Professional Documents
Culture Documents
for MBAs
Presented By:
Sonia Sardana
Nature,
Components,
Dynamics &
Importance of
Business
Environment.
“Business is an economic activity
because it includes all those
activities whose purpose is to
earn profit by transfer of goods &
services.”
“Business, Like weather is with us everyday.”
-Wheeler
B u s i n e s s E n v i r
I n t e r n a l E n v i r E o x n t me r e n n a t l E n v i
S t r e n g tWh se a k n O e ps s p o r t u T n h i t r i ee as t s
Components
of
Business Environment
“The process by which strategist
monitors the economic, legal,
governmental, market, competitive
supplier, technological, geographic &
social setting to determine opportunities
& threats of their firm.”
-William F Gluicck
Internal Business External
Environment Decisions Environment
MISSION MANAGEMENT
VALUE
& STRUCTURE &
SYSTEM
OBJECTIVE NATURE
INTERNAL INTERNAL
ATTITUDES BUSINESS POWER
ENVIRONMENT RELATIONSHIP
COMPANY
OTHER HUMAN
IMAGE &
FACTORS RESOURCE
BRAND EQUITY
Internal Environment
Miscellaneous Factors
E x t e r n a l E
M i c r o M a c r
E n v i r o E n nm v e i rn o t
Micro Environment
Multiple Supplier
2. Customer
Types of Customers
– Industrial Customers
– Institutional Customer
– Foreign Customer
– Retail Customer
Multiple Customer
Globalization
Customer Segmentation
3. Market Intermediates
Economic System
•Capitalist
•Socialist
•Mixed Economy
Economic Policies
•Monetary Policy
•Fiscal Policy
•Foreign Trade Policy
•Foreign Investment
•Industrial Policy
2. POLITICAL ENVIRONMENT
Political Ideology of Govt.
Political stability in the Economy.
Foreign Policy of Govt.
Defense & Military Policy.
Centre state relationship.
Political Environment
P o l i t c a l E n v i r o n m e
P o l i t i c a l S y s t Ce mo n s t i t u t i o n
E n v i r o n m e n t
L e g i s l a t u r eP r e a m b l e
E x e c u t i v e F u n d a m e n t a l R i g
J u d i c i a r y D i r e c t i v e s
P r i n c i p l e s o f S t a t
3. Socio-Cultural Environment
Urbanization
Religion
Tastes & Preferences
Customs & Tradition in Society
Health & Quality of Life
Language
4. Technological Environment
Innovation
Research & Development
Inflow of foreign Technology etc.
5. Natural Environment
Climatic & weather condition.
Availability of Natural resources.
Topographical factors: Physical features of
place.
Pollution Control
6. Demographic Environment
Age Composition
Sex Composition
Education Level
Family size & structure
Urban-rural population
7. International Environment
Globalization
Oil Price hike
International Terrorism
Cultural Exchange
Dynamics
of
Business Environment
Factors Effecting
Business Environment
1. Global Scenario
2. Indian Scenario
1.Global Scenario
• Monetary Policy
• Fiscal Policy
• Import controls
• TRIMs
• Price Control
• Labour Policy
• Exchange controls
POLITICAL RISK
ANALYSIS
• Political environment is set by the
POLITICAL SYSTEM, THE
CONSTITUTIONAL FRAMEWORK,
EXTERNAL POLITICAL RELATIONS,
FUNCTIONING OF THE GOVERNMENT,
ROLE AND BEHAVIOR OF VARIOUS
POLITICAL PRESSURE GROUPS
TYPES OF POLITICAL RISK
Cntnd
2. OPERATIONAL RISK
Restriction on the production, marketing,
finance, human resource management or
international business
3. OWNERSHIP RISK
It arises from the probability that the govt.
might take actions that may lead to erosion
in ownership or control in the business firm.
