Paper II — Q8
(a) (i) Discuss the importance of Foreign Direct Investment (FDI) for developing economies like India. Should these countries go…
Discuss the importance of Foreign Direct Investment (FDI) for developing economies like India. Should these countries go all out for attracting more FDI? 8 marks
Discuss the role of authorities created by the Government of India for streamlining the FDI movement in India. 7 marks
Outline how the culture of a country might influence the cost of doing business in that country. Illustrate with examples. 7 marks
What is ethnocentrism? How does it influence the management of multi-national companies? 8 marks
If you were a manager in a company that operates in many countries, what criteria would you use to determine whether a technological innovation should be developed as a product for global consumers or local consumers? 7 marks
COVID-19 pandemic has impacted global logistics and supply chains. Explain how an efficient logistic function can help an international business compete more effectively in the post-pandemic global marketplace. 7 marks
What are the various options a firm has to minimize its global tax liability? 6 marks
हिंदी में प्रश्न पढ़ें
भारत जैसे विकासशील अर्थव्यवस्थाओं के लिए प्रत्यक्ष विदेशी निवेश (एफ० डी० आई०) की महत्ता की विवेचना कीजिए। क्या इन देशों को अधिक एफ० डी० आई० आकर्षित करने के लिए भरपूर प्रयास करना चाहिए? 8 अंक
भारत में एफ० डी० आई० आंदोलन को सरल व कारगर बनाने (स्ट्रीमलाइनिंग) के लिए भारत सरकार द्वारा सृजित अधिकारियों की भूमिका की विवेचना कीजिए। 7
रेखांकित कीजिए कि किस प्रकार किसी देश की संस्कृति उस देश में व्यवसाय करने की लागत को प्रभावित कर सकती है। सोदाहरण स्पष्ट कीजिए। 7
प्रजातिकेंद्रिकता (एथ्नोसेंट्रिज्म) क्या है? यह किस प्रकार बहुराष्ट्रीय कम्पनियों के प्रबन्ध को प्रभावित करता है? 8 अंक
यदि आप एक ऐसी कम्पनी के प्रबन्धक होते जो अनेक देशों में काम करती है, तो यह निर्धारित करने के लिए आप कौन-कौन से मानदण्डों का उपयोग करते कि क्या एक उत्पाद के रूप में शिल्पवैज्ञानिक (टेक्नोलॉजिकल) नवाचार (इनोवेशन) को वैश्विक उपभोक्ताओं अथवा स्थानीय उपभोक्ताओं के लिए विकसित किया जाना चाहिए? 7 अंक
कोविड-19 देशान्तरगामी महामारी ने वैश्विक लॉजिस्टिक एवं आपूर्ति श्रृंखलाओं को प्रभावित किया है। समझाइए कि किस प्रकार एक दक्ष लॉजिस्टिक कार्य अन्तर्राष्ट्रीय व्यवसाय को देशान्तरगामी महामारी के पश्चात् वैश्विक बाजार-स्थल में अधिक प्रभावपूर्ण रूप से मुकाबला करने में सहायता कर सकता है। 7
एक प्रतिष्ठान के पास अपने वैश्विक कर दायित्व को न्यूनतम करने के कौन-कौन से विभिन्न विकल्प हैं? 6 अंक
Model answer
Drafted with AI by UPSC Answer Check against this question's marking rubric, to the expected length. UPSC does not publish answers for Mains — this is one way to score well, not an official key. How we build rubrics and answers.
(a)(i) Importance of FDI and whether to go all out
For developing economies like India, FDI supplements domestic savings with non-debt capital, brings technology and managerial know-how, creates jobs, promotes exports and links firms to global value chains, raising productivity and competition. Going all out carries risks: profit repatriation and pressure on the exchange rate, crowding out of domestic firms, footloose investment and loss of policy space. India’s approach of sectoral caps, an automatic route for most sectors and a government route for sensitive ones (including prior approval for investors from land-border countries since 2020) shows that FDI should be attracted selectively, with safeguards for jobs, technology transfer and national security.
(a)(ii) Authorities that streamline FDI
- DPIIT frames FDI policy and the consolidated policy circular.
- Foreign Investment Facilitation Portal, which replaced the Foreign Investment Promotion Board when it was abolished in 2017, routes government-route proposals to the ministries concerned for time-bound approval.
- RBI administers FEMA rules on reporting, pricing and capital flows.
- Invest India acts as the national investment promotion and facilitation agency, alongside the National Single Window System.
