Business Enviornment & Law-Ppt-Ii-1

R.GOVINDARAJULU, B.L,; M.B.A,; M.L.
ADVOCATE, HIGH COURT, MADRAS & VISITING PROFESSOR,

TAMILNADU INSTITUTE OF LABOUR STUDIES, CHENNAI.
and Law
2
IInd B.A. PAPER - XV BUSINESS ENVIRONMENT AND LAW (A)
UNIT - I Introduction
Historical background of Indian Business, professional
management vs family management, corporate culture, value system,
managerial ethics - managerial education in India. SLIDES 5 to 92
UNIT - II Political Environment
Forms of Government Administration, federal, united systems,
Indian political philosophy towards business enterprises, business
policies, public control on business and evolution of Government
control in India - Government and business relationship.
UNIT - III Legal Environment
Industrialization - The Companies Act 1956 and its
amendments. Foreign Exchange Management Act 1992, Law of
Contracts, Intellectual Property Rights, Consumer Protection Act .
UNIT - IV Economic Environment
Industrial concentration - Industrial sickness - reasons - MRTP,
IRB, etc. Economic Liberalization, privatization, new industrial policy,
economic prosperity - Role of GATT, IFCI, LIC, UTI, IDBI, ICICI, IMF
UNIT - V Social, Cultural and Technological Environment
Concept and impact of social, cultural and technological
environment - Role of WTO, TQM, zero defects, social audit and social
responsibility of business. 3
UNIT-I Introduction- Historical background of Indian Business,
professional management vs family management, corporate culture,
value system, managerial ethics - managerial education in India.
SLIDES 4 to 102
1.
2.
3.
4
4.
5. “Business is all those activities

involved in providing the goods and
services needed or desired by
people” - Stenford
5
Overview of Business
 1.Business is an organized entity involved
in provision of goods and services to the
consumers. It is known as an Enterprise,
a Company or a Firm.
 2.Business serve as conductors of
economic activity, which is prevalent in the
Capitalist economies, where most of them
are privately owned.
 3.Capitalist economies provide allocated
goods and services through a market to the
consumers and customers, in exchange for
other goods, services, money, or other
forms of exchange that hold
intrinsic economic value.
 4.Business may also be profit or non-
profit enterprises or state-owned Public
Enterprises operated by Governments with
specific social/economic objectives. 6
 5.Business owned by multiple private
individuals may form as
an Incorporated Company or jointly
organise as a Partnership.
6.Different Laws of the Countries
resulted in the different rights to
the various business entities as given
below:-
 a. Business is an important institution in
the society and the role of business is
crucial.
 b. Business is for the supply of goods and
services.
 c. Business create job opportunities.
 d. Business offers better quality of life.7
e. Business contribute to the
economic growth of the Country and
putting it on the Global map.
f. Business is the organized efforts of
the enterprises to procure raw
materials, convert & supply them to
consumers as the goods or services.
g. Businesses vary in size as
measured by number of employees or
by the sales volume.
h. All businesses share the same
purpose to earn profits.
i. However, in the long run the
purpose of business goes beyond
earning profits. 8
Historical background of
Indian Business
Indian
9
Historical background of Indian Business
• 1.Business as a discipline has made
modest progress over the last few
decades, particularly in the agrarian
Country of India.
• 2.It is well acknowledged by Scholars that,
• a. Indian business has an important role to
play in developing India and
• b. In understanding the evolution of the
Historical background of Indian business –
• c. in the industries, individual Companies,
business families and groups – and
10
Historical background of Indian Business
• d. how Indian business , in the above process, has
been influencing and been influenced by the social
and economic environment in which it has been
evolving.
• e. In July 1991 the Government of India, announced
• of the sweeping liberalization which,
• i. Opened & levelled the Indian Business to the
world economy,
• ii. Dismantled import controls,
• iii. Lowered customs duties,
• iv. Devalued the currency,
• v. Virtually abolished licensing controls on private
investment,
• vi. Dropped tax rates, and
• vii. Broke public sector monopolies. 11
Scope of Business
-Business included all activities
connected with production, trade,
banking, insurance, finance, agency,
advertising, packaging and numerous
other related activities
– Business include all efforts to comply
with Legal restrictions and
Government requirements and
discharging obligations to consumers,
employees, owners and to other
interest groups which have stakes in
business directly or indirectly.
Society cannot do without business and vice versa.
13
14
Characteristics of Today’s Business
Changing & Transition
Competition Opportunities
to the core at all levels
Business
Diversification
as per customer
Sophisticated needs
Technology
Globalization
Up to date of the products
Information & services
15
The General Environment and Environmental Forces Affecting
Business Organization
S
The General Environment
Cultural Forces
Political - Legal Forces
Technological Forces
Competitive Forces
Organization
16
Factors of Business Decision
Factors influencing Business Decision
1.Internal Factors or Internal Environment
2. External Factors or External Environment
Internal External
Factors or Business Factors or
Environment Decision Environment
Business Environment presents two

challenges to the enterprise. They are:-
1.The challenge to combat the environmental
threats
2. Exploit the business opportunities 17
18
19
Business Environment
20
21
a.
b.
c.
d
.
e.
22
f.
g.
23
h.
24
25
26
27
BUSINESS ENVIRONMENT
28
29
Environment refers to all external
forces which have a bearing on
the functioning of business.
”Environment is largely if not
totally external, and beyond the
control of individual, industrial
enterprises & their Management.
Within the Environment the firms
and their Managements must
operate in a specific Country and
they vary, from Country to
Country”. 30
31
INDIA ASIAN COUNTRY
32
• Business Environment may be
distinguished into the following three
types:-
• 1.Concentric or Vertical,
• 2.Horizontal and
• 3.Conglomerate.
• Concentric or Vertical diversification
refers to the process of adding new, but
related products or services. Eg : HLL
which as Liril, Pears, Rexona, Lux and
Lifebuoy.
• Horizontal diversification is adding of
new, unrelated products or services for
the present consumer base.
33
• Conglomerate diversification
refers to growth strategy that
involves adding new products or
services that are significantly
different from the Organization's
present products or services.
• Conglomerate diversification
occurs when the firm diversifies
into an area(s) totally unrelated to
the organization current business.
34
35
36
However, the term Business Environment
refers to the External Factors.
The external environment has two
components :-
1.Business opportunities and
to business.
2.Threats
Similarly, the Organizational
Environment has two components:-
i. Strengths and
ii. Weakness of the Organization.
A SWOT analysis is thus the first step
in strategy formulation.
37
38
39
BUSINESS ENVIRONMENT
Macro Environment
Micro Environment
Internal Environment
1.Financiers
2.Suppliers Mission / Objectives i.Economic
3.Customers Management Structure ii.Technolog
4.Competitors Internal Power Relationship ical
5.Public Physical Assets & facilities iii.Global
6.Mktg Inter iv.Demo
mediaries Business graphic
Decision v.Socio-
Cultural
Company image vi.Political
Human resources
Financial Capabilities
Technological Capabilities
Marketing Capabilities
40
41
Internal Environment
• Any business has certain vision, mission
and objectives and a strategy to achieve
them. Formulation of strategy is defined as
establishing a proper firm-environment fit.
• Indeed the objectives should be based on
an assessment of the external
environment &the following organizational
factors or internal environment. C
• 1.Vision
• 2.Mission
• 3.Objectives
• 4.Management Structure
• 5.Human Resources
• 6.Financial Factors
• 7.Company Image and Brand Equity 42
Micro environment
The Micro environment consists of
different types of stakeholders -
customers, employees, suppliers,
marketing intermediaries,
competitors.
It is also known as the Task
Environment and Operating
Environment and has a direct bearing
on the operations of the firm.
Changes in the micro environment will
directly affect and impinge on the
firm's activities. 43
44
45
Macro environment
The macro environment consists of factors
which are beyond the control of the
business. There is a symbiotic relationship
between business and the environmental
factors. Environmental factors are dynamic
and a particular business firm, by itself,
may not be in a position to change it’s
environment. Macro Environment includes:-
1.Political Environment
2.Economic Environment
3.Technological Environment
4.Socio-cultural Environment
5.Global Environment.
6.Legal Environment.
46
1.Political Environment
Political Environment refers to the
influence exerted by the three Political
Institutions ie. Legislature, Executive and
Judiciary in shaping, directing, developing
and controlling business activities through
the following:-
• 1.The Constitution of a Country.
• 2.Political Organization.
• 3.Stability.
• 4.Image of the Country and its leaders.
• 5.Policy.
• 6.Laws governing business.
• 7.Flexibility and adaptability of Laws.
• 8.The Judicial System. 47
Economic Environment refers to all
forces which have an economic impact
on Business.
The economic environment consists of
the demand dynamics,
supply situation,
pricing factors,
degree of competitiveness,
impact of profitability.
the fiscal policy,
monetary policy & taxation policy,
the FDI norms, investment criterion &
financing decisions. 48
• Technology is the systematic
application of scientific or other
organized knowledge to practical
tasks
• 1.Technological environment
results in,
• i.new technological innovation,
• ii.new products,
• iii.of technology for maximum
inputs and outputs, and
• iv.dynamic changes that frequently
occur in technologies enable firms
to get a competitive advantage over
other competitors. 49
• 2.Technology reaches the people

through business& Helps in the
increased productivity of the goods
/services.
• 3.Business needs to spend on the
aspects of R & D and keep up with
the technological advances around
them.
• 4.Technology leads to introduction
of new products as older products
becoming outdated and redundant.
• 5.Technological advances leads to
high expectations of consumers in
terms of quality
50
Economic environment
includes:-
i.Growth strategy,
ii.Industry,
iii.Agriculture,
iv.Infrastructure,
v.Money &Capital Markets,
vi.Per capita & National
income
vii.Population and
viii.New Economic Policy.
.
51
5.Socio-Cultural Environment
Socio-Cultural Environment reflects
in the following:-
1.Culture,
creates people
determines people’s attitude to
business and work and
enables globalization.
2.From the Society arises,
Caste system
Spirit of collectivism
Education
Ethics in business
Social responsibility
Social audit & Corporate governance.
52
6
.
53
External Environmental Analysis
Environmental Analysis has
three goals & three benefits:-
 1. Environmental Analysis
provides an understanding of
current and potential changes
taking place.
 2.Environmental Analysis
provides input for
strategic decision making.
 3. Environmental Analysis
facilitate and lead to
strategic decisions within an
Organization.
54
External Environmental Analysis-Benefits
• i.Environmental Analysis and diagnosis
give strategists time to anticipate
opportunities and to plan to take
optional responses to these
opportunities.
• ii.It also helps strategists to develop
an early warning system to prevent
threats or to develop strategies which
can turn a threat to a firm’s
advantage”.
• iii.Firms which systematically analyze
and diagnose environment are more
effective than those which do not.
55
Process of Environmental Analysis
The analysis consists of four steps:-
 1.Scanning :- Detect early signals of
possible environmental change and detect
environmental change already underway.
 2.Monitoring :- Purpose of monitoring is to
assemble sufficient data to discern
whether certain trends are emerging,
identification of the trends and
identification of areas for further
scanning.
 3.Forecasting :- It is concerned with
developing projections of the direction,
scope and intensity of environmental
change.
 4.Assessment :- To determine implications
for the Organization's current and
potential strategy.
56
Environmental Analysis and Strategic Management
Defining Business Mission and Objectives
SWOT Analysis
Environmental Analysis
Self Appraisal
Strategic Alternatives and

