1. Give the meaning of International Business.

Describe the factors that

influence International Business.

Answer:- Meaning of International Business

International Business refers to the commercial transactions (trade of goods, services,

investments, technology, knowledge, etc.) that occur across national borders. It involves
companies or organizations conducting business operations in multiple countries, dealing with
markets, customers, competitors, and resources that are spread across various countries.
International business includes importing and exporting goods and services, setting up operations
like subsidiaries, joint ventures, or franchises in foreign countries, and collaborating in cross-
border investments.

Key elements of international business include:

 Global Trade: Exchange of goods and services across borders.

 Foreign Direct Investment (FDI): Investment in businesses in foreign countries.
 Cross-Border Transactions: Buying, selling, and investing in foreign markets.
 International Marketing: Strategies to sell products or services in international markets.

Factors that Influence International Business

Several factors influence how international business is conducted and the decisions businesses
make when operating in different countries. These factors can broadly be categorized into
economic, political, legal, cultural, and technological dimensions.

1. Economic Factors

 Economic Systems: The economic environment of a country (capitalism, socialism,

mixed economy) influences the way businesses operate. A free-market economy
promotes entrepreneurship, while a socialist system may involve state-controlled
businesses.
 Income Levels and Economic Development: The purchasing power of people in a
country directly impacts demand for products and services. More developed countries
with higher income levels tend to have more attractive markets.
 Currency Exchange Rates: Fluctuations in currency values can influence the costs of
imports and exports, and the profitability of businesses operating in foreign markets.
Exchange rate volatility can impact the profitability of international trade and
investments.
 Inflation and Interest Rates: High inflation or fluctuating interest rates can disrupt
pricing strategies and profitability. These economic factors can affect businesses'
decisions to enter certain markets or adjust pricing.
 Global Economic Trends: Factors like recessions, economic booms, or international
trade agreements can change demand patterns, supply chains, and competitive dynamics
across the globe.
2. Political and Legal Factors

 Government Policies: The role of government policies in a country, such as trade

restrictions, tariffs, subsidies, and regulations, can significantly affect international
business. Governments may impose quotas or impose duties on goods to protect local
industries.
 Political Stability: A country’s political climate (democracy, dictatorship, or political
instability) directly influences the risk level for international businesses. Political
uncertainty or turmoil (e.g., wars, revolutions) can make foreign investments risky.
 Legal Framework: The legal system in foreign markets governs how business contracts
are enforced, intellectual property rights are protected, and workers are treated.
Variations in laws, regulations, and taxation policies across borders create challenges and
require businesses to adapt their strategies accordingly.
 Trade Agreements and Alliances: Bilateral or multilateral agreements between
countries (such as NAFTA, EU, WTO, etc.) can facilitate or restrict international trade by
reducing or increasing tariffs and trade barriers.

3. Cultural and Social Factors

 Cultural Differences: Culture includes shared values, beliefs, customs, language, and
behaviors. Cultural differences can influence consumer behavior, management styles,
marketing strategies, and even product designs. Understanding and respecting cultural
diversity is crucial for businesses entering foreign markets.
 Language and Communication: Language barriers can affect marketing, negotiations,
and customer service. Effective communication is key to building relationships in
international business.
 Social Norms and Customs: Social norms such as attitudes towards work, family,
religion, and gender roles can affect business practices and employee interactions.
Adapting to these social norms can help businesses avoid misunderstandings and gain
customer trust.
 Education and Skill Levels: The level of education and expertise of the workforce
varies across countries, which impacts labor costs, productivity, and the need for training
and development programs.

