Module 2

The Strategic Planning Process

In today's highly competitive business environment, budget-oriented planning or forecastbased planning methods are insufficient for a large corporation to survive and prosper. The firm must engage in strategic planning that clearly defines objectives and assesses both the internal and external situation to formulate strategy, implement the strategy, evaluate the progress, and make adjustments as necessary to stay on track. A simplified view of the strategic planning process is shown by the following diagram:

The Strategic Planning Process Mission & Objectives

Environmental Scanning

Strategy Formulation

Strategy Implementation

Evaluation & Control

Mission and Objectives The mission statement describes the company's business vision, including the unchanging values and purpose of the firm and forward-looking visionary goals that guide the pursuit of future opportunities. Guided by the business vision, the firm's leaders can define measurable financial and strategic objectives. Financial objectives involve measures such as sales targets and earnings growth. Strategic objectives are related to the firm's business position, and may include measures such as market share and reputation.

Environmental Scan The environmental scan includes the following components: Internal analysis of the firm Analysis of the firm's industry (task environment) External macroenvironment (PEST analysis) The internal analysis can identify the firm's strengths and weaknesses and the external analysis reveals opportunities and threats. A profile of the strengths, weaknesses, opportunities, and threats is generated by means of a SWOT analysis An industry analysis can be performed using a framework developed by Michael Porter known as Porter's five forces. This framework evaluates entry barriers, suppliers, customers, substitute products, and industry rivalry.

Strategy Formulation Given the information from the environmental scan, the firm should match its strengths to the opportunities that it has identified, while addressing its weaknesses and external threats. To attain superior profitability, the firm seeks to develop a competitive advantage over its rivals. A competitive advantage can be based on cost or differentiation. Michael Porter identified three industry-independent generic strategies from which the firm can choose.

Strategy Implementation The selected strategy is implemented by means of programs, budgets, and procedures. Implementation involves organization of the firm's resources and motivation of the staff to achieve objectives. The way in which the strategy is implemented can have a significant impact on whether it will be successful. In a large company, those who implement the strategy likely will be different people from those who formulated it. For this reason, care must be taken to communicate the strategy and the reasoning behind it. Otherwise, the implementation might not succeed if the strategy is misunderstood or if lower-level managers resist its implementation because they do not understand why the particular strategy was selected.

Evaluation & Control The implementation of the strategy must be monitored and adjustments made as needed. Evaluation and control consists of the following steps: 1. 2. 3. 4. 5. Define parameters to be measured Define target values for those parameters Perform measurements Compare measured results to the pre-defined standard Make necessary changes

Five year plan The economy of India is based in part on planning through its five-year plans, developed, executed and monitored by the Planning Commission. With the Prime Minister as the ex officio Chairman, the commission has a nominated Deputy Chairman, who has rank of a Cabinet minister. Montek Singh Ahluwalia is currently the Deputy Chairman of the Commission. The tenth plan completed its term in March 2007 and the eleventh plan is currently underway. Objectives of all the Five Year's Plan: 1st Plan (1951-56) The first five year plan was presented by Jawaharlal Nehru in 1951. The main objectives of the first five year plans were agriculture, community development, communications, land rehabilitation.

education. production of coal. 11th Plan (2007-08) The major objectives of the eleventh five year plan are income generation. accelerating growth rates. empowerment of women. drinking water. 5th Plan (1974-79) The major objectives of the fifth five year plan were employment. environment etc. increase in literacy rates. education etc. providing the basic requirements such as health. poverty alleviation. cement and fertilizers plants. tourism. steel Mills. . family planning etc. The funds raised for industrialization was used in the Indo-Pak war of 1971. 7th Plan (1985-89) The objectives of the seventh five year plan were Improving productivity by upgrading technology. 9th Plan (1997-2002) The main objectives of the ninth five year plan were agriculture and rural development. construction of dams. 8th Plan (1992-97) Modernization of industries was the main target of the eight five year plan. increase in forest and tree cover etc. reduction in infant mortality rate. sanitation etc. 4th Plan (1969-74) At this time Indira Gandhi was the prime minister and she nationalized of 19 major banks. economic growth. price control. economic liberalization. railway tracks. price stabilization. justice etc 6th Plan (1980-85) The sixth five year plan focused on information technology. poverty alleviation. India also conducted nuclear tests in 1974. 10th Plan (2002-2007) The tenth plan highlighted the need for reduction of poverty ratio. health. food and nutritional security. infrastructure. Indian national highway system. 3rd Plan (1961-66) The main objectives of the third five year plan were defense.2nd Plan (1956-61) The second five year plan mainly focused on hydroelectric projects.

6 billion USD in the 1950 exchange rate) was allocated to seven broad areas: irrigation and energy (27. At the end of the plan period in 1956. land rehabilitation (4.[1][2] . industry (8. five Indian Institutes of Technology (IITs) were started as major technical institutions. 1951. Lower increase of per capita income as compared to national income was due to rapid population growth. University Grant Commission was set up to take care of funding and take measures to strengthen the higher education in the country. the achieved growth rate was 3. transport and communications (24 percent). including the Bhakra Dam and Hirakud Dam. C. The plan promoting the idea of a self reliant closed economy was developed by Prof. Jawaharlal Nehru presented the first five-year plan to the Parliament of India on December 8. Contracts were signed to start five steel plants. The plan is often referred to as the Domer-Mahalanobis Model. contributing to population growth.5 percent). however these plants did not come into existence until the middle of the next five-year plan. The plan followed the Mahalanobis model. During the first five-year plan the net domestic product went up by 15 percent. Mahalanobis of Indian Statistical Institute and borrowed the ideas from USSR's five year plans developed by Domer.1 percent annual gross domestic product (GDP) growth. with the Indian government. The total plan budget of 206. social services (16. Second plan (1956-1961) The second five-year plan focused on industry. particularly in the development of the public sector. especially heavy industry. The target growth rate was 2.1 percent). agriculture and community development (17.8 billion INR (23. an economic development model developed by the Indian statistician Prasanta Chandra Mahalanobis in 1953. The World Health Organization. It used the prevalent state of art techniques of operations research and optimization as well as the novel applications of statistical models developed at the Indian Statiatical Institute.64 percent).4 percent). The plan attempted to determine the optimal allocation of investment between productive sectors in order to maximise long-run economic growth .2 percent). boosting exchange reserves and per capita income. The monsoons were good and there were relatively high crop yields. The plan assumed a closed economy in which the main trading activity would be centered on importing capital goods. P. Many irrigation projects were initiated during this period. and other (2.First plan (1951-1956) The first Indian Prime Minister.4 percent). which went up 8 percent.6 percent. Domestic production of industrial products was encouraged. addressed children's health and reduced infant mortality.

States were made responsible for secondary and higher education. The war led to inflation and the priority was shifted to price stabilization. partially in response to the United States deployment of the Seventh Fleet in the Bay of Bengal to warn India against attacking West Pakistan and widening the war. State electricity boards and state secondary education boards were formed. but the brief SinoIndian War in 1962 exposed weaknesses in the economy and shifted the focus towards defense. In addition. Many primary schools were started in rural areas. [citation needed] . In an effort to bring democracy to the grassroot level.7% due to 1962 Sino-Indian War and Indo-Pakistani War of 1965. In 1965-1966. Fifth plan (1974-1979) Stress was laid on employment.. Funds earmarked for the industrial development had to be used for the war effort. In 1978 the newly elected Morarji Desai government rejected the plan. Punjab begun producing an abundance of wheat. The Atomic Energy Commission was formed in 1957 with Homi J. The Indira Gandhi government nationalized 14 major Indian banks and the Green Revolution in India advanced agriculture. and justice.[citation needed] Fourth plan (1969-1974) At this time Indira Gandhi was the Prime Minister. More railway lines were added in the north east.Hydroelectric power projects and five steel mills at Bhilai. Electricity Supply Act was enacted in 1975. Third plan (1961-1966) The third plan stressed on agriculture and improving production of rice. Bhabha as the first chairman. The plan also focused on selfreliance in agricultural production and defense. The Tata Institute of Fundamental Research was established as a research institute. Many cement and fertilizer plants were also built. Panchayat elections were started and the states were given more development responsibilities. India also performed the Smiling Buddha underground nuclear test in 1974. and Rourkela were established. which enabled the Central Government to enter into power generation and transmission. Durgapur. The construction of dams continued. In 1957 a talent search and scholarship program was begun to find talented young students to train for work in nuclear power. the situation in East Pakistan (now independent Bangladesh) was becoming dire as the IndoPakistani War of 1971 and Bangladesh Liberation War took place. State road transportation corporations were formed and local road building became a state responsibility. poverty alleviation.Gross Domestic Product rate during this duration was lower at 2. Coal production was increased.

Indian policy did not rely on the threat of force. India faced a crisis in Foreign Exchange (Forex) reserves. Prime Minister of India) launched India's free market reforms that brought the nearly bankrupt nation back from the edge. which continued to have a high birth rate. Progress was slow. Meanwhile India became a member of the World Trade Organization on 1 January . however. The plan lay stress on improving the productivity level of industries by upgradation of technology.Sixth plan (1980-1985) Called the Janata government plan. Between 1990 and 1992. Under this plan. It was the beginning of privatization and liberalization in India. and led one of the most important administrations in India's modern history overseeing a major economic transformation and several incidents affecting national security. under pressure. More prosperous areas of India adopted family planning more rapidly than less prosperous areas. P. especially in the area of information technology. This led to an increase in food prices and an increased cost of living. When Rajiv Gandhi was elected as the prime minister. the country took the risk of reforming the socialist economy. Eighth plan (1992-1997) Modernization of industries was a major highlight of the Eighth Plan. Period between 1989-91 1989-91 was a period of political instability in India and hence no five year plan was implemented. the gradual opening of the Indian economy was undertaken to correct the burgeoning deficit and foreign debt. Price controls were eliminated and ration shops were closed. Thus. there were only Annual Plans. left with reserves of only about $1 billion (US). Narasimha Rao)(28 June 1921 – 23 December 2004) also called Father of Indian Economic Reforms was the twelfth Prime Minister of the Republic of India and head of Congress Party. Seventh plan (1985-1989) The Seventh Plan marked the comeback of the Congress Party to power. The sixth plan also marked the beginning of economic liberalization. Manmohan Singh (currently. In 1991.V. Family planning also was expanded in order to prevent overpopulation. Tourism also expanded. the young prime minister aimed for rapid industrial development. the sixth plan marked a reversal of the Nehruvian model. The Indian national highway system was introduced for the first time and many roads were widened to accommodate the increasing traffic. In contrast to China's harshly-enforced one-child policy. At that time Dr. partly because of caution on the part of labor and communist leaders.

G.strengthening the infrastructure.Involvement of Panchayat raj. The major objectives included.5 per cent.Nagarapalikas.7%against the target 5. the growth rate was 5. All villages to have sustained access to potable drinking water within the Plan period.[3] Tenth plan (2002-2007) The main objectives of the 10th Five-Year Plan were: Reduction of poverty ratio by 5 percentage points by 2007.Institutional building. Reduction in the decadal rate of population growth between 2001 and 2011 to 16. Energy was given prority with 26. Providing gainful and high-quality employment at least to the addition to the labour force.2%. Economic Growth further accelerated during this period and crosses over 8% by 2006. All children in India in school by 2003. Human Resource development. Reduction in gender gaps in literacy and wage rates by at least 50% by 2007.35 per cent. all children to complete 5 years of schooling by 2007.6% was achieved. Increase in forest and tree cover to 25 per cent by 2007 and 33 per cent by 2012.This plan can be termed as Rao and Manmohan model of Economic development. containing population growth. Ninth plan (1997-2002) During the Ninth Plan period.1995.employment generation. . An average annual growth rate of 6.poverty reduction.N. Increase in Literacy Rates to 75 per cent within the Tenth Plan period (2002 to 2007). Reduction of Infant mortality rate (IMR) to 45 per 1000 live births by 2007 and to 28 by 2012. Cleaning of all major polluted rivers by 2007 and other notified stretches by 2012. a percentage point lower than the target GDP growth of 6.OSand Decentralisation and peoples participation.6% of the outlay. Reduction of Maternal Mortality Ratio (MMR) to 2 per 1000 live births by 2007 and to 1 by 2012.

and ensure coverage of all significant habitation by 2015 o Connect every village by telephone by November 2007 and provide broadband connectivity to all villages by 2012 .1 o Provide clean drinking water for all by 2009 and ensure that there are no slipbacks o Reduce malnutrition among children of age group 0-3 to half its present level o Reduce anaemia among women and girls by 50% by the end of the plan 4. Health o Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per 1000 live births o Reduce Total Fertility Rate to 2. Infrastructure o Ensure electricity connection to all villages and BPL households by 2009 and round-the-clock power. and by regular testing monitor effectiveness of education to ensure quality o Increase literacy rate for persons of age 7 years or more to 85% o Lower gender gap in literacy to 10 percentage points o Increase the percentage of each cohort going to higher education from the present 10% to 15% by the end of the plan 3. Education o Reduce dropout rates of children from elementary school from 52. Women and Children o Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17 o Ensure that at least 33 percent of the direct and indirect beneficiaries of all government schemes are women and girl children o Ensure that all children enjoy a safe childhood. without any compulsion to work 5. 2. o Reduce the headcount ratio of consumption poverty by 10 percentage points. o Raise real wage rate of unskilled workers by 20 percent. Income & Poverty o Accelerate GDP growth from 8% to 10% and then maintain at 10% in the 12th Plan in order to double per capita income by 2016-17 o Increase agricultural GDP growth rate to 4% per year to ensure a broader spread of benefits o Create 70 million new work opportunities.2% in 2003-04 to 20% by 2011-12 o Develop minimum standards of educational attainment in elementary school.Eleventh plan (2007-2012) The eleventh plan has the following objectives: 1. o Reduce educated unemployment to below 5%. o Ensure all-weather road connection to all habitation with population 1000 and above (500 in hilly and tribal areas) by 2009.

The process of economic liberalization in India can be traced back to the late 1970s. across political parties. which changed the working and machinery of the economy. .Provide homestead sites to all by 2012 and step up the pace of house construction for rural poor to cover all the poor by 2016-17 6. However. o Increase energy efficiency by 20 percentage points by 2016-17. o Attain WHO standards of air quality in all major cities by 2011-12. The economic reforms initiated in 1991 introduced far-reaching measures. it was not a prolonged crisis with a long period of non-performance. have successfully carried forward the country's economic reform agenda. This approach was adopted since the reforms were introduced in June 1991 in the wake a balance of payments crisis that was certainly severe. a larger role for the private sector including foreign investment. Environment o Increase forest and tree cover by 5 percentage points. An important feature of India's reform programme is that it has emphasized gradualism and evolutionary transition rather than rapid restructuring or "shock therapy". However. These changes were pertinent to the following: Dominance of the public sector in the industrial activity Discretionary controls on industrial investment and capacity expansion Trade and exchange controls Limited access to foreign investment Public ownership and regulation of the financial sector The reforms have unlocked India's enormous growth potential and unleashed powerful entrepreneurial forces. The reforms of the last decade and a half have gone a long way in freeing the domestic economy from the control regime. It was only in 1991 that the Government signaled a systemic shift to a more open economy with greater reliance upon market forces. successive governments. o Business policy and reforms INDIA'S ECONOMIC REFORMS The reform process in India was initiated with the aim of accelerating the pace of economic growth and eradication of poverty. the reform process began in earnest only in July 1991. Since 1991. o Treat all urban waste water by 2011-12 to clean river waters. and a restructuring of the role of Government.

oil. The criteria for issue of licenses were non-transparent. atomic energy generation. For capital goods. Today the Indian financial structure is inherently strong. heavy plant and machinery. Industrial licensing by the central government was almost abolished except for a few hazardous and environmentally sensitive industries. but for most items where domestic substitutes were being produced. delays were endemic and corruption unavoidable. Reforms in Trade Policy It was realized that the import substituting inward looking development policy was no longer suitable in the modern globalising world. The economic reforms sought to phase out import licensing and also to reduce import duties. Further. India has recognized that these reforms are imperative for increasing the efficiency of resource mobilization and allocation in the real economy and for the overall macroeconomic stability. Massive deregulation of the industrial sector was done in order to bring in the element of competition and increase efficiency. the Indian . including iron and steel. Financial sector reforms Financial sector reforms have long been regarded as an integral part of the overall policy reforms in India. and railway transport. Import licensing was abolished relatively early for capital goods and intermediates which became freely importable in 1993. imports were only possible with import licenses. and that in part because of a ruling by a World Trade Organization dispute panel on a complaint brought by the United States. trade policy was characterized by high tariffs and pervasive import restrictions. At the same time. air transport services and electricity generation and distribution was drastically reduced to three: defense aircrafts and warships. functionally diverse. almost exactly ten years after the reforms began. Before the reforms. efficient and globally competitive. Imports of manufactured consumer goods were completely banned.Reforms in Industrial Policy Industrial policy was restructured to a great extent and most of the central government industrial controls were dismantled. certain lists of goods were freely importable. minerals. The reforms have been driven by a thrust towards liberalization and several initiatives such as liberalization in the interest rate and reserve requirements have been taken on this front. Quantitative restrictions on imports of manufactured consumer goods and agricultural products were finally removed on April 1. telecommunications and telecom equipment. 2001. raw materials and intermediates. mining. During the last fifteen years. transparency and supervision to mitigate the prospects of systemic risks. The list of industries reserved solely for the public sector -. the government has emphasized on stronger regulation aimed at strengthening prudential norms. restrictions that existed on the import of foreign technology were withdrawn. simultaneously with the switch to a flexible exchange rate regime.which used to cover 18 industries.

