Business Environment

Unit 1
 Characteristics of Business
• An Economic Activity
• Manufacturing or Procurement of Services and Goods
• Exchange or Sale of Goods and Services for the Satisfaction of
Human Needs
• Dealings With Goods and Services on a Daily Basis
• Profit Earning
• Uncertainty of Return
 Characteristics of Business
An Economic A business is an economic activity which includes the
Activity purchase & sale of goods or rendering of services to
earn money.
It is not concerned with the achievement of social and
emotional objectives.
Example: Wholesaler sell goods to the retailers and
retailers sell goods to the customers.

Manufacturing or Business enterprise converts the raw material into

Procurement of finished goods.
Services and Organizations also procure finished goods& services
Goods from the producers to meet the needs of the customers
in the market.
Goods can be a Consumer good like sugar, pen, ghee,
etc. capital goods include machinery, furniture, services
like transportation, banking, etc.
 Characteristics of Business
Exchange or Sale • Every business activity includes an exchange or
of Goods and transfer of services and goods to earn value.
Services for the • Producing goods for the goal of personal
Satisfaction of consumption is not included in business activity.
Human Needs • So, there should be the process of sale or exchange
of goods or services exits among the seller and the
buyer.

Dealings With • Every business, rendering either services or goods

Goods and should deal on a daily basis.
Services on a • A one-time sale is not considered a business activity.
Daily Basis • Example: If a person sells his old car through OLX
even at a profit will not be considered as a business
activity. But if he is engaged in regularly trading of
cars at his showroom will be considered as business
activity
 Characteristics of Business
Profit • No business can last for long, without making a
Earning profit.
• The purpose to conduct the business is to earn profits
and minimise the cost.
• Example: A business house tries to reduce the cost of
production and the cost of raw material to earn high
profits.

Uncertainty • The possibility of earning profit or loss is very

of Return uncertain and can’t be anticipated by the
entrepreneur.
• Hence, no business can totally do away with risks
Classification of Business Activity
Business Objectives
 Modern Business Objectives
• All business firms have undoubtedly some organizational goals
to pursue. The traditional Economic theory assumed profit
maximization as the sole objective of a firm. But the modern
economist define the other objectives of Firms.
• Profit Maximization
• Sales or revenue maximization
• Growth Maximization
• Maximization of satisfaction
• Maximization of Managerial Utility
• Satisficing theory
• Cyert & March behavioral theory
• Entry prevention & risk avoidance
• Profit Maximization - The sole objective of a firm in
traditional theory of firm has been profit maximization. Conditions for
maximizing profit
• MC = MR and
• MC should cut MR from below.

• Sales or revenue maximization - The basic premise of his

theory is sales maximization rather than profit maximization. Salary and
other management emoluments are more closely related to sales
revenue than to profit. Bankers and other financial institutions look at
sales revenue for credibility

• Growth Maximization - The main goal of firm is the balanced

rate of growth of the firm. Ability of managers judge by growth of firm.
Managers try to maximize firm’s balanced growth rate subject to
Managerial and financial constraints.
• Maximization of satisfaction - According to Scitovsky, the satisfaction
of an entrepreneur does not depend only upon the material goods, but in
the forms of comfort and necessaries obtained from profits due to his
entrepreneurial activity. It includes the leisure or what Hicks calls a 'quiet
life‘ also as an essential ingredient to individual welfare.

• Maximization of Managerial Utility or Discretion - This theory is

developed by Williamson. Managers seek to maximize their own utility
function subject to minimum level of profit. This managers are
interested not only in their own emoluments but also in the size of their
staff and expenditure on them.

• Satisficing theory - It was propounded by Herbert Simon. Satisficing

means satisfactory overall performance. Firms wishes to attain
satisfactory level of production, to attain satisfactory share market,
to attain a satisfactory level of profit and so on. Firm is Satisficing
organization rather than profit maximizing entrepreneur.
• Cyert & March behavioral Theory - It has been
propounded by Cyert and March. Cyert and March regard the modern
business firms as a complex organization in which the decision-
making process should be analyzed in variables that affect
organizational goals, expectations and choices. They look at the firm
as an organizational coalition of managers, workers, shareholders,
suppliers, customers, and so on.

