According to Adam Smith, trade between two nations is based on absolute advantage when one nation is more efficient than the other in the production of one commodity but is less efficient in the production of another commodity then both nations can gain by each specializing in the production of the commodity of its efficiency and exchange part of its output with the nation for the commodity of its less efficiency. By this process, there will be the efficient utilization of resources and output of both commodities will rise. This increase in the output of both commodities measures the gains from specialization in the products available to be divided between two nations through trade.

For example: If the United States is efficient in the production of wheat but inefficient in the production of cloth. On the other hand, the United Kingdom is efficient in the production of cloth but is inefficient in the production of wheat. Thus the United States has an absolute advantage over the United Kingdom in the production of wheat and absolute disadvantage in the production of cloth. Whereas, the United Kingdom has an absolute advantage over the United States in the production of cloth and absolute disadvantage in the production of wheat.

Under these circumstances, both nations would benefit if each nation specialized in the production of the commodity of its absolute advantage and then trade with the other nation.

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Size and composition of  present both opportunities and problems for business. Opportunities arise because there are more consumers. However, more people do not necessarily mean greater demand unless population growth is accompanied by growth in per capita income. This is why poor countries  are generally not attractive for big firms.

Population growth also meanS availability of more workers to produce and sell goods. But labor supply will really increase in such situation, besides work attitudes of people.

In highly populated advanced countries market prospects are very attractive but competition is also intense. When the population is very heterogeneous in respect of language, religion, caste and preferences, different demand patterns emerge calling for varying marketing strategies.

Decline in birth rate means fall in the size of infant population with consequent decrease in market for baby products. Increasing life expectancy increases the percentage of aged in the total population. Therefore, demand for health care facilities of aged increases.

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Government and businesses are the two most powerful institutions in any society. The two together determine public policy, both domestic and foreign, for a country. The policies, practices and regulations of the government influence to a large extent the nature, growth and functioning of the business system.  In a situation of political stability business flourishes and businessmen venture to take greater risks. In the same way the ideology of the ruling party determines the nature and extent of economic development. If the ruling party believes in socialism, government control and ownership of business will grow. For example, public sector dominated development strategy in India until 1990. Major economic policies of a nation such as industrial policy, fiscal policy, monetary policy, and foreign trade policy are often based on political considerations. Several political decisions have strategic implications for business and industry.  For example, the philosophy of Bhartiya Janta Party government forced Coca Cola and IBM to leave India in 1977. Since then the clock has turned a full circle. Now multinationals are welcome in almost all types of industries in India.

Changes in the nature and extent of government intervention in business matters lead to changes in the pattern of industrial growth. When public sector was in a dominant position and industrial licensing was widely applicable, scale of operations and the location of projects were decided by the government. After liberalization in 1991 businessmen are free to take such decisions.

Business and industry in turn exercise a significant influence on the government and on its policies and programmes. It was the Foreign Exchange crisis which necessitated economic liberalization in 1991 in India.

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Social audit concept is gaining increasing attention in India. The use of an effective social audit is likely to encourage a careful cost-benefit analysis of corporate programs for the benefit of society. It could also provide a means for measuring the result of a social programme. Both investors and social activists may then better evaluate the overall record of a firm’s social involvement.

Developing an effective social audit is however difficult. No clear standards exist as to the activities to be included and there are no uniform standards for measuring results. Data collection about the effects of social problems may also be a problem.

A few organizations have attempted to measure the costs and benefits of their social activities in formats similar to those used in financial reporting. The results of social involvement may be included in the company’s annual as well as social reports.

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The quality of human beings is the greatest asset of a nation. Human capital is the body of knowledge possessed by the population and the capacity of the population to use that knowledge effectively.  Human development is necessary to reduce poverty, to take advantage of modern technology and to modernize attitudes. Primitive attitudes and a backward social system are bad for economic development. In short, human development is an important condition for improving productivity and raising the standard of living of people. The Constitution of India also emphasizes on the development of human resources.

According to Prof. Amartya Sen, “the process of widening people’s choices and the level of well being they achieve are the core of the notion of human development. But regardless of the development, the three essential choices for people are to lead a long and healthy life, to acquire knowledge and to have access to the resources needed for a decent standard of living. Human development does not end there, other choices highly valued by many people range from political, economic, and social freedoms to opportunities for being creative and productive and enjoying self respect and guaranteed human rights.”

The development of human resources requires adequate provision of health services, water supply, education, housing, nutrition, and family welfare facilities which are essential determinants of the quality of life. The provision of one without the other is bound to affect the life adversely.

