Q1.

What is the meaning of business environment and explain in detail the

different types of business environment?
Ans-Business Environment means a collection of all individuals, entities and
other factors, which may or may not be under the control of the organisation, but
can affect its performance, profitability, growth and even survival. Every
business organisation operates in a distinctive environment, as it cannot exist in
isolation. Such an environment influence business and also gets affected by its
activities.//-Types-Internal Environment: The factors which exist within the
organisation, imparting strength or causing weakness to the organisation,
comes under internal environment. It includes:---Value System-Value
System: Value system consists of all those components that are a part of
regulatory frameworks, such as culture, climate, work processes, management
practices and norms of the organization. The employees should perform the
activities within the purview of this framework. //Vision and Mission-The
company’s vision describes its future position, mission defines the company’s
business and the reason for its existence and objectives implies the ultimate aim
of the company and the ways to reach those ends.//Objectives-The business
domain of the company, priorities, directions of development, business
philosophy, business policy etc., are guided by the mission and objectives of the
company. Ranbaxy’s thrust in to the foreign markets anddevelopment have
been driven by its mission “to become a research based international
pharmaceutical company.” ArvindMills’ mission- “ to achieve global dominance in
select businesses built around our core competencies through continuous
product and technical innovation, customer orientation and focus on cost
effectiveness” – has driven its future developmentstrategy including the portfolio
strategy, and indicated the thrusts required in the functional areas to help
achieve the mission.//Financial-The financial risks depend on the financial
structure of your business. It is also dependent on your business transactions
and the financial systems. For example, changes in interest rates or being
overly reliant on one customer could affect business.//Corporate Culture-
Corporate culture or otherwise called an organizational culture refers to the
values, beliefs and behaviour of the organization that ascertains the way in
which employees and management communicate and manage the external
affairs.//Human Resources- Human resource is the most valuable asset of the
organization, as the success or failure of an organization highly depends on the
human resources of the organization.//Labor Union-There should be smooth
labour and management relationship. The management should understand the
problems of their workers and gain confidence in them. The labours should be
motivated by providing with monetary and non-monetary incentives (benefits).

//External Environment: External Environment consists of those factors which

provide opportunity or pose threats to the business. It is further classified as:--
Micro Environment: The immediate periphery of the business that has a
continuous and direct impact on it is called Micro Environment. It includes
suppliers, customers, competitors, market, intermediaries, etc...The suppliers:
Suppliers can control the success of the business when they hold the power.
The supplier holds the power when they are the only or the largest supplier of
their goods; the buyer is not vital to the supplier’s business; the supplier’s
product is a core part of the buyer’s finished product and/or business which are
specific to the
business:-- ...Customers..Market...Compititor...Public...Finance ///Macro
Environment: Macro Environment, is one such environment that influences the
functioning and performance of every business organisation, in general. It
comprises of demographic, socio-cultural, legal, political, technological, and
global environment...Political and legal forces: Sound marketing decisions
should always take into account political and/or legal developments relating to
the organisation and its markets...Technological factors: The skills and
knowledge applied to the production, and the technology and materials needed
for production of products and services can also impact the smooth running of
the business and must be considered...Market Status..International &
Global...Social Culture..

1. Supplier power:-. An assessment of how easy it is for suppliers to drive up

prices. This is driven by the: number of suppliers of each essential input;
uniqueness of their product or service; relative size and strength of the supplier;
and cost of switching from one supplier to another.//2. Buyer power:-. An
assessment of how easy it is for buyers to drive prices down. This is driven by
the: number of buyers in the market; importance of each individual buyer to the
organisation; and cost to the buyer of switching from one supplier to another. If a
business has just a few powerful buyers, they are often able to dictate terms.//3.
Competitive rivalry:-. The main driver is the number and capability of
competitors in the market. Many competitors, offering undifferentiated products
and services, will reduce market attractiveness.//4. Threat of substitution:-.
Where close substitute products exist in a market, it increases the likelihood of
customers switching to alternatives in response to price increases. This reduces
both the power of suppliers and the attractiveness of the market.//5. Threat of
new entry:-. Profitable markets attract new entrants, which erodes profitability.
Unless incumbents have strong and durable barriers to entry, for example,
patents, economies of scale, capital requirements or government policies, then
profitability will decline to a competitive rate.

