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Module 1. Introduction to Business Environment. Internal and external environment. Macro and Micro environment- economic-political- legal- cultural and technological environment.
Introduction. Man always keeps himself engaged in some kind of activity to satisfy his needs and wants. All human activities may be broadly divided into two categories: (i) economic activities, and (ii) noneconomic activities. Economic activities are undertaken to earn one’s living and for the production of wealth. Non-economic activities are undertaken for one’s happiness, pleasure or satisfaction. Economic activities may be classified into three categories — (i) Profession - An activity, which requires special knowledge and skill to be applied by an individual to earn a living. (ii) Employment - When a person works regularly for others and gets wages/salary in return. (iii) Business
Business: Activities connected with the production or purchase and sale of goods or services with the object of earning profit are called business activities. Manufacturing, trade, transportation, insurance, banking etc are business activities. Thus business may be defined as an economic activity involving regular production or purchase and distribution of goods and services with the object of earning profits. According to Urwick and Hunt, “ A business is an enterprise which makes, distributes or provides an article or service which other members of the community need and are able and willing to pay for it”. Business is an activity that involves many activities like production finance marketing trade packaging etc. all business carried out to earn a profit by fulfilling the needs of consumers. We may classify business activities on the basis of functions into two broad categories. (a) Industry and (b) Commerce. Industry is concerned with the production and processing of goods. This type of business units is called ‘industrial enterprises’ which produce consumer goods as well as machinery and equipments. On the other hand, ‘commerce’ includes all those activities, which are necessary for the storage and distribution of goods. Such units are called ‘commercial enterprises’ which include trading and service activities like transport, banking, insurance and warehousing. Characteristics of business. 1. Exchange of goods and services:- business is an economic activity, which is concerned with exchanging goods and services to satisfy human wants. It means if an individual purchases a thing for his personal use, it will not be called a business. But if he purchase the same material; for selling, it will be a business activity. 2. Profit Motive:- the prime consideration in a business is to earn profit which represents a 1 NSS College..
fair return on capital employed and reasonable reward for risk taken. Business provides a way of living to the businessman because he intends to earn profit. 3. Continuity in dealing:- Usually the term business refers to a series of dealings in regular sequence. Business activities are recurring in nature. Recurring purchase and sales are regarded as identifying marks of the business. 4. Creation of utility:An important characteristic of business s the creation of utilities. The businessmen transports goods from a place where it is less needed to a place where it is more required place utility through transportation. He also converts raw material into semi finished and finished goods in order to make them useful for the consumers (Form utility through processing). 5. Customer satisfaction. The aim of business is profit earning but it is not possible without customers satisfaction. Hence business man should make goods and services according to the need and taste of the consumers. 6. Human Activity:- Business is ahuman activity because human resourse is needed to utilise various resources. The success of business depends on optimum utilisation of resources by the human.
Significance of Business in Modern Society. Business is an integral part of modern society. It is an organized and systematized activity for profit. It is concerned with activities of people working towards a common goal. The modern society cannot exist without business. The need and importance of business in society can be described as follows: 1. Improvement in standard of living: Business helps people in general to improve their standard of living. 2. Proper utilization of resources: It leads to effective utilization of the scarce resources of society. It provides facility of mass production. 3. Better quality and large variety of goods and services: It involves production, purchase and sale of goods and services for price. Customer’ satisfaction is the backbone of modern business. Services such as supply of water, electricity etc. may be considered highly significant for the community. 4. Creates utilities: Business makes goods more useful to satisfy human wants. It adds to products the utilities of person, time, place, form, knowledge etc. Thus, people are able to satisfy their wants effectively and economically. 5. Employment opportunities: It provides employment opportunities to large number of people in society. 6. Workers' welfare Business organizations these days take care of various welfare activities for workers. They provide safer and healthier work environment for employees. Profit is not the sole objective of the business. It may have other objectives like promotion of welfare of the workers and the general public. Business activities include production and distribution of goods and services, which can satisfy human wants.
Business Environment Environment means surrounding. Business environment means the factors/activities those surround the business. In other words, business environment means the factors that affect or influence the business. Business Environment refers to those aspects of the surroundings of business enterprise, which have influence on the functioning of business. An organization can survive and grow only when it continuously and quickly adapts to changing environment. We are living in the dynamic world, which is undergoing a rapid change, because of coming up of new ideas, economic changes, political changes and new technology. Keith Davis has observed that business environment is the aggregate of all conditions, events and influences that surround and affect the business. A business firm gets human resources, capital, technology, information, energy, and raw materials from society. It follows government rules and regulations, social norms and cultural values, regional treaty and global alignment, economic rules and tax policies of the government. Thus, every business organization has a direct relation with its environment. The success or failure of a business depends upon the effectiveness of interaction of a business with its environment. Business Environment Meaning: Business environment refers to all those internal and external factors, which impact the functioning/performance of a firm and/or its decision making particularly strategies. There are internal as well as external factors, which affect the success of a business firm. According to Gerald Bell: “An organization’s external environment consists of those things outside an organization such as customers, competitors, government units, suppliers, financial firms and labour pools that are relevant to an organization’s operations” Thus, it can be said environment as “the set of external factors such as the economic factors, socio-cultural factors, and government factors demographic factors geophysical factors, which are uncontrollable in nature and affects the business decisions of a firm or company. Importance of the study of Business environment. 1. Helps the business in developing its strategies and policies 2. Can understand and analyses its competitors strategies; and can also formulate its counter strategies. 3. Helps to foresee the impact of socio economic changes in the national and international level. 4. Managers can adjust themselves to the prevailing conditions and can influence the environment as far as possible. Components of Business Environment. A manager must follow a change in his or her structure, strategy and policies in response to the changing environmental forces. Thus, a business firm exists in two level of business environment a) Internal and b) External. Internal business environment comprises internal structure, system, culture, staff, and resources of the organization. This is sometimes identified into the internal functional areas such as marketing-distribution, finance accounting, human resources, production-operation, and research-development.
