Environment for Business

Significant features of Indian

business environment.
• 1. Co-Existence of Public and Private Sector:
Indian business environment is characterized by the co-existence of
both public and private sector in respect of its participation in various
economic activities in the country. Accordingly, the various economic
policies of the country can promote the development of both the sectors
in different spheres of activities.
• 2. Low Income Level:
Another features of Indian business environment is that it has to face
low income level of the people in general as an important economic
parameter for determining its economic activities.
• 3. Poor Rate of Capital Formation:
Capital deficiency is one of the important features of the Indian
business environment. Both the amount of capital available per head
and the present rate of capital formation in India is very low. Moreover,
this low level of capital formation in India is also due to weakness of the
inducement to invest and also due to low propensity and capacity to
save. Thus under this present feature, the business environment of the
country never faces adequate incentive towards faster development of
the country.
• 4. Low Level of Technology:
Prevalence of low level of technology is another important feature of
Indian business environment. The business environment of the country
is thus suffering from technological backwardness. Obsolete
techniques of production are largely being applied in both agriculture
and industrial sector of the country.
Sophisticated modern technology is being applied in production units at
a very limited scale as it is very much expensive. Moreover, the huge
unskilled and untrained labour force is also an important impediment
towards technological modernization of the country.
• 5. Under-Utilization of Capacity:
Under-utilization of productive capacity of Indian industries is another
important feature of Indian business environment. As a result of this
under utilization, the industries in India are suffering from higher unit
costs and low profitability syndrome.
• 6. Lack of Diversification:
The business environment of the country is also subjected to the
problem of lack of diversification in its industry, trade and other related
activities.
• 7. Financial Market:
Indian business environment is also supported by under developed
financial market. Financial market is suffering from lack of buoyancy
and there is also the problem of lack of adequate and free
uninterrupted flow of institutional credit towards industrial and other
business units.
• 8. Industrial Dispute and Slow Pace of Labour Reforms:
Another important feature of business environment is the growing
industrial dispute leading to strikes and lock-outs in growing number of
units as a result of irrational trade union activities. Moreover, the slow
pace of labour reforms introduced by the Government has affected the
business environment of the country.
• 9. Government Interference
Business environment in the country is also affected by unwanted
government interference in various spheres of business and industrial
activities. There is lack of single window clearance and lack of
administration efficiency in respect of industrial licensing. Thus the
business enterprises have to face the problem of red-tapism,
harassment, corruption, undue delay etc. which ultimately interrupts the
promotion of smooth business environment in the country.
• 10. Transportation Bottle Neck:
Another important feature of business, environment of the country is
that it is subjected to frequent transport bottle-neck. Although the
country has developed a wide network of transportation system
throughout the country but its frequent interruption as a result of natural
calamities like flood, landslides etc. and insurgency has been resulting
a serious blow to the business environment of the country.
• 11. Disturbed Law and Order Conditions:
Another important feature of business environment in India is its
disturbed law and order conditions in some particular regions leading
unbalanced growth where smooth flow of business is interrupted. Thus
the business environment in a vast country like India is subjected to its
diversified features.
 Business Environment

The actors and forces that affect business

functioning, its present and future interests
Affects Economy
as a whole
BE

Macro Micro Affects Industry

Internal External

Affects Firm
MACRO ENVIRONMENT :
1. Demographic Environment
What is the distinguishing
2. Economic Environment criteria ?
3. Natural Environment
4. Technological Environment
5. Political and cultural forces
• Micro Environment :
1. Internal environment ( all functional areas)
defines core competencies…….

