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MBAH 453

Indian Business Environment


Francis Cherunilam

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

1. Business Environment: Concept, significance, environmental factors, relationship between


business and environment, Objectives of business and Business Environment, Environmental
analysis, importance and limitations of environmental analysis.
2. Economic Environment: Components of economic environment, Patterns of Indian economy;
characteristics of Mixed economy; sectors of economy and their relative importance, economic
planning; growth with justice; rural development; implications of economic environment to
business.
3. Social and Cultural Environment: Indian social structure; caste and family systems; religions,
customs; culture; transitions demographic changes, savings and consumption habits; levels of
culture and its impact on business, Business implications. Impact of culture on global business.
4. State policies: Theory of Government intervention in Business Nature of government
intervention in India recent trends; state policies affecting business. Constitution of India
Fundamentals Rights and Duties, Rights under the Constitution (with special reference to business
cases).
5. Technological Environment: Technological changes R and D in India implications to
business.
6. Economic Legislation's: Central excise and sales tax meaning and scope of excise duty, basis
for the levy of central excise, permissible deductions & exemptions, VAT - in India and scope of
VAT, basis for the levy of VAT, permissible deductions & exemptions, Income Tax An overview,
Direct Tax Code - an overview. GST-an overview.
7. Economic reforms: Liberalization, Privatization and Globalization, FDIs and FIIs
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

What is business and business environment?


Business is a wide term and signifies all economic activities
carried on with the objective of earning money/profit/gain.
Important decisions related to business such as What business
to do, where to do the business, when to do the business, how to
do the business, whether to expand a business and if where and
how to expand it are influenced by a number of factors.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Concept of Business:
- Business is an economic activity:
(Economic activity may be in the form of consumption,
production, distribution and exchange)
- A business firm is an economic unit:
(An economic unit transforms a set of input into a flow of output,
either goods and services or a combination of both)
- Business decision making is an economic process:
(Choice among a set of alternative courses of action which is the
essence of all economic problems)
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Objectives of Business:
- Profit:
- Growth:
Strategies adopted to achieve growth are:
- Add more productive markets
- Diversify into new areas
- Integration forward or backward
- Increase market share, Expand markets
- Cut down cost & increase productivity
- Power:
- Employee Satisfaction & Development:
- Quality products & services:
A. J Institute of Management,
Mangalore

Prof. K Deepak Rao

Business Environment consists of all those factors that have a


bearing on the business, such as
- the strengths, weaknesses, internal power relationships and
orientations of the organization,
- government policies and regulations,
- nature of the economy and economic conditions,
- socio-cultural factors, demographic trends,
- natural factors, global trends and cross-boarder developments
(Business Environment means the environment that affects
business, be it internal or external)
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Business Environment Interrelationship/ Business


Planning & Environment

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Environmental Factors that influence business:

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Internal factors are generally regarded as controllable


factors because the company has control over these factors it
can alter or modify such factors as its personnel, physical
facilities, organization and functional.
External factors by and large, beyond the control of a
company. The external factors such as economic factors, sociocultural factors, government and legal factors, demographic
factors, physical factors etc.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Corporate
Culture

Company
Image,
Brand Equity

Physical
Resources

Value
System

Business
Organisation

Organisation
Structure
A. J Institute
of Management,
Internal
Environment
Mangalore

Prof. K Deepak Rao

Mission &
Objectives

Internal
Power
Relationship

Human
Resource

External Environment:
External environment consists of those factors that affect a
business enterprise from outside.
External environment is generally classified into micro
environment and macro environment.
External Micro environment includes Suppliers of Inputs,
customers, competitors market Intermediaries and publics.
External Macro Environment are classified into Economic,
social, technological, political and legal and demographic

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

External Micro Environment

Com
peti
to

Suppliers of
Inputs

ers
m
sto
u
C

rs

Management
nc
a
n
Fi

Pu
blic
s

s
i er

Marketing
intermediaries

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Suppliers: They are the persons who supply raw material and
required components to the company.
Customers:
- Wholesalers
- Retailers
- Industries
- Government and Other Institutions
- Foreigners
Market Intermediaries:
- Middleman
- Marketing Agencies
- Financial Intermediaries
- Physical Intermediaries
Competitors
Public
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Economic
Environment

Social & cultural


Environment

Political & Legal


Environment

Business
Organisation

Natural
Environment

Demographic
Environment
A. J Institute
of Management,
External
Macro
Environment
Mangalore

Prof. K Deepak Rao

Technological
Environment

Economic Environment:
(Factors that affect consumer purchasing power and spending
patterns)
(Business Cycles, Inflation, Unemployment, interest rates,
income)
- Economic Conditions of Public
- Economic Policies of the country
- Economic System
- Other Economic Factors: Infrastructural Facilities, Banking,
Insurance companies, money markets, capital markets etc.
Political Environment:
Governments relationship with organization encompasses
subsidies, tariffs, import quotas, deregulation of industries
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

- Political Strength of the Country


- Relation with other countries
- Defense and Military Policies
- Centre State Relationship in the Country
- Thinking Opposition Parties towards Business Unit
Socio-Cultural Environment:
(attitude of people to work, family system, caste system, religion,
education, marriage, societys basic values, perceptions,
preferences etc)
Technological Environment:
Natural Environment:
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Demographic Environment:
It is a study of perspective of population i.e. its size, standard of
living, growth rate, age-sex composition, family size, income
level, education level etc.
International Environment:
It is particularly important for industries directly depending on
import or exports. The factors that affect the business are:
Globalization, Liberalization, foreign business policies, cultural
exchange.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Objectives of Business Environment:


- Knowledge of Information:
- Basis of decisions:
- Helpful in making policies:
- Technological planning:
- Survive in the business:

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Environmental Analysis:
(The interest is in environmental trends and events that have the
potential to affect strategy. This analysis should identify such
trends and events and then estimate their likelihood and impact)

Stages/Process of Environment Analysis:


- Scanning (the environment to detect warning signals)
- Monitoring (specific environmental trends)
- Forecasting (the direction of future environmental changes)
- Assessing (current and future environmental changes for their
organizational implications)
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Benefits/Importance of Environmental Analysis:


- Aware of Environment ~ Organization Linkage.
- To identify the present & future threats and opportunities.
- Picture of the factors which influence business.
- Helps to understand transformation of industry environment.
- Identification of the risks.
- Pre-requisite for formulation of right strategies. (Corporate,
Business, Operational)
- Helps in modifications of strategies.
- Keeps all informed, alert
and often dynamic.
A. J Institute of Management,
Mangalore

Prof. K Deepak Rao

Limitations of Environmental Analysis:


- Environmental Analysis does not foretell the future nor does it
eliminate uncertainty.
- Environmental Analysis is not guarantor of organizational
effectiveness.
- The potential of Environmental analysis is often not realized
because of how it is practiced.
- Paralysis through analysis syndrome.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Economic Environment
Essentials of Business Environment (K. Aswathappa)
Business Environment (Francis Cherunilam)

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Economic Environment :
Those Economic factors which have their affect on the working
of the business is known as economic environment.
It includes system, policies and nature of an economy, trade
cycles, economic resources, level of income, distribution of
income and wealth etc.
The economic environment represents the economic conditions in
the country where the international organization operates.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Components of Economic Environment:


- Income and wealth:
Income in an economy is measured by GDP, GNP and per capita income. High
values of these factors show a progressive economic environment.
- Employment levels:
High employment represents a positive picture of the economy. However,
there are many forms of unemployment, including partial unemployment and
disguised unemployment.
- Productivity:
This is the output generated from a given amount of inputs. High levels of
productivity support the economic environment
- Inflation:
It affects overall economic system of the economy. During the time of
inflation, the company pays more for resources and must rise its price to cover
the higher costs.
- Interest Rate:
It is the cost of money. When interest rates are high, consumers are less
willing to borrow money and the company itself must pay more when it
borrows.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Patterns of Economy / Basic Economic Systems:


- Capitalist / Market
- Socialist / Communist
- Mixed

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Elements of Economic Environment:


It has mainly five main components:1. Economic Conditions
2. Economic System
3. Economic Policies
4. International Economic Environment
5. Economic Legislations

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

1. Economic Conditions:
Economic Policies of a business unit are largely affected by the
economic conditions of an economy. Any improvement in the economic
conditions such as standard of living, purchasing power of public,
demand and supply, distribution of income etc. largely affects the size
of the market.
If a region depends to a significant extent on any particular industry or
sector, business in that region would be significantly affected by
fortunes of that industry.
(Oil exporting countries, Agriculture linked)
Business cycle is another economic condition that is very important for a
business unit. (Depression, Recovery, Prosperity, Boom, Decline,
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

