Class M.Com. I Sem. Subject Business Environmentrccmindore.com/wp-content/uploads/2015/10/M_Com_1/Business... · I Sem. Subject – Business Environment UNIT – I Theoretical Framework

M.Com 1st Sem. Subject- Advanced Accounting

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SYLLABUS

Class – M.Com. I Sem.

Subject – Business Environment

UNIT – I Theoretical Framework of Business Environment : Concept,

Significance and nature of business environment; Elements of environment -internal and external, Changing dimensions of business environment. Liberalisation, Privatisation and Globalisation.

UNIT – II Economic Environment of Business : significance and elements of economic Environment, economic systems and business environment, Economic planning in India, Government policies - Industrial policy, licensing policy, fiscal policy, Monetary policy and EXIM policy.

UNIT – III Political and Legal Environment of Business : Monopoly and Restrictive Trade Practices (MRTP) Act, Foreign Exchange Management Act (FEMA), Consumer Protection Act, Patent Laws.

UNIT – IV Socio, Cultural & International Environment : Social responsibility of business, Characteristics, Components, Scope, relationship between society and business, Socio-cultural business Environment, Social Groups, World Trade Organisation (WTO), International Monetary Fund (IMF), Foreign Investment in India

UNIT – V Technological Environment : Concept, Online Channels, Online Services, Advantage of Online services, E-commerce, Indian conditions of E-commerce, Electronic Banking, Franchise Business.



UNIT-I Business Environment

Introduction to Business Environment – The formula for business success requires two elements – the individual and the environment. Remove either value and success becomes impossible. Business environment consist of all those factors that have a bearing on the business. The term’ business environment implies those external forces, factors and institutions that are beyond the control of individual business organizations and their management and affect the business enterprises. It implies all external forces within which a business enterprise operates. Business environment influence the functioning of the business system. Thus, business environment may be defined as all those conditions and forces which are external to the business and are beyond the individual business unit, but it operates within it. These force are customer, creditors, competitions, government socio-cultural organizations, political parties national and international organizations etc. some of those forces affect the business directly which some others have indirect effect on the business. Meaning of Business environment – Environment of a business means the external forces influencing the business decisions. They can be forces of economic, social, political and technological factors. These factors are outside the control of the business. The business can do little to change them. Following features –

1) Totality of external forces: Business environment is the sum total of al things external to business firms and, as such, is aggregative in nature.

2) Specific and general forces: Business environment includes both specific and general forces Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day-to-day working. General forces (such as social, political, legal and technological conditions) have impact on all business enterprises and thus may affect an individual firm only indirectly.

3) Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market.

4) Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology fashion industries.

5) Relativity: Business environment is a relative concept since it differs from country to country and even region to region. Political conditions in the USA, for instance, differ from those in China or Pakistan. Similarly, demand for sarees may be firmly high in India whereas it may be almost non-existent in France.

Importance of Business Environment –

1) Firm to identify opportunities and getting the first mover advantage: Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors. For example, Maruti Udyog became the leader in the small car market because it was the first to recognize the need for small cars in India.

2) Firm to identify threats and early warning signals: If an Indian firm finds that a foreign multinational is entering the Indian market it should give a warning signal and Indian firms can meet the threat by adopting by improving the quality of the product, reducing cost of the production, engaging in aggressive advertising and so on. For this Indian firms should always be alert.

3) Coping with rapid changes: All sizes and all types of enterprises are facing increasingly dynamic environment. In order to effectively cope with these significant changes, managers



must understand and examine the environment and develop suitable courses of action. There are constant changes in technology; machinery fashion etc. managers should be on toes.

4) Improving performance: The enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.

Dimensions of Business Environment – What constitutes the general environment of a business? The following are the key components to general environment of a business.

1) Economic environment – Economic environment consists of economic factors that influence the business in country. These factors include gross national product, corporate profits, inflation rate, employment balance of payments, interest rates consumer income etc.

2) Social environment – It describes the characteristics of the society in which the organization exists. Literacy rate, customs, values, beliefs, lifestyle, demographic features and mobility of population are part of the social environment. It is important for mangers to notice the direction in which the society is moving and formulate progressive policies according to the changing social scenario.

3) Political environment – It comprises political stability and the policies of the government. Ideological inclination of political parties, personal interest on politicians, influence of party forums etc. create political environment. For example, Bangalore established itself as the most important IT centre of India mainly because of political support.

4) Legal environment – This consists of legislation that is passed by the parliament and state legislatures. Examples of legislation specifically aimed at business operations include the Trade mark Act 1969, Essential commodities act 1955, Standards of Weights and Measures Act 1969 and Consumer Protection act 1969.

5) Technology environment – It includes the level of technology available in a country. It also indicates the pace of research and development and progress made in introducing modern technology in production. Technology provides capital intensive but cost effective alternative to traditional labor intensive methods. In a competitive business environment technology is the key to development.

