External Audit Opportunities and Threat

Economic Environment
General Concepts

Session 4

Economic Environment (2010/11):

Economic Growth World 4-5%, Developing Asia 8-9%, Nepal 3.5% (Agriculture the main contributor ~38%) Consumption expenditure to GDP to 93.3% and Savings to GDP 6.7%. Investment to GDP 30.2%. Net Export -23.6%. Inflation 9.6% Revenue increase 14.7%, State expenditure 17.9% and loan payment 7.6%, State expense to GDP 23% Deposit growth commercial banks 9.1% (12.7%) M1 6.3% (11%) and M2 9.2% (14.1%) Trade deficit 4.4% (46.5%). FX reserves 263 bio. Remittance to GDP 19%

Political Environment
General Concepts

Session 4

Some Cases (Political Environment): India regularly impose additional duties on their imports and that also includes Nepal despite there is a bilateral treaty between these countries allowing free exports BIPPA and its impact on Indian Investments. USA time and again raises Human Rights Issue while negotiating trade agreement with China Why?

Session 4

Political Ideologies:
A body of complex ideas , theories and aims that constitute a socio-political program.

Pluralism Co-existence of different ideologies The ultimate test of any political system is its ability to hold a society together despite pressures from different ideologies. Example: USSR, Yogoslavia etc, America (Two party), India (Language), South Africa (Ethnic Groups), Former Yugoslavia (Religion)

Challenge for Manager Managers from countries like US may find difficult to understand the political environment in a country where there are many different ideologies.

Session 4

Reactionary

Authoritarian

Conservative

Democracy
Liberal

Totalitarian

Democratic Government

Non Democratic Government

Fascist

Radical

Communist

Session 4

Some Points
Trend Towards Democracy Is Increasing Many Democracies And Fragile And Unstable 1981 Free Partly Free Not Free 35.9% 21.6% 42.5% 1990 38.9% 21.8% 39.3% 1998 21.7% 39.1% 39.2% 2002 41.4% 23.2% 35.4%

Adrian Karatnycky, Freedom in the World 2001-2002:The Democracy Gap

Session 4

Causes Political Risks

Political Risk is when a company fears that a political climate in a country will change in such a way that their operating position will deteriorate. Changing opinions of political leadership Civil disorder

External relations
Micro (targeted to a particular company) and macro (targeted to the industry/economy as a whole) political risks Government interventions- individualistic (minimal intervention) and communitarian (maximum intervention)

Session 4

Formulating and implementing political strategies

Identify the specific issue - trade barriers, environmental standards, workers right etc Define political aspect of the issue is there a political dimension? Assess potential action of other companies and special interest groups who are the parties that can generate pressure? Identify important institutions and key individuals legislature, regulatory agencies, courts, personalities etc. Formulate strategies objectives and alternatives Determine the impact of implementation what impact does it bring if the decision is unpopular? Select appropriate strategies

Session 4

Sala-i-Martin: Democracy in developing countries is a wash. That doesnt mean democracy is not desirable. It just doesnt help economic growth. As country grow richer, though, many like Chile, Spain and Greece adopt democracy. Democracy seems to be what economists would call a luxury goods. Demand for it increases as income rise.

Legal Environment
General Concepts

Session 4

Legal Systems
Common Law Based on Tradition, Precedent, Custom and Usage (USA, UK, Nepal) Civil Law Detailed Set of Codified Laws Japan, Germany, France

Theocratic Law Religious Percepts Muslim Countries

Consumer Safeguards Legal Profession

Nepalese Context
Political and Legal Environment

Session 4

Political Struggle
Struggle between various political set-ups of the country The major political forces are yet to form a consensus with regard to the basic political structure of the country ideological differences and pluralism. Confusion has always remained regarding the sharing / allocation of constitutional powers. The volatile political environment has been leading to various kinds of disruptions throughout the country e.g. strikes, security checks, blockages, and extortions. The struggle is having impacts on wide spectrum of other environments i.e. economical, socio-cultural, environmental, legal etc.

Session 4

Politics and Business

Lack of focus in handling economic and trade issues. High level of insecurity - cases of attacks and financial damages The political turbulence is also hindering the economic growth Conflicts in rural areas of the country have been driving people away for foreign employment purpose. Conflict is also leading to a situation of change in demography. Urban population is having faster growth.

