Introduction to Business Environment-pg-1-Final (1)

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Chapter Content

Introduction to Business Environment

Contemporary Scenario of

BusinessNature of Modern Business

Economic Factors

Socio cultural Factors Technological Factors



Business may be understood as the organized efforts of enterprises to supply consumers with goods and servicesfor a profit

What is Business???

According to Arthur M.Weiner: “business is that complexfield of commerce & industry in which goods & servicesare created & distributed in the hope of profit within a

framework of laws & regulations”.



Contemporary Business goals

Profit (Bottom-line)

Growth

Market Leadership

Customer satisfaction

Employee satisfaction

Quality Products & Services

Service to Society



Characteristics of Business

Characteristicsof

Business

Change

LargeSize

Diversification

Globalization

Technology

Information

Competition

Government

Control



Indian companies – Fortune 500

8 Indian companies have made it to Fortune 500 list in

2010. These are:

Indian Oil Corporation Reliance Industries Tata Steel Tata Motors

Bharat Petroleum Hindustan Petroleum State Bank of India ONGC



Contd..

The league of 500 elite companies for 2010 is topped by U.S.retailer Wal-Mart Stores, followed by oil giant Royal DutchShell and another oil major, Exxon Mobil, in that order.

A total of 54 Chinese companies made it onto the list thisyear. Out of which three are in fortune 10 list

List Of The World Largest Companies

http://c/Users/omsairam/Desktop/world%20largest%20companies.pdf

http://c/Users/omsairam/Desktop/world%20largest%20companies.pdf



OLIGOPOLISTIC CHARACTER

First : Some firms operate at a price that is too low from the

point of view of other firms.

Secondly : Economies of large scale production often allow

some firms to corner the entire supply of a product.

Thirdly : Financial capital requirements of modern business are

quite large and these forestall entry of too many firms in the

business.

In modern oligopolistic business, COLLUSION is very

common: Collusion represents an attempt by firms to recognise their

interdependence & act together rather than compete

There are 2 broad categories of Collusion



Contd…

Cartel: it is combination of business firms

constituted with the objective of limiting

competition in the market so as to maximise

profits There are 2 typical forms of cartels

Cartels aiming at joint profit maximization

Cartels aiming at the sharing of the market Price Leadership: it is tacit agreements

amongst various firms giving rise to price

leadership, price leadership is subject to much

lesser form of collusion as compared to cartels



In oligopolistic market conditions, firms are often reluctant to

lower the price of their products so to accomplish results they

use Product Differentiation

Non-price competition occurs in two major forms:

1. Advertising, &

2. Variation in quality and design of product.

Contd…



Diversification as a growth strategy

Diversification strategies are used to expand firms'

operations by adding markets, products, services, or

stages of production to the existing business.

When the new venture is strategically related to theexisting lines of business, it is called Concentric

diversification.

Conglomerate diversification occurs when there is norelationship between the new and old lines of

business; the new and old businesses are unrelated.



Diversification: Vertical or Horizontal?

Vertical integration occurs when firms undertake

operations at different stages of production.

When a firm diversifies closer to the sources of rawmaterials in the stages of production, it is following a

backward vertical integration strategy.

Forward diversification occurs when firms move closer

to the consumer in terms of the production stages.



DIVERSIFICATION Examples

Conglomerate Diversification : Royal Philips

Electronics

Concentric Diversification : Maruti Udyog Limited

Some Companies do not attempt to diversify and

prefer takeover of companies in their own area

Example

Coca Cola : Parle Soft Drinks

Whirlpool : Kelvinator Refrigerators



GLOBAL REACH

It is a phenomenon which permits mobility of

factors of production across globe except land.

Refers to a process of deepening economicintegration, increasing economic and growing

economic interdependence between countries in

the world economy.



TECHNOLOGY ORIENTATION

On account of increasing competition the

world over, technological change has

become a pre-condition for the survival of a company

Because modern corporations regard

technological research strategic to their future, they carry out their R&D activities

very close to their headquarters.



CHANGE

The business through its innovative moves

can always create synthetic wants and thusfind space to produce new goods to satisfy

them.

