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GLOBAL BUSINESS ENVIRONMENT
Note : Each Question Carries Equal Marks
CASE STUDY : 1
Today the pace of economic change is far rapid than at any point in the history of mankind with eachpassing moment, the economics of the world are getting further integrated and interlinked. The term ‘globalvillage’ is no longer a myth, but a reality which we need to live with.The world over, these are shifts towards lesser government involvement in the field of business. The famousquote “The business of government is not to be in business” by John Moose seems to hold relevance thesedays, because of the privatization wave across the countries.
Question.1. Explain the term privatization?
Answer:Privatization, also spelled privatisation (in British English), may have several meanings. Primarily, it is the process of transferring ownership of a business, enterprise, agency, public service, or public property from the public sector (a government) to the private sector, either to a business that operates for a profit or to a nonprofit organization. It may also mean the government outsourcing of services or functions to private firms, e.g. revenue collection, law enforcement, and prison management.
Privatization has also been used to describe two unrelated transactions. The first is the buying of all outstanding shares of a publicly traded company
Question.2. Explain the modes of privatization?
Answer:“Privatization” is an umbrella term covering several distinct types of transactions. Broadly speaking, it means the shift of some or all of the responsibility for a function from government to the private sector. The term has most commonly been applied to the divestiture, by sale or long-term lease, of a state-owned enterprise to private investors. But another major form of privatization is the granting of a long-term franchise or concession under which the private sector finances, builds, and operates a major infrastructure project. A third type of privatization involves government selecting a private entity to deliver a public service that had previously been produced in-house by public employees. This form of privatization is increasingly called outsourcing. (Other forms of privatization, not discussed here, include service shedding, vouchers,
Question.3. What are the reasons for privatization?
Answer:In economic theory, privatization has been studied in the field of contract theory. When contracts are complete, institutions such as (private or public) property are difficult to explain, since every desired incentive structure can be achieved with sufficiently complex contractual arrangements, regardless of the institutional structure (all that matters is who are the decision makers and what is their available information). In contrast, when contracts are incomplete, institutions matter. A leading application of the incomplete contract paradigm in the context of privatization is the model by Hart, Shleifer, and Vishny (1997). In their model, a manager can make investments to increase quality (but they may also increase costs) and investments to decrease costs (but they may also reduce quality). It turns out that it
Question.4. Explain the problems of privatization?
Answer:Opponents of certain privatizations believe that certain public goods and services should remain primarily in the hands of government in order to ensure that everyone in society has access to them (such as law enforcement, basic health care, and basic education). There is a positive externality when the government provides society at large with public goods and services such as defense and disease control. Some national constitutions in effect define their governments' "core businesses" as being the provision of such things as justice, tranquility, defense, and general welfare. These governments' direct provision of security, stability, and safety, is intended to be done for the common good (in the public interest) with a long-term (for posterity) perspective. As for natural monopolies, opponents of privatization claim that they aren't subject to fair competition, and better administrated by the state. Likewise, private goods
Question.5. Discuss the types of mergers?
Answer:As recently as the 1970s, many major industries in OECD countries were owned by the state, in keeping with the Fabian Society’s dictum that the “commanding heights” of the economy should be in government hands.1 As is still true today of state-owned enterprises (SOEs) in China and many other developing countries, these businesses were generally run at a loss, subsidized by all the taxpayers. In other words, the value of their outputs was less than the value of their inputs, making them into value-subtracting (rather than value-adding) enterprises. The reasons for this situation were many, but generally they included explicit
CASE STUDY : 2
Cipla is one of the biggest manufacturers of bulk drugs and formulations.
The company has introduced several formulations and active pharmaceutical ingredients (APIS). Itcommissioned the second phase of its manufacturing operations in Goa and has entered into a researchalliance for biopharmaceutical products with a Bangalore-based biotech company.
AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOLCipla exports a wide range of APIS and formulations to over 150 countries. Cipla has entered into newarrangements with leading US generic companies for the supply of a wide range of finished dosageformulations. They have obtained approvals from USFDA, MHRA of UK, PIC of Germany and WHO, formost of their drugs. Its overall profitability was due to the optimization of resources and implementation ofrigorous cost control measures.
