Professional Documents
Culture Documents
Business As A System
Business As A System
Political System
Social System
Cultural system
Economic System
Technological System
Legal System
Business
Draw Input – Material , Energy , Information
Process it Internally - Into different Material , energy and Information
Releases output into environment – Tangible, Intangible and
Information
Importance
- Reliable supply – continuous supply for
smooth functioning
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Business & Environment Interface
Micro environment of business.
2) CUSTOMERS
Different categories of customers
i. Industrial customers
ii. Wholesale customers
iii. Retail customers
iv. Government customers
v. Foreign customers
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Business & Environment Interface
Micro environment of business.
3) Market intermediaries
i. Middlemen.
ii. Physical distribution Firms: (warehouses and
transport firms)
iii. Marketing service agencies (Advertising
agencies market research firms, media firms,
consulting firms)
iv. Financial intermediaries
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Business & Environment Interface
Micro environment of business.
Absolute cost advantage
Competitors: ‘Learning curve effect’ – Cost advantage
1. The Threat of entry of new firm Expected Retaliation
1. Economies of scale GSM Players like Airtel ,Spice retaliated
2. Capital Requirement entry of CMDA player Reliance
3. Access to Channel Communication to operate in GSM
field
4. Absolute cost advantage
Government Policy
5. Expected Retaliation
Import of sugar, Edible oils, Steel ,
5. Government Policy Liberation of Insurance & other
7. Differentiation sectors
Access to Channel Differentiation
Self help groups / Social networks – Existing company – Strong brand
New channels of distribution image, wide range of products to
cover all segments
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Business & Environment Interface
Micro environment of business.
Concentration of buyers
Competitors: Small no. of buyer + High Volume
purchase – High buyer power
2. The Power of Buyers: Coca-Cola – cannot bargain with Malls
1. Concentration of buyers Alternative source of supply
2. Alternative source of supply More supply source – high buyer power
3. Component cost as a Bajaj Scooter – Honda, Suzuki, TVS etc
percentage of total cost Component cost as a % of total cost
4. Possibility of backward High proportion of component/material
integration cost to finished goods leads to looking
for alternatives.
Possibility of backward integration
Buyer’s own supply chain – more
buyer power – Co-opratives , Self
help groups, MLM
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Business & Environment Interface
Micro environment of business.
Concentration of Sellers
Competitors: Small no. of Sellers– High seller power
Like Monopoly & Oligopoly
3. The Power of Sellers: Switching Costs
1. Concentration of Sellers High switching cost to other seller
2. Switching costs source - Seller power increase
3. Brand power High-Tec & Specialised goods - SAP
4. Possibility of forward integration Brand Power
5. Dependence on customers High brand power – High power
Dependence on customers Ariel , Rin - Supermarkets have to sell it
Not depending on High volume small Possibility of forward integration
no.of buyers – more seller power Seller’s own distribution operation –
More power
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Business & Environment Interface
Micro environment of business.
Relative performance & Price of
Competitors: Substitutes
4. Threat of Substitution: Substitutes with same cost – High
Non-essential goods where there is the threat – Email replaced Post Offices
ultimate substitute of doing without Switching costs
That: The Cheaper switching cost - High
threat
1. Relative Price & Performance of
substitutes Pet foods , Fast foods , Malls
2. Switching Costs Buyer’s Willingness to substitute
3.Buyer’s willingness to substitute Low-cost articles & infrequent purchase
of articles – little effort made to go
for substitutes
Match box – Lighter
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Business & Environment Interface
Micro environment of business.
High fixed costs
Competitors: High Fixed cost – High break even point
5. Competitive Rivalry: In depression times – Price war to
1. Industry Growth maintain turnover
2.High Fixed costs 1990 – UK & USA accused each of
3. Volatile Demand dumping Steel on Export market
4.Product Differentiation Volatile Demand
5. Extra Capacity in large increments May lead to intermittent Over-capacity
6. Balance of firms Steel war -1990
7. High exit barriers Product Differentiation
Industry Growth: Homogeneous products – More intense
Rapid Growth – Competition need the rivalry - Steel
not be intense Extra capacity in large increments
Maturity Phase- Intense competition Creates short term over capacity .
Honda Nissan – plant in UK
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Business & Environment Interface
Micro environment of business.
Balance of firms
Competitors: If the no. of firms is large / similar size
5. Competitive Rivalry: the rivalry will be intensive. Clear
1. Industry Growth market leader can bring discipline
2.High Fixed costs High exit barriers
3. Volatile Demand High exit barriers – Excess capacity to
persist and rivalry to be intense
4.Product Differentiation
5. Extra Capacity in large increments
6. Balance of firms
7. High exit barriers
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Business & Environment Interface
Macro environment of business.
