01[1]. business environment

8/9/2019 01[1]. Business Environment

1/20


2/20

2008 Dr. Mamta Kumari & Ms. Ritu 2

Introduction

Business environment is becoming highly complex,unstable and unpredictable in the globalize economyof today.

The environment is the result of changing social and

economic and political forces which createschallenges, opens up new opportunities and affectsthe strength and weaknesses of various businesssegment.

Business contributes to economic growth, createsemployment opportunities and provide all kinds ofgoods and services for our consumption.

Business operates in a risky atmosphere.

It is an important institution in society.


3/20


Meaning of Business

In general business refer to all activities that are beingorganized and carried on with an important purpose,viz; earn profit by supplying goods and services toconsumers to satisfy their felt needs.

Modern business covers a complex field of industryand commerce which involve activities related to bothproduction and distribution. Business include activitiesconnected with production, trade, transport, finance,banking, insurance, advertising, and certain otheractivities related to industry and commerce.


4/20


Business Objectives Or Goals

Business Objectives

Maximize Total Profits Economic Self Sufficiency

Financial Soundness

Maximize Welfare andEmployee Satisfaction

Long Run SurvivalService to Society

Dominate Market

Maximize Sales Revenue

Minimize Cost


5/20


What Is Business Environment ?

Business Environment is

a relationship between a

businesss actions andits environment.

Environment is the

surroundings of a

business by which

business is influenceddirectly or indirectly.

Business Environment

[P] Political/Legal Factors

[E] Economic Factors

[S] Social/Cultural Factors

[T] Technological Factors


6/20


Nature of Business Environment

Risk and uncertainty Business firm works under risk and uncertainty,risk depends upon possibility and uncertainty is unmeasurable risk.

Profit Maximization Profit is the main incentive, motivator, strongsustainer, objective indicator. The main aim of business is profitmaximization and cost minimization.

Competition Competition in price, good quality, satisfaction ofconsumer, etc. competition in business protect the consumer. Itprovides best quality product at reasonable rate.

Technology oriented The rapid technological change has become a

pre-condition for the survival of a company.

Change The business has invented the strategy of making changes inproduct quality, design or packaging.


7/20


Components of Business

Environment

Internal Environment

Business

External Environment

Micro Environment Macro Environment

Non-Economic EnvironmentEconomic Environment


8/20


I. Internal Environment

The internal factors are generally regarded as controllable factorsbecause the company has control over these factors.

Determinants of internal environment :

Mission and vision of the organization

Management philosophy and strategy

Industrial relations

Corporate culture and values

Line and staff relations

Governance standards and codes

Quality central system

Team spirit among employees

Work culture and socio-economic background of employees

Job design and coordination

Quality of internal communication

Compensation system and career progression of employees

Central system of the organization


9/20


II. External Environment

External environment of business consist of institutions,organizations and forces operating outside the Company. Broadlyexternal environment ofbusiness may be classified into (A) MicroEnvironment and (B) Macro Environment.

The micro environment refers to such players whose decisions

and action have a direct bearing on the Company.

The most prominent performs in the micro environment are thefollowing:

Suppliers of inputs

Workers and their unions

Customers Market intermediaries

Competitors

Public


10/20


A. Micro Environment

Workers &

Their Unions

Customers

Market

Intermediaries

Competitors

Publics

Input

Suppliers

Business


11/20


B. Macro Environment

Business


12/20


Determinants Of Business

Environment

I. Economic policies : Industrial Policy

Trade Policy

Monetary Policy

Fiscal Policy

II. Political Conditions : Political Stability

Corruption, rule of law and governance includingbusiness law and regulations

III. Resources : Natural resources

Human resources


13/20


1.1 Industrial Policy

The new Industrial Policy of 1991 has de-regulated the industrialeconomy in a substantial manner.

It has abolished all industrial licensing except for certainindustries related to strategic and social concerns.

The number of industries reserved for the public sector has been

reduced to 3 which implies that the public sectors role in futurewould be very much diminished.

On the recommendations of the Raghavan Committee thegovernment has decided to replace the MRTP Act by a newcompetition law.

