M.Com Previous Year Solved Papers: Business Environment' 2012 (August - Incomplete))

2012 (August)

COMMERCE

Paper: 101 (Business Environment)

Full Marks – 80

Time – Three Hours

The figures in the margin indicate full marks for the questions.

1. (a) Discuss the significance of external business environment with examples.                             16

Ans: External Environment and Its significance in Business

The external environment is made up of micro and macro environment.

Micro Environment: This refers to the factors which influence the prospects of a particular firm; the firm can influence them with certain efforts. They are as follows:

a) Customers: The type and the nature of the customers influence the rate of growth of any firm. The firm has to be very particular about choosing the inputs and transforming them in to the output. The cost factor is subsidiary if the firm is dealing with such customers. If the customers are more commoners the quality of the commodity if less important than the cost of production. The customers want the commodity at a lower price so the firm will have to conscious about the cost in purchasing the inputs, in employment of labour, in packing and such other factors influencing the cost.

b) Competitors:  In modern age an absolute monopoly is a very rare thing. Most of the FIRMS have to work in some type of competition such as Monopolistic Competition or Oligopoly. A Firm has to be particular about the intensity of the competition. If the competition is severe the firm will have to be very particular about keeping the costs at the lowest level so that it can sell the commodity at a competitive price.

c) Suppliers:  The quality of the commodity and the cost of production are considerably influenced by the supplies of the inputs. If the inputs are supplied at economical prices, are of standard quality and if the supply is uninterrupted and timely the firm can produce a standard quality of a commodity and sell it at reasonable prices. Often the firms employ more than one supplier so as to ensure an uninterrupted supply of inputs. If the supplies of inputs are regular, consistent and reliable there is no need to keep a larger quantity in stock.

d) Channel Intermediaries: They refer to the different levels in the chain from the production unit to the final customer. The chain incorporates the stockists, the wholesalers, the distributors, the retailer etc. If there is a high level of efficiency maintained at every part of the chain the commodity can reach the final consumer in good condition and at a reasonable price. So the Firm has to select and maintain efficient intermediaries. The firm has to offer them proper terms

e) Society: The prospects of a firm depend upon the society in which it has to work and sell its products. In a homogenous society the job of the firm is easy. The people have almost the same habits likes and dislikes, values and ethical norms. In a heterogeneous society the job of the firm is difficult. A particular product may be acceptable to a particular section of the society but not acceptable to some other sections. In a country like India a firm has to into consideration all types of sections of the community such as the religious sections, the caste, the sect, language, region etc.

Conclusion: All these forces influence the chances available to a firm to survive and develop.

Macro Environment: The macro environment comprises of those forces which influence all business firms operating in an economy. They can be studied under the following categories: economic environment, political and regulatory environment, social/ cultural environment, demographic environment and technological. The components of these environment are discussed as below:

a) Economic Environment:  The survival and success of each and every business enterprise depend fully on its economic environment. The main factors that affect the economic environment are:

(i) Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.

(ii) Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are: Industrial policy, Fiscal policy, monetary policy, foreign investment policy and Export –Import policy. The government keeps on changing these policies from time to time in view of the developments taking place in the economic scenario.

(ii) Economic System: The world economy is primarily governed by three types of economic systems, viz. Capitalist economy; Socialist economy; and Mixed economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector.

b) Political Environment: This includes the political system, the government policies and attitude towards the business community and the unionism. All these aspects have a bearing on the strategies adopted by the business firms. The stability of the government also influences business and related activities to a great extent. It sends a signal of strength, confidence to various interest groups and investors.

c) Legal Environment:  This refers to set of laws, regulations, which influence the business organisations and their operations. Every business organisation has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include: Companies Act, 1956, Foreign Exchange Management Act, 1999, The Factories Act, 1948, Industrial Disputes Act, 19112, Payment of Gratuity Act, 19112, Industries (Development and Regulation) Act, 1951 etc. Besides, the above legislations, the following are also form part of the legal environment of business.