- Depression:
It is a protected period in which business activity in the country
is far below the normal. It is characterized by a sharp reduction
of production, mass unemployment, low employment, falling
prices, falling profit, low wages, contraction of credit, a high rate
of business failures and an atmosphere of all round pessimism
and despair.
- Recovery (or Revival):
It implies increase in business activity after the lowest point of
the depression has been reached. The entrepreneurs begin to feel
that the economic situation was after all not so bad. This leads to
improvement in business activity. The industrial production
picks up slowly and gradually. The volume of employment also
steadily increases. There is a slow rise in prices accompanied by
a small rise in profits.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

- Prosperity (or Full Employment):


This stage is characterized by increased production, high capital
investment in basic industries, expansion of bank credit, high
prices, high profits and full employment. There is a general
feeling of optimism among businessmen and industrialists.
- Boom (or, Overfill Employment):
The prosperity phase leads to the emergence of boom. In this
stage of rapid expansion in business activity to new high marks
resulting in high stocks and commodity prices, high profits and
overfill employment. There is undue optimism among
businessmen and industrialists who make additional
investments in the various branches of the economy.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

- Recession:
Over-optimism is replaced now by over-pessimism characterized
by fear and hesitation on the part of the businessmen. The failure
of some businesses creates panic among businessmen.
The banks begin to withdraw loans from business enterprises.
Prices collapse and confidence is rudely shaken. Building
construction slow down and unemployment appears in basic,
capital goods industries which gradually spread to other
industries as well.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Following are mainly included in Economic Conditions


of a country:- Stages of Business Cycle
- National Income, Per Capita Income and Distribution of Income
- Rate of Capital Formation
- Demand and Supply Trends
- Inflation Rate in the Economy
- Industrial Growth Rate, Exports Growth Rate
- Interest Rate prevailing in the Economy
- Trends in Industrial Sickness
- Efficiency of Public and Private Sectors
- Growth of Primary and Secondary Capital Markets
- Size of Market

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

2. Economic Systems:
An Economic System of a nation or a country may be defined as
a framework of rules, goals and incentives that controls economic
relations among people in a society.
Different countries of a world have different economic systems
and the prevailing economic system in a country affect the
business units to a large extent.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Classification of Economic condition:


Economic conditions of a nation can be of any one of the
following type:* Capitalism:The economic system in which business units or factors of
production are privately owned and governed is called
Capitalism. The profit earning is the sole aim of the business
units. Government of that country does not interfere in the
economic activities of the country. It is also known as free
market economy.
* Socialism:Under socialism economic system, all the economic activities of
the country are controlled and regulated by the Government in
the interest of the public.
The first country to adopt
thisof Management,
conceptMangalore
was Soviet Russia.
A. J Institute
Prof. K Deepak Rao

The two main forms of Socialism are: (a) Democratic Socialism:- All the economic activities are
controlled and regulated by the government but the people have
the freedom of choice of occupation and consumption.
(b) Totalitarian Socialism:- This form is also known as
Communism. Under this, people are obliged to work under the
directions of Government.
* Mixed Economy:The economic system in which both public and private sectors
co-exist is known as Mixed Economy. Some factors of
production are privately owned and some are owned by
Government. There exists freedom of choice of occupation and
consumption. Both private and public sectors play key roles in
the development of the country.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Characteristics of mixed economy:


- Co-existence of the public and Private Sectors:
The important characteristics of mixed economy are that in this
economy both private sector and public sector function together.
The government helps the private sector by providing several
facilities, of their development.
- Economic Welfare:
It is the most important criterion of the success of a mixed
economy. Public Sector seeks to avoid regional inequalities,
provides large employment opportunities and often its price
policy is guided by considerations of economic welfare rather
than by profit motive.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

- Economic Planning:
In Mixed economy, the Government adopts the instrument of
economic planning. This is necessary for the public sector
enterprises which have to work according to some plan and to
achieve certain pre-determined objectives.
In the same way, the Private Sector cannot be left to develop in
its own way. To ensure a coordinated and fast economic
development the programmes of both the sector are drawn in
such a way that growth in one complements the growth in the
other.
- Free and Controlled Economic Development:
The Mixed Economic System considered to be more appropriate
to remove the demerits of the capitalist and communist economic
systems. Encouragement is given to free economic activities
and at the same time steps are also taken to control economic
activities.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

3. Economic Policies:
Government frames economic policies. Economic Policies affects
the different business units in different ways. It may or may not
have favorable effect on a business unit.
All the business enterprises frame their policies keeping in view
the prevailing economic policies.
Important economic policies of a country are as follows:* Monetary Policy:The policy formulated by the central bank of a country to control
the supply and the cost of money (rate of interest), in order to
attain some specified objectives is known as Monetary Policy.
The central bank, by its policy towards the cost and availability of
credit, can significantly influence the savings, investment and
consumer spending in the economy.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

* Fiscal Policy:It may be termed as budgetary policy. It is related with the


income and expenditure of a country. Fiscal Policy works as an
instrument in economic and social growth of a country. It is
framed by the government of a country and it deals with taxation,
government expenditure, borrowings, deficit financing and
management of public debts in an economy.
* Trade Policy:The trade policy can significantly affect the fortunes of firms.
E.g. A restrictive import policy or a policy of protecting the home
industries, may greatly help the import competing industries,
while a liberalization of the import policy may create difficulties
for such industries.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

* Foreign Investment Policy:The policy related to the investment by the foreigners in a


country is known as Foreign Investment Policy. If the
government has adopted liberal investment policy then it will
lead to more inflow of foreign capital in the country which
ultimately results in more industrialization and growth in the
country.
* Industrial Policy:Industrial policy of a country promotes and regulates the
industrialization in the country. It is framed by government. The
government from time to time issues principals and guidelines
under the industrial policy of the country
* Foreign Exchange Policy:
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

4. Global/International Economic Environment


The role of international economic environment is increasing day
by day. If any business enterprise is involved in foreign trade,
then it is influenced by not only its own country economic
environment but also the economic environment of the country
from/to which it is importing or exporting goods. There are
various rules and guidelines for these trades which are issued by
many organizations like World Bank, WTO, United Nations etc.

5. Economic Legislations:
Economic Legislations Besides the above policies, Governments
of different countries frame various legislations which regulates
and control the business.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Sectors of Economy:
* Primary Sector
The primary sector involves the extraction of raw materials
from the Earth.
In the U.S. and similarly in most other modern world countries,
there is a decline in the proportion of the population that works in
the primary sector. Currently, only 3% of our nation's labor force
is engaged in primary sector activity. This is a big change from
the mid-19th century in which two-thirds of the labor force was
engaged in this sector.
* Secondary Sector
The secondary sector involves the transformation of raw
materials into goods. This transformation results in wood being
made into furniture, steel being made into cars or textiles being
made into clothes
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

* Tertiary Sector:
The tertiary sector involves the supplying of services to consumers
and businesses. This sector provides services to the general population
and business, including retail, sales, transportation and restaurants.
* Quaternary Sector
The quaternary sector of the economy consists of intellectual activities.
Activities associated with this sector include government, culture,
libraries, scientific research, education, and information technology.
* Quinary Sector
Some consider there to be a branch of the quaternary sector called the
quinary sector, which includes the highest levels of decision making in
a society or economy.
This sector would include the top executives or officials in such fields
as government, science, universities, nonprofit, healthcare, culture, and
the media.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Economic Planning in India:


Economic Planning is to make decision with respect to the use of
resources. Economic Planning is a term used to describe the long
term plans of government to co-ordinate and develop the
economy.
The government has to prepare and implement a comprehensive
economic plan integrating the private sector with the public
sector. It is for these reasons that we have been having economic
planning since 1951 when the First Five Year Plan was launched.

Need for Economic Planning:


* Mass Poverty and Low Per Capita Income
* High Rate of Growth of Population
* Low Level of Literacy
* Backward Technology
* Social and Economic Problem Created By Partition Of Country
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Objectives of Economic Planning:


- Increase production to the maximum possible extent so as to
achieve a higher level of national and per capita income
* Economic growth
* Modernization
- Achieve full employment
- Reduce inequalities of income & Wealth
- Set up a socialist society based on equality and justice and the
absence of exploitation
* Balanced regional development
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Implications of Economic Environment on Business:


/ Economic factors which have considerable influence
on business:
* Growth Strategy
* Economic systems
* Economic Planning
* Industry
* Agriculture
* Infrastructure
* Financial & Fiscal sectors
* Removal regional imbalances
* Price and distribution controls
* Economic reforms
* Human resources
* Per capita and national income
** Assignment Topic: To be submitted by 03rd March 2017
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Socio-Cultural Environment
Essentials of Business Environment (K. Aswathappa)
Business Environment (Francis Cherunilam)

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

Introduction:
A set of beliefs, customs, practices and behaviours that exist
within a population.
The socio-cultural is an important environmental factor that
should be analysed while formulating business strategies.
The cost of ignoring the customs, traditions, taboos, tastes and
preferences, etc., of people could be very high.

