International Business Theory A guide for students from Nepal (draft 2 April 2023)

By Dr Jeff Simcox BA (hons) LLM ACMA DipM MCIM D.Phil

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About the Author Dr. Jeff Simcox has taught postgraduate and undergraduate students for over seventeen years. His analytical expertise is in both quantitative and qualitative research design, data gathering and analysis including the use of thematic qualitative content analysis and inferential statistical analysis specializing in regression and multivariate techniques using both SPSS and excel. His teaching experience covers all aspects of International business, International Finance, Financial Management, International Marketing and International taxation. As well as this textbook he is the author of How to undertake post graduate research, SPSS for researchers, International Business, Global Marketing Analysis for Post graduate students, Financial Management, International finance, and International taxation. His teaching experience is supplemented by extensive Supervision and guidance of students at Doctorate and Masters Level in Europe, America, Asia, and Australia. The Author’s experience is not only Academic having spent 21 years at Director level in FDI assisting Major Corporations in Asia, North America and Europe as they researched investment locations combined with a further 10 years as a Management Consultant assisting Global organizations with their research into Asian investment and trade opportunities. Dr. Simcox has a Doctorate in International foreign Direct Investment and Marketing, A Masters in Law, and a first degree in Business and Law. He is a Chartered Management Accountant, a Chartered Marketer, and holds a Postgraduate Diploma in Marketing. This complete document Copyright © 6th April 2023 Jeff Simcox 2

Table of Contents

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Chapter 1 Introduction International business has become a critical aspect of the global economy, and Nepal is an excellent example of a country that has been impacted by international business practices. Nepal, a landlocked country situated in South Asia, is known for its unique geographical location, cultural diversity, and unparalleled natural beauty. Nepal is home to Mount Everest, the highest peak in the world, and several UNESCO World Heritage Sites, making it an attractive destination for tourists. Despite its small size and relatively low level of economic development, Nepal is a country that provides a unique context for studying international business. Nepal's economy is primarily based on agriculture, with tourism and remittances from Nepalese workers abroad playing an essential role in the economy. Nepal has a relatively open economy, with exports accounting for around 10% of its GDP. The country's main exports include carpets, textiles, and agricultural products such as tea and coffee. Nepal imports a wide range of goods, including petroleum products, machinery, and consumer goods. Nepal's economic development has been influenced by several factors, including its location between India and China, two of the world's largest economies. Nepal's political instability and lack of infrastructure have hampered its economic growth, making it challenging to compete with other countries in the region. However, the country has made significant progress in recent years, particularly in the area of tourism, where it has seen a significant increase in visitors. This textbook aims to provide students with a comprehensive understanding of international business practices and how they impact countries like Nepal. The book will explore the key concepts and theories of international business, such as globalization, international trade, foreign direct investment, and cross-cultural management. The book will also examine the challenges and opportunities facing businesses operating in Nepal and other developing countries. Through case studies, examples, and real-world applications, students will gain insights into the unique challenges and opportunities of international business in Nepal and other emerging markets. In conclusion, Nepal provides a fascinating case study of how international business practices impact developing countries. The country's unique culture, geography, and economic situation offer valuable insights into the challenges and opportunities facing businesses operating in emerging markets. This textbook aims to provide students with a comprehensive understanding of international business and how it relates to countries like Nepal.

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What is International Business? International business refers to business transactions that take place between companies in different countries or across national borders. On the other hand, domestic business refers to business transactions that take place within a single country. For Nepalese companies, there are some differences in terms of operating in the international market compared to the domestic market. One of the key differences is the increased complexity in dealing with different regulations and legal requirements in different countries. International business also involves dealing with different languages, currencies, cultural norms, and business practices. These factors can add additional challenges for Nepalese companies operating in the international market. Another difference is the level of competition. In the domestic market, Nepalese companies may have an advantage over foreign competitors due to their familiarity with the local market and customer preferences. However, in the international market, they may face more competition from established global brands. Nepalese companies can get involved in international business in several ways: 1. Exporting: Nepalese companies can export their products or services to other countries. This involves finding foreign customers, negotiating deals, and complying with export regulations. Example: A Nepalese clothing manufacturer exports its products to retailers in the United States. 2. Importing: Nepalese companies can import goods or services from other countries. This involves finding foreign suppliers, negotiating deals, and complying with import regulations. Example: A Nepalese retailer imports electronics from China to sell in its stores. 3. Joint ventures: Nepalese companies can form joint ventures with foreign companies to collaborate on business activities. This involves sharing risks and profits with the foreign partner. Example: A Nepalese construction company forms a joint venture with a Chinese construction company to build a new airport in Nepal. 4. Licensing: Nepalese companies can license their products, services, or technology to foreign companies in exchange for royalties or fees. Example: A Nepalese software company licenses its software to a company in India. 5. Franchising: Nepalese companies can expand their business by offering franchises to foreign entrepreneurs who want to operate the same business model in their country. Example: A Nepalese restaurant franchise expands into the United States by offering franchises to American entrepreneurs.

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FDI FDI stands for Foreign Direct Investment, which refers to the investment made by a company from one country into another country. FDI can be categorized into two types: inward FDI and outward FDI. Inward FDI occurs when foreign companies invest in the domestic companies of another country. For example, if a Japanese company invests in a Nepalese company, it is considered inward FDI for Nepal. Outward FDI, on the other hand, occurs when domestic companies invest in foreign companies. For example, if a Nepalese company invests in a Japanese company, it is considered outward FDI for Nepal. Challenges faced by Nepalese companies engaged in outward FDI and facing competition from inward FDI: 1. Limited resources: Nepalese companies have limited resources compared to their foreign competitors. This makes it difficult for them to compete with foreign companies in terms of production capacity, marketing, and technology. 2. Lack of expertise: Nepalese companies may lack the expertise and knowledge needed to compete in foreign markets. They may also lack knowledge of foreign laws, regulations, and cultural differences, which can make it difficult for them to operate effectively in foreign markets. 3. High cost of capital: Nepalese companies may face higher costs of capital than their foreign competitors, making it difficult for them to finance their investment in foreign markets. 4. Political instability: Political instability can be a major challenge for Nepalese companies investing in foreign markets. Political instability can lead to changes in policies, regulations, and laws, which can negatively impact the business environment. 5. Lack of market information: Nepalese companies may have limited access to market information, making it difficult for them to identify and exploit opportunities in foreign markets. 6. Cultural differences: Cultural differences can pose a challenge for Nepalese companies operating in foreign markets. Different cultures have different business practices, communication styles, and values, which can lead to misunderstandings and conflict.

7. Competition from inward FDI: Nepalese companies engaging in outward FDI may face competition from foreign companies that invest in Nepal. Inward FDI can bring in foreign capital, technology, and expertise, which can make it difficult for Nepalese companies to compete.

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In summary, Nepalese companies engaged in outward FDI face a number of challenges, including limited resources, lack of expertise, high cost of capital, political instability, lack of market information, cultural differences, and competition from inward FDI. To overcome these challenges, Nepalese companies need to be proactive and innovative, and they need to collaborate with other Nepalese companies and international partners. There are several challenges faced by Nepalese companies when competing against foreign companies investing in Nepal. Some of these challenges include: 1. Lack of resources and technology: Nepalese companies often lack the financial resources and advanced technology needed to compete with foreign companies. This makes it difficult for them to improve their products or services and keep up with the competition.

2. Limited access to capital: Nepalese companies also face a challenge in accessing capital, both from local and international sources. This limits their ability to invest in research and development or to expand their operations. 3. Inadequate infrastructure: Nepal’s infrastructure, such as roads, power supply, and telecommunication networks, is often inadequate and not up to the standards of foreign companies. This makes it difficult for Nepalese companies to deliver products or services to customers on time and at competitive prices. 4. Limited market size: Nepal's domestic market is relatively small compared to other countries. This makes it difficult for Nepalese companies to achieve economies of scale, limiting their ability to reduce costs and prices. 5. Limited government support: Nepalese companies often face limited government support, which hinders their ability to compete against foreign companies. This includes limited access to subsidies, tax incentives, and other forms of support that are available to foreign investors.

A side note -The dangers of using online AI

Online AI aids are a terrific advantage for students and teachers alike with one caveat. You need to know your topic. IA will on occasions produce factual errors. I use Ai to help me write textbooks, but I always have to check the facts because occasionally the AI is wrong, or out of date. The UK section in this book on trade blocs produced by AI was wrong, I had to rewrite two major sections. But perhaps a bigger example is the following, I have highlighted where the AI is wrong, this answer was used verbatim by a previous student who obtained it form chatGPT without understanding its contents: AI Example “One successful example of a standardized approach to the marketing mix is the global marketing campaign for Coca-Cola. Coca-Cola has consistently used the same marketing mix in all of its

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markets around the world, with minor modifications to fit local cultural nuances. This approach has been successful for the brand, as Coca-Cola is recognized and consumed globally. Product: Coca-Cola uses the same recipe and brand image in all its markets around the world. While it may offer different flavors in some countries, the core product remains the same. This is not really accurate Whilst it is true that Coke’s products satisfy the same need worldwide, eg a need for carbonated and non carbonated drinks, the actual formulas’ for the drinks differ in different Countries. Local bottle plants use different formulas for Coca cola in different parts of the world. Proof of this is that United Airlines has to ship Coke from the USA to its Japan hub to be used on its flights from the Far East heading to the USA. This is because Asia Coke bottling plant produced Coca Cola is not FDA (due to content and formula differences) approved and cannot be shipped into the USA due to its different formulation Price: Coca-Cola has a consistent pricing strategy across all markets. It focuses on pricing its products competitively in each market, taking into account local economic conditions and consumer preferences. The consistent element, is comparability to Pepsi, however prices are adapted to the local market. Promotion: Coca-Cola uses the same advertising and promotional campaigns across all its markets, with minor adjustments to fit local cultural nuances. The brand has a consistent message and visual identity, which has helped it to become one of the most recognizable brands in the world. This is not really the case have a look at the Coca Cola Bollywood ads used in India as an example. Place: Coca-Cola has a global distribution network that ensures its products are available in all markets around the world. It works with local distributors to ensure its products are available in local stores and supermarkets. It has bottling partners in all locations, to that extent it has a standard business model. Overall, Coca-Cola's standardized approach to the marketing mix has been successful because it has allowed the brand to maintain consistency in its message and image, while also being able to adapt to local market conditions. This last paragraph really sums it up, of the marketing mix elements, the one that is truly standardized is the BRAND. So use AI at your own risk, but check the generated answers.

