bus env - introduction
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Business Environment
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INTRODUCTION
Business enterprises cannot functionin isolation
Open systems interact with theirenvironment
Business enterprises exist in and are
surrounded by an environment the business or organisationalenvironment
Society and business enterprises are
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Business
Business is the organized efforts of enterprises tosupply consumers with goods and services.Businesses vary in size as measured by numberof employees or by sales volume.
All businesses share the same purpose toearn Profits. However, the purpose of businessgoes beyond earning profits.
It is an important institution in society and therole of business is crucial.
Be it for the supply of goods and services
Creation of job opportunities
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Environment
Environment refers to all external forces which havea bearing on the functioning of business.Environment are largely if not totally external, and
beyond the control of individual industrial enterprisesand their management. These are essentially thegivers within which firms and their managementsmust operate in a specific country and they vary,
from country to country.
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Business environment
However, the term business environment refers to theExternal Factors. The external environment has twocomponents ie business opportunities and threats to business.
Simmilarly, the organisational environment has twocomponents ie. strengths and weaknesses of the organisation.A SWOT analysis is thus the first step in strategy formulation
Business
Decisio
InternalEnvironment
ExternalEnvironment
Factors influencing Business
Decision
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Business
Decision
InternalEnvironmentMission / ObjectivesManagement Structure
Internal PowerRelationshipPhysical Assets &facilities
Company imageHuman resourcesFinancial Capabilities
TechnologicalCapabilitiesMarketing Capabilities
FinanciersSuppliers
CustomersCompetitorsPublicMktgIntermediaries
MicroEnvironment
Economic
TechnologicalGlobalDemographicSocio-Cultural
Political
MacroEnvironment
BUSINESSENVIRONMENT
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Internal Environment
Any business has certain vision, mission and objectivesand a strategy to achieve them. Formulation of strategyis defined as establishing a proper firm-environment fit.Indeed the objectives should be based on an
assessment of the external environment and theorganizational factors (internal environment).
Vision
Mission
Objectives
Management Structure
Human Resources
Financial Factors
Company Image and Brand Equity
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The macro environment consists of factors which arebeyond the control of the business. There is a symbioticrelationship between business and the environmentalfactors, environmental factors are dynamic and aparticular business firm, by itself, may not be in aposition to change its environment. Macro Environmentincludes:
Political Environment
Macro Environment
The Micro environment consists of differenttypes of stakeholders - customers, employees,suppliers, marketing intermediaries, competitors. Itis also known as the Task Environment and
Operating Environment and has a direct bearing onthe operations of the firm. Changes in the microenvironment will directly affect and impinge on thefirm's activities.
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Business Environment
The term business environmentconnotes external forces, factors and
institutions that are beyond thecontrol of the business and theyaffect the functioning of a businessenterprise.
These include customers,competitors, suppliers, government,and the social olitical le al and
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FEATURES OF BUSINESSENVIRONMENT
Business environment is the sumtotal of all factors external to the
business firm and that greatlyinfluence their functioning.
It covers factors and forces likecustomers, competitors, suppliers,government, and the social, cultural,political, technological and legalconditions.
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IMPORTANCE OFBUSINESS ENVIRONMENT
Determining Opportunities andThreats
Giving Direction for Growth:Continuous Learning
Image Building
Meeting Competition
Identifying Firms Strength and
Weakness
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TYPES OF BUSINESSENVIRONMENT
Confining business environment touncontrollable
external factors, it may be classified as
(a) Economic environment; and
(b) Non-economic environment.
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Economic Environment
Economic Environment refers to all forces whichhave an economic impact on Business. The economic environment consists of the
demand dynamics, supply situation, pricingfactors, degree of competitiveness, and impactof profitability. It includes the fiscal policy,monetary policy and the taxation policy, the FDInorms, the investment criterion and financingdecisions. Economic environment includes:
l Growth strategyl Industryl Agriculturel Infrastructurel Money and Capital Marketsl Per capita and national incomel Population
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ECONOMICENVIRONMENTThe survival and success of each
and every business enterprisedepend fully on its economic
environment. The main factors thataffect the economic environmentare:
(a)Economic Conditions:
The economic conditions of anation refer to a set of
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ECONOMICENVIRONMENT
(b) Economic Policies: All businessactivities and operations are directlyinfluenced by the economic policiesframed by the government from timeto time. Some of the importanteconomic policies are:
(i) Industrial policy
(ii) Fiscal policy
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ECONOMICENVIRONMENT
(c) Economic System: The worldeconomy is
primarily governed by three types of
economic systems, viz.,
Capitalist economy;
Socialist economy; and
Mixed economy.
