Business: the activity of making, buying, selling or supplying goods or services for money. Businesses include everything from a small owner-operated company such as a family restaurant, to a multinational conglomerate such as General Electric.A Business is nothing more than a person or group of persons properly organized to produce or distribute goods or services. The study of business is the study of activities involved in the production or distribution of goods and services-buying, selling, financing, personnel and the like.

Business Environment : It refers to all external forces which have a bearing on the functioning of the business. According to Barry M. Richman and Melvgn Copen Environment consists of factors that are largely if not totally, external and beyond the control of individual industrial enterprise and their managements. These are essentially the givers within which firms and their management must operate in a specific country and they vary, often greatly, from country to country.What is International Business? MeaningInternational Business conducts business transactions all over the world. These transactions include the transfer of goods, services, technology, managerial knowledge, and capital to other countries. International business involves exports and imports.International Business is also known, called or referred as a Global Business or an International Marketing.

1. Large scale operations : In international business, all the operations are conducted on a very huge scale. Production and marketing activities are conducted on a large scale. It first sells its goods in the local market. Then the surplus goods are exported.2. Intergration of economies : International business integrates (combines) the economies of many countries. This is because it uses finance from one country, labour from another country, and infrastructure from another country. It designs the product in one country, produces its parts in many different countries and assembles the product in another country. It sells the product in many countries, i.e. in the international market.3. Dominated by developed countries and MNCs : International business is dominated by developed countries and their multinational corporations (MNCs). At present, MNCs from USA, Europe and Japan dominate (fully control) foreign trade. This is because they have large financial and other resources. They also have the best technology and research and development (R & D). They have highly skilled employees and managers because they give very high salaries and other benefits. Therefore, they produce good quality goods and services at low prices. This helps them to capture and dominate the world market.4. Benefits to participating countries : International business gives benefits to all participating countries. However, the developed (rich) countries get the maximum benefits. The developing (poor) countries also get benefits. They get foreign capital and technology. They get rapid industrial development. They get more employment opportunities. All this results in economic development of the developing countries. Therefore, developing countries open up their economies through liberal economic policies.5. Keen competition: International business has to face keen (too much) competition in the world market. The competition is between unequal partners i.e. developed and developing countries. In this keen competition, developed countries and their MNCs are in a favorable position because they produce superior quality goods and services at very low prices. Developed countries also have many contacts in the world market. So, developing countries find it very difficult to face competition from developed countries.6. Special role of science and technology : International business gives a lot of importance to science and technology. Science and Technology (S & T) help the business to have large-scale production. Developed countries use high technologies. Therefore, they dominate global business. International business helps them to transfer such top high-end technologies to the developing countries.7. International restrictions : International business faces many restrictions on the inflow and outflow of capital, technology and goods. Many governments do not allow international businesses to enter their countries. They have many trade blocks, tariff barriers, foreign exchange restrictions, etc. All this is harmful to international business.8. Sensitive nature : The international business is very sensitive in nature. Any changes in the economic policies, technology, political environment, etc. has a huge impact on it. Therefore, international business must conduct marketing research to find out and study these changes. They must adjust their business activities and adapt accordingly to survive changes.Business Environment has two components (Types)1. Internal Environment2. External EnvironmentInternal Environment: It includes 5 Ms i.e. man, material, money, machinery and management, usually within the control of business. Business can make changes in these factors according to the change in the functioning of enterprise.External Environment: Those factors which are beyond the control of business enterprise are included in external environment. These factors are: Government and Legal factors, Geo-Physical Factors, Political Factors, Socio-Cultural Factors, Demo-Graphical factors etc. It is of two Types:1. Micro/Operating Environment2. Macro/General EnvironmentMicro/Operating Environment: The environment which is close to business and affects its capacity to work is known as Micro or Operating Environment. It consists of Suppliers, Customers, Market Intermediaries, Competitors and Public.(1) Suppliers: They are the persons who supply raw material and required components to the company. They must be reliable and business must have multiple suppliers i.e. they should not depend upon only one supplier.(2) Customers: - Customers are regarded as the king of the market. Success of every business depends upon the level of their customers satisfaction. Types of Customers:(i) Wholesalers(ii) Retailers(iii) Industries(iv) Government and Other Institutions(v) Foreigners(3) Market Intermediaries: - They work as a link between business and final consumers. Types:-(i) Middleman(ii) Marketing Agencies(iii) Financial Intermediaries(iv) Physical Intermediaries(4) Competitors: - Every move of the competitors affects the business. Business has to adjust itself according to the strategies of the Competitors.(5) Public: - Any group who has actual interest in business enterprise is termed as public e.g. media and local public. They may be the users or non-users of the product.

