ppt on business environment

BUSINESS AS A SYSTEM

Which of the following represent the ‘ Integrated Whole Thing “ :

Digestive System Digestive Method Digestive ProcessSound System Sound Method Sound ProcessMusic System Music Method Music ProcessComputer System Computer Method Computer Process Political SystemSocial SystemCultural systemEconomic SystemTechnological SystemLegal System

Contd …12/14/2008 [email protected]

BUSINESS AS A SYSTEM

System will:Draw Input

Process it Internally and Releases output into environment

BusinessDraw Input – Material , Energy , Information

Process it Internally - Into different Material , energy and Information

Releases output into environment – Tangible, Intangible and Information


Business & Environment InterfaceInteraction of Business & its Surroundings

I. Micro environment of business.1) Suppliers

Supply raw materials and other components (Inputs)

Importance- Reliable supply – continuous supply for

smooth functioning


Business & Environment InterfaceMicro environment of business.

2) CUSTOMERS

Different categories of customers

i. Industrial customers

ii. Wholesale customers

iii. Retail customers

iv. Government customers

v. Foreign customersContd …12/14/2008 [email protected]


3) Market intermediariesi. 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



4. Competitors:

The Threat of entry of new firms The Power of Buyers The Power of Suppliers The Power of Substitutes The Intensity of Rivalry among existing firms



Competitors:

1. The Threat of entry of new firm

1. Economies of scale2. Capital Requirement3. Access to Channel4. Absolute cost advantage 5. Expected Retaliation5. Government Policy7. Differentiation

• Economies of Scale• Unit cost Inverse to units producedMeasured by ‘ Minimum Efficient Scale ‘Or Market shareMES volume is necessary to competeat minimum cost.

Strategy : ‘Just in time ‘ & Lean manufacturing to counter

economies of scale

• Capital requirement• Internet / Knowledge based services

less costly

12/14/2008 [email protected]


Competitors:1. The Threat of entry of new firm

1. Economies of scale2. Capital Requirement3. Access to Channel4. Absolute cost advantage 5. Expected Retaliation5. Government Policy7. Differentiation

Access to ChannelSelf help groups / Social networks –

New channels of distribution

Absolute cost advantage ‘Learning curve effect’ – Cost advantage

Expected RetaliationGSM Players like Airtel ,Spice retaliated

entry of CMDA player Reliance Communication to operate in GSM field

Government PolicyImport of sugar, Edible oils, Steel ,

Liberation of Insurance & other sectors

DifferentiationExisting company – Strong brand

image, wide range of products to cover all segments



Competitors:

2. The Power of Buyers:

1. Concentration of buyers2. Alternative source of supply3. Component cost as a percentage of total cost4. Possibility of backward integration

Concentration of buyersSmall no. of buyer + High Volume

purchase – High buyer powerCoca-Cola – cannot bargain with Malls

Alternative source of supplyMore supply source – high buyer powerBajaj Scooter – Honda, Suzuki, TVS etc

Component cost as a % of total costHigh proportion of component/materialcost to finished goods leads to lookingfor alternatives. Possibility of backward

integration Buyer’s own supply chain – more buyer power – Co-opratives , Self help groups, MLM



Competitors:

3. The Power of Sellers:

1. Concentration of Sellers2. Switching costs3. Brand power 4. Possibility of forward integration 5. Dependence on customersDependence on customersNot depending on High volume small no.of buyers – more seller power

Concentration of SellersSmall no. of Sellers– High seller powerLike Monopoly & Oligopoly

Switching CostsHigh switching cost to other seller

source - Seller power increaseHigh-Tec & Specialised goods - SAP

Brand PowerHigh brand power – High powerAriel , Rin - Supermarkets have to sell it

Possibility of forward integration Seller’s own distribution operation –

More power



Competitors:4. Threat of Substitution:Non-essential goods where there is theultimate substitute of doing withoutThat:

1. Relative Price & Performance of substitutes2. Switching Costs3.Buyer’s willingness to substitute

Relative performance & Price of SubstitutesSubstitutes with same cost – High threat – Email replaced Post Offices

Switching costsThe Cheaper switching cost - High

threatPet foods , Fast foods , Malls

Buyer’s Willingness to substituteLow-cost articles & infrequent purchase

of articles – little effort made to go for substitutes

Match box – Lighter



Competitors:5. Competitive Rivalry:

1. Industry Growth2.High Fixed costs3. Volatile Demand4.Product Differentiation5. Extra Capacity in large increments6. Balance of firms7. High exit barriersIndustry Growth:Rapid Growth – Competition need not be intenseMaturity Phase- Intense competition

High fixed costsHigh Fixed cost – High break even pointIn depression times – Price war tomaintain turnover1990 – UK & USA accused each of

dumping Steel on Export marketVolatile Demand

May lead to intermittent Over-capacitySteel war -1990

Product DifferentiationHomogeneous products – More intense

the rivalry - SteelExtra capacity in large increments

Creates short term over capacity . Honda Nissan – plant in UK



Competitors:5. Competitive Rivalry:

1. Industry Growth2.High Fixed costs3. Volatile Demand4.Product Differentiation5. Extra Capacity in large increments6. Balance of firms7. High exit barriers

Balance of firmsIf the no. of firms is large / similar size

the rivalry will be intensive. Clear market leader can bring discipline

High exit barriers High exit barriers – Excess capacity to

persist and rivalry to be intense


Business & Environment InterfaceMacro environment of business.

