TUTOR MARKED ASSIGNMENT

Course Code : MCO - 04

Course Title : Business Environment
Assignment Code : MCO - 04 /TMA/2022-23
Coverage : All Blocks

Maximum Marks: 100

Attempt all the questions

1) What do you understand by business environment? Discuss its (20)

importance for the business

2) How does socio-cultural environment affects business decision- (20)

making” Give a brief ketch of the nature of socio-cultural
environment prevailing in India

3) What 1s an industrial license? Enumerate the circumstances under (20)

which it 1s necessary

4) Why 1s Indian economy regarded an underdeveloped economy” (20)

State its basic characteristics

Explain the concept of globalization as a national policy with (20)

particular references to the policy initiatrve taken by the
Government of India since 1991
 MCO-04: Business Environment

Disclaimer/Special Note: These are just the sample of the Answers/Solutions to some of the Questions given
in the Assignments These Sample Answers/Solutions are prepared by Private Teacher/Tutors/Authors for the
help and guidance of the student to get an idea of how he/she can answer the Questions gwen the Assignments
We do not claun 100% accuracy of these sample answers as these are based on the hnowledge and capability of
Private Teacher/Tutor Sample answers may be seen as the Guide/Help for the reference to prepare the answers
of the Questions given in the assignment As these solutions and answers are prepared by the prroate
teacher/tutor so the chances of error or mistake cannot be dened Any Omission or Error is lnghly regretted
though every care has been taken while preparing these Santple Anszers/Solutions Please consult your own
Teacher/Tutor before you prepare a Particular Answer and for up-to-date and exact information, data and
solution Student should must read and refer the official study material provided by the urmversiti

Q1. What do you understand by business environment? Discuss its importance for the business.
Ans. Business environment may be defined as the total surroundings which have a direct or indirect
bearing on the business activities In this sense, the business environment refers to all the external
factors which may influence the functioning of the business But some experts have used the term
business environment in a very broader sense. They are of the opinion that business activities are
influenced not only by the external environmental forces but also by the internal environment
existing in a business organisation such as the resources at the command of business, the value
system, the mission and objectives, etc that its management ‘has
The external environment such as economic, socio-cultural, political, technological, ecological, legal
and regulatory, etc in which the business operates gives various kinds of opportunities to the
business or may pose threats or challenges to the business On the other hand, the intemal
environment in terms of its physical and psychological resources helps the management to cope and
adapt to the external environment. Thus, the survival and success of any business depends upon both
intemal and external environmental factors However, the term ‘business environment’ usually refers
to the external factors and forces which are outside the control of the firm and vary from country to
country.
Business Environment can also be classified as economic and non-economic The economic
environment consists of factors like the fiscal policy, the monetary policy, the industrial policy, the
nature of economic system, the pace of economic development, etc The non-economic environment,
on the other hand, refers to socio-cultural, politico-legal, technological and natural factors It may be
noted that’ economic and non-economic environment can neither be separated nor identified
exclusively Both interact with each other and their treatment in isolation 1s neither feasible nor of any
sigmficance. The economic environment determines the non- economic environment and, at the same
tume, it 1s determuned by the non-economic environment For example, the economic condition 1s
affected by sociological factors and the social norms, and values are influenced by the income level of
the people Thus, each critical element of economic environment interacts with each critical element of
non-economic environment The success of any business depends on a proper understanding and its
ability to foresee the nature, extent and dimensions of changes likely to occur in both sets of
environmental factors and the extent to which the Business adapts itself to the likely changes by
effecting necessary changes in its strategies
The importance of understanding the business environment can be summarised as Follows:
e Continuous environmental scanning helps in visualising the impact of the socio- economic
and politico-legal changes at the national and international levels on 1ts business and take
tumely corrective steps
 e = Ithelps midentifying the opportunities for, and threats to, the business
e It helps inidentifying firm's strengths and weaknesses 1n view of the technological and global
developments
e It helps in evaluating the present strategies, formulating long-term policies, and developing
future strategies
e It enables the firm to analyse competitors’ strategies and formulate the necessary counter
strategies
e = Lastly, 1t helps the firm to adapt to the prevailing conditions and, sometimes, even influence
the environment 1n order to make 1t congerual to the business