Components of Business Environment. Or Factors affecting Business Environment.
Internal Environment • Value System • Vision and Objectives • Management Structure and nature • Human Resources • Company Image and Brand equity • Physical Assets • Research and development • Marketing Resources • Financial Resources.
Micro / Operating Environment. • Suppliers • Customers • Market intermediaries • Competitors • Public
Macro / General Environment. Economic Political Socio cultural Technological Natural Demographic Internal Global/ international
• • • • • • • •
The internal environment is the environment that has a direct impact on the business. Here there are some internal factors which are generally controllable because the company has control over these factors. It can alter or modify such factors as its personnel, physical facilities, and organization and functional means, like marketing, to suit the environment. The important internal factors which have a bearing on the strategy and other decisions of an organization are discussed below. 1. Value system. The value system of the founders and those at the helm of affairs has important bearing on the choice of business, the mission and the objectives of the organization, business policies and practices. 2. Mission and vision and objectives Vision means the ability to think about the future with imagination and wisdom. Vision is an important factor in achieving the objectives of the organization. The mission is the medium through which the objectives are achieved. 3. Management structure and nature The structure of the organization also influences the business decisions. The organizational structure like the composition of board of directors , influences the 4 NSS College..
decisions of business as they are internal factors . The structure and style of the organization may delay a decision making or some other helps in making quick decisions. 4. Human resource The human resource is the important factor for any organization as it contributes to the strength and weakness of any organization . The human resource in any organization must have characteristics like skills, quality, high morale, commitment towards the work , attitude, etc. The technical skills that they possess, their attitude towards work and their organisation, their level of experience, etc are all very importnant factors that may afffect the performance and growth of any business. 5. Company image and brand equity The image of the company in the outside market has the impact on the internal environment of the company. It helps in raising the finance, making joint ventures, other alliances, expansions and acquisitions, entering sale and purchase contracts, launching new products, etc. Brand equity also helps the company in same way. 6. Miscellaneous factors. The other factors that contribute to the business success or failure are as follows: • Physical assets and facilities :- facilities like production capacity, technology are among the factors which influences the competitiveness of the firm. The proper working of the assets is indeed for free flow of working of the company. • Research and development: - Though R&D department is basically done external environment but it has a direct impact on the organization. This aspect mainly determine the company’s ability to innovate and compete. • Marketing resources: - Resources like the organization for marketing, quality of the marketing men, brand equity and distribution network have direct bearing on marketing efficiency of the company •Financial factors :- the financial strength of the company will go along way in helping any company to adjust with the changing environment. In case there are sudden requirements for funds for the purpose of investment and availing beneficial schemes, a finacially sound company will have competitive advantage. They may be able to grab the opportunity faster than another, which has to first gather the fund and then avail the opportunity. Factors like financial policies . financial positions and capital structure are also important internal environment affecting business performances , strategies and decisions. All these business environment components are controllable.
External business environment comprises two parts. They are Micro business environment and Macro business environment. THE MICRO ENVIRONMENT OF BUSINESS. The microenvironment of business consists of the forces in the company’s immediate environment that affects the performance of the company. These forces are more closely linked with the business than the macro factors. According to Philip Kotler: “The micro environment 5 NSS College..