1. Demography: Quantitative aspects of

population. Qualitative aspects of

population.

1. Population Growth2. Drivers of Population Changes3. Ethnicity of Population4. Implications of Demographic Changes

Population Growth:Year 1000 – Estimated 300 millionYear 1750 – Actual 728 millionYear 1900 – Actual 1500 millionYear 1960 – Actual 3 billionYear 2000 – Actual 6 billion

Drivers of Population Changes

Birth Rate – No. of births per 1000 populationFertility Rate- Av. No. of birth per womenDeath Rate - No. of deaths per 1000 Migration – Country to Country movement

Implication – Consumer, Labour , Employment participation



2. Economic environmenti. 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

ii. Executive- Administrators

iii. Judiciary - District, High Courts, Supreme Court, Tribunals



Contd …

4. Socio cultural environment

i. Attitude of people towards work and health.

ii. Role of family.

iii. Marriage.

iv. Religion.

v. Education

vi. Ethical issues

vii. Social responsibility of business12/14/2008 [email protected]


Contd …

5. Natural environment

i. Natural resources.

ii. Weather and climatic conditions.

iii. Locational aspects.

iv. Nearness to port facilities.



Contd …

6. Technological environment

i. Nature of technology

ii. Scope for innovation



Contd …

7. International environment

i. Economic

ii. Political

iii. Legal

iv. Demography

v. Technology


Business & Environment Interface

Uses of environment studies1) Awarness

2) Policy decisions

3) Demand forecasting

4) Competitor’s strategies.

5) To innovate



Techniques for environmental studiesi. Verbal and written information

ii. Search and scanning

iii. Forecasting and formal studie



Limitations of environmental analysisa) Unexpected events

b) Future is not a guarantee

c) Too much of information.

d) Overcautions approach


Business Sectors

Primary Sector – Agriculture, Mining

Secondary sector - Manufacturing IndustriesManufacturing activities – Electricity Generation and Construction

Tertiary Sector – Services industriesTrade , Commerce, Insurance, Banking,Repair, Transport


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


Classification of Business – Based on Scope of Business

2. Business which Produce Services:

Transport , Telephone , Electric Light ,Hotels ,Entertainment

3. Business which Distribute Goods:

Wholesale merchants

Retail Merchants

Importers & Exporters

4. Business which Facilitates Distribution of Goods:

Warehouse, Auction Houses, Advertising, Financing

5. Business which Deals in Finance:

Commercial Banks, Co-Operative Banks, Development Bankd, Insurance Stock Exchange


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 Industries12/14/2008 [email protected]

Classification of Business – Based on Uses of Goods Produced

1. Basic Industries :

Provide essential inputs to other industries

Iron, Steel, Fertilizer, Chemicals

2. Capital goods Industries :

Instrumental in producing goods and services

Do not directly produce goods for consumption

Capital intensive

Machines, Tools,

3. Intermediate Goods Industries :

Goods already had undergone manufacturing process but which forms input for

other industries for further processing

Tyre , Tubes

4.Consumer goods Industries : For consumption – Durable / Nondurable goods

Durable – Usage for more than 3 years

Non-durable – Usage within 3 years12/14/2008 [email protected]

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.DuopolyTwo 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.12/14/2008 [email protected]

Business Motives & Objectives

Objective:The end actions

Motive:The desire which stimulate action

Motive – Profit, Non-Profit

Objective – Supply Quality Products, Customer Satisfaction, Exploit labour, Tax evation



Importance of Objectives

1. Justifies existance

2. Provide Direction

3. Help coordination

4.Provide standards for assesment & control

5. Help decentralisation



I. Economic Objectivesa) 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



II. Social Objectivesa) Supply of goods and services.

b) Good treatment of customers.

c) Fair treatment of employees.

d) Good working environment

e) Customer Counseling

f) Social responsibility.

g) Pollution control.



III. National Objectivesa) Implement of government laws.

b) Payment of taxes.

c) Democratic practices.


Business Ethics

Study of good and evil ,right and wrong actions of Business

Dishonesty – Unethical , then being dishonest with employees, Customers and shareholders is unethical.

Protecting others from harm – Ethical then recalling defective products is ethical action.


Business Ethics

Sources of Business Ethics :

Religion

Culture &

Law

Religion : Advocate orderly social system

Culture : Rules and standards transmitted among generations to produce behaviours- Sathi, Child marriage, Untouchability, Joint family

Law : Rules of conduct approved by Legislators – Companies act , Labour laws etc


Business Ethics

Codes of Business Ethics :

Codes of conducts of business

FICCI

1. Business must maintain highest standard of behaviour for the benefit of industry, employees, customers, shareholders

2. Goods and services must conform to committed quality

3. Customers must be treated with respect and fairness


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


Documents

ppt on business environment