Notes Class 11 Business Studies International Business – II
1. Export Procedure The main steps involved in export procedure are
(i) Receipt of enquiry and sending quotations (ii) Receipt of order or indent (iii) Assessing importer’s credit guarantee for payment worthiness and securing (iv) Obtaining export licence
According to the customs law, a firm must acquire an export licence before exporting goods
The pre-requisites of export licences are
(i) Obtaining IEC Number (Import-Export Code) (ii) Obtaining RCMC (Registration Cum Membership Certificate) (iii) Registration with ECGC (Export Credit Guarantee Corporation) (iv) Obtaining Pre-shipment Finance (v) Production and Procurement of goods (vi) Pre-shipment inspection
There are three methods of pre-shipment inspection
(i) Consignment-wise inspection (ii) In-process quality control (iii) Self certification (iv) Excise clearance (v) Obtaining certificate of origin (vi) Reservation of shipping space (vii) Packing and forwarding (viii) Insurance of goods (ix) Custom clearance (x) Obtaining Mate’s receipts (xi) Payment of freight and Insurance of Bill of Landing (xii) Preparation of Invoice (xiii) Securing Payment
The importer may accept a bill of exchange of two types
(i) Documents against right (ii) Documents acceptance
2. Import Procedure Steps involved in import procedure are
(i) Trade enquiry (ii) Procurement of import licence (iii) Obtaining foreign exchange (iv) Placing order or indent (v) Obtaining letter of credit (vi) Arranging for finance (vii) Receipt of shipment advice (viii) Retirements of import documents (ix) Arrival of goods (x) Custom clearance
3. Export-Import Documents
(i) Principal Export Documents
(a) Commercial invoice (b) Packing list (c) Bill of lading The bill of lading is considered an important document due to the following reason
A receipt of goods
A document of Title to goods
A contract of affreightment
(d) Airway bill (e) Certification of inspection (f) Certificate of origin (g) Bill of exchange
4. Auxiliary Export Documents
(i) Proforma invoice (ii) Intimation of inspection (iii) Shipping instruction (iv) Insurance declaration (v) Shipping order (vi) Mate’s receipt (vii) Application for certificate of origin (viii) Letter to banks for collection of documents
5. Import Documents The important documents used in import procedure is
6. Bill of Entry There are three types of bill of entry
(i) Bill of entry for home consumption (ii) Bill of entry for warehousing (iii) Ex-bond bill of entry
7. Important Terms Used in External Trade
(i) Free on Boards (FOB) (ii) Cost and Freight (CFR) (iii) Cost Insurance and Freight (CIF)
8. International Trade Institution and Agreements
(i) World Bank The World Bank was established in 1944, in Buttonwoods. It was setup with a purpose to provide loans to countries whose infrastructure was destroyed by the war.
(a) Nature of World Bank
It was set-up to rebuild post World War -II Europe.
It offers loan advice and training to private and public sector of poor countries.
(ii) United Nation Conferences on Trade and Development (UNCTAD) (iii) International Development Association (iv) International Finance Corporation (IFC) (v) The Multinational Guarantee Agency (MIGA)
(vi) World Trade Organisation (WTO) The world trade organisation is the only global international organisation which deals with the rules and regulations of trade between different nations.
(a) Nature of WTO
WTO deals with sales of trade between nations at global level.
It operates with a purpose liberalising trade and free flow of goods and services in trade policy within agreed limits.
WTO settles disputes through some neutral procedures.
(b) Role of WTO
Promotes international peace
Settles disputes among member nations
Makes international trades very smooth by framing common rules and regulations.
Helps in economic growth of developing countries by giving them preferential treatment.
(c) Agreements of WTO
General Agreements on Tariffs and Trade (GATT)
Agreement of Textile and Clothing (ATC)
Agreement on Agriculture
General Agreements in Trade in Services (GATS)
Agreements on Trade Related Aspects of Intellectual Property Rights (TRIPS)
Notes Class 11 Business Studies International Business – I
1. International Business International business refers to buying and selling of goods and services beyond the geographical limits of a country. It is also called trade between two countries.
International trade is of three types
(i) Export (ii) Import (iii) Entrepot (Re-export)
(i) Nature of International Business
(a) Involvement of two (b) Payment in foreign countries currency (c) Legal procedures (d) Restrictions (e) High risk (f) Different languages
(ii) Reasons for International Business
(a) The countries can not produce equally well or cheaply all that they need. (b) There is a unequal distribution of natural resources among different countries. (c) Availability of different factors of production such as land labour, capital and raw material differs among different nations. (d) Difference in labour. productivity and production cost due to socio economic geographical and political reasons. (e) There is not even a single country which is in a better position to produce better quality products at lower cost.
2. International Business us Domestic Business The key areas, in respect of which domestic and international business differ from each other
(i) Nationality of buyers and sellers (ii) Nationalities of other stake holders (iii) Mobility of factors of production (iv) Customer heterogeneity across markets (v) Differences in business systems and practices (vi) Political system and risk (vii) Business regulation and policies (viii) Currency used in business transactions
3. Scope of International Business
(i) Merchandise exports and imports (ii) Service export and import (iii) Licensing and franchising (iv) Foreign investment
It is of two types
(a) Direct investment (b) Portfolio investment
4. Benefits of International Business
(i) Benefits to Nations
(a) Earning of foreign exchange (b) More efficient use of resources (c) Improving growth prospectus and employment potential (d) Increases standard of living
(ii) Benefits to Firms
(a) Prospects for higher profit (b) Increased capacity utilization (c) Prospects for growth (d) Way out from intense competition in the domestic market (e) Improved business vision
5. Mode of Entering into International Business
(i) Contract Manufacturing With many business facing high start up cost and limited resources, companies are turning to contract manufacturing. Contract manufacturing allows a company to use the products or services that are manufactured by another external production company.
(a) Merits
There is almost no investment risk involved as there is hardly any investment in the foreign country.
Contract manufacturing gives the advantage to international firms to get the goods manufactured at a lower cost.
Local manufacturers also get the benefits to be involved with international business and start. exporting.
(b) Demerits
Local firms might not follow and provide the same quality standards. causing problems to international rums.
The local manufacturer loses his control as goods are manufactured strictly according to the terms and specifications of international firms.
The local manufacturer is not free to sell the goods according to his will.
(ii) Licensing and Franchising Licensing is an agreement between licensor and licensee where by licensor permits licensee to use the permits/patent rights 01′ trade secret acquired by the licensor.
Franchising is an agreement between franchisee and franchiser.
(a) Benefits
Established brand
Quality product
Advertisement
Financing
Training
Technological upgradation
Uniform control system
Better start
Expansion
Enhancing the goodwill
Direct feedback
(iii) Joint Venture When two or more firms join together to establish a new enterprise then it is known as a joint venture.
