UNIT-1

INTRODUCTION :
Business environment consist of all those factors that have a bearing on the
business. The term’ business environment implies those external forces, factors
and institutions that are beyond the control of individual business organizations
and their management and affect the business enterprises. It implies all external
forces within which a business enterprise operates. Business environment
influence the functioning of the business system. Thus, business environment
may be defined as all those conditions and forces which are external to the
business and are beyond the individual business unit, but it operates within it.
These force are customer, creditors, competitions, government socio-cultural
organizations, political parties national and international organizations etc. some
of those forces affect the business directly which some others have indirect
effect on the business.
Meaning of Business environment –
Environment of a business means the external forces influencing the business
decisions. They can be forces of economic, social, political and technological
factors. These factors are outside the control of the business. The business can
do little to change them. Following features –
1) Totality of external forces: Business environment is the sum total of al
things external to business firms and, as such, is aggregative in nature.
2) Specific and general forces: Business environment includes both specific
and general forces Specific forces (such as investors, customers, competitors
and suppliers) affect individual enterprises directly and immediately in their
day-to-day working. General forces (such as social, political, legal and
technological conditions) have impact on all business enterprises and thus may
affect an individual firm only indirectly.
3) Dynamic nature: Business environment is dynamic in that it keeps on
changing whether in terms of technological improvement, shifts in consumer
preferences or entry of new competition in the market.
4) Uncertainty: Business environment is largely uncertain as it is very difficult
to predict future happenings, especially when environment changes are taking
place too frequently as in the case of information technology fashion industries.
 5) Relativity: Business environment is a relative concept since it differs from
country to country and even region to region. Political conditions in the USA,
for instance, differ from those in China or Pakistan. Similarly, demand for
sarees may be firmly high in India whereas it may be almost non-existent in
France
SIGNIFICANCE
It Helps in Identifying Opportunities and Making First Mover
Advantage
The environment provides numerous opportunities, and it is necessary to
identify opportunities to improve the performance of a business.
Early identification gives an opportunity to an enterprise be the first to identify
opportunity instead of losing them to competitors. Example: ‘Airtel’ identified
the need for fast internet and took first-mover advantage by providing 4G speed
to its users followed by Vodafone and Idea.
It Helps the Firm Identify Threats and Early Warning Signals
 The business environment helps in understanding the threats which are
likely to happen in the future.
 Environmental awareness can help managers identify various threats on
time and serve as an early warning signal. Example: Patanjali products
have become a warning signal to the rest of the FMCG
 The sector to develop similar products. Similarly, if an Indian firm finds
that a foreign multinational is entering the Indian market with new
substitutes; it needs to prepare accordingly.
 Chinese mobile phones have become a threat for Indian mobile phone
manufacturers.
It Helps in Tapping Useful Resources
 Business and industry avail the resources (inputs) from the
environment and convert them into usable products (outputs) and provide
to society.
 The environment provides various inputs (resources) the like finance,
machines, raw materials, power and water, labour, etc.
 The business enterprise provides outputs such as goods and services to
the customers, payment of taxes to the government, to investors and so
on.
Example: With the demand for the latest technology, manufacturers will tap the
resources from the environment to manufacture LED TVs and Smart TVs rather
than collecting resources for colour or Black & White TVs.
It Helps in Coping with Rapid Changes
 The business environment is changing very rapidly, and the industry is
getting affected by changing market conditions.
 Turbulent market environment, less brand loyalty, divisions of markets,
changes in fashions, more demanding customers, and global competition
are some examples of changing the business environment.
Example: Jack Ma started Alibaba as he could see the potential of interest in
E-Commerce.
It Helps in Assisting in Planning and Policy Formulation
 The business environment brings both threats and opportunities to a
business.
 Awareness of business environment helps in deciding future planning or
decision making.
Example: Multiple entries of Chinese phones like VIVO, Gionee, OPPO, etc.
have posed a threat to local players like Micromax, Karbonn, Lava etc. to think
afresh how to deal with the situation.
It Helps in Improving Performance
 Environmental studies reveal that the success of any enterprise is closely
bound with the changes in the environment.
 The enterprises which monitor and adopt suitable business practices not
only improve their performance but become leaders in the industry also.
Example: Apple has been successful in maintaining its market share due to its
proper understanding of the environment and making suitable innovations in its
products.

ELEMENTS OF ECONOMIC ENVIRONMENT

The economic environment of the business is one of the external factors that can
influence strategy and decision-making in the business context. Economic
factors are important because they are directly related to goods, services, and
consumers. They also have a huge impact on how the business is able to operate
in its country of origin and partner with other businesses in different countries.
Let's examine this topic in more detail.

