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Question
BUSINESS Environment
1. Discuss how the environment acts does as a stimulant to business. Analyse why business often does little for the preservation of physical environment despite the fact that it is significant for business activity. (10 Marks) 2. Explain the relevance of ecological issues to business environment (10 Marks) 3. What do you understand by Business Social Responsibility ( B S R ). How this can be used to improve the Business Environment. (10 Marks) 4. Explain how the business in an organization can be regulated with regard to the Organization’s Basic Objectives. (10 Marks) 5. Describe in detail the different role played by the Government towards enriching the business Environment. (10 Marks) AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
6. In the Business Environment context, explain how the Political and legal Environment of business plays a vital role. Justify by bringing in suitable examples. (10 Marks) 7. Evaluate the advantages and disadvantages of FDI. What is your opinion on the role of FDI in the Retail Sector? Justify your views with India’s experience in this sector. (20 Marks
Answer
1. Discuss how the environment acts does as a stimulant to business. Analyse why business often does little for the preservation of physical environment despite the fact that it is significant for business activity. (10 Marks) A good environment is a constitutional right of the Indian Citizens. Environmental Protection has been given the constitutional status. Directive Principles of State Policy states that, it is the duty of the state to ‘protect and improve the environment and to safeguard the forests and wildlife of the country’. It imposes Fundamental duty on every citizen ‘to protect and improve the natural environment including forests, lakes, rivers and wildlife’. In India, the Ministry of Environment and Forests (MoEF) is the apex administrative body for :- (i) regulating and ensuring environmental protection; (ii) formulating the environmental policy framework in the country; (iii) undertaking conservation & survey of flora, fauna, forests and wildlife; and (iv) planning, promotion, co-ordination and overseeing the implementation of environmental andforestry programmes. The Ministry is also the Nodal agency in the country for the United Nations Environment Programme (UNEP). The organizational structure of the Ministry covers number of Divisions, Directorate, Board, Subordinate Offices, Autonomous Institutions, and Public Sector Undertakings to assist it in achieving all these objectives. Besides, the responsibility for prevention and control of industrial pollution is primarily executed by the Central Pollution Control Board (CPCB) at the Central Level, which is a statutory authority, attached to the MoEF. The State Departments of Environment and State Pollution Control Boards are the designated agencies to perform this function at the State Level. Because of their impact on the environment, businesses have an obligation to try to mitigate the effects of their activities in an effort to protect the land and water resources. Many businesses act voluntarily to reduce their environmental impact. Industries that use or produce hazardous waste are mandated by law to regulate their businesses. In any case, reducing their environmental impact is a sensible approach to business that can have many benefits. Regulation
 1. The primary federal laws which regulate businesses and individuals are the Clean Water Act of 1972 and the Clean Air Act of 1970. The former sets limits on the amount of discharge that businesses may release into waterways to maintain the chemical and physical integrity of these resources. Likewise, the Clean Air Act addresses the role of business in protecting the environment through regulation of emissions. Recycling
 2. Businesses typically use a great deal of resources in order to carry out their work, from office supplies to energy use to waste production. Some waste seems innocuous. The average business worker, for example, will use approximately500 disposable cups each year. Businesses generate tons of paper waste, generating nearly 400 billion copies each year, according to the Clean Air Council. It behooves businesses, not just from an environmental perspective but an economic one, to recycle when possible and protect the environment. In some states, such as California, recycling is mandatory. Environmental Management System
 3. An Environmental Management System (EMS) is a document developed bybusinesses in order to assess their environmental impact and improve the efficiency of their organization. While not mandatory, the U.S. Environmental Protection Agency (EPA) encourages businesses to evaluate their practices. Developing an EMS is a good business strategy because it reduces environmental costs from fines and other legal actions in the event of environmental contamination. Benefits
 4. First and foremost, businesses benefit by protecting the environment through cost savings. An efficiently run business that generates minimal waste saves money. Second, a business that is conscious of its role in the environment creates environmental awareness in its employees, providing additional benefits. Finally, businesses which follow green practices portray a good message to consumers who may be more likely to support a business that considers its role in the environment.