When the government keeps its total expenditure equal to its revenue. The economists now hold the government intervention through Fiscal policy is essential in the matter of overcoming recession or inflation as well as of promoting and accelerating economic growth. it is following a surplus budget policy. which monetary policy will not hold alone. When the government spends more than its expected revenue. INSTRUMENTS OF FISCAL POLICY 1. expenditure and borrowing by the government. Objectives of Fiscal Policy in Developing Countries In developing countries. The principal objectives of fiscal policy in a developing economy are. TAXATION Taxation takes many forms in the developed countries including taxation of personal and corporate income.  To restrain inflationary forces in the economic in order to ensure price stability. as a matter of policy. the government expenditure. is in itself a fiscal instrument. it is pursuing a deficit-budget policy. taxation. taxation and borrowing have to play a very important role in accelerating economic development. it means it has adopted a balanced budget policy. And when the government follows a policy of keeping its expenditure substantially below its current revenue. so-called value added taxation and the collection of royalties or taxes on specific sets of goods. 2. In short we can say that. Government may want to smooth out the nation's income in order to minimize the pejorative effects of the business cycle or they may want to take steps designed to increase the national income . especially for the public sector.  To ensure equitable distribution of income and wealth so that fruits of economic growth are fairly dist. Fiscal policy is a powerful instrument in the hands of the government by means of which it can achieve the objectives of development. it is a part of government policy. in surplus or deficit.  To promote economic growth in the private sector by providing incentives to save and invest.financial system has been incrementally deregulated and exposed to international financial markets along with the introduction of new instruments and products. which is concerned with raising revenue through taxation and other means and deciding on the level and pattern of expenditure. Fiscal policy refers to the taxation. Fiscal Policy and Monetary Policy – Fiscal Policy The most important instrument of government intervention in the country is that of Fiscal or Budgetary policy.  To mobilize resources for economic growth. BUDGET Keeping budget in balance. as a matter of policy.

an increase or decrease in the quantity of money will not produce any disturbing effect in the economy. too heavy taxation has an adverse effect on private saving and investment. 3. 2. GOVERNMENT BORROWING: Government borrowing is another fiscal Method by which savings of the community may be mobilized for economic development. 4. . makes economic calculations possible. the Reserve Bank uses monetary policy to control inflation and keep it within a specific target band. Besides. In less develop countries though full employment can not be achieved within a short period. Price stability Inflation distorts economic calculation and expectations while deflation creates depression in the economy. Neutrality of money Neutrality of money indicates a situation in which changes in the quantity of money in such a way as to cause a proportionate change in the equilibrium prices of commodities and the equilibrium rate of interest remain unchanged. price stability should be main aim of monetary policy. control business cycle and introduces certainty in the economic life. cost and use of money and credit with the help of monetary measures in order to achieve the specific goals. because such economies have both un-employment and under-employment open and disguised. Full employment In under develop countries the full employment objective is more crucial. Monetary policy is encountered in several ways. Government or what is also called public borrowing becomes necessary because taxation alone cannot provide sufficient funds for economic development. 5. Objectives of monetary policy in developing countries: 1. Monetary policy refers the central bank’s policy to control of the availability. It refers to the growth of real income or output per capita. Economic growth This is comparatively a recent objective of monetary policy. the government resort to borrowing in order to finances schemes of economic development. Prices stability promotes business confidence. – Monetary Policy Today. Monetary policy can contribute to economic growth in a efficient way. Monetary policy works through expansion and contraction of investment and consumption expenditure. In developing economies.3. Monetary policy helps prevent large swings in economic growth and employment. So both inflation and deflation are harmful for the economy. Exchange stability Maintenance of stable exchange rates is an essential condition for the creation of international confidence and promotion of smooth international trade on the largest scale possible. Thus. the monetary policy should try to achieve at least a near full employment situation. Monetary policy is the management of monetary supply and interest rates by central bank to influence prices and employment. If money is neutral.

It determines the capacity of banks to make loans or purchase securities.  Bank rate It is the rate at which central bank lends money to the commercial banks. If bank rate is increased it will increases the cost of borrowing of commercial banks.6. Instrument of monetary policy Instrument of monetary policy generally mean the different means of controlling credit in the economy. The opposite will happen if there are sales of securities by the central bank. TRADE POLICY Trade Policy is a government's policy controlling foreign trade CONTEXT For India to become a major player in world trade. In the opposite way. Open market operation . we have also to facilitate those imports which are required to . a reduction in bank rate will increase the amount of credit created by commercial banks. Qualitative instruments    Variable reserve ratio Bank rate Open market operation 2. an all encompassing. which in turn reduces the capacity of credit creation of the commercial banks. Balance of payment equilibrium Balance of payment equilibrium condition is a position at which a country repaid its debt and has attained an adequate reserve at zero balance over time. The instruments are as follows: 1. While increase in exports is of vital importance.Open market purchase of securities by the central bank will give more power and money in the hands of commercial banks to expand credit creation. comprehensive view needs to be taken for the overall development of the country’s foreign trade. This objective on monetary policy has become significance in the post war period. The central bank can influence the credit creation capacity of the commercial banks by controlling the volume of cash reserve and the minimum legal reserve ratio. Different forms of quantitative instrument are:  Variable reserve ratio Banks are legally required to maintain a certain percentage of their deposits in the form of cash. Quantitative instruments These instruments influence the credit creating capacity of the commercial banks by affecting directly or indirectly the excess of the banks.

(vi) Facilitating technological and infrastructural up gradation of all the sectors of the Indian economy. Coherence and consistency among trade and other economic policies is important for maximizing the contribution of such policies to development. STRATEGY These objectives are proposed to be achieved by adopting. OBJECTIVES Trade is not an end in itself. while attaining internationally accepted standards of quality. the following strategies: (i) Unshackling of controls and creating an atmosphere of trust and transparency to unleash the innate entrepreneurship of our businessmen. it is necessary to go much beyond and take an integrated approach to the developmental requirements of India’s Foreign trade. industrialists and traders. and (ii) To act as an effective instrument of economic growth by giving a thrust to employment generation. thereby increasing value addition and productivity. (v) Identifying and nurturing special focus areas which would generate additional employment opportunities. but a means to economic growth and national development. The Foreign Trade Policy is rooted in this belief and built around two major objectives. (iv) Facilitating development of India as a global hub for manufacturing. (iii) Neutralizing incidence of all levies and duties on inputs used in export products. among others. particularly in semi-urban and rural areas. The primary purpose is not the mere earning of foreign exchange. especially through import of capital goods and equipment. trading and services. (ii) Simplifying procedures and bringing down transaction costs. Thus. while incorporating the existing practice of enunciating an annual Exim Policy.stimulate our economy. and developing a series of ‘Initiatives’ for each of these. (vii) Avoiding inverted duty structures and ensuring that our domestic sectors are not . based on the fundamental principle that duties and levies should not be exported. These are: (i) To double our percentage share of global merchandise trade within the next five years. but the stimulation of greater economic activity.

18 48979.81 53. The MSME Sector today constitutes a very important segment of India's economy and it accounts for nearly 40 of the gross value of output in the manufacturing sector and about 50% of the total exports from the country.7 31. to international standards. An idea about the contribution of small scale sector in country's total exports can be had from the table given below: Year 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 Total Exports 32.350.54 69. both physical and virtual.2 33.041.3 36. high employment generation. flexibility in operation.604.00 141.00 Share of MSME Exports 9664.00 159. (ix) Revitalising the Board of Trade by redefining its role.4 35.4 35. etc.86 117. giving it due recognition and inducting experts on Trade Policy.34 44.6 33.5 33.98 126.22 39248.40 17784.15 13883.524. related to the entire Foreign Trade chain.00 54200.97 82.15 36470. The small industries due to their inherent strengths of low capital investment.disadvantaged in the Free Trade Agreements/Regional Trade Agreements/Preferential Trade Agreements that we enter into in order to enhance our exports.82 25307. maximum utilisation of capacity. Direct exports from the MSME Sector accounts for 35% of the total exports.09 29068.553.2 34.464.1 34. are highly conducive for rapid industrialization and generation of export surpluses.11 106. Export Promotion from the small scale sector has been accorded a high priority in the India's export promotion strategy. Background of Export Promotion Exports from the small scale sector over a period of time have acquired great significance in India's foreign trade.674.561.286.54 44442. (x) Activating our Embassies as key players in our export strategy and linking our Commercial Wings abroad through an electronic platform for real time trade intelligence and enquiry dissemination. (viii) Upgrading our infrastructural network.9 .546.00 % share 29.

Pre and Post shipment Credit to the exporters at concessional rate of interest. Export Policy of the Government has remained liberal as there were hardly any restrictions on export of items from small scale sector. Every Policy formulated for achieving growth in exports have a number of incentives to small scale exporters so as to maximise export earnings. Such incentives include : 1.Export Assistance & Facilities Export Promotion from Small Scale Sector has received utmost priority of the Government. etc. With a view to recognise established exporters so that they may build marketing infrastructure and expertise required for export production. The eligibility criteria for such recognition is based either on the basis of FOB or Net Foreign Exchange value of exports of goods and services made directly by the exporters during the preceding three licensing years . so as to ensure higher production for exports. merchant as well as manufacturer exporters. Export-Import policy is formulated after consulting various trade bodies like Federation of Indian Export Organisation. 2. With a view to formulate trade policy with simplified procedures which are conducive for export promotion. With a view to make Indian products competitive in the world markets. etc. 3. Free import of capital goods/raw material and other essential inputs. etc. Export Strategies for Small Scale Sector Broadly. Federation of Indian Chambers of Commerce & Industry and different Export Promotion Councils. Export-Import Policy for Small Scale Sector 1. exports strategy for small sector includes simplification of export Procedures and to provide incentives to the small sector for higher production and to maximise export earnings. Star Trading Houses and Super Star Trading Houses on the basis of certain criteria as laid down in the Export-Import Policy 1997-2002. Such incentives include refund of duties paid on the raw material used in export production by a system of Duty-Draw-Back. EOU etc. Export Procedures have been simplified from time to time so as to promote exports from the small scale sector. The efforts of the Government have always been to regulate and simplify procedures so as to create a congenial environment for the exporting community. and in certain cases duty free or with concessional rate of Custom Duty. are recognised as Export House. Trading Houses. Recognition of Export Houses/ Trading Houses. a large number of incentives were provided to the exporters from time to time.

are met by the office of the Development Commissioner (Small Scale Industries) under one of the plan schemes. In an attempt to encourage exports from the small scale sector.7(a) of the Exim Policy 1997-2002 (amended upto 31/3/99).or the preceding licensing year. Are eligible for grant of special Import Licence (SIL) @ certain percentage of their FOB value of exports/NFE. Trading Houses. Special Import Licence (SIL) Exporters recognised as Export Houses.11 (a) & (b) of Hand Book of Procedures 1997-2002 refers in this context). 50 million and Rs. the DC (MSME) participated in 7 International Trade Fairs/ Exhibitions. provided the exports of these products is more than 50% of the exports during the period (provisions contained in para 12. 20 million respectively prescribed for others (Para 11. triple weightage on FOB or net foreign exchange on the export o f products manufactured and exported by units in the small scale industry (MSME)/ Tiny sector/ Cottage sector and double weightage on FOB or net foreign exchange to merchant exporter exporting products reserved for MSME units and manufactured by units in the MSME/Tiny Sector is give. These Export Houses. Eligibility condition for Small Scale Exporters for SIL In case of small scale exporters holding ISO 9000 (Series) or IS/ISO 9000 Series of quality certification. insurance and shipment charges etc. Expenditure on account of space rent.7(b) of Hand Book of Procedure 1997-2000 refers). Trading Houses. handling and clearing charges. are entitled to certain benefits under the current Export-Import Policy. in terms of provisions contained at para 12. the FOB value (excluding deemed exports) of exports for becoming eligible for Special Import Licence (SIL) @4% of the FOB value of exports is Rs. 3. Accordingly. However. 2. 10 million or above during the preceding three licensing years instead of the limit of Rs. the exports made by small scale sector manufacturer-exporters are given triple weightage for the purpose of recognition as EH/TH/STH/SSTH. Salient Features of the Exim Policy Export Promotion Programmers / Measures Participation in International Fairs/Exhibitions With a view to ensure that exporters from small scale sector exhibit their products in the International Exhibitions. etc. Participation in the named fairs/exhibitions generated large number of . During 2000-2001. 30 million and above in the preceding licensing year or on an average FOB value of Rs. required assistance & support is provided. etc. Star Trading House. 2 percent additional SIL is granted for exports of Products manufactured by units registered as MSME.

training programmes on packaging for exports are organised in various parts of the country. National Awards for Quality Products With a view to encourage the small scale units for producing Quality goods. These programmes are organised in association with Indian Institute of Packaging which has requisite expertise on the subject. The need for better and scientific packaging for exports from small sector was recognised long back. techniques etc. 7 training sessions were conducted in 2000-01 at different locations across the country. The scheme is being operated since 1986. With a view to acquaint MSME Exporters of the latest Packaging standards. Basic objective of these programmes is to generate the much needed consciousness in the industry and to educate the entrepreneurs about the scientific techniques of Packaging.Trade enquiries besides certain export orders. It also provided an opportunity to MSME units to display their products in the world market. More sessions are planned this year. who have made significant contribution for improving quality of their products. Enquiries generated during such exhibitions abroad are disseminated to all MSME units through a net work of field offices of this organisation. Technical & Managerial Consultancy Services Technical & Managerial Consultancy Services to the MSME manufacturers/exporters is provided through a net work of field offices of this office so as to ensure higher level of production and generation of higher exports. Bar-coding for Exports A new program has been drawn up with the assistance of EAN India to sensitise Indian exporters about barcoding. The basic objective behind this scheme is that MSME units which otherwise are not in a position to display their products may participate in foreign exhibition/fairs so as to promote their exports. National Awards for Quality Products are given to the outstanding small scale units. a Certificate and a . This strategy has been found to be successful for exporters from small scale sector in identifying new foreign buyers/market Packaging for Exports Role of packaging for exports has gained much significance in view of trends in the world markets. Winners of National Awards get a Trophy. During the current financial year. it is proposed to participate in 8-9 International fairs/ exhibitions.

1 lakh) .90. 60.National Awards encourage Small Scale Industries units to produce quality goods which further enables them to enter into export market.Eligible exporters :. iii.Quantum of Assistance:Sales-cum-Study Tour(s) abroad:MDA would be limited to 90% of the actual fare for MSME Exporters and 75% for other than MSME exporters with upper ceiling of Rs. The revised scheme. only and would be limited to 90% of the total expenditure on above mentioned items for MSME exporters and 75% for other than MSME exporters with combined upper ceiling of Rs.in all cases for travel in economy class. Trading Houses etc.Status Holder exporters namely Export Houses. The scheme also provide for funding for producing publicity material (upto 25% of costs) Sector specific studies (upto Rs.000/. MSME MDA Scheme The scheme offers funding upto 90% in respect of to and fro air fare for participation by MSME Entrepreneurs in overseas fairs/trade delegations. electricity. Participation in Fairs/Exhibitions abroad:MDA would be available on actual fair in economy class and space rent including decoration. 1999. .Small Exporters who are not status holders but are eligible to get the Special Import License (SIL) under Para 11.Cash Prize of Rs.in all cases.for individual MSMEs & Associations.000/.11 (a&b) of the Hand Book of Procedures 1997-2002. . is as under :i.Participation in fairs/ exhibitions abroad. Guidelines in respect of single person sale-cum-study tours abroad and participation in fairs/ exhibition abroad have been revised with effect from 1st May. They would be eligible to get MDA through FIEO. 2 lakhs) and for contesting anti-dumping cases (50% upto Rs. ii. Such exporters would be eligible to get MDA through their respective EPCs/Commodity Boards. water etc.000/.Eligible activities:. Marketing Development Assistance (Ministry of Commerce) Marketing Development Scheme (MDA) is also being operated by Ministry of Commerce under which MDA is given to exporters through FIEO and Export Promotion Councils/ Commodity Boards to plan their marketing strategy for export growth.One person sale-cum-study tour(s) abroad .25.