Three measures have been developed to judge human development. these are:

• Human Development Index (HDI)
• Gender Related Development Index (GDI)
• Human Poverty Index (HPI)

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The World Bank has developed an index known as the Green Index.

This index measures a nation’s wealth by using a new system.

The new system attaches a dollar value to each of the three components:

i) produced assets

ii) natural resources and

iii) human resources.

It puts a price tag on produced assets, the sum of all machinery, factories, roads and other infrastructure. It assigns an economic value to land, water, timber, minerals and all other natural resources.  It looks at the human resources available, the education level, and the range of skills. It then calculates the true estimate of a country’s wealth, taking into account all such resources which do not always show up on traditional economic indicators. On ‘Green Index’, India with a per capital wealth of $4,300 is ranked 20th from the bottom among a group of 192 countries, while Australia at $83,500 tops the list and Ethiopia at $1,400 appears at the bottom.

The world average is at $86,000.

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Technological environment refers to the state of science and technology in the country and related aspects such as rate of technological progress, institutional arrangements for development and application of new technology, etc.

According to the well known economist J.K. Galbraith, technology means, “systematic application of scientific or other organised knowledge to practical tasks”.

Technology comprises of both machines (hard technology) and scientific thinking (soft technology) used to solve problems and promote progress. It consists of not only knowledge and methods required to carry on and improve production and distribution of goods and services but also entrepreneurial expertise and professional know how. Technology includes inventions and innovations.

The main features of technological environment are as follows :

• Technological environment is a component of macro or indirect action environment.
• Technological environment changes very fast.
• Technological environment affects the manner in which the resources of the economy are converted into output.
• Technological environment is self reinforcing. An invention in one place leads to a sequence of inventions in other places.

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Advancements in technology have considerably facilitated globalization. In fact technological progress has been one of the main forces driving globalization. Technological breakthroughs compel business enterprises to become global by increasing the economies of scale and the market size needed to break even.

Technological advancements reduce costs of transportation and communication across nations and thereby facilitate global sourcing of raw materials and other inputs. Patented technology encourages globalization as the firm owning the patent can exploit foreign markets without much competition.

Information technology has led to the emergence of the global village. For example, the world wide web has reduced the barriers of time and place in business dealings. Buyers and sellers can now make transactions at any time and any part of the globe. Technological change also affects investments.

Earlier, high technology production was limited to rich countries with high wages. Now technology is easily transferable to developing countries where high tech production can be combined with low wages. A large number of firms in advanced countries are now outsourcing labour intensive services from developing countries like India.

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Physical distribution involves planning, implementing and controlling the physical flow of goods, services and related information from producers to customers. In fact, physical distribution aims at getting the right product to the right customer in the right place and at the right time. It covers not only outbound logistics, but also inbound logistics and also supply chain management.

Logistics deal with all activities that facilitate product flow from the point of raw material acquisition to the point of final consumption as well as the information flow that set the production in motion for the purpose of providing adequate levels of customer service. Logistics help the inflow of materials into the manufacturing process. It also helps in distribution of products to consumers through various marketing channels. Hence, logistical support is a must for marketing and manufacturing operations.  The scope of logistics is twofold : First, it is the movement of raw materials to the plant which is called physical supply and second, it is the flow of finished products from the plant to the customers and is called physical distribution.

Logistics management is the process of strategically managing the movement and storage of materials, parts and finished inventory from the supplier through the firm and on to the customers. It describes the entire process of materials and products moving into, through and out of the company.

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Distribution of products constitutes an important element of marketing mix of a firm. It involves activities that are necessary to transfer ownership of goods to customers and also making goods available at the right time and place. According to  Stanton, “A distribution channel consists of the set of people and firms involved in the transfer of title to a product as the product moves from producer to ultimate consumer or business user“.  It includes both the producer and the final user of the product as well as mercantile agents and merchant middlemen engaged in the transfer of goods and services.

Channels of distribution are also called the trade channels. They refer to the paths through which the ownership of a product passes during the course of its journey from the producer or manufacturer to the ultimate consumer or industrial user. In other words, at one extreme of the ‘channel’ there is producer and at the other extreme there is ultimate consumer. In between, there are intermediaries or middlemen who help the product in reaching the ultimate consumer. When there is a direct contact between the producer and the consumer, it is called Direct Marketing or Channel. On the other hand, when middlemen are used for distribution of goods, it is called Indirect Channel.

After development of the product, the marketing manager has to decide channels or routes through which the product will flow from the factory to the potential customers. He has a number of alternatives available to him. But the important point that he has to keep in mind is that the product should move efficiently and at minimum possible cost from the production department to the ultimate customers.

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