96489659 business environment ppt

8/13/2019 96489659 Business Environment PPT

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Business EnvironmentWhat is Business?

Business is an activity which involves buying and selling of goods

& services.

Modern business covers a complex field of industry and commerce whichinvolve activitiesrelated to both production anddistribution.

These activities on the one hand satisfy societal need and desires and on theother hand bring profits to business firms.

All the business activities are normally motivated by profits, in case , any ofthese activities is carried out by some organization for the purpose other thanprofit seeking, it cannot be justifiably considered as business.

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NATURE OF MODERN BUSINESS

Large size

Oligopolistic character

Diversification

Global reach of modern business

Technological orientationChange

Government control

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NATURE OF MODERN BUSINESS.

Business that matters today is large in size.

Indian companies in terms of revenues,profits,assetsandstockholders equityare relatively small as compared to thecompanies in developed countries.

Reliance industries

Hindustan Lever

Telco

Larsen and Toubro Tata Motors

Maruti Udyog

Hero Honda

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Nature of Modern Business

Only Four companies figure in the Fortune list of 2003.

Indian Oil Bharat Petroleum Hindustan petroleum

Reliance industries

Most of the fortune 500 companies are located in theUSABiggest capitalist economy, 189 of the worlds largestCos belong to US

Japan - second largest with 104 of the Fortune 500EuropeWestern Europe holds 138 of the worldslargest companies.

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Nature of Modern Business.

Present day business is Oligopolistic in its nature.

Small No. of firms selling a homogeneous /differentiated

product. Interdependence among the sellers.

Any change in its price & sales or in the quality of its

product, or any other variable whose value under is

control is likely to evoke retaliationfrom other other firms

in the same line of business.

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Nature of modern of business

DIVERSIFICATION:

Today not many corporate confine their activities to productionof a single commodity.

Some business firms prefer related products to their existing

production. This is called concentric diversification.

Ex: Maruti Udyog

Adding new unrelated products or services for existing customersis known as conglomerate diversification.

Ex: JK Group has interest in textiles, engineering, Computers

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Business Environment

Big business houses usually expand their activity by

establishing new companies which undertake production ofunrelated new products or services. This is conglomeratediversification.

Ex: TATAs

However, diversification may not always contribute togrowth of a business enterprise.

In the recessionary phase, it is quite risky to aspire forgrowth by going for unplanned diversification.

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Nature of modern business

Technology Orientation:

Modern business is technology oriented. People expect that the quality

of products should improve overtime and the real cost.

All this can be accomplished by the business if It pays attention to

sophistication of technology.

Modern companies regard technological research strategic to their

future, They carry out their R & D activities very close to their

headquarters.

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Change: Today a business firm clearly needs to move faster if the fear of

irrevalance is not to become a reality.

A modern firm must bevigilant all the time and be ready for change.

Improvement in quality, packaging or product design is not sufficient to

retain customers, the firm should promptly introduce new products and

create demand for them.

The business through its innovative moves can always

Create synthetic wants and thus find space to produce new goodsTo satisfy them.

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Government control:Since the late 1980s role of

the government in both developed and

underdeveloped economies has diminished.

Advantage of Government in business isrequired

to correct market failure manifested in the form

of monopoly & pollution.

Government through monetary & fiscal

regulation


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Business Environment

Environment by definition is something external of an

individual or an organization.

Therefore in strict sense, business environment refers to anexternal factorswhich have a direct or indirect bearing on

the activities of business.

Certain aspects of both internal and external environmentpose a threat to business, other aspects provide

opportunities for business growth.

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ENVIRONMENTAL SCANNING What do you mean by Environmental

scanning?

It is the process of monitoring &

collecting the information about the

various current and potential changestaking place in the environment to

facilitate in decision making and

problem solving.


