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AN INTRODUCTION TO DIFFERENTIATED LEARNING TOOLS
Participants in flexible learning programs have limitations on the nature of the
time they can spend on learning. Typically they are employed fully or partially,
pursuing higher studies or have other social and familial responsibilities.
Availability of time is a great constraint to these students.
To aidthe participants,we have developedfour unique learningtools as below:
 Bullet Notes : Helps in introducing the important concepts in each unit
of curriculum, equip the
student during preparation of
examinations and
 Case Studies : Illustrate the concepts through real life experiences
 Workbook : Helps absorption of learning through questions based on reallife nuggets
 PEP Notes :Sharing notes of practices and experiences in the Industry will help the student to
rightly perceive and get inspired to learn concepts at the cutting edge
application level.placementinterviews
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kits trigger experiential learning
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 Career success increasingly depends on continuous learning
and success
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
How is it useful?
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PEP NOTES
BUSINESS ENVIRONMENT
AND LAW 

© The ICFAI Foundationfor Higher Education (IFHE),
Hyderabad,May, 2015.All rights reserved
No part of this publication may be reproduced, stored in a retrieval system, used in a
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Ref. No. BEL-PN-IFHE – 052015
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ii

INTRODUCTION
Participants in ICFAI University Programs are eager to apply theory to practice. They realize that
application orientation can enhance their learning and subsequent usage of management precepts and
practices. Picking out the principle behind real world events is critical to this learning. Towards this end the
institution has introduced the PEP Notes.
The PEP Notes (Practice, Experience and Perspective Notes) is a collection of annotative notes on practices,
experiences and perspectives from industry as appearing in articles from reputed sources s uch as Harvard
Business Review, Economist, McKinsey Quarterly, Accenture, Bain Consulting etc.
Practice : Organizations follow practices based on their past learning
Experience: Based on changing context, they face fresh experiences
Perspective: Organization learns from the experience and the practice to gain fresh perspective
These notes connect the three dimensions of the real world to key concepts in the subject. Each note is brief
– about one to two pages and is adapted fromthe article refe rred to in the note. The concept underlying the
note is highlighted in a box. The concept is also connected to the article through an introductory abstract in a
box at the beginning.
The learning outcomes expected are:
1. Real world Application based approach significantly enhances absorption and retention.
2. Exposure to the current trends,practices with illustrations connect back to theory.
3. Thoughts from leading sources.
The PEP Notes may be used for Assessment.
iii

CONTENTS
Block 1: The Social and Political Environment of Business
1. Making the Difference in the Business Environment – A Global Perspective 6
2. Consumer Socialization – A Key Driver of Business Dec isions 7
3. Global Business Policies and Aging Population – A Case o f Demographic Trends 9
4. Changing Culture and the Effect on Consumer Buying Decisions –
A Case of China’s Health Market 10
5. Culture of Population and Its Effect on Investment Decisions – A Case of Internet Economy 11
6. Stable Government Creates Business Opportunities – A Case of Turkey 14
Block 2: The Economic and Technological Environment of Business
7. Economy and Geography of a Nation – A Case of India’s Ec onomic Environment 16
8. Consumption Pattern of Households and the Business Decisions – A Case of Brazil 18
9. Financial Regulations – A Challenge or an Opportunity for a Business –
A Case of European Financial Markets 20
10. Global Banking Business in the Post Crisis Era – A Changed Approach 23
11. A Route for Better Export Environment and Role of Export Promotion Councils 25
12. Emerging Trends in International Trade – A Case of ‘Globa l Competence’ 27
13. Technological Development acts like a Catalyst in Advanced Manufacturing 29
14. Circular Economy and Technology Hazards – A Case of Elec tronic Waste 31
Block 3: The Legal and Ethical Environment of Business
15. Deregulated Markets vs.Regulated Markets – A Case of Labor Market 33
16. What is Considered as a Favourable Tax Environment? - A Case of Canada’s Tax Regime 34
17. Economic Frauds and Crimes – A Threat to the Prudent Fin ancial Sector 36
Block 4: Business Contracts
18. Doing Business in a Mess – A Case of Political Risk 39
Block 5: Law relating to Corporate Business Entities
19. The Contribution of Customer Value to Improve Value Chain of a Business -
A Case of Infrastructure Sector 42
20. Fraudulent Behavior of Companies and Required Code of Conduct 44
Block 6: Tax Laws
21. Taxation System – Can be a Tool for Better Business En vironment - A Case of GST 47
iv

Block 1:
The Social and Political Environment of Business
1. Making the Difference in the Business Environment – A Global Perspective
2. Consumer Socialization – A Key Driver ofBusiness Dec isions
3. Global Business Policies and Aging Population – A Case ofDemographic
Trends
4. Changing Culture and the Effect on Consumer Buying Decisions – A Case of
China’s Health Market
5. Culture ofPopulation and Its Effect on Investment Decisions – A Case of
Internet Economy
6. Stable Government Creates Business Opportunities – A Case ofTurkey
5

PEP Notes: Business Environment and Law
1. Making the Difference in the Business Environment – A G
lobal Perspective
Outcomes of a given strategy of any business are largely influenced by the business environment.
Business entity runs on the notion of better value creation and the key dynamic factor that determines the
size of value is the “Demand”. Companies’ demand will be m anaged with the help of cautious and
deliberate planning / strategy. Strategy in turn is influenced by the business environment.
Shift in the locus of power from North to South: A closely monitored supply chain and expansion plans
will help companies to identify the shift from North to South and to make them competitive.
Different set of consumer preferred engagements: Consumers are aware of many engagements. And
increased consumer awareness puts pressures on price and organization affecting profitability. Suitable
strategies are required to manage this.
New paradigms, changing business models and continuous innovations:Designing the product should
be supported by production and transparent strategies.Transparent strategies will lead to innovations
and sustainability.
Redefinition of the social contract:Both consumers and producers are dependent on
Government
A.T.Kearneyaleadingconsultancyhasidentified5keydriversofbusinessatgloballevel.
sector. Consumers’ have demands for their rights, safety and security fromgovernment. Businesses pay
different types of taxes to meet the public expenditure and debt and other commitments of governance.
Some sectors like agriculture, energy, defense, etc. depend on government’s support even in developing
Companies have to assess the implications of government’s policies for their investments in government
supported sectors and othersectors.Business environmental factors influence the investments and it
necessitates companies to have strategically targeted investments for effective outcomes .
nations.
The changing global trends in talent pool: Changing demographic profiles in different parts of the world and
education policies across the globe lead to reversal of talent composition of the population. Capital crunch
nations faced reverse brain drain due to recession and lesser opportunities. Companies or countries which
can innovate and face the technological competition will prosper. A close review of recruitment and
compensation systems aligned with business models with cross-border synergies will help companies to
react at the earliest to the changing business environment. Companies should also pay attention to better HR
practices and employees should be recruited who are ready to align their goals with company’s culture and
values along with the company’s economic and financial str ength.
The business planning should be in par with the business environment, to be beneficiary both in terms of
organization as such and in global perspective. The reason being the world reach is now becoming
simpler and easier in terms of communication, transportation and conveyance.
Discussion Questions:
1. Define Business environment? What is external environment?
Hints: Types of business environment; external environmental factors like technology,government, etc.
2. What is the influence of external environmental factors on business strategies?
Hints: Five themes of global business environment; business strategies
Source: Global Business Policy Council (2012): Five themes shaping the global business environment, AT Kearney,
February 2012 http://www.atkearney.in
Unit No. Topic Course
1 External Environment Business Environment and Law
6

2. Consumer Socialization– A Key Driver of Business Decisions
Consumer Socialization isthe process of development of kids and/or young people
who transform by developing consumer related attitudes,skills and knowledge.
Young consumers of today are kids and this segment of a market has its influence on the buying decision of
a family. With this typical process in a society necessitates business leaders to think and move strategically
in order to suit the changing social environment of the business. In the era of globalization and millennial
customer regime (in the USA market alone this class accounts for about eighty millions of the market) this
constitutes a very important segment of the market because of their influence and command on the buyers’
decisions.
In USA, as per available research estimates the size of this spending due to or by this segment will be two
hundred billion dollars by 2017 and will grow over ten trillion dollars. Companies have to understand the
behavior of this segment in terms of customer friendly sales, customer service and customer experience
approach.
In another study by BCG, US millennial customers segmented into six different groups:
Hip-ennial (29%) – Socially, ethically and morally respons ible consumers and these people aspire to
make the world a betterplace to live in.
Millennial moms (22%) – well to do women who are more hea lth conscious and internet savvy also
like to travel a lot.
Anti- millennials (16%) – This segment is more towards their business and family and less prone
towards societal issues and innovations mostly comprises of women and Spanish culture. (This
sentence is very clumsy. What does less prone to societal issues mean? Are anti-millenials women, or
Spanish women?)
Gadget Guru (13%) – More tech savvy and single men constitutes a greater part of this segment that
belongs to above average income groups.These people prefer to own various gadgets.
Clean and Green Millennials (10%): This segment focuses more on eco-friendly and socially
responsible activities as consumers and citizens. Generates more socially responsible content
developers and belongs mostly to the student community and are more likely to be Spanish
Americans.
Old-School Millennial (10%) – Less socialized through online networks and prefers to maintain
relation in person and very cautious consumers. These people spend very less time on online
activities.
A study by Accenture (2013) on who millennial shoppers are and what they really want, mentioned that
‘Millennials are people who born after 1980 till 2000’.
This generation belongs to the 20th century and is first generation to use internet as an important means of
lifestyle. On the contrary, their predecessors like the Baby Boomers who were born between 1946 and
1964 and Generation X who were born between 1965 to 1979.
Shopper’s preferences:
About 55% of the respondents,ofall the three generations,wanted benefits from shopping at the
cheapest.
41 % shop in showrooms and customers want to search for an item easily, even while in a store.
36% of those surveyed prefer online buying when the offline stores are not in the operating mode.
89% of the surveyed respondentsvoted forlook for information pertaining to availability of products
and said that it would affect their shopping preferences and stores which they would visit frequently.
Contd…
7