Cntnd
TYPES OF OWNERSHIP RISK
Confiscation
OWNERSHIP RISK
Expropriation Domestication
4. TRANSFER RISK
This risk applies to MNCs having
ventures in foreign countries or to the
domestic firms having business
operations or subsidiaries
Transactions
Transfer of profits, Funds or Assets
HOW A COMPANY MANAGES
ENVIRONMENT RISK ?
Visible Invisible
Capital Transfers
Features
• Fixed Period of Time
• Comprehensiveness
• Systematic Record
• Double Entry System
• All items –Government and Non-
Government
Structure
• Balance of payments = (Exports of
goods + Capital receipts + Services)
– (Imports of goods + Capital
payments + Services)
Disequilibrium in balance
of payments
• Balanced Balance of Payments
B=R-P=0
• Favourable Balance of Payments
Bf=R-P>0
• Unfavourable Balance of
Payments
BU=R-P<0
Indian Share in
Import
World
Trade
Trade
Export
1950 1.85 1.71 1.78
1960 1.03 1.69 1.36
1970 0.64 0.65 0.65
1980 0.42 0.72 0.57
1990 0.52 0.66 0.59
1991 0.50 0.56 0.53
1992 0.53 0.61 0.57
1993 0.58 0.60 0.59
1994 0.60 0.63 0.61
1995 0.60 0.60 0.60
1996 0.60 0.60 0.60
1997 0.60 0.60 0.60
Foreign Trade in
Year India
Import Export Trade (def)
• PORTFOLIO INVESTMENT
• FOREIGN DIRECT INVESTMENT
Wholly owned subsidiary
Joint Ventures
Acquisition
1. Wholly owned Subsidiary :
Companies with long term and
substantial interest in the foreign market
go for the wholly owned subsidiary. It
provides the firm with complete control
over production and quality
2. Joint Ventures:
Joint venture is a common strategy
of entering the foreign market. Diverse
types of joint overseas operations are :
• Sharing of ownership and management
in an enterprise
• Licensing/Franchising agreement
through intellectual property rights
Patents
Trade marks
Copyrights
Technical Know-How
Marketing Skills
• FRANCHISING : is a form of licensing
in which a parent company ( The
Franchiser) grants another independent
entity( The Franchise ) the right to do
business in a prescribed manner. The
major form of franchising are as follows:
Manufacturer---retailer system
Manufacturer---wholesaler
Service firm-----retailer system
FACTORS LEADS TO THE
FOREIGN DIRECT
INVESTMENT
• Rate of Interest
• Speculation
• Profitability
• Costs of Production
• Economic Conditions
• Government policies (Remittances, profits,
taxation, Foreign exchange control, tariffs and
monetary policy)
• Political Factors
ADVANTAGES OF FDI
• MAURITIUS 34.49 %
• USA 17.1 %
• JAPAN 7.33 %
• NETHERLANDS 7.16 %
• UK 6.54 %
FIVE TOP STATES
ATTRACTING MAJOR SHARE
OF FDI
• MAHARASHTRA 14.8 %
• DELHI 12.2 %
• TAMIL NADU 9.05
%
• KARNATKA 7.63 %
• GUJRAT 4.97
%
INDUSTRIAL
POLICY
BUSINESS ENVIRONMENT
INDUSTRIAL POLICY
Cntnd.
• In the third category the industries of
such basic importance that the central
govt. would feel it necessary to plan
and regulate them.
