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ASSIGNMENT BOOKLET

Identity No. : C13MB0480001

Learner Name : P.SANTOSH REDDY

Mobile No. : 9490096475

Programme : MBA

Group : GENERAL (OPERATIONS MANAGEMENT)

Paper Name (Subject) : 301-INTERNATIONAL BUSINESS ENVIRONMENT

Year/ Semester : 1st 2nd 3rd 4th

Study Centre : Jahnavi Degree and PG College, Narayanguda

Station : Hyderabad

Date : 14.05.14

P.SANTOSH REDDY

Learner Signature

ASSIGNMENT I

1) What is electronic commerce?

Answer:

Electronic commerce involves the activities of selling and buying, but it perform these operations using any electronic medium like, TV, fax, radio or internet. Today internet has captured all the e-trade demand with its comparatively greater features, so here we will consider only internet as an e-commerce source.

There are two basic categories of e-commerce:

1. Business-to-Business (B2B)2. Business-to-Consumer (B2C)

Business-to-Business (B2B):

E-commerce plays an important role in enhancing and transforming relationships between and among businesses.Some B2B applications are: Supplier Management: Electronic applications in this area aid in expediting business partnerships through the reduction of purchase order (PO) processing costs and cycle times, and by maximizing the number of POs processed with fewer people. Inventory Management: Electronic applications make the order-ship bill cycle shorter. For instance, if most of a business's partners are linked electronically, any information sent by mail can be transmitted instantly. Businesses can easily keep track of their documents to make sure that they were received. Such a system improves auditing capabilities, and helps reduce inventory levels, improve inventory turns, and eliminate out-of-stock occurrences. Distribution Management: Electronic-based applications make the transmission of shipping documents a lot easier and faster. Shipping documents include bills of lading, purchase orders, advance ship notices, and manifest claims. E-commerce also enables more efficient resource management by certifying that documents contain more accurate data. Channel Management: E-commerce allows for speedier dissemination of information regarding changes in operational conditions to trading partners. Technical, product and pricing information can be posted with much ease on electronic bulletin boards. Payment Management: An electronic payment system allows for a more efficient payment management system by minimizing clerical errors, increasing the speed of computing invoices, and reducing transaction fees and costs.

Business-to-Consumer (B2C)

Business-to-Consumer e-commerce involves customers gathering information, purchasing, and receiving products over an electronic network. The consumer uses electronic commerce in the following economic transactions: Purchasing products and information: Electronic applications make it possible for consumers to look up online information about existing and new products/services. Personal finance management: In this field, electronic applications aid the consumers in managing investments and personal finances through the use of online banking tools. Chow.net is a good example of B2C electronic commerce application, particularly of purchasing products online.

E-commerce benefits

Benefits to Organization

Expends the marketplace to national and international markets. Decrease the cost of creating, processing, distributing, storing and retrieving paper-

based information. Allows reduced inventories and overhead by facilitating "pull" type supply chain

management. The pull type processing allows for customization of products and services which

provides competitive advantages to its implementers. Reduce the time between the outlay of capital and the receipt of products and

services. Support Business Processes Reengineering (BPR) efforts. Lowers telecommunication cost the internet is much cheaper than Value Added

Networks (VANs).

Benefits to Society

Enables more individual to work at home, and to do less traveling for shopping, resulting in less traffic on the roads, and lower air pollution.

Allows some merchandise to be sold at lower prices benefiting the poor ones. Enables people in Third World countries and rural areas to enjoy products and

services which otherwise are not available to them. Facilities delivery of public services at reduced cost, increases effectiveness, and/or

improves quality.

Benefits to Consumer

Enables customers to shop or do other transactions 24 hours a day, all year round from almost any location.

Provides customers with more choices.

Provides customers with less expensive products and services by allowing them to shop in many places and conduct quick comparisons.

Allows quick delivery of products and services in some cases, especially with digitized products.

Customers can receive relevant and detailed information in seconds; rather than in days or weeks.

Makes it possible to participate in virtual auctions. Allows customers to interact with other customers in electronic communities and

exchange ideas as well as compare experiences. Electronic commerce facilitates competition, which results in substantial discounts.

Limitations of E-commerce

Technical Limitations

Lack of sufficient system's security, reliability, standards, and communication protocols.

Insufficient telecommunication bandwidth. The software development tools are still evolving and changing rapidly. Difficulties in integrating the Internet and electronic commerce software with some

existing applications and databases. The need for special Web servers and other infrastructures, in addition to the

network servers (additional cost). Possible problems of interoperability, meaning that some E-commerce software

does not fit with some hardware, or is incompatible with some operating systems or other components.

Non-Technical Limitations Cost and justification (35% of the respondents) The cost of developing an EC in house can be very high, and mistakes due to lack

of experience, may result in delays. There are many opportunities for outsourcing, but where and how to do it is not a simple issue. Furthermore, to justify the system one needs to deal with some intangible benefits which are difficult to quantify.

Security and Privacy (17% of the respondents) These issues are especially important in the B2C area, and security concerns are not

truly so serious from a technical standpoint. Privacy measures are constantly improving too. Yet, the customers perceive these issues as very important and therefore the E-commerce industry has a very long and difficult task of convincing customers that online transactions and privacy are, in fact, fairly secure.

Lack of trust and user resistance (4%) Customers do not trust an unknown faceless seller, paperless transactions, and

electronic money. So switching from a physical to a virtual store may be difficult.

Other limiting factorso Lack of touch and feel online.o Many unresolved legal issues.

o Rapidly evolving and changing E-commerce.o Lack of support services.o Insufficiently large enough number of sellers and buyers.o Breakdown of human relationships.o Expensive and/or inconvenient accessibility to the Internet.

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2) What do you mean by foreign direct investment?

Answer:

Foreign direct investment theories:

The international product lifecycle states, a company will begin by exporting its product, and later undertake foreign direct investment as a product used its life cycle. A product passes through three stages: new-product stage, maturing product stage, and standardized product stage.

Market imperfections theory states when an imperfection in the market makes a transaction less efficient than it could be, a company will undertake foreign direct investment to internalize the transaction and thereby remove the imperfection.The eclectic theory states firms undertake foreign direct investment. When the features of a particular location, combined with ownership and internationalization advantages to make a location appealing for investment. The market power theory states that a firm tries to establish a dominant market presence in an industry by undertaking foreign direct investment.Foreign direct investment management issues:Companies investing abroad are often concerned with controlling activities in the local market. The local governments might require a company to hire local managers were require that all goods produced locally be exported.

A key concern is whether to purchase an existing business or to build an international subsidiary from the ground up. Acquisition generally provide an investor with of existing plant and equipment and personnel. Factors reducing the appeal of purchasing of existing facilities include obsolete equipment, poor relations with workers, and an unsuitable location. Adequate facilities are sometimes simply unavailable in the company must go ahead with a Greenfield investment.

