Transcription
Hello everyone, how are you all? Welcome to ID in Future by Trough Academy. As you all know, our series on the subject of International Business is ongoing. We have covered Unit Number One to Unit Number Four. In today's video, we will be doing the final unit, that is, Unit Number Five. So, if you have reached this point after watching four units, and haven't subscribed yet, please do so. If you haven't liked it, please do so. And you know, if you wish to purchase notes, you can buy notes from Unit One to Unit Number Five on our channel for just ₹150, that is, one hundred and fifty rupees. And for purchase, you will have to go to our Telegram, and the Telegram link will be available everywhere, in the i-button above, in the description box, and in the pinned comment. You can go and purchase the notes. So, Unit Number Five is our International Finance and Contemporary Issues in International Business. So, let's start today's video.
First of all, the topic that comes under this is FDI. The full form of FDI is Foreign Direct Investment. So, what is Foreign Direct Investment? It means an investment. Obviously, FDI is an investment. So, what type of investment is it? It is when a company or an individual, a person or a company, makes an investment in the business activities of another country from one country. What is that called? Foreign Direct Investment. For example, Mr. A, who lives in India, has opened a company in America. He opened a company in America. So, he invested money in America. That investment will be called Foreign Direct Investment. So, in simple words, when a company invests and starts or controls its business in another foreign country. It is possible that there is already a company in America, or Mr. A has bought it. The straightforward meaning is that the company has come under Mr. A's control, and Mr. A has invested money in America. So, we call this investment Foreign Direct Investment.
Now, there are different types of FDI. There are different types of Foreign Direct Investment. First of all, there is Greenfield Investment. What is Greenfield Investment called? Greenfield Investment is when you start a completely new business, from scratch. As I mentioned before, I think in Unit Number One, you just take a piece of land in a foreign country, build a shop, get everything done yourself, from A to Z. That is, you are starting from scratch, from zero. That is called Greenfield Investment. That is, you have opened a new factory, a new office, or set up a new plant, then that will be called Greenfield Investment. And its specialty here will be that in all the operations, in all the work that happens inside the plant, factory, or office, you will have complete control because you are the one who has mainly invested the money. And to do this, obviously, a lot of investment will be required. Whenever you start from scratch, from zero, especially in another country, then a good amount of investment is required.
And its advantages are that first of all, you will have complete ownership. You will have complete control. You don't need to share control with anyone. You will have complete control. You will have complete ownership. And here, you will be able to use the latest technology. When you open a business in another country, you will use their technology, and your management practices will also be good because whatever management runs will be according to your wishes. And its disadvantages are that first of all, it is very expensive. Going to another country, starting a business there, will obviously be very expensive. And secondly, it is time-consuming. It is also time-consuming because if you are going back and forth from one place to another, starting a business there, doing everything from A to Z, then it is very time-consuming and there is also more risk. If you open it in another country and that business doesn't run. Okay? You invested so much money, so much time from scratch, and even then it didn't run, then it's a huge loss for you, isn't it? For example, a company sets up a new manufacturing plant in another country. Okay? That will be our example. As I mentioned above, Mr. A set it up in another country.
So, now the next topic that comes is Merger and Acquisition, also called M&A. So, both Merger and Acquisition have different meanings. Merger has a different meaning. Acquisition has a different meaning. Merger means when two companies come together and form a new company. What is that called? Merger. For example, Vodafone and Idea. Both of them have now become one new company, VI. So, that will be called a merger. And Acquisition is when one company buys another company completely. What is that called? Acquisition. That is, there was a company, Mr. B's company. So, Mr. A bought this entire company. Now it has come under Mr. A's control. This will be called acquisition. So, its specialty is that if you want to enter a foreign market, you can enter easily through this. That is, Mr. B is a company, and Company A is an Indian company, and Company B is an American company. So, Company A did what? It merged with Company B. They joined together, and now they are running a business in America. So, how easy was the entry? And here, the existing business, that is, Mr. A's existing business, is also running, and this is also running. So, both things are useful.
