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 Indias 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 worlds poorest people.

The early enthusiasm of foreign companies that are eager to tap Indias 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 Indias 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 environmentboth within and around the country. (This was ast the time of going to press) India remains the leader among the SAARC nationsnot 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 significant 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 significantly 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.