• Entry prevention and risk avoidance - Another objective

is to prevent Entry of new firms into the industry. The motive
behind entry prevention may be:
• A) profit maximization in long run
• B) securing constant market share
• C) avoidance of risk caused by unpredictable behavior of new firms.
Micro and Macro Business Environment
Micro and Macro Business Environment
 Differences Between
Micro Environment and Macro Environment
• The microenvironment is the environment which is in immediate
contact with the firm. The environment which is not specific to a
particular firm but can influence the working of all the business groups
is known as Macro Environment.
• The factors of the microenvironment affect the particular business
only, but the macro-environmental factors affect all the business
entities.
• The micro environmental factors are controllable by the business but
to some extent only. However, the macroeconomic variables are
uncontrollable.
• The elements of the microenvironment affect directly and regularly to
the firm which is just opposite in the case of the macro environment.
• The study of the microenvironment is described as COSMIC analysis.
Conversely, PESTLE Analysis is a study of the macro environment.
 Open Economy

• An open economy is one

– that trades commodities, services as well as financial
assets with other countries.
– that conducts business with other countries in a
variety of ways.
– That broadens a country's market to an extent that a
closed economy can never achieve.
– Examples are:
• India, USA, Singapore, Finland, Hongkong
 Features of An Open Economy
• An open economy participates in the following activities:
• It purchases shares, debentures, bonds, and other securities
from foreign countries and sells securities to foreign countries.
• It borrows money from and lends money to other countries.
• It is able to send and receive gifts and remittances from
foreigners.
• Normal residents of an open economy are free to move or
work in the domestic territory of other economies.
• In an open economy, GDP and GNP not the same things for
these reasons.
 Benefits of An Open Economy
• Prices in an open economy are found to be less, and product quality
is improved as a result of increased competition.
• Consumers have more options for consumption as well.
• Another advantage of an open economy is that it is more adaptable.
An open economy has a better chance of adapting to changes in the
global economy.
• An open economy contributes to faster, more vibrant global growth.
• An open economy encourages research and development and fosters
innovation.
• Another advantage of an open economy is product variety. Because
the trade base is so large, there is always a less expensive, more
efficient alternative.
• An open economy allows a country to have a voice in international
trade, decisions, and relations.
 Disadvantages of An Open Economy
• An open economy is susceptible to global risks such as a slowdown.
• Domestic producers may suffer in an open economy because they
cannot compete at low international prices. As a result, governments
may use trade controls such as tariffs, subsidies, and quotas to help
domestic businesses.
• Any change in either of these determining factors can result in a large-
scale international movement of funds.
• It is possible that a country will be forced to adopt certain production
technologies that will prevent it from making the best use of its factor
endowment.
• Alternatively, it may be forced to limit its exports. Such a situation may
be thrust upon a country with limited bargaining power or that is
experiencing balance-of-payments difficulties.
• Economic shocks in one country can quickly spread to other
countries, as demonstrated by the 2008-2009 economic crisis in the US.
 Difference Between Open & Closed Economies
Parameters Open Economy Closed Economy

When running a closed

Under an open economy, a country
International economy, a country has no
allows the import and export of
Relationships exposure to the external sector.
goods and services.
There is no export or import.

Dependency Internationally dependent Self-reliant

Trade Relation Borrows and lends internationally. Does not borrow or lend.
Foreign Aid Takes and Gives Neither takes nor gives.
Competition High Low

Interaction with the external sector

There is no international
Factors of also involves production factors
movement/interaction of
Production (capital and labour), technology
factors of production.
transfer, and intellectual property.
 Political Economy

Political economy is the study of how economic and political (e.g.

law, institutions, government) systems are linked. Political
economy studies macroeconomic phenomena such as growth,
distribution, inequality, and trade, and how these phenomena are
shaped by institutions, laws, and political behaviour
 What is Political Economy?
• Political economy is the study of production and trade and their
relations with law, custom and government; and with the
distribution of national income and wealth.

• The term political economy is derived from the Greek word polis,
meaning “city” or “state,” and oikonomos, meaning “one who
manages a household or estate.”

