3 0 0 Final

UTTARANCHAL UNIVERSITY
(Established vide Uttaranchal University Act, 2012, Uttarakhand Act No. 11 of 2013)
Premnagar-248007, Dehradun, Uttarakhand, INDIA
Program Name OMBA Program Code 501

Course Code OMBA-114 Credit 4
Year/Semester 1/1 L-T-P 4-0-0
Course Name Business Environment
Objectives of the Course
● To develop understanding and provide knowledge about the business environment to the
management students.
● To promote basic understanding on the concepts of Business Environment and to enable them
to realize the impact of the environment on Business.
● To provide knowledge about the Indian and international business environment.
UNIT-I: Introduction: Business
Meaning, Definition, Nature & Scope, Objectives of Business: Economic & Social, Types of Business
Organizations, Business Environment- Meaning, Characteristics, Scope and Significance, Components
of Business Environment. Introduction to Micro-Environment Internal Environment: Value system,
Mission, Objectives, Organizational Structure, Organizational Resources, Company Image, Brand
Equity External Environment: Firm, customers, suppliers, distributors, Competitors, Society.
UNIT-II: Economic, Political and Legal environment
Role of government in Business, Legal framework in India, Economic environment- economic
system and economic policies. Concept of Capitalism, Socialism and Mixed Economy, Impact of
business on Private sector, Public sector and Joint sector
UNIT-III: Social and Cultural Environment
Nature, Impact of foreign culture on Business, Traditional Values and its Impact, Social Audit and Social
Responsibility of Business, Competitive Environment – Meaning, Michael Porter’s Five Forces Analysis,
Competitive Strategies. Introduction to Industrial Policy Resolutions
UNIT-IV: Natural and Technological Environment
Innovation, technological leadership and followership impact of technology on globalization, transfer
of technology, time lags in technology introduction, Status of technology in India; Management of
technology; Features and Impact of technology
UNIT-V: Act and Policies
Competition Act and FEMA, Monetary and fiscal policies RBI-Role and functions, Regulations
related to Capital Markets, Role of SEBI and working of stock Exchanges.
Course Outcomes (CO)
CO1 Familiarize with the nature of the Business Environment and its components.
CO2 Able to demonstrate and develop conceptual framework of Business Environment and generate
interest in business.
CO3 Outline how an entity operates in a Business Environment.
Books for References:
1. Environmental Studies, M.P. Poonia & S.C. Sharma, Khanna Publishing House, Delhi.
2. Business Environment: Test and Cases, Paul, McGraw Hill Education, 3rd Ed.
3. Business Environment - Francis Cherunilam, Himalaya Publishing House.
4. V. Neelamegam - Business Environment, Vrinda Publications , 2nd Edition.
5. Shaikh & Saleem - Business Environment (Pearson, 2nd Edition).
6. International Business Environment Ian Brooks, Jamie Weatherstom and Graham Wilkinson.
7. Dr. Rimpi, A Textbook of Environment Sciences, Khanna Publishing House.
Business environment
UNIT– 1 INTRODUCTION: BUSINESS
STRUCTURE
1.0 Objectives
1.1 Introduction: Meaning and definition of business
1.2 Nature and scope of business
1.3 Objectives of Business:
1.3.1 Economic Objectives
1.3.2 Social Objectives
1.4 Types of Business Organizations
1.5 Business Environment
1.5.1. Meaning
1.5.2. Characteristics
1.5.3. Scope
1.5.4. Significance
1.6 Components of Business Environment
1.7 Internal Environment
1.7.1 Value System
1.7.2 Vision
1.7.3 Mission
1.7.4 Objectives
1.7.5 Organisational Structure
1.7.6 Organisational Resources
1.7.7 Company Image
1.7.8 Brand Equity
1.8 External Environment
1.8.1 Firm
1.8.2 Customers
1.8.3 Suppliers and Distributors
1.8.4 Competitors
1.8.5 Society
1.9 Let’s sum up
1.8 Key Words
1.9 Answer to check your progress
1.10 Some Useful Books
1.11 Terminal Questions
1.0 OBJECTIVES
• To elaborate the meaning of business environment.

• To develop understanding and provide knowledge about the
Business environment to the management students.
• To promote basic understanding on the concepts of Business
Environment and to enable them to realize the impact of the
environment on Business.
1.1 INTROCUTION: MEANING AND

DEFINITION
A commercial or economic activity engaged in as a means of livelihood

or profit, or an entity which engages in such activities or which is related
with continuous and regular production and distribution of goods and
services for satisfying human wants is known as business.
All of us need food, clothing, shelter and many other household

requirements that needs to be satisfied in our daily lives. We fulfill these
requirements from the shopkeeper or departmental store. These
shopkeepers and the departmental store get the products from wholesaler
and wholesaler gets it from manufacturer. Thus, the shopkeeper, the
wholesaler and the manufacturer are doing business.
Business of to-day or tomorrow is governed by external forces. In the

changed scenario, businesses may make or mar depending upon their
adaption to new rules of the same.
Philips Kotler comments “Today you have to run faster to stay in the same
place”.
This unit introduces the student to the concept, characteristics and nature
of Business Environment and explains the inter-relationship between
Business and different factors of Environment. It also comprehends
External and Internal environment with their major implications on
business functions. and the importance of different analysis techniques for
External and Internal environment factors. It also highlights the existing

financial system of India and the impact of major financial reforms on
business.
Some more concepts:
Stephenson defines business as, “The regular production or purchase and

sale of goods undertaken with an objective of earning profit and acquiring
wealth through the satisfaction of human wants.”
According to Dicksee, “Business refers to a form of activity conducted

with an objective of earning profits for the benefit of those on whose behalf
the activity is conducted.”
Lewis Henry defines business as, “Human activity directed towards

producing or acquiring wealth through buying and selling of goods.”
Thus, the term business means continuous production and distribution of

goods and services with the aim of earning profits under uncertain market
conditions. It can be privately owned, not-for-profit or state-owned. An
example of a corporate business is PepsiCo, while a mom-and-pop
catering business is a private enterprise.
FEATURES OF BUSINESS
i. Exchange of goods and services

ii. Deals in numerous transactions
iii. Profit is the main objective
iv. Business skill for economic success
v. Risk and Uncertainties
vi. Buyer and Seller
vii. Connected with production
viii. Marketing and distribution of goods
ix. To satisfy human wants
x. Social obligation
1.2 NATURE AND SCOPE OF BUSINESS
NATURE OF BUSINESS:
The fundamental driver of all creative endeavours is the need to satisfy
people's insatiable wants. Human desires are numerous and intricate in
design. Despite the fact that humans only need three things to survive—
food, clothing, and shelter—we are not content with this. Many other
goods that we use or consume often require payment. Take your own
situation, for instance. Try to remember what you do every day from the
moment you wake up until you go to bed. Many things are consumed or
used by you during this time. Some examples include the toothpaste and
soap you use, the bread you consume, the tea you drink, the furniture
(table, chair, etc.) you use, the clothing you wear, and the television you
watch. Have you ever considered how you get access to these things?
Each of them has undergone a protracted process. Consider a bar of toilet
soap. Some company, such as Tata Oil Mills Limited or Hindustan Lever
Limited, manufactures or produces it. They obtain the essential raw
ingredients used to make soap, such as oils, tits, etc.
With the assistance of both people and equipment, these basic components
are transformed into soap cake. After that, these cakes are wrapped or
packaged in lovely printed paper. Despite being ready, the soap is
currently unavailable to you because it is still in the manufacture.
The soaps are removed from the plant and placed in the warehouse of the
business. The manufacturer sells the soap to wholesalers, who purchase it
in bulk, transport it to their location, and store it there. The retail traders
receive smaller quantities of goods from the wholesale trader. One such
retail outlet is the store where you buy your soap in your neighbourhood.
This is the tale of how your soap got to you, to put it simply.
The producer creates products for the buyer. Sometimes there may be no
one in between, but frequently the producer may use middlemen to transfer
the items to the consumers, such as wholesalers and retailers
Regularity of Interchange of goods

Features of enterprise
transactions and services
Economic activities
Main Objective is
Risk and uncertainty related to production
Profit
and distribution
Creation of utilities
Fig 1.2.1: Nature of Business
Features of enterprise: The driving force behind any business is the

courage of entrepreneur or group of investors who anticipates and
visualizes business, organizes resources for production such as land,
labour and capital, supervises , undertakes risks and bears liabilities.
Main Objective is Profit: Profit motive is the most essential

characteristic of business that acts as an incentive to be engaged in it.
All business activities are directed towards reaping more than what has
been invested. If an enterprise fails to make profit in one line of
business, it is natural that it will turn to another field before it decides
to fold up.
Economic activities related to production and distribution: Profit

objective can be realized through production and distribution of goods
and services.
Regularity of transactions: When transactions are regular and

continuous, then such transactions are treated as business. Recurrence
of transactions, therefore, is a hallmark of business.
Interchange of goods and services: Business is all about working with
commodities and products. The goods produced by the primary sectors
are termed as Commodities i.e. agriculture and mining while the goods
produced by the secondary sector are termed as products i.e.
manufactured or processed goods. Business also provides services like
IT enabled sector, Hospitality sector, Banking sector, etc that are
invisible and intangible.
Risk and uncertainty: The dynamic nature of business environment

and uncontrollable external environment makes its very unpredictable.
Unpredictability increases the level of risk for businesses. Interaction
and interplay of different elements ensures the vigilant and
proactiveness in business. Risk Management, Environmental Analysis,
Scanning and Forecasting Methods become important skill set for
people in business at different level.
Element of creation of utilities: Adding value to the products and

services is the main function of any business that leads to creation of
utility. Utility is the satisfaction experienced by the consumers from
goods or services. Business is always engaged in offering different
kind of utilities from products and services like time utility, form
utility and place utility. When professionals like doctor or an engineer
offers their services then service utility is created.
1.2.3 SCOPE OF BUSINESS
➢ CLASSIFICATION OF BUSINESS
Classification based on the final product or service provided:
1. Business which produces goods: The goods are classified into
two categories, i.e., commodities and products. Commodities
are the goods produced by the primary sectors i.e., agriculture
and mining while products are the goods produced by the
secondary sector i.e. manufactured or processed goods.
2. Business which produces services: Involves IT enabled
sector, Hospitality sector, Banking sector, etc.
3. Businesses which distributes goods: Involves in the

distribution of the final product from other industry
4. Businesses which facilitates the distribution of goods
5. Business which deal in Finance and Financial Services
Classification based on the nature of activity:

1. Extractive Industries: Extract goods from natural resources.
Examples – Farming, fishing, oil extraction.
2. Genetic Industries: Related to genetics or breeding.
Example- Biotechnology, animal breeding.
3. Manufacturing Industries: Process raw material. Example-
Iron, machines, tyres and FMCG products
4. Infrastructure Industries: Involves construction of roads,
railways, bridges, dams, canals, buildings etc.
5. Service Industries: Includes Insurance, transportation,
doctors, advertising and market research firms, financial
services, etc.
6. IT Industries: Includes the designing and production of IT
related products and software’s and IT service providers.
Example – Banking software’s, mobile applications.
Classification Based on Competitive Structure:

1. Monopoly: Characterized by No competition
2. Duopoly: Characterized by Two Firms
3. Oligopoly: Characterised by Few Firms
4. Monopolistic Competition: Characterised by Large number
of firms selling products which are not the perfect substitutes
5. Perfect Competition: Characterised by Large number of firms
selling homogeneous products and each firm is accounted for
an insignificant share of market that is no control over the
market by a single firm.
Classification Based on Size: Small, Medium and Large Scale

Industries.
Classification Based on Usage:
1. Basic Industries: Provide essential inputs to other industries
2. Capital Industries: Produces machineries, equipment’s or
tools
3. Intermediate Industries: Already processed but treated as a
input for other industries
4. Consumer Goods Industries: Produces consumable products
Classification Based on Nature of ownership:

1. Public Sector: It is controlled by national, state or provincial,
and local governments.
2. Private Sector: It encompasses all for-profit businesses run
by an individuals or companies and that are not owned or
operated by the government.
3. Joint Sector: Government participation in the equity capital
of private sector
4. Co-operative Sector: Firm owned, controlled,
and operated by a group of users for their own benefit.
i. Classification based on the final product or service provided:

i. Business which produces goods: The goods are classified
into two categories, i.e., commodities and products.
Commodities are the goods produced by the primary
sectors i.e., agriculture and mining while products are the
goods produced by the secondary sector i.e. manufactured
or processed goods.
ii. Business which produces services: Involves IT enabled

sector, Hospitality sector, Banking sector, etc.
iii. Businesses which distributes goods: Involves in the
distribution of the final product from other industry
iv. Businesses which facilitates the distribution of goods
v. Business which deal in Finance and Financial Services
ii. Classification based on the nature of activity:

i. Extractive Industries: Extract goods from natural
resources. Examples – Farming, fishing, oil extraction.
ii. Genetic Industries: Related to genetics or breeding.
Example- Biotechnology, animal breeding.
iii. Manufacturing Industries: Process raw material.
Example- Iron, machines, tyres and FMCG products
iv. Infrastructure Industries: Involves construction of roads,
railways, bridges, dams, canals, buildings etc.
v. Service Industries: Includes Insurance, transportation,
doctors, advertising and market research firms, financial
services, etc.
vi. IT Industries: Includes the designing and production of IT
related products and software and IT service providers.
Example – Banking software, mobile applications.
Classification Based on Competitive Structure:

i. Monopoly: Characterised by No competition
ii. Duopoly: Characterised by Two Firms
iii. Oligopoly: Characterised by Few Firms
iv. Monopolistic Competition: Characterised by Large number of
firms selling products which are not the perfect substitutes
v. Perfect Competition: Characterised by Large number of firms
selling homogeneous products and each firm is accounted for an
insignificant share of market that is no control over the market by
a single firm.
Classification Based on Size: Small, Medium and Large Scale Industries.
Classification Based on Usage:

i. Basic Industries: Provide essential inputs to other industries
ii. Capital Industries: Produces machineries, equipment or tools
iii. Intermediate Industries: Already processed but treated as a input
for other industries
iv. Consumer Goods Industries: Produces consumable products
Classification Based on Nature of ownership:
i. Public Sector: It is controlled by national, state or provincial,
and local governments.
ii. Private Sector: It encompasses all for-profit businesses run by
an individuals or companies and that are not owned or operated
by the government.
iii. Joint Sector: Government participation in the equity capital of

private sector
iv. Co-operative Sector: Firm owned, controlled, and operated by
a group of users for their own benefit.
1.3 OBJECTIVES OF BUSINESS
Generally, an enterprise pursues multiple objectives rather than a single

objective. Strategic manager will be identified a set of main business
objectives. These will be pursued by a large cross-section of enterprises.
Profitability, productivity, efficiency, product quality, growth, stability,
self-reliance, survival, competitive strength, customer services, employee
satisfaction, financial solvency, diversification, technological dynamism
and welfare and so on are the major objectives of enterprise. Enterprise
always tries to balance these objectives in efficient manner. Important
business objectives are listed below:
The objectives which are satisfied in short duration of time or immediately

are termed as a Short term or Short run objectives and it is treated as a
means to achieve long term objectives. For example, the short term
objective of market penetration may be a strategy to achieve the long run
objective of market dominance or profit. Long term objectives of the firm
require more time. Some of the important long term objectives of an
organization are as listed below:
i. Profitability
ii. Productivity
iii. Employees development
iv. Employee relationships
v. Competitive position
vi. Public responsibility
vii. Technological leadership
Profitability
Profitability is an important functional area of the long-term objectives of
the firm and strategically managed firms express it in terms of return on
equity. The ability of any business to operate in the long run depends on
its ability to attain the acceptable level of profits.
Productivity
Productivity is essential need for each strategist in the corporation.
Strategic managers try to improve the productivity by improving the
input–output relationship which results overall increase in the profitability
and efficiency.
Technological Leadership
Technological leadership gives clear picture of an organization’s long term
goals and objectives. Many companies state their objectives in terms of
their technological leadership.
Like Apple, the company that has technological leadership in its all
product range like iPhone, iPad, MacBook’s.
Competitive Position
Competitive position can increase profitability, productivity of the
company and reduce production costs. The success, survival and growth
of an organization depends on the firm’s competitive position.
Employee Development
It refers to the development of the knowledge bank which contributes
towards product innovation, improved quality and productivity, job
satisfaction, effective utilization of resources, boost team culture,
encourages individual motivation. Such developed and motivated
workforce leads an organization to build a strong competitive advantage
that finally results in profitability and growth.
Employee Relationships
The organization should always implement such procedures and policies
that reflect the welfare of employees, boost employees motivation, provide
employees with good career path and strong work relations which help
initiate individual growth. This type of initiatives will reduce the attrition
rate and such loyal and committed workforce will finally leads to the
overall organizational development.
Public Responsibility
Public responsibility refers to contribution made by an organization
towards society welfare and development which is also termed as
Corporate Social Responsibility. Like the sunlight project by HUL and
digital village initiative by ICICI Bank.
1.3.1 ECONOMIC OBJECTIVES

Survival: It is basic and implied objectives of the most organizations in
the time of beginning of a venture and in economic downturn. The survival
of a business refers to ability of business to stand and succeed in any
environment, general and industry conditions, the function of the nature of
ownership, nature of business competence of management, financial
strength of the business enterprise or any type of business concern. An
organization mission statement reveals the organization’s capability and
intentions to secure its survival through profitability and expansion of the
business. All types of enterprises will be interested in more than mere
survival in market.
Profitability: Profitability is the sole motive and vital goal of a business
organization that clearly indicates of an organization’s ability to satisfy the
principal; claims and desires of employees and stakeholder of the
organization. Strategic managers should be aware of profitability
measurement over the long term or short term. Also, it is important for
managers to understand the impact of profitability which affects the
survival of an organization in the future perspective.
Growth: An organization growth is closely related with its other objective
like survival and profitability and it is equated with dynamism, vigour,
promise, and success of a business. Growth may be like a proactive change
or a necessity for dynamic business environment. Growth refers to an
overall development of the organization activities in terms of increase in
assets, manufacturing facilities, sales volume of existing product line or
through new product, manpower employment and diversification. It also
refers to improve profits, market share, business expansion, and
acquisition of business (merger, acquisition or joint venture) and survival.
It indicates an increase in business activities.
Efficiency: Efficiency refers to the optimum utilization of available and

scarce resources and to achieve the maximum productivity in business
activities. It helps business to achieve its goals successfully. It is achieved
through the integration of advanced technology and skills of employees
that contribute in economic utilization of resources and maximizes the
productivity. It refers to the suitable selection of input and converts it into
output for effective utilizing of funds, resources, physical facilities and so
on in enterprise.
Stability: Stability is one of an important, cautious and conservative

objective of firm. A good and steady enterprise always minimizes its
managerial efforts, resources, and its dynamic nature of decisions that are
taken for managing business. It is less susceptible to the resistance and
hostile nature of an external environment.
1.3.2 SOCIAL OBJECTIVES:
They are long term ordinal objectives which are concerned with the needs
and welfare of the society and also justify the survival, growth and
economic objectives of an organization. The social objectives of an
organization are broadly classified as below:
Objectives which protect the interest of the workers
Objectives which protect consumer interest
Objectives which protect the interest of the society.
Check Your Progress-1
1. Explain the term business environment
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2. Why it is important for business enterprises to understand their

environment? Explain
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3.. Why is business environment called dynamic?
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1.4 TYPES OF BUSINESS ORGANIZATION
What are the five forms of business organizations?

