TYBBA

B.V. Patel Institute of Business Management, Computer & Information

Technology, Uka Tarsadia University

Question Bank 030030603: Business Environment

Unit:1

Answer the following. (1 Marks)

1. Mention the types of external environment.

Micro environment and Macro environment

2. Give the classification of economy.

Low income economies, high income economies and middle income economies.

3. Which method is use for classification of the economies

Per capita income

4. What is the full form of CRR

Cash reserve ratio

5. What is the full form of SLR

Statutory liquidity ratio

6. Which environment consist demographic, natural, technical, political and cultural

forces?

Macro environment

7. Write the full form of GNI

Gross national income

8. Which economies are primarily service economies?

Developed economies are primarily service economies.

9. Which policy of the government defines the scope and role of different sectors like
private, public, joint and cooperative etc.?

Industrial policy

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10. How government encourages or discourages certain activities?

Government uses tax incentives or disincentives to encourage or discourage certain

activities

Briefly answer the following. (2 marks)

1. What is Business Environment?

Business environment refers to all those internal and external factors which impact the
performance of a firm and its decision making, strategies.

2. Mention the characteristics of boom period of economy.

A boom is characterised by high level of output, employment , rising demand and rising
price.

3. Mention different types of economic policies.

Industrial policy, trade policy, foreign exchange policy, foreign investment and
technology policy, fiscal policy and monetary policy.

4. What are the characteristics of recession period of economy?

A recession is characterised by low level of output, unemployment, reducing demand and

reducing price.

5. State some external factors which affect the export and imports of a country.

 The rate of growth of economies of the importing countries

 The rate of growth of the world trade

 The rate of change in the price level in importing country.

6. Which internal factors affect the export and imports of a country?

 The rate of growth of the Indian economy

 The rate of change in the domestic price level

7. What is Micro environment?

The micro environments consist of the actor in the company’s immediate environment
that affects the performance of the company. These include the suppliers, marketing
intermediaries, competitors, customers and the publics.

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8. Why it is said that developed economies are primarily service economies?

Developed economies are primarily service economies because service sector generates
bulk of the employment and income.

9. Who are marketing intermediaries?

10. What constitutes important factors of economic environment.

 Structure & nature of economy

 Economic conditions

 Economic policies

 Global linkage

Answer the following (limit 250 words). (5 marks)

1. Explain micro environment.

The external business environment consists of a micro environment and a macro

environment.

Micro Environment: "The micro environment consists of the actors in the company's
immediate environment that affect the performance of the company. These include the
suppliers, marketing intermediaries, competitors, customers and the publics."

The micro forces need not necessarily affect all the firms in a particular industry in the
same way. Some of the micro factors are under

Suppliers: An important force in the micro environment of a company is the suppliers

i.e., those who supply the inputs like raw materials and components to the company.
Because of the sensitivity of the supply, many companies give high importance to Vendor
development. Vertical integration, where feasible, helps solve the supply problem.

Customers: The major task of a business is to create and sustain customers. Monitoring
the customer sensitivity is a prerequisite for the business success.

A company may have different categories of consumers like individuals, households,

industries and other commercial establishments, and government and other institutions.

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 Competitors: A firm's competitors include not only the other firms which market the
same or similar products but also all those who compete for the discretionary income of
the consumers.

Marketing Intermediaries: The marketing intermediaries include middlemen such as

agents and merchants who "help the company find customers or close sales with them",
physical distribution firms such as warehouses and transportation firms; marketing
service agencies such as advertising agencies, marketing research firms, media firms and
consulting firms; and financial intermediaries which finance marketing activities and
insure business risks.

Financiers: Another important micro environmental factor is the financiers of the

company. Besides the financing capabilities, their policies and strategies, attitudes
(including attitude towards risk), ability to provide non-financial assistance etc. are very
important.

Public: A company may encounter certain public in its environment. "A public is any
group that has an actual or potential interest in or impact on an organisation's ability to
achieve its interests." Media, citizens and local public are some examples.

2. Analyse the nature of economy.

The general level of development of the economy has lot of implications for business - it
has significant bearing on the nature and size demand, government policies affecting
business etc. Countries, and even different regions within a country, show great
differences in the level and pattern of economic development. A widely used method of
classification of the economies is on the basis of the per capita income (i.e., the average
annual income per person). Accordingly, countries are broadly classified as low income,
middle income and high income economies.

Low Income Economies are economies with very low level of per capita income. All
economies with per capita GNI (Gross National Income - new term for GNP) of $875 or
less in 2005 are regarded as low income economies. There were 54 low income
economies in 2005.

High Income Economies are countries with very rich income per capita. Those with a per
capita GNI of $10726 or above in 2005 fall in the category of high income economies. In
2005, there were 57 high income economies. There are mainly two categories of high

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 income economies, namely, industrial economies and oil exporters. Falling in between the
low income economies and high income economies are the middle income economies.

Middle Income Economies are subdivided into lower middle income (those with per
capita GNI between $875 and $ 3,465 in 2005) and upper middle income ($3,466 -
$10,725) economies In 2005, there were 98 middle income economies (39 upper and 59
lower middle income.

Differences in the income levels between countries is not a true reflection of the
purchasing powers or living standards of people. Exchange rate changes would give a
misleading picture of the economic position of the country when the income is converted
into dollars from the national currency.

3. Write a brief structure of economy.

The structure of the economy - factors such as contribution of different sectors like
primary mostly agricultural), secondary (industrial) and tertiary (secondary) sectors,
large, medium, small and tiny sectors to the economy, and their linkages, integration with
the world economy etc. -are important to business because these factors indicate the
prospects for different types of business, certain factors which affect the business etc. For
example, if an economy is highly integrated with the global economy it will be quickly
affected by developments in the global economy.

