GLOBAL BUSINESS MANAGEMENT

UNIT-I

Define Domestic Business.

Commercial activities conducted within a nation or a commercial entity that

conducts economic transactions inside the borders of its home nation. A domestic
business typically has the advantage of only having to deal with its local currency,
customs, culture, regulations and tax system.

What is Cultural Environment?

A cultural environment is a set of beliefs, practices, customs and behaviors

that are found to be common to everyone that is living within a certain population.
Cultural environments shape the way that every person develops, influencing
ideologies and personalities.

Define Global Economy

The global economy is the world economy or the worldwide economy.

The term has two meanings:

 The economy of the whole planet, i.e., global GDP. GDP stands for Gross
Domestic Product.
 The way the world is today, with countries’ economies so intertwined and
interdependent that they all seem like parts of one whole. That ‘whole’ we
call the ‘global economy.’

What is a Foreign Direct Investment (FDI)?

A foreign direct investment (FDI) is an investment made by a firm or individual

in one country into business interests located in another country.

Define International Business

International business refers to the trade of goods, services, technology,

capital and/or knowledge across national borders and at a global or transnational
scale. It involves cross-border transactions of goods and services between two or
more countries.
Explain the benefits of International Business:

1. Market expansion
2. Non-availability of product in new market
3. Cost advantage
4. Product Differentiation
5. Economic recession in one’s own country
6. Loss of Domestic market share
7. Growth in Demand in other markets
8. Excess capacity of Production
9. Economies of Scale
10.Purchasing Power

Differentiate between Domestic Business and International Business:

Nature Domestic Business International Business

Can happen in more than one

Geography Happens within one country.
country.

Quality of
Very high standards are expected
products/ Standards may be lower.
and enforced.
services

Mostly depends on local currency It depends on foreign currencies for

Currency
for transactions. transactions.

Research processes for the business

It is easy to conduct research for
Research is very expensive and hard to
the business.
conduct.

The capital investment is not as Capital investment is extremely

Investment
high. high.

Production There is free and easy movement The movement of production

factors of the factors of production. factors is limited.
Explain the Economic and Political Environment of International Business:
The environment of international business is regarded as the sum total of all
the external forces working upon the firm as it goes about its affairs in foreign and
domestic markets.

The environment can be classified in terms of domestic, foreign, and

international spheres of impact.

1. The domestic environment: is familiar to managers and consists of those

uncontrollable external forces that affect the firm in its home market.
2. The foreign environment: can be taken as those factors which operate in
those other countries within which the MNC operates.
3. The international environment: is conceived as the interaction between
domestic and foreign factors and indeed they cover a wide spectrum of
forces

The forces are:

1. Political environment
2. Legal environment
3. Cultural environment
4. Technological environment
5. Economic environment.

Political and Legal Environment: Political and government environment has

close relationship with the economic system and economic policy. For example,
the communist countries had a centrally planned economic system. In most
countries, apart from those laws that control investment and related matters, there
are a number of laws that regulate the conduct of the business. These laws cover
such matters as standards of products, packaging, promotion etc.

Demographic Environment: Demographic factors like the size, growth rate, age
composition, sex composition, etc. of the population, family size, economic
stratification of the population, educational levels, languages, caste, religion etc

Socio-Cultural Environment: The socio-cultural fabric is an important

environmental factor that should be analyzed while formulating business strategies.
The cost of ignoring the customs, traditions, taboos, tastes and preferences, etc., of
people could be very high. The buying and consumption habits of the people, their
language, beliefs and values, customs and traditions, tastes and preferences,
education are all factors that affect business

Technological Environment: Technological factors sometimes pose problems. A

firm, which is unable to cope with the technological changes, may not survive.
Further, the differing technological environment of different markets or countries
may call for product modifications. For example, many appliances and
instruments in the U.S.A. are designed for 110 volts but this needs to be converted
into 240 volts in countries which have that power system. Technological
developments may increase the demand for some existing products.

Economic Environment: Economic conditions, economic policies and the

economic system are the important external factors that constitute the economic
environment of a business. The economic conditions of a country-for example, the
nature of the economy, the stage of development of the economy, economic
resources, the level of income, the distribution of income and assets, etc- are
among the very important determinants of business strategies.

The economic policy of the government, needless to say, has a very great
impact on business. Some types or categories of business are favorably affected by
government policy, some adversely affected, while it is neutral in respect of others.
For example, a restrictive import policy, or a policy of protecting the home
industries, may greatly help the import-competing industries.

Discuss the types of International Business:

Exporting: Exporting includes producing goods in the home country and then
shipping them to another country. Once the products reach the foreign shores, the
exporter’s role is over. A local firm then sells the goods to local customers.

