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Business Environment - Fybms
Business Environment - Fybms
Definitions of Business:
“The activities of buying and selling goods, manufacturing goods or providing services in order to make
profit”
“It is an organized effort by individuals to produce goods & services, to sell these goods & services in a
market place and to reap some reward for this effort”
Features/Characteristics of Business
1) Buying & selling: All business activities are directly / indirectly connected with buying
and selling of goods. Businessmen, as sellers of goods & services, provide convenience &
satisfaction to buyers & in return earn profit.
2) Dealings in goods & services: All business transactions deal in different types of goods
& services. Such goods may be consumer goods, industrial goods or capital goods.
3) Regularity in dealings: It means purchase and sales are recurring in nature. Business
deals are never ending as human wants are also never ending.
4) Profit motive: Profit motive is important in all business activities. It acts as a driving
force behind all business activities. Even the efficiency and competitive capacity of business is
measured in terms of profit.
5) Risks & uncertainties involved: Business activities are always risky and uncertain.
Every businessman has to undertake substantial risks in his business. A business enterprise may
suffer losses due to a number of possible reasons such as change in technologies, changes in
consumer tastes & preferences, growing market competition, introduction of substitutes etc.
6) Well organized & socially useful: Businesses are now well organized, professional as
well as socially responsible. They are managed by properly trained & qualified persons. Its social
significance is well accepted by business enterprises. Businesses now use a part of profit earned
for discharging social obligations.
7) Creative & dynamic: Business activities are creative and dynamic as the business
environment is ever changing. Every business has to focus on its customers and customer’s
likes, preferences & tastes keep changing rapidly.
1) Regular supply of goods & services: Business is needed in order to supply goods &
services required by the society regularly. In fact the basic function of business is to meet the
needs of the people through regular supply of goods & services. No one can produce all the
goods & services which he or she wants to use.
3) Meaningful use of natural & other resources: Business is needed in order to use
available natural resources meaningfully and utilize it for the benefit of the society.
6) Convenient & happy social life: Business is needed as it touches all aspects of our
personal & social life. The basic function of business is to meet the needs of the people and to
raise social welfare. Production of various goods & services by businesses has made human life
more convenient and comfortable.
7) Creation of rich & developed country: Business is needed in order to make country
rich, developed & self sufficient. Due to industrial growth, the country becomes rich & developed.
It earns foreign exchange by exporting goods.
Classification of Business:
There are many types of businesses, and because of this, businesses are classified in many ways. One of the
most common classifications is given below.
Agriculture and mining businesses are concerned with the production of raw material, such as plants or
minerals.
Financial businesses include banks and other companies that generate profit through investment and
management of capital.
Information businesses generate profits primarily from the resale of intellectual property and include
movie studios, publishers and packaged software companies.
Manufacturers produce products, from raw materials or component parts, which they then sell at a profit.
Companies that make physical goods, such as cars or pipes, are considered manufacturers.
Real estate businesses generate profit from the selling, renting, and development of properties, homes,
and buildings.
Retailers and Distributors act as middle-men in getting goods produced by manufacturers to the
intended consumer, generating a profit as a result of providing sales or distribution services. Most
consumer-oriented stores and catalogue companies are distributors or retailers.
Service businesses offer intangible goods or services and typically generate a profit by charging for labor
or other services provided to government, other businesses or consumers. Organizations ranging from
house decorators to consulting firms to restaurants and even to entertainers are types of service
businesses.
Transportation businesses deliver goods and individuals from location to location, generating a profit on
the transportation costs
The factors affecting business environment can be broadly divided into Macro & Micro factors.
Macro Factors:
Economic environment: The factors to be considered under this are the general economic conditions,
economic conditions of different segments of population, rate of growth of the economy, credit availability &
interest rates, inflation rate, foreign exchange reserves etc.
Political environment: This is also a major component of the macro environment. In fact economic
environment is often a by product of the political environment, since economic & industrial policies followed
by a nation greatly depend on its political environment. Moreover developments on the political front keep
affecting the economy all the time. Industrial growth depends to a great extent on the political environment.
Natural environment: Business firms depend on natural resources. The extent to which the country has
availability of these resources has an impact on the functioning of the firms. Raw materials are one major
part of these resources and firms are concerned with their availability. Climate is another aspect of the
natural environment. Firms with products whose demand depends on climate & firms depending on climate
dependent raw materials will be particularly concerned with this factor.
Technological environment: Technology has become a major force which the businesses have to reckon
with. Technology leads practically all the forces that shape people’s lives. For a business firm, technology
affects not only its final products but also its raw materials, processes & operations. Technological changes
happen rapidly.
