GLOBAL BUSINESS ENVIRONMENT

Module 1. Introduction to Business Environment. Internal and external environment. Macro and Micro environment- economic-political- legal- cultural and technological environment.

Introduction. Man always keeps himself engaged in some kind of activity to satisfy his needs and wants. All human activities may be broadly divided into two categories: (i) economic activities, and (ii) noneconomic activities. Economic activities are undertaken to earn ones living and for the production of wealth. Non-economic activities are undertaken for ones happiness, pleasure or satisfaction. Economic activities may be classified into three categories (i) Profession - An activity, which requires special knowledge and skill to be applied by an individual to earn a living. (ii) Employment - When a person works regularly for others and gets wages/salary in return. (iii) Business

Business: Activities connected with the production or purchase and sale of goods or services with the object of earning profit are called business activities. Manufacturing, trade, transportation, insurance, banking etc are business activities. Thus business may be defined as an economic activity involving regular production or purchase and distribution of goods and services with the object of earning profits. According to Urwick and Hunt, A business is an enterprise which makes, distributes or provides an article or service which other members of the community need and are able and willing to pay for it. Business is an activity that involves many activities like production finance marketing trade packaging etc. all business carried out to earn a profit by fulfilling the needs of consumers. We may classify business activities on the basis of functions into two broad categories. (a) Industry and (b) Commerce. Industry is concerned with the production and processing of goods. This type of business units is called industrial enterprises which produce consumer goods as well as machinery and equipments. On the other hand, commerce includes all those activities, which are necessary for the storage and distribution of goods. Such units are called commercial enterprises which include trading and service activities like transport, banking, insurance and warehousing. Characteristics of business. 1. Exchange of goods and services:- business is an economic activity, which is concerned with exchanging goods and services to satisfy human wants. It means if an individual purchases a thing for his personal use, it will not be called a business. But if he purchase the same material; for selling, it will be a business activity. 2. Profit Motive:- the prime consideration in a business is to earn profit which represents a 1 NSS College..

fair return on capital employed and reasonable reward for risk taken. Business provides a way of living to the businessman because he intends to earn profit. 3. Continuity in dealing:- Usually the term business refers to a series of dealings in regular sequence. Business activities are recurring in nature. Recurring purchase and sales are regarded as identifying marks of the business. 4. Creation of utility:An important characteristic of business s the creation of utilities. The businessmen transports goods from a place where it is less needed to a place where it is more required place utility through transportation. He also converts raw material into semi finished and finished goods in order to make them useful for the consumers (Form utility through processing). 5. Customer satisfaction. The aim of business is profit earning but it is not possible without customers satisfaction. Hence business man should make goods and services according to the need and taste of the consumers. 6. Human Activity:- Business is ahuman activity because human resourse is needed to utilise various resources. The success of business depends on optimum utilisation of resources by the human.

Significance of Business in Modern Society. Business is an integral part of modern society. It is an organized and systematized activity for profit. It is concerned with activities of people working towards a common goal. The modern society cannot exist without business. The need and importance of business in society can be described as follows: 1. Improvement in standard of living: Business helps people in general to improve their standard of living. 2. Proper utilization of resources: It leads to effective utilization of the scarce resources of society. It provides facility of mass production. 3. Better quality and large variety of goods and services: It involves production, purchase and sale of goods and services for price. Customer satisfaction is the backbone of modern business. Services such as supply of water, electricity etc. may be considered highly significant for the community. 4. Creates utilities: Business makes goods more useful to satisfy human wants. It adds to products the utilities of person, time, place, form, knowledge etc. Thus, people are able to satisfy their wants effectively and economically. 5. Employment opportunities: It provides employment opportunities to large number of people in society. 6. Workers' welfare Business organizations these days take care of various welfare activities for workers. They provide safer and healthier work environment for employees. Profit is not the sole objective of the business. It may have other objectives like promotion of welfare of the workers and the general public. Business activities include production and distribution of goods and services, which can satisfy human wants.

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Business Environment Environment means surrounding. Business environment means the factors/activities those surround the business. In other words, business environment means the factors that affect or influence the business. Business Environment refers to those aspects of the surroundings of business enterprise, which have influence on the functioning of business. An organization can survive and grow only when it continuously and quickly adapts to changing environment. We are living in the dynamic world, which is undergoing a rapid change, because of coming up of new ideas, economic changes, political changes and new technology. Keith Davis has observed that business environment is the aggregate of all conditions, events and influences that surround and affect the business. A business firm gets human resources, capital, technology, information, energy, and raw materials from society. It follows government rules and regulations, social norms and cultural values, regional treaty and global alignment, economic rules and tax policies of the government. Thus, every business organization has a direct relation with its environment. The success or failure of a business depends upon the effectiveness of interaction of a business with its environment. Business Environment Meaning: Business environment refers to all those internal and external factors, which impact the functioning/performance of a firm and/or its decision making particularly strategies. There are internal as well as external factors, which affect the success of a business firm. According to Gerald Bell: An organizations external environment consists of those things outside an organization such as customers, competitors, government units, suppliers, financial firms and labour pools that are relevant to an organizations operations Thus, it can be said environment as the set of external factors such as the economic factors, socio-cultural factors, and government factors demographic factors geophysical factors, which are uncontrollable in nature and affects the business decisions of a firm or company. Importance of the study of Business environment. 1. Helps the business in developing its strategies and policies 2. Can understand and analyses its competitors strategies; and can also formulate its counter strategies. 3. Helps to foresee the impact of socio economic changes in the national and international level. 4. Managers can adjust themselves to the prevailing conditions and can influence the environment as far as possible. Components of Business Environment. A manager must follow a change in his or her structure, strategy and policies in response to the changing environmental forces. Thus, a business firm exists in two level of business environment a) Internal and b) External. Internal business environment comprises internal structure, system, culture, staff, and resources of the organization. This is sometimes identified into the internal functional areas such as marketing-distribution, finance accounting, human resources, production-operation, and research-development.

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Components of Business Environment. Or Factors affecting Business Environment.

Internal Environment Value System Vision and Objectives Management Structure and nature Human Resources Company Image and Brand equity Physical Assets Research and development Marketing Resources Financial Resources.

External Environment

Micro / Operating Environment. Suppliers Customers Market intermediaries Competitors Public

Macro / General Environment. Economic Political Socio cultural Technological Natural Demographic Internal Global/ international

INTERNAL ENVIRONMENT

The internal environment is the environment that has a direct impact on the business. Here there are some internal factors which are generally controllable because the company has control over these factors. It can alter or modify such factors as its personnel, physical facilities, and organization and functional means, like marketing, to suit the environment. The important internal factors which have a bearing on the strategy and other decisions of an organization are discussed below. 1. Value system. The value system of the founders and those at the helm of affairs has important bearing on the choice of business, the mission and the objectives of the organization, business policies and practices. 2. Mission and vision and objectives Vision means the ability to think about the future with imagination and wisdom. Vision is an important factor in achieving the objectives of the organization. The mission is the medium through which the objectives are achieved. 3. Management structure and nature The structure of the organization also influences the business decisions. The organizational structure like the composition of board of directors , influences the 4 NSS College..

decisions of business as they are internal factors . The structure and style of the organization may delay a decision making or some other helps in making quick decisions. 4. Human resource The human resource is the important factor for any organization as it contributes to the strength and weakness of any organization . The human resource in any organization must have characteristics like skills, quality, high morale, commitment towards the work , attitude, etc. The technical skills that they possess, their attitude towards work and their organisation, their level of experience, etc are all very importnant factors that may afffect the performance and growth of any business. 5. Company image and brand equity The image of the company in the outside market has the impact on the internal environment of the company. It helps in raising the finance, making joint ventures, other alliances, expansions and acquisitions, entering sale and purchase contracts, launching new products, etc. Brand equity also helps the company in same way. 6. Miscellaneous factors. The other factors that contribute to the business success or failure are as follows: Physical assets and facilities :- facilities like production capacity, technology are among the factors which influences the competitiveness of the firm. The proper working of the assets is indeed for free flow of working of the company. Research and development: - Though R&D department is basically done external environment but it has a direct impact on the organization. This aspect mainly determine the companys ability to innovate and compete. Marketing resources: - Resources like the organization for marketing, quality of the marketing men, brand equity and distribution network have direct bearing on marketing efficiency of the company Financial factors :- the financial strength of the company will go along way in helping any company to adjust with the changing environment. In case there are sudden requirements for funds for the purpose of investment and availing beneficial schemes, a finacially sound company will have competitive advantage. They may be able to grab the opportunity faster than another, which has to first gather the fund and then avail the opportunity. Factors like financial policies . financial positions and capital structure are also important internal environment affecting business performances , strategies and decisions. All these business environment components are controllable.