• Political economy thus can be understood as the study of how a

country—the public’s household—is managed or governed,
taking into account both political and economic factors.
 ECONOMIC POLITICS DEFINITION

• Use of political power to determine distribution of limited economic

resources. Involving two (2) important mechanism namely:
– Domestic Focus on how government use political power to deal
economic resources in countries. Depends on form of government that is
practiced.
• Example: monarchy, autocracy, republic and democracy

– International Focus on how government use political power to deal

economic resources between countries. Depends on pact between countries
at international level.
• Example: ASEAN,EU, AFTA, NAFTA
 Different Types of Economic Systems
and its Influence on Planning Process
Political Economy is governed by the type of political party in
power and the country’s primary economic system. The main
economic systems are further discussed.
• Capitalism and Capitalist Planning Model
• Communism and Communist Planning Model
• Socialism and Socialist Planning Model
Capitalism and Capitalist Planning Model
• Capitalism is an economic system in which the means of production
and distribution are privately or corporately owned. Operations are
funded by profits, and not controlled by a state government.
• The term "capitalism" (originating from the Latin word "capitalis,"
which literally means "head of cattle")
• Countries that have Capitalist Economy
– United States of America
– United Kingdom
– Canada
– Germany
 Capitalism and Capitalist Planning Model
• In a capitalist system, the government does not prohibit private
property or prevent individuals from working where they please.
• Under some versions of capitalism, the government carries out a
number of economic functions, such as issuing money, supervising
public utilities and enforcing private contracts.
• The Government acts as a purely regulatory authority.
• The planning processes are mostly influenced by the demands of the
private sector based on pure profit incremental views.
• The Capitalist Approach is more inclined towards total economic
growth and very less considerations are made for the welfare of all the
people as a whole community.
 Communism & Communist Planning Model

• A system of social organization in which all economic

and social activity is controlled by a totalitarian state
dominated by a single and self-perpetuating political
party.

• Countries that have Communist Economy-

– China

– Cuba

– Laos
 Communism & Communist Planning Model
• In a communist society, the working class owns everything, and
everyone works toward the same communal goal.
• There are no wealthy or poor people - all are equal and the community
distributes what it produces based only on need. Nothing is obtained by
working more than what is required. It’s an ideology of economic
equality through the elimination of private property.
• Central planning is difficult to achieve. Top-down approach.
• People’s needs are not taken into consideration.
• The Communist Approach is more inclined towards total economic
growth and very less considerations are made for the welfare of all the
people as a whole community.
• Communism frequently results in low production, mass poverty and
limited advancement
 Socialism and Socialist Planning Model
• It is a political and economic theory of social organization which
advocates that the means of production, distribution, and exchange
should be owned or regulated by the community as a whole.

• Countries that have Socialist Economy-

– Russia

– North Korea

– Mozambique

– Bangladesh

– Tanzania Socialism
 Socialism and Socialist Planning Model
• Socialism’s focus is on equality. But workers earn wages and they can
spend as they choose, while the government, not citizens, owns and
operates the means for production.
• Workers receive what they need to produce and survive, but there’s no
incentive to achieve more, leaving little motivation. Some countries have
adopted aspects of Socialism.
• The U.K provides basic needs like healthcare to everyone regardless of
their time or effort at work.
• In the U.S., welfare and the public education system are a form of
socialism .
• The Socialist Approach is more inclined towards welfare of all the people
WORLD ECONOMY POLITICAL STRUCTURE

• Divided into 4 structures

– Production Structure - How products are issued and
traded. International trading are bound by various regulations
(GATT, WTO) Also discusses on who are the manufacturer and
who are the users

– Financial structure - Discusses the cash flow (ways to

get and ways to use) as a tool to get the resources in the world.
Example: A country which takes up a loan from IMF is forced

to follow and reshuffle their economy to suit IMF’s will.

