Business Environment

The objective of the paper is to provide the student with a background of various environment factors that have major impact on business and sharpen their mind to watch and update the changes that occur constantly and analysis

of competitive business environment with special reference to India.

Unit I: Business Environment and Analysis:

The concept of Business Environment, significance and nature. Overview of Political, Socio-cultural, Legal, Technological environment: Impact of technology on business. Technological policy, import of technology, appropriate technology, problems in technology transfer. Global environment. Environment Scanning: meaning, nature and scope, the process of environmental scanning, Interaction between internal and external environments.

Unit II: Indian Financial System: Current Financial Structure, Non Banking Finance Companies (NBFCs) and Financial Institutions. Reforms of the banking sector and Financial Sector, Role of SEBI, FEMA. The changing dimensions of these laws and their impact on business.

Unit III: Macro Economic policies of India: Indian tax system, Direct and Indirect taxes. MODVAT, CENVAT and Value Added Tax. An evaluation of recent fiscal policy of Government of India – Highlights of Budget. Monetary Policy: RBI , Objectives of monetary and

credit policy, Policy tools and Recent trends of Monetary Policy.

Unit IV: Micro Economic policies of India: Public sectors reforms and disinvestment, Industrial Policy in recent years, MRTPAct. policy, Foreign investment Policy, EXIM Policy, Flow of Capital, Acquisition, Mergers, India and WTO.

Unit V: LPG Liberalization, Privatization and Globalization: New Economic Policy , Privatization, Liberalization Globalization, their Implication for Indian Business, its Impacts and emerging trends and issues of

LPG in Indian Business

Meaning of Business Nature of Modern BusinessEnvironment of Business

How environment influences business:

What is the meaning of business and how one understands the nature of modern business?

How is internal environment of business different from its external environment?

How can one distinguish micro and macro environment of business? From the point of view of present day which is more relevant.

Business refers to buying and selling of goods……..

Moderns business covers a complex field of industry and commerce which involve activities related to both production and distribution. These activities related to both production and distribution. These activities on the one hand satisfy society’s needs and desire and on the other hand bring profits to business firm.

Business in brief : includes activities connected with production, trade, transport, finance, banking, insurance, advertising and certain other activities related to industry and commerce.

Nature of Modern Business

Large Scale Oligopolistic character Diversification Global Reach Technology orientation Change Government Control

Large SizeBusiness that matters today is large in size. Indian companies in terms of sales revenues, profits, asset and stock holders’ equity are relatively small as compared to the companies in develop countries.Fortune 500 List, 2008 Indian Oil ,Tata steel ,Reliance Industries, Bharat Petroleum, Hindustan Petroleum, State Bank Of India, ONGC

Oligopolistic Character

Oligopolistic business is characterized by a small number of firms selling a homogeneous or a differentiated product.

Key Feature: Business interdependence among the seller.

Diversification:

Concentric diversification: Business firms prefer to add new related products to their existing production. Maruti UdyogHorizontal diversification: Adding new related products or services for existing customers. PhilipsConglomerate diversification: Big business houses expands their activity by establishing new companies which undertake production of unrelated new products or services. Tata Group Ambani Group Reliance, Modi Groups

Global Reach:Liberalization, Technological Change & Falling trade barriers have rapidly changed the business landscape.Companies expanded their revenue and assets base across countries and engages in cross –border flows of capital, goods.Eg, Nestle, Philips Electronics.

Technology:

Japanese and Korean Companies have launched a large no. consumer goods, including air-conditioners, washing machines, refrigerators, televisions video cameras, dish washers and rice cooker with buzzy controls systems.Because modern companies regard technological research strtegic to their future, they carry out their R & D activities very close to their head quarters. These activities are central ised in the countryof the company’s origin.Eg. Novartis has more than teo-thord of its R & D activity in Switzerland.

Government Control

Pollution Hazardous wastes Unsafe drugs and food Radioactive matarials Public Goods: Buolding highway network, education and public health and

security. To create stable business condition

Government Control

Pollution Hazardous wastes Unsafe drugs and food Radioactive matarials Public Goods: Buolding highway network, education and public health and

security. To create stable business condition

Information Business

Competition

Opportunities

GlobalizationTechnology

Transition

Vision, Mission & Objectives

Vision: Why the firm exists and where it is trying to lead.

Where do we go from here?

What changes lie ahead in the business landscape?

What differences will these changes make to the company’s present business?

The Vision of Infosys is:

“To be globally respected corporation that provides best –of –breed business solutions, leveraging technology, vendors and society at large.”

Mission: A mission statement outline the fundamental purpose of the organization.

A vision becomes tangible as a mission statement. If the vision statement answers the question ‘Where do we go from here?”

The mission statement answers “What is our business ? ”

A mission statement gives the organisation its own identity, business emphasis and path for development. A mission statement incorporates four elements:

Customer needs, or what is being satisfied. Customer groups, or who is being satisfied. The company’s activities, technologies, and competencies, or how the firm

goes about creating and delivering value to customers and satisfying their needs.

