Tag: Economic Factors

Public Sectors

Public sector refers to government-owned or government-controlled organizations and entities that provide goods and services to the general public. These include government agencies, departments, and enterprises responsible for delivering essential services such as healthcare, education, transportation, and public safety. The public sector operates with the goal of serving the public interest and promoting the welfare of society.

Role of Public Sectors:

• Service Provision:

Public sectors provide essential services such as healthcare, education, transportation, and utilities to ensure universal access and meet societal needs.

• Infrastructure Development:

Public sectors invest in and maintain infrastructure such as roads, bridges, airports, and utilities to support economic growth and social development.

• Regulation and Oversight:

Public sectors regulate industries and enforce laws to ensure fair competition, consumer protection, and environmental sustainability.

• Employment Opportunities:

Public sectors create jobs and offer stable employment opportunities, contributing to economic stability and reducing unemployment rates.

• Social Welfare:

Public sectors implement welfare programs, social security systems, and poverty alleviation initiatives to support vulnerable populations and promote social equity.

• Investment in Research and Innovation:

Public sectors fund research and development initiatives, support innovation, and promote technological advancement to drive economic growth and improve quality of life.

• Strategic Investments:

Public sectors make strategic investments in key sectors such as healthcare, education, and technology to foster long-term economic competitiveness and prosperity.

• Public Goods Provision:

Public sectors supply public goods such as national defense, law enforcement, and disaster relief that benefit society as a whole and are not provided adequately by the private sector.

Importance of Public Sectors:

• Service Provision:

Public sectors ensure the delivery of essential services such as healthcare, education, transportation, and utilities to all members of society, regardless of their ability to pay.

• Social Equity:

Public sectors promote social equity by providing access to basic services and support to disadvantaged and marginalized populations, reducing inequalities and improving social welfare.

• Economic Stability:

Public sectors play a vital role in stabilizing the economy through strategic investments, employment generation, and regulation of key industries, contributing to economic growth and resilience.

• Infrastructure Development:

Public sectors invest in and maintain infrastructure that forms the backbone of economic activity, including roads, bridges, airports, and utilities, supporting productivity and connectivity.

• Regulation and Oversight:

Public sectors regulate industries, enforce laws, and provide oversight to ensure fair competition, consumer protection, environmental sustainability, and public safety.

• Innovation and Research:

Public sectors fund research and innovation initiatives, support scientific advancements, and promote technological progress, driving economic development and improving quality of life.

• National Security:

Public sectors are responsible for ensuring national security through defense, law enforcement, and emergency response services, safeguarding the well-being and sovereignty of the nation.

• Public Goods Provision:

Public sectors supply public goods such as defense, public safety, and environmental protection that benefit society as a whole and are not adequately provided by the private sector.

Private Sectors

Private Sector comprises privately-owned businesses and enterprises that operate for profit and are not under direct government control. It encompasses a wide range of industries and sectors, including manufacturing, retail, finance, technology, and services. Private sector businesses are driven by market forces and aim to maximize profits and shareholder value. They play a significant role in driving economic growth, creating employment opportunities, and fostering innovation and competition within the economy.

Role of Private Sectors:

• Economic Growth:

Private sectors drive economic growth by investing capital, creating jobs, and fostering innovation, entrepreneurship, and productivity enhancements.

• Employment Generation:

Private sectors are major sources of employment, offering job opportunities across various industries and sectors, contributing to poverty reduction and economic stability.

• Innovation and Technology:

Private sectors spur innovation and technological advancement through research and development, leading to the creation of new products, processes, and services that drive progress and competitiveness.

• Efficiency and Competition:

Private sectors promote efficiency and competition by operating in a market-driven environment, incentivizing businesses to improve quality, reduce costs, and innovate to meet consumer demands.

• Wealth Creation:

Private sectors generate wealth by generating profits and returns on investments, stimulating economic activity, and contributing to the accumulation of capital for future growth and development.

• Corporate Social Responsibility (CSR):

Private sectors engage in CSR initiatives, including philanthropy, environmental sustainability, and community development projects, demonstrating their commitment to social responsibility and contributing to the well-being of society.

Importance of Private Sectors:

• Economic Growth:

Private sectors are primary drivers of economic growth through investments, entrepreneurship, and productivity improvements, leading to increased GDP and overall prosperity.

• Job Creation:

Private sectors generate employment opportunities across various industries and sectors, reducing unemployment rates and providing livelihoods for millions of people worldwide.

• Innovation and Technology:

Private sectors spur innovation and technological advancement by investing in research and development, leading to the creation of new products, services, and processes that drive progress and competitiveness.

