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Describe Raymond Vernons Product Life Cycle theory of international trade and explain why an
innovator and exporter has to turn importer at later stage of PLC.
Ans: In 1966, Raymond Vernon published a model that described internationalization patterns of organizations. He looked at
how U.S. companies developed into multinational corporations (MNCs) at a time when these firms dominated global trade, and
per capita income in the U.S. was, by far, the highest of all the developed countries. The IPLC international trade cycle
consists of three stages:
The IPLC begins when a company in a developed country wants to exploit a technological breakthrough by
launching a new, innovative product on its home market. Such a market is more likely to start in a developed nation because
more high-income consumers are able to buy and are willing to experiment with new, expensive products (low price elasticity).
Furthermore, easier access to capital markets exists to fund new product development. Production is also more likely to start
locally in order to minimize risk and uncertainty: a location in which communication between the markets and the executives
directly concerned with the new product is swift and easy, and in which a wide variety of potential types of input that might be
needed by the production units are easily come by. Export to other industrial countries may occur at the end of this stage that
allows the innovator to increase revenue and to increase the downward descent of the products experience curve. Other
advanced nations have consumers with similar desires and incomes making exporting the easiest first step in an
internationalisation effort. Competition comes from a few local or domestic players that produce their own unique product
Exports to markets in advanced countries further increase through time making it economically possible and sometimes politically
necessary to start local production. The products design and production process becomes increasingly stable.
Foreign direct investments (FDI) in production plants drive down unit cost because labour cost and transportation cost decrease.
Offshore production facilities are meant to serve local markets that substitute exports from the organisations home market.
Production still requires high-skilled, high paid employees. Competition from local firms jump start in these non-domestic
advanced markets. Export orders will begin to come from countries with lower incomes.
During this phase, the principal markets becomes saturated. The innovator's original comparative advantage based on
functional benefits has eroded. The firm begins to focus on the reduction of process cost rather than the addition of new product
features. As a result, the product and its production process become increasingly standardised. This enables further economies of
scale and increases the mobility of manufacturing operations. Labour can start to be replaced by capital. If economies of scale are
being fully exploited, the principal difference between any two locations is likely to be labour costs. To counter price competition
and trade barriers or simply to meet local demand, production facilities will relocate to countries with lower incomes. As
previously in advanced nations, local competitors will get access to first hand information and can start to copy and sell the
product. The demand of the original product in the domestic country dwindles from the arrival of new
technologies, and other established markets will have become increasingly price-sensitive. Whatever market is left becomes
shared between competitors who are predominately foreign. A MNC will internally maximize offshore production to low-wage
countries since it can move capital and technology around, but not labour. As a result, the domestic market will have to import
relatively capital intensive products from low income countries. The machines that operate these plants often remain in the
country where the technology was first invented.

Q.2. Define Globalisation and describe the stages in the evolution of Global companies. Explain with
examples, the driving and restraining forces of globalization.






Action Plan

the country of its

(ii) Focus on one
product or services.
Strengthen and (i) Build a strong
one relation
(ii) Promote brand
name with customers
and channels.

base in the

(i) Narrow down to

one local partner.
(ii) Locate an ideal
place for production.
(iii) Workout for
financially together.

Anticipated risks and

(i) Local resistance for
commercial barriers.
(iii) Competitive forces
from local and imported
(i) Local competitors
pose threats.
(ii) Price war is inevitable.

(i) Competitors increase

(ii) Local regulations on
labour, transaction and
trouble the operation.
the (i)
fast (i) Every part of the
distribution and network
the region works differently.
(ii) Rules are not uniform.
in countries.
(iii) Demand level is not
the region.
(ii) Setup warehouses similar in every country.
/ sub-dealer network
in the region.

End Result
(i) Entry into one
country- successful.
(ii) Learning experience
in a country outside.

country by overcoming
all the hurdles.
support for constant
flow of goods.
(i) Local production
brings down the cost.
becomes close to the
(iii) Brand loyalty is
(i) Access in the whole
(ii) Easy to experiment
in other regions.

Move to other

(i) Set up subsidiaries.

(ii) Develop strong
(iv)Flexible to local

(ii) Local adaptability.
(iii) Promotional barriers.

(i) Global take off

(ii) The enterprise has a
competency in skill and
knowledge to go global.

Global mindset,
orientation and

(i) Organization to be
(ii) Investment to be
(iii) Technology to be
(iv) Real optimization
of resources takes

(ii) Ethical standards.
(iii) Concern for the
(iv) Human Resources.

(i) Global investment.

(ii) Global competency.
(iii) Global branding.
(iv)Global Organization.



Globalization : Definitions
Economic Definition
Globalization may be defined as the process of integration of economies across the world through crossborder flow of factors, products and information.
characteristics features:
Operating and planning to expand business globally.
Renunciation of distinction between domestic and foreign markets and developing a global business
Establishing production and distribution facilities in various parts of the world based on global
business dynamics.
Product development and production planning are based on global market environment.
Driving and Restraining Forces of Globalisation
There are number of forces which induce and propel globalization and thereby expand the scope and
importance of international business. On the other hand there are also forces which restrain globalisation.
Driving Forces
Universal economic policy of liberalisation fostering a seamless business world.
GATT/WTO policies
Revolutionary policy changes as in China (turn of the century), RPA countries(late 80s)
LPG surge in M&A, FDI resulting in greater global economic integration
Linking resources and objectives with world market opportunities taking advantage of liberalisation
Powerful driving force Technological breakthroughs are substantially increasing the scale economies and the
market scale required to break-even
Transportation and Communication Revolution
Reducing disadvantage of distance and cost Development in the field of air and sea cargo- containerisation,
Refrigeration (cryogenic tanks), LNG, LSWR, Perishable goods, Floral, Food stuff, quick changes in fashion
and design.IT & Telecommunication Revolution
Product Development cost and efforts
Huge R&D and development cost/ investment - huge global market

Fast technological changes- Risk of obsolescence-quick payback

Quality and Cost
The two most important determinants of demand. Can be better achieved when a firm is global in its
operations, Scale economies, PLC, Learning curve etc
Rising Aspirations and Wants
Innovative ideas, breakthrough improvements-3 dimentions- bottom line, customer satisfaction, reduction
in cycle time.
Exploring new markets, risk taking, diversification, new ownerships
World Economic Trends
Difference in growth rates developed and developing countries Domestic rapid economic growth-large
number of players- exploiting opportunities outside the country- China
Regional Integration
The proliferation of regional integration schemes
European Union(EU), South Asian Association for Regional Cooperation(SAARC), North American Free Trade
Agreement (NAFTA)
Creates a borderless region between the members Financial flows
A global company can leverage its experience to expand its global operations. According to Keegan
Leverage is simply some type of advantage that a company enjoys by virtue of the fact that it conducts
business in more than one country
Restraining Forces.
There are two types of factors, which hamper globalisation.
External factors
a. Government policies and controls Interventionist approach
b. Social and political opposition against foreign business
c. Unethical practices to protect domestic firms
d. Selfish motives of governance
Internal factors
Factors within the organisation myopic approach-nearsightedness
Organisational culture may hamper or pamper no vision
Q.3. State the characteristic features of Transnational Economy, as explained by Peter Drucker.
Ans :Transnational Economy
Peter Drucker observes in his work The New Realities that the world economy has changed from being
International toTransnational.While the international economy is regulatedby national government, the
transnational economy is aborderless world economy regulated by global institutions. The transnational
economy according to Drucker is characterised by the following features :
1. The transnational economy is shaped by monetary flows which have their own dynamics. The
monetary and fiscal policies of sovereign nation states increasingly react to events in the
international money and capital markets rather than actively shape them.
2. The emergence of management as the decisive factor of production. The transnationalisation of the
money and capital markets and accessibility to it.
3. The primacy of market maximisation as a goal over profit maximisation.
4. Trade becoming a function of investment.
5. The decision making power-shift from the national governments to the regional trade blocks.
6. A genuine and autonomous world economy made up of money, credit and investment flows
organised by information technology.
7. A growing persuasiveness of the transnational corporations which see the world as a single market
for production and marketing of goods and services.

Q.4. Describe various Entry strategies in International Business with examples.

