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Introduction to Business Environment
Contemporary Scenario of
Business Nature of Modern Business Economic Factors Socio cultural Factors Technological Factors
What is Business???
Business may be understood as the organized efforts of enterprises to supply consumers with goods and services for a profit According to Arthur M.Weiner: “business is that complex field of commerce & industry in which goods & services are created & distributed in the hope of profit within a framework of laws & regulations”.
Contemporary Business goals
Profit (Bottom-line) Growth Market Leadership Customer satisfaction Employee satisfaction Quality Products & Services Service to Society
Characteristics of Business Change Govern ment Control Large Size Competi tion Characteris tics of Business Diversifi cation Informa tion Technol ogy Globaliz ation .
Indian companies – Fortune 500 8 Indian companies have made it to Fortune 500 list in 2010. These are: Indian Oil Corporation Reliance Industries Tata Steel Tata Motors Bharat Petroleum Hindustan Petroleum State Bank of India ONGC .
Out of which three are in fortune 10 list List Of The World Largest Companies . followed by oil giant Royal Dutch Shell and another oil major. retailer Wal-Mart Stores. The league of 500 elite companies for 2010 is topped by U.Contd. in that order. Exxon Mobil.S. A total of 54 Chinese companies made it onto the list this year..
In modern oligopolistic business. Secondly : Economies of large scale production often allow some firms to corner the entire supply of a product. Thirdly : Financial capital requirements of modern business are quite large and these forestall entry of too many firms in the business. COLLUSION is very common: Collusion represents an attempt by firms to recognise their interdependence & act together rather than compete There are 2 broad categories of Collusion .OLIGOPOLISTIC CHARACTER First : Some firms operate at a price that is too low from the point of view of other firms.
Cartel: it is combination of business firms constituted with the objective of limiting competition in the market so as to maximise profits There are 2 typical forms of cartels
Cartels aiming at joint profit maximization Cartels aiming at the sharing of the market
Price Leadership: it is tacit agreements amongst various firms giving rise to price leadership, price leadership is subject to much lesser form of collusion as compared to cartels
In oligopolistic market conditions, firms are often reluctant to lower the price of their products so to accomplish results they use Product Differentiation Non-price competition occurs in two major forms: 1. Advertising, & 2. Variation in quality and design of product.
Diversification as a growth strategy
Diversification strategies are used to expand firms' operations by adding markets, products, services, or stages of production to the existing business. When the new venture is strategically related to the existing lines of business, it is called Concentric diversification. Conglomerate diversification occurs when there is no relationship between the new and old lines of business; the new and old businesses are unrelated.
it is following a backward vertical integration strategy. Forward diversification occurs when firms move closer to the consumer in terms of the production stages.Diversification: Vertical or Horizontal? Vertical integration occurs when firms undertake operations at different stages of production. . When a firm diversifies closer to the sources of raw materials in the stages of production.
DIVERSIFICATION Examples Conglomerate Diversification : Royal Philips Electronics Concentric Diversification : Maruti Udyog Limited Some Companies do not attempt to diversify and prefer takeover of companies in their own area Example Coca Cola : Parle Soft Drinks Whirlpool : Kelvinator Refrigerators .
GLOBAL REACH It is a phenomenon which permits mobility of factors of production across globe except land. . increasing economic and growing economic interdependence between countries in the world economy. Refers to a process of deepening economic integration.
. technological change has become a pre-condition for the survival of a company Because modern corporations regard technological research strategic to their future.TECHNOLOGY ORIENTATION On account of increasing competition the world over. they carry out their R&D activities very close to their headquarters.
Example: APPLE .CHANGE The business through its innovative moves can always create synthetic wants and thus find space to produce new goods to satisfy them.
Government Control First. the government interference in business is required to correct market failures manifested in the form of monopoly and pollution. Third. Second. governments through monetary and fiscal regulation attempt to create stable business conditions. Production of socially necessary public goods has to be undertaken by the government. .
Nature of Competition Monopoly Duopoly Monopolistic competition Oligopoly .
BUSINESS CHALLENGES Managing Bottom line Meeting stakeholders expectations Developing and retaining top talent Creating a customer responsive organization Diminishing time to market Market agility Pricing and quality .
reaching impact . Characteristics of Business Environment: Complex Dynamic Multi-faceted Far. events and influences that surround and affect it.” Business Environment: refers to those aspects of the surroundings of the business that affects in operations & determine its effectiveness.What do you mean by Business Environment??? The environment of any organization is “ the aggregate of all conditions.
Why Study Business Environment Development sustainability of broad strategies to ensure To foresee the impact of socio-economic changes at the national and international levels on firm’s ability Analysis of competitor’s strategies and formulation of effective counter measures To keep oneself dynamic .