• Efficiency and Competition:

Private sectors operate in a competitive market environment, driving efficiency, quality improvement, and cost reduction to meet consumer demands and stay competitive.

• Wealth Creation:

Private sectors generate wealth through profit generation, investment returns, and capital accumulation, fueling economic activity and creating opportunities for wealth creation and distribution.

• Diversification and Specialization:

Private sectors promote diversification and specialization within the economy, leading to the development of niche markets, specialized skills, and competitive advantages that enhance overall economic resilience and competitiveness.

• Global Trade and Investment:

Private sectors facilitate global trade and investment by expanding market access, fostering international business relationships, and driving cross-border economic integration, contributing to global economic interconnectedness and prosperity.

• Inclusive Growth:

Private sectors play a vital role in promoting inclusive growth by providing opportunities for entrepreneurship, skills development, and social mobility, contributing to poverty reduction, social cohesion, and shared prosperity.

Co-operative Sector

Co-operative sector consists of enterprises owned and operated by their members, who pool resources and share ownership to meet common needs and objectives. These organizations operate on democratic principles, with members having equal voting rights regardless of their financial contributions. Cooperatives exist in various sectors, including agriculture, finance, retail, housing, and healthcare, and aim to promote economic participation, social cohesion, and community development through collective action and mutual support.

Role of Co-operative Sector:

• Community Development:

Cooperatives empower communities by providing collective ownership and democratic control over essential services such as agriculture, finance, housing, and healthcare, leading to local economic development and social cohesion.

• Economic Participation:

Cooperatives promote economic participation by allowing members to pool resources, share risks, and benefit collectively from their cooperative endeavors, fostering financial inclusion and self-reliance.

• Job Creation:

Cooperatives generate employment opportunities by creating cooperative enterprises and supporting cooperative businesses, particularly in rural and marginalized areas where traditional employment opportunities may be limited.

• Access to Services:

Cooperatives provide access to essential services such as banking, credit, insurance, healthcare, education, and utilities to underserved populations, improving their quality of life and enhancing social welfare.

• Empowerment and Capacity Building:

Cooperatives empower members by promoting democratic decision-making, leadership development, and skills training, enabling individuals to actively participate in their economic and social development.

• Sustainable Development:

Cooperatives promote sustainable development by adopting environmentally friendly practices, promoting resource conservation, and supporting sustainable agriculture, energy, and production methods.

• Market Access and Fair Trade:

Cooperatives enable small-scale producers and marginalized groups to access markets, negotiate fair prices, and participate in fair trade practices, ensuring equitable distribution of benefits and reducing market vulnerabilities.

• Social Responsibility:

Cooperatives embody principles of social responsibility and solidarity by prioritizing the well-being of their members, supporting community development initiatives, and contributing to social and environmental sustainability.

Importance of Co-operative Sector:

• Community Empowerment:

Cooperatives empower communities by providing collective ownership, democratic control, and equitable distribution of benefits, fostering social cohesion, and promoting inclusive development.

• Economic Participation:

Cooperatives enable members to actively participate in economic activities, pooling resources, sharing risks, and benefiting collectively from their cooperative endeavors, leading to financial inclusion and self-reliance.

• Job Creation:

Cooperatives create employment opportunities, particularly in rural and marginalized areas, by establishing cooperative enterprises and supporting cooperative businesses, contributing to poverty reduction and economic stability.

• Access to Essential Services:

Cooperatives provide access to essential services such as banking, credit, insurance, healthcare, education, and utilities to underserved populations, improving their quality of life and enhancing social welfare.

• Promotion of Sustainable Development:

Cooperatives promote sustainable development by adopting environmentally friendly practices, supporting sustainable agriculture, energy, and production methods, and prioritizing social and environmental responsibility.

• Market Access for Small Producers:

Cooperatives enable small-scale producers and marginalized groups to access markets, negotiate fair prices, and participate in fair trade practices, ensuring equitable distribution of benefits and reducing market vulnerabilities.

• Social Responsibility:

Cooperatives embody principles of social responsibility and solidarity by prioritizing the well-being of their members, supporting community development initiatives, and contributing to social and environmental sustainability.

• Resilience and Stability:

Cooperatives provide a resilient and stable economic model that is less prone to economic shocks and market fluctuations, fostering long-term sustainability and resilience in communities and economies.

Monetary policy refers to the policy of the central bank of a country to regulate and control the volume, cost and allocation of money and credit with the aim of achieving the objectives of optimum levels of output and employment, price stability, balance of payment equilibrium, or any other goal set by the government.