Exporting is the most traditional way of entering into International Business. Export can be done in two
1. Direct Export Products are sold directly to buyers in target markets either through local sales
representatives or distributors. Sales representatives promote their companys products and do not
take title to the merchandise. Distributors take ownership of the goods (and the accompanying risk)
and usually on-sell through wholesalers and retailers to end-users.
Advantages of Direct Exports:
Give a higher return on your investment than selling through an agent or distributor
Allows the exporting company to set lower prices and be more competitive
Gives the company a close contact with its customers
Disadvantages of Direct Exports:
The company may not have the services of a foreign intermediary, so it may need more time to
become familiar with the market
The customers or clients may take longer to get to know the company and its products, and such
familiarity is often important when doing business internationally
2. Indirect Export - Products are sold through intermediaries such as agents and trading companies.
Agents may represent one or more indirect exporters in return for commission on sales.
Foreign direct Investment
FDI are investments made to acquire a lasting interest by a resident entity in one economy in an
enterprise resident in another economy. FDI has come to play a major role in the
internationalization of business. This has happened due to changes in technologies, improved trade
and investment policies of governments, regulatory environment in terms of liberalization and
easing of restrictions on foreign investments and acquisitions, and deregulation and privatization of
many industries.
It can provide a firm with new markets and marketing channels, cheaper production facilities, access
to new technologies, capital process, products, organizational technologies and management skills.
FDI can provide a strong impetus to economic development of the host country. This is all the more
true when large MNCs enter developing nations through FDI.
FDI allows companies to avoid foreign government pressure for local production.
It allows making the move from domestic export sales to a locally based national sales office.
Capability to increase total production capacity.
Depending on the industry sector and type of business, a foreign direct investment may be an
attractive and viable option. With rapid globalization of many industries and vertical integration
rapidly taking place on a global level, at a minimum a firm needs to keep abreast of global trends in
their industry. From a competitive standpoint, it is important to be aware of whether a companys
competitors are expanding into a foreign market and how they are doing that. Often, it becomes
imperative to follow the expansion of key clients overseas if an active business relationship is to be
New market access is also another major reason to invest in a foreign country. At some stage, export of
product or service reaches a critical mass of amount and cost where foreign production or location begins to
be more cost effective. Any decision on investing is thus a combination of a number of key factors including:
Assessment of internal resources
Market Analysis
Market expectations
Licensing is a legal agreement between the owner of intellectual property such as a copyright,
patent or trademark and someone who wants to use that IP. The licensee pays rent to the licensor

for the use of an idea/product/process that is otherwise protected by IP law. Like a lease on a
building, the license is for a specific period of time. The licensee uses that idea/product/process to
sell products or services and earns money.
Licensing appeals to prospective global players because it does not require large capital investment
not detailed involvement with foreign customers. By generating royalty income, licensing provides
an opportunity to exploit research and development already conducted. After initial costs, the
licensor can reap benefits until the end of license contract period.
It reduces the risk of expropriation because the licensee is a local company that can provide
leverage against government action.
Helps avoid host country regulations that are more prevalent in equity ventures.
Provides a way of testing foreign markets without significant resources.
Can be used as a preemption major in new market before the entry of competition.
Limited form of market entry which does not guarantee a basis for expansion.
Licensor may create more competition in exchange of royalty.
Franchising involves granting of rights by a parent company to another (franchisee) to do business in
a prescribed manner. This right can take the form of selling the franchisers products, using its name,
production and marketing techniques or using its general business approach.
It allows provides a network of interdependent business relationships that allows a number of
people to share:
- Brand identification
- Successful method of doing business
- Proven marketing and distribution system
Franchise agreement typically requires the payment of a fee upfront and then a percentage on sales. In
return, the franchiser provides assistance and at times may require the purchase of goods or supplies to
ensure the same quality of goods or services worldwide.
Franchising is adaptable to international arena and requires minor modification for the local market. It can
be beneficial to both groups. Franchiser has a new stream of income and the franchisee gets time proven
concept/product which can be quickly bought to the market.
Major Forms of Franchising:
manufacturer-retailer system (e.g. car dealership)
manufacturer-wholesaler system (e.g. soft-drink companies)
service firm retailer system (fast-food, hotel) e,g, McDonalds, Burger King
Joint Ventures
A joint venture is an agreement involving two or more organizations that arrange to produce a
product or service through a collectively owned enterprise. It has been one of the most popular way
of entering a new market.
Typically, it is a 50-50 joint venture in which each of the party holds 50% ownership stake and
contributes a team of managers to share operating control. At times, this stake can be a majority
one so as to ensure tighter control.
Domestic company brings in the knowledge of the domestic market.
The risk is divided between joint-venture partners.
Normally, foreign partner has an option to sell its stake in the venture to another entity.
Limited control over business approach for foreign entity.
Profits have to be shared.
- e.g. Danone-Brittania, Hero Honda, Maruti Suzuki
Wholly Owned Subsidiaries

In a wholly owned subsidiary, the company owns 100% of the equity. Establishing a wholly owned
subsidiary in a foreign market can be done in 2 ways:
Set up of new operation
Acquisition of established firm.
WOS allows a foreign firm complete control and freedom to execute its business strategy in the
foreign country. This freedom is accompanied by a greater risk due to lack of knowledge of the
market. Acquisition of an established company can reduce this risk to an extent.

5. Define Multinational Corporation (MNC). Explain the merits and demerits of Multinational
Corporations. Critically examine the role of MNCs in the international economy.
Ans :
The total foreign affiliates of MNCs, only littlewere developed countriesForeign investment has been
growingsubstantially faster than world output andexportMultinationals have been emerging from
thedevelopingcountriesThe diversified corporations have many oddsagainst them and focus strategy
is moresuccessful International Marketing Chapter-3 MNCs And International Business
Definition: Multinationalcorporation
The essential nature of the multinational enterprises lies in the fact that its managerial headquarters
are located in one country while the enterprise carries out operations in a number of other
countries as well International Marketing Chapter-3 MNCs And International Business
Merits of MNCs
MNCs help increase the investment level and thereby the income and employment in host country.
The transnational corporations have become vehicles for the transfer of technology, especially to
the developing countries
They also kindle a managerial revolution in the host countries through professional management
and the employment of highly sophisticated management techniques.
The MNCs enable the host countries to increase their exports and decrease their import
They work to equalize the cost of factors of production around the world.
MNCs provide an efficient means of integrating national economics.
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
MNCs also stimulate domestic enterprise because to support their own operations, the MNCs may
encourage and assist domestic suppliers.
MNCs help increase competition and break domestic monopolies.
Demerits of MNCs
The MNCs technology is designed for world wide profit maximization, not the development needs of
poor countries. The imported technologies are not adapted to a. consumption needs b. size of
domestic markets c. resource availabilities d. stage of development of many of the LDCs.
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.
MNCs may destroy competition and acquire monopoly powers.
The tremendous power of the global corporations poses the risk that they may threaten the
sovereignty of the nations in which they do business.
MNCs retard growth of employment in the home country.
The transnational corporations cause fast depletion of some of the non-renewable natural resources
in the host country.
The transfer pricing enables MNCs to avoid taxes by manipulating prices on intra-company
Five Criteria of MNC
It operates in many countries at different levels of economic development


Its local subsidiaries are managed by nationals

It maintains complete industrial organizations, including R and D and manufacturing facilities, in
several countries
It has a multinational central management
It has multinational stock ownership

Introduction to Porters five forces

The model of the Five Competitive Forces was developed by Michael E. Porter in his book
Competitive Strategy: Techniques for Analysing Industries and Competitors in 1980. Since that
time the five forces tool has become an important method for analysing an organizations industry
structure in strategic processes.
Michael Porters five forces model is based on the insight that a corporate strategy should meet the
opportunities and threats in the organizations external environment. Especially, competitive
strategy should based on an understanding of industry structures and the way they change.
Porter has identified five competitive forces that shape every industry and every market. These
forces determine the intensity of competition and hence the profitability and attractiveness of an
industry. The objective of corporate strategy should be to modify these competitive forces in a way
that improves the position of the organization. Porters model supports analysis of the driving forces
in an industry. Based on the information derived from the Porters Five Forces Analysis,
management can decide how to influence or to exploit particular characteristics of their industry.
1. Michael Porters Factor 1) Threat of New Entrants
The easier it is for new companies to enter the industry, the more cut-throat competition there will be.
Factors that can limit the threat of new entrants are known as barriers to entry. Some examples include:
Existing loyalty to major brands
Incentives for using a particular buyer (such as frequent shopper programs)
High fixed costs
Scarcity of resources
Government restrictions or legislation
Entry protection (patents, rights, etc.)
Economies of product differences
Brand equity
Switching costs or sunk costs
Capital requirements
Access to distribution
Absolute cost advantages
Learning curve advantages
Expected retaliation by incumbents
2. Michael Porters Factor 2) Power of Suppliers
This is how much pressure suppliers can place on a business. If one supplier has a large enough impact
to affect a companys margins and volumes, then they hold substantial power. Here are a few reasons
that suppliers might have power:
There are very few suppliers of a particular product
There are no substitutes
The product is extremely important to the buyer, they cannot do without it
The supplying industry has a higher profitability than the buying industry
Supplier switching costs relative to firm switching costs
Degree of differentiation of inputs
Presence of substitute inputs
Supplier concentration to firm concentration ratio
Threat of forward integration by suppliers relative to the threat of backward integration by firms
Cost of inputs relative to selling price of the product
3. Michael Porters Factor 3) Power of Buyers/ Customers

