NTERNAL AND EXTERNAL BUSINESS ENVIRONMENT

Made by:Aastha,Harsimran,Harleen,Dhanvir,Banjul and Gaurav Sharma.

2. Introduction to Business Environment

Business environment consist of all those factors that have a bearing on the business. The
term 'business environment implies those external forces, factorsand institutionsthat are
beyond the control of individual business organizations and their management and affect the
business enterprise.

3. These forces are customer, creditors, competitors, government, socio-cultural

organizations, political parties national and international organizations etc. some of those
forces affect the business directly which some others have indirect effect on the business.
4. Features of business environment
Totality of external forces: Business environment is the sum total of all things external to
business firms and, as such, is aggregative in nature.
Specific and general forces: Business environment includes both specific and general forces.
Specific forces affect enterprises in their day-to-day working. General forces have impact on
all enterprises and affect an individual firm only indirectly.

5. Dynamic nature: Business environment is dynamic in that it keeps on changing whether in

terms of technological improvement, shifts in consumer preferences or entry of new
competition in the market.
Uncertainty: Business environment is largely uncertain as it is very difficult to predict future
happenings, especially when environment changes are taking place too frequently as in the
case of information technology or fashion industries.

6. TYPES OF ENVIRONMENT
On the basis of the extent of intimacy with the firm , the environmental factors may be
classified into different types-internal and external.

7. INTERNAL ENVIRONMENT
The internal environment is the environment that has a direct impact on the business. Here
there are some internal factors which are generally controllable because the company has
control over these factors. It can alter or modify such factors as its personnel, physical
facilities, and organization and functional means, like marketing, to suit the environment.
8. A) VALUE SYSTEM
The value system of the founders and those at the helm of affairs has important bearing on the
choice of business, the mission and the objectives of the organization, business policies and
practices.
9. B) MISSION,VISION AND OBJECTIVES
Vision means the ability to think about the future with imagination and wisdom. Vision is an
important factor in achieving the objectives of the organization. The mission is the medium
through which the objectives are achieved.
10. C) Management structure and nature
The structure of the organization also influences the business decisions. The organizational
structure like the composition of board of directors , influences the decisions of business as
they are internal factors . The structure and style of the organization may delay a decision
making or some other helps in making quick decisions.
11. EXTERNAL ENVIRONMENT
It refers to the environment that has an indirect influence on the business. The factors are
uncontrollable by the business. There are two types of external environment:

12. Micro Environment

The micro environment is also known as the task environment and operating environment
because the micro environmental forces have a direct bearing on the operations of the firm.
a)Suppliers
An important force in the micro environment of a company is the suppliers, i.e., those who
supply the inputs like raw materials and components to the company.
13. Customer
The major task of a business is to create and sustain customers. A business exists
only because of its customers.
Marketing Intermediaries
The marketing intermediaries include middlemen such as agents and merchants that help the
company find customers or close sales with them.
financers
The financers are also important factors of internal environment.
14. Public
Public can be said as any group that has an actual or potential interest in or on an
organizations ability to achieve its interest. Public include media and citizens.
15. Macro Environment
Macro environment is also known as General environment and remote environment. Macro
factors are generally more uncontrollable than micro environment factors. When the macro
factors become uncontrollable , the success of company depends upon its adaptability to the
environment.
16. Economic Environment
Economic environment refers to the aggregate of the nature of economic system of the
country, business cycles, the socio-economic infrastructure etc.
Social Environment
The social dimension or environment of a nation determines the value system of
the society which, in turn affects the functioning of the business. Sociological factors such as
costs structure, customs and conventions, mobility of labor etc. have far-reaching impact on
the business.
17. Political Environment
The political environment of a country is influenced by the political organizations
such as philosophy of political parties, ideology of government or party in power, nature and
extent of bureaucracy influence of primary groups etc.
Legal Environment
Legal environment includes flexibility and adaptability of law and other legal rules governing
the business. It may include the exact rulings and decision of the courts.
18. Technical Environment
The business in a country is greatly influenced by the technological development. The
technology adopted by the industries determines the type and quality of goods and services to
be produced and the type and quality of plant and equipment to be used.

The cultural environment has influences on some of the other environments:

the cultural environment strongly influences the labour environment

and the socio-economic environment
and the politics of the populace
o which effects the Political / Regulatory / Legal Environment..

The cultural environment is in turn influenced by some of the other environments:

the economic evironment

o is the standard of living comfortable, or stressed
the technological environment
o how people are able to do things
o do they walk to work, drive
o can they use a phone, access the internet
the geographic environment
o effects weather
o growing food
o housing and living conditions
Cultural Awareness

consumer product
industrial product

Cultural Awareness
Knowing about the cultural circumstances of your target country can either help you save money, or
prevent making mistakes - and no consumer products company can afford to make mistakes in a
intensely competitive market.
The degree to which you must be culturally aware in marketing international business products and
services depends, to some extent, on whether the product/service is a consumer product or an
industrial product.
WTGR
Consumer Products, by virtue of their marketing process
o Mass advertising
o Sales Promotion
o Personal Selling
tend to require a strong degree of Cultural Awareness since this knowledge relates to the human
communication in the selling process.
Industrial Products have less requirements, for cultural awareness, (in some instances), since the
negotiation is based on a situation of which there is little debate about any required cultural
adaptations. For example, the technical specifications for an industrial ceramic automotive component
might be the same in New York as they are in Tokyo or Moscow. What is important, to make this sale,
is the price of the component and how it fits the specifications required by the component.
Other industrial products, which end up being part of a package which is evaluated by consumers, do
have to incorporate Cultural Awareness, eg. components of clothing products and food products.
.
Some textbooks say "the nation provides a workable definition of culture for international
business ..."

In reality, there are many exceptions to this in 2005.

These exceptions are the result of many political boundries breaking down as former
conquered countries leave aggregated nations and identify their own independence.
Examples include the break-up of Yugoslavia and the former Soviet Union, the turmoil in
the Middle East between Israel and Palestine, and the recent events inside Afghanistan.
It is the opinion of this world traveller that in the millenium, many nations in the world
cannot be strictly defined by their political boundaries, and the political boundaries of many
places are increasingly irrelevant to the mix of cultures contained by that boundary
Language as a Cultural Stabilizer
A common language can bring people together within a defined boundary
One of the great strengths of the Roman Empire was the fact that all
Roman citizens spoke Latin, or learned to speak it.
Key Points
for
One of the reasons, some say, that the United States became the
Understanding largest economy in the world was because it is the only place on the
planet were over 200 million people all speak the same language
across many times zones.
Aesthetics - a culture's sense of beauty and good taste
Attitudes and Beliefs

attitudes towards time

attitudes towards direct speaking and shyness
attitudes towards value of silence vs. boldness
attitudes towards achievment and work ethic
attitudes towards change, and history

Religion

attitudes towards importance of religion and its role

Protestant work ethic, Confucian work ethic
Religion as a political stabilizer p. 54, text
Religion as a disruptive force
o Northern Ireland
o Israel / Palestine

Class and Castes

India
England

Material Culture / Role of Technology

Education

brain drain
adult literacy

Language

language families of the world, map

non-verbal communication, body language
o Silent language
o Kinesics

Gift giving, bribes, inducements, "considerations"

attitudes towards respect for government and authority figure.
Many times in the international business class I ask two students (who read and write a language
other than English) to volunteer to demonstrate "translation" and "back translation" on the
blackboard at the front - invariably the back translation doesn't match the originakl sentance and
everybody has a good laugh.
After we did this in MGTC44 in February 2008 I received a nice email from one student who had some
experience with these challenges of "exactly" translating difficult words and she kindly offered to share
her experience with the rest of the class.

The Effects of Socio-Culture on Business

Businesses do not exist in a vacuum, and even the most successful business must be aware of changes in the
cultures and societies in which it does business. As society and culture change, businesses must adapt to stay
ahead of their competitors and stay relevant in the minds of their consumers.

Changing Preferences
A major socio-cultural factor influencing businesses and business decisions is changing consumer preferences.
What was popular and fashionable 20 years ago may not be popular today or 10 years down the road. Different
styles and priorities can undermine long successful products and services. For example, a clothing company
must constantly be aware of changing preferences when creating new products or it will quickly become
outdated.

Demographics
Changes in demographics are also a significant factor in the business world. As populations age, for example,
markets for popular music and fashions may shrink while markets for luxury goods and health products may
increase. Additionally, changes in the proportion of genders and different racial, religious and ethnic groups
within a society may also have a significant impact on the way a company does business.
Related Reading: The Impact of Corporate Culture on Business Strategy

Advertising Techniques
Advertising is perhaps the area of business most closely in touch with socio-cultural changes. Advertising often
seeks to be hip and trendsetting, and to do this, advertising agencies and departments cannot lose track of the
pulse of the societies in which they engage in business. Changes in morals, values and fashions must all be
considered when creating outward facing advertising.

