UNIT SNAPSHOT

UGC NET MANAGEMENT

Unit IX

International Business
& Information Technology
❖ International Business: International business refers to cross-border commerce and other
business transactions between governments or companies. The exchange of goods and
services among individuals and businesses in multiple countries. A specific entity, such as a
multinational corporation or international business company that engages in business
among multiple countries.

❖ Trade: Trade involves the transfer of goods or services from one person or entity to another,
often in exchange for money. A system or network that allows trade is called a market. An
early form of trade, barter, saw the direct exchange of goods and services for other goods
and services.

Modes of Entry into International Business

(1) Exporting – It is the process of selling goods and services produced in one country to other
country.
(2) Joint Venture – It is a strategy used by companies to enter a foreign market by joining
hands and sharing ownership and management with another company. It is used when two
or more companies want to achieve some common objectives and expand international
operations.
(3) Outsourcing – It is a cost effective strategy used by companies to reduce costs by
transferring portions of work to outside suppliers rather than completing it internally. It
includes both domestic and foreign contracting and also off shoring (relocating a business
function to another country).

www.everstudy.co.in Query: [email protected]

 (4) Franchising – It is a system in which semi-independent business owners (franchisees) pay
fees and royalty to a parent company (franchiser) in return for the right to be identified by its
trademark, to sell its product or services, and often to use its business format or system.
(5) Turn Key Project – It involves the delivery of operating industrial plant to the client
without any active participation. A company pays a contractor to design and construct new
facilities and train personnel to export its process and technology to another country.
(6) Foreign Direct Investment – It is a mode of entering foreign market through
investment. Investment may be direct or indirectly through Financial Institutions.
(7) Mergers & Acquisitions – A merger is a combination of two or more district entities into
one, the desired effect being accumulation of assets and liabilities of distinct entities and
several other benefits such as, economies of scale, tax benefits, fast growth, synergy and
diversification etc. The merging entities cease to be in existence and merge into a single
servicing entity.
(8) Licensing – Licensing is a method in which a firm gives permission to a person to use its
legally protected product or technology (trademarked or copyrighted) and to do business in
a particular manner, for an agreed period of time and within an agreed territory.
(9) Contract manufacturing – When a foreign firm hires a local manufacturer to produce their
product or a part of their product it is known as contract manufacturing. This method utilizes
the skills of a local manufacturer and helps in reducing cost of production. The marketing and
selling of the product is the responsibility of the international firm.
(10) Strategic Alliance – It is a voluntary formal agreement between two companies to pool
their resources to achieve a common set of objectives while remaining independent entities.
It is mainly used to expand the production capacity and increase market share for a product.
Alliances help in developing new technologies and utilizing brand image and market
knowledge of both the companies.

❖ Trade Barriers: Government laws, regulations, policies, or practices that either protect
domestic products from foreign competition or artificially stimulate exports of particular
domestic products.

www.everstudy.co.in Query: [email protected]

❖ Tariff Barriers: A duty (or tax) levied upon goods transported from one customs area to
another either for protective or revenue purposes. Tariffs raise the prices of imported goods,
thus making them generally less competitive within the market of the importing country
unless that country does not produce the items so tariffed. The tariffs most frequently
encountered in foreign trade are: tariffs of international transportation companies operating
on sea, land, and in the air; tariffs of international cable, radio, and telephone companies.

❖ Non-Tariff Barriers: Non-tariffs are barriers that restrict trade through measures other than
the direct imposition of tariffs. This may include measures such as quality and content
requirements for imported goods or subsidies to local producers. By establishing quality and
content requirements the government can restrict imports, because only products can be
imported that meet certain criteria. Example - US government could restrict trade by passing
a law that requires all candy bars sold within the US to contain at least 50% locally produced
sugar.

❖ Quotas: Quotas are restrictions that limit the quantity or monetary value of specific goods

www.everstudy.co.in Query: [email protected]

 or services that can be imported over a certain period of time. The idea behind this is to
reduce the quantity of competitive products in local markets which increases demand for
local goods and services. For example, the US government could decide to limit the amount
of candy bars that can be imported from Japan to 100,000 every year.

❖ Globalization: The process of the development of a global market-driven economy.

Globalization is the process of interaction and integration between people, companies, and
governments worldwide. Globalization has grown due to advances in transportation and
communication technology. With increased global interactions comes the growth of
international trade, ideas, and culture. Globalization is primarily an economic process of
interaction and integration that’s associated with social and cultural aspects. Globalization
involves goods and services, and the economic resources of capital, technology, and data.

❖ Theories of international trade:

❖ Theory of Mercantilism

• This trade theory prevailed during 16th to 19th centuries.

www.everstudy.co.in Query: [email protected]

 • The wealth of a nation is measured based on its accumulated wealth in terms of gold and
silver.
• Nations should accumulate wealth by encouraging exports and discouraging imports.
• Theory of mercantilism aims at creating trade surplus and in turn accumulate nation’s
wealth.

❖ Absolute Advantage Theory

• Origin in Adam Smith, ‘An Enquiry into the Nature and Causes of the Wealth of Nations’,
1776.
• When one country can produce a unit of good with less cost than another country, the first
country has an absolute (cost) advantage in producing that good.
• Example - In a hypothetical two-country world, if Country A could produce a good cheaper
or faster (or both) than Country B, then Country A had the advantage and could focus on
specializing on producing that good. Similarly, if Country B was better at producing another
good, it could focus on specialization as well.
• There is international benefit from trade – Everyone better off without making anyone
worse off.
• His theory stated that a nation’s wealth shouldn’t be judged by how much gold and silver it
had but rather by the living standards of its people.

❖ Comparative Advantage Theory

• Origin in David Ricardo’s ‘The Principles of Political Economy & Taxation’, 1817.
• Nations can still gain from trade even without an absolute advantage.
• Facilitator – Difference in opportunity cost
• A country has a Comparative Advantage in producing a good if the opportunity cost of
producing that good in terms of other goods is lower in that country compared to other
countries.
• Comparative advantage focuses on the relative productivity differences, whereas
absolute advantage looks at the absolute productivity.

❖ Endowment Theory / Heckscher-Ohlin model / Factor Proportions Theory:

• According to this theory, a nation will export the commodity whose production requires
intensive use of the nation’s relatively abundant and cheap factors and import the
commodity whose production requires intensive use of the nation’s scarce and
expensive factors.

www.everstudy.co.in Query: [email protected]

 • Thus, a country with an abundance of cheap labour would export labour-intensive
products and import capital-intensive goods and vice versa.

❖ Product Life-Cycle Theory:

• International markets tend to follow a cyclical pattern due to a variety of factors over a
period of time, which explains the shifting of markets as well as the location of
production. The level of innovation and technology, resources, size of market, and
competitive structure influence trade patterns.
• In addition, the gap in technology and preference and the ability of the customers in
international markets also determine the stage of international product life cycle (IPLC).

www.everstudy.co.in Query: [email protected]

❖ Theory of Competitive Advantage of International Trade: As propounded by Michael Porter
in The Competitive Advantage of Nations, the theory of competitive advantage concentrates
on a firm’s home country environment as the main source of competencies and innovations.
The model is often referred to as the diamond model, wherein four determinants, interact
with each other.

