Description
International Business environment In INDIA
2011
Business Environment
P.D.LIONS COLLEGE OF COMMERECE AND ECONOMICS
International Business environment in India
F. Y. BMS - A NEERJA MISS
International Business environment in India
Group No. : 3 Roll no. 05. 14. 33. 34. 41. 59. Name Puja Awasthi Akshay Bhandari Ajay Jain Ankita Jain Aakash kakkad Ruchi Mehta Remarks
INTRODUCTION
One of the most dramatic and significant world trends in the past two decades has been the rapid, sustained growth of international business. Markets have become truly global for most goods, many services, and especially for financial instruments of all types. World product trade has expanded by more than 6 percent a year since 1950, which is more than 50 percent faster than growth of output the most dramatic increase in globalization, has occurred in financial markets. In the global forex markets, billions of dollars are transacted each day, of which more than 90 percent represent financial transactions unrelated to trade or investment. Much of this activity takes place in the so-called Euromarkets, markets outside the country whose currency is used.
DEFINITION OF INTERNATIONAL BUSINESS:
International business includes any type of business activity that crosses national borders. Though a number of definitions in the business literature can be found but no simple or universally accepted definition exists for the term international business. At one end of the definitional spectrum, international business is defined as organization that buys and/or sells goods and services across two or more national boundaries, even if management is located in a single country.
For example, The vital question of potential conflicts between the nation-state and the multinational firm, which receives major attention is international business, is not like to be centered or even peripheral in foreign operations and comparative business.
SCOPE OF INTERNATIONAL BUSINESS ACTIVITIES
The study of international business focus on the particular problems and opportunities that emerge because a firm is operating in more than one country. In a very real sense, international business involves the broadest and most generalized study of the field of business, adapted to a fairly unique across the border environment. The distinguishing feature of international business is that international firms operate in environments that are highly uncertain and where the rules of the game are often ambiguous, contradictory, and subject to rapid change, as compared to the domestic environment.
SPECIAL DIFFICULTIES IN INTERNATIONAL BUSINESS What make international business strategy different from the domestic are the differences in the marketing environment. The important special problems in international marketing are given below:
1. POLITICAL AND LEGAL DIFFERENCES The political and legal environment of foreign markets is different from that of
the domestic. The complexity generally increases as the number of countries in which a company does business increases. It should also be noted that the political and legal environment is not the same in all provinces of many home markets. For example, the political and legal environment is not exactly the same in all the states of India. 2. CULTURAL DIFFERENCES The cultural differences, is one of the most difficult problems in international marketing. Many domestic markets, however, are also not free from cultural diversity. 3. ECONOMIC DIFFERENCES The economic environment may vary from country to country. 4. DIFFERENCES IN THE CURRENCY UNIT The currency unit varies from nation to nation. This may sometimes cause problems of currency convertibility, besides the problems of exchange rate fluctuations. The monetary system and regulations may also vary. 5. DIFFERENCES IN THE LANGUAGE An international marketer often encounters problems arising out of the differences in the language. Even when the same language is used in different countries, the same words of terms may have different meanings. The language problem, however, is not something peculiar to the international marketing. For example: the multiplicity of languages in India. 6. DIFFERENCES IN THE MARKETING INFRASTRUCTURE The availability and nature of the marketing facilities available in different countries may vary widely. For example, an advertising medium very effective in one market may not be available or may be underdeveloped in another market.
7. TRADE RESTRICTIONS A trade restriction, particularly import controls, is a very important problem, which an international marketer faces. 8. HIGH COSTS OF DISTANCE When the markets are far removed by distance, the transport cost becomes high and the time required for affecting the delivery tends to become longer. Distance tends to increase certain other costs also. 9. DIFFERENCES IN TRADE PRACTICES Trade practices and customs may differ between two countries.
