UNIT I BUSINESS ENVIRONMENT What is business?

A business can be defined as an organization that provides goods and services to others who want or need them. When many people think of business careers, they often think of jobs in large wealthy corporations. Many business-related careers, however, exist in small businesses, non-profit organizations, government agencies, and educational settings. NATURE AND SCOPE OF BUSINESS All of us live in families and depending on the income, we have different standards of living. We require various types of goods and services to satisfy our needs and wants. Some members in your family have to work to earn and provide for the needs of the family. Thus, people engage in different activities which are known as economic activities. In ancient times, people had limited wants to satisfy. In modern times however, we need a large variety of goods and services to satisfy our needs and to raise our standard of living. On the one hand the supply of goods and services has led to various activities. On the other hand, activities of different types are undertaken by people to earn sufficiently to fulfill their increasing wants. Thus we find large numbers of people engaged in business, industry, and profession. Such economic and business activities satisfy various needs and demands for goods and services. Business may be understood as the organized efforts of enterprise to supply consumers with goods and services for a profit. Businesses vary in size, as measured by the number of employees or by sales volume. But, all businesses share the same purpose: to earn profits. The purpose of business goes beyond earning profit. There are: It is an important institution in society. Be it for the supply of goods and services Creation of job opportunities Offer of better quality of life Contributing to the economic growth of the country. Hence, it is understood that the role of business is crucial. Society cannot do without business. It needs no emphasis that business needs society as much. HUMAN ACTIVITIES AND BUSINESS You know that man always keeps himself engaged in some kind of activity to satisfy his needs and wants. All human activities may be broadly divided into two categories: (i) economic activities, and (ii) (ii) non-economic activities. The works of a farmer, manufacturer, teacher, doctor, trader etc. are some examples of economic activities. They are primarily concerned with the services. Economic activities are undertaken to earn ones living and for the production of wealth. Besides economic activities, people also undertake a number of activities for mental satisfaction. They engage in charitable work, practice religion, undertake recreational activities and also do many things out of love for others or out of patriotic feelings. These activities are known as non-economic activities. These activities are undertaken not for any material reward or gain but for ones happiness, pleasure or satisfaction which can not be measured in terms of money. What are the essentials of a successful business? Business has a wide field and has to face the complicated needs of the society. It starts with production of goods at one ends with providing goods to the ultimate consumer. Success in business can be attained on the fulfilment of the following conditions which are termed as requisites of sound business. NATURE OF BUSINESS The nature of business is best understood on the basis of its characteristics or features which are as follows: 1. Business is an economic activity.

2. It includes the activities of production or purchase and distribution. 3. It deals in goods and services. 4. It implies regularity of transactions. 5. It aims at earning profits through the satisfaction of human wants. 6. It involves risk; it is not certain that adequate profit will be earned. 7. It creates utilities. 8. It serves a social purpose by improving peoples standard of living. OBJECTIVES OF BUSINESS Success in business depends on proper formulation of its objectives. Objectives must be clear, and attainable. Objectives may be divided into two parts (i) economic and (ii) social. Economic Objectives Economic objectives of business include earning adequate profit or satisfactory return on capital invested, survival in the case of competition and growth to maintain progress. Social Objectives Social objectives include providing employment opportunities, supply of quality goods and services at reasonable price, improving the standard of living and contributing to environmental protection. It also includes justice to workers in terms of wages, welfare amenities, improved service conditions and professional growth. Significance of Business in Modern Society Business is an integral part of modern society. It is an organised and systematised activity for profit. It is concerned with activities of people working towards a common goal. The modern society can not exist without business. The need and importance of business in society can be described as follows: 1. Improvement in standard of living: Business helps people in general to improve their standard of living. 2. Proper utilization of resources: It leads to effective utilization of the scarce resources of society. It provides facility of mass production.

