Tag: Industry Analysis

The primary aim to set up machinery for consultation is to create the required forum and environment for consulting various quarters interested and engaged in foreign trade.

It facilitates to develop a dialogue between Government, industry and the entrepreneurs, at various levels, to discuss varied problems faced by the enterprises and suggest necessary measures to solve the problems. Export is a dynamic industry and faces stiff international competition. It requires innovation, flexible approach and expeditious action to catch the swift changes that emerge as new opportunities. Further, orientation in attitude has to be developed to visualize and anticipate the changes that may overtake the scene. Equally, appropriate Government policies are important to support for rapid growth in international trade. To gear up with the changes, exporter needs guidance and assistance at different stages of export effort. For this purpose, Government has set up several institutions whose function is to support exporter in his endeavors. Institutions that are engaged in expo falls in six distinct tiers. The set-up is:

Department of Commerce

Primary Government agency responsible for formulating and directing Foreign Trade Policy and programs including establishing relations with other countries where needed

Board of Trade

Mechanism to maintain continuous dialogue with trade and industry for appropriate policy measures and corrective action by Government

Commodity specific organizations

Tackling problems connected with individual commodities and groups of commodities Service Institutions Assist exporters to expand their operations to reach world markets more effectively Government Trading organizations

Handling export/import of specified commodities & supplementing efforts of private enterprises in export promotion and import management

Government Policy Making and Consultations

The following bodies are involved in policy making and consultation process:

1. Department of Commerce

Ministry of Commerce is the apex ministry at the central level to formulate and execute India’s foreign trade policy and to initiate various exports promotional measures. e main functions of the Ministry are formulation of international commercial policy, negotiation of trade agreements, formulation of export-import policy and their implementation. has created a network of commercial sections in Indian embassies and high commissions various countries for export-import trade flows. It has set up an “Exporters’ Grievances dressal Cell” to assist exports in quick redressal of grievances. The department of Commerce, in the Ministry of Commerce, has been made responsible for India’s external trade and all matters connected with the same. This is the main organization to formulate and guide India’s foreign trade, formed with the responsibility of promoting India’s interest in international market. The Department of Commerce has six divisions and their functions are as under:

• Trade Policy Division: To keep abreast of the developments in the International organizations like UNCTAD, WTO, the Economic Commissions for Europe, Africa, Latin America and Asia and Far East
• Foreign Trade Territorial: Development of trade with different countries and regions of the world
• Export Products Division: Problems connected with production, generation of surplus and development of markets for the various products under its jurisdiction
• Export Industries Division: Development and Regulation of tobacco, Rubber and cardamom.
• Export Services Division: Export promotion activities relating to handlooms, textiles, woolens, readymade garments, silks, jute and jute products, handicrafts, coir and coir products Problems of Export Assistance
• Economic Division: Formulation of exports strategies, Export planning, Periodic appraisal and Review of policies

2. Board of Trade

It has been set up on May 5, 1989 with a view to provide an effective mechanism to maintain continuous dialogue with trade and industry in respect of major developments in the field of international trade. It provides regular consultation, monitoring and review of India’s foreign trade policies and operations. The board has the representatives from commerce and other important Ministries, Trade and Industry Associations and Export Services Organizations. It is an important national platform for a regular dialogue between the Government and trade and industry. The deliberations in the Board of Trade provide guidelines to the Government for appropriate policy measures for corrective action.

The Minister of Commerce is the chairman of the Board of Trade. The official membership includes Secretaries of the Ministries of Commerce and Industry, Finance (Revenue), External Affairs (ER), Textiles, Chairman of ITPO, Chairman/MD of ECGC, MD of Exim Bank and Deputy Governor of Reserve Bank of India. The non-official members are President of FICCI, ASSOCHAM, CH, FIEO, All India Handloom Weavers Marketing Co-operative Society.

Cabinet Committee regular and effective monitoring of India’s foreign trade performance and related policies

4. Empowered Committee of Secretaries

For speedier and quicker decision making, an Empowered Committee of Secretaries has been set up to assist the Cabinet Committee on Exports.