Once the exported products are found to be available in a given country,

exporting often becomes undesirable. An exporting firm loses control of the
management and operation of goods’ sales once they are turned over to a local firm
for sale. Also, an exporter earns money when it sells its goods to a local firm, but it
cannot get any profit when the end users buy the goods. Exporting is the easiest
way of entering an international market but risky too.
Wholly Owned Subsidiary: A wholly owned subsidiary is a new business in a
foreign country owned by the foreign firm. It can be a green-field venture, meaning
that the organization builds up the entire operation itself. The other possibility is
purchasing an existing operation.

Having a wholly owned subsidiary is an attractive option as the firm has

complete control over the operation and gets all the profits. It can be quite risky,
however, as the firm must pay all of the expenses required to set it up and operate
it.

Franchising: Franchising involves a firm (franchisor) granting the rights to use its
brand name, products, and processes to other firms (franchisees) in lieu for a fee (a
franchise fee) and a pre-set percentage of franchisees’ revenues (a royalty fee).

Licensing: Licensing includes permitting a foreign company the right to produce a

company’s product within a foreign country in return for a fee. The products are
usually produced using a patented technology.

The firm that grants a license avoids many types of costs, but also the profits
are limited. The firm also loses the control over use of its technology.

Joint Ventures and Strategies Alliances: In a Joint Venture (JV), the

participating organizations contribute to the creation of a new entity. In such an
arrangement, organizations work cooperatively, but a new organization is not
created. The firm and its partner shares decision-making, control over the
operations, and the profits.

Discuss the problems faced by International Business:

. The important problems in international marketing are given below:

1. Political and legal differences: The political and legal environment of

foreign markets is different from that of the domestic. The complexity
generally increases as the number of countries in which a company does
business increases. For example, the political and legal environment is not
exactly the same in all the states of India.
2. Cultural differences: The cultural differences, is one of the most difficult
problems in international marketing. Many domestic markets, however, are
also not free from cultural diversity.
3. Economic differences: The economic environment may vary from country
to country.
4. Differences in the currency unit: The currency unit varies from nation to
nation. This may sometimes cause problems of currency convertibility,
besides the problems of exchange rate fluctuations. The monetary system
and regulations may also vary.
5. Differences in the language: An international marketer often encounters
problems arising out of the differences in the language. Even when the same
language is used in different countries, the same words of terms may have
different meanings. The language problem, however, is not something
peculiar to the international marketing. For example: the multiplicity of
languages in India.
6. Differences in the marketing infrastructure: The availability and nature
of the marketing facilities available in different countries may vary widely.
For example, an advertising medium very effective in one market may not
be available or may be underdeveloped in another market.
7. Trade restrictions: A trade restriction, particularly import controls, is a
very important problem, which an international marketer faces
8. High costs of distance: When the markets are far removed by distance, the
transport cost becomes high and the time required for affecting the delivery
tends to become longer. Distance tends to increase certain other costs also.
9. Differences in trade practices: Trade practices and customs may differ
between two countries.
UNIT-II

What is FTZ?

A FTZ- Foreign-Trade Zone (FTZ) is a class of special economic zone It is a

geographic area where goods may be landed, stored, handled, manufactured, or
reconfigured and re-exported under specific customs regulation and generally not
subject to customs duty.

What is DGFT?

The Directorate General of foreign Trade (DGFT) is the agency of the Ministry
of Commerce and Industry of the Government of India, responsible for execution
of the import and export Policies of India.

What is the benefit of Super Star Trading House?

 On being recognized as a star export house, the exporter enjoys various

benefits and privileges as Authorization and
 Customs clearance for both imports and exports may be allowed on self-
declaration basis.

What is Trading House?

A trading house is a business that specializes in facilitating transactions

between a home country and foreign countries. A trading house is an exporter,
importer and also a trader that purchases and sells products for other businesses.

What is EPZ?

An Export Processing Zone (EPZ) is a Customs area where one is allowed

to import plant, machinery, equipment and material for the manufacture of export
goods under security, without payment of duty.
Advantages of Trading Houses:

1. Economies of Scale: A trading house typically has a large portfolio of

clients that provide economies of scale benefits. For example, a large trading
house can use its significant buying power to receive discounts from
manufacturers and suppliers. A trading house can also reduce transportation
costs if it ships to customers in large quantities.
2. International Foothold: Trading houses have an extensive network of
contacts in international markets that help them to secure favorable deals and
find new customers. They may also have staff working in foreign offices to
work with customs officials and manage legal issues to ensure smooth
operation of the business.
3. Currency Management: Because a trading house is continually importing
and exporting products, they have expertise in managing currency risk.
Trading houses use risk management techniques, such as hedging, to avoid
getting exposed to adverse currency fluctuations. For example, a trading
house that has a future payment in euros may use a currency forward
contract to lock in the current EUR/USD exchange rate.