3. Better quality and large variety of goods and services: It involves production, purchase and sale of goods and services for price. Customer satisfaction is the backbone of modern business. Services such as supply of water, electricity etc. may be considered highly significant for the community. 4. Creates utilities: Business makes goods more useful to satisfy human wants. It adds to products the utilities of person, time, place, form, knowledge etc. Thus, people are able to satisfy their wants effectively and economically. 5. Employment opportunities: It provides employment opportunities to large number of people in society. 6. Workers' welfare Business organisations these days take care of various welfare activities for workers. They provide safer and healthier work environment for employees. Classification of Business Activities Business activities are undertaken to satisfy human wants by producing goods or rendering services. We may classify business activities on the basis of functions into two broad categories (a) Industry and (b) Commerce. Industry is concerned with the production and processing of goods. This type of business units are called industrial enterprises which produce consumer goods as well as machinery and equipments. On the other hand, Commerce includes all those activities which are necessary for the storage and distribution of

goods. Such units are called commercial enterprises which include trading and service activities like transport, banking, insurance and warehousing. Let us examine the characteristics of industry and commerce. Industry and its Types Industry means production of goods for sale by the application of human or mechanical power. In other words, industry refers to economic activities which are connected with raising, producing and processing of goods and services. Characteristics of Industry The main characteristics of industry are as follows:Industry refers to the productive aspect of business. Production is done by the application of human or mechanical power. It creates form utility to natural or partly processed goods. It is concerned with the production of both producer and consumer goods. Industrial activities are regulated by different laws. It involves continuous operation.

Types of Industries Industries are divided into two broad categories: (i) Primary industries (ii) Secondary industries.

Primary industries include all those activities which are connected with extraction, producing and processing of natural resources. These industries may be further sub-divided into two types: (a) extractive and (b) genetic. Secondary industries are concerned with the materials which have already been produced at the primary stage. For example, mining of iron ore is a primary industry, but manufacture of steel is a secondary industry. a) Extractive Industries Extractive industries are concerned with the extraction of materials from the earth, sea and air such as mining, farming, fishing and hunting etc. Products of these industries are used either directly for consumption such as food grains, fruits and vegetables or as raw materials such as cotton, sugar-cane, etc. b) Genetic Industries Genetic industries include activities connected with rearing and breeding of animals and birds and growing plants. Reproduction and multiplication is the main activity in these industries, such as, agriculture, animal husbandry, dairy, poultry, pisciculture etc. Main products are milk, wool, butter, cheese, meat, egg, fish, seeds of plants, etc. Secondary industries may also be of two types: (a) manufacturing, and (b) construction. a) Manufacturing Industries Industries engaged in the conversion of raw materials or semi-finished products into finished product are called manufacturing industries. Cotton is converted onto textiles and iron one is converted into in these industries. It creates a form utility of the product. b) Construction Industries The activities of Construction industries include erection of buildings, bridges, roads, railways canals etc. Their output do not consists of movable goods. It makes use of the output of other industries like brick, cement, steel etc.

Characteristics of Commerce Commerce is the sum total of all the activities connected with the placing of the product before the ultimate consumer. It provides the necessary link between the producer and the consumer of goods. Commerce is defined as activities involving the removal of hindrances in the process of exchange. Commerce includes all those business activities which are undertaken for the sale or exchange of goods and services and facilitates their availability for consumption and use - through trade, transport, banking, insurance, and warehousing. Thus commerce includes trade and auxiliaries to trade, that is transport, banking, insurance and warehousing. The main characteristics of commerce are as follows: Commerce is the sum total of activities which facilitate the availability of goods to consumers from different producers. It aims at ensuring proper distribution of goods. It adds different type of utilities to the goods by making goods available at the right time and the right place to the people who need them. It includes trade and auxiliary to trade. Trade and its types Trade is an integral part of commerce and refers to sale and transfer of goods. It involves actual buying and selling of goods. It means exchange of goods and services for cash or credit. Traders help in directing the flow of goods to the most profitable market. They also bring about equitable distribution of goods on a national and international scale. It is because goods are produced on a large scale and it is difficult for producers to reach individual customers, that trade is said to remove the hindrance of persons through traders. Goods acquire place utility through trade. Characteristics of Trade The main characteristics of trade are as follows: (i) Trade is regarded as the primary activity in commerce; (ii) It means exchange of goods and services for price; (iii) It helps in directing the flow of goods to the most profitable market; (iv) It helps to equalise the supply of and demand for goods in different markets both national and international. Classification of Trade Trade may be classified into (i) Home Trade or Internal Trade and (ii) Foreign Trade or External Trade (i) Home Trade Home Trade means trade carried on within the boundaries of a country. The primary object of home trade is to bring about proper distribution of goods within the country. It may be divided into two types (a) Wholesale Trade and (b) Retail Trade (a)Wholesale Trade: Wholesale trade involves buying goods from producers and selling them in small quantities to retailers. The wholesaler generally deals in large quantities of goods of a limited number of varieties. He serves as a connecting link between the producer and the retail dealer. (b) Retail Trade: A retail trade consists of selling goods directly to the consumers in small quantities. A retailer usually purchases goods from wholesalers or manufacturers and deals in a variety of goods of different manufacturers.

