International Business — Complete Visual Answer Guide

B.Com (Hons) · Semester IV · DSC/B.Com(P) UGCF

Prepared from PYQ trend analysis · Covers Category A, B & C questions

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📊 Exam Analysis Dashboard

Built directly from the "Asked / Frequency / Marks" tags on every question — use this to decide what to revise first.

Question probability by unit

Category A — prepare first (asked 3×, every paper)

Short-note certainties (near-guaranteed): Leontief Paradox (3×) · WTO (3×) · Non-Tariff Barriers (2×) · BOP (2×) · SDGs in IB (2×) · Exchange Rate System (1×) · BREXIT (1×) · Outsourcing (1×)

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UNIT 1Globalisation & International Business

Q1Differentiate between Domestic and International Business. Explain the complexities involved in international business.

Asked: 3695, 3845, 3665 | Frequency: 3x | Marks: 9-18 | Very High Probability

Domestic business refers to commercial transactions within the boundaries of a single country — all parties operate under the same legal system, currency, language, and cultural framework. International business involves trade, investment, and services that cross national borders, requiring firms to navigate diverse political, cultural, legal, and economic environments.

Key Differences: Domestic vs. International Business

Complexities of International Business

• Political Risk: Governments may change policies, impose sanctions, or nationalise assets. Example: US sanctions on Iran disrupted businesses operating there.

• Cultural Differences: Language barriers, religious customs, and social norms affect marketing and HR. Example: McDonald's serves vegetarian menus in India.

• Legal and Regulatory Differences: Each country has different laws on labour, IP, and taxation.

• Foreign Exchange Risk: Fluctuating exchange rates affect profitability. A rupee appreciation can reduce export earnings for Indian IT firms.

• Logistics and Supply Chain Complexity: Managing cross-border logistics and customs clearance adds cost and uncertainty.

• Competitive Environment: Firms face local competitors as well as global MNCs with vast resources.

• Ethical and Sustainability Issues: Different standards for labour, environment, and governance require careful navigation.

💡 Exam Tip: Always link complexities to real-world examples — McDonald's, TCS, Samsung. Examiners reward application.

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Q2What are the key drivers of globalisation? ('The world has become a global village.')

Asked: 3695, 3845, 3665 | Frequency: 3x | Marks: 9 | Very High Probability

Marshall McLuhan coined "global village" to describe how technology and communication compressed distances — a product designed in the US, manufactured in China, and sold in India exemplifies this integration.

Key Drivers of Globalisation

1. Technological Advances — internet, smartphones, e-commerce (Amazon, Alibaba sell worldwide)

2. Liberalisation of Trade and Investment Policies — WTO agreements, India's 1991 liberalisation

3. Role of MNCs — Apple, Toyota, Unilever spread production and culture globally

4. Improved Transportation — container shipping, air freight reduced costs and delivery times

5. Capital Market Integration — FDI and FII flows connect economies

6. Economic Reforms and Privatisation — China's SEZs, India's Make in India

7. Political Factors — end of Cold War, trading blocs (EU, ASEAN, NAFTA)

8. Labour Cost Differentials — IT offshored to India, manufacturing to China/Vietnam

9. Homogenisation of Consumer Tastes — global brands (Coca-Cola, Nike, Apple)

💡 Exam Tip: Structure your answer as Definition → Drivers (at least 6) → Examples → Conclusion.

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Q3Explain different modes of entry into international business, stating the merits and demerits of each mode.

Asked: 3695, 3845, 3665 | Frequency: 3x | Marks: 9-18 | Very High Probability

💡 Exam Tip: In a 9-mark question, cover 5–6 modes with brief merits/demerits. In an 18-mark question, cover all 8–9 with examples for each.

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Q4Discuss the different stages of internationalisation. Cite examples of various approaches.

Asked: 3695 | Frequency: 1x | Marks: 4.5+4.5

Stages of Internationalisation (Uppsala Model)

Approaches to Internationalisation

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UNIT 2Cultural & Political/Legal Environment

Q5Discuss the concept of culture and its constituents. Explain Hofstede's Dimensions of Culture in international business with examples.

Asked: 3695, 3665 | Frequency: 2x | Marks: 9+9 | High Probability

Concept of Culture

Culture is the collective programming of the mind that distinguishes the members of one group from another (Hofstede) — shared values, beliefs, norms, customs, language, and practices that shape behaviour and decision-making.