Contd…
Millennials transformed the style of shopping even of their parents and made them to learn digital
route of transactions
Rapid change in the retailing due to changing behavior and culture of the society
A drastic change is required in the channel management, delivery and logistics management to meet the seamlessly changing
fashions and needs of millennial customers.HowtheMillennialsaredifferentfromothergenerations-mythsandreality:
http://www.accenture.com/us-en/outlook/Pages/outlook-journal-2013-who-are-millennial-shoppers-what-do-they-
really-want-retail.aspx
Sources: http://www.sq1websolutions.com/think-you-know-your-market-7-key-findings-from-a-new-study-on-millennials
http://www.sq1websolutions.com/think-you-know-your-market-7-key-findings-from-a-new-study-on-millennials
Five typical characteristics ofmillennial generation customers:
1. Expects user friendly workable and simplified technologies – Millennial customers belong to that
generation where everything they do in their routine is connected through tech devices and internet.
Mobile phones and smart phones are their closest devices which make their life easy and swift. Smart
phones are no longer an instrument of communication but more than that, this generation uses these
phones for research, feedback before they shop and take buying decisions and uses it as a companion
during lonely times.
2. Even while deciding to buy and consume various products and services this generation involves in
socialization:As perBCG survey results this generation involves in a lot of socialization both online and off
line. These activities range fromshoppingto touringalong with diversified socialgroups.Feedback provided
in various online networking sites by the users of a product or a service will have a greater impact on the
buying decisionsofconsumers ofthis generation. Women belong to this generation shop a lot with friends
and family members as compared to women who belongs to non-millennial generations. Another important
observationis that these millennials shop more with theirparents and this group is observed to be relatively
less conflicting with the family unlike previous generations.This will have great impact on buyer’s decision
as this lot will influence the buying decisions.
3. Millennial customers maintain good relation with their brands: This set of consumers’ exhibit a lot of
coordination and cooperation among other sections of the society and are friendlier compared to
generation X. They involve in the co-creation process of the product with better relations.
4. More adventurous: These customers are more adventurous and always look for newness and
excitement in their lives. Even during the shopping they try to explore new things instead of routine
purchases let it be retailing, dining or tour and travel.
5. Highly value driven generation and pay attention to values of companies whom they follow.
According to a study by Winogran and Hais (co-authors of Millennial Makeover: MySpace, YouTube,
and the Future of American Politics (Rutgers University Press: 2008) this generation is more worried
about civic values. These generation customers are mostly trained and guided by their parents in a well-
rounded way. About fifty percent of millennials prefer to associate with socially responsible companies
who believe in the values of these customers.
In this Hi-Tech World, Consumers/Customers need their service provider to provide services or
products within a shorter time with quality. In addition to this, their requirements are also facing a rapid
change from wealth consciousness to health consciousness.
1. What factorscomprisedin SocialEnvironment? What is the role ofthese factors in business decisions?
Hints: Social groups,Family, Social class,family life cycle ; Complete marketing mix and consumer.
2. Who are millennial customers? What is their role in business decision?
Hints: Millennials are new generation Y customers; highly technical savvy; Scope for online business
and marketing.
Source: Micah Solomon (2014): 2015 Is the Year of the Millennial Customer: 5 Key Traits These 80 Million Consumers
Share, Forbes, ENTREPRENEURS, 12/29/2014 http://www.forbes.com
Unit / Section Topic Course Name
2 Social environment Business Environment and Law
8

3. Global Business Policies and Aging Population – A Case
of Demographic Trends
Demographic and social environment of a market is as dynamic as other external environmental
factors of a business. “Recognizing and adapting to global aging trends is ess ential, not just for
the broader economy, but for the cohesion and well-being of our society” - Paul Laudicina
Business strategies are actions taken now for future prospects.It is inevitable for businesses to understand
the prospective consumer and their needs and preferences along with current trends. This necessitates
business to think strategically from a future consumer’s point of view and this will happen when “Business”
understands the demographic trends and resultant societal and economic changes.
An article in the website of a leading consultancy firm on demographic trends in the private sector business
entities during September 2014 throws light on these perspectives.
A study was conducted by UN Population Division on global population data and its projections. The time
period considered was 1980 to 2050. According to the study six percent of world’s population was equal to
or above 65 years in 1980, this had increased to 7.7% by 2010 and projected to reach 15.6% by the year
2050.
According to Moody’s report (August 2014) this ageing factor results in decreasing labor force and
decreasing savings and investments. The report projects that 23 nations of the globe will be in super age by
the end of 2024, few among these nations are Japan, few European nations, Canada. Few other emerging
nations like China, Brazil South Korea, also face the aging problem by 2050. The ageing factor will have an
influence on business.
People as consumers and economic agents’ will create different consumption requirements suitable or
required to their age. The projection goes to about 25% of the world population to this super aged group by
2050. This group of people spends more of their money on food, medicines, healthcare products, etc, than
the young consumers. After few years this segment will become the main streamconsumer segment. Buying
decisions are guided by insecurity among super aged group consumers their price sensitivity and job
insecurity.
More market research requires in the areas of price sensitivity, brand loyalty, customization keeping age
related and unaddressed needs,etc.
Prospective HR policies and initiatives to meet the future requirements due to potential job retirements.
Postponed retirement decisions of employees due to life style requirements and demand for better
benefit programs for employees.
Demographic dividend may not necessarily associate with super aged labor force participation in economic
growth.Thisstudyprovidesaroute map to planning for prospective business strategies:
Non-stoppable global aging will have a deep impact on socio-political and economical areas from
various corners of the globe. Businesses which can predict the changing trends and positively adapt
suitable strategies will have a better chance to be global leaders.
1. What is Demography? What factorscontribute to demographic changes?
Hints: Definition,Type ofdemographic changes – income,age,et c.
2. Demographic trends vs.business strategies.Discuss.
Hints: Trends in demography, market demand; Marketing and HR Strategies
Source: Erik R. Peterson and Jennifer Crawford (2014): Global Business Policy Council - Demographic Trends and the
Private Sector: Preparing for an Aging World, bcg.perspectives, September 2014. www.atkearney.com
Unit / Section Topic Course
2 Demographic Trends Business Environment and Law
9

4. Changing Culture and the Effect on Consumer Buying Decisions
– A Case of China’s Health Market
Culture is more about the belief system and associated values. Changing culture will
have a strong bearing on the business decisions especially in the emerging markets.
China being the highest populated nation and health being a less elastic product, health service providers got
a wider chance for growth in this market. The healthcare market in China is going to be seventy billion
dollars by the end of 2020 and it necessitates businesses to focus on the changing culture and believes in the
market.
As compared to other developed and emerging economies of Japan, Europe, USA, India, Brazil, etc,
consumers of China are highly health conscious. For about 73% of Chinese consumers are ready to pay
premium prices for the products they believe are healthy products.
The authors of the current paper tried to focus upon some of the key findings of the study that will enable
companies to develop strategies suitable in this expanding sector.
Selection of market
segments Brand Building
Informed and educated customers:
An aggressive management of retail outlets
Online sales
Analyze and understand the size of the market or place in which outlet is situated and its role on consumer
behavior:Theidentifiedareasare
Chinese consumers with their changing thinking process and lifestyle are looking for brands with
trustworthy information and are ready to pay premium prices for wellness and health products.
Companies can now grab the opportunity with this changing cultural environment by customization,
branding and proper segmentation.
1. What is culture? How does thinking process ofa consumer or a society influence a business?
Hints: Definition, thinking process of a consumer, connectivity between thinking process and culture,
buying decisions.
2. How should a business has to react to the changing culture of society?
Hints: business strategies,segmentation,customization, branding, etc.
Source: ChunWu, MagenXia, Youchi Kuo,andCarol Liao(2014): Capturinga Share of China’s Consumer HealthMarket, Insight to
Action, bcg.perspectives, FEBRUARY 25, 2014 www.bcgperspectives.com
3 Culture Change Business Environment and Law
10

