The Objectives, Importance and Scope of I B

Meaning of IB:
International business is the process of focusing on the resources of the globe and
objectives of organizations on the global business opportunities and threats, in order to produce,
buy, sell or exchange goods/services world-wide. The concept of international business – broader
concept relating to the integration of economies and societies – dates back to the 19th century
beginning in 1870. This first phase of globalization ended with the World War-I (1919) driven
by the industrial revolution in the United Kingdom (UK), Germany and the United States of
America (USA). The import of raw materials by colonial empires from their colonies and
exporting finished goods to their overseas possessions was the main reason for the sharp increase
in the trade during this phase. The ratio of trade to Gross Domestic Product (GDP) was as high
as 22.1 in 1913.

Objectives or Goals of International Business:

1. To Achieve Higher Rate of Profits:
The basic objective of business is to achieve profits. When the domestic markets do not promise
a higher rate of profits, business firms search for foreign markets that hold promise for higher
rate of profits. Thus the objective of profit affects and motivates the business to expand
operations to foreign countries. For example, Hewlett Packard in the USA earned 86.2% of its
profits from the foreign markets compared to that of domestic markets in 2007. Apple earned US
$ 730 million as net profit from the foreign markets and only US $ 620 million as net profit from
its domestic market in 2007.
2. Expanding the Production Capacities beyond the Demand of the Domestic
Country:
Some of the domestic companies expand their production capacities more than the demand for
the product in domestic countries. These companies, in such cases, are forced to sell their excess
production in foreign developed countries. Toyota of Japan is an example.
3. Severe Competition in Home Country:
The countries oriented towards market economies since 1960s experienced severe competition
from other business firms in the home countries. The weak companies which could not meet the
competition of the strong companies in the domestic country started entering the markets of the
developing countries.
4. Limited Home Market:
When the size of the home market is limited either due to the smaller size of the population or
due to lower purchasing power of the people or both, the companies internationalize their
operations. For example, most of the Japanese automobiles and electronic firms entered the

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USA, Europe and even African markets due to smaller size of the home market. Similarly, the
mere six million population of Switzerland is the reason for Ciba-Geigy to internationalize its
operations. ITC entered the European market due to the lower purchasing power of the Indians
with regard to high quality cigarettes.
5. Political Stability vs. Political Instability:
Political stability does not simply mean that continuation of the same party in power, but it does
mean that continuation of the same policies of the Government for a quite longer period. It is
viewed that the USA is a politically stable country; countries like the UK, France, Germany,
Italy and Japan are also politically stable. Most of the African countries and some of the Asian
countries are politically instable countries. Business firms prefer to enter politically stable
countries and are restrained from locating their business operations in politically instable
countries. In fact, business firms shift their operations from politically instable countries to
politically stable countries.
6. Availability of Technology and Competent Human Resources:
Availability of advanced technology and competent human resources in some countries act as
pulling factors for business firms from the home country. The developed countries due to these
reasons attract companies from the developing world. In fact, American and European
companies, in recent years, depended on Indian companies for software products and services
through their business process outsourcing (BPO). India’s software and service exports crossed
US $ 23.4 billion in 2006 and it targets to cross US $ 60 billion by 2010. This is because the cost
of professionals in India is 10 to 15 times less compared to the US and European labour markets.
7. High Cost of Transportation:
Initially companies enter foreign countries their marketing operations. The home companies in
any country enjoy higher profit margins as compared to the foreign firms on account of the cost
of transportation of the products. Under such conditions, the foreign companies are inclined to
increase their profit margin by locating their manufacturing facilities in foreign countries through
the Foreign Direct Investment (FDI) route to satisfy the demand of either one country or a group
of neighbouring countries. For example, Mobil which was supplying petroleum products to
Ethiopia, Kenya, Eritrea, Sudan etc., from its refineries in Saudi Arabia, established its refinery
facilities in Eritrea in order to reduce the cost of transportation.
8. Nearness to Raw Materials:
The source of highly qualitative raw materials and bulk raw materials is a major factor for
attracting the companies from various foreign countries. For example Vedanta Resources is a
London Stock Exchange (LSE) listed UK based company operating principally in India due to
availability of raw materials such as iron ore, copper, zinc and lead. It also has substantial
operations in Zambia and Australia where ample copper is available.
9. Liberalisation and Globalisation:

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Most of the countries in the globe liberalized their economies and opened their countries to the
rest of the globe. These change in policies attracted multinational companies to extend their
operations to these countries.
10. To Increase Market Share:
Some of the large-scale business firms would like to enhance their market share in the global
market by expanding and intensifying their operations in various foreign countries. Companies
that expand internally tend to be ‘oligoplistic’.Smaller companies expand internationally for
survival while the larger companies expand to increase their market share. For example Ball
Corporation, the third largest beverage can manufacturer in the USA, bought the European
packaging operations of Continental Can Company. Then it expanded its operations to Europe
and met the Europe demand which is 200 per cent more than that of the USA. Thus, it increased
its global market share of soft drink cans.
Importance and Advantages of International Business:
1. High Living Standards:
Comparative cost theory indicates that the countries which have the advantages of raw materials,
human resources, natural resources and climatic conditions in producing particular goods can
produce the products at low cost and also of high quality. Customers in various countries can buy
more products with the same amount of money. In turn, it can also enhance the living standards
of the people through enhanced purchasing power and by consuming high quality products.
2. Increased Socio-Economic Welfare:
International business enhances consumption level, and economic welfare of the people of the
trading countries. For example the people of China are now enjoying a variety of products of
various countries than before as China has been actively involved in international business like
Coca-Cola, McDonald’s range of products, electronic products of Japan and coffee from Brazil.
Thus the Chinese consumption levels and socio-economic welfare has enhanced.
3. Wider Market:
International business widens the market and increases the market size. Therefore, the companies
need not depend on the demand for the product in a single country or customer’s tastes and
preferences of a single country. Due to the enhanced market Air France, now, mostly depends on
the demand for air travel of the customers from countries other than France. This is true in case
of most of the MNCs like Toyota, Honda, Xerox and Coca-Cola.
4. Reduced Effects of Business Cycles:
The stages of business cycles vary from country to country. Therefore, MNCs shift from the
country experiencing a recession to the country experiencing ‘boom’ conditions. This enables
international firms to escape recessionary conditions.
5. Reduced Risks:

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Both commercial and political risks are reduced for the companies engaged in international
business due to spread in different countries. Multinationals which were operating in erstwhile
USSR were affected only partly due to their safer operations in other countries. But the domestic
companies of the then USSR collapsed completely.
6. Large-scale Economies:
Multinational companies due to wider and larger markets produce larger quantities, which
provide the benefits of large-scale economies like reduced cost of production, availability of
expertise, quality etc.
7. Potential Untapped Markets:
International business provides the chance of exploring and exploiting the potential markets
which are untapped so far. These markets provide the opportunity of selling the product at a
higher price than in domestic markets. For example Bata sells shoes in the UK at £ 100 (Around
Rs. 8000) whose price is around Rs. 1200 in India.
8. Provides the Opportunity for and Challenge to Domestic Business:
International Business firms provide opportunities to the domestic companies. These
opportunities include technology, management expertise, market intelligence, product
developments etc. For example Japanese firms like Honda, Yamaha, Suzuki and Kawasaki have
combined to form Joint Ventures with Indian companies to form Hero Honda, Birla Yamaha,
Maruti Suzuki and Kawasaki Bajaj to share technology and product development expertise.
Similarly MNCs pose challenges to domestic business initially. Domestic firms develop
themselves to meet these challenges. For example the entry of whitegoods MNCs LG and
Samsung posed challenges to homegrown companies Godrej and Videocon in the Indian
consumer durables market. But Godrej and Videocon have evolved and reinvented themselves to
face up to the challenges.
9. Division of Labour and Specialisation: International business leads to division of labour and
specialization. For example Brazil specializes in coffee, Kenya in tea, Japan in automobiles and
electronics, India in textile garments etc.
10. Economic Growth of the World at large:
Specialization, division of labour, enhancement of productivity, posing challenges, development
to meet them, innovations and creations to meet the competition lead to overall economic growth
of the world nations. International business particularly helped the Asian countries like Japan,
Taiwan, Korea, Philippines, Singapore, Malaysia and the United Arab Emirates.
11. Optimum and Proper Utilisation of World Resources:
International business provides for the flow of raw materials, natural resources and human
resources from the countries where they are in excess supply to those countries where they are in
short supply or need most. For example flow of human resources from India, consumer goods
from the UK, France, Italy and Germany to developing countries. This, in turn, helps in the

4
optimum and proper utilization of world resources.
12. Cultural Transformation:
International business benefits are not purely economical or commercial, they are even social and
cultural. These days, we observe that the West is slowly tending towards the East and vice-versa.
It does mean that the good cultural factors and values of the East are acquired by the West and
vice-versa. Thus there is a close cultural transformation and integration.
13. Knitting the World into a Closely Interactive Traditional Village:
International business ultimately knits the global economies, societies and countries into a
closely interactive traditional village where one is for all and all are for one.
Scope of International Business:
The term international business was not popular two decades earlier. The term
international business has emerged from the term ‘international marketing’, which in turn
emerged from the term ‘international trade’.

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International Trade to International Marketing: Originally, the producers used to export their
products to the nearby countries and gradually extended the exports to far-off countries.
Gradually, the companies extended the operations beyond trade. For example, India used to
export raw cotton, raw jute and iron ore during the early 1900s. The massive industrialization in
the country enabled India to export steel, jute products and cotton garments during 1960s.
India, during 1980s could create markets for its products, in addition to mere exporting
through export marketing efforts to generate demand for Indian products like textiles,
electronics, leather products, tea, coffee etc. This process is true not only with India, but also
with almost all developed and developing economies of the world.
International Marketing to International Business: The multinational companies which were
producing the products in their home countries and marketing them in various foreign countries
before 1980s, started locating their plants and other manufacturing facilities in foreign/host
countries. Later, they started producing in one foreign country and marketing in other foreign
countries. For example Uni Lever established its subsidiary company in India, i.e., Hindustan
Lever Limited (HLL). HLL produces its products in India and markets them in Bangladesh, Sri
Lanka, Nepal etc. Thus, the scope of international trade is expanded into international marketing
and international marketing is expanded into international business.
Wide Scope: The scope of international business is much broader involving international
marketing, international investments, management of foreign exchange, procuring international
finance from IMF, IBRD, International Finance Corporation (IFC), International Development
Association (IDA) etc., management of international human resources, management of cultural
diversity, management of international production and logistics, international strategic
management and the like.
Inter-country Comparative Study: International business studies the business opportunities,
threats, consumer’s preferences, behaviour, cultures of the societies, employees, business
environmental factors, manufacturing locations, management styles, inputs and human resource
management practices in various countries. International business seeks to identify, classify and
interpret the similarities and dissimilarities among the systems used to anticipate demand and
market products. This system presents inter-country comparison and inter- continental
comparison. Comparative analysis helps the management to evaluate the markets, finances,
human resources, consumers etc. of various countries. It also helps the management to evaluate
the market potentials of various countries.
The study also indicates the degree of consumer acceptance of the product, product
changes and development in different countries. Managements of international business houses
can group countries with similar features and design the same products, fix similar price and
formulate the same marketing strategies.

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 Q.2) Reasons to Enter International Business
All organizations irrespective of whether they are small or medium or large, are keen to
enter into international business. Established companies are expanding their business. Many
countries encourage trade, and removal of strangulating trade barriers motivates companies to
aggressively multiply their targets. The governments of various countries are also determined to
make their economy grow through international business, which has therefore become an
inevitable part of their economic policy. The motive behind international business can be looked
at:
A. From an individual company’s viewpoint B. From the government’s viewpoint
From an individual company’s viewpoint
1. Managing the product life cycle:
All companies have products which pass through different stages of their lifecycles. After the
product reaches the last stage of the cycle called the declining stage in on country, it is important
for the company to identify a few other countries where the whole life cycle stages could be
encased. For example, Enfield India reached maturity and the declining stage in India for the
350cc Royal Enfield motorcycle. The company entered Kenya, West Indies, Mauritius and other
destinations where the heavy engine two wheeler became popular. The Suzuki 800cc vehicle
reached the last stage of its life cycle in Japan, and entered India in the early 1980s, where it is
still doing good business as the bread and butter model in Maruti Udyog Ltd’s stable.
2. Geographic expansion as a growth strategy:
Even if companies expand their business at home, they may still look overseas for new markets
and better prospects. For example, Arvind Mills expanded their business by either setting up
units or opening warehouses abroad. Ranbaxy’s growth is mainly attributed to geographic
expansion every year to new territories.
3. The adventurous spirit of younger generation in the organization:
The younger generation of business families have considerable international exposure. They are
willing to take risks and challenges and also create opportunities for their business. For example
Kumar Mangalam Birla of the Aditya Vikram Birla Group of companies has managed to
establish their business operations in several countries across the globe in the last decade.
4. Corporate ambition:
Every corporate in the country has strategic plans to multiply its sales turnover. In case some of
the ventures fail, others will offset the losses because of multi- locational operations. For
example Coca cola is not doing well in a number of countries including India. But this will not
affect the company because more than a hundred countries are contributing to offset the losses.
5. Technology advantage:
Some companies have outstanding technology through which they enjoy core competencies.

