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TUTOR MARKED ASSIGNMENT

COURSE CODE : IBO-01
COURSE TITLE : International Business Environment
ASSIGNMENT CODE : IBO-01/TMA/2023-2024
COVERAGE : ALL BLOCKS
Maximum Marks: 100
Attempt all the questions:

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1. a) Define international business environment. Differentiate between micro and (10+10)
macro environment with examples.
b) What is political risk? Discuss the major types of political risk with
examples.

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2. a) Explain various theories explaining emergence of TNCs in the world (10+10)
economy.

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b) Highlight the main advantages and disadvantages of TNCs operations for
the host country and the investing country.

3. Comment on the following: (4×5)

a)
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Tariff barriers are not the only instrument to restrict trade and give
protection to the domestic import competing industry.
b) All contracts are agreements but all agreements are not contracts.
c) Indian foreign trade policy does not facilitate the import of technology.
d) In the neoclassical model free trade not only equalises the relative
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commodity price in the two countries but also equalises the relative wage
rate.
4. Distinguish between: (4×5)
a) Custom union and Common market
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b) GATT and WTO

c) Export sales contract and Domestic sales contract
d) Express contract and Implied contract
5. Write short notes on the following: (4×5)
E

a) Porter's view of Globalization

b) Hosmer's model for ethical analysis
OTH

c) Role of services in economic development

d) Sales of goods act, 1930

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IBO-01

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SOLVED ASSIGNMENT 2023-24

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229
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Q.1 - a) Define international business environment. Differentiate between micro
and macro environment with examples.

ANS.- International Business Environment:

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The international business environment refers to the set of external factors and conditions that
impact the operations, strategies, and decisions of businesses operating across national
borders. It encompasses various economic, political, social, cultural, technological, and legal
RP

factors that create opportunities and challenges for international companies. Understanding
and adapting to the international business environment is crucial for firms to succeed in global
markets.

Micro vs. Macro Environment:

E

The micro and macro environments are two distinct levels of analysis within the broader
OTH

international business environment. They help businesses assess the specific factors directly
affecting their operations (micro) and the broader contextual factors influencing the entire
business environment (macro).

Micro Environment: The micro environment comprises factors that are closely connected to a
specific company's operations and have a direct impact on its success. These factors are within
the control of the company and include suppliers, customers, competitors, distributors, and
other stakeholders. For instance, if a multinational technology company like Apple wants to

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expand its market share in a foreign country, it needs to consider its relationships with local
suppliers, competitive pricing strategies, and customer preferences specific to that market.

Macro Environment: The macro environment consists of external factors that are beyond the
control of any individual company but significantly influence the overall business environment.
These factors include economic conditions, political stability, cultural norms, technological

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advancements, legal and regulatory frameworks, and global trends. For example, a
pharmaceutical company seeking to operate internationally must navigate different regulatory
requirements for drug approvals and pricing in various countries, as well as consider the
economic conditions that could affect the purchasing power of consumers in those markets.

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In summary, the international business environment encompasses both micro and macro

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factors. The micro environment focuses on factors directly affecting a company's operations,
such as its immediate market dynamics and stakeholders. In contrast, the macro environment
considers the broader context in which the company operates, including economic, political,
and cultural influences. Successfully navigating these environments is essential for international
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businesses to make informed decisions, formulate effective strategies, and adapt to the
complexities of global markets.
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b) What is political risk? Discuss the major types of political risk with examples.

ANS.- Political Risk: Understanding its Nature and Types

RP

Political risk refers to the potential adverse impact on business operations and investments due
to political factors and events within a particular country or region. These risks can stem from
changes in government policies, regulations, instability, conflicts, and other political
uncertainties that may affect the economic and social landscape. Understanding and managing
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political risk is crucial for businesses and investors to make informed decisions and safeguard
their interests.
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Major Types of Political Risk:

1. Regulatory Risk: This type of risk involves changes in laws, regulations, and policies that
can impact businesses. For instance, sudden shifts in tax policies or trade regulations
can significantly affect international companies. An example is the imposition of tariffs
by the United States on imported steel and aluminum, leading to uncertainty for
companies relying on these materials.

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2. Sovereign Risk: Sovereign risk refers to the potential for a government to default on its
financial obligations. This can happen due to economic instability, high levels of debt, or
political mismanagement. An illustrative case is Greece's financial crisis in 2010, where
concerns over the country's ability to service its debt led to market turmoil.

