the bank rate is the symbol of the tightening of the RBI monetary policy.

As of 31 December 2019, the bank rate is

5.40%.
• Credit Ceiling: With this instrument, RBI issues prior information or direction that loans to the commercial bank will
be given up to a certain limit. In this case, a commercial bank will be tight in advancing loans to the public. They will
allocate loans to limited sectors. A few examples of credit ceiling are agriculture sector advances and priority sector
lending.

UNIT 2

Political Environment: Definition, Concept & Effects On Business

Gaining Control Of Your Marketing Strategy

Not everyone really likes to talk about Political Environment, but as citizens of our country, we
should have a basic idea about Political Environment. To help you understand it easily, here we
present our simple content on the topic.

The political environment of business can have a drastic change. In the year 2018 the President
of The United States, Donald Trump started a trade war with China. He mentioned tariffs and
different trade barriers on Chinese products.

He stated that the unfair trade practices done by China are causing the increase in the US trade
deficit as well as the robbery of intellectual property.

The political environment in international business has been elaborated and associated with
risks that weigh before getting into international business.
As we are aware that a business has no control over the multiple elements that make up
the social environment of business. But studying them and gaining knowledge is very important
for the firm to prepare for any future changes.

Hence, in this article, we will talk about the political environment along with its definition,
concept, and its effects on business.

Political Environment: Definition

Political environment points towards the factors of the company, related to the government, or
public issues of a country and influencing companies.

Government has an inclusive meaning here, it can be the government agencies, regional
government, independent government institutions such as Financial Services
Authority and Bank Indonesia.

In a few cases transnational institutions like the World Trade Organization, World Bank,
and IMF fall under this category. This term also covers several institutions that can and have the
authority into launching regulations and policies.

Political Environment: Concept

PIN IT

The political environment contains the state, the government, and the institutions along with
legislation, private and public stakeholders who happen to operate or interact with the system.
For maintaining a firm and to operate it successfully, the political environment of business must
be good and stable. Remember the business environment is built by the Political Environment in
a country.

The business can be impacted in a positive way and the opposite if the government policies are
stable enough. A change in the government results in changes in policy.

In terms of PESTEL analysis, the political environment of business forms a company strategy,
political, economic, social, technological, environmental, legal.

Political Environment: Political Factors Affecting Business

PIN IT

There can be serious risks if there is any change in the political climate. It won’t take much time
to jeopardize the company’s strategy. For example, we have Wars, political turmoil, and
corruption.
Here is the list of critical variables of the political environment of business.

• Bureaucracy.
• Corruption.
• Regulations and policies.
• Ownership and contractual rights to enforce rules.
• Press freedom.
• Political system stability, as well as changes in leadership.
• Deregulation.
• Privatization.
• Equilibrium in the balance of payment.
• Stable and less inflation.
• Total employment.
• Income distribution.
• Strong economic growth.

To achieve these goals, the government creates a picture where business can smoothly be
done. There is both physical and non-physical infrastructure such as educational facilities, law
enforcement, public facilities, transportation, and welfare programs.

When policies and regulations change it has exposure to the political environment of
business such as :
1. Competition Rules

They govern business enterprises and promote competition for the interest of consumers.

2. Labor Regulations

They focus on the relation between workers and employers. They consist of minimum wages,
work requirements, dismissal, discriminatory practices, and occupational health.

3. Data Preserving Laws

They look into the management of personal information.

4. Environmental Laws

They focus on legal aspects that concern environmentally friendly operations on businesses.

5. Tax Incentives

They made it mandatory for individuals and entities by the government.

6. Trade Policies

It includes import quotas and tariffs as well as an administrative plan of action related to import
and export.
7. Property Laws

They provide protection of copyright and patents. And show the political environment of
business.

8. Corporate Governance Policies

They make sure of companies operate transparently with ethics to promote ethical business.

How Do Businesses Minimize The Threats From The Political

Environment?
PIN IT

They build political strategies that reduce risk and offer opportunities. Large companies do it
through their own lobbyists or other trade associations.

They devote resources and play games to influence the decisions of the government which are
vital for their business.

Frequently Asked Questions (FAQ):

Q1: What Is The Political Environment Of Business?
A: It includes political conditions like general stability and peace throughout the country and the
attitude of an elected government towards a business. For a stable political system business,
friendly decisions promote local businesses and attract foreign investors.

Q2: What Are Examples Of The Political Environment In Business?

A: Components like fiscal policy, rules, and notifications tax laws and monetary policies.

Q3: What Is The Political Environment And How Does It Effect International Business?

A: International business in a political environment consists of political factors and government

activities in the foreign market. It can therefore facilitate a business to supervise business
activities.

Q4: Why Is The Political Environment Is Important?

A: It is important as the stability of the political system can intrigue a particular local market.
Hence, the government views business organizations as a critical vehicle for social reform.

Political Environment: Legislature, Executive, and Judiciary

The influence of the political environment of business is enormous. This article explains the topic of
the International political environment and system: with their important concepts; Legislature,
Executive, and Judiciary. The political system prevailing in a country decides, promotes, fosters
encourages, shelters, directs and controls the business activities of those countries. Political Environment
is the relationship between the state government and institutions legislation public and private in the
Business environment.

International political environment and system: with their

important concepts; Legislature, Executive, and Judiciary.

A political system that is stable, honest, efficient and dynamic and which ensures political participation of the
people, and assures personal security to the citizens, is the primary factor for the growth of any business.
Two basic political philosophies are in existence all over the world, viz., democracy and totalitarianism.

In its pure sense, democracy refers to a political arrangement in which supreme power vests in the people.
Democracy may manifest itself in any of two fundamental manners. If each individual is given the right to
rule and vote on every matter, the result is pure democracy which is not, however, workable in a complex
society with a large constituency.

Hence, the republican forms of the organization follow whereby the public, in a democratic manner, elect
their representatives who do the ruling. In totalitarianism, also, call authoritarianism, individual freedom is
completely subordinate to the power of authority of the state and concentrates in the hands of one person or
in a small group that is not constitutionally accountable to the people.

Societies ruled by a pressure clique – political, economy or military – or by a dictator plus most oligarchies
and monarchies belong to this category. The doctrine of fascism and erstwhile Russian Communism is an
example of totalitarianism.
 India is a democratic country. Our political system comprises three vital institutions:

• Legislature.
• Executive or government, and.
• Judiciary.
Now, explain each one:

Legislature:

Out of three, the legislature is the most powerful political institution vested with such powers as policy
making, law-makings, budget approving, executive control and acting as a mirror of public opinion. The
influence of the legislature on business is considerable. It decides such vital aspects as the type of
business activities, the country should have, who should own them, what should be their size of the
operation, what should happen to their earnings and other related factors.

The legislature is the most powerful institution. The main powers are vesting in the legislature are; in today’s
economies, particularly of developing countries like India, the relevance of a protective legal environment for
Business assumes immense proportions as it is the very foundation of every investment decision.

The business has to be within the law of the Land. Every aspect of the business from its birth till death
covers under the laws to ensure that not only profit is earned in a justified and fairway but also to ensure that
in the attainment of business interests the interest of each person fully protect and the profits of the business
are distributing in a manner beneficial to the society.
 Government as Executive:

Also called the “state” the term government refers to “the center of the political authority having the power to
govern those it serves”. For business consideration, we should know what are the government’s
responsibilities to the business.

Specifically, the executive or government’s responsibilities towards business are as follows:

• Establishment and enforcement of the law.

• Maintenance of order.
• Money and credit.
• Orderly growth.
• Infrastructure.
• Information.
• Assistance to small industries.
• Transfer of technology, and.
• Tariffs and Quotas.
More things:

The Government or executive is the executory body of the laws which are framed by the legislature.
According to E. V. Schneider,

“Government is that institution by which men everywhere, seek to order society, that is, to control the
structure and functioning of society.”
According to Musselman and Hughes,

“Government is the center of the political authority having the power to govern those it serves.”
In simple words, the role of the Government or executive is to shape, direct and control the business
activities. The translations of the objective of any laws to the reality depend as much upon the law itself as
on its implementation. The implementation of the law in its word and spirit only can ensure the realization of
its true objectives.

Indian constitution provides for a federal set up with powers being divided between central and state
governments. The powers and functions of central and state governments are described in the constitution.

Judiciary:

The third political institution is the judiciary. Judiciary determines how the work of executives has been
fulfilled. It settles the relationship between private citizens, on one hand, and between citizens and the
government upon the other. The judiciary sees to it that the exercise of authority by the executives is
according to the general rules laid down by the legislature, it may declare that any particular order issued is,
in fact, ultra vires (beyond the authority). It is the power of the Judiciary to settle legal disputes that affect
business considerably.
 1) Disputes between employers and employees, 2) employer and employer, 3) employee and employee, 4)
employers and the public, and 5) employers and the government.

The power of the judiciary is of the dual type:

• The authority of the courts to settle legal disputes, and.

• Judicial review – the authority of the courts to rule on the constitutionality of legislation.
What is the International political environment?

Introduction: The political environment of the country of operation becomes increasingly important for the
international firm. As it moves from exports to foreign direct investment (FDI) as the mode of international
market entry. Exporting firms use political pressure tactics to have free exportability of the products in their
home country regulations, hassle-free procedures, and legislative requirements and export incentives.

Besides, diplomatic channels are utilizing to get improve market access for imported goods in the target
foreign country markets, reduced import tariffs, compatible quality regulations, etc. The dispute settlement
mechanism, legal framework, and judicial independence are also critical to fair treatment expecting in
international business. Cordial political relations between the firm’s home country and the host countries
have a direct favorable impact on FDIs.

More things:

As a firm expands internationally and begins to operate in multiple countries, political and legal issues
become increasingly complex. Consequent to economic liberalization in the People’s Republic of China,
multilevel marketing firms, such as Amway, Avon, Tupperware, and Mary Kay Cosmetics grew rapidly. By
1997, Amway had approximately 80,000 sales representatives who generated $178 million in sales.
Whereas Avon had nearly 50,000 representatives who generated sales of $75 million.

It was reported that some other companies using the so-called pyramid schemes were cheating consumers.
Consequently, the Chinese government banned direct selling in April 1998. As a result, direct marketing
companies were prohibited to operate their business model in China. It was only after diplomatic pressures
and negotiations between the US and the Chinese governments that the policy was reversed. The firm-level
economic and political interests of the home and the host countries may differ widely.

International managers need to understand the significance of political decision-making in the host country
that may severely influence its overseas operations. International business relations between the firms are
greatly affecting “affinity” or “animosity” among the countries based on historical or political reality. For
instance, India’s political affinity with Sri Lanka and Mauritius has led to a high level of trade and investment
whereas the reverse situation exists in the case of Indo-Pak trade.
 Political Environment: Legislature, Executive, and Judiciary,

International Political Systems and Ideologies:

International political and economic systems or environments hardly function independently. The two are
mutually inter-dependent. Political and diplomatic relations between the two counties greatly influence their
economic relations. The political system of a country comprises various stakeholders. Such as the
government, political parties with different ideologies, labor unions, religious organizations, environmental
activists, and various NGOs.

Each of these players in a political system has its own unique sets of beliefs and aspirations and exerts its
influence upon political decisions. The acquisition, development, securing, and use of power about other
entities. Where did power view as the capacity of the social actors to overcome the resistance of the other
actors are term as political behavior? Ideology is a set of beliefs or ideas as to how the society or group
should organize, politically, economically, or morally.

More knowledge:

Political ideology is a set of ideas or beliefs. That people hold about their political regime and its institutions
about their position and role in it. Ideologies of different groups or political parties are often conflicting and
they keep on challenging each other. In democratic countries, such as India, the US, and the UK, the shift in
the political parties and their ideologies puts pressure on business operations of foreign firms. The power
exerted by different pressure groups also varies from country to country.
For instance, communist or socialist parties in countries, such as Russia and China hardly face any
considerable challenge whereas such parties exert sizeable political pressure in countries like India,
Sweden, Italy, and Greece. On the other hand; these parties hardly have any political viability in the US.
Most religious organizations are politically neutral in India. Whereas the Catholic Church played a crucial
role in overthrowing Ferdinand Marcos in the Philippines and the liberation of Poland from Soviet
domination. Islamic religious leaders in Iran greatly influence political decision making.

What is FEMA?

It is a set of regulations that empowers the Reserve Bank of India to pass regulations and enables the
Government of India to pass rules relating to foreign exchange in tune with the foreign trade policy of India.

Which Act did FEMA replace?

FEMA replaced an act called Foreign Exchange Regulation Act (FERA).

What is FERA and when was it passed?

FERA (Foreign Exchange Regulation Act) legislation was passed in 1973. It came into effect on January 1,
1974. FERA was passed to regulate the financial transactions concerning foreign exchange and securities.
FERA was introduced when the Forex reserves of the country were very low.

