BUSINESS ENVIRONMENT SOLVED PAPERS
2012 (November)
Commerce (General/Speciality)
1.Answer as directed:
(b) There is no difference between Business
Environment and Economic Environment. (state True or False)
(c) In which year was the WTO set up? 1995
(d) Write the full form of SEZ. Special Economic Zone
(e) Write the full form of MFN. Most Favoured Nation
(f) In which year was the International Monetary Fund
(IMF) established? 1945
(g) India was the one of the founder members of the
World Trade Organization.(state True or False)
(h) Money Market deals in Short term funds.(fill in the blanks)
2.Write short notes on:
(a) Internal factors of business
environment
(b) Chief characteristics of New
Industrial Policy, 1991 of India
(c) International Monetary Fund
(IMF)
(d) Major defects of Indian
capital market
3. (a) What do you mean by
Business Environment? Discuss the nature of business environment.
Ans:
Concept: Business Environment
Business is any activity undertaken for the
purpose of producing or selling a particular commodity r service and earns a
profit. The business has several dimensions such as purchasing the inputs,
converting the inputs into the output, selling that output at a profitable
price. Every dimension of a business depends upon several factors. Hence a
business is influenced by several factors, all them put together are described
as Business Environment. A business can grow and prosper in a particular
environment just as a plant can grow in a particular soil, climate, water
supply etc. Hence the entrepreneur has
to pay attention to the environment in which he has to conduct his business
activities. If he is able to adapt his business to the environment effectively
and efficiently the business can make higher profits. This makes the study of
business environment important.
According to Keith Davis, “Business
environment is the aggregate of all conditions, events and influences that
surrounds and affects the business.”
According
to wheeler, “Business environment is the total of all things external to
business firms and industries which affect their organisation and operations.”
Following are the features of Business environment:
Business Environment means a
collection of all individuals, entities and other factors, which may or may not
be under the control of the organisation, but can affect its performance,
profitability, growth and even survival. Every business organisation operates
in a distinctive environment, as it cannot exist in isolation. Such an
environment influence business and also gets affected by its activities. Some
of the important features of business environment are given below:
1) Totality of internal and external forces: Business environment
means the surrounding situation within which business organization has to
operate. It is a sum total of cultural, political, economical, social,
physical, technological, legal and global forces which move around the business
organization. These forces collectively create a socio-economic-political
situation called business environment. Environment is an inseparable part of
business which can not operate in vacuum.
2) Specific and general forces: Business environment includes both
specific and general forces. Specific forces (such as investors, customers,
competitors and suppliers) affect individual enterprises directly and
immediately in their day-to-day working. General forces (such as social,
political, legal and technological conditions) have impact on all business
enterprises and thus may affect an individual firm only indirectly.
3) Dynamic nature: Business environment is
dynamic and perpetually evolving. It changes frequently due to various external
forces i.e. economic, political, social, international, technological and demographic.
Such dynamism in the environment brings continuous change in its character.
Business enterprises have no alternative but to operate under such dynamic
environment. The only remedy is adjusting business as per environmental
changes.
4) Complex: Business
environment has now become extremely complex and the government intervention
has become more frequent. Business environment is a complex phenomenon and also
difficult to grasp and face in its totality. This is because it is governed by
external factors. Environment develops by chance and not by choice. In
addition, the environment factors vary from country to country. The business
environment in India and in USA may not be identical.
5) Multi Faceted: Environmental
changes are frequent but their shape and character depends on the knowledge
& experience of the observer. A particular change in the environment may be
viewed differently by different businessmen. This change is welcomed as an
opportunity by some organizations while some others take it as a threat for
their survival.
6) Uncertainty: Business environment is largely uncertain as it is very difficult
to predict future happenings, especially when environment changes are taking
place too frequently as in the case of information technology or fashion industries.
7) Relativity: Business environment is a relative concept since it differs from
country to country and even region to region. Political conditions in the USA,
for instance, differ from those in China or Pakistan. Similarly, demand for
sarees may be fairly high in India whereas it may be almost non-existent in
France.
