Business Environment

Ranjan Kumar Mohanty

Economics Area
Xavier Institute of Management, Bhubaneswar (XIMB)

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Course Name Economic Environment of Business
Program MBA-BM
Term III
Credits 2
Course Ranjan Kumar Mohanty
Instructor

Course Content
➢ Business Environment
➢ Understanding the Union Budget
➢ Understanding the Indian Economy
➢ Indian Economic Policy (Fiscal & Monetary Policy)
➢ Business Environment in a Borderless World
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 ASSESSMENT
Component Weightage (%)
Quizzes 30%
(Total 4 & best of 3)
Group Assignment 12%
Group Presentation 10%
Classroom Discipline & 8%
Participation
End-Term 40%
Reference Books:
➢ Business Environment by B.N. Ghosh, Oxford University Press
➢ Business Environment by Prabhakaran Paleri, Cengage
➢ Economic Environment of Business (With Case Studies) by V.K.Puri
and S.K.Misra, Himalaya Publishing House.
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➢ Economic Environment of Business by V.K. Pailwar, PHI Learning Private
Limited, Delhi.
 Nokia has been a respectable company. They didn’t do anything wrong in
their business, however, the world changed too fast. Their opponents were
too powerful.
 They missed out on learning, they missed out on changing, and thus they
lost the opportunity at hand to make it big. Not only did they miss the
opportunity to earn big money, they lost their chance of survival.
 The message of this story: if you don’t change, you shall be removed from
the competition.
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Tata Nano Failure: Case Study

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 Tata Nano Failure Reasons
 Bad image:
 Tata nano projects itself as the cheapest car. Nobody wants to drive
the cheapest car. Buying a car is related to social status and prestige
in society.
 The word “cheap” and “lakhtakia” used for promotion and marketing
all over India completely disrupt its image.
 Safety: Many nano catches fires. This creates a complete buzz in
media. despite the low price, everyone hesitates to buy because of
the fire & question about safety.
 Competition: The 2nd hand car market faces a drop in price by 15
to 20%. New cars like alto 800, Maruti 800, indica etc. so many
lower price cars also have to reduce the price. people call it a
nano effect.
 face tough competition from the 2nd hand market. people get high-end
2nd hand car at the same price.
 Expectation vs reality: Tata motor initially stated that a 4-
member family can easily accommodate it. But the bitter truth is
its very uncomfortable for an Indian family. Up to 3 adult
member it is ok only.

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 Tata Nano Failure Reasons
 Because most of the tier 2 cities road is full of pits and bump.
 The idea of replacing a 2-wheeler with a car for a mid-income
family was not researched well.
 Nano consumes 3 times as much fuel as a 2-wheeler.
 It requires space for parking, unlike 2-wheelers that can be
squeezed in anywhere.

 Low quality: In India, there is a very popular phrase in society.

“Low price means low quality”.
 Engine of some bikes are better than Nano engine.
 Faces difficulty in case of overloading.
 The Nano cannot be driven on speed more than 70 mph.
 Small tyres of nano make it difficult to drive it on rough Indian
road.

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 What is Business?

 Buying and selling of goods (common).

 Business is about human activities that are attempted
primarily for wealth generation… (profit).
 Business has other names too. Enterprise, firm, company
etc.,
 A business firm is an economic unit which is engaged in the
production or distribution, or both the production and
distribution of goods and services to consumers for the
purpose of earning profits.
 It includes activities connected with production, trade,
transport, finance, banking, insurance, advertising,
anyother activities related to industry and commerce.
 It contributes economic growth, employment and provide
all kinds of goods and services for consumption purpose.
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 Objectives of Business

Economic

Global Human ➢ Profit maximization

➢ Sales revenue max.
➢ Cost minimization
➢ Long run survival
➢ Financial soundness
Business ➢ Economic self
International Social sufficiency
objectives
➢ Maximum welfare &
Employees satisfaction
➢ Dominate whole market
➢ Service to society
National Cultural

Local

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 Nature of Modern Business
➢ Large Size:
❑ business that matters today is large in size. ( in 2017, USA based Wall-Mart stores $486 billion, China
based State Grid $315 etc.)
❑ Most of the Fortune 500 companies are located in USA (133), China (109), Japan (51) & Europe.
❑ India- 7 companies in fortune list; Indian Oil, Reliance Industries, Bharat Petroleum, Hindustan
Petroleum, State Bank of India, Tata Motors & Rajesh Exports in 2017).
 Oligopolistic Character:
 Small number of firms selling a homogeneous or a differentiated product (interdependence among
sellers). Each firm in an oligopolistic market believes that any change in its price and sales, or in the
quality of its product, advertising expenditure or any other variable whose value is under its control,
is likely to evoke retaliation from other firms in the same line of business.
 More popular is non-price competition than price war; advertising, variation in quality & design of
product.
 Diversification:
➢ Concentric Diversification (add new related products to their existing production): Maruti
Udyog Limited
➢ Conglomerate Diversification (India, common) add unrelated new products or services):
➢ Tata group: iron and steel, engineering, commercial vehicles, passenger cars, chemicals, fertilisers, tea,
textiles, electronics, computers, oil and power among others.
➢ Birla group is already diversified into areas as diverse as cement, aluminium, copper, fertilisers,
chemicals, viscose staple fibre (VSF), telecom, power, oil refining and financial services.

