factors of introduction business environment

BUSINESS ENVIRONMENT

UNIT-1

Meaning: - The term Business Environment is composed of two words ‘Business’ and ‘Environment’. In

simple terms, the state in which a person remains busy is known as Business. The word Business in its

economic sense means human activities like production, extraction or purchase or sales of goods that are

performed for earning profits.

On the other hand, the word ‘Environment’ refers to the aspects of surroundings. Therefore, Business

Environment may be defined as a set of conditions – Social, Legal, Economical, Political or Institutional

that are uncontrollable in nature and affects the functioning of organization. Business Environment has two

components:

1.InternalEnvironment

2. External Environment

Internal Environment: It includes 5 Ms i.e. man, material, money, machinery and management, usually

within the control of business. Business can make changes in these factors according to the change in the

functioning of enterprise.

External Environment: Those factors which are beyond the control of business enterprise are included in

external environment. These factors are: Government and Legal factors, Geo-Physical Factors, Political

Factors, Socio-Cultural Factors, Demo-Graphical factors etc. It is of two Types:

1. Micro/Operating Environment

2. Macro/General Environment

Micro/Operating Environment: The environment which is close to business and affects its capacity to

work is known as Micro or Operating Environment. It consists of Suppliers, Customers, Market

Intermediaries, Competitors and Public.

(1) Suppliers: – They are the persons who supply raw material and required components to the company.

They must be reliable and business must have multiple suppliers i.e. they should not depend upon only one

supplier.

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(2) Customers: - Customers are regarded as the king of the market. Success of every business depends

upon theleveloftheircustomer’ssatisfaction.TypesofCustomers

(wholesalers

(ii)Retailers

(iii)Industries

(iv)Government and Other Institutions

(v) Foreigners

(3) Market Intermediaries: - They work as a link between business and final consumers. Types:-

(i)Middleman

(ii)MarketingAgencies

(iii) Physical Intermediaries

(4) Competitors: - Every move of the competitors affects the business. Business has to adjust itself

according to the strategies of the Competitors.

(5) Public: - Any group who has actual interest in business enterprise is termed as public e.g. media and

local public. They may be the users or non-users of the product.

Macro/General Environment: – It includes factors that create opportunities and threats to business units.

Following are the elements of Macro Environment:

(1) Economic Environment: - It is very complex and dynamic in nature that keeps on changing with the

change in policies or political situations. It has three elements:

(i) Economic Conditions of Public

(ii) Economic Policies of the country

(iii)Economic System

(iv) Other Economic Factors: – Infrastructural Facilities, Banking, Insurance companies, money markets,

capital markets etc.

(i) Political Environment: - It affects different business units extensively. Components:

(a) Political Belief of Government

(b) Political Strength of the Country

(c) Relation with other countries

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(d) Defense and Military Policies

(e) Centre State Relationship in the Country

(f) Thinking Opposition Parties towards Business Unit

(ii) Socio-Cultural Environment: - Influence exercised by social and cultural factors, not within the

control of business, is known as Socio-Cultural Environment. These factors include: attitude of people to

work, family system, caste system, religion, education, marriage etc.

(iii) Technological Environment: - A systematic application of scientific knowledge to practical task is

known as technology. Everyday there has been vast changes in products, services, lifestyles and living

conditions, these changes must be analysed by every business unit and should adapt these changes.

(iv) Natural Environment: - It includes natural resources, weather, climatic conditions, port facilities,

topographical factors such as soil, sea, rivers, rainfall etc. Every business unit must look for these factors

before choosing the location for their business.

(v) Demographic Environment :- It is a study of perspective of population i.e. its size, standard of living,

growth rate, age-sex composition, family size, income level (upper level, middle level and lower level),

education level etc. Every business unit must see these features of population and recongnise their various

need and produce accordingly.

(vi) International Environment: - It is particularly important for industries directly depending on import

or exports. The factors that affect the business are: Globalisation, Liberalisation, foreign business policies,

cultural exchange.

