Tag: Business Environment

Management Notes

International Business Environment, Meaning, Factors, Parties and Importance

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International Business Environment In the context of a business firm, environment can be defined as various external actors and forces that surround the firm and influence its decisions and operations. The two major characteristics of the environment as pointed out by this definition are: these actors and forces are external to the firm these are essentially uncontrollable. The firm can do little to change them.

The International Business Environment concentration provides a “macro” view of markets and institutions in the global economy. It will prepare students for careers involving international market analysis such as international commercial and investment banking, portfolio analysis and risk assessment, new market development, international business consulting, and international business law. The foundational courses focus on an understanding of global markets and institutions. The concentration will allow the student to combine courses in broader areas of economic development, regional business environment, and/or international law, management, marketing, trade, and finance. The student will be encouraged to combine the core courses with supplemental coursework in related international subjects such as language, history, politics, and culture.

Exports boost the economic development of a country, reduce poverty and raise the standard of living. The world’s strongest economies are heavily involved in international trade and have the highest living standards, according to the Operation for Economic Co-operation and Development (OECD).

Countries like Switzerland, Germany, Japan and the Scandinavian countries have high volumes of imports and exports relative to their gross domestic product and offer high standards of living. Nations with lower ratios of international trade, such as Greece, Italy, Spain and Portugal, face serious economic problems and challenges to their living standards. Even with low wages, less developed countries can use this advantage to create jobs related to exports that add currency to their economy and improve their living conditions.

Factors affecting International Business Environment

  • Political Factors

Political stability, government policies, trade agreements, and diplomatic relations play a significant role in international business. For example, a politically stable country with business-friendly regulations encourages foreign investments, while political unrest or trade restrictions can deter business activities.

  • Economic Factors

Economic conditions such as GDP growth, inflation, exchange rates, and interest rates impact international business. A strong economy provides a favorable market for goods and services, while economic instability or currency fluctuations can lead to challenges in pricing and profitability.

  • Social Factors

Demographics, lifestyle preferences, education levels, and cultural norms shape consumer behavior and demand patterns. Understanding the social context is essential for businesses to tailor products and marketing strategies to meet local needs effectively.

  • Technological Factors

Technological advancements, innovation, and the availability of infrastructure like the internet and communication systems affect how businesses operate internationally. Companies in technologically advanced countries may gain a competitive edge, while those in regions with limited technology may face challenges in scaling operations.

  • Environmental Factors

Environmental sustainability, climate change, and the availability of natural resources significantly influence international business. Organizations must comply with international environmental standards and adopt sustainable practices to maintain their reputation and meet regulatory requirements.

  • Legal Factors

Different countries have unique legal frameworks governing business activities, including labor laws, taxation, trade regulations, and intellectual property rights. Companies must navigate these legal landscapes carefully to avoid penalties and ensure smooth operations.

  • Cultural Factors

Cultural differences, including language, traditions, and business etiquette, can impact communication, negotiation, and overall success in international markets. A lack of cultural sensitivity may result in misunderstandings or failure to build trust with stakeholders.

  • Competitive Factors

The level of competition in foreign markets influences pricing, product positioning, and market entry strategies. Understanding local competitors and consumer loyalty is crucial for establishing a foothold and sustaining business growth.

Parties involved in International Business Environment

  • Governments

Governments influence international business through policies, regulations, and treaties. They regulate trade through tariffs, quotas, and trade agreements. Governments also support businesses by providing export incentives, infrastructure, and diplomatic assistance.

  • Multinational Corporations (MNCs)

MNCs are businesses that operate in multiple countries. They drive globalization by investing in foreign markets, creating employment, and transferring technology. MNCs influence international business dynamics through their scale, resources, and global reach.

  • Exporters and Importers

These are businesses or individuals engaged in cross-border trade. Exporters sell goods and services to foreign markets, while importers purchase goods and services from abroad to meet domestic demand. They form the backbone of international trade.

  • Financial Institutions

Banks, investment firms, and international financial organizations facilitate global trade and investment by providing financial products like trade credit, loans, and currency exchange services. Institutions such as the International Monetary Fund (IMF) and the World Bank play a crucial role in stabilizing economies and fostering development.

  • International Organizations

Global institutions like the World Trade Organization (WTO), United Nations (UN), and regional bodies like the European Union (EU) create frameworks for international cooperation. These organizations establish rules for trade, resolve disputes, and promote economic integration.

  • Logistics and Supply Chain Providers

Shipping companies, freight forwarders, and customs brokers facilitate the movement of goods across borders. They play a critical role in ensuring smooth and timely delivery, compliance with regulations, and cost-effective transportation.

  • Consumers

End-users in international markets drive demand for goods and services. Their preferences, purchasing power, and cultural influences significantly impact business strategies and product offerings in global markets.

  • Trade Associations and Chambers of Commerce

Organizations like the International Chamber of Commerce (ICC) and regional trade associations advocate for businesses, provide market insights, and facilitate networking. They also represent business interests in policymaking and trade negotiations.

  • Non-Governmental Organizations (NGOs)

NGOs advocate for sustainable and ethical business practices in the global market. They influence policies and corporate behavior on issues like environmental sustainability, labor rights, and social responsibility.

Importance of the International Business Environment

  • Exports Increase Sales

Exporting opens new markets for a company to increase its sales. Economies rise and fall, and a company that has a good export market is in a better position to weather an economic downturn.

Furthermore, businesses that export are less likely to fail. It’s not only the exporting companies that increase sales; the companies that supply materials to the exporters also see their revenues go up, leading to more jobs.

  • Exports Create Jobs

A company that increases its exports needs to hire more people to handle the higher workload. Businesses that export have a job growth 2 to 4 percent higher than companies that don’t; these export-related jobs pay about 16 percent more than jobs in companies with fewer exports. The workers in these export-related jobs spend their earnings in the local economy, leading to a demand for other products and creating more jobs.

  • Imports Benefit Consumers

Imported products result in lower prices and expand the number of product choices for consumers. Lower prices have a significant effect, particularly for modest and low-income households. Studies show that lower import prices save the average American family of four around $10,000 per year.

Besides lower prices, imports give consumers a wider choice of products with better quality. As a result, domestic manufacturers are forced to lower their prices and increase product lines to meet the competition from imports. Even further, domestic vendors may have to import more components of their products to stay price competitive.

  • Improved International Relations

International business removes rivalry between different countries and promotes international peace and harmony. Mutual trade creates a dependence on each other, improves confidence and fosters good faith.

A good example of co-dependency of nations is the relationship between the United States and China. Even though these countries have significant political differences, they try to get along because of the huge amount of trade between them.

Their relationship evolved and changed a lot over the past decades. Not too long ago, it was characterized by mutual tolerance, intensifying diplomacy and bilateral economic relationships. This was a win-win for both parties.

In July 2016, more than 800 hundred Chinese products became subject to a 25 percent import tax. The new tariff policy is expected to affect U.S.-China relations. Financial experts believe that there’s no going back to how things were.