Why was FERA replaced?

FERA did not comply with the post-liberalization policies of the Government.
What is the main change brought in FEMA compared to FERA?

It made all the criminal offences as civil offences.

For comprehensive information on the Difference between FERA and FEMA, visit the given link.

Main Features of Foreign Exchange Management Act, 1999

1. It gives powers to the Central Government to regulate the flow of payments to and from a person situated outside
the country.
2. All financial transactions concerning foreign securities or exchange cannot be carried out without the approval of
FEMA. All transactions must be carried out through “Authorised Persons.”
3. In the general interest of the public, the Government of India can restrict an authorized individual from carrying out
foreign exchange deals within the current account.
4. Empowers RBI to place restrictions on transactions from capital Account even if it is carried out via an authorized
individual.
5. As per this act, Indians residing in India, have the permission to conduct a foreign exchange, foreign security
transactions or the right to hold or own immovable property in a foreign country in case security, property, or
currency was acquired, or owned when the individual was based outside of the country, or when they inherit the
property from individual staying outside the country.

Categories of Authorised Persons under FEMA

Category Authorized Dealer – Authorized Dealer Authorized Full Fledged Money

Category I Category – II Dealer Changers

Category – III
Entities 1.Commercial Banks 1. Upgraded FFMC 1. Select Financial 1. Department of Post
and other
2.State Co- 2. Co-operative Banks Institutions 2.Urban Co-
operative Banks operative Banks
3. Regional Rural
3.Urban Co- Banks (RRB’s), others 3. Other FFMC
operative Banks
Activities As per RBI guidelines, All activities permitted to Foreign Purchase of foreign
Permitted all current and capital FFMC and specified non- exchange, exchange and sale for
account transactions trade related current private and business
account transactions transactions visits abroad
related
Structure of FEMA.

1. The Head Office of FEMA, also known as Enforcement Directorate, headed by the Director is located in New Delhi.
2. There are 5 zonal offices in Delhi, Mumbai, Kolkata, Chennai, and Jalandhar, each office is headed by Deputy
Director.
3. Every 5 zones are further divided into 7 sub-zonal offices headed by Assistant Directors and 5 field units headed by
Chief Enforcement Officers.
Switch from FERA[edit]
FERA did not succeed in restricting activities such as the expansion of Multinational Corporations. The concessions made
to FERA in 1991-1993 showed that FERA was on the verge of becoming redundant. After the amendment of FERA in 1993,
it was decided that the act would become the FEMA. This was done in order to relax the controls on foreign exchange in
India. This led on to invention of beliefs among stakeholders that FEMA and FERA co-exist in present Indian scenario.

FERA was repealed in 1998 by the government of Atal Bihari Vajpayee and replaced by the Foreign Exchange
Management Act, which liberalised foreign exchange controls and restrictions on foreign investment.[10][11][12]
The buying and selling of foreign currency and other debt instruments by businesses, individuals and governments happens
in the foreign exchange market. Apart from being very competitive, this market is also the largest and most liquid market in
the world as well as in India. It constantly undergoes changes and innovations, which can either be beneficial to a country or
expose them to greater risks. The management of foreign exchange market becomes necessary in order to mitigate and
avoid the risks. Central banks would work towards an orderly functioning of the transactions which can also develop their
foreign exchange market. Foreign Exchange Market Whether under FERA or FEMA’s control, the need for the management
of foreign exchange is important. It is necessary to keep adequate amount of foreign exchange.

FEMA served to make transactions for external trade and easier – transactions involving current account for external trade
no longer required RBI’s permission. The deals in Foreign Exchange were to be ‘managed’ instead of ‘regulated’. The
switch to FEMA shows the change on the part of the government in terms of for the capital. [13]

Fundamental principle[edit]
Under FEMA, the general principle is that all current account transactions are permitted unless expressly
prohibited and all Capital account transactions are prohibited unless expressly permitted. (see Sections 5 and 6 of
FEMA)

“Capital account transaction” means a transaction which alters the assets or liabilities, including contingent liabilities,
outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes
transactions referred to in sub-section (3) of section 6;[14]

It generally refers to Capital inflows like Equities, Grants and Debt. Inflows within the country are called as 'Foreign Direct
Investment' (FDI). Capital debt is termed - External Commercial Borrowings (ECB).

Equity outflows are termed as 'Foreign outbound investment' .

Any corporate entity receiving FDI or making an outbound investment has to file an annual FEMA return called as Foreign
Liabilities and Assets (FLA). [15]

Current Account transaction are defined as transactions other than capital account transactions. Mainly include transactions
pertaining to individual remittances, trade, student remittances etc. [14]
Regulations/Rules under FEMA[edit]
• Foreign Exchange Management (Current Account Transactions) Rule, 2000
• Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000
• Foreign Exchange Management (Transfer or Issue of any Foreign Security) regulations, 2004
• Foreign Exchange Management (Foreign currency accounts by a person resident in India)Regulations, 2000
• Foreign Exchange Management (Acquisition and transfer of immovable property in India) regulations, 2018
• Foreign Exchange Management (Establishment in India of branch or office or other place of business) regulations, 2000
• Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016
• Foreign Exchange Management (Export of Goods and Services) regulations, 2015
• Foreign Exchange Management (Realizations, repatriation and surrender of Foreign Exchange) regulations, 2000
• Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2000
• Foreign Exchange ( Adjudication Procedure and Appeals) rules,
• Foreign Exchange Management (Borrowing and Lending) Regulations, 2018
• Foreign Exchange Management (Cross Border Merger) Regulations, 2018
• Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017
• Foreign Exchange Management (Remittance of Assets) Regulations, 2016
• Foreign Exchange Management (Deposit) Regulations, 2016
• Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any
other place of business) Regulations, 2016
Consumer Protection Act

With changing times the economic and business environment of India also went through
a change. In the 1980s and 1990s, we opened our economy and truly became a global
trading partner with the world. This exposed customers to new products but also new
problems. And we finally introduced the Consumer Protection Act to safeguard
consumers.

Consumer Protection Act

Consumer Protection Act has been implemented(1986) or we can bring into existence to
protect the rights of a consumer. It protects the consumer from exploitation
that business practice to make profits which in turn harm the well being of the consumer
and society.
This right help to educate the consumer on the right and responsibilities of being a
consumer and how to seek help or justice when faced exploitation as a consumer. It
teaches the consumer to make right choices and know what is right and what is wrong.

Practices to be followed by Business under Consumer Protection Act

• If any defect found the seller should remove the mentioned defects from the whole
batch or the goods affected. For example, there have been cases where car
manufacturing unit found a defect in parts of the vehicle usually they remove the
defect from every unit or they call of the unit.
• They should replace the defective product with a nondefective product and that
product should be of similar configuration or should be the same as
the product purchased.

Redressal: Three Tier System Under Consumer Act

• District Forum: These fora are set by the district of the state concerned in each
district wherein it consists of President and two members of which one should be a
woman and is appointed by the State Government. In this, the complaining party
should not make a complaint more than 20 Lacs and once the complaint is filed the
goods are sent for testing and if they found defective the accused party should
compensate and if the party is dissatisfied can make an appeal with state commission
within 30 days.
• State Commission: This is set up by each state It consists of President and two
members. Complains should be at least 20 lacs and exceed not more than 1 crore.
The goods are sent for testing and if found defective are asked for replacement or
compensation. If not satisfied can make an appeal within 30 days in front of the
National Commission.
• National Commission: Consist of President and 4 members. The complaint must
exceed an amount of 1 crore. The goods are sent for testing and if found defective
are asked for replacement or compensation

What is Liberalisation?
Liberalisation, simply put, refers to the relief of state restrictions within the areas of
social, political, and economic policies. Liberalization in economic policy focuses on the
reduction of government laws and restrictions in place to encourage greater participation
by private entities.

Liberalisation in India

India’s economic reforms were aided by a balance of payments problem in 1985. This
crisis caused the government unable to pay for basic imports and service its debt
obligations. Consequently, India drove to the verge of bankruptcy. As a response thereto,
the then minister of finance of India, Dr Manmohan Singh, introduced economic
liberalisation in India.

Features of Liberalisation
The following are some of the characteristics of liberalisation that began as part of the
1991 economic reforms:

• The country’s previously existing License Raj is annulled.

• Interest rates and tariffs were lowered.
• Stripping away the public sector’s existing monopoly from various segments of the
economy
• Foreign investment in different industries was sanctioned.

Advantages of Liberalisation

• Economic liberalisation has enabled free capital flow in our country, allowing
companies to easily access capital from investors. Due to a lack of capital during the
pre-liberalisation period, taking on lucrative projects was frowned upon, but this was
changed in 1991, resulting in higher growth rates.
• Following the liberalisation of the financial system, investors now have the option of
investing a portion of their portfolio in a diverse asset class, thus generating more
revenue.
• A relief in economic laws leads to an increase in the value of the stock market,
inviting more trading between investors.
• Although the effect of liberalisation on the agricultural sector cannot be directly
measured, there was a substantial increase in the period following 1991.

Disadvantages of Liberalisation

• Such a significant economic overhaul resulted in a redistribution of economic and

political power, which rattled the Indian economy to a large extent.
• Prior to liberalisation, global corporations played no role in the Indian economy.
However, Indian firms soon faced increased competition from MNCs, endangering
the existence of many small enterprises.
• The emergence of mergers and acquisitions in the post-liberalisation period posed a
threat to employees of small companies. Employees of smaller firms had to undergo
rigorous re-skilling in the event of a merger with larger corporations, resulting in
stagnant productivity.

Objectives

1. To address India’s looming balance-of-payments crisis.

2. To increase the private sector’s engagement in India’s economic development.
3. Increasing the flow of foreign direct investment in Indian businesses.
4. To promote competition among domestic businesses in India.
5. Maximizing India’s economic opportunities by empowering multinational and private
entities.
6. To lead the way for the Indian economy into globalisation.
7. To control and encourage foreign trade by governing exports and imports.

Reforms under Liberalisation

• Industrial Sector Deregulation

• Finance Industry
• Taxation
• International Finance
• Trade and Investment Policy
• External Sector
• Forex
• Foreign Trade Policy

Impact of Liberalisation

Positive Impacts:

• Capital liberalisation has increased the flow of capital by making it cheaper for
businesses to access capital from investors and embark on profitable projects.
• Investors will benefit from diversification if they invest a portion of their business in a
diversifying asset class.

Negative Impacts:

• A massive reconstruction of political and economic power will result in the

destabilisation of the entire Indian economy.
• Rapid technological advancement allows many small-scale industries and other
enterprises in India to either adapt to changes or close their doors.
• Small businesses merge with large corporations. As a result, employees of small
businesses may need to improve their skills and become more technologically
advanced. Skill enhancement and the time it may take may result in non-productivity
and be a drain on the company’s capital.

FAQs on Liberalisation
1) Define Liberalisation?

Liberalisation is the loosening of a government’s constraints on its current economic and

social policies.

2) What’s the difference between privatisation and liberalisation?

Privatisation refers to the transfer of ownership from the public to the private sector,
whereas liberalisation refers to the removal of a state’s influence over economic policies.
In some ways, privatisation is a step toward economic liberalisation.

3) What were the two primary goals of liberalisation in India?

The two main goals of liberalisation in India were:

• To increase foreign direct investment, industrial production, and technological

competitiveness on a global scale.
• Strengthen India’s standing in foreign markets.

Meaning of Privatisation
It means the transfer of ownership, management, and control of the public sector enterprises to the private
sector.

Privatisation can suggest several things including the migration of something from the public sector to the
private sector. It is also used as a metonym for deregulation when a massively regulated private firm or
industry becomes less organised. Government services and operations may also be (denationalised)
privatised. In these circumstances, private entities are tasked with the application of government plans or the
execution of government assistance that had earlier been the vision of state-run companies. Some
instances involve law enforcement, revenue collection, and prison management.

Privatisation of the public sector companies by selling off parts of the equity of PSEs to the public is known
as disinvestment.
Objectives of Privatisation
Providing strong momentum for the inflow of FDI

• Privatisation aims at providing a strong base for the inflow of FDI.

• The increased inflow of FDI improves the financial strength of the economy.

Improving the efficiency of public sector undertakings (PSUs)

• The efficiency of PSUs is improved by giving them the autonomy to make decisions.
• Some companies were given special categories of Navratna and Miniratna

Ways of Privatisation
Government companies are transformed into private companies in two ways.

Transfer of ownership

Government companies can be converted into private companies in the following two ways:

• By the withdrawal of the government from the ownership and management of public sector companies
• By the outright sale of public sector companies.

