Business Environment Solved Papers: November' 2012 | Dibrugarh University

2012 (November)
Commerce (General/Speciality)

1.Answer as directed:
(a) Mention any one of the components of Indian Business Environment.            Political environment
(b) There is no difference between Business Environment and Economic Environment. (state True or False)
(c) In which year was the WTO set up?                   1995
(d) Write the full form of SEZ.                     Special Economic Zone
(e) Write the full form of MFN.                  Most Favoured Nation
(f) In which year was the International Monetary Fund (IMF) established?                           1945
(g) India was the one of the founder members of the World Trade Organization.(state True or False)    
(h) Money Market deals in Short term funds.(fill in the blanks)
2.Write short notes on:
(a) Internal factors of business environment
(b) Chief characteristics of New Industrial Policy, 1991 of India
(c) International Monetary Fund (IMF)
(d) Major defects of Indian capital market

3. (a) What do you mean by Business Environment? Discuss the nature of business environment.
Ans: Concept: Business Environment
Business is any activity undertaken for the purpose of producing or selling a particular commodity r service and earns a profit. The business has several dimensions such as purchasing the inputs, converting the inputs into the output, selling that output at a profitable price. Every dimension of a business depends upon several factors. Hence a business is influenced by several factors, all them put together are described as Business Environment. A business can grow and prosper in a particular environment just as a plant can grow in a particular soil, climate, water supply etc.  Hence the entrepreneur has to pay attention to the environment in which he has to conduct his business activities. If he is able to adapt his business to the environment effectively and efficiently the business can make higher profits. This makes the study of business environment important.
According to Keith Davis, “Business environment is the aggregate of all conditions, events and influences that surrounds and affects the business.”
According to wheeler, “Business environment is the total of all things external to business firms and industries which affect their organisation and operations.”
Following are the features of Business environment:
Business Environment means a collection of all individuals, entities and other factors, which may or may not be under the control of the organisation, but can affect its performance, profitability, growth and even survival. Every business organisation operates in a distinctive environment, as it cannot exist in isolation. Such an environment influence business and also gets affected by its activities. Some of the important features of business environment are given below:
1)      Totality of internal and external forces: Business environment means the surrounding situation within which business organization has to operate. It is a sum total of cultural, political, economical, social, physical, technological, legal and global forces which move around the business organization. These forces collectively create a socio-economic-political situation called business environment. Environment is an inseparable part of business which can not operate in vacuum.
2)      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.
3)      Dynamic nature: Business environment is dynamic and perpetually evolving. It changes frequently due to various external forces i.e. economic, political, social, international, technological and demographic. Such dynamism in the environment brings continuous change in its character. Business enterprises have no alternative but to operate under such dynamic environment. The only remedy is adjusting business as per environmental changes.

4)      Complex: Business environment has now become extremely complex and the government intervention has become more frequent. Business environment is a complex phenomenon and also difficult to grasp and face in its totality. This is because it is governed by external factors. Environment develops by chance and not by choice. In addition, the environment factors vary from country to country. The business environment in India and in USA may not be identical.
5)      Multi Faceted: Environmental changes are frequent but their shape and character depends on the knowledge & experience of the observer. A particular change in the environment may be viewed differently by different businessmen. This change is welcomed as an opportunity by some organizations while some others take it as a threat for their survival. 
6)      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.
7)      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.
8)      Environment Influences Business Organization: Business organizations have limited capacity to influence business environment as it is the result of government policies and social and technological changes which are basically external variables.
(b) What is SWOT analysis? Describe the importance of SWOT analysis.
Ans: SWOT analysis
SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis. It is applicable to either the corporate level or the business unit level and frequently appears in marketing plans.