BENEFITS OF INTERNATIONAL BUSINESS
SURVIVAL
Because most of the countries are not as fortunate as the United States in terms of market size, resources, and opportunities, they must trade with others to survive; Hong Kong, has historically underscored this point well, for without food and water from china proper, the British colony would not have survived along. The countries of Europe have had similar experience, since most European nations are relatively small in size. Without foreign markets, European firms would not have sufficient economies of scale to allow them to be competitive with US firms. Nestle mentions in one of its advertisements that its own country, Switzerland, lacks natural resources, forcing it to depend on trade and adopt the geocentric perspective. International competition may not be matter of choice when survival is at stake. However, only firms with previously substantial market share and international experience could expand successfully
GROWTH OF OVERSEAS MARKETS
Developing countries, in spite of economic and marketing problems, are excellent markets. According to a report prepared for the U.S. CONGRESS by the U.S. trade representative, Latin America and Asia/Pacific are experiencing the strongest economic growth. American markets cannot ignore the vast potential of international markets.
SALES AND PROFIT
Foreign markets constitute a larger share of the total business of many firms that have wisely cultivated markets aboard. Many large U.S. companies have done well because of their overseas customers. IBM and Compaq, foe ex, sell more computers aboard than at home. According to the US dept of commerce, foreign profits of American firms rose at a compound annual rate of 10% between 1982 and 1991, almost twice as fast as domestic profits of the same companies.
DIVERSIFICATION
Demand for mast products is affected by such cyclical factors as recession and such seasonal factors as climate. The unfortunate consequence of these variables is sales fluctuation, which can frequently be substantial enough to cause lay offs of personnel.
INFLATION AND PRICE MODERATION
The benefits of export are readily self-evident. Imports can also be highly beneficial to a country because they constitute reserve capacity for the local economy. Without imports, there is no incentive for domestic firms to moderate their prices. For Example: Import quotas imposed on Japanese automobiles in the 1980’s saved 46200 US production jobs but at a cost of $160,000 per job per year. This cost was a result of the addition of $400 to the prices of US cars, and $1000 to the prices of Japanese imports. This windfall for Detroit resulted in record high profits for US automakers. Not only do trade restrictions depress price competition in the short run, but they also can adversely affect demand for year to come.
EMPLOYMENT
Trade restrictions, such as high tariffs caused by the 1930’s smoot-hawley bill, which forced the average tariff rates across the board to climb above 60%, contributed significantly to the great depression and have the potential to cause wide spread unemployment again.
STANDARDS OF LIVING
Trade affords countries and their citizen’s higher standards of living than other wise possible. Without trade, product shortages force people to pay more for less, products taken for granted, such as coffee and bananas may become unavailable overnight. Trade also makes it easier for industries to specialize and gain access to raw materials, while at the same time fostering competition and efficiency. A lack of such trade would inhibit the flow innovative ideas.
ECONOMIC ENVIRONMENT
Economic conditions, economic policies and the economic system are the important external factors that constitute the economic environment of a business. The economic conditions of a country-for example, the nature of the economy, the stage of development of the economy, economic resources, the level of income, the distribution of income and assets, etc- are among the very important determinants of business strategies. The economic policy of the government, needless to say, has a very great impact on business. Some types or categories of business are favorably affected by government policy, some adversely affected, while it is neutral in respect of others. For example, a restrictive import policy, or a policy of protecting the home industries, may greatly help the import-competing industries. Similarly, an industry that falls within the priority sector in terms of the government policy may get a number of incentives and other positive support from the government, whereas those industries which are regarded as inessential may have the odds against them.
In India, the government’s concern about the concentration of economic power restricted the role of the large industrial houses and foreign concerns to the core sector, the heavy investment sector, the export sector and backward regions. The monetary and fiscal policies, by the incentives and disincentives they offer and by their neutrality, also affect the business in different ways. According to the industrial policy of the Government of India until July 1991, the development of 17 of the most important industries were reserved for the state. In the development of another 12 major industries, the state was to play a dominant role. In the remaining industries, co-operative enterprises, joint sector enterprises and small scale units were to get preferential treatment over large entrepreneurs in the private sector. The government policy, thus limited the scope of private business. However, the new policy ushered in since July 1991 has wide opened many of the industries for the private sector.