Cipla focuses on technological excellence and innovation to improve its performance both in domestic andinternational markets. The company has already accepted the growing importance of strategic alliances forresearch, manufacture and marketing, in the changing business environment.
Question.1. Discuss the rationale for Cipla’s focus on exports?
Answer:Technically, Cipla's third quarter performance was better than what it was in the previous two quarters of the fiscal. However, indications that the company would take more time to achieve a healthier growth momentum came as a disappointment.
Cipla's net sales growth of 13% was modest, given the low base a year ago. Operating profit margins rose by 167 bps on the back of changes in product mix, but higher tax outgo (due to expiry of tax holidays) has squeezed the bottom line. Growth in exports, accounting for half of its revenues, was a letdown. Despite the rupee's fall, export revenue grew only 10.7%, compared with 9.5% and 8.4% in the preceding quarters. The exports growth has been erratic over the past few quarters due to its strategy to focus less on the low-margin anti-AIDS formulations.
Question.2. Discuss the rationale for Cipla’s focus on strategic alliances?
Answer:Cipla, one of the underperforming stocks among frontline pharma companies, could emerge as a dark horse in the pharma industry. However, certain concerns regarding strategies adopted by the company and its prospects in the domestic business prevent us from being very bullish about the stock.
BUSINESS & GROWTH DRIVERS: The company's performance in the last four quarters has not been very encouraging, characterised as it were by a drop in profits and margins. Poor growth rates in the domestic market and fluctuating fortunes in the export markets have made the company's performance highly uncertain.
The positive development is that commercial production is steadily increasing at the company's Indore SEZ, which became operational recently. Launch of
Question.3. Carry out SWOT analysis of Pharmaceutical industry?
Answer:It is often said that the pharma sector has no cyclical factor attached to it. Irrespective of whether the economy is in a downturn or in an upturn, the general belief is that demand for drugs is likely to grow steadily over the long-term.
True in some sense. But are there risks? This article gives a perspective of the Indian pharma industry by carrying out a SWOT analysis (Strength, Weakness, Opportunity, Threat).
Before we start the analysis lets look a little back in the industry's last six years performance. The Industry is a largely fragmented and highly competitive
Question.4. Analyse the impact of liberalization and globalization on pharmaceuticals sectors?
Answer:Effects of Globalization on Indian Industry started when the government opened the country's markets to foreign investments in the early 1990s. Globalization of the Indian Industry took place in its various sectors such as steel, pharmaceutical, petroleum, chemical, textile, cement, retail, and BPO.
Globalization means the dismantling of trade barriers between nations and the integration of the nations economies through financial flow, trade in goods and services, and corporate investments between nations. Globalization has increased across the world in recent years due to the fast progress that has been made in the field of
CASE STUDY : 3
The factors driving mergers and acquisitions include globalization, technology, deregulation, favourable economic and financial conditions, and changes in the business laws. The structural adjustment programmeand the new industrial policy adopted by the government of India have allowed business firms to undertakeany programme of expansion either by entering into a new market or through expansion in an existing
Market. In that context, many organizations are increasingly resorting to mergers and acquisitions as ameans of growth.
Question.1. Explain the term Mergers?
Answer:In General,"Merger is absorption of one or more companies by a single existing company."
In Finance,"Merger is an act or process of purchasing equity shares (ownership shares) of one or more companies by a single existing company."
Meaning of Merger
Before we understand, What is Merger? First, let's find out the simple meaning of an acquiring company and acquired companies.
· Acquiring company is a single existing company that purchases the majority of equity shares of one or more companies.
· Acquired companies are those companies that surrender the majority of their equity shares to an acquiring company.
Question.2. Explain the term Acquisitions?
Answer:There's only one real way to achieve massive growth literally overnight, and that's by buying somebody else's company. Acquisition has become one of the most popular ways to grow today. Since 1990, the annual number of mergers and acquisitions has doubled, meaning that this is the most popular era ever for growth by acquisition.
