BUSINESS AS A SYSTEM

Which of the following represent the ‘ Integrated Whole Thing “ :
Digestive System Digestive Method Digestive Process Sound System Sound Method Sound Process Music System Music Method Music Process Computer System Computer Method Computer Process
Political System Social System Cultural system Economic System Technological System 12/14/2008 Legal System

Surana College PG_Centre, Manavazhaganr@bsnl.in

1 Contd

BUSINESS AS A SYSTEM
System will: Draw Input Process it Internally and Releases output into environment

Business
Draw Input – Material , Energy , Information Process it Internally and Information Intangible and Information Into different Material , energy Tangible,

Releases output into environment –

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Surana College PG_Centre, Manavazhaganr@bsnl.in

2 Contd

Interaction of Surroundings

Business & Environment Interface
Business

&

its

 Micro environment of business.
3) Suppliers

Supply raw materials and other components (Inputs) Importance Reliable supply – continuous supply for smooth functioning
Surana College PG_Centre, Manavazhaganr@bsnl.in

12/14/2008

Contd 3

Business & Environment Interface Micro environment of business.
1) CUSTOMERS

Different categories of customers
i. Industrial customers ii. Wholesale customers iii. Retail customers iv. Government customers v. Foreign customers
12/14/2008 Surana College PG_Centre, Manavazhaganr@bsnl.in

Contd 4

Business & Environment Interface Micro environment of business.

 Market intermediaries
i. Middlemen. ii. Physical distribution Firms: (warehouses and transport firms) iii. Marketing service agencies (Advertising agencies market research firms, media firms, consulting firms) iv. Financial intermediaries
12/14/2008 Surana College PG_Centre, Manavazhaganr@bsnl.in

Contd 5

Business & Environment Interface Micro environment of business.

 4. Competitors:
     The Threat of entry of new firms The Power of Buyers The Power of Suppliers The Power of Substitutes The Intensity of Rivalry among existing firms

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Surana College PG_Centre, Manavazhaganr@bsnl.in

Contd 6

Business & Environment Interface Micro environment of business.

 Competitors:
1. The Threat of entry of new firm

1. Economies of scale
2. Capital Requirement 3. Access to Channel 4. Absolute cost advantage 5. Expected Retaliation 5. Government Policy 7. Differentiation

Economies of Scale • Unit cost Inverse to units produced Measured by ‘ Minimum Efficient Scale ‘ Or Market share MES volume is necessary to compete at minimum cost.

Strategy : ‘Just in time ‘ &
Lean manufacturing to counter economies of scale

12/14/2008

• Capital requirement Surana College PG_Centre, • Internet / Knowledge based Manavazhaganr@bsnl.in

7

Business & Environment Interface Micro environment of business.
Absolute cost advantage  Competitors: ‘Learning curve effect’ – Cost 1. The Threat of entry of advantage new firm Expected Retaliation 1. Economies of scale GSM Players like Airtel ,Spice retaliated entry of CMDA 2. Capital Requirement player Reliance 3. Access to Channel Communication to operate in 4. Absolute cost GSM field advantage Government Policy 5. Expected Retaliation Import of sugar, Edible oils, 5. Government Policy Steel , Liberation of 7. Differentiation Insurance & other sectors Access to Channel Differentiation Self help groups / Social Existing company – Strong networks – New channels brand image, wide range of of distribution products to cover all segments Surana College PG_Centre,
12/14/2008 Manavazhaganr@bsnl.in

8

Business & Environment Interface Micro environment of business.
Concentration of buyers  Competitors: Small no. of buyer + High Volume purchase – High buyer power 2. The Power of Buyers: Coca-Cola – cannot bargain with 1. Concentration of Malls buyers Alternative source of supply 2. Alternative source of More supply source – high buyer supply power 3. Component cost as a Bajaj Scooter – Honda, Suzuki, percentage of total cost TVS etc 4. Possibility of backward Component cost as a % of integration total cost High proportion of component/material cost to finished goods leads to Surana College PG_Centre, 12/14/2008 9 Manavazhaganr@bsnl.in looking