Monetary and fiscal policies are closely interrelated and therefore should be pursued in coordination with each other. Fiscal policy generally brings about changes in money supply through the budget deficit. An excessive budget deficit, for example, shifts the burden of control of inflation to monetary policy. This requires a restrictive credit policy.

On the contrary, a fiscal policy, which keeps the budget deficit at a very low level, frees the monetary authority from the burden of adopting an anti-inflationary monetary policy. The monetary policy can then play a positive role in promoting economic growth by extending credit facilities to development programmes.

In a developing economy like India, appropriate monetary policy can play a positive role in creating conditions necessary full rapid economic growth. Moreover, since these economies are highly sensitive to inflationary pressures, the monetary policy should also serve to control inflationary tendencies by increasing savings by the people, checking credit expansion by the banking system and discouraging deficit financing by the government.

In India, during the planning period, the aim of the monetary policy of the Reserve Bank has been to meet the needs of the planned development of the economy.

With this broad aim, the monetary policy has been pursued to achieve the twin objectives of the economic policy of the government:

(a) To accelerate the process of economic growth with a view to raise national income, and

(b) To control and reduce the inflationary pressures in the economy.

Thus, the monetary policy of the Reserve Bank during the course of planning has been appropriately termed as that of ‘controlled expansion’. It aims at adequately financing of economic growth and, at the same time, ensuring reasonable price stability in the country.

POLICY OF CREDIT EXPANSION

The overall trend in the economy during the planning period has been that of continuous expansion of currency and credit with an objective of meeting the developmental needs of the economy.

This expansion has been achieved by adopting the following measures:

1. Revision of Open Market Operations

The Reserve Bank revised its open operations policy in October 1956, according to which it started giving discriminatory support to the sale and purchase of government securities. Between 1948-51 the Bank made large purchases of government securities.

In the subsequent period, the Bank’s sales of the government securities to the public exceeded its purchases. This excess sales method was discontinued between 1964 and 1969 with a purpose of expanding currency and credit in the economy.

2. Liberalisation of the Bill Market Scheme

Through the bill market scheme, the commercial banks receive additional funds from the Reserve Bank to meet the increasing credit requirements of their borrowers. Since 1957, the Reserve Bank has extended the bill market scheme to include export bills in order to help the commercial banks to provide credit to exporters liberally

3. Facilities to Priority Sectors

The Reserve Bank continues to provide credit facilities to priority sectors such as small-scale industries and cooperatives, even though the general policy of the Bank is to control credit expansion.

For instance, in October 1962, the banks were allowed to borrow additional funds from the Reserve Bank in order to provide finance to small scale industries and cooperatives. The Reserve Bank has also been providing short-term finance to the rural cooperatives.

4. Refinance and Rediscounting Facilities

In recent years, the Reserve Bank has been following a policy of providing selective refinance and rediscounting facilities. At present, the banks are permitted to refinance equal to one per cent of the demand and time liabilities at the rate of 10 per cent per annum. Refinance facilities are also available for food procurement credit and export credit.

5. Credit Facilities through Financial Institutions:

The Reserve Bank has also been instrumental in the establishment of various financial institutions like Industrial Development Bank of India (IDBI), Industrial Finance Corporation of India (IFCI), Industrial Reconstruction Corporation of India (IRCI), Industrial Credit and Investment Corporation of India (ICICI), State Finance Corporations (SFCs).

Agricultural Refinance and Development Corporation (ARDC) and National Bank for Agriculture and Rural Development (NABARD). Through these institutions, the Reserve Bank provides medium-term and long-term credit facilities for development.

6. Deficit Financing

Continuous increase in money supply in the country has been caused by adopting the method of deficit financing to finance the budgetary deficit of the government. This has been made possible through changes in the reserve requirements of the Reserve Bank.

The reserve system was made more flexible by making two changes:

(a) By dropping proportional reserve system which required keeping of 40 per cent of reserves in gold (coins and bullion) and foreign securities, with the provision that the value of gold would not be less than Rs. 40 crore.

(b) Modifying the minimum reserve system so that the Reserve Bank need keep only gold worth Rs. 115 crore with the provision that the minimum requirement of keeping foreign securities of the value of Rs. 85 crore can be waived during extreme contingency.

7. Anti-Inflationary Fiscal Policy

The Seventh Five Year Plan prefers an anti-inflationary fiscal policy to an anti- inflationary monetary policy and emphasises a positive, promotional and expository role for monetary policy. It is believed that “a fiscal policy that keeps the budget deficit down would give greater autonomy to monetary policy.”