5. Grievances Cell

Grievances Cell has been established to entertain and monitor disposal of grievances and suggestions received. The purpose is to redress the genuine grievances, at the earliest. The grievance committee is headed by the Director General of Foreign. Trade. At the State level, the head of the concerned Regional Licensing authority heads the grievances committee. The committee also includes representatives of FIEO, concerned Export Promotion Council/ Commodity Board and other departments and organisations. The grievances may be addressed to the Grievances Cell, in the prescribed proforma.

6. Director General of Foreign Trade (DGFT)

DGFT is an important office of the Ministry of Commerce to help formulation of India’s Export4mport formulation policy and implementation thereof. It has set up regional offices in almost all the states and Union territories. These offices are known as Regional Licensing Authorities. The Regional Licensing offices also act as Export facilitation centres.

7. Ministry of Textiles

This is another ministry of Government of India which is responsible for policy formulation, development, regulation and export promotion of textile sector including sericulture, jute and handicrafts etc. It has a separate Export Promotion Division, advisory boards, development corporations, Export Promotion Councils and Commodity Boards. The advisory hoards have been set up to advise the government in the formulation of the overall development programmes in the concerned sector. It also devises strategy for expanding markets in India and abroad. The four advisory boards are as under:

(a) All India Hand loom Board

(b) All India Handicrafts Board

(c) All India Power loom Board

(d) Wool Development Board.

There are Development Commissioners, Handicrafts and Handlooms who advise on matters relating to development and exports of these sectors. There are Textile Commissioner and Jute commissioner who advise on the matters relating to growth of exports of these sectors. Textile committee has also been set up for ensuring textile machinery indigenously, especially for exports.

8. Institutional Framework

Export Promotion Councils and Commodity Boards have been established with the objective of promoting and strengthening commodity specialization. They are the key institutions in the institutional framework, established in India for export promotion.

Export Promotion Councils: There are 19 Councils covering different products. These Councils advise the Government the measures necessary to facilitate future exports growth, assist manufacturers and exporters to overcome various constraints and extend them full range of services for the development of overseas market. The councils also have certain regulatory functions such as the power to de-register errant and defaulting exporters. An idea of the functions of the Export Promotion Council can be had from understanding some of the functions of the Engineering Export Promotion Council. Some of their functions are:

(a) To apprise the Government of exporters’ problems;

(b) To keep its members posted with regard to trade inquiries and opportunities;

(c) To help in exploration of overseas markets and identification of items with export potential;

(d) To render assistance on specific problems confronting individual exporters;

(e) To help resolve amicably disputes between exporters and importers of Indian engineering goods and (f) to offer various facilities to engineering exporters in line with other exporting countries.

Over the years, the role of Export Promotion Councils has reduced to traditional liaison work and has lost their importance. Now, the procedures connected with the foreign trade are more simplified. So, they have to redefine their role to offer concrete market promotional and consolidation programmes and services to their members.

Commodity Boards: There are 9 statutory Boards. These Boards deal with the entire range of problems of production, development, marketing etc. In respect of these commodities concerned, they act themselves as if they are the Export Promotion Councils. These Boards take promotional measures by opening foreign offices abroad, participating in trade fairs and exhibitions, conducting market surveys, sponsoring trade delegations etc.

9. States’ Cell

This has been created under Ministry of Commerce. Its functions are to act as a nodel agency for interacting with state government or Union territories on matters concerning export or import from the state or Union territories. It provides guidance to state level export organizations. It assists them in the formulation of export plans for each state.

10. Development Commissioner, Small Scale industries Organization

The Directorate has the headquarter in New Delhi and Extension Centres are located in almost all the States and Union Territories. They provide export promotion services almost at the door steps of small-scale industries and cottage units. The important functions are:

• To help the small scale industries to develop their export capacities
• To organize export training programmes
• To collect and disseminate information
• To help such units in developing their export markets
• To take up the problems and other issues related to small-scale indus Corporation tries Besides, there are Directorates of Industries, National Small Scale Industries exports from small-scale industries.