External business environment comprises two parts. They are Micro business environment and Macro business environment. THE MICRO ENVIRONMENT OF BUSINESS. The microenvironment of business consists of the forces in the companys immediate environment that affects the performance of the company. These forces are more closely linked with the business than the macro factors. According to Philip Kotler: The micro environment 5 NSS College..

consists of the actors in the companys immediate environment that affects the performance of the company. These include the suppliers, marketing intermediaries, competitors, customers and the public. The microenvironment factors are discussed in detail as follows. 1. Suppliers: The important force in the microenvironment of a company is the suppliers i.e., those who supply the inputs like raw materials and components to the company. They are important to the company because :- For the smooth functioning of the business it is very important to have reliable source of supply. Uncertainty regarding the supply or other supply problems will compel the companies to maintain high inventories which will cause increase in costs. It is very risky to depend on a single supplier because a strike, lock out or any other production problem with that supplier may seriously affect the company, similarly a change in the attitude of behavior of the supplier may also affect the company. Hence, multiple sources of supply often help reduce such risks. 2. Customers: Customer is the central point of any business. Success of any business depends upon identifying customers, their needs, likings, tastes etc and enhancing the level of customer satisfaction. Because of increase in the level of competition, attracting and satisfying the customer has become more challenging. For attracting the new customers, companies conduct consumer research, design product as per needs of customers, spend heavily on advertisement, provide after sales service etc. A company may have different categories of customers viz, Industrial customers Retailers customers Wholesalers customers Government bodies customer Foreign customers. For different types of customers, business units will have to develop different types of products, so that different class of customers can be attracted towards companies products. Different customers have different levels of income, tastes and preferences. A person with higher level of income buy costly products and a person with lower level of income buy cheap products. So its is must that business firm makes products according to the demands of customers. The task of customer satisfaction has become more challenging with increase in globalization. Depending on a single customer is often too risky because it may place the company in a poor bargaining position, apart from the risks of losing business consequent to the winding up of business by the customer or due to the customers switching over the competitors of the company. The choice of the customer segments should be made by considering a number of factors including the relative profitability, dependability, stability of demand, growth prospects and the extent of competition. 3. Labour: In big organizations where hundreds of workers are employed, the labour force is organized in the form of trade unions. The trade unions interact with the management for higher wages and bonus, better working conditions etc. They pressurize the management for the fulfillment of their demands and resort to go slow tactics, strikes gherao. 4. Competitors: Competitors play a vital role in running the business enterprise; business has to adjust its various business activities according to the behavior of the competitors. Competitor means other business units, which are marketing or producing similar products or a very dose substitute of our 6 NSS College..

product. Nowadays. Competition has increased to a great extent- At present, no business unit enjoys monopoly in the market. The business unit should also identify the weaknesses of its competitors, and use such weaknesses of competitors to strengthen its own business. Globalization is further promoting competition, and is creating threat lo the domestic industrial units. There are various types of competitors: 1. Desire Competition. This type of competition generally found in where the countries having low income and the unsatisfied customers. Such a countries the basic Task of buying products go to either he or she has to buy T V or refrigerator or washing machine. This type of competition among desires is termed as desire competition. 2. Generic competition: Generic competition arises where the consumers have many options in single line of products. For example one may have options in investing the money either in UTI or post office or banks. It is called generic competition. 3. Product form competition: In this type of competition the consumer has to choose between different forms of the product. For example if the consumer decides to go for a washing machine the next question which form of the washing machine semi automatic or fully automatic front loading or top loading etc. 4. Brand competition: This type of competition arises where consumers have many brands in similar products. The marketer in this regarding needs to create brand demand for the products.

5. Marketing intermediaries: The marketing intermediaries are those firms aid the company in promoting, selling, and distributing its goods to final buyers. The marketing intermediaries include middlemen such as agents and merchants who help the company find customers or close sales with them; Physical distribution firms which assist the company in stocking and moving goods from their origin to their destination- such as warehouses and transportation firms; Marketing services agents which assist the company in targeting and promoting its products to the right markets - such as advertising agencies, marketing research firms media firms and consulting firms; and Financial intermediaries- Which finance marketing activities and insure business risks. 6.Financiers: Another important micro environment factor is the financiers of the company. Besides the financing capabilities their policies and strategies attitudes (including attitude towards risk) ability to provide non-financial assistance etc. are very important. 7.Public: A company may encounter certain publics in its environment. A public is any group that has an actual or potential interest in or impact on an organizations ability to achieve its interests. Media public, citizen action publics and local publics (e.g. environmental pollution) are some examples. Growth of consumer publics is an important development affecting business. But it is wrong to assume that all publics are threat to the business. For example the media public may be used to disseminate useful information. 8. Regulating agencies. They include Government departments and other organizations, which monitor the activities of business. The examples are income tax department, and other revenue departments, quality control departments etc.

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THE MACRO ENVIRONMENT OF BUSINESS. The macro environment of business includes activities, which are uncontrollable and need proper nourishment and attention on the part of a business enterprise. According to Hill and Jones The macro environment consists of the broader economic social demographic political legal and technological setting within which the industry and the company are placed. According to Elbing Macro environment is the indirect action environment as it may not have an immediate direct effect on the operation but nevertheless have influence. The important macro environmental factors are explained as follows: 1. Economic environment: Economic environment of business has reference to the broad characteristics of the economic system in which the business operates. The present day economic environment of business is a complex phenomenon. The business sector has economic relations with the Government, the capital market, the household sector and the foreign sector. These different sectors, together, influence the trends and structure of the economy. The economic environment includes the structure and nature of the economy the stage of development of the economy, economic resources the level of income, the distribution of income and assets global economic linkages economic etc. The external factors that affect the economic environment are; A. Economic Conditions: General economic conditions prevailing in a country affect the business. Improvement in economic conditions improves the style and quality of life, consumption level and purchasing power of public. Economy pass through periods of boom and recession. If boom conditions are prevailing in the economy, it positively effects demand and market share. When the economic growth of a country is stronger, the income level of the people will be high, and so there will be a higher volume of spending on products and services. Since the demand for the products are high, firms can generate higher revenue. Recently growing income of middle class in India has encouraged foreign investors to invest in India. Where a strong economy can generate higher income for the company, a slow economic growth results in low demands for the products. If economy is in depression it will have a negative effect on the business. Even the firms that provide basic products and services are adversely affected by a weak economy. In a developing country, the low income may be the reason for the very low demand for a product. A firm is unable to increase the purchasing power of the people to generate a higher demand for its product. Hence, it may have to reduce the price of the product to increase the sales. B. Economic System. The scope of international business depends, to a large extent, on the economic system. At one end, there are the free market economies or capitalist economies, and at the other end are the centrally planned economies or communist countries. In between these two are the mixed economies. Within the mixed economic system itself, there are wide variations. Capitalist system:- A capitalist economy is an economic system in which the production and distribution of commodities take place through the mechanism of free markets. Hence it is also called as market economy or free trade.

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Socialist Economy:- In a socialist economy, the means of production are owned and operated by the State. All decisions regarding production and distribution are taken by the central planning authority. Hence the socialist economy is also called as planned economy or command economy. The government plays an active role. Social welfare is given importance; hence equal opportunity is given to all. Some of the most successful socialist economies are China, Cuba, Vietnam and North Korea.

Mixed economy: - In between the capitalist system and the centrally planned system falls the system of the mixed economy, under which both the public and private sectors co-exist, as in India. The extent of state participation varies widely between the mixed economies. However, in many mixed economies, the strategic and other nationally very important industries are fully owned or dominated by the state. The economic system, thus, is a very important determinant of the scope of private business. The economic system and policy are, therefore, very important external constraints on business. C. Economic Policies: 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 importcompeting industries. Similarly, an industry that falls within the priority sector in terms of the government policy may get a number of incentives and other positive support from the government, whereas those industries which are regarded as inessential may have the odds against them. There are several economic policies which can have a very great impact on business. They include; (i) Industrial policy: The Industrial policy of the government covers all those principles, policies, rules, regulations and procedures, which direct and control the industrial enterprises of the country and shape the pattern of industrial development. (ii) Fiscal policy: It includes government policy in respect of public expenditure, taxation and public debt. (iii) Monetary policy: It includes all those activities and interventions that aim at smooth supply of credit to the business and a boost to trade and industry. (iv) Foreign investment policy: This policy aims at regulating the inflow of foreign investment in various sectors for speeding up industrial development and take advantage of the modern technology. (v) ExportImport policy (Exim policy): It aims at increasing exports and bridge the gap between expert and import. Through this policy, the government announces various duties/levies. The focus now-a-days lies on removing barriers and controls and budgets (vi) economic planning- Economic planning refers to interventionists economics activities by the Government aimed at directing the economy with a view to achieve pre determined objectives. (E.g. Indias Five year Plans) (vii) Business laws (viii) Control on price and wages (xi) Trade and transport policies (x) Foreign exchange policy etc The government keeps on changing these policies from time to time in view of the developments taking place in the economic scenario, and the changing requirement. Every business firm has to function strictly within the policy framework and respond to the changes therein. 9 NSS College..

D. Legal Environment This refers to set of laws, regulations, which influence the business organisations and their operations. Every business organisation has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include: (i) Companies Act, 1956 (ii) Foreign Exchange Management Act, 1999 (iii) The Factories Act, 1948 (iv) Industrial Disputes Act, 1972 (v) Payment of Gratuity Act, 1972 (vi) Industries (Development and Regulation) Act, 1951 (vii) Prevention of Food Adulteration Act, 1954 (viii) Essential Commodities Act, 2002 (ix) The Standards of Weights and Measures Act, 1956 (x) Monopolies and Restrictive Trade Practices Act, 1969 (xi) Trade Marks Act, 1999 (xii) Bureau of Indian Standards Act, 1986 (xiii) Consumer Protection Act, 1986 (xiv) Environment Protection Act (xv) Competition Act, 2002 Besides, the above legislations, the following are also form part of the legal environment of business. i) Provisions of the Constitution: The provisions of the Articles of the Indian Constitution, particularly directive principles, rights and duties of citizens, legislative powers of the central and state government also influence the operation of business enterprises. (ii) Judicial Decisions: The judiciary has to ensure that the legislature and the government function in the interest of the public and act within the boundaries of the constitution. The various judgments given by the court in different matters relating to trade and industry also influence the business activities. E. Economic Growth.:- The stage of economic growth of the economy has direct impact on the business. In countries where investment and income are steadily and rapidly rising, business prospects are generally bright, and further investments are encouraged. There are a number of economists and businessmen who feel that the developed countries are no longer worthwhile propositions for investment because these economies have reached more or less saturation levels in certain respects. F. Interest rates: - the rate of interest affects the demand for the products in the economy, when goods are to be purchased through borrowed financing. Low interest rates provide opportunities, where as rising rates pose a threat to business.