4. Technological Factors

 Technological Advancements: Technology plays a significant role in shaping

international business by enhancing efficiency, enabling better communication, reducing
transportation costs, and allowing businesses to reach global markets more easily. The
availability of modern technologies in a country can influence the investment decisions of
international companies.
 Infrastructure: The level of technological infrastructure such as internet access,
transportation networks, and logistics facilities can impact how effectively a business can
operate in a foreign market. Efficient infrastructure reduces costs and improves supply
chain management.
  Innovation and Research: Countries that foster a culture of innovation and invest in
research and development provide businesses with new opportunities to develop
competitive products and services. Companies may seek to enter markets that offer a high
level of technological advancement.

5. Environmental Factors

 Geography and Climate: Natural resources, climate conditions, and geographic location
influence industries like agriculture, tourism, and manufacturing. Environmental
conditions can also affect the supply chain, production processes, and distribution
logistics.
 Sustainability and Environmental Concerns: Increasingly, businesses are focusing on
sustainable practices and minimizing their environmental impact. Environmental
regulations and consumer preferences for eco-friendly products may influence business
operations in foreign markets.

6. Competitive Factors

 Global Competition: International businesses must evaluate the level of competition in

foreign markets. Local competitors may have cost advantages, established brand
recognition, and customer loyalty. Additionally, global competitors might also be
operating in the same space.
 Market Entry Barriers: High entry barriers, such as tariffs, high capital requirements,
or regulatory obstacles, can prevent businesses from entering certain markets.
Conversely, low barriers to entry may increase competition in an industry.

7. Consumer Behavior and Preferences

 Consumer Preferences: Understanding local preferences and tailoring products or

services to meet the needs of local consumers is crucial for success in international
markets. Differences in consumer behavior—such as tastes, buying patterns, and product
usage—can dictate how businesses market and sell their offerings.
 Brand Awareness: Global brands often have a competitive edge, but local brands may
have strong customer loyalty. Businesses need to understand how their brand is perceived
in different cultural contexts.

Conclusion

International business is influenced by a complex interplay of various factors that differ across
countries and regions. By understanding these factors—economic, political, legal, cultural,
technological, environmental, and competitive—businesses can formulate strategies to succeed
in global markets. Companies must adapt to the challenges posed by different countries while
seizing opportunities presented by international expansion. The ability to navigate these factors
successfully is essential for businesses aiming to grow beyond their domestic markets.
 2. Explain the main provisions of New Economic Policy.

Answer:- Main Provisions of the New Economic Policy (NEP)

India’s New Economic Policy (NEP) was introduced in 1991 to address the economic crisis that
the country was facing at that time. The policy aimed to liberalize, privatize, and globalize the
Indian economy, transitioning from a highly regulated and protectionist model to one that is
more open to market forces and global competition.

The NEP of 1991 was a significant turning point in India's economic history, as it shifted the
country from a socialist model (characterized by heavy government control over industries) to a
more market-oriented economy. The key provisions of the New Economic Policy can be
grouped into several categories:

1. Liberalization

Liberalization refers to the process of reducing government restrictions on businesses and trade.
Under the NEP, several measures were introduced to open up the economy.

 Reduction in Import Restrictions: The policy aimed to reduce import restrictions and
quotas. This was done by reducing import duties and liberalizing foreign exchange
controls. The aim was to integrate India more into the global economy.
 Deregulation of Industries: The NEP reduced the number of industries reserved for
public sector participation. It allowed private sector enterprises to enter previously
restricted sectors. It also reduced the control over the pricing, production, and distribution
of goods.
 Reduction in Licensing: The policy introduced the “Industrial Licensing Policy” that
abolished the licensing system for most industries. The government retained licenses only
for a few industries related to security, strategic, or environmental concerns.
 Simplification of Procedures: The policy also introduced steps to reduce bureaucratic
hurdles and make the process of setting up and running businesses more efficient. This
included changes in the Foreign Investment Promotion Board (FIPB) to streamline
approvals for foreign investments.

2. Privatization

Privatization refers to the transfer of ownership and control of public sector enterprises to private
hands. The NEP aimed to reduce the dominance of the public sector in the Indian economy.