Macro/General Environment: It includes factors that create opportunities and threats to business units. Following are the elements of Macro Environment:1) Economic Environment: - It is very complex and dynamic in nature that keeps on changing with the change in policies or political situations. It has three elements:(i) Economic Conditions of Public(ii) Economic Policies of the country(iii)Economic System(iv) Other Economic Factors: Infrastructural Facilities, Banking, Insurance companies, money markets, capital markets etc.(2) Non-Economic Environment: - Following are included in non-economic environment:-(i) Political Environment: - It affects different business units extensively. Components:(a) Political Belief of Government(b) Political Strength of the Country(c) Relation with other countries(d) Defense and Military Policies(e) Centre State Relationship in the Country(f) Thinking Opposition Parties towards Business Unit(ii) Socio-Cultural Environment: - Influence exercised by social and cultural factors, not within the control of business, is known as Socio-Cultural Environment. These factors include: attitude of people to work, family system, caste system, religion, education, marriage etc.(iii) Technological Environment: - A systematic application of scientific knowledge to practical task is known as technology. Everyday there has been vast changes in products, services, lifestyles and living conditions, these changes must be analysed by every business unit and should adapt these changes.(iv) Natural Environment: - It includes natural resources, weather, climatic conditions, port facilities, topographical factors such as soil, sea, rivers, rainfall etc. Every business unit must look for these factors before choosing the location for their business.(v) Demographic Environment :- It is a study of perspective of population i.e. its size, standard of living, growth rate, age-sex composition, family size, income level (upper level, middle level and lower level), education level etc. Every business unit must see these features of population and recongnise their various need and produce accordingly.(vi) International Environment: - It is particularly important for industries directly depending on import or exports. The factors that affect the business are: Globalisation, Liberalisation, foreign business policies, cultural exchange.Characteristics:-1. Business environment is compound in nature.2. Business environment is constantly changing process.3. Business environment is different for different business units.4. It has both long term and short term impact.5. Unlimited influence of external environment factors.6. It is very uncertain.7. Inter-related components.8. It includes both internal and external environment.*Why countries engage in tradeIs trade advantageous? What are the reasons that move private individuals and firms to voluntarily engage in trade, governments to favour it and economists to defend it? Trends in World and Agricultural Trade, long-term international trade flows in a wide range of commodities have steadily increased over hundreds of years and they have accelerated spectacularly since the Second World War. This is surely not just because transport and communications facilities have dramatically improved, but it must also be because benefits are derived from trade.Economists have put forward a number of arguments in favour of trade; some are rather obvious and common sense, others are less evident. These arguments can be classified into three groups according to whether they emphasize (i) the increase that trade can bring to the total amount of goods and services available to the national population (increased consumption argument), (ii) the diversity of goods and services made available through trade to this population (diversification argument), or (iii) the stability in the supply and prices of goods and services brought about by trade (stability argument).

TECHNOLOGICAL ENVIRONMENTAmong all the segments of environment, technological environment exerts considerable influence on business. Thus this section requires more devotion. J.K. Galbraith defines technology as a systematic application of scientific or other organized knowledge to practical tasks. During the last 150 years, technology has developed beyond anybodys comprehensions. Year 1983 was particularly considered by scientists as the year of scientific success. In this year scientists put a billion dollars technology into space, produced the worlds first test-tube triplets and obtained evidence of another solar system. A major break through was achieved in the fieldof genetic engg. to cure dwarfism. Technology, thus, is the most dramatic force shaping the destiny of people and business all over the world.

