INDIAN BUSINESS ENVIRONMENT

Module IBusiness Environment: Environmental scanning – Meaning, nature and scope, economic and non economic environment, interaction between internal and external environment, overview of political, socio-cultural, legal, technological and global environment.

Business:

In simple terms business means an activity, which involves buying and selling of goods and services.

Macro Definition of Business:

“Modern business covers a complex field of industry and commerce which involves activities related to both production and distribution. These activities on the other hand satisfy society’s needs and desires and also buying profit to business firms”.

“Business is that complex field of commerce and industry in which goods and services are created and distributed in the hope of profit written in a frame work of legal requirements”.

Nature of Modern Business [Features]:

Large Size: Business that matters today is large in size. Indian companies in terms of revenues, profits in assets and stockholders equity are relatively small compared to the companies in developed countries.Most of the companies established in developing countries are smaller in size and thus only a few companies from these countries figure in the list of Fortune 500 companies. Indian private sector companies in terms of sales and assets may not look as impressive as the companies in developed countries.

Oligopolistic Character: In modern oligopolistic business, collusion is very common. It is characterized by a small number of firms selling a homogeneous or a different product. Each firm in an oligopolistic market believes that any change in its price and sales or in the quality of its product, advertising expenditure or any other variable whose value under is control is likely to evoke retaliation from other firms in the same line of business. The key feature of an oligopolistic business is recognized interdependence among the sellers.

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Diversification: Modern business in its attempt to grow overtime has taken recourse to diversification.Some business firms prefer to add new related products to their existing production. This is called concentric diversification.

Global reach of modern business: Till recently even big companies in the world had confined their business to domestic markets. However liberalization, technological change and falling trade barriers have rapidly changed the business landscape.The ‘index of transnationality’ is a simple mean of the ration of foreign to total activities for three indices: assets, sales and employees.

Technology Orientation: Modern business is technology oriented. This feature pf present day business emanates from the expectations of the consumers from the business. People always wish to consume more and more of new foods and more of the same goods.Because modern companies regard technological research strategic to their future, they carry out their R and D activities very close to their head quarters. These activities are usually centralized in the country of the company’s origin.

Change: The business has thus invented the strategy of making changes in product quality, design or packaging speedily. This strategy of offering differentiated products periodically has been found quite effective as it invariably induces lots of consumers to discard the goods which have not lost their entire utility.Sustainability of business in the existing economic system depends largely on effective demand. In the absence of effective demand all kinds of business maneuvering, including aggressive advertising fail.

Government Control: Since the late 1980’s role of the government in both developed and underdeveloped economies has diminished with dismantling of regular controls. First the government interference in business is required to correct market failures manifested in the form of monopoly and pollution. In these cases, government action improves efficiency rather than lowering it. Second governments through monetary and fiscal regulation attempt to create stable business conditions.

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ENVIROMENT OF BUSINESS

Environment by definition is something external to an individual or organizations. It refers to all the external factors which have a direct or indirect bearing on the activities of business.

Some experts are of opinion that both external and internal factors can be termed as environment of business. External environment of business can be sub- divided in to micro and macro environment.

INTERNAL ENVIRONMENT

Value system, goals and objectives, management structure, relationship among the various constituents, physical assets, technological capabilities and human, financial and marketing resources make the internal environment of the business.

Business is normally undertaken for profit maximization. It is now generally agreed that no business firm is established for philanthropic purposes.

A corporate enterprise may be professionally managed or family controlled. On its Board of Direct ors there may be dynamic entrepreneurs capable of taking quick decisions.

The quality of human resource of a company depends largely on skill, commitment, attitude and morale of the employees.

EXTERNAL ENVIRONMENT

External environment of business consists of institutions, organizations and forces operating outside the company. All these individually as well as collectively exercise their influence on the business. Broadly external environment can be classified in to;

1) Micro Environment.2) Macro Environment.

1) Micro Environment constitute the following factors:

Input Suppliers:An important factor in a company’s success is low cost production of goods. This requires uninterrupted supply of inputs like raw materials from the suppliers.

Workers and their Unions:Labour is an important input in production. Its nature is very much different from the other major input in production. Workers who may or may not be organized provide Labour for the organisation.

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Customers:Customers constitute the most important element in the micro environment of the business. Their loyalty to product depends mainly on the degree of their satisfaction.