(i) Provisions of the Constitution

(ii) Judicial Decisions.

d)  Social Environment: The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc.

e) Technological Environment:  Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. The varying technological environments of different countries affect the designing of products. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time.

f) Demographic Environment:  This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services.

g) Natural Environment:  The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the sources of input.

Or

(b) Discuss the significance of Government’s role in the business especially in third world countries.                    16

2. (a) Critically argue the success story of various controls under planning period of India.                              16

Or

(b) Critically argue the role played by MRTP Act in India to minimise the restrictive trade practices.       16 (THIS ACT IS NOW ABOLISHED SO NO QUESTION EXPECTED)

Ans: Monopolistic and Restrictive Trade Practices Act (MRTP Act)

The monopolies and Restrictive Trade Practices Act, 1969, brought into force from 1st June 1970, was a very controversial piece of legislation. The principal objectives of the MRTP Act which extends to the whole of India except to the state of Jammu and Kashmir, viz.:

The MRTP Act was significantly amended in 1982, 1984, 1985 and 1991. After the amendments the first objective has become irrelevant as the relevant provisions to achieve the objective have been deleted. The objectives now are:

Restrictive Trade Practices (RTP):

A trade practice which restricts or reduces competition may be termed as restrictive trade practice. The following are the RTPs as described by section 33(1) of the MRTP Act:

(a) Refusal to deal with persons or classes of persons: Any agreement which restricts or it likely to restrict by any methods, the persons or classes of persons to whom goods are sold or from whom goods are bought.

(b) Tie-in sales or full line forcing: Any agreement requiring purchaser of goods, as a condition of such purchase, to purchase some other goods.

(c) Exclusive dealing agreement: Any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of seller or any other goods.

(d) Collective price fixation and tendering: Any agreement to purchase or sell goods or to tender for the sale or purchase of goods only at prices or terms and conditions agreed upon between the sellers or purchaser.

(e) Discriminatory Dealings : Any agreement to grant or allow concession or benefits, including allowances, discounts, rebate or credit, in connection with or by reason of dealings.

(f) Re-sale price maintenance: Any agreement to sell goods on condition that the prices to be charged on resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged.

(g) Restriction on output or supply of goods: Exclusive distributorship, territorial restriction and market sharing.

(h) Control of manufacturing process.

(i) Price control arrangements.

(j) Governmental recognition of practice as restriction.

(k) Residual restriction trade practices: Any agreement to enforce the carrying out of any such agreement as is referred to in the foregoing classes.

Remedies under the MRTP Act

Under the Monopolistic and Restrictive Trade Practices Act, 1969, the commission has the power to attend complaint, inquire facts and pass orders regarding any unfair trade practice, monopolistic trade practice and/or restrictive trade practice. The commission can order any person to bring in any books of accounts, or other documents to investigate the matter of such practices. During investigation, if the commission has grounds to believe that any books or papers are being destroyed, mutilated, altered, falsified or secreted, it may authorize any officer of the Commission to search and seizure any such books or papers. The commission after inquiring the case shall pass the remedial order.

The remedies under this Act are:

Section 12A Power of the Commission to Grant Temporary Injunctions

Section 12A of the MRTP Act, 1969, accounts for the power of the Commission to grant temporary injunctions. The provisions of the section are:

Where it is proved that any undertaking or any person is carrying on any monopolistic or restrictive, or unfair, trade practice and such monopolistic or restrictive, or unfair, trade practice is likely to affect the interest of any trader, class of traders or of any consumer or public generally, the Commission may, for the purposes of staying or preventing the undertaking, grant a temporary injunction restraining such undertaking or person from carrying on any monopolistic or restrictive, or unfair, trade practice until the conclusion of such inquiry or until further orders.