Session 4

Legal Framework
General Business Legislations Private Firm Registration Act,1958 Partnership Act, 1964 Company Ordinance, 2005 Cooperatives Act, 1960 Industrial Enterprise Act, 1992 Contract Act, 2000 Arbitration Act, 1999 Good Governance Act, 2005

Session 4

Legal Framework
Labour Legislations Bonus Act, 1974 Industrial Training Act, 1982 Labour Act, 1992 Foreign Employment Act, 1992 Trade Union Act, 1993 Child Labour Act, 2000 Labour Court Regulation Act, 1995

Session 4

Legal Framework
Finance and Investment Legislations Foreign Investment and Technology Transfer Act, 1992 Foreign Exchange Regulation Act, 1961 Income Tax Ordinance, 2005 Export- Import (Control) Act, 1956 Securities Exchange Act, 1983 Nepal Accounting Standard

Session 4

Legal Framework
Social and Consumer Protection Legislations Patent Design and Trademark Act, 1965 Copyright Act, 2002 Food Act, 1966 Nepal Standardization Act, 1980 Consumer Protection Act, 1999 Environment Protection Act, 1996

Session 4

Legal Environment and Business

Market Oriented Legal Provisions Slow And Costly Process Ambiguous And Inconsistent Legal Provisions No Timely Updates Lack Of Implementation Is Some Cases

Session 4

Natural Environment

Session 4

Discussions on Cases Godavari Marble Himal Cement Narmada Project in India

Session 4

Legal Framework

Voluntary Efforts

Laws Penalties and Incentives

Environment Protection

Greening Cleaning Clean Mfg.

Environment Consciousness

Education Trainings

Session 4

Legal Framework Environment Protection Act 1997

Environment means the interaction and interrelationship among the components of natural, cultural, social systems, economic and human activities and their components.

Causes of Environmental Degradation Natural: Calamities

Human Act: Pollution, Erosion, Deforestation etc.

Session 4

Environment Impact Assessment (EIA) and Initial Environment Assessment (IEA)

Comprehensive and detailed study of the project Alternatives Likely interaction project and environment Mitigation to prevent or prevent possible adverse effect Monitoring program

Session 4

Pollution Prevention & Control

Causes adverse impact on the environment Likely to be hazardous to public life Disposes sound, heat, radioactive rays, wastes from mechanical or chemical device etc.

Session 4

Protection of National Heritage

Inventory Environment Protection Areas

Incentives, Compensation, Punishment

Suffers may lodge claims

Punishment up to Rs. 100,000

Voluntary Efforts
Social responsibility

Business Opportunities

Session 4

Legal Framework - Pollution Prevention & Control

Example of Vehicle Emission Standard in Nepal

Session 4

Environment Consciousness Role of NGO, INGO

Publicity and Participation

Example of Community Forest

Session 4 Industries That Requires Certificate Of Pollution Control

Liquor, Brewery Winery Primary Chemicals Hide Processing Natural Gas Boulder

Paints
Milk Processing Bricks, Cement Plastic Processing Cold Storage Vegetable Ghee etc

Session 4

Discussion

Do you think that the German buyers stand on not buying Nepalese carpets due to the use of environment unfriendly chemicals is correct?

Do you ever consider such thing if you get to buy the same carpet at a cheap price?

Session 4

Issues with Environment Protection

Level of Consciousness
Weak Administration Level of Corruption Level of Voluntary Effort Social Responsibility

Session 4

Technological Environment

Session 4

General Issues

Level Paint Industry, Colgate Palmolive Nepal

Pace Adaptation Technology Transfers Foreign Investments R & D Capital and Need

Session 4
Needs of the environment Flexibility Stability
Clear vision of the organizations purpose & achievement of goals

External

Strategic focus

Strategic focus is on the external environment through flexibility & change to meet customer needs

Adaptability Culture Clan Culture

Focuses on the involvement & participation of members while noting the changing expectation from external environment

Mission Culture Bureaucratic Culture

Supports a methodical approach to doing business & tends to be seen as rigid

Internal

Session 4

People

Tools & Equipment

Contributors to Technology

Information& Knowledge

Organisation & System

Session 4

Example
Automation Project Of Land Registration And Revenue Office

What Could have been the Causes?

Session 4

Socio-Cultural Environment of Nepal

Session 4

General Concepts

Session 4

:Examples:
Barbie Doll in Asia McDonalds Outlet in India

Bakery Cafs Set-up

Session 4

Identification And Dynamics Of Culture

Nation as a point of reference Cultural formations & dynamics cultural value may change through choice or imposition and contact with other cultures Language commonality a unifying force Religion cultural stabilizer

Session 4

Behavioral Practice

Relationship Preference

Motivation

Business

Inf. Taking & Processing

Risk Taking

Session 4

Behavioral Practices Affecting Business

Social stratification
Class & status (gender, family, age, caste etc) Ascribed or acquired ( profession, religion, profession)

Performance orientation USA and Japan Gender based groups only male or female Age-based groups entry/exit level age in jobs Family-based groups social status linked to family achievements Occupation
Perceived ranking of doctors, engineers, teacher

Session 4

Risk Taking Behaviour

Uncertainty avoidance rules, policies Trust Future orientation Fatalism believing in basic cause and effect relation

Information and Task Processing

Obtaining information
Low context (first hand and direct) and high context (peripheral and indirect)

Processing information
Monochronic and polychronic (sequence of processing one at a time or many at a time)

Session 4

Motivation
Materialism (work to satisfy material needs) and leisure

Assertiveness
Need hierarchy

Session 4

Hierarchy of Needs - Maslow

SelfActualization

Growth, Development etc.