Second activity in a financial year of either of the activities indicated at sub-para (I) above would be permissible only to those exporters who have achieved a minimum 5% export growth in their global exports during the preceding financial year. NOTE : Ministry of Commerce. 1995. Under this scheme assistance is available for meeting the expenditure on purchase of capital equipment. combined both for sale-cum-study tour abroad and participation in fairs/exhibitions abroad subject to the condition that not more than two activities would be allowed in a financial year either in sales-cum-study tour or in participation in fairs/exhibition abroad. acquisition of technical knowhow.iv. following promotional schemes are also being implemented. 1997. 1(3)/99-MDA dated 28/4/1999 refers.. MDA Section may be approached for other conditions/guidelines. upgradation of process technology and products with thrust on quality improvement. Earlier. Out of 8 Awards. payment terms. Promotional Schemes To meet the challenges of international competition and to promote exports of MSME products. under the scheme of National Export Award for export performance. Awards to Exporters Ministry of Commerce gives awards to exporters for their outstanding export performance. one will be given for Khadi & Village Industry. However. out of which the number of Awards (Trophy) earmarked for small scale sector have been increased from 5 to 8. from the year 1997-98 and onwards. The coverage of the scheme has been enlarged from export oriented units to non-exporting units also in September.Number of activities permissible :MDA would be provided for a maximum of 3 activities in a financial year. Their Circular No. the number of awards have been increased to 20. documents to be submitted etc. Upto 8 awards will be given to the exporters in the small scale and cottage sector subject to achievement of normative level of performance by the concerned MSMEs and cottage sector units. One additional sale-cum-study tour or participation fairs/ Exhibition in Latin American Countries (LAC) Region would be permissible without any minimum export growth restriction in a financial year to Status Holder's exporters only. . a total of 17 Awards including 5 Awards for Small Scale Sector in the form of Trophy were given every year. v.Technology Development and Modernization Fund Scheme Small Industries Development Bank of India (SIDBI) has been implementing a scheme of technology development and modernisation of MSME units with effect from April. improvement of packaging and cost of TQM and acquisition of ISO-9000 series certification.

The scheme is being continued during Tenth Plan. moulds and fixtures to small scale units at a very low price to enable them to produce quality goods to meet the requirements of supplies of components to large units as well as produce quality goods for direct sale. Small Industry Cluster Development Program: A new scheme for technology upgradation for industrial clusters has been started recently. vii.Subsidy for obtaining ISO-9000 quality Certification Under the scheme of promoting ISO-9000 certification MSMEs are given financial support by way of reimbursing 75% of their expenditure to obtain ISO-9000 certification subject to a maximum of Rs.75.Under this Scheme a sum of Rs. The expenditure involved on pilot plants etc. dies.000/-. Is to be met on 50:50 cost sharing basis by the Government and the concerned Industry Association of the clusters. reduce cost of product and enhance marketability of goods. . 1999. These Centres take up jobs from MSMEs for specific product development as well process development to improve the quality of products. The scheme is flexible and provides for smooth sourcing of technology even from abroad.Quality Awareness Scheme Small Industries Service Institutes organising Workshop on ISO-9000 certification and awareness about quality. There are 10 Tool Rooms established in various parts of the country. The scheme aims at diagnostic study of the clusters. Process-cum-Product Development Centres : There are 6 Process-cum-Product Development Centres. identification of technological needs. This enhances their competitiveness and export potentials. 10 clusters of industries producing different groups in various parts of country have been selected. viii. technological intervention and wider dissemination of information and technology within the clusters. 152 crores has been sanctioned for 245 units by April.Other Schemes for technology improvement Tool Rooms: Tool Rooms provide toolings. These Centers deal with specific product groups. vi.

Assisting MSME Sector in Technology assimilation .Pre and Post Shipment finance at concessional rate of interest . inspection documents .Financial assistance for procurement of indigenous and imported raw material .Providing assistance for obtaining.Product specific catalogue preparation .Conducting various programmes related to technology upgradation . Marketing and Promotion . Financial Assistance .Commissions.Organising and participation in Buyers-Sellers meet .Laboratory and Testing assistance for improving quality of products .Sponsoring delegation from different MSME sectors to various countries . markets by providing following assistance to the small enterprises. Offices abroad and Internet .Organisation of Seminars and Workshops to upgrade and update MSME with regard to international developments.Providing assistance in packaging .Participating in Global Tenders .Other links National Small Industries Corporation The National Small Industries Corporation (NSIC) through its export development programme is playing a vital role to promote the MSME sector in exporting their products/projects in international.Financial assistance for upgradition and modernisation of MSME unit .Advertising and publicity in various countries through Indian High .Publication of Exporters Directory .Providing information related to sales opportunities available in international market .Providing assistance in deemed exports .Organising International Exhibitions .Assisting in the process of claiming exports incentives Technical Assistance .Imparting technical training .

NSIC has already opened two offices abroad at South Africa and Dubai. readymade garments and textile products. . U. . before you outline a foreign exchange (FX) risk management plan. Forign exchange policy Companies planning to operate in the global marketplace should prepare for the inevitable risks associated with foreign currency exchange. but will take into consideration your risk tolerance and corporate goals. the company’s board should approve the policy. while providing specific guidelines for implementing FX risk management. Most policies should include these four common components: . you should create a formal policy for the management of foreign exchange exposure. options. This process will help you examine accounting and cash flow implications. An FX policy should be a streamlined document that is easy to read and provides practical guidance. These offices will be utilised for generation of business for the small scale sector. . light engineering products. locks.Collect samples during the above export promotion visits and to identify suitable small scale suppliers to develop counter samples.E.Effecting product improvements NSIC has been instrumental in developing a large number of small scale units to export high quality products such as builders hardware. .A. A variety of solutions— forwards. FX policies are generally tailored to the specific needs of the company. However.Publication of a directory of identified products and possible buyers for circulation to the small scale industries. Following activities are also undertaken by NSIC for Export Promotion through MSME . nondeliverable forwards and foreign currency accounts — can help reduce the surprises that foreign exchange rates create in your company’s 10K or 10Q financial statements.Arrange visits of delegations consisting of representatives of small scale industries/Associations to different specialises exhibitions and buyers-sellers meets. Upon completion. It is important to remember that a policy is a living document and should be reviewed on an annual basis to ensure that it meets current corporate objectives. giftware and novelties.Study visit to various developed countries to identify the product range and their market demand. although all policies should provide a framework for corporate decision making.

Objectives. The announcement further provided that Indian companies will no longer require prior clearances from the RBI for inward remittances of foreign exchange or for the issuance of shares to foreign investors. management’s tolerance for risk and may even specify dollar amounts to be hedged. when and who should inform management of FX activity. and whether the FX manager is within counterparty credit limits. and 3) what levels of management approval are needed for various exposures (i. Specify whether you will use a passive approach or whether your authorized individual(s) may use some discretion in a more active style. Control. This section typically includes the types of derivative products that can be used. balance sheet or earnings. how trades are confirmed and by whom. such as whether to hedge cash flow. Certain questions should be addressed. concise and relevant.e. They should include the financial goals. This is an operational issue that typically should define operational aspects such as reporting responsibilities. The latest trend has been to keep most of FX risk management functions in one central office. the RBI announced simplified procedures for automatic FDI approvals.. Responsibilities. 2) who reviews derivatives and when derivatives are reviewed. This section should specify which individual(s) in the organization have authorization to hedge on behalf of the company. Objectives should be clear. Foreign Investment Policy: The Ministry of Industry has expanded the list of industries eligible for automatic approval of foreign investments and. 3. You may also include documentation requirements for FAS133 and FAS52 accounting purposes. Government officers will be assigned to larger foreign investment proposals and will facilitate Central and State clearances in a time-bound . raised the upper level of foreign ownership from 51 percent to 74 percent and further in certain cases to 100 percent. Strategies. Can you only use forwards? Do you want to buy options or sell options? Can you use a combination of options to reduce premiums? All of these parameters must be defined and explicitly approved. In January 1998. You also should identify: 1) who are the members of the foreign exchange committee and how often the committee meets. Facilitating foreign investment In the recent budget. 4. 2. the finance minister announced the government's commitment to a 90day period for approving all foreign investments. in certain cases. mark-to-market results. short-term versus long-term risk) and trades.1. exposures to be hedged.

there are no investment disputes over expropriation or nationalization. and the expansion of freely importable items on the Open General License (OGL) list to include some consumer goods. The long-term capital gains rate for foreign companies was lowered to 20 percent.manner. The government has amended exchange control regulations previously applicable to companies with significant foreign participation. The FY 1994/95 budget reduced the corporate tax rate for foreign companies from 65 percent to 55 percent. Relaxation The condition of dividend balancing (offsetting the outflow of foreign exchange for dividend payments against export earnings) has been eliminated for all but 22 consumer goods industries. the Securities and Exchange Board of India (SEBI) recently formulated guidelines to facilitate the operations of foreign brokers in India on behalf of registered Foreign Institutional Investors (FII's). Other policy changes have been introduced to encourage foreign direct and foreign institutional investment. The Indian Income Tax Act exempts export earnings from corporate income tax for both Indian and foreign firms. Even without a registered office in India. The ban against using foreign brand names/trademarks has been lifted. Unlisted companies with a good 3 year track record. These brokers can now open foreign currency-denominated or rupee accounts for crediting inward remittances. A 5-year tax holiday is extended to enterprises engaged in development of infrastructural facilities. The tax rate for domestic companies was lowered to 40 percent. . commissions and brokerage fees. foreign companies are allowed to start multimodal transport services in India. have been permitted to raise funds in international markets through the issue of Global Depository Receipts (GDRs) and American Depository Receipts (ADRs). Dispute Settlement Currently. Government demands for penalty payments for alleged overcharging by pharmaceutical companies during the 1980's could lead to de-facto expropriation of some foreign drug companies' assets in India. The Reserve Bank of India (RBI) now permits 100 percent foreign investment in the construction of roads/bridges. Import regime changes included enhancement of the scope of Special Import License (SIL) programs. a 30 percent rate applies to domestic companies. For instance. The peak custom duty rate was reduced to 50 percent from 65 percent in the March 1995 budget. A number of recent policy changes have reduced the discriminatory bias against foreign firms.

Technological advances are influencing life-styles as well as societal expectations. The use and development of technology must relate to the people’s aspirations. must give constant thought to . Given clear-cut objectives and the necessary support. Preamble Political freedom must lead to economic independence and the alleviation of the burden of poverty. nor of the New York Convention of 1958. a swift and tangible improvement in the conditions of the weakest sections of the population and the speedy development of backward regions. opening up wholly new areas and introducing new concepts. we now have a strong agricultural and industrial base and a scientific manpower impressive in quality. case backlogs frequently lead to long procedural delays. our science has shown its capacity to solve problems. We have regarded science and technology as the basis of economic progress. As a result of three decades of planning. and the Scientific Policy Resolution of 1958. Indian courts provide adequate safeguards for the enforcement of property and contractual rights. Case backlogs However. India is not a member of the International Center for the Settlement of Investment Disputes. Commercial arbitration or other alternative dispute resolution (ADR) methods are not yet popular ways of commercial dispute settlement in India. numbers and range of skills. Technology Policy Statement. The recent introduction in Parliament of a new Arbitration Bill signals the importance now accorded to this matter by the GOI. 1983 Preamble Aims and Objectives Priorities Indigenous Technology Technology Acquisition Technology Transfer Implementation 1. The frontiers of knowledge are being extended at incredible speed.In pharmaceutical sector A committee has been named to study these longstanding disputes. Our own immediate needs in India are the attainment of technological self-reliance. India is known for its diversity. Technology must suit local needs and to make an impact on the lives of ordinary citizens. but the failure of successive governments to produce a swift and transparent resolution has led to a virtual standstill in foreign investment in India's pharmaceutical sector.

especially human resources. Keeping in mind the capital-scarce character of a developing economy it aims at ensuring that our available natural endowments. which bind us to outmoded systems and institutions. financial institutions concerned with the resources needed for these activities. economic. We seek technological advancement not for prestige or aggrandisement but to solve our multifarious problems and to be able to safeguard our independence and our unity.even small improvements which could make better and more cost-effective use of existing materials and methods of work. Our modernization. indigenous development and support to technology. covering the agricultural and the services sectors along with the obvious manufacturing sector. Technology must be viewed in the broadest sense. are optimally utilized for a continuing increase in the well-being of all sections of our people. social and cultural factors along with technical considerations. Our development must be based on our own culture and personality. and the promotional and regulating arms of the Government. Our future depends on our ability to resist the imposition of technology which is obsolete or unrelated to our specific requirements and of policies which tie us to systems which serve the purposes of others rather than our own. not least. and on our success in dealing with vested interests in our organizations: governmental. the understanding and involvement of the entire Indian people. far from diminishing the enormous diversity of our regional traditions should help to enrich them and to make the ancient wisdom of our nation more meaningful to our people. . its transformation into economically utilizable form. and utilization of such technology. with any sector of economic. scientific or technological activity. public and joint sectors. and. including those with foreign equity participation. adaptation and upgradation. Our directives must clearly define systems for the choice of technology. taking into account economic. This Technology Policy Statement is in response to the need for guidelines to cover this wideranging and complex set of inter-related areas. the sector responsible for production (which is the user of such technology). at all levels. small-scale and cottage industries (often based on traditional skills) to medium. and establishing links between the various elements concerned with generation of technology. acquisition of technology through import and its subsequent absorption. The latter stretches over a wide spectrum ranging from village. We look particularly to young people to bring a scientific attitude of mind to bear on all our problems. social and even intellectual. Our task is gigantic and calls for close co-ordination between the different departments of the Central and State Governments and also of those concerned. Our philosophy of a mixed economy involves the operation of the private. heavy and sophisticated industries. ensuring competitiveness at international levels in all necessary areas.

making them commercially competitive. will be accorded pride of place. the role of different agencies will be identified. i) reduce demands on energy. and enhance the quality and reliability of performance and output. self-reliance is inescapable and must be at the very heart of technological development. particularly energy from non-renewable sources. and an appropriate institutional. with emphasis on the employment of women and weaker sections of society. The base of science and technology consists of trained and skilled manpower at various levels. e) ensure maximum development with minimum capital outlay. legal and fiscal infrastructure. particularly those with export potential. Special attention will be given to the promotion and strengthening of the technology base in newly emerging and . Its aims are to: a) attain technological competence and self-reliance. making the maximum use of indigenous resources. particularly in strategic and critical areas. preserve the ecological balance and improve the quality of the habitat. covering a wide range of disciplines. together with science and technology education and training of a high order. c) use traditional skills and capabilities. d) ensure the correct mix between mass production technologies and production by the masses. Self-Reliance In a country of India’s size and endowments. g) develop technologies which are internationally competitive. j) ensure harmony with the environment. b) provide the maximum gainful and satisfying employment to all strata of society. to reduce vulnerability.2. f) identify obsolescence of technology in use and arrange for modernization of both equipment and technology. Aims and Objectives Aims The basic objectives of the Technology Policy will be the development of indigenous technology and efficient absorption and adaptation of imported technology appropriate to national priorities and resources. For this. h) improve production speedily through greater efficiency and fuller utilization of existing capabilities. Consolidation of the existing scientific base and selective strengthening of thrust areas in it are essential. and k) recycle waste material and make full utilization of by-products. We must aim at major technological break-throughs in the shortest possible time for the development of indigenous technology appropriate to national priorities and resources. Strengthening the Technology Base Research and Development. responsibilities assigned and the necessary linkages established.