Types of Environment Internal Environment External Environment Micro environment Macro environment Economic Non Economic .
These include: Value system Mission and Objectives Structure and Nature Management . Controllable factors.Internal Environment Refers to all the factors that are within an organization which impart strengths or cause weaknesses of strategic nature.
Components of Internal Environment Human Resources Company Image and Brand Equity Other Factors Physical Assets and Facilities R & D and Technological Capabilities .
External Environment Includes all factors outside the organization which provide opportunities or pose threats to the organization Uncontrollable factors Consists of Micro and Macro environment .
.Micro Environment “It consists of the factors in the company’s immediate environment that affect the performance of the company”.
Micro Environment Factors Suppliers Customers Marketing Intermediaries Competitors Publics .
Micro Environment of a typical car manufacturer Potential Supplier Components Supplier Local Communities Stakeholders Pressure Groups Car Manufacturer Customers Potential Customers Government Competitors Car Dealers Potential Dealers For Customers For Supplies .
Macro Environment It comprises general trends and forces that may not immediately affect the organization but sooner or later will alter the way organization operates. Macro Environment : Economic Non Economic .
Distribution of Income. monetary. Economic policies for example. Disposable Income. budgets. Balance of Payments etc. Per Capital Income. Rate of savings. Economic Problems Functioning of economy . Capitalistic. Socialistic or Mixed Economy Economic planning. etc. such as five year plans.Economic Environment Economic stages that exists at a given time in a country Economic system that is adopted by a country for example. Rate of growth of GNP. industrial and fiscal policies Economic Indices such as National Income.
The economies of the world are divided into broad 3 categories: Capitalistic Economic system Socialistic Economic system Mixed Economic system .Economic Environment Economic system: An economic system provides the framework within which an economy operates & the various economic units & agents mould themselves to fit into the system.
In an environment A rapid growth. Fiscal stability & Favorable BOP-Balance of payment.. When inflation is high . Macro Economic scenario: it determines the prospects of business in the country. High rates of savings & investment. Stable prices.Economic Environment Contd.
employment..Economic Environment Contd. alternating with a period of bad trade characterized by falling prices & high unemployment percentage. prices and output. To KEYNES.” Business Cycle: It is characterized by upward and downward movement of economic activities such as levels of income. Acc. . Cycle is composed of a period of good trade characterized by rising prices & low employment percentage. “A Buss.
5 years) All economic variables are affected by the business cycles. .5 years) than the developing countries (around 7.Features of Business Cycle The phases of business cycle recur with some sort of regularity and are uniform in case of different cycles. Individual business cycles may vary greatly in duration and intensity. In case of developed countries the cycle length is short (around 4.
Causes of Fluctuations Innovation Political events Random events Wars Seasonal fluctuations etc. .
Phases of Business Cycle – A Typical Business Cycle .
Collapse of firms creates panic. High prices and profits Optimism is very high. High capital investment in basic industries Increased production. Construction activity slows down. High employment.Phases of Business Cycle Peak / Prosperity Recession Expansion of bank credit. Banks withdraw loans. Fall in income. prices. profits…… . Unemployment appears in basic capital goods industry => spreads to other industries.
high rate of business failure. . falling prices. Wages also rise. falling profits. Food. Slow but sure rise in prices & profits. clothing industry not much affected Slight improvement in economic activity. contraction of credit. Industrial production picks up. low wages. Employment increases. Banks expand credit Atmosphere of cautious hope.Phases of Business Cycle Depression / Trough Recovery Business activity is far below normal. mass unemployment. Construction activity comes more or less to a standstill. Sharp reduction in production.
directly or indirectly supply of money. Economic Policies: Outward oriented Inward oriented . rate of interest & the banking system Fiscal policy: it is basically concerned with the uses of taxes of government expenditure of achieving pre-determined objectives Industrial Policy: It specifies the relative role of domestic & multinational enterprises. regulate imports. Trade Policy: The main objective are to promote exports. Financial System Money Market Capital Market Monetary Policies: it refers to the all actions of the central bank of country. large & small industries & public & private sector firms. credit.Economic Environment Contd. which affects. improve terms of trade..