Marketing Intermediaries:Marketing intermediaries such as wholesalers, retailers, distribution firms, agents etc. constitute an important element. Most companies find it too difficult to reach the consumers, as they do not have a network to market their products.

CompetitorsIn the real business world a company encounters various forms of competition. The most common competition which a company’s product now faces is from differentiated products of their companies.

Public:The word public refers to people in general. Philip Kotler, an expert in marketing management has used the term public in a specific sense. “ A public is any group that has an actual or potential interest in or impact on a company’s ability to achieve its objectives” are going the influenced the functioning of the organisation.

2) Macro Environment of business consist of the following factors:

a. Economic Environment:

National Global

b. Non Economic Environment:

Political Socio Cultural Demographic Technological Natural.

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a. Economic Environment of the Business ( National):

Business enterprise is essentially an economic institution. It conducts its activities in the market system with the objective of profit maximization.

In modern economy there are five sectors contribute to the development of the economy they are:>The business sector>The house hold sector>The capital market>The government>The external sector

Various Economic factors affecting business are:1. Economic System2. Macro Economic Scenario3. Process of Business Cycle4. Financial System5. Economic Policies of the Government

1. Economic System

The central problem of and economic system is allocation of resources. Capitalism and Socialism are the two important economic systems prevailing in the world.Capitalism in the broad sense is a system of private property in both producer and consumer goods. Freedom of contract and competition with limited government intervention in economic affairs are the chief features of capitalism. Today mixed economic system is the extended form of capitalism.wherein the private as well as the public sectors co-exists side-by-side

Socialist economy is a system where all the factors of production except labour is managed by the government. Welfare of the people is the main objective of this type of economy.Economic planning is an integral of a socialist economy. The main four feature of socialistic economy are:

1) Everything is decided by government apart from labours2) Production actually is governed by welfare.3) People have rights according to purchase commodities.4) The government decides the level of competition.

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2. Macro Economic Scenario

It determines the prospects of business in a country. In an environment of rapid growth, stable prices, high rates of saving and investments, fiscal stability and favorable balance of payments makes high prospects of business and vice versa. The factors are given below:

1) Increasing rate of growth [growth domestic product]2) Inflation: It is defines as persistent and appreciable rise in general level of prices.3) Increase rate of savings and investments4) Fiscal imbalances5) Balance of payment deficit.

3. Phases of Business Cycle : Business of the economy is in which phase of its cycle determines the economic scenario of the economy. If it is in prosperity it indicates the good prospects than in the recession and stagflation.The various stages of business cycle are:

Prosperity: This phase in business cycle is ideal. The economy expands in response to growing aggregate demand and business firms have many options.

Recession: The most important of these factors is narrowing down the profit margin to a gradual increase in costs relative to prices.

Depression: During recession forces of contraction gets strengthened. Te recession usually gets reflected in the form of stock market crash and some fall in price. Decrease in the economic environment, production and employment.

Revival: Here the recovery from depression to prosperity phase will start. Here the various efforts will be taken to set back the economy towards growth by controlling the fall in the prices etc. Stagflation: It is characterized by inadequate growth, inflation and unemployment. It has been a common phenomenon in many Latin American countries but did not accompanied by little growth. This happens due to the false policies of the government.

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4. Financial System

Business firms are net investors. When business enterprises raise funds through issue of shares and bonds, which are subscribed by individuals, the mobilization of funds is direct from the household sector to the business.

Indian financial system can be classified in to Money market and capital market:”

Money Market: Deals with the short-term finance of business it consists of:1) Un organized – money lenders2) Organized – Banking and insurance.

Constituents of Money Market

- Call Money Market- Bill Marker- Golden securities.

Capital Market: Deals with the long-term capital requirement of business it consists of:1) Financial Institutions2) Securities Market.

5. Economic Policies of the Government: It can be broadly classified into four categories:

1. Industrial Policy: Industry activity is more directly related to business. The present day corporate business has grown as an extension of industrial activity. For analyzing the economic environment of business industrial policy of the government has to be examined. It governs the industrialization of the country.

2.Trade PolicyFor Analytical convenience, trade policies are classified in to two categories: outward oriented and inward oriented. An outward oriented trade policy does not discriminate between production and domestic market and exports.

3.Monetary PolicyIt is an arm of macro economic policy and its role and importance is determined in any economy by overall policy framework and the various instruments available for implementing policy. It is formulated and implemented by the reserve bank of India.

