International

Business
Environment &
India
Changes in political system

The international law recognizes the sovereign right of

the nation to allow or deny foreign firms to conduct the
business in to the particular country.

 Factors affecting International Business:

1.Pull factor: Attractiveness of the foreign market,

including relative profitability & growth prospects

2. Push factor: Compulsion of the domestic market, like

saturation of the domestic market, prompting to
internationalized.
Other factors affecting
International Business Environment

 Profit advantage & growth opportunities

 Competition: It may become the driving force for the growth
 Political & Legal difference: Political & legal environment of
the domestic country will be different to that of global
countries. Complexity increases with expansion of the
business in different countries.
 Political & legal forces: Most important considerations are
political & legal forces operative in the particular country.
 Some foreign government are unstable: Private property
destroyed, workforce strike, Unpredictable regime changes.
 Trade& investment restrictions: Government imposes
restrictions on free international exchange of goods.
Other factors affecting
International Business Environment

 Restriction on FDI:
External Factors: Government policies controls cross-border
business, social-political opposition.
Internal Forces: Internal resources of the organization .

 Government policies & Regulations:

Many Government offers incentives to boost the domestic
companies to export & invest in foreign companies.

 Political Factors: Characteristics & policies of political parties.

Policies like fiscal policy, Industrial policy, foreign trade
policy, foreign capital & technology
Types of International
Business
 Trading
 Manufacturing & Marketing
 Outsourcing
 Services
 FDI
 Licensing
 Franchising
 Joint Venture
 Counter Trade
Trade and the Government

 The Govt. has the ability to influence economic

relations with the rest of the world (diversification and
scale of trade).

 There are two opposing ways in which they can achieve

certain goals: protectionism and free trade.

 Both are used for specific reasons with advantages for

both.
Protectionism vs. Free Trade
 Free Trade: when government put in place policies
that allow producers from overseas nations to
freely sell their goods in our country (promote
trade).

 Protectionism: when government put in place

policies to stop overseas producers freely selling
goods in our country (restrict trade).
 Arguments for Protectionism
 Infant Industry:
 New or start up industries that
have not been operating for long

 For: new industries are given the chance to develop

systems and processes to get to the stage that they are
able to compete against larger international
producers (‘grow up’).

 Against: there is no incentive for these industries

to become more efficient whilst continuing to
 Protecting domestic employment:
 While local businesses continue to operate they provide employment.
 Governments will protect our domestic employment levels as this is seen as
‘desirable’ to gain political support (more jobs=more votes). While local
businesses are operating they are providing employment locally.
 ‘Import substitution’ industries: industries that produce substitutions for
imports (creates more jobs in NZ).
 National interest and security:
 The government may see it is in our best interest to keep certain industries
operating, in NZ. e.g Steel and oil production
 E.g. keeping certain industries in NZ in order to maintain control of them, i.e.
buying back $800 million in shares of Air NZ to prevent control shifting more so
overseas.
 E.g. Agricultural industry: in times of hardship with the agricultural industry being
protected, this will enable us to feed our nation.
 Cheap foreign labour:
 Labour should be paid at a rate that recognises the level of productivity. If
NZer’s get a higher wage this should be due to higher levels of productivity,
education, or skill.

 If this is not the case and the wage paid does not recognise the productivity of
the worker, low wage paying countries have an unfair advantage of being able
to produce low cost goods (therefore making our NZ made products less
desirable).
Arguments for Free Trade

 Employment:
 Allowing free trade will open up opportunities for
additional jobs. Not only will it be those directly involved
with the importing of goods and services, but also cost-
effective industries will also open up (due to cheaper
alternatives being available).

 E.g. cheaper imported motor vehicles into NZ has meant that

the costs of all sorts of vehicles is now much lower in real
terms than it was 20 years ago. This has allowed transport
operators to lower their costs, benefiting all industries that
require transport for their business operation
• Efficient use of existing resources
• Free Trade will promote a more efficient use of a nation's resources. As
nations will begin to use resources from production of a good they have a
comparative disadvantage in to be used in the production of a good they
have a comparative advantage in.

• E.g Workers from car manufacturing in NZ being rehired to agricultural

sector.
 Cheaper goods and services
 Free trade allows consumers access to cheaper alternatives as imports become
readily available.
Government Policies for
Protectionism
 Import Decreasing: (To prevent or diminish the amount of imports into NZ)
 Tariff (tax on an imported commodities)
 Quota (limit on quantity imported of certain goods)
 Rules and regulations (govt. rules that restrict entry of some goods and services
to protect local producers)

 Export Increasing: (To increase the amount of Exports we send)

 Subsidies (payment from govt. to reduce production costs, therefore allowing a
greater competitive edge via lowering price)
EXIM POLICY 2015-2020

 Exim Policy or Foreign Trade Policy is a set of guidelines and

instructions established by the DGFT in matters related to the import
and export of goods in India.