Definition: Environmental Analysis is described as the process which examines

all the components, internal or external, that has an influence on the
performance of the organization. ... It ascertains whether the goals defined by
the organization are achievable or not, with the present strategies.//Identifying:
First of all, the factors which influence the business entity are to be identified, to
improve its position in the market. The identification is performed at various
levels, i.e. company level, market level, national level and global
level....Scanning: Scanning implies the process of critically examining the
factors that highly influence the business, as all the factors identified in the
previous step effects the entity with the same intensity. Once the important
factors are identified, strategies can be made for its improvement....Analysing:
In this step, a careful analysis of all the environmental factors is made to
determine their effect on different business levels and on the business as a
whole. Different tools available for the analysis include benchmarking, Delphi
technique and scenario building....Forecasting: After identification, examination
and analysis, lastly the impact of the variables is to be forecasted.Environmental
analysis is an ongoing process and follows a holistic approach, that
continuously scans the forces effecting the business environment and covers
360 degrees of the horizon, rather than a specificsegment.

Economic Forecast : As a economic environment is a very critical determinant

of business prospects, economic forecasts is very important....The Economic
factors considered include general economic conditions, GDP growth rate, per
capita income, structural changes in GDP, Investment and output trends in
different sectors and subsectors/industries, price trends, trade and BOP trends
etc.//Social Forecast : Social trends have significant implications for business
strategy. It is, therefore , very essential to forecast the possible changes in the
relevant social variables.Important factors include :-Population growth/decline-
Ethnic composition -Life Styles -Social attitudes -Income levels //Political
Forecasts : Political forecast has an important part in envisioning properly the
future scenario of business. Relevant factors include :-- 1-Changes in the
Relative power of Political party....2-Political alliances and political ideologies
etc....Political forecasts also cover industrial policy, commercial policy, and
Fiscal policy, International political developments are also
important.//Technological Forecast : Innovation and other technological
developments can drastically alter the business environment. Technological
forecasts, therefore , assumes great significance..It encompass not only
technological innovations but also the pace nd extent of diffusion and
penetration of technologies and their implications.

TREND EXTRAPOLATION-uses past data for future forecast...SCENARIO

DEVLOPMENT-devlope scenario thn sees the results..forecast on the basis of
result...JUDGEMENTAL MODEL-people openion...BRAIN STORMING-collect
ideas in org thn discuss idea thn forecast on basis of it...DELPHI METHOD-
penal of experts by taking openion take results from experts thn forecast..

Primary-Agriculture
Secondory-Industrial
Theory-Retail

1-Monetary Policy: - The Central Bank, by its policy towards the cost and
availability of credit, can significantly influence the savings, investments and
consumer spending in the country. Depending in the condition of the economy
and the general economic policy of the Government,the Central Bank may
adopt expansionary or contractionary or neutral monetary policy. The policy
formulated by the central bank of a country to control the supply and the cost of
money (rate of interest), in order to attain some specified objectives is known as
Monetary Policy....2. Fiscal Policy:- Government’s strategy in respect of public
expenditure and revenue ca have significant impact on the business. The
pattern of the public expenditure may affect the development of various regions
and industries differently, Government often uses tax incentives of disincentives
to encourage or disencourage certain activities. A reduction of rates of direct
taxes like personal income tax and corporate tax may help increase, because of
the resultant increase in the disposable income, the spending in the economy
leading to an increase in the demand it may be termed as budgetary policy. It is
related with the income and expenditure of a country. Fiscal Policy works as an
instrument in economic and social growth of a country. It is framed by the
government of a country and it deals with taxation, government expenditure,
borrowings, deficit financing and management of public debts in an
economy....3. Foreign Trade Policy:- It also affects the different business units
differently. E.g. if restrictive import policy has been adopted by the government
then it will present the domestic business units from foreign competition and if
the liberal import policy has been adopted by the government then it will affect
the domestic products in other way....4. Foreign Investment Policy:- The
policy related to the investment by the foreigners in a country is known as
Foreign Investment Policy. If the government has adopted liberal investment
policy then it will lead to more inflow of foreign capital in the country which
ultimately results in more industrialization and growth in the country....5.
Industrial Policy:- Industrial policy can even define the scope and role of
different sectors, like private, public, joint and co-operative, or large, medium
and tiny. It may affect the industrial undertaking choice of technology etc. In
India, until the liberalization, the scope of private sector, particularly of large
enterprises, was very limited. The liberalization has highly expanded the
business opportunities. It has at the same time tremendously increased
competition tending to make survival of the fittest the order. Industrial policy of a
country promotes and regulates te industrialization in the country. It is framed by
government. The government from time to time issues participles and guidelines
under the industrial policy of the country....6. Trade Policy/Exim Policy:- The
trade policy can significantly affect the fortunes of the firm. A restrictive import
policy, or a policy of protecting the home industries, may greatly help the import
competing industries, while liberalization of the import policy may create
difficulties for such industries. Trade policy is often integrated with the industrial
policy. As a part of the economic liberalization and WTO compliances, India has
very substantially liberalized imports.

