1st Answer

Porter Diamond Theory of National Advantage, which is commonly known as Porter's

Diamond Theory is a renowned theory that enables a nation or a corporation to analyze
its competitive advantage available to them and how they can use this competitive
advantage to generate economic benefits for themselves.

A good advantage of using a Porter's model is that unlike the other models, it assigns
“chance” factors an extremely important role. This is important, especially in the context
of the Indian IT-ITeS sector whose success to a great extent, can be attributed to
events unfolding outside the geographical territory of the nation.

The following is the reconstruction of Porter’s model in the context of the Indian IT-
sector in an extremely systematic pattern, on the basis of a longer time horizon, which
encapsulates newer sets of information.

Porter's model: applicability to the Indian IT-sector:

The framework designed by Porter recognizes four main factors, namely favourable
factor conditions; high domestic demand; existence of related and supporting industries;
and strategy of the firm, structure, and rivalry. These primary factors are supported by
“chance” factors and government policies.

Factor conditions: In defining factor conditions, Porter avoided classifying in the

traditional method and categorized the factors in four categories; namely basic,
advanced, generalized and specialized factors. His opinion was that efficient and
effective deployment of the advanced and specialized factors is the main reason to
have a competitive advantage over others.

Cost arbitrage: The availability of low-cost skilled labour gives rise to cost arbitrage
which is an extremely important factor underlying the competitive advantage of the
industry. The software professionals in India have tended to enjoy (absolute) wage
advantages as compared to their counterparts in the US and Europe. The wage costs
estimation in India in 1997 were about 1/3 to 1/5 of the US levels for comparable work.
The cost arbitrage remains unchanged even today notwithstanding the inflation of wage
due to decline in the rates of billing by around 5% in the last 4-5 years.

Also, India's huge pool of technically trained manpower with proficiency in English
complements this advantage of cost. With the availability of cheaper and quality
manpower, a huge amount of software production started to be outsourced to India,
which gave rise to the evolution of the IT industry in India.
If cost advantage was the sole reason for the competitive advantage, India would have
been expected to display competitive advantage in the sectors of manufacturing and
agricultural as well. However, this wasn’t the scenario. Lack of physical infrastructure
forced entrepreneurs in India to adjust towards the sectors of service-oriented such as
like IT.

Also, the wage rate in the software industry in extremely higher than the wage rates in
the manufacturing sector or academia, when measured in parity of purchasing power
terms which have continued to provide a steady supply of workers. In other words, the
specialization of India in IT has been driven partly by absolute and partly by advantages
of comparative wage and these two types of wage advantages have tended to reinforce
one another.

As per Porter’s theory, the existence of relatively cheap labour may not explain the
existence of competitive advantage for such a long period of time.

“Cost arbitrage is not compelling enough. Customers are looking for flexible offerings
and managed services”

As per Porter’s Theory, the competitive advantage relies on the country's ability to
enhance its productivity over time through constant upgradation.

The Indian IT industry has been extremely successful in accomplishing this with the first
US$ 100 billion attributable to wage arbitrage and the next US$ 100 billion
accomplished through a combination of services having high-value and increasingly
non-linear play manifested in a shift from enterprise services to solutions of the
enterprise.

Efforts to enhance the competitiveness through various measures such as delivery

models which are agile; standardization and business processes automation; delivery
network inclusion in tier-2 and tier-3 cities; delivery excellence; innovation process; and
domain expertise have been the main areas to focus on. The dynamics of the industry
manifested in Indian firms which made noticeable inroads to render higher-end services
such as IT consulting implies that the industry has shifted significantly higher up the
value-chain in order to retain its competitive edge.