WORLD ECONOMY POLITICAL STRUCTURE

• Knowledge & Technology Structure - Emphasizes the

importance of interest and use of knowledge. Nations that have
the knowledge and technology will advance in comparison to
those without either. Example: Japan, US, South Korea

• Safety factor - Safety factor in economy politics especially

during the Cold War (components of the world fell into two
main block. Also means that the country can handle various
threat in or out and give protection to other countries as well
 Conclusion
• Political Economy studies the interaction between economic,
judiciary and administrative institutions.
• Political Economy is governed by the type of political party in
power and the country’s primary economic system.
• The Planning Process depends upon the type of economic
system a country adopts.
 ISSUES IN INTERNATIONAL BUSINESS

• International business operations are subject to numerous legal

regulations, as each country has a different set of regulations for
business .

• Those regulations can range from copyright issues to the

distribution of securities and how contracts are drawn.

• Additionally, the business's home country may have regulations

that differ from those of the target country, which may
complicate the legal strategy a business takes.
LEGAL ISSUES OF INTERNATIONAL
BUSINESS

1. Jurisdiction

2. Intellectual Property

3. Taxes and Securities

4. Internet-Specific Issues
 Jurisdiction
• Jurisdiction is a primary issue for any international business,
including e-business.
• This refers to the ability of a legal body to make decisions and
force an individual or business to abide by them.
• Legal systems vary by country, although there can be
similarities.
• For example, if a business is sued in one country and that
country's judicial body makes a judgment, the business's home
country may or may not recognize the judgment, depending on
how its own laws are structured
 Intellectual Property
• Intellectual property may be established in one legal
jurisdiction, but can be more uncertain in another legal
jurisdiction.

• The areas of intellectual property most often considered are

copyrights and trademarks.

• If a business hires a web developer, certain steps may need to be

taken to ensure that copyright has been appropriately transferred
to the business from the developer. Likewise, trademarks must
be registered in each country in which a business operates
 Taxes and Securities
• Issuing shares in a business may be illegal without the prior
approval of the target country's exchange commission or
similar legal body.

• This means that selling securities may require the consent of a

large number of different authorities.

• Taxation can represent an equally complex situation, both in

terms of taxes levied on the business, but also sales taxes that
various countries may or may not impose.
 Internet-Specific Issues
• International business is subject to sovereign regulation of the
Internet.
• For example, an e-business may be able to provide a link to
another site, but how deeply they can link into another business's
site can depend on that business as well as the copyright and
trademark laws of its country.
• Another legal issue that may be faced is that of cyber-squatting,
which happens when a business or individual buys a domain
name reflecting the trademark of another party and then
attempting to sell it to them. This practice is illegal.
Ethical Issues In International Business

The Common Ethical Issues are:

1. Employment practices

2. Corruption

3. Human Rights

4. Pollution
Ethical issues in international Business
• The ethical-related issues have been approached since
ancient times and have represented the foundation of
different religions and life styles.
• The ethics can be found in all aspects of human activity
as the individuals have been preoccupied with the
quality of their behavior towards the people around.
• Even if they do not purposefully intend to improve
their relations with the others, people always evaluate
their behavior from the point of view of their
correctness
 Employment
• Wages and the working environment in overseas locations are
often inferior to those in the United States, even when you
fulfill all local legal requirements.
• If you hire workers there, you face the issue of what pay and
working conditions are acceptable. Applying U.S. standards is
usually not realistic and often simply disrupts the established
market.
• An effective approach is to develop company standards which
protect workers while fitting into the local economy. Your
standards have to guarantee a living wage, protect the safety
of your workers and establish a reasonable number of hours
for the work week
 Corruption
• Companies making payments to secure business that they would
not otherwise obtain are guilty of illegal actions under the U.S.
• Foreign Corrupt Practices Act. The payments, even if they seem
to be customary, are usually illegal under local laws as well.
• When your company makes such payments, it is encouraging a
local system of corruption through unethical behavior. Smaller
gifts, of a size that would not normally influence a major
decision, are considered ethical in some societies and may be
legal under local and U.S. laws.
• f you find that large sums are routinely required to do any
business in a country, you may want to reevaluate your decision
to enter that market
 Human Rights
• The country into which you are expanding may not respect
basic human rights. The ethical issue facing your company is
whether your presence supports the current abusive regime
or whether your presence can serve as a catalyst for human
rights improvements.
• If you find that you are supporting a regime that oppresses its
citizens, engages in discrimination and does not recognize
basic freedoms, the ethical action is to withdraw from the
market.
• If you find that the regime allows you to observe human
rights within your organization and that your presence
moderates human rights abuses, you may actively work to
improve local conditions.
 Pollution
• Not all foreign countries have environmental legislation that
makes it illegal to pollute. Companies may discharge harmful
materials into the environment and avoid costly anti-pollution
measures.
• An ethical approach to your expansion into such markets is to
limit your environmental footprint beyond what is required by
local laws.
• An ethically operating company ensures its operations don't
have harmful effects on the surrounding population. Since
your company has the knowledge and expertise to operate
within U,S. environmental regulations, it is ethical to apply
similar standards in your new locations
 Social Issues In International Business
• The Common Social Issues while carrying out International Trade are:
• The Country with which we do international trade might be ruled by a
corrupt leader or a party. Military rulers pose a serious threat for
international business.
• If the Home country and the trading country are at war. If two
countries are at war then there wont be any international trade
between them.
• The Attitude of the host country towards foreign investment is
negative. Host countries may impose special rules for MNC’s
• If The country where we do our International trade lacks social
infrastructure .Inadequate facilities may require a company carrying on
international business to build housing, establishing schools and
providing transportation facilities for the employees.
• Government Interference is yet another Issue. If the government of a
host country insists on becoming a partial owner Of the foreign
business
 Environmental Issues in International
business
• Environmental issues are harmful effect of human activity on the
bio-physical environment. Environmental issues have been
engaging increasing discussion in the international business horizon.
•  As in the case of some other social issues in the fore, the
environmental issues raised are mostly which disadvantage the
developing countries, ignoring or relegating to the background
several serious which hold the developed nations or firms from such
nations guilty
– Global Warming
– Relocation of polluting industries from developed to developing countries
– Ban on importing some goods
– Role of trade
Labour Issues In International Business
• The Basic Labour Issues are:
1.Child Labor
2.Forced Labor
3.Health and Safety
4.Working Hours
5.Low Wages
 Labour Issues In International Business
• One of the important social issues in the developed countries in
respect of business with the developing countries pertains to ill
treatment of labour and children.
• Child labour used in the manufacture of exports from the
developing countries is widely criticized by people in the developed
countries.
• For example, it is alleged that child labour is used by the carpet
industry in India and some other countries and social activist in the
developed nations demand ban on the import of goods embodying
child labour. Consumers are called upon to boycott such goods.
• Similar issue is the sweat labour. The argument here is that goods
are manufactured by labour working in inhuman/unhealthy
working conditions not getting fair wages should be banned or
boycotted. Creating important developing country, like garments,
are alleged to be suffering from such problem.
International Business
Proceed With Caution
 Culture Meaning
• Culture – a set of values, beliefs & traditions that are held by a
specific social group and handed down from generation to
generation

• Dominant group – the group within the culture that has the
authority to control the value system.

• Minority group – usually has some physical or cultural

characteristic that identifies the people within it as different

• Gender Roles – It is important to know who is the dominant

figure in a family

• Language and Communication – Some customer may not be

able to speak the English Language
 Cultural Differences
• Japanese people never look deeply to your eyes.
• In some Arabic culture, women cannot go outside without a
man
• Germany; You must be timely
• France; You must wear an official dress
• Italy; While at a business dinner, keep talking about Italian food
• Russia; While negotiation if they doing hand

contact or touch your shoulders, they start to trust you

• Saudi Arabia; During the greetings - kiss three time
 What is culture?
· Culture as a social organization: the way in
which human activity is coordinated, organized,
the way in which people are expected to behave

· Culture as shared aspects of a society: i.e.,

aspects that all its members, or a subgroup of its
members, share, are familiar with, and pass on to
the next generation
Why is learning about culture important?
• Business executives who hope to profit from their travel have
to learn about the history, culture and customs of the countries
to be visited.
• Business manners and methods, religious customs, dietary
practices, humor and acceptable dress vary widely from
country to country.
• Understanding and heeding to cultural variables such as these
is critical to success in international business travel and in
international business.
• Lack of familiarity with the business practices, social customs
and etiquette of a country can weaken a company's position in
the market, prevent it from accomplishing its objectives and
ultimately lead to failure.
 Importance of culture in international business
• Buying behavior: This has to do with the perceptions people of a culture
hold regarding imported products, the value of brand equity in a society, the
existence and strength of brand loyalty, and the impact of social norms on
buying behavior.