In the seventh plan, the amount of deficit financing (i.e., net Reserve Bank Credit to the government) has been fixed at a level considered just sufficient to generate the additional money supply needed to meet expected increase in the demand for money, such an anti-inflationary fiscal policy will liberate the Reserve Bank for its anti-inflationary responsibilities and will enable it to extend sufficient credit facilities for the development of industry and trade.

8. Allocation of Credit

The pattern of allocation of credit is in accordance with the plan priorities. The major part of the total credit available goes to the public sector through statutory requirements and other means. A certain minimum of credit at concessional rates of interest is ensured for the priority sectors through selective credit control and the differential rate of interest scheme. Private industries can secure funds for investment purposes through public financial institutions.

POLICY OF CREDIT CONTROL

Apart from meeting developmental and expansionary requirements of the economy, the Reserve Bank has also been assigned the task of controlling the inflationary pressures in the economy. During the planning period, the large and continuous increase in the deficit financing and government expenditure has been expanding the monetary demand for goods and services.

But, on the other hand, the factors like shortfalls in production, hoardings, etc., have been creating inelasticity’s in the supply of commodities. As a result the country has been experiencing an inflationary rise in prices ever since 1955-56 and particularly after 1973-74.

The Reserve Bank has adopted a number of credit control measures to check the inflationary tendencies in the country:

1. Bank Rate

The bank rate is the rate at which the Reserve Bank advances to the member banks against approved securities or rediscounts the eligible bills of exchange and other papers. Bank rate is considered as a pace-setter in the money market. Changes in the bank rate influence the entire interest rate structure, i.e., short- term as well as long term interest rates.

A rise in the bank rate leads to a rise in the other market interest rates, which implies a dear money policy increasing the cost of borrowing. Similarly, a fall in the bank rate results in a fall in the other market rates, which implies a cheap money policy reducing the cost of borrowing.

The Reserve Bank has changed the bank rate from time of time to meet the changing conditions of the economy. The bank rate was raised from 3% to 3.5% in November 1951 and was further raised to 4% in January 1963, to 5% in September 1964, to 6% in February 1965.

In March 1968, the bank rate was reduced to 5% in view of the recessionary conditions. Subsequently, it was further raised to 7% in May to 9% in July 1974 and to 10% in July 1981. The bank rate was again raised to 11% in July 1991. It was 12% w.e.f October 8, 1991.

The increases in the bank rate were adopted to reduce bank credit and control inflationary pressures. At present the bank rate is 9%.

The situation, however, has changed since the introduction of economic reforms in early 1990s. As a part of financial sector reforms, the Reserve Bank of India (RBI) has decided to consider the Bank Rate as a policy instrument for transmitting signals of monetary and credit policy. Bank rate now serves as a reference rate for other rates in the financial markets.

With this new role assigned to the Bank Rate and to meet the growing demand for credits from all sectors of the economy under the liberalised economic conditions, the Bank Rate has been reduced in phases in subsequent years. It was reduced to 10% in June 1997, to 9% in October 1997, to 8% in March 1999, to 7% in April 2000, to 6.5% in October 2001, to 6.25% in October 2002, to 6.00% in April 2003.

2. Net Liquidity Ratio

In order to check excessive borrowings from the Reserve Bank by the commercial banks, the Reserve Bank introduced the system of net liquidity ratio in September 1964. According to this system, a commercial bank can borrow from the Reserve Bank at the bank rate only if it maintains a minimum net liquidity ratio to its total demand and time liabilities, and it will have to pay a penal rate of interest to the Reserve Bank, if the net liquidity ratio falls below the minimum ratio fixed by the Reserve Bank.

Net liquidity of a borrowing bank comprises:

(a) Cash in hand and balances with the Reserve Bank plus.

(b)  Balances in currency account with other banks, plu.

(c) Investments in government and other approved securities, minus.

(d) Borrowing from the Reserve Bank, the State Bank of India and the Industrial Development Bank of India.

In 1964, when the system was introduced, the net liquidity ratio was fixed at 28%, and for every point drop in the ratio, the interest rate was to go up by 0.5%. In 1973, the net liquidity ratio was raised to 40% and the rate of interest was to go up by 1% above the bank rate for every 1% drop in the net liquidity ratio. In 1975, however the system was abandoned.

3. Open Market Operations

Through the technique of open market operations, the central bank seeks to influence the excess reserves position of the banks by purchasing and selling of government securities, commercial papers, etc.

When the central bank purchases securities from the banks, it increases their cash reserve position, and hence their credit creation capacity. On the other hand, when the central bank sells securities to the banks, it reduces their cash reserves and the credit creation capacity.