Business & Environment Interface Micro environment of business.
Concentration of Sellers  Competitors: Small no. of Sellers– High seller power 3. The Power of Sellers: Like Monopoly & Oligopoly Switching Costs 1. Concentration of Sellers High switching cost to other 2. Switching costs seller source - Seller power 3. Brand power increase 4. Possibility of forward High-Tec & Specialised goods integration SAP 5. Dependence on Brand Power customers Dependence on customers High brand power – High power Ariel , Rin - Supermarkets have Not depending on High to sell it volume small no.of buyers – Possibility of forward more seller power Surana College PG_Centre, integration 12/14/2008 10
Manavazhaganr@bsnl.in

Business & Environment Interface Micro environment of business.
Relative performance &  Competitors: Price of Substitutes 4. Threat of Substitution: Substitutes with same cost – High threat – Email replaced Non-essential goods where Post Offices there is the Switching costs ultimate substitute of doing without The Cheaper switching cost High threat That: Pet foods , Fast foods , Malls 1. Relative Price & Buyer’s Willingness to Performance of substitutes substitute 2. Switching Costs Low-cost articles & infrequent 3.Buyer’s willingness to purchase of articles – little substitute effort made to go for substitutes Match box – Lighter Surana College PG_Centre,
12/14/2008 Manavazhaganr@bsnl.in

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Business & Environment Interface Micro environment of business.
High fixed costs  Competitors: High Fixed cost – High break 5. Competitive Rivalry: even point In depression times – Price war 1. Industry Growth to 2.High Fixed costs maintain turnover 3. Volatile Demand 1990 – UK & USA accused each 4.Product Differentiation of dumping Steel on Export 5. Extra Capacity in large market increments Volatile Demand 6. Balance of firms May lead to intermittent Over7. High exit barriers capacity Industry Growth: Steel war -1990 Rapid Growth – Competition Product Differentiation need not be intense Homogeneous products – More Maturity Phase- Intense Surana College PG_Centre, the rivalry - Steel intense 12/14/2008 12 competition Manavazhaganr@bsnl.in

Business & Environment Interface Micro environment of business.

 Competitors:
5. Competitive Rivalry: 1. Industry Growth 2.High Fixed costs 3. Volatile Demand 4.Product Differentiation 5. Extra Capacity in large increments 6. Balance of firms 7. High exit barriers

Balance of firms If the no. of firms is large / similar size the rivalry will be intensive. Clear market leader can bring discipline High exit barriers High exit barriers – Excess capacity to persist and rivalry to be intense

12/14/2008

Surana College PG_Centre, Manavazhaganr@bsnl.in

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Business & Environment Interface Macro environment of business.

 1. Demography:

 Quantitative aspects of Birth Rate – No. of births per 1000 population. population  Qualitative aspects of Fertility Rate- Av. No. of birth per population. women
1. Population Growth 2. Drivers of Population Changes 3. Ethnicity of Population Implication – Consumer, Labour , 4. Implications of Demographic Employment participation Changes Population Growth: Year 1000 – Estimated 300 million Year 1750 – Actual 728 million Year 1900 – Actual 1500 million Year 1960 – Actual 3 billion Year 2000 – Actual 6 billion Surana College PG_Centre, 12/14/2008
Manavazhaganr@bsnl.in

Drivers of Population Changes

Death Rate - No. of deaths per 1000 Migration – Country to Country movement

14

Business & Environment Interface Macro environment of business.
2. Economic environment
Economic conditionsGDP, Business Cycle, Unemployment, Inflation, Balance of Payment, Fiscal Policy, Monetary Policy, Exchange rate Policy, Interest Rate.

