the following:
- Appointment and dismissal of members of top management team
- Awarding of salary, bonuses, benefits for all staff
- Setting terms and conditions for all staff
- Debt and Capital restructuring
- Investment functions
- Treasury functions
- Issuing of guarantees
- Issuing of charges on assets
- Acquisition or disposal of investments, businesses and commercial rights
- Establishment of exclusive and/or special types of arrangements
C.Risk Management
There should be a mechanism in place to ensure that all significant operational risks are identified and recorded on an ongoing basis.
Procedures should be established to ensure that suitable action plans are implemented to address all the risks that have been identified.
The action plans should be measurable to assess whether the identified risks have been successfully managed.
There should be an effective system or process (e.g. Internal Audit checks) to ensure that adequate controls are in place to address identified Operational and Financial risks.
Adequate insurance coverage should be undertaken for both the company’s assets.
(d) Management Information
The Management Information System (MIS) should be able to generate explanatory management reports, incorporating the usage of comprehensive graphs and schedules, on a timely basis.
In particular, the management reports should include the following:
- Profit and loss account
- Balance sheet
- Cash-flow statement
- Aged debtor listings
- Creditor listings
- Inter-company balance/transaction report
- Foreign exchange exposure report
- Contingent liabilities and other commitments report
- Action plan report
- Operational risk report
- Division sales report
- Division inventory report
- Stock category month stock trend with comparison between stock holding vs prior month
- Commentaries on the followings:
(a) Sales/GP – on a current month versus budget, current month versus prior month and actual YTD versus budget YTD basis
(b) Expenses – in terms of Staffing, Selling and General Expenses on a current month versus budget, current month versus prior month and actual YTD versus budget YTD basis
(c) Other Income – explain and indicate the nature and comparison of current month versus budget and prior month , and current YTD versus budget YTD
(d) Profit before Tax – comments in summary what caused the change in PBT
(e) Cash Flow, Capital Expenditure and other significant items
(f) Assets Management – in terms of AR and Stock turnover, ageing etc
- Month end borrowing position (amount utilised versus facilities provided, interest rate)
Comprehensive documented period end procedures should be in place to facilitate timely preparation of the management reports.
Management reports should be reconciled to underlying accounting records and all reconciling items should be addressed promptly.
Major variances against budget should be analysed monthly as part of management reporting.
Provisions for taxation, both current and deferred, should be checked quarterly to ensure accuracy and compliance with local regulations.
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Factors like distance, culture, language and practices create barriers to effective control. Yet without control over international operations, the degree to which they have or have not been successful cannot be judged.
Plans are the prerequisite to control, yet these are developed in the midst of uncertain forces both internal and external to the firm. Basically control involves the establishment of standards of performance, measuring performance against standards and correcting deviations from standards and plans. In international marketing the ability to control is disturbed by the distance, culture, political and other factors.

In well developed international operations headquarters may seek to achieve control over subsidiaries by three types of mechanism - data management mechanisms, merge mechanisms, which shift emphasis from subsidiary to global performance, and conflict resolution mechanisms that resolve conflicts triggered by necessary trade-offs.
The method of export control in many less developed countries takes the form of direct organisation by government. The appendix note at the end of this section describes the types of control imposed.
Formal control methods
Planning and budgeting
Planning and budgeting are the main formal control methods. The budget spells out the objectives and necessary expenditures to achieve these objectives. Control consists of measuring actual sales against expenditures. If there is tolerable variance then no action is usually taken.
Evaluating performance
Performance is evaluated by measuring actual against planned performance. The problem is setting a performance standard. Usually it is based on historical performance with some kind of industry average. Problems of international comparison inevitably occur like how does one plan in an environment where exchange rates fluctuate quite often during the budget period.
Influences on marketing budgets
In preparing a budget or plan, the following factors are important:
a) Market potential - how large, can it be tested?
b) Competition - what is the competitive level?
c) Impact of substitute products - packaging can be substituted in many ways
d) Process - headquarters may impose an "indicative planning" method or guidance.
Other performance measures
Other measures of performance include share of market, image, position or corporate acceptance. Often these are difficult to obtain where data or data collection is difficult.
Informal control method
When staff are transferred from market to market, they often take their standards of performance with them and these can be assessed. Other methods include face-to-face contact and evaluation.
Variables influencing control
A number of factors may influence the control methods. These include:
a) Domestic practices and values of standardisation - these may not be appropriate
b) Communication systems - have a heavy influence on control mechanisms - electronic control measures may not always be available
c) Distance - the greater the distance, the bigger the physical and psychological differences
d) The product - the more technological the product the easier it is to implement uniform standards
e) Environmental differences - the greater the environmental differences the greater the delegation of responsibility and the more limited the control process
f) Environmental stability - the greater the instability in a country the less relevance a standardised measure of performance has
g) Subsidiary performance - the more a subsidiary does, or reports, a non variance, the less likely is there to be headquarters interference
h) Size of international operators - the bigger and greater the specialisation of headquarters staff the more likely will extensive control be applied.
Obviously the ability to control any international operation, whether it be very sophisticated or relatively unsophisticated, the process will break down without adequate face-to-face and/or electronic communications.

