INDIAN BUSINESS ENVIRONMENT

BUSINESS “Business is the organised efforts of

enterprises to supply consumer with goods and services for 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 is

completely different.

According to the Davis and Blomstorm

“A business is a social institution, performing a social mission and having broad influence on the way people live and work together”

Characteristics of Modern Business

GOVT. INTERFERENCE

COMPETITION

INFORMATION

BIGNESSCHANGE

SCIENCE

DIVERSIFICATION

GLOBALISATION

BUSINESS

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 the market.

2. Diversification

• Diversification is the process of introducing new product line in the market to satisfy the new customers needs.

• Diversification may be in the form of-(i) Concentric Diversification(ii) Horizontal Diversification(iii) Conglomerate Diversification

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 are being sold through a global network.

• Globalisation is becoming imperative for modern business due to technological innovations, information explosion, changing life styles, global flow of capital and technology.

4. Science

• Science is the integral part of the business.

• The development of atomic power, space age programmes application of mathematics in managerial decision making are contributions being made to business by science.

• Scientific developments will offer attractive opportunities to alert businessmen.

5. Information

• Today business are operating in different places.

• Quick distribution and gathering information is necessary to run the business.

6. Govt. Interference

• In order to reduce inequalities of income concentration of economic power, to protect SSI units Govt. imposes restrictions on business.

7. Competition

• Today market place become battle field for all companies.

• Businessmen have to workout strategies to compete with rivalaries to survive in the market.

8. Bigness

• Mass production and Mass marketing are the norms followed by business enterprises.

• Today most companies speak about huge investment projects.

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 firm are

* Survival * Growth * Prestige or Reputation

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 the

interest 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

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

obligation towards – 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

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 the

country. * Development of small scale and cottage

industries. * Export promotion. * Ensuring social justice. * Production according to national priorities.

Business Environment“ Business environment refers to all external

forces which have a bearing on the functioning of business.”

“Business environment consists of all those factors that have a bearing on the business”

MICROEXTERNAL ENVRONMENT

MACRO

INTERNAL ENVIRONMENT BUSINESS

BUSINESS ENVIRONMENT

Internal Environment

• These are controllable factors.• Lies inside the organisation• Under the control of the organisation.• Internal environment factors can divided

as follows-1. Value System• The value system of the founders, Board of

directors, managers, workers of the organisation has important bearing on the strategies of the organisation.

2. Mission and Objectives• Firms philosophies, priorities, development,

polies are guided by the mission and objectives of the organisation

• Mission and objectives are the first steps in the development of the organisation.

Mission Statement of the HLL

“Unilever's mission is to add Vitality to life. We meet everyday needs for nutrition, hygiene, and personal care with brands that help people feel good, look good and get more out of life.”

Mission Statement of the HLL• To become a provider of World - Class Financial

Services • To meet Customer expectations through

Innovation and Technological Initiatives• To emerge as a Role Model with distinct culture

identity, ethical values and Good Corporate Governance

• To enhance Shareholder's Wealth by sustained, profitable and financially sound growth with prudent risk management systems

• To fulfill national and social obligations as a responsible Corporate citizen

• To create an environment, intellectually satisfying and professionally rewarding to the employees

3. Organisational Structure• Organisational hierarchy where authority flows

from top to bottom.• Some management structures and styles delay

decision making and while others facilitate quick decision making

4. Human Resources• The characteristics of the human resources like

skill, quality, morale, commitment, attitude, knowledge etc could contribute to the strength and weakness of an organisation.

• Some organisations find difficult to carryout restructuring or modernisation because of resistance by employees.

5.Company Reputation• The goodwill of the company matters while

raising finance, formatting joint ventures or other alliances, selecting marketing intermediaries, launching new products etc.

6. Financial Factors• Financial factors like financial policies, financial

position and capital structure etc. are affecting corporate strategies and decisions.

External Environment

Classified into two categories viz.

1. Micro Environment2. Macro Environment

Micro Environment

• The micro environment is a company’s immediate environment and that affect the company’s 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.

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

and components to the company.• Reliable sources of supply are necessary for

smooth functioning of business.• It is very risk to depend on a single supplier

because a 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 of

customer like individuals, households. Industries and other institutions.