Q2. How does socio-cultural environment affect business decision- making? Give a brief ketch of
the nature of socio-cultural environment prevailing in India.
Ans. Culture 1s of great significance to business and 1s a very critical component of business
environment Proper understanding of the cultural dimensions 1s very important for making
important business decisions relating to product development, promotional efforts, human resource
management, management of the social and political environment, etc A company which sets out to
do business in unfamuliar cultural environment may encounter several problems 1f proper home work
is not done Many multinational corporates agree that “cultural differences are the most significant
and troublesome variables encountered by any multinational company. The failure of managers to
comprehend fully these disparities has led to most international business blunders "
There are varying definitions of culture. Culture. in its broadest definition. refers to that
pact of the total repertoire of human action (and its product) which is socially, as
opposed to genetically. transmitted. A very popular definition is that of E.B. Tylor
which reads "Culture of civilization is that complex whole which includes knowledge,
belief. art, morals, law, customs and othercapabilities and habits acquired by man asa
member of society". As Geert Hofstede, a noted Dutch writer and academic, has put it,
"culture is the software of mind-the social programming that runs the way we think, act
and perceive ourselves and others". In other words. your brain is simply the hardware
that runs the cultural programming. The implication is that culture is not innate. [t isa
learned behaviour and hence cam be changed.
On the basis of the various definitions of culture. Francis Merill formulates the concept
of culture as follows. Culture, he says
@ is characteristically the human product of social mteraction;
prevides socially acceptable patterns for meeting biological and social needs:
is cumulative, for it is handed down from generation to generation ima given
sociely;
© is meaningful to human beings because of its symbolic quality,
© 1s learned by each person in the course of his development in a particular society;
is, therefore. a basic determinant of personality. and
® depends for its existence upon the continued functioning of saciety but is
independent of any individual or group.
Culture consists of both material culture and non-material culture Material culture
involves man-made things (eg. automobile. television, telephone, etc. and man-made
alternations in the environment. Non-material culture includes such factors as language.
ideals. benefits, values, music. etc.
Elements of Culture
Culture, the sum total societal behaviour, includes at least three elements, namely, knowledge and
beliefs, ideals and preferences,
Knowledge and Beliefs: The knowledge and beliefs refer to a people's prevailing notions of reality
They include myths and metaphysical beliefs as well as scientific realities As Rose remarks, “one of
the features of culture in general, that 1s of special sociological interest, 1s shared quality of a belief
system. People who share a given culture tend to take a hostile attitude towards those within their
midst who cannot, or will not, accept conventional definitions of fact"
People in every society have basic convictions that certain modes of conduct or goals are desirable
These are also known as values Value system represents a set of values with priority ordering based
on their relative importance It prompts individuals and groups to distinguish between what 1s right
and what 1s wrong, what ought to be, what ought not to be Values thus provide standards or
benchmarks by which individuals may be guided 1n their choices, decisions, conduct, and behaviour
Ideals: Ideals refer to the societal norms which define what 1s expected, customary, right or proper in
a given situation Norms are enforced by sanctions, 1e, by rewarding the right behaviour and
punishing the wrong behaviour
Folkways and mores are important aspects of every culture Folkways are norms of proper behaviour
(like the proper way to greet a friend) that are informally enforced But mores are norms of obligatory
behaviour considered vital to the welfare of the group
Preference: Preferences refer to society's definitions of those things in life which are attractive or
unattractive as objects of desire Preferences may differ between cultures Interestingly enough, the
judgments of the ideal or the proper do not always correspond to our judgments of the pleasant or
enjoyable An example in point 1s the temptations (not proper but desirable) "All the things 1 really
like to do are immoral, illegal, or fatterung, " said Alexander Woollcott
A culture tends to provide the standards of tastes 1n specific lines of human activity Taste in the most
liberal sense varies greatly with the food consumption preferences of different cultures But there 1s
also taste in clothing, housing, and 1n endless variety of possessions and activities What 1s tasteful in
one culture may be highly distasteful in another
Values which govern decision making in corporate enterprises may consist of individual values,
group value, values of the constituents of the socio-economic environment, and the cultural values of
the society These are very important in the formulation of business strategies Ignoring values,
beliefs, customer tastes, preferences, etc may prove rather costly

