Business and Legal Environment
Course Content
• Unit – I 08 hours– Meaning of Business Environment, – Economic and Non-economic factors influencing
business and their interaction, – Economic systems, – Historical Perspective on public control of business, – Constitutional framework of state control of business.
• Unit – II 12 hours– Planning and Economic Policies
• Unit – III 24 hours– Business Legislation
• Unit – IV 12 hours– Overview of Economic Legislation
Books Recommended
• Kuchhal, M.C., Prakash, Deepa(2009), Business Legislation for Management, Vikas Publishing House
• Saleem, Shaikh (2010). Business Environment, 2nd edition, Pearson Education.
• Tulsian, P C(2009) , “Business Laws,” Tata Mc Graw Hill, New Delhi
UNIT - I
Meaning of Business Environment
• A set of surrounding factors/ conditions that affects (helps/ hinder) the functioning/ development of the business/ organization.
Why Study Business Environment
• Development of broad strategies to ensure sustainability
• To foresee the impact of socio-economic changes at the national and international levels on firm’s ability
• Analysis of competitor’s strategies and formulation of effective counter measures
• To keep oneself dynamic
What do you mean by Business Environment???
The environment of any organization is “ the aggregate of all conditions, events and influences that surround and affect it.”
Characteristics of Business Environment:• Complex• Dynamic• Multi-faceted• Far- reaching impact
Nature of Business Environment
• Aggregative: totality of all the external forces which influence the working and decision making of an enterprise.
• Inter-related: various elements are closely interdependent and any change in one element affects the other elements.
• Relative: it differs from country to country and even region to region.
Contd.
• Inter-temporal: it changes over time, specially in long run, it changes certainly.
• Uncertain: business environment is volatile so it becomes very difficult to forecast.
• Contextual: business environment provides the macro framework within which the business firm (a micro unit) operates.
Significance of Business Environment
• First mover advantage• Early warning signal• Customer focus• Strategy formulation • Change agent• Public image
• Continuous learning
Types of Environment
• Internal Environment
• External Environment– Micro environment– Macro environment
Economic Non Economic
Internal Environment
Refers to all the factors that are within an organization
which impart strengths or cause weaknesses of
strategic nature.
Controllable factors. These include:
Value system
Mission and Objectives
Management Structure and Nature
Components of Internal Environment
Human Resources
Company Image and Brand Equity
Other Factors
Physical Assets and Facilities
R & D and Technological Capabilities
Marketing Resources
Financial Resources
Factors of Internal Environment
Factors
culture
Mission & objectives
Top management structure
Power structure
Company image & brand equity
Human & other resources
External Environment
• Includes all factors outside the organization which provide opportunities or pose threats to the organization
• Uncontrollable factors
• Consists of Micro and Macro environment
Micro Environment
“It consists of the factors in the company’s immediate environment that affect the performance of the company”.
Micro Environment Factors
Suppliers
Customers
Marketing Intermediaries
Competitors
Publics
Financial Community
Elements of Micro Environment
Micro Environment
customers
Competitors
suppliers
Marketing intermediaries
financiers
publics
Micro Environment of a typical car manufacturer
ComponentsSupplier
Customers
Car DealersCompetitors
Stakeholders
CarManufacturer
PotentialSupplier
PotentialCustomers
Customers
PressureGroups
ForSupplies
ForCustomers
PotentialDealers
Government
LocalCommunities
Macro Environment
It comprises general trends and forces that may not immediately affect the organization but sooner or later will alter the way organization operates.
Macro Environment :- Economic Non Economic
Economic and Non-economic factors influencing business and their interaction
Economic & Financial Environment
• Nature of economic system
• Economic structure• Economic policies• Economic
infrastructure
Economic Environment
– Economic stages that exists at a given time in a country – Economic system that is adopted by a country for example.
Capitalistic, Socialistic or Mixed Economy– Economic planning, such as five year plans, budgets, etc.– Economic policies for example, monetary, industrial and
fiscal policies– Economic Indices such as National Income, Per Capital
Income, Disposable Income, Rate of growth of GNP, Distribution of Income, Rate of savings, Balance of Payments etc.
– Economic Problems– Functioning of economy
Non Economic Environment
– Regulatory Environment
– Socio- Cultural Environment
– Demographic Environment
– Technological Environment
– Political Environment
Chapter 1 Slide 25
Non- Economic Environment
Legal and Regulatory Environment• People are willing to start new businesses if they
believe that the risk of losing their money isn’t too great.
• Part of that decision is affected by how governments work with businesses.
• Governments can do a lot to lessen the risk of starting and running a business through laws
Freedom of ownership Contract laws Elimination of corruption
Macro Environment
• Regulatory Environment
– Constitutional framework
– Policies relating to pricing and foreign investment
– Policies related to the public sector, SSIs, development of backward areas and control of environmental pollution
Non- Economic Environment
• Cultural Environment
– Social Customs & Rituals and practices
– Lifestyle patterns
– Family structure
– Role & position of men, women, children and aged in family & society
Non- Economic Environment
Demographic Environment
Growth of population
Age Composition
Life Expectancy
Sex Ratio
Fertility and Mortality rates
Inter-state migration
Non- Economic Environment
Technological Environment
Technology refers to inventions or innovations from applied science or engineering research.
The use and application of technology affects productivity. Productivity is the amount of output you generate given the amount of input.