Characteristics:-

1. Business environment is compound in nature.2. Business environment is constantly changing process.3. Business environment is different for different business units.4. It has both long term and short term impact.5. Unlimited influence of external environment factors.6. It is very uncertain.7. Inter-related components.8. It includes both internal and external environment

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IMPORTANCE OF BUSINESS ENVIRONMENT:

An analysis of business environment helps to identify strength, weakness, opportunities & threats. Analysis

is very necessary for the survival and growth of the business enterprise. The importance of business

environment is briefly explained in an analysis below.

(1) Identification of Strength: The analysis of the internal environment helps to identify strength of the

firm. For instance, if the company has good personal policies in respect of promotion, transfer, training, etc

than it can indicates strength of the firm in respect of personal policies. This strength can be identified

through the job satisfaction and performance of the employees. After identifying the strengths the firm

must try to consolidate its strengths by further improvement in its existing plans & policies.

(2) Identification of Weakness: The analysis of the internal environment indicates not only strengths but

also the weakness of the firm. A firm may be strong in certain areas; where as it may be weak in some

other areas. The firm should identify sue weakness so as to correct them as early as possible.

(3) Identification of Opportunities: An analysis of the external environment helps the business firm to

identify the opportunities in the market. The business firm should make every possible effort to grab the

opportunities as and when they come.

(4) Identification of Threats: Business may be subject to threats from competitors and others. Therefore

environmental analysis helps to identify threats from the environment identification of threats at an earlier

date is always beneficial to the firm as it helps to defuse the same.

(5) Exploitation of Business Opportunities: Environment opens new opportunities for the expansion of

business activities. Study of environment is necessary in order to discover and exploit such opportunities

fully.

(6) Keeping Business Enterprise Alert: Environment study is needed as it keeps the business unit alert in

its approach and activities. In the absence of environmental changes, the business activities will be dull and

lifeless. The problems & prospects of business can be understood properly through the study of business

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environment. This enables an enterprise to face the problems with confidence and secure the maximum

benefits of business opportunities available.

(7) Keeping Business Flexible and Dynamic: Study of business environment is needed for keeping

business flexible and dynamic as per the changes in the environmental forces. This will enable the

development of business organization.

(8)Making Business Socially Acceptable: Environment study enables businessmen to expand the business

and also make it acceptable to different social groups. Business organizations can make positive

contribution for maintaining ecological balance by studying social environment.

(9) Ensures Optimum Utilization of Resources: The study of business environment is needed as it

ensures optimum use of resources available. For this, the study of economic and technological environment

is useful. Such study enables organization to take full benefit of government policies, concessions

provided, and technological developments and so on.

(12) Economic policies of the govt: Economic policies, export-import policies, foreign exchange policy,

industrial policy, taxation policy, pricing policy of the govt shows influence on business directly and

indirectly.

(13) Administration policies: every business of the country is affected by the administration policy of that

country. So every business must have the knowledge of the pros and cons of the system.(POSDCORB).

(14) Scientific and technology: the present era is devoted to technological changes and advancement. It is

necessary for every business to have the compete knowledge on techniques.

( source: Francis cherunillum : Business environment).

Problems and challenges:

Through there are many advantages and benefits of studying business environment, there are certain

limitations and if they are not kept in view one may be disappointed. The major imitations are as follows

study of environment does not eliminate uncertainties of future , but helps to reduce surprises and

takes care of them in advance.

It does not guarantee effectiveness of organization.

One may be lost in the information collected too such reliance on it ma result it loss

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Challenges:.

Areas challenges

Macroeconomic stability Even moderate of inflation are a constraint

Taxation High tax rates are largest constraint on

enterprise performance.

Crime and corruption Corruption is high harming domestic

enterprises and for foreign investment.

Access to finance High interest rates and poor access to long

term loans are the most significant

problem.

The legal system Existing commercial laws are poorly

enforced ad the legal infrastructure is week.

Source: Business environment: Vivek metal

Industrial policy

Industrial policy of any country reflects the growth and development of that country as the economic development is largely influenced by the industrial production.the term industrial policy refers to all objectives, principles, rules, regulations and procedures concerning the industrial development, location and functioning of industrial establishments. IP indicates the relationship between government and business and is therefore considered as the most important document of the country.