POLITICAL AND LEGAL ENVIRONMENT
Political and government environment has close relationship with the economic System and economic policy. For example, the communist countries had a centrally planned economic system. In most countries, apart from those laws that control investment and related matters, there are a number of laws that regulate the conduct of the business. These laws cover such matters as standards of products, packaging, promotion etc. In many countries, with a view to protecting consumer interests, regulations have become stronger. Regulations to protect the purity of the environment and preserve the ecological balance have assumed great importance in many Countries.
Some governments specify certain standards for the products (including packaging) to be marketed in the country; some even prohibit the marketing of certain products. In most nations, promotional activities are subject to various types of controls.
SOCIO-CULTURAL ENVIRONMENT
The socio-cultural fabric is an important environmental factor that should be analysed while formulating business strategies. The cost of ignoring the customs, traditions, taboos, tastes and preferences, etc., of people could be very high. The buying and consumption habits of the people, their language, beliefs and values, customs and traditions, tastes and preferences, education are all factors that affect business. For a business to be successful, its strategy should be the one that is appropriate in the socio-cultural environment.
PHYSICAL AND TECHNOLOGICAL ENVIRONMENT
Physical Factors, such as geographical factors, weather and climatic conditions may call for modifications in the product, etc., to suit the environment because these environmental factors are uncontrollable. Business prospects depend also on the availability of certain technological facilities. Some products, like many consumer durables, have certain use facility characteristics. The sale of television sets, for example, is limited by the extent of the coverage of the telecasting. Similarly, the demand for refrigerators and other electrical appliances is affected by the extent of electrification and the reliability of power supply. The demand for LPG gas stoves is affected by the rate of growth of gas connections.
INTERNATIONAL ENVIRONMENT
The international environment is very important from the point of view of certain categories of business. It is particularly important for industries directly depending on imports or exports and import-competing industries. For example, A recession in foreign markets, or the adoption of protectionist policies by foreign nations, may create difficulties for industries depending on exports.
GATT
Introduction
The various colonies in Asia and Africa were acquiring political freedom. And there was urgent pressure on them for rapid economic development and political stabilization. In this background the United Nations Organisation (UNO) was born on the collective wisdom of the world. Progressively, the UNO came to encompass the concerns for development in economic, commercial, scientific, social and cultural sphere of the member nations. It formed various forums and agencies. One such forum under the UNO was the General Agreement on Tariffs and Trade (GATT) which was established in 1947.
What is GATT
The General Agreement on Tariffs and Trade (GATT) is neither an organisation nor a court of justice. It is simply a multinational treaty which now covers eighty per cent of the world trade. It is a decision making body with a code of rules for the conduct of international trade and a mechanism for trade liberalisation. It is a
forum where the contracting parties meet from time to time to discuss and solve their trade problems, and also negotiate to enlarge their trade. The GATT rules provide for the settlement of trade disputes, call for consultations, waive trade obligations, and even authorize retaliatory measures. The GATT has been a permanent international organisation having a permanent Council of Representative with headquarters at Geneva. 25 governments have signed it. Its function is to call International conferences to decide on trade liberalizations on a multilateral basis.
WORLD TRADE ORGANISATION (WTO)
The WTO was established on January 1, 1995. It is the embodiment of the Uruguay Round results and the successor to GATT. 76 Governments became members of WTO on its first day. It has now 146 members, India being one of the founder members. It has a legal status and enjoys privileges and immunities on the same footing as the IMF and the World Bank. It is composed of the Ministerial Conference and the General Council. The Ministerial Conference (MC) is the highest body. It is composed of the representatives of all the Members. The Ministerial Conference is the executive of the WTO and responsible for carrying out the functions of the WTO. The MC meets at least once every two years.
Objectives Of WTO
In its preamble, the Agreement establishing the WTO lays down the following objectives of the WTO. 1. Its relation in the field of trade and economic endeavor shall be conducted with a view to raising standards of living, ensuring full employment and large and steadily growing volume of real income and
effective demand, and expanding the production and trade in goods and services. 2. To allow for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both (a) to protect and preserve the environment, and (b) to enhance the means for doing so in a manner consistent with respective needs and concerns at different levels of economic development. 3. To make positive efforts designed to ensure that developing countries especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development. 4. To achieve these objectives by entering into reciprocal and mutually advantageous arrangements directed towards substantial reduction of tariffs and other barriers to trade and the elimination of discriminatory treatment in international trade relations. 5. To develop an integrated, more viable and durable multilateral trading system encompassing the GATT, the results of past trade liberalisation efforts, and all the results of the Uruguay Round of multilateral trade negotiations. 6. To ensure linkages between trade policies, environment policies and sustainable development.