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Chapter 2 International business risks The four risks of international business are as follows: 1. Country Risk: It is the risk that arises due to political instability, changes in the government, policies, and regulations. This can have a significant impact on the business as it affects the country's economy and its operations. For example, political instability in Venezuela caused many multinational companies to withdraw from the country, resulting in significant losses. 2. Currency and Economic Risk: This risk is associated with the fluctuation in exchange rates, inflation, and interest rates. Changes in these factors can lead to significant losses for the business. For example, if a Nepalese trading company deals with a foreign company, and there is a sudden change in exchange rates, it can result in a significant loss for the Nepalese company. 3. Commercial Risk: This risk arises due to differences in legal systems and regulations across countries. A company may face legal issues if it fails to comply with local laws and regulations. For example, Nestle faced legal issues in India due to the use of lead in their Maggi noodles. 4. Cultural Risk: Cultural differences can create challenges for businesses operating in foreign countries. These differences can be related to language, customs, values, and attitudes. Companies need to adapt to the local culture to succeed in international markets. For example, McDonald's has had to adapt its menu to cater to local tastes in different countries. Now, let's apply these risks to an international trading company in Nepal. The company would face political risk due to the unstable political situation in the country. The frequent changes in government and policies can have a significant impact on the business. Economic risks can arise due to fluctuations in exchange rates and inflation. As Nepal is a landlocked country, it also faces challenges in transporting goods, which can increase costs and affect profitability. Legal risks can arise due to differences in regulations and legal systems across countries. The company would need to comply with local laws and regulations to avoid legal issues. Cultural risks can arise due to differences in customs and attitudes. The company would need to adapt to the local culture to succeed in international markets. In terms of challenges faced by Nepalese companies competing against foreign companies investing in Nepal, there are several. One of the major challenges is the lack of infrastructure, which affects transportation and logistics. This can increase costs and affect competitiveness. Another challenge is the limited access to finance and capital, which makes it difficult for Nepalese companies to invest in new technologies and expand their operations. Additionally, the lack of skilled labor and training can also affect the competitiveness of Nepalese companies. Finally, Nepalese companies face challenges related to bureaucracy and corruption, which can increase costs and affect profitability.

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Country risk One example of a company suffering losses as a result of political risk in international business is the case of Nestle's operations in Nigeria in the early 2000s. In 2002, Nestle invested $300 million in a factory in Nigeria, which was its largest investment in Africa at the time. The factory produced instant noodles and other food products for the Nigerian market and for export to neighboring countries. However, in 2005, Nestle's operations in Nigeria were severely affected by political unrest in the country. In 2005, there were widespread protests and riots in Nigeria following the announcement of an increase in the price of fuel. The protests quickly turned violent and resulted in the destruction of many businesses, including Nestle's factory in the northern city of Kano. The factory was attacked by a mob, looted, and set on fire, causing extensive damage and forcing Nestle to shut down its operations in Nigeria.

The political unrest in Nigeria had a significant impact on Nestle's business. The company suffered losses of over $50 million due to the destruction of its factory and the loss of market share in the region. In addition, the political risk in Nigeria made it difficult for Nestle to obtain insurance coverage for its operations in the country, which further increased its losses. To mitigate the risk of political instability in the future, Nestle implemented several measures, including diversifying its operations across different regions in Africa and investing in security and safety measures for its employees and facilities. However, the experience in Nigeria highlighted the importance of understanding and managing political risk in international business, especially in developing countries where political instability and violence can pose significant risks to business operations. Currency and Economic risk One real example of a company suffering losses due to international business economic risk is Nike Inc. in the early 2000s. In the late 1990s, Nike was expanding aggressively into international markets, particularly in Asia, where it saw significant growth opportunities. However, this expansion strategy left the company vulnerable to economic risk, which it faced during the 1997 Asian financial crisis. During the crisis, Nike's sales in Asia plummeted, as consumers were hit hard by the economic downturn and could no longer afford to buy expensive sneakers and apparel. As a result, Nike's revenue dropped significantly, and the company was forced to close down many of its factories in Asia, leading to layoffs and other cost-cutting measures. Furthermore, the company was also exposed to currency exchange rate risk, as it had to convert local currencies to US dollars to repatriate profits back to the United States. When the local currencies depreciated against the US dollar, Nike's profits were reduced, and it faced increased costs for sourcing and manufacturing in foreign countries.

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To mitigate these risks, Nike began implementing various risk management strategies, such as diversifying its supplier base, improving supply chain visibility, and hedging currency risk through financial instruments. These measures helped the company navigate through the economic uncertainty, but not without significant losses and disruption to its business. In conclusion, Nike's experience highlights the importance of understanding and managing economic risk when expanding into international markets. By implementing effective risk management strategies, companies can reduce their exposure to economic fluctuations and protect themselves from potential losses.

Commercial Risk An example of a company suffering losses due to international business commercial risk is the case of Walmart in Mexico. In 2012, The New York Times published a report claiming that Walmart had paid bribes totaling $24 million to Mexican officials in order to speed up the process of obtaining building permits and licenses for new stores. The report also alleged that Walmart had tried to cover up the bribes by not conducting a thorough investigation when the allegations were first brought to the company's attention. As a result of these allegations, Walmart's stock price fell by 5% within one day, wiping out $10 billion in market value. The company also faced numerous lawsuits from shareholders who claimed that Walmart had breached its fiduciary duty to them by failing to adequately disclose the risks associated with its operations in Mexico. In addition to the financial losses, Walmart also faced significant reputational damage as a result of the bribery scandal. The company was criticized by politicians, consumer groups, and the media for its unethical behavior, and its brand image was tarnished. Walmart eventually agreed to pay a $282 million settlement to the US Department of Justice and the Securities and Exchange Commission to resolve the allegations of bribery in Mexico. The company also implemented new compliance measures and appointed a chief compliance officer to prevent similar incidents from occurring in the future. This case illustrates the significant financial and reputational risks that companies face when operating in foreign countries with different legal and regulatory environments. It also highlights the importance of conducting thorough due diligence and implementing effective compliance programs to mitigate these risks.

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Cultural risk n 1997, Walmart purchased the German hypermarket chain, Wertkauf, for $1 billion, and later acquired another German retailer, Interspar. Walmart's entry into Germany was highly anticipated as the company had already established itself as a global retail giant. However, Walmart's initial success in the German market was short-lived, and the company eventually withdrew from Germany in 2006 after incurring losses of approximately $1 billion. One of the main factors contributing to Walmart's failure in Germany was its inability to adapt to the cultural differences in the German market. Walmart's business model, which relied heavily on costcutting and low prices, did not resonate with German consumers, who value quality and are willing to pay a premium for it. Walmart's attempts to offer low prices through cost-cutting measures, such as reducing the number of employees and cutting back on in-store services, were perceived as disrespectful to German workers, who place a high value on job security and fair working conditions. Additionally, Walmart's management style, which emphasized top-down decision-making and standardized procedures, clashed with the German preference for consensus-building and decentralized decision-making. Walmart's failure to understand and adapt to these cultural differences led to poor customer satisfaction, negative press, and ultimately, financial losses. In conclusion, Walmart's failure in the German market serves as an example of the importance of cultural understanding and adaptation in international business. Companies must take into account the cultural differences of the markets they enter and adjust their business models and management styles accordingly. Failure to do so can result in significant financial losses and damage to a company's reputation. Cultural analysis The EPRG framework The EPRG framework, developed by Perlmutter, is a model that classifies a firm's management orientation towards international business. The acronym EPRG stands for Ethnocentric, Polycentric, Regiocentric, and Geocentric. Each orientation reflects a different degree of internationalization and reflects how a company views and operates in foreign markets. Ethnocentric orientation refers to a company's belief that its home country's values, culture, and products are superior to those of other countries. This approach focuses on exporting products from the home country to foreign markets. For example, a Nepalese international trading company may focus solely on exporting traditional Nepalese products, such as handicrafts and textiles, to other countries. Polycentric orientation involves a company adopting a local orientation to foreign markets. This approach involves developing products and marketing strategies that cater to local tastes and preferences. For example, a Nepalese international trading company may tailor its products and marketing strategies to meet the specific demands of the international markets it serves.

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Regiocentric orientation involves a regional orientation to foreign markets. This approach involves developing products and marketing strategies that cater to the needs of a particular region. For example, a Nepalese international trading company may focus on the South Asian region and develop products and marketing strategies that cater to the needs of this region. Geocentric orientation involves a global orientation to foreign markets. This approach involves developing a global strategy that takes into account the similarities and differences between different regions and markets. For example, a Nepalese international trading company may develop a global strategy that leverages the company's strengths in different regions and markets. To analyze a Nepalese international trading company's management orientation using the EPRG framework, one could examine the company's products, marketing strategies, and overall approach to international business. For example, if the company primarily exports Nepalese products to foreign markets without adapting to local tastes and preferences, it may have an ethnocentric orientation. If the company tailors its products and marketing strategies to meet the specific demands of the international markets it serves, it may have a polycentric orientation. If the company focuses on a particular region, such as South Asia, it may have a regiocentric orientation. Finally, if the company has a global strategy that leverages its strengths in different regions and markets, it may have a geocentric orientation. In conclusion, the EPRG framework provides a useful tool for analyzing a company's management orientation towards international business. By examining a Nepalese international trading company's products, marketing strategies, and overall approach to international business, one can determine whether the company has an ethnocentric, polycentric, regiocentric, or geocentric orientation. This analysis can help the company identify its strengths and weaknesses in international markets and develop strategies to improve its international competitiveness. Other Popular Cultural analysis models

Hall’s high context and low context cultures refer to the degree to which context and nonverbal cues are used in communication. In high context cultures, much of the meaning of communication is conveyed through nonverbal cues and the context of the conversation. In low context cultures, communication is primarily verbal, and the context is less important. Nepal is considered a high-context culture, with a strong emphasis on interpersonal relationships and group harmony. Communication is often indirect, and nonverbal cues such as body language, tone of voice, and facial expressions are essential for understanding the true meaning of a message. In Nepal, people often prioritize the needs of the group over their individual needs. International trading companies operating in Nepal must understand the cultural context to succeed. A high-context culture like Nepal requires an indirect communication style that emphasizes building relationships and trust over time. Here are some examples of how a high-context culture like Nepal could affect a trading company's management orientation: 1. Relationship Building: In Nepal, it's essential to establish a personal relationship with business partners before discussing business matters. Nepalese people prefer to do business with people they know and trust. Therefore, the trading company's management should focus on