Favourable resource endowments: IT-industry is specifically suited to the resource

endowments in a nation like India through making, increasingly, more use of the
resources where India has a comparative advantage, such as quality of manpower and
less use of the resources where India has a comparative disadvantage, such as
physical infrastructure and financial capital.
Lower infrastructural costs boosting entrepreneurship: The infrastructural costs in
order to set up a software unit are less. Besides computers, office space and
equipment, and internet connectivity, there are virtually no major costs to set up a
software unit. Hence, entry barriers are less.
This coupled with enhanced profitability from production of software, worldwide decline
in prices of hardware, and various government initiatives such as low tax and tariff
obligations in the early 1990s brought in a new wave of entrepreneurship.
MNCs: During the 1980s, multinational corporations entered India, i.e. during the
formative stages of the industry, which influenced the business models of the
organizations operating domestically. Texas Instruments (TI) for example, that entered
India in the mid-1980s and whose business model rested on facilities of robust
communication on one hand and high-end offshore research & development activities
on the other, influenced the way local majors such as TCS, Infosys and Wipro
conducted their business operations.

Conclusion: The existence of a fully functioning diamond as the industry traversed from
an investment-driven to the innovation-driven phase. This was made possible on
account of constant innovation in the industry which results in the gradual progression
of the industry from being a service provider to a solution provider. Third, the strategies
adopted by the corporations revealed that uniform strategy for all may not be beneficial
since the industry remains highly heterogeneous. Fourth, the domestic market has
evolved to match the export market with more-and-more IT adoption.
2nd Answer

Economic integration takes place when two or more countries within a

geographic region enter into a formal agreement to cooperate in ways facilitating
economic development and regional prosperity.

The following are the five levels of economic integration globally:

Free Trade Area: A free trade area involves an agreement between two or more
nations in order to eliminate internal trade barriers. In free trade integration, goods and
services can flow freely between the signatory countries duty-free. Free trade areas
enable to expand markets for companies conducting business operations within the
area. Examples of free trade integration are NAFTA and ASEAN. NAFTA is an
agreement among Canada, Mexico and the USA. It is known as the second-level of
regional integration.

Sectoral Trading Agreements: They may be thought of as reflecting trade cooperation

rather than actual integration. Sectoral cooperation limits the agreement to well-defined
sectors such as grain or steel. Sectoral trading is coded as level-one integration.

Customs unions (CU) are similar to FTAs; the only exception is that the participating
nations agree to adopt uniform import tariffs and common restrictions to outside nations
in the form of a common external tariff (CET). The creation of the CET helps to negate
the trade deflection and rules of origin issues. Establishing CET implies some kind of
common decision-making and the developing of common institutions to help in the
regulation of common trade interests and redistributing the CET revenue. The CET 6 is
said to be a defining factor of a customs union and is coded as level three of regional
integration.

Common markets: (CM) need a much higher degree of political and economic
cooperation than the three arrangements discussed previously. The free movement of
the production factors characterizes a common market. In order to make sure
competition on a fair- playing field, these agreements can often be complemented with
the harmonization of policies with respect to health and safety, social security, and
education. Free movement of factors is thus an important attribute of this type of RIA
which is coded as fourth level regional integration.

