international business environment

307– International
Business Environment
Generic Elective – University Level
2 Credits
LTP: 2:0:0

2
Emerging Issues in International
Business Environment: Growing
concern for ecology, Digitalisation;
Outsourcing and Global Value chains.
Labor and other Environmental Issues,
Impact of Pandemic COVID-19 on
international trade

Emerging Issues in International Business Environment
Ecological factors influencing business are connected to
actions and processes necessary to protect natural
environment and in the same time maintain or increase
efficiency of the corporation.
Ecology often take form of so-called corporate
environmentalism, i.e. all actions promoting sustainability,
gaining consumer appreciation of eco-friendly products
and services, creating image of responsible corporation.

Emerging Issues in International Business Environment
There are several ecological factors influencing
management decision, business and environment
goals. Proper identification of natural environment
and its influences during strategic analysis (STEEP
analysis, SWOT analysis, TOWS analysis) could lead to
better strategic alignment of company to ecosystem
and state regulations.

ECOLOGICAL LAWS AND REGULATIONS
 government policy and policymaker engagement
in environmental protection,
 fees and fines for using natural environment,
 regulations of waste disposal, recycling and storing,
 regulations of carbon CO2 and toxic fumes
emission,
 relative “value of nature” in political campaigns,
 increasingly stringent environmental regulations on
regional, state and international levels,

ECOLOGICAL LAWS AND REGULATIONS
 cost of non-compliance with ecological regulations,
 incentives for businesses and customers for using
clean products and services,
 activities of government agencies tracking business
activities, giving permits setting minimal standards
for any air emissions, procedures for handling waste
and hazardous materials, etc.
 requirements for implementing environmental
standards e.g. ISO 14000,

SOCIAL PRESSURE TOWARDS CLEAN BUSINESS
 environmental groups and their activities,
 attitudes towards eco-friendly products and services
(consumer preferences and demand for such products),
 attitudes toward tourism in intact wetlands, forests, lakes
and seas,
 increased scrutiny of ecological impacts by stakeholders
and customers
 human well being in relation to ecosystem,
 values and morality, influence of religious beliefs on
managers and consumers,

SOCIAL PRESSURE TOWARDS CLEAN BUSINESS
 costs of protective and proactive environmental measures
 transparency of corporate activity due to global IT
network,
 influence of non-government organizations (mobilization
of people through social networks),
 increase of risk of extremism and terrorist attack using
environmental factors (contamination, nuclear waste,
etc.),
 role of biases, passion and emotions in environmental
decision-making

TECHNOLOGICAL ADVANCEMENTS
 carbon footprint of used technology,
 energy requirements for technological processes,
 availability of technologies for emission reduction
(chemical-filled smoke, ash and particles),
 possibility of recycling of waste and components,
 technology used for mining and acquiring of other
natural resources,
 competitive advantage of new clean technologies
(opportunity do differentiate from competitors),

TECHNOLOGICAL ADVANCEMENTS
 capital requirements for eco-friendly technologies,
 scientific research in area of ecosystems and clean
technologies,
 equipment for handling and moving the waste
products and hazardous materials,
 environmental risk assessment and prevention in
production processes,

NATURAL ENVIRONMENT INFLUENCES

 water and air pollution (influencing production processes in
high-tech companies and food production),
 quality of water used for consumption or production
 health problems (employee attrition) in polluted places,
healthy environments improve mental and physical health
and reduce absenteeism,
 quantity of renewable and non-renewable resources
available,
 biodiveristy of ecosystems and its protection,
 minerals, oil, gas and other natural resources deposits,

 degradation, deforestation and depletion of
fisheries and other natural resources,
 flooding, storms, and other natural disasters caused
by human influences on ecosystems (global
warming, etc.),
 climate change, drought and food scarcity could
lead to social unrest and international conflicts,
 ecosystem services used in business processes,

GROWING CONCERN FOR ECOLOGY
Industrialization, urbanization and improved transport have
brought economic benefits and improvements to human
wellbeing across the globe. However, these processes have also
led to environmental degradation and climate change,
threatening the prospects of future generations to reap similar
benefits.
Many harmful effects are localized, impairing the living conditions
and natural environment of communities. Concentrations of air
and water pollution are now recognized as causing ill health,
threatening future gains in well-being which economic
development makes possible.

