Global company 

The word global literally means worldwide. A global company is one that does business in at least one 
country outside of its country of origin. It has a foothold in multiple countries but the offerings and 
processes are consistent in each country. In a global model, the business does not adapt to local norms, 
rather, it imposes its existing business model on the country. The company market its products through 
the use of the same coordinated image/brand in all markets. For example, a major soda brand can set 
up shop in different countries, but the recipe does not change in the global model. 

A global company has a foothold in multiple countries but the offerings and processes are consistent in 
each country. For example, a major soda brand can set up shop in different countries, but the recipe 
does not change in the global model. The company uses the same ingredients and manufacturing 
processes, regardless of local culture. In a global model, the business does not adapt to local norms, but 
rather, it imposes its existing business model on the country. The only exception within the global model 
is the marketing approach to drive sales in individual countries. The product is consistent but messaging 
must adapt to work within the cultural norms. Marketing is where the two models are difficult to 
distinguish. 

The word global literally means worldwide, or all over the world. So, you'd think a global company must 
do business all over the world. But realistically, few, if any, companies could be said to do business with 
every single country in the world. A global company is one that does business in at least one country 
outside of its country of origin. Even expanding to one other country is a huge undertaking. It's not as if 
someone wants to order some of your products and you ship them out to France or Bolivia or wherever 
and – BOOM! – you're instantly a global company. 

Global companies have invested and are present in many countries. They market their products through 
the use of the same coordinated image/brand in all markets. Generally one corporate office that is 
responsible for global strategy. Emphasis on volume, cost management and efficiency. 

Transnational company 
A commercial enterprise that operates substantial facilities, does business in more than one country and 
does not consider any particular country its national home. Such company is able to maintain a greater 
degree of responsiveness to the local markets where they maintain facilities. An example of a 
transnational corporation is Nestlé, who employ senior executives from many countries and tries to 
make decisions from a global perspective rather than from one centralized headquarters. 

A transnational corporation differs from a traditional multinational corporation in that it does 
not identify itself with one national home. While traditional multinational corporations are 
national companies with foreign subsidiaries,[34] transnational corporations spread out their 
operations in many countries to sustain high levels of local responsiveness.[35]  

An example of a transnational corporation is Nestlé, who employ senior executives from many 
countries and tries to make decisions from a global perspective rather than from one 
centralized headquarters.[36]  

A transnational corporation (TNC) is a huge company that does business in several countries.  
Many TNCs are much richer than entire countries in the less developed world.  

Such companies can provide work and enrich a country's economy ‐ or some say they can exploit the workers with 
low pay and destroy the environment.  

Examples of TNCs include:  

• Nestlé  
• Unilever  

Anti dumping Duty  Countervailing duty
An anti‐dumping duty (ADD) is a customs duty on  Countervailing duty is a customs duty on goods 
imports providing a protection against the  that have received government subsidies in the 
dumping of goods in the EU at prices  originating or exporting country. For customs 
substantially lower than the normal value. In  purposes, it is treated in the same way as ADD. It 
most cases, this is the price foreign producers  is possible to have both ADD and countervailing 
charge for comparable sales in the producer’s  duty on a product. If you have the commodity 
own country. Each ADD covers specified goods  code number of the product you can check in 
originating in or exported from named countries  Volume 2 of the Tariff to see if ADD or 
or exporters. ADD is chargeable in addition to,  countervailing duties apply. The back of the 
and independent of, any other duty to which the  relevant product chapter will name the countries 
imported goods are liable.  and exporters who either have these extra duties 
imposed on their goods or, where a whole 
country is subject to additional duties, it will state 
the name of the exporters/manufacturers and 
the relevant duty rates applicable to them. 
Antidumping duties are assessed when it is  Countervailing Duties are applicable when a 
determined that foreign suppliers or  foreign government provides subsidies or 
manufacturers are selling goods in the United  assistance to a local industry. This can be in 
States at a less‐than‐fair market value.  the form of low‐rate loans, tax exemptions, 
Dumping occurs when goods are sold at a  or indirect payments. The assistance 
price less than that of the exporter’s home  provided enables these suppliers and 
market, or at a price lower than the goods’  manufacturers to potentially export and sell 
cost of production. To receive an AD duty,  the goods for less than domestic companies. 
the dumping must be proven harmful to a  After an investigation by the International 
company or industry in the United States.  Trade Commission (ITC), a CV duty is 
The amount of the AD duty is usually  assessed based on the value of the subsidy. 
calculated to offset the margin of dumping. 
 
 
Dumping occurs when foreign manufacturers  Countervailing cases are when a foreign 
sell goods in the U.S. at less than fair value.   government provides enough subsidies and 
tax benefits for their manufacturers to sell 
their goods more cheaply than U.S. 
manufacturers. 
   
Types & reasons of government intervention in international business 
 
1. National Security Argument:  

Each nation protects some industries to guard its national security. The most obvious examples 
are weapons, aerospace, advanced electronics, semiconductors, and strategic minerals (e.g., 
exotic ores used in jet aircraft), etc. Protection for the sake of making available specific minerals 
or resources does not appear to be an optimal policy. A better alternative is to stockpile such 
resources during peacetime when they are cheap. 

Protagonists of national security argument claim that a nation should be. Self‐reliant and be 
ready to pay for inefficiency when the case relates to national security. Recently, Pentagon has 
pressed for development of flat‐panel industry even though the same can be bought much 
cheaper from Asian countries. One must remember that in today’s world no nation can be fully 
self‐reliant. 

 2. Foreign Policy Goals Argument:  

Commerce has become an important tool to achieve foreign policy goals. Preferential 
treatment may be given to a country or countries with which strong relations are to be built. 
Pakistan was rewarded when it provided its airbase to the US during the Afghan war. Iraq was 
punished through imposition of trade sanctions after it invaded Kuwait. 

The US has maintained long‐ running trade sanctions against Cuba. At times trade sanctions 
have been applied against the countries doing trade with such countries. Iran, North Korea and 
Libya were also in the list of unfavorable nations of the US. India was denied high tech 
computers when it exploded nuclear bomb in 1998. 

If a nation is to be favored, it may be granted ‘most favored nation’ status. The EU has granted 
preferential treatment to bananas from certain former colonies. Governments, sometimes, 
restrict export of strategic goods even to friendly nations in order to ensure that these goods 
do not fall into the hands of potential enemies. The US government prohibits US companies to 
export powerful encryption technologies, for this reason. Restrictions may be imposed even on 
nondefence goods to prevent another country helping enemy. 

3. Strategic Trade Policy Argument:  

P. Krugman proposed a new trade theory. The theory argues that an industry has economies of 
scale and the world market will profitably support only few firms. Countries may predominate 
in export of certain products simply because they had firms who were able to capture first‐
mover advantages. The dominance of Boeing in the commercial aircraft industry is attributed to 
such factors. 
According to strategic trade policy argument, a government should use subsidies to support 
such firms; the second argument is that it might pay government to intervene in an industry if it 
helps its domestic firms overcome the barriers to entry created by foreign firms that have 
already reaped the first‐mover advantages. This has been the logic of government support of 
Airbus Industries. 

The governments of Britain, France, Germany and Spain had given a subsidy of $13.5 billion to 
Airbus. The US government had also given huge R&D grant to Boeing during 1950w and 1960s. 
Japanese government did the same for Japanese semi‐conductor industry to compete with the 
first‐mover advantage‐holder semi‐conductor industry of the US. 

4. Safety Argument:  

Governments have all over been concerned to protect consumers from ‘unsafe’ products. Most 
countries prohibit imports of marijuana and products made from endangered animal species. 
The US in its desire to increase public safety, permanently banned in 1978 the imports of 58 
types of military‐style assault weapons. Chile restricted imports of Salmon eggs by contending 
that they might be diseased. The EU banned the import of hormone‐treated beef to protect its 
populace from the probable negative health consequences. 

Recently, many countries shifted orders for apparel from China to India and Pakistan, as China 
had been reeling under SARS (severely acute respiratory syndrome). Government of India was 
in two minds to allow or disallow use of GM (genetically modified) cotton seeds. Many of the 
EU nations, such as, Germany, Switzerland, Austria, and Luxembourg are against genetically 
altered organisms. Developed countries are very tough with regard to quality when the agri 
commodities come from developing countries. 

In medical services, the interests of patients are protected by the enforcement of standards for 
the qualifications of medical doctors and others. 

5. Emotional Argument:  

Many arguments may have no economic rationale but they are so strong that no logic works. 
Rice is a very emotional issue among the Japanese. For years it has been told that rice grown 
outside Japan is not suitable for their palates and also not healthy. China limits rice import since 
rice farming has been a historical and cohesive force in uniting Chinese families. 

Preserving cultural identity and heritage has been a very strong argument. Countries, at times, 
prohibit import of products and services that might undermine this identity. The French 
government protects its movie industry by limiting foreign films on French television and gives 
subsidies to the French film makers to produce films. 
It is out of fear that the English language and Anglo‐Saxon culture will weaken its cultural 
identity. Similarly, Canada limits foreign publishing, cable TV, bookselling, and musical 
performance. India does not allow foreign investment in print media out of emotions. 