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NON-ECONOMICENVIRONMENT
The various elements of non-economic environment are as follow:
Social EnvironmentPolitical Environment
Technological Environment
Demographic Environment
Natural Environment
Legal Environment
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NON-ECONOMICENVIRONMENT
(c) Legal Environment
(i) Companies Act, 1956
(ii) Foreign Exchange Management Act,1999
(iii) The Factories Act, 1948
(iv) Industrial Disputes Act, 1972
(v) Payment of Gratuity Act, 1972
(vi) Industries (Development and
Regulation) Act, 1951
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Micro EnvironmentalFactor/Stakeholder Analysis
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wEnvironment And Macro
Environment?The micro-environment refers to theforces that are close to the companyand affect its ability to serve itscustomers. It includes the companyitself, its suppliers, marketingintermediaries, customer markets,
competitors, and public.The macro-environment refers to
all forces that are part of the larger
society and affect the micro-
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Technological Environment
Technological is the systematic application of scientific or otherorganized knowledge to practical tasks.
Technological environment hold new technological innovation,new products, the state of technology, the utilization oftechnology for maximum inputs and outputs, the obsolescence
of technology and the dynamic changes that frequently occurin technologies which enable firms to get a competitiveadvantage
Technology reaches people through business
Helps in increased productivity
Business needs to spend on R & D and keep up with thetechnological advances around them
Technology leads to introduction of new products and olderproducts becoming outdated and redundant.
Technological advances leads to high expectations ofconsumers in terms of quality
Leads to system complexity
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Political Environment
Political Environment refers to the influence exerted by the threepolitical institutions ie. legislature, executive and judiciary inshaping, directing, developing and controlling business activities.
The constitution of a country
Political Organisation
Political Stability
Image of the country and its leaders
Foreign Policy
Laws governing business
Flexibility and adaptability of laws
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Global Environment:The global environment refers to those factors which are relevant tobusiness, such as the WTO principles and agreements; other internationalconventions/ treaties / agreements / sentiments in other countries etc. Foreg hike in crude oil prices has a global impact etc.
World is becoming one market
Improving quality
Competition from MNCs
Capital and technology transfers
Deciding which markets to enter and what products to manufacture
Adjusting the management process
Socio-Cultural Environment: Culture creates people
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External Environmental Analysis
Environmental Analysis has three goals:
Provides an understanding of current and potential changes
taking place Environmental Analysis should provide input for strategic
decision making.
Facilitate and lead to strategic decisions within anorganization.
Environmental Analysis and diagnosis give strategists time toanticipate opportunities and to plan to take optional responsesto these opportunities. It also helps strategists to develop anearly warning system to prevent threats or to developstrategies which can turn a threat to a firms advantage.
Firms which systematically analyse and diagnose theenvironment are more effective than those which do not.
Process of Environmental Analysis:
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Environmental Analysis and StrategicManagement
Defining Business Mission and Objectives
SWOT AnalysisEnvironmental Analysis + Self Appraisal
Strategic Alternatives and Choice of Strategy
Implementation of Strategy
Evaluation and Control of Strategy
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SWOT Analysis
SWOT stands for Strengths, Weaknesses,Opportunities and Threats
Identification of the threats and opportunities in theexternal environment and strengths and weaknessesin the internal environment of the firms are thecornerstone of business policy formulation.It is the SWOT analysis which determines thecourse of action to ensure the growth / survival ofthe firm.
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StrengthsStrengthsinternal to the unit; are a units resources
and capabilities that can be used as a basis fordeveloping a competitive advantage; strength shouldbe realistic and not modest.
Your list of strengths should be able to answer:What are the units advantages?What does the unit do well?What relevant resources do you have access to?What do other people see as your strengths?
What would you want to boast about to someonewho knows nothing about this organization and itswork?
Examples: good reputation among customers,
resources, assets, people, : experience, knowledge,
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Weaknessesinternal force that could serve as abarrier to maintain or achieve a competitive advantage;a limitation, fault or defect of the unit;It should be truthful so that they may be overcome asquickly as possible
Your list of weaknesses should be able to answer:What can be improved?
What is done poorly?What should be avoided?What are you doing as an organization that you feelcould be done more effectively/efficiently?
What is this organization NOT doing that you feel itshould be doin ?
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Opportunitiesany favorable situation presentnow or in thefuture in the external environment.
Examples: unfulfilled customer need, arrival ofnew technologies, loosening of regulations, globalinfluences, economic boom, demographic shift
Where are the good opportunities facing you?What are the interesting trends you are aware of?Think of: market developments; competitor;
vulnerabilities; industry/ lifestyle trends;;
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External force that could inhibit the maintenance orattainment of acompetitive advantage; any unfavorable situation in theexternal environment that is potentially damaging now orin the future.
Examples: shifts in consumer tastes, new regulations,political or legislative effects, environmental effects, new
technology, loss of key staff, economic downturn,demographic shifts, competitor intent; market demands;sustaining internal capability; insurmountableweaknesses; financial backing
Your list of threats should be able to answer:
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POSITIVE/HELPFUL
to achieving thegoal
NEGATIVE/HARMFUL
to achieving thegoal
INTERNALOrigin
facts/ factors of theorganization
Strengths
Things that are good
now, maintainthem, build on
them and use asleverage
Weaknesses
Things that are badnow, remedy,
change or stopthem.