 The Foreign Trade Policy of India is guided by the Export Import in

known as in short EXIM Policy of the Indian Government and is regulated
by the Foreign Trade Development and Regulation Act, 1992.

 DGFT (Directorate General of Foreign Trade) is the main governing

body in matters related to Exim Policy. The main objective of the
Foreign Trade (Development and Regulation) Act is to provide the
development and regulation of foreign trade by facilitating imports
into, and augmenting exports from India. Foreign Trade Act has replaced
the earlier law known as the imports and Exports (Control) Act 1947.
EXIM Policy

 Indian EXIM Policy contains various policy related

decisions taken by the government in the sphere of
Foreign Trade, i.e., with respect to imports and exports
from the country and more especially
export promotion measures, policies and procedures
related thereto.
 Trade Policy is prepared and announced by the Central
Government (Ministry of Commerce).
 India's Export Import Policy also know as Foreign Trade
Policy, in general, aims at developing export potential,
improving export performance, encouraging foreign
trade and creating favorable balance of payments
position. 
Objectives

 To accelerate the economy from low level of economic activities to

high level of economic activities by making it a globally oriented
vibrant economy and to derive maximum benefits from expanding
global market opportunities.
 To stimulate sustained economic growth by providing access to
essential raw materials, intermediates, components,' consumables
and capital goods required for augmenting production.
 To enhance the techno local strength and efficiency of Indian
agriculture, industry and services, thereby, improving their
competitiveness.
 To generate new employment.
 Opportunities and encourage the attainment of internationally
accepted standards of quality.
 To provide quality consumer products at reasonable prices.
Red tape/ regulations

 Placing obstacles in the way of another

nations exports.

 E.g the EEC made it more difficult for NZ

producers to sell their meat in European
markets by continually changing the
hygiene regulations that they had to meet
before being allowed to sell their products
in Europe. This increased costs in freeing
works in NZ.
 Subsidies
 Subsidising production effectively lowers cost
and allows them to complete more effectively
against cheaper imported goods.
 Locally made goods become relatively more
cheaper and so consumers
demand more locally made goods and less
imported goods.
 Trade Agreements
• Bilateral:
• Two countries
• CER with Australia (closer economic relation)
• Open access to Australia for NZ producers (and vice versa).

• Multilateral:
• More than one country e.g. European Union (EU)
• GATT which is now the WTO (world trade organisation)
 WTO (World Trade Organisation)
• The only global international organisation dealing with the
rules of trade between nations.

• Their goal is to help producers of goods and services,

exporters and importers conduct their business through:

• Negotiating agreements between member countries/nations aimed at

reducing or eliminating obstacles to international trade (tariffs, rules
and regulations, etc).

• Monitoring the agreements, ensuring member countries are adhering

to the agreements.

• Settling disputes among members (in terms of the interpretation of

the agreements).
 FACT FILE
Location: Geneva, Switzerland
Established: 1 January 1995
Created by: Uruguay Round
negotiations (1986-94)
Membership: 153 countries on 23
July 2008
Budget:
 196 million Swiss francs for
2011

Secretariat staff: 640
Head:
 Pascal Lamy (Director-
General)

Functions:
• Administering WTO trade
agreements
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training
for developing countries
• Cooperation with other
international organizations
EPZs, EOUs, TPs & SEZs
 Asa part of the export promotion drive, Government
have, from time to time, introduced several schemes to
promote units primarily devoted to exports.
Export Processing Zones/EOUs

 Export Processing Zones (EPZs) are usually situated near

seaports or airports. Such zones are provided with well
developed infrastructural facilities. Industrial plots/sheds
are normally made available at concessional rates.
The main objectives of an EPZ are:
1. To earn foreign exchange
2. To generate employment opportunities
3. To facilitate transfer of technology by foreign
investment and other means
4. To contribute to the overall development of the
economy
 The Export Oriented Units (EOUs) scheme, introduced in
early 1981, is complementary to the SEZ scheme.
 It adopts the same production regime but offers a wide
option in locations with reference to factors like source
of raw materials, ports of export, hinterland facilities,
availability of technological skills, existence of an
industrial base and the need for a larger area of land for
the project.
 As on 31st December 2005, 1924 units are in operation
under the EOU scheme
Objectives

 to increase exports,
 earn foreign exchange to the country,
 transfer of latest technologies stimulate direct foreign
investment and
 to generate additional employment.
Concept and Meaning of SEZ
► India was one of the first in Asia to recognize the
effectiveness of the Export Processing Zone (EPZ)
model in promoting exports, with Asia’s first EPZ set
up in Kandla in 1965.
► With a view to overcome the shortcomings
experienced on account of the multiplicity of
controls and clearances; absence of world-class
infrastructure, and  an unstable fiscal regime and
with a view to attract larger foreign investments in
India, the Special Economic Zones (SEZs) Policy  was
announced in April 2000

29 SEZ in India
Definition of SEZ
► Special Economic Zone means an area that has been specified as an enclave
that is duty free and is treated as a foreign territory for various purposes such
as tariffs, trade operations, and duties.