7
There is a need for such technology in all the countries. Biocon, Infosys and Tata Consultancy
are known for their core competencies in biotechnology and software development respectively
and a huge demand exists across many developed economies of the world for their technology.
6. Building a corporate image:
Prior to profits and revenue generation, many companies first build their corporate image abroad.
Once the image is built up, generating revenue is a comparatively easy task. For example LG
Electronics and Samsung Electronics built their image in India during the initial three to five
years after their entry and generation of revenues and profits has been considerable as they have
expanded to semi-urban and rural India overtaking traditional Indian brands Godrej and
Videocon.
7. Incentives and business impact:
Companies, which are involved in international business, enjoy fiscal, physical and
infrastructural incentives while they set up business in the host country. The Adtiya Vikram Birla
group enjoyed such incentives in Thailand and Indonesia. The home country may also offer
many incentives in order to neutralize the cost and allow the country to compete in the world
market. For example recently the Prime Minister of Bangladesh Sheikh Hasina invited Indian
companies to invest in proposed Special Economic Zones (SEZ) offering infrastructure facilities
and tax holidays to such Indian companies.
8. Labour advantage:
Many companies have a highly productive labour force. The unique skills may not be available
throughout the world. Manufacturing units in India have consistently performed well, whether in
the diamond industry (E.g. Surat) or automobile manufacturing (E.g. Hyundai Motor car
manufacturing plant near Chennai). Companies nurture the skills of such labour force and win
world markets.
9. New business opportunities:
Many companies have entered into businesses abroad, seeing unlimited opportunities. For
example health care companies like Cipla, Dr. Reddys Laboratories and Auronindo Pharma have
entered into South American countries like Brazil and Argentina looking at the attractive
business opportunities in such countries.
From a government viewpoint:
1. Earning valuable foreign exchange:
Foreign exchange is necessary to balance the payments for imports. India imports crude oil,
defence equipment, essential raw materials and medical equipment for which the payments have
to be made in foreign exchange. If the exports are greater than imports it indicates a surplus in
the balance of payments, on the other hand if the imports are higher and the exports are lower as
has always been the case with India it indicates an adverse balance of payment.
2. Interdependency of nations:

8
From time immemorial, nations have mutually depended on each other. Even during the era of
Indus Valley civilization, Egypt and the Indus Valley depended on each other for various items.
Today India depends on the Gulf regions for crude oil and in turn the Gulf region depends on
India for rice, tea etc. Developed countries depend on developing countries for primary good,
whereas developing countries depend on developed countries for value added finished products.
3. Trade theories and their impact:
The theories of absolute advantage, comparative advantage and competitive advantage, which
have been propounded by classical economists, indicate that a few nations have cost advantages
in procurement of resources and production of finished products than other nations. Such
advantages enable them to be competitive. These resources may be in the form of labour,
infrastructure, technology, natural resources or even a proactive policy of the government. For
example falling land prices in the South American countries of Paraguay and Uruguay has
thrown open a tremendous opportunity for India edible oil companies to venture into offshore
oilseeds cultivation with the industry representative body Solvent Extractor’s Association (SEA)
negotiating with ICICI Bank for a Rs. 150 Crore loan to part the proposed investment in the
project.
4. Diplomatic relations:
Diplomacy and trade always go hand in hand. Many sovereign nations send their diplomatic
representatives to other countries with a motive of promoting trade besides maintaining cordial
relations. Indian diplomats in Latin America have done a remarkable job of promoting India’s
business in the 1990s. However Pakistan being a failed nation has not been much successful in
this endeavor
5. Core competency of nations:
Many countries are endowed with resources, which are produced at an optimum level. Such
countries can compete well anywhere in the world. Rubber products from Malaysia, knitwear
from India, rice from Thailand and wool from Australia are a few illustrations.
6. Investment for infrastructure:
Over the years all countries have invested huge amounts of money on infrastructure by building
airports, sea ports, economic zones and inland container terminals. If the trade activities do not
increase and flourish, the country cannot recover the amounts invested. Hence, the government
fixes targets for every infrastructure unit and time frame to achieve them. Economies like
Mauritius, Hong Kong, Singapore, Malta and Cyprus invest in trade related infrastructure in
order to elevate themselves to be foreign trade oriented economies.
7. National image:
A new era has emerged from conquering countries by sword to winning by trade. A businessman
gives priority to the image of the country he belongs to. We come across products with labels
such as ‘Made in Japan’, ‘Made in China’ and ‘Made in India’. Businessmen from Japan, China

9
and India endeavor to make their products world class and bring credentials to their country
while citizens achieve business success elsewhere in the world.
8. Foreign trade policy:
All developing countries announce their foreign trade policies. A clear cut road map is drafted
and given to promotional bodies so that timely implementation is possible. For instance the
Commerce and Industry ministry Mr Anand Sharma has assured that the Government of India
would extend its support to the slowdown hit export sector by providing more sops in the
Foreign Trade Policy (FTP) to be unveiled next month at a conference organized by the industry
body Federation of Indian Chambers of Commerce and Industry (FICCI). He said that the FTP
would be a mix of fiscal incentives and simplification of procedures for carrying out foreign
trade.
9. National targets:
By the year 2010, India aims to have a two percent share of the global market from the current
level of one percent. Indian exports in 2007-08 were $154.73 Billion and India has set an export
target of $200 Billion for 2009-10.
10. WTO and international agencies:
The apex body of world trade, the World Trade Organization (WTO), a free, transparent and
regulatory body upholds provisions related to elimination or reduction of tariff and non-tariff
barriers. The International Bank for Reconstruction and Development (IBRD), popularly called
the World Bank extends financial assistance on a soft loan basis in order to assist developing
countries in their infrastructure and industrial development. The International Monetary Fund
(IMF) maintains currency stability in various countries through regulatory mechanisms. Many
more organizations like International Maritime Organization, International Standard
Organization, International Telecommunication Union, International Civil Aviation Organization
are major catalysts to promote trade between nations.

