Unit 1 Business Environment and IB PYQ’s 17th Oct 2020 Shift 2

The correct answer is – Fiscal policy

Fiscal policy has lost its sheen consequent to the implementation of the GST Laws in India

Key Points

Fiscal policy, measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocations of taxes and government expenditures.

Goods and Service tax:

• GST, which was publicized as ‘one nation, one tax’ by the government, aims to provide a simplified, single tax regime in line with the tax framework applicable in several major economies across the Globe.
• This single tax has helped streamline various indirect taxes and brought in more efficiencies in the business.
• GST law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.

Additional Information

1. Monetary policy is the macroeconomic policy laid down by the central bank. It involves the management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth, and liquidity.
2. Trade policy defines standards, goals, rules, and regulations that pertain to trade relations between countries. Their aim is to boost the nation’s international trade. A country’s trade policy includes taxes imposed on imports and export, inspection regulations, and tariffs and quotas.
3. Export-Import Policy or better known as Exim Policy is a set of guidelines and instructions related to the import and export of goods. The Government of India notifies the Exim Policy for a period of five years.

The correct answer is – Control and operates production facilities in multiple countries

A multinational firm is the one that controls and operates production facilities in multiple countries.

Key Points

• A multinational corporation (MNC) or multinational enterprise (MNE) is a corporation registered in more than one country or has operations in more than one country.
• It is a large corporation which both produces and sells goods or services in various countries.
• These are large companies with operations in several countries across the world. Thus multinational corporations are an important source of foreign direct investment (FDI).

Additional Information

List of the Advantages of Multinational Corporations

1. provides an inflow of capital.
2. reduce government aid dependencies in the developing world.
3. allow countries to purchase imports.
4. provide local employment.
5. improve the local infrastructure.
6. diversify local economies.
7. create consistent consumer experiences.
8. encourage more innovation.
9. increase cultural awareness.

List of the Disadvantages of Multinational Corporations

1. creates higher environmental costs.
2. don’t always leave profits local.
3. import skilled labor.
4. create one-way raw material resource consumption.
5. encourage political corruption.
6. support “sweatshop” labor.
7. remove jobs from their home country.
8. build legal monopolies.

The correct answer is – A only

The defenders of the sustainability approach toward Corporate Social Responsibility (CSR) point out that all economic activity exists within a biosphere that supports all life.

Key Points

• Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable—to itself, its stakeholders, and the public.
• By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental.
• To engage in CSR means that, in the ordinary course of business, a company is operating in ways that enhance society and the environment, instead of contributing negatively to them.

The correct answer is – Free trade area

Grouping of countries committed to remove all barriers to the free flow of goods and services between themselves and also pursue independent external trade policies is called the Free trade area.

Key Points

Free trade area: This is the most basic form of economic cooperation. Member countries remove all barriers to trade between themselves but are free to independently determine trade policies with nonmember nations. An example is the North American Free Trade Agreement (NAFTA).

Additional Information

Customs union

• This type provides for economic cooperation as in a free-trade zone. Barriers to trade are removed between member countries. The primary difference from the free trade area is that members agree to treat trade with nonmember countries in a similar manner.1

Common market

• It is a formal agreement where a group is formed among several countries in which each member country adopts a common external tariff.
• In a common market, countries also allow free trade and free movement of labor and capital among the members of the group.
• This trade arrangement is aimed at providing improved economic benefits to all the members of the common market.

Economic union

• It 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 labor), and a common external trade policy.
• Purposes for establishing an economic union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries.

The correct answer is – Services organisations

Uppasala model for internationalisation of business operations is not valid for Services organiations.

Key Points

• The Uppsala model is one of the theories describing the internationalization process of firms. The model states that firms first choose to enter nearby markets with low market commitment.
• The Uppsala model is based on four core concepts: market commitment, market knowledge, current activities and commitment decisions.
• The 1977 model is grounded in the broader research program on international business, led by Professor Sune Carlson, which was launched following the establishment of the Institute of Business Studies at the University of Uppsala in the late 1950s.

The correct answer is – A, D, C, B and E

Corporate Social Responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.

Key Points

CSR eligibility criteria and spending as per the provisions of the Indian Companies Act 2013:

• Every company having a net worth of rupees five hundred crores or more,
• Or the turnover of rupees one thousand crores or more or
• a net profit of rupees five crores or more during any financial year.
• Two percent of average profit spend on CSR
• Penal action for non-compliance

shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

Therefore, option 3 is the correct answer.

The correct answer is – a-iii, b-iv, c-i, d-ii

The product life cycle is the amount of time a product goes from being introduced into the market until it’s taken off the shelves. There are four stages in a product’s life cycle—introduction, growth, maturity, and decline.

