(Mt) – MGT 321 SEU Role of Technical Change in National Economic

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‫المملكة العربية السعودية‬ ‫وزارة التعليم‬ ‫الجامعة السعودية اإللكترونية‬ Kingdom of Saudi Arabia Ministry of Education Saudi Electronic University College of Administrative and Financial Sciences Assignment 1 Introduction to International Business (MGT-321) Due Date: 12/03/2022 @ 23:59 Course Name: Student’s Name: Course Code: MGT-321 Student’s ID Number: Semester: Second CRN: Academic Year:2021-22-2nd For Instructor’s Use only Instructor’s Name: Students’ Grade: Marks Obtained/Out of 10 Level of Marks: High/Middle/Low General Instructions – PLEASE READ THEM CAREFULLY • • • • • • • • The Assignment must be submitted on Blackboard (WORD format only) via allocated folder. Assignments submitted through email will not be accepted. Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page. Students must mention question number clearly in their answer. Late submission will NOT be accepted. Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions. All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism). Submissions without this cover page will NOT be accepted. Learning Outcomes: 1. Analyze the effects of culture, politics and economic systems in the context of international business (Lo 2.1) 2. Explain the forces driving and evaluating the impact of globalization (Lo 1.3) 3. Carryout effective self-evaluation through discussing economic systems in the international business context Case study Please read Case 3: “Economic Development in Bangladesh” available in your ebook (International business: Competing in the global marketplace (13th ed.), at page no.629, and answer the following questions: Assignment Question(s): 1. What were the principal reasons for the economic stagnation of Bangladesh after its war for independence? (marks: 2) 2. Explain how the liberalization program in the 1990s enabled Bangladesh to start climbing the ladder of economic progress. What are the main lessons here that can be applied to economic development in other nations? (marks: 4) 3. Bangladesh is dependent for its prosperity upon agriculture and textile exports. What are the risks here? How might Bangladesh diversify its industrial and commercial base? (marks: 4) Answers 1. Answer2. Answer3. Answer- VE COCOC COOC DDD TITOOL ©Shafiqul Alam/Corbis News/Getty Images Economic Development in Bangladesh OPENING CASE When Bangladesh gained independence from Pakistan in 1971 after a brutal civil war that may have left as many as 3 million dead, the U.S. National Security Adviser, Henry Kissinger, referred to the country as a “basket case.” Kiss- inger’s assessment was accurate enough. At the time, Bangladesh was one of the world’s poorest nations. Al- though most of the country is dominated by the fertile Ganges-Brahmaputra delta, a lack of other natural re- sources, coupled with poor infrastructure, political instabil- ity, and high levels of corruption, long held the country back. To compound matters, Bangladesh is prone to natu- ral disasters. Most of Bangladesh is less than 12 meters above sea level. The extensive low-lying areas are vulner- able to tropical cyclones, floods, and tidal bores. Beginning in the mid 1990s, however, Bangladesh be- gan to climb the ladder of economic progress. From the early 2000s onward, the country grew its economy at around 6 percent per annum compounded. Today, this Muslim majority country of 160 million people has joined the ranks of lower-middle-income nations. Poverty re- duction has been dramatic, with the percentage of the population living in poverty falling from 44.2 percent in 1991 to 18.5 percent in 2010, an achievement that raised 20.5 million people out of abject poverty. Today the country ranks 64th out of the 154 countries included in the World Bank’s global poverty database. Yes, it has a considerable way to go, but it is no longer one of the world’s poorest countries. Several reasons underlie Bangladesh’s relative eco- nomic success. In its initial post-independence period, Bangladesh adopted socialist policies, nationalizing many companies and subsidizing the costs of agricultural pro- duction and basic food products. These policies failed to deliver the anticipated gains. Policy reforms in the 1980s were directed toward the withdrawal of food and agricul- tural subsidies, the privatization of state-owned compa- nies, financial liberalization, and the withdrawal of some import restrictions. Further reforms aimed at liberalizing the economy were launched in the 1990s. These included making the currency convertible (which led to a floating exchange rate in 2003), reducing import duties to much lower levels, and removing most of the controls on the movement of foreign private capital (which allowed for more foreign direct investment). The reforms of the 1990s coincided with the transition to a parliamentary democracy from semi-autocratic rule. Bangladesh’s private sector has expanded rapidly since then. Leading the growth has been the country’s vibrant textile sector, which is now the second-largest exporter of ready-made garments in the world after China. Textiles ac- count for 80 percent of Bangladesh’s exports. The devel- opment of the textile industry has been helped by the availability of low-cost labor, managerial skills, favorable