4.Fiscal Policy

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Refers to the policy of the government towards taxation and public expenditure in order to dampen the swings of business cycle and to contribute rapid growth with high employment and stable prices.

b. Non Economic Environment of Business consists of:

1. Political and Legal Environment:

In a capitalistic economic system corporate firms are very powerful. The ideology of a government also shapes political environment in a country. In India, till recently the ideology of the party in power at the center for long time was not entirely partisan with pro business bias.Various laws and acts taken by the government commonly called as legislations or legal environment of the business.

Legislations are of two types:1) Facilitatory Legislations – these are formed to facilitate in the proper

functioning of the business. For e.g. Company’s act, Sales of goods act, contract act etc.

2) Restrictive legislations - these are formed to restrict business in their bad practices adopted by them. This will result in interference of government in business. For e.g. MRTP Act, FERA etc.

2. Socio - Cultural Environment:

A business firm aiming at capturing market for its products in these diversified societies has to be careful about the socio- cultural sensitivities of those societies.“The social environment is made up of the attitudes, desires, expectations, degree of intelligence and education, beliefs and customs of people in a group or society”Normally machinery of the state which is responsible for making laws responsible for making laws responds to socio cultural demands. It seldom passes laws anticipating changes in socio cultural environment.

Cultural Environment and Business:

“Culture is an anthropological and historical sense, is the heart of a particular group or society --- what is distinctive about the way members interact with one another and with outsiders --- and how they achieve what they do”.

There are two types of culture

1> Organizational Culture

Organizational culture is the customary or traditional ways on thinking and doing things, which are shared to a greater or lesser extent by all members of the organization

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and which now members must learn and at least partially accept in order to be accepted in to the service of the firm.

2> Societal Culture

Society has its own culture which consists of customs, habits, beliefs, values, attitudes, language and other forms of interaction between the members of the society. Culture of society changes only gradually and a business firm can afford to ignore this reality at the risk of the cold response from the targeted users of the products.

Globalization of Culture:

Worldwide proliferation of internationally traded consumer brands, the global ascendancy of popular cultural icons and artifacts, and the simultaneous communication of events by satellite broadcasts to millions of people at a time on all continents are visible marks of economic globalization which is invading the cultural arena.Under the globalization dispensation, the world is reduced to the status of economic territories which are being exploited by the transnational capital which has virtually no accountability to the nation state.

Multiculturalism --- Caste, Race and Ethnic issues:

An important issue in any society is that people with different cultural backgrounds coexist and flourish within the society and thus business firms have to deal with different people considering their social and cultural backgrounds.Since western societies are modern and liberal, people belonging to these societies are more respective to new products.

3. Demographic Environment:

Humans are both consumers and producers. Therefore demographic factors like the size and the growth rate of population, life expectancy, age and sex composition of population, educational levels, religion, case, ethnicity and language are all relevant to business.

Normally the absolute size of the population in a country is an important factor determining the size of the domestic market. Even at a relatively lower level of economic development markets are quite large in countries with large populations. It is this reason multinationals are interested in penetrating the markets of these countries.

The various demographic environment factors affecting business are:

Size and growth rate of population

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Age structure of population Urban rural distribution of population Burden of population on environment.

Size and Growth Rate of Population:

1. Rapid population growth usually has an adverse impact on per capita income and standard of living.

2. As rapid population growth is likely to affect savings adversely, its impacts on capital information.

3. Larger population growing rapidly will adversely impact on employment situation and heavily cut down demand for industrial goods.

4. Rapid growth of population will force many more people to join agricultural sector, which implies that more and more people will join subsistence economy.

Age Structure of Population:

Age structure of population in a country determines the productivity level and demand pattern which are very much relevant to a business activity in a country. Usually in countries like Japan, Britain, France and Germany people are conscious about the size of the family.

Urban Rural Population:

Proportion of urban population verses rural population has been increasing in all the developing countries.

The Burden of Population on Environment:

During the last fifty years, the world’s population increased by more than 3.5 billion and 85 percent of this increase was in the developing and transition economies. The number of people living in fragile rural areas in developing countries doubled posing a serious threat to the rural environment.

4. Technology Environment:

Technology consists of a series of techniques is essentially a historical process in which one technique with one set of characteristics replaces another in the light of the historical and economic circumstances of the time. Most of the technology used today has been developed in the western countries during the period of the last two centuries.

Technology and Business Environment:

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1. Positive Role of Technology.2. Negative Role of Technology.

