Que.1 Explain the different international trade theories?

Ans.1
Environment scanning is one essential component of the global environmental analysis. Environmental monitoring, environmental forecasting and
environmental assessment complete the global environmental analysis. The global environment refers to the macro environment which comprises
industries, markets, companies, clients and competitors. Consequently, there exist corresponding analyses on the micro-level. Suppliers,
customers and competitors representing the micro environment of a company are analyzed within the industry analysis.
It can be defined as the study and interpretation of the political, economic, social and technological events and trends which influence a business,
an industry or even a total market. The factors which need to be considered for environmental scanning are events, trends, issues and
expectations of the different interest groups. Issues are often forerunners of trend breaks. A trend break could be a value shift in society, a
technological innovation that might be permanent or a paradigm change factors:
Economic Factors: It refers to the economic conditions under which a business operates and takes into account all factors that have affected it.
It includes prime interest rate, legislation concerning employment of foreigners, return of profits, safety of country, political stability and so on.
Political Factors: It influences the economic and legal environment in which the business operates to a larger extent, especially in contract law
and rules on advertising and consumer protection. It also affects the business practices, restrictions on market entry, tariffs charged and ability to
repatriate profits.
Legal Factors: International businesses confront different sets of laws in various countries of operation. IB must not only abide by the domestic
laws of each nation but also by the supranational laws which impose obligations beyond those of national legal systems.
Demographic Factors: It helps firm understand the various demographic factors such as gender; age; religious background and ethnicity. Firms
use demographic environments to identify target markets for specific products it wishes to cater.
Socio-Cultural Factors: The cultural and social norms of people differ worldwide in all key markets. The customers/consumers of a particular
country/region become conditioned to accept certain things as per conditioned behavior. The increasingly competitive international business
environment necessitate the exporters/companies doing business overseas to customize their organizational policies keeping in mind the local
cultural norms.
International trade theories are simply different theories to explain international trade. Trade is the concept of exchanging goods and services
between two people or entities. International trade is then the concept of this exchange between people or entities in two different countries.
People or entities trade because they believe that they benefit from the exchange. They may need or want the goods or services. While at the
surface, this many sound very simple, there is a great deal of theory, policy, and business strategy that constitutes international trade.
In this section, youll learn about the different trade theories that have evolved over the past century and which are most relevant today.
Additionally, youll explore the factors that impact international trade and how businesses and governments use these factors to their respective
benefits to promote their interests.
Classical or Country-Based Trade Theories
Mercantilism
Developed in the sixteenth century, mercantilism was one of the earliest efforts to develop an economic theory. This theory stated that a countrys
wealth was determined by the amount of its gold and silver holdings. In its simplest sense, mercantilists believed that a country should increase
its holdings of gold and silver by promoting exports and discouraging imports. In other words, if people in other countries buy more from you
(exports) than they sell to you (imports), then they have to pay you the difference in gold and silver. The objective of each country was to have
a trade surplus, or a situation where the value of exports are greater than the value of imports, and to avoid a trade deficit, or a situation where
the value of imports is greater than the value of exports.
A closer look at world history from the 1500s to the late 1800s helps explain why mercantilism flourished. The 1500s marked the rise of new
nation-states, whose rulers wanted to strengthen their nations by building larger armies and national institutions. By increasing exports and trade,
these rulers were able to amass more gold and wealth for their countries. One way that many of these new nations promoted exports was to
impose restrictions on imports. This strategy is called protectionism and is still used today.
Nations expanded their wealth by using their colonies around the world in an effort to control more trade and amass more riches. The British
colonial empire was one of the more successful examples; it sought to increase its wealth by using raw materials from places ranging from what
are now the Americas and India. France, the Netherlands, Portugal, and Spain were also successful in building large colonial empires that
generated extensive wealth for their governing nations.
Although mercantilism is one of the oldest trade theories, it remains part of modern thinking. Countries such as Japan, China, Singapore, Taiwan,
and even Germany still favor exports and discourage imports through a form of neo-mercantilism in which the countries promote a combination of
protectionist policies and restrictions and domestic-industry subsidies. Nearly every country, at one point or another, has implemented some form
of protectionist policy to guard key industries in its economy. While export-oriented companies usually support protectionist policies that favor their
industries or firms, other companies and consumers are hurt by protectionism. Taxpayers pay for government subsidies of select exports in the
form of higher taxes. Import restrictions lead to higher prices for consumers, who pay more for foreign-made goods or services. Free-trade
advocates highlight how free trade benefits all members of the global community, while mercantilisms protectionist policies only benefit select
industries, at the expense of both consumers and other companies, within and outside of the industry.
Absolute Advantage
In 1776, Adam Smith questioned the leading mercantile theory of the time in The Wealth of Nations.Adam Smith, An Inquiry into the Nature and
Causes of the Wealth of Nations (London: W. Strahan and T. Cadell, 1776). Recent versions have been edited by scholars and economists. Smith
offered a new trade theory called absolute advantage, which focused on the ability of a country to produce a good more efficiently than another
nation. Smith reasoned that trade between countries shouldnt be regulated or restricted by government policy or intervention. He stated that
trade should flow naturally according to market forces. In a hypothetical two-country world, if Country A could produce a good cheaper or faster
(or both) than Country B, then Country A had the advantage and could focus on specializing on producing that good. Similarly, if Country B was
better at producing another good, it could focus on specialization as well. By specialization, countries would generate efficiencies, because their
labor force would become more skilled by doing the same tasks. Production would also become more efficient, because there would be an
incentive to create faster and better production methods to increase the specialization.
Smiths theory reasoned that with increased efficiencies, people in both countries would benefit and trade should be encouraged. His theory
stated that a nations wealth shouldnt be judged by how much gold and silver it had but rather by the living standards of its people.
Comparative Advantage
The challenge to the absolute advantage theory was that some countries may be better at producing both goods and, therefore, have an
advantage in many areas. In contrast, another country may not haveany useful absolute advantages. To answer this challenge, David Ricardo, an
English economist, introduced the theory of comparative advantage in 1817. Ricardo reasoned that even if Country A had the absolute advantage
in the production of both products, specialization and trade could still occur between two countries.
Comparative advantage occurs when a country cannot produce a product more efficiently than the other country; however, it can produce that
product better and more efficiently than it does other goods. The difference between these two theories is subtle. Comparative advantage focuses
on the relative productivity differences, whereas absolute advantage looks at the absolute productivity.
Lets look at a simplified hypothetical example to illustrate the subtle difference between these principles. Miranda is a Wall Street lawyer who
charges $500 per hour for her legal services. It turns out that Miranda can also type faster than the administrative assistants in her office, who are
paid $40 per hour. Even though Miranda clearly has the absolute advantage in both skill sets, should she do both jobs? No. For every hour
Miranda decides to type instead of do legal work, she would be giving up $460 in income. Her productivity and income will be highest if she
specializes in the higher-paid legal services and hires the most qualified administrative assistant, who can type fast, although a little slower than