8) Environment Influences Business Organization: Business organizations have limited capacity to influence business
environment as it is the result of government policies and social and technological
changes which are basically external variables.
Or
(b) What is SWOT analysis?
Describe the importance of SWOT analysis.
Ans:
SWOT analysis
SWOT analysis is a simple
framework for generating strategic alternatives from a situation analysis. It is
applicable to either the corporate level or the business unit level
and frequently appears in marketing plans.
SWOT (sometimes referred to as
TOWS) stands for Strengths, Weaknesses, Opportunities, and Threats.
A SWOT analysis consists of the following two activities:
a. An assessment of the
organization’s internal Strengths and Weaknesses and
b. An assessment of
the Opportunities and Threats posed by its external environment
a. Assessing the Internal Environment
Internal scan or assessment of
the internal environment of the organization involves identification
of its strengths and weaknesses i.e., those aspects that help or hinder
accomplishment of the organization’s mission and fulfillment of its mandate
with respect to the following Four Ps:
a. People (Human Resources)
b. Properties (Buildings, Equipments and other
facilities)
c. Processes (Such as student placement services,
M.I.S etc.)
d. Products (Students, Publications etc.)
b. Assessing the External Environment
External scan refers to exploring the
environment outside the organisation in order to identify the
opportunities and threats it faces. This involves considering the
following:
a) Events, trends and forces in the Social,
Technological, Economical, Environmental and Political areas (STEEP).
b) Identifying the shifts in the needs of
customers and potential clients and
c) Identification of competitors and
collaborators.
Techniques of SWOT
analysis
An overview of
the four factors (Strengths, Weaknesses, Opportunities and Threats) is given
below:
1)
Strengths:
Strengths are the qualities that
enable us to accomplish the organization’s mission. These are the basis on
which continued success can be made and continued/sustained. Strengths can be
either tangible or intangible. These are what you are well-versed in or what
you have expertise in, the traits and qualities your employees possess
(individually and as a team) and the distinct features that give your
organization its consistency. Strengths are the beneficial aspects of the
organization or the capabilities of an organization, which includes human
competencies, process capabilities, financial resources, products and services,
customer goodwill and brand loyalty.
Examples of
STRENGTHS under SWOT Analysis
a.
Specialist
marketing expertise
b.
Exclusive access
to natural resources
c.
New, innovative
product or service
d.
Location of your
business
e.
Strong brand or
reputation
f.
Quality processes
and procedures
2)
Weaknesses:
Weaknesses are the qualities that
prevent us from accomplishing our mission and achieving our full potential.
These weaknesses deteriorate influences on the organizational success and
growth. Weaknesses are the factors which do not meet the standards we feel they
should meet. Weaknesses in an organization may be depreciating machinery,
insufficient research and development facilities, narrow product range, poor
decision-making, etc. Weaknesses are controllable. They must be minimized and
eliminated.
Examples of
WEAKNESS under SWOT Analysis
a.
Lack of marketing
expertise
b.
Undifferentiated
products and service (i.e. in relation to your competitors)
c.
Competitors have
superior access to distribution channels
d.
Poor quality
goods or services
e.
Damaged
reputation
f.
Lost brand value
3)
Opportunities:
Opportunities are presented by the
environment within which our organization operates. These arise when an organization
can take benefit of conditions in its environment to plan and execute
strategies that enable it to become more profitable. Organizations can gain
competitive advantage by making use of opportunities. Organization should be
careful and recognize the opportunities and grasp them whenever they arise.
Selecting the targets that will best serve the clients while getting desired
results is a difficult task. Opportunities may arise from market, competition,
industry/government and technology. Increasing demand for telecommunications
accompanied by deregulation is a great opportunity for new firms to enter
telecom sector and compete with existing firms for revenue.
Examples of
OPPORTUNITIES under SWOT Analysis
a. Developing market (China, the Internet)
b. Loosening of regulations
c. Removal of international trade barriers
d. A market led by a weak competitor
4)
Threats:
Threats arise when conditions in
external environment jeopardize the reliability and profitability of the
organization’s business. They compound the vulnerability when they relate to
the weaknesses. Threats are uncontrollable. When a threat comes, the stability
and survival can be at stake. Examples of threats are - unrest among employees;
ever changing technology; increasing competition leading to excess capacity,
price wars and reducing industry profits; etc.