• Consumption characteristics: Issues in consumption include the product

versus service consumption in the culture, social class and reference group
influences, and urban versus rural sector consumption patterns. An example
of this would be food consumption in Brazil. In the urban areas, Brazilians
are beginning to eat on the run, favoring snacks and quick meals. In the rural
areas, however, the traditional large, sit-down meal is still predominant.

• Disposal: Resale, recycling, and remanufacturing considerations constitute

the disposal level. In addition, some cultures are strongly influenced by
social responsibility and environmental implications of product disposal.
 Cross-Cultural Literacy:
• One of the biggest dangers confronting a company that
goes abroad for the first time is the danger of being ill
informed. International businesses that are ill-informed
about the practices of another culture are likely to fail.

• To combat the dangers companies should:

– Employ local citizens to help them do business in a particular
culture.
– They must also ensure that home-country executives are smart
enough to understand how differences in culture affect the
practice of international business.
 Culture and competitive Advantage:

• The value systems and norms of a country

influence the costs of doing business in that
country.
• The costs of doing business in a country
influence the ability of firms to establish a
competitive advantage in the global
marketplace.
 How does a Foreign Culture impact your
business?

• Operating in a foreign culture impacts your

business in two key areas:
• · Demand side impact
• · Management impact
 Demand Side Impact
• On the demand side, you are now dealing with
customers who have different behavioral
patterns than those that you are accustomed
to.

• Customers vary on many dimensions;

purchase behavior, communication aspects
and product preferences are some of them.
 Management Side Impact
Some examples:
• In Japan, a manager's smile accompanied by the words, "I don't
think so," carries the same meaning as an American manager's
"Absolutely not!”

• In Egypt, a training exercise that required the managers to stand

on a blanket and turn the blanket around without stepping off
had to be cancelled. The reason?

• One of the managers was a woman, and the men were forbidden to
touch her. Because each culture is so specific, it is best to research
the individual culture as part of your market research effort. When
companies choose to ignore cultural differences, they are operating
on the assumption that business is business, and that managers,
engineers or bankers are the same throughout the world.
 What is required to conduct business successfully
in a foreign Culture?

• A sensitive, experienced understanding of interaction in

different cultures is often a fundamental prerequisite in

marketing products or services abroad.

• There are two aspects that managers need to address:

• To gain a more than superficial understanding of people and their
behavior.

• Make sure that their message is getting across to the foreign

nationals.
 Introduction
Corporate Social responsibility (CSR) is continuing commitment by businesses to
integrate social and environmental concerns in their business operations. Changes in the
global environment increasingly challenge business around the world to look beyond
financial performance, and to integrate social and environmental concerns into their
strategic management.

On 29th August 2013, The Companies Act 2013 replaced the Companies Act of 1956. The
New Act has introduced far-reaching changes that affect company formation,
administration, and governance, and incorporates an additional section i.e. Section 135 –
clause on Corporate Social Responsibility obligations (“CSR”) for companies listed in
India. India became the first country to legislate the need to undertake CSR activities and
mandatorily report CSR initiatives under the new Companies Act 2013. This is the
beginning of a new era for CSR in India.
 Brief History of CSR in India
1. Atharveda says that “one should procure wealth with one
hundred hands and distribute it with one thousand hands”.
2. The Yajurveda says that “enjoy riches with detachment, do not
cling to them because the riches belong to the public, they are not
yours alone”.
3. KautiIya also “emphasized ethical practices and principles while
conducting business”.
4. CSR & Islam: Islam had a law called Zakaat which ruled that a
portion of one’s earning must be shared with the poor in the form
of donation.
5. CSR & Sikhism: Similar to Islam’s Zakaat, Sikhs followed what
they called Daashaant.
 CSR in India
• India became the first country to legislate the need to
undertake CSR activities and mandatorily report CSR
initiatives under the new Companies Act 2013. This is the
beginning of a new era for CSR in India.