For the purposes of this section, an inquiry shall be deemed to have commenced upon the receipt of any complaint or reference by the Commission or upon its own knowledge or information reduced to writing by the Commission.

For the removal of doubts, the power of the Commission with respect to temporary injunction includes power to grant a temporary injunction without giving notice to the opposite party.

Section 12B Power of the Commission to Award Compensation

Section 12B provides for the second remedy under this Act. The provision regarding the power of the Commission to award compensation is:

Where any loss or damage is caused to the Central Government or State Government or trader or class of traders or any consumer because of the monopolistic, or restrictive, or unfair, trade practice carried on by any undertaking or any person, then such Government, trader, class of traders or consumer may make an application to the Commission for the recovery of any compensation from that undertaking or person. The recovery shall be of such amount as the Commission may determine as compensation for the loss or damage so caused.

Where any loss or damage is caused to numerous persons having the same interest, then one or more of such persons may, with the permission of the Commission, make an application for the benefit of all the persons so interested.

The Commission after inquiring into the allegations made in the application, shall make an order directing the owner of the undertaking to make payment to the applicant, of the amount determined by it as realizable from the undertaking as compensation for the loss or damage caused to the applicant by reason of any monopolistic or restrictive, or unfair, trade practice carried on by such undertaking or other person.

Where a decree for the recovery of any amount as compensation for any loss or damage has been passed by any court in favor of any, the amount shall be set off against the amount payable under such decree.

Every order made by the Commission, under section 12A granting a temporary injunction or under section 12B awarding compensation, may be enforced by the Commission in the same manner as if it were a decree or order made by a court. In case such orders are not executed by the undertaking or other person, then it shall be lawful for the Commission to send such order to the court.

3. (a) Write a detail note on the monetary policy of India.                           16

Ans: Monetary Policy: Monetary policy refers to policy formulated and implemented for achieving the following objectives:

According to A.G. Hart "A policy which influences the public stock of money substitute of public demand for such assets of both that is policy which influences public liquidity position is known as a monetary policy."

From the above discussion, it is clear that a monetary policy is related to the availability and cost of money supply in the economy in order to attain certain broad objectives.

Objectives of Monetary Policy: The objectives of a monetary policy in India are similar to the objectives of its five year plans. In a nutshell planning in India aims at growth, stability and social justice. After the Keynesian revolution in economics, many people accepted significance of monetary policy in attaining following objectives.

Importance of monetary policy

 A modern economy is a money economy. All transactions are effected with the help of and through the medium of money. The prices of goods, services and factors are fixed in terms of money. People earn their income in the form of money and spend it in the form of money. So the supply of money creates money income in the hands of the community and expenditure of money generates the demand for different goods and services.

The monetary authority has to maintain a perfect balance between increase in the production of goods and services and increase in the supply of money. If increase in the supply of money exceeds increase in the production of goods and services the result is inflation. On the other hand, if the production of goods and services increases at a fast rate and the supply of money increases at a slow rate the result is recession and maybe depression. Hence the monetary authority has to monitor the growth in production very closely and adjust the money supply to it.

In India the monetary policy is formulated and implemented by the Reserve Bank of India which is an autonomous financial institution. It is expected that the RBI would use professional expertise to control the supply of money to the benefit of the community.

Obstacles In Implementation of Monetary Policy

Through the monetary policy is useful in attaining many goals of economic policy, it is not free from certain limitations. Its scope is limited by certain peculiarities, in developing countries such as India. Some of the important limitations of the monetary policy are given below.

