BUSINESS ENVIRONMENT:

Ist UNIT

According to Androse “The term business environment of a company is defined as a pattern of all external influences that affect its life and development.

Business environment consist of all those factors that have a bearing on the business. The survival of a business firm depends on its innate (natural) strength resources at its command and its adaptability to the environment and te extent ot which the environment is favorable o development of the firm.

External Environment

External Environment

MicroMacro

EnvironmentEnvironment

The survival and success of a firm, thus, depend on two major factors, viz, the internal environment – the external environment.

A SWOT analysis i.e. analysis of strengths and weaknesses of the orgnisation and opportunities and threats in the environment.

The internal factors are generally regarded as controllable factors because the company has control over these factors: it can alter or modify such factors as its personnel physical facilities, organixational and functional means, such as marketing mix, to suit the environment.

The external environment has two components : Opportunities and threats to business. The external factors such as economic factors, socio-cultural factors govt. and legal factors demographic factors geo-physical factors etc. are uncontrollable factors.

  • Business environment at 3 levels:
  • Internal environment
  • Micro/task/operating environment
  • Macro/general/remote environment

Macro/general/remote environment

Social Environment : This environment includes social factors such as attitudes of people, social customs and traditions, education level, size of population, trade unions, occupational structure etc.,

Political Environment :

Political environment refers to the country’s political system, type of government Government policies towards business government, centre state relations, public opinion, law and order etc.

Legal /Regulatory Environment :

Legal environment of business includes all the laws, legal system and judiciary system of the country. A business has to work within framework of country’s laws and regulations.

Socio-Cultural Environment :

Social and cultural environment refers to the influence exercised by certain social factors which are ‘beyond the company’s gate’. Such factors include, among others, attitude of people to work, attitude to wealth, family, marriage, religion, education, ethics and social responsibility of business.

Technology :

Includes scientific and technological advancements in a specific industry as well as in society at large. E.g. Computer industry, etc.,

Technological advances can change the rule of the game; thus every business must by ready to respond.

Legal and Political:

The legal-political element includes the legal and governmental systems within which a business must function.

a)Business must operate within the general legal framework of the countries in which they do business.

b)Businesses are subject to an increase in lawsuits filed by customers or employees.

c)The political issues which affect businesses include those which influence the extent of government regulation.

Natural Environment :

  • Climatic & weather condition.
  • Availability of Natural resources.
  • Topographical factors : Physical features of place.
  • Pollution Control

Demographic Environment :

  • Age Composition
  • Sex Composition
  • Education Level
  • Family size & structure
  • Urban-rural population

Micro/task/operating environment

Customers

Those people & organizations in the environment who acquire goods or services from the business are customers.

As recipients of the business’ output, customers are important because they determine the business’s

Types of Customers :

  • Industrial Customers
  • Institutional Customer

Foreign Customer

  • Retail Customer
  • Multiple Customer
  • Globalization
  • Customer Segmentation

Competitors :

Other firms in the same industry or type of business that provide goods & services to the same set of customers.

In today’s environment most competitors are cooperating to achieve common goals.

Suppliers.

The people & organizations who provide the raw material the business uses to produce its output.

The relationship among them must of cooperative in nature in order to save money, maintaining quality, and speeding products to market.

  • Reliability
  • Multiple Supplier

Market Intermediates :

  • Types of Market Intermediates
  • Middlemen
  • Marketing Agencies
  • Financial Institution
  • Physical Intermediates

Public :

  • Media Publics
  • Local Public

Significance of Business Environment

There is a mutual interdependence between business and its environment. A business enterprises is an open system. It continuously interacts with its environment. Business takes inputs raw materials, capital, labour, energy etc. from its environment and transforms them into goods and services and then send them back to the environment.

Business and its external environment interact in the following ways.

Exchange of information

Exchange of resources.

Exchange of influence and power.

For incorporating dynamic behavior of environment

Complete knowledge of internal environment

To understand international events, pressures & impact

Economic policies of the Government.

To face business problems & challenges

Vigilant regarding dangers

Administrative System

Optimum utilization of resources

Market conditions

Scientific & industrial advancement

Development & success of business.

Dimensions of Business Environment :

The main dimensions elements of business Environment are as follows : Economics Environment : The economics environment comprises of the factors and forces concerned with means of production and distribution of Wealth. It refers to the nature of economic system organization of capital and money markets, income level, price, level economic policies of the county etc.

Dimensions of International Business Environment :

Environment means surrounding. Business environment means the factors the affect or influence the business. Study of environment helps the business to formulate strategies and run the business efficiently in the competitive global market. The environment dynamics. International business includes any type of business activity that crosses national borders.

STEPIN factors which the business include social and Cultural factors. Technical factors Economic factors. Political factors international factors. Natural factors and Demographic and Regulatory environment factors etc.

Social and Cultural Environment :

Social and cultural factors in various countries of the globe affect the international business. These factors include of the people to work, attitude to wealth, family, marriage religion, customs, traditions, beliefs, tastes and preference, living habits eating habits dress habits, education, ethics, human relations social responsibilities etc. social environment influences the level of consumption.