Economic
system

Economic
Economic
Legislatio
Policies
n
ELEMENTS

Regional
Economic
Economic
Conditions
groups

1. Economic systems : Economic system determines the scope of private sec

tore ownership of the factors of
production and market forces. The model of economic system are:
A) Free market economic : This system is based on private ownership of the
factors of production. Profit
serves as the driver of economic engine. The competitive market mechanism
guides business
decisions. There is freedom of choice. Individual initiative is encouraged.
B) Centrally planned economy : This system is based on police ownership of
the factors of production.
The economy is centrally planned. Controlled and regulated by the government.
There is no consumer
sovereignty. Police enterprises play a dominant role.
C) Mixed economy : This system is a mix of free market and centrally planned
economics. Both public
and private sectors coexist. The public sector ha ownership and control of basic
industries including
utilities. The sector owns agriculture and other industries but is regulated by the
state.
2. Economic policies: Policies are guidelines for decision making and action.
Economic policies of the government significantly influence and guide
organizations. Key economic policies influencing organization are :
A) Monetary policy- It is concerned with money supply, inflation rates, interest
rates and credit
availability. It influences the level of spending through interest rates. Cheap
money reduces cost, dear
money increase cost. Interest rates cost of capital. Foreign exchange rates affect
imports and exports.
B) Fiscal policy- It is concerned with the use of taxation and government
expenditure to regulate economic activity. Tax on income, expenditure and
capital influence business decisions.
C) Industrial policy - It is concerned with industrial licensing location,
incentives, facilities, foreign investment, technology transfer and
nationalization.
3. Economic conditions : They indicate the health of the economy in which the
organization operates. The factors affecting economic conditions are :
A) State of economic development : An economy can be least developed.
developing and developed
Organizational activities are influence by the stage of economic development.
B) Income: The level of employment affect expenditure, saving and investment.
They together influence
the economic conditions of organization.
C) Employment: The level of employment affects organization. It determines
availability and of labour.
D) Business cycle: The stages of business cycle can prosperity, rescission and
recovery. They affects the health organization.
E) Influence: It is rise in price level, influences costs, price and profit of
organization.
4. Regional economic groups: They promote cooperation and free trade among
members by removing tariff
and other restrictions. They provide opportunities to member countries and
threats to non-member counties.
Example are: SAARC : South Asian Association for Regional Cooperation.
ASIAN: Association of South East Asian Nations.
EU: Europeans Unions
5. Economic Legislations: This refers to set of laws, regulations, which
influence the business organizations and their operations. Every business
organization has to obey, and work within the framework of the law. It includes-
➢ Industrial Dispute Act, 1947

➢ Factories Act, 1948

➢ Consumer Protection Act, 1986

➢ Competition Act, 2002

➢ Industries Development & Regulation Act, 1951

1] Economic Systems
Capitalist Economy: There are no restrictions in a capitalist economy. The
market forces operate freely, demand and supply will decide the prices in the
market. There is private ownership of factors of production and private
companies.

Socialist Economy: This type of economy is characterized by government

control and central planning authority. So there is no private ownership, all
means of production are under state control. There are no market forces and the
price is also set by the state.

Mixed Economy: Here the best features of both capitalism and socialism
combine to give us this system. Market forces are very much in force to decide
demand supply and prices. But there is some government oversight to ensure
that there are no discriminatory practices.

2. Economic Conditions
The economic conditions of the country also have a huge impact on the firms
that exist within the economy. Furthermore, economic conditions are the sum
total of many factors that can greatly affect a business. Such factors include
GDP of the economy, per capita income, availability of capital, utilization of
resources, state of the capital market, interest rates, unemployment levels, etc.
3] Economic Policies
In any economy, the government has some control and/or oversight. Moreover,
governments with the help of their planning authorities frame and implement
many types of economic policies.
Industrial Policy: These are all rules, laws, notifications, policies,
circulars, etc through which the government controls and governs the
industrial sector of the economy. This helps them shape the industrial
development of the country.

Fiscal Policy: This is the government policy with regard to public

expenditure, taxation, and public debt. This also greatly affects the
businesses functioning in the economy.

Monetary Policy: This policy will decide the supply of money to the
market. Consequently, will decide the levels of savings and investments.
It will also control the credit supply in the economy.

Foreign Investment Policy: This deals with keeping the foreign

investments in-check for all sectors. So, we can benefit from the new
technologies in all sectors.

Import Export Policy: This is how the government controls the export
and imports of a country. Also, the import-export policies will lay out the
duties, taxes, subsidies, etc. These days there are not many barriers to
import and export which positively affects the economic environment.