 Disinvestment in Public Sector Enterprises: The government began selling its stakes in
several state-owned enterprises (SOEs) to private investors. This was done to improve the
efficiency of these enterprises and reduce the fiscal burden on the government.
 Increased Private Sector Participation: The government encouraged private sector
participation in various industries, particularly in areas like infrastructure,
telecommunications, and power generation, which were traditionally dominated by the
public sector.
3. Globalization

Globalization refers to integrating the domestic economy with the global economy. The NEP
aimed to open up the Indian economy to the world.

 Foreign Direct Investment (FDI): The policy introduced reforms that allowed greater
foreign participation in Indian industries. The government liberalized the FDI norms and
encouraged foreign investors by offering incentives and easing restrictions.
 World Trade Organization (WTO) Membership: In 1995, India became a member of
the WTO, which further opened up India’s economy to global markets. The NEP
facilitated India's integration into the global trading system and laid the groundwork for
increased foreign trade and competition.
 External Commercial Borrowings (ECB): The policy also encouraged external
commercial borrowings and foreign loans, which helped India access international capital
and improve the availability of funds for development.

4. Fiscal and Monetary Reforms

These reforms aimed to stabilize the economy and restore balance in government finances.

 Tax Reforms: The NEP introduced tax reforms with the goal of simplifying and
broadening the tax base. This included reducing the tax rates and eliminating unnecessary
exemptions and controls. The introduction of the Goods and Services Tax (GST) was
considered a long-term goal under this policy, even though it came much later in 2017.
 Monetary Policy Reforms: The Reserve Bank of India (RBI) was given more autonomy,
and monetary policy was focused on controlling inflation and managing interest rates.
The objective was to create an environment conducive to private sector growth and
foreign investment.
 Public Debt Management: Measures were introduced to reduce fiscal deficits and
ensure better management of public debt.

5. Foreign Exchange Management

One of the most important reforms of the NEP was related to the management of foreign
exchange and the devaluation of the Indian Rupee.

 Devaluation of the Rupee: The Indian government devalued the Indian Rupee in 1991 to
make Indian exports cheaper and to reduce the trade deficit. This was done in
coordination with other economic measures to stabilize the economy.
 Introduction of the Market-Determined Exchange Rate: The policy replaced the fixed
exchange rate system with a more flexible exchange rate system, where the value of the
Indian Rupee would be determined by market forces rather than being pegged by the
government.

6. Trade Policy Reforms

The trade policy under the NEP was aimed at promoting exports, reducing import restrictions,
and fostering competition.

 Reduction of Tariffs: The NEP reduced tariffs and import duties, which allowed for
increased competition and better access to global markets for Indian consumers and
producers.
 Export Promotion: The government introduced measures to promote exports, including
export incentives and the establishment of Export Processing Zones (EPZs) and Special
Economic Zones (SEZs).
 Import Liberalization: Restrictions on imports were eased, and the government began to
allow imports of a wider range of goods. This helped increase the variety of goods
available in the domestic market and lowered prices.

7. Structural Reforms

 Labor Market Reforms: While labor reforms were not fully realized during the early
years of the NEP, there were calls for reforms to make the labor market more flexible.
The aim was to make labor laws more investor-friendly and reduce the rigidities in labor
markets.
 Infrastructure Development: The policy encouraged increased investment in
infrastructure, including transport, energy, and communication systems, through private
and foreign investments.

Conclusion

The New Economic Policy (NEP) of 1991 marked a turning point in India's economic history. It
shifted India from a closed, state-controlled economy to a more open, market-oriented economy.
Through liberalization, privatization, and globalization, the NEP aimed to foster growth, attract
foreign investments, and improve the efficiency of both public and private sectors. The policy
has played a crucial role in India's economic growth over the past few decades, making India one
of the fastest-growing economies in the world. However, the implementation of NEP also posed
challenges, including socio-economic disparities, unemployment, and inflation, which continue
to require attention.