Legal environment: Businesses have to operate within the framework of the prevailing legal environment.
They have to understand the implications of all legal provisions relating to their business. Legal environment
cover areas like corporate affairs, consumer protection, employee protection, protection of society,
regulation of products, prices & distribution.
Micro Factors:
Market / Demand: This factor covers the nature of demand, size of the demand, present & potential,
changes taking place in demand, invasion of substitute products, changes taking place in consumption
pattern or buying habits.
Consumer: Consumer tastes & preferences keep fluctuating. This factor covers the aspects like buying
behavior, buying motives, lifestyles, needs & wants, brand loyalty, which among the competitors remain
closest to customer etc.
Industry & competition: Knowledge about industry & competition is a fundamental requirement for
developing business strategy. Competitive advantage building too depends on a proper grasp of the position
of the industry & competition.
Government policies: Government policies significantly affect the way business operates. Government
policies can affect businesses as governments are often large purchasers of goods & services, governments
subsidize select firms & industries, in some cases government happen to be producers, & therefore function
as competition.
Supplier related factors: Suppliers constitute one of the forces shaping competition in an industry. They
have their own bargaining power in the industry, they influence the costs of raw materials & other inputs to
a firm & hence the profits the firm can take home.
Chapter – 2 Evolution of Business
1) Local Business: Local business covers a small local area like village or town. The business
is conducted at the shop level or retail level. In local business, buyers are attracted to the shop
through local advertising. Transactions are done both in cash and credit terms. The scale of
operation is small. Local environment becomes an important factor for smooth conduct of
business.
2) Regional Business: Regional business covers a specific region which may be one state or
one geographical area. The development of fast and economical transport contributed to the
growth of regional business.
3) National level Business: National level business covers the entire country. At this stage
there was business growth both in volume and space. Branded goods are more suitable for
meeting the needs of the consumers all over the country. Only large sized companies can
survive in the national business as they are financially more powerful than the local businesses.
4) International business: International business covers trade beyond the political boundary
of a country. Participating in international business, a country earns substantial foreign exchange
and also strengthens the national economy. Independent traders getting into EXIM trade comes
within the scope of international business.
5) Global business: Global business is a wider concept than international business. It’s more
than a mere export and import. Global businesses have a substantial presence in almost all the
countries or many countries. Global businesses operate in other countries either by starting own
operations in other countries or by mergers & acquisitions, joint ventures, franchising,
management contracts etc.
Globalization:
Definition: “Planning production, marketing, finance & other business activities for remaining in the world
market in a competitive position over a long period”
Globalization in economic terms means the integration of national economies into the international
economy through trade, foreign direct investment, and capital flows etc.
Globalization of business means expansion of business activities to cover the entire world by having a
global presence.
New developments in the field of technology & growing interdependence of countries have contributed
substantially to the process of globalization.
Features of Globalization.
1) Large scale production & operations: In global business, the production & operations are
conducted on a large scale to meet the needs of national as well as world market.
3) Domination of Developed countries & MNCs. MNCs undertake production & marketing
activities all over the world. Most of the MNCs are from developed countries as these countries
have financial & technological strength to create global companies. For eg: United States has
more than 140 MNCs and Japan has more than 70 MNCs.
4) Benefits to participating countries: The benefits of global business will be available to all
participating countries. However, the benefits are shared in an unequal proportion. This means
the benefits are comparatively more to developed countries & less to developing countries.
5) Keen competition among global participants: In global business, there is keen competition
between the global companies. The companies in the host countries also face a tough challenge
of competing with the global companies.
6) Special role of technology: Technology can be used effectively for large scale production,
improvement in the quantity of production & cost reduction. Countries using advance technology
naturally dominate global business.
7) International restrictions on goods, technology & capital: Global business has to face
various restrictions on the inflow & outflow of goods, capital & technology.
1) Growing interdependence of countries: Countries in the world are getting more and more
interdependent on each other due to geographic, economic, political & other factors.
3) New developments: New developments in the field of industrial technology & information
technology have brought countries closer.
5) Growing need for removing restrictions: There is a growing need for the removal of
barriers/restrictions on international trade so as to make it free, fair & beneficial to participating
countries.
3) Globalization leads to expansion of world trade & the benefits of such expansion will be
available to all participating countries.
4) Globalization will enable countries to use untapped resources fully with support & co-
operation of other countries.
5) A global business strengthens the national economy & promotes its growth.
7) Globalization helps in the sharing of technology which gives the underdeveloped countries
to improve their R&D techniques.
Benefits/Advantages of Globalization to participating companies:
1) A global business can export goods in large quantities & earn high profits out of export
transactions.