Internal Environment
In addition to a company's interactions with the market and its customers, socio-cultural factors also impact a
company's internal decision-making process. For example, changing gender roles and increasing emphasis on
family life have led to increased respect for maternity and even paternity leave with organizations. Additionally,
attitudes towards racial discrimination and sexual harassment have changed drastically over the years as a result
of socio-cultural change.
MONOPOLIES AND RESTRICTIVE TRADE PRACTICES (MRTP):
MONOPOLIES AND RESTRICTIVE TRADE PRACTICES (MRTP)

What is meant by monopolistic trade practices?

PowerPoint Presentation:
MRTP act on 1969 It has power to stop all business that create barrier for the scope of competition. Preventing
economic power concentration Probation of monopolistic , unfair , restrictive trade practice
PowerPoint Presentation:
Control the monopolies and protect consumer interest In market deteriorate the product quality limit technical
development prevent competition adopt unfair trade practices
Unfair trade practice:
Unfair trade practice False representation and misleading advertisement of goods and services. Falsely
representing second-hand goods as new. Misleading representation regarding usefulness, need, quality,
standard, style etc of goods and services. False claims or representation regarding price of goods and services.
Giving false facts regarding sponsorship, affiliation etc. of goods and services. Giving false guarantee or warranty
on goods and services without adequate tests.
Restrictive trade practice:
Restrictive trade practice To maximize their profits and to gain power in the market to block the flow of capital into
production.
Act shall not apply to::
Act shall not apply to: Any undertaking owned or controlled by the Government Company , government itself,
corporation established under any central or state act Any other association of employees formed for their own
reasonable protection as such employees Any undertaking owned by a co-operative society formed and
registered under any Central, Provincial or state Act, Any financial institution.
MRTP Commission and Filing of Complaint:
MRTP Commission and Filing of Complaint This commission shall consist of a Chairman and minimum 2 and
maximum 8 other members, all to be appointed by the Central Government . Every member shall hold the office
for a period specified by the Central Government. This period shall not exceed 5 years. In case of any unfair
trade practice, monopolistic trade practice and/or restrictive trade practice, a complaint can be filed against such
practices to the MRTP commission.

Monopolistic Trade Practices

A monopolistic trade practice is one, which has or is likely to have the effect of:

i.

ii.

maintaining the prices of goods or charges for the services at an unreasonable level by
limiting, reducing or otherwise controlling the production, supply or distribution of goods or
services;
unreasonably preventing or lessening competition in the production, supply or distribution
of any goods or services whether or not by adopting unfair method or fair or deceptive
practices;

iii.

limiting technical development or capital investment to the common detriment;

iv.

deteriorating the quality of any goods produced, supplied or distribute; and

v.

increasing unreasonably -

a.

the cost of production of any good; or

b.

charges for the provision, or maintenance, of any services; or

c.

the prices for sale or resale of goods; or

d.

the profits derived from the production, supply or distribution of any goods or
services.

A monopolistic trade practice is deemed to be prejudicial to the public interest, unless it is expressly
authorized under any law or the Central Government permits to carry on any such practice.
Inquiry into Monopolistic Trade Practices
The Commission may inquire into
Any monopolistic trade practice,

Upon a reference made to it by the Central Government or

Upon an application made to it by the Director General or

Upon it own knowledge or information

Relief Available

a. Where the inquiry by the Commission reveals that the trade practice inquired into operates or
is likely to operate against public interest, the Central Government may pass such orders as it
thinks fit to remedy or present any mischief resulting from such trade practice.

b. On an inquiry report of the Commission, the Central Government mayi.

ii.

Prohibit the owner(s) of the concerned undertaking(s) from continuing to indulge in a

monopolistic trade practice; or
Prohibit the owner of any class of undertakings or undertakings generally, from
continuing to indulge in any monopolistic trade practice in relation to the goods or
services.

c. The Central Government may also make an order:

i.

ii.

Regulating the production, storage, supply, distribution, or control of any goods or

services by an undertaking and fixing the terms of their sale (including prices) or
supply;
Prohibit any act or practice or commercial policy which prevents or lessens
competition in the production, storage, supply or distribution of any goods or services;

iii.

Fixing standards for the goods used or produced by an undertaking;

iv.

Declaring unlawful the making or carrying out of the specified agreement;

v.
vi.
vii.

Requiring any party to the specified agreement to determine the agreement within the
specified time, either wholly or to specified extent;
Regulating the profits which may be derived from the production, storage, supply,
distribution or control of any goods or services; or
Regulating the quality of any goods or services so that their standard does not
deteriorate.
MONOPOLIES AND RESTRICTIVE TRADE PRACTICE COMMISSION

Complaints regarding monopolistic trade practice, unfair trade practice and restrictive trade practice
can be made to the MRTP commission at the following address:
Director General (Investigation & Registration)
MRTPC
Bikaner House Baracks
Shahjahan Road
New Delhi 110011
Procedure of action on complaint:
Inquiry may be initiated through a complaint by an individual or registered consumer
organisation.

Fact finding investigation is carried on by the Director General.

If no prima facie case is made, the complaint is dismissed, else an order is passed to
that effect.
The commission may restrain the party concerned from carrying on the impugned
trade practices by granting temporary injunction.
Final order is passed. Compensation may be granted to the complainant.
MRTP ACT

The Monopolies and Restrictive Trade Practices Act, 1969, aims to prevent concentration of economic
power to the common detriment, provide for control of monopolies and probation of monopolistic,
restrictive and unfair trade practice, and protect consumer interest.

Monopolistic trade practice:

Monopolistic trade practice is that which represents abuse of market power in the production and
marketing of goods and services by eliminating potential competitors from market and taking
advantage of the control over the market by charging unreasonably high prices, preventing or
reducing competition, limiting technical development, deteriorating product quality or by adopting
unfair or deceptive trade practices.
Unfair Trade Practice:
Misleading advertisement and False Representation
Falsely representing that goods and services are of a particular standard, quality, grade,
composition or style.
Falsely representing any second hand renovated or old goods as new.
Representing that goods or services, seller or supplier have a sponsorship, approval or
affiliation which they do not have.
Making a false or misleading representation concerning need for, or usefulness of goods or
services.
Giving to public any warranty, guarantee of performance that is not based on an adequate
test or making to public a representation which purports to be such a guarantee or warranty.
False and misleading claims with respect to the price of goods or services.
Giving false or misleading facts disparaging the goods, services or trade of another person or
concern.
Restrictive Trade Practice:
To maximise profits and market power, traders often attempt to indulge in certain trade practices
which tend to obstruct the flow of capital into the stream of production. It may also bring manipulation
of prices or conditions of delivery or affect the flow of supplies in the market so as to impose
unjustified costs.

How are these practices controlled?

Investigation into restrictive trade practices by Commission
(1) The Commission may inquire into any restrictive trade practice, whether the agreement, if any,
relating thereto has been registered under section 35 or not, which may come before it for inquiry it is
of opinion that the practice is prejudicial to the public interest, the Commission may, by order, direct
that,(a) the practice shall be discontinued or shall not be repeated;
(b) the agreement relating thereto shall be void in respect of such restrictive trade practice or
shall stand modified in respect thereof in such manner as may be specified in the order.

(2) The Commission may, instead of making any order under this section, permit the party to any
restrictive trade practice, if he so applies, to take such steps within the time specified in this behalf by
the Commission as may be necessary to ensure that the trade practice is no longer prejudicial to the
public interest, and, in any such case, if the Commission is satisfied that the necessary steps have
been taken within the time specified, it may decide not to make any order under this section in respect
of the trade practice.
(3) No order shall be made under sub-section (1) in respect of (a) any agreement between buyers relating to goods which are bought by the buyers for
consumption and not for ultimate resale whether in the same or different form, type or specie
or as constituent of some other goods;
(b) a trade practice which is expressly authorized by any law for the time being in force.
(4) Notwithstanding anything contained in this Act, if the Commission, during the course of an inquiry
48
under sub-section (1), finds that [the owner of any undertaking is indulging in monopolistic trade
practices], it may, after passing such orders under sub-section (1) or sub-section (2) with respect to
the restrictive trade practices as it may consider necessary, submit the case along with its findings
49
thereon to the Central Government [* * *] for such action as that Government may take under
section 31.