OPERATIONAL  ACTIVITY
Production
Extraction yields
Capacity
Utilisation
Unit costs
Input/Output ratios

ALLOCATIVE  EFFICIENCY
Opportunity costs
Costs of storage, transport
Prices versus consumer preferences

LONG TERM  DEVELOPMENT  /ECONOMIC
Profitability
Rates of return
Rates of growth and volume and value
Levels of raw materials, commodity wastage.
Quality
Variety
Employment rates
Innovation
Technological development
Risk analysis
Income distribution
Market access,
Structure.

MARKETING  SERVICE
Transport delivery rates
Order
Grading
Labelling
Supply adjustments
Uniformity to standards
Mix of products
Supply regulating
Timing
Information provision

TRANSACTION  COSTS
Personal time,
Travel, Communications
Advertising
Promotion
Market research
Inspection
Services
Property guards
Recovery
Reporting of stollen property
Distribution
Legal
Consultancy
Advocacy
Advertising
Insurance
Transport
Storage
Financial
Credit rating checks
Delayed payment procurement.

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3.      Discuss the role of World Bank affiliates in promoting international business.

Each year, the World Bank lends billions of dollars to developing countries to support poverty reduction. The Bank provides loans, credits, guarantees, and technical assistance to member country governments, government agencies, or private institutions that can obtain their government’s guarantee. Some of this lending comes in the form of Development Policy Support Loans or Credits. The proceeds of these loans are used by developing countries to mitigate the costs of wide-reaching policy reforms. Investment loans or credits provide financing for a wide range of activities aimed at creating the physical and social infrastructure necessary for poverty alleviation and sustainable development. Recipients of investment loans require goods, equipment, civil works and consulting services to carry out the activities under the loan/credit. Therefore, the projects supported by these loans or credits are a source of business opportunities for local and international firms/organizations.

Companies, academic institutions, non-governmental organizations (NGOs) and individuals from MEMBER COUNTRIES   of the World Bank are eligible to compete for these business opportunities. Within any given project, there can be literally hundreds of business opportunities varying in size from as little as a few thousand dollars to as large as tens of millions of dollars. How the World Bank and how borrowing countries buy or “procure” goods and services varies as well.