Choice of Strategy
Implementation of Strategy
Evaluation and Control of Strategy

57
Global Environment
The Global environment refers to,
a. those factors which are relevant to the
business,
b. such as the WTO Principles & Agreements;
c. other International Conventions/ Treaties/
agreements/sentiments in other Countries etc
For eg hike in crude oil prices has a global
impact etc.
• World is becoming one market due to,
• i. Improving quality
• ii. Competition from MNCs
• iii. Capital and technology transfers
• iv. Deciding which markets to enter and what
products to manufacture
• v. Adjusting the Management process
58
59
Business during the 21st Century
• There is a trend towards mini
Organizations along with large
Corporations.
• Organizations have become flat.
• So, existence of flexible, flat and team
based structures.
• Business is knowledge based.
• Processes have become complex.
• Brain power is in great demand.
• Information technology will take care of all
data Management.
• Network Computers handle information.
• Dispersed Ownership of Business.
• Open minded and a transparent
environment is encouraged. 60
Professional Management vs Family Management
PROFESSIONALISM is actually a process by
which a given occupation becomes a
Profession in the sense of attaining
Professional Status or the expertness, the
characteristic of a Professional person.
61
•
ELEMENTS OF PROFESSIONALISM
• 1.ALTRUISTIC:-
• Showing unselfish concern for the
welfare of others
• 2. ACCOUNTABILITY :-
Responsibility and Reliability
• 3.EXELLENCE :-
• Knowledgeable, Skilful, Competency
to retrieve and handle information.
62
Professional Management vs family Management
• 4.Appropriate decision making skills

• 5.Competency in the skills of
communication
• 6. Honesty/ Integrity The quality of
being honest Moral soundness
Undivided or Unbroken
• 7. Dutiful appreciation of the role
• 8.Aptitude for personal development
• 9. Respect to others.
63
• PROFESSIONAL MANAGEMENT is in
• i.Business, Health and Hygiene.
• ii.Personal Image.
• iii. First Impressions which REALLY Count.
• iv.Appearance and Dress.
• v.Etiquette and Manners.
• vi.Always using the magic words:-
• PLEASE and THANK YOU.
• vii.Being on time.
• viii.Keep promises.
• ix.Respecting the people and being courteous.
• x. Following up with thank-you notes.
• xi.Returning all phone calls.
• xii.Calling ahead to confirm appointments.
•
Family Management
65
Family Management
66
67
• FAMILY MANAGEMENT is defined in

terms of:-
• a.Ownership control by members of
the Family.
• b.Strategic influence of a Family in
the Management of Business Firm.
• c.Concern for Family relationship.
• d.The dream of continuing Family
Management in the Business Firm
across the generations, exsists.
68
• DIFFERENCES BETWEEN Professional

Management vs family Management
• 1. DEGREE OF OPEN MINDEDNESS:-
• 2. ADOPTING OF NEW PRACTICES:-
• 3. Impartiality in HRM:-
• 4.ORGANIZATION ORIENTED FINANCIAL
MANAGEMENT:-
• 5.DECISION MAKING STYLE:-
69
• PROFESSIOANL MANAGEMENT VS.

FAMILY MANAGEMENT:-
• 1. DEGREE OF OPEN
MINDEDNESS:-
• Professional Management:- Are
open minded,
• Receptive to new ideas,
• Ready to experiment.
• Family Management:- Generally
lack all the above .
70
2. ADOPTING OF NEW PRACTICES:- Include
i. Quality certification,
ii. Participative Management,
iii. Change in working style and
iv. Financing pattern.
Professional Management:- Are
always leaders in adopting, &
experimenting with the above new
practices.
Family Management:- There is lack of
this attitude.
71
• 3. IMPARTIALITY IN HRM:-
• Professional Management:- Do
not show partiality towards
any particular gender.
• Family Management:- Business
Houses of Family Management
employ their relative or friends
or people belonging to same
social caste in responsible
position.
72
• 4.ORGANIZATION ORIENTED FINANCIAL
MANAGEMENT:-
• Professional Management:-
Tend to make financial
decision in the way which is
best for the Organization.
• Family Management:-The
entrepreneurial Firms of
Family Management give first
priority to their familiar
concern & interests.
73
• 5.DECISION MAKING STYLE:-
• Professional Management:- The decision
making process in the Professional
Management run Organization tends to be
better, qualitative & a broader vision with
an eye for the future.
• It is mostly participative.
• Family Management:- Mostly the Owner
/entrepreneur himself or herself makes
the decision, sometimes with the help of
his family members or friends.
• Family Management run Business is more
autocratic in nature.
74
The decision of the south-based Group is
significant for more than one reason.
Primarily, & most importantly, it marks the
entry of a traditional &conservative family
into a Management-realm so far associated
with new generation families.
Hitherto, professionals have been given
control mostly in Companies that are of post-
independence vintage with the traditional
ones - the Birlas, the Modis, the Goenkas,
the Singhanias, and the Mafatlals, to mention
the more important ones - being evidently
satisfied with only cosmetic changes in
Managerial patterns and operational set-ups.
75
• No less significantly, the changeover sought to
be effected in the Murugappa Group is
wholesale, quite unlike those initiated by the
few north-based Companies, with the exception
of Eicher group.
• From what has been made public, the
Murugappa model refreshingly keeps clear of
this.
• This, to be sure, is what makes the experiment
worth watching.
• That Indian Corporate world has to necessarily
go in for Professionalism is easily conceded in
view of the emerging Global competition and the
consequent changes in business opportunities
and the kind of responses required to make use
of them.
76
• In a broader sense it also calls for the

induction of what the Management
Gurus call ‘Managerial Capitalists’ in the
place of ‘Financial Capitalists.’
• The former, unlike the latter, are neither
the Founding Fathers of the Enterprises
they head nor, do they own them.
• Their involvement is limited to the
demands made on their expertise.
• Since they have no vested interests,
the well-being of the shareholders is
much safer in their hands
77
• The euphoria over the spreading culture of
Professional Managers being asked to take
over Management of Companies hitherto
being managed by members of controlling
Families is eminently explainable in the
context of liberalization and compelling
changes it demands in Corporate
Governance.
• The latest to join the bandwagon is the
Chennai-based Murugappa group which has
decided to hand over the day-to-day running
of Companies under its umbrella to
Professional Chief Executive Officers even
as Family Seniors confine themselves to
laying down strategies for future growth.
78
• Arguably, family control is not an unmitigated
bane in all cases.
• Nor, conversely, is professionalism an end in
itself.
• The remarkable turn around of EID Parry is a
typical case in point.
• It was virtually brought back from the brink by
the sheer tenacity and determination of one man
- MV Subbiah.
• He took over the reins of the Company at a time
when everything looked so hopelessly beyond
recovery.
• And although a recovery and rescue plan had
been reportedly readied by the earlier
Professional Managers, its implementation
seemed to have suffered for want of Managerial
Leadership capable of taking not merely
unpleasant decisions but bold measures,
79
• In fact, the turn around of EID Parry requests us to be
cautious about our notions on Family Management and
its true worth.
• Relevantly, there have been innumerable instances as
well of many a blue-chip Company, wholly controlled
and Managed by the best of Professional Managers,
having collapsed on account of poor Managerial
responses to market challenges.
• There are indeed success stories in which sheer
Professional Management helped the Companies to
turn out extraordinary performance.
• Two examples that readily come to one's mind are
Hindustan Lever Ltd, and ITC.
• But, then, even in these cases everything has not been
all right or being satisfactory or in satisfactory
condition with succession Management often
throwing up hiccups of some consequence.
80
• But, then, even in these cases everything has not
been all right or being satisfactory or in
satisfactory condition with succession
management often throwing up hiccups of some
consequence.
• Nonetheless, there are grey areas to be watched.
• One such is the kind of relationship that ought to
be settled between controlling Family Management
Vs Professional Management.
• The model initiated by the Murugappa group,
presumably patterned after the German Corporate
structure, seeks to tackle this problem.
• Under the proposed dispensation, there will be a
Supervisory Board - the Corporate Board -
comprising the four Senior Family Members and
three external non-Executive Directors which will
strategize the future of the entire Group.
• .
81
• Additionally, each family member will play the role
of a mentor for the designated arm.
• On the face of it, the arrangement should ensure
operational freedom to Managers in day-to-day
working even as the overall strategic control rests
with the Family.
• Given the historical growth of Corporate in our
Country, this seems an ideal arrangement worth
experimenting.
• Hopefully, it should get strengthened as more
members of controlling families get exposed to
the intricacies of modern Management.
• The scenario will then be not one of confrontation
between the two interests - Ownership and
Management - but of cooperation brought about
as much by necessity as by understanding.
82
Corporate Culture
Corporate
Corporate Culture refers to the
beliefs and behaviours that Culture is…
determine how a Company's 1. Influenced
employees and Management
interact and handle outside by national
business transactions. culture and
Often, Corporate Culture is
implied, not expressly defined, 2. Sustained
and develops organically over by
time from the cumulative traits corporate
of the people the Company
hires. leadership.
83
What is corporate culture?
Corporate culture is a
manifestation of the
informally cultivated
corporate attitude.
It is often referred to
as “Organizational DNA” or
the “Organizational Soul.”
It is a fundamental
contributor to the success
or failure of corporate
strategies.
84
Corporate
Culture can
evolve from…
• A leader’s vision, policies, and actions