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2. Explain the relevance of ecological issues to business environment (10 Marks) Businesses found that care for environment can be good for their bottom lines. •Caring for the environment enhanced their reputation and brand image •More sales and greater customer loyalty
•Easier access to capital as even lending banks began to consider environmental issues •Attracting talented employees who can choose their employers Naturally, the impact on the bottom line was too great to persist with the old ways. Evaluating environment problems and their management became important components of business strategy development. The move for Corporate Social Responsibility (CSR) includes looking at the environment effects of business actions and taking steps to eliminate or minimize adverse impacts Economy
GDP per capita
economic growth
unemployment rate
inflation rate
consumer and investor confidence
inventory levels
currency exchange rates
merchandise trade balance
financial and political health of trading partners
balance of payments
future trends
Government
political climate – amount of government activity
political stability and risk
government debt
budget deficit or surplus
Legal
minimum wage laws
environmental protection laws
worker safety laws
union laws
copyright and patent laws
anti- monopoly laws
Sunday closing laws
municipal licenses
laws that favour business investment
Technology
efficiency of infrastructure, including: roads, ports, airports, rolling stock, hospitals, education, healthcare, communication, etc. industrial productivity
new manufacturing processes
new products and services of competitors
new products and services of supply chain partners
any new technology that could impact the company
cost and accessibility of electrical power
Ecology
ecological concerns that affect the firms production processes ecological concerns that affect customers’ buying habits
ecological concerns that affect customers’ perception of the company or product Socio-cultural
demographic factors such as:
population size and distribution
age distribution
education levels
income levels
ethnic origins
religious affiliations
attitudes towards:
materialism, capitalism, free enterprise
individualism, role of family, role of government, collectivism role of church and religion
consumerism
environmentalism
importance of work, pride of accomplishment
cultural structures including:
diet and nutrition
housing conditions
Potential suppliers
Labour supply
quantity of labour available
quality of labour available
stability of labour supply
wage expectations
employee turn-over rate
strikes and labour relations
educational facilities
Material suppliers
quality, quantity, price, and stability of material inputs delivery delays
proximity of bulky or heavy material inputs
level of competition among suppliers
Service providers
quantity, quality, price, and stability of service facilitators special requirements
Stakeholders
Lobbyists
Shareholders
Employees
Partners
Employees Scanning these macro environmental variables for threats and opportunities requires that each issue be rated on two dimensions. It must be rated on its potential impact on the company, and rated on its likeliness of occurrence. Multiplying the potential impact parameter by the likeliness of occurrence parameter gives a good indication of its importance to the firm.
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3. What do you understand by Business Social Responsibility ( B S R ). How this can be used to improve the Business Environment. (10 Marks) In your daily life, you perform a number of activities. For example, brushing your teeth, listening to your parents, showing respect to elders obeying traffic rules on road etc. Now why do you perform all these activities? It is because you live in a family as well as in a society and the members of your family as well as the society want you to do all of them. They do several things for you and expect something from you, which you must do. The expectations of the family or society become your obligations, which you need to fulfill. For example, taking care of your parents or children, keeping the road clean by not throwing garbage on it, etc. There are also obligations towards yourself, which you need to fulfill. For example, taking food timely, going to sleep early at night, etc. that keep you fit and takes care of your health. Now you fulfill all these obligations by performing certain activities which are called your responsibilities. Any responsibility you have, particularly towards members of the society with whom you interact or towards the society in general, are called your social responsibility. This is true in case of business also. As we know, every business operates within a society. It uses the resources of the society and depends on the society for its functioning. This creates an obligation on the part of business to look after the welfare of society. So all the activities of the business should be such that they will not harm, rather they will protect and contribute to the interests of the society. Socialresponsibility of business refers to all such duties and obligations of business directed towards the welfare of society. These duties can be a part of the routine functions of carrying on business activity or they may be an additional function of carrying out welfare activity. Let us take an example. A drug-manufacturing firm undertakes extensive research and thus, produces drugs which are qualitatively superior. It also provides scholarships or fellowships to the family members of its employees for studying abroad. We find, in both the cases, the drug-manufacturing firm is carrying out its social responsibility. In case of the former, it is a part of its routine business function while in the latter case it is a welfare function. After getting some idea about the concept and importance of social responsibility of business let us look into the various responsibilities that a business has towards different groups with whom it interacts. The business generally interacts with owners, investors, employees, suppliers, customers, competitors, government and society. They are called as interest groups because by each and every activity of business, the interest of these groups is affected directly or indirectly. •Responsibility towards owners
Owners are the persons who own the business. They contribute capital and bear the business risks. The primary responsibilities of business towards its owners are to: •Run the business efficiently.
•Proper utilisation of capital and other resources.
•Growth and appreciation of capital.
•Regular and fair return on capital invested.