Economic policies a) Budget b) Industrial policy c) Trade policy d) Agricultural policy Economic system- Capitalistic, Socilalitic, Mixed
12/14/2008 Surana College PG_Centre, Manavazhaganr@bsnl.in

Contd 15

Business & Environment Interface Macro environment of business. 3.Political environment Legislature - Labour Laws like Factories Act,
EPF Act, ESI Act, Industrial Disputes Act, Minimum Wages Act, Payment of Wages Act, etc MRTP Act, Law of Contracts, Companies act, IDRA Act, FERA, Import & Export Control act, Tax Laws

ExecutiveJudiciary
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Administrators

- District, High Courts, Supreme Court, Tribunals
Surana College PG_Centre, Manavazhaganr@bsnl.in

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Business & Environment Interface Macro environment of business. 4. Socio cultural environment  Attitude of people towards work and health.  Role of family.  Marriage.  Religion.  Education  Ethical issues
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 Social College PG_Centre, responsibility Surana Manavazhaganr@bsnl.in business

Contd 17

of

5. Natural environment  Natural resources.  Weather conditions. and

Business & Environment Interface Macro environment of business.

climatic

 Locational aspects.  Nearness to port facilities.

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Surana College PG_Centre, Manavazhaganr@bsnl.in

Contd 18

6. Technological environment i. Nature of technology ii. Scope for innovation

Business & Environment Interface Macro environment of business.

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Surana College PG_Centre, Manavazhaganr@bsnl.in

Contd 19

7. International environment i. Economic ii. Political iii. Legal iv. Demography v. Technology

Business & Environment Interface Macro environment of business.

12/14/2008

Surana College PG_Centre, Manavazhaganr@bsnl.in

Contd 20

Business & Environment Interface

Uses of environment studies
1) Awarness 2) Policy decisions 3) Demand forecasting 4) Competitor’s strategies. 5) To innovate

12/14/2008

Surana College PG_Centre, Manavazhaganr@bsnl.in

21

Business & Environment Interface

Techniques studies

for

environmental

i. Verbal and written information ii. Search and scanning iii.Forecasting and formal studie

12/14/2008

Surana College PG_Centre, Manavazhaganr@bsnl.in

22

Business & Environment Interface

Limitations analysis

of

environmental

a) Unexpected events b) Future is not a guarantee c) Too much of information. d) Overcautions approach

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Surana College PG_Centre, Manavazhaganr@bsnl.in

23

Business Sectors

Primary Sector – Agriculture, Mining Secondary sector Industries
Manufacturing activities Construction – Electricity Generation and

Manufacturing

Tertiary Sector – Services industries
Trade , Commerce, Insurance, Banking,Repair, Transport

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Surana College PG_Centre, Manavazhaganr@bsnl.in

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Classification of Business – Based on Scope of Business
1. Business which Produce Goods: Two categories of Goods:  Commodities – Goods produced by Primary sector - Will not undergo any processing - Agriculture , Fisheries, Mining, b. Products sector form - Farms, Diaries, -Manufacturing Enterprises – Machinery, Materials for -other business, Producing goods for consumption
12/14/2008 Surana College PG_Centre, Manavazhaganr@bsnl.in 25

- Goods produced by Secondary – Conversion of Raw material into another

Classification of Business – Based on Scope of Business
2. Business which Produce Services: Transport , Telephone , Electric Light ,Hotels ,Entertainment 3. Business which Distribute Goods: Wholesale merchants Retail Merchants Importers & Exporters 4. Business which Facilitates Distribution of Goods: Warehouse, Auction Houses, Advertising, Financing 5. Business which Deals in Finance: Commercial Banks, Co-Operative Banks, Development Bankd, Insurance Stock Exchange
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Classification of Business – Based on the Nature of Activity
1.Extractive Industries: Extract goods from natural resources- Oil extraction, Farming, Fishing 2. Genetic Industries: Produce goods by breeding- Poultries, Bio Tech 3. Manufacturing Industries: Process Raw materials into finished goods – 4 Types 1. Basic Industries : Iron, Steel 2. Capital goods Industries : Machines 3. Intermediate Industries : Tyre , Tubes 4.Consumer goods Industries : Soap 4. Construction Industries Canals, Dams, Road, Buildings, Road
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5. Service & IT Industries

Surana College PG_Centre, Manavazhaganr@bsnl.in

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Classification of Business – Based on Uses of Goods Produced
1. Basic Industries : Provide essential inputs to other industries Iron, Steel, Fertilizer, Chemicals 2. Capital goods Industries : Instrumental in producing goods and services Do not directly produce goods for consumption Capital intensive Machines, Tools, 3. Intermediate Goods Industries : Goods already had undergone manufacturing process but which forms input for other industries for further processing Tyre , Tubes 4.Consumer goods Industries : goods Durable – Usage for more than 3 years Non-durable – Usage within 3 years
12/14/2008 Surana College PG_Centre, Manavazhaganr@bsnl.in 28

For consumption – Durable / Nondurable

Classification of Business – Based on Competitive Structure
1.