• Influential individuals or work groups
• Policies & Procedures (Careless, lax, or
unclear)
• People Management philosophy (ignoring
employee harassment)
• Employee work-ethic (hire for attitude; train
for skill)
• Organizational policies (no gifts from
suppliers, casual Fridays, etc.) 85
Corporate Culture is
reflected in…
A company’s
• Values, business principles, and ethical
standards preached and practiced by
Management.
• Approaches to people Management
and problem solving.
• Relationships with Shareholders,
community, customers, suppliers,
Government agencies, etc.
• Entrenched attitudes toward people from
different “national” cultures.
86
Corporate Culture…
Management’s Responsibility
1. Corporate culture refers to the
character of a Company’s
internal work climate and
personality.
2. In a strong-culture Company,
culturally-approved behaviors
and ways of doing things are
nurtured while culturally-
disapproved behaviors and work
practices are discouraged. 87
Corporate Culture…
Management’s Responsibility
3.As original success depends upon
adaptive culture, company should
move towards adapting cultures, to
ensure long-term organizational
success.
4. Adaptive cultures are exceptionally
well suited to Companies which are-
ready to change its market strategies.
5. The When the culture-strategy is in a
fit combination, it would steer the
Company personnel into displaying
behaviors and practices that would
lead to success. 88
Corporate Culture…Management’s Responsibility
6. Management should evince best
interest to dedicate culture that
encourages behavior and, work and,
also take considerable effort in
building corporate practices
conducive to good strategy.
7. Company’s culture is grounded in and
shaped by its core values and also the
bar it sets for ethical behavior.
8. Multinational Company needs to build
its corporate culture around values
and operating practices that travel
well across borders.
89
ETHICS
• Oxford Advanced Learner’s Dictionary
defines the word ‘ethics’ as “moral
principle that govern or influence a
person’s behavior”.
• Ethics is thus a benchmark of human
behavior.
• The conduct of human beings is
influenced either by the emotions of life
or the actions people perform in
different situations.
• The coordination of action and emotions
generates ethics.
90
Managerial Ethics
Managerial Ethics makes good
business sense to the Managers “to do
the right thing”.
Additionally Managerial Ethics to the

Managers results in:-
1.Attracting better talent
2.Retaining employees
3.Attracting new customers
4.Retaining customers
5.A Positive effect on ROI
6.Positive effect on Reputation
91
Managerial Ethics
Social Ethics:-
Legal rules, customs
Managerial Ethics
Professional Individual
Ethics:- Ethics:-
Values in Family
workplace influence
92
Value system
Values( set of preferences) are said to be
the cause and Ethics is the effect in a
Social system.
In ethics 'value' denotes the degree of
importance of some thing or action, with
the aim of determining what actions are
best to do or what way is best to live
(normative ethics – prescribing norms as to
what is good or bad), or to describe the
significance of different actions.
It may be described as treating actions
themselves as abstract objects, putting
value to them.
93
Value system
It deals with right conduct and living a
good life, in the sense that a highly, or at
least relatively high, valuable action may be
regarded as ethically "good", and an action
of low in value, or somewhat relatively low
in value, may be regarded as "bad.
What makes an action valuable may in turn
depend on the ethical values of the objects
it increases, decreases or alters.
If anyone operates in a Social system from
value based emotions with an
outward action it will lead to Value system.
.
94
Value system
• So,Value system is a coherent set
of values adopted and/or evolved by
a person, organization, or society as
a standard to guide its behaviour in
preferences in all situations. They are:-
• Abstract value system:- These shape an
individual’s thinking and behavior – a
moral compass.
• Instrumental value system:– These are
certain way of behaving & is appropriate
in all situations – called as “means”.
• Terminal value system:– These are
enduring belief in the attainment of a
certain end stage – called as “ends”. 95
Managerial Education in India
 The Managerial Education in India largely
focuses on the academic curriculum without
practical business exposure.
 Every Country has challenges with raw talent,
but India’s challenges are expanded by
creating a huge number of virtually
unemployable Graduates who are ill-prepared
for the Global business stage.
 “With little or no practical knowledge on
business practices being taught in many
Management Schools, our ratings continue to
fall compared to other Countries.
 “Also, one of the main reasons why have
Managerial Education in India been falling in
the ratings is because we have not seen
recurring change in curriculums by
Educational Institutes.
96
Managerial education in India
 They continue to teach the same thing
as they used to earlier.
 Universities always need to upgrade
their curriculum keeping in mind the
fact that Global Companies are
entering the Indian market and
 they are looking for talent that can
work under those circumstances.
 It is important how Colleges prepare
students to accept those challenges
offered in a global competitive market.
97
UNIT - II Political Environment Forms of Government Administration, federal, united systems, Indian
political philosophy towards business enterprises, business policies, public control on business and
evolution of Government control in India and in World - Government and business relationship.
SLIDES 103 to 129
Political Environment refers to the influence

exerted by the three Political Institutions
ie. Legislature, Executive and Judiciary in
shaping, directing, developing and
controlling business activities through the
following:-
• 1.The Constitution of a Country.
• 2.Political Organization.
• 3.Stability of the Ruling Party.
• 4.Image of the Country and its Leaders.
• 5. Business Policy of Government.
• 6.Laws Governing Business.
• 7.Flexibility and adaptability of Laws.
• 8.The Judicial System. 98
• The political situation of a Country

affects its economic setting.
• The economic environment affects
the business performance.
• For example, there are major
differences in Democratic and
Republican policies in the U.S.A. and
also in BJP and Congress policies in
India. .
• This influences factors like taxes and
Government spending, which
ultimately affect the economy.
99
Forms of Government Administration, federal, united systems.
 Government comprises the set of Legal
and political institutions that regulate the
relationships among members of a society
and between the society and outsiders.
 These institutions have the authority to
make decisions for the society on policies
affecting the maintenance of order and
the achievement of certain societal goals.
 The power of a Government over its own
citizens varies, depending on the degree
to which it is free of limitations and
restraints.
 The power of a Government abroad also
varies, depending on the human and
material resources with which it can
support its foreign policy. 100
Forms of Government Administration, federal, united systems.
 Governments range in size and scope from
clans, tribes, and the shires (A shire is a
traditional term for a division of land, found in
the United Kingdom and some other English
speaking Countries) of early times to the
superpowers and international Governments of
today.
 Until recent times some Governments were
strong enough to establish empires that ruled
not only their own people but other peoples and
States across national, ethnic, and language
boundaries.
 The present-day counterpart of the Empire is
the Superpower that is able to lead or dominate
other Countries through its superior military and
economic strength.
 Within the modern Nation-
State, Government operates at many different
levels, ranging from villages to Cities. 101
Federal Systems
The United States and India with their
State Governments and
Canada and China with their
Provincial Governments are examples
of workable Federal Systems in large
Nations with very diverse populations.
Other Federal states include
Argentina, Australia, Brazil, Mexico,
Nigeria, and Germany.
The National Governments of these
Countries are clearly more powerful
than those of their subdivisions, even
though the Constitutions delegate
many powers and responsibilities to
the sub National units. 102
Federal Systems
In certain prescribed policy areas a
State Government may have a high
degree of autonomy.
In the United States, for example,
State Legislatures pass Laws
having to do with State affairs.
State Administrators carry them
out.
 State Judiciaries interpret them.
103
Federal Systems – USA & INDIA
 Federal systems also include autonomous local
Governments such as
 County Governments, (A county is a geographical region
of a Country used for Administrative or other
purposes) and
 Municipal Governments—in Cities,
 Boroughs (A borough is an administrative division in
various English-speaking Countries), Townships, and
villages.
 There are no ‘Counties' in India, however, there are 28
States and 7 Union Territories.
 These are further divided into 604 Districts.
 Local Governments in India, stand in a relationship to
their State Governments which in turn corresponds with
the National/Central Government.
 The Citizens in each jurisdiction elect many of the
Public Officials.
 In addition, certain special Districts exist with a single
function, such as education or sanitation, and have their
own elected Officials.
104
Federal Systems– USA & INDIA
 The layers of Government in a Federal system
may not be clearly defined in practice.
 Often the different levels compete for control
of functions and programs.
 In the United States and other Countries the
tendency over the years has been for the
National Government to become much more
involved in areas that once were the exclusive
domain of State or Regional Governments.
 In addition, the distribution of authority has
become even more complex and varied with
the rise of large Metropolitan areas—
the megalopolis—and the corresponding new
Local Governmental organizations such as the
Port Authority of New York and New Jersey
and also the Port Authority of India, & the
Steel Authority of India.
105
106
Difference between Federal system of Government and
Parliamentary system of Government
 Both the forms of Government are differentiated by
the measure of power they have.
 1.Federal system of Government is basically a form
of Government based on the decentralization of
powers between various levels of Governance, say
the Centre and the State.
 2.This is a form of Government which is based on
the equal distribution of powers between the
Centre and the State.
 3.The Constitution of this Government is so
designed that powers are distributed on the basis
of national and State interests.
 4.The Central Government has not much to do with
the affairs of the State as long as it does not
coincide with the interests of the nation.
 5.Both Governments have their own area of work 107
 i. Parliamentary System of Government, as
the name suggests, gives the Parliament
all the major powers of Governance.
 ii. Parliament, which represents Central
Government, is more powerful than the
State Governments.
 iii. The Constitution of this form of
Government vests all the major functions
and power in the Centre and the States
then derive their powers from the Central
Government.
 iv. Basically, the States are dependent
upon the Centre for funds and other things
to carry out the functions in their State. 108
 v. This form of Government is more