•Responsibility towards investors
Investors are those who provide finance by way of investment in debentures, bonds, deposits etc. Banks, financial institutions, and investing public are all included in this category. The responsibilities of business towards its investors are: •Ensuring safety of their investment,
•Regular payment of interest,
•Timely repayment of principal amount.
•Responsibility towards employees
Business needs employees or workers to work for it. These employees put theirbest effort for the benefit of the business. So it is the prime responsibility of every business to take care of the interest of their employees. If the employees are satisfied and efficient, then the only business can be successful. The responsibilities of business towards its employees include: •Timely and regular payment of wages and salaries.
•Proper working conditions and welfare amenities.
•Opportunity for better career prospects.
•Job security as well as social security like facilities of provident fund, group insurance, pension, retirement benefits, etc. •Better living conditions like housing, transport, canteen, crèches etc. •Timely training and development.
•Responsibility towards suppliers
Suppliers are businessmen who supply raw materials and other items required by manufacturers and traders. Certain suppliers, called distributors, supply finished products to the consumers. The responsibilities of business towards these suppliers are: •Giving regular orders for purchase of goods.
•Dealing on fair terms and conditions.
•Availing reasonable credit period.
•Timely payment of dues.
•Responsibility towards customers
No business can survive without the support of customers. As a part of the responsibility of business towards them the business should provide the following facilities: •Products and services must be able to take care of the needs of the customers. •Products and services must be qualitative
•There must be regularity in supply of goods and services •Price of the goods and services should be reasonable and affordable. •All the advantages and disadvantages of the product as well as procedure to use the products must be informed do the customers. •There must be proper after-sales service.
•Grievances of the consumers, if any, must be settled quickly. •Unfair means like under weighing the product, adulteration, etc. must be avoided.Responsibility towards competitors
Competitors are the other businessmen or organizations involved in a similar type of business. Existence of competition helps the business in becoming more dynamic and innovative so as to make itself better than its competitors. It also sometimes encourages the business to indulge in negative activities like resorting to unfair trade practices. The responsibilities of business towards its competitors are •not to offer exceptionally high sales commission to distributers, agents etc. •not to offer to customers heavy discounts and /or free products in every sale. •not to defame competitors through false or ambiguous advertisements. Responsibility towards government
Business activities are governed by the rules and regulations framed by the government. The various responsibilities of business towards government are: •Setting up units as per guidelines of government
•Payment of fees, duties and taxes regularly as well as honestly. •Not to indulge in monopolistic and restrictive trade practices. •Conforming to pollution control norms set up by government. •Not to indulge in corruption through bribing and other unlawful activities. ###########################
4. Explain how the business in an organization can be regulated with regard to the Organization’s Basic Objectives. (10 Marks) Business may be understood as the organized efforts of enterprise to supply consumers with goods and services for a profit. Businesses vary in size, as measured by the number of employees or by sales volume. But, all businesses share the same purpose: to earn profits. The purpose of business goes beyond earning profit. There are: •It is an important institution in society.
•Be it for the supply of goods and services
•Creation of job opportunities
•Offer of better quality of life
•Contributing to the economic growth of the country. Hence, it is understood that the role of business is crucial. Society cannot do without business. It needs no emphasis that business needs society as much.
BUSINESS ENVIRONMENT
Environment refers to all external forces, which have a bearing on the functioning of business. Environment factors “are largely if not totally, external and beyond the control of individual industrial enterprises and their managements. The business environment poses threats to a firm or offers immense opportunities for potential market exploitation.
ENVIRONMENT – BUSINESS RELATIONS
Business is the product of the technological, political-legal, economic, social –cultural, global and natural factors amidst which it functions. Three features are common to this web of relationship between business and its environment. •There is symbolic relationship between business and its environment and among the environmental factors. In other words, business is influenced by its environment and in turn, to certain degree, it will influence the external forces. Similarly, political-legal environment influences economic environment and vice versa. The same relationship between other environment factors too. •These environmental forces are dynamic. They keep on changing as years roll by, so does business. •The third feature is that a particular business firm, by itself, may not be in a position to change its environment. But along with other firms, business will be in a position to mould the environment in its favor.
IMPORTANCE OF ENVIRONMENTAL STUDY
The benefits of environmental study are as follows;
•Development of broad strategies and long-term policies of the firm. •Development of action plans to deal with technological advancements. •To foresee the impact of socio-economic changes at the national and international levels on the firm’s stability. •Analysis of competitor’s strategies and formulation of effective counter-measures. •To keep oneself dynamic.