1. Demography: Drivers of Population Changes
Quantitative aspects of
population. Birth Rate – No. of births per 1000 population
Qualitative aspects of Fertility Rate- Av. No. of birth per women
population. Death Rate - No. of deaths per 1000
Migration – Country to Country movement
1. Population Growth
Implication – Consumer, Labour , Employment
2. Drivers of Population Changes participation
3. Ethnicity of Population
4. Implications of Demographic
Changes
Population Growth:
Year 1000 – Estimated 300 million
Year 1750 – Actual 728 million
Year 1900 – Actual 1500 million
Year 1960 – Actual 3 billion
Year 2000 – Actual 6 billion
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Business & Environment Interface
Macro environment of business.
2. Economic environment
i. Economic conditions- GDP, Business Cycle, Unemployment,
Inflation, Balance of Payment, Fiscal Policy, Monetary Policy,
Exchange rate Policy, Interest Rate.
ii. Economic policies
a) Budget
b) Industrial policy
c) Trade policy
d) Agricultural policy
iii. Economic system- Capitalistic, Socilalitic, Mixed
3.Political environment
i. Legislature - Labour Laws like Factories Act, EPF Act, ESI
Act, Industrial Disputes Act, Minimum Wages Act, Payment of
Wages Act, etc
MRTP Act, Law of Contracts, Companies act, IDRA Act, FERA,
Import & Export Control act, Tax Laws
i. Executive- Administrators
ii. Judiciary - District, High Courts, Supreme Court, Tribunals
5. Natural environment
i. Natural resources.
ii. Weather and climatic conditions.
iii. Locational aspects.
iv. Nearness to port facilities.
6. Technological environment
i. Nature of technology
ii. Scope for innovation
7. International environment
i. Economic
ii. Political
iii. Legal
iv. Demography
v. Technology
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Business & Environment Interface
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Business & Environment Interface
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Business Sectors
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Classification of Business – Based on Scope of Business
1. Business which Produce Goods:
Two categories of Goods:
a. Commodities – Goods produced by Primary sector
- Will not undergo any processing
- Agriculture , Fisheries, Mining,
b. Products - Goods produced by Secondary sector
– Conversion of Raw material into another form
- Farms, Diaries,
-Manufacturing Enterprises – Machinery, Materials for
-other business, Producing goods for consumption
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Classification of Business – Based on Scope of Business
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Classification of Business – Based on the Nature of Activity
1.Extractive Industries:
Extract goods from natural resources- Oil extraction, Farming, Fishing
2. Genetic Industries:
Produce goods by breeding- Poultries, Bio Tech
3. Manufacturing Industries:
Process Raw materials into finished goods – 4 Types
1. Basic Industries : Iron, Steel
2. Capital goods Industries : Machines
3. Intermediate Industries : Tyre , Tubes
4.Consumer goods Industries : Soap
4. Construction Industries
Canals, Dams, Road, Buildings, Road
5. Service & IT Industries
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Classification of Business – Based on Uses of Goods Produced
1. Basic Industries :
Provide essential inputs to other industries
Iron, Steel, Fertilizer, Chemicals
Goods already had undergone manufacturing process but which forms input for other
industries for further processing
Tyre , Tubes
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Classification of Business – Based on Competitive Structure
1. Monopoly :
Single –Firm Industry
Monopsony – Single Buyer
Bilateral Monopoly – single Buyer and Single seller
MRTP Act
2.Duopoly
Two sellers
3. Oligopoly
Only few firms holding 80 to 85 % market share
4.Monopolistic competition
Large sellers & similar but not Substitute products – Textile
5.Perfect competition
Large sellers & Homogeneous & free entry , exit & no single firm has any control
over the market & Perfect knowledge about market & no transport cost & complete
mobility of factors of production between industries.
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Business Motives & Objectives
Objective:
The end actions
Motive:
The desire which stimulate action
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Business Motives & Objectives
Importance of Objectives
1. Justifies existance
2. Provide Direction
3. Help coordination
5. Help decentralisation
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Business Motives & Objectives
I. Economic Objectives
a) Earning of adequate profit.
b) Creation of customers
c) Innovation
d) Generation of employment
e) Control of inflation
f) Economic development
g) Reduction of inequalities of income
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Contd …
Business Motives & Objectives
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Contd …
Business Motives & Objectives
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Contd …
Business Ethics
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Contd …
Business Ethics
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Business Ethics
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Contd …
Business Ethics
UnEthical Actions :
1.Kentucky Fried Chicken ( KFC ) – Use of Harmful
hormons & Monosodium glutamate to fatten the
chicken
2. Neem – Oil : Ptent by U.S company
3. Women Harassment – Sacking of Chief Executive of
Infosys
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Contd …