centralized and the Centre can, and
interferes in the State affairs.
 vi. On the whole, a Federal System of
Government is more decentralized as
compared to the Parliamentary System
of Government,
 where much power lies with the
Parliament and States are dependent on
the Centre.
109
110
Ram Nath Kovind
111
112
113
United Systems
ΩIn Unitary States or United Systems
the National Government performs all
the Governmental functions.
ΩSub National units administer matters
within their jurisdiction, but their
powers are set and delegated by the
National Authority.
ΩThe National Government retains the
Police power—the inherent power to
provide for the health, safety, and
welfare of its citizens.
ΩTaxation and major Lawmaking
powers also rest almost entirely with
the National Government.
114
Unitary Systems
Ω Most Nations are Unitary States, but their
institutions and processes may differ
markedly.
Ω Great Britain, for example, is considered a
Unitary System, yet a certain degree of
regional autonomy exists in Northern
Ireland, Scotland, and Wales, and local
County Governments perform certain fairly
autonomous functions.
Ω In France, however, strict control over the
administrative territorial subdivisions is
exercised by the National Government.
Ω In other Unitary States there exists only
token territorial decentralization.
115
Indian political philosophy towards business enterprises,
business policies, public control on business
£ India is a Democratic Nation wherein the
Government plays an active role in business
affairs.
£ Political changes exercise a significant influence
on business.
£ For example, coca-cola and IBM were forced to
leave India due to very strict policy of the
Government during 1977-1980.
£ Bangalore and Hyderabad have become the most
popular locations for Information Technology
firms due to supportive political climate.
£ Changes in the political scenario led to the entry
of coca-cola, Pepsi-cola, IBM and other
Multinational Corporations in India.
£ Business has to function within the framework of
Laws and Regulations of the Country.
£ Legal environment exercises a significant
influence on business activities. 116
Indian political philosophy towards business enterprises,
business policies, public control on business
£ The main components of the Legal and
regulatory environment are as follows:-
£ Rights and duties of citizens as specified in
the Constitution.
£ Laws concerning promotion, operation and
expansion of business.
£ Flexibility and adaptability of Laws.
£ Judicial system of the Country.
£ In recent years substantial modifications
have taken place in various Laws and
Regulations governing business in India.
£ Removal of controls over foreign exchange
and liberalization of foreign direct
investment have led to the entry of several
Multinational Corporations in the Country.
117
Evolution of Government control in India
€ Regulatory control:-
€ The Government prescribes rules and
regulations concerned with the entry into
business, conduct of the enterprise,
disposal of surplus and relationships. Like,
€ Grant of license,
€ Restriction on the location of the industry,
€ Regulations on the working conditions of
the factory,
€ Ceilings on the Managerial remuneration,
€ Prohibition of certain activities,
€ Ceilings on dividends,
€ Tax on income of business enterprises,
118
€ Limiting the tariffs of the electric
supply undertakings,
€ Regulating the inter-Company
investments,
€ Provisions for settlement of labour
Management disputes and so on.
€ In order to regulate the economy
Government applies both
Administrative and fiscal incentives
and disincentives.
€ Industrial policy is an important
instrument for regulating the entry
and location of Private Enterprise.
119
€ Promotional control:- in a developing
country like India, infrastructure for
industrial development is inadequate.
€ Therefore, the Government has to
assume direct responsibility to build-
up and strengthen infrastructural
facilities like,
€ Power,
€ Transportation,
€ Communication,
€ Finance,
€ Training,
€ Research and so on.
120
€ The promotional role of Government
consists of,
€ Assistance by way of subsidies,
€ Allocation of scarce resources,
€ Providing land at concessional price,
€ Concessional rates for power and
water supply,
€ Facility of concessional rate of
interest for the development of
backward regions,
€ Fiscal, monetary and other incentives,
€ Insurance of business risks for the
development of priority sectors and
activities. 121
evolution of Government control in India
€ Entrepreneurship control:-
€ It consists of Government's participation in
business through public ownership and
Management of industrial and commercial
undertakings.
€ Entrepreneurial role of Government of India
has given rise to a strong Public Sector in the
developing Country of India.
€ Even in developed Countries which are
committed to the philosophy of free private
enterprise,
€ defence production, public utilities, multi-
purpose river valley projects, railways,
airlines and strategic industries are often
owned and controlled by the Government. 122
€ Objectives like,
€ 1.Balanced regional development of the
Country,
€ 2.Promotion of capital intensive
industries with long gestation periods to
check Private Monopolies,
€ 3.Exploitation of consumers,
€ 4.Dearth of Private Entrepreneurship and
€ 5.Lack of competition in certain
industries have promoted the
Government to become an entrepreneur.
123
evolution of Government control in India
€ Planning control:- Government has the
responsibility of fulfilling the aspirations of
public.
€ Scarcity of economic resources is the main
problem in achieving the socio-economic
objectives of growth and social justice.
€ Therefore, the Government of India lays down
National priorities for optimum allocation of
scarce resources through planning.
€ The Government of India had set up Planning
Commission in 1950 and the basic goal of
five year planning have been balanced
regional development, rapid industrialization,
employment generation and development of
agriculture and small scale industries. 124
125
Government business relationship in India
∞ Government and business are the two
most powerful institutions in society.
∞ The two together determine the public
policy both domestic and foreign.
∞ In a situation of political stability business
flourishes and businessmen venture to
take greater risks.
∞ Changes in the nature and extent of
government intervention in business
matters lead to changes in the pattern of
industrial growth.
∞ When public sector was in a dominant
position and industrial licensing was
widely applicable, scale of operations and
the location of projected were decided by
the government.
126
∞ Between 1945 and 1979 the

Government increasingly interfered in
the economy by creating state run
industries which took the form of
Public Companies.
∞ From 1979 onwards industries were
sold off to private shareholders to
create a competitive business
environment.
∞ In 1991, Government control of
business declined under the policy of
liberalization, privatization and
globalization.
127
∞ Further, a rise in corporate tax resulted in
passing over some of this tax to
consumers which raised the prices of the
commodities.
∞ Other taxes like the landfill tax and value
added tax.
∞ A rise in interest rates, as interest rate is
determined by the government, raised the
cost to business of borrowing money and
consumers to reduce expenditure which
resulted in fall of business sales.
∞ Government spending policy also affects
the business, for instance, if the
government spends more on schools, this
will result an increase in income of
businesses that supply school with books,
infrastructure and equipments.
128
∞ Government also provides subsidy for

some business activities like not-for-profit
organization.
∞ Government has introduced foreign direct
investments in order to get huge
investments in infrastructure, aviation,
insurance technology and pharmacy from
foreign companies and multinationals.
∞ Government has played a vital role in
development of tourism.
∞ The current plan focuses on marketing,
promotion, investment and infrastructure
for expansion and promotion of tourism
sector. Government has also played a vital
role in the development of e-commerce.
129
∞ The Government exercises its authority

in India in several ways:
∞ The Industries act which seeks to
regulate industrial pattern and price
∞ The essential commodities act which
empowers the Government to declare
any commodity as essential in the public
interest and exercise control over it
∞ The Companies act which regulates the
promotion and Management of the
corporate sector in India.
∞ Pollution control laws which seek to
protect the environment against air,
water and noise pollution and to
preserve the ecological balance.
130
∞ Laws which specify standards for the

product and packaging and even prohibit
the marketing of certain products.
∞ Controls on advertising of alcoholic
products and tobacco product
∞ The consumer protection act which
seeks to protect the rights of consumer
∞ Laws regulating monopolistic, unfair
trade and resistive trade practices
∞ The competition act which seeks to
regulate competition in the public
interest.
∞ Labor Laws designed to protect and
promote the interests of the working
class.
131
132
UNIT - IV Economic Environment
Industrial concentration - Industrial sickness - reasons - MRTP, IRB, etc. Economic
Liberalization, privatization, new industrial policy, economic prosperity - Role of GATT, IFCI,
LIC, UTI, IDBI, ICICI, IMF. Globalization and Labour Policy in India SLIDES 137to 223
• “Industrial concentration” refers to a

structural characteristic of the business
sector. It is the degree to which
production in an industry—or in the
economy as a whole—is dominated by a
few large firms. Once assumed to be a
symptom of “market failure,”
concentration is, for the most part, seen
nowadays as an indicator of superior
economic performance.
• In the early 1970s, Yale Brozen, a key
contributor to the new thinking, called
this as “a revolution in economics.”
• Industrial concentration remains a matter
of public policy concern even so. 133
“Industrial concentration”
 The fundamental public policy question
posed by industrial concentration is this:
 Are concentrated industries somehow less
competitive than unconcentrated ones?
 Concentration would have adverse effects if
it bred market power—the ability to charge
prices in excess of costs—thereby
increasing industry PROFITS at consumers’
expense.
 In theory, industrial concentration can
facilitate the exercise of market power if
the members of the industry agree to
cooperate rather than compete, or if the
industry’s dominant firm takes the lead in
setting prices that rivals follow.
134
“Industrial concentration”
And, indeed, the evidence generated by
hundreds of econometric studies
suggests that concentrated industries
are more profitable than
unconcentrated ones.
But that evidence begs the question.
It does not tell us,
whether profits are higher in
concentrated industries because of
market power effects or
because the firms in those industries
use resources more efficiently (i.e.,
have lower costs).
135
Industrial sickness - reasons
 Definition of Industrial Sickness:-
 In the post-independence period, when
the problem of industrial sickness has
gained a serious proportion then various
organisations like RBI, SBI and other
term-lending institutions defined this
problem of sickness in different manner.
 Thus, there was lack of unanimity in the
definition of sickness.
 In 1985, the Sick Industrial Companies
(Special Provision) Act, 1985 was
enacted.
 This Act has offered a definition of
sickness. 136
Industrial Sickness
 According to this Act, “Sick Industrial Company”
indicates an industrial company (registered for
not less than seven years) which is showing
accumulated losses equal to or exceeding its net
worth at the end of any financial year, and has
suffered cash losses also during that financial
year and the immediately preceding year.
 Here the “Cash loss” indicates computed loss
without making provision for depreciation and net
worth means the total amount of capital, and free
reserves.
 Moreover, a Company will be known as
‘incipiently sick’ which has already eroded 50 per
cent or even more of its peak net worth during
any of the preceding five financial years.
 However, this Act mentioned number 137of
Industrial Sickness
• Similarly, small scale industrial company
is considered as sick which:
• (a) Has incurred a cash loss in the
previous financial year and was likely to
earn losses in the current year and
recorded erosions of its peak net worth
during the last five years due to
cumulative cash losses to the tune of 50
per cent or even more, and/or
• (b) Defaulted continuously in meeting
four consecutive instalments of interest
or two half yearly instalments of
principal amount on term loan and the
company recorded persistent
regulations in the operation of its credit
limit with the bank.
138
- National Company Law Tribunal
139
140
141
Industrial Sickness in India
Meaning, Causes and Suggested Remedies
 Meaning:
 One of the adverse trends observable in the
corporate private sector of India is the
growing incidence of sickness.
 It is causing considerable concern to
planners and policymakers.
 It is also putting a severe strain on the
economic system, particularly on the banks.
 There are various criteria of sickness.
 According to the criteria accepted by the
Reserve Bank of India “a sick unit is one
which has reported cash loss for the year of
its operation and in the judgment of the
financing bank is likely to incur cash loss for
the current year as also in the following
year.”
142
 A major symptom of sickness is a steady
fall in debt-equity ratio and an imbalance in
the financial position of the unit.
 Simply put, a sick unit is one which is
unable to support itself through the
operation of internal resources (that is,
earnings plough-back).
 As a general rule, the sick units continue
to operate below the break-even point (at
which total revenue = total cost) and are,
thus, forced to depend on external sources
for funds of their long-term survival.
 Industrial sickness creates various socio-
economic problems.
 When an industrial unit falls sick those
who depend on it have to face an uncertain
future. They fear loss of jobs. 143
 Even if they do not lose jobs they do not get
their wages and compensation in time and
are, thus, forced to live in extreme hardship.
 Of course, sickness is not a special problem
of India.
 It is, undoubtedly, a global phenomenon.
 Even in industrially advanced Countries there
are numerous cases of bankruptcy or
liquidation.
 These sick units are nursed back to health
through mergers, amalgamations, takeovers,
purchase of assets, or outright nationalisation.
 When the problem becomes really alarming or
unmanageable, the unit is permitted to die its
natural death.
144
• The factors leading to sickness can be
due to reasons of finance, technical
issues, mismanagement, non-availability
of raw materials, power or natural
calamities or disasters such, as fire or
earthquake or a combination of such
factors.
• The causes of industrial sickness may
be divided into two broad categories:-
• (i) external and
• (ii) internal.
• External causes are those which are
beyond the control of its management
and seen to be relatively more
important than internal causes.
145
• The causes which have been identified so
far include:-
• (a) Delay in land acquisition and building
construction
• (b) Delay in obtaining financial assistance
from public financial institutions
• (c) Delayed supply of machinery by the
manufacturers
• (d) Problems related to recruitment of
technical and managerial staff
• (e) Delay on the part of the Government in
sanctioning licences, permits, etc.
• (f) Shortages of basic inputs like power and
coal. Other causes include
146
• (g) Cost over-runs due to factors beyond