A policy of a free international trade environment strengthens the economies of all countries. The competition from imports and exports leads to lower prices, better quality of products, wider selections and improved standards of living. While international trade may lead to the loss of some jobs, it has a stronger synergistic effect on the creation of new jobs and improved economic conditions.

Management Notes

Scope of International Business

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International business is the process of implying business across the boundary of the country at a global level. It focuses on the resources of the globe and objectives of the organization on the global business.

International business refers to the global trade of goods/services outside the boundaries of a country. International business conducts business transactions all over the world, it is also known as Global Business. It includes transaction between the parties in different global location.

If you are making a transaction with the International e-commerce websites i.e, AliExpress, Amazon, E-bay than you are making an International transaction. The trade allows a country to specialize in producing and exporting the most efficient products that can be produced in that country. International business consists of the movement to other countries of goods, products, technology, experience of management and resources.

Scope of International Business

  1. Foreign Investments

Foreign investment is an important part of international business. Foreign investment contain investments of funds from the abroad in exchange for financial return. Foreign investment is done through investment in foreign countries through international business. Foreign investments are two types which are direct investment and portfolio investment.

  1. Exports and Imports of Merchandise

Merchandise are the goods which are tangible. (those goods which can be seen and touched.) As mentioned above merchandise export means sending the home country’s goods to other countries which are tangible and merchandise imports means bringing tangible goods to the home country.

  1. Licensing and Franchising

Franchising means giving permission to the new party of the foreign country in order to produce and sell goods under your trademarks, patents or copyrights in exchange of some fee is also the way to enter into the international business. Licensing system refers to the companies like Pepsi and Coca-Cola which are produced and sold by local bottlers in foreign countries.

  1. Service Exports and Imports

Services exports and imports consist of the intangible items which cannot be seen and touched. The trade between the countries of the services is also known as invisible trade. There is a variety of services like tourism, travel, boarding, lodging, constructing, training, educational, financial services etc. Tourism and travel are major components of world trade in services.

  1. Growth Opportunities

There are lots of growth opportunities for both of the countries, developing and under-developing countries by trading with each other at a global level. The imports and exports of the countries grow their profits and help them to grow at a global level.

  1. Benefiting from Currency Exchange

International business also plays an important role while the currency exchange rate as one can take advantage of the currency fluctuations. For example, when the U.S. dollar is down, you might be able to export more as foreign customers benefit from the favourable currency exchange rate.

  1. Limitations of the Domestic Market

If the domestic market of a country is small then the international business is a good option for the growth of the business in the host country. Depression of domestic market firms will force to explore foreign markets.

Management Notes

Role of Management Information System (MIS)

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Simply MIS stand For Management Information System. For Simply Understanding Management Information System (MIS) we can divide in to three Word and Understand Part by part

  • Management: “Management is function to do the work at the Right time, by the right Person, For the Right Job.”
  • Information: “Information is the Collection of Organized data which plays a Vital Role for decision making.”
  • System: “System Consist for a set of elements which Provides a Framework to convert Unorganized (Data) into Organized Information.”

Role of Management Information System

Management information system (MIS) has become Very Necessary due to Emergence of high complexity in Business Organization. It is all to know that without information no Organization can take even one step properly regarding the decision making process. Because it is matter of fact that in an organization decision plays an essential role for the achievement of its objectives and we know that every decision is based upon information. If gathered information are irrelevant than decision will also incorrect and Organization may face big loss & lots of Difficulties in Surviving as well.

  1. Helps in Decision making

Management Information System (MIS) plays a significant Role in Decision making Process of any Organization. Because in Any organization decision is made on the basis of relevant Information and relevant information can only be Retrieving from the MIS.

  1. Helps in Coordination among the Department

Management information System is also help in establishing a sound Relationship among the every persons of department to department through proper exchanging of Information’s.

  1. Helps in Finding out Problems

As we know that MIS provides relevant information about the every aspect of activities. Hence, If any mistake is made by the management then Management Information Systems (MIS) Information helps in Finding out the Solution of that Problem.

  1. Helps in Comparison of Business Performance

MIS store all Past Data and information in its Database. That why management information system is very useful to compare Business organization Performance. With the help of Management information system (MIS) Organization can analyze his Performance means whatever they do last year or Previous Years and whatever business performance in this year and also measures organization Development and Growth.

Components

A Management Information System (MIS) comprises five key components – people, business processes, data, hardware, and software. These components work collaboratively to achieve the organization’s objectives and ensure smooth operations.

People:

Users of the information system, such as accountants, human resource managers, etc., record day-to-day business transactions. The ICT department supports these users, ensuring the system’s proper functioning.

Business Procedures:

Agreed-upon best practices that guide users and other components in working efficiently. These procedures are developed by various stakeholders, including users and consultants.

Data:

Recorded day-to-day business transactions, collected from various activities like deposits and withdrawals for a bank.

Hardware:

The physical equipment like computers, printers, and networking devices that provide computing power for data processing, as well as networking and printing capabilities. Hardware accelerates the transformation of data into valuable information.

Software:

Programs that run on the hardware. Software is divided into system software (e.g., operating systems like Windows, Mac OS, Ubuntu) and applications software (e.g., Payroll program, banking system, point of sale system) that facilitate specific business tasks.

In an MIS, these components form an interconnected ecosystem, with people using business procedures to interact with and record data. The hardware, along with the software, processes this data, transforming it into meaningful information accessible to users. The effective collaboration of all these components ensures the MIS serves its purpose, providing valuable insights for decision-making and supporting business operations.

Management Notes

Organizational Decision Making

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Decision making can be defined as selecting between alternative courses of action. Management decision making concerns the choices faced by managers within their duties in the organization. Making decisions is an important aspect of planning. Decision making can also be classified into three categories based on the level at which they occur.

Strategic Decisions: These decisions establish the strategies and objectives of the organization. These types of decisions generally occur at the highest levels of organizational management.

Tactical Decisions: Tactical decisions concern the tactics used to accomplish the organizational objectives. Tactical decisions are primarily made by middle and front-line managers.

Operational Decisions: Operational decisions concern the methods for carrying out the organizations delivery of value to customers. Operational decisions are primarily made by middle and front-line managers.

Decisions can be categorized based on the capacity of those making the decision.

Personal Decisions: Personal decisions are those primarily affecting the individual though the decision may ultimately have an effect on the organization as a result of its effect on the individual. These types of decisions are not made within a professional capacity. These decisions are generally not delegated to others.

Organizational Decisions: An organizational decision is one that relates or affects the organization. It is generally made by a manager or employee within their official capacity. These decisions are often delegated to others.

Strategies:

Marginal Analysis

Marginal analysis helps organizations allocate resources to increase profitability and benefits and reduce costs. An example from indeed.com is if a company has the budget to hire an employee, a marginal analysis may show that hiring that person provides a net marginal benefit because the ability to produce more products outweighs the increase in labor costs.