Objectives: To clearly demarcate areas of production under public , private and joint sectors. To provide guidelines for importing foreign capital. to optimize production. to correct imbalance in the growth and development of industries. to prevent formation of combination monopolies and concentration of wealth in the hands of

few entrepreneurs. To take necessary measures to solve the problem of unemployment. To bring about diversification of industries.

To define the role of pvt sector and its active participation

1948 IP:

On 6th April 1948 immediately after independence govt introduced the industrial policy resolution. this outlined the approach to industrial growth and development.

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Features:

To increase production and ensuring its equitable production. To maintain mixed economy. Play a vital role in the economic development of the country.

1) Exclusively monopoly of the central government: The following industries are to be the exclusive

monopoly of the central government.

The production and control of atomic energy.

The manufacturer of arms and ammunition.

The ownership and management of railway transport.

It was also stated that during emergency the government can take over any

industry in which will be considered essential from the point of national defense and security of the

nation.

2) Exclusive responsibility of the state: this category covers the following six industries for which new

undertakings would be established only by the state.

Coal

Iron and steel

Aircraft manufacturing

Ship-building

Mineral oils

Manufacturing of telephones, telegraph, and wireless apparatus.

3) Basic industries subject to central government: this category consisted of those industries which were

of such importance that the government felt it necessary to plan and regulate them.

Salt Automobiles Tractors Prime movers Electric engineering Heavy machinery Machine tools Minerals Power and alcohol Air and sea transport Non-ferrous metals Rubber manufacturing

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Heavy chemicals Fertilizers Cement and sugar Cotton Electro chemicals Paper and news print industry.

4) Private sector responsibility: The rest of the industrial field was left open to private enterprises,

individuals, and cooperatives.

i) Role of small-scale and cottage industries: the IP resolution of 1948 emphasized on the

development of small-scale and cottage industries because through the development of these.

II) Labour management relations and remuneration: It emphasized that coordinal

relationship between workers and employers is essential for industrial peace and progress of the

country.

III) Attitude towards working capital: for making rapid industrial growth possible, it favored

foreign capital and enterprises. But the entrance of foreign enterprises was to be carefully

regulated in the national interest.

Advantages:

Different labour laws such as minimum wage act, employee state insurance act passed or

welfare for workers.

A mixed economy pattern was adopted.

Disadvantages:

The complete development and progress of private sectors.

Red tapism in public sectors.

coordination problem between government and public sectors.

( source : WWW.Google.co.in and fancies Cherunillum)

Industrial Policy 1956

A number of developments had taken place in the country after the adoption of the industrial policy

resolution of 1948. These developments necessitated the announcement of the policy of 1956.

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The enactment of the constitution of India which guarantees certain fundamental rights and

enunciates the directive principles of state policy, adoption of socialistic pattern of society by the

parliament and the launching of the first five year plan paved the way for a new industrial policy. The new

policy was, therefore, announced on30th April, 1956, replacing the resolution of 1948. The industrial

policy resolution, 1956 remained the basic plan of the industrial policy until 1991.

Objectives of Industrial Policy 1956:

The main objectives of the 1956 policy resolution are:

1. To accelerate the rate of economic growth and speed up industrialization

2. To develop heavy industries and machine making industries.

3. To prevent private monopolies and concentration of economic power in different fields in the hands

of a few individuals.

4. To expand the public sector,

5. To build up large and growing cooperative sector \

6. To reduce disparities in income and wealth.

Provisions of Industrial Policy 1956

The main provisions of the industrial policy resolution of 1956 were as follows

1. New Classification of Industries: The new policy resolution gives a new classification of

industries in India. The resolution classified the industries into following three broad categories: I)

Schedule A,

ii) Schedule B,

iii) Schedule C

I) Schedule A Category: This schedule includes chose industries which were exclusive

responsibility of the state. Under schedule A, Following 17 Industries were listed these are

1) Arms and ammunition and allied items of deference equipments

2) Atomic energy.

3) Iron and steel

4) Heavy casting and forgings of iron and steel

5) Heavy plant and machinery required for iron and steel production, for mining, for machine

tool manufacture and for such other basic industries as may be specified by central

government

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6) The electrical plant including large hydraulic and steam turbines.