the control of management
• (h) Lack of demand for products or shift of
demand to products of rival firms due to
delays in project implementation
• (i) Unsatisfactory performance by
collaborators—financial and technical
• (j) Large changes in the scale of operation
and optimum product mix in the long run
and, last but not the least
• (k) Changes in the policy of the
Government relating to movement of goods
from one place to another within the
country.
147
• The primary cause seems to be:-
• (i) “Lack of experience of the promoters in a
specific line of activity”.
• The other causes are:-
• (ii) Differences among various persons
associated with the promotion and
management of the enterprise
• (iii) Mechanical defects and breakdown
• (iv) Inability to purchase raw materials at an
economic price and at the right time
• (v) Failure to make controls effective in time, in
case of deficiencies in workings
• (vi) Deteriorating labour-management relations
and the consequent fall in capacity utilisation
• (vii) Faulty financial planning and lack of
balance in the financial (capital) structure.
148
149
150
THE MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT, 1969
POLICY, PROVISIONS AND PERFORMANCE
 The MRTP Act, 1969 has its genesis in the
Directive Principles of State Policy
embodied in the Constitution of India.
 Clauses (b) and (c) of Article 39 of the
Constitution lay down that the State shall
direct its policy towards ensuring:
 (i) that the ownership and control of
material resources of the community are
so distributed as to best serve the
common good; and
 (ii) that the operation of the economic
system does not result in the
concentration of wealth and means of
production to the common detriment.
 Provisions Relating to Monopolistic,
Restrictive and Unfair Trade Practices. 151
Provisions Relating to Monopolistic, Restrictive
and Unfair Trade Practices
 1.Section 10 of the MRTP Act, 1969
empowers the MRTP Commission to
enquire into monopolistic or restrictive
trade practices upon a reference from
the Central Government or upon its own
knowledge or on information.
 2.The MRTP Act, 1969 also provides for
 appointment of a Director General of
Investigation and Registration for
making investigations
 for the purpose of enquiries by the
MRTP Commission and for maintenance
of register of agreements relating to
restrictive trade practices.
152
 3.The MRTP Commission receives
complaints both from registered consumer
and trade associations and also from
individuals either directly or through
various Government Departments.
 4.Complaints regarding Restrictive Trade
Practices or Unfair Trade Practices from
an association are required to be referred
to the Director General of Investigation
and Registration for conducting
preliminary investigation in terms of
Sections 11 and 36C of the MRTP Act,
1969 and Regulation 119 of the MRTP
Commission Regulations, 1974.
153
 5.The Commission can also order a
preliminary investigation by the Director
General of Investigation and Registration
when a reference on a restrictive trade
practice is received from the Central/ State
Government, or when Commission's own
knowledge warrants a preliminary
investigation.
 6.Enquiries are instituted by the
Commission under relevant Sections of the
MRTP Act, 1969 after the Director General
of Investigation and Registration has
completed the preliminary investigation
and as a result of the findings, submits an
application to the Commission for an
enquiry.
154
Unfair Trade Practices
ΩProvisions relating to Unfair Trade
Practices were incorporated in the
MRTP Act, 1969 in 1984.
ΩUnfair Trade Practices have been
defined in Section 36A as trade
practices which for the purpose of
promoting the sale, use or supply of
any goods or for provision of any
services, adopt one or more of the
practices mentioned therein and
thereby cause loss or injury to the
consumers of such goods or services,
whether by eliminating or restricting
competition or otherwise. 155
36A. Definition of unfair trade practice
Section 36A. Definition of unfair
trade practice.
In this Part, unless the context
otherwise requires "unfair trade
practice" means
a trade practice which, for the
purpose of promoting the sale, use
or supply of any goods for the
provisions of any services, adopts
any unfair method or unfair or
deceptive practice including any of
the following practices, namely,- 156
 (1) The practice of making any statement,
whether orally or in writing or by
visible representation which,-
 (i) falsely represents that the goods are of a
particular standard, quality, quantity, grade,
composition, style or model;
 (ii) falsely represents that the services are of a
particular standard, quality or grade;
 (iii) falsely represents any re-built, second-
hand, renovated, reconditioned or old goods as
new goods;
 (iv) represents that the goods or services have
sponsorship, approval, performance,
characteristics, accessories, uses or benefits
which such goods or services do not have;
157
 (v) represents that the seller or the supplier has
a sponsorship or approval or affiliation which
such seller or supplier does not have;
 (vi) makes a false or misleading representation
concerning the need for, or the usefulness of,
any goods or services;
 (vii) gives to the public any warranty or
guarantee of the performance, efficacy or
length of life of a product or of any goods that
is not based on an adequate or proper test
thereof
 PROVIDED that where a defence is raised to
the effect that such warranty or guarantee is
based on adequate or proper test, the burden of
proof of such defence shall lie on the person
raising such defence; 158
(viii) makes to the public a representation
in a form that purports to be-
(a) a warranty or guarantee of a product
or of any goods or services; or
(b) a promise to replace, maintain or
repair an article or any part thereof or
to repeat or continue a service until it
has achieved a specified result, if such
purported warranty or guarantee or
promise is materially misleading or
if there is no reasonable prospect that
such warranty, guarantee or promise will
be carried out; 159
(ix) materially misleads the public
concerning the price at which a product or
like products or goods or services, have
been, or are, ordinarily sold or provided,
and, for this purpose, a representation as to
price shall be deemed to refer to the price
at which the product or goods or services
has or have been sold by sellers or provided
by suppliers generally in the relevant
market unless it is clearly specified to be
the price at which the product has been
sold or services have been provided by the
person by whom or on whose behalf the
representation is made; 160
 (x) gives false or misleading facts disparaging the
goods, services or trade of another person.
 Explanation : For the purposes of clause (1), a
statement that is-
 (a) expressed on an article offered or displayed for
sale, or on its wrapper or container; or
 (b) expressed on anything attached to, inserted in,
or accompanying, an article offered or displayed
for sale, or on anything on which the article is
mounted for display or sale; or
 (c) contained in or on anything that is sold, sent,
delivered, transmitted or in any other manner
whatsoever made available to a member of the
public, shall be deemed to a statement made to the
public by, and only by, the person who had caused
the statement to-be so expressed, made161 or
 (2) Permits the publication of any advertisement
whether in any newspaper or otherwise, for the
sale or supply at a bargain price, of goods or
services that are not intended to be offered for
sale or supply at the bargain price, or
 for a period that is, and in quantities that are,
reasonable, having regard to the nature of the
market in which the business is carried on, the
nature and size of business and the nature of the
advertisement.
 Explanation: For the purposes of clauses (2),
"bargain price" means-
 (a) a price that is stated in any advertisement to be
a bargain price, by reference to an ordinary price
or otherwise; or
162
 (b) a price that a person who reads, hears, or
sees the advertisement, would reasonably
understand to be a bargain price having regard
to the prices at which the product advertised or
like products are ordinarily sold;
 (3) Permits-
 (a) the offering of gifts, prizes or other items
with the intention of not providing them as
offered or creating the impression that
something is being given or offered free of
charge when it is fully or partly covered by the
amount charged in the transaction as a whole;
 (b) the conduct of any contest, lottery, game of
chance or skill, for the purpose of promoting,
directly or indirectly, the sale, use or supply of
any product or any business interest; 163
 (4) Permits the sale or supply of goods intended
to be used, or are of a kind likely to be used by
consumers, knowing or having reason to,
believe that the goods do not comply with the
standards prescribed by competent authority
relating to performance, composition, contents,
design, constructions, finishing or packaging as
are necessary to prevent or reduce the risk of
injury to the person using the goods;
 (5) Permits the hoarding or destruction of
goods, or
 refuses to sell the goods or
 to make them available for sale, or
 to provide any service,
 if such hoarding or destruction or refusal raises
or tends to raise or is intended to raise,
 the cost of those or other similar goods or
services.
164
Industrial Reconstruction Bank of India (IRBI)
Industrial Reconstruction Corporation (IRCI)
of India Ltd., was set up as a Public Limited
Company (a Company registered under the
Companies Act) in April, 1971 under the
control of Reserve Bank of India and the
Central Government for rehabilitation of the
sick industrial Companies, and
was reconstituted under the IRBI Act, 1984,
as a Statutory Corporation to be called as
the Industrial Reconstruction Bank of India
(IRBI) in 1985.
The authorised capital of IRBI is Rs. 200
crores, with a paid up capital of Rs. 50
crores. 165
Industrial Reconstruction Bank of India
• The basic objective of this Bank is to
assist rehabilitation of sick industrial units
or rehabilitation of units likely to face
closure, but showing promise of viability.
• The down fall of the units may be due to
frequent strikes, mismanagement,
shortage of raw materials, general
recession etc.
• Their closure will result in unemployment
and dislocation of productive activities. So,
in order to protect them, the IRBI has been
set up. This Bank aims at providing
financial, technical or managerial
assistance so that they can be put up
again as viable units.
166
Industrial Reconstruction Bank of India -Functions
• While accomplishing its main objective, the
Bank performs the following functions:-
• 1. Restructuring of the Management.
• 2.Providing Technical and Managerial guidance
either through its own staff or by procuring the
suitable personnel from the market.
• 3. Helping in getting assistance from other
Banks and financial institutions and
Government agencies.
• 4. Restructuring the financial base of the
assisted companies.
• 5. Finding out viable solutions to the labour
problems.
• 6. Advising the Management with regard to
product mix and other allied matters.
• 7. Makes a close follow up of the course of
reconstruction.
167
• Resources:
• The authorized capital of the Bank have been
issued to and subscribed by IDBI, IFCL, ICICI, Life
Insurance Corporation of India, State Bank of India
and the 14 Nationalised Banks.
• The authorized capital of the Bank constitutes
receipts from Govt. of India and the bonds issued
to the public.
• It is managed by the Board of Directors whose
members shall not be less than 9 & more than 15.
• Three Directors are appointed by IDBI.
• It has also constituted an Executive Committee to
consider the grant of restructuring loans up to the
extent of Rs 5 lakhs in any single case.
• The repayments period varies from 4 to 12 years.
168
Working of the Corporation an Evaluation:
• The IRBI started its operations at a time
when the industrial and political climate
was too unhappy and problems like,
• Management indifference,
• Labour unrest and
• Unemployment have grown in gigantic
proportions.
• Many units have been lying closed and
several others were on the verge of
closure.
• In the beginning, the progress was very
slow.
169
• The corporation actually, gave
assistance only to 172 applicants out
of 4118 which applied for.
• However, after 2006-O7, the number of
units assisted by the corporation is
increasing year after year.
• The year 2011-12 witnessed a
phenomenal rise in the provision of
assistance by the Corporation.
• The total assistance sanctioned during
that year alone was the order of Rs.
406.88 crores.
170
• During the year 2009-10, it sanctioned
and disbursed total assistance of Rs.
546.6 crores and 541.1 crores in the
last year.
• Upto 31st March sanctioned and
disbursement stood at Rs. 1029.8
crores and the cumulative amount Rs.
765.2 crores respectively.
• The cumulative term loan assistance
made to various individual units
situated in notified backward areas up
to 31st March 2010 was amounted to
Rs. 586 crores to 539 crores.
171
• The corporation has been rendering
yeoman service in reviving and
revitalising the ailing and closed units.
• Besides providing financial assistance,
it has helped sick and closed units in a
variety of ways, such as arranging for
the timely supply of raw- materials,
helping to improve the quality of the
products, marketing the products,
restructuring the management etc.
• Thus, it is really playing a very
significant role in the revival of the
industrial economy of the country.
172
International Bank for Reconstruction and Development
© The International Bank for Reconstruction and
Development was created in 1944 to help Europe
rebuild after World War II.
© Today, IRDB provides loans and other assistance
primarily to middle income countries.
© IRDB is the original World Bank institution. It
works closely with the rest of the World Bank
Group to help developing countries reduce
poverty, promote economic growth, and build
prosperity.
© IRDB is owned by the governments of its 189
Member Countries, which are represented by a
25-member board of 5 appointed and 20
elected Executive Directors.
© The institution provides a combination of
financial resources, knowledge and technical
services, and strategic advice to developing
countries, including middle income and credit-
worthy lower income Countries.
173
International Bank for Reconstruction and Development
© Specifically, IBRD:
© Supports long-term human and social
development that private creditors do not
finance
© Preserves borrowers' financial strength by
providing support in times of crisis, when
poor people are most adversely affected
© Promotes key policy and institutional
reforms (such as safety net or anti-
corruption reforms)
© Creates a favourable investment climate
to catalyze the provision of private capital
© Facilitates access to financial markets
often at more favourable terms than
members can achieve on their own.
174
IRDB’s Services
© The World Bank Group works with middle income
countries simultaneously as clients, shareholders,
and global actors.
© As this partnership evolves, IBRD is providing
innovative financial solutions, including financial
products (loans, guarantees, and risk management
products) and knowledge and advisory services
(including on a reimbursable basis) to Governments
at both the National and sub National levels.
© IRDB finances projects across all sectors and
provides technical support and expertise at various
stages of a project.
© IRDB’s financial products &services help Countries
build resilience to shocks by facilitating access to
products that mitigate the negative impact of
currency, interest rate, and commodity price
volatility, natural disasters and extreme weather.
175
IRDB’s Services
© Unlike commercial lending, IRDB’s
financing not only supplies borrowing
countries with needed financing, but also
serves as a vehicle for global knowledge
transfer and technical assistance.
© Advisory services in public debt and asset
Management help Governments, official
sector institutions, and development
organizations build institutional capacity
to protect and expand financial resources.
© IRDB supports Government efforts to
strengthen not only public financial
management, but to also improve the
investment climate, address service
delivery bottlenecks, and other policy and
institutional actions.
176
Liberalization, Privatization and Globalization in India
# The economy of India had undergone significant
policy shifts in the beginning of the 1990s.
# This new model of economic reforms is
commonly known as the LPG or Liberalisation,
Privatisation and Globalisation model.
# The primary objective of this model was to
make the economy of India the fastest
developing economy in the globe with
capabilities that help it match up with the
biggest economies of the world.
# The chain of reforms that took place with
regards to business, manufacturing, and
financial services industries targeted at lifting
the economy of the country to a more proficient
level. These economic reforms had influenced
the overall economic growth of the Country in a
significant manner.
177
178
179
180
181
182
183
184
185
186
187
Compound annual growth rate (CAGR)
188
189
190
191
Globalisation
• If climate change is the key process in the natural
world impacting on sustainable development, then
globalisation is the parallel process in the human
world, creating both opportunities for, and barriers
to, sustainable development.
• Globalisation is the ongoing process that is linking
people, neighbourhoods, cities, regions and
countries much more closely together than they
have ever been before.
• This has resulted in our lives being intertwined
with people in all parts of the world via the food
we eat, the clothing we wear, the music we listen
to, the information we get and the ideas we hold.
• This interconnectedness amongst humans on the
planet is sometimes also referred to as the ‘global
village’ where the barriers of national and
international boundaries become less relevant and
the world, figuratively, a smaller place.
192
Globalisation
• . The process is driven economically by
international financial flows and
trade, technologically by information technology
and mass media entertainment, and very
significantly, also by very human means such as
cultural exchanges, migration and international
tourism.
• As one commentator remarked, we now live in a
networked world.
• While globalisation is not a new process, it has
accelerated rapidly since World War II, and is
having many effects on people, the environment,
cultures, national governments, economic
development and human well-being in countries
around the world.
• Many of these impacts are beneficial, but Jimmy
Carter, a former President of the USA, has pointed
out that many people are missing out on these
benefits:
193
Globalisation
• OBJECTIVES
• 1.To understand basic concepts, processes
and trends associated with globalisation;
• 2.To assess the impacts of globalisation and
the wide range of reactions they have
caused around the world;
• 3.To understand the interconnected nature of
the major drivers of globalisation;
• 4.To appreciate the complexity of teaching
about globalisation; and
• 5.To develop a rationale for integrating a
global perspective in Teaching and Learning
for a Sustainable Future.
194
195
 LPG and the Economic Reform Policy of
India:- Following its freedom on August 15,
1947, the Republic of India stuck to
socialistic economic strategies.
 In the 1980s, Rajiv Gandhi, the then Prime
Minister of India, started a number of
economic restructuring measures.
 In 1991, the country experienced a balance
of payments dilemma following the Gulf
War and the downfall of the erstwhile
Soviet Union.
 The Country had to make a deposit of 47
tons of gold to the Bank of England and 20
tons to the Union Bank of Switzerland.
196
This was necessary under a recovery
pact with the IMF or International
Monetary Fund.
Furthermore, the International
Monetary Fund necessitated India to
assume a sequence of systematic
economic reorganisations.
Consequently, the then Prime Minister
of the Country, P V Narasimha Rao
initiated groundbreaking economic
reforms.
However, the Committee formed by
Narasimha Rao did not put into
operation a number of reforms which
the International Monetary Fund
looked for. 197
 Highlights of the LPG Policy
Given below are the salient highlights of
the Liberalisation, Privatisation and
Globalisation Policy in India:
 Foreign Technology Agreements
 Foreign Investment
 MRTP Act, 1969 (Amended)
 Industrial Licensing
 Deregulation
 Beginning of privatisation
 Opportunities for overseas trade
 Steps to regulate inflation
 Tax reforms
 Abolition of License -Permit Raj
198
199
New Industrial Policy
Industrial Policy is a formal