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building relationships with their Nepalese partners by inviting them to social events, exchanging gifts, and engaging in small talk before discussing business matters. 2. Indirect Communication: Nepalese people often use indirect communication, which means that they may not say what they mean directly. Therefore, it's essential for the trading company's management to pay attention to nonverbal cues, such as body language and tone of voice, to understand the true meaning behind a message. 3. Group Harmony: Nepalese people prioritize the needs of the group over their individual needs. Therefore, the trading company's management should focus on building consensus and promoting group harmony when making business decisions. In Nepal, decisions are often made after considering the opinions of all the members of the group. 4. Respect for Authority: In Nepal, respect for authority is essential. The trading company's management should show respect to their Nepalese partners by addressing them using their formal titles and avoiding confrontation or criticism in public. In conclusion, understanding the cultural context is essential for a trading company's management to succeed in Nepal. By understanding Nepal's high-context culture, the trading company's management can adopt an indirect communication style, focus on relationship building, promote group harmony, and show respect for authority. By doing so, the trading company can build trust with their Nepalese partners and achieve their business goals. Hofstede's cultural dimensions Hofstede's cultural dimensions are a framework for comparing and contrasting cultures based on six dimensions: Power Distance, Individualism vs. Collectivism, Masculinity vs. Femininity, Uncertainty Avoidance, Long-term vs. Short-term Orientation, and Indulgence vs. Restraint.

Let's compare Nepal and the UK using these dimensions: 1. Power Distance: This dimension refers to the extent to which the less powerful members of a society accept and expect that power is distributed unequally. Nepal has a high power distance score of 69, which means that Nepalese people tend to accept hierarchical structures and authority figures. The UK, on the other hand, has a low power distance score of 35, which indicates that people in the UK generally have a more egalitarian view of power and authority. 2. Individualism vs. Collectivism: This dimension refers to the degree to which individuals are integrated into groups. Nepal is a collectivist culture with a score of 39, which means that people tend to prioritize the needs of the group over the individual. The UK, on the other hand, is an individualistic culture with a score of 89, which means that people in the UK place a higher value on individual rights and autonomy. 3. Masculinity vs. Femininity: This dimension refers to the extent to which a culture is characterized by assertiveness, competitiveness, and material success (masculine) or by cooperation, modesty, and caring for others (feminine). Nepal has a score of 66 on this

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dimension, indicating a relatively masculine culture. The UK also has a relatively high score of 66, suggesting a similar emphasis on masculine traits. 4. Uncertainty Avoidance: This dimension refers to the degree to which people in a culture feel threatened by ambiguity and uncertainty. Nepal has a high uncertainty avoidance score of 55, which means that people tend to prefer clear rules and structure to reduce uncertainty. The UK has a lower uncertainty avoidance score of 35, indicating a greater tolerance for ambiguity and change. 5. Long-term vs. Short-term Orientation: This dimension refers to the extent to which a culture values traditions, long-term planning, and perseverance (long-term orientation) or immediate gratification, respect for tradition, and fulfilling social obligations (short-term orientation). Nepal has a score of 45 on this dimension, suggesting a relatively balanced perspective on short-term and long-term goals. The UK has a slightly higher score of 51, indicating a slight preference for long-term planning. 6. Indulgence vs. Restraint: This dimension refers to the degree to which a culture permits the gratification of basic and natural human drives related to enjoying life and having fun. Nepal has a low score of 28 on this dimension, indicating a more restrained culture. The UK has a higher score of 69, indicating a more indulgent culture. Overall, Nepal and the UK differ significantly across all six of Hofstede's cultural dimensions. Nepal tends to be a more hierarchical, collectivist, masculine, uncertainty-avoidant, balanced long-term vs. short-term orientation, and restrained culture, while the UK tends to be a more egalitarian, individualistic, slightly more feminine, less uncertainty-avoidant, long-term oriented, and indulgent culture.

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Chapter 3 Important Institutions The functioning of international trade is supported by various institutions that facilitate trade and help resolve trade disputes. In this section, we will discuss the institutions that play a vital role in international trade, their functions, and their work in Nepal. World Trade Organization (WTO): The World Trade Organization is a global institution that deals with the rules and regulations of international trade. It was established in 1995 to replace the General Agreement on Tariffs and Trade (GATT). WTO's primary function is to ensure that trade flows as smoothly, predictably, and freely as possible. It also provides a platform for negotiating and monitoring international trade agreements.

Nepal is a member of the WTO since 23 April 2004. The WTO has played a significant role in Nepal's economic development by providing technical assistance and training to the Nepalese government to help them comply with international trade rules and regulations. International Monetary Fund (IMF): The International Monetary Fund is an international organization that promotes international monetary cooperation and facilitates international trade. It was established in 1944 to promote international economic cooperation and provide financial assistance to member countries. IMF's primary function is to provide loans to member countries facing economic difficulties and to promote economic growth and stability. Nepal has been a member of the IMF since 1964. The IMF has played a significant role in Nepal's economic development by providing financial assistance to the country during times of economic crisis and by helping the Nepalese government implement economic reforms. World Bank: The World Bank is an international organization that provides financial and technical assistance to developing countries. It was established in 1944 to help rebuild Europe after World War II. Today, the World Bank's primary focus is to reduce poverty and promote economic development in developing countries. Nepal has been a member of the World Bank since 1963. The World Bank has played a significant role in Nepal's economic development by providing financial and technical assistance to the country. The World Bank has provided funding for various development projects in Nepal, including the construction of roads, bridges, and other infrastructure.

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Asian Development Bank (ADB): The Asian Development Bank is a regional development bank that provides financial and technical assistance to its member countries in Asia and the Pacific. It was established in 1966 to promote economic development in the region. Nepal has been a member of the ADB since 1966. The ADB has played a significant role in Nepal's economic development by providing financial and technical assistance to the country. The ADB has provided funding for various development projects in Nepal, including the construction of highways, airports, and other infrastructure. Conclusion:

Institutions such as the World Trade Organization, International Monetary Fund, World Bank, and Asian Development Bank play a vital role in international trade and economic development. These institutions provide financial and technical assistance to member countries, help resolve trade disputes, and promote international economic cooperation. In Nepal, these institutions have played a significant role in the country's economic development by providing financial and technical assistance and funding various development projects. Trade blocs Countries form trade blocs with each other for a variety of reasons, including economic, political, and strategic benefits. Trade blocs are groups of countries that join together to promote trade between themselves while protecting their markets from outside competition. These blocs typically involve the reduction or elimination of trade barriers, such as tariffs and quotas, among member countries. Nepal is a landlocked country in South Asia that has traditionally faced challenges in accessing international markets due to its geographical location. As a result, Nepal has sought to form trade blocs with other countries to increase its economic opportunities and reduce its dependence on any one market. One example of Nepal's participation in a trade bloc is its membership in the South Asian Association for Regional Cooperation (SAARC). SAARC is a regional intergovernmental organization that promotes economic cooperation and integration among its eight member countries, including Nepal. Through SAARC, Nepal has been able to increase its trade with other member countries, including India, which is Nepal's largest trading partner. Another example of Nepal's participation in a trade bloc is its membership in the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). BIMSTEC is a regional organization that aims to promote economic cooperation and integration among its seven member countries, including Nepal. Through BIMSTEC, Nepal has been able to increase its trade with other member countries, such as Bangladesh and Thailand. In addition to economic benefits, trade blocs also provide political and strategic advantages. By joining a trade bloc, countries can form alliances and increase their negotiating power on the global

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stage. This can be particularly important for smaller countries like Nepal, which may have limited influence in international trade negotiations on their own. In summary, Nepal, like many other countries, participates in trade blocs to increase economic opportunities, reduce dependence on any one market, and gain political and strategic advantages. By working together with other countries, Nepal can strengthen its position in the global economy and promote greater regional integration. There are several major trade blocs in the world, each with their own advantages and disadvantages. These trade blocs are formed by countries that come together to promote trade between themselves by removing barriers and providing preferential treatment to member countries, they are numerous but here are five examples: 1. United States-Mexico-Canada Agreement (USMCA) from July 1, 2020. The USMCA is a free trade agreement between the United States, Mexico, and Canada that was signed on November 30, 2018, and replaced NAFTA after over a year of negotiations. The USMCA aims to modernize and rebalance the trading relationship between the three countries, with updates to areas such as intellectual property, digital trade, labor standards, and environmental protections It is the largest trade bloc in the world in terms of GDP. The.North American Free Trade Agreement (NAFTA): NAFTA was a trade bloc comprising the United States, Canada, and Mexico. The advantages of NAFTA include increased trade and investment, economic growth, and job creation. The disadvantages include loss of jobs due to outsourcing, increased competition, and environmental concerns. 2. European Union (EU): The EU is a political and economic union of 27 member countries located primarily in Europe. The advantages of the EU include the elimination of trade barriers, the creation of a single market, and increased economic growth. The disadvantages include loss of national sovereignty, cultural clashes, and bureaucratic inefficiencies. 3. Association of Southeast Asian Nations (ASEAN): ASEAN is a trade bloc comprising ten member countries in Southeast Asia. The advantages of ASEAN include increased trade and investment, economic growth, and political stability. The disadvantages include unequal development among member countries, lack of a common currency, and cultural differences. 4. Mercosur: Mercosur is a trade bloc comprising Argentina, Brazil, Paraguay, Uruguay, and Venezuela (currently suspended). The advantages of Mercosur include increased trade and investment, economic growth, and political stability. The disadvantages include unequal development among member countries, trade disputes, and political instability in some member countries. 5. African Union (AU): The AU is a political and economic union of 55 member countries in Africa. The advantages of the AU include increased trade and investment, economic growth, and political stability. The disadvantages include unequal development among member countries, political instability in some member countries, and lack of infrastructure. In general, trade blocs can promote economic growth and stability by increasing trade and investment between member countries. However, they can also lead to job loss, trade disputes, and

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cultural clashes. The success of a trade bloc depends on the willingness of member countries to work together and address these challenges. The case of the UK The UK left the EU primarily because of the outcome of the 2016 Brexit referendum, in which a majority of UK citizens voted to leave the EU. The reasons for this vote were complex and varied, but some of the key factors included concerns over immigration, national sovereignty, and the perceived economic benefits or costs of EU membership. The Trans-Pacific Partnership (TPP) is a trade agreement between several countries, primarily located in the Asia-Pacific region. The UK has not joined the TPP, as it is not geographically located in the Pacific region. However, the UK has joined the Comprehensive and Progressive Agreement for TransPacific Partnership (CPTPP), which is a trade agreement between several countries in the Asia-Pacific region, including Japan, Canada, Australia, and New Zealand. The UK's joined the CPTPP i as a way to increase its trade opportunities outside of the EU, as well as to strengthen its relationships with key trading partners in the Asia-Pacific region. It is important to note that the decision to leave the EU and to pursue trade agreements outside of the EU was driven by the UK's desire to have greater control over its trade policy and to be able to negotiate trade deals independently, rather than being bound by the rules and regulations of the EU.