Labor regulations can increase the hourly cost of production several times. An approach companies may use to contain production costs is rationalize production in which a products components are produced in the lowest-cost location.

A local market presence might help companies gained valuable knowledge about the behavior of buyers that it could not obtain from the home market. Firms commonly engage in foreign direct investment. When doing so puts them close to both client firms and rival firms.

Government intervention in the free flow of foreign direct investment:

Both host and home countries interfere with the free flow of FDI for a variety of reasons. One reason that governments of host countries intervene in foreign direct investment flows is to protect their balance of payments. Allowing FDI to come in is a nation a balance of payments boost. Countries also improve their balance of payments position from the exports of local production operations created by FDI. But when direct investors sent profits made locally back to the parent company and the home country, the balance of payments decreases. Local investment in technology also tends to increase the productivity and competitiveness of the nation. Encouraging FDI also brings in people with management skills who cant train locals and improve the competitiveness of local firms. Furthermore, many local jobs are also created as a result of incoming FDI.

Home countries also intervene in FDI flows. For one thing, investing and other nations, sends resources out of the home country lowering the balance of payments. Yet profits on assets abroad that are returned home increases a home countrys balance of payments. Also, outgoing FBI may ultimately damage a nations balance of payments by taking the place of its exports. And jobs that result from outgoing investments may replace jobs at home that were based on exports to the country.

Policy instruments that governments used to promote and restrict foreign direct investments:

Host country governments can impose ownership restrictions that prohibit not domestic companies from investing in businesses and cultural industries and that is vital to national security. They can also create performance demand that influence how international companies operate in the host nation.

They can also grant companies tax incentives such as lower tax rates or offer to waive taxes on local profits for a period of time. A country may also offer low interest loans to investors. Some governments prefer to lower investment by making local infrastructure improvements that are seaport suitable for containerized shipping, improve roads, and increased telecommunications systems.

To limit the effects of outbound FDI on the national economy, home governments may impose differential tax rates that charge income from earnings abroad at a higher rate than domestic on a. Or they cant impose outright sanctions that prohibit domestic firms for making investments in certain nations. But to encourage outbound FDI home country, governments can offer insurance to cover investment risks abroad.

They can also grant lends to firms that wish to increase their investments abroad. A home country government may guarantee loans that a company takes from financial institutions. They might also offer tax breaks on profits earned abroad or negotiate special tax treaties. Finally, it may apply political pressure on other nations to get them to relax restrictions on inbound investments.

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3) What are the instruments of trade policies? Explain

Answer:

Trade policy is set of rules and regulations applied to trade. Trade policy instrumentsare as given below:

Tariffs Subsidies Import quotas Voluntary export restraints Others.

Tariffs and subsidies are the two most common instruments of trade policy. Tariffs are broadly divided into specific and ad valorem tariffs, while subsidies could be provided for imports of exports. In the context of the multilateral trade negotiations notions such as applied tariffs, bound tariffs, tariff waters, tariff peaks, tariff escalations and so on are important concepts. These concepts will be discussed during the face-to-face phase of the course.

Tariff a levy on imports and exports. Specific tariff: Fixed charge for each unit of goods imported (often based on

weight, number, length, volume or other unit of measurement). They are often levied on foodstuffs and raw materials.E.g. $1 per kill of apple etc

Ad valorem tariff : It is a bit more complex due to the need to determine the value of the import. Levy as percentage of value (instead of quantity, weight etc.)

Tariffs are the oldest and easiest forms of trade policy. They have traditionally been used as a source of government income. However, tariffs have often been imposed to protect certain domestic industries from external competition. Nowadays, the popularity of tariffs for trade protection has declined as governments revert to nontariff barriers such as import quotas (restriction on quantity of imports), export restrains (restriction on quantity of exports at the importing country's request) other restrictions on the basis of technical and sanitary requirements. Recently, tariffs aimed at protecting the environment and human and animal health becoming popular.

Effects:

Case 1: Effects in the tariff imposing country:

The main impact of a tariff is to raise the cost of importation. As such, a tariff has the same effect as an increase in shipping cost. Its implication is to raise the price of imported goods thereby reducing the demand for them.

Case 2: For the country whose exported goods face the tariff and that the tariff imposing country accounts for a negligible share of total demand for the good:

In the case where the tariff imposing country (the home country) is too small to affect the global demand for the good, the effect of tariffs is limited within the domestic market. In this case, the tariff creates differences between the international price of the good and the domestic price of the good. However, the tariff in this case will have a negligible effect on the international prices of, and the global demand for, the good hence the production, supply and global trade remains unaffected in any significant way.

Case 3: For the country whose exported goods face the tariff and that the tariff imposing country accounts for a significant share of total demand for the good:

Here, the tariff causes the domestic price of the good to increase. Since the tariff imposing country is a significant player in the market for the good (accounting for a significant share), hence the lower demand for the good in the importing country will cause excess supply of the good at global level. This will lead to a decline in the export price (the international price). The lower international prices discourage production by the exporters in turn leading to a decline in global production of the good and the volume traded.

Protection does a tariff offer : As said, one of the most important objectives of a tariff is to protect domestic producers from external competition. But, how much protectiondoes a tariff provide to domestic producers? In analysing trade policy in practice and/or even for imposing how high a tariff is needed to provide just enough protection for domestic producers, it is important to know how much protection a tariff actually provides. The amount of protection that a tariff provides is often measured by a concept called effective rate of protection.

E.g., The effective rate of protection of the 20% tariff levied is 100%. In other words, the effective impact of the tariff is to double the margin between the cost of the parts and the final price of the auto. Prior to the levy of the tariff, domestic assemblers can assemble cars profitably if and only if the cost of assembly does not exceed 2000. Because, the parts of the car to be assembled will cost them 8,000 and the final price of the cars is 10,000. If the cost of assembly exceeds 2,000 the assemblers will lose. What the tariff achieved is to make it possible for assemblers to profitably operate even at a cost of assembly as high as 4,000. Because, with the 20% tariff, the price of cars is now increased to 12,000.

Costs and benefits of tariffs: The loss of efficiency for the economy refers to that part of consumer welfare that does not get transferred to producers and/or governments. This is a net loss for the economy. It is caused by distortion of incentives of both producers (production distortion) and consumers (consumption distortion) that a tariff induces by making them to act as if imports were more expensive than they actually are.

Subsidies Import subsidies Export subsidies

For exporters, export subsidies increase revenue because for each unit exported, exporters receive total revenue comprised of the international price of the good and the subsidy.