The World Bank's two closely affiliated entities—the INTERNATIONAL  BANK  FOR  RECONSTRUCTION  AND DEVELOPMENT  [IBRD]  and the INTERNATIONAL  DEVELOPMENT  ASSOCIATION  [ IDA]—provide low or no interest loans (credits) and grants to countries that have unfavorable or no access to international credit markets. Unlike other financial institutions, we do not operate for profit. The IBRD is market-based, and we use our high credit rating to pass the low interest we pay for money on to our borrowers—developing countries. We pay for our own operating costs, since we don’t look to outside sources to furnish funds for overhead.
So, where does the money come from to operate the World Bank, and how do we use the funds to carry out our mission?
Fund Generation
IBRD lending to developing countries is primarily financed by SELLING  AAA -RATED BONDS in the world's financial markets. While IBRD earns a small margin on this lending, the greater proportion of its income comes from lending out its own capital. This capital consists of reserves built up over the years and money paid in from the Bank's 185 member country shareholders. IBRD’s income also pays for World Bank operating expenses and has contributed to IDA and debt relief.
IDA is the world's largest source of interest-free loans and grant assistance to the poorest countries. IDA's funds are REPLENISHED  EVERY THREE  YEARS  by 40 donor countries. Additional funds are regenerated through repayments of loan principal on 35-to-40-year, no-interest loans, which are then available for re-lending. IDA accounts for more than 40% of our lending.
Loans
Through the IBRD and IDA, we offer two basic types of loans and credits: INVESTMENT OPERATIONS AND DEVELOPMENT POLICY  OPERATIONS.
Countries use investment operations for goods, works and services in support of economic and social development projects in a broad range of economic and social sectors. Development policy operations (formerly known as adjustment loans) provide quick-disbursing financing to support a country’s policy and institutional reforms.
Each borrower’s project proposal is assessed to ensure that the project is economically, financially, socially and environmentally sound. During loan negotiations, the Bank and borrower agree on the development objectives, outputs, performance indicators and implementation plan, as well as a loan disbursement schedule. While we supervise the implementation of each loan and evaluate its results, the borrower implements the project or program according to the agreed terms. As more than 30% of our staff is based in over 100 country offices worldwide, three-fourths of outstanding loans are managed by country directors located away from the World Bank offices in Washington.
IDA long term loans (credits) are interest free but do carry a small service charge of 0.75 percent on funds paid out. IDA commitment fees range from zero to 0.5 percent on undisbursed credit balances. For FY09 commitment fees have been set at 0.0 percent.
For complete information about IBRD financial products, services, lending rates and charges, please visit the WORLD BANK  TREASURY.  Treasury is at the heart of IBRD's borrowing and lending operations and also performs treasury functions for other members of the World Bank Group.
Trust Funds and Grants
Donor governments and a broad array of private and public institutions make deposits in TRUST FUNDS that are housed at the World Bank. These donor resources are leveraged for a broad range of development initiatives. The initiatives vary significantly in size and complexity, ranging from multibillion dollar arrangements—such as Carbon Finance; the Global Environment Facility; the Heavily Indebted Poor Countries Initiative; and the Global Fund to Fight AIDS, Tuberculosis, and Malaria—to much smaller and simpler freestanding ones.
The Bank also mobilizes external resources for IDA  CONCESSIONARY FINANCING  and GRANTS , as well as funds for non-lending technical assistance and advisory activities to meet the special needs of developing countries, and for co-financing of projects and programs.
Direct World Bank GRANTS  to civil society organizations emphasize broad-based stakeholder participation in development, and aim to strengthen the voice and influence of poor and marginalized groups in the development process.
IDA grants—which are either funded directly or managed through partnerships—have been used to:
Relieve the debt burden of heavily indebted poor countries
Improve sanitation and water supplies
Support vaccination and immunization programs to reduce the incidence of communicable diseases like malaria
Combat the HIV/AIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gases