 SWOT (sometimes referred to as TOWS) stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis consists of the following two activities: 
a.       An assessment of the organization’s internal Strengths and Weaknesses and
b.      An assessment of the Opportunities and Threats posed by its external environment
a.       Assessing the Internal Environment
Internal scan or assessment of the internal environment of the organization involves identification of its strengths and weaknesses i.e., those aspects that help or hinder accomplishment of the organization’s mission and fulfillment of its mandate with respect to the following Four Ps:
a.       People (Human Resources)
b.      Properties (Buildings, Equipments and other facilities)
c.       Processes (Such as student placement services, M.I.S etc.)
d.      Products (Students, Publications etc.)
b.      Assessing the External Environment
External scan refers to exploring the environment outside the organisation in order to identify the opportunities and threats it faces. This involves considering the following:
a)      Events, trends and forces in the Social, Technological, Economical, Environmental and Political areas (STEEP).

b)      Identifying the shifts in the needs of customers and potential clients and
c)       Identification of competitors and collaborators.
Techniques of SWOT analysis
An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is given below:
1)      Strengths: Strengths are the qualities that enable us to accomplish the organization’s mission. These are the basis on which continued success can be made and continued/sustained. Strengths can be either tangible or intangible. These are what you are well-versed in or what you have expertise in, the traits and qualities your employees possess (individually and as a team) and the distinct features that give your organization its consistency. Strengths are the beneficial aspects of the organization or the capabilities of an organization, which includes human competencies, process capabilities, financial resources, products and services, customer goodwill and brand loyalty.
Examples of STRENGTHS under SWOT Analysis
a.       Specialist marketing expertise
b.      Exclusive access to natural resources
c.       New, innovative product or service
d.      Location of your business
e.      Strong brand or reputation
f.        Quality processes and procedures
2)      Weaknesses: Weaknesses are the qualities that prevent us from accomplishing our mission and achieving our full potential. These weaknesses deteriorate influences on the organizational success and growth. Weaknesses are the factors which do not meet the standards we feel they should meet. Weaknesses in an organization may be depreciating machinery, insufficient research and development facilities, narrow product range, poor decision-making, etc. Weaknesses are controllable. They must be minimized and eliminated.
Examples of WEAKNESS under SWOT Analysis
a.       Lack of marketing expertise
b.      Undifferentiated products and service (i.e. in relation to your competitors)
c.       Competitors have superior access to distribution channels
d.      Poor quality goods or services
e.      Damaged reputation
f.        Lost brand value
3)      Opportunities: Opportunities are presented by the environment within which our organization operates. These arise when an organization can take benefit of conditions in its environment to plan and execute strategies that enable it to become more profitable. Organizations can gain competitive advantage by making use of opportunities. Organization should be careful and recognize the opportunities and grasp them whenever they arise. Selecting the targets that will best serve the clients while getting desired results is a difficult task. Opportunities may arise from market, competition, industry/government and technology. Increasing demand for telecommunications accompanied by deregulation is a great opportunity for new firms to enter telecom sector and compete with existing firms for revenue.

Examples of OPPORTUNITIES under SWOT Analysis
a.       Developing market (China, the Internet)
b.      Loosening of regulations
c.       Removal of international trade barriers
d.      A market led by a weak competitor
4)      Threats: Threats arise when conditions in external environment jeopardize the reliability and profitability of the organization’s business. They compound the vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and survival can be at stake. Examples of threats are - unrest among employees; ever changing technology; increasing competition leading to excess capacity, price wars and reducing industry profits; etc.
Examples of THREATS under SWOT Analysis
a.       A new competitor in your home market
b.      Competitor has a new, innovative substitute product or service
c.       New regulations
d.      Increased trade barriers
e.      Taxation may be introduced on your product or service
Advantages of SWOT Analysis: SWOT Analysis helps in strategic planning in following manner:
1)      It is a source of information for strategic planning which helps in achieving desired objectives at a minimum cost.
2)      SWOT analysis plays a big role in forecasting as it provides important information that might be required in making forecast for the future.
3)      SWOT analysis builds organization’s strengths.
4)      Reverse its weaknesses by identifying weak areas.
5)      Maximize its response to opportunities.
6)      Overcome organization’s threats.
7)      It helps in identifying core competencies of the firm.
8)      It helps in setting of objectives for strategic planning.
9)      It helps in knowing past, present and future so that by using past and current data, future plans can be chalked out.

4. (a) Discuss the cause of industrial sickness with reference to North-East India.