Presumption as to the public interest

(1) For the purposes of any proceedings before the Commission under section 37, a restrictive trade
practice shall be deemed to be prejudicial to the public interest unless the Commission is satisfied of
any one or more of the following circumstances, that is to say(a) that the restriction is reasonably necessary, having regard to the character of the goods to
which it applies, to protect the public against injury (whether to persons or to premises) in
connection with the consumption, installation or use of those goods;
(b) that the removal of the restriction would deny to the public as purchasers, consumers or
users of any goods, other specific and substantial benefits or advantages enjoyed or likely to
be enjoyed by them as such, whether by virtue of the restriction itself or of any arrangements
or operations resulting there from;
(c) that the restriction is reasonable necessary to counteract measures taken by any one
person not party to the agreement with a view to preventing or restricting competition in or in
relation to the trade or business in which the persons party thereto are engaged;
(d) that the restriction is reasonably necessary to enable the persons party to the agreement
to negotiate fair terms for the supply of goods to, or the acquisition of goods from, any one
person not party thereto who controls a preponderant part of the trade or business of
acquiring or supplying such goods, or for the supply of goods to any person not party to the
agreement and not carrying on such a trade or business who, either alone or in combination
with any other such persons, controls a preponderant part of the market for such goods;
(e) that, having regard to the conditions actually obtaining or reasonably foreseen at the time
of the application, the removal of the restriction would be likely to have a serious and
persistent adverse effect on the general level of unemployment in an area, or in areas taken
together, in which a substantial proportion of the trade, or industry to which the agreement
relates is situated;
(f) that, having regard to the conditions actually obtaining or reasonably foreseen at the time
of the application, the removal of the restriction would be likely to cause a reduction in the
volume or earnings of the export business which is substantial either in relation to the whole

export business of India or in relation to the whole business (including export business) of the
said trade or industry;
(g) that the restriction is reasonably required for purposes in connection with the maintenance
of any other restriction accepted by the parties, whether under the same agreement or under
any other agreement between them, being a restriction which is found by the Commission not
to be contrary to the public interest upon grounds other than those specified in this paragraph
50
or has been so found in previous proceedings before the Commission; [* * *]
(h) that the restriction does not directly or indirectly restrict or discourage competition to any
material degree in any relevant trade or industry and is not likely to do so;
10

[(i) that such restriction has been expressly authorized and approved by the Central
Government;
(j) that such restriction is necessary to meet the requirements of the defense of India or any
part thereof, or for the security of the State; or
(k) that the restriction is necessary to ensure the maintenance of supply of goods and
services essential to the community,]
and is further satisfied (in any such case) that the restriction is not unreasonable having regard to the
balance between those circumstances and any detriment to the public or to persons not parties to the
agreement (being purchases, consumers or users of goods produced or sold by such parties, or
persons engaged or seeking to become engaged in the trade or business of selling such goods or of
producing or selling similar goods, resulting or likely to result from the operation of the restriction.
(2) In this section "purchasers", "consumers" and "users" include person purchasing, consuming or
using for the purpose or in the course of trade or business or for public purchase; and references in
this section to any one person including references to any two or more persons being inter-connected
undertakings or individuals carrying on business in partnership with each other.

Special conditions for avoidance of conditions for maintaining resale prices

(1) Without prejudice to the provisions of this Act with respect to registration and to any of the powers
of the Commission or of the Central Government under this Act, any term or condition of a contract for
the sale of goods by a person to a wholesaler or retailer or any agreement between a person and
wholesaler or retailer or any agreement between a person and a wholesaler or retailer relating to such
sale shall be void insofar as it purports to establish or provide for the establishment of minimum prices
to be charged on the resale of goods in India.
(2) After the commencement of this Act, no supplier of goods whether directly or through any person
or association of persons acting on his behalf shall notify to dealers or otherwise publish on or in
relation to any goods, a price stated or calculated to be understood as the minimum price which may
be charged on the resale of the goods in India.
(3) This section shall apply to patented articles (including articles made by a patented process and
articles made under any trade mark) as it applies to other goods and notice of any term of condition
which is void by virtue of this section or which would be so void if included in a contract of sale or
agreement relating to the sale of such article shall be of no effect for the purpose of limiting the right
of a dealer to dispose of that article without infringement of the patent or trade mark, as the case may
be:
PROVIDED that nothing in this section shall affect the validity as between the parties and their
51
successors, of any term or condition of a license granted by the proprietor of a patent or [trade mark
or by a licensee of patent or trade mark] or of any assignment of a patent or trade mark, so far as it

regulates the price at which articles produced or processed by the licensee or the assignee may be
sold by him.
Explanation : In this section and in section 40, the term "supplier", in relation to supply of any goods,
means a person who supplies goods to any person for the ultimate purpose of resale and includes a
wholesaler, and the term "dealer" includes a supplier and a retailer

Prohibition of other measures for maintaining resale prices

(1) Without prejudice to the provisions of this Act with respect to registration and to any of the powers
of the Commission or of the Central Government under this Act, no supplier shall withhold supplies of
any goods from any wholesaler or retailer seeking to obtain them for resale in India on the ground that
the wholesaler or retailer(a) has sold in India at a price below resale price, goods obtained, either directly or indirectly,
from that supplier, or has supplied such goods, either directly or indirectly, to a third party who
had done so; or
(b) is likely if the goods are supplied to him to sell them in India at a price below that price or
supply them, either directly or indirectly, to a third party who would be likely to do so.
(2) Nothing contained in sub-section (1) shall render it unlawful for a supplier to withhold supplies of
goods from any wholesaler or retailer or to cause or procure another supplier to do so if he has
reasonable cause to believe that the wholesaler or the retailer, as the case may be, has been using
as loss leaders any goods of the same or a similar description whether obtained from that supplier or
not.
(3) A supplier of goods shall be deemed to be with holding supplies of goods from a dealer if he(a) refuses or fails to supply those goods to the order of the dealer;
(b) refuses to supply those goods to the dealer except at prices, or on terms or conditions as
to credit, discount or other matters which are less favorable than those at or on which he
normally supplies those goods to other dealers carrying on business in similar circumstances;
or
(c) treats a dealer, in spite of a contract with such dealer for the supply of goods, in a manner
less favorable than that in which he normally treats other dealers in respect of time or
methods of delivery or other matters arising in the performance of the contract.
(4) A supplier shall not be deemed to be withholding supplies of goods on any of the grounds
mentioned in sub-section (1), if, in addition to that ground, he has any other ground which alone would
entitle him to withhold such supplies.
Explanation I: "Resale price" in relation to sale of goods of any description, means any price notified
to the dealer or otherwise published by or on behalf of the supplier of the goods in question (whether
lawfully or not) as the price or minimum price which is to be charged on, or is recommended as
appropriate for, a sale of that description or any price prescribed or purporting to be prescribed for
that purpose by any contract or agreement between the wholesaler or retailer and any such supplier.
Explanation II: A wholesaler or retailer is said to use goods as loss leaders when he re-sells them
otherwise than in a genuine seasonal or clearance sale not for the purpose of making a profit on the
resale but for the purpose of attracting to the establishment at which the goods are sold, customers
likely to purchase other goods or otherwise for the purpose of advertising his business.

. Power of Commission to exempt particular classes of goods from sections 39 and 40

32

(1) The Commission may, on a reference made to it by the [Director General]or any other person
interested, by order, direct that goods of any class specified in the order shall be exempt from the
operation of sections 39 and 40 if the Commission is satisfied that in default of a system of maintained
minimum resale prices applicable to those goods(a) the quality of goods available for sale or the varieties of goods so available would be
substantially reduced to the detriment of the public as consumers or users of those goods, or
(b) the prices at which the goods are sold by retail would, in general and in the long run, be
increased to the detriment of the public as such consumers or users, or
(c) any necessary services actually provided in connection with or after the sale of the goods
by retail would cease to be so provided or would be substantially reduced to the detriment of
the public as such consumers or users.
2) On a reference under this section in respect of goods of any class which have been the subject of
proceedings before the Commission under section 31, the Commission may treat as conclusive any
evidence of fact made in those proceedings.

Explain the primary and secondary capital markets briefly. Describe the
methods of making capital issues.
. The main components of capital market are: 1. Primary Market 2.
Secondary Market !
1. Primary Market (New Issue Market):
Primary market is also known as new issue market. As in this market securities are sold for
the first time, i.e., new securities are issued from the company. Primary capital market
directly contributes in capital formation because in primary market company goes directly to
investors and utilises these funds for investment in buildings, plants, machinery etc.
The primary market does not include finance in the form of loan from financial institutions
because when loan is issued from financial institution it implies converting private capital into
public capital and this process of converting private capital into public capital is called going
public. The common securities issued in primary market are equity shares, debentures,
bonds, preference shares and other innovative securities.
Method of Floatation of Securities in Primary Market:
The securities may be issued in primary market by the following methods:
1. Public Issue through Prospectus:

Under this method company issues a prospectus to inform and attract general public. In
prospectus company provides details about the purpose for which funds are being raised,
past financial performance of the company, background and future prospects of company.
The information in the prospectus helps the public to know about the risk and earning
potential of the company and accordingly they decide whether to invest or not in that
company Through IPO company can approach large number of persons and can approach
public at large. Sometimes companies involve intermediaries such as bankers, brokers and
underwriters to raise capital from general public.
2. Offer for Sale:
Under this method new securities are offered to general public but not directly by the
company but by an intermediary who buys whole lot of securities from the company.
Generally the intermediaries are the firms of brokers. So sale of securities takes place in two
steps: first when the company issues securities to the intermediary at face value and second
when intermediaries issue securities to general public at higher price to earn profit. Under
this method company is saved from the formalities and complexities of issuing securities
directly to public.
3. Private Placement:
Under this method the securities are sold by the company to an intermediary at a fixed price
and in second step intermediaries sell these securities not to general public but to selected
clients at higher price. The issuing company issues prospectus to give details about its
objectives, future prospects so that reputed clients prefer to buy the security from
intermediary. Under this method the intermediaries issue securities to selected clients such
as UTI, LIC, General Insurance, etc.
The private placement method is a cost saving method as company is saved from the
expenses of underwriter fees, manager fees, agents commission, listing of companys name
in stock exchange etc. Small and new companies prefer private placement as they cannot
afford to raise from public issue.