The application of science and technology for the improvement of standards of living of those engaged in traditional activities will be promoted. Measures will be taken for the identification and diffusion of technologies that can progressively reduce the incidence of poverty and unemployment. Therefore. All of this calls for substantial financial investments and also strengthening of the linkages between various sectors (educational institutions. Therefore. R&D establishments. 3. Basic research and the building of centres of excellence will be encouraged. Technologies relevant to the cottage. Energy Energy constitutes an expensive and sometimes scarce input. should be clearly identified well in advance. and of regional inequalities. Conditions will be created for the fullest expression and utilization of scientific talent. Fiscal measures as necessary will be introduced to . The quality and efficiency of the technology generation and delivery systems will be continuously monitored and upgraded. Education and training to upgrade skills are also of utmost importance. In the decentralized sector labour must be diversified and all steps taken to reduce drudgery. Measures will be devised to avoid wastage or non-optimal use of energy. Priorities Need for Perspective Planning The time scales involved in the generation of technology are long. the energy requirements both of a direct and indirect nature for each product and each production activity and the associated technology employed will be analysed. health and energy will be provided with appropriate technical support through suitably structured S&T groups.frontier areas such as information and materials sciences. relevant technologies in all areas of priority. The cost and time element involved in the import of technology and indigenous development will be given consideration. particularly household technologies. Ministries concerned with large investments and production activities in areas such as food. particularly where large investments are to be made. even with imported elements. village and small industries sector will be upgraded. the potential impact on employment will be an important criterion in the choice of technology. Employment Human resources constitute our richest endowment. Skills and skilled workers will be accorded special recognition. electronics and bio-technology. industry and governmental machinery). In all sectors. Components which could be assigned to the various institutions which are capable of developing them or which could be built up for such activities will be identified.

essential to analyse the environmental impact of the application of each technology. housing. Programmes to make use of easily available and less costly materials will be supported. rapid reduction in the incidence of blindness. ignoring the long-term effect of many technologies on the environment. In particular. especially those from urban areas. Efficiency and Productivity Technologies already employed will be evaluated on a continuing basis to realise maximum benefits in terms of increased production and lower costs. Research and Development in the energy sector will aim at improving the efficiency of its production. eradication of the major communicable diseases (such as leprosy and tuberculosis). health. energy and industry. Poorly planned efforts to achieve apparently rapid development. development and use of renewable non-conventional sources of energy. and industrial development 4. provision of drinking water in rural areas. stress will be laid on: agriculture including dry-land farming. optimum use of water resources. as well as improvement of efficiency in processes and equipment. and population stabilization. particularly in critical . have resulted in serious ecological damage. Measures to improve environmental hygiene will be evolved. distribution and utilization. Due regard will be given to the preservation and enhancement of the environment in the choice of technologies. It is. therefore. low-cost housing. specially in the public sector enterprises. Every effort should be made to utilize by-products and wherever possible to recycle waste materials. Environment Development should not upset the ecological balance for short as well as long-term considerations.ensure these. Some Specific Areas In technology development special emphasis will be focused on food. increased production of pulses and oilseeds. Indigenous Technology Importance of Technology Development Fullest support will be given to the development of indigenous technology to achieve technological self-reliance and reduce the dependence on foreign inputs. improvement of nutrition.

The fullest opportunity will be provided to make use of inventions. provide incentives to encourage inventors. The base of indigenous technology should be capable of utilizing world-wide advances and adapting them to local needs. The creation and strengthening of institutional structures for keeping track of international developments will receive urgent attention. it will be incumbent on the Ministry or agency concerned to provide a technology forecast . Inventions The spirit of innovation and invention is the driving force behind all technological change. Upgradation to Prevent Obsolescence Technology is constantly on the move. marketing. Enhancing Traditional Skills and Capabilities Traditional skills and capabilities will need to be upgraded and enhanced. commercial and administrative) will be given to the production and user organizations to be associated with and participate in technology development efforts at appropriate stages. using knowledge and techniques generated by advances in science and technology. Support will be given to technologies which reduce pressure on items in short supply and utilize improved local materials and methods. quality control and other services. Ensuring Timely Availability The time cycle from scientific research to utilization is a long one. The system of rewards and incentives will be strengthened for inventions. will be promoted. Arrangements will be made to provide high-level scientific advice in major sectors of the economy. Strengthening and diversifying the domestic technology base are necessary to reduce imports and to expand exports for which international competitiveness must be ensured. Where big investments are involved or a large volume of production is envisaged. particularly in the rural sector. Government will give preference to products of such technologies in its own purchases. Technologies which will result in low-cost production and in products marketable close to the point of manufacture. and direct their efforts to areas of special importance. A strong central group will be constituted to undertake technology forecast and technology assessment studies and will inter alia draw up programmes of purposeful research. The adoption of technologies that can promote decentralized production will be helped through the support to design.and vulnerable areas and in high value-added items in which the domestic base is strong. Encouragement and support (fiscal. innovations and technological breakthroughs and their utilization. Hence the need to initiate action well in advance to identify and ensure timely availability and delivery of new technologies. We must awaken our science and technology to the exciting challenges of our times.

in favour of products made through indigenously developed technologies. enhance in-house Research and Development in industry. . chemical and petrochemical processes. and in turn provide a fillip for further development from within the system. Fiscal Incentives Suitable financial mechanisms will be established to facilitate investment on pilot plants. and for products and processes resulting for such use. indigenously developed items are invariably at a disadvantage compared with imported products or those based on imported technologies and brand names.covering its requirements over a ten-year or longer period and evolve a strategy for development based on priorities. therefore. Building up and enhancing these capabilities will have a catalytic beneficial impact on the utilization of indigenous efforts that have resulted in product and process know-how. This is particularly important in areas relating to : agricultural production. Support must therefore be provided through fiscal and other measures. as well as for the construction and erection of entire plants. Preferential Treatment In view of the cost of technology development and the time necessary for successful marketing of a new or improved product. be provided to users of indigenously developed technology. Incentives will. for a limited period. and efforts directed to absorb and adapt imported technology. metallurgical. Wherever gaps exist. Existing design engineering capabilities will be strengthened and upgraded. The technological potential inherent in this system of interlinked capabilities must be fully utilized. Design Engineering Capabilities in design engineering are essential for the translation of know-how to commercial production. academic and research institutions and industry. design engineering capabilities will be developed and nurtured. process demonstration units and prototype development in order to enable rapid commercial exploitation of technologies developed in laboratories. Fiscal incentives will be provided in particular to : promote inventions. increase the use of indigenously developed technology. and interaction encouraged between design engineering organizations. industrial machinery and capital goods. Increasing the Demand for Indigenous Technology Our country has already invested significant amounts in setting up research and development facilities as well as design consultancy and engineering capabilities. Gaps in technology will be identified and suitable corrective measures taken with adequate allocation of resources. machine tools. Linkages between scientific and technological institutions and development banks will be strengthened. care being taken to ensure quality. agroindustries.

process development and project management should be developed with collaboration if required. It ensures the appropriate utilization of indigenous materials. Technology Acquisition Mix of Indigenous and Imported Technology A policy directed towards technological self-reliance does not imply technological selfsufficiency. Indigenous engineering consultancy. 5. . Wherever capability exists. its role in meeting a major felt need. At any given point of time. Capability for total systems engineering. alternative means of acquiring it.Engineering Consultancy Engineering consultancy is a vital area for ensuring speedy technological and industrial development. there will be a mix of indigenous and imported technology. plant and machinery. A National Register on Foreign Collaboration will be developed to provide analytical inputs at various stages of technological acquisition. association of designated Indian consulting engineering organizations would be preferred. Indigenous initiative must receive due recognition and support. Engineering consultancy provides an essential link between R&D institutions and industry. costs. consideration will be given to the choice and sources of technology. Even where foreign technical collaboration or consultancy is considered unavoidable. utilization of Indian consultancy engineering organizations will be promoted. Appropriate incentives will be given to the setting up of R&D units in industry and for industry including those on a cooperative basis. Government policy will be directed towards reducing technological dependence in key areas. in both private and public sectors. Advantage should be taken of technological developments elsewhere. technology acquisition from outside shall not be at the expense of national interest. will be promoted on a sound professional basis in the context of the overall national perspective of technological self-reliance. In-house R&D In-house R&D units in industry provide a desirable and essential interface between efforts within the national laboratories and the educational sector as well as production in industry. However. This can also be achieved through well-defined collaborative arrangements in research and development. In the acquisition of technology. selection and relevance of the products. Enterprises will be encouraged to set up R&D units of a size to permit the accomplishment of major technological tasks. and thus promotes effective transfer of technology. and related conditions. The criterion must be national interest.

within the country. technology does not exist within the country. some of which may be readily available or could be indigenously developed. and other that will need to be imported. in respect of which procedures would be simplified further to ensure timely acquisition of the required technology. the time taken to generate the technology indigenously would delay the achievement of development targets. Aspects of employment. Where the import of technology is contemplated. from time to time. Government may. and the onus will be on the seeker of foreign technology. There shall be a firm commitment for absorption. making fullest use of overall national capabilities. Technology assessment systems will be reviewed. improvement on and generation of new technology. energy. Absorption of Technology There shall be a commitment to ensure an adequate scale of investment in R&D for the absorption. will continue to be permitted only on a selective basis where : need has been established. wherever possible. identify and notify such areas of high national priority.3 Unpackaging Technology to fulfil a particular need consists of many components. or is in current use. and foreign investment in this regard. large investments and national security.Principles of Acquisition and Technology Assessment Where the need to import technology is established. 5. Lists of technologies that have been adequately developed to the extent that import is unnecessary will be prepared and periodically updated. adaptation and subsequent development of imported know-how through adequate investment in Research and Development to which importers of technology will be expected to contribute. The basic principles governing the acquisition of technology will be:Import of technology. be it industry or a user Ministry. Norms and guidelines for such unpackaging will be evolved. the level to which technology has been developed. The technology import will be so planned as to have effective transfer of basic knowledge (know-why) and to facilitate further advancement. adaptation and. Only thus can self-reliance be . efficiency and environment will be kept in view. every effort should be made to ensure that it is of the highest level. It is necessary to develop capability to break down the total package of technology required for a purpose into components. in such areas no import of technology would normally be permitted. A technology assessment mechanism consisting of competent groups will render advice in all cases of technology import relating to highly sophisticated technology. consistent with requirements and resources. shall be first evaluated. to demonstrate to the satisfaction of the approval authority that import is necessary.

including cost and other economic aspects. This will considerably enhance the possibility of obtaining favourable terms and conditions in acquisition of technology. Appropriate measures shall be evolved to facilitate technology diffusion.ensured and a technology generation process established firmly. technology inputs to small units. Appropriate mechanisms will be evolved at the stage of technology assessment to ensure the absorption of imported technology. Protection : Legislative Framework Development of technology calls for large investments and often involves considerable risk. Such a technology information base will be established. International Competitiveness and Technology Exports It is necessary to maintain international competitiveness in products. 6. Technological Information The availability of an efficient system of collection and analysis of relevant technological information. services and technologies that have export potential. . including : horizontal transfer. Conditions for the marketing of indigenous technology and of products based on it will be improved. is a prerequisite for the appropriate choice of technologies. A mechanism will be set up to ensure that national interests arising from the generating of technology are fully protected internationally in terms of industrial property rights. It is important in all such cases to conform to the highest international standards. technological support for ancillaries from large units. and upgradation of traditional skills and capabilities. Technical Cooperation among Developing Countries A concerted effort will be made to participate fully in technical cooperation among developing countries. Encouragement will be provided for participation in technology development programmes with other developing countries which can contribute to mutual national development. Encouragement will be given to obtaining necessary protection in all cases of indigenous technology development. Technology Transfer Diffusion Special efforts need to be made for the diffusion of technology in use to all beneficiaries who can employ them optimally.

Above all. utilization and diffusion. acquisition. . priorities and the attainment of the most challenging technological goals. Government will evolve instruments for the implementation of this Technology Policy and spell out in detail guidelines for Ministries and agencies of Government as well as for industries and entrepreneurs. Indian Science and Technology must unlock the creative potential of our people and help in building the India of our dreams. review and guidance and a scheme of incentives and disincentives. the entire population must be imbued with self-confidence and pride in national capacity. and connected aspects of financing. Implementation The success of the Technology Policy and the speed with which the various facets of the policy are implemented will depend to a considerable extent on a system for efficient monitoring. absorption. based on overall national interests. development.7. Success in implementation demands a conscious integrated approach covering technology assessment.

capital flows. It can be described as a process by which the people of the world are unified into a single society and function together. cultural systems. integration of national economies into the international economy through trade. A company doesn’t have to be the size of these multinational giants to facilitate and benefit from the globalization of markets.International Business Essay(100 Level Course) A. Globalization of Markets: It refers to the merging of national markets into one huge global marketplace. But very significant differences still exist between national markets like consumer tastes. Globalization of Production: It refers to the sourcing of goods and services from locations around the world to take advantage of national differences in the cost and quality of factors of production.Module 3 GLOBALIZATION INTRODUCTION Globalization (globalisation) in its literal sense is the process of transformation of local or regional phenomena into global ones. Now selling internationally is easier due to falling barriers to cross-border trade.[2] DRIVERS Elements and Drivers of Globalization . foreign direct investment. [1] Globalization is often used to refer to economic globalization. legal regulations. sociocultural and political forces. To illustrate. B. These differences require that marketing strategies in order to match the conditions in a country. The company has some overseas factories where has achieved a super production with low cost. technological. It is important to offer a standard product to the worldwide. This process is a combination of economic. Wal-Mart may still need to vary their product from country depending on local tastes and preferences. and the spread of technology. that is. migration. Unfortunately Nike has been a target of protest and persistent accusations that its products are . For example. preferences. Nike is considerated one of the leading marketers of athletic shoes and apparel on the world. The idea is to compete more effectively offering a product with good quality and low cost.

The development of commercial jet aircraft has reduced the time needed to get from one location to another.made in sweatshops with poor working conditions. a firm might design a product in one country. Otherwise. and form a working relationship with that entity. C. Some ways to make sure that your industry or business can tackle the challenges of a global marketplace include the following. the attacks continue. 1. including the Internet and the World Wide Web (www). The company has signaled a commitment to improving working conditions. and there is no getting around it. you will lose in the long run. Besides. produce a component parts in two other countries. assemble the product in another country and then export the finished product around the world. The most important innovation has been development in the microprocessors after that global communications have been revolutionized by developments in satellite. Falling Barriers to Trade and Investment: The falling of barriers to international trade enables firms to view the world as their market. and now the Internet and the www. many deals have been lost when the company's overseas ODM (original design manufacturer) found a better deal on another product that fit the bill. and transportation technology. innovations have occurred in the field of the transportation technology. The evidence also suggests that foreign direct investment is playing an increasing role in the global economy D. Identify Your Customer's Partners . Thus. and wireless technologies. The rapid growth of the internet and the associated www is the latest expression of this development. your "secure" business may literally fall off the face of . information processing. The lowering of barrier to trade and investments also allows firms to base production at the optimal location for that activity. If you primarily focus on where you live. MANAGING GLOBAL MARKETPLACE We operate in a global marketplace today. but in spite of the fact. Technological Innovation: Technological changes have achieved advances in communication.Especially Manufacturing Partners Especially in the high tech world. Now New York is closer to Tokyo than ever. It is critical that you identify WHERE the end product will be produced. optical fiber. The lowering of trade barriers has facilitated the globalization of production.

but not if it is made in Taiwan. Learn the Local Customs and Words. The local people can also build a camraderie with the local customers . and Modify Your Ads Accordingly Everyone has heard the old joke about why the Chevy Nova didn't sell in Latin America . Don't discount Latin America . This is especially important in Mainland China and Europe. . Make Sure you Understand Local Taxes and Shipping Duties Some countries have very different duties and shipping taxes.and deals. you are missing a sizable portion of the world! There are many translation services out there that will translate your website so that it shows in the proper language for each country in question. 3. If your company has manufacturing facilities in both places .Nova means "doesn't go". This type marketing gaff happens all the time when marketers don't do their homework before entering a new global market space. For instance.the earth! This entity also needs the same customer service and care that the end customer received during the design cycle. Brazil levies an 18% tax on any import . Make Sure Your Ads and Literature Reach a Global Audience If your website is only readable in English.this is why most MNCs have sales and marketing offices located in the countries they most want to do business with. Mexico has a high duty if a product is made in China. Hire Local People in a Local Office Most countries want to deal directly with locals. Knowing these little gems of information can save you embarrassment . Your literature also needs to be translated. and not have to call back to a time zone that is 11 or 12 hours off.if an equal product can be purchased that was made in Brazil.you can win by only using your Taiwan facility for Mexican customers.it is growing by leaps and bounds. Make sure YOU are not the next joke that goes around! 4. don't assume the entire world speaks English. If Possible. 5. 2.

Most businesses. such as management and company commitment to export. How do you begin? In today’s increasingly globalised world. Neglecting factors such as these can be a critical exporting barrier for small and medium-sized businesses. fail to understand that export should be planned keeping in mind long term growth strategies and consider exporting merely to dispose of surplus production or to provide quick cash flow during domestic market slumps. adventurous. 2009 So you want to take the plunge and go global with your product or service. and financially rewarding but at the same it is full of challenges. money and time. Export business is exciting. Before rushing out to export. They must be export ready rather than just 'export willing'. Such myopic approach can hardly make someone successful in the most competitive international business environment. a business needs to find out the right reason to export and test its export readiness. To benefit from export market opportunities. Small and medium sized businesses (SMEs) which are new or early exporters often rush out the door to find an overseas buyer but fails to address the key issues that must be addressed if they want to be successful exporters. To export or not to export Export development is a process and not an event. neither there is a mathematical theory of success to excel in export business operations. Most businesses fail to understand this. a business needs to make a sustained commitment in resources: effort. . It is commonly recognized that a business needs a product or services which is in demand in overseas markets. In the real world. resources and capability no business can turn itself into a high export achiever. In order to successfully develop a export market. commitment and information to support sustained exporting activities over the longer term is often overlooked. for example. Businesses which aspire to gain ground in the global market need to follow a logical and planned approach to export development. some lasting competitive strength for the company and internal capabilities to support exporting. a business rarely follows a straight-path approach. risks and complexities. Without commitment. businesses must have an understanding of what is needed to succeed in exporting. many Indian SMEs enter into export business but most of them back to square one due to lack of proper strategy and preparation. Every year.STRATEGIES FOR GOING GLOBAL Writuparna Kakati | 19 Jan. exporting is crucial for a business' growth and competitiveness. But research have shown that there are some key factors for export success. resources. But the fact that businesses need proper skills.