Miranda. By having both Miranda and her assistant concentrate on their respective tasks, their overall productivity as a team is higher. This is
comparative advantage. A person or a country will specialize in doing what they do relatively better. In reality, the world economy is more complex
and consists of more than two countries and products. Barriers to trade may exist, and goods must be transported, stored, and distributed.
However, this simplistic example demonstrates the basis of the comparative advantage theory.
Heckscher-Ohlin Theory (Factor Proportions Theory)
The theories of Smith and Ricardo didnt help countries determine which products would give a country an advantage. Both theories assumed that
free and open markets would lead countries and producers to determine which goods they could produce more efficiently. In the early 1900s, two
Swedish economists, Eli Heckscher and Bertil Ohlin, focused their attention on how a country could gain comparative advantage by producing
products that utilized factors that were in abundance in the country. Their theory is based on a countrys production factorsland, labor, and
capital, which provide the funds for investment in plants and equipment. They determined that the cost of any factor or resource was a function of
supply and demand. Factors that were in great supply relative to demand would be cheaper; factors in great demand relative to supply would be
more expensive. Their theory, also called the factor proportions theory, stated that countries would produce and export goods that required
resources or factors that were in great supply and, therefore, cheaper production factors. In contrast, countries would import goods that required
resources that were in short supply, but higher demand.
For example, China and India are home to cheap, large pools of labor. Hence these countries have become the optimal locations for laborintensive industries like textiles and garments.
Leontief Paradox
In the early 1950s, Russian-born American economist Wassily W. Leontief studied the US economy closely and noted that the United States was
abundant in capital and, therefore, should export more capital-intensive goods. However, his research using actual data showed the opposite: the
United States was importing more capital-intensive goods. According to the factor proportions theory, the United States should have been
importing labor-intensive goods, but instead it was actually exporting them. His analysis became known as the Leontief Paradox because it was
the reverse of what was expected by the factor proportions theory. In subsequent years, economists have noted historically at that point in time,
labor in the United States was both available in steady supply and more productive than in many other countries; hence it made sense to export
labor-intensive goods. Over the decades, many economists have used theories and data to explain and minimize the impact of the paradox.
However, what remains clear is that international trade is complex and is impacted by numerous and often-changing factors. Trade cannot be
explained neatly by one single theory, and more importantly, our understanding of international trade theories continues to evolve.
Modern or Firm-Based Trade Theories
In contrast to classical, country-based trade theories, the category of modern, firm-based theories emerged after World War II and was developed
in large part by business school professors, not economists. The firm-based theories evolved with the growth of the multinational company
(MNC). The country-based theories couldnt adequately address the expansion of either MNCs orintraindustry trade, which refers to trade
between two countries of goods produced in the same industry. For example, Japan exports Toyota vehicles to Germany and imports MercedesBenz automobiles from Germany.
Unlike the country-based theories, firm-based theories incorporate other product and service factors, including brand and customer loyalty,
technology, and quality, into the understanding of trade flows.
Country Similarity Theory
Swedish economist Steffan Linder developed the country similarity theory in 1961, as he tried to explain the concept of intraindustry trade.
Linders theory proposed that consumers in countries that are in the same or similar stage of development would have similar preferences. In this
firm-based theory, Linder suggested that companies first produce for domestic consumption. When they explore exporting, the companies often
find that markets that look similar to their domestic one, in terms of customer preferences, offer the most potential for success. Linders country
similarity theory then states that most trade in manufactured goods will be between countries with similar per capita incomes, and intraindustry
trade will be common. This theory is often most useful in understanding trade in goods where brand names and product reputations are important
factors in the buyers decision-making and purchasing processes.
Product Life Cycle Theory
Raymond Vernon, a Harvard Business School professor, developed the product life cycle theory in the 1960s. The theory, originating in the field of
marketing, stated that a product life cycle has three distinct stages: (1) new product, (2) maturing product, and (3) standardized product. The
theory assumed that production of the new product will occur completely in the home country of its innovation. In the 1960s this was a useful
theory to explain the manufacturing success of the United States. US manufacturing was the globally dominant producer in many industries after
World War II.
It has also been used to describe how the personal computer (PC) went through its product cycle. The PC was a new product in the 1970s and
developed into a mature product during the 1980s and 1990s. Today, the PC is in the standardized product stage, and the majority of
manufacturing and production process is done in low-cost countries in Asia and Mexico.
The product life cycle theory has been less able to explain current trade patterns where innovation and manufacturing occur around the world. For
example, global companies even conduct research and development in developing markets where highly skilled labor and facilities are usually
cheaper. Even though research and development is typically associated with the first or new product stage and therefore completed in the home
country, these developing or emerging-market countries, such as India and China, offer both highly skilled labor and new research facilities at a
substantial cost advantage for global firms.
Global Strategic Rivalry Theory
Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. Their theory
focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. Firms will encounter global
competition in their industries and in order to prosper, they must develop competitive advantages. The critical ways that firms can obtain a
sustainable competitive advantage are called the barriers to entry for that industry. The barriers to entry refer to the obstacles a new firm may face
when trying to enter into an industry or new market. The barriers to entry that corporations may seek to optimize include:
research and development,
the ownership of intellectual property rights,
economies of scale,
unique business processes or methods as well as extensive experience in the industry, and
the control of resources or favorable access to raw materials.
Porters National Competitive Advantage Theory
In the continuing evolution of international trade theories, Michael Porter of Harvard Business School developed a new model to explain national
competitive advantage in 1990. Porters theory stated that a nations competitiveness in an industry depends on the capacity of the industry to
innovate and upgrade. His theory focused on explaining why some nations are more competitive in certain industries. To explain his theory, Porter
identified four determinants that he linked together. The four determinants are (1) local market resources and capabilities, (2) local market
demand conditions, (3) local suppliers and complementary industries, and (4) local firm characteristics.
Que.2 Hofstede said Culture is more often a source of conflict than of synergy. Discuss this
statement and explain the five cultural dimensions.
Ans.2
The way of life of a specific society or group. Culture determines every aspect that is from birth to death and everything in between it. It is the
duty of people to respect other cultures, other than their culture. Research shows that national cultures generally characterise the dominant
groups values and practices in society, and not of the marginalised groups, even though the marginalised groups represent a majority or a
minority in the society.
Culture is very important to understand international business. Culture is the part of environment, which human has created, it is the total sum of
knowledge, arts, beliefs, laws, morals, customs, and other abilities and habits gained by people as part of society.