Of the challenges facing the planet, climate change is the most
pervasive, including rising sea levels, floods, drought and extreme
weather events.
Reducing emissions of greenhouse gases, largely resulting from the
burning of fossil fuels, is recognized as key to curbing climate change
impacts.
Responses to environmental concerns by national governments have
been mixed. Many have taken policy steps to curtail emissions, while
others remain focused on economic growth. The Kyoto Protocol of
1998 called on the major economies in the developed world to abide
by targets to reduce emissions, while refraining from including
developing countries in such a regime. However, developing countries
are now in the spotlight, in particular China and India, with their rapidly
increasing greenhouse gas emissions.

International businesses with operations in diverse locations must focus on a
variety of environmental impacts, which are increasingly recognized in
global corporate strategy. While regulation is a driver in some countries, in
others, such as developing countries, motivations stem from principled
concerns about sustainable development, as well as perceived risks to
future financial performance.
Environmental strategies entail possible changes in operations and sourcing,
performance targets and monitoring. Although operational changes and
rising costs for scarce resources present a gloomy picture, the
opportunities for innovation and efficiency gains have spurred many
forward-thinking companies to devise creative solutions which can be a
source of competitive advantage.

Stakeholders, including investors and consumers, have taken a
growing interest in corporate ‘green’ credentials, but are only
gradually recognizing the implications for changes in their own
patterns of consumption. Legislation is biting in some areas,
such as waste recycling, and in others, the hope is that
business innovations are producing cleaner alternatives which
meet consumers’ expectations, without the need to make
painful changes to lifestyles.

Digitalisation
Enhancing access for households and individuals is related to the
significant potential of digital technologies to increase incomes
and social well-being, and promote social inclusion.
Digital technologies can create better access to quality
education and offer new opportunities for skills development,
for example by expanding access to knowledge for people
from low-income backgrounds or disadvantaged areas,
supporting new pedagogies with learners as active
participants, fostering collaboration between educators and
between students, and enabling faster and more detailed
feedback on the learning process.

Digitalisation
Digital technologies also offer new opportunities for firms,
including in lowering important barriers to entry. For example,
digital technologies can facilitate cross-border e-commerce
and participation in global value chains (GVCs) (e.g. Skype for
communications, Google and Dropbox for file sharing, LinkedIn
for finding talent, PayPal for transactions, and Alibaba and
Amazon for sales).
Enhancing access to networks and enabling SMEs to engage in
e-commerce can be an effective way for small firms to go
global and even grow across borders where they can become
competitors in niche markets.

Digitalisation
A brief overview of the relationships between
digitalisation and productivity growth, and
between digitalisation, employment, well-
being and development.

DIGITALISATION AND PRODUCTIVITY GROWTH :
A large body of evidence has emerged on the relationship
between digital technologies and productivity growth. Early
studies on the impact of digital technologies on growth failed
to establish a robust relationship with productivity. That is the
reason why in 1987, Robert Solow wrote: “You can see the
computer age everywhere but in the productivity statistics.”
More recent analysis shows that new and emerging digital
technologies affect productivity through mechanisms that are
many and varied . For instance:
 By being faster, stronger, more precise and consistent than workers,
robots have vastly raised productivity on assembly lines in the
automotive industry. They will do so again in an expanding range
of sectors and processes.

 The combination of new sensors and actuators, big data
analytics, cloud computing and the IoT is enabling autonomous
productivity-enhancing machines and intelligent systems.
 Automated maintenance scheduling, enabled by new sensors,
artificial intelligence and machine-to machine(M2M)
communications, will reduce disruptions to production caused
by breakdowns.
 3D printing can remove the need for assembly in some stages
of production by printing already assembled mechanisms.
 Progress in materials science and computation will permit a
simulation-driven approach to developing new materials. This
will reduce time and cost as companies perform less repetitive
analysis.

There are several, possibly complementary, explanations for
this dispersion in productivity growth. Possible contributing
factors include: the growing capture of rents by frontier
firms, e.g. in the ICT sector; the ability of these firms to
attract the limited pool of highly skilled workers with new
sets of horizontal skills required to cope with the rapid
pace of innovation, and the lingering presence of poorly
performing firms, that have remained in the market rather
than close down, trapping valuable resources in
unproductive activities.

All of these may have contributed to the slowdown in
the pace of diffusion from the productivity frontier to
the rest of the economy. Structural settings limiting
competition, discouraging firm entry and exit, and
leading to skills mismatch may have contributed to
each of these phenomena. Turning digitalisation into
productivity growth will therefore require a
comprehensive approach that considers these
elements in turn.