Technological Environment:

Technology and global business are interdependent. International business spread technology from advanced countries to developing countries. Technological environment has significant and direct influence on business in general and international business in particular.

Economic Environment :

International business is mostly and directly influenced by the economic environment of various countries. In fact international economic environment and global business interact with each other. The result of these changes is emergence of global markets, establishment of world Trade Organisation, emergence of global houses and global competitors rather than local competitors. International business houses establish their manufacturing centers in various countries and distribute the goods to the customers of a number of countries. Thus International business contributes of the economic development.

The Economic environment is very significantly influenced by the following major agencies.

  • World Trade Organisation (WTO)
  • International Monetary Fund (IMF)
  • World Bank

Political Environment :

International political factors can also affect business, like war or political tensions or uncertainties strained political relations between the nation or other countries. Political environment factors also influence the operations of international business firms enormously.

International Environment :

Even domestic business is affected by certain global factors. The international environment is very important form the of view of certain categories of business. It is particularly important for industries directly depending on imports and exports.

Natural Environment :

Natural environment encompasses natural resource endowments weather climate conditions, ecological factors, infrastructure factors like power, water resources, air ways, ports, surface transport ect. The natural invironmen is often a critical factor, for “ultimately it is the source and support of everything used by businesses (and almost any human activity) every raw material every energy source every life-sustaining factor even every waste disposal site.

Demographic Environment :

Demographic factors such as size of the population, population growth rate, age composition, ethnic composition, density of population, rural – urban distribution, family size, nature of family, income levels, etc., have very significant implications for business.

Regulatory Environment :

There are wide variations between countries in the policies and regulations regarding conduct of the business.

Challenges of International Business Environment :

Maintaining Competitiveness : Many factors contribute to the competitiveness of a nation. It is being argued that labour costs. Interest rates, exchange rates and economies of scale make a nation competitive.

Government and Trade Regulations : The government of any country can influence its international business significantly. For example, Government intervention for the purpose of protecting domestic industries usually results in less movement of goods and services across borders.

Development an International Perspective :Firms operating in cross border markets need to develop on international perspective. Three areas need special attention: experience focus and attitude.

Managing Diversity :

Diversity is the outcome of globalization. Work forces of any MNC comprise people from different countries. Within this diversity of national origins, there is even wider diversity of cultures, religions, languages, educational attainment, skill, values, ages, races genders and other differentiating variables. Managing such a cosmopolitan workforce is a challenging task for any executive.

Corporate Citizenship :

As MNCs disperse their activities world wide they become highly visible and are required to operate under diverse compulsions such as cultural, political economic and legal factors of different host countries. An international business will be successful if only it creates and sustains the image of a good corporate citizenship-the two hall marks of which are honesty and social responsiveness.

Recession :

Temporary economic decline during which trade and industrial activity are reduced.

Threats :

Environment sometimes poses threats and challenges to the business. Business should enhance its strengths in order to face the challenges posed by the environment. For example, China dumped steel at cheap prices in the Indian market and posed a threat to the Indian industry particularly to SAIL and TISCO. Consequetnly, Indian industry improved its technology in order to meet the Challenges.

Liberalization Policies :

The liberalization polices pursued by the Government since July 1991 brought about a radical change in the Indian business environment. The government also redefined the role of public sector as well as the process of planning. Greater reliance is now placed on market mechanism to bring about optimal allocation of economic resources.

UNIT – II

Structure of Indian economy

“Developing Countries” we use it to mean countries in which per capita real income is low when compared with per capita real incomes of United states of America, Canada Australia and Western Europe.

Characteristics of the Indian economy:

General Poverty and Low per Capital Income

Predominance of Agriculture

High Population Pressure

Capital Deficiency

Unemployment & Under Employment

Low level of Technology

Utilisation & Under Utilised Natural Resources

Poor Quality of Human Resources

Defective Economic Organixation

Foreign Trade Orientation.

Economic Systems :

Introduction : The term economic system refers to an organization consisting of certain institutions.

With a view to utilize productive resources for the purpose of the human wants.

The Economic System of any nation is essentially man-made and influenced by the philosophy ideals, and attitudes of its people.

The different economic system prevailing in different out of the world can be broadly grouped into three categories.

Capitalist economic system, USA & Japan

Communist economic system, Soviet Union, China, Yugoslia, Poland & Cuba

Mixed economic system, Britian, India, France Swedan & Holland.

  1. Charactreristics of Capitalism :

Freedom of enterprise

Private ownership

Profit motive

Price mechanism

Consumers Sovereignty

Competition

Freedom of contracts

Limited Role of Government

II. Capitalism :

Social ownership of the means of production

Central planning

Production for social welfare, No profit motive

Key role of Government agencies

Lack of economic freedom

Full employment

No Class, conflict Industrial peace

III. Characteristics of Mixed Economy

Co-existence of the private sector and the public sector

Existence of Joint Sector (Co-operative Sector)

Control over private sector

Economic Planning

Social Security

Reduction of Inequalities

Types of Planning :

Perspective Plans : is a macro plan for formulated for a period of to 20 years.