5. Culture of Population and Its Effect on Investment Decisions
– A Case of Internet Economy
Cultural environment of any business comprises of beliefs, values and ideas in a society.This
also includessub cultures such as languages and education etc.
Internet as a tool is playing a vital and immense role in the routine of millions of people. As per the latest
available estimates (2014), about three billions of consumers and various businesses have access to internet
and these people shop and transact. In addition to this, people socialize a lot through digital modes and these
benefits of digital economy created a vast scope for mobile electronic devices. Internet economy in G 20
countries anticipated a rise in GDP from 2.3 trillion dollars in 2010 to 4 trillion dollars by 2016, an average
growth rate of 10 percent. In emerging markets this growth is anticipated to be between 15% and 25% per
year. This rapid growth is leading to drastic economic, political and social changes in the economy.
As per the report published ( March 2015) by World Economic Forum in association with BCG titled
‘ Expanding Participation, Boosting Growth: The Infrastructure Needs of the Digital Economy’ , identified a
few challenges to growing internet economy majorly focusing on socio-economic aspects of the business
especially in emerging economies, which has roughly 95 percent of internet non users as per 2014 estimates.
Socialization and culture form a very important driver in creating a favorable environment for internet
economy and to transform markets into internet friendly ones. Issues like lack of education, use of
different languages and urban rural classification of society have their influence on the spread of internet
activities and ITES to gear up the economy. Services like E-seva an initiation by governments will spread
the usage and necessitates a cultural shift in the economy. Also availability of cheaper mobile usage by
better infrastructure and investments fosters the growth of internet economy.
Multifaceted Challenges:
Major issues for emerging economies’ societies for an internet economy to get the boost are illiteracy and
Issues ofExpanding net coverage: Major reasons for hindering expansion of network coverage are
majorly non-technical in nature such as density of population,purchasing power of consumers,
geographical constraints,and connectivity. These factors add to costs and hinder revenues.
Building Network Capacity: Due to myopic approach of government policies pertaining to spectrum
licenses provision of affordable spectrumfor increasing users of mobile devices.
Encouraging Broader Internet Usage: In emerging markets bringing people in the net itself is a difficult
task. In developed countries the usage is for about 30 percent to 50 percent gap between people who got
the access and people who are using internet. Where as in emerging nations this difference is between
55 and 75 percent, in certain cases the higher side to 90 percent. The reasons for this gap as described by
BCG are:
 Unrealized need for the internet due to language issues

 Skill set of people of the society is very limited
 Lack of affordabilitydigitalilliteracytheseissuesin turn limit the expansion of network coverage and capacity.
Government can address the language issues in using online by engaging people through digital medium of
transactions.
As per a study by BCG Centre for Consumer and Customer Insight on ‘Limits to Consumer adoption of the
Low Literacy (general education,English and internet)
Cultural barriers and gendergaps in countries of Middle East and South Africa.
In most of the Latin American countries the cost of internet is very high and it is limiting the use
accessible facility.
Due to leakages of the data and pricing based on Megabyte system making the internet price structure very
complex.internet’listedoutvarious challenges in India and various other countries:
11

Maximum works of digital sector’s content of the globe is in English and only 20% to 25% of the world
population is comfortable with English language.Also there are issues like monetization, understanding
of local needs,etc.
Limited awareness among people of India about the value of the internet and there by very less attention
is paid towards acquiring computational internet skills.
Middle East and South African countries charge very high taxes almost 20% more than the global taxes
on electronic devices.
Anothertechnical problem that hinders growth of internet users is the compatibility issues of IOS with
local or regional languages.
E-Seva counters in Andhra Pradesh are a channel through which government manages its transactions like
utility bill payments with public in local languages.
Source: BCG Analysis
Shifting infrastructure demand: Due to changing societies’ method of merchandize by both consumers
and producers and increasing usage of Internet, led to an increasing demand condition for internet
facilities. With the vast and widening scope of economic growth in the forthcoming years coupled with
increasing rate of new apps uploads and falling latency pose challenges to mobile network. All this
necessitates a much wider spectrumservice and standardization of practices according to the protocols.
Market is expecting shifts in demand for internet facilities due to new demand drivers. The following
table gives a brief list of drivers of internet infrastructure demand.
Drivers of New Internet Demand Types of Demand (Consumer, business and
Internet of Things [IoT])
Rising user numbers Capacity
Changes in the nature of usage Latency
Growing size and variety of new apps and devices Increased uploads
Efficient networks Safety and Security and available IoTs
Protocols and standards
Changing need for spectrums
Source: BCG Analysis – CISCO, Goldman Sachs
Developing Information and Communication Technology (ICT) for emerging Smart Cities: In the coming
ten to fifteen years about one billion people will become a part of smart cities in 80 percent of developing
nations. Well-being of society in these markets typically depends on applications as that of analytic based
and predictive tools. Many of these apps and services will cater to the needs of urban population and this
FacilitatingDIGITAL DataUsage: The increasedomnipresence oftechnologyin society’s day today life requires a focus shift to
value creationtoconsumers andfirms andthis will be possibly reducedby data transportationand accession with fool
proofmechanismin place.necessitatesacomprehensiveapproachtodatausageandinvestmentrequirements to avoid.
Indian government departments do offer services online like the Ministry of Finance and the Ministry of
Personnel, Public Grievances and Pensions to file taxes, registration filings, passport applications, driving
licenses etc.
The e-filing of taxes is made possible by simple process and less time involvement. As per the survey,
approximately 40% of tax filings happened through online e-seva centers, and 55% of the sample of
SMEs opined that they used e-seva for tax filing. Due to lack of internet facilities and less usage among
the folks due to lack of awareness and low literacy levels specially among poor and rural people
obstructing widespread adoption other e-seva services of government. One more reason is poor
infrastructure facilities for Internet services that obstruct the development and implied uses of India’s
online e-seva and e-government facilities.
12

Long term Solutions:
In order to attain a sustainable development it is important to have a proper assistance for public sector for
A comprehensive country level Digital agenda: Countries should develop an agenda for digitization for
the entire country in collaboration with industry leaders and otherprivate sectorcompanies. In this
agenda governments need to express their long-term plans for online government services and
broadband width. Along with this governments are expected to spell out the budget allocations,
infrastructure plans and execution systems for this transformation.
Promoting Investments:There is a huge requirement for digital sector investments and it is expected to
come majorly form private sectorby experimentations, low cost techniques,and advancement of the
Internet of Things (IoT).
Increasing Mobile Spectrum: By increasing the mobile spectrumit enables the mobile usage more
affordable and further paves way for more investments this further improves the usage of mobile
devices.
Advancing Smart Cities by collaboration and coordination with citizens for better idea generation can
ensure the smart city apps is measurable.
Improving Universal Usage: With more policies and standardization methods universal usage of internet can be less risky and
safer.creatingthecultureinasociety to use the internet.
Status of society, literacy levels, internet facilities, penetration and the level of infrastructure neces sitates a
big push from public sector and responsible private sector by investing funds in digitization enables internet
economy to grow and in turn contribute for improved GDP.
IoT means a variety of devices like electric clams in coastal waters, heart monitoring implants,
automobiles with built-in sensors, biochip transponders on farm animals, or field operation devices to
help fire-fighters in search and rescue operations. All these devices are useful to collect data and data
management with the help of various technologies and then free flow the data among various devices,
such as smart thermostat systems and washer/dryers that utilize Wi-Fi for remote monitoring.
1. What is digitization? How does social environment effect the process?
Hints: making services online; data management; Social environment
2. How to improve conditions for sustainable growth of internet economy?
Hints: internet penetration, digital infrastructure; Cultural shift; social networking
Sources: i. Chandra Gnanasambandam Anu Madgavkar Noshir Kaka James Manyika Michael Chui Jacques Bughin
and Malcolm Gomes (2012): Technology, Media, and Telecom Practice: Online and upcoming: The
Internet’s impact on India, McKinsey, December 2012.
ii. Wolfgang Bock, Navneet Vasishth, Maikel Wilms, and Manaw Mohan (2015): The Infrastructure Needs of
the Digital Economy, bcg.perspectives, MARCH 20, 2015 www.bcgperspectives.com
Unit/Section Topic Course Name
3 Elements of culture Business Environment and Law
13

6. Stable Government Creates Business Opportunities – A C ase
of Turkey
Government as a facilitator helps private businesses to grow with suitable policies.
Till the decade ending 2001, Turkey experienced political and economic turmoil due to various coalition
governments and negative economic performance. Between 2001 and 2013, it experienced improved
economic conditions majorly due to the stable political situation and majority government, economy
experienced about five percent growth and in this process Turkey raised itself as a local power hub.
Comparatively bettergeo-political position as compared to other countries being located in the midst of
Asia and Europe. It is also a link between oil supplying countries and demanding countries.
Strength of Turkey is its macroeconomic position with relatively less public-sector debt and deficit
along with a sound financial system.
Stable political environment because of a clean mandate.
Turkey is a young nation in Europe with 25% of youth below 15 years of age.
Second largest working age population in EU with 38 million work force as of 2012.
High labour productivity within EU makes Turkey an attractive destination for MNCs.
Trade in goods such as automotive, agriculture, textile and apparels made Turkey’s exports grow by 14
per cent during 2002 to 2013.
Government facilitated foreign trade through export promotion and import substitution.
Low penetration of private pension (15% of GDP) encouraged Government to make them attractive to
drive down current account deficit.
Measures required for improving Turkey’s growth further:
To make export earnings more remunerative, R&D spend should increase.
Women should be encouraged to join the workforce (currently it is just thirty percent) as it is very low
by the standards ofthe developed world.
Big ticket investments in infrastructurefacilities like railways, ports, etcto exploit the geopolitical
advantage.Reasonsbehind the successful revival of Turkey:
Turkey’s emergence as one of powerful economies of EU region is a classic demonstration of suitable
political and economic environment. With a majority government and appropriate macro-economic
status, Turkey transformed into a regional hub and destination for private foreign investments.
1. Define political environment. What you mean by a suitable political environment?
Hints: definition of political environment; stable and majority government, policy implementation.
2. What factors contributed to current economic development and what else is required for future growth?
Hints: infrastructure development, women work force, etc.
Sources: i. Burak Tansan and Asli Kurbay (2014): Turkey’s emergence as regional powerhouse, Bcg.perspectives,
October 2014.
ii. https://www.bcgperspectives.com/content/commentary/globalization_growth_tansan_kurbay_turkey_
emergence_regional_powerhouse/
4 Types of government Business Environment and Law
14