SUSTAINABLE DEVELOPMENT
Sustainable Development was first introduced in the year 1987 by “World
Commission on Environment” in its report
named “OUR COMMON FUTURE” also known as BRUNDTLAND
COMMISSION.
“Sustainable development is the development that meets the needs of the
present without compromising on the ability of the future generations to meet
their own needs.”
Sustainable development is based on two fundamental conceptsThe first
concept considers earth’s carrying capacity and stresses on natural resources
like forest, soil fertility, healthy wetlands, ozone layer etc. which provide basic
requirements of human being.
The second concept focuses on balancing of economical, social and ecological
goals which include the basic needs
like health, literacy, democratic values etc. However, both the concepts are
concerned with quality of life and conservation of environment.
There are three pillars of sustainable development namely;

Social • which includes providing basic

needs like food, shelter,
development clothes, health, education etc.

Economic • which include industrialization

creating job opportunity
Development

Environmental • which includes providing clean

air, safe water, quality
Protection environment.

ENVIRONMENTAL PROTECTION
Environmental protec on is prac ced for protec ng the natural environment
on individual, organiza on controlled by governmental levels, for the benefit of
both the environment and humans. Due to the pressures of overconsump on,
popula on and technology, the biophysical environment is being degraded. In
other words Environmental Protec on is guarding the natural resources of the
environment from pollutants that are harmful. It involves engaging is
sustainable environmental prac ces that do not destroy nature. The
environment is anything that surrounds us and protec ng it is our
responsibility.
NEED FOR ENVIRONMENTAL PROTECTION
 The environment supports our life. The natural process that occur in the
environment promote the existence of life.
 With the current scien fic innova ons, the environment is endangered.
There is the discharge of so many harmful greenhouse gases that disrupt
the natural processes of the environment. The increase in the number of
cars being driven is a hazard. The use of low-grade plas c such as PVC, is
another added nega ve impact to the environment.
 With all these harmful things going on, the environment becomes our
responsibility as we are part of it. The most important thing is that
biodiversity is important.
METHODS OF PROTECTING ENVIRONMENT
 Afforestation- Afforestation and reforestation should be our main
agenda. Plant as many trees as possible they act as water catchment areas,
they purify the air and are also a habitat for many animals.
 Using green technology - Wind and solar power are the best examples.
That pose no challenge to the environment and they are naturally
occurring.
 Using less chemicals - Practice good farming habits, use less chemicals
in the gardens and in household chores. Chemicals pose a challenge to
water bodies as well as the soil.
 By Creating Awareness - Educate people on the importance of
protecting the environment. This can be done through tree planting
programs. Also inform people on the importance of reduced driving.
Make them aware of the harm that harmful gases can cause and how to
eliminate them.