Disinvestment

• Privatisation of the public sector undertakings by selling off parts of the equity of PSUs to the private sector is known
as disinvestment.
 • The purpose of the sale is mainly to improve financial discipline and facilitate modernisation.

However, there are six methods of privatisation.

• Public sale of shares

• Public auction
• Public tender
• Direct negotiations
• Transfer of control of enterprises that were controlled by the state or by municipalities
• Lease with a right to purchase

What is globalization?
Globalization is the process by which ideas, knowledge, information, goods and services spread
around the world. In business, the term is used in an economic context to describe integrated
economies marked by free trade, the free flow of capital among countries and easy access to
foreign resources, including labor markets, to maximize returns and benefit for the common
good.

Globalization is driven by the convergence of cultural and economic systems. This convergence
promotes -- and in some cases necessitates -- increased interaction, integration and
interdependence among nations. The more countries and regions of the world become
intertwined politically, culturally and economically, the more globalized the world becomes.
How globalization works
In a globalized economy, countries specialize in the products and services they have a
competitive advantage in. This generally means what they can produce and provide most
efficiently, with the least amount of resources, at a lower cost than competing nations. If all
countries were specializing in what they do best, production should be more efficient worldwide,
prices lower, economic growth widespread and all countries benefiting -- in theory.

Policies that promote free trade, open borders and international cooperation drive economic
globalization. They enable international businesses to access lower priced raw materials and
parts, take advantage of lower cost labor markets, and access larger and growing markets
around the world in which to sell their goods and services.

Money, products, materials, information and people flow more swiftly across national boundaries
than ever. Advances in technology enable and accelerate this flow and the resulting
international interactions and dependencies. These technological advances have been
especially pronounced in transportation and telecommunications.

Among the recent technological changes that have played a role in globalization are the
following:
Internet and internet communication. The internet has increased the sharing and flow of
information and knowledge, access to ideas and exchange of culture among people of different
countries. It has contributed to closing the digital divide between more and less advanced
countries.

Communication technology. The introduction of 4G and 5G technologies has dramatically

increased the speed and responsiveness of mobile and wireless networks.
 Increased speed and
bandwidth are among the benefits of 5G technology.

Internet of things and artificial intelligence. IoT and AI technologies are enabling the tracking
of assets in transit and as they move across borders, making cross-border product management
more efficient.

Blockchain. This technology provides a transparent ledger that centrally records and vets
transactions in a way that prevents corruption and breaches. It facilitates the secure access to
data required in industries such as healthcare and banking. It has also enabled the development
of decentralized databases and storage that support the tracking of materials in the supply
chain.

There are at least 10 known

benefits of blockchain technology.
Transportation. Advances in air transport and fast rail technology have facilitated the
movement of people and products. Changes in shipping logistics technology have made it
possible to move raw materials, parts and finished products around the globe more efficiently.

Manufacturing. Advances in manufacturing, such as automation and 3D printing, have reduced

geographic constraints in manufacturing. 3D printing enables digital designs to be sent
anywhere and physically printed, making distributed, smaller-scale production near the point of
consumption easier. Automation speeds up processes and supply chains, giving workforces
more flexibility and improving output.

Why is globalization important?

Globalization changes the way nations, businesses and people interact. Specifically, it changes
the nature of international economic activity, expanding trade, opening global supply chains and
providing access to natural resources and labor markets.

Changing the way trade and financial exchange and interaction occur among nations also
promotes the cultural exchange of ideas. It removes the barriers caused by geographic
constraints, political boundaries and political economies.
For example, globalization enables businesses in one nation to access another nation's
resources. More open access changes the way products are developed, supply chains are
managed and organizations communicate. Businesses find cheaper raw materials and parts,
less expensive or more skilled labor and more efficient ways to develop products.

With fewer restrictions on trade, globalization creates opportunities to expand. Increased trade
promotes international competition. This, in turn, spurs innovation and, in some cases, the
exchange of ideas and know-how. In addition, people coming from other nations to do business
and work bring with them their own cultures, which influence and mix with other cultures.

The many types of exchange that globalization facilitates can have positive and negative effects.
For instance, the exchange of people and goods across borders can bring fresh ideas and help
business. However, this movement can also increase the spread of disease and promote ideas
that might destabilize political economies.

For example, increased international trade and travel in the late 1990s led to West Nile Virus
being introduced to North America, likely as a result of infected species being transported or
people traveling there.

History of globalization
Although many people consider globalization a twentieth-century phenomenon, the process has
been happening for millennia. Examples include the following:

• The Roman Empire. Going back to 600 B.C., the Roman Empire spread its economic and
governing systems through significant portions of the ancient world for centuries.

• Silk Road trade. These trade routes, which date from 130 B.C. to 1453 A.D., represented
another wave of globalization. They brought merchants, goods and travelers from China,
through Central Asia and the Middle East, to Europe.

• Pre-World War I. European countries made significant investments overseas in the decades
before World War I. The period from 1870 to 1914 is called the golden age of globalization.

• Post-World War II. The United States led the effort to create a global economic system with
a set of broadly accepted international rules. Multinational institutions were established such
as the United Nations, International Monetary Fund, World Bank and World Trade
Organization to promote international cooperation and free trade.

The term globalization as it's used today came to prominence in the 1980s, reflecting several
technological advancements that increased international interactions. IBM's introduction of
the personal computer in 1981 and the subsequent evolution of the modern internet are two
examples of technology that helped drive international communication, commerce and
globalization.

Globalization has ebbed and flowed throughout history, with periods of expansion and
retrenchment. The 21st century has witnessed both. Global stock markets plummeted after the
Sept. 11, 2001, terrorist attacks in the United States, but rebounded in subsequent years.

More recently, nationalist political movements have slowed immigration, closed borders and
increased trade protectionism. The pandemic had similar effects on borders and immigration,
and it also disrupted supply chains. However, overall, the early 21st century has seen a
dramatic increase in the pace of global integration. Rapid advances in technology and
telecommunications are responsible for much of this change, according to economists.

What is the G20?

The G20, or Group of Twenty, is an international forum that aims to foster international
cooperation by addressing global economic issues, such as financial stability and climate
change. The G20 is made up of 19 countries and the European Union, including most of the
world's largest economies.
The nations involved account for 80% of the planet's population, 75% of global exports and 85%
of world GDP. It was founded in 1999, following the 1997 financial crisis, and has met every
year since then.

Since 2008, the G20 has held an annual summit that brings together heads of state to discuss
important economic issues. The G20's president is selected annually on a rotating basis, and
that person's home country hosts the summit.

In 2021, the summit was held in Rome, Italy, and it addressed issues such as climate change,
vaccines, taxes, the global economy and development aid. The 2022 summit was held in Bali,
Indonesia. The main themes addressed were energy, governance, health, industrial
development, economics and investment, as well as countering Russian aggression in Ukraine.
The 2023 summit was held in New Delhi, India, with a focus on similar issues as well as an
agreement to dramatically expand sustainable energy.

The members of G20 are Argentina, Australia, Brazil, Canada, China, France, Germany, Japan,
India, Indonesia, Italy, Mexico, Russia, South Africa, Saudi Arabia, South Korea, Turkey, the
United Kingdom, the United States, the European Union and the African Union. Spain is a
permanent guest of the organization.
Types of globalization: Economic, political, cultural
There are three types of globalization.

• Economic globalization. This type of globalization focuses on the integration of

international financial markets and the coordination of financial exchange. Free trade
agreements, such as the North American Free Trade Agreement and the Trans-Pacific
Partnership, are examples of economic globalization. Multinational corporations, which
operate in two or more countries, play a large role in economic globalization.

• Political globalization. This type covers the national policies that bring countries together
politically, economically and culturally. International organizations such as NATO and the
United Nations are part of the political globalization effort.

• Cultural globalization. This aspect of globalization focuses in large part on the technological
and societal factors that are causing cultures to converge. These include increased ease of
communication, the pervasiveness of social media and access to faster and better
transportation.

These three types of globalization influence one another. For example, liberalized national trade
policies drive economic globalization. Political policies also affect cultural globalization, enabling
people to communicate and move around the globe more freely. Economic globalization also
affects cultural globalization through the import of goods and services that expose people to
other cultures.

Effects of globalization
The effects of globalization can be felt locally and globally, touching the lives of individuals as
well as the broader society in the following ways:

• Individuals. A variety of international influences affect ordinary people. Globalization can

make it easier for people to access raw materials, products and services. It can also lower
the prices they pay and their ability to travel to other countries.

• Communities. Globalization also changes how local and regional organizations, businesses
and economies function and interact. It affects who lives in communities, where they work,
who they work for, their ability to move out of their community and into one in another area,
etc. Globalization also changes the way local cultures develop within communities.

• Institutions. Multinational corporations, national governments and other organizations such

as colleges and universities are all affected by their country's approach to and acceptance of
globalization. Globalization affects the ability of a company to grow and expand, a university's
 ability to diversify and grow its student body and a government's ability to pursue specific
economic policies.

While the effects of globalization can be observed, analyzing the net impact is more complex.
Proponents often see specific results as positive, and critics of globalization view the same
results as negative or somewhat ineffective. A relationship that benefits one entity may damage
another, and whether globalization benefits the world at large remains a point of contention.

Internationalization and
localization are both product strategies used in globalizing industries.
Examples of globalization
Multinational corporations are a tangible example of globalization. Some examples include the
following:

• McDonald's had more than 40,000 fast-food restaurants in 118 countries and territories in
2022.

• Ford Motor Company works with about 1,400 tier 1 suppliers around the globe.

• Amazon has expanded in recent years and now has nearly 10 million sellers globally and
employs approximately 1.5 million employees.

Multinational corporations influence the social and economic development of the countries that
host them. They also embody the contradictions of globalization. They bring jobs, skills and
wealth to the region they're investing or doing business in. But they also can destroy local
businesses, exploit cheap labor and threaten indigenous cultures. The benefits they offer are
often unsustainable because the loyalty of multinationals is to their investors and bottom lines
and not to the local people, economies and cultures where they're doing business.

Another example of globalization is the response to the COVID-19 pandemic. Because the world
was able to communicate across boundaries, some nations worked together to quickly produce
vaccines for the virus. In addition, doctors traveled where they were needed. For example, Cuba
sent doctors to Italy at the beginning of the pandemic to assist with the crisis as it developed
there.

However, countries also enacted strict travel restrictions, and many closed their borders to cut
down on the free movement of people and spread of the virus.

Benefits of globalization
Globalization enables countries to access less expensive natural resources and lower cost
labor. As a result, they can produce lower cost goods that can be sold globally. Proponents of
globalization argue that a global economy improves the state of the world in many ways, such
as the following:

• Solving economic problems. Globalization moves jobs and capital to places that need
these resources. It gives more developed countries access to lower cost resources and
labor, and less developed countries access to jobs and the investment funds they need for
development.
• Promoting free trade. Globalization puts pressure on nations to reduce tariffs, subsidies and
other barriers to free trade. This promotes economic growth, creates jobs, makes companies
more competitive and lowers prices for consumers.

• Spurring economic development. Globalization can give developing countries access to

foreign capital and technology they wouldn't otherwise have, thus bridging the digital divide.
Foreign investment can result in an improved standard of living for the citizens of those
nations.

• Encouraging positive trends in human rights and the environment. Advocates of

globalization point to improved attention to human rights on a global scale and a shared
understanding of the impact of people and production on the environment.

• Promoting shared cultural understanding. Advocates view the increased ability to travel
and experience new cultures as a positive part of globalization that can contribute to
international cooperation and peace.
Negative consequences of globalization
Many proponents view globalization as a way to solve systemic problems in the world economy,
but critics see it as increasing global income inequality. Among the critiques of globalization are
the following issues:
• Destabilizes markets. Critics of globalization blame the elimination of trade barriers and the
freer movement of people for undermining national policies and local cultures. Labor markets
in particular are affected when people move across borders in search of higher paying jobs
and companies outsource work and jobs to lower cost labor markets.

• Damages the environment. The transport of goods and people among nations
generates greenhouse gases and all the negative effects it has on the environment. Global
travel and trade also can introduce, sometimes inadvertently, invasive species to foreign
ecosystems. Industries such as fishing and logging tend to go where business is most
lucrative or the regulatory environment is less restrictive, which has resulted in overfishing
and deforestation in some parts of the world.

• Lowers living standards. When companies move operations overseas to minimize costs,
such moves can eliminate jobs, increasing unemployment in sectors of the home country.

• Facilitates global recessions. Tightly integrated global markets carry a greater risk of
global recessions. The 2007-2009 financial crisis and Great Recession is a good example of
how intertwined global markets are and how financial problems in one country or region can
quickly affect other parts of the world. Globalization reduces the ability of individual nations to
use monetary and fiscal policies to control the national economy.
• Damages cultural identities. Critics of globalization decry the decimation of unique cultural
identities and languages that comes with the international movement of businesses and
people. At the same time, the internet and social media are driving this trend even without
the movement of people and commerce.