 As an economy develops the share of the primary sector in the GDP and employment
declines and those of the other sectors increase. After a certain stage the share of .he
manufacturing sector may also decline.

 The developed economies are primarily service economies in the sense that the
service sector generates bulk of the employment and income The contribution of
services to GDP and employment is substantially high in, particularly, the developed
economies.

 The nature of each sector has business implications. For example, although India is
one of the largest producer of several agricultural products, because of the small and
fragmented nature of the land holdings, efficient collection and processing of the
produce become difficult. The land holding pattern also makes productivity
improvements difficult. It also has implications for the agricultural inputs business.

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  The tremendous growth of trade in services and, more recently, of electronic
commerce, is part of a new trade pattern Exports of commercial services have been
growing on every continent (particularly Asia) throughout the 1990s and later. This
change has its own special significance, as services are frequently used in the
production of goods and even other services.

Enhanced international competition in services means reductions in price and

improvements in quality that will enhance the competitiveness of downstream industries.
Both industrial and developing economies have much to gain by opening their markets.
Developing countries would derive large gains from an easing of barriers to agricultural
products and to labour-intensive construction and maritime services. Over the longer
term, electronic business will loom large as an area where expanding opportunities for
trade require an expanding framework of rules.

4. Explain the impact of economic policies on the business activities?

There are several economic policies which can have a very great impact on business.

Industrial Policy: Industrial policy can even define the scope and role of different sectors
like private, public, joint and cooperative, or large, medium, small and tiny. It may
influence the location of industrial undertakings, choice of technology, scale of operation,
product mix and so on.

Trade Policy: The trade policy can significantly affect the fortunes of firms. For example,
a restrictive import policy, or a policy of protecting the home industries, may greatly help
the import competing industries, while a liberalisation of the import policy may create
difficulties for such industries.

Foreign Exchange Policy: Exchange rate policy and the policy in respect of cross-border
movement of capital are important for business. The abolition/liberalisation of exchange
controls all around the world since the late 1970s has encouraged cross-border movement
of capital.

Foreign Investment and Technology Policy: Until the late 1980s, foreign capital and
technology were under severe restrictions in many developing and socialist/communist
countries.

Restrictions on foreign capital and technology constrain not only the foreign firms but
also the domestic firms because it may come in their way of acquiring the technology of

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 their choice from the best source. Restrictions on foreign capital may affect the growth
plans of firms, including establishment of joint ventures. India has restrictions on foreign
investment by Indian companies.

A liberal foreign investment and technology policy will increase domestic competition
and would put many domestic firms, which were shielded from foreign competition, in to
problems. At the same time it would benefit many domestic firms - by permitting global
sourcing of capital and technology, by increasing the quantity and quality of domestic
supply of many goods and services etc.

Fiscal Policy: Government's strategy in respect of public expenditure and revenue can
have significant impact on. the business. The pattern of public expenditure may affect the
development of various regions, sectors and/or industries differently. Such is the case
with the taxation policy. Governments often use tax incentives or disincentives to
encourage or discourage certain activities. A reduction of rates of direct taxes like
personal income tax and corporate tax may help increase, because of the resultant
increase in the disposable income, the spending in the economy leading to an increase in
demand.

Monetary Policy: The central bank, by its policy towards the cost and availability of
credit, can significantly influence the savings, investments and consumer spending in the
economy. Depending on the conditions of the economy and the general economic policy
of the government, the central bank (called the Reserve Bank in India) may adopt an
expansionary or contractionary or neutral monetary policy. For example, a one percentage
point reduction in the Cash Reserve Ratio or Statutory reserve Ratio (SLR) will
significantly increase the loanable funds with the commercial banking, system. An
increase in these ratios will have the opposite effect. Monetary policy may also be pressed
in to action to influence the exchange rate of the currency.

5. “Economic conditions affect business”- Elaborate

General economic conditions affect business. Economies pass through periods of boom
and recession. A boom is characterised by high level of output, employment and rising
demand and prices. A recession has the opposite of these characteristics.

The economic condition of a region may be linked to the prices of major crops of the
region. A particular economic condition may be widespread - international or national - or
may be confined to a region.

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 The current account and balance of payments positions of a country can significantly
influence certain economic policies and business environment. For example, a sustained
current account surplus may encourage the government to liberalise imports and capital
movements.

Exports and imports of a country are generally affected by a number of domestic and
international economic conditions. For example, analysis of empirical data reveals that
India's export performance is affected by certain important factors. They include a set of
external factors, a set of internal factors and the real exchange rate.

The external factors are:

 The rate of growth of the economies of the importing countries

 The rate of growth of the world trade

 The rate of change in the price level in the importing country The internal factors
are:

o The rate of growth of the Indian economy

o The rate of change in the domestic price level

The most favourable condition for the growth of Indian exports is a combination of the
high growth rates for all the three external factors, a high growth rate with price stability
for the Indian economy and a fall in the real exchange rate for exports (RERx).

6. What are the roles of government in economy?

The Government plays an important role in almost every national economy of the world.

Regulatory Role: Government regulation of the business may cover a broad spectrum
extending from entry into business to the final results of a business. The reservation of
industries to small scale, public and co-operative sectors, licensing system etc. regulate
the entry. Regulations of product mix, promotional activities etc. amount to regulation of
the conduct of business. Government regulation of the economy may be broadly divided
into direct controls and indirect controls.