The economy of North- East India has got its definite identity due to its peculiar physical, economic and socio-cultural characteristics. This region consists of eight states viz., Assam, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Tripura and Sikkim. The NER of India covers an area of 2.62 lakh It accounts for 7.9% of total geographical area of the country. With a total population of 39 million (2001), it accounts for 3.8% of total population of India. 

There are differences among the eight States in the North Eastern region with respect to their resource endowments, level of industrialization as well as infrastructural facilities. The industrial sector has mainly grown around tea, petroleum (crude), natural gas etc. in Assam and mining, saw mills and steel fabrication units in other parts of the region. The full potential of the region is yet to be exploited and this has left the economy in a primarily agrarian state. 
Industrially, the NER continues to be the most backward region in the country, and the states in the region hardly have any industrial base, except perhaps Assam, because of its traditional tea, oil and wood based industries .To some extent Meghalaya has made some headway in setting up of small and medium industries. There are a number of factors contributing to the lack of industrial growth in the region which are stated below:
1)      Geographical isolation: Geographical isolation is a characteristic feature of this region which always goes against its development strategy. The difficult terrain of this region surrounded by hills, rivers and dense forest leads to increase in the cost of administration and cost of developmental projects, besides making mobilization resources particularly difficult.
2)      Poor transport and communication facilities: This region is lacking a sound transport and communication system. Geographical isolation, difficult terrain and lack of attention are some of the basic factors which are responsible for poor development of transport and communication facilities. Both the railway and road transport facilities in the region are not adequate according to its need. Expansion works like preparation of new railway lines, conversion meter gauge lines into broad gauge lines, extension of national highways, construction of new bridges over Brahmaputra, development of well connected transport facilities and sound communication system etc. are not up to the mark. In the absence of all these above mentioned facilities, a region cannot develop industrially. However, in recent years, steps have been taken to improve the transport and communication system of the State without which the development of the economy is impossible.
3)      Wastage of Natural resources: In spite of having huge amount of natural resources, the economy of this region still remains largely under-developed and involves itself into the wastage of huge quantity of natural resources. Investment in this region is mainly channelized towards exploitation of rich resources viz. tea, jute and oil, which is reflection of the continuation of old colonial pattern of investment. Assam has 28 percent of the total hydro power potential of the country, which remains under-utilized. The vast coal resources have not been fully exploited (except for traditional use of the Railway etc. ) despite several possibilities for use as fuel for production of power, for production of coal and as base for several chemical industries. The forest resources in Assam are also under-utilized, particularly in the matter of non-standard species. Thus insufficient exploitation of natural resources in this region is responsible for this poor industrial development of the State.
4)      Lack of skilled personnel: This region is also suffering from an acute shortage of skilled labour. Most of the labours are unskilled. For higher skills, this region has to depend upon other parts of India and foreign countries. Consequently payment of higher wage rates for skilled labour affects cost of production. Besides, one has to import technicians from outside on attractive rates of remuneration for installation of capital goods industries and thus it raises the cost of the development projects besides making the gestation period of these projects lengthy.
5)      Poor credit facilities: Credit facility, which is a part of infrastructure requires for development, is very minimum. The credit deposit ration in Assam stood at 37.3 in 2012 as against 78.1 for all India. Thus the lending policy of the commercial banks is far from generous to this region. Thus in the absence of large scale credit facilities, industries in the private sector cannot grow satisfactorily.
6)      Primitive technology: Technological progress is the root of industrial growth. But North East is suffering from lack of technological development due to poor scientific educational facilities and vocational training. Farmers in North East region are still using Primitive technologies in agricultural sector and thus agricultural production remains stagnant whereas other State Punjab, Haryana, Gujarat, Uttar Pradesh have been able to make sufficient progress in agriculture by applying modern technologies. Small scale and cottage industries of this region are still following old orthodox technologies and cannot stand in the competitive market. Thus the industries of this region are still backward due to absence of technology up gradation.
7)      Power Shortage: Lack of power supply is also effecting the production of the Industrial units in north east. Power breakdown is the regular problem this region. Due to inadequate power supply the industries have to suffer from under utilization, low production and higher costs.
