Study Materials for NET Commerce

1. 1
Dr.K.Karthikeyan
Associate Professor of Commerce
Dean and Controller of Examinations
Vivekananda College
Tiruvedakam West – 625 234
Mobile: +91-9865074994
Email: karthikeyan.madurai@gmail.com

2. Business Environment
and International Business
1. Concepts and elements of Business
Environment- Economic, Political, Legal, CPA,
FEMA, Socio-Cultural, CSR
2. Scope and importance of international business
3. Theories of international trade
4. Foreign Direct Investment
5. Balance of Payments
6. Regional Economic Integration
7. International Economic Institutions – IMF, World
Bank and UNCTAD
8. World Trade Organisation (WTO) Functions and
objectives Agriculture Agreements – GATS,
TRIPS, TRIMS

3. Business Environment
All those factors that are external to a business unit but
impact business decisions.
Micro Environment Macro Environment
1. Public 1.Demographic
2. Suppliers 2. Social
3. Bankers and FIs 3. Cultural
4. Competitors 4. Political
5. Market Intermediaries 5. Technological
6. Consumers 6. Economic
7. Legal
8. Natural

4. Consumer Protection Act, 1986
 Enacted with the objective of providing better
protection of the consumers and their interest
 Intends to provide simple, speedy and
inexpensive redressal forums to address the
consumer grievances, and remedies of the
specific nature and award of compensation
 Amended in 1991, 1993 and 2002 to extend
the scope and coverage of the powers of
redressal forums, and rights of the consumers
 National Commission, State Commission and
District Forums

5. Consumer Rights
1. Right to Safety
2. Right to be Informed
3. Right to Choose
4. Right to be Heard
5. Right to Seek Redressal
6. Right to Consumer Education
7. Right to Basic Needs
8. Right to Healthy Environment

6. Foreign Exchange Management Act
(FEMA) 1999
 Free transactions on current account subject to reasonable
restrictions that may be imposed.
 RBI controls over capital account transactions.
 Control over realization of export proceeds.
 Dealing in foreign exchange through authorized persons like
authorized dealer or money changer etc.
 Appeal provision including Special Director (Appeals)
 Directorate of enforcement
 Any person can sell or withdraw foreign exchange, without any
prior permission from RBI and then can inform RBI later.
 Enforcement Directorate will be more investigative in nature
 FEMA recognized the possibility of Capital Account convertibility.
 The violation of FEMA is a civil offence.
 FEMA is more concerned with the management rather than
regulations or control.
 FEMA is regulatory mechanism that enables RBI and Central
Government to pass regulations and rules relating to foreign
exchange in tune with foreign trade policy of India.

7. Corporate Social Responsibility
■India is the first country to mandate and quantify
CSR expenditure
■U/S 135 of the Companies Act 2013 which came into
force from April 1, 2014
■Every company, private or public, which either has a
net worth Rs.500 crore or a turnover of Rs.1,000
crore or net profit of Rs.5 crore, needs to spend at
least 2% of its average net profit on CSR activities.
■The Indian Companies have invested mainly in
education and skill development, healthcare and
sanitation and rural development projects and
environment

8. International Business
Stage 1 - Domestic Company
Stage 2 - International Company
State 3 - Multinational Company
Stage 4 - Global Company
Stage 5 - Transnational Company

9. Theories of International Trade
1. Theory of Mercantilism of International Trade
2. Theory of Absolute Advantage of International
Trade
3. Theory of Comparative Advantage of
International Trade
4. Factor Endowment Theory of International
Trade
5. Country Similarity Theory of International
Trade
6. New Trade Theory of International Trade
7. International Product Life-Cycle Theory of
International Trade
8. Theory of Competitive Advantage of
International Trade

10. Foreign Direct Investment

11. Foreign Direct Investment

12. Foreign Direct Investment

13. Foreign Direct Investment

14. Foreign Direct Investment

15. Balance of Payments
BoP is a statement or record of all monetary
and economic transactions made between a
country and the rest of the world within a
defined period (every quarter or year.
.