The two firms contribute capital and participate in management enterprise.
(a) Merits
Reduces competition
Reduces risk
Protection for small companies
Advance technology
Reduction in cost
Better competence
Large capital
(b) Demerits
Problem in sharing capital
Legal restrictions
Conflicts
Mergers and monopolies
Lack of co-ordination
(iv) Setting-up WhOlly Owned Subsidies According to Indian Companies Act a foreign company can set up its subsidiary by acquiring more than 50% voting power (equity share) in a company.
(a) Advantages
The parent company is able to exercise full control over its operation in foreign countries.
There is no disclosure of technology or trade secret as the parent company itself looks after the entire operations.
(b) Limitations
The entire loss is for the parent company as the parent company alone invests the 100% investment.
This form of business is subject to higher political risks as some countries do not permits 100% wholly owned subsidiaries.
(v) Exporting and Importing Exporting refers to sending of goods and services from the home country to a foreign country and importing means buying goods and services from a foreign country. The exporting and importing can be done in two ways; direct or indirect.
(a) Advantages
It is easiest way to get entry in a foreign country.
Firms have to invest less as compared to joint venture and manufacturing plants.
Foreign investment risk is nil or very less as compared to other options.
(b) Demerits
Since goods physically move from one country to another so it involves additional packaging, insurance and transportation cost.
Some countries put import restrictions. In such cases, exporting is not a good option for other foreign countries.
The exporters are not near the customers so they cannot serves the customer better than a local firm.
6. India’s Place in World Business
(i) India’s Export and Import of Goods After the new economic policy of liberalisation and globalisation there is a tremendous increase in India’s foreign trade. The share of foreign trade in the GDP has increased from 14.6% in 1990·91 to 24.1% in 2003 – 2004.
(ii) India’s Export and Import of Services India’s share of software export has increased from 10.2% in 1995-96 to 49% in 2003-04. Where as share of travel and transportation has declined from 64.3% in 1995 – 96 to 29.6% in 2003-04.
7. India’s Foreign Investment The inflow as well as out flow of foreign investment has grown after the new economic policy of 1991. India’s investment in foreign countries has also increased from Rs 19 crore in 1990-91 to Rs 83,616 crore in 2003-04.
1. Internal Trade When buying and selling of goods and services takes place within the geographical limits of a country. It is known as internal trade.
The main features of internal trade are
(i) The buying and selling of goods and services takes place within a country. (ii) The payment are made and received in the home country only. (iii) There are no or very few formalities to be completed by the traders.
2. Types of Internal Trade Internal trade can be classified into two categories.
(i) Wholesale Trade It refers to the trade in which goods are sold in large quantities. The person who carries on wholesale trade is known as wholesaler.
A wholesaler provides many valuable services to the manufacturer as well as the retailer.
(a) Services to Manufacturer
Facilitating large scale production
Bearing risk
Financial assistance
Expert advice
Help in marketing function
Facilitate production continuity
Storage
(b) Services to Retailer
Availability of goods
Marketing support
Grant of credit
Specialised knowledge
Risk sharing
(ii) Retail Trade Retail trade refers to sale of goods in small lots to the final consumers. A retailer buys goods from a wholesaler and sells them to the consumer.
(a) Services to Consumers
Ready or quick supply
Wide variety
Guiding consumers
Demonstration and after sale services
Home delivery
Convenient location
Credit facility
(b) Services to Wholesaler and Manufacturer
Ready market
Providing information
Risk bearing
Distribution of goods to distant places
3. Classification of Retailers
Retailers can be classified on the following basis
(i) Size (ii) Product mix (iii) Pricing (iv) Service level (v) Form of ownership
4. Types of Retail Trade Keeping in mind all the above criteria, that is size product mix, pricing and service level, the retail trade can be classified in to the following categories
(i) Itinerants retailers (ii) Fixed shop retailers
5. Itinerants Itinerants refers to retailers who have no fixed place of sale. They move from one place to another in search of customers.
6. Types of Itinerants
(i) Hawkers and Peddlers Hawkers and Pedlars moves from street to street in search of customers.
The main features of hawkers and pedlars are
(a) They sell a variety of goods such as fruits, vegetables, toys etc. (b) They deal with non-branded and local items. (c) They supply the goods at the door step of the customer.
(ii) Periodic Market Trader These traders sell their goods on fixed days in different market places. Their weekly market are fixed
The main features of periodic market traders
(a) They sell their goods in the weekly market. (b) They deal in low price and low quality goods. (c) These traders also set up shops on the occasion of Diwali, Christmas, etc.
(iii) Street Traders These retailers display their articles on busy street corners, pavements, bus stands etc.
The main features of street traders are
(a) They generally operate near public places such as railway stations. (b) They deal in a variety of goods such as towels, things of daily use mirrors etc.
(iv) Cheap Jacks They display their goods in hired shops or intents for a temporary period in different localities.
The main features of cheap jacks are
(a) They hire small shops. (b) They shift from locality depending upon the prospectus of business. (c) They deal in low price, household articles.
7. Fixed Retailers The retailer having a fixed place of sale are known as fixed shop retailers.
Fixed shop retailers can be further classified into t\VO categories
(i) Small scale fixed retail shops (ii) Large scale fixed retail shops
8. Small Scale Fixed Retailer
(i) General Stores General stores are small shops located in residential areas.
The main features of general stores are
(a) They have a large variety in each line of product. (b) They provides free home delivery, credit facility.
(ii) Single Line Stores Single line stores are small shops which deal with one line of products.
The main features of single line stores are
(a) These stores deal with one line of products. (b) These stores deal in a variety of goods in that line of product.
(iii) Speciality Stores These stores deal in a particular type of product under one product line only.
The main features of speciality stores are
(a) These stores are specialised in one product only. (b) They keep all the brands of that product.
(iv) Street Shops These shops are situated at street crossings, They are also known as street stalls
The main features of street shops aTe
(a) These shops have a limited space. (b) These retailers display their goods on tables, stands etc.
(v) Second Hand Goods Shops These shops deal with second-hand goods or used articles such as books.
The main features of second- hand good shop
(a) These shops sell used goods. (b) The goods are generally priced low because these are used goods.
(vi) Seconds Shops There are the shops to sell goods which are not produced according to the required specification.
The main features of second-hand goods shop
(a) These shops deal in the products which have some manufacturing defect.
(b) Goods are sold at a heavily discounted price.
9. Large Scale Retailers Large scale retailers deal in a large stock of goods and purchase goods in bulk. Features of large scale retailers are.
(i) They require a huge investment. (ii) They have large size show rooms to sell goods.