This is how much pressure customers can place on a business. If one customer has a large enough
impact to affect a companys margins and volumes, then they hold substantial power. Here are a few
reasons that customers might have power
Small number of buyers
Purchases of large volumes
Switching to another (competitive) product is simple
The product is not extremely important to the buyer, they can do without it for a period of time.
Customers are price sensitive
Buyer concentration to firm concentration ratio
Bargaining leverage
Buyer volume
Buyer switching costs relative to firm switching costs
Buyer information availability
Ability to backward integrate
Availability of existing substitute products
Buyer price sensitivity
Price of total purchase
4. Michael Porters Factor 4) Availability of Substitutes
What is the likelihood that someone will switch to a competitive product or service? If the cost of
switching is low, then this poses to be a serious threat. Here are a few factors that can affect the threat
of substitutes:
Buyer propensity to substitute
Relative price performance of substitutes
Buyer switching costs
Perceived level of product differentiation
Fad and fashion
Technology change and product innovation
The main issue is the similarity of substitutes. For example, if the price of coffee rises substantially, a
coffee drinker is likely to switch over to a beverage like tea because the products are so similar.
If substitutes are similar, then it can be viewed in the same light as a new entrant.
Consider technology substitutes (who would have thought that MP3 technology would replace tape
& CDs?)
5. Michael Porters Factor 5) Competitive Rivalry
And last but not least, this describes the intensity of competition between existing firms in an industry.
Highly competitive industries generally earn low returns because the cost of competition is high. A
highly competitive market might result from:
Many players of about the same size, no dominant firm.
Little differentiation between competitors products and services.
A mature industry with very little growth.
Companies can only grow by stealing customers away from competitors.
For many industries, this is the major determinant of the competitiveness of the industry.
Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such
as innovation, marketing, etc.
Number of competitors
Rate of industry growth
Intermittent industry overcapacity
Exit barriers
Diversity of competitors
Informational complexity and asymmetry
Fixed cost allocation per value added
Level of advertising expense
Influencing the Power of Porters Five Forces:

After the analysis of current and potential future state of the five competitive forces, managers can
search for options to influence these forces in their organizations interest. Although industryspecific business models will limit options, the own strategy can change the impact of competitive
forces on the organisation. The objective is to reduce the power of competitive forces.
The following figure provides some examples. They are of general nature. Hence, they have to be
adjusted to each organizations specific situation. The options of an organization are determined not
only by the external market environment, but also by its own internal resources, competences and
Michael Porters Five Forces
1. Reducing the Bargaining Power of Suppliers
Supply chain management Supply chain training
Increase dependency Build knowledge of supplier costs and methods
Take over a supplier
2. Reducing the Treat of New Entrants
Increase minimum efficient scales of operations Create a marketing / brand image (loyalty as a
barrier)Patents, protection of intellectual property
Alliances with linked products / services Tie up with suppliers Tie up with distributors
Retaliation tactics
3. Reducing the Competitive Rivalry between Existing Players
Avoid price competition Differentiate your product Buy out competition
Reduce industry over-capacity Focus on different segments Communicate with competitors
4. Reducing the Bargaining Power of Customers
Partnering Supply chain management Increase loyalty Increase incentives and value added
Move purchase decision away from price Cut put powerful intermediaries (go directly to customer)
5. Reducing the Threat of Substitutes
Legal actions Increase switching costs Alliances Customer surveys to learn about their preferences
Enter substitute market and influence from within Accentuate differences (real or perceived
Q.7. A firm which plans to go international has to make a series of strategic decisions. Elaborate with
ans. :
Q.8. Explain why the need to export is crucial and describe the institutional framework to promote
exports in India.
ans :

All national governments have established institutional set-ups to support export activities.
The major objective of export promotion programmes is to create awareness about exports and
make the people understand that it is one of the most crucial instruments of growth and market expansion.

A non-exporter needs to be motivated by making him or her aware of the international marketing

A first-time exporter has to be assisted in finding export marketing opportunities and may be
supported on matters related to export policy, procedures and documentations.

An exporters consistently attempt to explore ways to improve their international marketing

operations and need to be assisted by way of trade fairs, buyer sellers meet, and market promotion

The export promotion programmes initiated by the government are in the form of public policy
The functions of export promotion programmes are:

To create awareness about exporting as an instrument of growth and market expansion.

To reduce and remove barriers of exporting,
To create promotional incentives.
To provide various forms of assistance to potential and actual exporters.
The export promotion programmes are basically designed to assist firms in entering international markets
and achieving optimum opportunities from their international business activities.
The export promotion organizations(EPOs) are meant to assist an international marketing manager to
identify overseas market opportunities, product and packaging requirements, the pricing patterns,
identifying IM channels, and marketing opportunities.
Statutory requirements, such as registration-cum-membership certificates(RCMCs), quota administration ,
and disbursement of incentives through promotion organizations, make it necessary for the marketers to
approach these organizations.
In order to provide guidance and assistance to an exporter, the Government of India has setup several
institutions. The institutional set-up for export promotion in India can be divided into six different tires:
Department of commerce
Advisory Bodies
Commodity Organizations
Service Organizations
Government Trading Organizations
State Export Promotion Agencies
Department of Commerce:It is the primary government agency responsible for evolving and directing foreign trade policy and
programmes , maintaining commercial relations with other countries, supervising state trading, initiating
various trade promotion measures, and developing and regulating export-oriented industries.
Following are the divisions of the Department of Commerce:

The economic division is engaged in export planning, formulating export strategies and periodic
appraisal, and review of policies.

The trade policy division is responsible for maintaining Indias compatibility with regional trading
agreements such as EU, NAFTA, SAFTA, Commonwealth, etc.

Foreign trade territorial division looks after the development of trade in different countries and
regions of the world.

The export division looks at the problems connected with production, generation of surplus, and
development of products for exports under its jurisdiction.

The export industries is responsible for the development and regulation of rubber, tobacco, and
cardamom sectors.

The export division deals with the problems of export assistance , such as export credit, export
house etc.
Advisory Bodies:
The advisory bodies provide an effective mechanism to maintain continuous dialogue with trade and
industry and increased coordination among various departments and ministries concerned with export
promotion. Bodies for promoting international trade:
Board of Trade :
The Board of Trade was setup under the chairmanship of Union Minister of Commerce and Industry in May
1989.The broad terms of reference of Board of Trade are as follows:

To advice the govt. on policy measures for the preparation and implementation of both short and
long-term plans.

To review export performance of various sectors, identify constraints, and suggest measures to be

To examine the existing institutional framework for exports and suggest practical measures for

To review the policy instrument, package of incentives, and procedures for exports, and suggest
steps to rationalize and channelize incentives to areas where they are most needed
Export Promotion Board:
In order to effect greater co-ordination among ministers involved in exports, Export Promotion Board was
setup. It works under the chairmanship of the Cabinet Secretary and provides policy and infrastructural
support to the exporters.
Commodity Organizations
There are various commodity organizations, such as,

Export promotion councils

Commodity boards
Autonomous bodies
These organizations look at sector-specific exports.
Export promotion councils :

Export promotion councils are non-profit organizations. They are provided by financial assistance by
the central government.

At present there are 20 export promotion councils. Their basic objective is to promote and develop
exports in the country.

The main role of the EPCs is to project India as a reliable supplier of high quality goods and services
in the international market.

Each council is responsible for the promotion of a particular group of products, projects and
The present set-up of EPCs covers the following sectors:
Electronics and computer software
Plastics and linoleums
Chemical and allied projects
Gems and jewellery
Indian milk
Cotton textiles
Functions :

To provide commercially useful information and assistance.

To offer professional advice to the members.
To organize visits to abroad to the members.
To organize participation in trade fairs, exhibitions.
To promote interaction between the exporting community and government.

Commodity boards:
In order to look after the issues related to production, marketing and development of commodities. The
commodities which follows,

Tea board

Coffee board

Coir board
Central silk board
All India handlooms and handicraft board
Rubber board
Cardamom board
Tobacco board
Spices board

Functions :

Provide an integrated approach for production development and marketing of the


They act as a link between Indian exporters and importers aboard

They formulate and implement quality improvement systems, research and development


They act as an interface between the international agencies such as the ITC, FAO,UNIDO etc.

They collect information on production, processing and marketing of the product under its
purview and dissemination.

They organize export promotion activities such as participation in international trade fairs,
buyer-seller meeting.
Autonomous bodies:
APEDA agriculture and Processed Food Products Export Development Authority.
APEDA looks after the promotion of exports of agriculture and processed food products.
It works as a link between the Indian exporters and the global markets
The products are,
Fruits , vegetables, and their products
Meat and meat products
Poultry and poultry products
Dairy products
Biscuits , and bakery products
Honey ,jaggery and sugar products
Cashew nuts, groundnuts and papads
Herbal and medical products
The basic functions of APEDA are as follows:

It develops database on products, markets, and services.

It develops and implements various publicity exercises.

It invites official and business delegations from abroad.


Indian institute of foreign trade

Indian council of arbitration

India trade promotion organization

National centre for trade information

Export-credit guarantee corporation

Export import bank of India

Indian institute of packing

Federation of Indian export org.

Indian governments trade representatives abroad

The institutional set-ups developed and strengthened within the country are supplemented by the Indian
trade representatives abroad. The trade representations in the embassies and consultants are continually
being strengthened to enable them to effectively support the effort, which is being made within the country
States involvement in promoting export
States being the prime centers for export production need to be involved actively in export promotion. The
central and state government has taken a number of measures to promote export, which have been
discussed as follows:
States cell in the ministry of commerce:

To act as a nodal agency for interacting with state government on matters related to export and
import from the state and for handling references received from them.