Indirect controls are usually exercised through various fiscal and monetary incentives and
disincentives or penalties. Certain activities may be encouraged or discouraged through
monetary and fiscal incentives and disincentives. For instance, a high import duty may

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discourage imports and fiscal and monetary incentives may encourage the development of
export-oriented industries.

The direct administrative or physical controls are more drastic in their effect. The
distinguishing characteristic of direct controls is their discretionary nature. They can be
applied selectively from firm to firm and industry to industry, at the discretion of the
State.

Promotional Role: The promotional role played by the Government is very important in
developed countries as well as in the developing countries. In developing countries,
where the infrastructural facilities for development are inadequate and entrepreneurial
activities are scarce, the promotional role of the Government assumes special
significance. The State will have to assume direct responsibility to build up and
strengthen the necessary development infrastructures, such as power, transport, finance,
marketing, institutions for training and guidance and other promotional activities.

The promotional role of the State also encompasses the provision of various fiscal,
monetary and other incentives, including measures to cover certain risks, for the
development of certain priority sectors and activities.

Entrepreneurial Role: In many economies, the State also plays the role of an
entrepreneur - establishing and operating business enterprises and bearing the risks. A
number of factors such as socio-political ideologies; dearth of private entrepreneurship;
neglect of certain sectors, like the unprofitable sectors, by the private entrepreneurs;
absence of or inadequate competition in certain segments and the resultant exploitation of
consumers, etc. have contributed to the growth of State owned enterprises (SOEs) in
many countries.

Planning Role: In the developing countries, the State plays a very important role as a
planner. The importance of planning to a less developed economy was often emphasised
by Jawaharlal Nehru, the chief architect of Development Planning in India. He rightly
observed: "Whatever it may be in other countries, in under-developed countries like ours,
which have to develop fairly rapidly, the time element is important and the question is
how to use our resources to the best advantage. If our resources are abundant it will not
matter how they are used. They will go into a common pool of development. But where
one's resources are limited, one has to see that they are directed to the right purpose so as
to help to build up whatever one is aiming at".

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Unit: 2

Answer the following. (1 Marks)

1. Which environment determines the functioning of a society and other institutions?

Natural environment

2. What are the tools of technology?

Machine (Hard technology) and ways of thinking (soft technology)

3. Which factors is responsible for encouragement of global sourcing?

Trade liberalization and technological development

4. What is the impact of professionalization on business?

Professionalization makes business more efficient, dynamic and socially responsible

5. What is the major focus of corporate governance?

Complete transparency, integrity and accountability of the management.

6. Which committee was framed for corporate governance?

Kumar Mangalam Birla committee.

7. Mention the characteristic of companies who having good corporate governance.

Freedom in decision making, Innovation, Accountability.

8. What does EU stand for?

European Union

9. Name a company who has significantly contributed in the changing birth rate.

Johnson and Johnson

10. Who said that business is a social institution?

Davis and blomstorm

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Briefly answer the following. (2 marks)

1. What is technology?

Systematic knowledge for the manufacture of a product, for application of a process or

for the rendering of a service and does not extend transactions involving mere sale or
lease of goods.

2. Mention the two advantages of technology to globalization.

 Reduction of distance and cost.

 Emergence of global village.

 Accelerated pace of globalization.

3. State various demographic factors.

Age, gender, income distribution, family size, family life cycle, occupation, education,
social class, religion, race, nationality.

4. What is national suicide according to Drucker?

Drucker describes national suicide as collapsing birth-rate in the developed world.

5. How social factors affect to business?

Types of products to be manufactured and marketed, the marketing strategies to be

employed, the way business should be organised and governed, the values and norms it
should adhere to.

6. What is the source of institutional drive?

Businesses like social institutions develop certain belief systems and values for which
they stand these beliefs and values act as a source of institutional drive.

7. What is public visibility?

Public visibility refers to the extent of organisation’s activities known to persons outside
the organisation.

8. Who is a professional?

A professional is one who possesses systematic knowledge and skills to perform

responsible functions with authority and is bound by ethics in the use of knowledge and
skill.

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9. What is corporate governance?

Corporate governance is process whereby people in power direct, monitor and lead
corporation and thereby either create, modify or destroy the structures and system under
which they operate.

10. What is the fundamental objective of corporate governance?

Enhancement of long-term shareholder value while, at the same time, protecting the
interests of other stakeholders.

Answer the following (limit 250 words). (5 marks)

1. Describe the interrelationship of natural and technological environment.

As Watrick and Wood observe, "the natural environment ultimately is the source and
support of everything used by businesses (and almost any other human activity) - every
raw material, every energy source, every life-sustaining factor, even every waste disposal
site. The natural environment determines what can be done in a society and how
institutions can function. Resource availability is the fundamental factor in the
development of business in societies.The dependence of technological environment on
natural environment can be explained as follows:

 Differences in geographical conditions between markets may sometimes call for

changes in the marketing mix. Geographical and ecological factors also influence the
location of certain industries. For example, industries with high material index tend to
be located near the raw material sources.

 Climatic and weather conditions affect the location of industries for example the
cotton textile industry. Topographical factors may affect the demand pattern in some
cases. Weather and climatic factors affect the demand for of products. For example
demand pattern for clothing, building materials and designs, food, medicines etc.
Further, weather and climatic conditions may call for modifications to the product,
packaging, storage conditions etc.

 Ecological factors have recently assumed great importance. The depletion of natural
resources, environmental pollution and the disturbance of the ecological balance have
caused great concern.

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2. Write a short essay on impact of technology on globalization.