2. External environment ( customer ,

competition , intermediaries , suppliers etc )
 Macro environmental Forces
( general outlook)
• Opening of “new” markets
• Emerging transnational firms
• Cross-border strategic alliances
• Regional ethnic & religious conflict
• Global branding
 Demographic Environment

Worldwide Population Growth

Population Age Mix

Ethnic Markets

Educational Groups

Household Patterns

Geographical Shifts in Population

Shift from Mass Market to Micromarkets

 Economic Environment

Income Distribution

Savings, Debt, &

Credit Availability
 Changing Role
of Government

Higher Pollution Natural Shortage of

Levels Environment Raw Materials

Increased Costs
of Energy
Accelerating Pace Unlimited Opportunities
of Change for Innovation

Issues in the Technological

Environment

Varying Increased
R & D Budgets Regulation
Increased
Legislation
Political-
Legal
Environment

Special-
Interest
Groups
Social/Cultural Environment

Of
Oneself

Of Of
the Universe Views Others
That Express
Of Values Of
Nature Organizations

Of
Society
A Well-Formulated Strategy Is
Vital to a Business’s Success
Strategy Formulation

Analyze the
Organization
Match the
Set Organization Formulate
Strategic and its Strategy
Goals Environment
Analyze the
Environment
 Strengths

SWOT
Threats Weaknesses
Analysis

Opportunities
Assessing the Internal Environment

Internal scan or assessment of the internal environment of the

organization involves identification of its strengths and weaknesses
i.e., those aspects that help or hinder accomplishment of the
organization’s mission and fulfillment of its mandate with respect to
the following Four Ps:
1. People (Human Resources)
2. Properties (Buildings, Equipments and other facilities)
3. Processes (Such as policies , programs ,systems)
4. Products

Assessing the External Environment

• External scan refers to exploring the environment outside the

organisation in order to identify the opportunities and threats it faces.
This involves considering the following:
• Events, trends and forces in the Social, Technological, Economical,
Environmental and Political areas (STEEP).
• Identifying the shifts in the needs of customers and potential clients
and
• Identification of competitors and collaborators
 Growth Stability

The Grand Strategies

Combination Retrenchment
• The Growth Strategy.
Organizations can grow through direct expansion, merger, and
acquisition. A direct expansion strategy involves increasing a
company’s size, revenues, operation, or workforce. A merger occurs
when two companies (of similar size) combine resources to form a
new company. An acquisition occurs when a larger company “buys”
a smaller one and absorbs its operations.

• The Stability Strategy.

Characterized by an absence of change, this strategy is appropriate if
several conditions exist : a stable and unchanging environment,
satisfactory organizational performance, absence of valuable
strengths and critical weaknesses, and nonsignificant opportunities
and threats.

• The Retrenchment Strategy. Characteristic of an organization

that is downsizing, this strategy is used in an environment of decline.

• The Combination Strategy.

• This strategy is the simultaneous pursuit of two or more strategies.
 Determining A
Competitive Strategy

Cost
Differentiation
Leadership

Focus
 The selection of a grand strategy sets the stage. Then, each
organizational unit has to translate this strategy into a set of
strategies that will give the organization a competitive advantage.
Doing so requires a careful analysis of the competitive forces in the
industry in which the organization operates.

Michael Porter of Harvard University asserts that no firm can be all

things to all people. By using his framework, management can
select a strategy that gives its organization a competitive advantage
Porter named three strategies from which management may
choose: cost-leadership, differentiation, and focus.

When an organization aims to be the low-cost producer, it is

following a cost-leadership strategy.
The firm that seeks to be unique in ways that are widely valued by
buyers is following a differentiation strategy.
The focus strategy aims at a cost advantage or differentiation
advantage in a narrow segment.
.
 If an organization cannot use any one of these three
strategies to develop a competitive advantage, then it is
stuck in the middle. Long-term success is difficult for such
an organization, unless it is competing in a highly
favorable market or all of its competitors are also stuck in
the middle.

In order to sustain a competitive advantage, managers can

create barriers to competition through patents,
copyrights, or trademarks. If there are strong efficiencies
from economies of scale, reducing price to boost volume
is useful. Organizations can also “tie up” suppliers with
exclusive contracts and lobby for government policies to
limit foreign competition