Many democratic countries create barriers by raising the bogey of human rights. China was not 
granted ‘most favored nation’ status for a long time due to its poor human rights record. At 
other times restrictions are placed against a country to protest against child labor.‐Many a time, 
punitive measures are undertaken on the perception that the other country is not providing 
free access to its markets. 

Environmental issues have also been the reasons for imposition of trade restrictions. Many 
nationalists and patriots argue for restrictions on the ground that international trade will lead 
to outflow of wealth from local people to foreigners, as is locals will get no value in return 
TYPES

 
  
 

 
Economics of scale 
Economies of scale refer to reduced costs per unit that arise from increased total output of a 
product. For example, a larger factory will produce power hand tools at a lower unit price, and 
a larger medical system will reduce cost per medical procedure. 
 
Economies of scale give rise to lower per‐unit costs for several reasons. First, specialization of 
labor and more integrated technology boost production volumes. Second, lower per‐unit costs 
can come from bulk orders from suppliers, larger advertising buys or lower cost of capital. 
Third, spreading internal function costs across more units produced and sold helps to reduce 
costs. "Internal functions" include accounting, information technology, and marketing. The first 
two reasons are also considered operational efficiencies and synergies. The second two reasons 
are cited as benefits of mergers and acquisitions 
 
Economies of scale is the competitive advantage that large entities have over smaller ones. The larger 
the business, non‐profit, or government, the lower its per‐unit costs. It can spread fixed costs, like 
administration, over more units of production. 
 

 
 

Examples of Economies of Scale 

In a hospital, it is still a 20‐minute visit with a doctor, but all the business overhead costs of 
hospital system are spread across more doctor visits and the person assisting the doctor is no 
longer a degreed nurse, but a technician or nursing aide.  

"Job shops" are those that produce products in groups such as shirts with your company logo. A 
significant element of the cost is the "set‐up." In job shops, larger production runs lower unit 
cost because the set‐up costs of designing the logo and creating the silk‐screen pattern are 
spread across more shirts. 

In an assembly factory, per‐unit costs are reduced by more seamless technology with robots. 
(See also, What Are Economies of Scale?) 

A restaurant kitchen is often used to illustrate how economies of scale are limited: more cooks 
in a small space get into each other's way. In economics charts, this has been illustrated with 
some flavor of a U‐shaped curve, in which average cost per unit falls and then rises. Costs rising 
as production volume grows is termed "diseconomies of scale." 
Types of Economies of Scale  

There are two main types of economies of scale: internal and external. Internal economies are 
controllable by management because they are internal to the company. External economies 
depend upon external factors. These factors include the industry, geographic location, or 
government. 

Internal Economies of Scale  

Internal economies are a result of the sheer size of the company. It doesn't matter what 
industry it's in or market it sells to. For example, large companies have the ability to buy in bulk. 
This lowers the cost per unit of the materials they need to make their products. They can use 
the savings to increase profits. Or, they can pass the savings to consumers and compete on 
price. There are five main types of internal economies of scale. 

Technical economies of scale result from efficiencies in the production process itself. 
Manufacturing costs fall 70‐90 percent every time the business doubles its output. Larger 
companies can take advantage of more efficient equipment. 

For example, data mining software allows the firm to target profitable market niches. Large 
shipping companies cut costs by using super‐tankers. They can use post‐Panamax ships that 
carry as many as 16 trains. Finally, large companies achieve technical economies of scale 
because they learn by doing. They’re far ahead of their smaller competition on the learning 
curve. 

Monopsony power is when a company buys so much of a product that it can reduce its per unit 
costs. For example, Wal‐Mart's "everyday low prices" are due to its huge buying power. 

Managerial economies of scale occur when large firms can afford specialists. They more 
effectively manage particular areas of the company. For example, a seasoned sales executive 
has the skill and experience to get the big orders. They demand a high salary, but they're worth 
it. 

Financial economies of scale means the company has cheaper access to capital. A larger 
company can get funded from the stock market with an initial public offering. Big firms have 
higher credit ratings. As a result, they benefit from lower interest rates on their bonds. 

Network economies of scale occur primarily in online businesses. It costs almost nothing to 
support each additional customer with existing infrastructure. So, any revenue from the new 
customer is all profit for the business. A great example is eBay. 
External Economies of Scale  

A company has external economies of scale if its size creates preferential treatment. That's 
most often occurs with governments. For example, a state often reduces taxes to attract the 
companies that provide the most jobs. Big real estate developers convince cities to build roads 
to support their buildings. This saves the developers from paying those costs. Large companies 
can also take advantage of joint research with universities. This lowers research expenses for 
these companies. 

Small companies don't have the leverage to benefit from external economies of scale. But they 
can band together. They can cluster similar businesses in a small area. That allows them to take 
advantage of geographic economies of scale. For example, artist lofts, galleries, and restaurants 
benefit by being together in a downtown art district.

GLOBALISATION 

Globalization is defined as a process that, based on international strategies, aims to expand 
business operations on a worldwide level, and was precipitated by the facilitation of global 
communications due to technological advancements, and socioeconomic, political and 
environmental developments. 

The goal of globalization is to provide organizations a superior competitive position with lower 
operating costs, to gain greater numbers of products, services and consumers. This approach to 
competition is gained via diversification of resources, the creation and development of new 
investment opportunities by opening up additional markets, and accessing new raw materials 
and resources. Diversification of resources is a business strategy that increases the variety of 
business products and services within various organizations. Diversification strengthens 
institutions by lowering organizational risk factors, spreading interests in different areas, taking 
advantage of market opportunities, and acquiring companies both horizontal and vertical in 
nature. 

 Although in its simplistic sense globalization refers to the widening, deepening and speeding up 
of global interconnection, such a definition begs further elaboration. ... Globalization can be on 
a continuum with the local, national and regional. At one end of the continuum lie social and 
economic relations and networks which are organized on a local and/or national basis; at the 
other end lie social and economic relations and networks which crystallize on the wider scale of 
regional and global interactions. Globalization can refer to those spatial‐temporal processes of 
change which underpin a transformation in the organization of human affairs by linking 
together and expanding human activity across regions and continents. Without reference to 
such expansive spatial connections, there can be no clear or coherent formulation of this term. 
... A satisfactory definition of globalization must capture each of these elements: extensity 
(stretching), intensity, velocity and impact.[21] 
 Trends in Globalization    

There are several major trends pertaining to globalization, 
which consist of: demographic, scientific, governance, 
economic interdependence. 

• Population trends ‐ Decreasing population in developed 
countries, while increasing population in developing 
countries, and increased life expectancy 
• Science and technology ‐ Includes the Internet and other 
computer components as well as GPS, genetically 
modified food, etc.  
• Increasing integration and interdependence ‐ Includes 
all areas of economic life as well as an increasing 
exchange of products and services across national 
borders through trade  
• Governance ‐ How national and international laws 
govern the economic activity and transnational 
institutions. 

These trends are often interdependent and cannot be easily separated. The various factors 
associated with trends in globalization, has been shown to affect population growth. In 
addition, advances in technology can have significant impacts on society. Technology has 
allowed global commercial transactions to take place at increasingly faster rates, and at 
greater volumes across national borders. This has also led to other challenges regarding 
global commerce, which involve the complex coordination, interaction and compliance of 
current international and domestic laws. The information in Section IV., includes literature, 
as well as news, and statistical sources that assist with researching trends in globalization. 

The Economic Impact on Developed Nations 

Globalization compels businesses to adapt to different strategies based on new ideological 
trends that try to balance rights and interests of both the individual and the community as a 
whole. This change enables businesses to compete worldwide and also signifies a dramatic 
change for business leaders, labor and management by legitimately accepting the participation 
of workers and government in developing and implementing company policies and strategies. 
Risk reduction via diversification can be accomplished through company involvement with 
international financial institutions and partnering with both local and multinational businesses. 

Globalization brings reorganization at the international, national and sub‐national levels. 
Specifically, it brings the reorganization of production, international trade and the integration 
of financial markets. This affects capitalist economic and social relations, via multilateralism and 
microeconomic phenomena, such as business competitiveness, at the global level. The 
transformation of production systems affects the class structure, the labor process, the 
application of technology and the structure and organization of capital. Globalization is now 
seen as marginalizing the less educated and low‐skilled workers. Business expansion will no 
longer automatically imply increased employment. Additionally, it can cause high remuneration 
of capital, due to its higher mobility compared to labor. 

The phenomenon seems to be driven by three major forces: globalization of all product and 
financial markets, technology and deregulation. Globalization of product and financial markets 
refers to an increased economic integration in specialization and economies of scale, which will 
result in greater trade in financial services through both capital flows and cross‐border entry 
activity. The technology factor, specifically telecommunication and information availability, has 
facilitated remote delivery and provided new access and distribution channels, while revamping 
industrial structures for financial services by allowing entry of non‐bank entities, such as 
telecoms and utilities. 

