Introduction To Business Environment-pg-1-Final
Content
Chapter Content Introduction to Business Environment
Contemporary Scenario of
Business Nature of Modern Business Economic Factors Socio cultural Factors Technological Factors
What is Business??? Business may be understood as the organized efforts of enterprises to supply consumers with goods and services for a profit
According to Arthur M.Weiner: “business is that complex field of commerce & industry in which goods & services are createdof &laws distributed in the .hope of profit within a framework & regulations”
Contemporary Business goals
Profit (Bottom-line)
Growth
Market Leadership Customer satisfaction
Employee satisfaction
Quality Products & Services Service to Society
Characteristics of Business Change Govern ment Control
Competi tion
Large Size
Characteris tics of Business
Diversifi cation
Globaliz ation
Informa tion Technol ogy
Indian companies – Fortune 500
8 Indian companies have made it to Fortune 500 list in 2010. These are:
Indian Oil Corpora Corporation tion
Reliance Industries Tata Steel
Tata Motors
Bharat Petroleum Hindustan Petroleum State Bank of India ONGC
Contd.. The league of 500 elite companies for 2010 is topped by U.S. retailer Wal-Mart Stores, followed by oil giant Royal Dutch Shell and another oil major, Exxon Mobil, in that order. A total of 54 Chinese companies made it onto the list this year. Out of which three are in fortune 10 list
List Of The World Largest Companies Companies
OLIGOPOLISTIC CHARACTER
First : Some firms operate at a price that is i s too low from the point of view of other firms. Secondly : Economies of large scale production often allow
some firms to corner the entire supply of a product. produ ct. Thirdly : Financial capital requirements of modern business are quite large and these forestall entry of too many firms in the business.
In modern oligopolistic business, COLLUSION is very common: Collusion represents an attempt by firms to recognise their interdependence & act together rather than compete There are 2 broad categories of Collusion
Contd…
Cartel: it is combination of business firms Cartel: constituted with the objective of limiting competition in the market so as to maximise profits There are 2 typical forms of cartels
Cartels aiming at joint profit maximization
Cartels aiming at the sharing of the market
Price Leadership: it is tacit agreements amongst various firms giving rise to price leadership, price leadership is subject to much lesser form of collusion as compared to cartels
Contd… In oligopolistic market conditions, firms are often reluctant to lower the price of their products so to accomplish results they use Product Differentiation Differentiation Non-price competition occurs in two major forms: 1. Advertising, & 2. Variation Variation in quality and design of product.
Diversification as a growth strategy
Diversification strategies are used to expand firms' operations by adding markets, products, services, or stages of production to the existing business. When the new venture is strategically related to the existing lines of business, it is called Concentric diversification. Conglomerate div diversification ersification occurs when there is no relationship between the new and old lines of business; the new and old businesses are unrelated.
Diversification: Vertical or Horizontal?
Vertical integration occurs when firms undertake operations at different at different stages of production. When a firm diversifies closer to the sources of raw materials in the stages of production, it is following a backward vertical backward vertical integration strategy. Forward diversification occurs when firms move closer to the consumer in terms of the production stages.
DIVERSIFICATION TION Examples DIVERSIFICA
Conglomerate
Diversification : Royal Philips
Electronics
Concentric Diversification : Maruti Udyog Limited Some Companies do not attempt to diversify and prefer takeover of companies in their own area
Example Coca Cola : Parle Soft Drinks
Whirlpool : Kelvinator Refrigerators
GLOBAL REACH
It is a phenomenon which permits mobility of factors of production across globe except land. Refers to a process of deepening economic integration, increasing economic and growing economic interdependence between countries in the world economy.
TECHNO HNOLOGY LOGY ORI ORIENT ENTA ATIO TION N TEC
On account of increasing competition the world over, technological change has become a pre-condition for the survival of a company Because modern corporations regard technological research strategic to their future, they carry out their R&D activities very close to their headquarters.