1991 to the Present. India’s first Prime Minister. most stringent controls on imports and industrial licensing were gradually relaxed. stimulating industrial growth. Between 1977 and 1991. The Reform Phase. . The Spending Boom and Rising Fiscal Deficits. two major shifts took place in the role of the State. Under Prime Minister Indira Gandhi. 1977-91. 1966-77. Jawaharlal Nehru.Non Economic Environment Regulatory Environment CHANGING POLITICAL ENVIRONMENT OF BUSINESS IN INDIA The Nehru Years 1947–64. saw industrialization as the key to alleviating poverty Garibi Hatao.
and to promote among them all FRATERNITY assuring the dignity of the individual and the unity and integrity of the nation. expression. belief.THE CONSTITUTIONAL ENVIRONMENT The Preamble JUSTICE. economic and political. faith and worship. EQUALITY of status and of opportunity. . social. LIBERTY of thought.
child labour and traffic in human beings. prohibiting all forms of forced labour. Right of any section of citizens to conserve their culture. Right to constitutional remedies for enforcement of Fundamental Rights. Right to freedom of conscience and free profession. . language or script and right of minorities to establish and administer educational institutions of their choice.FUNDAMENTAL RIGHTS Right to equality Right to freedom of speech and expression Right against exploitation. practice and propagation of religion.
DIRECTIVE PRINCIPLES OF STATE POLICY The State shall strive to promote the welfare of people by securing and protecting as effectively as it may a social order in which justice The State shall strive to minimise inequalities in income. . facilities and opportunities. The State shall direct its policy in such a manner as to secure the right of all men and women to an adequate means of livelihood and equal pay for equal work. The State shall endeavour to secure to workers a living wage. and eliminate inequalities in status. human conditions of work. not only among individuals but also among group of people.
Such Committees may be broadly classified under two heads: (i) Committees which are constituted from time to time either by the two Houses on a motion adopted in that behalf or by Speaker/Chairman to enquire into and report on specific subjects. the three Financial Committees – Committee on Estimates. . Adhoc Committees .THE THREE INSTITUTIONS OF THE GOVERNMENT Legislature (Parliament) Parliamentary Committees Standing Committees – Among the Standing Committees. and (ii) Select or Joint Committees which are appointed to consider and report on a particular Bill. Public Accounts and Public Undertakings – constitute a distinct group as they keep an unremitting vigil over government expenditure and performance.
The Executive or Government Maintaining law and order Development of infrastructure Strengthening the industrial base Guiding industrial development according to plan priorities Strengthening the capital market Setting up of industrial financing institutions Assistance to small-scale industries Providing assistance to exports Government’s role as planner Promoting agricultural development Providing employment opportunities .
In India. There is a High Court for each State or a group of States. at the apex of the entire judicial system exists Supreme Court of India.The Judiciary Judiciary is responsible for interpreting and applying the law. . Under High Courts. there is a hierarchy of subordinate courts.
and (ii) Legislations which are restrictive in their nature. 1951 • MRTP Act and Competition Act • SICA.LEGAL ENVIRONMENT OF BUSINESS Legislations can be classified into two categories: (i) Legislations which have a facilitatory role in business. 2002 • FERA. 1986 • Patents (Amendment) Bill 2005 . 1986 • The Securities Contracts (Regulation) Act. The important economic laws in India are as follows: • Company Law • Industries (Development and Regulation) Act. 1956 • SEBI • Labour Laws • Environment Protection Act. 1973 and FEMA. 1985 and Companies (Amendment) Act. 1999 • Consumer Protection Act.
NOW. WHAT EXACTLY IS SOCIOCULTURAL ENVIRONMENT Socio-cultural Environment That part of the firm's external marketing environment in which social or cultural changes (that is. Socio Cultural Society Culture . changes to the value system of a society) act to affect the firm's marketing effort. The changing socio-cultural environment may pose threats or present opportunities for the business.
including their social status and roles. . language or hierarchical organization. possibly comprising characteristics such as national or cultural identity.SOCIETY o o Society or human society is the set of relations among people. social solidarity. A society is a body of individuals outlined by the bounds of functional interdependence.
beliefs and values of a society. goals. and practices that characterizes an institution.” Culture is defined as a complex whole which consists of customs. The set of shared attitudes. organization or group.the social programming that runs the way we think. values. . act and perceive ourselves and others.CULTURE “ Culture is the software of the mind. attitudes.
and other „castes‟ are no longer confined to their original roles. Brahmins. Economic pressures. spread of education. and other developments have been breaking down slowly class distinctions and social barriers. Industrialization has created new social and political functions and new occupations. Vaishyas. was divided into four categories on the basis of caste. Indian society. particularly the Hindu society.SOCIAL INSTITUTIONS AND SYSTEMS CASTES AND COMMUNITIES As we all know. .
. crèches. Nuclear family is being preferred. Now. Now. Joint Family System was prevalent. the impacts for Marketers: Increasing demand for Flats. Vehicles. baby sitters. Increasing demand for catering services (packed lunches). Consumer Goods.FAMILY SYSTEM Earlier. The joint family is being split into smaller units of nuclear family.