Deregulation pertains to the liberalization of capital account and financial services in products, 
markets and geographic locations. It integrates banks by offering a broad array of services, 
allows entry of new providers, and increases multinational presence in many markets and more 
cross‐border activities. 

In a global economy, power is the ability of a company to command both tangible and 
intangible assets that create customer loyalty, regardless of location. Independent of size or 
geographic location, a company can meet global standards and tap into global networks, thrive 
and act as a world class thinker, maker and trader, by using its greatest assets: its concepts, 
competence and connections. 

Beneficial Effects 

Some economists have a positive outlook regarding the net effects of globalization on economic 
growth. These effects have been analyzed over the years by several studies attempting to 
measure the impact of globalization on various nations' economies using variables such as 
trade, capital flows and their openness, GDP per capita, foreign direct investment (FDI) and 
more. These studies examined the effects of several components of globalization on growth 
using time series cross sectional data on trade, FDI and portfolio investment. Although they 
provide an analysis of individual components of globalization on economic growth, some of the 
results are inconclusive or even contradictory. However, overall, the findings of those studies 
seem to be supportive of the economists' positive position, instead of the one held by the 
public and non‐economist view. 

Trade among nations via the use of comparative advantage promotes growth, which is 
attributed to a strong correlation between the openness to trade flows and the affect on 
economic growth and economic performance. Additionally there is a strong positive relation 
between capital flows and their impact on economic growth. 
Foreign Direct Investment's impact on economic growth has had a positive growth effect in 
wealthy countries and an increase in trade and FDI, resulting in higher growth rates. Empirical 
research examining the effects of several components of globalization on growth, using time 
series and cross sectional data on trade, FDI and portfolio investment, found that a country 
tends to have a lower degree of globalization if it generates higher revenues from trade taxes. 
Further evidence indicates that there is a positive growth‐effect in countries that are 
sufficiently rich, as are most of the developed nations. 

The World Bank reports that integration with global capital markets can lead to disastrous 
effects, without sound domestic financial systems in place. Furthermore, globalized countries 
have lower increases in government outlays and taxes, and lower levels of corruption in their 
governments. 

One of the potential benefits of globalization is to provide opportunities for reducing 
macroeconomic volatility on output and consumption via diversification of risk. 

Harmful Effects 

Non‐economists and the wide public expect the costs associated with globalization to outweigh 
the benefits, especially in the short‐run. Less wealthy countries from those among the 
industrialized nations may not have the same highly‐accentuated beneficial effect from 
globalization as more wealthy countries, measured by GDP per capita etc. Although free trade 
increases opportunities for international trade, it also increases the risk of failure for smaller 
companies that cannot compete globally. Additionally, free trade may drive up production and 
labor costs, including higher wages for more skilled workforce, which again can lead to 
outsourcing of jobs from countries with higher wages. 

Domestic industries in some countries may be endangered due to comparative or absolute 
advantage of other countries in specific industries. Another possible danger and harmful effect 
is the overuse and abuse of natural resources to meet new higher demands in the production of 
goods. 

The Bottom Line 

One of the major potential benefits of globalization is to provide opportunities for reducing 
macroeconomic volatility on output and consumption via diversification of risk. The overall 
evidence of the globalization effect on macroeconomic volatility of output indicates that 
although direct effects are ambiguous in theoretical models, financial integration helps in a 
nation's production base diversification, and leads to an increase in specialization of 
production. However, the specialization of production, based on the concept of comparative 
advantage, can also lead to higher volatility in specific industries within an economy and society 
of a nation. As time passes, successful companies, independent of size, will be the ones that are 
part of the global economy 
Subsidy 

A subsidy is a benefit given to an individual, business or institution, usually by the government.

It is usually in the form of a cash payment or a tax reduction. The subsidy is typically given to
remove some type of burden, and it is often considered to be in the overall interest of the public,
given to promote a social good or an economic policy.

A subsidy takes the form of a payment, provided directly or indirectly, which provides a
concession to the receiving individual or business entity. Subsidies are generally seen as a
privileged type of financial aid, as they lessen an associated burden that was previously levied
against the receiver, or promote a particular action by providing financial support.

A subsidy typically supports particular sectors of a nation’s economy. It can assist struggling
industries by lowering the burdens placed on them, or encourage new developments by providing
financial support for the endeavors. Often, these areas are not being effectively supported
through the actions of the general economy, or may be undercut by activities in rival economies.

Direct vs Indirect Subsidies 

Direct subsidies are those that involve an actual payment of funds toward a particular individual,
group or industry.

Indirect subsidies are those that do not hold a predetermined monetary value or involve actual
cash outlays. They can include activities such as price reductions for required goods or services
that can be government-supported. This allows the needed items to be purchased below the
current market rate, resulting in a savings for those the subsidy is designed to help.

 
Examples of Subsidies 

There are many forms of subsidies given out by the government. Two of the most common types
of individual subsidies are welfare payments and unemployment benefits. The objective of these
types of subsidies is to help people who are temporarily suffering economically. Other subsidies,
such as student loans, are given to encourage people to further their education.

With the enactment of the Affordable Care Act, a number of U.S. families became eligible for
health-care subsidies, based on household income and size. These subsidies are designed to
lower the out-of-pocket costs for health insurance premiums. In these instances, the funds
associated with the subsidies are sent directly to the insurance company to which premiums are
due, lowering the payment amount required from the household.

Subsidies to businesses are given to support an industry that is struggling against international
competition that has lowered prices, such that the domestic business is not profitable without the
subsidy. Historically, the vast majority of subsidies in the United States have gone towards four
industries: agriculture, financial institutions, oil companies and utilities companies.
What is 'Dumping'? 

Dumping is a term used in the context of international trade. It's when a country or
company exports a product at a price that is lower in the foreign importing market than the
price in the exporter's domestic market. Because dumping typically involves substantial export
volumes of a product, it often endangers the financial viability of the product's manufacturers or
producers in the importing nation.

Considered a form of price discrimination, dumping occurs when a manufacturer lowers the
price of a good entering a foreign market to a level that is less than the price paid by domestic
customers in the originating country. The practice is considered intentional with the goal being
obtaining a competitive advantage in the importing market.

The Advantages and Disadvantages of Trade Dumping 

The primary advantage of trade dumping is the ability to permeate a market with product prices
that are often considered unfair. The exporting country may offer the producer a subsidy to
counterbalance the losses incurred when the products are sold below manufacturing cost. A
disadvantage of trade dumping is that the subsidies can become costly over time. Additionally,
trade partners who wish to restrict this form of market activity may increase restrictions on the
good, which could result in increased export costs to the affected country or limits on the
quantity a country will import.

Example of Dumping Tariffs in International Trade 

In 2016, the International Trade Association decided that the anti-dumping duty levied on tissue
products from the People’s Republic of China would remain in effect based on Department of
Commerce and International Trade Commission investigations. The decision was made because
there was a strong likelihood that dumping would repeat if the tariff was removed.

Investment incentive

It is a government-implemented incentive policy aimed to encourage investors into its domestic

market or to promote expansion of existing businesses.[1] Investment incentives encompass
creating an environment that enables foreign businesses to operate profitably and decreases
risks.[2] They are widely used by developing countries to attract investments.[3] The incentives
take form of "direct subsidies (investment grants) or corporate income tax credits (investment
credit) that compensates the investors for their capital costs".[4]

Government schemes aimed at stimulating private sector interest in specified types of capital
expenditure, or investment in areas of high unemployment or backwardness. These incentives
may take the form of direct subsidies (investment grants) or corporate income tax credits
(investment credit) that compensates the investors for their capital costs.
Read more: http://www.businessdictionary.com/definition/investment-incentives.html

Currency controls

Currency controls, foreign exchange controls or currency exchange controls are a set of
restrictions applied by some governments to ban or limit the sale or purchase of foreign
currencies by nationals and the sale or purchase of local currency by foreigners.

Until the 1980s, all currencies were subject to some form of control, which started to be
gradually removed in the major economies with the advent of free trade and globalisation during
the 1990s.

Countries with smaller and more fragile economies, however, maintained their control over the
foreign exchange market, aiming to avoid speculation with their currencies that might create
imbalances in their balance of payments and capital flows with potentially devastating
consequences.

These are the most common foreign exchange controls:

• Banning or limiting purchases of foreign currency within the country

• Banning or restricting the use of foreign currency within the country
• Setting exchange rates (instead of letting the value of the currency fluctuate according to
market forces )
• Restricting currency exchange to retailers approved by the government
• Limiting the amount of money that may be imported or exported

In these countries, shadow currency markets often emerge providing a parallel exchange rate to
the official one, which is usually closer to what the free market exchange rate would be
according to supply and demand.

These currency controls often pose additional challenges to companies working at an

international level, either by hindering cash transactions or by making it impossible to use
financial instruments such as currency options or forward contracts to hedge FX risk.