Positive Role of Technology

Development of business as an ongoing process rests on the constant injection of the new technology and on the capacity to generate and absorb technical change.

Negative Role of Technology:

If the introduction of technical change leads to a reduction in labour costs, the decrease in cost would in time be transmitted to consumers of the product. Supporters of technical change have argued that while the adverse impact of technical change is likely to remain restricted to some workers, the benefits are diffused through out the economy.

Technology in Developing Countries:

Technology has a major role to play in the industrial development of a country. Apart from massive use of capital, highly sophisticated technology has played a significant role in the recent development of Western Europe, America and Japan.

The techniques of production in developing countries are backward and they often determine the boundaries of what is possible for business in these countries to do. The choice of appropriate techniques is an important issue for any developing country. Some developing countries prefer to use intermediate technology. Presently the gap between the technologies of developed and developing countries is so wide that the latter cannot hope to adopt the sophisticated techniques of the former with any chance of success.

5. Natural Environment:

Till recently the business had not cared for ecological effects of its activities. Guided entirely by its profit maximization goal the industry caused tremendous damage to exhaustible natural resources such as minerals and forests. It also contaminated water and polluted air. These externalities imposed by the industry on the society were over looked both by the government and the people until such tie the environmentalists pointed out the harm industry has done to human well being by causing environmental damage.

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The various factors of Natural Environment affecting business are:

1. Life Support:

Natural environment provides a biological chemical and physical system that enables human life to exist. This system includes the atmosphere; river systems land resources and a diversity of animal and plant life.

2. Supply and natural resources:

Natural environment provides raw materials and energy for economic production and household activity. These natural resources are of two types that is

a) Renewable natural resourceb) Non Renewable natural resource.

3. Absorption of waste products:

The waste products resulting from the production activity and household activity are absorbed by the natural environment. This is known as the ‘sink function’.

4. Supply of amenity services:

It provides amenity services like natural beauty and space for outdoor pursuits. Parts of natural environment may serve more than one function.

GLOBAL BUSINESS ENVIRONMENT

The global environment of business has witnessed drastic changes within a period of the

last decade and a half due to establishment of WTO in 1995 as watchdog for world

business world.

Some of the important global factors affecting business are:

1) The global economic performance and prospect

2) Recent development at WTO

3) Regional Trade and preferential trading agreement

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4) FTAs being negotiated by India and their evaluation.

1) THE GLOBAL ECONOMIC PERFORMANCE AND PROSPECTS

The world economy has shown improving performance in the last couple of years.

The real GDP growth which was 1.7 per cent in 2002 rose to 2.7 per cent in 2003

and further to 4 per cent in 2004; this increase in growth in 2004 was due to a

4.3 per cent increase in GDP in both USA and JAPAN.

Even the growth was experienced by many developing countries, notably CHINA

-8.8 per cent, RUSSIA-8 per cent and INDIA 6 per cent.

One of the important reasons for this has been an exceptional 10.2% increase in

world trade during 2004 which was due to massive increase in import demand in

CHINA (particularly for oil, steel and minerals in the manufacturing and

construction sectors) and the continued tendency for domestic demand in the USA

to substantially exceed production.

According to World Bank’s report GLOBAL ECONOMIC PROSPECTS, 2005,

economic growth is expected to slow down in 2005 & 2006 expanding by 3.2 per cent in

each year mainly due to following factors:

1. The investment cycle in the USA has likely, implying a slow down in growth

there.

2. World demand has outstripped supply, resulting in substantial increase in oil and

other commodity prices that have cut into incomes, moderating demand in many

countries.

3. Higher investment will slow investment growth as central banks continue shifting

monetary policy from a loose to a more neutral stance.

4. The large fiscal impulse that has helped propel the U.S.economy will weaken

although the deficit will remain high.

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5. In Europe, budgetary policy s expected to tighten as countries seek to regain

control over deficits.

6. Efforts in china to bring growth down to a more sustainable pace should also

contribute to weaker, but still strong, demand over the medium term.

Given the global environment and especially the less rapid expansion of trade, growth

in most low- and middle-income countries is also expected to moderate but remain

strong. However, according to the World Bank, their performance could deteriorate

considerably, if one or more of the following events happen:

1. There is an additional rise in oil prices. Such a rise would have important negative

effects on oil importing countries, particularly those low- and middle- income

countries that face current account constraints.