• In the fourth category the industries
are left for the private enterprise,
individual as well as co-operative
Cntnd
IIIrd PHASE OF
INDUSTRIALISATION
Cntnd
• Capital goods industries for meeting the
machinery requirements of basic industries
• High technology industries which required
large scale production, and which were related
to agricultural and Small Scale industries
development like Fertilizers, Pesticides,
Petrochemicals
NEW INDUSTRIAL POLICY,
1991
cntnd
EFFECT OF WORLD WAR I(1914)
ON INDUSTRIALISATION
• Localization of Industries
For Sugarcane North Bihar & Eastern
UP-1904&1936
For Cotton Mumbai followed by
Ahmedabad, Kanpur,
Chennai, Madurai
• Diversification of Industries
Cotton-----Steal--------Coal--------Jute
MAIN FEATURES OF
INDUSTRIALISATION DURING BRITISH
RULE
• Import Substitution
• Increased disparity in the Indian
economy
• Lack of Integration
• Minimal speed effect
• Organizational Imperfections
• Lack of Institutional finances
• Beginning of the modern factory system
(1850-1947)
• First Cotton textile mill by a Parsi
Businessman C.N.Davar started in 1884 in
Bombay
• Development of Sugar,Paper and Steel
Industries
• Development of the railways and other public
works and rise of modern industry after 1850
made India a large number of Iron and Steel in
India
• The first Iron Production started at Barkar Iron
works in 1875
• This was followed by the setting up of the Tata
Iron and Steel Company(TISCO) at
Sakchi(Jamshedpur) in 1907
INDUSTRIALISATION DURING FIVE
YEAR PLANS
1. FIRST FIVE YEAR PLAN(1951-56)
• The first five year plan concentrated on the
development of agriculture. Industrial activity was
mostly directed towards the development of
Infrastructure facilities like power and irrigation
Development of consumer goods industries such as Jute,
plywood, cotton textile, sugar, edible oil,paints etc
Expansion of capital goods industries like iron and steel,
aluminium, fertilizers, chemicals and heavy machine tools
2. Second Five Year Plan(1956-61)
The second five year plan accorded
a very high priority to industrial
development. The major objectives
were:
Increased output in the basic and heavy
industries such as Fertilizer,chemicals,iron
and steel, aluminium and heavy engineering
Expansion of the capacity of
cement,chemical,phosphatic fertilizer,bulk
drugs
Modernization of traditional industries like
sugar, cotton textile, jute,etc where the
productivity had declined due to the age
structure of these plants.
Maximum utilization of installed capacity,
especially in the public utilities and
infrastructural services.
During the second plan, investment in the
PSU’s was Rs.870 crores, whereas
investment in the private sector was Rs. 675
crores
3. Third five year plan(1961-66)
The third five year plan was governed by the
overriding need to complete on-going projects in
basic heavy industries. The objectives of this plan
were :
Rapid completion of all projects.
Increased emphasis on raw materials and
producer’s input.
Diversification of capacity in the capital and
producer goods.
The plan envisaged a total outlay of Rs.3000
crores in the organized industries and mining of
which 1700 cr. For PSU’s and 1300 cr in private
sector.
4. Fourth Five Year Plan(1969-74)
The objectives of the fourth five year plan
were :
Maximum utilization of installed
capacity in industries
To achieve self-reliance through
import substitution and export expansion
To curb monopolistic tendencies
To channelise new investments in
strict accordance with the plan priorities.
Total outlay on the industrial sector
was Rs.5300 crores.
5. Fifth Five Year Plan(1974-79)
The objectives of the fifth plan were:
To achieve substantial increase in
production capacity through technological
expansion and improvement.
Creation of new capacities in
accordance with the plan priorities and
initiation of advance action in cases of long
gestation projects.
To introduce a package of
incentives to desire sectors of economy.
Total outlay was Rs.10200.
6. Sixth Five Year Plan(1980-85)
The Plan had five fold strategy to achieve
rapid industrialization :
To increase manufacturing
capacities of a variety of consumer goods and
durables both in the public and private
sectors.
To support industrial growth through
the supply of intermediate and capital goods.
To attain technological excellence
for encouraging exports of engineering
goods.
Total outlay was Rs.20407 crores.
7. Seventh five year plan(1985-90)
The objectives of this plan were:
To integrate science and technology into
the main stream of development
To create conditions for and to promote
modernization, efficiency and competition in
industry
To promote diversification of industrial
production
To ensure balanced regional dev.