The most common forms or types of large scale retailers are
(a) Departmental stores (b) Multiple shops or chain stores (c) Mail order retailing (d) Consumer co-operative stores (e) Super markets (f) Franchise
10. Departmental Stores A departmental store is a large retail showroom having a number of departments under one roof each department specialised in one line of product.
(i) Advantages
(a) Convenient shopping (b) Central location (c) Economies of scale (d) Elimination of middleman
(ii) Limitations
(3) High operating cost (b) Lack of personal attention (c) High price (d) Not located in residential colonies (e) Huge capital
11. Multiple Shops Multiple shops refer to a number of identical retail shops located in different parts of the city.
(i) Advantages (a) Economies of scale (b) Standardised products (c) Public confidence (d) Division of risk (e) No, bad debts
(ii) Limitations
(a) Limited variety (b) Lack of personal touch (c) Inflexibility (d) Divided attention (e) No facilities
12. Mail Order Retailing In mail order retailing seller contact the potential buyers through advertisements and mail publicity
(i) Advantages
(a) Limited capital (b) Convenience (c) Wider market (d) No, bad debts (e) Elimination of middleman
(ii) Limitations
(a) No personal contact (b) No personal inspection (c) Limited variety (d) Postal delay (e) Heavy advertising cost
13. Consumer Co-operative Store It can be defined as “A voluntary association of persons based on co-operative principles by buying in common and selling in common”.
(i) Advantages
(a) Reasonable prices (b) Low operating cost (c) Cash sales (d) Economies of scale (e) Benefits from government
(ii) Limitations
(a) Limited capital (b) Inefficient management (c) Lack of incentives (d) Lack of storage facilities
14. Super Markets Super market are organised by co-operative societies as well as by private traders.
(i) Advantages
(a) Wide choice (b) Low price (c) No, bad debts (d) Convenience in shopping
(ii) Limitations
(a) No credit (b) Lack of personal touch (c) High cost (d) Mis handling of goods (e) Limited scope
15. Vending Machines A vending machine is a new form of direct retailing. It is a machine operated by coins or tokens. The buyer inserts a coin or token in the machine and receive a specific quantity of product from the machine.
(i) Advantages
(a) Buying round the clock is possible. (b) The customer gets fresh supply of goods. (c) No, requirement of salesman.
(ii) Limitations
(a) Initial investment to install the machine is quite high. (b) Machine requires regular repair and maintenance. (c) Coins of exact shape and size are required to operate the machine.
16. Role of Commerce and Industry Association is in promotion of internal trade.
(i) Interstate movement of goods (ii) Octroi and other local levies (iii) Harmonisation of sales tax structure and value added tax (iv) Marketing of agro products and related issues (v) Weights and measures and prevention of duplication (vi) Excise duty (vii) Promoting sound infrastructure (viii) Labour legislation
1. Small Business The definition of small business by the Government of India is based on the investment in Plant and Machinery, This approach is justified because we have scarce capital and abundant labour. ‘the small scale industries includes.
(i) Small scale industries (ii) Ancillary industrial undertaking (iii) Export-oriented units (iv) Tiny units (v) Small scale industries owned by women (vi) Cottage industries (vii) Khadi and village industries (viii) Agro based industries
2. Nature of Small Scale Industries
(i) The business is organised by individuals in the private sector. (ii) The use of family labour and locally available talent is made. (iii) Simple equipments are used. (iv) Capital investment is small, generally restricted to one crore. (v) The use of indigenous technology.
3. Administrative Setup for the Small Scale
(i) Agro and Rural Industries
(a) The government of India created the Ministry of small scale industry and Agro and Rural Industries as the nodal ministry for formulation of policy.
(b) This ministry was divided into following two separate ministries in September 2001 .
Ministry of Small Scale Industries
Ministry of Agro and Rural Industries
(c) A part from the ministries state government also makes various promotional and development projects for SSI and then are executed.
4. Role of Small Business in India In developing countries like India there is a greater scope for small business enterprise. The following factors help in the scope of small business enterprises
(i) Limited resources (ii) Flexibility of operation (iii) Personal attention (iv) Individual attitude (v) Suppliers of large scale business (vi) Social utility
5. Role of Small Business in Rural India
Small scale industries provide the following benefits in rural area.
(i) Employment (ii) Improves economic condition (iii) Promotion of artistic and creative sense (iv) Rural development (v) Mobilisation of local resources
6. Problems of Small Business in India
(i) Shortage of Fund Small enterprises have a chronic shortage of finance both for fixed and working capital requirement.
(ii) Shortage of Raw Materials and Power Most of the small factories have shortage of raw materials and other equipments because of limited means to buy in bulk and suppliers hesitate to provide credit policy (facility) to small business.
(iii) Old Techniques of Production and Lack of Latest Technical Knowledge Most of the small scale enterprise use old techniques of production because they cannot afford new technique.
(iv) Marketing Problems Small scale industries face many difficulties in marketing their products because of many reasons
(a) The cost of production is high. (b) They cannot afford to have their own marketing organisation. (c) Products of many small firms are not having uniform quality.
(v) Personal Problem Securing the right type of personal is a major problem of small business. A more important problem is the problem of proper training reasonable compensation etc.
(vi) In perfect Organisational Setup In most of the small enterprise the ownership and management functions are performed by the owner himself. Generally the owners may not have the necessary skill to manage the business also.
7. Government Assistance and Special Schemes for Industries in Rural Backward and Hilly Areas Some of the support measures and programmes meant for the promotion of small and rural industries are grouped in following two categories.
(i) Institutional Support
(a) National Bank for Agriculture and Rural Development (NABARD) The NABARD provides loans and advances to State Government for a period not exceeding 20 years to enable to State Government.
(b) The Rural Small Business Development Centre (RSBDC) It is set up by the World Association for small and medium enterprises and is sponsored by NABARD. It aims at providing management and technical support to current and prospective micro and small entrepreneurs in rural areas.
(c) National Small Industries Corporation (NSIC) Its main focus was on
• To supply indigenous and imported machines in easy instalments. • To procure and supply imported raw materials. • To export of products of SSI.
(d) Small Industries Development Bank of India (SIDBl) SlDBI was established in 1989 as a public corporation. Its main object is to promote. Finance and develop the small scale sector in India.
(e) The National Commission for Enterprises in the Unorganised Sector (NCEDS) The NCEUS was constituted in September 2004, with the following objectives
TO improve productivity of small scale enterprises.
To generate more employment opportunities.
(f) Rural and Women Entrepreneurship Development (RWED) This programme encourages rural people and women RWED provides the following
Enhancing human and institutional capacities.
Providing training for women entrepreneurs.
