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1
BUSINESS AS A SYSTEM
System will:
Draw Input
Process it Internally and
Releases output into environment
Business
Draw Input – Material , Energy , Information
Process it Internally - Into different Material , energy and Information
Releases output into environment – Tangible, Intangible and
Information
Importance
- Reliable supply – continuous supply for
smooth functioning
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
• Economies of Scale
Competitors:
• Unit cost Inverse to units produced
Measured by ‘ Minimum Efficient Scale ‘
1. The Threat of entry of new firm
Or Market share
1. Economies of scale MES volume is necessary to compete
2. Capital Requirement at minimum cost.
3. Access to Channel
Strategy : ‘Just in time ‘ & Lean
4. Absolute cost advantage manufacturing to counter
5. Expected Retaliation economies of scale
5. Government Policy
7. Differentiation • Capital requirement
• Internet / Knowledge based services
less costly
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Business & Environment Interface
Micro environment of business.
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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 Possibility of forward integration
small no.of buyers – more seller Seller’s own distribution operation –
power More power
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Business & Environment Interface
Micro environment of business.
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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.
2. Economic environment
i. Economic conditions- GDP, Business Cycle, Unemployment, Inflation,
Balance of Payment, Fiscal Policy, Monetary Policy, Exchange rate Policy,
Interest Rate.
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
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
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
12/14/2008 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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Business Motives & Objectives
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Business Ethics
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Business Ethics
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Business Ethics
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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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