ENVIRONMENT ANALYSIS

The word ‘corporate’ generally implies any activity which creates utilities for the people, i.e., masses, or some target group of people, i.e., classes and being limited in supply in relation to its demand- commands a price. Types of Business Organisation Business activities may be organised in different forms depending on the promoters / entrepreneurs, their business plan and their resources. The three major forms of business are: Sole trading concern, partnership firms and Joint-Stock companies - both private limited and public limited. The scope of the present work is restricted to the context of public limited companies only, and the entire text revolves around this form of business alone. The terms used in the text like ‘firm’, ‘Company’ or ‘Corporation’ refer to only the public limited company, both widely or closely held. Internal Environment At the present time the world is tending to become a global village due to knowledge explosion and its instantaneous relay thanks to latest means of communication through sunrise industries like information technology, vocal and visual channels like television, phone, e-mail, websites, etc. The English language, attire, music, the arts, literature and sport etc., have emerged as a common link between people of different countries, thus giving a big push to universalization of culture and business practices throughout the World. As such the entire world is becoming sensitized to the need for adopting a generally accepted code of business ethics and practices at their earliest, lest those who lag behind miss the bus in the race for attaining excellence in their respective field of business. Constituents of Business Environment The easiest way to understand the business environment is to decipher it as follows:

Middle Management
Internal Environment Corporate Environment External Environment

Board/CMD & CEO

Middle Management

Senior Management

Junior Management

Senior Management

Workmen Staff

Finance Marketing Personnel and HRD Production

Assistants / Subordinate Staff Typists / Computer Operator

Figure 6.1 The Corporate Organizational Structure

To scan the business environment within the organization as well as without and take full care for each and every microscopic part of both internal and external factors so as to remain relevant and in tune with the ever- changing business realities is sine qua non for the survival and growth of any firm.

Environmental Analysis The environment of any business refers to all those factors, which are external to the firm. As shown in Figure 6.1, the external environment comprises technological, economic, political, socio-cultural and global or international environment. To succeed in business, the chief executive officer and managers are required to scan their business environment very carefully using SWOT analysis and classify the factors which can offer opportunities for growth and those that possibly pose threats. Keeping the organizatiion’s strength and weakness in view, it may be in order to refer briefly to various types of environment of a firm.
1.

Economic Environment: It refers to the stage of economic development of the country like developed or developing, state of agriculture, industry and service sectors, level of national income, its composition or source - mix, i.e., percentage of national income derived form agriculture or industry and the service sector. Similarly, what is the sector wise distribution of population? In India for example, about 2/3rd population is dependent on agriculture, while industry and service may be employing 15 to 18 percent each. But in 2001-02 agriculture contributed only about 26.1 percent of national income while industry and services contributed 22.3 percent and 51.6 percent respectively. It may be interesting to note that the share of agriculture and allied activities in India in the gross domestic product was as high as 45.8 percent in 1970-71 and 39.6 percent in 1980-81 which declined to as low as only marginally highly than one-fourth. Technological Environment: Every country has its own outlook and approach towards technology and innovation. In the new world countries like Canada, the United States, Australia or New Zealand, people are more innovation friendly. But in older civilised societies like India and other South Asian countries. People are generally conservative at adopting innovations in one go. However, it is an accepted fact that technology- friendly societies may record accelerated growth in their incomes and standard of living than older civilisation countries. With faster means of communication, the world is now becoming a global village. Things are getting universalized quickly everywhere, with greater degree of openness by almost all the countries, spread of education, increased prosperity and greater inter-country-interaction, very active world trade and regional-trade organizations, etc. Political Environment: In modern times almost all the countries with a few exceptions, generally, seen in the Islamic countries of Afro-Asia are having democratic system of governance, comprising judiciary, executive and legislature. The legislatures (Parliament or Assemblies) pass legislation, the executive or government implements whatever is passed by the parliament and the judiciary

2.