• Increases the likelihood of pandemics. Increased travel has the potential to increase the
risk of pandemics. The H1N1 swine flu outbreak of 2009 and coronavirus in 2020 and 2021
are two examples of serious diseases that spread to multiple nations quickly.
Examples of deglobalization
Globalization critics promote deglobalization, where nations are skeptical of global integration.
Independence, particularly economic independence, is viewed as more beneficial than
interdependence on other nations.

For example, the COVID-19 pandemic's effect on global supply chains caused bottlenecks and
shortages of many goods, straining various nations' economies. To proponents of
deglobalization, a shift toward locally sourced raw materials and products made sense.

However, it's not just countries that are becoming deglobalized. Companies are disengaging
from certain countries, as well. Many companies closed their offices in Russia and suspended
service in light of the Russia-Ukraine war. Others have partially ceased operations there, as
Sketchers did in suspending shipments to Russia but not online sales.

In recent decades, companies in certain sectors -- particularly manufacturing -- have outsourced

operations to other countries to take advantage of lower labor costs. More recently, there have
been targeted efforts to reduce reliance on countries like China and reshore U.S.
manufacturing so that products can be sourced in the U.S. For example, Intel is building
two semiconductor plants in central Ohio, and Hyundai is building an electric vehicle and battery
manufacturing plant in Georgia.

The factors which have enabled globalisation in India are:

(i) During the past, 50 years, several improvements in technology have taken place. For
example, in transportation technology, containers are now used for the transportation of
goods. This has led to huge reduction in cost and increase in speed in reaching the
markets. (ii) Rapid improvement in transportation has been one major factors that has
stimulated the globalisation process. This has made much faster delivery of goods across
long distances possible at lower costs. (iii) Information Technology (IT) has played a major
role in spreading out production of services. (iv) The Government of India has removed
barriers or restrictions to trade set earlier. This step, called liberalisation, enabled goods
 and services to be exported and imported easily. Multinationals lave been allowed to set-up
factories and offices in India.

The factors are stated below: (i) Rapid improvement in transportation has been one major
factors that has stimulated the globalisation process. This has made much faster delivery of
goods across long distances possible at lower costs (ii)In recent times communication and
information technology got a boost with the invention of computers and internet etc. (iii)
Information Technology (IT) has played a major role in spreading out production of
services. For example, a news magazine published for London readers is to be designed
and printed in Delhi

What is Socio Cultural Environment?

The dynamic and evolving sociocultural environment plays a pivotal role in shaping
businesses. It encompasses attitudes, behaviors, and values in society, closely linked to
population, lifestyle, culture, tastes, customs, and traditions. This complex web,
incorporated by communities and inherited across generations, defines the social and
cultural landscape.

The socio-cultural environment of business is a blend of the social system and people’s
culture. It encompasses customs, values, conduct codes, beliefs, and traditions. This
environment significantly impacts every business, necessitating thorough analysis and
strategic alignment.

Essential facets like education levels, values, attitudes, work ethics, and family
structures intricately compose the sociocultural fabric. Changes in this environment act
as stimuli, potentially yielding threats or opportunities that businesses must recognize
and navigate.

The socio-cultural environment is the evolving backdrop against which businesses

operate, where societal shifts can either challenge or empower a firm’s marketing
endeavors. It underlines the need for adaptability and strategic resonance within the
dynamic currents of culture and society.

In addition, the socio-cultural environment is an essential element of PESTLE analysis,

others include politics, economics, and more.

What is Society?
Society is a group of people who live, interact, and share common customs, beliefs,
and ways of life. It’s a community where individuals coexist, forming relationships and
collaborating to meet their needs and create a shared culture.

What is Culture?
Culture is the collective way of life for a group of people. It includes their beliefs,
traditions, customs, art, language, and social behaviors. Culture shapes how people
think, interact, and express themselves, creating a unique identity and shared
understanding within a community.

Factors of Socio Cultural Environment

The following are the key elements of the socio-cultural environment that affect the
organization’s operations.

Culture
Culture encompasses the shared beliefs, traditions, and values of a society. It molds
consumer preferences and business practices. For instance, cultural differences impact
product design, marketing messages, and customer interactions, requiring businesses
to adapt strategies accordingly.

Language
Language shapes communication and understanding. In global business, language
barriers can hinder effective communication, affecting negotiations and customer
relations. Companies must tailor their communication to resonate with local audiences,
ensuring clarity and connection.

Religion
Religious beliefs influence consumer behaviors and societal norms. Businesses must
consider religious holidays, dietary restrictions, and cultural practices when offering
products and services. Adapting to these factors can lead to increased acceptance and
market share.
Social Systems
Social systems define relationships, roles, and interactions within a community.
Businesses need to understand family dynamics, gender roles, and community
structures to tailor their offerings. Adapting to social norms enhances customer
satisfaction and fosters stronger connections.

Education Level
Education influences consumer awareness, preferences, and expectations. More
educated societies may demand innovative products and value-added services.
Businesses need to align their offerings with the educational background of their
target audience to meet evolving demands.

Demographics
Characteristics like age, gender, income, and occupation impact consumer behavior
and market segments. For example, an aging population may require healthcare and
elderly-friendly products. Businesses must analyze demographics to target the right
audience and develop relevant solutions.

Social Values
Evolving social values drive changes in consumer preferences and demands. Concepts
like sustainability, diversity, and social responsibility influence purchasing decisions.
Adapting to these values can enhance a company’s reputation and attract socially
conscious consumers.

Impact of Socio Cultural Environment on

Businesses
The socio-cultural environment significantly influences business strategies and success.
Ignoring these factors can lead to misunderstandings, alienation, and lost
opportunities. On the other hand, aligning with the sociocultural context can yield
several benefits:
 • Market Relevance: Adapting products and services to match cultural preferences ensures
higher consumer acceptance and market relevance.
• Brand Loyalty: Respecting local values and customs fosters brand loyalty and long-term
customer relationships.
• Innovation: Embracing diverse perspectives encourages innovation and the development of
new solutions that meet societal needs.
• Public Perception: Addressing social values positively impacts a company’s reputation,
attracting socially conscious consumers.
• Business Sustainability: Understanding demographic shifts enables businesses to anticipate
changing demands and remain sustainable over time.
• Global Expansion: A deep understanding of sociocultural nuances is vital for successful
international expansion and business operations.
• Competitive Advantage: Companies that effectively navigate the sociocultural landscape
gain a competitive edge by better addressing customer needs.

How To Minimize the Threat of Socio-Cultural

Environment?
As socio-cultural factors offer various benefits to organizations, they also provide a
threat to businesses. The following are the key strategies to minimize its threats.
Cultural Sensitivity Training
Provide employees with training that fosters an understanding of various cultures and
their nuances. This prepares them to interact respectfully with diverse customers,
avoiding misunderstandings and cultural insensitivity.

Adaptive Marketing
Tailor marketing campaigns to align with local customs, values, and traditions. This
ensures messages resonate positively with different cultural groups, enhancing
customer engagement and brand acceptance.

Inclusive Product Design

Develop products that accommodate a range of cultural preferences and needs. By
considering various cultural aspects during product development, businesses can
create offerings that appeal to a wider audience.

Localized Partnerships
Collaborate with local businesses, influencers, or organizations that understand the
sociocultural landscape. This enables businesses to navigate cultural difficulties, gain
insights, and build stronger community connections.

Ethical and Social Responsibility

Embrace practices that reflect the values of the local society. Engage in socially
responsible initiatives that address community concerns, demonstrating a commitment
to societal well-being beyond profit.

What is Social Responsibility?

Social responsibility is a moral obligation on a company or an individual to take decisions or actions that is in
favour and useful to society. Social responsibility in business is commonly known as Corporate Social
Responsibility or CSR. For any company, this responsibility indicates that they acknowledge and appreciate
the goals of the society, and therefore, would support them to achieve these goals.

Advantages of Social Responsibility

A company can boost its morale and enhance work culture when they can engage their employees with
some social causes. There are many factors that can have a positive impact on the business while
delivering social responsibilities. Such few factors are

• Justification for existence and growth

• The long-term interest of the firm
• Avoidance of government regulation
• Maintenance of society
• Availability of resources with business
• Converting problems into opportunities
• A better environment for doing business
• Holding business responsible for social problems

Disadvantages of Social Responsibility

Like there are many advantages of social responsibility there are similarly many disadvantages for business.
Few factors are mentioned below.

• Violation of profit maximization objective

• Burden on consumers
• Lack of social skills
• Lack of broad public support

Types of Social Responsibilities

Following Are the Different Types of Social Responsibilities:

(1) Economic Responsibility

• Every business is engaged in economic activities.

• So, the prime social responsibility of every business should be economic responsibility.
• Hence they should sell products and service which can satisfy the need of the society.

(2) Legal Responsibility

• The company should comply with the political and legal environment of the country.
• The company should consider protecting the environment.

(3) Ethical Responsibility

• This type of responsibility expects a certain type of behaviour or conduct from the company.
• This behaviour may not be documented by law.

(4) Discretionary Responsibility

• These are voluntary actions taken by the entities in case of natural calamities, helping poor people etc.
• They help them by providing a charitable contribution, education activities etc.
• It prevents investments of charitable funds into speculative activities.

Opinions in Favour of Social Responsibilities:

Following Are the Opinions in Favour of Social Responsibilities:
(1) Justification for Existence and Growth

• Good quality products help in expansion of the business.

• When the business organisation keeps on providing good quality products, it’s actually a fulfillment of social
responsibility.

(2) Long Term Interest of the Business

• Every business wants long term profits and gains.

• If increasing no. Of stakeholders are not giving their best, there may be the withdrawal of cooperation of society.
• It can be noted that the public image of the business can be improved by focusing on social goals.

(3) Avoidance of Government Regulations

• Good social behaviour is an ethical aspect of the business. They are beyond the law.
• Business entities avoid government regulations as it their freedom.

(4) Maintenance of Society

• The business should take social responsibilities.

• However, the law is not made for every situation.
• People who are against the organisation can come into conflict. They can also harm the organisation.
• This situation can create criminal intent in society.

(5) Availability of Resources With Business

• Business entities have huge set-ups and good infrastructure.

• These organizations have access to different types of resources.
• These resources should be used for fulfilling social responsibilities.
(6) Holding Business Responsible for Social Problems

• Business activity should see if any type of activity is causing harm to society.
• The business should themselves held responsible for causing harm rather than waiting for any government or social
team to come and correct them.

Opinions Which Are Against the Idea of Fulfillment of Social Responsibility:

Following Are the Opinions Against Social Responsibilities:

(1) Violation of Profit Maximisation Objective

• The sole motive of the business is profit maximization.

• Supporting social responsibilities is violating the profit-making objective of the business.
• It would be better if entities increase the profits through increased efficiency.

(2) Burden on Consumers

• Social responsibilities like environment protection, pollution control are very costly in nature.
• If entities opt for these social responsibilities, they always try to shift their burden on ultimate consumers.
• It is not reasonable to charge the customers on the name of social responsibilities.

(3) Lack of Social Skills

• Every entity does not have enough skills and knowledge to solve each and every social problem.
• This can be the reason for a poor image in the society.
• So, these problems should be solved by some specialized parties.
(4) Lack of Broad Public Support

• Generally, society does not accept the involvement of business entities in social programs.
• That is why it gets difficult for the business to solve the problems without the participation of the public.

Social Responsibilities for Different Interest Groups

(1) Responsibility Towards the Shareholders

• Shareholders are the owners of the company.

• The company should make all the efforts to maximize and protect shareholder’s wealth.
• Sharing of useful information with the shareholders, utilization of funds etc.

(2) Responsibility Towards the Workers

• Workers are the key persons behind company success.

• Management of the enterprise must provide the proper working conditions to the workers.
• Workers should get fair salaries and wages.

(3) Responsibility Towards the Consumers

• It is the consumer who buys the company’s product & services.

• So, it is the responsibility of the company to provide the right quality, right quantity with the right price to the
consumer.
• There should not be the unfair trade practices like adulteration, poor quality, courtesy to the customers etc.

(4) Responsibility Towards the Government & Community

 • Enterprises must follow the laws and regulations of the country/ state in which it is operating.
• The organisation should interact with society to know what they require.
• It should maintain proper infrastructure, proper disposal system and should not cause harm to the society in any
manner.

What Is Corporate Social Responsibility (CSR)?

Corporate social responsibility (CSR) is a self-regulating business model that helps a company
be socially accountable to itself, its stakeholders, and the public. By practicing corporate social
responsibility, also called corporate citizenship, companies can be conscious of the kind of
impact they are having on all aspects of society, including economic, social, and environmental.