The new industrial policy has also liberalized import of foreign

capital and technology. In the case of high investment priorityindustries, approval of foreign investment is automatic.

Guidelines have also been announced for the expeditiousapproval of foreign direct investment in other industries.


14/20


1.2 Trade Policy

Trade policy is an important factor in the economic environmentofbusiness.

The basic objectives of trade policy are to promote exports,regulate imports, improve terms of trade, enhance exportcompetitiveness and create conditions of export-led growth.

Export promotion is generally attempted through internationalmarket research support, credit facilities, infrastructure facilities,fiscal concessions and incentives to exporters, informationservices, international trade fairs and exhibitions, importentitlements, foreign exchange facilities, transportation prioritiesand procedural simplification.

Import regulation is monitored through a structure of tariff rates,quotas, anti-dumping and counter vailing duties and productquality and safety norms.

The policy is substantially conditioned by WTO agreements andcommitments and unilateral and multilateral trade relations.


15/20


1.3 Monetary Policy

By monetary policy we mean the regulation of the money supply and thecontrol of the cost and availability of credit by the central bank of thecountry through the use of deliberate and discretionary action forachieving the objectives of general economic policy.

The main objectives of monetary policy are:

Maximum feasible output

High rate of economic growth

Fuller employment

Price stability

Greater equality in the distribution of income and wealth

Healthy balance of payments

Instruments of monetary policy are the following:

Open market operations Bank rate policy

Reserve requirement charges

Selective credit controls


16/20


1.4 Fiscal Policy

This policy refers to the process of shaping taxationand public expenditure in order to dampen the swingsof the business cycle and the contribute to rapideconomic growth with high employment and stable

prices. This policy when mismanaged leads to fiscal

imbalances which at times become unsustainable.

At present Indias fiscal situation is mostunsatisfactory.


17/20


2.1 Political Stability

Firms will be directly affected by the actions ofgovernment and other political events.

The kind of political environment is conducive tobusiness activity. Besides, the factor of political

stability is important. In Countries like Afganistan and Iraq, business activity

has suffered a lot due to political instability.

Political system in India is far more stable than in

these countries. In India, due to criminalization of politics in certain

states, the business activity relatively unsafe in them.


18/20


2.2 Corruption, rule of law and governance

including business law and regulations

Production in a market economy take place in a wide variety ofbusiness organizations. However, the bulk of economic activity inthe industrial sector takes place in corporations which are set upunder the provisions of the Company Law.

The Contract Act provides the rule for systematic exchange

transactions. The country has legislations like the Monopolies and Restrictive

Trade Practices Act (MRTP Act) and the Foreign ExchangeRegulation Act (FERA). Both are restrictive in nature. Theindustries Act passed in 1951 aimed at both the development andregulation of industries in private sector.

The SEBI Act now empowers SEBI to regulate the securitiesmarket. It is thus clear that even in a market economy like oursthe modern corporate business is not entirely free. Its activitiesare governed by various legislations which may be eitherfacilitatory or restrictive in their nature.


19/20


3.1 Natural Resources

Natural resources covering available land, forests, minerals,fuels, rivers and water bodies and environment quality are amajor determinant of a countrys potential output.

These are the gifts or endowments of nature.

The availability of natural resources by itself does not guarantee

growth; it is their utilization by other factors of production likelabour and capital that leads to growth.

Availability and use of natural resources has had a great impacton the growth of such countries as Canada, USA, Norway andAustralia.

Countries like Japan, which have deficient or little natural

resources, have to spend heavily on the import of necessary rawmaterials or make foreign investment for their economic growth.


20/20


3.2 Human Resources

Human resources refer collectively to the quantum andquality of the workforce and are among the keydeterminants of economic growth.

The number of people in the work force directly

depends on the population size and structure as wellon the flows of migration and immigration.

The quality of human resources depends uponeducation, training, skills, attitudes towards work,desire for self-improvement and even cultural outlookand is reflected in its efficiency and productivity.

Productivity of human resources further depends uponthe organizational culture and system, managerialeffectiveness, motivation and the overall workenvironment.

01[1]. business environment

Documents