(ii) External Trade External trade refers to trade between two countries. It implies buying and selling of goods by traders of two different countries. It creates a very wide market for goods produced in different countries. External trade involves (a) Export and (b) Import. Export is concerned with the sale of goods to foreign countries. Import trade relates to the purchasing of goods from other countries. Inter-relationship between Industry, Trade and Commerce All the three branches of business are closely related to each other. Each depends upon the other for the achievement of aims and objectives of business. For example, industry is concerned with the production of goods and services, trade is related with sale and purchase of products, and commerce arranges for their distribution. Industry can succeed only if goods are marketed and without production of goods, there cannot be commerce and trade. Hence, trade provides necessary support to industry and commerce. Thus, industry, trade and commerce are inter-dependent and cannot operate in isolation. Service facilities also provide necessary support to trade. CHARACTERISTICS OF A SUCCESSFUL BUSINESS The chief characteristics of a successful business are: 1. Establishment of objective: Establishing objectives is the primary task of the business objectives determines the aims and goals of the business operation which ultimately helps designing the shape of future events. The objective should disclose the main and subsidiary objectives of the organisation. 2. Proper planning: Planning involves complete set of policies, programme and procedure for the accomplishment of the objectives. Proper planning focuses attention of the objectives of the enterprise, reduces uncertainties, ensures economy and defines the boundaries within which the business has to operate. 3. Location and layout: The objectives of the business can be attained fully when it has a proper location and layout. If the business is not located in a good place, it cannot attract more customers and thereby the success in business cannot be visualized. 4. Sound distribution and management: A successful business necessitates a sound organisation and efficient management. 5. Smooth distribution system: A successful business necessitates smooth distribution of the goods produced otherwise it will involve blockage of capital. 6. Good relationship with employee: A successful business requires the presence of good employer and employee relationship. In the absence of this business should try to render the following services to the society. Supply of qualitative goods: The business should ensure supply of qualitative products continuously and without any obstructions. The product so supplied must suit the needs, taste and financial condition of the people in the society. Charging fair price: To attract customers and to maintain permanent relationship with the customers, the business should charge reasonable and fair price for the product. Charging of fair price is socially desirable. Creation of more employment: The business can help the society by creating employment opportunities. The expansion in the business activities helps the society in a number of ways.

Providing better standard of living: The presence of business creates new markets, new products and new uses of the product. This also helps in the reduction of cost of production. People in the society are in a better position to get the quality products at a better price and thereby it helps in increasing the standard of living of the people. BUSINESS ENVIRONMENT Environment refers to all external forces, which have a bearing on the functioning of business. Environment factors are largely if not totally, external and beyond the control of individual industrial enterprises and their managements. The business environment poses threats to a firm or offers immense opportunities for potential market exploitation.

TYPES OF ENVIRONMENT Environment includes such factors as socio-economic, technological, supplier, competitor and the government. There are two more factors, which exercise considerable influence on business. They are physical or natural environment and global environment. Technological Environment Technology is understood as the systematic application of scientific or other organized knowledge to practical tasks. Technology changes fast and to keep pace with it, businessmen should be ever alert to adopt changed technology in their businesses. Economic Environment There is close relationship between business and its economic environment. Business obtains all its needed inputs from the economic environment and it absorbs the output of business units. Political Environment It refers to the influence exerted by the three political institutions viz., legislature executive and the judiciary in shaping, directing, developing and controlling business activities. A stable and dynamic political environment is indispensable for business growth. Natural Environment Business, an economic pursuit of man, continues to be dictated by nature. To what extend business depends on nature and what is the relationship between the two constitutes an interesting study. Global or international Environment Thanks to liberalization, Indian companies are forces to view business issues from a global perspective. Business responses and managerial practices must be fine-tuned to survive in the global environment. Social and culture Environment It refers to peoples attitude to work and wealth; role of family, marriage, religion and education; ethical issues and social responsiveness of business. ENVIRONMENT BUSINESS RELATIONS Business is the product of the technological, political-legal, economic, social cultural, global and natural factors amidst which it functions. Three features are common to this web of relationship between business and its environment. There is symbolic relationship between business and its environment and among the environmental factors. In other words, business is influenced by its environment and in turn, to certain degree, it will influence the external forces. Similarly, political-legal environment influences economic environment and vice versa. The same relationship between other environment factors too. These environmental forces are dynamic. They keep on changing as years roll by, so does business. The third feature is that a particular business firm, by itself, may not be in a position to change its environment. But along with other firms, business will be in a position to mould the environment in its favor. IMPORTANCE OF ENVIRONMENTAL STUDY The benefits of environmental study are as follows; Development of broad strategies and long-term policies of the firm. Development of action plans to deal with technological advancements. To foresee the impact of socio-economic changes at the national and international levels on the firms stability. Analysis of competitors strategies and formulation