2. Political Legal and Government 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. The stability of the government also influences business and related activities to a great extent. It sends a signal of strength, confidence to various interest groups and investors. Further, ideology of the political party also influences the business organisation and its operations. Most of the labour unions in India are affiliated to various political parties. Strikes, lockouts and labour disputes etc. also adversely affect the business operations. Some governments specify certain 10 NSS College..

standards for the products (including packaging) to be marketed in the country; some even prohibit the marketing of certain products. In most nations, promotional activities are subject to various types of controls. Regulations to protect the purity of the environment and preserve the ecological balance have assumed great importance in many countries. The Political Conditions in the country influence business activities in different ways. They provide opportunities for the business units to achieve heir goals. At the same time the political conditions pose challenges before the business enterprises. They have to adjust themselves to the political environment and use it to their benefit. The dimensions of political environment In any country, the political environment is characterized by the following dimensions: 1. The nature of the political system. 2. The nature of the constitution of the country 3. The political awareness of the people and of the government 4. The laws passed by the government

1. The nature of the political system. The political systems in the world can be broadly classified into democracies and autocracies. Under democratic policy the govt. is elected by the people and is answerable to the people for every action or failure to take an action. In a democracy, the govt. has to take the people into confidence before taking any important decision. The experts may be in favor of a particular activity but the govt. may not be able to take up that activity if it is opposed by a large number of the people. An autocracy is a state in which the govt. does depend upon the support of the people in continuation in office. The autocracy may take the form of the monarchy of the military or some other type of a dictatorship. Under this type of govt., a decision taken by the govt. can be smoothly carried out even in preface of a strong opposition from some people. In China, any economic reform can be effectively carried through, because of the nature of Chinese govt. Single, two and multi party states. In a single party state like China, it is easy to implement any economic reform. If the party is convinced of the importance of a particular project it can be carries through. In a two party state, the party enjoying support of the majority gets powered. It can easily carry through any economic reform or give patronage to any project or business enterprise. In a multi party state, there is no guarantee that any single party would enjoy the support of the majority. Often, such a country is ruled by a coalition govt. in which more than one parties come together to form a govt. Sometimes, some parties support the govt. from outside. The parties adopt a common minimum program. Those projects and enterprises which fall into the framework of the common minimum program can be carried though. 2. The nature of the constitution of the country If a country has an unwritten constitution like that of England, every law passed by the parliament is equally important. The parliament is supreme. It can do or undo things. It can help any project which gets its approval. In a country like India having written constitution, the authority of the parliament is limited to the clauses of the constitution. If a particular law passed by the parliament or a particular order issued by the executive is contradictory to any provision of 11 NSS College..

the constitution, it can not be put into practice. Thus, the authority of the parliament to help business or to stop a particular business is limited by a provision of the constitution.
Unitary or Federal Constitution

Under, unitary constitution or powers are concentrated in the hands for one central govt. There might be other administrative units but they derive their authority from the central govt. They do not have any independent powers. Under a federal constitution, the powers of the govt. are divided between the central govt. and the state govts. The sources of income including taxes are also divided between the central govt. and the state govts. In India, the income tax on individuals and the corporation tax are with the central govt. whereas the sales tax and the excise duty on alcohol are with the state govt. India has a federal constitution. It is possible that a particular project may be approved by the central govt. but they may not be implemented if it has an objection from the state govt. concerned. The business enterprises have also to take into consideration the tax structure of different states while selecting their location in a particular state. Different states may try to attract business activities to them by providing different incentives; this is beneficial to business enterprises because they can get maximum advantages because of the competition amongst the state govt. for attracting business units to them. 3. The political awareness of the people and the govt. If the people have a high sense of awareness, the govt. is more responsive to the wishes of the people. On the other hand if the people are passive and indifferent, the govt. looses its democratic character. People having personality cult and a blind faith in certain things are not able to bring into practice the spirit of democracy. The people should be aware of their rights and also of their duties in the smooth functioning of a democracy. 4. The laws passed by the govt. In any modern state, the will of the people is expressed in the form of laws passed by the legislature. The executive is bound by the laws and individuals and institutions can be penalized only under the provisions of a law. In India, several laws have been passed for regulating business enterprises. Some prominent amongst them are the companies act which regulates the formation and management of joint stock companies and gives protection to the investors. The factories act regulates the working conditions in the factories. The workers remuneration is regulated by several acts such as the minimum wages act and the payment of bonus act. The industrial disputes act sets up machinery for resolving the disputes between management and workers. The competition act 2002 tries to protect and foster competition which is helpful to progress. The monopolies and restrictive trade practices act tries to control the growth of monopolies and prevent the use of restrictive trade practices. The foreign exchange management act regulates the buying and selling and possession of foreign exchange by individuals and foreign exchange dealers. Any business enterprise has to work within the legal framework set up by the state. Responsibilities of business towards the government In any country the government tries to preserve the community and improve its conditions. In that respect the business has to extend its co-operation to the government. If the business discharges its responsibilities the government sincerely and effectively, the government can function more efficiently. The prominent responsibilities of the business towards the government can be described as follows: 1. To obey Laws The laws reflect the wishes of the community, they show what the community wants the member to do and what the community wants the member to avoid. The laws control the behavior 12 NSS College..

of the individuals with each other and with the community. If laws are oppressive or obstructing the path of business, they can be opposed in constitutional manner. The business can take the help of constitution or the judiciary to oppose the laws and get them repealed. The maharashtra government banned the sale of gutkha in maharashtra state. The producers of gutkha approached the court which repealed the order of the government of maharashtra on the ground that tobacco is in the jurisdiction of the central government. 2. Payment of taxes The expenditure of a modern government is heavy and is fast increasing. The main source of income for the government is the different type of taxes imposed by it. The business pays taxes on goods produced by them, taxes on goods imported by them, taxes on own income and taxes on the incomes of the employees. The bulk of the tax revenue is collected from business. If business pays the taxes honestly and on time the government can fulfill its responsibilities efficiently. 3. Social responsibility In addition to the legal and political responsibilities, the business has to take up several moral responsibilities towards the society. Thus, the business has to provide training facilities for the unemployed persons so that they can get absorbed in some occupation or can setup self employment units. Several business houses established educational institutions, hospitals, libraries, recreation halls, playgrounds etc. for the community. 4. Providing inputs to the government Often the government requires inputs of technical economic financial or political importance for framing appropriate policies. The business has contacts in different sections of the community. They can be used for collecting the required information and providing it to the government. Any action based upon accurate inputs has greater chances of achieving a higher success. For eg: before imposing a tax on commodity the government likes to know the elasticity of demand for that commodity. 5. Government Contracts The government has to take up several works such as construction of roads, bridges, flyovers, airports etc. Sometimes these works are undertaken by the government departments but a more common method of undertaking that work is to invite tenders and give contracts to business. It is the responsibility of the business to complete the work in time and maintain a high level of quality of the work 6. Government Services The business offers services of its leaders to the government to work on different committees. The business leaders have practical experience of a particular type of business. A committee appointed for doing something in respect of that business is highly benefited if some prominent person from that field is appointed as the chairman of that committee or commission. 7. Active participation in politics Sometimes the businessmen try to participate actively in politics. A member of the TATA family contested election to the lok sabha. Sometimes the leaders of the business are nominated to the Rajya Sabha so that the government gets the benefit of their practical experience of that field. Government Responsibility towards Business As the business has to discharge certain responsibilities towards the government, similarly the government has to discharge several responsibilities towards the business. In particular the responsibilities of the government towards business can be described as follows: 13 NSS College..

1. To pass and execute proper laws The behaviour of the people in society can be effectively controlled with the help of laws. The government has to pass laws which would create a friendly and helpful atmosphere for the business to grow. At the same time the laws should be capable of controlling the dishonest businessmen and prevent and punish their unfair practices. In India the government has passed several laws such as Companies Regulation Act, The factory Act, The labour Laws, the social security laws, the foreign exchange management act etc.

2. Maintenance of law and order It is the responsibility of the government to maintain law and order and peace in the community. Any business can exist and prosper if there is law and order in the country. Periods of disturbance are harmful to the existence of business and much more to the progress of the business. The government has to maintain law and order for attracting foreign investment. 3. Providing Money and Credit Every business requires credit. Finance is provided to business by the money market and the capital market. The government has to regulate them in such a way that they are able to attract more capital and direct it to the business. It is the responsibility of the government to maintain the financial institutions in sound health so that they can mobilize more finances. 4. Building Infrastructure All productive activities require infrastructure by way of means of transport and communications, supply of energy and credit, providing appropriate information about the openings for different businesses etc. If the government is successful in building efficient infrastructure, business can expand at a fast rate.

5. Providing information The government collects information on several issues such as the growth of population, changes in the demographic features, trends in migration etc. This information is highly useful to business in formulating its policies. The government can keep that information open to business 6. Controlling the growth of monopolies and preserving competition A free market economy has an inherent tendency to give birth to monopolies. They are economically and socially harmful. They result into concentration of economic and political power. They are also instrumental in increasing inequalities. The government can pass appropriate laws and can take timely action for preventing the growth of monopolies and encourage competition. 7. Reservation of fields of production The government reserves certain fields of production for the public sector. The remaining part is kept open to the private sector. In India several fields of production were reserved for the small scale and cottage industries. The sphere was contracted after we adopted the policy of globalization. 8. Awarding patent rights and copy rights Progress in any field requires research inventions and innovations. The job of patent rights and copyrights is to give protection to those who invest in research and arrive at inventions and innovations. Every country has its patent rights. After the establishment of the WTO the member 14 NSS College..

countries have adopted the rules and regulations prepared by WT in respect of patent rights, copy rights and allied matters 9. Protections The industries belonging to the developing countries are not able to compete with the industries belonging to the developed countries. It is the responsibility of the government to give them protection by using tariff and if necessary, non-tariff barriers. At the same time the industries should not get undue protection which would develop complacency. After the establishment of the WTO, protection is slowly on the decline. In short the political legal environment of a business depends on: 1. Legal rules for business for its formulation and implementation, its efficiency and effectiveness. 2. Defense and military policy impact of defines on industrial enterprise in terms of trading with potential enemies, purchasing policies strategic industrial development etc. 3. Political stability impact of factors like civil war, the declaration of presidents rule and emergency changes in the form and structure of government administration. 4. Political organization ideology of the ruling government philosophy of the political parties degree and extent of the bureaucratic delays, red tapism, the influence of premier groups the question of donation by business houses to political parties. 5. Flexibility and adaptability of law constitutional amendments their urgency and frequency, velocity of public policies. 6. Foreign policy alignment or non-alignment tariffs customers unions etc image of the country and its leaders.