Examples of
THREATS under SWOT Analysis
a.
A new competitor
in your home market
b.
Competitor has a
new, innovative substitute product or service
c.
New regulations
d.
Increased trade
barriers
e.
Taxation may be introduced
on your product or service
Advantages of
SWOT Analysis: SWOT Analysis
helps in strategic planning in following manner:
1) It is a source of information for strategic
planning which helps in achieving desired objectives at a minimum cost.
2) SWOT analysis plays a big role in forecasting
as it provides important information that might be required in making forecast
for the future.
3) SWOT analysis builds organization’s strengths.
4) Reverse its weaknesses by identifying weak
areas.
5) Maximize its response to opportunities.
6) Overcome organization’s threats.
7) It helps in identifying core competencies of
the firm.
8) It helps in setting of objectives for
strategic planning.
9) It helps in knowing past, present and future
so that by using past and current data, future plans can be chalked out.
4. (a) Discuss the cause
of industrial sickness with reference to North-East India.
Ans: INDUSTRIAL SICKNESS IN NORTH EAST
REGION
The economy of North- East India has
got its definite identity due to its peculiar physical, economic and socio-cultural
characteristics. This region consists of eight states viz., Assam, Arunachal
Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Tripura and Sikkim. The NER of
India covers an area of 2.62 lakh sq.km. It accounts for 7.9% of total
geographical area of the country. With a total population of 39 million (2001),
it accounts for 3.8% of total population of India.
There are differences among the eight
States in the North Eastern region with respect to their resource endowments,
level of industrialization as well as infrastructural facilities. The
industrial sector has mainly grown around tea, petroleum (crude), natural gas
etc. in Assam and mining, saw mills and steel fabrication units in other parts
of the region. The full potential of the region is yet to be exploited and this
has left the economy in a primarily agrarian state.
Industrially, the NER continues to be
the most backward region in the country, and the states in the region hardly
have any industrial base, except perhaps Assam, because of its traditional tea,
oil and wood based industries .To some extent Meghalaya has made some headway
in setting up of small and medium industries. There are a number of factors
contributing to the lack of industrial growth in the region which are stated
below:
1) Geographical isolation: Geographical
isolation is a characteristic feature of this region which always goes against
its development strategy. The difficult terrain of this region surrounded by
hills, rivers and dense forest leads to increase in the cost of administration
and cost of developmental projects, besides making mobilization resources
particularly difficult.
2) Poor transport and communication facilities: This
region is lacking a sound transport and communication system. Geographical
isolation, difficult terrain and lack of attention are some of the basic
factors which are responsible for poor development of transport and
communication facilities. Both the railway and road transport facilities in the
region are not adequate according to its need. Expansion works like preparation
of new railway lines, conversion meter gauge lines into broad gauge lines,
extension of national highways, construction of new bridges over Brahmaputra,
development of well connected transport facilities and sound communication
system etc. are not up to the mark. In the absence of all these above mentioned
facilities, a region cannot develop industrially. However, in recent years,
steps have been taken to improve the transport and communication system of the
State without which the development of the economy is impossible.
3) Wastage of Natural resources: In spite
of having huge amount of natural resources, the economy of this region still
remains largely under-developed and involves itself into the wastage of huge
quantity of natural resources. Investment in this region is mainly channelized
towards exploitation of rich resources viz. tea, jute and oil, which is
reflection of the continuation of old colonial pattern of investment. Assam has
28 percent of the total hydro power potential of the country, which remains
under-utilized. The vast coal resources have not been fully exploited (except
for traditional use of the Railway etc. ) despite several possibilities for use
as fuel for production of power, for production of coal and as base for several
chemical industries. The forest resources in Assam are also under-utilized,
particularly in the matter of non-standard species. Thus insufficient
exploitation of natural resources in this region is responsible for this poor
industrial development of the State.