To process all references of general nature emanating from state governments and state export

To monitor proposals submitted by the state government to the ministry of commerce and
coordinate with other divisions of the ministry.

To act as a bridge between state level corporations and associations.

To provide guidance to state level export organizations.

Export promotion initiatives by state govt.

Provide information on export opportunities.

Allot land for starting export oriented unit.
Plan for the development of export promotion industrial parks.
They exempt entry tax on supplies to EPZ units.

9. What role Business Ethics and CSR play in globalization? How will it help Organisations in Sustainable
Ans. Definitions and Relationships

Corporate social responsibility (CSR) is the process by which businesses negotiate their role in

In the business world, ethics is the study of morally appropriate behaviors and decisions, examining
what "should be done

Although the two are linked in most firms, CSR activities are no guarantee of ethical behavior

Companies can engage in CSR activities even while they are acting in unethical ways. For example,
Enron was a champion of community involvement, but used off-balance-sheet partnerships to bilk investors
and eventually ruin the company.

Companies can say one thing and do another

Ethics/CSR Goals and targets: what, when, how and why

Objectives, goals, targets, milestones: What is the difference for you and your company? How could
you ensure your lower-level targets service your higher- level objectives?

Build your own: Would you prefer to use external tools or frameworks to define goals and targets,
or create your own?

The long and short-term: What would help you in matching targets and timelines appropriately?

Benchmarking: Are you aware of what others do, and how can you know what makes a good target
in your case? What role is there for ongoing performance comparisons?

Going off-piste: How can you prepare for when results are not as planned? What about when the
targets (or even the objectives) seem mistaken??

The rationale for CSR has been articulated in a number of ways. In essence it is aboutbuilding sustainable
businesses, which need healthy economies, markets and communities.
The key drivers for CSR are:
Ethical consumerism - over the last two decades can be linked to the rise of CSRIndustrialization in many
developing countries is booming as a result of technologyand globalization. Consumers are becoming more
aware of the environmental and social implications of their day-to-day consumer decisions and are
beginningto make purchasing decisions related to their environmental and ethical concerns.
Transparency and trust- business has low ratings of trust in public perception.There is increasing
expectation that companies will be more open, more accountableand be prepared to report publicly on
their performance in social and environmentalarenas.
Increased public expectations of business- globally companies are expected to domore than merely provide
jobs and contribute to the economy through taxes and employment.As corporations pursue growth through
globalization, they have encounterednew challenges that impose limits to their growth and potential profits.
Globalcompetition forces multinational corporations to examine not only their own labourpractices, but
those of their entire supply chain, from a CSR perspective.
Employee motivation.A KPMG survey of 1600 of the world's largest companiesacross 16 industrialized
countries, including Australia, examined why they are committedto corporate responsibility and what
influenced the content of the reports. Bythe survey almost half of the world's largest companies believe
employee motivationis a key driver when it comes to corporate social responsibility [15].
Laws and regulation - independent mediators, particularly the government, ensuringthat corporations are
prevented from harming the broader social good, includingpeople and the environment. Governments
should set the agenda for social responsibilityby the way of laws and regulation that will allow a business to
conduct themselves responsibly.
Crises and their consequences. Often it takes a crisis to precipitate attention toCSR. One of the most active
stands against environmental management is theCERES Principles that resulted after the Exxon Valdez
incident in Alaska in 1989Other examples include the lead poisoning paint used by toy giant Mattel, which
required a recall of millions of toys globally and caused the company to initiate newrisk management.
Stakeholder priorities. Increasingly, corporations are motivated to become moresocially responsible
because their key stakeholders expect them to understand andaddress the social and community issues that
are important to them.
10. Why is FDI important for host and home country? Discuss the FDI environment in India in last 20 years.
Also suggest how to increase inward FDI.
Ans. :Ten reasons why FDI happens

Foreign Direct Investments (FDI) as defined in the BOP Manual, are investments made to acquire a
lasting interest by a resident entity in one economy in an enterprise resident in another economy. The
purpose of the investor is to have a significant influence, an effective voice in the management of the
enterprise. The definition of the Organization for Economic Cooperation and Development (OECD) which
considers as direct investment enterprise an incorporated or unincorporated enterprise in which a direct
investor who is resident in another economy owns ten percent or more of the ordinary shares or voting
power (for incorporated enterprise) or the equivalent (for an unincorporated enterprise).

It provides a firm with new markets and marketing channels, cheaper production facilities, access to
new technology, products, skills and financing. For a host country or the foreign firm which receives the
investment, it can provide a source of new technologies, capital, processes, products, organizational
technologies and management skills, and as such can provide a strong impetus to economic development.

FDI inflows are considered as channels of entrepreneurship, technology, management skills, and of
resources that are scarce in developing countries. Hence, they could help their host countries in their

For small and medium sized companies, FDI represents an opportunity to become more actively
involved in international business activities. In the past 15 years, the classic definition of FDI as noted above
has changed considerably, over 2/3 of direct foreign investment is still made in the form of fixtures,
machinery, equipment and buildings.

FDI is viewed as a basis for going global. FDI allows companies to accomplish following tasks:

Avoiding foreign government pressure for local production

Circumventing trade barriers, hidden and otherwise

Making the move from domestic export sales to a locally-based national sales office

Capability to increase total production capacity.

Opportunities for co-production, joint ventures with local partners, joint marketing arrangements,
licensing, etc

Foreign direct investment is viewed as a way of increasing the efficiency with which the world's
scarce resources are used. A recent and specific example is the perceived role of FDI in efforts to stimulate
economic growth in many of the world's poorest countries. Partly this is because of the expected continued
decline in the role of development assistance (on which these countries have traditionally relied heavily),
and the resulting search for alternative sources of foreign capital.

FDI enables the firm owns assets to be profitably exploited on a comparatively large scale, including
intellectual property (such as technology and brand names), organizational and managerial skills, and
marketing networks. And it is more profitable for the production utilizing these assets to take place in
different countries than to produce in and export from the home country exclusively.

FDI may result in a greater diffusion of know-how than other ways of serving the market. While
imports of high-technology products, as well as the purchase or licensing of foreign technology, are
important channels for the international diffusion of technology, FDI provides more scope for spillovers. For
example, the technology and productivity of local firms may improve as foreign firms enter the market and
demonstrate new technologies, and new modes of organization and distribution, provide technical
assistance to their local suppliers and customers, and train workers and managers who may later be
employed by local firms.

FDI increases employment in host country. Inflows of FDI also increase the amount of capital in the
host country. Even with skill levels and technology constant, this will either raise labor productivity and
wages, allow more people to be employed at the same level of wages, or result in some combination of the

Proponents of foreign investment point out that the exchange of investment flows benefits both the
home country (the country from which the investment originates) and the host country (the destination of
the investment). Opponents of FDI note that multinational conglomerates are able to wield great power
over smaller and weaker economies and can drive out much local competition. The truth might lie
somewhere in between but they surely become reasons for companies to invest in foreign markets.
LAST 20 years FDI in INDIA

10 year GDP growth CAGR %






















the growth factor

Indian Economy The 4th largest & 2nd fastest growing economy in the world (based on PPP
adjusted GDP ~ USD 3.3 tri)

Estimated GDP growth (2005-06) is 8,1 %

GDP composition is well diversified across sectors with robust growth. Agriculture 22.1%, Industry
21.7% & Services 56.2%

India: FDI Outlook

2nd most attractive investment destination among the Transnational Corporations (TNCs)

UNCTADs World Investment Report, 2005

2nd most attractive investment destination AT Kearney Business Confidence Index, 2005

Up from 3rd place in 2004, 6th place in 2003 and 15th place in 2002

Among the top 3 investment hot spots for 2004-07

UNCTAD & Corporate Location April 2004

Most preferred destination for services - AT Kearneys 2005 Global Services Location Index
(previously Offshore Location Attractiveness Index)

Worlds largest democracy

Second largest emerging market (US$ 2.4 trillion)

Liberal Foreign Investment Regime

Skilled and competitive labour force

Amongst the highest rates of return on investment

Large domestic market

Independent judiciary

Rated as the best BPO destination; AT KEARNEY

Best technology licensing regime - UNCTADs Global Competitiveness Report, 2003;

Rated among the most favourite investment destinations (UNCTAD, JETRO, JBIC, Deutsche Bank,
EIU, etc.)

Major destination for foreign venture capital funds (Far Eastern Economic Review)

Sixth most attractive investment destination ATKEARNEY Business Confidence Index, 2003

Also among the top 10 Tourist Destinations

Dreaming with BRICs: The Path to 2050- by Goldman Sachs


BRICs (Brazil, Russia, India & China) economies could be larger than G-6 in less than 40 years;
By 2025 over half of G-6 size against less than 15% at present;
India has potential to growth rate higher than 5% over the next 30 years and close to 5% as late as
Only India among BRICs to have growth rates significantly above 3% by 2050;
Indian economy can overtake Italy by around 2017, Germany by around 2027 and Japan by 2032;
India has the potential to raise its per capita income in US$ terms by 35 times by 2050.