SWOT Diagram

This tool helps a manager study a situation in four quadrants:

  • Strengths: Where does the organization excel compared to its competition? Consider the internal and external strengths.
  • Weaknesses: What could the organization improve?
  • Opportunities: How can the organization leverage its strengths to create new avenues for success.
  • Threats: Determine what obstacles prevent the organization from achieving its goals.

Decision Matrix

A decision matrix can provide clarity when dealing with different choices and variables. It is like a pros/cons list, but decision-makers can place a level of importance on each factor. According to Dashboards, to build a decision matrix:

  • List your decision alternatives as rows
  • List relevant factors as columns
  • Establish a consistent scale to assess the value of each combination of alternatives and factors
  • Determine how important each factor is in choosing a final decision and assign weights accordingly
  • Multiply your original ratings by the weighted rankings
  • Add up the factors under each decision alternative
  • The highest-scoring option wins

Pareto Analysis

The Pareto Principle helps identify changes that will be the most effective for an organization. It’s based on the principle that 20 percent of factors frequently contribute to 80 percent of the organization’s growth. For example, suppose 80 percent of an organization’s sales came from 20 percent of its customers. A business can use the Pareto Principle by identifying the characteristics of that 20 percent customer group and finding more like them. By identifying which small changes have the most significant impact, an organization can better prioritize its decisions and energies.

Steps:

Make long-term goals and use them to measure your decisions.

All too often, organizations find themselves endlessly running around in pursuit of short-term goals. Money that has been committed to a year-long project gets overrun or set off because flashy or short-term priorities arise and resources are redirected. As a result, you typically end up with an awful lot of confusion and a lack of overall progress.

To avoid this problem, nail down your high-priority, long-term goals from the outset. Then as your organization makes decisions, ask yourself whether what you’re doing aligns with those goals. This should be a constant process, returning again and again to check your organizational activity against your goals.

When you apply this method successfully, you will engage more reliably in short-term projects that support your long-term goals. Over time, this will push your organization forward.

Align your goals with your core values

Ideally, these should flow from your organization’s mission and core values. Your organization’s goals may evolve over time, but its values should be much less mutable.

Your organizational values confer a coherent sense of identity and continuity to your organization. They should be clearly understood and agreed upon by your decision-makers. As you evaluate your goals, make sure that they are aligned with your core values.

Assess (and reassess) spending

One way to evaluate your priorities as they are being realized today is to take a look at your spending. Often, you may think you’re prioritizing a particular goal or effort, while your budget tells a different story.

Make sure your organizational spending reflects your identified priorities. If not, you need to take a second look. And as with any such check-in, it’s essential to make this a regular assessment to continuously verify that you’re on track.

Understand the impacts of your decisions.

Some decisions may be discrete and routine, having neat boundaries and only significantly impacting the matter directly at hand. But more often, organizational decisions may have wide-ranging consequences, especially if they will touch on policy or processes.

As your organization considers varying possibilities, make sure to weight second and third-order effects. These consequences can provide crucial context for the decision at hand.

Remember your personnel.

Organizations tend to depend on the quality of their employees to succeed. If your decisions make it difficult for your employees to be productive in their work environment, it will damage your prospects for long-term success even if your decisions appear to advance a short-term goal.

Evaluate the effect your decisions will have on your employees’ ability to perform their jobs and factor this component into your decisions accordingly.

The most effective decision-making should lead to improved work toward your long-term goals, which should be driven by core values. You should constantly reevaluate your spending and assess likely consequences of your actions. If you follow these steps thoroughly, you will have assembled a framework for successful organizational decision-making.

Advantages of Decision Making

Increase People’s Participation

Decision making in the organisation is done by a group of peoples working in the organisation. It is not carried out by a single individual rather than by a group of people. Each people actively participates in decision making of the organisation. They are free to present their creative ideas without any boundations.

Also, none of them is individually criticized for any failure but the whole group is responsible to handle. This increases the participation level of different people in the organisation.

Gives More Information

Good decision-making process acquires enough information before taking any action. In decision making, there is a large number of peoples involved. It is undertaken by the whole group rather than by a single individual. Each person gives his perspective to handle a particular situation.

They all represent there facts and figures according to their skill. This generates enough information which can be used for better understanding of the situation. This helps managers in taking corrective decisions.

Provide More Alternatives

Companies are able to get different alternatives for a particular situation through group decision making. There are different people working as a group for proper decisions. Each person looks differently to a particular problem.

They give their own perspectives and ideas for it. This way there are different options available to choose. All the alternatives are properly analysed in light of handling situation. The best one is chosen to arrive at a better result.

Improves the Degree of Acceptance and Commitment

Companies always face the chances of conflict among its staff working in the organisation. Through group decision making each person gets equal right to share his views and ideas.

Here decisions are not imposed on the peoples but are created with their participation. It develops a sense of loyalty and belongingness among people towards the business. They easily accept the decisions taken and are committed to their roles.

Helps In Strengthening the Organisation

It helps in improving the strength of the organisation. Decision making provides a platform to each individual working in an organisation to equally represent their ideas. Everybody gets an equal right to take part in managing the organisation.

It develops a sense of cooperation and unity among individuals working there. They all come together and work towards the accomplishment of the company’s goals. This increases the overall productivity of the organisation and strengthens its overall structure.

Improves the Quality of Decisions

Decision making helps in taking quality decisions at the right time. There are different experts engaged by organisations in their decision-making group. These peoples have through knowledge and creative thinking.

They analyse each and every aspect of every alternative available to them for handling situations. Best among the different alternatives available is chosen. It enables in quality decision making which helps in easy attainment of objectives.

Limitations:

Consultation ambiguity: This can be a scenario where a group of employees all feel like they have a vote in a decision or when a manager asks for input but doesn’t consider a group’s views. It’s important for a manager to solicit feedback but to make sure that contributors understand it’s the manager’s final decision.

Avoiding discomfort: Sound management decision making requires leaders who do not confuse their need for comfort with making the best decision. Some of the most effective decisions involve a degree of discomfort for the manager.

Appearing indecisive: Sometimes, a systematic decision making process has a downside. Being too rigorous in evaluating every possible angle can draw out the process and open the risk of appearing indecisive. Keep stakeholders informed about the timeline for a decision.

Blind spots: People have particular perspectives and ways of thinking that can create blind spots, which may be important for an effective decision but cannot be readily apparent. It can be helpful to seek input from trusted colleagues to provide a different perspective.

Groupthink: This occurs when a group’s members want to minimize conflict and reach a comfortable decision at the expense of a critical evaluation of other ideas and viewpoints. It’s important to explore alternatives a group may not have considered.

Management Notes

Environmental Scanning, Importance, Factors, Technique

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Environmental Scanning is the process of gathering information about events and their relationships within an organization’s internal and external environments. The basic purpose of environmental scanning is to help management determine the future direction of the organization.

Every organization has an internal and external environment. In order for the organization to be successful, it is important that it scans its environment regularly to assess its developments and understand factors that can contribute to its success. Environmental scanning is a process used by organizations to monitor their external and internal environments.