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5. Describe in detail the different role played by the Government towards enriching the business Environment. (10 Marks) Environment of a businessmeans the external forces influencing the business decisions. They can be forces of economic, social, political and technological factors. These factors are outside the control of the business. The business can do little to change them. Following features:
•Totality of external forces:
Business environment is the sum total of all things external to business firms and, as such, is aggregative in nature. •Specific and general forces:
Business environment includes both specific and general forces. Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day-to-day working. General forces (such as social, political, legal and technological conditions) have impact on all business enterprises and thus may affect an individual firm only indirectly. •Dynamic nature:
Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market. •Uncertainty:
Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries. •Relativity:
Business environment is a relative concept since it differs from country to country and even region to region. Political conditions in the USA, for instance, differ from those in China or Pakistan. Similarly, demand for sarees may be fairly high in India whereas it may be almost non-existent in France.
Importance of Business Environment
•Firm to identify opportunities and getting the first mover advantage: Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors. For example, Maruti Udyog became the leader in the small car market because it was the first to recognize the need for small cars in India. •firm to identify threats andearly warning signals:
If an Indian firm finds that a foreign multinational is entering the Indian market it should gives a warning signal and Indian firms can meet the threat by adopting by improving the quality of the product, reducing cost of the production, engaging in aggressive advertising, and so on. •Coping with rapid changes:
All sizes and all types of enterprises are facing increasingly dynamic environment. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suitable courses of action. •Improving performance:
the enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.
Dimensions of Business Environment What constitutes the general environment of a business? The following are the key components of general environment of a business. •Economic environment
economic environment consists of economic factors that influence the business in a country. These factors include gross national product, corporate profits, inflation rate, employment, balance of payments, interest rates consumer income etc. •Social environment
It describes the characteristics of the society in which the organization exists. Literacy rate, customs, values, beliefs, lifestyle, demographic features and mobility of population are part o the social environment. It is important for managers to notice the direction in which the society is moving and formulate progressive policies according to the changing social scenario. •Political environment
It comprises political stability and the policies of the government. Ideological inclination of political parties, personal interest onpoliticians, influence of party forums etc. create political environment. For example, Bangalore established itself as the most important IT centre of India mainly because of political support. •Legal environment
This consists of legislation that is passed by the parliament and state legislatures. Examples of such legislation specifically aimed at business operations include the Trade mark Act 1969, Essential Commodities Act 1955, Standards of Weights and Measures Act 1969 and Consumer Protection Act 1986. •Technological environment
It includes the level of technology available in a country. It also indicates the pace of research and development and progress made in introducing modern technology in production. Technology provides capital intensive but cost effective alternative to traditional labor intensive methods. In a competitive business environment technology is the key to development. Economic Environment in India
In order to solve economic problems of our country, the government took several steps including control by the State of certain industries, central planning and reduced importance of the private sector. The main objectives of India’s development plans were:
•Initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty; •Become self-reliant and set up a strong industrial base with emphasis on heavy and basic industries; •Reduce inequalities of income and wealth;
•Adopt a socialist pattern of development — based on equality and prevent exploitation of man by man. As a part of economic reforms, the Government of India announced a new industrial policy in July 1991.The broad features of this policy were as follows: •The Government reduced the number of industries under compulsory licensing to six. •Disinvestment was carried out in case of many public sector industrial enterprises. •Policy towards foreign capital was liberalized. The share of foreign equity participation was increased and in many activities 100 per cent Foreign Direct Investment(FDI) was permitted. •Automatic permission was now granted for technology agreements with foreign companies. •Foreign Investment Promotion Board (FIPB) was set up to promote and channelize foreign investment in India. Liberalization:
•The economic reforms that were introduced were aimed at liberalizing the Indian business and industry from all unnecessary controls and restrictions. •They indicate the end of the license-permit-quota raj.