INTERNAL AND EXTERNAL BUSINESS ENVIRONMENT Types of Environment – In the basis of extent of intimacy with the firm, the environment factors may classified into different types-internal and external. Internal Environment – The internal environment is the environment that has a direct impact on the business. Here there are some internal factors which are generally controllable because the company has control over these factors. It can alter or modify such factor as its personnel, physical facilities, and organization and functional means, like marketing, to suit the environment. The important internal factors which have a bearing on the strategy other decisions of internal organization are discussed below. Value system – Value system of the founders and those at the helm of affairs has important bearing on the choice of business, the mission and the objectives of the organization, business policies and practice. The extent to which the value system is shared by all in the organization is important in contributing to the success. Mission and vision and objectives – Vision means the ability to think about the future with imagination and wisdom. Vision is an important factor in achieving the objectives of the organization. The mission is the medium through which the



objectives are achieved. The business domains of the company, priorities, direction of development, business philosophy are guided by the company. Management structure and nature – Structure of the organization also influences the business decisions. The organizational structure like the composition of board of directors influences the decisions of business as they are internal factors. The structure and style of the organization may delay a decision making or some of the helps in making quick decisions. The quality of the board of directors is a critical factor for the development and performance of the company. The share holding pattern could also have important managerial implications. Internal power relationships – The relationship among the three levels of the organization also influences on the business. The mutual co-ordination among those three is an important need for a business. The relationship among the people working in the three levels of the organization should be cordial. Human resources – The human resources is the important factor for any organization as it contributes to the strength and weakness of any organization the human resource in any organization must have characteristics like skills, quality, high morale, commitment towards the work, attitude, etc. The involvement and initiative of the people in an organization at different levels may vary from organization to organization. The organizational culture and overall environment have bearing on them. Company image and brand equity – The image of the company in the outside market has the impact on the internal environment of the company. It helps in raising the finance, making joint ventures, other alliances, expansions and acquisitions, entering sale and purchase contracts, launching new products, etc. Brand equity also helps the company in same way. Miscellaneous factors – The other factors that contribute to the business success or failure are as follows – Physical assets and facilities – Facilities like production capacity, technology are among the factors which influences the competitiveness of the firm. The proper working of the assets is indeed for free flow or working of the company. Research and development – Though R&D department is basically done external environment but it has a direct impact on the organization. This aspect mainly determine the company’s ability to innovate and compete. Marketing resource – Resources like the organization for marketing, quality of the marketing men, brand equity and distribution network have direct bearing on marketing efficiency of the company. Financial factors – Factors like financial policies, financial positions and capital structure are also important internal environment affecting business performances, strategies and decisions. EXTERNAL ENVIRONMENT – It refers to the environment that has an indirect influence on the business. The factors are uncontrollable by the business. There are two types of external environment.



Micro Environment – The micro environment is also known as the task environment and operating environment because the micro environment forces have a direct bearing on the operations of the firm. The micro environment consist of the actors in the company’s immediate environment that affect the performance of he company. These include the supplies, marketing intermediaries, competitors, customers and the public the micro environmental factors are more intimately linked with the company than the macro factors. The micro forces need not necessarily affect all the firs I a particular industry in the same way. Some of the micro factors may be particular to a firm. When the competing firms in an industry have the same micro elements, the relative success of the firms depends on their relative effectiveness in dealing with these elements. Suppliers – An important force in the micro environment of a company is the suppliers, i.e., those who supply the inputs like raw materials and components to the company. The importance of reliable source/sources of supply to the smooth functioning of the business is obvious. Uncertainty in supply often compels companies to maintain high inventories causing cost increase. Because of the sensitivity of the supply, many companies have high importance to vendor development. It is risky to depend on a single supplier, because a strike or lockout or any other production problem may affect that company. Customer The major task of a business sis to create and sustain customers. A business exists only because of its customers. The choice of customer segments should be made by considering a number of factors including the relative profitability, dependability, and stability of demand, growth prospects and the extent of competition. Competition not only include the other firms that produce same product but also those firms which compete for the income of the consumes the competition here among these products may be said as desire competition as the primary takes here is to fulfill the desire of the customers. The competition that satisfies a particular category desire then it is called generic competition. Depending on a single customer is risky because it may place the company in a poor bargaining position. The choice of the customer must be made considering a number of actors like profit, demand, growth prospects. Marketing Intermediaries – The marketing intermediaries include middlemen such as agents and merchants that help the company find customers or close sales with them. The marketing intermediaries are vital links between the company and the final consumers. Financiers – The financiers are also important factors of internal environment. Along with financing capabilities of the companies their policies and strategies, attitudes towards risk, ability to provide non-financial assistance etc. are very important. Public – Public can be said as any group that has an actual or potential interest in or on an organizations ability to achieve its interest. Public include media and citizens. Growth of consumer public is an important development affecting business. Macro Environment – Macro environment is also known as general environment and remote environment. Macro factors are generally more uncontrollable than micro environment factors. When the macro factors become uncontrollable, the success of company depends upon its adaptability to the environment. Some of the macro environment factors are discussed below:



Economic Environment – Economic environment refers to the aggregate of the nature of economic system of the country, business cycles, the socio-economic infrastructure etc. The successful businessman visualizes the external factors affecting the business, anticipating prospective market situations and makes suitable to get the maximum with minimize cost. Social Environment – The social dimension or environment of a nation determines the values sytem of the society which, in turn affects the functioning of the business. Sociological factors such as costs structure, customs and conventions, mobility of labour etc. have far-reaching impact on the business. These factors the work culture and mobility of labour, work groups etc. Political Environment – The political environment of a county is influenced by the political organizations such as philosophy of political parties, ideology of government or party in power, nature and extent of bureaucracy influence of primary groups etc. The political environment of the country influences the business to a great extent. Legal environment – Legal environment includes flexibility and adaptability of law and other legal rule governing the business. It may include the exact ruling and decision of the courts. These affect the business and its managers to a great extent. Technical Environment – The business in a country is greatly influenced by the technological development. The technology adopted by the industries determines the type and quality of goods and technology adopted by the industries determines the type and quality of goods and services to be produced and the type and quality of plant and equipment to be used. Technological environment influences the business in terms of investment in technology, consistent application of technology and effects of technology on markets. Liberalization:

The economic reforms that were introduced were aimed at liberalizing the Indian business and industry from all unnecessary controls and restrictions.