The company’s concern for survival, its philosophy, its self-concept and its concern for public image

Objective:

Objective render mission more concrete.

Mission statement seek to make a vision more specific and objectives are attempts to make mission statement more concrete.

Objective represent the operational side of an organisation.

Objective:Profit

Growth

Employees Satisfaction

And Development

Market Leadership

Service to Society

Joy of Creation

Challenging

Quality Productsand

Services

Power

Business Goals

Environment:

Environment means the surroundings, external objects, influences or circumstances under which someone or something exists.

The environment of any organization is the aggregate of all conditions, events, influences that surround and affect it.

Business – Economic activity

Business Firm – Economic Unit

Business Decision Making – Economic in Nature

Environment of Business

Business Environment refers to all external factors which have a direct or indirect bearing on the activities of business.

ExternalEnvironment

InternalEnvironment

Micro Environment Macro Environment

Business Environment

Environment of Business

External Environment

MacroMicro

Business

Internal Environment

Value SystemGoals/ObjectivesManagement Structure

Internal powerRelationshipPhysical and technologicalCapabilitiesHuman Financial

&Marketing resources

Political-Legal

Economic

TechnologicalGlobal

Cultural

Physical Rival Firms

Suppliers

Substitute Products

Buyers

New Entrants

Internal EnvironmentExternal Environment

Internal Environment

Value System: Persons holding top positions in certain modern corporate enterprises have some values which influence their policies, practices and overall internal environment .

Goals and Objectives: Sales maximization and the balanced rate of growth maximization .

Management Structure: A corporate enterprise may be professionally managed or family controlled.

Internal Power relationship: The strength of management depends largely on the relationship between the company’s shareholders

Physical resources and technology: Production technology R&D work and distribution logistics.

Human Resources: The quality of human resources of a company depends largely on skills, commitment, attitude and morale of the employees.

Business Firm: Adaptability and adoptability to environment.

Managers: Capability to deal with environment.

Internal Environment

External Environment

Business Environment

Regarded as controllable factorsRegarded as controllable

factorsRegarded as uncontrollable

factors

Internal and External business environment

Internal business environment Internal structure System, culture Staff Resources of the organization Marketing-distribution Finance accounting Human resources Production-operation Research-development

External business environment Industry level Suppliers Customers Competitors Financiers Society General level Regional National International level

Macro Environment: Economic Environment

Industrial Production Agriculture Planning Infrastructure National Income Per Capita Income Money Supply Price Level Population Savings Trade cycles Economic System Growth Economic stability Economic policy

Non Economic Environment

Global Environment

Political Environment

Regulatory & Legal Environment

Social / Cultural Environment

Demographic Environment

Technological Environment

Natural Environment

Technological Environment: exercises considerable influences on business. It changes fast and to keep pace with it, businessmen should be ever alert to adapt changed technology in their businesses.

Features:1. Technology reaches people through business.

2. Increased productivity.

3. Need to spend on R&D.

4. Fast changing technology.

5. Rise and decline of products and organisations.

6. High expectations of consumers.

7. Demand for capital.

8. Social change

Global Environment:

Features:

Increasing opportunity as world has become one market. Improving quality. Competition from MNCs. Capital and technology transfers Deciding which market to enter and how to enter. Adjusting the management process India and WTO

A manager must understand that safe and protected markets are no more there; the world is becoming small in size-advanced means of transport and communication facilities; learning of foreign languages is a necessity; facing political and legal uncertainties is inevitable; and that adapting their products to different customer needs and tastes would only help companies survive amidst intense competition.

Political-Legal Environment: refers to the influence exerted by the three political institutions, viz, legislature, executive and the judiciary in shaping, directing, developing and controlling business activities. Legislature decides on a particular course of action; the executive also called the government, implements whatever was decided by the parliament and the judiciary as the watchdog in order to ensure that both the legislature and the executive function in the public interest and with in the boundaries of the Constitution. A stable and dynamic political environment is indispensable for business growth.

Role of legislature Role of executive Role of judiciary Constitution of India. New direction for government role.

Social and Cultural Environment: refers to the influence exercised by the certain factors which are beyond the company gate.

Culture creates people Culture and globalization Culture determines goods and services People’s attitude to business and work Caste system Sprit of collectivism and individualism Education Family and marriage Ethics in business Social responsibility Corporate governance

Natural Environment:

Manufacture depends on physical inputs. Mining and drilling depends on natural deposits Agriculture depends on Nature Trade between two regions depends on geographical factors Transport and communication depend on geographical factors

Determinants of International Environment for Business

State of world economy. International economic cooperation. Role of multinational economic institution. International economic laws ,agreement codes. Political condition & system in different countries. Growth and speed of MNCs. Technology growth & transfer. International market structure and competition. Barriers of international trade & investment.