Functions of WTO
The following are the functions of the WTO: 1. It facilitates the implementation, administration and operation of the objectives of the Agreement and of the Multilateral Trade Agreements. 2. It provides the framework for the implementation, administration and
operation of the Plurilateral Trade Agreements relating to trade in civil aircraft, government procurement, trade in diary products and bovine meat. 3. It provides the forum for negotiations among its members concerning their multilateral trade relations in matters relating to the agreements and a framework for the implementation of the result of such negotiations, as decided by the Ministerial Conference. 4. It administers the Understanding on Rules and Procedures governing the Settlement of Disputes of the Agreement. 5. It cooperates with the IMF and the World Bank and its affiliated agencies with a view to achieving greater coherence in global economic policy-making.
Differences Between GATT And WTO
The WTO is not an extension of the GATT but succession to the GATT. It completely replaces GATT and has a very different character. The major differences between the two are: 1. The GATT had no status whereas the WTO has a legal status. It has been created a by international treaty ratified by governments and legislatures of member states. 2. The GATT was a set of rules and procedures relating to multilateral agreements of selective nature. There were separate agreements on separate issues, which were not binding on members. Any member could stay out of the agreement. The agreements, which form part of the WTO, are permanent and binding on all members. 3. The GATT dispute settlement system was dilatory and not binding on the parties to the dispute. The WTO dispute settlement mechanism is
faster and binding on all parties. 4. GATT was a forum where the member countries met once in a decade to discuss and solve world trade problems. The WTO, on the other hand, is a properly established rule based World Trade Organization where decisions on agreement are time bound. 5. The GATT rules applied to trade in goods. Trade in services was included in the Uruguay Round but no agreement was arrived at. The WTO covers both trade in goods and trade in services. 6. The GATT had a small secretariat managed by a Director General. But the WTO has a large secretariat and a huge organizational setup.
Implications for India
After the Uruguay Round, India was one of the first 76 Governments that became member of the WTO on its first day. Different views have been expressed in support and against our country becoming a member of the WTO.
Favourable Factors 1. Benefits from reduction of tariffs on exports. 2. Improved prospects for agricultural exports because the prices of agricultural products in the world market will increase due to reduction in domestic subsidies and barriers to trade. 3. Likely increase in the exports of textiles and clothing due to the phasing out of MFA by 2005. 4. Advantages from greater security and predictability of the international trading system. 5. Compulsions imposed on India to be competitive in the world market.
Unfavorable Factors 1. Tariff reductions on goods of export interest to India are very small. 2. Less prospects of increase in agricultural exports due to the limited extent of agricultural liberalisation. 3. There will be hardly any liberalisation of our textile exports during the next 10 years. 4. India will be under pressure to liberalize the services industries. 5. There will be only marginal liberalisation to the movement of labour services in which it is competitive. 6. Increased outflows of foreign exchange due to commitments undertaken in the fields of TRIPS, TRIMS and services. 7. Technological dependence on foreign firms will increase as the R & D required to take advantages of Uruguay Round agreement may not be undertaken on adequate scale due to paucity of funds. 8. Only a few large firms or transnational corporations may benefit and smaller firms may disappear. 9. Increasing intrusion in our domestic space in TRIPs, TRIMs and services and agriculture. 10. The Uruguay Round has paved way for similar other institutions in future through linkage between trade, environment, labour standard and treatment of foreign capital. 11. Trend towards neo-protectionism in developed countries against our exports. To conclude, we may say that WTO membership is going to be beneficial to India in terms of global market thrown open to its goods and services. We must know how to take advantage of this situation. We should try to strengthen our position to sell our products abroad. For that we have to improve the quality of
goods and services, cut down costs and wastage and improve our competitive strength.