3. Socio-Cultural Environment: The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. They al include peoples attitude to work and health, role of family, marriage, religion and education, ethical issues, social responsibility of business. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc. Due to increase in literacy rate the consumers are becoming more conscious of the quality of the products. Due to change in family composition, more nuclear families with single child concepts have come up. This increases the demand for the different types of household goods. It may be noted that the consumption patterns, the dressing and living styles of people belonging to different social structures and culture vary significantly. Some components of socio cultural factors affecting business are:1. Language. Language is the foundation of culture. Since communication is not possible without language, it is thus, very possible for a business firm to be acquainted with the language of the particular country in which they are doing business. Language of a country has to be learnt to understand the culture of a country. A marketer must be careful even when the same language is used in two or more markets such as U.K. and USA There are significant difference between British English and American English. Language differences often make marketing modifications necessary When a marketing campaign is made global, careful translation is needed, h is very critical to keep in mind that the thoughts not the words are to be translated. 15 NSS College..

2. Customs. A business firm should also consider the social customs of the customers. The purchase decisions of consumers are, generally dictated by culture, gender roles, buying patterns of certain society, family structure etc. The foreign firm should collect first hand information about the customs of a particular market, which will help them in taking decisions about the products or services. For example, in North India, it is customary for people to make their major purchases during Diwali festival People keep on postponing their shopping till the festive season Thus a firm will have to prepare its marketing strategy to fulfill the demand requirements of the festive season. 3. Education. Educational level of the customers also affect the production and marketing strategies of a firm. Education leads to better communication, new ideas, improved technology etc. Education in different countries is also different and there may be different methodologies of imparting education. The diffusion of new innovations into different cultures depends on the education level. 4. Religion. Religion is a very important component of culture If religion provides people with a sense of win they are on this earth, it may consciously and unconsciously dictate how they conduct their lives Attitudes, values and behaviour can often be traced to regional philosophies. For example, an American firm selling chicken products in Muslim countries will have to keep in mind that the Muslims eat only 'halal' meat and not the other 5. Attitudes and Values. People's attitudes and values about certain topics are important to that Society's economic development and its people's behaviour. Attitudes and values about time, work, achievements, wealth and material gains are of particular concern. In some countries punctuality is very important whereas in other a difference of one or two hours in taken for granted. People in some countries are over ambitious whereas in others they may be self-satisfied. A firm has to study the attitudes and values of a particular society before venturing in that region 6. Social Organisation. People organise activities and role relationship consistent with other cultural values and expectations Important variables to be considered here are a culture's origin and history, family relationships, friendships, class structure social and reference groups, gender roles etc 7. Legal Systems. Laws are rules of culture established by authority, society or custom They reflect the attitudes of the culture, they may be written or verbal. Most of the world fit into one of the following legal systems-Common Civil, Communism, or Indigenous. All these components indicate how the marketer approaches another socio cultural environment by adopting the view point ot that culture Socio-cultural forces play a very vital role in international business strategies and marketing mix

4. Natural environment: In natural environment we include geographical and ecological factors. Both these factors are relevant to the business. These factors include: 1. Natural resources endowment. 2. Weather and climate conditions 3. Topographical factors. 4. Location aspects 5. Port facilities etc. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the sources of input. Further, governments policies to maintain ecological balance, conservation of natural resources etc. put additional responsibility on the business sector. 16 NSS College..

5. Demographic Environment: Demographic factors include: 1. Size, growth rate, age composition, sex composition, etc of population. 2. Family size 3. Economic stratification of population 4. Educational level 5. Caste, religion etc. This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services. For example a country where population rate is high and children constitute a large section of population, then there is more demand for baby products. Similarly the demand of the people of cities and towns are different than the people of rural areas. The high rise of population indicates the easy availability of labour. These encourage the business enterprises to use labour intensive techniques of production. Moreover, availability of skill labour in certain areas motivates the firms to set up their units in such area. For example, the business units from America, Canada, Australia, Germany, UK, are coming to India due to easy availability of skilled manpower. Thus, a firm that keeps a watch on the changes on the demographic front and reads them accurately will find opportunities knocking at its doorsteps. 6. Technological environment; Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time. It may be noted that scientific research for improvement and innovation in products and services is a regular activity in most of the big industrial organisations. Now a day in fact, no firm can afford to persist with the outdated technologies. . Technological developments can relate to the following areas. New product development New organizational style New management Techniques New Marketing techniques New Production Techniques.
TRANSFER OF TECHNOLOGY

During the past one decade, The New International Economic order (NIEO) has been one of the most extensively discussed subjects and transfer of technology is one of the aspects of that order. Technology is an essential mode for socio-economic development of a country. But as it is well known, the modern know how and technology is today the monopoly of the Multinational Corporations (MNCs). The less developed countries, who lack it are totally dependent on the MNCs for borrowing the sophisticated and costly technology The recent practice has made it essential to thoroughly study the problems and prospects of transfer of technology.
METHODS OF TRANSFER OF TECHNOLOGY

Modes of technology transfer can be broadly classified in two ways -(i) According to the nature of the technology transfer. (ii) According to the nature of instrument used.
(i) ACCORDING TO THE NATURE OF TECHNOLOGY TRANSFER.

As far as classification according to the nature of the technology transfer is concerned, COOPER & HOFFMAN have presented a three fold categorization of technology transfer : 17 NSS College..

(a) Simple direct sales of technology Simple direct sale consists of outright sale of embodied or disembodied technology by unrelated firms for prices which are more or less competitive. Disembodied technology transfer may be through the Foreign Direct Investment (FDI) which includes capital, entrepreneurship, management, technology etc and through licensing of specific resources like propreitory process/product technology etc. Embodied technology transfer refers to technology embodied in capital goods, skills of technicians, technical literature etc. (b) Process packaged sale of technology Process packaged sale of technology means a system where a complete industrial process or plant is supplied by machinery manufacturers, independent engineering firms or final manufacturers of products (c) Project Packaged Sale of Technology The project packaged sale of technology means a method where the technology is accompanied by other requirements for the commercial operation of a project i.e. measurement, capital, brand names etc and by some element of continuous link or control by the seller.
(ii) ACCORDING TO THE NATURE OF THE INSTRUMENT USED

The second method of classifying technology transfer is by the nature of the instrument used i.e.whether technology is sold in the form of equipment, designing of plant supervision, management, licenses, direct investment etc. Technology transfer between countries can take place in a number of ways :1. By the Flow of books, Journals and other published information. 2. By the movement of people between countries including immigration, return of emigrants, study visits and other travel. 3. By Foreign investment and the associated transfer of knowledge and equipment 4. By the import of machinery and equipment. 5. By Technical cooperation programmes, material and bilateral, official and private 6. By Licensing, patent and knowhow agreements. Most developing countries employ all these methods simultaneously. The first method is more important for transfer of fundamental scientific knowledge. All the other methods are directly relevant for the transfer of industrial technology. Through technical cooperation programmes with other countries, governments of developing countries have sought to introduce latest technology in their industrial sector. For this purpose, they sent their missions abroad or invite technical missions from abroad through the establishment of a network of technical training and research institutions, they have tried to improve the quality of technical services.
Multinational corporations. However, the chief instrument of transfer from developed to the developing countries are the multinational corporations MNCs are huge industrial organisations which extend the industrial and marketing operations in a number of countries through a network of their branches or subsidiaries They bring with them technical knowledge and equipment and also participate in the industrial development programmes of the developing countries by licensing, patent and know how agreements. MNCs organise their operations in different countries through any of the following five alternatives : 1. Branches. This is the simplest way of extending the operations. Under this alternative, the MNCs set up branches in the developing countries. These branches bring with them the technology of the parent company and are linked up with it 2. Subsidiaries. MNCs also operate by setting up subsidiary companies in the affiliated nations. A subsidiary in a particular country is established under the laws of the country. 3. Joint venture company. Sometimes, the MNCs enter into a joint venture with an indigenous firm or agency. Under this arrangement, the MNCs make available machinery, capital goods and technological expertise to the indigenous firm. 4. Franchise Holders. This is a special kind of arrangement under which an affiliated firm produces or markets the product of a MNC after obtaining a license from that MNC. 5. Turnkey projects. Under this organisational form, the MNC undertakes to complete the project from scratch to the operational stage. When the project is ready it is handed over to the host country.

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Through these various methods of operations, the MNCs carry their technology to the developing countries. If MNCs set up a branch or a subsidiary company, it is claimed that there is a direct injection of foreign experience and expertise in the developing country. This branch or subsidiary can provide a channel for the transmission of the latest improvements from the developed to the underdeveloped countries. However, the success on this front depends crucially on how far the recipient countries are able to regulate the activities of the MNCs. keeping the local interests in view. 7. International environment: The international environment is very important from the point of view of certain categories of business. It is particularly important for industries directly depending on imports or exports and import-competing industries. For example, a recession in foreign markets, or the adoption of protectionist policies by foreign nations, may create difficulties for industries depending on exports. On the other hand, a boom in the export market or a relaxation of the protectionist policies may help the export-oriented industries. A liberalization of imports may help some industries which use imported items, but may adversely affect import-competing industries. Implications of global or international environment are as follows: Due to liberalization Indian companies are forced to view business issues from the global perspective. Safe and protected markets are no longer there world is becoming small in size due to advanced means of transport and communication facilities. To survive amidst intense competition every businessman should try to adapt his products to different customer needs and tastes.