Key Points

Stage 1 Introduction

• In this stage, a new product is launched in a target market where the intended consumers are not well aware of its presence.
• Customers who acknowledge the presence of the product may be willing to pay a higher price in the greed to acquire high-quality goods or services. With this consistent change in manufacturing methods, production completely relies on skilled laborers.
• Competition at the international level is absent during the introduction stage of the international product lifecycle. Competition comes into the picture during the growth stage when developed markets start copying the product and sell it in the domestic market.
• These competitors may also transform from being importers to exporters to the same country that once introduced the product.

Stage 2 Growth

• An effectively marketed product meets the requirements of its target market. The exporter of the product conducts market surveys, analyze and identify the market size and composition. At this stage, the competition is still low.
• Sales volume grows rapidly in the growth stage. This stage of the product lifecycle is marked by fluctuating increases in prices, high profits, and promotion of the product on a huge scale.

Stage 3 Maturity

• In this level of the product lifecycle, the level of product demand and sales volumes increase slowly.
• Duplicate products are reported in foreign markets marking a decline in export sales.
• In order to maintain market share and accompany sales, the original exporter reduces prices.
• There is a decrease in profit margins, but the business remains tempting as sales volumes soar high.

Stage 4 Decline

• This is the final stage of the product lifecycle. In this stage sales volumes decrease and many such products are removed or their usage is discontinued.
• The economies of other countries that have developed similar and better products than the original one export their products to the original exporter’s home market.
• This has a negative impact on the sales and price structure of the original product. The original exporter can play a safe game by selling the remaining products at discontinued items’ prices.

Therefore, the correct match is:

Hence Option1 is correct.

The correct answer is – A, B and C only

For businesses across verticals, COVID-19 has led to an unprecedented downfall in revenues and operations with extended lockdowns in several countries.

• Some industries such as travel and aviation, retail, and hospitality have taken the worst hit due to lockdowns, travel restrictions, and a significant slump in consumer spending.
• However, even amidst this economic crisis, some of the niche sectors have not only managed to stay afloat but also witness trend-defying growth.

Key Points

1. Online education, gaming, and entertainment

• With schools and colleges shut, ed-tech has been the savior for teachers, students, and parents as well. Innovative and interactive teaching methods such as live classes, on-the-spot doubt clearance, and practice papers are offering a fulfilling learning experience for students.
• The pandemic has offered a boost to the gaming industry. With innumerable options to choose from and several new trends such as the rise of AR and VR, gaming is now all about the experience, and players in the industry are determined to offer a highly immersive and captivating experience.

2. E-Commerce and E-Payment infrastructure:

• E-commerce sites use electronic payment, where electronic payment refers to paperless monetary transactions.
• Electronic payment has revolutionized business processing by reducing paperwork, transaction costs, and labor cost.
• Being user-friendly and less time-consuming than manual processing, it helps business organizations to expand their market reach/expansion.

3. Retailing and pharmaceuticals

• From infra-red thermometers to lifesaving ventilators, med-tech has aided the medicine industry at every step.
• Telemedicine is another area of med-tech that has emerged as a savior of patients, enabling them to consult with doctors virtually.

Hence Option3 is the correct answer.

The correct answer is – a-iv, b-iii, c-i, d-ii

Below are the explanation of the Theoretical Foundations of Global Trade:

1. The concept of absolute advantage was developed by Adam Smith in his book “Wealth of Nations” to show how countries can gain from trade by specializing in producing and exporting the goods that they can produce more efficiently than other countries.
2. There is a famous theory on factor endowment that is associated with international trade by Hecksher-Ohlin. It comments of the relationship between international and interregional production costs and the supply of production factors.

3. Michael Porter’s Diamond Model (also known as the Theory of National Competitive Advantage of Industries) is a diamond-shaped framework that focuses on explaining why certain industries within a particular nation are competitive internationally, whereas others might not.
4. Comparative advantage:

• It is an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners.
• A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.
• The law of comparative advantage is popularly attributed to English political economist David Ricardo and his book “On the Principles of Political Economy and Taxation” written in 1817, although it is likely that Ricardo’s mentor, James Mill, originated the analysis.

Therefore, the correct match is:

Hence, Option1 is correct.

The correct answer is – Both A and R are correct and R is the right explanation of A

Key Points

TRIMs and TRIPs:

• The TRIMs (Trade-Related Investment Measures) recognizes that certain investment measures can restrict trade.
• The TRIMs are the rules which enable international firms to conduct business more easily in foreign markets, thereby giving them liberalization of international investments.
• TRIMs and TRIPs provisions facilitate and promote FDI.
• The TRIPs (Trade-Related Aspects of Intellectual Property Rights) is a minimum standard agreement that allows more extensive protection of intellectual property to the member nations of WTO.
• In other words, TRIPs provide monopoly power to owners of intellectual property rights.
• The agreement on TRIMs calls for introducing national treatment of foreign investment and removal of quantitative restrictions.
• Collectively, TRIMs and TRIPs provisions remove restrictions and address capital flow sensitivities.

Therefore, both A and R are correct and R is the right explanation of A.

Important Points

TRIMs and TRIPs came into effect on January 1, 1995.