Q3. What is an industrial license? Enumerate the circumstances under which it is necessary.
Ans. Under the provisions of the Act, a licence 1s necessary under the following circumstances
1 Establishing a new industrial undertaking: As stated earlier, licensing 1s no more compulsory
except in the case of six industries as given in Schedule II as per Notification dated 25 -7-1991 These
are
(1) Distillation and brewing of alcoholic drinks
(u) Cigars and cigarettes of tobacco and manufactured tobacco substitutes
(111)Electromic aerospace and defence equipment all types
(1v) Industrial explosives, including detonating fuses, safety fuses, gun powder, nitrocellulose and
matches
(v) Hazardous chemicals
(vi) Drugs and Pharmaceuticals (according to Drug Policy),
2 Taking up the manufacture of a ‘New Article’ in the existing licensed industrial undertaking,
3 Licence for substantial expansion of licensed industrial undertaking,
4 A registrable undertaking not registered,
5 Carrying 01 1 the business of an existing industrial undertaking to which licensing provisions of the
Act did not originally apply on account of an exemption order issued by the Government and became
applicable thereafter as a result of cancellation of the exemption order and under certain other
circumstances as provided in the Act,
6 In the case of industrial undertaking the registration in respect of which has been revoked under
Section 10A and which cannot carry on the business of the undertaking after the revocation and
7 Changing the location of the whole or any part of an industrial undertaking which has been
registered,
An industrial licence under the Act will not be necessary 1n the following cases
(a) Ifthe item of manufacture does not relates to the scheduled industries,

(b) Ifthe proposed manufacture is to be carried on 1n a factory which does not come
under the definition of factory as per Section 3(c):
(c) Ifthe item of manufacture does not fall within the definition of new article:

(d) If the proposed expansion to an existing unit does not fall within the guidelines
defining ‘substantial expansion’;

(e) Jn case of small scale units and ancillary units even tor activities subject to
compulsory licensing provided their investment 1n fixed assets and plant and
machinery whether held on ownership terms or on lease or on hire-purchase. does
not exceed Rs.] crore and relate to articles exclusively reserved for small scale
fancillary;

(f) Projects involving an investment in fixed assets uplo Rs.25 crores u they are
located mm Hon-backward areas or upto Rs.75 crores if they are located in centrally
declared backward areas; and

Industrial units exempted from licensing provisions (including MRTP /FEMA

i)