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

Social Environment:
Social environment of business means all factors which affects
business socially. Every business works in a society, so societies
' different factors like family, educational institutions and
religion affects business .
The cultural factors like buying and consumption habit of the
people, customs and traditions, tastes and preferences, languages
etc. are the factors that affect the strategy of the business.

Cultural Environment:
The cultural environment mean a environment which affect the
basic values, behaviours, and preferences of the society-all of
which have an effect on consumer marketing decisions.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Main elements Of Societies and its effect on


Business

Family -:
Family is basic part of society from the birth of a person and upto death.
he lives in family so personal decision of buying and selling of goods are
affects from family.
In the culture of a family, it may happen that parent does not allow to use
any product, then sale of such product will decrease.
So businessman must analyze different families needs.
Many occasion of family like marriage of any family member , can
increase the demand of goods .
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Educational institutions -:
Educational institutions are also main part of societies .
They provide good knowledge, education, awareness, thinking, what should
students buy or not to buy .
Suppose if a student is habitual to drink the tea and if his teacher advice him
that this is harmful to his health after his guidance students can avoid to drink tea
after this the sale of tea will decrease .

Religion -:
Religion is also effects the business socially.
Religion means the system in which group of persons trust in God .
Different religions have different principles , rules and regulations in which they
sacrifice to use some products and to eat some food ,
In Hindu religion, they never use leather products. This affects the sale of leather
industries .
So, businessman must analyse the targeted audience and after listening their
religious thoughts , he should produce the goods .
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

A Company, Which Got Benefit Due to Social Environment

McDonalds
Strategy of McDonalds in India, which made them Benefit in Social
Environment of India
McDonalds Made segment according to Demographic Factor in
the Society of India.
McDonalds Made their food according to Religion in India.
McDonalds Educate the customer towards their food rather than
Indias Traditional Food.
So that Indias People Taste & Preference Changed, Which is
Beneficial to McDonalds.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

McDonald's Made Positioning of their food that our food are


Healthy food, And We Believe in Total Quality Management.
Due to this Positioning Indias Society Prefer McDonalds,
which is the Benefit of McDonalds.
McDonalds always Believe in Standard & Glamour, So that
They Can Fulfill the psychogenic Need of Society.
McDonalds Foods are Known as Affordable & Convenience
Food in the Society, Which Gives direct Benefit to McDonalds.
McDonalds use Eco-Friendly Culture & Environment in their
Restaurant, Which Gives them Benefit in the Social Environment
of India.
Due to all these McDonalds is one of the most
demanded restaurant inA.the
Society.
J Institute
of Management, Mangalore
Prof. K Deepak Rao

Culture:
Culture is the software of the mind- the social programming that
runs the way we think, act and perceive ourselves and others.
Culture is defined as a complex whole which consists of customs,
attitudes, beliefs and values of a society. The set of shared
attitudes, values, goals, and practices that characterizes an
institution, organization or group.
Culture includes both conscious and unconscious values, ideas,
attitudes, and symbols that shape human behaviour and that are
transmitted from one generation to the next.
Culture is the total way of life of people
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Two Broad Categories


Material Culture
- physical component or physical
culture and includes physical
objects and artifacts created by
humans such as clothing and
tools.

Interrelated
interactive

Nonmaterial
Culture
- also known as subjective or
abstract culture includes tangibles
such as religion, perception,
attitudes, beliefs, and values.

and

Attitudes, Beliefs, and


Values
Attitude

- a learned tendency to respond in a consistent way to a given


object or entity and are clusters of interrelated beliefs

Belief

- an organized pattern of knowledge that an individual hold to be


true about the world.

Value

- an enduring belief or feeling that a specific mode of conduct is


personally or socially preferable to another code of conduct.
- represent the deepest level of a culture and are present in the
A. J Institute of Management, Mangalore
majority of the members
Prof. K Deepakof
Raoa particular culture.

Characteristics of Culture:
- Learned:
Culture is not inherited or biologically based, it is acquired by
learning and experience
- Shared:
People are member of a group, organization, or society share
culture, it is not specific individuals.
- Tran generational:
Culture is passed on from one generation to the next.
- Symbolic:
Culture is based on the human capacity to symbolic or use one
thing that represent another.
- Adaptive:
Culture is based on the human capacity to change or adapt, as
opposed to the more genetically driven adaptive process of
animals.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Elements of Culture:
* Knowledge and Beliefs:
It refers to a peoples prevailing notions of reality. They include
myths and metaphysical beliefs as well as scientific realities.
* Ideals:
It refer to the societal norms which define what is expected,
customary, right or proper in a given situation.
* Preferences:
It refer to societys definitions of those things in life which are
attractive or unattractive as objects of desire.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Some Concepts related to Culture:


* Culture Adaptation:
The term cultural adaptation refers to the manner in which a
social system or an individual fits into the physical or social
environment. Adaptation is essential for survival.
* Culture Shock:
Environmental changes sometimes produce culture shock a
feeling of confusion, insecurity and anxiety caused by the
strangeness of the new environment.
* Cultural Transmission:
The elements of culture are transmitted among the members of
the culture, from one generation to the next, and to the new
members admitted into the culture.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

* Cultural Conformity:
Individuals In a culture tend either to conform to the cultural
norms or to deviate from them.
* Cultural Lag:
Cultural lag thesis put forward by William F Orgburn says that
the various parts of modern culture do not change at the same
rate, and that since is a correlation and interdependence of parts,
a rapid change in one part of our culture requires readjustments
through changes in various correlated parts of that culture.

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

Culture Traits:
* Low-context and High-context Cultures
* Masculine and Feminine
* Monochronic & Polychronic Societies
* Universalism vs. Particularism
* Individualism vs. Communitarianism
* Neutral vs. Emotional
* Specific vs. Diffuse
* Achievement vs. Ascription
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Urbanization, Education, Cross Cultural Issues,


Language, Cultural Shock

Business Ethics, Social Welfare

Customs & Superstitions, Traditions,


Manner, Attitudes

Caste System, Joint Family System, Marriage,


Religion

Others
Social Responsibility
Social Values &Movers
Social Institutions &
Systems

CRITICAL ELEMENTS OF SOCIO-CULTURAL


ENVIRONMENT OF BUSINESS

Social Institutions & Systems


Castes And Communities
* Indian society, particularly the Hindu society, was divided into
five categories on the basis of caste.
* 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

Family System:
* Earlier, Joint Family System was prevalent.
* Now, Nuclear family is being preferred.
The joint family is being split into smaller units of nuclear family.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Marriage:
* Marriage is one of the basic elements of culture and peoples
attitude towards marriage influences culture a lot.
* Marriage is a social event that concerns the whole society.
In India, marriages are a family affair. The marriage season is
a big opportunity for business.

Religion and Religious Groups:


* Religious beliefs, convictions, customs, rituals and festivals
differ from one group to another.
* Business firms suffer heavy losses by ignoring religious
sentiments of customers, employees and others.
* Religious groups exert considerable influence on activities
of business groups.
Thus, business must recognize and respect religious sentiments.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Social Values &Movers


Customs Superstitions:
* Many important business decisions in India are taken on the
advise of astrologers.
(Location of business, time of launch, name of enterprise, brand
name etc.)
Example, Business firms do brisk business on festivals such as
Deepavali, Christmas, Id, Guru Purab etc.

Attitude:
* Attitudes include things such as individual freedom, democracy,
truth and honesty, justice love and marriage to name a few.
* Attitude towards work is important as it determines motivation,
morale, job satisfaction, productivity etc.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Ethics:
* Ethics in business deals with the ethical path business firms
ought to adopt.

