Mr. Ankit Bajpai [email protected] 1 By: Ankit Bajpai
www.uptunotes.com
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Business Environment Learning objectives: Business Environment
Environmental scanning-meaning,nature and scope Economic and
non-economic environment Interaction between internal and external
environments Overview of political, socio-cultural, legal
technological Global environment 2 By: Ankit Bajpai
www.uptunotes.com
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Business Environment What is Business? Business is an activity
which involves buying and selling of goods & services. Modern
business covers a complex field of industry and commerce which
involve activities related to both production and distribution.
These activities on the one hand satisfy societal need and desires
and on the other hand bring profits to business firms. All the
business activities are normally motivated by profits, in case, any
of these activities is carried out by some organization for the
purpose other than profit seeking, it cannot be justifiably
considered as business. 3 By: Ankit Bajpai www.uptunotes.com
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Business Environment What are the contribution from business?
Economic growth creates employment opportunities Provides all kinds
of goods and services which we need for consumption 4 By: Ankit
Bajpai www.uptunotes.com
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NATURE OF MODERN BUSINESS Large size Oligopolistic character
Diversification Global reach of modern business Technological
orientation Change Government control 5 By: Ankit Bajpai
www.uptunotes.com
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NATURE OF MODERN BUSINESS. Business that matters today is large
in size. Indian companies in terms of revenues, profits, assets and
stockholders equity are relatively small as compared to the
companies in developed countries. Reliance industries Hindustan
Lever Telco Larsen and Toubro Tata Motors Maruti Udyog Hero Honda 6
By: Ankit Bajpai www.uptunotes.com
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Nature of Modern Business Only Four companies figure in the
Fortune list of 2003. Indian Oil Bharat Petroleum Hindustan
petroleum Reliance industries Most of the fortune 500 companies are
located in the USA Biggest capitalist economy, 189 of the worlds
largest Cos belong to US Japan - second largest with 104 of the
Fortune 500 Europe Western Europe holds 138 of the worlds largest
companies. 7 By: Ankit Bajpai www.uptunotes.com
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Nature of Modern Business. Present day business is
Oligopolistic in its nature. Small No. of firms selling a
homogeneous /differentiated product. Interdependence among the
sellers. Any change in its price & sales or in the quality of
its product, or any other variable whose value under is control is
likely to evoke retaliation from other other firms in the same line
of business. 8 By: Ankit Bajpai www.uptunotes.com
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Nature of modern of business DIVERSIFICATION: Today not many
corporate confine their activities to production of a single
commodity. Some business firms prefer related products to their
existing production. This is called concentric diversification. Ex:
Maruti Udyog Adding new unrelated products or services for existing
customers is known as conglomerate diversification. Ex: JK Group
has interest in textiles, engineering, Computers 9 By: Ankit Bajpai
www.uptunotes.com
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Business Environment Big business houses usually expand their
activity by establishing new companies which undertake production
of unrelated new products or services. This is conglomerate
diversification. Ex: TATAs However, diversification may not always
contribute to growth of a business enterprise. In the recessionary
phase, it is quite risky to aspire for growth by going for
unplanned diversification. 10 By: Ankit Bajpai
www.uptunotes.com
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Nature of modern business In India some big companies including
DCM, Britannia, ITC and Nelco did not benefit from diversification.
Companies lacking resources and managerial expertise do not foray
into new business. In some of the developed countries even some of
the business giants have preferred takeover of companies operating
in their own lines of production Even in the Indian markets some of
the business giants have preferred takeover of companies in their
own areas. Ex: Coco-cola, for example has taken Parle Soft Drinks,
Honda has taken over Kinetic Honda Whirlpool has taken over
Kelvinator Refrigerators. 11 By: Ankit Bajpai
www.uptunotes.com
Slide 12
Nature of modern business Technology Orientation: Modern
business is technology oriented. People expect that the quality of
products should improve overtime and the real cost. All this can be
accomplished by the business if It pays attention to sophistication
of technology. Modern companies regard technological research
strategic to their future, They carry out their R & D
activities very close to their headquarters. 12 By: Ankit Bajpai
www.uptunotes.com
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Nature of Modern Business Change: Today a business firm clearly
needs to move faster if the fear of irrevalance is not to become a
reality. A modern firm must be vigilant all the time and be ready
for change. Improvement in quality, packaging or product design is
not sufficient to retain customers, the firm should promptly
introduce new products and create demand for them. The business
through its innovative moves can always Create synthetic wants and
thus find space to produce new goods To satisfy them. 13 By: Ankit
Bajpai www.uptunotes.com
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14 Nature of Modern Business Government control: Since the late
1980s role of the government in both developed and underdeveloped
economies has diminished. Advantage of Government in business is
required to correct market failure manifested in the form of
monopoly & pollution. Government through monetary & fiscal
regulation attempt to create stable business conditions By: Ankit
Bajpai www.uptunotes.com
Slide 15
Business Environment Environment by definition is something
external of an individual or an organization. Therefore in strict
sense, business environment refers to an external factors which
have a direct or indirect bearing on the activities of business.