Total outlay was Rs.22460 crores
8. Eighth five year plan(1992-97)
The broader objective of the plan were:
To ensure efficiency and competitiveness
was of the industrial sector through
modernization and technology upgradation
Expansion and fuller utilization of installed
capacities in power, transport, communication
and water resources.
Greater private participation
9. Ninth five year plan(1997-2002)
The objectives of plan were :
Priority to agriculture and rural
development
Ensuring environment sustainability of the
development process through social
mobilization and participation of people at all
levels.
Strengthening efforts to build self-reliance.
GLOBALISATION
• Globalization is the process by which a firms activity
become worldwide in scope
• Doing, or planning to expand , business globally
• Giving distinction between the domestic market &
foreign market
• Locating the production and other physical facilities
of global business dynamics
• Basic product development and production planning
on the global consideration
• Global sourcing of factors of production
• Global orientation of organizational structure and
management culture
FEATURES OF
GLOBALISATION
1. NEW MARKETS
Growing global markets in services
New financial markets
Deregulation of antitrust laws of
mergers
Global Consumer markets with global
brands
Cntnd
2. NEW ACTORS
Multinational corporations
The World Trade Organization
International Criminal Court System
Regional Blocs
More policy Coordination groups-
G-77,G-7, OPEC, OECD
3. NEW RULES AND NORMS
Multilateral agreements in trade new agendas
on environment and social conditions
Cntnd
New multilateral agreements for
services property rights and communication
Conventions and agreements on the
Global environment
4. NEW TOOLS OF COMMUNICATION
Internet and electronic communication
Cellular phones
Fax machines
Faster and cheaper transport
Computer aided design
FACTORS LEADS TO
GLOBALISATION
• Human Resources
• Wide Base
• Growing Entrepreneurship
• Growing Domestic Market
• Niche markets
• Expanding Markets
• Economic Liberalization
• Competition
OBSTACLES TO GLOBALISATION
• Government Policy and Procedures
• High cost of basic inputs
• Poor Infrastructure
• Obsolescence
• Resistance to change
• Poor Quality Image
• Supply problems
• Small Size
• Lack of Experience
• Limited R&D and marketing research
• Growing Competition
• Trade barriers
PUBLIC SECTOR
ENTERPRISES REFORMS
PSE’s includes Government companies in
the Central and State Sectors
These industries covers a wide spectrum
of activities in basic and strategic
industries like:
Steal Heavy Eng. Tourism
Coal Chemicals Financial
Minerals Fertilizers Trading
Petroleum Transp. Marketing
WHY THE PSE’S ?
Public enterprises help in rapid economic growth
It creates the necessary infrastructure for economic
development
To earn return on investment and generate
resources for development
To promote redistribution of income and wealth
To generate employment opportunities
To promote balanced regional development
To assist the development of small-scale ind.
To earn foreign exchange for the economy
Investment in the PSE,s during plans
Five year Investment No.of PSE,s
Plan (in crores)
Ist plan 29 5
2nd 81 21
3rd 953 48
4rth 3902 85
5th 6237 122
6th 18,225 186
7th 42,811 221
8th 1,18,492 237
9th 2,01,500 238
1999 2,73,700 235
2002 3,24,614 240
2003 3,33,475 240
NEED FOR PUBLIC SECTOR
ENTERPRISES REFORMS
Lack of Competition
Over employment
Long Gestation period
Over capitalization
Inefficient Management
Absence of Appropriate pricing policy
Social Objectives
Lack of Efficient and Trained Staff
HIGHLIGHTS OF PUBLIC
ENTERPRISES SURVEY (2002-
2003)
SAIL IOCL
VSNL HPCL
BPCL ONGC
BHEL NTPC
IPCL GAIL
MTNL
Two of these namely IPCL and VSNL
have since been privatized and as on
July 2003 there are only 9 NAVRATNA
PSEs. The profitability of these 9 ratna
was Rs.15508 crore during 2001-02
Besides granting the status of Gems of
the country, the Government also
announced on October 3, 1997 to grant
the status of Mini-Gems to 97 selected
public sector profit earning enterprises.