Education And Organizational Culture:


Education
* A person is said to be literate if he/ she is 15 years and above
and can read and write
* Adult literacy rate is increased to 66% from 12% in 1947
* Kerala is the most literate state in India, with 90.86% literacy
and Bihar is the least literate state with 47% literacy.
* To promote Education Govt. launched Sarva Shiksha Abhiyan
to provide free and compulsory education for age group 6-14
years, Mid Day Meal scheme etc
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

* Countries rich in educational facilities vastly attract high wage


industries
* By investing in education, a country can attract Brain-Power
Industries
Barack Obama has said in a recent address to the US Senate that.
India is playing for the number one position. If they
keep producing more engineers, doctors and scientists than us,
we will not be number one for long.
* Formal education is the medium through which the individuals
learn many languages, conceptual & mathematical skills that are
indispensable in the modern society. Educational institutions
teaches cultural norms which are part of Hidden Curriculum

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

Ethno domination:
* In many countries one or other industry or trade is dominated
by certain ethnic groups. This is particularly true of trade.
* Ethno domination in channel of distribution is defined as a
situation where an ethnic group occupies a majority position is a
channel of distribution with respect to the ownership and control
of physical and financial resources, or through manipulation of
social environment.
E.g. South Canara district in Karnataka boasts several
commercial banks and NBFIs like Syndicate bank, Canara Bank,
Vijaya Bank, Corporation Bank, ICDS etc.
Trichur in Kerala is home of some banks like South Indian Bank,
Catholic Syrian Bank, Lord Krishna Bank and NBFIs.
Most Kerala based large banks are promoted predominantly by
Christians.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Language:
* India is multi linguistic. (18 officially recognized languages)
* Marketing plans become costlier and more complex due to this
huge diversity. The advertising campaigns have to been launched
in National as well as local languages.
* Pepsis come alive slogan was considered offensive in some
places as to the locals it meant come out of the grave.
* Reebok had to discontinue its INCUBUS brand as in medieval
folklore, Incubus was a devil who terrorized women.
* Ford Motors truck named Fiera meant Ugly old women in
Spanish.
* General Motors Chevrolet Nova in Spanish meant No-Vaa- it
doesnt go they changed the name to Caribe
* Unspoken language-Thumbs-up in America indicate its all
right in Greece the gesture is obscene
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Transitions:
- Migration to metros & medium sized towns
- Joint Families Nuclear families Individualistic approach
- Heavy influence from West on lifestyle
- Decrease in Agricultural activities
- The transition to the technological industrial society gives rise
to a different experiential ethos leading to emergent new maps of
the society.
- The Indian society and individuals have to make choices in the
context of this transition and their choices will shape the
emergence of todays society and organizations.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

KFCS FAILURE IN INDIA:


KFC was banned in India in 1997 due to launching of Beefs
products in India.
Beef products in India are totally unacceptable by the people of
India as Cow is a Holy Animal in Hindu culture and it is
worshipped.
So, it hurt the religious sentiments of all the Hindu people in
India and was subsequently banned by the Government.

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

KELLOGGS FAILURE IN INDIA


Reasons for Failure:
The fact that the taste of its products did not suit Indian
breakfast habits.
The second mistake it made in the Indian market was its
positioning front. Its advertisements and promotions
focused initially on the health aspects of the product which was a
fundamental departure from the successful fun and
taste positioning adopted in the United States.
High prices: At an average cost of Rs.21 per 100 gm, Kellogg
products were clearly priced way above the product of its main
competitor Mohun Cornflakes (Rs16.50 for 100 gm). Another
small-time brand, Champion was selling at prices almost half that
of Kelloggs. This gave Kellogg a premium image and
unattainable for the average Indian consumer.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Demographic CHANGES:
* Age Structure
* Gender
* Income Distribution
* Family size
* Occupation
* Education
* Social Class
* Religion
* Race
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Savings and Consumption Habits:


* Consumption and savings are opposite by nature. The term
consumption denotes expenditure and by savings we understand
the act of preserving money for the future needs.
* The opportunities of consumption are designed in such a
manner that they are bound to attract the consumers.
* There are different types of loans with nominal interest rates
that are availed by the individuals both purposefully and
purposelessly.
* At the same time, the present society is quite passionate about
using the credit cards. Unplanned use of credit cards are doing
nothing but creating problems for the society.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

* All these habits of consumption are taking us far from our


habit of savings.
* Statistics support the fact that if the saving habit of a society is
under 10 percent (expendable income) or even less then that, the
society is sure to face hardship.
* The nature of saving has been changed considerably over the
last couple of years.
* There has been a substantial growth in the saving of the people
of India. But a considerable amount of fluctuation is also noticed
in the saving trend of India from year to year.

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

* If we compare the savings behavior in India with the savings


behavior of the neighboring countries, then we come to know that
the saving rate in India in the 1960s was even higher than the
saving rate of Singapore, Korea and Taiwan.
* In the early years of 1970s, the saving rate of India was much
lower than the saving rate of the HPEA (High Performing East
Asian Economies) countries.
* By the mid years of 1990s, the saving rate of India has
increased to a little over the half average rate of the HPEAs.

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

Implications of Social & Cultural Environment on Business OR Impact


on Culture on Business
* Culture creates people

* Culture & Globalization


* Culture determines goods and services
* Language & Culture
* Attitudes
* Collectivism vs. Individualism
* Ambitious vs Complacent
* Authority
* Ethics
* Customs and manners

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

STATE Policies and GATT


Business Environment (Francis Cherunilam)
Essentials of Business Environment (K. Aswathappa)

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

Introduction Government Intervention :


Regulatory actions taken by a government in order to affect or
interfere with decisions made by individuals, groups or
organizations regarding economic and social matters.
One of the features of modern business is the increasing
involvement of the government in business activities.
As of today, there is no country in the world where the
government of the land does not interfere, in one form or the
other, in the economic activities.
Dimock observes
The two most powerful institutions in society today are business
and government; where they meet on common ground-amicably
or otherwise-together they determine public policy, both foreign
and domestic for a nation.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Functions of the state


Functions of the state varies from basic minimum requirement to active
participation in several other sectors.

The Basic Functions:


Providing pure public goods
Defense
Law and order
Property rights
Macroeconomic management
Public Health
Protecting the poor
Anti poverty programmes
Disaster relief

Activist Functions:
Coordinating private activity
Fostering Markets
Cluster initiatives
Redistribution
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao
Asset redistribution

Intermediate functions:
Addressing Externalities
Basic education
Environmental protection

Regulating Monopoly
Utility Regulation
Antitrust Policy

Overcoming imperfect Information


Insurance (health, life, pensions)
Financial Regulation
Consumer protection

Providing social insurance


Redistributive pensions
Family allowances
Unemployment insurance
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Functions of the State


(Adopted from World Bank, World Development Report, 1997)

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

Impact of the State:

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

Reasons for State Intervention:


- Delayed growth:
Economic historians have noted that the later a country moves
towards economic development, the greater has to be the role of
the State.
- Modern economy must be a planned economy
Government is the only agency which can plan and execute.
- Our constitution binds the government to take an active part in
economic activities.
- What the people and the country need can only be understood
and provided by government and not by privatization.
- State participation is necessary to lay a strong base for the
future development of industry and commerce.
- State intervention is necessary to eliminate poverty.
- Failure of market invites governments intervention in an
economy.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

Types of Intervention:
Formal and informal controls
Formal controls are usually those emanating from legislations as
for e.g. FERA, Companies Act1956, Competition Act 2002 etc.
Formal controls are very powerful & when we think of
Government control over business, we generally mean formal
controls.
Informal controls refer to the controls which various groups
impose upon themselves out of need & custom.
Coercive and Inducive controls
Coercive regulation requires performance of certain actions or
refraining from others in order to avoid penalties.
For instance taxes must be paid or may result in fine.
Inducive controls hold out a promise of reward for compliance
with the desired line of action.
For example: subsidies may be granted to stimulate certain
activities.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Direct and indirect controls- When the Govt fixes prices of


certain products or services it is an e.g. of direct control.
E.g. The administered price policy of the government of India is
a direct control measure.
The variation of corporate income tax to influence economic
activity is an indirect control measure. Businessmen prefer
indirect controls as they are less cumbersome & severe
Effect On CompetitionDepending on the relationship to competition, regulations may
bea)Government regulations designed to make competition work,
the competition act,
b)Government competition with business firms as a means of
setting standards of competition,
c)Direct government ownership and operation to supplement
competition Promotional
and regulatory controls.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Promotional and Regulatory ControlsPromotional measures are of positive in nature, & include such
activities as expansion of public sector, operation of
developmental banks, revival of sick units, removal of regional
imbalances, encouragement to small scale units provision of
incentives & subsidies & export promotion.
Regulatory measures ensure orderly development of industries
with least wastage of resources

Consequences of controls:
- Controls have resulted in wastage of national resources
- Wastage of time is another consequence of controls
- Controls have bred corruption at various levels
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Role of the Government


Government normally play four important roles in an economy
- Regulatory Role
(Reservation of industries to small scale, licensing system,
Product mix, Promotion mix)
- Entrepreneurial Role
(Capital intensive projects like steel, capital goods,
petrochemicals, fertilizers)
- Promotional Role
(Developing infrastructure, power, transport, finance, marketing,
institutions for training and guidance)
- Planning Role
(Where resources are limited, one has to see that they are directed
to the right purpose)
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

Trends in Political/Economic/Philosophies Outlook


As against the past suspicion of and antagonism against foreign
capital and technology, a large number of the developing countries,
including the former communist ones, are in a competition to woo
foreign capital and technology. As a result there has been an influx
of foreign investment to these countries.
People across the world are becoming more ethnic centered which
may lead to break up of many nations and formation of new
independent nations. It is predicted that by middle of this century
there could be nearly 1000 countries
Hostilities between some countries affect business of firms even in
third countries. Arab nations, for example did not do business with
firms having dealings with Israel.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

The Constitutional Environment:


Constitution is the law which govern the state.
Constitution of India incorporates a number of matters that are
economically very significant and have far-reaching implications.
The socio-economic and political objectives of the Indian
Republic and the basic guiding principles of state functioning
have been clearly laid down in the Preamble to the Constitution,
Fundamental Rights and in the Directive Principles of State
Policy.
The Constitution also outlines the economic powers and
responsibilities of the Union Government and the State
Governments.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

Preamble:
We The people of India have solemnly resolved to constitute
India into a Sovereign Socialist, secular*, Democratic Republic
to secure to all its citizens:
Justice, social, economic and political;
Liberty of thought, expression, belief, faith and worship;
Equality of status and opportunity;
And to promote among them all
Fraternity assuring the dignity of the individual and the unity
and integrity* of the Nation.
Preamble to the Constitution give some indications of the
need and scope for state intervention in the functioning of the
economy
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

The Fundamental Rights enumerated in Part III of


the Constitution are:
1. Right to equality
2. Right to Freedom
3. Right Against Exploitation
4. Right to Freedom of Religion
5. Cultural and Educational Rights
6. Right to Constitutional Remedies.