4) Lack of skilled personnel: This
region is also suffering from an acute shortage of skilled labour. Most of the
labours are unskilled. For higher skills, this region has to depend upon other
parts of India and foreign countries. Consequently payment of higher wage rates
for skilled labour affects cost of production. Besides, one has to import
technicians from outside on attractive rates of remuneration for installation
of capital goods industries and thus it raises the cost of the development
projects besides making the gestation period of these projects lengthy.
5) Poor credit facilities: Credit
facility, which is a part of infrastructure requires for development, is very
minimum. The credit deposit ration in Assam stood at 37.3 in 2012 as against
78.1 for all India. Thus the lending policy of the commercial banks is far from
generous to this region. Thus in the absence of large scale credit facilities,
industries in the private sector cannot grow satisfactorily.
6) Primitive technology: Technological
progress is the root of industrial growth. But North East is suffering from
lack of technological development due to poor scientific educational facilities
and vocational training. Farmers in North East region are still using Primitive
technologies in agricultural sector and thus agricultural production remains
stagnant whereas other State Punjab, Haryana, Gujarat, Uttar Pradesh have been
able to make sufficient progress in agriculture by applying modern
technologies. Small scale and cottage industries of this region are still
following old orthodox technologies and cannot stand in the competitive market.
Thus the industries of this region are still backward due to absence of
technology up gradation.
7) Power Shortage: Lack of
power supply is also effecting the production of the Industrial units in north
east. Power breakdown is the regular problem this region. Due to inadequate
power supply the industries have to suffer from under utilization, low
production and higher costs.
Or
(b) What do you mean
by Economic Growth? Explain the main hindrances of economic growth of India.
Ans: Economic Growth and Factors affecting
it
Economic growth is the increase in
the amount of the goods and services produced by an economy over time. It is
conventionally measured as the percent rate of increase in real gross domestic
product, or real GDP. Growth is usually calculated in real terms, i.e.
inflation-adjusted terms, in order to net out the effect of inflation on the
price of the goods and services produced. In economics, "economic
growth" or "economic growth theory" typically refers to growth
of potential output, i.e., production at "full employment," which is
caused by growth in aggregate demand or observed output.
As an area of study,
economic growth is generally distinguished from development economics. The
former is primarily the study of how countries can advance their economies. The
latter is the study of the economic aspects of the development process in
low-income countries. As economic growth is measured as the annual percent
change of gross domestic product (GDP), it has all the advantages and drawbacks
of that measure.
Hindrances/Obstacles in Economic Growth
Some of the major problems in
economic growth of India are given below:
1. Misuse of Resources due to Market Imperfections: Main reason for the economic back wardens of the under developed
countries is the misuse of resources owing to market imperfections by the
market imperfections we mean the immobility of the factors of production ,
price rigidities, ignorance regarding market , trends static social structure ,
lack of specialization etc. These market imperfections are great obstacles in
the way of economic growth . It is due to market imperfections that productive
efficiency in these countries is low, the resources are either unutilized or
underutilized and the resources are misallocated. When the resources are
perfectly mobile and there is perfect competition among them, they can easily
move from one sector to another in search of a better return and in this way
they make an optimum contribution to the national output.
2. Low Rate of Saving and investment: Another main reason
of the poverty and under development of the under – developed countries is that
the rate of saving and investment in these countries is very low. In these
countries only5-8 percent of the national income goes into savings , whereas
the rate is 15-20 percent and even more in the developed countries. When the
rat of saving in a country is low the rate of investment is bound to be low and
the rate of capital formation is low too. Since capital per man is low, the
productivity is also low productivity being low, the per capita income and the
national income too are low.
3. Demonstration Effect: The under
development of the economically backward countries is also due to what has been
called the demonstration effect the demonstration effect increases
propensity to consume which reduces the rate of savings and investment . A very
important principle has been propounded regarding consumption. That an
individual’s consumption does not merely depend on individuals own income but
it is very much influenced by the standard of living or consumption of his
friends and relations. When a man sees that some of his friends and relatives
have refrigerator , scooter, radio or TV set. Thus , consumption does not
depend upon absolute real income but on relative level of real income the is
consumption expenditure does not depend on our own purchasing power but on what
in being spent by other son the purchase of luxury articles.
