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Business Environment

Note : Question No. 1 is of short answer type and is compulsory for all the students. It carries 5 Marks. (Word limits 50-100)

Q. 1. (i)

Answer all the questions: What is FDI?

Ans. Foreign direct investment (FDI) is a direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds (ii) Name two features of technology.

Ans. Technology infers to the relevant application of science. The features of technology are mentioned hereunder:

Superior Dependability With the technology developing into a more advanced stage, product dependability turns out to be a major feature in product differentiation. For instance improved utilization of specific integrated circuits can result in easiness of product assembly. Enhancements in designs and diverse techniques of construction will concentrate on performance and quality. Reduced Costs With the product developing into matured stage technology advancement can concentrate more on cost lessening. For instance consider the utilization of specialized integrated circuits as referred previously. They are costly to conceive but in mass production present massive cost benefits over separate components. They can present a magnificent improvement to the business that can take control of this technology.

(iii)

What is disinvestment?

Ans. At the very basic level, disinvestment can be explained as follows: Investment refers to the conversion of money or cash into securities, debentures, bonds or any other claims on money. As follows, disinvestment involves the conversion of money claims or securities into money or cash. Disinvestment can also be defined as the action of an organization (or government) selling or liquidating an asset or subsidiary. It is also referred to as divestment or divestiture. (iv) Name two tools to control money supply by monetary policy of RBI?

Ans. Two tools to control money supply by monetary policy of RBI are: (a) Bank Rate Policy :Bank rate is the rate at which the Central bank lends money to the commercial banks for their liquidity requirements. Bank rate is also called discount rate. In other words bank rate is the rate at which the central bank rediscounts eligible papers (like approved securities, bills of exchange, commercial papers etc) held by commercial banks. Bank rates have been changed several times by RBI to control inflation and recession. By 2003, the bank rate has been reduced to 6% p.a. (b) Open market operations :It refers to buying and selling of government securities in open market in order to expand or contract the amount of money in the banking system. This technique is superior to bank rate policy. Purchases inject money into the banking system while sale of securities do the opposite. During last two decades the RBI has been undertaking switch operations. These involve the purchase of one loan against the sale of another or, vice-versa. This policy aims at preventing unrestricted increase in liquidity. (v) What is international trade?

Ans. International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries. Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders.

Note: Answer any two questions. Each question carries 5 marks (Word limits 500) Q. 2. Q. 3. Explain the external elements of environment offering business. Explain the role of multinational enterprise in India.

Ans. Any enterprise is referred to as a multinational enterprise or company when that enterprise manages its operation or production or service delivery from more than a single country. Such a company is even known as international company or corporation. Apart from playing an important role in globalization and international relations, these multinational enterprises even have notable influence in a country's economy as well as the world economy. The budget of some of the M. N. E.s are so high that at times they even exceed the G. D. P. (Gross Domestic Product) of a nation. As the basic economic data suggest that after the liberalization in 1991, it has brought in hosts of foreign companies in India and the share of U.S shows the highest. They account about 37% of the turnover from top 20 companies that function in India. What is the role Multinational Enterprises in India? There are a number of reasons why the multinational companies are coming down to India. India has got a huge market. It has also got one of the fastest growing economies in the world. Besides, the policy of the government towards FDI has also played a major role in attracting the multinational companies in India. For quite a long time, India had a restrictive policy in terms of foreign direct investment. As a result, there was lesser number of companies that showed interest in investing in Indian market. However, the scenario changed during the financial liberalization of the country, especially after 1991. Government, nowadays, makes continuous efforts to attract foreign investments by relaxing many of its policies. As a result, a number of multinational companies have shown interest in Indian market. Profit of MNCs in India It is to specify that the companies come and settle in India to earn profit. A company enlarges its jurisdiction of work beyond its native place when they get a wide scope to earn a profit and such is the case of the MNCs that have flourished here. More over India has wide market for different and new goods and services due to the ever increasing population and the varying consumer taste. The government FDI policies have somehow benefited them and drawn their attention too. The restrictive policies that stopped the company's inflow are however withdrawn and the country has shown much interest to bring in foreign investment here. Besides the foreign directive policies the labour competitive market, market competition and the macro-economic stability are some of the key factors that magnetize the foreign MNCs here. Following are the reasons why multinational companies consider India as a preferred destination for business: Huge market potential of the country FDI attractiveness

Labor competitiveness

Macro-economic stability

Advantages of the growing MNCs to India Initiating a higher level of investment. Reducing the technological gap

The natural resources are utilized in true sense. The foreign exchange gap is reduced Boosts up the basic economic structure.

Disadvantages of MNCs Competition to SMSI Pollution and Environmental hazards Some MNCs come only for tax benefits only Exploitation of natural resources Lack of employment opportunities Diffusion of profits and Forex Imbalance Working environment and conditions Slows down decision making Economical distress Q. 4. Explain the problems faced by small scale industries in India.