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

Fundamental Duties
To abide by the constitution and respect its ideals and
institutions, the national flag and national anthem.
To uphold and protect the sovereignty, unity and integrity of
India.
To defend the country and render National Service when called
upon to do so.
To promote harmony and the spirit of brotherhood amongst all
the people of India transcending religious, linguistic and regional
or value to renounce disrespectful practices against dignity of
women.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

To protect and improve the natural environment including forests,


lakes, rivers and wild life and have compassion for living
creatures.
To develop the scientific temper, humanism and spirit of enquiry
and reform.
To safeguard public property and to adjure violence.
To strive towards excellence in all spheres of individual and
collective activity, so that the nation rises to higher level of
achievements.

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

Economic significance of Fundamental Rights


The Right to Equality prohibits discrimination against any
citizen in public employment
It ensures Equality of Opportunity to citizens.
The Constitution guarantees the citizens the Fundamental Right
to freedom to practice any profession, carry on any profession,
carry on any occupation, trade or business.
The Fundamental Right Against Exploitation prohibits traffic in
human beings, and beggary and other forms of forced labour;
and any contravention of this provision shall be an offence
punishable in accordance with law.
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

The Fundamental Rights enumerated in the Constitution


guarantees a number of economic rights to the citizens; but at the
same time the state has the power to impose reasonable
restrictions on such rights in the public interest.
This resulted in remarkable increase in the statutory control over
the business and a substantial expansion of the entrepreneurial or
participative activities of the state.

A. J Institute of Management, Mangalore


Prof. K Deepak Rao

Technological Environment
Essentials of Business Environment (K. Aswathappa)
Business Environment (Francis Cherunilam)
Business Environment (Suresh Bedi)

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Introduction:
Definition of Technology :
J. K. Galbraith defines technology as a
systematic application of scientific or other organized
knowledge to practical tasks
* Among all the segments of macro-environment, technological
environment exerts considerable influence on business.
* Broadly speaking, technology refers to the application of
knowledge, skills, scientific principles or even ideas to the
production or improvement of goods and services that have
utility and value.
* New technologies provide monopolistic advantages to firms
which are ahead of rivals in technology and may even maintain
the lead through sustained technological development.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Features of Technology:
* Technology relates to change:
Technology forces change on people whether they are prepared
for it or not. In modern society, it has brought so much change
that it creates what is called FUTURE SHOCK.
* Technology is that its effects are widespread:
* Technology is that it feeds on itself :
Technology makes more technology possible. Technology acts
as a multiplier to encourage its own faster development.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Indicators of Technological Development:


- Tends in the growth of science and technology (S&T)
expenditure.
- Trends in the growth of research and development (R&D)
expenditure.
- Total number of technical (Including technical-cum financial)
foreign collaborations
- Assistance sanctioned by various financial institutions for
technological development and upgradation.
- Total value of foreign (outward) remittances on account of
payments for foreign technology (like royalties, known-how and
technical fees etc)
- Investment in research and technology infrastructure ( both in
public and private sectors)
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

IMPACT OF TECHNOLOGY:

(A) Social Implication or Technology and


society
(B) Economic implication
(C) Plant level changes
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Impact of Technology
Technology
A. Social implications

High expectation
of consumers
Systems complexity

Social changes

Social systems

B. Economics implications

C. Plant level changes

Increased productivity

Organisation structure

Need to spend on R&D

Resistance to change

Jobs become intellectual

Fear of risk

Problems of technostructure

e-Commerce

Increased regulation &


stiff opposition

Telecommuting
Transportation

Rise & decline of


products & organisations

Markets

Boundaries redefined

Technology transfers

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

I. Technology and society:


* Technology reaches people through Business:
People are using a great variety of goods and services, thanks to
technology.
* High expectations of consumers:
Technology has contributed to the emergence of affluent
societies. Affluent citizens want more of many things than more
of same things. This call for substantial investments in R & D.
* System Complexities:
Technology has resulted in complexity. Modern machines work
better and faster, but if they fail, they need services of experts to
repair. They fail because of their complexity.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

* Social change:
- Change in social life
- Changes the pattern of social life
- Technology helps iron out social differences but has created
status differences instead.
- Technology has impacted the way we cook, communicate, use
of media and work.
* Social System:
Technology has brought, along with it, new words, new food,
dress and food habits.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

II. Technology and Economy:


* Increased Productivity:
The main reason for adopting technology at all levels as it led to
greater productivity both in terms of quality and quantity.
In hospitals, the objective may be qualitative such as maintaining
life with electronic monitoring equipment regardless of cost.
In a factory, the objective may be quantitative in terms of more
production at less cost.
* Need to spend on R & D:
Research and Development assumes considerable relevance in
organizations as technology advances.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

7 issues which organizations needs to consider are:


1. Allocation of resources to R & D:
A noticeable trend is that the Indian arms of the Multinationals
have a much smaller R&D expenditure compared to their Indian
counterparts. This is because their parent companies do their
research and the Indian subsidiary simply markets the products.
2. Technology Transfer:
The process of taking new technology from laboratory to the
market place is equally important. This transfer takes larger time
as organizations grow in size.
3. Time factor:
Time factor is important in R & D. Companies can no longer
assume that competitors will allow them the time needed to
recoup their investment.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

4. Technological discontinuity:
The process of old replaced by new is called technological
discontinuity. The R & D manager must determine when to
abandon present technology and then to develop or adapt new
technology.
5. Decision on owing R & D or outsourcing:
6. Product or Process Innovation:
7. Investments in biotechnology:
Biotechnology is the use of living systems and organisms to
develop or make useful products. For thousands of years,
humankind has used biotechnology in agriculture, food
production and medicine.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

* Jobs tend to become more Intellectual:


With the advent of technology, jobs tend to become more
intellectual or upgraded. A job handled by an illiterate and
unskilled worker now requires the services of an educated and
competent worker.
* Problem of Techno structure:
a. Traditional incentives fail to motivate
b. Retention is a problem
c. Difficulty in placing people in a pattern
* Need for Bioprofessional and Multiprofessional Managers:
* Increased regulations and still opposition :
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

* Insatiable demand for capital:


Todays technology necessitates massive investment of money on
acquiring or discovering of new ideas and their adoption;
education, training and maintaining of the managers and
managed and on several other related areas.
* Rise and Decline of products and organization:
* Business boundaries redefined:
- Technological change is a potent force in the reconfiguring of
industry boundaries, it may broaden or narrow generally accepted
industry boundaries.
- Technological change is one of the important factors giving rise
to product substitution and product differentiation.
- For multi product companies technological change may have
multiple impacts.
* Training of Scientists
and Engineers
A. J Institute of Management, Mangalore
Prof. K Deepak Rao

III. Plant Level Implications:


* Technology and organization structure:
Technology has considerable influence on organization structure,
length of the line of command, and span of control of the chief
executive. Where companies use technology which is fast
changing, matrix structures are more common.
* Fear of risk:
* Resistance to change:
The manager of a given business unit shall face resistance of
change. New technology poses new problems which may not be
to the liking of the organizational men.
* Total Quality Management (TQM):
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

* E-Commerce and E-Business:


* Patenting:
A patent is a set of exclusive rights granted by a sovereign state
to an inventor or assignee for a limited period of time in
exchange for detailed public disclosure of an invention.
* Transportation Technology:
* Marketing:

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Economic Legislations
Business Taxation

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Central Excise Duties:


Central Excise duties are duties on the production or
manufacture of goods with in India. They are levied
on manufacturers or producers in respect of the
commodities produced or manufactured by them. So,
they are a tax upon manufacture, and not upon sales.
Central Excise duty is levied and collected by the
Central Government.
The Supreme Court has definedExcise duty is a levied necessarily on those dutiable
goods which are produced or manufactured in India and
it has no relationship with the sale of these goods.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Scope for Central Excise Act, 1944:


- Excise duty is levied on goods.
- Is levied on the production or manufacture of goods.
- Manufacture and Production must be in India
- The burden of this tax falls on the consumers.
- Excise duty is levied on the dutiable value calculated by a
general or special method.
- Excise Duty is payable when the goods are removed from the
place of removal.
- Excise Duty is levied through out India in the same form.
- Excise Duty is imposed on manufactured goods only once
except when these goods become the raw material for some other
goods. In this situation CENVAT CREDIT is available.
- Excise Duty law requires special records to be kept for
removing the goods from the place of production, stock or place
of removal.
A. J Institute of Management,
Mangalore

Prof. K Deepak Rao

Procedure for Central Excise Act, 1944:


Assessee should apply for registration of his factory before he
commences production. Registration Certificate should be amended
if new product is added.
Declaration about goods manufactured and produced has to be filled
within 30 days of commencement of production. If there is any
change, amendment or fresh declaration has to be filed. Fresh
declaration should be filed within 30 days from the budget, as per
departmental instructions.
Declaration about marketing pattern has to be filed before 15th April
every year, in prescribed format.
Daily Stock Account (DSA) of finished goods.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Goods must be cleared under Invoice or Invoice Cum Challan of


manufacturer, duly authenticated by the owner bearing machine
serial number. Duty is payable on fortnightly basis (monthly
basis for SSI).
Cenvat records.
Monthly return should be filed by 10th of following month. The
return should be accompanied by one copy of Cenvat credit
amount (SSI unit to file quarterly return).
Large assessees have to provide revenue information every ten
days to the department.
Clearance on budget day after time of presentation of Budget in
Parliament should be under supervision of excise authorities.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Every assessee should submit a list of accounts maintained and


returns submitted by him, even if they are not maintained under
excise law, in respect of production, manufacture, storage or
disposal of finished goods and raw materials. Such list should be
submitted every year before 15th April.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Basis for the levy of Central Excise Act, 1944:


Before Central excise duty can be imposed on any article, it
must satisfy two basic conditions:
* The article should be goods, and
* It should have come into existence as a result of
manufacture.
If either of the above two conditions is not satisfied, Central
excise duty cannot be levied.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Permissible deductions & exemptions:


* Persons who manufacture excisable goods, which are
chargeable to nil rate of excise duty or are fully exempt from
duty by a notification.
* SSI units availing the slab exemption
* The person who carries on wholesale trade or deals in excisable
goods except first and second stage dealer as defined in
CENVAT.
* Special Economic Zones

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Basis of Levy Of Excise Duty:


1. Specific Duty
It is the duty payable on the basis of certain fixed unit like weight, length,
volume, etc.
2. Tariff Value
T.V. is a notional value fixed by the govt. under the section3(2) of CEA
(central exercise Act)for the purpose of calculating the duty payable.
Govt. can fix different tariff values for different classes of same excisable
goods or Manufactured by different producers or sold to different classes of
buyers.
3. Duty based on MRP
Section 4A of the CEA empowers the govt. to specify goods on which duty
will be payable based on MRP printed on carton.
The goods should be covered under provisions of standards of weights and
measures Act 1976.
A reasonable deduction is allowed from such retail price to provide for excise
duty.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

4. Duty based on production capacity


Section 3A of the CEA Act gives power to the govt. to notify certain goods
where the manufacturer will have to pay duty on the basis of production
capacity.
Commission of Central Excise will determine annual capacity of production
of the factory.
5. Ad Valorem duty
Duty on goods are payable on the basis of value of goods.
The assessable value (AV) is arrived at on the basis of section 4 of CEA and
duty is payable on the basis of percentage of such value at the rates specified
in CETA 1985(central exercise tariff Act)
6. Levy of Slabs
Under this system the excise duty is levied on the basis of different slabs
based on various parameters like turnover, production capacity etc.
SSI units are taxed on the basis of turnover

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

6. Compound levy Scheme


Meant for the small scale decentralized sector e.g. embroidery,
marble, stainless steel etc.
Duty for a specified period is fixed on the basis of the number
and type of machines.
Manufacturer has to observe day today excise formalities
regarding maintenance of account

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Exemptions from Central Excise Duty:


Section 5A of the CEA 1944 empowers the central govt. to issue
notifications exempting goods from the payment of central excise duties.
They are
* Small scale industry Exemption
* Job work Exemption
* Captive Consumption
* Goods produced without the use of power.
* Cottage and village industry products
* Goods produced at exhibitions and trade fairs.
* Goods produced by educational, technical and research institutions.
* Goods produced in govt. factories, mines, prisons and defense
production.
* Solar and Natural energy.
* Goods produced by free trade zones and 100% export oriented units.
* Capital goods meant for use in export goods.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

VAT:
Value Added Tax (VAT) is a kind of indirect tax levied in parts at every stage
of the production and distribution process. It is levied on each business on
the value they added to their purchase of raw material. Ultimately it is the
customer who generally pays the full amount of the VAT.
VAT was implemented with the objective of eliminating multiplicity of taxes
such as entry tax, turnover tax, sales tax, surcharge, excise duties etc., to
eliminate interstate tax, to make the tax structure simpler and to widen the
tax net, thus increasing revenue for the state
VAT is a tax on value added. Thus, tax is paid at every state from which a
good or service passed, but it is paid on the value added only, and not on
whole cost. Everybody in the production and distribution chain pays the tax
it is paid only in the difference.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Central Sales Tax Act, 1956:


Govt of India Act, 1935 gave authority to different states to
impose sales tax
Too much exercise of this power led to the curbing of state
authority
Central Sales Tax Act was enacted in 1956
It imposes a levy of tax on sale of goods in the course of interstate trade or commerce.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Scope of Central Sales Tax:


It extends to the whole of India.
It is divided into 6 chapters and 26 sections.
It makes provision for single point as well as multiple-point tax
Under this Act, the goods have been classified as :
Declared goods or goods of special importance in inter-State trade or
commerce,
Other goods.
The rates of tax on goods in the first category is lower as compared to
the rate of tax on goods in the second category
There is no exemption limit for the levy of tax in relation to the
turnover of the dealer.
Every dealer engaged in inter-state trade has to get himself registered
can the certificate of registration has to be displayed at all places of his
business
The tax is levied under this act by the Central Govt but it is collected
by that State Govt from where the goods have been sold outside the
state.
The Central Govt and the State Govt are empowered to frame proper
rules and revaluations for the implementations of various provisions of
this Act
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

CENVAT:

GOI had set up Indirect Taxation Inquiry Committee in 1976 under the
chairmanship of Shri L K Jha.
The Finance Act 2000, had introduced the new Central Value Added Tax
(CENVAT)
CENVAT is basically an input duty relief scheme under Central Excise to
reimburse the user manufacturer with the duty paid on the input which he has
absorbed as part of purchase price when buying the same for producing finished
products.
A tax purely based on selling price of a product, has cascading effect, which has
the following disadvantages:
* Computation of Exact Tax Content Difficult
* Varying Tax Burden
* Discourages Ancillarisation
* Increases Cost of Production
* Concessions on the Basis of Use is not Possible

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Income Tax in India:


Constitution of India Schedule VII Union List Entry 82 has given
power to the Central Government to levy a tax on any income other than
agricultural income which is defined in Section 10(1) of the Income Tax Act,
1961.
Income tax is that percentage of your income that you pay to the government
to fund infrastructural development, pay the salaries of those employed by the
state or central governments, etc.
All taxes are levied based on the passing of a law, and the law that governs the
provisions for our income tax is the Income Tax Act, 1961.
Income Tax is charged as per the slab rates prescribed in the Union budget
every financial year.
Income tax is only of the direct means of taxation like capital gains tax,
securities transaction tax, etc., and there are many other indirect taxes that we
pay like sales tax, VAT, Octroi, service tax, etc.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Income tax assessment comprises of following stages:


* Computation of total income.
* Deducting valid deductions.
* Determination of the tax payable thereon.
* Paying the tax.
* Filling Income Tax Return Form.