Status of Technology in IndiaIndia, like any other third world country, attended political independence after prolonged colonial rule and exploitation. The country entered the modern world in a state of economic backwardness and poverty of a large section of people. It is obvious that technology must attend to the basic problems of food, clothing, health and housing of people. At the same time rapid industrial development through latest technology is necessary to catch up with advanced countries. With these objectives in mind, Government of India set-up series of R & D establishments, space research centre, Medical research centres, agricultural research establishments, oil explorations centres, power development projects and the council of scientific and industrial research. Besides, several universities and institutes have been set-up to provide higher education in science, technology and management. As on today there are 4700 inter mediate/junior colleges, 144 universities, and 44 deemed universities in the country. Also there are more than 500 science and technological institutions, and 1080 in house research and development laboratories. There is also the Department of Science and Technology, an administrative wing of Government, to coordinate the activities of all research and technical activities in the country.

Theories of International Trade:MercantilismAccording to Wild, 2000, the trade theory that states that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and discouraging imports is called mercantilism. According to this theory other measures of countries' well being, such as living standards or human development, are irrelevant. Mainly Great Britain, France, the Netherlands, Portugal and Spain used mercantilism during the 1500s to the late 1700s.Mercantilist countries practiced the so-called zero-sum game, which meant that world wealth was limited and that countries only could increase their share at expense of their neighbors. The economic development was prevented when the mercantilist countries paid the colonies little for export and charged them high price for import. The main problem with mercantilism is that all countries engaged in export but was restricted from import, prevention from development of international trade.Absolute AdvantageThe Scottish economist Adam Smith developed the trade theory of absolute advantage in 1776. A country that has an absolute advantage produces greater output of a good or service than other countries using the same amount of resources. Smith stated that tariffs and quotas should not restrict international trade; it should be allowed to flow according to market forces. Contrary to mercantilism Smith argued that a country should concentrate on production of goods in which it holds an absolute advantage. No country would then need to produce all the goods it consumed. The theory of absolute advantage destroys the mercantilistic idea that international trade is a zero-sum game. According to the absolute advantage theory, international trade is a positive-sum game, because there are gains for both countries to an exchange. Unlike mercantilism this theory measures the nation's wealth by the living standards of its people and not by gold and silver.There is a potential problem with absolute advantage. If there is one country that does not have an absolute advantage in the production of any product, will there still be benefit to trade, and will trade even occur? The answer may be found in the extension of absolute advantage, the theory of comparative advantage.Comparative AdvantageThe most basic concept in the whole of international trade theory is the principle of comparative advantage, first introduced by David Ricardo in 1817. It remains a major influence on much international trade policy and is therefore important in understanding the modern global economy. The principle of comparative advantage states that a country should specialise in producing and exporting those products in which is has a comparative, or relative cost, advantage compared with other countries and should import those goods in which it has a comparative disadvantage. Out of such specialization, it is argued, will accrue greater benefit for all.In this theory there are several assumptions that limit the real-world application. The assumption that countries are driven only by the maximization of production and consumption, and not by issues out of concern for workers or consumers is a mistake.Heckscher-Ohlin TheoryIn the early 1900s an international trade theory called factor proportions theory emerged by two Swedish economists, Eli Heckscher and Bertil Ohlin. This theory is also called the Heckscher-Ohlin theory. The Heckscher-Ohlin theory stresses that countries should produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply. This theory differs from the theories of comparative advantage and absolute advantage since these theory focuses on the productivity of the production process for a particular good. On the contrary, the Heckscher-Ohlin theory states that a country should specialise production and export using the factors that are most abundant, and thus the cheapest. Not produce, as earlier theories stated, the goods it produces most