It will help you to identify some fundamental success factors from both the customer and competitor perspective. marketing. competitive capabilities of your company or any other factor which is important to make your business competitive at international level) and weaknesses (such as lack of experience. But are you ready? There are a number of questions you will need to consider in terms of assessing market opportunities and your business' internal capabilities It will take more time. You will need to invest time and money before they see any return. and how these competitive advantages could help you in grabbing success in the international market as well. lack of knowledge in marketing. As an exporter. Also analysis whether your company has the capacity to tailor it to the requirements of the target market? Accessing capability Another key test in determining your export capability is to analysis why your business is successful at the domestic level. But internationally. confiscation of property. It is also important to establish co-operative long term relationships with local partners. Political risk: The country where your client is located may experience major political instability. Find here some useful information regarding different export business risks1. administration and market experience. regulations. 2. You need to research the target market. Naturally you very excited. But you can minimize them taking proper precautions.). lack of stuff or technology. business are subject to a myriad of laws. and they are unavoidable to some extent. Are your products ready for export? Have you analyzed your product's (or service’s) competitiveness? What are the advantages of your (or services) over other products already available in he target market in terms of quality. inability to change product or packaging. You should have a long-range view. etc. technical. Considering trade barriers The risks in exports are totally different from those encountered domestically. Research why the product will attract sales in the destination market. money and resources to establish your business in an overseas market than in a domestic one. price and uniqueness ? Make sure that your product is ready for export. Try to draw a realistic picture of your business' strengths (factors such as uniqueness of product.Checking readiness You have been successful in the domestic market and are now looking to export to overseas market. you should be equipped with different skills such as finance. Legal risk: At domestic level. etc. what are your competitive advantages. International transactions . there are much more complexities. exchange transfer blockages. restrictions. Such instability could result in defaults on payments.

at least initially. the Internet is not free from scammers and frauds.are governed by unilateral measures. name. Internet frauds: Like in any other place. it is very important for a would-be exporter to identify himself/herself to different intellectual property categories. etc. Besides political. inventive and capable of industrial application. one of the most important. an exporter needs good understanding of different payment methods in international trade. numerals. To gain patent. the most common problem businesses face is the risk in the transaction. 5. Trade marks: In simple term. Besides the above mentioned risks. Several researches have revealed that businesses that dedicate time and resources to protecting their intellectual property assets can increase their competitiveness in a variety of ways. trading can seem complicated and risky. which distinguishes the creator's goods or services or other articles from other similar goods or services created by others. Therefore. musical work. there may be some tariff barriers which exporters often have to face. a trade mark (or brand name) is nothing but a visual symbol or sign such as signature. they are 1. Try to avoid open account method. 3. Quarantine compliance: Many countries (especially the European countries) have strict quarantine requirements to prevent the spread of contagious disease. and often most neglected. multilateral and regional agreements. employment practices.) copied or exploited by someone without the creator's permission. 3. Patents: Patents allow the inventor of an invention to exert monopoly of the invention and thus to fetch adequate commercial value for a period of 20 years. an invention must be new. many governments impose high import taxes on certain products to discourages a foreign company's market entry and to provides some competitive edge to the local providers. issue is Intellectual Property Rights (IPR). 2. Considering Intellectual Property Rights (IPR) While dealing with overseas clients. Copyrights: Copyright acts protect a creator from having his creation (literary work. This difference in law may have impact in such areas as taxation. artistic work. For example. bilateral relationships. It is not only individuals who are targets for a variety of illegal schemes but also small as well as large business organizations. These people are are very cunning and being smart it is not enough to protect yourself from them. To overcome payment related risks. Choose a payment method which provides you with some security. dramatic work. ensure that your products are allowed to be exported to the destination country. etc. cinematographic film. property rights. currency dealings. legal and other risks. device. Credit related risk: While doing business internationally. etc. . Before sending a shipment. 4. label. sound recording.

Hence. and. Your business's track record and credit history The period of finance required. Trade secrets or know hows: Trade Secrets or Know Hows are confidential information which may be commercially or technically valuable.4. Commercial services may differ from country to country. Besides initial investments. ornament or composition of lines or colours applied to any article whether in two dimensional or three dimensional or in both forms. But obtaining financing from such banks and agencies can be very difficult for small and medium sized firms. Financing your venture To grab success in export business. exporter must ensure reliability of the delivery of products on time. mechanical or chemical. In addition. or a region or locality in that territory. In addition. A few words about shipping Shipping is one of the elements of utmost importance in export business. a number of government agencies also offer specialist finance and insurance services to exporters. To meet customer expectations. separate or combined. Industrial designs: The term 'design' is defined as "only the features of shape. and with the target market. and therefore. exporters also need to offer credit to win overseas customers. Whether you have obtained trade credit insurance cover. Your experience with export. as a result. etc. reputation or other characteristic of such goods is essentially attributable to its geographical origin. which in the finished article appeal to and are judged solely by the eye. In theses days. New exporter often fall into the trap of not insuring their . or manufactured in the territory of a country. Let's have a look what you may need to convince about Your business plan and export marketing plan. all the major banks have specialist lenders who work with business at international level. the method of payment you are going to use. 6. configuration. You need to provide convince them in a lot of way and only then they may consider financing your export venture. you might face some bitter problems unless the chosen bank does not have an efficient international department serving in your destination market. Geographical indications: The term 'geographical indication' (in relation to goods) means an indication which identifies goods as originating. in good condition and at proper destination. by any industrial process or means. they need protection. with the product or service you are going to deal in. pattern. 5. whether manual. it is also important to ensure that the chosen bank has a branch in the destination market and open an account with the bank. it usually requires a financial commitment over a long period until one's export venture is paid off. you must pay careful attention to cashflow management before or even after starting your export business. where a given quality. Your business' financial history and few years audited financial statements.

But at the same time. It is therefore very important for exporters to develop an international perspective and plan carefully before keeping their first step into the world of exports Foreign Market Entry Modes (different entry modes) The decision of how to enter a foreign market can have a significant impact on the results. corrosion damage. Since exporting does not require that the goods be produced in the target country. as a result. shifting of cargo or load movement . Most of the costs associated with exporting take the form of marketing expenses. That's it . It is therefore advisable to insure your goods from a company that specializes in marine or air cargo insurance. the world has become a single market giving birth to fierce competition among businesses.all about what you need to get into export and leap frog your way into overseas markets. Expansion into foreign markets can be achieved via the following four mechanisms: Exporting Licensing Joint Venture Direct Investment 1. Exporting Exporting is the marketing and direct sale of domestically-produced goods in another country. and. Climate and humidity. World trade barriers are coming down in these days.all these are some of the few things that could cause damage to your goods while transporting. Exporting is a traditional and well-established method of reaching foreign markets.goods and take a major risk by doing so. the opportunity to succeed in international business are increasing everyday. no investment in foreign production facilities is required. Exporting commonly requires coordination among four players: Exporter Importer Transport provider Government .

and conforming to government regulations. Licensing Licensing essentially permits a company in the target country to use the property of the licensor. Other benefits include political connections and distribution channel access that may depend on relationships.how to split the pie lack of parent firm support cultural clashes if. and production techniques. risk/reward sharing. Potential problems include: conflict over asymmetric new investments mistrust over proprietary knowledge performance ambiguity . and government intentions. Joint Venture There are five common objectives in a joint venture: market entry. and resources are small compared to the industry leaders. local firm capabilities and resources. market power. technology sharing and joint product development. and partners' are able to learn from one another while limiting access to their own proprietary skills. The joint venture attempts to develop shared resources. and when to terminate the relationship Joint ventures have conflicting pressures to cooperate and compete: Strategic imperative: the partners want to maximize the advantage gained for the joint venture. because the licensee produces and markets the product. but each firm wants to develop and protect its own proprietary resources. technology transfer. but they also want to maximize their own competitive position. The licensee pays a fee in exchange for the rights to use the intangible property and possibly for technical assistance. Because little investment on the part of the licensor is required. length of agreement. control. . such as trademarks. The key issues to consider in a joint venture are ownership. However. Such alliances often are favorable when: the partners' strategic goals converge while their competitive goals diverge. licensing has the potential to provide a very large ROI.2. the partners' size. potential returns from manufacturing and marketing activities may be lost. 3. patents. how. pricing. Such property usually is intangible.

owning 49% with the remaining 51% held publicly. and the mode of entry is an important factor in the success of the project. There are many factors in the site selection decision. Disney's mode of entry in Japan had been licensing. especially when moving into a different country and culture. it requires a high level of resources and a high degree of commitment. Besides the mode of entry. future success is not guaranteed. the firm chose direct investment in its European theme park. Florida. as Disney had been with its California. Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment. and a company carefully must define and evaluate the criteria for choosing a location. Walt Disney Co. and personnel. and Tokyo theme parks. while each firm would like to have hierarchical control. It involves the transfer of resources including capital. 4. .The joint venture is controlled through negotiations and coordination processes. Foreign Direct Investment Foreign direct investment (FDI) is the direct ownership of facilities in the target country. However. Direct foreign investment may be made through the acquisition of an existing entity or the establishment of a new enterprise. However. another important element in Disney's decision was exactly where in Europe to locate. The problems with the EuroDisney project illustrate that even if a company has been successful in the past. The appropriate adjustments for national differences always should be made. technology. faced the challenge of building a theme park in Europe. The Case of EuroDisney Different modes of entry may be more appropriate under different circumstances.

Licensing Low sales potential in target country. Knowledge spillovers License period is limited Advantages Disadvantages Trade barriers & tariffs add to costs. Import barriers Large cultural distance Joint Ventures Assets cannot be fairly priced High sales potential Minimizes risk and investment. little product adaptation required Minimizes risk and Distribution channels close to investment. Greater risk than exporting a & licensing . Liberal import policies High political risk Import and investment barriers Legal protection possible in target environment. plants Speed of entry High target country Maximizes scale. Licensee may become competitor. Transport costs Limits access to local information Company viewed as an outsider Exporting Difficult to manage Overcomes ownership restrictions and Dilution of control cultural distance Combines resources of 2 companies. Speed of entry Able to circumvent trade barriers Lack of control over use of assets. Large cultural distance High ROI Licensee lacks ability to become a competitor.Comparision of Market Entry Options The following table provides a summary of the possible modes of foreign market entry: Comparison of Foreign Market Entry Modes Mode Conditions Favoring this Mode Limited sales potential in target country. uses production costs existing facilities.

focusing on the major issues and challenges and development of resource strategies for production. resources. Stages of Alliance Formation A typical strategic alliance formation process involves these steps: Strategy Development: Strategy development involves studying the alliance’s feasibility. Strategic Alliance A Strategic Alliance is a formal relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. shared expenses and shared risk. objectives and rationale. brand name. and people. Greater knowledge of Higher risk than other local market modes Can better apply specialized skills Minimizes knowledge spillover Can be viewed as an insider Requires more resources and commitment May be difficult to manage the local resources. project funding. It requires aligning alliance objectives with the overall corporate strategy. manufacturing capability. capital equipment. knowledge. or intellectual property. distribution network. . expertise. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. etc. distribution channels. economic specialization [1]. The alliance often involves technology transfer (access to knowledge and expertise). technology. Partners may provide the strategic alliance with resources such as products. Import barriers Small cultural distance Direct Assets cannot be fairly priced Investment High sales potential Low political risk Potential for learning Knowledge spillovers Viewed as insider Less investment required Partner may become a competitor.Some political risk Government restrictions on foreign ownership Local company can provide skills.

preparing appropriate partner selection criteria. creating strategies for accommodating all partners’ management styles. linking of budgets and resources with strategic priorities. or among companies and governments . for instance when its objectives have been met or cannot be met.Partner Assessment: Partner assessment involves analyzing a potential partner’s strengths and weaknesses. or when a partner adjusts priorities or re-allocated resources elsewhere. forming high calibre negotiating teams. 2) learning from partners & developing competences that may be more widely exploited elsewhere. addressing termination clauses. Alliance Termination: Alliance termination involves winding down the alliance. Sometimes formed between company and a foreign government. equity strategic alliance. non-equity strategic alliance. Global Strategic Alliances working partnerships between companies (often more than 2) across national boundaries and increasingly across industries. and global strategic alliances. Nonequity strategic alliance is an alliance in which two or more firms develop a contractual-relationship to share some of their unique resources and capabilities to create a competitive advantage. Joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage. understanding a partner’s motives for joining the alliance and addressing resource capability gaps that may exist for a partner. Alliance Operation: Alliance operations involves addressing senior management’s commitment. There are four types of strategic alliances: joint venture. measuring and rewarding alliance performance. and assessing the performance and results of the alliance. and highlighting the degree to which arbitration procedures are clearly stated and understood. 3) adequency a suitability of the resources & competencies of an organization for it to survive. Contract Negotiation: Contract negotiations involves determining whether all parties have realistic objectives. penalties for poor performance. The advantages of strategic alliance includes 1) allowing each partner to concentrate on activities that best match their capabilities. finding the calibre of resources devoted to the alliance. defining each partner’s contributions and rewards as well as protect any proprietary information. Equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage.

goals. In the midnineteenth century. In the nineteenth century. albeit with different meanings. it connoted a process of cultivation or improvement. as in agriculture or horticulture.Module 4 CULTURE Culture (from the Latin cultura stemming from colere. Specifically. such as those of a purely technical or operational nature. the term became important. However. organizational psychology and management studies. Some areas of functional management. in 1952. cultural studies. Following World War II. the term "culture" in American anthropology had two meanings: (1) the evolved human capacity to classify and represent experiences with symbols. When the concept first emerged in eighteenth. especially through education. 1981). meaning "to cultivate")[1] is difficult to define. . encompassing all human phenomena that are not purely results of human genetics. are more easily transferable across cultures. and acted creatively. and behavior that depends upon the capacity for symbolic thought and social learning the set of shared attitudes.and nineteenth-century Europe. and (2) the distinct ways that people living in different parts of the world classified and represented their experiences. belief. In the twentieth century. some scientists used the term "culture" to refer to a universal human capacity. The strategy for managing across culture As economic ties between India and the United states grow stronger. cross-cultural literacy becomes increasingly critical for managers to accomplish higher levels efficiency and productivity in the workplace. values. and to act imaginatively and creatively. the areas of management that involve leadership. it came to refer first to the betterment or refinement of the individual. are highly sensitive to cultural interpretation (Hofstede. and practices that characterizes an institution. in other disciplines such as sociology. goal achievement and influence. and then to the fulfillment of national aspirations or ideals. "culture" emerged as a concept central to anthropology. the word "culture" is most commonly used in three basic senses: excellence of taste in the fine arts and humanities an integrated pattern of human knowledge. as in power relations.[2] However. organization or group. 1980) and may impact performance (Bass. For example. Alfred Kroeber and Clyde Kluckhohn compiled a list of 164 definitions of "culture" in Culture: A Critical Review of Concepts and Definitions.