The purpose of the scan is the identification of opportunities and threats affecting the business for making strategic business decisions. As a part of the environmental scanning process, the organization collects information regarding its environment and analyzes it to forecast the impact of changes in the environment. This eventually helps the management team to make informed decisions.

The purpose of the scan is the identification of opportunities and threats affecting the business for making strategic business decisions. As a part of the environmental scanning process, the organization collects information regarding its environment and analyzes it to forecast the impact of changes in the environment. This eventually helps the management team to make informed decisions.

As seen from the figure above, environmental scanning should primarily identify opportunities and threats in the organization’s environment. Once these are identified, the organization can create a strategy which helps in maximizing the opportunities and minimizing the threats. Before looking at the important factors for environmental scanning, let’s take a quick peek at the components of an organization’s environment.

Importance of Environmental Scanning

  1. SWOT Analysis

As we saw previously in the environmental scanning meaning, it is a complex process. The close study of the internal and external environment of an organization will reveal some very valuable information, i.e. the strengths, weaknesses, opportunities, and threats of a company.

Let us take a brief look.

  • Strength: After analysis of the internal environment of a company, we will be able to identify the strengths that give the company a competitive advantage. The entrepreneur can use this information to maximise these strengths and earn more profits.
  • Weakness: Study of the internal environment also point out the weaknesses of the company. For the growth and stability of the company, these identified weaknesses must be corrected without delay.
  • Opportunity: Analysis of the external environment helps with the identification of possible opportunities. The entrepreneur can prepare to capitalize on these.
  • Threats: Analysis of the external environment will also help in the identification of any business threats from competitors or any other factors. The company can come up with a strategy to diffuse such threats or minimize its impact.
  1. Best Use of Resources

Environmental scanning helps us conduct a thorough analysis and hence leads to the optimum utilization of resources for the business. Whether it is capital resources, human resources or other factors of production, their best use and utilization is very important for any business. Environmental scanning will help us avoid any wastages and allow for the most effective and economical use of these resources.

  1. Survival and Growth of the Business

It is a very competitive world and for any business to survive and thrive it is a difficult task. But if the business employs all the techniques of environmental scanning it can gain a significant advantage. It will allow the firm to prepare for future threats and opportunities while at the same time eliminating their weaknesses and improving on their strengths.

  1. Planning for Long Term

A business must have a plan for both short term and long term. The planning of long-term objectives can only occur after proper analysis and environmental scanning meaning. This will help the entrepreneur plan the necessary business strategy.

  1. Helps in Decision Making

Decision making is the choice of the best alternative done by management. Environmental scanning allows the firm to make the best decision keeping in mind the success and growth of the business. They point out all the threats and weaknesses. And they also identify the strengths of the firm.

Important Factors for Environmental Scanning

  • Events

These are specific occurrences which take place in different environmental sectors of a business. These are important for the functioning and/or success of the business. Events can occur either in the internal or the external environment. Organizations can observe and track them.

  • Trends

As the name suggests, trends are general courses of action or tendencies along which the events occur. They are groups of similar or related events which tend to move in a specific direction. Further, trends can be positive or negative. By observing trends, an organization can identify any change in the strength or frequency of the events suggesting a change in the respective area.

  • Issues

In wake of the events and trends, some concerns can arise. These are Issues. Organizations try to identify emerging issues so that they can take corrective measures to nip them in the bud. However, identifying emerging issues is a difficult task. Usually, emerging issues start with a shift in values or change in which the concern is viewed.

  • Expectations

Some interested groups have demands based on their concern for issues. These demands are Expectations.

Business Environment Scanning Techniques:

  • SWOT Analysis:

Assessing Strengths, Weaknesses, Opportunities, and Threats helps in understanding internal capabilities and external factors affecting the business.

  • PESTLE Analysis:

Examining Political, Economic, Social, Technological, Legal, and Environmental factors provides a comprehensive view of the external environment.

  • Market Research:

Gathering data on market trends, customer preferences, and competitor activities through surveys, interviews, and data analysis helps in understanding the market dynamics.

  • Competitor Analysis:

Analyzing competitors’ strategies, strengths, weaknesses, and market positioning provides insights into competitive threats and opportunities.

  • Scenario Planning:

Developing scenarios of possible future events and assessing their potential impact on the business helps in preparing for different eventualities.

  • Benchmarking:

Comparing the organization’s performance and practices with industry standards and best practices helps in identifying areas for improvement and staying competitive.

  • Trend Analysis:

Tracking long-term trends in technology, consumer behavior, regulatory changes, etc., helps in anticipating future developments and adapting the business strategy accordingly.

  • Industry Reports and Publications:

Keeping abreast of industry reports, market studies, and relevant publications provides valuable insights into industry trends, challenges, and opportunities.

  • Networking:

Engaging with industry experts, attending conferences, and participating in industry forums helps in staying informed about the latest developments and building valuable connections.

  • Technology Monitoring:

Monitoring technological advancements relevant to the business helps in identifying opportunities for innovation and potential disruptions.

  • Global Analysis:

Understanding global economic trends, geopolitical developments, and international trade policies helps in assessing global opportunities and risks.

  • Regulatory Analysis:

Keeping track of changes in regulations and compliance requirements helps in identifying potential regulatory risks and opportunities.

  • Consumer Feedback:

Gathering feedback from customers through surveys, reviews, and social media helps in understanding customer preferences and improving products or services.

  • Internal Reports and Feedback:

Leveraging internal data and feedback from employees, managers, and stakeholders helps in identifying internal strengths, weaknesses, and areas for improvement.

  • Environmental Scanning Tools:

Utilizing specialized software and tools for environmental scanning, such as automated news aggregators, social media monitoring tools, and data analytics platforms, helps in efficiently gathering and analyzing relevant information.

Management Notes

Networking of Computers, Client Server LAN, Wide Area Network (WAN)

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A computer network is a system in which multiple computers are connected to each other to share information and resources.

Characteristics of a Computer Network

  • Share resources from one computer to another.
  • Create files and store them in one computer, access those files from the other computer(s) connected over the network.
  • Connect a printer, scanner, or a fax machine to one computer within the network and let other computers of the network use the machines available over the network.

NODA

A node is any physical device within a network of other tools that’s able to send, receive, or forward information. A personal computer is the most common node. It’s called the computer node or internet node.

Modems, switches, hubs, bridges, servers, and printers are also nodes, as are other devices that connect over Wi-Fi or Ethernet. For example, a network connecting three computers and one printer, along with two more wireless devices, has six total nodes.

Nodes within a computer network must have some form of identification, like an IP address or MAC address, for other network devices to recognize it. A node without this information, or one that’s offline, no longer functions as a node.

In telecommunications networks, a node is either a redistribution point or a communication endpoint. The definition of a node depends on the network and protocol layer referred to. A physical network node is an electronic device that is attached to a network, and is capable of creating, receiving, or transmitting information over a communications channel. A passive distribution point such as a distribution frame or patch panel is consequently not a node.

Network nodes are the physical pieces that make up a network. They usually include any device that both receives and then communicates information. But they might receive and store the data, relay the information elsewhere, or create and send data instead.