Block 2:
The Economic and Technological Environment of
Business
7. Economy and Geography ofa Nation – A Case ofIndia’s E conomic
Environment
8. Consumption Pattern ofHouseholds and the Business Decisions – A Case of
Brazil
9. Financial Regulations – A Challenge or an Opportunity f or a Business – A
Case ofEuropean Financial Market
10. Global Banking Business in the Post Crisis Era – A Changed Approach
11. A Route for Better Export Environment and Role ofExport Promotion
Councils
12. Emerging Trends in International Trade – A Case of‘ Global Competence’
13. Technological Development acts like a Catalyst in Advanced Manufacturing
14. Circular Economy and Technology Hazards – A Case ofElec tronic Waste
15

7. Economyand Geographyof a Nation – A Case ofIndia’s Economic
Environment
Economic environment of an economy comprises of its economic system, status of growth and development,
consumption pattern, trends in international trade, sectoral composition of GDP, other economic indicators which
enables companies to understand the state of economy in which they want to or are operating.
India’s average growth performance in the last decade till 2012 appears to be good and resembles a
promising business environment, especially economic environment. But after 2012 the trend started showing
a different picture especially in the urban markets. This necessitates a microscopic evaluation of strategies
and makes suitable changes; accordingly the focus needs to be on to rural economies for maximization of
economic benefits.
McKinsey’s report on ‘India’s economic geography in 2025:stat es, clusters and cities’ has provided
futuristic insights into formulation of a business strategy to understand the trends in macroeconomic
variables at various geographical levels starting from national to cities covered the period between 2012 and
2025.
The observations ofthe Report covered geographical areas States metropolitan hubs & districts and cities.
Different states have different historical changes in economic and demographic environments.
Based on the economic performance, the states of India were evaluated on certain parameters starting
from very high, high, and average to low economic performance to understand the consumption and
buying capacity of households and potentialmarket demand for various goods and services offered by
these corporates.
For about 52% of India’s potential growth comes from 8 states and within cities category - 4 cities of
highest economic performance contributes for 57% of consumption expenditure between 2012 and
2025.
Major reason for this change in growth pattern is urbanization.
Fewoftheobservationsareprovidedherewith.
Metropolitan hubs are areas of better infrastructure,
For about 75% of the households contribute to consumption from high income groups of these areas from an incremental GDP of
77%.MetropolitanHubsordistricts
Otherthan metropolitan districtsareasand otherareas in the totalurban area,100cities are segregatedand
found that by 2025these cities will contribute to 54% ofIndia’s incrementalGDP and 50% oftotalnational
income by the end ofthe period understudy.
Cities
A road map with such a microscopic approach by understanding the geographical development of an
economy enables the companies to formulate area specific strategies according to future development and
potential spending capacity of the households.
Economic environment of an economy, like India, is much diversified. Majority of people who have got
the spending capacity are concentrated in cities and metros and whereas majority of population is located
in rural areas and semi urban towns. In such an environment, the companies have to develop customized
strategies suitable to diversified groups having different growth patterns, income levels and spending
habits.
DiscussionQuestions:
1. Define economic environment. What factors determine the economic environment of a country.
Hints: – Define economic environment
– Factors – economic system, urbanization, consumption pattern, income, GDP, poverty,
population distribution, etc.
16

2. How does geographical distribution of population influence the economic environment of a country?
How does it effect business?
Hints: Geographical distribution – states,union territories, etc ; different growth patterns and incomes
of households ; GDP ; urbanization and infrastructure.
Sources: i. McKinsey (2014): Understanding India’s economic geography, Insight, Mckinsey, October 2014.
ii. http://www.mckinsey.com
5 Economic Indicators Business Environment and Law
17

8. Consumption Patternof Households and the Business Decisions
– A Case of Brazil
Consumption expenditure and its growth pattern in an economy is one of the prime
indicatorsof economy’s growth and gives direction to business decisions.
Brazil’s emergence as one of the growing nations of th e globe with economic stability empowered it to be a
strong and potential market for many businesses. It is estimated that by 2020, Brazil’s consumer market size
will be for about 1.6 trillion dollars. BCG’s ‘Centre for Con sumer and Customer Insight’ has designed a
method to construct a profile of Brazil’s consumer market. This model took the data of monthly income of
various sections of Brazilian population across 5 major cities and projected the consumption forecas t of
more than 200 types of goods and services. Analysis of this data facilitates the companies to focus suitable
strategies on their product portfolio and help themto understand which one is in growth segment and which
one is to be slowed down.
Households of Brazil shifted from poverty to middle income and high income categories between 2000
and 2010.
By 2020 this high income segment accounts for 37% of Brazil’s households; 85% of consumption
expenditure comes from this group in this decade.
To meet the increasing demand, these household marketers have to increase their presence in many
cities - about 400 cities from 340 odd cities.
Other than food and home appliances, in the coming years, there will have significant growth in sectors
like financial services, personalservices, private education,etc, along with few othersectors such as
apparels, telecommunications, and entertainment.
Falling deficit budgets and inflation have helped economic progress and improved consumption expenditures and
this further led to improved privatesector investments and consumer credit facilities.
Findingsandinsights
During the period from 2000 to 2010, Brazil has shown a remarkable growth in terms of its consumption.
Composition of Brazil’s consumers has dramatically changed, about 23% of subsistence class consumers
reduced by 12%, whereas higher income class reached a stage where 1/3rd of Brazil’s households (around
29%) spending is elite spending. BCG surveyed various household segments in five cities of Brazil and
validated the data about their consumption patterns and projected consumption patterns, and product
category wise preferences for 200 items throughout the period till 2020 for about 5500 municipalities in
Brazil with the help of consumption curves.
Various challenges what companies may face during the period, most importantly changing consumer
behavior across various consumer segments, consumption pattern across 200 product categories and regional
differences among various regions of Brazil due to its in equal development from south east a more
developed area to north east a less developed area of Brazil to various cities with differed cultures and
preferences.
Subsisted consumers are for about 12%, who can purchase products more than basic necessities such as
Oven, refrigerators and motor cycles.
Restricted-households for about 59%, spend more on basic necessities and durable commodities and
electronic products.
Emergent-households account for 18% and shifted from lower middle class to middle class, spend about
70% of their income on subsistence and essentialgoods with a shift from inferior to better quality goods
(Engle’s law).
Established households only 5% and spend more of their incremental income on tourism and financial
service.
Affluent households account for just 6% and spend about 40% of their income under the category of discretionary income
with high end consumption habits. These households spend more on travel, leisure, financial services and property and
luxury consumption.
ConsumptionpatternandclassificationofBrazilianhouseholds:
18

Brazil Consumer behavior is little critical to understand due to income influence and psychology towards
spending, a diversified attitudes towards spending is reflected among southeast where people are spendthrift
and north east Brazilians are more thrifty. So it is important for companies/ business to understand from
By the end of 2020 about 35% of Brazilians will move to middle class consumer category and 43% of
households belong to affluent category.
Along with south and south east Brazil, cities even from north Brazil will also join the spendthrift
consumers’ pool.
Following the product’s consumption curves companies have to formulate suitable product strategies
especially trading-up strategy,revamping and revitalizing the products,improved distribution channels,
etc.whichpart of the consumer segments the demand will be created. Study indicated that
In this drive to meet the demand for raising consumption needs the sectors which may grow are premium
beverages, packaged food, entertainment and travel. With such changes in consumption patterns companies
require a new dimension in their thought process while formulating strategies with different product
portfolios adjusted with value creation and wider presence in new markets or a strategic geographic foot
prints where more of middle class to elite group consumers are growing.
With the changing habits of consumers along with the development it is important for companies to pay
attention especially to formulate strategies in the context of global foot print to issues like consumer
behavior, regional disparities, consumption pattern and changing slopes of consumption curves for
various product portfolios with reference to income distribution patterns in the economy.
1. How consumption expenditure data of an economy guides business?
Hints: Define consumption expenditure; Engle’s law of consumption; Consumption pattern and
business
2. Bring out the connectivity between Consumption expenditure and economic progress of an economy.
Hints: Meaning of economic progress; economic growth and GDP.
Source: Olavo Cunha, Simon Cheng, and Rim Abida (2014) - Redefining Brazil’s Emerging Middle Class, bcg
perspectives, July 2014. https://www.bcgperspectives.com
Economic environment Consumption pattern Business Environment and Law
19