CHANGE
The business through its innovative moves can always create synthetic wants and thus find space to produce new goods to satisfy them. Example: APPLE
Government Control
First, the government interference in business is required to correct market failures manifested in the form of monopoly and
pollution. Second, governments through monetary and fiscal regulation attempt to create stable business conditions. Third, Production of socially necessary public goods has to be undertaken by the government.
Nature Nature of Competition
Monopoly
Duopoly
Monopolistic competition Oligopoly
BUSINESS CHALLENGES
Managing Bottom line
Meeting stakeholders expectations
Developing Develop ing and retaining top talent
Creating a customer responsive responsive organization
Diminishing time to market
Market agility
Pricing and quality
What do you mean by Business Environment??? The environment of any organization is “ the aggregate of all conditions, events and influences that surround and affect it.” Business Environment: refers to those aspects of the surroundings of the business that affects in operations & determine its effectiveness. Characteristics of Business Environment: Complex
Dynamic
Multi-faceted
Far- reaching impact
Why Study Business Environment
Development sustainability
of
broad
strategies
to
ensure
To foresee the impact of socio-economic changes at the national and international levels on firm’s ability
Analysis of competitor’s strategies and formulation of effective counter measures
To keep oneself dynamic
Types of Environment
Internal Environment
External Environment Micro environment Macro environment Economic
Non Economic
Internal Environment
Refers to all the factors that are within an organization
which impart strengths or cause weaknesses of strategic nature.
Controllable factors. These include:
Value system Mission and Objectives
Management Structure and Nature
Components of Internal Environment Environment
Human Resources
Company Image and Brand Equity
Other Factors
Physical Assets and Facilities
R & D and Technological Capabilities
External Environment
Includes all factors outside the organization which provide opportunities or pose threats to the organization
Uncontrollable factors
Consists of Micro and Macro environment
Micro Environment
“It consists of the factors in the company’s company’s
immediate environment that affect the performance of the company” company”..
Micro Environment Factors
Suppliers Customers Marketing Intermediar Intermediaries ies Competitors Publics
Micro Environment of a typical car manufacturer Potential Supplier Components Supplier Potential Customers
Local Communities Customers
Stakeholders Pressure Groups
Government
Car Manufacturer
Competitors
Car Dealers Potential Dealers
For Customers
For Supplies
Macro Environment It comprises general trends and forces that may not immediately affect the organization but sooner or later will alter the way organization operates.
Macro Environment : Economic
Non Economic
Economic Environment
Economic stages that exists at a giv given en time in a country Economic system that is adopted by a country for example. Capitalistic, Socialistic or Mixed Econom Economy y
Economic planning, such as five year plans, budgets, etc. Economic policies for example, monetary, industrial and fiscal policies Economic Indices such as National Income, Per Capital
Income, Disposable Income, Rate of growth of GNP, Distribution of Income, Rate of savings, Balance of Payments etc. Economic Problems
Functioning of economy
Economic Environment
Economic system: An economic system provides the framework within which an economy operates & the various units & agents mould themselves to fit economic into the system.
The economies of the world are divided into broad 3 categories:
Capitalistic Economic syste system m
Socialistic Economic system
Mixed Economic system
Economic Environment Contd.. Contd..
Macro Economic scenario: it determines the prospects of business in the country. In an environment A rapid growth,
Stable prices,
High rates of savings & investment,
Fiscal stability &
Favorable BOP-Balance of payment.
When inflation is high
Economic Environment Contd.. Contd.. Acc. To KEYNES, “A Buss. Cycle is composed of a period of good trade characterized by rising prices & low employment percentage, alternating with a period of bad trade characterized by falling prices & high unemployment percentage.”
It is characterized upwardsuch and Business downwardCycle: movement of economicby activities as levels of income, employment, prices and output.
Features of Business Cy Cycle cle
The phases of business cycle recur with some sort of regularity and are uniform in case of different cycles. Individual business cycles may vary greatly in duration and intensity inte nsity.. In case of developed countries the cycle length is short (around 4.5 years) than the developing countries (around 7.5 years) All economic variables are affected by the business cycles.
Causes of Fluctuations
Innovation
Political events
Random events
Wars
Seasonal fluctuations etc.