3. Operational Risk: Operational risk arises from the potential disruption of business

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operations due to political events. This includes civil unrest, terrorism, or conflict that
could impact a company's facilities, supply chains, or employees. The ongoing conflict in
Syria has caused significant operational challenges for companies operating in the
region.

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4. Expropriation and Nationalization Risk: Expropriation occurs when a government seizes

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private assets without adequate compensation. Nationalization involves the
government taking control of private industries. Venezuela's nationalization of its oil
industry in the early 2000s serves as a notable example, causing significant losses for
foreign investors. 999
5. Transfer Risk: Transfer risk refers to limitations on the movement of funds across
borders due to government policies or economic instability. Investors may face
challenges repatriating profits or capital from countries with strict currency controls.
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Argentina's history of currency restrictions and devaluations has created transfer risk for
foreign businesses.

6. Political Violence Risk: This type of risk includes events like civil unrest, riots, and coups
that can disrupt normal business operations and lead to physical harm. The Arab Spring
RP

uprisings in several Middle Eastern countries in 2011 had far-reaching impacts on

businesses in the region.

In conclusion, political risk encompasses a range of uncertainties arising from political factors
that can influence business and investment outcomes. The various types of political risk,
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including regulatory, sovereign, operational, expropriation, transfer, and political violence risks,
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pose challenges for businesses and investors operating in different regions. Managing and
mitigating these risks often involve thorough analysis, diversification of investments, and
staying well-informed about political developments.

Q.2 - a) Explain various theories explaining emergence of TNCs in the world

economy.

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ANS.- Theories Explaining the Emergence of Transnational Corporations (TNCs) in the World
Economy

Transnational Corporations (TNCs) are business entities that operate in multiple countries,
exerting significant influence on the global economy. The emergence of TNCs can be
understood through various economic and sociopolitical theories:

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1. Market Imperfections Theory: According to this theory, TNCs emerge due to
imperfections in national and international markets. Differences in resource
endowments, technology, labor costs, and regulatory environments across countries

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create opportunities for firms to exploit these differences by operating across borders.
TNCs establish subsidiaries and affiliates in different countries to take advantage of

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lower production costs, access to specialized resources, and wider consumer markets.

2. Internalization Theory: This theory focuses on the desire of firms to internalize certain
activities rather than relying solely on market transactions. TNCs emerge when firms
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find it more efficient and profitable to control various stages of production within their
corporate structure rather than relying on external suppliers. This allows them to reduce
transaction costs, maintain quality standards, and protect proprietary technology.

3. Eclectic Paradigm (OLI) Theory: Proposed by economist John Dunning, the OLI
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framework integrates Ownership, Location, and Internalization advantages to explain

TNC emergence. Firms possess ownership-specific advantages (such as advanced
technology or management expertise) that they seek to exploit by locating their
operations in countries with favorable locational advantages (e.g., skilled labor,
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infrastructure). Internalization benefits arise from minimizing risks and maximizing

control.

4. Global Value Chain Theory: TNCs play a pivotal role in global value chains (GVCs), where
production processes are fragmented and distributed across multiple countries. This
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theory highlights how TNCs emerge to coordinate and manage different stages of
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production in diverse locations, optimizing efficiency, cost-effectiveness, and

specialization.

5. Political Economy Theory: This theory emphasizes the role of political and regulatory
factors in shaping the emergence of TNCs. TNCs often emerge in countries with
favorable government policies, including incentives, tax breaks, and regulatory leniency.
Furthermore, geopolitics and international relations influence TNC activities, as they
navigate diplomatic and economic considerations.

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6. Technological Advancement and Innovation Theory: TNCs often arise as a result of

technological advancements that enable firms to create, transfer, and utilize knowledge
across borders. As technology becomes more complex and specialized, TNCs facilitate
the global diffusion of innovation, fostering international cooperation and collaboration.

In conclusion, the emergence of Transnational Corporations (TNCs) is a complex phenomenon

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influenced by a combination of market imperfections, internalization motives, ownership
advantages, global value chain dynamics, political considerations, and technological
advancements. These theories collectively offer insights into why firms choose to expand their
operations beyond national borders, contributing to the interconnected and interdependent

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nature of the modern global economy.