declaration by the Government
whereby it outlines its general
policies for industries.
Any industrial policy has broadly two
parts.
First part generally deals with the
ideology of the current political
dispensation,
while other one provides a
framework of certain rules /
principles. 200
 The main objective of any industrial
policy is,
 to augment the industrial production and
thereby enhance the industrial growth
which leads to economic growth by
optimum utilization of resources;
 modernization;
 balanced industrial development;
 balanced regional development (by
providing concessions for industrial
development in backward areas);
 balanced development of basic and
consumer industry;
201
coordinated development of
large as well as small, medium
and cottage enterprises;
determination of area of
operation under private and
public sector;
enhance cordial relations
between workers and
management and proper
utilization of the domestic /
foreign capital. 202
 Industrial Policy The need, objectives and
importance of an industrial policy can be
explained through following points:-
 1.Deployment of Natural Resources
 The New industrial policy helps in full
deployment of natural resources of the
country. It helps in identifying, collecting
and using resources properly.
 2.Facilitates increase in national income.
The main objective of the industrial policy
is to augment industrial production of the
Country.
 It provides an impetus to rapid development
of industries & industrial growth 203
 3.Modernisation
 The industrial policy encourages
modernisation for increasing industrial
output and productivity.
 It envisages the use of modem and latest
production techniques m industrial sector.
It facilitates maximum output at minimum
cost of production.
 4.Balanced Industrial Development
 The industrial policy envisages balanced
industrial development of the country.
 It also facilitates balanced development of
various sectors of the economy.
204
 5.Regional Development
 The industrial policy helps in balanced
regional development of the country.
 The industrial policy may contain
provisions regarding providing facilities or
concessions for rapid development of
industrially backward areas/regions of the
Country
 6.Coordination between Basic and
Consumer Industries
 The balanced development of basic and
consumer industries is essential for
economic growth.
205
 The New Industrial policy encourages
development of basic and key industries
on the one hand, while attention is paid to
the development of consumer industries
also on the other.
 Thus, by balanced and coordinated
development of both type of industries it
provides a pace to economic growth.
 7.Coordination between Small Scale and
Large Scale Industries
 The industrial policy plays a vital role in
coordinated development of small scale or
cottage industries and large scale
industries. 206
 These industries can be made mutually
helpful to each other through the provisions
of industrial policy.
 8.Area Determination
 The industrial policy determines the area of
operation under public and private sector.
Proper direction can be shown to private
sector through Country’s industrial policy.
 9.Cordial Industrial Relations
 A comprehensive industrial policy is needed
to establish cordial relations between
workers and management. Cordial industrial
relations are essential for rapid and
sustainable industrialisation.
 10.Proper Utilisation of Foreign
Assistance/investment
 An appropriate Industrial Policy
envisages to attract foreign capital and
entrepreneurs.
 It helps rapid industrial development of
the Country;
 A well thought of industrial policy
checks the demerits of “foreign
assistance.
 The foreign aid can be used in the
National interest if an appropriate
Industrial Policy is pursued by the
Country.
208
Economic prosperity of india
209
210
 India holds a unique position in the global
economy having shown a consistent GDP
performance over the last few years.
 However, India has not been able to
realize the huge economic potential due
to several underlying distortions in terms
of legal, economic and governance
environment.
 There is a need for market friendly steps
to raise the prosperity level and
competitive advantage of India.
 The next step is to relook at the entire
picture and take appropriate steps for
unlocking India’s potential and enhancing
the productivity of the Indian economy.
211
 Globalization has already connected
everything and everyone and allowing
the best ideas, talent and
investments to flow where they can
create the most value.
 This phenomenon is here to stay if
not look to further integrate us.
 It’s imperative for us to understand
that and take necessary steps so that
we can leverage our strengths as a
nation via macro and microeconomic
measures in order to move towards
the direction of growth.
212
 In recent years, we find India is getting
closely integrated within the world
economy.
 This idea of inter-connectivity of the
global economy demands engagement,
not retrenchment.
 It is not a question of winners and losers,
but of identifying and building on India’s
competitive advantages to drive growth
and utilizing it to further better our
position.
 IT industry has been a great example in
last three decades of how things can be
done.
 It’s time for us to diversify our strengths
and compete
213
Role of GATT
• The main role of GATT in the
international trade was regulating the
contracting parties to achieve the
purpose of the agreement which were
reducing tariffs and other barriers, and
to achieve the liberalization in
international trade.
• The main role of GATT in the
international trade was regulating the
contracting parties to achieve the
purpose of the agreement which were
reducing tariffs and other barriers, and
to achieve the liberalization in
• The role was reflected in following
aspects:
214
Role of GATT
• Firstly, GATT established a set of standard
to guide the contracting parties to
participate in international trade practices.
• GATT stipulated several of basic principle to
conduct the contracting parties in
international business, such as General
• Most-Favored-Nation Treatment (Article II),
• Non-discriminatory Administration of
Quantitative Restrictions (Article XIII), and
• General Elimination of Quantitative
Regulations (Article XI) and so on in the
“GATT 1947".
• Every contracting party should obey these
basic principles when they were involved in
trade relations, otherwise they would be
condemned, even be taken revenge by other
parties.
215
Role of GATT
• Besides this, contracting parties
reached quite a little of agreements, and
made some rules during pervious
multilateral trade negotiations.
• For instance, Kennedy Round which was
started from May 1964 brought about the
Anti-dumping Agreement. (WTO).
• These rules and agreements which were
made in the multilateral rounds later
become the basic principles which were
accepted by all the parties, and
stimulated the development of
216
Role of GATT
• Secondly, GATT reduced the tariff on the basis of
mutual benefit, accelerate the trade liberalization
after the World War II.
• GATT’s major contribution was to reduce of tariffs
by sponsoring “rounds" of multilateral negotiations.
• By sponsoring the multilateral negotiations, there
was a significant reduce of the tariff.
• There were about 35% average tariff reductions in
both Kennedy Round and Tokyo Round.
• Further more, in the Uruguay Round which was the
most productive in the history of GATT multilateral
negotiation, the contracting parties practiced the
rules that kept cutting the tariff rate, there was an
average tariff cut of 39% in this round of
negotiation.
• By cutting the tariff rate, there is less trade
barriers in doing international business which will
mutual benefit the parties which participated, and
promote trade liberalization.
217
Role of GATT
• Thirdly, GATT reduced the discrimination in tariff
and trade which promoted to reduce other trade
barriers.
• As stated in the Article II: schedule of concession
in “GATT 1947", “Each contracting party shall
accord to the commerce of the other contracting
parties’ treatment no less favourable than that
provided for in the appropriate Part of the
appropriate Schedule annexed to this Agreement."
• According to this statement, GATT regulate the
contracting parties cannot increase the levels of
tariff as their wish, but some countries used other
non-tariff barriers to promote their protectionism.
• Therefore, GATT claimed the contracting parties
should not use other barriers to protect their own
industries, it requested the reduction of the non-
tariff barriers and quantitative restriction to make
sure the benefit from the reduction of tariff not be
erased by the non-tariff barriers.
218
Role of GATT
• After Kennedy Round, the multilateral negotiation
started to cover non-tariff barriers on goods.
• In 1968/1969, GATT compiled the “Inventory of Non-
tariff Barriers" which listed more than 800
individual trade barriers in several volumes.
• Codes was one of the six agreements passed in the
Tokyo Round, it established new rules on
government procurement, technical barriers to
trade, customs valuation, import licensing,
antidumping, and subsidies and countervailing
measures.
• The codes worked towards the goal which to
eliminate the non-tariff barriers.
• Further more, the Uruguay Round also made the
progress in decreasing and eliminating non-tariff
barriers, especially in agriculture products.
• All these are good for eliminating the trade
barriers, which towards the development of the
219
Role of GATT
• Fourthly, GATT protected the benefits of
the developing countries to a certain
extent to international trade.
• One of the basic objectives of GATT was
that “raising of standards of living and the
progressive development of the
economies of all contracting parties, and
considering that the attainment of these
objectives is particularly urgent for less-
developed contracting parties."
• In order to achieve this objective, GATT
established some special measures for
less-developed countries, such as provide
tariff protect for specific industries,
quotas which are with the purpose of
balance of payment.
220
Role of GATT
• With the increasing number of developing
countries joined the GATT, there were
more concern in the trade position and
benefit of less-developed countries, more
over with the developing countries’ flight,
so GATT established some measures for
developing countries so that will benefit
the less-developed countries in export-
oriented trade.
• At the GATT ministerial meeting of 1963, it
enabled the Contracting Parties to
discharge the responsibilities towards the
development objectives of the developing
countries which led to add,
• Part IV which entitled “ Trade and
Development" to the General Agreement.
221
Role of GATT
• The new Part IV provided
preferential treatment to the
developing countries.
• In the Uruguay Round which was
“an important milestone for
developing countries in their
integration into the global
economy",
• the participants agreed a number of
rules which would benefit the
developing countries, for example,
agricultural liberalization,
manufacture trade liberalization.. 222
Role of GATT
• There was a significant reduction of
non-tariff barriers (especially export
subsidies) in agriculture, it converted
virtually all agriculture nontariff
barriers into tariff.
• In manufacture trade, the tariff levied
on manufacture products which
imported from developing countries
was reduced by 40 percent on
average.
• All these measurement reduced the
burden on the economy of developing
countries, and had positives in the
development of trade for less
developed countries. 223
Role of GATT
• Finally, GATT acted as the “court of
international trade", by providing a platform
for contracting parties to negotiation and
talk to settle disputes in international trade.
• One of the objectives of GATT was to settle
the disputes between two or more parties.
• When two or more parties are involved in the
international trade, it is inevitable that
without disputes.
• Some of the disputes may be solved by the
two parties themselves, however, some
disputes could not be solved by themselves,
without the help of the third party, and the
disputes may be remaining unresolved for
years.
224
Role of GATT
• So it needed GATT to solve those
disputes which could not solve by
parties themselves.
• Before it was replaced by WTO, in a
certain period, GATT had become a
legal mechanism to settle trade
disputes among contracting parties,
it provided a platform for contracting
parties to settle disputes so that the
trade conflicts and disputes can be
solved immediately which would
protect the benefit of both parties,
and lay the foundation to achieve the
main objective of GATT.
225
UNIT - V Social, Cultural and Technological Environment Concept and impact of social,
cultural and technological environment –Role of WTO, TQM, Bench Marking, zero defects,
social audit and social responsibility of business. SLIDES 195 to 236
• Social Environment Defined