efficiently.The Heckscher-Ohlin theory is preferred to the Ricardo theory by many economists, because it makes fewer simplifying assumptions. In 1953, Wassily Leontief published a study, where he tested the validity of the Heckscher-Ohlin theory. The study showed that the U.S was more abundant in capital compared to other countries, therefore the U.S would export capital- intensive goods and import labour-intensive goods. Leontief found out that the U.S's export was less capital intensive than import.Product Life Cycle TheoryRaymond Vernon developed the international product life cycle theory in the 1960s. The international product life cycle theory stresses that a company will begin to export its product and later take on foreign direct investment as the product moves through its life cycle. Eventually a country's export becomes its import. Although the model is developed around the U.S, it can be generalised and applied to any of the developed and innovative markets of the world.The product life cycle theory was developed during the 1960s and focused on the U.S since most innovations came from that market. This was an applicable theory at that time since the U.S dominated the world trade. Today, the U.S is no longer the only innovator of products in the world. Today companies design new products and modify them much quicker than before. Companies are forced to introduce the products in many different markets at the same time to gain cost benefits before its sales declines. The theory does not explain trade patterns of today.Factors Affecting Decisions for International Business1.Technological factorAdvances in technology can help improve productivity of labour,also as reduce transportation costs,distribution costs,communication costs and production costs.Examples of it include changes that affect the production and distribution of a product or services. 2. economic factorEconomic factor affects the overall consumption and investment in a business. A stable economy attracts firms that wish to do business.An unstable economy however increases business rioisks and even deters investment. Examples of it include national income, taxation policy, foreign exchange policy,inflation rate,etc. 3. physical factorIt refers to the physical location and natural environment which directly affects the economic devbelopment of the countries or a region.A favourable physical environment with well-planned infrastructures likes the airport and transport facilities can attract firms. 4. Social and cultural factorSocial factor affects the productivity and labour supply.Examples of it includes the population structure,language ability,education level,etc.Cultural factor affects trhe taste and preferences of costumers.Examples of it include whether a country encourage women to go out and work and enphasis on virtue of hard work. 5. Political factorThis is related to the political system,laws and regulations of a country.Political systems can be classified as aurhoritarian and democratic. Laws and regulations' examples include licensing laws,customes laws,and labour laws,sorry it should be licensing regulations. A country with sound legal system and stable politial condition can attract investments as it enhances investors' confidence.6.Environmental factors:-Competitors: A business makes many decisions about the direction to go based on the the success, or lack thereof, of its competitors. From the customers' standpoint, competition provides choice. Businesses must analyze competitors to find and exploit weaknesses to gain increased market share. Businesses often conduct analyses to help identify strengths and weaknesses of current competitors and threats which can come from future competitors in the marketplace.-Customers: Customers provide the backbone of success for any business, whether business-to-consumer or business-to-business. According to James Neblett--a presenter at the 2004 International Association for Management of Technology conference--businesses must conduct research in their industries to determine levels of product demand by customers, which provides foundations for company sales and profits. For a company to be successful, it must also keep up with changing customer views, attitudes and demand for products and services.-Suppliers: The role of suppliers for a business is critical, as the business is reliant on a third party which can exert considerable influence. This environmental factor, according to James Neblett, involves the number of suppliers in the industry and the suppliers'--as well as the company's--bargaining power. For example, a few large suppliers that dominate the market and supply material for which there is no good substitute often means that companies needing those supplies pay higher prices.-Economics and Geography Economic and geographic environmental factors impact businesses that are beginning, expanding or currently competing. Businesses often take into consideration the overall economic conditions in a country, such as whether a recession or boom is underway. Businesses also consider geographic and climactic factors. For example, a company that relies on vegetable or fruit crops must consider seasonal temperatures, rainfall and other conditions.