16. Balance of Payments
Components: Current Account, Capital Account
and Financial Account
Importance:
 It analyses the business transactions of any economy into exports and
imports of goods and services for a particular financial year. Here, the
government can identify the areas that have the potential for export-oriented
growth and can formulate policies supporting those domestic industries.
 The government can adopt some protective measures such as higher tariff
and duties on imports so as to discourage imports of non-essential items and
encourage the domestic industries to be self-sufficient.
 If the economy needs support in the form of imports, the government can
formulate appropriate policies to divert the funds and technology imported to
the critical sectors of the economy that can drive future growth.
 If the country has a flourishing export trade, the government can adopt
measures such as devaluation of its currency to make its goods and services
available in the international market at cheaper rates and bolster exports.
 The government can also use the indications from Balance of Payments to
discern the state of the economy and formulate its policies of inflation
control, monetary and fiscal policies based on that.

17. Current Account
The current account monitors the flow
of funds from goods and services trade
(import and export) between countries.
Now this includes money received or spent
on manufactured goods and raw materials.
It also includes revenue from tourism,
transportation receipts, revenue from
specialized services (medicine, law,
engineering), and royalties from patents and
copyrights. In addition, the current account
includes revenue from stocks.

18. Capital Account
The capital account monitors the flow of
international capital transactions. These
transactions include the purchase or
disposal of non-financial assets (for
example, land) and non-produced assets.
The capital account also includes money
received from debt-forgiveness and gift
taxes. In addition, the capital account
records the flow of the financial assets by
migrants leaving or entering a country and
the transfer, sale, or purchase of fixed
assets.

19. Financial Account
The financial account monitors the flow
of funds pertaining to investments in
businesses, real estate, and stocks. It also
includes government-owned assets such as
gold and Special Drawing Rights (SDRs)
held with the International Monetary Fund
(IMF). In addition, it includes foreign
investments and assets held abroad by
nationals. Similarly, the financial account
includes a record of the assets owned by
foreign nationals.

20. Economic Integration

21. Economic Integration - Free trade
Tariffs (a tax imposed on imported
goods) between member countries are
significantly reduced, some abolished
altogether. Each member country
keeps its own tariffs in regard to third
countries. The general goal of free
trade agreements is to develop
economies of scale and comparative
advantages, which promotes economic
efficiency.

22. Economic Integration - Custom union
Sets common external tariffs
among member countries, implying
that the same tariffs are applied to
third countries; a common trade
regime is achieved. Custom unions are
particularly useful to level the
competitive playing field and address
the problem of re-exports (using
preferential tariffs in one country to
enter another country).

23. Economic Integration - Common market
Services and capital are free
to move within member
countries, expanding scale
economies and comparative
advantages. However, each
national market has its own
regulations such as product
standards.

24. Economic Integration – Economic Union
All tariffs are removed for trade between
member countries, creating an uniform
(single) market. There is also free
movements of labor, enabling workers in a
member country is able to move and work
in another member country. Monetary and
fiscal policies between member countries
are harmonized, which implies a level of
political integration. A further step concerns
a monetary union where a common
currency is used, such as with the
European Union (Euro).

25. Economic Integration – Political Union
Represents the potentially most
advanced form of integration with
a common government and were
the sovereignty of member country
is significantly reduced. Only
found within nation states, such
as federations where there is a
central government and regions
having a level of autonomy.

26. International Economic Institutions
1. International Monetary Fund (IMF)
2. International Bank for Reconstruction and
Development (IBRD)
3. United Nations Conference on Trade and
Development (UNCTAD)
4. World Trade Organisation (WTO)
5. Asian Development Bank (ADB)
6. International Development Association
(ADA)
7. International Finance Corporation (IFC)
8. The Multilateral Investment Guarantee
Agency (MIGA)

27. International Monetary Fund (IMF)
IMF, established in 1945, consists of
187 member countries. It works to secure
financial stability, develop global monetary
cooperation, facilitate international trade,
and reduce poverty and maintain
sustainable economic growth around the
world. Its headquarters are in Washington,
D.C., United States.