Engaging in CSR means that, in the ordinary course of business, a company is operating in
ways that enhance society and the environment instead of contributing negatively to them.

• Corporate social responsibility is a business model by which companies make a

concerted effort to operate in ways that enhance rather than degrade society and the
environment.
• CSR can help improve various aspects of society as well as promote a positive brand
image for companies.
• Corporate responsibility programs can also raise morale in the workplace.1
• CSR is often broken into four categories: environmental impacts, ethical responsibility,
philanthropic endeavors, and financial responsibilities.
• Some examples of companies that strive to be leaders in CSR include Starbucks and
Ben & Jerry's.2
Understanding Corporate Social Responsibility (CSR)
Corporate social responsibility is a broad concept that can take many forms depending on the
company and industry. Through CSR programs, philanthropy, and volunteer efforts, businesses
can benefit society while boosting their brands.

For a company to be socially responsible, it first needs to be accountable to itself and its
shareholders. Companies that adopt CSR programs have often grown their business to the
point where they can give back to society. Thus, CSR is typically a strategy that's implemented
by large corporations. After all, the more visible and successful a corporation is, the more
responsibility it has to set standards of ethical behavior for its peers, competition, and industry.

Types of Corporate Social Responsibility

In general, there are four main types of corporate social responsibility. A company may choose
to engage in any of these separately, and lack of involvement in one area does not necessarily
exclude a company from being socially responsible.

Environmental Responsibility

Environmental responsibility is the pillar of corporate social responsibility rooted in preserving

mother nature. Through optimal operations and support of related causes, a company can
ensure that it leaves natural resources better than before its operations. A company can pursue
environmental stewardship through:
 • Reducing pollution, waste, natural resource consumption, and emissions through its
manufacturing process.
• Recycling goods and materials throughout its processes, including promoting re-use
practices with its customers.
• Offsetting negative impacts by replenishing natural resources or supporting causes that
can help neutralize the company's impact. For example, a manufacturer that deforests
trees may commit to planting the same amount or more.
• Distributing goods consciously by choosing methods that have the least impact on
emissions and pollution.
• Creating product lines that enhance these values. For example, a company that offers a
gas lawnmower may design an electric lawnmower.

Ethical Responsibility

Ethical responsibility is the pillar of corporate social responsibility rooted in acting in a fair,
ethical manner. Companies often set their own standards, although external forces or demands
by clients may shape ethical goals. Instances of ethical responsibility include:

• Fair treatment across all types of customers regardless of age, race, culture, or sexual
orientation.
• Positive treatment of all employees including favorable pay and benefits in excess of
mandated minimums. This includes fair employment consideration for all individuals
regardless of personal differences.
• Expansion of vendor use to utilize different suppliers of different races, genders, veteran
statuses, or economic statuses.
 • Honest disclosure of operating concerns to investors in a timely and respectful manner.
Though not always mandated, a company may choose to manage its relationship with
external stakeholders beyond what is legally required.

Philanthropic Responsibility

Philanthropic responsibility is the pillar of corporate social responsibility that challenges how a
company acts and how it contributes to society. In its simplest form, philanthropic responsibility
refers to how a company spends its resources to make the world a better place. This includes:

• Whether a company donates profit to charities or causes it believes in.

• Whether a company enters into transactions only with suppliers or vendors that align with
the company philanthropically.
• Whether a company supports employee philanthropic endeavors through time off or
matching contributions.
• Whether a company sponsors fundraising events or has a presence in the community.

Financial Responsibility

Financial responsibility is the pillar of corporate social responsibility that ties together the three
areas above. A company might make plans to be more environmentally, ethically, and
philanthropically focused; however, it must back these plans through financial investments of
programs, donations, or product research. This includes spending on:

• Research and development for new products that encourage sustainability.

• Recruiting different types of talent to ensure a diverse workforce.
 • Initiatives that train employees on DEI, social awareness, or environmental concerns.
• Processes that might be more expensive but yield greater CSR results.
• Ensuring transparent and timely financial reporting including external audits.

Changing Role of Public Sector

Role of the Public Sector

The role of the public sector has changed a lot from where it was in the early 1990s. In 1947, due
to poor economic conditions, India was unable to establish a strong industrial base and was still
dependent on the agricultural sector. Soon, the government started encouraging public sector
enterprises since they had the required wherewithal and financial capacity to get into heavy
industries that could bring more revenue. Over the years, their roles have changed from helping in
accomplishing price stabilization to competing with global countries.
Importance of Public Sector
Industrial development took a big leap towards success with the help of several public sector
enterprises in independent India. In 1991, their roles were reconsidered, and several instances of
inefficiency and unproductive behavior were noticed in the management of public sectors. There
were incidents of companies facing huge losses due to incompetence and lack of organization.
However, for a long time, public sectors have managed several key areas that were responsible
for improving India's economic condition.
Here's A Brief Overview of The Reasons Why Public Sectors Were Important
• Development of Infrastructure
 Due to a lack of financial support, private sectors were not able to invest a huge chunk of
money in infrastructure projects. Therefore, public sectors played a big role in providing
infrastructure to industries like steel plants, railways, civil aviation, etc. They also made sure
that there is no shortage of money, advanced technology, or even a workforce.
• Generation of Employment
Unemployment has been the biggest drawback in the development process, and the role of
the public sector in India was to fulfill the requirement of creating sufficient jobs. Workers
also benefited from government assistance both in working and living conditions.
• Maintaining Regional Balance
While private sectors emphasized the development of industrial areas, public sectors kept
their focus on maintaining the regional balance. Small towns and all the backward areas
where people were far behind the economic growth were still in poor condition. A country's
economic development comes when both the rural and urban areas begin to see
improvement. The role of the private sector was visible in providing facilities like water
supply, electricity, workforce, etc. to the backward places. Even though these played
important roles in restoring the economic power which was lacking initially, with several new
government policies, the changing role of the public sector was visible.
Change in Government Policy
Both the Indian economy and industries saw a significant change in government policies in 1991.
However, the process started with the Industrial Revolution of 1956, where around 17 industries
were under the public sector. Later, that number was reduced to 8 in 1991. Some other changes
are as follows.
• Disinvestment
 Disinvestment was the process of selling equity shares of public sector enterprises to the
private sector. There was a positive impact of this as the role of the private sector was to
bring about efficiency and better financial discipline to achieve long-term goals. The process
helped the government to keep extra funds for social programs and public health and
sanitation. Additionally, it also allowed consumers to get products at lower prices.
• Memorandum of Understanding
The government introduced this system to provide the public sector units with an
opportunity to recover their performance. The criteria were to meet specific targets set by
the government, and achieving them would help those industries to regain their positions.
• Closure of Sick Units
Under this new policy, it was decided that the Board of Industrial and Financial
Reconstruction would be reviewing all the public sector units and their condition. The focus
was to check whether they will be able to recover from the damaged condition or to be
collapsed permanently. Soon it was noticed that those units could not be restructured;
hence the workers got a safety net for losing their jobs.

With all these new policies set by the government, people begin to notice the role of the private
sector in the Indian economy. Even though a major portion of industrial development has been
achieved with the help of public sectors, private sectors are taking a big part in expanding them.
With a wide range of services, common people have managed to get rid of unemployment issues.
From transportation to retail industries, a prominent role of the private sector can be witnessed in
our economy.
While talking about the importance of the private sector in India, the agricultural industry deserves
a mention that has been improved drastically. Being the most dominant sector of India, it has got
a copious amount of benefits by getting advanced materials, technology, engineering, and
electrical goods, etc.

The expansion of the public sector has fulfilled the national goals such as removing regional
imbalances, contributing to the public exchequer, developing small industries, etc. However, with
the changing role of the public sector and new policies, things have changed for the better, such
as removing inefficiency and financial hazards.

Public Sector Undertakings (PSUs) are an important aspect of the Indian economy since they offer
services that benefit the whole population. This article discusses the goals of establishing PSUs,
their role in societal upliftment, issues they face, and changes they implement.
Classification of Public Sector
There are three major classifications in the public sector.
The public sector is divided into the following categories:
• Departmental Undertaking - Managed directly by the relevant government or department.
(For example, railways, postal services, etc.)
• PSU – Non-Departmental Undertaking (e.g. HPCL, IOCL, etc.)
• Monetary institution (e.g. SBI, UTI, LIC, etc.)
•
•
Industrialization and the formation of Capital Goods Industries and Basic Industries were the
rationales for the foundation of PSUs. Organizations that are not part of the public sector are
referred to as the private sector, and they aim to increase profits for the organization.
The Public Sector's Importance
Let us first examine the significance and function of public-sector enterprises in our economy. These
are the reasons why the public sector dominated our economy over the private sector until early
1990.

Developing Infrastructure: It is not appropriate for private firms to invest large sums of money in
infrastructure projects in a newly independent country with a fledgling economy. As a result, this
obligation belongs to the government. And the development of infrastructure is critical to the growth
of an economy. In the post-independence era, for example, all rail, road, and aviation transport
projects were undertaken by public sector enterprises.

Regional Balance: Private-sector businesses tend to concentrate in industrial zones. As a result, the
poorer areas, as well as smaller towns and villages, are excluded from economic expansion.
However, the government can ensure that growth occurs in a balanced manner throughout the
country. Establishing public-sector units and industries in underserved communities creates job
possibilities and economic growth.
Examine the Concentration of Economic Power: In the private sector, wealth can become
concentrated in the hands of a few. This may result in monopolistic tendencies and economic power
concentration. The public sector contributes to keeping this in check. The revenue created by a
public enterprise is shared by a large number of employees as well as the general public. This
contributes to the restoration of some economic equality.
Goals of Establishing a Public Sector Unit (PSU)
• To establish an industrial basis in the country; to improve the quality of employment, and to
build basic infrastructure in the country.
• To give the government with resources in order to increase exports and minimize imports
• To eliminate inequities and enhance a country's economic growth and development
•
•

The Public Sector's Role in Society's Uplift

In a variety of ways, the public sector contributes significantly to the improvement of society's
economic status.

The following is an explanation of the public sector's primary role:

• The public sector and capital formation - This sector has been a key source of capital in
the Indian economy. A significant portion of the money originates from India's public sector
units.
 • Creation of Employment Opportunities - The public sector has made a significant impact
on the country's employment sector. They provide numerous chances in a variety of fields,
hence contributing to the growth of the Indian economy and society.
• Growth of Different Regions — The installation of significant companies and plants has
accelerated the socioeconomic development of various regions throughout the country. The
provision of utilities such as power, water supply, township, and so on has a favourable
influence on the region's residents.
• Enhancement of Research and Development - The public sector has invested much in the
introduction of modern technology, automated equipment, and instruments. This expenditure
would raise the entire production cost.
•
•

PSUs (Public Sector Undertakings) - Issues

The following are the key issues with power supply units:
• Inadequate investment decisions
• Inadequate Pricing Policy
• Excessive overhead expenses
• Inadequate Autonomy and Accountability
• Overstaffing in Labour Unions
 • Insufficient capacity utilisation
•
•

Undertakings in the Public Sector – Reforms

The following are the biggest PSU reforms:
• 1991: New Industrial Policy
• 1988 Voluntary Retirement Scheme (Golden Handshake)
• Price Mechanism that is Administered
• The Navratna policy (Best performing PSUs were dubbed Navaratnas) The government
granted them great autonomy in order for them to perform better.
• Mini Ratnas' policy is as follows: (Presently 60 PSUs have been granted this status)
• The Maharatnas' policy (category created in 2010)
• The net profit should be Rs. 2500 crore.
• Net worth should be in the tens of billions of rupees.
• The annual revenue should be Rs. 20,000 crore.
• PSUs must be Navratnas and be listed on the Stock Exchange.
• PSU must also have a strong worldwide footprint.
 • The government bestowed four Navratna Maharatna awards to ONGC, IOCL, SAIL, and
NTPC in 2010. After some time, the government awarded CIL this status.

Regulatory framework of Capital Market in India

• India has a multiple regulatory architecture in the financial sector
• The design has developed complexities over the time due to: the number of regulatory, quasi -
regulatory, non-regulatory- but-still-regulating bodies; overlapping ambiguous operational design and
their influence.