Technological advances have tremendously fostered and facilitated globalisation. Several

technological developments have become a compelling reason for internationalisation.
Effect of technologies on globalisation is summarised below:

 Global sourcing was encouraged not only by, trade liberalisation but also by
technological developments which reduced transport costs. Advent of containerisation
and super tonnage cargo ships drastically reduced transport costs.

 Technology monopoly, like possession of patented technology, encourages

internationalisation because the firm can exploit the respective demand without any
competition.

 The pace of globalisation has been accelerated by several enabling technologies.

Technological revolution in several spheres, like transport and communication, has
given a great impetus to globalisation by their tremendous contribution to the
reduction of the disadvantages of natural barriers like distance and cost.

 The IT revolution has made an enormous contribution to the emergence of the global
village.

 The developments in the field of air cargo transportation has fostered globalisation by
enabling quick and safe transportation of sensitive goods (like perishables and goods
subject to quick changes in fashion/taste). Developments of containerisation and
refrigeration have also been of high significance.

 The steep fall in the cost of transportation and communication have considerably
accelerated pace of globalisation.

All these have contributed to the drastic transformation of the logistical and global
distribution of the value chain system. The world-wide web has a stupendous impact on
globalisation.

3. Explain the implications of the collapsing birth rate.

According to Drucker, the collapsing birth rates will have the following implications.

1. For the next twenty or thirty years demographics will dominate the politics of all
developed countries. And they will inevitably be politics of great turbulence.
Important issues include the retirement age and immigration.

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 2. For the next twenty or thirty years no developed country is likely, therefore, to have
stable politics or a strong government. Government instability is going to be the norm.

3. "Retirement" may come to mean two different things. It is quite likely that the trend
toward "early retirement" will continue. But it will no longer mean that a person stops
working. It will come to mean that a person stops working full-time or as an employee
for an organization for the entire year rather than a few months at a time. Employment
relations are likely to become increasingly heterogeneous and increasingly flexible, at
least for older people.

4. The final implication is that in all developed countries the productivity of all
workers— whether full-time or part-rime—and especially of all knowledge workers,
will have to increase very rapidly. Otherwise the country—and every organization in
it—will lose position and become steadily poorer.

4. Explain the reasons behind appointment of the Kumar Mangalam Birla Committee
on Corporate Governance.

The need for a system of corporate governance has been described by SEBI by pointing
out the background of the appointment of the Kumar Mangalam Birla Committee on
Corporate Governance.

 There was an increasing concern about standards of financial reporting and

accountability, especially after losses suffered by investors and lenders which could
have been avoided, with better and more transparent reporting practices. Investors
suffered on account of unscrupulous management of the companies, which have
raised capital from the market at high valuations and have performed much worse
than the past reported figures, leave alone the future projections at the time of raising
money.

 Also many companies, were not paying adequate attention to the basic procedures for
shareholders' service; for example, many of these companies were not paying
adequate attention to redress investors' grievances such as delay in transfer of shares,
delay in despatch of share certificates and dividend warrants and non-receipt of
dividend warrants; companies also did not pay sufficient attention to timely
communicate of information to investors.

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  To further improve the level of corporate governance, need was felt for a
comprehensive approach at this stage of development of the capital market, to
accelerate the adoption of globally acceptable practices of corporate governance.

 Securities market regulators in almost all developed and emerging markets have for
sometime been concerned about the importance of the subject and of the need to raise
the standards of corporate governance.

 Besides in an environment in which emerging markets increasingly compete for

global capital, it is evident that global capital will flow to markets which are better
regulated and observe higher standards of transparency, efficiency and integrity.
Raising standards of corporate governance is, therefore, also extremely relevant in
this context.

5. What is corporate governance? Discuss the importance of corporate governance?

"Governance is the process whereby people in power make decisions that create, destroy
or maintain social systems, structures and processes. Corporate governance is therefore
the process whereby people in power direct, monitor and lead corporations, and thereby
either create, modify or destroy the structures and systems under which they operate.
Corporate governors are both potential agents for change and also guardians of existing
ways of working.

Importance:

The preface to the Birla Committee Report has highlighted the significance and need for
good corporate governance. The salient points are reproduced here.

 It is almost a truism that the adequacy and the quality of corporate governance shape
the growth and the future of any capital market and economy.

 Focus on corporate governance and related issues is an inevitable outcome of a

process, which leads firms to increasingly shift to financial markets as the pre-
eminent source for capital.

 Studies of firms in India and abroad have shown that markets and investors take
notice of well-managed companies, respond positively to them, and reward such
companies, with higher valuations. A common feature of such companies is that they
have systems in place, which allow sufficient freedom to the boards and management
to take decisions towards the progress of their companies and to innovate, while

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 remaining within a framework of effective accountability. In other words they have a
system of good corporate governance.

 Strong corporate governance is thus indispensable to resilient and vibrant capital

markets and is an important instrument of investor protection.

 Another important aspect of corporate governance relates to issues of insider trading.

It is important that insiders do not use their position of knowledge and access to inside
information about the company, and take unfair advantage of the resulting
information asymmetry. To prevent this from happening, corporate are expected to
disseminate the material price sensitive information in a timely and proper manner
and also ensure that till such information is made public, insiders abstain from
transacting in the securities of the company.

According to Charkham, good corporate governance is considered vital from medium and
long-term perspectives to enable firms to compete internationally in sustained way and
make them flourish and grow so as to provide employment, wealth and satisfaction, not
only to improve standard of living materially but also to enhance social cohesion.

6. Explain the relationships between business and society.

Davis and Blomstorm has pointed out that, in taking an ecological view of business in a
systems relationship with society, three ideas are significant in' addition to the systems
idea i.e. values, viability and public visibility.

