Government ,Political & LegalEnvironmentIn Business

IntroductionPolitical-legal Environment is a collection of factors such as,• the general state of politics,• the degree of politicisation of business and economic issues,• the level of political morality,• the law and order situation,• the political ideology and practices of the ruling party• specific legal enactments and framework in which the

enterprise has to function and the degree of effectiveness with which they are implemented, public attitude towards business in general and the enterprise in particular, and so on.

3 IMPORTANT ELEMENTS INPOLITCAL – LEGAL ENVIRONMENT

Government

Legal

Political

Government• It is an important institution which regulates business.• It is an agency which is responsible for creating a

favourable business environment.• Government and business are the 2 major institutions

which contribute towards shaping of the economy irrespective of its nature.

• The type of government running a country is a powerful influence on any business.

• The Govt. acts as a Promoter, Entrepreneur, Planner and Regulator.

 Government  regulates business activities by using certain measures:

Direct & Indirect Control measures.

Licensing

Special reservation system(small industries, heavy industry segments, large scale etc)

Indian Companies Act was legislated to regulate activities of the Companies.

Payment of Taxation is regulated by Taxation Act.

Capital markets are regulated by SEBI.

Consumer Act protects the Consumers

LEGAL ENVIRONMENT IN BUSINESS

Basically India is an emerging economy and it promotes Foreign Direct Investments in the country. That is the reason why the legal system for businesses in India is very flexible.

In any country, businesses must have a good working knowledge of the major laws protecting consumers, competitions and organisations.

Businesses must understand the relevant laws relating to companies, competition, intellectual property, foreign exchange, labour.

The implementation of the legal system starts right from one’s decision to start a business in India.

CURRENT LEGAL ENVIRONMENT

BUSINESS IN INDIA• They have to take an online Director Identification 

number (DIN)  and then they obtain an online Digital signature certificate.

• It is a legal requirement to register the name and nature of the business in Registrar of Companies or ROC.

• Then they have to stamp the company documents from a superintendent.

• Medical insurance is also required for all sorts of businesses.

• There is an employee provident organization, where registration of companies are carried out. It is a legal requirement for all of the businesses to register for profession tax.

•  Although India encourage business opportunities but still the legal environment requires a lengthy process to start or carry on a business. 

• It takes 35days to start business in India. India ranks a lowly 134th in the world when it comes to ease of starting a business.

ENVIRONMENT IN POLITICAL BUSINESS

• The political environment includes all laws, government agencies ,and lobbying groups that influence or restrict individuals or organizations in the society.

• Political uncertainty, political movements against certain products, service and organisations, politicalisation of trade unions, etc., put a lot of pressure on business organisations. The political environment of business is one that deals with the concepts of politics and the way they influence how business operate.

• Ranging from election rigging, to military-political corruption, political bribery has become a pervasive and inescapable truth of our everyday life. This is the case not only in India, but in several nations around the world. Even though it remains inconspicuous, political bribery and Corruption exist behind the shadows.

Political Environment’s effects on Business

• The political environment can affect a business either positively, or negatively, depending on the prevailing situation in a country.

• Political corruption and bribery have various effects on the community, including economic effects as well as social and communal effects. Not to mention, it makes people trust the government less and makes them more wary about their leaders.

• the government uses legislation and regulation as a way of sustaining the environment. It puts limits on levels of pollution that a certain firm may reach, and if that limit is crossed, a fine will have to be paid by the firm.

• However, in such a case, if government officers and executives are bribed with ease, companies may take advantage of it by violating their grants. This may have adverse effects on the environment, ultimately leading to market failure.

• Corruption through political bribery leads to poverty. For instance, in Bihar, around 80% of the subsidized food aid that is meant to be received by the poor is filched by officials.

Attitude Of the Company

• The attitude of the company is also important. A foreign business enterprise must realise that it is a guest of the host country. If a firm realises this fact then the political risk is minimised because it needs to contribute to the national goals of the host country if it wants to continue doing business in that country.

• For instance Cerro v/s. Macron Mining Corporation both belonging to the mining industry one was encouraged by the government while the other firm was discouraged. This was essentially because Macron realised its position as a guest of the country, making contribution for achievement of national objectives; whereas Cerro Corporation undertook no such task and therefore was given out an unfavourable decision.

• Business success depends on politics to a high degree, and in many ways. Politicians are usually the people controlling the operations of a government, and will decide which countries to trade with, as well as on setting the trading conditions. This means that, if a certain business or its owners are not on good terms with the politicians, then they will suffer.

• Political influence is part of starting a business in India, especially if one is planning to start a large business. Political patronage is necessary, not only to safeguard the interest of the company but also to begin the process of getting the required sanctions.

• Usually, the new party comes in and transfers a few civil servants and cancels the old regime’s government works projects. For instance when Ms.Jayalalitha was re-elected as Chief Minister of Tamil Nadu, her first action was to relocate the assembly and secretariat from the newly constructed building back to Fort St.George. Even the 'Semmozhi Poonga' (Classical Tamil Park) is taken off its neon lights after the change of guard in the state.

• This means a Company must be aware of all these issues to start of business in a place. Many MNC’S have political patronage. They need to support any particular party in the state by giving them some benefits and shares of the company in order to sustain in Business there. If a particular party is ruling at that time then the Companies associated with that party will receive so much benefits.

PEPSI"Convincing India that it needs Western junk has not been easy."

- A New Internationalist Magazine Article, commenting on Pepsi's struggle to enter India, in August 1988.

PEPSI is a carbonated soft drink that is produced and manufactured by PepsiCo. Created and developed in 1893 and introduced as Brad's Drink, it was renamed as Pepsi-Cola.Hurdles faced by PepsiCo while entering India:Political Environment:1. No intent to invest locally in industries or provide employment 2. Opposition to promotion of carbonated drinks 3. Fear of invasion of foreign brand Legal Environment:1. Severe restrictions in equity through FERA(Foreign Exchange Regulation Act) 

2. Dispute in relation to ownership of Pepsi brand name .     

Corporate Social Responsibility: Pre-Establishment Attempts:The Punjab card:

1. Develop Punjab’s agriculture and employment generation rather than on soft drinks.

2. Green revolution in Punjab which would end the stagnation there and promote small and medium farmers.

3. Also help divert the youth away from terrorism and bring peace.

The ruling parties agreed to this and PepsiCo formed a joint venture with Voltas. The bundle offered by Pepsi turned the scale on their side.

Pepsi with its strong market instinct and research decided to play along with the government’s conditions. Once after establishing a certain amount of goodwill and local support they began with their main motive of selling soft drinks. Multinationals working towards improvement of economy like Pepsi also involve themselves in other social activities to maintain their public image.

Pepsi’s Entry into India-A lesson of Globalisation

• The letter was written by the General Secretary of one of the country's leading political parties, Janata Dal. He wrote, "I learned that you are coming here. I am the one that threw Coca-Cola out, and we are soon going to come back into the government. If you come into the country, you have to remember that the same fate awaits you as Coca-Cola.“

•  PepsiCo's arch-rival and the world's number one cola company, Coca-Cola, had indeed been forced to close operations and leave India in 1977 after the Janata Dal came to power. Even in the late 1980s, India had a closed economy and government intervention in the corporate sector was quite high.

PRESENTED BY

• Noelta.S                    10/UCMA/611• Steffy                         10/UCMA/629• Ashwini                     10/UCMA/637• Abirami.R                 10/UCMA/652• Poojitha.K                10/UCMA/653• Shrinidhi.S               10/UCMA/661• Paveethra Lakshmi 10/UCMA/671