They indicate the end of the license-quota raj. Liberalization of the Indian industry has taken place with respect to:

o Abolishing licensing requirement in most of the industries except a short list, o Freedom in deciding the scale of business activities i.e., no restrictions on expansion or

contraction of business activities, o Removal of restrictions on the movement of goods and services, o Freedom in fixing the prices of goods services, o Reduction in tax rates and lifting of unnecessary controls over the economy. o Simplifying procedures for imports and experts, and o Making it easier to attract foreign capital and technology to India.

Privatization –

The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector.

To achieve this, the government redefind the role of the public sector in the new industrial policy of 1991.

The purpose of the sale according to the government, was mainly to improve financial discipline and facilitate modernization.



It was also observe that private capital and managerial capabilities could be effectively utilized to improve the performance of the PSUs.

The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions.

Globalization –

Globalization are the outcome of the policies of liberalization and privatization. Globalization is generally understood to mean integration of the economy of the country with

the world economy, it is complex phenomenon. It is an outcome of the set of various policies that are aimed at transforming the world towards

greater interdependence and integration. It involves creation of networks and activities transcending economic, social and geographical

boundaries. Globalization involves an increased level of interaction and interdependence among the various

nations of the global economy. Physical geographical gap or political boundaries no longer remain barriers for a business

enterprise to serve a customer in a distant geographical market. Impact of Government Policy Changes on Business and Industry –

1) Increasing competition – As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunication, airlines, banking, insurance, etc. which were earlier in the public sector.

2) More demanding customers – Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.

3) Rapidly changing technological environment – Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services. The rapidly changing technological environment creates tough challenges before smaller firms

4) Necessity for change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices. After 1991, the market, forces have become turbulent as a result of which the enterprise have to continuously modify their operations.

5) Threat from MNC – Massive entry of multi nationals in Indian marker constitutes new challenges. The Indian subsidiaries of multi-nationals gained strategic advantage. Many of these companies could get limited support in technology from their foreign partners due to restrictions in ownerships. Once these restrictions have been limited to reasonable levels, there is increased technology transfer from the foreign partners.



UNIT-II ECONOMIC ENVIRONMENT

Introduction – Various environmental factors such as economic environment, socio-cultural Introduction – Various environmental factors such as economic environment, socio-cultural environment, political, technological demographic and international, affect the business and its working. Out of these factors economic environment is the most important factor. Meaning of Economic Environment – Those economic factors which have their affect on the working of the business is known as economic environment. It includes system, policies and nature of an economy, trade cycles, economic resources, level of income, distribution of income and wealth etc. Economic environment is very dynamic and complex in nature. It does not remain the same. It keeps on changing from time to time with the changes in an economy like changes in an economy like change in Govt. polices, political situations. Elements of Economic Environment – General economic conditions affect business. It has mainly five main components –

1) Economic conditions 2) Economic system 3) Economic policies 4) International economic environment 5) Economic legislations

1. Economic conditions –

General economic conditions affect business. Economic pass through periods of boom and recession. A boom is characterized by high level of output, employment and rising demand and prices. If a region depends to a significant extent on any particular industry or sector, business in that region would be significantly affected by fortune of that industry. The economic and business prospects in major oil exporting countries depend to a very great extent on the curde oil prices. A particular economic condition may be widespread – international or national – or may be confired to a region. AS the US economy is highly integraed globally the economic conditions in the US can have repercussions in other economies. Exports and imports of a country are generally affected by a numbert of domestic and international economic conditions. If economic policies of a business unit are largely affected by the economic conditions of an economy, Any improvement in the economic conditions such as standard of living, purchasing power of public, demand and supply distribution of income etc. largely affects the size of the market. The external factors are –

The rate of growth of the economies of the importing countries The rate of growth of the world trade The rate of change in the price level I the importing country

The internal factors are –

The rate of growth of the Indian economy The rate of change in the domestic price level.

Business cycle is another economic conditions that is very important for a business unit. Business Cycle has 5 different stages viz. (i) Prosperity (ii) Boom (iii) Decline (iv) Depression (v) Recovery Following are mainly included in Economic Conditions of a country –

1. Stages of business Cycle 2. National Income, Per Capita Income and Distribution of Income 3. Rate of Capital Formation 4. Demand and supply Trends



5. Inflation Rate in the Economy 6. Industrial Growth Rate, Exports Growth Rate 7. Interest Rate prevailing in the Economy 8. Trends in Industrial Sickness 9. Efficiency of Public and Private Sector 10. Growth of Primary and Secondary Capital Markets 11. Size of Market

NATURE OF THE ECONOMY The general level of development of the economy has a lot of implications for business it has significant bearing on the nature and size, demand, government policies affecting business etc. a widely used method of classification on the economies is on the basis of the per capita income. Countries are broadly classified as low, middle and high income economies. The low economies are sometimes referred to as the third world, the high income as the first would and the idle income as the second world. Differences in the levels between countries is not a true reflection of the purchasing powers of living standards of people. Low income and middle income economies are developing economies. In the group of high income economies the industrial economies are developed economies. The sectoral distribution of the income and employment generation, social development indicators are applied to consider whether an economy is a developer of a developing one. The developed economies are characterized by widespread use of modern and technology, innovations, low share in the primary sector and dominance of the tertiary sector. Low income is just a deprivation of people of in developing countries. In the developing economies the inequality of income Distribution is very high as a result of which as large population lives in poverty. The group of developed as well as developing countries is heterogeneous mixture. STRUCTURE OF THE ECONOMY The structure of the economy, factors such as contribution of different sectors like primary, secondary and tertiary sectors, large,, medium, small and tiny sectors to the economy, and their linkages, integration with the word economy etc –are important to business because indicate the prospects for different types of business, certain factors which affect the business etc. as an economy develops the share of the primary sector in the GDP and employment declines and those of thee other sectors increase. In most of the countries the service sector is the largest and fastest growing sector. The development economies are primary service economies as the service sector generates bulk of the employment and income. Although India is the largest producer of several agricultural products, because of the small and fragmented nature of the land holdings, efficient collection and processing of the produce become difficult. The land holding pattern also makes productivity improvements difficult. The tremendous growth of trade in services and, more recently, of electronic commerce, is part of a new trade pattern. Economic Systems:- An Economic System of a nation or a country may be defined as a framework of rules, goals and incentives that controls economic relations among people in a society. It also helps in providing framework for answering the basic economic questions. Different countries of a world have different economic systems and the prevailing economic system in a counry affect the business units to a large extent. Economic conditions of a nation can be of any one of the following type:-