•Liberalization of the Indian industry has taken place with respect to: •Abolishing licensing requirement in most of the industries except a short list, •Freedom in deciding the scale of business activities i.e., no restrictions on expansion or contraction of business activities, •Removal of restrictions on the movement of goods and services, •Freedom in fixing the prices of goods services,
•Reduction in tax rates and lifting of unnecessary controls over the economy, •Simplifying procedures for imports and experts, and
•Making it easier to attract foreign capital and technology to India. Privatization:
•The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector. •To achieve this, the government redefined the role of the public sector in the New Industrial Policy of 1991 •The purpose of the sale, according to the government, was mainly to improve financial discipline and facilitate modernization. •It was also observe that private capital and managerial capabilities could be effectively utilized to improve the performance of the PSUs. •The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions. Globalisation:
•Globalizations are the outcome of the policies of liberalisation and privatisation. •Globalisation is generally understood to mean integration of the economy of the country with the world economy, it is a complex phenomenon. •It is an outcome of the set of various policies that are aimedat transforming the world towards greater interdependence and integration. •It involves creation of networks and activities transcending economic, social and geographical boundaries. •Globalisation involves an increased level of interaction and interdependence among the various nations of the global economy. •Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer in a distant geographical market. Impact of Government Policy Changes on Business and Industry •Increasing competition:
As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector. •More demanding customers:
Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services. •Rapidly changing technological environment:
Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services. The rapidly changing technological environment creates tough challenges before smaller firms. •Necessity for change:
In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations. Threat from MNC
Massive entry of multi nationals in Indian marker constitutes new challenge. The Indian subsidiaries of multi-nationals gained strategic advantage. Many of these companies could get limited support in technology from their foreign partners due to restrictions in ownerships. Once these restrictions have been limited to reasonable levels, there is increased technologytransfer from the foreign partners ############################
6. In the Business Environment context, explain how the Political and legal Environment of business plays a vital role. Justify by bringing in suitable examples. (10 Marks) The Political / Legal / Regulatory Environment can be simply described as the laws and regulations that business has to follow in order to make sure the business owners do not get arrested, or have the business fined for noncompliance of some regulation. Laws are made by politicians – who enact these laws based on the likelihood they will get re-elected. The political environment is affected and effected by politicians who in turn are influenced by changes and challenges in the social – cultural environment (languages, ethnicity, immigration etc.), challenges in the economic environment (currency exchange rates, corporate activity, unemployment rates) and also to some extent the geographic environment in terms of how the region is laid out, rivers, mountains, proximity to other countries, weather, seasons etc. Purpose Business and corporations have gained the centre stage of economic activity almost all over the world. Even political life and cultural practices of increasingly larger numbers are influenced by the actions of corporations and business practices in general. Hence, there is a need to look beyond the immediate, to understand the deeper structures involved in the conduct of business. The purpose of this course is to situate business in its larger context and develop an appreciation for the interrelationship of business and society. It also aims to situate institutions through which business is conducted, like corporations, nation state and markets. Further, values like morality of profit, private property, free trade, etc. are of relatively recent origin and their significance have varied over different period in world commercial history. Therefore there is a need to understand the historical context in which these institutions and these values have originated and evolved. Classes The class discussions will primarily be based on real life cases or discussions with guest faculty. This will require that the student analyses the assigned readings, preferably in small groups, and comes prepared with his/ her analysis for presentation in the class. Group/s should volunteer to initiate class discussion and make a presentation of their analysis for a particular class. Learning in the class will primarilyhappen through discussions amongst the participants and NOT through ‘lecture’ by the instructor. Thus, it becomes everybody’s responsibility to get into a constructive dialogue and not just look at an individual as ‘provider’ of answers. A constructive dialogue means not only to speak, but also listen carefully and draw out some of the relatively quieter colleagues. This is not a course on oratory and hence what matters is QUALITY of your participation –in speaking, listening, explaining and critiquing. If you are coming to a class it is expected that you have prepared assigned reading and are ready with your case-analysis; sometimes you may be expected to do readings after a guest has discussed an issue. Hence in normal circumstances I expect you to be present in all the classes. If for special reasons you are not able to attend a particular class, I expect you to explain it in writing as it is not only that you are not attending the class as an individual but you are also depriving the rest of the class from your views and analyses. I expect you to do whole lot of activities and preparations in groups. So please make groups of 4 rights after the first class as per your choice. Evaluation