compaiies) subject to certain locational limit provided the article (s) of

manutacture do not form part of Schedule | (reserved for public sector) and
Schedule 1] (subject to computsory licensing).
Tt nay be noted that in respect of new project for manufacture of articles not covered
by compulsory licensing or their substantial expansion the only requirement is that the
industrial undertaking shall file a mermorandum called Industrial Entrepreneur
Memorandum (IEM) in prescribed form to the Secretariat for industrial Approvals
(SIA) um the Ministry of Industry ancl obtain an acknowledgement. Such memorandum
will also have to be filed by industrial undertakings engaged in non-scheduled
industries. This requirement doest not apply to small scale and ancillary units.
Q4. Why is Indian economy regarded an underdeveloped economy? State its basic characteristics.
Ans. The Indian economy 1s characterised as an underdeveloped economy Though it no longer
suffers from stagnation as 1t did under the British, the development since independence has not been
spectacular One fourth of the population still lives in conditions of misery, and poverty remains a
chronic malady, A good number of national resources still remain unutilized. In fact, almost all
characteristic features of an underdeveloped economy are still present 1n the Indian economy Let us
analyse 1ts basic characteristics,
Lew per capita income : The per capita income in India in 2003 was $530. Barring
a few countries, it is lowest in the world. The per capita income in 2003 in
Switzerland, Germany and USA respectively was 75, 48 and 71 times the per capita
income in India. During 1990-2003, Indian economy has grown ata faster rate than the
developed economies but the difference in per capita income still remains very large
Occupational pattern-predominance of agriculture : A very large proportion of
working population in India is engaged in agriculture. In 1999, about 61 per cent of
the working population was engaged im agriculture and its contribution to national
income was 28 per cent. The proportion of population engaged in agriculture in
developed countries like UK, USA and Japan is much less. The same is true of their
contribution to GDP. The reliance on agriculture in India is far greater than even in
some third world countries like Indonesia, China, Brazil, etc.

4
Rapid population growth : The population of India has been growing at a fast rate.
According to 2001 census, the total population is 102.5 crore as against 43.9 crore in
1961. The main cause of this rapid spurt of population growth is the steep fall in death
rate without a corresponding decline in birth rate. The population explosion has offset
the small gains of development that had been made during this period. It has resulted
in high dependency ratio and increased labour force in the country.. In 1999, the
percentage of population in working age group (15-64 years) was 61.1.
Chronic unemployment : On account of increasing population of working age group,
it has been difficult to provide gainful employment to the entire working population.
According to Planning Commission, the current daily unemployment at the end of
2001-02 was 3.49 crore. It is observed that while in developed countries,
unemployment is ofa cyclical nature and occurs due to lack of effective demand, it is
chronic in India and results from the structural defects in the economy. It is also
noticed that unemployment exists in a greater degree in urban areas. According to 55"
round of NSS estimates, while the current daily status of unemployment rate for rural
workers was 7.20 per cent in 1999-2000, it was 7.70 for urban workers. The main
problem in rural areas is that a large number of workers do not have adequate work
throughout the year and many of them suffer from open unemployment, and
underemployment for long periods. Not only that, in agriculture much larger number
of labourers are engaged than required and, thus, there exists ‘disguised’ or ‘concealed’
unemployment.
Deficiency of capital : Another basic characteristics of the Indian economy is the
existence of capital deficiency which is reflected in two ways : (i) the amount available
capital per head is low, and (ii) the rate of capital formation is low. The rates of gross
domestic saving and gross domestic capital formation in 2001-02 was 23.7 and 23.1
per cent of GDP respectively. Though itis quite encouraging, it is much less than
that of some of the East Asian Countries and, in the context of the rising population, is
still not considered to be adequate for achieving the required rate of economic growth.
Maldistribution of wealth / assets : The Reserve Bank of India survey of assets of
rural and urban households in India for the period July 1991 to June 1992 brings out
the existence of sharp inequalities in asset distribution. In rural areas, 27 per cent of
the households owning less than Rs. 20,000 worth of assets accounted for 2.4 per cent
of the total assets, and about 24 per cent of households owning Rs. 20,000 to Rs.
50,000 accounted for merely 7.5 per cent of the total assets. As against this, 9.6 per
cent of rich households (owning assets worth Rs, 2.5 lakh and above) accounted for
nearly 49 per cent of the total assets. The situation in urban areas is much worse
where 50.7 per cent of the urban households owning less than Rs. 50,000 worth of
assets accounted for merely 5.3 per cent of the total assets, and 14.2 per cent of the rich
household (owning assets worth Rs. 2.5 lakh and above) held merely 66 per cent of the
total assets. This inequality of wealth distribution is the principal cause of inequitable
distribution of income. It also signifies that resource base of 50 per cent of the
household is so weak that it can hardly provide them anything above the subsistence
level of income.
Poor quality of human capital: A glaring feature of an underdeveloped economy is
the poor quality of human resource. Most of the underdeveloped countries suffer from
mass illiteracy and India is no exception.. It goes without saying that a minimum level
of education is necessary to acquire skills and also to comprehend social issues.
Indian public expenditure on education and research and development in 1999-2001
was just 4.1 per cent of GDP. The corresponding figures in USA is 6 per cent of GDP.
Human development is usually measured in terms of Human Development Index (HDI)
constructed by UNDP which is based on the life expectancy, adult education and
combined enrolment ratio, and real per capita GDP in US dollars. It is distressing to
note that India has been ranked [27 in terms of HDI in 2002 while China ranked 94.
Obviously, India has a longway to go before it reaches the level of developed countries.
Low level of technology : In an underdeveloped country like India majority of the
manufacturing units use outdated and inferior techniques of production. Agriculture
which provides subsistence to about two-thirds of the population, has low productivity
mainly on account of technological backwardness. The vast majority of farmers are
too poor to buy even the essential inputs, not to speak of affording the expensive
equipment like sowing machines, harvesters and tractors. However, with liberalisation
of economy and building up of substantial capabilities in science and technology, a
large number of enterprises have started adopting modern technology for survival and
growth.