4. Rapidly Growing Population: In the under –
developed countries , especially in the over populated countries of Asia,
population increases very rapidly. this has very adversely affected their rate
of economic growth . In fact rapid population growth is the greatest obstacle
to economic growth. Whatever increase takes place in the national output and
income in such countries as a result of development is
devoured by the ever pouring torrent of babies. It is like writing on the sand.
That is why their standard of living and income per capita cannot rise. For
example the major part of increase in national income that has accrued in India
during the five year plans has been nullified by the rapid population growth.
5. Social and political obstacles to growth: There are several other factors which have retarded the economic
growth of under developed countries, Among this we may mention the following in
the under developed countries like India agriculture has been carried on in a
very inefficient manner. Lack of adequate irrigation facilities and
fertilizers, primitive agricultural practices. Poverty of the peasant out
molded systems of tenure. The under developed countries are generally wanting
in dynamic entrepreneurship. No wonder trade and industry have been conducted
at a very low level and few new grounds have been broken. Economic development
requires an army of trained and skilled personnel who serve as instruments of
economic progress these the under- developed countries lack and
consequently remain backward. Not only have the economic factors handicapped
economic progress of the under developed countries but social factors too. Have
played their part to keep them economically backward . has divided the Indian
society into ware tight compartments and has rendered co operation in the
economic sphere impossible. It has created divergence between aptitude and the
occupation actually pursued. By making functions here dietary. It killed
imitative and enterprise. Untouchability has demolished
millions of our propel striking at the very root of dignity of labour.
6. Economic Factors Impeding Growth: Most of the
countries of Asia and Africa, which are under developed, have been at one time
or another under an alien rule. The most important cause of poverty in India
and it’s under- development is its subjection to the British rule. The foreign
rulers, naturally, exploited the dependent countries and used their resources
to promote their own interest. These countries were made to supply raw material
at low prices. The foreign industrialist also made investments in primary
industries such as mining, drilling of oil wells, tea , coffee etc. Thus the
foreign masters used these countries as suppliers of raw materials to their
industries and markets for their manufactured goods. They did not take any
interest in their economic development.
5. (a)Explain the concept
of Privatization. Discuss its advantages and disadvantages.
Ans:
Privatisation: The new
set of economic reforms aimed at giving greater role to the private sector in
the nation building process and a reduced role to the public sector. To achieve
this, the government redefined the role of the public sector in the New
Industrial Policy of 1991. The purpose of the sale,
according to the government, was mainly to improve financial discipline and
facilitate modernization. It was also observe that private capital and
managerial capabilities could be effectively utilized to improve the
performance of the PSUs. The government has also made attempts to improve the
efficiency of PSUs by giving them autonomy in taking managerial decisions.
Benefits of Privatisation:
1. Improved Efficiency: The main argument for privatisation is
that private companies have a profit incentive to cut costs and be more
efficient. If we work for a government run industry, managers do not usually
share in any profits. However, a private firm is interested in making profit
and so it is more likely to cut costs and be efficient.
2. Lack of Political Interference: It is argued
that governments make poor economic managers. They are motivated by political
pressures rather than sound economic and business sense.
3. Short Term view: A government many think only in terms
of next election. Therefore, they may be unwilling to invest in infrastructure
improvements which will benefit the firm in the long term because they are more
concerned about projects that give a benefit before the election.
4. Shareholders: It is argued that a private firm has
pressure from shareholders to perform efficiently. If the firm is inefficient
then the firm could be subject to a takeover. A government owned firm doesn’t
have this pressure and so it is easier for them to be inefficient.
5. Increased Competition: Often privatisation of state owned
monopolies occurs alongside deregulation – i.e. policies to allow more firms to
enter the industry and increase the competitiveness of the market. It is this
increase in competition that can be the greatest motivation for improvements in
efficiency. However, privatisation doesn’t necessarily increase competition, it
depends on the nature of the market.
6. Government will raise revenue from the sale: Selling
government owned assets to the private sector raised significant sums for
government.