▪ factor conditions;

www.everstudy.co.in Query: [email protected]

 ▪ demand conditions;
▪ related and supporting industries; and,
▪ firm strategy, structure, and rivalry.

❖ Nations Conference on Trade and Development (UNCTAD): UNCTAD is principal organ of

United Nations General Assembly (UNGA) dealing with trade, investment, and development
issues. It was established in 1964 and its permanent secretariat is in Geneva. Its primary
objective is to formulate policies relating to all aspects of development including trade, aid,
transport, finance and technology. It ordinarily meets once in four years.

❖ Bretton Woods: It is the site of the first world economic conference in July 1944. The
International Monetary Fund and the World Bank were both created at an international

www.everstudy.co.in Query: [email protected]

 conference convened in Bretton Woods. The Bretton Woods Agreement is the landmark
system for monetary and exchange rate management established in 1944. It was developed
at the United Nations Monetary and Financial Conference held in Bretton Woods, New
Hampshire, US from July 1 to July 22, 1944.

❖ WORLD BANK: World Bank is one of the institutions created at the Breton Woods Conference
in 1944. World Bank is part of the United Nations system, but its governance structure is
different. The World Bank Group headquarters building in Washington, D.C.

World Bank comprises only two institutions viz. the International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA). In contrast,
World Bank Group comprises three more viz. International Finance Corporation (IFC),
Multilateral Investment Guarantee Agency (MIGA), and International Centre for Settlement
of Investment Disputes (ICSID).

www.everstudy.co.in Query: [email protected]

 India is one of the founder members of IBRD, IDA and IFC. However, India is not a member
of ICSID (International Centre for Settlement of Investment Disputes).

❖ International Bank for Reconstruction and Development (IBRD): Created in 1944 to help
Europe rebuild after World War II, IBRD joins with IDA, our fund for the poorest countries, to
form the World Bank. They work closely with all institutions of the World Bank Group and
the public and private sectors in developing countries to reduce poverty and build shared
prosperity.

❖ International Development Association (IDA): IDA is the part of the World Bank that helps
the world’s poorest countries. Overseen by 170 plus shareholder nations, IDA aims to reduce
poverty by providing loans (called “credits”) and grants for programs that boost economic
growth, reduce inequalities, and improve people’s living conditions. IDA complements the
World Bank’s original lending arm—the International Bank for Reconstruction and
Development (IBRD).

❖ International Finance Corporation (IFC): IFC was established in 1956 to support the growth
of the private sector in the developing world. The IFC’s stated mission is “to promote
sustainable private sector investment in developing countries, helping to reduce poverty and
improve people’s lives.” While the World Bank (IBRD and IDA) provides credit and non-
lending assistance to governments, the IFC provides loans and equity, advice, and technical
services to the private sector.

❖ Multilateral Investment Guarantee Agency (MIGA): MIGA was established in 1988 as an

investment insurance facility to encourage confident investment in developing countries.
MIGA’s mandate is to promote cross-border investment in developing countries by providing
guarantees (political risk insurance and credit enhancement) to investors and lenders.

❖ International Centre for Settlement of Investment Disputes (ICSID): ICSID was established
in 1966 by the Convention on the Settlement of Investment Disputes between States and
Nationals of Other States (the ICSID Convention). ICSID is the world’s leading institution
devoted to international investment dispute settlement. It has extensive experience in this
field, having administered the majority of all international investment cases. States have
agreed on ICSID as a forum for investor-State dispute settlement in most international
investment treaties and in numerous investment laws and contracts.

www.everstudy.co.in Query: [email protected]

❖ INTERNATIONAL MONETARY FUND (IMF): The World Bank and the IMF performs different
functions, but they are often confused with each other either with reference to their
functions or with their operation. One must remember that the name World Bank does not
refers to a bank in conventional sense (this is because it performs development function)
and International Monetary Fund or IMF performs the lending function (which we associate
with banks).

❖ Structure and Size of IMF:

Members: 189 countries.
Headquarters: Washington, D.C. but has offices in Paris, Tokyo, New York, and Geneva.
❖ Functions of IMF: The IMF is basically a lending institution which gives advances to members
in need. It is the mentor of its members’ monetary and exchange rate policies. To maintain
the stability in Exchange rate system around the World.

❖ Extended fund facility (EFF) of IMF: The Extended Fund Facility is lending facility of the Fund
of the IMF and it was established in 1974 to help countries address medium- and longer-term
balance of payments problems. The EFF is prescribed for a country who is suffering from
balance of payment problem caused by structural weaknesses and who need fundamental
economic reforms.

❖ Poverty Growth and Reduction Facility (PGRF): The Poverty Reduction and Growth Facility
(PRGF) is an arm of the International Monetary Fund which lends to the world's poorest
countries. It was created in September 1999, replacing the Enhanced Structural Adjustment
Facility.

www.everstudy.co.in Query: [email protected]

❖ Quotas in IMF: Every member of IMF has to subscribe a quota of the IMF. An individual
member country’s quota broadly reflects its relative position in the world economy. For any
member country, out of the quota, 25% should be paid in foreign currency or gold and 75%
in domestic currency. Quotas are denominated in Special Drawing Rights (SDRs), the IMF’s
unit of account.

❖ Reserve Tranche Position in IMF: Reserve tranche is the component of a member country’s
quota with the IMF that is in the form of gold or foreign currency. For any member country,
out of the total quota, 25% should be paid in the form of foreign currency or gold. Hence this
is called as reserve tranche or gold tranche. The remaining 75% can be in domestic currencies
and it is called credit tranche.

❖ Special Drawing Rights:

• A reserve asset used by the International Monetary Fund in addition to gold and
United States dollars. The Special Drawing Rights (SDRs) as an international reserve
asset or reserve money in the international monetary system was established in 1969
with the objective of alleviating the problem of international liquidity.

• SDR is defined as a composite of five currencies—the Dollar, Mark, Franc, Yen and
Pound. The SDRs are allocated to the member countries in proportion to their quota
subscriptions. Only the IMF members can participate in SDR facility.

www.everstudy.co.in Query: [email protected]

❖ Asian Development Bank (ADB): Asian Development Bank (ADB) is a regional development
bank established on 19 December 1966, which is headquartered in Manila, Philippines. The
company also maintains field offices around the world to promote social and economic
development in Asia. ADB assists its members, and partners, by providing loans, technical
assistance, grants, and equity investments to promote social and economic development.
From 31 members at its establishment, ADB now has 67 members, of which 48 are from
within Asia and the Pacific and 19 from outside. The ADB was modelled closely on the World
Bank, and has a similar weighted voting system where votes are distributed in proportion
with members' capital subscriptions.