Texas. For instance. 1980). self-welfare." But the groups differed on other themes. potentially reflecting elements of an American core culture. power distance. For example." believed ADs "help staff know or implement a patient's wishes. Yet. Indian culture differs from American culture on two dimensions. The Indian value system can be found at the framework of transcendent ideology such as "Chitta-shuddhi" or purification of the mind. Indian management practices have developed a distinctly Indian flavor. it has its own unique characteristics and features resulting from its national history. majorities of all groups believed "the patient deserves a say in treatment. and renunciation and detachment. Therefore. These unique cultural perspectives influence the style of today's Indian managers and shape the expectations of Indian subordinates. DESIGN: Structured." and "advance directives (ADs) improve the chances a patient's wishes will be followed. value systems. MEASUREMENTS AND MAIN RESULTS: The 3 groups shared some views. Each culture has its own unique set of beliefs. Due to centuries of British governance." trusted the system "to serve patients well. 1980). self-discipline and self-restraint. National cultures can be compared using four dimensions: collectivism-individualism. India had considerable Western influences in managerial philosophy that are evident in modern Indian management practices (Bhagwati and Desai.CONCEPTUAL DEVELOPMENT: Culture refers to the distinctive collective mental programming of values and beliefs within a society (Hofstede. For example." and wanted "to die when treatment is futile. Indian companies tend to be run in a more paternalistic manner. 1991). Jones. in that Indian culture has higher power distance and lower individualism than American culture (Agrawal. But the cultural attitudes influencing such decisions are poorly defined. Power distance is to the degree to which those with less power accept the authority of those with more power. and related behaviors that determine managerial behavior (Chakraborty. likely reflecting specific ethnic cultures. Collectivism-individualism is the degree to which individuals are more interested in group welfare vs. and Pauranic literature (Chakraborty. The basic cultural orientation of India is rooted in Buddhism. attitudes. Although Indian culture is technically grouped with other Eastern cultures. 1986). 18 Euro-American. Vedantic and Yogic Psychology. This hypothesis-generating study begins to characterize those attitudes in 3 American ethnic cultures." Few Euro Americans believed "the . open-ended interviews with blinded content analysis. PATIENTS: Purposive sampling of 26 Mexican-American. SETTING: Two general medicine wards in San Antonio. most Mexican Americans believed "the health system controls treatment. 1993). with personal relationships playing a more crucial role in business than one observes in Western cultures (Garg and Parikh. 1989). uncertainty avoidance and masculinity-femininity (Hofstede. and 14 African-American inpatients. it follows that employees from different national cultures have learned and experienced different managerial practices and each culture must be explored within its own unique context to understand the important determinants of managerial performance. 1970. Cross culture differences & similarities Culture may have an important impact on a patient's decision whether to perform advance care planning. 1991). In Hofstede's model. derivative epic.

some of which are typically mutually exclusive (eg Monarchy and Republic). which combines aspects of Monarchy and Theocracy. other care. and believed ADs "help staff know or implement a patient's wishes." but most trusted the system "to serve patients well. Monarchies are one of the oldest political systems known. and other social systems. The first recorded Republic was in India in the 6th century BCE. It is different from them. Democracy and Socialism). advance care planning may need tailoring to a patient's specific ethnic views. while others may (or may not) overlap in various combinations (eg Democracy and Westminster system." CONCLUSION: While grounded in values that may compose part of American core culture. this is a very simplified view of a much more complex system of categories involving i." Most African Americans believed "the health system controls treatment. Anarchism Democracy Monarchy. Theocracy Westminster system Feudalism ." and most believed they should "wait until very sick to express treatment wishes. and can be generally defined on a spectrum from left. communism or fascism. Socialism. i.system controls treatment. developing from tribal structure with one person the absolute ruler." few trusted the system "to serve patients well. a political structure claiming to be both Islamic and democratic.e. It is usually compared to the law system. the modern socialist movement largely originated in the late-19th century and spawned communism and democratic socialism. economic system. to the right. libertarianism. Basic forms of political systems The following are examples of political systems. which combines aspects of Theocracy (as the framework) and Democracy (as the decision making method under the Islam's ethical system). the view of religious questions and the government's influence on its people and economy. Political and legal environment A political system is a system of politics and government.e.e. However. Islamic Democracy. a political structure claiming to be Islamic. Republic. and acceptable outcomes. Sultanates." had particular wishes about life support. the view on who will have the authority. i. cultural system. Iran's constitution is based on such a system. Degrees of socialism (state run economies or services) have been present in political systems since antiquity.

Anarchism is a political philosophy encompassing theories and attitudes which consider the state. meaning "without rulers". strength" in the middle of the 5th-4th century BC to denote the political systems then existing in some Greek city-states. the term "libertarianism" has often been used as a synonym for anarchism and was used almost exclusively in this sense until the 1970s in the United States. and they often disagree with each other on what these criteria are. with anarcho-individualism being primarily a philosophical/literary phenomenon. with that strain supporting an anarchist free-market economy and private property (like classical mutualism or today's anarcho-capitalism and agorism. -izein)."[3] There are many types and traditions of anarchism. on the path to anarchy. including violent revolution and terrorism.(an-. notably Athens following a popular uprising in 508 BC."[ Democracy Democracy is a form of government in which power is held directly or indirectly by citizens under a free electoral system. and those considered anarchists at best share a certain family resemblance.[1] which was coined from δῆμος (dêmos). "rule. "without") + ἄρχθ (archê. According to The Oxford Companion to Philosophy. "popular government". On the other hand.S. "there is no single defining position that all anarchists hold. It is derived from the Greek δημοκρατία (dēmokratía (info)). The central tendency of anarchism as a social movement is represented by communist anarchism. however.from the prefix ἀν. neither advocate nor object to any particular form of organization as long as it is not compulsory.[1][2] Specific anarchists may have additional criteria for what constitutes anarchism. Anarchism is usually considered to be a radical left-wing ideology.[2] . while others have supported the use of some coercive measures. "sovereignty. and much of anarchist economics and anarchist legal philosophy reflect anti-authoritarian interpretations of communism. Others. as compulsory government. realm. "libertarian socialism" is sometimes used as a synonym for non-individualist anarchism. anarchos. collectivism. magistracy")+ -ισμός (-ismos. Some anarchists fundamentally oppose all forms of coercion. There is some ambiguity with the use of the terms "libertarianism" and "libertarian" in writings about anarchism. Some anarchist schools of thought differ fundamentally. to be unnecessary. to dilineate it from individualist libertarianism (individualist anarchism). anarchism has always included an economic and legal individualist strain. that is. such as panarchists and anarchists without adjectives. Since the nineteenth century. referring to free-market anarchism as "libertarian anarchism. "people" and κράτος (krátos). and/or undesirable. Accordingly. The term anarchism derives from the Greek ἀναρχος. its use as a synonym is still common outside the U. syndicalism or participatory economics. supporting anything from extreme individualism to complete collectivism. some use "libertarianism" to refer to individualistic free-market philosophy only. from a stem -ιζειν. not all of which are mutually exclusive. socialist anarchism. harmful.

freedom of speech and freedom of the press are essential so that citizens are informed and able to vote in their personal interests. In the United States. some of which provide better representation and more freedoms for their citizens than others.In political theory. who is the head of state. and "is wholly set apart from all other members of the state. In other cases. the right to petition elected officials for redress of grievances. . but without responsible government it is possible for the rights of a minority to be abused by the "tyranny of the majority".[16][17] However other cultures have significantly contributed to the evolution of democracy such as Ancient India[18]. democracy describes a small number of related forms of government and also a political philosophy.[19] Democracy has been called the "last form of government" and has spread considerably across the globe. then a branch of the system of rule could accumulate power and become harmful to the democracy itself. Though the term "democracy" is typically used in the context of a political state. areas with significant immigration. separation of powers is often cited as a supporting attribute. equality before the law. and countries that exclude certain demographic groups A monarchy is a form of government in which supreme power is absolutely or nominally lodged with an individual. [20] Suffrage has been expanded in many jurisdictions over time from relatively narrow groups (such as wealthy men of a particular ethnic group). It was a common form of government in the world during the ancient and medieval times. In some countries. but still remains a controversial issue with regard to disputed territories. if any democracy is not carefully legislated to avoid an uneven distribution of political power with balances. Europe[16]. the principles are also applicable to private organizations and other groups. democracy is based on the philosophical principle of equal rights. such as the United Kingdom. Many people use the term "democracy" as shorthand for liberal democracy. [7][8] However."[1] The person who heads a monarchy is called a monarch. often for life or until abdication. "democracy" is used to mean direct democracy. and elements of civil society outside the government. freedom of political expression. human rights. and North and South America. Ancient Rome[16].[9][10][11] The "majority rule" is often described as a characteristic feature of democracy. Furthermore. [14][15] Popular sovereignty is common but not a universal motivating philosophy for establishing a democracy. [4][5][6] There are several varieties of democracy. but in other countries. the dominant philosophy is parliamentary sovereignty (though in practice judicial independence is generally maintained). civil liberties. Even though there is no universally accepted definition of 'democracy'. The first principle is that all members of the society (citizens) have equal access to power and the second that all members (citizens) enjoy universally recognized freedoms and liberties.[3] there are two principles that any definition of democracy includes. such as the separation of powers. An essential process in representative democracies are competitive elections. Democracy has its origins in Ancient Greece. which may include additional elements such as political pluralism. that are fair both substantively[12] and procedurally[13]. due process.

sovereign of the Vatican City State. to the people. but elective monarchies are considered monarchies (the pope. creates an unequal society. to be given anew to another person. but are considered republics (such as the stadtholder of the Dutch Republic. or the Great Council of Chiefs in Fiji). while we call republic that government in which not only there exists an organism by which the opinion of the people.[1][2] Modern socialism originated in the late 19th-century intellectual and working class political movement that criticized the effects of industrialization and private ownership on society.[1] A 1914 edition of Bouvier's Law Dictionary states that "Monarchy is contradistinguished from republic. with a fair or egalitarian method of compensation. and a society characterized by equality for all individuals. Socialism refers to a broad set of economic theories of social organization advocating public or state ownership and administration of the means of production and distribution of goods. and does not . but instead created a highly regulated economy with state-led economic planning.[3][4] The first socialists were termed utopian socialists by later socialist thinkers. Karl Marx posited that socialism would be achieved via class struggle and a proletarian revolution. as was the case in the Netherlands. as many constitutional monarchies such as the United Kingdom and Thailand are considered monarchies. or a portion of the people.There is no clear definition of monarchy. or else. and include Robert Owen. law. The first socialists predicted a world improved by harnessing technology and combining it with better social organization. or of a portion of the people (as in aristocracies). who is wholly set apart from all other members of the state's (called his subjects). and many contemporary socialists share this belief.[1] Currently. or the executive power. 44 nations in the world have monarchs as heads of state. passes over into public will. the first individual to coin to term "socialism" and the originator of technocracy and industrial planning. that government in which the hereditary portion (if there be any) is not the chief and leading portion of the government. either periodically or at stated times (where the chief magistracy is for life). the Nazis did not nationalize industry. who tried to found socialist factories and other structures within a capitalist society and Henri de Saint Simon. returns. but in which also the supreme power. although Adolf Hitler's party program included socialist elements. is elected by the College of Cardinals) and some states have hereditary rulers. and would represent a transitional stage between the capitalist and communist modes of production.[5][6] Early socialist thinkers tended to favor more authentic meritocracy." and gives this definition: We cannot find any better definition of monarchy than what this is: a monarchy is the government which is ruled (really or theoretically) by one person. while many modern socialists have a more egalitarian approach. that is. 16 of which are Commonwealth realms that recognise Queen Elizabeth II as their head of state. Hereditary rule is often a common characteristic. Holding unlimited political power in the state is not the defining characteristic. There is disagreement over the extent that National Socialism is socialist. Socialists mainly share the belief that capitalism unfairly concentrates power and wealth among a small segment of society that controls capital.

or "rulership". Sultan (Arabic: Sulṭān) is an Islamic title. Hungarian. and fiefs. Libertarian socialism (including social anarchism and libertarian Marxism) rejects state control and ownership of the economy altogether and advocates direct collective ownership of the means of production via co-operative workers' councils and workplace democracy. and exchange. refers to a Medieval European political system composed of a set of reciprocal legal and military obligations among the warrior nobility. it came to be used as the title of certain Muslim rulers who claimed almost full sovereignty in practical terms (i.[7] Social democrats propose selective nationalization of key national industries in mixed economies and tax-funded welfare programs and the regulation of markets. Although derived from the Latin word feodum (fief). but other definitions of feudalism exist.[1] many medieval historians have included a broader social aspect. Later. sometimes opposing each other. the lack of dependence on any higher ruler). Since at least the 1960s. although there is considerable disagreement among socialists over how. distribution. instituted various forms of market socialism. There is no broadly-accepted modern definition of feudalism. Feudalism. sometimes referred to as a "feudal society". Originally it was an Arabic language abstract noun meaning "strength". Others. its branches advocate a degree of social interventionism and economic rationalization. meaning "authority" or "power". Socialists inspired by the Soviet model of economic development have advocated the creation of centrally planned economies directed by a state that owns all the means of production..provide equal opportunities for everyone in society. was originally used in a political context. without claiming the overall Caliphate. Still others since the 1970s have re-examined the evidence and concluded that feudalism is an unworkable term and should be removed entirely from . The term. Therefore socialists advocate the creation of a society in which wealth and power are distributed more evenly based on the amount of work expended in production. combining co-operative and state ownership models with the free market exchange and free price system (but not prices for the means of production).e. and to what extent this could be achieved. vassals. adding the peasantry bonds of manorialism. others advocate state control of capital within the framework of a market economy. the term feudalism and the system it describes were not conceived of as a formal political system by the people living in the Medieval Period. revolving around the three key concepts of lords. Polish and Chinese Communists in the 1970s and 1980s. including Yugoslavian. which was coined in the early modern period (17th century). derived from the masdar ‫ س لطة‬sulṭah. in its most classic sense. Some socialists advocate complete nationalization of the means of production. "authority". or it was used to refer to a powerful governor of a province within the caliphate. Socialism is not a concrete philosophy of fixed doctrine and program. then in use. It then developed some further meanings in certain contexts. with several historical meanings. Another dividing feature of the socialist movement is the split between reformists and the revolutionaries on how a socialist economy should be established.

a form of government in which a state is governed by immediate divine guidance or by officials who are regarded as divinely guided. The term comes from the Palace of Westminster.[3] Theocratic governments enact theonomic laws. Parthian empire.[1] or in a broader sense. to the antebellum American South. or it may have two 'arms. There are other parliamentary systems whose procedures differ considerably from the Westminster system. the concept of feudalism is normally used only by analogy (called semi-feudal). and monarchies held "By the Grace of God". A theocracy may be monist in form. leading many historians and political theorists to reject it as a useful concept for understanding society. either in a personal incarnation or. where the administrative hierarchy of the government is identical with the administrative hierarchy of the religion. The system is a series of procedures for operating a legislature.. It is used. . However. a church). replacing or dominating civil government. via religious institutional representatives (i. and sometimes medieval and Gondarine Ethiopia. some have taken the feudalism analogy further. theocracy is a form of government in which divine power governs an earthly human state.scholarly and educational discussion. India and Pakistan. seeing it in places as diverse as ancient Egypt. the many ways the term feudalism has been used has deprived it of specific meaning.[3] Ultimately. or are merely influenced by theological or moral concepts. The Westminster system is a democratic parliamentary system of government modelled after the British government (the Parliament of the United Kingdom). [2] For believers.' but with the state administrative hierarchy subordinate to the religious hierarchy. more often. or at least used only with severe qualification and warning. the seat of the UK Parliament.e. most often in discussions of Japan under the shoguns. or was once used. in the national legislatures and subnational legislatures of most Commonwealth and exCommonwealth nations upon being granted responsible government. Theocracy should be distinguished from other secular forms of government that have a state religion. Theocracy is a form of government in which a god or deity is recognized as the state's supreme civil ruler. Outside of a European context. beginning with the first of the Canadian provinces in 1848 and the six Australian colonies between 1855 and 1890.[2] The term feudal has also been applied—often inappropriately or pejoratively—to non-Western societies where institutions and attitudes similar to those of medieval Europe are perceived to prevail.

quite the opposite: even more substantial. and was already a highly regarded attorney when his current partners. We don’t believe that all are equals. Even when it works in the short-term. structural changes are looming on the horizon. and increased competition are some of the irresistible forces sweeping through the landscape. by then baby lawyers. and an assessment of their strategic impact. “Le Roi est mort. ultimately. Absolute monarchy Some firms look like France under Louis XIV. They realise that absolute monarchy is not a viable option in the long-term. partnership meetings. and want to delegate more powers to other partners or to practice groups and to involve them in strategy and management. Early perceptions die hard. Vive le Roi” does not seem to work so well for law firms. these firms are in a strategic disadvantage.Impact of political system on management decision The winds of changes are blowing on the legal market. his grip on power is even stronger. in this environment. technology. we might thing that for these firms. success in a changing environment depends on the personality of the monarch. The managing partner is the founding father of the firm. and none dare challenging him. Firms with a “political system” able to produce and implement firm-wide decisions to effect this change have a clear competitive advantage. at least to follow and adapt. How law firms are coping with this fast-changing environment is a life and death question. There may be committees. Some are receipts for disaster. at best to anticipate and lead. and other similar get-togethers but. Firms handicapped by a powerless political system are incapable of changing and. the partners feel the same respect as they did as first-year associates. These forces will not fade. Others give a powerful competitive advantage. and years or decades later. but actually we believe that in most cases. The main challenge for law firms is to be able to change themselves. we have often observed in absolute monarchy-type law firms that the main worry for leaders with a long-term vision is precisely to change the internal political system. some absolute rules are visionaries and innovators. other are status quo orthodox. So. the managing partner is the one who calls the shots. but also the underlying trends of globalisation. Interestingly. The current financial and economic crisis of course. Here is an overview of the existing systems. Are these firms able to adapt to change? In law firms as in government. The absolute-monarchy firms that have a chance to succeed in the future are those that will move to another political system. Another source of authority can be outstanding turnover. may rapidly pale into irrelevance. We have identified six political systems in law firms. Where does this authority come from? History. The managing partner is the ruler. started as junior associates under his mentorship. these firms hardly flourish when Louis XIV goes into retirement. and even the absolute ruler. . Some firms appoint as managing partner the top rainmaker whom everyone will respect because he feeds the firm and looks like knowing how to successfully run a legal practice. and the game is reshuffling the cards among winners and losers. When the founding father is also the top rainmaker. with the absolute ruler making right strategic decisions. often.