Example: APPLE



Government Control

First, the government interference in businessis required to correct market failuresmanifested in the form of monopoly and pollution.

Second, governments through monetary andfiscal regulation attempt to create stable business conditions.

Third, Production of socially necessary publicgoods has to be undertaken by thegovernment.



Nature of Competition

Monopoly

Duopoly

Monopolistic competition

Oligopoly



BUSINESS CHALLENGES

Managing Bottom line

Meeting stakeholders expectations

Developing and retaining top talent

Creating a customer responsive organization

Diminishing time to market

Market agility

Pricing and quality



What do you mean by Business Environment???

The environment of any organization is “ the

aggregate of all conditions, events and influences that

surround and affect it.”

Business Environment: refers to those aspects of thesurroundings of the business that affects in operations

& determine its effectiveness.

Characteristics of Business Environment:

Complex

Dynamic

Multi-faceted

Far- reaching impact



Why Study Business Environment

Development of broad strategies to ensure

sustainability

To foresee the impact of socio-economic changes at thenational and international levels on firm’s ability

Analysis of competitor’s strategies and formulation of

effective counter measures

To keep oneself dynamic



Types of Environment

Internal Environment

External Environment

Micro environment

Macro environment

Economic

Non Economic



Internal Environment

Refers to all the factors that are within an organization

which impart strengths or cause weaknesses of

strategic nature.

Controllable factors. These include:

Value system

Mission and Objectives

Management Structure and Nature



Components of Internal Environment

Human Resources

Company Image and Brand Equity

Other Factors

Physical Assets and Facilities

R & D and Technological Capabilities



External Environment

Includes all factors outside the organization which

provide opportunities or pose threats to the

organization

Uncontrollable factors

Consists of Micro and Macro environment



Micro Environment

“It consists of the factors in the company’s

immediate environment that affect the

performance of the company”.



Micro Environment Factors

Suppliers

Customers

Marketing IntermediariesCompetitors

Publics



Micro Environment of a typical car manufacturer

ComponentsSupplier

Customers

Car DealersCompetitors

Stakeholders

CarManufacturer

PotentialSupplier

PotentialCustomers

Customers

PressureGroups

For

Supplies

For

Customers

PotentialDealers

Government

LocalCommunities



Macro Environment

It comprises general trends and forces that

may not immediately affect the organization

but sooner or later will alter the way

organization operates.

Macro Environment :-

Economic Non Economic



Economic Environment

Economic stages that exists at a given time in a country

Economic system that is adopted by a country for example.Capitalistic, Socialistic or Mixed Economy

Economic planning, such as five year plans, budgets, etc.

Economic policies for example, monetary, industrial andfiscal policies

Economic Indices such as National Income, Per CapitalIncome, Disposable Income, Rate of growth of GNP,

Distribution of Income, Rate of savings, Balance of Payments etc.

Economic Problems

Functioning of economy



Economic Environment

Economic system: An economic system provides

the framework within which an economy

operates & the various economic units & agents

mould themselves to fit into the system. The economies of the world are divided into

broad 3 categories:

Capitalistic Economic system

Socialistic Economic system

Mixed Economic system



Economic Environment Contd..

Macro Economic scenario: it determines the

prospects of business in the country. In an

environment

A rapid growth, Stable prices,

High rates of savings & investment,

Fiscal stability &

Favorable BOP-Balance of payment.

When inflation is high




Acc. To KEYNES, “A Buss. Cycle is composed of a period of

good trade characterized by rising prices & low employment

percentage, alternating with a period of bad trade

characterized by falling prices & high unemployment

percentage.”

Business Cycle: It is characterized by upward and

downward movement of economic activities suchas levels of income, employment, prices and

output.



Features of Business Cycle

The phases of business cycle recur with some sort

of regularity and are uniform in case of different

cycles.

Individual business cycles may vary greatly induration and intensity.

In case of developed countries the cycle length is

short (around 4.5 years) than the developing

countries (around 7.5 years)

All economic variables are affected by the

business cycles.