Disadvantages of Privatisation
1. Natural Monopoly: A natural monopoly occurs when the
most efficient number of firms in an industry is one. Privatisation would
create a private monopoly which might seek to set higher prices which exploit
consumers. Therefore it is better to have a public monopoly rather than a
private monopoly which can exploit the consumer.
2. Public Interest: There are many industries which
perform an important public service, e.g. health care, education and public
transport. In these industries, the profit motive shouldn’t be the primary
objective of firms and the industry.
3. Government loses out on potential dividends: Many of
the privatised companies in the India are quite profitable. This means the
government misses out on their dividends, instead going to wealthy
shareholders.
4. Problem of regulating private monopolies:
Privatisation creates private monopolies, such as the water companies and rail
companies. These need regulating to prevent abuse of monopoly power. Therefore,
there is still need for government regulation.
5. Fragmentation of industries: In India,
rail privatization would lead to breaking up the rail network into
infrastructure and train operating companies. This led to areas where it was
unclear who had responsibility.
6. Short-Term view of Firms: As well as
the government being motivated by short term pressures, this is something
private firms may do as well. To please shareholders they may seek to increase
short term profits and avoid investing in long term projects.
Or
(b) Discuss about Govt of
India’s Industrial Policy, 2007 for North-East India. How far has North-East
India been benefited from the Industrial Policy, 2007?
Ans: North East Industrial and Investment Promotion Policy (NEIIP, 2007)
Important Provisions of NEIIPP, 2007
(i)
Sikkim will be included under NEIIPP, 2007 and
the ‘New Industrial Policy and other concessions for the State of Sikkim’
announced earlier in December, 2002 will be discontinued from the date of
notification of NEIIPP, 2007.
(ii) Under
NEIIPP, 2007, all new units as well as existing units which go in for
substantial expansion, unless otherwise specified and which commence commercial
production within the 10 year period from the date of notification of NEIIPP,
2007 will be eligible for incentives for a period of 10 years from the date of
commencement of production.
(iii) The
incentives under the NEIIPP, 2007 will be available to all industrial units,
new as well as existing units on their substantial expansion, located anywhere
in the North Eastern Region. Consequently, the distinction between
‘thrust’ and ‘non thrust’ industries made in NEIP, 97 will be discontinued from
the date of notification of NEIIPP, 2007.
(iv) Under
NEIIPP, 2007 incentives on substantial expansion will be given to units
effecting ‘an increase by not less than 25% in the value of fixed capital
investment in plant and machinery for the purpose of expansion of
capacity/modernization and diversification’ as against an increase by 33
½ % prescribed at present.
(v) Under
NEIIPP, 2007, 100% excise duty exemption will be continued as at present on
finished products made in the North Eastern Region. However, in
cases, where the CENVAT paid on the raw materials and intermediate products
going into the production of finished products (other than the products which are
otherwise exempt or subject to nil rate of duty) is higher than the excise
duties payable on the finished products, ways and means to refund such overflow
of CENVAT credit will be separately notified by the M/O Finance.
(vi) 100%
income tax exemption will continue under NEIIPP, 2007 as at present.
(vii) Capital
investment subsidy will be enhanced from 15% of the investment in plant and
machinery to 30% and the limit for automatic approval of subsidy at this rate
will be Rs. 1.5 crore per unit as against Rs. 30 lakhs at
present. Such subsidy will be applicable to units in the private
sector, joint sector, cooperative sector as well as the units set up by the
State Governments of the North Eastern Region. For grant of capital
investment subsidy higher than Rs. 1.5 crore but upto a maximum of Rs.30 crore,
there will be an Empowered Committee.
(viii) Interest
subsidy will be made available @ 3% on working capital loan under NEIIPP, 2007
as at present.
(ix) Under
NEIIPP, 2007, new industrial units as well as the existing units on their
substantial expansion will be eligible for reimbursement of 100% insurance
premium under the Comprehensive Insurance Scheme.
(x) To include
tobacco and tobacco products, pan masala, plastics carry bags and goods
produced by refineries, in a host of industries which would not be eligible for
incentives under NEIIPP, 2007.
(xi) To provide
incentives to service sector, bio-technology and power generating industries.