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Chapter 4 Human Resource Management International human resource management (IHRM) differs from domestic HRM in several ways. The primary difference is the complexity of managing employees in different countries, cultures, and legal environments. In IHRM, HR managers must deal with issues such as language barriers, cultural differences, immigration laws, and different labor regulations. Moreover, the scope of HR functions and the strategic role of HR are also different in IHRM as compared to domestic HRM. To give a detailed example, let's consider a Nepalese international trading company with overseas branches. The company, let's call it Nepal Trading Co. (NTC), operates in several countries, including India, China, and the United States. The following are some ways in which IHRM in NTC would differ from domestic HRM. 1. Recruitment and selection: In domestic HRM, the company can use local job boards, advertising, and other means to attract talent. However, in IHRM, NTC may need to use different methods, such as recruiting from overseas or transferring employees from their home country to the foreign locations. For example, NTC may need to hire Chinese employees who are fluent in Mandarin and have experience with the Chinese market to work in the company's China branch. 2. Training and Development: In IHRM, training and development programs need to be designed to cater to the needs of employees from different countries and cultures. For example, NTC may need to provide language training for employees who are not fluent in English, and cultural sensitivity training to ensure that employees understand the cultural differences of the countries where they work. NTC may also need to provide cross-cultural training to employees who will be working in multiple countries to help them understand and adapt to the different cultures they will encounter. 3. Compensation and Benefits: In IHRM, compensation and benefits packages may vary significantly between countries. For example, the minimum wage in China is much lower than the minimum wage in the United States. NTC needs to ensure that its employees are paid fairly, and that their compensation packages are competitive in the local labor market. NTC may also need to provide additional benefits to employees working overseas, such as relocation assistance, housing allowances, and health insurance. 4. Legal Compliance: In IHRM, HR managers need to be aware of the different labor laws and regulations in each country where the company operates. For example, employment laws in the United States are different from those in Nepal. NTC needs to ensure that it complies with local labor laws and regulations, and that its employees are aware of their rights and responsibilities. 5. Performance Management: In IHRM, performance management systems need to be designed to take into account the different cultural norms and expectations of employees

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from different countries. For example, in some cultures, it may be considered impolite to provide negative feedback directly to an employee. NTC needs to ensure that its performance management systems are culturally sensitive and appropriate for the different countries where it operates. In conclusion, IHRM differs from domestic HRM in several ways, and managing employees in different countries, cultures, and legal environments can be challenging. However, companies like Nepal Trading Co. can overcome these challenges by understanding the cultural norms and expectations of employees in different countries, complying with local labor laws and regulations, and providing training and development programs to help employees adapt to different cultures and work effectively in a global environment. Staffing Internationally In general, there are some challenges and considerations that are commonly faced by companies when it comes to staffing and recruitment of overseas branches. Challenges: 1. Language and cultural barriers: Nepalese trading companies may find it challenging to recruit and train staff for overseas branches due to language and cultural barriers. The company may have to invest in language and cultural training for the employees, which can be timeconsuming and costly. 2. Visa and immigration requirements: Companies may face difficulties in obtaining visas and work permits for overseas employees due to the complexity of immigration laws and regulations in different countries. 3. Talent pool: The availability of skilled workers may vary in different countries. It may be difficult to find candidates with the right qualifications and experience to fill specific roles. Advantages and Disadvantages of local versus expatriate workers: Local workers:

Advantages: •

Familiarity with local language and culture.

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Knowledge of local laws, regulations, and business practices.

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Lower recruitment and relocation costs.

• Faster adaptation to the work environment. Disadvantages: •

Lack of diversity in the workplace.

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Limited international experience and perspective.

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Potential communication barriers with the parent company.

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Expatriate workers: Advantages: •

Possess international experience and perspective.

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Familiarity with the company's culture and practices.

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Potential to bring new ideas and approaches to the workplace.

Ability to bridge communication and cultural gaps between the parent company and overseas branches. Disadvantages: •

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Higher recruitment and relocation costs.

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Potential for culture shock and difficulty adapting to the new environment.

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Language and cultural barriers.

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Limited understanding of local laws, regulations, and business practices.

In conclusion, Nepalese trading companies may face staffing and recruitment challenges when it comes to their overseas branches. The advantages and disadvantages of local versus expatriate workers should be carefully considered when making hiring decisions. Ultimately, the choice of staffing approach will depend on the specific needs of the company and the environment in which it operates. Staff Training and Development A Nepalese trading company faces several challenges when it comes to training and developing staff overseas. Some of these challenges include cultural differences, language barriers, and adjusting to new work practices and environments. Additionally, there may be challenges related to recruiting and retaining staff, particularly in countries where the cost of living is high or the local job market is competitive. To prepare expats for overseas assignments, the company should provide cultural training to help them understand the local customs and practices. They should also be given language training, particularly if they are not fluent in the local language. It may also be helpful to provide expats with support in finding accommodation Visa and work permit applications and settling into their new environment. To ensure that local staff are trained in the company's corporate culture, the company should provide training and development opportunities that are aligned with the company's values and objectives. This can include leadership training, mentorship programs, and career development opportunities. It may also be helpful to establish a strong company culture that emphasizes teamwork, open communication, and a commitment to excellence. When it comes to staffing overseas branches, there are advantages and disadvantages to both local and expatriate workers. Local workers are typically more familiar with the local customs and culture, and may have existing networks and relationships in the area. This can be helpful in building

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relationships with clients and suppliers. Additionally, local workers may be less expensive to employ and may require less time to adjust to the new environment. On the other hand, expatriate workers can bring valuable skills, expertise, and perspectives to the table. They may also have a stronger connection to the company's values and culture. However, they may require more support in adjusting to the new environment and may be more expensive to employ. Ultimately, the decision of whether to hire local or expatriate workers will depend on the company's specific needs and circumstances. It may be helpful to consider a mix of both local and expatriate workers to leverage the advantages of both approaches.

Remuneration packages Determining the relevant remuneration package for overseas workers recruited to the Nepalise trading company's overseas branch and expatriate workers sent overseas involves several factors, including the cost of living in the country where the overseas branch or project is located, the local employment laws and regulations, and the prevailing market rates for similar positions. Here are some steps the Nepalise trading company can take to determine the relevant remuneration package: 1. Conduct research on the cost of living in the country where the overseas branch or project is located. The company can use online resources, such as Numbeo, to compare the cost of living in the overseas location with that of Nepal. This will help the company determine the appropriate compensation package for its overseas workers. 2. Review the local employment laws and regulations of the overseas location. The company needs to ensure that it complies with all the relevant laws and regulations, such as minimum wage, working hours, and benefits. 3. Research the market rates for similar positions in the overseas location. The company can use online resources, such as Glassdoor and LinkedIn, to find out what other companies are paying for similar positions. This will help the company ensure that it offers a competitive compensation package to attract and retain the best talent. 4. Consider the level of experience and skills of the overseas workers and expatriate workers. The company needs to ensure that it compensates its workers fairly based on their qualifications, experience, and skills. 5. Consult with a compensation specialist or a local HR consultant. The company can seek advice from a compensation specialist or a local HR consultant who has experience in the overseas location. They can provide insights into the local market rates and compensation practices.

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An expatriate assistance and remuneration package typically includes a range of benefits and support services designed to help employees who are relocating to a new country for work. These packages can vary depending on the employer, the location, and the specific needs of the individual employee, but some common elements include: 1. Relocation support: This can include help with finding suitable housing, assistance with visa and work permit applications, and support with arranging transportation. 2. Travel expenses: Employers may cover the cost of flights for the employee and their family to and from their home country, as well as any additional travel expenses incurred during the relocation process. 3. Cost of living allowances: Many employers will provide a cost of living allowance to help the employee adjust to the higher cost of living in their new location. 4. Health insurance: Employers may provide comprehensive health insurance coverage for the employee and their family, including dental and vision care. 5. Tax assistance: Many expatriate packages include tax assistance to help employees navigate the complex tax laws of their new country. 6. Education support: If the employee has children, the employer may provide financial assistance for their education, including tuition fees, uniforms, and books. 7. Language training: Employers may offer language training to help employees learn the local language and improve their communication skills. 8. Additional benefits: Other benefits may include paid time off, retirement plans, and access to social and cultural events in the new location. Overall, expatriate assistance and remuneration packages are designed to help make the transition to a new country as smooth as possible for the employee and their family. These packages can vary widely depending on the employer and the specific needs of the employee, but they generally aim to provide comprehensive support and assistance throughout the relocation process. By taking these steps, the Nepalise trading company can determine a relevant remuneration package that is fair and competitive for its overseas workers and expatriate workers. legal compliance complications There are several legal compliance complications that international companies face in different parts of the world, including but not limited to: 1. Labor laws: Different countries have different labor laws, such as minimum wage, maximum working hours, and employment benefits. International companies may need to comply with these laws to avoid legal consequences, such as fines or lawsuits.

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2. Tax laws: Tax laws also vary across countries, and international companies need to ensure that they comply with these laws to avoid penalties and legal action. 3. Environmental regulations: Some countries have strict environmental regulations that international companies must follow. Failure to comply with these regulations can result in fines or legal action. 4. Data privacy laws: With the increasing importance of data privacy, many countries have introduced new data protection regulations that international companies must comply with. 5. Anti-corruption laws: Some countries have strict anti-corruption laws, and international companies must ensure that they are not engaging in any corrupt practices, such as bribery.

