Unit-4

General Business Awareness

 Economy
• India is known to be one of the fastest-growing economies in the world, next only to China.

• It holds the place of the 10th largest economy in the world. It is predicted that the top three
countries that are likely to dominate the 21st-century economy are the United States, China, and
India.
 Way Ahead
• India has emerged as the fastest-growing major economy in the world and is expected to be one of
the top three economic powers in the world over the next 10-15 years, backed by its robust
democracy and strong partnerships.

• India's appeal as a destination for investments has grown stronger and more sustainable as a result
of the current period of global unpredictability and volatility, and the record amounts of money
raised by India-focused funds in 2022 are evidence of investor faith in the "Invest in India"
narrative.
 Factors in gravity theory that may determine bilateral trade

• Size of economies. Similarly sized economies are more likely to trade with each other
• Geographical proximity. Countries close together have lower transport costs, similar customs
and familiarity. Geographical proximity is usually greatest for a shared border.
• Shared history, e.g. colonial links, explain post-war trade between UK and Commonwealth.
• Language similarities – This strengthens the bonds of trade. It is easier to communicate and there
is likely to be shared cultural factors.
• Similar time zones.
• Similarities in consumer preferences. A country which has high levels of education and
technology will produce high tech, high value added goods and services, and so is likely to trade
with a country of similar GDP per capita. It is hard to sell financial services and high tech IT to
developing economies in Africa.
 Example of Gravity Model
• An economy like the UK will ‘gravitate’ towards trade with European neighbours, rather than
South East Asia. For example according to Economist 2% of UK exports go to India but the UK
sells more exports to Belgium having less population as comprasion to India.
 Merger
• A merger refers to an agreement in which two companies join together to form one company. In
other words, a merger is the combination of two companies into a single legal entity. In this
article, we will look at different types of mergers that companies can undergo.

• A merger takes place when two companies combine to form a new company. Companies merge to
reduce competition, increase market share, introduce new products or services, improve
operations, and ultimately drive more revenue.

• Mergers are most commonly done to gain market share, reduce costs of operations, expand to new
territories, unite common products, grow revenues and increase profits.
 Importance
• Mergers are a way for companies to expand their reach expand into new segments or gain market
share.

• A merger is the voluntary fusion of two companies on broadly equal terms into one new legal
entity.

• The five major types of mergers are conglomerate, congeneric, market extension, horizontal, and
vertical
 Types of Merger
Conglomerate merger :- It is a merger between two or more companies engaged in unrelated
business activities. A congeneric merger is also known as a Product Extension merger. In this type it
is a combining of two or more companies that operate in the same market or sector with overlapping
factors, such as technology, marketing, production processes, and research and development .

• This type of merger occurs between companies that sell the same products but compete in different
markets.
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• Horizontal merger:- It occurs between companies operating in the same industry. The merger is
typically part of consolidation between two or more competitors offering the same products or
services.

• vertical merger. :- When two companies that produce parts or services for a product merger, the
union is referred to as a vertical merger.

• A vertical merger occurs when two companies operating at different levels within the same
industry's supply chain combine their operations.
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• Market-extension merger: A merger between companies in different markets that sell similar
products or services

• Product-extension merger: A merger between companies in the same markets that sell different
but related products or services
Difference between Merger and Acquisition
Merger refers to consolidating two or more business entities to form one joint entity with the new
management structure, ownership, and name capitalizing on its competitive advantage and synergies.

Acquisition is the case where one financially strong entity takes over or acquires a less financially
strong business entity by acquiring all shares or shares with a value greater than 50% of its total
shares.
 Take Over
Take Over: - A takeover usually occurs when one company makes a bid to take control of or acquire
another, often by buying a majority stake in the target company. The company making the bid is called
acquirer in the acquisition process.

In contrast, the company that it wishes to take ownership of is called the aim.

A takeover bid is a type of corporate action in which a company makes an offer to purchase another
company. In a takeover bid, the company that makes the offer is known as the acquirer, while the
subject of the bid is referred to as the target company.