Foreign Direct Investment ‐ FDI 
Foreign direct investment (FDI) is an investment made by a firm or individual in one country
into business interests located in another country. Generally, FDI takes place when an investor
establishes foreign business operations or acquires foreign business assets, including
establishing ownership or controlling interest in a foreign company. Foreign direct investments
are distinguished from portfolio investments in which an investor merely purchases equities of
foreign-based companies.
BREAKING DOWN 'Foreign Direct Investment ‐ FDI' 

Foreign direct investments are commonly made in open economies that offer a skilled workforce
and above-average growth prospects for the investor, as opposed to tightly regulated economies.
Foreign direct investment frequently involves more than just a capital investment. It may include
provisions of management or technology as well. The key feature of foreign direct investment is
that it establishes either effective control of, or at least substantial influence over, the decision-
making of a foreign business.

The Bureau of Economic Analysis (BEA), which tracks expenditures by foreign direct investors
into U.S. businesses, reported total FDI into U.S. businesses of $373.4 billion in 2016, marking a
15% decrease from the prior year. As per usual, acquisitions made up the overwhelming majority
of new foreign direct investments into the U.S., totaling $365.7 billion. Meanwhile, greenfield
investments, a type of FDI defined by the BEA as investments to either establish a new business
or to expand an existing foreign-owned business, comprised a much lighter $7.7 billion.

Methods of Foreign Direct Investment 

Foreign direct investments can be made in a variety of ways, including the opening of a
subsidiary or associate company in a foreign country, acquiring a controlling interest in an
existing foreign company, or by means of a merger or joint venture with a foreign company.

The threshold for a foreign direct investment that establishes a controlling interest, per guidelines
established by the Organisation of Economic Co-operation and Development (OECD), is a
minimum 10% ownership stake in a foreign-based company. However, that definition is flexible,
as there are instances where effective controlling interest in a firm can be established with less
than 10% of the company's voting shares.

Types of Foreign Direct Investment 

Foreign direct investments are commonly categorized as being horizontal, vertical or

conglomerate. A horizontal direct investment refers to the investor establishing the same type of
business operation in a foreign country as it operates in its home country, for example, a cell
phone provider based in the United States opening up stores in China. A vertical investment is
one in which different but related business activities from the investor's main business are
established or acquired in a foreign country, such as when a manufacturing company acquires an
interest in a foreign company that supplies parts or raw materials required for the manufacturing
company to make its products.

A conglomerate type of foreign direct investment is one where a company or individual makes a
foreign investment in a business that is unrelated to its existing business in its home country.
Since this type of investment involves entering an industry the investor has no previous
experience in, it often takes the form of a joint venture with a foreign company already operating
in the industry.
Examples of Foreign Direct Investment's Impact 

Foreign direct investments and the laws governing them can be pivotal to a company's growth
strategy. In 2017, for example, U.S.-based Apple announced a $507.1 million investment to
boost its research and development work in China, Apple's third-largest market behind the
Americas and Europe. The announced investment relayed CEO Tim Cook's bullishness toward
the Chinese market despite a 12% year-over-year decline in Apple's Greater China revenue in the
quarter preceding the announcement. China's economy has been fueled by an influx of FDI
targeting the nation's high-tech manufacturing and services, which according to China's Ministry
of Commerce, grew 11.1% and 20.4% year over year, respectively, in the first half of 2017.
Meanwhile, recently relaxed FDI regulation in India now allows 100% foreign direct investment
in single-brand retail without government approval. The regulatory decision reportedly facilitates
Apple's desire to open a physical store in the Indian market, where the firm's iPhones have thus
far only been available through third-party physical and online retailers.

 
The Transnationality Index (TNI)  

It is a means of ranking multinational corporations that is employed by economists and

politicians. It is calculated as the arithmetic mean of the following three ratios (where "foreign"
means outside of the corporation's home country):[2]

• the ratio of foreign assets to total assets 
• the ratio of foreign sales to total sales 
• the ratio of foreign employment to total employment 

The Transnationality Index

It was developed by the United Nations Conference on Trade and Development.[3][4]

Multinational corporations are also ranked by the amount of foreign assets that they own.
However, the TNI ranking can differ markedly from this. For example, as of 2000, General
Electric was the second largest multinational corporation in terms of foreign assert ownership.
However, it ranked only 73rd by the TNI, with an index of only 40%. Although the company had
large investments outside of the United States, most of its sales, employment, and assets were
within the U.S.. In contrast, Exxon has a TNI of 68% and Vodafone has a TNI of 81%. As of
2001, General Electric ranked 75th, with a TNI of 36.7%. The 14 most transnational corporations
originated in small countries (Switzerland, the United Kingdom, The Netherlands, Belgium, and
Canada), whereas the largest multinational corporations in terms of foreign asset ownership all
had low TNI scores. General Motors, the fourth largest multinational corporation in terms of
foreign asset ownership only ranked 83rd (30.7%) on the TNI top 100. IBM ranked 50th
(53.7%), Volkswagen ranked 45th (55.7%), and Toyota, the sixth largest multinational
corporation in terms of foreign asset ownership, only ranked 82nd (30.9%) on the broader TNI
scale.[2][5]
Peter Dicken, an honorary fellow of the School of Environment and Development at the
University of Manchester, argues that TNI data refute the assertions of hyperglobalism. The data,
he argues, prove false the claim that multinational corporations are "inexorably, and inevitably,
abandoning their ties to their country of origin". If that were the case, we would expect the
largest multinational corporations to have the majority of their assets, sales, and employmnent
outside of their countries of origin, and thus the majority of those corporations to have high
TNIs. In fact, in the UNCTAD TNI data for the top 100 multinational corporations for 2001, the
mean TNI is 52.6%, 57 of the 100 have a TNI greater than 50%, and only a mere 16 have a TNI
greater than 75%. Thus, he concludes, measured TNI data provide little evidence for
multinational corp

orations having the proportions of their assets, sales, and employees outside of their home
countries that one would expect for truly global firms.[5]

See also 

The Four Types of Economic Systems 
As you probably know, there are countless economies across the world. All of them are unique in
their own way, but they still share a significant number of characteristics. Thus, we
can categorize them into four types of economic systems; traditional economies, command
economies, market economies and mixed economies. All of them rely on a different set of
assumptions and conditions and of course, they all have their own strengths and weaknesses. We
will look at each of them in more detail below.

Traditional Economic System 

A traditional economic system focuses exclusively on goods and services that are directly related
to its beliefs, customs, and traditions. It relies heavily on individuals and doesn’t usually show a
significant degree of specialization and division of labor. In other words, traditional economic
systems are the most basic and ancient type of economies.

Large parts of the world still qualify as traditional economies. Especially rural areas of second- or
third-world countries, where most economic activity revolves around farming and other traditional
activities. These economies often suffer from a lack of resources. Either because those resources
don’t naturally occur in the region or because access to them is highly restricted by other, more
powerful economies.

Hence, traditional economies are usually not capable of generating the same amount of output or
surplus that other types of economies can produce. However, the relatively primitive processes are
often much more sustainable and the low output results in much less waste than we see in any
command, market, or mixed economy.
Command Economic System 

A command economic system is characterized by a dominant centralized power (usually the

government) that controls a large part of all economic activity. This type of economy is most
commonly found in communist countries. It is sometimes also referred to as a planned economic
system, because most production decisons are made by the government (i.e. planned) and there is
no free market at play.

Economies that have access to large amounts of valuable resources are especially prone to establish
a command economic system. In those cases the government steps in to regulate the resources and
most processes surrounding them. In practice, the centralized control aspect usually only covers
the most valuable resources within the economy (e.g. oil, gold). Other parts, such as agriculture
are often left to be regulated by the general population.

A command economic system can work well in theory, as long as the government uses its power
in the best interest of society. However, this is unfortunately not always the case. In addition to
that, command economies are less flexible than the other systems and react slower to changes,
because of their centralized nature.

Market Economic System 

A market economic system relies on free markets and does not allow any kind of government
involvement in the economy. In this system, the government does not control any resources or
other relevant economic segments. Instead, the entire system is regulated by the people and the
law of supply and demand.

The market economic system is a theoretical concept. That means, there is no real example of a
pure market economy in the real world. The reason for this is that all economies we know of show
characteristics of at least some kind of government interference. For example, many governments
pass laws to regulate monopolies or to ensure fair trade and so on.

In theory, a market economic system enables an economy to experience a high amount of growth.
Arguably the highest among all four economic systems. In addition to that, it also ensures that the
economy and the government remain separate. At the same time however, a market
economy allows private actors to become extremely powerful, especially those who own valuable
resources. Thus, the distribution of wealth and other positive aspects of the high economic output
may not always be beneficial for society as a whole.