Functions of Export House:

The functions of export house are mentioned below:

i. Identifying potential market for a product

ii. Finding buyers and their agent and eliciting their response for export proposal.
iii. Establishing product specification in the light of market needs, standards and
regulation in accordance with suppliers capabilities.
iv. Determining appropriate mode of transportation and routing keeping in mind
the cost, quality of service and security
v. Preparing the goods for delivery at destination
vi. Determining buyer’s creditworthiness
vii. Negotiating the transactions
viii. Arranging proper insurance coverage against maritime risks and currency
fluctuations
ix. Financing the transactions and paying for goods and service received.
x. Preparing document for international trade
xi. Settling claim
Explain few Export Promotion Measures:

Some of the export promotion measures are listed below.

1. Duty Free Replenishment Certificate (DFRC): DFRC is issued to a

merchant exporter or manufacturer exporter for the duty free import of
inputs such as raw materials, components, intermediates, consumables, spare
parts, including packing materials to be used for export production. Such
license is given subject of the fulfillment of time bound export obligation.
2. Duty Entitlement Passbook Scheme (DEPB): Under the DEPB scheme, an
exporter may apply for credit as a specified percentage of FOB value of
exports, made in freely convertible currency. The credit shall be available
against such export products and at such rates as may be specified by the
Director General of Foreign Trade (DGFT) by way of public notice issued in
this behalf, for import of raw materials, intermediates, components, parts,
packaging materials, etc.
3. Export Promotion Capital Goods Scheme (EPCG): EPCG scheme was
introduced by the EXIM policy of 1992-97 in order to enable manufacturer
exporter to import machinery and other capital goods for export production
at concessional or no customs duties at all. This facility is subject to export
obligation, i.e., the exporter is required to guarantee exports of certain
minimum value, which is in multiple of tit1e value of capital goods
imported.
4. Duty Drawback (DBK): The Duty Drawback Scheme is administered by
the Directorate of Drawback, Ministry of Finance. Under this scheme,
an exporter is entitled to claim
 Customs duty paid on the import of raw materials, components
and consumables
 Central excise duty paid on indigenous raw
materials, components
 Consumables utilized in the manufacture of goods meant for
export
5. Excise Duty Refund: Excise duty is a tax imposed by the central
government on goods manufactured in India. This duty is collected at
source, i.e., before removal of goods from the factory premises. Export
 goods are totally exempted from central excise duty. However, necessary
clearance has to be obtained in one of the following ways
 Export under rebate
 Export under bond
6. Octroi Exemption: Octroi is a duty paid on manufactured goods, when they
enter the municipal limits of a city or a town. However, export goods are
exempted from Octroi.

Discuss the problems faced by Exporters in India:

At present, Indian exporters face a number of problems / difficulties. The
problem demotivates the business firms to enter into foreign markets. These
problem / difficulties are as follows.
1. Recession in world market: The world market, faced recession in 2008 and
in the first half of 2009. The recession was triggered due to sub-prime crisis
of USA in September 2007. Due to recession, the demand for several Indian
items such as Gems and Jewelry, Textiles and Clothing and other items were
badly hit. During recession, exporters get low orders from overseas markets,
and they have to quote lower prices. Therefore, exporter gets law profits or
suffers from losses.
2. Technological differences: The developed countries are equipped with
sophisticated technologies capable of transforming raw materials into
finished goods on a large scale. Less developed countries, on the other hand,
lack technical knowledge and latest equipments. And therefore they have to
use their old and outdated technologies. It leads to the lopsided development
in the international market.
3. Reduction in export Incentives: Over the years, the Govt. of India has
reduced export incentives such as reduction in DBK rates, withdrawal of
income tax benefits for majority of exporters, etc. The reduction in export
incentives demotivates exporters to export in the overseas markets.
4. Several competitions in global marketing: Export marketing is highly
competitive. This competition relates to price, quality, production cost and
sales promotion techniques used. Indian exporters face three-faced
competition while exporting. This includes competition from domestic
exporters, local producers where the goods are being exported and finally
from producers of competing countries at global level. Such competition is
one special problem to the exporters.
5. Problem of product standards: Developed countries insist on high product
standards from developing countries like India. The products from
developing countries like India are subject to product tests in the importing
countries. At times, the importing countries do not allow imports of certain
items like fruits, textiles and other items on the grounds of excessive toxic
content. Therefore Indian exporters lose markets especially in developed
countries.
6. Fluctuations in Exchange Rate: Every country has its own currency which
is different from international currencies. The dominant international
currencies are US dollar or Sterling Pound. From the point of view of Indian
exporters we are interested to realize the payment in international currency.
Foreign exchange earned by the operators is converted into Indian rupees
and paid to the exporters in Indian currency; this exposes the exporters to the
dangers of fluctuation in foreign exchange rates.
7. Problems of Sea Pirates Attacks: A major risk faced by international trade
is attack by pirates in the Gulf of Aden. More than half of India’s
merchandise trade passes through the piracy infested Gulf of Aden. New
exporters and importers are facing problem, because of increased pirate
attacks as they find it difficult to get insurance cover.
8. Problem of subsidies by Developed countries: The developed countries
like USA provide huge subsidies to their exporters. For example, in case of
agriculture exporters, USA, UK and other provide huge subsidies to their
exporters. Therefore, the exporters of developing countries like India find it
difficult to face competition in the world markets.
9. Problem in preparing Documents: Export involves a large number of
documents. The exporter will have to arrange export documents required in
his country and also all the documents as mentioned in the documentary
letter of credit. In India, there are as many as 25 documents (16 commercial
and a regulatory documents) to be filled in.
10.Government restrictions and foreign exchange regulations: The
Government restrictions compel the exporters to follow certain rules and
regulations in the form of licenses, quotas, and customs formalities. Due to
such restrictions, new problems develop before the exporters. Even trade
restrictions in foreign countries create problems before exporters. Indian
exporters face this difficulty of government restrictions and foreign
 exchange regulations even when trade policy is now made substantially
liberal.
11.High risk and Uncertainties: Export marketing is subject to high risks and
uncertainties. The risks may be both political and commercial. Political risks
involve government instability, war, civil disturbances, etc. The commercial
risks involve insolvency of the buyer, protracted default on the part of the
buyer dispute on quality and so on.
12.Competition from China: India is facing stiff competition from China in
the world markets, especially in the OECD markets.. Some of the Indian
exporters have lost their overseas contracts due to cheap Chinese goods and
supplies. This is the major problem of exporters.