The acquiring company generally offers cash, stock, or a combination of both in an attempt to assume
control of its target.
 Different Types of Takeover

• Friendly Takeover:- A friendly takeover bid takes place when both the acquirer and the target
companies work together to negotiate the terms of the deal.

• Hostile Takeover:- A hostile bid involves going directly to the target's shareholders with the bid.
Hostile bidders issue a tender offer giving shareholders the opportunity to sell their stock to the
acquirer at a substantial premium within a set time frame.
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• Reserve Takeover:- In a reverse takeover bid, a private company bids to buy a public corporation.
Since the public company already trades on an exchange, this takeover can help the private
company become listed without having to go through the tedious and complicated process of filing
the paperwork necessary to complete an initial public offering .

• Backflip Takeover:- A Backflip takeover bids are fairly rare in the corporate world. In this kind of
bid an acquirer looks to become a subsidiary of the target. Once the merger is completed the
acquirer retains control of the combined corporation which usually bears the name of the target.
This type of takeover is normally used when the acquirer lacks the brand recognition of the target.
 Business Development
Business development is a process aimed at growing a company and making it more successful. That
can include seeking new business opportunities, building and sustaining connections with existing
clients, entering strategic partnerships, and devising other plans to boost profits and market share.
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• The overarching goal of business development is to make a company more successful.

• It can involve many objectives, such as sales growth, business expansion, the formation of
strategic partnerships, and increased profitability.

• The business development process can impact every department within a company, including
sales, marketing, manufacturing, human resources, accounting, finance, product development, and
vendor management.

• Business development leaders and team members need a wide range of both soft and hard skills.
 Inflation
Inflation is a general rise in the price level of an economy over a period of time. When the general
price level rises, each unit of currency buys fewer goods and services; consequently, inflation
reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium
of exchange and unit of account within the economy.
 Types of Inflation
• Creeping Inflation: This is also known as mild inflation or moderate inflation. This type of
inflation occurs when the price level persistently rises over a period of time at a mild rate.
When the rate of inflation is less than 10 per cent annually, or it is a single digit inflation
rate, it is considered to be a moderate inflation.

• Galloping Inflation: If mild inflation is not checked and if it is uncontrollable, it may assume
the character of galloping inflation. Inflation in the double or triple digit range of 20, 100 or
200 percent a year is called galloping inflation . Many Latin American countries such as
Argentina, Brazil had inflation rates of 50 to 700 percent per year in the 1970s and 1980s.
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• Hyperinflation: It is a stage of very high rate of inflation. While economies seem to survive under
galloping inflation, a third and deadly strain takes hold when the cancer of hyperinflation strikes.
Nothing good can be said about a market economy in which prices are rising a million or even a
trillion percent per year . Hyperinflation occurs when the prices go out of control and the monetary
authorities are unable to impose any check on it. Germany had witnessed hyperinflation in the
1920's.
• Stagflation: It is an economic situation in which inflation and economic stagnation or recession
occur simultaneously and remain unchecked for a period of time. Stagflation was witnessed by
developed countries in 1970s, when world oil prices rose dramatically.
• Deflation: Deflation is the reverse of inflation. It refers to a sustained decline in the price level of
goods and services. It occurs when the annual inflation rate falls below zero percent (a negative
inflation rate), resulting in an increase in the real value of money. Japan suffered from deflation for
almost a decade in 1990s.
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Effects of Demand-Pull Inflation:
• Shortage in supply
• Increase in the prices of the goods
• The overall increase in the cost of living.
 Demand Pull Inflation
• Demand-Pull Inflation:- This type of inflation is caused due to an increase in aggregate demand in
the economy.
• Causes of Demand-Pull Inflation:
• A growing economy or increase in the supply of money – When consumers feel confident, they spend
more and take on more debt. This leads to a steady increase in demand, which means higher prices.
• Asset inflation or Increase in Forex reserves– A sudden rise in exports forces a depreciation of the
currencies involved.
• Government spending or Deficit financing by the government – When the government spends more
freely, prices go up.
• Due to fiscal stimulus.
• Increased borrowing.
• Depreciation of rupee.
• Low unemployment rate.
 Cost Pull Inflation
• Cost pull inflation is considered bad among the two types of inflation. Because the National
Income is reduced along with the reduction in supply in the Cost-push type of inflation.