Q.3) Perimutter’s EPRG model along with diagram

The strategic orientation was introduced to the literature of the subject in the tri-dimensional
form (EPG) by Perlmutter (1969), and then extended by a fourth dimension to its present form
by Wind et al. (1973), and also by Heenan & Perlmutter (1979, cited in Caliguri &
Stroh, 1995). In this approach, four strategic directions of orientation are mentioned:
ethnocentric (E), polycentric (P), regiocentric (R) and geocentric (G); therefore, the classification
is called the EPRG model, but also the E→P → R → G formula or sequence (with the marked
model path, see Figure 3.2.). In a simplified way, we can assume that ethnocentric and global
approaches are the consequence of standardisation, whereas the polycentric and regiocentric
approaches are closer to adaptation.

Small benefit Great benefit

From local adaption 10
From local adaption
An ethnocentric orientation (Table 3.3.) occurs in the initial stage of firm internationalisation.
The activities of a firm are mainly to keep its position on thedomestic market, but it also uses an
opportunity to conclude effective foreign transactions. Businesses using the ethnocentric strategy
conclude mainly export transactions. A typical feature of applying this marketing strategy is the
limited possibility for a firm to consider the specific properties of various foreign markets.
Businesses focus on retaining their position on the national market, and they win foreign markets
by means of the same strategy as the domestic market, as was already mentioned, most often in
the form of simple export.
A polycentric orientation enables the consideration of specific qualities of national or local
markets. Thus, it uses benefits from its local activities. One of the basic features of the
polycentric strategy is decentralisation manifested in creating subsidiaries and production plants
abroad and creating joint ventures. For individual International Strategies of Businesses: Some
Evidences from Polish Internationalised Firms domestic markets independent goals and
strategies are formulated, and specific individual marketing programmes are developed. The
orientation has a rather low degree of standardisation of the marketing concept levels; on the
other hand, the level of differentiation among individual markets is very high.
A regiocentric orientation consists in connecting foreign homogenous groups of countries and
treating them as one market. A Eurocentric orientation is a very specific form of the regiocentric
strategy. Such an approach is adjusted to theuniform European market. Within this orientation

11
we can mention two specific forms of activity, namely a European firm (Schröter, 2008) and a
transatlantic firm (Tubielewicz, 2004) which use the concept of blocking markets in the scale of
the region.
A geocentric orientation consists in applying a standardised marketing concept in all countries,
with simultaneous very low differentiation on all levels of the marketing concept. What underlies
this strategy is the striving to achieve a competitive advantage in the global scale via minimising
unit production costs.

Q.4) Country risk analysis

Meaning
All business transactions involve some degree of risk. When business transactions occur across
international borders, they carry additional risks not present in domestic transactions. These
additional risks, called country risks, typically include risks arising from a variety of national
differences in economic structures, policies, socio-political institutions, geography, and
currencies. Many of the individual events investigated by country risk analysis fall closer to
uncertainties than well defined statistical risks.

Country Risk may be classified as a specific type of environmental risk i.e. its source is the
general business environment of a country that one is operating in.

In International Business one is often operating across different countries. Socio-political and
economic environment in these different countries is therefore of concern to International
Business. Change in these parameters may put an International Business to various kinds of
risks.

Examples of situations where Country Risk could play an important role:

 Portfolio investment done in another country may suffer loss if the Share prices tumble
because a certain party came to power in general elections
 A military dictator after coming to power announced that all foreign nationals should be
deported within 24 hours. The management of MNC had to leave in haste and did not
find time to sell FDI invested in the country take out the funds.
 A country suffered Balance of Payment Crisis as a result of which the currency
depreciated sharply. Profits in that currency therefore lost value when converted to
another currency.

Definition
Assessing the potential risks and rewards associated with making investments and doing
business in a country.

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 Study of business environment in different countries with an objective of predicting the
likelihood of various kinds of risks that businesses operating in those countries may face.

Factors Affecting Country Risk

Factors affecting Country Risk may be classified as:

(i) Economic

(ii) Political

(iii) Social

(i) Economic Factors

Certain specific economic parameters are analyzed while evaluating Country Risks. Here the
basic issue is to examine the

 Ability of a country to honor its external obligations and

 The possible strain it would put on the exchange rate.
It is important to note here that both the above issues would directly depend on the external
sector situation. However, external sector of any country cannot be examined in isolation. It is
equally important to understand the domestic economy by means of various GDP, Fiscal Policy
and Monetary policy related parameters.

Again depending upon the time horizon that one is looking at it is important to focus not only on
the immediate values of these parameters but also on long term trends as also on the long term
sustainability of these trends.

The internal economic situation as reflected by the GDP, Fiscal and monetary variable becomes
more important if one is considering a long term involvement by way of FDI in the country.

These can be grouped as –

(a) GDP related parameters

(b) Fiscal sector parameters

(c) Monetary policy parameters

(d) External sector parameters

(a) GDP related Parameters:

(1) GDP in nominal and real terms

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(2) GDP growth rate and its trend over long term

(3) Per Capita GDP

(4) Sectorial distribution of GDP – Contribution of Primary, Secondary and Tertiary sectors

(5) Saving / GDP ratio

(6) Investment / GDP ratio

(7) Investment / Saving ratio

(8) Investment/GDP growth ratio

(9) Unemployment

(b) Fiscal sector parameters:

(1) Deficits – Fiscal, Revenue, Monetized

(2) Deficits as % of GDP

(3) Tax collection as % of GDP

(4) Tax buoyancy

(5) Internal Debt / GDP ratio

(6) Debt maturity profile

(c) Monetary policy parameters:

(1) Inflation

(2) Interest rate

(3) All other monetary policy tools such as CRR, SLR, Bank rate – different countries would
have different monetary policy tools.