Export-Import Bank of India (EXIM Bank) is a government-owned financial institution established in 1982 to promote and finance India’s international trade. It provides loans, guarantees, and credit facilities to Indian exporters and importers, helping them expand their businesses globally. EXIM Bank also supports project exports, overseas investment, and trade-related infrastructure development. It collaborates with foreign governments, financial institutions, and multilateral agencies to enhance India’s export competitiveness. By offering risk mitigation, buyer’s credit, and export credit insurance, EXIM Bank plays a crucial role in facilitating India’s global trade and strengthening economic ties with international markets.

History of EXIM Bank:

Export-Import Bank of India (EXIM Bank) was established in 1982 under the Export-Import Bank of India Act, 1981, as a wholly owned government financial institution to promote and finance India’s international trade. The bank was set up with the objective of enhancing India’s exports, supporting overseas investments, and strengthening economic partnerships with other countries.

In its early years, EXIM Bank primarily focused on export credit financing, providing Indian businesses with loans to expand their global presence. Over time, its role evolved to include project financing, buyer’s credit, supplier’s credit, and trade guarantees. During the 1990s, EXIM Bank introduced Lines of Credit (LOCs) to support trade with developing countries, facilitating Indian businesses in establishing overseas projects.

By the 2000s, EXIM Bank diversified its services to include export credit insurance, venture funding for startups, and technology financing. It also partnered with international financial institutions to promote India’s trade and investment globally. Today, EXIM Bank plays a crucial role in facilitating infrastructure development, supporting MSMEs, and enhancing India’s export competitiveness. With its wide range of financial products, the bank continues to drive India’s global trade and economic growth.

Objectives of EXIM Bank:

• Promoting and Financing Exports

One of the primary objectives of EXIM Bank is to promote and finance India’s exports by providing various credit facilities. It offers export credit, pre-shipment and post-shipment financing, and working capital support to Indian businesses. By ensuring the availability of funds at competitive interest rates, EXIM Bank helps exporters manage their financial needs efficiently. This support enables Indian companies to expand their global market presence, compete with international businesses, and enhance India’s trade balance by increasing exports of goods and services.

• Supporting International Trade and Investment

EXIM Bank plays a key role in facilitating international trade and overseas investments by Indian companies. It provides funding for Indian firms to set up joint ventures, subsidiaries, and production facilities abroad, strengthening India’s presence in global markets. The bank also extends credit lines to foreign governments and institutions, promoting Indian exports of capital goods, technology, and services. This support encourages Indian businesses to explore foreign markets, establish long-term trade relations, and enhance India’s economic engagement with other countries.

• Strengthening Export Competitiveness

To enhance India’s export potential, EXIM Bank provides financial and technical assistance to improve the competitiveness of Indian businesses. It offers market research, trade advisory, and business intelligence services to help exporters identify new opportunities. The bank also supports product innovation, quality enhancement, and process improvement in key industries. By facilitating access to global best practices and technologies, EXIM Bank helps Indian exporters produce high-quality goods and services that meet international standards, boosting their marketability worldwide.

• Facilitating Infrastructure and Project Exports

EXIM Bank plays a vital role in promoting infrastructure and project exports by financing large-scale projects in power, transport, construction, telecommunications, and engineering sectors. It extends buyer’s credit, supplier’s credit, and guarantees to Indian firms executing overseas projects. This assistance enables Indian companies to undertake turnkey projects, consultancy services, and infrastructure development in foreign countries. By financing these projects, EXIM Bank strengthens India’s reputation as a global infrastructure provider and increases the country’s economic footprint in international markets.

• Encouraging Innovation and Technology Upgradation

EXIM Bank actively supports innovation, research, and technology upgradation in export-oriented industries. It provides funding for modernization, automation, and adoption of new technologies to improve production efficiency and product quality. The bank also finances R&D initiatives, helping businesses develop new products and solutions that cater to global demand. By promoting technology-driven exports, EXIM Bank ensures that Indian industries remain competitive and aligned with evolving international trade trends, contributing to sustainable economic growth.

• Risk Mitigation and Export Credit Insurance

Exporters often face risks such as payment defaults, currency fluctuations, and political instability in foreign markets. EXIM Bank provides risk mitigation solutions, export credit insurance, and financial guarantees to safeguard Indian businesses against these uncertainties. It collaborates with agencies like the Export Credit Guarantee Corporation of India (ECGC) to offer insurance coverage against non-payment risks. By providing security against trade-related risks, EXIM Bank helps Indian exporters expand their global reach with confidence, ensuring stable and long-term international business relationships.