The following are the four factors that question assumptions regarding the impact of global business in culture:
National cultures are not homogeneous and the impact of globalisation on heterogeneous cultures is not easily predicted.
Culture is not similar to cultural practice.
Globalisation does not characterise a rupture with the past but is a continuation of prior trends.
Globalisation is only one of many processes involved in cultural change.
Culture in an International Business Organisation
Cross cultural management: Cross cultural management is defined as the development and application of knowledge about cultures in the
practice of international management, when people involved have diverse cultural identities.
International managers in senior positions do not have direct interaction that is face-to-face with other culture workforce, but several home based
managers handle immigrant groups adjusted into a workforce that offers domestic markets.
The factors to be considered in cross cultural management are:
Cross cultural management skills.
Handling cultural diversity.
Factors controlling group creativity.
Ignoring diversity.
Cross cultural management skills
The ability to demonstrate a series of behaviour is called skill. It is functionally linked to achieving a performance goal.
The most important aspect to qualify as a manager for positions of international responsibility is communication skills. The managers must adapt
to other culture and have the ability to lead its members.
The managers cannot expect to force members of other culture to fit into their cultural customs, which is the main assumption of cross cultural
skills learning. Any organisation that tries to enforce its behavioural customs on unwilling workers from another culture faces conflict. The
manager has to possess the skills linked with the following:
Providing inspiration and appraisal systems.
Establishing and applying formal structures.
Identifying the importance of informal structures.
Formulating and applying plans for modification.
Identifying and solving disagreements.
Handling cultural diversity
Cultural diversity
Cultural diversity in a work group offers opportunities and difficulties. Economy is benefited when the work groups are managed successfully. The
organisations capability to draw, save, and inspire people from diverse cultures can give the organisation spirited advantages in structures of cost,
creativity, problem solving, and adjusting to change.
Cultural diversity offers key chances for joint work and co-operative action. Group work is a joint venture where, the production of two or more
individuals or groups working in cooperation is larger than the combined production of their individual work.
Factors controlling group creativity
On complicated problem solving jobs diverse groups do better than identical groups. Diverse groups require time to solve issues of working
together. In diverse groups, over time, the work experience helps to overcome gender, racial, and organisational and functional discriminations.
But the impact cannot be evaluated and there is always risk in creating a diverse group. A successful group is profitable with respect to quick
results and the creation of concern for the future. Negative stereotypes are emphasised if it fails.
Factors related with the industry and company culture are also important. Diverse groups do well when the members:
Assist to make group decisions.
Value the exchange of different points of view.
Respect each others skills and share their own.
Value the chance for cross-cultural learning.
Tolerate uncertainty and try to triumph over the inefficiencies that occur when members of diverse cultures work together.
A diverse group is known to be more creative, where the members are tolerant of differences. The top management level provides its moral and
administrative support, and gives time for the group to overcome the usual process difficulties. They also provide diversity training, and the group
members are rewarded for their commitment.
Ignore diversity
It may be difficult to manage diversity. It is better to ignore, which is an alternative. The management must:
Ignore cultural diversity within the employees.
Down-play the importance of cultural diversity.
This rejection to identify diversity happens when management:
Fails to have sufficient awareness and skills to identify diversity.
Identifies diversity but does not have the skill to manage the diversity.
Recognises the negative consequences of identifying diversity probably cause greater issues than ignoring it.
Thinks the likely benefits of identifying and managing diversity do not validate the expected expenses.
Identifies that the job provides no chances for drawing advantages from diversity.
Strategies to ignore diversity may be possible when culture groups are given various jobs, and sharing required resources are independent in the
workplace. Groups and group members are equally incorporated and work together. In such cases, confusion occurs when the diverse value
systems are not identified that are held by different staff groups.
Hofstedes cultural dimensions
According to Dr. Geert Hofstede, Culture is more often a source of conflict than of synergy. Cultural differences are a trouble and always a
disaster.
Professor Hofstede carried out a detailed study of how values in the workplace are influenced by culture. He worked as a psychologist in IBM
from 1967 to 1973. At that time he gathered and analysed data from many people from several countries. Professor Hofstede established a model
using the results of the study which identifies four dimensions to differentiate cultures. Later, a fifth dimension called long-term outlook was
added.

The following are the five cultural dimensions:

Power Distance Index (PDI) This focuses on the level of equality or inequality, between individuals in the nations society. A country with high
power distance ranking depicts that inequality of power and wealth has been allowed to grow within the society. These societies follow caste
system that does not allow large upward mobility of its people. A country with low power distance ranking depicts the society and de-emphasises
the differences between its peoples power and wealth. In these societies equality and opportunity is stressed for everyone.
Individualism This dimension focuses on the extent to which the society reinforces individual or collective achievement and interpersonal
relationships. A high individualism ranking depicts that individuality and individual rights are dominant within the society. Individuals in these
societies form a larger number of looser relationships. A low individualism ranking characterises societies of a more collective nature with close
links between individuals. These cultures support extended families and collectives where everyone takes responsibility for fellow members of
their group.
Masculinity This focuses on the extent to which the society supports or discourages the traditional masculine work role model of male
achievement, power, and control. A country with high masculinity ranking shows the country experiences high level of gender differentiation. In
these cultures, men dominate a major part of the society and power structure, with women being controlled and dominated by men. A country with
low masculinity ranking shows the country, having a low level of differentiation and discrimination between genders. In low masculinity cultures,
women are treated equal to men in all aspects of the society.
Uncertainty Avoidance Index (UAI) This focuses on the degree of tolerance for uncertainty and ambiguity within the society that is unstructured
situations. A country with high uncertainty avoidance ranking shows that the country has low tolerance for uncertainty and ambiguity. A ruleoriented society that incorporates rules, regulations, laws, and controls is created to minimise the amount of uncertainty. A country with low
uncertainty avoidance ranking shows that the country has less concern about ambiguity and uncertainty and has high tolerance for a variety of
opinions. A society which is less rule-oriented, readily agrees to changes, and takes greater risks reflects a low uncertainty avoidance ranking.
Long-Term Orientation (LTO) Describes the range at which a society illustrates a pragmatic future oriented perspective instead of a
conventional historic or short term point of view. The Asian countries are scoring high on this dimension. These countries have a long term
orientation, believe in many truths, accept change easily, and have thrift for investment. Cultures recording little on this dimension, trust in
absolute truth is conventional and traditional. They have a small term orientation and a concern for stability. Many western cultures score
considerably low on this dimension.
In India, PDI is the highest Hofstede dimension for culture with a rank of 77, LTO dimension rank is 61, and masculinity dimension rank is 62.
Every society has its own unique culture. Culture must not be imposed on individuals of different culture. For example, the Cadbury Kraft
Acquisition, 2009 was a landmark international deal, in which a U.S. based company Kraft acquired the British chocolate giant, Cadbury which
were in complete extremes in terms of culture. Let us discuss the major cultural elements that are related to business.
Cultural differences affect the success or failure of multinational firms in many ways. The company must modify the product to meet the demand
of the customers in a specific location and use different marketing strategy to advertise their product to the customers. Adaptations must be made
to the product where there is demand or the message must be advertised by the company.
The following are the factors which a company must consider while dealing with international business:
The consumers across the world do not use same products. This is due to varied preferences and tastes. Before manufacturing any product, the
organisation has to be aware of the customer choice or preferences.
The organisation must manage and motivate people with broad different cultural values and attitudes. Hence the management style, practices,
and systems must be modified.
The organisation must identify candidates and train them to work in other countries as the cultural and corporate environment differs. The
training may include language training, corporate training, training them on the technology and so on, which help the candidate to work in a
foreign environment.
The organisation must consider the concept of international business and construct guidelines that help them to take business decisions, and
perform activities as they are different in different nations. The following are the two main tasks that a company must perform:
Product differentiation and marketing As there are differences in consumer tastes and preferences across nations; product differentiation has
become business strategy all over the world. The kinds of products and services that consumers can afford are determined by the level of per
capita income. For example, in underdeveloped countries, the demand for luxury products is limited.
Manage employees It is said that employees in Japan were normally not satisfied with their work as compared with employees of North
America and European countries; however the production levels stayed high. To motivate employees in North America, they have come up with
models. These models show that there is a relation between job satisfaction and production. This study showed the fact that it is tough for
Japanese workers to change jobs. While this trend is changing, the fact that job turnover among Japanese workers is still lower than the American
workers is true. Also, even if a worker can go to another Japanese entity, they know that the management style and practices will be quite alike to
those found in their present firm. Thus, even if Japanese workers were not satisfied with the specific aspects of their work, they know that the
conditions may not change considerably at another place. As such, discontent might not impact their level of production.
The following are the three mega trends in world cultures:
The reverse culture influence on modern Western cultures from growing economies, particularly those with an ancient cultural heritage.
The trend is Asia centric and not European or American centric, because of the growing economic and political power of China, India, South
Korea, and Japan and also the ASEAN.
The increased diversity within cultures and geographies.
The following are the necessary implications in international business:
Avoid self reference criterion such as, ones own upbringing, values and viewpoints.
Follow a philosophical viewpoint that considers that many perspectives of a single observation or phenomenon can be true.
Discover and identify global segments and global niche markets, as national markets are diverse with growing mobility of products, people,
capital, and culture.
Grow the total share market by innovating affordable products and services, and making them accessible so that, they are affordable for even
subsistence level consumers rather than fighting for market share.
Organise global enterprises around global centres of excellence.
Cultural elements that relate business
The most important cultural components of a country which relate business transactions are:
Language.
Religion.
Conflicting attitudes.
Cross cultural management is defined as the development and application of knowledge about cultures in the practice of international
management, when people involved have diverse cultural identities.
International managers in senior positions do not have direct interaction that is face-to-face with other culture workforce, but several home based
managers handle immigrant groups adjusted into a workforce that offers domestic markets.
Que.3 Regional integration is helping the countries in growing their trade. Discuss this
statement. Describe in brief the various types of regional integrations.