Export subsidy: A payment for a firm or individual that exports goods abroad. It can be fixed (fixed payment per unit) or ad valorem (proportional to

value of export). Exports subsidies encourage exporters to export more. From the individual

exporters point of view, subsidies increase his/her export revenue. o Well known examples: U.S. subsidy on cottono The European Common Agriculture Policy (CAP)

Benefits and costs of subsidy:

The effect of export subsidies on prices is exactly the reverse of that of tariffs. If the exporting country is an influential player in the market of the good then export subsidy will lead to a fall in the international price of the good. Because, the subsidy encourages the influential country to export more hence pushing down the international prices of the export good. So, for the exporter, the benefit of the subsidy is positive as long as the decline in the international prices of the good is less than the subsidy he/she receives.

Just like a tariff, subsidies distort production and consumption incentives. Because of subsidies, exporters who might otherwise have not been able to compete in foreign markets could become major exporters and in fact could even drive out of market more efficient foreign producers. Hence, subsidies may allow less efficient producers to thrive at the expense of more efficient producers (i.e. production distortion). There is, thus, an efficiency loss. Subsidies also artificially lower the international price of a good making the subsidized good less cheaper for consumers thereby inducing them to buy more of the subsidized good than that supplied by more efficient foreign producers (i.e. consumption distortion).In addition to the efficiency cost, an export subsidy also leads to a terms of trade loss (i.e. a decline in export prices vis--vis import prices).

Other instruments of trade policy:

Import Quotas Restriction on quantity of imports Often enforced through import license Have the same effect as tariffs on domestic prices (hence production and

consumption distortions)The implementation/enforcement of import quotas requires issuing import licenses to some individuals or firms. Often, each individual or firm licensed to import the restricted good will have a quota, i.e. a maximum unit (such as number, weight, etc) of the good that can be imported per year. In some cases only government enterprises are licensed to import the good. Just like tariffs, import quotas limit quantity of imports hence push domestic prices higher than would otherwise be the case. As a result, consumers pay higher price for imports and demand less than would otherwise be the case (consumption distortion); and local producers also benefit from the higher prices and produces more than would be the case (production distortion). However, unlike in the case of imports, government earns no revenue from import quotas. Instead, the money that would have gone to governments in the form tariff revenue had tariffs instead of import quotas were levied now goes to the firms and individuals who held the right to import goods (i.e. the license holders). This profit is called quota rents.Both in the EU and the US import quotas have been the main trade instruments for sugar aimed at keeping domestic prices of sugar higher than international prices. The objective is to provide protection to domestic sugar producers from cheaper imported sugars. Both in the US and the EU, the right to sell sugars (the quotas) are allocated to foreign suppliers. Hence, the quota rents accrue to foreign suppliers. Case study: One of the oldest and most famous examples of trade protection was the United Kingdoms Corn Law of 1815. The Corn Law, which was a total ban of importation of grains to England, aimed at maintaining the French War era lucrative monopoly that farmers and landlords in Britain enjoyed. Voluntary export restraints (VER) are agreed between the importing and exporting countries. The importing countries request (actually put pressure) for VER so as to reduce competition from imports. The exporting countries often agree to restrict their own exports than risk sustaining worse terms from tariffs and/or quotas. In terms of its effect, VER has the same effect as that import quota with the import licenses assigned to foreign governments. Under VER, the quota rents go to the foreign suppliers.

Examples include: Japans VER on its auto exports into the U.S. as a result of American pressure in the 1980s. Another well-known VER was the Multi Fiber Arrangement (MFA) which restricted exports of textile and clothing to developed countries from 22 developing countries. The arrangement expired in 2005. The specific fraction could be stated in terms of physical units such as volumes etc. In other cases, it could be stated in terms of value-added in that some minimum share of the final price of a good need to represent domestic value-added. This policy was widely used in developing countries in order to promote industrial manufacturing. The policy provides protection

to domestic parts producers by requiring suppliers to buy domestically certain amount per unit of each product they sell.

The objective of export credit schemes in their many forms is to assist domestic exporters by providing financing to foreign buyers. The risk on these credits, as well as on guarantees and insurance, is borne by the sponsoring government. To minimize the risk, governments put some form of restrictions on the amount of loans or subsidies allowed; and by excluding loans to some countries where risk of default is perceived to be high. Export credit schemes may give unfair trade advantages to domestic exporters against suppliers of competitive goods from other countries. Because the schemes capture buyers who would otherwise have preferred to buy the good from other suppliers. To understand the effect, imagine this scenario: You have a shoe shop where you produce and sell a pair of shoe for $50. There is another shoe shop next to you which produces and sell an identical pair of shoes for 60$. Both you and your neighbours provide no loan and ask cash upfront for the sale of shoes. It is clear that you have a competitive advantage over your neighbour and it is sensible to believe that buyers prefer your shoes to your neighbours. According to the World Trade Organization (WTO), government procurement is an important aspect of international trade accounting for considerable size of the procurement market (often 10-15 percent of GDP). By directing or restricting purchase of goods towards domestically produced goods, governments in their procurement decision can discriminate against imported goods. National procurement

May also be called government procurement, public tendering, public procurement etc

Purchases by government or regulated firms directed towards domestically produced goods and services.

Bureaucratic barriers Creating bureaucratic delays in customs clearance and other forms of

administration barrier in order to discourage imports; Twisting laws, regulations and requirements in order to affect the internal

sale, purchase, transportation and distribution of foreign goods.

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4) What are the strategies of globalization? Discuss

Answer:

Globalization means integrating the Indian economy with the world economy. In the process India becomes economically interdependent with other countries at the global or international level. It seeks removal of trade barriers. There are various features of globalization they are:

Many producers from other countries can sell their goods and services in India.

India can also sell its goods and services in other countries. Businessmen of other countries can establish their enterprises in India, produce

goods for sale within the country or to other countries as export. In the same way entrepreneurs from India can also invest in other countries. Globalization includes not only movement of capital and goods but also allows

exchange of technology experience and labourers from one country to other and

In pursuance of this policy government of India has removed restrictions on imports of goods, reduced taxes.

Globalization has helped in:o Raising living standards,o Alleviating poverty,o Assuring food security,o Generating buoyant market for expansion of industry and services, ando Making substantial contribution to the national economic growth.

Impact of Globalization on Industrial Sector: Globalization of the Indian Industry took place in its various sectors such as steel, pharmaceutical, petroleum, chemical, textile, cement, retail, and BPO

Impact on Financial Sector: Because of Globalization, the financial services industry is in a period of transition. Market shifts, competition, and technological developments are ushering in unprecedented changes in the global financial services industry.