Instruments of Monetary Policy or Credit Control tools:  

The instruments used by the central Bank for controlling the supply of bank money are classified into two categories namely

The General Instruments of Credit Control:  These instruments are called general because they are uniformly applicable to all commercial banks and in respect of loans given for all purposes. The general instruments are as follows:

Selective Instruments of Credit Control: These instruments of monetary policy can be used in respect of any particular bank or in respect of a loan given against a particular security. Hence they are called selective instruments. The prominent amongst them are as follows:

Or

(b) Write a detail note on the fiscal policy of India.                                            16

4. (a) Explain the important provisions of Consumer Protection Act.                                       16

Ans: CONSUMER PROTECTION ACT, 1986: The main objective of the act is to provide for better protection of consumers. Unlike existing laws which are punitive or preventive in nature, the provisions of this Act are compensatory in nature. The act is intended to provide simple, speedy and inexpensive redressal to the consumers' grievances, and reliefs of a specific nature and award of compensation wherever appropriate to the consumer.

The objectives of the Consumer Protection Act are as follows:

Important Provisions of Consumer Protection Act

Consumer is a person who uses the goods. According to the Consumer Protection Act, 1986, a consumer is one:

Who is not a consumer?

Complaint: A complaint before an appropriate consumer forum can be made by complainant who can be:

"Complaint" can be made in the following cases:

Procedure for filling complaint

The complainant or his authorised agent can present the complaint in person or send it by post to the appropriate forum or Commission, as the case may be, within a period of 2 years from the date on which the cause of action has arisen. No fee is charged for filing a complaint before the District Forum or the State Commission or the National Commission. A complaint should always be supported and verified by an affidavit.

The District Forum, State Commission and National Commission are required to decide complaints, as far as possible, within three months from date of notice received by the opposite parties. For those complaints which require laboratory analysis or testing of commodities, the period is extended to five months. The consumer has the right to file an appeal within 30 days with the next higher forum if he feels justice has not been done to him. If a consumer is not satisfied with the decision of national commission he can move to Supreme Court with the require fees within 30 days.

REMEDIES/PROTECTION UNDER THE ACT

In case it is proved that there exists a defect in the goods or that the services rendered were deficient in nature the following remedies against the seller are available to the Consumer.

Judicial machinery to deal with consumer grievances and disputes

Government of India has framed a set of laws and legislations to protect the interests of consumers and the most important act framed by Government is Consumer Protection Act, 1986. This act has provided three tier redressal agencies i.e. District Forum, State Commission and National Commission.

Or

(b) Explain the growth trends of India’s foreign trade.                                   16

Ans: Direction of Indian foreign trade

The international environment is very important from the pint of view of certain categories of business. It is particularly important for industries directly depending on imports or exports and import-competing industries. An international marketer is required to understand, evaluate and work out various parameters before venturing into any country. These Parameters are called environmental factors and they determine the direction and purpose of the international business operation. Many decisions depend upon environmental factors right from selection of the country, location of the plant liaison with the government, and entry of investment from local bodies, product launch, channel management, promotion and opening of outlets. The first challenge for an organization is to navigate from its home country to the host country. Thereafter it has to develop a proper system so that the venture is successful in the host country; learn all about the regulatory bodies both in the host country and home country; understand the customer’s changing tastes and attitude towards foreign goods and finally obtain revenue and make the business effective with right people.

The severity of economic crisis of 1991 provided an opportunity to the Government to make far-reaching changes in macroeconomic policy. There was liberalisation of domestic investment by removing direct controls on private sector and adopted fiscal and monetary policies to promote growth. Besides, the New Economic Policy pursued since 1991 also liberalized foreign trade and investment. The growth strategy was made export-oriented. Not only quantitative restrictions on imports have been removed but also customs duties have been drastically reduced.

Thus efforts have been made to integrate the Indian economy with the global economy. Rupee was devalued in 1991 and from 1993 exchange rate of rupee was made market-determined. It is, therefore, important to know how India’s foreign trade sector has performed in response to these important changes in economic policy framework.

The performance of foreign trade since 1991 is shown in Table 27.6 which reveals that after a transition period of 2 years, merchandise exports grew at about 20 per cent a year in dollar terms for three successive years during 1993-94 to 1995-96. Then due to slowdown in world trade and recession in the USA which is India’s major trade partner, annual growth of exports slowed down from 1996-97 to 1999-2000.