DIGITALISATION AND EMPLOYMENT :
Skill-biased technological change (SBTC), a manifestation of
productivity-enhancing technological change, has been a
main factor linked to growth over recent decades. Most new
technologies have required higher levels of skill to use than
those they displace. This is a long-standing trend. the faster the
rate of technological change, the wider the increase in wage
dispersion, the greater the increase in the supply of skilled
labour, and the slower the increase in wage dispersion.

Those jobs relying on a high proportion of automatable tasks are at high
risk of being substituted for by new technologies. Computers and
algorithms mainly substitute for easily codifiable, conceptual jobs on
the highly skilled end of the skill distribution, or manual jobs at the
bottom end of the skill distribution. But the implications for job
changes will only take place if these technologies are taken up by
firms, or firms that do not use these technologies exit the market. If this
occurs, however, the gains to overall productivity would also be
limited.
Workers will need different skills, not just more skills. Regardless of the
precise number of jobs at risk of automation, continued hollowing-out
will continue to disrupt the labour market. Up-skilling will be part of the
solution, but workers will also need a different sort of skill-set

Digitalisation is also changing the way work is organised. The “platform
economy” (referring broadly to the ”gig”, “sharing”, and “on-
demand” economies), though still small in scale, is growing quickly
across many sectors since it lowers the transaction costs of businesses
accessing a larger pool of potential workers and suppliers, with
workers increasingly engaged as independent contract workers. This
has benefits for some workers, providing them with greater flexibility,
and allowing people to earn additional income and access work,
sometimes for the first time. At the same time, these jobs rely mostly on
non-standard work arrangements (e.g. self-employment) that may
limit access to regular jobs; it may also offer less promising
employment trajectories and lower access to social protection or
training opportunities; and it could also limit worker’s access to union
representation and wage-setting mechanisms

DIGITALISATION AND WELL -BEING
Digital technologies are improving healthcare, access to education, the
monitoring of the environmental quality, and that they are giving
consumers the possibility of interacting more fluidly with business and
governments. The digital economy also has huge potential to
enhance social well-being.
Digital technologies can also promote social inclusion by creating better
access to quality education and offering new opportunities for skills
development .
Digital learning environments can enhance education in multiple ways,
for example by expanding access to content to people from low-
income backgrounds or disadvantaged areas, supporting new
pedagogies with learners as active participants, fostering
collaboration between educators and between students, and
enabling faster and more detailed feedback on the learning process.

New digital technologies are particularly important to better connect
disadvantaged groups for example mobile connectivity is helping
reach remote populations as well as those with lower incomes, due to
its low costs. The low-income users spend even more time on the
Internet than the average, browsing websites that deal with
education, career opportunities, health and nutrition themes and
online sales platforms.
Potential benefits for low-income groups also relate to improved access
to free or very low-cost knowledge and information; services that
allow consumers to negotiate better prices for products (as well as
identify better quality products); as well new consumption
opportunities offered by Internet-based platforms

Technological innovations in the financial and health sectors can
also promote social inclusion.
Digital lending innovations and innovative financing like peer-to-
peer lending and crowd funding platforms have the potential
to fill a bank lending gap and improve access to finance for
both households and small enterprises, allowing for the
participation of small investors.
Financial innovations will, however, require an appropriate
regulatory and legal framework ensuring transparency and
accountability.
Tailored financial education programmes can help enable
individuals and small businesses to make use of these new
opportunities and help them make informed choices

DIGITALISATION AND DEVELOPMENT
The role of digital networks as an accelerator of development has
been recognised globally, and due to its critical importance to
the three pillars of development – economic development,
social inclusion and environmental protection – the task of
making the Internet universal and affordable was approved as
a target (Target 9.c) of the Sustainable Development Goals
(SDGs), echoing the objective already elaborated by the
United Nation’s Broadband Commission for Sustainable
Development.

Despite the rapid spread of the Internet and the increasing
agreement on the opportunities it brings, nearly 60% of the
world’s population, or four billion people, remain offline.
These gaps in the availability and penetration of the Internet
persist and a large portion of the population is still unable to
directly reap digital dividends.
The task of closing the access and usage gaps is a multifaceted
one. It involves major ‘supply-side’ challenges, notably of
encouraging investment and competition, extending
broadband infrastructure outside of urban areas into rural and
remote areas, and upgrading networks to match rising
demand.

Additionally, demand-side issues such as low levels of income,
education and local content production add new challenges
to improving affordability and relevance of services to users.