Monopoly :
Single –Firm Industry Monopsony – Single Buyer Bilateral Monopoly – single Buyer and Single seller MRTP Act

2.Duopoly Two sellers 3. Oligopoly Only few firms holding 80 to 85 % market share 4.Monopolistic competition Large sellers & similar but not Substitute products – Textile 5.Perfect competition Large sellers & Homogeneous & free entry , exit & no single firm has any control over the market & Perfect knowledge about market
12/14/2008 Surana College PG_Centre, & no transport cost & complete mobility of factors of production 29

between industries.

Manavazhaganr@bsnl.in

Business Motives & Objectives

Objective:
The end actions

Motive:
The desire which stimulate action Motive – Profit, Non-Profit Objective – Supply Quality Products, Customer Satisfaction, Exploit labour, Tax evation

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Surana College PG_Centre, Manavazhaganr@bsnl.in

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Business Motives & Objectives
Importance of Objectives
1. Justifies existance 2. Provide Direction 3. Help coordination 4.Provide standards for assesment & control 5. Help decentralisation

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Surana College PG_Centre, Manavazhaganr@bsnl.in

31

Business Motives & Objectives

I. Economic Objectives
a) Earning of adequate profit. b) Creation of customers c) Innovation d) Generation of employment e) Control of inflation f) Economic development g) Reduction of inequalities of income
12/14/2008 Surana College PG_Centre, Manavazhaganr@bsnl.in 32 Contd …

Business Motives & Objectives

I. Social Objectives
a) Supply of goods and services. b) Good treatment of customers. c) Fair treatment of employees. d) Good working environment e) Customer Counseling f) Social responsibility. g) Pollution control.
12/14/2008 Surana College PG_Centre, Manavazhaganr@bsnl.in 33 Contd …

Business Motives & Objectives

I. National Objectives
a) Implement of government laws. b) Payment of taxes. c) Democratic practices.

12/14/2008

Surana College PG_Centre, Manavazhaganr@bsnl.in

34 Contd …

Business Ethics

Study of good and evil ,right and wrong actions of Business
Dishonesty – Unethical , then being dishonest with employees, Customers and shareholders is unethical. Protecting others from harm – Ethical then recalling defective products is ethical action.

12/14/2008

Surana College PG_Centre, Manavazhaganr@bsnl.in

35 Contd …

Business Ethics
Sources of Business Ethics : Religion Culture & Law Religion : Advocate orderly social system Culture : Rules and standards transmitted among generations to produce behaviours- Sathi, Child marriage, Untouchability, Joint family Law : Rules of conduct approved by Legislators – Companies act , Labour laws etc
12/14/2008 Surana College PG_Centre, Manavazhaganr@bsnl.in 36 Contd …

Business Ethics
Codes of Business Ethics : Codes of conducts of business FICCI 4. Business must maintain highest standard of behaviour for the benefit of industry, employees, customers, shareholders Goods and services must conform to committed quality Customers must be treated with respect and fairness

5. 6.

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Surana College PG_Centre, Manavazhaganr@bsnl.in

37 Contd …

Business Ethics
UnEthical Actions : 1.Kentucky Fried Chicken ( KFC ) – Use of Harmful hormons & Monosodium glutamate to fatten the chicken 2. Neem – Oil : Ptent by U.S company 3. Women Harassment – Sacking of Chief Executive of Infosys

12/14/2008

Surana College PG_Centre, Manavazhaganr@bsnl.in

38 Contd …

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