GOVERNMENT’S ROLE AS REGULATOR OF BUSINESS-Ensure the private

investment and production in the industry meets the socio-economic objectives
of the government.--Ensure the efficient use of resources and prevent
exploitation.--Restraints on private activities.--Control of monopoly & big
business.--Development of public enterprises as an alternative to private
enterprises to ensure competitive dualism.--Maintenance of a proper socio-
economic--infrastructure.//GOVERNMENT’S ROLE AS PROMOTER OF
BUSINESS-Providing finance to the industry.(through developmental banks
etc.)--Granting incentives.--Creating infrastructural facilities for industrial growth
& investment.--Promoting development in No Industry Districts Establishing
District Industrial Centres for assisting the development of small industries.--
Providing finance to the industry.(through developmental banks
etc.)//GOVERNMENT’S ROLE AS AN ENTREPRENUER IN BUSINESS-Mainly
concerned with growth & development of public industries.--Has earned the
name of a “SOCIAL ENTREPRENUER”--BSNL can be a best example for the
above stated term.--Mainly concerned with growth & development of public
industries.--Has earned the name.//GOVERNMENT’S ROLE AS A PLANNER
IN BUSINESS--Ø Indicating priorities through the Five Year Plans for the
sectoral allocation of resources.Ø Ensuring the equal distribution of scare
resources to all the sectors in order to avoid clashes.Ø Indicating priorities
through the Five Year Plans for the sectoral allocation of resources.Ø Ensuring
the equal distribution of scare resources to all the sectors in

Age Variables that Impact Business-Age is another demographic element that

impacts businesses. A company's products and services are more likely to
appeal to certain age groups. Younger people under 35 are often the first
consumers to purchase high-tech products like cell phones, electronic books
and video games. The millennial generation is increasing buying power and
growing market share while baby boomers remain a large and viable group as
well. //Geographic Region Variables-People's buying preferences also vary by
geographic region, which is another type of demographic. Those who meet
buyers' needs and requirements in certain geographic regions can earn higher
sales and profits. //Education Level as a Variable-Buyers' education levels
also impact the types of purchases they make. Higher levels of education are
correlated with higher household incomes, and this higher income drives many
educated buyers' purchasing choices. //Obtaining Demographic Information-
One of the best ways to collect consumer demographic data is through market
research surveys. These surveys can be conducted by phone, mail, Internet,
email or in person. The key is collecting as much demographic information as
possible. Other demographic variables, besides age, income and geography,
include household size, education, occupation, gender, race and employment
status.

culture refers to the beliefs and behaviors that determine how a company's
employees and management interact and handle outside business transactions.
Often, corporate culture is implied, not expressly defined, and develops
organically over time from the cumulative traits of the people the company
hires.//1. Masculine and Feminine Cultures: A masculine culture appreciates
aggressiveness and assertiveness where as a feminine culture values
interpersonal relationships. Masculine culture is said to be more conductive to
success in business. Generally, a society exhibits both masculine and feminine
traits.//2. Individualistic vs. Collectivistic: Some cultures like that of USA are
individual oriented while others like that of Japan and India are more community
oriented.//3. Monochronic vs. Polychronic: Developed countries have
monochronic culture. In such culture. Time is used in a sequential manner – one
thing at a time. In developing countries, culture is polychromic where in time is
used to accomplish diverse goals simultaneously. //4. Neutral vs. Emotional: In
a neutral culture, emotions are held in check whereas in emotionalculture,
emotions are expressed in an open and natural manner. //5. Low Context vs.
High Context: In a low context culture, focus is on tangible aspects of a
business transaction, e.g. facts and figures. But in a high context, culture
intangible aspects such as personal relationships, religion and attitudes are
given importance in addition to facts and figures.