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b) Highlight the main advantages and disadvantages of TNCs operations for the
host country and the investing country. 999
ANS.- Advantages and Disadvantages of TNCs Operations

Host Country:
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Advantages: Foreign Direct Investment (FDI): Transnational corporations (TNCs) bring

substantial FDI to host countries, which can boost economic growth, create jobs, and stimulate
technological advancement. TNCs often invest in infrastructure, training, and research,
contributing to the development of local industries.
RP

Employment Opportunities: TNCs can provide employment opportunities, both directly through
their operations and indirectly through their supply chains. This helps alleviate unemployment
and improves the standard of living for local communities.
E

Technology Transfer: TNCs introduce advanced technologies, management practices, and skills
to host countries. This can lead to improved productivity, increased competitiveness, and the
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development of local innovation capabilities.

Export Opportunities: TNCs often use host country locations for export-oriented manufacturing.
This can help diversify the host country's exports and contribute to foreign exchange earnings.

Disadvantages: Dependency and Control: Host countries may become overly reliant on TNCs,
leading to a loss of control over key industries and resources. This dependency can make the
host country vulnerable to fluctuations in TNCs' decisions.

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Environmental Impact: TNCs may prioritize profit over environmental sustainability, leading to
pollution, resource depletion, and inadequate waste management. This can harm local
ecosystems and public health.

Labor Exploitation: Some TNCs may exploit cheap labor in host countries, paying low wages and
offering poor working conditions. This can lead to labor rights violations and social unrest.

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Cultural Erosion: The presence of TNCs can lead to the spread of foreign cultures and values,
potentially eroding local traditions and identity.

Investing Country:

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Advantages: Profit Generation: Investing countries benefit from increased profits and market

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expansion in host countries, contributing to economic growth and shareholder returns.

Diversification: TNCs can diversify their operations across multiple countries, reducing risks
associated with dependence on a single market.
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Access to Resources: TNCs gain access to local resources and markets in host countries, which
can help secure raw materials and expand their customer base.

Knowledge and Innovation: Operating in diverse environments exposes TNCs to new ideas and
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practices, fostering innovation and adaptation.

Disadvantages: Reputation Risks: TNCs may face criticism if their operations in host countries
lead to environmental degradation, labor rights abuses, or other unethical practices.
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Regulatory Challenges: Different legal and regulatory frameworks in host countries can pose
challenges for TNCs, requiring adaptation and compliance with varying standards.

Political Instability: TNCs may face risks in countries with political instability, including changes
in government policies, nationalization of assets, or social unrest.
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Profit Repatriation Restrictions: Some host countries impose restrictions on profit repatriation,
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which can hinder TNCs' ability to transfer funds back to the investing country.

In conclusion, TNCs bring both advantages and disadvantages to host and investing countries.
While they can stimulate economic growth, create jobs, and promote technological transfer,
TNCs can also lead to dependency, environmental degradation, and labor exploitation.
Investing countries benefit from increased profits and market access, but they must navigate
regulatory complexities and potential reputation risks. Balancing these factors is crucial for
fostering a mutually beneficial relationship between TNCs, host countries, and investing
countries.

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Q.3 - Comment on the following:

a) Tariff barriers are not the only instrument to restrict trade and give
protection to the domestic import competing industry.

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ANS.- Tariff barriers and Trade Restrictions: Beyond Tariffs for Protection

Tariff barriers, while prominent, are not the sole means of trade restriction. Non-tariff barriers

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(NTBs) such as quotas, embargoes, licensing requirements, and technical standards also hinder
international trade. NTBs can protect domestic industries by limiting imports, preserving

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domestic market share. These barriers might be used for reasons other than protectionism, like
ensuring product safety. Moreover, trade-restricting policies include subsidies, exchange rate
manipulation, and intellectual property regulations. These instruments can indirectly benefit
domestic industries by affecting production costs and market competitiveness. In recent times,
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trade disputes often revolve around non-tariff barriers due to their subtler nature and their
ability to circumvent direct tariff negotiations.
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b) All contracts are agreements but all agreements are not contracts.