So, its advantages are that it saves time. First of all, instead of taking so much time to go and do everything yourself, your time will be saved there. Secondly, you will get access to established markets, which are already built. That is, Mr. B will have complete knowledge of that market. So, you will get access to that market. And thirdly, you will get existing customers. You will get an existing brand. That is, the customers of Mr. B will now become your customers. And the branding of Mr. B will now become your branding. So, it will happen in this way. Now, its disadvantages, its shortcomings, are that it is very expensive, very costly. Obviously, when one company is merging with another company, money will be involved in that too, right? And cultural clashes can happen. It is possible that Mr. A makes products according to Indian culture, and Mr. B makes products according to American culture. So, a cultural clash can happen. Mr. B will say that A's products will not sell here, and A will say that I have to sell my products there. And there can also be integration problems. So, the example is that a company bought a foreign company so that it could expand globally. This is an example of acquisition. Okay?
Now, next comes our Strategic Alliance. Strategic Alliance is an agreement where two or more companies work together for their own benefit, meaning for the benefit of both companies, and do not form a new company. What is that called? Strategic Alliance. That is, an agreement is made, two or more companies come together, and all three companies are working for each other's benefit, and no new extra company is being formed. Everyone is working in their own company, separately. This will be called Strategic Alliance. Its features, its specialties are that resources and knowledge are shared here. That is, there are three companies A, B, C. A is sharing its knowledge with B and C. B is sharing with A and C. C is sharing with B and A. So, here, resources and knowledge are being shared among all three companies. And these are flexible agreements. That is, these agreements keep changing.
Now, its advantages are that the cost is very low. You don't have to buy a new company, you don't have to invest money anywhere, so the cost is low. Secondly, there is shared risk. That is, the risk will be shared. All three companies, A, B, or C, will share that risk. And access to new markets. That is, you will get access to new markets. You will get to know about new markets. And its disadvantages, its shortcomings, are that your control will be less. There will be less control, and there is a risk of conflict. That is, there can be a danger of fights and arguments. And dependence on the partner will increase a lot. Okay? These things can be dangers for us.
Now, what are the benefits of FDI? What are the advantages of Foreign Direct Investment? Okay? First of all, there is economic growth. That is, GDP will increase. If there is FDI, Foreign Direct Investment, then other countries will invest money in our country, then our country's GDP will increase. Secondly, there will be employment generation. That is, job opportunities will be created for people. Other companies will come to India, set up companies, open MNCs, so people will get jobs in those MNCs. Okay? Transfer of technology. That is, if they are opening their MNCs in India, then they will also bring technology to India and new skills. Okay? So, these are its advantages. Fourth is infrastructure development.
Next comes our infrastructure development. That is, roads will be good, industries will be good. Wherever MNCs are set up, the surrounding areas will have roads built. Good industries will be set up there, so the infrastructure of the entire country will develop. Fifth, competition will increase. That is, when many MNCs are set up, everyone will want to improve their quality. Everyone will want to improve their efficiency so that their products sell more in the market. And sixth, there will be access to the global market. That is, domestic firms can connect globally. They can also connect with companies from other countries. Seventh is our foreign exchange earnings. That is, money will come into our country in dollars. Then you will convert dollars into rupees, so $1 will become equal to ₹94. So, you can see how much the inflow of foreign currency will increase.
And the drawbacks, the shortcomings of FDI are that there is a loss of control. That is, sometimes foreign companies, you know, our country's domestic market, the actual market of our country, the companies run by our own people, it is possible that a foreign company invests so much money in its companies that our country's companies keep suffering losses. Okay? That only the foreign companies benefit. Secondly, there is profit repatriation. That is, the profits will be sent back to their home country. That is, for example, America has set up an MNC in our country, we are happy. Oh wow, so much benefit. Now, the profit from this is not staying in our country, brother. It is earning profit and going back to the same country. What is the benefit to our country from this? Okay. Third is the exploitation of resources. When they are coming into our country, we think, wow, an MNC has been set up, how wonderful. Now they are also using our natural resources. How many natural resources must have been used to build that MNC? So, they are not bringing all those natural resources from their home, are they? Where are they using them? They are using India's. Obviously. Fourth is cultural impact. That is, foreign influence has come on the local culture. Western culture has a lot of influence on Indian culture. Everyone is following Western ways nowadays. And small businesses, or small-scale businesses in our country, are suffering a lot of damage. Local firms cannot compete with such big MNCs. It is very difficult for them to compete with such big companies. So, these are the disadvantages. Okay? And sixth is our economic dependence. That is, our country becomes very dependent on other foreign investors. That when they come and invest money in our country, then we will do something. We are not thinking about ourselves, that we can also do it. We are, you know, we are dependent on them. Okay? That we are dependent on them. That if they come and invest money in our country, then only something will happen, otherwise not. Okay?