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ENVIRONMENTAL SCANNING

Objectives of Environmental scanning:

1. To provide and understanding of current andpotential changes taking place in theenvironment.

2. To provide inputs for strategic decision-making.

3. To facilitate and foster strategic thinking in


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Benefits of Environmental scanning

Firms which systematically analyze and diagnose the environmentare more effective than those which dont

1. Development of broad strategies and long term policies ofthe firm.

2. Development of action plans to deal with technologicaladvancements.

3. To foresee the impact of socio-economic changes at thenational & international level.

4. To analyze the competitors strategies and formulation ofeffective counter-measures.

5. TO keep oneself dynamic.


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Business Environment-Internal Factors

Internal Environment:

Value system, Goals and objectives,Management structure,

Relationship among the various

constituents, Physical assets,

Technological capabilities

Human, financial and marketing 17


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Internal Environment:

Persons holding top positions in certain modern enterprises havesome values which influence their policies, practices and overallinternal environment.

Ex: JRD TATAValue systemresponsibilities towards hisemployees did some some commendable work in the field of laborwelfare.

Attitude of TATAs to employ 8 disabled persons out of their totalworkforce of more than sixty thousand.

The company value system need not be always positive. It can be

totally negative.

Cases of pharmaceutical companies selling banned drugs worldover.

Rational firms attempt maximize long-run profit.

B i E i t I t F t


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Business Environment-Interna Fact

There are often differences in the goals and objectives of thevarious firms, which in turn, lead to differences in the overall

internal environment and also in priorities, policies and directionof development.

Ex: Corporate enterprise professionally managedor familycontrolled.

Board of Directors - dynamic entrepreneurs capable of takingquick decisions or the BOD may be dominated by persons withconservative or bureaucratic outlook.

Nominees of Financial institutions having large holdings theirdecision making.

Conflicts among BODs, Erosion of shareholders confidence in theBODs

Serious differences among the senior executives officers on criticalmatters are critical factors in the Cos internal working conditions.

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Functioning & Competitiveness of a company are very much

influenced by physical resources, Production technology,

R&D work and distribution logistics.

Cos R&D activity and the speed at which technologicalchanges occur determine Cos internal environment which

in turn influence Business decisions.

Quality of Human Resources of a Company, Depends on Commitment, attitude and morale of the

employees also have an impact on business as an internal

factor.

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Business Environment-External Factors

External Environmentof Business consists of institutions,Organizations and forces operating outside the company.

External Environment of business may be classified into :

A) Micro Environment

B) Macro Environment

Micro environment refers to such players whose decisions

and actions have a direct bearing on the company. Since

modern business broadly has two aspects, Viz, Production

and selling of goods,

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Micro Environment of Business

The micro environment of business can be

divided :

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BUSINESS

Customers

Input Suppliers

Competitors

Workers & their unions Publics

Marketing

Intermediaries

Mi E i t f


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Micro Environment ofBusiness

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Micro Environment has great relevance on Cos business

operations.

The players in micro-environment do not effect all the

companies in an industry in the same way. Their decisions

and actions often differ in accordance with the size,

capability and strategies of each company.

Ex: 1. Suppliers of inputs are more accommodating ifthe Company is large.

2. Competitor does not mind starting price war if the

rival co. is small


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Business Environment Suppliers of inputs: Important factor in Cos success is low

cost of production of goods.

Availability of raw materials without any interruptionespecially raw materials thru out the year lessen the financialburden on the company.

Sometimes monopolistic suppliers manages to securemonopoly control over the supply of some strategic rawmaterial, such as iron ore or copper, it starts regulating itssupply to generate maximum possible monopoly profits.

No Co. should depend for the supply of some input on singlesource.

Supply management should be high on agenda of thecompany.

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Business Environment-Internal factors

Workers and their Unions:

Labor is an important input in production.

Any policy that disturbs labor peace at the company levelmay adversely affect its competitiveness.

Also constant conflict between labor and management willnot allow the company to grow and overtime maytransform into a sick unit.

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Customers: Demand for product individuals,business enterprises, institutions thegovernment.

loyalty depicts customer satisfaction. Universally accepted fact that the satisfaction of

customers is the ultimate bench mark of the Cossuccess.

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arketing intermediaries: Wholesalers, retailers, distribution firmsagents etc constitute an important element .

Co. lacking its own distribution channels cant afford to have conflict or

strained business relations.

Some Cos adopt direct mail or data base marketing.