consists of the actors in the company’s immediate environment that affects the performance of the company. These include the suppliers, marketing intermediaries, competitors, customers and the public. The microenvironment factors are discussed in detail as follows. 1. Suppliers: The important force in the microenvironment of a company is the suppliers i.e., those who supply the inputs like raw materials and components to the company. They are important to the company because :- For the smooth functioning of the business it is very important to have reliable source of supply. Uncertainty regarding the supply or other supply problems will compel the companies to maintain high inventories which will cause increase in costs. It is very risky to depend on a single supplier because a strike, lock out or any other production problem with that supplier may seriously affect the company, similarly a change in the attitude of behavior of the supplier may also affect the company. Hence, multiple sources of supply often help reduce such risks. 2. Customers: Customer is the central point of any business. Success of any business depends upon identifying customers, their needs, likings, tastes etc and enhancing the level of customer satisfaction. Because of increase in the level of competition, attracting and satisfying the customer has become more challenging. For attracting the new customers, companies conduct consumer research, design product as per needs of customers, spend heavily on advertisement, provide after sales service etc. A company may have different categories of customers viz, Industrial customers Retailers customers’ Wholesalers customers Government bodies customer’ Foreign customers. For different types of customers, business units will have to develop different types of products, so that different class of customers can be attracted towards companies products. Different customers have different levels of income, tastes and preferences. A person with higher level of income buy costly products and a person with lower level of income buy cheap products. So its is must that business firm makes products according to the demands of customers. The task of customer satisfaction has become more challenging with increase in globalization. Depending on a single customer is often too risky because it may place the company in a poor bargaining position, apart from the risks of losing business consequent to the winding up of business by the customer or due to the customer’s switching over the competitors of the company. The choice of the customer segments should be made by considering a number of factors including the relative profitability, dependability, stability of demand, growth prospects and the extent of competition. 3. Labour: In big organizations where hundreds of workers are employed, the labour force is organized in the form of trade unions. The trade unions interact with the management for higher wages and bonus, better working conditions etc. They pressurize the management for the fulfillment of their demands and resort to go slow tactics, strikes gherao. 4. Competitors: Competitors play a vital role in running the business enterprise; business has to adjust its various business activities according to the behavior of the competitors. Competitor means other business units, which are marketing or producing similar products or a very dose substitute of our 6 NSS College..
product. Nowadays. Competition has increased to a great extent- At present, no business unit enjoys monopoly in the market. The business unit should also identify the weaknesses of its competitors, and use such weaknesses of competitors to strengthen its own business. Globalization is further promoting competition, and is creating threat lo the domestic industrial units. There are various types of competitors: 1. Desire Competition. This type of competition generally found in where the countries having low income and the unsatisfied customers. Such a countries the basic Task of buying products go to either he or she has to buy T V or refrigerator or washing machine. This type of competition among desires is termed as desire competition. 2. Generic competition: Generic competition arises where the consumers have many options in single line of products. For example one may have options in investing the money either in UTI or post office or banks. It is called generic competition. 3. Product form competition: In this type of competition the consumer has to choose between different forms of the product. For example if the consumer decides to go for a washing machine the next question which form of the washing machine semi automatic or fully automatic front loading or top loading etc. 4. Brand competition: This type of competition arises where consumers have many brands in similar products. The marketer in this regarding needs to create brand demand for the products.
5. Marketing intermediaries: The marketing intermediaries are those firms aid the company in promoting, selling, and distributing its goods to final buyers. The marketing intermediaries include middlemen such as agents and merchants who “help the company find customers or close sales with them”; “Physical distribution firms” which assist the company in stocking and moving goods from their origin to their destination- such as warehouses and transportation firms; “Marketing services agents” which assist the company in targeting and promoting its products to the right markets - such as advertising agencies, marketing research firms media firms and consulting firms; and “Financial intermediaries”- Which finance marketing activities and insure business risks. 6.Financiers: Another important micro environment factor is the financiers of the company. Besides the financing capabilities their policies and strategies attitudes (including attitude towards risk) ability to provide non-financial assistance etc. are very important. 7.Public: A company may encounter certain publics in its environment. A public is any group that has an actual or potential interest in or impact on an organization’s ability to achieve its interests. Media public, citizen action publics and local publics (e.g. environmental pollution) are some examples. Growth of consumer publics is an important development affecting business. But it is wrong to assume that all publics are threat to the business. For example the media public may be used to disseminate useful information. 8. Regulating agencies. They include Government departments and other organizations, which monitor the activities of business. The examples are income tax department, and other revenue departments, quality control departments etc.
THE MACRO ENVIRONMENT OF BUSINESS. The macro environment of business includes activities, which are uncontrollable and need proper nourishment and attention on the part of a business enterprise. According to Hill and Jones “The macro environment consists of the broader economic social demographic political legal and technological setting within which the industry and the company are placed”. According to Elbing “Macro environment is the indirect action environment as it may not have an immediate direct effect on the operation but nevertheless have influence”. The important macro environmental factors are explained as follows: 1. Economic environment: Economic environment of business has reference to the broad characteristics of the economic system in which the business operates. The present day economic environment of business is a complex phenomenon. The business sector has economic relations with the Government, the capital market, the household sector and the foreign sector. These different sectors, together, influence the trends and structure of the economy. The economic environment includes the structure and nature of the economy the stage of development of the economy, economic resources the level of income, the distribution of income and assets global economic linkages economic etc. The external factors that affect the economic environment are; A. Economic Conditions: General economic conditions prevailing in a country affect the business. Improvement in economic conditions improves the style and quality of life, consumption level and purchasing power of public. Economy pass through periods of boom and recession. If boom conditions are prevailing in the economy, it positively effects demand and market share. When the economic growth of a country is stronger, the income level of the people will be high, and so there will be a higher volume of spending on products and services. Since the demand for the products are high, firms can generate higher revenue. Recently growing income of middle class in India has encouraged foreign investors to invest in India. Where a strong economy can generate higher income for the company, a slow economic growth results in low demands for the products. If economy is in depression it will have a negative effect on the business. Even the firms that provide basic products and services are adversely affected by a weak economy. In a developing country, the low income may be the reason for the very low demand for a product. A firm is unable to increase the purchasing power of the people to generate a higher demand for its product. Hence, it may have to reduce the price of the product to increase the sales. B. Economic System. The scope of international business depends, to a large extent, on the economic system. At one end, there are the free market economies or capitalist economies, and at the other end are the centrally planned economies or communist countries. In between these two are the mixed economies. Within the mixed economic system itself, there are wide variations. Capitalist system:- A capitalist economy is an economic system in which the production and distribution of commodities take place through the mechanism of free markets. Hence it is also called as market economy or free trade.