Causes of Fluctuations

Innovation

Political events

Random events

Wars

Seasonal fluctuations etc.



Phases of Business Cycle –

A Typical Business Cycle



Phases of Business Cycle

Peak / Prosperity

Expansion of bank credit.

High capital investment

in basic industries Increased production.

High employment.

High prices and profits

Optimism is very high.

Recession Collapse of firms creates panic.

Banks withdraw loans.

Construction activity slows

down. Unemployment appears in

basic capital goods industry =>spreads to other industries.

Fall in income, prices,

profits……



Phases of Business Cycle

Depression / Trough

Business activity is far below

normal.

Sharp reduction in production,

mass unemployment, fallingprices, falling profits, low

wages, contraction of credit,

high rate of business failure.

Construction activity comes

more or less to a standstill.

Food, clothing industry not

much affected

Recovery Slight improvement in

economic activity.

Industrial production picks up.

Slow but sure rise in prices &profits.

Employment increases.

Wages also rise.

Banks expand credit

Atmosphere of cautious hope.




Financial System

Money Market

Capital Market

Economic Policies:

Monetary Policies: it refers to the all actions of the central bank of country,which affects, directly or indirectly supply of money, credit, rate of interest &

the banking system

Fiscal policy: it is basically concerned with the uses of taxes of government

expenditure of achieving pre-determined objectives

Industrial Policy: It specifies the relative role of domestic & multinational

enterprises, large & small industries & public & private sector firms.

Trade Policy: The main objective are to promote exports, regulate imports,

improve terms of trade.

Outward oriented

Inward oriented



Non Economic Environment

Regulatory Environment

CHANGING POLITICAL ENVIRONMENT OF BUSINESS ININDIA

The Nehru Years 1947–64. India’s first Prime Minister,Jawaharlal Nehru, saw industrialization as the key to

alleviating poverty Garibi Hatao, 1966-77. Under Prime Minister Indira

Gandhi, two major shifts took place in the role of the State.

The Spending Boom and Rising Fiscal Deficits, 1977-91.Between 1977 and 1991, most stringent controls on

imports and industrial licensing were gradually relaxed,stimulating industrial growth.

The Reform Phase, 1991 to the Present.



THE CONSTITUTIONAL ENVIRONMENT

The Preamble JUSTICE, social, economic and political;

LIBERTY of thought, expression, belief, faith and worship;

EQUALITY of status and of opportunity; and to promoteamong them all

FRATERNITY assuring the dignity of the individual and the

unity and integrity of the nation.



FUNDAMENTAL RIGHTS

Right to equality

Right to freedom of speech and expression

Right against exploitation, prohibiting all forms of forced

labour, child labour and traffic in human beings.

Right to freedom of conscience and free profession, practice

and propagation of religion.

Right of any section of citizens to conserve their culture,

language or script and right of minorities to establish andadminister educational institutions of their choice.

Right to constitutional remedies for enforcement of

Fundamental Rights.



DIRECTIVE PRINCIPLES OF STATE POLICY

The State shall strive to promote the welfare of people by securing and

protecting as effectively as it may a social order in which justice

The State shall strive to minimise inequalities in income, and eliminate

inequalities in status, facilities and opportunities, not only amongindividuals but also among group of people.

The State shall direct its policy in such a manner as to secure the right of

all men and women to an adequate means of livelihood and equal pay for

equal work.

The State shall endeavour to secure to workers a living wage, human

conditions of work.



THE THREE INSTITUTIONS OF THE GOVERNMENT

Legislature (Parliament)

Parliamentary Committees

Standing Committees – Among the Standing Committees, the three

Financial Committees – Committee on Estimates, Public Accounts and

Public Undertakings – constitute a distinct group as they keep anunremitting vigil over government expenditure and performance.

Adhoc Committees - Such Committees may be broadly classified

under two heads: (i) Committees which are constituted from time to

time either by the two Houses on a motion adopted in that behalf or by

Speaker/Chairman to enquire into and report on specific subjects, and(ii) Select or Joint Committees which are appointed to consider and

report on a particular Bill.