 (b) What do you mean by Economic Growth? Explain the main hindrances of economic growth of India.
Ans: Economic Growth and Factors affecting it
Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced. In economics, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment," which is caused by growth in aggregate demand or observed output.
 As an area of study, economic growth is generally distinguished from development economics. The former is primarily the study of how countries can advance their economies. The latter is the study of the economic aspects of the development process in low-income countries. As economic growth is measured as the annual percent change of gross domestic product (GDP), it has all the advantages and drawbacks of that measure.
Hindrances/Obstacles in Economic Growth
Some of the major problems in economic growth of India are given below:
1. Misuse of Resources due to Market Imperfections: Main reason for the economic back wardens of the under developed countries is the misuse of resources owing to market imperfections by the market imperfections we mean the immobility of the factors of production , price rigidities, ignorance regarding market , trends static social structure , lack of specialization etc. These market imperfections are great obstacles in the way of economic growth . It is due to market imperfections that productive efficiency in these countries is low, the resources are either unutilized or underutilized and the resources are misallocated. When the resources are perfectly mobile and there is perfect competition among them, they can easily move from one sector to another in search of a better return and in this way they make an optimum contribution to the national output.
2. Low Rate of Saving and investment: Another main reason of the poverty and under development of the under – developed countries is that the rate of saving and investment in these countries is very low. In these countries only5-8 percent of the national income goes into savings , whereas the rate is 15-20 percent and even more in the developed countries. When the rat of saving in a country is low the rate of investment is bound to be low and the rate of capital formation is low too. Since capital per man is low, the productivity is also low productivity being low, the per capita income and the national income too are low.
3. Demonstration  Effect: The under development of the economically backward countries is also due to what has been called the demonstration effect the demonstration effect  increases propensity to consume which reduces the rate of savings and investment . A very important principle has been propounded regarding consumption. That an individual’s consumption does not merely depend on individuals own income but it is very much influenced by the standard of living or consumption of his friends and relations. When a man sees that some of his friends and relatives have refrigerator , scooter, radio or TV set. Thus , consumption does not depend upon absolute real income but on relative level of real income the is consumption expenditure does not depend on our own purchasing power but on what in being spent by other son the purchase of luxury articles.
4. Rapidly Growing Population: In the under – developed countries , especially in the over populated countries of Asia, population increases very rapidly. this has very adversely affected their rate of economic growth . In fact rapid population growth is the greatest obstacle to economic growth. Whatever increase takes place in the national output and income in such countries as  a result of development  is devoured by the ever pouring torrent of babies. It is like writing on the sand. That is why their standard of living and income per capita cannot rise. For example the major part of increase in national income that has accrued in India during the five year plans has been nullified by the rapid population growth.
5. Social and political obstacles to growth: There are several other factors which have retarded the economic growth of under developed countries, Among this we may mention the following in the under developed countries like India agriculture has been carried on in a very inefficient manner. Lack of adequate irrigation facilities and fertilizers, primitive agricultural practices. Poverty of the peasant out molded systems of tenure. The under developed countries are generally wanting in dynamic entrepreneurship. No wonder trade and industry have been conducted at a very low level and few new grounds have been broken. Economic development requires an army of trained and skilled personnel who serve as instruments of economic  progress these the under- developed countries lack and consequently remain backward. Not only have the economic factors handicapped economic progress of the under developed countries but social factors too. Have played their part to keep them economically backward . has divided the Indian society into ware tight compartments and has rendered co operation in the economic sphere impossible. It has created divergence between aptitude and the occupation actually pursued. By making functions here dietary. It killed imitative and enterprise. Untouchability   has demolished millions of our propel striking at the very root of dignity of labour.
6. Economic Factors Impeding Growth: Most of the countries of Asia and Africa, which are under developed, have been at one time or another under an alien rule. The most important cause of poverty in India and it’s under- development is its subjection to the British rule. The foreign rulers, naturally, exploited the dependent countries and used their resources to promote their own interest. These countries were made to supply raw material at low prices. The foreign industrialist also made investments in primary industries such as mining, drilling of oil wells, tea , coffee etc. Thus the foreign masters used these countries as suppliers of raw materials to their industries and markets for their manufactured goods. They did not take any interest in their economic development.