Mixed Economic System 

A mixed economic system refers to any kind of mixture of a market and a command economic
system. It is sometimes also referred to as a dual economy. Although there is no clear-cut definition
of a mixed economic system, in most cases the term is used to describe market economies with a
strong regulatory oversight and government control in specific areas (e.g. public goods and
services).
Most western economies nowadays are considered mixed economies. Most industries in those
systems are privately owned whereas a small number of public utilities and services remain in
government control. Thus, neither the private nor the government sector alone can maintain the
economy, both play a critical part in the success of the system.

Mixed economies are widely considered an economic ideal nowadays. In theory, they are supposed
combine the advantages of both command and market economic systems. In practice however, it’s
not always that easy. The extent of government control varies greatly and some governments tend
to increase their power more than necessary.

In a Nutshell 

There are four types of economic systems; traditional, command, market and mixed economies. A
traditional economic system focuses exclusively on goods and services that are directly related to
its beliefs and traditions. A command economic system is characterized by a dominant centralized
power. A market economic system relies on free markets and does not allow any kind of
government involvement. Finally, a mixed economic system is any kind of mixture of a market
and a command economic system.

Herfindahl‐Hirschman Index ‐ HHI 
What is 'Herfindahl‐Hirschman Index ‐ HHI' 

The Herfindahl-Hirschman Index (HHI) is a common measure of market concentration that is

used to determine market competitiveness, often pre and post M&A transactions.

The Herfindahl-Hirschman index (HHI) is a commonly accepted measure of market

concentration. It is calculated by squaring the market share of each firm competing in a market
and then summing the resulting numbers. It can range from close to zero to 10,000. The U.S.
Department of Justice uses the HHI for evaluating potential mergers issues. The HHI is
expressed as: HHI = s1^2 + s2^2 + s3^2 + ...

 
The closer a market is to a monopoly, the higher the market's concentration (and the lower its 
competition). If, for example, there were only one firm in an industry, that firm would have 100% 
market share, and the Herfindahl‐Hirschman Index (HHI) would equal 10,000, indicating a monopoly. If, 
there were thousands of firms competing, each would have nearly 0% market share, and the HHI would 
be close to zero, indicating nearly perfect competition. 

The U.S. Department of Justice considers a market with an HHI of less than 1,500 to be a
competitive marketplace, an HHI of 1,500 to 2,500 to be a moderately concentrated marketplace,
and an HHI of 2,500 or greater to be a highly concentrated marketplace. As a general rule,
mergers that increase the HHI by more than 200 points in highly concentrated markets raise
antitrust concerns, as they are assumed to enhance market power under the section 5.3 of the
Horizontal Merger Guidelines jointly issued by the department and the Federal Trade
Commission (FTC).

Herfindahl‐Hirschman Index Example Calculations 

The HHI is calculated by taking the market share of each firm in the industry, squaring them, and
summing the result:

HHI = s1^2 + s2^2 + s3^2 + ... + sn^2 (where s is the market share of each firm expressed as a
whole number, not a decimal)

Consider the following hypothetical industry with four total firms:

Firm one market share = 40%

Firm two market share = 30%

Firm three market share = 15%

Firm four market share = 15%

The HHI is calculated as:

HHI = 40^2 + 30^2 + 15^2 + 15^2 = 1,600 + 900 + 225 + 225 = 2,950

This is considered a highly concentrated industry, as expected since there are only four firms.
But the number of firms in an industry does not necessarily indicate anything about market
concentration, which is why calculating the HHI is important. For example, assume an industry
has 20 firms. Firm one has a market share of 48.59% and each of the 19 remaining firms has a
market share of 2.71% each. The HHI would exactly 2,500, indicating a highly concentrated
market. If firm number one had a market share of 35.82% and each of the remaining firms had
3.38% market share, the HHI would be exactly 1,500, indicating a competitive marketplace.

Mass Customization 
What is 'Mass Customization' 

Mass customization is the process of delivering wide-market goods and services that are
modified to satisfy a specific customer need. Mass customization is a marketing and
manufacturing technique that combines the flexibility and personalization of custom-made
products with the low unit costs associated with mass production. Mass customization products
may also be referred to as made to order or built to order.

Next Up  

1. Mass Production  
 2. Customer  
3. Customer Service  
4. Critical Mass  
5.  

BREAKING DOWN 'Mass Customization' 

Mass customization allows a customer to customize certain features of a product while keeping
costs closer to that of mass-produced products. In some cases, the components of the product are
modular. This allows customers to combine different options to create a semi-custom final
product. Many applications of mass customization include software-based product configurations
that allow end users to add or change certain functions of a core product.

Mass Customization Offerings 

Most products created based on the mass production model start with a base package that
customers can add to, subtract from or alter to suit their needs or tastes. Mass-customization
products are generally made to order, but they are based on templates to allow production
companies to keep costs lower than truly custom pieces.

Examples of Mass Customization Product Lines 

Certain furniture companies offer mass customization by offering multiple options for various
components or features. This can include different fabrics, furniture legs or sectional pieces that
can be combined in a large number of configurations. Modular home builders also use mass-
customization models by allowing customers to make changes to base home packages.

Absolute Advantage 

Absolute advantage and comparative advantage are two important concepts in international trade
that largely influence how and why nations devote limited resources to the production of
particular goods. They describe the basic economic benefits that countries get from trading with
one another.

Absolute Advantage 

Though it is not economically feasible for a country to import all of the food needed to sustain its
population, the types of food a country produces can largely be affected by the climate,
topography and politics of the region. Spain, for example, is better at producing fruit than
Iceland. The differentiation between the varying abilities of nations to produce goods efficiently
is the basis for the concept of absolute advantage.
If Japan and the United States can both produce cars, but Japan can produce cars of a higher
quality at a faster rate, then it is said to have an absolute advantage in the auto industry. A
country's absolute advantage or disadvantage in a particular industry plays a crucial role in the
types of goods it chooses to produce. In this example, the U.S. may be better served to devote
resources and manpower to another industry in which it has the absolute advantage, rather than
trying to compete with the more efficient Japan.

Comparative Advantage 

The focus on the production of those goods for which a nation's resources are best suited is
called specialization. When economists refer to specialization, they mean the increase in
productive skill that is achieved from focused repetition in producing a good or service. A
country specializes when its citizens or firms concentrate their labor efforts on a relatively
limited variety of goods. Historically, specialization arose as a result of different cultural
preferences and natural resources.

Given limited resources, a nation's choice to specialize in the production of a particular good is
also largely influenced by its comparative advantage. Whereas absolute advantage refers to the
superior production capabilities of one nation versus another, comparative advantage is based on
the concept of opportunity cost. The opportunity cost of a given option is equal to the forfeited
benefits that could have been gained by choosing the alternative. If the opportunity cost of
choosing to produce a particular good is lower for one nation than for others, then that nation is
said to have a comparative advantage.

Assume that both France and Italy have enough resources to produce either wine or cheese, but
not both. France can produce 20 units of wine or 10 units of cheese. The opportunity cost of each
unit of wine, therefore, is 10 ÷ 20, or 0.5 units of cheese. The opportunity cost of each unit of
cheese is 20 ÷ 10, or two units of wine. Say Italy can produce 30 units of wine or 22 units of
cheese. Italy has an absolute advantage for the production of both wine and cheese, but its
opportunity cost for cheese is 30 ÷ 22, or 1.36 units of wine, while the cost of wine is 22 ÷ 30, or
0.73 units of cheese. Because France's opportunity cost for the production of wine is lower than
Italy's, it has the comparative advantage despite Italy being the more efficient producer. Italy's
opportunity cost for cheese is lower, giving it both an absolute and comparative advantage.

Since neither nation can produce both items, the most efficient strategy is for France to specialize
in wine production because it has a comparative advantage and for Italy to produce cheese.
International trade can enable both nations to enjoy both products at reasonable prices because
each is specialized in the efficient production of one item.

A Little History 

Adam Smith was the first economist to systematically extend the benefits of specialization to
separate nations. In his book, An Inquiry into the Nature and Causes of the Wealth of
Nations, Smith argued that countries should specialize in the goods they can produce most
efficiently and trade for those goods they can't produce as well.
Smith only described specialization and international trade as they related to absolute
advantages: England can produce more textiles per labor hour and Spain can produce more wine
per labor hour, so England should export textiles and import wine. It wasn't until British
economist David Ricardo arrived at the concept of comparative advantage in the early 19th
century that the real benefits of international trade were discovered.

Ricardo, borrowing from an essay written by Robert Torrens in 1815, explained how nations
could benefit from trading even if one of them had an absolute advantage in producing
everything. In other words, if the United States was more productive in every way than China, it
would still behoove the U.S. to trade with the Chinese. The reason for this is opportunity cost.

Moreover, Ricardo argued that a country shouldn't specialize in those goods it can produce at a
higher total level, but in those goods it can produce with a lower opportunity cost.