The Executive or Government

Maintaining law and order

Development of infrastructure

Strengthening the industrial base

Guiding industrial development according to plan

priorities Strengthening the capital market

Setting up of industrial financing institutions

Assistance to small-scale industries

Providing assistance to exports Government’s role as planner

Promoting agricultural development

Providing employment opportunities



The Judiciary

Judiciary is responsible for interpreting and applying the law. In India, at

the apex of the entire judicial system exists Supreme Court of India.

There is a High Court for each State or a group of States. Under High

Courts, there is a hierarchy of subordinate courts.



LEGAL ENVIRONMENT OF BUSINESS

Legislations can be classified into two categories: (i) Legislations which havea facilitatory role in business, and (ii) Legislations which are restrictive in

their nature. The important economic laws in India are as follows:

• Company Law

• Industries (Development and Regulation) Act, 1951

• MRTP Act and Competition Act

• SICA, 1985 and Companies (Amendment) Act, 2002

• FERA, 1973 and FEMA, 1999

• Consumer Protection Act, 1986

• The Securities Contracts (Regulation) Act, 1956

• SEBI

• Labour Laws

• Environment Protection Act, 1986

• Patents (Amendment) Bill 2005

NOW WHAT EXACTLY IS SOCIO



NOW, WHAT EXACTLY IS SOCIO-

CULTURAL ENVIRONMENT

Socio-cultural Environment

That part of the firm's external marketing environment in

which social or cultural changes (that is, changes to the value

system of a society) act to affect the firm's marketing effort. The changing socio-cultural environment may pose threats or

present opportunities for the business.

Socio -Cultural

Society Culture



SOCIETY

o Society or human society is the set of relations among people,including their social status and roles.

o A society is a body of individuals outlined by the bounds of functional interdependence, possibly comprising

characteristics such as national or cultural identity, socialsolidarity, language or hierarchical organization.



CULTURE

“ Culture is the software of the mind- the social programming that

runs the way we think, act and perceive ourselves and others.”

Culture is defined as a complex whole which consists of

customs, attitudes, beliefs and values of a society. The set of

shared attitudes, values, goals, and practices that characterizes

an institution, organization or group.



CASTES AND COMMUNITIES

As we all know, Indian society, particularly the Hindu society,

was divided into four categories on the basis of caste.

Economic pressures, spread of education, and other developmentshave been breaking down slowly class distinctions and social

barriers. Industrialization has created new social and political

functions and new occupations.

Vaishyas, Brahmins, and other „castes‟ are no longer confined totheir original roles.

SOCIAL INSTITUTIONS AND SYSTEMS



FAMILY SYSTEM



FAMILY SYSTEM

Earlier, Joint Family System was prevalent. Now, Nuclear family is being preferred.

The joint family is being split into smaller units of nuclear

family.

Now, the impacts for Marketers:

Increasing demand for Flats, Vehicles, Consumer Goods. Increasing demand for catering services (packed lunches), baby sitters, crèches.



RELIGION AND RELIGIOUS GROUPS

Religious beliefs, convictions, customs, rituals and festivals differ from one group toanother.

Business firms can suffer heavy losses by ignoring religious sentiments of customers, employees and others.

Religious groups exert considerable influence on activities of business groups. Thus, business must recognize and respect religious sentiments.

Example, negative demand for beef products in India.



MARRIAGE

Marriage is one of the basic elements of culture and people‟s

attitude towards marriage influences culture a lot.

Marriage is a social event that concerns the whole society.

In India, marriages are a family affair. The marriage season is a big opportunity for business.

For e.g. Jewellery, Kitchen ware, Honeymoon Package,

Household Furniture, Vehicles etc have huge demand during

the marriage season.



CUSTOMS & SUPERSTITIONS Many important business decisions in India are taken on the

advise of astrologers. (Location of business, time of launch, name

of enterprise, brand name etc.)

Example, Business firms do brisk business on festivals such asDeepavali, Christmas, Id, Guru Purab etc.

No purchase of Iron & Steel goods by people on Saturday as it is

considered inauspicious.