Socialist Economy:- In a socialist economy, the means of production are owned and operated by the State. All decisions regarding production and distribution are taken by the central planning authority. Hence the socialist economy is also called as planned economy or command economy. The government plays an active role. Social welfare is given importance; hence equal opportunity is given to all. Some of the most successful socialist economies are China, Cuba, Vietnam and North Korea.
Mixed economy: - In between the capitalist system and the centrally planned system falls the system of the mixed economy, under which both the public and private sectors co-exist, as in India. The extent of state participation varies widely between the mixed economies. However, in many mixed economies, the strategic and other nationally very important industries are fully owned or dominated by the state. The economic system, thus, is a very important determinant of the scope of private business. The economic system and policy are, therefore, very important external constraints on business. C. Economic Policies: The economic policy of the government, needless to say, has a very great impact on business. Some types or categories of business are favorably affected by government policy, some adversely affected, while it is neutral in respect of others. For example, a restrictive import policy, or a policy of protecting the home industries, may greatly help the importcompeting industries. Similarly, an industry that falls within the priority sector in terms of the government policy may get a number of incentives and other positive support from the government, whereas those industries which are regarded as inessential may have the odds against them. There are several economic policies which can have a very great impact on business. They include; (i) Industrial policy: The Industrial policy of the government covers all those principles, policies, rules, regulations and procedures, which direct and control the industrial enterprises of the country and shape the pattern of industrial development. (ii) Fiscal policy: It includes government policy in respect of public expenditure, taxation and public debt. (iii) Monetary policy: It includes all those activities and interventions that aim at smooth supply of credit to the business and a boost to trade and industry. (iv) Foreign investment policy: This policy aims at regulating the inflow of foreign investment in various sectors for speeding up industrial development and take advantage of the modern technology. (v) Export–Import policy (Exim policy): It aims at increasing exports and bridge the gap between expert and import. Through this policy, the government announces various duties/levies. The focus now-a-days lies on removing barriers and controls and budgets (vi) economic planning- Economic planning refers to interventionists economics activities by the Government aimed at directing the economy with a view to achieve pre determined objectives. (E.g. India’s Five year Plans) (vii) Business laws (viii) Control on price and wages (xi) Trade and transport policies (x) Foreign exchange policy etc… The government keeps on changing these policies from time to time in view of the developments taking place in the economic scenario, and the changing requirement. Every business firm has to function strictly within the policy framework and respond to the changes therein. 9 NSS College..
D. Legal Environment This refers to set of laws, regulations, which influence the business organisations and their operations. Every business organisation has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include: (i) Companies Act, 1956 (ii) Foreign Exchange Management Act, 1999 (iii) The Factories Act, 1948 (iv) Industrial Disputes Act, 1972 (v) Payment of Gratuity Act, 1972 (vi) Industries (Development and Regulation) Act, 1951 (vii) Prevention of Food Adulteration Act, 1954 (viii) Essential Commodities Act, 2002 (ix) The Standards of Weights and Measures Act, 1956 (x) Monopolies and Restrictive Trade Practices Act, 1969 (xi) Trade Marks Act, 1999 (xii) Bureau of Indian Standards Act, 1986 (xiii) Consumer Protection Act, 1986 (xiv) Environment Protection Act (xv) Competition Act, 2002 Besides, the above legislations, the following are also form part of the legal environment of business. i) Provisions of the Constitution: The provisions of the Articles of the Indian Constitution, particularly directive principles, rights and duties of citizens, legislative powers of the central and state government also influence the operation of business enterprises. (ii) Judicial Decisions: The judiciary has to ensure that the legislature and the government function in the interest of the public and act within the boundaries of the constitution. The various judgments given by the court in different matters relating to trade and industry also influence the business activities. E. Economic Growth.:- The stage of economic growth of the economy has direct impact on the business. In countries where investment and income are steadily and rapidly rising, business prospects are generally bright, and further investments are encouraged. There are a number of economists and businessmen who feel that the developed countries are no longer worthwhile propositions for investment because these economies have reached more or less saturation levels in certain respects. F. Interest rates: - the rate of interest affects the demand for the products in the economy, when goods are to be purchased through borrowed financing. Low interest rates provide opportunities, where as rising rates pose a threat to business.