We are going to start our topic of Exchange Rate System. So, what does Exchange Rate System mean? First, let's understand Exchange Rate. So, Exchange Rate is the price of one country's currency in terms of another country's currency. That is, how much is one thing in terms of another? How much is one country's currency less or more in terms of another country's currency? That is called our Exchange Rate. That is, it is said here that if you want another country's currency, meaning you want to buy another country's currency, then how much of your currency you will have to give, that is called our Exchange Rate. For example, one US dollar is for example ₹83. Okay? For example, it is running at ₹83, although currently it is ₹94, but we are taking it as an example that it is ₹83. So, this means that if you want $1, if you want to buy $1, then you will have to give ₹83. This is called the Exchange Rate. How much is the value of one currency for another country's currency? That is called the Exchange Rate.
Now, there are different exchange rate systems. It is not of one type. First of all, there is the Fixed Exchange Rate System. What happens in the Fixed Exchange Rate System? In this system, the value of a currency is fixed by the government, either the government fixes it or the central bank fixes it. For example, in relation to another currency, like the US dollar, or in relation to gold. That is, your country's government or your country's central bank has set your country's currency in relation to the US dollar, or in relation to gold. That will be called the Fixed Exchange Rate System. That is, its specialty will be that this entire exchange rate, how many rupees you will have to pay for $1, your government will decide. Okay? And here, the value of the currency mostly remains stable. That is, it does not fluctuate much, it does not go up and down much. Okay? Whatever the government has decided, that much it is. For example, if it is ₹83 for $1, then you have to pay that much. So, it is stable, and fluctuations are less. It's not like it reaches 95 one day and comes down to 75 another day. It doesn't happen like that. It remains stable in a way. If there is a little up and down, then there is. Otherwise, it mostly remains stable.
So, its advantages are that if you want to do international trade, if you want to do business with another country, then there will be stability in it. You will know that, for example, if the government has set $1 at ₹75, that the dollar is ₹75, then it will remain stable. After one month, after two months, you will get it at the rate of ₹75. And your uncertainty will also decrease. If it were not fixed, then there would be a risk that if it becomes 80, it's a profit, and if it becomes 70, it's a loss. Right? So, your uncertainty will decrease, and your investment will increase. Obviously, investment will be encouraged. And next comes our disadvantages. So, the first thing is that for this, you need very large foreign reserves. If the government or the central bank has to set the value of this currency in relation to another currency, then the government will have to do what? The government will have to set a very large foreign reserve. The government will need a large foreign reserve, and creating this foreign reserve, maintaining it, keeping it stable, is a very difficult matter for us. And flexibility is also less in this. These are its disadvantages. For example, countries that peg their currency to the US dollar, all those countries are using which system? They are using the Fixed Exchange Rate System.