For example, a computer node might back up files online or send an email, but it can also stream videos and download other files. A network printer can receive print requests from other devices on the network, while a scanner can send images back to the computer. A router determines which data goes to which devices that request file downloads within a system, but it can also send requests out to the public internet.

Client Server LAN

On a client/server network, every computer has a distinct role: that of either a client or a server. A server is designed to share its resources among the client computers on the network. Typically, servers are located in secured areas, such as locked closets or data centers (server rooms), because they hold an organization’s most valuable data and do not have to be accessed by operators on a continuous basis. The rest of the computers on the network function as clients.

The components of a client/server LAN.

Wide Area Network (WAN)

A wide area network (WAN) is a telecommunications network that extends over a large geographical area for the primary purpose of computer networking. Wide area networks are often established with leased telecommunication circuits.

Business, as well as education and government entities use wide area networks to relay data to staff, students, clients, buyers and suppliers from various locations across the world. In essence, this mode of telecommunication allows a business to effectively carry out its daily function regardless of location. The Internet may be considered a WAN.

Similar types of networks are personal area networks (PANs), local area networks (LANs), campus area networks (CANs), or metropolitan area networks (MANs) which are usually limited to a room, building, campus or specific metropolitan area, respectively.

Management Notes

Theory of interest

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1. Productivity Theory:

According to productivity theory, interest can be defined as a reward for availing the services of capital for the production purpose.

Labor that is having good amount of capital produces more as compared to the labor who is not assisted by good amount of capital.

For example, farmer having tractor to plough the field produces more as compared to the farmer who does not have it. Thus, interest is the payment for the productivity of capital.

However, the productivity theory is criticized on the following grounds:

  1. Focuses only on the causes for what the interest is paid, not on the determination of interest rates.
  2. Assumes that interest is paid due to the productivity of capital. In such a case, pure interest should vary as per the productivity of the capital. However, pure interest is the same in money market during the same period of time.
  3. Lays emphasis on the demand of interest, but ignores the supply side of capital.
  4. Fails to explain how the interest is paid for the loan borrowed for consumption purposes.

2. Abstinence or Waiting Theory:

The abstinence theory was propounded by Senior. According to him, interest is a reward for abstinence. When an individual saves money out of his/her income and lends it to other individual, he/she makes sacrifice. The term sacrifice implies that the individual refrains from consuming his/her whole income that he/she could spent easily. Senior advocated that abstaining from consumption is unpleasant. Therefore, the lender must be rewarded for this. Thus, as per Senior, interest can be regarded as the reward for refraining from the use of capital.

Abstinence theory was also criticized by a number of economists. According to the theory, an individual feels unpleasant when they save as it reduces his/her consumption. However, rich people do not feel unpleasant while saving because they are able to meet their requirements.

Therefore, Marshall has replaced the term abstinence with waiting and described saving in terms of waiting. He states that saving is done by transferring the present requirement to the future and the person needs to wait for meeting those requirements. However, people do not want to wait rather they are motivated to save money by providing a certain amount of interest.

3. Austrian or Agio Theory:

Austrian theory is also termed as psychological theory of interest. This theory was advocated by John Rae and Bohm Bawerk in an Austrian school. According to Austrian theory, interest came into existence because present goods are preferred over future goods. Therefore, the present goods have premium with them in the form of interest. In other words, present satisfaction is of greater concern as compared to future satisfaction.

Therefore, future satisfaction has certain type of discount if compared with present satisfaction. The interest is the discounted amount that is required to be paid for motivating people to invest or transfer their present requirements to future. For example, an individual has to make a choice between two options.

He/she can either have Rs. 500 now or the same amount after a year. In such a case, he/she would prefer to have Rs. 500 in present. However, in case, the individual has a choice of getting Rs. 500 in present and Rs. 600 after one year.

In such a case, he/she would be more inclined toward getting Rs. 600 after a year. Thus, the extra payment of Rs. 100 would compensate the sacrifice involved in delaying his/her present satisfaction. The extra payment of Rs. 100 in the given case is considered as interest.

Agio theory’ has been criticized by various economists on the following grounds:

  1. Lays too much emphasis on the supply aspect and ignores the demand aspect
  2. Does not focus on the determination of rate of interest

4. Classical or Real Theory:

Classical theory helps in the determination of rate of interest with the help of demand and supply forces. Demand refers to the demand of investment and supply refers to the supply of savings. According to this theory, rate of interest refers to the amount paid for saving.

Therefore, the rate of interest can be determined with the help of demand for saving money to be invested in the capital goods and the supply of savings. Let us understand the concept of demand of investment. Capital goods are used for the production of consumer goods and provide returns continuously for many years.

However, a certain degree of uncertainty is associated with capital goods due to their future use. In addition, operation and maintenance costs are involved in using capital goods. This makes organizations to calculate the net expected return on the marginal cost that is represented as the percentage of cost of capital good.

In case, an organization has similar type of capital goods, then the increase in one more capital good would not yield them high revenue. The increase in the rate of interest would result in the fall of demand of capital goods.

Figure-18 shows the demand for capital investment:

4.1

In Figure-18, MRP represents the marginal revenue productivity curve. When the demand of capital is OM, then the rate of interest is Or. The net rate of return becomes equal to the current rate of interest (Or) at the OM demand of capital.

In case, the rate of interest decreases to Or’, then the demand of capital increases to OM’. The net rate of return is equal to Or’ when the amount of capital demanded is OM’. The demand for capital goods increases with a decrease in the rate of interest.

On the other hand, the supply of capital increases by the amount saved by an individual and the saving is done by transferring the present requirement to the future requirement. The rate of interest would increase with the increase in the amount of saving by an individual.

The rate of interest can be determined with the help of demand of investment and supply of savings. It would be the point of equilibrium where demand and supply intersects each other or get equal.

Figure-19 shows the determination of rate of interest with the help of demand and supply curves:

4.2

In Figure-19, SS is the supply curve of saving and II is the demand curve of investment that intersect each other at Or rate of interest with quantity of saving and investment is OM. OM represents the amount that is lent, borrowed and used for investment. The rate of interest can be changed by changing the demand and supply of savings and investment.

The classical theory is criticized by Keynes due to various reasons, which are as follows:

  1. Assumes the full employment of resources, which is not true in reality. This is because if one resource is reduced from one production process, then it would be utilized for other production process. On the contrary, if resources are available in abundant, then there is no need to save them.
  2. Assumes that investment can be increased only when individuals reduce their consumption. This is because if the consumption is less, then the saving would increase, which would lead to the increase in investment. However, if the demand of capital goods decreases, then the incentive to produce capital goods would also decrease. This would result in the decrease of investment.
  3. Assumes that there is no change in the income level of an individual. Thus, according to classical theory, saving and investment become equal due to change in rate of interest. However, according to Keynes theory, savings and investment become equal because of changes occur in the income level of an individual.