The five forms of business organizations include the following:
• Partnership
• Corporation
• Sole proprietorship
• Cooperative
• Limited liability company
TYPES OF BUSINESS ORGANIZATION
Partnership
A corporate partnership can be categorised as either general or
limited. In general partnerships, both partners are equally
responsible for the debts of the business they participate in. They
don't need a written contract. In contrast, limited partnerships call
for the creation of legal agreements that outline all of the pertinent
information about the partnership, including who is accountable
for specific debts.
Among the benefits of partnerships are:
Simple to establish Partnerships require the least amount of

paperwork and legal documentation to form compared to other
business arrangements.
Expertise can be combined by partners: There are more chances to

develop their cooperation abilities when there are several others
with similar interests.
Workload distribution: In partnerships, members typically
delegate tasks to one another in order to reduce duplication of
effort.
Drawbacks to take into account:
There is a chance that partners will disagree on various
operations due to the fact that business decisions are made by
multiple people.
Transferring ownership is difficult because if partners disagree
and decide to dissolve their partnership, there is no legal agreement
that specifies the processes.
full responsibility In a partnership, each partner is individually
responsible for all debts incurred by the company and is subject to
legal action.
A firm founded by two or more family members, friends, or

coworkers in a field that complements their skill sets is an example
of a partnership.
Corporation
A corporation is a type of corporate entity that operates
independently of its stockholders. Before paying profits or
dividends to shareholders, a corporation pays its own taxes. A C
corporation, a S corporation, and an LLC, or limited liability
corporation, are the three primary types of corporations.
Among the benefits of corporations are:

Business debts are not the responsibility of the owners: In general,
a corporation's stockholders are not accountable for its obligations.
Instead, investors take a risk with their equity.
Tax exemptions: Corporations are allowed to write off costs
associated with employee benefits, such as premiums for health
insurance, wages, taxes, and more.
Quick capital through stocks: Shareholders may sell their shares in
the corporation to raise additional funds for the firm.
Negative aspects include:
For C-corporations, there is a double taxation situation: the
corporation must pay income tax at the corporate rate before
distributing earnings to the shareholders, who are then responsible
for paying individual income taxes.
Record-keeping standards for each year: The corporate business
structure, with the exception of an S-corporation, includes a
significant quantity of paperwork.
Owner involvement is lower than manager involvement: When

there are multiple investors but no one has a clear majority stake,
the management team may be in charge of running the company's
operations rather than the owners.
A business organisation with a board of directors and a sizable
corporation both serve as common examples of corporations. At
least 500 people work for at least half of all corporations.
Sole proprietorship
This well-liked type of corporate structure is the simplest to set up.

In a sole proprietorship, the business and the owner are one and the
same, and the owner is the only one who makes business choices.
A solo proprietorship has several benefits, including:

Complete management of the company: As the only shareholder in
your company, you are in complete charge of all financial and
operational decisions.
No need for a public disclosure The federal or state governments
do not compel sole proprietorships to file yearly reports or other
financial statements.
simple tax filing Owners only need to submit the Schedule C
(Profit or Loss from Business) form to the IRS. No further specific
tax forms are required.

Your personal liability for all business debts and corporate
activities is unrestricted under this business structure.
Lack of structure: You run the risk of managing your money
carelessly because you are not compelled to keep financial records.
Raising capital can be challenging because investors tend to favour
lending to firms because they are confident in their solid financial
standing and other forms of security.
Cooperative
A cooperative, sometimes known as a co-op, is a privately owned
company, institution, or farm that is managed by a number of
people to achieve a shared objective. These business owners
collaborate to run the company, and they split profits and other
perks. The cooperative's members or part owners typically both
work for the company and utilise its services.
Among the benefits of a cooperative are:

Greater funding options: Depending on the type of cooperative,
grant programmes supported by the government, such as the
USDA Rural Development programme, are available to
cooperatives.
Democratic structure: Cooperative members adhere to the "one
member, one vote" principle, which states that everyone has a
voice regardless of how much money they have invested in the
cooperative.
Less disturbance: With cooperatives, members can join and leave
the company without causing any disruption to its operations or
dissolution of the company.
Capital raising: Since the cooperative structure treats all investors
equally, large and small, larger investors may decide to participate
in other business forms that allow them to earn a higher portion.
Lack of accountability: Because cooperatives have more
permissive rules regarding structure, members who don't fully
engage in or support the enterprise put others at a disadvantage and
run the danger of losing other members.
In the retail, service, production, and housing sectors, there are
numerous cooperatives. Credit unions, utility cooperatives,
housing cooperatives, and retail establishments that offer food and
agricultural products are a few examples of companies that operate
cooperatively.
Limited liability company

A limited liability corporation, or LLC, is the most typical type of
corporate structure for small firms. An LLC is regarded as a
separate legal entity and is allowed to have an unlimited number
of owners. They must have insurance in case of a lawsuit and are
often taxed as sole proprietorships. This type of business is a
hybrid of other types since it possesses traits of both a corporation
and a partnership, allowing for a more adaptable organisational
structure.
An LLC has a number of benefits, such as:
Limited liability: As implied by the name, owners and managers

are only partially liable for company obligations, as opposed to
complete liability in a sole proprietorship or partnership.
Several drawbacks are as follows:

Associated costs: Establishing an LLC entails annual fees in
addition to start-up expenditures that are higher than those of a sole
proprietorship or partnership.
Separate records: Unlike sole proprietorships, which are less
formal, LLC owners must take care to keep their personal and
business costs apart, including any corporate records.
Taxes: Owners might be responsible for covering their own

unemployment benefits.
Start-ups and other small businesses are typical instances of limited
liability firms. Due to the flexibility of the LLC business model,
which permits members to play either an active or passive role,
family-owned enterprises and organisations with a limited number

of members may choose to operate as one.
1.5 BUSINESS ENVIRONMENT
MEANING
For any successful business at any place on the globe, it is of utmost

importance to understand the environment within which the business has
to operate. Because the environmental factors influences almost every
aspect of business, be it its nature, its location, the prices of products, the
distribution system, or the personnel policies. The success and survival of
every business depends on its ability to adjust and adapt itself to the
environment within which it functions. For example, when there is a
change in the government policies, then the business has to make the
necessary changes to adapt it to the new policies.
Like a change in the fashion or customers taste may shift the demand in
the market for a particular product, e.g., the demand for jeans reduced the
sale of other traditional wear. When there is a change in technology, then
also the business has to make necessary up gradation to cope up with the
new advancement for its survival, as we have seen that the introduction of
computer has replaced the typewriters; the colour television has made the
black and white television out of fashion. All these aspects are external
factors that are beyond the control of the business. So it is essential for
business units to adapt themselves to these changes in order to survive and
succeed in business. Business can develop such ability after having a clear
understanding of business environment and the nature of its various
factors.
The term ‘business environment’ connotes all those factors, external

forces and institutions like customers, competitors, suppliers, government,
social factors, technological factors, political factors and legal factors, etc.
that are beyond the control of the business and they affect the functioning
of a business enterprise. These factors or forces may have direct or indirect
influence over the business firm.
Thus, business environment may be defined as the total surroundings,
which have a direct or indirect bearing on the functioning of business. It
may also be defined as the set of external factors, such as economic factors,
social factors, political and legal factors, demographic factors, and
technical factors etc., which are uncontrollable in nature and affects the
business decisions of a firm
1.5.1 CHARACTERISTICS OF A BUSINESS ENVIRONMENT
The characteristics of business environment are as follows:
(1) Totality of External Forces:
Business Environment is the summation of all those factors/forces that are

available outside the business and over which the business has no control.
It is the group of many such forces that is why, its nature is of totality.
(2) Specific and General Forces:
The forces present outside the business can be divided into two parts –
specific and general.
(i) Specific: These forces affect the firms of an industry separately, e.g.,
customers, suppliers, competitive firms, investors, etc.
(ii) General: These forces affect all the firms of an industry equally, e.g.,
social, political, legal and technical situations.
(3) Interrelatedness:
The different factors of business environment are co-related. For example,

let us suppose that there is a change in the import-export policy with the
coming of a new government.
In this case, the coming of new government to power and change in the
import-export policy are political and economic changes respectively.
Thus, a change in one factor affects the other factor.
(4) Dynamic Nature:
As is clear that environment is a mixture of many factors and changes in

some or the other factors continue to take place. Therefore, it is said that
business environment is dynamic.
(5) Uncertainty:
Nothing can be said with any amount of certainty about the factors of the
business environment because they continue to change quickly. The
professional people who determine the business strategy take into
consideration the likely changes beforehand.
But this is a risky job. For example, technical changes are very rapid.
Nobody can anticipate the possibility of these swift technical changes.
Anything can happen, anytime. The same is the situation of fashion.
(6) Complexity:
Environment comprises of many factors. All these factors are related to

each other. Therefore, their individual effect on the business cannot be
recognised. This is perhaps the reason which makes it difficult for the
business to face them.
(7) Multi-faceted:
Different kind of environmental changes and development is being

perceived differently by different organization based on their existing
resources, competitive advantage and capability to withstand the future
challenges. For example, Ayurveda is an opportunity for Indian herbal
companies while it is a threat for foreign cosmetic brands.
(8) Far-reaching impact:
Any change in an environment has a direct impact on organization in

different ways because an organization is critically dependent on the
environment in which it exists.
(9) Relativity:
Business environment is related to the local conditions and this is the

reason as to why the business environment happens to be different in
different countries and different even in the same country at different
places
1.5.2 SIGNIFICANCE
There is a close and continuous interaction between the business and its
environment that helps in strengthening the business firm and using its
resources more efficiently. The business environment is multifaceted,
complex, and dynamic in nature and has a far-reaching impact on the
survival and growth of the business. To be more specific, proper
understanding of the social, political, legal and economic environment
helps the business in the following ways:
Helps to understand the Dynamic Nature of Environment: Every day

environment is changing continuously. Like changes initiated by central
or state government which results in amendments of economic policies
and thus introduce new policies, so business needs to change.
Structure of Economy: A large portion of a business depends upon the

economy. While capitalistic economy supports such business which are in
the hands of capitalist and mixed economy supports both capital intensive
and labour intensive business.
Determining Opportunities and Threats: The interaction between the

business and its environment would help to identify opportunities and
threats that mayhelp the business enterprises for meeting the challenges
successfully.
Optimum Utilization of Resources: Optimum utilization of resources is

not possible without favourable business environment.
Market Conditions: Business environment provides information about

favourable or unfavourable market condition. New business start- up or
expansion decision are affected by such market condition and their
knowledge helps in improving such decisions.
Attitude of customers: Business produces goods and services on the basis

of demand and supply. The taste and preferences of the customers is
influenced by the Business environment that directly or indirectly affects
the demand and supply of a particular product. So business environment
helps to regulate the demand and supply decision.
Giving Direction for Growth: The interaction with the environment leads
to opening up new frontiers of growth for the business firms.
Continuous Learning: Environmental analysis makes the task of

managers easier in dealing with business challenges. The managers are
motivated to continuously update their knowledge, understanding and
skills to meet the predicted changes in realm of business.
Image Building: Environmental understanding helps the business

organizations in improving their image by showing their sensitivity to the
environment within which they are working. For example, in view of the
shortage of power, many companies had set up Captive Power Plants
(CPP) in their factories to meet their own requirement of power.
Meeting Competition: It helps the firms to analyse the competitors’

strategies and formulate their own strategies accordingly.
Identifying Firm’s Strength and Weakness: Business environment

helps to identify the individual strengths and weaknesses in view of the
technological and global developments.
1.6 TYPES OF BUSINESS ENVIRONMENT
Business Environment is broadly categorised into internal and

external environment.
Business
environment
Internal External
environment environment
Micro Macro
environment environment
Fig. 1.2 Types of Business Environment
Micro-Environment
Micro environment of business enterprise refers to analysis of small area

or immediate periphery which comprises of those forces of the business
organization that influence it’s functioning. The micro environmental
factors are intimately linked. Some of the micro factors may be particular
to a firm and it is not necessary that the micro forces affect all the firms in
a particular industry in the same way.
External Environment
Micro Environment Macro environment
✓ Suppliers ✓ Economic
✓ Customers ✓ Political
✓ Market ✓ Social and Cultural
Intermediaries ✓ Technological
✓ Competitor ✓ Legal
✓ Financiers ✓ Natural
✓ Public ✓ Financial
✓ Demography
✓ Global
Fig 1.3: External Environment

Micro Environment analyses the following important factors:
i. Human resource (Employees) of the firm, their

characteristics and how they are organized in the firm.
ii. It analyses the way fund is raised from the market.
iii. It analyses the suppliers of raw materials and the supply
chain network between the supplier and firm being
developed.
iv. It analyses the customer base of firm who are major and
minor clients of business.
v. It analyses the local communities of firm where it’s
operating.
vi. It analyses the direct competition from the competitors and
how they perform in business.
1.7 INTERNAL ENVIRONMENT
MEANING OF INTERNAL ENVIRONMENT- All the elements or

forces that have a more immediate impact on the day-to-day operations of
the firm are referred to as the internal environment of business. Customers,
suppliers, competitors, shareholders, financial institutions, and employees
make up the bulk of the internal environment.
The ethical principles that direct an organisation in attaining its mission

and goals are referred to as its value system. A business organization's
behaviour toward its employees, clients, and society at large is also
influenced by its value system. The choice of business and the adoption of
company policies and procedures are significantly influenced by the value
system of the business firm's promoters. A commercial entity may decline
to produce or distribute alcohol due to the moral wrongness it may believe
promoting alcohol usage to be.
1.7.1 VALUE SYSTEM
The ethical principles that direct an organisation in attaining its mission

and goals are referred to as its value system. A business organization's
behaviour toward its employees, clients, and society at large is also
influenced by its value system. The choice of business and the adoption of
company policies and procedures are significantly influenced by the value
system of the business firm's promoters. A commercial entity may decline
to produce or distribute alcohol due to the moral wrongness it may believe
promoting alcohol usage to be.
The success and reputation of a corporate organisation in the business

world are significantly influenced by its value system. For instance, J.R.D.
Tata, the founder of the Tata group of industries, believed that the
company has a moral obligation to pursue business practises that advance
the interests of customers, employees, shareholders, and society at large.
This J.R.D. Tata value system was freely included into the bylaws of
TISCO, a prestigious Tata enterprise.
The first national corporate governance award was given to Infosys

Technologies in 1999, and the company credits its success to the high
value framework that underpins its corporate culture. One of its reports
states, to quote, "Our corporate culture aims to fulfill our objectives in an
environment of justice, honesty, transparency, and kindness towards our
customers, employees, vendors, and society at large." Therefore, a
business firm's value system has a significant impact on its corporate
culture and dictates how it will behave toward its employees, shareholders,
and the general public.
Hence concerted behaviour of human capital of an organization is termed

as organization’s value or culture. The extent to which the culture of the
organization is shared by all, leads to an important factor contributing to
success.
For example when the Murugappa group has taken over the EID parry
group, one of the most profitable business of Parry group i.e. of liquor was
sold off as it was against the value system of Murugappa group. So, value
system is an important factor evaluated by many companies while
selecting the suppliers, distributors and collaborators etc.
1.7.2 Vision:
Vision means the ability to think about the future with imagination and
wisdom. It is an important factor in achieving the objectives of the
organization.
Vision is a corporate concept that is focused on the future. Forming a
strategic vision is a process of considering where a firm should go in order
to be successful.
A vision is a mental image of the organization's conceivable and ideal
future condition. A vision is a statement of the organization's aspirations
for the future – a destination. A vision can be described as a dream – a
faraway, long-term dream.
The vision of an organisation, sometimes known as the 'purpose of the
organisation,' is intended to explain the primary reason for the
organization's existence. Most companies' vision or mission is usually
expressed in one or two phrases in the form of a declaration called a vision
statement.
A vision statement is a declaration that describes why an organisation
exists. It gives the organisation a sense of direction. A vision is
organization-specific, meaning it is unique to a single organisation. It
aids in the development of a company's individual identity.
To achieve an effective statement, all stakeholders should be included in
the development of an organization's vision. To function as a
management tool for providing the firm with a feeling of direction, an
effective vision should have the following features.
• Graphic: The vision should depict an image that depicts the

company's future direction as well as its market position.
• Directional: It can give clear instructions to managers and staff
as well as paint a vision of the company's future.
• Targeted: It can help managers make more informed decisions
and allocate firm resources.
• Adaptable: It must be adaptable enough to allow for changes in
products, technology, or the market, as well as changes in the
vision itself, to keep up with changing circumstances.
• Realistic: It should convey a realistic expectation for the future,
rather than simply stating an expectation for the sake of stating
one.
• Desirable: It should be able to explain "why the chosen path is a
sound business decision.
• Easy to communicate: The vision must be written in such a way
that it is easily understood by all stakeholders, particularly
shareholders, employees, and customers.
Examples of Vision Statements:
Google: To organize the world’s information and make it universally

accessible and useful.
Tata Powers: To be the most admired and responsible Integrated Power
Company with international footprint, delivering sustainable value to all
stakeholders
1.7.3 Mission Statement:

An organization's mission statement reflects the core purpose of its
existence and what is their operations meant for. It highlights the core
competency of an organization and differentiate it from other
organizations of its type. The mission is the medium through which the
objectives are achieved.
A mission statement is not only text or content on the paper but
communicates organization’s beliefs and objectives. This declaration
should be a habit which provides guidance and motivation to the
employees of an organization. A mission statement is like an answer for,
“What are our beliefs?’, “What is our purpose?” This statement directs the
strategies of an organization by re-grouping its employees to work
collaboratively for common objectives.
The effectual mission statements will lead to constructive efforts. Business
Environment is very dynamic and consumer are conscious more about
quality products, so in such scenario efficacious mission statement's that
is meant for catering the expectation of consumers effectively is must. A
good mission statement is precise in identifying the following intents of a
company:
• Customers — who are end-users
• Products/services — types and features of products or services.
• Location — where the production will take place
• Philosophy — what will be underlying principles
Characteristics of a Good Mission Statement

There are three major characteristics of a good mission statement. They
are mentioned below:
1. In good mission statements, only a few goals are considered.