4. Right Issue (For Existing Companies):

This is the issue of new shares to existing shareholders. It is called right issue because it is
the pre-emptive right of shareholders that company must offer them the new issue before
subscribing to outsiders. Each shareholder has the right to subscribe to the new shares in
the proportion of shares he already holds. A right issue is mandatory for companies under
Companies Act 1956.
The stock exchange does not allow the existing companies to go for new issue without
giving pre-emptive rights to existing shareholders because if new issue is directly issued to
new subscribers then the existing equity shareholders may lose their share in capital and
control of company i.e., it would water their equity. To stop this the pre-emptive or right issue
is compulsory for existing company.
5. e-IPOs, (electronic Initial Public Offer):
It is the new method of issuing securities through on line system of stock exchange. In this
company has to appoint registered brokers for the purpose of accepting applications and
placing orders. The company issuing security has to apply for listing of its securities on any
exchange other than the exchange it has offered its securities earlier. The manager
coordinates the activities through various intermediaries connected with the issue.
2. Secondary Market (Stock Exchange):
The secondary market is the market for the sale and purchase of previously issued or
second hand securities.
In secondary market securities are not directly issued by the company to investors. The
securities are sold by existing investors to other investors. Sometimes the investor is in need
of cash and another investor wants to buy the shares of the company as he could not get
directly from company. Then both the investors can meet in secondary market and exchange
securities for cash through intermediary called broker.
In secondary market companies get no additional capital as securities are bought and sold
between investors only so directly there is no capital formation but secondary market
indirectly contributes in capital formation by providing liquidity to securities of the company.

If there is no secondary market then investors could get back their investment only after
redemption period is over or when company gets dissolved which means investment will be
blocked for a long period of time but with the presence of secondary market, the investors
can convert their securities into cash whenever they want and it also gives chance to
investors to make profit as securities are bought and sold at market price which is generally
more than the original price of the securities.
This liquidity offered by secondary market encourages even those investors to invest in
securities who want to invest for small period of time as there is option of selling securities at
their convenience.

Capital Market is the market, which provides the fund for which provides the fund
for long term. It is the market, which deals in shares which deals in shares,
debentures and bonds.
PRIMARY MARKET PRIMARY MARKET: It is a type of capital market from
whichthe business undertakings collect their business undertakings collect their long
term and medium term funds through the new issue of shares. through the new issue
of shares.
Secondary market: It is a type of capital market which helps to purchase And sell
shares helps to purchase And sell shares and debentures already issued.

2. CAPITAL MARKET The market where investment instruments like bonds, equities and
mortgages are traded is known as the capital market. The primal role of this market is to
make investment from investors who have surplus funds to the ones who are running a deficit.

3. The capital market offers both long term and overnight funds. The different types of
financial instruments that are traded in the capital markets are: > equity instruments > credit
market instruments, > insurance instruments, > foreign exchange instruments, > hybrid
instruments and > derivative instruments.

4. Nature of capital marketThe nature of capital market is brought out by the following facts:
It Has Two Segments It Deals In Long-Term Securities It Performs Trade-off Function It
Creates Dispersion In Business Ownership It Helps In Capital Formation It Helps In
Creating Liquidity

5. Types of capital marketThere are two types of capital market: Primary market,
Secondary market

6. Primary Market It is that market in which shares, debentures and other securities are sold
for the first time for collecting long-term capital. This market is concerned with new issues.
Therefore, the primary market is also called NEW ISSUE MARKET.

7. In this market, the flow of funds is from savers to borrowers (industries), hence, it helps
directly in the capital formation of the country. The money collected from this market is
generally used by the companies to modernize the plant, machinery and buildings, for
extending business, and for setting up new business unit.

8. Features of Primary Market It Is Related With New Issues It Has No Particular Place It
Has Various Methods Of Float Capital: Following are the methods of raising capital in the
primary market: i) Public Issue ii) Offer For Sale iii) Private Placement iv) Right Issue v)
Electronic-Initial Public Offer It comes before Secondary Market

9. Secondary Market The secondary market is that market in which the buying and selling of
the previously issued securities is done. The transactions of the secondary market are
generally done through the medium of stock exchange. The chief purpose of the secondary
market is to create liquidity in securities.

10. If an individual has bought some security and he now wants to sell it, he can do so
through the medium of stock exchange to sell or purchase through . the medium of stock
exchange requires the services of the broker presently, their are 24 stock exchange in India.

11. Features of Secondary Market It Creates Liquidity It Comes After Primary Market It
Has A Particular Place It Encourages New Investments

Three Primary Methods Used to Make Capital Budgeting

Decisions
Related Articles

What Are Capital Budgeting and Capital Structure?

Limitations of Capital Budgeting
The Difference Between a Capital Budget Screening Decision & Preference Budget
Sensitivity Analysis for Capital Budgeting
Techniques in Capital Budgeting Decisions
Why Is the Time Value of Money So Important in Capital Budgeting Decisions?

Capital budgeting is the process of determining whether or not an investment is worthwhile. Often
companies will have several opportunities and must measure each one's potential in order to make a
comparison and choose just one or a few. For example, a company might be trying to determine
whether to buy new equipment to expand production capacity on an existing product, or to invest in
research and development for a new product. The three main methods of taking this measurement
are Net Present Value (NPV), Internal Rate of Return (IRR) and Payback Period.

IRR
Internal Rate of Return is a percentage very similar to an interest rate, and is used to compare a
capital investment against other kinds of investment. Divide the expected profit by the expected
expenditure, and you'll arrive at a percentage of returns. Then look at the company's other projects
and determine the minimum acceptable percentage of return; this is called the hurdle rate. If the IRR
is higher than the hurdle rate, the project is worth pursuing. The IRR is easy to understand, and is
thus the most commonly used technique, though the NPV is more accurate.

NPV
Net Present Value, or NPV, combines two concepts of value. First, it determines how much cash will
flow in as a result of the investment, and compares that against the cash that will flow out in order to
make the investment. Since these flows take place over time, and often the investment will pay off
much later, we also take into account the present and future value of money. Because of inflation,
money earned in the future is worth less in today's dollars than the same amount would be today.
Therefore, NPV calculates all of those inflows and outflows over time, takes inflation and foreign
exchange rates into account, and expresses the final benefit to the company in terms of today's
dollars.
Related Reading: The Difference Between a Capital Budget Screening Decision & Preference
Budget

Payback Period
Very simply, the payback period tells you how long it will take to recover your investment in a project.
If it will take one year to make back the investment from revenues from a new product, the payback
period is 1. The payback period method is antiquated and falling into disuse, because it has some
significant drawbacks. It doesn't take into account the time value of money, and it tends to favor very
cyclical products that make the bulk of their money up front, rather than those that build momentum
and can produce cash inflows over a long period.

Multiple Techniques
Most companies use multiple techniques for all of their capital budgeting decisions. There are a
number of minor methods, such as profitability index and sensitivity analysis, which can also be
employed in making decisions. Since each method looks at the investment from a different
perspective, it is best to employ multiple analyses and take the opportunities with the best return
according to all techniques.

METHODS OF GROWTH
Small businesses can expand their operations by pursuing any number of avenues.
The most commonplace methods by which small companies increase their business
are incremental in character, i.e., increasing product inventory or services rendered
without making wholesale changes to facilities or other operational components. But
usually, after some period of time, businesses that have the capacity and desire to
grow will find that other options should be studied. Common routes of small
business expansion include:

Growth through acquisition of another existing business (almost always smaller in

size)

Offering franchise ownership to other entrepreneurs

Licensing of intellectual property to third parties

Establishment of business agreements with distributorships and/or dealerships

Pursuing new marketing routes (such as catalogs)

Joining industry cooperatives to achieve savings in certain common areas of

operation, including advertising and purchasing

public stock offerings

Employee stock ownership plans

Of course, none of the above options should be pursued until the business's
ownership has laid the necessary groundwork. "The growth process begins with an
honest assessment of strengths and weaknesses," wrote Erick Koshner in Human
Resource Planning. "Given those skills, the organization then identifies the key
markets or types of future market opportunities the company is likely to capture.
This, of course, raises another set of issues about how to best develop the structures
and processes that will further enhance the organization's core capabilities. Once
these structures and processes are identified and the long range planning completed,
the business has a view of where it will be in three to five years and agreement on key
strategies for building future business."