7) Coal and lignite, gypsum, sulphur, gold and diamond

8) Mining and processing of copper, lead zinc, tin, molybdenum and wolfram

9) Minerals specified in the schedule to the atomic energy order, 1953

10) Aircraft

11) Air transport

12) Railway transport

13) Ship-building

14) Telephones

15) Telephone cables

16) Telegraph and wireless apparatus

17) Generation and distribution of electricity

2. Schedule B Category: Schedule B included those industries which were to be mainly owned and

managed by the State. This category includes in the following 12 industries:

All other minerals except minor minerals as defined in schedule 3 of the minerals

concession rules, 1949.

aluminum and other non-ferrous metals not included in schedule A

machine tools

ferro-alloys and tool steels.

Basic and intermediate products by chemical industries such as manufacture of other

essential drugs

Fertilizers

Synthetic rubber

Carbonization of coal

Chemical pulp

Road transport

Sea-transport

3. Schedule C Category: Schedule C included all the remaining industries which are not included in

schedule A and schedule B. the development of industries of this category was left to the private

enterprises.

2. Non – Discriminating treatment to private sector: The government took some positive steps to

facilitate the development of private sector as it has been assigned an important place in the Indian

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economy. Private sector was encouraged by developing essential infrastructure facilities such as electricity,

transport and by appropriate policies such as monetary and fiscal policies.

3. Important place to small-scale and village industries: Since small – scale and village or cottage

industries have an important place in the national economy; the state has reserved production of some

goods exclusively for the small-scale industries.

4. Removal of regional industrial disparities: The resolution of 1956 aimed at reducing regional

disparities in the levels of economic development. The benefits of industrialization may be shared equally

and fairly by people in different regions of the country, therefore, balanced industrial development was to

be achieved.

5. Appropriate Amenities for industrial Labour: The industrial policy resolution of 1956 stressed the

importance of improving the living and working conditions of industrial labour and continually improving

their efficiency. Workers participation in management was suggested in the resolution, so that the workers

may be associated with the management of the industrial establishments and may consider themselves as a

part and parcel of the industrial structure of the country.

6. Attitude towards foreign capital: State policy in respect of foreign capital in the development of

industries in India was to be the same as enunciated in the policy of 1948.

Feature of Industrial Policy 1991:

Policy Features

i) Industrial licensing: Industrial licensing is governed by the industries act, 1951. The policy has

undergone a number of modifications over the years. Industrial licensing policy and procedures

have also been liberalized form time to time.

Now with the strong and competitive industrial base, the new industrial policy of 1991 has abolished all industrial licensing,. Irrespective of levels of investment, for all industries except 18 specified industries, these 18 industries would continue to be subject to compulsory licensing for reasons related to security and strategic concerns, social reasons, problems related to safety and over riding. The government further reduced the industries which were under compulsory licensing to 14 industries. It was reduced to 9 in 1997-98 and later to 5. Now they are reduced to 3.

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ii) Foreign Investment: From the very beginning, foreign investment in India was regulated by the

government. Thus for any foreign investment, prior approval of the government was necessary. All

these were resulting in unnecessary delays and thus hampered the decision-making in business.

C. Foreign technology agreements

Authentic permission will be given or foreign technology agreements in high priority industries (Annex III) upto a lumpsum payment of Rs 1 crore, 5 per cent loyalty for domestic sales and 8 per cent for export, over a 10 year period from date of agreement pay 35% or 7 years pay 5%.( from commencement of production.

iii) Public sector policy: regarding public sector the govt will ensure that the public sector plays a vital

role in developing socio-economic scenario of the country.

iv) According to the policy statement only 8 industries were refered for the public sector. These are as

follows

arms and ammunition

-Atomic energy

coal

mineral oils

mining of iron

mining of copper

minerals according to schedule III

Railway.

The public enterprises which were chronically ill referred as the board of industrial and financial reconstruction (BIFR). After this list was reduced to 3 remaining 5 are under BIFR

VI) MRTP Act: as per the MRTP Act any firm with assts over a certain size was classified as MRTP

firms and such firms were allowed to start only selected industries on a case by approval. But the govt felt

that this MRTP limit was become deleterious in its effects on the industrial growth of the country.