1. Capitalism:- The economic system in which business units or factors of production are privately owned and governed is called Capitalism. The profit earning is the sole aim of the business units. Government of that country does not interfere in the economic activities of the country. It is also known as free market economy. All the decisions relating to the economic activities are privately taken. Example of Capitalistic Economic:- England, Japan, America etc.

2. Socialism:- Under socialism economic system, all the economic activities of the country are controlled and regulated by the Government in the interest of the public. The first country to adopt this concept was Soviet Russia. The two main forms of Socialism are:-



(a) Democratic Socialism:- All the economic activities are controlled and regulated by the government but the people have the freedom of choice of occupation and consumption.

(b) Totalitarian Socialism:- This form is also known as Communism. Under this, people are obliged to work under the directions of Government.

3. Mixed Economy:- The economic system in which both public and private sectors co-exist is known as Mixed Economy. Some factors of production are privately owned and some are owned by Government. There exists freedom of choice of occupation and consumption. Both private and public sectors play key roles in the development of the country.

Economic Policies:- Government frames economic policies. Economic Policies affects the different business units in different ways. It may or may not have favorable effect on a business unit. The Government may grant subsidies to one business or decrease the rates of exercise duty, tax rates for another business. All the business enterprises frame their policies keeping in view the prevailing economic policies. Important economic policies of a country are as follows:-

1. Monetary Policy: - The Central Bank, by its policy towards the cost and availability of credit, can significantly influence the savings, investments and consumer spending in the country. Depending in the condition of the economy and the general economic policy of the Government, the Central Bank may adopt expansionary or contractionary or neutral monetary policy. The policy formulated by the central bank of a country to control the supply and the cost of money (rate of interest), in order to attain some specified objectives is known as Monetary Policy.

2. Fiscal Policy:- Government’s strategy in respect of public expenditure and revenue ca have significant impact on the business. The pattern of the public expenditure may affect the development of various regions and industries differently, Government often uses tax incentives of disincentives to encourage or disencourage certain activities. A reduction of rates of direct taxes like personal income tax and corporate tax may help increase, because of the resultant increase in the disposable income, the spending in the economy leading to an increase in the demand it may be termed as budgetary policy. It is related with the income and expenditure of a country. Fiscal Policy works as an instrument in economic and social growth of a country. It is framed by the government of a country and it deals with taxation, government expenditure, borrowings, deficit financing and management of public debts in an economy.

3. Foreign Trade Policy:- It also affects the different business units differently. E.g. if restrictive import policy has been adopted by the government then it will present the domestic business units from foreign competition and if the liberal import policy has been adopted by the government then it will affect the domestic products in other way.

4. Foreign Investment Policy:- The policy related to the investment by the foreigners in a country is known as Foreign Investment Policy. If the government has adopted liberal investment policy then it will lead to more inflow of foreign capital in the country which ultimately results in more industrialization and growth in the country.

5. Industrial Policy:- Industrial policy can even define the scope and role of different sectors, like private, public, joint and co-operative, or large, medium and tiny. It may affect the industrial undertaking choice of technology etc. In India, until the liberalization, the scope of private sector, particularly of large enterprises, was very limited. The liberalization has highly expanded the business opportunities. It has at the same time tremendously increased competition tending to make survival of the fittest the order. Industrial policy of a country promotes and regulates te industrialization in the country. It is framed by government. The government from time to time issues participles and guidelines under the industrial policy of the country.

6. Trade Policy/Exim Policy:- The trade policy can significantly affect the fortunes of the firm. A restrictive import policy, or a policy of protecting the home industries, may greatly help the import competing industries, while liberalization of the import policy may create difficulties for such industries. Trade policy is often integrated with the industrial policy. As a part of the economic liberalization and WTO compliances, India has very substantially liberalized imports.



Liberalization of imports facilitates global sourcing and this could help many Indian firms to become more competitive.

7. Industrial Licensing Policy:- Industrial licensing is an authority letter issued by the Govt. organization to permit the institution for starting an industry or to start certain function. The main object of industrial licensing policy is to reduce imbalances and in qualities in the economy it is a part of industrial policy it helps to the implementation of industrial policy by providing practical shape and also helps in achieving the objective of industrial development.