Balance of payment: (BOP): A record of all transactions made between one particular country and all other countriesduring aspecified period of time. BOPcompares the dollar difference of the amount of exports and imports, including all financial exports and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa.Meaning of Disequilibrium in Balance of Payment Though the credit and debit are written balanced in the balance of payment account, it may not remain balanced always. Very often, debit exceeds credit or the credit exceeds debit causing an imbalance in the balance of payment account. Such an imbalance is called the disequilibrium. Disequilibrium may take place either in the form of deficit or in the form of surplus.Disequilibrium of Deficit arises when our receipts from the foreigners fall below our payment to foreigners. It arises when the effective demand for foreign exchange of the country exceeds its supply at a given rate of exchange. This is called an 'unfavorable balance'.Disequilibrium of Surplus arises when the receipts of the country exceed its payments. Such a situation arises when the effective demand for foreign exchange is less than its supply. Such a surplus disequilibrium is termed as 'favorable balance'.Causes of Disequilibrium in Balance of Payment

1. Population Growth: Most countries experience an increase in the population and in some like India and China the population is not only large but increases at a faster rate. To meet their needs, imports become essential and the quantity of imports may increase as population increases.

2. Development Programmes: Developing countries which have embarked upon planned development programmes require to import capital goods, some raw materials which are not available at home and highly skilled and specialized manpower. Since development is a continuous process, imports of these items continue for the long time landing these countries in a balance of payment deficit.3. Demonstration Effect: When the people in the less developed countries imitate the consumption pattern of the people in the developed countries, their import will increase. Their export may remain constant or decline causing disequilibrium in the balance of payments.4. Natural Factors: Natural calamities such as the failure of rains or the coming floods may easily cause disequilibrium in the balance of payments by adversely affecting agriculture and industrial production in the country. The exports may decline while the imports may go up causing a discrepancy in the country's balance of payments.5. Cyclical Fluctuations: Business fluctuations introduced by the operations of the trade cycles may also cause disequilibrium in the country's balance of payments. For example, if there occurs a business recession in foreign countries, it may easily cause a fall in the exports and exchange earning of the country concerned, resulting in a disequilibrium in the balance of payments.6. Inflation: An increase in income and price level owing to rapid economic development in developing countries, will increase imports and reduce exports causing a deficit in balance of payments.7. Poor Marketing Strategies: The superior marketing of the developed countries have increased their surplus. The poor marketing facilities of the developing countries have pushed them into huge deficits.8. Flight Of Capital: Due to speculative reasons, countries may lose foreign exchange or gold stocks People in developing countries may also shift their capital to developed countries to safeguard against political uncertainties. These capital movements adversely affect the balance of payments position.9. Globalization: Due to globalization there has been more liberal and open atmosphere for international movement of goods, services and capital. Competition has been increased due to the globalization of international economic relations. The emerging new global economic order has brought in certain problems for some countries which have resulted in the balance of payments disequilibrium.10. Price-Cost Structure:Changes in price-cost structure of export industries affect the volume of exports and create disequilibrium in the balance of payments. Increase in prices due to higher wages, higher cost of raw materials, etc. reduces exports and makes the balance of payments unfavorable.11. Changes in Foreign Exchange Rates:Changes in the rate of exchange is another cause of disequilibrium in the balance of payments. An increase in the external value of money makes imports cheaper and exports dearer; thus, imports increase and exports fall and balance of payments become unfavorable. Similarly, a reduction in the external value of money leads to a reduction in imports and an increase in exports.12. Fall in Export Demand:There has been a considerable decline in (he export demand for the primary goods of the underdeveloped countries as a result of the large increase in the domestic production of foodstuffs raw materials and substitutes in the rich countries. Similarly, the advanced countries also find a fall in their export demand because of loss of colonial markets. However, the deficit in the balance of payment due to the fall in export demand is more persistent in the underdeveloped countries than in the advanced countries.13. Demonstration Effect:According to Nurkse, the people in the less developed countries tend to follow the consumption patterns of the developed countries. As a result of this demonstration effect, the imports of the less developed countries will increase and create disequilibrium in the balance of payments.14. International Borrowing and Lending:International borrowing and lending is another reason for the disequilibrium in the balance of payments. The borrowing country tends to have unfavorable balance of payments, while the lending country tends to have favorable balance of payments.15. Newly Independent Countries:The newly independent countries, in order to develop international relations, incur huge amounts of expenditure on the establishment of embassies, missions, etc. in other countries. This adversely affectsthe balance of payments position.How to correct the Balance of Payment?Solution to correct balance of payment disequilibrium lies in earning more foreign exchange through additional exports or reducing imports. Quantitative changes in exports and imports require policy changes. Such policy measures are in the form of monetary, fiscal and non-monetary measures.