These legal compliance complications can have a significant impact on a Nepalese trading company with overseas branches. If the company fails to comply with the laws and regulations of the countries in which it operates, it could face legal consequences, such as fines, lawsuits, or the loss of its license to operate in that country. This could also damage the company's reputation and affect its ability to do business globally. Therefore, it is important for international companies to understand and comply with the legal requirements of the countries in which they operate. Performance management As a HR manager of a Nepalese trading company with overseas branches, there are several performance management challenges that you might face. These include: 1. Cultural differences: Different countries have different cultures, and this can lead to different expectations and attitudes towards performance management. For example, in some cultures, it may be considered disrespectful to give negative feedback, while in others, it may be seen as essential for improvement. Therefore, HR managers must be sensitive to these cultural differences when implementing performance management systems. 2. Language barriers: If the company has overseas branches, language barriers may also be a challenge when it comes to performance management. If managers and employees do not speak the same language, it can be difficult to effectively communicate expectations and feedback. This could lead to misunderstandings and potentially impact the employee's performance. 3. Different time zones: With overseas branches, time zones could pose a challenge to performance management. For example, if a manager wants to provide real-time feedback, it may be difficult if the employee is in a different time zone. This could also impact performance as timely feedback is important for improvement. 4. Lack of standardized performance metrics: Different countries may have different performance metrics and benchmarks. For example, what is considered high performance in one country may be considered average in another. Therefore, it can be challenging to develop standardized performance metrics across all branches, which could lead to inconsistencies in performance management practices.

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5. Remote work: With the COVID-19 pandemic, many companies have shifted towards remote work. This can also be a challenge for performance management, as managers may not have as much face-to-face interaction with their employees, making it harder to provide feedback and evaluate performance. To address these challenges, HR managers can take several steps, including: 1. Conducting cultural training: Providing cultural training to managers and employees can help them understand the expectations and attitudes towards performance management in different countries, and adapt their practices accordingly. 2. Using technology: Utilizing technology such as video conferencing, instant messaging, and performance management software can help overcome language barriers and time zone differences. 3. Developing standardized metrics: HR managers can work with managers across all branches to develop standardized performance metrics that are relevant across all countries. 4. Regular communication: Regular communication with employees, regardless of location, can help HR managers provide feedback and support for performance improvement. 5. Setting clear expectations: HR managers can work with managers to set clear expectations for performance management practices, including feedback, coaching, and evaluation, to ensure consistency across all branches.

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Chapter 5 International Marketing International marketing differs from domestic marketing in several ways: 1. Cultural Differences: International marketing requires a deep understanding of the cultural differences and preferences of the target market. A Nepalese trading company with overseas branches will need to consider the cultural norms, values, and preferences of the countries it operates in. 2. Language Barrier: In domestic marketing, the company can use the same language for communication, but in international marketing, language barriers can create communication gaps. Nepalese trading companies with overseas branches must use the appropriate language to communicate with customers and stakeholders in the target market.

3. Legal Considerations: International marketing involves complying with different legal frameworks and regulations in different countries. Nepalese trading companies with overseas branches must comply with local regulations and customs in each country they operate in. 4. Competitive Environment: The competitive environment is different in different countries. Nepalese trading companies with overseas branches must research and analyze the competition in each market and adjust their marketing strategies accordingly. 5. Distribution Channels: International marketing requires different distribution channels. A Nepalese trading company with overseas branches may need to set up new distribution channels or adjust its existing ones to reach customers in different countries. 6. Pricing Strategy: International marketing requires different pricing strategies based on the target market's economic conditions, competition, and consumer preferences. A Nepalese trading company with overseas branches must adjust its pricing strategy to be competitive in each market it operates in.

In summary, international marketing requires a company to adapt its marketing strategies to suit the cultural, linguistic, legal, competitive, and economic conditions of each target market. A Nepalese trading company with overseas branches must be prepared to invest resources and expertise to effectively market its products or services in different countries. Do we Adapt? The standardization versus adaptation debate in international marketing is a discussion about the best approach for a company to take when expanding its business into international markets. Standardization refers to a company's use of the same marketing strategies, products, and messages across all of its markets, regardless of the differences in language, culture, or other factors. In

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contrast, adaptation involves customizing a company's marketing strategies, products, and messages to fit the specific needs and preferences of each local market. Localization is a specific type of adaptation that involves local changes needed, without which the product could not be sold eg linguistic characteristics of a particular market. This may include translating content into the local language, using local idioms and phrases, and adjusting product features to meet local laws power voltage tec. To illustrate these concepts, let's consider a Nepalese trading company with overseas branches. If the company wanted to expand into international markets, it would need to decide whether to standardize its marketing efforts or adapt them to fit each local market. If the company chose to standardize its marketing efforts, it would use the same products, messaging, and strategies across all of its markets. For example, it might use the same logo, packaging, and advertising campaign in both Nepal and the United States. This approach could help the company save money on marketing and production costs, but it may not be effective if the company's products or messaging do not resonate with the local market. On the other hand, if the company chose to adapt its marketing efforts, it would customize its products, messaging, and strategies to fit the needs and preferences of each local market. For example, it might adjust its product offerings to better align with the tastes and preferences of consumers in the United States. It might also create marketing messages that resonate with local values and customs. This approach could be more effective in generating sales and building brand awareness in each local market, but it could also be more costly and time-consuming. Localization would involve modifying the company's marketing efforts to fit the cultural and linguistic characteristics of each market. For example, if the company expanded into France, it might translate its website and marketing materials into French In conclusion, the standardization versus adaptation debate in international marketing is an important decision that companies must make when expanding into new markets. By understanding the differences between standardization, adaptation, and localization, companies can make informed decisions about how to tailor their marketing efforts to fit the needs and preferences of each local market. Do we adapt each element of the marketing mix? A standardized approach The 7 Ps marketing mix is a framework that includes seven different variables that a company can use to influence customer perception and behavior. These variables include product, price, place, promotion, people, process, and physical evidence. Standardizing each variable in the marketing mix can help a Nepalese company to maintain consistency in its marketing efforts and improve its overall effectiveness. Here are some ways a Nepalese company could standardize each variable: 1. Product: The company can standardize its product by ensuring that each product meets a certain level of quality and adheres to established design and manufacturing standards. The

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company can also establish a set of guidelines for packaging and labeling to ensure that each product is presented in a consistent and professional manner. 2. Price: The company can standardize its pricing by setting a clear pricing strategy and establishing a set of guidelines for pricing decisions. This could include guidelines for discounts, promotions, and special offers, as well as guidelines for setting prices based on market conditions and customer demand. 3. Place: The company can standardize its distribution channels by establishing guidelines for how products are distributed to different regions and markets. This could include guidelines for selecting distribution partners, determining optimal inventory levels, and managing transportation and logistics.

4. Promotion: The company can standardize its promotional efforts by establishing guidelines for advertising, public relations, and other marketing activities. This could include guidelines for selecting media channels, developing marketing messages, and measuring the effectiveness of promotional campaigns. 5. People: The company can standardize its approach to hiring, training, and managing employees by establishing clear job descriptions, performance metrics, and training programs. This could help ensure that employees are aligned with the company's marketing objectives and are able to deliver a consistent customer experience. 6. Process: The company can standardize its internal processes by developing standard operating procedures (SOPs) for different marketing activities. This could include SOPs for product development, pricing, distribution, and customer service, among others. Standardizing these processes can help the company ensure consistency and efficiency in its marketing efforts. 7. Physical evidence: The company can standardize its physical evidence by ensuring that its stores, packaging, and other marketing materials are consistent in terms of design, quality, and messaging. This could include guidelines for store layout, signage, and visual merchandising, as well as guidelines for the design and production of marketing materials such as brochures, flyers, and advertisements.

In summary, a Nepalese company can standardize each variable in the 7 Ps marketing mix by establishing clear guidelines and procedures for each element. This can help ensure consistency in the company's marketing efforts and improve its overall effectiveness in reaching and engaging customers. Adapting each variable in the 7 Ps marketing mix for a Nepalese company would depend on several factors such as the nature of the business, target market, competition, and the overall business strategy. However, here are some general recommendations on how a Nepalese company can adapt each variable in the marketing mix:

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Adaptation 1. Product: The company needs to ensure that its product meets the needs and preferences of the Nepalese market. The company could consider adapting the product to suit the cultural and religious beliefs of the people in Nepal. For instance, if the company is in the food industry, it may have to adjust the ingredients used to suit the Nepalese palate. The company should also take into account the price sensitivity of the Nepalese market and offer products at an affordable price. 2. Price: The company should determine the pricing strategy that is appropriate for the Nepalese market. Nepalese consumers are known to be price-sensitive, and the company should price its products accordingly. It could also consider offering discounts and promotions to attract customers. 3. Place: The company needs to identify the appropriate distribution channels to reach its target market in Nepal. It could consider partnering with local distributors or setting up its own distribution network. The company should also consider the infrastructure and transportation systems in Nepal when determining the best distribution channels. 4. Promotion: The company needs to develop a promotional strategy that resonates with the Nepalese market. It could consider advertising through local media channels such as radio, television, and print. The company could also leverage social media platforms, which are gaining popularity in Nepal, to reach its target audience. 5. People: The company should ensure that it has the right people to deliver its products and services. It could consider hiring local staff who understand the Nepalese culture and language. The company could also provide training to its staff to ensure that they are knowledgeable about the products and services. 6. Process: The company needs to have efficient processes in place to ensure that it delivers products and services to the Nepalese market in a timely and efficient manner. The company could consider investing in technology to streamline its processes and reduce costs. 7. Physical evidence: The company needs to create a positive impression in the minds of its Nepalese customers. This could include the physical appearance of its stores or offices, the quality of its products and services, and the overall customer experience. In summary, adapting the 7 Ps marketing mix for a Nepalese company would require a deep understanding of the Nepalese market and its unique characteristics. The company should be willing to invest time and resources to develop a marketing mix that resonates with the local consumers.