• Depending on a single customer is risky because it may place company in poor bargaining position.

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 those who 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, selling and distributing the goods and services to ultimate customers.

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

5. Publics• A public is any group that has actual or

potential interest in or impact on company’s ability to achieve its objectives.

• It is the duty of the company to satisfy the people at large, which is necessary for future stay and growth.

• In order to build goodwill and seek favorable response from the public, it is necessary for the firm to satisfy the needs of the public as well.

Macro Environment

• Refer to those factors which are not concerned to the firm’s immediate environment.

• These factors are external to the firm and are quite uncontrollable

• The macro environment generally consists of two factors viz..

1. Economic environment2. Non-economic environment

1. Economic Environment• This comprises all those factors relating to the

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

• The economic policy of the govt. has a greater impact on business. Some business are favorably affected by govt. policy and some are adversely affected by the govt. policy .

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

• The fiscal policy of the govt. like tax policy has its influence ion the pattern of business

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 the business environment.

• The business activities flourish when there is a stable govt. in the economy on the other hand if the Govt. is unstable and doubtful, it will demoralise the business and may adversely effect on its performance.

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

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 consumption habit of the people, customs and traditions, tastes and preferences, languages etc. are the factors that affect the 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 should be happen to the earnings? Can be decided by legal rules and regulations.

• 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 the business activities.

• It is stated that difference in geographical conditions may call for changes in production, marketing activities in the economy.

• The ecological factors like depletion of natural resources, environmental pollution have cost grater concern to the business field, so that preservation of physical environment is becoming important factor of management of modern business.

e) Demography

• Study of the population in terms of age, sex, size of the population, family size, and occupation is known as demography.

• Rapidly increasing population indicates a growing demand for many products.

• Increasing population also indicates that availability of surplus labour which affects the wage rates.

f) Technological Environment.• Technology is a systematic application of scientific knowledge to practical task.• The business prospects largely depend upon the

technological aspects in connection with production and marketing of products.

• The changes in technology also create problem for business enterprises as they are subject to obsolescence quickly G) 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

Environmental Analysis “Process of collecting information about

the forces in the business environment and assessing, interpreting the information to take effective managerial decision”

• It Includes SWOT analysisS - StrengthsW - WeaknessesO - OpportunitiesT - ThreatsS+W= Internal environment analysisO+T+ External environment analysis

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 the national and international levels.• Analysis of competitors strategies and

formulation of effective counter measures.• So it is said that “ firms which systematically analyse and

diagnose the environment are more effective than those which don’t”

Process of Environmental Analysis1. Identification of relevant environmental

variables• All environmental variables do not have the

same relevance 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

environmental variables and to predict their future trends.

2. Collection of Information• Involves identification of sources of information,

determination of the types of information to be collected, selection of methods of data collection etc.

3. Forecasting• Decision making requires a future orientation.• Forecasting is concerned with developing

projections of the direction, scope and intensity of environmental change.

4. Monitoring• The characteristics of the variables or their

trends may undergo changes.• New variables may emerge as critical or the

relevance of certain variables may decline.• It is necessary to monitor such changes.• Some time it is necessary to re-collection of

information and re-forecasting

Business Planning

Formulation of Mission and Objectives

SWOT Analysis

Identifying strategic

alternatives

Evaluation and

Control

Implementation

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 company’s business be? What will the company's business be?• Objectives help define the organization in

its environment2. SWOT Analysis• Analysis of company’s Strengths,

weaknesses, opportunities, and threats is known as SWOT analysis.

• It is a cornerstone of business planning

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

• The environmental opportunities and threats should be evaluated in the light of the strengths and weaknesses of the internal factors.

3. Strategic alternatives and choice of strategy• After the SWOT analysis the next task in the

business planning process is consideration of strategic and the choice 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.

4. Implementation• Many good strategies fail to achieve the results

because of poor implementation.• It is necessary to formulate a detailed plan to

achieve the objectives by means of chosen strategy

5. Control• After implementation company has to measure

the performance of the strategies and it should compare actual performance of the strategies with standard performance.

• If there is any deviation, it should take corrective actions to correct it.