Ans. Small-scale industries in India could not progress satisfactorily due to various problems that they are confronted with while running enterprises. In spite of having huge potentialities, the major problems, small industries face are given below. 1. Problem of skilled manpower: The success of a small enterprise revolves around the entrepreneur and its employees, provided the employees are skilled and efficient. Because inefficient human factor and unskilled manpower create innumerable problems for the survival of small industries. Non-availability of adequate skilled manpower in the rural sector poses problem to small-scale industries. 2. Inadequate credit assistance: Adequate and timely supply of credit facilities is an important problem faced by small-scale industries. This is partly due to scarcity of capital and partly due to weak creditworthiness of the small units in the country. 3. Irregular supply of raw material:

Small units face severe problems in procuring the raw materials whether they use locally available raw materials or imported raw materials. The problems arise due to faulty and irregular supply of raw materials. Non-availability of sufficient quantity of raw materials, sometimes poor quality of raw materials, increased cost of raw materials, foreign exchange crisis and above all lack of knowledge of entrepreneurs regarding government policy are other few hindrances for small-scale sector. 4. Absence of organised marketing: Another important problem faced by small-scale units is the absence of organised marketing system. In the absence of organised marketing, their products compare unfavourably with the quality of the product of large- scale units. They also fail to get adequate information about consumer's choice, taste and preferences of the type of product. The above problems do not allow them to stay in the market. 5. Lack of machinery and equipment: Small-scale units are striving hard to employ modern machineries and equipment in their process of production in order to compete with large industries. Most of the small units employ outdated and traditional technology and equipment. Lack of appropriate technology and equipment create a major stumbling block for the growth of small-scale industries. 6. Absence of adequate infrastructure: Indian economy is characterized by inadequate infrastructure which is a major problems for small units to grow. Most of the small units and industrial estates found in towns and cities are having one or more problems like lack of of power supply, water and drainage problem, poor roads, raw materials and marketing problem. Thus absence of adequate infrastructure adversely affect the quality, quantity and production schedule of the enterprises which ultimately results in under-utilization of capacity. 7. Competition from large-scale units and imported articles: Small-scale units find it very difficult to compete with the product of large-scale units and imported articles which are comparatively very cheap and of better quality than small units product. 8. Other problems: Besides the above problems, small-scale units have been of constrained by a number of other problems also. They include poor project planning, managerial inadequacies, old and orthodox designs, high degree of obsolescence and huge number of bogus concerns. Due to all these problems the development of small-scale industries could not reach a prestigious stage.

JAIPUR NATIONAL UNIVERSITY, JAIPUR School of Distance Education & Learning Internal Assignment No. 2

Master of Business Administration (MBA)

Paper Code: Paper Title:

MBA 101 Business Environment

Last date of submission:

Max. Marks: 15

Note : Question No. 1 is of short answer type and is compulsory for all the students. It carries 5 Marks. (Word limits 50-100)

Q. 1. (i)

Answer all the questions: Name four internal elements of environment which affect business.

Ans. Four internal elements of environment which affect business are: Internal Communication This includes interpersonal relationships, training materials, newsletters, philosophical statements and policies. Employees are happier when they are courteous and respectful of one another. Structure The structure impacts the number of employees you hire, the levels of hierarchy, the extent of employee and department collaboration and the roles of the employees. Employees The quality of employees affects the company's ability to innovate, customer satisfaction, productivity and efficiency. Capital A significant internal factor businesses must consider is the quality of their capital with respect to their available money. A company's capital, can limit or enhance its ability to compete with other businesses.

(ii)

What do you understand by liberalization?

Ans. Liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation. Liberalization of autocratic regimes may precede democratization. There is also a concept of hybrid liberalization as, for instance, in Ghana where cocoa crop can be sold to a variety of competing private companies, but there is a minimum price for which it can be sold and all exports are controlled by the state. (iii) What is fiscal policy?

Ans. Fiscal policy is the means by which a government adjusts its levels of spending in order to monitor and influence a nation's economy. It is the sister strategy to monetary policy with which a central bank influences a nation's money supply. These two policies are used in various combinations in an effort to direct a country's economic goals, influencing macroeconomic productivity levels by increasing or decreasing tax levels and public spending. This influence, in turn, curbs inflation, increases employment and maintains a healthy value of money. (iv) Name the year in which Competition Act was enacted.

Ans. The Competition Act was enacted by the Parliament of India in the year 2002 and governs Indian competition law. It replaced the archaic Monopoly and Restrictive Trade Practices Act, 1969. Under this legislation, the Competition Commission of India was established to prevent activities that have an adverse effect on competition in India.

(v)

What is EXIM policy?

Ans. The Govt. of India, Ministry of Commerce and Industry announces Export Import Policy every five years. The current policy covers the period 2009-2014. The Export Import Policy (EXIM Policy) is updated every year on the 31st of March and the modifications, improvements and new schemes are effective from1st April of every year. EXIM Policy contains various policy decisions with respect to import and exports from the country. The foreign trade of India is guided by the Export Import policy of the Govt. of India.