.

Outsourcing and Global Value chains
What is outsourcing?
Outsourcing is a business practice in which services or job
functions are farmed out to a third party. Outsourcing refers to
the way in which companies entrust the processes of their
business functions to external vendors. Any business process
that can be done from an offshore location can be
outsourced. This includes functions like transaction processing,
payroll and order and inventory management to name a few.
Plus, there are a whole lot of call center services that are being
outsourced as well.

Outsourcing and Global Value chains
What is outsourcing?
Some of the processes that can be outsourced to providers like
accounting and book keeping service, business process
outsourcing, text and editing services, image manipulation
services, OCR clean up services, transcription services, data
conversion services, call center services etc.
Outsourcing is a common practice of contracting out business
functions and processes to third-party providers. The benefits of
outsourcing can be substantial - from cost savings and
efficiency gains to greater competitive advantage. On the
other hand, loss of control over the outsourced function is
often a potential business risk.

What is Global outsourcing?
Global outsourcing is enabling business without barriers in a
borderless world. As enterprises think global, their outsourcing
models have changed to follow suit.
Outsourcing is no longer just a short term quick-fix to achieve cost
reduction. Global outsourcing uses a blend of onsite, offshore
and nearshore outsourcing solutions to achieve strategic
business objectives for the outsourcing company.
Global outsourcing mitigates risks for the customer as it is not
country-specific or geography-dependent and allows
more freedom and flexibility in decision-making and operations
during the outsourcing process. It allows businesses to learn,
adapt, grow and evolve while ensuring predictability in quality
and delivery in their business processes.

Advantages of outsourcing
There are many reasons why a business may choose to outsource
a particular task, job or a process. For example, some of the
recognised benefits of outsourcing include:
 improved focus on core business activities - outsourcing
can free up your business to focus on its strengths, allowing
your staff to concentrate on their main tasks and on the
future strategy
 increased efficiency - choosing an outsourcing company
that specialises in the process or service you want them to
carry out for you can help you achieve a more productive,
efficient service, often of greater quality

Advantages of outsourcing
 controlled costs - cost-savings achieved by outsourcing can
help you release capital for investment in other areas of your
business
 increased reach - outsourcing can give you access to
capabilities and facilities otherwise not accessible or
affordable
 greater competitive advantage - outsourcing can help you
leverage knowledge and skills along with your complete
supply chain
Outsourcing can also help to make your business more flexible
and agile, able to adapt to changing market conditions and
challenges, while providing cost savings and service level
improvements.

Disadvantages of outsourcing
Outsourcing involves handing over direct control over a business
function or process to a third party. As such, it comes
with certain risks. For example, when outsourcing, you may
experience problems with:
 service delivery - which may fall behind time or below
expectation
 confidentiality and security - which may be at risk
 lack of flexibility - contract could prove too rigid to
accommodate change
 management difficulties - changes at the outsourcing
company could lead to friction
 instability - the outsourcing company could go out of
business

Offshore outsourcing, although potentially more cost-
effective, may present additional challenges such as
hidden costs of provider selection or handover,
severance and costs related to layoffs of local
employees who will not be relocated internationally,
etc. Even simply managing the offshore relationship
can prove challenging due to time zones, different
languages or cultural preferences.

Outsourcing services
Business process outsourcing (BPO) is an overarching term for the
outsourcing of a specific business process task, such as payroll. BPO is
often divided into two categories: back-office BPO, which includes
internal business functions such as billing or purchasing, and front-office
BPO, which includes customer-related services such as marketing or
tech support. Information technology outsourcing (ITO), therefore, is a
subset of business process outsourcing.
While most business process outsourcing involves executing standardized
processes for a company, knowledge process outsourcing (KPO)
involves processes that demand advanced research and analytical,
technical and decision-making skills such as pharmaceutical R&D or
patent research.

Examples of outsourcing
Common outsourcing processes and activities include the following:
IT functions - you can outsource most IT functions, from network
management to project work, website development and
data warehousing. You may benefit from the latest
technology and software upgrades without having to invest in
expensive systems or keep up with industry trends.
Business processes and HR - outsourcing activities such as
recruitment, payroll and secretarial services gives you access
to specialist skills, but you only pay when you need to use
them.