doc_682436195.pdf
International Business environment In INDIA
2011
Business Environment
P.D.LIONS COLLEGE OF COMMERECE AND ECONOMICS
International Business environment in India
F. Y. BMS - A NEERJA MISS
International Business environment in India
Group No. : 3 Roll no. 05. 14. 33. 34. 41. 59. Name Puja Awasthi Akshay Bhandari Ajay Jain Ankita Jain Aakash kakkad Ruchi Mehta Remarks
INTRODUCTION
One of the most dramatic and significant world trends in the past two decades has been the rapid, sustained growth of international business. Markets have become truly global for most goods, many services, and especially for financial instruments of all types. World product trade has expanded by more than 6 percent a year since 1950, which is more than 50 percent faster than growth of output the most dramatic increase in globalization, has occurred in financial markets. In the global forex markets, billions of dollars are transacted each day, of which more than 90 percent represent financial transactions unrelated to trade or investment. Much of this activity takes place in the so-called Euromarkets, markets outside the country whose currency is used.
DEFINITION OF INTERNATIONAL BUSINESS:
International business includes any type of business activity that crosses national borders. Though a number of definitions in the business literature can be found but no simple or universally accepted definition exists for the term international business. At one end of the definitional spectrum, international business is defined as organization that buys and/or sells goods and services across two or more national boundaries, even if management is located in a single country.
For example, The vital question of potential conflicts between the nation-state and the multinational firm, which receives major attention is international business, is not like to be centered or even peripheral in foreign operations and comparative business.
SCOPE OF INTERNATIONAL BUSINESS ACTIVITIES
The study of international business focus on the particular problems and opportunities that emerge because a firm is operating in more than one country. In a very real sense, international business involves the broadest and most generalized study of the field of business, adapted to a fairly unique across the border environment. The distinguishing feature of international business is that international firms operate in environments that are highly uncertain and where the rules of the game are often ambiguous, contradictory, and subject to rapid change, as compared to the domestic environment.
SPECIAL DIFFICULTIES IN INTERNATIONAL BUSINESS What make international business strategy different from the domestic are the differences in the marketing environment. The important special problems in international marketing are given below:
1. POLITICAL AND LEGAL DIFFERENCES The political and legal environment of foreign markets is different from that of
the domestic. The complexity generally increases as the number of countries in which a company does business increases. It should also be noted that the political and legal environment is not the same in all provinces of many home markets. For example, the political and legal environment is not exactly the same in all the states of India. 2. CULTURAL DIFFERENCES The cultural differences, is one of the most difficult problems in international marketing. Many domestic markets, however, are also not free from cultural diversity. 3. ECONOMIC DIFFERENCES The economic environment may vary from country to country. 4. DIFFERENCES IN THE CURRENCY UNIT The currency unit varies from nation to nation. This may sometimes cause problems of currency convertibility, besides the problems of exchange rate fluctuations. The monetary system and regulations may also vary. 5. DIFFERENCES IN THE LANGUAGE An international marketer often encounters problems arising out of the differences in the language. Even when the same language is used in different countries, the same words of terms may have different meanings. The language problem, however, is not something peculiar to the international marketing. For example: the multiplicity of languages in India. 6. DIFFERENCES IN THE MARKETING INFRASTRUCTURE The availability and nature of the marketing facilities available in different countries may vary widely. For example, an advertising medium very effective in one market may not be available or may be underdeveloped in another market.
7. TRADE RESTRICTIONS A trade restriction, particularly import controls, is a very important problem, which an international marketer faces. 8. HIGH COSTS OF DISTANCE When the markets are far removed by distance, the transport cost becomes high and the time required for affecting the delivery tends to become longer. Distance tends to increase certain other costs also. 9. DIFFERENCES IN TRADE PRACTICES Trade practices and customs may differ between two countries.