Functional areas:

Liberalization

Expansion and diversification

Economy development

Indian industry more competitive

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New business opportunity

Introduced MRTP act.

Permitting 51% share of foreign equity

Moderinization economy.

Five year Plans:

The economy of India is based in part on planning through its five-year plans, developed, executed

and monitored by the Planning Commission. After independence, India was in dire conditions and

needed to start acting soon .Some of the problems necessitated need for an immediate plan .

Vicious circle of poverty

Need for Rapid industrialization

Population pressure

Development of Natural resources

Capital Deficiency & Market imperfections

First Five Year Plan (1951-1956)

Introduced by the then PM Pt. J. Nehru between the period 1951-56.The one responsible --

Planning Commission .

Objectives:

improve living standards of the people in India which was possible by making judicious use of

Natural Resources.

The segregation

Industrial sector

Energy, irrigation

Transport, Communications

Development of Agri & community

The growth in GDP achieved by India was 3.4% p.a.

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Second Five Year Plan (1956-1961)

Objectives:

To increase the national income by 25% .

To make the country more industrialized

Development of the public sector

increase employment opportunities so that every citizen gets a job.

Achievements:

Five steel mills at Bhilai, Durgapur, and Jamshedpur .

Production of coal increased .

More Railway lines were added in the north east

The Tata Institute of Fundamental Research – established in 1957 as a research institute

Third Five Year Plan (1961-1966)

Objectives:

More stress to agriculture

Subsidies 

Sufficient help

To increase the national income by 5% per annum

Minimizing rate of unemployment

To establish equality among all the people of the country

Achievements:

The Panchayat Organization was formed .

Many primary schools were started in rural areas

State road transportation corporations were formed

Many cement and fertilizer plants were also built

Problems faced:

CHINA-Indian War exposed weaknesses in the economy and shifted the focus towards the Defense

industry. In 1964, India fought a war with Pakistan. The war led to inflation and the priority was

shifted to price stabilization. GDP rate during this duration was lower at 2.7%.

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Fourth Five Year Plan (1969 to 1974)

At this time Indira Gandhi was the Prime Minister. The Govt. nationalized 19 major Indian banks.

Objectives:

. To reform and restructure its expenditure agenda (Defense became one major expense)

To facilitated growth in exports

To alter the socio economic structure of the society

Achievements:

Spending on war efforts reduced industrial spending

Tested the first nuclear weapon with Smiling Buddha in 1957

Food grains production increased to bring about self sufficiency in production

Energy Problems faced:

India was attacked in 1962 followed by another one in 1965.

Worse – India faces drought.

Fifth Five Year Plan (1974 to 1979)

Objectives:

To reduce social, regional, and economic disparities

Reducing rate of Unemployment both in Urban & Rural sectors

Encourage Self-employment

Encourage growth of Small scale industries

Prevent over population

Achievements:

Food grain production was above 118 million tons due to the improvement of infrastructural

facilities

Sixth Five Year Plan (1980 to 1985)

6th Five Yr Plan -- Known as Janata Govt. Plan .

It’s Existence – Tourism industry increased, I.T sector develops!!!!!

The issues – Rajiv Gandhi being the PM, & hence emphasized on Industrial Development Some

agreed, but the communist groups protested

Objectives:

Aimed for rapid Industrial Development

Improve the Tourism Industry

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Family Planning concept introduced, but not forcibly

To introduce min Needs Program for the poor

Achievements:

Planned GDP growth - 5.1% a year, achieved 5.4.

Speedy Industrial development

The transport and communication system also improved

Government investments in the Indian healthcare sector .

Seventh Five Year Plan (1985 to 1989)

Congress comes into power .

Objectives:

To upgrade the industrial sector

To generate more scope of employment

Improved facilities for Education to girls

Increase productivity of small and large scale farmers

Achievements:

Using modern technology

Full supply of food, clothing, and shelter

Making India an Independent Economy

Anti-poverty programs

Problems faced: 1989-91 was a period of political instability in India & hence no Five Yr Plan was

implemented.