Esteem

Self-respect, Autonomy etc Belongingness, Friendship etc

Affiliation

Safety

Security - physical & emotional harm

Psychological

Thirst, Shelter, Hunger etc

Session 4

Relationship Preference
Power distance

Individualism vs. Collectivism

Risk taking behaviour

Session 4

Management Orientation
Polycentrism free to adopt

Ethnocentrism believe in own culture

Geocentrism hybrid

Session 4

Strategies For Change

Value system

Cost and benefit of change

Resistance Participation Reward sharing Timing

Session 4

How do you rate these criteria for promotions?

1. Experience

2.
3. 4. 5. 6.

Performance
Trainings Expertise Ability Age

7.

Vacancy

Session 4

1. 2. 3.

Number of people who worked for government offices did not prefer office timing of 9 to 5 There are growing number of fast food cafes and discotheques in Kathmandu Concept and women education is fast changing

4.

Sense of timing and punctuality

Session 4

Social Responsibility of Business

Session 4

What are the objectives of business?

Session 4

Can business be aloof from the society?

Session 4

Wal-Mart asked to disclose information on pay

A News item from Business Respect, Issue Number 82, dated 13 May 2005

51 members of the US Congress have signed a letter calling on WalMart to address gender discrimination and to disclose its wage data for Congressional review.
The letter to CEO Lee Scott follows a high profile campaign labeled 'Love Mom Not Wal-Mart' to coincide with mothers day and calls for the disclosure so that Congress can "understand why Wal-Mart pays its women associates less than men". Over 20,000 people signed a pledge to boycott Wal-Mart's Mothers Day products until the company addresses the issues of gender discrimination.

Session 4

All business decisions and actions have social implications. Business organisations therefore, must act responsibly toward society.
G.R. Agrawal

Social responsibility is a firms obligation, beyond that required by the law and economics, to pursue long-term goals that are good for society.
Robbins and DeCenzo

Social Responsibility is relating corporate operations and policies to the social environment in ways that are beneficial to company and society
Koontz and Weihrich

Session 4

Why do we need CSR

Public Expectation Handle Social Problems Image Building Conducive Business Environment Social Support Power Balance Negate Irresponsible Behaviour Resource Strength Business have pool of resource Less need for regulations Ethical Obligations

Session 4

Argument Against CSR

Goal Dilution Social Costs Passed On To Customer Poor Capability Power Misuse Poor Accountability

Session 4

Communist Approach

Classical Approach

Social Responsibility

Proactive Approach

Reactive Approach

Session 4

Communist Approach
Karl Marx Business can never act in a socially responsible way Use of Legislation and Force

Classical Approach (Capitalist Approach)

Adam Smith and Milton Friedman Focus on Business and Social Responsibility is of the Government

Session 4

Reactive Approach (Socio-Economic Approach)

Roert Ackerman, Archie Caroll and Keith Davis
Ackerman Approach (Phased Approach)

I
Problem Acknowledgement

II
Analysis & Policy Formulation

III
Policy Implementation

Session 4

Carolls Approach (Phased Approach)

Economic Responsibility

Legal Responsibility

Ethical Responsibility

Discretionary Responsibility

Session 4

Proactive Approach (Emerging Approach)

Two Levels - Proactive Level and Creative Level

Session 4

Strategies For Social Responsibility

Social Obligation Operate Within The Law Social Reaction Social Pressure To Resolve Problem Social Response Voluntary Ethics And Philanthropy Social Contribution Responsible Corporate Citizen Social Accountability To Stakeholders

Session 4

Corporate Accountability To Stakeholders

Owners
Maximize Wealth, Disclosure, Participation In Management

Customers
Quality, Safety, Honest Promotion, Consumer Interest

Employees
Equity, Environment, Labour Relations, Welfare

Government
Legal Compliance, Political Impartiality

Community
Employment, Environment

Session 4

State Regulations
Promotion Oriented Incentive, Subsidies, Special Packages Control Oriented Licensing, monetary and fiscal policies, labour relations, child labour etc.

Session 4

Government and Business

Business With Government

Government With Business

Taxes Contract execution Advices Information

Promoter Regulator Care-taker Customer

Session 4

Consumerism
Organized movement of citizens and government to strengthen the rights and powers of buyers in relation to sellers
Philip Kotler

A social force within the environment designed to aid and protect the consumers by exerting legal, moral and economic pressures on business
Cravens and Hill

Session 4

Scope Of Consumerism
Inferior And Unsafe Products Unfair Business Practices Misleading Advertisements Poor Organisational Performance

Benefits
Protection Of Consumer Rights Consumer Support Responsiveness

Session 4

Business Response
Better Communications Better Information Careful Advertising Ethical Marketing

In Nepal
Consumer Protection Act 1999

Social Responsibility of Business

Class Discussion
Do you think that government regulations is the best way to make the corporates socially responsible in Nepal?

THANK YOU