Implications of Comparative Advantage 

Consider a hypothetical situation where the U.S. can either produce 100 televisions or 50 cars.
China can produce 50 televisions or 10 cars. The U.S. is better at producing both in an absolute
sense, but China is better at producing televisions because it only has to give up one-fifth of a car
to make one television; the U.S. has to give up one-half of a car to make a television.
Conversely, the U.S. only has to trade two televisions to make a car, while China has to forgo
five televisions to make a car.

This example highlights why there is almost always an economic incentive for two entities,
including entire nations, to engage in trade. This is especially important for less-developed
countries, who are not shut out of international markets because they lack the superior
technology and capital infrastructure of wealthy nations.

The Bottom Line 

Comparative advantage leads to more income for countries. It's a key argument in favor of free
trade. By comparison, restrictions on trade in the form of tariffs or quotas skew comparative
advantages. The result is products that should have been imported become more expensive and
resources are wasted on activities that don't produce the highest return.

Emerging Market Economy 
What is an 'Emerging Market Economy' 

An emerging market economy is one in which the country is becoming a developed nation and is
determined through many socio-economic factors. An emerging market economy is a nation's
economy that is progressing toward becoming advanced, as shown by some liquidity in local
debt and equity markets and the existence of some form of market exchange and regulatory
body.
A nation's economy that is progressing toward becoming advanced, as shown by some liquidity
in local debt and equity markets and the existence of some form of market exchange and
regulatory body. Emerging markets generally do not have the level of market efficiency and
strict standards in accounting and securities regulation to be on par with advanced economies
(such as the United States, Europe and Japan), but emerging markets will typically have a
physical financial infrastructure including banks, a stock exchange and a unified currency.

BREAKING DOWN 'Emerging Market Economy' 

Emerging markets generally do not have the level of market efficiency and strict standards in
accounting and securities regulation to be on par with advanced economies (such as the United
States, Europe and Japan), but emerging markets do typically have a physical financial
infrastructure, including banks, a stock exchange and a unified currency.

Investors seek out emerging markets for the prospect of high returns, as they often experience
faster economic growth as measured by GDP. Investments in emerging markets come with much
greater risk due to political instability, domestic infrastructure problems, currency volatility and
limited equity opportunities, as many large companies may still be "state-run" or private. Also,
local stock exchanges may not offer liquid markets to outside investors.

Current Emerging Market Economies 

Not everyone agrees entirely on which countries are emerging markets. For example, the
International Monetary Fund (IMF) classifies 23 countries as emerging markets, while Morgan
Stanley Capital International (MSCI) also classifies 23 countries as emerging markets, but with
some difference between the two lists. Standard and Poor's (S&P) and Russell each classify 21
countries as emerging markets, while Dow Jones classifies 22 countries as emerging markets.
Below is a list of the common countries that each organization classifies as emerging markets as
of 2016, as well as a list of ones that are unique to only some institutional listings.

A list of countries that all five institutions classify as emerging markets includes Brazil, Chile,
China, Colombia, Hungary, Indonesia, India, Malaysia, Mexico, Peru, Philippines, Poland,
Russia, South Africa, Thailand and Turkey.

The remaining countries on the IMF emerging market list are Argentina, Bangladesh, Bulgaria,
Pakistan, Romania, Ukraine and Venezuela.

The remaining counties on the MSCI list are Bangladesh, Czech Republic, Egypt, Greece, Qatar,
South Korea, Taiwan and the United Arab Emirates.

The S&P list has these remaining countries: Bangladesh, Czech Republic, Egypt, Greece and
Taiwan.

The Dow Jones list also includes the following countries: Czech Republic, Egypt, Greece, Qatar,
Taiwan and the United Arab Emirates.
The Russell list has these remaining countries: Czech Republic, Greece, South Korea, Taiwan
and the United Arab Emirates.

At any of these institution's discretion, a country can be removed from the list by either
upgrading to a developed nation or downgrading to a frontier nation. Likewise, developed
nations may be downgraded to an emerging market, as was the case with Greece, or frontier
markets may upgrade to an emerging market, as was the case for Qatar and Argentina.

Emerging market 
From Wikipedia, the free encyclopedia 

Jump to navigation Jump to search  

An emerging market is a country that has some characteristics of a developed market, but does
not satisfy standards to be termed a developed market.[1] This includes countries that may
become developed markets in the future or were in the past.[2] The term "frontier market" is used
for developing countries with slower economies than "emerging".[3][4] The economies of China
and India are considered to be the largest emerging markets.[5] According to The Economist,
many people find the term outdated, but no new term has gained traction.[6] Emerging market
hedge fund capital reached a record new level in the first quarter of 2011 of $121 billion.[7] The
four largest emerging and developing economies by either nominal or PPP-adjusted GDP are the
BRIC countries (Brazil, Russia, India and China).

   
LPG policy of government of India
OPTION 1

The economy of India had undergone significant policy shifts in the beginning of the 1990s. This
new model of economic reforms is commonly known as the LPG or Liberalisation, Privatisation
and Globalisation model. The primary objective of this model was to make the economy of India
the fastest developing economy in the globe with capabilities that help it match up with the
biggest economies of the world.

The chain of reforms that took place with regards to business, manufacturing, and financial
services industries targeted at lifting the economy of the country to a more proficient level. These
economic reforms had influenced the overall economic growth of the country in a significant
manner.

Liberalisation
Liberalisation refers to the slackening of government regulations. The economic liberalisation in
India denotes the continuing financial reforms which began since July 24, 1991.

Privatisation and Globalisation

Privatisation refers to the participation of private entities in businesses and services and transfer
of ownership from the public sector (or government) to the private sector as well. Globalisation
stands for the consolidation of the various economies of the world.

LPG and the Economic Reform Policy of India

Following its freedom on August 15, 1947, the Republic of India stuck to socialistic economic
strategies. In the 1980s, Rajiv Gandhi, the then Prime Minister of India, started a number of
economic restructuring measures. In 1991, the country experienced a balance of payments
dilemma following the Gulf War and the downfall of the erstwhile Soviet Union. The country
had to make a deposit of 47 tons of gold to the Bank of England and 20 tons to the Union Bank
of Switzerland. This was necessary under a recovery pact with the IMF or International
Monetary Fund. Furthermore, the International Monetary Fund necessitated India to assume a
sequence of systematic economic reorganisations. Consequently, the then Prime Minister of the
country, P V Narasimha Rao initiated groundbreaking economic reforms. However, the
Committee formed by Narasimha Rao did not put into operation a number of reforms which the
International Monetary Fund looked for.

Dr Manmohan Singh, the present Prime Minister of India, was then the Finance Minister of the
Government of India. He assisted. Narasimha Rao and played a key role in implementing these
reform policies.

Narasimha Rao Committee's Recommendations

The recommendations of the Narasimha Rao Committee were as follows:

• Bringing in the Security Regulations (Modified) and the SEBI Act of 1992 which
rendered the legitimate power to the Securities Exchange Board of India to record and
control all the mediators in the capital market.
 • Doing away with the Controller of Capital matters in 1992 that determined the rates and
number of stocks that companies were supposed to issue in the market.
• Launching of the National Stock Exchange in 1994 in the form of a computerised share
buying and selling system which acted as a tool to influence the restructuring of the other
stock exchanges in the country. By the year 1996, the National Stock Exchange surfaced
as the biggest stock exchange in India.
• In 1992, the equity markets of the country were made available for investment through
overseas corporate investors. The companies were allowed to raise funds from overseas
markets through issuance of GDRs or Global Depository Receipts.
• Promoting FDI (Foreign Direct Investment) by means of raising the highest cap on the
contribution of international capital in business ventures or partnerships to 51 per cent
from 40 per cent. In high priority industries, 100 per cent international equity was
allowed.
• Cutting down duties from a mean level of 85 per cent to 25 per cent, and withdrawing
quantitative regulations. The rupee or the official Indian currency was turned into an
exchangeable currency on trading account.
• Reorganisation of the methods for sanction of FDI in 35 sectors. The boundaries for
international investment and involvement were demarcated.

The outcome of these reorganisations can be estimated by the fact that the overall amount of
overseas investment (comprising portfolio investment, FDI, and investment collected from
overseas equity capital markets ) rose to $5.3 billion in 1995-1996 in the country) from a
microscopic US $132 million in 1991-1992. Narasimha Rao started industrial guideline changes
with the production zones. He did away with the License Raj, leaving just 18 sectors which
required licensing. Control on industries was moderated.

Highlights of the LPG Policy

Given below are the salient highlights of the Liberalisation, Privatisation and Globalisation
Policy in India:

• Foreign Technology Agreements

• Foreign Investment
• MRTP Act, 1969 (Amended)
• Industrial Licensing
• Deregulation
• Beginning of privatisation
• Opportunities for overseas trade
• Steps to regulate inflation
• Tax reforms
• Abolition of License -Permit Raj

Option 2 
After Independence in 1947 Indian government faced a significant problem to develop the
economy and to solve the issues. Considering the difficulties pertaining at that time government
decided to follow LPG Model. The Growth Economics conditions of India at that time were not
very good. This was because it did not have proper resources for the development, not regarding
natural resources but financial and industrial development. At that time India needed the path of
economic planning and for that used ‘Five Year Plan’ concept of which was taken from Russia
and feet that it will provide a fast development like that of Russia, under the view of the socialistic
pattern society. India had practiced some restrictions ever since the introduction of the first
industrial policy resolution in 1948.