ANS.- Agreements vs. Contracts: Defining Legal Relationships

RP

Agreements and contracts share a connection, but they differ in legal implications. An
agreement refers to mutual understanding between parties about a particular matter. It can be
verbal or written and doesn't necessarily have legal enforceability. On the other hand, a
contract is a legally binding agreement that entails obligations, rights, and consequences if
E

breached. For a contract to exist, certain criteria like offer, acceptance, consideration, and
intention to create legal relations must be met. Therefore, while all contracts are agreements,
OTH

not all agreements become contracts. Contracts have legal remedies in case of breaches,
ensuring parties adhere to their commitments, while non-contractual agreements lack such
enforceability.

c) Indian foreign trade policy does not facilitate the import of technology.

ANS.- Indian Foreign Trade Policy and Technology Import

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India's foreign trade policy aims at various objectives, including economic growth, employment,
balance of payments, and self-reliance. While the policy doesn't explicitly discourage
technology imports, certain regulations, like intellectual property rights (IPR) protection, can
affect technology transfer. India's approach to technology import has evolved, from more
restrictive measures to fostering innovation and technology absorption. Initiatives like "Make in

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India" emphasize domestic production, but the policy also acknowledges the importance of
technology collaboration and foreign direct investment (FDI) for economic development. While
certain industries might face technology-related challenges, India's foreign trade policy does
recognize the significance of integrating technology to enhance competitiveness and economic
progress.

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d) In the neoclassical model free trade not only equalises the relative
commodity price in the two countries but also equalises the relative wage rate.

ANS.-
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Neoclassical Model and Free Trade's Impact on Commodity Prices and Wages

In the neoclassical model, free trade plays a pivotal role in equalizing relative commodity prices
between two countries. This phenomenon is described by the principle of comparative
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advantage, where each country specializes in producing goods they are relatively more efficient
at, thus leading to efficient resource allocation. However, the assertion that free trade also
equalizes relative wage rates might not hold true in all scenarios. While free trade can lead to
wage convergence over time, several factors come into play, such as labor mobility, differences
RP

in labor productivity, technological disparities, and institutional variations. The model's

assumptions simplify the complexities of the real world, where wage equalization might not
occur instantly or uniformly due to these multifaceted factors.
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Q.4 - Distinguish between:

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a) Custom union and Common market

ANS.- Custom Union vs. Common Market:

Custom Union: A custom union is a trade agreement where member countries eliminate
internal tariffs and adopt a common external tariff on imports from non-member countries. It
aims to create a unified external trade policy while facilitating free trade within the union.
Custom unions don't necessarily harmonize other economic policies.

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Common Market: A common market builds upon the concept of a custom union by removing
not only internal tariffs but also barriers to factors of production, including labor and capital
mobility. In addition to a common external tariff, common markets aim to achieve a higher
degree of economic integration by allowing for the free movement of goods, services, capital,
and labor among member states. This implies a deeper level of coordination and harmonization

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of economic policies.

b) GATT and WTO

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ANS.- GATT vs. WTO:

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General Agreement on Tariffs and Trade (GATT): GATT was an international trade agreement
that aimed to promote global economic cooperation by reducing tariffs and other trade
barriers. It was established in 1947 and provided a framework for negotiations on trade
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liberalization. Unlike the World Trade Organization (WTO), GATT primarily focused on trade in
goods and lacked a formal institutional structure.

World Trade Organization (WTO): The WTO, established in 1995, succeeded GATT and
expanded its scope to include services, intellectual property, and dispute resolution
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mechanisms. It provides a formal institutional framework for managing global trade rules and
disputes. Unlike GATT, the WTO has more comprehensive agreements and a Dispute
Settlement Body that enforces its rules.
RP

c) Export sales contract and Domestic sales contract

ANS.- Export Sales Contract vs. Domestic Sales Contract:

E

Export Sales Contract: An export sales contract is an agreement between a seller in one
OTH

country and a buyer in another country for the sale of goods across international borders. It
includes terms related to product specifications, pricing, delivery, payment methods, and other
relevant conditions. Export contracts often consider additional factors like customs duties,
shipping, and international regulations.

