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INDIAN BUSINESS

ENVIRONMENT

Module 1

Bhavani B S

Asst. Professor

MBA Dept

RIT, Hassan

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BUSINESS

Business is the organised efforts of enterprisesto supply consumer with goods and servicesfor a profit

Business refer to any commercial activity which

is aimed at making profit These two definitions make a fundamental

assumption that profit maximization is the

basic objective of every firm This concept was very old

The modern outlook of the business iscompletely different.

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According to the Davis and Blomstorm

A business is a social institution, performing asocial mission and having broad influence onthe way people live and work together

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Characteristics of Modern

BusinessGOVT. INTERFERENCE

COMPETITION

INFORMATION

BIGNESSCHANGE

SCIENCE

DIVERSIFICATION

GLOBALISATION

BUSINESS

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1. CHANGE

Modern Business is Dynamic.

Business has to change according to the

environmental changes. This change makes the companies spend

substantially on R&D to survive in themarket.

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2. Diversification

Diversification is the process ofintroducing new product line in the

market to satisfy the new customersneeds.

Diversification may be in the form of-

(i) Concentric Diversification

(ii) Horizontal Diversification

(iii) Conglomerate Diversification

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3. Globalisation

Moving beyond the political boundaries of the

country is known as Globalisation

Globalisation is a borderless world where there is free

exchange of money, business , labour etc. In the modern business world production facilities are

being set-up in different countries and products arebeing sold through a global network.

Globalisation is becoming imperative for modernbusiness due to technological innovations, informationexplosion, changing life styles, global flow of capitaland technology.

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4. Science

Science is the integral part of the business.

The development of atomic power, space

age programmes application ofmathematics in managerial decisionmaking are contributions being made tobusiness by science.

Scientific developments will offerattractive opportunities to alertbusinessmen.

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5. Information

Today business are operating in differentplaces.

Quick distribution and gatheringinformation is necessary to run thebusiness.

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6. Govt. Interference

In order to reduce inequalities of incomeconcentration of economic power, to

protect SSI units Govt. imposesrestrictions on business.

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7. Competition

Today market place become battle field forall companies.

B

usinessmen have to workout strategies tocompete with rivalaries to survive in themarket.

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8. Bigness

Mass production and Mass marketing arethe norms followed by business

enterprises. Today most companies speak about hugeinvestment projects.

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Objectives of Business

1. Organic Objectives Just like human being business is an organic

entity. It has its own introduction, growth,maturity and declining stages.

The organic objectives of a business firmare

* Survival

* Growth* Prestige or Reputation

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2. Economic Objectives Profit making Creation of customers Innovation3. Human Objectives The success of any business is depends on its

human resources.

It is necessary for business to look after theinterest of those who make business successful.

Human objectives include-

* Providing job satisfaction* Providing opportunity for workers

participation in management.* Providing good working condition

* Providing fair wages

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4. Social Objectives

Business is a social institution and it is a part

of the society. The economic objectives of business can be

realised only by social objectives.

Each and every business has its obligationtowards customers, investors, supplies,govt. and general public.

The social objectives of business are* Quality goods at fair prices

* Providing employment opportunities

*avoiding anti-social practices

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5. National Objectives

These are the specific business obligations

towards national needs and aspirations. In India business organisations have to fulfill

the following obligation-

* Contributing to economic growth of thecountry.

* Development of small scale and cottage

industries.

* Export promotion.

* Ensuring social justice.

* Production according to national priorities.

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Business Environment Business environment refers to all external forces

which have a bearing on the functioning ofbusiness.

Business environment consists of all those factorsthat have a bearing on the business

MICRO

EXTERNAL ENVRONMENT

MACRO

INTERNAL

ENVIRONMENTBUSINESS

BUSINESS ENVIRONMENT

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Business Environment

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Internal Environment

These are controllable factors.

Lies inside the organisation

Under the control of the organisation.

