Business Environment

Q3 Outline the Importance of analyzing the political economic and social environment of business Illustrate your answer with suitable theoretical insight and practical examples (2000)

Q2 ldquoPolitical stability is a necessary condition for continued economic progressrdquo Discuss this statement in light of current political situation in the country(2003)

Q1 What do you understand the term ldquoBusiness Environmentrdquo Discuss the various facets of Business Environment (2002)

Q2 Describe the essential features of any two of the following - (2002)i Social-cultural Environment of Businessii Political Environment of Businessiii Micro-Marco Environment of Business

Q3 What are the various connotations of the term ldquoSustainable Environmentrdquo What steps can be taken to ensure it Does business have to play any role in it (2002)

Q4What role does technology play in shaping the overall environment of business Give suitable illustrations(2002)

Q1 Define business environment and explain micro-macro inter ndash relationship (2001)

Q2 State and explain social economical political and ecological issues prevailing in Indian business environment and how are they tackled (2001)

Q4 Examine impact of technological and legal factors influencing business environment in India (2001)

Q1 Define Business Environment and Discuss the limitations of Environmental Analysis Distinguish between macro ndash micro domestic ndash international environment(2001)

IFB

Q5 What according to you are the main issues before the Indian Family Business (IFB) What in your opinion is the future of the IFB(2003)

Q6 What are the principal issues before the Indian Family Business (IFB) (2004)

Q5 Outline the main features of the Indian Family Business (IFB) What are the most critical issues facing the IFB today (2002)

Q7 Distinguish between Family Business amp Professional Corporation and strengths and weaknesses of the two (2004)

Q5 Distinguish between family management and professional management and which is superior and scientific between two and why (2001)

Q4 Distinguish between family management and professional management Define and explain their relevance in modern context (2000)

Policies amp Regulations

Q3 What are the essential ingredients of a good system of regulations Illustrate your answer with suitable theoretical insights and practical examples(2004)

Q7 Explain the salient features of consumer protection in India(2003)

Q8 Discuss the broad objective of fiscal and monetary policy in India and also comment on the need to contain fiscal deficit (2003)

Q7 Compare and contrast changing role of Government in business environment before and after the policy of privatization liberalization and globlisation (2001)

Q10 Discuss what is free trade and what is protective trade (2001)

Corporate Social Responsibility

Q5 How would business have to go about ensuring its responsibility towards society Indicate an action plan for the purpose (2002)

Q3 Critically evaluate theory and practice of concepts of ldquosocial responsibilityrdquo and ldquoethicsrdquo in Indian business environment (2001)

Q10 Explain companiesrsquo obligation to shareholders customers and Government (2001)

Q2 What do you understand by the term ldquoSocial Responsibility and Ethics of Businessrdquo What steps can one recommend to make business more responsive to the needs of the society (2000)

Globalisation

Q6 ldquo In the ultimate analysis the advantages of globalisation seen to outweigh its disadvantagesrdquo Do you agree (2003)

I IntroductionThe term globalization has acquired considerable emotive force Some view it as a process that is beneficialmdasha key to future world economic developmentmdashand also inevitable and irreversible Others regard it with hostility even fear believing that it increases inequality within and between nations threatens employment and living standards and thwarts social progress This brief offers an overview of some aspects of globalization and aims to identify ways in which countries can tap the gains of this process while remaining realistic about its potential and its risks

Globalization offers extensive opportunities for truly worldwide development but it is not progressing evenly Some countries are becoming integrated into the global economy more quickly than others Countries that have been able to integrate are seeing faster growth and reduced poverty Outward-oriented policies brought dynamism and greater prosperity to much of East Asia transforming it from one of the poorest areas of the world 40 years ago And as living standards rose it became possible to make progress on democracy and economic issues such as the environment and work standards

By contrast in the 1970s and 1980s when many countries in Latin America and Africa pursued inward-oriented policies their economies stagnated or declined poverty increased and high inflation became the norm In many cases especially Africa adverse external developments made the problems worse As these regions changed their policies their incomes have begun to rise An important transformation is underway Encouraging this trend not reversing it is the best course for promoting growth development and poverty reduction

The crises in the emerging markets in the 1990s have made it quite evident that the opportunities of globalization do not come without risksmdashrisks arising from volatile capital movements and the risks of social economic and environmental degradation created by poverty This is not a reason to reverse direction but for all concernedmdashin developing countries in the advanced countries and of course investorsmdashto embrace policy changes to

build strong economies and a stronger world financial system that will produce more rapid growth and ensure that poverty is reduced

How can the developing countries especially the poorest be helped to catch up Does globalization exacerbate inequality or can it help to reduce poverty And are countries that integrate with the global economy inevitably vulnerable to instability These are some of the questions covered in the following sections

II What is GlobalizationEconomic globalization is a historical process the result of human innovation and technological progress It refers to the increasing integration of economies around the world particularly through trade and financial flows The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders There are also broader cultural political and environmental dimensions of globalization that are not covered here

At its most basic there is nothing mysterious about globalization The term has come into common usage since the 1980s reflecting technological advances that have made it easier and quicker to complete international transactionsmdashboth trade and financial flows It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activitymdashvillage markets urban industries or financial centers

Markets promote efficiency through competition and the division of labormdashthe specialization that allows people and economies to focus on what they do best Global markets offer greater opportunity for people to tap into more and larger markets around the world It means that they can have access to more capital flows technology cheaper imports and larger export markets But markets do not necessarily ensure that the benefits of increased efficiency are shared by all Countries must be prepared to embrace the policies needed and in the case of the poorest countries may need the support of the international community as they do so

III Unparalleled Growth Increased Inequality 20th Century Income TrendsGlobalization is not just a recent phenomenon Some analysts have argued that the world economy was just as globalized 100 years ago as it is today But today commerce and financial services are far more developed and deeply integrated than they were at that time The most striking aspect of this has been the integration of financial markets made possible by modern electronic communication

The 20th century saw unparalleled economic growth with global per capita GDP increasing almost five-fold But this growth was not steadymdashthe strongest expansion came during the second half of the century a period of rapid trade expansion accompanied by trademdashand typically somewhat later financialmdashliberalization Figure 1a breaks the century into four periods1 In the inter-war era the world turned its back on internationalismmdashor globalization as we now call itmdashand countries retreated into closed economies protectionism and pervasive capital controls This was a major factor in the devastation of this period when per capita income growth fell to less than 1 percent during 1913-1950 For the rest of the century even though population grew at an unprecedented pace per capita income growth was over 2 percent the fastest pace of all coming during the post-World War boom in the industrial countries

The story of the 20th century was of remarkable average income growth but it is also quite obvious that the progress was not evenly dispersed The gaps between rich and poor countries and rich and poor people within countries have grown The richest quarter of the worldrsquos population saw its per capita GDP increase nearly six-fold during the century while the poorest quarter experienced less than a three-fold increase (Chart 1b) Income inequality has clearly increased But as noted below per capita GDP does not tell the whole story (see section IV)

IV Developing countries How deeply integrated

Globalization means that world trade and financial markets are becoming more integrated But just how far have developing countries been involved in this integration Their experience in catching up with the advanced economies has been mixed Chart 2a shows that in some countries especially in Asia per capita incomes have been moving quickly toward levels in the industrial countries since 1970 A larger number of developing countries have made only slow progress or have lost ground In particular per capita incomes in Africa have declined relative to the industrial countries and in some countries have declined in absolute terms Chart 2b illustrates part of the explanation the countries catching up are those where trade has grown strongly

Consider four aspects of globalization

Trade Developing countries as a whole have increased their share of world tradendashfrom 19 percent in 1971 to 29 percent in 1999 But Chart 2b shows great variation among the major regions For instance the newly industrialized economies (NIEs) of Asia have done well while Africa as a whole has fared poorly The composition of what countries export is also important The strongest rise by far has been in the export of manufactured goods The share of primary commodities in world exportsmdashsuch as food and raw materialsmdashthat are often produced by the poorest countries has declined

Capital movements Chart 3 depicts what many people associate with globalization sharply increased private capital flows to developing countries during much of the 1990s It also shows that (a) the increase followed a particularly dry period in the 1980s (b) net official flows of aid or development assistance have fallen significantly since the early 1980s and (c) the composition of private flows has changed dramatically Direct foreign investment has become the most important category Both portfolio investment and bank credit rose but they have been more volatile falling sharply in the wake of the financial crises of the late 1990s

Movement of people Workers move from one country to another partly to find better employment opportunities The numbers involved are still quite small but in the period 1965-90 the proportion of labor forces round the world that was foreign born increased by about one-half Most migration occurs between developing countries But the flow of migrants to advanced economies is likely to provide a means through which global wages converge There is also the potential for skills to be transferred back to the developing countries and for wages in those countries to rise

Spread of knowledge (and technology) Information exchange is an integral often overlooked aspect of globalization For instance direct foreign investment brings not only an expansion of the physical capital stock but also technical innovation More generally knowledge about production methods management techniques export markets and economic policies is available at very low cost and it represents a highly valuable resource for the developing countriesThe special case of the economies in transition from planned to market economiesmdashthey too are becoming more integrated with the global economymdashis not explored in much depth here In fact the term transition economy is losing its usefulness Some countries (eg Poland Hungary) are converging quite rapidly toward the structure and performance of advanced economies Others (such as most countries of the former Soviet Union) face long-term structural and institutional issues similar to those faced by developing countries

Source IMF World Economic Outlook Databases (May 2000) Direction of Trade1 Excludes oil exporting countries2 Consists largely of bank lendingV Does Globalization Increase Poverty and InequalityDuring the 20th century global average per capita income rose strongly but with considerable variation among countries It is clear that the income gap between rich and poor countries has been widening for many decades The most recent World Economic Outlook studies 42 countries (representing almost 90 percent of world population) for which data are available for the entire 20th century It reaches the conclusion that output per capita has

risen appreciably but that the distribution of income among countries has become more unequal than at the beginning of the century

But incomes do not tell the whole story broader measures of welfare that take account of social conditions show that poorer countries have made considerable progress For instance some low-income countries eg Sri Lanka have quite impressive social indicators One recent paper2 finds that if countries are compared using the UNrsquos Human Development Indicators (HDI) which take education and life expectancy into account then the picture that emerges is quite different from that suggested by the income data alone

Indeed the gaps may have narrowed A striking inference from the study is a contrast between what may be termed an income gap and an HDI gap The (inflation-adjusted) income levels of todayrsquos poor countries are still well below those of the leading countries in 1870 And the gap in incomes has increased But judged by their HDIs todayrsquos poor countries are well ahead of where the leading countries were in 1870 This is largely because medical advances and improved living standards have brought strong increases in life expectancy

But even if the HDI gap has narrowed in the long-term far too many people are losing ground Life expectancy may have increased but the quality of life for many has not improved with many still in abject poverty And the spread of AIDS through Africa in the past decade is reducing life expectancy in many countries

This has brought new urgency to policies specifically designed to alleviate poverty Countries with a strong growth record pursuing the right policies can expect to see a sustained reduction in poverty since recent evidence suggests that there exists at least a one-to-one correspondence between growth and poverty reduction And if strongly pro-poor policiesmdashfor instance in well-targeted social expendituremdashare pursued then there is a better chance that growth will be amplified into more rapid poverty reduction This is one compelling reason for all economic policy makers including the IMF to pay heed more explicitly to the objective of poverty reduction

VI How Can the Poorest Countries Catch Up More QuicklyGrowth in living standards springs from the accumulation of physical capital (investment) and human capital (labor) and through advances in technology (what economists call total factor productivity)3 Many factors can help or hinder these processes The experience of the countries that have increased output most rapidly shows the importance of creating conditions that are conducive to long-run per capita income growth Economic stability institution building and structural reform are at least as important for long-term development as financial transfers important as they are What matters is the whole package of policies financial and technical assistance and debt relief if necessary

Components of such a package might include

Macroeconomic stability to create the right conditions for investment and saving Outward oriented policies to promote efficiency through increased trade and investment Structural reform to encourage domestic competition Strong institutions and an effective government to foster good governance Education training and research and development to promote productivity External debt management to ensure adequate resources for sustainable developmentAll these policies should be focussed on country-owned strategies to reduce poverty by promoting pro-poor policies that are properly budgetedmdashincluding health education and strong social safety nets A participatory approach including consultation with civil society will add greatly to their chances of success

Advanced economies can make a vital contribution to the low-income countriesrsquo efforts to integrate into the global economy

By promoting trade One proposal on the table is to provide unrestricted market access for all exports from the poorest countries This should help them move beyond specialization on primary commodities to producing processed goods for export

By encouraging flows of private capital to the lower-income countries particularly foreign direct investment with its twin benefits of steady financial flows and technology transfer

By supplementing more rapid debt relief with an increased level of new financial support Official development assistance (ODA) has fallen to 024 percent of GDP (1998) in advanced countries (compared with a UN target of 07 percent) As Michel Camdessus the former Managing Director of the IMF put it The excuse of aid fatigue is not crediblemdashindeed it approaches the level of downright cynicismmdashat a time when for the last decade the advanced countries have had the opportunity to enjoy the benefits of the peace dividendThe IMF supports reform in the poorest countries through its new Poverty Reduction and Growth Facility It is contributing to debt relief through the initiative for the heavily indebted poor countries4

VII An Advanced Country Perspective Does Globalization Harm Workersrsquo InterestsAnxiety about globalization also exists in advanced economies How real is the perceived threat that competition from low-wage economies displaces workers from high-wage jobs and decreases the demand for less skilled workers Are the changes taking place in these economies and societies a direct result of globalization

Economies are continually evolving and globalization is one among several other continuing trends One such trend is that as industrial economies mature they are becoming more service-oriented to meet the changing demands of their population Another trend is the shift toward more highly skilled jobs But all the evidence is that these changes would be taking placemdashnot necessarily at the same pacemdashwith or without globalization In fact globalization is actually making this process easier and less costly to the economy as a whole by bringing the benefits of capital flows technological innovations and lower import prices Economic growth employment and living standards are all higher than they would be in a closed economy

But the gains are typically distributed unevenly among groups within countries and some groups may lose out For instance workers in declining older industries may not be able to make an easy transition to new industries

What is the appropriate policy response Should governments try to protect particular groups like low-paid workers or old industries by restricting trade or capital flows Such an approach might help some in the short-term but ultimately it is at the expense of the living standards of the population at large Rather governments should pursue policies that encourage integration into the global economy while putting in place measures to help those adversely affected by the changes The economy as a whole will prosper more from policies that embrace globalization by promoting an open economy and at the same time squarely address the need to ensure the benefits are widely shared Government policy should focus on two important areas

education and vocational training to make sure that workers have the opportunity to acquire the right skills in dynamic changing economies and well-targeted social safety nets to assist people who are displacedVIII Are Periodic Crises an Inevitable Consequence of GlobalizationThe succession of crises in the 1990smdashMexico Thailand Indonesia Korea Russia and Brazilmdashsuggested to some that financial crises are a direct and inevitable result of globalization Indeed one question that arises in both advanced and emerging market economies is whether globalization makes economic management more difficult (Box 1)

Box 1 Does globalization reduce national sovereignty in economic policy-making

Does increased integration particularly in the financial sphere make it more difficult for governments to manage economic activity for instance by limiting governmentsrsquo choices of tax rates and tax systems or their freedom of action on monetary or exchange rate policies

If it is assumed that countries aim to achieve sustainable growth low inflation and social progress then the evidence of the past 50 years is that globalization contributes to these objectives in the long term

In the short-term as we have seen in the past few years volatile short-term capital flows can threaten macroeconomic stability Thus in a world of integrated financial markets countries will find it increasingly risky to follow policies that do not promote financial stability This discipline also applies to the private sector which will find it more difficult to implement wage increases and price markups that would make the country concerned become uncompetitive

But there is another kind of risk Sometimes investorsmdashparticularly short-term investorsmdashtake too sanguine a view of a countryrsquos prospects and capital inflows may continue even when economic policies have become too relaxed This exposes the country to the risk that when perceptions change there may be a sudden brutal withdrawal of capital from the country

In short globalization does not reduce national sovereignty It does create a strong incentive for governments to pursue sound economic policies It should create incentives for the private sector to undertake careful analysis of risk However short-term investment flows may be excessively volatile

Efforts to increase the stability of international capital flows are central to the ongoing work on strengthening the international financial architecture In this regard some are concerned that globalization leads to the abolition of rules or constraints on business activities To the contrarymdashone of the key goals of the work on the international financial architecture is to develop standards and codes that are based on internationally accepted principles that can be implemented in many different national settings

Clearly the crises would not have developed as they did without exposure to global capital markets But nor could these countries have achieved their impressive growth records without those financial flows

These were complex crises resulting from an interaction of shortcomings in national policy and the international financial system Individual governments and the international community as a whole are taking steps to reduce the risk of such crises in future

At the national level even though several of the countries had impressive records of economic performance they were not fully prepared to withstand the potential shocks that could come through the international markets Macroeconomic stability financial soundness open economies transparency and good governance are all essential for countries participating in the global markets Each of the countries came up short in one or more respects

At the international level several important lines of defense against crisis were breached Investors did not appraise risks adequately Regulators and supervisors in the major financial centers did not monitor developments sufficiently closely And not enough information was available about some international investors notably offshore financial institutions The result was that markets were prone to herd behaviormdash sudden shifts of investor sentiment and the rapid movement of capital especially short-term finance into and out of countries

The international community is responding to the global dimensions of the crisis through a continuing effort to strengthen the architecture of the international monetary and financial system The broad aim is for markets to operate with more transparency equity and efficiency The IMF has a central role in this process which is explored further in separate fact sheets5

IX The Role of Institutions and OrganizationsNational and international institutions inevitably influenced by differences in culture play an important role in the process of globalization It may be best to leave an outside commentator to reflect on the role of institutions

That the advent of highly integrated commodity and financial markets has been accompanied by trade tensions and problems of financial instability should not come as a surprise The surprise is that these problems are not even more severe today given that the extent of commodity and financial market integration is so much greater

One possibility in accounting (for this surprise) is the stabilizing role of the institutions built in the interim At the national level this means social and financial safety nets At the international level it means the WTO the IMF the Basle Committee of Banking Supervisors These institutions may be far from perfect but they are better than nothing judging from the historical correlation between the level of integration on one hand and the level of trade conflict and financial instability on the other6 (parentheses added)

X ConclusionAs globalization has progressed living conditions (particularly when measured by broader indicators of well being) have improved significantly in virtually all countries However the strongest gains have been made by the advanced countries and only some of the developing countries

That the income gap between high-income and low-income countries has grown wider is a matter for concern And the number of the worldrsquos citizens in abject poverty is deeply disturbing But it is wrong to jump to the conclusion that globalization has caused the divergence or that nothing can be done to improve the situation To the contrary low-income countries have not been able to integrate with the global economy as quickly as others partly because of their chosen policies and partly because of factors outside their control No country least of all the poorest can afford to remain isolated from the world economy Every country should seek to reduce poverty The international community should endeavormdashby strengthening the international financial system through trade and through aidmdashto help the poorest countries integrate into the world economy grow more rapidly and reduce poverty That is the way to ensure all people in all countries have access to the benefits of globalization

Q7 ldquoThe advantages of MNCrsquos outweigh the disadvantages of MNCrsquosrdquo Discuss this statement with special reference to the contemporary Indian scene(2002)

Q6 Discuss the strengths and weakness of multinational corporations and their impact on domestic and multinational business environment (2001)

Q8 Evaluate role of multi-national corporations in Indian context What are the problems and solutions to technology transfer (2000)

The Role of Multinational Corporations and Foreign InvestmentCandace Firchau

India Resistance to the Multinational Corporation

India has had a long history of resisting the multinational corporation and has had to make major changes recently to encourage foreign investment in the country As India moves forward with development more foreign investment and multinational corporations operate in India but for many of these companies the outfit there has been anything but easy

Executive Summery The country of India started the development project wanting to be more independent and was reluctant to allow foreign companies to dominate the countryrsquos industrial sector India was very restrictive with multinational corporations After fighting for many years with large multinational corporations like Coke Cola India eventually opened up their economy to the foreign investment it initially discouraged Recently the country has had a tremendous amount of multinational industry but the companies often face some of the old restrictive attitudes that were very apparent fifteen to twenty years ago

Indiarsquos Past Relations with Multinational Corporations Indiarsquos multinational corporate history has been ridden with restriction As the development project emerged shortly after World War II focus on India and other ldquoThird Worldrdquo countries increased At the time there was a push to make Third World nations or the ex-colonies more lsquodevelopedrsquo India was considered one of these Third World countries that was presumed to need industrialization and capitalism Industrialization was one of the core ingredients to developing a nation according to development project ideals and India had strong potential ldquoIndia started with an extremely favorable economic environment ndash some natural resources a potentially large internal market a great supply of technical manpower and an enormous source of cheap raw labor (Lall 217)rdquo India was a prime development target but it wasnrsquot until quite recently that India would make a structural adjustment to their foreign investment views allowing for a more conducive environment for international business

In the 1960rsquos India adopted a different route than most other industrializing countries and focused on wholesale import substitution The country insisted on pursuing a form of industrial independence wanting to be self-sufficient and only importing products that could not be produced within the country In addition to being somewhat lsquoinward-lookingrsquo India placed numerous and highly restricted controls on trade MRTP (Monopoly and Restrictive Trade Practices) was one of the first regulations stating that any company that was over a specified size or controlled a dominant share of its market would be considered a monopoly As a monopoly this company would be subjected to more constraints on growth than other smaller companies would endure (Lall 218) This was a key element to Indiarsquos take on multinational investment Many MNCs (multinational corporations) fell under Indiarsquos definition of a monopoly and were thus subjected to numerous restrictions when conducting business in India Another confining policy that India upheld was the FERA (Foreign Exchange Regulations Act) that stipulated that any foreign enterprise that operated in India in ldquonon-priority sectors should not have more than 40 percent equity (Fernandes)rdquo The MRTP and FERA produced a deterrence for the MNC to conduct business with India and assumed that these large companies would threaten public interest These restrictions would remain central to Indiarsquos foreign investment policy

India saw a large boom of industrialization between the early fifties and 1965 The growth rate of manufacturing production in 1965 was at 78 percent Although by the end of 1970 though it had dropped fairly significantly and by about 1980 it was only at about 4 percent (Chandrasekhar 76) At the time there was less public investment so there was less infrastructure The poor quality of infrastructure may help to account for less industrialization Still though India continued to uphold strict controls on foreign direct investments In the 1970rsquos India focused a lot on ldquoforeign technologies via armrsquos length licensing arrangements (Lall 219)rdquo maintaining very stringent controls on the licenses In the 1980rsquos India began to see another boom with the growth percentage reaching 88 in 1990

The restrictions that India placed on the MNC resulted in a relatively small MNC investment The country has not been able to take advantage of the technology and marketing leverage that the MNC brings to a country It is sometimes argued that MNC corporations often generate competitiveness with domestic firms that in an effort to lsquokeep uprsquo often must make technological advances Without the role of MNCs in India the countryrsquos export market has suffered

In the early 1990rsquos in an effort to change India began to make more movement towards a liberalization of industrial regulation The NEP (New Economic Policy) prompted this liberalization in 1991 A more open economy is of course a slow process but is a leap from the highly restricted industry of Indiarsquos past Although these restrictions may have their place the key for India will be to find a balance between restriction and liberalization

India and the Multinational Corporation The restrictions that India put on corporate business and industry affected every company that wanted to do business within the country and even drove some companies away Coke Cola and Dupont are just a few of the multinational companies that operate in

India that have had to face some of these constraints sometimes taking extreme measures in response to the limits that have been imposed on them It was not until the early 1990s that India began to see a multinational boom that had little resemblance to past instances of industrialization

The infamous soft drink company Coke Cola has probably had the most trouble within the country of India The Coke Company was reintroduced to India on October 23 1993 after a 16-year absence (Coca Cola India) The driving force that was behind Cokersquos original exile was the FERA Coke was not supposed to have more than 40 percent equity but instead had 100 percent When questioned about their 100 percent equity Coke held that the equity was due totheir secret technology being so confidential that they could not share it Neither Coke nor the Indian Ministry of Industry was willing to budge so Coke left in 1977

In the interim a lot had changed Coke came back into the country about four years after PepsiCo was allowed admittance Cokersquos return to India made national headlines but more importantly it signified a new India India began a new liberal ldquoera of globalization and consumerism(Bidwai)rdquo India may have opened it doors to the Multinational corporate world but this liberalization of economy was still riddled with resistance

Coke maybe more than any other company has seen Indiarsquos resistance Most recently earlier this year the loyal council of India revoked the factories license to operate doing so in light of loosing 700000 rupees (or about $9000) from the decision Of course Coke appealed and received a suspension of the revocation (Vallely) Another daunting issue that Coke (and Pepsi) has been subject to rather recently is the claim that their soft drinks contain high levels of pesticides specifically DDT and Malathion (Reuters) Coke and Pepsi claim that the declaration is untrue but it is still another example of the resistance to large corporations Even though Coke was allowed to come back to India the company continues to face those who are reluctant to accept their arrival The resistance may not be in the form of outright restrictions but is a derivative of the same outlook that established that strict restrictions to begin with

Of course with the lightening of the industrialization policies and the movement toward a more free foreign investment policy numerous multinationals began to enter the country Another fairly established company that has operated in India for quite a while and has had to face opposition is Thapar Dupont Ltd (TDL) Dupont is an enormous American based company that produces a large variety of products The company operates with a number of dangerous chemicals that has been the source of much of the opposition it has faced Dupont avoided some of the equity problems that Coke has had by merging with an established Indian company Thapar becoming TDL Eventually in 1995 TDL wanted to build a new chemical factory in Goa India The Goa community is a rural society that cremates their ancestors and worships them in the lush forest near their homes TDL hindered their ability to perform their traditional rituals and were terribly unwelcome in Goa TDL on the other hand argued that the project would create new jobs and help India become an export-orientated economy The villagers protested the factory vigorously ldquoWithin two hours they completely demolished the boundary wall torched the guard shed and ripped up the paved road leading to the factory(Cohen)rdquo Ultimately TDL decided to build the factory in Karnataka instead of Goa What is strange is that some see this as a ldquovictory against multinational corporations in India(Cohen)rdquo The Karnataka government anticipated the arrival of TDL and strove to avoid the situation that erupted in Goa Nevertheless though Dupont faced the same resistance toward the multinational corporation that Coke has faced causing them a loss of income and probably a considerable amount of time

Recently there has also been a significant movement to bring American fast food and American fashion to India There are McDonalds Burger Kings and Ray Ban sunglasses available to the Indian consumer now These companies have faced resistance in the form of heavy criticism Praful Bidwai author of Making India Work ndash For the Rich has argued that the majority of Indians cannot afford most of these American based consumer goods and instead are faced with high inflation rates and rising unemployment

More companies are coming to India monthly Both Verizon and Oracle have moved employment to India in the last month Although this is a drastic change from the scenario that existed just fifteen years ago it is certainly not welcomed by everyone Many MNCs have seen resistance recently and it is unlikely that will stop abruptly

Conclusion India has spent years trying to be an independent country not reliant on foreign investment for advancement In comparison to many developing countries India is somewhat new to the mass migration of foreign multinational corporations Although it is stated outright that the economic policy is liberalized in reality it still has many of Indiarsquos old notions of restriction

The issues that Coke and Pepsi have had to face actualize the underlying restrictive attitude that exists within India Coke has already been run out of the country once but since its readmittance (under the NEP) it has had to face numerous accusations and other licensing problems Dupont has also had trouble not so much with the government but with local resistance The people of Goa were reluctant to allow the MNC to develop in their home There also seems to be a common contempt by many toward the Americanization of food and fashion in general

The NEP has opened up the country to the multinational corporation welcomed them in publicly and has changed the way that India approaches foreign investment Only the change has not happened over night India has come from a long history of restrictive industry and is unlikely to transform quickly causing corporations to face resistance officially and privately Foreign investors may still be somewhat reluctant to enter the country but more and more they will eventually come in

Q7 Distinguish clearly between liberalization and globalization Would you advocate the former proceeding the latter or both being pursued simultaneously(2000)

In India reforms are taken in place when finance minister Mr Manmohan Singh in 1992 adopted policy of liberalization and globalization more and more foreign institution investors were allowed to invest in Indian security market Same time Indian Company like Reliance Wipro and Infosys had gone global by listing at New York Stock Exchange

Short Notes

1 Administrative Prices (2000200420022001)

1Administrative Prices

This approach regards administered prices as a broad concept and then separates the idea into two components ie those pricesthat are regulated and those that are not regulatedDEFINITIONSAdministered pricesAn administered price can be defined as the price of a product which is set consciously by an individual producer or group ofproducers andor any price which can be determined or influenced by government either directly or through one or othergovernment agenciesinstitutions without reference to market forcesRegulated pricesRegulated prices are those administered prices that are said to be monitored and controlled by government policy To this endprice regulation does not necessarily imply the presence of an economic regulator but the restriction on the extent to which pricesmay vary depending on governmentrsquos policy objectiveBASKETS

Basket of administered prices 1048576 Housing (sanitary fees refuse removal assessment rates water and university boarding fees)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( petrol public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)Basket of administered prices that are regulated 1048576 Housing (water)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Transport ( petrol)Basket of administered prices that are not regulated 1048576 Housing (sanitary fees refuse removal assessment rates and university boarding fees)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)

2 Business Resources and Economics trends (20002001)3 Corporate Governance (200020022001)4 Joint Ventures (200020042002)5 Sustainable Development (20002004)

Sustainable development

Sustainable development is an umbrella that attempts to bridge the divide between economic growth and environmental protection while taking into account other issues traditionally associated with development It seeks to develop means of supporting economic growth while supporting biodiversity relieving poverty and without using up natural capital in the short term at the expense of long term development While many definitions of the term have been introduced over the years the most commonly cited definition comes from the report Our Common Future more commonly known as the Brundtland Report which states that sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needsrdquo

Sustainable development is often misinterpreted as focusing solely on environmental issues In reality it is a much broader concept as sustainable development policies encompass three general policy areas economic environmental and social In support of this several United Nations texts most recently the 2005 World Summit Outcome Document refer to the interdependent and mutually reinforcing pillars of sustainable development as economic development social development and environmental protection

Sustainable development is a notoriously ambiguous concept as a wide array of views have fallen under its umbrella The concept has included notions of weak sustainability strong sustainability and deep ecology Different conceptions also reveal a strong tension between ecocentrism and anthropocentrism Thus the concept remains weakly defined and contains a large amount of debate as to its precise definition

6 PSU Disinvestment (2000)

DisinvestmentPrivatisationPSU Reform

Q8 Discuss the broad objective of fiscal and monetary policy in India and also comment on the need to contain fiscal deficit (2003)

Q7 Compare and contrast changing role of Government in business environment before and after the policy of privatization liberalization and globlisation (2001)

Q10 Discuss what is free trade and what is protective trade (2001)

Corporate Social Responsibility

Q5 How would business have to go about ensuring its responsibility towards society Indicate an action plan for the purpose (2002)

Q3 Critically evaluate theory and practice of concepts of ldquosocial responsibilityrdquo and ldquoethicsrdquo in Indian business environment (2001)

Q10 Explain companiesrsquo obligation to shareholders customers and Government (2001)

Q2 What do you understand by the term ldquoSocial Responsibility and Ethics of Businessrdquo What steps can one recommend to make business more responsive to the needs of the society (2000)

Globalisation

Q6 ldquo In the ultimate analysis the advantages of globalisation seen to outweigh its disadvantagesrdquo Do you agree (2003)

I IntroductionThe term globalization has acquired considerable emotive force Some view it as a process that is beneficialmdasha key to future world economic developmentmdashand also inevitable and irreversible Others regard it with hostility even fear believing that it increases inequality within and between nations threatens employment and living standards and thwarts social progress This brief offers an overview of some aspects of globalization and aims to identify ways in which countries can tap the gains of this process while remaining realistic about its potential and its risks

Globalization offers extensive opportunities for truly worldwide development but it is not progressing evenly Some countries are becoming integrated into the global economy more quickly than others Countries that have been able to integrate are seeing faster growth and reduced poverty Outward-oriented policies brought dynamism and greater prosperity to much of East Asia transforming it from one of the poorest areas of the world 40 years ago And as living standards rose it became possible to make progress on democracy and economic issues such as the environment and work standards

By contrast in the 1970s and 1980s when many countries in Latin America and Africa pursued inward-oriented policies their economies stagnated or declined poverty increased and high inflation became the norm In many cases especially Africa adverse external developments made the problems worse As these regions changed their policies their incomes have begun to rise An important transformation is underway Encouraging this trend not reversing it is the best course for promoting growth development and poverty reduction

The crises in the emerging markets in the 1990s have made it quite evident that the opportunities of globalization do not come without risksmdashrisks arising from volatile capital movements and the risks of social economic and environmental degradation created by poverty This is not a reason to reverse direction but for all concernedmdashin developing countries in the advanced countries and of course investorsmdashto embrace policy changes to

build strong economies and a stronger world financial system that will produce more rapid growth and ensure that poverty is reduced

How can the developing countries especially the poorest be helped to catch up Does globalization exacerbate inequality or can it help to reduce poverty And are countries that integrate with the global economy inevitably vulnerable to instability These are some of the questions covered in the following sections

II What is GlobalizationEconomic globalization is a historical process the result of human innovation and technological progress It refers to the increasing integration of economies around the world particularly through trade and financial flows The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders There are also broader cultural political and environmental dimensions of globalization that are not covered here

At its most basic there is nothing mysterious about globalization The term has come into common usage since the 1980s reflecting technological advances that have made it easier and quicker to complete international transactionsmdashboth trade and financial flows It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activitymdashvillage markets urban industries or financial centers

Markets promote efficiency through competition and the division of labormdashthe specialization that allows people and economies to focus on what they do best Global markets offer greater opportunity for people to tap into more and larger markets around the world It means that they can have access to more capital flows technology cheaper imports and larger export markets But markets do not necessarily ensure that the benefits of increased efficiency are shared by all Countries must be prepared to embrace the policies needed and in the case of the poorest countries may need the support of the international community as they do so

III Unparalleled Growth Increased Inequality 20th Century Income TrendsGlobalization is not just a recent phenomenon Some analysts have argued that the world economy was just as globalized 100 years ago as it is today But today commerce and financial services are far more developed and deeply integrated than they were at that time The most striking aspect of this has been the integration of financial markets made possible by modern electronic communication

The 20th century saw unparalleled economic growth with global per capita GDP increasing almost five-fold But this growth was not steadymdashthe strongest expansion came during the second half of the century a period of rapid trade expansion accompanied by trademdashand typically somewhat later financialmdashliberalization Figure 1a breaks the century into four periods1 In the inter-war era the world turned its back on internationalismmdashor globalization as we now call itmdashand countries retreated into closed economies protectionism and pervasive capital controls This was a major factor in the devastation of this period when per capita income growth fell to less than 1 percent during 1913-1950 For the rest of the century even though population grew at an unprecedented pace per capita income growth was over 2 percent the fastest pace of all coming during the post-World War boom in the industrial countries

The story of the 20th century was of remarkable average income growth but it is also quite obvious that the progress was not evenly dispersed The gaps between rich and poor countries and rich and poor people within countries have grown The richest quarter of the worldrsquos population saw its per capita GDP increase nearly six-fold during the century while the poorest quarter experienced less than a three-fold increase (Chart 1b) Income inequality has clearly increased But as noted below per capita GDP does not tell the whole story (see section IV)

IV Developing countries How deeply integrated

Globalization means that world trade and financial markets are becoming more integrated But just how far have developing countries been involved in this integration Their experience in catching up with the advanced economies has been mixed Chart 2a shows that in some countries especially in Asia per capita incomes have been moving quickly toward levels in the industrial countries since 1970 A larger number of developing countries have made only slow progress or have lost ground In particular per capita incomes in Africa have declined relative to the industrial countries and in some countries have declined in absolute terms Chart 2b illustrates part of the explanation the countries catching up are those where trade has grown strongly

Consider four aspects of globalization

Trade Developing countries as a whole have increased their share of world tradendashfrom 19 percent in 1971 to 29 percent in 1999 But Chart 2b shows great variation among the major regions For instance the newly industrialized economies (NIEs) of Asia have done well while Africa as a whole has fared poorly The composition of what countries export is also important The strongest rise by far has been in the export of manufactured goods The share of primary commodities in world exportsmdashsuch as food and raw materialsmdashthat are often produced by the poorest countries has declined

Capital movements Chart 3 depicts what many people associate with globalization sharply increased private capital flows to developing countries during much of the 1990s It also shows that (a) the increase followed a particularly dry period in the 1980s (b) net official flows of aid or development assistance have fallen significantly since the early 1980s and (c) the composition of private flows has changed dramatically Direct foreign investment has become the most important category Both portfolio investment and bank credit rose but they have been more volatile falling sharply in the wake of the financial crises of the late 1990s

Movement of people Workers move from one country to another partly to find better employment opportunities The numbers involved are still quite small but in the period 1965-90 the proportion of labor forces round the world that was foreign born increased by about one-half Most migration occurs between developing countries But the flow of migrants to advanced economies is likely to provide a means through which global wages converge There is also the potential for skills to be transferred back to the developing countries and for wages in those countries to rise

Spread of knowledge (and technology) Information exchange is an integral often overlooked aspect of globalization For instance direct foreign investment brings not only an expansion of the physical capital stock but also technical innovation More generally knowledge about production methods management techniques export markets and economic policies is available at very low cost and it represents a highly valuable resource for the developing countriesThe special case of the economies in transition from planned to market economiesmdashthey too are becoming more integrated with the global economymdashis not explored in much depth here In fact the term transition economy is losing its usefulness Some countries (eg Poland Hungary) are converging quite rapidly toward the structure and performance of advanced economies Others (such as most countries of the former Soviet Union) face long-term structural and institutional issues similar to those faced by developing countries

Source IMF World Economic Outlook Databases (May 2000) Direction of Trade1 Excludes oil exporting countries2 Consists largely of bank lendingV Does Globalization Increase Poverty and InequalityDuring the 20th century global average per capita income rose strongly but with considerable variation among countries It is clear that the income gap between rich and poor countries has been widening for many decades The most recent World Economic Outlook studies 42 countries (representing almost 90 percent of world population) for which data are available for the entire 20th century It reaches the conclusion that output per capita has

risen appreciably but that the distribution of income among countries has become more unequal than at the beginning of the century

But incomes do not tell the whole story broader measures of welfare that take account of social conditions show that poorer countries have made considerable progress For instance some low-income countries eg Sri Lanka have quite impressive social indicators One recent paper2 finds that if countries are compared using the UNrsquos Human Development Indicators (HDI) which take education and life expectancy into account then the picture that emerges is quite different from that suggested by the income data alone

Indeed the gaps may have narrowed A striking inference from the study is a contrast between what may be termed an income gap and an HDI gap The (inflation-adjusted) income levels of todayrsquos poor countries are still well below those of the leading countries in 1870 And the gap in incomes has increased But judged by their HDIs todayrsquos poor countries are well ahead of where the leading countries were in 1870 This is largely because medical advances and improved living standards have brought strong increases in life expectancy

But even if the HDI gap has narrowed in the long-term far too many people are losing ground Life expectancy may have increased but the quality of life for many has not improved with many still in abject poverty And the spread of AIDS through Africa in the past decade is reducing life expectancy in many countries

This has brought new urgency to policies specifically designed to alleviate poverty Countries with a strong growth record pursuing the right policies can expect to see a sustained reduction in poverty since recent evidence suggests that there exists at least a one-to-one correspondence between growth and poverty reduction And if strongly pro-poor policiesmdashfor instance in well-targeted social expendituremdashare pursued then there is a better chance that growth will be amplified into more rapid poverty reduction This is one compelling reason for all economic policy makers including the IMF to pay heed more explicitly to the objective of poverty reduction