Eighth Five Year Plan (1992 to 1997)

Objectives:

Modernization of Industrial Sector

The plan focused on technical development

Strengthening the infrastructure

Involvement of Panchayat raj, Nagarpalika, N.G.O's & people's participation

Many flawed plans & Policies were rectified in this plan. During this period India was the only

lucky one to become a member of the WTO (1st Jan 1995)

Ninth Five Year Plan (1997 to 2002)

Objectives:

To prioritize rural development

To generate adequate employment opportunity

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To stabilize the prices

To ensure food & nutritional security .

To provide for basic infrastructural facilities

Water

Health

Transport

Education

Encourage Women improvement

Achievements:

To create a liberal market for Private investment

India managed to bring together the giant power, support & effort of public, private & all level of

Govt.

Tenth Five Year Plan (2002 to 2007)

The Tenth Five Plan will cover a period from 1st April 2002 to 31st march 2007. The Tenth plan

provides an opportunity at the start of the new millennium, to build upon the gains of the past but

also to address the weakness that have emerged.

OBJECTIVES:

Rate of growth of national income

Growth rate of per capita income

Improvement in Quality of life

Reduction in poverty

Provision of gainful employment

Provision of universal education

Reduction in gender gaps

Reduction in growth of population

Increases in Literacy Rate

Reduction in Infant Mortality Rate

Reduction in Material Mortality Ratio (MMR)

Environmental Protection

Provision of Drinking Water

Growth, Equity and Sustainability

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Balanced Developed in all States

Eleventh Five Year Plan (2007-2012)

The National Development Council has approved the 11th Five Year Plan for the period from 2007

to 2012. The plan document is entitled “Towards Faster and More Inclusive Growth”.

OBJECTIVES:

Infrastructure

• Roads

• Ports

• Airports

• Railways

• Power

• Irrigation

• Telecom/IT

Education

Youth Affairs

Sports and Physical Education

Health

Women and Children

Income and Poverty

Environment

12th Five Year Plan

The Government of India (2012-17) is under drafting which aims at the growth rate at 9.56%.With the

deteriorating global situation, the Deputy Chairman of the Planning Commission Mr Montek Singh

Ahluwalia has said that achieving an average growth rate of 9 per cent in the next five years is not possible.

The Final growth target has been set at 9% by the endorsement of plan at the National Development

Council meeting held in New Delhi. Importance for Science and technology and employment.

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Case Study: Corporate social responsibility

In January of last year the S.S vulgas an oil tanker of the big dirty oil company ran around in the arena lust

north of van counter, spilling of gallons of crude oil the waters and on to the beaches of British Columbia

and southern Alaska. The damage to the industry the ecology and the quality of life of the local residents is

in calculable but in any case will require many millions of dollars for even the most minimal clean up.

96 the ship struck a small atoll well- arkedon the navigational mass but it was a dark night and the boat was

well off course. On further investigation, it was discovered that the captain of the vulgas, Mr.vulgas, Mr.

slosh had been drinking heavily, eaving the navigation of the ship to his forst mate, Mr.mudd, he retired to

his cabin, to “sleep it off”, Mr.Mudd had never taken charge of the ship before and it is now clear that he

misread the maps, misjudged the waters, maintained a speed that was inappropriate and the accident

occurred. Subsequent inquiries showed the captain slosh had been arrested on two drunken driving

convictions within months of the accident. The vulgass itself, a double hulled tanker, was long due for

renovation and it was suggested, would not have cracked up if the hull had been trebly reinforced, as some

current tankers were.

R.U.Rich the chief executive officer of big dirty oil declared the accident a “Tragedy” and offered two

million dollars to aid in the clean up. The premier of British Columbia was outraged. Environmental groups

began a consumer campaign against big dirty oil, urging customers to cut up and send their big dirty oil

credit cards in protect. in a meeting to the shareholders just last month CEO rich proudly announced the

largest quarterly profit in the history of the big dirty oil company. He dismissed the protects as the

outpourings of greenies and others fanatics and assured the share holders that his obligation was and

would always be, to assure the highest profits possible in the turn oil of today’ market.

Questions:

1) Who is responsible for this?

2) Against whom should criminal charges be leveled?

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