ENVIRONMENTAL APPRAISAL

Trends & Techniques

CONCEPT OF ENVIRONMENT
• The aggregate of all conditions, events & influences that surround and affect an organisation • Environment is Complex – all the above factors interact and their sum total is difficult to understand in totality • Environment is Dynamic- constantly changing

CONCEPT (CONTD)
• Environment is Multi-faceted- a particular factor being seen differently by different persons • Environment has Far-reaching impact- some factor may last long into the future and continue to influence the rest of the environment

SIX MEGA TRENDS India’s Future
• The trend of acquiring scale- in 2000 the no of cars was half a million and in 2010a single company may be producing that number • Trend of increase in connectivity and awareness- Indian telecom market was 5 million barely seven or eight years ago now about 180 million- 12 times more TV sets

MEGA TRENDS (CONTD)
• Trend of growth of middle class- in 2001 there were 61 million Indians came from families wth income than 2 Lakhs a year, in 2005 it was 100 million and in 2010 likely to be 173 million • Trend of problems of growthecological degradation, rising energy demand, income disparities

MEGA TRENDS (CONTD)
• Trend of increasing openness to the world- foreign trade component of GDP is 55%, foreign investors in Indian share market about 25% • Demographically nearly half of India is below 25 and culturally very different from the older generation

GENERAL VS RELEVANT ENVIRONMENT
• The General Environment is vast and is far flung – not all factors are relevant for the business of the organisation • The immediate factors and concerns of any organisation is confined to a part of the environment- relevant environment • What is needed is an appraisal of the factors in the relevant environment and building them into the corporate planning process

ENVIRONMENTAL SECTORS
• Economic • Political • Socio-cultural • Technological • Regulatory • International • Market • Supplier

ECONOMIC ENVIRONMENT
The current economic stage of the country Economic structure- capitalistic, socialistic or mixed Economic policies- industrial, monetary and fiscal Economic Planning- annual budgets, 5 year plans etc. General Economic Indices- like National Income, GDP & its growth rate, per capita income etc. • Infrastructural Factors like banks, transportation, communication facilities • • • • •

SOME FACTS/PROJECTIONS
• India now is the fourth largest economy in purchasing power parity(PPP) • By 2025 India will have an economy 60% of the US Economy • By 2035 US, China & India will be three poles of the global economy in that order • Japan & EU both will be surpassed in PPP • But there will be bottlenecks

SOME FACTS/PROJECTIONS (CONTD)
• Despite progress of the economy – poverty rate according to one calculation has fallen to 22% in 2004-5 from 50% in 1977-78-200 million have joined middleclass yet 300 million live in extreme poverty • Economic slowdowns means lesser spending but the reverse is not true in India- Indian consumers are discerning spenders and relatively less swayed by brand images

SOME FACTS/PROJECTIONS (CONTD)
• Economic Growth in India has been propelled by domestic savings rather hand by foreign investment • Families create support systems for education, old age and health factors through savings in fixed assets, gold etc. • Till 1980s the mistrust of private investment led to savings in banks, post offices- during that decade there have been shifts to stock markets and company deposits

INTERNATIONAL ENVIRONMENT
• Globalisation- is process, content and direction • Global economic forces, organisations, blocks and forums • Global trade, its process & trends • Global financial system, sources of financing and accounting standards • Geopolitics

INTERNATIONAL ENVIRONMENT (CONTD)
• Global demographic patterns & shifts • Global Human Resource: institutions, availability, nature and quality of skills and expertise, mobility of labour • Global Information System, communication networks and media • Global technological and quality systems and standards • Global legal system, arbitration and adjudication

FOUR INTERNATIONAL FACTORS
• China No 1 and India No 2- China’s GDP is more than double that of India- China has grown at 9-10% as compared to 7-8% for India- yet India has pockets of excellence where the Chinese cannot matchRanbaxy and Dr Reddy’s sell widely in Europe, US, Africa, South America even production facilities- Tatas acquisitions, AV Birla Group

FOUR INTERNATIONAL FACTORS (CONTD)
• Increasing labor mobility despite better technology needing less labour because of falling population growth in EU, Japan & Singapore require influx of skilled people • Historically India has been a supplier of labour previously unskilled and now educated- brain drain- reverse brain drain • Equity markets, banks & financial institutions have fuelled Indian businesses – now ADRs, GDRs, foreign currency convertible bonds, cheap loans from foreign financial institutions

FOUR INTERNATIONAL FACTORS (CONTD)
• WTO successor to GATT • Its functions are administering WTO trade agreements, form for trade negotiations, handling trade disputes, monitoring national trade policies, technical assistance and training to developing • Allegations: failure to set labour standards, check environmental impact of trade, being a tool of multinationals in dictating to sovereign nations • WTO has within its purview patenting, outsourcing, food safety and processed food exports dismantling quotas for garments and textiles

MARKET ENVIRONMENT
• Growing international trade, massive investment in infrastructure, increasing levels of disposable income, strong manufacturing and retail sectors have made companies responsive to customersthese have Indian market very dynamic- inviting investments • Automobile industry in India has become more customer-focused because of competition • Growing preference for natural, eco-friendly products • Indians are showing attention to personal grooming friendly products • Indian market is enigmatic, heterogeneous

POLITICAL ENVIRONMENT
• Indian industrialists take keen and healthy interest in politics- governments still wield tremendous regulatory powers, political funding of elections is widespread among industrialists. Some openly back some parties and some join them • The complex mosaic of Indian politics, leftists, rightists on both sides of parliament- weak and hesitant decision making- Vote Bank driven politics • Violent politics on the fringe under the name of Maoists, Naxalites, ultra-leftists

REGULATORY ENVIRONMENT
• India is an over-regulated and undergoverned country- there are 2500 central laws and 30000 state laws- some of them inconsistent with the demands of a modern economy • Judicial delays, judicial review and judicial activism in the same breath- politicians resent the judicial activism of the Supreme Court • The regulations regarding FDI have been progressively liberalized

SOCIO-CULTURAL ENVIRONMENT
• India's population of 1.1 billion hides several trendsgrowth rate has declined to 1.5%- illiteracy rates among women are dropping- yet gender violence, gender and reproductive rights, men’s les involvement in child care are open issues in the society • India with its young population can yield demographic dividend r cause a demographic disaster- growth toward superpower status and yet Naxalites in a chain from Nepal borders to Chhatisgarh and Andhra Pradesh • India has a vast & heterogeneous population with caste playing a major political and economic role

SUPPLIER ENVIRONMENT
• Weak Infrastructure like water scarcity- Chennai the automobile capital of India has acute water shortage • Power shortage- it affects energy intensive industries like Aluminium, cement, petrochemicals, fertilizers, pulp & paper, steel etc.- 15% of costs on power • Road Transport with bad roads remain a costly infrastructure

SUPPLIER ENVIRONMENT (CONTD)
• There are an estimated 500 million workers in India out of which only 7% are in the organised sector, officially the unemployment rate is 10% but unofficially 20%- the influx of engineers o IT industries has led to a shortage of engineers in the manufacturing and construction industries • Paradox of Indian labour market- while many young men are desperate bout jobs many employers are equally desperate for the right type skilled manpower

TECHNOLOGICAL ENVIRONMENT
• Knowledge-based industries with their need for intellectual capital- more attention needs to be paid to technologies which underlie the products and markets • Internet has led to CRM leading to greater customisation • Technology Transfer is now connected to FDI – no longer India has to buy know-how for a price