2. Political Legal and Government Environment: Political and government environment has close relationship with the economic system and economic policy. For example, the communist countries had a centrally planned economic system. The stability of the government also influences business and related activities to a great extent. It sends a signal of strength, confidence to various interest groups and investors. Further, ideology of the political party also influences the business organisation and its operations. Most of the labour unions in India are affiliated to various political parties. Strikes, lockouts and labour disputes etc. also adversely affect the business operations. Some governments specify certain 10 NSS College..
standards for the products (including packaging) to be marketed in the country; some even prohibit the marketing of certain products. In most nations, promotional activities are subject to various types of controls. Regulations to protect the purity of the environment and preserve the ecological balance have assumed great importance in many countries. The Political Conditions in the country influence business activities in different ways. They provide opportunities for the business units to achieve heir goals. At the same time the political conditions pose challenges before the business enterprises. They have to adjust themselves to the political environment and use it to their benefit. The dimensions of political environment In any country, the political environment is characterized by the following dimensions: 1. The nature of the political system. 2. The nature of the constitution of the country 3. The political awareness of the people and of the government 4. The laws passed by the government
1. The nature of the political system. The political systems in the world can be broadly classified into democracies and autocracies. Under democratic policy the govt. is elected by the people and is answerable to the people for every action or failure to take an action. In a democracy, the govt. has to take the people into confidence before taking any important decision. The experts may be in favor of a particular activity but the govt. may not be able to take up that activity if it is opposed by a large number of the people. An autocracy is a state in which the govt. does depend upon the support of the people in continuation in office. The autocracy may take the form of the monarchy of the military or some other type of a dictatorship. Under this type of govt., a decision taken by the govt. can be smoothly carried out even in preface of a strong opposition from some people. In China, any economic reform can be effectively carried through, because of the nature of Chinese govt. Single, two and multi party states. In a single party state like China, it is easy to implement any economic reform. If the party is convinced of the importance of a particular project it can be carries through. In a two party state, the party enjoying support of the majority gets powered. It can easily carry through any economic reform or give patronage to any project or business enterprise. In a multi party state, there is no guarantee that any single party would enjoy the support of the majority. Often, such a country is ruled by a coalition govt. in which more than one parties come together to form a govt. Sometimes, some parties support the govt. from outside. The parties adopt a common minimum program. Those projects and enterprises which fall into the framework of the common minimum program can be carried though. 2. The nature of the constitution of the country If a country has an unwritten constitution like that of England, every law passed by the parliament is equally important. The parliament is supreme. It can do or undo things. It can help any project which gets its approval. In a country like India having written constitution, the authority of the parliament is limited to the clauses of the constitution. If a particular law passed by the parliament or a particular order issued by the executive is contradictory to any provision of 11 NSS College..
the constitution, it can not be put into practice. Thus, the authority of the parliament to help business or to stop a particular business is limited by a provision of the constitution.
Unitary or Federal Constitution
Under, unitary constitution or powers are concentrated in the hands for one central govt. There might be other administrative units but they derive their authority from the central govt. They do not have any independent powers. Under a federal constitution, the powers of the govt. are divided between the central govt. and the state govts. The sources of income including taxes are also divided between the central govt. and the state govts. In India, the income tax on individuals and the corporation tax are with the central govt. whereas the sales tax and the excise duty on alcohol are with the state govt. India has a federal constitution. It is possible that a particular project may be approved by the central govt. but they may not be implemented if it has an objection from the state govt. concerned. The business enterprises have also to take into consideration the tax structure of different states while selecting their location in a particular state. Different states may try to attract business activities to them by providing different incentives; this is beneficial to business enterprises because they can get maximum advantages because of the competition amongst the state govt. for attracting business units to them. 3. The political awareness of the people and the govt. If the people have a high sense of awareness, the govt. is more responsive to the wishes of the people. On the other hand if the people are passive and indifferent, the govt. looses its democratic character. People having personality cult and a blind faith in certain things are not able to bring into practice the spirit of democracy. The people should be aware of their rights and also of their duties in the smooth functioning of a democracy. 4. The laws passed by the govt. In any modern state, the will of the people is expressed in the form of laws passed by the legislature. The executive is bound by the laws and individuals and institutions can be penalized only under the provisions of a law. In India, several laws have been passed for regulating business enterprises. Some prominent amongst them are the companies act which regulates the formation and management of joint stock companies and gives protection to the investors. The factories act regulates the working conditions in the factories. The workers remuneration is regulated by several acts such as the minimum wages act and the payment of bonus act. The industrial disputes act sets up machinery for resolving the disputes between management and workers. The competition act 2002 tries to protect and foster competition which is helpful to progress. The monopolies and restrictive trade practices act tries to control the growth of monopolies and prevent the use of restrictive trade practices. The foreign exchange management act regulates the buying and selling and possession of foreign exchange by individuals and foreign exchange dealers. Any business enterprise has to work within the legal framework set up by the state. Responsibilities of business towards the government In any country the government tries to preserve the community and improve its conditions. In that respect the business has to extend its co-operation to the government. If the business discharges its responsibilities the government sincerely and effectively, the government can function more efficiently. The prominent responsibilities of the business towards the government can be described as follows: 1. To obey Laws The laws reflect the wishes of the community, they show what the community wants the member to do and what the community wants the member to avoid. The laws control the behavior 12 NSS College..