Distinction between economic and non-economic activities

S.No 1

Economic Economic activities are motivated by economic gain. Monetary gain is expected from economic activities. Economic activities lead to creation of wealth.

Non-economic Non-economic activities are motivated by a desire to achieve mental satisfaction or happiness. There is no such satisfaction from noneconomic activities. Non-economic activities lead to personal satisfaction

However, a particular kind of activity which is non-economic in one case may be economic in the other. Cooking by a housewife is non-economic but cooking in a hotel is an economic activity. TYPES OF ECONOMIC ACTIVITIES When a person is regularly engaged in a particular economic activity, it is known as his or her occupation or vocation. Occupations may be classified into three categories: (i) Business, (ii) Profession and (iii) Employment (Service). Business Activities connected with the production or purchase and sale of goods or services with the object of earning profit are called business activities. Mining, manufacturing, trade, transportation, insurance, banking are business activities. Thus business may be defined as an economic activity involving regular production or purchase and distribution of goods and services with the object of earning profits. Profession Any activity which requires special knowledge and skill to be applied by an individual to earn a living is known as profession. For example doctors, teachers, lawyers, engineers and accountants are engaged in profession. Profession involves intellectual activity. It is not a mechanical or routine operation. The main characteristics of profession are (i) Every profession requires special knowledge and training. (ii) The primary objective is to render service. (iii) The service cannot be substituted by another individual. (iv) Every profession is regulated by a professional body. For example the profession of Chartered Accountants is regulated by the Institute of Chartered Accountants of India. Employment When a person works regularly for others and gets wages/salary in return, he is said to be in employment. Thus factory workers, office assistants and managers are said to be in employment. Those in employment are called employees. Employment may be in government department or in private organization. It may be full-time or part-time, permanent or temporary. The main features of employment are: ECONOMIC ENVIRONMENT OF BUSINESS The decision concept which we have been using here is basically that of a firm. We consider firm as an economic institution in a market system. The market behaviour of the firm reflects the nature of economic decisions taken by the manager of the firm. Micro economic decision making by the firm has never the less-to be made within the broader micro-economic environment, Economic environment of business has reference to the broad characteristics of the economic system in which the business firm operates. The present day economic environment of business is a complex one the business sector has economic relation with the government, capital market, household sector and abroad sector. These different sectors together