- SEBI separates portfolio flows from FDI, and CCI reviews mergers for competition effects.
Together they cut delays and uncertainty while preserving regulatory control.
(b)(i) Culture and the cost of doing business
Using Hofstede’s dimensions, high power distance means hierarchical approvals and slower decisions, high uncertainty avoidance means detailed contracts, compliance and litigation costs, and collectivist settings need more time for relationship-building and consensus. Attitudes to time, trust and gift-giving shape negotiation and monitoring costs. In Japan, consensus building (nemawashi) slows contracts but reduces disputes. In China, guanxi networks lower some costs but raise others. In India, relationship-based networks and regulatory caution can raise transaction costs for newcomers.
(b)(ii) Ethnocentrism and MNC management
Ethnocentrism is the belief that home-country ways are superior. In MNCs it shows up as centralised decisions, expatriate-heavy staffing and standard products and policies. This creates local resistance, weak responsiveness and higher costs, and can cause failures when products ignore local tastes. Perlmutter’s EPRG framework (ethnocentric, polycentric, regiocentric, geocentric) shows the alternatives, with geocentric firms combining global integration and local talent.
(c)(i) Global or local product: criteria
A manager would weigh:
- similarity of consumer needs, standards and regulations across markets,
- economies of scale in R&D and production,
- the competitive landscape and speed to market,
- cultural fit, income levels and infrastructure, and
- the costs of adaptation.
Where needs are similar and scale decisive, as in smartphones and industrial equipment, a global product suits, following Levitt’s argument. Where tastes, climate, income or law differ, as in food, personal care and financial services, local or glocal versions are better, as with McDonald’s vegetarian menu in India.
(c)(ii) Logistics after the pandemic
COVID-19 exposed fragile just-in-time chains. Efficient logistics now gives advantage through supplier diversification (China+1, nearshoring and friendshoring), "just-in-case" buffers for critical inputs, real-time visibility through IoT and analytics, multimodal transport and faster customs. For India, the PM Gati Shakti plan (2021), the National Logistics Policy (2022) and better ports and logistics parks cut costs and lead times, making exports more reliable. Resilient logistics turns supply-chain risk into competitive advantage.
(c)(iii) Options to minimise global tax liability
- Transfer pricing within arm’s length rules.
- Locating intellectual property, financing or regional headquarters in low-tax jurisdictions or special economic zones.
- Using double taxation avoidance agreements and foreign tax credits.
- Holding-company structures and timing of income recognition.
These options are limited by OECD BEPS measures, country-by-country reporting, the Multilateral Instrument against treaty shopping, India’s GAAR, and the Pillar Two global minimum tax of 15%. Firms must keep to legal tax planning and avoid evasion.
How this answer will be evaluated
Framework: FDI Policy Framework / Hofstede's Cultural Dimensions / Global vs Local Product Strategy
What earns full marks: Comprehensive, well-structured, uses named frameworks, specific examples, and balanced analysis.
Evaluation rubric
Each sub-part is marked on its own, against the marks and word limit printed on the paper.
- (a)(i) Importance of FDI for developing economies and the argument for attracting it. 8 marks
discuss— intro → 3-4 dimensions → example → balanced close
Must cover
- Capital inflow and infrastructure development
- Technology transfer and skill development
- Employment generation and export competitiveness
- Balanced view on risks (e.g., crowding out domestic firms)
Loses marks
- Generic definition of FDI without application
- Ignoring the 'should they go all out' debate
Earns more
- Reference to India's FDI policy liberalization
- Distinction between FDI and FII
- Mention of specific sectors (e.g., IT, Pharma)
Extra mark
- Citing a specific recent FDI inflow statistic
- Reference to a specific FDI policy amendment
- (a)(ii) Role of Indian government authorities in streamlining FDI. 7 marks
discuss— intro → 3-4 dimensions → example → balanced close
Must cover
- Role of the FIPB (abolished 2017) and its replacement, the Foreign Investment Facilitation Portal
- Role of DIPP (now DPIIT) in policy formulation
- Role of RBI in regulatory compliance
- Streamlining mechanisms (e.g., single window clearance)
Loses marks
- Listing authorities without explaining their specific role
- Confusing FDI with general trade policy
Earns more
- Mention of NITI Aayog's role in policy
- Reference to specific FDI sectoral caps
- Discussion of ease of doing business reforms
Extra mark
- Citing a specific recent FDI policy amendment