The Indian globalization: Doing or planning to expand, business globally Interlinking production across countries: Almost all MNCs set up production where it is close to the markets; where there is skilled and unskilled labour available at low costs; and where the availability of other factors of production is assured. At times, MNCs set up production jointly with some of the local companies of these countries. MNCs provide money for additional investments like buying new machines for faster production and they might bring with them the latest technology for production. As a result, production in these widely dispersed locations is getting interlinked. GLOBALISATION PICTURE IN INDIA? Mushrooming of industries like cell phones, automobiles electronics, soft drinks, fast food or services, via MNCs have created new avenues. globalization has enabled some large Indian companies to emerge as multinationals themselves, Tata-Motors (automobiles), Infosys (IT), Ranbaxy(Medicines), Asian Paints (Paints).? Globalization and the pressure have also posed a threat to the workers jobs, as they are not secure any more. Workers are low and workers are forced to work overtime to make both ends meet. The workers are sometimes denied their fair share of benefits which is brought about by globalization.

Impact on Export and Import:Cereals (mostly basmati rice and non-basmati rice), oil seeds, tea and coffee are the other prominent products each of which accounts from nearly 5 to 10% of the countrys total agricultural exports.

There is an International market for companies and for consumers there is awider range of products to choose from.Increase in flow of investments from developed countries to developingcountries, which can be used for economic reconstruction.Greater and faster flow of information between countries and greater

culturalinteraction has helped to overcome cultural barriers.Technological development has resulted in reverse brain drain in developingCountries.

Demerits of Globalization (Challenges): The outsourcing of jobs to developing countries has resulted in loss of jobs

indeveloped countries. There is a greater threat of spread of communicable diseases. There is an underlying threat of multinational corporations with immense

powerruling the globe. For smaller developing nations at the receiving end, it could indirectly lead to

asubtle form of colonization.o The number of rural landless families increased from 35 %in 1987 to 45 % in

1999,further to 55% in 2005. The farmers are destined to die of starvation or suicide.

Conditions for globalization Business freedom: unnecessary restrictions like import, foreigninvestments Facilities: infrastructure facilities, Government support: financial market reforms, R&D support Resources: technology, finance, man power, skilled managers, HR

Competitiveness: orientation FOREIGN MARKET ENTRY STRATEGIES: EXPORTING: A function of international trade whereby goods produced in one

country areshipped to another country for future sale or trade. The sale of such goods addsto the producing nations gross output. If used for trade, exports are exchangedfor other products or services. Exports are one of the oldest forms of economictransfer, and occur on a large scale between nations that have less restrictionson trade, such as tariffs or subsidies.

LICENSING/FRANCHISING Definition of Franchising: Franchising may be defined as a businessarrangement which allows for the reputation, (goodwill) innovation, technical know-how and expertise of the innovator (franchisor) to be combined with theenergy, industry and investment of another party (franchisee) to conduct thebusiness of providing and selling of goods and services. Franchising is a system of business that has grown steadily in the last 50 yearsand is estimated to account for more than one-third of the worlds retail sales? Successful franchises are the result of innovation, initiative, investment andindustry.

The license allows the licensee to use make and sell, the product or name for afee without censure.

In a Trade Mark license, for example, the licensee will be granted full privilege touse the Trade Mark on goods or services provided that the use is in accordancewith agreed signage protocols and quality guidelines

Typical Franchise System:

A license to use the system A shared development and improvement obligation The franchisors right to determine how the business operatesLICENSING: A license arrangement is a business arrangement where a licensor via

amonopoly right such as a Patent, a Trade Mark, a design or a copyright has toexclusive right which prevents others from exploiting the idea, design, name orlogo commercially.

The license allows the licensee to use make and sell, the product or name for afee without censure.

In a Trade Mark license, for example, the licensee will be granted full privilege touse the Trade Mark on goods or services provided that the use is in accordancewith agreed signage protocols and quality guidelines.

There is usually no training component, product development strategy andlimited marketing support.

The following is a list of some of the things that should be considered: Is the license exclusive, i.e. granted to only one person, or non-exclusive Can the licensee sub-license Are there any limitations to the license e.g., geographic or territorial , Minimumsales, minimum production requirement etc. What is the amount, frequency, and form of payment, e.g. either lump sum or

byway of royalty, or both, or other payment schedule Who pays for prosecution and maintenance of any IP (patents, trademarks,

designs) How are any developments, modifications or improvements to be protected

and who owns them? Does the license contain a clause which allows for the license to be cancelled

ifthe IP is not being used? What is the term of license? Is there a right to renew? What are the conditions of termination? When are royalty or other payments due? If sub-licensing is permitted what payment does the licensor receive? What information is the licensee committed to providing to the licensor? What happens if the IP under which the license is granted is refused, infringed,

opposed, revoked or other? Is copyright a consideration? Does the licensee agree not to challenge the validity of the patent? Does the licensor agree to provide essential know-how? What provisions for any hardware, should the license be terminated? How will any disputes be resolved?

What happens in the event of death of one of the parties? In whose name will the applications be made in?

MANAGEMENT CONTRACT: The management contract is a business format whichseparates ownership from operation. The operator assumes full responsibility for themanagement of the business, while the ultimate legal and financial responsibilitiesand rights of ownership of the property, its furniture and equipment, its workingcapital and the benefits of its profits (or burden of its losses) remain those of theowner. The owner may be a private individual, a financial institution, a real estatecompany or a government. The operator is most likely to be an established hotel chainoffering marketing strength, brand names, bargaining power, systems and procedures, project design and management, technical services, training and management development.

CONTRACT MANUFACTURING: Contract manufacturing is a process that establishes aworking agreement between two companies. As part of the agreement, onecompany custom produces parts or other materials on behalf of their client. In mostcases, the manufacturer also handles the ordering and shipment processes for theclient. As a result, the client does not have to maintain manufacturing facilities, purchase raw materials, or hire labour in order to produce the finished goods. Industries like personal care andhygiene products, automotive parts, and medical supplies are often created under theterms of a contract manufacture agreement.

TURNKEY CONTRACTS: A turnkey contract is a business arrangement in which aproject is delivered in a completed state. The builder or developer is separate fromthe final owner or operator, and the project is turned over only once it is fullyoperational. In effect, the developer is finishing the project and turning the key over to the new owner. Thistype of arrangement is commonly used for construction projects ranging from singlebuildings to large-scale developments, residential home building industry. Under atraditional lump-sum contract

ASSEMBLY OPERATIONS: A market entry strategy in which an organization sends partsfor products to a foreign plant for final assembly. The products are then sold in the foreignmarket or exported to other countries. Assembly plants may allow a company to takeadvantage of low cost labour in the most labour intensive portion of production. Theremay also be lower duties and other taxes because unfinished products are importedinstead of finished products. Assembly plants also allow a foreign manufacturer to meethost country requests for more domestic production while at the same time allowing themanufacturer to continue control over production by using its own sub-products assupplies and materials for the foreign assembly plant.