Taxes are collected by the government in three primary ways:


* Voluntary payment by taxpayers into designated banks, like advance tax
and self-assessment tax.
* Taxes Deducted at Source (TDS) which is deducted from your monthly
salary, before you receive it.
* Taxes Collected (TCS).
Calendar year starts on January 1 and ends on December 31 but a Financial year (FY) is
from April 1 to March 31. As per the Income Tax Act, income earned in a financial year
(FY) is taxed in the next Financial Year. FY to which the income belongs is called
the Previous year (PY) and the FY in which the income is taxed is called the Assessment
year (AY).
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Foreign Investment:
Foreign Capital:
Foreign capital means investment in the productive activities of a
country by a foreign government, private foreign investors &
international institutions such as World Bank, IMF, ADB etc.
* International factor mobility has made significant contribution
to the development of many country.
* Russia, China, America, France, Germany & others had
development after foreign capital assistance.
* Most of the under developed countries suffer from low level of
income & low level of capital accumulation.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Prof W. A Lewis Nearly every developed countries had the


assistance of foreign finance to supplement its own meager savings
during the early stage of its development.
* England borrowed from Holland in the 17th & 18th centuries, &
in turn came to lend to almost every other country in the world in
the 19th & 20th century.
* USA, now the richest country in the world, borrowed heavily in
the 19th century & in turn called upon to become the major lender
of the 20th century.

Foreign Direct Investment:

UNCTADs defines FDI as an investment involving a long-term


relationship & reflecting a lasting interest & control by a resident
entity in the other economy
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Industrialization &
Economic Development
Breaking Vicious
Circle of Poverty
Technological Transformation

Role of
Foreign Capital

Development of Infrastructure

Development of Heavy
Industries

Employment Generation

Removing BOP deficit

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

- Vital role in the industrialization and economic


development:
Nearly every developed countries had taken assistance from
foreign capital in its early stage development. India and China
are also developed substantially with the help of foreign capital.
- Break the vicious circle of poverty:
There is low per capita income and, therefore, low rate of saving
and low rate of investment which again results in low per capita
income etc. Thus, the foreign capital flows for a developing
country would help in filling the gap between the rate of savings
and the required rate of investment for sustained and accelerated
growth of the economy.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

- Technological transformation:
Backward and developing countries of the world suffer from
technological backwardness.
(Low productivity of labour and capital due to abundance of
unskilled labour and obsolete capital equipment)
The inflow of capital from advanced countries apart from
removing capital deficiencies, brings in advanced technology and
skills, organizational expertise and market management.
At present, India is fairly advanced in technological development
with the help of USA, UK, France, Germany and Japan etc.
- Development of adequate infrastructure:
Development of adequate infrastructure is a necessary condition
for further economic development and growth. (transport and
communication, irrigation, power, educational, training and
research institutions etc)
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

- Development of heavy and basic industries:


Foreign capital immensely helps the developing countries in the
development of heavy and basic industries. LDCs will not be in
a position to invest on their own and establish and develop basic
and heavy industries. (Higher capital intensity and a Long
gestation period)
- Greater employment opportunities:
(Foreign capital can modernize agriculture through new farm
machinery and also chemical fertilizers, besides new methods of
cultivation.)

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

- Removing BOP Deficit:


BOP is an accounting record of all monetary transactions
between a country and the rest of the world. These transactions
include payments for the country's exports and imports of goods,
services, financial capital, and financial transfers.
Some policies to overcome deficit (Devaluation which involves
reducing the value of the currency against others, Protectionism)

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Foreign Investment

Foreign Direct Investment

Wholly owned
subsidiary

Joint Venture

Portfolio Investment

Acquisition

Investment by FIIs
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Investment in GDRS,
ADRS, FCCBs etc

Forms of Foreign Capital


Foreign Direct Investment (FDI)
Portfolio Investment
Foreign Collaboration
Inter Government Loans
Loans from International Institution
External Commercial Borrowings
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

- Foreign Direct Investment (FDI):


Foreign direct investment means investment in a foreign country
where the investor retains control over the investment.
The FDI not only have the ownership of assets, but also control
the activities that generate the income flows in the recipient
country. It is control in terms of actual power of management &
effective decision-making in the major areas of working (E.g.
Finance, Production, Technology, Marketing & so on.)
FDI are governed by long term considerations because these
investments cannot be easily liquidated. (Factors like long term
Political stability, Government policies, Industrial & Economic
prospects etc influence the FDI decision.)
Foreign direct investors have direct responsibility with the
promotion and management of the enterprise.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

- Portfolio Investment:
When the investor makes only investment & does not retain
control over the enterprise is known as Portfolio investment.
The investor is interested only in return on his capital & does not
want control over the use of the invested capital.
Portfolio Investment is investment by individuals, firms or public
bodies (like governments/ government organizations) in financial
instruments (such as stocks & government bonds)
Portfolio investment is for a short period & is influenced by short
term gains.
Portfolio investors have no direct responsibility for promotion &
management of the enterprises.
The LDCs strongly prefer for the portfolio investment rather than
foreign direct investment as there is no control over the
management.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Foreign Direct Investment

Portfolio Investment

1. Direct investment
responsibility
2. Direct control on particular
company/industry
3. Less liquidity
4. Long term finance

1. Indirect investment
responsibility
2. No control on
company/industry
3. More liquidation
4. Short term finance

There are mainly two routes of portfolio investments in India


Foreign institutional investors (FIIs), Mutual funds and GDRs.
Global Depository Receipts (GDRs), American Depository
Receipts (ADRs) & Foreign Currency Convertible Bonds (FCCBs)
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

- Foreign Collaboration:
In recent years there has been joint participation of foreign &
domestic capital.
India has been encouraging this form of import of foreign capital.
There are three types of foreign collaboration
* Joint participation between private parties
* Foreign firms & Indian Government
* Indian Government & foreign government

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

- Inter government loans:


Since the second world war, there has been a growing tendency
towards direct inter government loans & grants.
Other advance countries provide grants & loans to government
of less developed countries.

- Loans from international institutions:


World Bank & its affiliates (IBRD)
International Monetary Fund (IMF)
Asian Development Bank (ADB)
International Development Association (IDA)

- External Commercial Borrowing (ECB):


India has also been tapping export credit agencies like the - US
Exim Bank & Japanese Exim
Bank etc.
A. J Institute of Management,
Mangalore

Prof. K Deepak Rao

Need for foreign capital:


- Sustaining a high level of investment:
Since the under developed countries want to industrialize
themselves within a short period of time, it is necessary to raise
foreign investment substantially.
- The technological gap (technological transfer):
The under developed countries have very low level of technology
as compared to the advanced countries. However, they possess a
strong urge for industrialization to develop machineries ,tools
& equipments.
- Exploitation of natural resources:
A number of LDCs possess huge mineral resources which await
exploitation. These countries themselves do not possess the
required technical skill &
expertise to accomplish this task.
A. J Institute of Management,
Mangalore

Prof. K Deepak Rao

- Undertaking the initial risk:


Many LDCs suffer from acute scarcity of private entrepreneurs.
This creates obstacles in the programme of industrialization.
- Development of basic economic infrastructure:
The domestic capital of the LDCs countries is often too inadequate
to build up the economic infrastructure on its own. (International
financial institutions & International government of advanced
countries have made substantial capital available to the LDCs)
- Improvement in the balance of payments position:
In the initial phase of their economic development, the LDCs
needs much larger imports (machines, capital goods, industrial
raw-materials, spares & component) than export.
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Share of top investing countries FDI inflow in India


Sl
No.

Country

August 1991
to March
2002

2002-03 (April
-March)

2003-04
(April
-March)

2004-05
(April
-March)

2005-06
(April -Sept)

Cumulative inflows
(from Aug 1991 to
Sept 2005)

% age with
inflow

1.

Mauritius

27,446
(6,632)

3,766
(788)

2,609
(567)

5,141
(1,127)

3,882
(882)

42,844
(10,096)

35.55

2.

U.S.A.

12,248
(3,188)

1,504
(319)

1,658
(360)

3,055
(668)

1,409
(320)

19,974
(4,856)

16.49

3.

Japan

5,099
(1,299)

1,971
(412)

360
(78)

575
(126)

342
(78)

8,348
(1993)

6.93

4.

Netherlands

3,856
(986)

836
(176)

2,247
(489)

1,217
(267)

161
(37)

8,317
(1,954)

6.90

5.

U.K.

4,263
(1,106)

1,617
(340)

769
(167)

458
(101)

843
(192)

7,950
(1,905)

6.60

6.

Germany

3,455
(908)

684
(144)

373
(81)

663
(145)

167
(38)

5,343
(1,317)

4.43

7.

Singapore

1,997
(515)

180
(38)

172
(37)

822
(184)

521
(118)

3,690
(893)

3.06

8.

France

1,947
(492)

534
(112)

176
(38)

537
(117)

35
(8)

3,229
(768)

2.68

9.

South Korea

2,189
(594)

188
(39)

110
(24)

157
(35)

26
(6)

2,669
(698)

2.21

10.