9. FinancialRegulations – A Challenge oran Opportunity for a
Business – A Case of EuropeanFinancial Markets
Financial markets comprise financial intermediaries like banks, Asset Management
Companies, and other financial products. These markets are controlled by various
regulations in both domestic as well as international fronts due to the nature and
scope of financial markets, an example is the Financial Crisis 2008 and resultant
Recession.
Every challenge leaves a scope for an opportunity what is required is PRODUCT INNOVATION/NEW
PRODUCT DEVELOPMENT. The same is observed in recent changes that are taking place in global
financial markets. With the rise of financial crisis of 2007 awaken every regulator to view the financial
market transactions through a magnifying glass and accordingly every move is regulated with suitable
restrictions and directives are in practice and few are going to come in practice. Few such examples are
European Market Infrastructure Regulation (EMIR), Basel III accords - Capital Requirements Regulation
(CRR), Capital Requirements Directive (CRD) IV, Dodd-Frank, and Market Abuse Directives and/ or
Market Abuse Regulations. All these regulations expect global financial markets to think on the lines of
transforming regulations and suitable approaches to strengthen the system. Latest Instruments like MiFID II
- Financial Instruments Directive II, MiFIR - Markets in Financial Instruments Regulations, etc are created
to regulate operational practices and the revenue sourcing activities of financial markets.
Few researchers and practitioners in the industry are now trying to transformthe challenges that are cropping
up in regulatory environment especially MiFID II and MiFIR into business opportunities. These two
regulations are designed by EU to protect the investor by creating a more conducive, transparent and
efficient financial environment.
Provisions to protest investor’s interests’aims to pro tect through the whole life cycle of the financial
products and this will necessitate firms to think on the lines of modifying business models to cater to the
needs of emerging demands.
Transparency provisions which are made in the pre and post trading activities aims to strengthen and
extend the trade by putting disclosure norms on forms of trading of various categories of assets.Due to
these regulations companies have to make appropriate arrangements to make the trade transparent.
In order to provide greater control on risk management certain provisions are made in the new regulations and aims to
make the internal systems, controls and organizational set-ups strong.
Regulations,provisionsasprobablehurdles:
Researchers of the study opined that, with an improved Risk Control and management systems, an
organization can benefit in dual ways – compliance and b usiness performance. These regulations have
actually come into force with effect from July 2014 and expected to complete the compliance set up process
by 2017.
To protect investor,classification of clientele base and designing of structured deposit products made
compulsory.
Reporting complete trade data such as swap data, repositories data as per the norms of Dodd-Frank act,
transaction reports to supervisors through ARMs (Approved Reporting Mechanisms), Multilateral
Trading Facilities – MTFs, Organized Trading Facilities-O TFs.
Trading of bonds,new structured products,derivatives etc, through OTFs and controlled trading of
algorithmic and dark pool products.
Commodity derivative trading and manipulations are restricted through proper reporting of physical
swaps of commodities.
MiFID instruments necessitates new requirements like emission certificates, commodity trading, high frequency
trading and structured deposits and this has widened the scopefor new products.
RegulationsandImpactAreas:
20

Work Stream Phases/Actions Over View of the Phase and Scope for Opportunities/
Objectives/ Requirements
Challenges
Investor As-is analysis Conduction of as-is analysis of current business and IT
Protection models by collecting and making structured functional and
technical requirements of MiFID II.
Pre and post- Impact and gap To take up impact assessment by mapping regulatory
trade analysis requirements and identifying existing capabilities. Create
transparency heat maps of color coding for impact gaps and have to define
MiFID II initiatives.
Internal Creation of To evaluate and prioritize initiatives into executable projects.
organizational roadmap and Construct MiFID II roadmap with complete implementation
set-up and risk master plan plan and estimated data of each project.
control
Execution and Execution of each project based on detailed roadmaps and
delivery then has to monitor progress on a continuous manner.
Mechanism Verification of compliance reports with the preset objectives
and to evaluate rate of success ofthe implementation.
 Mastering in practices which are of common requirements for various regulations like data
management, policies and processes and governance with an integrated approach.
These regulations are going to affect all aspects of financial markets starting from people to processes.
And these changes will incur additional costs ofrunning the business.
The extent of complexities depends on the type of the market or product that a firm dealing with like
retail banks, AMCs, etc and the environment. The operational aspects and the internal set up will
develop accordingly.
Changing environmental factors and stringent regulations will provide an opportunity to leverage its
competitive advantage by
 strengthening company’s core competencies

 removing the unprofitable products from product portfolio
 widening the clientele base by improvingthe services
Asperthestudyobservations:

Scope for enhanced and improved business practices – In orde r to fulfill the regulatory requirements,
companies have to focus on implementation of quality standards,customized services to meet the
requirements with the least or zero deviations from the standards which paves way for customer
retention and furthering customer delight. In this process of transparent implementation, companies
march towards creating its clean image and good will. These automatic practices also make the financial
advisor role easy and minimize the time and manual work and help them to improve their core strengths.
An opportunity to raise company’s revenues - Though new implementations incur costs but at the same
time it creates a huge clientele base and increases the market share and further revenues.
Decrease in day to day expenses– Through operational ration alizations companies can reduce its
operational costs by way of digitization, avoid or reduce redundant costs,optimize use of human and
various otherresources.
Establishment of strong risk management and risk reduction practices – Due to improved surveillance
systems and continuous monitoring activities the chance for risks attached with various financial
products and services can be removed or reduced from the chain. It further facilitates betterinternal
governance.Opportunities – Chance for a blessing in disguise:
21

Creating a centralized infrastructural reporting systemto reduce cost – Reporting standards like FCA
transaction and EMIR trade can be synchronized and form a consolidated and centralized format for
reporting and minimizes decentralized reporting facilities and costs incurred thereby.
Centralized reporting also facilitates more and better cross selling revenues by Customer Relationship
Managers based on more qualified data of repositories and this further reduces the costs associated with
financial and loss of reputation risks for investment companies.
Having a clear vision about the strategies to implement in operating
models Companies have to design action plans with precision.
Executives should be given their clear KRAs and KPAs along with defined roles and responsibilities.
A clear and comprehensive business model starting from identification of business implications of
regulations to planning for definite project tasks.
A sound communication systemwith trained workforce needed to support the effective execution.
A granular approach is necessary to encounterthe issues that arise in implementing the new regulations
and directives keeping the three major requisites – investorprotection, transparent trade and internal
organizational set-up.Howtomasterthesepractices?
By 2017 all the firms of financial sector have to implement the requirements of MiFID II. So it is time for
firms to arrange for strategies and set up to avoid one more financial crisis of the magnitude of 2007 and
avoid inconveniences and hostile affects due to failure of meeting the requirements set by the regulations.
Financial Regulations are actually meant for smooth flow of finance into investment channels and to
avoid the illegal deposits and usage.
1. What is in your opinion a hostile financial environment? Who get affected under such situations?
Hints: unfavorable conditions for investors and investment companies; confidence in the economy
2. What is a financial regulation? Discuss the pros and cons of financial regulations?
Hints: – Financial regulation means a standardized financial activity format to be followed by the
practitioners of financial sector while doing a finance business in the financial markets.
–Regulations increases the operational and IT costs of operations and limits the liberty of the
firm
–Regulations if implemented positively then it will turn into an opportunity for firms by doing
a transparent and less risky business.In the process companies win the trust of the
investors.
Sources: i. Steve Culp, Markus Werthen, Marcus Frei, Robert Schelling (2014): Markets in Financial Instruments
Directive II (MiFID II) - Turning Regulatory Challenges into Business Opportunities, Accenture, December
2014
ii. http://www.accenture.com
Unit/ Section Topic Course
6 Regulatory Environm ent Business Environment and Law
22

10. Global Banking Business in the Post Crisis Era – A Ch
anged Approach
Financial environment of an economy comprises various financial services, market and
financial intermediarieswho supply funds to business.
Banking business in the post crisis period has changed its approach and started reformulating the policies in
sync with regulatory environment. Global banking business started rejoicing the business with positive
economic benefits and increasing profitability. In the year 2013, as per the BCG risk analytics team, the
banks have generated positive economic profits of eighteen billion Euros or 0.3% of bank assets, giving
relief to global banks which have negative economic profits for almost four years till 2013.
This performance in banks is a resultant of positive performance in various continents across the globe,
especially North America, Middle East Asia and Africa; best among all is the Asia-Pacific region.
Quantitative Easing (QE) and Tapering: Banks of North America have regained their growth because of
its effective monetary policy initiations, notably QE helped Federal Reserve to manage refinancing at
lower costs.Tapering created a market friendly environment and improved interest rates for bank’s
lending activities.
Reduction in risk costs:Better macro-economic environment led to reduction in risks and associated
costs by reducing operational costs to an extent of 2%. The same is observed in European banks in a
moderate way and they could lessen the negative economic profits.
Cumulative effect of positive performance by North American and Middle East Asian banks generated a
snowballing effect on EP.
Most of the Asia-Pacific banks gained better though they did little in risk reduction function and efficiency betterment, a lot canbe done
in the maturedmarkets with lowpace in growth.Majorcontributorsforthisperformanceandcreatedvalueforbankingactivitiesare:
On the contrary, lack of focus on efficiency and insufficient profiling of risk with the changing business
environment led the South American banks to experience shrink in economic profits and had to forego the
opportunities.
Changing regulatory environment forces the global banks to adapt more quickly to the market.
Banks have to introduce a comprehensive control frame work to undergo this transition happening in the
regulatory framework.
Banks have to develop a forward looking approach with a long term perspective
Banks have to develop proper implementation measures with elaborative discussions The banks should carefully
evaluate the budget requirements.Banksmayfollow3stepstobringeffectivemanagementofregulatory project portfolio:
3LOD model (3 lines of defence) has been suggested by BCG risk analytics team to establish a
comprehensive control framework.
This model has three components - business support,independent controls,and internal audit.
Control frameworks are to be upgraded
Maintain an up to date risk inventory covering all aspects with proper allocation of responsibilities
within first line and second line of defence
The secondline ofdefence towork onglobal control framework The first linewill integrate global
control framework in thebank’s operatingmodel.Toderivethismodelbankshavetodothefollowing:
For higher transparency and improved reporting levels banks have to improve their data and IT capabilities.
23