Functions of EXIM Bank:

• Financing Export and Import Activities

Export-Import Bank of India (EXIM Bank) provides financial assistance to Indian businesses engaged in export and import activities. It offers various credit facilities, including pre-shipment and post-shipment finance, term loans, and working capital loans. These services help exporters manage production, transportation, and payment risks. By offering financing solutions at competitive interest rates, EXIM Bank ensures smooth trade operations, helping Indian businesses expand their presence in global markets while supporting the nation’s trade balance and economic growth.

• Providing Overseas Investment Support

EXIM Bank facilitates overseas investments by Indian companies through direct financing and credit lines. It assists businesses in setting up joint ventures, subsidiaries, and production units in foreign markets. This function helps Indian firms expand globally, access international markets, and contribute to India’s foreign exchange earnings. By providing structured financial solutions, EXIM Bank strengthens India’s economic ties with other countries, promotes international trade collaborations, and enhances the global competitiveness of Indian enterprises.

• Promoting Project and Infrastructure Exports

EXIM Bank plays a key role in financing infrastructure and project exports, helping Indian firms undertake large-scale projects in construction, energy, transportation, and telecommunications sectors abroad. It provides buyer’s credit, supplier’s credit, and guarantees to ensure the smooth execution of international projects. By financing these initiatives, EXIM Bank not only boosts the export of Indian expertise and technology but also strengthens India’s reputation as a reliable infrastructure and engineering service provider in the global market.

• Offering Export Credit Insurance and Risk Mitigation

International trade involves significant risks, including payment defaults, currency fluctuations, and political instability. EXIM Bank provides export credit insurance, financial guarantees, and risk mitigation solutions to protect Indian exporters against potential losses. It collaborates with agencies like the Export Credit Guarantee Corporation of India (ECGC) to offer trade insurance policies. By ensuring financial security, EXIM Bank helps Indian exporters enter new markets with confidence, minimize trade-related risks, and maintain stable international business relationships.

• Facilitating Trade Finance and Working Capital Assistance

To ensure smooth trade transactions, EXIM Bank provides trade finance solutions, including letters of credit, bill discounting, and export factoring. These services help exporters manage their cash flows efficiently by offering working capital at lower costs. EXIM Bank’s financing solutions enable businesses to fulfill large orders, maintain steady operations, and strengthen their financial position. By offering timely financial support, the bank helps Indian exporters compete effectively in international markets and enhance their global trade presence.

• Supporting Innovation, Research, and Technology Upgradation

EXIM Bank encourages technological advancements and innovation in export-oriented industries by funding research and development (R&D), process improvements, and product innovations. It provides financial assistance for modernization, automation, and adoption of new technologies that enhance the quality and competitiveness of Indian products. By supporting technology-driven exports, EXIM Bank ensures that Indian businesses meet global standards, stay ahead in the competitive international market, and contribute to the sustainable economic development of the country.

The main purpose of industry analysis, in the context of strategic choice is to determine the industry attractiveness, and to understand the structure and dynamics of the industry with a view to find out the continued relevance to strategic alternatives that are there before a firm.

It follows that, for instance, if the industry is not, or no longer, sufficiently attractive (i.e. it does not offer long-term growth opportunities), then the strategic alternatives that lie within the industry should not be considered. It also means that alternative may have to be sought outside the industry calling for diversification moves.

Porter’s Five Forces is a business analysis model that helps to explain why different industries are able to sustain different levels of profitability. The model was originally published in Michael Porter’s book, “Competitive Strategy: Techniques for Analyzing Industries and Competitors” in 1980.

The model is widely used to analyze the industry structure of a company as well as its corporate strategy. Porter identified five undeniable forces that play a part in shaping every market and industry in the world. The forces are frequently used to measure competition intensity, attractiveness and profitability of an industry or market.

These Forces are:

1. Threat of New entrants

This force determines how easy (or not) it is to enter a particular industry. If an industry is profitable and there are few barriers to enter, rivalry soon intensifies. When more organizations compete for the same market share, profits start to fall. It is essential for existing organizations to create high barriers to enter to deter new entrants.