Internal environment factors can divided asfollows-

1. Value System The value system of the founders, Board of

directors, managers, workers of the organisationhas important bearing on the strategies of theorganisation.

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2. Mission and Objectives Firms philosophies, priorities, development, polies are

guided by the mission and objectives of theorganisation

Mission and objectives are the first steps in thedevelopment of the organisation.

Mission Statement of the HLL

Unilever's mission is to add Vitality to life. We meeteveryday needs for nutrition, hygiene, and personalcare with brands that help people feel good, look goodand get more out of life.

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Mission Statement of the HLL

To become a provider of World - Class FinancialServices

To meet Customer expectations through Innovationand Technological Initiatives

To emerge as a Role Model with distinct cultureidentity, ethical values and Good Corporate

Governance To enhance Shareholder's Wealth by sustained,

profitable and financially sound growth with prudentrisk management systems

To fulfill national and social obligations as aresponsible Corporate citizen

To create an environment, intellectually satisfying andprofessionally rewarding to the employees

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3. Organisational Structure Organisational hierarchy where authority flows from

top to bottom. Some management structures and styles delaydecision making and while others facilitate quickdecision making

4. Human Resources The characteristics of the human resources like skill,

quality, morale, commitment, attitude, knowledge etccould contribute to the strength and weakness of anorganisation.

Some organisations find difficult to carryoutrestructuring or modernisation because of resistance

by employees.

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5.Company Reputation

The goodwill of the company matters while raisingfinance, formatting joint ventures or other alliances,selecting marketing intermediaries, launching newproducts etc.

6. Financial Factors Financial factors like financial policies, financial

position and capital structure etc. are affectingcorporate strategies and decisions.

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External Environment

Classified into two categories viz.

1. Micro Environment2. Macro Environment

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Micro Environment

The micro environment is a companysimmediate environment and that affect thecompanys ability to produce goods and

services and serve consumers. Known as task environment or operating

environment

Include suppliers, marketing intermediaries,

competitors, customers and the publics.

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1. Suppliers Suppliers are those who supply the raw material and

components to the company.

Reliable sources of supply are necessary for smoothfunctioning of business.

It is very risk to depend on a single supplier becausea strike, lockout or any other production problem

with supplies may seriously affect the company.

2. Customers A business exits only because of its customers.

A

company may have different categories ofcustomer like individuals, households. Industriesand other institutions.

Depending on a single customer is risky because it

may place company in poor bargaining position.

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3. Competitors In general competitors are those who sell the goods

and services of the same and similar products in the

same market. A firms competitors include not only the other firms

which are marketing same products but also thosewho compete for the discretionary income of the

consumer.4. Marketing Intermediaries Every producer has to appoint a number of

intermediaries in assisting him in promoting, sellingand distributing the goods and services to ultimatecustomers.

Marketing intermediaries help the firm in overcomingthe discrepancies in quality , place, assortment.

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5. Publics

A public is any group that has actual or potentialinterest in or impact on companys ability toachieve its objectives.

It is the duty of the company to satisfy the peopleat large, which is necessary for future stay andgrowth.

In order to build goodwill and seek favorable

response from the public, it is necessary for thefirm to satisfy the needs of the public as well.

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Macro Environment

Refer to those factors which are notconcerned to the firms immediateenvironment.

These factors are external to the firm andare quite uncontrollable

The macro environment generally

consists of two factors viz..1. Economic environment2. Non-economic environment

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1. Economic Environment

This comprises all those factors relating to the

economic conditions, systems, economic policies of acountry and includes structure of economy,agriculture, industrial sectors, transportation etc

The economic policy of the govt. has a greater impacton business. Some business are favorably affected bygovt. policy and some are adversely affected by thegovt. policy .

Favorable monetary policies like credit sanction,interest rate influence the business unit.