Constituents of Culture

• Language: verbal and non-verbal (in Japan silence indicates agreement; in the West it signals confusion)

• Religion: shapes consumption patterns and ethics (Islamic banking prohibits interest/riba)

• Values and Attitudes: individualism (US) vs. collectivism (China)

• Education: literacy levels and skill profiles vary globally

• Social Structure: family systems and class distinctions affect consumer behaviour

• Customs and Manners: exchange of business cards is a ritual in Japan

• Technology and Material Culture: shapes business infrastructure

• Law and Politics: reflects attitudes toward governance and rights

Hofstede's Six Dimensions of Culture

Business Implications

A firm entering China (high collectivism, high LTO) must emphasise group benefits, long-term partnerships (guanxi), and patience in negotiations. Contrast with the US (individualism, short-term) where individual performance incentives and quick ROI dominate managerial decisions.

💡 Exam Tip: Name all 6 dimensions, briefly explain each, and give ONE country-pair example per dimension. In an 18-mark answer, add business implications for MNCs.

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Q6How do political and legal environments of countries impact international business?

Asked: 3695, 3845, 3665 | Frequency: 2x | Marks: 9 | High Probability

Political Environment

The political environment includes the nature of government, political stability, government policies on trade and investment, and the ideology of the ruling party.

• Political Stability: Stable governments encourage FDI — Singapore attracts billions in FDI due to stable governance.

• Government Ideology: Socialist governments may restrict private/foreign business — Cuba's restrictions on foreign enterprise.

• Trade Policies: Import duties, quotas, subsidies, and export restrictions directly affect competitiveness.

• Political Risk: Risk of expropriation, nationalisation, or policy reversal — Venezuela nationalised oil assets of foreign firms.

• Bilateral Relations: Diplomatic ties determine trade access — India-China border tensions affected Chinese app businesses in India (2020 bans).

Legal Environment

• Contract Law: Enforceability varies — common law (UK, India) vs. civil law (France, Germany) systems differ in commercial dispute resolution.

• Intellectual Property Rights (IPR): Weak IPR protection in some countries discourages technology transfer — China's IP enforcement challenges.

• Labour Laws: Restrictions on hiring/firing, minimum wage, and working hours affect operational costs.

• Taxation Laws: Corporate tax rates, double taxation treaties, and transfer pricing regulations impact profitability.

• Competition Law: Anti-monopoly laws and merger regulations vary across jurisdictions.

• Environmental Regulations: Stricter in developed nations; firms must comply with local standards.

💡 Exam Tip: Asia vs. Europe contrast — China's state-capitalist system vs. EU's highly regulated, rule-based environment. Always cite 2-3 real examples.

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UNIT 3Theories of International Trade

Q7Explain the theory of Absolute Advantage and Comparative Advantage. Show that trade is a positive-sum game.

Asked: 3695, 3845, 3665 | Frequency: 3x | Marks: 6+6 | Very High Probability

Theory of Absolute Advantage (Adam Smith, 1776)

A country should specialise in producing goods in which it has an absolute advantage — it can produce more of that good using the same resources compared to another country. By specialising and trading, both countries gain.

Limitation: What if one country is absolutely better at producing everything? This is addressed by Ricardo's Comparative Advantage.

Theory of Comparative Advantage (David Ricardo, 1817)

Even if one country is better at producing all goods, trade is still beneficial if each country specialises in the good with the relatively lower opportunity cost.

Portugal has absolute advantage in both. But England's comparative disadvantage is smaller in cloth (100/90 vs 120/80). So England specialises in cloth; Portugal in wine. Total output increases — trade benefits both.

Trade as a Positive-Sum Game

Both theories demonstrate that specialisation and trade expand total world output. Unlike zero-sum thinking, free trade creates mutual benefits:

• Countries consume beyond their production possibility frontiers

• Consumers get more variety at lower prices

• Producers achieve economies of scale

• Technology and knowledge diffuse globally

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Q8Explain Porter's Theory of National Competitive Advantage (Diamond Model).

Asked: 3695, 3845, 3665 | Frequency: 3x | Marks: 6-9 | Very High Probability

Michael Porter (1990) challenged factor-endowment theories by asking: why do certain nations achieve international success in particular industries? His answer: the Diamond Model — four interlinked determinants of national competitive advantage.