5. Loanable Fund Theory:

Loanable fund theory agrees with the view that time preference plays an important role in determining the occurrence of interest. This theory is also termed as neo-classical theory of interest. According to neo-classical economists, interest is the amount paid for loanable funds. It focuses on the determination of rate of interest with the help of demand and supply of loanable funds in the credit market. Let us understand the concept of supply of loanable funds.

The supply of loanable funds depends on the following factors:

  1. Savings:

Act as one of the sources of loanable funds. The loanable funds in the form of saving are classified as ex-ante saving and Robertsonian sense. Ex-ante saving refers to the saving that an individual plans according to his/her expected income and expenditure in the starting of a year or financial year or for a month.

On the other hand, Robertsonian sense refers to the saving that is produced by taking the difference of previous period income and present period consumption. In both the types of savings, the savings are different at different rate of interest. Savings are dependent on the income level that vanes with the rate of interest. The increase in the rate of interest would result in the increase of the level of saving and vice versa.

In the context of organizations, the amount left after distributing the profit in the form of dividends is termed as the saving of an organization. The savings of an organization depends on the rate of interest prevailing in the market. Increased rate of interest would encourage organizations to increase savings instead of borrowing money from loan market.

2. Dishoarding:

Involves reduction in the money stock of an organization. Therefore, in the previous money stock, the liquidity of money is high that can be utilized in the present time as loanable funds. The higher the rate of interest, the more would be the money dishoarded and vice versa.

3. Credit by bank:

Refers to the loan provided by bank to the organizations. Banks can increase or decrease the money lend to an organization on the basis of certain criteria. The supply of loanable funds increases with the increase in the money created by banks. The supply curve is interest elastic for loanable funds. The higher the rate of interest, the more the bank would lend money and vice versa.

4. Disinvestment:

Refers to the situation when the existing capital goods of an organization are reduced or the stock of the organization is less than the previous stock. In such a condition, the fund that is used for the replacement purposes are used as loanable funds.

According to Bober, ”Disinvestment is encouraged by the somewhat by a high rate of interest on loanable funds. When the rate is high, some of the current capital may not produce a marginal revenue product to match this rate of interest. The firm may decide to let this capital run down and to put the depreciation finds in the ban market”

After determining the factors that influence the supply of loanable funds, let us study the demand for loanable funds. The demand for loanable funds depends on investment, consumption, and hoarding of income. Organizations require loanable funds to a greater extent for expanding the stock of capital goods, such as machines and buildings.

The demand for loanable funds depends on the extent to which organizations require loanable funds. Interest is the price at which the loanable funds can be bought. Organizations require loanable funds at which the net rate of return on capital goods is equal to the rate of interest.

The higher rate of interest demotivates organizations to buy capital goods or expand their stock of capital goods. Therefore, the demand of loanable funds is interest elastic for organizations; therefore, the demand curve would slope downwards.

Another major constituent of demand for loanable funds is the requirement of funds b) individuals for consumption. Generally, individuals require loanable fund when they desire to purchase something out of their budget or the consumer goods that they cannot afford from their present income. The lower the rate of interest, the higher would be the demand for loanable goods. Therefore, the demand for loanable funds is interest elastic for individuals; thus the demand curve slopes downward.

Along with organizations and individuals, there are some people who require loanable goods for hoarding purposes. Hoarding refers to the holding of some part of income by the individuals for future use. In hoarding, the supplier and buyer of loanable funds is the same person.

A person may want to hold funds when the rate of interest is low. On the contrary, he/she may use his/her funds by investing in new projects, when the rate of interest is high. Therefore, the demand of loanable funds is interest elastic for hoarding purpose; thus, the demand curve slopes downward.

Figure-20 shows the interaction between the demand and supply curve of loanable funds to reach at equilibrium position:

4.3

In Figure-20, DH represents dishoarding curve, BM is bank credit curve, S represents saving curve, and DI is disinvestment curve. LS represent the supply of loanable funds, which is produced by summing up the DH, BM, S, and DI curve. Similarly, H represents hoarding, C is consumption, and I is investment, which together form LD.

In Figure-20, LD is the demand for loanable funds. The point at which the demand and supply curve of loanable funds intersect each other is termed as equilibrium point (E). At point E, the rate of interest is OR with ON loanable funds. Therefore, OR would be the equilibrium rate of interest in the credit market.

Management Notes

Law of Demand

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Demand theory is a principle relating to the relationship between consumer demand for goods and services and their prices. Demand theory forms the basis for the demand curve, which relates consumer desire to the amount of goods available. As more of a good or service is available, demand drops and so does the equilibrium price.

Demand is the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period. People demand goods and services in an economy to satisfy their wants, such as food, healthcare, clothing, entertainment, shelter, etc. The demand for a product at a certain price reflects the satisfaction that an individual expects from consuming the product. This level of satisfaction is referred to as utility and it differs from consumer to consumer. The demand for a good or service depends on two factors:

  • Its utility to satisfy a want or need.
  • The consumer’s ability to pay for the good or service. In effect, real demand is when the readiness to satisfy a want is backed up by the individual’s ability and willingness to pay.

Built into demand are factors such as consumer preferences, tastes, choices, etc. Evaluating demand in an economy is, therefore, one of the most important decision-making variables that a business must analyze if it is to survive and grow in a competitive market. The market system is governed by the laws of supply and demand, which determine the prices of goods and services. When supply equals demand, prices are said to be in a state of equilibrium. When demand is higher than supply, prices increase to reflect scarcity. Conversely, when demand is lower than supply, prices fall due to the surplus.

The law of demand introduces an inverse relationship between price and demand for a good or service. It simply states that as the price of a commodity increases, demand decreases, provided other factors remain constant. Also, as the price decreases, demand increases. This relationship can be illustrated graphically using a tool known as the demand curve.

The demand curve has a negative slope as it charts downward from left to right to reflect the inverse relationship between the price of an item and the quantity demanded over a period of time. An expansion or contraction of demand occurs as a result of the income effect or substitution effect. When the price of a commodity falls, an individual can get the same level of satisfaction for less expenditure, provided it’s a normal good. In this case, the consumer can purchase more of the goods on a given budget. This is the income effect. The substitution effect is observed when consumers switch from more costly goods to substitutes that have fallen in price. As more people buy the good with the lower price, demand increases.

Sometimes, consumers buy more or less of a good or service due to factors other than price. This is referred to as a change in demand. A change in demand refers to a shift in the demand curve to the right or left following a change in consumers’ preferences, taste, income, etc. For example, a consumer who receives an income raise at work will have more disposable income to spend on goods in the markets, regardless of whether prices fall, leading to a shift to the right of the demand curve.

The law of demand is violated when dealing with Giffen or inferior goods. Giffen goods are inferior goods that people consume more of as prices rise, and vice versa. Since a Giffen good does not have easily available substitutes, the income effect dominates the substitution effect.

Demand theory is one of the core theories of microeconomics. It aims to answer basic questions about how badly people want things, and how demand is impacted by income levels and satisfaction (utility). Based on the perceived utility of goods and services by consumers, companies adjust the supply available and the prices charged.