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Module 2 International Trading Environment. Commodity agreement- trade blocks- regional trade agreements- EEC ASEAN SAARC- and OPEC- GATT- WTO- Globalization: meaning and significance- advantages. Limitations. International Trade. One of the most dramatic and significant world trends in the past two decades has been the rapid, sustained growth of international business. International business includes any type of business activity that crosses national borders. International trade is the exchange of goods and services across international boundaries or territories. While international trade has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries. Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact. Increasing international trade is basic to globalization. Without international trade, nations would be limited to the goods and services produced within their own borders. International or foreign trade. This refers to the supply of the goods to buyers located in foreign countries. When goods are moved from one country to another, payments have to be converted into the currency of ht other country and means of international transportation have to be used. Such trade is conducted mostly on wholesale basis. Foreign trade maybe further divided into: (a) Import trade which consists in the procuring of foreign goods for home use. (b) Export trade, which consists in the supply of home goods for foreign use. (c) Entrepot trade, which effects the exchange of goods between foreign producers and foreign consumers. International Commodity Agreement. International commodity agreements are inter-governmental arrangements concerning the production and trade of certain primary products. Many developing countries are in need of large foreign exchange resources to finance their development requirements like capital goods imports. But they have been facing the important problem of wide-fluctuations in the export prices of the primary goods i.e. agricultural products and minerals, which form a major part of their total exports. Apart form making the export earnings unstable, it has also been causing a deterioration in their terms of trade. Hence, there has been a growing demand for adopting stabilization measures to protect especially the interests of developing countries. International commodity agreements, it is believed, can help stabilize prices of the respective commodities. Commodity agreements are international agreements designed to stabilise commodity prices in the interest of producers and consumers. It is an agreement under which the main exporting countries and the main importers of a commodity undertake to respect a regulation relating to the international trade in this product. An agreement usually involves a consensus on quantities traded, prices, and stock management. Objectives of ICA The main objectives of the international commodity agreements are:1. Price Stabilization: Price stabilization is a very important purpose for which commodity agreements have been entered into. 20 NSS College..

2. The Promotion of Health and Morals: The outstanding example of international agreements for the purpose of promoting health and morals is the international regulation of trade in opium and narcotics. 3. Security Objectives: Inter governmental commodity agreements may also be useful as a preventive of war by preventing scramble for scarce strategic materials for national stock-piling or other security purposes. 4. The Conservation of Resources: The conservation of natural resources is a direct or indirect objective of nearly all international raw material schemes. 5. The management of surplus: Commodity agreements are sometimes entered into to manage the surplus during times of bumper crops, there may arise a problem of surplus. Such should be properly handled to avoid serious adverse effects on price and also to hold stock for the lean period. Forms of Commodity Agreements. Commodity Agreements may take any of the four forms, namely, quotas, buffer stock, bilateral contract, and multilateral contract. I. Quota Agreements: International quota agreements seek to prevent fall in commodity price by regulating their supply under the quota agreement. Export quota are determined and allocated to participating countries according to some mutually agreeable formula and they undertake to restrict the export or production by a certain percentage of the basic quota as decided by the central committee or council. For instance, the coffee agreement among the major producers of Latin America and Africa limits the amount that can be exported by each country. Quota agreements have already been tried in case of coffee and sugar, and commodities like tea and bananas have been suggested as prospective candidates for new agreements. II. Buffer Stock Agreements: International Buffer Stock Agreements seek to stabilize the commodity prices by maintaining the demand-supply balance. Buffer stock agreements stabilize the price by increasing the market supply by selling the commodity when the price tends to rise and by absorbing the excess supply to prevent a fall in the price. The buffer stock plan, thus, requires an international agency to set a range of prices and to buy the commodity at the minimum and sell at the maximum. The buffer pool method has already been tried in case of Tin, and Sugar, and commodities like Rubber, Tea and Copper have been suggested as prospective candidates for new agreements. The buffer stock arrangement, however, has certain limitations. It can be effected only in case of those products, which can be stored at relatively low cost without the danger of deterioration. Further, large financial resources and stock of the commodity are required to launch the programme successfully. III. Bilateral/Multilateral Contracts: Bilateral contract to purchase and sell certain quantities of a commodity at agreed prices may be entered into between the major importer and exporter of the commodity. In such an agreement, an upper price and a lower price are specified. If the market price throughout the period of the agreement remains within these specified limits, the agreement becomes operative. But, if the market price rises above the upper limit specified, the exporting country is obliged to sell to the importing country a certain specified quantity of the commodity at the upper prices fixed by the agreement. On the other hand, if the market price falls below the lower limit specified, the importer is obliged to purchase the contracted quantity at the specified lower price. Such international sale and purchase contracts may also be entered into by two or more exporters and importers. The bilateral/multilateral agreements are usually concluded between the major suppliers and major importers of the commodities. The best example of this type of agreement are the International Wheat Agreement. 21 NSS College..

The contract has disadvantage of creating a two price system. It requires domestic controls of some sort and buffer stock to implement it. And it is quite apt to put the participating governments into the commodities business. In an extreme case, it may become nothing but a payment by the government of one country to that of another without even touching the producer or consumer. Trade blocks An evolving trend in international economic activity is the formation of multinational trading blocs. These blocs are made up of a group of countries that decide to have common trading policies to ensure the economic growth and benefit of the participating countries. In general terms, regional trade blocks are associations of nations at a governmental level to promote trade within the block and defend its members against global competition. Defense against global competition is obtained through established tariffs on goods produced by member states, import quotas, government subsidies, onerous bureaucratic import processes, and technical and other non-tariff barriers. A trade bloc can be defined as a preferential trade agreement (PTA) between a subset of countries, designed to significantly reduce or remove trade barriers within member countries. When a trade bloc comprises neighbouring or geographically close countries, it is referred to as a regional trade (or integration) agreement. The two principal characteristics of a trade bloc are that: (1) it implies a reduction or elimination of barriers to trade, and (2) this trade liberalisation is discriminatory, in the sense that it applies only to the member countries of the trade bloc, outside countries being discriminated against in their trade relations with trade bloc members. The main trade blocs in the world are: (1) in Europe, the European Union (EU), the European Free Trade Agreement (EFTA), the European Agreements, and the European Economic Area (EEA); (2) with the United States, the North American Free Trade Agreement (NAFTA), the Canada-US Free Trade Agreement (CUSTA), and the USIsrael Free Trade Agreement; (3) in Asia, the Association of Southeast Nations (ASEAN) and the ASEAN Free Trade Area (AFTA), and the Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA). Advantages. 1. Economics of scale. Economics of Scale is a term that is used to describe the reduction in cost-per-unit as more units are produced. A trading bloc provides a much larger market as compared to the domestic market in a single county. Economics of scale become possible with widened size of the market. 2. Large scale production. Large scale production to fulfill the demands of integrated markets would lead to optimum utilization of resources. Each country can specialize in a certain sector where it enjoys maximum comparative advantage leaving other sectors to other countries. 3. Cost and price structure. Due to the increase in volume of production and trade, a favorable change in cost and price structure can also be effected. 4. Increased efficiency. Since regional trade blocks lead to increase in volume of production and specialization, maximum utilization of resources, can be achieved. 5. Trade creation. It means substitution of in efficient domestic production in one member nation by cheaper imports from another member. Since trade moves in favour of the most efficient producer, the welfare of consumers increases. To summaries, a regional trade grouping is economically far superior to the relatively small 22 NSS College..

national markets protected from the outside world. The European Economic Community. The European Economic Community was an international organisation [renamed the European Community (EC) in 1993], which was created with a view to bring about economic integration among the Western European countries of Belgium, France, Germany, Italy, Luxembourg and the Netherlands. It was established by the Treaty of Rome in 1957 to develop the economies of the member states into a single common market. The EEC also sought to establish a single commercial policy toward nonmember countries, to coordinate transportation systems, agricultural policies, and general economic policies, to remove measures restricting free competition, and to assure the mobility of labour, capital, and entrepreneurship among member states. The liberalized trade policies it sponsored from the 1950s were highly successful in increasing trade and economic prosperity in western Europe. In 1967 its governing bodies were merged into the European Community. In 1993 the EEC was renamed the European Community (EC); it is now the principal organization within the European Union. It is founded upon numerous treaties and has undergone expansions that have taken it from 6 member states to 27, a majority of states in Europe. Objectives. The main aim of the EEC, as stated in its preamble, was to "preserve peace and liberty and to lay the foundations of an ever closer union among the peoples of Europe". The basic objectives are 1. Formation of a custom Union:- The main provision of the ECM is the establishement of a custom union of the six countries, which will have the following features. 1. The establishment of a customs union with a common external tariff 2. Common policies for agriculture, transport and trade 3. Enlargement of the EEC to the rest of Europe 4. compleate freedom for the movement of goods and services between outside world and partner countries. 2. Economic Integration.:- The common market aims at : Free mobility of labor and capital within the economic community Harmonization of national economic polices of the member countries Development of economic activities of member countries. To accomplish this objectives, the member countries are committed under the treaty of Rome to:1. Removal of customs duties and import and export quotas with each other 2. Establishment of a common tariff and commercial policy for outside nations 3. Abolition within the community of obstacles to the free movement of labour and capital 4. Inauguration of common agriculture and transport policies 5. Application of procedures to coordinate the economic policies of member states and to remedy the dis equilibrium in their balance of payments. 6. Establishment of European social fund 7. Creation of European investment fund 8. Establishment of overseas development fund. The ECM was expanded in 1973 with the inclusion of United Kingdom, Denmark and Ireland. Greece joined the community in 1981, Spain and Portugal in January 1986. 23