Five year plan : are designed for a period of five years

Annual plan : is a part of one year plan.

Rolling plan : don’t have a fixed period of time.

First to Tenth Five Year Plans are given below :

First Five-Year Plan (1951-56)

Second Five – Year Plan (1956-61)

Third Five – Year Plan (1961-66)

Annual Plan (1966-67)

Annual Plan (1967-68)

Annual Plan (1968-69)

Fourth Five – Year Plan (1969-74)

Fifth Five – Year Plan (1974-79)

Sixth Five – Year Plan (1980-85)

Seventh Five-Year Plan (1985-90)

Eight Five – Year Plan (1992-97)

Ninth Five-Year Plan (1997-2002)

Tenth Five-Year Plan (2002-2007)

Eleventh Five – Year Plan (2007-2012)

Economic Planning Industrial Development under plan periods

First Five Year Plan (1951-56) :

In this plan much importance not given to industrial sector. But some steps were taken for the proper utilization of existing capacity of industries. In this plan some industries like Sindri fertiliser’s factory, Indian Telephone Industries, Penicillin factory etc. were established. In this first plan the annual growth rate of industrial output was 7 percent.

Second Five Year Plan (1956-61) :

This plan envisaged an ambitious programme industrialization with emphasis on basic and heavy industries, so a strong base for rapid industrialization, self-reliance, technological development and so on. In this plan the industrial Policy Resolution, 1956 was introduced. The most important industrial achievement was the establishment of three public sector steel units at Bhili, Rourkela, & Durgapur. The annual growth of industrial output in this plan was nearly 7.2 percent.

Third Five Year Plan (1961-66) :

Importance was given for the development of iron & steel, heavy machines & tools, electricity, heavy engineering, fertilizers etc. The Bokara Steel Plant was established in this plan The actual growth rate was nearly 7.8 percent per year.

Fourth Five Year Plan (1969-74) :

  1. Increase the use of installed capacity through heave investment.
  2. Increase exports & reduce the imports as much as possible
  3. Industrialisation of the country through establishment & development new industries

Firth Five Year Plan (1974-79) :

  1. Preference was given for the development of iron & steel, fertilizers some other large scale industries.
  2. Industries which will improve the exports must be developed.
  3. Steps must be taken for the development of consumer good industries.
  4. Special interest must be taken for the development of cottage & small industries.

Sixth Five Year Plan (1980-85) :

Target was about 7 percent per year & actual growth rate achieved was about 5.5 percent.

  1. Importance has been given for substantial improvement of manufacturing capacities in public & private sectors.
  2. Special attention has been given for the development of electronic & communication industries.

Seventh Five Year Plan (1986-91) :

  1. Adequate supply of wage goods & other consumer goods at reasonable prices.
  2. By up gradation of technology, the full capacity of industrial units must be utilized.
  3. Development of domestic market & export potential to emerge as world leader.

Achieve self-reliance & high employment generation.

Eight Five Year Plan (1992-97) :

Annual growth rate of Industrial output was 8.1 percent.

  1. Rapid increase in gainful employment.
  2. Attainment of balanced regional growth
  3. Achieving international competitiveness & productivity with technological dynamism.
  4. Ninth Five Year Plan(1997-2002) : Target was 8.2% of industrial growth rate per annum. Actual growth rate of industrial output in this plan was only 4.5%.
  5. Tenth Five Year Plan (2002-2007) : The industrial sector will have to grow at around 10% to achieve the tenth plan target of 8% growth of GDP. After dismal performance in 2001-02, the industrial sector revived a bit in 2002-03 when it grew at a rate of 6.4%. In 2003-04 expected to grow at the same rate.

Ninth Five Year Plan (1997-2002) :

Target was 8.2% of industrial growth rate per annum. Actual growth rate of industrial output in this plan was only 4.5%.

Tenth Five Year Plan (2002-2007):

The industrial sector will have to grow at around 10% to achieve the tenth plan target of 8% growth of GDP. After dismal performance in 2001-2002 the industrial sector revived a bit in 2002-2003 when it grew at a rate of 6.4% . In 20030-04 is expected to grow at the same rate.

Eleventh Plan (2007-2012)

The eleventh plan has the following objectives :

1. Income & Poverty:

  • Accelerate GDP growth from 8% to 10% and then maintain at 10% in the 12th plan in order to double per capita income by 2016-2017.
  • Increase agricultural GDP growth rate to 4% per year to ensure a broader spread of benefits.
  • Create 70 million new work opportunities.
  • Reduce educated unemployment to below 5%.
  • Raise real wage rate of unskilled workers by 20percent.
  • Reduce the headcount ratio fo consumption poverty by 10 percentage points.

2. Education :

  • Reduce dropout rates of children form elementary school from 52.2% in 2003-04 to 20% by 2011-12.
  • Develop minimum Standards of education attainment in elementary school, and by regular tasting monitor effectiveness of education to ensure quality.
  • Increase literacy rate for persons of age 7 year or more to 85%
  • Low gender gap in literacy to 10 percentage points.
  • Increase the percentage of each group going to higher education from the present 10% to 15% by the end of the plan.

3. Health :