VI How Can the Poorest Countries Catch Up More QuicklyGrowth in living standards springs from the accumulation of physical capital (investment) and human capital (labor) and through advances in technology (what economists call total factor productivity)3 Many factors can help or hinder these processes The experience of the countries that have increased output most rapidly shows the importance of creating conditions that are conducive to long-run per capita income growth Economic stability institution building and structural reform are at least as important for long-term development as financial transfers important as they are What matters is the whole package of policies financial and technical assistance and debt relief if necessary

Components of such a package might include

Macroeconomic stability to create the right conditions for investment and saving Outward oriented policies to promote efficiency through increased trade and investment Structural reform to encourage domestic competition Strong institutions and an effective government to foster good governance Education training and research and development to promote productivity External debt management to ensure adequate resources for sustainable developmentAll these policies should be focussed on country-owned strategies to reduce poverty by promoting pro-poor policies that are properly budgetedmdashincluding health education and strong social safety nets A participatory approach including consultation with civil society will add greatly to their chances of success

Advanced economies can make a vital contribution to the low-income countriesrsquo efforts to integrate into the global economy

By promoting trade One proposal on the table is to provide unrestricted market access for all exports from the poorest countries This should help them move beyond specialization on primary commodities to producing processed goods for export

By encouraging flows of private capital to the lower-income countries particularly foreign direct investment with its twin benefits of steady financial flows and technology transfer

By supplementing more rapid debt relief with an increased level of new financial support Official development assistance (ODA) has fallen to 024 percent of GDP (1998) in advanced countries (compared with a UN target of 07 percent) As Michel Camdessus the former Managing Director of the IMF put it The excuse of aid fatigue is not crediblemdashindeed it approaches the level of downright cynicismmdashat a time when for the last decade the advanced countries have had the opportunity to enjoy the benefits of the peace dividendThe IMF supports reform in the poorest countries through its new Poverty Reduction and Growth Facility It is contributing to debt relief through the initiative for the heavily indebted poor countries4

VII An Advanced Country Perspective Does Globalization Harm Workersrsquo InterestsAnxiety about globalization also exists in advanced economies How real is the perceived threat that competition from low-wage economies displaces workers from high-wage jobs and decreases the demand for less skilled workers Are the changes taking place in these economies and societies a direct result of globalization

Economies are continually evolving and globalization is one among several other continuing trends One such trend is that as industrial economies mature they are becoming more service-oriented to meet the changing demands of their population Another trend is the shift toward more highly skilled jobs But all the evidence is that these changes would be taking placemdashnot necessarily at the same pacemdashwith or without globalization In fact globalization is actually making this process easier and less costly to the economy as a whole by bringing the benefits of capital flows technological innovations and lower import prices Economic growth employment and living standards are all higher than they would be in a closed economy

But the gains are typically distributed unevenly among groups within countries and some groups may lose out For instance workers in declining older industries may not be able to make an easy transition to new industries

What is the appropriate policy response Should governments try to protect particular groups like low-paid workers or old industries by restricting trade or capital flows Such an approach might help some in the short-term but ultimately it is at the expense of the living standards of the population at large Rather governments should pursue policies that encourage integration into the global economy while putting in place measures to help those adversely affected by the changes The economy as a whole will prosper more from policies that embrace globalization by promoting an open economy and at the same time squarely address the need to ensure the benefits are widely shared Government policy should focus on two important areas

education and vocational training to make sure that workers have the opportunity to acquire the right skills in dynamic changing economies and well-targeted social safety nets to assist people who are displacedVIII Are Periodic Crises an Inevitable Consequence of GlobalizationThe succession of crises in the 1990smdashMexico Thailand Indonesia Korea Russia and Brazilmdashsuggested to some that financial crises are a direct and inevitable result of globalization Indeed one question that arises in both advanced and emerging market economies is whether globalization makes economic management more difficult (Box 1)

Box 1 Does globalization reduce national sovereignty in economic policy-making

Does increased integration particularly in the financial sphere make it more difficult for governments to manage economic activity for instance by limiting governmentsrsquo choices of tax rates and tax systems or their freedom of action on monetary or exchange rate policies

If it is assumed that countries aim to achieve sustainable growth low inflation and social progress then the evidence of the past 50 years is that globalization contributes to these objectives in the long term

In the short-term as we have seen in the past few years volatile short-term capital flows can threaten macroeconomic stability Thus in a world of integrated financial markets countries will find it increasingly risky to follow policies that do not promote financial stability This discipline also applies to the private sector which will find it more difficult to implement wage increases and price markups that would make the country concerned become uncompetitive

But there is another kind of risk Sometimes investorsmdashparticularly short-term investorsmdashtake too sanguine a view of a countryrsquos prospects and capital inflows may continue even when economic policies have become too relaxed This exposes the country to the risk that when perceptions change there may be a sudden brutal withdrawal of capital from the country

In short globalization does not reduce national sovereignty It does create a strong incentive for governments to pursue sound economic policies It should create incentives for the private sector to undertake careful analysis of risk However short-term investment flows may be excessively volatile

Efforts to increase the stability of international capital flows are central to the ongoing work on strengthening the international financial architecture In this regard some are concerned that globalization leads to the abolition of rules or constraints on business activities To the contrarymdashone of the key goals of the work on the international financial architecture is to develop standards and codes that are based on internationally accepted principles that can be implemented in many different national settings

Clearly the crises would not have developed as they did without exposure to global capital markets But nor could these countries have achieved their impressive growth records without those financial flows

These were complex crises resulting from an interaction of shortcomings in national policy and the international financial system Individual governments and the international community as a whole are taking steps to reduce the risk of such crises in future

At the national level even though several of the countries had impressive records of economic performance they were not fully prepared to withstand the potential shocks that could come through the international markets Macroeconomic stability financial soundness open economies transparency and good governance are all essential for countries participating in the global markets Each of the countries came up short in one or more respects

At the international level several important lines of defense against crisis were breached Investors did not appraise risks adequately Regulators and supervisors in the major financial centers did not monitor developments sufficiently closely And not enough information was available about some international investors notably offshore financial institutions The result was that markets were prone to herd behaviormdash sudden shifts of investor sentiment and the rapid movement of capital especially short-term finance into and out of countries

The international community is responding to the global dimensions of the crisis through a continuing effort to strengthen the architecture of the international monetary and financial system The broad aim is for markets to operate with more transparency equity and efficiency The IMF has a central role in this process which is explored further in separate fact sheets5

IX The Role of Institutions and OrganizationsNational and international institutions inevitably influenced by differences in culture play an important role in the process of globalization It may be best to leave an outside commentator to reflect on the role of institutions

That the advent of highly integrated commodity and financial markets has been accompanied by trade tensions and problems of financial instability should not come as a surprise The surprise is that these problems are not even more severe today given that the extent of commodity and financial market integration is so much greater

One possibility in accounting (for this surprise) is the stabilizing role of the institutions built in the interim At the national level this means social and financial safety nets At the international level it means the WTO the IMF the Basle Committee of Banking Supervisors These institutions may be far from perfect but they are better than nothing judging from the historical correlation between the level of integration on one hand and the level of trade conflict and financial instability on the other6 (parentheses added)

X ConclusionAs globalization has progressed living conditions (particularly when measured by broader indicators of well being) have improved significantly in virtually all countries However the strongest gains have been made by the advanced countries and only some of the developing countries

That the income gap between high-income and low-income countries has grown wider is a matter for concern And the number of the worldrsquos citizens in abject poverty is deeply disturbing But it is wrong to jump to the conclusion that globalization has caused the divergence or that nothing can be done to improve the situation To the contrary low-income countries have not been able to integrate with the global economy as quickly as others partly because of their chosen policies and partly because of factors outside their control No country least of all the poorest can afford to remain isolated from the world economy Every country should seek to reduce poverty The international community should endeavormdashby strengthening the international financial system through trade and through aidmdashto help the poorest countries integrate into the world economy grow more rapidly and reduce poverty That is the way to ensure all people in all countries have access to the benefits of globalization

Q7 ldquoThe advantages of MNCrsquos outweigh the disadvantages of MNCrsquosrdquo Discuss this statement with special reference to the contemporary Indian scene(2002)

Q6 Discuss the strengths and weakness of multinational corporations and their impact on domestic and multinational business environment (2001)

Q8 Evaluate role of multi-national corporations in Indian context What are the problems and solutions to technology transfer (2000)

The Role of Multinational Corporations and Foreign InvestmentCandace Firchau

India Resistance to the Multinational Corporation

India has had a long history of resisting the multinational corporation and has had to make major changes recently to encourage foreign investment in the country As India moves forward with development more foreign investment and multinational corporations operate in India but for many of these companies the outfit there has been anything but easy

Executive Summery The country of India started the development project wanting to be more independent and was reluctant to allow foreign companies to dominate the countryrsquos industrial sector India was very restrictive with multinational corporations After fighting for many years with large multinational corporations like Coke Cola India eventually opened up their economy to the foreign investment it initially discouraged Recently the country has had a tremendous amount of multinational industry but the companies often face some of the old restrictive attitudes that were very apparent fifteen to twenty years ago

Indiarsquos Past Relations with Multinational Corporations Indiarsquos multinational corporate history has been ridden with restriction As the development project emerged shortly after World War II focus on India and other ldquoThird Worldrdquo countries increased At the time there was a push to make Third World nations or the ex-colonies more lsquodevelopedrsquo India was considered one of these Third World countries that was presumed to need industrialization and capitalism Industrialization was one of the core ingredients to developing a nation according to development project ideals and India had strong potential ldquoIndia started with an extremely favorable economic environment ndash some natural resources a potentially large internal market a great supply of technical manpower and an enormous source of cheap raw labor (Lall 217)rdquo India was a prime development target but it wasnrsquot until quite recently that India would make a structural adjustment to their foreign investment views allowing for a more conducive environment for international business

In the 1960rsquos India adopted a different route than most other industrializing countries and focused on wholesale import substitution The country insisted on pursuing a form of industrial independence wanting to be self-sufficient and only importing products that could not be produced within the country In addition to being somewhat lsquoinward-lookingrsquo India placed numerous and highly restricted controls on trade MRTP (Monopoly and Restrictive Trade Practices) was one of the first regulations stating that any company that was over a specified size or controlled a dominant share of its market would be considered a monopoly As a monopoly this company would be subjected to more constraints on growth than other smaller companies would endure (Lall 218) This was a key element to Indiarsquos take on multinational investment Many MNCs (multinational corporations) fell under Indiarsquos definition of a monopoly and were thus subjected to numerous restrictions when conducting business in India Another confining policy that India upheld was the FERA (Foreign Exchange Regulations Act) that stipulated that any foreign enterprise that operated in India in ldquonon-priority sectors should not have more than 40 percent equity (Fernandes)rdquo The MRTP and FERA produced a deterrence for the MNC to conduct business with India and assumed that these large companies would threaten public interest These restrictions would remain central to Indiarsquos foreign investment policy

India saw a large boom of industrialization between the early fifties and 1965 The growth rate of manufacturing production in 1965 was at 78 percent Although by the end of 1970 though it had dropped fairly significantly and by about 1980 it was only at about 4 percent (Chandrasekhar 76) At the time there was less public investment so there was less infrastructure The poor quality of infrastructure may help to account for less industrialization Still though India continued to uphold strict controls on foreign direct investments In the 1970rsquos India focused a lot on ldquoforeign technologies via armrsquos length licensing arrangements (Lall 219)rdquo maintaining very stringent controls on the licenses In the 1980rsquos India began to see another boom with the growth percentage reaching 88 in 1990

The restrictions that India placed on the MNC resulted in a relatively small MNC investment The country has not been able to take advantage of the technology and marketing leverage that the MNC brings to a country It is sometimes argued that MNC corporations often generate competitiveness with domestic firms that in an effort to lsquokeep uprsquo often must make technological advances Without the role of MNCs in India the countryrsquos export market has suffered

In the early 1990rsquos in an effort to change India began to make more movement towards a liberalization of industrial regulation The NEP (New Economic Policy) prompted this liberalization in 1991 A more open economy is of course a slow process but is a leap from the highly restricted industry of Indiarsquos past Although these restrictions may have their place the key for India will be to find a balance between restriction and liberalization

India and the Multinational Corporation The restrictions that India put on corporate business and industry affected every company that wanted to do business within the country and even drove some companies away Coke Cola and Dupont are just a few of the multinational companies that operate in

India that have had to face some of these constraints sometimes taking extreme measures in response to the limits that have been imposed on them It was not until the early 1990s that India began to see a multinational boom that had little resemblance to past instances of industrialization

The infamous soft drink company Coke Cola has probably had the most trouble within the country of India The Coke Company was reintroduced to India on October 23 1993 after a 16-year absence (Coca Cola India) The driving force that was behind Cokersquos original exile was the FERA Coke was not supposed to have more than 40 percent equity but instead had 100 percent When questioned about their 100 percent equity Coke held that the equity was due totheir secret technology being so confidential that they could not share it Neither Coke nor the Indian Ministry of Industry was willing to budge so Coke left in 1977

In the interim a lot had changed Coke came back into the country about four years after PepsiCo was allowed admittance Cokersquos return to India made national headlines but more importantly it signified a new India India began a new liberal ldquoera of globalization and consumerism(Bidwai)rdquo India may have opened it doors to the Multinational corporate world but this liberalization of economy was still riddled with resistance

Coke maybe more than any other company has seen Indiarsquos resistance Most recently earlier this year the loyal council of India revoked the factories license to operate doing so in light of loosing 700000 rupees (or about $9000) from the decision Of course Coke appealed and received a suspension of the revocation (Vallely) Another daunting issue that Coke (and Pepsi) has been subject to rather recently is the claim that their soft drinks contain high levels of pesticides specifically DDT and Malathion (Reuters) Coke and Pepsi claim that the declaration is untrue but it is still another example of the resistance to large corporations Even though Coke was allowed to come back to India the company continues to face those who are reluctant to accept their arrival The resistance may not be in the form of outright restrictions but is a derivative of the same outlook that established that strict restrictions to begin with

Of course with the lightening of the industrialization policies and the movement toward a more free foreign investment policy numerous multinationals began to enter the country Another fairly established company that has operated in India for quite a while and has had to face opposition is Thapar Dupont Ltd (TDL) Dupont is an enormous American based company that produces a large variety of products The company operates with a number of dangerous chemicals that has been the source of much of the opposition it has faced Dupont avoided some of the equity problems that Coke has had by merging with an established Indian company Thapar becoming TDL Eventually in 1995 TDL wanted to build a new chemical factory in Goa India The Goa community is a rural society that cremates their ancestors and worships them in the lush forest near their homes TDL hindered their ability to perform their traditional rituals and were terribly unwelcome in Goa TDL on the other hand argued that the project would create new jobs and help India become an export-orientated economy The villagers protested the factory vigorously ldquoWithin two hours they completely demolished the boundary wall torched the guard shed and ripped up the paved road leading to the factory(Cohen)rdquo Ultimately TDL decided to build the factory in Karnataka instead of Goa What is strange is that some see this as a ldquovictory against multinational corporations in India(Cohen)rdquo The Karnataka government anticipated the arrival of TDL and strove to avoid the situation that erupted in Goa Nevertheless though Dupont faced the same resistance toward the multinational corporation that Coke has faced causing them a loss of income and probably a considerable amount of time

Recently there has also been a significant movement to bring American fast food and American fashion to India There are McDonalds Burger Kings and Ray Ban sunglasses available to the Indian consumer now These companies have faced resistance in the form of heavy criticism Praful Bidwai author of Making India Work ndash For the Rich has argued that the majority of Indians cannot afford most of these American based consumer goods and instead are faced with high inflation rates and rising unemployment

More companies are coming to India monthly Both Verizon and Oracle have moved employment to India in the last month Although this is a drastic change from the scenario that existed just fifteen years ago it is certainly not welcomed by everyone Many MNCs have seen resistance recently and it is unlikely that will stop abruptly

Conclusion India has spent years trying to be an independent country not reliant on foreign investment for advancement In comparison to many developing countries India is somewhat new to the mass migration of foreign multinational corporations Although it is stated outright that the economic policy is liberalized in reality it still has many of Indiarsquos old notions of restriction

The issues that Coke and Pepsi have had to face actualize the underlying restrictive attitude that exists within India Coke has already been run out of the country once but since its readmittance (under the NEP) it has had to face numerous accusations and other licensing problems Dupont has also had trouble not so much with the government but with local resistance The people of Goa were reluctant to allow the MNC to develop in their home There also seems to be a common contempt by many toward the Americanization of food and fashion in general

The NEP has opened up the country to the multinational corporation welcomed them in publicly and has changed the way that India approaches foreign investment Only the change has not happened over night India has come from a long history of restrictive industry and is unlikely to transform quickly causing corporations to face resistance officially and privately Foreign investors may still be somewhat reluctant to enter the country but more and more they will eventually come in

Q7 Distinguish clearly between liberalization and globalization Would you advocate the former proceeding the latter or both being pursued simultaneously(2000)

In India reforms are taken in place when finance minister Mr Manmohan Singh in 1992 adopted policy of liberalization and globalization more and more foreign institution investors were allowed to invest in Indian security market Same time Indian Company like Reliance Wipro and Infosys had gone global by listing at New York Stock Exchange

Short Notes

1 Administrative Prices (2000200420022001)

1Administrative Prices

This approach regards administered prices as a broad concept and then separates the idea into two components ie those pricesthat are regulated and those that are not regulatedDEFINITIONSAdministered pricesAn administered price can be defined as the price of a product which is set consciously by an individual producer or group ofproducers andor any price which can be determined or influenced by government either directly or through one or othergovernment agenciesinstitutions without reference to market forcesRegulated pricesRegulated prices are those administered prices that are said to be monitored and controlled by government policy To this endprice regulation does not necessarily imply the presence of an economic regulator but the restriction on the extent to which pricesmay vary depending on governmentrsquos policy objectiveBASKETS

Basket of administered prices 1048576 Housing (sanitary fees refuse removal assessment rates water and university boarding fees)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( petrol public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)Basket of administered prices that are regulated 1048576 Housing (water)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Transport ( petrol)Basket of administered prices that are not regulated 1048576 Housing (sanitary fees refuse removal assessment rates and university boarding fees)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)

2 Business Resources and Economics trends (20002001)3 Corporate Governance (200020022001)4 Joint Ventures (200020042002)5 Sustainable Development (20002004)

Sustainable development

Sustainable development is an umbrella that attempts to bridge the divide between economic growth and environmental protection while taking into account other issues traditionally associated with development It seeks to develop means of supporting economic growth while supporting biodiversity relieving poverty and without using up natural capital in the short term at the expense of long term development While many definitions of the term have been introduced over the years the most commonly cited definition comes from the report Our Common Future more commonly known as the Brundtland Report which states that sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needsrdquo

Sustainable development is often misinterpreted as focusing solely on environmental issues In reality it is a much broader concept as sustainable development policies encompass three general policy areas economic environmental and social In support of this several United Nations texts most recently the 2005 World Summit Outcome Document refer to the interdependent and mutually reinforcing pillars of sustainable development as economic development social development and environmental protection

Sustainable development is a notoriously ambiguous concept as a wide array of views have fallen under its umbrella The concept has included notions of weak sustainability strong sustainability and deep ecology Different conceptions also reveal a strong tension between ecocentrism and anthropocentrism Thus the concept remains weakly defined and contains a large amount of debate as to its precise definition

6 PSU Disinvestment (2000)

DisinvestmentPrivatisationPSU Reform

build strong economies and a stronger world financial system that will produce more rapid growth and ensure that poverty is reduced

How can the developing countries especially the poorest be helped to catch up Does globalization exacerbate inequality or can it help to reduce poverty And are countries that integrate with the global economy inevitably vulnerable to instability These are some of the questions covered in the following sections

II What is GlobalizationEconomic globalization is a historical process the result of human innovation and technological progress It refers to the increasing integration of economies around the world particularly through trade and financial flows The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders There are also broader cultural political and environmental dimensions of globalization that are not covered here

At its most basic there is nothing mysterious about globalization The term has come into common usage since the 1980s reflecting technological advances that have made it easier and quicker to complete international transactionsmdashboth trade and financial flows It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activitymdashvillage markets urban industries or financial centers

Markets promote efficiency through competition and the division of labormdashthe specialization that allows people and economies to focus on what they do best Global markets offer greater opportunity for people to tap into more and larger markets around the world It means that they can have access to more capital flows technology cheaper imports and larger export markets But markets do not necessarily ensure that the benefits of increased efficiency are shared by all Countries must be prepared to embrace the policies needed and in the case of the poorest countries may need the support of the international community as they do so

III Unparalleled Growth Increased Inequality 20th Century Income TrendsGlobalization is not just a recent phenomenon Some analysts have argued that the world economy was just as globalized 100 years ago as it is today But today commerce and financial services are far more developed and deeply integrated than they were at that time The most striking aspect of this has been the integration of financial markets made possible by modern electronic communication

The 20th century saw unparalleled economic growth with global per capita GDP increasing almost five-fold But this growth was not steadymdashthe strongest expansion came during the second half of the century a period of rapid trade expansion accompanied by trademdashand typically somewhat later financialmdashliberalization Figure 1a breaks the century into four periods1 In the inter-war era the world turned its back on internationalismmdashor globalization as we now call itmdashand countries retreated into closed economies protectionism and pervasive capital controls This was a major factor in the devastation of this period when per capita income growth fell to less than 1 percent during 1913-1950 For the rest of the century even though population grew at an unprecedented pace per capita income growth was over 2 percent the fastest pace of all coming during the post-World War boom in the industrial countries

The story of the 20th century was of remarkable average income growth but it is also quite obvious that the progress was not evenly dispersed The gaps between rich and poor countries and rich and poor people within countries have grown The richest quarter of the worldrsquos population saw its per capita GDP increase nearly six-fold during the century while the poorest quarter experienced less than a three-fold increase (Chart 1b) Income inequality has clearly increased But as noted below per capita GDP does not tell the whole story (see section IV)

IV Developing countries How deeply integrated

Globalization means that world trade and financial markets are becoming more integrated But just how far have developing countries been involved in this integration Their experience in catching up with the advanced economies has been mixed Chart 2a shows that in some countries especially in Asia per capita incomes have been moving quickly toward levels in the industrial countries since 1970 A larger number of developing countries have made only slow progress or have lost ground In particular per capita incomes in Africa have declined relative to the industrial countries and in some countries have declined in absolute terms Chart 2b illustrates part of the explanation the countries catching up are those where trade has grown strongly

Consider four aspects of globalization

Trade Developing countries as a whole have increased their share of world tradendashfrom 19 percent in 1971 to 29 percent in 1999 But Chart 2b shows great variation among the major regions For instance the newly industrialized economies (NIEs) of Asia have done well while Africa as a whole has fared poorly The composition of what countries export is also important The strongest rise by far has been in the export of manufactured goods The share of primary commodities in world exportsmdashsuch as food and raw materialsmdashthat are often produced by the poorest countries has declined

Capital movements Chart 3 depicts what many people associate with globalization sharply increased private capital flows to developing countries during much of the 1990s It also shows that (a) the increase followed a particularly dry period in the 1980s (b) net official flows of aid or development assistance have fallen significantly since the early 1980s and (c) the composition of private flows has changed dramatically Direct foreign investment has become the most important category Both portfolio investment and bank credit rose but they have been more volatile falling sharply in the wake of the financial crises of the late 1990s

Movement of people Workers move from one country to another partly to find better employment opportunities The numbers involved are still quite small but in the period 1965-90 the proportion of labor forces round the world that was foreign born increased by about one-half Most migration occurs between developing countries But the flow of migrants to advanced economies is likely to provide a means through which global wages converge There is also the potential for skills to be transferred back to the developing countries and for wages in those countries to rise

Spread of knowledge (and technology) Information exchange is an integral often overlooked aspect of globalization For instance direct foreign investment brings not only an expansion of the physical capital stock but also technical innovation More generally knowledge about production methods management techniques export markets and economic policies is available at very low cost and it represents a highly valuable resource for the developing countriesThe special case of the economies in transition from planned to market economiesmdashthey too are becoming more integrated with the global economymdashis not explored in much depth here In fact the term transition economy is losing its usefulness Some countries (eg Poland Hungary) are converging quite rapidly toward the structure and performance of advanced economies Others (such as most countries of the former Soviet Union) face long-term structural and institutional issues similar to those faced by developing countries

Source IMF World Economic Outlook Databases (May 2000) Direction of Trade1 Excludes oil exporting countries2 Consists largely of bank lendingV Does Globalization Increase Poverty and InequalityDuring the 20th century global average per capita income rose strongly but with considerable variation among countries It is clear that the income gap between rich and poor countries has been widening for many decades The most recent World Economic Outlook studies 42 countries (representing almost 90 percent of world population) for which data are available for the entire 20th century It reaches the conclusion that output per capita has

risen appreciably but that the distribution of income among countries has become more unequal than at the beginning of the century

But incomes do not tell the whole story broader measures of welfare that take account of social conditions show that poorer countries have made considerable progress For instance some low-income countries eg Sri Lanka have quite impressive social indicators One recent paper2 finds that if countries are compared using the UNrsquos Human Development Indicators (HDI) which take education and life expectancy into account then the picture that emerges is quite different from that suggested by the income data alone

Indeed the gaps may have narrowed A striking inference from the study is a contrast between what may be termed an income gap and an HDI gap The (inflation-adjusted) income levels of todayrsquos poor countries are still well below those of the leading countries in 1870 And the gap in incomes has increased But judged by their HDIs todayrsquos poor countries are well ahead of where the leading countries were in 1870 This is largely because medical advances and improved living standards have brought strong increases in life expectancy

But even if the HDI gap has narrowed in the long-term far too many people are losing ground Life expectancy may have increased but the quality of life for many has not improved with many still in abject poverty And the spread of AIDS through Africa in the past decade is reducing life expectancy in many countries

This has brought new urgency to policies specifically designed to alleviate poverty Countries with a strong growth record pursuing the right policies can expect to see a sustained reduction in poverty since recent evidence suggests that there exists at least a one-to-one correspondence between growth and poverty reduction And if strongly pro-poor policiesmdashfor instance in well-targeted social expendituremdashare pursued then there is a better chance that growth will be amplified into more rapid poverty reduction This is one compelling reason for all economic policy makers including the IMF to pay heed more explicitly to the objective of poverty reduction

VI How Can the Poorest Countries Catch Up More QuicklyGrowth in living standards springs from the accumulation of physical capital (investment) and human capital (labor) and through advances in technology (what economists call total factor productivity)3 Many factors can help or hinder these processes The experience of the countries that have increased output most rapidly shows the importance of creating conditions that are conducive to long-run per capita income growth Economic stability institution building and structural reform are at least as important for long-term development as financial transfers important as they are What matters is the whole package of policies financial and technical assistance and debt relief if necessary

Components of such a package might include

Macroeconomic stability to create the right conditions for investment and saving Outward oriented policies to promote efficiency through increased trade and investment Structural reform to encourage domestic competition Strong institutions and an effective government to foster good governance Education training and research and development to promote productivity External debt management to ensure adequate resources for sustainable developmentAll these policies should be focussed on country-owned strategies to reduce poverty by promoting pro-poor policies that are properly budgetedmdashincluding health education and strong social safety nets A participatory approach including consultation with civil society will add greatly to their chances of success

Advanced economies can make a vital contribution to the low-income countriesrsquo efforts to integrate into the global economy

By promoting trade One proposal on the table is to provide unrestricted market access for all exports from the poorest countries This should help them move beyond specialization on primary commodities to producing processed goods for export

By encouraging flows of private capital to the lower-income countries particularly foreign direct investment with its twin benefits of steady financial flows and technology transfer

By supplementing more rapid debt relief with an increased level of new financial support Official development assistance (ODA) has fallen to 024 percent of GDP (1998) in advanced countries (compared with a UN target of 07 percent) As Michel Camdessus the former Managing Director of the IMF put it The excuse of aid fatigue is not crediblemdashindeed it approaches the level of downright cynicismmdashat a time when for the last decade the advanced countries have had the opportunity to enjoy the benefits of the peace dividendThe IMF supports reform in the poorest countries through its new Poverty Reduction and Growth Facility It is contributing to debt relief through the initiative for the heavily indebted poor countries4

VII An Advanced Country Perspective Does Globalization Harm Workersrsquo InterestsAnxiety about globalization also exists in advanced economies How real is the perceived threat that competition from low-wage economies displaces workers from high-wage jobs and decreases the demand for less skilled workers Are the changes taking place in these economies and societies a direct result of globalization

Economies are continually evolving and globalization is one among several other continuing trends One such trend is that as industrial economies mature they are becoming more service-oriented to meet the changing demands of their population Another trend is the shift toward more highly skilled jobs But all the evidence is that these changes would be taking placemdashnot necessarily at the same pacemdashwith or without globalization In fact globalization is actually making this process easier and less costly to the economy as a whole by bringing the benefits of capital flows technological innovations and lower import prices Economic growth employment and living standards are all higher than they would be in a closed economy

But the gains are typically distributed unevenly among groups within countries and some groups may lose out For instance workers in declining older industries may not be able to make an easy transition to new industries

What is the appropriate policy response Should governments try to protect particular groups like low-paid workers or old industries by restricting trade or capital flows Such an approach might help some in the short-term but ultimately it is at the expense of the living standards of the population at large Rather governments should pursue policies that encourage integration into the global economy while putting in place measures to help those adversely affected by the changes The economy as a whole will prosper more from policies that embrace globalization by promoting an open economy and at the same time squarely address the need to ensure the benefits are widely shared Government policy should focus on two important areas

education and vocational training to make sure that workers have the opportunity to acquire the right skills in dynamic changing economies and well-targeted social safety nets to assist people who are displacedVIII Are Periodic Crises an Inevitable Consequence of GlobalizationThe succession of crises in the 1990smdashMexico Thailand Indonesia Korea Russia and Brazilmdashsuggested to some that financial crises are a direct and inevitable result of globalization Indeed one question that arises in both advanced and emerging market economies is whether globalization makes economic management more difficult (Box 1)

Box 1 Does globalization reduce national sovereignty in economic policy-making

Does increased integration particularly in the financial sphere make it more difficult for governments to manage economic activity for instance by limiting governmentsrsquo choices of tax rates and tax systems or their freedom of action on monetary or exchange rate policies

If it is assumed that countries aim to achieve sustainable growth low inflation and social progress then the evidence of the past 50 years is that globalization contributes to these objectives in the long term

In the short-term as we have seen in the past few years volatile short-term capital flows can threaten macroeconomic stability Thus in a world of integrated financial markets countries will find it increasingly risky to follow policies that do not promote financial stability This discipline also applies to the private sector which will find it more difficult to implement wage increases and price markups that would make the country concerned become uncompetitive

But there is another kind of risk Sometimes investorsmdashparticularly short-term investorsmdashtake too sanguine a view of a countryrsquos prospects and capital inflows may continue even when economic policies have become too relaxed This exposes the country to the risk that when perceptions change there may be a sudden brutal withdrawal of capital from the country

In short globalization does not reduce national sovereignty It does create a strong incentive for governments to pursue sound economic policies It should create incentives for the private sector to undertake careful analysis of risk However short-term investment flows may be excessively volatile

Efforts to increase the stability of international capital flows are central to the ongoing work on strengthening the international financial architecture In this regard some are concerned that globalization leads to the abolition of rules or constraints on business activities To the contrarymdashone of the key goals of the work on the international financial architecture is to develop standards and codes that are based on internationally accepted principles that can be implemented in many different national settings

Clearly the crises would not have developed as they did without exposure to global capital markets But nor could these countries have achieved their impressive growth records without those financial flows

These were complex crises resulting from an interaction of shortcomings in national policy and the international financial system Individual governments and the international community as a whole are taking steps to reduce the risk of such crises in future

At the national level even though several of the countries had impressive records of economic performance they were not fully prepared to withstand the potential shocks that could come through the international markets Macroeconomic stability financial soundness open economies transparency and good governance are all essential for countries participating in the global markets Each of the countries came up short in one or more respects

At the international level several important lines of defense against crisis were breached Investors did not appraise risks adequately Regulators and supervisors in the major financial centers did not monitor developments sufficiently closely And not enough information was available about some international investors notably offshore financial institutions The result was that markets were prone to herd behaviormdash sudden shifts of investor sentiment and the rapid movement of capital especially short-term finance into and out of countries

The international community is responding to the global dimensions of the crisis through a continuing effort to strengthen the architecture of the international monetary and financial system The broad aim is for markets to operate with more transparency equity and efficiency The IMF has a central role in this process which is explored further in separate fact sheets5

IX The Role of Institutions and OrganizationsNational and international institutions inevitably influenced by differences in culture play an important role in the process of globalization It may be best to leave an outside commentator to reflect on the role of institutions

That the advent of highly integrated commodity and financial markets has been accompanied by trade tensions and problems of financial instability should not come as a surprise The surprise is that these problems are not even more severe today given that the extent of commodity and financial market integration is so much greater

One possibility in accounting (for this surprise) is the stabilizing role of the institutions built in the interim At the national level this means social and financial safety nets At the international level it means the WTO the IMF the Basle Committee of Banking Supervisors These institutions may be far from perfect but they are better than nothing judging from the historical correlation between the level of integration on one hand and the level of trade conflict and financial instability on the other6 (parentheses added)

X ConclusionAs globalization has progressed living conditions (particularly when measured by broader indicators of well being) have improved significantly in virtually all countries However the strongest gains have been made by the advanced countries and only some of the developing countries

That the income gap between high-income and low-income countries has grown wider is a matter for concern And the number of the worldrsquos citizens in abject poverty is deeply disturbing But it is wrong to jump to the conclusion that globalization has caused the divergence or that nothing can be done to improve the situation To the contrary low-income countries have not been able to integrate with the global economy as quickly as others partly because of their chosen policies and partly because of factors outside their control No country least of all the poorest can afford to remain isolated from the world economy Every country should seek to reduce poverty The international community should endeavormdashby strengthening the international financial system through trade and through aidmdashto help the poorest countries integrate into the world economy grow more rapidly and reduce poverty That is the way to ensure all people in all countries have access to the benefits of globalization

Q7 ldquoThe advantages of MNCrsquos outweigh the disadvantages of MNCrsquosrdquo Discuss this statement with special reference to the contemporary Indian scene(2002)

Q6 Discuss the strengths and weakness of multinational corporations and their impact on domestic and multinational business environment (2001)

Q8 Evaluate role of multi-national corporations in Indian context What are the problems and solutions to technology transfer (2000)

The Role of Multinational Corporations and Foreign InvestmentCandace Firchau

India Resistance to the Multinational Corporation

India has had a long history of resisting the multinational corporation and has had to make major changes recently to encourage foreign investment in the country As India moves forward with development more foreign investment and multinational corporations operate in India but for many of these companies the outfit there has been anything but easy

Executive Summery The country of India started the development project wanting to be more independent and was reluctant to allow foreign companies to dominate the countryrsquos industrial sector India was very restrictive with multinational corporations After fighting for many years with large multinational corporations like Coke Cola India eventually opened up their economy to the foreign investment it initially discouraged Recently the country has had a tremendous amount of multinational industry but the companies often face some of the old restrictive attitudes that were very apparent fifteen to twenty years ago

Indiarsquos Past Relations with Multinational Corporations Indiarsquos multinational corporate history has been ridden with restriction As the development project emerged shortly after World War II focus on India and other ldquoThird Worldrdquo countries increased At the time there was a push to make Third World nations or the ex-colonies more lsquodevelopedrsquo India was considered one of these Third World countries that was presumed to need industrialization and capitalism Industrialization was one of the core ingredients to developing a nation according to development project ideals and India had strong potential ldquoIndia started with an extremely favorable economic environment ndash some natural resources a potentially large internal market a great supply of technical manpower and an enormous source of cheap raw labor (Lall 217)rdquo India was a prime development target but it wasnrsquot until quite recently that India would make a structural adjustment to their foreign investment views allowing for a more conducive environment for international business

In the 1960rsquos India adopted a different route than most other industrializing countries and focused on wholesale import substitution The country insisted on pursuing a form of industrial independence wanting to be self-sufficient and only importing products that could not be produced within the country In addition to being somewhat lsquoinward-lookingrsquo India placed numerous and highly restricted controls on trade MRTP (Monopoly and Restrictive Trade Practices) was one of the first regulations stating that any company that was over a specified size or controlled a dominant share of its market would be considered a monopoly As a monopoly this company would be subjected to more constraints on growth than other smaller companies would endure (Lall 218) This was a key element to Indiarsquos take on multinational investment Many MNCs (multinational corporations) fell under Indiarsquos definition of a monopoly and were thus subjected to numerous restrictions when conducting business in India Another confining policy that India upheld was the FERA (Foreign Exchange Regulations Act) that stipulated that any foreign enterprise that operated in India in ldquonon-priority sectors should not have more than 40 percent equity (Fernandes)rdquo The MRTP and FERA produced a deterrence for the MNC to conduct business with India and assumed that these large companies would threaten public interest These restrictions would remain central to Indiarsquos foreign investment policy

India saw a large boom of industrialization between the early fifties and 1965 The growth rate of manufacturing production in 1965 was at 78 percent Although by the end of 1970 though it had dropped fairly significantly and by about 1980 it was only at about 4 percent (Chandrasekhar 76) At the time there was less public investment so there was less infrastructure The poor quality of infrastructure may help to account for less industrialization Still though India continued to uphold strict controls on foreign direct investments In the 1970rsquos India focused a lot on ldquoforeign technologies via armrsquos length licensing arrangements (Lall 219)rdquo maintaining very stringent controls on the licenses In the 1980rsquos India began to see another boom with the growth percentage reaching 88 in 1990

The restrictions that India placed on the MNC resulted in a relatively small MNC investment The country has not been able to take advantage of the technology and marketing leverage that the MNC brings to a country It is sometimes argued that MNC corporations often generate competitiveness with domestic firms that in an effort to lsquokeep uprsquo often must make technological advances Without the role of MNCs in India the countryrsquos export market has suffered

In the early 1990rsquos in an effort to change India began to make more movement towards a liberalization of industrial regulation The NEP (New Economic Policy) prompted this liberalization in 1991 A more open economy is of course a slow process but is a leap from the highly restricted industry of Indiarsquos past Although these restrictions may have their place the key for India will be to find a balance between restriction and liberalization

India and the Multinational Corporation The restrictions that India put on corporate business and industry affected every company that wanted to do business within the country and even drove some companies away Coke Cola and Dupont are just a few of the multinational companies that operate in

India that have had to face some of these constraints sometimes taking extreme measures in response to the limits that have been imposed on them It was not until the early 1990s that India began to see a multinational boom that had little resemblance to past instances of industrialization

The infamous soft drink company Coke Cola has probably had the most trouble within the country of India The Coke Company was reintroduced to India on October 23 1993 after a 16-year absence (Coca Cola India) The driving force that was behind Cokersquos original exile was the FERA Coke was not supposed to have more than 40 percent equity but instead had 100 percent When questioned about their 100 percent equity Coke held that the equity was due totheir secret technology being so confidential that they could not share it Neither Coke nor the Indian Ministry of Industry was willing to budge so Coke left in 1977

In the interim a lot had changed Coke came back into the country about four years after PepsiCo was allowed admittance Cokersquos return to India made national headlines but more importantly it signified a new India India began a new liberal ldquoera of globalization and consumerism(Bidwai)rdquo India may have opened it doors to the Multinational corporate world but this liberalization of economy was still riddled with resistance