Functions of Export Oriented Units(EOU):

1. Formulation of policy for Export Oriented Units (EOUs).

2. Compilation of statistics pertaining to EOUs with the assistance of Special
Economic Zones.
3. To service Board of Approval (BoA) for proposals relating to EOUs.
4. To service BoA for proposals relating to grant of Industrial License for
EOUs and units in Special Economic Zones.
5. Coordinating with other Departments/ Ministries for redressal of grievances
of EOUs.
6. The work relating to release of funds for reimbursement of Central Sales
Tax/ Duty Drawback (CST/DBK), etc.
7. Handling Court Cases, RTI applications, Parliament Questions, Audit Paras,
MP/VIP/PMO references relating to EoU.
Unit – III

What is GATT?

The General Agreement on Tariffs and Trade (GATT) is a legal agreement

between many countries, whose overall purpose was to promote international trade
by reducing or eliminating trade barriers such as tariffs or quotas.

What is WTO?

The World Trade Organization (WTO) is the only global international

organization dealing with the rules of trade between nations. The WTO is based on
agreements signed by the majority of the world’s trading nations.

What is GATS?

The General Agreement on Trade in Services (GATS) is a treaty of the

World Trade Organization (WTO) which entered into force in January 1995 as a
result of the Uruguay Round negotiations. The treaty was created to extend the
multilateral trading system to service sector, in the same way the General
Agreement on Tariffs and Trade (GATT) provides such a system for merchandise
trade.

What is TRIMS?

This Agreement, negotiated during the Uruguay Round, applies only to

measures that affect trade in goods.

What is TRIPS?

The Agreement on Trade-Related Aspects of Intellectual Property

Rights (TRIPS) is an international legal agreement between all the member
nations of the World Trade Organization (WTO). It sets down minimum standards
for the regulation by national governments of many forms of intellectual property
(IP) as applied to nationals of other WTO member nations.
WHAT IS FEMA?

The Foreign Exchange Management Act, 1999 (FEMA) is an Act of the

Parliament of India "to consolidate and amend the law relating to foreign exchange
with the objective of facilitating external trade and payments and for promoting the
orderly development and maintenance of foreign exchange market in India".

Features of TRIMS:

Trade Related Investment Measures (TRIMs).

It refers to certain condition or restrictions imposed by a Government in respect of
foreign investment in the country. The TRIM text provides that the foreign capital
would not be discriminated by the member Governments.

1. Abolition of restriction imposed on foreign capital

2. Offering equal rights to the foreign investor on par with the domestic
investor
3. No restrictions on any area of investment
4. No limitation or ceiling on the quantum of foreign investment
5. Granting of permission of without restrictions to import raw material and
other components
6. No force on the foreign investors to use the total products and or materials
7. Export of the part of the final product will not be mandatory
8. Restriction on repatriation of dividend interest and royalty will be removed
9. Phased manufacturing programming will be introduced to increase the
domestic content of manufacturer

Explain the organization structure of WTO:

Organization structure of the WTO consists of

 Ministerial conference
 General council,
 Councils,
 Committees and Management bodies
Objectives of GATT:

1. To provide equal opportunities to all countries in international market for

trading purpose.
2. To increase the effective demand.
3. To provide amicable solution to the disputes related to international trade.
4. To ensure a better living standards in the world as a whole.