However after 2000 up till 2007-08 with the exception of year 2001 -02 there was more than 20 per cent annual growth of exports on sustained basis for over eight years (2000 to 2008) and in 2007-08 average annual growth rate of our exports was around 29 per cent.

Despite the sluggish performance of exports from 1996-97 to 1998-99 deficit in trade balance remained below 4 per cent of GDP (See Col. IV of Table 27.8) due to the equally subdued growth in imports during this period. During the four-year period, 2004-05 to 2007-08, India’s imports grew at a much higher rate due to robust industrial growth relative to growth in our exports and as a result deficit in our trade balance greatly increased; as a percentage of GDP it was 4.8 per cent in 2004-05, 6.8 per cent in 2006-07, and 7.8 per cent in 2007-08.

Due to global financial crisis and consequent economic slowdown in the US and European countries, the growth rate of our exports fell to 13.6 per cent in 2008-09, whereas imports grew at 26.7 per cent. As a result deficit in our trade balance rose to 12 per cent of GDP.

Bolstered by the measures taken by the government to help exports in the aftermath of the world recession of 2008 and also the low base effect, India’s export growth of 40.5 per cent in 2010-11 reached an all time high since Independence. Though it decelerated in 2011 -12 to 21.3 per cent, it was still above 20 per cent and higher than the compound annual growth rate (CAGR) of 20.3 per cent for the period 2004-05 to 2011-12.

After registering very high growth of 56.5 per cent in July 2011, export growth started decelerating with a sudden fall to single digits in November 2011 as a result of the emerging global situation and then to negative figures from March 2012. Export growth rate in 2012-13 was negative and equal to – 1.8%. For three months in 2012-13, exports declined YOY by double digits with the largest decline recorded in July 2012 at – 15.1 per cent.

Export growth in dollar terms was negative at-1.8 per cent in 2012-13, compared to 21.3 percent growth in 2011-12 (full year). In rupee India’s export growth has almost continuously been above world export growth in the 2000s decade and in 2011. One issue that has been a topic of debate is whether India’s export growth rate is dependent on world growth/trade or exchange rate. There is a strong correspondence between India’s export growth and world export growth.

COMMDITY-WISE AND DESTINATION-WISE EXPORTS (2011-12)

Commodity-wise exports data available upto March 2012, shows that the share of manufacturing sector in total merchandise exports declined marginally from 62.9% in 2010-11 to 61.3% in 2011-12. However, the respective share of petroleum products and primary products increased during the period (Table 2). Within exports of manufacturing sector, the share of engineering goods and textile & textile products declined while that of chemical and related products improved marginally.

Among the major sectors, growth in exports of manufacturing sector seems to have been affected significantly during 2011-12. Within manufacturing sector, growth in exports of engineering goods and textile products was lower as demand conditions in key markets like the US and Europe were sluggish. These two markets account for nearly 60% and 50% of total exports from engineering and textile sector. Within engineering sector, growth in exports of transport equipment, iron & steel, electronic goods and manufactures of metals was significantly hit while that of machinery and instruments moderated marginally. However, growth in exports of leather & manufactures and chemicals & related products witnessed higher growth during 2001-12 as compared with 2010-11.

An analysis of the shift in the composition of India’s commodity exports reveals some interesting facts. Before the reforms, India’s exports were significantly driven by exports of primary agricultural commodities and a few manufacturing commodities such as textiles, and gems and jewellery; whole the commodity composition at the global level was shifting to technology-intensive manufacturing commodities such as engineering goods and chemicals. The reforms and favourable trade policy brought a shift in the composition of India’s commodity exports. Technology-intensive exports comprising engineering goods such as metals, machinery and transport equipment, and chemicals, including pharmaceuticals emerged as the leading export sector for the country, signifying rising prominence of exports in India’s GDP growth. Besides a shift towards technology-intensive exports, exports of petroleum products (which showed spectacular growth) emerged as a major contributor to total exports, reflecting the impact of India becoming the sixth largest refinery in the world.