Values: Business, like other social institutions, develops certain belief systems and values
for which they stand, and these beliefs, and values are a source of institutional drive.
These values derive from a multitude of sources, such as the mission of business as a
social institution, the nation in which a business is located, the type of industry in which it
is active and the nature of its employees. These values become guides for employees'
decisions in the interface of business. Second, they become strong motivators for people
in a business.

Viability: Davis and Blomstorm define viability as the drive to live and grow, to
accomplish the potential not yet reached, and to achieve all that a living system is capable
of becoming. If a business is to be a viable, vigorous institution in society. It must initiate
its share of forces in its own environment, rather than merely adjust to outside forces as a
bucket of quicksand does. Every business needs a drive and spirit all its own to make it a

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positive actor on the social stage rather than a reactor or a reflector. To expect the
business to be otherwise is to deny it the opportunities available to other institutions, the
authors have pointed out.

Public Visibility: The term public visibility refers to the extent that an organisation's
activities are know to persons outside the organisation. Public visibility is different from
the idea of a public image. The term public image refers to what people think about an
organisation's acts, while public visibility refers to the extent to which its acts are known.
The importance of public visibility is that it subjects business activities to public
examination, discussion and judgement. If acts are not known, they cannot be judged.

In short, according to modern thinking, business is an integral part of the social system. It
is a social organ to help accomplish the social goals.

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Unit: 3

Answer the following. (1 Marks)

1. Name the term that the business has some moral obligations to the society.

Responsibility

2. What would be the interest of share holder except wealth creation?

Social performance and image of the company

3. What is the full form of CSR?

Corporate social responsibility

4. What refers to moral obligations of business to the society?

Corporate citizenship

5. Which economic factor is responsible for evils of profiteering, hoarding and black
marketing, corruption and arrogance towards consumers?

Demand-supply imbalance

6. What promotes sale of substandard, inferior or defective products?

Unfamiliarity of the consumer with products

7. Why Indian consumers are not conscious of their rights?

Because of low literacy levels and unsatisfactory information

8. What is an organised endeavor of the consumer to protect their rights?

Consumerism

9. Name a company performs their social responsibility very well?

TATA Group

10. Which international organisations have fostered consumer protection throughout

the world?

 United Nations

 Consumers international

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Briefly answer the following. (2 marks)

1. What is social responsibility?

Social responsibility of business refers to what the business does, over and above the
statutory requirement for the benefits to the society.

2. How nature of social responsibility of business can be classified?

The manner in which a business carries out its own business activity.

The welfare activity that it takes upon itself as an additional function.

3. What is Consumerism?

“A social movement seeking to augment the right and powers of the buyers in relation to
seller”- Philip Kotler

4. What makes strong consumerism?

Strong consumerism makes the business responsive and government more responsible.

5. Mention any two social responsibility of business towards employee.

 The payment of fair wage

 The provisions of the best possible working conditions.

6. State any two social responsibility of business towards consumers.

 To supply goods at reasonable prices even when there is a seller’s market.

 To provide the required after sales services

7. List any two social responsibility of business towards community.

 Contributing to research and development.

 Development of backward area.

8. What is the need for social involvement of business?

Business which survives using the resources of the society has a responsibility to the
society. Business which is resourceful has a special responsibility to society

9. Give an argument against social involvement of business.

Business should to its own business. There are government and social organisations to
carry out social activities.

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 Many companies involve themselves in social activities because of the tax exemptions on
the income spent on social purpose.

10. Sate any two rights of Indian consumer

 It has been said that the legal process in India is comparatively time-consuming and
cumbersome. This discourages the consumers from seeking the redressal of their
grievance by means of the judicial process.

 Consumerism in India is not well organised and developed.

Answer the following (limit 250 words). (5 marks)

1. What are the social responsibilities of business towards share holders and
consumers?

Responsibility towards shareholders:

 To protect the interests of the shareholders and employees, "the primary business of a
business is to stay in business".

 To safeguard the capital of the shareholders and to provide a reasonable dividend, the
company has to strengthen and consolidate its position.

 If a company fails to cope with changes in a changing and dynamic world, its position
will be shaken, and the shareholders' interests will be affected. By innovation and
growth the company should consolidate and improve its position and help strengthen
the share prices.

 The shareholders are interested not only in the protection of their investment and the
return on it but also in the image of the company. It shall, therefore, be the endeavour
of the company to ensure that its public image is such that the shareholders can feel
proud of their company.

Responsibility towards consumers:

 To improve the efficiency of the functioning of the business so as to (a) increase

productivity and reduce prices, (b) improve quality, and (c) smoothen the
distribution system to make goods easily available.

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  To do research and development, to improve quality and introduce better and new
products.

 To take appropriate steps to remove the imperfections in the distribution system,

including black-marketing or profiteering by middlemen or anti-social elements.

 To supply goods at reasonable prices even when there is a seller's market.

 To provide the required after-sales, services.

 To ensure that the product supplied has no adverse effect on the consumer.

 To provide sufficient information about the products, including their adverse

effects, risks, and care to be taken while using the products.

 To avoid misleading the customers by improper advertisements or otherwise.

 To provide an opportunity for being heard and to redress genuine grievances.

 To understand customer needs and to take necessary measures to satisfy these

needs.

2. Explain the social responsibilities of business towards employees and community.

Responsibility towards employees:

 The payment of fair wages.

 The provision of the best possible working conditions.

 The establishment of fair work standards and norms.

 The provision of labour welfare facilities to the extent possible and desirable.

 Arrangements for proper training and education of the workers.

 Reasonable chances and proper system for accomplishment and promotion.