(d) External sector parameters:

(1) Balance of Trade

(2) Balance of Payments

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(3) Composition of Exports and Imports

(4) Trends in import and export growth

(5) Terms of Trade

(6) BOP Deficit /GDP ratio

(7) External Debt – quantum and maturity profile

(8) External Debt / GDP

(9) Debt Servicing / export earnings

(10) Capital flows

(11) Exchange rate stability

(ii)Political Factors
The political risk is the risk that a foreign government will significantly alter its policies or other
regulations so that it significantly affects one’s investment. More broadly, it can apply to the risk
that a nation will refuse to comply with an agreement to which it is a party, or that political
violence will hurt an investment or business. For example, if one exports goods to a foreign
nation, and that nation elects a new government that enacts protectionist tariffs, this will
negatively impact the export business

A change in political situation of a country is likely to change the business environment. Some of
the important political factors to be looked into would include –

(a) System of government – democratic, authoritarian, etc.

(b) Major political parties and their ideologies

(c) Party in power, it vision, succession plan, etc.

(d) Leading opposition parties and their ideologies and visions

(e) Maturity of political institutions

(iii) Social Factors

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(a) Culture and history

(b) Values

(c) Educational levels

(d) Major fault-lines / dividing lines in the society

(e) Attitudes towards foreigners, change, technology, profits, etc.

Q.7) Cage frame work- Pankaj ghemawat

The CAGE Distance Framework identifies Cultural, Administrative, Geographic and
Economic differences or distances between countries that companies should address when
crafting international strategies.[1] It may also be used to understand patterns of trade, capital,
information, and people flows.[2] The framework was developed by Pankaj Ghemawat, a
professor at the University of Navarra - IESE Business School in Barcelona, Spain.[3]
The impacts of CAGE distances and differences have been demonstrated quantitatively via
gravity models. Such models "resemble Newton's law of gravitation in linking interactions
between countries to the product of their sizes (usually their gross domestic products) divided by
some composite measure of distance

Components[edit]
The table[4] [5] shown below provides more detail on each of the CAGE categories, and how they
can manifest themselves depending on whether one is comparing a pair of countries or looking at
one in isolation. One of the distinctions between the CAGE Framework and other country
analysis frameworks is its inclusion of bilateral as well as unilateral factors.

Cultural Administrative Geographic Economic

Distance Distance Distance Distance

 Different  Physical  Rich/poor

 Lack of colonial
languages distance difference
ties
s
 Different  Lack of land
Country  Lack of shared
ethnicities; border  Other
Pairs regional trading
(Bilateral) lack of difference
bloc
connective  Differences in s in cost
ethnic or time zones or quality
 Lack of common
social of natural
currency
networks  Differences in resources,

16
 climates / financial
 Different  Political hostility disease resources,
religions environments human
resources,
 Lack of trust infrastruct
ure,
 Different informati
values, norms, on or
and knowledg
dispositions e

 Landlockedness
 Nonmarket/closed
 Lack of internal
economy (home
navigability
bias vs. foreign
bias)  Economic
Countries  Geographic size
size
(Unilateral /  Insularity
 Lack of
Multilateral  Geographic
membership in  Low per
)  Traditionalism remoteness
international capita
organizations  Weak income
transportation
 Weak institutions, or
corruption communication
links

Ghemawat offers some advice on how the CAGE Framework can help managers considering
international strategies:
 It makes distance visible for managers.[1]

 It helps to pinpoint the differences across countries that might handicap multinational
companies relative to local competitors.[1]

 It can shed light on the relative position of multinationals from different countries. For
example, it can help explain the strength of Spanish firms in many industries across Latin
America.[1]

 It can be used to compare markets from the perspective of a particular company. One method
to conduct quantitative analysis of this type is to discount (specifically, divide) raw measures
of market size or potential with measures of distance, broadly defined.[1]
Ghemawat emphasizes that different types of distance matter to different extents depending on
the industry. Because geographic distance, for instance, affects the costs of transportation, it is of
particular importance to companies dealing in heavy or bulky products. Cultural distance, on the
other hand, affects consumers’ product preferences. It should be a crucial consideration for a

17
consumer goods or media company, but it is much less important for a cement or steel
business.[1]
To facilitate quantitative analysis based on the CAGE framework, Prof. Ghemawat has
developed an online tool called the CAGE Comparator. The CAGE Comparator covers 163
home countries and 65 industries, and allows users to customize the impacts of 16 types of
CAGE distance.[6]
Professor Ghemawat recommends using the CAGE framework together with the ADDING
Value Scorecard and the AAA Strategies

Q.8) modes of entry in foreign trade.

1) Exporting
It is a process of selling goods and services produced in one country to another country.
Exporting may be direct or in direct. Under direct export- a company capitalising on economies
of scale of in production concentrated in the county established a proper system of organising
export function and procuring foreign sales. Indirect exporting through domestically based
export intermediaries. The exporter has no control over his product in foreign market.
2) Joint venture
It is a strategy used by one companies to enter a foreign market by joining hands and sharing
ownership and management with another company. It is used when two or more companies
wants to achieve some common objectives and expand international operations
3) Outsourcing-
it is cost effective strategy used by companies to reduce costs by transferring portions of work to
outside suppliers rather than completing it internally. It includes both domestic and foreign
contracting and also off shoring (relocating a business function to another country)
4) Franchising
It is a system in which semi- independent business owners (frenchisees) pay fees and royalty to a
parent company (franchisher) in return for the right to be identified by its trademark, to sell its
product or services, and often to use its business format or system.
5) Turn key project-
It involve the delivery of operating industrial plan to the client without any active participation.
A company pay a contractor to design and construct new facilities and train personnel to export
its process and technology to another country. Turn key project may be of various type.
BOD-build, owned and development.
BOLT-build, owned, leased and transferred.
BOOT-build, owned, operate and transfer.

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6) Foreign direct investment-
it is a mode of entering foreign market through investment. Investment may be direct or
indirectly through financial institutions. FDI influences the investment pattern of the economy
and helps to increase overall development . the extent to which FDI is allowed in a country is
subjected to the government regulations of that country. It can be done by purchasing shares of a
company , property and asset.
7) Mergers & Acquisitions-
A merger is a combination of two or more companies into one, the desired effect being
accumulation of asset and liabilities of distinct entities and severl other benefit such as,
economies of scale, tax benefits, fast growth, synergy and diversification etc.