Liberalization is defined as making economics free to enter the market and establish their venture
in the country. Privatization is defined as when the control of economic is sifted from public to a
private hand. Globalization is described as the process by which regional economies, societies,
and cultures have become integrated through a global network of communication, transportation,
and trade.

Liberalization:

Soon after independence, the period was known as License Raj. As a result of the restriction in the
past, India’s performance in the global market has been very dismal; it never reached even the 1%
in the worldwide market. India has vast natural resources with high-efficiency labor, but after all
this, it was still contributing with 0.53% till 1992.

IMPACT BEFORE LIBERALIZATION

• The low annual growth rate of the economy of India before 1980, which stagnated around 3.5% 
from the 1950s to 1980s, while per capita income averaged 1.3%. At the same time, Pakistan grew 
by 5%, Indonesia by 9%, Thailand by 9%, South Korea by 10% and in Taiwan by 12%. 
• Only four or five licenses would be given for steel, power, and communications. License owners 
built up substantial powerful empires 
• A substantial public sector emerged. State‐owned enterprises made significant losses. 
• Infrastructure investment was weak because of the public sector monopoly. 
• License  Raj  established  the  “irresponsible,  self‐perpetuating  bureaucracy  that  still  exists 
throughout much of the country” and corruption flourished under this system 

After liberalization, India became the second world of development and became the 7th largest
economies. It contributed 1.3 trillion in the world’s GDP. Dr. Manmohan Singh, the former finance
minister, opened the way for a free economy in the country which led to the significant
development of the country.

PRIVATIZATION

India is leading towards privatization from government raj. As a result, it led to the development
of country 500 faster than previous. Now India is in the situation of world fastest developing
economy and maybe chance that India will be at the top till 2050.

GLOBALIZATION
The term is sometimes used to refer specifically to economic globalization: the integration of
national economies into the international economy through trade, foreign direct investment, capital
flows, migration, and the spread of technology. However, globalization is usually recognized as
being driven by a combination of economic, technological, sociocultural, political, and biological
factors.

LPG Model of Development & LPG reforms

(a) This has a very narrow focus since it mostly concentrates on the corporate sector which
accounts for only 10 percent of GDP.

(b) The model bypasses agriculture and agro-based industries which are a significant source of
generation of employment for the masses. It did not delineate a concrete policy to develop
infrastructure. Financial and technological support, particularly the infrastructural needs of agro-
exports.

(c) By permitting free entry of the multinational corporations in the consumer goods sector. LPG
model hit the interests of the small and medium sector engaged in the production of consumer
goods. There is a danger of labor displacement in the small industry if the unbridled entry of MNCs
is continued.

(d) By facilitating imports, the Government has opened the import window too wide.
Consequently, the benefits of rising exports are more than offset by the much higher rise in imports
leading to a more significant trade gap.

(e) Finally, the model emphasizes a capital-intensive pattern of development, and there are severe
apprehensions about its employment-potential. It is being made out that it may cause
unemployment in the short run but will take care

“Liberalization, Privatization and Globalization” (LPG Model & LPG Policy) approach
followed by Government of India

For an understanding of liberalization, privatization and globalization or LPG Model in the Indian
context, it is essential to detail out the eighth five-year plan, since it was the inception of a host
of LPG policy that was instrumental in allowing India to unshackled its economy and engage in
global trade and commerce.

The period before liberalization in India

The annual growth rate of the economy of India before 1980 was low. It stagnated around 3.5%
from the 1950s to 1980s, while per capita income averaged 1.3%. Only four or five licenses would
be given for steel, electrical power, and communications. License owners built up substantial,
powerful empires. A vast public sector emerged. State-owned enterprises made large losses.
Income Tax Department and Customs Department manned by IAS officers became efficient in
checking tax evasion. Infrastructure investment was weak because of the public sector
monopoly. Licence Raj established the “irresponsible, self-perpetuating bureaucracy that still
exists throughout much of the country” and corruption flourished under this system.

The context of Five Year Plans in Liberalization Privatization and Globalization

The Eighth Five Year Plan (1992-1997) was formulated after a period of political instability which
gripped the country for two years after the completion of the Seventh Five Year Plan. In 1991, the
country faced a major foreign exchange crisis which made the economic position of the country
very vulnerable. As a result of this instability in the country, there were two Annual Plans for 1992
and 1993. The eighth five-year plan measures such as privatization and liberalization which were
to have a far-reaching impact later were introduced during the Eighth Five Year Plan. India also
became a member of the World Trade Organisation (WTO) during this Plan period.

Eighth five-year plan during LPG policy

The main aim of the Eighth Five Year Plan was –

• To modernize the industrial sector through modern technology. 
• Opening up of the Indian economy to counter the foreign debt burden which was a significant 
threat for the country. 
• Taking significant initiatives to increase the rate of employment and reduce poverty. 

During this plan focus was on implementing plans and policies which would help in attaining
objectives like the modernization of the industrial sector, increase the rate of employment in the
country, reduce poverty and improve self-reliance on domestic resources. Also, the Eighth Five
Year Plan also focused on human resource development based on the reasoning that healthy and
educated people could contribute more effectively to economic growth. Most important, the Eighth
Five Year Plan marked the beginning of privatization and liberalization of the economy in the
country.

Plan performance

• The target growth for the Eighth Five Year Plan was taken as 5.6 percent but by the end of the 
Plan, India achieved an actual growth rate of 6.78 percent, higher than that of the target. 
• Increase in the rate of employment. 
• Reduction in the poverty rate. 
• The Gross Domestic Product (GDP) rate increased from 5.7 percent to 6.5 percent. 
• The inflation rate rose from 6.7 percent to 8.7 percent. 
• The rate of growth in the agriculture sector increased from 3 percent to 4.8 percent 

Post liberalization in India

The economic reforms lead to a certain amount of stability in the economy and high growth rate.
In the ninth five-year plan it was envisaged to have balanced development. For this, the focus was
on speedy industrialization, human development, full-scale employment, poverty reduction, and
self-reliance on domestic resources.
The main objectives directly related to liberalization and privatization as a continuation of the
previous plan period were

• to generate adequate employment opportunities and promote poverty reduction 
• to stabilize the prices to accelerate the growth rate of the economy 
• to create a liberal market for an increase in private investments 

Other objectives served the purpose of human development. They were

• To ensure food and nutritional security. 
• to provide for the necessary infrastructural facilities like education for all, safe drinking water, 
primary health care, transport, energy 
• to check the growing population increase 
• to encourage social issues like women empowerment, conservation of certain benefits for the 
Special Groups of the society 

Conclusion

The fruits of liberalization reached their peak in 2007 when India recorded its highest GDP growth
rate of 9%. With this, India became the second fastest growing major economy in the world, next
only to China. There has been a significant debate, however, around liberalization as an inclusive
economic growth strategy. Since 1992, income inequality has deepened in India. Whereas
consumption is among the poorest staying stable while the wealthiest generate consumption
growth.

For 2010, India was ranked 124th among 179 countries in Index of Economic Freedom World
Rankings. Hence, on the one hand, it witnessed high economic development, infrastructure
development, and urbanization and on the other hand had a widening cleft between the rich and
poor and class divide continues to plague the country. Social and human development remains
absurdly low leading to a profoundly fragmented nation.

   
Convergence 

Most traders refer to a convergence when describing the price action of a futures contract. Here,
convergence describes the phenomenon of the futures price and the cash price of the underlying
commodity moving closer together over time. The actual market value of a futures contract is
lower than the contract price at issue because traders have to factor for the time value of the
security. As the expiration date on the contract approaches, the premium on the time value
shrinks and the two prices converge.

In technical analysis, however, convergence occurs when the price of an asset, indicator or index
moves in the same direction as a related asset, indicator or index. For example, there is
convergence when the Dow Jones Industrial Average gains at the same time that its
accumulation/distribution line is increasing.

Divergence 

Divergence is the opposite of convergence. When the value of an asset, indicator or index moves,
the related asset, indicator or index moves in the other direction. Technical traders are much
more concerned with divergence than convergence, largely because convergence is assumed in a
normal market. Divergence is interpreted to mean that a trend is weak or potentially
unsustainable.

Divergence can be positive or negative. For example, a positive divergence would occur if a
stock is nearing a low but its indicators start to rally. This would be a sign of trend reversal,
potentially opening up an entry opportunity for the trader.