Business firms can suffer heavy losses by ignoring religious sentiments of customers. Religious groups exert considerable influence on activities of business groups. negative demand for beef products in India. convictions.RELIGION AND RELIGIOUS GROUPS Religious beliefs. rituals and festivals differ from one group to another. employees and others. business must recognize and respect religious sentiments. customs. . Example. Thus.
The marriage season is a big opportunity for business. Marriage is a social event that concerns the whole society.MARRIAGE Marriage is one of the basic elements of culture and people‟s attitude towards marriage influences culture a lot. . Jewellery. For e. Kitchen ware.g. Household Furniture. marriages are a family affair. Vehicles etc have huge demand during the marriage season. In India. Honeymoon Package.
) Example. Id. name of enterprise. Christmas. Guru Purab etc. No purchase of Iron & Steel goods by people on Saturday as it is considered inauspicious. (Location of business. Business firms do brisk business on festivals such as Deepavali. .SOCIAL VALUES AND MOVERS CUSTOMS & SUPERSTITIONS Many important business decisions in India are taken on the advise of astrologers. brand name etc. time of launch.
. Even acceptable colors depend on the culture sometimes. (Lord Hanuman‟s Day) In most countries Sunday is a weekly holiday. but in Islamic countries Friday is treated as a weekly holiday.SUPERSTITIONS Barber Shops & Chicken Shops don‟t open on Tuesday due to religious reasons.
.g. Kyunki Saas Bhi Kabhi Bahu Thi. Kasauti Zindagi Kay etc both which were superhit serials and a common topic of discussion among the households.SINGH IS KINNG The extra “N” in the word King in the title of movie “Singh is Kinng” was due to astrological & numerological reasons. For e. BALAJI TELEFILMS Balaji Telefilms names all its serials starting with the letter „K‟.
productivity etc. justice love and marriage to name a few. loyalty and honesty are other aspects of the Indian work culture. hard work. morale.ATTITUDES Attitudes include things such as individual freedom. no worker or employee touches his/her tools of work. . without closing his/her eyes for a few minutes and thanking the almighty for having bestowed his blessings in the form of work. Sincerity. Attitude towards work is important as it determines motivation. democracy. but the positive aspect of Indian attitude is that generally. truth and honesty. job satisfaction. All sorts of attitudes exist.
ETHICS o o o o Ethics in business deals with the ethical path business firms ought to adopt. . Jacques Cory.cn site and instead redirect traffic to its Hong Kong-based servers. Google Halts Censorship on Chinese Search Google announces a “new approach to China. and even if ethics diminishes the profitability of the company. “companies should behave ethically and be profitable in parallel. a noted business ethicist observes. they should still behave ethically”.” indicating that China‟s behavior toward human rights activists and other efforts “to further limit free speech on the web in China” had led Google to stop censoring its search services on the Google.
EDUCATION AND ORGANISATIONAL CULTURE EDUCATION A person is said to be literate if he/ she is 15 years and above and can read and write Approximately 35% of illiterate world population is of India In 2007. launched Sarva Shiksha Abhiyan to provide free and compulsory education for age group 6–14 years. To promote Education Govt. with 90. adult literacy rate is 66% from 12% in 1947 In 2009 Literacy rate for men was 76.9% for men and 54.5% for women Kerala is the most literate state in India. . Mid Day Meal scheme etc.86% literacy and Bihar is the least literate state with 47% literacy.
packaging.EDUCATION Countries rich in educational facilities vastly attract high wage industries. “India is playing for the number one position. quality of marketing research and distribution system.” . we will not be number one for long. If they keep producing more engineers. Barack Obama has said in a recent address to the US Senate that. By investing in education. a country can attract “Brain-Power” Industries. The level of literacy determines the nature of advertising. doctors and scientists than us. Market Potential of a country depends on education.
Management will be required to manage diversity. . Workforce diversity has important implications for Management practices. Managers will be required to shift their philosophy from treating everyone alike to recognising differences and responding to those differences in manners that will ensure employee retention and productivity.WORK FORCE DIVERSITY When people from different cultures converge in a workplace.
Reebok had to discontinue its „INCUBUS‟ brand as in medieval folklore. (18 officially recognized languages and the census of India identifies 1652 more. „fabrication‟. Segmentation can be done on the basis of linguistic groups. „revolution‟ etc. . The advertising campaigns have to been launched in National as well as local languages. „Obscenity‟. Ford Motor‟s truck named Fiera meant “Ugly old women” in Spanish.OTHERS LANGUAGE India is multi linguistic. Incubus was a devil who terrorized women. Pepsi‟s „come alive‟ slogan was considered offensive in some places as to the locals it meant „come out of the grave‟.) Marketing plans become costlier and more complex due to this huge diversity. Parker Pen Company faced similar problems as in some countries „Ball Pen‟ meant „lie‟.
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