2. Financing requirements of the U.S. current account and government deficits, and

renewed pressure on the dollar, may cause long term interest rates to rise more

than forecasted.

3. If current efforts to slow the unsustainable pace of growth in china, major

disruptions could result

GLOBAL MACROECONOMIC IMBALANCES: THE TWIN US DEFICITS

The fiscal as well as the current account deficit in the USA are, at present close to

5% of GDP. (1.5% in 1996)

This large deficit may not be sustainable and at some point of time, the US deficit

has to narrow.

The adjustment process might accompany the reduction in

the US current account deficit holds a threat of global inflation

Depreciation of US dollar is the only remedy- Joseph Stiglitz.

2. WTO: RECENT ISSUES

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The most important Development in global environment during the period of last

one decade is setting up of WTO in 1995.

The main focus is to cut down trade barriers among countries with the main

objective of encouraging multilateralism.

A meeting of ministerial Conference will be held according the requirement

wherein all the member countries representatives will participate.

Last meeting was held b/w Sep. 10-14, 2003 in Cancum, Mexico.

Three issues are important here which has bearing on the global economic

environment

I. The Developing countries unity at Cancum

II. Introduction of product patent regime

III. Dismantling of MFA in the field of textiles.

I. DEVELOPING COUNTRIES UNITY AT CANCUM:

FORMATION OF G-20 AND G-16

Here there was a debate on two issues:

Liberalization of Agriculture:

Developing new multilateral disciplines on the Singapore issues

Liberalization of Agriculture:

In this issue, the main focus has been on reducing the level of agriculture

subsidies.

USA & EU are main providers of Subsidies. Therefore it was responsibility to

announce drastic reductions in agriculture subsidies.

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However they conspired together to put pressure on developing countries without

making any reduction commitments on their own behalf.

For example: in mid august ( i.e. just about 20-25 days before the start of

negotiation), USA and EU entered into a mutual agreement to accommodate each

other’s concerns by drawing up a framework on further negotiations envisaging

marginal reduction in domestic support and elimination of export subsidies in

some products only.

The formula for tariff reductions developed by them required minimal market

access commitments in their sensitive products, but projected them as demanders

of substantial improvements in market access in developing countries particularly

large and relatively more advanced among them.

To counter and stall these designs of USA and EU, India and some other

developing countries came together to form a group known as G-20 whose

chief spokesman is BRAZIL.

G-20 sought elimination of distortions in world agriculture, created through high

level of subsidies in developing countries.

According to estimates, protection in the developed countries faced by developing

exporters. Therefore, G-20 member countries called upon the developed countries

to cut down the subsidies provided by the later to their sector. Urgent need to

bring down the high tariffs and non-tariff barriers on products of export interest to

developing countries was underlined, to secure for these countries sufficient gains

from globalization.

Developing new multilateral disciplines on the Singapore issues:

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This includes four issues:

Investment

Competition policy

Government procurement

Trade facilitations

The Singapore issue was also included in Doha agenda in two step procedure.

A core group of 16 countries G-16 in including India led by Malaysia was

formed. Took a strong decision and effective stand at the Cancun ministerial,

highlighting the problems and lack of explicit consensus on modalities.

Nevertheless, the draft ministerial text of September 13, 2003 ignored the position

taken over by 90 countries (including INDIA), and suggested commencement of

negotiations on three of four SINGAPORE issues, namely, investment,

transparency in government procurement and trade facilitation.

As such a position was incapable to these and least developed countries, the

ministerial ended in a deadlock over Singapore issue.

II. INTRODUCTION OF PRODUCT PATENT REGIME:

The government of India introduced the patents Amendment bill 2005 in the parliament.

This allows product patents on both drugs as well as food & Agro chemicals.

The act makes the following provisions:

Discovery of a new form of a known substance does not constitute invention and cannot given product patent.

Claim of invention can be challenged, even at the patent application stage.

Indian firms can produce under a compulsory license.

IMPACT OF PRODUCT PATENT REGIME:

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Prior to 1970, multinational Pharmacy companies had a 70% of market share of drugs in India.

The patent Act of 1970, adopted by the government of India emphasized public interest over patent rights. This policy implied granting process patent rather than product patent.

Thus an Indian company was only required develop and patent its own process for producing a drug, it was not required to invent the drug itself.

The company could legally manufacture this drug; even it was protected under a product patent broad.