influence the trends, and structure of the economy. The form and functioning of the economy vary widely. The design-and- structure of any economic system is conditioned by the socio-political arrangements. Such arrangements have got relevance from the standpoint of micro-economic decision making. For example, under a democratic set-up, the public exercise an influence, direct or indirect, through a system of voting, on the nature of decisions taken by the government. Under dictatorship, one ruler takes the crucial decisions for the entire country. Under a parliamentary system, most decisions are processed by the Cabinet of Ministers, whereas under presidential form of government, the President acts as the real manager of the state, it is he who takes/makes decisions. Similarly, the micro-decision making is more decentralized under a federal from the government than under a unitary form. It may be argued that the reference is being made here to political decisions. But it must be emphasized that the political decisions have got far- reaching economic implications. After all, the government is the manager of economy. The nature of government ownership, control and regulation of economic activities of a country provides form and shape to the nature of economic organization. Under a capitalist from of society, the private sector, induced by the profit motive and guided by the indication of a free market mechanism, takes the major economic decisions t& invest, produce and distribute. Under a socialist from of society, such decisions are taken by the public sector, guided by social welfare motive and central planning. In a communist society, economic decisions including consumption are taken by the state in the interest of the community as a whole. In a mixed economy, private, public and joint sectors: a have some say in major decisions for the functioning of economy. In some mixed socialistic pattern of society like India, we even hear of co-operative sectors of small individual savers and workers' sector having say in investment and production decisions of the economy. All civilized economies, whether capitalist, socialist, communist or mixed, have certain fundamental economic problems to solve. Despite the recent talk on "Affluent Society", the hard fact is that in each and every economy, most resources are scarce. Consequently, choices have to be made by individuals, by business corporations, and by society. It is the social choice and community preference which give substance to the question of macroeconomic decisions. From the standpoint of scarcity of resources, the basic economic problem of every economy is that of allocation of resources and subsequent production. This problem has got many facets: a. What to produce? b. How to produce? c. For whom to produce? d. When to produce? Every economy has to decide the qualities and quantities of goods and services to be produced. It has to decide on the nature of technology and technique of production in view of factor endowment. It has to decide the course and pattern of distribution of goods and services, when those are produced. It has to decide on the timing of production. Note that same decisions are taken by the individual firm as they are taken by the economy as a whole. The problems do not end in general, they repeat; one ends, another crops up. The process of decision-making differs depending on how these problems have solved in different economies this is what constitutes the functioning of the economy-the nature of economic environment. Economics is the study of economic problems. Each and every economic problem is a problem of choice and valuation.' The question of choice arises as and when means (resources) are adjusted to ends (wants); the adjustment itself constitutes an economic activity. The purpose of economic activities is to, satisfy maximum possible ends by sacrificing minimum possible resources. The purpose of .economic activities is so defined because of peculiar characteristics of both wants and resources. Human wants have two fundamental characteristics:(i) Wants are unlimited. Wants are numerous in number and 'various in forms. In general, wants are not satiable. (ii) Wants can be graded in order of intensity. A system of preference can be worked out so that the less urgent wants can be placed down the scale. Resources like money, materials and time have also got two fundamental characteristics:(i) Resources are limited in supply. In general, we face excess demand for resources, and this is the reflection of their scarcity.

(ii) Resources have alternative uses. They can be used for more than one purpose. Uses of resources can also be graded in order of priority. It may be noted that the want characteristics and resource-characteristics are very much comparable and contrastable. Unlimited ends and limited means together present the problem of choice. Choice has to be exercised in selecting the ends to be satisfied; choice has to be exercised in selecting the uses of means to an end. Graded list of preference for wants and alternative use of resources together reinforce the question of choice and valuation Thus an economic problem arises because of the fundamental characteristics of ends and means that have been stated above. The essence of the problem is 'scarcity of resources'. Had resources not been scarce, unlimited wants could have been easily satisfied by using unlimited resources; resource-wastage would not have been 'a concern at all. Since resources at our disposal are limited we are always concerned about the creation of resources mobilization of resources, allocation of resources and optimum utilization of resources. Here are the various facets of any economic problem. The concern of Economics is description and analysis of economic problems faced by individuals, organizations, nations and the world. Economics teaches us how to "minimize" the use of resources and how to or' maximize" the level output there from. This constitutes optimum solution of an economic problem Apportionment of productive assets among different uses. The issue of resource allocation arises as societies seek to balance limited resources (capital, labour, land) against the various and often unlimited wants of their members. Mechanisms of resource allocation include the price system in free-market economies and government planning, either in state-run economies or in the public sectors of mixed economies. The aim is always to allocate resources in such a way as to obtain the maximum possible output from a given combination of resources. EFFICIENT ALLOCATION OF RESOURCES In a business unit, the goal of maximum profit depends on how the resources are allocated among different projects. Economically speaking by efficient allocation of resources, we mean the distribution of available resources in such a way that all resources are fully utilized and there are increasing returns to scale. In a business organization allocation of resources comes under the Resource management category. Everybody knows that the todays world is subject to limited resources while the human wants are unlimited. So the resources must be allocated effectively not only to earn profits but also to save mankind from scarcity. As we know that there are four factors of production; land, labour, capital and entrepreneur. Hence the resources can also be categorized accordingly: 1. Human resources 2. Investment resources 3. Land resources Now it depends how resource management strategy is employed to these resources. How the combination of different resources is put in an organization to have a maximum output level. For the better understanding of efficient allocation of resources, the concept of marginal productivity of the resources must be kept in mind that is efficient allocation of resources is there when the marginal productivities of all the factors of production are the same in each unit of production at the maximum output level. Decision making is also important while putting resources in any constructive activity. For instance, if a manager starts a project he has to carefully make the decisions regarding the staff. He must compare the costs of the factors that which factor of production is relatively cheaper, which factor is more productive to the project and also analyze the availability of the resources. Time management also plays key role that what combination of resources would complete the project in lesser time, to achieve goals. The most important step in resource allocation decision is the resource leveling or rationing to assign available resources in an efficient and economic way. Resource allocation is used to assign the available resources in an economic way. It is part of resource management. In project management, resource allocation is the scheduling of activities and the resources required by those activities while taking into consideration both the resource availability and the project time . Strategic planning In strategic planning, resource allocation is a plan for using available resources, for example human resources, especially in the near term, to achieve goals for the future. It is the process of allocating resources among the various projects or business units.