• Cost-Push Inflation:- This type of inflation is caused due to various reasons such as:

• Increase in price of inputs

• Hoarding and Speculation of commodities

• Defective Supply chain

• Increase in indirect taxes

• Depreciation of Currency
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• Crude oil price fluctuation

• Defective food supply chain

• Low growth of Agricultural sector

• Food Inflation

• Interest rates increased by RBI

 Measurement of Inflation

• Wholesale Price Index – It is estimated by the Ministry of Commerce & Industry and measured
on a monthly basis.
• Consumer Price Index – It is calculated by taking price changes for each item in the
predetermined lot of goods and averaging them.
• Producer Price Index – It is a measure of the average change in the selling prices over time
received by domestic producers for their output.
• Commodity Price Indices – It is a fixed-weight index or (weighted) average of
selected commodity prices, which may be based on spot or futures price
• Core Price Index – It measures the prices paid by consumers for goods and services without the
volatility caused by movements in food and energy prices. It is a way to measure the underlying
inflation trends.
• GDP deflator – It is a measure of general price inflation.
 Effect of Inflation on the Economy

The effect of inflation on the economy can be stated as:

• The effect of inflation is not distributed evenly in the economy. There are chances of hidden costs
for different goods and services in the economy.

• Sudden or unpredictable inflation rates are harmful to an overall economy. They lead to market
instability and thereby make it difficult for companies to plan a budget for the long-term.

• Inflation can act as a drag on productivity as companies are forced to mobilize resources away
from products and services to handle the situations of profit and losses from inflation.

• Moderate inflation enables labour markets to reach equilibrium at a faster pace.

 Remedies to Inflation

The different remedies to solve issues related to inflation can be stated as:
Monetary Policy
• The monetary policy of the Reserve Bank of India is aimed at managing the quantity of money in
order to meet the requirements of different sectors of the economy and to boost economic growth.
• This Contractionary policy is manifested by decreasing bond prices and increasing interest rates.
This helps in reducing expenses during inflation which ultimately helps halt economic growth
and, in turn, the rate of inflation.
Fiscal Policy
• Monetary policy is often seen separate from fiscal policy which deals with taxation, spending by
government and borrowing. Monetary policy is either Contractionary or expansionary.
• When the total money supply is increased rapidly than normal, it is called an expansionary policy
while a slower increase or even a decrease of the same refers to a Contractionary policy.
• It deals with the Revenue and Expenditure policy of the government.
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Tools of fiscal policy
• Direct Taxes and Indirect taxes – Direct taxes should be increased and indirect taxes should be
reduced.
• Public Expenditure should be decreased should borrow less from RBI and more from other
financial institutions.
 International Maritime Organization
IMO is the United Nations specialized agency with responsibility for the safety and security of
shipping and the prevention of marine and atmospheric pollution by ships.

IMO's work supports the UN sustainable development goals.

The IMO was established following agreement at a UN conference held in Geneva in 1948 and the
IMO came into existence ten years later, meeting for the first time in 17 March 1958.

Headquartered in London, United Kingdom, IMO currently has 175 Member States and three
Associate Members.
 Objective of IMO
• The IMO primary purpose is to develop and maintain a comprehensive regulatory framework for
shipping and its remit today includes maritime safety, environmental concerns, legal matters,
technical co-operation, maritime security and the efficiency of shipping.

• The IMO has continued to produce new and updated conventions across a wide range of maritime
issues covering not only safety of life and marine pollution but also encompassing safe navigation,
search and rescue, wreck removal, tonnage measurement, liability and compensation, ship
recycling, the training and certification of seafarers, and piracy.