Law of Demand

The law of demand is one of the most fundamental concepts in economics. It works with the law of supply to explain how market economies allocate resources and determine the prices of goods and services that we observe in everyday transactions. The law of demand states that quantity purchased varies inversely with price. In other words, the higher the price, the lower the quantity demanded. This occurs because of diminishing marginal utility. That is, consumers use the first units of an economic good they purchase to serve their most urgent needs first, and use each additional unit of the good to serve successively lower valued ends.

  • The law of demand is a fundamental principle of economics which states that at a higher price consumers will demand a lower quantity of a good.
  • Demand is derived from the law of diminishing marginal utility, the fact that consumers use economic goods to satisfy their most urgent needs first.
  • A market demand curve expresses the sum of quantity demanded at each price across all consumers in the market.
  • Changes in price can be reflected in movement along a demand curve, but do not by themselves increase or decrease demand.
  • The shape and magnitude of demand shifts in response to changes in consumer preferences, incomes, or related economic goods, NOT to changes in price.

Understanding the Law of Demand

Economics involves the study of how people use limited means to satisfy unlimited wants. The law of demand focuses on those unlimited wants. Naturally, people prioritize more urgent wants and needs over less urgent ones in their economic behavior, and this carries over into how people choose among the limited means available to them. For any economic good, the first unit of that good that a consumer gets their hands on will tend to be put to use to satisfy the most urgent need the consumer has that that good can satisfy.

For example, consider a castaway on a desert island who obtains a six pack of bottled, fresh water washed up on shore. The first bottle will be used to satisfy the castaway’s most urgently felt need, most likely drinking water to avoid dying of thirst. The second bottle might be used for bathing to stave off disease, an urgent but less immediate need. The third bottle could be used for a less urgent need such as boiling some fish to have a hot meal, and on down to the last bottle, which the castaway uses for a relatively low priority like watering a small potted plant to keep him company on the island.

In our example, because each additional bottle of water is used for a successively less highly valued want or need by our castaway, we can say that the castaway values each additional bottle less than the one before. Similarly, when consumers purchase goods on the market each additional unit of any given good or service that they buy will be put to a less valued use than the one before, so we can say that they value each additional unit less and less. Because they value each additional unit of the good less, they are willing to pay less for it. So the more units of a good consumers buy, the less they are willing to pay in terms of the price.

By adding up all the units of a good that consumers are willing to buy at any given price we can describe a market demand curve, which is always downward-sloping, like the one shown in the chart below. Each point on the curve (A, B, C) reflects the quantity demanded (Q) at a given price (P). At point A, for example, the quantity demanded is low (Q1) and the price is high (P1). At higher prices, consumers demand less of the good, and at lower prices, they demand more.

Factors Affecting Demand

The shape and position of the demand curve can be impacted by several factors. Rising incomes tend to increase demand for normal economic goods, as people are willing to spend more. The availability of close substitute products that compete with a given economic good will tend to reduce demand for that good, since they can satisfy the same kinds of consumer wants and needs. Conversely, the availability of closely complementary goods will tend to increase demand for an economic good, because the use of two goods together can be even more valuable to consumers than using them separately, like peanut butter and jelly. Other factors such as future expectations, changes in background environmental conditions, or change in the actual or perceived quality of a good can change the demand curve, because they alter the pattern of consumer preferences for how the good can be used and how urgently it is needed.

Demand theory objectives

  • Forecasting sales
  • Ma­nipulating demand
  • Appraising salesmen’s performance for setting their sales quotas
  • Watching the trend of the company’s competi­tive position.

Of these the first two are most im­portant and the last two are ancillary to the main economic problem of planning for profit.

1. Forecasting Demand

Forecasting refers to predicting the future level of sales on the basis of current and past trends. This is perhaps the most important use of demand stud­ies. True, sales forecast is the foundation for plan­ning all phases of the company’s operations. There­fore, purchasing and capital budget (expenditure) programmes are all based on the sales forecast.

2. Manipulating Demand

Sales forecasting is most passive. Very few com­panies take full advantage of it as a technique for formulating business plans and policies. However, “management must recognize the degree to which sales are a result only of the external economic environment but also of the action of the company itself.

Sales volumes do differ, “depending upon how much money is spent on advertising, what price policy is adopted, what product improve­ments are made, how accurately salesmen and sales efforts are matched with potential sales in the various territories, and so forth”.

Often advertising is intended to change consumer tastes in a manner favourable to the advertiser’s product. The efforts of so-called ‘hidden persuaders’ are directed to ma­nipulate people’s ‘true’ wants. Thus sales forecasts should be used for estimating the consequences of other plans for adjusting prices, promotion and/or products.

Importance of Demand Analysis

  • Business Forecasting

Demand analysis is vital for forecasting future sales. It helps businesses estimate the quantity of a product that consumers will likely purchase over a specific period. Accurate forecasts enable companies to plan production schedules, manage inventory, allocate resources efficiently, and avoid underproduction or overproduction. This proactive planning improves operational efficiency and reduces costs. Demand forecasting also helps firms adapt to seasonal changes, market trends, and economic fluctuations, ensuring they remain responsive to consumer needs and market conditions.

  • Pricing Policy Formulation

Understanding demand is essential for determining the most effective pricing strategy. Through demand analysis, firms can identify how sensitive consumers are to price changes (price elasticity of demand). If demand is inelastic, companies may raise prices without a significant drop in sales. If it is elastic, firms must remain competitive with pricing. Analyzing demand patterns helps in setting optimal prices that balance profitability with consumer satisfaction, ensuring maximum revenue without alienating potential buyers.

  • Efficient Resource Allocation

Demand analysis aids in the optimal allocation of limited resources. By knowing which products or services are in high demand, businesses can prioritize investments, labor, and raw materials accordingly. This ensures resources are not wasted on low-demand items. For example, if demand analysis shows growing interest in electric vehicles, manufacturers may divert resources from traditional models to electric production, leading to better financial returns and strategic growth.

  • Marketing and Sales Strategy Development

An effective marketing plan depends on a deep understanding of consumer demand. Demand analysis reveals who the buyers are, what they need, and how much they are willing to spend. Businesses can tailor promotions, distribution channels, and product features to match demand patterns. Targeted campaigns and personalized customer engagement strategies become more effective when rooted in accurate demand insights, leading to higher conversion rates and customer loyalty.

  • Product Planning and Development

Demand analysis supports product innovation and development decisions. It helps firms identify unmet needs and emerging trends in the market. By studying demand data, companies can decide whether to introduce new products, discontinue existing ones, or modify features to meet changing customer preferences. This reduces the risk of product failure and increases the chances of launching offerings that are relevant, timely, and well-received by consumers.

  • Investment Decision-Making

Before investing in new plants, equipment, or market expansion, companies need to assess whether future demand justifies such expenditure. Demand analysis provides the necessary insights to evaluate potential returns on investment. For example, if demand is expected to grow significantly in a region, it may warrant establishing a new facility there. This minimizes financial risk and aligns investment decisions with long-term market opportunities and consumer behavior.