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Standardize or Adapt An adapted approach to the marketing mix refers to modifying the elements of the marketing mix to suit the needs and preferences of specific target markets or segments. In contrast, a standardized approach involves using the same marketing mix elements for all markets. Advantages of an adapted approach for a Nepalese trading company with overseas branches: 1. Customization: The company can tailor its products, pricing, promotion, and distribution strategies to match the unique cultural, economic, and social characteristics of each overseas market, thereby increasing the chances of success. 2. Competitive advantage: By adapting to local market conditions, the company can gain a competitive advantage over rivals who use standardized approaches, which may not be as effective. 3. Customer satisfaction: Customers are more likely to be satisfied with products and services that are designed specifically for their needs, preferences, and cultural norms. 4. Better market penetration: By adapting to local markets, the company can penetrate the market more effectively, building stronger relationships with customers and achieving higher levels of market share. Disadvantages of an adapted approach for a Nepalese trading company with overseas branches: 1. High costs: Adapting the marketing mix for each market can be expensive and timeconsuming, requiring extensive market research, product testing, and promotional activities. 2. Inconsistency: Different adaptations for different markets may lead to inconsistencies in the company's brand image, leading to confusion among customers and stakeholders. 3. Coordination challenges: Coordinating different marketing mix elements across multiple markets can be complex, requiring strong communication and project management skills. 4. Risk of failure: Adapting to local markets does not guarantee success, and the company may face challenges such as regulatory hurdles, economic instability, and cultural differences that may impede its efforts. Overall, a Nepalese trading company with overseas branches may benefit from an adapted approach to the marketing mix, as it can help the company to better understand and serve the needs of diverse markets. However, the company should weigh the costs and risks associated with this approach and consider its own capabilities and resources before making a decision.

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The EPRG framework and the Extended Marketing mix The EPRG framework stands for Ethnocentrism, Polycentrism, Regiocentrism, and Geocentrism. It is a useful tool for analyzing a company's approach to global marketing. The 7Ps of marketing mix are product, price, place, promotion, people, process, and physical evidence. Here is an analysis of a Nepalese company's management orientation of the 7Ps variables using the EPRG framework: 1. Ethnocentrism: An ethnocentric company focuses on its domestic market and assumes that its products and marketing strategies will work in other countries as well. In this case, the Nepalese company may have a product-oriented approach, with a focus on producing goods that are popular in Nepal and then exporting them to other markets. They may also set prices based on their domestic market, without considering the local market conditions in other countries. Their promotion strategy may also be focused on the domestic market, without considering the cultural differences in other markets. 2. Polycentrism: A polycentric company adapts its products and marketing strategies to fit the needs and preferences of the local market. In this case, the Nepalese company may have a polycentric approach, with a focus on developing products and marketing strategies that are tailored to the specific needs and preferences of different markets. They may set prices based on the local market conditions in each country, and they may adjust their promotion strategy to take into account the cultural differences in different markets. 3. Regiocentrism: A regiocentric company takes a regional approach to marketing and views different regions as distinct markets. In this case, the Nepalese company may have a regiocentric approach, with a focus on developing products and marketing strategies that are tailored to the specific needs and preferences of different regions. They may set prices based on the local market conditions in each region, and they may adjust their promotion strategy to take into account the cultural differences in different regions. 4. Geocentrism: A geocentric company takes a global approach to marketing and views the world as a single market. In this case, the Nepalese company may have a geocentric approach, with a focus on developing products and marketing strategies that are tailored to the needs and preferences of the global market. They may set prices based on the global market conditions and adjust their promotion strategy to take into account the cultural differences in different regions. In conclusion, the Nepalese company's management orientation of the 7Ps variables is likely to be polycentric or regiocentric. They may focus on developing products and marketing strategies that are tailored to the specific needs and preferences of different markets and regions. They may also set prices and adjust their promotion strategy based on the local market conditions and cultural differences in different markets and regions.

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Case studies Case study of an Adaptation Success in International Marketing: Nike is a global brand that has been successful in adapting to various cultures and countries while still maintaining its core brand identity. One example of their successful adaptation is their "Just Do It" campaign in China. Nike's marketing team recognized that the Chinese culture values humility and teamwork over individualism, which is a key component of the "Just Do It" campaign. To adapt to this cultural difference, Nike focused on highlighting the team aspect of sports and showcased Chinese athletes working together to achieve their goals. Additionally, Nike collaborated with Chinese designers to create culturally appropriate apparel and footwear designs that catered to the Chinese market. This adaptation strategy helped Nike gain significant market share in China, and they continue to be a leading sportswear brand in the country. An example of an Adaptation Failure in International Marketing: McDonald's is a global fast-food chain that has struggled with adapting to different cultures and countries. One example of their adaptation failure is their entry into the Indian market. McDonald's launched in India in the late 1990s, but initially, they faced several challenges due to cultural differences. For instance, McDonald's signature dish, the Big Mac, contains beef, which is considered sacred in Hindu culture. To adapt to this cultural difference, McDonald's introduced vegetarian options, including the McAloo Tikki burger. However, the brand failed to fully understand the Indian market's preferences and culture, which led to a lack of success. Indian consumers preferred freshly cooked food, and McDonald's was known for its pre-cooked fast food, which did not align with their preferences. McDonald's also struggled to compete with local fast-food chains that offered more affordable and culturally appropriate food options. Consequently, McDonald's had to shut down several of its restaurants in India, which led to significant financial losses. A further example of failure of a Standardized Approach to the Marketing Mix One example of a failure of a standardized approach to the marketing mix is the global launch of the McDonald's Arch Deluxe burger in the 1990s. McDonald's had hoped that the Arch Deluxe would appeal to adult consumers who wanted a more upscale burger experience. However, the campaign failed to resonate with consumers, and the Arch Deluxe was ultimately a commercial failure. Product: The Arch Deluxe was positioned as a premium burger that would appeal to adult consumers. However, it failed to live up to consumers' expectations of a premium product. Price: McDonald's priced the Arch Deluxe at a premium compared to its other menu items. However, consumers did not perceive the burger to be worth the higher price. Promotion: McDonald's launched a global marketing campaign for the Arch Deluxe that was aimed at adult consumers. However, the campaign failed to resonate with consumers, and the messaging was not consistent across all markets. Place: The Arch Deluxe was available at all McDonald's locations around the world, but consumers did not see it as a premium product worthy of the higher price point.

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Overall, McDonald's failure with the Arch Deluxe can be attributed to its standardized approach to the marketing mix. The company assumed that what worked in one market would work in all markets, and failed to take into account local consumer preferences and cultural nuances. The result was a product that did not meet consumer expectations and a marketing campaign that failed to resonate with consumer Glocal Glocal, a combination of global and local, refers to a strategy that emphasizes the integration of global and local factors in business operations. The idea is to create a balance between the benefits of operating at a global level and the advantages of local adaptation. For a Nepalese company with overseas branches, adopting a glocal strategy could mean adapting to local cultures and customs while maintaining global standards and practices. For instance, the company can leverage its global expertise and resources to provide high-quality products and services to customers in different countries. At the same time, it can tailor its offerings to meet the specific needs and preferences of local customers, such as using local languages, incorporating local flavors or adapting to local regulations. A practical example of a Nepalese company that has implemented a glocal strategy is Ncell, a leading mobile network operator in Nepal that is part of the Axiata Group, a multinational telecommunications company based in Malaysia. Ncell has successfully balanced its global expertise with local adaptation by offering tailored services and products to its Nepalese customers while maintaining international standards of quality and innovation. Ncell has also expanded its business in neighboring countries like India by leveraging its parent company's resources and expertise. However, it has also customized its offerings to cater to the unique needs and preferences of local customers in India. Overall, a glocal strategy can help Nepalese companies with overseas branches to compete effectively in the global market while also maintaining a strong local presence and brand identity.

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Chapter 6 International Financial Management The main areas of International Financial Management are as follows: 1. Foreign exchange management: This involves managing the exchange rate risks that arise due to fluctuations in exchange rates. Companies need to carefully monitor exchange rates to minimize losses arising from exchange rate movements. For example, a Nepal company with overseas branches may use forward contracts or options to hedge against exchange rate risks. 2. International capital budgeting: This involves evaluating the viability of investing in foreign projects. Companies need to consider a wide range of factors, including exchange rates, political risks, and tax implications. For example, a Nepal company with overseas branches may evaluate the potential returns on a new investment in a foreign market, considering the risks involved. 3. International working capital management: This involves managing the cash flows, inventory, and accounts receivable and payable of a company's foreign operations. Companies need to ensure that they have sufficient liquidity to meet their obligations in foreign markets. For example, a Nepal company with overseas branches may need to manage its inventory levels and receivables in order to optimize cash flow and minimize financing costs. 4. International financing: This involves securing financing for foreign operations. Companies need to consider a wide range of financing options, including bank loans, bonds, and equity. For example, a Nepal company with overseas branches may need to secure financing in a foreign currency in order to reduce currency risk. 5. Cross-border mergers and acquisitions: This involves acquiring or merging with a company in a foreign country. Companies need to consider a wide range of factors, including cultural differences, regulatory requirements, and tax implications. For example, a Nepal company with overseas branches may acquire a company in a foreign market in order to expand its operations and increase its market share. In summary, International Financial Management covers a wide range of activities that are essential for companies operating in foreign markets. A Nepal company with overseas branches must carefully manage these activities to ensure that it can operate effectively and efficiently in the global marketplace.

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Foreign exchange management Foreign exchange risk refers to the potential financial losses that a company may incur due to fluctuations in exchange rates. A Nepalese company with overseas subsidiaries can face several types of foreign exchange risks, including: 1. Transaction Risk: This type of risk arises when a company has outstanding financial obligations denominated in a foreign currency. For example, if the Nepalese company has to make payments to its overseas subsidiaries in US dollars, and the Nepalese rupee depreciates against the US dollar, the company will have to pay more rupees to meet its obligations. Conversely, if the Nepalese rupee strengthens against the US dollar, the company will have to pay less rupees to meet its obligations. 2. Translation Risk: This type of risk arises when the Nepalese company has to consolidate the financial statements of its overseas subsidiaries into its own financial statements. The financial statements of the overseas subsidiaries are typically prepared in the local currency, which may be different from the Nepalese rupee. If the exchange rate between the local currency and the Nepalese rupee changes, the Nepalese company will have to adjust the values of its assets and liabilities, which can affect its financial position. 3. Economic Risk: This type of risk arises when the Nepalese company's overseas subsidiaries are affected by changes in the economic conditions of the countries in which they operate. For example, if there is a recession in the United States, and the Nepalese company's subsidiary in the US experiences a decline in sales, the Nepalese company's overall revenue and profitability will be affected.