What are the principles of multilateral trading system as embodied in the

WTO agreements:

The following principles form the basis of the WTO/GATT system:

 Non-discrimination in trade among nations

 Protection through tariffs only
 Maintaining predictability through binding of tariffs
 Progressive liberalization of trade through negotiations
 Promoting fair competition in trade in the world market
 Encouraging development and economic reforms among members

What are the main functions of WTO:

 To implement rules and provisions related to trade policy review

mechanism.
 To provide a platform to member countries to decide future strategies related
to trade and tariff.
 To provide facilities for implementation, administration and operation of
multilateral and bilateral agreements of the world trade.
 To administer the rules and processes related to dispute settlement.
 To ensure the optimum use of world resources.
 To assist international organizations such as, IMF and IBRD for establishing
coherence in Universal Economic Policy determination.
Explain the Limitations of WTO to India:

 Free Trade benefits developed countries more than developing

countries. It is argued, developing countries need some trade protection to
be able to develop new industries; this is important to be able to diversify the
economy. It is known as the infant industry argument. Many developed
economies used a degree of tariff protection in their development phase.
Economist Ha Joon Chang argues WTO trade rules are like ‘pulling away
the ladder they used themselves to climb up’ (Kicking away the ladder at
Amazon)
 Most favoured nation principle. This is a core tenant of WTO rules –
countries should trade without discrimination. It means a local firm is not
allowed to favour local contractors. It is argued this gives an unfair
advantage to multinational companies and can have costs for local firms and
the right of developing economies to favour their own emerging industries.
 Failure to reduce tariffs on agriculture. Free trade is not equally sought
across different industries. Both the US and EU retain high tariffs on
agriculture, this hurts farmers in developing economies who face tariff
protection
 Diversification. Arguably developing countries who specialise in primary
products (e.g. agricultural products) need to diversify into other sectors. To
diversify they may need some tariff protection, at least in the short term.
Many of the existing industrialised nations used tariff protection when they
were developing. Therefore, the WTO has been criticised for being unfair
and ignoring the needs of developing countries.
 Environment. Free trade has often ignored environmental considerations.
e.g. Free trade has enabled imports to be made from countries with the least
environmental protection. Many criticise the WTO’s philosophy that the
most important economic objective is the maximisation of GDP. In an era of
global warming and potential environmental disaster, increasing GDP may
be the least important. Arguably the WTO should do more to promote
environmental considerations.
 Free trade ignores cultural and social factors. Arguably a reasonable
argument for restricting free trade is that it enables countries to maintain
cultural diversity. Some criticise the WTO for enabling the domination of
 multinational companies which reduce cultural diversity and tend to swamp
local industries and firms.
 The WTO is criticised for being undemocratic. It is argued that its
structure enables the richer countries to win what they desire; arguably they
benefit the most.
 Slow progress. Trade rounds have been notoriously slow and difficult to
reach an agreement.

Describe the Dispute Settlement system under WTO:

60 days Consultations, mediation, etc

45 days Panel set up and panellists appointed
6 months Final panel report to parties
3 weeks Final panel report to WTO members
60 days Dispute Settlement Body adopts report (if no appeal)
Total = 1 year (without appeal)
60-90 days Appeals report
30 days Dispute Settlement Body adopts appeals report
Total = 1y 3m (with appeal)

Settling disputes is the responsibility of the Dispute Settlement Body (the

General Council in another guise), which consists of all WTO members. The
Dispute Settlement Body has the sole authority to establish “panels” of experts to
consider the case, and to accept or reject the panels’ findings or the results of an
appeal. It monitors the implementation of the rulings and recommendations, and
has the power to authorize retaliation when a country does not comply with a
ruling.

 First stage: consultation (up to 60 days). Before taking any other actions the
countries in dispute have to talk to each other to see if they can settle their
differences by themselves. If that fails, they can also ask the WTO director-
general to mediate or try to help in any other way.
 Second stage: the panel (up to 45 days for a panel to be appointed, plus 6
months for the panel to conclude). If consultations fail, the complaining
country can ask for a panel to be appointed. Officially, the panel is helping
the Dispute Settlement Body make rulings or recommendations. But because
the panel’s report can only be rejected by consensus in the Dispute
Settlement Body, its conclusions are difficult to overturn. The panel’s
findings have to be based on the agreements cited.
The panel’s final report should normally be given to the parties to the
dispute within six months. In cases of urgency, including those concerning
perishable goods, the deadline is shortened to three months.
The agreement describes in some detail how the panels are to work.
The main stages are:
 Before the first hearing: each side in the dispute presents its case in writing
to the panel.
 First hearing: the case for the complaining country and defence: the
complaining country (or countries), the responding country, and those that
have announced they have an interest in the dispute, make their case at the
panel’s first hearing.
 Rebuttals: the countries involved submit written rebuttals and present oral
arguments at the panel’s second meeting.
 Experts: if one side raises scientific or other technical matters, the panel
may consult experts or appoint an expert review group to prepare an
advisory report.
 First draft: the panel submits the descriptive (factual and argument)
sections of its report to the two sides, giving them two weeks to comment.
This report does not include findings and conclusions.
 Interim report: The panel then submits an interim report, including its
findings and conclusions, to the two sides, giving them one week to ask for a
review.
 Review: The period of review must not exceed two weeks. During that time,
the panel may hold additional meetings with the two sides.
 Final report: A final report is submitted to the two sides and three weeks
later, it is circulated to all WTO members. If the panel decides that the
disputed trade measure does break a WTO agreement or an obligation, it
 recommends that the measure be made to conform with WTO rules. The
panel may suggest how this could be done.
 The report becomes a ruling: The report becomes the Dispute Settlement
Body’s ruling or recommendation within 60 days unless a consensus rejects
it. Both sides can appeal the report (and in some cases both sides do).