EXPANSION ISSUES
Whatever method a company chooses to utilize to expandand whatever guiding
strategy it chooses to employits owners will likely face a combination of potentially
vexing issues as they try to grow their business in a smooth and productive manner.
"Expanding a company doesn't just mean grappling with the same problems on a
larger scale," wrote Sharon Nelton in Nation's Business. "It means understanding,
adjusting to, and managing a whole new set of challengesin essence, a very
different business."
GROWING TOO FAST This is a common malady that strikes ambitious and talented

entrepreneurs who have built a thriving business that meets a strong demand for a
specific set of goods and/or services. Success is wonderful, of course, but rapid
growth can sometimes overwhelm the ill-prepared business owner. "Companies
growing at hyper-speed sometimes pay a steep price for their success,"
confirmed Ingram's contributor Bonar Menninger. "According to management
experts, controlling fast-track growth and the problems that come with it can be one
of the most daunting tasks an entrepreneur will face." This problem most often
strikes on the operational end of a business. Demand for a product will outpace
production capacity, for example. In such instances, the business often finds that its

physical needs have outgrown its present facilities but that its lease agreement or
other unanticipated factors hinder its ability to address the problem. "You may sign a
five-year lease for a building, and 18 months later you're busting at the seams," one
executive told Menninger. "We had to move three times in five years. When we
signed our latest lease, we signed a three-year deal. It's a little more expensive, but
we can bail if we have to." In other cases, a business may undergo a period of feverish
expansion into previously untapped markets, only to find that securing a meaningful
share of that market brings them unacceptably low profit margins. Effective research
and long range planning can do a lot to relieve the problems often associated with
rapid business expansion.
RECORDKEEPING AND OTHER INFRASTRUCTURE NEEDS It is essential for small

businesses that are undergoing expansion to establish or update systems for

monitoring cash flow, tracking inventories and deliveries, managing finances,
tracking human resources information, and myriad other aspects of the rapidly
expanding business operation. As one business owner told Nation's Business, "if you
double the size of the company, the number of bills you have goes up by a factor of
six." Many software programs currently available in the marketplace can help small
businesses implement systems designed to address these recordkeeping
requirements. In addition, growing enterprises often have to invest in more
sophisticated communication systems in order to provide adequate support to
various business operations.
EXPANSION CAPITAL Small businesses experiencing growth often require additional

financing. Finding expansion capital can be a frustrating experience for the illprepared entrepreneur, but for those who plan ahead, it can be far less painful.
Businesses should revise their business plan on an annual basis and update
marketing strategies accordingly so that you are equipped to secure financing under
the most advantageous terms possible.
PERSONNEL ISSUES Growing companies will almost always have to

hire new

personnel to meet the demands associated with new production, new marketing
campaigns, new recordkeeping and administrative requirements, etc. Careful hiring
practices are always essential, but they are even more so when a business is engaged
in a sensitive period of expansion. As one consultant told Ingram's, "too often,

companies spend all their energy on marketing and production plans and ignore
developing similar roadmaps for their personnel needs."
Business expansion also brings with it increased opportunities for staff members
who were a part of the business in its early days. The entrepreneur who recognizes
these opportunities and delegates responsibilities appropriately can go far toward
satisfying the desires of employees who want to grow in both personal and
professional capacities. But small business owners also need to recognize that
business growth often triggers the departure of workers who are either unable or
unwilling to adjust to the changing business environment. Indeed, some employees
prefer the more relaxed, family-type atmosphere that is prevalent at many small
business establishments to the more business-like environment that often
accompanies periods of growth. Entrepreneurs who pursue a course of ambitious
expansion may find that some of their most valuable and well-liked employees decide
to instead take a different path with their lives. In addition, Nelton pointed out that
"some employees may not be able to grow with the company. You may have to let
them go, despite their intense loyalty and the fact that they have been with the
company since its inception. This will be painful."
CUSTOMER SERVICE Good customer service is often a significant factor in small

business success, but ironically it is also one of the first things that tends to fall by the
wayside when business growth takes on a hectic flavor. "When the workload
increases tremendously, there's a feeling of being overwhelmed," one small business
owner admitted to Menninger. "And sometimes you have a hard time getting back to
clients in a timely fashion. So the very customer service that caused your growth in
the first place becomes difficult to sustain." Under such scenarios, businesses not
only have greater difficulty retaining existing clients, but also become less effective at
securing new business. A key to minimizing such developments is to maintain
adequate staffing levels to ensure that customers receive the attention and service
they demand (and deserve).
DISAGREEMENTS AMONG OWNERSHIP On many occasions, ownership

arrangements that functioned fairly effectively during the early stages of a company's
life can become increasingly problematic as business issues become more complex
and divergent philosophies emerge. For example, Sherman noted that in many
growing enterprises that were founded by two or more people, "one or more of the

cofounders are unable to keep pace with the level of sophistication or business
acumen that the company now requires. Such a cofounder is no longer making a
significant contribution to the business and in essence has become 'obsolete.' It's
even harder when the obsolete partner is a close friend or family member: In this
case, you need to ask: Will the obsolete cofounder's ego allow for a position of
diminished responsibility? Can our overhead continue to keep him or her on staff?"
Another common scenario that unfolds during times of business growth is that the
owners realize that they have profoundly different visions of the company's future
direction. One founder may want to devote resources to exploring new marketing
niches, while the other may be convinced that consolidation of the company's
presence in existing markets is the way to go. In such instances, the departure of one
or more partners may be necessary to establish a unified direction for the growing
company.
FAMILY ISSUES Embarking on a strategy of aggressive business expansion

typically entails an extensive sacrifice of timeand often of moneyon the part of

the owner (or owners). But as Sherman noted, "many growing companies, especially
those founded by younger entrepreneurs, are established at a time when all of the
cofounders are either unmarried or in the early stages of a marriage. As the size of
the company grows, so does the size of the cofounders family. Cofounders with young
children may feel pressure to spend more time at home, but their absence will
significantly cut their ability to make a continuous, valuable contribution to the
company's growth." Entrepreneurs pondering a strategy of business growth, then,
need to decide whether they are willing to make the sacrifices that such initiatives
often require.
METAMORPHOSIS OF COMPANY CULTURE As companies grow, entrepreneurs often

find it increasingly difficult for them to keep the business grounded on

the bedrock values that were instituted in its early days. Owners are ultimately the
people that are most responsible for communicating those values to employees. But
as staff size increases, markets grow, and deadlines proliferate, that responsibility
gradually falls by the wayside and the company culture becomes one that is far
different from the one that was in placeand enjoyedjust a few short years ago.
Entrepreneurs need to make sure that they stay attentive to their obligations and role
in shaping company culture.

CHANGING ROLE OF OWNER "In the early years, from the time you

start a business

until it stabilizes, your role [as small business owner] is probably handson," said
Nelton. "You have few employees; you're doing lots of things yourself. But when a
company experiences its first real surge of growth, it's time for you to change what
you do. You need to become a CEOthat is, the leader, the strategic thinker, and the
plannerand to delegate day-to-day operations to others." Moreover, as businesses
grow in size they often encounter problems that increasingly require the experience
and knowledge of outside people. Entrepreneurs guiding growing businesses have to
be willing to solicit the expertise of accounting and legal experts where necessary,
and they have to recognize their shortcomings in other areas that assume increased
importance with business expansion.
Differentiate between the following: Internal Environment and External

Environment
UNDERSTANDING THE DIFFERENCE between internal and external business
environments is very important. These environments have a major effect on the
operations and performance of the company.

To fully understand the difference between internal and external business

environments and how they apply to your company, you need to establish what each
environment represents. As the name suggests, internal business environment
refers to internal factors and resources that affect the running of the business. This
primarily includes the workforce. The employees play a vital role in affecting the
companys performance. If you have well trained, motivated employees, you are
more likely to get good output from them. However, if you have unmotivated
employees who dont work hard or dig in their heels when a new plan is proposed,
this will definitely affect your companys production levels.

Another factor is the company assets available, such as plants and machinery, motor
vehicles, and any other equipment used in production. If you have adequate assets
in good condition, your production will be better than if you dont. Another
component of the internal business environment is your available finances. This
includes your capital, if youre just starting out. In an established business, this
includes all the money available to facilitate the day-to-day running of the business.