5. (a) Discuss the structural reforms that has taken place after liberalization of Indian economy.                              16

Or

(b) Discuss the need, significance and importance of e-commerce.                                         16

Ans: Meaning of E-Commerce

E – Commerce also known as Electronic Commerce refers to a firm’s interactions with its customers and suppliers over internet. It includes purchase and sales of goods and services, transfer of funds and data from one party to another party. These types of business transactions can be done in four ways: Business to Business (B2B), Business to customer (B2C), Intra-B commerce, Customer to Customer (C2C) and Customer to Business (C2B). Amazon, Flipkart, Shopify, Olx, Myntra are some examples of e-commerce websites.

Types of E-Commerce business

(i) B2B Commerce: Here, both the parties involved in e-commerce transactions are business firms, and, hence the name B2B, i.e., business-to-business. Creation of utilities or delivering value requires a business to interact with a number of other business firms which may be suppliers or vendors of diverse inputs; or else they may be a part of the channel through which a firm distributes its products to the consumers. For example, the manufacture of an automobile requires assembly of a large number of components which in turn are being manufactured elsewhere— within the vicinity of the automobile factory or even overseas. To reduce dependence on a single supplier, the automobile factory has to cultivate more than one vendor for each of the components. A network of computers is used for placing orders, monitoring production and delivery of components, and making payments. Likewise, a firm may strengthen and improve its distribution system by exercising a real time (as it happens) control over its stock-in-transit as well as that with different middlemen in different locations.

(ii) B2C Commerce: As the name implies, B2C (business-to-customers) transactions have business firms at one end and its customers on the other end. B2C commerce entails a wide range of marketing activities such as identifying activities, promotion and sometimes even delivery of products (e.g., music or films) that are carried out online. E-commerce permits conduct of these activities at a much lower cost but high speed. For example, ATM speeds up withdrawal of money.

(iii) Intra-B Commerce: Here, parties involved in the electronic transactions are from within a given business firm, hence, the name intra-B commerce.

(iv) C2C Commerce: Here, the business originates from the consumer and the ultimate destination is also consumers, thus the name C2C commerce. This type of commerce is best suited for dealing in goods for which there is no established market mechanism, for example, selling used books or clothes either on cash or barter basis. The vast space of the internet allows persons to globally search for potential buyers. OLX, PayPal is a good example of this kind.

(v) C2B Commerce: Consumer-to-business (C2B) is a business model where a consumer makes a product or service that is consumed by an organization to complete its business process. The C2B methodology is completely opposite of the  traditional business-to-consumer (B2C) model, where a business produces services and products for consumer consumption.

Need of E-Commerce

In present world, E-Commerce is very effective because it provides many opportunities not only to the producers but also to the wholesalers, retailers and customers which are stated below:

a)      Opportunity to producers: E-Business enables producers to select the best suppliers regardless of their geographical location. The producers can acquire quality raw materials and latest production technology from new suppliers.

b)      Opportunity to wholesaler / distributes: Wholesaler by taking the advantage of e-business can work more closely with their suppliers and they can be more responsive to the needs and expectations of their retailers and customers

c)       Opportunity to retailer: A retailer can save his existence by linking his business with the on – line Distribution. There fore the retailers who have the capacity to link their business with the online, E-business is a good opportunity

d)      Opportunity to customer: Customers can purchase required quality products and services at competitive prices from suppliers anywhere in the world.

Role of E-Commerce

Advantages of E-Commerce

(i) Ease of formation and lower investment requirements: Unlike a traditional business, e-commerce business very easy to start with low investment. It is not necessary to build an infrastructure for business and it can be started  at the convenience of home by developing an e-commerce website. Customer can visit websites and place order over internet. It increases the customer base of business.