of the individuals with each other and with the community. If laws are oppressive or obstructing the path of business, they can be opposed in constitutional manner. The business can take the help of constitution or the judiciary to oppose the laws and get them repealed. The maharashtra government banned the sale of gutkha in maharashtra state. The producers of gutkha approached the court which repealed the order of the government of maharashtra on the ground that tobacco is in the jurisdiction of the central government. 2. Payment of taxes The expenditure of a modern government is heavy and is fast increasing. The main source of income for the government is the different type of taxes imposed by it. The business pays taxes on goods produced by them, taxes on goods imported by them, taxes on own income and taxes on the incomes of the employees. The bulk of the tax revenue is collected from business. If business pays the taxes honestly and on time the government can fulfill its responsibilities efficiently. 3. Social responsibility In addition to the legal and political responsibilities, the business has to take up several moral responsibilities towards the society. Thus, the business has to provide training facilities for the unemployed persons so that they can get absorbed in some occupation or can setup self employment units. Several business houses established educational institutions, hospitals, libraries, recreation halls, playgrounds etc. for the community. 4. Providing inputs to the government Often the government requires inputs of technical economic financial or political importance for framing appropriate policies. The business has contacts in different sections of the community. They can be used for collecting the required information and providing it to the government. Any action based upon accurate inputs has greater chances of achieving a higher success. For eg: before imposing a tax on commodity the government likes to know the elasticity of demand for that commodity. 5. Government Contracts The government has to take up several works such as construction of roads, bridges, flyovers, airports etc. Sometimes these works are undertaken by the government departments but a more common method of undertaking that work is to invite tenders and give contracts to business. It is the responsibility of the business to complete the work in time and maintain a high level of quality of the work 6. Government Services The business offers services of its leaders to the government to work on different committees. The business leaders have practical experience of a particular type of business. A committee appointed for doing something in respect of that business is highly benefited if some prominent person from that field is appointed as the chairman of that committee or commission. 7. Active participation in politics Sometimes the businessmen try to participate actively in politics. A member of the TATA family contested election to the lok sabha. Sometimes the leaders of the business are nominated to the Rajya Sabha so that the government gets the benefit of their practical experience of that field. Government Responsibility towards Business As the business has to discharge certain responsibilities towards the government, similarly the government has to discharge several responsibilities towards the business. In particular the responsibilities of the government towards business can be described as follows: 13 NSS College..
1. To pass and execute proper laws The behaviour of the people in society can be effectively controlled with the help of laws. The government has to pass laws which would create a friendly and helpful atmosphere for the business to grow. At the same time the laws should be capable of controlling the dishonest businessmen and prevent and punish their unfair practices. In India the government has passed several laws such as Companies Regulation Act, The factory Act, The labour Laws, the social security laws, the foreign exchange management act etc.
2. Maintenance of law and order It is the responsibility of the government to maintain law and order and peace in the community. Any business can exist and prosper if there is law and order in the country. Periods of disturbance are harmful to the existence of business and much more to the progress of the business. The government has to maintain law and order for attracting foreign investment. 3. Providing Money and Credit Every business requires credit. Finance is provided to business by the money market and the capital market. The government has to regulate them in such a way that they are able to attract more capital and direct it to the business. It is the responsibility of the government to maintain the financial institutions in sound health so that they can mobilize more finances. 4. Building Infrastructure All productive activities require infrastructure by way of means of transport and communications, supply of energy and credit, providing appropriate information about the openings for different businesses etc. If the government is successful in building efficient infrastructure, business can expand at a fast rate.
5. Providing information The government collects information on several issues such as the growth of population, changes in the demographic features, trends in migration etc. This information is highly useful to business in formulating its policies. The government can keep that information open to business 6. Controlling the growth of monopolies and preserving competition A free market economy has an inherent tendency to give birth to monopolies. They are economically and socially harmful. They result into concentration of economic and political power. They are also instrumental in increasing inequalities. The government can pass appropriate laws and can take timely action for preventing the growth of monopolies and encourage competition. 7. Reservation of fields of production The government reserves certain fields of production for the public sector. The remaining part is kept open to the private sector. In India several fields of production were reserved for the small scale and cottage industries. The sphere was contracted after we adopted the policy of globalization. 8. Awarding patent rights and copy rights Progress in any field requires research inventions and innovations. The job of patent rights and copyrights is to give protection to those who invest in research and arrive at inventions and innovations. Every country has its patent rights. After the establishment of the WTO the member 14 NSS College..
countries have adopted the rules and regulations prepared by WT in respect of patent rights, copy rights and allied matters 9. Protections The industries belonging to the developing countries are not able to compete with the industries belonging to the developed countries. It is the responsibility of the government to give them protection by using tariff and if necessary, non-tariff barriers. At the same time the industries should not get undue protection which would develop complacency. After the establishment of the WTO, protection is slowly on the decline. In short the political legal environment of a business depends on: 1. Legal rules for business for its formulation and implementation, its efficiency and effectiveness. 2. Defense and military policy impact of defines on industrial enterprise in terms of trading with potential enemies, purchasing policies strategic industrial development etc. 3. Political stability impact of factors like civil war, the declaration of president’s rule and emergency changes in the form and structure of government administration. 4. Political organization ideology of the ruling government philosophy of the political parties’ degree and extent of the bureaucratic delays, red tapism, the influence of premier groups the question of donation by business houses to political parties. 5. Flexibility and adaptability of law constitutional amendments their urgency and frequency, velocity of public policies. 6. Foreign policy alignment or non-alignment tariffs customers’ unions’ etc image of the country and its leaders.