Two Additional Variables

• Government: Policies on education, infrastructure, trade, and R&D — supports or hinders competitive advantage.

• Chance: Unpredictable events (wars, innovations, technology breakthroughs) can shift competitive positions.

Significance

Porter's model explains why Germany excels in automobiles and chemicals, Switzerland leads in banking and precision watches, and the US dominates software and entertainment — each has a strong diamond in that sector.

💡 Exam Tip: Draw the diamond diagram if possible. Link all 4 determinants with ONE country example throughout.

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Q9Explain the Heckscher-Ohlin (Factor Proportions) Theory and the Leontief Paradox.

Asked: 3845, 3665 (long Q); 3695, 3845, 3665 (short note) | Frequency: 2x+3x | Very High Probability

Heckscher-Ohlin Theory (Factor Proportions Theory)

Proposed by Eli Heckscher and Bertil Ohlin, this theory extends Ricardo by explaining what determines comparative advantage: a country will export goods whose production requires factors that are relatively abundant and cheap in that country, and import goods requiring factors that are scarce and expensive.

Assumptions of H-O Theory

• Two countries, two goods, two factors (capital and labour)

• Same technology available to both countries

• Perfect competition in all markets

• Factors are mobile within countries but immobile between countries

• No transport costs or trade barriers

• Tastes and preferences are identical in both countries

Leontief Paradox

Wassily Leontief (1953) tested the H-O theory using US data and found a startling result: the US, the world's most capital-abundant nation, was actually exporting labour-intensive goods and importing capital-intensive goods — the opposite of what H-O predicted.

Explanations for the Paradox

• Human Capital: US exports are intensive in skilled labour (human capital), not physical capital — the H-O model ignores this.

• Technology and Innovation: The US had technological advantages in certain labour-intensive R&D sectors.

• Natural Resource Intensity: Some US imports are capital-intensive because they are natural-resource processing industries.

• Tariff Structure: US tariffs protected capital-intensive domestic industries, distorting trade patterns.

• Taste Differences: Despite H-O assumptions, US consumers may prefer different goods.

💡 Exam Tip: The Leontief Paradox is near-certain as a short note. Key point: H-O predicted US exports capital-intensive goods; Leontief found the opposite. Explain why.

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Q10Explain the Product Life Cycle (PLC) Theory of International Trade (Vernon).

Asked: 3695, 3665 | Frequency: 2x | Marks: 6 | High Probability

Raymond Vernon (1966) proposed that a product's international trade pattern changes as it moves through its life cycle — explaining why new products are first made in developed countries and later manufactured in developing ones.

Modern Examples

• Smartphones: Innovation in USA (Apple); manufacturing shifted to China (Foxconn); assembly in India and Vietnam.

• Semiconductors: Designed in USA, manufactured in Taiwan and South Korea.

💡 Exam Tip: Vernon's PLC theory bridges trade theory and FDI theory — firms invest abroad as the product matures.

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Q11Explain Tariff and Non-Tariff Barriers in international trade.

Asked: 3695, 3665 | Frequency: 2x | Marks: 6-9 | High Probability

Tariff Barriers — A tariff is a tax or duty imposed by a government on imported or exported goods.

Impact of Tariffs: Raises price of imported goods; reduces consumer welfare; may invite retaliation; can cause inefficiency by protecting uncompetitive domestic industries.

Non-Tariff Barriers (NTBs) — trade restrictions other than tariffs; less visible but often more effective.

• Import Quotas: Quantitative limits on imports — India's quota on gold imports

• Voluntary Export Restraints (VERs): Exporting country voluntarily limits exports — Japan limiting car exports to the US (1980s)

• Embargoes: Complete ban on trade with a specific country — US embargo on Cuba

• Licensing Requirements: Mandatory import/export licenses create bureaucratic barriers

• Subsidies: Government support to domestic producers

• Technical and SPS Barriers: Product standards, labeling — EU's strict food safety standards restrict Indian exports

• Administrative and Bureaucratic Delays: Customs delays, complex documentation

• Exchange Controls: Restricting availability of foreign exchange limits imports

💡 Exam Tip: NTBs are increasingly important as WTO restricts tariffs. Rising protectionism (US under Trump 2.0) makes this very relevant — always mention that NTBs are harder to detect and regulate than tariffs.