• The social environment consists of the sum total of a
society's beliefs, customs, practices and behaviours. It is, to
a large extent, an artificial construct that can be contrasted
with the natural environment in which we live.
• Every society constructs its own social environment. Some
of customs, beliefs, practices & behaviours are similar
across cultures, and some are not. For example, an American
travelling to Britain will find many familiar practices but not
so much if travelling to China.
• This social environment created by a society-at-large in
which a business functions can be referred to as its external
social environment. If a business operates in a multicultural
society, then the social external social environment is even
more complicated because the environment will consist of
diverse sub-populations with their own unique values, beliefs
and customs.
226
Cultural Environment
• Cultural factors affecting business
• fashion trends,
• lifestyle,
• social media influence (blogging, etc) vs
traditional media (press, tv, radio),
• dominant communication technology in
social groups,
• participation in cultural events,
• willingness to pay for tickets,
• popular actors, music styles, design
forms, etc.
• creativity of people,
• relative population of local (folk) artists
vs. global imported culture.
227
Technological Environment
• Technological change is advancement in the 'art' of
making products or in the development of processes.
Technological change can be either incremental or
radical. Incremental change can be thought of as an
evolutionary process where you change, modify, refine, or
improve a product or process.
• Radical change can be thought of as revolutionary, where
completely new products and processes are designed.
Radical technological change can rock the foundation of
the world.
• Probably the most important radical technological change
in the world was the invention of agriculture. A more
recent radical change is the development of the Internet.
• Advances in technological processes provide many
advantages. Technological innovations in processes can
improve productivity and efficiency that will reduce costs
and improve profit margins.
• It can make a business more competitive. Innovation in
technological processes can also make products possible
that were otherwise impossible with older technology.
228
229
230
231
232
153
233
234
235
236
237
238
239
UNIT – V
Social, Cultural and Technological Environment
Concept and impact of social, cultural and technological environment -
Role of WTO, TQM, zero defects, social audit and social responsibility of business.
• World Trade Organization, or WTO