2) Governments in developing countries offer tax benefits & financial facilities to MNCs.
3) Global enterprises can spread business risks between domestic & global markets.
4) Global businesses get the advantage of adequate and cheap raw material & Labor.
5) Globalization widens the scope of trade for the business enterprise and allows it to venture
into untapped markets.
6) A global business gets higher status & reputation at the international level.
1) Dangers of free entry of foreign companies: Due to globalization, foreign goods & foreign
companies will enter in the domestic markets on a large scale. They may capture domestic
markets due to their competitive capacity. This will create adverse effects on domestic industries
particularly on the small scale sector.
2) Expansion in the activities of MNCs: Globalization will encourage MNCs to expand their
investment, operations & activities in developing & less developed countries. This can lead to a
monopoly like situation.
3) Challenges before domestic companies: Domestic companies can face difficulties due to
globalization. They will have to face competition from the MNCs which are superior with regard to
quality & cost. Domestic companies may not export on a large scale even when foreign markets
are made free; this is because of absence of competitive capacity.
5) Brain Drain: Globalization creates demand for skilled workforce from developing countries.
The full benefits of globalization will not be available to the developing countries if technically
qualified manpower migrates to rich and developed countries.
6) Liberal trade policies may prove harmful to poor developing countries: Globalization puts
pressure on developing countries to make their trade policies liberal. Such pressure may come
through WTO. Such move will be harmful to the developing countries as their markets will be
captured by developed countries but the markets of the developed countries will not be available
to developing countries due to high cost and inferior quality production.
7) Extensive use of capital intensive technology harmful: Globalization will lead to extensive
use of capital intensive technology. This technology cannot create large-scale employment
opportunities which are urgently required in developing countries.
Impact of Globalization:
1) Globalization & exports: Globalization was expected to boost our exports on a massive
scale. Our exports have increased rapidly in recent years but the increase is not as per our
expectations. Our contribution to world exports is not even one percent. The export performance
of china & South Korea is much better. The poor export performance is mainly due to absence of
competitiveness at global level.
2) Globalization & flow of foreign investment: Globalization was expected to help India in
massive inflow of foreign capital. Liberal policies are introduced by the government for such
inflow of capital. However, actual results are not encouraging. Foreign investment is increasing
but is less as compared to our development needs. The inflow of foreign investment is much
better in the case of china & other countries.
3) Globalization & massive imports: During globalization period, imports increased at a faster
rate than exports. Other countries got more benefits through imports to India. The deficit in the
balance of trade & balance of payments has increased. This indicated hard reality that foreign
countries have been able to penetrate into Indian market much more effectively than our access
to foreign markets.
4) Globalization & growth rate: Economic reforms & globalization have proved beneficial to
GDP growth rate. At present, the GDP growth rate is satisfactory. It was 9.2 percent in 2006-07.
This is the net result of higher industrial production. India will have to keep growth rate at 10
percent for rapid economic growth.
5) Globalization & poverty reduction: The benefits of globalization need to be shared in a fair
manner. The poor people should get more benefit of liberalization & globalization. Unfortunately,
this has not happened in India. There is increase in the unemployed people in the country.
Industrially developed states secured more benefits of globalization as compared to industrially
backward states.
The traditional concept of business was restricted to production & marketing for private gain or profit.
The approach of producing & selling goods for earning profit is the traditional concept of business.
Here, consumer is taken for granted & his needs & expectations are not given much attention.
Business was treated as an activity for making profit. Businessmen were interested in collecting
wealth & economic power even at the cost of social justice. Service & satisfaction of consumers were
not given much importance & attention.
Modern concept of business:
The modern concept represents a distinct philosophy. It is more progressive & liberal. There is a clear
consumer / service orientation to business activities. It starts & ends with the consumer. Here,
business is treated as a social & economic institution forming an integral part of the social system
itself. It is now accepted that business performs a social function. Business enterprises have to honor
certain social obligations. Business is now treated as a means to achieve human welfare & public
good.
1) Meaning: As per the traditional concept, business As per modern concept, business means provision of goods
means production & marketing of goods & services Services for the satisfaction & welfare of the society at large
for private gain / profit
2) Scope: The scope of business was restricted toThe scope of business covers national & even global marke
Local areas / market.
3) Objective: The objective of business was profit Theor objective of business is consumer satisfaction & service
private Society. Business is treated as a means to serve the society
Gain. Business was treated as the end in itself. It Raise
was social welfare.
Production & distribution for earning profit.
4) Position of consumer: Consumers were neglected Consumers& are given priority & business is adjusted as per
Were taken for granted. They were exploited for needs & expectations of consumers. Consumer welfare is gi
profiteering special
No attention was given to consumer welfare. Attention.