The present systems in vogue are EU-wide stress test, Common Reporting and Financial Reporting of
European Banking Authority (EBA), Asset Quality Review (AQR) and AnaCredit, of ECB and the
European supervisory authorities’ Supervisory Review and Evaluation Process are taking care of
transparency in reporting mechanism.
14 principles of BCBS 239 (Basel Committee on Banking Supervision's rules) published in January 2013 are
to be complied by January 1, 2016 by the banks across the globe.
Quick and more objective decision making process
Early warning bells and prudent credit management and will minimize risk due to nonfinancial category
by 80%
Transparency in the areas of mergers and acquisitions both internal and international fronts and balance sheet status.Thepositiveside of
Risk data management:
Banking in the new era or post crisis period is more of an eye opener approach. Now global banks have to
pay attention not just for profitability but more of long term comprehensive frameworks of practices both
business and risk management in a more global viral environment.
1. What is required for new era and post crisis banking?
Hints: Prudent practices, Transparency,Strong Data and IT management
2. What is the need of the hourfor a prudent and transparent banking?
Hints: Regulatory framework; Reporting and effective implementation.
Source: Gerold Grasshoff, Thomas Pfuhler, Norbert Gittfried, and Filip Saelens (2014): Global Risk 2014-2015:
Building the TransparentBank, DECEMBER 02, 2014
Unit/Section Topic Course
6 Banking Business Environment and Law
24

11. A Route for BetterExport Environment and Role of Export
Promotion Councils
Export Promotion Council of India is the key player in promoting trade and exports.
With the ‘Make in India’ campaign initiative by the new government, India is hoping for a better export
scenario and a conducive environment in the coming years after a sluggish performance of exports in the
year 2013-14 on the other, it also depends on the global economy’s revival.
According to the press release during the month of January 2015, “2015 will be a promising year and
government is hoping for better results fromvarious measures taken by the government for the ease of doing
trade, facilitation and new initiatives to boost the manufacturing sector.” Through this campaign India is
expecting to attract FDIs and other investments in sectors like textiles, chemicals and automobiles.
What is needed now is exploring opportunities for better exports and to improve the confidence of investors
in trade.
As per the Trade Confidence Index of HSBC survey results, due to geopolitical rifts in Middle East and
Eastern Europe and structural challenges in the emerging nations like BRICs the scope for better trade
performances in the near future appears to be bleak.
But in the long run, Trade Confidence Indexof HSBC for the period 2014-30 indicating that Asian countries
like India, Indonesia andBangladesh havingimproved Trade Confidenceand recodedhighest Indexpoints by
Egypt with 146 followed by Bangladesh (141), UAE (138) and India in the fourth position with 137 points.
Majorreasonsforthis expected trendare huge markets,investments in infrastructure and rising consumption
expenditures.During this periodIndia may move from14th position to 5thpositionin terms of value ofexports.
Currently, as based on 2013-14 figures, India’s exports are dominated by labour intensive industries like
minerals, fuels,textiles, gems and jewellery, lubricants andaccounted forabout 35% and moving on the way to
improve skill and capital intensive exports like transport equipment, pharmaceuticals and textile sector raw
materials. Report also indicated that India has got the ability to become a hub for automobiles due to
availability of cheap and skilled labor.
https://globalconnections.hsbc.com/united-kingdom/en/tools-data/trade-forecasts/global
In the above discussed direction government of India initiating many moves, one such a move in the
direction of promotion of gems and jewellery exports by GJEPC.
Export Promotion Council of India for Gems and Jewellery (GJEPC) with its initiatives creating an excellent
export environment for Indian Gems and Jewellery exports. India is the key and the largest processor of
gems especially diamonds. In the recent conference for Global Diamond Business leaders organized by India
in New Delhi on 11th and 12th of December 2014, created an avenue for all global diamond leaders to come
together and discuss for various opportunities and challenges in this business on an international platform.
Export sectors’ performance in the year 2014 for ten months recorded for just 270 billion dollars as
against 312 billion dollars in 2013-14.
Major reason for this underperformance of the trade sector is due to the low pace of growth in exporting
markets like EU, Japan, Middle East and Russia which accounts for 20% of total exports of India. In
addition to this exporter of India are worried about the delay in the announcement of country’s Foreign
Trade Policy – a package of fiscal and non-fiscal incenti ves.
Another significant observation is the role of SEZ; SEZ’s contributed for about 23% of the total exports
and these exporters of SEZs are expecting for re-implementation of minimum alternative tax and tax on
distributed dividends to improve investor’s confidence. Government has fixed 340 billion dollars of
exports through Make in India campaign by March 2015.
In the year 2014, exports registered a declining growth in sectors like engineering, pharma, gems and
Jewellery, cotton yarn and fabrics, and petroleum products. But in the same year between April and
October due to festival season demand, there were huge gold imports and this led to create the current
account deficit (CAD) of $83.75 billion and widened the gap between exports and imports to 2.1% from
1.2% of last year. As result of this entire scenario of international trade balances, rupee touched 62.33 in
December 2014, a ten-month low value.
http://businesstoday.intoday.in/story/after-sluggish-2014-india-awaits-promising-2015-for-exports/1/213525.html
25

Announcement of establishment of ‘Special Notified Zone’ (SNZ) to facilitate miners by providing a
platform for selling the roughs (unpolished diamonds/gems), booking the orders from buyers,etc and
this will help companies to bypass the established,old and traditional dealers.
Solutions for issues such as shortage ofraw material (rough stones),trust and marketing of generic
materials.
Due to SNZ there appears to be more access to huge quantities of rough diamonds from mining
activities and thereby more supply.
SNZ is going to remove the middle men and create a platform for direct sales by foreign rough stone
suppliers/ foreign diamond miners to Indian diamond merchants.
A favorable ground for making India as a favorable diamond hub and leave India with better
competitive advantage,where fourteen out of fifteen diamond cutting and polishing companies are
situated in India, this itself indicates the requirement of rough stones.
Russia is having the world’s biggest diamond mines.
India and ALROSA (Russian based miners) signed for three more new agreements on a long-term basis
and this will make the list to a total of twelve deals.
ALROSA, a Russian Group of Diamond miners during the conference have signed to supply rough
stones (diamonds) with twelve Indian diamond processors like Jasani, Kiran Gems, Rosy Blue,
Diamond India Ltd, Hari Krishna Exports, Shree Ramakrishna Exports, KGK, Dimexon, etc.
Such a facility of direct sale is going to generate estimated sales worth of 700 million US dollars per
year and it reaches a high of 2.1 billion US dollars in three years,almost a five time rise in actual
current sales.
It also decreases the cost of diamond cutting by 10%.
The initiation by GJEPC by establishing SNZ under the severe threat of competition, is going to
improve the export capability of Indian diamond business and its profitability, because an uninterrupted
supply of raw material (rough stones),about 70% of the value of rough stones can be generated by
cutting and polishing of diamonds. It also creates avenues to make India a hub of diamond cutting and
polishing.Majoroutcomes of the conference are:
With focused and favorable initiatives by the government, India can build the confidence of investors of both
domestic and foreign nations and pave the way towards building its image as ‘manufacturing hub’ from a
mere exporter of labor intensive goods to highly capital and skill oriented exporter.
For economy to grow, exports of finished goods play an important role. To increase the exports, growth
of manufacturing sector is the prerequisite. So the export promotion strategies and the manufacturing
sector needs to grow parallel for an economy to grow.
1. What is Export Promotion Council? How it facilitates
trade? Hints: genesis of EPC
2. What are the major difficulties in international trade? What is required to make trade environment
suitable for profitable business?
Hints: Government initiatives for trade; Cost of middlemen, confidence of investor,favorable global
economies.
Source: Aruna Gaitonde (2015): ALROSA brings in ‘good cheer’ for Indian diam ond industry, Rough & Polished,
19.01.2015; http://www.rough-polished.com
Unit 7 Export Promotion Councils Business Environment and Law
26