Phases of Business Cycle – A Typical Business Cycle
Phases of Business Cycle Peak / Prosperity
Expansion of bank credit.
High capital investment in basic industries
Increased production.
High employment.
High prices and profits Optimism is very high.
Recession
Collapse of firms create createss panic.
Banks withdraw loans.
Construction activity slows down. Unemployment appears in basic capital goods industry => spreads to other industries. Fall in income, prices, profits……
Phases of Business Cycle Depression / Trough
Business activity is far below normal. Sharp reduction in production, mass unemployment, falling prices, falling profits, low wages, contraction of credit, high rate of business failure. Construction activity comes more or less to a standstill. Food, clothing industry not much affected
Recovery
Slight improvement economic activity. activity.
in
Industrial production picks up. Slow but sure rise in prices & profits.
Employment increases.
Wages also rise. Banks expand credit
Atmosphere of cautious hope.
Economic Environment Contd.. Contd..
Financial System
Money Market
Capital Market
Economic Policies:
Monetary Policies: it refers to the all actions of the central bank of country, which affects, directly or indirectly supply of money, credit, rate of interest & the banking system
Fiscal policy: it is basically concerned with the uses of taxes of government
expenditure of achieving pre-determined objectives Industrial Policy: It specifies the relative role of domestic & multinational enterprises, large & small industries & public & private sector firms.
Trade Policy: The main objective are to promote exports, regulate imports, improve terms of trade.
Outward oriented Inward Inwar d ori oriented ented
Non Economic Environment Regulatory Environment CHANGING POLITICAL ENVIRONMENT OF BUSINESS IN INDIA The Nehru Years 1947–64. India’s first Prime Minister, Jawaharlal Nehru, saw industrialization as the key to alleviating poverty Garibi Hatao, 1966-77. Under Prime Minister Indira Gandhi, two major shifts took place in the role of the State. The Spending Boom and Rising Fiscal Deficits, 1977-91. Between 1977 and 1991, most stringent controls on imports and industrial licensing were gradually relaxed, stimulating industrial growth. The Reform Phase, 1991 to the Present.
THE CONSTITUTIONAL ENVIRONMENT The Preamble
JUSTICE, social, economic and political;
LIBERTY of thought, expression, belief, faith and worship; LIBERTY EQUALITY of status and of opportunity; and to promote among them all
FRATERNITY FRA TERNITY assuring the dignity of the individual and the unity and integrity of the nation.
FUNDAMENT FUNDAMENTAL AL RIG RIGHTS HTS
Right to equality
Right to freedom of speech and expression
Right against exploitation, prohibiting all forms of forced labour,, child labour and traffic in human beings labour beings.. Right to freedom of conscience and free profession, practice and propagation of religion. Right of any section of citizens to conserve their culture, language or script and right of minorities to establish and administer educational institutions of their choice. Right
to
constitutional
Fundamental Rights.
remedies
for
enforcement
of
DIRECTIVE PRINCIPLES OF STATE POLICY
The State shall strive to promote the welfare of people by securing and protecting as effectively as it may a social order in which justice The State shall strive to minimise inequalities in income, and eliminate inequalities in status, facilities and opportunities, not only among individuals but also among group of people. The State shall direct its policy in such a manner as to secure the right of all men and women to an adequate means of livelihood and equal pay for equal work.
The State shall endeavour to secure to workers a living wage, human conditions of work.
THE THREE INSTITUTIONS OF THE GOVERNMENT
Legislature (Parliament)
Parliamentary Committees Standing Committees – Among the Standing Committees, the three Financial Committees – Committee on Estimates, Public Accounts and Public Undertakings – constitute a distinct group as they keep an unremitting vigil over government expenditure and performance. Adhoc Committees Committees - Such Committees may be broadly classified under two heads: (i) Committees which are constituted from time to time either by the two Houses on a motion adopted in that behalf or by Speaker/Chairman to enquire into and report on specific subjects, and (ii) Select or Joint Committees which are appointed to consider and report on a particular Bill.