The plan has two parts: Firstly, there is the basic allocation decision and secondly there are contingency mechanisms. The basic allocation decision is the choice of which items to fund in the plan, and what level of funding it should receive, and which to leave unfunded: the resources are allocated to some items, not to others. There are two contingency mechanisms. There is a priority ranking of items excluded from the plan, showing which items to fund if more resources should become available; and there is a priority ranking of some items included in the plan, showing which items should be sacrificed if total funding must be reduced. Resource Leveling The main objective is to smooth resources requirements by shifting slack jobs beyond periods of peak requirements. Some of the methods essentially replicate what a human scheduler would do if he had enough time; others make use of unusual devices or procedures designed especially for the computer. They of course depend for their success on the speed and capabilities of electronic computers. Algorithms Resource allocation may be decided by using computer programs applied to a specific domain to automatically and dynamically distribute resources to applicants. It may be considered as a specialized case of automatic scheduling BALANCE OF TRADE The balance of trade (or net exports, sometimes symbolized as NX) is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports. A positive or favorable balance of trade is known as a trade surplus if it consists of exporting more than is imported; a negative or unfavorable balance is referred to as a trade deficit or, informally, a trade gap. The balance of trade is sometimes divided into a goods and a services balance. Factors that can affect the balance of trade include: 1. The cost of production (land, labor, capital, taxes, incentives, etc.) in the exporting economy vis--vis those in the importing economy; 2. The cost and availability of raw materials, intermediate goods and other inputs; 3. Exchange rate movements; 4. Multilateral, bilateral and unilateral taxes or restrictions on trade; 5. Non-tariff barriers such as environmental, health or safety standards; 6. The availability of adequate foreign exchange with which to pay for imports; and 7. Prices of goods manufactured at home (influenced by the responsiveness of supply) TRADE GAP Trade gap is the difference in value over a period of time of a country's imports and exports of merchandise, "a nation's balance of trade is favorable when its exports exceed its imports". BALANCE OF PAYMENTS The balance of payments (BOP) is the method countries use to monitor all international monetary transactions at a specific period of time. Usually, the BOP is calculated every quarter and every calendar year. All trades conducted by both the private and public sectors are accounted for in the BOP in order to determine how much money is going in and out of a country. If a country has received money, this is known as a credit, and, if a country has paid or given money, the transaction is counted as a debit. Theoretically, the BOP should be zero, meaning that assets (credits) and liabilities (debits) should balance. But in practice this is rarely the case and, thus, the BOP can tell the observer if a country has a deficit or a surplus and from which part of the economy the discrepancies are stemming. The Balance of Payments Divided The BOP is divided into three main categories: the current account, the capital account and the financial account. Within these three categories are sub-divisions, each of which accounts for a different type of international monetary transaction. The Current Account The current account is used to mark the inflow and outflow of goods and services into a country. Earnings on investments, both public and private, are also put into the current account. Within the current account are credits and debits on the trade of merchandise, which includes goods such as raw materials and manufactured goods that are bought, sold or given away (possibly in the form of aid). Services refer