trade agreements, and government policies that elimi- nated import duties on inputs for the textile business, such as raw materials. The Bangladesh economy has also ben- efited from its productive agricultural sector and remit- tences from more than 10 million Bangladesh citizens who work in other nations. Bangladesh is also home of the mi- crofinance movement, which has enabled entrepreneurs with no prior access to the banking system to borrow small amounts of capital to start businesses. This being said, the country still faces considerable impediments to sustaining its growth. Infrastructure re- mains poor; corruption continues to be a major problem; and the political system is, at best, an imperfect democ- racy where opposition is stifled. The country is too depen- dent upon its booming textile sector and needs to diversify its industrial base. Bangladesh is also one of the countries most prone to the adverse affects of climate change. A one-meter rise in sea level would leave an estimated 10 percent of the country under water and increase the po- tential for damaging floods in much of the remainder. Nevertheless, according to the U.S. investment bank Gold- man Sachs, Bangladesh is one of the 11 lower-middle- income nations posed for sustained growth. Sources: W. Mahmud, S. Ahmed, and S. Mahajan, “Economic Reforms, Growth, and Governance: The Political Economy Aspects of Bangladesh’s Development Surprise,” World Bank Commission on Development and Growth, 2008; “Freedom in the World 2016,” Freedom House; “Tiger in the Night,” The Economist, October 15, 2016; Sanjay Kathuria, “How Will Bangladesh Reach High Levels of Prosperity?” World Bank blog, January 5, 2017; Qimiao Fan, “Bangladesh: Setting a Global Standard in Ending Poverty,” World Bank blog, October 5, 2016. 63 Accounting and Finance in the International Business Chapter 20 597 Therefore, if the firm used a centralized depository, it would need to hold $28 million for day-to-day needs plus (3 x $3,741,657) as a precautionary amount, or a total cash bal- ance of $39,224,971. In other words, the firm’s total required cash balance would be re- duced from $46 million to $39,224,971, a saving of $6,775,029. This is cash that could be invested in less liquid, higher-interest accounts or in tangible assets. The saving arises sim- ply due to the statistical effects of summing the three independent, normal probability distributions. However, a firm’s ability to establish a centralized depository that can serve short-term cash needs might be limited by government-imposed restrictions on capital flows across bor- ders (e.g., controls put in place to protect a country’s foreign exchange reserves). Also, the transaction costs of moving money into and out of different currencies can limit the advan- tages of such a system. Despite this, many firms hold at least their subsidiaries’ precaution- ary cash reserves at a centralized depository, having each subsidiary hold its own cash balance for day-to-day needs. The globalization of the world capital market and the general removal of barriers to the free flow of cash across borders (particularly among advanced in- dustrialized countries) are two trends likely to increase the use of centralized depositories. REDUCING TRANSACTION COSTS Transaction costs are the cost of exchange. Every time a firm changes cash from one cur- rency into another currency it must bear a transaction cost-the commission fee it pays to foreign exchange dealers for performing the transaction. Most banks also charge a transfer fee for moving cash from one location to another; this is another transaction cost. The commission and transfer fees arising from intrafirm transactions can be substantial; according to the United Nations, 40 percent of international trade involves transactions between the different national subsidiaries of transnational corporations. The volume of such transactions is likely to be particularly high in a firm that has a globally dispersed web a of interdependent value creation activities. Multilateral netting allows a multinational firm a to reduce the transaction costs that arise when many transactions occur between its sub- sidiaries by reducing the number of transactions. Multilateral netting is an extension of bilateral netting. Under bilateral netting, if a French subsidiary owes a Mexican subsidiary $6 million and the Mexican subsidiary simul- taneously owes the French subsidiary $4 million, a bilateral settlement will be made with a single payment of $2 million from the French subsidiary to the Mexican subsidiary, the remaining debt being canceled. der multilateral netting, this simple concept is extended to the transactions tween multiple subsidiaries within an international business. Consider a firm that wants to establish multilateral netting among four Asian subsidiaries based in Korea, China, Japan, and Taiwan. These subsidiaries all trade with each other, so at the end of each month a large volume of cash transactions must be settled. Figure 20.2 shows how the payment FIGURE 20.2 $4 Million Korean Subsidiary Chinese Subsidiary Cash flows before multilateral netting. $3 Million $6 Million $2 Million $5 Million $4 Million $5 Million $3 Million $5 Million $3 Million $2 Million Japanese Subsidiary Taiwanese Subsidiary $1 Million

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