Certain aspects of both internal and external environment pose a
threat to business, other aspects provide opportunities for
business growth. 15 By: Ankit Bajpai www.uptunotes.com
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ENVIRONMENTAL SCANNING What do you mean by Environmental
scanning? It is the process of monitoring & collecting the
information about the various current and potential changes taking
place in the environment to facilitate in decision making and
problem solving. By: Ankit Bajpai www.uptunotes.com
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ENVIRONMENTAL SCANNING Objectives of Environmental scanning: 1.
To provide and understanding of current and potential changes
taking place in the environment. 2. To provide inputs for strategic
decision-making. 3. To facilitate and foster strategic thinking in
organization. By: Ankit Bajpai www.uptunotes.com
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Benefits of Environmental scanning Firms which systematically
analyze and diagnose the environment are more effective than those
which dont 1. Development of broad strategies and long term
policies of the firm. 2. Development of action plans to deal with
technological advancements. 3. To foresee the impact of
socio-economic changes at the national & international level.
4. To analyze the competitors strategies and formulation of
effective counter-measures. 5. TO keep oneself dynamic. By: Ankit
Bajpai www.uptunotes.com
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Business Environment-Internal Factors Internal Environment :
Value system, Goals and objectives, Management structure,
Relationship among the various constituents, Physical assets,
Technological capabilities Human, financial and marketing resources
make the internal environment of business. 19 By: Ankit Bajpai
www.uptunotes.com
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20 Business Environment-Internal Factors Internal Environment :
Persons holding top positions in certain modern enterprises have
some values which influence their policies, practices and overall
internal environment. Ex: JRD TATA Value system responsibilities
towards his employees did some some commendable work in the field
of labor welfare. Attitude of TATAs to employ 8 disabled persons
out of their total workforce of more than sixty thousand. The
company value system need not be always positive. It can be totally
negative. Cases of pharmaceutical companies selling banned drugs
world over. Rational firms attempt maximize long-run profit. By:
Ankit Bajpai www.uptunotes.com
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Business Environment-Internal Factors There are often
differences in the goals and objectives of the various firms, which
in turn, lead to differences in the overall internal environment
and also in priorities, policies and direction of development. Ex:
Corporate enterprise professionally managed or family controlled.
Board of Directors - dynamic entrepreneurs capable of taking quick
decisions or the BOD may be dominated by persons with conservative
or bureaucratic outlook. Nominees of Financial institutions having
large holdings their decision making. Conflicts among BODs, Erosion
of shareholders confidence in the BODs Serious differences among
the senior executives officers on critical matters are critical
factors in the Cos internal working conditions. 21 By: Ankit Bajpai
www.uptunotes.com
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Business Environment-Internal Factors Functioning &
Competitiveness of a company are very much influenced by physical
resources, Production technology, R&D work and distribution
logistics. Cos R&D activity and the speed at which
technological changes occur determine Cos internal environment
which in turn influence Business decisions. Quality of Human
Resources of a Company, Depends on Commitment, attitude and morale
of the employees also have an impact on business as an internal
factor. 22 By: Ankit Bajpai www.uptunotes.com
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Business Environment-External Factors External Environment of
Business consists of institutions, Organizations and forces
operating outside the company. External Environment of business may
be classified into : A) Micro Environment B) Macro Environment
Micro environment refers to such players whose decisions and
actions have a direct bearing on the company. Since modern business
broadly has two aspects, Viz, Production and selling of goods, 23
By: Ankit Bajpai www.uptunotes.com
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Micro Environment of Business The micro environment of business
can be divided : 24 BUSINESS Customers Input Suppliers Competitors
Workers & their unions Publics Marketing Intermediaries By:
Ankit Bajpai www.uptunotes.com
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Micro Environment of Business 25 Micro Environment has great
relevance on Cos business operations. The players in
micro-environment do not effect all the companies in an industry in
the same way. Their decisions and actions often differ in
accordance with the size, capability and strategies of each
company. Ex: 1. Suppliers of inputs are more accommodating if the
Company is large. 2. Competitor does not mind starting price war if
the rival co. is small By: Ankit Bajpai www.uptunotes.com
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Business Environment Suppliers of inputs: Important factor in
Cos success is low cost of production of goods. Availability of raw
materials without any interruption especially raw materials thru
out the year lessen the financial burden on the company. Sometimes
monopolistic suppliers manages to secure monopoly control over the
supply of some strategic raw material, such as iron ore or copper,
it starts regulating its supply to generate maximum possible
monopoly profits. No Co. should depend for the supply of some input
on single source. Supply management should be high on agenda of the
company. 26 By: Ankit Bajpai www.uptunotes.com
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Business Environment-Internal factors Workers and their Unions:
Labor is an important input in production. Any policy that disturbs
labor peace at the company level may adversely affect its
competitiveness. Also constant conflict between labor and
management will not allow the company to grow and overtime may
transform into a sick unit. 27 By: Ankit Bajpai
www.uptunotes.com
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Business Environment-Internal factors Customers: Demand for
product individuals, business enterprises, institutions & the
government. loyalty depicts customer satisfaction. Universally
accepted fact that the satisfaction of customers is the ultimate
bench mark of the Cos success. 28 By: Ankit Bajpai
www.uptunotes.com
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29 Business Environment-Internal factors Marketing
intermediaries: Wholesalers, retailers, distribution firms agents
etc constitute an important element. Co. lacking its own
distribution channels cant afford to have conflict or strained
business relations. Some Cos adopt direct mail or data base
marketing. EX; nestle slump in demand for baby products France CO.