• Low amount of capital is required to enter a market;
• Existing companies can do little to retaliate;
• Existing firms do not possess patents, trademarks or do not have established brand reputation;
• There is no government regulation;
• Customer switching costs are low (it doesn’t cost a lot of money for a firm to switch to other industries);
• There is low customer loyalty;
• Products are nearly identical;
• Economies of scale can be easily achieved.

New entrants raise the level of competition in an industry and reduce its attractiveness. Threat of new entrants depends on barriers to entry. More barriers to entry reduce the threat of new entrants. Some of the key entry barriers are:

• Economies of scale

Industries where the fixed investment is high (such as automobiles), yield higher profits with larger scale of operations. In such industries, established players may have economies of scale of production which new entrants will not have, thus acting as a barrier.

• Capital requirements

Industries that require large seed capital for establishing the business (such as steel) discourage new entrants that cannot invest this amount.

• Switching costs

Customers may face some switching cost like having to buy new spare parts or train employees to run the new machine, in moving from one company to the other, thus discouraging movement of customers from existing players to new entrants.

• Access to distribution

Established players may have access to the most efficient distribution channels. Distribution channel members may not tie up with new entrants who pose competition to their existing partners.

• Expected retaliation

If existing players have large stakes in continuing their business (large investment, substantial revenues, strategic importance), or if they are dominant players, they would retaliate strongly to any new entrant.

• Brand equity

Existing players have established product reputation and built a strong brand image over the years. New players would find it hard to convince customers to switch over to their offering. To incumbent competitors, industry attractiveness can be increased by raising entry barriers. In fact, one of the main objectives of existing players in the industry is to erect strong entry barriers to prevent new competitors from entering the industry.

2. Bargaining Power of Suppliers

Strong bargaining power allows suppliers to sell higher priced or low quality raw materials to their buyers. This directly affects the buying firms’ profits because it has to pay more for materials. Suppliers have strong bargaining power when:

• There are few suppliers but many buyers
• Suppliers are large and threaten to forward integrate
• Few substitute raw materials exist
• Suppliers hold scarce resources
• Cost of switching raw materials is especially high

Bargaining power of suppliers will be high when:

• Many buyers and few sellers

There are many buyers and few dominant suppliers. Suppliers would be in a position to charge higher prices or cause instability in supply of essential products. The buyers should develop more suppliers by agreeing to invest in them and helping them with technologies.

• Differentiated supplies

When suppliers offer differentiated and highly valued components, their bargaining power is higher, since the buyer cannot switch suppliers easily. When many suppliers offer a standardized product, their bargaining power reduces. The buyer should bring the processes that enable the supplier to make differentiated products in-house and buy only standard components from the supplier.

• Crucial supplies

If the product sold by the supplier is a key component for the buyer, or it is crucial for its smooth operations, then the bargaining power of suppliers is higher. The buyer should always keep the production of key components with itself.

• Forward integration

When there is a threat of forward integration into the industry by the suppliers, their bargaining power is higher. There is a strong threat of forward integration when the supplier supplies a very crucial part of the final product. The supplier of engines to an automobile maker is in a very strong position to contemplate making automobiles because it already has expertise over a key component of the final product.

• Backward integration

When there is threat of backward integration by buyers, the bargaining power of suppliers becomes weaker, as the supplier may become redundant if the buyer starts making the same product. The buyer should always have an idea of the technologies that are being employed in making crucial and differentiated products and should be capable of putting together the resources to make these components. Suppliers should always understand that if the buyer is cornered, he will start making the components himself.

• Level of dependence

When the industry is not a key customer group for suppliers, their bargaining power increases. Buyers are dependent on suppliers, though suppliers do not focus on the customer group. The suppliers can survive even when they stop supplying to the buyers as the major part of their business is coming from some other industry. The buyers should be careful in selecting their suppliers. They should select suppliers who have strong stake in the buyers’ industry and not those who only have peripheral interests in the buyers’ industry.