Towards Shareholders –To ensure safety of their investment...Regular

payment of dividend and Timely payment of loans...To provide adequate
information before investment...To ensure a good public image...To make good
and profitable decisions to give a good return on investment //Towards
Employees –Payment of Fair wages...Providing a good working
environment...Providing proper training and education...Providing fair
performance appraisal and career growth opportunities...Providing opportunity
to participate in management decision making...Providing adequate grievance
handling, recreational and retirement facilities. //Towards Consumers –To
provide goods and services at a reasonable price...To ensure good quality in
products...To introduce new and innovative products by proper research and
development...To not mislead the customer...To provide adequate information
about the product...To provide good after sale services //Towards Society –To
take measures for maintaining environmental harmony...To raise the standard of
living of the society...To help in development of backward areas and promote
small scale industries...To help in economic development of the society...To
conserve the natural resources of the country...To follow the norms and
traditions laid down by the society...To maintain a fairness and equity in
recruitment and compensation of manpower //Towards Competitors –To have
a healthy competitive spirit...To not use unfair means to succeed in
business...To not harm or defame the competitors...To not copy competitors
strategy //Towards Government –Timely payment of taxes and duties...To not
involve in corruption...To follow the norms and guidelines laid down by the
government...To follow the legal system of the country...To support the
government in its public welfare initiatives //Towards Suppliers/Creditors –To
make regular orders for purchase...To deal on fair terms and conditions...To
Have a fair credit policy...Timely payment of dues

The features of NIP, 1991 are as follows:-Public sector de-reservation and

privatization of public sector through disinvestment....Industrial
licensing....Amendments to Monopolies and Restrictive Trade Practices (MRTP)
Act, 1969....Liberalised Foreign Investment Policy....Foreign Technology
Agreements (FTA)....Dilution of protection to SSI and emphasis on
competitiveness enhancement....The all-around changes introduced in the
industrial policy framework have given a new direction to the future
industrialization of the country. There are encouraging trends on diverse fronts.
Industrial growth was 1.7 percent in 1991-92 that has increased to 9.2 percent
in 2007-08.The industrial structure is much more balanced. The impact of
industrial reforms is reflected in multiple increases in investment envisaged,
both domestic and foreign.....Development and utilization of indigenous
capabilities in technology and manufacturing as well as its up gradation to world
standard.> Dismantling of the regulatory system, development of the capital
market and increasing competitiveness for the benefit of the common man.>
Running of the public sector on business lines, and >promoting workers
participation in management, enhancing their welfare and equipping them to
deal with inevitability of technological change.

General Agreement on Tariffs and Trade (GATT), set of multilateral trade

agreements aimed at the abolition of quotas and the reduction of tariff duties
among the contracting nations. When GATT was concluded by 23 countries at
Geneva, in 1947 (to take effect on Jan. 1, 1948), it was considered an interim
arrangement pending the formation of a United Nations agency to supersede it.
When such an agency failed to emerge, GATT was amplified and further
enlarged at several succeeding negotiations. It subsequently proved to be the
most effective instrument of world trade liberalization, playing a major role in the
massive expansion of world trade in the second half of the 20th century. By the
time GATT was replaced by the World Trade Organization (WTO) in 1995, 125
nations were signatories to its agreements, which had become a code of
conduct governing 90 percent of world trade...GATT’s most important principle
was that of trade without discrimination, in which each member nation opened
its markets equally to every other. As embodied in unconditional most-favoured
nation clauses, this meant that once a country and its largest trading partners
had agreed to reduce a tariff, that tariff cut was automatically extended to every
other GATT member. GATT included a long schedule of specific tariff
concessions for each contracting nation, representing tariff rates that each
country had agreed to extend to others. Another fundamental principle was that
of protection through tariffs rather than through import quotas or other
quantitative trade restrictions; GATT systematically sought to eliminate the latter.
Other general rules included uniform customs regulations and the obligation of
each contracting nation to negotiate for tariff cuts upon the request of another.
An escape clause allowed contracting countries to alter agreements if their
domestic producers suffered excessive losses as a result of trade concessions.