Acquisition implies acquisition of controlling interest in a company by another company. It does

not leads to dissolution of company whose shares are acquired. It may be a friendly or hostile or
bail out takeover.
8) Licensing-
Licensing is a method in which a firm gives permission to a person to use its legally protected
product or technology (trademarked, copyrighted) and to do business in a particular manner, for
agreed period of time and within an agreed territory.
9) Contract manufacturing-
When a foreign firm hires a local manufacturer to produce their product or a part of their product
it is known as contract manufacturing. This method is utilise the skill of local manufacturer and
helps in reducing cost of production.
10) Strategic alliance-
It is a voluntary formal agreement between two companies to pool their resources to achieve a
common set of objective while remaining independent entities. It is mainly used to expand the
production capacity and increase market share for a product. Alliance helps inn developing new
technologies and utilizing brand image and market knowledge of both the companies.

Q.10) Cost benefit of FDI for home country / host country

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Q.9) Reason for FDI
 To increase sales and profits
 To enter fast growing markets

20
  To reduce costs
 To consolidate trade bloc
 To protect domestic markets
 To protect foreign markets
 To acquire technological and managerial
 know- how

Q.11) Short note

1) Off shore banking
An offshore bank is a bank is a bank located outside the country of residence of its depositors,
with most of its account holders being non-residents of the jurisdiction. An account held in a
foreign account, especially in a tax haven country, is often described as an offshore account.
Typically, an individual or company will maintain an offshore account in a low-tax jurisdiction
(or tax haven) that provides financial and legal advantages, such as:
 greater privacy
 little or no taxation (i.e. tax havens)
 easy access to deposits (at least in terms of regulation)
 protection against local, political, or financial instability.
Scope of offshore banking
 Offshore banking constitutes a sizable portion of the international financial system.
Experts believe that as much as half the world's capital flows through offshore centers.
Tax havensOffshore banking constitutes a sizable portion of the international financial
system. Experts believe that as much as half the world's capital flows through offshore
centers. Tax havens have 1.2% of the world's population and hold 26% of the world's
wealth, including 31% of the net profits of United StatesOffshore banking constitutes a
sizable portion of the international financial system. Experts believe that as much as half
the world's capital flows through offshore centers. Tax havens have 1.2% of the world's
population and hold 26% of the world's wealth, including 31% of the net profits of
United States multinationals. An estimated £13-20 trillion is hoarded away in offshore
accounts.

 Some $3 trillion is in deposits in tax haven banks and the rest is in securities held by
international business companiesSome$3 trillion is in deposits in tax haven banks and the
rest is in securities held by international business companies (IBCs) and trustsSome $3
trillion is in deposits in tax haven banks and the rest is in securities held by international
business companies (IBCs) and trusts. Among offshore banks, Swiss banksSome $3
trillion is in deposits in tax haven banks and the rest is in securities held by international
business companies (IBCs) and trusts. Among offshore banks, Swiss banks hold an
estimated 35% of the world's private and institutional funds (or 3 trillion Swiss
francsSome $3 trillion is in deposits in tax haven banks and the rest is in securities held
by international business companies (IBCs) and trusts. Among offshore banks, Swiss
banks hold an estimated 35% of the world's private and institutional funds (or 3 trillion
Swiss francs), and the Cayman IslandsSome $3 trillion is in deposits in tax haven banks

21
 and the rest is in securities held by international business companies (IBCs) and trusts.
Among offshore banks, Swiss banks hold an estimated 35% of the world's private and
institutional funds (or 3 trillion Swiss francs), and the Cayman Islands (1.9 trillion US
dollars in deposits) are the fifth largest banking centre globally in terms of deposits.
However, recent data by the Swiss National Bank show that the assets held by foreign
persons in Swiss bank accounts declined by 28.1% between January 2008 and November
2009

2) FDI trends in Emerging Market Countries (EMCs):

1. Rapid increase in FDI in EMCs in the 1990s, owing largely to the adoption of
macroeconomic and structural reforms
2. Second, the surge in FDI, especially in the latter half of the 1990s, was led by M&A
activity.
3. Third, for a number of countries there was a significant shift of FDI into the services
sector.
4. Regional Trends in FDI- driven by both market-seeking and efficiency-seeking
investment, the region’s share in FDI to EMCs peaking at 63 percent in 1993
5. In the early 1990s, led largely by Mainland China, countries in Asia received almost half
of the FDI directed to the EMCs.
6. Following the financial crises, annual FDI flows to Asia declined in aggregate from about
$66 billion in 1997 to about $46 billion in 2000, but have since arisen to $63 billion in
2002
7. Aggregate data on FDI in Latin America conceal interesting dynamics within the
region
8. More recently, FDI in Latin America has declined sharply, driven largely by the
contraction in flows to Mercosur.
9. In the first half the 1990s, foreign investors viewed investment prospects in the newly
emerging markets of Eastern Europe and Central Asia with both interest and
caution.
10. More recently, FDI flows to the region declined from about $22 billion in 1999 to
around $18 billion in 2002.
11. Emerging markets in the Middle East and Africa account for a small share in FDI
flows to EMCs.

3) WTA and RTa

WTO
 World Trade organization (WTO) has a crucial role to play in the international trade,
global economics, political and legal issues arising in the international business
because of the globalization.

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  WTO has emerged as a world’s most powerful institutions for reducing trade related
barriers between the countries and opening new markets. World Trade Organization
is the only International governing body that World Trade Organization replaces
General Agreement on Tariffs and Trade (GATT) which was created in the year
1948.
 The goal of WTO is to provide a fair platform for its member countries to help in
services like exports,imports and conduct their business in a peaceful manner.
 The advantage to the countries being members in the WTO is that that they lower
trade related barriers among themselves. In contrary to this the countries which are
not part of WTO must negotiate trade related agreements independently with their
trading partners.
 Almost all the industrial and agriculture sectors have been affected by trade barriers
between the countries. USA considered being a free trade country because of less
number of trade barriers for importing, but still it has got many.
Role of WTO
 WTO facilitates implementation, administration and smooth operations of trade
agreements between the countries.
 It provides a forum for the trade negotiations between its member countries.
 Settlements of disputes between the member countries through the established rules and
regulations.
 It cooperates with the IMF(International Monitory Fund) and World Bank in terms of
making cohesiveness in making global economic policies.
 Overall WTO was set up to play a very important role in the world economics though
settling trade related disputes through rules, regulations and consensus based agreement
mechanisms that would prevent trade related wars between powerful countries.
 Through resolving trade related disputed WTO has got the potential to maintain world
peace and bilateral relations between its member countries thorough following
negotiations, consultations and mediations.