Global/International Economic Environment: - The role of international economic environment is increasing day by day. If any business enterprise is involved in foreign trade, then it is influenced by not only its own country economic environment but also the economic environment of the country from/to which it is importing or exporting goods. There are various rules and guidelines for these trades which are issued by many organizations like World Bank, WTO, and United Nations etc. Economic Legislations:- Besides the above policies, Governments of different countries frame various legislation which regulates and control the business. Nature of the economy:- The general level of development of the economy has a lot of implications for business. It is a significant bearing on the nature and size demand, government policies affecting business etc. A widely used method of classification of the economies is on the basis of the per capita income. Countries are broadly divided as low income, middle income middle and high income economies. Economic Environment in India In order to solve economic problems of our country, the government took several steps including control by the State of certain industries, central planning and reduced importance of the private sector. The main objectives of India’s development plans were:

1. Initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty;

2. Become self-reliant and set p a strong industrial base with emphasis on heavy and basic industries;

3. Reduce inequalities 0f income and wealth; 4. Adopt a socialist pattern of development – based on equality and prevent exploitation of man y

man. As a part of economic reforms, the Government of India announced a new industrial policy in July 1991. The broad features of this policy were as follows:

1. The Government reduced the number of industries under compulsory licensing to six. 2. Disinvestment was carried out in case of many public sector industrial enterprises. 3. Policy towards foreign capital was liberalized. The share of foreign equity participation was

increased and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted. 4. Automatic permission was now granted for technology agreements with foreign companies. 5. Foreign Investment Promotion Board (FIPB) was set up to promote channelize foreign

investment in India.



UNIT – III

POLITICAL ENVIRONMENT It is a fact that politics determines economic and business policies and highlights the critical importance of the political environment to business. The two most powerful institutions in society today are business and government, where they meet on common ground amicably or otherwise together they determine public policy, both foreign and domestic for a nation. The political environment includes factors such as policies of political parties, nature of the constitution and government system and the government environment encompassing the economic business policies and regulations. ECONOMIC ROLES OF THE GOVERNMENT The government plays an important role in almost every national economy of the world. Even in the countries described as capitalist economies or market economies, a substantial share of the nation’s product goes to satisfy the public wants, a substantial part of the private income originates in the public budget and the public tax influence the state of private income distribution. In the private enterprise economies, government is necessitated, besides the social-political ideological reasons, that the market mechanism alone cannot perform all economic functions. Public policy is needed to guide, correct and supplement it in certain respects. Governments normally play four important role in the economy, regulation, promotion, entrepreneurship and planning. REGULATORY ROLE Government regulation of the business may cover a broad spectrum extending from entry into business to the final results of a business. Results of business operations may be regulated by such measures as ceilings on profit margins, divided etc. Government regulation of the economy may be broadly divided into direct controls and indirect controls. Indirect controls are usually exercised though various fiscal and monetary incentives and disincentives or penalties. Certain activities may be encouraged or discouraged though monetary and fiscal incentives and disincentives. The direct administrative or physical controls are more drastic in their effect. PROMOTIONAL ROLE The promotional role played by a government is very important in the developed as well as developing countries. In developing countries, here the infrastructural facilities for development are inadequate and entrepreneurial activities are scares, the promotional role of the government assumes special significance. The state will have direct responsibility towards power, transport, finance, marketing etc. ENTERPREEURIAL ROLE In many economies, the state also plays the role of an entrepreneur. Factors like socio-political ideologies, dearth of private enterprise, neglect of unprofitable sectors, absence of inadequate competition in certain segments and the resultant exploitation etc have contributed to the growth of state owned enterprises in many countries. PLANNING ROLE In the underdeveloped country, like India, which have to develop rapidly, the time element is important, so is the use of the resources to the best use. When the resources are in abundance, it will not matter low it is put to used. But where the resources are limited, it should e seen it is directed to the right purpose so as to build up the economy. Features of Political Environment:-

1. A strong Democratic Tradition 2. Growth of Regional Parties



3. Concentration of Power 4. Democratic Decentralization 5. Modernization and Liberalization 6. Language of Violence 7. Corruption 8. Regional super Power 9. Growing Uncertainty 10. Politics of Religion

Effect of Political Environment on Business- Positive Effects

1. Opportunities for growth 2. Modernization 3. Expanding Markets 4. Dispersal of Industry 5. Active Capital Markets 6. Increased Efficiency.

Negative Effects

1. Distortion of Priorities 2. Erosion of values 3. Disruption through violence 4. Uncertainty.

GOVERNENT AND LEGAL ENVIRONENT In most of the countries, a number of laws regulate the conduct of the business. The law include standard of products, packaging, promotion, ethics etc. regulations to protect the purity of the environment and preserve the ecological balance have assumed great importance in many countries. Some government specify certain standard for the products to be marketed in the country, some even prohibit the marketing of certain products. In most nations, promotional activities are subject to various types of controls. There are areas of statutory controls on many businesses in India. Although the controls have been substantially brought don as a result of the liberalization, a number of controls still prevail. Certain change in the government policies such a industrial policy, fiscal policy, tariff policy, may have profound impact on business. Sometimes a development which brightness the prospects of some enterprise may pose a threat to some others. The industrial policy liberalization in India has opened up ne opportunities and threats. They have provided a lot of opportunities to a large number of enterprises to diversify and make the product mix better and have also give threat to many existing products by way of increase competitions. ECONOMIC ROLE OF GOVERNMENT IN INDIA The Indian Constitution incorporates that they are economically significant and have far reaching implications. The objectives and the principles of the Indian Republic, the Fundamental Rights and in the Directive Principles of the State Policy have been clarify laid down in the Preamble. The economic responsibility bestowed on the state by the Indian Constitution is enormous. In the past the government have proclaimed that certain policy measures had been taken and laws had been enacted to give effect to certain Constitutional provisions. Some of these policies have been given up or reversed. Whenever a Constitution contains a preamble, it expresses the political religious and socio-economic values which it envisages to promote. The Preamble lays down that the attainment of oio, economic and political justice, and equality of status and opportunity should be among the most important basic guiding principles of the functioning of the state.