"The company strives to make the lowest-cost things, give state-
of-the-art service, distribute globally, and produce very high-
quality products," for example, is not a good mission statement.
Because a number of goals are centered here that are extremely
difficult, if not impossible, to achieve. A good mission will
concentrate on one or two, or a small number of feasible
objectives.
2. They place a strong emphasis on the company's major policies

and ideals. Different policies may be followed by a corporation in
different areas. It may have policies governing creditors,
borrowers, shareholders, and other stakeholders. By giving
consistent decisions, policies enable managers to save a
significant amount of time while deciding on various situations.
3. Companies compete in a variety of competitive environments,

and strong mission statements emphasize these.
Examples:
Google - From the beginning, our mission has been to organize the world’s
information and make it universally accessible and useful. Today, people
around the world turn to Search to find information, learn about topics of
interest, and make important decisions. We consider it a privilege to be
able to help. As technology continues to evolve, our commitment will
always be the same: helping everyone find the information they need.
1.7.4 Objectives:
Organizational objectives are the steps an organization needs to take to
meet its overall goals. Establishing them is the first task before
management designs policies and strategies and allocates organizational
resources. It gives them clear direction on what policies, strategies, and
actions to achieve them. Setting objectives not only involve upper
management, but it also involves lower management. It is then divided into
several levels, where the lower objective describes and specifies the upper
objective. In other words, they must be connected and mutually supportive.
Importance of Objectives:
Helping businesses to have a clear direction by setting out what they should
be in the future.
Mapping out what the company must do now and in the future to achieve
the target.
Allowing management to have priority to allocate resources appropriately,
ensuring they are properly routed to the final destination.
Assisting management in designing appropriate and detailed strategies and
action plans.
Controlling and reviewing whether the strategy is successful? And do the
business activities support the goals?
Evaluating the company’s strategy to keep it relevant to the business
environment.
1.7.5 Organizational structure
Organizational structure refers to details like the make-up of the board of

directors, the number of independent directors, the level of professional
management, and the shareholding distribution. An organization's
decision-making process is significantly influenced by its organizational
structure. A business organization must have a structure that facilitates
rapid decision-making in order to function effectively. Making decisions
slowly might cost a business firm a lot of money.
The highest-ranking decision-making body in a business organization is

the board of directors. It makes broad policy decisions on the firm's
business growth strategy and oversees how it operates generally.
Therefore, a commercial firm's ability to function and achieve its overall
goal and objectives depends greatly on the management skills of the board
of directors. It has been advised that the number of independent directors
be raised for the board of directors in India to operate effectively and
transparently. In India, family members of the promoters oversee a large
number of private corporate enterprises, which is not ideal for the effective
operation of these firms.
Therefore, increasing the level of professional management in private

corporate organizations is highly desirable. The share holding pattern has
significant management implications as well.
In some Indian corporations, the promoters of the company themselves

hold the bulk of the shares.
The public's shareholding distribution is fairly diverse in certain other

cases. Financial institutions in India, like UTI, LIC, GIC, IDBI, IFC, and
others, have significant shares in well-known Indian corporate enterprises,
and these institutions' nominees are crucial to the decisions these corporate
entities make over their primary business strategies. Technically, the
directors who make up the board of directors are chosen by shareholders.
The company's senior managers are then chosen by the directors to make
various business decisions. However, the majority of shareholders either
abstain from voting or assign their rights to the management.
1.7.6 Organizational Resources
A key element of a company's internal environment is the caliber of its

human resources, or personnel. The knowledge, abilities, attitudes, and
dedication of a business organization's personnel play a significant role in
its success. Employees vary in relation to these qualities. Direct
communication with every employee of the company presents challenges
for the top management. Therefore, personnel are classified into various
groups for effective administration of human resources. In the best
interests of a corporation, the manager may pay little attention to the
specifics of the work performed by a group and instead promote group
cooperation. Today, managers can take a special course on how to recruit
and manage human resources effectively because of how crucial they are
to a company's success.
Physical Resources and Technological Capabilities
Physical Resources
A company's technological capabilities and physical resources, such as its

plant and equipment, determine its competitive strength, which is a crucial
component in determining its productivity and unit cost of production. A
company's capacity for research and development determines its capacity
for introducing innovations that increase worker productivity. However,
it's crucial to remember that recent years have seen an unparalleled rise in
information technology, which has raised the importance of intellectual
capital and human resources relative to a company's physical assets. The
development of Murthy's Infosys Technologies and the Bill Gates
Microsoft Company is mostly attributable to intellectual capital and
human resource quality rather than any superior physical resources.
1.7.7 COMPANY IMAGE
The image of the company helps in raising finance, choosing dealers and
suppliers, launching new products, soliciting marketing intermediaries,
forming joint ventures and other alliance and entering a sale or purchase
contract, etc.
1.7.8 BRAND EQUITY
Brand equity is the worth of having a recognisable and well-recognized

brand as well as the level of influence a brand name has over consumers'
minds. Companies build brand equity by offering customers satisfying
experiences that encourage them to stick with them instead of switching
to competitors who provide comparable goods. Brand equity is often
developed by awareness-raising initiatives that appeal to the values of the
target consumer, fulfilling promises and qualifications when customers
use the product, and loyalty and retention initiatives.
Customers are more likely to stick with your brand rather than switching
to a competitor if you provide loyalty rewards like points that can be
redeemed for discounts or a free product on their birthday. Two of brand
equity's fundamental principles are awareness and experience:
• Brand Recognition: Can customers quickly recognize your brand? Your

brand's messaging and graphics should be consistent so that customers can
always recognize it, even for a new product. What values do customers
connect the brand with? Maybe they consider things like quality,
sustainability, or family-friendliness. Favourable brand equity is greatly
influenced by positive brand awareness.
• Brand Experience: What have actual interactions with your brand been
like? This could imply that the product worked as intended, that
interactions with brand ambassadors and customer service employees
were cordial and helpful, and that loyalty programs were beneficial.
OTHER FACTORS:
Belief system of management is the manager's set of personal notions and
values about people and work and as such, is something that the manager
can dominate. According to McGregor, who emphasized that a manager's
ideology creates a self‐fulfilling prediction, which leads to two types of
managers. The Theory X managers assumes employees as one who are not
interested in their work naturally and need proper command for execution
of task, while Theory Y managers assumes employees are responsible and
self – motivated for their work so participative style of management is
adopted. These managerial beliefs then have a succeeding result on
employee behaviour, leading to more precise anticipation. As a result,
there is always modulation need to be maintained between organizational
philosophies and managerial philosophies.
Empowerment means assigning the authority of decision‐making to

subordinates, that inculcates responsibility and confidence. Most of
organizations and managers are adopting participative style of
management that encourages engagement and team work. Additionally,
element of guidance helps to increase the efficacy of the employees and
thus contributing in cost reduction, quality improvement, better customer
service and strong employee’s commitment. Also, there will be
considerable upgradation in response time as proper information is shared
among different levels of management efficiently. Empowerment helps to
resolve issue immediately as employees close to situation like machine
breakdown in floor shop can immediately respond and resolve the issue
than the manager who might be not present in that vicinity.
Competency of an organization is also influenced by the production
capability, technology, R & D work, supply chain and logistics etc.
1.8 EXTERNAL ENVIRONMENT
The most important performers in the micro environment are as follows:
1.8.1 Firm
Just like human beings, business enterprises do not exist in isolation. Each
business firm is not an island unto itself; it exists, survives and grows
within the context of the element and forces of its environment. While an
individual firm is able to do little to change or control these forces, it has
no alternative to responding or adapting according to them. A good
understanding of environment by business managers enables them not
only to identify and evaluate, but also to react to the forces external to their
firms.
1.8.2 Customers
In today’s scenario, Customer is a King and central point for any business
as they influence business survival and success. All customers expect high
quality products, speedy deliveries, comfortable return and exchange
policies, offers and after sales service, proper 24 × 7 customer support
which has drastically changed the business environment. Success of
business largely depends on identifying the needs, desires, tastes liking
etc. of a customer.
Now days, online shopping portal has gained popularity in the Indian
market which has opened new market for the Indian companies. It has not
only created an opportunity for new companies but threat to existing
shopping malls and retailers. Portals like Flipchart, Snapdeal, Myntra, etc.
are taking advantage of this new shift in the customer’s lifestyle of
purchasing goods from home i.e. through online websites
1.8.3 Suppliers and Distributors
Business enterprises require a number of suppliers, who supply raw

materials and components to the company. Uncertainty regarding the
supply, dependence on a single supplier and supplier’s terms and
conditions has an adverse effect on the cost and production. Because of
this, vertical integration, supply management, outsourcing, partnering and
relationship marketing has geared popularity in the recent times.
Company like Nirma has opted for backward integration because they
believe that the captive production plants for the raw materials are the best
way to keep a check on the production cost.
1.8.4 Competitors
An opponent is a simple synonym for the competitor. Any business
activities that produce same kind of products and services are in direct
competition and other firms which are in production of other products and
services are indirect competition. Example a laptop manufacturing firm
faces direct competition from other laptop manufacturing firms and
indirect competition from mobile manufacturers, tablet manufacturers,
smart TV’s manufacturers, etc.
A firm also faces desire competition i.e. when customer has many choices
for investing his income. In other words, when there is competition among
such alternatives which satisfy a particular category of desire and it is very
high in the countries with limited disposable incomes and many
unsatisfied desires. A firm can face such competition from all those firms
who compete for discretionary income of the consumers. For example the
competition for a laptop manufacturer may not only come from other
laptop manufacturers but also from two wheelers, refrigerators, cooking
ranges, firms offering saving and investment schemes like deposits and
issuing shares or debentures, etc.
If the consumer decides to go in for a laptop, the next query is which type
of laptop like with long batteries, advanced graphics and flexible laptop
cum tablet and such competition is known as product form competition.
Brand Competition is the competition between the different brands of the
same product form. Thus, activities of a business adjust according to the
actions and reactions of competitors.
1.8.5 Public:
Any group that has actual or potential interest in or impact on the
organization’s ability to achieve its interests is called as a public. Some
media public can seriously has an adverse or good impact on company’s
brand image, market shares and profit. Like McDonald in India is facing
a media’s adverse impact on their image currently as one of the
McDonald’s outlets has treated the poor kid badly when he asked for food.
Such exposures or campaigns by the media might even influence the
government decisions affecting the company.
Many companies have undergone drastic change in their operation because

of the local public awareness about the environmental pollution, child
labour, cruelty against animals, etc. Like many cosmetic companies have
stopped testing their products on animals because awareness has been
spread by NGO’s regarding the same among local public.
Public is not only being assumed to be threat for businesses but also
regarded as an opportunity as well. Like some companies use media public
to disseminate useful information.
1. Mention the various dimensions of business environment
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2. How would you characterise business environment? Explain with

examples, the difference between general and specific environment.
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3.. Write down the importance of business enviromnent
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1.7 LET US SUM UP
1. Business environment refers to “the total of all things external to firms

and industries which affect their organisation and operation.
2. Different elements of business environment are closely inter-
related and interdependent.
3. It is complex in the sense that it is very difficult to know the exact
influence of a particular factor on the entity.
4. A change in one element affects the other elements. Economic

environment influences the non-economic environment which in
turn affects the economic conditions.
5. The survival and success of any enterprise depends upon its inherent
capabilities (physical, financial, human and other resources) and its
ability to adapt to the changing environment. It is very important for
business firms to understand their environment and changes
occurring in it.
6. Business enterprises which know their environment and are ready

to adapt to environmental changes would be successful.
1.8 KEY WORDS
1. Business: Business refers to an enterprising entity or organization that

carries out professional activities. They can be commercial, industrial, or
others.
2. Business Environment: is the external and internal factors that impact

business operations position.
3.Internal Environment: consists of the factors that are under the control
of the company.
4. Organizational Structure: contains the hierarchical structure of the

business. With this factor, you can easily identify the role of each
employee and management
5. External environment: The external environment represents the

various factors outside the company’s control.
1.9 ANSWER TO CHECK YOUR PROGRESS
1. Answer to check your progress- 1 Q. 1 … The term ‘business

environment’ means the sum total of all individuals, institutions
and other forces that are outside the control of a business enterprise
but that may affect its performance. The economic, social,
political, technological and other forces, which operate outside the
business enterprise are part of its environment.
2. Answer to check your progress- 1 Q. 2 … It is important for
business organisations to understand their environment because of
the following reasons.
(i) It Enables the Firm to Identify Opportunities and Getting the First
Mover Advantage Environment provide numerous opportunities for
business. Early identification of opportunities helps an enterprise to
use it before instead of losing them to competitors.
(ii) It Helps the Firm to Identify Threats and Early Warning Signals
Environmental awareness can help managers to identify various
threats on time and serve as an early warning signals.
(iii) It Helps in Tapping Useful Resources Environment is a source of
various resources for running a business. To engage in any type of
activity, a business enterprise assembles various resources called
inputs. This can be done better by understanding what the environment
has to offer.
(iv) It Helps in Coping with Rapid Changes All types of enterprises
facing increasingly dynamic environment. In order to effectively cope
with these significant changes, managers must understand and
examine the environment and develop suitable courses of action.
(v) It Helps in Assisting in Planning and Policy Formulation Since

environment is the source of opportunities and threats, its
understanding and analysis becomes the base for various policies to be
framed and strategies to be made.
(vi) It Helps in Improving Performance The enterprises that
continuously monitor their environment and adopt suitable business
practices are the ones, which not only improve their present
performance but also continue to succeed in the market for a longer
period.
3. Answer to check your progress- 1 Q. 3 … Business environment is
dynamic as it keeps on changing. It is not static and its components
are highly flexible, e.g. technological improvements, increase in
competition, etc.
4. Refer 2 for Answer to check your progress- 2 Q. 1 … Economic
Environment Interest rates, inflation rates, value of rupee and many
more are the economic factors that can affect management
practices in a business enterprise.
(ii) Social Environment The social environment of business includes
the social forces like customs and traditions, values, social trends etc.
(iii) Technological Environment This includes forces relating to
scientific improvements and innovations, which provide new ways of
producing goods and services and new methods and techniques of
operating a business.
(iv) Political Environment This includes political conditions such as
general stability and peace in the country and specific attitudes that
elected government representatives hold towards business.
(v) Legal Environment This includes various legislations passed by
government authorities and court judgements. It is important for the
management of every enterprise to obey the law of land and for this,
enough of knowledge of rules, and regulations framed by the
government is a pre-requisite for better performance.
5. Refer 2 for Answer to check your progress- 2 Q. 2 Features of
business environment
(i) Totality of External Forces Business environment is aggregative in
nature as it is the sum total of all things external to business firms.
(ii) Inter-relatedness Different elements of business environment are
closely related to each other, e.g., increased awareness of health care
have increased the demand for many health products.
(iii) Dynamic Nature The business environment is highly dynamic. It
keeps on changing. Sometimes there is a change in technology, tastes
and preference of consumer etc.
(iv) Uncertainty The environment cannot be predicted. It is highly
uncertain and unpredictable.
(v) Complexity Since there are many elements of business.
Environment and they are inter-related and dynamic in nature.
Therefore, it becomes very difficult to understand them as a whole.
Difference between Specific and General Environment There are two
types of forces operating in business environment specific and general.
Specific forces affect the individual enterprises directly and
immediately, e.g., customers, suppliers.
General forces affect the firms and only indirectly e.g., social
conditions or political conditions.
6. Refer 2 for Answer to check your progress- 2 Q. 3 Determining

Opportunities and Threats: The interaction between the business and
its environment would help to identify opportunities and threats that
mayhelp the business enterprises for meeting the challenges
successfully.
Optimum Utilization of Resources: Optimum utilization of resources

is not possible without favourable business environment.
Market Conditions: Business environment provides information about

favourable or unfavourable market condition. New business start- up
or expansion decision are affected by such market condition and their
knowledge helps in improving such decisions.
Attitude of customers: Business produces goods and services on the

basis of demand and supply. The taste and preferences of the
customers is influenced by the Business environment that directly or
indirectly affects the demand and supply of a particular product. So
business environment helps to regulate the demand and supply

decision.
Giving Direction for Growth: The interaction with the environment

leads to opening up new frontiers of growth for the business firms.
Continuous Learning: Environmental analysis makes the task of

managers easier in dealing with business challenges. The managers are
motivated to continuously update their knowledge, understanding and
skills to meet the predicted changes in realm of business.
Image Building: Environmental understanding helps the business

organizations in improving their image by showing their sensitivity to
the environment within which they are working. For example, in view
of the shortage of power, many companies had set up Captive Power
Plants (CPP) in their factories to meet their own requirement of power.
Meeting Competition: It helps the firms to analyse the competitors’

strategies and formulate their own strategies accordingly.
Identifying Firm’s Strength and Weakness: Business environment

helps to identify the individual strengths and weaknesses in view of
the technological and global developments.
1.10 SOME USEFUL BOOKS
1. Environmental Studies, M.P. Poonia & S.C. Sharma, Khanna Publishin

g House, Delhi.
2. Business Environment: Test and Cases, Paul, McGraw Hill Education,
3rd Ed.
3. Business Environment - Francis Cherunilam, Himalaya Publishing H
ouse.
4. V. Neelamegam - Business Environment, Vrinda Publications , 2nd E
dition.
6. International Business Environment Ian Brooks, Jamie Weathersto
m and Graham Wilkinson.
7. Dr. Rimpi, A Textbook of Environment Sciences, Khanna Publishing
House
1.11 TERMINAL QUESTIONS
1. Define Business Environment

2. Explain the nature and scope of business environment
3. Highlight the features of business environment
4. Explain the concept of sole proprietorship
5. Distinguish between internal and external environment
UNIT–2
ECONOMIC, POLITICAL AND LEGAL EN
VIRONMENT
STRUCTURE
2.0 Objectives
2.1 Introduction
2.2 Role of government in Business
2.3 Legal framework in India
2.4 Economic environment- economic
system and economic policies
2.5 Concept of Capitalism
2.6 Socialism and Mixed Economy
2.7 Impact ofbusiness on Private sector
2.8 Impact ofbusiness on Public sector
2.9 Impact ofbusiness on Joint sector
2.9 Let Us Sum Up
2.10 Key Words
2.0 OBJECTIVES
1. To understand the importance of economic environment on business

2. To understand various types o f economies prevailing around the globe
3. To understand the political environment of business
4. To understand the legal complications of business
2.1 INTRODUCTION
The idea of laissez-faire predominated during the seventeenth and

eighteenth centuries, as well as in the early nineteenth century, where the
function of the government in the area of
There was essentially no business. Only law and order were to be handled
by the government. However, over time, this philosophy began to lose
ground, and the main form of state capitalism emerged. Under state
capitalism, control of the economy remains with the government, which
also has the duty to manage, oversee, and regulate the economy in the
broader interests of society. However, it soon became clear that neither of
the two extremes served the interests of economic growth.
In actuality, no nation in the world can claim to be either capitalist or
entirely socialism. The current so-called capitalist economies are actually
"mixed economies," with a third or a fourth of the economy controlled by
the government. Similar to this, the private sector owns one-fourth or one-
fifth of the economy in so-called socialist countries. The fact is that many
types and levels of government participation and control exist. The
existence of public, commercial, nonprofit, and cooperative sectors
together defines India's mixed economy. The mixture's composition is
dynamic and determined by a number of variables.
2.2 ROLE OF GOVERNMENT IN BUSINESS
The government's involvement in the broader commercial and economic

environment has been rapidly evolving. The traditional function of any
government has been to uphold law and order, defend the nation against
foreign invasion, offer social security, and encourage the manufacturing
of defense products and exert control over public utilities. These positions
were involved in the process of giving the business the fundamental
infrastructure it needs to maintain a productive internal environment.
But over time, a number of things happened that significantly altered this
conventional role. The Russian Revolution of 1917, the Great Depression
of 1929, the Second World War, and the emphasis on planned economic
development are some of the significant events that helped give rise to the
notion that business should be socially accountable and for the benefit of
all stakeholders.
The government was charged with the duty of ensuring that the enterprise
discharged its social responsibilities. The government's previously passive
role in the corporate world was changed into an active one in order to fulfill
this function.
The primary goal was to sustain and accelerate the rate of economic
development while balancing social justice. This active engagement does
not imply that the state is completely taking over the enterprise.
Since the government's function has changed from conducting business
directly to ensuring that it is conducted ethically, the role now has four
dimensions: regulatory, promotional, entrepreneurial, and planning. The
four jobs' guiding principles are founded on the idea that constitutional
planning should be used to balance economic development while ensuring
the development of public utilities and infrastructure.
In addition to playing these four functions, the state also gets involved by
directly assisting businesses and industries. International rivalry, the
financial crisis, and technical difficulties make this aid necessary.
Protection, financial support, technical aid, support for R&D, industrial
training, and tax advantages are all examples of direct assistance.
2.3 LEGAL FRAMEWORK IN INDIA
The main goals of business regulation are to prevent monopolistic market

structures, support the growth of small and new businesses, and advance
the welfare of the most vulnerable groups in society.
The government's regulatory duty entails controlling the nation's corporate
and economic activity. Regulation is the act of leading with the intention
of promoting business activity. It comprises restrictions that allow the
government to establish broad norms and standards. This could be
achieved by placing restrictions on the earnings of public utilities, capping
dividends, and imposing an excess profit tax. Regulation also controls the
excessive concentration of economic power in a small number of hands
and the concentration of enterprise in a small number of geographic areas.
Additionally, it seeks to resolve disputes between management and labour.
Overall, legislation aims to reorient the industry such that advancements

are consistent with social fairness. Two safeguards are needed while
controlling business. First, there shouldn't be too much legal restriction,
and second, it should be implemented well. Regulation might not succeed
in boosting economic development and growth if these two precautions
are not taken.
Both direct and indirect government regulation of business is possible.
Direct restrictions are extreme in character and arbitrary in what they
contain. Government may, at its option, exert direct control over business
at the micro level between different firms or industries. The basic defence
of direct controls is that they are necessary to support economic, political,
and historical philosophy since private enterprise has flaws in terms of
social justice. For instance, the argument for the industrial licensing
system is that it needs to be properly regulated because the market
mechanism fails to allocate the limited resources for the societal optimum.
At the macro level, indirect controls are implemented through financial
and fiscal incentives, disincentives, fines, and rewards. A variety of fiscal
and monetary incentives may be offered to promote export-oriented
industries. To reduce the amount of imports, a similarly high import duty
may be imposed.
Only if regulatory supervision is both effective and not overbearing will it
be able to accomplish its goal. As an example, the following methods of
regulatory control are used in India:
i) The Industries (Development and Regulation) Act of 1951: This law's

principal goals are to encourage industry development and provide for its
regulation. Through this Act-
• available resources are used effectively,
• economic power concentration is controlled,
• resources are allocated effectively and
• emerging industries are provided incentives.
This Act's provisions can be broadly divided into three categories:

A) Prohibitive clauses requiring licence and registration and regulating

scheduled industries;
B) Curative clauses allowing for direct management and control by the
government and regulating the supply and distribution system as well as
prices;
C) Positive measures such as the formation of central advisory boards,
review subcommittees, permanent committees, development boards, and
industry advisory groups.
ii) The Industrial Licensing System: This system intends to limit the
establishment of new industries and boost the productivity of already-
existing ones. The regulations of this system have been simplified and
liberalised in various ways since 1980.
iii) Control over capital issues: The 1947 Capital Issue (Control) Act
established the controller's permission for capital issues. This was offered
in an effort to allocate capital in the appropriate directions. However, this
restriction was significantly loosened between 1991–1992. The Indian
Securities and Investment Board is now responsible for capital control
provisions.
iv) Price Control: To safeguard the interests of consumers, the federal
government and numerous state governments control prices.
v) Distribution Mechanism: The Essential Commodities Act and Public

Distribution System control and regulate how everyday requirements are
distributed (PDS).
vi) The Securities Contract (Regulation) Act, which has been in effect
since 1956, attempts to regulate company stock and debt obligations. This
regulates various stock exchanges' operations as well. The government
established the Over The Counter Exchange of India (OTCEI) and
National Stock Exchange in addition to the 25 stock exchanges that existed
up until 1995. (NSE)
vii) Monopolies and Restrictive Trade Practices Act, 1969: Its main goals
were to control unfair, monopolistic, and restrictive trade practises that are
detrimental to the public interest and to prevent the consolidation of
economic power to the detriment of all parties. Significant amendments to
this law were made in 1982, 1984, 1985, and 1991.
viii) The primary goal of the Foreign Exchange Regulation Act (FERA),
1973, was to regulate foreign exchange.
ix) Control and Promotion of International Trade: India's foreign trade
policy is reflected in the Export and Import Policy (EXIM Policy). The
Foreign Trade (Development and Regulation) Act of 1992's regulatory
framework serves as the primary vehicle for implementing the policy.
x) Industrial Policy: Industrial Policies were first introduced in India in

1948, 1956, 1973, 1977, 1980, 1990 and 1991. Various announcements
are made through these policies on the development of industries in the
public and private sectors, joint sector, cooperative sector, small-scale
sector.
xi) Regulation of Companies: The 1956 Companies Act controls and
regulates the issuance of capital, dividend distribution, loans and
advances, share capital, and other business concerns to protect the interests
of shareholders and creditors.
xii) Labour Affairs: The government has also taken a number of legal
precautions to protect and stop the exploitation of labour. The Factories
Act of 1948, the Workmen's Compensation Act of 1923, and the
Employees' Provident Fund Act of 1952 , Payment of Minimum Wages
Act 1948, Maternity Benefit Act 1961, Payment of Bonus Act 1975.
2.4 ECONOMIC ENVIRONMENT- SYSTEM AND POLICIES
Economy's Characteristics
The general state of the economy has a great deal of effects on business,
including the quantity and character of demand, business-related
government legislation,inclusion in the global economy, etc.
A country's level and pattern of economic development can vary greatly,
as can the economic development of different regions within a country.
Organization of the Economy

The economy's structure, including aspects like the contributions of
primary (primarily agricultural), secondary (industrial), and tertiary
(services) sectors, as well as large, medium, and small businesses.The
possibilities for various business kinds, specific elements that affect the
business, etc., are indicated by these factors, making it crucial for business
to understand these little sections of the economy and their connections,
etc. An economy will be immediately impacted by changes in the global
economy, for instance, if it is heavily integrated with it.
Typically, as an economy grows, the primary sector's contribution to GDP
and employment decreases while those of the other sectors rise. The
manufacturing sector's proportion may start to drop after a certain point.
The service sector is the largest and is expanding at the fastest rate in the
majority of the countries. Today, the services sector accounts for more
than 60% of global GDP.
Insofar as the service sector is concerned, developed economies are
essentially service economies.
generates the majority of the income and employment. Particularly in the

developed economies, services make up a sizable portion of GDP and
employment.
Although services make up a smaller portion of GDP in developing
countries than in industrialized ones, the service industry has expanded
quickly there.
Each sector's nature has effects on business. For instance, although though
India is one of the world's top producers of a number of agricultural goods,
it is challenging to gather and process the produce effectively due to the
small and dispersed land holdings. It is also challenging to increase
productivity because of the land ownership pattern.
Economic Strategies
Numerous economic initiatives have the potential to significantly affect
company.
Industrial, trade, and foreign exchange policies are all crucial economic
policies,fiscal, foreign investment, monetary, and technology policies.
It goes without saying that the government's economic strategy greatly
affects business.
Government policy has a positive or negative impact on different types or
categories of business, while having no effect on others. For instance, a
policy that restricts imports or that protects domestic industries may
considerably assist industries that compete with imports, but a policy that
liberalizes imports may make it more difficult for such companies to
compete.
Similar to this, a business that is deemed necessary by the government may
face challenges, whereas an industry that is prioritized in terms of
government policy may get a variety of subsidies and other supportive
measures.
The participation of huge industrial houses and foreign concerns was

restricted in India due to the government's worries about the concentration
of economic power to the core sector, the heavy investment sector, the
export sector, and underdeveloped areas. Nevertheless, the environment
underwent a significant transformation as a result of the economic
liberalization that began in 1991.
Industrial Policy: Industrial policy can even specify the scope and function
of various sectors, such as large, medium, small, and very small businesses
as well as the public, private, joint, and cooperative ones. It may have an
impact on the location of industrial facilities, the technology used, the size
of the operation, the mix of products, and more.
Prior to the liberalization that began in 1991, the private sector in India,
and large businesses in particular, had a relatively little window of
opportunity. However, the new policy that went into effect in July 1991
has drastically changed the business environment by widening access for
the private sector to all but a few industries. Government regulation
imposed significant restrictions on the portfolio and growth strategies of
businesses during the pre-liberalization era.
The business opportunities have greatly increased as a result of
liberalization. At the same time, technology has significantly boosted
competitiveness, tending to establish survival of the fittest as the norm.
While many businesses started new ventures, many also shut down some
of their existing ones not able to compete in the new setting. Many
businesses have carried out both.
Trade Policy: The success of businesses can be strongly impacted by trade
policy. For instance, a policy that restricts imports or that protects
domestic industries may be very beneficial to import-competing sectors,
but a strategy that liberalizes imports may be problematic for such
industries.
Trade policy is, often, integrated with the industrial policy. As part of the
economic liberalisation and WTO compliance, India has very substantially
liberalised imports. Domestic firms now face increasing competition from
imports. In other words, they face a growing international competition in
the domestic turf. This implies that in many cases Indian firms which do
not come up to the international standards – in quality, cost, marketing,
after-sales service etc. – will not be able to survive. And a firm which
effectively fights foreign competition in the home market may be
provoked to think ‘Why not compete with foreign firms in the foreign
markets?’ Liberalisation of imports facilitate global sourcing and this
could help many Indian firms to become more competitive.
Foreign exchange: For businesses, exchange rate policies and policies

governing the transfer of capital across international borders are crucial.
Since the late 1970s, when exchange controls were abolished or liberalized
throughout the world, there has been an increased flow of capital across
borders.
Fiscal and Monetary Policies

The firm is also impacted differently by monetary and fiscal policies due
to the incentives and disincentives they provide as well as their neutrality.
The taxation policy may have varying effects on various enterprises. It is
anticipated that the implementation of the Goods and Services Tax (GST)
will contribute to India's economic unification of India.
The Reserve Bank of India's Monetary Policy plays a significant part in

controlling investment and price movements.
The cyclical fluctuations in the economy have an impact on business
prospects as well. Financial and The cyclical swings can be managed
through budgetary strategies.
Economic Systems
The character of the political/economic system, which is an important
factor, determines the scope of private enterprise and the degree of
government regulation of economic activities.
The business environment is a significant component. The general
characteristics of the broadly distinctive economic systems are outlined in
this section.
1. What economic changes were initiated by the Government under

the Industrial Policy, 1991? What impact have these changes made on
business
.....................................................................................................................
.....................................................................................................................
2. What are the essential features of

(a) Liberalisation
(b) Privatisation
(c) Globalisation
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3.. What challenges Indian Corporates have to face due to changes in
government policy
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2.5 CONCEPT OF CAPITALISM
Capitalism is an economic system characterised by private ownership and

utilisation of productive resources, individual freedom to make production
and consumption decisions, and minimal state regulation. The capitalist
system is also known as free enterprise economy and market economy.
Two types of capitalism may be distinguished, viz., (i) the old, laissez-
faire capitalism where government intervention in the economy is absent
or negligible, and (ii) the modern, regulated or mixed capitalism where
there is a substantial amount of government intervention. The old
capitalism was a laissez-faire system. The doctrine of laissez-faire which
was developed in the late seventeenth and early eighteenth centuries held
that the government should limit itself to the maintenance of law and order
and that the State interference in the economy should be kept to a
minimum. Adam Smith and his followers argued that a laissez-faire policy
would promote individual freedom, the best use of economic resources
and economic growth. The doctrine reached its popular heights in the late
nineteenth century, but lost its influence thereafter as the demand for
government intervention grew.
Features The principal characteristics of a ‘pure’ capitalist system are
the following:
Private Ownership: In a capitalist economy, the factors of production like
land, labour and capital are privately owned and production occurs at
private initiative. Individuals have their property rights protected and are
usually free to use their property as they like as long as they do not infringe
on the legal property rights of others. Private property, however, is
protected, controlled and enforced by law.
Free Enterprise: Free enterprise, an essential feature of the capitalist
system, is merely an extension of the concept of property rights. The term
free enterprise implies that private firms are allowed to obtain resources,
to organise production and to sell the result and product in any way, the
firm chooses. In other words, there will not be any government or other
artificial restrictions on the freedom and ability of private individuals to
carry out any business.
Consumer Sovereignty: Consumers’ sovereignty is at its best in the
capitalist system where consumers have complete freedom of choice of
consumption. The production decisions in the free market economy are
based on the consumer desires which are reflected in the demand pattern.
It is often said that “under capitalism, the consumer is the king.”
Freedom of Choice of Occupation: In a capitalist economy, the individual

is free to choose any occupation he is qualified for. This freedom of choice
enables the workers to make the best possible bargain for his labour. This
implies that the employers have to competitively bid for labour. Freedom
of occupational choice, however, does not mean guarantee of the job a
worker opts for; the choice is practically limited by the extent of
availability of the job.
Freedom to Save and Invest: The freedom to save is implied in the
freedom of consumption as savings depend on income and consumption.
Saving implies sacrifice of consumption. As George Halm observes, “the
right to save is supported by the right to transmit wealth, so that the choice
between present and future consumption is not limited to the adult life of
one person. The freedom to save, inherit and accumulate wealth is
therefore a right which is perhaps more typical for the private enterprise
system than is free choice of consumption and occupation.”
Market System : The ‘market mechanism’ is the key factor that regulates
the capitalist economy. A market economy is one in which buyers and
sellers express their opinions through how much they are willing to pay
for or how much they demand of goods and services. Prices guide purchase
decisions of the consumers. At the same time, while they decide to buy or
not to buy a product, the consumers are voting for or against the product
using their money. Thus, the market prices, which reflect the desires of
millions of consumers, provide guidance to the investors and other
business persons. Hence, the market system, also called the price system,
may be regarded as the organising force in a capitalist economy.
Competition: Competition among the sellers and the buyers is an essential
feature of the ideal capitalist system. Competition reduces market
imperfections and associated problems. Therefore, in a free market
economy, a sufficient amount of competition is considered necessary if the
whole production and distribution process is to be regulated by market
forces. Competition is necessary in a private enterprise economy to keep
initiative constantly on alert, to protect the consumer, and to maintain a
sufficiently flexible price system.
Absence of Central Plan: As is clear from the features mentioned above,
the capitalist system is essentially characterised by the absence of a central
plan, i.e., the activities of the numerous economic units in a capitalist
system are not guided, co-ordinated or controlled by a central plan.
Freedom of enterprise, occupation and property rights rule out the
possibility of a central plan. Resource allocation and investment decisions
in a free market economy are influenced by the ‘market forces’, not by the
State.
Limited Role of Government: Absence of a central plan does not mean
that the Government has no role in a private enterprise economy. Indeed,
Government intervention is necessary to ensure some of the essential
features and smooth functioning of the capitalist system. For example,
government interference is necessary to define and protect property rights,
ensure freedom of entry and exit, enforce the contractual agreements
among private entrepreneurs, to satisfy certain community wants etc.
However, the Government interference in the system is comparatively
very limited.
Evaluation of Capitalism
Pure capitalism is an idealised system. It is very difficult to realise the
avowed virtues of the free enterprise economy in the real world.
Merits
1. Freedom of enterprise
2. Encourages initiative and entrepreneurship
3. Encourages R&D and innovation
4. Encourages fast economic development
Demerits
There is no ‘invisible hand’ that ensures the smooth functioning of the
capitalist system.
Unregulated capitalism has certain drawbacks.
1. As investment allocation is guided by the profitability criterion,
sufficient investment may not take place in areas where profitability is
low, however essential they may be. Profitability would be generally high
in sectors which cater to the need of the upper income strata. Hence, a
large part of the resources of the nation may be utilised for satisfying the
needs of the well-to-do. Thus, resource allocation under pure capitalism
will not be optimal.
2. Right to property and freedom of enterprise are likely to lead to
concentration of income and wealth, and the widening of interpersonal
income disparities.
3. Though according to the theory, there will be free competition, in the
real world, the large firms are likely to gain advantageous position
eventually leading to monopolies.
Because of such defects of the pure capitalism, the modern capitalist

economies are ‘regulated’ systems. In such regulated capitalist economies,
not only that the State regulates the private enterprise but also there may
be State enterprises either to supplement the activities of the private
enterprises or to offer an effective competition to the private sector. There
may even be State monopolies in certain sectors. The modern capitalist
economies which are indeed mixed economies regulated by the State are
regarded as ideal systems by many people because they combine the
positive aspects of the free enterprise system, and State participation and
regulation.
2.6 SOCIALISM AND MIXED ECONOMY

Within the wide spectrum of socialism, there is indeed a variety of

systems. On the one end, there are the communist countries characterised
by State capitalism, and on the other end, there are the democratic socialist
nations with dominant private sector. It is, therefore, very difficult to
clearly define the Socialist system. Socialism, however, is generally
understood as an economic system where the means of production are
either owned or controlled by the State and where the resource allocation,
investment pattern, consumption income distribution etc. are directed and
regulated by the State.
Features
The salient features of a socialist system are the following:
Government Ownership/Control: In the socialist countries, the major
means of production are either owned by the Government or their use is
controlled by the Government. In the communist countries, like the USSR
and China, the means of production are mostly owned by the State. In
some of the socialist economies, the private sector also plays a very
important role. In such cases, the government directs and regulates
investment allocation and production pattern in accordance with the
national priorities. In some countries, such as India, some of the basic
sectors, including major part of the institutional finance, have been in the
public sector so that the resource allocation and investment pattern of the
private sector could have been regulated by regulating the flow of the basic
inputs in the private sector. When the State owns almost the whole of the
means of production, it is much more easy to achieve the desired pattern
resource allocation. State Capitalism, of course, has its own defects.
Central Authority: The socialist economies generally have a central
authority like the central planning agency to formulate the national plan
for development and to direct resource mobilisation, allocation and
investment to achieve the plan targets. Socialist economies are sometimes
called Command Economies because the central planning authority
commands the pattern of resource utilisation and development. They are
also called Centrally Planned Economies. Centrally planned economies
included the erstwhile USSR, East European countries, China etc.
Restriction on Consumption: Particularly in the communist countries,
there is no consumer sovereignty because the State decides what may be
made available to the consumers, unlike in the market economies where
the consumers have the freedom to choose from a wide variety. The
consumers in communist system, thus, have to content themselves with
what the State thinks sufficient. However, revolutionary changes have
taken place in countries like China and consumers are flooded with choice
of goods both from domestic and foreign firms.
Restriction on Occupation: The freedom of occupation is also absent or
restricted in socialist countries. An individual may not have the freedom
to choose any occupation he is qualified for. Similarly, individual freedom
enterprise is absent or restricted. However, even in communist countries,
the situation has been changing.
Fixation of Wages and Prices: The wage rates and prices in a communist
economy are fixed by the Government and not by the market forces. Non-
communist socialist countries may also fix up wages and prices or regulate
them by certain means.
Distribution of Income: Equitable distribution of income is an important
feature of socialist system. This does not mean, however, that socialist
system aims at perfect equality in income distribution. Wage differentials,
depending on the nature and requirements of the job, are recognised in the
socialist countries. The objective of equitable income distribution may be
achieved by fixing up the wage rates and other economic rewards or by
means of fiscal and other appropriate measures.
We have mentioned above the important theoretical features of socialism.