The external business environments include factors: political, technological,

economical, legal, demographic and socio-cultural. These factors may not have an
immediate direct effect on your business, but they will play a role in shaping your
business with time. For instance, if your country faces economic hardships, your
business may not do so well. Your markets spending habits will change accordingly,
your raw materials costs will also change, and you may end up reducing your
production and letting go of some of your employees. Retrenchment is one of the
biggest negative impacts of economic problems.

Technology can have negative or positive impacts on a business. Technological

developments can help make your work easier and increase your productivity; it can
also allow for the expansion of your business. However, it can lead to the reduction
of your workforce due machines which, therefore, means loss of jobs for some
people. For instance, a job that was previously done by ten people may now be done
by one person who will be operating the machines.

External environments may also affect your ability to acquire loans from banks or
other financial institutions. For instance, when the economy goes down, financial
institutions dont lend money easily. This is because they are also affected by the
economy; they may, therefore, have inadequate funds. Most institutions also
consider these times very risky for lending out money.
Many people and businesses may not be in a position to pay back the loans that they
get. Economic crisis will also affect the internal operations of a business. For
instance, the business will not have a lot of financial resources due to the loss of a
ready market. Some businesses also end up retrenching some of their clients due to
the reduction of work and inability of the company to maintain the employees
payment packages.

Sometimes external and internal environments are intertwined. For instance,

political and economic issues will affect the availability of a workforce and other
resources. They will also affect the availability of finances to the business. During
political unrests, most businesses are not able to operate normally and some end up
shutting down all together.

Other external environments that can affect the internal environment include legal
restrictions. Sometimes, laws are passed that affect some businesses. For instance,

some of the laws like the increase of taxes on some goods and services affect the
business. When tanning taxes were increased in America, a lot of Americans stopped
going to tanning salons. The business operations were reduced and the clients
decreased in numbers.

Other factors that can be described as part of the external environment include
natural disasters or calamities, such as tornados, hurricanes and tsunamis. These
calamities affect the operations of the business. They affect the workforce, the
market, and all other resources and, in most cases, they lead to the closure of the
business due to property destruction.

The central difference between internal and external business environments is that,
one can be controlled while the other one cant. However, you have some control over
your internal business environment. You can control your management and
resources to ensure that you realize good production levels at your company.
External environments, on the other hand, arent easy to control or manage. In fact,
some of these factors can lead to the closure of your business.

The main reason why the external environments are hard to control is because, at
times, they can be unpredictable. For instance, it may be hard to plan ahead for the
occurrence of a natural disaster. Furthermore, you may not be in a position to do
anything about them when they occur, unlike internal environments that you may
be able to control and manage effectively. If you maintain a corporate risk
assessment, you can put up measures to deal with any problems that may occur as a
result of issues with the internal environment. However, its hard to prepare for
external environments since some of the issues that occur arent predictable.

WHAT IS DIFFERENCE BETWEEN

ECONOMIC GROWTH AND ECONOMIC
DEVELOPMENT?
Posted by : Ahsan KhanThursday, 22 December 2011

In general, the terms Economic Growth and Economic Development are used
to express the same idea i. e., Economic Advancement. But the term economic
development is more comprehensive in its scope. Growth means persistent increase in
per capita income. While development includes growth and structural changes like,
infrastructural, social and political in the country.
ECONOMIC GROWTH:

Definitions:

According to Micheal P. Todaro.

Economic growth is a steady process by which the productive capacity of the economy
is increased over time to bring about rising levels of national output and income.

According to Simon Kuznets.

Economic growth may be defined as a long term process wherein the substantial and
sustained rise in real national income, total population and real per capita income takes
place.

Essentials of Economic Growth:

Above definitions are showing following basics of economic growth:
Economic growth is a long run process; it includes a period of decades.
Economic growth shows higher rate of increase in real per capita income than rate of
growth of population.
Economic growth is always linked with large increase in productive ability of the
economy.
Economic growth is connected with the fair distribution of income and wealth.
Economic growth is attached with the reduction in poverty and unemployment.
ECONOMIC DEVELOPMENT:

i.
ii.
iii.
iv.
v.

Definitions:

Simple Definition.
It refers to the process whereby the total supply of goods and services of the society
increases leading towards improved living standard.

According to Micheal P. Todaro.

Development must be conceived (considered) for as a multi-dimensional process
involving major change in social structures, popular attitudes and national institutions as
well as the acceleration of eco-growth, the eradication (end) of poverty and reduction of
inequality of wealth.

Structural Changes of Economic Development:

Economic development represents following structural changes in various sectors of
the country:
There is a change in the occupational structure. In economic development there
is decrease in the share of labour force in primary sector (farming, fishing and mining
etc.) and increase in the share of labour force in secondary sector (industry etc).
i.

ii.
iii.

iv.
v.

There is a change in the structure of national output. The contribution of primary

sector in the national output falls and the share of secondary and tertiary (3 rd) sector
slowly go up.
There is a change in the structure of industrial production. There is an increase in
the production of capital goods and decrease in the production of consumer goods.
There is a change in the structure of foreign trade. The share of primary goods in
exports decreases and the share of capital goods in imports increase. Accordingly, in
economic development there is an increase in exports of manufactured and final goods.
Similarly, there is decrease in the imports of consumer items.
There is a change in the structure of technology. In the economic development
modern and advanced techniques are used in all the sectors of economy.
There is a change in the social and institutional sector. Due to economic
development there is an increase in the self-esteem and living standard of the
population.
Conclusion:
We conclude that, normally the terms economic growth and economic development
are used for the explanation of encouraging changes in the economic achievements of a
country.

Economic Growth

Economic Development

= Annual increase in per capita income

= Economic Growth + Structural Changes

DIFFERENCES BETWEEN ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT:

Both the terms seem similar, but there are various following points, which create
difference between these two:
1- Definition

Economic Growth

Economic Development

The term economic growth is only

concerned with raising income level and The
basic
feature
of
economic
volume of production of goods and development is to raise income level and
improve the human being.
services.
2- Nature in Economic Literature
Economic Growth
Economic Development
Economic growth is the key issue
undertraditional economics. According to
this approach take care of growth and
poverty would eliminate automatically.

Economic development is the main issue

under modern
economics literature.
Accordingly, take care of poverty and
growth would take care of itself.
3- Scope

Economic Growth

Economic Development

Scope of economic development is

wideand comprehensive than economic
Scope
of
economic
growth is growth. Its link is not only with income but
narrowbecause it is concerned with also with the prosperity of the society and
changes in income level only.
economy.

Economic Growth

4- Institutional changes
Economic Development

Efficient
institutional
set-up is
In case of economic growth strong and necessary.Effective
and
strong
effective
institutional
set-up is
not institutional revolution is the sign of
necessary.
economic development.

Economic Growth

5- Type of Approach
Economic Development

According
to
various
economists,
economic growth is said to be quantitative Economic
development
approach.
thequalitative approach.

Economic Growth

refers

to

6- Importance
Economic Development

The Concept of economic development

Economic growth is less important due to ismore important because it discusses an
the attachment with income level only.
economy in wider sense.

7- Time Span
Economic Growth

Economic Development

Economic
growth
is
a short-term
process.We can measure income changes
yearly. So, its time span may be of one
year.

Economic Growth

Economic development is a long-term

process about 20 to 25 years. Because it
takes years to change social, economic and
institutional set-up.

8- National Problem
Economic Development

Economic growth is the problem Economic development is the problem

ofdeveloped countries of the world.
ofdeveloping countries.

Economic Growth

9- Political Changes
Economic Development

Economic growth is not concerned with The concept of economic development

isincomplete without political stability.
the political stability.
10- Dependence and Self-Sufficiency
Economic Growth
Economic Development
In case of economic development our
Economic growth does not ensure the dependence on other countries reduces
freedom from the dependence of foreign and country adopts the self-reliance
countries.
policy.

Economic Growth

11- Economic Application

Economic Development

Economic
development
basically
Economic growth first checks thestatistical emphasizes on the balanced growth of
upward movement in the economy.
economy.

Economic Growth

12- Social Impact

Economic Development

There may or may not be any social

changes in case of economic growth. It
ignores the human beings and it is only
concerned with income level etc.

Economic Growth

Social changes, in case of economic

development, are compulsory. It refers to
the better jobs, availability of food, better
health and education etc.

13- Economic Welfare

Economic Development

Economic
growth
is not
much In
economic
development, more
attachedwith the human beings. It has no importance is given to the mankind as
link with the good or bad.
compare to the economic growth.

14- Practical Significance

Economic Development

Economic Growth

Now,
Pakistan
is more
developed
countryas compare to 1960s and 1990s.
In Pakistan, in 1960s, growth rate was Today in Pakistan there is more industries,
higher than the growth rate in 1990s.
universities and other infrastructure etc.
15- Measurement
Economic Development
A. Economic Growth
Measurement of economic development is
Economic growth is measured only by based on the reduction in poverty,
comparing income levels of different years. development of human being and living
It also can be measured numerically.
standard etc.