5) Social orientation: Social orientation to business,
Business
was is treated as social institution with social obligation
Absent.
6) Social responsibility: The concept of social Business accepts & honors social responsibilities.
responsibility
Was absent. Business was not socially responsible.
7) Business – society relationship: Business was Business is treated as an integral part of the social system i
isolated
from the rest of the society & not treated as a part of
social
System.
8) Nature of concept: It is treated as old, outdated It is &
treated as dynamic and broad concept as it is given soc
narrow Orientation. It is for the satisfaction of human wants.
concept as business is treated merely as profit making
Activity.
Chapter – 3
India's economic history can be broadly divided into three eras, beginning with the
pre-colonial period lasting up to the 17th century. The advent of British colonization
started the colonial period in the 18th century, which ended with independence in
1947. The third period stretches from independence in 1947 until now.
- Evidence of well planned streets, a drainage system and water supply reveals their
knowledge of urban planning, which included the world's first urban sanitation
systems and the existence of a form of municipal government.
- A 1872 census revealed that 99.3% of the population of the region constituting
present-day India resided in villages, whose economies were largely isolated and self-
sustaining, with agriculture the predominant occupation.
- This satisfied the food requirements of the village and provided raw materials for
hand-based industries, such as textiles, food processing and crafts.
- Although many kingdoms and rulers issued coins, barter was prevalent. Villages
paid a portion of their agricultural produce as revenue to the rulers, while its
craftsmen received a part of the crops at harvest time for their services.
- Textiles such as muslin, Calicos, shawls, and agricultural products such as pepper,
cinnamon, opium and indigo were exported to Europe, the Middle East and South East
Asia in return for gold and silver.
- India, by the time of the arrival of the British, was a largely traditional agrarian
economy dependent on primitive technology.
Features of Colonial era:
- The colonial era started with the Company rule in India which refers to the rule of
the British East India Company on the Indian subcontinent which commenced in
1757.
- Company rule in India brought a major change in the taxation environment from
revenue taxes to property taxes, resulting in mass impoverishment and destitution of
majority of farmers and led to numerous famines.
- The economic policies of the British Raj effectively bankrupted India's large
handicrafts industry and caused a massive drain of India's resources.
- India had become a strong market for superior finished European goods. This was
because of vast gains made by the Industrial revolution in Europe, the effects of
which was deprived to Colonial India.
- The Nationalists had hoped to revive the domestic industries that were badly
affected by polices implemented by British Raj which had made them uncompetitive
to British made goods.
- However, at the end of colonial rule, India inherited an economy that was one of the
poorest in the developing world, with industrial development stalled and agriculture
unable to feed a rapidly growing population.
Independence to 1991
- Elaborate licences, regulations and the accompanying red tape, commonly referred
to as Licence Raj, were required to set up business in India between 1947 and 1990.
- Jawaharlal Nehru, the first prime minister, carried on by Indira Gandhi formulated
and oversaw the economic policy.
- They expected favorable outcomes from this strategy, because it involved both
public and private sectors and was based on direct and indirect state intervention.
Since 1991
- In the late 80s, the government led by Rajiv Gandhi eased restrictions on capacity
expansion for incumbents, removed price controls and reduced corporate taxes.
- While this increased the rate of growth, it also led to high fiscal deficits and a
worsening current account.
- The collapse of the Soviet Union, which was India's major trading partner, and the
first Gulf War, which caused a spike in oil prices, caused a major balance-of-payments
crisis for India, which found itself facing the prospect of defaulting on its loans.
- India asked for a $1.8 billion bailout loan from IMF, which in return demanded
reforms. In response, Prime Minister Narasimha Rao along with his finance minister
Manmohan Singh initiated the economic liberalisation of 1991.
- The new policies included opening the economy for international trade and
investment, deregulation, initiation of privatization, tax reforms etc.
- Since 1990 India has emerged as one of the fastest-growing economies in the
developing world; during this period, the economy has grown constantly. This has
been accompanied by increases in life expectancy, literacy rates and food security.
- The impact of these reforms may be gauged from the fact that total foreign
investment in India grew from a minuscule US $132 million in 1991-92 to $27 billion
in 2008-09
1. Industrial Licensing.
2. Foreign Investment
3. Foreign Technology Agreements.
4. Public Sector Policy
5. MRTP Act.
- Industrial licensing was abolished for all industries, except those specified, irrespective of
levels of investment. These specified industries, will continue to be subject to compulsory
licensing for reasons related to security and strategic concerns, social reasons, problems
related to safety and over-riding environmental issues, manufacture of products of hazardous
nature and articles of elitist consumption.