Sectors with Restrictions on FDI

Sectors with limits on FDI Caps

Private Banking ( 49%)
Insurance (26%)
Domestic Airlines (40%)
Basic and mobile services (49%)
Print Media (26%)
Defence production (26%)
Sectors where FDI is prohibited
Gambling, betting, lottery
Retail Trade
Agriculture Plantation, except tea plantation

What are the benefits of inward FDI

With trade liberalization and the rise of global supply chains, FDI is being used increasingly to restructure
business operations, stimulate trade, and enhance profitability, thus expanding national wealth. Traditional

international trade theory saw FDI as a substitute for international tradea way to avoid tariff barriers
such as by setting up branch plants in another market. The new international trade paradigmintegrative
traderecognizes that inward FDI enhances the ability of firms and countries to expand production,
resulting in more economic activity, more jobs, and income gains. Countries now compete to attract FDI
inflows and international business activity.
FDI has become a key driver of global economic growth. FDI activity has increased around the world,
outpacing growth in production and in international trade. In the 2000s, global GDP increased by an average
of 7.6 per cent per year, while the flow of FDI worldwide grew by 10 per cent per year.
Countries compete to attract FDI because FDI inflows can help boost productivity. FDI encourages the
diffusion of technology management know-how, as well as more efficient resource allocation. Subsidiaries
acquire new knowledge and technologies from their international parent. Domestic firms that interact with
these subsidiaries also benefit from these transfers of technology and knowledge. Ultimately, FDI leads to
higher productivity, improved quality of products, and increased competitiveness. Studies show that
foreign-controlled firms, on average, are 10 to 20 per cent more productive than domestically controlled
firms because of their superior technological and managerial know-how.
Inward FDI also increases the pool of investment capital. Rather than replacing domestic investment, FDI
supplements capital shortfall and helps to develop home capital markets by creating additional export
Finally, inward FDI increases revenues for government both directly, through taxes paid by foreign investors,
and indirectly, through additional employment income taxes and sales taxes generated by increased
consumer spending.
Q.11. Discuss the contemporary theories of International trade with suitable examples. How can the
Porters Diamond model of competitive advantage be used to assess competitive advantage for India for
Cotton Textiles or Agro based products ?


Classical Country-Based Theories

Mercantilism (pre-16th century)
This theory takes an us-versus-them view of trade; other countrys gain is our countrys loss.
Neo-mercantilism views persist today.
A nations wealth depends on accumulated treasure.
Theory says you should have a trade surplus.
Maximize exports through subsidies.
Minimize imports through tariffs and quotas.

Flaw: Zero-sum game.
Mercantilism- Zero-Sum Game

In 1752, David Hume pointed out that:

Increased exports lead to inflation and higher prices
Increased imports lead to lower prices
Result: Country A sells less because of high prices and Country B sells more because of lower prices
In the long run, no one can keep a trade surplus
Free Trade supporting theories
This theory shows that specialization of production and free flow of goods grow all trading partners
1.2.1. Absolute Advantage (Adam Smith, The Wealth of Nations, 1776)

Mercantilism weakens a country in the long run and enriches only a few segments; it robs
individuals of the ability to trade freely.

Adam Smith claimed market forces, not government controls, should determine the direction,
volume and composition of international trade.

Under free (unregulated) trade each nation should specialize in producing those goods it could
produce most efficiently.

This theory states that a country is capable of producing more of a good with the same input than
another country. Hence, a country should specialize in and export products for which it has absolute
advantage; import others.

A country has absolute advantage - either natural or acquired when it is more productive than
another country in producing a particular product.

Trade between countries is, therefore, beneficial.

Assume that there are just two countries in the world, the India and Japan. Pretend also that they produce
only two goods, shoes and shirts. The resources of both countries can be used to produce either shoes or
shirts. Both countries make both products, spending half of their working hours on each. But India makes
more shoes than shirts, and Japan makes more shirts than shoes.
What will happen when each country specializes and spends all its working hours making one product? It
will make twice as much of that product and none of the other, as shown in Table B.
The world now has both more shoes and more shirts. India can trade 100 units of shoes for 100 units of
shirts, and both countries will benefit.
In this example, India could make more shoes than Japan with the same resources. It has an absolute
advantage at shoemaking. Japan, on the other hand, had an absolute advantage at shirt making.

Perfect competition and no transportation costs in a world of two countries and two products

One unit of input (combination of land, labor, and capital)

Each nation has two input units it can use to produce either rice or automobiles

Each country uses one unit of input to produce each product

Comparative Advantage (David Ricardo, Principals of Political Economy, 1817) Also known as
Opportunity Cost Theory

David Ricardo, in his theory of comparative costs, suggested that countries will specialize and trade
in goods and services in which they have a comparative advantage.

A country has a comparative advantage in the production of a good or service that it produces at a
lower opportunity cost than its trading partners.

The theory of comparative costs argues that, put simply, it is better for a country that is inefficient at
producing a good to specialize in the production of that good it is least inefficient at, compared with
producing other goods.
Now suppose one country has an absolute advantage in both products. Table C shows what production
might be like if India had an absolute advantage at making both shoes and shirts.
In this case, the India can produce more of each good with the same set of resources than China can. The
India could produce either 200 units of shoes or 160 units of shirts. China could produce either 160 units of
shoes or 150 units of shirts. If the India produces only shoes, it gives up 80 units of shirts to gain 100 units of
shoes. If China produces only shoes, it gives up 75 units of shirts to gain 80 units of shoes. For India, the
opportunity cost of producing shirts is higher and the opportunity cost of producing shoes is lower; viceversa for China. Hence, India has a comparative advantage in shoemaking and China has a comparative
advantage in shirt making.
Table D shows what happens when each country specializes in the product in which it has a comparative
By specializing in this way, the India and China have increased the production of shoes by twenty units over
what they produced before, from 180 to 200. But the world has lost five units of shirts, going from 155 to
Production in the India could be adjusted to make up the difference. For example, if the India gave up 10
units of shoes, it could produce 8 units of shirts. Table E shows the results of such a tradeoff.
In this way, the total production of both goods could be increased.
For India, the opportunity cost of choosing to produce 80 units of shirts was the 100 units of shoes that
could have been produced with the same resources. In the like manner, China's opportunity cost of
producing 80 units of shoes was 75 units of shirts.
In the terms of trade each reduce each country's opportunity cost of acquiring the good traded for, trade
will take place. In this example, China will not accept fewer than 80 units of shoes for 75 units of shirts and
the India will not pay more than 100 units of shoes for 80 units of shirts. Both countries must benefit for
trade to occur.
The real world is much more complex than this two-country, two-product mode. Trade involves many
different countries and products. And it is not always clear where a country's comparative advantage lies.

Country should specialize in the production of those goods in which it is relatively more productive,
even if it has absolute advantage in all goods it produces.

This extends free trade argument.

Efficiency of resource utilization leads to more productivity.

Free Trade refined
1.3.1. Factor-proportions (Heckscher-Ohlin, 1919)

Eli Heckscher and Bertil Ohlin developed the theory of relative factor endowments, now often
referred to as the Heckscher-Ohlin theory. The theory states that the pattern of international trade depends
on differences in factor endowments not on differences in productivity.

Relative endowments of the factors of production (land, labour, and capital) determine a country's
comparative advantage.

Countries have comparative advantage in those goods for which the required factors of production
are relatively abundant. This is because the prices of goods are ultimately determined by the prices of their

Goods that require inputs that are locally abundant will be cheaper to produce than those goods
that require inputs that are locally scarce.
For example, a country where capital and land are abundant but labour is scarce will have comparative
advantage in goods that require lots of capital and land, but little labour - grains, for example.
Since capital and land are abundant, their prices will be low. Those low prices will ensure that the price of
the grain that they are used to produce will also be low - and thus attractive for both local consumption and
Labor intensive goods on the other hand will be very expensive to produce since labor is scarce and its price
is high. Therefore, the country is better off importing those goods.

Factor endowments vary among countries

Products differ according to the types of factors that they need as inputs

A country has a comparative advantage in producing products that intensively use factors of
production (resources) it has in abundance

A given technology was universally available.

Relative factor endowments are different in each country

Tastes and preferences are identical in both countries

A given product was either labor- or capital-intensive

The theory ignored transportation costs.

1.3.2. Product Life Cycle (Ray Vernon, 1966)

As products mature, both location of sales and optimal production changes

Affects the direction and flow of imports and exports

Globalization and integration of the economy makes this theory less valid
Classic Theory Limitations:
All the classical theories are based on the following assumptions that no longer hold true

Simple world (two countries, two products)

No transportation costs

No price differences in resources

Resources immobile across countries

Constant returns to scale

Each country has a fixed stock of resources & no efficiency gains in resource use from trade

Full employment


Modern Trade Theory

In industries with high fixed costs:

Specialization increases output, and the ability to enhance economies of scale increases

Learning effects are high.