5. (a)Explain the concept of Privatization. Discuss its advantages and disadvantages.
Ans: Privatisation: 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.
Benefits of Privatisation:
1. Improved Efficiency: The main argument for privatisation is that private companies have a profit incentive to cut costs and be more efficient. If we work for a government run industry, managers do not usually share in any profits. However, a private firm is interested in making profit and so it is more likely to cut costs and be efficient.
2. Lack of Political Interference: It is argued that governments make poor economic managers. They are motivated by political pressures rather than sound economic and business sense.
3. Short Term view: A government many think only in terms of next election. Therefore, they may be unwilling to invest in infrastructure improvements which will benefit the firm in the long term because they are more concerned about projects that give a benefit before the election.
4. Shareholders: It is argued that a private firm has pressure from shareholders to perform efficiently. If the firm is inefficient then the firm could be subject to a takeover. A government owned firm doesn’t have this pressure and so it is easier for them to be inefficient.
5. Increased Competition: Often privatisation of state owned monopolies occurs alongside deregulation – i.e. policies to allow more firms to enter the industry and increase the competitiveness of the market. It is this increase in competition that can be the greatest motivation for improvements in efficiency. However, privatisation doesn’t necessarily increase competition, it depends on the nature of the market.
6. Government will raise revenue from the sale: Selling government owned assets to the private sector raised significant sums for government.
Disadvantages of Privatisation
1. Natural Monopoly: A natural monopoly occurs when the most efficient number of firms in an industry is one. Privatisation would create a private monopoly which might seek to set higher prices which exploit consumers. Therefore it is better to have a public monopoly rather than a private monopoly which can exploit the consumer.
2. Public Interest: There are many industries which perform an important public service, e.g. health care, education and public transport. In these industries, the profit motive shouldn’t be the primary objective of firms and the industry.
3. Government loses out on potential dividends: Many of the privatised companies in the India are quite profitable. This means the government misses out on their dividends, instead going to wealthy shareholders.
4. Problem of regulating private monopolies: Privatisation creates private monopolies, such as the water companies and rail companies. These need regulating to prevent abuse of monopoly power. Therefore, there is still need for government regulation.
5. Fragmentation of industries: In India, rail privatization would lead to breaking up the rail network into infrastructure and train operating companies. This led to areas where it was unclear who had responsibility.
6. Short-Term view of Firms: As well as the government being motivated by short term pressures, this is something private firms may do as well. To please shareholders they may seek to increase short term profits and avoid investing in long term projects.
(b) Discuss about Govt of India’s Industrial Policy, 2007 for North-East India. How far has North-East India been benefited from the Industrial Policy, 2007?
Ans: North East Industrial and Investment Promotion Policy (NEIIP, 2007)
Important Provisions of NEIIPP, 2007
(i)         Sikkim will be included under NEIIPP, 2007 and the ‘New Industrial Policy and other concessions for the State of Sikkim’ announced earlier in December, 2002 will be discontinued from the date of notification of NEIIPP, 2007.

(ii)       Under NEIIPP, 2007, all new units as well as existing units which go in for substantial expansion, unless otherwise specified and which commence commercial production within the 10 year period from the date of notification of NEIIPP, 2007 will be eligible for incentives for a period of 10 years from the date of commencement of production.
(iii)      The incentives under the NEIIPP, 2007 will be available to all industrial units, new as well as existing units on their substantial expansion, located anywhere in the North Eastern Region.  Consequently, the distinction between ‘thrust’ and ‘non thrust’ industries made in NEIP, 97 will be discontinued from the date of notification of NEIIPP, 2007.
(iv)     Under NEIIPP, 2007 incentives on substantial expansion will be given to units effecting ‘an increase by not less than 25% in the value of fixed capital investment in plant and machinery for the purpose of expansion of capacity/modernization and diversification’ as against an increase by 33 ½  % prescribed at present.