3. Socio-Cultural Environment: The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. They al include people’s attitude to work and health, role of family, marriage, religion and education, ethical issues, social responsibility of business. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc. Due to increase in literacy rate the consumers are becoming more conscious of the quality of the products. Due to change in family composition, more nuclear families with single child concepts have come up. This increases the demand for the different types of household goods. It may be noted that the consumption patterns, the dressing and living styles of people belonging to different social structures and culture vary significantly. Some components of socio cultural factors affecting business are:1. Language. Language is the foundation of culture. Since communication is not possible without language, it is thus, very possible for a business firm to be acquainted with the language of the particular country in which they are doing business. Language of a country has to be learnt to understand the culture of a country. A marketer must be careful even when the same language is used in two or more markets such as U.K. and USA There are significant difference between British English and American English. Language differences often make marketing modifications necessary When a marketing campaign is made global, careful translation is needed, h is very critical to keep in mind that the thoughts not the words are to be translated. 15 NSS College..
2. Customs. A business firm should also consider the social customs of the customers. The purchase decisions of consumers are, generally dictated by culture, gender roles, buying patterns of certain society, family structure etc. The foreign firm should collect first hand information about the customs of a particular market, which will help them in taking decisions about the products or services. For example, in North India, it is customary for people to make their major purchases during Diwali festival People keep on postponing their shopping till the festive season Thus a firm will have to prepare its marketing strategy to fulfill the demand requirements of the festive season. 3. Education. Educational level of the customers also affect the production and marketing strategies of a firm. Education leads to better communication, new ideas, improved technology etc. Education in different countries is also different and there may be different methodologies of imparting education. The diffusion of new innovations into different cultures depends on the education level. 4. Religion. Religion is a very important component of culture If religion provides people with a sense of win they are on this earth, it may consciously and unconsciously dictate how they conduct their lives Attitudes, values and behaviour can often be traced to regional philosophies. For example, an American firm selling chicken products in Muslim countries will have to keep in mind that the Muslims eat only 'halal' meat and not the other 5. Attitudes and Values. People's attitudes and values about certain topics are important to that Society's economic development and its people's behaviour. Attitudes and values about time, work, achievements, wealth and material gains are of particular concern. In some countries punctuality is very important whereas in other a difference of one or two hours in taken for granted. People in some countries are over ambitious whereas in others they may be self-satisfied. A firm has to study the attitudes and values of a particular society before venturing in that region 6. Social Organisation. People organise activities and role relationship consistent with other cultural values and expectations Important variables to be considered here are a culture's origin and history, family relationships, friendships, class structure social and reference groups, gender roles etc 7. Legal Systems. Laws are rules of culture established by authority, society or custom They reflect the attitudes of the culture, they may be written or verbal. Most of the world fit into one of the following legal systems-Common Civil, Communism, or Indigenous. All these components indicate how the marketer approaches another socio cultural environment by adopting the view point ot that culture Socio-cultural forces play a very vital role in international business strategies and marketing mix
4. Natural environment: In natural environment we include geographical and ecological factors. Both these factors are relevant to the business. These factors include: 1. Natural resources endowment. 2. Weather and climate conditions 3. Topographical factors. 4. Location aspects 5. Port facilities etc. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the sources of input. Further, government’s policies to maintain ecological balance, conservation of natural resources etc. put additional responsibility on the business sector. 16 NSS College..
5. Demographic Environment: Demographic factors include: 1. Size, growth rate, age composition, sex composition, etc of population. 2. Family size 3. Economic stratification of population 4. Educational level 5. Caste, religion etc. This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services. For example a country where population rate is high and children constitute a large section of population, then there is more demand for baby products. Similarly the demand of the people of cities and towns are different than the people of rural areas. The high rise of population indicates the easy availability of labour. These encourage the business enterprises to use labour intensive techniques of production. Moreover, availability of skill labour in certain areas motivates the firms to set up their units in such area. For example, the business units from America, Canada, Australia, Germany, UK, are coming to India due to easy availability of skilled manpower. Thus, a firm that keeps a watch on the changes on the demographic front and reads them accurately will find opportunities knocking at its doorsteps. 6. Technological environment; Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time. It may be noted that scientific research for improvement and innovation in products and services is a regular activity in most of the big industrial organisations. Now a day in fact, no firm can afford to persist with the outdated technologies. . Technological developments can relate to the following areas. • New product development • New organizational style • New management Techniques • New Marketing techniques • New Production Techniques.