A brief overview of the Regulatory framework is as follows:

Regulatory Agencies

•
o
▪ India has product-wise regulators—Reserve Bank of India (RBI) regulates credit
products, savings and remittances; the Securities and Exchange Board of India (SEBI)
regulates investment products; the Insurance Regulatory and Development Authority
(IRDA) regulates insurance products; and the Pension Fund Regulatory and
Development Authority (PFRDA) regulates pension products
▪ The Forward Markets Commission (FMC) regulates commodity - based exchange-traded
futures (which was merged with the SEBI by late 2015)
Quasi-regulatory Agencies

•
o
▪ Several other government bodies perform quasi-regulatory functions—National Bank for
Agriculture and Rural Development (NABARD), Small Industries Development Bank of
India (SIDBI), and National Housing Bank (NHB)
▪ NABARD supervises regional rural banks as well as state and district cooperative banks
▪ NHB regulates housing finance companies, and SIDBI regulates the state finance
corporations (SFCs)

Central Ministries

•
o
▪ Certain ministries of the GoI are also involved in policy making in the financial
system. Ministry of Finance (MoF) is most prominently involved, through its
representatives on the Boards of SEBI, IRDA and RBI
▪ MoF representatives are also on Boards of public sector banks (PSBs) and Development
Financial Institutions (DFIs)

State Governments

•
o
 ▪ Through the Registrar of Cooperatives, who are under the departments of agriculture
and cooperation, the state governments regulate the cooperative banking institutions in
their respective states

Special Statutes for Certain Financial Intermediaries

•
o
▪ Some key financial services intermediaries like SBI (and its Associate Banks before their
consolidation with SBI in 2017–18), Public Sector Banks, LIC and GIC are governed by
their own statutes.
▪ These statutes give a special status to these institutions vis -á-vis the other institutions
performing the same functions

Establishment of FSDC

•
o Few years back, an important addition was made to the regulatory architecture —the Financial
Sector Development Council (FSDC) was set up which replaced the High Level Committee on
Capital Markets.
▪ The council is convened by Ministry of Finance and does not have statutory authority —it
is structured as a council of regulators, with Finance Minister as chairman
 o The council resolves inter-agency disputes; look after the regulation of financial conglomerates
that fall under various regulators’ purview; and performs wealth management functions dealing
with multiple products

What is a Technological Environment?

The technological environment of business encompasses external elements within
technology that impact business operations. Changes in technology can reshape how a
company operates, prompting significant shifts in the organization’s strategies.

It resides in the company’s external realm, is tied to technological developments, and

holds the potential for both threats and opportunities. This facet is a vital component
of the business environment, influencing operations and functions.

As a key aspect of PESTLE analysis, technological factors wield substantial influence on

businesses globally, especially in today’s tech-dependent scenario. This realm signifies
the state of technological advancement and its impact on a country’s economy,
shaping progress in both scientific and economic realms.
How Technological Environment Affect Business?
The technological environment transforms businesses by shaping how they operate.
Innovations impact everything from production to customer interactions. It can lead to
higher productivity, cost reduction, and new product offerings.

However, it can also render existing products obsolete. Businesses must adapt to
automation, digital marketing, and remote work. Staying current with tech trends is
crucial for growth and competitiveness.

Related: Socio-Cultural Environment of Business

Factors of Technological Environment

Let’s look at the six key factors of the technological environment which affect the
operations of organizations.

Innovations and Advancements

Technological innovations like new inventions and discoveries can revolutionize how a
business operates. They bring opportunities for improved products, services, and
processes. For example, the introduction of smartphones led to new ways of
communication and changed how companies interact with customers.

Automation and Efficiency

Automation involves using machines and software to perform tasks previously done by
humans. It boosts efficiency, reduces errors, and saves time. For instance, factories now
use robots for assembly, leading to faster and more precise production.

Digital Transformation
Businesses are adopting digital tools and platforms to streamline operations and
engage with customers. Digitalization enables online sales, data analysis, and
personalized marketing. Companies that embrace this trend often have better
customer experiences and reach a wider audience.

Data Management and Analytics

The ability to gather, analyze, and utilize data is crucial. It helps in making informed
decisions, predicting trends, and understanding customer preferences. For instance, e-
commerce platforms track user behavior to recommend products, enhancing sales.

E-commerce and Online Presence

The rise of e-commerce has transformed the way businesses sell products. Having an
online presence through websites and social media is essential for reaching a global
audience. This impacts sales, brand visibility, and customer engagement.

Cybersecurity and Privacy

As technology advances, so do cyber threats. Protecting sensitive data and ensuring
customer privacy is paramount. Companies invest in cybersecurity measures to prevent
breaches that could damage their reputation and result in financial losses.

Related: Economic Environment of Business

Examples of Affecting Technological
Environment On Business
Here are four examples of how the technological environment affects businesses:

E-commerce Revolution
The rise of e-commerce has transformed the way companies sell and customers buy.
Online shopping platforms allow businesses to reach a global audience and provide
customers the convenience to shop from anywhere, impacting sales and expanding
market reach.

Automation and Efficiency

Technology enables the automation of tasks, from manufacturing to customer service.
Machines and software handle repetitive jobs, reducing errors and saving time. This
efficiency leads to cost savings for businesses and improved quality for customers.
Data-driven Insights
Advanced tools let businesses collect and analyze data about customer behavior and
market trends. This information helps in making informed decisions,
creating personalized marketing strategies, and tailoring products and services to meet
customer preferences.

Digital Marketing Dominance

Traditional advertising has shifted to digital platforms. Social media, search engines,
and online ads reach target audiences more effectively. This change in marketing
channels requires businesses to adapt their strategies, engaging customers through
various online avenues.

Strategies To Minimize the Threats of

Technological Environment
Along with various benefits, technological factors also provide threats to business
organizations. Companies must overcome these threats in order to be competitive.
Here are the five strategies you can employ in your business.

Continuous Learning and Adaptation

Stay updated about technological trends through regular learning. Embrace new tools
and practices that align with your business goals. This flexibility ensures your company
is prepared to adapt swiftly to changing tech landscapes.

Diversification and Redundancy

Don’t rely solely on one technology or platform. Have backup systems in place to
ensure smooth operations if a technological failure occurs. This minimizes the risk of
disruptions affecting your business.

Cybersecurity Measures
Invest in robust cybersecurity to protect your digital assets. Use strong passwords,
encryption, and firewall systems to shield sensitive information from potential threats
like data breaches or hacking.

Customer-Centric Approach
Understand your customers’ preferences and how they use technology. Tailor your
products or services to meet their needs, making it more likely they’ll continue
engaging with your business in the face of changing tech trends.

Collaboration and Networking

Connect with peers, experts, and industry associations. Collaborate to share insights
and potential tech challenges. By working together, you can gain a collective
understanding of how to navigate and address threats in the technological landscape.

Unit IV
What is the International Business Environment and its Key Elements?
The international business environment is a complex network of economic, political, legal, and cultural
forces that shape how organisations conduct international business. It consists of external and internal
factors that impact a company’s success or failure in different markets.

This concept involves understanding the global forces that impact businesses of all sizes. These elements
shape how companies conduct their operations and make decisions from macroeconomic trends to
geopolitical tensions. Globalisation has made it easier for businesses to go beyond local or regional
markets, creating new opportunities while presenting new challenges.

The key elements in the international business environment are

• One key factor in an international business environment is economic stability. This includes an
analysis of GDP growth rates, inflation, currency exchange rates, and trade barriers. Companies must
consider how a country’s economy might affect its cost structures and profitability when choosing
which nations to target for operations or investment.
• Political instability can be another significant factor when making decisions about expanding abroad.
Companies must be aware of uprisings, war, and other forms of conflict that can disrupt business
operations. The policies of a country’s government also need to be considered in terms of taxes,
regulations, and labor laws.
• Geography is another key factor as it affects the logistics of transporting goods, accessing new
markets, and recruiting staff. Accessibility to natural resources such as oil or minerals should also be
considered depending on the industry involved.
• Technology plays an increasingly important role in international business operations today due to
advances in communication and digital infrastructure. Businesses must understand how adopting
new technologies might affect their competitive landscape or open up new product or service
opportunities.
The Benefits of the International Business
There are various benefits associated with conducting International Business, as follows:

• By expanding into different markets, companies can gain access to new customers and increase their
profits. It also allows them to diversify their operations to reduce risk and capitalise on opportunities
in other markets.
• Conducting International Business can help organisations become more efficient and cost-effective.
It allows them to benefit from economies of scale, obtain lower-cost resources, and utilise the latest
technologies available in different markets.
• Companies can expand their brand visibility and reach a more extensive customer base by
conducting business globally. This can increase sales and brand recognition in the global market.
• By operating in different markets, companies can access new opportunities and gain valuable
insights into customer behavior and preferences. This can help them develop better
products/services and make more informed decisions.
• It allows companies to explore different markets and expand their operations.
• This helps organisations identify growth opportunities and plan their strategies accordingly.
• International businesses can benefit from the economies of scale that come with operating in
multiple markets.
• Companies have access to a broader pool of resources due to international trade, which may not be
available locally.
• International businesses can benefit from competitive advantages such as lower production costs,
tax incentives, etc., due to differences in the economic environment across countries.
• By understanding the international business environment better, companies can reduce risks such as
foreign exchange rate fluctuation, political instability, etc.
 • The international business environment also helps organisations to become more innovative and
flexible in their operations, which is essential for staying ahead of the competition.
• International businesses can leverage cultural diversity to create unique products and services that
capture more extensive markets.

The Challenges of the International Business Environment

• The international business environment is complex and dynamic, making it difficult for companies to
predict the outcomes of their decisions accurately.
• International trade regulations and policies can vary from country to country, making it hard for
companies to comply with them at once.
• International markets tend to be more competitive due to differences in the economic environment,
political stability, and cultural preferences across different countries.
• Language barriers can become a significant obstacle when conducting International Business,
especially if the company doesn’t have knowledgeable personnel about different cultures and
languages.
• International businesses may face higher costs associated with production or transportation due to
exchange rate fluctuations or taxes imposed by foreign countries on imported goods.
• International businesses may also face difficulties regarding intellectual property protection in
foreign markets as laws vary from country to country.
• It is subject to political instability and other external factors that can negatively affect a company’s
operations.

The international business environment is complex and dynamic, making it difficult for companies to predict
outcomes accurately. Companies must have a thorough knowledge of the international business
environment before entering any foreign market to better understand the local regulations, cultural
environment, and competitive landscape.
This will enable them to reduce risks associated with International Business and take advantage of potential
opportunities that come with operating in multiple markets.

Scope of the International Business

• Understanding the scope of the international business environment enables companies to identify
opportunities for growth and devise strategies accordingly.
• Companies can benefit from economies of scale and resource access due to international trade.
• Companies may benefit from competitive advantages such as lower production costs or tax
incentives if they operate in multiple markets.
• Knowledge about the international business environment also helps organisations reduce risks
associated with foreign exchange rate fluctuations, political instability, etc.
• It can help organisations become more innovative and flexible in their operations, allowing them to
stay ahead of the competition.
• Cultural diversity can be leveraged to create unique products and services that can captu Re larger
markets

Multinational Corporations (MNCs):

Meaning, Features and Advantages |
Business
Meaning of Multinational Companies (MNCs):
A multinational company is one which is incorporated in one country (called the home
country); but whose operations extend beyond the home country and which carries on
business in other countries (called the host countries) in addition to the home country.

It must be emphasized that the headquarters of a multinational company are located in

the home country.

Some popular examples of multinationals are given below:

Features of Multinational Corporations (MNCs):

Following are the salient features of MNCs:
(i) Huge Assets and Turnover:
Because of operations on a global basis, MNCs have huge physical and financial assets.
This also results in huge turnover (sales) of MNCs. In fact, in terms of assets and
turnover, many MNCs are bigger than national economies of several countries.

(ii) International Operations Through a Network of Branches:

MNCs have production and marketing operations in several countries; operating
through a network of branches, subsidiaries and affiliates in host countries.

(iii) Unity of Control:

MNCs are characterized by unity of control. MNCs control business activities of their
branches in foreign countries through head office located in the home country.
Managements of branches operate within the policy framework of the parent
corporation.

(iv) Mighty Economic Power:

MNCs are powerful economic entities. They keep on adding to their economic power
through constant mergers and acquisitions of companies, in host countries.
(v) Advanced and Sophisticated Technology:
Generally, a MNC has at its command advanced and sophisticated technology. It
employs capital intensive technology in manufacturing and marketing.

(vi) Professional Management:

A MNC employs professionally trained managers to handle huge funds, advanced
technology and international business operations.

(vii)Aggressive Advertising and Marketing:

MNCs spend huge sums of money on advertising and marketing to secure
international business. This is, perhaps, the biggest strategy of success of MNCs.
Because of this strategy, they are able to sell whatever products/services, they
produce/generate.

(viii) Better Quality of Products:

A MNC has to compete on the world level. It, therefore, has to pay special attention to
the quality of its products.
Advantages and Limitations of MNCs:
Advantages of MNCs from the Viewpoint of Host Country:
We propose to examine the advantages and limitations of MNCs from the viewpoint of
the host country. In fact, advantages of MNCs make for the case in favour of MNCs;
while limitations of MNCs become the case against MNCs.