In business, disinvestment means to sell off certain assets such as a

manufacturing plant, a division or subsidiary, or product line. Disinvestment is
sometimes described as the opposite of capital expenditures. Some people use
the term divestiture, or to divest when discussing disinvestment...For example,
an electric generator manufacturer might sell off its consumer generator product
lines and manufacturing facilities in order to raise money that can be used to
expand its industrial generator product line...Another example is a consumer
products company selling off a profitable division that no longer meets its long
range goals. The proceeds from this disinvestment are then used to improve the
company's financial position by reducing its debt.
(i) To reduce the financial burden on the Government....(ii) To improve public
finances.... (iii) To encourage wider share of ownership.... (iv) To introduce,
competition and market discipline.... (v) To depoliticise essential services.... (vi)
To help public enterprises upgrade their technology to become competitive....
(vii) To rationalise and retrain their workforce.... (viii) To build competence and
strengthen their R & D.... (ix) To initiate diversification and expansion
programmes.

1. Promoters and top management--2. Board of directors--3. Stakeholders and

internal power relationship--4. Societal factors--5. Industry and trade
associations--6. Government and laws--7. Political influence--8. Competitors--9.
Resources--10 Ethical influence

CONDITIONS NECESSARY FOR THE SUCCESS OF PRIVATISATION-

ØCommitment of political leadership.ØThere must be a multiplicity of private
suppliers for the benefit of competition to follow.ØFreedom of entry to provide
goods and services.ØPublic services to be provided by the private sector must
be specific or should have a measurable outcome.ØConsumers should be able
to link the benefit they received from a service to the cost they pay
for.ØPrivately provided services should be less susceptible to fraud than
government services.ØEquity is an important consideration in the delivery of
public services.

A social audit is a way of measuring, understanding, reporting and ultimately

improving an organization’s social and ethical performance. A social audit helps
to narrow gaps between vision/goal and reality, between efficiency and
effectiveness. It is a technique to understand, measure, verify, report on and to
improve the social performance of the organization...Social auditing creates an
impact upon governance. It values the voice of stakeholders, including
marginalized/poor groups whose voices are rarely heard. Social auditing is
taken up for the purpose of enhancing local governance, particularly for
strengthening accountability and transparency in local bodies...The key
difference between development and social audit is that a social audit focuses
on the neglected issue of social impacts, while a development audit has a
broader focus including environment and economic issues, such as the
efficiency of a project or programme...Objectives of social audit--Assessing
the physical and financial gaps between needs and resources available for local
development. //Creating awareness among beneficiaries and providers of local
social and productive services. //Increasing efficacy and effectiveness of local
development programmes. //Scrutiny of various policy decisions, keeping in
view stakeholder interests and priorities, particularly of rural poor. //Estimation of
the opportunity cost for stakeholders of not getting timely access to public
services.//Advantages of social audit--(a) Trains the community on
participatory local planning.(b) Encourages local democracy.(c) Encourages
community participation.(d) Benefits disadvantaged groups.(e) Promotes
collective decision making and sharing responsibilities.(f) Develops human
resources and social capital

There are two types of FDI:--i. Greenfield Investment:--It is the direct

investment in new facilities or the expansion of existing facilities. It is the
principal mode of investing in developing countries like India.//ii. Mergers and
Acquisition:--It occurs when a transfer of existing assets from local firms takes
place...IMPORTANCE--The Indian economy stood at the 11th position in the
world with regards to the nominal gross domestic product (GDP) for the fiscal
year 2011-12 witnessed a year low growth of the Indian economy (grew at a rate
of 6.5%) and reasons traced could be the weak monetary policy, inflation issues,
and cut in investments...India is one of the most attractive destinations for
foreign investment. Since liberalization, when foreign direct investments (FDI)
were allowed to enter India, our economy has grown by manifolds. Foreign
investments play a very significant role in the Indian economy.The importance
could be attributed to the following reasons:--i. Increased Investment in the
country Improvement in Technology and Infrastructure Increased productivity..ii.
Enhanced Flow of Equity Capital Improved Corporate Governance Increased
Employment Opportunities.