DISINVESTMENT
PROGRAMMES IN PSE’S
The disinvestment process, which began in
1991-92 with the sale of minority stake in some
public sector undertakings
The new policy in this regard is that the
government is committed to a strong and
effective public sector whose social objectives
are met by its commercial functioning
The Govt. is committed to devolve full
managerial and commercial autonomy to
successful, profit making companies operating
in a competitive environment
Generally, profit making companies will not
be privatized
As per the National Common Minimum
Programme (NCMP) the Government retain
existing ‘Navratna’ Companies in the Public
Sector
Loss making companies either sold off or
closed, after all workers get their legitimate
dues and compensation
The Government has approved the
constitution of a National Investment Fund
(NIF) comprising of proceeds from
disinvestment of public sector units
The Govt. has also given in principle
approval for listing of currently unlisted
profitable PSEs each with a net worth in
excess of Rs.200 crore, through an initial
public offer (IPO)
OBJECTIVES OF
DISINVESTMENT
Modernization and up gradation of
PSEs
Creation of new assets
Generation of Employment
Retiring of Public Debt
To ensure that disinvestments does
not result in alienation of national
assets, which through the process of
disinvestments, remain where they
are cntnd
Setting up a Disinvestment Proceeds
Fund
Formulating the guidelines for the
disinvestments of natural asset
companies
Preparing a paper on the feasibility and
modalities of setting up of Asset
Management company to hold, manage
and dispose the residual holding of the
government in the companies in which
government equity has been
disinvested to a strategic partner
THE WAVE OF ECONOMIC
REFORM
♦ The wave of economic reforms was born out of the
crisis in the economy. Which climaxed in 1991.
♦ The main reasons which leads to economic reforms
are :
Increasing Fiscal deficit
Internal debt
Overall agricultural promotion, food grain
product and industrial production showed negative
growth.
cntnd
Foreign Exchange reserves fell
Inflation rate increases to 14%
Confidence of International financial
institutions was badly shaken
Due to Gulf war, the prices of oil rises
TYPES OF ECONOMIC REFORMS
TYPES OF ECONOMIC REFORMS
PRIVATISATION
LIBERALISATION GLOBALISATION
LIBERALISATION
♦ Liberalization of the economy means to free it from
direct or physical controls imposed by the Government.
♦ The various types of controls are as follows:
Industrial licensing system
Price control or financial control on goods
Import license
Foreign exchange control
Restrictions on investment by big business houses
MEASURES FOR
LIBERALISATION
♦ Abolition of Industrial Licensing and Registration
♦ Concession from monopolies Act
♦ Freedom for expansion and production to
Industries
♦ Increase in investment limit of SSI
♦ Freedom to import capital goods
♦ Freedom to import technology
♦ Free determination of Interest rate
ADVANTAGES OF LIBERALISATION
♦ Improvements in Industries & service sector
♦ Free flow of FDI & MNCs
♦ More availability of imported goods at cheaper
rates
♦ Quality education and careers to people
♦ Improvement of technology in the field of SSI &
LSI
♦ Improvement in means of communication and
Transport.
DISADVANTAGES OF
LIBERALISAION
♦ Common man fails to enjoy the imported
goods as they lack purchasing power
♦ Danger in political independence
♦ Agricultural dominated countries
♦ Underdeveloped countries fail to increase
their exports in comparison to imports
PRIVATISATION
♦ Privatization of Industries means opening the
gates of Public Sector to Private sector
♦ The term privatization is used in two sense
♦ Transferring the ownership of public sector to
private sector
♦ Management and controlling of public sector
by private sector without transferring the
ownership
CAUSES OF PRIVATISATION
♦ Disintegration of Socialist Economies
♦ Inefficient public sector
♦ Uneconomic pricing policy
♦ Burden on the Government
♦ Inefficient management control
OBJECTIVE OF PRIVATISATION
♦ To increase the efficiency and competitive power.