Class Participation & Presentations (30%) As already explained class participation is a fundamental part of learning in the course. The purpose of class presentations is to initiate the discussion on the reading/ case. The presentation may be done by a group. Please come prepared with your presentation and only present your analysis in not more than 10 minutes. I would prefer if you inform me in advance in case you want to make a presentation in a particular session. Project (50% – 10% presentation, 40% report). The purpose of the project is to work on any real life business issue which brings the interconnections between business and society. The issue should be such that you can examine its various facets and bring out the complexities involved at the same time it must have a focus. Submit the project proposal by 18th Jan. I expect you to interact with me regularly regarding your project. Take Home assignment (10%) It will be a group assignment. Reflective Note (10%). Take up any class discussion and reflect on it and develop the arguments/ debate further. Here I am looking for your views and analysis Political (incl. Legal) [ [Poltical] EST[Environment][Legal] ] ==========================================
-Tax policies
What tax hinder the business and what taxes incentives are available] [ if the tax policies are liberal / incentivated, businesses will add expansion ] ========================================
-International trade regulations and restrictions
[ does the government encourage exports / with high tariffs on imports] [ if the exports policies are liberal / incentivated, businesses will add expansion ] —————————————————————————————— [ if the import policies are liberal / incentivated, local mfg. businesses will contract ] =====================================================
-Employment laws]
[ is the government encouraging skilled immigrants with temp. permits] ————————————————-
[if the government relaxes the rules on skilled migrants] Interest rates & monetary policies
[ are the interest rates under control / is there a sound monetary policies] [ if the interest rate goes down/ the monetary policies are liberal, as the demand goes up, businesses will add expansion ] —————————————————————————- [ if the interest rate goes up , the demand will go down businesses will downsize / cut cost ] ===================================================
-Government spending
[is government spending is significant and is it under control ] [ if the government increases the spending on infrastructures etc, the demand goes up , businesses will add expansion ] ==================================================
-Unemployment policy
[what is the employment / unemployment policies of the government ] =====================================================
-Taxation
[ has the taxation encouraged the industry ]
[ if the taxation policies encouraged the industry, businesses will add expansion ] =======================================================
-Income distribution
[is there balanced income distribution policy ]
[ as the income level goes up and income distribution improves, demand for product/services will go up, businesses will add expansion ] ==================================================
-Education
[ what are the education policies / is it successful ] [ as the education level goes up and income distribution improves, demand for product/services will go up, businesses will add expansion ] =======================================================
Rate of technology transfer
[ is the rate of technology transfer is speeding up ] [ as the rate of technology transfer speeds up, more jobs are created, demand for product/services will go up, businesses will add expansion ] =======================================================
(Changes in) Information Technology
[ is the information technology rapidly moving and is there government support] [ as the IT usage increases, more jobs are created, demand for product/services will go up, businesses will add expansion ]
I HAVE TAKEN ONE OF THESE –HUMAN RESOURCE AS AN EXAMPLE.
Political (incl. Legal)
==========================================
-Tax policies
what tax hinder the business and what taxes incentives are available] [if the tax policies are liberal / incentivated, businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
========================================
-International trade regulations and restrictions
[ does the government encourage exports / with high tariffs on imports] [ if the exports policies are liberal / incentivated, businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
—————————————————————————————— [ if the import policies are liberal / incentivated, local mfg. businesses will contract , which means the impact on HR -less RECRUITMENT/ SELECTION
-MORE TRAINING to improve efficiency / productivity
======================================================
-Employment laws]
[ is the government encouraging skilled immigrants with temp. permits] [if the government relaxes the rules on skilled migrants, which means the impact on HR -EMPHASIS WILL BE ON FOREIGN RECRUITMENTS.
-DEVELOPMENT OF OVERSEAS CONTRACTS
-TRAINING FOR THE INCOMING STAFF ON LOCAL CULTURE.
-TRAINING FOR MANAGERS TO MANAGE DIVERSITY
=======================================================
Economic
-Economic growth
[ what is the economic growth rate / what are the reasons ] [ if the economy is on growth path, businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
-COMPENSATION NEEDS REVISION
——————————————————————————– [ if the economy contracts/demand drops, businesses will reduce volume , which means the impact on HR -less RECRUITMENT/ SELECTION
-MORE TRAINING TO IMPROVE EFFICIENCY/PRODUCTIVITY
-MORE INCENTIVATES FOR PRODUCTIVITY GAIN
===================================================
-Interest rates & monetary policies
[ are the interest rates under control / is there a sound monetary policies] [ if the interest rate goes down/ the monetary policies are liberal, as the demand goes up, businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
—————————————————————————- [ if the interest rate goes up , the demand will go down businesses will downsize / cut cost which means the impact on HR -less RECRUITMENT/ SELECTION
-MORE TRAINING for efficiency / productivity improvements -EMPHASIS WILL BE FOR ”PAY FOR PERFORMANCE”.