3. Bargaining Power of Buyers

Buyers have the power to demand lower price or higher product quality from industry producers when their bargaining power is strong. Lower price means lower revenues for the producer, while higher quality products usually raise production costs. Both scenarios result in lower profits for producers. Buyers exert strong bargaining power when:

• Buying in large quantities or control many access points to the final customer
• Only few buyers exist
• Switching costs to other supplier are low
• They threaten to backward integrate
• There are many substitutes
• Buyers are price sensitive

Higher bargaining power of customers implies that they can seek greater compliance from the companies of the industry.

• Few dominant customers

When there are few dominant customers and many sellers, customers can exercise greater choice. They also dictate terms and conditions to the supplier. This is true in industrial markets where many suppliers make standard components for a few Original Equipment Manufacturers. The OEMs are able to extract big concessions on price and coerce the suppliers to provide expensive services like just-in-time supplies. The suppliers have to agree to debilitating terms of the buyers if they have to continue to supply to them.

• Non-differentiated products

If products sold by the players in the industry are standardized, or there are little differences among them, buyers can easily switch over to competitors, increasing their bargaining power. This is increasingly happening in consumer markets. Customers are not able to tell one manufacturer’s product from that of another. The result is that the customers are buying mostly on price and the manufacturers are reducing prices to lure customers.

The problem with such an approach is that with reduced profits, a company’s ability to differentiate its product further goes down. The manufacturer is caught in the spiral of low differentiation-low price-low profits- further low differentiation-further low prices-further low profits. The manufacturer has to break this chain and collect resources to differentiate its product so that it can fetch a higher price and profit.

• Small proportion of customer’s total purchase

If the product offered by the firm is not important or critical for the customer, the bargaining power of customers is higher. The product may be of a relatively smaller value in the overall disposable income of the customer. This may work out to be to the advantage of the seller.

The customer will not be overly worried if the supplier raises its price by small amount as the slightly increased expenditure will not be a big dent in the income of the customer. As level of economic prosperity rises, manufacturers of packaged foods and other fast moving consumer goods can increase the quality and price of their products. Customers would not mind paying slightly higher prices for better products.

• Backward integration

Customers may threaten to integrate backward into the industry, and compete with suppliers. This may be a reality in industrial markets but it is very rare in consumer markets. Most customers do not have the resources to start making what they buy.

• Forward integration

Suppliers can threaten to integrate forward into customers’ industry. The customers have to understand and contain the imminent threat of competition from their suppliers. This threat is meaningless in consumer markets but the threat is real in industrial markets, particularly when the supplier is supplying a key component.

• Key supplies

The industry is not a key supplying group for buyers. In consumer markets, one manufacturer supplies only a small fraction of his total purchases.

4. Threat of Substitutes

This force is especially threatening when buyers can easily find substitute products with attractive prices or better quality and when buyers can switch from one product or service to another with little cost. For example, to switch from coffee to tea doesn’t cost anything, unlike switching from car to bicycle.

• Buyer’s willingness to substitute

Buyers will substitute when the industry’s product is not strongly differentiated, so the buyers will not have developed strong preference for the product. In industrial markets, the product should be either enhancing value of the final product it becomes a part of, or is enhancing the operation of the buyer.

•  Relative prices and performance of substitutes

If the substitute enhances the operation of the customer without incurring additional costs, substitute product would be preferred.

• Costs of switching over to substitutes

In industrial markets, if a company has to buy another manufacturer’s product, the company will have to buy new spare parts and will have to train its operations and maintenance staff on the new machine.

The substitute products satisfy the same general need of the customer. The customer evaluates various aspects of the substitute products such as prices, quality, availability, ease of use etc. Relative substitutability of products varies among customers. The threat of substitute products depends on how sophisticated the needs of the buyers are, and how strongly entrenched their habits are. Some people will continue to drink coffee, and will never ever switch to drinking tea, no matter how costly coffee may become.

A company can lower threat of substitute products by building up switching costs, which may be monetary or psychological-by creating strong distinctive brand personalities and maintaining a price differential commensurate with perceived consumer value.