(g) World Association for Small and Medium Enterprises (WASME) Common schemes offered by WASMe are
Integrated Rural Development Programme
Prime Minister Rozgar Yojana
Training of Rural Youth for self-employment
Jawahar Rozgar Yojana
(h) Scheme of Fund for Regeneration of Traditional Industries (SFURTl) This fund is used
To improve the technology of traditional units.
To create sustained employment opportunities.
To set up traditional industries in various parts of the country.
(i) The District Industries Centre (DIC) The DIC Programme was started on 1 May 1978 to provide assistance to small scale industries at the district level.
These centres provides all the promotional activities such as identification of suitable scheme preparation of feasibility report arranging for credit etc.
(ii) Incentives Some of the common incentives offered are below
(a) Land (b) Power (c) Water (d) Sales Tax (e) Octroi (f) Raw materials (g) Finance (h) Industrial estates (j) Tax holiday
Notes Class 11 Business Studies Sources of Business Finance
1. Business Finance It refers to capital funds and credit funds invested in the business.
According to BO Wheeler, “Finance is thai business activities which is concerned with acquisition and conservation of capital fund in meeting the financial needs and over all objectives of business enterprise.”
The financial needs of a business can be classified into two categories.
(i) Fixed capital requirement (ii) Working capital requirement
2. Classification of Sources of Funds
(i) Period Basis On the basis of time period, a business finance can be classified in three categories.
(a) Long Term Finance Funds which are required to be invested In a business for a long period of time, that is more than five years are known as long term finance.
(b) Medium Term Finance The finance required by business enterprises for more than one year but less than five years is known as medium term finance.
(c) Short Term Finance The finance required for a short period upto one year is known as short term finance.
(ii) Ownership Basis On the basis of ownership, the sources can be classified into ‘owner’s fund’ and ‘borrowed fund’,
(a) Owner Fund It refers to the funds contributed by owners as well as the accumulated profit of the company this fund remains with the company and it has no liability to return this fund. e.g., equity shares, retained earnings.
(b) Borrowed Fund It refers to the borrowing of the firm. It includes all funds available by way of loans or credit
(iii) Source of Generation Basis Another basis of categorising the sources of funds can be whether the funds are generated from with in the organisation internal or from external sources.
3. Sources of Finance Companies can raise finance from the following methods.
(i) Retained Earning Retained undistributed profits after payment earning refers to of dividend and taxes. It provides the basis of expansion and growth of companies.
(ii) Features of Retained Earnings
(a) Cushion of security (b) Funds for new and innovative projects (c) Medium and long term finance (d) Conversion into ownership fund
4. Trade Credit It refers to an arrangement whereby a manufacturer is granted credit from the supplier of raw materials, inputs spare parts etc. The supplier allow their customers to pay their outstanding balance, with in a credit period.
The availability of trade credit depends upon
(i) Nature of the firm (ii) Size of the firm (iii) Status or credit worthiness of the firm
5. Factoring Factoring is a financial service’under which factor renders the following services
(i) Discounting of Bills of Exchange When goods are sold on credit then a supplier generally draws bills of exchange upon customers who are required to accept the same.
(ii) Providing Information Regarding the Creditworthiness of Prospective Clients Factors collect detailed information regarding the financial history of different companies which can used by the financier who may lend money to these companies.
6. Lease Financing Leasing is a contract between lessor and lessee. whereby the lessor permits the lessee to use the asset acquired by the lessor in return of a payment called rent.
Lessor is called the owner of the assets and lessee hires the assets by paying rent. With leasing contract the lessee can use the assets without investing a high amount of fund for buying it.
7. Public Deposits Public deposits refers to unsecured deposits invited from the public. A company wishing to invite public deposit places an advertisement in newspapers. Any member of the public can fill up the prescribed form and deposit money with the company. Different features of public deposits are
(i) Unsecured (ii) Finance of working capital (iii) Time period (iv) Simple procedure to raise (v) Repayment
8. Commercial Papers Commercial paper is a source of short finance. The commercial paper was introduced in India for the rust time in 1990. It is an unsecured promissory note issued by public or private sector company with a fixed maturity period, which varies from 3 to 12 months. Since these are unsecured that is why these are generally issued by companies having a good reputation.
9, Issue of Shares Share is the smallest unit in which owner’s capital of the company is divided. A share may also be defined as a unit of measure of a shareholder’s interest in the company.
According to Companies Act, a public company can issue two types of shares.
(i) Equity shares (ii) Preference shares
10. Equity Shares Equity shares is a common security issued under permanent or owner’s fund capital. Equity shares are the most important source of raising long term capital.
In Companies Act permitting companies to issue two categories of equity shares.
(i) Equity shares with equal rights. (ii) Equity shares with differential rights as to divided.
11. Preference Shares Preference shares are those shares which get preference over equity shares in respect to
(i) The payment of dividend. (ii) The repayment of investment amount during winding up. Different features of preferences shares are (i) Fixed rate of dividend (ii) No security (iii) Voting rights (iv) Hybrid security
12. Debentures Debentures are common securities issued under borrowed fund capital. Debentures are instruments for raising long term debt capital. Debentures are called creditorship securities because debenture holder are called creditors of a company.
Different features of debentures are
(i) Borrowed fund (ii) Fixed rate of interest (iii) Compulsory payment of interest (IV) Security (v) Redeemable (vi) No, voting right (vii) Appointment of trustee
13. Commercial Banks Commercial banks occupy a very important position as they provide funds for different purposes and different periods. Firms of all sizes can approach commercial banks. Generally, commercial banks provide short and medium term loans but now-a-days they have started giving long term loans against security.
14. Financial Institutions Public financial institutions are referred to as lending institutions. development banks or financial institutions, After independence the Government of India realised that for economic development of a country only commercial banks are not sufficient. There must be financial institutions to provide financial assistance and guidance to industries and business enterprises.
15. International Source of Finance After the new economic policy of liberalisation or globalisation. the doors of foreign companies and investors were opened to invest In the Indian companies. After 1991. the Indian companies tap international sources of finance for both debt and equity. The main securities used by Indian companies to tap international sources of finance are given below
(i) Loans from Commercial Bank!’; (ii) International Agencies and Development Bank (iii) International Capital Market
(a) GDR (b) ADR (c) lDR
The businessman must keep in mind the following factors
(i) Cost involved (ii) Financial capacity of the firm (iii) Form of business organisation (iv) Time period (v) Risk involved (vi) Control (vii) Flexibility (viii) Claim over the assets (ix) Tax benefits
Notes Class 11 Business Studies Formation of a Company
1. Business Finance It refers to capital funds and credit funds invested in the business.
According to BO Wheeler, “Finance is that business activity which is concerned with the acquisition and conservation of capital fund in meeting the financial needs and over all objectives of business enterprise.