EX; nestle slump in demand for baby products France

CO. could have responded to this situation by lowering productionlaying-off workers.


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Competitors: Brand Competition: affect sales operations ofthe business firms.

A Company encounters various forms of competition. The

most common competition which a companys products facesis from differentiated products of other companies.

Ex: In the Air conditioner market Voltas air conditioner facescompetition from other branded air conditioner such as

Videcon, Elgi, Samsung companies.

Public: Environmentalists, consumers protection groups &media persons may influence both Production & Sales.


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Macro environment

Macro environment of business consist of thefollowing factors:

A. Economic Environment

National

Global

B. NonEconomic Environment

Political

Socio Cultural

Demographic

Technological

Natural


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Economic Environment of the Business (National)

Business enterprise is essentially an economic institution. It conducts its activities

in the market system with the objective profit maximisation.

In Modern economy there are five sectors contribute to the development of the

economy they are:

The Business sector

The household sector

The capital market

The Government

These factors determine the prospects of business activity.

In a recessionary situation business firms encounter steep fall in effective demand

leads to business slowdown. Developed financial systemprecondition for the

efficient mobilization of financial resources for the business.


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Global Environment

Globalization- expansion of businessactivities across boundaries of the nation

states.

It refers to a process of increasing economic

openness growing economic

interdependence and deepening economic

integration between countries in the world

economy.


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Global Environment

Over the past ten years the Indianeconomy is integrates into the globaleconomy.

The three policy measures initiated torealize the objectives of globalization are:

1. Exchange rate adjustment and rupee convertibility.

2. Import liberalisation &

3. Opening upto foreign capital


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Political Enviroment

A stable & dynamic political environment dueinfluences business growth.

In a capitalist economic system corporate firms are

very powerful, yet they have to operate within theparameters which are determined by the broad

policies of the government.

Ex: MRTP Act, FERA because of the experiences ofthe colonial era, Foreign capital & the multinationals

corporations were suspects.


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Legal enviornment

Govt. sets the legal framework within whichbusiness firms operate.

Legislations defining:

property and business organizations, laws of contracts

bankruptcy( one whos assets are used to repay

debts), Mutual obligations of labour & management

Laws and regulations, the way the business arecarried out constitute legal environment ofbusiness.


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Legal enviornment

Economic legislations can be classified into two categories: 1. legislationsfacilitatory role in business.

Ex: contract actrules for systematic exchange transactions.

2. legislations- restrictive role in business

Ex: Sherman anti-trust act in 1890, Clayton anti-trust act 1914 Federal trade commission act 1914 of USA to prevent unfair

monopolistic unfair practices.

In IndiaMRTP-Monopolies & restrictive Trade Practice ACT-1969.

Foreign Exchange Regulation Act (FERA) -1973directly regulated the foreignexchange related transactions of the indian business.

Both MRTP & FERAdilutedstringent & restrictive in nature.


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SOCIO-CULTURAL ENVIRONMENT

Business firms operate in a socio-culturalenvironment & their strategies needs to be

formulated keeping this factor in view.

Ex: western countries are modern & liberal.

People-more receptive to new products & noprejudice against any kind of advertising.

Health conscious-product injurious to health of

the people cant be successfully introduced.

SOC O C O


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SOCIO-CULTURAL ENVIRONMENT

Muslim societiesconservative. Womens still under Purdah.

Demand for cosmetics & western cloths are limited.

Business firm aiming at capturing markets for its products inthese diversified societies has to be careful about the cultural

sensitivities of these societies.

India- liberal outlook, modeling by young women foradvertising fashionable products, wine & beer is acceptable in

Indian society.

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Technological environment

Technology- Knowledge about machines & processes.

Any business- cannot survive with outdated techniques ininternational competition.

Four decades agotechnology of Fiat was unsophisticated.

Users had no choice & thus product survived for a long period.

Setting up of Maruti udyog Ltd., the situation changed due to

superior technology.

Technological environment affects business from the demand side as well.

Ex: In a country where power is scarce, demand for electrical appliances will be

limited.

Erratic power supply and frequent load shedding creates market for inverters.

96489659 business environment ppt

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