Supra-national union: A Supra-national union includes both the political and the
economic realms. The goals of preserving national sovereignty are abandoned by the
member states. An instance of this type of unification is the United States or the
unification of East and West Germany, i.e., a federation.
The United States-Mexico-Canada Agreement is also termed as the USMCA,
refers to a trade deal between the three countries which was signed on
November 30, 2018. USMCA is the replacement of the North American Free
Trade Agreement (NAFTA), which was in effect since January, 1994. With
respect to the terms of NAFTA, tariffs on various goods transported between
North America's three main economic powers were gradually eliminated. By the
year 2008, tariffs on various agricultural and textiles products, automobiles, and
other goods were lowered or eliminated.
The following are the six key differences between the two agreements:
Auto manufacturing boost: The USMCA mandates that 75% of a vehicle's
parts should be manufactured in one of the three nations -- up from the current
62.5% rule – so that it remains free from tariffs when transported between the
three signatory countries.
It also requires more vehicle parts to be manufactured by workers who earn at least $16
an hour, which may render a boost to manufacturing in the United States, where more
wages are paid as compared to Mexico.
The International Trade Commission report states that the introduction of these new
rules would add 28,000 jobs in the industry over a period of six years, while also
causing a small rise in the price of vehicles paid by the consumers.
Labor laws strengthened: Manufacturing workers have always blamed NAFTA for
sending jobs to Mexico, where wages are less, and it was a priority for Democrats that
the USMCA strengthen the rules of labor enforcement, which creates a fair-playing field
for workers in USA.
Dairy farmers get more market access: The original NAFTA eliminated tariffs on
many agricultural products which were traded among the three nations. Canada and
Mexico have always been the two biggest export markets for farmers and ranchers of
USA. According to the new rules of USMCA, those tariffs will be kept at zero, while
further opening up the Canadian market to US dairy, poultry and eggs. In return, the
United States will allow more Canadian dairy, peanuts and peanut products, as well as
a limited amount of sugar, in order to cross the border.
Updating NAFTA for the digital era: The USMCA involves sweeping new benefits for
the technology sector, in a chapter on digital trade that wasn't a part of the original
NAFTA. It isn’t expected that new provisions directly create jobs but would provide a
boost to businesses in USA in other ways. For instance, the new trade deal prohibits
Canada and Mexico from forcing US companies to store their data on in-house servers.
It also makes sure that US companies can’t be sued in Canada and Mexico for much of
the content which appears on their platforms -- a legal protection Pelosi had pushed to
exclude from USMCA during an ongoing debate at home about whether technology
corporations still deserve that liability shield under domestic law.

Environmental protections: The new agreement renders $600 million in order to

address environmental concerns in the region -- like sewage spillovers from Tijuana that
impact San Diego -- and ensures that regulations are easier to enforce through doing
away with a requirement in order to prove a violation affecting trade. While the new
enforcement measures pleased most Democrats, they didn't go far enough to get
environmental groups like the Sierra Club in order to support the agreement.

Conclusion: To conclude, the USMCA has provisions required by all three nations,
because the commercial environment of North America changed to a huge extent since
NAFTA was enacted before a quarter-century. The new agreement enabled to solve
most of the deficiencies and mistakes in NAFTA and united U.S., Mexico, and Canada
together as a global competitive force.
3rd Answer

3a.

Introduction: Digital currency refers to crypto-currency or a virtual currency. It is

secured by cryptography, making it nearly impossible to counterfeit or double-spend.
Many cryptocurrencies are decentralized networks on the basis of blockchain
technology—a distributed ledger which is enforced by a disparate computer networks.

Digital currencies (Cryptocurrencies) contain the potential which enables social and
economic growth all over the world, which includes developing nations, through offering
easier access to capital and financial services. Cryptocurrencies and Bitcoin in
particular have a highly utilitarian, yet also disrupting quality which slowly, but steadily
starts to interfere with the way the system of traditional finance works. It plays the
following role:

1. A Beneficial Rise in Economic Activities: An entire industry has already been built
around cryptocurrencies and it’s held by institutions who are dedicated to supervise all
the digital coin exchanges which take place globally. The rate at which the
cryptocurrency industry has been growing is earth-shattering and this is evident through
the early adopters who became rich overnight and saw opportunities to grow financially.
Cryptocurrencies has already ensured that many people and organizations develop and
flourish, while many also rely on trading as their income source. The economy has
slowly started to shift in order to adapt to these requirements and cryptocurrencies have
a great potential to satisfy them.

2. Provides a good opportunity for Poorly Banked Countries: More than a third of
the global population doesn’t have an access to services of basic banking that may
help them out in situations of personal financial crisis - loans, checking accounts and
the list can go on. Since these people, in most cases, are already financially
disadvantaged usually resort to lending practices which are doubtful and dangerous.
The interest rate of these practices is anything but fair, leading to more instability among
the individuals requesting the loan. This is where cryptocurrencies come in place with
their high volatility and ease-of-use.