Coke maybe more than any other company has seen Indiarsquos resistance Most recently earlier this year the loyal council of India revoked the factories license to operate doing so in light of loosing 700000 rupees (or about $9000) from the decision Of course Coke appealed and received a suspension of the revocation (Vallely) Another daunting issue that Coke (and Pepsi) has been subject to rather recently is the claim that their soft drinks contain high levels of pesticides specifically DDT and Malathion (Reuters) Coke and Pepsi claim that the declaration is untrue but it is still another example of the resistance to large corporations Even though Coke was allowed to come back to India the company continues to face those who are reluctant to accept their arrival The resistance may not be in the form of outright restrictions but is a derivative of the same outlook that established that strict restrictions to begin with

Of course with the lightening of the industrialization policies and the movement toward a more free foreign investment policy numerous multinationals began to enter the country Another fairly established company that has operated in India for quite a while and has had to face opposition is Thapar Dupont Ltd (TDL) Dupont is an enormous American based company that produces a large variety of products The company operates with a number of dangerous chemicals that has been the source of much of the opposition it has faced Dupont avoided some of the equity problems that Coke has had by merging with an established Indian company Thapar becoming TDL Eventually in 1995 TDL wanted to build a new chemical factory in Goa India The Goa community is a rural society that cremates their ancestors and worships them in the lush forest near their homes TDL hindered their ability to perform their traditional rituals and were terribly unwelcome in Goa TDL on the other hand argued that the project would create new jobs and help India become an export-orientated economy The villagers protested the factory vigorously ldquoWithin two hours they completely demolished the boundary wall torched the guard shed and ripped up the paved road leading to the factory(Cohen)rdquo Ultimately TDL decided to build the factory in Karnataka instead of Goa What is strange is that some see this as a ldquovictory against multinational corporations in India(Cohen)rdquo The Karnataka government anticipated the arrival of TDL and strove to avoid the situation that erupted in Goa Nevertheless though Dupont faced the same resistance toward the multinational corporation that Coke has faced causing them a loss of income and probably a considerable amount of time

Recently there has also been a significant movement to bring American fast food and American fashion to India There are McDonalds Burger Kings and Ray Ban sunglasses available to the Indian consumer now These companies have faced resistance in the form of heavy criticism Praful Bidwai author of Making India Work ndash For the Rich has argued that the majority of Indians cannot afford most of these American based consumer goods and instead are faced with high inflation rates and rising unemployment

More companies are coming to India monthly Both Verizon and Oracle have moved employment to India in the last month Although this is a drastic change from the scenario that existed just fifteen years ago it is certainly not welcomed by everyone Many MNCs have seen resistance recently and it is unlikely that will stop abruptly

Conclusion India has spent years trying to be an independent country not reliant on foreign investment for advancement In comparison to many developing countries India is somewhat new to the mass migration of foreign multinational corporations Although it is stated outright that the economic policy is liberalized in reality it still has many of Indiarsquos old notions of restriction

The issues that Coke and Pepsi have had to face actualize the underlying restrictive attitude that exists within India Coke has already been run out of the country once but since its readmittance (under the NEP) it has had to face numerous accusations and other licensing problems Dupont has also had trouble not so much with the government but with local resistance The people of Goa were reluctant to allow the MNC to develop in their home There also seems to be a common contempt by many toward the Americanization of food and fashion in general

The NEP has opened up the country to the multinational corporation welcomed them in publicly and has changed the way that India approaches foreign investment Only the change has not happened over night India has come from a long history of restrictive industry and is unlikely to transform quickly causing corporations to face resistance officially and privately Foreign investors may still be somewhat reluctant to enter the country but more and more they will eventually come in

Q7 Distinguish clearly between liberalization and globalization Would you advocate the former proceeding the latter or both being pursued simultaneously(2000)

In India reforms are taken in place when finance minister Mr Manmohan Singh in 1992 adopted policy of liberalization and globalization more and more foreign institution investors were allowed to invest in Indian security market Same time Indian Company like Reliance Wipro and Infosys had gone global by listing at New York Stock Exchange

Short Notes

1 Administrative Prices (2000200420022001)

1Administrative Prices

This approach regards administered prices as a broad concept and then separates the idea into two components ie those pricesthat are regulated and those that are not regulatedDEFINITIONSAdministered pricesAn administered price can be defined as the price of a product which is set consciously by an individual producer or group ofproducers andor any price which can be determined or influenced by government either directly or through one or othergovernment agenciesinstitutions without reference to market forcesRegulated pricesRegulated prices are those administered prices that are said to be monitored and controlled by government policy To this endprice regulation does not necessarily imply the presence of an economic regulator but the restriction on the extent to which pricesmay vary depending on governmentrsquos policy objectiveBASKETS

Basket of administered prices 1048576 Housing (sanitary fees refuse removal assessment rates water and university boarding fees)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( petrol public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)Basket of administered prices that are regulated 1048576 Housing (water)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Transport ( petrol)Basket of administered prices that are not regulated 1048576 Housing (sanitary fees refuse removal assessment rates and university boarding fees)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)

2 Business Resources and Economics trends (20002001)3 Corporate Governance (200020022001)4 Joint Ventures (200020042002)5 Sustainable Development (20002004)

Sustainable development

Sustainable development is an umbrella that attempts to bridge the divide between economic growth and environmental protection while taking into account other issues traditionally associated with development It seeks to develop means of supporting economic growth while supporting biodiversity relieving poverty and without using up natural capital in the short term at the expense of long term development While many definitions of the term have been introduced over the years the most commonly cited definition comes from the report Our Common Future more commonly known as the Brundtland Report which states that sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needsrdquo

Sustainable development is often misinterpreted as focusing solely on environmental issues In reality it is a much broader concept as sustainable development policies encompass three general policy areas economic environmental and social In support of this several United Nations texts most recently the 2005 World Summit Outcome Document refer to the interdependent and mutually reinforcing pillars of sustainable development as economic development social development and environmental protection

Sustainable development is a notoriously ambiguous concept as a wide array of views have fallen under its umbrella The concept has included notions of weak sustainability strong sustainability and deep ecology Different conceptions also reveal a strong tension between ecocentrism and anthropocentrism Thus the concept remains weakly defined and contains a large amount of debate as to its precise definition

6 PSU Disinvestment (2000)

DisinvestmentPrivatisationPSU Reform

Globalization means that world trade and financial markets are becoming more integrated But just how far have developing countries been involved in this integration Their experience in catching up with the advanced economies has been mixed Chart 2a shows that in some countries especially in Asia per capita incomes have been moving quickly toward levels in the industrial countries since 1970 A larger number of developing countries have made only slow progress or have lost ground In particular per capita incomes in Africa have declined relative to the industrial countries and in some countries have declined in absolute terms Chart 2b illustrates part of the explanation the countries catching up are those where trade has grown strongly

Consider four aspects of globalization

Trade Developing countries as a whole have increased their share of world tradendashfrom 19 percent in 1971 to 29 percent in 1999 But Chart 2b shows great variation among the major regions For instance the newly industrialized economies (NIEs) of Asia have done well while Africa as a whole has fared poorly The composition of what countries export is also important The strongest rise by far has been in the export of manufactured goods The share of primary commodities in world exportsmdashsuch as food and raw materialsmdashthat are often produced by the poorest countries has declined

Capital movements Chart 3 depicts what many people associate with globalization sharply increased private capital flows to developing countries during much of the 1990s It also shows that (a) the increase followed a particularly dry period in the 1980s (b) net official flows of aid or development assistance have fallen significantly since the early 1980s and (c) the composition of private flows has changed dramatically Direct foreign investment has become the most important category Both portfolio investment and bank credit rose but they have been more volatile falling sharply in the wake of the financial crises of the late 1990s

Movement of people Workers move from one country to another partly to find better employment opportunities The numbers involved are still quite small but in the period 1965-90 the proportion of labor forces round the world that was foreign born increased by about one-half Most migration occurs between developing countries But the flow of migrants to advanced economies is likely to provide a means through which global wages converge There is also the potential for skills to be transferred back to the developing countries and for wages in those countries to rise

Spread of knowledge (and technology) Information exchange is an integral often overlooked aspect of globalization For instance direct foreign investment brings not only an expansion of the physical capital stock but also technical innovation More generally knowledge about production methods management techniques export markets and economic policies is available at very low cost and it represents a highly valuable resource for the developing countriesThe special case of the economies in transition from planned to market economiesmdashthey too are becoming more integrated with the global economymdashis not explored in much depth here In fact the term transition economy is losing its usefulness Some countries (eg Poland Hungary) are converging quite rapidly toward the structure and performance of advanced economies Others (such as most countries of the former Soviet Union) face long-term structural and institutional issues similar to those faced by developing countries

Source IMF World Economic Outlook Databases (May 2000) Direction of Trade1 Excludes oil exporting countries2 Consists largely of bank lendingV Does Globalization Increase Poverty and InequalityDuring the 20th century global average per capita income rose strongly but with considerable variation among countries It is clear that the income gap between rich and poor countries has been widening for many decades The most recent World Economic Outlook studies 42 countries (representing almost 90 percent of world population) for which data are available for the entire 20th century It reaches the conclusion that output per capita has

risen appreciably but that the distribution of income among countries has become more unequal than at the beginning of the century

But incomes do not tell the whole story broader measures of welfare that take account of social conditions show that poorer countries have made considerable progress For instance some low-income countries eg Sri Lanka have quite impressive social indicators One recent paper2 finds that if countries are compared using the UNrsquos Human Development Indicators (HDI) which take education and life expectancy into account then the picture that emerges is quite different from that suggested by the income data alone

Indeed the gaps may have narrowed A striking inference from the study is a contrast between what may be termed an income gap and an HDI gap The (inflation-adjusted) income levels of todayrsquos poor countries are still well below those of the leading countries in 1870 And the gap in incomes has increased But judged by their HDIs todayrsquos poor countries are well ahead of where the leading countries were in 1870 This is largely because medical advances and improved living standards have brought strong increases in life expectancy

But even if the HDI gap has narrowed in the long-term far too many people are losing ground Life expectancy may have increased but the quality of life for many has not improved with many still in abject poverty And the spread of AIDS through Africa in the past decade is reducing life expectancy in many countries

This has brought new urgency to policies specifically designed to alleviate poverty Countries with a strong growth record pursuing the right policies can expect to see a sustained reduction in poverty since recent evidence suggests that there exists at least a one-to-one correspondence between growth and poverty reduction And if strongly pro-poor policiesmdashfor instance in well-targeted social expendituremdashare pursued then there is a better chance that growth will be amplified into more rapid poverty reduction This is one compelling reason for all economic policy makers including the IMF to pay heed more explicitly to the objective of poverty reduction

VI How Can the Poorest Countries Catch Up More QuicklyGrowth in living standards springs from the accumulation of physical capital (investment) and human capital (labor) and through advances in technology (what economists call total factor productivity)3 Many factors can help or hinder these processes The experience of the countries that have increased output most rapidly shows the importance of creating conditions that are conducive to long-run per capita income growth Economic stability institution building and structural reform are at least as important for long-term development as financial transfers important as they are What matters is the whole package of policies financial and technical assistance and debt relief if necessary

Components of such a package might include

Macroeconomic stability to create the right conditions for investment and saving Outward oriented policies to promote efficiency through increased trade and investment Structural reform to encourage domestic competition Strong institutions and an effective government to foster good governance Education training and research and development to promote productivity External debt management to ensure adequate resources for sustainable developmentAll these policies should be focussed on country-owned strategies to reduce poverty by promoting pro-poor policies that are properly budgetedmdashincluding health education and strong social safety nets A participatory approach including consultation with civil society will add greatly to their chances of success

Advanced economies can make a vital contribution to the low-income countriesrsquo efforts to integrate into the global economy

By promoting trade One proposal on the table is to provide unrestricted market access for all exports from the poorest countries This should help them move beyond specialization on primary commodities to producing processed goods for export

By encouraging flows of private capital to the lower-income countries particularly foreign direct investment with its twin benefits of steady financial flows and technology transfer

By supplementing more rapid debt relief with an increased level of new financial support Official development assistance (ODA) has fallen to 024 percent of GDP (1998) in advanced countries (compared with a UN target of 07 percent) As Michel Camdessus the former Managing Director of the IMF put it The excuse of aid fatigue is not crediblemdashindeed it approaches the level of downright cynicismmdashat a time when for the last decade the advanced countries have had the opportunity to enjoy the benefits of the peace dividendThe IMF supports reform in the poorest countries through its new Poverty Reduction and Growth Facility It is contributing to debt relief through the initiative for the heavily indebted poor countries4

VII An Advanced Country Perspective Does Globalization Harm Workersrsquo InterestsAnxiety about globalization also exists in advanced economies How real is the perceived threat that competition from low-wage economies displaces workers from high-wage jobs and decreases the demand for less skilled workers Are the changes taking place in these economies and societies a direct result of globalization

Economies are continually evolving and globalization is one among several other continuing trends One such trend is that as industrial economies mature they are becoming more service-oriented to meet the changing demands of their population Another trend is the shift toward more highly skilled jobs But all the evidence is that these changes would be taking placemdashnot necessarily at the same pacemdashwith or without globalization In fact globalization is actually making this process easier and less costly to the economy as a whole by bringing the benefits of capital flows technological innovations and lower import prices Economic growth employment and living standards are all higher than they would be in a closed economy

But the gains are typically distributed unevenly among groups within countries and some groups may lose out For instance workers in declining older industries may not be able to make an easy transition to new industries

What is the appropriate policy response Should governments try to protect particular groups like low-paid workers or old industries by restricting trade or capital flows Such an approach might help some in the short-term but ultimately it is at the expense of the living standards of the population at large Rather governments should pursue policies that encourage integration into the global economy while putting in place measures to help those adversely affected by the changes The economy as a whole will prosper more from policies that embrace globalization by promoting an open economy and at the same time squarely address the need to ensure the benefits are widely shared Government policy should focus on two important areas

education and vocational training to make sure that workers have the opportunity to acquire the right skills in dynamic changing economies and well-targeted social safety nets to assist people who are displacedVIII Are Periodic Crises an Inevitable Consequence of GlobalizationThe succession of crises in the 1990smdashMexico Thailand Indonesia Korea Russia and Brazilmdashsuggested to some that financial crises are a direct and inevitable result of globalization Indeed one question that arises in both advanced and emerging market economies is whether globalization makes economic management more difficult (Box 1)

Box 1 Does globalization reduce national sovereignty in economic policy-making

Does increased integration particularly in the financial sphere make it more difficult for governments to manage economic activity for instance by limiting governmentsrsquo choices of tax rates and tax systems or their freedom of action on monetary or exchange rate policies

If it is assumed that countries aim to achieve sustainable growth low inflation and social progress then the evidence of the past 50 years is that globalization contributes to these objectives in the long term

In the short-term as we have seen in the past few years volatile short-term capital flows can threaten macroeconomic stability Thus in a world of integrated financial markets countries will find it increasingly risky to follow policies that do not promote financial stability This discipline also applies to the private sector which will find it more difficult to implement wage increases and price markups that would make the country concerned become uncompetitive

But there is another kind of risk Sometimes investorsmdashparticularly short-term investorsmdashtake too sanguine a view of a countryrsquos prospects and capital inflows may continue even when economic policies have become too relaxed This exposes the country to the risk that when perceptions change there may be a sudden brutal withdrawal of capital from the country

In short globalization does not reduce national sovereignty It does create a strong incentive for governments to pursue sound economic policies It should create incentives for the private sector to undertake careful analysis of risk However short-term investment flows may be excessively volatile

Efforts to increase the stability of international capital flows are central to the ongoing work on strengthening the international financial architecture In this regard some are concerned that globalization leads to the abolition of rules or constraints on business activities To the contrarymdashone of the key goals of the work on the international financial architecture is to develop standards and codes that are based on internationally accepted principles that can be implemented in many different national settings

Clearly the crises would not have developed as they did without exposure to global capital markets But nor could these countries have achieved their impressive growth records without those financial flows

These were complex crises resulting from an interaction of shortcomings in national policy and the international financial system Individual governments and the international community as a whole are taking steps to reduce the risk of such crises in future

At the national level even though several of the countries had impressive records of economic performance they were not fully prepared to withstand the potential shocks that could come through the international markets Macroeconomic stability financial soundness open economies transparency and good governance are all essential for countries participating in the global markets Each of the countries came up short in one or more respects

At the international level several important lines of defense against crisis were breached Investors did not appraise risks adequately Regulators and supervisors in the major financial centers did not monitor developments sufficiently closely And not enough information was available about some international investors notably offshore financial institutions The result was that markets were prone to herd behaviormdash sudden shifts of investor sentiment and the rapid movement of capital especially short-term finance into and out of countries

The international community is responding to the global dimensions of the crisis through a continuing effort to strengthen the architecture of the international monetary and financial system The broad aim is for markets to operate with more transparency equity and efficiency The IMF has a central role in this process which is explored further in separate fact sheets5

IX The Role of Institutions and OrganizationsNational and international institutions inevitably influenced by differences in culture play an important role in the process of globalization It may be best to leave an outside commentator to reflect on the role of institutions

That the advent of highly integrated commodity and financial markets has been accompanied by trade tensions and problems of financial instability should not come as a surprise The surprise is that these problems are not even more severe today given that the extent of commodity and financial market integration is so much greater

One possibility in accounting (for this surprise) is the stabilizing role of the institutions built in the interim At the national level this means social and financial safety nets At the international level it means the WTO the IMF the Basle Committee of Banking Supervisors These institutions may be far from perfect but they are better than nothing judging from the historical correlation between the level of integration on one hand and the level of trade conflict and financial instability on the other6 (parentheses added)

X ConclusionAs globalization has progressed living conditions (particularly when measured by broader indicators of well being) have improved significantly in virtually all countries However the strongest gains have been made by the advanced countries and only some of the developing countries

That the income gap between high-income and low-income countries has grown wider is a matter for concern And the number of the worldrsquos citizens in abject poverty is deeply disturbing But it is wrong to jump to the conclusion that globalization has caused the divergence or that nothing can be done to improve the situation To the contrary low-income countries have not been able to integrate with the global economy as quickly as others partly because of their chosen policies and partly because of factors outside their control No country least of all the poorest can afford to remain isolated from the world economy Every country should seek to reduce poverty The international community should endeavormdashby strengthening the international financial system through trade and through aidmdashto help the poorest countries integrate into the world economy grow more rapidly and reduce poverty That is the way to ensure all people in all countries have access to the benefits of globalization

Q7 ldquoThe advantages of MNCrsquos outweigh the disadvantages of MNCrsquosrdquo Discuss this statement with special reference to the contemporary Indian scene(2002)

Q6 Discuss the strengths and weakness of multinational corporations and their impact on domestic and multinational business environment (2001)

Q8 Evaluate role of multi-national corporations in Indian context What are the problems and solutions to technology transfer (2000)

The Role of Multinational Corporations and Foreign InvestmentCandace Firchau

India Resistance to the Multinational Corporation

India has had a long history of resisting the multinational corporation and has had to make major changes recently to encourage foreign investment in the country As India moves forward with development more foreign investment and multinational corporations operate in India but for many of these companies the outfit there has been anything but easy

Executive Summery The country of India started the development project wanting to be more independent and was reluctant to allow foreign companies to dominate the countryrsquos industrial sector India was very restrictive with multinational corporations After fighting for many years with large multinational corporations like Coke Cola India eventually opened up their economy to the foreign investment it initially discouraged Recently the country has had a tremendous amount of multinational industry but the companies often face some of the old restrictive attitudes that were very apparent fifteen to twenty years ago

Indiarsquos Past Relations with Multinational Corporations Indiarsquos multinational corporate history has been ridden with restriction As the development project emerged shortly after World War II focus on India and other ldquoThird Worldrdquo countries increased At the time there was a push to make Third World nations or the ex-colonies more lsquodevelopedrsquo India was considered one of these Third World countries that was presumed to need industrialization and capitalism Industrialization was one of the core ingredients to developing a nation according to development project ideals and India had strong potential ldquoIndia started with an extremely favorable economic environment ndash some natural resources a potentially large internal market a great supply of technical manpower and an enormous source of cheap raw labor (Lall 217)rdquo India was a prime development target but it wasnrsquot until quite recently that India would make a structural adjustment to their foreign investment views allowing for a more conducive environment for international business

In the 1960rsquos India adopted a different route than most other industrializing countries and focused on wholesale import substitution The country insisted on pursuing a form of industrial independence wanting to be self-sufficient and only importing products that could not be produced within the country In addition to being somewhat lsquoinward-lookingrsquo India placed numerous and highly restricted controls on trade MRTP (Monopoly and Restrictive Trade Practices) was one of the first regulations stating that any company that was over a specified size or controlled a dominant share of its market would be considered a monopoly As a monopoly this company would be subjected to more constraints on growth than other smaller companies would endure (Lall 218) This was a key element to Indiarsquos take on multinational investment Many MNCs (multinational corporations) fell under Indiarsquos definition of a monopoly and were thus subjected to numerous restrictions when conducting business in India Another confining policy that India upheld was the FERA (Foreign Exchange Regulations Act) that stipulated that any foreign enterprise that operated in India in ldquonon-priority sectors should not have more than 40 percent equity (Fernandes)rdquo The MRTP and FERA produced a deterrence for the MNC to conduct business with India and assumed that these large companies would threaten public interest These restrictions would remain central to Indiarsquos foreign investment policy

India saw a large boom of industrialization between the early fifties and 1965 The growth rate of manufacturing production in 1965 was at 78 percent Although by the end of 1970 though it had dropped fairly significantly and by about 1980 it was only at about 4 percent (Chandrasekhar 76) At the time there was less public investment so there was less infrastructure The poor quality of infrastructure may help to account for less industrialization Still though India continued to uphold strict controls on foreign direct investments In the 1970rsquos India focused a lot on ldquoforeign technologies via armrsquos length licensing arrangements (Lall 219)rdquo maintaining very stringent controls on the licenses In the 1980rsquos India began to see another boom with the growth percentage reaching 88 in 1990

The restrictions that India placed on the MNC resulted in a relatively small MNC investment The country has not been able to take advantage of the technology and marketing leverage that the MNC brings to a country It is sometimes argued that MNC corporations often generate competitiveness with domestic firms that in an effort to lsquokeep uprsquo often must make technological advances Without the role of MNCs in India the countryrsquos export market has suffered

In the early 1990rsquos in an effort to change India began to make more movement towards a liberalization of industrial regulation The NEP (New Economic Policy) prompted this liberalization in 1991 A more open economy is of course a slow process but is a leap from the highly restricted industry of Indiarsquos past Although these restrictions may have their place the key for India will be to find a balance between restriction and liberalization

India and the Multinational Corporation The restrictions that India put on corporate business and industry affected every company that wanted to do business within the country and even drove some companies away Coke Cola and Dupont are just a few of the multinational companies that operate in

India that have had to face some of these constraints sometimes taking extreme measures in response to the limits that have been imposed on them It was not until the early 1990s that India began to see a multinational boom that had little resemblance to past instances of industrialization

The infamous soft drink company Coke Cola has probably had the most trouble within the country of India The Coke Company was reintroduced to India on October 23 1993 after a 16-year absence (Coca Cola India) The driving force that was behind Cokersquos original exile was the FERA Coke was not supposed to have more than 40 percent equity but instead had 100 percent When questioned about their 100 percent equity Coke held that the equity was due totheir secret technology being so confidential that they could not share it Neither Coke nor the Indian Ministry of Industry was willing to budge so Coke left in 1977

In the interim a lot had changed Coke came back into the country about four years after PepsiCo was allowed admittance Cokersquos return to India made national headlines but more importantly it signified a new India India began a new liberal ldquoera of globalization and consumerism(Bidwai)rdquo India may have opened it doors to the Multinational corporate world but this liberalization of economy was still riddled with resistance

Coke maybe more than any other company has seen Indiarsquos resistance Most recently earlier this year the loyal council of India revoked the factories license to operate doing so in light of loosing 700000 rupees (or about $9000) from the decision Of course Coke appealed and received a suspension of the revocation (Vallely) Another daunting issue that Coke (and Pepsi) has been subject to rather recently is the claim that their soft drinks contain high levels of pesticides specifically DDT and Malathion (Reuters) Coke and Pepsi claim that the declaration is untrue but it is still another example of the resistance to large corporations Even though Coke was allowed to come back to India the company continues to face those who are reluctant to accept their arrival The resistance may not be in the form of outright restrictions but is a derivative of the same outlook that established that strict restrictions to begin with

Of course with the lightening of the industrialization policies and the movement toward a more free foreign investment policy numerous multinationals began to enter the country Another fairly established company that has operated in India for quite a while and has had to face opposition is Thapar Dupont Ltd (TDL) Dupont is an enormous American based company that produces a large variety of products The company operates with a number of dangerous chemicals that has been the source of much of the opposition it has faced Dupont avoided some of the equity problems that Coke has had by merging with an established Indian company Thapar becoming TDL Eventually in 1995 TDL wanted to build a new chemical factory in Goa India The Goa community is a rural society that cremates their ancestors and worships them in the lush forest near their homes TDL hindered their ability to perform their traditional rituals and were terribly unwelcome in Goa TDL on the other hand argued that the project would create new jobs and help India become an export-orientated economy The villagers protested the factory vigorously ldquoWithin two hours they completely demolished the boundary wall torched the guard shed and ripped up the paved road leading to the factory(Cohen)rdquo Ultimately TDL decided to build the factory in Karnataka instead of Goa What is strange is that some see this as a ldquovictory against multinational corporations in India(Cohen)rdquo The Karnataka government anticipated the arrival of TDL and strove to avoid the situation that erupted in Goa Nevertheless though Dupont faced the same resistance toward the multinational corporation that Coke has faced causing them a loss of income and probably a considerable amount of time

Recently there has also been a significant movement to bring American fast food and American fashion to India There are McDonalds Burger Kings and Ray Ban sunglasses available to the Indian consumer now These companies have faced resistance in the form of heavy criticism Praful Bidwai author of Making India Work ndash For the Rich has argued that the majority of Indians cannot afford most of these American based consumer goods and instead are faced with high inflation rates and rising unemployment

More companies are coming to India monthly Both Verizon and Oracle have moved employment to India in the last month Although this is a drastic change from the scenario that existed just fifteen years ago it is certainly not welcomed by everyone Many MNCs have seen resistance recently and it is unlikely that will stop abruptly

Conclusion India has spent years trying to be an independent country not reliant on foreign investment for advancement In comparison to many developing countries India is somewhat new to the mass migration of foreign multinational corporations Although it is stated outright that the economic policy is liberalized in reality it still has many of Indiarsquos old notions of restriction

The issues that Coke and Pepsi have had to face actualize the underlying restrictive attitude that exists within India Coke has already been run out of the country once but since its readmittance (under the NEP) it has had to face numerous accusations and other licensing problems Dupont has also had trouble not so much with the government but with local resistance The people of Goa were reluctant to allow the MNC to develop in their home There also seems to be a common contempt by many toward the Americanization of food and fashion in general

The NEP has opened up the country to the multinational corporation welcomed them in publicly and has changed the way that India approaches foreign investment Only the change has not happened over night India has come from a long history of restrictive industry and is unlikely to transform quickly causing corporations to face resistance officially and privately Foreign investors may still be somewhat reluctant to enter the country but more and more they will eventually come in

Q7 Distinguish clearly between liberalization and globalization Would you advocate the former proceeding the latter or both being pursued simultaneously(2000)

In India reforms are taken in place when finance minister Mr Manmohan Singh in 1992 adopted policy of liberalization and globalization more and more foreign institution investors were allowed to invest in Indian security market Same time Indian Company like Reliance Wipro and Infosys had gone global by listing at New York Stock Exchange

Short Notes

1 Administrative Prices (2000200420022001)

1Administrative Prices

This approach regards administered prices as a broad concept and then separates the idea into two components ie those pricesthat are regulated and those that are not regulatedDEFINITIONSAdministered pricesAn administered price can be defined as the price of a product which is set consciously by an individual producer or group ofproducers andor any price which can be determined or influenced by government either directly or through one or othergovernment agenciesinstitutions without reference to market forcesRegulated pricesRegulated prices are those administered prices that are said to be monitored and controlled by government policy To this endprice regulation does not necessarily imply the presence of an economic regulator but the restriction on the extent to which pricesmay vary depending on governmentrsquos policy objectiveBASKETS

Basket of administered prices 1048576 Housing (sanitary fees refuse removal assessment rates water and university boarding fees)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( petrol public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)Basket of administered prices that are regulated 1048576 Housing (water)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Transport ( petrol)Basket of administered prices that are not regulated 1048576 Housing (sanitary fees refuse removal assessment rates and university boarding fees)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)

2 Business Resources and Economics trends (20002001)3 Corporate Governance (200020022001)4 Joint Ventures (200020042002)5 Sustainable Development (20002004)

Sustainable development

Sustainable development is an umbrella that attempts to bridge the divide between economic growth and environmental protection while taking into account other issues traditionally associated with development It seeks to develop means of supporting economic growth while supporting biodiversity relieving poverty and without using up natural capital in the short term at the expense of long term development While many definitions of the term have been introduced over the years the most commonly cited definition comes from the report Our Common Future more commonly known as the Brundtland Report which states that sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needsrdquo

Sustainable development is often misinterpreted as focusing solely on environmental issues In reality it is a much broader concept as sustainable development policies encompass three general policy areas economic environmental and social In support of this several United Nations texts most recently the 2005 World Summit Outcome Document refer to the interdependent and mutually reinforcing pillars of sustainable development as economic development social development and environmental protection

Sustainable development is a notoriously ambiguous concept as a wide array of views have fallen under its umbrella The concept has included notions of weak sustainability strong sustainability and deep ecology Different conceptions also reveal a strong tension between ecocentrism and anthropocentrism Thus the concept remains weakly defined and contains a large amount of debate as to its precise definition

6 PSU Disinvestment (2000)

DisinvestmentPrivatisationPSU Reform

risen appreciably but that the distribution of income among countries has become more unequal than at the beginning of the century

But incomes do not tell the whole story broader measures of welfare that take account of social conditions show that poorer countries have made considerable progress For instance some low-income countries eg Sri Lanka have quite impressive social indicators One recent paper2 finds that if countries are compared using the UNrsquos Human Development Indicators (HDI) which take education and life expectancy into account then the picture that emerges is quite different from that suggested by the income data alone

Indeed the gaps may have narrowed A striking inference from the study is a contrast between what may be termed an income gap and an HDI gap The (inflation-adjusted) income levels of todayrsquos poor countries are still well below those of the leading countries in 1870 And the gap in incomes has increased But judged by their HDIs todayrsquos poor countries are well ahead of where the leading countries were in 1870 This is largely because medical advances and improved living standards have brought strong increases in life expectancy

But even if the HDI gap has narrowed in the long-term far too many people are losing ground Life expectancy may have increased but the quality of life for many has not improved with many still in abject poverty And the spread of AIDS through Africa in the past decade is reducing life expectancy in many countries

This has brought new urgency to policies specifically designed to alleviate poverty Countries with a strong growth record pursuing the right policies can expect to see a sustained reduction in poverty since recent evidence suggests that there exists at least a one-to-one correspondence between growth and poverty reduction And if strongly pro-poor policiesmdashfor instance in well-targeted social expendituremdashare pursued then there is a better chance that growth will be amplified into more rapid poverty reduction This is one compelling reason for all economic policy makers including the IMF to pay heed more explicitly to the objective of poverty reduction

VI How Can the Poorest Countries Catch Up More QuicklyGrowth in living standards springs from the accumulation of physical capital (investment) and human capital (labor) and through advances in technology (what economists call total factor productivity)3 Many factors can help or hinder these processes The experience of the countries that have increased output most rapidly shows the importance of creating conditions that are conducive to long-run per capita income growth Economic stability institution building and structural reform are at least as important for long-term development as financial transfers important as they are What matters is the whole package of policies financial and technical assistance and debt relief if necessary

Components of such a package might include

Macroeconomic stability to create the right conditions for investment and saving Outward oriented policies to promote efficiency through increased trade and investment Structural reform to encourage domestic competition Strong institutions and an effective government to foster good governance Education training and research and development to promote productivity External debt management to ensure adequate resources for sustainable developmentAll these policies should be focussed on country-owned strategies to reduce poverty by promoting pro-poor policies that are properly budgetedmdashincluding health education and strong social safety nets A participatory approach including consultation with civil society will add greatly to their chances of success

Advanced economies can make a vital contribution to the low-income countriesrsquo efforts to integrate into the global economy

By promoting trade One proposal on the table is to provide unrestricted market access for all exports from the poorest countries This should help them move beyond specialization on primary commodities to producing processed goods for export

By encouraging flows of private capital to the lower-income countries particularly foreign direct investment with its twin benefits of steady financial flows and technology transfer

By supplementing more rapid debt relief with an increased level of new financial support Official development assistance (ODA) has fallen to 024 percent of GDP (1998) in advanced countries (compared with a UN target of 07 percent) As Michel Camdessus the former Managing Director of the IMF put it The excuse of aid fatigue is not crediblemdashindeed it approaches the level of downright cynicismmdashat a time when for the last decade the advanced countries have had the opportunity to enjoy the benefits of the peace dividendThe IMF supports reform in the poorest countries through its new Poverty Reduction and Growth Facility It is contributing to debt relief through the initiative for the heavily indebted poor countries4

VII An Advanced Country Perspective Does Globalization Harm Workersrsquo InterestsAnxiety about globalization also exists in advanced economies How real is the perceived threat that competition from low-wage economies displaces workers from high-wage jobs and decreases the demand for less skilled workers Are the changes taking place in these economies and societies a direct result of globalization

Economies are continually evolving and globalization is one among several other continuing trends One such trend is that as industrial economies mature they are becoming more service-oriented to meet the changing demands of their population Another trend is the shift toward more highly skilled jobs But all the evidence is that these changes would be taking placemdashnot necessarily at the same pacemdashwith or without globalization In fact globalization is actually making this process easier and less costly to the economy as a whole by bringing the benefits of capital flows technological innovations and lower import prices Economic growth employment and living standards are all higher than they would be in a closed economy

But the gains are typically distributed unevenly among groups within countries and some groups may lose out For instance workers in declining older industries may not be able to make an easy transition to new industries

What is the appropriate policy response Should governments try to protect particular groups like low-paid workers or old industries by restricting trade or capital flows Such an approach might help some in the short-term but ultimately it is at the expense of the living standards of the population at large Rather governments should pursue policies that encourage integration into the global economy while putting in place measures to help those adversely affected by the changes The economy as a whole will prosper more from policies that embrace globalization by promoting an open economy and at the same time squarely address the need to ensure the benefits are widely shared Government policy should focus on two important areas

education and vocational training to make sure that workers have the opportunity to acquire the right skills in dynamic changing economies and well-targeted social safety nets to assist people who are displacedVIII Are Periodic Crises an Inevitable Consequence of GlobalizationThe succession of crises in the 1990smdashMexico Thailand Indonesia Korea Russia and Brazilmdashsuggested to some that financial crises are a direct and inevitable result of globalization Indeed one question that arises in both advanced and emerging market economies is whether globalization makes economic management more difficult (Box 1)

Box 1 Does globalization reduce national sovereignty in economic policy-making

Does increased integration particularly in the financial sphere make it more difficult for governments to manage economic activity for instance by limiting governmentsrsquo choices of tax rates and tax systems or their freedom of action on monetary or exchange rate policies

If it is assumed that countries aim to achieve sustainable growth low inflation and social progress then the evidence of the past 50 years is that globalization contributes to these objectives in the long term

In the short-term as we have seen in the past few years volatile short-term capital flows can threaten macroeconomic stability Thus in a world of integrated financial markets countries will find it increasingly risky to follow policies that do not promote financial stability This discipline also applies to the private sector which will find it more difficult to implement wage increases and price markups that would make the country concerned become uncompetitive

But there is another kind of risk Sometimes investorsmdashparticularly short-term investorsmdashtake too sanguine a view of a countryrsquos prospects and capital inflows may continue even when economic policies have become too relaxed This exposes the country to the risk that when perceptions change there may be a sudden brutal withdrawal of capital from the country

In short globalization does not reduce national sovereignty It does create a strong incentive for governments to pursue sound economic policies It should create incentives for the private sector to undertake careful analysis of risk However short-term investment flows may be excessively volatile

Efforts to increase the stability of international capital flows are central to the ongoing work on strengthening the international financial architecture In this regard some are concerned that globalization leads to the abolition of rules or constraints on business activities To the contrarymdashone of the key goals of the work on the international financial architecture is to develop standards and codes that are based on internationally accepted principles that can be implemented in many different national settings

Clearly the crises would not have developed as they did without exposure to global capital markets But nor could these countries have achieved their impressive growth records without those financial flows

These were complex crises resulting from an interaction of shortcomings in national policy and the international financial system Individual governments and the international community as a whole are taking steps to reduce the risk of such crises in future

At the national level even though several of the countries had impressive records of economic performance they were not fully prepared to withstand the potential shocks that could come through the international markets Macroeconomic stability financial soundness open economies transparency and good governance are all essential for countries participating in the global markets Each of the countries came up short in one or more respects

At the international level several important lines of defense against crisis were breached Investors did not appraise risks adequately Regulators and supervisors in the major financial centers did not monitor developments sufficiently closely And not enough information was available about some international investors notably offshore financial institutions The result was that markets were prone to herd behaviormdash sudden shifts of investor sentiment and the rapid movement of capital especially short-term finance into and out of countries

The international community is responding to the global dimensions of the crisis through a continuing effort to strengthen the architecture of the international monetary and financial system The broad aim is for markets to operate with more transparency equity and efficiency The IMF has a central role in this process which is explored further in separate fact sheets5

IX The Role of Institutions and OrganizationsNational and international institutions inevitably influenced by differences in culture play an important role in the process of globalization It may be best to leave an outside commentator to reflect on the role of institutions

That the advent of highly integrated commodity and financial markets has been accompanied by trade tensions and problems of financial instability should not come as a surprise The surprise is that these problems are not even more severe today given that the extent of commodity and financial market integration is so much greater

One possibility in accounting (for this surprise) is the stabilizing role of the institutions built in the interim At the national level this means social and financial safety nets At the international level it means the WTO the IMF the Basle Committee of Banking Supervisors These institutions may be far from perfect but they are better than nothing judging from the historical correlation between the level of integration on one hand and the level of trade conflict and financial instability on the other6 (parentheses added)

X ConclusionAs globalization has progressed living conditions (particularly when measured by broader indicators of well being) have improved significantly in virtually all countries However the strongest gains have been made by the advanced countries and only some of the developing countries

That the income gap between high-income and low-income countries has grown wider is a matter for concern And the number of the worldrsquos citizens in abject poverty is deeply disturbing But it is wrong to jump to the conclusion that globalization has caused the divergence or that nothing can be done to improve the situation To the contrary low-income countries have not been able to integrate with the global economy as quickly as others partly because of their chosen policies and partly because of factors outside their control No country least of all the poorest can afford to remain isolated from the world economy Every country should seek to reduce poverty The international community should endeavormdashby strengthening the international financial system through trade and through aidmdashto help the poorest countries integrate into the world economy grow more rapidly and reduce poverty That is the way to ensure all people in all countries have access to the benefits of globalization

Q7 ldquoThe advantages of MNCrsquos outweigh the disadvantages of MNCrsquosrdquo Discuss this statement with special reference to the contemporary Indian scene(2002)

Q6 Discuss the strengths and weakness of multinational corporations and their impact on domestic and multinational business environment (2001)

Q8 Evaluate role of multi-national corporations in Indian context What are the problems and solutions to technology transfer (2000)

The Role of Multinational Corporations and Foreign InvestmentCandace Firchau

India Resistance to the Multinational Corporation

India has had a long history of resisting the multinational corporation and has had to make major changes recently to encourage foreign investment in the country As India moves forward with development more foreign investment and multinational corporations operate in India but for many of these companies the outfit there has been anything but easy