2. Formation of Company There are two stages in the formation of private company, promotion and incorporation. A public company has to under go capital subscription stage and to the get certificate of commencement of business, to begin operation.
3. Promotion of a Company Promotion is the first stage in the formation of a company. It involves conceiving a business opportunity and taking and initiative to form a company so the particular shape can be given to exploiting the available business opportunity.
4. Functions of a Promoter
(i) Identification of Business Opportunity The foremost activity of a promoter is to identify a first and business opportunity.
(ii) Feasibility Studies The promoters undertake detailed feasibility studies to investigate all aspects of the business they intend to start. There are three types of feasibility
(iii) Name Approval Having decided to launch a company. the promoters have to select a name for it and submit.
(iv) Fixing up Signatories to the Memorandum of association Promoters have to decide about the members who will be signing the memorandum of association of the proposed company.
(v) Appointment of Professionals Certain professionals such as mercantile bankers. auditors etc are appointed by the promoters.
(vi) Preparation of Necessary Documents The promoter takes up steps to prepare certain legal documents. Which have to be submitted under the law
5. Documents Required to be Submitted
(i) Memorandum of Association (ii) Articles of Association (iii) Consent of Proposed Directors (iv) Agreement (v) Statutory Declaration (vi) Payment of Fee
6. Position of Promoters Promoters undertake various activities to get a company registered and get it to the position of commencement of business. But they are neither the agents nor the trustee of the company. They can’t be the agents as the company is yet to be incorporated.
7. Incorporation After completing the afore said formalities, promoters make an application for the incorporation of the company. The app cause is to be filed With the registrar of companies of the state within which they plan to establish the registered office of the company.
8. Effect of the Certificate of Incorporation A company is legally born on the date printed on the certificate of incorporation. It becomes a legal entity with perceptual succession on such date.
The certificate of incorporation is a conclusive evidence of the regularity of the incorporation of a company certificate of incorporation has been issued the company has been legal business entity irrespective of any flow in its registration.
9. Capital Subscription A public company can raise the required funds from the public means of Issue of shares and debentures. For doing the same. It has to issue a prospectus which is an invitation to the public to subscribe to the capital of the company.
The following steps are required for raising funds from the public
(i) SEBl approval (ii) Filling of prospectus (iii) Appointment of bankers brokers underwriters (iv) Minimum subscription (v) Application to stock exchange (vi) Allotment of shares
10. Conunencement of Business If the amount of minimum subscription is raised through new issue of shares, a public company applies to the registrar of companies for the issue of certificate of commencement of business.
Commencement of business along with the following documents
(i) A declaration about meeting minimum subscription requirement (ii) A declaration about details in respect of allotment to directors (iii) A declaration about no money being payable to applicants (iv) A statutory declaration
A public company raising funds privately has to submit only
(ii) and (iv) listed above
The registrar, upon satisfaction issues certificate of commencement of business. This certificate is also a conclusive evidence of completion of formation requirements.
11. Preliminary Contracts Contracts signed by promoters with third parties before the incorporation of company.
12. Provisional Contracts Contracts signed after incorporation but before commencement of business.
Class 11 Business Studies Social Responsibilities of Business and Eussiness Ethics
1. Social Responsibility
Social responsibility is the obligation of businessmen towards the society. Businessmen must review the impact of their decisions and actions on the other sections of the society.
According to Peter F Druker, “Social responsibility requires managers to consider whether their action is likely to promote the public good, to advance the basic beliefs of our society, to contribute to its stability, strength and harmony.”
2. Need for Social Responsibilities
A businessman must perform social responsibilities because of the following reason
(i) Self interest (ii) Better environment for business (iii) Public image (iv) Avoidance of government interference (v) Social power (vi) Resources used for moral justification (vii) Contribution to social problems
3. The Case Against Social Responsibility
Some experts criticise the concept of social responsibility, some of the arguments given against social responsibilities are given below
(i) Motive of earning profit (ii) Lack of social skill (iii) Social responsibility involves cost (iv) Dilution of basic goal of business (v) Business are not moral agents (vi) Reduction in competitiveness
4. Reality of Social Responsibility
After learning the case for and against social responsibilities, we can conclude that business is no longer a mere economic institution but it is also a social institution and businessmen are the trustees of different social groups.
The main reasons and factors which have forced businessmen to consider their responsibilities towards society
(i) Threat of public regulation (ii) Pressure of labour movements (iii) Impact of consumer consciousness (iv) Development of social standard for business (v) Relationship between social interest and business interest (vi) Development of professional managerial Class
5. Kinds of Social Responsibilities
(i) Economic Responsibility
In an economic responsibility, business is expected to produce goods and services that are beneficial for society and society which wants and sell them at a profit.
(ii) Legal Responsibility
Every business enterprise is expected to operate within the legal frame work of our society. A law abiding enterprise gets no interference of government and is considered as a socially responsible enterprise.
(iii) Ethical Responsibilities
Ethics is much more than law, while behaving ethically businessmen should not be involved in adulteration, black marketing, etc.
(iv) Discretionary Responsibilities
This responsibility is purely voluntary. This includes contribution in charity. Participation in social service projects, setting up educational and training institutions etc helping people affected by flood, earthquake etc.
6. Social Responsibility towards Different Interest Groups
(i) Responsibilities towards Consumers
(a) Production of safe items by maintaining quality standards (b) Being truthful in advertising (c) To follow fair trade practices.
(ii) Responsibilities towards Employee
(a) Providing fair compensation and benefits (b) Providing good and safe working conditions (c) To give them opportunities to participate in decision making
(iii) Responsibilities towards the Owners / Shareholders / Investors
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(a) To ensure safety of investment (b) To ensure fair and regular return on investment (c) To ensure appreciation of investment by proper utilisation of resources
(iv) Responsibilities towards the Government
(a) To abide by rules, regulations and laws (b) To pay taxes and duties on time (c) To help in solving social problem
(v) Responsibilities towards the Community
(a) To protect the environment from all types of pollution (b) To provide more employment opportunities (c) To help the weaker section of the society
(vi) Responsibilities towards Suppliers
(a) To ensure regular payment to the supplier (b) To adopt fair dealing with the suppliers (c) To protect and assist small scale suppliers by placing order with them
7. Business and Environment Protection
(i) Causes of Environmental Pollution
Environment pollution arises due to the following causes
(a) Air pollution (b) Water pollution (c) Land pollution
(ii) Need for Pollution Control
The main reasons to control the pollution are as follows
(a) To ensure safety (b) Economic losses (c) To maintain the natural beauty (d) To ensure healthy life (e) To lead a comfortable life
8. Role of Business in Environmental Protection
The businessmen should take following steps to control and check environmental pollution
(i) Making use of eco-friendly techniques of production (ii) Recycling industrial waste (iii) Treating the waste through technologies before discharging them into water or dumping in the land (iv) Make use of eco-marks by producing eco-friendly products
9. Business Ethics It refers to the set of moral values or standards or norms which govern the activities of a businessman. Ethics defines what i, right and what IS wrong.