(v)       Under NEIIPP, 2007, 100% excise duty exemption will be continued as at present on finished products made in the North Eastern Region.  However, in cases, where the CENVAT paid on the raw materials and intermediate products going into the production of finished products (other than the products which are otherwise exempt or subject to nil rate of duty) is higher than the excise duties payable on the finished products, ways and means to refund such overflow of CENVAT credit will be separately notified by the M/O Finance.
(vi)     100% income tax exemption will continue under NEIIPP, 2007 as at present.
(vii)    Capital investment subsidy will be enhanced from 15% of the investment in plant and machinery to 30% and the limit for automatic approval of subsidy at this rate will be Rs. 1.5 crore per unit as against Rs. 30 lakhs at present.  Such subsidy will be applicable to units in the private sector, joint sector, cooperative sector as well as the units set up by the State Governments of the North Eastern Region.  For grant of capital investment subsidy higher than Rs. 1.5 crore but upto a maximum of Rs.30 crore, there will be an Empowered Committee.
(viii)  Interest subsidy will be made available @ 3% on working capital loan under NEIIPP, 2007 as at present.
(ix)     Under NEIIPP, 2007, new industrial units as well as the existing units on their substantial expansion will be eligible for reimbursement of 100% insurance premium under the Comprehensive Insurance Scheme.
(x)       To include tobacco and tobacco products, pan masala, plastics carry bags and goods produced by refineries, in a host of industries which would not be eligible for incentives under NEIIPP, 2007.
(xi)     To provide incentives to service sector, bio-technology and power generating industries.
(xii)    To continue North Eastern Development Finance Corporation Ltd. (NEDFi) as the nodal agency for disbursal of subsidies under NEIIPP, 2007.
(xiii)  The provisions of the NEIIPP, 2007 would provide the requisite incentives as well as an enabling environment to speed up the industrialization of the North Eastern Region which is otherwise less than 4% p.a. against a national average of 8%.

6. (a) Discuss the role played by the capital market in the economic development of a country.
(b) What is money market? Explain the functions of money market.
7. (a) Write a note on Internal Business Environment’.
Ans: International Business Environment
The international business environment can be defined as the environment in different sovereign countries, with factors exogenous to the home environment of the organization, influencing decision-making on resource use and capabilities.
International business environment refers to totality of all the factors viz. geographic, economic, financial, socio-cultural, political, legal, technological and ecological which are external to and beyond the control of individual business enterprises. International business environment is more complex than the business environment because international business environment consists of foreign and global factors, which are external to domestic environment. A firm is generally familiar with the factors operating at the national level but a firm has to be aware of various factors operating in a country of trading partner. Thus, international business environment is sum total of domestic, foreign and global environments.
International business environment consists of a number of micro-level and macro-level factors operating at domestic level, foreign level and global level. Accordingly various factors constituting business environment may be grouped as under:
(i) Domestic Environment
(ii) Foreign Environment
(iii) Global Environment
The home-based or the domestic export expansion measures are necessarily related to the conditions prevailing in possible markets. An Exporter has to overcome various constraints and adapt plans and operations to suit foreign environmental conditions. The main elements of foreign environment affecting marketing activities of a firm in a foreign country consist of the following.
A) POLITICAL DIMENSION: Nations greatly differ in their political environment. Govt. policies, regulations and control mechanisms regarding the countries, foreign trade and commercial relations with other countries or groups of countries. At least four factors should be considered in deciding whether to do business in a particular country. They are
1) Attitudes towards International Buying:  Some nations are very receptive, indeed encouraging, to foreign firms, and some others are hostile. For e.g.: Singapore, UAE and Mexico are attracting foreign investments by offering investment incentives, removal of trade barriers, infrastructure services, etc.
2) Political Stability:  A country's future and stability is another important issue. Government changes hands sometimes violently. Even without a change, a region may decide to respond to popular feeling. A foreign firm's property may be seized; or its currency holdings blocked; or import quotas or new duties may be imposed. When political stability is high one may go for direct investments. But when instability is high, firms may prefer to export rather than involve in direct investments. This will bring in foreign exchange fast and currency convertibility is also rapid.