Executive Summery The country of India started the development project wanting to be more independent and was reluctant to allow foreign companies to dominate the countryrsquos industrial sector India was very restrictive with multinational corporations After fighting for many years with large multinational corporations like Coke Cola India eventually opened up their economy to the foreign investment it initially discouraged Recently the country has had a tremendous amount of multinational industry but the companies often face some of the old restrictive attitudes that were very apparent fifteen to twenty years ago

Indiarsquos Past Relations with Multinational Corporations Indiarsquos multinational corporate history has been ridden with restriction As the development project emerged shortly after World War II focus on India and other ldquoThird Worldrdquo countries increased At the time there was a push to make Third World nations or the ex-colonies more lsquodevelopedrsquo India was considered one of these Third World countries that was presumed to need industrialization and capitalism Industrialization was one of the core ingredients to developing a nation according to development project ideals and India had strong potential ldquoIndia started with an extremely favorable economic environment ndash some natural resources a potentially large internal market a great supply of technical manpower and an enormous source of cheap raw labor (Lall 217)rdquo India was a prime development target but it wasnrsquot until quite recently that India would make a structural adjustment to their foreign investment views allowing for a more conducive environment for international business

In the 1960rsquos India adopted a different route than most other industrializing countries and focused on wholesale import substitution The country insisted on pursuing a form of industrial independence wanting to be self-sufficient and only importing products that could not be produced within the country In addition to being somewhat lsquoinward-lookingrsquo India placed numerous and highly restricted controls on trade MRTP (Monopoly and Restrictive Trade Practices) was one of the first regulations stating that any company that was over a specified size or controlled a dominant share of its market would be considered a monopoly As a monopoly this company would be subjected to more constraints on growth than other smaller companies would endure (Lall 218) This was a key element to Indiarsquos take on multinational investment Many MNCs (multinational corporations) fell under Indiarsquos definition of a monopoly and were thus subjected to numerous restrictions when conducting business in India Another confining policy that India upheld was the FERA (Foreign Exchange Regulations Act) that stipulated that any foreign enterprise that operated in India in ldquonon-priority sectors should not have more than 40 percent equity (Fernandes)rdquo The MRTP and FERA produced a deterrence for the MNC to conduct business with India and assumed that these large companies would threaten public interest These restrictions would remain central to Indiarsquos foreign investment policy

India saw a large boom of industrialization between the early fifties and 1965 The growth rate of manufacturing production in 1965 was at 78 percent Although by the end of 1970 though it had dropped fairly significantly and by about 1980 it was only at about 4 percent (Chandrasekhar 76) At the time there was less public investment so there was less infrastructure The poor quality of infrastructure may help to account for less industrialization Still though India continued to uphold strict controls on foreign direct investments In the 1970rsquos India focused a lot on ldquoforeign technologies via armrsquos length licensing arrangements (Lall 219)rdquo maintaining very stringent controls on the licenses In the 1980rsquos India began to see another boom with the growth percentage reaching 88 in 1990

The restrictions that India placed on the MNC resulted in a relatively small MNC investment The country has not been able to take advantage of the technology and marketing leverage that the MNC brings to a country It is sometimes argued that MNC corporations often generate competitiveness with domestic firms that in an effort to lsquokeep uprsquo often must make technological advances Without the role of MNCs in India the countryrsquos export market has suffered

In the early 1990rsquos in an effort to change India began to make more movement towards a liberalization of industrial regulation The NEP (New Economic Policy) prompted this liberalization in 1991 A more open economy is of course a slow process but is a leap from the highly restricted industry of Indiarsquos past Although these restrictions may have their place the key for India will be to find a balance between restriction and liberalization

India and the Multinational Corporation The restrictions that India put on corporate business and industry affected every company that wanted to do business within the country and even drove some companies away Coke Cola and Dupont are just a few of the multinational companies that operate in

India that have had to face some of these constraints sometimes taking extreme measures in response to the limits that have been imposed on them It was not until the early 1990s that India began to see a multinational boom that had little resemblance to past instances of industrialization

The infamous soft drink company Coke Cola has probably had the most trouble within the country of India The Coke Company was reintroduced to India on October 23 1993 after a 16-year absence (Coca Cola India) The driving force that was behind Cokersquos original exile was the FERA Coke was not supposed to have more than 40 percent equity but instead had 100 percent When questioned about their 100 percent equity Coke held that the equity was due totheir secret technology being so confidential that they could not share it Neither Coke nor the Indian Ministry of Industry was willing to budge so Coke left in 1977

In the interim a lot had changed Coke came back into the country about four years after PepsiCo was allowed admittance Cokersquos return to India made national headlines but more importantly it signified a new India India began a new liberal ldquoera of globalization and consumerism(Bidwai)rdquo India may have opened it doors to the Multinational corporate world but this liberalization of economy was still riddled with resistance

Coke maybe more than any other company has seen Indiarsquos resistance Most recently earlier this year the loyal council of India revoked the factories license to operate doing so in light of loosing 700000 rupees (or about $9000) from the decision Of course Coke appealed and received a suspension of the revocation (Vallely) Another daunting issue that Coke (and Pepsi) has been subject to rather recently is the claim that their soft drinks contain high levels of pesticides specifically DDT and Malathion (Reuters) Coke and Pepsi claim that the declaration is untrue but it is still another example of the resistance to large corporations Even though Coke was allowed to come back to India the company continues to face those who are reluctant to accept their arrival The resistance may not be in the form of outright restrictions but is a derivative of the same outlook that established that strict restrictions to begin with

Of course with the lightening of the industrialization policies and the movement toward a more free foreign investment policy numerous multinationals began to enter the country Another fairly established company that has operated in India for quite a while and has had to face opposition is Thapar Dupont Ltd (TDL) Dupont is an enormous American based company that produces a large variety of products The company operates with a number of dangerous chemicals that has been the source of much of the opposition it has faced Dupont avoided some of the equity problems that Coke has had by merging with an established Indian company Thapar becoming TDL Eventually in 1995 TDL wanted to build a new chemical factory in Goa India The Goa community is a rural society that cremates their ancestors and worships them in the lush forest near their homes TDL hindered their ability to perform their traditional rituals and were terribly unwelcome in Goa TDL on the other hand argued that the project would create new jobs and help India become an export-orientated economy The villagers protested the factory vigorously ldquoWithin two hours they completely demolished the boundary wall torched the guard shed and ripped up the paved road leading to the factory(Cohen)rdquo Ultimately TDL decided to build the factory in Karnataka instead of Goa What is strange is that some see this as a ldquovictory against multinational corporations in India(Cohen)rdquo The Karnataka government anticipated the arrival of TDL and strove to avoid the situation that erupted in Goa Nevertheless though Dupont faced the same resistance toward the multinational corporation that Coke has faced causing them a loss of income and probably a considerable amount of time

Recently there has also been a significant movement to bring American fast food and American fashion to India There are McDonalds Burger Kings and Ray Ban sunglasses available to the Indian consumer now These companies have faced resistance in the form of heavy criticism Praful Bidwai author of Making India Work ndash For the Rich has argued that the majority of Indians cannot afford most of these American based consumer goods and instead are faced with high inflation rates and rising unemployment

More companies are coming to India monthly Both Verizon and Oracle have moved employment to India in the last month Although this is a drastic change from the scenario that existed just fifteen years ago it is certainly not welcomed by everyone Many MNCs have seen resistance recently and it is unlikely that will stop abruptly

Conclusion India has spent years trying to be an independent country not reliant on foreign investment for advancement In comparison to many developing countries India is somewhat new to the mass migration of foreign multinational corporations Although it is stated outright that the economic policy is liberalized in reality it still has many of Indiarsquos old notions of restriction

The issues that Coke and Pepsi have had to face actualize the underlying restrictive attitude that exists within India Coke has already been run out of the country once but since its readmittance (under the NEP) it has had to face numerous accusations and other licensing problems Dupont has also had trouble not so much with the government but with local resistance The people of Goa were reluctant to allow the MNC to develop in their home There also seems to be a common contempt by many toward the Americanization of food and fashion in general

The NEP has opened up the country to the multinational corporation welcomed them in publicly and has changed the way that India approaches foreign investment Only the change has not happened over night India has come from a long history of restrictive industry and is unlikely to transform quickly causing corporations to face resistance officially and privately Foreign investors may still be somewhat reluctant to enter the country but more and more they will eventually come in

Q7 Distinguish clearly between liberalization and globalization Would you advocate the former proceeding the latter or both being pursued simultaneously(2000)

In India reforms are taken in place when finance minister Mr Manmohan Singh in 1992 adopted policy of liberalization and globalization more and more foreign institution investors were allowed to invest in Indian security market Same time Indian Company like Reliance Wipro and Infosys had gone global by listing at New York Stock Exchange

Short Notes

1 Administrative Prices (2000200420022001)

1Administrative Prices

This approach regards administered prices as a broad concept and then separates the idea into two components ie those pricesthat are regulated and those that are not regulatedDEFINITIONSAdministered pricesAn administered price can be defined as the price of a product which is set consciously by an individual producer or group ofproducers andor any price which can be determined or influenced by government either directly or through one or othergovernment agenciesinstitutions without reference to market forcesRegulated pricesRegulated prices are those administered prices that are said to be monitored and controlled by government policy To this endprice regulation does not necessarily imply the presence of an economic regulator but the restriction on the extent to which pricesmay vary depending on governmentrsquos policy objectiveBASKETS

Basket of administered prices 1048576 Housing (sanitary fees refuse removal assessment rates water and university boarding fees)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( petrol public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)Basket of administered prices that are regulated 1048576 Housing (water)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Transport ( petrol)Basket of administered prices that are not regulated 1048576 Housing (sanitary fees refuse removal assessment rates and university boarding fees)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)

2 Business Resources and Economics trends (20002001)3 Corporate Governance (200020022001)4 Joint Ventures (200020042002)5 Sustainable Development (20002004)

Sustainable development

Sustainable development is an umbrella that attempts to bridge the divide between economic growth and environmental protection while taking into account other issues traditionally associated with development It seeks to develop means of supporting economic growth while supporting biodiversity relieving poverty and without using up natural capital in the short term at the expense of long term development While many definitions of the term have been introduced over the years the most commonly cited definition comes from the report Our Common Future more commonly known as the Brundtland Report which states that sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needsrdquo

Sustainable development is often misinterpreted as focusing solely on environmental issues In reality it is a much broader concept as sustainable development policies encompass three general policy areas economic environmental and social In support of this several United Nations texts most recently the 2005 World Summit Outcome Document refer to the interdependent and mutually reinforcing pillars of sustainable development as economic development social development and environmental protection

Sustainable development is a notoriously ambiguous concept as a wide array of views have fallen under its umbrella The concept has included notions of weak sustainability strong sustainability and deep ecology Different conceptions also reveal a strong tension between ecocentrism and anthropocentrism Thus the concept remains weakly defined and contains a large amount of debate as to its precise definition

6 PSU Disinvestment (2000)

DisinvestmentPrivatisationPSU Reform

By encouraging flows of private capital to the lower-income countries particularly foreign direct investment with its twin benefits of steady financial flows and technology transfer

By supplementing more rapid debt relief with an increased level of new financial support Official development assistance (ODA) has fallen to 024 percent of GDP (1998) in advanced countries (compared with a UN target of 07 percent) As Michel Camdessus the former Managing Director of the IMF put it The excuse of aid fatigue is not crediblemdashindeed it approaches the level of downright cynicismmdashat a time when for the last decade the advanced countries have had the opportunity to enjoy the benefits of the peace dividendThe IMF supports reform in the poorest countries through its new Poverty Reduction and Growth Facility It is contributing to debt relief through the initiative for the heavily indebted poor countries4

VII An Advanced Country Perspective Does Globalization Harm Workersrsquo InterestsAnxiety about globalization also exists in advanced economies How real is the perceived threat that competition from low-wage economies displaces workers from high-wage jobs and decreases the demand for less skilled workers Are the changes taking place in these economies and societies a direct result of globalization

Economies are continually evolving and globalization is one among several other continuing trends One such trend is that as industrial economies mature they are becoming more service-oriented to meet the changing demands of their population Another trend is the shift toward more highly skilled jobs But all the evidence is that these changes would be taking placemdashnot necessarily at the same pacemdashwith or without globalization In fact globalization is actually making this process easier and less costly to the economy as a whole by bringing the benefits of capital flows technological innovations and lower import prices Economic growth employment and living standards are all higher than they would be in a closed economy

But the gains are typically distributed unevenly among groups within countries and some groups may lose out For instance workers in declining older industries may not be able to make an easy transition to new industries

What is the appropriate policy response Should governments try to protect particular groups like low-paid workers or old industries by restricting trade or capital flows Such an approach might help some in the short-term but ultimately it is at the expense of the living standards of the population at large Rather governments should pursue policies that encourage integration into the global economy while putting in place measures to help those adversely affected by the changes The economy as a whole will prosper more from policies that embrace globalization by promoting an open economy and at the same time squarely address the need to ensure the benefits are widely shared Government policy should focus on two important areas

education and vocational training to make sure that workers have the opportunity to acquire the right skills in dynamic changing economies and well-targeted social safety nets to assist people who are displacedVIII Are Periodic Crises an Inevitable Consequence of GlobalizationThe succession of crises in the 1990smdashMexico Thailand Indonesia Korea Russia and Brazilmdashsuggested to some that financial crises are a direct and inevitable result of globalization Indeed one question that arises in both advanced and emerging market economies is whether globalization makes economic management more difficult (Box 1)

Box 1 Does globalization reduce national sovereignty in economic policy-making

Does increased integration particularly in the financial sphere make it more difficult for governments to manage economic activity for instance by limiting governmentsrsquo choices of tax rates and tax systems or their freedom of action on monetary or exchange rate policies

If it is assumed that countries aim to achieve sustainable growth low inflation and social progress then the evidence of the past 50 years is that globalization contributes to these objectives in the long term

In the short-term as we have seen in the past few years volatile short-term capital flows can threaten macroeconomic stability Thus in a world of integrated financial markets countries will find it increasingly risky to follow policies that do not promote financial stability This discipline also applies to the private sector which will find it more difficult to implement wage increases and price markups that would make the country concerned become uncompetitive

But there is another kind of risk Sometimes investorsmdashparticularly short-term investorsmdashtake too sanguine a view of a countryrsquos prospects and capital inflows may continue even when economic policies have become too relaxed This exposes the country to the risk that when perceptions change there may be a sudden brutal withdrawal of capital from the country

In short globalization does not reduce national sovereignty It does create a strong incentive for governments to pursue sound economic policies It should create incentives for the private sector to undertake careful analysis of risk However short-term investment flows may be excessively volatile

Efforts to increase the stability of international capital flows are central to the ongoing work on strengthening the international financial architecture In this regard some are concerned that globalization leads to the abolition of rules or constraints on business activities To the contrarymdashone of the key goals of the work on the international financial architecture is to develop standards and codes that are based on internationally accepted principles that can be implemented in many different national settings

Clearly the crises would not have developed as they did without exposure to global capital markets But nor could these countries have achieved their impressive growth records without those financial flows

These were complex crises resulting from an interaction of shortcomings in national policy and the international financial system Individual governments and the international community as a whole are taking steps to reduce the risk of such crises in future

At the national level even though several of the countries had impressive records of economic performance they were not fully prepared to withstand the potential shocks that could come through the international markets Macroeconomic stability financial soundness open economies transparency and good governance are all essential for countries participating in the global markets Each of the countries came up short in one or more respects

At the international level several important lines of defense against crisis were breached Investors did not appraise risks adequately Regulators and supervisors in the major financial centers did not monitor developments sufficiently closely And not enough information was available about some international investors notably offshore financial institutions The result was that markets were prone to herd behaviormdash sudden shifts of investor sentiment and the rapid movement of capital especially short-term finance into and out of countries

The international community is responding to the global dimensions of the crisis through a continuing effort to strengthen the architecture of the international monetary and financial system The broad aim is for markets to operate with more transparency equity and efficiency The IMF has a central role in this process which is explored further in separate fact sheets5

IX The Role of Institutions and OrganizationsNational and international institutions inevitably influenced by differences in culture play an important role in the process of globalization It may be best to leave an outside commentator to reflect on the role of institutions

That the advent of highly integrated commodity and financial markets has been accompanied by trade tensions and problems of financial instability should not come as a surprise The surprise is that these problems are not even more severe today given that the extent of commodity and financial market integration is so much greater

One possibility in accounting (for this surprise) is the stabilizing role of the institutions built in the interim At the national level this means social and financial safety nets At the international level it means the WTO the IMF the Basle Committee of Banking Supervisors These institutions may be far from perfect but they are better than nothing judging from the historical correlation between the level of integration on one hand and the level of trade conflict and financial instability on the other6 (parentheses added)

X ConclusionAs globalization has progressed living conditions (particularly when measured by broader indicators of well being) have improved significantly in virtually all countries However the strongest gains have been made by the advanced countries and only some of the developing countries

That the income gap between high-income and low-income countries has grown wider is a matter for concern And the number of the worldrsquos citizens in abject poverty is deeply disturbing But it is wrong to jump to the conclusion that globalization has caused the divergence or that nothing can be done to improve the situation To the contrary low-income countries have not been able to integrate with the global economy as quickly as others partly because of their chosen policies and partly because of factors outside their control No country least of all the poorest can afford to remain isolated from the world economy Every country should seek to reduce poverty The international community should endeavormdashby strengthening the international financial system through trade and through aidmdashto help the poorest countries integrate into the world economy grow more rapidly and reduce poverty That is the way to ensure all people in all countries have access to the benefits of globalization

Q7 ldquoThe advantages of MNCrsquos outweigh the disadvantages of MNCrsquosrdquo Discuss this statement with special reference to the contemporary Indian scene(2002)

Q6 Discuss the strengths and weakness of multinational corporations and their impact on domestic and multinational business environment (2001)

Q8 Evaluate role of multi-national corporations in Indian context What are the problems and solutions to technology transfer (2000)

The Role of Multinational Corporations and Foreign InvestmentCandace Firchau

India Resistance to the Multinational Corporation

India has had a long history of resisting the multinational corporation and has had to make major changes recently to encourage foreign investment in the country As India moves forward with development more foreign investment and multinational corporations operate in India but for many of these companies the outfit there has been anything but easy

Executive Summery The country of India started the development project wanting to be more independent and was reluctant to allow foreign companies to dominate the countryrsquos industrial sector India was very restrictive with multinational corporations After fighting for many years with large multinational corporations like Coke Cola India eventually opened up their economy to the foreign investment it initially discouraged Recently the country has had a tremendous amount of multinational industry but the companies often face some of the old restrictive attitudes that were very apparent fifteen to twenty years ago

Indiarsquos Past Relations with Multinational Corporations Indiarsquos multinational corporate history has been ridden with restriction As the development project emerged shortly after World War II focus on India and other ldquoThird Worldrdquo countries increased At the time there was a push to make Third World nations or the ex-colonies more lsquodevelopedrsquo India was considered one of these Third World countries that was presumed to need industrialization and capitalism Industrialization was one of the core ingredients to developing a nation according to development project ideals and India had strong potential ldquoIndia started with an extremely favorable economic environment ndash some natural resources a potentially large internal market a great supply of technical manpower and an enormous source of cheap raw labor (Lall 217)rdquo India was a prime development target but it wasnrsquot until quite recently that India would make a structural adjustment to their foreign investment views allowing for a more conducive environment for international business

In the 1960rsquos India adopted a different route than most other industrializing countries and focused on wholesale import substitution The country insisted on pursuing a form of industrial independence wanting to be self-sufficient and only importing products that could not be produced within the country In addition to being somewhat lsquoinward-lookingrsquo India placed numerous and highly restricted controls on trade MRTP (Monopoly and Restrictive Trade Practices) was one of the first regulations stating that any company that was over a specified size or controlled a dominant share of its market would be considered a monopoly As a monopoly this company would be subjected to more constraints on growth than other smaller companies would endure (Lall 218) This was a key element to Indiarsquos take on multinational investment Many MNCs (multinational corporations) fell under Indiarsquos definition of a monopoly and were thus subjected to numerous restrictions when conducting business in India Another confining policy that India upheld was the FERA (Foreign Exchange Regulations Act) that stipulated that any foreign enterprise that operated in India in ldquonon-priority sectors should not have more than 40 percent equity (Fernandes)rdquo The MRTP and FERA produced a deterrence for the MNC to conduct business with India and assumed that these large companies would threaten public interest These restrictions would remain central to Indiarsquos foreign investment policy

India saw a large boom of industrialization between the early fifties and 1965 The growth rate of manufacturing production in 1965 was at 78 percent Although by the end of 1970 though it had dropped fairly significantly and by about 1980 it was only at about 4 percent (Chandrasekhar 76) At the time there was less public investment so there was less infrastructure The poor quality of infrastructure may help to account for less industrialization Still though India continued to uphold strict controls on foreign direct investments In the 1970rsquos India focused a lot on ldquoforeign technologies via armrsquos length licensing arrangements (Lall 219)rdquo maintaining very stringent controls on the licenses In the 1980rsquos India began to see another boom with the growth percentage reaching 88 in 1990

The restrictions that India placed on the MNC resulted in a relatively small MNC investment The country has not been able to take advantage of the technology and marketing leverage that the MNC brings to a country It is sometimes argued that MNC corporations often generate competitiveness with domestic firms that in an effort to lsquokeep uprsquo often must make technological advances Without the role of MNCs in India the countryrsquos export market has suffered

In the early 1990rsquos in an effort to change India began to make more movement towards a liberalization of industrial regulation The NEP (New Economic Policy) prompted this liberalization in 1991 A more open economy is of course a slow process but is a leap from the highly restricted industry of Indiarsquos past Although these restrictions may have their place the key for India will be to find a balance between restriction and liberalization

India and the Multinational Corporation The restrictions that India put on corporate business and industry affected every company that wanted to do business within the country and even drove some companies away Coke Cola and Dupont are just a few of the multinational companies that operate in

India that have had to face some of these constraints sometimes taking extreme measures in response to the limits that have been imposed on them It was not until the early 1990s that India began to see a multinational boom that had little resemblance to past instances of industrialization

The infamous soft drink company Coke Cola has probably had the most trouble within the country of India The Coke Company was reintroduced to India on October 23 1993 after a 16-year absence (Coca Cola India) The driving force that was behind Cokersquos original exile was the FERA Coke was not supposed to have more than 40 percent equity but instead had 100 percent When questioned about their 100 percent equity Coke held that the equity was due totheir secret technology being so confidential that they could not share it Neither Coke nor the Indian Ministry of Industry was willing to budge so Coke left in 1977

In the interim a lot had changed Coke came back into the country about four years after PepsiCo was allowed admittance Cokersquos return to India made national headlines but more importantly it signified a new India India began a new liberal ldquoera of globalization and consumerism(Bidwai)rdquo India may have opened it doors to the Multinational corporate world but this liberalization of economy was still riddled with resistance

Coke maybe more than any other company has seen Indiarsquos resistance Most recently earlier this year the loyal council of India revoked the factories license to operate doing so in light of loosing 700000 rupees (or about $9000) from the decision Of course Coke appealed and received a suspension of the revocation (Vallely) Another daunting issue that Coke (and Pepsi) has been subject to rather recently is the claim that their soft drinks contain high levels of pesticides specifically DDT and Malathion (Reuters) Coke and Pepsi claim that the declaration is untrue but it is still another example of the resistance to large corporations Even though Coke was allowed to come back to India the company continues to face those who are reluctant to accept their arrival The resistance may not be in the form of outright restrictions but is a derivative of the same outlook that established that strict restrictions to begin with

Of course with the lightening of the industrialization policies and the movement toward a more free foreign investment policy numerous multinationals began to enter the country Another fairly established company that has operated in India for quite a while and has had to face opposition is Thapar Dupont Ltd (TDL) Dupont is an enormous American based company that produces a large variety of products The company operates with a number of dangerous chemicals that has been the source of much of the opposition it has faced Dupont avoided some of the equity problems that Coke has had by merging with an established Indian company Thapar becoming TDL Eventually in 1995 TDL wanted to build a new chemical factory in Goa India The Goa community is a rural society that cremates their ancestors and worships them in the lush forest near their homes TDL hindered their ability to perform their traditional rituals and were terribly unwelcome in Goa TDL on the other hand argued that the project would create new jobs and help India become an export-orientated economy The villagers protested the factory vigorously ldquoWithin two hours they completely demolished the boundary wall torched the guard shed and ripped up the paved road leading to the factory(Cohen)rdquo Ultimately TDL decided to build the factory in Karnataka instead of Goa What is strange is that some see this as a ldquovictory against multinational corporations in India(Cohen)rdquo The Karnataka government anticipated the arrival of TDL and strove to avoid the situation that erupted in Goa Nevertheless though Dupont faced the same resistance toward the multinational corporation that Coke has faced causing them a loss of income and probably a considerable amount of time

Recently there has also been a significant movement to bring American fast food and American fashion to India There are McDonalds Burger Kings and Ray Ban sunglasses available to the Indian consumer now These companies have faced resistance in the form of heavy criticism Praful Bidwai author of Making India Work ndash For the Rich has argued that the majority of Indians cannot afford most of these American based consumer goods and instead are faced with high inflation rates and rising unemployment

More companies are coming to India monthly Both Verizon and Oracle have moved employment to India in the last month Although this is a drastic change from the scenario that existed just fifteen years ago it is certainly not welcomed by everyone Many MNCs have seen resistance recently and it is unlikely that will stop abruptly

Conclusion India has spent years trying to be an independent country not reliant on foreign investment for advancement In comparison to many developing countries India is somewhat new to the mass migration of foreign multinational corporations Although it is stated outright that the economic policy is liberalized in reality it still has many of Indiarsquos old notions of restriction

The issues that Coke and Pepsi have had to face actualize the underlying restrictive attitude that exists within India Coke has already been run out of the country once but since its readmittance (under the NEP) it has had to face numerous accusations and other licensing problems Dupont has also had trouble not so much with the government but with local resistance The people of Goa were reluctant to allow the MNC to develop in their home There also seems to be a common contempt by many toward the Americanization of food and fashion in general

The NEP has opened up the country to the multinational corporation welcomed them in publicly and has changed the way that India approaches foreign investment Only the change has not happened over night India has come from a long history of restrictive industry and is unlikely to transform quickly causing corporations to face resistance officially and privately Foreign investors may still be somewhat reluctant to enter the country but more and more they will eventually come in

Q7 Distinguish clearly between liberalization and globalization Would you advocate the former proceeding the latter or both being pursued simultaneously(2000)

In India reforms are taken in place when finance minister Mr Manmohan Singh in 1992 adopted policy of liberalization and globalization more and more foreign institution investors were allowed to invest in Indian security market Same time Indian Company like Reliance Wipro and Infosys had gone global by listing at New York Stock Exchange

Short Notes

1 Administrative Prices (2000200420022001)

1Administrative Prices

This approach regards administered prices as a broad concept and then separates the idea into two components ie those pricesthat are regulated and those that are not regulatedDEFINITIONSAdministered pricesAn administered price can be defined as the price of a product which is set consciously by an individual producer or group ofproducers andor any price which can be determined or influenced by government either directly or through one or othergovernment agenciesinstitutions without reference to market forcesRegulated pricesRegulated prices are those administered prices that are said to be monitored and controlled by government policy To this endprice regulation does not necessarily imply the presence of an economic regulator but the restriction on the extent to which pricesmay vary depending on governmentrsquos policy objectiveBASKETS

Basket of administered prices 1048576 Housing (sanitary fees refuse removal assessment rates water and university boarding fees)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( petrol public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)Basket of administered prices that are regulated 1048576 Housing (water)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Transport ( petrol)Basket of administered prices that are not regulated 1048576 Housing (sanitary fees refuse removal assessment rates and university boarding fees)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)

2 Business Resources and Economics trends (20002001)3 Corporate Governance (200020022001)4 Joint Ventures (200020042002)5 Sustainable Development (20002004)

Sustainable development

Sustainable development is an umbrella that attempts to bridge the divide between economic growth and environmental protection while taking into account other issues traditionally associated with development It seeks to develop means of supporting economic growth while supporting biodiversity relieving poverty and without using up natural capital in the short term at the expense of long term development While many definitions of the term have been introduced over the years the most commonly cited definition comes from the report Our Common Future more commonly known as the Brundtland Report which states that sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needsrdquo

Sustainable development is often misinterpreted as focusing solely on environmental issues In reality it is a much broader concept as sustainable development policies encompass three general policy areas economic environmental and social In support of this several United Nations texts most recently the 2005 World Summit Outcome Document refer to the interdependent and mutually reinforcing pillars of sustainable development as economic development social development and environmental protection

Sustainable development is a notoriously ambiguous concept as a wide array of views have fallen under its umbrella The concept has included notions of weak sustainability strong sustainability and deep ecology Different conceptions also reveal a strong tension between ecocentrism and anthropocentrism Thus the concept remains weakly defined and contains a large amount of debate as to its precise definition

6 PSU Disinvestment (2000)

DisinvestmentPrivatisationPSU Reform

If it is assumed that countries aim to achieve sustainable growth low inflation and social progress then the evidence of the past 50 years is that globalization contributes to these objectives in the long term

In the short-term as we have seen in the past few years volatile short-term capital flows can threaten macroeconomic stability Thus in a world of integrated financial markets countries will find it increasingly risky to follow policies that do not promote financial stability This discipline also applies to the private sector which will find it more difficult to implement wage increases and price markups that would make the country concerned become uncompetitive

But there is another kind of risk Sometimes investorsmdashparticularly short-term investorsmdashtake too sanguine a view of a countryrsquos prospects and capital inflows may continue even when economic policies have become too relaxed This exposes the country to the risk that when perceptions change there may be a sudden brutal withdrawal of capital from the country

In short globalization does not reduce national sovereignty It does create a strong incentive for governments to pursue sound economic policies It should create incentives for the private sector to undertake careful analysis of risk However short-term investment flows may be excessively volatile

Efforts to increase the stability of international capital flows are central to the ongoing work on strengthening the international financial architecture In this regard some are concerned that globalization leads to the abolition of rules or constraints on business activities To the contrarymdashone of the key goals of the work on the international financial architecture is to develop standards and codes that are based on internationally accepted principles that can be implemented in many different national settings

Clearly the crises would not have developed as they did without exposure to global capital markets But nor could these countries have achieved their impressive growth records without those financial flows

These were complex crises resulting from an interaction of shortcomings in national policy and the international financial system Individual governments and the international community as a whole are taking steps to reduce the risk of such crises in future

At the national level even though several of the countries had impressive records of economic performance they were not fully prepared to withstand the potential shocks that could come through the international markets Macroeconomic stability financial soundness open economies transparency and good governance are all essential for countries participating in the global markets Each of the countries came up short in one or more respects

At the international level several important lines of defense against crisis were breached Investors did not appraise risks adequately Regulators and supervisors in the major financial centers did not monitor developments sufficiently closely And not enough information was available about some international investors notably offshore financial institutions The result was that markets were prone to herd behaviormdash sudden shifts of investor sentiment and the rapid movement of capital especially short-term finance into and out of countries

The international community is responding to the global dimensions of the crisis through a continuing effort to strengthen the architecture of the international monetary and financial system The broad aim is for markets to operate with more transparency equity and efficiency The IMF has a central role in this process which is explored further in separate fact sheets5

IX The Role of Institutions and OrganizationsNational and international institutions inevitably influenced by differences in culture play an important role in the process of globalization It may be best to leave an outside commentator to reflect on the role of institutions

That the advent of highly integrated commodity and financial markets has been accompanied by trade tensions and problems of financial instability should not come as a surprise The surprise is that these problems are not even more severe today given that the extent of commodity and financial market integration is so much greater

One possibility in accounting (for this surprise) is the stabilizing role of the institutions built in the interim At the national level this means social and financial safety nets At the international level it means the WTO the IMF the Basle Committee of Banking Supervisors These institutions may be far from perfect but they are better than nothing judging from the historical correlation between the level of integration on one hand and the level of trade conflict and financial instability on the other6 (parentheses added)

X ConclusionAs globalization has progressed living conditions (particularly when measured by broader indicators of well being) have improved significantly in virtually all countries However the strongest gains have been made by the advanced countries and only some of the developing countries

That the income gap between high-income and low-income countries has grown wider is a matter for concern And the number of the worldrsquos citizens in abject poverty is deeply disturbing But it is wrong to jump to the conclusion that globalization has caused the divergence or that nothing can be done to improve the situation To the contrary low-income countries have not been able to integrate with the global economy as quickly as others partly because of their chosen policies and partly because of factors outside their control No country least of all the poorest can afford to remain isolated from the world economy Every country should seek to reduce poverty The international community should endeavormdashby strengthening the international financial system through trade and through aidmdashto help the poorest countries integrate into the world economy grow more rapidly and reduce poverty That is the way to ensure all people in all countries have access to the benefits of globalization

Q7 ldquoThe advantages of MNCrsquos outweigh the disadvantages of MNCrsquosrdquo Discuss this statement with special reference to the contemporary Indian scene(2002)

Q6 Discuss the strengths and weakness of multinational corporations and their impact on domestic and multinational business environment (2001)

Q8 Evaluate role of multi-national corporations in Indian context What are the problems and solutions to technology transfer (2000)

The Role of Multinational Corporations and Foreign InvestmentCandace Firchau

India Resistance to the Multinational Corporation

India has had a long history of resisting the multinational corporation and has had to make major changes recently to encourage foreign investment in the country As India moves forward with development more foreign investment and multinational corporations operate in India but for many of these companies the outfit there has been anything but easy

Executive Summery The country of India started the development project wanting to be more independent and was reluctant to allow foreign companies to dominate the countryrsquos industrial sector India was very restrictive with multinational corporations After fighting for many years with large multinational corporations like Coke Cola India eventually opened up their economy to the foreign investment it initially discouraged Recently the country has had a tremendous amount of multinational industry but the companies often face some of the old restrictive attitudes that were very apparent fifteen to twenty years ago

Indiarsquos Past Relations with Multinational Corporations Indiarsquos multinational corporate history has been ridden with restriction As the development project emerged shortly after World War II focus on India and other ldquoThird Worldrdquo countries increased At the time there was a push to make Third World nations or the ex-colonies more lsquodevelopedrsquo India was considered one of these Third World countries that was presumed to need industrialization and capitalism Industrialization was one of the core ingredients to developing a nation according to development project ideals and India had strong potential ldquoIndia started with an extremely favorable economic environment ndash some natural resources a potentially large internal market a great supply of technical manpower and an enormous source of cheap raw labor (Lall 217)rdquo India was a prime development target but it wasnrsquot until quite recently that India would make a structural adjustment to their foreign investment views allowing for a more conducive environment for international business

In the 1960rsquos India adopted a different route than most other industrializing countries and focused on wholesale import substitution The country insisted on pursuing a form of industrial independence wanting to be self-sufficient and only importing products that could not be produced within the country In addition to being somewhat lsquoinward-lookingrsquo India placed numerous and highly restricted controls on trade MRTP (Monopoly and Restrictive Trade Practices) was one of the first regulations stating that any company that was over a specified size or controlled a dominant share of its market would be considered a monopoly As a monopoly this company would be subjected to more constraints on growth than other smaller companies would endure (Lall 218) This was a key element to Indiarsquos take on multinational investment Many MNCs (multinational corporations) fell under Indiarsquos definition of a monopoly and were thus subjected to numerous restrictions when conducting business in India Another confining policy that India upheld was the FERA (Foreign Exchange Regulations Act) that stipulated that any foreign enterprise that operated in India in ldquonon-priority sectors should not have more than 40 percent equity (Fernandes)rdquo The MRTP and FERA produced a deterrence for the MNC to conduct business with India and assumed that these large companies would threaten public interest These restrictions would remain central to Indiarsquos foreign investment policy

India saw a large boom of industrialization between the early fifties and 1965 The growth rate of manufacturing production in 1965 was at 78 percent Although by the end of 1970 though it had dropped fairly significantly and by about 1980 it was only at about 4 percent (Chandrasekhar 76) At the time there was less public investment so there was less infrastructure The poor quality of infrastructure may help to account for less industrialization Still though India continued to uphold strict controls on foreign direct investments In the 1970rsquos India focused a lot on ldquoforeign technologies via armrsquos length licensing arrangements (Lall 219)rdquo maintaining very stringent controls on the licenses In the 1980rsquos India began to see another boom with the growth percentage reaching 88 in 1990

The restrictions that India placed on the MNC resulted in a relatively small MNC investment The country has not been able to take advantage of the technology and marketing leverage that the MNC brings to a country It is sometimes argued that MNC corporations often generate competitiveness with domestic firms that in an effort to lsquokeep uprsquo often must make technological advances Without the role of MNCs in India the countryrsquos export market has suffered

In the early 1990rsquos in an effort to change India began to make more movement towards a liberalization of industrial regulation The NEP (New Economic Policy) prompted this liberalization in 1991 A more open economy is of course a slow process but is a leap from the highly restricted industry of Indiarsquos past Although these restrictions may have their place the key for India will be to find a balance between restriction and liberalization

India and the Multinational Corporation The restrictions that India put on corporate business and industry affected every company that wanted to do business within the country and even drove some companies away Coke Cola and Dupont are just a few of the multinational companies that operate in

India that have had to face some of these constraints sometimes taking extreme measures in response to the limits that have been imposed on them It was not until the early 1990s that India began to see a multinational boom that had little resemblance to past instances of industrialization

The infamous soft drink company Coke Cola has probably had the most trouble within the country of India The Coke Company was reintroduced to India on October 23 1993 after a 16-year absence (Coca Cola India) The driving force that was behind Cokersquos original exile was the FERA Coke was not supposed to have more than 40 percent equity but instead had 100 percent When questioned about their 100 percent equity Coke held that the equity was due totheir secret technology being so confidential that they could not share it Neither Coke nor the Indian Ministry of Industry was willing to budge so Coke left in 1977

In the interim a lot had changed Coke came back into the country about four years after PepsiCo was allowed admittance Cokersquos return to India made national headlines but more importantly it signified a new India India began a new liberal ldquoera of globalization and consumerism(Bidwai)rdquo India may have opened it doors to the Multinational corporate world but this liberalization of economy was still riddled with resistance

Coke maybe more than any other company has seen Indiarsquos resistance Most recently earlier this year the loyal council of India revoked the factories license to operate doing so in light of loosing 700000 rupees (or about $9000) from the decision Of course Coke appealed and received a suspension of the revocation (Vallely) Another daunting issue that Coke (and Pepsi) has been subject to rather recently is the claim that their soft drinks contain high levels of pesticides specifically DDT and Malathion (Reuters) Coke and Pepsi claim that the declaration is untrue but it is still another example of the resistance to large corporations Even though Coke was allowed to come back to India the company continues to face those who are reluctant to accept their arrival The resistance may not be in the form of outright restrictions but is a derivative of the same outlook that established that strict restrictions to begin with

Of course with the lightening of the industrialization policies and the movement toward a more free foreign investment policy numerous multinationals began to enter the country Another fairly established company that has operated in India for quite a while and has had to face opposition is Thapar Dupont Ltd (TDL) Dupont is an enormous American based company that produces a large variety of products The company operates with a number of dangerous chemicals that has been the source of much of the opposition it has faced Dupont avoided some of the equity problems that Coke has had by merging with an established Indian company Thapar becoming TDL Eventually in 1995 TDL wanted to build a new chemical factory in Goa India The Goa community is a rural society that cremates their ancestors and worships them in the lush forest near their homes TDL hindered their ability to perform their traditional rituals and were terribly unwelcome in Goa TDL on the other hand argued that the project would create new jobs and help India become an export-orientated economy The villagers protested the factory vigorously ldquoWithin two hours they completely demolished the boundary wall torched the guard shed and ripped up the paved road leading to the factory(Cohen)rdquo Ultimately TDL decided to build the factory in Karnataka instead of Goa What is strange is that some see this as a ldquovictory against multinational corporations in India(Cohen)rdquo The Karnataka government anticipated the arrival of TDL and strove to avoid the situation that erupted in Goa Nevertheless though Dupont faced the same resistance toward the multinational corporation that Coke has faced causing them a loss of income and probably a considerable amount of time