STARTEGIC ALLIANCES: An arrangement between two companies that have decided toshare resources to undertake a specific, mutually beneficial project. A strategic alliance isless involved and less permanent than a joint venture, in which two companies typicallypool resources to create a separate business entity. In a strategic

alliance, each companymaintains its autonomy while gaining a new opportunity. A strategic alliance could help acompany develop a more effective process, expand into a new market or develop anadvantage over a competitor, among other possibilities.an oil and Natural Gas Company might form a strategic alliance with a researchlaboratory to develop more commercially viable recovery processes. A clothing retailer mightform a strategic alliance with a single clothing manufacturer to ensure consistent quality andsizing. A major website could form a strategic alliance with an analytics company to improveits marketing efforts.

WHOLLY OWNED MANUFACTURING FACILTIES: A company whose commonstock is 100% owned by another company, called the parent company. A companycan become a wholly owned subsidiary through acquisition by the parentcompany or spin off from the parent company. In contrast, a regular subsidiary is 51 to 99% owned by the parent company. One situation in which a parentcompany might find it helpful to establish a subsidiary company is if it wants tooperate in a foreign market. This arrangement is common among high-techcompanies who want to retain complete control and ownership of theirtechnology.

JOINT VENTURING: Joint ventures are set up for a number of reasons, includingcarrying out a specific project or simply assisting with the growth andcontinuation of a business. The parties to a joint venture can be individuals, partnerships, companies, or other organizations or associations. In certain cases, the joint venture can be created through the incorporation of a company thatbecomes a party to the joint venture agreement. The joint venture will take effect on the day the parties sign the agreement. The parties should be as specific as possible in outlining the partysrelationship and commitments to the joint venture. Tata Global Beverages and Starbucks Form Joint Venture to Open StarbucksCafs across India, TATA Starbucks Limited, will own and operate Starbucks cafswhich will be branded as Starbucks Coffee A Tata Alliance. The services of a management contractor might include:Advising on the development of the brief (if appointed at this stage),on appointments (such as site inspectors), feasibility, interfaces, build ability, cost andprogramming of the design, packaging of production informationDefining key performance indicators for works contractorsCost planning and cost control.Preparing a construction programme and defining methods of working on site.Consenting to sub-contracting of work by works contractorsArranging for site accommodation, welfare facilities, fences, hoardings, roads andwalkways, drainage, power and water supplyArranging labour for certain site activities (such as cleaning)Managing site inspectorsCo-ordinating the release of information.Managing and co-ordinating works contracts, including acting as contracted ministration, carrying out inspections, issuing instructions and certificates etc.Collating as-built information, building owners manual, building usershandbook, project handbook, health and safety file, pre-constructioninformation, site waste

management plan and construction phase plan Chairing site progress meetings and preparing progress reports for the client COUNTERTRADE: International trade in which goods are exchanged for othergoods, rather than for hard currency. Countertrade can be classified into threebroad categories

Barter: Barter is the direct exchange of goods between two parties in a transactionCounter purchase: Sale of goods and services to one company in other country bya company that promises to make a future purchase of a specific product fromthe same company in that country.

Buy back: occurs when a firm builds a plant in a country - or supplies technology, equipment, training, or other services to the country and agrees to take a certain percentage of the plants output as partial payment for the contract.

Compensation deal: Compensation trade is a form of barter in which one of the flowsis partly in goods and partly in hard currency.

MERGERS AND ACQUISITIONS: A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company byanother in which no new company is formed.

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5) What is legal environment?

Answer:

The economic environment includes the structure of the economy; the industrial, agricultural, tariff, pricing, and other trade policies of the Government of the country; the growth and pattern of national income and its distribution; the conditions prevailing in the agricultural, industrial and service sectors; the position of the balance of trade and the balance of payments; and a host of other conditions of the economy. The legal environment refers to a large number of laws anbu-laws, rules and regulations passed by the Government from time to time to regulate and control the business in the country.

The success of the business enterprise will greatly depend upon the condition of economy's growth. The Indian economy comprises three major sectors, viz., public, private and joint sector. The business in general and the private sector business in p[articular is functioning under increasing control and regulation by the Government. The modern business has to operate in an economy which is highly controlled and regulated by the Government. Gone are the days of laissez-faire economy when the economic activity was allowed freely without any interference of the State. After the outbreak of the First World War, various political scientists and economists have

attacked the concept of laissez-faire because of its anti-social an exploitative nature and consequences. The Government does play a significant role in shaping the character of the economy-even in a capitalist economy.

In totalitarian countries, however, the State has gone to the extreme extent of taking over complete control of economic interests. The communist nations of the world led by Soviet Russia have adopted the communist pattern of economy under which the ownership and control of productive resources has been socialized and placed in the hands of the State. Economic activity has been completely regimented there in the sense that neither production nor consumption goes according to individual decisions by producers and consumers, but is determined by the State. Private enterprise has been totally abolished and the whole economy constitutes the public sector.

In a mixed economy where the private enterprise co-exists with State enterprise, the State plays a dual role in relation to private business. On the one hand, it acts as an instrument to aid and benefit industry with the object of inducing the accelerating the growth of the economy. In this role, the State provides finance and facilities to industrial entrepreneurs and tires to look after and further their interests through policies like protection and export promotion. Some aspects of this have already been examined in the section on Company Finance. In the second role, the State acts as a restraining force on business curbing the anti-social aspects of business, laying down the side-rails within which private business must function and pulling up private enterprise (in fact, sometimes even superseding and taking over control of an individual enterprise or a whole industry).

The object of the Government regulation and control of business especially the private enterprise is to steer the wheel of the economy in the direction of maximum social good, without replacing the present economic set-up. This can be achieved through regulatory action at all important points in the economic system.

ASSIGNMENT II

6) Discuss the factors affecting the international business environment

Answer:

International business comprises all commercial transactions (private and governmental, sales, investments, logistics, and transportation) that take place between two or more regions, countries and nations beyond their political boundaries. Usually, private companies undertake such transactions for profit; governmentsundertake them for profit and for political reasons It refers to all those business activities which involve cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc.[2]

A multinational enterprise (MNE) is a company that has a worldwide approach to markets and production or one with operations in more than a country. An MNE is often called multinational corporation (MNC) or transnational company (TNC). Well known MNCs include fast food companies such as McDonald's and Yum Brands, vehicle manufacturers such as General Motors, Ford Motor Company and Toyota, consumer electronics companies like Samsung, LG and Sony, and energy companies such as ExxonMobil, Shell and BP. Most of the largest corporations operate in multiple national markets.

Areas of study within this topic include differences in legal systems, political systems, economic policy, language, accounting standards, labor standards, living standards, environmental standards, local culture, corporate culture, foreign exchange market, tariffs, import and export regulations, trade agreements, climate, education and many more topics. Each of these factors requires significant changes in how individual business units operate from one country to the next.