Monetary Measures for Correcting the B0P The monetary methods for correcting disequilibrium in the balance of payment are as follows :-1. DeflationDeflation means falling prices. Deflation has been used as a measure to correct deficit disequilibrium. A country faces deficit when its imports exceeds exports. Deflation is brought through monetary measures like bank rate policy, open market operations, etc or through fiscal measures like higher taxation, reduction in public expenditure, etc. Deflation would make our items cheaper in foreign market resulting a rise in our exports. At the same time the demands for imports fall due to higher taxation and reduced income. This would built a favourable atmosphere in the balance of payment position. However Deflation can be successful when the exchange rate remains fixed.2. Exchange DepreciationExchange depreciation means decline in the rate of exchange of domestic currency in terms of foreign currency. This device implies that a country has adopted a flexible exchange rate policy.Suppose the rate of exchange between Indian rupee and US dollar is $1 = Rs. 40. If India experiences an adverse balance of payments with regard to U.S.A, the Indian demand for US dollar will rise. The price of dollar in terms of rupee will rise. Hence, dollar will appreciate in external value and rupee will depreciate in external value. The new rate of exchange may be say $1 = Rs. 50. This means 25% exchange depreciation of the Indian currency. Exchange depreciation will stimulate exports and reduce imports because exports will become cheaper and imports costlier. Hence, a favorable balance of payments would emerge to pay off the deficit.Limitations of Exchange Depreciation:-1. Exchange depreciation will be successful only if there is no retaliatory exchange depreciation by other countries.2. It is not suitable to a country desiring a fixed exchange rate system.3. Exchange depreciation raises the prices of imports and reduces the prices of exports. So the terms of trade will become unfavorable for the country adopting it.4. It increases uncertainty & risks involved in foreign trade.5. It may result in hyper-inflation causing further deficit in balance of payments.3. DevaluationDevaluation refers to deliberate attempt made by monetary authorities to bring down the value of home currency against foreign currency. While depreciation is a spontaneous fall due to interactions of market forces, devaluation is official act enforced by the monetary authority. Generally the international monetary fund advocates the policy of devaluation as a corrective measure of disequilibrium for the countries facing adverse balance of payment position. When India's balance of payment worsened in 1991, IMF suggested devaluation. Accordingly, the value of Indian currency has been reduced by 18 to 20% in terms of various currencies. The 1991 devaluation brought the desired effect. The very next year the import declined while exports picked up. When devaluation is effected, the value of home currency goes down against foreign currency, Let us suppose the exchange rate remains $1 = Rs. 10 before devaluation. Let us suppose, devaluation takes place which reduces the value of home currency and now the exchange rate becomes $1 = Rs. 20. After such a change our goods becomes cheap in foreign market. This is because, after devaluation, dollar is exchanged for more Indian currencies which push up the demand for exports. At the same time, imports become costlier as Indians have to pay more currencies to obtain one dollar. Thus demand for imports is reduced.Generally devaluation is resorted to where there is serious adverse balance of payment problem.Limitations of Devaluation :-1. Devaluation is successful only when other country does not retaliate the same. Ifboth the countries go for the same, the effect is nil.2. Devaluation is successful only when the demand for exports and imports is elastic.In case it is inelastic, it may turn the situation worse.3. Devaluation, though helps correcting disequilibrium, is considered to be a weakness for the country.4. Devaluation may bring inflation in the following conditions :-i. Devaluation brings the imports down, When imports are reduced, the domestic supply of such goods must be increased to the same extent. If not, scarcity of such goods unleash inflationary trends.ii. A growing country like India is capital thirsty. Due to non availability of capital goods in India, we have no option but to continue imports at higher costs. This will force the industries depending upon capital goods to push up their prices.iii. When demand for our export rises, more and more goods produced in a country would go for exports and thus creating shortage of such goods at the domestic level. This results in rising prices and inflation.iv. Devaluation may not be effective if the deficit arises due to cyclical or structural changes.4. Exchange ControlIt is an extreme step taken by the monetary authority to enjoy complete control over the exchange dealings. Under such a measure, the central bank directs all exporters to surrender their foreign exchange to the central authority. Thus it leads to concentration of exchange reserves in the hands of central authority. At the same time, the supply of foreign exchange is restricted only for essential goods. It can only help controlling situation from turning worse. In short it is only a temporary measure and not permanent remedy.