Economic Growth

16- Quantity and Quality

Economic Development

Economic
growth
is
concerned Economic development is concerned with
withquantity of goods and services only.
not only quantity but also with the quality.
17- Problem of Assessment
Economic Growth
B. Economic Development
It is very difficult to estimate exactly the Computation of economic development
level of economic growth in developing isnot a difficult task in developed nations
countries like Pakistan.
of the world.

Economic Growth

18- Use of Technology

Economic Development

In economic growth, use of advanced For the economic development use of

technology is not appreciated.
modern technology is compulsory.

Conclusion:
From all above points of difference, we conclude that economic growth is
attached to the increase in production and income etc. while in economic development
more importance is given to man and it tries to remove poverty.

Difference Between Monetary and Fiscal

Policy
by Tejvan Pettinger on September 16, 2011 in economics

Readers Question: What is the difference Between Monetary and Fiscal Policy?
Monetary policy involves changing the interest rate and influencing the money supply.
Fiscal policy involves the government changing tax rates and levels of government spending to
influence aggregate demand in the economy.
They are both used to pursue policies of higher economic growth or controlling inflation.

Monetary Policy
Monetary policy is usually carried out by the Central Bank / Monetary authorities and
involves:

Setting base interest rates (e.g. Bank of England in UK and Federal Reserve in US)
Influencing the supply of money. E.g. Policy of quantitative easing to increase the supply of
money.

How Monetary Policy Works

The Central Bank may have an inflation target of 2%. If they feel inflation is going to go above
the inflation target, due to economic growth being too quick, then they will increase interest
rates.
Higher interest rates increase borrowing costs and reduce consumer spending and investment,
leading to lower aggregate demand and lower inflation.
If the economy went into recession, the Central Bank would cut interest rates. See:Cutting
interest rates

Fiscal Policy
Fiscal Policy is carried out by the government and involves changing:

Level of government spending

Levels of taxation
1. To increase demand and economic growth, the government will cut tax and increase spending
(leading to a higher budget deficit)
2. To reduce demand and reduce inflation, the government can increase tax rates and cut
spending (leading to a smaller budget deficit)
Example of Expansionary Fiscal Policy
In a recession, the government may decide to increase borrowing and spend more on
infrastructure spending. The idea is that this increase in government spending creates
an injection of money into the economy and helps to create jobs. There may also
be amultiplier effect, where the initial injection into the economy causes a further round
of higher spending. This increase in aggregate demand can help the economy to get out
of recession.
See more at: Expansionary fiscal policy

If the government felt inflation was a problem, they could pursue deflationary fiscal policy
(higher tax and lower spending) to reduce the rate of economic growth.

Which is More Effective Monetary or Fiscal Policy?

In recent decades, monetary policy has become more popular because:

Monetary policy is set by the Central Bank, and therefore reduces political influence (e.g.
politicians may cut interest rates in desire to have a booming economy before a general
election)
Fiscal Policy can have more supply side effects on the wider economy. E.g. to reduce inflation
higher tax and lower spending would not be popular and the government may be reluctant to
purse this. Also lower spending could lead to reduced public services and the higher income tax
could create disincentives to work.
Monetarists argue expansionary fiscal policy (larger budget deficit) is likely to causecrowding
out higher government spending reduces private sector spending, and higher government
borrowing pushes up interest rates. (However, this analysis is disputed)
Expansionary fiscal policy (e.g. more government spending) may lead to special interest groups
pushing for spending which isnt really helpful and then proves difficult to reduce when
recession is over.
Monetary policy is quicker to implement. Interest rates can be set every month. A decision to
increase government spending may take time to decide where to spend the money.
However, the recent recession shows that Monetary Policy too can have many
limitations.

Targeting inflation is too narrow. This meant Central banks ignored an unsustainable boom in
housing market and bank lending.
Liquidity Trap. In a recession, cutting interest rates may prove insufficient to boost demand
because banks dont want to lend and consumers are too nervous to spend. Interest rates were
cut from 5% to 0.5% in March 2009, but this didnt solve recession in UK.
Even quantitative easing creating money may be ineffective if banks just want to keep the
extra money in their balance sheets.
Government spending directly creates demand in the economy and can provide a kick-start to
get the economy out of recession. Thus in a deep recession, relying on monetary policy alone,
may be insufficient to restore equilibrium in the economy.
In a liquidity trap, expansionary fiscal policy will not cause crowding out because the
government is making use of surplus saving to inject demand into the economy.
In a deep recession, expansionary fiscal policy may be important for confidence if monetary
policy has proved to be a failure.

Economic policy-makers are said to have two kinds of tools to influence

a country's economy: fiscal and monetary.
Fiscal policy relates to government spending and revenue collection.
For example, when demand is low in the economy, the government can

step in and increase its spending to stimulate demand. Or it can lower taxes to increase
disposable income for people as well as corporations.
Monetary policy relates to the supply of money, which is controlled via factors such as interest
rates and reserve requirements (CRR) for banks. For example, to control high inflation, policymakers (usually an independent central bank) can raise interest rates thereby reducing money
supply.
These methods are applicable in a market economy, but not in a fascist,communist or socialist
economy. John Maynard Keynes was a key proponent of government action or intervention using
these policy tools to stimulate an economy in recession

Fiscal Policy

Definition

Monetary Policy
Fiscal policy is the use of

Monetary policy is the process by which

government expenditure and

the monetary authority of a country

revenue collection to

controls the supply of money, often

influence the economy.

targeting a rate of interest to attain a set

of objectives oriented towards the growth
and stability of the economy.

Principle

Manipulating the level of

Manipulating the supply of money to

aggregate demand in the

influence outcomes like economic

economy to achieve

growth, inflation, exchange rates with

economic objectives of price

other currencies and unemployment.

stability, full employment,

and economic growth.

Policy-maker

Government (e.g. U.S.

Central Bank (e.g. U.S. Federal Reserve

Congress, Treasury

or European Central Bank)

Secretary)

Policy Tools

Taxes; amount of

Interest rates; reserve requirements;

government spending

currency peg; discount window;

quantitative easing; open market
operations; signallin

Fiscal Policy

Monetary Policy

What is Corporate Governance?

Corporate Governance refers to the way a corporation is governed. It
is the technique by which companies are directed and managed. It
means carrying the business as per the stakeholders desires. It is
actually conducted by the board of Directors and the concerned
committees for the companys stakeholders benefit. It is all about
balancing individual and societal goals, as well as, economic and
social goals.
Corporate Governance is the interaction between various
participants (shareholders, board of directors, and companys
management) in shaping corporations performance and the way it is
proceeding towards. The relationship between the owners and the
managers in an organization must be healthy and there should be no
conflict between the two. The owners must see that individuals
actual performance is according to the standard performance. These
dimensions of corporate governance should not be overlooked.
Corporate Governance deals with the manner the providers of finance guarantee themselves of getting a fair
return on their investment. Corporate Governance clearly distinguishes between the owners and the managers.
The managers are the deciding authority. In modern corporations, the functions/ tasks of owners and managers
should be clearly defined, rather, harmonizing.
Corporate Governance deals with determining ways to take effective strategic decisions. It gives ultimate
authority and complete responsibility to the Board of Directors. In todays market- oriented economy, the need for
corporate governance arises. Also, efficiency as well as globalization are significant factors urging corporate
governance. Corporate Governance is essential to develop added value to the stakeholders.
Corporate Governance ensures transparency which ensures strong and balanced economic development. This
also ensures that the interests of all shareholders (majority as well as minority shareholders) are safeguarded. It
ensures that all shareholders fully exercise their rights and that the organization fully recognizes their rights.
Corporate Governance has a broad scope. It includes both social and institutional aspects. Corporate
Governance encourages a trustworthy, moral, as well as ethical environment.

Benefits of Corporate Governance

1.
2.
3.
4.
5.
6.
7.
8.

Good corporate governance ensures corporate success and economic growth.

Strong corporate governance maintains investors confidence, as a result of which, company can raise
capital efficiently and effectively.
It lowers the capital cost.
There is a positive impact on the share price.
It provides proper inducement to the owners as well as managers to achieve objectives that are in
interests of the shareholders and the organization.
Good corporate governance also minimizes wastages, corruption, risks and mismanagement.
It helps in brand formation and development.
It ensures organization in managed in a manner that fits the best interests of all.