It has been claimed that the Indian Constitution offers all citizens the best of the democracy and those basic freedoms and conditions of life which alone make life significant and productive. The theory of fundamental rights aims at preventing the government and the legislature becoming totalitarian, and it doing so it affords the individual an opportunity for self development. These rights are subject to limitations imposed by the state. The Fundamental Rights also have economic significance. The right to equality prohibits discrimination against any citizen on the grounds of race, religion, caste, sex, place of birth. In public employment, it ensures equality of opportunity to all citizens. The Constitution guarantees the citizens the fundamental right to freedom to practice any profession, carry on trade or business, state is empowered to make laws necessary for practicing any profession or carrying on any trade, business or service. The fundamental Right against Exploitation prohibits traffic in human beings, beggary and other forms of forced labour. Any contravention of this provision shall be an offence. Punishable in accordance with the law. Fundamental Rights enumerated in the Constitution guarantee a number of economic rights to the citizens, but the State has the power to impose reasonable restrictions on such rights in public interest. The Directive principles are the nature of directions to the legislature. The Directive principles include promoting the welfare of the people by securing and protecting as effectively the social, political and economic life. Te state shall try to minimize inequalities in income,, eliminate inequalities in status, facilities and opportunities among the individuals. The state Policy ensures that the citizens have the right to an adequate means of livelihood. The ownership and control of material resources of the committee are distributed. There is equal pay and equal work among the citizens. The health and strength of the workers, and the tender age of the children are not missed or abused. The children are given opportunities and facilitiessbto develop in healthy manner and conditions of freedo ad dignity and that children are projected from exploitation. The state shall take steps to organize village panchayats and endow the with power and authority. The state shall make effective provision for securing the right to work, to education, and to public assistance in case of unemployment, old age and disablement. The state shall make provision for securing just and humane conditions of work. Th state shall endeavor to all workers a good wage and living conditions and a decent standard of life and opportunities. The state shall promote special care to economic and educational interests of the weaker sections of the people. The state shall regard the raising of the standard of living of its people and improvement of public health. DIVISION OF POWER The Union has the executive power to make laws on all matters in the Union List and the State has executive powers to make powers in the State List. Both the union and State can legislate on matter in the Concurred List. In case of any conflict between the Union and the State laws, the Union law shall prevail. The state has from time to time acquired increasing powers to control private activity and enlarge its own ownership and management of the economy. The state has to shoulder a heavy responsibility to attain the egalitarian goals set forth in the Constitution. There are many industrial and labour laws which regulate employee relations, working conditions, wages, bonus, labour welfare, security etc.



In the coming years, competition would be derived from the ability to recognize and integrate all form of knowledge leading to innovation in every area of human endeavor. While talking about competitiveness and technology, the necessary of building innovation systems is important. Technology is reshaping the basics of business. Customer service, operations, product and marketing strategy and distribution are heavily, or sometime even entirely, dependent on technology. The technology that support these functions can be found on the desk, on the shop floor, n the store, even brief cases. Sustainable competitive advantage is an advantage that allows uninterrupted maintenance and improvement of your enterprise’s competitive position in the market. It is an advantage that enables your business to survive against its competition over a long period o time. Owning your competitive advantage will allow you to build upon it continuously, be more flexible, and eliminate speed breakers. “If I were to speak about competencies and assets of an organization that are likely to remain valuable, I would restrict myself to one word “Innovation”. –Ashwin Dani Hyper competition is a key feature of a the new economy. Now only is there more competition, there is also tougher and smarter competition. “Hyper competition” is a state in which the rate of change in the completive rules of the game are in such a state a flux that only the most adaptive, fleet, and nimble organization will survive. New customers want it quicker and cheaper, and they want it their way. The



fundamental quantitative and qualitative shift in competition requires continuous innovation and improvement.

FERS & FEMA Foreign exchange transaction have traditional been regulate in India. For this purpose, Foreign exchange Regulation Act (FERA) was promulgated in 1973. However, with recent trends of liberalization in the economy, the focus has shifted from regulation to management with the result the FERA has been replaced by FEMA (Foreign Exchange Management Act) The objective to Study

(a) FERA and its provisions (b) FEMA and its provisions (c) Difference b/w FERA and FEMA.

FERA, 1973 FERA was promulgated in 1973 and it come into force on January 1 1974. As name it self, the act aimed at regulating foreign exchange. The principal objective of the act is to prevent the outflow of Indian currency and to see that the foreign exchange legitimately due to India should be received. Main objective of the Act.

- To regulate certain payment. - To regulate dealings in foreign exchange and securities. - To regulate the transaction indirectly affecting foreign exchange. - To regulate import and export of currency and bullion. - To conserve the foreign exchange resources of the country and to utilize the same in the

interests of the economic development of the country. - To regulate holding of immovable properly outside India. - To regulate employment of foreign nationals. - To regulate acquisition, holding, etc of immovable properly in India by non-residents. - To regulate foreign companies.

The act applies to the whole of India, to citizens of India outside India and to branches and agencies outside India of companies or corporate bodies registered in India. Provisions Under the Act:-

(A) FERA authoress only RBI to deal with foreign exchange transactions. (B) Restrictions on Payments. (C) Restrictions on Import-Export of Currency. (D) Restrictions on Immovable properties etc.

FEMA Foreign Exchange Management Act. The FEMA was introduced by the govt. of India in July, 1998 to repeal FERA and to consolidate and mend the law relating to foreign exchange with the objective of facilitating external trade and payments and maintenance of foreign exchange development and maintenance of foreign exchange market in India. Objectives:-

- To facilitate external trade and payments - To promote the orderly development and maintenance of foreign exchange market.