Non-Monetary Measures for Correcting the BOP A deficit country along with Monetary measures may adopt the following non-monetary measures too which will either restrict imports or promote exports.1. TariffsTariffs are duties (taxes) imposed on imports. When tariffs are imposed, the prices of imports would increase to the extent of tariff. The increased prices will reduced the demand for imported goods and at the same time induce domestic producers to produce more of import substitutes. Non-essential imports can be drastically reduced by imposing a very high rate of tariff.Drawbacks of Tariffs :-1. Tariffs bring equilibrium by reducing the volume of trade.2. Tariffs obstruct the expansion of world trade and prosperity.3. Tariffs need not necessarily reduce imports. Hence the effects of tariff on the balance of payment position are uncertain.4. Tariffs seek to establish equilibrium without removing the root causes of disequilibrium.5. A new or a higher tariff may aggravate the disequilibrium in the balance of payments of a country already having a surplus.6. Tariffs to be successful require an efficient & honest administration which unfortunately is difficult to have in most of the countries. Corruption among the administrative staff will render tariffs ineffective.2. QuotasUnder the quota system, the government may fix and permit the maximum quantity or value of a commodity to be imported during a given period. By restricting imports through the quota system, the deficit is reduced and the balance of payments position is improved.Types of Quotas :-1. the tariff or custom quota,2. the unilateral quota,3. the bilateral quota,4. the mixing quota, and5. import licensing.Merits of Quotas :-1. Quotas are more effective than tariffs as they are certain.2. They are easy to implement.3. They are more effective even when demand is inelastic, as no imports are possible above the quotas.4. More flexible than tariffs as they are subject to administrative decision. Tariffs on the other hand are subject to legislative sanction.Demerits of Quotas :-1. They are not long-run solution as they do not tackle the real cause for disequilibrium.2. Under the WTO quotas are discouraged.3. Implements of quotas is open invitation to corruption.3. Export PromotionThe government can adopt export promotion measures to correct disequilibrium in the balance of payments. This includes substitutes, tax concessions to exporters, marketing facilities, credit and incentives to exporters, etc.The government may also help to promote export through exhibition, trade fairs; conducting marketing research & by providing the required administrative and diplomatic help to tap the potential markets.4. Import SubstitutionA country may resort to import substitution to reduce the volume of imports and make it self-reliant. Fiscal and monetary measures may be adopted to encourage industries producing import substitutes. Industries which produce import substitutes require special attention in the form of various concessions, which include tax concession, technical assistance, subsidies, providing scarce inputs, etc.Non-monetary methods are more effective than monetary methods and are normally applicable in correcting an adverse balance of payments.Drawbacks of Import Substitution:-1. Such industries may lose the spirit of competitiveness.2. Domestic industries enjoying various incentives will develop vested interests and ask for such concessions all the time.3. Deliberate promotion of import substitute industries go against the principle of comparative advantage.

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