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ASEAN

The Association of Southeast Asian Nations, commonly abbreviated ASEAN, is a geopolitical and economic organization of 10 countries located in Southeast Asia, which was formed on 8 August 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand. Since then, membership has expanded to include Brunei, Burma (Myanmar), Cambodia, Laos, and Vietnam. Its aims include the acceleration of economic growth, social progress, cultural development among its members, the protection of the peace and stability of the region, and to provide opportunities for member countries to discuss differences peacefully. ASEAN also has reached free-trade agreements with China (2004), South Korea (2006), Japan (2008), and Australia, New Zealand, and India (2009). Members are also pledged to work together to promote foreign investment in the region. The ASEAN Declaration in 1967, considered ASEANs founding document, formalized the principles of peace and cooperation to which ASEAN is dedicated. The ASEAN Charter entered into force on 15 December 2008. With the entry into force of the ASEAN Charter, ASEAN established its legal identity as an international organization and took a major step in its community-building process. The ASEAN Community is comprised of three pillars, the PoliticalSecurity Community, Economic Community and Socio-Cultural Community. Each pillar has its own Blueprint approved at the summit level, and, together with the Initiative for ASEAN Integration (IAI) Strategic Framework and IAI Work Plan Phase II (2009-2015), they form the Roadmap for and ASEAN Community 2009-2015. ASEAN commands far greater influence on Asia-Pacific trade, political, and security issues than its members could achieve individually. This has driven ASEANs community building efforts. This work is based largely on consultation, consensus, and cooperation. On November 15, 2009, President Obama met with ASEAN leaders in Singapore. This was the first meeting ever between a U.S. President and all ten ASEAN leaders. The Presidents meeting has greatly advanced U.S. relations with ASEAN and the East Asia region. Free Trade Agreements With Other Countries:- ASEAN has concluded free trade agreements withChina, Korea, Japan, Australia, New Zealand and most recently India. In addition, it is currently negotiating a free trade agreement with the European Union. Taiwan has also expressed interest in an agreement with ASEAN but needs to overcome diplomatic objections from China.

Overview .
ESTABLISHMENT

The Association of Southeast Asian Nations, or ASEAN, was established on 8 August 1967 in Bangkok, Thailand, with the signing of the ASEAN Declaration (Bangkok Declaration) by the Founding Fathers of ASEAN, namely Indonesia, Malaysia, Philippines, Singapore and Thailand. Brunei Darussalam then joined on 8 January 1984, Viet Nam on 28 July 1995, Lao PDR and Myanmar on 23 July 1997, and Cambodia on 30 April 1999, making up what is today the ten Member States of ASEAN.
AIMS AND PURPOSES

As set out in the ASEAN Declaration, the aims and purposes of ASEAN are:

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a. To accelerate the economic growth, social progress and cultural development in the region through joint endeavours in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of Southeast Asian Nations; b. To promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries of the region and adherence to the principles of the United Nations Charter; c. To promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields; d. To provide assistance to each other in the form of training and research facilities in the educational, professional, technical and administrative spheres; e. To collaborate more effectively for the greater utilisation of their agriculture and industries, the expansion of their trade, including the study of the problems of international commodity trade, the improvement of their transportation and communications facilities and the raising of the living standards of their peoples; f. To promote Southeast Asian studies; and To maintain close and beneficial cooperation with existing international and regional organisations with similar aims and purposes, and explore all avenues for even closer cooperation among themselves. Fundamental Pinciples. Asean was created for mutual respect for the independence, sovereignty, equality, territorial integrity, and national identity of all nations; the right of every State to lead its national existence free from external interference, subversion or coercion; non-interference in the internal affairs of one another; settlement of differences or disputes by peaceful manner; renunciation of the threat or use of force; and effective cooperation among themselves". Economic Community. ASEAN has emphasised regional cooperation in the three pillars of security, sociocultural and economic integration.[55] The regional grouping has made the most progress in economic integration, aiming to create an ASEAN Economic Community (AEC) by 2015. Free Trade Area . The foundation of the AEC is the ASEAN Free Trade Area (AFTA), a common external preferential tariff scheme to promote the free flow of goods within ASEAN.[56] The ASEANFreeTradeArea (AFTA) is an agreement by the member nations of ASEAN concerning local manufacturing in all ASEAN countries. The AFTA agreement was signed on 28 January 1992 in Singapore. Comprehensive Investment Area. The ASEAN Comprehensive Investment Area (ACIA) will encourage the free flow of investment within ASEAN. The main principles of the ACIA are as follows. All industries are to be opened up for investment, with exclusions to be phased out according to schedules National treatment is granted immediately to ASEAN investors with few exclusions Elimination of investment impediments Streamlining of investment process and procedures Enhancing transparency Undertaking investment facilitation measures 25 NSS College..

Single Aviation Market . The ASEAN Single Aviation Market (SAM), proposed by the ASEAN Air Transport Working Group, supported by the ASEAN Senior Transport Officials Meeting, and endorsed by the ASEAN Transport Ministers, will introduce an open-sky arrangement to the region by 2015. The ASEAN SAM will be expected to fully liberalise air travel between its member states, allowing ASEAN to directly benefit from the growth in air travel around the world, and also freeing up tourism, trade, investment and services flows between member states. ASEAN Summit. The organisation holds meetings, known as the ASEAN Summit, where heads of government of each member meet to discuss and resolve regional issues, as well as to conduct other meetings with other countries outside of the bloc with the intention of promoting external relations. The ASEAN Leaders' Formal Summit was first held in Bali, Indonesia in 1976.
SAARC

The South Asian Association for Regional Cooperation (SAARC) is an organization of South Asian nations, founded in 1985 and dedicated to economic, technological, social, and cultural development emphasizing collective self-reliance. Its seven founding members are Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka. Afghanistan joined the organization in 2007. Meetings of heads of state are usually scheduled annually; meetings of foreign secretaries, twice annually. Headquarters are in Kathmandu, Nepal. The objectives of the Association as defined in the Charter are:

to promote the welfare of the people of South Asia and to improve their quality of life; to accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realize their full potential; to promote and strengthen collective self-reliance among the countries of South Asia; to contribute to mutual trust, understanding and appreciation of one another's problems; to promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields; to strengthen cooperation with other developing countries; to strengthen cooperation among themselves in international forums on matters of common interest; and to cooperate with international and regional organisations with similar aims and purposes.

The Declaration on South Asian Regional Cooperation was adopted by the Foreign Ministers in 1983 in New Delhi. During the meeting, the Ministers also launched the Integrated Programme of Action (IPA) in nine agreed areas, namely, Agriculture; Rural Development; Telecommunications; Meteorology; Health and Population Activities; Transport; Postal Services; Science and Technology; and Sports, Arts and Culture. The South Asian Association for Regional Cooperation (SAARC) was established when its Charter was formally adopted on 8 December 1985 by the Heads of State or Government of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Afghanistan was added to the regional grouping at the behest of India on 13 November 2005, and became a member on 3 April 2007. With the addition of Afghanistan, the total number of member states were raised to eight.

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Secretariat. The SAARC Secretariat was established in Kathmandu on 16 January 1987 and was inaugurated by Late King Birendra Bir Bikram Shah of Nepal. It is headed by a Secretary General appointed by the Council of Ministers from Member Countries in alphabetical order for a threeyear term. The Memorandum of Understanding on the establishment of the Secretariat which was signed by Foreign Ministers of member countries on 17 November 1986 at Bangalore, India contains various clauses concerning the role, structure and administration of the SAARC Secretariat as well as the powers of the Secretary-General. South Asian Free Trade Area. The Agreement on the South Asian Free Trade Area is an agreement reached at the 12th SAARC summit at Islamabad, capital of Pakistan on 6 January 2004. It creates a framework for the creation of a free trade area covering 1.4 billion people in India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan and the Maldives.The seven foreign ministers of the region signed a framework agreement on SAFTA with zero customs duty on the trade of practically all products in the region by end 2016. The new agreement i.e. SAFTA, came into being on 1 January 2006 and will be operational following the ratification of the agreement by the seven governments. SAFTA requires the developing countries in South Asia, that is, India, Pakistan and Sri Lanka, to bring their duties down to 20 percent in the first phase of the two year period ending in 2007. In the final five year phase ending 2012, the 20 percent duty will be reduced to zero in a series of annual cuts. The least developed nations in South Asia consisting of Nepal, Bhutan, Bangladesh and Maldives have an additional three years to reduce tariffs to zero. India and Pakistan have signed but not ratified the treaty.

OPEC
The Organization of the Petroleum Exporting Countries (OPEC), is a cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings among the oil ministers of its Member Countries. Indonesia withdrew in 2008 after it became a net importer of oil, but stated it would likely return if it became a net exporter in the world again. In 1014 September 1960, at the initiative of the Venezuelan Energy and Mines minister Juan Pablo Prez Alfonzo and the Saudi Arabian Energy and Mines minister Abdullah al-Tariki, the governments of Iraq, Iran, Kuwait, Saudi Arabia and Venezuela met in Baghdad to discuss ways to increase the price of the crude oil produced by their respective countries. OPEC was founded in Baghdad, triggered by a 1960 law instituted by American President Dwight Eisenhower that forced quotas on Venezuelan and Persian Gulf oil imports in favor of the Canadian and Mexican oil industries. As a result, OPEC was founded to unify and coordinate members' petroleum policies. Original OPEC members include Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Between 1960 and 1975, the organization expanded to include Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), and Nigeria (1971). Ecuador and Gabon were members of OPEC, but Ecuador withdrew on December 31, 1992 because they were unwilling or unable to pay a $2 million membership fee and felt that they needed to produce more oil than they were allowed to under the OPEC quota. Angola joined on the first day of 2007. Objectives. 27 NSS College..

According to its statutes, one of the principal goals is the determination of the best means for safeguarding the cartel's interests, individually and collectively. It also pursues ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations; giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries; an efficient and regular supply of petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum industry.