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UNIT 4Regional Economic Integration

Q12'Regional integration is not a choice; it is a necessity.' Explain different stages of regional economic integration with examples.

Asked: 3695, 3845, 3665 | Frequency: 3x | Marks: 12-18 | Very High Probability

In an increasingly interconnected world, no country can afford to operate in isolation — small markets limit economies of scale, geopolitical threats demand collective response, and global institutions favour blocs over individual nations.

Stages of Regional Economic Integration (Balassa Model) — mnemonic: PFC-CEP

Benefits and Costs of Regional Integration

💡 Exam Tip: The 6 stages + examples is THE most predictable answer in this paper. Memorise the Balassa model. Always mention EU as the deepest example.

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Q13Explain the objectives and functioning of SAARC. / Discuss ASEAN's role in Asian regional integration.

Asked: 3695, 3845 | Frequency: 2x | Marks: 6 | High Probability

SAARC — South Asian Association for Regional Cooperation

Established 1985, 8 member states: India, Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka, Maldives, Afghanistan. HQ: Kathmandu, Nepal.

Objectives

• Promote welfare of people of South Asia and improve quality of life

• Accelerate economic growth, social progress, and cultural development

• Promote collective self-reliance among member states

• Strengthen cooperation with other developing countries

• Cooperate on agriculture, rural development, science & technology

• Maintain peace and stability in the region

Functioning

• Summit: Biennial meetings of Heads of State — highest decision-making body

• Council of Ministers: Foreign Ministers meet annually to review cooperation

• SAFTA: South Asian Free Trade Area (2006) — reduced tariffs among members

• Challenges: India-Pakistan tensions have stalled many initiatives. SAARC has been largely ineffective compared to ASEAN.

ASEAN — Integration in Asia

ASEAN (est. 1967) has 10 members including Indonesia, Malaysia, Thailand, Vietnam, and Singapore. Unlike SAARC, ASEAN has successfully created the ASEAN Free Trade Area (AFTA), the ASEAN Economic Community (AEC, 2015), and maintains a non-interference principle that reduces political friction. ASEAN's trade with China, Japan, and Korea via RCEP (2022) makes it a critical global trade hub.

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UNIT 5International Financial System

Q14'The Bretton Woods system laid the foundation for a rules-based international financial order, with the IMF and World Bank at its core.' Explain the objectives and functioning of the IMF and World Bank.

Asked: 3695, 3845, 3665 | Frequency: 3x | Marks: 12 | Very High Probability

The Bretton Woods System (1944)

In July 1944, 44 Allied nations met at Bretton Woods, New Hampshire, USA, to design a post-World War II international monetary order. The system created a fixed exchange rate regime (currencies pegged to USD; USD pegged to gold at $35/oz), and established two key institutions: the IMF and the World Bank (then IBRD).

The system collapsed in 1971 when the US suspended dollar-gold convertibility (Nixon Shock), but the IMF and World Bank continue to operate as pillars of the international financial system.

IMF — International Monetary Fund

Established 1945 · Members: 190 countries · HQ: Washington D.C. · MD (2024): Kristalina Georgieva

Objectives of IMF

• Promote international monetary cooperation

• Facilitate balanced growth of international trade

• Promote exchange stability and avoid competitive devaluations

• Provide temporary financial assistance to member countries with BOP difficulties

• Promote a multilateral system of payments and eliminate foreign exchange restrictions

Functions of IMF

• Surveillance: Monitors global and member country economic developments; publishes World Economic Outlook

• Lending: Provides conditional loans (structural adjustment programs) — IMF bailouts to Greece (2010), Sri Lanka (2023), Pakistan

• Technical Assistance: Training and policy advice on tax, monetary policy, and statistics

• Special Drawing Rights (SDRs): IMF's international reserve asset, allocated based on quota

• Quota System: Members subscribe quotas (based on economic size) which determine voting power and borrowing limits

World Bank Group — Established 1945 · Members: 189 countries · HQ: Washington D.C. · President (2024): Ajay Banga

Objectives of World Bank

• Reduce extreme poverty and promote shared prosperity

• Finance infrastructure, education, healthcare, and governance projects

• Provide long-term capital at concessional rates for development

• Support policy reforms and institution building in developing nations

• Respond to global challenges: climate change, pandemics, food security

💡 Exam Tip: Distinguish IMF (short-term, BOP stabilisation) from World Bank (long-term, development finance). The Bretton Woods framing from Q4(c) of 3695 is almost certainly repeated.

