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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)


 

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  



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 : 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



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.



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.



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 



 

Monopolistic competition Oligopoly



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 



Far- reaching impact 


Why Study Business Environment  

Development sustainability






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


Car Manufacturer


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 


Political events

Random events


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.


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.



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.



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



Fundamental Rights.







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.



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.



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 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 is the software of the mind- the social programming that runs the way we think, act and perceive ourselves and others.” others.” 


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 .



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.



 

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.



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 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.



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.



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 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 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 site and instead redirect traffic to its Hong Kong-based servers.



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.  


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.” 



 

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..



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.



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