These are cost savings that come from learning by doing

New Trade Theory-Applications

Typically, requires industries with high, fixed costs

World demand will support few competitors
Competitors may emerge because of First-mover advantage

Economies of scale may preclude new entrants

Role of the government becomes significant

Some argue that it generates government intervention and strategic trade policy
Theory of National Competitive Advantage

The theory attempts to analyze the reasons for a nations success in a particular industry

Porter studied 100 industries in 10 nations

Postulated determinants of competitive advantage of a nation were based on four major

Factor endowments

Demand conditions

Related and supporting industries

Firm strategy, structure and rivalry

Factor endowments: A nations position in factors of production such as skilled labor or infrastructure
necessary to compete in a given industry

Basic factor endowments

Advanced factor endowments

Basic Factor Endowments

Basic factors: Factors present in a country

Natural resources
Geographic location

While basic factors can provide an initial advantage they must be supported by advanced
factors to maintain success
Advanced Factor Endowments

Advanced factors: The result of investment by people, companies, and government are more
likely to lead to competitive advantage

If a country has no basic factors, it must invest in advanced factors

Skilled labor

Porters Theory-Predictions

Porters theory should predict the pattern of international trade that we observe in the real world.

Countries should be exporting products from those industries where all four components of the
diamond are favorable, while importing in those areas where the components are not favorable
Other Theories:
The productivity theory by H. Myind

It is criticized that the comparative cost theories are not applicable to developing countries. Hence,
H. Myint proposed productivity theory and the vent for surplus theory.

The productivity theory points toward indirect and direct benefits. This theory emphasizes that the
process of specialization involves adapting and reshaping the production structure of a trading country to
meet the export demands.

Countries increase productivity in order to utilize the gains of exports. This theory encourages the
developing countries to go for cash crops, increase productivity by enhancing the efficiency of human
resources, adapting latest technology etc.

Labor productivity did not increase after certain level

Increase in working hours

Increase in proportion of gainfully employed labour in proportion to disguised unemployed labour


The vent for surplus theory

International trade absorbs the output of unemployed factors.

If the countries produce more than the domestic requirements, they have to export the surplus to
other countries. Otherwise, a part of the productive labour of the country must cease and the value of its
annual Produce diminishes.

In the absence of foreign trade, they would be surplus productive capacity in the country. This
surplus productive capacity is taken by another country and in turn gives the benefit under international
Appropriateness of this Theory for Developing Countries:

According to this theory, the factors of production of developing countries are fully utilized.

The unemployed labour of the developing countries is profitably employed when the vent for
surplus is exported.

Mills theory of reciprocal demand

Comparative cost advantage theories do not explain the ratios at which commodities are exchanged
for one another. J.S. Mill introduced the concept of reciprocal demand to explain the determinations of the
equilibrium terms of trade.

Reciprocal demand indicates a countrys demand for one commodity in terms of the other
commodity; it is prepared to give up in exchange. It determines the terms of trade and relative share of each
Quality of a product exported by country A = Quality of another product exported by country B

Existence of two countries

Trade in only two goods both the goods are produced under the law of constant returns

Absence of transportation Costs.

Existence of perfect competition

Existence of full employment

Q. 12. WTO aims at removing non tariff barriers and reducing tariff barriers. If so, critically evaluate achievements and
problem areas which WTO has to encounter in order to succeed in the above objective.
Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are noting the usual form of a tariff. Some common
examples of NTB's are anti-dumping measures and countervailing duties, which, although they are called "non-tariff barriers,
have the effect of tariffs once they are enacted. Their use has risen sharply after the WTO rules led to a very
significant reduction in tariff use. Some non-tariff trade barriers are expressly permitted in very limited circumstances, when
they are deemed necessary to protect health, safety, or sanitation, or to protect delectable natural resources. In other forms, they
are criticized as a means to evade free trade rules such as those of the World Trade Organization (WTO), the European Union
(EU), or North American Free Trade Agreement (NAFTA) that restrict the use of tariffs. Some of non-tariff barriers are
not directly related to foreign economic regulations, but nevertheless they have a significant impact on foreign-economic activity
and foreign trade between countries. Trade between countries is referred to trade in goods, services and factors
of production. Non-tariff barriers to trade include import quotas, special licenses, unreasonable standards for the quality of goods,
bureaucratic delays at customs, export restrictions, limiting the activities of state trading, export subsidies,
countervailing duties, technical barriers to trade, sanitary and phyto-sanitary measures, rules of origin, etc. Sometimes in this list
they include macroeconomic measures affecting trade.
Types of Non-Tariff Barriers
There are several different variants of division of non-tariff barriers. Some scholars divide between internal taxes,
administrative barriers, health and sanitary regulations and government procurement policies. Others divide non-tariff barriers
into more categories such as specific limitations on trade, customs and administrative entry procedures, standards, government
participation in trade, charges on import, and other categories. We choose traditional classification of non-tariff barriers, according
to which they are divided into 3 principal categories. The first category includes methods to directly import
restrictions for protection of certain sectors of national industries: licensing and allocation of import quotas, antidumping
and countervailing duties, import deposits, so-called voluntary export restraints, countervailing duties, the system of minimum
import prices, etc. Under second category follow methods that are not directly aimed at restricting foreign trade and more related
to the administrative bureaucracy, whose actions, however, restrict trade, for example: customs procedures, technical standards
and norms, sanitary and veterinary standards, requirements for labeling and packaging, bottling, etc. The third category consists of
methods that are not directly aimed at restricting the import or promoting the export, but the effects of which often lead to this
result. The non-tariff barriers can include wide variety of restrictions to trade. Here are some examples of the
popular NTBs.
The most common instruments of direct regulation of imports (and sometimes export) are licenses and quotas.
Almost all industrialized countries apply these non-tariff methods. The license system requires that a state (through specially
authorized office) issues permits for foreign trade transactions of import and export commodities included in the lists of licensed
merchandises. Product licensing can take many forms and procedures. The main types of licenses are general license that permits
unrestricted importation or exportation of goods included in the lists for certain period of time; and one-time license for a certain
product importer(exporter) to import (or export). One-time license indicates a quantity of goods, its cost, its country of origin (or
destination), and in some cases also customs point through which import (or export) of goods should be carried out. The use
of licensing systems as an instrument for foreign trade regulation is based on number of international level standards agreements.
In particular, these agreements include some provisions of the General Agreement on Tariffs and Trade and the Agreement on
Import Licensing Procedures, concluded under the GATT (GATT).
Licensing of foreign trade is closely related to quantitative restrictions quotas - on imports and exports of certain goods. A quota
is a limitation in value or in physical terms, imposed on import and export of certain goods for a certain period of time. This
category includes global quotas in respect to specific countries, seasonal quotas, and so-called "voluntary" export
restraints. Quantitative controls on foreign trade transactions carried out through one-time license. Quantitative restriction on
imports and exports is a direct administrative form of government regulation of foreign trade. Licenses and quotas limit the
independence of enterprises with a regard to entering foreign markets, narrowing the range of countries, which may be entered
into transaction for certain commodities, regulate the number and range of goods permitted for import and export. However, the
system of licensing and quota imports and exports, establishing firm control over foreign trade in certain goods, in many cases
turns out to be more flexible and effective than economic instruments of foreign trade regulation. This can be explained by the
fact, that licensing and quota systems are an important instrument of trade regulation of the vast majority of the world.
Agreement on a "voluntary" export restraint in the past decade, a widespread practice of concluding agreements on the