Sections (178) and 17(2)(a) of Reserve Bank of India Act authorise the Reserve Bank to purchase and sell the government securities, treasury bills and other approved securities. However, due to underdeveloped security market, the open market operations of the Reserve Bank are restricted to government securities. These operations have also been used as a tool of public debt management.

They assist the Indian government in raising borrowings. Generally the Reserve Bank’s annual sales of securities have exceeded the annual purchases because of the reason that the financial institutions are required to invest some portion of their funds in government and approved securities.

In India, the open market operations policy of the Reserve Bank has not been so effective because of the following reasons:

(a) Open market operations are restricted to government securities.

(b) Gilt-edged market is narrow.

(c) Most of the open market operations are in the nature of switch operations, i.e., purchasing one loan against the other.

4. Cash-Reserve Requirement (CRR)

The central bank of a country can change the cash-reserve requirement of the bank in order to affect their credit creation capacity. An increase in the cash- reserve ratio reduces the excess reserve of the bank and a decrease in the cash-reserve ratio increases their excess reserves.

Originally, the Reserve Bank of India Act of 1934 required the commercial banks to keep with the Reserve Bank a minimum cash reserve of 5% of their demand liabilities and 2% of time liabilities. The amendment of the Act in 1956 empowered the Reserve Banks to use the cash reserve ratio as an instrument of credit control by varying them between 2 and 20% on the demand liabilities and between 2 and 8% on the time liabilities- Further, amendment of the Act in 1962 removes the distinction between demand and time deposits and authorises the Reserve Bank to change cash-reserve ratio between 3 and 15%.

The Reserve Bank used the technique of variable cash-reserve ratio for the first time in June 1973 when it raised the ratio from 3% to 5% and further to 7% in September 1973. Since then, the Reserve Bank has raised or reduced the cash-reserve ratio many times.

It was raised to 9% on February 4, 1984, to 9.5% on February 28, 1987, to 10% with effect from October 24, 1987, to 10.5% effective from July 2, 1988 and further to 11% effective from July 30, 1988.

The CRR was raised to its existing maximum limit of 15 % with effect from July, 1989. The present CRR ratio is 11% w.e.f. August 29, 1998. This reduction is due to the new liberalised policy of the government.

The Narsimham Committee in its report submitted in November 1991, was of the view that a high Cash Reserve Ratio (CRR) adversely affects the bank profitability and thus puts pressure on banks to charge high interest rates on their commercial sector advances. The government therefore decided to reduce the CRR over a four year period to a level below 10%.

As a first step in the pursuit of this objective, CRR was reduced in two phases from 15% to 14.5% in April 1993 and further to 14% in May 1993. It was reduced to 13% in April 1996. Again in line with the monetary policy aimed at facilitating adequate availability of credit to support industrial recovery, the CRR was further reduced to 8% in April 2000, to 7.5% in May 2001, to 5.5% in October 2001, to 4.75% in November 2002, to 4.50% in June 2003.

5. Statutory Liquidity Ratio (SLR)

Under the original Banking Regulation Act 1949, banks were required to maintain liquid assets in the form of cash, gold and unencumbered approved securities equal to not less than 25% of their total demand and time deposits liabilities. This minimum statutory liquidity ratio is in addition to the statutory cash-reserve ratio. The Reserve Bank has been empowered to change the minimum liquidity ratio.

Accordingly, the liquidity ratio was raised from 25% to 30% in November 1972, to 32% in 1973, to 35% in October 1981, to 36% in September 1984, to 38% to in January 1988, and to 38.5% effective from September 1990.

There are two reasons for raising statutory liquidity requirements by the Reserve Bank of India:

(a) It reduces commercial banks’ capacity to create credit and thus helps to check inflationary pressures.

(b) It makes larger resources available to the government. In view of the Narsimham Committee report, the government decided to reduce SLR in stages from 38.5% to 25%. The effective SLR on total outstanding net demand and time liabilities of the scheduled commercial banks come down to 27% by the end of December 1996.

6. Selective Credit Controls

Selective credit controls are qualitative credit control measures undertaken by the central bank to divert the flow of credit from speculative and unproductive activities to productive and more urgent activities. Section 21 of the Banking Regulation Act 1949 empowers the Reserve Bank to issue directives to the banks regarding their advances.

These directives may relate to:

(a) The purpose for which advances may or may not be made.

(b) The margins to be maintained on the secured loans.

(c) The maximum amount of advances to any borrower.

(d) The maximum amount upto which guarantees may be given by the banking company.

(e) The rate of interest to be charged.

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.

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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

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.

2. 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.

3. 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.

4. 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.

5. 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.