10. Elements of Business Ethics
Some of the basic elements of business ethics while running a business enterprises are
(i) Top management commitment (ii) Publication of a ‘code’ (iii) Establishment of compliance mechanism (iv) Involving employees at all levels (v) Measuring result
The transaction taking place between business units and customers are known as B2C transaction.
B2C transaction may involve
(a) Selling and distribution (b) After sale service (c) Promotion and other marketing activities
(iii) C2C Commerce
The transaction taking place between customer and customers are known as C2C transaction
C2C transactions may involve
(a) Selling used books, clothes etc (b) Selling antique items (c) Information about the quality and durability of products etc
(iv) Intra b-commerce
This refers to transactions between the parties or persons who are the part of one firm only.
Intra b-commerce transactions may involve
(a) Interaction between any two departments of one firm (b) Placing orders and giving instructions of suppliers (c) Recruitment selection and training of employees.
3. Merits
(i) Easy to form and lower investment is required (ii) Convenience (iii) Speed (iv) Global reach (v) Cost saving (vi) Movement towards a paperless society
4. Limitations
(1) Low personal touch (ii) Delay in delivery (iii) Requirement of hardware (iv) Risk (v) Low ethics
Most of the limitations discussed can be over come with due care and diligence. Some of the way to over come problems are taken up
(i) Websites are becoming more and more interactive (ii) The speed and the quality of communication is improving (iii) India has undertaken 150 such projects to diffuse e-commerce in all nooks and corners
5. On Line Transactions
e-business refers to shopping through internet or on-line.
On-line opens up the whole world as one shop.
There are three phases of doing business in e-business or on-line.
(i) Registration Before on-line shopping one has to register with the on-line vendor by filling up a registration form. (ii) Placing an Order In on-line transactions the order can be placed by picking and dropping the items in the shopping cart. (iii) Payment Mechanism In an on-line purchase payment is made through
(a) Cash on delivery (b) Through cheque (c) Net banking transfer (d) Credit or debit card (e) Digital cash
6. Security security Problems Related to e-commerce
The main security problem of e-commerce are
(i) Transactional risk (ii) Data storage risk (iii) Risk of thread to intellectual property and privacy
7. Resources Required for Successful e-business Implementation of e-business
(i) Computer hardware (ii) Technically qualified staff (iii) Computerised system of receiving payment (iv) Well designed website (iv) Telecommunication facilities
8. Outsourcing Concept BOP refers to getting a business task accomplished through an outside agency.
(i) Advantages
(a) Concentration on core competence (b) Reduction in cost (c) Help to avoid labour problem (d) Benefits of latest development
(ii) Limitations
(a) Confidentiality (b) Sweat shopping (c) Protest in home country (d) Ethical concerns
(iii) Types of Outsourced Services
(a) Financial Services Big companies often need services of specialists for managing finance. e.g., estimating the finance required, how and when to issue shares, debentures.
(b) Advertising Services For a long time the firms are depending upon outsourcing services. The business firms hand over the task of designing and carrying on advertisement campaign to outsourcing firm.
(c) Courier Services Courier services refers to postal services provided by the private firms for carrying mails, parcels etc. The common problem of government postal services was delay. The private outsources offer speedy movement of parcels and samples so business firm relay on them.
(d) Customer Support Services All durable goods require after sale or customer support service to register and attend the complaints of the customers. So firms prefer to outsource these services to outside agencies which are specialised in these tasks.
1. Service Sector Service sector includes commercial firm engaged in banking. communication. transport, insurance, warehousing etc. The service sector constitutes the basic infrastructure which is a must for smooth flow of business activities.
2. Nature of Services
Basic features of services are
(i) Intangible (ii) Lack of Inconsistency (iii) Inventory (iv) Non-transferability or Inseparability (v) Involvement
3. Classification or Types of Services
Services can be broadly categorised into three categories
(i) Business Services Business services are these services which are used by business enterprise to carryon business activities more smoothly, e.g., banking, insurance, transportation warehousing, communication etc.
(ii) Social Services Social services are carried voluntarily to achieve social goal to the society at large.
(iii) Personal Services Personal services are experienced by different customers. These depends upon the customer demands and preferences. Example: Tourism, Restaurants etc.
4. Various Categories of Business Services
(i) Banking (ii) Insurance (iii) Communication (iv) Warehousing (v) Transportation
5. Banking A bank is an institution which attracts money on deposits for the purpose of being lent to industry or trade.
According to Indian Banking Regulation Act, 1949, “Banking means accepting deposits of money from the public for the purpose of lending or investment”.
Banks can be classified into following categories
(i) Commercial Banks Commercial banks are governed and regulated by Indian Banking Regulation Act, 1949 and according to it banking means accepting deposits from public for the purpose of lending investment.
There are Two Types of Commercial Banks
(a) Public Sector Banks (b) Private Sector Banks
(ii) Co-operative Banks These banks are governed by provisions of state Co-operative Societies Act and are formed to provide loan and advances to its members on easy terms.
(iii) Specialised Banks These banks are formed to cater to specific needs of industries, export units. There are foreign exchange banks, industrial development bank, export-import banks etc.
(iv) Central Banks Central bank of any country controls regulates and supervises the activities of commercial banks, it is known as banker of banks.
6. Functions of Commercial Banks The main functions of commercial banks are
(i) Collection of Deposits Commercial banks is that they accept deposits from their clients. The common types of deposits accepted by bank are
(a) Saving account deposits (b) Current account deposits (c) Recurring deposits (d) Fixed term deposits
(ii) Lending of Funds The commercial bank is to provide loans and advances out of the money received through deposits. These advances can be made in the form of overdraft cash credit etc.
(iii) Cheque Facility The banks collect the cheques for their customers drawn on other banks. To collect cheques banks have clearing houses.
(iv) Agency Functions Bank pay insurance premium on behalf of their clients. Bank also collect divided premium, interest, pension etc.
(v) Allied Services In addition to above functions bank also provide allied services such as bill payments, locker facilities etc.
7. e-banking Internet banking means any user with a PC and a browser can get connected to the banks website to perform any of the virtual banking functions and avail of any of the bank’s services.
There are various benefits of e-banking provided to customer which are
(i) e-banking provides 24 hours. 365 days a year services to the customer of the bank. (ii) Customers can. make some of the permitted transactions from office or house. (iii) Greater Customer satisfaction by offering unlimited access to the bank.