making important strategic decision for the entire firm is of course very difficult. is to maintain this system as the firm grows. have decided. Eventually the managing partner stops trying to make any decisions at all. This is why we think that these firms. The question of long-term strategic success of these firms is not even relevant. It is also what makes the partnership experience so rich: a magic mix of being your own boss and yet being part of a team. at least in theory. although it remains quite widespread among law firms. This power struggle (most of the time highly civilised. In both cases.Feudalism A political system doomed to fail in the emerging legal market is feudalism. and where he feels like. decisions required by the challenges of a changing environment. A good example is direct democracy. Reporting lines and chains of command. if any. The position of managing partner is the one that nobody wants. and sometimes difficult. . how. and none else. No matter what the managing partner has “decided”. The danger therefore is simply to avoid the touchy subjects. and backing off into a de facto job of office manager. it can sometimes be resuscitated). overruled or simply ignored. fortunately) has left more than one managing partner exhausted and cynical. the barons seize the opportunity to claim back or gain more autonomy. will inevitably slip down and eventually disappear from the rankings that matter. This highly collaborative and consensual management style is a natural by-product of partnerships where. Decisions of the managing partner are most of the time challenged. In these firms. Direct democracy Fortunately. relocation to a multi-floor office. or to settle for compromises and half measures. In these firms. Reaching a consensus on all key strategic issues between a handful of partners is within reach. When the king is weak. Because decisions are participative and consensual. partners will make whatever they. The problem. of course. where all partners make decisions together on a consensus-basis. when. and ensuring implementation and compliance comes close to wishful thinking. opening of regional and overseas offices (not to mention time pressure from client work) make it ever more difficult to discuss and reach a consensus on all issues. unless the change their political system. but circumstances like a rapidly increasing number of partners. political systems in some law firms can look more uplifting. direct democracy can be a very effective governance in the new market conditions. Therefore. there is far less resistance to implementing them. Each partner does what he wants. The firm is already dead (but with leadership. it can even get worse… Anarchy The political system in some firms is completely chaotic. are systematically by-passed. being the managing partner is all about coalition building and reaching compromises and a modus vivendi with independent-minded individuals who jealously guard their territory. the firm will not make the important. And yet. perseverance and skills. all partners are equals.

on top of an explicit mandate from his peers. But let’s be realistic: they must demonstrate some personal strength as well in the traditional field of business development.Does that mean that direct democracy has no future? Certainly not. There must be a fundamental agreement among partners on core values and on the vision of what they want the firm to be. Consensus is possible. and to a certain extent remaining. This is quite different from the skills it takes to be a successful lawyer. some firms achieve this unifying culture by preferring home-grown talents and avoiding lateral hires. When the managing partner has. tribal politics. It can work. . strategic issues. even on critical. There is another area where elected managing partners must earn their credibility: leadership talent and management skills. This political system works. enough credibility. talent and skills to get his authority respected. explicit decision by the partners to delegate management powers. Some firms are moving fast along a clear. There are remarkable examples of law firms’ come-backs: once loosing ground in the midst of internal disputes. coherent direction. a partner must have earned the respect of his peers also by being. and most probably securing a leading position in the fast-changing legal market. they don’t usually do more than office management because they do not have the credibility to lead on strategic issues. all the partners are genuinely committed to the same values and idea of what their firm stand for. and collective inertia. To succeed in the future. Republic Partners. To be credible as a managing partner. although managing a 100-people organisation would certainly justify full-time care and attention. Their real authority does not primarily stem from heroic entrepreneurship or 7-digit turnover. the result may be spectacular. because at a more fundamental level. They elect a managing partner and explicitly entrust him with real decision-making powers and with the mandate to use them. but from a collective. and that the pace of changes in the market demand quicker. may reach the conclusion that consensus is too long and difficult to achieve. The ability to convince and to create consensus will always remain a fundamental attribute of law firm leaders. This is one of the reasons why so many managing partners keep one foot in legal practice. When the post of managing partner goes to the underperformers. successful in his practice. and they accept to play by the rules. They must constantly strengthen and energise the shared vision and the commitment to common values. bolder decisions. some firms have been able to claim back their first-tier status thanks to a change of their political system: delegation of true executive powers to the managing partner. But it requires a very strong and shared firm culture among partners. however. and it often does. sometimes with outstanding success as several examples of large. The successful managing partner here is not a decision-maker: he must above all incarnate and promote the shared vision and values of the firm and be a skilful facilitator of dialogue among peers. These managing partners are not necessarily the founding fathers or the biggest rainmaking stars in their firms. It does not mean of course that elected managing partners should turn autocratic. these firms must have a very strong culture. international law firms (often US based) show. In practice.

prestige and financial rewards. In the last years remarkable changes have been taking place in the ideologies of many . Direct democracy. There is a growing feeling of alienation among many partners in these firms. Formulatiing legal and political strategies in international markets The political environment Checks can be made on the legal/political system as to its ideology. Ideology: A country's ideological leaning may be capitalism. and there is no doubt that highly professional strategy setting and management is a requirement for large organisations. some firms organized along those lines are doing very well. HR and finance. centralising all management decisions. But this happy feeling is vanishing when the techno-structure is setting mandatory objectives and financial targets. but they can be managed. support departments. some partners with full-time or at least substantial management duties constitute an emerging ruling class (above the rank and file of “fee earners”). we are convinced that the way law firms are governing themselves (or failing to) is becoming a decisive. and the managing partner holds the yellow jersey. and other groups that interact with each other along a elaborated system of processes and reporting lines. Decisions can’t be traced back to a particular individual like the managing partner. but are the offspring of a web of committees. stability and international relations. These big. The system is managing the firm. The very special think about being a partner is to be your own boss. rewards. or lack of it. In short. In these firms. challenges. Partners are reduced to “fee-earner” status and those with a more romantic idea of what the word “partnership” means may be tempted to export their talents elsewhere. strategic issue with a huge impact on long-term success. and it does not always last for very long. socialism. it requires a breadth of leadership and management skills. in law firms at least. Is it a successful political system to deal with the new legal market? Obviously. although each form has its own risks. often London-based firms. imposing strict reporting procedures. In conclusion. But there is hope: regime change. But you have to like working in a place like that. it offers visibility. and risks. His job is very much similar to the job of a CEO in a big corporation. It’s a full time job (at least potentially). or anarchy. not to mention the legions in IT. with the same responsibilities. and the CEO is managing the system that manages the firm. management decisions are generated by “the system”. international. and maximizing pressure on results. have indeed developed a technocratic style of management.Technocracy When you hear that some firms have several dozens of professionals in their marketing department. are three forms of government with potential. however different they may look. a mixture or other form. can work. nationalism. The odds are not so good for the firms based on absolute monarchy. feudalism. you get the signal that something is definitely happening in terms of law firm governance. there is much competition to get it. republic and technocracy.

for example. Similarly. Whilst. the violence of Somalia and Yugoslavia increase the risk and diminish the confidence of doing business in these countries. Nationalism: Much was said about nationalism in the previous section. has entered into partnership with Olivine industries. Other government activity. Nationalism can lead to expropriation of foreign held assets. as a "hostage" situation in international disputes. many African countries are abandoning their centrist leanings in favour of market led economies. In Zimbabwe. including the desire to retain national assets. "Partnering" remains widespread (inward investment in tandem with a domestic company) as does restrictions on repatriation of funds. It may occur for a number of reasons. If expropriation is a real possibility then the investor should seek to minimise risk by: i) relatively rapid depreciation of assets and repatriation of funds by manipulated transfer prices ii) establish a local supply infrastructure so that any adverse action damages the host economy iii) raise as much investment capital in the country as possible iv) retain control of critical inputs and minimise local stocks of these. the multinational food agent. Zimbabwe and Tanzania. the Government may relax its conditions as it sees the benefits. The current uncertainty in Liberia and Rwanda. which affects capital investment includes joint venturing insistence and repatriation of funds.countries. International relations: In general international relations have improved over the last twenty years. The development of GATT. violence and cultural divisions based on language or other factors can lead to a very uncertain environment in which to conduct business. Over time. . for example the seizure of Union Carbide's assets after the Bhopal disaster in India. even if initially the investment is not favourable. Yugoslavia has shown it is not entirely so. Stability: Changes in regime. for example. However these measures may increase the risk of expropriation or reduce the potential success of the venture. Expropriation Expropriation is an extreme form of political action. primarily a phenomenon of the developing countries. HJ Heinz. NATO and the EU have gone a long way to reduce the element of "foreigness". The most dramatic example has been the collapse of the communist USSR and Eastern Europe and its replacement with market led policies and ideologies.

oil?  the product a critical input for other industries. the answers to these questions will enable the marketer to assess the degree to which the product being marketed has to be priced and resourced.the bigger the more vulnerable  Visibility of firm . the question is. real or perceived. food? Is  the product of national defence significance? Is  the product taking a disproportional amount of capital repayment? Is  the product leading to the locus of control being held outside of the host country? Is Again. for Is example.Incentives Many countries try to reduce perceived risk by promoting inward investment through the provision of tax breaks. cement? Is  the product socially or politically sensitive. or overcome say poor local skills. Similarly if viability depends on incentives rather than real return on investment.is it a good corporate citizen?  Contribution to host country. The key is to look at what the disadvantages are. These include the following:  the product ever subject to political debate regarding. is the venture really worth it? Assessing political vulnerability Political vulnerability should be assessed by using a systematic checklist. enterprise zones etc. say. for example. free ports. can be assessed and fed into the investment discussion. If the government mainly wishes to attract the mobile investor. adequacy of supply.. employment  Localisation of operations  Subsidiary dependence. Marketing implications Political factors give rise to a number of marketing implications. which are not tied as in partnering. the amount of risk. so as to either avoid or reduce the risk of expropriation or other political reactions. one has to assess what would happen if the scheme was withdrawn once the capital had been committed.is it high profile say via advertising?  Host country's political situation  Company behaviour . . for example. for example. Such a checklist should include the following:  firm's own country's relations with other countries The  Sensitivity of the product or industry  Size and location of operation . Depending on the answers to these checkpoints.

ICAA (International Civil Aviation Authority) and ITU (International Telecommunication Company). like those in the OECP. the supreme body is the International Court of Justice. The most important patent agreement is the International Convention for the Protection of Industrial Property. Commerce and Navigation) and Tax Treaties primarily US based and concerned with giving protection of trading rights and avoiding double taxation. The EU convention covers 15 countries and gives patent protection in all 15 if signified in one. the international legal framework is somewhat confused. e) Patents and trademarks there is no such thing as international patent. . taxes. patents and trademarks. the filee will be afforded the date of the first filing for priority purposes. b) IMF and GATT already discussed in the previous section and concerned with member nations international trade restrictions and dumping. WHO etc. Works with international chambers of commerce and Governments. The PCT has 39 countries including the USA. International law To many. However. c) UNCITRAL (UN) international trade law commission set up with the intent to provide a uniform commercial code for the whole world. commercial arbitration and shipping legislation. particularly international sales and payments. The treaty provides that if a filee files in a signatory country within one year of the first filing. Member countries produce guidelines for multinational enterprises covering aspects of general policy. g) Codes of conduct. and contains technical committees working on uniform standards. are not technical law but important. a) FCN (Friendship. situated in The Hague. first signed in 1983 and now honoured by 45 countries. f) Air transport is covered mainly by IATA (International Air Transport Authority). Japan and Brazil. transfer pricing. Most controls or regulations revolve around export and import controls. Holland. A patent cooperation treaty (PCT) and a European Patent Convention are also in effect. The following touches on a number of these issues and in particular the import/export regulations (terms of access). expropriation and distribution of equity. embargoed nations. d) ISO (International Standards Organisation) often works with ILO. Here a number of international disputes may be taken for ultimate adjudication.The legal environment As indicated in the introduction to this section. a series of other bodies and legislation exists. regulation of corrupt practices. antitrust.

sales promotion and. competition. the American Arbitration Association. value added systems and taxation  Distribution . h) Recourse arbitration is an attempt to reduce disputes by consultation. performance. employment and industrial relations. The major instruments covered by this phrase include import duties.  Market research .physical. applicable to different countries or groups of countries. product restriction. so the rest of this section will be given over to a discussion of these. warranty  Pricing decisions . Marketing implications The implications of international law on marketing operations are legion. Terms of access One particular area where legal/political effects are felt by international marketers is in the terms of access. chemical. physical distribution. financing. storage and transmission of data. insurance  Promotion . resale price maintenance. Other areas affected are obviously in currency and payments but these will be dealt with in later sections. safety.advertising codes of practice. or two or more rates.contracts for agents and distribution. . packaging. the London Court of Arbitration and the Liverpool Cotton Exchange. The phrase "terms of access" refers to all the conditions that apply to the importation of goods from a foreign country. foreign exchange regulations and preference arrangements.price controls. price freezes. taxation. Tariffs are usually grouped into two classifications: Single-column tariff: The single-column tariff is the simplest type of tariff and consists of a schedule of duties in which the rate applies to imports from all countries on the same basis. import restrictions or quotas. The principle ones are as follows:  Product decisions .collection.disclosure of information. Tariff systems Tariff systems provide either a single rate of duty for each item applicable to all countries. Some of the most widely used are the International Chamber of Commerce. labelling.

The conventional rates. and Japan. preference schemes that are part of a formal economic integration treaty. such as the British Commonwealth preferences and similar arrangements that existed before the GATT convention. Major trading nations that are not members of the Brussels convention on customs valuation are the USA and Canada. but there are exceptions. and the granting of preferential access to industrial country markets to companies based in less-developed countries. particularly in countries that have experienced sustained inflation. Ad valorem duties: This duty is expressed as a percentage of the value of goods. which use FOB costs as the basis of valuation. This cost should reflect the arm's-length price of the goods at the time the duty becomes payable. for example. or as a combination of both of these methods. nations agree to apply their most favourable tariff or lowest tariff rate to all nations who are signatories to GATT. which uses CIF value. A uniform basis for the valuation of goods for customs purposes was elaborated by the Customs Cooperation Council in Brussels and was adopted in 1953. must be multiplied by an established conversion factor to obtain the corresponding amount of escudos. one dollar per pair. The definition of customs value varies from country to country. therefore. In the Chilean tariff. GATT prohibits the use of preferential tariffs with the major exceptions of historical preference schemes. such as free-trade areas or common markets. length or number of other units of measurements. are supplied to all countries enjoying MFN (most favoured nation) treatment within the framework of GATT. Types of duty Customs duties are of two different types. Specific duties are usually expressed in the currency of the importing country. Therefore an exporter is well advised to secure information about the valuation practices applied to his product in the country of destination. with some substantial exceptions. the customs value is landed CIF cost at the port of entry. for example those agreed upon by "convention". rates are given in gold pesos and. the initial single column of duties is supplemented by a second column of "conventional" duties which show reduced rates agreed through tariff negotiations with other countries. In countries adhering to the Brussels convention on customs valuation. or as a percentage of the value of the goods or ad valorem. Specific duties: These duties are expressed as a specific amount of currency per unit of weight. They are calculated either as a specific amount per unit or specific duty. Under GATT. . fifty US cents per pound.Two-column tariff: Under the two-column tariff. Preferential tariff A preferential tariff is a reduced tariff rate applied to imports from certain countries. twenty-five cents per square yard. volume.

in particular. to provide additional protection for local industry and. most countries have introduced legislation providing for the imposition of antidumping duties if injury is caused to domestic producers. Such duties take the form of special additional import charges designed to cover the difference between the export price and the "normal" price. Anti-dumping dunes: The term dumping refers to the sale of a product at a price lower than that normally charged in a domestic market or country of origin. For example. Such "border tax adjustments" must not. The implementation of such a program would involve major marketing investments by the Jaguar Motor Company in establishing distribution. according to GATT. It would also involve significant expenditures in designing the car to appeal to the needs of the Japanese customer. Temporary import surcharges: Temporary surcharges have been introduced from time to time by certain countries. Other import charges Variable import levies: Several countries. Compensatory import taxes: In theory these taxes correspond with various international taxes. advertising and promotion. EU imposition of a tax on imported horticultural products. in response to balance of payments deficits. training and developing organisations to market the car in Japan.Alternative duties: In this case both ad valorem and specific duties are set out in the custom tariff for a given product. the applicable rate is the one that yields the higher amount of duty. For example. one of the major tax inequities today is the fact that manufacturers in value-added tax (VAT) countries do not pay a value added tax on sales to non-VAT countries such as the USA while USA manufacturers who pay income taxes in the USA must also pay VAT taxes on sales in VAT countries. including Sweden and the European Union. Compound or mixed duties: These duties provide for specific plus ad valorem rates to be levied on the same articles. Normally. although there are cases where the lower is specified. apply a system of variable import levies to their imports of various agricultural products. such as the UK and the USA. The objective of these levies is to raise the price of imported products to the domestic price level. which usually refers to the price paid by consumers in the exporting countries. a Jaguar car made in the UK and sold in Japan would be three times its UK value. Anti-dumping duties are almost invariably applied to articles that are produced in the importing country. . amount to additional protection for domestic producers or to a subsidy for exports. In practice. To offset the impact of dumping. Adaptation to meet local requirements: The impact of adaptation to conform to local safety and other requirements can be crippling. An alternative approach to the Japanese market would be to begin with the Japanese customer to identify the customer's wants and needs and to design a product for that market or to adapt the design to a world design that would fit the needs and wants in both the domestic and the Japanese markets. such as value-added taxes and sales taxes.