► A Special Economic Zone (SEZ) has economic laws that are more liberal than a
country's typical economic laws.

► The category 'SEZ' covers a broad range of specific zone

► SEZ includes Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free
Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and
others.

30 SEZ in India
 History of Special Economic Zones

► From 1965 onwards, India experimented with the concept

of such units in the form of Export Processing Zones (EPZ).

► But a revolution came in 2000, when Murlisone Maran, then

Commerce Minister, made a tour to the southern provinces
of China. After returning from the visit, he incorporated the
SEZs into the Exim Policy of India. Five year later, SEZ Act
(2005) was also introduced and in 2006 SEZ Rules were
formulated.

31 SEZ in India
objectives of setting up SEZ in India

► Generation of additional economic activity

► Promotion of exports of goods and services
► Promotion of investment from domestic and foreign sources
► Creation of employment
► Development of infrastructure facilities
► Simplified procedures for development, operation, and maintenance
of the Special Economic Zones and for setting up units and conducting
business
► Single window clearance for setting up of a SEZ and an unit in SEZ
► Single window clearance on matters relating to Central as well as
State Governments
► Easy and simplified compliance procedures and documentations with
stress on self certification

32 SEZ in India
Benefits from SEZs
► Investment of the order of Rs.100,000 crore including FDI of
US $ 5-6 billion by the end of December 2007, and
► 500,000 direct jobs by December 2007.
► At present, 1016 units are in operation in the SEZs,
providing direct employment to over 1.79 lakh persons;
about 40 per cent of whom are women.
► Exports from the SEZs during the 10-year period could
touch 352 billion dollars, nearly half of India’s total annual
exports, with IT and ITeS SEZs contributing 30 per cent at
105 billion dollars

33 SEZ in India
Facilities of SEZ in India
► Exemption on duties on Indian capital goods and inputs are
offered as per the requirements of the approved business
activity
► Taxes are either exempted or waived and even reimbursed in
case they are paid in advanced to the concerned authority
► Duty-free imports of spares, raw materials, capital goods, and
consumables are offered as per the requirements of the
approved business activity
► Preferential treatment of these units to the Indian market for
easy dissemination of their products and / or service
► Total tax exemption on corporate incomes as per the
provisions of Section 10 A and 10 B of the Indian Income Tax
Act
► Easy and automatic acceptance system for use of existing
trademarks, brand names and technological know-how

34 SEZ in India
 The main objectives of the
SEZ Act are:

► Generation of additional economic activity;

► Promotion of exports of goods and services;
► Promotion of investment from domestic and
foreign sources;
► Creation of employment opportunities; and
► Development of infrastructure facilities

35 SEZ in India
 The salient features/provisions of
SEZ Rules
► Different minimum land requirement for different class of SEZs;
► Every SEZ is divided into a processing area where alone the SEZ
units would come up and the non-processing area where the
supporting infrastructure is to be created;
► Simplified procedures for development, operation and
maintenance of the Special Economic Zones and for setting up
units and conducting business in SEZs;
► Single window clearance for setting up of an SEZ;
► Single window clearance for setting up a unit in a Special
Economic Zones;
► Single window clearance for matters relating to Central as well as
State Governments;
► Simplified compliance procedures and documentation with an
emphasis on self certification.

36 SEZ in India
SEZ Controversy
► In spite of the strong objectives of the Indian Government
The SES policy is in following controversy
► Generation of little new activity as there may be relocation
of industries to take advantage of tax concessions,
► Revenue loss due to Tax exemption .
► Large-scale land acquisition by the developers, may lead to
displacement of farmers with meager compensation,
► Acquisition of prime agricultural land, having serious
implications for food security,
Misuse of land by the developers for real estate
► Uneven growth aggravating regional inequalities.

37 SEZ in India
SEZs - A global Overview
► World Bank estimates, as of 2007 there are more than 3,000
projects taking place in SEZs in 120 countries worldwide.
► The SEZ concept proved a success in China and Poland. In
China over 20 per cent of Foreign Direct Investment (FDI) flows
into SEZ and generated 10 per cent of exports. Poland's SEZs
received 35 per cent of FDI flows.
► Indian must re-design the SEZ policy to suit its needs and not
borrow the Chinese model.
► SEZs have been implemented using a variety of institutional
structures across the world ranging from fully public
(government operator, government developer, government
regulator) to 'fully' private (private operator, private
developer, public regulator).

38 SEZ in India