Regional Trade Agreements

 Characteristics of the FTA/RTA
 More than 200 RTAs till July 2008
 Recent RTA are different from the ones in the 60s and 70s
 Includes economies that had not entered into any FTAs before
 Reason:
 Stagnated multilateral liberalisation process like the WTO and APEC
 Perceived tendencies toward regionalism in Europe and Americas
 The strong sense of need to help themselves within East Asia

23
24
4) Organizational structure of multinational corporations (MNC’s)
Meaning
 A scheme consisting of units and individual officers of the company.
 Located by levels of importance and responsibility.
 Depending on the stage of company development require different approaches to build the
organizational structure.
Subsidiary Model
 The most basic model of organisational structure
 the subsidiaries are self- contained unit with their own operations, finance and HR
functions
 allowing them to respond to local competitive conditions and develop locally responsive
strategies
 The major disadvantage
The decentralization of strategic decisions that makes it difficult for a unified
approach to counter global competitive attacks.

Product Division
 Each product has its own division that is responsible for the production, marketing,
finance and the overall strategy of that particular product globally
 Allows the multinational company to weed out product divisions that are not successful
The major disadvantage
 The lack of integral networks that may increase duplication of efforts across countries.

Area Division
 Each geographical region is responsible for all the products sold within its region.
 All the functional units for that particular region namely finance, operations and human
resources are under the geographical region responsibility
 Allows the company to evaluate the geographical markets that are most profitable.
The major disadvantage
 Communication problems, internal conflicts and duplication of costs

Functional Structure
 Functions such as finance, operations, marketing and human resources determine the
structure of the multinational company.

 All the production personnel globally for a company work under the parameters set by
the production department.
Functional Structure
The advantage
 There is greater specialization within departments and more standardized processes
across the global network.
The disadvantages

25
 
The lack of inter department communication and networking that contributes to more
rigidity within the organization.
Matrix Structure
 Overlap between the functional and divisional structures.
 Dual reporting relationships in which employees report both to the functional manager
and the divisional manager.
 Involve cross-functional teams from multiple functions such as finance, operations and
marketing
The advantage
 There is more cross-functional communication that facilitates innovation → The
decisions are also more localized.
The disadvantage
 More confusion and power plays because of the dual line of command

PESTLE ANALYSIS
Why use PESTLE analysis in international business?

 Selection of a country
 Location of the plant
 Liaisons with the government
 The entry of investment from local bodies
 Product launches
 The promotion and opening of the outlet

Political Factors
 Degree of political stability/instability
 Change of government
 Government initiatives
 Political Stability
 Government Support for Private, Public and Voluntary Businesses
Membership of International Trading Communities – IMF, European Union
 Fiscal – Levels and Types of Taxation
 Direct Financial Support – Grants, Loans, etc…
 Business Support, such as Business Link
 Infrastructure – Transport, Internet, etc…
 Employment Skills – Education, Training, Research, etc…
How Political Factors can affect Businesses
Positive:
 Granting of a subsidy

26
 Granting of an exemption from taxes
 Provide training opportunities
Negative:
 Raise taxes
 Prevented from carrying out some activities
Economic Factors
The economic environment is a direct influence on all businesses.
 Trends in the economy

 Disposable income levels

 Employment

 Pay levels

 Competition

 Taxation

 Low and stable price inflation

 High and stable employment
 Economic growth in the national output and income
 A favourable balance of international trade and paym
Social factors
 How consumers, households and communities behave and their beliefs.
 For instance, changes in attitudes towards health, or a greater number of pensioners in the
population
 Demographic issues, (e.g. size of population, age, structure of population, migration, e.g.
An ageing population – meaning greater pensioners or older work force
 Standard of living/quality of life,
(e.g. impact of changes in income on people)
 Attitudes to work,
(e.g. changes in attitudes to male and female roles)
 Religion
 Ethics and morality
 Education
Technological Factors
 We are used to being able to access information and communication technology instantly
no matter where we are
 Relevant current and future technology innovations

27
  The level of research funding
 The ways consumers make purchases
 Intellectual property rights and copyright infringements
Global communication technological advances
Environmental Factors
 There is an environmental movement which puts pressure on businesses, governments and
everyday people to be green.

 There are a number of examples of how companies can be greener internally and
externally, from addressing manufacturing today, to designing a much more sustainable
future.

 A manufacturer might reduce the amount of waste produced as a result of the

manufacturing process or a restaurant might reduce the amount of packaging or food
waste.
 The level of pollution created by the product or service
 Recycling considerations
 Attitudes towards the environment from the government, media and consumers
Current and future environmental legislative changes
Legal factors
Legal factors – The way in which legislation in society affects business.
E.g. Changes in employment laws in business legislation in areas such as employment,
competition and health & safety
- Future legislation changes
- Changes in European law
- Trading policies
- Regulatory bodies
 Provision of an appropriate legal framework, (e.g. company law)
 Competitive Pressures – such as emerging markets from abroad or new entrants to
markets (e.g. Competition Act, Supermarkets selling electronics or clothing)
Remuneration and Pay Levels – such as minimum wage introduction or regulation
 Consumer protection, (e.g. Trade Descriptions Act, Sale of Goods Act)
 Employee protection, (e.g. Employment Act, Health and Safety at Work Act Contract
Law etc…)
Governing Bodies in Different Countries – Federal Trade Commission (FTC), Department of
Commerce (DOC), International Trade Administration (ITA), EU legislation etc…
What impact do these external changes have on organisations?
 New organisation creation – New Market / Diversification

 Insufficient Business Prospects - Winding up of existing organisations

 Forced Takeovers and mergers

 Revision of strategic plans – Changing Aims and Objectives

28
  Impact on stakeholders – Reduced Return on Investment

 Functional activity – Unable to get supplies or move products

 Shifting demographic of current products and services – Selling somewhere else

 Lower/higher disposable income – Changes in customer wants & needs

Potters diamond model
Porter’s diamond model explains the reasons why industries within the country or in a different
country are more competitive than the other worldwide. The discussion is about the specific
factors that an organization, within a nation, provides to other organizations.The model says that
the industry is dependent on four primary factors as discussed below:

1. Factor Conditions
Factor conditions can be seen as opportunities within a country. As every country will
significantly have different factor conditions. So, operating in a place that is suitable for your
business needs is a huge advantage. The factors are important; it may be the human resource that
is most important of all. Without the availability of manpower, it becomes impossible to
complete the work required. Also, it will become difficult to compete in the chosen market. This
includes the availability of factors of production such as labour, capital, raw material,
knowledge, etc. They may or may not be available in a home country. For example, rubber and
labour should be available for a Tyre manufacturing company.