Features of Uruguay Round:

1. Agreement on Agriculture: The tariffs resulting from transformation of

non-tariff barriers, as well as other tariffs on agricultural products are to be
reduced on an average by 36 per cent in the case of developed countries over
6 years and 24 per cent in the case of developing countries over 10 years
period.
2. Agreement on Trade in Textiles and Clothing: This provide for phasing
out the import quotas on textiles and clothing in force under the Multi-Fibre
Arrangements since 1974, over a span of 10 years, i.e., by the end of the
transition period on January 1, 2005.
3. Agreement on Market Access: The member nations will cut tariff on
industrial and farm goods by an average of about 37 per cent.
4. Agreement on TRIMs: The agreement on Trade Related Investment
Measures (TRIMs) calls for introducing national treatment of foreign
investments and removal of quantitative restrictions. It identifies 5
investment measures which are inconsistent with the GATT provisions on
according national treatment and on general elimination of qualitative
restrictions.
5. Agreements on TRIPs: Trade Related Intellectual Property Rights (TRIPs)
pertain to patents and copyrights. Whereas earlier on-process patents were
granted to food, medicines, drugs and chemical products, the TRIPs
agreement now provides for granting product patents also in all these areas.
Protection will be available for 20 years for patents and 50 years for
copyrights.
6. Disputes Settlement Body: Settlement of disputes under GATT was a never
ending process. There was ample scope for procedural delays, objections
could be raised at each stage of the dispute settlement process, and penal
reports could be rejected by the offending party.
 Differentiate between GATT and WTO:

Basis GATT WTO

GATT can be described as a set of rules, WTO is an international
multilateral trade agreement that came organization that came into
Meaning into force, to encourage international existence to oversee and
trade and remove cross-country trade liberalize trade between
barriers. countries.

It does not have any institutional It has permanent institution

Institution
existence, but have a small secretariat. along with a secretariat.

Participant nations Contracting parties Members

Commitments Provisional Full and Permanent

The rules of WTO includes
The rules of GATT are only for trade in services and aspects of
Application
goods. intellectual property along
with the goods.
Its agreement are originally multilateral,
Its agreements are purely
Agreement but purely lateral agreement are added
multilateral.
to it later.
Domestic
Allowed to continue Not allowed to continue
Legislation

Dispute Settlement
Slow and ineffective Fast and effective
System

Expand the following:

1. PEST - Political, Economic, Social, Technological

2. GDP - Gross Domestic Product
3. GNP - Gross National Product
4. BPO - Business Process Outsourcing
5. LPO - Legal Process Outsourcing
6. KPO - Knowledge Process Outsourcing
7. FDI - Foreign Direct Investment
8. LPG - Liberalization Privatization Globalization
9. NAFTA - North American Free Trade Agreement
10.MNC - Multi National Company
11.VER - Voluntary Export Restraints
12.GATT - General Agreement on Tariff and Trade
13.WTO - World Trade Organization
14.PPP - Purchasing Power Parity
15.IMF - International Monitory Fund
UNIT – IV

Define MNC.

A multinational corporation (MNC) has facilities and other assets in at least

one country other than its home country. A multinational company generally has
offices and/or factories in different countries and a centralized head office where
they coordinate global management.

Name few MNCs in India.

IBM. , Nestle, Proctor & Gamble, Coca-Cola, Pepsico, CITI Group, SONY
Corporation.

Explain the advantages and disadvantages of MNCs:

Advantages of Multinational Corporations

1. Cheaper Labor: One of the advantages of multinational corporations is the

opportunity to operate in countries where labor is not as expensive. This is
one of the perks that smaller companies do not enjoy. Multinationals can set
up their offices in several countries where demand for their services and
products are high while cheaper labor is available.
2. Broader Market Base: By opening establishments or offices in several
countries, multinationals increase their chances of reaching out to customers
on a global scale, a benefit which other companies limited to regional offices
and establishments do not have. The access to more customers gives them
more opportunities to develop and cater their products and services that will
fit the needs of potential customers.
3. Tax Cuts: Multinationals can enjoy lower taxes in other countries for
exports and imports, an advantage that owners of international corporations
can take at any given day. And although not all countries can have lower
tariffs, there are those that give tax cuts to investors to attract more
international companies to do business in these countries.
4. Job Creation: When international companies set up branches in other
countries, employees and members of the team are locals. That said, more
people are given employment opportunities especially in developing
countries.
Disadvantages of Multinational Corporations:

1. Potential Abuse of Workers: Multinational companies often invest in

developing countries where they can take advantage of cheaper labor. Some
multinational corporations prefer to put up branches in these parts of the
world where there are no stringent policies in labor and where people need
jobs because these multinationals can demand for cheaper labor and lesser
healthcare benefits.
2. Threat to Local Businesses: Another disadvantage of multinationals in
other countries is their ability to dominate the marker. These giant
corporations can dominate the industries they are in because they have better
products and they can afford to even offer them at lower prices since they
have the financial resources to buy in bulk. This can eat up all the other
small businesses offering the same goods and services. Chances are, local
businesses will suffer and worse, close down.
3. Loss of Jobs: With more companies transferring offices and centering
operations in other countries, jobs for the people living in developed
countries are threatened. Take the case of multinationals that create offices
in developing countries for their technical operations and manufacturing.
The jobs given to the locals of the host country should be the jobs enjoyed
by the people where the head office is located.

Discuss the models of MNCs:

Models of MNCs:

 Transnational Corporation (TNC): Because companies - transcend or

operate across national borders, some experts prefer the term transnational
corporation, or TNC. The United Nations favour this term and has created a
research centre for the study of Transnational Corporations. Multinational
Corporation (MNC) The fact that companies operate in multiple countries
has led some experts to adopt the term Multinational Corporation, or MNC.
 Multinational Enterprise (MNE): Because some of the international giants
are state-owned enterprise, rather than corporations, the term multinational
enterprise, or MNE, has entered the vocabulary of international trade.
  Global Corporation: This term became very popular in the 1990s. The
term seems to have first been used to describe a small number of companies
whose business was conducted in dozens of-perhaps more than 100-nations.
Hence, Nestle has long been described as truly because the scope of its
operations extends to more than 150 nations around his globe. The term is
often applied to companies doing business in several areas of the world (e.g.,
Europe, Latin America, Asia-pacific, and North America).

Discuss the role of MNCs in India:

Some important roles played by MNCs in India are as follows

 Transfer of Technology: The most important role that MNCs play in India
and across the globe is the transfer of technology. Transfer of state of the art
technology to developing countries increases the quality and productivity of
the output produced. India has not just received the technology from the
MNCs, but has also been the beneficiary of technical know-how which has
in turn resulted in the skill enhancement of the workforce.
 Capital Investment: When MNCs come to India, they are responsible for
non-debt creating capital inflows. In the pre-1991 period, the MNCs did not
play much role in the Indian economy. The country relied on external
commercial borrowing for development of sectors of economy. A whopping
balance of payment crisis was created through this unsustainable model. Post
the 1991 economic reforms, MNCs contributed towards creating a positive
balance of payment. Therefore, when MNCs invest in India it goes into non-
debt creating capital receipts. Morever, they contribute towards increasing
the GDP of India.
 The Multiplier Effect: MNCs contribute towards increasing income and
increasing employment opportunities. The higher wages that, MNCs like
Hindustan Unilever, Goldman Sachs, Toyota, Google etc pay to
management and engineering graduates have contributed in increasing the
per capita income of India. The Maruti-Suzuki and Hero-Honda
collaborations have also contributed towards increasing employment.
 Increase in Exports: MNCs have greatly contributed towards increasing
our exports. As India offers cheap labour and land, it is both economic and
 profitable for MNCs to invest in India. When the MNCs export their goods
to other nations, it benefits us directly.
 Managerial Practices: MNCs have also brought best managerial practices
to India. The human resource management, financial controls, operation and
advertising strategies have been emulated by Indian companies to their
advantage.
 Increase in Competition: Entry of MNCs promotes competition in the
economy of the host country. This increase in competition results in
lowering of prices, which is beneficial to the end user e.g. entry of electronic
giants like LG, Sony, Samsung in the Indian market has promoted
competition in the electronic segment and led to a decrease in prices of
electronic items.
 Infrastructural Investment: MNCs have also invested in the field of
infrastructure. This investments have contributed towards our economic
growth and development. Power projects (General Electric),
Telecommunication (Vodafone, Telinor), Delhi-Mumbai Industrial Corridor
(Japan), have been of immense benefit to India for expanding our horizons.
UNIT-V

Define strategic business units.

In business, a strategic business unit (SBU) is a profit center which focuses on

product offering and market segment. SBUs typically have a discrete marketing
plan, analysis of competition, and marketing campaign, even though they may be
part of a larger business entity.

What is Liberalisation?
Liberalisation (or liberalization) is any method of how a state raises limitations
on some private individual ventures. Liberalisation befalls when something which
was forbidden is no longer forbidden or when government laws are loosened.