Significance of Business Environment

Facilitates operations of the organization. Form the basis of long term policies, plans and strategies of organization. Help organization in identifying & understanding its competitors. Help the firms to expand & grow.

Objective and uses of environment study: Environment analysis has three basic goals: Analysis should provide an understanding of current and potential changes taking place in the environment.

Environment analysis should provide inputs for strategic decision making. Environment analysis should facilitate and foster strategic thinking in

organizations-typically a rich source of ideas and under standing of the context within which a firm operates.

Environment Scanning

Strategy Formulation

StrategyFormulation

Evaluation and Control

Benefits of environment study:

Development of broad strategies and long term policies of the firm. Development of action plans to deal with technological advancement. To foresee the impact of socio-economic changes at the national and

international levels on the firms stability. Analysis of competitor’s strategies and formulation of effective counter-

measures. To keep oneself dynamic.

Nature of Business Environment:

Dynamic Uncertain Opportunity & Threat Internal & External factors Economic and Non Economic factors

Types of Business Environment Risk

Legal Risks

Regulatory Risks

Political Risks

Social Risks

Natural Risks

Environment Scanning

Environmental scanning is a process of gathering, analyzing, and dispensing information for tactical or strategic purposes. The environmental scanning process entails obtaining both factual and subjective information on the business environments in which a company is operating or considering entering.

Strategic planning in which manager try to determine best fit b/w organization and its external environment.

Important step towards corporate planning & business policy decision.

Aimed at conditions improvement of the company, its policies & programs.

Linkage among Stages

ScanningForecasting

Assessment

Monitoring

Process of Environment Analysis :

Scanning : General surveillance of environmental factors & their interactions.

Monitoring : Tracking environmental trends events.

Forecasting: Developing plausible projections of direction, scope & intensity of

environment changes

Assessment: Identifying & evaluating how & why current and projected environment

changes will affect strategic management of organization

Internal Scanning :Acquisition, analyses, use of information from within the organization that will help the mngt in determining future course of action of business.

External Scanning:Acquisition, analyses, use of information about events & establishing the relationship of business with its environmental variables.

SWOT analysis

Important Information :

The size and type of sectors represented How many people they currently employ Business expansion initiatives Employee shortages Skills required Business growth opportunities Gaps in the business sector

There are three ways of scanning the business environment:

Ad-hoc scanning - Short term, infrequent examinations usually initiated by a crisis

Regular scanning - Studies done on a regular schedule (e.g. once a year)

Continuous scanning (also called continuous learning) - continuous structured data collection and processing on a broad range of environmental factors

SWOT analysis

Strengths: attributes of the person or company that are helpful to achieving the objective.

Weaknesses: attributes of the person or company that are harmful to achieving the objective.

Opportunities: external conditions that are helpful to achieving the objective.

Threats: external conditions which could do damage to the objective.

List Strengths:Develop a list of all of the internal strengths of the agency incorporating

feedback from the team members, emails and surveys. Discuss the strengths and clarify any questions or confusion.

Examples of strengths could include an experienced staff or good employee training program.

Identify Weaknesses

Weaknesses are internal factors that may impact workforce planning negatively.Examples of weaknesses could include an absence of procedural manuals or lack of an employee mentoring program. It is possible that a strength could also be a weakness. Forexample, long-time employees could be a strength because of their experience, but may be a weakness because it might indicate a workforce close to retirement..

List Opportunities:

Opportunities are external factors, as opposed to the internal factors of strengths and weaknesses. Opportunities could include new relevant training programs at educational institutions or an emerging diverse workforce.

Identify Threats:

Threats are also external factors. Threats could have a negative impact on your workforce planning and could include a projected increase in the costof employee health insurance or an expected reduction in government funding. Again it is possible that an opportunity may also be perceived as a threat. For example, new technology tools might be an opportunity, but also threaten staffing levels.

Establish Priorities

SWOT Analysis

Strengths Weaknesses

What does your community do well?

What unique resources do you have?

What do others see as your strengths?

What could you improve?

Where do you have fewer resources than other communities?

What do others see as your weaknesses?

Opportunities Threats

What good opportunities are available to you?

What trends would you take advantage of?

How can you turn your strengths into opportunities?

What trends could affect you negatively?

What are competing communities doing?

How would a weakness be potential threat?

Responses When an issue is detected, there are generally six ways of responding to

them: opposition strategy - try to influence the environmental forces so as to

negate their impact - this is only successful where you have some control over the environmental variable in question

adaptation strategy - adapt your marketing plan to the new environmental conditions

offensive strategy - try to turn the new influence into an advantage - quick response can give you a competitive advantage

redeployment strategy - redeploy your assets into another industry contingency strategies - determine a broad range of possible reactions -

find substitutes passive strategy - no response - study the situation further

Role of Business Economists:

To provide economic logic & perspective for managerial decision making.

Integrating economic theory with practical business environment.

Monitoring, scanning, careful analysis & interpretations of business environment.

Forecasting, future planning & formulating future business strategy.

Thank You