Translation risk Translation foreign exchange risk refers to the potential financial impact on a company's consolidated financial statements due to fluctuations in exchange rates between the functional currencies of its subsidiaries and the reporting currency of the parent company. This type of risk arises because different currencies have different exchange rates, which can vary over time and impact the financial results of a company that operates in multiple countries. Let's consider the example of a Nepalese company with overseas subsidiaries operating in the United States and Europe. The Nepalese company's reporting currency is Nepalese Rupees (NPR), while the functional currencies of its subsidiaries are US Dollars (USD) and Euros (EUR), respectively. Suppose the Nepalese company's subsidiaries generate revenue and incur expenses in their local currencies. When the subsidiaries' financial results are consolidated into the Nepalese company's financial statements, they must be translated into NPR. If the exchange rates between USD and NPR or EUR and NPR fluctuate significantly, the translation process can result in significant gains or losses for the Nepalese company.

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For example, suppose the Nepalese company's US subsidiary generates revenue of $1 million in a given year, and the average exchange rate for that year is NPR 100 per USD. The subsidiary's revenue would be translated into NPR as NPR 100 million. However, if the exchange rate were to drop to NPR 80 per USD, the subsidiary's revenue would be translated into NPR 125 million, resulting in a gain of NPR 25 million for the Nepalese company. On the other hand, if the exchange rate were to increase to NPR 120 per USD, the subsidiary's revenue would be translated into NPR 83.33 million, resulting in a loss of NPR 16.67 million for the Nepalese company. Similarly, if the Nepalese company's European subsidiary generates revenue of €1 million in a given year, and the average exchange rate for that year is NPR 120 per EUR, the subsidiary's revenue would be translated into NPR 120 million. If the exchange rate were to drop to NPR 100 per EUR, the subsidiary's revenue would be translated into NPR 100 million, resulting in a loss of NPR 20 million for the Nepalese company. To mitigate the translation foreign exchange risk, the Nepalese company could consider hedging strategies such as forward contracts, options, or swaps. These instruments allow the company to lock in exchange rates for future transactions and reduce the impact of currency fluctuations on its financial statements. However, it's important to note that hedging can also involve additional costs and risks, so careful analysis and planning are necessary before implementing any hedging strategy. Transaction Risk For a Nepalese company with overseas subsidiaries, foreign exchange risk arises when they conduct business transactions in currencies other than the Nepalese rupee. In this scenario, changes in the exchange rate between the Nepalese rupee and the foreign currencies may result in significant financial gains or losses for the company. Let's take an example of a Nepalese company with a subsidiary in the United States. Suppose the Nepalese company receives payment of $100,000 from its US subsidiary for goods sold. The exchange rate at the time of the transaction is 1 USD = 120 Nepalese rupees, so the Nepalese company would receive 12,000,000 Nepalese rupees. However, if the exchange rate changes to 1 USD = 110 Nepalese rupees by the time the Nepalese company converts the dollars into rupees, the company would only receive 11,000,000 Nepalese rupees. This means that the Nepalese company would have lost 1,000,000 Nepalese rupees due to the change in the exchange rate. Another example could be when the Nepalese company needs to pay expenses to its US subsidiary, say $50,000 for raw materials. If the exchange rate at the time of payment is 1 USD = 120 Nepalese rupees, the Nepalese company would need to pay 6,000,000 Nepalese rupees. However, if the exchange rate changes to 1 USD = 130 Nepalese rupees by the time the payment is due, the Nepalese company would need to pay 6,500,000 Nepalese rupees. This means that the Nepalese company would have incurred an additional cost of 500,000 Nepalese rupees due to the change in the exchange rate.

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As a Nepalese company engaged in international business there are several internal and external methods that can be used to minimize exchange risk. Here are some strategies that may be helpful: Internal methods: 1. Hedging: The company can use financial instruments such as forward contracts, options, and swaps to hedge against exchange rate fluctuations. By entering into such contracts, the company can lock in a future exchange rate, which can help to reduce uncertainty and minimize risk. 2. Pricing strategy: The company can adopt a pricing strategy that takes into account the current exchange rate. For example, if the Nepalese currency is strong relative to the currency of the importing country, the company can increase its prices to offset the potential loss from a future depreciation of the Nepalese currency. 3. Cost control: The company can implement cost control measures to reduce its exposure to exchange rate risk. For example, it can source raw materials locally or from countries that use the same currency as the importing country to reduce the impact of exchange rate fluctuations. External methods: Foreign currency hedging is a risk management strategy that is designed to reduce or eliminate the risks associated with fluctuations in foreign exchange rates. The primary goal of foreign currency hedging is to protect the value of financial transactions denominated in a foreign currency. There are various methods of foreign currency hedging, some of which are more commonly used than others. Here are some examples: 1. Forward Contract: A forward contract is an agreement between two parties to exchange a set amount of currency at a predetermined exchange rate at a specific date in the future. A Nepalese company can use a forward contract to protect themselves against fluctuations in the exchange rate when they have to pay for goods or services in a foreign currency. 2. Futures Contract: Similar to a forward contract, a futures contract is an agreement to buy or sell a currency at a specific price and date in the future. Futures contracts are traded on exchanges, which means that they are standardized contracts that can be bought and sold like any other financial instrument. 3. Options Contract: An options contract gives the buyer the right but not the obligation to buy or sell a currency at a predetermined price at a specific date in the future. Unlike futures contracts, options contracts are not traded on exchanges but are instead customized contracts that are negotiated between the buyer and seller. 4. Swaps: A currency swap is an agreement between two parties to exchange currencies at a specified date in the future and then exchange them back at a later date. Swaps can be used

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to hedge against fluctuations in exchange rates by locking in a fixed rate for the duration of the swap. 5. Currency Diversification: A Nepalese company can also use currency diversification as a hedging method. By holding a diversified portfolio of currencies, the company can reduce its exposure to any one currency and spread its risk across multiple currencies.

One example of a large loss suffered by an international company due to FX hedging failure is the case of the Japanese conglomerate, Toshiba, in 2015. Toshiba had hedged against currency fluctuations by entering into various derivatives contracts, primarily involving options and forwards, to mitigate the impact of foreign exchange fluctuations on its earnings. However, due to a combination of factors, including the strengthening of the Japanese yen and the company's accounting irregularities, the value of the company's hedging contracts significantly decreased. As a result, Toshiba suffered a loss of about $2.2 billion, which was much higher than the company's initial estimates of $170 million. The loss was largely attributed to the company's ineffective FX hedging strategy, which failed to protect the company from adverse currency movements. The incident resulted in a significant impact on the company's reputation and financial stability, leading to a major restructuring effort and a focus on improving risk management practices.

In conclusion, foreign currency hedging is an important risk management tool for Nepalese companies that conduct business in foreign currencies. By using hedging techniques such as forward contracts, futures contracts, options contracts, swaps, and currency diversification, companies can protect themselves against currency risk and ensure that their financial transactions are not negatively impacted by fluctuations in exchange rates.

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Chapter 7 International Case studies

Beauty Queen Introduction: The UK-based makeup company, Beauty Queen, is considering exporting to the Brazilian market. The Brazilian cosmetics market is one of the largest in the world and is growing rapidly. However, the company faces the challenge of adapting to the cultural differences and preferences of Brazilian consumers. In this case study, we will examine the decisions that the company needs to make regarding the use of a standardized or adapted approach to the 7Ps marketing mix. Additionally, we will apply the EPRG framework to the 7Ps to consider the management's orientation. Standardized or Adapted Approach to the 7Ps Marketing Mix: The 7Ps marketing mix consists of product, price, promotion, place, people, process, and physical evidence. When entering a new market, companies must decide whether to use a standardized or adapted approach to the 7Ps. A standardized approach involves offering the same product, price, promotion, and other elements of the marketing mix in all markets. An adapted approach involves tailoring the marketing mix to meet the unique needs and preferences of each market. For Beauty Queen, the decision to use a standardized or adapted approach depends on several factors. Firstly, the company must consider the cultural differences between the UK and Brazil. Brazilian consumers may have different preferences for product formulations, packaging, and colors. Therefore, the company must adapt its product offering to meet the unique needs of Brazilian consumers.

Secondly, the company must consider the competitive landscape in Brazil. Brazilian consumers have access to a wide range of domestic and international makeup brands. To compete effectively, Beauty Queen must differentiate its product offering by offering unique features or benefits. Therefore, the company must adapt its product offering to meet the specific needs of Brazilian consumers. Thirdly, the company must consider the regulatory environment in Brazil. Brazilian cosmetic regulations differ from those in the UK, and the company must ensure that its product formulations comply with Brazilian regulations. Therefore, the company must adapt its product formulations to meet the regulatory requirements of Brazil.

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In marketing theory, the "place" variable refers to the distribution channels and methods used to make a product or service available to customers. It's about ensuring that the product is easily accessible and convenient for the customer to purchase and use. In this example the convenience factor is being compared between two distribution channels for a makeup product. One option is to have a consultant come to the customer's home to demonstrate and supply the product. The other option is to purchase the product at a supermarket. The consultant option offers convenience in terms of personalized service, the ability to try the product before buying it, and the convenience of not having to go out to a store to purchase it. On the other hand, purchasing the product at a supermarket offers convenience in terms of being able to purchase it at any time, without having to schedule an appointment or wait for a consultant to arrive. By evaluating the convenience factor, a company can determine which distribution channel would be more appealing to its target customers. For example, if the target market values personalized service and convenience, then supplying the product through a consultant may be the more effective option. However, if the target market values flexibility and availability, then supplying the product through a supermarket may be the better option. Applying the EPRG Framework to the 7Ps Marketing Mix: The EPRG framework is a useful tool for understanding a company's management orientation towards foreign markets. The EPRG framework consists of four orientations: ethnocentric, polycentric, regiocentric, and geocentric. Ethnocentric orientation involves a belief that the company's home country is superior and that the company should export its domestic products and practices to other countries. Polycentric orientation involves a belief that each country is unique and that the company should adapt its products and practices to meet the specific needs of each country. Regiocentric orientation involves a belief that certain regions share common cultural and economic traits and that the company should adapt its products and practices to meet the needs of those regions. Geocentric orientation involves a belief that the company should consider both local and global factors when making decisions about its products and practices.