❖ Asian Infrastructure Investment Bank (AIIB): AIIB is multilateral development bank initiated
by China. Its purpose is to provide finance to infrastructure development and regional
connectivity projects in Asia-Pacific region. It is viewed as Asia’s response to West-dominated
Asian Development Bank (ADB) and World Bank (WB). It was officially established in
December 2015 with mission to improve social and economic outcomes in Asia and beyond
and opened for business in January 2016. It is headquartered in Beijing, China. Its goals are
to boost economic development in Asia-Pacific region, provide infrastructure, and promote
regional cooperation and partnership. China is largest shareholder of AIIB with 26.06% voting
shares. India with 7.5% vote share is second largest shareholder.

www.everstudy.co.in Query: [email protected]

❖ New Development Bank (NDB): NDB is a multilateral development bank promoted by BRICS
nations viz. Brazil, Russia, India, China and South Africa. It is outcome of 6th BRICS Summit
being held in Fortaleza, Brazil. It is headquartered in Shanghai, China. It will have a regional
office in Johannesburg, South Africa. NDB began its operations in July 2015 with an initial
capital of 100 billion dollars. The goal of the bank is to fund infrastructure projects in
emerging economies for sustainable development. In the NDB, each participant country has
been assigned one vote, and none of the countries have veto power.

❖ WTO (World Trade Organization): World Trade Organization, as an institution was

established in 1995. WTO operates a system of trade rules that apply to all its members. The
WTO is also a place for Member governments to settle their trade disputes. Its located in
Geneva, Switzerland.

❖ General Agreement on Trade and Tariffs (GATT): WTO replaced General Agreement on
Trade and Tariffs (GATT). GATT was signed by 23 nations in Geneva on 30 October 1947 and
took effect on 1 January 1948. General Agreement on Tariffs and Trade (GATT) was a legal
agreement between many countries, whose overall purpose was to promote international
trade by reducing or eliminating trade barriers such as tariffs or quotas. Various rounds of
trade negotiations were held under GATT and eighth round known as Uruguay round (1986-
www.everstudy.co.in Query: [email protected]
 1994) led to formation of WTO. India has been member of GATT since 1948; hence it was
party to Uruguay Round and a founding member of WTO.

GATT rules applied to trade in goods. The WTO covers not just goods, but also trade in
services and trade-related aspects of intellectual property rights.

❖ WTO Agreements: WTO provides to its Member governments a forum for negotiating global
trade rules. Negotiations in the WTO are conducted directly and exclusively by the Member
governments. WTO agreements are essentially contracts legally binding on Member
governments to keep their trade policies within agreed limits.

❖ TRIMS (Trade Related Investment Measures): The Agreement on Trade-Related Investment

Measures (TRIMS) recognizes that certain investment measures can restrict and distort
trade. It states that WTO members may not apply any measure that discriminates against
foreign products or that leads to quantitative restrictions, both of which violate basic WTO
principles. A list of prohibited TRIMS, such as local content requirements, is part of the
Agreement.

www.everstudy.co.in Query: [email protected]

❖ Trade Related Intellectual Property Rights (TRIPs): Intellectual property rights may be
defined as “Information with commercial value”. TRIPS agreement lays down minimum
standards for protection and enforcement of intellectual property rights in member
countries. It includes:

a. Protection of patent
b. Copyright
c. Industrial design
d. Geographical indication
e. Trademarks
f. Trade secrets
g. Layout design (topographies of integral circuits)

❖ Agreement on Agriculture (AOA): WTO Agreement on Agriculture, which came into force in
1995, represents a significant step towards reforming agricultural trade and making it fairer
and more competitive. Negotiations are still going on for some of its aspects. Agreement on
agriculture stands on 3 pillars viz. Domestic Support, Market Access, and Export Subsidies.

❖ General Agreement on Trade in Services (GATS): The General Agreement on Trade in

Services (GATS) is the first multilateral agreement covering trade in services. It was
negotiated during the last round of multilateral trade negotiations, called the Uruguay
Round, and came into force in 1995.

www.everstudy.co.in Query: [email protected]

❖ Agreement on subsidies and countervailing measures: The Agreement on Subsidies and
Countervailing Measures (“SCM Agreement”) addresses two separate but closely related
topics: multilateral disciplines regulating the provision of subsidies, and the use of
countervailing measures to offset injury caused by subsidized imports. Part I of the
Agreement defines the coverage of the Agreement. In order for a financial contribution to
be a subsidy, it must be made by or at the direction of a government or any public body
within the territory of a Member. Further, Such Financial contribution must also confer
benefit to the industry. Further, there is separate category of ‘Actionable subsidies’.

❖ Actionable Subsidies: These are not prohibited but countries can take ‘Countervailing
measures’ against these subsidies or they can be challenged in ‘dispute resolution body’ of
WTO. Against such subsidies members can take Countervailing Measures, such as imposing
countervailing duties or antidumping duty. These can only be done in a transparent manner
and a sunset period should be specified.

❖ Countervailing Duty: It is imposed on imported goods to counterbalance subsidy provided

by the exporter country.

❖ Anti-Dumping Duty: At times countries resort to subsidize production or exports so heavily

that exporters are able to sell goods below domestic price or even cost of production in
foreign markets. It is aimed at wiping out target country’s industry. Anti-Dumping Duty is
aimed at counterbalancing such subsidization.

❖ WTO’s Principle of Non-Discrimination: Non-discrimination is a fundamental principle of the

WTO. It has two components:

▪ The Most-Favoured Nation (MFN) principle: If a WTO Member grants to a country

an advantage, it has to give such advantage to all WTO Members

▪ The National Treatment Principle: WTO member should not discriminate between
imports and like domestic products from a WTO member.

These two principles apply to trade in goods, trade in services as well as trade related
aspects of intellectual property rights.

www.everstudy.co.in Query: [email protected]

❖ SAARC: South Asian Association for Regional Cooperation (SAARC) is the regional
intergovernmental organization and geopolitical union of nations in South Asia. SAARC
comprises 3% of the world’s area, 21% of the world’s population and 3.8% of the global
economy, as of 2015. SAARC was founded in Dhaka on 8 December 1985. Its secretariat is
based in Kathmandu, Nepal. The organization promotes development of economic and
regional integration. It launched the South Asian Free Trade Area in 2006. SAARC maintains
permanent diplomatic relations at the United Nations as an observer and has developed links
with multilateral entities, including the European Union.

❖ SAFTA: South Asian Free Trade Area (SAFTA) is an agreement reached on January 6, 2004, at
the 12th SAARC summit in Islamabad, Pakistan. It created a free trade area of 1.6 billion
people in Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka (as
of 2011, the combined population is 1.8 billion people). The foreign ministers of the region
signed a framework agreement on SAFTA to reduce customs duties of all traded goods in a
phased manner.

❖ NAFTA: North American Free Trade Agreement, an agreement signed by Canada, Mexico,
and the United States to create a trilateral rules-based trading bloc in North America.
The North American Free Trade Agreement is a treaty between Canada, Mexico and the
United States. That makes NAFTA the world’s largest free trade agreement. The gross

www.everstudy.co.in Query: [email protected]

 domestic product of its three members is more than $20 trillion. NAFTA is the first time two
developed nations signed a trade agreement with an emerging market country.

❖ European Union: European Union (EU) is a political and economic union of 28 member states
that are located primarily in Europe. The EU has developed an internal single market through
a standardised system of laws that apply in all member states in those matters, and only
those matters, where members have agreed to act as one. EU policies aim to ensure the free
movement of people, goods, services and capital within the internal market, enact legislation
in justice and home affairs and maintain common policies on trade, agriculture, fisheries and
regional development. For travel within the Schengen Area, passport controls have been
abolished A monetary union was established in 1999 and came into full force in 2002 and is
composed of 19 EU member states which use the euro currency.