12. Emerging Trends in International Trade – A Case of
‘Global Competence’
Globalization is a process which makes countries competent in the international trade
due to low cost of production,resource availability and R&Dand Innovation.
BCG conducts survey of selected industries in different countries and published the outcome survey every
year. BCG Global challengers 2014 identified certain perspectives and redefined global competitive
dynamics.
The so-called emerging markets have crossed the status of emerging as they are contributing more than 2/3
of the global GDP. Many of these economies showed long termresilience facing short termturbulence. They
are becoming more prosperous with large middle class population, young in age with higher consumption.
Through Innovation, talented human resources, many companies in emerging markets are making rapid
strides in their growth path. BCG identified 100 global challengers in 2014 in its survey, which they are
doing since 2006.
10 countries
India and China Contributed 2/3 of
the challengers
They grow faster than peer
companiesGlobalChallengers – 2006
18 countries
Challengers from India and China are
less than 50%
They are at average growth of18%
compared to 7% of globalpeers
13 new comersGlobalChallengers – 2014
Fewer companies existed fromglobalchallengers list thanin the previous years.It indicates many companies
are achieving sustainable strength otherwise than fromlarge home market and low cost wages.
The new entrants from new consumer categories showgrowing purchasing power of the middle class in
the economies like Philippines , Chile , Thailand apart from the success story ofthe new entrants.
When compared to 2 in 2013, 5 companies have emerged as global challengers in the list of2014.
Thesurveyof2014globalchallengersidentifiedthreenoteworthyobservations.
The Report suggested that the Global challengers from industries like FMCG, TMT and other consumer
facing companies equipping themselves to meet the demands of the growing middle class.
The Companies are strengthening their expertise to provide innovative and advanced digital services. The
companies like Tencent Holdings; China was such an example quoted that is meeting the digital needs.
The entry of more new comers from traditional industries such as fertilisers and chemicals in the Global
Challenger’s list highlight that innovation had driven success rather than low cost structure in the system.
The performance of Russian Based Fertiliser Company Euro Chem. was quoted as an example. Vertical
integration, efficient management of raw material and final product logistics was a business model of the
company that led to success and further leading to meet the demands of the global customers.
The global challengers have to continue their journey of hard work for success in times to come. Some of the
companies face more challenging home markets which are dependent on the pace of growth of their
economy. Not all economies are in the growth path continuously, for example the economies of Brazil,
Mexico, Russia and South Africa have encountered slow growth rate compared to earlier years. As a
consequence, the global challengers have faced stiff competition from totally local companies in their
domestic market and also smarter MNCs in the international markets.
The MNCs like Hyundai Motor Group, KFC, Pizza Hut, and Taco Bell restaurant chains have started
localizing their products to meet customer needs.
To create a footprint in the global markets, the global Challengers have to go out with large investment
plans. Assuming that the growth rate of both worlds converge the global challengers have to take decide
where their real long term strength lies – overseas market or at home market/other emerging markets?
27

To meet this situation the Global Challengers have to build three capabilities
Brand Building Localization
To build the brand in the Customise to local markets
overseas markets
Build the strengths in
Consumer Engagement marketing, sales R&D and
New acquisitions
totally local
Global Challengers to Global Leaders
Godrej of India and
Haier of China have
large domestic markets
New challengers are from Chile,
Thailand, Turkey and the
Philippines as they have scope for
global expansionResistingthePull
of Home
BCG had created a global “challenger to leader” (C2L) program s uggesting 20 initiatives for go-to-market
activities for these Global Challengers. Two of the initiatives – Talent & Innovation - were discussed in the
article.
Like any MNC the global challengers have to bring paradigmshift in their approach to talent and innovation
talent.
BCG, Indonesia had studied the supply demand gap of middle managers in the companies there and
Tapping New Talent Pools from various sources even from unconventional places and from alternative
groupsof candidates.
Building Recruitment and Hiring Engines targeting their career development and reduce attrition
during the first year of employment.
Creating a Meritocracy by reducing the recruitment.
Enhancing Middle Management by focusing the development of middle managers. Professionalizing
Talent Management.suggestedafive-partplanofattacktoaddress shortages and employee dissatisfaction:
On “Innovation “aspect the report suggested that there was a need to professionalize and bring the best
practices and evaluate the transformative moves they have to bring into their company. The innovative
changes have a cut in the margins and the global challengers have to face it.
Trade in today’s world no longer neither limited to cost or resource advantage theories nor can be
restricted through policy restrictions. With Globalization, it is inevitable for every country and companies
(both the leaders in the trade and the new entrants) in the international trade field to explore markets
through innovation, R&D and talent to delight both goods markets and labour markets.
1. Define Globalization? What are various outcomes of this change in the international trade?
Hints: Outcomes – emergence of new competitors, changing composit ion of trade, innovations,new
market and new products,etc.
2. Differentiate between global challengers and global leaders?
Hints: Global leaders – mature markets, innovators and experien ced managements, MNCs,
unavailability of workforce, etc; Global Challengers
Source: Marcos Aguiar, Thomas Bradtke, Erica Carlisle, Dinesh Khanna, David Lee, David C. Michael, Christoph
Nettesheim, Rahool Pai-Panandiker, and Peter Ullrich (2014): Redefining Global Competitive Dynamics - 2014 BCG
Global Challengers, bcg.perspectives, SEPTEMBER 10, 2014
7 Globalization Business Environment and Law
28

13. TechnologicalDevelopmentacts like a Catalystin Advanced
Manufacturing
Technological environment of business is one of the important external environmental factors
which leads to innovations and new product or service developments, productivity
improvement and cost controls.
Technologically improved production processes are catalysts to raise productivity and reduce cost of
production. Manufacturing companies are now focusing more on this measure as a remedy to their declining
production and increasing costs due to stringent laws and increasing labor costs. BCG team analyzed such
practices of companies with improved technologies and named the process as “advanced manufacturing
technologies”. According to these methods, manufacturers use a combination of technologies in various
facets of production which are highly flexible, data-enabled and cost-efficient manufacturing processes.
A BCG survey of executives representing manufacturing companies operating in US with sales revenue of
Majority of executives (72 per cent) preferred investment in advanced technologies in the coming years.
About 75% respondents wanted investments in mechanization for higher productivity and more of local
production.
56% of respondents were underthe belief that automation will better their competitiveness as compared
to the products produced undercheaper cost conditions.
Advanced technology enhances flexibility and facilitates customized production, design different
products by crashing time.
Better chances for innovation and environmentally friendly practices due to less wastage of raw
materials and less waste generation.
Labour safety is another advantage ofthese advanced practices as they use less harmful materials.
atleastonebilliondollarsrevealedthefollowingobservations:
Autonomous robots with sensors controlsystems to achieve standards.
Integrated computational materials engineering (ICME) enables simulations and better product
development.
Digital manufacturing processes forsimulations reduce time and saves money by optimizing the factory
layout design through uniformity at various locations with cheap costs.
The industrial internet and flexible automation makes supply chain clearly visible by linking hardware
with production by auto adjustment facilities.
Additive manufacturing helps to develop 3-D objects and samples to produce small and customized
products to meet exact customer requirements.
Ford invested in ICME about $ 15million and generated savings ofabout $ 120 million, a rough
approximation of 700% ROI. Further, the cycle time of production was slashed by about 15-20%.
Though these developments in technological environment may not replacelabor in the short-run, manycompanies may continue
to experience high laborcosts for anotherdecade, but leadingmanufacturingcompanies likeFordstartedinjectingtechnological
environmental change in the industry.Listofadvancedmanufacturingprocessesandthebenefits:
High and rising labor cost and intensified competition is making manufacturers to rethink the efficient
alternatives to stay competitive. A survey of BCG showed that, with the advent of robotics and
digitization, leading global manufacturers started experimenting and experiencing better production in
less time with less cost by using advanced manufacturing technologies.
1. What are the various changes that are taking place in the technological environment of a
business? Hints: List of various technologies and its benefits to companies.
29

2. Why manufacturing companies are looking at automation as an alternative for labour?
Hints: manufacturing sector, high labor cost, non-local production sites, competition, customer
expectations.
Source: Harold L. Sirkin, Michael Zinser, and Justin Rose (2015): Why Advanced Manufacturing Will Boost
Productivity, bcg perspectives, JANUARY 30, 2015 https://www.bcgperspectives.com
8 Technology selection Business Environment and Law
30

14. Circular Economy and Technology Hazards – A Case of Electron
ic Waste
Technology createsvalue and waste too.So hazards associated with technologies
can be minimized with efficient and innovative methods/practices.
According to some estimates consumers across the globe generate 20-50 million tons of electronic waste
every year through buying and disposing of electronic products. As a consequence E-waste could increase
33% to 65.4 million metric tons worldwide by the end of 2017. It was estimated that in USA, approximately
68% of consumers store unused electronic products.
Cisco Systems Inc., an American multinational corporation, addresses e-waste as one of the social
investment programs under Cisco CSR. In an initiative to stop e-wastage, Cisco introduced a programcalled
“Product Trade-In” to arrange a proper e-waste disposal met hod, a model of circular economy. Circular
economy is an emerging economy model which is suitable for sustainable development and reduction in
negative environmental impact. Circular economy aims to control the e-waste through recycling and reusing
Offering incentives to the customers in the form of discounts on exchange of old products or outdated
products
Refurbishing outdated products - during fiscal 2014 , 23 % of outdated products were refurbished
Preventing discard of electronic equipment – Cisco prevent ed discarding of 6 million pounds of
equipment
Facilitating product trade in and pick up from customers through online requests
Use of more than 30 recyclers of e-waste for de - manufacturing of e- waste.
Cisco maximized the life of networking products through adopting circular economy. Cisco achieved
the following results through trade-in-programs:
 Reuse of US$ 360 million worth of equipment

 Facilitated customers to save expenditure
 Created value for customers by offering better quality equipment at lower prices
electronicwaste.Tocontrole-
wastageCiscointroducedschemessuchas:

Technology is a boon and bane for an economy if it is not handled well by its users. Electronic goods
sector is one such sector, due to its non-decomposability nature leads to problems like e-waste. CISCO
adopted a circular economy model to handle the issues like e-waste and technological hazards. Through
trade-in program they handled technology management and created value to business and consumers and
reduced environmental impact of the business.
1. What is technology hazard? What are the various issues related with technology?
Hints: Define technology hazard; waste generation and waste management, environmental impact, loss
of social welfare.
2. What is circular economy? How this model addresses the issues oftechnology hazards?
Hints: Circular economy, Benefits of circular economy; CISCO model of circular economy.
Sources: i. CSR at CISCO (2015)- Helping Customers Save Money and Reduce Electronic Waste, Cisco CSR Blog
ii. http://csr.cisco.com
8 Technology hazards Business Environment and Law
31