The fiscal policy of the govt. like tax policy has itsinfluence ion the pattern of business

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2. Non-Economic Environment

Non-economic factors consists of following factors

a) Political Environment The nature of policies and the type of the govt. in

economy have considerable influence over thebusiness environment.

The business activities flourish when there is a stablegovt. in the economy on the other hand if the Govt. is

unstable and doubtful, it will demoralise the businessand may adversely effect on its performance.

Certain changes in the Govt. policies like industrialpolicy, fiscal policy may have profound impact on

business

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b) Education and Cultural Environment The attitude towards education and training helps

business and industry to avail services of efficient,trained and labour.

The cultural factors like buying and consumptionhabit of the people, customs and traditions, tastes and

preferences, languages etc. are the factors that affectthe strategy of the business.

c) Legal Environment The vital aspect like of business like who should own?

What should be the size of business? And what shouldbe happen to the earnings? Can be decided by legalrules and regulations.

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Threre are number of legislations formed by the Govt.to regulate the business.

It is said that the stable Govt will protect the business

by formulating effective legislation .d) Natural Environment The natural factors like weather climate, availability of

land, forest resources etc. have influence on thebusiness activities.

It is stated that difference in geographical conditionsmay call for changes in production, marketingactivities in the economy.

The ecological factors like depletion of naturalresources, environmental pollution have cost graterconcern to the business field, so that preservation ofphysical environment is becoming important factor of

management of modern business.

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e) Demography

Study of the population in terms of age, sex, size of thepopulation, family size, and occupation is known asdemography.

Rapidly increasing population indicates a growing

demand for many products. Increasing population also indicates that availability of

surplus labour which affects the wage rates.

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f) Technological Environment. Technology is a systematic application of

scientific knowledge to practical task.

The business prospects largely depend upon thetechnological aspects in connection with production andmarketing of products.

The changes in technology also create problem for

business enterprises as they are subject to obsolescencequicklyG) International Environment

It refers to those global factors which have impact on

business and economy. It is important for industries which are directly

depending on imports and exports.

Export market enables a firm to develop more profitable

product mix

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Environmental AnalysisProcess of collecting information about theforces in the business environment andassessing, interpreting the information to takeeffective managerial decision

It Includes SWOT analysisS - Strengths

W - Weaknesses

O - OpportunitiesT - Threats

S+W= Internal environment analysis

O+T+ External environment analysis

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Objectives and uses of E.A Development of broad strategies and long-term

policies of the firm. Development of action plans to deal with

technological advancements.

To forsee the impact of socio-economic changes at thenational and international levels.

Analysis of competitors strategies and formulation ofeffective counter measures.

So it is said that firms which systematically analyse and diagnose the

environment are more effective than those whichdont

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Process of Environmental Analysis

1. Identification of relevant environmental variables

All environmental variables do not have the samerelevance to all the industries.

A variable that is relevant to one industry may not

be relevant for another. It is essential to identify the critical environmentalvariables and to predict their future trends.

2. Collection of Information

Involves identification of sources of information,determination of the types of information to becollected, selection of methods of data collection etc.

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1. Formulation of Mission and Objectives To formulate the clear objectives, it is essential to

get answers to certain questions like

What is the company is in?

What should the companys business be?

What will the company's business be?

Objectives help define the organization in itsenvironment

2. SWOT Analysis

Analysis of companys Strengths, weaknesses,opportunities, and threats is known as SWOTanalysis.

It is a cornerstone of business planning

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It is determining the course of action to ensure thesurvival and growth of the firm.

The environmental opportunities and threats shouldbe evaluated in the light of the strengths andweaknesses of the internal factors.

3. Strategic alternatives and choice of strategy

After the SWOT analysis the next task in the businessplanning process is consideration of strategic and thechoice of the most appropriate strategy

Available alternatives are,

Should the company continue in the same business.

Should the company diversify its business.

Should it integrate with others.

Should it acquire other units in the industry.

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How company logos will look like

when the crisis is finally over

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