voluntary" export restrictions and the establishment of import minimum prices imposed by leading Western nations upon
weaker in economical or political sense exporters. The specifics of these types of restrictions is the establishment
of unconventional techniques when the trade barriers of importing country, are introduced at the border of the exporting and
not importing country. Thus, the agreement on "voluntary" export restraints is imposed on the exporter under the threat of
sanctions to limit the export of certain goods in the importing country. Similarly, the establishment of minimum import prices
should be strictly observed by the exporting firms in contracts with the importers of the country that has set such prices. In the
case of reduction of export prices below the minimum level, the importing country imposes anti-dumping duty which could lead
to withdrawal from the market. Voluntary" export agreements affect trade in textiles, footwear, dairy products, consumer
electronics, cars, machine tools, etc. Problems arise when the quotas are distributed between countries, because it is necessary to
ensure that products from one country are not diverted in violation of quotas set out in second country. Import quotas are not
necessarily designed to protect domestic producers. For example, Japan, maintains quotas on many agricultural products it does
not produce. Quotas on imports is a leverage when negotiating the sales of Japanese exports, as well as avoiding excessive
dependence on any other country in respect of necessary food, supplies of which may decrease in case of bad weather or political
conditions. Export quotas can be set in order to provide domestic consumers with sufficient stocks of goods at low prices, to
prevent the depletion of natural resources, as well as to increase export prices by restricting supply to foreign markets. Such
restrictions (through agreements on various types of goods) allow producing countries to use quotas for such commodities as
coffee and oil; as the result, prices for these products increased in importing countries.
Embargo is a specific type of quotas prohibiting the trade. As well as quotas, embargoes may be imposed on imports or exports of
particular goods, regardless of destination, in respect of certain goods supplied to specific countries, or in respect of all goods
shipped to certain countries. Although the embargo is usually introduced for political purposes, the consequences, in essence,
could be economic.
Standards take a special place among non-tariff barriers. Countries usually impose standards on classification, labeling and testing
of products in order to be able to sell domestic products, but also to block sales of products of foreign manufacture. These
standards are sometimes entered under the pretext of protecting the safety and health of local populations.
Administrative and bureaucratic delays at the entrance among the methods of non-tariff regulation should be mentioned
administrative and bureaucratic delays at the entrance which increase uncertainty and the cost of maintaining inventory.
Import deposits
Another example of foreign trade regulations is import deposits. Import deposits is form of deposit, which the importer must pay
the bank for a definite period of time(non-interest bearing deposit) in an amount equal to all or part of the cost of imported goods.
At the national level, administrative regulation of capital movements is carried out mainly within a framework of bilateral
agreements, which include a clear definition of the legal regime, the procedure for the admission of investments and investors. It
is determined by mode (fair and equitable, national, most-favored-nation), order of nationalization and compensation, transfer
profits and capital repatriation and dispute resolution.
Foreign exchange restrictions and foreign exchange controls
Foreign exchange restrictions and foreign exchange controls occupy a special place among the non-tariff regulatory instruments
of foreign economic activity. Foreign exchange restrictions constitute the regulation of transactions of residents and nonresidents
with currency and other currency values. Also an important part of the mechanism of control of foreign economic activity is the
establishment of the national currency against foreign currencies.
The transition from tariffs to non-tariff barriers
One of the reasons why industrialized countries have moved from tariffs to NTBs is the fact that developed countries have sources
of income other than tariffs. Historically, in the formation of nation-states, governments had to get funding. They received it
through the introduction of tariffs. This explains the fact that most developing countries still rely on tariffs as a way to finance their
spending. Developed countries can afford not to depend on tariffs, at the same time developing NTBs as a possible way of
international trade regulation. The second reason for the transition to NTBs is that these tariffs can be used to support weak
industries or compensation of industries, which have been affected negatively by the reduction of tariffs. The third reason for the
popularity of NTBs is the ability of interest groups to influence the process in the absence of opportunities to obtain government
support for the tariffs.
Non-tariff barriers today
With the exception of export subsidies and quotas, NTBs are most similar to the tariffs. Tariffs for goods production were reduced
during the eight rounds of negotiations in the WTO and the General Agreement on Tariffs and Trade (GATT).After lowering of
tariffs, the principle of protectionism demanded the introduction of new NTBs such as technical barriers to trade (TBT). According

to statements made at United Nations Conference on Trade and Development (UNCTAD, 2005), the use of NTBs, based on the
amount and control of price levels has decreased significantly from 45% in 1994 to 15% in 2004, while use of other NTBs increased
from 55% in1994 to 85% in 2004.Increasing consumer demand for safe and environment friendly products also have had their
impact on increasing popularity of TBT. Many NTBs are governed by WTO agreements, which originated in the Uruguay Round
(the TBT Agreement, SPS Measures Agreement, the Agreement on Textiles and Clothing), as well as GATT articles. NTBs in the
field of services have become as important as in the field of usual trade. Most of the NTB can be defined as protectionist
measures, unless they are related to difficulties in the market, such as externalities and information asymmetries information
asymmetries between consumers and producers of goods. An example of this is safety standards and labeling requirements. The
need to protect sensitive to import industries, as well as a wide range of trade restrictions, available to the
governments of industrialized countries, forcing them to resort to use the NTB, and putting serious obstacles to international trade
and world economic growth. Thus, NTBs can be referred as a new of protection which has replaced tariffs as an old form of
Q. 13
I. The Positive impact of WTO on India's economy can be viewed from the following points:1)
Increase In Export Earnings :Estimates made by World Bank, Organisation for Economic Co-operation and Development (OECD) and the
GATT Secretariat, shows that the income effects of the implementation of Uruguay Round package will be
an increase in traded merchandise goods. It is expected that Indias share in world exports would improve.
Agricultural Exports :Reduction of trade barriers and domestic subsidies in agriculture is likely to raise international prices of
agricultural products. India hopes to benefit from this in form of higher export earnings from agriculture.
This seems to be possible because all major agriculture development programmes in India will be exempted
from the provisions of WTO Agreement.
Export Of Textiles And Clothing :With the phasing out of MFA (Multi - Fibre Arrangement), exports of textiles and clothing will increase and
this will be beneficial for India. The developed countries demanded a 15 year period of phasing out of MFA,
the developing countries, including India, insisted that it be done in 10 years. The Uruguay Round accepted
the demand of the latter. But the phasing out Schedule favours the developed countries because a major
portion of quota regime is going to be removed only in the tenth year, i.e. 2005. The removal of quotas will
benefit not only India but also every other country'.
Multilateral Rules And Disciplines :The Uruguay Round Agreement has strengthened Multilateral rules and disciplines. The most important of
these relate to anti - dumping, subsidies and countervailing measures, safeguards and disputes settlement.
This is likely to ensure greater security and predictability of the international trading system and thus create
a more favourable environment for India in the New World Economic Order.
Growth To Services Exports :Under GATS agreement, member nations have liberalised service sector. India would benefit from this
agreement. For Eg:- Indias services exports have increased from about 5 billion US $ in 1995 to 96 billion US
$ in 2009-10. Software services accounted for about 45% of service exports.
Foreign Investment :India has withdrawn a number of measures against foreign investment, as the commitments made to WTO.
As a result of this, foreign investment and FDI has increased over the years. A number of initiatives has been
taken to attract FDI in India between 2000 and 2002. In 2009-10, the net FDI in India was US $ 18.8 billion.
Negative Impact / Problems I Disadvantages Of WTO Agreements on Indian Economy :1)
TRIPs :The Agreement on TRIPs at Uruguay Round weights heavily in favour of Multinational Corporations and
developed countries as they hold a very large number of patents. Agreement on TRIPs will work against
India in several ways and will lead to rponopoly of patent holding MNCs. As a member of WTO, India has to
comply with standards of TRIPs.
The negative impact of agreement on TRIPs on Indian economy can be stated as follows
Pharmaceutical Sector :-

Under the Patents Act, 1970, only process patents were granted to chemicals, drugs and medicines. This
means an Indian pharmaceutical company only needed to develop and patent a process to produce and sell
that drug. This proved beneficial to Indian pharmaceutical companies as they were in a position to sell
quality medicines at low prices both in domestic as well as in international markets. However, under the
agreement on TRIPs, product patents needs to be granted. This will benefit the MNCs and it is feared that
they will increase the prices of medicines heavily, keeping them out of reach of poor. Again many Indian
pharmaceutical companies may be closed down or taken over by large MNCs.
b) Agriculture :The Agreement on TRIPs extends to agriculture through the patenting of plant varieties. This may have
serious implications for Indian agriculture. Patenting of plant varieties may transfer all gains in the hands of
MNCs who will be in a position to develop almost all new varieties with the help of their huge financial
resources and expertise.
c) Micro organisms :The Agreement on TRIPs also extends to Microorganisms as well. Research in micro - organisms is closely
linked with the development of agriculture, pharmaceuticals and industrial biotechnology. Patenting of
micro - organisms will again benefit large MNCs as they already have patents in several areas and will
acquire more at a much faster rate.
2) TRIMs :Agreement on TRIMs provide for treatment of foreign investment on par with domestic investment. This
Agreement too weights in favour of developed countries. There are no provisions in Agreement to formulate
international rules for controlling restrictive business practices of foreign investors. Jn case of developing
countries like India, complying with Agreement on TRIMs would mean giving up any plan or strategy of self reliant growth based on locally available technology and resources.
3) GATS :One of the main features of Uruguay Round was the inclusion of trade in services in negotiations. This too
will go in favour of developed countries. Under GATS agreements, the member nations have to openup
services sector for foreign companies. The developing countries including India have opened up services
sector in respect of banking, insurance, communication, telecom, transport etc. to foreign firms. The
domestic firms of developing countries may find it difficult to compete with giant foreign firms due to lack of
resources & professional skills.
4) Non - Tariff Barriers :Several countries have put up trade barriers and non - tariff barriers following the formation of WTO. This
has affected the exports from developing countries. The Union Commerce Ministry has identified 13
different non - tariff barriers put up by 16 countries against India. For eg. MFA (Multi - fibre arrangements)
put by USA and European Union is a major barrier for Indian textile exports.
5) Agreement On Agriculture (AOA):
The AOA is biased in favour of developed countries. The issue of food security to developing countries is not
addressed adequately in AOA. The existence of global surpluses of food grains does not imply that the poor
countries can afford to buy. The dependence on necessary item like foodgrains would adversely affect the
Balance of Payment position.
6) Inequality Within The Structure Of WTO:
There is inequality within the structure of WTO because the agreements and amendments are in favour of
developed countries. The member countries have to accept all WTO agreements irrespective of their level of
economic development.
7) LDC Exports:
The 6th Ministerial Conference took place at Hong Kong in December 2005. In this Conference, it was agreed
that all developed country members and all developing countries declaring themselves in a position to do
so, will provide duty - free and quota - free market access on a lasting basis to all products originating from
all Least Developed Countries (LDC). India has agreed to this. Now India's export will have to compete with
cheap LDC exports internationally. Not only this, the cheap LDC exports will come to Indian market and
compete with domestically produced goods.