FACTORS AFFECTING ECONOMIC DEVELOPMENT

There are various factors which are responsible for economic development in
any country. These vary from country to
country. Anyhow following are the important factors which influence the social
structure of any country
1. Natural Resources :- Natural resources play an important role in the
economic development of any country. Land, rivers, forests, mountains minerals
and climate is also included in natural resources. If any country is rich in natural
resources, it can improve its economic condition more rapidly. On the other
hand in the underdeveloped countries, there is a shortage of natural resources. It
is one of the cause for their backwardness. Another problem is that poor
countries are unable to utilize these resources properly.
2. Capital Accumulation :- Capital accumulation means to increase the real
assets in the economic development. In advanced countries the rate of saving
and investment is high, so it increases the rate of employment and rate of
development in these countries. While in the poor countries due to low per
capita income, saving and investment is low, which causes low production and
unemployment. Another problem is that capital is less productive in the
underdeveloped countries as compared to the advanced countries.
3. Power / Energy Resources :- Energy resources like oil, gas, electricity, coal
and nuclear energy play an important role in the economic development. The
importance of these resources has been changing with the passage of time.
Energy resources are very useful in increasing the production of various sectors
like agriculture, industry and transport.
4. Labour / Manpower :- Labour is an important factor for the economic
development of any country. If any country birth rate is high and the size of
resources it will be an obstacle in the way of development. On the other Hand if
a country is underpopulated it is also not favorable for the economy. If the size
of population is according to the size of natural resources, people are educated
honest, efficient and skilled it will be helpful for economic development. The
per capita income, rate of saving, rate of investment, rate of employment and
rate of development will be high.
5. Education :- Education plays very effective role in increasing the rate of
development in the country. Today expenditure on education is considered an
investment. In less developed countries the rate of literacy is very low which is
the main cause of low production. Now the government of less developed
countries have realized the importance of education and is allocating a sufficient
amount every year for this sector. But unluckily our standard of education is not
improving and rate of unemployment is increasing day by day due to many
reasons. The Government of underdeveloped countries should take effective
measures to promote the technical and professional education in the country.
6. Transport and Communication :- According to modern economist transport
and communication is a key to economic development. Transport means
Railways, roads, Air and water transport. While post offices, telephone,
telegraph, internet, radio and TV is included in the communication resources.
This sector of the country increases the internal and external trade and reduces
the cost of production. It expands the market. Cheap and quick means of
transportation and communication create the sense of brotherhood and unity
among the people.
7. Technology :- Technology means the use of latest inventions in the
production of goods. Technology plays an important role in the economic
development. The less developing countries are poor because there is a lack of
technology and capital. There is also a lack of technical skill and we are using
old methods of production. So our national product is very low. Now our
government and masses has given more importance to the technology. Now in
various sectors we are using the latest machines to improve our production. We
also paying special attention to information technology.
8. Social and Cultural Factors :- If the attitude of the people is positive
towards development then they can made rapid progress. For the economic
development it is the necessary that people should leave the useless customs and
they start thinking about their economic conditions.
9. Administrative Factor :- An effective, honest, strong administration can give
big push to the economic development. Corrupt , dishonest and inefficient
administration is an obstacle in the way of economic development.
10. Political Stability :- Stable government can play effective role in increasing
the rate of development in the country. It can introduce many reforms and can
prepare the development plans. In less developing countries political instability
has also reduced the rate of development in the country. The political unrest is
one of the main causes of low rate of development in the underdeveloped
countries.
SUNRISE SECTOR OF INDIA
Sunrise Industry is a colloquial term for a burgeoning sector or business that is
just in its infancy but shows promise of a rapid boom. A sunrise industry is
typically characterized by high growth rates, numerous start-ups and an
abundance of venture capital funding. Sunrise industries generally have plenty
of "buzz" surrounding them as public awareness about the sector increases and
investors get attracted to its long-term growth prospects. In other words Sunrise
Industry may be defined as the one that is new or relatively new, is growing fast
and is expected to become important in the future.

Sunrise Sector

IT Telecom

Healthcare Retail

Infrastructure

1. INFORMATION TECHNOLOGY-
The IT sector has been India's sunshine sector for quite some time now. The
industry has contributed considerably to changing India's image from a slow
developing economy to a global player in providing world class technology
solutions. According to the IBEF (India Brand Equity Foundation) figures, the
Indian IT industry is set to touch $225 billion by 2020. Industry experts and
NASSCOM say the Indian IT workforce will touch 30 million by 2020,
becoming the highest sector employer.
2. TELECOM- India's telecom story is only getting better. According to
Zinnov estimates, India already has nearly 850 million mobile phone
subscribers, with a 15% smart phone penetration. All this points to a penetration
that is fueling the growth of enterprise mobility in India, which will lead to
significant employment growth. The Telecom Regulatory Authority of India
(TRAI) too is targeting a 10-fold increase in broadband subscribers to100
million by 2014.
3. HEALTH CARE- There are clear indications that healthcare is going to be a
major sector that stimulates economic growth and contribute to employment.
Over 40 million new jobs are expected to be generated by 2020, as per a report
titled 'India's New Opportunities-2020' by the All India Management
Association, Boston Consulting Group and the Confederation of Indian
Industries (CII). The Indian healthcare industry also has advantages over other
developing countries in becoming a global hub for medical tourism. The
medical treatment and educational services in India are a fraction of the cost in
developed countries.
4. INFRASTRUCTURE- India's infrastructure growth has been exponential
over the past decade. Today, we are the fourth largest and probably the second-
fastest growing economy, with infrastructure being one of the cornerstones. The
infrastructure industry in India is highly fragmented and hence difficult to gunge
its exact size and the jobs it generates each year in absolute terms. However, be
it roads and highways, railways, aviation, shipping, energy, power or oil & gas,
the Indian government and the various state governments seem to making rapid
growth.
5. RETAIL - Over the past few months, the retail sector has grabbed headlines
with talks of 100% FDI in single brand retail, which is currently capped at 51%.
While the outcome is still undecided, the opening up of India's retail will create
a stronger, organized industry that will help in generating employment. Today,
only a small part of retail in India is organized. Despite this, it is estimated that
the sector in India is worth more than $400 billion, with domestic and
international players planning to expand across the country. Industry leaders
predict that the next phase of growth will emerge from rural markets. There are
projections of the workforce doubling by 2015, from the current five lakhs in
both organized and unorganized sector.