➢ Some Companies do not attempt to diversify and prefer takeover of companies in their own area: Coca
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Cola : Parle Soft Drinks; Whirlpool : Kelvinator Refrigerators
Nature of Modern Business continued..
➢ Global Reach:
➢ Liberalisation- companies that matter have expanded their revenue and assets base across
countries and engage in cross-border flows of capital, goods and know-how.
➢ Nestle, Unilever, Philips Electronics and Electrolux with over two-thirds of their activities
outside their home country.
➢ Technology Orientation:
➢ On account of increasing competition the world over, technological change has become a pre-
condition for the survival of a company.
➢ Because modern corporations regard technological research strategic to their future, they carry
out their R&D activities very close to their headquarters.
 Change:
 The business has thus invented the strategy of making changes in product quality,
design or packaging speedily.
 A modern firm must be vigilant all the time and be ready for change.
 colour televisions have replaced black and white televisions, motor cycles have
replaced scooters, smartphones have replaced ordinary mobile phones, and so on.
 Government Control:
 Government interference in business is required to correct market failures manifested in the
form of monopoly and pollution.
 Governments through monetary and fiscal regulation attempt to create stable business
conditions.
 Production of socially necessary public goods has to be undertaken by
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 What is Environment?

 The term environment is referred to the natural

environment which is also considered to be the natural
capital.
 surroundings of living things. It is used in favoured
conditions since it is the (natural) environment that
sustains life on the planet. Hence, protection of the
environment is talked about.
 In terms of business or an organisation, this concept
changes and becomes the surroundings of a business by
which business influenced directly or indirectly.
 Davis Keith “ The Aggregate of all conditions events and
influences that surround and affect business.”

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 Business Environment
❑ Composite term differs from the meanings of individual
words.
❑ May be defined as the total surroundings (control &
uncontrollable), which have a direct or indirect bearing on
the functioning of business units.
❑ Can be defined as the combination of internal and external
factors that influence a company's operating situation.
❑ Association between a business’s actions and its
environment is very close & continuous: response to govt
policy, technology adoption for obsolete products.
❑ Many type of changing social, economic, political etc.
forces which creates challenges, opens up new
opportunities and affects the strength and weaknesses of
various business segment.
❑ Business environment plays a key role in shaping
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the
business decisions and strategies of a firm.
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Characteristics of Business Environment
 Aggregative in nature: internal and external factors.
 Complex:
 because it is continuously exposed to countless challenges, like
technological disruptions, global competition, leadership change, shifting
economic, social, and regulatory conditions etc. It is very stressful for a
firm to survive and prosper in such an environment.
 Dynamic and ever changing:
 Customer preferences keep evolving.
 New competitors enter the market.
 Arise of novel technology.
 New marketing channels.
 New resources.
 New policies.
 Changing demography.
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Characteristics of Business Environment…
 Uncertainity: market, technology, macro policy, action of competitors.
 it is very difficult to predict future happenings, especially when
environment changes are taking place too frequently as in the case of
information technology or fashion industries.
 Relativity: related to the local conditions and this is the reason as to
why the business environment occurs to be diverse in different
countries and different even in the same country at different places.
 Interrelatedness: different factors of business environment are co-
related. Thus, a change in one factor affects the other factor.
 Combination of specific and general factors:
 Specific forces affect enterprises in their day-to-day working. General
forces have impact on all enterprises and affect an individual firm only
indirectly.

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 Significances of Business Environment
 Determining Opportunities and Threats: Keen observation on the firm’s
environment will bring out the opportunities and threats hidden in the
environment, so that the firm can meet challenges successfully.
 Giving Direction for Growth: Enables the business to identify the areas
for growth and expansion of their activities
 Makes a firm strong or weak: It is the internal factors of a business like
employee efficiency, efficiency in resource utilization, better
management of costs etc. make an organization strong or weak. To be
robust and resilient, a firm should keep up its internal environment solid.
 Continuous learning: The managers are motivated to continuously update
their knowledge, understanding and skills to meet the predicted changes
in business.
 Image Building: helps the business organisations in improving their image
by showing their sensitivity to the environment within which they are
working. (eco friendly products, captive power plants)
 Meeting rivalry: enable a firm to analyze the competitors’ strategies and
counteract effectively
 Identifying Firm’s Strength and Weakness: helps to identify the
individual strengths and weaknesses in view of the technological and
global developments.
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Thank you

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