Finance - you already outsource auditing, so why not do the
same with your entire accounting function, including
bookkeeping, tax management and invoicing?
Sales and marketing - many organisations use a consultant or an
agency to handle marketing communications. Smaller
businesses, or those in specialised markets, can also outsource
sales to specialist agencies.
Health and safety - there are consultants who specialise in health
and safety compliance tasks. They may be able to ensure you
meet all the requirements, including those for complex risks,
more cost-effectively than you can.
Operational outsourcing - this often includes cleaning, catering,
facilities management, deliveries, installation, repairs and
after-sales services.

What are global value chains?
A global value chain involves all the activities that firms engage
in, at home or abroad, to bring a product to the market, from
conception to final use.
World trade, investment and production are increasingly
organised around global value chains (GVCs). A value chain
is the full range of activities that firms engage in to bring a
product to the market, from conception to final use. Such
activities range from design, production, marketing, logistics
and distribution to support to the final customer. They may be
performed by the same firm or shared among several firms. As
they have spread, value chains have become increasingly
global.

GVCs draw on some basic characteristics of today's global
economy:
 The growing interconnectedness of economies. In GVCs
economic activities are fragmented and dispersed across
countries. Today, more than half of the world’s manufacturing
imports are intermediate goods (primary goods, parts and
components, and semi-finished products), and more than 70%
of the world's services imports are intermediate services, such
as business services. Exports increasingly include value added
imported from abroad.

 Specialisation of firms and countries in tasks and business
functions. Today, most goods and a growing share of services
are “made in the world”, with different firms and countries
specialising in the specific functions and tasks that collectively
constitute a GVC. However, many policies are still based on
the assumption that goods and services are produced in just
one country.
 Networks of global buyers and suppliers. In GVCs firms control
and co-ordinate activities in networks of buyers and suppliers,
and multinational enterprises (MNEs) play a central role. Policy
affects how these networks are formed and where their
activities are located.

 New drivers of economic performance. In GVCs, trade and
growth rely on the efficient sourcing of inputs abroad, as well
as on access to final producers and consumers abroad. The
fragmentation of production in GVCs is a means of increasing
productivity and competitiveness. GVCs also affect the labour
market, mainly by affecting demand for different skills groups.

Why have global value chains emerged?
The fragmentation of production across countries is not a new
phenomenon.
What is new is its increasing scale and scope.
Firms today can disperse production across the world because
trade costs have decreased significantly, mainly owing to
technological advances.
Cheaper and more reliable telecommunications, information
management software and increasingly powerful personal
computers have markedly lowered the cost of co-ordinating
complex activities within and between companies over long
distances.

Why have global value chains emerged?
Rapid advances in information and communications technologies
(ICT) have increased the tradability of many goods and
services. Moreover, containerised shipping, standardisation,
automation and greater inter-modality of freight have
facilitated the movement of goods in GVCs, although distance
still matters.
Trade liberalisation has resulted in falling trade barriers, in
particular for tariffs, and has further reduced costs.
Liberalisation of investment has allowed firms to disperse their
activities, and liberalisation in emerging economies has helped
to extend GVCs beyond industrialised countries. Regulatory
reforms in key transport and infrastructure sectors, such as air
transport, have also brought down costs.

However, the spread of GVCs is not driven by cost and efficiency
considerations only. Another important motivation is access to
foreign markets. Demographic shifts and rapid growth in
several large economies
Another motivation for the spread of GVCs is access to
knowledge. Companies increasingly make investments
abroad to gain access to strategic knowledge assets, whether
these are skilled workers, universities, research centres or other
sources of expertise. Proximity to competitors and suppliers is
another factor in the growth of GVCs, as it enables firms to
learn from others and facilitates collaboration.

LABOR ISSUES
With respect to trade and labor standards, many
labor unions and labor activists such as the AFL-CIO
have argued that the United States should promote
improved labor protections in any country with
which it negotiates a new agreement aimed at
liberalizing trade.
The International Labor Organization of the United
Nations upholds a series of labor recommendations
and conventions that are intended to be
recognized everywhere in the world.

LABOR ISSUES
There is universal consensus that all countries must
respect the following fundamental rights:
Freedom of association and the effective
recognition of the right to collective bargaining;
Elimination of all forms of forced or compulsory
labor;
Effective abolition of child labor; and
Elimination of discrimination in respect of
employment and occupation.

LABOR ISSUES
The International Labor Organization’s Declaration on
Fundamental Principles and Rights at Work, adopted in
Geneva in 1998, stresses these principles in greater detail.
According to many labor advocates, workers in many
developing countries lack basic labor protections—such as
the right to organize unions, and healthy and safe
workplaces—that most workers take for granted.
Weak and poorly enforced labor standards in developing
countries are said to be unjust to workers. Since weak labor
standards are often accompanied by low wages, they are
also said to harm workers in the United States and other
industrial countries who compete with developing country
workers through trade and investment.