(xii) To
continue North Eastern Development Finance Corporation Ltd. (NEDFi) as the
nodal agency for disbursal of subsidies under NEIIPP, 2007.
(xiii) The provisions of the NEIIPP, 2007 would
provide the requisite incentives as well as an enabling environment to speed up
the industrialization of the North Eastern Region which is otherwise less than
4% p.a. against a national average of 8%.
6. (a) Discuss the role
played by the capital market in the economic development of a country.
Or
(b) What is money market?
Explain the functions of money market.
7. (a) Write a note on
Internal Business Environment’.
Ans: International Business Environment
The international business environment can be
defined as the environment in different sovereign countries, with factors
exogenous to the home environment of the organization, influencing
decision-making on resource use and capabilities.
International
business environment refers to totality of all the factors viz. geographic,
economic, financial, socio-cultural, political, legal, technological and
ecological which are external to and beyond the control of individual business
enterprises. International business environment is more complex than the
business environment because international business environment consists of
foreign and global factors, which are external to domestic environment. A firm
is generally familiar with the factors operating at the national level but a
firm has to be aware of various factors operating in a country of trading
partner. Thus, international business environment is sum total of domestic,
foreign and global environments.
International
business environment consists of a number of micro-level and macro-level
factors operating at domestic level, foreign level and global level.
Accordingly various factors constituting business environment may be grouped as
under:
(i) Domestic
Environment
(ii) Foreign Environment
(iii) Global
Environment
FOREIGN ENVIRONMENT
The
home-based or the domestic export expansion measures are necessarily related to
the conditions prevailing in possible markets. An Exporter has to overcome
various constraints and adapt plans and operations to suit foreign
environmental conditions. The main elements of foreign environment affecting
marketing activities of a firm in a foreign country consist of the following.
A)
POLITICAL DIMENSION: Nations greatly differ in their political environment.
Govt. policies, regulations and control mechanisms regarding the countries,
foreign trade and commercial relations with other countries or groups of
countries. At least four factors should be considered in deciding whether to do
business in a particular country. They are
1) Attitudes
towards International Buying: Some
nations are very receptive, indeed encouraging, to foreign firms, and some
others are hostile. For e.g.: Singapore, UAE and Mexico are attracting foreign
investments by offering investment incentives, removal of trade barriers,
infrastructure services, etc.
2) Political
Stability: A country's future and
stability is another important issue. Government changes hands sometimes
violently. Even without a change, a region may decide to respond to popular
feeling. A foreign firm's property may be seized; or its currency holdings
blocked; or import quotas or new duties may be imposed. When political
stability is high one may go for direct investments. But when instability is
high, firms may prefer to export rather than involve in direct investments.
This will bring in foreign exchange fast and currency convertibility is also
rapid.
3) Monetary
Regulations: Sellers want to realise profits in a currency of value to them. In
best situations, the Importer pays in the seller's currency or in hard world
currencies. In the worst case they have to take the money out of the host
country in the form of relatively unmarketable products that they can sell
elsewhere only at a loss. Besides currency restrictions, a fluctuating exchange
rate also creates high risks for the exporter.
4) Government
Bureaucracy: It is the extent to which the Government in the host country runs
an efficient system for assisting foreign companies: efficient customs
handling, adequate market information, etc. The problem of foreign uncertainty
is thus further complicated by a frequently imposed "alien status",
this increases the difficulty of properly assessing and forecasting the dynamic
international business. The political environment offers the best example of
the alien status.
A
foreign political environment can be extremely critical; shifts in Government
often means sudden changes in attitudes that can result in expropriation,
expulsion, or major restrictions in operations. The fact is that a foreign
company is foreign and thus always subject to the political whim to a greater
degree than a domestic firm.
B) CULTURAL
ENVIRONMENT: The manner in which people consume their priority of needs and the
wants they attempt to satisfy, and the manner in which they satisfy are
functions of their culture which moulds and dictates their style of living.