Ans.3
Regional integration:
Regional integration is the process by which two or more nation-states agree to co-operate and work closely together to achieve peace, stability
and wealth. It results in the creation and diversion of trade. It supports overall growth of the region, coupled with efficient trading practices. Trade
creation increases production and income and also leads to new entrants in the market and, therefore, results in tougher competition. The transfer
of technology is also faster.
It includes reduction on traffic and prohibitions. It spread goodwill among member countries and also helps in reducing the chances of conflict.
Types of Regional Integration:
1. Preferential trading agreement: It gives preferential access to certain products from the participating countries. This can be called as a limited
or sector based free trade area.
2. Free trade area: It includes the reciprocal removal of tariffs on member countries goods. In an FTA, each member is free within the limits
specified by the
GATT/WTO system on deciding the level of external tariffs that will be applied to
non members. As there is flexibility on the interactions with the third countries, the
members in an FTA are free to establish or join other FTAs.
3. Custom union: It is a type of agreement that include determination of the common external tariff (CET), in addition to the elimination of the
internal tariff rates. Generally, determination of the CET is done through taking an average of all partners before union tariff levels.
4. Common market: It is where there is free factor mobility capital, investment and labor in addition to the customs union requirements that
determine free flows of goods and services. This integration requires governments to employ coordinated actions in order to ensure the equal
treatment for all factors in the member countries of the CM.
5. Economic union: It results from the enlargement of a common market with the additional requirement of the harmonization of economic
policies, both monetary and fiscal. It further involves the creation of an independent regional central bank that has control over exchange rate
policy and inflation rates.
6. Political union: It is a type of agreement which includes the
harmonization of economic and political policies, and so as to become a single
state. This kind of integration necessitates the loss of sovereignty and the creation
of domestic institutions on the international level.
Regional integration can be defined as the unification of countries into a larger whole. It also reflects a countrys willingness to share or unify into
a larger whole. The level of integration of a country with other countries is determined by what it shares and how it shares. Regional integration
requires some compromise on the part of participating countries. It should aim to improve the general quality of life for the citizens of those
countries.
Different types of regional integration are:
1. Preferential trading agreement
Preferential trading agreement is a trade pact between countries. It is the weakest type of economic integration and aims to reduce taxes on few
products to the countries who sign the pact. The tariffs are not abolished completely but are lower than the tariffs charged to countries not party to
the agreement.
2. Free trade area
Free Trade Area (FTA) is a type of trade bloc and can be considered as the second stage of economic integration. It comprises of all countries
that are willing to or agree to reduce preferences, tariffs and quotas on services and goods traded between them. Countries choose this kind of
economic integration if their economical structures are similar. If countries compete among themselves, they are likely to choose customs union.
3. Custom union
Custom Union is an agreement among two or more countries having already entered into a free trade agreement to further align their external
tariff to help remove trade barriers. Custom union agreement among negotiating countries may encompass to reduce or eliminate customs duty
on mutual trade. Under customs union agreement, countries generally impose a common external -tariff (CTF) on imports from non-member
countries. Such common external tariff helps the member countries to reap the benefits of trade expansion, trade creation and trade
diversification.
4. Common market
Common market is a group formed by countries within a geographical area to promote duty free trade and free movement of labour and capital
among its members. Common markets levy common external tariff on imports from non-member countries.
A single market is a type of trade bloc, comprising a free trade area with common policies on product regulation, and freedom of movement of
goods, capital, labor and services, which are known as the four factors of production.
A common market is the first step towards a single market. It may be initially limited to a FTA with moderate free movement of capital and
services, but it is not capable of removing the other trade barriers.