LABOR ISSUES
Many times the transnational corporations that control the
means of production will shift their operations to the country
with the lowest cost of production. Lower costs of production
tend to be exploitative by nature as the bottom line is the
main concern.
countries, like China that have economies that are heavily built
on the manufacturing sector, try to keep wages and costs for
transnational corporations (TNCs) as low as possible. With
many developing countries trying to attract capital from these
firms, there is constant competition to drive down costs and
wages. In turn, fair labor rights and working conditions are
exchanged in the name of the competitive and free market,
also known as “the race to the bottom.”

LABOR ISSUES
To address these problems, many labor advocates propose that
new trade agreements include special provisions that permit
one country to restrict the imports of another country if the
country is found to be in violation of internationally accepted
standards of labor protection.
Proponents say that this threat of trade penalties or sanctions will
encourage developing countries to improve their labor laws
strengthen their enforcement of those laws, simultaneously.
This could help both developing and industrial country
workers.

Implications on the workforce
Job losses and salary cuts are likely in the high-risk services sector,
including airlines, hotels, malls, multiplexes, restaurants, and retailers,
which have seen a sharp fall in demand due to lockdowns across the
country. If the current global and domestic economic slowdown
persists, it will impact demand and realization.
Undoubtedly, with this crisis impacting the business around the country, it
will create very challenging situations for the workforce. Companies
are not meeting the revenue targets hence, forcing employers to cut
down their workforce. The World Travel & Tourism Council has
predicted 50 million tourism jobs getting eliminated because of the
pandemic. Not only the employees of multinational companies, but
daily wage workers have been impacted the most during this crisis.

Implications on the workforce
The International Labor Organization has called for urgent, large-scale
and coordinated measures across three pillars - protecting workers in
the workplace, stimulating the economy and employment, and
supporting jobs and incomes.
According to a preliminary assessment report, nearly 25 million jobs
could be lost worldwide due to the coronavirus pandemic, but an
internationally coordinated policy response can help lower the
impact on global unemployment.
While on one hand, Indian employees are losing their jobs and receiving
a salary cut, there is also an assumption that the majority of expats
have gone back from India and they will take time to return. Different
sectors such as automobile, banking and manufacturing employ a
large number of expats. Indian companies need expats for several
industry verticals and job functions such as after-sales services,
business development and market audits.

Impact of Pandemic COVID-19 on international trade
Global markets are in free fall with supply-chain
disruption and manufacturing falling to the lowest
levels in decades. Reduced international trade,
falling PMIs across the globe and deep cuts in GDP
forecasts for the year indicate we have entered the
anticipated recessionary period. With indices
fluctuating wildly and crude oil futures hitting
negative prices on the dollar, this is uncharted
territory for traders and policymakers alike.

The Covid-19 pandemic has caused the global economy its
worst contraction in almost a century. Current forecasts
portray a very gloomy picture for 2020 with a 13 to 32 per
cent decline in merchandise trade, a 30-40 per cent fall in
foreign direct investment (FDI) along with a significant
reduction in international airline passenger traffic by 44-80 per
cent. The second quarter of 2020, trade contraction due to
Covid-19 is deeper than the Global Financial Crisis (GFC) of
2007-08. According to the WTO, the estimated decline in
merchandise trade in the second quarter of this year is around
18.5 per cent on a year-on-year basis resulting from the
pandemic and associated lockdown measures. It further
added the fall in trade now experienced was historically large
and the steepest on record.

India’s exports during March 2020 accounted for a little over
$21.4 billion, despite a promising performance in just the
previous month. This fall of approximately 35% year-on-year, as
compared to March 2019 ($32.72 billion), is touching a multi-
year low. Exports have fallen across almost all of the
commodity groups.
Some commodities have registered a decline by over 30-40%,
particularly engineering goods, textiles, meat, cereals, plastics
and chemicals, which have been the major growth drivers of
exports in recent years.
As an immediate aftermath of the spread of the COVID-19
pandemic to multiple countries, global demand has fallen
significantly and many orders have been cancelled.