Recently there has also been a significant movement to bring American fast food and American fashion to India There are McDonalds Burger Kings and Ray Ban sunglasses available to the Indian consumer now These companies have faced resistance in the form of heavy criticism Praful Bidwai author of Making India Work ndash For the Rich has argued that the majority of Indians cannot afford most of these American based consumer goods and instead are faced with high inflation rates and rising unemployment

More companies are coming to India monthly Both Verizon and Oracle have moved employment to India in the last month Although this is a drastic change from the scenario that existed just fifteen years ago it is certainly not welcomed by everyone Many MNCs have seen resistance recently and it is unlikely that will stop abruptly

Conclusion India has spent years trying to be an independent country not reliant on foreign investment for advancement In comparison to many developing countries India is somewhat new to the mass migration of foreign multinational corporations Although it is stated outright that the economic policy is liberalized in reality it still has many of Indiarsquos old notions of restriction

The issues that Coke and Pepsi have had to face actualize the underlying restrictive attitude that exists within India Coke has already been run out of the country once but since its readmittance (under the NEP) it has had to face numerous accusations and other licensing problems Dupont has also had trouble not so much with the government but with local resistance The people of Goa were reluctant to allow the MNC to develop in their home There also seems to be a common contempt by many toward the Americanization of food and fashion in general

The NEP has opened up the country to the multinational corporation welcomed them in publicly and has changed the way that India approaches foreign investment Only the change has not happened over night India has come from a long history of restrictive industry and is unlikely to transform quickly causing corporations to face resistance officially and privately Foreign investors may still be somewhat reluctant to enter the country but more and more they will eventually come in

Q7 Distinguish clearly between liberalization and globalization Would you advocate the former proceeding the latter or both being pursued simultaneously(2000)

In India reforms are taken in place when finance minister Mr Manmohan Singh in 1992 adopted policy of liberalization and globalization more and more foreign institution investors were allowed to invest in Indian security market Same time Indian Company like Reliance Wipro and Infosys had gone global by listing at New York Stock Exchange

Short Notes

1 Administrative Prices (2000200420022001)

1Administrative Prices

This approach regards administered prices as a broad concept and then separates the idea into two components ie those pricesthat are regulated and those that are not regulatedDEFINITIONSAdministered pricesAn administered price can be defined as the price of a product which is set consciously by an individual producer or group ofproducers andor any price which can be determined or influenced by government either directly or through one or othergovernment agenciesinstitutions without reference to market forcesRegulated pricesRegulated prices are those administered prices that are said to be monitored and controlled by government policy To this endprice regulation does not necessarily imply the presence of an economic regulator but the restriction on the extent to which pricesmay vary depending on governmentrsquos policy objectiveBASKETS

Basket of administered prices 1048576 Housing (sanitary fees refuse removal assessment rates water and university boarding fees)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( petrol public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)Basket of administered prices that are regulated 1048576 Housing (water)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Transport ( petrol)Basket of administered prices that are not regulated 1048576 Housing (sanitary fees refuse removal assessment rates and university boarding fees)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)

2 Business Resources and Economics trends (20002001)3 Corporate Governance (200020022001)4 Joint Ventures (200020042002)5 Sustainable Development (20002004)

Sustainable development

Sustainable development is an umbrella that attempts to bridge the divide between economic growth and environmental protection while taking into account other issues traditionally associated with development It seeks to develop means of supporting economic growth while supporting biodiversity relieving poverty and without using up natural capital in the short term at the expense of long term development While many definitions of the term have been introduced over the years the most commonly cited definition comes from the report Our Common Future more commonly known as the Brundtland Report which states that sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needsrdquo

Sustainable development is often misinterpreted as focusing solely on environmental issues In reality it is a much broader concept as sustainable development policies encompass three general policy areas economic environmental and social In support of this several United Nations texts most recently the 2005 World Summit Outcome Document refer to the interdependent and mutually reinforcing pillars of sustainable development as economic development social development and environmental protection

Sustainable development is a notoriously ambiguous concept as a wide array of views have fallen under its umbrella The concept has included notions of weak sustainability strong sustainability and deep ecology Different conceptions also reveal a strong tension between ecocentrism and anthropocentrism Thus the concept remains weakly defined and contains a large amount of debate as to its precise definition

6 PSU Disinvestment (2000)

DisinvestmentPrivatisationPSU Reform

That the advent of highly integrated commodity and financial markets has been accompanied by trade tensions and problems of financial instability should not come as a surprise The surprise is that these problems are not even more severe today given that the extent of commodity and financial market integration is so much greater

One possibility in accounting (for this surprise) is the stabilizing role of the institutions built in the interim At the national level this means social and financial safety nets At the international level it means the WTO the IMF the Basle Committee of Banking Supervisors These institutions may be far from perfect but they are better than nothing judging from the historical correlation between the level of integration on one hand and the level of trade conflict and financial instability on the other6 (parentheses added)

X ConclusionAs globalization has progressed living conditions (particularly when measured by broader indicators of well being) have improved significantly in virtually all countries However the strongest gains have been made by the advanced countries and only some of the developing countries

That the income gap between high-income and low-income countries has grown wider is a matter for concern And the number of the worldrsquos citizens in abject poverty is deeply disturbing But it is wrong to jump to the conclusion that globalization has caused the divergence or that nothing can be done to improve the situation To the contrary low-income countries have not been able to integrate with the global economy as quickly as others partly because of their chosen policies and partly because of factors outside their control No country least of all the poorest can afford to remain isolated from the world economy Every country should seek to reduce poverty The international community should endeavormdashby strengthening the international financial system through trade and through aidmdashto help the poorest countries integrate into the world economy grow more rapidly and reduce poverty That is the way to ensure all people in all countries have access to the benefits of globalization

Q7 ldquoThe advantages of MNCrsquos outweigh the disadvantages of MNCrsquosrdquo Discuss this statement with special reference to the contemporary Indian scene(2002)

Q6 Discuss the strengths and weakness of multinational corporations and their impact on domestic and multinational business environment (2001)

Q8 Evaluate role of multi-national corporations in Indian context What are the problems and solutions to technology transfer (2000)

The Role of Multinational Corporations and Foreign InvestmentCandace Firchau

India Resistance to the Multinational Corporation

India has had a long history of resisting the multinational corporation and has had to make major changes recently to encourage foreign investment in the country As India moves forward with development more foreign investment and multinational corporations operate in India but for many of these companies the outfit there has been anything but easy

Executive Summery The country of India started the development project wanting to be more independent and was reluctant to allow foreign companies to dominate the countryrsquos industrial sector India was very restrictive with multinational corporations After fighting for many years with large multinational corporations like Coke Cola India eventually opened up their economy to the foreign investment it initially discouraged Recently the country has had a tremendous amount of multinational industry but the companies often face some of the old restrictive attitudes that were very apparent fifteen to twenty years ago

Indiarsquos Past Relations with Multinational Corporations Indiarsquos multinational corporate history has been ridden with restriction As the development project emerged shortly after World War II focus on India and other ldquoThird Worldrdquo countries increased At the time there was a push to make Third World nations or the ex-colonies more lsquodevelopedrsquo India was considered one of these Third World countries that was presumed to need industrialization and capitalism Industrialization was one of the core ingredients to developing a nation according to development project ideals and India had strong potential ldquoIndia started with an extremely favorable economic environment ndash some natural resources a potentially large internal market a great supply of technical manpower and an enormous source of cheap raw labor (Lall 217)rdquo India was a prime development target but it wasnrsquot until quite recently that India would make a structural adjustment to their foreign investment views allowing for a more conducive environment for international business

In the 1960rsquos India adopted a different route than most other industrializing countries and focused on wholesale import substitution The country insisted on pursuing a form of industrial independence wanting to be self-sufficient and only importing products that could not be produced within the country In addition to being somewhat lsquoinward-lookingrsquo India placed numerous and highly restricted controls on trade MRTP (Monopoly and Restrictive Trade Practices) was one of the first regulations stating that any company that was over a specified size or controlled a dominant share of its market would be considered a monopoly As a monopoly this company would be subjected to more constraints on growth than other smaller companies would endure (Lall 218) This was a key element to Indiarsquos take on multinational investment Many MNCs (multinational corporations) fell under Indiarsquos definition of a monopoly and were thus subjected to numerous restrictions when conducting business in India Another confining policy that India upheld was the FERA (Foreign Exchange Regulations Act) that stipulated that any foreign enterprise that operated in India in ldquonon-priority sectors should not have more than 40 percent equity (Fernandes)rdquo The MRTP and FERA produced a deterrence for the MNC to conduct business with India and assumed that these large companies would threaten public interest These restrictions would remain central to Indiarsquos foreign investment policy

India saw a large boom of industrialization between the early fifties and 1965 The growth rate of manufacturing production in 1965 was at 78 percent Although by the end of 1970 though it had dropped fairly significantly and by about 1980 it was only at about 4 percent (Chandrasekhar 76) At the time there was less public investment so there was less infrastructure The poor quality of infrastructure may help to account for less industrialization Still though India continued to uphold strict controls on foreign direct investments In the 1970rsquos India focused a lot on ldquoforeign technologies via armrsquos length licensing arrangements (Lall 219)rdquo maintaining very stringent controls on the licenses In the 1980rsquos India began to see another boom with the growth percentage reaching 88 in 1990

The restrictions that India placed on the MNC resulted in a relatively small MNC investment The country has not been able to take advantage of the technology and marketing leverage that the MNC brings to a country It is sometimes argued that MNC corporations often generate competitiveness with domestic firms that in an effort to lsquokeep uprsquo often must make technological advances Without the role of MNCs in India the countryrsquos export market has suffered

In the early 1990rsquos in an effort to change India began to make more movement towards a liberalization of industrial regulation The NEP (New Economic Policy) prompted this liberalization in 1991 A more open economy is of course a slow process but is a leap from the highly restricted industry of Indiarsquos past Although these restrictions may have their place the key for India will be to find a balance between restriction and liberalization

India and the Multinational Corporation The restrictions that India put on corporate business and industry affected every company that wanted to do business within the country and even drove some companies away Coke Cola and Dupont are just a few of the multinational companies that operate in

India that have had to face some of these constraints sometimes taking extreme measures in response to the limits that have been imposed on them It was not until the early 1990s that India began to see a multinational boom that had little resemblance to past instances of industrialization

The infamous soft drink company Coke Cola has probably had the most trouble within the country of India The Coke Company was reintroduced to India on October 23 1993 after a 16-year absence (Coca Cola India) The driving force that was behind Cokersquos original exile was the FERA Coke was not supposed to have more than 40 percent equity but instead had 100 percent When questioned about their 100 percent equity Coke held that the equity was due totheir secret technology being so confidential that they could not share it Neither Coke nor the Indian Ministry of Industry was willing to budge so Coke left in 1977

In the interim a lot had changed Coke came back into the country about four years after PepsiCo was allowed admittance Cokersquos return to India made national headlines but more importantly it signified a new India India began a new liberal ldquoera of globalization and consumerism(Bidwai)rdquo India may have opened it doors to the Multinational corporate world but this liberalization of economy was still riddled with resistance

Coke maybe more than any other company has seen Indiarsquos resistance Most recently earlier this year the loyal council of India revoked the factories license to operate doing so in light of loosing 700000 rupees (or about $9000) from the decision Of course Coke appealed and received a suspension of the revocation (Vallely) Another daunting issue that Coke (and Pepsi) has been subject to rather recently is the claim that their soft drinks contain high levels of pesticides specifically DDT and Malathion (Reuters) Coke and Pepsi claim that the declaration is untrue but it is still another example of the resistance to large corporations Even though Coke was allowed to come back to India the company continues to face those who are reluctant to accept their arrival The resistance may not be in the form of outright restrictions but is a derivative of the same outlook that established that strict restrictions to begin with

Of course with the lightening of the industrialization policies and the movement toward a more free foreign investment policy numerous multinationals began to enter the country Another fairly established company that has operated in India for quite a while and has had to face opposition is Thapar Dupont Ltd (TDL) Dupont is an enormous American based company that produces a large variety of products The company operates with a number of dangerous chemicals that has been the source of much of the opposition it has faced Dupont avoided some of the equity problems that Coke has had by merging with an established Indian company Thapar becoming TDL Eventually in 1995 TDL wanted to build a new chemical factory in Goa India The Goa community is a rural society that cremates their ancestors and worships them in the lush forest near their homes TDL hindered their ability to perform their traditional rituals and were terribly unwelcome in Goa TDL on the other hand argued that the project would create new jobs and help India become an export-orientated economy The villagers protested the factory vigorously ldquoWithin two hours they completely demolished the boundary wall torched the guard shed and ripped up the paved road leading to the factory(Cohen)rdquo Ultimately TDL decided to build the factory in Karnataka instead of Goa What is strange is that some see this as a ldquovictory against multinational corporations in India(Cohen)rdquo The Karnataka government anticipated the arrival of TDL and strove to avoid the situation that erupted in Goa Nevertheless though Dupont faced the same resistance toward the multinational corporation that Coke has faced causing them a loss of income and probably a considerable amount of time

Recently there has also been a significant movement to bring American fast food and American fashion to India There are McDonalds Burger Kings and Ray Ban sunglasses available to the Indian consumer now These companies have faced resistance in the form of heavy criticism Praful Bidwai author of Making India Work ndash For the Rich has argued that the majority of Indians cannot afford most of these American based consumer goods and instead are faced with high inflation rates and rising unemployment

More companies are coming to India monthly Both Verizon and Oracle have moved employment to India in the last month Although this is a drastic change from the scenario that existed just fifteen years ago it is certainly not welcomed by everyone Many MNCs have seen resistance recently and it is unlikely that will stop abruptly

Conclusion India has spent years trying to be an independent country not reliant on foreign investment for advancement In comparison to many developing countries India is somewhat new to the mass migration of foreign multinational corporations Although it is stated outright that the economic policy is liberalized in reality it still has many of Indiarsquos old notions of restriction

The issues that Coke and Pepsi have had to face actualize the underlying restrictive attitude that exists within India Coke has already been run out of the country once but since its readmittance (under the NEP) it has had to face numerous accusations and other licensing problems Dupont has also had trouble not so much with the government but with local resistance The people of Goa were reluctant to allow the MNC to develop in their home There also seems to be a common contempt by many toward the Americanization of food and fashion in general

The NEP has opened up the country to the multinational corporation welcomed them in publicly and has changed the way that India approaches foreign investment Only the change has not happened over night India has come from a long history of restrictive industry and is unlikely to transform quickly causing corporations to face resistance officially and privately Foreign investors may still be somewhat reluctant to enter the country but more and more they will eventually come in

Q7 Distinguish clearly between liberalization and globalization Would you advocate the former proceeding the latter or both being pursued simultaneously(2000)

In India reforms are taken in place when finance minister Mr Manmohan Singh in 1992 adopted policy of liberalization and globalization more and more foreign institution investors were allowed to invest in Indian security market Same time Indian Company like Reliance Wipro and Infosys had gone global by listing at New York Stock Exchange

Short Notes

1 Administrative Prices (2000200420022001)

1Administrative Prices

This approach regards administered prices as a broad concept and then separates the idea into two components ie those pricesthat are regulated and those that are not regulatedDEFINITIONSAdministered pricesAn administered price can be defined as the price of a product which is set consciously by an individual producer or group ofproducers andor any price which can be determined or influenced by government either directly or through one or othergovernment agenciesinstitutions without reference to market forcesRegulated pricesRegulated prices are those administered prices that are said to be monitored and controlled by government policy To this endprice regulation does not necessarily imply the presence of an economic regulator but the restriction on the extent to which pricesmay vary depending on governmentrsquos policy objectiveBASKETS

Basket of administered prices 1048576 Housing (sanitary fees refuse removal assessment rates water and university boarding fees)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( petrol public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)Basket of administered prices that are regulated 1048576 Housing (water)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Transport ( petrol)Basket of administered prices that are not regulated 1048576 Housing (sanitary fees refuse removal assessment rates and university boarding fees)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)

2 Business Resources and Economics trends (20002001)3 Corporate Governance (200020022001)4 Joint Ventures (200020042002)5 Sustainable Development (20002004)

Sustainable development

Sustainable development is an umbrella that attempts to bridge the divide between economic growth and environmental protection while taking into account other issues traditionally associated with development It seeks to develop means of supporting economic growth while supporting biodiversity relieving poverty and without using up natural capital in the short term at the expense of long term development While many definitions of the term have been introduced over the years the most commonly cited definition comes from the report Our Common Future more commonly known as the Brundtland Report which states that sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needsrdquo

Sustainable development is often misinterpreted as focusing solely on environmental issues In reality it is a much broader concept as sustainable development policies encompass three general policy areas economic environmental and social In support of this several United Nations texts most recently the 2005 World Summit Outcome Document refer to the interdependent and mutually reinforcing pillars of sustainable development as economic development social development and environmental protection

Sustainable development is a notoriously ambiguous concept as a wide array of views have fallen under its umbrella The concept has included notions of weak sustainability strong sustainability and deep ecology Different conceptions also reveal a strong tension between ecocentrism and anthropocentrism Thus the concept remains weakly defined and contains a large amount of debate as to its precise definition

6 PSU Disinvestment (2000)

DisinvestmentPrivatisationPSU Reform

Indiarsquos Past Relations with Multinational Corporations Indiarsquos multinational corporate history has been ridden with restriction As the development project emerged shortly after World War II focus on India and other ldquoThird Worldrdquo countries increased At the time there was a push to make Third World nations or the ex-colonies more lsquodevelopedrsquo India was considered one of these Third World countries that was presumed to need industrialization and capitalism Industrialization was one of the core ingredients to developing a nation according to development project ideals and India had strong potential ldquoIndia started with an extremely favorable economic environment ndash some natural resources a potentially large internal market a great supply of technical manpower and an enormous source of cheap raw labor (Lall 217)rdquo India was a prime development target but it wasnrsquot until quite recently that India would make a structural adjustment to their foreign investment views allowing for a more conducive environment for international business

In the 1960rsquos India adopted a different route than most other industrializing countries and focused on wholesale import substitution The country insisted on pursuing a form of industrial independence wanting to be self-sufficient and only importing products that could not be produced within the country In addition to being somewhat lsquoinward-lookingrsquo India placed numerous and highly restricted controls on trade MRTP (Monopoly and Restrictive Trade Practices) was one of the first regulations stating that any company that was over a specified size or controlled a dominant share of its market would be considered a monopoly As a monopoly this company would be subjected to more constraints on growth than other smaller companies would endure (Lall 218) This was a key element to Indiarsquos take on multinational investment Many MNCs (multinational corporations) fell under Indiarsquos definition of a monopoly and were thus subjected to numerous restrictions when conducting business in India Another confining policy that India upheld was the FERA (Foreign Exchange Regulations Act) that stipulated that any foreign enterprise that operated in India in ldquonon-priority sectors should not have more than 40 percent equity (Fernandes)rdquo The MRTP and FERA produced a deterrence for the MNC to conduct business with India and assumed that these large companies would threaten public interest These restrictions would remain central to Indiarsquos foreign investment policy

India saw a large boom of industrialization between the early fifties and 1965 The growth rate of manufacturing production in 1965 was at 78 percent Although by the end of 1970 though it had dropped fairly significantly and by about 1980 it was only at about 4 percent (Chandrasekhar 76) At the time there was less public investment so there was less infrastructure The poor quality of infrastructure may help to account for less industrialization Still though India continued to uphold strict controls on foreign direct investments In the 1970rsquos India focused a lot on ldquoforeign technologies via armrsquos length licensing arrangements (Lall 219)rdquo maintaining very stringent controls on the licenses In the 1980rsquos India began to see another boom with the growth percentage reaching 88 in 1990

The restrictions that India placed on the MNC resulted in a relatively small MNC investment The country has not been able to take advantage of the technology and marketing leverage that the MNC brings to a country It is sometimes argued that MNC corporations often generate competitiveness with domestic firms that in an effort to lsquokeep uprsquo often must make technological advances Without the role of MNCs in India the countryrsquos export market has suffered

In the early 1990rsquos in an effort to change India began to make more movement towards a liberalization of industrial regulation The NEP (New Economic Policy) prompted this liberalization in 1991 A more open economy is of course a slow process but is a leap from the highly restricted industry of Indiarsquos past Although these restrictions may have their place the key for India will be to find a balance between restriction and liberalization

India and the Multinational Corporation The restrictions that India put on corporate business and industry affected every company that wanted to do business within the country and even drove some companies away Coke Cola and Dupont are just a few of the multinational companies that operate in

India that have had to face some of these constraints sometimes taking extreme measures in response to the limits that have been imposed on them It was not until the early 1990s that India began to see a multinational boom that had little resemblance to past instances of industrialization

The infamous soft drink company Coke Cola has probably had the most trouble within the country of India The Coke Company was reintroduced to India on October 23 1993 after a 16-year absence (Coca Cola India) The driving force that was behind Cokersquos original exile was the FERA Coke was not supposed to have more than 40 percent equity but instead had 100 percent When questioned about their 100 percent equity Coke held that the equity was due totheir secret technology being so confidential that they could not share it Neither Coke nor the Indian Ministry of Industry was willing to budge so Coke left in 1977

In the interim a lot had changed Coke came back into the country about four years after PepsiCo was allowed admittance Cokersquos return to India made national headlines but more importantly it signified a new India India began a new liberal ldquoera of globalization and consumerism(Bidwai)rdquo India may have opened it doors to the Multinational corporate world but this liberalization of economy was still riddled with resistance

Coke maybe more than any other company has seen Indiarsquos resistance Most recently earlier this year the loyal council of India revoked the factories license to operate doing so in light of loosing 700000 rupees (or about $9000) from the decision Of course Coke appealed and received a suspension of the revocation (Vallely) Another daunting issue that Coke (and Pepsi) has been subject to rather recently is the claim that their soft drinks contain high levels of pesticides specifically DDT and Malathion (Reuters) Coke and Pepsi claim that the declaration is untrue but it is still another example of the resistance to large corporations Even though Coke was allowed to come back to India the company continues to face those who are reluctant to accept their arrival The resistance may not be in the form of outright restrictions but is a derivative of the same outlook that established that strict restrictions to begin with

Of course with the lightening of the industrialization policies and the movement toward a more free foreign investment policy numerous multinationals began to enter the country Another fairly established company that has operated in India for quite a while and has had to face opposition is Thapar Dupont Ltd (TDL) Dupont is an enormous American based company that produces a large variety of products The company operates with a number of dangerous chemicals that has been the source of much of the opposition it has faced Dupont avoided some of the equity problems that Coke has had by merging with an established Indian company Thapar becoming TDL Eventually in 1995 TDL wanted to build a new chemical factory in Goa India The Goa community is a rural society that cremates their ancestors and worships them in the lush forest near their homes TDL hindered their ability to perform their traditional rituals and were terribly unwelcome in Goa TDL on the other hand argued that the project would create new jobs and help India become an export-orientated economy The villagers protested the factory vigorously ldquoWithin two hours they completely demolished the boundary wall torched the guard shed and ripped up the paved road leading to the factory(Cohen)rdquo Ultimately TDL decided to build the factory in Karnataka instead of Goa What is strange is that some see this as a ldquovictory against multinational corporations in India(Cohen)rdquo The Karnataka government anticipated the arrival of TDL and strove to avoid the situation that erupted in Goa Nevertheless though Dupont faced the same resistance toward the multinational corporation that Coke has faced causing them a loss of income and probably a considerable amount of time

Recently there has also been a significant movement to bring American fast food and American fashion to India There are McDonalds Burger Kings and Ray Ban sunglasses available to the Indian consumer now These companies have faced resistance in the form of heavy criticism Praful Bidwai author of Making India Work ndash For the Rich has argued that the majority of Indians cannot afford most of these American based consumer goods and instead are faced with high inflation rates and rising unemployment

More companies are coming to India monthly Both Verizon and Oracle have moved employment to India in the last month Although this is a drastic change from the scenario that existed just fifteen years ago it is certainly not welcomed by everyone Many MNCs have seen resistance recently and it is unlikely that will stop abruptly

Conclusion India has spent years trying to be an independent country not reliant on foreign investment for advancement In comparison to many developing countries India is somewhat new to the mass migration of foreign multinational corporations Although it is stated outright that the economic policy is liberalized in reality it still has many of Indiarsquos old notions of restriction

The issues that Coke and Pepsi have had to face actualize the underlying restrictive attitude that exists within India Coke has already been run out of the country once but since its readmittance (under the NEP) it has had to face numerous accusations and other licensing problems Dupont has also had trouble not so much with the government but with local resistance The people of Goa were reluctant to allow the MNC to develop in their home There also seems to be a common contempt by many toward the Americanization of food and fashion in general

The NEP has opened up the country to the multinational corporation welcomed them in publicly and has changed the way that India approaches foreign investment Only the change has not happened over night India has come from a long history of restrictive industry and is unlikely to transform quickly causing corporations to face resistance officially and privately Foreign investors may still be somewhat reluctant to enter the country but more and more they will eventually come in

Q7 Distinguish clearly between liberalization and globalization Would you advocate the former proceeding the latter or both being pursued simultaneously(2000)

In India reforms are taken in place when finance minister Mr Manmohan Singh in 1992 adopted policy of liberalization and globalization more and more foreign institution investors were allowed to invest in Indian security market Same time Indian Company like Reliance Wipro and Infosys had gone global by listing at New York Stock Exchange

Short Notes

1 Administrative Prices (2000200420022001)

1Administrative Prices

This approach regards administered prices as a broad concept and then separates the idea into two components ie those pricesthat are regulated and those that are not regulatedDEFINITIONSAdministered pricesAn administered price can be defined as the price of a product which is set consciously by an individual producer or group ofproducers andor any price which can be determined or influenced by government either directly or through one or othergovernment agenciesinstitutions without reference to market forcesRegulated pricesRegulated prices are those administered prices that are said to be monitored and controlled by government policy To this endprice regulation does not necessarily imply the presence of an economic regulator but the restriction on the extent to which pricesmay vary depending on governmentrsquos policy objectiveBASKETS

Basket of administered prices 1048576 Housing (sanitary fees refuse removal assessment rates water and university boarding fees)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( petrol public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)Basket of administered prices that are regulated 1048576 Housing (water)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Transport ( petrol)Basket of administered prices that are not regulated 1048576 Housing (sanitary fees refuse removal assessment rates and university boarding fees)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)

2 Business Resources and Economics trends (20002001)3 Corporate Governance (200020022001)4 Joint Ventures (200020042002)5 Sustainable Development (20002004)

Sustainable development

Sustainable development is an umbrella that attempts to bridge the divide between economic growth and environmental protection while taking into account other issues traditionally associated with development It seeks to develop means of supporting economic growth while supporting biodiversity relieving poverty and without using up natural capital in the short term at the expense of long term development While many definitions of the term have been introduced over the years the most commonly cited definition comes from the report Our Common Future more commonly known as the Brundtland Report which states that sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needsrdquo

Sustainable development is often misinterpreted as focusing solely on environmental issues In reality it is a much broader concept as sustainable development policies encompass three general policy areas economic environmental and social In support of this several United Nations texts most recently the 2005 World Summit Outcome Document refer to the interdependent and mutually reinforcing pillars of sustainable development as economic development social development and environmental protection

Sustainable development is a notoriously ambiguous concept as a wide array of views have fallen under its umbrella The concept has included notions of weak sustainability strong sustainability and deep ecology Different conceptions also reveal a strong tension between ecocentrism and anthropocentrism Thus the concept remains weakly defined and contains a large amount of debate as to its precise definition

6 PSU Disinvestment (2000)

DisinvestmentPrivatisationPSU Reform

India that have had to face some of these constraints sometimes taking extreme measures in response to the limits that have been imposed on them It was not until the early 1990s that India began to see a multinational boom that had little resemblance to past instances of industrialization

The infamous soft drink company Coke Cola has probably had the most trouble within the country of India The Coke Company was reintroduced to India on October 23 1993 after a 16-year absence (Coca Cola India) The driving force that was behind Cokersquos original exile was the FERA Coke was not supposed to have more than 40 percent equity but instead had 100 percent When questioned about their 100 percent equity Coke held that the equity was due totheir secret technology being so confidential that they could not share it Neither Coke nor the Indian Ministry of Industry was willing to budge so Coke left in 1977

In the interim a lot had changed Coke came back into the country about four years after PepsiCo was allowed admittance Cokersquos return to India made national headlines but more importantly it signified a new India India began a new liberal ldquoera of globalization and consumerism(Bidwai)rdquo India may have opened it doors to the Multinational corporate world but this liberalization of economy was still riddled with resistance

Coke maybe more than any other company has seen Indiarsquos resistance Most recently earlier this year the loyal council of India revoked the factories license to operate doing so in light of loosing 700000 rupees (or about $9000) from the decision Of course Coke appealed and received a suspension of the revocation (Vallely) Another daunting issue that Coke (and Pepsi) has been subject to rather recently is the claim that their soft drinks contain high levels of pesticides specifically DDT and Malathion (Reuters) Coke and Pepsi claim that the declaration is untrue but it is still another example of the resistance to large corporations Even though Coke was allowed to come back to India the company continues to face those who are reluctant to accept their arrival The resistance may not be in the form of outright restrictions but is a derivative of the same outlook that established that strict restrictions to begin with

Of course with the lightening of the industrialization policies and the movement toward a more free foreign investment policy numerous multinationals began to enter the country Another fairly established company that has operated in India for quite a while and has had to face opposition is Thapar Dupont Ltd (TDL) Dupont is an enormous American based company that produces a large variety of products The company operates with a number of dangerous chemicals that has been the source of much of the opposition it has faced Dupont avoided some of the equity problems that Coke has had by merging with an established Indian company Thapar becoming TDL Eventually in 1995 TDL wanted to build a new chemical factory in Goa India The Goa community is a rural society that cremates their ancestors and worships them in the lush forest near their homes TDL hindered their ability to perform their traditional rituals and were terribly unwelcome in Goa TDL on the other hand argued that the project would create new jobs and help India become an export-orientated economy The villagers protested the factory vigorously ldquoWithin two hours they completely demolished the boundary wall torched the guard shed and ripped up the paved road leading to the factory(Cohen)rdquo Ultimately TDL decided to build the factory in Karnataka instead of Goa What is strange is that some see this as a ldquovictory against multinational corporations in India(Cohen)rdquo The Karnataka government anticipated the arrival of TDL and strove to avoid the situation that erupted in Goa Nevertheless though Dupont faced the same resistance toward the multinational corporation that Coke has faced causing them a loss of income and probably a considerable amount of time

Recently there has also been a significant movement to bring American fast food and American fashion to India There are McDonalds Burger Kings and Ray Ban sunglasses available to the Indian consumer now These companies have faced resistance in the form of heavy criticism Praful Bidwai author of Making India Work ndash For the Rich has argued that the majority of Indians cannot afford most of these American based consumer goods and instead are faced with high inflation rates and rising unemployment

More companies are coming to India monthly Both Verizon and Oracle have moved employment to India in the last month Although this is a drastic change from the scenario that existed just fifteen years ago it is certainly not welcomed by everyone Many MNCs have seen resistance recently and it is unlikely that will stop abruptly

Conclusion India has spent years trying to be an independent country not reliant on foreign investment for advancement In comparison to many developing countries India is somewhat new to the mass migration of foreign multinational corporations Although it is stated outright that the economic policy is liberalized in reality it still has many of Indiarsquos old notions of restriction

The issues that Coke and Pepsi have had to face actualize the underlying restrictive attitude that exists within India Coke has already been run out of the country once but since its readmittance (under the NEP) it has had to face numerous accusations and other licensing problems Dupont has also had trouble not so much with the government but with local resistance The people of Goa were reluctant to allow the MNC to develop in their home There also seems to be a common contempt by many toward the Americanization of food and fashion in general

The NEP has opened up the country to the multinational corporation welcomed them in publicly and has changed the way that India approaches foreign investment Only the change has not happened over night India has come from a long history of restrictive industry and is unlikely to transform quickly causing corporations to face resistance officially and privately Foreign investors may still be somewhat reluctant to enter the country but more and more they will eventually come in

Q7 Distinguish clearly between liberalization and globalization Would you advocate the former proceeding the latter or both being pursued simultaneously(2000)

In India reforms are taken in place when finance minister Mr Manmohan Singh in 1992 adopted policy of liberalization and globalization more and more foreign institution investors were allowed to invest in Indian security market Same time Indian Company like Reliance Wipro and Infosys had gone global by listing at New York Stock Exchange

Short Notes

1 Administrative Prices (2000200420022001)

1Administrative Prices

This approach regards administered prices as a broad concept and then separates the idea into two components ie those pricesthat are regulated and those that are not regulatedDEFINITIONSAdministered pricesAn administered price can be defined as the price of a product which is set consciously by an individual producer or group ofproducers andor any price which can be determined or influenced by government either directly or through one or othergovernment agenciesinstitutions without reference to market forcesRegulated pricesRegulated prices are those administered prices that are said to be monitored and controlled by government policy To this endprice regulation does not necessarily imply the presence of an economic regulator but the restriction on the extent to which pricesmay vary depending on governmentrsquos policy objectiveBASKETS

Basket of administered prices 1048576 Housing (sanitary fees refuse removal assessment rates water and university boarding fees)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( petrol public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)Basket of administered prices that are regulated 1048576 Housing (water)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Transport ( petrol)Basket of administered prices that are not regulated 1048576 Housing (sanitary fees refuse removal assessment rates and university boarding fees)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)

2 Business Resources and Economics trends (20002001)3 Corporate Governance (200020022001)4 Joint Ventures (200020042002)5 Sustainable Development (20002004)

Sustainable development

Sustainable development is an umbrella that attempts to bridge the divide between economic growth and environmental protection while taking into account other issues traditionally associated with development It seeks to develop means of supporting economic growth while supporting biodiversity relieving poverty and without using up natural capital in the short term at the expense of long term development While many definitions of the term have been introduced over the years the most commonly cited definition comes from the report Our Common Future more commonly known as the Brundtland Report which states that sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needsrdquo

Sustainable development is often misinterpreted as focusing solely on environmental issues In reality it is a much broader concept as sustainable development policies encompass three general policy areas economic environmental and social In support of this several United Nations texts most recently the 2005 World Summit Outcome Document refer to the interdependent and mutually reinforcing pillars of sustainable development as economic development social development and environmental protection

Sustainable development is a notoriously ambiguous concept as a wide array of views have fallen under its umbrella The concept has included notions of weak sustainability strong sustainability and deep ecology Different conceptions also reveal a strong tension between ecocentrism and anthropocentrism Thus the concept remains weakly defined and contains a large amount of debate as to its precise definition

6 PSU Disinvestment (2000)

DisinvestmentPrivatisationPSU Reform

More companies are coming to India monthly Both Verizon and Oracle have moved employment to India in the last month Although this is a drastic change from the scenario that existed just fifteen years ago it is certainly not welcomed by everyone Many MNCs have seen resistance recently and it is unlikely that will stop abruptly

Conclusion India has spent years trying to be an independent country not reliant on foreign investment for advancement In comparison to many developing countries India is somewhat new to the mass migration of foreign multinational corporations Although it is stated outright that the economic policy is liberalized in reality it still has many of Indiarsquos old notions of restriction

The issues that Coke and Pepsi have had to face actualize the underlying restrictive attitude that exists within India Coke has already been run out of the country once but since its readmittance (under the NEP) it has had to face numerous accusations and other licensing problems Dupont has also had trouble not so much with the government but with local resistance The people of Goa were reluctant to allow the MNC to develop in their home There also seems to be a common contempt by many toward the Americanization of food and fashion in general

The NEP has opened up the country to the multinational corporation welcomed them in publicly and has changed the way that India approaches foreign investment Only the change has not happened over night India has come from a long history of restrictive industry and is unlikely to transform quickly causing corporations to face resistance officially and privately Foreign investors may still be somewhat reluctant to enter the country but more and more they will eventually come in

Q7 Distinguish clearly between liberalization and globalization Would you advocate the former proceeding the latter or both being pursued simultaneously(2000)

In India reforms are taken in place when finance minister Mr Manmohan Singh in 1992 adopted policy of liberalization and globalization more and more foreign institution investors were allowed to invest in Indian security market Same time Indian Company like Reliance Wipro and Infosys had gone global by listing at New York Stock Exchange

Short Notes

1 Administrative Prices (2000200420022001)

1Administrative Prices

This approach regards administered prices as a broad concept and then separates the idea into two components ie those pricesthat are regulated and those that are not regulatedDEFINITIONSAdministered pricesAn administered price can be defined as the price of a product which is set consciously by an individual producer or group ofproducers andor any price which can be determined or influenced by government either directly or through one or othergovernment agenciesinstitutions without reference to market forcesRegulated pricesRegulated prices are those administered prices that are said to be monitored and controlled by government policy To this endprice regulation does not necessarily imply the presence of an economic regulator but the restriction on the extent to which pricesmay vary depending on governmentrsquos policy objectiveBASKETS

Basket of administered prices 1048576 Housing (sanitary fees refuse removal assessment rates water and university boarding fees)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( petrol public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)Basket of administered prices that are regulated 1048576 Housing (water)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Transport ( petrol)Basket of administered prices that are not regulated 1048576 Housing (sanitary fees refuse removal assessment rates and university boarding fees)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)

2 Business Resources and Economics trends (20002001)3 Corporate Governance (200020022001)4 Joint Ventures (200020042002)5 Sustainable Development (20002004)

Sustainable development

Sustainable development is an umbrella that attempts to bridge the divide between economic growth and environmental protection while taking into account other issues traditionally associated with development It seeks to develop means of supporting economic growth while supporting biodiversity relieving poverty and without using up natural capital in the short term at the expense of long term development While many definitions of the term have been introduced over the years the most commonly cited definition comes from the report Our Common Future more commonly known as the Brundtland Report which states that sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needsrdquo

Sustainable development is often misinterpreted as focusing solely on environmental issues In reality it is a much broader concept as sustainable development policies encompass three general policy areas economic environmental and social In support of this several United Nations texts most recently the 2005 World Summit Outcome Document refer to the interdependent and mutually reinforcing pillars of sustainable development as economic development social development and environmental protection

Sustainable development is a notoriously ambiguous concept as a wide array of views have fallen under its umbrella The concept has included notions of weak sustainability strong sustainability and deep ecology Different conceptions also reveal a strong tension between ecocentrism and anthropocentrism Thus the concept remains weakly defined and contains a large amount of debate as to its precise definition

6 PSU Disinvestment (2000)

DisinvestmentPrivatisationPSU Reform

Basket of administered prices 1048576 Housing (sanitary fees refuse removal assessment rates water and university boarding fees)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( petrol public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)Basket of administered prices that are regulated 1048576 Housing (water)1048576 Fuel and power (electricity and paraffin)1048576 Medical care ( public hospital)1048576 Communication (telephone calls telephone rent and installation postage cell connection fees and cell calls)1048576 Transport ( petrol)Basket of administered prices that are not regulated 1048576 Housing (sanitary fees refuse removal assessment rates and university boarding fees)1048576 Education ( school fees and universitytechniconscolleges)1048576 Transport ( public transport ndash municipal buses and trains motor licenses and registration)1048576 Recreation and entertainment ( television licence)

