Modern Business is only next to the

state in importance.
Business contributes to economic
growth.
It generates employment
opportunities.
It provides all kinds of goods and
services for consumption.
Modern Business covers a complex
field of industry and commerce
involving activities related to both
production and distribution. Business
includes activities connected with
production, trade, transport, finance,
banking, insurance, advertising and
other activities.
Nature of Modern Business.
1) Today’s business operates on a
large scale: sales, revenue, profits
and assets.
2) Oligopolistic character.
 Interdependence is recognized.
 Firms having cost advantages over rivals.
 Economies of scale being massive.
 Financial requirements are large.
 Mergers and Acquisitions are common.
 Collusion is very common: Cartels and Price
Leadership.
3) Diversification:
Concentric diversification which means
adding new related products to their
existing production.
Horizontal diversification which means
adding new unrelated products or services
for existing customers.
Conglomerate diversification which
means big business houses are
expanding their activities by establishing
new companies for producing unrelated
new products. However diversification
may not always contribute to growth.
e.g. Recession
4) Global reach.
Companies that matter have expanded
their revenue and assets. Cross border
flows of capital, goods and know how.
In WTO era, cross border trade is
mainly in services. There is General
Agreement in Trade and Services (GATS).
GATS covers all traded services,
professional services, computer related
services, education and training services,
environment services, financial services,
telecommunication service
5) Technology orientation and
sophistication of technology.
Modern firms have to invest in
R&D. Examples of USA, Japan and
Switzerland. Among Asian countries
South Korea has the credit.
E.g. Samsung Electronics.
6) Readiness to change.
Strategy of offering differentiated
products.
Business being vigilant all the time.
Synthetic products being produced.
Change in using raw materials.
7) Government control: Reasons
Market failures
Market imperfections
Externalities
Public goods
 Environment of Business
Environment by definition is external
to an organisation. But in practice
internal environment is distinguished
from external environment
 External Environment

Internal Environment

Values Human Resources

Goals Financial Resources
Modern Marketing
Micro Manangement
Business Resources Macro
Power Relationships
Capabilities
 Components of
Internal Environment
Value system may be positive or
negative.
Goals: Profit maximization, sales
maximization, maximizing balanced
rate of growth and satisficing
behaviour.
 Management : A corporate enterprise
may be professionally managed or family
controlled. Impact on decision making.
 Power relationships: It means internal
power relationships. The strength of
management depends largely on the
relationship between the company’s
shareholders, Board of Directors and the
seniour executive officers.
 Capabilities: Two views : 1. Rapid
technological progress is destroying the
relative importance of tangible assets vs
human assets. 2. Technology as the
potent force of change.
 Financial resources : 1. Internal resources
2. external resources and 3. FDI.

Human resources : The quality of human

resources of a company depends largely
on skill, commitment, attitude, and morale
of the employees.
Marketing resources :
 External Environment
a) Micro Environment and
b) Macro Environment
Performers in Micro Environment.
 Suppliers of inputs
 Trade Unions
 Customers
 Market intermediaries
 Competitors
 Public
 Input
Suppliers