Brexit is a word that is used as a shorthand way of saying the UK leaving the EU - merging
the words Britain and exit to get Brexit. The UK is due to leave the European Union on 29
March, 2019.

❖ Balance of Payments: The relationship between the payments made by one country to all
other countries and its receipts from all countries. The balance of payments accounts records
all flows of money in and out of a country. These flows might result from exports (an inflow
or credit) or from imports (an outflow or debit).

All flows of money are added together and grouped according to their type. The overall
account is then called the balance of payments – principally because the total of outflows
must equal the total of inflows. These transactions consist of imports and exports of goods,
services and capital, as well as transfer payments such as foreign aid and remittances.

www.everstudy.co.in Query: [email protected]

❖ Current account: The current account records exports and imports of goods and services as
well as unilateral transfers. A unilateral transfer is a one-way transfer of money, goods, or
services from one country to another.

❖ Capital account: The capital account records purchase and sale transactions of foreign assets
and liabilities during a Particular year. The capital account is a record of the inflows and
outflows of capital that directly affect a nation’s foreign assets and liabilities.

❖ Balance of Trade: The difference in value between a country’s imports and exports is termed
as balance of trade. Balance of payments is the overall record of all economic transactions
of a country with the rest of the world. Balance of trade includes imports and exports of
goods alone i.e., visible items.

❖ Rupee Convertibility - The convertibility of a currency such as Rupee has different meanings
in different times. In existing standards, it means that the country’s currency becomes
convertible in foreign exchange and vice versa in the market. In simple terms, exchanging
Indian rupee for dollars is an example of rupee convertibility.

www.everstudy.co.in Query: [email protected]

❖ Current Account Convertibility - Current account convertibility refers to freedom in respect
of payments and transfers for current international transactions. Current account
convertibility implies that the Indian rupee can be converted to any foreign currency at
existing market rates for trade purposes for any amount. It allows easy financial transactions
for the export and import of goods and services. India has current account convertibility.
For example – Mobile company importing mobiles from China and selling in India can get
foreign exchange for its imports under Current Account Convertibility.

❖ Capital Account Convertibility - Capital Account Convertibility is not just the

currency convertibility freedom, but more than that, it involves the freedom to invest
in financial assets (shares, bonds etc.) of other countries. Though it encourages
the inflow of the foreign capital, but the risk is that it may accelerate the flight of the
capital from the country if things are unfavourable. For example, an Indian can sell
property here and take the Capital outside. Convertibility on the capital account is
usually introduced after a certain period of introducing the Current account
convertibility. In India, we have partial convertibility of Rupee on Capital Account.

❖ CR – CAFTA: Central America and Dominican Republic Free Trade Agreement. The Dominican
Republic-Central America FTA (CAFTA-DR) is the first free trade agreement between the
United States and a group of smaller developing economies: our Central American
neighbours Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, as well as the
Dominican Republic. The CAFTA-DR promotes stronger trade and investment ties, prosperity,
and stability throughout the region and along our Southern border.

❖ MERCOSUR: Mercosur is an economic and political bloc comprising Argentina, Brazil,

Paraguay, Uruguay, and Venezuela. Created during a period when longtime rivals Argentina

www.everstudy.co.in Query: [email protected]

 and Brazil were seeking to improve relations, the bloc saw some early successes, including a
tenfold increase in trade within the group in the 1990s.

❖ ASEAN: The Association of Southeast Asian Nations (ASEAN) is a regional grouping that
promotes economic, political, and security cooperation among its ten members: Brunei,
Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and
Vietnam. ASEAN countries have a population of nearly 640 million people and a combined
GDP of $2.57 trillion. The group has spurred economic integration, signing six free-trade
agreements with other regional economies.

❖ PACER PLUS: Pacific Agreement on Closer Economic Relations Plus Negotiations since 2009.
The Pacific Agreement on Closer Economic Relations (PACER) is an umbrella agreement
between members of the Pacific Islands Forum (the Forum Island
Countries plus Australia and New Zealand) which provides a framework for the future
development of trade co operation. It was first signed at Nauru on 18 August 2001 and

www.everstudy.co.in Query: [email protected]

 entered into force on 3 October 2002. It is a framework agreement that sets an outline for
the future development of trade and economic relations across the Forum region as a whole.

❖ Regional Comprehensive Economic Partnership (RCEP): Regional Comprehensive Economic

Partnership since 2013. Regional Comprehensive Economic Partnership (RCEP) is a proposed
free trade agreement (FTA) between the ten member states of the Association of Southeast
Asian Nations (ASEAN) (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines,
Singapore, Thailand, Vietnam) and the six Asia-Pacific states with which ASEAN has existing
free trade agreements (Australia, China, India, Japan, South Korea and New Zealand). It is
reported that a broad agreement is likely to be reached soon.

❖ GCC (Gulf Cooperation Council): He Cooperation Council for the Arab States of the Gulf,
originally known as the Gulf Cooperation Council, is a regional intergovernmental political
and economic union consisting of all Arab states of the Persian Gulf except Iraq.

❖ International liquidity: International liquidity’ embraces all those assets which are
internationally acceptable without loss of value in discharge of debts (on external accounts).
In its simplest form, international liquidity comprises of all reserves that are available to the

www.everstudy.co.in Query: [email protected]

 monetary authorities of different countries for meeting their international disbursement. In
short, the term ‘international liquidity’ connotes the world supply of reserves of gold and
currencies which are freely usable internationally, such as dollars and sterling.

❖ Forex Reserves: The forex are reserve assets held by a central bank in foreign currencies. The
components of India’s FOREX Reserves include Foreign currency assets (FCAs), Gold
Reserves, Special Drawing Rights (SDRs) and RBI’s Reserve position with International
Monetary Fund (IMF). FCAs constitute largest component of Indian Forex Reserves and are
expressed in US dollar terms.
❖ FDI (Foreign Direct Investment) - FDI refers to obtaining ownership in foreign business
entity. It can also be attributed that FDI circulates capital across national boundaries. It can
be defined as an investor based on one country (home country), acquires an asset in another
country (host country), with the intention to manage it. Permission for Foreign Direct
Investment (FDI) in India is not uniform for all sectors. Some sectors are opened up for 100%
and in some sectors, it is allowed only upto 26%, 49% or 51%. Also, FDI is prohibited in sectors
like lottery business, gambling, chit fund etc.