Technology transfer, also called transfer of technology (TOT), is the process of transferring
skills, knowledge, technologies, methods of manufacturing, samples of manufacturing and
facilities among governments or universities and other institutions to ensure that scientific and
technological developments are accessible to a wider range of users who can then further
develop and exploit the technology into new products, processes, applications, materials or
services. It is closely related to (and may arguably be considered a subset of) knowledge
transfer. Horizontal transfer is the movement of technologies from one area to another. At
present[when?] transfer of technology (TOT) is primarily horizontal. Vertical transfer occurs when
technologies are moved from applied research centers to research and development
departments.[1]
Technology brokers are people who discovered how to bridge the emergent worlds and apply
scientific concepts or processes to new situations or circumstances.[2] A related term, used
almost synonymously, is "technology valorisation". While conceptually the practice has been
utilized for many years (in ancient times, Archimedes was notable for applying science to
practical problems), the present-day volume of research, combined with high-profile failures
at Xerox PARC and elsewhere[citation needed], has led to a focus on the process itself.

Transfer process[edit]
Many companies, universities and governmental organizations now have an Office of
Technology Transfer (TTO, also known as "Tech Transfer" or "TechXfer") dedicated to identifying
research which has potential commercial interest and strategies for how to exploit it. For
instance, a research result may be of scientific and commercial interest, but patents are normally
only issued for practical processes, and so someonenot necessarily the researchersmust
come up with a specific practical process. Another consideration is commercial value; for
example, while there are many ways to accomplish nuclear fusion, the ones of commercial value
are those that generate more energy than they require to operate.
The process to commercially exploit research varies widely. It can involve licensing agreements
or setting up joint ventures and partnerships to share both the risks and rewards of bringing new
technologies to market. Other corporate vehicles, e.g. spin-outs, are used where the host
organization does not have the necessary will, resources or skills to develop a new technology.
Often these approaches are associated with raising of venture capital (VC) as a means of
funding the development process, a practice more common in the United States than in
theEuropean Union, which has a more conservative approach to VC funding.[3] Research spinoff companies are a popular vehicle of commercialisation in Canada, where the rate of licensing
of Canadian university research remains far below that of the US.[4]
Technology transfer offices may work on behalf of research institutions, governments and even
large multinationals. Where start-ups and spin-outs are the clients, commercial fees are
sometimes waived in lieu of an equity stake in the business. As a result of the potential
complexity of the technology transfer process, technology transfer organizations are often
multidisciplinary, including economists, engineers, lawyers, marketers and scientists. The

dynamics of the technology transfer process has attracted attention in its own right, and there are
several dedicated societies and journals.
There has been a marked increase in technology transfer intermediaries specialized in their field
since 1980, stimulated in large part by the Bayh-Dole Act and equivalent legislation in other
countries, which provided additional incentives for research exploitation
Technology transfer is the process by which basic science research and fundamental discoveries are developed into practical
and commercially relevant applications and products. Technology Transfer personnel evaluate and manage invention
portfolios, oversee patent prosecution, negotiate licensing agreements and periodically review cooperative research
agreements already in place. Part of the technology transfer process involves the prosecution of patents which is overseen by
the national Patent and Trademark Office. Individuals with advanced degrees in the biomedical sciences are needed to
review and process patents in the biotechnology field.
Source: Unknown

TT Function: Coordinate
Coordinating between technology users and developers, between researchers and manufactures is an important
element of technology transfer. Access to relevant internal and external resources to individual projects and
enterprises has to be enabled.
TT Function: Nurture
A main ingredient for moving technology from a research laboratory to a new business enterprise successfully is
an environment that is supportive of entrepreneurship. This needs to be encouraged by providing guidance,
counseling and resources.
TT Function: Link
Cataloging resources related to business enterprises and connecting would-be entrepreneurs/researchers and other
technology developers to outside groups and organizations which can help in the process of starting new products,
companies etc. Such linkages provide referrals for individual business counseling, sources of financing or the
names of individuals who can help with a particular facet of business development.

An Emerging Technology is an innovative technology that currently is undergoing bench-scale testing, in which a small
version of the technology is tested in a laboratory.
An Innovative Technology is a technology that has been field-tested and applied to a hazardous waste problem at a site, but
lacks a long history of full-scale use. Information about its cost and how well it works may be insufficient to support
prediction of its performance under a wide variety of operating conditions.
An Established Technology is a technology for which cost and performance information is readily available. Only after a
technology has been used at many different sites and the results fully documented is that technology considered established.
The objectives of creativity & innovation :

to offer guidance and assistance to inventors and corporations in matters of intellectual property
to provide a meeting place for inventors and entrepreneurs to come together to exchange names and information
to provide a hands-on learning opportunity to gain experience in dealing with "real-world" aspects of intellectual
property law practice
to increase the general awareness of intellectual property and its increasing importance as we further move into the
Information Age

Summarized from - http://www.fplc.edu/CIC/

Technology
Transfer
Activities
include:
processing and evaluating invention disclosures; filing for patents; technology marketing; licensing; protecting intellectual

property arising from research activity; and assisting in creating new businesses and promoting the success of existing firms.
The result of these activities will be new products, more high-quality jobs, and an expanded economy.
Summarized from - http://spot.colorado.edu/~techtran/Home.html

ASSESSING COMMERCIAL POTENTIAL

Commercialization is one effective method of transferring technologies. Establishing a technology's prospects for
commercial success depends largely on five factors:
1.
2.
3.
4.

5.
6.

7.
8.

Technical Development: The time, materials, and personnel needed to reduce the technology to practice and
protect rights to the resulting product.
Regulatory Clearance: The testing needed to demonstrate the product's utility and safety, and to meet federal
regulatory requirements and to minimize or manage associated risks.
Manufacturing Requirements: The facilities, people, and equipment needed to make the product.
Market Development: The plan for successful marketing of the product, created by assessing perceived need for
the product, size of potential market, expected sales, advantages over competing products, and the cost of
promoting the product.
Financial Feasibility: The development costs,costs to produce, operating expenses in relation to sales potential, net
profits, potential liabilities, and return on investment.
Technology Transfer Initiative with Minority and Small Businesses and Manufacturers
The initiative's several goals include establishing a marketing strategy to provide minority businesses with
technology transfer opportunities, assisting with establishing a minority technology transfer consortium,
developing and seeking funding for minority industrial fellowships, strengthening minority employee recruitment
through the consortium; linking the Science Education and External Relations program with the Technology
Transfer Initiative, providing minority businesses and various divisions with technical assistance as it relates to
technology transfer, and establishing a tracking system to provide follow-up on all activities.
Source - http://infosrv1.ctd.ornl.gov/patent/sba.html

9.

"The process by which existing knowledge, facilities or capabilities developed under federal R&D
funding are utilized to fulfill public and private needs."
10. Although this process can be very simple or quite complex, it basically involves a technical resource (e.g., federal
laboratory), a user (e.g., small business), and some interface connecting the two.
11. "Technology transfer" includes a range of formal and informal cooperations between technology developers and
technology seekers. In addition, technology transfer involves the transfer of knowledge and technical-knowhow as
well as physical devices and equipment.
12. Some of the mechanisms that make technology transfer possible include: joint research, cooperative agreements,
licensing, technical meetings, trade shows, and information dissemination.
Users/beneficiaries of Technology Transfer:

technology transfer agents who are responsible for the search, adaptation or translation, packaging and
dissemination, training and ensurement that a new
technology is properly implemented, accepted and used to its full potential by a target user;
individuals responsible for technology transfer functions;
individuals charged with the responsibility of making decisions as to whether a technology is considered for
implementation within the organization;
individuals charged with budgeting responsibilities which encompass evaluating the cost of new technology;
individuals charged with strategic and business planning responsibilities within the organization;
individuals who are being trained to perform any of the above noted functions;
inventors, vendors, licensors and purchasers of technolog
Tech-Transfer Process
There is a strong need for linkages to be developed and maintained between industry and research organizations.
This requires the effective identification and specification of research needs, and knowledge of relevant research
that is being conducted. For this to happen, industry needs to be involved at an early stage of research, so as to be
able to participate even in the research definition stage. At the same time, public sector research organizations need
to be prepared to support industry in the commercialization process. Efforts to erase preconceptions that build
barriers to successful technology transfer should also be taken

The process by which existing knowledge, facilities or capabilities are utilized to fulfill
public and private needs.
Although this process can be very simple or quite complex, it basically involves a technical resource (e.g.,
laboratory), a user (e.g., small business), and some interface connecting the two. Technology transfer remains part
"science" and part "art," requiring to select an operating mode which works, the laboratory, and the clientele.
"Technology transfer" includes a range of formal and informal cooperations between laboratories and the public
and private sectors. The purpose of the transfer is to strengthen the economy by accelerating the application of
laboratory technology and resources to private and public needs and opportunities. Product improvement, service
efficiencies, improved manufacturing processes, joint development to address government and private sector
needs, and the development of major new products for the international marketplace are the results of successful
technology transfer efforts.
Source: http://www.zyn.com/flc/tdef.htm

Government-Industry-non-profits-People-Equipment-Facilities Implementing TT includes the

ingredients of licensing agreements, promotional publications, training courses, information exchange,
participation in conferences and exhibitions, technical assistance