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Q15Explain the functions and structure of the WTO (World Trade Organisation) as a regulator of world trade.

Asked: 3695, 3845, 3665 | Frequency: 3x | Both long Q and short note | Very High Probability

Background

WTO was established on 1 January 1995, replacing the General Agreement on Tariffs and Trade (GATT, 1947). It is the only international organisation dealing with the global rules of trade between nations. HQ: Geneva, Switzerland. Members: 164 countries (as of 2024). DG: Ngozi Okonjo-Iweala.

Core Principles of WTO

• Most Favoured Nation (MFN): Trade concessions given to one member must be extended to all

• National Treatment: Imported and locally produced goods must be treated equally once in the domestic market

• Transparency: Trade policies must be published and predictable

• Reciprocity: Members negotiate mutual reductions in trade barriers

• Free Trade: Lower barriers through negotiations

Functions of WTO

• Administers WTO trade agreements (GATT, GATS, TRIPS, etc.)

• Provides a forum for trade negotiations (Doha Round, etc.)

• Handles trade disputes through the Dispute Settlement Understanding (DSU)

• Monitors national trade policies through Trade Policy Review Mechanism

• Provides technical assistance and training to developing countries

• Cooperates with IMF, World Bank on global economic policy

Structure of WTO

Dispute Settlement: Panels → Appellate Body → implementation; binding rulings. (Appellate Body paralysed since 2019 — US blocking appointments.)

Key WTO Agreements

• GATT: Goods trade — tariffs, quotas, subsidies

• GATS: Services trade (banking, IT, education)

• TRIPS: Intellectual property rights protection

• TRIMS: Trade-related investment measures

💡 Exam Tip: WTO short note = MFN principle + DSU + GATT/GATS/TRIPS. Full question: add structure + Doha Round failure and relevance today.

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Q16Discuss the various exchange rate systems. What are the different components of the Balance of Payments?

Asked: 3695, 3845 | Frequency: 2x | Marks: 6 each | High Probability

Exchange Rate Systems — an exchange rate is the price of one currency in terms of another.

Balance of Payments (BOP)

The BOP is a systematic record of all economic transactions between residents of a country and the rest of the world over a specific period (usually a year).

BOP Equilibrium: Theoretically, Current Account + Capital Account + Financial Account = 0. A BOP deficit means the country is spending more than it earns from abroad; it must be financed by borrowing or drawing down reserves.

India Example: India consistently runs a current account deficit (imports > exports of goods) but has a capital/financial account surplus (large FDI and FII inflows) that keeps the BOP broadly in balance.

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UNIT 6FDI & International Investment

Q17What is Foreign Direct Investment (FDI)? Explain its types and benefits for the host country.

Asked: 3845, 3665 | Frequency: 2x | Marks: 9 | High Probability

Definition of FDI

FDI is an investment made by a company or individual in one country in business interests in another, in the form of establishing business operations or acquiring business assets — such as ownership or controlling interest in a foreign company. FDI involves a long-term relationship and lasting interest, distinguishing it from portfolio investment. IMF defines FDI as investment that acquires at least 10% equity stake in a foreign enterprise.

Types of FDI

Benefits of FDI for the Host Country

• Capital Formation — supplements domestic savings and investment

• Technology Transfer — Maruti Suzuki transferred Japanese manufacturing techniques to India

• Employment Generation — direct and indirect jobs through multiplier effects

• Export Promotion — Vietnam's electronics exports via Samsung

• Tax Revenue — corporate taxes, customs duties

• Development of Human Capital — training programs and skill development

• Infrastructure Development — roads, power, telecommunications

• Competition and Innovation — pushes domestic firms to improve efficiency

Costs/Risks of FDI for Host Country

• Profit repatriation reduces foreign exchange reserves

• May crowd out domestic firms (competition effect)

• Cultural homogenisation and loss of local identity

• Environmental and labour standard concerns if regulations are weak

• Economic dependence on MNCs' decisions taken abroad

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Q18Differentiate between Mergers and Acquisitions (M&A) with examples.