❖ Inward FDI - Foreign firms taking control over domestic assets is termed as inward FDI. From
an Indian perspective, direct investments made by foreign firms such as Suzuki, Honda, LG,
Samsung, General Motors, Electrolux etc come under inward FDI.
❖ Outward FDI - Domestic firms investing overseas and taking control over foreign assets are
known as Outward FDI. Such outward investment is also known as direct investments
abroad.
❖ Horizontal FDI - It is the investment activities undertaken by a foreign firm in similar
production activity as it is carried out in its home country. In other words, it signifies that an
MNC assumes the same production process in two or more countries. A number of MNCs
such as Kodak, HSBC, LG, Samsung etc expanded their business territory by way of horizontal
FDI.

www.everstudy.co.in Query: [email protected]

❖ Vertical FDI - Under this, a firm assumes investment activities overseas, with the intention
of supplying raw materials required for its domestic production, or to sell its domestically
produced final products in a foreign country.
❖ Backward Vertical FDI – Under this, a foreign firm enters the business scenario of another
country with the intention of obtaining raw materials needed for carrying out its domestic
production activities. Such FDI is historically common in extractive industries such as mining
(Gold, Copper, Tin, Bauxite, petroleum etc). Companies like British Petroleum and Shell have
expanded their international business by backward vertical FDI.
❖ Forward Vertical FDI – Here a firm assumes FDI for selling out the products it domestically
produced. Setting up a marketing network, assembly or mixing operations overseas are
illustrations of forward vertical FDI.
❖ Conglomerate FDI - Direct investment overseas aimed at manufacturing products not
manufactured by the firm in the home country is termed as Conglomerate FDI.

❖ Foreign Institutional Investment (FII): A foreign institutional investor (FII) is an investor

or investment fund registered in a country outside of the one in which it is
investing. Institutional investors most notably include hedge funds, insurance
companies, pension funds and mutual funds. The term is used most commonly in India and
refers to outside companies investing in the financial markets of India. The biggest source
through which FIIs invest is the issuance of Participatory Notes (P-Notes), which are also
known as Offshore Derivatives.

www.everstudy.co.in Query: [email protected]

❖ Greenfield Investments - Greenfield investments are done primarily for creation of new
facilities or expansion of existing facilities. Firms often enter international markets by way
of Greenfield investments in industries where technological skills and production technology
are the key factors. Example – Foreign company setting up a new project in India and
constructing factories for it.
❖ Brownfield Investments - An investment is called Brownfield when a company or
government entity purchases or leases existing production facilities to launch a new
production activity. This is an alternative to Greenfield investments. Example – Foreign
company rather than setting up a new factory decides to acquire the business of existing
factory.

❖ FDI Policy in India: The Department of Industrial Policy & Promotion is the nodal
Department for formulation of the policy of the Government on Foreign Direct Investment
(FDI). It is also responsible for maintenance and management of data on inward FDI into
India, based upon the remittances reported by the Reserve Bank of India. The FDI policy is
reviewed on an ongoing basis, with a view to making it more investor-friendly.

www.everstudy.co.in Query: [email protected]

❖ Trade Agreement: A trade agreement is a contract/agreement/pact between two or more
nations that outlines how they will work together to ensure mutual benefit in the field of
trade and investment. This can be bilateral (2 countries) or multilateral (more than 2
countries).

❖ Economic Integration: Economic integration refers to trade unification between different

states by the partial or full abolishing of customs tariffs on trade taking place within the
borders of each state.

❖ Levels of Economic Integration: There are different levels of Economic Integration which can
be seen from following diagram:

❖ Preferential trade agreement (PTA): A preferential trade agreement, is a trading bloc that
gives preferential access to certain products from the participating countries. This is done by

www.everstudy.co.in Query: [email protected]

 reducing tariffs but not by abolishing them completely. A PTA can be established through a
trade pact. It is the first stage of economic integration.

❖ Free trade agreement (FTA): A free-trade area is a trade bloc whose member countries have
signed a free-trade agreement (FTA), which eliminates tariffs, import quotas, and
preferences on most (if not all) goods and services traded between them. Example - ASEAN
FTA (Trade agreement within the Southeast asian nations)

❖ CECA (Comprehensive Economic Cooperation Agreement) and CEPA (Comprehensive

Economic partnership Agreement): When the countries go beyond FTA and agree for a
greater degree of economic integration which includes improving the attractiveness to
capital and human resources, and to expand trade and investment, it would result in CECA
or CEPA. While CECA comes first with elimination of tariffs, CEPA comes later including trade
in services and investments. CEPA has a bit wider scope than CECA.

❖ Customs Union: An agreement among countries to have free trade among themselves and
to adopt common external barriers against any other country interested in exporting to these
countries. Example: Gulf Cooperation Council (GCC).

❖ Common Market: A type of custom union where there are common policies on product
regulation, and free movement of goods and services, capital and labour.

❖ Economic Union: An economic union is a type of trade bloc which is composed of a common
market with a customs union. The participant countries have both common policies on
product regulation, freedom of movement of goods, services and the factors of production
(capital and labour) and a common external trade policy.

❖ Economic and Monetary Union: When an economic union involves unifying currency it
becomes a economic and monetary union. E.g. – Euro.

❖ India’s foreign Trade: Foreign trade in India includes all imports and exports to and from
India. At the level of Central Government it is administered by the Ministry of Commerce and
Industry It is also called as International trade, External trade or Inter-Regional trade. It
consists of imports, exports and entrepot. The inflow of goods in a country is called import
trade whereas outflow of goods from a country is called export trade. Many times goods are
imported for the purpose of re-export after some processing operations. This is called
entrepot trade. Foreign trade basically takes place for mutual satisfaction of wants and
utilities of resources.

www.everstudy.co.in Query: [email protected]

 India’s Foreign Trade i.e. Exports and Imports are regulated by Foreign Trade Policy notified
by Central government in exercise of powers conferred by section 5 of foreign trade
(Development and Regulation) Act 1992. Presently Foreign Trade Policy 2015-20 is effective
from 1st April, 2015. As per FTD & R act, export is defined as an act of taking out of India any
goods by land, sea or air and with proper transaction of money.

❖ Foreign Trade Policy 2015-20: The new five year Foreign Trade Policy, 2015-20 provides a
framework for increasing exports of goods and services as well as generation of employment
and increasing value addition in the country, in keeping with the “Make in India” vision of
Prime Minister. The focus of the new policy is to support both the manufacturing and services
sectors, with a special emphasis on improving the ‘ease of doing business’. The release of
Foreign Trade Policy was also accompanied by a FTP Statement explaining the vision, goals
and objectives underpinning India's Foreign Trade Policy, laying down a road map for India’s
global trade engagement in the coming years.

❖ MEIS and SEIS: FTP2015-20 introduces two new schemes, namely “Merchandise Exports
from India Scheme (MEIS)” for export of specified goods to specified markets and “Services
Exports from India Scheme (SEIS)” for increasing exports of notified services, in place of a
plethora of schemes earlier, with different conditions for eligibility and usage. Duty credit
scrips issued under MEIS and SEIS and the goods imported against these scrips are fully
transferable.