Block 3:
The Legal and Ethical Environment of Business
15. Deregulated Markets vs. Regulated Markets – A Case ofLabor Market
16. What is Considered as a Favourable Tax Environment? - A Case ofCanada’s
Tax Regime
17. Economic Frauds and Crimes – A Threat to the Prudent Financial Sector
32

15. DeregulatedMarkets vs. RegulatedMarkets – A Case ofLabor
Market
Regulationsby government will enable the business practices to be more aligned and
focused towardseconomic development and equitable distributions.
In the era of globalization, where factor movements matter more than goods movement, any regulation by
the government should be viewed in a multidimensional way. Giuseppe Bertola and Anna Lo Prete in their
paper on labour market regulation tried to portray a picture of labor markets with and without regulations and
its effects on current account balances.
As per the theory labour market regulations, during the growth period people tend to spend more and save
less in view of improved wages and incomes and this will lead to negative current account balances.
Otherwise , due to deregulations income flow for a labour will be uncertain and this necessitates them to
save more as a precautionary measure and this will result in a positive current account balances.
In this paper researchers analyzed OECD data and observed that, under the imperfect financial market
conditions consumer credit availability had an influence on labour reforms and open economies current
account balances. The reference period of the study was from 1980s to upto 2005. During this period, most
of the European economies where regulations are limited (market oriented economies) and financial markets
are developed, have reflected negative current account balances.
During the pre-crisis period the data showed that the countries where credit and labour markets are strictly
regulated in their initial stages of development created a productive environment and these economies
enjoyed high surpluses in the current account balance. But during the period of deregulation of labour market
economies exposed to risky consumption and negative influence of reforms resulted in negative social
welfare effects in certain sections of the society especially the low income category.
The same is observed in European Union countries during the pre-crisis period. The data was clearly
supporting a strong relation between labour market reforms and trade account balances and have shown a
positive relation between market flexibility and competitiveness. Study also observed that individual country
level reforms in labour market due to political and economic situations and movement of capital between the
countries left countries with more external debt due to the rigid labour market and vice versa in less
regulated markets, like in Germany where regulations are stringent and the relative position of capital market
is better in the union so it requires more flexible labour markets. On the other side, Spain, where political
effect is greater on the capital condition and the labour reforms are ineffective and needs better and sound
reforms.
Need for rethinking whether to regulate or not – Post-Cr isis Period:
Most of the nations of the globe which are having trade deficit problems are moving towards de-regulation of
labour markets in order to have better current account balances. On the other side countries with more trade
surpluses are moving towards a rigid market reforms. This trade rebalancing is majorly driven by the need
and may continue till countries become competitive.
Regulated labor markets in the era of globalization and monetary unions have altogether a different effect on
the economy and trade balances.When financialmarkets are flexible and credit availability is easy the situation
is quite the contrast, if labour markets are regulated as compared to deregulated markets.
1. What is the purpose with which government regulates business activities?
Hints: Government role in business,labourlaws, controls in money and capital markets, international
trade regulations
2. How regulations in labour markets effect international trade accounts?
Hints: market reforms and international trade
Source: Giuseppe Bertola and Anna Lo Prete (2015): What happens when labour markets are deregulated? WEF-
Agenda, World Economic Forum, Mar 2 2015; https://agenda.weforum.org
UNIT 9 Regulatory Environment: Role of the Government Business Environment and Law
33

16. What is Considered as a Favourable Tax Environment? - A Case
of Canada’s Tax Regime
Tax environment of an economy create chances for a favourable
investment environment, especially foreign investments.
In the era of globalization with the increasing competition it is important for government to design tax policy
not only for suitable conditions for fiscal gains but also to create induced investment environment.
KMPG released a report on ‘Competitive Alternatives 2014: Focus on Tax’ in June 2014, according to this
report Canada is the best destination for global business due to its tax policies.
Most of the cities of Canada also found in the first place as against hundred odd cities of the globe.
Edmonton, a city in Canada topped the list of cities in terms of its tax competitiveness.
In spite of the fact that almost all the economies levy the same category of taxes what matters most is the
way these taxes are applied and weighted.
In the report on Focus on Tax – 2014, KPMG worked and examined b usiness costs across 10 countries
and also assessed general tax competitiveness in the 107 featured cities and compared various taxrates in
each area such as: sales taxes, corporate income tax, capital taxes, property taxes, miscellaneous local
business taxes and statutory labour costs – arrived at To tal TaxIndex(TTI).
Less rigorous tax policy for corporates
Moderate minimum wages
Coherent indirect taxes, esp. sales tax.
ThestrongpointsforCanadaare
UK followed second in the list and this further followed by Mexico in its competitive tax structure and rates.
But in such cases dependency on othersources of tax revenue like sales tax, payroll tax, etc.
In some other countries where they need more investments, they encourage investments by offering low
income tax rate for corporates, also tax policy as an incentive to attract more taxrevenues by increasing such
tax base. Tax incentives are more offered in sectors like Research and development and manufacturing. In
order to standardize international tax system in collaboration with global economies, OECD countries and
other developed countries planned to propose the fifteen point action plan on Base Erosion and Profit
Shifting (BEPS).
On the overall ranking of countries under the consideration of survey, on the basis of their total tax index
Canada is with 53.6 points followed by UK with 66.6 and 70.2 points for Mexico. In terms of total tax cost
advantage Canada scored 46.4% as against US, it indirectly implies the total tax costs (100 - 46.4 = taxcosts
are less by 53.6%) in these countries are less compared to US.
Globalization affects countries’ corporate income tax systems. So, OECD countries have decided to have
a new international standard in order to ensure the consistency in income tax policy for corporates at the
global level and introduced 15 points as a remedial measure in its BEPS action plan report.
15 point action plan:
1. Tax issues in the digitized economies
2. Hybrid mismatch arrangements and arbitrages – Neutralizatio n process
3. To Strengthen Controlled foreign company (CFC) rules
4. Limit base erosion via interest deductions and otherfinancial payments
5. Counter harmful tax practices more effectively, taking into account transparency and substance
6. Prevent treaty abuse of status ofPermanent Establishment (PE)
7. Prevent the artificial avoidance of Permanent Establishment (PE) status
Contd..
34

Contd..
8. Assure that transfer pricing outcomes are in line with value creation - Intangibles
9. Assure that transfer pricing outcomes are in line with value creation - Risks and capital
10. Assure that transfer pricing outcomes are in line with value creation - Other high-risk transactions
11. Establish methodologies to collect and analyze data on BEPS and the actions to address it
12. Require taxpayers to disclose their aggressive tax planning arrangements
13. Re-examine transfer pricing documentation
14. Make dispute resolution mechanisms more effective
15. Develop a multilateral instrument
Source: Action PLAN on base erosion and profit shifting – © OEC D 2013; http://www.oecd.org
Advantage Canada: Cities in Canada like Toronto, Montreal and Vancouver have topped the list of fifty
one cities across the globe on the basis of favorable tax environment, and this led Canada to top the list. The
Toronto (51.6 total tax index) with its consistent competitive taxes various sectors like digital services,
corporate services,manufacturing and R&D made this city to be at the top in the list.
Vancouver (54.5 total tax index) slide to second position from 2012 to 2014 due to increase in the tax
rates in some sectors,removal of British Columbia (BC) industrial property tax credit and return from
Harmonized sales tax (HST) to Provincial Sales Tax (PST).
Montreal could achieve third position with its less total tax cost/ burden with 55.6 total tax index. It also
extended support to corporates by incentivizing sectors like R&D, digital media, manufacturing,
international finance and e-business.
Many othercities in Canada like Edmonton,Moncton,Fredericton,etc as against theircounterparts in the US
could win overon the taxfront due to taxrates in R&D, bio-pharma and e-business,competitivetaxation and
innovative provisions especially in property taxrate.
contributorsare:
Incentivized video game production and digital media put Canada in the top of the list
Income tax credit for R&D by government is anotherpractice made Canada to top the list
Corporate services such as back office operations and manufacturing occupied second and third positions by havingfavourable taxation
systems.InnovativeTaxprovisionswhichcreatedtaxadvantage/attractive tax environment for specific businesses are:
Briana D’Archi and Kira Froese (2014): Canada remains most competitive business taxenvironment
worldwide , KPMG, June 17, 2014
Base Erosion and Profit Shifting (BEPS) is a procedural term referring to the ill effect of tax avoiding
practices of multinational companies (MNCs) on host country’s tax bases. BEPS can be attained by the
misuse of transfer pricing. It is an "attempt made by the major economies of world in order to rephrase the
rules pertaining to corporate taxation and a try to discourse the established perception that the MNCs
don’t pay their share of taxes on a fair way".
1. What is tax environment? What are the conditions for a favorable tax environment?
Hints: Definition, Revenue generation, wide tax base, favourable investment destinations
2. What factors made Canada a favourable destination for business investments?
Hints: Innovative tax provisions, Low tax costs, Competitive tax regime, Tax credits and incentives
Source:https://www.kpmg.com/ca/en/issuesandinsights/articlespublications/press-releases/pages/canada-remains-most-
competitive-business-tax-environment.aspx
10 Tax Environment Business Environment and Law
35

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