Physical and societal factors of competitive Business social environment:The conduct of international operations depends on companies' objectives and the means with which they carry them out. The operations affect and are affected by the physical and societal factors and the competitive environment.

Operations of business Objectives: sales expansion, resource acquisition, risk minimization, Diversify their revenue stream

Means of businesses Modes: importing and exporting, tourism and transportation, licensing and

franchising, turnkey operations, management contracts, direct investment and portfolio investments.

Functions: marketing, global manufacturing and supply chain management, accounting, finance, human resources

Overlaying alternatives: choice of countries, organization and control mechanisms

Physical and societal factors of business : Political policies and legal practices

Policy is a statement of intent, and is implemented as a procedure or protocol. Policies are generally adopted by the Board of or senior governance body within an organization whereas procedures or protocols would be developed and adopted by senior executive officers. Policies can assist in both subjective and objective decision making. Policies to assist in subjective decision making would usually assist senior management with decisions that must consider the relative merits of a number of factors before making decisions and as a result are often hard to objectively test e.g. work-life balance policy. In contrast policies to assist in objective decision making are usually operational in nature and can be objectively tested e.g. password policy.

The term may apply to government, private sector organizations and groups, and individuals. Presidential executive orders, corporate privacy policies, and parliamentary rules of order are all examples of policy. Policy differs from rules or law. While law can compel or prohibit behaviors (e.g. a law requiring the payment of taxes on income), policy merely guides actions toward those that are most likely to achieve a desired outcome.

Policy or policy study may also refer to the process of making important organizational decisions, including the identification of different alternatives such as programs or spending priorities, and choosing among them on the basis of the impact they will have. Policies can be understood as political, management, financial, and administrative mechanisms arranged to reach explicit goals. In public corporate finance, a critical accounting policy is a policy for a firm/company or an industry which is considered to have a notably high subjective element, and that has a material impact on the financial statements

Cultural factorsIn the 20th century, "culture" emerged as a central concept in anthropology, encompassing the range of human phenomena that cannot be directly attributed to genetic inheritance. Specifically, the term "culture" in American anthropology had two meanings:

1. The evolved human capacity to classify and represent experiences with symbols, and to act imaginatively and creatively; and2. The distinct ways that people, who live differently, classified and represented their experiences, and acted creatively.Hoebel describes culture as an integrated system of learned behavior patterns which are characteristic of the members of a society and

which are not a result of biological inheritance.Distinctions are currently made between the physical artifacts created by a society, its so-called material culture, and everything else, the intangibles such as language, customs, etc. that are the main referent of the term "culture".

Economic forces:These factors determine an enterprises volume of demand for its product and affect its marketing strategies and activities. The economic system is made up of three main steps. The first one being production and then there is distribution of the produced goods and then the last step is consumption of the same. Now all this is possible because of two factors- Human resource and Natural resource. Natural resources include the raw material which is generally used in the production process, and human resources help to convert the raw materials to finished products which are then ready for distribution.

Competitive factors of business :

Major advantage in price, marketing, innovation or other factors. Number and comparative capabilities of competitors Competitive differences by country Local taxes

Risk of business Strategic risk Operational risk Political risk Technological Risk Environmental Risk Economic Risk Financial risk Terrorism Risk Planning risk

Factors that influenced the growth in globalization of international business There has been growth in globalization in recent decades due to (at least) the following eight factors:

Technology is expanding, especially in transportation and communications. Governments are removing international business restrictions. Institutions provide services to ease the conduct of international business. Consumers know about and want foreign goods and services. Competition has become more global. Political relationships have improved among some major economic powers. Countries cooperate more on transnational issues. Cross-national cooperation and agreements.

Importance of International Business Education Most companies are either international or compete with international

companies. Modes of operation may differ from those used domestically. The best way of conducting business may differ by country. An understanding helps you make better career decisions. An understanding helps you decide what governmental policies to support. Managers in international business must understand social science disciplines

and how they affect all functional business fields.

Importance of studying International Business The International Business standards focus on the following:

Raising awareness of the interrelatedness of one country's political policies and economic practices on another;

Learning to improve international business relations through appropriate communication strategies;

Understanding the global business environmentthat is, the interconnected-ness of cultural, political, legal, economic, and ethical systems;

Exploring basic concepts underlying international finance, management, marketing, and trade relations; and identifying forms of business ownership and international business opportunities.

These are tools that would help future business people bridge the economicand political gap between countries.

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7) How does FII force affect capital market of a nation? Illustrate with an example

Answer:

FOREIGN INSTITUTIONAL INVESTOR: The term Foreign Institutional Investor is defined by SEBI as under:"Means an institution established or incorporated outside India which proposes to make investment in India in securities. Provided that a domestic asset management company or domestic portfolio manager who manages funds raised or collected or brought from outside India for investment in India on behalf of a sub-account, shall be deemed to be a Foreign Institutional Investor." Foreign Investment refers to investments made by residents of a country in financial assets and production process of another country.

Entities covered by the term FII include Overseas pension funds, mutual funds, investment trust, asset management company, nominee company, bank, institutional portfolio manager, university funds, endowments, foundations, charitable trusts,

charitable societies etc.(fund having more than 20 investors with no single investor holding more than 10 per cent of the shares or units of the fund) (GOI (2005)).FIIs can invest their own funds as well as invest on behalf of their overseas clients registered as such with SEBI. These client accounts that the FII manages are known as sub-accounts. The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with Securities & Exchange Board of India (SEBI) to participate in the market. One of the major market regulations pertaining to FII involves placing limits on FII ownership in Indian companies. They actually evaluate the shares and deposits in a portfolio.

FII is required for following reasons:

FIIs contribute to the foreign exchange inflow as the funds from multilateral finance institutions and FDI (Foreign direct investment) are insufficient. Following are the some advantages of FIIs.

It lowers cost of capital, access to cheap global credit. It supplements domestic savings and investments. It leads to higher asset prices in the Indian market. And has also led to considerable amount of reforms in capital market and

financial sector.

INFLUENCE OF FII ON INDIAN MARKETPositive fundamentals combined with fast growing markets have made India an attractive destination for foreign institutional investors (FIIs). Portfolio investments brought in by FIIs have been the most dynamic source of capital to emerging markets in 1990s. At the same time there is unease over the volatility in foreign institutional investment flows and its impact on the stock market and the Indian economy.Apart from the impact they create on the market, their holdings will influence firm performance. For instance, when foreign institutional investors reduced their holdings in Dr.Reddys Lab by 7% to less than 18%, the company dropped from a high of around US$30 to the current level of below US$15. This 50% drop is apparently because of concerns about shrinking profit margins and financial performance. These instances made analysts to generally claim that foreign portfolio investment has a short term investment horizon. Growth is the only inclination for their investment.