In the real world, there is a variety of socialist system: all of them have
one thing in common namely greater government control of the means of
production than the capitalist systems.
The traditional socialism emphasised government ownership factors of

production. But a number of today’s socialist system based on government
control of the means of production rather than pure State capitalism. Even
the Euro-communism had a liberal view than the Russian and Chinese
systems.
Socialist Command Economy

A command economy is characterised by public ownership of the means

of production, collective determination of economic decisions, and the
allocation of resources by a central authority. An important feature of the
command economy is the centralisation of decision-making and absence
of horizontal communication between producing and consuming units.
Communication are mostly vertical, i.e., between the individual economic
unit and the planning agency”.
In a command economy, there is no individual freedom of choice of

consumption and employment. The State determines what shall be
produced in what quantities and by what methods. Similarly, the State
determines the assortment and the amount of goods and services that may
be consumed by individuals.
Just as there is no “pure” capitalist economy in the world, there is no pure
command economy. However, some economies, like the erstwhile Soviet
economy, come near to this system, and they are generally regarded as
command economies. However, as mentioned earlier, significant changes
have been taking place in the socialist systems. Socialist economies have
moved towards market socialism characterised by increasing role for
private enterprises.
Evaluation of Socialism
Socialism has become a very appealing and flexible concept that it was
aptly remarked that socialism is a cap that has lost its shape because many
different people have worn it. Indeed, there has been a large variety of
socialism. Democratic socialism strives to achieve a trade-off between the
free enterprise system and State capitalism.
Merits
The merits of such a system are:
1. It seeks to prevent concentration of economic power and achieve fair
distribution of wealth and income.
2. Use of national resources for the benefit of the society as a whole.
3. National planning and resource allocation with a view to clearly defined
objectives and priorities.
4. Government directions and control to serve the interests of the society.
Demerits
Communism and State capitalism have, however, a number of drawbacks.
Important among these are the following:
1. Civil liberties are suppressed under communism. Under communism,
man becomes a mere cog in the machine. If a free fair election is conducted
in the totalitarian countries, it is doubtful if people will vote for the status
quo.
2. There is no consumer sovereignty in totalitarian systems. The State
decides what and how much people shall consume.
3. The central planning authority commands the resource allocation,
investment and development pattern. But the views of the authority need
not always be the right. As criticisms are not tolerated, there is limited
scope for accommodating different views and making critical evaluations.
4. As private enterprise is not allowed, the talents of the enterprise would
not be fully utilised.
5. People may lack incentive to work hard in the absence of private
property.
6. The absence of freedom of choice of occupation is undemocratic.
Because of the drawbacks of totalitarian socialism mentioned above, a

number of socialist systems today are ‘mixed’ systems where there are
both the private enterprise regulated by the State and the State enterprise.
Liberal democratic socialism has its own merits; it strives to achieve the
positive results of private enterprise, democratic rights and State
regulation. As pointed out elsewhere, there was a lot of liberalisation, in
the recent decades, in the centrally planned economies; most of them are
rapidly becoming market economy.
MIXED ECONOMIC SYSTEM

The mixed economy, which shares certain features of private capitalism
and State capitalism, is characterised by the co-existence of public and
private sectors, and the overall government regulation of the economy.
“The primary difference between the mixed economy and market
socialism is the relatively greater importance of individual decision-
making, private property and the reliance on market-determined prices to
guide the allocation of resources. The mixed economy differs from
competitive capitalism with respect to the share of collective decision

making in the economy”
Mixed Economy of India

India has been following a mixed economic system. The Industrial Policy
Resolution of 1948 gave a mixed economy orientation to the economic
development of the nation by establishing public sector monopoly in some
important industries. A very strong foundation for the mixed economy was
laid by the Industrial Policy Resolution of 1956 which substantially
expanded the scope of the public sector by exclusively reserving to the
public sector the future development of 17 of the most industries and
assigning a dominant role to another 12 very important industries.
However, the economic liberalisation ushered in 1991 substantially
reduced the future role of the public sector by throwing open all but a few
industries to the private sector. But, public sector is very important in a
number of industries. Today, most industries are characterised by the
coexistence of both the public and private sectors.
The salient features of the mixed economy of India are the following:
1. Coexistence of:
• Public sector,
• Private sector
• Joint sector, and
• Co-operative sector.
2. Effective Government control of the economy through polices,

guidelines and laws.
3. Substantial presence of public sector in important
industries/sectors.
4. Competition between public sector enterprises and also
enterprises of other sectors in a number of industries/sectors.
Merits 1. The mixed economic system can help achieve faster growth
because of use of resources and capabilities of both the State and private
sector. 2. Substantial presence public sector in important sectors can be a
countervailing force against abuses by private sector. 3. The mixed
economic system can help prevent concentration economic power to the
common detriment. 4. In developing economies where there is scarcity of
entrepreneurship and capital, the public sector has a very important role in
fostering economic development. 5. Public sector often pays special
attention to the development of priority sectors and backward areas. 6.
Public sector in India played a very important role in the development of
the infrastructure and basic and heavy industries.
Demerits 1. Too much emphasis on the public sector, as was the case in
India until 1991, can result in the inefficiency and irresponsibility of public
sector. 2. Too much emphasis on the public sector, as was the case in India
until 1991, also results in not utilising the resources and capabilities of the
private sector optimally.
1. The monopoly position given to the public sector in many
industries/sectors in India retarded their development in particular
and the overall economic development in general.
2.7 IMPACT OF BUSINESS ON PRIVATE SECTOR
The private sector is a portion of the economy that is governed by

businesses and people whose main goal is to generate profits, which is the
answer to the question "What is the private sector?" A private sector
corporation is owned and run by people and organizations. A private sector
company is created when a public organization is privatized or when an
individual establishes a new business. Private sector businesses are not
owned by the government, although they may collaborate with it in a
public-private partnership.
Because of the goods and services the business offers, as well as the taxes
it pays to the government, this industry is crucial to the growth of the
national economy. Private sector businesses typically provide fair market
conditions to stabilize the cost of goods and services. Companies operating
in this field can influence employment, advance equality, and manage
metropolitan regions' sustainability.
Impact:
brings about employment

The creation of job possibilities depends heavily on the private sector.
Typically, businesses in this area offer many jobs and several benefits to
their employees. A long-term approach to lowering unemployment is often
to allow private enterprises to enter the market.
influences the economy

The national income is typically significantly increased by the private
sector. Companies in this sector make sure there is an appropriate flow of
money in addition to paying taxes. These businesses have an effect on the
economy through providing necessary products and services.
fosters innovation and entrepreneurship

Private sector businesses have a crucial role in promoting innovation and
entrepreneurship as well as assuring the continued growth of an economy.
These businesses are able to generate new goods and services, utilise
cutting-edge technology, and provide sustainable infrastructure.
Additionally, they develop fresh, cutting-edge business plans and
methods. These businesses frequently take an important part in carrying
out research, collaborating with universities, and bringing new findings to
market.
guarantees environmental effectiveness

Due to private firms' propensity for using more environmentally friendly
technologies, this sector is crucial for guaranteeing environmental
efficiency. The industry makes greater use of raw materials while
promoting efficiency and sustainability through the application of
innovative technology. Additionally, these businesses facilitate increased
resource mobilization and innovations.
ensures a company's diversification

The industry has a ton of chances because it enables new businesses to
offer novel goods and services to customers. Regardless of the kind of
business they wish to run, the private sector offers new businesses the
chance to grow. Private businesses might diversify their company
operations with this independence.
ensures community and economic growth

To assure economic growth, private enterprises introduce new products,
goods, machinery, and technology. Potential investors are drawn to the
company as a result, and they can help it grow and expand. Additionally,
the private sector supports neighborhood companies and cooperatives to
ensure communal growth.
2.8 IMPACT OF BUSINESS ON PUBLIC SECTOR
An economy's public sector is that portion of the economy that, among

other things, offers infrastructure, public transportation, public education,
health care, and police and military services. The public sector is
comprised of governments, other publicly controlled or sponsored
organizations, businesses, and other organizations that provide goods or
services to the general public. However, it is not always obvious if a
certain organization belongs under that aegis. In order to establish the
limitations correctly, specific criteria must be found.
Impact:
1. By building infrastructure: Without the

construction of infrastructure, economic
progress is not feasible. Public sector
investments in infrastructure have paved the
way for the growth of the nation's
agricultural and industrial sectors,
contributing to overall economic growth.
These investments have been made in areas
like power, transportation, communication,
basic and heavy industries, irrigation,
canals, education, and technical training.

These infrastructure facilities built by the
public sector of the nation rely on
contributions from the private sector as
well.
2. Strong industrial basis: The public sector
has also made a substantial contribution by
building a solid industrial foundation for the
nation. The economy's industrial base has
been greatly bolstered by the growth of
public sector businesses in a variety of
industries, including iron and steel, coal,
heavy engineering, heavy electrical
machinery, petroleum and natural gas,
fertilizers, chemicals, and pharmaceuticals.
Additionally, the growth of private sector
industries is mostly attributable to these
industries. The public sector has provided
the foundation for the nation's quick
industrialisation by building a strong
industrial base. In addition, the public sector
has dominated important industries like
coal, copper, lead, steam and hydro
turbines, and so forth.
3. Employment possibilities: Redistribution of
resources might also come from
employment in the public sector.
Governments may unintentionally drain
resources from more affluent regions of the
economy to pay those jobs when, for
instance, they add more public sector jobs in
less wealthy areas with more
unemployment and lower salaries. This
occurs as public sector pay are more
consistently paid and tax collection is
unified. Additionally, the growth of public
sector employment has a substantial impact
on the composition of the economy's
various sectors. The public sector offers
positions in government administration,
defense, and other government services.
4. Capital Formation: The public sector has
significantly impacted the nation's gross
domestic capital formation. In India, the
public sector now accounts for 9.2 percent
of gross domestic capital formation, up
from just under 3 percent in the first five
years of the plan. Comparative public sector
gross capital formation rates in the nation
also altered, rising from 33.67 percent under
the First Plan to 50 percent during the Sixth
Plan before dropping to 21.9 percent in
2005-2006.
2.9 IMPACT OF BUSINESS ON JOINT SECTOR
The Joint Sector can be thought of as a partnership between the public and
private sectors. The state can effectively participate in management and
decision-making in this situation. The fundamental change in government
policy has brought the idea of the Joint Sector into clear focus. It serves
the fundamental socioeconomic goals of the nation by combining elements
from the public and private sectors. Additionally, it aims to eradicate both
evils.
The development of this sector was intended to allow public financial

institutions to cover a sizable amount of the cost in the units.
Impact:
reliable industrial growth
The public enterprises first experienced annual deficits, because they
lacked the wherewithal to expand. On the other hand, the private sector
was unable to organize resources, which prevented it from supporting the

growth of the heavy and basic goods industry as well as the capital goods
industry. Consequently, both of these industries joined their talents to
create joint ventures. This resulted in more favorable industrial expansion.
Social Influence on Industries

A powerful method of limiting monopoly and economic power is the
establishment of joint sector industries. Additionally, these businesses can
assist a government in achieving many other societal goals. These goals
include expanding employment possibilities, removing regional
disparities, and fostering the export industry.
The Diversifying Nature of Entrepreneurship

People think that government involvement in a certain industry will
increase industrial entrepreneurship in the nation. It is feasible through
giving small and medium-sized businesses equipment, machinery, and
financial help. It will inspire these businesses to build new industrial
facilities, boosting the nation's rate of industrial growth.
1. Discuss the economic system prevailing in India
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2. Elaborate on legal environment of business
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2.10 LET US SUM UP
The economic framework is that within which the firm functions plays a
crucial role in its efforts to thrive, grow and beat its competitors.
Since business is fundamentally an economic activity, the economic

environment, both within the country as well as beyond its national
frontiers will have a definite influence on its fortunes.
Political environment has a huge influence on the growth of business of a

country
Industrial development is an outcome of the economic activities

undertaken by the public, private and joint sector enterprises.
In developing economies like India, public sectors are a necessity rather

than choice. Post-independence, the public sector made a huge entry in the
Indian economic sphere..
The private s sector plays an important role in supporting India’s mixed

economy .Entrepreneurial talents clubbed with profit-making motive are
the biggest asset of the private sector.
2.11 KEY WORDS
1. Economic development: generally refers to the sustained, concerted

actions of policymakers and communities that promote the standard of
living and economic health of a specific area
2. Legal Environment: includes the laws passed by the government as

well as the decisions rendered by the various commissions and agencies at
every level of the government.
3.Private Sector: The private sector is the part of a country's economic

system that is run by individuals and companies, rather than a government
entity
4.Public Sector: The public sector is a part of the economy that comprises
all organizations that are owned and operated by the government.
5.Joint Sector: The term 'joint sector' is applied to an undertaking only

when both its ownership and control are effectively shared between public
sector agencies and a private group.

1. Refer 1 for Answer to check your progress- 1 Q. 1 … Economic
changes initiated by the government under the Industrial
Policy, 1991
(i) The government reduced the number of industries under
compulsory licensing to six.
(ii) The role of public sector was reduced. It was now limited only to
four industries of strategic importance.
(iii) Disinvestment was carried out in case of many public sector
industrial enterprises.
(iv) Foreign Direct Investment was permitted.
(v) Automatic permission was now granted for technology agreements
with foreign companies.
(vi) Foreign Investment Promotion Board (FIPB) was set up to
promote and channelise foreign investment in India.
2. Refer 1 for Answer to check your progress- 1 Q. 2 … Essential
features of
(a) Liberalisation
(i) Abolishing licensing requirements in most of the industries except
a short list.
(ii) No restriction on expansion or contraction of business.
(iii) Free movement of goods and services.
(iv) Freedom in fixing the prices of goods and services.
(v) Reduction in tax rates.
(vi) Simplifying procedures for imports and exports.
(vii) Making it easier to attract foreign capital and technology to India.
(b) Privatisation
(i) The government redefined the role of public sector.
(ii) Policy of planned disinvestments of the public sector.
(iii) Refining of sick enterprises to the Board of Industrial and
Financial Reconstruction.
(c) Globalisation
(i) Import liberalisation
(ii) Export promotion
(iii) Foreign exchange reforms
3. Refer 2 for Answer to check your progress- 2 Q. 3 … The

Indian corporate sector has come face-to-face with several
challenges due to government policy changes. Some of them
are
(i) Increasing Competition The competition has increased due to entry
of new players (privatisation and globalisation).
(ii) More Demanding Customers Customers today, has become more
demanding because they are well-informed. Increased competition in
the market gives the customers wider choice in purchasing better
quality of goods and services.
(iii) Rapidly Changes Technological Environment The rapidly
changing technological environment creates tough challenges before
smaller firms.
(iv) Necessity for Change After 1991, the market forces have become
turbulent as a result of which the enterprises have to continuously
modify their operations.
(v) Need for Developing Human Resources Earlier, Indian enterprises
worked with inadequately trained personnel. The new market
conditions require people with higher competence and greater
commitment. Hence, the need for developing human resources.
Refer 2 for Answer to check your progress- 2 Q. 1 India has a mixed

economy. Half of India's workers rely on agriculture, the signature of
a traditional economy.10 One-third of its workers are employed by the
services industry, which contributes two-thirds of India's economic
output. The productivity of this sector is made possible by India's shift
toward a market economy. Since the 1990s, India has deregulated
several industries. It has privatized many state-owned enterprises and
opened doors to foreign direct investment.…
Refer 2 for Answer to check your progress- 2 Q. 2 The legal

environment includes the laws passed by the government as well as the
decisions rendered by the various commissions and agencies at every
level of the government. It’s important that every business must
function according to the law of the area in which it wishes to operate.
Not obeying the rules can result in legal trouble for the business. In
India, business firms are required to have complete knowledge of acts
like Companies Act 1956, Consumer Protection Act 1986, Industrial
Disputes Act 1947, and Competition Act 2002 and so on. For example,
it is mandatory for tobacco companies to print ‘smoking is harmful’
on its products.

g House, Delhi.
3rd Ed.
ouse.
dition.
House
1. Describe the role of government in business

2. Explain the legal framework for business in India
3. What is the relevance of economic environment for business to succeed
4. What are the three types of economic systems
5. Explain the concept of Joint Sector Business
UNIT–3 SOCIAL AND CULTURAL

ENVIRONMENT
STRUCTURE
3.0 Objectives
3.1 Impact of foreign culture on business
3.2 Traditional value and its impact
3.3 Social Audit and social responsibility
3.4 Competitive environment
3.5 Michael Porter’s Five Forces Analysis
3.6 Competitive Strategies
3.7 Introduction to Industrial Policy Resolutions
3.8 Let us sum up
3.9 Keywords
3.11 Some useful book
3.12 Terminal questions
3.0 OBJECTIVES
• Describe the social and cultural environment;
• Identify The Elements Of Socio-Cultural Environment;
• Analyse The Recent Changes In Socio-Cultural Environment;
• Understand The Various Elments Of Cultural Environment
3.1 IMPACT OF FOREIGN CULTURE ON

BUSINESS
The countries which are more industrialized and have higher per capita
income levels is the first category and known as developed nations/
economies. While the countries that are less industrialized and with lower
per capita income is a broader second economic category known as
developing nations/economies.
The fundamental difference is the distinctive nature of the business

environment which carries significant managerial implications and varies
considerably from that of the more developed nations. The problem areas
are financial restrictions, production difficulties, transferring technology
and especially when firms opt for Joint Venture then obviously the local
partner is likely to perceive quality in a different way. Other problems
involved are like inflations and its effect on the value of the currency.
Companies are confronted with the tumultuous political environments
commonly. The legal system which is based on the style of political system
and government action of a country to have different conception regarding
the functions of firms like societal role of business and private property.
Such implications are concerned with the macro-economic environment
of business.
Cultural diversity in developing countries also dictated the need for

distinct marketing environments, and cultural diversity also dictates the
need for distinct strategies. In some Islamic countries the charging of
interest is prohibited by religious norms, so different approaches to
financial transactions are called for.
The difference exist between distinct business environments of developed

and developing nations, also among different developing nations isdue to
differences in the development levels and processes that has significant
effect on all the functional areas and overall strategies of an organization
Difference in Economic Environment
Economic environment in broad sense is comprises of factors like

economic growth, income, expenditure pattern, inflation, foreign
investment in the country, commercial policy, balance of payments
account, infrastructure including financial institutions and system, stock
market condition as compared to rest of the world etc.The developed
countries have robust economic system as compared to the developing
companies because of the supporting infrastructure and financial
institution that contributes in the systematic management and monitoring
of the economic factors.
The developed countries have high demand for a variety of products,

developed supporting infrastructure, better marketing system that leads to
sharp competition. While inless developed countries not only demand is
low but infrastructure is also poor complicates business operations and
also increases the cost. Thus, marketing gets affected because of economic
environmental forces.
Gross national product (GNP) and per capita income are among the major
measures of income which is an important indicator of the country's level
of development and its market size. GNP is the determining factor with
regards to the sales of industrial goods and capital equipment, while per
capita income which is an indicative measure of development and
prosperity of a country determines the demand for consumer
products.Also income distribution is an important factor that determines
the sale of the products which is even in developed countries and highly
skewed in the developing countries. In developing countries, Market for
high priced product and non-essential products is limited only to select
rich people as very small portion of the population accounts for 60 to 70
percent of the country's GNP and the rest are poor.
Another vital dimension of the country's economic environment which is

directly related to the country's economic development is Infrastructure
that refers to various social overheads such as transportation,
telecommunications, commercial services like marketing, advertising
agencies and financial services like insurance, credit and banking
facilities. In developing countries, inadequate infrastructure affects firms'
costs and capacity to reach various market segments, coordinate and
control the business functions while in the developed countries strong and
hi-tech infrastructure facilitates leads to industry growth and global market
boom.
Difference in Financial Environment
Financial environment consists of factors like inflation, interest rate,

various kinds of duties and exchange rates. These factors are the variables
related to the country's monetary and fiscal policies that have substantial
impact on the costs and profitability of business operations and firm's
decision to move funds from one nation to another.
Developing countries have opened up their market for foreign companies

through liberalization while the developed countries with the help of tariff
and non-tariff barriers tries to protect its domestic industry from foreign
competition.
The condition of the country's foreign trade and foreign currency reserves
can be determined with the help of country's balance of payments account.
The current account gives information regarding country's exports,
destinations of exports, imports and major sources of importswhile capital
account reveals information regarding stocks of foreign investments,
borrowings, lending and foreign exchange reserves. As compare to the
developed countries, the developing countries run deficits in their balance

of payment and so generally impose controls on movement of foreign
exchange into and out of their economies. These control measures
encourages the practice of transfer pricing mechanism wherein MNCs
over invoices their imports and under-prices their exports so as to move
out more than permitted funds from such countries.
Difference in Socio-cultural Environment

Socio-cultural environment is very important aspect for the business
especially when different countries are involved whether they are
developed or developing. The business strategies that derive the operations
need to be in sync with the socio-cultural aspect where business unit is
functional because it influences all aspects of human behaviour and is
pervasive in all facets of business operations. The impact of Socio-cultural
forces can be seen easily on consumption patterns, product packaging,
marketing, advertising, importance of religion, work, entertainment,
family and other social relations, etc.
Difference in Political Environment