Definition of Globalization

The worldwide movement toward economic, financial, trade, and

communications integration. Globalization implies the opening of local and
nationalistic perspectives to a broader outlook of an inter-connected and
interdependent world with free transfer of capital, goods, and services across
national frontiers

Privatization:

Privatization means transfer of ownership and/or management of an enterprise

from the public sector to the private sector. It also means the withdrawal of the
State from an industry or sector, partially or fully. Another dimension of
privatization is opening up of an industry that has been reserved for the public
sector to the private sector

LPG

LPG stands for Liberalization, Privatization, and Globalization.

Objectives of Liberalization Policy:

 To increase competition amongst domestic industries.

 To encourage foreign trade with other countries with regulated imports and
exports.
 Enhancement of foreign capital and technology.
 To expand global market frontiers of the country.
 To diminish the debt burden of the country.

Objectives of Privatization:

 Improve the financial situation of the government.

 Reduce the workload of public sector companies.
 Raise funds from disinvestment.
 Increase the efficiency of government organizations.
 Provide better and improved goods and services to the consumer.
 Create healthy competition in the society.
 Encouraging foreign direct investments (FDI) in India.

Benefits of Globalization Impacting India:

1. Rise in Employment: With the opening of SEZs or Special Economic

Zones, the availability of new jobs has been quite effective. Furthermore,
Export Processing Zones or EPZs are also established employing thousands
of people. Another factor is cheap labour in India. This has motivated big
firms in the west to outsource work to companies present in this region. All
these factors are causing more employment.
2. Surge in Compensation: After the outburst of globalization, the
compensation levels have stayed higher. These figures are impressive as
compared to what domestic companies might have presented. Why? The
level of knowledge and skill brought by foreign companies is obviously
advanced. This has ultimately resulted in modification of the management
structure.
3. Improved Standard of Living and Better Purchasing Power: Wealth
generation across Indian cities has enhanced since globalization has fully hit
 the nation. You can notice an improvement in the purchasing power for
individuals, especially those working under foreign organizations. Further,
domestic organizations are motivated to present higher rewards to their
employees. Therefore, a number of cities are experiencing better standards
of living together with business development.

Factors causing globalization of business:

More and more companies are seeking to internalize or globalize their economics
for a number of reasons.

i. Developing markets have huge markets

ii. Many MNC’s are locating their subsidiaries in low wage countries to take
advantage of low cost production.
iii. Changing demographics also adds to increasing globalization
iv. Regional trading blocs are adding to the pace of globalization. WTO, EU,
NAFTA, are major alliances among countries. Trading blocs seek to
promote international business by removing trade and investment barriers.
v. Declining trade and investment barriers have vastly contributed to
globalization.
vi. The most powerful instrument that triggered globalization is technology.

Impact of Liberalisation in India:

Negative impacts of liberalization in

Positive impacts of liberalization in India
India
Free flow of capital: Liberalization has Destabilization of the economy:
improved flow of capital into the country Tremendous redistribution of economic
which makes it inexpensive for the power and political power leads to
companies to access capital from investors. Destabilizing effects on the entire Indian
Lower cost of capital enables to undertake economy.
lucrative projects which they may not have
been possible with a higher cost of capital
pre-liberalization, leading to higher growth
rates.
Stock Market Performance: Generally, Impact of FDI in Banking sector: Foreign
when a country relaxes its laws, taxes, the direct investment allowed in the banking
stock market values also rise. Stock and insurance sectors resulted in decline of
Markets are platforms on which Corporate government’s stake in banks and insurance
Securities can be traded in real time. firms.

Political Risks Reduced: Liberalization Threat from Multinationals: Prior to 1991

policies in the country lessens political risks MNC’s did not play much role in the Indian
to investors. The government can attract economy. In the pre-reform period, there
more foreign investment through was domination of public enterprises in the
liberalization of economic policies. These economy. On account of liberalization,
are the areas that support and foster a competition has increased for the Indian
readiness to do business in the country such firms. Multinationals are quite big and
as a strong legal foundation to settle operate in several countries which has
disputes, fair and enforceable laws. turned out a threat to local Indian Firms.

Diversification for Investors: In a Technological Impact: Rapid increase in

liberalized economy, Investors gets benefit technology forces many enterprises and
by being able to invest a portion of their small scale industries in India to either
portfolio into a diversifying asset class. adapt to changes or close their businesses.

Impact on Agriculture: In the area of Mergers and Acquisitions: Acquisitions

agriculture, the cropping patterns has and mergers are increasing day-by-day. In
undergone a huge modification, but the cases where small companies are being
impact of liberalization cannot be properly merged by big companies, the employees of
measured. It is observed that there are still the small companies may require
all-pervasive government controls and exhaustive re-skilling. Re-skilling duration
interventions starting from production to will lead to non-productivity and would cast
distribution for the produce. a burden on the capital of the company.