===================================================
-Government spending
[is government spending is significant and is it under control ] [ if the government increases the spending on infrastructures etc, the demand goes up , businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
==================================================
-Unemployment policy
[what is the employment / unemployment policies of the government ] =====================================================
-Taxation
[ has the taxation encouraged the industry ]
[ if the taxation policies encouraged the industry, businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
=======================================================
-Consumer confidence
[ is the consumer confidence is high/ strong and if not, why ]
[ as the consumer confidence goes up, more jobs are created, demand for product/services will go up, businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
==================================================
Social
-Income distribution
[is there balanced income distribution policy ]
[ as the income level goes up and income distribution improves, demand for product/services will go up, businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
==================================================
-Demographics, Population growth rates, Age distribution
[ what is population growth and why ]
[ as the population level goes up and age distribution improves, demand for product/services will go up, businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
====================================================
-Lifestyle changes
[ are there significant lifestyle changes taking place–more modernization/ why ]
[ as the life style goes up and more modernization improvements, demand for product/services will go up, businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
=========================================================
-Work/career and leisure attitudes
[ are the population career minded and are seeking better lifestyle] [ as the income level goes up and workers attitudes changes, demand for product/services will go up, businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
==================================================
-Education
[ what are the education policies / is it successful ] [ as the education level goes up and income distribution improves, demand for product/services will go up, businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
=======================================================
-Living conditions
[ is the living conditions improving fast and spreading rapidly] [ as the income level goes up and living conditions improves, demand for product/services will go up, businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
=========================================================
Technological
==================================================
New inventions and development
[ are new inventions being encouraged for developments] [ as more inventions are brought out, more jobs are created, demand for product/services will go up, businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
======================================================
Rate of technology transfer
[ is the rate of technology transfer is speeding up ] [ as the rate of technology transfer speeds up, more jobs are created, demand for product/services will go up, businesses will add expansion , which means the impact on HR -MORE RECRUITMENT/ SELECTION
-MORE INDUCTION / ORIENTATION
-MORE TRAINING
############################
7. Evaluate the advantages and disadvantages of FDI. What is your opinion on the role of FDI in the Retail Sector? Justify your views with India’s experience in this sector. (20 Marks What is FDI?
FDI stands for Foreign Direct Investment. When a foreign investor wants toincorporate a company in India or wants to invest in an existing company then such a transaction is known as a Foreign Direct Investment. What is the principle of the law governing FDI in India?
One of the first questions which needs to be answered is what is the principle underlying the law of FDI in India. In other words, is the approach towards FDI an ‘exclusive’ one wherein the law prescribes the sectors/industries in which FDI is allowed and the ones in which it is not allowed? Or is it an ‘inclusive’ one wherein FDI is allowed in general but only certain specified sectors/industries/types of entities are not allowed to have FDI? As FEMA is an enabling Act, it is the latter scheme of legislation which it follows i.e. there is a general permission for all types of entities to invest in most sectors in India and if the Government wants to put some restrictions / conditions on such investments, then the onus is on them to put such restrictions / conditions in the Act, Rules, Notifications, Circulars, Clarifications, Press Notes etc. How should one look at FDI law in India?
Understanding this approach to the framing of the law, facilitates our study of the subject to the great extent. Now we can focus only on two aspects from the point of view of advising our clients viz . i) What is possible / Can be made possible – Study the restrictions / conditions which the Government has imposed on FDI to suitably structure the investment ii) How to do things – Study the important procedural requirements to understand how and where to file applications, the documentation required including certificates from CAs etc. To summarize, the rule of the thumb is ‘FDI is allowed unless stated otherwise’. What are the three categories of FDI?
The three categories for the purpose of FDI are (a) Cases in which FDI is not at all allowed (b) Cases in which FDI is allowed with Government approval (c) Cases in which FDI is allowed without Government approval i.e. Auotmatic Route. For category (a), we cannot do anything and the knowledge only helps us to confirm that the industry in which proposed investment is to take place is not in the Prohibited category. If it is in categories (b) and (c) one has to look at various aspects, in terms of structuring the deal,especially from those angles which have a direct monetary impact on the business i.e. FEMA, Direct and Indirect Taxes, Stamp Duty etc. Which are the rules and regulations governing FDI?