(i) Employment Generation:

MNCs create large scale employment opportunities in host countries. This is a big
advantage of MNCs for countries; where there is a lot of unemployment.

(ii) Automatic Inflow of Foreign Capital:

MNCs bring in much needed capital for the rapid development of developing
countries. In fact, with the entry of MNCs, inflow of foreign capital is automatic. As a
result of the entry of MNCs, India e.g. has attracted foreign investment with several
million dollars.

(iii) Proper Use of Idle Resources:

Because of their advanced technical knowledge, MNCs are in a position to properly
utilise idle physical and human resources of the host country. This results in an
increase in the National Income of the host country.

(iv) Improvement in Balance of Payment Position:

MNCs help the host countries to increase their exports. As such, they help the host
country to improve upon its Balance of Payment position.

(vi) Technical Development:

MNCs carry the advantages of technical development 10 host countries. In fact, MNCs
are a vehicle for transference of technical development from one country to another.
Because of MNCs poor host countries also begin to develop technically.

(vii) Managerial Development:

MNCs employ latest management techniques. People employed by MNCs do a lot of
research in management. In a way, they help to professionalize management along
latest lines of management theory and practice. This leads to managerial development
in host countries.
(viii) End of Local Monopolies:
The entry of MNCs leads to competition in the host countries. Local monopolies of
host countries either start improving their products or reduce their prices. Thus MNCs
put an end to exploitative practices of local monopolists. As a matter of fact, MNCs
compel domestic companies to improve their efficiency and quality.

In India, many Indian companies acquired ISO-9000 quality certificates, due to fear of
competition posed by MNCs.
(ix) Improvement in Standard of Living:
By providing super quality products and services, MNCs help to improve the standard
of living of people of host countries.

(x) Promotion of international brotherhood and culture:

MNCs integrate economies of various nations with the world economy. Through their
international dealings, MNCs promote international brotherhood and culture; and
pave way for world peace and prosperity.

Limitations of MNCs from the Viewpoint of Host Country:

(i) Danger for Domestic Industries:
MNCs, because of their vast economic power, pose a danger to domestic industries;
which are still in the process of development. Domestic industries cannot face
challenges posed by MNCs. Many domestic industries have to wind up, as a result of
threat from MNCs. Thus MNCs give a setback to the economic growth of host
countries.
(ii) Repatriation of Profits:
(Repatriation of profits means sending profits to their country).

MNCs earn huge profits. Repatriation of profits by MNCs adversely affects the foreign
exchange reserves of the host country; which means that a large amount of foreign
exchange goes out of the host country.

(iii) No Benefit to Poor People:

MNCs produce only those things, which are used by the rich. Therefore, poor people of
host countries do not get, generally, any benefit, out of MNCs.

(iv) Danger to Independence:

Initially MNCs help the Government of the host country, in a number of ways; and
then gradually start interfering in the political affairs of the host country. There is,
then, an implicit danger to the independence of the host country, in the long-run.

(v) Disregard of the National Interests of the Host Country:

MNCs invest in most profitable sectors; and disregard the national goals and priorities
of the host country. They do not care for the development of backward regions; and
never care to solve chronic problems of the host country like unemployment and
poverty.

(vi) Misuse of Mighty Status:

MNCs are powerful economic entities. They can afford to bear losses for a long while,
in the hope of earning huge profits-once they have ended local competition and
achieved monopoly. This may be the dirties strategy of MNCs to wipe off local
competitors from the host country.

(vii) Careless Exploitation of Natural Resources:

MNCs tend to use the natural resources of the host country carelessly. They cause
rapid depletion of some of the non-renewable natural resources of the host country. In
this way, MNCs cause a permanent damage to the economic development of the host
country.
(viii) Selfish Promotion of Alien Culture:
MNCs tend to promote alien culture in host country to sell their products. They make
people forget about their own cultural heritage. In India, e.g. MNCs have created a
taste for synthetic food, soft drinks etc. This promotion of foreign culture by MNCs is
injurious to the health of people also.

(ix) Exploitation of People, in a Systematic Manner:

MNCs join hands with big business houses of host country and emerge as powerful
monopolies. This leads to concentration of economic power only in a few hands.
Gradually these monopolies make it their birth right to exploit poor people and enrich
themselves at the cost of the poor working class.

What Are Mergers and Acquisitions (M&A)?

The term mergers and acquisitions (M&A) refers to the consolidation of companies or their
major business assets through financial transactions between companies. A company may
purchase and absorb another company outright, merge with it to create a new company,
acquire some or all of its major assets, make a tender offer for its stock, or stage a hostile
takeover. All are M&A activities.
The term M&A also is used to describe the divisions of financial institutions that deal in such
activity.

KEY TAKEAWAYS

• The terms "mergers" and "acquisitions" are often used interchangeably, but they differ in
meaning.
• In an acquisition, one company purchases another outright.
• A merger is the combination of two firms, which subsequently form a new legal entity
under the banner of one corporate name.
• A company can be objectively valued by studying comparable companies in an industry
and using metrics.
Advantages and Disadvantages of Mergers and Acquisitions

The following are a few of the advantages of mergers and acquisitions;

• Improved Economic Scale

• A new large business or a business that has acquired another company generally has
increased needs in terms of materials and supplies. And when a business has high
demands, it means it has a high purchasing power. A high purchasing power enables a
company to negotiate bulk orders, and when a business is able to negotiate bulk orders, it
results in cost efficiency. In other words, by purchasing supplies and materials at higher
volumes, a company is able to improve its scale.
• Enhanced Distribution Capacities

• A merger or an acquisition may result in a business expanding geographically, which

would, in turn, increase the business's ability to distribute goods or services to more
people.

• Increased Market Share

• When two businesses operating in the same industry become one, or when a company
acquires another company operating in the same industry, the new or larger company
gets to enjoy a greater market share.

• More Financial Resources

• When two companies merge or when a company acquires another company, it results in
two companies pooling their financial resources, and that can result in, among other
things, a business being able to reach more customers because of a larger marketing
budget.

• Disadvantages of Mergers and Acquisitions

• The following are some of the disadvantages of mergers and acquisitions;

• Job Losses
• When two companies doing the same activities come together and become one company,
it might mean duplication and over capability within the company, which might lead to
retrenchments.

• Diseconomies of Scale

• Sometimes mergers and acquisitions can result in diseconomies of scale. For example,
this can happen if the owner of the new larger company lacks the control required to run a
bigger company.

• Higher Prices

• Although not something that affects the business, it is worth mentioning. A great market
share is good for a business, but it can be bad for consumers. When a company has less
competition and greater market share, consumers tend to pay more for products or
services.

• Lost Opportunities

• Lastly, the process of merging two companies or acquiring a company takes time and
requires energy and money. The energy, time, and funds that go into the merger or
acquisition process could mean that the businesses involved give up other potential
opportunities
The WTO and its impact on India
This article discusses the WTO and its impact on India. India is self-
sufficient, but it imports from foreign nations, and trading comes with
rules and barriers.

Share

The full form of the WTO is the World Trade Organization, and its function is to control and maintain trade across the world.
Generally, this organisation makes the rules for trading between countries. At present, 159 countries are members of the
WTO. It ensures that trade between the nations runs smoothly and peacefully and is profitable for both countries.

As everything has advantages and disadvantages, the WTO also has good and harmful effects on India, and we will study
both.

The WTO is related to the term globalisation, and many such terms are directly connected to it. So, take a look at some
essential terms used in this article.
 Some important terms
1. Globalisation: It is the process of exchange of goods, services, human resources, etc., between the world’s nations.
2. Economy: An economy is a set of interrelated production and exchange activities.
3. Finance: It is a process of managing the funds or money for any expenditure.
4. Trade: Trade is a particular type of business that deals with the exchange of, i.e., the buying and selling of goods and
services, between peoples or countries.
5. GDP: GDP stands for “Gross Domestic Product”. It is the value of the total product produced or created in a country.
6. Currency: It is the mode of exchange of goods.

The WTO and its role

The World Trade Organization is an international organisation that was established on 1 January 1995 to help its members
uplift their living standards, create employment, and improve people’s lives by using trade. It forms the rules and regulations
regarding trading across the nations and ensures that the rules are correctly followed to avoid any kind of harm and
violence.

The primary role of the WTO is as follows:

• WTO trade agreement administration.

• Providing a trade negotiation forum.
• Resolving trade disputes.
• Monitoring national trade policies.
• Helping technical support and training to developing countries.
• It allows open communication between its members regarding trade.

Effect of the WTO on India

Trading is an excellent weapon for any developing country, and one who uses it rightly wins prosperity and wealth for their
country. India, as a developing nation, does the same. India is an agricultural country, and most of its GDP depends upon
agriculture, as it exports agrarian products across the world. Trading can play a huge role in developing any nation, if
adequately used, because it also has harmful impacts. So, let’s take a look at the good and bad impacts of the WTO on
India.

Positive impacts of the WTO on India

India is a developing country and has a vast geographical area and population. That’s why it needs more capital to feed its
citizens. India is good in agriculture, as its geographical condition is very good for crops, so they are self-sufficient in feeding
their people and exporting edible products, but some things are imported. So, it has a perfect balance of imports and
exports, and India, as one of the founding members of the WTO, has a very positive impact on it. There are some points
listed below that helped in the development of India through the World Trade Organization:

• India’s export competitiveness has been improved by the WTO.

• The lower tariff has helped integrate with the global economy more efficiently.
• India’s growth and development have been pursued by transferring and exchanging technology and ideas.
• There is a reduction in cost and time due to market access.
• The WTO helped better settle trade disputes in a well-defined and structured manner.

Negative impacts of the WTO on India

Every positive impact carries a negative with it. Even after so many positive things, the WTO has also harmed India in some
ways, which are listed below:

• The TRIPs agreement went against the Indian Patents Act (1970).
• The introduction of product patents in India by MNCs caused a hike in drug prices, which left no generic option for the poor.
• India and its research institutions have been negatively affected by the extension of intellectual property rights to agriculture.
• The MFN (most favoured nations )clause proved detrimental to India’s interests and provided grounds for the Chinese
invasion of the Indian market through dumping.
• India’s service sectors are backward compared to those in developed countries.

Conclusion
The World Trade Organization is an international organisation that deals with the rules and regulations of trading worldwide.
Currently, it has a total of 159 countries, including India. India has been the founding member of this organisation since
1995. This organisation has helped many countries to develop with the help of trade. It also helped India and still does
toward making it a developed country. Trading has a significant impact on any nation’s economy, and it is a part of
globalisation. It also has negative impacts, but they are overshadowed by the positive impacts. So, for India, the WTO
seems like a life-uplifting organisation.
 International Monetary Fund (IMF)
International Monetary Fund (IMF) is an important topic for the IAS Exam and is included under the
international relations and economy sections. This article will discuss the origin of the IMF and its controlling
bodies, apart from India’s relations with the IMF. IAS aspirants can also download the notes PDF at the end
of the article. The formation of the IMF was initiated in 1944 at the Bretton Woods Conference. IMF came
into operation on 27th December 1945 and is today an international organization that consists of 189
member countries. Headquartered in Washington, D.C., IMF focuses on fostering global monetary
cooperation, securing financial stability, facilitating and promoting international trade, employment, and
economic growth around the world. The IMF is a specialized agency of the United Nations.
Formation of IMF
The breakdown of international monetary cooperation during the Great Depression led to the development
of the IMF, which aimed at improving economic growth and reducing poverty around the world. The
International Monetary Fund (IMF) was initially formed at the Bretton Woods Conference in 1944. 45
government representatives were present at the Conference to discuss a framework for postwar
international economic cooperation.

The IMF became operational on 27th December 1945 with 29 member countries that agreed to bound to this
treaty. It began its financial operations on 1st March 1947. Currently, the IMF consists of 189 member
countries.

The IMF is regarded as a key organisation in the international economic system which focuses on rebuilding
the international capital along with maximizing the national economic sovereignty and human welfare.

Detailed information on the IMF can be checked in the video below –

2,477

Organizational Structure of International Monetary Fund (IMF)

The United Nations is the parent organization that handles the proper functioning and administration of the
IMF. The IMF is headed by a Managing Director who is elected by the Executive Board for a 5-year term of
office. The International Monetary Fund (IMF) consists of the Board of Governors, Ministerial Committees,
and the Executive Board.