5. Economic union
Economic union is a type of trade bloc and is instituted through a trade pact. It comprises of a common market with a customs union. The
countries that are part of an economic union have common policies on the freedom of movement of four factors of production, common product
regulations and a common external trade policy.
The purpose of an economic union is to promote closer cultural and political ties while increasing the economic efficiency between the member
countries.
6. Political union
A political union is a type of country, which consists of smaller countries/nations. Here, the individual nations share a common government and
the union is acknowledged internationally as a single political entity. A political union can also be termed as a legislative union or state union.
Regional integration:
Regional integration is the process by which two or more nation-states agree to co-operate and work closely together to achieve peace, stability
and wealth. It results in the creation and diversion of trade. It supports overall growth of the region, coupled with efficient trading practices. Trade

creation increases production and income and also leads to new entrants in the market and, therefore, results in tougher competition. The transfer
of technology is also faster.
It includes reduction on traffic and prohibitions. It spread goodwill among member countries and also helps in reducing the chances of conflict.
Types of Regional Integration:
1. Preferential trading agreement: It gives preferential access to certain products from the participating countries. This can be called as a limited
or sector based free trade area.
2. Free trade area: It includes the reciprocal removal of tariffs on member countries goods. In an FTA, each member is free within the limits
specified by the
GATT/WTO system on deciding the level of external tariffs that will be applied to
non members. As there is flexibility on the interactions with the third countries, the
members in an FTA are free to establish or join other FTAs.
3. Custom union: It is a type of agreement that include determination of the common external tariff (CET), in addition to the elimination of the
internal tariff rates. Generally, determination of the CET is done through taking an average of all partners before union tariff levels.
4. Common market: It is where there is free factor mobility capital, investment and labor in addition to the customs union requirements that
determine free flows of goods and services. This integration requires governments to employ coordinated actions in order to ensure the equal
treatment for all factors in the member countries of the CM.
5. Economic union: It results from the enlargement of a common market with the additional requirement of the harmonization of economic
policies, both monetary and fiscal. It further involves the creation of an independent regional central bank that has control over exchange rate
policy and inflation rates.
6. Political union: It is a type of agreement which includes the
harmonization of economic and political policies, and so as to become a single
state. This kind of integration necessitates the loss of sovereignty and the creation
of domestic institutions on the international level.
4. Write short note on:
a) Foreign currency derivatives
b) bases of international tax systems

Any financial instrument that locks in a future foreign exchange rate. These can be used by currency or forex traders, as well as
large multinational corporations. The latter often uses these products when they expect to receive large amounts of money in the future
but want to hedge their exposure to currency exchange risk. Financial instruments that fall into this category include:
currency options contracts, currency swaps, forward contracts and futures contracts.

The term Financial Management refers to the proper maintenance of all the monetary transactions of the organisation. It also means recording of
transactions in a standard manner that will show the financial position and performance of the organisation. The Financial Management can be
categorised into domestic and international financial management.
The domestic financial management refers to managing financial services within the country. International financial management refers to
managing finance and share between the countries.
The main aim of international finance management is to maximise the organisations value that in turn will increase the impact on the wealth of
the stockholders. When the doors of liberalisation opened, entrepreneurs capitalised the opportunity to step their foot to conduct business in
different parts of the world.
International trade gave way for the growth of international business. For a corporation to be successful, it is vital to manage the finance and
business accounts appropriately. The rise in significance and complexity of financial administration in a global environment creates a great
challenge for financial managers. The contributions of different financial innovations like currencyderivative, international stock listing, and
multicurrency bonds have necessitated the accurate management of the flow of international funds through the study of international financial
management.
The International Financial Management (IFM) came to its existence when the countries all over the world started opening their doors for each
other. This phenomenon is also called as liberalisation. But after the end of the Second World War, the integration in terms of foreign activities has
grown substantially. The firms of all types are now opting to operate their business and deploy their resources abroad. Furthermore, the
differences between the countries have persisted that has given rise to the prevalence of market imperfections.
Components of International Financial Management
The components like foreign exchange market, foreign currency derivatives, international monetary markets and international financial markets
are essential to the international financial management, which is discussed in this section.
1. Foreign exchange market
The Foreign exchange or the Foreign exchange markets facilitates the participants to obtain, trade, exchange and speculate foreign currency. The
foreign exchange market consists of banks, central banks, commercial companies, hedge funds, investment management firms and retail foreign
exchange brokers and investors. It is considered to be the leading financial market in the world. It is vital to realise that the foreign exchange is
not a single exchange, but is created from a global network of computers that connects the participants from all over the world.
The foreign exchange market is immense in size and survives to serve a number of functions ranging from the funding of cross-border
investment, loans, trade in goods, trade in services and currency speculation. The participant in a foreign exchange market will normally ask for a
price.
The trading in the foreign exchange market may take place in the following forms:
Outright cash or ready foreign exchange currency deals that take place on the date of the deal.
Next day foreign exchange currency deals that take place on the next working day.
Swap Simultaneous sale and purchase of identical amounts of currency for different maturities.
Spot and Forward contracts A Spot contract is a binding obligation to buy or sell a definite amount of foreign currency at the existing or spot
market rate. A forward contract is a binding obligation to buy or sell a definite amount of foreign currency at the pre-agreed rate of exchange, on or
before a certain date.
The advantage of spot dealing has resulted in a simplest way to deal with all foreign currency requirements. It carries the greatest risk of
exchange rate fluctuations due to lack of certainty of the rate until the deal is carried out. The spot rate that is intended to receive will be set
by current market conditions, the demand and supply of currency being traded and the amount to be dealt. In general, a better spot rate can be
received if the amount of dealing is high. The spot deal will come to an end in two working days after the deal is struck.