The law governing FDI is contained in Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000. The Regulations have been notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000. I will refer to these as the ‘Original Regulations’. However these have been amended from time to time. One has to understand here that unlike Income Tax Act or Rules, wherein the amendments are incorporated in the Act/Rules itself, the RBI does not issue the amended Regulations every year. It issued notifications, circulars etc. which contain only the details of the amendments made and one has to thus read the Original Regulations along with ALL the notifications, circulars etc. in order to understand the current position. What is the list of activities in which FDI is not allowed (Category ‘a’)? Investments into India is not permissible in the following cases 1. Retail Trading
2. Atomic Energy
3. Lottery Business
4. Gambling and Betting
5. Housing and Real Estate business
6. Agriculture (excluding Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisciculture and Cultivation of Vegetables, Mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (Other than Tea plantations). What is the list of activities in which FDI is allowed, but with prior approval of the Government (category ‘b’)? 1. Petroleum Sector (except for private sector oil refining), Natural Gas/LNG Pipelines 2. Investing companies in Infrastructure and Services Sector 3. Defence and Strategic Industries
4. Atomic Minerals
5. Print Media
6. Broadcasting
7. Postal Services
8. Courier Services
9. Establishment and Operation of Satellite
10. Development of Integrated Township
11. Tea Sector
For which industries / activities is FDI freely allowed i.e. where no permission of the Government required? The list in this category contains three types of details:
a) Sector
b) Investment Cap
c) Description of Activity/Items/Conditions
The investment cap refers to the maximum percentage of shares that can be bought by the foreign investor. This is also known as the sectoral cap. If the investment fits within this limit then no permission is required. If the foreign investor wants to exceed this limit, then he will have to take the permission of the Government. The list contains 23 entries. 22 of these entries are the names of Sectors whereas the 21st entry is the General entry that says that for any other activity other than the 20 mentioned above and other than those that are covered in categories A and B, FDI upto 100% is allowed under the Automatic Route. The list below gives the industries in which FDI is freely allowed. The figures in brackets are the sectoral caps. Sometimes there are differential sectoral caps for the same industry but for different types of investors. For instance, In domestic airlines, NRIs can invest upto 100% and any other category of investor can only invest upto 49%. It should also be noted that there are various conditions which are also mentioned in the Regulations for each industry. Thus the automatic route under this category is allowed if the conditions are met. 1) Private Sector Banking (49%)
2) Non-Banking Financial Company (100%)
3) Insurance (26%)
4) Telecommunications (49%)
5) Petroleum Refining, Marketing, Pipelines (100%)
6) Housing & Real Estate (100%)
7) Coal & Lignite (100%)
8) Venture Capital Fund / Venture Capital Undertaking (100%) 9) Trading(51%/100% )
10) Power (100%)
11) Drugs & Pharmaceuticals (100%)
12) Roads and Highways, Ports & Harbors (100%)
13) Hotel & Tourism (100%)
14) Mining (51% / 74%)
15) Advertising (100%)
16) Films (100%)
17) Airports (74%)
18) Mass Rapid Transit System (100%)
19) Pollution Control (100%)
20) Special Economic Zones (100%)
21) Air Transport Services (49% / 100%)
22) Townships (100%)
23) Any other activity other than the ones mentioned above or not following in categories ‘a’ and ‘b’ above. (100%) • 2 types of FDI:
1 -GREENFIELD INVESTMENT
2 -MERGERS AND ACQUISITIONS
GREENFIELD INVESTMENT
• direct investment in new facilities or the expansion of existing facilities • Increase competition in the market.
EX: Hyundai Motor Company goes ahead with a major Greenfield investment in Nošovice in the Moravia-Silesia region of the Czech Republic. MERGER AND ACQUISITIONS
• Transfer of existing assets from local firms to foreign firms. • Assets and operation of firms from different countries are combined to establish a new legal entity. EX: AIR INDIA AND INDIAN AIRLINES,
GTL- REDINGTON
THE BIG QUESTION-
GREENFIELD OR M&As
• Both differ in level of control, resource commitment and risk. • High level entry mode preferred if firms possess global strategies and sound know-how. • Large & diversified companies prefer acquisitions. • R&D will prefer Greenfield.
• Greenfield investment contributes to local capacity & intensifies competition. • Acquisition entry promotes monopoly.
• Greenfield investment optimal only if large technological gap is there between competitors BENEFITS OF INWARD FDI
• Stimulation of National Economy
Capital inflow and increase in GDP
Stimulate domestic investment
• Stability of FDI’s as compared to investment portfolio’s and loans • Infrastructural Development
Technology transfer
Technology diffusion
In particular Greenfield investment can stimulate
new infrastructure development and technology.
• Increase in productivity
• Stimulate competition
• Stimulate domestic exports
• Raise Wages , stimulate employment
-ETHICAL
-TRANSPARENT
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