Analytic and Advisory Services
While they  are best known as a financier, another of  their  roles is to provide analysis, advice and information to our member countries so they can deliver the lasting economic and social improvements their people need. We do this in various ways. One is through economic  research  and  data  collection  on broad issues such as the environment, poverty, trade and globalization Another is through country specific, non-lending  activities  such  as  economic and sector   work , where we evaluate a country's economic prospects by examining its banking systems and financial markets, as well as trade, infrastructure, poverty and social safety net issues, for example.
We also draw upon the resources of our knowledge bank to educate clients so they can equip themselves to solve their development problems and promote economic growth. By knowledge bank we mean the wealth of contacts, knowledge, information and experience we've acquired over the years, country by country and project by project, in our development work. Our ultimate aim is to encourage the knowledge revolution in developing countries.
These are only some of the ways our analyses, advice and knowledge are made available to our client countries, their government and development professionals, and the public:
-POVERTY  ASSESSMENTS.
-PUBLIC  EXPENDITURES  REVIEWS
-COUNTRY  ECONOMIC  REPORTS
-SECTOR  REPORTS
-TOPICS  IN  DEVELOPMENT
---------------------------------------------
Capacity Building
Another core Bank function is to increase the capabilities of our partners, the people in developing countries, and our own staff —to help them acquire the knowledge and skills they need to provide technical assistance, improve government performance and delivery of services, promote economic growth and sustain poverty reduction programs. Linkages to knowledge-sharing networks such as these have been set up by the Bank to address the vast needs for information and dialogue about development:
ADVISORY  SERVICES  and ASK  US  help desks make information available by topic via telephone, fax, email and the web. There are more than 25 advisory services at the Bank. Staff members who respond to inquiries add value to the work of clients, partners and our own staff by responding quickly to their knowledge needs. Often, they are the first and possibly the only contact the public at large—especially people in developing countries--have with the World Bank.
GLOBAL DEVELOPMENT  LEARNING  NETWORK  is an extensive network of distance learning centers that uses advanced information and communications technologies to connect people working in development around the world.
KNOWLEDGE  FOR  DEVELOPMENT offers policy advice to client countries on the four pillars of a knowledge economy: economic and institutional regime, education, innovation, and information and communication technologies (ICTs) to help clients make the transition to a knowledge economy.
CAPACITY  DEVELOPMENT  RESOURCE   CENTER  is a repository of literature, case studies, lessons learned, and good practices in the area of capacity development, the key to development effectiveness.
WORLD BANK INSTITUTE  GLOBAL  AND  REGIONAL  PROGRAMS   bring together leading development practitioners online and face-to-face to exchange experiences and to develop skills.
B-SPAN webcasting service is an Internet-based broadcasting station. The station presents World Bank seminars, workshops and conferences on sustainable development and poverty reduction via streaming video. The unedited discussions and debates about pressing development issues attract government officials, development practitioners, academics, students, researchers, journalists, NGO representatives, and the public-at-large.
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4.      ‘Human Resource is considered crucial for success in MNE enterprise.’ Discuss this statement in the light of importance given to human resources.



The Changed role of human resource management in globalization era.
HRM's  STRATEGIC  ROLE.
The key to creating a consistent corporate culture across multiple
locations is maintaining the critical balance between a strong
corporate culture and local cultural differences.

Strategic human resources  management  approach  is largely about integration and adaptation.
Its concern is to ensure that:
(1) human resources (HR) management is fully integrated with the strategy and the strategic needs of the firm;
(2) HR policies cohere both across policy areas and across hierarchies; and
(3) HR practices are adjusted, accepted, and used by line managers and employees as part of their everyday work.
===============================================================
 What  is  the changing    SCOPE   of   HR  Management
-------------------------------------------------------------------------------------------
Establish  , direct, administer  and  coordinate the  overall  HR  PROGRAMS
  for  all   the  departments  of   the  company.

Strategically  plan for, develop  and  efficiently/effectively  operate
the  services  and  capabilities  of  the  company , in  alignment   with  the
corporate   objectives / strategies.  These  activities  include  
-studying economic indicators
-tracking  changes in  supply  and  demand  of  labor
-identifying  departments   and  their  current  and  future needs
-monitoring the  HR  performance.

======================================================

HRM's   ROLE   as   a  SERVICE  AGENT

As  a broad guideline, the  HR  provide services to  the  organization/
other  departments/ overseas  counterparts.

-human resource planning
-recruitment / selection
-employee development
-reward systems
-employee relations
-health/safety management
-staff amenities
-salary administration
-personnel administration
etc etc.
-----------------------------------------------------------------------
HRM's   ROLE   as   a   GUIDE

To  varying  degrees, HR  MANAGERS  provide  guidance to the
organization management, other  departments/ overseas  counterparts.


-recommendations  on HR STRATEGIES
-culture change
-approaches  to  the  improvements of  process capability
-performance management  
-reward  management
-HR policies/ procedures
etc
---------------------------------------------------------
HRM  acts  as  an  ADVISOR

HR  managers provide  advice  to  line  managers, and  management
in general TO other  departments/ overseas  counterparts.