Most of the businesses are under tremendous stress from working
capital, labour and logistics issues among others. With more
than 60 per cent economic activities shut down for 8 weeks,
as 1.3 billion people were placed under lockdown for , the
fear of infection and health concerns started giving way to
the fear of income loss affecting the workforce and the fear of
survival overwhelming many businesses.
Rural India is hard hit. Consumption is the bedrock of the
economy and the rural sector is the biggest driver and pillar of
economic growth.
About 57% of India’s household consumption expenditure comes
from rural areas, accordingly the Government has announced
measures to boost the rural economy of India.

With thousands of migrants returning to home states, there is an
opportunity for the country to push for the transformation of
the rural sector.
Covid-19 has further accelerated the process international trade protectionism
spearheaded by the Trump administration in USA to decrease relative trade
exposure to the world in general and China in particular. Now that is
happening in most countries under the guise of protecting public health and
bio-security to suppress the virus.
Also, as regards the future of multilateral organisation responsible for ensuring free
and fair trade, the WTO is in grave doubt due to the Trump Administration's
attempt to undermine the organisation.
The US is now refusing to approve the organisation's budget, even there are hints
to withdraw from it. Trade policy in the US is moving in more overtly
nationalistic direction. Also, political will to restore manufacturing capacity in
the US is gaining momentum and has bipartisan support.

Auto
The impact would depend on the extent of their business with
China. The shutdown in China has prohibited import of
various components affecting both Indian auto
manufacturers and auto component industry.
However, current levels of inventory seem to be sufficient for
the Indian industry. In case the shutdown in China persists, it
is expected to result in an 8-10 per cent contraction in
Indian auto manufacturing in 2020.
However, for the fledgling EV industry, the impact of
coronavirus may be greater. China is dominant in the
battery supply chain, as it accounts for around three-
quarters of battery manufacturing capacity.

COVID-19 AND TRADE IN SERVICES IN SELECTED SECTORS
Services sectors have been heavily affected by the COVID-19
outbreak. Given the sector's role in providing inputs for other
economic activities, including facilitating supply chains and
trade in goods, disruptions in services supply are having a
broad economic and trade impact. Services now generate
more than two-thirds of economic output, attract over two-
thirds of foreign direct investment, provide most jobs globally
and account for over 40 per cent of world trade. Furthermore,
since services account for most of women’s employment
globally and a large share of micro, small and medium-sized
enterprise (MSME) activity, the disruption in services supply also
impacts social and economic inclusiveness.

Tourism and travel-related services :
The global tourism and travel sector, which includes services such as
hotels, restaurants, tour operators and travel agencies, has arguably
been the hardest hit by the crisis so far, given that mobility
restrictions and border closures halted the movement of tourists
abroad. The sector largely relies on mode 2 trade.
Domestic travel restrictions and “work-from-home” requirements
continue to further impact the sector by limiting domestic tourism
activities, which are relevant to supplies through commercial
presence.
The World Tourism Organization (UNWTO) estimated on 27 March
2020 that international tourist arrivals could decline by 20 to 30 per
cent in 2020.

Tourism and travel-related services :
This could translate into a loss of US$ 300 to US$ 450 billion in
international tourism receipts (exports) – almost one-third of
the US$ 1.5 trillion generated globally in 2019 and equivalent
to between five and seven years' lost growth.
The World Travel & Tourism Council (WTTC) estimated on 26 March 2020
that the number of travel and tourism jobs at immediate risk could
reach 100 million. On 1 April 2020, UNWTO released a set of
recommendations calling for strong, urgent support to help the
global tourism sector recover from COVID-19 and "grow back better".
So far, the measures taken by governments have been social, economic and
financial, spanning job-support schemes for employees of the sector, policies
to encourage their upskilling and reskilling, and tax deferrals and various
other forms of financial support for tourism operators.

Distribution services :
Distribution services14 have been heavily affected by the
COVID-19 pandemic, as social distancing measures in
several countries have involved the closure of shops
considered non-essential (typically excluding grocery
stores and pharmacies).
Naturally, this has significantly impacted supply through
mode 3 (commercial presence), which is significant in
this sector.
In the United Kingdom, for instance, total retail sales
declined by 18 per cent in April, as many stores closed
during lockdown

Online sales :
The closure of many retailers of non-essential goods and
other efforts to ensure social distancing have led to
increased online sales by wholesalers and retailers,
particularly of healthcare and household products,
including groceries. Facing reduced visitors, several
brick-and-mortar outlets are therefore also shifting to or
expanding their online presence and their delivery and
pickup services.