❖ Mid-Term Review of FTP 2015-20: The mid-term review of the five-year Foreign Trade Policy
(FTP), which was rolled out in 2015, was released in 2017. Key Highlights of Review are:
▪ Incentives under the Merchandise Export from India Scheme (MEIS) and Service
Exports from India Scheme (SEIS) have been raised.
▪ Import of second hand goods for repair/refurbishing/re- conditioning/re-
engineering is made free.
▪ Validity of Duty Credit Scrips has been increased from 18 to 24 months to enhance
their utility in the GST framework.
▪ A New Logistics Division to promote integrated development of the logistics sector
will be put in place.
▪ The round-the-clock customs clearance facility has been extended to more number
of sea ports and air cargo complexes.
▪ State-of-the-art trade analytics division in DGFT (Directorate General of Foreign
Trade) will be set up for data-based policy actions.
▪ New Services Division is planned in DGFT to examine Exim policies and procedures
to push services exports.

www.everstudy.co.in Query: [email protected]

❖ India’s trading positions with regard to other countries of the world is as follows:

www.everstudy.co.in Query: [email protected]

❖ Sector wise share and growth rate of exports: Sector wise share of exports from India to
other countries of the world is as follows:

www.everstudy.co.in Query: [email protected]

❖ Sector wise share and growth rate of imports: Sector wise share of imports to India from
other countries of the world is as follows:

www.everstudy.co.in Query: [email protected]

❖ Documents for Export-Import - FTP 2015-2020 describe the following mandatory documents
for import and export.
• Bill of Lading/ Airway bill ·
• Commercial invoice cum packing list
• shipping bill/ bill of export/ bill of entry (for imports)
(Other documents like certificate of origin, inspection certificate etc may be required as per the
case.)
❖ IEC No. - IEC Stands for IMPORTER EXPORTER CODE. No export or import shall be made by
any person without an Importer-Exporter Code (IEC) number unless specifically exempted.
IEC is compulsory for imports. However, certain categories of importers are exempted from
obtaining IEC. Application for obtaining IEC Number in made online at DGFT website in the
prescribed form ANF 2A.
❖ DGFT (Director General Foreign Trade) - Directorate General of Foreign Trade (DGFT)
organisation is an attached office of the Ministry of Commerce and Industry and is headed
by Director General of Foreign Trade. Right from its inception till 1991, when liberalization in
the economic policies of the Government took place, this organization has been essentially
involved in the regulation and promotion of foreign trade through regulation. Keeping in line
with liberalization and globalization and the overall objective of increasing of exports, DGFT
has since been assigned the role of “facilitator”. This Directorate, with headquarters at New
Delhi, is responsible for formulating and implementing the Foreign Trade Policy with the
main objective of promoting India’s exports.

❖ Bill of lading - Bill of lading is a document issued by sea carrier of goods on receipt of cargo
to him from the shipper. Bill of lading is issued to shipper after completion of export customs
clearance procedures at load port customs location of the country. After completion of
export customs formalities, shipper hands over cargo to sea shipping carrier or his agent. As

www.everstudy.co.in Query: [email protected]

 proof of receipt of goods, sea carrier or his agent issues a document which is called bill of
lading. Bill of lading is generally issued in triplicate with non negotiable copies.

www.everstudy.co.in Query: [email protected]

❖ Airway bill - Airway bill is issued by air carrier of goods on receipt of goods after completion
of export customs formalities of the country. Shipper obtains airway bill once after handing
over cargo to them. Since the cargo reaches by air and transit time is too less compared to
sea shipment, a set of airway bill is sent along with the cargo for immediate reference on
transit and for import customs clearance at destination port by importer.
❖ Commercial Invoice cum packing list - A commercial invoice, as the name suggests, is a
document that provides the details of the sales transaction like name of seller and buyer,
the value and quantity of the goods sold. A packing list contains the details of the goods that
are being shipped. It should mention the correct description of the goods, quantity, weight
(gross and net), number and type of packages, and marks and numbers, carrier name, export
date, export license number, and letter of credit number. This information is necessary for
the Customs to ascertain the value of the goods and to facilitate examination at the time of
clearance. Importers in India must obtain a copy of the commercial invoice and packing list
as they need to present the same to collect the cargo.

❖ Shipping Bill/Bill of Export: A bill of export or shipping bill is a document requirement by

www.everstudy.co.in Query: [email protected]

 the customs authority. It provides the details of any benefit that the shipper has availed in
terms of customs duty, export schemes of the government, credit obtained under DEPB. If
the goods are re-export of previously imported goods, then such details are also mentioned
in the bill. The Customs do not provide clearance without a shipping bill or bill of export.
❖ Bill of Entry: A bill of entry is a declaration by an importer or his appointed agent. It provides
details of the type of cargo, its value, and quantity. It is prepared in three copies. The Customs
inspect and clear the goods based on the information provided in the bill of entry. To ensure
that there is no malpractice regarding the value of the goods, the bill of entry is tallied with
the sales invoice or insurance policy.

There are generally three kinds of Bills of Entry.

(i) Home consumption Bill of entry: This has to be filed when the importer wants to clear the
goods on payment of duty and remove them to his premises immediately. (Section 46 of the
Custom Act 1962).

(ii) Into bond Bill of entry: It is also known as Warehousing Bill of Entry. This has to be filed
when the importer does not want to pay duty immediately but prefers to keep the goods in
a warehouse and pay the duty subsequently and clear the goods for home consumption.
(Section 46 and 60 of Custom Act 1962).

(iii) Ex-bond Bill of entry: This has to be filed when the importer wants to clear the
warehoused goods for home consumption on payment of duty (Section 68 of Customs Act
1962).

www.everstudy.co.in Query: [email protected]

❖ Certificate of Origin (C.O.) - Certificate of Origin is an instrument which establishes evidence
o-n origin of goods imported into any country. These certificates are essential for exporters
to prove where their goods come from and therefore stake their claim to whatever benefits
goods of Indian origin may be eligible for in the country of exports.

❖ eTrade Project - The eTRADE project facilitates users to carry out all their foreign trade
related compliances, regulatory or otherwise, online. Department of Commerce pilots this
project. The major stake holders of the project are Customs, Directorate General of Foreign
Trade (DGFT), Seaports, Airports, Container Corporation of India (CONCOR), Inland container
Depots(ICDs)/ Container Freight Stations (CFSs), Banks, importers/exporters, agents,
airlines/shipping lines. The project emphasizes automation of internal processes for quicker
processing of trade requests. Transparency is induced in the system by reduced personal
interface of importers/exporters with Government agencies.
❖ Import General Manifest - Import General Manifest (IGM) is a document to be filed in
prescribed form with the Customs by the carriers of the goods i.e., the Steamer Agent or
Airlines in terms of Section 30 of the Customs Act 1962. This document indicates the details
of all the goods to be unloaded at the Port from a vessel (ship) or Aircraft. Particulars of
goods to be transshipped, private property of the crew and Arms and Ammunition, Gold and
silver should also be declared separately irrespective of whether for landing, for
transshipment or for being carried as same bottom cargo. The IGM has to be filed within 24
hours after arrival of the Ship /Aircraft. However, in the case of vessel (ship) the Manifest
may be delivered even before the arrival of the vessel. This is known as ‘Prior Entry Import

www.everstudy.co.in Query: [email protected]

 General Manifest’. This system enables the importers to file Bills of entry and get them
assessed and pay duty so that the goods can be taken delivery soon after the unloading.
❖ Project Imports - Project Imports are the imports of machinery, instruments, and apparatus
etc., required for initial sating up of a unit or for substantial expansion of an existing Unit.
Some of the advantages of importing the goods under Project Import Regulations are that all
the machinery, appliances, instruments etc., imported are charges to duty at a flat rate of
duty under the same tariff heading.
❖ Custom Duty - Customs Duty is a tax imposed on imports and exports of goods. The rates of
customs duties are either specific or on ad valorem basis, that is, it is based on the value of
goods. While revenue is a paramount consideration, Customs duties may also be levied to
protect the domestic industry from foreign competition.
❖ Bonded Warehouse - A bonded warehouse, or bond, is a building or other secured area in
which dutiable goods may be stored, manipulated, or undergo manufacturing operations
without payment of duty. Upon entry of goods into the warehouse, the importer and
warehouse proprietor incur liability under a bond. While the goods are in the bonded
warehouse, they may, under supervision by the customs authority, be manipulated by
cleaning, sorting, repacking, or otherwise changing their condition by processes that do not
amount to manufacturing.
❖ Goods in Transit - Goods enter Indian customs port but are not unloaded. Later they are
shipped to some other port/airport whether in India or outside India.
❖ Transhipment - Goods enter Indian port. They are unloaded from ship/aircraft and later
reloaded into some other ship/aircraft. In this case, Bill of entry for transshipment is
required.