BENEFITS OF INTERNATIONAL BUSINESS
SURVIVAL
Because most of the countries are not as fortunate as the United States in terms of market size, resources, and opportunities, they must trade with others to survive; Hong Kong, has historically underscored this point well, for without food and water from china proper, the British colony would not have survived along. The countries of Europe have had similar experience, since most European nations are relatively small in size. Without foreign markets, European firms would not have sufficient economies of scale to allow them to be competitive with US firms. Nestle mentions in one of its advertisements that its own country, Switzerland, lacks natural resources, forcing it to depend on trade and adopt the geocentric perspective. International competition may not be matter of choice when survival is at stake. However, only firms with previously substantial market share and international experience could expand successfully
GROWTH OF OVERSEAS MARKETS
Developing countries, in spite of economic and marketing problems, are excellent markets. According to a report prepared for the U.S. CONGRESS by the U.S. trade representative, Latin America and Asia/Pacific are experiencing the strongest economic growth. American markets cannot ignore the vast potential of international markets.
SALES AND PROFIT
Foreign markets constitute a larger share of the total business of many firms that have wisely cultivated markets aboard. Many large U.S. companies have done well because of their overseas customers. IBM and Compaq, foe ex, sell more computers aboard than at home. According to the US dept of commerce, foreign profits of American firms rose at a compound annual rate of 10% between 1982 and 1991, almost twice as fast as domestic profits of the same companies.
DIVERSIFICATION
Demand for mast products is affected by such cyclical factors as recession and such seasonal factors as climate. The unfortunate consequence of these variables is sales fluctuation, which can frequently be substantial enough to cause lay offs of personnel.
INFLATION AND PRICE MODERATION
The benefits of export are readily self-evident. Imports can also be highly beneficial to a country because they constitute reserve capacity for the local economy. Without imports, there is no incentive for domestic firms to moderate their prices. For Example: Import quotas imposed on Japanese automobiles in the 1980’s saved 46200 US production jobs but at a cost of $160,000 per job per year. This cost was a result of the addition of $400 to the prices of US cars, and $1000 to the prices of Japanese imports. This windfall for Detroit resulted in record high profits for US automakers. Not only do trade restrictions depress price competition in the short run, but they also can adversely affect demand for year to come.
EMPLOYMENT
Trade restrictions, such as high tariffs caused by the 1930’s smoot-hawley bill, which forced the average tariff rates across the board to climb above 60%, contributed significantly to the great depression and have the potential to cause wide spread unemployment again.
STANDARDS OF LIVING
Trade affords countries and their citizen’s higher standards of living than other wise possible. Without trade, product shortages force people to pay more for less, products taken for granted, such as coffee and bananas may become unavailable overnight. Trade also makes it easier for industries to specialize and gain access to raw materials, while at the same time fostering competition and efficiency. A lack of such trade would inhibit the flow innovative ideas.
ECONOMIC ENVIRONMENT
Economic conditions, economic policies and the economic system are the important external factors that constitute the economic environment of a business. The economic conditions of a country-for example, the nature of the economy, the stage of development of the economy, economic resources, the level of income, the distribution of income and assets, etc- are among the very important determinants of business strategies. The economic policy of the government, needless to say, has a very great impact on business. Some types or categories of business are favorably affected by government policy, some adversely affected, while it is neutral in respect of others. For example, a restrictive import policy, or a policy of protecting the home industries, may greatly help the import-competing industries. Similarly, an industry that falls within the priority sector in terms of the government policy may get a number of incentives and other positive support from the government, whereas those industries which are regarded as inessential may have the odds against them.
In India, the government’s concern about the concentration of economic power restricted the role of the large industrial houses and foreign concerns to the core sector, the heavy investment sector, the export sector and backward regions. The monetary and fiscal policies, by the incentives and disincentives they offer and by their neutrality, also affect the business in different ways. According to the industrial policy of the Government of India until July 1991, the development of 17 of the most important industries were reserved for the state. In the development of another 12 major industries, the state was to play a dominant role. In the remaining industries, co-operative enterprises, joint sector enterprises and small scale units were to get preferential treatment over large entrepreneurs in the private sector. The government policy, thus limited the scope of private business. However, the new policy ushered in since July 1991 has wide opened many of the industries for the private sector.