Some major impact of FII on stock market: They increased depth and breadth of the market. They played major role in expanding securities business. Their policy on focusing on fundamentals of share had caused efficient pricing of share.

These impacts made the Indian stock market more attractive to FII & also domestic investors. The impact of FII is so high that whenever FII tend to withdraw the money from market, the domestic investors fearful and they also withdraw from market.

Effects on Indian Economy:

POSITIVE IMPACT: It has been emphasized upon the fact that the stock market reforms like improved market transparency, automation, dematerialization and regulations on reporting and disclosure standards were initiated because of the presence of the FIIs. But FII flows can be considered both as the cause and the effect of the stock market reforms. The market reforms were initiated because of the presence of them and this in turn has led to increased flows.

ENHANCED FLLOWS OF EEQUITY CAAPITAL: FFIIs are well known for aa greater appetite for equity than debt in their asset structure. For example, pension funds in the United Kingdom and United States had 68 per cent and 64 per cent, respectively, off their portfolios in equity in 1998. Not only it can help in supplementing the domestic savings for the purpose of development projects like building economic and social infrastructure but can also help in growth of rate of investment, it boosts the production, employment and income of the host country.

MANAGING UNCERTAINNTY AND CONTROLLLING RISKS: FIIs promote financial innovation and development of hedging instruments. These because of their interest in hedging risks, are known to have contributed to the development of zero-coupon bonds and index futures.FIIs not only enhance competition in financial markets, but also improve the alignment of asset prices to fundamentals. FIIs in particular are known to have good information and low transaction costs. By aligning asset prices closer to fundamentals, they stabilize markets. In addition, a variety of FIIs with a variety of risk-return preferences also help in dampening volatility.

IMPROVING CAPITAL MARKETS: FIIs as professional bodies of asset managers and financial analysts enhance competition and efficiency of financial markets. By increasing the availability of riskier long term capital for projects, and increasing firms incentives to supply more information about them, the FIIs can help in the process of economic development.

IMPROVED CORPORATE GOVERNANCE: Good corporate governance is essential to overcome the principal-agent problem between share-holders and management. Information asymmetries and incomplete contracts between share-holders and management are at the root of the agency costs. Bad corporate governance makes equity finance a costly option. With boards often captured by managers or passive, ensuring the rights of shareholders is a problem that needs to be addressed efficiently in any economy. Incentives for shareholders to monitor firms and enforce their legal rights are limited and individuals with small share-holdings often do not address the issue since others can free-ride on their endeavor. FIIs constitute professional bodies of asset managers and financial analysts, who, by contributing to better understanding of firms operations, improve corporate governance. Among the four models of corporate control - takeover or market control via equity, leveraged control or market

control via debt, direct control via equity, and direct control via debt or relationship banking-the third model, which is known as corporate governance movement, has institutional investors at its core. In this third model, board representation is supplemented by direct contacts by institutional investors.

NEGATIVE IMPACT: If we see the market trends of past few recent years it is quite evident that Indian equity markets have become slaves of FIIs inflow and are dancing to their tune. And this dependence has to a great extent caused a lot of trouble for the Indian economy. Some of the factors are:

POTENTIAL CAPITAL OUTFLOWS: Hot money refers to funds that are controlled by investors who actively seek short-term returns. These investors scan the market for short-term, high interest rate investment opportunities. Hot money can have economic and financial repercussions on countries and banks. When money is injected into a country, the exchange rate for the country gaining the money strengthens, while the exchange rate for the country losing the money weakens. If money is withdrawn on short notice, the banking institution will experience a shortage of funds.

INFLATION: Huge amounts of FII fund inflow into the country creates a lot of demand for rupee, and the RBI pumps the amount of Rupee in the market as a result of demand created. This situation leads to excess liquidity thereby leading to inflation where too much money chases too few goods.

PROBLEM TO SMALL INVESTORS: The FIIs profit from investing in emerging financial stock markets. If the cap on FII is high then they can bring in huge amounts of funds in the countrys stock markets and thus have great influence on the way the stock markets behaves, going up or down. The FII buying pushes the stocks up and their selling shows the stock market the downward path. This creates problems for the small retail investor, whose fortunes get driven by the actions of the large FIIs.

ADVERSE IMPACT ON EXPORTS: FII flows leading to appreciation of the currency may lead to the exports industry becoming uncompetitive due to the appreciation of the rupee.

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8: Write note on the mechanism for settlements of international trade disputes.

Answer:

The Dispute Settlement Understanding (DSU), formally known as the Understanding on Rules and Procedures Governing the Settlement of Disputes, establishes rules and procedures that manage various disputes arising under the Covered Agreements of

the Final Act of the Uruguay Round. All WTO member nation-states are subject to it and are the only legal entities that may bring and file cases to the WTO.

The DSU created the Dispute Settlement Body (DSB), consisting of all WTO members, which administers dispute settlement procedures.It provides strict time frames for the dispute settlement process and establishes an appeals system to standardize the interpretation of specific clauses of the agreements.It also provides for the automatic establishment of a panel and automatic adoption of a panel report to prevent nations from stopping action by simply ignoring complaints. Strengthened rules and procedures with strict time limits for the dispute settlement process aim at providing "security and predictability to the multilateral trading system" and achieving " solution mutually acceptable to the parties to a dispute and consistent with the covered agreements."

The basic stages of dispute resolution covered in the understanding include consultation, good offices, conciliation and mediation, a panel phase, Appellate Body review, and remedies.

Consultation:A member-country may request consultations when it considers another member-country to have "infringed upon the obligations assumed under a Covered Agreement. If the respondent fails to respond within ten days or enter into consultations within thirty days, the complaint "may proceed directly to request the establishment of a panel."

Good Offices, Conciliation and Mediation:

Unlike consultation in which "a complainant has the power to force a respondent to reply and consult or face a panel," good offices, conciliation and mediation "are undertaken voluntarily if the parties to the dispute so agree." No requirements on form, time, or procedure for them exist. Any party may initiate or terminate them at any time. The complaining party may request the formation of panel, "if the parties to the dispute jointly consider that the good offices, conciliation or mediation process has failed to settle the dispute. Thus the DSU recognized that what was important was that the nations involved in a dispute come to a workable understanding on how to proceed, and that sometimes the formal WTO dispute resolution process would not be the best way to find such an accord. Still, no nation could simply ignore its obligations under international trade agreements without taking the risk that a WTO panel would take note of its behavior.