2 Business Resources and Economics trends (20002001)3 Corporate Governance (200020022001)4 Joint Ventures (200020042002)5 Sustainable Development (20002004)

Sustainable development

Sustainable development is an umbrella that attempts to bridge the divide between economic growth and environmental protection while taking into account other issues traditionally associated with development It seeks to develop means of supporting economic growth while supporting biodiversity relieving poverty and without using up natural capital in the short term at the expense of long term development While many definitions of the term have been introduced over the years the most commonly cited definition comes from the report Our Common Future more commonly known as the Brundtland Report which states that sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needsrdquo

Sustainable development is often misinterpreted as focusing solely on environmental issues In reality it is a much broader concept as sustainable development policies encompass three general policy areas economic environmental and social In support of this several United Nations texts most recently the 2005 World Summit Outcome Document refer to the interdependent and mutually reinforcing pillars of sustainable development as economic development social development and environmental protection

Sustainable development is a notoriously ambiguous concept as a wide array of views have fallen under its umbrella The concept has included notions of weak sustainability strong sustainability and deep ecology Different conceptions also reveal a strong tension between ecocentrism and anthropocentrism Thus the concept remains weakly defined and contains a large amount of debate as to its precise definition

6 PSU Disinvestment (2000)

DisinvestmentPrivatisationPSU Reform

53 The regular budget takes credit for a receipt of Rs5000 crore from disinvestment in the current year In order to expedite the process the government have decided to disinvest specified portions of equity from IOC GAIL VSNL and CONCOR As part of an overall strategy to restructure Indian Airlines and expand its capacity government have decided to restructure the capital of Indian Airlines and also to undertake a phased disinvestment in this company over three years bringing the governments equity holding down to 49 per cent

54 Some public sector undertakings have consistently incurred large losses Experience and studies by independent organisations have conclusively established them to be unrevivable Nevertheless a decision on their closure has been delayed only on account of the concern for the interest of the workers In order to find a viable and satisfactory solution to this dilemma the government have decided to provide a safety net to the workers of enterprises destined for closure by providing a liberal and attractive compensation package prior to closure At present when a unit is closed the workers are only entitled to retrenchment compensation under the Industries (Development and Regulation) Act which is only 15 days wages for each completed year of service

56 Government have also decided that in the generality of cases the government shareholding in public sector enterprises will be brought down to 26 per cent In cases of public sector enterprises involving strategic considerations government will continue to retain majority holding The interest of workers shall be protected in all cases

7 Technology (2003)8 Performance of Indiarsquos External Sector(2003)

Indias External Sector

Performance of Indiarsquos External SectorThe external sector has strengthened over the years with balance of payments showing surplus The large capital flows in 2003-2004 have resulted in a further accumulation of reserves rendering reserve position comfortable as per various indicators of reserve adequacy

Foreign Exchange Reserves excluding gold and SDR stood at US$ 12972 billion on Jan 8 2005 India is already being seen as a new hub for exports of auto parts and other engineering goods and opportunities are expected to open in the textile sector Trade liberalization is likely to counter some of the upward pressure on the exchange rate of the rupee The Re$ exchange rate revolved around 44 in the month of January and February 2005 Direction of Trade

The regional shares in sourcing of imports in 2001-02 reveal enhanced shares from all major regions At the end of 2002 imports from SAARC region declined by 273 due to lower imports from Nepal and Pakistan Indo-Pakistan trade also continues to be depressed with decline in our exports by 229 in 2001-2002 China has emerged as Indias third highest trading partner Its share is 50 in Indias total foreign trade It further rose to 56 in 2004-2005 UAE has a share of 55 in Indiarsquos total foreign trade USA as usual is leading with the total share of 111 in 2004-2005 Trade with ASEAN continues to be robust in 2004-2005 wih exports registering a growth of 50 and imports a rise of 212 in April-October period Prevalence of high international crude oil prices and the consequent gains in terms of trade have increased the share of Indias trade with the OPEC region both in imports and exports Trade with SAARC region countries currently constitutes around 3 of Indias total trade

Composition of Trade

Export growth has increased in 2003-04 due to major contribution from manufacturing sector Export of wheat vegetables and fruits meat nad meat preparation has accelerated Exports of products such as marine products cashew nuts spices has declined during 2003-2004 Yet the overall export growth has witnessed a record surge in Indiarsquos export The products most commonly exported today are manufacturing goods chemical products gems and jewelery agricultural items and textiles The rise in imports is also broad based The products imported includes gold and silver consumer goods capital goods food and allied products mainly edible oil For the period April-November 2004-05 imports were valued at US $ 6426579 million representing an increase of 3447 over the level of imports Petroleum and petroleum products alone accounted for $20 billion that is 47 of the increase in imports in imports in 2004 (April-Nov) Equities and MarketsForeign institutional investors invest in India confidently efficiently and with maximum returns A new breed of investors in India helped swell foreign purchases of Indian securities to more than US$ 6 billion in 2003 15 of the total foreign institutional investment into global emerging markets (equivalent to US$ 34 billion) was pumped into India

Equity market is a market where investors buy and sell securities providing ownership of a companyrsquos share It focuses on structuring and executing diverse equity financing transactions in the public and private markets for Corporates Banks Financial Institutions and the Government Indiarsquos equity market is bouyant

After the reforms the markets have become transparent and accessible uniformly to everyone in the country without bias to caste religion gender or location Over the second half of the nineties this showed up in an unprecendented growth in the number of trades that took place on the exchanges from all over the country the fall in the brokerage fees and the number of depository accounts that were opened Millions of people who were once spectators of the stock market now became participants

9 MNCrsquos (2003)10Joint Venture Mergers amp Acquisitions (20032001)

Mergers acquisitions and joint ventures

Mergers acquisitions and joint ventures can be methods used to allow companies to achieve company strategies (ie diversification market entry new technology etc) Companies need to carefully consider these approaches because of the large amount of time and monetary investments required legal concerns that may arise and the potential consequences of possible over-diversification

Principles of Engagement

In any merger or acquisition planning you need to understand what you are getting into (Do I go ahead Adjust the price Walk away) This is your one shot to understand the business before you close the deal You also want to reduce any post-acquisition surprises (what will we need to work on after acquisition integration issues personnel issues obsolete equipment requiring replacement warranty exposures major contracts customer base) An important key to remember is ldquoItrsquos not only the numbersrdquo

In joint ventures you need to pursue and understand strategic analysis before you commit (what are you trying to accomplish through the joint venture does this really meet long-term strategic objectives) For international joint ventures you must understand the local culture

(identify risks personnel issues) and make sure you understand how you must do business in that local environment You also need to ensure the joint venture is aligned with your companyrsquos Corporate Strategy (What problems may occur in integrating the joint venture into your business) Itrsquos also important to understand the specific competitive environment that the joint venture will be operating in as well

It is important to form the right team including experienced professionals key disciplines including internal audit (the team needs to have multiple disciplines perhaps engineering legal accounting internal and external audit human resources etc specifically experienced senior staff)

Critical Issues

In any merger and acquisition you need to focus on financial statement issues (what is the potential exposure understanding what you are buying) and the control environment (understand weaknesses and how this may impact future operations what are the risks) Additionally a focus needs to be placed upon financial and operational integration concerns (will major restructuring and integration be required how difficult will it be to integrate new acquisition into our business) Also information systems issues can be key areas of concern (compatible systems major integration costs after acquisition old equipment)

Other issues are marketing (will customers stay What will it take to support customers) legal (any pending suits and exposures) business processes (do good processes exist any integration concerns) as well as human resource issues (combining different corporate cultures handling downsizing of combined organizations and the potential of losing key personnel differing benefit plans etc) In addition are there any anti-trust regulatorytax issues requiring analysis

In joint ventures there are several things to be concerned about in particular for international ventures Local bureaucracy and red tape local staffing finding qualified people development and training of local staff local site evaluation (local availability raw material availability personnel availability infrastructure issues) as well as cultural considerations (the need to understand cultural differences and how to react to them)

Other critical concerns are instituting strong financial and operational controls (usually lacking especially in emerging markets) potential economic overheating (major financial devaluation) social upheaval raw material shortages lagging infrastructures (lack of roadways waterways other forms of transportation etc) and the financial ability of partners andor customers of the potential joint venture

In addition after the joint venture has been formed it is important to have continuous risk and life cycle analysis Joint ventures change the longer you are in them and they go through various changes from start up to maturity You need to continually monitor as risks are likely to be different over time

In planning for a successful joint venture a decentralized approach to establishing joint ventures (handle at country level not corporate) may be more appropriate depending upon circumstances You need to meet local business needs It is also important to have integrated joint venture teams and a good skill mix on these teams (to be successful you must support the local joint venture partner with technical and product skills) Likewise one must not forget about linked communications which move through your segments and divisions as well as your corporate headquarters

Conclusion

Analyzing and understanding what you are getting into is very important with mergers acquisitions and joint ventures There are both risks and rewards which must be carefully analyzed and understood Of all the issues involved both you and your management should be interested in three (really only one)

11Technology Transfers (20022001)12Economic Liberalisation (2002)13Limitations of Environmental Analysis (2002)14Professional Management (2002)15Pricing Business Resources(2001)16Economic Trends in India and Global(2001)17Industrial Units

General

Q2 ldquoThe business of business is business Comment OR ldquoThe politics of coalition governments is essentially the politics of adjustment and compromiserdquo Do you agree (2004)Q1 ldquoThe business of business is businessrdquo Analyse the theoretical significance and the practical relevance of this statement (2003)

What is the business of businessBy building social issues into strategy big companies can recast the debate about their role in society

Ian Davis

2005 Number 3

The great long-running debate about businesss role in society is currently caught between two contrasting and tired ideological positions On one side of the current debate are those who argue that to borrow Milton Friedmans phrase the business of business is business This belief most established in Anglo-Saxon economies implies that social issues are peripheral to the challenges of corporate management The sole legitimate purpose of business is to create shareholder value On the other side are the proponents of corporate social responsibility a rapidly growing rather fuzzy movement encompassing companies that claim that they already practice the principles of CSR and skeptical advocacy groups arguing that they must go further in mitigating their social impact As other regions of the worldmdashparts of continental Europe for examplemdashmove toward the Anglo-Saxon shareholder value model the debate between these points of view has increasingly taken on global significance

Both perspectives obscure in different ways the significance of social issues to business success They also unhelpfully caricature the contribution of business to social welfare It is time for CEOs of big companies to recast this debate and recapture the intellectual and moral high ground from their critics

Large companies must build social issues into strategy in a way that reflects their actual business importance Such companies need to articulate their social contribution and to define their ultimate purpose in a way that is more subtle than the business of business is business and less defensive than most current CSR approaches It can help to view the relationship between big business and society as an implicit social contractmdashRousseau adapted to the corporate world you might say This contract has obligations opportunities and advantages for both sides

To explain the basis for such an approach it may help first to pinpoint the limitations of the two current ideological poles Start with the business of business is business The issue here is not primarily legal in many countries such as Germany companies have a legal obligation to stakeholders and even in the United States the legal primacy of shareholders is open to very broad interpretation

The problem with the business of business is business mind-set is rather that it can obscure two important realities The first is that social issues are not so much tangential to the business of business as fundamental to it From a defensive point of view companies that ignore public sentiment make themselves vulnerable to attack Social pressures can also

serve as early indicators of factors essential to corporate profitability for example the regulations and public-policy environment in which companies must operate the appetite of consumers for certain goods above others and the motivation of employeesmdashand their willingness to be hired in the first place

Companies that treat social issues as either irritating distractions or simply unjustified vehicles for attacks on business are turning a blind eye to impending forces that have the potential to alter the strategic future in fundamental ways Although the effects of social pressures on these forces may not be immediate that is not a reason for companies to delay preparing for or tackling them Even from a strict shareholder perspective most stock market valuemdashtypically more than 80 percent in US and Western European public marketsmdashdepends on expectations of corporate cash flows beyond the next three years

Examples abound of the long-term business impact of social issues That impact is growing fast In the pharmaceutical sector the past decades storm of social pressuresmdashstemming from issues such as public perceptions of excessive prices charged for HIVAIDS drugs in developing countriesmdashare now translating into a general (and sometimes seemingly indiscriminate) toughening of the regulatory environment In the food and restaurant sector meanwhile the long-escalating debate about obesity is now resulting in calls for further controls on the marketing of unhealthy foods In the case of big financial institutions concerns about conflicts of interest and the mis-selling of products have recently led to changes in core business practices and industry structure For some big retailers public and planning resistance to new stores is constraining growth opportunities And all this is to say nothing of the way social and political pressures have reshaped and redefined the tobacco and the oil and mining industries among others over the decades

In all such cases billions of dollars of shareholder value have been put at stake as a result of social issues that ultimately feed into the fundamental drivers of corporate performance In many instances a business of business is business outlook has blinded companies to outcomes or to shifts in the implicit social contract that often could have been anticipated

Just as important these outcomes have not just posed risks to companies but also generated value creation opportunities in the case of the pharmaceutical sector for example the growing market for generic drugs in the case of fast-food restaurants providing healthier meals and in the case of the energy industry meeting fast-growing demand (as well as regulatory pressure) for cleaner fuels such as natural gas Social pressures often indicate the existence of unmet social needs or consumer preferences Businesses can gain advantage by spotting and supplying these before their competitors do

Paradoxically therefore the language of shareholder value may in this respect hinder companies from maximizing their shareholder value Practiced as an unthinking mantra the business of business is business can lead managers to focus excessively on improving the short-term performance of their businesses thus neglecting important longer-term opportunities and issues including societal pressures the trust of customers and investments in innovation and other growth prospects

The second point that the business of business is business outlook obscures for many companiesmdashthe need to address questions about their ethics and legitimacymdashis related to the first For reasons of integrity and enlightened self-interest big companies need to tackle such issues with both words and actions It is neither sufficient nor wise to say that it is for governments to set laws and for companies simply to operate within them Nor is it enough simply to point out that many criticisms of businesses are unmerited or that those throwing the mud ought also to examine their own practices and social responsibility Irrespective of whether the criticisms are valid their cumulative effect can shape the strategic context for companies It is imperative that businesses seek to lead rather than merely react to these debates

Moreover in certain parts of the worldmdashparticularly some poor developing countriesmdashthe rule of law and basic public services are notable by their absence This reality can render the business of business is business mind-set positively unhelpful as a guide for corporate

action If companies operating in such an environment focus too narrowly on ill-defined local legislation or shy away from broad debates about their alleged behavior they are likely to face mounting criticism over their activities as well as a greater risk of becoming embroiled in local political tensions

Is CSR the answer If only it were The point is not to criticize the many laudable CSR initiatives undertaken by individual companies or to dispute the obvious need for businesses (as for any other social entity) to act responsibly It is rather to examine the broad prescriptions proposed by groups and activists involved with CSR These prescriptions commonly include stakeholder dialogue social and environmental reports and corporate policies on ethical issues This approach is too limited too defensive and too disconnected from corporate strategy

The defensive posture of CSR springs from its origins Its popularity as a set of corporate tactics was driven in large part by a series of anticorporate campaigns in the late 1990s These campaigns were in turn given impetus by the antiglobalization protests mounted around the same time Since then companies have been drawn to CSR by nice-sounding if vague notions such as the triple bottom line the idea that companies can simultaneously serve social and environmental goals as well as earn profits Companies have seen CSR as a way to avoid nongovernmental-organization (NGO) and reputational flak and to mitigate the rougher edges and consequences of capitalism

This defensiveness starts the argument on the wrong footmdashcertainly as far as business leaders should be concerned Big business provides huge and critical contributions to modern society These are insufficiently articulated acknowledged or understood Among them are productivity gains innovation and research employment large-scale investments human-capital development and organization All of them are and will be essential for future national and global economic welfare Big business also supplies investment vehicles that are likely to be central to the provision of pensions in the aging countries of the Organisation for Economic Co-operation and Development (OECD) In developing countries meanwhile the entry of multinational companies through foreign direct investment has often contributed critical capital technology skills and other poverty-reducing economic spillovers It is no coincidence that developing countries place such emphasis on attracting big business and the investment it can bring to their economies

CSR is limited as an agenda for corporate action because it fails to capture the potential importance of social issues for corporate strategy Admittedly companies undertaking a stakeholder dialogue with NGOs will be more aware in advance of potential issues But tracking NGO opinion is only part of the process of understanding the range of social pressures that can ultimately affect core business drivers such as regulations and consumption patterns

An obvious next step for companies having understood the possible evolution of these broad social pressures is to map long-term options and responses This process clearly needs to be rooted in the development of strategy Yet typical CSR initiativesmdasha new ethical policy here for example or a glossy sustainability report theremdashare often tangential to it It is perfectly possible for a company to follow many prescriptions of CSR and still be caught short by seismic shifts in the socially driven business environment One of the compounding problems is the fact that many companies have chosen to root their CSR functions too narrowly within their public- or corporate-affairs departments Although such departments play an important tactical role they are often geared toward rebutting criticism and tend to operate at a distance from strategic decision making within the company

A contract has two sides and business must acknowledge that in return for the ability to function it is subject to rules and constraintsIn the limitations of both CSR and of the business of business is business thinking lie the outlines of a new approachmdashas relevant for Chinese German and Indian companies as for US and British ones Three main strands stand out The first is a helpfully simple prescription businesses should introduce explicit processes to make sure that social issues and emerging social forces are discussed at the highest levels as part of overall strategic planning This

point means that executives must educate and engage their boards of directors It also means that they need to develop broad metrics or summaries that usefully describe the relevant issues in much the same way that most companies analyze customer trends today The risk that stakeholdersmdashincluding governments consumer groups lawyers and the mediamdashwill mobilize around particular issues can be roughly estimated by studying the known agendas and interests of these parties For example the likelihood that the obesity debate would rebound on food companies was partly predictable from the growing expenditures of governments on obesity-related health problems the inevitable media focus on the issue plus the interest of some lawyers in finding fresh corporate targets for litigation By the time businesses seriously engaged with the question they were in a defensive posture merely struggling to catch up with the public debate In the future companies will need to be much better at understanding and anticipating such issues

Both the second and third strands of the new approach reflect the idea that there is an implicit contract between big business and society or indeed between whole economic sectors and societymdashthe contract that is the subject of this article Detractors have often successfully portrayed the contract as a one-way bargain that benefits business at societys expense The reality is much more complex The activities undertaken by business have clearly brought social benefits as well as costs Similarly however there are two sides to a contract and business must acknowledge that in return for the ability to function it is subject to rules and constraints At times the contract can come under obvious strain The recent backlash against big business in the United States can be seen as society seeking to shift the terms of the contract as a result of popular perceptions that business has abused its power Similarly in Germany at present business is struggling to defend itself against charges that its contract with society is fundamentally unbalanced

The second strand requires companies not just to understand their individual contracts but also to manage those contracts actively To do so companies can choose from a range of potential tactics such as more transparent reporting shifts in RampD or asset reorganization to capture expected future opportunities or to shed perceived liabilities changes in approaches to regulation and at an industry level the development and deployment of voluntary standards of behavior

Some companies and sectors are already experimenting with such approaches Nonetheless there is scope for much more activity provided it is aligned with corporate strategic goals Reshaping conduct on an industry-wide and increasingly global basis may be particularly important given that the perceived misdeeds of one company can rebound on its sector as a whole

An important point to remember is that companies depending on their circumstances will have quite different tactical responses so off-the-shelf or simply nice-sounding solutions may not always be appropriate Transparency offers a good example It is easy but wrong to say that there can never be enough of it What might be good for a pharmaceutical company trying to restore the consumers trust could be damaging for a hedge fund manager A voluntary code of practice for a retailer naturally would be very different from that of a copper-mining company

This observation leads me to the third strand of the new approach for business leaders they need to shape the debate on social issues much more consciously by establishing ever higher (but appropriate) standards of integrity and transparency within their own companies and by becoming much more actively involved in external debates (such as those in the media) on issues that shape the social context of business

A starting point may be for CEOs to articulate publicly the purpose of business in terms less dry than shareholder value although that should continue to be seen as the critical measure of business success However it may be more accurate more motivatingmdashand indeed more beneficial to shareholder value over the long termmdashto describe the ultimate purpose of business as the efficient provision of goods and services that society wants

This is a hugely valuable even noble purpose It is the basis of the contract between business and society and the basis of most peoples real interactions with business CEOs could point out that profits are not an end in themselves but a signal from society that a company is succeeding in its mission of providing something people wantmdashand doing so in a way that uses resources efficiently relative to other possible uses From this perspective the creation of shareholder value or profits is the measure and the reward of success in delivering to society the goods and services we desire which is the more fundamental business objective The measures and rewards reflect the predominant values of the relevant society

CEOs could point out that profits are not an end in themselves but a signal from society that a company is providing things people wantBy moving away from a rigid focus on the term shareholder value big business can also make clear to broad audiences that it understands the trade-offs inherent in its social contract The debate between business and society is essentially one about how to manage (and reach agreement on) those trade-offs What might this point mean specifically There is no shortage of big social issues today that directly affect many big businesses and require new debate These issues include ensuring that aid organizations and trade regimes successfully promote the development of Africa and other poor regions whose economic liftoff would present a major potential boon to global markets as well as to international security promoting a more sophisticated and sensitive approach by both companies and governments to balancing the societal risks and rewards from new technologies spearheading dialogue on the health care and pension challenges in many developed countries and supporting efforts to resolve regional conflicts

Obviously the relevant issue must be matched to the specific business Some companies and business organizations have taken strong public stances on these and similar issues But in general high-level concerted corporate activism is more notable by its absence Business leaders shouldnt fear taking a more forward role advocating the idea of a contract between business and society Public receptiveness to active business leadership on issues such as these may be a lot greater than some might be inclined to think Despite the poor image and bad press of big business in recent times polls suggest that people retain a belief in its ability to provide a positive contribution to society

More than two centuries ago Rousseaus social contract helped to seed the idea among political leaders that they must serve the public good lest their own legitimacy be threatened The CEOs of todays big corporations should take the opportunity to restate and reinforce their own social contracts in order to help secure for the long term the invested billions of their shareholders

Q4 ldquoThe future of mankind is virtually dependent upon the zeal with which we pursue sustainable developmentrdquo Discuss(2003)

Q6 ldquoEnergy management throws up a number of critical issues concerning businessrdquo Discuss any 3 such critical issues with appropriate examples(2002)

Q8 What are the various facets of energy management and its impact on business environment in India (2001)

Q5 The question of developing alternative sources of energy acquires added dimensions Elaborate on this statement in light of the present energy crisis(2000)

NOTE 1) Question No 1 is compulsoryQ1 Please read the following case and answer all the questions given below it

Coke Pours into Asia

The biggest prize and challenge is China To woo the country of more than 12 billion people the company has made unprecedented compromises

In 1993 it entered a marriage of convenience with the Chinese government gaining wide access to the market ndash but at a high cost Coke pledged to keep its predatory instincts check promising to do everything from upgrading the local industry to providing cash income to farmers by starting a new line of fruit drinks

Beijing is counting on Coke to provide its expertise in key areas from hygiene to packaging to distribution In return the Chinese have allowed Coke and its partners to invest $300 million to build 10 new bottling plants giving it a total of 23 by the end of 1997

The first fruits of the companyrsquos are in sight Coke says it has grabbed 23 of the soft drink volume in China and figures on eventually topping 40 A new study by McKinsey amp Co says Coca-Cola is one of a handful of consumer goods companies that has a chance to hit $1 billion in sales in China by 2000 thanks to its large systematic investment in the country

The problem is China is so large that Coke cannot rely on its usual method to ensure that all is well In more developed markets Coke bottlers distribute all of the products directly giving the company complete control over its goods But thatrsquos not feasible in China where some 75 of Coke products go through independent wholesalers That means itrsquos nearly impossible for the company to police such things as coolers product display and pricing All Coke can do in most cases is ship its product out and hope for the best

Moreover Coke doesnrsquot always succeed in staying out of the way of nationalist crosscurrents In 1995 a group of national Peoplersquos Congress legislators called for Beijing to restrict the expansion of Coke and Pepsi to protect local manufacturers This legislative motion spurred an announcement last May that further approvals of soft drink plants for joint ventures would be put on hold

Coke takes the threat of a backlash seriously It recently subsidized a study by Cambridge University Professor Peter Nolan to defuse criticism that it wasnrsquot helping Chinarsquos economy Nolan estimated that every job at a Coca-Cola plant leads to six additional jobs elsewhere The company is spending heavily to build rural schools and libraries And it has launched the line of fruit drinks even though the premium priced Tian yu di ldquoHeaven and Earthrdquo ndash is a flop say Cokersquos sales representatives They say that itrsquos too sweet and too expensive for Chinese tastes Politically though itrsquos a winner since it provides cash for local fruit growers

a) How far would it be correct to say that ldquoMNCrsquos usually try to seek market access in different countries by making all sorts of promisesrdquo

b) Do the advantages of MNCrsquos out-weigh their dis-advantages Give reasons

Composition of Trade

Export growth has increased in 2003-04 due to major contribution from manufacturing sector Export of wheat vegetables and fruits meat nad meat preparation has accelerated Exports of products such as marine products cashew nuts spices has declined during 2003-2004 Yet the overall export growth has witnessed a record surge in Indiarsquos export The products most commonly exported today are manufacturing goods chemical products gems and jewelery agricultural items and textiles The rise in imports is also broad based The products imported includes gold and silver consumer goods capital goods food and allied products mainly edible oil For the period April-November 2004-05 imports were valued at US $ 6426579 million representing an increase of 3447 over the level of imports Petroleum and petroleum products alone accounted for $20 billion that is 47 of the increase in imports in imports in 2004 (April-Nov) Equities and MarketsForeign institutional investors invest in India confidently efficiently and with maximum returns A new breed of investors in India helped swell foreign purchases of Indian securities to more than US$ 6 billion in 2003 15 of the total foreign institutional investment into global emerging markets (equivalent to US$ 34 billion) was pumped into India

Equity market is a market where investors buy and sell securities providing ownership of a companyrsquos share It focuses on structuring and executing diverse equity financing transactions in the public and private markets for Corporates Banks Financial Institutions and the Government Indiarsquos equity market is bouyant

After the reforms the markets have become transparent and accessible uniformly to everyone in the country without bias to caste religion gender or location Over the second half of the nineties this showed up in an unprecendented growth in the number of trades that took place on the exchanges from all over the country the fall in the brokerage fees and the number of depository accounts that were opened Millions of people who were once spectators of the stock market now became participants

9 MNCrsquos (2003)10Joint Venture Mergers amp Acquisitions (20032001)

Mergers acquisitions and joint ventures

Mergers acquisitions and joint ventures can be methods used to allow companies to achieve company strategies (ie diversification market entry new technology etc) Companies need to carefully consider these approaches because of the large amount of time and monetary investments required legal concerns that may arise and the potential consequences of possible over-diversification

Principles of Engagement

In any merger or acquisition planning you need to understand what you are getting into (Do I go ahead Adjust the price Walk away) This is your one shot to understand the business before you close the deal You also want to reduce any post-acquisition surprises (what will we need to work on after acquisition integration issues personnel issues obsolete equipment requiring replacement warranty exposures major contracts customer base) An important key to remember is ldquoItrsquos not only the numbersrdquo

In joint ventures you need to pursue and understand strategic analysis before you commit (what are you trying to accomplish through the joint venture does this really meet long-term strategic objectives) For international joint ventures you must understand the local culture

(identify risks personnel issues) and make sure you understand how you must do business in that local environment You also need to ensure the joint venture is aligned with your companyrsquos Corporate Strategy (What problems may occur in integrating the joint venture into your business) Itrsquos also important to understand the specific competitive environment that the joint venture will be operating in as well

It is important to form the right team including experienced professionals key disciplines including internal audit (the team needs to have multiple disciplines perhaps engineering legal accounting internal and external audit human resources etc specifically experienced senior staff)

Critical Issues

In any merger and acquisition you need to focus on financial statement issues (what is the potential exposure understanding what you are buying) and the control environment (understand weaknesses and how this may impact future operations what are the risks) Additionally a focus needs to be placed upon financial and operational integration concerns (will major restructuring and integration be required how difficult will it be to integrate new acquisition into our business) Also information systems issues can be key areas of concern (compatible systems major integration costs after acquisition old equipment)

Other issues are marketing (will customers stay What will it take to support customers) legal (any pending suits and exposures) business processes (do good processes exist any integration concerns) as well as human resource issues (combining different corporate cultures handling downsizing of combined organizations and the potential of losing key personnel differing benefit plans etc) In addition are there any anti-trust regulatorytax issues requiring analysis

In joint ventures there are several things to be concerned about in particular for international ventures Local bureaucracy and red tape local staffing finding qualified people development and training of local staff local site evaluation (local availability raw material availability personnel availability infrastructure issues) as well as cultural considerations (the need to understand cultural differences and how to react to them)

Other critical concerns are instituting strong financial and operational controls (usually lacking especially in emerging markets) potential economic overheating (major financial devaluation) social upheaval raw material shortages lagging infrastructures (lack of roadways waterways other forms of transportation etc) and the financial ability of partners andor customers of the potential joint venture

In addition after the joint venture has been formed it is important to have continuous risk and life cycle analysis Joint ventures change the longer you are in them and they go through various changes from start up to maturity You need to continually monitor as risks are likely to be different over time

In planning for a successful joint venture a decentralized approach to establishing joint ventures (handle at country level not corporate) may be more appropriate depending upon circumstances You need to meet local business needs It is also important to have integrated joint venture teams and a good skill mix on these teams (to be successful you must support the local joint venture partner with technical and product skills) Likewise one must not forget about linked communications which move through your segments and divisions as well as your corporate headquarters

Conclusion

Analyzing and understanding what you are getting into is very important with mergers acquisitions and joint ventures There are both risks and rewards which must be carefully analyzed and understood Of all the issues involved both you and your management should be interested in three (really only one)

11Technology Transfers (20022001)12Economic Liberalisation (2002)13Limitations of Environmental Analysis (2002)14Professional Management (2002)15Pricing Business Resources(2001)16Economic Trends in India and Global(2001)17Industrial Units

General

Q2 ldquoThe business of business is business Comment OR ldquoThe politics of coalition governments is essentially the politics of adjustment and compromiserdquo Do you agree (2004)Q1 ldquoThe business of business is businessrdquo Analyse the theoretical significance and the practical relevance of this statement (2003)

What is the business of businessBy building social issues into strategy big companies can recast the debate about their role in society

Ian Davis

2005 Number 3

The great long-running debate about businesss role in society is currently caught between two contrasting and tired ideological positions On one side of the current debate are those who argue that to borrow Milton Friedmans phrase the business of business is business This belief most established in Anglo-Saxon economies implies that social issues are peripheral to the challenges of corporate management The sole legitimate purpose of business is to create shareholder value On the other side are the proponents of corporate social responsibility a rapidly growing rather fuzzy movement encompassing companies that claim that they already practice the principles of CSR and skeptical advocacy groups arguing that they must go further in mitigating their social impact As other regions of the worldmdashparts of continental Europe for examplemdashmove toward the Anglo-Saxon shareholder value model the debate between these points of view has increasingly taken on global significance

Both perspectives obscure in different ways the significance of social issues to business success They also unhelpfully caricature the contribution of business to social welfare It is time for CEOs of big companies to recast this debate and recapture the intellectual and moral high ground from their critics

Large companies must build social issues into strategy in a way that reflects their actual business importance Such companies need to articulate their social contribution and to define their ultimate purpose in a way that is more subtle than the business of business is business and less defensive than most current CSR approaches It can help to view the relationship between big business and society as an implicit social contractmdashRousseau adapted to the corporate world you might say This contract has obligations opportunities and advantages for both sides

To explain the basis for such an approach it may help first to pinpoint the limitations of the two current ideological poles Start with the business of business is business The issue here is not primarily legal in many countries such as Germany companies have a legal obligation to stakeholders and even in the United States the legal primacy of shareholders is open to very broad interpretation

The problem with the business of business is business mind-set is rather that it can obscure two important realities The first is that social issues are not so much tangential to the business of business as fundamental to it From a defensive point of view companies that ignore public sentiment make themselves vulnerable to attack Social pressures can also

serve as early indicators of factors essential to corporate profitability for example the regulations and public-policy environment in which companies must operate the appetite of consumers for certain goods above others and the motivation of employeesmdashand their willingness to be hired in the first place

Companies that treat social issues as either irritating distractions or simply unjustified vehicles for attacks on business are turning a blind eye to impending forces that have the potential to alter the strategic future in fundamental ways Although the effects of social pressures on these forces may not be immediate that is not a reason for companies to delay preparing for or tackling them Even from a strict shareholder perspective most stock market valuemdashtypically more than 80 percent in US and Western European public marketsmdashdepends on expectations of corporate cash flows beyond the next three years

Examples abound of the long-term business impact of social issues That impact is growing fast In the pharmaceutical sector the past decades storm of social pressuresmdashstemming from issues such as public perceptions of excessive prices charged for HIVAIDS drugs in developing countriesmdashare now translating into a general (and sometimes seemingly indiscriminate) toughening of the regulatory environment In the food and restaurant sector meanwhile the long-escalating debate about obesity is now resulting in calls for further controls on the marketing of unhealthy foods In the case of big financial institutions concerns about conflicts of interest and the mis-selling of products have recently led to changes in core business practices and industry structure For some big retailers public and planning resistance to new stores is constraining growth opportunities And all this is to say nothing of the way social and political pressures have reshaped and redefined the tobacco and the oil and mining industries among others over the decades

In all such cases billions of dollars of shareholder value have been put at stake as a result of social issues that ultimately feed into the fundamental drivers of corporate performance In many instances a business of business is business outlook has blinded companies to outcomes or to shifts in the implicit social contract that often could have been anticipated

Just as important these outcomes have not just posed risks to companies but also generated value creation opportunities in the case of the pharmaceutical sector for example the growing market for generic drugs in the case of fast-food restaurants providing healthier meals and in the case of the energy industry meeting fast-growing demand (as well as regulatory pressure) for cleaner fuels such as natural gas Social pressures often indicate the existence of unmet social needs or consumer preferences Businesses can gain advantage by spotting and supplying these before their competitors do

Paradoxically therefore the language of shareholder value may in this respect hinder companies from maximizing their shareholder value Practiced as an unthinking mantra the business of business is business can lead managers to focus excessively on improving the short-term performance of their businesses thus neglecting important longer-term opportunities and issues including societal pressures the trust of customers and investments in innovation and other growth prospects

The second point that the business of business is business outlook obscures for many companiesmdashthe need to address questions about their ethics and legitimacymdashis related to the first For reasons of integrity and enlightened self-interest big companies need to tackle such issues with both words and actions It is neither sufficient nor wise to say that it is for governments to set laws and for companies simply to operate within them Nor is it enough simply to point out that many criticisms of businesses are unmerited or that those throwing the mud ought also to examine their own practices and social responsibility Irrespective of whether the criticisms are valid their cumulative effect can shape the strategic context for companies It is imperative that businesses seek to lead rather than merely react to these debates

Moreover in certain parts of the worldmdashparticularly some poor developing countriesmdashthe rule of law and basic public services are notable by their absence This reality can render the business of business is business mind-set positively unhelpful as a guide for corporate

action If companies operating in such an environment focus too narrowly on ill-defined local legislation or shy away from broad debates about their alleged behavior they are likely to face mounting criticism over their activities as well as a greater risk of becoming embroiled in local political tensions

Is CSR the answer If only it were The point is not to criticize the many laudable CSR initiatives undertaken by individual companies or to dispute the obvious need for businesses (as for any other social entity) to act responsibly It is rather to examine the broad prescriptions proposed by groups and activists involved with CSR These prescriptions commonly include stakeholder dialogue social and environmental reports and corporate policies on ethical issues This approach is too limited too defensive and too disconnected from corporate strategy

The defensive posture of CSR springs from its origins Its popularity as a set of corporate tactics was driven in large part by a series of anticorporate campaigns in the late 1990s These campaigns were in turn given impetus by the antiglobalization protests mounted around the same time Since then companies have been drawn to CSR by nice-sounding if vague notions such as the triple bottom line the idea that companies can simultaneously serve social and environmental goals as well as earn profits Companies have seen CSR as a way to avoid nongovernmental-organization (NGO) and reputational flak and to mitigate the rougher edges and consequences of capitalism

This defensiveness starts the argument on the wrong footmdashcertainly as far as business leaders should be concerned Big business provides huge and critical contributions to modern society These are insufficiently articulated acknowledged or understood Among them are productivity gains innovation and research employment large-scale investments human-capital development and organization All of them are and will be essential for future national and global economic welfare Big business also supplies investment vehicles that are likely to be central to the provision of pensions in the aging countries of the Organisation for Economic Co-operation and Development (OECD) In developing countries meanwhile the entry of multinational companies through foreign direct investment has often contributed critical capital technology skills and other poverty-reducing economic spillovers It is no coincidence that developing countries place such emphasis on attracting big business and the investment it can bring to their economies

CSR is limited as an agenda for corporate action because it fails to capture the potential importance of social issues for corporate strategy Admittedly companies undertaking a stakeholder dialogue with NGOs will be more aware in advance of potential issues But tracking NGO opinion is only part of the process of understanding the range of social pressures that can ultimately affect core business drivers such as regulations and consumption patterns

An obvious next step for companies having understood the possible evolution of these broad social pressures is to map long-term options and responses This process clearly needs to be rooted in the development of strategy Yet typical CSR initiativesmdasha new ethical policy here for example or a glossy sustainability report theremdashare often tangential to it It is perfectly possible for a company to follow many prescriptions of CSR and still be caught short by seismic shifts in the socially driven business environment One of the compounding problems is the fact that many companies have chosen to root their CSR functions too narrowly within their public- or corporate-affairs departments Although such departments play an important tactical role they are often geared toward rebutting criticism and tend to operate at a distance from strategic decision making within the company

A contract has two sides and business must acknowledge that in return for the ability to function it is subject to rules and constraintsIn the limitations of both CSR and of the business of business is business thinking lie the outlines of a new approachmdashas relevant for Chinese German and Indian companies as for US and British ones Three main strands stand out The first is a helpfully simple prescription businesses should introduce explicit processes to make sure that social issues and emerging social forces are discussed at the highest levels as part of overall strategic planning This

point means that executives must educate and engage their boards of directors It also means that they need to develop broad metrics or summaries that usefully describe the relevant issues in much the same way that most companies analyze customer trends today The risk that stakeholdersmdashincluding governments consumer groups lawyers and the mediamdashwill mobilize around particular issues can be roughly estimated by studying the known agendas and interests of these parties For example the likelihood that the obesity debate would rebound on food companies was partly predictable from the growing expenditures of governments on obesity-related health problems the inevitable media focus on the issue plus the interest of some lawyers in finding fresh corporate targets for litigation By the time businesses seriously engaged with the question they were in a defensive posture merely struggling to catch up with the public debate In the future companies will need to be much better at understanding and anticipating such issues

Both the second and third strands of the new approach reflect the idea that there is an implicit contract between big business and society or indeed between whole economic sectors and societymdashthe contract that is the subject of this article Detractors have often successfully portrayed the contract as a one-way bargain that benefits business at societys expense The reality is much more complex The activities undertaken by business have clearly brought social benefits as well as costs Similarly however there are two sides to a contract and business must acknowledge that in return for the ability to function it is subject to rules and constraints At times the contract can come under obvious strain The recent backlash against big business in the United States can be seen as society seeking to shift the terms of the contract as a result of popular perceptions that business has abused its power Similarly in Germany at present business is struggling to defend itself against charges that its contract with society is fundamentally unbalanced

The second strand requires companies not just to understand their individual contracts but also to manage those contracts actively To do so companies can choose from a range of potential tactics such as more transparent reporting shifts in RampD or asset reorganization to capture expected future opportunities or to shed perceived liabilities changes in approaches to regulation and at an industry level the development and deployment of voluntary standards of behavior