- The exemption from licensing will be particularly helpful to the many dynamic small and
medium entrepreneurs who have been unnecessarily hampered by the licensing system. As a
whole the Indian economy will benefit by becoming more competitive, more efficient and
modern and will take its rightful place in the world of industrial progress.
LIST OF INDUSTRIES IN RESPECT OF WHICH INDUSTRIAL LICENSING WAS REQUIRED
4. Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose and matches.
5. Hazardous chemicals:
2. FOREIGN INVESTMENT
- This is particularly necessary in the changing global scenario of industrial and economic
cooperation marked by mobility of capital. The government will therefore welcome foreign
investment which is in the interest of the country's industrial development.
- Such a framework will make it attractive for companies abroad to invest in India.
- There is a great need for promoting an industrial environment where the acquisition of
technological capability receives priority.
- In the fast changing world of technology the relationship between the suppliers and users of
technology must be a continuous one. Such a relationship becomes difficult to achieve when
the approval process includes unnecessary governmental interference
- Indian industry can scarcely be competitive with the rest of the world if it is to operate
within such a regulatory environment.
- These restrictions have been removed and now the Indian entrepreneur no longer needs to
face such bureaucratic clearances of his commercial technology relationships with foreign
technology suppliers.
- Companies will be free to negotiate the terms of technology transfer with their foreign
counterparts according to their own commercial judgement.
- Serious problems were observed with the PSUs like insufficient growth in productivity, poor
project management, over-manning, lack of continuous technological upgradation, and
inadequate attention to R&D and human resource development.
- In addition, public enterprises have shown a very low rate of return on the capital invested.
The result is that many of the public enterprises have become a burden rather than being an
asset to the Government.
- It is therefore time for the Government to adopt a new approach to public enterprises.
Measures must be taken to make these enterprises more growth oriented and technically
dynamic. Units which may be faltering at present but are potentially viable must be
restructured and given a new lease of life.
- There were 8 industries proposed under the new industrial policy to be reserved for the
public sector. The following is the list.
1. Arms and ammunition and allied items of defence equipment, Defence aircraft and warships.
2. Atomic Energy.
3. Coal and lignite.
4. Mineral oils.
5. Mining in iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond.
6. Mining of copper, lead, zinc, tin, molybdenum and wolfram.
7. Minerals specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953.
8. Railway transport.
Out of this currently only two industries are reserved for the public sector.
1. Atomic Energy
2. Railway Transport
The principal objectives sought to be achieved through the MRTP Act are as follows:
A) Prevention of concentration of economic power to the common detriment, control of monopolies, and
- With the growing complexity of industrial structure and the need for achieving economies of
scale for ensuring high productivity and competitive advantage in the international market,
the interference of the Government through the MRTP Act in investment decisions of large
companies has become harmful in its effects on Indian industrial growth.
- The pre-entry scrutiny of investment decisions by so called MRTP companies will no longer
be required.
- Instead, emphasis will be on controlling and regulating monopolistic, restrictive and unfair
trade practices rather than making it necessary for the monopoly house to obtain prior
approval of Central Government for expansion, establishment of new undertakings, merger,
amalgamation and takeover and appointment of certain directors.
- Simultaneously, provisions of the MRTP Act will be strengthened in order to enable the MRTP
Commission to take appropriate action in respect of the monopolistic, restrictive and unfair
trade practices.
1- The 1991 policy statement is truly historic, whether it is the result of IMF pressure or our
own realization that the time has come to open up the economy.
2- The changes, long overdue, need to be welcomed as a bold initiative aimed at making
Indian industry more competitive internally as well as internationally, & at freeing the
industry from needless controls, most of which have outlived their utility.
3- The delicensing of a host of industries and the abolition of all registration schemes will free
Indian entrepreneurs from the need to make endless trips to New Delhi. They can now
concentrate on their business and move quickly to seize business opportunities.
4- The scrapping of any asset holding or market share limitations for the definition of an MRTP
company allows companies to go ahead with investment programmes without delay.
5- The liberalization rules relating to foreign direct investment, permitting 51 percent equity
in a wide range of industries, the easier facilitation of foreign technology agreements and
other related measures go a long way in attracting foreign investment & technology.
6- Reforms relating to the public sector like privatization & transferring sick units to BIFR will
help improve the performance of the government undertakings.
7- Finally, the new policy statement is a most welcome package. There is a greater desire to
integrate with the world economy and to globalize.
Chapter – 4
1. The World Trade Organization (WTO) is an international organization designed to supervise and liberalize
international trade.