POLITICAL AND LEGAL ENVIRONMENT
Political and government environment has close relationship with the economic System and economic policy. For example, the communist countries had a centrally planned economic system. In most countries, apart from those laws that control investment and related matters, there are a number of laws that regulate the conduct of the business. These laws cover such matters as standards of products, packaging, promotion etc. In many countries, with a view to protecting consumer interests, regulations have become stronger. Regulations to protect the purity of the environment and preserve the ecological balance have assumed great importance in many Countries.
Some governments specify certain standards for the products (including packaging) to be marketed in the country; some even prohibit the marketing of certain products. In most nations, promotional activities are subject to various types of controls.
SOCIO-CULTURAL ENVIRONMENT
The socio-cultural fabric is an important environmental factor that should be analysed while formulating business strategies. The cost of ignoring the customs, traditions, taboos, tastes and preferences, etc., of people could be very high. The buying and consumption habits of the people, their language, beliefs and values, customs and traditions, tastes and preferences, education are all factors that affect business. For a business to be successful, its strategy should be the one that is appropriate in the socio-cultural environment.
PHYSICAL AND TECHNOLOGICAL ENVIRONMENT
Physical Factors, such as geographical factors, weather and climatic conditions may call for modifications in the product, etc., to suit the environment because these environmental factors are uncontrollable. Business prospects depend also on the availability of certain technological facilities. Some products, like many consumer durables, have certain use facility characteristics. The sale of television sets, for example, is limited by the extent of the coverage of the telecasting. Similarly, the demand for refrigerators and other electrical appliances is affected by the extent of electrification and the reliability of power supply. The demand for LPG gas stoves is affected by the rate of growth of gas connections.
INTERNATIONAL ENVIRONMENT
The international environment is very important from the point of view of certain categories of business. It is particularly important for industries directly depending on imports or exports and import-competing industries. For example, A recession in foreign markets, or the adoption of protectionist policies by foreign nations, may create difficulties for industries depending on exports.
GATT
Introduction
The various colonies in Asia and Africa were acquiring political freedom. And there was urgent pressure on them for rapid economic development and political stabilization. In this background the United Nations Organisation (UNO) was born on the collective wisdom of the world. Progressively, the UNO came to encompass the concerns for development in economic, commercial, scientific, social and cultural sphere of the member nations. It formed various forums and agencies. One such forum under the UNO was the General Agreement on Tariffs and Trade (GATT) which was established in 1947.
What is GATT
The General Agreement on Tariffs and Trade (GATT) is neither an organisation nor a court of justice. It is simply a multinational treaty which now covers eighty per cent of the world trade. It is a decision making body with a code of rules for the conduct of international trade and a mechanism for trade liberalisation. It is a
forum where the contracting parties meet from time to time to discuss and solve their trade problems, and also negotiate to enlarge their trade. The GATT rules provide for the settlement of trade disputes, call for consultations, waive trade obligations, and even authorize retaliatory measures. The GATT has been a permanent international organisation having a permanent Council of Representative with headquarters at Geneva. 25 governments have signed it. Its function is to call International conferences to decide on trade liberalizations on a multilateral basis.
WORLD TRADE ORGANISATION (WTO)
The WTO was established on January 1, 1995. It is the embodiment of the Uruguay Round results and the successor to GATT. 76 Governments became members of WTO on its first day. It has now 146 members, India being one of the founder members. It has a legal status and enjoys privileges and immunities on the same footing as the IMF and the World Bank. It is composed of the Ministerial Conference and the General Council. The Ministerial Conference (MC) is the highest body. It is composed of the representatives of all the Members. The Ministerial Conference is the executive of the WTO and responsible for carrying out the functions of the WTO. The MC meets at least once every two years.
Objectives Of WTO
In its preamble, the Agreement establishing the WTO lays down the following objectives of the WTO. 1. Its relation in the field of trade and economic endeavor shall be conducted with a view to raising standards of living, ensuring full employment and large and steadily growing volume of real income and
effective demand, and expanding the production and trade in goods and services. 2. To allow for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both (a) to protect and preserve the environment, and (b) to enhance the means for doing so in a manner consistent with respective needs and concerns at different levels of economic development. 3. To make positive efforts designed to ensure that developing countries especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development. 4. To achieve these objectives by entering into reciprocal and mutually advantageous arrangements directed towards substantial reduction of tariffs and other barriers to trade and the elimination of discriminatory treatment in international trade relations. 5. To develop an integrated, more viable and durable multilateral trading system encompassing the GATT, the results of past trade liberalisation efforts, and all the results of the Uruguay Round of multilateral trade negotiations. 6. To ensure linkages between trade policies, environment policies and sustainable development.