SOCIAL VALUES AND MOVERS

SUPERSTITIONS



SUPERSTITIONS

Barber Shops & Chicken Shops don‟t open on Tuesday due toreligious reasons. (Lord Hanuman‟s Day)

In most countries Sunday is a weekly holiday, but in Islamic

countries Friday is treated as a weekly holiday.

Even acceptable colors depend on the culture sometimes.

SINGH IS KINNG



SINGH IS KINNG

The extra “N” in the word King in the title of movie

“Singh is Kinng” was due to astrological &

numerological reasons.

BALAJ I TELEFILMS

Balaji Telefilms names all its serials starting with the letter „K‟.

For e.g. Kyunki Saas Bhi Kabhi Bahu Thi, Kasauti Zindagi Kay etc both which were superhit serials and a common topic of discussionamong the households.



ATTITUDES

Attitudes include things such as individual freedom, democracy, truth andhonesty, justice love and marriage to name a few.

Attitude towards work is important as it determines motivation, morale, job

satisfaction, productivity etc.

All sorts of attitudes exist, but the positive aspect of Indian attitude is thatgenerally, no worker or employee touches his/her tools of work, without

closing his/her eyes for a few minutes and thanking the almighty for having

bestowed his blessings in the form of work.

Sincerity, hard work, loyalty and honesty are other aspects of the Indian work

culture.

ETHICS



ETHICS

o Ethics in business deals with the ethical path business firms ought to adopt.o Jacques Cory, a noted business ethicist observes, “companies should behave

ethically and be profitable in parallel, and even if ethics diminishes the profitability of the company, they should still behave ethically”.

o Google Halts Censorship on Chinese Search

o Google announces a “new approach to China,” indicating that China‟s behavior toward human rights activists and other efforts “to further limitfree speech on the web in China” had led Google to stop censoring itssearch services on the Google.cn site and instead redirect traffic to its HongKong-based servers.

EDUCATION AND



EDUCATION A person is said to be literate if he/ she is 15 years and above and

can read and write

Approximately 35% of illiterate world population is of India

In 2007, adult literacy rate is 66% from 12% in 1947

In 2009 Literacy rate for men was 76.9% for men and 54.5% for women

Kerala is the most literate state in India, with 90.86% literacy andBihar is the least literate state with 47% literacy.

To promote Education Govt. launched Sarva Shiksha Abhiyan to provide free and compulsory education for age group 6 – 14 years,

Mid Day Meal scheme etc.

ORGANISATIONAL CULTURE

EDUCATION



EDUCATION

Countries rich in educational facilities vastly attract high wageindustries.

By investing in education, a country can attract “Brain-Power” Industries.

Market Potential of a country depends on education.

The level of literacy determines the nature of advertising, packaging,quality of marketing research and distribution system.

Barack Obama has said in a recent address to the US Senate that, “India is playing for the number one position. If they keep producing moreengineers, doctors and scientists than us, we will not be number onefor long.”

WORK FORCE DIVERSITY



WORK FORCE DIVERSITY

When people from different cultures converge in a workplace, Managementwill be required to manage diversity.

Workforce diversity has important implications for Management practices.

Managers will be required to shift their philosophy from treating everyone

alike to recognising differences and responding to those differences inmanners that will ensure employee retention and productivity.



LANGUAGE

India is multi linguistic. (18 officially recognized languages and the census of India

identifies 1652 more.)

Marketing plans become costlier and more complex due to this huge diversity. The

advertising campaigns have to been launched in National as well as local languages.

Pepsi‟s „come alive‟ slogan was considered offensive in some places as to the locals

it meant „come out of the grave‟.

Parker Pen Company faced similar problems as in some countries „Ball Pen‟ meant„lie‟, „Obscenity‟, „fabrication‟, „revolution‟ etc.

Reebok had to discontinue its „INCUBUS‟ brand as in medieval folklore, Incubus

was a devil who terrorized women.

FordMotor‟s truck named Fiera meant “Ugly old women” in Spanish.

Segmentation can be done on the basis of linguistic groups.

OTHERS



Thank You

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Introduction to Business Environment-pg-1-Final (1)