A forward market needs a more complex calculation. A forward rate is based on the existing spot rate plus a premium or discounts which are
determined by the interest rate connecting the two currencies that are involved. For example, the interest rates of UK are higher than that of US
and therefore a modification is made to the spot rate to reflect the financial effect of this differential over the period of the forward contract. The
duration will be up to two years for a forward contract. A variation in foreign exchange markets can be affected to any company whether or not
they are directly involved in the international trade or not. This is often referred to as Economic foreign exchange and most difficult to protect a
business.
The three ways of managing risks are as follows:
Choosing to manage risk by dealing with the spot market whenever the need of cash flow rises. This will result in a high risk and speculative
strategy since one will not know the rate at which a transaction is dealt until the day and time it occurs. Managing the business becomes difficult if
it depends on the selling or buying the currency in the spot market.
The decision must be made to book a foreign exchange contract with the bank whenever the foreign exchange risk is likely to occur. This will
help to fix the exchange rate immediately and will give a clear idea of knowing the exact cost of foreign currency and the amount to be received at
the time of settlement whenever this due occurs.
A currency option will prevent unfavourable exchange rate movements in the similar way as a forward contract does. It will permit gains if the
markets move as per the expectations. For this base, a currency option is often demonstrated as a forward contract that can be left if it is not
followed. Often banks provide currency options which will ensure protection and flexibility, but the likely problem to arise is the involvement of
premium of particular kind. The premium involved might be a cash amount or it could also influence into the charge of the transaction.
2. Foreign currency derivatives
Currency derivative is defined as a financial contract in order to swap two currencies at a predestined rate. It can also be termed as the
agreement where the value can be determined from the rate of exchange of two currencies at the spot. The currency derivative trades in markets
correspond to the spot (cash) market. Hence, the spot market exposures can be enclosed with the currency derivatives. The main advantage
from derivative hedging is the basket of currency available.
Figure 1 describes the examples of currency derivatives. The derivatives can be hedged with other derivatives. In the foreign exchange market,
currency derivatives like the currency features, currency options and currency swaps are usually traded. The standard agreement made in order
to buy or sell foreign currencies in future is termed as currency futures. These are usually traded through organised exchanges. The authority to
buy or sell the foreign currencies in future at a specified rate is provided by currency option. These will help the businessmen to enhance their
foreign exchange dealings. The agreement undertaken to exchange cash flow streams in one currency for cash flow streams in another currency
in future is provided by currency swaps. These will help to increase the funds of foreign currency from the cheapest sources.
Some of the risks associated with currency derivatives are:
Credit risk takes place, arising from the parties involved in a contract.
Market risk occurs due to adverse moves in the overall market.
Liquidity risks occur due to the requirement of available counterparties to take the other side of the trade.
Settlement risks similar to the credit risks occur when the parties involved in the contract fail to provide the currency at the agreed time.
Operational risks are one of the biggest risks that occur in trading derivatives due to human error.
Legal risks pertain to the counterparties of currency swaps that go into receivership while the swap is taking place.
3. International monetary systems
The international monetary systems represent the set of rules that are agreed internationally along with its conventions. It also consists of set of
rules that govern international scenario, supporting institutions which will facilitate the worldwide trade, the investment across cross-borders and
the reallocation of capital between the states.
International monetary systems provide the mode of payment acceptable between buyers and sellers of different nationality, with addition to
deferred payment. The global balance can be corrected by providing sufficient liquidity for the variations occurring in trade. Thereby it can be
operated successfully.
The gold and gold bullion standards
The gold standard was the first modern international system. It was operating during the late 19th and early 20th centuries, the standard provided
for the free circulation between nations of gold coins of standard specification. The gold happened to be the only standard of value under the
system. The advantages of this system depend in its stabilising influence. Any nation which exports more than its import would receive gold in
payment of the balance. This in turn has resulted in the lowered value of domestic currency. The higher prices lead to the decreased demands for
exports. The sudden increase in the supply of gold may be due to the discovery of rich deposit, which in turn will result in the increase of price
abruptly.
This standard was substituted by the gold bullion standard during the 1920s; thereby the nations no longer minted gold coins. Instead, reversed
their currencies with gold bullion and determined to buy and sell the bullion at a fixed cost. This system was also discarded in the 1930s.
The gold-exchange system
Trading was conducted internationally with respect to the gold-exchange standard following World War II. In this system, the value of the currency
is fixed by the nations with respect to some foreign currency but not with respect to gold. Most of the nations fixed their currency to the US dollar
funds in the United States. With a view to maintain a stable exchange rate at the global level, the International Monetary Fund (IMF) was created
at the Bretton Woods international Conference held in 1944. The drain on the US gold reserves continued up to the 1970s. Later in 1971, the
gold convertibility was abandoned by the United States leaving the world without a single international monetary system.
Floating exchange rates and recent development
After the abundance of the gold convertibility by the US, the IMF in 1976 decided to be in agreement on the float exchange rates. The gold
standard was suspended and the values of different currencies were determined in the market. The Japanese yen and the German
Deutschmark strengthened and turned out to be increasingly important in international financial market, at the same time the US dollar
diminished its significance. The Euro was set up in financial market in 1999 as a replacement for the currencies. Hence, it became the second
most commonly used currency after the dollar in the international market. Many large companies opt to use euro rather than the dollar in bond
trading with a goal to receive better exchange rates. Very recently the some of the members of Organisation of Petroleum Exporting Countries
(OPEC) such as Saudi Arabia, Iraq have opted to trade petroleum in Euro than in Dollar.
4. International financial markets
International foreign markets provide links connecting the financial markets of each country and independent markets external to the authority of
any one country. The heart of the international financial market is being governed by the market of currency where the foreign currency is
denominated by the international trade and investment. Hence the purchase of goods and services is preceded by the purchase of currency.
The purpose of the foreign currency markets, international money markets, international capital markets and international securities markets are
as follows:
The foreign currency markets The foreign currency market is an international market that is familiar in structure. This means that there exists
no central place where the trading can take place. The market is actually the telecommunications like among financial institutions around the