OPEC's influence on the market has been widely criticized, since it became effective in determining production and prices. OPEC is a swing producer and its decisions have had considerable influence on international oil prices. For example, in the 1973 energy crisis OPEC refused to ship oil to western countries that had supported Israel in the Yom Kippur War or 6 Day War, which they fought against Egypt and Syria. This refusal caused a fourfold increase in the price of oil, which lasted five months, starting on October 17, 1973, and ending on March 18, 1974. OPEC nations still account for two-thirds of the world's oil reserves, and, as of April 2009, 33.3% of the world's oil production, affording them considerable control over the global market.OPEC s decisions have had considerable influence on international oil prices.

(General Agreement on Tariffs and Trade )GATT.

Introduction. The World WarII, which lasted from 1939 to 1945, left many countries in Europe and Asia totally damaged. Simultaneously, the various colonies in Asia and Africa were acquiring political freedom. And there was urgent pressure on them for rapid economic development and political stabilization. In this background the United Nations Organisation (UNO) was born, which formed various forums and agencies. One such forum under the UN was the General Agreement on Tariffs and Trade (GATT) which was established in 1947. In International Conference on Trade and Employment in Havana in the winter of 194748, fifty-three nations drew up and signed a charter for establishing an International Trade Organisation (ITO). But the US Congress did not ratify the Havana Charter with the result that the ITO never came into existence. Simultaneously, twenty-three nations agreed to continue extensive tariff negotiations for trade concessions at Geneva, which were incorporated in a General Agreement of Tariffs and Trade. This was signed on 30th October 1947 and came into force form 1st January 1948 when other nations had also signed it. India is one of the founder members of the IMF, World Bank, GATT and the WTO.
Objectives

The primary objective of GATT was to expand international trade by liberalising trade so as to bring about all round economic prosperity. The Preamble to the GATT mentioned the following as its important objectives. 1. Raising standard of living. 2. Ensuring full employment and a large and steadily growing, volume of real income and effectiye demand. 3. Developing full use of the resources of the world. 4. Expansion of production and international trade. For the realisation of its objectives, GATT adopted the following principles: 28 NSS College..

1. Non-discrimination: The principle of non-discrimination requires that no member country shall discriminate between the members of GATT in the conduct of international trade. To ensure non-discrimination the members of GATT agree to apply the principle of most favoured nation (MFN) to all import and export duties. This means that each nation shall be treated as well as the most favoured nation. As far as quantita- tive restrictions are permitted, they too, are to be administered without favour. However, certain exceptions to this principle are allowed. For instance, GATT does not prohibit economic integration such as free trade areas or customs union, provided the purpose of such integration is to facilitate trade between the constituent territories and not to raise barriers to the trade of other parties. The GATT also permits the members to adopt measures to counter dumping and export subsidies. However, the application of such measures shall be limited to the offending countries. 2. Prohibition of Quantitative Restrictions: GATT rules seek to prohibit quantitative restrictions as far as possible and limit restrictions on trade to the less rigid tariffs. However, certain exceptions to this prohibition are granted to countries con- fronted with balance of payments, difficulties and to developing countries. Further, import restrictions were allowed to apply to agricultural and fishery products if domestic production of these articles was subject to equally restrictive production or marketing controls. 3. Consultation: By providing a forum for continuing consultation, it sought to resolve disagreements through consultation. So far eight Rounds of trade negotiations were held under the auspices of the GATT. Each Round took several years. The Uruguay Round, the latest one, took more than seven years to conclude, as against the originally contemplated more than four years. This shows the complexity of the issues involved in the trade negotiations. An Evaluation of GATT. The brief particulars of the various GATT Rounds (conferences) for global trade negotiations are discussed below: 1.First Round:- In the first round of talks held in Havana in 1947, 23 countries, which had formed GATT, exchanged tariff concessions on 45,000 products worth 10 billion US dollars of trade per annum. 2. In second round 10 more countries joined and in 3rd 38 member countries of GATT participated in it and they adopted tariff reduction on 8700 items. 3. The The fourth and 5th round of world trade negotiations were held in Geneva in 1955-56. and 1960-62. 4. Sixth Round or the Kennedy Round:- With the formation EEC, the US had been put at a disadvantage. As a reaction to this, the US Congress passed the Trade Expansion Act in October 1962 which authorised the Kennedy administration to make 50 per cent tariff reduction in all commodities. This paved the way for the opening of the Kennedy round of trade negotiations at Geneva in May 1964, which were to be completed by 30 June 1967. This round had the participation of 62 countries and negotiated tariff reductions of approximately $ 40 billion, covering about four-fifths of the world trade. 5. Seventh Round or Tokyo Round:- was launched in 1973 and setout negotiations in (i) tariff reduction; (ii) reduction of elimination of non-tariff barriers; (iii) coordinated reduction of all trade barriers in selected sectors; (iv) discussion on the multilateral safeguard system; (v) trade liberalisation in the agricultural sector taking into account the special characteristics and (vi) special treatment of tropical products. 29 NSS College..

6. Eight Round or the Uruguay Round:- 1986- 1993; in which the GATT disappeared and passed into history and it was absorbed by the World Trade Organization (WTO) on 1 January 1995.

WTO ( World Trade Organsation)

GATT and WTO Following the UR Agreement, GATT was converted from a provisional agreement into a formal international organisation called World Trade Organisation (WTO) with effect from January 1, 1995. WTO now serves as a single institutional framework encompassing GATT and all the results of the Uruguay Round. It is directed by a Ministerial Conference that will meet at least once every two years and its regular business is overseen by a General Council. It has a legal status and enjoys privileges and immunities on the same footing as the IMF and the World Bank. It is composed of the Ministerial Conference and the General Council. The Ministerial Conference (MC) is the highest body. The GC has three functional councils working under its guidance and supervision namely: a) Council for Trade in Goods. b) Council for Trade in Services. c) Council for Trade Related Aspects of Intellectual Property Rights (TRIPs). WTO has now become the third pillar of United Nations Organization (UNO) after World Bank and International Monetary Fund. Objectives Of WTO In its preamble, the Agreement establishing the WTO lays down the following objectives of the WTO. 1. Its activities shall be conducted with a view to raising standards of living, ensuring full employment and expanding the production and trade in goods and services. 2. To allow for the optimal use of the worlds resources. 3. To make positive efforts to ensure that developing countries secure a share in the growth in international trade. 4. To achieve these objectives by entering into arrangements directed towards substantial reduction of tariffs and other barriers to trade. 5. To ensure linkages between trade policies, environment policies and sustainable development. Functions of WTO The following are the functions of the WTO: 1. It facilitates the implementation, administration and operation of the objectives of the Agreement and of the Multilateral Trade Agreements. 2. It provides the framework for the implementation, administration and operation of the Plurilateral Trade Agreements relating to trade in civil aircraft, government procurement, trade in diary products and bovine meat. 3. It provides the forum for negotiations among its members concerning their multilateral trade relations in matters relating to the agreements and a framework for the implementation of the result of such negotiations, as decided by the Ministerial Conference. 4. It administers the Understanding on Rules and Procedures governing the Settlement of Disputes of the Agreement. 5. It cooperates with the IMF and the World Bank and its affiliated agencies with a view to achieving greater coherence in global economic policy-making. Differences Between GATT And WTO. 1. The GATT had no status whereas the WTO has a legal status. 30

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2. Any member could stay out of the agreement, but the agreements, which form part of the WTO, are permanent and binding on all members. 3. The GATT dispute settlement system was slow and not binding on the parties to the dispute. The WTO dispute settlement mechanism is faster and binding on all parties. 4. GATT was a forum where the member countries met once in a decade, but the WTO, is a properly established rule based Organization where decisions on agreement are time bound. 5. The GATT rules applied to trade in goods. The WTO covers both trade in goods and trade in services. 6. The GATT had a small secretariat managed by a Director General. But the WTO has a large secretariat and a huge organizational setup. Evaluation of WTO. Following are the achievements of WTO in the short period it has been in existence: 1. WTO has helped in making greater market orientations a general rule. 2. Tariff based protection has become the rule. 3. Restrictive measures, which were being used for balance of payments purposes, have declined markedly. 4. WTO has brought services trade into the multilateral system. Many countries are opening their markets for trade and investment either unilaterally or through regional or multilateral negotiations. 5. Many underdeveloped countries have promoted economic growth in their countries. They have undergone radical trade, exchange and domestic reforms, which have improved the efficiency of resource use and opened new investment opportunities. 6. Bilateralism has been, to a great extent, placed under control by the extension of WTO provisions to services, TRIPS and TRIMS and by the unified dispute settlement mechanism, in which the possibility of unilaterally blocking the adoption of panel decisions no longer exists. 7. The Trade Policy Review Mechanism has created a process of continuous monitoring of trade policy developments, which by promoting greater transparency has assisted in the process of liberalisation and reform.

Implications for India After the Uruguay Round, India was one of the first 76 Governments that became member of the WTO on its first day. Different views have been expressed in support and against our country becoming a member of the WTO. Favourable Factors 1. Benefits from reduction of tariffs on exports. 2. Improved prospects for agricultural exports because the prices of agricultural products in the world market will increase due to reduction in domestic subsidies and barriers to trade. 3. Likely increase in the exports of textiles and clothing. 4. Advantages from greater security and predictability of the international trading system. 5. Compulsions imposed on India to be competitive in the world market. Unfavourable Factors 1. Tariff reductions on goods of export interest to India are very small. 2. Less prospects of increase in agricultural exports due to the limited extent of agricultural liberalisation. 3. There will be hardly any liberalisation of our textile exports during the next 10 years. 4. India will be under pressure to liberalize the services industries. 5. There will be only marginal liberalisation to the movement of labour services in which it is competitive. 6. Increased outflows of foreign exchange due to commitments undertaken in the fields of TRIPS, TRIMS and services. 31 NSS College..