Panel PhaseIf consultation, good offices, conciliation or mediation fails to settle the dispute, the complaining party may request the formation of panel. The DSB shall form a panel, unless at that meeting the DSB decides by consensus not to establish a panel. Panels shall be composed of well-qualified governmental and/or non-governmental

individuals with a view to ensuring the independence of the members, and whose governments are not the parties to the dispute, unless the parties to the dispute agree otherwise. Three panelists compose a panel unless the parties agree to have five panelists. The Secretariat proposes nominations for panels that the parties shall not oppose except for compelling reasons. If the parties disagree on the panelists, upon the request of either party, the director-general in consultation with the chairman of the DSB and the chairman of the relevant council or committees shall appoint the panelists. When multiple parties request the establishment of a panel with regard to the same matter, the DSU suggests a strong preference for a single panel to be established to examine these complaints taking into account the rights of all members concerned. The DSU gives any member that has a substantial interest in a matter before a panel (and notifies its interest to the DSB) an opportunity to be heard by the panel and to make written submissions to the panel. The panel shall submit its findings in the form of written report to the DSB. As a general rule, it shall not exceed six months from the formation of the panel to submission of the report to the DSB. In interim review stage, the panel submits an interim report to the parties. The panel shall hold a further meeting with the parties if the parties present written comments. If no comments are provided by the parties within the comment period, the report shall be the final report and circulated promptly to the members. Within sixty days after the report is circulated to the members, the report shall be adopted at a DSB meeting unless a party to the dispute formally notifies the DSB of its decision to appeal or the DSB decides by consensus not to adapt the report.

Appellate Body ReviewThe DSB establishes a standing Appellate Body that will hear the appeals from panel cases. The Appellate Body shall be composed of seven persons, three of whom shall serve on any one case. Those persons serving on the Appellate Body are to be persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the Covered Agreements generally. The Body shall consider only issues of law covered in the panel report and legal interpretations developed by the panel. Its proceedings shall be confidential, and its reports anonymous. This provision is important because, unlike judges in the United States, the members of the appellate panel do not serve for life. This means that if their decisions were public, they would be subject to personal retaliation by governments unhappy with decisions, thus corrupting the fairness of the process. Decisions made by the Appellate Body "may uphold, modify, or reverse the legal findings and conclusions of the panel. The DSB and the parties shall accept the report by the Appellate Body without amendments unless the DSB decides by consensus not to adopt the Appellate Body report within thirty days following its circulation to the members.

RemediesThere are consequences for the member whose measure or trade practice is found to violate the Covered Agreements by a panel or Appellate Body. The dispute panel issues recommendations with suggestions of how a nation is to come into compliance with the trade agreements. If the member fails to do so within the determined

reasonable period of time, the complainant may request negotiations for compensation. Within twenty days after the expiration of the reasonable period of time, if satisfactory compensation is not agreed, the complaining party may request authorization from the DSB to suspend the application to the member concerned of concessions or other obligations under the Covered Agreements.Retaliation shall be first limited to the same sector(s). If the complaining party considers the retaliation insufficient, it may seek retaliation across sectors. The DSB shall grant authorization to suspend concessions or other obligations within thirty days of the expiry of the reasonable time unless the DSB decides by consensus to reject the request. The defendant may object to the level of suspension proposed. The original panel, if members are available, or an arbitrator appointed by the director-general may conduct arbitration.

ArbitrationMembers may seek arbitration within the WTO as an alternative means of dispute settlement "to facilitate the solution of certain disputes that concern issues that are clearly defined by both parties. Those parties must reach mutual agreement to arbitration and the procedures to be followed. Agreed arbitration must be notified to all members prior to the beginning of the arbitration process. Third parties may become party to the arbitration only upon the agreement of the parties that have agreed to have recourse to arbitration. The parties to the proceeding must agree to abide by the arbitration award. Arbitration awards shall be notified to the DSB and the Council or Committee of any relevant agreement where any member may raise any point relating thereto.

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9) What is business ethics? Examine the subsidy component practiced in some countries from the point of ethics

Answer:

Ethics are moral guidelines which govern good behavior. So behaving ethically is doing what is morally right. Behaving ethically in business is widely regarded as good business practice. Ethical principles and standards in business:

o Define acceptable conduct in businesso Should underpin how management make decisions

An important distinction to remember is that behaving ethically is not quite the same thing as behaving lawfully:

Ethics are about what is right and what is wrong Law is about what is lawful and what is unlawful

An ethical decision is one that is both legal and meets the shared ethical standards of the community Businesses face ethical issues and decisions almost every day in some industries the issues are very significant.

For example: Should businesses profit from problem gambling?Should supermarkets sell lager cheaper than bottled water? Is ethical shopping a luxury we cant afford?

Business ethics and corporate social responsibility (CSR)are closely linked:A socially responsible firm should be an ethical firmAn ethical firm should be socially responsible

However there is also a distinction between the two:CSR is about responsibility to all stakeholders and not just shareholdersEthics is about morally correct behaviour

Ethical codes are increasingly popular particularly with larger businesses and cover areas such as:

Corporate social responsibilityDealings with customers and supply chainEnvironmental policy & actionsRules for personal and corporate integrity

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10) What do you mean by Lex Causae? Explain its dimensions

Answer:

The lex causae is the system of law which is applied to determine substantive issues of law in international litigation, i.e. the substantive law of the legal system that determines dispute.Where both of the litigants are local to the jurisdiction of English Courts, and there is no foreign element involved, the lex causae will be English law (and the same as the lexfori). In international disputes, the lex causae will likely be different to English law. The applicable law is depends upon the resolution in accordance with rules of conflicts of laws. For Member States (ie countries and territories) of the European Economic Area, questions of jurisdiction are most often determined by reference to the Rome Convention, which is annexure to the Contracts (Applicable Law) Act 1990.The Rome Convention is interpreted by principles of European law, as interpreted by the European Court of Justice.

Where an international contractual dispute relating to a contract governed by the laws of a State of the United States of America is heard in the courts of England, the lex causae will be the laws of the relevant State of the United States and the lexfori will be the laws of England.

The Rome Convention fixes a series of rules to determine the lex contractus:

1. Parties are entitled to select the law which is to apply to the contract by incorporating a choice of law clause, which designates the laws of a country to govern the contract.

2. Where a contract does not specify the law to govern the agreement, the Courts are able to draw from the law from the terms of the contract and the circumstances of the case.

3. Where the terms of the contract do not lend assistance, the Court to which the contract is governed by the laws of the country to which the contract is most closely connected.

4. Where a contract is severable into parts, it may be that the contract is governed by the laws of more than one country.

5. Where the law of the contract has not been selected:a. rebuttable presumption arises that the law to which the contract is most closely connected is the law of the place where the party who is to effect "characteristic performance" (a principle adopted from Swiss law) has its habitual residence, or in event that the characteristic performer is a company, the location of the central administration of the company.

b. Where the subject matter of the contract is land or some other form of immoveable property, the law governing the contract will be the place of the immoveable property.

The Rome Convention also applies mandatory rules with the effect that certain consumer contracts and employment contracts.