• Every company having:

> Net Worth of Rs.500 Crores or More
> Turnover of Rs.1000 Crores or More
> Not Profit of Rs.5 Crore or More (Net Profit Before Tax)

• during the immediately preceding financial year shall establish

a Corporate Social Responsibility Committee of the Board
involving of three or more directors, out of which at least one
director shall be an independent director.
 Phases of CSR in India
1st Phase 2ndPhase 3rd Phase 4th Phase
(1850 – 1914) (1914– 1960) (1960 – 1990) (1990 onwards)
Mainly During the CSR under the CSR in a globalized
Philanthropy and Independence Aegis Of mixed world In a puzzled
Charity during Struggle CSR economy. state.
Industrialization. Used as a tool Organizations Organizations
Organization for Responsibility Responsibility
solely responsible Social Development towards proprietor, towards
to Proprietor and managers and Proprietor,
Manager. Organization is other Environmental Managers,
For proprietor, Factors. Environment and
managers and Public in general.
employees
 SIGNIFICANCE OF CSR
• CSR helps in strengthening the relationship between companies and
stakeholders.
• It enables continuous improvement and encourages innovations.
• Attracts the best industry talent as a socially responsible company.
• Provides additional motivation to employees.
• Mitigates risk as a result of its effective corporate governance
framework.
• Enhances ability to manage stakeholder expectations.

Drivers of CSR
• Care for all Stakeholders
• Ethical functioning
• Respect for Workers' Rights and Welfare
• Respect for Human Rights
• Respect for Environment
• Activities for Social and Inclusive Development
 Four models of Corporate Responsibility
(Arora & Puranik 2004)
Model Focus Champions

Ethical Voluntary commitment by companies to M.K Gandhi

public welfare
Statist Statist State ownership and legal Jawahar Lal Nehru
requirements determine
Liberal Corporate responsibilities limited to private Milton Friedman
owners (shareholders)

Stakeholder Companies respond to the needs of R. Edward

stakeholders, customers, employees, Freeman
communities, etc.
 Key Issues in CSR
 Labour Rights: Child labour, Forced labour, Right to organize, Safety
and health.
 Environmental conditions: Water & Air emissions, Climate Change,
Human Rights, Cooperation with Paramilitary Forces.

Skills and technology.

 CSR Activities in India
 Education, Gender equity and Women’s empowerment, Combating
diseases, Eradication of extreme poverty, Contribution to the Prime
Minister’s National Relief Fund and other central funds, Social
business projects, Reduction in child mortality, Improving maternal
health, Environmental sustainability and Employment, Enhancing
vocational skills.
 Poverty Alleviation: Job Creation, Public Revenues
 Specific Features of Companies Act – 2013

1. CSR policy should specify that the CSR corpus will include the
following:
• 2% of average net profit;
• any income arising thereof

2. The companies can carry out these activities by collaborating

either with a NGO, or through their own trusts and foundations or
by pooling their resources with another company.

3. The law also entails setting up of a CSR committee which shall be

responsible for decisions on CSR expenditure and type of
activities to be undertaken. Prior to each annual meeting, the
board must submit a report that includes details about the CSR
initiatives undertaken during the previous financial year.
 Specific Features of Companies Act – 2013
1. This committee shall consist of three or more directors, with at
least one independent director whose presence will ensure a
certain amount of democracy and diversity in the decision-
making process.

2. All companies falling under the provision of Section 135 (1) of

the Act should report, in the prescribed format, the details of
their CSR initiatives in the director’s report and on the
company’s website.

3. In case a company has failed to spend 2% of the average net

profit, the reason for doing so should be mentioned in the
annual board report. However, the act does not provide any
guidance on what constitutes acceptable reasons for which a
company may avoid spending 2 % on CSR.
 Challenges of CSR
• Lack of Awareness of General Public in CSR Activities

• Need to Build Local Capacities

• Issues of Transparency

• Non-Availability Of Well Organized Non- Governmental

Organizations

• Visibility Factor

• Narrow Perception towards CSR Initiatives

• Non-Availability of Clear CSR Guidelines

• Lack of Consensus