Crossvergence 
   
What is Hard Currency? 
Hard Currency, also referred to as strong currency, is usually the currency of a strong geo‐political 
nation. The currency of such a nation is expected to remain stable over the period of time. These 
currencies are traded throughout the world and have a stable purchasing power. Most of the 
international deals and contracts are signed in terms of such currencies as their value doesn't fluctuate 
much over time. Historically, US dollar, Euro and Swiss franc are some of the currencies which are 
considered strong. Political stability, fiscal outlook, policy of central bank plays an important in 
determining how well a particular currency performs and pegs against other currencies.  
High liquidity and free convertibility of the hard currency makes it an attractive option for investors as 
well as traders. Investors, generally, prefer to invest in such currencies especially during tough times. 
Such investments provide stable returns, which may not necessarily be high but are less risky.  

What is Soft Currency? 
Before I discuss about soft currency I would like to ask you a simple question, given a 
choice, would you like to invest your money in a bank in North Korea? I am sure you 
won't. Why? Because it faces a constant threat of War, its political establishment is not 
democratic, its economy is not open and is highly regularized by the whims of some high 
and mighty rulers of the Korean nation.  
Although here I took an extreme example, but soft currencies are usually from countries 
that are not too stable (politically and economically) nor come in the category of 
"superpowers". Investments and trade in such currencies is a high risk proposition. But 
investors willing to earn more over short‐term can definitely go for such currencies, at 
their own risk. For traders, soft currencies are a big NO‐NO. Its convertibility outside the 
host nation is very less thus no major international deal take place using soft currencies.  
A soft currency is one with a value that fluctuates, predominantly lower, as a result of the country's 
political or economic uncertainty. As a result of the of this currency's instability, foreign exchange 
dealers tend to avoid it. In financial markets, participants will often refer to it as a "weak currency." 
 

Conclusion and Caution:  
I would like to specify that there is no specific formula or rule which categorizes any particular currency 
as Hard or Soft. German Deutsche Mark was considered as a strong currency before Euro replaced it. 
Such incidents show that as an investor or trader you are advised to be sure about the Geo‐Political as 
well as economic outlook of various countries. Be wary and cautious while making any international deal 
as they can be indirectly affected by major international events. 

   
What is omni-channel retailing?

Omni-channel retailing — or, omnichannel (meaning, all channels) — is a fully-integrated

approach to commerce that provides shoppers a unified experience across online and offline
channels (e.g., touchpoints).

True omni-channel shopping extends from brick-and-mortar locations to mobile-browsing,

ecommerce marketplaces, onsite storefronts, social media, retargeting, and everything in
between.

To be everywhere. That’s the dream.

However, according to a recent survey, only 22% of North American retailers consider
“omnichannel efforts” a top priority. Compare that to 2015, when 45% of retailers claimed the
same.

This fluctuation might mean that while retailers agree omni-channel is important, it’s not as high
a priority as avenues that appear to have more tangible outcomes, like mobile, marketing or
merchandising. However …

These channel’s true potential will always be squandered so long as they’re thought of as separate, non‐
integrated ways of selling to your market. 

It’s not just about having a presence on multiple channels or giving your customer the option to
shop in multiple places. Mobile, marketing, merchandising, fulfillment, marketplaces … all of it,
needs to be taken into consideration if you’re going to be a robust omni-channel retailer.

omni-channel is defined as a multi-channel sales approach that provides the customer with an
integrated customer experience. The customer can be shopping online from a desktop or mobile
device, or by telephone, or in a bricks and mortar store and the experience would be seamless.

It’s important here to distinguish an omni-channel experience from a multi-channel experience.

Essentially, it comes down to the depth of the integration.

All omni-channel experiences will use multiple channels, but not all multi-channel
experiences are omni-channel.

Examples of Omni‐Channel Brands 

1. Disney
2. Virgin Atlantic
3. Bank of America
4. Oasis
5. REI
6. Starbucks
7. Chipotle
What is a 'Cartel' 

A cartel is an organization created from a formal agreement between a group of producers of a

good or service to regulate supply in an effort to regulate or manipulate prices. In other words, a
cartel is a collection of otherwise independent businesses or countries that act together as if they
were a single producer and thus are able to fix prices for the goods they produce and the services
they render without competition.

BREAKING DOWN 'Cartel' 

A cartel has less command over an industry than a monopoly — a situation where a single group
or company owns all or nearly all of a given product or service's market. Some cartels are formed
to influence the price of legally traded goods and services, while others exist in illegal industries,
such as drugs. In the United States, virtually all cartels, regardless of their line of business, are
illegal by virtue of American anti-trust laws.

Cartels have a negative effect for consumers because their existence results in higher prices and
restricted supply. The Organization for Economic Cooperation and Development (OECD) has
made the detection and prosecution of cartels one of its priority policy objectives. In so doing, it
has identified four major categories that define how cartels conduct themselves: price fixing,
output restrictions, market allocation and bid rigging (the submission of collusive tenders).

The World's Biggest Cartel 

The Organization of Petroleum Exporting Countries (OPEC) is the world's largest cartel. It is a
grouping of 14 oil-producing countries whose mission is to coordinate and unify the petroleum
policies of its member countries and ensure the stabilization of oil markets. OPEC's activities are
legal because it is protected by U.S. foreign trade laws.

Amid controversy in the mid-2000s, concerns over retaliation and potential negative effects on
U.S. businesses led to the blocking of the U.S. Congress attempt to penalize OPEC as an illegal
cartel. Despite the fact that OPEC is considered by most to be a cartel, members of OPEC have
maintained it is not a cartel at all but rather an international organization with a legal, permanent
and necessary mission.

Illegal Activities 

Drug trafficking organizations, especially in South America, are often referred to as "drug
cartels." These organizations do meet the technical definition of being cartels. They are loosely
affiliated groups who set rules among themselves to control the price and supply of a good,
namely illegal drugs.

The best-known example of this is the Medellin Cartel, which was headed by Pablo Escobar in
the 1980s until his death in 1993. The cartel famously trafficked large amounts of cocaine into
the United States and was known for its violent methods.
 
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Cartel agreement is an agreement of companies or sections of companies having common interests to 
form an association or a cartel. Such agreements are designed by companies to prevent extreme or 
unfair competition and allocate markets, and to promote the interchange of knowledge resulting from 
scientific and technical research, exchange of patent rights, and standardization of products. Cartels are 
made illegal in the U.S by antitrust laws. This is because it forms unfair trade practice by obtaining 
monopoly and restricting competition in a particular industry. Even though cartels and cartel 
agreements are illegal in the U.S., foreign cartels influence prices within the U.S. on imported and 
smuggled goods that they control. 

Commodity agreements 

The market for commodities is particularly susceptible to sudden changes in the conditions of
supply conditions, which are called supply shocks. Shocks such as bad weather, disease, and
natural disasters are largely unpredictable, and cause commodity markets to become highly
volatile. In comparison, markets for the final products derived from these commodities are much
more stable.

As with petrol pump prices, the prices of finished goods rarely reflect changes in the prices of
basic commodities from which they are derived. For example, cocoa and sugar prices fluctuate
considerably as harvests vary from year to year, but the prices of confectionery rarely change
from year to year. There are many reasons for this, including the following:

1. The cost of the commodity input, such as cocoa, represents a small proportion of total
costs of the final product, such as a bar of chocolate. The price of chocolate is largely
determined by the refining, manufacturing, and packaging costs of the manufacturer, and
the retailer’s costs including labour, rents and marketing costs.
2. Indirect taxes, like VAT, often form a larger proportion of the price than commodity
costs, and such indirect taxes tend to remain stable of time.
3. The existence of stocks of commodities act as a buffer against sudden changes in
commodity prices, so manufacturers will be using old stocks purchased at the old prices.
4. Futures contracts help reduce some of the underlying volatility in commodity markets. In
the case of cocoa, the large confectioners, such as Nestle and Cadbury-Schweppes, agree
cocoa prices in advance by fixing contracts with suppliers, such as those based in the
Ivory Coast and Ghana, the two largest cocoa exporters.
5. Manufacturers and retailers may choose not to pass on cost changes following
commodity price changes for a number of reasons, such as a preference for stable prices,
or the need to remain price competitive.
Commodity agreements 

Commodity agreements are arrangements between producing and consuming countries to

stabilise markets and raise average prices. Such agreements are common in many markets,
including the market for coffee, tea, and sugar.

Example - The International Cocoa Agreement

In 2003, an agreement was made between the seven main cocoa exporting countries, Cameroon,
Ivory Coast, Gabon, Ghana, Malaysia, Nigeria and Togo, and the main importing countries
including the EU members, Russia, and Switzerland. The main purpose of this agreement was to
promote the consumption and production of cocoa on a global basis as well as stabilise cocoa
prices, which had been falling steadily. The agreement was planned to continue until 2010, but in
that year it was decided to extend the agreement for a further two years, until 2012. In 2012 the
signatories decided on a further extension, until 2026.

Commodity agreements often involve intervention schemes, such as buffer stocks, and usually
only last for a few years, whereupon they are re-negotiated. They differ from cartels such as
OPEC, largely because discussions and negotiations involve both producer and consumer
countries, unlike cartels, which are established to protect the interest of producers only.