Secondly, there is the Floating Exchange Rate System. We call the Floating Exchange Rate System the system where the exchange rate is set according to demand and supply. That is, how much is the demand for our currency in the market, and what is the actual supply of our currency, according to that, the exchange rate is defined, that is called the Floating Exchange Rate System. So, its specialty is that the government has no control here, or if it does, it is very little. It is based on market demand and market supply. And here, the value of the currency changes daily. It does not remain stable here. Sometimes it increases a lot, sometimes it decreases. So, the advantages are that there is automatic adjustment. That is, according to the demand and supply, the value increases and decreases on its own. It happens automatically. There is no need for the government or the central bank to intervene in this. And here, you do not need to keep any large reserves in your country to maintain this. Even with small reserves, your work will be done. And here, you get the true market value. That is, according to the demand and supply, you will actually know what is the real market value? What is our true market value? What is the value of our currency in the market? The value of our country's currency in the market? And its disadvantages are that there is a lot of fluctuation. That sometimes it goes very high, and
Sometimes the value drops too much. So, fluctuations occur a lot within it, and there is uncertainty in trade. For example, people have just sold goods for $175. Okay? Your goods are supposed to arrive at a cost of ₹75. Now the value of rupees, the value of rupees, has changed. The value of your rupees has gone from 75 to 70. So now, where your money was supposed to come in at ₹75, you will now earn ₹5 per product. So, there is uncertainty here, and this is a risk for businesses. Now, a business might have sold it for just a ₹4 profit. But it might have cost him 71, and he sold it for 75. So here, our ₹5 have fallen, due to which we have incurred a loss of ₹1, right? So, there is a big risk for businesses here, and the examples here will be all the major currencies like the US dollar, Euro. All these currencies use a floating system. There is no fixed exchange rate system here. The value of the US dollar is determined according to its floating.
Next comes our managed floating, or also called dirty float. It's the same thing. Whether you call it managed floating or dirty float, if any question comes up, you have to answer the same. This means that when we combine the fixed system and the floating system, both these systems, if we join these two systems, what will we get? Managed floating or dirty float system. Here, the exchange rate is decided by market forces, based on how much demand there is and how much supply there is. However, the government also intervenes somewhere here. Whenever the government feels the need, it intervenes and sets the exchange rate system accordingly. So, its specialty is that there is partial control by the central bank or the government. This means the central bank has control, the government has control, and things also move according to market demand and supply. And here, there is a balance between stability and flexibility. That is, it remains stable in a way, the value of your currency does not increase or decrease too much, and it also remains flexible. Okay? It changes, but not too much. So, its advantages are that extreme fluctuations, where the value increases too much or decreases too much, like from 75 to 60 or from 75 to 90, do not happen. Extreme fluctuations do not occur. It's a small change, like from 75 to 76 or 74. Things like this happen here, and this is the most practical system, the one most used in most countries, which is our managed floating or dirty float. So, its disadvantages are that the government has to monitor regularly. It has to keep a regular eye on what is happening in the market and what is not. The government has to keep a regular watch on it. And there can also be confusion. When the government is also watching, and looking at market demand and supply, all these things, a lot of confusion will arise. So, the example is that India uses managed floating. Here, the exchange rate system for the value of the dollar is set according to the market's supply and demand. But in between, the government also keeps an eye on it. Okay?
Now comes our pegged exchange rate system. What happens in a pegged exchange rate system? Here, the value of the currency is fixed to the value of some major currency. This means you either set the value of your country's currency against the US dollar or fix it against the Euro, so that it remains fixed and does not change. That is called a pegged exchange rate system. And its specialty here is that it is a stable exchange rate. For example, it is fixed that $1 is equal to ₹90. Now this will not change. It will always remain the same. So, this is a stable exchange rate. And here, we always link with strong currencies. Which are strong currencies? The dollar, the US dollar, the Euro. So, when they are linked with these, our things are linked with very strong currencies. The advantage here is that you have predictability. You have an idea of how much money will come to you, the value of our country will not change, the value of our currency will not change. And this greatly promotes trade. When people have confidence that the value of the currency will not fluctuate so much, will not change so much, then people start international businesses with confidence. And its disadvantages are that your dependence on other currencies increases a lot. Okay? You become very dependent on another country. Right? And there is limited monetary policy control. This means that the control of monetary policy over your country becomes limited. And that other currency is what dictates these things.
Let's compare all three exchange rate systems: fixed, floating, and managed float. In fixed, the government has control. In floating, the market has control. In managed float, it's a medium, meaning both have control. And in fixed, the value remains stable. In floating, there is no stability. There are many changes, a lot of fluctuations. And in managed float, things are moderate. In fixed, flexibility is very low. In floating, it is very high. In managed float, it is medium. In fixed, the risk is low because the currency value is set. In floating, the risk is very high because the currency value fluctuates a lot. And in managed float, it is moderate. Okay?