2. The WTO came into being on 1 January 1995, and is the successor to the General Agreement on Tariffs and
Trade (GATT), which was created in 1947, and continued to operate for almost five decades as a de facto
international organization.
3. The WTO helps member governments, to try to sort out the trade problems they face with each other.
3. The World Trade Organization deals with the rules of trade between nations at a near-global level; it is
responsible for negotiating and implementing new trade agreements, and is in charge of policing member
countries' adherence to all the WTO agreements, signed by the majority of the world's trading nations.
4. The WTO has 153 members, which represents more than 95% of total world trade.
History
- After the II world war the warring nations strictly controlled international trade and payments in order to finance
the war effort.
- These controls were carried forward into the post war period to finance reconstruction of their devastated
countries.
- Thus plans were made to reduce trade barriers and encourage international lending & hence International
Monetary Fund & the International Bank for reconstruction and development were established to manage the
International Monetary System.
- The Multilateral approach led to the drafting of a charter (written constitution or description of an organization's
functions etc) of the formation of an International Trade organization to be affiliated to the United Nations.
- The ITO couldn’t survive as the charter was not ratified by the US senate.
- In the year 1947, major trading countries came together with the purpose of reducing tariffs and encouraging
international trade and this led to the formation of GATT (General Agreement on Tariffs and Trade).
- India was amongst the 23 countries who signed the GATT agreement.
- The core of GATT was the MFN (Most Favoured Nation) clause.
- Under the MFN clause, each tariff bargain made at a GATT meeting is extended to all members.
- GATT rules discourages withdrawals of concessions, outlaw discriminatory practices and prohibit the use of import
quotas except by countries facing BOP (Balance of payment) problem.
- Progressive reduction of tariffs and trade barriers was sought to be made through different rounds of trade
negotiations over a period of time & so far, eight rounds of multilateral trade negotiations have already taken place.
- The 1st rounds of talk were held at Havana in 1947 & the last & the 8th round of talk was held at Uruguay in
1986.
- The Uruguay round stretched over 8 yrs.on account of huge differences among member nations on issues such as
agricultural subsidies, market access, trade in services, anti dumping, intellectual property rights etc.
- To get to consensus in negotiations Mr. Arthur Dunkel, Director General of GATT compiled a detailed document
known as ‘Dunkel Proposals’ and presented it before the member countries as a compromise document.
- The ‘Dunkel Proposals’ finally culminated in an act on 15th Dec. 1995 after India signed the agreement along with
117 nations on 15th April 1994 which led to the establishment of (WTO) World trade organization which came into
existence on 1st January 1995.
The following are the guiding principles for member nations in the sphere of international trade.
2. All Trade barriers should be applied on a non discriminating basis across nations i.e all nations should enjoy MFN
status.
3. When a country increases its tariffs above agreed upon levels, it must compensate its trading partners for the
economic injury &
- India has agreed to reduce customs duties by 30% over a period of six years.
- Accordingly, the union budget 2000-2001 brought down the peak rate of basic customs duty to 35 % alongwith
rationalization of the total number of slabs in customs duty rates to four i.e. 35, 25, 15 & 5 %.
- Basic custom duty reduction was to be made on items such as raw materials, intermediates and capital goods
with the exception of agricultural products, petroleum products and non-ferrous metals like zinc & copper.
- The WTO agreement enjoins upon its members to remove all export subsidies with the exemption to the products
of those countries which have less than $ 1000/- of per capita income & less than 3.25% share in the world trade.
- The Indian economic survey 1998-99 reported that items such as rice, tea, spices, iron ore, leather, gems &
jewellery had a share of more than 3.25% & the share of these items in the total exports of India for the year 1996
was 22.8% which means 77% of India’s exports are not affected by the clause on removal of subsidies.
- Under the agreement on TRIPs patents are made available for both product & process inventions in the field of
industrial technology. The industrial, agricultural & the bio technology sectors are covered under the patent
provisions.
- The Patent regime is feared to affect the drugs & pharmaceutical industry in India but the Institute of
contemporary studies observed that only less than 10% of the drugs are covered by the patents worldwide. The
rest of the drugs i.e. more than 90% of them have become generic i.e. they need no protection.
- TRIPs also extends patent like protection to agriculture & accordingly protection is sought to be extended to
micro-organisms, non-biological & micro-biological processes & plant varieties.
- TRIMs provide that governments shall not discriminate against foreign capital i.e. foreign capital should be given
national treatment. The following are the features on TRIMs.
- National treatment to foreign investors i.e. they will be given the same rights as a national investor has with
regard to investment.
- Complete exclusion of provisions such as phased manufacturing programmes which is intended to increase the
indigenous content in manufacturing.