The banks also stand to gain bye-banking
(i) e-banking provides competitive advantage to the bank. (ii) e-banking provides unlimited network to the bank.
8. Insurance Insurance is a contract between the insurer and insured in which insurer agree to make good the loss of insured on happening of an event in consideration of a regular payment called premium.
(i) Functions
(a) Protection (b) Distribution of risk (c) Competitiveness (d) Specialisation (e) Beller utilisation of capital (f) Promotes foreign trade (g) Credit facility (h) Capital formation (i) Social welfare
(ii) Principles
(a) Principle of utmost. good faith (b) Principle of insurable interest (c) Principle of indemnity (d) Principle of contribution (e) Principle of subrogation (f) Principle of causa proxima (g) Principle of mitigation of loss
9. Types of Insurance
Insurance contracts are of following types
(i) Life Insurance It may be defined as a contract in which the insurer in consideration of a certain premium either is a lump-sum or by other periodical payments. agree to pays to the assured or the person for whose benefit the policy is taken. The life insurance lli related with two types of risks
(a) Risk of dying to early (b) Risk of dying to late
Types of life insurance policies are given below
(a) Whole Life Policy Under this policy the insured sum is paid only on the death of the insured Which means the policy is to run for the whole life of assured,
(b) Endowment Life Assurance Policy Under this policy the insurer pays a particular sum at the death of the person or on attaining a particular age.
(c) Joint Life Policy This policy is taken up by two 01′ more persons. The premium IS paid jointly or by either of them in instalments.
(d) Annuity Policy Under this policy the assured sum or policy a certain money is payable after the assured a attains age in monthly. quarterly. half yearly.
(e) Children’s Endowment Policy This policy is taken by a person for his/her children to meet the expenses of their education or marriage.
(ii) General Insurance
(a) Fire Insurance Fire insurance is a contract under which one party in return for a consideration agrees to indemnity the other party for the financial loss.
Kinds of fire insurance policies are as follows
Specific Policy
Double Insurance
Reinsurance
(b) Marin Insurance Marine Insurance is a contract between the insured and the insurer. The insured may be cargo owner or ship owner or fright receiver.
The different types of marine insurance are
Cargo Insurance
Hull Insurance
Freight Insurance
10. Communication Services Communication refers to exchange of ideas, views or message between two or more persons.
According to William H Newman, “Communication is an exchange of facts ideas, opinion or emotions by two or more persons”.
11. Postal Services The government at national and international level provides postal services.
(i) Features
(a) All the postal services arc controlled by the government.
(b) The postal department provides services at national as well as international level. (c) Post offices also started speed post service to compete with courier service.
(ii) Drawbacks
(a) Slow in speed (b) Bureaucratic in nature
12. Telecom Services Telecom services are the backbone of every business activity. In the absence of Telecom service every business activity will remain as a dream only.
The various types of telecom services are
(i) Cellular mobile phone (ii) Radio paging services (iii) Fixed line service (iv) Cable service (v) VSAT services (vi) DTH services
13. Transportation It refers to physical movement of goods from one place to other. Transportation comprises of freight services.
The transportation services is necessary to remove the place gap between the producer and consumer.
14. Warehousing Services Warehousing means holding and preservation of goods from the time of their production or purchase and until their sale or use.
(i) Functions
(a) Consolidation (b) Break the bulk (c) Stock pilling (d) Value added service (e) Price stabilisation (f) Financing (g) Risk Bearing
(ii) Types of Warehouses
Warehouses may broadly be classified into five categories
(a) Private warehouse (b) Public warehouse (c) Co-operative warehouse (d) Government warehouses (e) Bonded warehouses
Private, Public and Global Enterprises class 11 Notes Business Studies
PRIVATE SECTOR ENTERPRISES
The private sector consists of business owned by individuals or a group of individuals. The varios forms of organisation are- sole proprietorship, partnership, joint hindu family, cooperative and company.
PUBLIC SECTOR ENTERPRISES
Meaning: The public sector consists of various organizations owned and managed by central or State or by both governments. The govt. participates in economic activity of the country through these enterprises.
FEATURES:
1. Capital is contributed by central or state or both govts. 2. Public welfare or Service is the main objective. 3. Management & control are in the hands of govt. 4. It is accountable to the public.
I. DEPARTMENT UNDERTAKING
These are established as departments of the ministry and are financed, managed and controlled by either central govt. or state govt.
Examples: Indian Railways, Post & Telegraph departments.
FEATURES
1. No Separate Entity: It has no Separate legal entity. 2. Finance: It is financed by annual budget allocation of the govt. and all its earnings go to govt. treasury. 3. Accounting &Audit: The govt. rules relating to audit & accounting are applicable to it. 4. Staffing: Its employees are govt. employees & are recruited & appointed as per govt. rules. 5. Accountability: These are accountable to the concerned ministry.
MERITS
1. It is more effective in achieving the objective laid down by govt. as it is under the direct control of govt. 2. It is a source of govt. income as its revenue goes to govt. treasury. 3. It is accountable to parliament for all its actions which ensures proper utilization of funds. 4. It is suitable for activities where secrecy and strict control is required like defence production.
DEMERITS
1. It suffers from interference from minister and top officials in their working. 2. It lacks flexibility which is essential for smooth operation of business. 3. It suffers from red tapism in day to day Work. 4. These organizations are usually insensitive to consumer needs and do not provide goods and adequate service to them. 5. Such organization are managed by civil servants and govt. officials who may not have the necessary expertise and experience in management.
SUITABILITY:
(i) Where full Govt. control is needed. (ii) where secrecy is very important such as defence.
STATUTORY CORPORATIONS
It is established under a special Act passed in parliament or state legislative assembly. Its objectives, powers and functions are clearly defined in the special Act.
Examples: Unit Trust of India, Life Insurance Corporation.
FEATURES
1. It is established under a special act which defines its objects, powers and functions. 2. It has a separate legal entity. 3. Its management is vested in a Board of directors appointed or nominated by government. 4. It has its own staff, recruited and appointed as per the provisions of act. 5. This type of enterprise is usually independently financed. It obtains funds by borrowing from govt. or from public or through earnings. 6. It is not subject to same accounting & audit rules which are applicable to govt. department.
MERITS
1. Internal Autonomy: It enjoys a good deal of autonomy in its day to day operations and is free from political interference. 2. Quick decisions: It can take prompt decisions and quick actions as it is tree from the prohibitory rules of govt. 3. Parliamentary control: Their performance is subject to discussion in parliament which ensures proper use of public money. 4. Efficient Management: Their directors and top executives are professionals and experts of different fields.