Domestic Sales Contract: A domestic sales contract is an agreement between a seller and a
buyer within the same country. It covers the terms of sale for goods or services within the
domestic market. While it also includes product details, pricing, delivery, and payment terms, it

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doesn't need to address international considerations such as customs procedures or

export/import regulations.

d) Express contract and Implied contract

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ANS.- Express Contract vs. Implied Contract:

Express Contract: An express contract is a legally binding agreement in which the parties
explicitly state the terms and conditions of their agreement, either in writing or orally. All

0
essential elements of the contract, such as the parties' obligations, the subject matter, price,

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and other terms, are clearly outlined. Express contracts leave no room for ambiguity since the
terms are explicitly stated.

Implied Contract: An implied contract is a legally enforceable agreement where the terms and
obligations are inferred from the parties' actions, conduct, or circumstances, rather than being
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explicitly stated. Implied contracts arise when parties act in a way that suggests a mutual
understanding and intention to create a contract, even if the terms are not expressly discussed.
Courts may enforce implied contracts to ensure fairness and uphold the parties' intentions as
reasonably implied from their behavior.
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Q.5 - Write short notes on the following:

RP

a) Porter's view of Globalization

ANS.- Porter's View of Globalization:

Michael Porter, a renowned economist, proposed a unique perspective on globalization. Unlike

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the common notion of globalization leading to a homogenized global market, Porter

OTH

emphasized the concept of "clusters." He argued that globalization does not necessarily erase
regional differences; rather, it intensifies the importance of local competitiveness. Porter's
theory highlighted that industries and companies tend to cluster in specific geographic areas
due to various factors like skilled workforce, local suppliers, and supportive institutions. These
clusters become centers of innovation, competition, and productivity, enhancing the global
competitiveness of the region. This view suggests that globalization can amplify regional
advantages and promote specialized areas of expertise, leading to a more diverse and dynamic
global economy.

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b) Hosmer's model for ethical analysis

ANS.- Hosmer's Model for Ethical Analysis:

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Hosmer's Ethical Analysis Model is a framework designed by LaRue Hosmer to aid in ethical
decision-making within organizations. The model consists of five steps:

1. Recognition: Identifying the ethical issue at hand.

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2. Identification: Gathering relevant information and perspectives about the issue.

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3. Decision: Evaluating potential courses of action and their consequences.

4. Implementation: Putting the chosen decision into action.

5. Monitoring and Learning: Assessing the outcome and reflecting on the process for
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future improvements.

Hosmer's model encourages a systematic approach to ethical dilemmas, promoting a well-

informed decision that considers the interests of stakeholders and the overall ethical climate
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within an organization.

c) Role of services in economic development

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ANS.- Role of Services in Economic Development:

Services play a pivotal role in economic development due to several reasons:

E

1. Employment Generation: The service sector is labor-intensive, providing numerous job

opportunities, especially for those with diverse skills.
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2. Income Generation: Services contribute significantly to GDP, leading to increased

income and improved living standards.

3. Innovation: Knowledge-based services like technology, research, and consulting drive

innovation and competitiveness.

4. Export Potential: Many services, such as IT, finance, and tourism, can be exported,
contributing to foreign exchange earnings.

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5. Multiplier Effect: Growth in the service sector stimulates demand for goods, benefiting
other sectors.

6. Human Capital Development: Education, healthcare, and social services enhance

human capital, a critical factor in development.

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7. Urbanization: Services often concentrate in urban areas, fostering urban development
and infrastructure growth.

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d) Sales of goods act, 1930

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ANS.- Sales of Goods Act, 1930:

The Sale of Goods Act, 1930, is a significant piece of legislation in various countries, including
India and the UK. It regulates the sale of goods, ensuring fairness and protection for both
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buyers and sellers. Key features include:

1. Goods and Transfer of Ownership: Defines what constitutes "goods" and outlines rules
for transferring ownership.
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2. Conditions and Warranties: Distinguishes between conditions (essential terms) and

warranties (ancillary terms) in a sales contract.

3. Implied Terms: Specifies implied conditions related to title, quality, and fitness for
purpose.
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4. Passing of Property and Risk: Establishes rules for when property and risk in the goods
pass from the seller to the buyer.
E

5. Rights and Remedies: Outlines remedies for breach of contract, such as rejection,
damages, and specific performance.
OTH

6. Unfair Terms: Prohibits unfair and unreasonable contractual terms that heavily favor
one party.

7. Auctions: Provides guidelines for conducting auctions and protecting the interests of
bidders.

The Act ensures a structured framework for commercial transactions, safeguarding the
interests of both parties and promoting fair trade practices.

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