globe and opens for business at any time. The greater part of the worlds that deal in foreign currencies is still taking position in the cities where
international financial activity is centred.
International money markets A money market can be conventionally defined as a market for accounts, deposits or deposits that include
maturities of one year or less. This is also termed as the Euro currency markets which constitute an enormous financial market that is beyond the
influence and supervision of world financial and government authorities. The Euro currency market is a money market for depositing and
borrowing money located outside the country where that money is officially permitted tender. Also, Euro currencies are bank deposits and loans
existing outside any particular country.
International capital markets The international capital provides links among the capital markets of individual countries. It also comprises a
separate market of their own, the capital market that flows in to the Euro markets. The firms enjoy the freedom to raise capital, debit, fixed or
floating interest rates and maturities varying from one month to thirty years in an international capital markets.
International security markets The banks have experienced the greatest growth in the past decade because of the continuity in providing large
portion of the international financial needs of the government and business. The private placements, bonds and equities are included in the
international security market.
The following are the reasons given for the enormous growth in the trading of foreign currency:
Deregulation of international capital flows Without the major government restrictions, it is extremely simple to move the currencies and capital
around the globe. The majority of the deregulation that has differentiated government policy over the past 10 to 15 years.
Gain in technology and transaction cost efficiency The advancements in technology is not only taking place in the distribution of information, in
addition to the performance of exchange or trading. This has resulted greatly to the capacity of individuals on these markets to accomplish
instantaneous arbitrage.
Market up wings The financial markets have become increasingly unstable over recent years. There are faster swings in the stock values and
interest rates, adding to the enthusiasm for moving further capital at faster rates.
The scope of international financial management includes management of working capital, financing decisions and taxation.
International taxation is the study or determination of tax on a person or business subject to the tax laws of different countries or
the international aspects of an individual country's tax laws as the case may be. Governments usually limit the scope of their income taxation in
some manner territorially or provide for offsets to taxation relating to extraterritorial income. The manner of limitation generally takes the form of a
territorial, residency, or exclusionary system. Some governments have attempted to mitigate the differing limitations of each of these three broad
systems by enacting a hybrid system with characteristics of two or more.
Many governments tax individuals and/or enterprises on income. Such systems of taxation vary widely, and there are no broad general rules.
These variations create the potential for double taxation (where the same income is taxed by different countries) and no taxation (where income is
not taxed by any country). Income tax systems may impose tax on local income only or on worldwide income. Generally, where worldwide income
is taxed, reductions of tax or foreign credits are provided for taxes paid to other jurisdictions. Limits are almost universally imposed on such
credits. Multinational corporations usually employ international tax specialists, a specialty among both lawyers and accountants, to decrease their
worldwide tax liabilities.
Countries that tax income generally use one of two systems: territorial or residential. In the territorial system, only local income income from a
source inside the country is taxed. In the residential system, residents of the country are taxed on their worldwide (local and foreign) income,
while nonresidents are taxed only on their local income. In addition, a very small number of countries, notably the United States, also tax their
nonresident citizens on worldwide income.
Countries with a residential system of taxation usually allow deductions or credits for the tax that residents already pay to other countries on their
foreign income. Many countries also sign tax treaties with each other to eliminate or reduce double taxation. In the case of corporate income tax,
some countries allow an exclusion or deferment of specific items of foreign income from the base of taxation.
Individuals
The following table summarizes the taxation of local and foreign income of individuals, depending on their residence or citizenship in the country.
It includes 244 entries: 194 sovereign countries, their 40 inhabited dependent territories (most of which have separate tax systems), and
10 countries with limited recognition.
5. Strategic planning involves allocation of resources to firms to fulfil their long term
goals. What are the types of strategic planning? Compare Top-down Vs Bottom-up
planning.
Ans.5
strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this
strategy. It may also extend to control mechanisms for guiding the implementation of the strategy. Strategic planning became prominent in
corporations during the 1960s and remains an important aspect of strategic management. It is executed by strategic planners or strategists, who
involve many parties and research sources in their analysis of the organization and its relationship to the environment in which it competes. [1]
Strategy has many definitions, but generally involves setting goals, determining actions to achieve the goals, and mobilizing resources to execute
the actions. A strategy describes how the ends (goals) will be achieved by the means (resources). The senior leadership of an organization is
generally tasked with determining strategy. Strategy can be planned (intended) or can be observed as a pattern of activity (emergent) as the
organization adapts to its environment or competes.
Strategy includes processes of formulation and implementation; strategic planning helps coordinate both. However, strategic planning is analytical
in nature (i.e., it involves "finding the dots"); strategy formation itself involves synthesis (i.e., "connecting the dots") via strategic thinking. As such,
strategic planning occurs around the strategy formation activity
Strategic planning process involves allocation of resources to firms to fulfill their long-term goals. Any business plan can be classified into three
types. They are:
Strategic planning: This planning process is the best among the three business
Planning is the management function that involves setting goals and deciding how to best achieve them. Setting goals and developing plans
helps the organization to move in a focused direction while operating in an efficient and effective manner. Long-range planning essentially is the
same as strategic planning; both processes evaluate where the organization is and where it hopes to be at some future point. Strategies or plans
are then developed for moving the organization closer to its goals. Long-range plans usually pertain to goals that are expected to be met five or
more years in the future.
People often confuse the role of planning and scheduling. They are different methodologies and utilize a different set of tools. Planning takes a
futuristic view and sets anticipated timelines, while scheduling focuses on an organization's day-to-day activities. For example, most enterprise
resource planning (ERP) systems are good at the planning function, but are very poor at the scheduling function. A tool like finite capacity
scheduling (FCS) is necessary to facilitate the daily tracking of material and labor movements.
LONG-RANGE PLANNING
AND STRATEGIC MANAGEMENT
Since the purpose of strategic management is the development of effective long-range plans, the concepts often are used interchangeably. The
traditional process models of strategic management involve planning organizational missions; assessing relationships between the organization
and its environment; and identifying, evaluating, and implementing strategic alternatives that enable the organization to fulfill its mission.
One product of the long-range planning process is the development of corporate-level strategies. Corporate strategies represent the
organization's long-term direction. Issues addressed as part of corporate strategic planning include questions of diversification, acquisition,
divestment, and formulation of business ventures. Corporate strategies deal with plans for the entire organization and change relatively
infrequently, with most remaining in place for five or more years.
Long-range plans usually are less specific than other types of plans, making it more difficult to evaluate the progress of their fulfillment. Since
corporate plans may involve developing a research-intensive new product or moving into an international market, which may take years to
complete, measuring their success is rarely easy. Traditional measures of profitability and sales may not be practical in evaluating such plans.

Top management and the board of directors are the primary decision makers in long-range planning. Top management often is the only level of
management with the information needed to assess organization-wide strengths and weaknesses. In addition, top management typically is alone
in having the authority to allocate resources toward moving the organization in new and innovative directions.
op-down planning is referred to as strategy. Top-down project planning is focused on keeping the decision making process at the senior level.
Goals and quotas are established at the highest level, and those at the top are not often willing to take advice or any guidance from lower level
employees. Senior-level managers need to be as specific as possible when laying out expectations since those following the plan are not involved
in the planning process. Because employees are not included in any of the decision making process and are often only motivated through either
fear or incentives, moral can become an issue.
With top-down planning, management must choose techniques to align projects and goals. Management holds the sole responsibility for the plans
set forth and for the end result. This way of thinking assumes that management knows best how to plan and carry out a project, thus not taking
advantage of talented employees who may have more experience with certain aspects of the project. Some see the top-down planning process
as a way to make a plan, and not about who develops the plan. It allows management to divide a project into steps, and then into still smaller
steps. This continues until the steps can be studied, due-dates can be accurately assigned, and then parts of the project can be assigned to an
employee. However, the focus is on long-term goals, and the here-and-now goals can get lost. Often, this approach is applied best to very small
projects.
Bottom-Up Planning
Bottom-up planning is referred to as tactics. With bottom-up planning, you give your project deeper focus because you have a larger number of
employees involved, each with their own area of expertise. Team members work side-by-side and have input during each stage of the process.
Plans are developed at the lowest levels and are then passed on to each next higher level. It then reaches senior management for approval.
Lower-level employees are more likely to take personal stock in a plan that they are involved in planning. Employees are more motivated and
morale improves. While
project managers are ultimately responsible for the completion of the project, no matter the steps taken it is management that ultimately must be
the final step in the system of checks and balances.
The Difference Between Top Down and Bottom Up Strategic Management
by Jonathan Lister , Demand Media