The Executive or Government
Maintaining law and order Development of infrastructure Strengthening the industrial base Guiding industrial development according to plan priorities Strengthening the capital market Setting up of industrial financing institutions
Assistance to small-scale industries Providing assistance to exports Government’s Gov ernment’s role as planner Promoting agricultural development
Providing employment employment opportunities
The Judiciary
Judiciary is responsible for interpreting and applying the law. In India, at the apex of the entire judicial system exists Supreme Court of India. There is a High Court for each State or a group of States. Under High Courts, there is a hierarchy of subordinate courts.
LEGAL ENVIRONMENT OF BUSINESS
Legislations can be classified into two categories: (i) Legislations which have a facilitatory role in business, and (ii) Legislations which are restrictive in their nature. The important economic laws in India are as follows:
• Company Law • Industries (Development and Regulation) Act, 1951 • MRTP Act and Competition Act • SICA, 1985 and Companies (Amendment) Act, 2002 • FERA, 1973 and FEMA, 1999 • Consumer Protection Act, 1986 • The Securities Contracts (Regulation) Act, 1956 • SEBI • Labour Laws • Environment Protection Act, 1986
• Patents (Amendment) Bill 2005
NOW, WHAT EXACTLY IS SOCIOCULTURAL ENVIRONMENT Socio-cultural Environmen Environmentt
That part of the firm's external marketing environment in which social or cultural changes (that is, changes to the value system of a society) act to affect the firm's marketing effort.
The changing socio-cultural environment may pose threats or present opportunities for the business.
Socio Cultural
Society
Culture
SOCIETY
o
o
Society or human society is the set of relations among people, including their social status and roles. A society is a body of individuals outlined by the bounds of functional interdependence, possibly comprising characteristics such as national or cultural identity, social solidarity, language or hierarchical organization.
CULTURE
“
Culture is the software of the mind- the social programming that runs the way we think, act and perceive ourselves and others.” others.”
Culture
is defined as a complex whole which consists of customs, attitudes, beliefs and values of a society. The set of shared attitudes, values, goals, and practices that characterizes an institution, organization or group .
SOCIAL INSTITUTIONS AND SYSTEMS CASTES AND COMMUNITIES
As we all know, Indian society, particularly the Hindu society,
was divided into four categories on the basis of caste. Economic pressures, spread of education, and other developments have been breaking down slowly class distinctions and social barriers. Industrialization has created new social and political
functions and new occupations. Vaishyas, Brahmins, and other „castes‟ are no longer confined to their original roles.
FAMILY SYSTEM
Earlier, Joint Family System was prevalent. Earlier, Now,, Nuclear family Now family is being preferred. The joint family is being split into smaller units of nuclear family. Now, the impacts Now, impacts for Marketers: Marketers: Increasing demand for Flats, Vehicles, Consumer Goods. Increasing demand for catering services (packed lunches), baby sitters, crèches.
RELIGION AND RELIGIOUS GROUPS
Religious beliefs, convictions, customs, rituals and festivals differ from one group to another.
Business firms can suffer heavy losses by ignoring religious sentiments of
customers, employees and others. Religious groups exert considerable influence on activities of business groups.
Thus, business must recognize and respect religious sentiments.
Example, negative demand for beef products in India.
MARRIAGE
Marriage is one of the basic elements of culture and people‟ people‟ss attitude towards marriage influences culture a lot. Marriage is a social event that concerns the whole society society.. In India, marriages are a family affair. affair. The marriage season is a big opportunity opportunity for bu business. siness. For e.g. Jewellery, Kitchen ware, Honeymoon Package, Household Furniture, Vehicles etc have huge demand during the marriage season.
SOCIAL SOCI AL V VALU ALUES ES AND MOV MOVERS ERS CUSTOMS & SUPERSTITIONS
Many important business decisions in India are taken on the advise of astrologers. (Location of business, time of launch, name of enterprise, brand name etc.) Example, Business firms do brisk business on festivals such as Deepavali, Christmas, Christmas, Id, Guru Purab etc. No purchase of o f Iron & Steel goods by people on Saturday as it is considered inauspicious.