Now comes our contemporary issues in international business. What are the problems related to international business today? What are the problems arising related to international business? So, the very first problem we are facing is outsourcing and its potential for India. So, let's understand outsourcing. What does outsourcing mean? Outsourcing means when you hire another company or another country to do any of your business. Okay? That is, you are not doing that work yourself. You are either calling another company from outside or taking help from another country to do all your work. What is that called? It is called outsourcing. You must have heard the name BPO, Business Process Outsourcing. What is this? For example, an MNC is set up in India. An MNC is set up in India. Now they are getting work done by Indian people in India. Okay? They have set up call centers. Indian people are working there. So, this is what outsourcing is called. Instead of doing it themselves, they have hired a company from India or engaged people from another country to do their work. This is called outsourcing. So, in simple terms, it means the company has given some of its work to another company or another country, so that their expenses are saved and efficiency increases. Now, for Indian people, they have to pay less salary. Okay? So, their expenses are saved, and their efficiency increases because they are getting cheap labor that is doing good work for them. So, these are their advantages.
Now, there are different types of outsourcing. For example, Business Process Outsourcing. Like customer support, call centers, data entry, for which you hire another company. Like the example I gave above, this is for BPO, the MNC. It is setting up call centers in India. Okay? And getting work done by Indian people. Another is Knowledge Process Outsourcing. Now, in call centers, there are tasks like research. There is also data analysis. There are many financial services. Like cards come, and they have to be refunded. So, all these things are KPO, Knowledge Process Outsourcing. IT outsourcing is also done, like developing software. We are creating new software from another company or taking IT services. That is, some other company is managing all the IT services of our entire company. And what are the reasons for outsourcing? Why do companies outsource? The very first reason is that the cost is less. Okay? You don't have to pay a lot of money. And secondly, you get skilled labor. You get people. You get good skilled labor. Secondly, you get it at a lower cost. And you can focus on your core activities. That is, outsourcing is done for all the extra work that companies have, the extra work. So, you can focus on your core activity, your main business, and another company will do this extra work for you, and your efficiency will also increase. When there is skilled labor, and good labor is doing the work for you, your company's efficiency will also increase.
Now, what is the potential of outsourcing for India? India is the top destination for outsourcing. Most companies that outsource work do it from India. Most of them. So, the first thing is the availability of skilled labor. India has skilled labor, a good number of educated people, and many trained professionals. So, companies come here and get work done by these people. And the second thing is the low-cost advantage. The labor here is cheaper compared to developed countries. If you open a call center in the US, you will have to pay a lot of money, but in India, you don't have to pay that much money. And the third thing is the English language advantage. Indian people know English. Okay? So, they can easily communicate with clients worldwide. Okay? And English is used worldwide. So, there is an advantage of the English language. Fourth is strong IT sectors. India has very good IT sectors and very good software firms. And these companies are growing regularly. Because of this, outsourcing is done from India. And next is the time zone advantage. 24/7 work is possible because of the time difference. If it is daytime in India, it will be nighttime in America. So, nighttime customers there will be handled. And if it is nighttime in India, and daytime there, then our night shift people will be able to handle things for them. So, this is the time zone advantage. Sixth is government support. That is, the government has made policies and strategies that greatly support the IT sector and the outsourcing industry. So, the advantages of outsourcing for India are, first of all, people in India will get employment. Employment is being generated. Okay? And the second thing is foreign exchange earnings. The MNCs being opened in India are making their investments in dollars. We did that in the last unit, right? Foreign Direct Investment, FDI. So, FDI is coming into our country. Foreign exchange earnings are coming. And the service sector in our country is growing a lot. Today, the tertiary sector, that is, the service sector in India, is going to grow even more in the coming time. And next is the development of infrastructure. Whenever an outside company comes to India to get work done, to outsource from India, they will set up their company. And when they set up their company, India's infrastructure will improve. Roads will be built around that area. Facilities will come.