-training  needs
-health/ safety  
-handling  people / problems  associated
-industrial relations
etc etc

-------------------------------------------------------------------------------------
HRM  plays  a  multi angle  ROLE


HR MANAGER  plays  different  roles.

BUSINESS  PARTNER  ROLE.

-share  responsibility  with  their  line management  for the  success
of  the  business  and the  running  of  the  business.

STRATEGIST   ROLE

-contribute  to  the  long term /  strategic  organizational  issues like

*people  selection
*people  requirement
*people development
*organization development
*quality  of  worklife
etc

INTERVENTIONIST  ROLE

-proactively  contributes  to  the  change  management, people
management, team development, new  technology  introduction
etc etc


INTERNAL  CONSULTANCY  ROLE

-acts  as  a  management  consultant  on HR  ISSUES  working
alongside  the  line  managers.


MONITORING  ROLE

-monitors  the implementation of  HR  policies / procedures.

======================================================
HR'S  ROLE  IN  GLOBALIZATION  WILL  CHANGE  SIGNIFICANTLY
IN THE COMING  YEARS
AND  THE  CHALLENGE  /  DEMAND  WILL  BE  ON THE  FOLLOWING
AREAS

*EMPLOYMENT  SECURITY
-is  a  sign of longstanding  commitment by  the  company.

*SELECTIVITY  IN  RECRUITMENT
-right people  in the right  way  to  meet competitive  success.

*HIGH  WAGES
-right  package  for outstanding  talents.

*INCENTIVE  BASED PAYMENT
-profit  sharing/ productivity  based  payments.

*EMPLOYEE  INFORMATION  SHARING
-well  informed employees  for  successful   results/ competitive  advantage.

*PARTICIPATION  AND  EMPOWERMENT
-increase  employee participation to  improve employee satisfaction.
-empower  to broaden  participation/ control  their  work/workload.

*MULTISKILLING: CROSS -TRAINING AND  CROSS UTILIZATION.
-for  effective teamwork.

*PROMOTION  FROM   WITHIN
-to retain talent.

*MEASUREMENT  OF  PRACTICES
-more  use  of  metrics.

*WORKLIFE  BALANCING
-programs to  manage  work/life better.

====================================================
OTHER  AREAS,  WHERE   HR   ROLE  WILL  BE  INCREASED


-recruiting   for  retention.

-loyalty  through  motivation.

-managing   employee  flexitime.

-managing  employee  staggering  hours

-managing  shift  swapping.

-managing  self-rostering.

-managing  job sharing.

-managing  telecommuting.

-managing  workplace  flexibility.

etc  etc.
===========================================
 SPECIAL  STRATEGIC   ROLE   FOR  HR

Principal functions of HR today and in a few years

*Human capital strategy  development.
*Talent  management  programs.
*Change management  programs.
*Leadership  development  programs
*Organization design/structure  strategy
*Organization development  programs
*Operational  excellence within the HR function
*Workforce planning to align with  corporate  plans/objectives/strategies.
*Succession  planning  programs
*Industrial  relations  directions
*Risk  management  evaluations
------------------------------------------------------------------

HOW  YOU   HRM  PLAN  TO MANAGE ANY  CHALLENGES, IF ANY  OF  THESE.
STRATEGY/ PROGRAMS
-Top human capital challenges organizations face today
-Acquiring key talent/lack of available talent
-Driving cultural and behavioural change in the organization
-Building leadership capability
-Retaining key  talent
-Increasing line manager capability to handle people management responsibilities
-Succession  planning
-Increasing workforce productivity
-Constraints on headcount (“making do with less”)
-Encouraging organizational innovation
-Implementing people changes resulting from changes due to operational performance
-Measuring the contribution of human capital to business performance
-Lack of consensus around the organization’s strategy/direction
-Reducing overall human capital costs
-Resourcing and managing HR issues in “new geographies” for the company
-Managing human capital during and after an acquisition or merger
-Workforce  planning
-Increasing the return on investment in remuneration
-------------------------------------------------------------------------
HRM  ROLE  --HOW  YOU  PLAN  TO  OVERCOME ,  IF ANY