Functions of WTO
The following are the functions of the WTO: 1. It facilitates the implementation, administration and operation of the objectives of the Agreement and of the Multilateral Trade Agreements. 2. It provides the framework for the implementation, administration and
operation of the Plurilateral Trade Agreements relating to trade in civil aircraft, government procurement, trade in diary products and bovine meat. 3. It provides the forum for negotiations among its members concerning their multilateral trade relations in matters relating to the agreements and a framework for the implementation of the result of such negotiations, as decided by the Ministerial Conference. 4. It administers the Understanding on Rules and Procedures governing the Settlement of Disputes of the Agreement. 5. It cooperates with the IMF and the World Bank and its affiliated agencies with a view to achieving greater coherence in global economic policy-making.
Differences Between GATT And WTO
The WTO is not an extension of the GATT but succession to the GATT. It completely replaces GATT and has a very different character. The major differences between the two are: 1. The GATT had no status whereas the WTO has a legal status. It has been created a by international treaty ratified by governments and legislatures of member states. 2. The GATT was a set of rules and procedures relating to multilateral agreements of selective nature. There were separate agreements on separate issues, which were not binding on members. Any member could stay out of the agreement. The agreements, which form part of the WTO, are permanent and binding on all members. 3. The GATT dispute settlement system was dilatory and not binding on the parties to the dispute. The WTO dispute settlement mechanism is
faster and binding on all parties. 4. GATT was a forum where the member countries met once in a decade to discuss and solve world trade problems. The WTO, on the other hand, is a properly established rule based World Trade Organization where decisions on agreement are time bound. 5. The GATT rules applied to trade in goods. Trade in services was included in the Uruguay Round but no agreement was arrived at. The WTO covers both trade in goods and trade in services. 6. The GATT had a small secretariat managed by a Director General. But the WTO has a large secretariat and a huge organizational setup.
Implications for India
After the Uruguay Round, India was one of the first 76 Governments that became member of the WTO on its first day. Different views have been expressed in support and against our country becoming a member of the WTO.
Favourable Factors 1. Benefits from reduction of tariffs on exports. 2. Improved prospects for agricultural exports because the prices of agricultural products in the world market will increase due to reduction in domestic subsidies and barriers to trade. 3. Likely increase in the exports of textiles and clothing due to the phasing out of MFA by 2005. 4. Advantages from greater security and predictability of the international trading system. 5. Compulsions imposed on India to be competitive in the world market.
Unfavorable Factors 1. Tariff reductions on goods of export interest to India are very small. 2. Less prospects of increase in agricultural exports due to the limited extent of agricultural liberalisation. 3. There will be hardly any liberalisation of our textile exports during the next 10 years. 4. India will be under pressure to liberalize the services industries. 5. There will be only marginal liberalisation to the movement of labour services in which it is competitive. 6. Increased outflows of foreign exchange due to commitments undertaken in the fields of TRIPS, TRIMS and services. 7. Technological dependence on foreign firms will increase as the R & D required to take advantages of Uruguay Round agreement may not be undertaken on adequate scale due to paucity of funds. 8. Only a few large firms or transnational corporations may benefit and smaller firms may disappear. 9. Increasing intrusion in our domestic space in TRIPs, TRIMs and services and agriculture. 10. The Uruguay Round has paved way for similar other institutions in future through linkage between trade, environment, labour standard and treatment of foreign capital. 11. Trend towards neo-protectionism in developed countries against our exports. To conclude, we may say that WTO membership is going to be beneficial to India in terms of global market thrown open to its goods and services. We must know how to take advantage of this situation. We should try to strengthen our position to sell our products abroad. For that we have to improve the quality of
goods and services, cut down costs and wastage and improve our competitive strength.
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