to receipts from tourism, transportation (like the levy that must be paid in Egypt when a ship passes through the Suez Canal), engineering, business service fees (from lawyers or management consulting, for example), and royalties from patents and copyrights. When combined, goods and services together make up a country's balance of trade (BOT). The BOT is typically the biggest bulk of a country's balance of payments as it makes up total imports and exports. If a country has a balance of trade deficit, it imports more than it exports, and if it has a balance of trade surplus, it exports more than it imports. Receipts from income-generating assets such as stocks (in the form of dividends) are also recorded in the current account. The last component of the current account is unilateral transfers. These are credits that are mostly worker's remittances, which are salaries sent back into the home country of a national working abroad, as well as foreign aid that is directly received. The Capital Account The capital account is where all international capital transfers are recorded. This refers to the acquisition or disposal of non-financial assets (for example, a physical asset such as land) and non-produced assets, which are needed for production but have not been produced, like a mine used for the extraction of diamonds. The capital account is broken down into the monetary flows branching from debt forgiveness, the transfer of goods, and financial assets by migrants leaving or entering a country, the transfer of ownership on fixed assets (assets such as equipment used in the production process to generate income), the transfer of funds received to the sale or acquisition of fixed assets, gift and inheritance taxes, death levies, and, finally, uninsured damage to fixed assets. The Financial Account In the financial account, international monetary flows related to investment in business, real estate, bonds and stocks are documented. Also included are government-owned assets such as foreign reserves, gold, special drawing rights (SDRs) held with the International Monetary Fund, private assets held abroad, and direct foreign investment. Assets owned by foreigners, private and official, are also recorded in the financial account. PROTECTIONISM Protectionism is the economic policy of restraining trade between states, through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to discourage imports, and prevent foreign take-over of domestic markets and companies. Simply, the restriction of imports into a country by government measures. REASONS FOR PROTECTIONISM Protects businesses from extra competition Helps new businesses to develop before they face competition Helps protect jobs Prevents foreign countries dumping lots of cheap imports Prevents imports of harmful or desirable goods TRADE BARRIERS / METHODS OF PROTECTIONISM 1. Tariffs or import duties: These are taxes on imported goods. They raise the price to customers and make them less attractive. 2. Quotas: These are limits on the quantity of a product that can be imported into a country e.g. 100,000 cars. 3. Regulations: This includes laws and safety guidelines. FREE TRADE Trade without any protectionist / trade barriers between countries. BENEFITS OF FREE TRADE & PROBLEMS OF TRADE BARRIERS 1. Protectionism keeps UK firms away from genuine competition. They may become lazy and inefficient. 2. Free trade forces UK firms to produce quality goods and services as they face much foreign competition. 3. If the UK puts up trade barriers then other countries are likely to retaliate. 4. Free trade encourages firms to export and import. This should encourage a greater choice for consumers and a higher standard of living.

5. Trade barriers increase the cost of trading. For example, a tariff would mean that UK firms and consumers may have to pay more for imports of raw materials or consumer goods. BUSINESS ETHICS Business ethics can be defined as written and unwritten codes of principles and values that govern decisions and actions within a company. In the business world, the organizations culture sets standards for determining the difference between good and bad decision making and behavior. In the most basic terms, a definition for business ethics boils down to knowing the difference between right and wrong and choosing to do what is right. The phrase 'business ethics' can be used to describe the actions of individuals within an organization, as well as the organization as a whole. Moral principles concerning acceptable and unacceptable behavior by business people. Executives are supposed to maintain a high sense of values and conduct honest and fair practices with the public. Business ethics (also known as corporate ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and business organizations as a whole. Applied ethics is a field of ethics that deals with ethical questions in many fields such as medical, technical, legal and business ethics. Why business ethics? Discussion on ethics in business is necessary because business can become unethical, and there are plenty of evidences as in today on unethical corporate practices. Even Adam Smith opined that People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. Business does not operate in a vacuum. Firms and corporations operate in the social and natural environment. By virtue of existing in the social and natural environment, business is duty bound to be accountable to the natural and social environment in which it survives. Irrespective of the demands and pressures upon it, business by virtue of its existence is bound to be ethical for at least two reasons: one, because whatever the business does affects its stakeholders and two, because every juncture of action has trajectories of ethical as well as unethical paths wherein the existence of the business is justified by ethical alternatives it responsibly chooses. One of the conditions that brought business ethics to the forefront is the demise of small scale, high trust and face-to-face enterprises and emergence of huge multinational corporate structures capable of drastically affecting everyday lives of the masses. BUSINESS EHTICS The two issues - an organizations social responsibility and responsiveness- ultimately depend on the ethical standards of mangers. The term ethics commonly refers to the rules or principles that define right and wrong conduct. Ethics is defined as the discipline dealing with what is good and bad and with moral duty and obligation. Business ethics is concerned with truth and justice and has a variety of aspects such as expectations of society, fair competition, advertising, public relations, social responsibilities, consumer autonomy, and corporate behavior in the home country as well as abroad. TYPES OF BUSINESS ETHICS Moral management Moral management strives to follow ethical principles and precepts, moral mangers strive for success, but never violate the parameters of ethical standards. They seek to succeed only within the ideas of fairness, and justice. Moral managers follow the law not only in letter but also in spirit. The moral management approach is likely to be in the best interests of the organization, long run. Amoral management This approach is neither immoral nor moral. It ignores ethical considerations. Amoral management is broadly categorized into two types intentional and unintentional. Intentional amoral managers exclude ethical issues because they think that general ethical standards are not appropriate to business. Unintentional amoral managers do not include ethical concerns because they are inattentive or insensitive to the moral implications. Immoral management Immoral management is synonymous with unethical practices in business. This kind of management not only ignores concerns, it is actively opposed to ethical behavior.