India will face several problems in the process of complying with WTO agreements, but it can also reap
benefits by taking advantage of changing international business environment. For this it needs to develop
and concentrate on its areas of core competencies.
Globalization refers to growth of trade and investment, accompanied by the growth in organiosation or
international businesses, and the integration of economies around the world,the globalization for
organisation concept is based on simple premises:

Technological developments have increased the ease and speed of international communication and

People are more aware of events outside of their home country, and are more likely to travel to
other countries.
the number of businesses operating across national borders.
Globally continuous and comprehensive management technique designed in any organization, help
companies operate and compete effectively across national boundaries. The methods companies use to
accomplish the goals of these strategies take a host of forms.
For example, some companies form partnerships with companies in other countries, others acquire
companies in other countries, others still develop products, services, and marketing campaigns designed to
Domestic and International organization strategyFactors
Domestic Conditions
Global Conditions
Different currencies and exchange rates
Stable and uniform
May be variable and unpredictable
Government Stable
May be unstable
Skilled workers available
Skilled workers may be hard to find
Generally a single language Different languages and dialects
May be fewer media and more
Marketing Many media, few restrictions
Transport Several competitive modes May be inadequate

The Five Stages of Going Global with practical illustration

In the first stage (market entry), companies tend to enter new countries using business models that
are very similar to the ones they deploy in their home markets. To gain access to local customers, however,
they often need to establish a production presence, either because of the nature of their businesses (as in
service industries like food retail or banking) or because of local countries regulatory restrictions (as in the
auto industry).
In the second stage (product specialization), companies transfer the full production process of a particular
product to a single, low-cost location and export the goods to various consumer markets. Under this
scenario, different locations begin to specialize in different products or components and trade in finished
The third stage (value chain disaggregation) represents the next step in the companys globalization of the
supply-chain infrastructure. In this stage, companies start to disaggregate the production process and focus
each activity in the most advantageous location. Individual components of a single product might be
manufactured in several different locations and assembled into final products elsewhere. Examples include
the PC industry market and the decision by companies to offshore some of their business processes and
information technology services.

In the fourth stage (value chain reengineering) companies seek to further increase their cost savings by
reengineering their processes to suit local market conditions, notably by substituting lower-cost labor for
capital. General Electrics (GE) medical equipment division, for example, has tailored its manufacturing
processes abroad to take advantage of low labor costs. Not only does it use more labor-intensive production
processesit also designs and builds the capital equipment for its plants locally.
Finally, in the fifth stage (the creation of new markets), the focus is on market expansion. The McKinsey
Global Institute estimates that the third and fourth stages together have the potential to reduce costs by
more than 50% in many industries, which gives companies the opportunity to substantially lower their
sticker prices in both old and new markets and to expand demand. Significantly, the value of new revenues
generated in this last stage is often greater than the value of cost savings in the other stages.
Economic environment also impact directly the ability of government to operate collaboration projects at
any given time. They are:
employment and unemployment rates
GDP, growth rate and inflation rate
debt ratio and capital structure (debt and equity)
level of modernisation and technical expertise, rate of penetration of ITCs and the national communication
Cultural environment is closely linked to the three above-mentioned factors and would be difficult to
present independently. A few aspects to take into consideration are distance between the citizen and the
government, real or perceived.
social orientation - individualist versus collectivist
roles of men and women within society
Risk aversion in terms of social conservatism or liberalism
Pace of life which provides an idea of the value given to time
religious beliefs and practices.
Social environment also includes some special features that will affect project selection and execution, as
well as their relative success. They include, for example, the following factors:
number of official languages and their distribution
national average level of education
population distribution in terms of age and territory
social values: democracy, family, individual freedom, entrepreneurship and private enterprise,etc
political environment of a given country impacts the environment (favourable or not) surrounding such
collaborations just as it affects the institutional framework, its workings, and the programs set up to support
or restrict such initiatives. The main aspects to take into consideration are as follows:

history- more specifically certain milestone events such as wars, ideology, alliances, nationalism,
implemented reforms, etc.

government in power -its stability, adequacy of representation, legitimacy, dominant ideology, and
its degreeof centralisation or of decentralisation

government policies-in social, economic, budgetary, technological and informational fields.

Technological environment plays a major role given the fact that projects included in the study use
information and communications technologies (ITCs) as agents of change. The technological factors that
should be considered are the following:
nature of the technology, level of innovation, complexity, user-friendliness and reliability, maturity,
strategic importance in terms of novelty and distance
current level of ICT use in terms of availability and frequency of use

existing technological infrastructure in government and industry as well as standards, compatibility,

accessibility, etc.
system security, integrity, confidentiality, authentication and personal information.
Lessons for Indian companies going globalEmerging markets-There are at least two good reasons for Indian companies to look beyond the borders.
Firstly, we live and compete in a globalised world with highly integrated value chain processes that cross
many borders. Therefore, any company Indian or otherwise needs to be global to be competitive.
The second reason arises from aspiration. Most companies look for scale and size. With the Indian market
just being 2.5 per cent of the global GDP, scale and size can only happen if a company looks beyond the
countrys borders.
Human capital challenges-Despite an abundance of human resources and a demographic advantage, the
absence of adequate managerial and leadership talent is a major challenge to Indian There
was some initial hostility when Indian companies entered into an acquisition or joint venture. For instance,
the employees of Brunner Mond (of the UK) and Magadi Soda (part of Brunner Mond and located in Kenya)
did not initially want their names and identity changed after the acquisition by the Tata Group.
Corporate culture-Indian companies instill a common corporate culture as a part of their globalisation
efforts. They are oriented to respecting other cultures, as opposed to instilling a common Indian culture, and
tend to celebrate multiple cultures. One Indian leader told me that when he went to Russia, hed drink
vodka, and enjoy pelmeni, Russian-style dumplings. Indian leaders tend to be very comfortable with
diversity, as India itself is highly diverse.
Strong Vision and Credentials The exposure to big projects in India in comparison to global scale is limited.
Only few companies like L&T, GMR, PunjLLoyd, etc. have been able to complete global scale projects, still
there is a long way to go. Companies need to put forward a strong vision for future and plan for their global
footprint by leveraging their Indian experience.
There are many external challenges beyond control of Indian companies. These challenges are discussed
as below:
Liquidity Shortage: A shortage of liquidity leads to an underutilization of capacity and thereby
significantly lower volumes.Further, shortage of liquidity hits companies expansion plans, options to put
new technologies for cost reduction and quality improvement.
Regulatory Matters :Legislations pertaining to anti-outsourcing, restrictions on immigrations are
gaining momentum in certain countries. Tightening visa process, increasing rejections for visa and work
permit applications, increasing minimum wage requirement may hamper growth prospect in major markets.
Integrating merger & acquisition Integrating acquisitions and managing operations in diverse
international locations is very critical as post-acquisition challenges include cultural, financial and technology
integration risks. These challenges if not addressed adequately could result in failure to achieve the strategic
Slow Global Economic growth- Due to significant slowdown in established markets of Europe and
USA, companies are aggressively pushing for market share, significantly impacting margins.
Exchange impact- Fluctuating exchange value Un-hedged trade and financial exposure creates
potential to adversely impact companys projects and overall profitability. Further, volatility and uncertainty
in forex rates creates complexity and challenges the margins.

logistics is the management process of 'planning, implementing, and controlling the physical and
information flows concerned with materials and final goods from the point of origin to the point of usage.'.
logistics is basically the management of stuff, and information regarding the stuff, from one place to another
until it reaches the consumer.
The logistical management of physical items may include integration of information (such as inventory
databases and shipping schedules), material handling, production, packaging, inventory, transportation,
distribution, storage, and security for the resources.
Business logistics
In business, logistics may have either internal focus, or external focus covering the flow from originating
supplier to end-user (see supply chain management). The main functions of a logistics manager include
purchasing, transport, warehousing, and the organizing and planning of these activities.
There are two fundamentally different forms of logistics. One optimizes a steady flow of material through a
network of transport links and storage nodes. The other coordinates a sequence of resources to carry out
some project.
Military logistics
In military logistics, experts manage how and when to move resources to the places they are
needed. In military science, maintaining one's supply lines while disrupting those of the enemy is a
crucialsome would say the most crucialelement of military strategy, since an armed force without
food, fuel and ammunition is defenseless.
The Iraq war was a dramatic example of the importance of logistics. It had become very necessary for the
US and its allies to move huge amounts of men, materials and equipment over great distances. Logistics
was successfully used for this effective movement.
International Business Logistics Channels
If you look closely at the above example, you can discern three different types of processes involved in
international logistics that we will call logistics channels:
The transaction channel involves buying, selling, and the collection of payment.
The distribution channel involves the physical movement of resources and products throughout the
supply chain process, from acquisition to sale.
The documentation/communication channel involves the management of information regarding
the resources and products such as inventory controls, commercial shipping documents, and contracts.