- The GATT agreement proposes to fully liberalise the textile sector. The Multi fibre agreement is a comprehensive
agreement on quota restrictions imposed by the rich countries over the textile exports of developing countries.
These quotas will be phased out under the WTO Act.
Trade Barriers
Almost every trade barrier works as a tool to ensure a protectionism policy. Trade barriers aim
to hike the prices of imported products in order to secure the domestic industry against fierce
competition from foreign products.
1. Tariffs: Taxes levied on products that are traded across borders are called tariffs. However,
governments impose tariffs essentially on imports and not on exports. Two most popular types
of tariffs are:
A. Ad valorem: This tariff involves a set percentage of the price of the imported goods.
B. Specific: This refers to a specific amount charged by the government on import of goods.
3. Quotas: Import quotas are the trade limits set by the government to restrict
the quantity of imports during a specified period of time.
4. Import License: An import license is a document issued by a national
government authorizing the importation of certain goods into its territory.
Import licenses are considered to be non-tariff barriers to trade when used as a
way to discriminate against another country's goods in order to protect a
domestic industry from foreign competition.
Trade Blocs
A trade bloc is a type of intergovernmental agreement, where regional barriers to trade are
reduced or eliminated among the participating countries.
Advocates of worldwide free trade are generally opposed to trading blocs, which, they
argue, encourage regional as opposed to global free trade. Scholars and economists
continue to debate whether regional trade blocs are leading to a more fragmented world
economy.
Countries - Bangladesh, Bhutan, Maldives, Nepal, Pakistan, India, Sri Lanka, Afghanistan
Countries - United Arab Emirates, Kuwait, Bahrain, Saudi Arabia, Oman, Qatar
Definition of Culture:
It is the set of patterns of human activity within a society or social group and the symbolic
structures that give such activity significance. Customs, laws, popular styles, social standards,
and traditions are all examples of cultural elements.
USA: The USA is one of the highly developed countries in the world. Its society and culture have
played an important role in this development. Some of the salient features of the social and
cultural environment in the USA are its rich ethnic diversity which is a result of continuous
immigration, its aging population, its workforce diversity, its high life expectancy and low infant
mortality rates.
JAPAN: Japanese society and culture have evolved from the days of the feudal lords. However,
some traces of feudal society can still be seen in Japanese business practices. Japan has the
lowest birth rate in the world. But this may lead to problems in the future as there could be
labor shortages.
GERMANY: The German society shows all the traits of a highly industrialized country.
It has low marriage rates, delayed marriage and child-bearing, low fertility rates, small
household size, high divorce rates, and extended life expectancy. Germans are known for their
punctuality.
FRANCE: It also has a rich ethnic background. It is home to people from different ethnic
backgrounds such as Celtic, Latin, Teutonic, Slavic, North African, Indochinese and Basque
minorities.
UK: The UK is also the home to different ethnic groups such as the English, Scottish, Irish,
Welsh, Indian, Pakistani, Bangladeshi, other Asians and those from the Caribbean’s.
CANADA: Canada ranks high in life expectancy and literacy rates. It recognizes both English
and French as official languages.
ITALY: The ethnic composition of Italy includes Germans, French, Slovenes, Albanians, Greeks
and Italian. Italy has a high literacy rate of 97% and 98% of the population is Roman Catholic.
AUSTRALIA: It has a significant percentage of Asian population which was 7% in 2003. In the
Australian culture, one can see traces of English culture, the culture of the indigenous people,
and that of the various immigrant communities.
Cultural Comparisons
1 - When Chevrolet wanted to export its popular new car, the Nova,
into Mexico and Latin America, they promoted and advertised it in
much the same way they did in the USA. But sales were almost
non-existent. The name Nova may have been a successful name
and image in the USA, but "nova" in Spanish means "no go."
Cross-cultural marketing
3. Do Your Homework
Spend time researching the culture of the target countries. Learn
about communication, negotiation and work styles. Have an
understanding about non-verbal communication?
If you are working overseas, make sure that you learn about local
holidays and how they might impact campaigns and other business
projects. The month of Ramadan is important in many parts of the
world, and, having critical deadlines during this month is
challenging. If your target countries have a strong religious basis
for their culture, make sure that you learn about the religion and
its taboos, restrictions and ways that religious beliefs can work in
your favor.
The general terms "high context" and "low context" (popularized by Edward Hall)
are used to describe cultural differences between societies.
- High context refers to societies or groups where people have close connections
over a long period of time. Many aspects of cultural behavior are not made
explicit because most members know what to do and what to think from years
of interaction with each other. Your family is probably an example of a high
context environment.