Companies choose to grow by acquiring others to increase market share, to gain access to promising new technologies, to achieve synergies in their operations, to tap well-developed distribution channels, to obtain control of undervalued assets, and a myriad of other reasons. But acquisition can be risky because many things can go wrong with even a well-laid plan to grow by acquiring: Cultures may clash, key employees may leave, synergies may fail to emerge, assets may be less valuable than perceived, and costs may skyrocket rather than fall. Still, perhaps because of the appeal of instant growth, acquisition is an increasingly common way
Question.3. Discuss the distinction between Mergers and Acquisitions?
Answer:Mergers and acquisitions are both aspects of strategic management, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture.
M&A can be defined as a type of restructuring in that they result in some entity reorganization with the aim to provide growth or positive value. Consolidation of an industry or sector occurs when widespread M&A activity concentrates the resources of many
Question.4. What are the benefits of the merger?
Answer:A merger occurs when two firms join together to form one. The new firm will have an increased market share, which reduces competition. This reduction in competition can be damaging to the public interest, but help the firm gain more profits.
However, mergers can give benefits to the public.
1. Economies of scale: This occurs when a larger firm with increased output can reduce average costs. Lower average costs enable lower prices for consumers.
Different economies of scale include:
CASE STUDY : 4
Century Polyester, B K Birla Group company manufactures polyester partially oriented yarn (POY)polyester chips and nylon type cord fabric (NTCF). The production of Century Polyester takes place mainlyat Pune, mahad in India. Margins were under high pressure due to volatility in raw material prices andcompetition from low priced imports.
Profit margins in Century Polyester operation can be improved with the reduction in excise duty and stableraw material prices. But profit margins in NTCF were affected because of increase in Corpolactam prices,low priced Chinese imports and appreciation of the rupee. However, Century’s special interest in nylontextile yarn could increase its market share.
To copy with the increasing competition, the company is trying its level best to increase its operationalefficiencies value addition and product mix. They are focusing on energy conservation and modernization.
To increase its generative capacity, the company has installed 2 diesel generating sets of 6 MW each atPune. The NTCF capacity expansion of about 7500 tonnes per annum is on the verge of completion. Earliermost of the NTCF demand was met by Chinese imports due to less production rate in India. Estimatedinvestment for all these schemes is about Rs 280 crore.
Question.1. What were the major problems Century Polyester had?
Answer:Century Polyester, B K Birla Group company manufactures polyester partially oriented yarn (POY) polyester chips and nylon type cord fabric (NTCF). The production of Century Polyester takes place mainly at Pune, mahad in India. Margins were under high pressure due to volatility in raw material prices and competition from low priced imports.
Profit margins in Century Polyester operation can be improved with the reduction in excise duty and stable raw material prices. But profit margins in
Question.2. Suggest the remedies to solve the problem?
Answer:To copy with the increasing competition, the company is trying its level best to increase its operational efficiencies value addition and product mix. They are focusing on energy conservation and modernization.
The complete removal of the oligomers is not possible. However, they can be partly eliminated using speciality chemicals in dyeing, reduction clearing of dark/ heavy dark polyester fibre in acidic medium, proper finish having less affinity for the oligomers, and regular machine cleaning. Here are some things to remember:
· Clean machine periodically
· Use of high liquor ratio
Question.3. Why did they go for capacity expansion of NTCF?
Answer:To increase its generative capacity, the company has installed 2 diesel generating sets of 6 MW each at Pune. The NTCF capacity expansion of about 7500 tonnes per annum is on the verge of completion. Earlier most of the NTCF demand was met by Chinese imports due to less production rate in India. Estimated investment for all these schemes is about Rs 280 crore.
Small-Sized textile company, Century Enka, is a part of BK Birla Group. Cheap valuation, timely expansion, low debt and good dividend-paying record make Century Enka's the stock an attractive buy. Investors with a one-year horizon can consider
Question.4. SWOT Analysis on Textile Industry in India explain?
Answer:Important Features of Indian textile industry
1. India covers 61 percent of the international textile market.
2. India covers 22 percent of the global market.
3. India is known to be the third largest manufacturer of cotton across the globe.
4. India claims to be the second largest manufacturer as well as provider of cotton yarn and textiles in the world.
5. India holds around 25 percent share in the
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