There are now many apps and programs facilitating the use of cryptocurrencies and
bringing them closer to the wider audience. An added advantage of cryptocurrency use
is that it’s completely decentralized, so trading is possible freely across borders. Usage
of technology will bring a financial revolution that makes each and every one more
financially connected, empowered and enabled.

3. Low Transaction Costs: Since digital currencies (cryptocurrencies and blockchain)

don’t require an actual brick-and-mortar building to exist, the transactions costs
associated are minimal. There is no requirement for employee wages, utility bills or
payment of rent, so these savings naturally morph into transaction fees which are low.
This, in turn, encourages more and more individuals to trust these new financial tools
and start transactioning, which allows for the global economy to be more closely
intertwined.

4. Increased Transparency of Transactions: Since all transactions of blockchain and

cryptocurrencies are automated and digitized, they are all tracked in a distributed
ledger. The best thing about it is that it can’t be manipulated by either people or
organizations, which greatly lower the risk of fraud and corruption. This implies that
underdeveloped nations also have a greater chance to enter the financial transactions
game and improve their own economy and social prospects. Also, citizens can keep
track of where state funds would be oriented and will thus have their opinions voiced
within their own political climate.

3b. The People’s Bank of China hopes its new digital currency will lower the dominance
of Alibaba and Tencent in digital payments, as per reports from several people who are
familiar with the thinking of the central bank. Major Chinese e-commerce giants prefer
to conduct their business operations in a closed environment, allowing their preferred
digital payment providers and often blocking services of rival companies. For example,
JD.com Inc. doesn’t allow payments from Alipay, owned by Alibaba-backed Ant Group
Co. Ltd., while Tencent Holding’s WeChat Pay and Union Pay are not accepted on
Alibaba and its related platforms.

Digital-Yuan poses a serious threat to the online payment’s duopoly Ant Group-Tencent.
Six years in the making, the digital Yuan, also termed as Digital Currency Electronic
Payment, or DCEP, is set to be issued by China's central bank to replace cash in
circulation.

The move has been designed to improve interoperability among various platforms of
payment and could potentially enable a consumer to use the currency from an Alipay
wallet to pay for items on rival platforms like JD.com or Tencent Holding’s WeChatPay.
JD.com, which so far relied on a partnership with Tencent for its needs of payment, has
teamed up with People's Bank of China through its fintech arm JD Digits in order to
develop blockchain platforms and a wallet to support the digital currency. Pinduoduo
Inc., accepting payments from both Tencent Holding’s WeChat Pay and Alipay, is
planning its own system of payment.

Ant Group, which has been gearing up for one of the biggest IPOs in the recent years,
looks at this move as a threat to its business. In its prospectus, the corporation states
that initiatives by the Chinese government like DCEP and the interoperability of the QR
code can have an adverse risk to its corporation.
Hence, Ant Group has diversified into consumer credit and products of wealth
management in recent years. However, a big chunk of its revenue which still comes
from payments is at stake with this move from PBOC.
Leaders of digital payment like Ant and Tencent stand to lose their transactions and
merchant fees if consumers transact with DCEP.
But more than the loss of the revenue, Alibaba (which owns 33% of Ant) and Tencent
Holding’s WeChatPay are likely more concerned over the potential loss of valuable
consumer data to DCEP.

Conclusion: Alipay and WeChat Pay are intrinsic to the everyday lives of Chinese
consumers. These platforms strive to be more than just payment and services for cash
transfer by providing mini-applications from food ordering and grocery shopping to movie and
train ticket purchases. WeChat Pay, specifically, has a captive user base since it is embedded
within the popular WeChat short messaging app. Ecosystem stickiness and other factors,
which include online spending credit offered and poor usability of existing digital wallets by
banks, keeps consumers loyal to Alipay and WeChat Pay wallets even while they are
transacting with digital Yuan.