• The main function of the World
Trade Organization, or WTO, is
ensuring that international trade
flows as smoothly as possible in the
multilateral trading system
between its 157 Member Countries.
• The WTO is the only International
Organization dealing with the
Global rules of trade between
nations.
240
World Trade Organization, or WTO
• Introduction:-
• The establishment of the World Trade Organisation
(WTO) as the successor to the GATT on 1 January
1995 under the Marrakesh Agreement, places the
Global trading system on a firm Constitutional footing
with the evolution of International economic
Legislation resulted through the Uruguay Round of
GATT negotiations.
• A remarkable feature of the Uruguay Round was that
it paved the way for further liberalisation of
international trade with the fundamental shift from the
negotiation approach to the institutional framework
envisaged through transition from GATT to WTO
Agreement.
• The GATT 1947 and the WTO co-existed for the
transitional period of one year in 1994.
• In January 1995, however, the WTO completely
replaced the GATT.
• The membership of the WTO increased from 77 in
2005 to 157 by the end of 1996.
241
• Features of the WTO:
• The distinctive features of the WTO are:
• i. Unlike the GATT, it is a Legal entity.
• ii. Unlike the International Monetary Fund
(IMF) and the World Bank (WB) it is not an
agent of the United Nations.
• iii. Unlike the IMF and the World Bank,
there is no weighted voting, but all the
WTO members have equal rights.
• iv. Unlike the GATT, the agreements under
the WTO are permanent and binding to the
Member Countries.
• v. Unlike the GATT, the WTO dispute
settlement system is based not on dilatory
but automatic mechanism.
242
• vi. It is also quicker and binding on the
members. As such, the WTO is a Powerful
Body.
• vii. Unlike the GATT, the WTOs approach is
rule- based and time-bound.
• viii. Unlike the GATT, the WTOs have a
wider coverage.
• xi. It covers trade in goods as well as
services.
• x. Unlike the GATT, the WTOs have a focus
on trade-related aspects of intellectual
property rights and several other issues of
agreements.
• xi. Above all, the WTO is a huge
Organisational Body with a large
secretariat. 243
• Structure of the WTO:
• The Ministerial Conference (MC) is at the top of
the structural organisation of the WTO.
• It is the supreme governing body which takes
ultimate decisions on all matters.
• It is constituted by representatives of (usually,
Ministers of Trade) all the member countries.
• The General Council (GC) is composed of the
representatives of all the members.
• It is the real engine of the WTO which acts on
behalf of the MC.
• It also acts as the Dispute Settlement Body as
well as the Trade Policy Review Body.
244
• There following are Councils of WTO, viz.:
• The Council for Trade in Services and
• The Council for Trade-Related Aspects of
Intellectual Property Rights (TRIPS) operating
under the GC.
• These Councils with their Subsidiary Bodies
carry out their specific responsibilities.
• The Council for Trade in Services operates
under the guidance of the General Council and
is responsible for facilitating the operation of
the General Agreement on Trade in Services
(GATS) and for furthering its objectives.
245
• It is open to all WTO members, and can create Subsidiary
Bodies as required.
• Presently, the Council oversees the work of four such
subsidiary bodies: the Committee on Trade in Financial
Services, the Committee on Specific Commitments, the
Working Party on Domestic Regulation and the Working Party
on GATS Rules.
• The current chair is Ambassador Gustavo Miguel VANERIO
BALBELA (Uruguay).
• Further, there are three committees, viz.,
• The Committee on Trade and Development (CTD),
• The Committee on Balance of Payments Restrictions
(CBOPR), and
• The Committee on Budget, Finance and Administration (CFA)
which execute the functions assigned to them by e WTO
Agreement and the GC.
246
247
• The administration of the WTO is
conducted by the Secretariat which is
headed by the Director General (DG)
appointed by the MC for the tenure of
four years.
• He is assisted by the four Deputy
Directors from different Member
Countries.
• The annual budget estimates and
financial statement of the WTO are
presented by the DG to the CBFA for
review and recommendations for the
final approval by the GC
248
• Objectives of the WTO:
• The purposes and objectives of the WTO are
spelled out in the preamble to the Marrakesh
Agreement.
• In a nutshell, these are:-
• 1. To ensure the reduction of tariffs and other
barriers to trade.
• 2. To eliminate discriminatory treatment in
international trade relations.
• 3. To facilitate higher standards of living, full
employment, a growing volume of real income
and effective demand, and an increase in
production and trade in goods and services of
the member nations.
• 4. To facilitate the optimal use of the world’s
resources for sustainable development.
249
• Objectives of the WTO:
• 5.To make positive effect, which ensures
developing countries, especially the least
developed secure a level of share in the
growth of international trade that reflects
the needs of their economic development.
• 6. To promote an integrated, more viable
and durable trading system incorporating all
the resolutions of the Uruguay Round’s
Multilateral trade negotiations.
• Above all, to ensure that linkages trade
policies, environmental policies with
sustainable growth and development are
taken care of by the member countries in
evolving a new economic order.
250
Functions of the WTO:
• The WTO consisting a multi-faced normative
framework comprising institutional
substantive and implementation aspects.
• The major functions of the WTO are as
follows:-
• 1. To lay-down a substantive code of conduct
aiming at reducing trade barriers including
tariffs and eliminating discrimination in
international trade relations.
• 2. To provide the institutional framework for
the administration of the substantive code
which encompasses a spectrum of norms
governing the conduct of Member Countries in
the arena of global trade.
• 3. To ensure the implementation of the
substantive code.
251
Functions of the WTO:
• 4.To provide an integrated structure of
the administration, thus, to facilitate
the implementation, administration
and fulfilment of the objectives of the
WTO Agreement and other Multilateral
Trade Agreements.
• 5. To act as a forum for the negotiation
of further trade liberalisation.
• 6. To cooperate with the IMF and WB
and its associates for establishing a
coherence in trade policy-making.
• 7. To settle the trade-related disputes.
252
Zero Defects
• Zero Defects – a term coined by
Mr. Philip Crosby in his book
“Absolutes of Quality
Management” has emerged as a
trending concept in quality
management; Six Sigma adopting
it as one of the major theories.
• It means ensuring quality
standards and reducing defects to
the level of zero in projects.
253
zero defects
• zero defects cannot be taken in literary
terms because in reality, zero defects are not
possible.
• Suppose if a product is developed and
intention would be to ensure zero defects in
terms of quality.
• The product might be very good today but
tomorrow it will lack feature that the newest
development will have.
• Therefore, it cannot be stated that anything
as absolute ‘zero defects’.
• Zero defects concept is a concept of quest
for perfection in order to improve quality.
• Though perfection might not be achievable
but at least the quest will lead towards
improvement in quality.
254
Zero defects
• Zero defects theory is based on four elements
for implementation in real projects.
• 1.Quality is a state of assurance to
requirements.
• Therefore, zero defects in project means
fulfilling requirement at that point of time.
• 2.Right time first.
• Quality should be taken care of at the very first
go rather than solving problems at a later stage.
• 3.Quality here is measured in financial terms.
• One needs to judge waste, production and
revenue in terms of money.
• 4.Performance should be judged as per zero
defects theory, i.e. near to perfection.
• Just being good is not good enough. 255
social audit
A social audit is a way of
measuring, understanding,
reporting and ultimately
improving an organization's
social and ethical
performance.
A social audit helps to narrow
gaps between vision/goal and
reality, between efficiency and
effectiveness.
256
social audit
• The process of evaluating a firm's various
operating procedures, code of conduct,
and other factors to determine its effect
on a society.
• The goal is to identify what, if any, actions
of the firm have impacted the society in
some way.
• A social audit may be initiated by a firm
that is seeking to improve its
cohesiveness or improve its image within
the society.
• If the results are positive, they may be
released to the public.
• For example, if a factory is believed to
have a negative impact, the company may
have a social audit conducted to identify
actions that actually benefit the society. 257
Social responsibility of Business
258
259
260
SOCIAL RESPONSIBILITY OF BUSINESS
• Every business enterprise is an
integral part of the society.
• It uses the scarce resources of the
society to continue and grow.
• Hence, it is important that no
activity of business is injurious to
the long run interests of the
society.
• However, it is observed that, in
practice, there are a few socially
undesirable aspects of business i.e
261
SOCIAL RESPONSIBILITY OF BUSINESS
• i. Polluting the environment,
• ii. Non-payment of taxes,
• iii. Manufacturing and selling the
adulterated products and,
• iv. Giving misleading advertisement. This
has resulted in the development of the
concept of Social Responsibility of
Business whereby the Owners and
Managers of business are made
conscious about the responsibilities of
their business towards the community &
its customers, workers.
262
MEANING OF SOCIAL RESPONSIBILITY
• Social responsibility of business

refers to the obligation of business
enterprises to adopt policies and
plans of actions that are desirable
in terms of the expectation, values
and interest of the society.
• It ensures that the interests of
different groups of the public are
not adversely affected by the
decisions and policies of the
business.
263
Social responsibility of Business - Characteristics
• 1.Social Responsibility of business

refers to what the business does,
over and above statutory
requirement, for the benefit of the
society
• 2.Social responsibility is an ethical
theory that as an entity, be it an
Organization or an individual, has an
obligation to act to the benefit of the
society at large.
264
Social responsibility of Business - Characteristics
• 3.Social responsibility is a duty every

individual or Organization has to
perform so as to maintain a balance
between the economy & ecosystem.
• 4. A trade-off always exists between
economic development, in the
material sense, and the welfare of
the society and environment.
• 5.Social responsibility means
sustaining the equilibrium between
the two.
265
Social Responsibility of Business
6.It pertains not only to Business

Organizations but also to everyone
whose action impacts the environment.
7. Social Responsibility can be passive,
by avoiding engaging in socially harmful
acts, or active, by performing activities
that directly advance social goals.
8.Businesses can use ethical decision
making to secure their businesses by
making decisions that allow for
Government agencies to minimize their
involvement with the corporation.
266
• 9.For instance if a Company follows
the Environmental Control Board
(ECB) or Pollution Control Board
(PCB) guidelines for emissions on
dangerous pollutants and even goes
an extra step to get involved in the
community and address those
concerns that the public might have;
• they would be less likely to have the
ECB or PCB investigate them for
environmental concerns.
267

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R.GOVINDARAJULU, B.L,; M.B.A,; M.L.

ADVOCATE, HIGH COURT, MADRAS & VISITING PROFESSOR,

5. “Business is all those activities

Changing & Transition

Business Environment presents two

• 2.Technology reaches the people

Defining Business Mission and Objectives

Strategic Alternatives and

Evaluation and Control of Strategy

• 4.Appropriate decision making skills

• FAMILY MANAGEMENT is defined in

• DIFFERENCES BETWEEN Professional

• PROFESSIOANL MANAGEMENT VS.

• In a broader sense it also calls for the

• A leader’s vision, policies, and actions

Additionally Managerial Ethics to the

Political Environment refers to the influence

• The political situation of a Country

 v. This form of Government is more

∞ Between 1945 and 1979 the

∞ Government also provides subsidy for

∞ The Government exercises its authority

∞ Laws which specify standards for the

• “Industrial concentration” refers to a

• (g) Cost over-runs due to factors beyond

Industrial Policy is a formal

• Social Environment Defined

• World Trade Organization, or WTO

• Social responsibility of business

• 1.Social Responsibility of business

• 3.Social responsibility is a duty every

6.It pertains not only to Business

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