And what are the challenges? What are the difficulties in outsourcing from India? The first is the issue of data security. It is possible that data might leak or be stolen, so there is a risk of that. Third is competition with other countries. Apart from India, there are other countries where IT sectors are working well, service sectors are working well, and labor is also cheap. And there is a lot of pressure on employees in India. When it is daytime here, it is nighttime there. When it is daytime in America, people here have to work at night so that they can handle the daytime people there. So, Indian people have to stay awake at night to listen to the problems of American people during their day. And here, our dependence on foreign companies has increased a lot. If those foreign companies that are taking work from us, outsourcing from us, leave. Okay? If they leave our country, how many people will become unemployed in India? Consider this too.
Next, we come to International Business and Sustainable Development. What is sustainable development? Sustainable development means this type of development. Development of the country in such a way that the needs of the people today are also fully met, and the needs of our future generations are not harmed. Their needs are also fully met. Okay? Using resources in this way. Developing our country in this way. So that the needs of the present generation and all future generations are met. So that there is no exhaustion of resources for anyone. What is this called? Sustainable development. So, in simple terms, it is growth that is economically, socially, and environmentally balanced. Okay? We call that type of growth our sustainable development.
Now, what is the relationship between international business and sustainability? International business can help sustainability, and it can also cause harm. Both things happen. Positive and negative impacts. Both things happen with international business. So, let's understand both impacts one by one. What is the positive impact, and what is the negative impact? So, among the positive impacts, the very first one will be helping economic growth. That is, it will create jobs in our country and increase our country's income. So, it's a positive effect. The second thing is technology transfer. That is, eco-friendly technology will come into our country, which will lead to the development of our country. The third thing is efficient use of resources. That is, due to global competition, the efficiency of our country is increasing. And fourth is global awareness. That is, environmental standards are being promoted worldwide, and people are being informed about this. That this is a good thing, and we should also take care of the environment. So, these are the positive aspects of how international business is helping sustainability.
Now, let's talk about the negative aspects. How is it having a negative impact? First of all, the environment is being damaged. Because all the industries being set up are releasing a lot of smoke. Pollution is being released. So, due to that pollution, our environment is being harmed. Second is the exploitation of resources. That is, natural resources are being overused a lot. If a company sets up in India, it is using India's natural resources to run its company. So, India's resources are being used a lot. Third is increasing inequality. The benefits are not distributed equally among everyone. Today, if you look, the rich are getting richer, and the poor are getting poorer. Why is this happening? Because income inequality is increasing a lot in our country. Fourth is the impact on culture. Your local traditions will disappear. For example, there wasn't much concept of night shifts before. Okay? In call centers and so on. And since these Western companies have come to India, night shifts have increased a lot, and this has become very common today. So, the Indian local tradition of working during the day has all disappeared.
Now, what is the role of business in sustainable development? The very first thing that comes under this is CSR, Corporate Social Responsibility. That is, companies have the responsibility to do good for society. There is a limit to your turnover. If your turnover is, for example, 2 crore, for example, if your turnover is 2 crore, then you have to give 2% of it to CSR. And that 2% that you have to give to CSR will be used for the welfare of society. Hospitals will be built with it, or schools will be built. The second thing is green practices. That is, you will use renewable energy, which will lead to sustainable development and also reduce pollution. The third thing is ethical business practices. That is, give fair wages. Everyone should be paid according to their hard work. And working conditions should be safe. The working conditions should not be such that people are harmed there. The fourth thing is a sustainable supply chain. That is, you have to do environmentally friendly production and distribution. Okay? And next are the examples. Companies that are using solar energy, or companies that have stopped using plastic or reduced its use, all those companies are contributing to sustainable development. Okay?
So that is all for today, guys. If you liked the video, please like the video and subscribe to the channel. And if you have reached here and completed Unit 5, then thank you so much for watching. And if you have reached this point and still haven't subscribed, then please, please, please do subscribe to our channel because if you have reached this point, it means you liked the video. And just before the video ends, I will say one last time that the video is over now. And whoever wants to read, purchase notes from this, memorize it, for only ₹150. The Telegram link will be available everywhere in our description box, I button, and pinned comment. You will find the Telegram link in all three places. Go to our Telegram, message there, and you can purchase notes there. Okay? So, we will meet in the next video. What subject should the next video be on? Please tell us in the comments. The video will be ready for you. Thank you so much for watching.