This culture is the sum total of knowledge, belief, art, morals, laws, customs
and other capabilities acquired by humans as members of the society. Since
culture decides the style of living, it is pertinent to study it especially in
export marketing. e.g. when a promotional message is written, symbols
recognizable and meaningful to the market (the culture) must be used. When
designing a product, the style used and other related marketing activities must
be culturally acceptable.
C) ECONOMIC
ENVIRONMENT: In considering the international market, each Exporter must
consider the importing country's economy. Two economic characteristics reflect
the country's attractiveness as an export market. They are the country's
industrial structure and the country's income distribution by employment
industrialization and socio economic justices.
D)
LEGAL ENVIRONMENT: The legal dimension of international Business environment
includes all laws and regulations regarding product specification and
standards, packaging and labeling, copyright, trademark, patents, health and
safety regulations particularly in respect of foods and drugs. There are also
controls in promotional methods, price control, trade margin, mark-up, etc.,
These legal aspects of marketing abroad have several implications which an
exporting firm needs to study closely.
Or
(b) Discuss the impact of
globalization on Indian trade and industry.
Ans: Meaning of
Globalisation
Globalizations are the outcome of the policies of liberalisation and
privatisation. Globalisation is generally understood to mean integration of the
economy of the country with the world economy, it is a complex phenomenon. It
is an outcome of the set of various policies that are aimed at transforming the
world towards greater interdependence and integration. It involves creation of
networks and activities transcending economic, social and geographical
boundaries.
Globalisation involves an increased level of
interaction and interdependence among the various nations of the global
economy. Physical geographical gap or
political boundaries no longer remain barriers for a business enterprise to
serve a customer in a distant geographical market.
In simple
words, The term globalization can be defined as the opening one's economy
toward the world economy. It means to integrate the domestic economy with world
economy. The govt. of India under the prime minister ship of P. V Narasimha
introduced liberalisation, privatisation and globalization during 1991 .Due to
globalization the multinational corporations have been very popular. These
corporations transact their business activities more than one countries.
Globalisation and India
Indian economy
had experienced major policy changes in early 1990s. The new economic reform,
popularly known as, Liberalization,
Privatization and Globalization (LPG model) aimed at making the
Indian economy as fastest growing economy and globally competitive. The series
of reforms undertaken with respect to industrial sector, trade as well as
financial sector aimed at making the economy more efficient.
With the onset of
reforms to liberalize the Indian economy in July of 1991, a new chapter has
dawned for India and her billion plus population. This period of economic
transition has had a tremendous impact on the overall economic development of
almost all major sectors of the economy, and its effects over the last decade
can hardly be overlooked. Besides, it also marks the advent of the real
integration of the Indian economy into the global economy.
This era of
reforms has also ushered in a remarkable change in the Indian mindset, as it
deviates from the traditional values held since Independence in 1947, such as
self reliance and socialistic policies of economic development, which mainly
due to the inward looking restrictive form of governance, resulted in the
isolation, overall backwardness and inefficiency of the economy, amongst a host
of other problems. This, despite the fact that India has always had the
potential to be on the fast track to prosperity.
Impact of
Globalization on Indian trade and industry:
Globalization has its impact on India which is
a developing country. The positive impact of globalization can be analysed as
follows:
1. Access to Technology: Globalization
has drastically, improved the access to technology. Internet facility has
enabled India to gain access to knowledge and services from around the world.
Use of Mobile telephone has revolution used communication with other countries.
2. Growth of international trade: Tariff
barriers have been removed which has resulted in the growth of trade among
nations. Global trade has been facilitated by GATT, WTO etc.
3. Increase in production: Globalization
has resulted in increase in the production of a variety of goods. MNCs have
established manufacturing plants all over the world.
4. Employment opportunities: Establishment
of MNCs have resulted in the increase of employment opportunities.
5. Free flow of foreign capital: Globalization
has encouraged free flow of capital which has improved the economy of
developing countries to some extent. It has increased the capital formation.
6. Products of superior quality: Products of
superior quality are available in the market due to increased competition,
efficiency and productivity of the businesses
and this leads to increased consumer satisfaction.
7. Free flow of finance enable the banking and
financial institutions in a country to
fulfill financial requirements through internet and electronic transfers easily and help businesses to
flourish.