Note: Answer any two questions. Each question carries 5 marks (Word limits 500) Q. 2. Explain the impact of globalization on Indian economy.

Ans. Impact of Globalization on Indian Economy The term globalization refers to the integration of economies of the world through uninhibited trade and financial flows, as also through mutual exchange of technology and knowledge. In context to India, Globalization implies opening up the economy to foreign direct investment by providing facilities to foreign companies to invest in different fields of economic activity in India, removing constraints and obstacles to the entry of MNCs in India, allowing Indian

companies to enter into foreign collaborations and also encouraging them to set up joint ventures abroad; carrying out massive import liberalization programs by switching over from quantitative restrictions to tariffs and import duties, therefore globalization has been identified with the policy reforms of 1991 in India. The Government of India affirmed to implement the economic reforms in consultation with the international bank and in accordance of its policies. At the present, we can also say about the tale of two Indias: We have the best of times; we have the worst of times. There is sparkling prosperity, there is stinking poverty. We have dazzling five star hotels side by side with darkened ill-starred hovels. We have everything by globalization, we have nothing by globalization. The Bright Side of Globalization The rate of growth of the Gross Domestic Product of India has been on the increase from 5.6 per cent during 1980-90 to seven per cent in the 1993-2001 period. The foreign exchange reserves (as at the end of the financial year) were $ 39 billion (2000-01), $ 107 billion (2003-04), $ 145 billion (2005-06) and $ 180 billion (in February 2007). It is expected that India will cross the $ 200 billion mark soon. The cumulative FDI inflows from 1991 to September 2006 were Rs.1, 81,566 crores (US $ 43.29 billion). India controls at the present 45 per cent of the global outsourcing market with an estimated income of $ 50 billion. As per the Forbes list for 2007, the number of billionaires of India has risen to 40 more than those of Japan (24), China (17), France (14) and Italy (14) this year. In respect of market capitalization India is in the fourth position with $ 894 billion after the US ($ 17,000 billion), Japan ($ 4800 billion) and China ($ 1000). The Dark Side of Globalization Agriculture has been and still remains the backbone of the Indian economy. It plays a vital role not only in providing food and nutrition to the people, but also in the supply of raw material to industries and to export trade. This has resulted in a lowering the per capita income of the farmers and increasing the rural indebtedness. The reasons for the deceleration of the growth of agriculture are Low investment, imbalance in fertilizer use, low seeds replacement rate, a distorted incentive system and low post-harvest value addition continued to be a drag on the sectors performance. With more than half the population directly depending on this sector, low agricultural growth has serious implications for the inclusiveness of growth.

Q. 3.

Explain the importance of small scale industries.

Ans. In a developing country like India, the role and importance of small-scale industries is very significant towards poverty eradication, employment generation, rural development and creating regional balance in promotion and growth of various development activities. It is estimated that this sector has been contributing about 40% of the gross value of output produced in the manufacturing sector and the generation of employment by the small-scale sector is more than five times to that of the large-scale sector. The following are some of the important role played by small- scale industries in India.

1. Employment generation: The basic problem that is confronting the Indian economy is increasing pressure of population on the land and the need to create massive employment opportunities. This problem is solved to larger extent by small-scale industries because small- scale industries are labour intensive in character. They generate huge number of employment opportunities. Employment generation by this sector has shown a phenomenal growth. 2. Mobilisation of resources and entrepreneurial skill: Small-scale industries can mobilize a good amount of savings and entrepreneurial skill from rural and semi-urban areas remain untouched from the clutches of large industries and put them into productive use by investing in small-scale units. Thus, a huge amount of latent resources are being mobilised by the small-scale sector for the development of the economy. 3. Equitable distribution of income: Small-scale industries ensure equitable distribution of income and wealth in the Indian society which is largely characterised by more concentration of income and wealth in the organised section keeping unorganised sector undeveloped. 4. Provides opportunities for development of technology: Small-scale industries provide ample opportunities for the development of technology and technology in return, creates an environment conducive to the development of small units. As a result, the economy reaps the benefit of improved technology. 5. Promotes exports: The value of exports of products of small-scale industries has increased to Rs. 393 crores in 1973-74 to Rs. 71, 244 crores in 2002-03. This contributes about 35% India's total export. Thus they help in increasing the country's foreign exchange reserves thereby reduces the pressure on country's balance of payment. 6. Supports the growth of large industries: The small-scale industries support the growth of large industries by providing, components, accessories and semi finished goods required by them. In fact, small industries can breathe vitality into the life of large industries. 7. Better industrial relations: The loss of production and man-days are comparatively less in small- scale industries. There is hardly any strikes and lock out in these industries due to good employee-employer relationship. Of course, increase in number of units, production, employment and exports of small- scale industries over the years are considered essential for the economic growth and development of the country. It is encouraging to mention that the small-scale enterprises accounts for 35% of the gross value of the output in the manufacturing sector, about 80% of the total industrial employment and about 40% of total export of the country.

Q. 4.

Explain industrial policy of government of India.