In India itself we have the Kumaramangalam Birla code as a result of the committee headed by him at the behest of the SEBI. When investments take place in emerging markets. the investors want to be sure that not only is their capital handled effectively and adds to the creation of wealth. has made the market the most decisive factor in settling economic issues. The concept of government controlling the commanding heights of the economy has been given up. Corporate governance represents the value framework. the ethical framework and the moral framework under which business decisions are taken.Economic Envirnment Book pg no. however. in turn. The codes. Corporate governance therefore calls for three factors: Transparency in decision-making  Accountability which follows from transparency because responsibilities could be  fixed easily for actions taken or not taken. and The accountability is for the safeguarding the interests of the stakeholders and the  investors in the organization Implementation of corporate governance has depended upon laying down explicit codes. it has become the conventional wisdom all over the world that market dynamics must prevail in economic matters. Ultimately effective corporate . In other words. This. The first is that after the collapse of the Soviet Union and the end of the cold war in 1990. but the business decisions are also taken in a manner which is not illegal or involving moral hazard. can only be a guideline. run competently but they also have good corporate governance. which enterprises and the organizations are supposed to observe.75 to83 Module 5 Corparate governance The word ‘corporate governance’ has become a buzzword these days because of two factors. Earlier we had these CII coming up with the code for corporate governance recommended by the committee headed by Shri Rahul Bajaj. This has also coincided with the thrust given to globalization because of the setting up of the WTO and every member of the WTO trying to bring down the tariff barriers. the investors want to be sure that not only are the capital markets or enterprises with which they are investing. when investments take place across national borders.

drawing on international best practice and based on the work done over the past 18 months to develop an Africa standard. do the India managements really believe in corporate governance? Corporate governance depends upon two factors. The second priority is for a national monitoring and reporting system led by government and parliament to be established. The association of the accounting firm Anderson has also raised a doubt about the  credibility of even well regarded global players. These steps would be assisted by NEPAD agreeing an African policy framework for corporate governance. not just regulation. Indicators and standards of Corporate Governance The above points lead to the following observations on appropriate targets. Some of the most important indicators are not the establishment of a legal or regulatory framework. If  public governance is weak. The first is the commitment of the management for the principle of integrity and transparency in business operations. but are operational: – Is there a working structure between national business associations and the government to monitor a programme of education and outreach? – How far is the corporate sector itself engaged in training. treating the subject in its full dimensions of conformance and performance. benchmarks and indicators: The first priority is to agree a national framework for corporate governance suited to national conditions and priorities. The very first issue of corporate governance in India is.governance depends upon the commitment of the people in the organization. and developing and rolling out corporate governance policies? – Are professional organisations engaged in setting and monitoring standards? – Is there a national institution capable of training and development? . The second is the legal and the administrative framework created by the government. and as a lever for change. To succeed this must involve the private sector and professional bodies. we cannot have good corporate governance.

K mangalam birla report Naresh Chandra report Book pg no. The international monetary fund’s balance of payment manual defines FDI as an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor. Foreign direct investment: Indian scenario Foreign Direct Investment (FDI) is permitted as under the following forms of investments – Through financial collaborations. . and a report could be compiled on an annual basis. Is the process whereby residents of one country (the source country) acquire ownership of assets for the purpose of controlling the production. distribution. Through capital markets via Euro issues. The united nations 1999 world investment report defines FDI as ‘an investment involving a long term relationship and reflecting a lasting interest and control of a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor ( FDI enterprise. The investors’ purpose being to have an effective voice in the management of the enterprise’. set up a monitoring or compliance mechanism? – What resources are provided to the company registrar and departments and governments? A reporting grid including these factors could be developed with the participation of the stakeholders. Through joint ventures and technical collaborations. affiliate enterprise or foreign affiliate). and other activities of a firm in another country (the host country). 214 Module 6 About foreign direct investment. Through private placements or preferential allotments. in conjunction with representatives from business associations and the professions.– Has parliament.

would need to obtain prior FIPB clearance before seeking final approval from Ministry of Finance. petroleum exploration and refining. Clearance from FIPB – There is no restriction on the number of Euro-issue to be floated by a company or a group of companies in the financial year.Forbidden Territories – FDI is not permitted in the following industrial sectors: Arms and ammunition. capital expenditure including domestic purchase/installation of plant. A company engaged in the manufacture of items covered under Annex-III of the New Industrial Policy whose direct foreign investment after a proposed Euro issue is likely to exceed 51% or which is implementing a project not contained in Annex-III. Use of GDRs – The proceeds of the GDRs can be used for financing capital goods imports. 2. GDR investments are treated as FDI and are designated in dollars and are not subject to any ceilings on investment. equipment and building and investment in software development. This condition would be relaxed for infrastructure projects such as power generation. Foreign Investment through GDRs (Euro Issues) – Indian companies are allowed to raise equity capital in the international market through the issue of Global Depository Receipt (GDRs). ports. An applicant company seeking Government's approval in this regard should have consistent track record for good performance (financial or otherwise) for a minimum period of 3 years. 1. airports and roads. Atomic Energy. Railway Transport. . prepayment or scheduled repayment of earlier external borrowings. telecommunication. and equity investment in JV/WOSs in India. Coal and lignite.

3. Restrictions – However, investment in stock markets and real estate will not be permitted. Companies may retain the proceeds abroad or may remit funds into India in anticipation of the use of funds for approved end uses. Any investment from a foreign firm into India requires the prior approval of the Government of India. Foreign direct investments in India are approved through two routes – 1. Automatic approval by RBI – The Reserve Bank of India accords automatic approval within a period of two weeks (subject to compliance of norms) to all proposals and permits foreign equity up to 24%; 50%; 51%; 74% and 100% is allowed depending on the category of industries and the sectoral caps applicable. The lists are comprehensive and cover most industries of interest to foreign companies. Investments in high-priority industries or for trading companies primarily engaged in exporting are given almost automatic approval by the RBI. 2. The FIPB Route – Processing of non-automatic approval cases – FIPB stands for Foreign Investment Promotion Board which approves all other cases where the parameters of automatic approval are not met. Normal processing time is 4 to 6 weeks. Its approach is liberal for all sectors and all types of proposals, and rejections are few. It is not necessary for foreign investors to have a local partner, even when the foreign investor wishes to hold less than the entire equity of the company. The portion of the equity not proposed to be held by the foreign investor can be offered to the public.

Introduction to FII Since 1990-91, the Government of India embarked on liberalization and economic reforms with a view of bringing about rapid and substantial economic growth and move towards globalization of the economy. As a part of the reforms process, the Government under its New Industrial Policy revamped its foreign investment policy recognizing the growing importance of foreign direct investment as an instrument of technology transfer, augmentation of foreign exchange reserves and globalization of the Indian economy. Simultaneously, the Government, for the first time, permitted portfolio investments from abroad by foreign institutional investors

in the Indian capital market. The entry of FIIs seems to be a follow up of the recommendation of the Narsimhan Committee Report on Financial System. While recommending their entry, the Committee, however did not elaborate on the objectives of the suggested policy. The committee only suggested that the capital market should be gradually opened up to foreign portfolio investments. Market design in India for foreign institutional investors Foreign Institutional Investors means an institution established or incorporated outside India which proposes to make investment in India in securities. A Working Group for Streamlining of the Procedures relating to FIIs, constituted in April, 2003, inter alia, recommended streamlining of SEBI registration procedure, and suggested that dual approval process of SEBI and RBI be changed to a single approval process of SEBI. This recommendation was implemented in December 2003. Currently, entities eligible to invest under the FII route are as follows: i) As FII: Overseas pension funds, mutual funds, investment trust, asset management company, nominee company, bank, institutional portfolio manager, university funds, endowments, foundations, charitable trusts, charitable societies, a trustee or power of attorney holder incorporated or established outside India proposing to make proprietary investments or with no single investor holding more than 10 per cent of the shares or units of the fund). (ii) As Sub-accounts: The sub account is generally the underlying fund on whose behalf the FII invests. The following entities are eligible to be registered as sub-accounts, viz. partnership firms, private company, public company, pension fund, investment trust, and individuals. A Foreign Institutional Investor may invest only in the following:(a) Securities in the primary and secondary markets including shares, debentures and warrants of companies, unlisted, listed or to be listed on a recognized stock exchange in India. (b) units of schemes floated by domestic mutual funds including Unit Trust of India, whether listed or not listed on a recognised stock exchange. (c) Dated Government securities. (d) Derivatives traded on a recognised stock exchange. (e) Commercial paper.

(f) Security receipts. Need and components of foreign capital Foreign capital has a key role to play in the economic development of India. It is recognized that almost third share of the investment in India is by NRI. Indian government has been continuously proceeding for economic reforms and is quiet assure to secure legislation to allow more foreigninvestment in areas such as insurance. On top of it, the Government knows the key role of Foreign Direct Investment (FDI) in economic development not only as an addition to domestic capital but also as an important source of technology and global best practices. Foreign direct investment (FDI) has always played a major role in the economic development of developing nations like India after playing the leading source of external financing in 1990s. India has now become the third most favored destination for Foreign Direct Investment (FDI), behind China and the USA. With an increase of 18.6 per cent from U.S.$ 2,696 million in 1996-97 to U.S.$ 3,197 million in 1997- 98. With this FDI inflow in the country rose nearly three-fold to $15 billion in 2006-07 as the world's second-fastest growing economy attracting investors from across the world. The rise in FDI volume has changed the composition of market resulting investment happening in the form of acquisition of existing assets (mergers and acquisitions) growing much more rapidly than investment in new assets particularly in countries undertaking extensive privatization of public enterprises. According to the Global Development Finance report, the net private capital flows to developing countries reached a record $647 billion in 2006 – a 17 percent increase from the year before. However, only about 8 percent of that capital flowed to the poorest 51 countries showing India as the most important of the other growth markets in Asia. The country has achieved steady economic growth, with an increase of 7 per cent in 2005 alone after starting the gradual economic liberalization process in 1991. Now the country has a liberal and transparent FDI policy. Still the government needs to focus on the real barriers to its foreign investment goals – namely inflexible labor laws and poor roads and other infrastructure. Also there is a need for higher foreign investment, in the form of foreign direct investment (FDI) and FII. These type of investment initiates technology spillovers, assists human capital formation, contributes to international trade integration and particularly exports, helps create a more competitive business environment, enhances enterprise development, increases total factor productivity and, more generally, improves the efficiency of resource use. Over the past few years the far-reaching measures introduced by the government to liberalize the Indian market and integrate it with the global economy are widely acknowledged. The value of foreign trade has increased substantially with increase in both exports from and imports into

and insolvency codes. It helps in developing .India. the SEZs would offer world class infrastructure In the manufacturing sector. Some of the biggest advantages of FDI enjoyed by India have been listed as under: Economic growth. FDI is also claimed to have lowered few regulatory standards in terms of investment patterns. takeover rules. FDI has been a booming factor that has bolstered the economic life of India.FDI apparently helps in the outsourcing of knowledge from India especially in the Information Technology sector. Whereas. companies have consolidated around their area of core competence by tying up with foreign companies to acquire new technologies. the establishment of Special Economic Zones (SEZ) policy to boost exports and attract foreign investments. A remarkable inflow of FDI in various industrial units in India has boosted the economic life of country. smooth functioning of the market for corporate control would be assisted by greater international compatibility of accounting standards. Products of superior quality are manufactured by various industries in India due to greater amount of FDI inflows in the country. and employment opportunities in the developing countries. The cost benefits associated with this sector have positioned India as a favorite destination for manufacturing and sourcing for global markets.FDI has also ensured a number of employment opportunities by aiding the setting up of industrial units in various corners of India. Employment and skill levels. Technology diffusion and knowledge transfer. but on the other hand it is also being blamed for ousting domestic inflows.This is one of the major sectors. In addition to this. In the financial sector it is required that public policy should be focused on maximizing benefits achieved by the growing involvement of foreign firms by encouraging diversity and competition not only between foreign and domestic banks but also between banks and financial institutions. Here. The incorporation of a range of well-composed and relevant policies will boost up the profit ratio from Foreign Direct Investment higher. management expertise and access to foreign markets. The effects of FDI are by and large transformative. Advantages and disadvantages of foreign investments inflows Benefits of Foreign Direct InvestmentAttracting foreign direct investment has become an integral part of the economic development strategies for India. Trade.Foreign Direct Investments have opened a wide spectrum of opportunities in the trading of goods and services in India both in terms of import and export production. This can be justified by the statement that the total volume of foreign trade in 2001-02 was over US$ 95 billion. which is enormously benefited from foreign direct investment. production level. FDI ensures a huge amount of domestic capital. in April 2000. which is a major step towards the economic growth of the country.the government had announced.

Disadvantages Foreign investors are exploiting workers in poor countries and initiating a "race to the bottom" in environmental and labor standards. In order to absorb the FDI entering the Indian economy. The FDI theories listing the FDI disadvantages include the increased liquidity and consequent inflation due to excessive FDI inflow in India. The extent to which foreign investment can help or harm the poor largely depend upon what governments and firms choose to do. The foreign direct investment advantages lay in the fact that equity participation form foreign investors brings larger infrastructure base for the project but the FDI disadvantages of losing the ownership rights to a foreign company makes it a cautious decision. In this context World Bank President James D. The maximum amount of the profits gained by the foreign firms through these joint ventures is spent on the Indian market. Wolfensohn predicted that between 20. FDI and GDP in India working together and brining the reforms to the economics in India.000 more children may die worldwide and some 10 million more people may be condemned to live below the poverty line of one dollar a day because of the global economic aftershocks. Many multinational companies voluntarily adopt environmental.Various foreign firms are now occupying a position in the Indian market through Joint Ventures and collaboration concerns. However the FDI benefits include better efficiency in funds management in India and thus improvisations in the quality standards. The FDI policy 2007 ascertains regulations on the FDI stocks and this may reduce the foreign direct investment confidence as closing the doors of industrial relations with foreign investors with only hamper the FDI and economic growth in India coordination. social.000 and 40. Chile and Ireland which demonstrate how foreign direct investment (FDI) . When international flows of capital falter there's evidence that the poor in developing countries suffer the most.the know-how process in India in terms of enhancing the technological advancement in India. Linkages and spillover to domestic firms. and governance practices designed precisely to guard against abuse of the environment and the workforce when they invest in developing countries. But governments . FDI Advantages and Disadvantages The FDI norms in real estate sector as well as in the retail sector are also predetermined by the GoI after a careful study of the foreign direct investment pros & cons. China. The experience comes from countries like Singapore. the rupee is being pressurized.with its transfer of technical and organizational innovations and best practices stimulate rapid growth in incomes for all members of society.

worker training. Clear the way for free entry and exit in domestic markets by creating competition in product and labor markets and incentives to upgrade productivity and to prevent exploitation of consumers and workers. Note: Not in notes…… Module 1: book 4 onwards Module4: nothing Module 6: multinational in india Module 7: book 422-450 .in developing countries should facilitate and encourage the transfer of this social and environmental practice and maximize the benefits from FDI. Promote education. and infrastructure to increase domestic capacity to absorb and diffuse good new practices introduced by foreign investors . A Government keen to ensure FDI is truly pro-poor should follow the following points. Create a policy framework that encourages the adoption of appropriate social and environmental standards in corporate practices.