♦ To reduce deficit financing and public deficit
♦ To strengthen industrial management
♦ To earn more and more foreign currency
♦ To make optimum use of economic resources
♦ To achieve rapid industrial development
MEASURES FOR PRIVATISATION
♦ Privatization covers three sets of measures
1. OWNERSHIP MEASURES
Total denationalization
Joint Venture
Liquidation
Management buy-out
Cntnd
2. ORGANISATIONAL MEASURES
A holding company structure
Leasing
Restructuring( Financial, Basic )
3. OPERATIONAL MEASURES
Grant of autonomy to PE s in
decision making
Provision of incentives to the
employees
Freedom to acquire certain inputs
from the market
Development of proper investment
criteria
GLOBALISATION
♦ Globalization is the process by which a firms activity
become worldwide in scope
♦ Doing, or planning to expand , business globally
♦ Giving distinction between the domestic market &
foreign market
♦ Locating the production and other physical facilities of
global business dynamics
♦ Basing product development and production planning on
the global consideration
♦ Global sourcing of factors of production
♦ Global orientation of organizational structure and
management culture
FEATURES OF
GLOBALISATION
1. NEW MARKETS
Growing global markets in services
New financial markets
Deregulation of antitrust laws of
mergers
Global Consumer markets with global
brands
Cntnd
2. NEW ACTORS
Multinational corporations
The World Trade Organization
International Criminal Court System
Regional Blocs
More policy Coordination groups-
G-77,G-7, OPEC, OECD
3. NEW RULES AND NORMS
Multilateral agreements in trade new agendas on
environment and social conditions
Cntnd
New multilateral agreements for services
property rights and communication
Conventions and agreements on the Global
environment
4. NEW TOOLS OF COMMUNICATION
Internet and electronic communication
Cellular phones
Fax machines
Faster and cheaper transport
Computer aided design
FACTORS LEADS TO
GLOBALISATION
♦ Human Resources
♦ Wide Base
♦ Growing Entrepreneurship
♦ Growing Domestic Market
♦ Niche markets
♦ Expanding Markets
♦ Economic Liberalization
♦ Competition
OBSTACLES TO GLOBALISATION
♦ Government Policy and Procedures
♦ High cost of basic inputs
♦ Poor Infrastructure
♦ Obsolescence
♦ Resistance to change
♦ Poor Quality Image
♦ Supply problems
♦ Small Size
♦ Lack of Experience
♦ Limited R&D and marketing research
♦ Growing Competition
♦ Trade barriers
FINANCIAL
ENVIRONMENT
FINANCIAL ENVIRONMENT
Financial environment consists of
decision taken by the companies acc.to
the Monetary Policy, Fiscal Policy, &
Financial Market Structure.
Monetary and Fiscal policy are important
determinants of business prospects and
investment decision
These policies encourage investment and
production in certain priority sectors and
discourages them in non-priority sector.
The Monetary, fiscal and financial market
structure influence the aggregate supply
and demand, level of employment etc.
MONETARY POLICY
Monetary policy refers to the use of
instruments within the control of the RBI
to influence the level of aggregate
demand for goods and services
Monetary policy is based on money
supply and money stock
Measures of money stock are :
M1 = Currency with the public +
Deposits with banks
M2 = M1+ Post office savings bank
deposits
M3 = M2+ Fixed deposits with banks
M4 = M3+ Total post of deposits.
HOW THE RBI
CONTRACT & CREATE
THE CREDIT
Different instruments have been used
by the RBI to contract and create the
credit in the market
1. Bank Rate : It is the minimum rate
at which the RBI provides financial
accomodation to the commercial banks
2. Open Market Operations :
Purchase and sale of foreign exchange,
Gold and company shares
3. Cash Reserve Ratio : The
commercial banks has to keep
their cash with RBI