Asked: 3665 | Frequency: 1x | New topic — Moderate Probability

Mergers: Two companies mutually agree to combine and form a new single entity. Both companies cease to exist as separate legal entities. Typically voluntary and friendly. Example: Exxon + Mobil → ExxonMobil (1999); Hutch + Vodafone India → Vodafone India.

Acquisitions: One company (the acquirer) purchases another company (the target), which then becomes part of the acquirer. Example: Tata Motors acquired Jaguar Land Rover (2008); Facebook acquired Instagram (2012); Reliance acquired Future Retail (2020).

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UNIT 7Short Notes (Must-Prepare)

SN1. BREXIT

Asked: 3695 | 1x

Timeline: Referendum: June 2016 → Article 50 triggered: March 2017 → Withdrawal Agreement: January 2020 → Transition period ended: December 31, 2020 → UK fully outside EU.

Key Issues: Free movement of labour ended. UK regained control over trade policy, immigration, and regulations. Northern Ireland Protocol created special arrangements for the Irish border.

Impact on Business: UK firms lost access to EU single market. EU firms lost frictionless UK market access. Financial services sector moved operations from London to Frankfurt, Dublin, Amsterdam. Supply chain disruptions in automotive and manufacturing.

Trade Impact: UK signed new FTAs (Australia, NZ, Japan, CPTPP) to compensate for loss of EU trade. UK-EU Trade and Cooperation Agreement (TCA) governs the current relationship.

For Exam: BREXIT shows that regional integration can reverse. It demonstrates political, economic, and business costs of de-integration.

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SN2. WTO as Regulator of World Trade

Asked: 3695, 3845, 3665 | 3x

Role: WTO (est. 1995) administers global trade rules ensuring free, fair, and predictable trade. Replaced GATT. 164 members. HQ: Geneva.

Regulatory Functions: Administers GATT, GATS, TRIPS agreements. Handles trade disputes via Dispute Settlement Understanding (DSU). Monitors trade policies of all members. Provides aid for trade to developing countries.

Key Principles: MFN (Most Favoured Nation), National Treatment, Transparency, Reciprocity, Non-discrimination.

Achievements: Successive tariff reduction rounds (Uruguay Round). Global trade has expanded enormously since 1995. Dispute resolution has settled hundreds of trade conflicts.

Challenges: Doha Round (2001) remains unfinished. Rise of US-China trade war challenges the MFN principle. Appellate Body paralysed since 2019 (US blocking appointments). Rise of bilateral deals outside WTO framework.

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SN3. Non-Tariff Barriers (NTBs)

Asked: 3695, 3665 | 2x

Types: Import Quotas (quantity limits); VERs (Voluntary Export Restraints); Embargoes (complete trade bans); Technical Barriers (product standards, labeling); SPS Measures (food safety); Subsidies (favour domestic producers); Administrative delays (complex customs documentation); Exchange controls.

Significance: As WTO has reduced tariffs, NTBs have become the primary tool of protectionism. They are harder to identify and regulate.

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SN4. Leontief Paradox

Asked: 3695, 3845, 3665 | 3x

Background: In 1953, Wassily Leontief tested the Heckscher-Ohlin theory using US input-output data. H-O predicted the US (most capital-abundant country) should export capital-intensive goods.

The Paradox: Leontief found the OPPOSITE: US exports were more labour-intensive than US imports. This contradicted H-O theory and is called the Leontief Paradox.

Explanations:

1. Human Capital: US exports are intensive in skilled labour/human capital, not physical capital.

2. Technology: US had technological superiority in some labour-intensive sectors.

3. Factor intensity reversal: Some goods are capital-intensive in the US but labour-intensive abroad.

4. US tastes: Americans prefer capital-intensive goods, leading to their import.

5. Natural resources: Many US imports are resource-processing industries that happen to be capital-intensive.

Significance: Led to extensions of the H-O model to include more factors (human capital, technology). Showed that real trade patterns are more complex than simple 2-factor models predict.

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SN5. Balance of Payments (BOP)

Asked: 3845 | 1x

Components: 1. Current Account: Trade in goods, services, primary income (profits, wages), secondary income (remittances). 2. Capital Account: Non-financial capital transfers (debt forgiveness, asset transfers). 3. Financial Account: FDI, Portfolio Investment (FII), reserve assets.

BOP Equilibrium: Theoretically CA + KA + FA = 0. In practice, statistical discrepancies exist.