  • Helps Government and Policy Makers

Governments and policy makers use demand analysis to make informed decisions about infrastructure, subsidies, taxes, and social welfare programs. By understanding what goods and services are in high demand, governments can align public spending with citizen needs. Demand insights also aid in controlling inflation, managing subsidies, and framing import-export policies. For instance, demand data for housing or healthcare helps governments prioritize urban development and public service improvements.

  • Risk Management and Contingency Planning

Demand analysis helps businesses identify potential risks associated with market fluctuations. By studying demand trends, companies can anticipate downturns, supply disruptions, or changing customer preferences. This allows them to develop contingency plans, diversify offerings, or explore new markets in advance. For example, if a drop in demand for fossil fuels is predicted, energy firms can pivot toward renewables. Thus, demand analysis minimizes uncertainty and enhances long-term sustainability.

Management Notes

WTO Structure, Functions and Roles in the Current International Business Scenario

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The establishment of the World Trade Organization (WTO) as the successor to ,the GATT on 1 January 1995 under the Marrakesh Agreement places the global trading system on a firm constitutional footing with the evolution of international economic legislation resulted through the Uruguay Round of GATT negotiations.

A remarkable feature of the Uruguay Round was that it paved the way for further liberalization of international trade with the fundamental shift from the negotiation approach to the institutional framework envisaged through transition from GATT to WTO Agreement.

The GATT 1947 and the WTO co-existed for the transitional period of one year in 1994. In January 1995, however, the WTO completely replaced the GATT. The membership of the WTO increased from 77 in 1995 to 127 by the end of 1996.

Structure of the World Trade Organization (WTO)

The organizational structure of the WTO is outlined in the Chart 1.

The Ministerial Conference (MC) is at the top of the structural organization of the WTO. It is the supreme governing body which takes ultimate decisions on all matters. It is constituted by representatives of (usually, Ministers of Trade) all the member countries.

The General Council (GC) is composed of the representatives of all the members. It is the real engine of the WTO which acts on behalf of the MC. It also acts as the Dispute Settlement Body as well as the Trade Policy Review Body.

There are three councils, viz.: the Council for Trade in Services and the Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS) operating under the GC. These councils with their subsidiary bodies carry out their specific responsibilities

Further, there are three committees, viz., the Committee on Trade and Development (CTD), the Committee on Balance of Payments Restrictions (CBOPR), and the Committee on Budget, Finance and Administration (CF A) which execute the functions assigned to them by e WTO Agreement and the GC.

The administration of the WTO is conducted by the Secretariat which is headed by the Director General (DG) appointed by the MC for the tenure of four years. He is assisted by the four Deputy Directors from different member countries. The annual budget estimates and financial statement of the WTO are presented by the DG to the CBFA for review and recommendations for the final approval by the GC.

Functions of the World Trade Organization (WTO)

The WTO consisting a multi-faced normative framework: comprising institutional substantive and implementation aspects.

The major functions of the WTO are as follows:

  1. To lay-down a substantive code of conduct aiming at reducing trade barriers including tariffs and eliminating discrimination in international trade relations.
  2. To provide the institutional framework for the administration of the substantive code which encompasses a spectrum of norms governing the conduct of member countries in the arena of global trade.
  3. To provide an integrated structure of the administration, thus, to facilitate the implementation, administration and fulfillment of the objectives of the WTO Agreement and other Multilateral Trade Agreements.
  4. To ensure the implementation of the substantive code.
  5. To act as a forum for the negotiation of further trade liberalization.
  6. To cooperate with the IMF and WB and its associates for establishing a coherence in trade policy-making.
  7. To settle the trade-related disputes.

Features of the WTO

The distinctive features of the WTO are:

(i) It is a legal entity

(ii) World Bank (WB) it is not an agent of the United Nations.

(iii) Unlike the IMF and the World Bank, there is no weighted voting, but all the WTO members have equal rights.

(iv) Unlike the GATT, the agreements under the WTO are permanent and binding to the member countries.

(v) Unlike the GATT, the WTO dispute settlement system is based not on dilatory but automatic mechanism. It is also quicker and binding on the members. As such, the WTO is a powerful body.

(vi) Unlike the GATT, the WTOs approach is rule- based and time-bound.

(vii) Unlike the GATT, the WTOs have a wider coverage. It covers trade in goods as well as services.

(viii) Unlike the GATT, the WTOs have a focus on trade-related aspects of intellectual property rights and several other issues of agreements.

(ix) Above all, the WTO is a huge organizational body with a large secretariat.

Objectives of the WTO

The purposes and objectives of the WTO are spelled out in the preamble to the Marrakesh Agreement.

In a nutshell, these are:

  1. To ensure the reduction of tariffs and other barriers to trade.
  2. To eliminate discriminatory treatment in international trade relations.
  3. To facilitate higher standards of living, full employment, a growing volume of real income and effective demand, and an increase in production and trade in goods and services of the member nations.
  4. To make positive effect, which ensures developing countries, especially the least developed secure a level of share in the growth of international trade that reflects the needs of their economic development.
  5. To facilitate the optimal use of the world’s resources for sustainable development.
  6. To promote an integrated, more viable and durable trading system incorporating all the resolutions of the Uruguay Round’s multilateral trade negotiations.

Above all, to ensure that linkages trade policies, environmental policies with sustainable growth and development are taken care of by the member countries in evolving a new economic order.

Management Notes

Consumer’s Surplus

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Consumer Surplus is the difference between the price that consumers pay and the price that they are willing to pay. On a supply and demand curve, it is the area between the equilibrium price and the demand curve

For example, if you would pay 76p for a cup of tea, but can buy it for 50p; your consumer surplus is 26p

Diagram of Consumer Surplus

Producer Surplus

  • This is the difference between the price a firm receives and the price it would be willing to sell it at.
  • Therefore it is the difference between the supply curve and the market price.

Consumer Surplus and Marginal Utility

The demand curve is derived from our marginal utility. If the marginal utility of a good is greater than the price, then that is our consumer surplus.

  1. Firms can reduce consumer surplus if they have market power. This enables them to raise prices above the competitive equilibrium.
  2. In a monopoly, a firm will maximise profits by reducing consumer surplus.
  3. Another way to reduce consumer surplus is to engage in price discrimination. Charging different prices to different groups of consumers. Those with inelastic demand will see their consumer surplus reduced. More on Price discrimination. To completely eliminate consumer surplus, a firm would need to engage in first-degree price discrimination this means charging the consumer the highest price they are willing to pay.
  4. To gain market power, a firm could advertise to create brand loyalty, this will make demand more inelastic

Significance of consumer surplus

  • In competitive markets, firms have to keep prices relatively low, enabling consumers to gain consumer surplus. If markets were not competitive, the consumer surplus would be less and there would be greater inequality.
  • A lower consumer surplus leads to higher producer surplus and greater inequality.
  • Consumer surplus enables consumers to purchase a wider choice of goods.
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