7. Technological dependence on foreign firms will increase. 8. Only a few large firms or transnational corporations may benefit and smaller firms may disappear. To conclude, we may say that WTO membership is going to be beneficial to India in terms of global market thrown open to its goods and services. We must know how to take advantage of this situation. We should try to strengthen our position to sell our products abroad. For that we have to improve the quality of goods and services, cut down costs and wastage and improve our competitive strength.

Trade Related Intellectual Property Rights (TRIPS) This Agreement refers to the control of anti-competitive practices in contractual licenses pertaining to intellectual property rights. The Trade Related Intellectual Property Rights (TRIPs) Agreement covers the following intellectual property: 1. Copyright and Related Rights: 2. Trademarks: 3. Geographical Indications indication which misleads the consumer as to the origin of goods 4. Industrial Designs: 5. Patents 6. Integrated Circuits: 7. Trade Secrets:( eg Test data submitted to governments in order to obtain marketing approval for pharmaceuticals) Trade Related Investment Measures (TRIMS) The Agreement on Trade Related Investment Measures (TRIMs) are rules that apply to the foreign investors, often as part of an industrial policy. In the late 1980s, there was a significant increase in foreign direct investment throughout the world. However, some of the countries receiving foreign investment imposed numerous restrictions on that investment designed to protect and foster domestic industries, and to prevent the outflow of foreign exchange reserves. Examples of these restrictions include local content requirements (which require that locally-produced goods be purchased or used), manufacturing requirements (which require the domestic manufacturing of certain components)etc. WTOs TRIM agreement - The Agreement recognizes that certain investment measures restrict and distort trade. It, therefore, requires mandatory notification of all non-conforming Trade Related Investment measures and their removal within seven years for developed countries, within five years for developing countries and within seven years for the least developed countries. It establishes a committee on Trade Related Investment Measures which will monitor the implementation of these commitments and report to the Council of Trade in Goods annually. Globalisation Globalization in a literal sense is international integration. It can be described as a process by which the people of the world are unified into a single society and functioning together. This process is a combination of economic, technological, sociocultural and political forces. Globalization, as a term, is very often used to refer to economic globalization, that is integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and spread of technology. Globalization, since World War II, is largely the result of planning by politicians to increase global trade. Their work led to the Bretton Woods conference, an agreement by the world's 32 NSS College..

leading politicians to lay down the framework for international commerce and finance, and the founding of several international institutions intended to oversee the processes of globalization. Globalization has involved greater openness in the international economy, an integration of markets on a worldwide basis, and a movement toward a borderless world, all of which have led to increases in global flows. There are several Causes / Reasons for globalization over the last several decades. 1. Technological advancement. One such cause has been technological advances that have significantly lowered the costs of transportation and communication and dramatically lowered the costs of data processing and information storage and retrieval. Developments over the last few decades in electronics, especially the microchip revolution. Electronic mail, the Internet, and the World Wide Web are some of the manifestations of this new technology. 2. Trade liberalisation. Trade liberalization and other forms of economic liberalization have led to reduced trade protection and to a more liberal world trading system. There have been significant reductions in tariffs and other barriers to trade in goods and services. Other aspects of liberalization have led to increases in the movement of capital and other factors of production. 3. Wide Market for business. A third source of globalization has been changes in institutions, where business has a wider reach, due, to technological changes. Thus, companies that had been mainly focused on a local market have extended their range in terms of markets and production facilities to a national, multinational, international, or even global reach. 4. Cultaral Development. Another reason for globalization has been cultural developments, with a move to a globalized and homogenized media, the arts, and popular culture and with the widespread use of the English language for global communication. 5. More Financial Benefits. The primary cause for going global is that there is more money in overseas markets. In somany cases international business is more profitable than the domestic business. Moreover, global business will enable the firm achieve optimum capacity utilisation and economic of scale. 6. To Reduce the Cost of Production. Some companies like petroleum and mining often go global to secure a reliable cheaper source of raw materials. Cheap labour in other countries is also an attraction for investors. 7. Growth Potential of Foreign Markets. The growth opportunities in many foreign markets is a very strong attraction for foreign companies. Some countries realized that their domestic markets are no longer adequate and rich. Japan has flooded the U S market with automobiles and electronics because the home market was not sufficiently large enough to absorb whatever was produced. Moreover, in a number of developing, countries, (like India) the population and income are growing fast. 8. Demand Constraints in the Domestic Markets. Many companies expand their businesses in the global markets because of the demand constraints faced by them in the domestic markets. As the domestic markets are not large enough to absorb all the production, the companies are forced to go in search of foreign markets. 9. Nationality of the Company/ Political Instability. The nationality of the companies also affects the decision of the companies to go global. The companies of the politically instable countries may choose to go to the countries where there is stability. 33 NSS College..

10.Liberalisation. A protected market does not generally motivate companies to seek business abroad. As liberalization increases competition, both from foreign as well as domestic companies, many companies goes global. 11. Image and Foreign exchange. Global business helps the company to improve their domestic business as well as the image of the country. Foreign exchange earning enable the companies to import capital goods and technology, which could not otherwise have been possible in developing countries. 12. High tech Industries. These companies like electronics; spend large sums of money on Research and development. They are compelled to increase the volumes of sale to support high overhead expenses. If the domestic markets are not sufficient, these companies might look to overseas manufacturing plants and sales branches to generate higher sales and better cash flow. 13. Business Policies and Strategic Management. The business policies of some companies stress upon the systematic and growing globalisation. Such companies are truly global as their basic objectives are growth; need to become competitive, need to diversify and to gain the strategic benefits of internationalisation. These companies consider the entire world, borderless and a single market. Advantages/ benefits.
Benefits of Globalization

Virtually all economists agree that the large majority of residents of our planet are considerably better off through the growth of markets and the efforts of the GATT and its successor, the WTO, to keep them open. 1. Consumers of goods and services in all countries benefits from globalisation for reasons which include increased competition, comparative advantage, economies of scale and access to a greater range of products and services. 2. Lower inflation is often cited as a favourable consequence of globalization because increased competition makes businesses more reluctant to boost prices. 3. Globalisation increases international trade. International trade in manufactured goods increased more than 100 times (from $95 billion to $12 trillion) in the 50 years since 1955. China's trade with Africa rose sevenfold during 2000-07 alone. 4. Corporate, and national borrowers can borrow money from world wide financial markets. 5. Globalisation gives opportunity for the freedom of exchange of goods and services. 6. political globalisation creates a world government, which regulates the relationships among nations and guarantees the rights arising from social and economic globalization. Politically, the United States has enjoyed a position of power among the world powers; in part because of its strong and wealthy economy. With the influence of Globalization, China has experience some tremendous growth within the past decade. 7. Globalisation increase in information flows between geographically remote locations. Arguably this is a technological change with the advent of fibre optic communications, satellites, and increased availability of telephone andInternet 8 . Socially, globalisation leads to - the achievement of free circulation by people of all nations. -Greater internationaltravel and tourism - Spread of local consumer products (e.g. food) to other countries (often adapted to their culture) -World-wide sporting events such as FIFA World Cup and theOlympic Games etc - Formation or development of a set of universal values 34 NSS College..

9. Development of a global telecommunications infrastructure and greater transborder data flow, using such technologies as theInternet, communication satellites, submarine fiber optic cable, and wireless telephones. 10. Increase in the number of standards applied globally; e.g. copyright laws, patents and world trade agreements. 11. International court. The push by many advocates for an international criminal court and international justice movements. 12. Health Policy - On the global scale, health becomes a commodity. In developing nations. under the demands of Structural Adjustment Programs, health systems are fragmented and privatized. Negative effects. Effect on disease. Globalization, the flow of information, goods, capital and people across political and geographic boundaries, has also helped to spread some of the deadliest infectious diseases known to humans. Brain drain. Opportunities in richer countries drives talent away from poorer countries, leading tobrain drains. Brain drain has cost the African continent over $4.1 billion in the employment of 150,000 expatriate professionals annually. Indian students going abroad for their higher studies costs India a foreign exchange outflow of $10 billion annually. Economic liberalization. The World today is so interconnected that the collapse of the subprime mortgage market in the U.S. has led to a global financial crisis and recession. Environmental degradation. The World watch Institute said the booming economies of China and India are planetary powers that are shaping the global biosphere. In 2007, China overtook the United States as the world's biggest producer of CO2. Crude oil prices in the last several years haves teadily risen from about $25 a barrel in August 2003 to over $140 a barrel in July 2008 Drug and illicit goods trade. The United Nations Office on Drugs and Crime (UNODC) issued a report that the global drug trade has increased. Traditional Chinese medicine often incorporates ingredients from all parts of plants, the leaf, stem, flower, root, and also ingredients from animals and minerals. Exploitation of foreign impoverished workers: The deterioration of protections for weaker nations by stronger industrialized powers has resulted in the exploitation of the people in those nations to become cheap labor. Due to the lack of protections, companies from powerful industrialized nations are able to offer workers enough salary to entice them to endure extremely long hours and unsafe working conditions. The shift to outsourcing: The low cost of offshore workers have enticed corporations to buy goods and services from foreign countries. The Families that were once part of the middle class are forced into lower positions by massive layoffs and outsourcing to another country. Weak labor unions: The surplus in cheap labor has caused a weakening of labor unions in the United States. Unions lose their effectiveness when their membership begins to decline Ecologically Globalisation creates environmental challenges, such as climate change, cross-boundary water and air pollution etc. Many factories are built in developing countries where they can pollute freely. Poorer countries suffering disadvantages: While it is true that globalization encourages free trade among countries, there are also negative consequences because some countries try to save their national markets. The main export of poorer countries is usually agricultural goods. Larger countries often subsidise their farmers (like the EU Common Agricultural Policy), which lowers the market price for the poor farmer's crops compared to what it would be under free trade. 35 NSS College..

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