- Low context refers to societies where people tend to have many connections
but of shorter duration or for some specific reason. In these societies, cultural
behavior and beliefs may need to be spelled out explicitly so that those coming
into the cultural environment know how to behave.
Chapter – 5
This chapter deals with the three major challenges that Indian economy is facing
today. They are poverty, unemployment and price rise.
POVERTY
It is a situation in which a person is unable to get minimum basic necessities of life, i.e.. Food,
clothing and shelter for his or her living.In economic terms they are called poverty ridden and
are people living below poverty line (BPL).
MASS POVERTY:When a large section of the people in an economy is deprived of the basic
necessities, that economy is said to be in mass poverty.
MEASUREMENT OF POVERTY:
Since it is the responsibility of the state to remove poverty , it has to take certain steps.
-estimate the total number of poverty-ridden persons with the help of that mechanism.
In India minimum food requirement for a person in rural areas (2400calories) is more than
the person living in urban (2100 calories) areas.
INCOME METHOD:All those families whose total income in a month is less than the poverty
line as fixed by the govt, are considered to be below poverty line(BPL).
-in 1999-2000, the poverty line in rural areas was fixed at Rs.328 per capita per month and in
urban areas it was Rs.454.The difference is because the essential goods in urban areas are
costlier than in rural areas.
-the poverty ridden families include the unemployed,the landless,the agricultural and casual
labourers, the tribals and the disabled or the physically challenged.
-the casual workers, the unemployed daily wage earners, domestic servants, rickshaw pullers,
hotel and restaurant workers are belonged to the urban poor.
CAUSES OF POVERTY
Excessive dependency on agriculture leads to low levels of income for the rural masses.They
do not have enough land and machinery, they are landless labourers and people without work.
Land reforms were not implemented properly in rural areas.
-social factors like illiteracy, large size of family, law of inheritance and caste system are
responsible for poverty.
-poverty alleviation programmes have failed to make considerable progress in removing
poverty due to corruption and inefficiency.
Govt has adopted Poverty Alleviation Programme to bring down the poverty level. Most of them
aim at providing employment or improvement of the asset-base of the poverty-ridden families.
-to help the existing poor families to come above the poverty line.
-to generate employment for those men and women who do not get sufficient days of
employment in rural areas.
-creating community assets as social forestry, soil conservation, minor irrigation projects and
renovation of village wells, rural roads, dispensaries, schools, panchayat ghars, bus stands, etc.
UNEMPLOYMENT
A situation in which a section of people , who are able and willing to work but do not find
gainful work is referred to as unemployed.
DISGUISED UNEMPLOYMENT:
- it is a situation which more people are engaged in an activity than the required ones.The
people who are actually engaged in such an activity appear to be employed but are not fully
employed.
Eg:a work can be completed with 2persons but if there are 6 persons do the same work , the
additional 4 persons are considered as disguised unemployed.
(b)SEASONAL UNEMPLOYMENT:
(c)STRUCTURAL UNEMPLOYMENT:
- The mismatch of available capital and the size of the labour force create persistent
unemployment both in agriculture and industry.Lack of resource to provide employment.
PRICE RISE
- When people have more income on hand, the demand for goods and services
increase. If the supply of these goods and services are not adequate there is a
shortage and results in price increase of these goods and services.
- Some people with an aim to make quick profit hoard the goods and create an
artificial demand and then they sell the goods at a higher price. This is called
hoarding and black marketing.
- A bad monsoon can also affect the prices of the agro commodities leading to an
overall increase in inflation.
This highly diversified economy has shown rapid growth and remarkable
resilience since 1991, when economic reforms were initiated with the
progressive opening of the economy to international trade and investment.
The following is the GDP growth rate for the past 6 years
2003-04 - 8.5
2004-05 - 7.5
2005-06 - 9.5
2006-07 - 9.7
2007-08 - 9.0
2008-09 - 6.7
What is Investment?
Stocks: Investors can also buy stocks (equities) from the secondary markets
and be a part of any business corporates that are listed in the bourses. By this
way, one can become the part of the profits that the company generates. But
one should remember that stocks are generally more volatile and carries more
risk than bonds.
Mutual funds: They are usually a collection of stocks and bonds that a fund
manager selects for an investor such that the returns are maximum. The
investor does not have to track the investment, be it a bond, stock- or index-
based mutual funds.
Commodities: The items that are traded on the commodities market are
agricultural and industrial commodities and they need to be standardized.
One, who trades in commodities, requires specialized knowledge of the
commodities market.
Real estate: Investing in real estate has to be a long term affair. Funds get
hooked into the real estate sector for a considerable time period.