Q5. Explain the concept of globalization as a national policy with particular references to the
policy initiative taken by the Government of India since 1991.
Ans. The term globalisation has multiple connotations It may be interpreted to mean world- wide
movement of resources without any restriction including goods, services, capital, technology, as well
as human beings This literal meaning 1s obviously hypothetical because totally unrestricted
movement of everything world-wide presupposes absence of any political boundary between
countries and nothing like sovereignty of people living in different political systerns The term may
mean global outlook if it 1s interpreted from the point of view of a large corporation, that 1s, world
being viewed as an open field with no differentiation of domestic and foreign business Thus, 1f
production, distribution, marketing, financing, staffing, etc are planned and undertaken by a
company with a global outlook, that may be regarded as globalisation This 1s something more than
business dealings taking place between enterprises located 1n two or more foreign countries, which 1s
often referred to as internationalisation The Honda Motor Company of Japan may be taken as an
example reflecting the concept of globalisation as global outlook Its management consciously strive
to build the orgamusation as 1f all key customers are equidistant from the corporate headquarters It -
does not take the position of being national operators venturing abroad, but thinks of being
essentially global operators
As a national policy, globalisation may be interpreted as a policy of opening up the national economy
for unrestricted flow of goods and services, capital and technology, as also of natural and human
resources across the border So far no country has adopted such a policy, strictly speaking, though
efforts are on to mimumuse restrictions on international trade not only with respect to goods but also of
services and intangibles In this connection we may refer to the wide range of policy initiatives
announced by the Government of India since 1991 including policies bearing on liberalisation,
privatisation and globalisation Globalisation as a component of economic reforms may be interpreted
to mean external sector liberalisation, that 1s, relaxation of restrictions on international flow of goods,
services, capital and technology This may be regarded as outward onentation of the economy
Among other things, the following mayor steps have been taken towards globalisation
e The exchange rate management system has been overhauled, and the rupee has been made
convertible at the market rate of exchange 1n respect of all current account transactions
The number of importable items without licence has been increased by bringing those under
Open General Licence (OGL)
The maximum rate of import duty on goods has been gradually reduced from 1 10% to 20%
Exporters are allowed to import capital goods and other inputs at concessional rates of duty
Foreign direct investments (FDI) upto 51% equity 1s approved in high priority industries
without any bottleneck 1n the process
Foreign technological collaboration between Indian and foreign companies is granted
automatic permission within specified parameters
Foreign institutional investors are permitted to invest in all securities traded on the primary
and secondary capital markets
Overseas corporate bodies (OBCs) and NRIs are allowed to invest upto 100% equity in high
priority scheduled industries with full benefits of repatriation of capital and income thereon
subyect to certain conditions
The Indian corporate sector 1s encouraged to access global capital market through GDR and
ADR mechanism