 The installation of an efficient grievance handling system.

 An opportunity for participating in managerial decisions to the extent desirable.

Responsibility towards community

 Taking appropriate steps to prevent environmental pollution and to preserve the

ecological balance.

 Rehabilitating the population displaced by the operation of the business, if any.

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  Assisting in the overall development of the locality.

 Taking steps to conserve scarce resources and developing alternatives, wherever

possible.

 Improving the efficiency of the business operation.

 Contributing to research and development.

 Development of backward areas.

 Promotion of ancillarisation and small-scale industries.

 Making possible contribution to furthering social causes like the promotion of

education and population control.

 Contributing to the national effort to build up a better society.

3. What are the arguments for social responsibility?

1. Business which survives using the resources of the society has a responsibility to the
society.

2. Business which is an integral part of the social system has to care for the varied
needs of the society.

3. Business which is resourceful has a special responsibility to the society.

4. Social involvement of business would foster a harmonious and healthy relationship

between the society and business to the mutual benefit of both.

5. Social responsibilities like recycling of waste may have favourable financial effects.

6. Social involvement may discourage additional government regulation and

intervention.

Social involvement may create a better public image for the company which may help it
in attracting customers, efficient personnel and investors.

4. What are the arguments against social responsibility?

1. Involvement in social activities could adversely affect the economic health of a

business enterprise. It may be noted that the expenditures on social welfare has been
imposing severe burden on TISCO.

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 2. Business should confine to its own business. There are government and social
organisations to carry out social activities.

3. If the cost of the social involvement of the business is ultimately passed On to the
consumers, there is no point in exalting the social involvement of business.
Sometimes there could even be a net loss to the society because of the high cost of
the corporate sector undertaking such activities.

4. Many companies involve themselves in social activities because of the tax

exemptions on the income spent on special social purposes.

5. If the social involvement of a business enterprise causes an increase in the price of

its products, it could affect its competitiveness both in the domestic and
international markets.

Social involvement of business could lead to an increase in the dominance or influence of

business over the society.

5. What is consumerism? Discuss its utility

Philip Kotler defines Consumerism as "a social movement seeking to augment the rights
and power of the buyers in relation to sellers”

Utility of Consumerism

1. Producers and sellers will not take the consumer for granted. When consumers are
strong enough to protect their rights, the business will be compelled to shun unfair
trade practices.

2. Consumerism will provide feedback for the business. It will enable the producers to
understand consumer grievances, needs and wants. This will assist in the more
effective implementation of the marketing concept or the societal marketing
concept, depending upon the nature of consumerism.

3. Producers will be able to enlist the support of consumers to minimise the

imperfections on the distribution front. Several times the supply position is made
worse by hoarding and black-marketing by traders. Further, many sellers have a
tendency to charge a price| which is higher than the actual by giving one or other
reason. There is no reason why the consumer and producer should not co-operate to
get rid of the unscrupulous traders.

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 Consumerism will make the government more responsive to consumer interests, prompts
it to take necessary, statutory measures and make the required institutional arrangements
to safeguard consumer rights.

6. Discuss consumer protection and consumerism in India.

1. Short supply of many goods and services, especially of essential items, is a very
serious problem afflicting the Indian consumer. The demand-supply imbalance has
produced all the associated evils of profiteering, hoarding and black marketing,
corruption, nepotism, irresponsiveness and arrogance towards consumers.

2. The Indian consumer has also been the victim of lack of effective or workable
competition. Competition among sellers, even though imperfect, may be regarded as
effective or workable if it offers buyers real alternatives sufficient to enable them,
by shifting their purchases from one seller to another, substantially to influence
quality, service, and price.

3. Many products with which consumers in advanced countries are quite familiar are
still new to a very large segment of the Indian consumers. The unfamiliarity of the
consumers with product features makes the sale of substandard, inferior or even
defective products easier in India than in advanced countries.

4. Due to low literacy levels and unsatisfactory information flows, the Indian
consumers, by and large, are not conscious of all their rights. This encourages
irresponsible and unscrupulous business attitudes and tactics.

5. It has been said that the legal process in India is comparatively time-consuming and
cumbersome. This discourages the consumers from seeking the redressal of their
grievance by means of the judicial process.

6. Consumerism in India is not well organised and developed.

7. Though the public sector had been developed and expanded to serve the public
interest by providing effective competition to the private sector, increasing
production, improving distribution, etc., it failed to produce benefits that were
commensurate with the investment.

Though there are a number of laws to safeguard the interests of consumers, they are not
effectively implemented and enforced to achieve the objectives.

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Chapter 4

Answer the following. (1 Marks)

1. Write the full form of MNC.

Multinational Corporation

2. Who remarked that multinationalism and expanding world trade are two sides of
same coin?

Peter Druker

3. What term used for percentage of exports to total sales?

Export intensity is known as the percentage of exports to total sales.

4. What is the portion of export by foreign affiliates of MNCs in the global export?

One-third

5. What is the function of Brandt commission?

Brandt commission observes the ability of multinationals to manipulate financial flows by

the use artificial transfer prices is bound to be a matter of concern to government.

6. Who become vehicles for the transfer of technology?

Transnational Corporation

7. Who enable the host countries to increase their export and decrease their imports
requirements?

MNCs

8. What enables MNCs to avoid taxes by manipulating prices on intra company

transactions?

Transfer pricing

9. When was the new phase of globalization started?

The new phase of globalization was started around the mid 20th century

10. Give full form of WTO.

World trade organisation

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Briefly answer the following. (2 marks)

1. Mention any two merits of MNCs.

 MNCs help increase the investment level and thereby the income and employment in
host country.