5. Rivalry among existing competitors

This force is the major determinant on how competitive and profitable an industry is. In competitive industry, firms have to compete aggressively for a market share, which results in low profits. Rivalry among competitors is intense when:

• There are many competitors
• Exit barriers are high
• Industry of growth is slow or negative
• Products are not differentiated and can be easily substituted
• Competitors are of equal size
• Low customer loyalty

The intensity of rivalry between competitors depends on:

• Structure of competition

An industry witnesses intense rivalry amongst its players, when it has large number of small companies or a few equally entrenched companies. An industry witnesses less rivalry when it has a clear market leader. The market leader is significantly larger than the industry’s second largest player, and it also has a low cost structure.

• Structure of costs

In an industry which has high fixed costs, a player will cut price to attract competitors’ customers to fill capacity. A player may be willing to price just above its marginal cost, and since the industry’s marginal cost is low, it is not unusual to see price cuts of 50-70 per cent Such price cuts are almost always matched by competitors, because all of them are trying to fill capacity. The inevitable result is a price war.

• Degree of differentiation

Players of an industry whose products are commoditized will essentially compete on price, and hence price cuts of a player will be swiftly matched by competitors, resulting in intense rivalry. But when players of an industry can differentiate their products, they understand that customers do not associate the industry’s products with a single price, and that the price of a product is dependent on its features, benefits and brand strength. Players of such an industry compete on features, benefits and brand strength, and hence rivalry is less intense. When a player cuts price, its competitor can react by adding more features, providing more benefits, or hiring a celebrity in its advertisements, instead of cutting price.

• Switching costs

Switching cost is high when product is highly specialized, and when the customer has expended lot of resources and efforts to learn how to use it. Switching cost is also high when the customer has made investments that will become worthless if he uses any other product. Since a customer of a company is not likely to be lured by competitors’ price cuts and other manoeuvres, competitive rivalry is less in such an industry.

• Strategic objectives

When competitors are pursuing build strategies, they will match the price cuts of a player because they do not want to lose market share to the player who has cut price. Therefore, rivalry will be intense. But when competitors are pursuing hold or harvest strategies, they will not be too keen to match the price cuts of a player, because they are more interested in profits than market share. Therefore, rivalry will be less intense.

• Exit barriers

When players cannot leave an industry due to factors such as lack of opportunities elsewhere, high vertical integration, emotional barriers or high cost of closing down a plant, rivalry will be more intense. In such an industry, players will compete bitterly as they do not have the option to quit. But, when exit barriers are low, players who are not good enough, or who have found more attractive industries to enter, can exit. With fewer numbers of players in the industry now, rivalry will be less intense.

Although, Porter originally introduced five forces affecting an industry, scholars have suggested including the sixth force: complements. Complements increase the demand of the primary product with which they are used, thus, increasing firm’s and industry’s profit potential. For example, iTunes was created to complement iPod and added value for both products. As a result, both iTunes and iPod sales increased, increasing Apple’s profits.

Environmental Threat and Opportunity Profile (ETOP) is a strategic management tool used to analyze the external environment of an organization. It involves identifying and assessing the key threats and opportunities that exist in the external environment, including factors such as market trends, regulatory changes, competitive dynamics, technological advancements, and socio-economic factors. ETOP helps organizations understand the forces shaping their industry and anticipate potential challenges and opportunities. By systematically evaluating external factors, organizations can develop strategies to capitalize on opportunities and mitigate threats, thereby enhancing their competitive advantage and long-term sustainability in the market. ETOP analysis is an essential component of strategic planning and decision-making processes for organizations seeking to adapt to changing external conditions.

ETOP Preparation:

1. Identify External Factors:

Begin by identifying all relevant external factors that could potentially impact the organization’s performance and competitiveness. These factors may include market trends, technological advancements, regulatory changes, economic conditions, social and cultural trends, competitive dynamics, and environmental factors.

2. Gather Information:

Collect data and information on each external factor identified. This may involve conducting market research, gathering industry reports, monitoring news and publications, analyzing competitor activities, and consulting with experts in the field.

3. Assess Impact and Significance:

Evaluate the impact and significance of each external factor on the organization. Determine whether each factor represents a threat, an opportunity, or both, and assess the magnitude of its potential impact.