This helped in massive expansion of the Indian pharmaceutical industry over the years and the Indian drug company increased their market share from just 30% in 1970 to more than 75% in 2002-03.

Now with the introduction of product patents, the equations well might change and MNC’s are likely to benefit considerably.

With patent protection to their products, they are likely to push up their penetration considerably in Indian market.

Many drug companies like RANBAXY, Dr.REDDY’s LABORATORIES, SUN PHARMA etc might be able to weather the storm, many smaller drug companies are bound to feel the heat and find the going tough

IMPACT ON CONSUMERS:

The price of the drugs might increase as the drugs of product owning MNC’s are priced higher.

The availability of drugs could be adversely affected.

As far as the issue of price rise is concerned, the government has assured that drug prices will not increase as a large number of drugs in India are generic copies of drugs that have already lost their patents.

III. TEXTILES: DISMANTLING OF MFA AND GLOBALPROSPECTS:

Since Jan 1, 1974 the textile and clothing industry came to governed by MFA (multi fiber arrangement).

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The MFA handed country wise quotas for exports of textiles.

India has bilateral arrangements under MFA with USA, Canada, Australia, countries of European Union etc.

More than 70% of India’s clothing exports were quota countries of USA and EU. However in accordance with the agreement on textiles and clothing, 1995, the MFA has been dismantled with effect from Jan 1, 2005.

China & India gain from this. Garment shops set up in small countries to take the advantage of quotas will die; India and china- with their investment capacity, cotton and synthetic fibers, and economics of scale- will sweep the board. China will grab lion’s share of Market. In 2003 it was 16% as against 4% of India.

Hundreds of power looms units producing 90-95% of the fabrics in the country, while the organized sectors are just 5%.

The planning commission has estimated that Rs. 85,000 crore to Rs. 90,000 crore will have to be invested in next 3 to five years to bring the economy on par with global.

3. REGIONAL TRADE AND PREFERNTIAL TRADING ARRANGEMENTS:

WTO rules say a trading nation must offer access to every other (exporting) nation, in every distinct product line

This is the essence of the famous Most Favoured Nation (MFN) rules which means that importing economies must extend the best terms that they offer any exporting countries to every other WTO-contracting party.

Such non-discrimination has been the cornerstone of all multilateral trade negotiations first under GATT & now under WTO

Against this member of RTAs trade freely only amongst themselves; and confront outsiders with a common tariff wall.

RTA can be of following Types:

Preferential Trade agreement: Here a group of countries agrees to reduce tariffs on a few products which they trade between themselves.

Free trade agreement:

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When all tariffs b/w member counties are removed on some items, but each country has its own tariff for rest of the world.

Custom union:When there is free trade with member countries and common tariffs are applied on goods of other countries.

Common Market:When there is a truly open market among all member countries- not only goods and services but also capital and Labour can move freely.

As is clear, RTA’s go against the spirit of multilateralism as embodied in the spirit of GATT earlier and WTO now as they encourage bilateralism and regionalism.

From the global economic environment point of view, the emergence and extension of RTA’s in recent years has been the most important development and the next couple of years are bound to see a further increase in their influence.

According to world bank’s report Global Economic Prospect 2005, the number of RTA’s has more than quadrupled since 1990 ( from 50 nearly 230 by late 2004)

Trade between RTA partners now makes up approximately 40% of total global trade.

On an average each country will have 6 RTAs.

CHANGING GLOBAL ENVIRONMENT: NEW CHANGES IN RTA’s:World bank’s report global economic prospects 2005 with three such issues namely:

The EU’s move towards bilateral market access FTAs (free trade agreement) and EPAs (economic partnership agreements) with the ACP (African Caribbean and pacific) countries.

The shift in the US position towards bilateral preferential agreement.

The effort of the handful of developing countries to open up market through RTAs.

EU’s PREFERENTIAL TRADE ARRANGEMENTS

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During the 1990s, the EU was an active sponsor of bilateral arrangement with individual countries. EU is having bilateral trade agreement with 111 countries. They fall into following categories:

1. Europe Agreements: Were intended to prepare east European countries for eventual accession to the EU. They involved bilateral agreements between each other and with EU to reduce tariffs, develop uniform rules of origin, EU consistent regulatory approaches to services and common treatment of standards as well as transition rules in sectors such as agriculture.

2. Euro-Mediterranean Agreements Were intended to build bilateral trade relations between neighbors, with the objective of forming a NAFTA-like trade area by 2010. Launched in 1995, the EU and 12 countries have been involved in talks on “association agreements”.