3.

functions as a watchdog to ensure that government functions in public interest within the boundaries of law and the constitution.
4.

Socio-cultural or Religious Environment: These environments are no less important than those discussed earlier. For example, Indian culture and civilization is one of the most ancient in the world. It’s socio-cultural-cum religious milieu is a living example of ‘unity amidst diversity’. Society is divided into four categories based on Varna the vertical stratification into classes or ‘castes’ based on functions- Brahmins (educated and knowledgeable); Kshatriyas (warriors); Vaishyas; (Business class) and Shudras (engaged in various types of services to society). Over time, this often-discriminatory stratification sometimes led to social conflicts tension. But with the spread of universal education and democratic values, these false and arbitrary barriers are gradually crumbling. However, in ages past, this system was also a boon in disguise and sustained our agro-based economy for centuries Our people are, by nature docile, liberal, democratic, peace-loving believe in universal brotherhood, are respectful of other religions, generous towards the weakest of the weak, and ethical, cultured and generally helpful towards everyone. They believe in universal brotherhood or “Vashudhaiv Kutumbkam”. Indian are religious and philosophical people and harbour kind sentiments towards one and all.

5.

Economic Environment of India: The Indian economy opened up in 1990-91, ushering in the LPG - Liberalisation, Privatisation, Globalisation - era. Since then the economy has been liberalised considerably. Besides considerable liberalisation on current account transaction, steps are on to liberatise capital account transactions also in phases. Financial sector reforms have made considerable progress in accordance with international standards and in conformity with the Basle Committee recommendations.

As per new Industrial Policy of 24 July 1991, the new policy deregulates the industrial economy in a substantial manner. The major objectives of the new policy are to build on the gains already made, remove weaknesses, maintain sustained growth in productivity and gainful employment, and attain international competitiveness. Accordingly, the government announced the following policies: i. ii. Abolition of Industrial Licensing; Dilution of the Public sector’s role in the economy;

iii. iv. v. vi. vii.

MRTP limit abolished; Freer entry to foreign investment and technology; Industrial policy liberalised; Abolition of phased manufacturing for new projects; and Removal of mandatory convertibility clause by Banks and Financial Institutions in case of default in repayment of loan by the borrowing firms.

NEW TRADE POLICY AND TRADE LIBERALISAION Post - 1991 Indian Trade Policy has been substantially liberalised. As India joined WTO (World Trade Organisation) in 1995 as a founder member, it is under an obligation to strike down all quantitative restrictions on imports and reduce import tariffs so as to open up the economy to world trade. Till March 2000, tariff lines on 8066 items were made free. Quantitative restrictions have been removed on all the 1420 items by March 2002 in line with India’s commitment to the WTO. Rationalisation of Tariff Structure In its Final Report released in January 1993, Chelliah Committee had recommended drastic cuts in import duties, in phases up to 1998-99 as Indian rupee had depreciated by 57.45 percent during the 7-year period 1985-86 to 1992-93, so that parity in prices of goods produced domestically and internationally could be established. Accordingly, in all subsequent budgets till 2003-04, the peak rate of basic customs duty has been reduced to 25 per cent from the earlier high of 110 per cent. Decanalisation A large number of exports and imports that were being canalised earlier through public sector agencies in India, but now, except for six items (rice. Wheat, maize, petrol, diesel and urea) all have been decanalised. Similarly, the rupee has been made (a) fully convertible on trade account, and (b) full convertibility on current account, which implies freedom to buy or sell foreign exchange for following transactions: (I) all payments due to foreign trade in goods and services, normal short- term banking and credit facilities, (ii) payments due as interest on loans and as net income from other investments, (iii) payments of moderate amount for amortisation of loans or for depreciation of direct investments, and (iv) moderate remittances for family living expense. India achieved full convertibility on current account on 19 August 1994 when the Reserve Bank of India further liberalised invisible payments.

Sign up to vote on this title
UsefulNot useful