28. Objectives of IMF
a. Helping in increasing employment and real income
of people
b. Solving the international monetary problems that
distort the economic development of different
nations
c. Maintaining stability in the international exchange
rates
d. Strengthening the economic integrity of the nations
e. Providing funds to the member nations as and
when required
f. Monitoring the financial and economic policies of
member nations
g. Assisting low developed countries in effectively
managing their economies

29. International Bank for Reconstruction
and Development (IBRD)
 It is popularly known as “World Bank”
 It was established on 5th December 1944
 It consists of 189 member countries
 It has headquarters in Washington D.C.
(USA)
 It was set up to promote long term
assistance for reconstruction and
development of economies of member
countries
 It’s objectives are International development,
poverty reduction and sustainability

30. United Nations Conference on Trade and Development
(UNCTAD)
UNCTAD, established in 1964, is the principal
organ of United Nations General Assembly. It
provides a forum where the developing countries
can discuss the problems related to economic
development. UNCTAD is headquartered in Geneva,
Switzerland and has 193 member countries.
The conference of these member countries is
held after every four years. UNCTAD was created
because the existing institutions, such as GATT,
IMF, and World Bank were not concerned with the
problem of developing countries. UNCTAD’s main
objective is to formulate the policies related to areas
of development, such as trade, finance, transport,
and technology.

31. Objectives of UNCTAD
The main of UNCTAD are as follows:
1. Eliminating trade barriers that act as
constraints for developing countries
2. Promoting international trade for speeding up
the economic development
3. Formulating principles and policies related to
international trade
4. Negotiating the multinational trade
agreements
5. Providing technical assistance to developing
countries specially low developed countries

32. World Trade Organisation (WTO)
WTO was formed in 1995 to replace the
General Agreement on Tariffs and Trade
(GATT), which was started in 1948. GATT was
replaced by WTO because GATT was biased in
favor of developed countries. WTO was formed
as a global international organization dealing
with the rules of international trade among
countries. The main objective of WTO is to help
the global organizations to conduct their
businesses. WTO, headquartered at Geneva,
Switzerland, consists of 153 members and
represents more than 97% of world’s trade.

34. Objectives of WTO
1. Raising the standard of living of people,
promoting full employment, expanding
production and trade, and utilizing the
world’s resources optimally
2. Ensuring that developing and less
developed countries have better share
of growth in the world trade
3. Introducing sustainable development in
which balanced growth of trade and
environment goes together

35. Functions of WTO
1. Setting the framework for trade policies
2. Reviewing the trade policies of different countries
3. Providing technical cooperation to less developed and
developing countries
4. Setting a forum for addressing trade-related disputes
among different countries
5. Reducing the barriers to international trade
6. Facilitating the implementation, administration, and
operation of agreements
7. Setting a negotiation forum for multilateral trade
agreements
8. Cooperating with the international institutions, such as
IMF and World Bank for making global economic policies
9. Ensuring the transparency of trade policies
10. Conducting economic research and analysis

36. General Agreements on Trade in
Services (GATS)
The GATS was made in January 1995. It covers all
internationally traded services with two exceptions: services
provided by the Government and services in Air transport
sector. The GATS defines that trade in services can be made
in four ways, they are:
1. Services supplied from one country to another (e.g.
International telephone calls)
2. Consumers from one country making use of another
country (e.g. Tourism)
3. A company from one country setting up subsidiaries or
branch to provide services in another country (e.g. Banking)
4. Individual travelling from their own country to supply
services in other country (e.g. Actress or construction
worker)

37. Trade Related Aspects of
Intellectual Property Rights (TRIPs)
The Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS) is
an international legal agreement between all the
member nations of the World Trade
Organization (WTO) made in January 1995. It sets
down minimum standards for the regulation by
national governments of many forms of intellectual
property (IP) as applied to nationals of other WTO
member nations. The TRIPS agreement
introduced intellectual property law into the
multilateral trading system for the first time and
remains the most comprehensive multilateral
agreement on intellectual property to date.

38. Trade Related Investment Measures
(TRIMs)
The Agreement on Trade-Related Investment
Measures (TRIMs) are rules that are applicable to the
domestic regulations a country applies to
foreign investors. The agreement was agreed upon by
all members of WTO in 1994 and is one of the four
principal legal agreements of the WTO trade treaty.
TRIMs are rules that restrict preference of domestic
firms and thereby enable international firms to
operate more easily within foreign markets. Policies
such as local content requirements and trade
balancing rules that have traditionally been used to
both promote the interests of domestic industries and
combat restrictive business practices are now
banned.

39. THANK YOU