4. Prioritize Factors:

Prioritize the external factors based on their level of importance and relevance to the organization. Focus on those factors that are most critical and have the greatest potential to affect the organization’s performance and strategic objectives.

5. Develop Profiles:

Develop separate profiles for threats and opportunities. For each profile, summarize the key external factors, their impact on the organization, and any implications for strategic decision-making.

6. Strategic Implications:

Analyze the strategic implications of the identified threats and opportunities. Determine how the organization can capitalize on opportunities to gain a competitive advantage and how it can mitigate threats to minimize risks and vulnerabilities.

7. Integration with Strategy:

Integrate the ETOP findings into the organization’s strategic planning process. Use the insights gained from the analysis to inform the development of strategies and action plans that align with the organization’s goals and objectives.

8. Regular Review and Update:

Periodically review and update the ETOP to reflect changes in the external environment. Environmental conditions are dynamic, so it’s essential to stay informed and adapt strategies accordingly.

ETOP Dimensions:

1. Market Trends:

This dimension focuses on trends in the market, such as changes in consumer preferences, demand patterns, industry growth rates, and emerging market segments.

2. Technological Factors:

This dimension includes advancements in technology that could impact the organization’s operations, products, services, and competitive position. It involves assessing technological trends, innovation cycles, and the adoption of new technologies.

3. Regulatory and Legal Environment:

This dimension involves analyzing regulatory changes, government policies, laws, and compliance requirements that could affect the organization’s operations, industry standards, and market entry barriers.

4. Economic Factors:

This dimension encompasses economic conditions such as GDP growth, inflation rates, interest rates, exchange rates, and unemployment levels. It assesses how macroeconomic trends could influence consumer spending, investment decisions, and overall business performance.

5. Social and Cultural Factors:

This dimension considers societal trends, cultural norms, demographic shifts, lifestyle changes, and societal values that could impact consumer behavior, market demand, and business opportunities.

6. Competitive Dynamics:

This dimension involves analyzing the competitive landscape, including the actions of competitors, market share dynamics, pricing strategies, product differentiation, and barriers to entry.

7. Environmental Factors:

This dimension includes environmental trends, sustainability concerns, climate change impacts, and regulations related to environmental protection. It assesses how environmental factors could affect operations, supply chains, and reputational risks.

8. Global Factors:

This dimension focuses on global trends, international trade policies, geopolitical developments, and economic interdependencies that could influence the organization’s global operations, supply chains, and market opportunities.

ETOP Challenges:

1. Data Collection and Analysis:

Gathering relevant data on external factors can be challenging, especially when dealing with complex and dynamic environments. Ensuring the accuracy, reliability, and completeness of the data requires thorough research and analysis.

2. Interconnectedness of Factors:

External factors are often interconnected and can have ripple effects across multiple dimensions. Analyzing the interrelationships between different factors and understanding their combined impact on the organization can be complex.

3. Subjectivity and Bias:

ETOP analysis involves subjective judgments and interpretations, which can be influenced by the biases and perspectives of individuals conducting the analysis. Ensuring objectivity and minimizing bias is essential for generating reliable insights.

4. Environmental Uncertainty:

External environment is characterized by uncertainty, volatility, and unpredictability. Factors such as technological advancements, regulatory changes, and market disruptions can create uncertainty and make it challenging to anticipate future developments accurately.

5. Time and Resource Constraints:

Conducting a comprehensive ETOP analysis requires time, resources, and expertise. Organizations may face constraints in terms of available resources, making it difficult to conduct thorough and timely analyses.

6. Complexity of External Environment:

External environment is multifaceted and constantly evolving, making it difficult to capture all relevant factors comprehensively. Identifying emerging trends, disruptive technologies, and regulatory changes requires ongoing monitoring and adaptation.

7. Integration with Strategy:

Translating ETOP findings into actionable strategies and initiatives can be challenging. Aligning the analysis with the organization’s strategic goals and objectives and integrating it into the strategic planning process requires careful consideration and collaboration across departments.

8. Resistance to Change:

ETOP analysis may reveal threats and challenges that require organizational change and adaptation. Resistance to change from internal stakeholders, such as employees and management, can hinder the implementation of necessary strategic initiatives.

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.