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  • Subject Name : International Business Management

Q.1. Discuss how competitive rivalry (industry structure) and related and supporting industries can be mutually reinforcing – using examples.

Answer 1 According to the Michael Porter’s Diamond model, the ability of organizations to compete depends upon certain conditions of the market. Michael gave the theory of National Competitive Advantage which gives the explanation regarding why certain industries are able to compete effectively internationally and why certain industries are not able to compete. The model argues that the capability of the industry to effectively compete depends upon the ability of consistent innovation (Porter, 2008). However, the model also states that the ability to compete of an organization also depends upon certain characteristics of the industry including the firm structure and the related and supporting industries in the economy.

The presence of related and supporting industries in the economy continuously motivate and persuade the domestic companies in the economy to innovate and upgrade their products and services in order to compete effectively in the market. It can be understood that the competitiveness prevailing among the related, domestic and supporting industries in the economy increases the innovative capability of the organizations and the economy as a whole (Porter, 2011).

Domestic rivalry prevailing among the industries at domestic level is instrumental to the competitiveness among the firms at international level. The competition among the firms mutually reinforces the organizations to increase their uniqueness of products and capabilities in order to sustain in the market for a longer period of time in the presence of intense competition (Hill, 2008). Therefore, it can be evaluated that higher the competition level among the organizations in the market the higher the organizations will be pushed towards innovating their products and services in order to maintain their competitive advantage in the market. Another benefit along with innovation is that through domestic competition, the organizations learn to exist and sustain in intense competition which makes the organizations ready to compete against the organizations at international front and becomes easy for the organizations to enter the international market.

In order to understand the benefits of domestic rivalry the example of Japanese automobile industry can be considered in which many players including Toyota, Suzuki, Honda, Nissan, Mitsubishi and Subaru were dealing with high intense competition from each other. The domestic competition between each other made the brands compete with other big brands at the international level and it became easy for these brands to enter the foreign markets. Therefore, it can be understood that the presence of related and supporting industries is associated with the firm strategy along with the rivalry in the market. However, both related and supporting industries mutually reinforces the domestic industries to innovate and upgrade their skills which further increases the innovative capability of the organization and hence benefits the economy at the financial front.

Q.2. Contractual disputes are common in international business. What factors should the company consider to minimise legal risks involved in signing a contract with a foreign firm?

Answer 2 While entering into a legal contract with a foreign firm it is important for the domestic firm to be aware of the various laws that may impact the international contract. There are chances that the parties that are initiating a business relationship enters a dispute which makes it important for the parties to include clauses in the international contract related to how should the parties resolve their issues and disputes while being in business relationship. It is important the clauses regarding dispute resolution should be in accordance to the law of the country (Mishra et al., 2018). It is also important include such clauses in the contract because if dispute arises and there are no such clauses present in the contract then the decision regarding the dispute will be determined in the international country that will attract further more costs for the domestic industry.

Other way for minimizing the legal risks involved in international contracts is to take legal advice for numeral factors associated to the international contract along with the legal advice for the clauses entered in the contract as this will help in saving the cost and time involved in resolving a dispute if arises among the business parties (Hill, 2008). There are many specialist contract lawyers that can be approached by the domestic organizations while entering into an international contract with the foreign firm. The importance of hiring an expert lawyer is that the lawyer will have the potential to review the entire trade and with his knowledge of international and domestic laws will be able to suggest clauses to be added into the international contract. Other ways to avoid legal disputes in the international contracts is to make sure that the contract outlines the obligations and the rights of both the parties.

Therefore, it becomes important to review the international contract before signing it. It becomes important for the parties to review the contract because the contact governs the business relationship between the two parties and if not drafted properly can lead to disputes. Through the above analysis it could be found out that the two important elements of an international contract is governing law and the dispute resolution clauses. Both of these elements should properly addressed in order to minimize the risks associated to legal disputes. The element of governing law is mutually agreed upon choice of law by both the parties (Mishra, 2018).

However, in order to avoid disputes in the future it becomes important to mention the mutually agreed upon law of jurisdiction in the contract and also the governing law helps in managing the disputes among the parties in case one of the parties fail to govern the terms of the finalized contract. Therefore, it becomes important to include clauses of dispute resolution and mention the governing law in order to avoid the chances of legal disputes.

Q.3. What are the strengths and weaknesses of large vs small firms in innovation? How do large firms compensate for their potential shortcomings in innovation? Use examples.

Answer 3 The empirical evidence suggests that large firms and firms exercising monopoly power in the market have significant strength in innovation because they are able to better realize the benefits of innovation. The large firms should be more inclined towards innovation because they are single firm existing in the market and by little upgrading their products they are able to charge higher cost of products from the potential customers in the market. Other factor that increases the inclination of large firms towards innovation is that the profits realized from the up gradation of products and services help the organizations in arranges finance for the investment on research and development from the internal sources of revenue of the organization. The revenue from the internal sources of the organization seems to be attractive to the monopolist or the large firms because if the project of research and development fails, it will in no way have negative consequences for the tangible collateral of the organization (Vossen, 1998).

Other strength of large firms in regard is upgraded technology which helps the organizations in achieving specialization in production of goods and further innovating the goods to be ahead of the competitors in the market. However, the limitation among the large firms in regard to innovation is that large firms or monopolists do not have to deal with intense competition in the market which discourages the large firms to innovate as there is are substitutes for their goods present in the market (Vossen, 1998).

Moreover, the small firms existing in the market have greater motivation in theit management and the labor in order to sustain in the market in the presence of large firms in the market. The domestic competition prevailing in the market increases the desire of innovation among the small firms in the market. They try to utilize their skills and knowledge in order to attract higher potential customers in the market. However, the weakness that the small firms deal with is low power to invest, traditional technology which decreases the innovative capability of small firms (Vossen, 1998).

Q.4. How do firms from emerging economies transform themselves into global MNCs despite their late entry into global competition?

Answer 4 The emerging economies have transformed themselves into global multinational corporations through increasing their presence among the largest corporations around the world. Through their presence among the large corporations these multinationals are able to disrupt the global competition landscape. The literature has referred the multinational companies as late comers but they are able to become leaders in the market by being active participants of foreign direct investment and cross border acquisitions for the domestic countries.

Certain economic conditions and the proprietary advantages of these corporations make it profitable for them to undertake business in the emerging economies. The proprietary advantages of the multinational companies make it desirable for these organizations to operate it foreign locations. The multinational companies are able to become leaders in the market even by entering the market late because in order to effectively enter a foreign country they initiate by exporting through local agents and production and marketing subsidiary in order to collect knowledge and experience to establish competitive advantage in the domestic country (Foss & Pedersen, 2002)

References

Foss, N. J., & Pedersen, T. (2002). Transferring knowledge in MNCs: The role of sources of subsidiary knowledge and organizational context. Journal of International Management, 8(1), 49-67.

Hill, C. (2008). International business: Competing in the global market place. Strategic Direction, 24(9).

Mishra, A. K., Mandal, L. K., & Pant, R. R. (2018). Causes of Dispute in International Competitive Bidding Road Contracts Funded by Asian Development Bank in Nepal. Journal of Advanced Research in Business Law & Technology Management, 1(3), 5-16.

Porter, M. E. (2008). Competitive advantage: Creating and sustaining superior performance. Simon and Schuster.

Porter, M. E. (2011). Competitive advantage of nations: creating and sustaining superior performance. Simon and Schuster.

Vossen, R. W. (1998). Combining small and large firm advantages in innovation: Theory and examples. Groningen: Graduate School/Research Institute Systems, Organisation and Management.

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