could have responded to this situation by lowering production
laying- off workers. By: Ankit Bajpai www.uptunotes.com
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30 Business Environment-Internal factors Competitors: Brand
Competition: affect sales operations of the business firms. A
Company encounters various forms of competition. The most common
competition which a companys products faces is from differentiated
products of other companies. Ex: In the Air conditioner market
Voltas air conditioner faces competition from other branded air
conditioner such as Videcon, Elgi, Samsung companies. Public :
Environmentalists, consumers protection groups & media persons
may influence both Production & Sales. By: Ankit Bajpai
www.uptunotes.com
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Macro environment Macro environment of business consist of the
following factors: A. Economic Environment National Global B. Non
Economic Environment Political Socio Cultural Demographic
Technological Natural By: Ankit Bajpai www.uptunotes.com
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Economic Environment of the Business (National) Business
enterprise is essentially an economic institution. It conducts its
activities in the market system with the objective profit
maximisation. In Modern economy there are five sectors contribute
to the development of the economy they are: The Business sector The
household sector The capital market The Government These factors
determine the prospects of business activity. In a recessionary
situation business firms encounter steep fall in effective demand
leads to business slowdown. Developed financial system precondition
for the efficient mobilization of financial resources for the
business. By: Ankit Bajpai www.uptunotes.com
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Global Environment Globalization- expansion of business
activities across boundaries of the nation states. It refers to a
process of increasing economic openness growing economic
interdependence and deepening economic integration between
countries in the world economy. By: Ankit Bajpai
www.uptunotes.com
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Global Environment Over the past ten years the Indian economy
is integrates into the global economy. The three policy measures
initiated to realize the objectives of globalization are: 1.
Exchange rate adjustment and rupee convertibility. 2. Import
liberalisation & 3. Opening upto foreign capital By: Ankit
Bajpai www.uptunotes.com
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Political Enviroment A stable & dynamic political
environment due influences business growth. In a capitalist
economic system corporate firms are very powerful, yet they have to
operate within the parameters which are determined by the broad
policies of the government. Ex: MRTP Act, FERA because of the
experiences of the colonial era, Foreign capital & the
multinationals corporations were suspects. By: Ankit Bajpai
www.uptunotes.com
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Legal enviornment Govt. sets the legal framework within which
business firms operate. Legislations defining: property and
business organizations, laws of contracts bankruptcy( one whos
assets are used to repay debts), Mutual obligations of labour &
management Laws and regulations, the way the business are carried
out constitute legal environment of business. By: Ankit Bajpai
www.uptunotes.com
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Legal enviornment Economic legislations can be classified into
two categories: 1. legislations facilitatory role in business. Ex:
contract act rules for systematic exchange transactions. 2.
legislations- restrictive role in business Ex: Sherman anti-trust
act in 1890, Clayton anti-trust act 1914 Federal trade commission
act 1914 of USA to prevent unfair monopolistic unfair practices. In
India MRTP-Monopolies & restrictive Trade Practice ACT-1969.
Foreign Exchange Regulation Act (FERA) -1973 directly regulated the
foreign exchange related transactions of the indian business. Both
MRTP & FERA diluted stringent & restrictive in nature. By:
Ankit Bajpai www.uptunotes.com
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SOCIO-CULTURAL ENVIRONMENT Business firms operate in a
socio-cultural environment & their strategies needs to be
formulated keeping this factor in view. Ex: western countries are
modern & liberal. People-more receptive to new products &
no prejudice against any kind of advertising. Health
conscious-product injurious to health of the people cant be
successfully introduced. By: Ankit Bajpai www.uptunotes.com
Slide 39
SOCIO-CULTURAL ENVIRONMENT Muslim societies conservative.
Womens still under Purdah. Demand for cosmetics & western
cloths are limited. Business firm aiming at capturing markets for
its products in these diversified societies has to be careful about
the cultural sensitivities of these societies. India- liberal
outlook, modeling by young women for advertising fashionable
products, wine & beer is acceptable in Indian society. By:
Ankit Bajpai www.uptunotes.com
Slide 40
Technological environment Technology- Knowledge about machines
& processes. Any business- cannot survive with outdated
techniques in international competition. Four decades ago
technology of Fiat was unsophisticated. Users had no choice &
thus product survived for a long period. Setting up of Maruti udyog
Ltd., the situation changed due to superior technology.
Technological environment affects business from the demand side as
well. Ex: In a country where power is scarce, demand for electrical
appliances will be limited. Erratic power supply and frequent load
shedding creates market for inverters. By: Ankit Bajpai
www.uptunotes.com