Surplus vs. Deficit: Current account surplus = exports > imports. Deficit = imports > exports, financed by capital/financial inflows.

India Example: India runs a current account deficit (especially merchandise trade) offset by large FII/FDI inflows and remittances from the diaspora.

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SN6. Exchange Rate System

Asked: 3845 | 1x

Types: Fixed (currency pegged to another, e.g. Saudi SAR to USD). Floating (market-determined, e.g. USD, EUR, GBP). Managed Float (market-determined with central bank intervention, e.g. India's INR, China's CNY). Currency Board (100% reserve-backed fixed rate, e.g. HK dollar). Currency Union (common currency, e.g. Euro).

Significance: Exchange rate directly affects export/import competitiveness, inflation, investment flows, and BOP. Depreciation boosts exports but raises import costs and inflation. Countries choose their system based on size, openness, and monetary policy goals.

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SN7. Outsourcing — Advantages and Challenges

Asked: 3695 | 1x

Types: Business Process Outsourcing (BPO): HR, payroll, customer service. Knowledge Process Outsourcing (KPO): Research, legal, analytics. IT Outsourcing (ITO): Software development, infrastructure management.

Advantages: Cost reduction (labour arbitrage — lower wages in India, Philippines). Focus on core competencies. Access to specialised expertise. Scalability and flexibility. 24/7 operations (time zone advantage). Example: US banks outsourcing customer service to India.

Challenges: Quality control and consistency issues. Data security and confidentiality risks. Cultural and communication barriers. Over-dependence on vendor; risks if vendor fails. Public backlash (job losses in home country). Hidden costs (management, transition, coordination).

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SN8. FDI and Its Types

Asked: 3845 | 1x

Types: Horizontal FDI (same activity abroad); Vertical FDI (supply chain integration — backward or forward); Conglomerate FDI (unrelated activity); Greenfield (new setup); Brownfield (M&A); Platform FDI (export-oriented).

Key Flows (2023): Global FDI flows: ~$1.3 trillion. Top recipients: US, China, Singapore, India. India received$71 billion FDI in 2022-23, primarily in services, IT, and manufacturing.

Policy Significance: FDI policies (automatic vs. approval route, sectoral caps) determine attractiveness. India's liberalisation of FDI (100% in many sectors) has boosted inflows.

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SN9. Sustainable Development and SDGs in International Business

Asked: 3695, 3665 | 2x

SDGs Background: The UN's 2030 Agenda (adopted 2015) established 17 Sustainable Development Goals (SDGs) covering poverty, hunger, health, education, climate, and inequality.

Role of International Business: MNCs are major drivers of economic activity globally and have significant impact on sustainability. International business can contribute through: responsible supply chains, clean technology transfer, ESG reporting, local employment, and green FDI.

Key Examples: Unilever's Sustainable Living Plan links business growth to social and environmental impact. Apple's commitment to carbon neutrality in its supply chain. Tata Group's CSR initiatives aligned with SDGs.

Global Initiatives: Paris Agreement (2015): 196 countries commit to limit global warming. UN Global Compact: voluntary corporate sustainability initiative. Carbon Border Adjustment Mechanism (EU CBAM): trade policy linked to carbon emissions.

Exam Relevance: 2025 paper asked an 18-mark question on IB and SDGs — expect it to appear again. Key link: IB practices → ESG → SDGs → global governance.

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QUICK REVISION — One-Page Memory Sheet

Trade Theories — At a Glance

Regional Integration Stages — Memory Trick: PFC-CEP

Category A — 8 Questions to Prepare First (All Asked 3x)

1. Domestic vs. International Business + Complexities

2. Drivers of Globalisation / Global Village

3. Modes of Entry — all 8-9 modes with merits & demerits

4. Porter's National Competitive Advantage (Diamond Model)

5. Comparative Advantage + Absolute Advantage — positive-sum game

6. Stages of Regional Economic Integration (6 stages, examples)

7. IMF and World Bank — objectives and functioning (Bretton Woods)

8. WTO — principles, functions, structure

SHORT NOTES CERTAINTIES: Leontief Paradox (3x) · WTO (3x) · Non-Tariff Barriers (2x) · BOP (2x) · SDGs (2x) · Exchange Rate (1x) · BREXIT (1x) · Outsourcing (1x)

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International Business Complete Answers · B.Com Sem IV · Based on PYQ Analysis 2023-2025