❖ ICD - ICD means Inland Container Depot situated at inland points away from sea ports. ICD is
formed to help importers and exporters to handle their shipments near their place of
location. If the sea port is away from the places of importers and exporters Inland Container
Depot (ICD) helps them to save time and money in the procedures and formalities. In Inland
Container Depot (ICD), a combination of services of sea custodian, customs department,

www.everstudy.co.in Query: [email protected]

 carriers, freight forwarders, customs brokers etc. are carried out to facilitate exporters and
importers for smooth handling of cargo.

ICDs are generally located in the interiors or outside the port towns of country, distant from
the ports. CFS on the other hand are off-dock facility located near the port area. Container
freight Stations (CFS) are largely expected to deal with break bulk cargo originating /
terminating in the immediate hinterland of port. They also deal with rail borne traffic to and
from inland locations.

❖ Some technical terms relating to valuation in Export-Import Trade -

❖ Advance Authorisation Scheme - Under advance authorization scheme, inputs which are
used in the export product can be imported without payment of customs duty. Advance
Authorisation shall be valid for 12 months from the date of issue of such Authorisation.
Period of fulfillment of export obligation under Advance Authorization is 18 months from the
date of issue of Authorization or as notified by DGFT. Exports proceeds shall be realized in
freely convertible currency except otherwise specified.
❖ Duty Free Import Authorisation Scheme - Provisions applicable to Advanced Authorisation
www.everstudy.co.in Query: [email protected]
 are broadly applicable in case of DFIA. However, these Authorizations shall be issued only
for products for which Standard Input and Output Norms (SION) have been notified. Duty
Free Import Authorisation (DFIA) is issued to allow duty free import of inputs. In addition,
import of oil and catalyst which is consumed / utilised in the process of production of export
product, may also be allowed. DFIA shall be exempted only from payment of Basic Customs
Duty (BCD). IGST will be payable on imports.
❖ Duty drawback scheme - The duty drawback scheme has been notified for a large number
of export products by the Government after an assessment of the average incidence of
Customs, Central Excise duties, Service Tax and Transaction Cost suffered by the export
products. Duty Drawback Scheme aims to provide the refund/ recoupment of custom and
excise duties paid on inputs or raw materials and service tax paid on the input services used
in the manufacture of export goods. Duty Drawback provisions are described under Section
74 and Section 75 under the Customs Act, 1962.
• As per section 74, if the re-exports of imported goods, which are identified quickly and
within two years from the date of payment of duty on the importation. Then an exporter
is eligible to claim 98% of the duty paid by him as drawback.
• As per section 75, if the export of goods manufactured or processed out of imported
material with value addition, then a drawback should be allowed of duties of customs
chargeable on any imported materials of a class or description. If sale proceeds not
received within the stipulated period, a drawback is to be reversed or adjusted.
❖ Export Promotion Capital Goods Scheme (EPCG) – EPCG permits exporters to import
capital goods for pre-production, production and post- production at zero customs
duty or procure them indigenously without paying duty in the prescribed manner. In
return, exporter is under an obligation to fulfill the export obligation. Import under EPCG
scheme shall be subject to an export obligation equivalent to 6 times of duties, taxes
and cess saved on capital goods to be fulfilled in 6 years reckoned from the date of issue
of authorization.
❖ Deemed Exports - "Deemed Exports" refers to those transactions in which the goods
supplied do not leave the country and the payment for such supplies is received either in
Indian rupees or in free foreign exchange. The following categories of supply of goods by the
main/ sub-contractors shall be regarded as "Deemed Exports" under this Policy, provided the
goods are manufactured in India:
(a) Supply of goods against Advance Licence/Advance Licence for annual requirement/DFRC
under the Duty Exemption /Remission Scheme;
(b) Supply of goods to Export Oriented Units (EOUs) or Software Technology Parks (STPs) or
Electronic Hardware Technology Parks (EHTPs) or Bio Technology Parks (BTP);

www.everstudy.co.in Query: [email protected]

 (c) Supply of capital goods to holders of licences under the Export Promotion Capital Goods
(EPCG)
(d) Supply to projects funded by UN agencies

Deemed exports shall be eligible for any/all of the following benefits in respect of
manufacture and supply of goods qualifying as deemed exports.
❖ Special Economic Zones (SEZs) - SEZs are zones created to promote export production, trade,
investment etc. Special Economic Zone (SEZ) is a specifically delineated duty-free enclave
and shall be deemed to be foreign territory for the purposes of trade operations and duties
and tariffs. In India, the government has designed Special Economic Zone (SEZ) policy during
the late 1990s and the SEZ Act came into force in 2005 for giving further clarification for the
working ofthe SEZs.

❖ EXIM Bank: Export–Import Bank of India is the premier export finance institution in India,
established in 1982 under Export-Import Bank of India Act 1981. Since its inception, Exim
Bank of India has been both a catalyst and a key player in the promotion of cross border
trade and investment. Commencing operations as a purveyor of export credit, like other
export credit agencies in the world, Exim Bank India has, over the period, evolved into an
institution that plays a major role in partnering Indian industries, particularly the Small and
Medium Enterprises, in their globalisation efforts, through a wide range of products and
services offered at all stages of the business cycle, starting from import of technology and
export product development to export production, export marketing, pre-shipment and
post-shipment and overseas investment.

www.everstudy.co.in Query: [email protected]

❖ Information technology (IT) - Information technology (IT) is the use of computers to store,
retrieve, transmit, and manipulate data, or information, often in the context of a business or
other enterprise. The meaning of information technology is broad, encompassing all forms
of technology that involves any form of electronic data. Some of the areas in which
technology is crucial to business include point of sales systems, the use of ICT in
management, accounting systems, and other complex aspects of every day business
activities.