 MNCs provide an efficient means of integrating national economies.

2. List any two demerits of MNCs.

 MNCs may destroy competition and acquire monopoly power.

 MNCs retard growth of employment in the home country

3. What is Globalization?

Globalization is a way of corporate life necessitated, facilitated and nourished by the

transnationalisation of the world economy and developed by corporate strategies.

4. Mention any four the conditions for globalization.

 Business Freedom

 Facilities

 Government support

 Resources

 Competitiveness

 Orientation

5. List any two advantages of globalization.

 An open economy spurs innovation with fresh idea from abroad.

 Export jobs often pay more than other jobs.

6. Mention two cons of globalisation.

 Workers face pay cut demands from employers, which often threaten to export jobs.

 Service and white collar jobs are increasingly vulnerable to operations moving
offshore

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7. What are the obstacles of globalization?

 Government policy and procedure

 High Cost

 Poor Infrastructure

8. Write any two factors favouring globalization.

 Human Resource

 Wide base

 Growing entrepreneurship

9. Differentiate between micro and macro environment.

 Macro level (i.e. globalization of world economy)

 Micro level (i.e. globalization of the business and the firms)

10. Who are the new actors of Globalization?

 The World trade organisation

 A booming international network of NGO

Answer the following (limit 250 words). (5 marks)

1. Discuss the merits of MNCs.

1. MNCs help increase the investment level and thereby the income and employment in
host country.

2. The transnational corporations have become vehicles for the transfer technology,
especially to the developing countries.

3. They also kindle a managerial revolution in the host countries through professional
management and the employment of highly sophisticated management techniques.

4. The MNCs enable the host countries to increase their exports and decrease their
import requirements.

5. They work to equalise the cost of factors of production around the world.

6. MNCs provide an efficient means of integrating national economies.

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 7. The enormous resources of the multinational enterprises enable them to have very
efficient research and development systems. Thus, they make a commendable
contribution to inventions and innovations.

8. MNCs also stimulate domestic enterprise because to support their own operations, the
MNCs may encourage and assist domestic suppliers.

9. MNCs help increase competition and break domestic monopolies.

2. Discuss the demerits of MNCs.

1. As Leonard Gomes points out, the MNC's technology is designed for world-wide
profit maximisation, not the development needs of poor countries, in particular
employment needs and relative factor scarcities in these countries. In general, it is
asserted, the imported technologies are not adapted to (a) the consumption needs, (b)
the size of domestic markets (c) resource availabilities, and (d) stage of development
of many of the LDCs

2. Through their power and flexibility, MNCs can evade or undermine national
economic autonomy and control, and their activities may be inimical to the national
interests of particular countries.

3. MNCs may destroy competition and acquire monopoly powers.

4. The tremendous power of the global corporations poses the risk that they may
threaten a, the sovereignty of the nations in which they do business. On Political
involvement MNCs have been accused On occasion of supporting repressive regimes;
paying bribes to secure political influence; not respecting human rights; paying
protection money to terrorist groups and destabilizing national governments of which
they do not approve.

5. MNCs retard growth of employment in the home country.

6. The transnational corporations cause fast depletion of some of the non-renewable

natural resources in the host country. They have also been accused of the following
environmental problems. Polluting the environment; not paying compensation for the
environmental damages; causing harmful changes in the local living conditions; and,
paying little regard to the risks of accidents causing major environmental
catastrophes.

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 7. The transfer pricing enables MNCs to avoid taxes by manipulating prices on intra-
company transactions.

The MNCs have been criticized for their business strategies and practices in the host
countries. They undermine local cultures and traditions, change the consumption habits
for their benefit against the long term interests of the local community, promote
conspicuous consumption, dump harmful products in the developing countries etc.

3. Summarised the features of current globalization.

The Human Development Report, 1999, mentions the following as the new features of the
current phase of globalisation.

New markets

 Growing global markets in services—banking, insurance, transport.

 New financial markets—deregulated, globally linked, working around the clock,
with action at a distance in real time, with new instruments such as derivatives.
 Deregulation of antitrust laws and proliferation of mergers and acquisitions.
 Global consumer markets with global brands.

New actors

 Multinational corporations integrating their production and marketing, dominating

food production.
 The World Trade Organization— the first multilateral organization with authority
to enforce national governments' compliance with rules.
 An international criminal court system in the making.
 A booming international network of NGOs.
 Regional blocs proliferating and gaining importance—European Union,
Association of South-East Asian Nations, Mercosur, North American Free Trade
Association, Southern African Development Community, among many others.
 More policy coordination groups—G-7, G40, G-22, G-77, OECD.

New rules and Norms

 Market economic policies spreading around the world, with greater privatization
and liberalisation than in earlier decades.
 Widespread adoption of democracy as the choice of political regime.

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  Human rights conventions and instruments building up in both coverage and
number of signatories—and growing awareness among people around the world.
 Consensus goals and action agenda for development.
 Conventions and agreements on the global environment—biodiversity, ozone
layer, disposal of hazardous wastes, desertification, climate change.
 Multilateral agreements in trade, taking on such new agendas as environmental
and social conditions.
 New multilateral agreements—for services, intellectual property,
communications—more binding on national governments than any previous
agreements.
 The Multilateral Agreement on Investment, under debate.

New (Faster and Cheaper) Tools of Communication

 Internet and electronic communications linking many people simultaneously.

 Cellular phones.
 Fax machines.
 Faster and cheaper transport by air, rail and road.
 Computer-aided design.
4. Highlight essential conditions for globalization.