SUPERSTITIONS SUPERSTITIONS
Barber Shops & Chicken Shops don‟t open on Tuesday due to religious reasons. (Lord Hanuman‟s Day)
In most countries Sunday is a weekly holiday, but in Islamic
countries Friday is treated as a weekly holiday holiday.. Even acceptable colors depend on the culture cultur e sometimes.
SI NG NGH H I S KI NNG NNG The extra “N” in the word King in the title of movie
“Singh is Kinng” Kinng” was due to astrological & numerological reasons.
BALA LAJJ I TELEFI LMS Balaji Telefilms Telefilms names all its serials starting with the letter letter „K‟ „K‟.. For e.g. Kyunki Saas Bhi Kabhi Bahu Thi, Kasauti Zindagi Kay etc both which were superhit serials and a common topic of discussion among the households.
ATTITUDES
Attitudes include things such as individual freedom, democracy, truth and honesty, justice love and marriage to name a few. Attitude towards work is important as it determines motivation, morale, job satisfaction, productivity etc. All sorts of attitudes exist, but the positive aspect of Indian attitude is that generally, no worker or employee touches his/her tools of work, without closing his/her eyes for a few minutes and thanking the almighty for having bestowed his blessings in the form form of work. Sincerity, hard work, loyalty and honesty are ot Sincerity, other her aspects of the Indian work culture.
ETHICS o
o
o
o
Ethics in business deals with the ethical path business firms ought to adopt. Jacques Cory, a noted business ethicist observes, “companies should behave ethically and be profitable in parallel, and even if ethics diminishes the profitability of the company company,, they should still behave ethically” ethically”. Google Halts Censorship on Chinese Search Google announces a “new approach to China,” indicating that China‟s China‟s behavior toward human rights activists and other efforts efforts “to further limit free speech on the web in China” had led Google to stop censoring its search services on the Google.cn site and instead redirect traffic to its Hong Kong-based servers.
EDUCATION EDUCA TION AND ORGANISATIONAL CULTURE EDUCATION
A person is said to be literate if he/ she is 15 years and above and can read and write
Approximately 35% of illiterate world population is of India
In 2007, adult literacy rate is 66% from 12% in 1947
In 2009 Literacy rate for men was 76.9% for men and 54.5% for women
Kerala is the most literate state in India, with 90.86% literacy and Bihar is the least literate state with 47% literacy. To promote Education Govt. launched Sarva Shiksha Abhiyan to
provide free and compulsory education for age group 6 – 6 – 14 14 years, Mid Day Meal scheme etc.
EDUCATION
Countries rich in educational facilities vastly attract high wage industries. By investing in education, a country can attract “Brain “Brain--Power” Power” Industries.
Market Potential of a country depends on education. The level of literacy determines the nature of advertising, packaging, quality of marketing research and distribution system. Barack Obama has said in a recent address to the US Senate that, “India “India is playing for the number one position. If they keep producing more engineers, doctors and scientists than us, we will not be number one for long.”
WORK FORCE DIVERSITY
When people from different cultures converge in a workplace, Management will be required to manage diversity. Workforce diversity has important implications for Management practices. Managers will be required to shift their philosophy from treating everyone alike to recognising differences and responding to those differences in manners that will ensure employee retention and productivity productivi ty..
OTHERS LANGUAGE
India is multi identifies 1652linguistic. more.) (18 officially recognized languages and the census of India Marketing plans become costlier and more complex due to this huge diversity. The advertising campaigns campaigns have to been launched in National as well as local languages. Pepsi‟s „come Pepsi‟s „come alive‟ slogan was considered offensive in some places as to the locals it meant „come out of the grave‟ grave‟.. Parker Pen Company faced similar problems as in some countries „Ball „Ball Pen‟ meant „lie‟, „Obscenity‟, „lie‟, „Obscenity‟, „fabrication‟, „fabrication‟, „revolution‟ etc. Reebok had to discontinue its „INCUBUS‟ brand as in medieval folklore, Incubus was a devil who terrorized women.
Ford Motor‟s truck named Fiera named Fiera meant “Ugly old women” in Spanish.
Segmentation can be done on the basis of linguistic groups.
Thank You