To know more about the organizational structure of IMF, refer to the table below:

Structure of the International Monetary Fund (IMF)

Governing Bodies of IMF Roles and Responsibilities

Board of Governors • Each governor of the Board of Governors is appointed by

his/her respective member country.
• Elects or appoints executive directors to the Executive Board.
• Board of Governors is advised by the International Monetary
and Financial Committee (IMFC) and the Development
Committee.
• An annual meet up between the Board of Governors and the
World Bank Group is conducted during the IMF–World Bank
Annual Meetings to discuss the work of their respective
institutions.
Ministerial Committees • It manages the international monetary and financial system.
• Amendment of the Articles of Agreement.
1. International Monetary and
• To solve the issues in the developing countries that are
Financial Committee (IMFC)
related to economic development.
2. Development Committee
Executive Board • It is a 24-member board that discusses all the aspects of the
Funds.
 • The Board normally makes decisions based on consensus,
but sometimes formal votes are taken.

Objectives of the IMF

IMF was developed as an initiative to promote international monetary cooperation, enable international
trade, achieve financial stability, stimulate high employment, diminish poverty in the world, and sustain
economic growth. Initially, there were 29 countries with a goal of redoing the global payment system. Today,
the organization has 189 members. The main objectives of the International Monetary Fund (IMF) are
mentioned below:

1. To improve and promote global monetary cooperation of the world.

2. To secure financial stability by eliminating or minimizing the exchange rate stability.
3. To facilitate a balanced international trade.
4. To promote high employment through economic assistance and sustainable economic growth.
5. To reduce poverty around the world.

What are the functions of the IMF?

IMF mainly focuses on supervising the international monetary system along with providing credits to the
member countries. The functions of the International Monetary Fund can be categorized into three types:

1. Regulatory functions: IMF functions as a regulatory body and as per the rules of the Articles of Agreement, it also
focuses on administering a code of conduct for exchange rate policies and restrictions on payments for current
account transactions.
 2. Financial functions: IMF provides financial support and resources to the member countries to meet short term and
medium term Balance of Payments (BOP) disequilibrium.
3. Consultative functions: IMF is a centre for international cooperation for the member countries. It also acts as a
source of counsel and technical assistance.

India & IMF

India is a founder member of the IMF. India’s Union Finance Minister is the Ex Officio Governor on the IMF’s
Board of Governors. Each member country also has an alternate governor. The alternate governor for India
is the Governor of the RBI. There is also an Executive Director for India who represents the country at the
IMF.

• India’s quota in the IMF is SDR 13,114.4 million that gives India a shareholding of 2.76%. Read about the Special
Drawing Rights – Created in 1969 by International Monetary Fund (IMF) at the linked article.
• This makes India the eight largest quota holding country at the organization.
• In 2000, India completed the repayment of all the loans it had taken from the IMF.
• Now, India is a contributor to the IMF.

The emerging economies have gained more influence in the governance architecture of the International
Monetary Fund (IMF).

• The reforms were agreed upon by the then 188 members of the IMF in 2010, in the aftermath of the global financial
meltdown.
• More than six percent of the quota shares will shift to emerging and developing countries from the U.S. and
European countries.

Which countries gained?

 • India’s voting rights increased to 2.63 percent from the current 2.3 percent, and China’s to 6.08 percent from 3.8.
Russia and Brazil are the other two countries that gain from the reforms.

Why delay the reforms?

• Among the reasons for the delay has been the time it took the U.S Congress to approve the changes.
• Though the country holds veto power, Republicans have been agitated over “declining U.S power.”

Advantages

• For the first time, the Executive Board will consist entirely of elected executive directors, ending the category of
appointed executive directors. Currently, the members with the five largest quotas appoint an executive director, a
position that will cease to exist.
• The significant resource enhancement will fortify the IMF’s ability to respond to crises more effectively.
• These reforms will reinforce the credibility, effectiveness, and legitimacy of the IMF.

Regional Groupings.
Regional Groups are the associations of countries around a particular region whereby these countries have common
grounds of understanding and perspectives regarding rules and regulations to be followed when relating with one another.
These groups have rules that set them apart from non-members.
Intergovernmental authority on development (IGAD)IGADs sole purpose is to enhance regional liaison in three specific
areas, that is, Food security and environmental protection, Economic cooperation, Regional integration and social
development and peace and security. IGAD was established during a summit held by heads of state between 25th and 26th
November 1996 to replace the trade bloc, Intergovernmental Authority on Drought and Development (IGADD) which was
founded in 1986. IGADD was founded to completely eradicate the recurring threat of severe droughts and other natural
disasters that caused a widespread disaster in East Africa. The first member states which include; Djibouti, Ethiopia, Kenya,
Somalia, Sudan and Uganda took it upon themselves with the help of the United Nations to establish a body to help control
the crisis in the region.
Following the successful creation of the IGAD, other states like Eritrea joined in 1993 as well as South Sudan in 2011.
Together with the UN, heads of state and other state representatives aimed and continue to aim to resolve the ever growing
political and socio-economic challenges faced within the region in order to create better living conditions for the people.
Common market for Eastern & Southern Africa (COMESA) COMESA began in December 1994 as it was formed to replace
the Preferential Trade Area (PTA) which had existed from around 1981. COMESA was therefore established ‘as an
organisation of free independent sovereign states which have agreed to co-operate in developing their natural and human
resources for the good of all their people’ (COMESA treaty, 1994) with a wide-range of objectives which promote peace and
security in the Eastern and Southern region. Although, the achievement of trade promotion is their main objective, COMESA
has other objectives to ensure the region maximises on trade. These are: Trade liberalisation and customs co-operation, to
improve transport and communications channels between countries to facilitate the movement of goods and services,
creating a workable environment and legal framework hence encouraging the growth of the private sector, the
establishment of a secure investment environment, and the use of macro-economic and monetary policies throughout the
region.
COMESA consists of 21 member states as of July 2018 which comprise of:Kenya, Burundi, Tanzania, Uganda, Libya,
Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kingdom of Eswatini, Madagascar, Malawi,
Mauritius, Seychelles, Somalia, Sudan, Tunisia, Zambia and Zimbabwe.East African Community (EAC)The sole purpose of
EAC is to gradually establish among themselves a Customs Union, a Common Market, a Monetary Union, and ultimately a
Political Federation of the East African States.
Before the EAC was established, the three member states had integration arrangements that saw the history and the
development of the community. The changes seen were: Customs Union between Kenya and Uganda (1917), Tanganyika
(the now Tanzania) later joined in 1927; East African High Commission (1948-1961); East African Common Services
Organisation (1961-1967); East African Community (1967-1977) and East African Co-operation (1993-2000).The East
African Community (EAC) was originally founded in 1967 and later dissolved in 1977 later after being revived by a treaty
that established the East African Community. The three member states established strong economic cooperation
which paved way for further political, economic and social integration of the EAC member States. However, Burundi and
Rwanda later became members in 2007 while South Sudan gained adjunction in April 2016 completing the union of
communities. New Partnership for Africa’s Development (NEPAD) NEPAD is an economic development program of the
African Union which was sanctioned on July 2001 in Zambia at the 37th assembly of the Heads of State and Government.
NEPAD was as a result of the merging of two sustainable economic plans for Africa; the Millennium Partnership for the
African Recovery Programme (MAP) and the OMEGA Plan for Africa.
NEPAD aims to provide an overarching vision and policy framework for accelerating economic co-operation and integration
among African countries. NEPAD has brought forth four primary objectives: to eradicate poverty, promote sustainable
growth and development, integrate Africa in the world economy and accelerate the empowerment of women. The above
principles are then used to create commitment therefore promoting and maintaining good governance, democracy, human
rights and conflict resolution. However, this has continually remained a challenge and in order to maintain these standards
the program aims to create a conducive environment to achieve long-term economic development and growth. The program
consists of 20 member states with 5 initiating states: Algeria, Egypt, Nigeria, Senegal, South Africa and 15 members elected
on the foundation of the African union’s five regions (Central, East, West, North and Southern Africa): Cameroon, Chad,
Congo, Gabon, Ethiopia, Rwanda, Uganda, Tanzania, Libya, Mauritania, Malawi, Zambia, Zimbabwe, Benin and Mali.
Regional groups and Food Security
Food security exists when all people, at all times, have physical, social and economic access to sufficient, safe and
nutritious food to meet their dietary.
Background to the development of food security
The overall objective of the regarding cooperation in agriculture and rural development is the achievement of food security
and rational agricultural production through attaining food security through increased agricultural production, processing,
storage and marketing. There are two forms of food security policy:

1. a) Food self-sufficiency, which requires that all food needs are fulfilled by means of domestic production.
2. b) Self-reliance, which argues that availability of food is most important either produced domestically or international
trade.

Constraints in achieving food security

1. a) Low and unstable production and productivity occasioned by over-reliance on rain-fed agricultural production
systems.
2. b) Low surface water storage per capita in the region.
3. c) Inefficient utilization of water resources for agricultural production. d) Low capacity on rain water harvesting food
security measures.
The Need for Regional Policy and Standards for Food Security
In the regional perspective required to accelerate food security is currently hampered by the frequent imposition of export
bans. The regional groupings come together to make policies that ensure trade is not levied in the region hence
encouraging agricultural production and hence food security. Critical Infrastructure in the Rural Areas The Regional
Groupings have done a commendable job at investment to build new, and upgrade infrastructure along the main
transportation corridors have led to reduction of marketing costs due to easier access. Furthermore, rural roads connect the
national and regional roads and railways to the production areas increasing the efficiency of consolidation of cargo in
general.
Development of Agro-industries for Value-addition Processing
Value-adding agro-processing of food commodities increases food security in four major ways; namely:

1. i) Reduction of post-harvest losses.

2. ii) Extending the shelf-life of food, making most food especially perishables tradable and easier to move over long.

iii) Enhance incomes and creation of employment along the food chain from production to marketing;

1. iv) Improving the quality and safety of foods through appropriate certification, traceability systems and harmonization
of standards, thus improving access to markets.

Development of Insurance Instruments

Insurance is one of the means for mitigating the financial effects of risks associated with variability of weather and prices. Its
main purpose is to provide monetary means of offsetting losses suffered by producers and other agro-entrepreneurs in the
case of severe and catastrophic weather events such as drought and floods.
Maximum Utilization of Resources
The regions are endowed with ample land which to some extent are under-utilized. Opening up the underutilized lands will
call for increased productivity of livestock systems and agricultural production as they are the most dominant and feasible
systems. This will help booster the food in the region and hence promote food security.
Irrigation Systems
Africa is home to many rivers and lakes and most of the underutilized land in the region is due to the dry conditions hence
no farming can take place. The Regional Groupings have focused on Civil Engineering to help create channels in-order to
transport water from rivers and lakes into the farm fields in-order to make agriculture possible which will result into increase
in food in the region hence ensuring food security in the region.
Regional groups and Good Governance
Good governance is a term used to refer to how public institutions conduct public affairs and manage public resources.
Moreover, it is an approach that focuses on creating a system founded in justice and peace and that protects human rights
and civil liberties. According to the United Nations, good governance can be measured by eight factors namely;
Participation, Transparency, Responsiveness, Rule of law, Equity and Inclusiveness, Accountability, Effectiveness and
Efficiency and Consensus oriented. Participation requires that all groups in a state are represented in the governing bodies
and have access to all systems of government. Transparency requires that the citizens have access to the means and
methods in which decisions are made and the information provided must be clear and easily understandable by all groups.
Rule of law means that there is an impartial legal system that defends the citizen’s human rights and civil liberties,
especially those of vulnerable groups. This is usually seen by the presence of an independent judiciary which is free of
corruption and political influence. Equity and Inclusiveness means that all the members of the community feel empowered
enough to improve their well-being. This is especially targeting the vulnerable groups. Accountability requires that the
government is accountable to the people and to one another. This means that all members of the private sector,
government agencies and civil society are accountable to one another.
Effectiveness and Efficiency means that the resources are used in a sustainable manner for the benefit of the society as a
whole. This includes maintaining natural resources and ensuring that they are available to future generations.
Consensus
Oriented meaning that the government should be able to reach a middle ground between the varying different, diverse
opinions and needs of the citizens it governs. These factors show that good governance is necessary within the member-
states of regional groups in order to facilitate for the economic, social and political activities to take place. Good governance
also creates a sense of order which promotes peace and stability within the regions. Peace and Stability are among the
major goals of NEPAD as it aims to spearhead the African Renaissance which would require good conditions for economic
and social growth to take place. In addition, IGAD is aiming to establish a governance forum. The IGAD Governance
Architecture is envisioned to cover the relevant continental instruments that focus on governance, democracy, elections and
human rights. IGA, once fully established and operational, will create a framework and provide guidance for IGAD’s
programme on promoting good governance in the region.
Regional Groups and Economic Growth
Economic growth is simply an increase in the amount of goods and services produced per head of the population over a
period of time. The economic growth is closely related to the industrial structure, health, demography and income
distribution of the economy. The most used measure for national economic growth is the change in Gross Domestic Product
(GDP). GDP measures the value added of all goods and services produced in the economy. The production of goods and
services generates primary incomes for households and another method of measuring GDP is therefore to add up all
incomes.