There are, however, some essential conditions to be satisfied on the part of the domestic
economy as well as the firm for successful globalisation of the business. They are:

Business Freedom: There should not be unnecessary Government restrictions which

come in the way of globalisation, like import restriction, restrictions on sourcing finance
or other factors from abroad, foreign investments etc. That is why the economic
liberalisation is regarded as a first step towards facilitating globalisation.

Facilities: The extent to which an enterprise can develop globally from home country
base depends on the facilities available like the infrastructural facilities.

Government Support: Although unnecessary government interference is a hindrance to

globalisation, government support can encourage Globalisation. Government support may
take the form of policy and procedural reforms, development of common facilities like
infrastructural facilities, R and D support, financial market reforms and so on.

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 Resources: Resources is one of the important factors which often decides the ability of a
firm to globalise. Resourceful companies may find it easier to thrust ahead in the global
market. Resources include finance, technology, R&D capabilities, managerial expertise,
company and brand image, human resource etc. It should, however, be noted that many
small firms have been very successful in international business because of one or other
advantage they possess.

Competitiveness: The competitive advantage of the company is a very important

determinant of success in global business. A firm may derive competitive advantage from
any one or more of the factors such as low costs and price, product quality, product
differentiation, technological superiority, after sales service, marketing strength etc.
Sometimes small firms may have an edge over others in certain aspects or times of
business.

Orientation: A global orientation on the part of the business firms and suitable
globalisation strategies are essential for globalisation.

5. Write a short note on the obstacles to globalization?

Government Policy and Procedures: Government policy and procedures in India are
among the most complex, confusing and cumbersome in the world. Even after the much
publicised liberalisation, they do not present a very conducive situation.

High Cost: High cost of many vital inputs and other factors like raw materials and
intermediates, power, finance infrastructural facilities like port etc., tend to reduce the
international competitiveness of the Indian business.

Poor Infrastructure: Infrastructure in India is generally inadequate and inefficient and

therefore very costly. This is a serious problem affecting the growth as well as
competitiveness.

Obsolescence: The technology employed, mode and style of operations etc., are, in
general, obsolete and these seriously affect the competitiveness.

Resistance to Change: There are several socio-political factors which resist change and
this comes in the way of modernisation, rationalisation and efficiency improvement.
Technological modernisation is resisted due to fear of unemployment. The extent of
excess labour employed by the Indian industry is alarming. Because of this labour

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 productivity is very low and this in some cases more than offsets the advantages of cheap
labour.

Poor Quality Image: Due to various reasons, the quality of many Indian products is poor.
Even when the quality is good, the poor quality image India has becomes a handicap.

Supply Problems: Due to various reasons like low production capacity, shortages of raw-
materials and infrastructures like power and port facilities, Indian companies in many
instances are not able to accept large orders or to keep up delivery schedules.

Small Size: Because of the small size and the low level of resources, in many cases
Indian firms are not able to compete with the giants of other countries. Even the largest of
the Indian companies are small compared to the multinational giants.

Lack of Experience: The general lack of experience in managing international business is

another important problem.

Limited R&D and Marketing Research: Marketing Research and R & D in other areas
are vital inputs for development of international business. However, these are poor in
Indian business.

Growing Competition: The competition is growing not only from the firms in the
developed countries but also from the developing country firms. Indeed, the growing
competition from the developing country firms is a serious challenge to India's
international business.

Trade Barriers: Although the tariff barriers to trade have been progressively reduced
thanks to the GATTA/VTO, the non-tariff barriers have been increasing, particularly in
the developed countries. Further, the trading blocs like the NAFTA, EC etc., could also
adversely affect India's business.

6. Write a short essay on factors favouring globalization in Indian context.

Human Resources: Apart from the low cost of labour, there are several other aspects of
human resources to India's favour. India has one of the largest pool of scientific and
technical manpower. The number of management graduates is also surging. It is widely
recognised that given the right environment, Indian scientists and technical personnel can
do excellently.

Wide Base: India has a very broad resource and industrial base which can support a
variety of businesses.

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Growing Entrepreneurship: Many of the established industries are planning to go
international big way. Added to this is the considerable growth of new and dynamic
entrepreneurs who could make a significant contribution to the globalisation of Indian
business.

Growing Domestic Market: The growing domestic market enables the Indian companies
to consolidate their position and to gain more strength to make foray into the foreign
market or to expand their foreign business.

Niche Markets: There are many marketing opportunities abroad present in the form of
market niches. (A niche is a small segment of a market ignored or not properly served by
large players). Such niches are particularly attractive for small companies. Several Indian
companies have become very successful by niche marking.

Expanding Markets: The growing population and disposable income and the resultant
expanding internal market provides enormous business opportunities.

Transnationalisation of World Economy: Transnationalisation of the world economy,

i.e., the integration of the national economies into a single world economy as evinced by
the growing interdependence and globalisation of markets is an external factor
encouraging globalisation of India business.

NRIs: The large number of non-resident Indians who are resourceful - in terms of capital,
skill, experience, exposure, ideas etc.- is an asset which can contribute to the globalisation
of Indian business.

Economic Liberalisation: The economic liberalisation in India is an encouraging factor

of globalisation. The delicensing of industries, removal of restrictions on growth, opening
up of industries earlier reserved for the public sector, import liberalisations, liberalisation
of policy towards foreign capital and technology etc., could encourage globalisation of
Indian business. Further, liberalisation in other countries increases the foreign business
opportunities for Indian business.

Competition: The growing competition, both from within the country and abroad,
provokes many Indian companies to look to foreign markets seriously to improve their
competitive position and to increase the business.

33