Chapter 1

Business Environment
 INTRODUCTION
► Every business organisation has to interact and transact
with its environment.
► Business environment has a direct relation with the
business organisation.
► Effectiveness of interaction of an enterprise with its
environment primarily determines the success or failure of
a business.
► Identify the environment in which it operates
► Formulate its policies in accordance with the forces
► Business organisation has to tackle its internal and external
environment.
► The economic activities are still considerably controlled by
the government.
 SALIENT FEATURES
The nature of the environment is likely to determine, the role of
the enterprise
► The salient and distinct features of the environment in which the
Enterprise operates determine the nature of its business policy.
► Public policies must be consistent with and conducive to creating
confidence among business Enterprises
► Government regulations need to motivate the business community to
make use of opportunities for developing the economy
► Rapid social change leads to a transformation of the society
► Industrialization has given birth to a certain level of social
disorganization,
► Industrial society has emerged in the place of a traditional social
setup.
 Taking care of the nature of business environment
enables the corporate policymaker to

► Perform the critical function of matching the

needs of the society and the capacity of the goods
and services to satisfy the needs of the people
► Adapt the organisation itself to the dynamic
conditions of the society
► Match the organisational policies and resources
with the social needs, and
► Contribute to the social responsibility of business.
 ENVIRONMENTAL FACTORS
► Social Factors
► Economic Factors
► Cultural Factors
► Geographical Factors
► Technological Factors
► Political Factors
► Legal Factors
► Ecological Factors
► Labour Factors
► Locational Factors
 BUSINESS ENVIRONMENT AND STRATEGIC
MANAGEMENT
► The process of globalisation has led Business corporations and
conglomerates to project themselves as global corporate citizens.
► Any new bloc can come into existence at any time, which should be
reviewed by the global manager today. Corporate managers, who
make policies and strategies, must account for the nature and
environment of the bloc.
► The concept of a single market has already gained ground. Since the
EEC bloc has special standard specifications, all the countries in the
community follow the same standards.
► In a globalised business environment, business policymakers and
strategic managers must formulate strategies and policies not only
globally but locally.
► Preserving sustainable environment and answering the call for social
responsibility of business would become a part of the global corporate
strategy.
 Risk Overview
The risk factors are as follows:
► Security risk.
► Political stability risk.
► Government effectiveness risk.
► Legal and regulatory risk.
► Macro-economic risk.
► Foreign trade and payments risk.
► Tax policy risk.
► Labour market risk.
► Financial risk.
► Infrastructure risk.
► Country risk.
Methods of Assessing Environment
Risk
► Developing the Local Economy
► Good Corporate Citizenship
► Tie-up and Collaboration with Other Firms
► Private Insurance
► Avoiding Politically Sensitive Products
► Avoiding Sensitive Regions
► Maintaining Good Political Relations
 MARKET OPPORTUNITIES
► Low-average income levels have prevented India’s huge population of
more than one billion from becoming a lucrative market for consumer
goods.
► India remains a predominantly agricultural society and is home to
around 40 per cent of the world’s poorest people.
► The early enthusiasm of foreign companies that are eager to tap
India’s large market has been replaced by a more sober assessment of
potential sales.
► Limited and unreliable supplies of water and electricity have forced
foreign manufacturers to rethink their approach.
► Better quality products certainly appeal to India’s consumers, but price
remains the major
► determinant.
RECENT POLITICAL ENVIRONMENT
► In the run-up to the next general elections that are likely
to be held sometime in 2009, there have been significant
changes in the political environment—both within and
around the country.
(This was ast the time of going to press)

► India remains the leader among the SAARC nations—not

only because of its imposing size and population, which, of
course, provides a lucrative market for industrialised
countries, but also because of its mature political
leadership and rapidly growing economy which makes it a
safe place for the investors to deal with.
Domestic Developments in Trade
► Another signifi cant development in the last few
years is the growing importance of a large Indian
consumer market, which has encouraged many
foreign brands to enter into trade pacts with the
Indian companies.
► Retail has got particular attention, as it is the
second-largest sector in India aft er agriculture.
► Organised retailers although are at a nascent
stage, they are bound to have a profound effect
on the small retailers, even though the consumers
will hopefully be benefitted.
 RECENT ECONOMIC AND FINANCIAL
ENVIRONMENT
► India has undergone a profound shift in the economic management. Since the
mid-1980s, successive reforms have progressively moved the Indian economy
towards a market-based system.
► State intervention and control over economic activity have been reduced signifi
cantly and the role of private sector entrepreneurship has increased.
► Overall, reform has had a major beneficial impact on the economy. The annual
growth in GDP per capita has accelerated and is currently estimated to be 8.5
per cent annually, and India is now the third largest economy in the world.
► Increased economic growth has helped to reduce poverty, which has begun to
fall in absolute terms.
► Significant problems still remain unresolved and the next round of reforms
need to focus on a number of key areas.
► The rapidly proliferating and much-heralded business prospects arising from
India, mask a fundamental development flaw facing the country that would
require a marked improvement in the infrastructural development.