-HR barriers and areas of opportunity for enhancing the HR function’s future role
-Capability of  line  managers  in  management of  their people
-Skills /competencies of  HR staff
-Business perception of value which  HR can bring
-Attitudes of  line  management
-Technology
-Business leadership
-HR functional leadership
-Reporting structure/HR organization
-Availability of required skills
-National/cultural differences
-Regulatory constraints
-Unions
-Diverse  workforce
-Availability of solutions in local market (technology, outsource providers, etc.)
===========================================
SOME  MAJOR  FEATURES  OF  HR  ROLE   IN  GLOBALIZAATION

- creating a  global mind-set within the HR group, creating
practices that will be consistently applied in different
locations/offices while also maintaining the various
local cultures and practices, and communicating a
consistent corporate culture across the entire
organization.
-------------------------------
considering  the HR function not as just an
administrative service but as a strategic business
partner.
Companies are  involving  the human resources
department in developing and implementing both
business and people strategies.
----------------------------------------------------
creating   a consistent corporate
culture:

- Communicate  to all locations about a common
corporate culture.
- Allow   local cultures to maintain their identity
in the context of the corporate culture.
- Establish   common systems (e.g., accounting,
marketing, MIS).
- Provide   management with education outlining
how the company does business.
- Create  an organizational mission with input
from all locations.
- Create a written strategy outlining the
corporate culture.


====================================
AS  THE  GLOBALIZATION  SETTLES,  THE  HR  EMPHASIS  WOULD  BE   ON

1. ideas and practices   that might be considered more widely include:

• initiatives connecting company  and industry policies so that training implications are considered as a matter of course
• initiatives which consider the implications for the company  of the innovations they are supporting , e.g. industry clusters
• initiatives incorporating collaboration across COUNTRY  borders
• efficient use of the worldwide web to disseminate information and collect data
• initiatives which demonstrate learning from previous experience
• attention to resourcing issues
• initiatives which enable company  staff to increase their expertise in new areas
• initiatives which build on established expertise in the  company, and
• initiatives which seek to develop new specialisations in the  company.


2. Technology-related skills
• Skills in identifying new applications of technologies
• Skills in developing new technologies, or advancing existing technologies
• Skills in identifying technological solutions to problems


3. Management skills
• Skills in identifying which innovation outcomes are appropriate for commercialisation
• Skills in knowing when and how to market a new product, tool or process (or other innovation outcome) successfully
• Skills in securing intellectual property rights over innovation outcomes
• Skills in setting up efficient manufacturing processes for new products
• Skills in negotiating appropriate training provision with education and training providers


4. Operative/Technical skills
• Skills in operating new tools or equipment, or applying new methods/processes
• Skills in applying new processes or tools to existing work
• Skills in installing and maintaining new products, and
• Skills in manufacturing new products.

If new and changed skill needs are to be met, access to appropriate education and training is essential. Access must also be provided in a timely fashion so that the skills required for an innovation to be implemented effectively are available when needed. An enterprise will not gain the benefits from installing new equipment if its workers do not have the skills to operate it properly. Finding or providing the right training, in time, can present a challenge. The difficulties some employers are facing in finding effective ways of keeping workers up to date with technological changes – especially the ‘convergence of technologies’


It is  useful  if   the  HRM   SYSTEM   adopt an Innovation  Policy aimed at driving innovation by:
?? Building an educated and highly skilled workforce.
?? Becoming a leader in knowledge creation and innovation.
?? Developing linkages, clusters and networks to become a more integrated and networked local economy.
?? Fostering high levels of enterprise formation and business growth.
?? Becoming a globally focused and internationally integrated economy.
?? Creating a business environment and infrastructure base that facilitates business success.
establishing a culture of innovations. Based on these building blocks it provides support for a range of initiatives under the headings:
?? Co-operative Research Centres
?? Knowledge and Technology Diffusion
?? Technology, Research Parks and Precincts
?? Education
?? Commercialisation


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