Some companies and sectors are already experimenting with such approaches Nonetheless there is scope for much more activity provided it is aligned with corporate strategic goals Reshaping conduct on an industry-wide and increasingly global basis may be particularly important given that the perceived misdeeds of one company can rebound on its sector as a whole

An important point to remember is that companies depending on their circumstances will have quite different tactical responses so off-the-shelf or simply nice-sounding solutions may not always be appropriate Transparency offers a good example It is easy but wrong to say that there can never be enough of it What might be good for a pharmaceutical company trying to restore the consumers trust could be damaging for a hedge fund manager A voluntary code of practice for a retailer naturally would be very different from that of a copper-mining company

This observation leads me to the third strand of the new approach for business leaders they need to shape the debate on social issues much more consciously by establishing ever higher (but appropriate) standards of integrity and transparency within their own companies and by becoming much more actively involved in external debates (such as those in the media) on issues that shape the social context of business

A starting point may be for CEOs to articulate publicly the purpose of business in terms less dry than shareholder value although that should continue to be seen as the critical measure of business success However it may be more accurate more motivatingmdashand indeed more beneficial to shareholder value over the long termmdashto describe the ultimate purpose of business as the efficient provision of goods and services that society wants

This is a hugely valuable even noble purpose It is the basis of the contract between business and society and the basis of most peoples real interactions with business CEOs could point out that profits are not an end in themselves but a signal from society that a company is succeeding in its mission of providing something people wantmdashand doing so in a way that uses resources efficiently relative to other possible uses From this perspective the creation of shareholder value or profits is the measure and the reward of success in delivering to society the goods and services we desire which is the more fundamental business objective The measures and rewards reflect the predominant values of the relevant society

CEOs could point out that profits are not an end in themselves but a signal from society that a company is providing things people wantBy moving away from a rigid focus on the term shareholder value big business can also make clear to broad audiences that it understands the trade-offs inherent in its social contract The debate between business and society is essentially one about how to manage (and reach agreement on) those trade-offs What might this point mean specifically There is no shortage of big social issues today that directly affect many big businesses and require new debate These issues include ensuring that aid organizations and trade regimes successfully promote the development of Africa and other poor regions whose economic liftoff would present a major potential boon to global markets as well as to international security promoting a more sophisticated and sensitive approach by both companies and governments to balancing the societal risks and rewards from new technologies spearheading dialogue on the health care and pension challenges in many developed countries and supporting efforts to resolve regional conflicts

Obviously the relevant issue must be matched to the specific business Some companies and business organizations have taken strong public stances on these and similar issues But in general high-level concerted corporate activism is more notable by its absence Business leaders shouldnt fear taking a more forward role advocating the idea of a contract between business and society Public receptiveness to active business leadership on issues such as these may be a lot greater than some might be inclined to think Despite the poor image and bad press of big business in recent times polls suggest that people retain a belief in its ability to provide a positive contribution to society

More than two centuries ago Rousseaus social contract helped to seed the idea among political leaders that they must serve the public good lest their own legitimacy be threatened The CEOs of todays big corporations should take the opportunity to restate and reinforce their own social contracts in order to help secure for the long term the invested billions of their shareholders

Q4 ldquoThe future of mankind is virtually dependent upon the zeal with which we pursue sustainable developmentrdquo Discuss(2003)

Q6 ldquoEnergy management throws up a number of critical issues concerning businessrdquo Discuss any 3 such critical issues with appropriate examples(2002)

Q8 What are the various facets of energy management and its impact on business environment in India (2001)

Q5 The question of developing alternative sources of energy acquires added dimensions Elaborate on this statement in light of the present energy crisis(2000)

NOTE 1) Question No 1 is compulsoryQ1 Please read the following case and answer all the questions given below it

Coke Pours into Asia

The biggest prize and challenge is China To woo the country of more than 12 billion people the company has made unprecedented compromises

In 1993 it entered a marriage of convenience with the Chinese government gaining wide access to the market ndash but at a high cost Coke pledged to keep its predatory instincts check promising to do everything from upgrading the local industry to providing cash income to farmers by starting a new line of fruit drinks

Beijing is counting on Coke to provide its expertise in key areas from hygiene to packaging to distribution In return the Chinese have allowed Coke and its partners to invest $300 million to build 10 new bottling plants giving it a total of 23 by the end of 1997

The first fruits of the companyrsquos are in sight Coke says it has grabbed 23 of the soft drink volume in China and figures on eventually topping 40 A new study by McKinsey amp Co says Coca-Cola is one of a handful of consumer goods companies that has a chance to hit $1 billion in sales in China by 2000 thanks to its large systematic investment in the country

The problem is China is so large that Coke cannot rely on its usual method to ensure that all is well In more developed markets Coke bottlers distribute all of the products directly giving the company complete control over its goods But thatrsquos not feasible in China where some 75 of Coke products go through independent wholesalers That means itrsquos nearly impossible for the company to police such things as coolers product display and pricing All Coke can do in most cases is ship its product out and hope for the best

Moreover Coke doesnrsquot always succeed in staying out of the way of nationalist crosscurrents In 1995 a group of national Peoplersquos Congress legislators called for Beijing to restrict the expansion of Coke and Pepsi to protect local manufacturers This legislative motion spurred an announcement last May that further approvals of soft drink plants for joint ventures would be put on hold

Coke takes the threat of a backlash seriously It recently subsidized a study by Cambridge University Professor Peter Nolan to defuse criticism that it wasnrsquot helping Chinarsquos economy Nolan estimated that every job at a Coca-Cola plant leads to six additional jobs elsewhere The company is spending heavily to build rural schools and libraries And it has launched the line of fruit drinks even though the premium priced Tian yu di ldquoHeaven and Earthrdquo ndash is a flop say Cokersquos sales representatives They say that itrsquos too sweet and too expensive for Chinese tastes Politically though itrsquos a winner since it provides cash for local fruit growers

a) How far would it be correct to say that ldquoMNCrsquos usually try to seek market access in different countries by making all sorts of promisesrdquo

b) Do the advantages of MNCrsquos out-weigh their dis-advantages Give reasons

(identify risks personnel issues) and make sure you understand how you must do business in that local environment You also need to ensure the joint venture is aligned with your companyrsquos Corporate Strategy (What problems may occur in integrating the joint venture into your business) Itrsquos also important to understand the specific competitive environment that the joint venture will be operating in as well

It is important to form the right team including experienced professionals key disciplines including internal audit (the team needs to have multiple disciplines perhaps engineering legal accounting internal and external audit human resources etc specifically experienced senior staff)

Critical Issues

In any merger and acquisition you need to focus on financial statement issues (what is the potential exposure understanding what you are buying) and the control environment (understand weaknesses and how this may impact future operations what are the risks) Additionally a focus needs to be placed upon financial and operational integration concerns (will major restructuring and integration be required how difficult will it be to integrate new acquisition into our business) Also information systems issues can be key areas of concern (compatible systems major integration costs after acquisition old equipment)

Other issues are marketing (will customers stay What will it take to support customers) legal (any pending suits and exposures) business processes (do good processes exist any integration concerns) as well as human resource issues (combining different corporate cultures handling downsizing of combined organizations and the potential of losing key personnel differing benefit plans etc) In addition are there any anti-trust regulatorytax issues requiring analysis

In joint ventures there are several things to be concerned about in particular for international ventures Local bureaucracy and red tape local staffing finding qualified people development and training of local staff local site evaluation (local availability raw material availability personnel availability infrastructure issues) as well as cultural considerations (the need to understand cultural differences and how to react to them)

Other critical concerns are instituting strong financial and operational controls (usually lacking especially in emerging markets) potential economic overheating (major financial devaluation) social upheaval raw material shortages lagging infrastructures (lack of roadways waterways other forms of transportation etc) and the financial ability of partners andor customers of the potential joint venture

In addition after the joint venture has been formed it is important to have continuous risk and life cycle analysis Joint ventures change the longer you are in them and they go through various changes from start up to maturity You need to continually monitor as risks are likely to be different over time

In planning for a successful joint venture a decentralized approach to establishing joint ventures (handle at country level not corporate) may be more appropriate depending upon circumstances You need to meet local business needs It is also important to have integrated joint venture teams and a good skill mix on these teams (to be successful you must support the local joint venture partner with technical and product skills) Likewise one must not forget about linked communications which move through your segments and divisions as well as your corporate headquarters

Conclusion

Analyzing and understanding what you are getting into is very important with mergers acquisitions and joint ventures There are both risks and rewards which must be carefully analyzed and understood Of all the issues involved both you and your management should be interested in three (really only one)

11Technology Transfers (20022001)12Economic Liberalisation (2002)13Limitations of Environmental Analysis (2002)14Professional Management (2002)15Pricing Business Resources(2001)16Economic Trends in India and Global(2001)17Industrial Units

General

Q2 ldquoThe business of business is business Comment OR ldquoThe politics of coalition governments is essentially the politics of adjustment and compromiserdquo Do you agree (2004)Q1 ldquoThe business of business is businessrdquo Analyse the theoretical significance and the practical relevance of this statement (2003)

What is the business of businessBy building social issues into strategy big companies can recast the debate about their role in society

Ian Davis

2005 Number 3

The great long-running debate about businesss role in society is currently caught between two contrasting and tired ideological positions On one side of the current debate are those who argue that to borrow Milton Friedmans phrase the business of business is business This belief most established in Anglo-Saxon economies implies that social issues are peripheral to the challenges of corporate management The sole legitimate purpose of business is to create shareholder value On the other side are the proponents of corporate social responsibility a rapidly growing rather fuzzy movement encompassing companies that claim that they already practice the principles of CSR and skeptical advocacy groups arguing that they must go further in mitigating their social impact As other regions of the worldmdashparts of continental Europe for examplemdashmove toward the Anglo-Saxon shareholder value model the debate between these points of view has increasingly taken on global significance

Both perspectives obscure in different ways the significance of social issues to business success They also unhelpfully caricature the contribution of business to social welfare It is time for CEOs of big companies to recast this debate and recapture the intellectual and moral high ground from their critics

Large companies must build social issues into strategy in a way that reflects their actual business importance Such companies need to articulate their social contribution and to define their ultimate purpose in a way that is more subtle than the business of business is business and less defensive than most current CSR approaches It can help to view the relationship between big business and society as an implicit social contractmdashRousseau adapted to the corporate world you might say This contract has obligations opportunities and advantages for both sides

To explain the basis for such an approach it may help first to pinpoint the limitations of the two current ideological poles Start with the business of business is business The issue here is not primarily legal in many countries such as Germany companies have a legal obligation to stakeholders and even in the United States the legal primacy of shareholders is open to very broad interpretation

The problem with the business of business is business mind-set is rather that it can obscure two important realities The first is that social issues are not so much tangential to the business of business as fundamental to it From a defensive point of view companies that ignore public sentiment make themselves vulnerable to attack Social pressures can also

serve as early indicators of factors essential to corporate profitability for example the regulations and public-policy environment in which companies must operate the appetite of consumers for certain goods above others and the motivation of employeesmdashand their willingness to be hired in the first place

Companies that treat social issues as either irritating distractions or simply unjustified vehicles for attacks on business are turning a blind eye to impending forces that have the potential to alter the strategic future in fundamental ways Although the effects of social pressures on these forces may not be immediate that is not a reason for companies to delay preparing for or tackling them Even from a strict shareholder perspective most stock market valuemdashtypically more than 80 percent in US and Western European public marketsmdashdepends on expectations of corporate cash flows beyond the next three years

Examples abound of the long-term business impact of social issues That impact is growing fast In the pharmaceutical sector the past decades storm of social pressuresmdashstemming from issues such as public perceptions of excessive prices charged for HIVAIDS drugs in developing countriesmdashare now translating into a general (and sometimes seemingly indiscriminate) toughening of the regulatory environment In the food and restaurant sector meanwhile the long-escalating debate about obesity is now resulting in calls for further controls on the marketing of unhealthy foods In the case of big financial institutions concerns about conflicts of interest and the mis-selling of products have recently led to changes in core business practices and industry structure For some big retailers public and planning resistance to new stores is constraining growth opportunities And all this is to say nothing of the way social and political pressures have reshaped and redefined the tobacco and the oil and mining industries among others over the decades

In all such cases billions of dollars of shareholder value have been put at stake as a result of social issues that ultimately feed into the fundamental drivers of corporate performance In many instances a business of business is business outlook has blinded companies to outcomes or to shifts in the implicit social contract that often could have been anticipated

Just as important these outcomes have not just posed risks to companies but also generated value creation opportunities in the case of the pharmaceutical sector for example the growing market for generic drugs in the case of fast-food restaurants providing healthier meals and in the case of the energy industry meeting fast-growing demand (as well as regulatory pressure) for cleaner fuels such as natural gas Social pressures often indicate the existence of unmet social needs or consumer preferences Businesses can gain advantage by spotting and supplying these before their competitors do

Paradoxically therefore the language of shareholder value may in this respect hinder companies from maximizing their shareholder value Practiced as an unthinking mantra the business of business is business can lead managers to focus excessively on improving the short-term performance of their businesses thus neglecting important longer-term opportunities and issues including societal pressures the trust of customers and investments in innovation and other growth prospects

The second point that the business of business is business outlook obscures for many companiesmdashthe need to address questions about their ethics and legitimacymdashis related to the first For reasons of integrity and enlightened self-interest big companies need to tackle such issues with both words and actions It is neither sufficient nor wise to say that it is for governments to set laws and for companies simply to operate within them Nor is it enough simply to point out that many criticisms of businesses are unmerited or that those throwing the mud ought also to examine their own practices and social responsibility Irrespective of whether the criticisms are valid their cumulative effect can shape the strategic context for companies It is imperative that businesses seek to lead rather than merely react to these debates

Moreover in certain parts of the worldmdashparticularly some poor developing countriesmdashthe rule of law and basic public services are notable by their absence This reality can render the business of business is business mind-set positively unhelpful as a guide for corporate

action If companies operating in such an environment focus too narrowly on ill-defined local legislation or shy away from broad debates about their alleged behavior they are likely to face mounting criticism over their activities as well as a greater risk of becoming embroiled in local political tensions

Is CSR the answer If only it were The point is not to criticize the many laudable CSR initiatives undertaken by individual companies or to dispute the obvious need for businesses (as for any other social entity) to act responsibly It is rather to examine the broad prescriptions proposed by groups and activists involved with CSR These prescriptions commonly include stakeholder dialogue social and environmental reports and corporate policies on ethical issues This approach is too limited too defensive and too disconnected from corporate strategy

The defensive posture of CSR springs from its origins Its popularity as a set of corporate tactics was driven in large part by a series of anticorporate campaigns in the late 1990s These campaigns were in turn given impetus by the antiglobalization protests mounted around the same time Since then companies have been drawn to CSR by nice-sounding if vague notions such as the triple bottom line the idea that companies can simultaneously serve social and environmental goals as well as earn profits Companies have seen CSR as a way to avoid nongovernmental-organization (NGO) and reputational flak and to mitigate the rougher edges and consequences of capitalism

This defensiveness starts the argument on the wrong footmdashcertainly as far as business leaders should be concerned Big business provides huge and critical contributions to modern society These are insufficiently articulated acknowledged or understood Among them are productivity gains innovation and research employment large-scale investments human-capital development and organization All of them are and will be essential for future national and global economic welfare Big business also supplies investment vehicles that are likely to be central to the provision of pensions in the aging countries of the Organisation for Economic Co-operation and Development (OECD) In developing countries meanwhile the entry of multinational companies through foreign direct investment has often contributed critical capital technology skills and other poverty-reducing economic spillovers It is no coincidence that developing countries place such emphasis on attracting big business and the investment it can bring to their economies

CSR is limited as an agenda for corporate action because it fails to capture the potential importance of social issues for corporate strategy Admittedly companies undertaking a stakeholder dialogue with NGOs will be more aware in advance of potential issues But tracking NGO opinion is only part of the process of understanding the range of social pressures that can ultimately affect core business drivers such as regulations and consumption patterns

An obvious next step for companies having understood the possible evolution of these broad social pressures is to map long-term options and responses This process clearly needs to be rooted in the development of strategy Yet typical CSR initiativesmdasha new ethical policy here for example or a glossy sustainability report theremdashare often tangential to it It is perfectly possible for a company to follow many prescriptions of CSR and still be caught short by seismic shifts in the socially driven business environment One of the compounding problems is the fact that many companies have chosen to root their CSR functions too narrowly within their public- or corporate-affairs departments Although such departments play an important tactical role they are often geared toward rebutting criticism and tend to operate at a distance from strategic decision making within the company

A contract has two sides and business must acknowledge that in return for the ability to function it is subject to rules and constraintsIn the limitations of both CSR and of the business of business is business thinking lie the outlines of a new approachmdashas relevant for Chinese German and Indian companies as for US and British ones Three main strands stand out The first is a helpfully simple prescription businesses should introduce explicit processes to make sure that social issues and emerging social forces are discussed at the highest levels as part of overall strategic planning This

point means that executives must educate and engage their boards of directors It also means that they need to develop broad metrics or summaries that usefully describe the relevant issues in much the same way that most companies analyze customer trends today The risk that stakeholdersmdashincluding governments consumer groups lawyers and the mediamdashwill mobilize around particular issues can be roughly estimated by studying the known agendas and interests of these parties For example the likelihood that the obesity debate would rebound on food companies was partly predictable from the growing expenditures of governments on obesity-related health problems the inevitable media focus on the issue plus the interest of some lawyers in finding fresh corporate targets for litigation By the time businesses seriously engaged with the question they were in a defensive posture merely struggling to catch up with the public debate In the future companies will need to be much better at understanding and anticipating such issues

Both the second and third strands of the new approach reflect the idea that there is an implicit contract between big business and society or indeed between whole economic sectors and societymdashthe contract that is the subject of this article Detractors have often successfully portrayed the contract as a one-way bargain that benefits business at societys expense The reality is much more complex The activities undertaken by business have clearly brought social benefits as well as costs Similarly however there are two sides to a contract and business must acknowledge that in return for the ability to function it is subject to rules and constraints At times the contract can come under obvious strain The recent backlash against big business in the United States can be seen as society seeking to shift the terms of the contract as a result of popular perceptions that business has abused its power Similarly in Germany at present business is struggling to defend itself against charges that its contract with society is fundamentally unbalanced

The second strand requires companies not just to understand their individual contracts but also to manage those contracts actively To do so companies can choose from a range of potential tactics such as more transparent reporting shifts in RampD or asset reorganization to capture expected future opportunities or to shed perceived liabilities changes in approaches to regulation and at an industry level the development and deployment of voluntary standards of behavior

Some companies and sectors are already experimenting with such approaches Nonetheless there is scope for much more activity provided it is aligned with corporate strategic goals Reshaping conduct on an industry-wide and increasingly global basis may be particularly important given that the perceived misdeeds of one company can rebound on its sector as a whole

An important point to remember is that companies depending on their circumstances will have quite different tactical responses so off-the-shelf or simply nice-sounding solutions may not always be appropriate Transparency offers a good example It is easy but wrong to say that there can never be enough of it What might be good for a pharmaceutical company trying to restore the consumers trust could be damaging for a hedge fund manager A voluntary code of practice for a retailer naturally would be very different from that of a copper-mining company

This observation leads me to the third strand of the new approach for business leaders they need to shape the debate on social issues much more consciously by establishing ever higher (but appropriate) standards of integrity and transparency within their own companies and by becoming much more actively involved in external debates (such as those in the media) on issues that shape the social context of business

A starting point may be for CEOs to articulate publicly the purpose of business in terms less dry than shareholder value although that should continue to be seen as the critical measure of business success However it may be more accurate more motivatingmdashand indeed more beneficial to shareholder value over the long termmdashto describe the ultimate purpose of business as the efficient provision of goods and services that society wants

This is a hugely valuable even noble purpose It is the basis of the contract between business and society and the basis of most peoples real interactions with business CEOs could point out that profits are not an end in themselves but a signal from society that a company is succeeding in its mission of providing something people wantmdashand doing so in a way that uses resources efficiently relative to other possible uses From this perspective the creation of shareholder value or profits is the measure and the reward of success in delivering to society the goods and services we desire which is the more fundamental business objective The measures and rewards reflect the predominant values of the relevant society

CEOs could point out that profits are not an end in themselves but a signal from society that a company is providing things people wantBy moving away from a rigid focus on the term shareholder value big business can also make clear to broad audiences that it understands the trade-offs inherent in its social contract The debate between business and society is essentially one about how to manage (and reach agreement on) those trade-offs What might this point mean specifically There is no shortage of big social issues today that directly affect many big businesses and require new debate These issues include ensuring that aid organizations and trade regimes successfully promote the development of Africa and other poor regions whose economic liftoff would present a major potential boon to global markets as well as to international security promoting a more sophisticated and sensitive approach by both companies and governments to balancing the societal risks and rewards from new technologies spearheading dialogue on the health care and pension challenges in many developed countries and supporting efforts to resolve regional conflicts

Obviously the relevant issue must be matched to the specific business Some companies and business organizations have taken strong public stances on these and similar issues But in general high-level concerted corporate activism is more notable by its absence Business leaders shouldnt fear taking a more forward role advocating the idea of a contract between business and society Public receptiveness to active business leadership on issues such as these may be a lot greater than some might be inclined to think Despite the poor image and bad press of big business in recent times polls suggest that people retain a belief in its ability to provide a positive contribution to society

More than two centuries ago Rousseaus social contract helped to seed the idea among political leaders that they must serve the public good lest their own legitimacy be threatened The CEOs of todays big corporations should take the opportunity to restate and reinforce their own social contracts in order to help secure for the long term the invested billions of their shareholders

Q4 ldquoThe future of mankind is virtually dependent upon the zeal with which we pursue sustainable developmentrdquo Discuss(2003)

Q6 ldquoEnergy management throws up a number of critical issues concerning businessrdquo Discuss any 3 such critical issues with appropriate examples(2002)

Q8 What are the various facets of energy management and its impact on business environment in India (2001)

Q5 The question of developing alternative sources of energy acquires added dimensions Elaborate on this statement in light of the present energy crisis(2000)

NOTE 1) Question No 1 is compulsoryQ1 Please read the following case and answer all the questions given below it

Coke Pours into Asia

The biggest prize and challenge is China To woo the country of more than 12 billion people the company has made unprecedented compromises

In 1993 it entered a marriage of convenience with the Chinese government gaining wide access to the market ndash but at a high cost Coke pledged to keep its predatory instincts check promising to do everything from upgrading the local industry to providing cash income to farmers by starting a new line of fruit drinks

Beijing is counting on Coke to provide its expertise in key areas from hygiene to packaging to distribution In return the Chinese have allowed Coke and its partners to invest $300 million to build 10 new bottling plants giving it a total of 23 by the end of 1997

The first fruits of the companyrsquos are in sight Coke says it has grabbed 23 of the soft drink volume in China and figures on eventually topping 40 A new study by McKinsey amp Co says Coca-Cola is one of a handful of consumer goods companies that has a chance to hit $1 billion in sales in China by 2000 thanks to its large systematic investment in the country

The problem is China is so large that Coke cannot rely on its usual method to ensure that all is well In more developed markets Coke bottlers distribute all of the products directly giving the company complete control over its goods But thatrsquos not feasible in China where some 75 of Coke products go through independent wholesalers That means itrsquos nearly impossible for the company to police such things as coolers product display and pricing All Coke can do in most cases is ship its product out and hope for the best

Moreover Coke doesnrsquot always succeed in staying out of the way of nationalist crosscurrents In 1995 a group of national Peoplersquos Congress legislators called for Beijing to restrict the expansion of Coke and Pepsi to protect local manufacturers This legislative motion spurred an announcement last May that further approvals of soft drink plants for joint ventures would be put on hold

Coke takes the threat of a backlash seriously It recently subsidized a study by Cambridge University Professor Peter Nolan to defuse criticism that it wasnrsquot helping Chinarsquos economy Nolan estimated that every job at a Coca-Cola plant leads to six additional jobs elsewhere The company is spending heavily to build rural schools and libraries And it has launched the line of fruit drinks even though the premium priced Tian yu di ldquoHeaven and Earthrdquo ndash is a flop say Cokersquos sales representatives They say that itrsquos too sweet and too expensive for Chinese tastes Politically though itrsquos a winner since it provides cash for local fruit growers

a) How far would it be correct to say that ldquoMNCrsquos usually try to seek market access in different countries by making all sorts of promisesrdquo

b) Do the advantages of MNCrsquos out-weigh their dis-advantages Give reasons

11Technology Transfers (20022001)12Economic Liberalisation (2002)13Limitations of Environmental Analysis (2002)14Professional Management (2002)15Pricing Business Resources(2001)16Economic Trends in India and Global(2001)17Industrial Units

General

Q2 ldquoThe business of business is business Comment OR ldquoThe politics of coalition governments is essentially the politics of adjustment and compromiserdquo Do you agree (2004)Q1 ldquoThe business of business is businessrdquo Analyse the theoretical significance and the practical relevance of this statement (2003)

What is the business of businessBy building social issues into strategy big companies can recast the debate about their role in society

Ian Davis

2005 Number 3

The great long-running debate about businesss role in society is currently caught between two contrasting and tired ideological positions On one side of the current debate are those who argue that to borrow Milton Friedmans phrase the business of business is business This belief most established in Anglo-Saxon economies implies that social issues are peripheral to the challenges of corporate management The sole legitimate purpose of business is to create shareholder value On the other side are the proponents of corporate social responsibility a rapidly growing rather fuzzy movement encompassing companies that claim that they already practice the principles of CSR and skeptical advocacy groups arguing that they must go further in mitigating their social impact As other regions of the worldmdashparts of continental Europe for examplemdashmove toward the Anglo-Saxon shareholder value model the debate between these points of view has increasingly taken on global significance

Both perspectives obscure in different ways the significance of social issues to business success They also unhelpfully caricature the contribution of business to social welfare It is time for CEOs of big companies to recast this debate and recapture the intellectual and moral high ground from their critics

Large companies must build social issues into strategy in a way that reflects their actual business importance Such companies need to articulate their social contribution and to define their ultimate purpose in a way that is more subtle than the business of business is business and less defensive than most current CSR approaches It can help to view the relationship between big business and society as an implicit social contractmdashRousseau adapted to the corporate world you might say This contract has obligations opportunities and advantages for both sides

To explain the basis for such an approach it may help first to pinpoint the limitations of the two current ideological poles Start with the business of business is business The issue here is not primarily legal in many countries such as Germany companies have a legal obligation to stakeholders and even in the United States the legal primacy of shareholders is open to very broad interpretation

The problem with the business of business is business mind-set is rather that it can obscure two important realities The first is that social issues are not so much tangential to the business of business as fundamental to it From a defensive point of view companies that ignore public sentiment make themselves vulnerable to attack Social pressures can also

serve as early indicators of factors essential to corporate profitability for example the regulations and public-policy environment in which companies must operate the appetite of consumers for certain goods above others and the motivation of employeesmdashand their willingness to be hired in the first place

Companies that treat social issues as either irritating distractions or simply unjustified vehicles for attacks on business are turning a blind eye to impending forces that have the potential to alter the strategic future in fundamental ways Although the effects of social pressures on these forces may not be immediate that is not a reason for companies to delay preparing for or tackling them Even from a strict shareholder perspective most stock market valuemdashtypically more than 80 percent in US and Western European public marketsmdashdepends on expectations of corporate cash flows beyond the next three years

Examples abound of the long-term business impact of social issues That impact is growing fast In the pharmaceutical sector the past decades storm of social pressuresmdashstemming from issues such as public perceptions of excessive prices charged for HIVAIDS drugs in developing countriesmdashare now translating into a general (and sometimes seemingly indiscriminate) toughening of the regulatory environment In the food and restaurant sector meanwhile the long-escalating debate about obesity is now resulting in calls for further controls on the marketing of unhealthy foods In the case of big financial institutions concerns about conflicts of interest and the mis-selling of products have recently led to changes in core business practices and industry structure For some big retailers public and planning resistance to new stores is constraining growth opportunities And all this is to say nothing of the way social and political pressures have reshaped and redefined the tobacco and the oil and mining industries among others over the decades

In all such cases billions of dollars of shareholder value have been put at stake as a result of social issues that ultimately feed into the fundamental drivers of corporate performance In many instances a business of business is business outlook has blinded companies to outcomes or to shifts in the implicit social contract that often could have been anticipated

Just as important these outcomes have not just posed risks to companies but also generated value creation opportunities in the case of the pharmaceutical sector for example the growing market for generic drugs in the case of fast-food restaurants providing healthier meals and in the case of the energy industry meeting fast-growing demand (as well as regulatory pressure) for cleaner fuels such as natural gas Social pressures often indicate the existence of unmet social needs or consumer preferences Businesses can gain advantage by spotting and supplying these before their competitors do

Paradoxically therefore the language of shareholder value may in this respect hinder companies from maximizing their shareholder value Practiced as an unthinking mantra the business of business is business can lead managers to focus excessively on improving the short-term performance of their businesses thus neglecting important longer-term opportunities and issues including societal pressures the trust of customers and investments in innovation and other growth prospects

The second point that the business of business is business outlook obscures for many companiesmdashthe need to address questions about their ethics and legitimacymdashis related to the first For reasons of integrity and enlightened self-interest big companies need to tackle such issues with both words and actions It is neither sufficient nor wise to say that it is for governments to set laws and for companies simply to operate within them Nor is it enough simply to point out that many criticisms of businesses are unmerited or that those throwing the mud ought also to examine their own practices and social responsibility Irrespective of whether the criticisms are valid their cumulative effect can shape the strategic context for companies It is imperative that businesses seek to lead rather than merely react to these debates

Moreover in certain parts of the worldmdashparticularly some poor developing countriesmdashthe rule of law and basic public services are notable by their absence This reality can render the business of business is business mind-set positively unhelpful as a guide for corporate

action If companies operating in such an environment focus too narrowly on ill-defined local legislation or shy away from broad debates about their alleged behavior they are likely to face mounting criticism over their activities as well as a greater risk of becoming embroiled in local political tensions

Is CSR the answer If only it were The point is not to criticize the many laudable CSR initiatives undertaken by individual companies or to dispute the obvious need for businesses (as for any other social entity) to act responsibly It is rather to examine the broad prescriptions proposed by groups and activists involved with CSR These prescriptions commonly include stakeholder dialogue social and environmental reports and corporate policies on ethical issues This approach is too limited too defensive and too disconnected from corporate strategy

The defensive posture of CSR springs from its origins Its popularity as a set of corporate tactics was driven in large part by a series of anticorporate campaigns in the late 1990s These campaigns were in turn given impetus by the antiglobalization protests mounted around the same time Since then companies have been drawn to CSR by nice-sounding if vague notions such as the triple bottom line the idea that companies can simultaneously serve social and environmental goals as well as earn profits Companies have seen CSR as a way to avoid nongovernmental-organization (NGO) and reputational flak and to mitigate the rougher edges and consequences of capitalism

This defensiveness starts the argument on the wrong footmdashcertainly as far as business leaders should be concerned Big business provides huge and critical contributions to modern society These are insufficiently articulated acknowledged or understood Among them are productivity gains innovation and research employment large-scale investments human-capital development and organization All of them are and will be essential for future national and global economic welfare Big business also supplies investment vehicles that are likely to be central to the provision of pensions in the aging countries of the Organisation for Economic Co-operation and Development (OECD) In developing countries meanwhile the entry of multinational companies through foreign direct investment has often contributed critical capital technology skills and other poverty-reducing economic spillovers It is no coincidence that developing countries place such emphasis on attracting big business and the investment it can bring to their economies

CSR is limited as an agenda for corporate action because it fails to capture the potential importance of social issues for corporate strategy Admittedly companies undertaking a stakeholder dialogue with NGOs will be more aware in advance of potential issues But tracking NGO opinion is only part of the process of understanding the range of social pressures that can ultimately affect core business drivers such as regulations and consumption patterns

An obvious next step for companies having understood the possible evolution of these broad social pressures is to map long-term options and responses This process clearly needs to be rooted in the development of strategy Yet typical CSR initiativesmdasha new ethical policy here for example or a glossy sustainability report theremdashare often tangential to it It is perfectly possible for a company to follow many prescriptions of CSR and still be caught short by seismic shifts in the socially driven business environment One of the compounding problems is the fact that many companies have chosen to root their CSR functions too narrowly within their public- or corporate-affairs departments Although such departments play an important tactical role they are often geared toward rebutting criticism and tend to operate at a distance from strategic decision making within the company

A contract has two sides and business must acknowledge that in return for the ability to function it is subject to rules and constraintsIn the limitations of both CSR and of the business of business is business thinking lie the outlines of a new approachmdashas relevant for Chinese German and Indian companies as for US and British ones Three main strands stand out The first is a helpfully simple prescription businesses should introduce explicit processes to make sure that social issues and emerging social forces are discussed at the highest levels as part of overall strategic planning This

point means that executives must educate and engage their boards of directors It also means that they need to develop broad metrics or summaries that usefully describe the relevant issues in much the same way that most companies analyze customer trends today The risk that stakeholdersmdashincluding governments consumer groups lawyers and the mediamdashwill mobilize around particular issues can be roughly estimated by studying the known agendas and interests of these parties For example the likelihood that the obesity debate would rebound on food companies was partly predictable from the growing expenditures of governments on obesity-related health problems the inevitable media focus on the issue plus the interest of some lawyers in finding fresh corporate targets for litigation By the time businesses seriously engaged with the question they were in a defensive posture merely struggling to catch up with the public debate In the future companies will need to be much better at understanding and anticipating such issues

Both the second and third strands of the new approach reflect the idea that there is an implicit contract between big business and society or indeed between whole economic sectors and societymdashthe contract that is the subject of this article Detractors have often successfully portrayed the contract as a one-way bargain that benefits business at societys expense The reality is much more complex The activities undertaken by business have clearly brought social benefits as well as costs Similarly however there are two sides to a contract and business must acknowledge that in return for the ability to function it is subject to rules and constraints At times the contract can come under obvious strain The recent backlash against big business in the United States can be seen as society seeking to shift the terms of the contract as a result of popular perceptions that business has abused its power Similarly in Germany at present business is struggling to defend itself against charges that its contract with society is fundamentally unbalanced

The second strand requires companies not just to understand their individual contracts but also to manage those contracts actively To do so companies can choose from a range of potential tactics such as more transparent reporting shifts in RampD or asset reorganization to capture expected future opportunities or to shed perceived liabilities changes in approaches to regulation and at an industry level the development and deployment of voluntary standards of behavior

Some companies and sectors are already experimenting with such approaches Nonetheless there is scope for much more activity provided it is aligned with corporate strategic goals Reshaping conduct on an industry-wide and increasingly global basis may be particularly important given that the perceived misdeeds of one company can rebound on its sector as a whole

An important point to remember is that companies depending on their circumstances will have quite different tactical responses so off-the-shelf or simply nice-sounding solutions may not always be appropriate Transparency offers a good example It is easy but wrong to say that there can never be enough of it What might be good for a pharmaceutical company trying to restore the consumers trust could be damaging for a hedge fund manager A voluntary code of practice for a retailer naturally would be very different from that of a copper-mining company

This observation leads me to the third strand of the new approach for business leaders they need to shape the debate on social issues much more consciously by establishing ever higher (but appropriate) standards of integrity and transparency within their own companies and by becoming much more actively involved in external debates (such as those in the media) on issues that shape the social context of business

A starting point may be for CEOs to articulate publicly the purpose of business in terms less dry than shareholder value although that should continue to be seen as the critical measure of business success However it may be more accurate more motivatingmdashand indeed more beneficial to shareholder value over the long termmdashto describe the ultimate purpose of business as the efficient provision of goods and services that society wants

This is a hugely valuable even noble purpose It is the basis of the contract between business and society and the basis of most peoples real interactions with business CEOs could point out that profits are not an end in themselves but a signal from society that a company is succeeding in its mission of providing something people wantmdashand doing so in a way that uses resources efficiently relative to other possible uses From this perspective the creation of shareholder value or profits is the measure and the reward of success in delivering to society the goods and services we desire which is the more fundamental business objective The measures and rewards reflect the predominant values of the relevant society

CEOs could point out that profits are not an end in themselves but a signal from society that a company is providing things people wantBy moving away from a rigid focus on the term shareholder value big business can also make clear to broad audiences that it understands the trade-offs inherent in its social contract The debate between business and society is essentially one about how to manage (and reach agreement on) those trade-offs What might this point mean specifically There is no shortage of big social issues today that directly affect many big businesses and require new debate These issues include ensuring that aid organizations and trade regimes successfully promote the development of Africa and other poor regions whose economic liftoff would present a major potential boon to global markets as well as to international security promoting a more sophisticated and sensitive approach by both companies and governments to balancing the societal risks and rewards from new technologies spearheading dialogue on the health care and pension challenges in many developed countries and supporting efforts to resolve regional conflicts

Obviously the relevant issue must be matched to the specific business Some companies and business organizations have taken strong public stances on these and similar issues But in general high-level concerted corporate activism is more notable by its absence Business leaders shouldnt fear taking a more forward role advocating the idea of a contract between business and society Public receptiveness to active business leadership on issues such as these may be a lot greater than some might be inclined to think Despite the poor image and bad press of big business in recent times polls suggest that people retain a belief in its ability to provide a positive contribution to society

More than two centuries ago Rousseaus social contract helped to seed the idea among political leaders that they must serve the public good lest their own legitimacy be threatened The CEOs of todays big corporations should take the opportunity to restate and reinforce their own social contracts in order to help secure for the long term the invested billions of their shareholders

Q4 ldquoThe future of mankind is virtually dependent upon the zeal with which we pursue sustainable developmentrdquo Discuss(2003)

Q6 ldquoEnergy management throws up a number of critical issues concerning businessrdquo Discuss any 3 such critical issues with appropriate examples(2002)

Q8 What are the various facets of energy management and its impact on business environment in India (2001)

Q5 The question of developing alternative sources of energy acquires added dimensions Elaborate on this statement in light of the present energy crisis(2000)

NOTE 1) Question No 1 is compulsoryQ1 Please read the following case and answer all the questions given below it

Coke Pours into Asia

The biggest prize and challenge is China To woo the country of more than 12 billion people the company has made unprecedented compromises

In 1993 it entered a marriage of convenience with the Chinese government gaining wide access to the market ndash but at a high cost Coke pledged to keep its predatory instincts check promising to do everything from upgrading the local industry to providing cash income to farmers by starting a new line of fruit drinks

Beijing is counting on Coke to provide its expertise in key areas from hygiene to packaging to distribution In return the Chinese have allowed Coke and its partners to invest $300 million to build 10 new bottling plants giving it a total of 23 by the end of 1997

The first fruits of the companyrsquos are in sight Coke says it has grabbed 23 of the soft drink volume in China and figures on eventually topping 40 A new study by McKinsey amp Co says Coca-Cola is one of a handful of consumer goods companies that has a chance to hit $1 billion in sales in China by 2000 thanks to its large systematic investment in the country

The problem is China is so large that Coke cannot rely on its usual method to ensure that all is well In more developed markets Coke bottlers distribute all of the products directly giving the company complete control over its goods But thatrsquos not feasible in China where some 75 of Coke products go through independent wholesalers That means itrsquos nearly impossible for the company to police such things as coolers product display and pricing All Coke can do in most cases is ship its product out and hope for the best

Moreover Coke doesnrsquot always succeed in staying out of the way of nationalist crosscurrents In 1995 a group of national Peoplersquos Congress legislators called for Beijing to restrict the expansion of Coke and Pepsi to protect local manufacturers This legislative motion spurred an announcement last May that further approvals of soft drink plants for joint ventures would be put on hold