❖ Use of Computers in Management Applications - In virtually every business, a computer is

an essential tool for running the day-to-day operations, enhancing productivity and
communicating with customers, suppliers and the public. Managers use computers for a
variety of reasons, including keeping their teams on track, budgeting and planning projects,
monitoring inventory and preparing documents, proposals and presentations. Some areas of
application are as follows:
(a) Business Planning - From using email programs like Outlook or Google Mail to set
appointments, tasks and deadlines to using financial tools to develop budgets and project
proposals, using computers to plan the day-to-day activities of a business is essential.
(b) Record Keeping - Using computers to store and manage documents, files and records
reduces the amount of physical storage a company needs and also allows managers to
have easy access to their files using simple document search methods.
(c) Communication - Using email and instant messaging programs allows employees to
gather information from one another that they need to complete their jobs. It also allows
managers to delegate work tasks and follow up on projects.
(d) Document Preparation - For creating spreadsheets, presentations, memos and other
corporate documents, computers are essential in business.

www.everstudy.co.in Query: [email protected]

❖ Management Information System (MIS) - A management information system (MIS) is a
computerized database of financial information organized and programmed in such a way
that it produces regular reports on operations for every level of management in a company.
It is usually also possible to obtain special reports from the system easily. The main purpose
of the MIS is to give managers feedback about their own performance; top management can
monitor the company as a whole. Information displayed by the MIS typically shows "actual"
data over against "planned" results and results from a year before; thus it measures progress
against goals. The MIS receives data from company units and functions. Some of the data are
collected automatically from computer-linked check-out counters; others are keyed in at
periodic intervals.

❖ Decision Support System (DSS) - A decision support system (DSS) is a computer program
application that analyzes business data and presents it so that users can make business
decisions more easily. It is an "informational application" (to distinguish it from an
"operational application" that collects the data in the course of normal business
operation).Typical information that a decision support application might gather and present
would be:
• Comparative sales figures between one week and the next
• Projected revenue figures based on new product sales assumptions
• The consequences of different decision alternatives, given past experience in a context
that is described

The main difference between management information system and decision support system is
that the management information system (MIS) supports structured decision making while the

www.everstudy.co.in Query: [email protected]

decision support system (DSS) provides support for unstructured or semi-structured decisions.
MIS is a primary level of decision making whereas DSS is the ultimate and the main part of the
decision.

❖ Artificial intelligence (AI) – According to the father of Artificial Intelligence, John McCarthy,
it is “The science and engineering of making intelligent machines, especially intelligent
computer programs”. It is an area of computer science that emphasizes the creation of
intelligent machines that work and react like humans. Some of the activities computers with
artificial intelligence are designed for include:
• Speech recognition
• Learning
• Planning
• Problem solving

www.everstudy.co.in Query: [email protected]

❖ Goals of AI: The goals of AI include:
• To Create Expert Systems − The systems which exhibit intelligent behavior, learn,
demonstrate, explain, and advice its users.
• To Implement Human Intelligence in Machines − Creating systems that understand,
think, learn, and behave like humans.

❖ Applications of AI - AI has been dominant in various fields such as −

• Gaming − AI plays crucial role in strategic games such as chess, poker, tic-tac-toe, etc.,
where machine can think of large number of possible positions based on heuristic
knowledge.
• Natural Language Processing − It is possible to interact with the computer that
understands natural language spoken by humans.
• Expert Systems − There are some applications which integrate machine, software, and
special information to impart reasoning and advising. They provide explanation and
advice to the users.
• Vision Systems − These systems understand, interpret, and comprehend visual input on
the computer. For example,
o A spying aeroplane takes photographs, which are used to figure out spatial
information or map of the areas.
o Doctors use clinical expert system to diagnose the patient.
o Police use computer software that can recognize the face of criminal with the
stored portrait made by forensic artist.

www.everstudy.co.in Query: [email protected]

 • Speech Recognition − Some intelligent systems are capable of hearing and
comprehending the language in terms of sentences and their meanings while a human
talks to it. It can handle different accents, slang words, noise in the background, change
in human’s noise due to cold, etc.
• Handwriting Recognition − The handwriting recognition software reads the text written
on paper by a pen or on screen by a stylus. It can recognize the shapes of the letters and
convert it into editable text.
• Intelligent Robots − Robots are able to perform the tasks given by a human. They have
sensors to detect physical data from the real world such as light, heat, temperature,
movement, sound, bump, and pressure. They have efficient processors, multiple sensors
and huge memory, to exhibit intelligence. In addition, they are capable of learning from
their mistakes and they can adapt to the new environment.

❖ Big Data - Big Data is a phrase used to mean a massive volume of both structured and
unstructured data that is so large it is difficult to process using traditional database and
software techniques. In most enterprise scenarios the volume of data is too big or it moves
too fast or it exceeds current processing capacity.
An example of big data might be petabytes (1,024 terabytes) or exabytes (1,024 petabytes)
of data consisting of billions to trillions of records of millions of people—all from different
sources (e.g. Web, sales, customer contact center, social media, mobile data and so on). The
data is typically loosely structured data that is often incomplete and inaccessible.
When dealing with larger datasets, organizations face difficulties in being able to create,
manipulate, and manage big data. Big Data is particularly a problem in business analytics
because standard tools and procedures are not designed to search and analyze massive
datasets.

www.everstudy.co.in Query: [email protected]

❖ Data Warehouse - A data warehouse is a technique for collecting and managing data from
varied sources to provide meaningful business insights. It is a blend of technologies and
components which allows the strategic use of data. Data Warehouse is electronic storage of
a large amount of information by a business which is designed for query and analysis instead
of transaction processing. It is a process of transforming data into information and making it
available to users for analysis.

❖ Data mining - It is looking for hidden, valid, and potentially useful patterns in huge data sets.
Data Mining is all about discovering unsuspected/ previously unknown relationships
amongst the data. It is a multi-disciplinary skill that uses machine learning, statistics, AI and
database technology. The insights extracted via Data mining can be used for marketing, fraud
detection, and scientific discovery, etc.

❖ Knowledge management (KM) - It is the process of creating, sharing, using and managing
the knowledge and information of an organisation. It refers to a multidisciplinary approach
to achieving organisational objectives by making the best use of knowledge. KM involves the
understanding of: Where and in what forms knowledge exists; what the organization needs
to know; how to promote a culture conducive to learning, sharing, and knowledge creation;
how to make the right knowledge available to the right people at the right time; how to best
generate or acquire new relevant knowledge; how to manage all of these factors so as to
enhance performance in light of the organization's strategic goals and short term
opportunities and threats.
❖ Technological change - Technological change is a combination of two activities invention and
innovation. Invention is the development of a new idea that has useful applications.
Innovation is a more complex term, referring to how an invention is brought into commercial
usage. The distinction between the two is very important. As an example, Henry Ford did not
invent the automobile; companies in Europe such as Daimler were producing cars well before
Ford founded his company. Henry Ford instead focused on the innovation of automobiles,
creating a method (mass production) by which cars could be manufactured and distributed
cheaply to a large number of customers.
❖ Technology Management - Since technology is such a vital force, the field of technology
management has emerged to address the particular ways in which companies should

www.everstudy.co.in Query: [email protected]

 approach the use of technology in business strategies and operations. Technology is
inherently difficult to manage because it is constantly changing, often in ways that cannot be
predicted. Technology management is the set of policies and practices that leverage
technologies to build, maintain, and enhance the competitive advantage of the firm on the
basis of proprietary knowledge and know-how.

www.everstudy.co.in Query: [email protected]