DEMERITS
1. In reality, there is not much operational flexibility. It suffers from lot of political interference. 2. Usually they enjoy monopoly in their field and do not have profit motive due to which their working turns out to be inefficient. 3. Where there is dealing with public, rampant corruption exists. Thus public corporation is suitable for undertaking requiring monopoly powers e.g. public utilities.
SUITABILITY: It is suitable for organizing public enterprise when,
(i) The enterprise requires special power under an Act. (ii) The enterprise requires a huge amount of capital investment.
GOVERNMENT COMPANY
A government company is a company in which not less than 51% of the paid up share capital is held by the central govt. or state govt. or jointly by both.
Examples: Hindustan Insecticides Ltd., State Trading Corp. of India, Hindustan Cables Ltd.
FEATURE
1. It is registered or Incorporated under companies Act1956. 2. It has a separate legal entity. 3. Management is regulated by the provision of companies Act. 4. Employees are recruited and appointed as per the rules and regulations contained in Memorandum and Articles of association. 5. The govt. Co. obtains it funds from govt. shareholdings and other private shareholdings. It can also raise funds from capital market.
MERITS
1. It can be easily formed as per the provision of companies Act. Only an executive decision of govt. is required. 2. It enjoys autonomy in management decisions and flexibility in day to day working. 3. These are able to control the market and curb unhealthy business practices.
LIMITATIONS
1. It suffers from interference from govt. officials, ministers and politicians. 2. It evades constitutional responsibility which a company financed by the govt. should have as it is not directly answerable to parliament. 3. The board usually consists of the politicians and civil servants who are interested more in pleasing their political bosses than in efficient operation of the company.
SUITABILITY:
(i) Where the private sector is also needed along with in govt. (ii) Where activities related to finance are to be encouraged.
CHANGING ROLE OF PUBLIC SECTOR
Public sector in India was created to achieve two types of objective – (1) to speed up the economic growth of the country and (2) to achieve a more equitable distribution of income and wealth among people. The role and importance of public sector changed with time. Its role over a period of time can be summarized as following:
1. Development of Infrastructure: At the time of independence, India suffered from acute shortage of heavy industries such as engineering, iron and steel, oil refineries, heavy machinery etc. Because of huge investment requirement and long gestation period, private sector was not willing to enter these areas. The duty of development of basic infrastructure was assigned to public sector which it discharged quite efficiently.
2. Regional balance: Earlier, most of the development was limited to few areas like port towns. For providing employment to the people and for accelerating the economic development of backward areas many industries were set up by public sector in those areas.
3. Economies of scale: In certain industries (like Electric power plants. natural gas, petroleum etc) huge capital and large base are required to function economically. Such areas were taken up by public sector.
4. Control of Monopoly and Restrictive trade Practices – These enterprises were also established to provide competition to pvt. Sector and to check their monopolies and restrictive trade practices.
5. Import Substitution – Public enterprises were also engaged in production of capital equipments which were earlier imported from other countries. At the same time public sector Companies like STC and MMTC have played an important role in expending exports of the country. Very important role was assigned to public sector but is performance was far from satisfactory which forced govt. to do rethinking on public enterprises.
PUBLIC SECTORY REFORMS
In the industrial policy 1991, the govt. of India introduced four major reforms in public sector.
(I) Reduction in No. of industries reserved for public sector: This no. is reduced from 17 to 8 and to 3 only in 2001. These three industries are atomic energy arms and rail transport.
(II) Memorandum of Understanding (MOU): Under this govt. lays down performance target for public sector and gives greater autonomy to hold the management but held accountable for the specified results.
(III) Disinvestment: Equity shares of public sector enterprises were sold to private sector and the public. It was expected that this would lead to improved managerial performance and better financial discipline.
(IV) Restructural and Revival: All public sector sick units were referred to Board of Industrial and Financial Re-construction (BIFR). Unite which were potentially viable were restructured and which could not be reviewed were closed down by the board.
MULTINATIONAL COMPANIES/GLOBAL ENTERPRISES
Multinational company may be defined of a company that has business operations in several countries by having its factories, branches or offices in those countries. But is has its headquarter in one country in which it is incorporated.
Examples: PHILIPS, Coca Cola etc.
FEATURES
1. Huge Capital Resources: MNCs possess huge capital resources and they are able to raise lot of funds from various sources.
2. International Operations: A MNC has production, marketing and other facilities in several countries.
3. Centralized control: MNCs have headquarters in their home countries from where they exercise control over all branches and subsidiaries. It provides only broad policy framework to them and there is no interference in their day to day operations.
4. Foreign Collaboration: Usually they enter into agreements relating to sale of technology, production of goods, use of brand name etc. with local firms in the host country.
5. Advanced technology – These organisation possesses advanced and superior technology which enable them to provide world class products & services.
6. Product Innovations: MNCs have highly sophisticated research and development departments. These are engaged in developing new products and superior design of existing products.
7. Marketing Strategies – MNCs use aggressive marketing strategies. Their brands are well known and spend huge amounts on advertising and sale promotion.
JOINT VENTURES
Meaning: When two or more independent firms together establish a new enterprise by pooling their capital, technology and expertise, it is known as a joint venture.
Example: Hero Cycle of India and Honda Motors Co. of Japan jointly established Hero Honda. Similarily, Suzuki Motors of Japan and Maruti of Govt. of India come together to form Maruti Udyog.
FEATURES 1. Capital is provided jointly by the Government and Private Sector Entrepreneurs. 2. Management may be entrusted to the private entrepreneurs. 3. It combines both social and profit objectives. 4. It is responsible to the Government and the private investors.
BENEFITS
1. Greater resources and Capacity – In a joint venture the resources and capacity of two or more firms are combined which enables it to grow quickly and efficiently
2. Access to advanced technology – It provides access to advanced techniques of production which increases efficiency and then helps in reduction in cost and improvement in quality of product.
3. Access to New Markets and distribution network – A foreign co. gain access to the vast Indian market by entering into a joint venture with Indian Co. It can also take advantage of the well established distribution system of local firms.
4. Innovation – Foreign partners in joint ventures have the ideas and technology to develop innovative products and services. They have an advantage in highly competitive and demanding markets.
5. Low Cost of production – Raw material and labour are comparatively cheap in developing countries so if one partner is from developing country they can be benefitted by the low cost of production.
6. Well known Brand Names: When one party has well established brands & goodwill, the other party gets its benefits. Products of such brand names can be easily launched in the market.
Public Private Partnership (PPP):
It means an enterprise in which a project or service is finance and operated through a partnership of Government and private enterprises.
FEATURES: 1. Facilitates partnership between public sector and private sector. 2. Pertaining high priority project. 3. Suitable for big project (capital intensive and heavy industries). 4. Public welfare example Delhi Metro Railway Corporation. 5. Sharing revenue – Revenue is shared between government and private enterprises in the agreed Ratio.