The top down and bottom up models of strategic management vary in terms of how a business determines its operational strategies, but show
similarities in how the company identifies its overarching goals. As a small business owner, you must decide how much control you want to have
over the implementation of strategies to meet overarching goals. Being honest about your own business acumen can help you decide which
management model is appropriate for your company.
Executive Decision Making
In a top down strategic management model, ownership or high-level management personnel determine objectives and how the rest of the
business will work toward accomplishing those objectives. As a small business owner, this puts all the responsibility on you and your
management team to come up with how you will make your company successful and how each employee will contribute to that success. Input
regarding business objectives from lower-level employees in a top down strategic management model is virtually nonexistent.
Advantages and Disadvantages
If you want to direct every aspect of how your business operates to accomplish its goals and objectives, a top down strategic management model
can provide you with the necessary level of control. This ensures your small business operates exactly to your specifications. Problems can arise
with this strategic management model because your company's success rides directly on the shoulder's of your business savvy. If your market
knowledge or product development strategies are lacking, it will show up in decreased revenues for your company. If your directions and
objectives are unclear, your workers won't know how to effectively accomplish your business goals.
Workforce Strategy Development
By contrast, a bottom up strategic management model seeks to develop ideas using the brainpower of your entire workforce. You, as the small
business owner, still determine the overall goals for your company along with the dates you'd like to see these goals accomplished, but your
employees of all levels assist in developing the mechanisms to reach those goals. Your management team compiles all the ideas from group
brainstorming sessions and departmental meetings to allow you to select the strategies showing the most promise.
Benefits and Problems
Involving your entire workforce in a bottom up strategic management model can build morale and a sense of ownership of your company's
direction among employees of all levels. Your employees will be more actively engaged in the work and strive harder to reach objectives. This
strategic model can also cause a logjam of ideas on your desk and make it difficult to sort through the information to come up with an effective
plan for reaching company goals. You may also have to manage employee egos in selecting plans while still valuing the opinions of your entire
workforce.
6. Explain the function of human resource planning
Discuss the scope of International Human Resource Management
Human Resource Management Functions
Ans.6 Introduction to HRM
The role of human resource management is to plan, develop, and administer policies and programmes designed to make expeditious use of an
organisations human resources. It is that part of management which is concerned with the people at work and with their relationship within an
enterprise.
Its objectives are:
Effective utilisation of human resources;
Desirable working relationships among all members of the organisation; and
Maximum individual development.
The major functional areas in human resource management are:
Planning,
Staffing,
Employee development, and
Employee maintenance.
These four areas and their related functions share the common objective of an adequate number of competent employees with the skills, abilities,
knowledge, and experience needed for further organisational goals. Although each human resource function can be assigned to one of the four
areas of personnel responsibility, some functions serve a variety of purposes. For example, performance appraisal measures serve to stimulate
and guide employee development as well as salary administration purposes. The compensation function facilitates retention of employees and
also serves to attract potential employees to the organisation. A brief description of usual human resource functions are given below:
Human Resource Planning: In the human resource planning function, the number and type of employees needed to accomplish organisational
Goals are deteminded. Research is an important part of this function because requires the collection and analysis of information in order to
forecast goals are determined. Research is an important part of this function because planning required the collection and analysis of information
in order to forcast human resources supplies and to predict future human resources needs. The basic human resource planning strategy is
staffing and employee development.

Job analysis is the process of describing the nature of a job and specifying the human requirements such as skills, and experience needed to
perform it. The end product of the job analysis process is the job description. A job description spells out work duties and activities of employees.
Job descriptions are a vital source of information to employees, managers, and personnel people because job content has a great influence on
personnel programmes and practise.
Staffing : staffing emphasises the recruitment and selection of human resources for an organisation. Human resources planning and recruiting
precede the actual selection of people for positions in an organisation. Recruiting is the personnel function that attracts qualified applicants to fill
job vacancies. In the selection function the most qualified applicants are selected for hiring form among those attracted to the organisation by the
recruiting function. On selection human resource functionaries are involved in developing and administering methods that enable managers to
decide which applicants to select and which to reject for the given jobs.
Orientation : orientation is the first step toward helping a new employee adjust himself to the new job and the employer. It is a method to acquaint
new employees with particular aspects of their new job, including pay and benefits programmes, working hours and company rules and
expectations.
Training and Development : The training and development function gives employees the skills and knowledge to perform their jobs effectively. In
addition to providing training for new or inexperienced employees, organisations often provide training programmes for experienced employees
whose jobs are undergoing change. Large organisations often have development programmes which prepare employees for higher level
responsibilities within the organisation. Training and development programmes provide useful means of assuring that employees are capable of
performing their jobs at acceptable levels.
Performance Appraisal : Performance appraisal function monitors employee performance to ensure that it is at acceptable levels. Human
resource professionals are usually responsible for developing and administering performance appraisal systems, although the actual appraisal of
employee performance is the responsibility of supervisors and managers. Besides providing a basis of pay, promotion and disciplinary action
performance appraisal information is essential for employee development since knowledge of results is necessary to motivate and guide
performance improvements.
Career Planning : Career Planning has developed partly as a result of the desire of many employees to grow in their jobs and to advance in their
career. Career planning activities include assessing an individual employees potential for growth and advancement in the organisation.
Compensation: human resource personnel provide a ration method for determining how much employees should be paid for performing certain
jobs. Pay is obviously related to the maintenance of human resources, since compensation is a major cost to many organisation, it is a major
consideration in human resource planning. Compensation affects staffing in that people are generally attracted to organisation offering a higher
level of pay in exchange for the work performed, it is related to employee development in that it provides an important incentive in motivating
employees to higher levels of job performed. It is related to employee development in that it provides an important incentive in motivating
employees to higher levels of job performance and to higher paying jobs in the organisation.
Benefits: Benefits are another form of compensation to employees other than direct pay for work performed. As such, the human resource
function of administering employee benefits shares many characteristics of the compensation function. Benefits include both the legally required
items and those offered at employers discretion, the cost of benefits has risen to such a point that they have become a major consideration in
human resource planning. However , benefits are primarily related to the maintenance area since they provide for many basic employee needs.
Labour Relations: The term labour relations: refers to interaction with employees who are represented by a trade union. Unions are organisation
of employees who join together to obtain more voice in decision affecting wages benefits working conditions and other aspects of employment
with regard to labour working conditions and other aspects of employment with regards to labour relations, the personnel responsibility primarily
involves negotiating with the unions regarding wages, service conditions and resolving disputes and grievances.
The scope of HRM is extensive and far-reaching. Therefore, it is very difficult to define it concisely. However, we may classify the same under following
heads:

HRM in Personnel Management: This is typically direct manpower management that involves manpower planning, hiring (recruitment and
selection), training and development, induction and orientation, transfer, promotion, compensation, layoff and retrenchment, employee
productivity. The overall objective here is to ascertain individual growth, development and effectiveness which indirectly contribute to
organizational development.
It also includes performance appraisal, developing new skills, disbursement of wages, incentives, allowances, traveling policies and procedures
and other related courses of actions.

HRM in Employee Welfare: This particular aspect of HRM deals with working conditions and amenities at workplace. This includes a wide array
of responsibilities and services such as safety services, health services, welfare funds, social security and medical services. It also covers
appointment of safety officers, making the environment worth working, eliminating workplace hazards, support by top management, job safety,
safeguarding machinery, cleanliness, proper ventilation and lighting, sanitation, medical care, sickness benefits, employment injury benefits,
personal injury benefits, maternity benefits, unemployment benefits and family benefits.
It also relates to supervision, employee counseling, establishing harmonious relationships with employees, education and training. Employee
welfare is about determining employees real needs and fulfilling them with active participation of both management and employees. In addition
to this, it also takes care of canteen facilities, crches, rest and lunch rooms, housing, transport, medical assistance, education, health and
safety, recreation facilities, etc.

HRM in Industrial Relations: Since it is a highly sensitive area, it needs careful interactions with labor or employee unions, addressing their
grievances and settling the disputes effectively in order to maintain peace and harmony in the organization. It is the art and science of
understanding the employment (union-management) relations, joint consultation, disciplinary procedures, solving problems with mutual efforts,
understanding human behavior and maintaining work relations, collective bargaining and settlement of disputes.
The main aim is to safeguarding the interest of employees by securing the highest level of understanding to the extent that does not leave a
negative impact on organization. It is about establishing, growing and promoting industrial democracy to safeguard the interests of both
employees and management.