Switzerland

1,200
(325)

437
(93)

207
(45)

353
(77)

170
(39)

2,366
(579)

1.96

Total

92,611
(23,829)

14,932
12,117
17,138
A.
J
Institute
of
Management,
(3,134)
(2,634)
(3,754)

9,553
(2,171)

1,46,351
(35,522)

Mangalore

Prof. K Deepak Rao

Share of top investing countries FDI inflow in India


Sl No.

Country

2012-13
( April -

2013-14
(April March)

March)

2014-15
(April 14January, 2015)

Cumulative
Inflows
(April 00 January 15)

%age to total
Inflows (in terms of
US $)

1.

Mauritius

51,654
(9,497)

29,360
(4,859)

46,663
(7,662)

417,148
(86,187)

36 %

2.

Singapore

12,594
(2,308)

35,625
(5,985)

32,152
(5,262)

157,959
(30,707)

13 %

3.

U.K.

5,797
(1,080)

20,426
(3,215)

6,906
(1,148)

107.791
(21,911)

9%

4.

JAPAN

12,243
(2,237)

10,550
(1,718)

9,802
(1,611)

90,446
(17,879)

7%

5.

Netherlands

10,054
(1,856)

13,920
(2,270)

19,094
(3,136)

75,393
(14,371)

6%

6.

U.S.A.

3,033
(557)

4,807
(806)

9,646
(1,582)

65,376
(13,510)

6%

7.

CYPRUS

2,658
(490)

3,401
(557)

3,104
(513)

38,834
(7,959)

3%

8.

Germany

4,684
(860)

6,093
(1,038)

5,018
(821)

36,623
(7,340)

3%

9.

France

3,487
(646)

1,842
(305)

3,617
(592)

22,323
(4,471)

2%

10.

Switzerland

987
(180)

2,084
(341)

1,792
(293)

14,895
(3,009)

1%

Total
Inflows
from all countries

121,907
155,489
1,199,919
A. J147,518
Institute of Management,
(22,423) Mangalore
(24,299) Prof. K(25,525)
Deepak Rao (243,228)

Sector wise FDI flow to India


Sl No.

Sectors

2006-07
(Apr
March)

2007-08
(Apr
March)

2008-09
(Apr
March)

2009-10
(Apr
Nov)

Cumulative
inflow (April
00 to Nov 10)

% age to
total inflow
(in terms of
US$)

1.

Service Sector
(financial & non financial)

21,047
(4,664)

26,589
(6,615)

28,411
(6,616)

20,958
(4,392)

105,411
(23,640)

21%

2.

Computer Software &


Hardware

11,786
(2,614)

5,623
(1,410)

7,329
(1,677)

4,350
(919)

43,846
(9,872)

9%

3.

Telecommunication

2,155
(478)

5,103
(1,261)

11,727
(2,558)

12,338
(2,554)

40,706
(8,931)

8%

4.

Housing & Real Estate

2,121
(467)

8,749
(2,179)

12,621
(2,801)

13,586
(2,844)

37,369
(8,357)

8%

5.

Construction Activities

4,424
(985)

6,989
(1,743)

8,792
(2,028)

13,544
(2,868)

35,721
(8,059)

7%

6.

Power

713
(157)

3,875
(967)

4,382
(985)

6,908
(1,437)

20,919
(4,627)

4%

7.

Automobile Industry

1,254
(276)

2,697
(675)

5,212
(1,152)

5,609
(1,177)

20,677
(4,565)

4%

8.

Metallurgical Industries

7,866
(173)

4,686
(1,177)

4,1,57
(961)

1,935
(407)

13,440
(3,130)

3%

9.

Petroleum & Natural Gas

401
(89)

5,729
(1,427)

1,931
(412)

1,328
(272)

11,504
(2,666)

2%

10.

Chemical (other than


fertilizers)

1,707
(362)

11,274
(2,496)

2%

930
920
3,427
A. J Institute(229)
of Management,
(205)
(749)
Mangalore
Prof. K Deepak Rao

Sector wise FDI flow to


Sl No.
Sectors
India

2012-13
( April March)

2013-14
(AprilMarch)

2014-15
(April 14January,
2015)

Cumulative
Inflows
(April 00 January 15)

1.

Service Sector
(financial & non financial)

26,306
(4,833)

13,294
(2,225)

16,159
(2,642)

2.

CONSTRUCTION
DEVELOPMENT:

7,248
(1,332)

7,508
(1,226)

4,359
(722)

112,916
(24,028)

10 %

3.

TELECOMMUNICATIONS
(radio paging, cellular mobile,
basic telephone services)

1,654
(304)

7,987
(1,307)

16,978
(2,832)

83,697
(16,995)

7%

4.

COMPUTER SOFTWARE &


HARDWARE

2,656
(486)

6,896
(1,126)

8,023
(1,308)

67,694
(14,125)

6%

5.

DRUGS &
PHARMACEUTICALS

6,011
(1,123)

7,191
(1,279)

7,559
(1,259)

63,630
(12,856)

5%

6.

AUTOMOBILE INDUSTRY

8,384
(1,537)

9,027
(1,517)

12,529
(2,045)

60,725
(11,857)

5%

7.

CHEMICALS (OTHER THAN


FERTILIZERS)

1,596
(292)

4,738
(878)

3,408
(562)

48,642
(10,230)

4%

8.

POWER

2,923
(536)

6,519
(1,066)

3,704
(612)

46,359
(9,512)

4%

9.

METALLURGICAL

7,878
2,488
A. J Institute 3,436
of Management,
(1,466)
(568)
(406)Rao
Mangalore
Prof. K Deepak

201,728 (42,101)

% age to total
inflow (in
terms of US$)

40,738
(8,481)

17 %

4%

Advantages of Foreign Direct Investment:


- Enhance the level of economic development
- Transfer of technology
- Boosting Employment & income of host country
- Conservation of foreign exchange (increasing export &
reducing import, improve its BOP position etc)
- FDI increase competition & break down monopolies in the host
countries
- Improving Standard of Living

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Foreign direct investment in India:


Starting from a baseline of less than USD 1 billion in 1990, a
recent UNCTAD survey projected India as the second most
important FDI destination (after China) for transnational
corporations during 2010-2012. As per the data, the sectors
which attracted higher inflows were services, telecommunication,
construction activities and computer software and hardware.
Mauritius, Singapore, the US and the UK were among the
leading sources of FDI.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Technology and Global Competitiveness:


- Technology is one of the important determinants of success of a
firm as well as the economic and social development of a nation.
- Technology is a critical determinant of competitiveness.
- Technology includes not knowledge or methods that are necessary
to carry on or to improve the existing production and distribution of
goods and services, but also entrepreneurial expertise and
professional know-how.
- Technology is one of the eight factors considered by the World
Economic Forum to evaluate the global competitiveness of nations.
Global competitiveness report of the Forum asserts information
technology as a new source of competitiveness
* E-mail *Internet *E-commerce
A. J Institute of Management,
Mangalore

Prof. K Deepak Rao

IT Revolution and Business Environment:


As Lucas observes, IT
- Provides new ways to design organizations
- Creates new relationship between customers and suppliers
- Enables tremendous efficiencies in production and service industries
- Changes the basis of competition and industry structure. E.g. Airline and
securities industries.
- Contributes to the productivity and flexibility of knowledge-workers
- Provides the manger with electronic alternatives to face-to-face communications
and supervision.

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Five Major Trends:


The IT revolution has profoundly transformed the modus
operandi of business.
- The use of technology to transform the organization
- The use of information processing part of the work
environment
- Technology as a pervasive part of the work environment
- The use of personal computers as managerial workstation
- The evolution of the computer from a computational device to a
medium for communication
A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

Technology & Competitive Advantage:


* Michael Porter points out in Competitive Advantage,
technology is one of the principal drivers of competition.
* It plays a major role in industry structural change as well as in
creating new industries.
* Many of todays great firms grew out of technological
changes that they were able to exploit.
* Not all technological change is strategically beneficial; it may
worsen a firms competitive position and industry attractiveness.
* Technological advance helps to reduce cost, impart product
differentiation, provides technological leadership and may
influence industry structure.
* According to Gorden Pearson, Innovation is the key weapon in
achieving a sustaining competitive advantage.
* To compete successfully, it is vital to use the most appropriate
technology to produce and
distribute
your product or service.
A. J Institute
of Management,
Mangalore

Prof. K Deepak Rao

Sources of Technological Dynamics:


The important factors which determine the technological dynamics of a
company include
* INNOVATE

DRIVERS

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

- Innovative Drive of the Company: (R&D)


- Customer Needs/Expectations:
- Demand conditions: (Expected future trend could also be important)
- Suppliers offerings:
- Competitive Dynamics:
- Substitutes:
- Social forces: (E.g. Ecological problems, Eco-friendly products)
- Research Organizations/Technical Facilities:
- Government Policy

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao

A. J Institute of Management,
Mangalore
Prof. K Deepak Rao