Trade
Unions Public
Modern
Business

Customers Competitors
Intermediaries
1) Input Suppliers
Possibility of Monopoly
Control
Uninterrupted supply to be
ensured
Multiple sources needed.
2) Trade Unions – Different
approaches being followed.
3) Customers constitute an
important element.
4) Marketing intermediaries and
the chain.
5) Competitors and their
policies.
6) Public or the society.
Macro environment.
Macro environment of a
company refers to all those
economic and non-economic
factors which exercise their
influence on the business
activity in general and thus
determine opportunities that
a company may have to
promote its business.
Economic and Noneconomic
Environment.
 Economic environment may be
National or Global.
 Noneconomic environment may be
political and legal, socio - cultural,
demographic, technological and
natural.
Business enterprise is essentially
an economic institution. It conducts its
activities in the market system with
definite objective.
 The central problems of the economy viz,
what to produce, how to produce and for
whom to produce
 Capitalism: Price system
 Socialism: Central Planning Board
 Mixed Economy : Combination of public
and private sectors
 Factors influencing Business Environment :
Growth Rate
 : Stable Prices
 : Rates of saving and Investment
 : Fiscal Stability
 Economic Polices
 1) Industrial Policy :
 * Government Support for Automobile
Industry in USA, Japan and India.
 * 1956 Policy in India
 * Liberalization Policy in India
 * Delicesnsing
 * Industrial Policy of 1991.
 Trade Policy ;
 * Inward Looking Trade Policy
 * Outward Looking Trade Policy
 Monetary policy is an arm of macro
economic policy and as such its role and
importance are determined in any
economy by the overall economic policy
framework and the various instruments
available for implementing the policy __ C
Rangarajan
 Fiscal Policy
 A policy under which the government uses
its expenditure and revenue programmes
to produce desirable effects and avoid
undesirable effects on the national income
production and employment. It is
Government’s policy in relation to taxation
, public expenditure and public debt for
the explicit purpose of attaining one or
more specific objectives such as growth or
development.
Global Economic Environment
 China emerging as a super power and
becoming the engine of global growth
 Reasons:
 Higher savings
 Labour intensive small scale export
industries
 Massive infrastructure growth
 Liberalised foreign trade
 Market determined commodity prices
India as the fastest growing economy.
 India with demographic dividend.
 Without opportunities demographic
dividend turning into demographic
disaster.
 Both China and India are the engines of
growth in the world.
 Trade agreements
 WTO with the goal of cutting trade
barriers for encouraging multilateralism
 Now developing countries acquiring
negotiating power
 Regional Trade Agreements
 Preferential trade agreements
 Free trade agreements
 Customs Union
 Common Market
 Protectionism

 Industrialised countries of the west have

been resorting to protection.
 Non - tariff barriers.
 The study of the staff in the World Bank
has indicated the gravity of non --tariff
barriers.
 There are strong protectionist sentiments
in the USA.
 Dominance of MNCs

 Developed countries: USA UK Japan

France, Germany and Switzerland
 Among developing countries South Korea
dominates
Non-Economic Environment of
Business
History reveals that there are many non
economic factors that influence economic
development as also business
environment.
Gunnar Myrdal in his Asian Drama (1968)
states that the attitude of the people has
much to do with the economic progress of
a nation. Indian experience vividly shows
the damage of the caste factor.
 Political Environment
The capitalist class as ruling class spreads
its own political culture. Indian experience
reveals the impact of political instability on
business activities. State fundamentalism
has been replaced by market
fundamentalism. Now the latest political
situation is conducive to Public Private
Participation. Since 1991 all political
parties have been following policies
helpful to the business communities.
 Legal Environment
Legislations defining property and
business organisations, contract, relations
between employers and employees, social
obligations of employers and social
security constitute legal environment. The
Securities and Exchange Board of India
(SEBI) Act, 1992 empowers SEBI to
regulate the securities market. Even in the
market economy the modern corporate
business is governed by legislations.
 Socio-Cultural Environment
Every society has its own culture
consisting of its own values, attitudes and
various forms of interactions among
people. The roles of the society, state,
market and planning are to be conceived
in the socio-cultural environment. There is
globalisation of culture causing
superimposition of alien culture on local
culture. Multiculturalism is what the
business firms have to deal with.
 Demographic Environment
 The size and growth rate of population.
 Sex composition of population.
 Rural Urban distribution of population.
 Educational level.
 Work participation rate.
 Spread of urban culture.
 The burden of population on environment.
 Technological Environment
 Inventions and innovations.
 Changes in techniques of production.
 Inventions and Innovations in the western
world are both cost reducing and demand
increasing.
 Technological advancements may cause
negative effect of displacement of labour.
 Technical Progress may change socio
cultural environment.
 Natural Environment
 There are externalities in the form of
environmental hazards. Natural
environment performs following functions:
a) It provides life support.
b) It supplies natural resources needed for
business.
c) Natural environment may facilitate
absorption of waste products.
d) It may provide or supply amenity
resources.