(ii) Convenience: Internet offers the convenience of ‘24 hours × 7 days a week × 365 days’ a year business that allowed any customer to go for shopping well after midnight. Such flexibility is available even to the organisational personnel whereby they can do work from wherever they are, and whenever they may want to do it. E-business is truly a business as enabled and enhanced by electronics and offers the advantage of accessing anything, anywhere, anytime.

(iii) Speed: As already noted, much of the buying or selling involves exchange of information that internet allows at the click of a mouse. This benefit becomes all the more attractive in the case of information-intensive products such as softwares, movies, music, e-books and journals that can even be delivered online. Cycle time, i.e., the time taken to complete a cycle from the origin of demand to its fulfillment, is substantially reduced due to transformation of the business processes from being sequential to becoming parallel or simultaneous.

(iv) Global reach/access: Internet is truly without boundaries. On the one hand, it allows the seller an access to the global market; on the other hand, it affords to the buyer a freedom to choose products from almost any part of the world. It would not be an exaggeration to say that in the absence of internet, globalisation would have been considerably restricted in scope and speed.

(v) Marketing of goods: E-commerce involves not only purchase and sale of goods and services but it started before the development of the product. Due to which product awareness is created amongst the customer before launch. Best example of this type of sale is Redme.

Limitations of E-Commerce

E-Commerce is not all that rosy. Doing business in the electronic mode suffers from certain limitations. It is advisable to be aware of these limitations as well.

(i) Low personal touch: High-tech it may be, e-commerce, however, lacks personal contact between buyers and sellers. To this extent, it is relatively less suitable mode of business in respect of product categories requiring high personal touch such as garments, toiletries, etc.

(ii) Incongruence between order taking/giving and order fulfillment speed: Information can flow at the click of a mouse, but the physical delivery of the product takes time. This incongruence may play on the patience of the customers. At times, due to technical reasons, web sites take unusually long time to open. This may further frustrate the user.

(iii) Need for technology capability and competence of parties to e-business: Apart from the traditional 3R’s (Reading, Writing, and Arithmetic), e-business requires a fairly high degree of familiarity of the parties with the world of computers. And, this requirement is responsible for what is known as digital divide that is the division of society on the basis of familiarity and non-familiarity with digital technology.

(iv) Increased risk due to anonymity and non-traceability of parties: Internet transactions occur between cyber personalities. As such, it becomes difficult to establish the identity of the parties. Moreover, one does not know even the location from where the parties may be operating. It is riskier, therefore, transacting through internet. e-business is riskier also in the sense that there are additional hazards of impersonation (someone else may transact in your name) and leakage of confidential information such as credit card details. Then, there also are problems of ‘virus,’ and ‘hacking,’ that you must have heard of. If not, we will be dealing with security and safety concerns of online business.

(v) People resistance: The process of adjustment to new technology and new way of doing things causes stress and a sense of insecurity. As a result, people may resist an organisation’s plans of entry into e-commerce.

(vi) Ethical fallouts: Stealing and selling of customer’s data is now a common practice which is against the ethics of business. Nowadays, companies use an ‘electronic eye’ to keep track of the computer files we use, our e-mail account, the websites we visit etc. Is it ethical?

Despite limitations, e-commerce is the way

It may be pointed out that most of the limitations of e-commerce discussed above are in the process of being overcome. Websites are becoming more and more interactive to overcome the problem of ‘low touch.’ Communication technology is continually evolving to increase the speed and quality of communication through internet. Efforts are on to overcome the digital divide, for example, by resorting to such strategies as setting up of community telecentres in villages and rural areas in India with the involvement of government agencies, NGOs and international institutions. In order to diffuse e-commerce in all nooks and corners, India has undertaken about 150 such projects. In view of the above discussion, it is clear that e-business is here to stay and is poised to reshape the businesses, governance and the economies. It is, therefore, appropriate that we familiarise ourselves with how e-business is conducted.