International businesses with huge scale of operations involve large and
almost irreversible investment so political stability i.e. stability of the
government and government policies critically important for its successful
functioning. The developed countries have relatively stable and organized
political system while in developing countries generally political unrestis
common because of change in the type of government, a shift in political
parties which are involved to form the government or change in the
government policies without change in the government or shifts in
political parties.
Difference in Legal Environment
There are various laws prevalent in different countries with regards to

marketing mix variables, business decisions like location of plant, level of
production, employment of people, raising money from the market,
accounting and taxation, patent and trade-marks, cancellation of
agreements, etc.
Business functions are bounded by the jurisdiction of legal system which

is applicable for domestic as well as international firms. The developed
and developing countries differ in their legal structure like strict
advertising laws in Germany that compels firms to seek legal counselling
before framing its advertising strategy. Through legal system, developed
countries may encourage competition in its markets and developing
countries might try to restrain competition. In the United States, for
instance, anti-trust legislation influences all mergers, takeovers, and
business practices which are in restraint of trade.
As the legal systems of the world are not harmonized and also they are
based on contradicting legal philosophies it is a major concern for firms to
operate globally. International bodies has tried to evolve international
laws, agreement, trade treaties to facilitate international business and also
these laws incorporate role played by individuals, while earlier it used
recognized only nations as entities.
3.2 TRADITIONAL VALUES AND ITS IMPACT
The business environment is influenced by things like the social view on

education, literacy, fashion, inclination, population growth, family
structure, dynamism, materialism, etc.
New social recognition and ideals have emerged in the modern era. These
include the high standard of living, respect for others, love of learning and
education, trust in authorities, and competitiveness.
When managing and running the firm, it is important to keep these in mind.
1.Systems and Customs
The company and entrepreneurship are guided by the systems, traditions,

customs, social recognition, religious faith, moral values, religious sects,
festivals, functions, etc. formed by the society.
They have an impact on how the company actually runs.
2. Conventional and Sophisticated Thought
The corporate environment is influenced by society's traditional or

scientific ideas.
People who are very traditional are unable to create an environment that is
favourable to business.
Instead, if people were intelligent and scientifically inclined, society
would advance and make it easier to create a positive atmosphere.
Such a setting is necessary for corporate growth, and as a result, the market
will see a large number of new products.
3. Materialism
Materialism is the outlook on life that prioritises conveniences and

amenities, the maximal consumption of tangible goods, or the pursuit of
high standards of living.
People's desire for conveniences and facilities will inspire businesspeople

to increase production, diversify, and implement new improvements.
4. Social Values
Social values include fidelity to the family, love of the arts, fidelity to
learning, affection, and friendship, as well as fidelity to authority, power,
honour, and humanity.
Social values have a significant impact on how a business operates,

therefore when they are positive, they contribute to the development of a
positive corporate environment.
5. The Manager's Outlook

The corporate environment is impacted by how society views managers,
how authority is delegated, how obligations are met, and how employees
participate in management.
CheckYourProgress- 1
1. What are the effects of socio-culture on business.
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2.What is the impact of globalisation on Indian business

culture?............................................................................................
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3.3 SOCIAL AUDIT AND SOCIAL

RESPONSIBILITY
An official assessment (or audit) of a company's practises and efforts with

regard to corporate social responsibility (CSR) and societal effect is
referred to as a "social audit" in the business world. With regard to CSR
initiatives, many businesses set goals and objectives, and the social audit
is used to assess how well they've succeeded.
How come social audits?
In today's business environment, where corporate social responsibility
(CSR) is becoming more and more significant, businesses constantly work
to strike a delicate balance between their obligations to their stakeholders,
like customers, investors, and shareholders, and their commitment to
setting goals that will have a significant positive impact on society and the
community. CSR is frequently interconnected with and integrated into a
number of a company's service lines.
The following are some of the things that social audits look at:
• Records of donations to charities

• volunteer work
• Internal transparency in the workplace

• environment at work
• wages and salaries earned by the workforce
• community projects
• The workplace's diversity
• Financial openness and accounting
It should be highlighted that there are no set guidelines or requirements to
follow, and businesses frequently enjoy a great deal of latitude when it
comes to putting social audits into practise. For instance, there is no
obligation that social audits be made available to the general public or
stakeholders; hence, management may just use them internally to enhance
the organization's social initiatives.
1.4.1 Topic 3.1 social responsibility
Social responsibility: What Is It?
In order to be socially responsible, a company must act in a way that

benefits society as a whole as well as its shareholders. Investors and
consumers who seek investments that not only are profitable but also
contribute to the welfare of society and the environment place a growing
emphasis on social responsibility. Despite historical criticism that society
is not fundamentally considered a shareholder in business, younger
generations are embracing social responsibility and promoting change.
KEY LESSONS
Businesses should operate in a way that benefits society in
addition to maximising shareholder wealth, according to the
concept of social responsibility.
Socially conscious businesses should implement regulations
that limit harmful effects on society and the environment while
promoting their welfare.
Companies can behave responsibly in a variety of ways,

including by encouraging volunteerism, enacting
environmental improvements, using ethical labour practises,
and making charity contributions.
The demand for products and services from socially conscious

businesses is growing, which has an effect on their profitability.
Critics claim that engaging in social responsibility goes against
the whole purpose of businesses.
Since the introduction of the CSR clause in 2014, corporate India has
greatly boosted its CSR investment. Companies contributed US$1 billion
to CSR activities in 2018, which is a 47 percent increase over the amount
they did in 2014–15, according to a survey.
Listed firms in India invested INR 100 billion (US$1.4 billion) in a range
of initiatives, including healthcare, education, and environmental
preservation. CSR contributions to the Prime Minister's Relief Fund also
increased by 139 percent in the previous year.
Hunger, poverty, and healthcare got the next highest amounts of financing
(25 percent), followed by environmental sustainability (12 percent), rural
development, and education (38% of the total) (11 percent). Sports, the
military, and initiatives aimed at alleviating inequality showed minimal
progress.
EXAMPLES
TATA GROUP
The Indian conglomerate Tata Group engages in a variety of CSR

initiatives, the majority of which focus on eradicating poverty and
enhancing local communities. It has participated in women's
empowerment initiatives, income generating, rural community
development, and other social welfare projects through self-help
organisations. The Tata Group funds several institutions' endowments and
scholarships in the area of education.
The organisation also works on health-related initiatives such promoting

immunisation, AIDS awareness, and child education. The creation of
infrastructure, such as hospitals, research facilities, educational
institutions, sports academies, and cultural centres, as well as
environmental protection and environment protection through agriculture
programmes are further areas of economic empowerment.
ITC
ITC Group has been concentrating on developing sustainable livelihood

and environmental protection programmes. ITC Group is a conglomerate
having business holdings in the hotel, FMCG, agriculture, IT, and
packaging industries. Through its CSR initiatives, the company has been
able to create chances for six million people to live sustainably.
Over four million farmers are served by their e-Choupal programme,

which connects rural farmers to suppliers of agricultural products online.
Its social and farm forestry initiative helps farmers create pulpwood
plantations out of wasteland. Over 40,000 rural women now have
sustainable means of sustaining their lives thanks to social empowerment
programmes that use microbusinesses or loans.
3.4 COMPETITIVE ENVIRONMENT-

MEANING
An environment where businesses compete with one another is referred to

as a competitive one. The marketplace becomes more competitive when
there are more companies offering the same good or service.
ANALYSIS
SWOT evaluation. You can evaluate the internal and external forces
affecting your business. With the use of this framework, you may pinpoint
competitive advantages, assess your competitors' strengths and
weaknesses across various marketing channels, and determine your next
marketing moves.
Analyses of strategic groups. This framework describes the many strategic
characteristics of all effective competitors' strategies. It enables you to
determine the positions of your rivals in the market and the elements that
make your company profitable. Additionally, it enables you to measure
your position among rivals and pinpoint the essential elements of success.
Five Forces of Porter. This framework's foundation is based on an
examination of the industry's competitive market dynamics and a
contribution to the identification of the sector's advantages and
disadvantages. It has five components: substitutes, new competitors,
buyers, suppliers, and suppliers. These five factors affect how fierce the
rivalry is in your sector.
Matrix of growth-share. Using this framework, you may choose whether
items are worthwhile investments based on their market attractiveness and
competitiveness. Large businesses find it particularly helpful because it
enables them to define their product portfolios and determine which goods
are still worthwhile to invest in and which are no longer.
1. Discuss XXX.
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2. What XXX?
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3.5 MICHAEL PORTER’S FIVE FORCES

ANALYSIS
Every firm operates in a market that is competitive. The degree of industry

competition has a significant impact on how businesses build their
strategy. According to Michael Porter, a group of rival producers of goods
or services in direct competition with one another serves as the
fundamental analytical unit. Advantage in competition is
particular to the industry An organisation makes an effort to develop a

strategy to defeat rivals in the same sector.
Different industries have different competitive forces with different
characteristics, combinations, and subtleties. The Porter's Five Forces
Model of Competition is a potent and extensively used technique for
systematically identifying the key competitive pressures in a market and
analysing the degree and impact of each of those pressures.
According to this model, the level of rivalry in an industry is a result of

competitive forces acting in five important areas of the market:
Competitive pressures related to market positioning and for
competitive pressures related to the threat of new market entrants;

competitive pressures resulting from efforts of businesses in other
industries to win customers by offering substitute products; competitive
pressures resulting from supplier bargaining power and supplier-seller
collaborations; competitive pressures resulting from buyer bargaining
power and sellerbuyer collaborations. buyer patronage that occurs between
rival sellers in the industry.
THREAT OF NEW ENTRANTS

Because they boost production capacity, which results in an increase in
supply of the product, sometimes even at a lower price, new entrants can
significantly hurt incumbent firms' market share positions. New
competitors, however, are always a fierce source of competition. a new
capacity, as well as
Their expanded product line creates fresh competition. The impact of
competition increases with the size of the new entrant. Price wars are
caused when new competitors limit prices and reduce the profitability of
established competitors.
For instance, when Reliance Jio entered the telecom business in 2016, it
provided affordable services, which restricted the costs for other firms like
Airtel, Vodafone, Idea, etc.
Bargaining Power of Buyers

This is another another factor that affects how fiercely competitive a given
industry is. Depending on the likelihood of customers banding together or
establishing cartels, this force grows stronger. This effect is primarily
observed in industrial products. Users quite frequently
pressure on the producer of industrial items when they band together

formally or even informally. Customers' bargaining power affects the
producer's costs and investments in addition to the pricing that the
manufacturer may set. This is due to the fact that strong consumers
frequently negotiate for better services, which requires a greater financial
commitment from the manufacturer.
Bargaining Power of Suppliers
Suppliers frequently have significant negotiating leverage over buying

organisations. The supplier's influence may increase depending on how
specialised their service is. Additionally, if the providers are few in
number, they could openly display
their negotiating position. The cost of raw materials and other industry
inputs, as well as the sector's attractiveness and profitability, are
determined by suppliers' bargaining strength.
Suppliers have a variety of potential impacts on an industry's profitability.

Suppliers have negotiating influence over a company if: I their products
are essential to the customer and there are no alternatives.
They are able to create or guarantee significant switching costs.
They are more concentrated than their customers are (iii). More buyers
than suppliers.
The Nature of Rivalry in the Industry

There is clear competition between the current players. This is what
competition is typically thought to be. Any player's competitors have an
impact on their strategic choices at various strategic levels. The effects are
more noticeable at the functional level, where prices are charged,
advertising is more aggressive, and pressure is growing on
Costs, the goods, etc.

An industry's attractiveness and profitability are significantly influenced
by the level of industry competition. The level of competition may have
an impact on supplier, distribution, and customer attraction costs, thereby
affecting profitability. "The industry is less appealing the more intense the
competition."
Threat of Substitutes
A latent or concealed but present source of rivalry in a market is substitute

goods. They frequently develop into a significant element of rivalry.
Products that can be substituted that are more affordable or perform better
can significantly change how competitive a market is relative to the

customers.
They can, surprisingly, make it happen at any time. For instance, synthetic
fibre caused harm to coir. Threats from alternative products can be
anticipated whenever there is a major investment in research and
development. Additionally, substitutes typically restrict an industry's costs
and earnings.
The availability of substitutes for that industry's products, according to
Michael Porter, is a last factor that might affect an industry's profitability.
3.6 COMPETITIVE STRATEGIES
A business uses a set of rules and practises known as a competitive strategy

to acquire a competitive edge in the market. It involves finding and
carrying out strategies that help a company become more competitive.
Businesses can increase the value of their goods and services for
customers, investors, and employees by employing a variety of
competitive techniques. They also use these tactics to develop long-term
revenue sources.
The importance of competitive strategy
Because it influences a company's overarching strategies, competitive
strategy is crucial. Without a competitive strategy, a company may
struggle to obtain a distinct advantage over rivals. Finding and creating
innovative concepts for goods and services that the company can provide
requires a competitive strategy. Implementing a competitive strategy has
other benefits, such as:
the search for new possibilities

the maintenance of client loyalty through improved goods and services
Innovation to keep up with market technology developments
TYPES
1. A cost-leadership approach
In order to entice people to buy the less expensive items in order to save
money, a cost leadership approach keeps pricing for goods and services
lower than those of rivals. In sectors like energy and transportation where
prices are highly elastic, businesses employ a cost leadership strategy. For
businesses that can manufacture a high volume of goods at a low cost, this
technique works well. These companies frequently use large-scale
production techniques, high utilisation rates, and a variety of distribution
channels.
1. Differentiation leadership strategy
Businesses can use the differentiation leadership approach to set their

products apart from those of their rivals by highlighting particular
qualities of their offerings. This tactic could involve a product's
structure or features. An organisation that has been around for a while
may employ this tactic to demonstrate that an original item is superior
to more recent products. Alternately, a younger company can employ
this tactic to demonstrate that a novel invention is superior to current
products. The objective is to increase customer appeal through
distinctive features and product quality while preventing rivals from
capturing a larger portion of the market.
2. Cost focus strategy
The cost focus approach entails catering to a particular market, unlike
the cost leadership strategy, which is comparable to it. While still
attempting to give the lowest price, this tactic aims to appeal to a
distinct market niche with certain wants and needs. A corporation can
more readily build brand awareness in a particular geographic market
when it employs a cost focus strategy.
3. Differentiation focus strategy

Both the differentiation focus and differentiation leadership strategies
aim to draw attention to distinctive product features and attributes. The
differentiation focus approach entails appealing to a particular market
niche, in contrast to the differentiation leadership strategy, which may
involve appealing to a wider market. As it tries to highlight how a
company's offerings are different from those of its competitors, this
strategy often doesn't focus the cost of a company's offerings.
3.7- INDUSTRIAL POLICY RESOULTIONS
Industrial policy is a collection of norms and benchmarks established

by the government to assess the manufacturing industry's development
and, eventually, the nation's economic growth and development.
Industrial Policy's Goals
to continue productivity's steady development.

to increase the number of available jobs.
Improve the way you use the people you have available.
to use a variety of methods to speed up the nation's development
Must be competitive and at par with world norms
NEW INDUSTRIAL POLICY 1991

The bigger roles were played by
L: Liberalisation (Reduction of government control)

Privatization (P) (Increasing the role & scope of the private sector)
Globalization, or G (Integration of the Indian economy with the world

economy) Old domestic businesses must compete with new domestic
businesses, MNCs, and imported goods as a result of LPG.
To increase productivity and provide access to superior technology,

the government permitted domestic businesses to import it. In a few
areas, the cap on foreign direct investment was raised from 40% to
51%.
In specific industries, notably infrastructure, the FDI cap is 100%. A

board was created to promote foreign investment. It is a single-window
agency for FDI clearance. The agreement for the transfer of technology
was approved via the automated route.
According to the 1991 New Industrial Policy's review of the public

sector, there are:
Public sector expenditures (Disinvestment of Public sector)

De-reservations - The number of industries that were only available to
the public sector was decreased.
Professionalization of Public Sector Management

The Board will be notified of sick PSUs for industrial and financial
restructuring (BIFR).
The reach of MoUs was expanded (MoU is an agreement between a
PSU and concerned ministry).
CheckYourProgress-2
1. Highlight the importance of social audit in India
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2.Write down the steps for conducting social audit

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3.8 LET US SUM UP
The socio-cultural environment of a country influences the business

significantly and in a variety of ways.
The type of products and services to be offered, the marketing strategies

and marketing mix to be adopted, the way business is conducted, its norms
and values all are highly influenced by the sociocultural environment.
The attitudes and behaviour of employees, associates and customers, their

needs and motivations, all are a resultant of the socio-cultural phenomena.
The religion, social structures, traditional festivals, values, beliefs,
language, connotations and life styles, all influence the purchase and
consumption patterns.
The etiquettes, socio-cultural traits and demographic composition, all are

determinants of market trends and organizational behaviour.
Thus a business in order to succeed in a given market has to modify its

offerings, strategies and practices in convergence to the socio-cultural
environment.
3.9 KEY WORDS
1 Social Audit: A social audit is a formal review of a company's

endeavors, procedures, and code of conduct regarding social responsibility
and the company's impact on society. A social audit is an assessment of
how well the company is achieving its goals or benchmarks for social
responsibility
2. Culture: Culture can be defined as a complex whole which includes

knowledge, belief, art, morals, law, customs and other capabilities and
habits acquired by an individual as a member of a society
3.Competitive Strategy: A competitive strategy is a set of policies and

procedures that a business uses to gain a competitive advantage in the
market
4. Industrial policy is a collection of norms and benchmarks established

by the government to assess the manufacturing industry's development
and, eventually, the nation's economic growth and development.
5.Swot Analysis SWOT (strengths, weaknesses, opportunities, and

threats) analysis is a framework used to evaluate a company's competitive
position and to develop strategic planning.
1.Refer 1 for Answer to check your progress- 1 Q. 1 …The Effects of

Socio-culture on Business: Businesses do not exist in a vacuum and even
the most successful business must be aware of changes in the cultures and
societies in which it does Dumness. AS Society and culture change,
businesses must adapt to stay ahead of their competitors and stay relevant
in the minds of their consumers. Various effects of socio-culture are:
1. Changing Preferences: A major socio-cultural factor influencing

businesses and business decisions is changing consumer preferences.
What was popular and fashionable 20 years ago may not be popular
today or 10 years down the road. Different styles and priorities can
undermine long successful products and services. For example, a
clothing company must constantly be aware of changing preferences
when creating new products or it will quickly become outdated.
2. Demographics: Changes in demographics are also a significant

factor in the business world. As populations age, for example, markets
for popular music and fashions may shrink while markets for luxury
goods and health products may increase. Additionally, changes in the
proportion of genders and different racial, religious and ethnic groups
within a society may also have a significant impact on the way a
company does business.
3. Advertising Techniques: Advertising is perhaps the area of business
most closely in touch with socio-cultural changes. Advertising often
seeks to be hip and trendsetting, and to do this, advertising agencies
and departments cannot lose track of the pulse of societies in which
they engage in business. Changes in morals, values and fashions must
all be considered when creating outward facing advertising.
2. Refer 1 for Answer to check your progress- 1 Q. 2 … Impact of
Globalisation on Indian Business Culture: The Indian economy had been
booming for the past few years. The country held great promise for the
future. Liberalised foreign policies had unleashed the entrepreneurial spirit
of its people and many multi-national firms, attracted by the dusty plains
of Deccan, had already set up big offices throughout the nation.
The foreign culture can have both positive and negative influence on
people and business firms. New ways of thinking and working may
develop leading to higher efficiency. A few examples of impact of foreign
culture on business practices are given below:
1. Indian companies adopting international accounting standards.
2. Just-in-time and other more efficient techniques of inventory control.
3. Flexitime and new practices of human resource management
4. Social responsibility and business ethics ideas.
5. Improvement in corporate governance practices.
6. Customer relationship management practices.
7. Inflow of foreign funds.
8. Healthy competition with foreign products.

3. Refer 2 for Answer to check your progress- 2 Q. 1 … Importance of

social audit in India:
Improve governance: Social auditing impact governance leading to good

governance. It make government responsible to its citizen allowing better
governance through citizen’s participation.
Accountability and transparency: It allows the voice of stakeholders,
including marginalised/poor groups being heard by the authorities. Social
auditing enhance local governance, and strengthen accountability and
transparency in local bodies.
Social impact: The social audit focuses on the neglected issue of society
including environment and economic issues and efficiency of a project or
programme. This allow better implementation of policies and remove
various social inefficiencies.
Create awareness: It creates awareness among beneficiaries and providers
social and productive services. It enable the community to participate in
local planning.
Enhance development: It help in assessing the physical and financial gaps
between needs and resources available for local development. Therefore it
help in increasing efficacy and effectiveness of local development
programmes.
Strengthen democracy: Social Audit makes it sure that in democracy, the
powers of decision makers should be used as far as possible with the
consent and understanding of all concerned. It encourages local
democracy and encourages community participation. It promote collective
decision making and sharing of responsibilities.
Refer 2 for Answer to check your progress- 2 Q. 2 … : The following are
the steps in conducting social audit:
Step 1: Background and Context Setting
Step 2 – Review of the Information and Mapping of the Stakeholders and
Community
Step 3 - Development of Framework
Step 4 – Opinion of Experts to Validate the Framework
Step 5 – Execution
Step 6 – Compilation and Verification
Step 7 – Preparation of the Report
Step 8 – Dissemination of Findings with Experts and Stakeholders
Step 9 – Final Report and Follow up

g House, Delhi.
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1. Describe the nature and importance of culture.