- Reference to a specific FDI policy committee
- (b)(i) Influence of culture on the cost of doing business. 7 marks
enumerate— list the items in order → one line each → no commentary
Must cover
- Communication styles and negotiation costs
- Attitudes towards hierarchy and decision-making
- Legal and regulatory cultural context
- Examples of cultural impact on business costs
Loses marks
- Vague statements about 'culture matters'
- Ignoring the 'cost' aspect of the question
Earns more
- Use of Hofstede's cultural dimensions
- Specific examples (e.g., Japan, USA, India)
- Discussion of 'cultural distance' concept
Extra mark
- Example of a company facing higher costs from cultural differences
- Reference to a specific cultural dimension
- (b)(ii) Definition of ethnocentrism and its influence on MNC management. 8 marks
define— precise definition → the distinguishing feature → one example
Must cover
- Precise definition of ethnocentrism
- Impact on staffing policies (ethnocentric staffing)
- Impact on management practices and decision-making
- Consequences for MNC performance and local adaptation
Loses marks
- Confusing ethnocentrism with nationalism
- Failing to link definition to MNC management
Earns more
- Contrast with polycentric or geocentric staffing
- Examples of ethnocentric management failures
- Discussion of cultural bias in MNCs
Extra mark
- Example of an MNC moving from ethnocentric to geocentric management
- Reference to Perlmutter's EPRG framework
- (c)(i) Criteria for deciding global vs local product development. 7 marks
analyse— intro → causes → effects → stakeholders/linkages → way forward
Must cover
- Market size and potential for global standardization
- Cultural and regulatory differences requiring localization
- Cost implications of global vs local development
- Competitive landscape in target markets
Loses marks
- Listing criteria without explaining their application
- Ignoring the 'manager' perspective in the question
Earns more
- Use of a decision matrix or framework
- Examples of global vs local products (e.g., Coca-Cola)
- Discussion of 'glocalization' strategy
Extra mark
- Example of local adaptation of an innovation (e.g., McDonald's menu in India)
- Reference to Levitt's globalisation of markets
- (c)(ii) How efficient logistics helps international business post-pandemic. 7 marks
explain— definition/context → points in order → small example → short close
Must cover
- Supply chain resilience and risk mitigation
- Cost efficiency and speed to market
- Customer satisfaction and competitive advantage
- Adaptation to post-pandemic market changes
Loses marks
- Generic statements about 'good logistics'
- Failing to link logistics to 'post-pandemic' context
Earns more
- Mention of specific logistics technologies (e.g., AI, IoT)
- Examples of companies with efficient logistics
- Discussion of 'just-in-time' vs 'just-in-case' strategies
Extra mark
- Example of a supply-chain disruption (e.g., chip shortage, Suez blockage 2021)
- Reference to PM Gati Shakti or the National Logistics Policy 2022
- (c)(iii) Options for minimizing global tax liability. 6 marks
enumerate— list the items in order → one line each → no commentary
Must cover
- Transfer pricing strategies
- Use of tax havens and special economic zones
- Double taxation avoidance agreements (DTAAs)
- Corporate structuring and holding companies
Loses marks
- Listing options without explaining how they work
- Confusing tax evasion with tax avoidance
Earns more
- Mention of specific tax planning techniques
- Examples of companies using tax optimization
- Discussion of legal vs illegal tax avoidance
Extra mark
- Reference to the Pillar Two global minimum tax (15%)
- Mention of India's GAAR provisions
What "Discuss" is asking you to do
Lay the issue out from more than one side — how it arose, what is claimed for it, what is held against it, and where it now stands. UPSC attaches discuss to broad topics with several live dimensions, so coverage of the dimensions earns more than the strength of your opinion.
Structure that answers it
Set the issue up → the case as it is made → the case against → the dimension both sides leave out → where the balance now lies
Where marks are lost
Listing facts with no thread between them, or arguing one side throughout and calling it a discussion.
Practice this exact question
Write your answer and it is marked point by point against the model answer above — what you covered, what you missed, what you got wrong.
Evaluate my answer →More from Management 2022 Paper II
- Q5 (a) Is State participation in business essential? Discuss the objectives of liberalizatio…
- Q6 (a) Critically examine government's policy with regard to Small-Scale Industries (SSIs).…
- Q7 (a) "Strategies are formulated and operated at different levels of management." Discuss t…
- Q8 (a) (i) Discuss the importance of Foreign Direct Investment (FDI) for developing economie…