The Act Extends to the whole of India. The main provisions of the Act are as follows:-



Sec 3:- Dealing in Foreign Exchange. No person shall deal in or transfer foreign exchange to any person. Sec 4:- Holding of Foreign Exchange. No person resident in India shall acquire, hold, own, possess or transfer any foreign exchange foreign security or any immovable property situated outside India. Sec 5:- Current Account transactions any person may sell or draw foreign exchange to or from an authority person it such or drawl is a current account transaction provided that the central govt. may in public interest and in consultation with RBI, impose such reasonable restrictions for current account transactions as may be prescribed. Sec 6:- Capital Account Transactions: Any class or classes of capital account transactions which are permissible and limit up to which foreign exchange shall be admission for such transactions. Sec 7:- Export of goods and services: Every exporter of goods or services shall furnish to the RBI details regarding the export value of such goods or services. Sec 8:- Realization and Repatriation of Foreign exchange: A person shall take steps to realize and repatriate to India, such foreign exchange within a specified period of time. FERA and FERA – Comparison

(1) In FEMA only the specified acts relating to foreign exchange are regulated, while FEMA is facilitating trades a against that of FERA, which was to prevent misuse.

(2) FEMA is a much smaller enactment-only 49 sections as againset-81 sec. of FERA. (3) In the process of simplification, many of the “laid downs” of the erstwhile FERA have been

withdrawn. (4) Many provision of FERA like the ones relating to blocked accounts, Indians talking up

employment abroad. Employment of foreign technician in India, contracts in evasion of the act. Culpable mental state has no appearance in FEMA.

Monopolistic & Restrictive Trade Practice Act (MRTP Act) India has adopted the socialistic pattern of the society as its goal, so with view to restrict the monopolistic & obstructive tracing operations of the vast expanding industrial units of managerial houses and to control economic concentration into few hands an act called MRTP Act was promulgated in 1969 except J & K. This act came into force from 1st June 1970 in India. The aim was to control natural resources at equal level and to restrict concentration of economic power. Objectives of the MRTP Act-

1. Restriction on concentration of Economic power 2. To prohibit monopolistic trade practice 3. To promote healthy competition in the Economy 4. To check on unfair trade practices 5. To check on restrictive trade practices

Monopolistic Practices:-defines dominant undertakings on the basis of market share. In the criteria of market share those undertakings is considered as dominant which by itself or along with inter connected undertakings controls not less than 1/4th of total goods / services that are produced / supplied in India. Unfair Trade Practices:- Provisions of UTP were incorporated in MRTP Act on 1st Aug. 1984. It is concerned with protection of customer interest. Unfair practices means deceptive Trade Practices and it mainly includes falsely representing Trade Practices. MRTP Commission:- The MRTP Act has set up a permanent statutory body named as MRTPs. It is inasi-judicial body. This commission has judiciary powers in controlling restrictive Trade Practices and Unfair Trade Practices but in case of monopolistic trade practices it only recommendatory powers. In



other words MRPs are not decided by MRTPc but we decided by central Government. Appeal against orders issued by MRTPc can be made only in Supreme Court. This commission is headed by a chairman and has two eight members all are appointed by Central Govt. for five years but also eligible for re-appointment. No member can hold this office for a period exceeding 1 year or on attaining the age of 65 years whichever is earlier. Chairmen will e a person who is qualified to e judge of Supreme Court or High Court. The embers should be well acquainted with Economics, laws, Commerce, Accountancy, Industry, Public Administration. The commission can issue cease and desist – order .e. to stop such Trade Practice and not to repeat such practice in future.

Customer Protection Act, 1986

India is a very big country where majority of consumer are poor and disorganized. The market of India is a seller’s market audit is very easy to deceive the consumers. The Government has taken many steps to protect the consumers. The biggest help in this direction from the government is that the Central Government enacted a law to protect the consumers which is known as the consumer protection Act 1986. This act was treated as unique in the world because it not only recognized consumer rights but also established a redress system. Objectives of this Act-

1. Protection of this Act 2. Protection of rights of consumers 3. Fast redressed of consumer dispute.

Three Tear Mechanism This Act provides the three Tier Mechanism for protecting and promoting the rights of the consumers.

1. The Central Consumer Protection Council 2. The State Consumer Protection Council 3. The district Consumer Protection Council

This Act also provide the three tier grievance redressed system which solve the disputes (Consumer Disputes Redressed Agencies) Related to Consumers-

1. National Consumer Disputes Redressed Commission (Above 1 crore) 2. State Consumer Disputes Redressed Commission (20 lakh-1 crore) 3. District Forum means Consumer Disputes Redressed Forum. (upto 20 lakhs)

Patent Laws

Intellectual Property Intellectual property is the product or creation of the mind. It is different from other properties in term that it is “intangible”. Hence it needs some different way for its protection. Intellectual Property Rights IPR is the body of law developed to protect the creative people who have disclosed their invention for the benefit of mankind. This protects their invention from being copied or imitated without their consent. The Indian Patent Act

In India the grant of patent is governed by the patent Act 1970 and Rules 1972 The patents granted under the act are operative in the whole of India.