For Beauty Queen, the company's management orientation towards the Brazilian market is likely to be polycentric. The company must adapt its products and practices to meet the unique needs and preferences of Brazilian consumers. Additionally, the company must consider the competitive and regulatory landscape in Brazil and adapt its products and practices accordingly. However, the company should also consider global trends and best practices when making decisions about its products and practices in Brazil. While this approach may have some benefits, there are also several potential dangers of a polycentric orientation for exporters, including:

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1. Reduced efficiency: Adapting to each local market requires significant resources, including time, money, and personnel. As a result, a polycentric orientation can lead to reduced efficiency and increased costs. 2. Missed opportunities: Focusing too narrowly on local markets can cause exporters to miss out on potential opportunities in other markets. This can limit the company's growth and revenue potential. 3. Inconsistent branding: Adapting products and marketing to local markets can lead to inconsistencies in branding and messaging across different markets. This can undermine the company's overall brand identity and reputation. 4. Lack of coordination: A polycentric orientation can lead to a lack of coordination between different markets, making it difficult to implement consistent policies, procedures, and strategies across the organization. 5. Limited innovation: Adapting to local markets can also stifle innovation, as companies may be hesitant to introduce new products or practices that are not already established in a particular market. However, the opposite approach, an ethnocentric approach that prioritizes the values, preferences, and beliefs of the exporter's home country over those of the foreign market they are exporting to can pose several risks and challenges for the exporter: 1. Limited Market Potential: An ethnocentric exporter may overlook or underestimate the preferences and needs of the foreign market, resulting in a limited market potential. This could lead to missed opportunities to expand the business in the foreign market. 2. Cultural Barriers: An ethnocentric exporter may not fully understand the cultural norms and values of the foreign market, which can create communication and marketing challenges. This can make it difficult to effectively promote and sell products in the foreign market. 3. Negative Perception: An ethnocentric orientation can create a negative perception among foreign customers who may view the exporter as insensitive and indifferent to their cultural values and preferences. This can lead to a loss of market share and a damaged reputation in the foreign market. 4. Competitive Disadvantage: Competitors who adopt a more customer-centric approach and adapt to the cultural preferences of the foreign market may gain a competitive advantage over the ethnocentric exporter. This can result in a loss of market share and revenue. 5. Legal and Regulatory Issues: An ethnocentric exporter may not be fully aware of the legal and regulatory requirements of the foreign market, which can lead to non-compliance and legal issues. This can damage the exporter's reputation and lead to fines and legal penalties.

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Conclusion: Beauty Queen's entry into the Brazilian market requires careful consideration of the company's approach to the 7Ps marketing mix and its management orientation towards foreign markets. The company must adapt its products and practices to meet the unique needs and preferences of Brazilian consumers. Additionally, the company must consider the competitive and regulatory landscape in Brazil and adapt its products and practices accordingly. By applying the EPRG framework to the 7Ps marketing mix, the company can consider its management orientation towards the Brazilian market and make

XBC Corporation Introduction: XBC Corporation is a US-based manufacturer of consumer products with a strong market presence in the US and Europe. The company is now considering expanding its operations in Asia by establishing a subsidiary in Thailand to tap into the growing Asian market. In this case study, we will explore the options available to the company to fund the project and minimize exchange risk in the first 3 years of operation. Options for funding the project:

Equity Investment and Internal Loans from the Parent Company: The company can choose to fund the project through equity investment and internal loans from the parent company. This option allows the company to have full control over the subsidiary's operations and ensure that the project aligns with its strategic goals. Additionally, internal loans may be provided at a lower interest rate than external loans, thereby reducing the cost of financing. International Capital and Debt Markets: Another option available to the company is to raise funds from international capital and debt markets. This option may be more expensive than internal loans, but it provides greater flexibility in terms of funding sources and may attract a wider pool of investors. The company can issue bonds or stocks on international markets to raise the necessary funds for the project. Domestic Debt Markets in Thailand: Finally, the company may consider raising funds from domestic debt markets in Thailand. This option provides the advantage of accessing local funding sources and may be more cost-effective than international debt markets. However, this option may require the company to comply with local regulations and involve additional legal and administrative costs.

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Difficulty accessing funding: Small startup manufacturing operations may have difficulty accessing funding, particularly in international capital and debt markets, due to several factors such as lack of a proven track record, limited collateral, and higher perceived risk associated with new ventures. Firstly, international capital and debt markets may be more cautious about lending money to new startups due to the perceived risk associated with such ventures. Startups often lack the financial history and stability that established businesses have, and this makes it difficult for them to obtain funding from investors and lenders who are looking for a low-risk investment. Secondly, small startups may have limited collateral to offer as security for loans. Collateral is often required by lenders as a way to reduce their risk in case of default. However, small startups may have limited assets that can be used as collateral, making it difficult to obtain loans. Finally, small startups may not have a strong financial track record to demonstrate their ability to repay loans. This lack of financial history can make it challenging for them to access funding. To overcome these obstacles, small startups may use the track record of their parent company to offset these problems. For example, a parent company with a strong financial track record can provide guarantees for loans to the subsidiary. This can help to reduce the perceived risk associated with the startup and make it easier to access funding. Additionally, startups can also look into other funding options, such as government grants, angel investors, and crowdfunding. These options may be more accessible to startups than traditional funding sources. In conclusion, small startups face several challenges when accessing funding in international capital and debt markets. However, by leveraging the track record of their parent company and exploring alternative funding sources, they can overcome these challenges and obtain the necessary capital to grow and succeed. Exchange Risk and Methods to Minimize it: Exchange risk refers to the risk that the exchange rate between two currencies will change unfavorably, resulting in financial losses. In the case of ABC Corporation, exchange risk arises because the subsidiary's operations in Thailand will generate revenues and expenses denominated in Thai Baht, which must be converted into US dollars for reporting purposes (translation risk), and because as it is serving the Asian market (not just Thailand), it will have receipts and payments in foreign currencies (transaction risk). Calculating Exchange Risk: XBC can calculate the level of foreign receipts and payments that may be at risk of exchange risk fluctuation. When a company has receipts and payments in a foreign currency as XBC will, a change in exchange rates can have a significant impact on its financial performance. Here are some ways in which exchange rate fluctuations can affect a company:

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1. Revenue: If a company has revenues denominated in a foreign currency, a decline in the exchange rate of that currency against the company's home currency would lead to a decrease in revenue. Conversely, if the exchange rate appreciates, revenue would increase. 2. Costs: If a company has costs denominated in a foreign currency, a decline in the exchange rate of that currency against the company's home currency would lead to an increase in costs. Conversely, if the exchange rate appreciates, costs would decrease. 3. Profit margins: A change in exchange rates can also affect a company's profit margins. If the company's costs are denominated in a foreign currency and the exchange rate of that currency declines, the company's profit margins will decrease. On the other hand, if the company's revenues are denominated in a foreign currency and the exchange rate of that currency appreciates, the company's profit margins will increase. 4. Cash flow: A change in exchange rates can also affect a company's cash flow. If a company has receipts and payments in different currencies, a change in exchange rates can affect the timing and amount of cash flows. For example, if a company has payments due in a foreign currency and the exchange rate of that currency appreciates, the company will need to pay more in its home currency to meet its obligations. To calculate how much of XBC’s future cash flows are at risk, It can estimate its foreign currency receipts and payments by currency (eg $) and net off payments against receipts. The remaining foreign currency receipts represent the transaction risk in the forecast. In order to hedge this potential risk XBC can then use various methods to create additional foreign currency payments in the future to offset this FX inflow risk (eg XBC can borrow in the foreign currency, thus creating repayments in the future to be used to offset against those fx reciepts) Internal and External (Hedging) Methods to Minimize Exchange Risk: To minimize exchange risk, the company can use internal and external hedging methods. Internal hedging methods involve adjusting the subsidiary's operations to reduce the exposure to exchange risk. For example, the company can negotiate with local suppliers to pay in US dollars instead of Thai Baht, or it can negotiate with customers to receive payments in US dollars. This reduces the need for currency conversion and reduces the exchange risk.

External hedging methods involve using financial instruments such as forwards, options, or swaps to protect against adverse exchange rate movements. For example, the company can use a forward contract to lock in a fixed exchange rate for a future transaction, thereby reducing the risk of exchange rate fluctuations. Alternatively, the company can use an option to buy or sell a currency at a predetermined exchange rate, providing protection against unfavorable exchange rate movements while allowing the company to benefit from favorable movements. As mentioned above there are various external FX currency hedging options available, each with its own benefits and drawbacks. The most common methods are: 1. Forward Contract: A forward contract is an agreement between two parties to exchange a set amount of currency at a future date, at an agreed-upon exchange rate. This is a

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straightforward way for companies to hedge their currency exposure. The cost of a forward contract is the difference between the current spot rate and the forward rate, which reflects the market's expectations of future exchange rates. The typical timescale for a forward contract is from a few months to a year, depending on the contract's maturity. 2. Currency Options: A currency option gives the holder the right but not the obligation to buy or sell a set amount of currency at a predetermined price, on or before a specific date. Companies can use options to hedge their currency exposure, as the option provides protection against unfavorable exchange rate movements while allowing them to benefit from favorable ones. The cost of a currency option is the premium paid to the option seller. The typical timescale for a currency option is shorter than a forward contract, ranging from a few days to a few months.

3. Currency Swaps: A currency swap is an agreement between two parties to exchange a set amount of currency, at a specified exchange rate, on a predetermined date. The currency swap is typically used to hedge long-term currency exposure. The cost of a currency swap is the difference between the two currencies' interest rates. The typical timescale for a currency swap is long-term, ranging from a few years to a decade. 4. Money Market Hedge: A money market hedge involves borrowing or lending a set amount of currency at the prevailing interest rate, then converting it into the desired currency at the current spot rate. The company will use the borrowed currency to pay for its foreign obligations, effectively locking in the exchange rate. The cost of a money market hedge is the difference between the borrowing and lending rates. The typical timescale for a money market hedge is short-term, ranging from a few weeks to a few months. Conclusion: In conclusion, XBC Corporation can try and fund its subsidiary in Thailand through equity investment and internal loans, international capital and debt markets, or domestic debt markets in Thailand. To minimize exchange risk, the company can use internal and external hedging methods, such as adjusting operations or using financial instruments. By carefully managing exchange risk, the company can ensure the success of its subsidiary in Thailand and achieve its strategic goals in the Asian market.

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