EXTERNAL Originfacts/ factors of the
environment inwhich the
organizationoperates
OpportunitiesThings that are good
for the future,prioritize them,capture them,
build on them and
optimize
ThreatsThings that are bad
for the future, putin plans to
manage them orcounter them
SWOT Analysis of Indian Economy
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SWOT Analysis of Indian Economy
Strengths
Huge pool of labor force High percentage of cultivable land Diversified nature of the economy Availability of skilled manpower Extensive higher education system High growth rate of economy Rapid growth of IT / ITes Sector Abundance of natural resources
Weaknesses High percentage of workforce involved in
agriculture
Approx a quarter of population below thepoverty line
High unemployment rate Inequality in prevailing socio economic
conditions, rural urban divide Low productivity Huge population leading to scarcity of
resources Low level of mechanization Red tapism, Bureaucracy Low literacy rates
Opportunities Scope for entry of private firms in various sectors
of business Inflow of FDI Huge foreign exchange prospects in IT / ITeS Investment in R & D Area of infrastructure Huge domestic market : Opportunity for MNCs
Huge agricultural resources
Threats High fiscal deficit Threat of government intervention in
some states Growing import bill Population explosion, rate of growth of
population Agriculture excessively dependent on
monsoon
RECENT DEVELOPMENTS
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RECENT DEVELOPMENTSIN INDIAN ECONOMY
LIBERALISATION refers to theprocess of eliminating unnecessarycontrols and restrictions on thesmooth functioning of businessenterprises. It includes:
abolishing industrial licensingrequirement in most of theindustries;
RECENT DEVELOPMENTS
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RECENT DEVELOPMENTSIN INDIAN ECONOMY
PRIVATISATION refers to reducingthe role of public sector by involvingthe private sectors in most activities.Due to the policy reforms announcedin 1991, the expansion of publicsector has literally come to a halt
and the private sector registered fastgrowth in the postliberalised
period. The issues of privatisation
include:
RECENT DEVELOPMENTS
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RECENT DEVELOPMENTSIN INDIAN ECONOMY
GLOBALISATION meansintegrating the economy of acountry with the world economy.
This implies free flow of goods andservices, capital, technology andlabour across national boundaries.
To achieve these objectives ofglobalisation, the government hasadopted various measures such asreduction in custom duties removal
O
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ENVIRONMENTALSCANNINGIdentification and forecasting
phenomena in the environment
Ongoing environmental scanning isessential for strategy formulation
Enterprises continuously engage inidentifying and forecastingopportunities and threats
Enterprises need to proactively orreactively respond to changingconditions in the environment
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Risk assessment is a step in arisk management procedure. Riskassessment is the determination ofquantitative or qualitative value of risk
related to a concrete situation and arecognized threat
How to Assess Risk: In
E i t f
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Emerging sectors ofIndian economy
Emerging sectors of Indian economyare those sectors which are going tosee an upsurge in the comingdecade are the energy sector, realestate sector, services sector, andthe biofuel sector
A key characteristic of emergingand developing economies is theshift from a riculture to the
EMERGING SECTORS IN
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EMERGING SECTORS ININDIAN ECONOMY
Manufacturing Sector
Food processing
Textiles
Healthcare
Tourism
Entertainment
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Public Sector
The public sector, sometimesreferred to as the state sector orthe government sector, is a partof the statethat deals with eitherthe production, delivery andallocation of goods and services by
and for thegovernment or itscitizens, whether national, regional
orlocal/municipal.
Examples of public sector activity
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Public Sector
The part of the economyconcerned with providing basic
governmentservices.
The composition of the publicsector varies by country, but inmost countries the public sectorincludes such services as the police,milit r li r li tr n it
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OBJECTIVES
To promote rapid economicdevelopment through creation andexpansion of infrastructure
To generate financial resources fordevelopment
To promote redistribution of incomeand wealth
To create employment opportunities
To promote balanced regional growth
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Role of the Public Sector
Filling the Gaps in Capital Goods
Emploment
Balanced Regional Development
Contribution to Public Exchequer- part from generation of internal
resources and payment of dividend,public enterprises have been makingsubstantial contribution to the
Government exchequer through
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Limitations
Poor Project Planning
Over-capitalization
Excessive Overheads
Overstaffing
Under-utilisation of CapacityLack of a Proper Price Policy
Inefficient Management
Causes for the expansion
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Causes for the expansionof public enterprise
Rate of Economic Developmentand Public Enterprises
Pattern of Resource Allocationand Public Enterprises
Removal of Regional Disparities
through Public EnterprisesSources of Funds for Economic
Development