2. What are the major factors constituting the socio-cultural environment?
3. What is the impact of socio-cultural environment on business?
4. Discuss the relationship between business and society.
5. Explain how religion, language and etiquettes affect business and
marketing decisions.
UNIT–4 NATURAL AND

TECHNOLOGICAL ENVIRONMENT
STRUCTURE
4.0 Objectives
4.1 Introduction
4.2 Technological Leadership And Followership
4.3 impact of technology on globalization
4.4 Transfer of technology
4.5 Time Lags in technology introduction
4.6 Status of technology in India
4.7 Management of technology
4.8 Features and impact of technology
4.9 Lets Sum up
4.10 Key words
4.11 Answers to check your progress
4.12 Some useful books
4.13 Terminal questions
4.0 OBJECTIVES
• Describe the features of technology.

• Understand the impact of technology on society, economy and business.
• Understand the issues in managing technology.
• Analyze the importance of technology as a competitive advantage.
4.1 INTRODUCTION
TECHNOLOGICAL INNOVATION
When an organisation (or a group of individuals working outside of a
structured organisation) sets out on a journey where the value of
technology as a source of innovation has been identified as a critical
success factor for increased market competitiveness, that process is known
as technological innovation.
Instead of "technology innovation," the term "technological innovation"
is chosen. "Technology innovation" conveys the idea of developing
technology only for its own purpose. "Technological innovation" more
accurately captures the commercial idea of raising the commercial value
of a good or service by focusing on its technological components.
Additionally, the system's core isn't comprised of a single special
technology in the great majority of goods and services. The product or
service is made possible through the combination, integration, and
interaction of several technologies.
An expanded definition of innovation is technological innovation.

Although innovation is a fairly well-defined notion, many people—
especially those in the academic and corporate worlds—understand it to
mean different things.
Innovation is the addition of extra steps to creating new services and goods
for the market or the general public that satisfy unmet demands or handle
issues that have not been solved in the past. Instead of addressing the entire
organization's business model, technological innovation, on the other
hand, concentrates on the technological components of a product or
service. It is crucial to make clear that innovation is not solely a product
of technology.
4.2 TECHNOLOGICAL LEADERSHIP AND

FOLLOWERSHIP
Technology leadership:
Industry leaders in terms of technology are those businesses who create

and implement new technologies early on to maintain their competitive
positions. However, maintaining technological superiority or leadership
comes with costs and hazards for the organisations that strive for it.
Example: Bill Gates, Elon Musk
ADVANTAGES DISADVANTAGES
1. First mover advantage 1. Higher risks
2.Less competition 2. Cost of technology development
3.Higher profits 3.Infrastructure costs
4.Sustainable advantage 4.Costs of eliminating faults
5.Reputation for innovation
6.Can establish entry barriers
Technology followership:
Not every company is equally ready to lead in technology, nor will
leadership help every company equally. Depending on how it positions
itself to compete, the advantages of utilising a technology, and the traits of
the organisation, a company may decide to be a technological leader or
follower.
4.3 -IMPACT OF TECHNOLOGY ON

GLOBALIZATION
Technology developments have greatly accelerated globalisation. In

actuality, one of the key causes accelerating globalisation has been the
advancement of technology. Technological advancements force
businesses to expand internationally because they increase economies of
scale and the market size required to break even.
Technological developments lower the cost of international travel and

communication, which makes it easier to source raw commodities and
other inputs globally. Technology that has received a patent promotes
globalisation since the patent holder can profit from international markets
with little competition.
The global village has begun to take shape thanks to information

technology. For instance, the limitations of space and time in economic
transactions have been lowered by the internet. Now, transactions may be
completed by buyers and sellers anywhere in the world at any time.
Investments are also affected by technological progress.
Prior until now, the production of sophisticated technology was only

possible in wealthy nations with high incomes. Nowadays, it is simple to
transfer technology to underdeveloped nations, where high-tech industry
may coexist with cheap salaries. Many businesses in developed nations
now outsource labor-intensive services to developing nations like India.
1. Define technology dynamics.
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2. What is the impact of technology on business?
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3 What is technological innovation?

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4.4 TRANSFER OF TECHNOLOGY
Technology transfer (TT), which is an integral aspect of the process of

technological innovation, is the process of transferring the findings of
scientific and technology research to the marketplace and to a larger
segment of society.
Technology transfer is a complicated process that includes numerous non-

technological and non-scientific elements as well as a wide range of
players. Successful technology transfer requires more than just good or
high-quality research findings; it also requires a general awareness and
willingness on the part of organisations and individuals, as well as the
knowledge and ability to deal with particular issues like risk financing and
intellectual property (IP) management.
Technology transfer refers to the intricate value chain that connects
research to its ultimate societal application. The first step in this process is
the discovery of novel technologies at research institutes, which is
followed by their disclosure, assessment, and protection. The development
of products based on the technical inventions is one of the following
processes, along with marketing and prospective licencing agreements.
These items' financial gains can subsequently, for example, be applied to
more research.
Typical steps include:
• Knowledge creation
• Disclosure
• Assessment and evaluation
• IP protection
• Fundraising and technology development
• Marketing
• Commercialization
• Product development, and
• Impact.
4.5 TIME LAGS IN TECHNOLOGY

INTRODUCTION
Between nations, there has been a considerable time lag in the introduction
or adoption of technologies.
The TV was very late to arrive in India. Despite the fact that colour TVs
are now relatively prevalent in developed nations. Even after the TV was
delivered and the broadcast began, it was first just in black and white.
Even cable TV didn't arrive in India till the early 1990s. Not just the TV
industry but also the advertising sector and product promotion were
impacted by the late launch and slow growth (even now).
The delays in technology introduction may potentially prevent some

products from reaching the market.
Another example would be the electronic typewriter, which Indians were

aware of before it entered the market. The invention of the computer
prevented it from achieving the growth.
Due to the delay in the introduction of the newest technology in India,
several developed nations have viewed us as a market for their outdated
technology. Even obsolete machinery for wealthy countries that we import

in used form is outmoded.
Technology advancements in food processing, packaging, preservation,

transportation, etc. have made products easier to enhance and more
marketable.

1 What are the reasons for technology transfer?
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2. List the various types of technological transfers
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4.6 STATUS OF TECHNOLOGY IN INDIA
India now ranks third among the world's most desirable locations for
technological investments, which indicates that the country's scientific
fields have advanced significantly. India has established itself as one of
the leading nations for scientific research in the twenty-first century. For
instance, India has risen to the top five countries for space research
globally thanks to its moon missions and Polar Satellite Launch Vehicle
(PSLV).
India ranks in the top 15 nations in information and communication

technology and R&D-intensive global firms, according to the Global
Innovation Index (2020), which places the country 48th overall in terms
of innovation.
In terms of market size, R&D spending has surpassed US$ 96.50 billion
in 2020, accounting for about 2% of the GDP of the nation. India has
implemented a number of financial programmes that enable the country to
develop its major strategic industries, including the bio sciences, energy,
and space. One of India's expanding sectors that is currently the subject of
a great deal of attention is energy. The American scientist and the United
States recently worked together on a joint project named the Solar Energy
Research Institute for India, which was supported by the US-India
Partnership to Advance Clean Energy.
The growth of several technological company incubators in the twenty-

first century has also connected the ideation and commercialisation phases
of a concept. With the establishment of the National Artificial Intelligence
Strategy (NITI Aayog), India has advanced in the field of developing
artificial intelligence and opened the door for investigating its possibilities.
Even if we have cash available for scientific advancements, education

should advance concurrently to support the scientific shooting. In order to
compete with these nations, China, which awards over 20,000 PhDs each
year, India must strengthen its emphasis on education. Since post-2000
quality scientist growth has been expedited by initiatives like the
Innovation in Science Pursuit for Inspired Research (INSPIRE)
programme, the question of whether we can make this process even better
arises.
India is steadily progressing towards being a global leader in industry and
technical advancement thanks to its emphasis on science. The introduction
of nanotechnology in India will have an impact on the development of both
the biomedical and nuclear industries. Science, Technology, and
Innovation Policy 2020, India's new plan, aims to foster science in a more
efficient and expert-driven manner. India faces both obstacles and
opportunities in the future, therefore our developments' optimism will
soon shift the focus away from "challenges" and towards "hope."
4.7 MANAGEMENT OF TECHNOLOGY
The integrated planning, design, optimisation, operation, and control of

technical products, processes, and services is another definition of
technology management; however, managing the use of technology for
human benefit is a superior one.
The Department of Education designated technology management as an

emerging topic of study, and in 2020 it was given a new Classification of
Instructional Program (CIP) number. A programme that trains people to
gain the scientific, technical, and business abilities necessary for managing
people and systems in technology-based industries, governmental
organisations, and non-profit organisations is referred to as technology
management education.
The diffusion of innovations theory, which was created in the first half of
the 20th century, may be the most authoritative contribution to our
understanding of technology. It implies that all inventions adhere to the
same diffusion pattern, which is best recognised today as a "s" curve but
was initially based on the idea of a standard distribution of adopters. The
"s" curve, in general, denotes that a technology's life cycle comprises four
stages: emerging, growth, mature, and ageing.
In our case, a new technology, these four phases correspond to escalating

levels of acceptance of an innovation. An inverse curve, which correlates
to a lowering cost per unit, has recently been hypothesised for numerous
technologies.
The Carnegie Mellon Capability Maturity Model is the second significant

contribution to this field. According to this paradigm, a collection of
threshold tests can be used to quantify a progression of abilities. These
evaluations look at management, definition, repeatability, and
optimisation. According to the paradigm, any organisation must first
master one level in order to go on to the next.
The Hype Cycle, which is the third important contribution from Gartner's
research service, contends that our current method of marketing
technology causes the technology to be overhyped in its early phases of
development. When combined, these basic ideas offer a basis for
formalising the method of managing technology.
4.8 TOPIC- FEATURES AND IMPACT OF

TECHNOLOGY
Technology has completely changed how businesses operate by allowing

smaller enterprises to compete on an equal footing with larger ones. Small
firms use a variety of technology, including servers and mobile devices, to
get an advantage in the market. For easier integration and to make room
for future expansion, small business owners should think about
incorporating technology into their planning process. Owners can then
design operations utilising the most cutting-edge technology available.
Effect on Operational Costs
The use of technology can help small business owners cut costs. A
company may automate back office tasks like record keeping, accounting,
and payroll thanks to basic business software. Field representatives and
home offices can communicate live thanks to mobile technology. For
instance, field representatives can utilise mobile apps to record daily
expenses as they occur and have them connect with accounting software
at the office immediately.
Protecting Sensitive Data

Business owners can use technology to build secure environments for
storing delicate customer or business data. Many forms of business
technology and software are user-friendly, enabling business owners with
only rudimentary knowledge of information technology to make the most

of their resources.
diversify customer bases

Small enterprises can access new economic markets because to
technology. Small firms have access to regional, national, and worldwide
markets in addition to the local one, where they might just sell consumer
goods or services. The most popular method for small enterprises to offer
goods in numerous areas is through retail websites.
Consumers can use websites as a low-cost option available around-the-

clock to make purchases of goods and services. Through well positioned
online banners or ads, small business owners can also employ internet
advertising to reach new markets and clients.
Better Communication Mechanisms

Small organisations can enhance their communication procedures with the
aid of business technology. Emails, texts, websites, and apps, for instance,
help businesses communicate with customers more effectively. Businesses
can saturate the market with their message by using a variety of
information technology communication techniques. Through these
internet communication channels, businesses might also get more
customer feedback.
Additionally, technology enhances collaboration within offices. For

instance, social intranet software offers staff members a central portal to
access and change internal papers and contracts as well as rapidly transmit
pertinent information to other departments. These techniques also assist
businesses in real-time mobile device consumer engagement.
4.9 LET US SUM UP

Technological environment is very important in determining the extent of
development and successnof a business.
Technological advancement has revolutionized the global business

scenario.
Wide ranges of new and innovative products with sophisticated

manufacturing operations are available and easily accessible round the
globe. Information Technology has drastically changed the marketing,
financial and distribution processes. Technology has emerged as a main
source of competitive advantage for firms.
The product life cycles are shortening and new organizational structures,
practices and policies are emerging.
4.10 KEY WORDS
Technology transfer refers to the intricate value chain that connects

research to its ultimate societal application.
Globalization: A process by which businesses or enterprises develop

international influence or start operating on a global scale.
Algorithm: Set of rules that are followed in calculations or other problem-

solving operations, by a computer.
Analytics: A systematic computational analysis and the resultant

information obtained using data or statistics.
1. Refer 1 for Answer to check your progress- 1 Q. 1 …

Technology dynamics provides information and
communication technology design and the consultation that
connects people and resources within buildings, communities
and throughout the world.
impact of technology on business is described in the following
points:
1. Higher productivity and global competitiveness.
2. Need for multiskilling and multitasking.
3. Increasing need for capital.
4. Increasing obsolescence and organisational restructuring
5. New product and new market creation.
6. Adaptation to changes in scale and format.
3. Refer 1 for Answer to check your progress- 1 Q. 3 … .

Technological innovation is the process through which new or
improved technologies are Developed and brought into
widespread use. It comprises of new products and processes
and significant technological changes of products and
processes.
reasons because of which companies engage in transfer of
technology are:
Profit from selling technology.
Location and logistics advantage.

Competitive edge, grants and subsidies.
Limitations of home country.
Superior capital markets and to enhance competence
5. Refer 2 for Answer to check your progress- 2 Q. 2 1.

International technology transfer
Regional technology transfer.
Cross industry or cross sector technology transfer.
Inter firm technology transfer.
Intra firm technology transfer

g House, Delhi.
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1. What is technology? Describe its characteristics.

2 What is the impact of technology on business?
3 What are the social implications of technology?
4 Explain the influence of technology at the micro level.
5 How technology is a source of competitive advantage for a firm?
6 What are the various methods of Technology Transfer?
UNIT- 5 ACT AND POLICIES
STRUCTURE
5.0 Objectives
5.1 Introduction
5.2 Monetary And Fiscal Policies
5.3 RBI Roles And Functions
5.4 Regulations Related To Capital Markets
5.5 Role Of SEBI
5.6 Working Of Stock Exchange
5.7 Let Us Sum Up
5.8 Key Words
5.0 OBJECTIVES
• Give the meaning of competition law

• Describe the competition commission of India
• Bring out the power and function of commission
• Point out the salient features of need for national competition policy
for India
• Understand the working of Stock market and the regulators of capital
markets
5.1 COMPETITION ACT AND FEMA
THECOMPETITION ACT, 2002

Indian competition law is governed by the Competition Act, 2002, which
was passed by the Indian Parliament. The outdated Monopolies and
Restrictive Trade Practices Act, 1969 was superseded by it. The
Competition Commission of India was founded in accordance with this
legislation to stop practises that harm competition in India. This law

applies to all of India.
It serves as a tool for carrying out and enforcing competition policy, as

well as for preventing and punishing enterprises that engage in anti-
competitive business activities and needless market intervention by the
government. The law of competition applies to all agreements,
arrangements, and contracts between businesses and individuals, whether
they are in writing or verbally.
The Competition (Amendment) Act of 2007 and the Competition

(Amendment) Act of 2009 both made changes to the Competition Act of
2002.
The Act creates a Commission that has a responsibility to safeguard the
interests of free and fair competition (including the competition process),
and as a result, safeguard the interests of consumers. In general, the
commission's duties are:
To forbid horizontal and vertical agreements and conduct that has or is

likely to have a significant negative impact on competition in a market in
India;
to outlaw the misuse of market dominance;
to forbid corporate actions that might significantly harm competition in

Indian markets, such as mergers, acquisitions, and amalgamations, etc.
Additionally, the Competition Act envisions its implementation through
an international network of cooperation and enforcement.
FEATURES
1. Anti-agreements: No person or organisation may engage in
manufacturing, supply, or distribution activities that might have a negative
effect on India's competitive environment. Such agreements are deemed
illegal in any form.
1. Abuse of dominating position: If a business or a connected person is

discovered to have engaged in unfair or discriminatory actions, this is
regarded as an abuse of a dominant position. A party will be the subject
of an investigation from the relevant authorities if it is discovered that
they have abused their position.
2. Combinations: According to the act, a combination is a set of
conditions that result in mergers or acquisitions. The Competition
Commission of India would examine the parties concerned if such
combinations exceeded the restrictions set forth by the Act.
3. Competition Commission of India: This independent organisation has

the authority to enter into contracts and, in the event that such contracts
are broken, to bring legal action against the violators. The
Commission, which has a maximum of six members, is in charge of
upholding and advancing consumer interests in order to establish the
optimum conditions for economic competition.
Foreign Exchange Management Act, 1999 (FEMA)

By way of a parliamentary act, the Foreign Exchange Management Act of
1999 (FEMA) became operative. It came into effect on December 29,
1999. This new Act complies with the World Trade Organization's
guidelines (WTO). The Prevention of Money Laundering Act, 2002,
which went into force on July 1, 2005, was also made possible by this.
Which Act was replaced by FEMA?
Foreign Exchange Regulation Act was repealed and replaced by FEMA

(FERA).
When was FERA passed? What does it mean?
The Foreign Exchange Regulation Act (FERA) was enacted into law in
1973. It started working on January 1st, 1974. To control financial
transactions involving securities and foreign exchange, FERA was passed.
When the nation's foreign exchange reserves were extremely low, FERA
was implemented.
What made FERA obsolete?