NEED FOR BUSINESS ETHICS Ethics corresponds to basic human needs. It is human trait that man desires to be ethical, not only in his private life but also in his business. These basic ethical need compel the organizations to be ethically oriented. Values create credibility with public. A company perceived by the public to be ethically and socially responsive will be honored and respected. The management has credibility with its employees precisely because it has credibility with the public. An ethical attitude helps the management make better decisions, because ethics will force a management to take various aspects- economic, social, and ethical in making decisions. Value driven companies are sure to be successful in the long run, though in the short run, they may lose money. Ethics is important because the government, law and lawyers cannot do everything to protect society. ETHICAL GUIDELINES Obeying the law: Obedience to the law, preferably both the letter and spirit of the law. Tell the Truth: To build and maintain long-term, trusting and win-win relationships with relevant stockholders. Uphold human dignity: Giving due importance to the element of human dignity and treating people with respect. Adhere to the golden rule: Do unto others as you would have others do unto you Allow Room for participation: Soliciting the participation of stakeholders rather than paternalism. It emphasizes the significance of learning about the needs of stakeholders. Always Act When You Have Responsibility: Managers have the responsibility of taking action whenever they have the capacity or adequate resources to do so. TOOLS FOR ETHICAL MANAGEMENT Top management commitment: Managers can prove their commitment and dedication for work and by acting as role models through their own behaviors. Codes of Ethics: A formal document that states an organizations primary values and the ethical rules it expects employees to follow. The code is helpful in maintaining ethical behavior among employees. Ethics committees: Appointment of an ethics committee, consisting of internal and external directors is essential for institutionalizing ethical behavior. Ethics Audits: Systematic assessment of conformance to organizational ethical policies, understanding of those policies, and identification of serious deviations requiring remedial action. Ethics training: Ethical training enables managers to integrate employee behavior in ethical arena with major organizational goals. Ethics Hotline: A special telephone line that enables employees to bypass the normal chain of command in reporting their experiences, expectations and problem. The line is usually handled by an executive appointed to help resolve the issues that are reported. INTERNATIONAL BUSINESS ETHICS While business ethics emerged as a field in the 1970s, international business ethics did not emerge until the late 1990s, looking back on the international developments of that decade. Many new practical issues arose out of the international context of business. Theoretical issues such as cultural relativity of ethical values receive more emphasis in this field. Other, older issues can be grouped here as well. Issues and subfields include: 1. The search for universal values as a basis for international commercial behaviour.
2. Comparison of business ethical traditions in different countries. Also on the basis of their respective GDP and

[Corruption rankings].
3. Comparison of business ethical traditions from various religious perspectives. 4. Ethical issues arising out of international business transactions; e.g. bioprospecting and biopiracy in the

pharmaceutical industry; the fair trade movement; transfer pricing.

(e.g. clothes) and services (e.g. call centres) to low-wage countries.

SOCIAL RESPONSIBILITY The idea that businesses should not function amorally, but instead should contribute to the welfare of their communities. Social responsibility is the obligation of decision-makers to take actions, which protect and improve the welfare of society as a whole along with their own interests. Every decision the businessman takes and every action he contemplates have social implications. Be it deciding on diversification, expansion, opening of a new branch, and closure of an existing branch or replacement of men by machines, the society is affected in one way or the other. Whether the issue is significant or not, the businessman should keep his social obligation in mind before contemplating any action. ARGUMENTS FOR SOCIAL RESPONSIBILITY Business has to respond to the needs and expectations of society. Improvement of the social environment benefits both society and business. Social responsibility discourages additional governmental regulation and intervention. Business has a great deal of power, which should be accompanied by an equal amount of responsibility. Internal activities of the enterprise have an impact on the external environment. The concept of social responsibility protects interests of stockholders. Social responsibility creates a favorable public image. Business has the resources to solve some of societys problems. It is better to prevent social problems through business involvement than to cure them. CORPORATE SOCIAL RESPONSIBILITY Corporate Social Responsibility is the responsibility for the environment. CSR is about how companies manage the business processes to produce an overall positive impact on society.