History

The patent Law of 1856 The patent and Designs Act, 1911 The patents Act, 1970 and Rules 1972



The patent amendment act 2005 What id a patent? A patent is a grant from the government which confers on the guarantee for a limited period of time the exclusive privilege of making, selling and using the invention for which a patent has been granted. Purpose of getting a patent

To enjoy the exclusive rights over the invention. The patent is to ensure commercial returns to the inventor for the time and money spend in

generating new product. What can be patented? In order to be patentable, an invention must pass four tests;

1. The invention must fall into one of the five “statutory classes’: Process, Machines, Manufactures, Compositions of matter, and New uses of any of the above

2. The invention must be “useful” 3. The invention must be “novel” 4. The invention must be “nonobvious’.

Patent Law- Salient Features

Both product and process patent provided Term of patent - 20 years Examination on request Both pre-grant and post-grant opposition Fast track mechanism for disposal of appeals Provision for protection of bio-diversity and traditional knowledge. Publication of applications after 18 months with facility for early publication Substantially reduced time –lines

Safeguards in the Patent Law

Compulsory license to ensure availability of drugs at reasonable prices Provision to deal with public health emergency Revocation of patent in public interest and also on security considerations

Types of Patents Three types of patent are granted under the provisions of the act, namely;

1. An ordinary Patent 2. A patent of Addition 3. A Patent of Convention

A second type of classification of patent is –

1. Product Patent 2. Process Patent

Patentable Inventions Invention must

Relates to a process or product or both Be new (Novel) Involves an inventive step Be capable of industrial application Not fall under section 3 and 4



“New” Means ……… Invention must not be

Published in India or elsewhere In prior public knowledge or prior public use with in India. Claimed before in any specification in India.

Inventive step means… A feature of an invention that

Involves technical advance as compared to the existing knowledge. Industrial Application means

Invention is capable of being made or used in any kind of industry. Section 3 exclusions Section 3(a)

Inventions contrary to well established natural laws. Examples

Machine that gives more than 100% performance Perpetual machine

Section 3 (b) Commercial exploitation or primary use of inventions, which is

Contrary to Public order or Morality

Examples

Gambling machine Device for house-braking

Section 3(b) Commercial exploitation or primary use of inventions, which

Causes serious Prejudice to Health or Human, animal, plant life or to the environment

Examples

Biological warfare material or device, weapons of mass destruction Terminator gene technology Embryonic Stem cell

Non Patentable Inventions Inventions falling within section 20(1) of the Atomic Energy Act, 1962 are not patentable Example – Inventions relating to compounds of Uranium, Beryllium, Thorium, Plutonium, Radium, Graphite, Lithium and more as notified by Central Govt. from time to time. The term of Patent



In respect of a invention calming process of manufacturer of a substance intended to be used as food or medicine-----5 yrs from the date of sealing or 7 yrs from the date of patent whichever is shorter.

In case of any other invention----14 yrs from the date of patent. Expiry of A Patent A patent can expire in the following ways –

1. The patent has lived its full term. 2. The patentee has failed to pay the renewal fee 3. The validity of the patent has been successfully challenged by an opponent by filing an

opposition either with the patent office or with the courts. 4. As soon as the patent expires, it has pass to the general public domain and now anybody can use

it without the permission of the original inventor Stages from Filing to Grant of a Patent Obtaining A patent

File an application for patent With one of the patent office’s based on territorial jurisdiction of the place of office or

residence of the applicant/agent Pay the required fee

Information concerning application form and details of fee available at www.ipindia,nic.in Guidelines for applicants also available on this website.

Formality Check

An examiner checks the formal requirement before accepting the application and the fee – this is done immediately

Issue of application number and the cash receipt – this is done the same day In case of receipt of application by post, cash receipt, application number is sent by post within

2-3 days Publication

Application is kept secret for a period of 18 months from the date of filing In 19th month, the application is published in the official journal-this journal is made available

on the website weekly Applicant has an option to get his application published before 18 months also. In that case, application is published within one month of the request

Request for Examination

Application is examined on request Request for examination can be made either by the applicant or by a third party A period of 48 months, from the date of filing, is available for making request for examination.

Examination

Application is sent to an Examiner within 1 month from the date of request for examination Examiner undertakes examination w.r.t. Whether the claimed invention is not prohibited for grant of patent. Whether the invention meets the criteria of patentability

Issue of FER

A period of 1 to 3 months is available to Examiner to submit the report to the Controller 1 Month’s time available to Controller to vet the Examiner’s report

http://www.ipindia,nic.in/



First Examination Report (FER) containing list of the objections is issued within 6 months from the date of filing of request.

Response from the Applicant

12 months’ time, from the date of issue of FER, is available to the applicant to meet the objections.

If objections are met, grant of patent is approved by the controller – within a period of 1 month Pre-grant Opposition

After publication, an opposition can be filed within a period of 6 months Opportunity of hearing the opponent is also available.

Examination of Pre-grant Opposition

Opposition (documents) is sent to the applicant A period of 3 months is allowed for receipt of response

Consideration of Pre-grant Opposition

After Examining the opposition and the submissions made during the hearing, Controller may Either reject the opposition and grant the patent Or accept the opposition and modify/reject the patent application

This is to be done within a period of 1 month from the date of completion of opposition proceedings

Grant of a patent

A certificate of patent is issued within 7 days Grant of Patent is published in the official journal

Stages Filing to Grant of Patent



Renewal Fee

To be paid within 3+6 months from date of recording in the register [Sec 142(4)] No fee for 1st and 2nd year Renewal Fee, on yearly basis, is required to be paid for 3rd to 20th for keeping the patent in force. Delay upto six months from due date permissible on payment of fee for extension of time Patent lapse if renewal fee is not paid within the prescribed period.

Rights of a patentee

1. Right to exploit the patent The patentee has a right to prevent 3rd parties, from exploiting the patent invention.

2. Right to grant License The patentee has a power to assign rights or grant license

3. Right to surrender The patentee is given the right to surrender the patent by giving notice in prescribed

manner to the controller. 4. Right to sue for infringement

A patentee is given the right to institute proceeding for infringement of the patent in a district court.

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