Telecommunications, ICT and audiovisual services: With more
people currently participating in both remote work and schooling,
and more heavily dependent on the internet for entertainment and
social contact, the demand for information and communication
technology (ICT) services and related infrastructure has been
unprecedented and unanticipated.
In March 2020, Facebook reported that in countries hard hit by the
pandemic, use of its online messaging service was up more than 50
per cent, and voice and video traffic doubled.
Thailand reported growth of 828 per cent and 215 per cent in the
number of users of Zoom and Skype, respectively.
Social distancing measures adopted by governments have boosted
demand for audiovisual content, for both entertainment and
information purposes.

Information technology and business service outsourcing :
The global revenue of business process and information
technology (IT) outsourcing amounted to around US$
92.5 billion in 2019.
The pandemic presents challenges not only for outsourcing
firms, but also for their customers. Some companies have
flagged an intention to reduce their dependence on
outsourcing, which could have long-term trade
implications for outsourcing firms.

Air, land and maritime transport services :
Mobility-related measures and border restrictions imposed by
governments for public health considerations have hit trade in
transport services particularly hard, and this, in turn, has
impacted international merchandise trade.
Strict restrictions on maritime crew disembarkation and
substitution have led to shipping disruptions.
In addition, the grounding of most of the world's passenger
aircraft fleet, which normally also transports almost half of all
air cargo shipments, has created significant bottlenecks in air
cargo transportation.

Airports Council International (ACI), the airport industry body,
forecast in May that flight cancellations and airport closures
would result in a decline of more than 4.6 billion passengers
globally for 2020, and airport revenue losses for the year would
exceed US$ 45 billion.
The shipping industry has been particularly affected by global
port measures implemented since the outbreak. From
February, major ports across the world adopted a 14-day
quarantine period for vessels arriving from, or transiting
through, affected countries.

Many ports have ceased calls for passenger ships. While cargo
vessels may still call and operate at most ports, they are
subject to enhanced maritime health declarations and
screening requirements. In addition, strict restrictions have
been imposed on crew disembarkation, shore leave and
substitution, affecting around 100,000 seafarers per month.

Health Services: . The COVID-19 crisis stimulated a
surge in the use of telemedicine services. Easing
access to telemedicine services, even on a
provisional basis, could help to slow the spread of
COVID-19 in affected economies, as well as assist in
the sharing of knowledge and experiences in
detection of the virus, monitoring and response.

Financial services:
The pandemic and its impact on the global economy has brought to
the fore the key role of the financial services sector in supporting all
other economic activities by stabilizing markets and ensuring the flow
of credit and payments.
Monetary authorities have been active and creative with different
monetary instruments, including the lowering of key/base interest
rates, quantitative easing, and the reduction of reserve requirements.
Macro prudential measures have also been very varied and have
included the reduction of counter-cyclical capital buffers, the easing
of liquidity positions, the easing of loan loss provisions, forbearance for
non-performing loans, and relaxation of caps on banks' foreign
currency forward positions.

Education services:
The closure of schools and higher education institutions in response to the
pandemic has had significant social and economic consequences.
The pandemic will also have a significant economic impact on the higher
education sector, including as a result of a potential decline in the
number of students. It has been estimated that, in some countries,
enrollments for the next academic year could drop by 15 per cent,
including a 25 per cent decline in the number of international students.
As systems massively move to e-learning, the digital divide in relation to
connectivity, access to devices and skill levels is taking on even more
significance. Looking forward, the current crisis is likely to have a
significant and lasting impact on the provision of education and,
thereby, on international trade in educational services, notably by
increasing the demand and supply of online education.

Estimated economic impact from COVID-19 on India's GVA April-
June 2020 by sector
(Published by Statista Research Department, Oct 16, 2020)

Impact of key industries
The loss incurred by enforcing a lockdown in the country was estimated at 26
billion U.S. dollars and a significant decline in GDP growth is also expected in
the June quarter of 2020. With the imposition of restrictions on transportation
worldwide, the trade sector also took a hit. Exports and imports saw a drastic
decline in the country especially in the case of essential commodities such as
petroleum, food crops, and coal, among others.
Effect on business in India
The growth rate of the automotive business in India was expected to be the most
adversely affected followed by the power supply and IT sectors. Furthermore,
many startups, small and medium enterprises in India expected to face issues
of supply disruption and a decrease in demand. The effects of aid from the
Narendra Modi-led government was, until April, arguably deemed
inadequate in the face of a faltering economy.

Question Answer
/ Final Discussion

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