2. Demand Conditions
If there is a high demand for your product in your home market than in a foreign market, it will
increase the global competitiveness of local exporting companies. This will be an advantage; as a
rapid increase in demand for a product can help you in growing a business.

29
. 3. Related and Supporting Industries
The success of a market depends on the presence of suppliers, competitors, and complementary
firms. Further, competitive suppliers reinforce innovation and internationalization. A success of
an organization will always be an advantage to related or supporting organizations. Ultimately,
they encourage each other by producing complementary products.

4. Strategy Structure And Rivalry In The Industry

This factor is related to the way in which an organization is organized and managed, its corporate
objectives and the measure of rivalry within its own organizational culture. The role of a strategy
is to help in setting new goals, the role of a structure is to help in managing operations, and
rivalry helps in generating new innovative ideas in organizations.

According to Porter’s diamond model, these dimensions interact with each other and help in
increasing the competitiveness of the organizations

Importance of Porter’s Diamond Model

1. Government policies can influence the components of the diamond model.

2. The presence of supporting industries in close proximity to manufacturing companies can
reduce input costs and increase profits.
3. A competitive industry structure is essential; as those companies who successfully survive
tough competition at home are usually capable enough to withstand even tougher
competition in a global business environment.
Hofstede cultural dimension model
Many definitions of culture can be found in the literature. Kroeber and Kluckhohn (1952)
compiled a list of 164 definitions of culture, and this number has been increasing ever since
(Hofstede, 2001; Soudijn et al., 1990). However, the most commonly used definitions are from
Hofstede (1980) and House et al. (2004). Hofstede (1980) defines culture as the collective
programming of the mind, which distinguishes the members of one group of people from
another. House et al. (2004) define culture as shared motives, values, beliefs, identities and
interpretations or meaning of important events that originate from common experiences of
people from the same group. Culture is evident in the values and beliefs held by a particular
society (Dunn and Shome, 2007). These values are holistic, historically determined and socially
constructed (Detert et al., 2000). They are the “common characteristics that influence a group’s
response to its environment” (Hofstede, 1980, p. 19). The “cultural programming” begins at birth
and continues throughout the individual’s life within a particular society (Hofstede, 1980). Thus,
a persons’behavior is conditioned by the cultural norms and values of the environment in which
the person grows up (Muller and Thomas, 2001; Hofstede, 1980, 1991; Triandis, 2001).
Similarly, a manager’s belief systems are strongly influenced by his or her cultural assumptions
and values, which in turn affect the way business problems, are perceived, leading to different
approaches used to solving organizational problems (Sparrow and Wu, 1998). This, in turn,
results in distinctly different ways of dealing with similar business situations depending on the
norms prevailing within a given cultural environment (Dunn and Shome, 2007). Thus, the
influence of culture on the construction and workings of an HPO cannot be ignored and has to be
investigated, using the culture dimensions as developed by Hofstede (1980). Hofstede (1980), in
his research comprising 116,000 questionnaires which were completed by over 88,000 IBM

30
employees in 72 countries, identified four bipolar cultural dimensions which have become a
common basis of measurement of national culture (d’Iribarne, 1997; Dorfman and Howell, 1988;
Schneider and Barsoux, 1997). In a later study Hofstede introduced a fifth dimensions, long/short
term orientation, in an attempt to fit the uncertainty avoidance dimension into the Asian culture
(Hofstede and Bond, 1984, 1988). However, this dimension has not been included in this
research. The four original dimensions of national culture are described below:

1. Power distance: this dimension measures the extent to which a less powerful individual
accepts inequality in power. The degree of inequality that is tolerated by individuals varies
from one culture to another. Individuals, in a nation that is characterized by high power
distance, have a high degree of tolerance of power inequality: they accept that other
individuals have more power over them. Because of this high tolerance of power inequality,
they frequently seek guidance and direction from their superiors, and leaders are revered
and obeyed as authorities. Organizations in high power distance culture have more levels of
hierarchy, narrow span of control and centralized decision making.
2. Individualism-collectivism: individualism describes the relationship between individuals
and the group to which they belong or prefer to live and work in. Collectivism is the
preference to work or live as a group rather than as an individual. A country with a high
collectivist culture exhibits a high preference for group decision making. Consensus and
cooperation is valued more than individual initiative and efforts. Motivation is derived from
a sense of belonging, and rewards are based on group loyalty and tenure. A collectivist
society prefers to respect the group to which it belongs, usually the family. The role of
leadership in such culture is to facilitate team effort and integration, foster a supportive
atmosphere and create the necessary group culture (Beardwell and Holden, 2001). Markus
and Kitayama (1991) suggest that individualism and collectivism are two independent
dimensions, which should be split into vertical and horizontal sub-dimensions. However, to
maintain consistency with Hofstede’s cultural dimensions original model, most scholars
treat individualism and collectivism as extremes of a single dimension (Taras et al., 2010).
3. Uncertainty avoidance: this dimension relates to the creation of rules and structures to
eliminate ambiguity in an organization and support beliefs promising certainty and
protecting conformity. The implication is that people try in numerous ways to avoid
uncertainty in their lives by controlling their environment through predictable ways of
working. Organizations in cultures that score high in uncertainty avoidance show more
formalization, as evident in greater number of written rules and procedures as well as
greater specialization evident in the importance attached to technical competence. In
countries that score high in uncertainty avoidance, people tend to show more nervous
energy, while in low score cultures people are more easy going. According to Hofstede
(2001), uncertainty avoidance is not equivalent to risk avoidance: it does not describe an
individuals’ willingness to take or avoid risk, but instead describes an individuals’
preferences for clear rules and guidance.
4. Masculinity-femininity: this dimension pertains to behaviors and values that are either
cooperative or competitive (Taormina, 2005). Masculinity is defined as the dominance of
competitive values in a society such as assertiveness, performance driven and success.
Femininity on the other hand relates to cooperative and/or tender values associated with
females such as caring forquality of life, maintaining warm personal relationships, caring
for the weak and maintaining solidarity. In a feminine culture, the role of leadership is to

31
ensure shareholders are satisfied, employees’ well-being is safeguarded and social
responsibility is promoted (Bartlett and Ghoshal, 2000). Organizations ranking high on the
masculinity management style are concerned with task accomplishment rather than
nurturing social relationships.

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