TRANSFER OF TECHNOLOGY
During the past one decade, The New International Economic order (NIEO) has been one of the most extensively discussed subjects and transfer of technology is one of the aspects of that order. Technology is an essential mode for socio-economic development of a country. But as it is well known, the modern know how and technology is today the monopoly of the Multinational Corporations (MNCs). The less developed countries, who lack it are totally dependent on the MNCs for borrowing the sophisticated and costly technology The recent practice has made it essential to thoroughly study the problems and prospects of transfer of technology.
METHODS OF TRANSFER OF TECHNOLOGY
Modes of technology transfer can be broadly classified in two ways -(i) According to the nature of the technology transfer. (ii) According to the nature of instrument used.
(i) ACCORDING TO THE NATURE OF TECHNOLOGY TRANSFER.
As far as classification according to the nature of the technology transfer is concerned, COOPER & HOFFMAN have presented a three fold categorization of technology transfer : 17 NSS College..
(a) Simple direct sales of technology Simple direct sale consists of outright sale of embodied or disembodied technology by unrelated firms for prices which are more or less competitive. Disembodied technology transfer may be through the Foreign Direct Investment (FDI) which includes capital, entrepreneurship, management, technology etc and through licensing of specific resources like propreitory process/product technology etc. Embodied technology transfer refers to technology embodied in capital goods, skills of technicians, technical literature etc. (b) Process packaged sale of technology Process packaged sale of technology means a system where a complete industrial process or plant is supplied by machinery manufacturers, independent engineering firms or final manufacturers of products (c) Project Packaged Sale of Technology The project packaged sale of technology means a method where the technology is accompanied by other requirements for the commercial operation of a project i.e. measurement, capital, brand names etc and by some element of continuous link or control by the seller.
(ii) ACCORDING TO THE NATURE OF THE INSTRUMENT USED
The second method of classifying technology transfer is by the nature of the instrument used i.e.whether technology is sold in the form of equipment, designing of plant supervision, management, licenses, direct investment etc. Technology transfer between countries can take place in a number of ways :1. By the Flow of books, Journals and other published information. 2. By the movement of people between countries including immigration, return of emigrants, study visits and other travel. 3. By Foreign investment and the associated transfer of knowledge and equipment 4. By the import of machinery and equipment. 5. By Technical cooperation programmes, material and bilateral, official and private 6. By Licensing, patent and knowhow agreements. Most developing countries employ all these methods simultaneously. The first method is more important for transfer of fundamental scientific knowledge. All the other methods are directly relevant for the transfer of industrial technology. Through technical cooperation programmes with other countries, governments of developing countries have sought to introduce latest technology in their industrial sector. For this purpose, they sent their missions abroad or invite technical missions from abroad through the establishment of a network of technical training and research institutions, they have tried to improve the quality of technical services.
Multinational corporations. However, the chief instrument of transfer from developed to the developing countries are the multinational corporations MNCs are huge industrial organisations which extend the industrial and marketing operations in a number of countries through a network of their branches or subsidiaries They bring with them technical knowledge and equipment and also participate in the industrial development programmes of the developing countries by licensing, patent and know how agreements. MNCs organise their operations in different countries through any of the following five alternatives : 1. Branches. This is the simplest way of extending the operations. Under this alternative, the MNCs set up branches in the developing countries. These branches bring with them the technology of the parent company and are linked up with it 2. Subsidiaries. MNCs also operate by setting up subsidiary companies in the affiliated nations. A subsidiary in a particular country is established under the laws of the country. 3. Joint venture company. Sometimes, the MNCs enter into a joint venture with an indigenous firm or agency. Under this arrangement, the MNCs make available machinery, capital goods and technological expertise to the indigenous firm. 4. Franchise Holders. This is a special kind of arrangement under which an affiliated firm produces or markets the product of a MNC after obtaining a license from that MNC. 5. Turnkey projects. Under this organisational form, the MNC undertakes to complete the project from scratch to the operational stage. When the project is ready it is handed over to the host country.
Through these various methods of operations, the MNCs carry their technology to the developing countries. If MNCs set up a branch or a subsidiary company, it is claimed that there is a direct injection of foreign experience and expertise in the developing country. This branch or subsidiary can provide a channel for the transmission of the latest improvements from the developed to the underdeveloped countries. However, the success on this front depends crucially on how far the recipient countries are able to regulate the activities of the MNCs. keeping the local interests in view. 7. International environment: The international environment is very important from the point of view of certain categories of business. It is particularly important for industries directly depending on imports or exports and import-competing industries. For example, a recession in foreign markets, or the adoption of protectionist policies by foreign nations, may create difficulties for industries depending on exports. On the other hand, a boom in the export market or a relaxation of the protectionist policies may help the export-oriented industries. A liberalization of imports may help some industries which use imported items, but may adversely affect import-competing industries. Implications of global or international environment are as follows: • Due to liberalization Indian companies are forced to view business issues from the global perspective. • Safe and protected markets are no longer there world is becoming small in size due to advanced means of transport and communication facilities. • To survive amidst intense competition every businessman should try to adapt his products to different customer needs and tastes.
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