3. Partnership and Cooperation Agreements (PCAs): With West Balkans, Russia and the CIS are designed to help promote stability on the border of the EU, and in the case of RUSSIA to expand trade.

4. Economic partnership Agreements (EPAs) Are designed to promote trade and development in the ACP 77 countries in a WTO consistent fashion by establishing agreements between large groups of countries forming customs unions.

5. Free Trade Agreements: With South Africa, Mexico and Chile are designed to open markets and secure trade. Agreements with the Gulf Cooperation council and the common market for south are under active consideration.

THE US TURNS TOWARDS BILATERALISM: USA has been turning towards more and more bilateralism and RTAs in recent

years.

USA has signed bilateral accords with Australia, Bahrain, Central America, Chile, Morocco and Singapore.

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After the failure of Cancum the USA has intensified its pursuit of RTAs with Colombia, Panama, Peru and Thailand.

Other in Queue is Bolivia, Egypt, and New Zealand, Pakistan, the Philippines, South Korea, Sri Lanka, Taiwan & Uruguay.

The main feature of the RTA’s is formalized by USA are as follows:

1. Tariff rates on most non-agricultural products are bound at zero; for example, the US-Chile FTA will bind duties at zero for 85% of trade.

2. Exclusion or delayed liberalization of sensitive products, commonly including agriculture products such as dairy products, cotton, ethyl alcohol, peanuts and peanut butter, sugar and tobacco for the United States.

3. Intellectual property rights are conventionally accorded stronger protections than under the WTO’s.

4. Investment protections, with provisions for national treatment and non discrimination in pre-establishment provisions for companies based in each other’s markets.

5. Services trade is to be open except for those excluded in a negative list; notably excluded are Labour service providers.

4. FTAs being negotiated by India and their evaluation

DEVELOPING COUNTRIES ACTIVELY PURSUE RTA’s Many developing countries have evinced keen interest in establishing new RTAs

or joining existing ones with a view to increase their access to more markets.

Mexico & Chile have been at the forefront of these efforts.

In 2001, Asian countries have launched similar negotiations. These include China, India, and Thailand etc.

INDIA’S TRYST WITH FTAs

The main reason for the negotiation is that India now wants to play more role in global trade.

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As China is growing fast with this, it has become imperative for India also to foster stronger relationship with East Asia.

E.g. In Singapore The Thailand’s product will be cheap compare to Indian as we have to pay high Tariffs whereas Thailand enjoys free trade.

A CRITICAL VIEW ON INDIA’S FTA NEGOTIATION:

1. Some critics have pointed out that are presently being negotiated by India constitute only a small part of India’s trade.

2. India with its high tariff barriers is negotiating with countries and blocks as SEAN, whose trade barriers are already low – other members gain than India.

3. We could start importing goods made by inefficient producers within FTA rather than more efficient ones.

4. Producers in countries outside FTA could start trying to route their goods to India through a third country with which we have an agreement. Rule of origin is brought in to solve this problem.

Environmental Scanning/ analysis:

Environmental Scanning is the process of monitoring and collecting the information about the various current and potential changes taking place in the environment to facilitate in decision making and problem solving.

Objectives of Environmental scanning

1. To provide an understanding of current and potential changes taking Place in the environment.2. To provide inputs for strategic decision-making.3. To facilitate and foster strategic thinking in organization.

Benefits of Environmental scanning

“Firms which systematically analyze and diagnose the environment are more effective than those which don’t” It helps in:

1. Development of broad strategies and long-term policies of the firm.2. Development of action plans to deal with technological advancements.3. To foresee the impact of socio-economic changes at the national and international

level.4. To analyze the competitor’s strategies and formulation of effective counter-

measures.5. To keep oneself dynamic.

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Limitations of Environmental Analysis

1.It does not foretell the future, nor does it eliminate the uncertainty.2. It is just input, not a sufficient guarantor of Organizational effectiveness3. The potential of EA is often not realized because of how it is practice.4. “Paralysis through analysis syndrome”.

Sources of Scanning

Daily New papers Journals Other sourceso Census datao Annual Reports of IDBI, ICICI and IFCIo Five year plan documentationo RBI bulletino Economic surveyo Report of committeeso Government publication

Techniques for EA

1. Verbal and Written Information2. Search and scanning3. Spying4. Forecasting and formal studies.

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