The government's post-liberalization policies were not followed by FERA.
What has changed most since FERA compared to FEMA?
All criminal offences were transformed into civil offences.
FEATURES
It grants the Central Government the authority to control the flow of
money to and from a person who is located outside of the nation.
Without FEMA's consent, no financial transaction involving foreign
securities or exchange may be made. Every transaction needs to go via
"Authorized Persons."
The Government of India may forbid a designated person from engaging
in foreign exchange transactions within the current account if it is in the
best interests of the general public.
enables RBI to impose limits on capital account transactions, even if they

are made through an authorised person.
According to this law, Indian citizens living in India are permitted to
engage in foreign exchange and security transactions as well as have the
right to hold or own real estate abroad if the asset was purchased or
acquired while the Indian citizen was based abroad or if they inherited it
from a foreign citizen.
Framework of FEMA.
The Director is in charge of Enforcement Directorate, the name of FEMA's

headquarters, which is situated in New Delhi.
There are 5 zone offices, each led by a Deputy Director, located in Delhi,
Mumbai, Kolkata, Chennai, and Jalandhar.
Each of the five zones is further divided into five field units led by chief
enforcement officers and seven sub-zonal offices run by assistant
directors.
5.2 TOPIC –MONETARY AND FISCAL

POLICIES
MONETARY POLICY
In order to preserve price stability and achieve rapid economic growth, the
monetary authority of a nation, typically the central bank, manages the
amount of money available in the economy by manipulating interest rates.
The Reserve Bank of India is the primary monetary authority in India
(RBI).
It is intended to keep the economy's prices stable. According to RBI, the

country's monetary policy also aims to-
Price stability- It entails fostering economic growth while placing a strong
emphasis on it. The major goal is to create an environment that supports
the architecture needed for development projects to move forwards
quickly while retaining fair price stability.
Controlled expansion of bank credit-The controlled growth of bank credit

and the money supply, paying particular attention to seasonal credit needs
without impacting output, is one of the RBI's key responsibilities.
Promotion of fixed investment- By limiting non-essential fixed

investment, it is hoped that investment productivity will increase.
Promoting efficiency- It seeks to implement structural changes including

deregulating interest rates, relaxing operating restrictions on the credit
delivery system, introducing new money market instruments, etc. in an
effort to improve the financial system's efficiency.
Reducing rigidity- The RBI works to create operational flexibility that

offers a high degree of autonomy. It promotes diversification and a more
competitive environment. To keep the financial system operating with

restraint and caution, it maintains control over it whenever and wherever
it is required.
MONETARY POLICY COMMITTEE

The Finance Act of 2016 revised the Reserve Bank of India Act, 1934
(RBI Act) to provide a statutory and institutionalised framework for a
Monetary Policy Committee to ensure price stability while keeping growth
as a goal in mind. The responsibility for determining the benchmark policy
rate (repo rate) necessary to keep inflation within the designated target
level falls to the Monetary Policy Committee. Three of the six members
of the Monetary Policy Committee must be from the RBI, and the other
three must be selected by the Central Government, according to the terms
of the RBI Act.
An upper and lower tolerance level for retail inflation has been set 4%,
with an upper tolerance limit of 6% and a lower tolerance limit of 2%.
INSTRUMENTS
1.Open Market Operations
A monetary policy tool known as a "open market operation" entails the
purchase or sale of government securities like bonds from or to the general
public and banks. This mechanism has an impact on the cost of bank loans,
yield on government securities, and reserve position of the banks. The RBI
purchases government securities to restrict the flow of credit and sells
them to enhance it. The effectiveness of bank rate policy is enhanced by
open markets, which also preserve market stability for government assets.
2.Cash Reserve Ratio
The percentage of bank deposits that banks must maintain as reserves or

balances with the RBI is known as the cash reserve ratio. Liquidity in the
system will be lower the higher the CRR with the RBI, and vice versa. RBI
has the authority to change CRR from 15% to 3%. The Narasimham
Committee study recommended that the CRR be decreased from 15% in
1990 to 5% in 2002. As of May 21st, 2022, the CRR is 4.50%.
3.Statutory Liquidity Ratio
Each financial institution is required to keep a particular amount of liquid
assets on hand at all times relative to its overall time and demand liabilities.
These assets must be stored in non-cash forms, such as approved securities
including bonds, precious metals, and G-secs. The Statutory Liquidity
Ratio is the ratio of liquid assets to time and demand liabilities. SLR was
decreased from 38.5% to 25% as a result of the Narsimham Committee's
recommendation. As of October 9th, 2020, the SLR is 18%.
4.Bank Rate Policy

The interest rate that the RBI charges for giving loans or cash to the
banking sector is referred to as the "bank rate," also known as the "discount
rate." Commercial and cooperative banks, the Industrial Development
Bank of India, the IFC, the EXIM Bank, and other authorised financial
institutions are all a part of this banking system. Direct lending,
discounting, or the purchase of money market instruments like commercial
and treasury notes are all ways that money is made available. A rise in the
bank rate raises the cost of borrowing for commercial banks, which drives
down the amount of credit given to banks and reduces the amount of
money available. A rise in the bank rate is a sign that the RBI is tightening
its monetary policy. The bank rate as on October 9, 2020, is 4.25 percent.
FISCAL POLICY
In order to influence macroeconomic conditions, particularly employment,
inflation, and macroeconomic factors like the overall demand for goods
and services, fiscal policy refers to the use of governmental spending and
tax policies. The primary goal of these measures is to stabilise the
economy. In order to achieve these macroeconomic goals, monetary and
fiscal policy activities are frequently combined.
Fiscal Policy deals with all aspects of the government's revenue and
outlays. Budgeting and taxation are just two examples of the fiscal policy
tools used to solve the economy's most important issues. The following
are the three pillars of Indian fiscal policy. Government revenues,
government spending, and public debt. The fiscal policy is established by
the Ministry of Finance with assistance from NITI Ayog.
OBJECTIVES
1.Price stability- This policy mainly oversees the whole control of pricing
for all goods and things. It controls prices while the country is
experiencing an economic crisis and maintains them stable when there is
inflation; as a result, it controls prices across the board.
The government promotes price stability by controlling the supply of

necessary commodities and services. As a result, it makes financial
investments in rationing, stores with fair prices, and a plentiful supply of
food grains. Additionally, it offers subsidies for utilities like
transportation, water, and cooking gas, maintaining their costs at levels
that are affordable to the average person.
2.Complete Employment- Every country that wants to improve its

economic status should place employment as its top priority. The chance
of development is increased because India has the most youth. In many
ways, the younger generation is superior to the older ones. As a result, if
our country could achieve full or almost full employment, it would
improve our economic statistics. The fiscal policy influences all
employment-related decisions. In a variety of methods, the government
increases the amount of employment possibilities.
One is that creating public sector firms creates jobs. Two, it offers
incentives and other benefits to the private sector, such as tax cuts, reduced
tax rates, and other things, to boost output and employment.
3.Economic growth- The nation's growth rate can be increased and its
needs can be met with the help of specific fiscal policy initiatives. One
way the government encourages economic growth is through the
establishment of heavy industries like steel, chemicals, fertilisers, and
industrial machinery. It also constructs infrastructures including roads,
bridges, railways, schools, hospitals, water and energy supplies,
telecommunications, and other facilities that aid in economic
development.
FISCAL POLICY TYPES
1. Expansionary Fiscal Policy
These consist of the decisions that the governments have made to increase
their monetary contributions to the national economy. As a result, it
generates a lot of goods and services. As a result of all the expansion, it
also increases employment opportunities and boosts personal and
governmental revenues.
2.Contractionary Fiscal Policy

This is the second type of fiscal policy. This is used when the economy is
booming. However, the quick economic growth can occasionally be
dangerous. In this case, the government is aiming to halt the current
economic boom. This also contributes to controlling both inflation and
economic growth.
3.Neutral Fiscal Policy

This fiscal policy is used when the national economy is in balance. It
shows that things are moving well given the economic highs and lows. It
includes government spending that is financed by taxes imposed on
individuals, companies, or segments of the economy. and won't have any
effect on the state of the country's economy.
Fiscal Policy Tools

1. Restrictions on Consumption
This is the process used to increase national savings. As a result, it can be
used to make future purchases and enhance the country's existing
economic status.
2. By accelerating the investment rate

This may be the greatest course of action to enhance the economy's present
and future conditions. When people invest, money is put to good use and
increases in value daily rather than being spent on unneeded products. As
a result, the future economy of the country will significantly improve.
3. Construction of Infrastructure
A nation's infrastructure plays a big part in determining whether it is seen

as developed or underdeveloped. Therefore, the development of
infrastructure is more important if we want to boost the economy.
4. The highest rates of taxes on imported goods and luxury goods

Some products that are directly imported into India from foreign countries
have taxes of about 100%. The country benefits the most from its revenue
as a result. Additionally, it will promote domestic product purchases,
advancing the industries of the country.
FISCAL POLICY COMPONENTS
1. Government Receipts
2.Government Expenditures
3.Public Accounts of India
Government Receipts- These government revenues account for the

government's revenue, which is comprised of taxes, interest, investment
income, cess, and other sources of income that the country has produced.
This amounts to all of the government's funding from all sources.
Government receipts come in two different varieties. Revenue Receipts A

revenue receipt is any form of payment from the government that neither
raises liabilities nor diminishes assets. Tax revenue and other kinds of
income can also be subtracted from this. Non-tax revenues include the
interest and dividends received on government investments, as well as cess
and some other income. The two types of tax revenues are direct tax and
indirect tax.
Capital Receipts- Capital receipts are any payments made by the

government that result in a rise in liabilities or a fall in assets. Governments
use these funds to operate efficiently. A cash flow that comes in is another
type of capital receipt. If the government borrows money because it has to
return it to the government it was borrowed from, it is referred to as a debt
receipt..
Revenue Receipts- Recipients of non-debt receipts are individuals who

make payments that are not repaid. Around 75% of all budgets are made
up of non-debt receipts. Most capital receipts come from loans made to
individuals, some foreign governments, and the Reserve Bank of India
(RBI).
Government Expenditure
Revenue Expenditure- They are one-time expenses that often occur now
or within a year. Since they include the costs required to pay the
government's ongoing operating expenses, revenue expenditures are
essentially the same as operating expenses (OPEX). maintenance and
repair expenses on state-owned property on a regular basis. They are
continuing costs as opposed to the majority of capital expenditures, which
are one-time costs. An example would be paying taxes on government-
owned property, rent, staff salaries, and electricity.
Capital Expenditure- investments in capital made by the government to

fund, expand, or administer its operations and generate revenue. acquiring
fixed assets, which are tangible long-term assets, and long-term assets like
equipment. As a result, capital expenditures are typically for larger
amounts than revenue expenditures. The purchase of industrial machinery,
commercial purchases, other government expenditures like furnishings,
infrastructure investment, etc. are examples.
Public Debt- The Public Account of India documents the flows for
transactions in which the government only serves as a banker. This fund
was established under Article 266(2) of the Constitution. It considers
transaction flows in which the government solely acts as a banker. Minor
savings, provident funds, and other examples are provided. They must
eventually be returned to their original owners because this money does
not belong to the government. As a result, spending from the public
account does not need to be approved by the Parliament.
DIFFERENCE BETWEEN FISCAL POLICY AND MONETARY

POLICY
5.3 -RBI ROLES AND FUNCTIONS
The central bank of India is the Reserve Bank of India (RBI). It manages
the monetary policy for the Indian rupee, which is the country's official
currency. The RBI's primary responsibilities include issuing money,
preserving India's monetary stability, managing the currency, and
upholding the nation's credit system.
The RBI is a crucial national institution and the foundation of the booming
Indian economy. It belongs to the IMF (International Monetary Fund)
(IMF).
The ideas Dr. Ambedkar developed in his book "The Problem of the Rupee
- Its Origin and its Solution" served as the foundation for the Reserve Bank
of India's approach.
The "Royal Commission on Indian Currency & Finance" made
recommendations that led to the establishment of this central banking
organisation in 1926. The Hilton Young Commission was another name
for this body.
The Reserve Bank of India was nationalised in 1949 and joined the Asian
Clearing Union as a member bank.
RBI controls India's monetary and credit systems.
FUNCTIONS
Monetary Authority
Implementation of monetary policies.
Monitoring the monetary policies
Ensuring price stability in the country considering the economic growth of
the country
Also, read about the Monetary Policy Committee (MPC) and know more
about this six-member committee.
Regulator and Administrator of the Financial System

The RBI determines the comprehensive parameters of banking operations.
These methods are responsible for the functioning of the country’s
banking and financial system. Methods such as:
License issuing
Liquidity of assets
Bank mergers
Branch expansion, etc.
Managing Foreign Exchange

RBI manages the FOREX Reserves of India.
It is responsible for maintaining the value of the Rupee outside the
country.
It aids foreign trade payment.
Issuer of currency
The Reserve Bank of India is responsible for providing the public with a
sufficient supply of currency notes and coins.
The quality of currency notes and coins is also taken care of by the RBI.
RBI is in charge of issuing and exchanging of currency and coins.
Also, the destruction of currency and coins that are not fit for circulation.
1.Explain the main objective of competition act.
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
2. Highlight the four main core areas of the competition act
........................................................................................................
........................................................................................................
........................................................................................................
............................................................................
5.4 -REGULATIONS RELATED TO CAPITAL

MARKETS
Regulations play a critical role in the expansion of capital markets
globally. The expansion of the capital market is necessary for the
development of a market economy. Securities are covered by the
regulation of a capital market. The capital market can operate more
skillfully and fairly thanks to these regulations.
One of the most sophisticated new equity issuance marketplaces is found
in India. Comparable to the greatest systems in the world, listed firms'
disclosure standards and accounting practises provide financial
information. The department of economic affairs, the department of
corporate affairs, and the reserve bank of India are just a few of the
organisations that oversee the securities market in India. The Securities
and Exchange Board of India (SEBI), which is based in Bombay, is
currently largely in charge of the capital markets and the protection of
investors' interests.
High level committee on capital and financial market coordinates these
agencies' work. The high level coordinated committee for the financial
market discusses a range of policy-level issues that call for ongoing
coordination between the financial market's various regulators, including
the RBI, SEBI, the insurance regulatory and development authority
(IRDA), and the pension regulatory and development authority. Governor
of the RBI, Secretary of the Ministry of Finance, Chairman of SEBI,
Chairman of IRDA, and Chairman of PRDA serve as the committee's
chairs.
The Securities and Exchange Board of India regulates the capital market,
which is a marketplace for equities and debt securities (SEBI). The
Securities and Exchange Board of India (SEBI) is completely autonomous
and has the power to oversee the growth of the capital market. Under the
Securities Controls Act, the SEBI Act, and the Depositories Act, the
government has established regulations.
5.5 ROLE OF SEBI

Among SEBI's duties is regulating activity on the stock exchange and

other securities markets.
registering and overseeing the operation of mutual funds and other
collective investment plans.
excluding securities market-related fraud and unfair trading practises.

encouraging the training of securities market intermediaries and investors.
prohibiting the dealing of securities with insiders and punishing negligent
market intermediaries financially.
regulating significant share purchases and corporate takeovers.
contacting stock exchanges, intermediaries, and self-regulatory
organisations in the securities market and requesting information from
them, performing inspections, conducting investigations, and conducting
audits.

1. Discuss the role of SEBI in capital markets
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
2. Explain the role of Central bank in economic development of the

country
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5.6 -WORKING OF STOCK EXCHANGE

Participants: The stock exchange offers a trading floor for financial goods.
Before trading, brokers, traders, and investors must register with SEBI and
the exchange (BSE, NSE, or regional exchanges), as well as the companies
(listing their shares).
Securities and Exchange Board of India (SEBI): SEBI is the market

regulator whose main duty is to guarantee that the Indian stock market
operates smoothly and transparently, allowing average investors to invest
without concern. Exchanges, businesses, brokerages, and other
participants must all adhere to the rules established by SEBI.
Stockbrokers: Members of exchanges are stockbrokers. They are the

middlemen who, in exchange for fees, carry out the buy- and sell-order
instructions from investors. Investors must trade through broking houses
or brokers in the Indian system, who serve as facilitators.
Investors and traders: Investors and traders are the two main categories of
market participants. Investors purchase stock in a company with the
intention of holding it for the long term and earning money from it. In
contrast to investors, traders engage in the buying and selling of stocks.
Company success, possibilities for long-term growth, dividend payments,

and other similar aspects drive investor behaviour. Contrarily, price
changes as well as supply and demand considerations have an impact on
traders.
5.7 LET US SUM UP
In the present era of liberalization, MRTP has lost its relevance. The
Government is today promoting the expansion of organizations.
Mergers and Acquisitions are no longer, but are permitted and in some
cases even encouraged by the government.
Organizations enjoying a dominant position in the market are

prohibited by the Act from using their strength to affect competitions
or consumers or the relevant market in its favour.
The CCI regulate the combinations and mergers and acquisitions. The
commission is not bound by the procedure laid down by the code of
civil procedure, 1908, but guided by the principles of natural justice
and, subject to the other provisions of this Act and of any rules made
by the central Government
5.8 KEY WORDS
1. Competition Act: The Competition Act, 2002 is a law that governs

commercial competition in India. It replaced the erstwhile Monopolies and
Restrictive Trade Practices Act
2. FEMA: FEMA stands for ' Foreign Exchange Management Act ', an
official Act that consolidates and amends laws regulating foreign
exchange in India.
3.Monetary Policy: Monetary policy is a set of actions to control a

nation's overall money supply and achieve economic growth.
4.Fiscal Policy: Fiscal policy is the use of government spending and

taxation to influence the economy
5.CRR: Cash Reserve Ratio (CRR) is the share of a bank’s total deposit
that is mandated by the Reserve Bank of India (RBI) to be maintained with
the latter as reserves in the form of liquid cash

objective of the Competition Law’s regulation of practices in
restraint of competition appears to be protection of the process of
competition, rather than the interests of competitors. By protecting
the process of competition, which goods and services are produced
and the price of those goods and services is determined by the
market. The objective of the Law’s regulation of unfair
competitive practices is largely protection of consumers so they
can make free and informed choices from amongst the goods
and services in the market
Competition Act Focuses on four Core Areas
Anti competitive Agreements
Abuse of dominance
Combination regulation (Mergers and alliances)
Competition Advocacy
6. Refer 2 for Answer to check your progress- 2 Q. 1 … The SEBI is
the regulatory authority established under Section 3 of SEBI Act
1992 to protect the interests of the investors in securities and to
promote the development of, and to regulate, the securities market
and for matters connected therewith and incidental thereto.
7. Refer 2 for Answer to check your progress- 2 Q. 2 … To promote
the integrity, efficiency, inclusiveness and competitiveness of the
financial and payments system; To ensure efficient management of
currency as well as banking services to the Government and banks;
and. To support the balanced, equitable and sustainable economic
development of the country.
5.10SOME USEFUL BOOKS

g House, Delhi.
3rd Ed.
ouse.
dition.
1. Explain the main features of the competition act

2. What is meant by monetary policy and who frames the monetary policy
of India
3. Explain the meaning and purpose of Fiscal Policy
4. What are the roles and responsibilities of RBI
5. Explain the functioning of the stock exchange?

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UTTARANCHAL UNIVERSITY

Program Name OMBA Program Code 501

UNIT– 1 INTRODUCTION: BUSINESS

• To elaborate the meaning of business environment.

1.1 INTROCUTION: MEANING AND

A commercial or economic activity engaged in as a means of livelihood

All of us need food, clothing, shelter and many other household

Business of to-day or tomorrow is governed by external forces. In the

External and Internal environment factors. It also highlights the existing

Some more concepts:

Stephenson defines business as, “The regular production or purchase and

According to Dicksee, “Business refers to a form of activity conducted

Lewis Henry defines business as, “Human activity directed towards

Thus, the term business means continuous production and distribution of

i. Exchange of goods and services

Regularity of Interchange of goods

Fig 1.2.1: Nature of Business

Features of enterprise: The driving force behind any business is the

Main Objective is Profit: Profit motive is the most essential

Economic activities related to production and distribution: Profit

Regularity of transactions: When transactions are regular and

Risk and uncertainty: The dynamic nature of business environment

Element of creation of utilities: Adding value to the products and

1.2.3 SCOPE OF BUSINESS

3. Businesses which distributes goods: Involves in the

Classification based on the nature of activity:

Classification Based on Competitive Structure:

Classification Based on Size: Small, Medium and Large Scale

Classification Based on Nature of ownership:

i. Classification based on the final product or service provided:

ii. Business which produces services: Involves IT enabled

ii. Classification based on the nature of activity:

Classification Based on Competitive Structure:

Classification Based on Size: Small, Medium and Large Scale Industries.

Classification Based on Usage:

iii. Joint Sector: Government participation in the equity capital of

1.3 OBJECTIVES OF BUSINESS

Generally, an enterprise pursues multiple objectives rather than a single

The objectives which are satisfied in short duration of time or immediately

1.3.1 ECONOMIC OBJECTIVES

Efficiency: Efficiency refers to the optimum utilization of available and

Stability: Stability is one of an important, cautious and conservative

1.3.2 SOCIAL OBJECTIVES:

Check Your Progress-1

1. Explain the term business environment

2. Why it is important for business enterprises to understand their

1.4 TYPES OF BUSINESS ORGANIZATION

What are the five forms of business organizations?

TYPES OF BUSINESS ORGANIZATION

Among the benefits of partnerships are:

Simple to establish Partnerships require the least amount of

Expertise can be combined by partners: There are more chances to

A firm founded by two or more family members, friends, or

Among the benefits of corporations are:

Owner involvement is lower than manager involvement: When

This well-liked type of corporate structure is the simplest to set up.

A solo proprietorship has several benefits, including:

Negative aspects include:

Among the benefits of a cooperative are:

Limited liability company

Limited liability: As implied by the name, owners and managers

Several drawbacks are as follows:

Taxes: Owners might be responsible for covering their own