Coke takes the threat of a backlash seriously It recently subsidized a study by Cambridge University Professor Peter Nolan to defuse criticism that it wasnrsquot helping Chinarsquos economy Nolan estimated that every job at a Coca-Cola plant leads to six additional jobs elsewhere The company is spending heavily to build rural schools and libraries And it has launched the line of fruit drinks even though the premium priced Tian yu di ldquoHeaven and Earthrdquo ndash is a flop say Cokersquos sales representatives They say that itrsquos too sweet and too expensive for Chinese tastes Politically though itrsquos a winner since it provides cash for local fruit growers

a) How far would it be correct to say that ldquoMNCrsquos usually try to seek market access in different countries by making all sorts of promisesrdquo

b) Do the advantages of MNCrsquos out-weigh their dis-advantages Give reasons

serve as early indicators of factors essential to corporate profitability for example the regulations and public-policy environment in which companies must operate the appetite of consumers for certain goods above others and the motivation of employeesmdashand their willingness to be hired in the first place

Companies that treat social issues as either irritating distractions or simply unjustified vehicles for attacks on business are turning a blind eye to impending forces that have the potential to alter the strategic future in fundamental ways Although the effects of social pressures on these forces may not be immediate that is not a reason for companies to delay preparing for or tackling them Even from a strict shareholder perspective most stock market valuemdashtypically more than 80 percent in US and Western European public marketsmdashdepends on expectations of corporate cash flows beyond the next three years

Examples abound of the long-term business impact of social issues That impact is growing fast In the pharmaceutical sector the past decades storm of social pressuresmdashstemming from issues such as public perceptions of excessive prices charged for HIVAIDS drugs in developing countriesmdashare now translating into a general (and sometimes seemingly indiscriminate) toughening of the regulatory environment In the food and restaurant sector meanwhile the long-escalating debate about obesity is now resulting in calls for further controls on the marketing of unhealthy foods In the case of big financial institutions concerns about conflicts of interest and the mis-selling of products have recently led to changes in core business practices and industry structure For some big retailers public and planning resistance to new stores is constraining growth opportunities And all this is to say nothing of the way social and political pressures have reshaped and redefined the tobacco and the oil and mining industries among others over the decades

In all such cases billions of dollars of shareholder value have been put at stake as a result of social issues that ultimately feed into the fundamental drivers of corporate performance In many instances a business of business is business outlook has blinded companies to outcomes or to shifts in the implicit social contract that often could have been anticipated

Just as important these outcomes have not just posed risks to companies but also generated value creation opportunities in the case of the pharmaceutical sector for example the growing market for generic drugs in the case of fast-food restaurants providing healthier meals and in the case of the energy industry meeting fast-growing demand (as well as regulatory pressure) for cleaner fuels such as natural gas Social pressures often indicate the existence of unmet social needs or consumer preferences Businesses can gain advantage by spotting and supplying these before their competitors do

Paradoxically therefore the language of shareholder value may in this respect hinder companies from maximizing their shareholder value Practiced as an unthinking mantra the business of business is business can lead managers to focus excessively on improving the short-term performance of their businesses thus neglecting important longer-term opportunities and issues including societal pressures the trust of customers and investments in innovation and other growth prospects

The second point that the business of business is business outlook obscures for many companiesmdashthe need to address questions about their ethics and legitimacymdashis related to the first For reasons of integrity and enlightened self-interest big companies need to tackle such issues with both words and actions It is neither sufficient nor wise to say that it is for governments to set laws and for companies simply to operate within them Nor is it enough simply to point out that many criticisms of businesses are unmerited or that those throwing the mud ought also to examine their own practices and social responsibility Irrespective of whether the criticisms are valid their cumulative effect can shape the strategic context for companies It is imperative that businesses seek to lead rather than merely react to these debates

Moreover in certain parts of the worldmdashparticularly some poor developing countriesmdashthe rule of law and basic public services are notable by their absence This reality can render the business of business is business mind-set positively unhelpful as a guide for corporate

action If companies operating in such an environment focus too narrowly on ill-defined local legislation or shy away from broad debates about their alleged behavior they are likely to face mounting criticism over their activities as well as a greater risk of becoming embroiled in local political tensions

Is CSR the answer If only it were The point is not to criticize the many laudable CSR initiatives undertaken by individual companies or to dispute the obvious need for businesses (as for any other social entity) to act responsibly It is rather to examine the broad prescriptions proposed by groups and activists involved with CSR These prescriptions commonly include stakeholder dialogue social and environmental reports and corporate policies on ethical issues This approach is too limited too defensive and too disconnected from corporate strategy

The defensive posture of CSR springs from its origins Its popularity as a set of corporate tactics was driven in large part by a series of anticorporate campaigns in the late 1990s These campaigns were in turn given impetus by the antiglobalization protests mounted around the same time Since then companies have been drawn to CSR by nice-sounding if vague notions such as the triple bottom line the idea that companies can simultaneously serve social and environmental goals as well as earn profits Companies have seen CSR as a way to avoid nongovernmental-organization (NGO) and reputational flak and to mitigate the rougher edges and consequences of capitalism

This defensiveness starts the argument on the wrong footmdashcertainly as far as business leaders should be concerned Big business provides huge and critical contributions to modern society These are insufficiently articulated acknowledged or understood Among them are productivity gains innovation and research employment large-scale investments human-capital development and organization All of them are and will be essential for future national and global economic welfare Big business also supplies investment vehicles that are likely to be central to the provision of pensions in the aging countries of the Organisation for Economic Co-operation and Development (OECD) In developing countries meanwhile the entry of multinational companies through foreign direct investment has often contributed critical capital technology skills and other poverty-reducing economic spillovers It is no coincidence that developing countries place such emphasis on attracting big business and the investment it can bring to their economies

CSR is limited as an agenda for corporate action because it fails to capture the potential importance of social issues for corporate strategy Admittedly companies undertaking a stakeholder dialogue with NGOs will be more aware in advance of potential issues But tracking NGO opinion is only part of the process of understanding the range of social pressures that can ultimately affect core business drivers such as regulations and consumption patterns

An obvious next step for companies having understood the possible evolution of these broad social pressures is to map long-term options and responses This process clearly needs to be rooted in the development of strategy Yet typical CSR initiativesmdasha new ethical policy here for example or a glossy sustainability report theremdashare often tangential to it It is perfectly possible for a company to follow many prescriptions of CSR and still be caught short by seismic shifts in the socially driven business environment One of the compounding problems is the fact that many companies have chosen to root their CSR functions too narrowly within their public- or corporate-affairs departments Although such departments play an important tactical role they are often geared toward rebutting criticism and tend to operate at a distance from strategic decision making within the company

A contract has two sides and business must acknowledge that in return for the ability to function it is subject to rules and constraintsIn the limitations of both CSR and of the business of business is business thinking lie the outlines of a new approachmdashas relevant for Chinese German and Indian companies as for US and British ones Three main strands stand out The first is a helpfully simple prescription businesses should introduce explicit processes to make sure that social issues and emerging social forces are discussed at the highest levels as part of overall strategic planning This

point means that executives must educate and engage their boards of directors It also means that they need to develop broad metrics or summaries that usefully describe the relevant issues in much the same way that most companies analyze customer trends today The risk that stakeholdersmdashincluding governments consumer groups lawyers and the mediamdashwill mobilize around particular issues can be roughly estimated by studying the known agendas and interests of these parties For example the likelihood that the obesity debate would rebound on food companies was partly predictable from the growing expenditures of governments on obesity-related health problems the inevitable media focus on the issue plus the interest of some lawyers in finding fresh corporate targets for litigation By the time businesses seriously engaged with the question they were in a defensive posture merely struggling to catch up with the public debate In the future companies will need to be much better at understanding and anticipating such issues

Both the second and third strands of the new approach reflect the idea that there is an implicit contract between big business and society or indeed between whole economic sectors and societymdashthe contract that is the subject of this article Detractors have often successfully portrayed the contract as a one-way bargain that benefits business at societys expense The reality is much more complex The activities undertaken by business have clearly brought social benefits as well as costs Similarly however there are two sides to a contract and business must acknowledge that in return for the ability to function it is subject to rules and constraints At times the contract can come under obvious strain The recent backlash against big business in the United States can be seen as society seeking to shift the terms of the contract as a result of popular perceptions that business has abused its power Similarly in Germany at present business is struggling to defend itself against charges that its contract with society is fundamentally unbalanced

The second strand requires companies not just to understand their individual contracts but also to manage those contracts actively To do so companies can choose from a range of potential tactics such as more transparent reporting shifts in RampD or asset reorganization to capture expected future opportunities or to shed perceived liabilities changes in approaches to regulation and at an industry level the development and deployment of voluntary standards of behavior

Some companies and sectors are already experimenting with such approaches Nonetheless there is scope for much more activity provided it is aligned with corporate strategic goals Reshaping conduct on an industry-wide and increasingly global basis may be particularly important given that the perceived misdeeds of one company can rebound on its sector as a whole

An important point to remember is that companies depending on their circumstances will have quite different tactical responses so off-the-shelf or simply nice-sounding solutions may not always be appropriate Transparency offers a good example It is easy but wrong to say that there can never be enough of it What might be good for a pharmaceutical company trying to restore the consumers trust could be damaging for a hedge fund manager A voluntary code of practice for a retailer naturally would be very different from that of a copper-mining company

This observation leads me to the third strand of the new approach for business leaders they need to shape the debate on social issues much more consciously by establishing ever higher (but appropriate) standards of integrity and transparency within their own companies and by becoming much more actively involved in external debates (such as those in the media) on issues that shape the social context of business

A starting point may be for CEOs to articulate publicly the purpose of business in terms less dry than shareholder value although that should continue to be seen as the critical measure of business success However it may be more accurate more motivatingmdashand indeed more beneficial to shareholder value over the long termmdashto describe the ultimate purpose of business as the efficient provision of goods and services that society wants

This is a hugely valuable even noble purpose It is the basis of the contract between business and society and the basis of most peoples real interactions with business CEOs could point out that profits are not an end in themselves but a signal from society that a company is succeeding in its mission of providing something people wantmdashand doing so in a way that uses resources efficiently relative to other possible uses From this perspective the creation of shareholder value or profits is the measure and the reward of success in delivering to society the goods and services we desire which is the more fundamental business objective The measures and rewards reflect the predominant values of the relevant society

CEOs could point out that profits are not an end in themselves but a signal from society that a company is providing things people wantBy moving away from a rigid focus on the term shareholder value big business can also make clear to broad audiences that it understands the trade-offs inherent in its social contract The debate between business and society is essentially one about how to manage (and reach agreement on) those trade-offs What might this point mean specifically There is no shortage of big social issues today that directly affect many big businesses and require new debate These issues include ensuring that aid organizations and trade regimes successfully promote the development of Africa and other poor regions whose economic liftoff would present a major potential boon to global markets as well as to international security promoting a more sophisticated and sensitive approach by both companies and governments to balancing the societal risks and rewards from new technologies spearheading dialogue on the health care and pension challenges in many developed countries and supporting efforts to resolve regional conflicts

Obviously the relevant issue must be matched to the specific business Some companies and business organizations have taken strong public stances on these and similar issues But in general high-level concerted corporate activism is more notable by its absence Business leaders shouldnt fear taking a more forward role advocating the idea of a contract between business and society Public receptiveness to active business leadership on issues such as these may be a lot greater than some might be inclined to think Despite the poor image and bad press of big business in recent times polls suggest that people retain a belief in its ability to provide a positive contribution to society

More than two centuries ago Rousseaus social contract helped to seed the idea among political leaders that they must serve the public good lest their own legitimacy be threatened The CEOs of todays big corporations should take the opportunity to restate and reinforce their own social contracts in order to help secure for the long term the invested billions of their shareholders

Q4 ldquoThe future of mankind is virtually dependent upon the zeal with which we pursue sustainable developmentrdquo Discuss(2003)

Q6 ldquoEnergy management throws up a number of critical issues concerning businessrdquo Discuss any 3 such critical issues with appropriate examples(2002)

Q8 What are the various facets of energy management and its impact on business environment in India (2001)

Q5 The question of developing alternative sources of energy acquires added dimensions Elaborate on this statement in light of the present energy crisis(2000)

NOTE 1) Question No 1 is compulsoryQ1 Please read the following case and answer all the questions given below it

Coke Pours into Asia

The biggest prize and challenge is China To woo the country of more than 12 billion people the company has made unprecedented compromises

In 1993 it entered a marriage of convenience with the Chinese government gaining wide access to the market ndash but at a high cost Coke pledged to keep its predatory instincts check promising to do everything from upgrading the local industry to providing cash income to farmers by starting a new line of fruit drinks

Beijing is counting on Coke to provide its expertise in key areas from hygiene to packaging to distribution In return the Chinese have allowed Coke and its partners to invest $300 million to build 10 new bottling plants giving it a total of 23 by the end of 1997

The first fruits of the companyrsquos are in sight Coke says it has grabbed 23 of the soft drink volume in China and figures on eventually topping 40 A new study by McKinsey amp Co says Coca-Cola is one of a handful of consumer goods companies that has a chance to hit $1 billion in sales in China by 2000 thanks to its large systematic investment in the country

The problem is China is so large that Coke cannot rely on its usual method to ensure that all is well In more developed markets Coke bottlers distribute all of the products directly giving the company complete control over its goods But thatrsquos not feasible in China where some 75 of Coke products go through independent wholesalers That means itrsquos nearly impossible for the company to police such things as coolers product display and pricing All Coke can do in most cases is ship its product out and hope for the best

Moreover Coke doesnrsquot always succeed in staying out of the way of nationalist crosscurrents In 1995 a group of national Peoplersquos Congress legislators called for Beijing to restrict the expansion of Coke and Pepsi to protect local manufacturers This legislative motion spurred an announcement last May that further approvals of soft drink plants for joint ventures would be put on hold

Coke takes the threat of a backlash seriously It recently subsidized a study by Cambridge University Professor Peter Nolan to defuse criticism that it wasnrsquot helping Chinarsquos economy Nolan estimated that every job at a Coca-Cola plant leads to six additional jobs elsewhere The company is spending heavily to build rural schools and libraries And it has launched the line of fruit drinks even though the premium priced Tian yu di ldquoHeaven and Earthrdquo ndash is a flop say Cokersquos sales representatives They say that itrsquos too sweet and too expensive for Chinese tastes Politically though itrsquos a winner since it provides cash for local fruit growers

a) How far would it be correct to say that ldquoMNCrsquos usually try to seek market access in different countries by making all sorts of promisesrdquo

b) Do the advantages of MNCrsquos out-weigh their dis-advantages Give reasons

action If companies operating in such an environment focus too narrowly on ill-defined local legislation or shy away from broad debates about their alleged behavior they are likely to face mounting criticism over their activities as well as a greater risk of becoming embroiled in local political tensions

Is CSR the answer If only it were The point is not to criticize the many laudable CSR initiatives undertaken by individual companies or to dispute the obvious need for businesses (as for any other social entity) to act responsibly It is rather to examine the broad prescriptions proposed by groups and activists involved with CSR These prescriptions commonly include stakeholder dialogue social and environmental reports and corporate policies on ethical issues This approach is too limited too defensive and too disconnected from corporate strategy

The defensive posture of CSR springs from its origins Its popularity as a set of corporate tactics was driven in large part by a series of anticorporate campaigns in the late 1990s These campaigns were in turn given impetus by the antiglobalization protests mounted around the same time Since then companies have been drawn to CSR by nice-sounding if vague notions such as the triple bottom line the idea that companies can simultaneously serve social and environmental goals as well as earn profits Companies have seen CSR as a way to avoid nongovernmental-organization (NGO) and reputational flak and to mitigate the rougher edges and consequences of capitalism

This defensiveness starts the argument on the wrong footmdashcertainly as far as business leaders should be concerned Big business provides huge and critical contributions to modern society These are insufficiently articulated acknowledged or understood Among them are productivity gains innovation and research employment large-scale investments human-capital development and organization All of them are and will be essential for future national and global economic welfare Big business also supplies investment vehicles that are likely to be central to the provision of pensions in the aging countries of the Organisation for Economic Co-operation and Development (OECD) In developing countries meanwhile the entry of multinational companies through foreign direct investment has often contributed critical capital technology skills and other poverty-reducing economic spillovers It is no coincidence that developing countries place such emphasis on attracting big business and the investment it can bring to their economies

CSR is limited as an agenda for corporate action because it fails to capture the potential importance of social issues for corporate strategy Admittedly companies undertaking a stakeholder dialogue with NGOs will be more aware in advance of potential issues But tracking NGO opinion is only part of the process of understanding the range of social pressures that can ultimately affect core business drivers such as regulations and consumption patterns

An obvious next step for companies having understood the possible evolution of these broad social pressures is to map long-term options and responses This process clearly needs to be rooted in the development of strategy Yet typical CSR initiativesmdasha new ethical policy here for example or a glossy sustainability report theremdashare often tangential to it It is perfectly possible for a company to follow many prescriptions of CSR and still be caught short by seismic shifts in the socially driven business environment One of the compounding problems is the fact that many companies have chosen to root their CSR functions too narrowly within their public- or corporate-affairs departments Although such departments play an important tactical role they are often geared toward rebutting criticism and tend to operate at a distance from strategic decision making within the company

A contract has two sides and business must acknowledge that in return for the ability to function it is subject to rules and constraintsIn the limitations of both CSR and of the business of business is business thinking lie the outlines of a new approachmdashas relevant for Chinese German and Indian companies as for US and British ones Three main strands stand out The first is a helpfully simple prescription businesses should introduce explicit processes to make sure that social issues and emerging social forces are discussed at the highest levels as part of overall strategic planning This

point means that executives must educate and engage their boards of directors It also means that they need to develop broad metrics or summaries that usefully describe the relevant issues in much the same way that most companies analyze customer trends today The risk that stakeholdersmdashincluding governments consumer groups lawyers and the mediamdashwill mobilize around particular issues can be roughly estimated by studying the known agendas and interests of these parties For example the likelihood that the obesity debate would rebound on food companies was partly predictable from the growing expenditures of governments on obesity-related health problems the inevitable media focus on the issue plus the interest of some lawyers in finding fresh corporate targets for litigation By the time businesses seriously engaged with the question they were in a defensive posture merely struggling to catch up with the public debate In the future companies will need to be much better at understanding and anticipating such issues

Both the second and third strands of the new approach reflect the idea that there is an implicit contract between big business and society or indeed between whole economic sectors and societymdashthe contract that is the subject of this article Detractors have often successfully portrayed the contract as a one-way bargain that benefits business at societys expense The reality is much more complex The activities undertaken by business have clearly brought social benefits as well as costs Similarly however there are two sides to a contract and business must acknowledge that in return for the ability to function it is subject to rules and constraints At times the contract can come under obvious strain The recent backlash against big business in the United States can be seen as society seeking to shift the terms of the contract as a result of popular perceptions that business has abused its power Similarly in Germany at present business is struggling to defend itself against charges that its contract with society is fundamentally unbalanced

The second strand requires companies not just to understand their individual contracts but also to manage those contracts actively To do so companies can choose from a range of potential tactics such as more transparent reporting shifts in RampD or asset reorganization to capture expected future opportunities or to shed perceived liabilities changes in approaches to regulation and at an industry level the development and deployment of voluntary standards of behavior

Some companies and sectors are already experimenting with such approaches Nonetheless there is scope for much more activity provided it is aligned with corporate strategic goals Reshaping conduct on an industry-wide and increasingly global basis may be particularly important given that the perceived misdeeds of one company can rebound on its sector as a whole

An important point to remember is that companies depending on their circumstances will have quite different tactical responses so off-the-shelf or simply nice-sounding solutions may not always be appropriate Transparency offers a good example It is easy but wrong to say that there can never be enough of it What might be good for a pharmaceutical company trying to restore the consumers trust could be damaging for a hedge fund manager A voluntary code of practice for a retailer naturally would be very different from that of a copper-mining company

This observation leads me to the third strand of the new approach for business leaders they need to shape the debate on social issues much more consciously by establishing ever higher (but appropriate) standards of integrity and transparency within their own companies and by becoming much more actively involved in external debates (such as those in the media) on issues that shape the social context of business

A starting point may be for CEOs to articulate publicly the purpose of business in terms less dry than shareholder value although that should continue to be seen as the critical measure of business success However it may be more accurate more motivatingmdashand indeed more beneficial to shareholder value over the long termmdashto describe the ultimate purpose of business as the efficient provision of goods and services that society wants

This is a hugely valuable even noble purpose It is the basis of the contract between business and society and the basis of most peoples real interactions with business CEOs could point out that profits are not an end in themselves but a signal from society that a company is succeeding in its mission of providing something people wantmdashand doing so in a way that uses resources efficiently relative to other possible uses From this perspective the creation of shareholder value or profits is the measure and the reward of success in delivering to society the goods and services we desire which is the more fundamental business objective The measures and rewards reflect the predominant values of the relevant society

CEOs could point out that profits are not an end in themselves but a signal from society that a company is providing things people wantBy moving away from a rigid focus on the term shareholder value big business can also make clear to broad audiences that it understands the trade-offs inherent in its social contract The debate between business and society is essentially one about how to manage (and reach agreement on) those trade-offs What might this point mean specifically There is no shortage of big social issues today that directly affect many big businesses and require new debate These issues include ensuring that aid organizations and trade regimes successfully promote the development of Africa and other poor regions whose economic liftoff would present a major potential boon to global markets as well as to international security promoting a more sophisticated and sensitive approach by both companies and governments to balancing the societal risks and rewards from new technologies spearheading dialogue on the health care and pension challenges in many developed countries and supporting efforts to resolve regional conflicts

Obviously the relevant issue must be matched to the specific business Some companies and business organizations have taken strong public stances on these and similar issues But in general high-level concerted corporate activism is more notable by its absence Business leaders shouldnt fear taking a more forward role advocating the idea of a contract between business and society Public receptiveness to active business leadership on issues such as these may be a lot greater than some might be inclined to think Despite the poor image and bad press of big business in recent times polls suggest that people retain a belief in its ability to provide a positive contribution to society

More than two centuries ago Rousseaus social contract helped to seed the idea among political leaders that they must serve the public good lest their own legitimacy be threatened The CEOs of todays big corporations should take the opportunity to restate and reinforce their own social contracts in order to help secure for the long term the invested billions of their shareholders

Q4 ldquoThe future of mankind is virtually dependent upon the zeal with which we pursue sustainable developmentrdquo Discuss(2003)

Q6 ldquoEnergy management throws up a number of critical issues concerning businessrdquo Discuss any 3 such critical issues with appropriate examples(2002)

Q8 What are the various facets of energy management and its impact on business environment in India (2001)

Q5 The question of developing alternative sources of energy acquires added dimensions Elaborate on this statement in light of the present energy crisis(2000)

NOTE 1) Question No 1 is compulsoryQ1 Please read the following case and answer all the questions given below it

Coke Pours into Asia

The biggest prize and challenge is China To woo the country of more than 12 billion people the company has made unprecedented compromises

In 1993 it entered a marriage of convenience with the Chinese government gaining wide access to the market ndash but at a high cost Coke pledged to keep its predatory instincts check promising to do everything from upgrading the local industry to providing cash income to farmers by starting a new line of fruit drinks

Beijing is counting on Coke to provide its expertise in key areas from hygiene to packaging to distribution In return the Chinese have allowed Coke and its partners to invest $300 million to build 10 new bottling plants giving it a total of 23 by the end of 1997

The first fruits of the companyrsquos are in sight Coke says it has grabbed 23 of the soft drink volume in China and figures on eventually topping 40 A new study by McKinsey amp Co says Coca-Cola is one of a handful of consumer goods companies that has a chance to hit $1 billion in sales in China by 2000 thanks to its large systematic investment in the country

The problem is China is so large that Coke cannot rely on its usual method to ensure that all is well In more developed markets Coke bottlers distribute all of the products directly giving the company complete control over its goods But thatrsquos not feasible in China where some 75 of Coke products go through independent wholesalers That means itrsquos nearly impossible for the company to police such things as coolers product display and pricing All Coke can do in most cases is ship its product out and hope for the best

Moreover Coke doesnrsquot always succeed in staying out of the way of nationalist crosscurrents In 1995 a group of national Peoplersquos Congress legislators called for Beijing to restrict the expansion of Coke and Pepsi to protect local manufacturers This legislative motion spurred an announcement last May that further approvals of soft drink plants for joint ventures would be put on hold

Coke takes the threat of a backlash seriously It recently subsidized a study by Cambridge University Professor Peter Nolan to defuse criticism that it wasnrsquot helping Chinarsquos economy Nolan estimated that every job at a Coca-Cola plant leads to six additional jobs elsewhere The company is spending heavily to build rural schools and libraries And it has launched the line of fruit drinks even though the premium priced Tian yu di ldquoHeaven and Earthrdquo ndash is a flop say Cokersquos sales representatives They say that itrsquos too sweet and too expensive for Chinese tastes Politically though itrsquos a winner since it provides cash for local fruit growers

a) How far would it be correct to say that ldquoMNCrsquos usually try to seek market access in different countries by making all sorts of promisesrdquo

b) Do the advantages of MNCrsquos out-weigh their dis-advantages Give reasons

point means that executives must educate and engage their boards of directors It also means that they need to develop broad metrics or summaries that usefully describe the relevant issues in much the same way that most companies analyze customer trends today The risk that stakeholdersmdashincluding governments consumer groups lawyers and the mediamdashwill mobilize around particular issues can be roughly estimated by studying the known agendas and interests of these parties For example the likelihood that the obesity debate would rebound on food companies was partly predictable from the growing expenditures of governments on obesity-related health problems the inevitable media focus on the issue plus the interest of some lawyers in finding fresh corporate targets for litigation By the time businesses seriously engaged with the question they were in a defensive posture merely struggling to catch up with the public debate In the future companies will need to be much better at understanding and anticipating such issues

Both the second and third strands of the new approach reflect the idea that there is an implicit contract between big business and society or indeed between whole economic sectors and societymdashthe contract that is the subject of this article Detractors have often successfully portrayed the contract as a one-way bargain that benefits business at societys expense The reality is much more complex The activities undertaken by business have clearly brought social benefits as well as costs Similarly however there are two sides to a contract and business must acknowledge that in return for the ability to function it is subject to rules and constraints At times the contract can come under obvious strain The recent backlash against big business in the United States can be seen as society seeking to shift the terms of the contract as a result of popular perceptions that business has abused its power Similarly in Germany at present business is struggling to defend itself against charges that its contract with society is fundamentally unbalanced

The second strand requires companies not just to understand their individual contracts but also to manage those contracts actively To do so companies can choose from a range of potential tactics such as more transparent reporting shifts in RampD or asset reorganization to capture expected future opportunities or to shed perceived liabilities changes in approaches to regulation and at an industry level the development and deployment of voluntary standards of behavior

Some companies and sectors are already experimenting with such approaches Nonetheless there is scope for much more activity provided it is aligned with corporate strategic goals Reshaping conduct on an industry-wide and increasingly global basis may be particularly important given that the perceived misdeeds of one company can rebound on its sector as a whole

An important point to remember is that companies depending on their circumstances will have quite different tactical responses so off-the-shelf or simply nice-sounding solutions may not always be appropriate Transparency offers a good example It is easy but wrong to say that there can never be enough of it What might be good for a pharmaceutical company trying to restore the consumers trust could be damaging for a hedge fund manager A voluntary code of practice for a retailer naturally would be very different from that of a copper-mining company

This observation leads me to the third strand of the new approach for business leaders they need to shape the debate on social issues much more consciously by establishing ever higher (but appropriate) standards of integrity and transparency within their own companies and by becoming much more actively involved in external debates (such as those in the media) on issues that shape the social context of business

A starting point may be for CEOs to articulate publicly the purpose of business in terms less dry than shareholder value although that should continue to be seen as the critical measure of business success However it may be more accurate more motivatingmdashand indeed more beneficial to shareholder value over the long termmdashto describe the ultimate purpose of business as the efficient provision of goods and services that society wants

This is a hugely valuable even noble purpose It is the basis of the contract between business and society and the basis of most peoples real interactions with business CEOs could point out that profits are not an end in themselves but a signal from society that a company is succeeding in its mission of providing something people wantmdashand doing so in a way that uses resources efficiently relative to other possible uses From this perspective the creation of shareholder value or profits is the measure and the reward of success in delivering to society the goods and services we desire which is the more fundamental business objective The measures and rewards reflect the predominant values of the relevant society

CEOs could point out that profits are not an end in themselves but a signal from society that a company is providing things people wantBy moving away from a rigid focus on the term shareholder value big business can also make clear to broad audiences that it understands the trade-offs inherent in its social contract The debate between business and society is essentially one about how to manage (and reach agreement on) those trade-offs What might this point mean specifically There is no shortage of big social issues today that directly affect many big businesses and require new debate These issues include ensuring that aid organizations and trade regimes successfully promote the development of Africa and other poor regions whose economic liftoff would present a major potential boon to global markets as well as to international security promoting a more sophisticated and sensitive approach by both companies and governments to balancing the societal risks and rewards from new technologies spearheading dialogue on the health care and pension challenges in many developed countries and supporting efforts to resolve regional conflicts

Obviously the relevant issue must be matched to the specific business Some companies and business organizations have taken strong public stances on these and similar issues But in general high-level concerted corporate activism is more notable by its absence Business leaders shouldnt fear taking a more forward role advocating the idea of a contract between business and society Public receptiveness to active business leadership on issues such as these may be a lot greater than some might be inclined to think Despite the poor image and bad press of big business in recent times polls suggest that people retain a belief in its ability to provide a positive contribution to society

More than two centuries ago Rousseaus social contract helped to seed the idea among political leaders that they must serve the public good lest their own legitimacy be threatened The CEOs of todays big corporations should take the opportunity to restate and reinforce their own social contracts in order to help secure for the long term the invested billions of their shareholders

Q4 ldquoThe future of mankind is virtually dependent upon the zeal with which we pursue sustainable developmentrdquo Discuss(2003)

Q6 ldquoEnergy management throws up a number of critical issues concerning businessrdquo Discuss any 3 such critical issues with appropriate examples(2002)

Q8 What are the various facets of energy management and its impact on business environment in India (2001)

Q5 The question of developing alternative sources of energy acquires added dimensions Elaborate on this statement in light of the present energy crisis(2000)

NOTE 1) Question No 1 is compulsoryQ1 Please read the following case and answer all the questions given below it

Coke Pours into Asia

The biggest prize and challenge is China To woo the country of more than 12 billion people the company has made unprecedented compromises

In 1993 it entered a marriage of convenience with the Chinese government gaining wide access to the market ndash but at a high cost Coke pledged to keep its predatory instincts check promising to do everything from upgrading the local industry to providing cash income to farmers by starting a new line of fruit drinks

Beijing is counting on Coke to provide its expertise in key areas from hygiene to packaging to distribution In return the Chinese have allowed Coke and its partners to invest $300 million to build 10 new bottling plants giving it a total of 23 by the end of 1997

The first fruits of the companyrsquos are in sight Coke says it has grabbed 23 of the soft drink volume in China and figures on eventually topping 40 A new study by McKinsey amp Co says Coca-Cola is one of a handful of consumer goods companies that has a chance to hit $1 billion in sales in China by 2000 thanks to its large systematic investment in the country

The problem is China is so large that Coke cannot rely on its usual method to ensure that all is well In more developed markets Coke bottlers distribute all of the products directly giving the company complete control over its goods But thatrsquos not feasible in China where some 75 of Coke products go through independent wholesalers That means itrsquos nearly impossible for the company to police such things as coolers product display and pricing All Coke can do in most cases is ship its product out and hope for the best

Moreover Coke doesnrsquot always succeed in staying out of the way of nationalist crosscurrents In 1995 a group of national Peoplersquos Congress legislators called for Beijing to restrict the expansion of Coke and Pepsi to protect local manufacturers This legislative motion spurred an announcement last May that further approvals of soft drink plants for joint ventures would be put on hold

Coke takes the threat of a backlash seriously It recently subsidized a study by Cambridge University Professor Peter Nolan to defuse criticism that it wasnrsquot helping Chinarsquos economy Nolan estimated that every job at a Coca-Cola plant leads to six additional jobs elsewhere The company is spending heavily to build rural schools and libraries And it has launched the line of fruit drinks even though the premium priced Tian yu di ldquoHeaven and Earthrdquo ndash is a flop say Cokersquos sales representatives They say that itrsquos too sweet and too expensive for Chinese tastes Politically though itrsquos a winner since it provides cash for local fruit growers

a) How far would it be correct to say that ldquoMNCrsquos usually try to seek market access in different countries by making all sorts of promisesrdquo

b) Do the advantages of MNCrsquos out-weigh their dis-advantages Give reasons

This is a hugely valuable even noble purpose It is the basis of the contract between business and society and the basis of most peoples real interactions with business CEOs could point out that profits are not an end in themselves but a signal from society that a company is succeeding in its mission of providing something people wantmdashand doing so in a way that uses resources efficiently relative to other possible uses From this perspective the creation of shareholder value or profits is the measure and the reward of success in delivering to society the goods and services we desire which is the more fundamental business objective The measures and rewards reflect the predominant values of the relevant society

CEOs could point out that profits are not an end in themselves but a signal from society that a company is providing things people wantBy moving away from a rigid focus on the term shareholder value big business can also make clear to broad audiences that it understands the trade-offs inherent in its social contract The debate between business and society is essentially one about how to manage (and reach agreement on) those trade-offs What might this point mean specifically There is no shortage of big social issues today that directly affect many big businesses and require new debate These issues include ensuring that aid organizations and trade regimes successfully promote the development of Africa and other poor regions whose economic liftoff would present a major potential boon to global markets as well as to international security promoting a more sophisticated and sensitive approach by both companies and governments to balancing the societal risks and rewards from new technologies spearheading dialogue on the health care and pension challenges in many developed countries and supporting efforts to resolve regional conflicts

Obviously the relevant issue must be matched to the specific business Some companies and business organizations have taken strong public stances on these and similar issues But in general high-level concerted corporate activism is more notable by its absence Business leaders shouldnt fear taking a more forward role advocating the idea of a contract between business and society Public receptiveness to active business leadership on issues such as these may be a lot greater than some might be inclined to think Despite the poor image and bad press of big business in recent times polls suggest that people retain a belief in its ability to provide a positive contribution to society

More than two centuries ago Rousseaus social contract helped to seed the idea among political leaders that they must serve the public good lest their own legitimacy be threatened The CEOs of todays big corporations should take the opportunity to restate and reinforce their own social contracts in order to help secure for the long term the invested billions of their shareholders

Q4 ldquoThe future of mankind is virtually dependent upon the zeal with which we pursue sustainable developmentrdquo Discuss(2003)

Q6 ldquoEnergy management throws up a number of critical issues concerning businessrdquo Discuss any 3 such critical issues with appropriate examples(2002)

Q8 What are the various facets of energy management and its impact on business environment in India (2001)

Q5 The question of developing alternative sources of energy acquires added dimensions Elaborate on this statement in light of the present energy crisis(2000)

NOTE 1) Question No 1 is compulsoryQ1 Please read the following case and answer all the questions given below it

Coke Pours into Asia

The biggest prize and challenge is China To woo the country of more than 12 billion people the company has made unprecedented compromises

In 1993 it entered a marriage of convenience with the Chinese government gaining wide access to the market ndash but at a high cost Coke pledged to keep its predatory instincts check promising to do everything from upgrading the local industry to providing cash income to farmers by starting a new line of fruit drinks

Beijing is counting on Coke to provide its expertise in key areas from hygiene to packaging to distribution In return the Chinese have allowed Coke and its partners to invest $300 million to build 10 new bottling plants giving it a total of 23 by the end of 1997

The first fruits of the companyrsquos are in sight Coke says it has grabbed 23 of the soft drink volume in China and figures on eventually topping 40 A new study by McKinsey amp Co says Coca-Cola is one of a handful of consumer goods companies that has a chance to hit $1 billion in sales in China by 2000 thanks to its large systematic investment in the country

The problem is China is so large that Coke cannot rely on its usual method to ensure that all is well In more developed markets Coke bottlers distribute all of the products directly giving the company complete control over its goods But thatrsquos not feasible in China where some 75 of Coke products go through independent wholesalers That means itrsquos nearly impossible for the company to police such things as coolers product display and pricing All Coke can do in most cases is ship its product out and hope for the best

Moreover Coke doesnrsquot always succeed in staying out of the way of nationalist crosscurrents In 1995 a group of national Peoplersquos Congress legislators called for Beijing to restrict the expansion of Coke and Pepsi to protect local manufacturers This legislative motion spurred an announcement last May that further approvals of soft drink plants for joint ventures would be put on hold

Coke takes the threat of a backlash seriously It recently subsidized a study by Cambridge University Professor Peter Nolan to defuse criticism that it wasnrsquot helping Chinarsquos economy Nolan estimated that every job at a Coca-Cola plant leads to six additional jobs elsewhere The company is spending heavily to build rural schools and libraries And it has launched the line of fruit drinks even though the premium priced Tian yu di ldquoHeaven and Earthrdquo ndash is a flop say Cokersquos sales representatives They say that itrsquos too sweet and too expensive for Chinese tastes Politically though itrsquos a winner since it provides cash for local fruit growers

a) How far would it be correct to say that ldquoMNCrsquos usually try to seek market access in different countries by making all sorts of promisesrdquo

b) Do the advantages of MNCrsquos out-weigh their dis-advantages Give reasons

The biggest prize and challenge is China To woo the country of more than 12 billion people the company has made unprecedented compromises

In 1993 it entered a marriage of convenience with the Chinese government gaining wide access to the market ndash but at a high cost Coke pledged to keep its predatory instincts check promising to do everything from upgrading the local industry to providing cash income to farmers by starting a new line of fruit drinks

Beijing is counting on Coke to provide its expertise in key areas from hygiene to packaging to distribution In return the Chinese have allowed Coke and its partners to invest $300 million to build 10 new bottling plants giving it a total of 23 by the end of 1997

The first fruits of the companyrsquos are in sight Coke says it has grabbed 23 of the soft drink volume in China and figures on eventually topping 40 A new study by McKinsey amp Co says Coca-Cola is one of a handful of consumer goods companies that has a chance to hit $1 billion in sales in China by 2000 thanks to its large systematic investment in the country

The problem is China is so large that Coke cannot rely on its usual method to ensure that all is well In more developed markets Coke bottlers distribute all of the products directly giving the company complete control over its goods But thatrsquos not feasible in China where some 75 of Coke products go through independent wholesalers That means itrsquos nearly impossible for the company to police such things as coolers product display and pricing All Coke can do in most cases is ship its product out and hope for the best

Moreover Coke doesnrsquot always succeed in staying out of the way of nationalist crosscurrents In 1995 a group of national Peoplersquos Congress legislators called for Beijing to restrict the expansion of Coke and Pepsi to protect local manufacturers This legislative motion spurred an announcement last May that further approvals of soft drink plants for joint ventures would be put on hold

Coke takes the threat of a backlash seriously It recently subsidized a study by Cambridge University Professor Peter Nolan to defuse criticism that it wasnrsquot helping Chinarsquos economy Nolan estimated that every job at a Coca-Cola plant leads to six additional jobs elsewhere The company is spending heavily to build rural schools and libraries And it has launched the line of fruit drinks even though the premium priced Tian yu di ldquoHeaven and Earthrdquo ndash is a flop say Cokersquos sales representatives They say that itrsquos too sweet and too expensive for Chinese tastes Politically though itrsquos a winner since it provides cash for local fruit growers

a) How far would it be correct to say that ldquoMNCrsquos usually try to seek market access in different countries by making all sorts of promisesrdquo

b) Do the advantages of MNCrsquos out-weigh their dis-advantages Give reasons