3) Monetary Regulations: Sellers want to realise profits in a currency of value to them. In best situations, the Importer pays in the seller's currency or in hard world currencies. In the worst case they have to take the money out of the host country in the form of relatively unmarketable products that they can sell elsewhere only at a loss. Besides currency restrictions, a fluctuating exchange rate also creates high risks for the exporter.
4) Government Bureaucracy: It is the extent to which the Government in the host country runs an efficient system for assisting foreign companies: efficient customs handling, adequate market information, etc. The problem of foreign uncertainty is thus further complicated by a frequently imposed "alien status", this increases the difficulty of properly assessing and forecasting the dynamic international business. The political environment offers the best example of the alien status.
A foreign political environment can be extremely critical; shifts in Government often means sudden changes in attitudes that can result in expropriation, expulsion, or major restrictions in operations. The fact is that a foreign company is foreign and thus always subject to the political whim to a greater degree than a domestic firm.
B) CULTURAL ENVIRONMENT: The manner in which people consume their priority of needs and the wants they attempt to satisfy, and the manner in which they satisfy are functions of their culture which moulds and dictates their style of living. This culture is the sum total of knowledge, belief, art, morals, laws, customs and other capabilities acquired by humans as members of the society. Since culture decides the style of living, it is pertinent to study it especially in export marketing. e.g. when a promotional message is written, symbols recognizable and meaningful to the market (the culture) must be used. When designing a product, the style used and other related marketing activities must be culturally acceptable.
C) ECONOMIC ENVIRONMENT: In considering the international market, each Exporter must consider the importing country's economy. Two economic characteristics reflect the country's attractiveness as an export market. They are the country's industrial structure and the country's income distribution by employment industrialization and socio economic justices.
D) LEGAL ENVIRONMENT: The legal dimension of international Business environment includes all laws and regulations regarding product specification and standards, packaging and labeling, copyright, trademark, patents, health and safety regulations particularly in respect of foods and drugs. There are also controls in promotional methods, price control, trade margin, mark-up, etc., These legal aspects of marketing abroad have several implications which an exporting firm needs to study closely.
(b) Discuss the impact of globalization on Indian trade and industry.
Ans: Meaning of 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 aimed at 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.
In simple words, The term globalization can be defined as the opening one's economy toward the world economy. It means to integrate the domestic economy with world economy. The govt. of India under the prime minister ship of P. V Narasimha introduced liberalisation, privatisation and globalization during 1991 .Due to globalization the multinational corporations have been very popular. These corporations transact their business activities more than one countries.
Globalisation and India
Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient.
With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter has dawned for India and her billion plus population. This period of economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy, and its effects over the last decade can hardly be overlooked. Besides, it also marks the advent of the real integration of the Indian economy into the global economy.
This era of reforms has also ushered in a remarkable change in the Indian mindset, as it deviates from the traditional values held since Independence in 1947, such as self reliance and socialistic policies of economic development, which mainly due to the inward looking restrictive form of governance, resulted in the isolation, overall backwardness and inefficiency of the economy, amongst a host of other problems. This, despite the fact that India has always had the potential to be on the fast track to prosperity.
Impact of Globalization on Indian trade and industry:
Globalization has its impact on India which is a developing country. The positive impact of globalization can be analysed as follows:
1. Access to Technology: Globalization has drastically, improved the access to technology. Internet facility has enabled India to gain access to knowledge and services from around the world. Use of Mobile telephone has revolution used communication with other countries.
2. Growth of international trade: Tariff barriers have been removed which has resulted in the growth of trade among nations. Global trade has been facilitated by GATT, WTO etc.
3. Increase in production: Globalization has resulted in increase in the production of a variety of goods. MNCs have established manufacturing plants all over the world.
4. Employment opportunities: Establishment of MNCs have resulted in the increase of employment opportunities.
5. Free flow of foreign capital: Globalization has encouraged free flow of capital which has improved the economy of developing countries to some extent. It has increased the capital formation.
6. Products of superior quality: Products of superior quality are available in the market due to increased competition, efficiency and productivity of the businesses  and this leads to increased consumer satisfaction.

7. Free flow of finance enable the banking and financial institutions in a  country to fulfill financial requirements through internet and electronic  transfers easily and help businesses to flourish.