The more you can produce in any given period of time, the more money you are worth to companies.
Sources of technology Technological development Impact of technology
Political Environment
Political parties in power Political Philosophy
International Environment
Important factors that operate at global level which have an impact on organization are:
Growth of world economy
Distribution of world GDP
International institutions IMF,WTO ILO
Economic relations between nations
Global human resource-nature and quality of skills, mobility of labor
Global technology and quality standards
Global demographic patterns
WTO and its relevance for Indian companies
The main guidelines of WTO are: • Trade without discrimination• Growing market access• Promotion of fair competition
The response of Indian government to WTO constitutes the following actions
• Reduction of tariffs• Opening Indian markets for Global Players• Rationalizing industrial licensing and removal of
controls on the size of operations
WTO and its relevance for Indian companies
The impact of WTO on Indian companies is likely to include the following : • Increasing competition• Consolidation of activities in core competence areas• Improvements in infrastructure to negate structural disadvantages.• Shake out of minor players and M&As to gain global scale.
Overview of Business Environment
MACRO ENVIRONMENT
ECONOMIC Environment
MICRO ENVIRONMENT
BUSINESS
Internal Environment
Values, Mission & Objectives.
Human Resources,Co. Image & Brand Equity
TECHNOLOGICAL FACTORS
MARKETING INTERMEDIARIES
DEMOGRAPHIC FACTORS
SOCIAL CULTURAL FACTORS
Non - Economic Environment
Economic Systems
Meaning
• It is a system designed by a nation to utilize its resources for the purpose of satisfying the needs and wants of its people.
Basic units of an Economic System
• Household
• Firm
• Industry
• Government
Characteristics
• National entity: economic system always covers the entire country.
• Institutional: it comprises various institutions which a nation has devised and adopted for satisfying the needs of its people. Such as firm, industry, govt., economic planning.
Functions of An Economic System
• What to produce?
• How to produce?
• For whom to produce?
• Choice between current needs & future needs
• Economic growth
Problems All Economies Face
Scarcity forces all countries to answer these 3 questions
Scarcity leads to conflict
Do All Countries Answer These Questions The Same Way?
• No• Conflicts arise in all economies
Different Countries Use Different Systems To Answer These
Questions
Major Economic Systems Include:Market /CapitalisticCommand/ Socialistic Mixed Economic System
Types of Economic Systems
• Capitalist:
• Socialism:
• Mixed Economy:
Contd.
• Interdependence: different institutions are interdependent and interacting.
• Scarcity of resources: limited resources in comparison to the demand for these resources.
• Need satisfaction:
• Dynamic: some economic systems change slowly while others change fast.
Market Economic System
• Also known as Capitalism, Free Market, or Free Enterprise
• Defined: ownership of resources and means of production by individuals, basically free of government control in deciding goods and services produced
• Ownership of Resources: Productive resources privately owned and operated
Market Economic System
• Allocation of Resources: Resources are obtained through the lure of profits in the market
• Role of Government: Government only tries to make sure there is some competition and provides some public goods
Market Economic System• Goals: Profit for individuals, people are
motivated by economic rewards• Methods: Competition, supply and demand• Characteristics: Private property,
specialization, minimal government regulation • Political System: Democracy/Parties• Current World Examples:
Switzerland Canada Australia Chile Argentina South Africa
Command Economic System
• Defined: An economy in which all of the major economic questions are answered by a central authority. The two main forms of Socialism are: -– 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.
– Totalitarian Socialism:- This form is also known as Communism. Under this, people are obliged to work under the directions of Government.
• Ownership of Resources: All Productive resources are owned and operated by the government
Command Economic System
• Allocation of Resources: Central planning group directs all resources
• Role of Government: Government makes all decisions
Command Economic System
• Goals: Equal distribution of income• Methods: Revolution to gain control, no
opposition forces allowed • Characteristics: no private property, one
political party• Political System: Totalitarian• Current and Former World Examples:
Cuba North Korea China Former Soviet Union
No Pure System Is Perfect: Market
Strengths:• Able to change
gradually• Individual freedom for
all• Lack of government
Interference• Variety of goods and
services• High consumer
satisfaction• Promotes economic
freedom and growth
Weaknesses:• Does not protect the
young, sick, old who cannot work
• Market failures happen leading to lots of ups and downs
• Doesn’t promote economic security, equity, or efficiency as well as other systems
No Pure System Is Perfect: Command
Strengths:• Things can be
changed dramatically in a short time
• Promotes economic security, efficiency, and equity
Weaknesses:• Does not meet the needs
and wants of consumers• Lacks effective incentives
to get people to work• Needs a large
bureaucracy which consumes resources
• Inflexible for day-to-day changes
• New and different ideas discouraged, people can’t be individuals
• Doesn’t promote: economic growth or freedom
If No Pure System Is Perfect Then What?
• Most countries in the world are a blend of different elements
• They are called mixed or combination systems
• Market Command
Economies
Mixed Economic System
• Defined: A system in which economic questions are answered by a combination of command and market methods
• Ownership of Resources: Basic utilities, other important resources government owned and operated; the rest privately owned and operated
Mixed Economic System
• Allocation of Resources: Government plans where resources go for key industries
• Role of Government: Government directs its plans for the biggest, key industries only
Mixed Economic System• Goals: Equal distribution of income• Methods: High Taxes• Characteristics: Limited competition, lots of
government planning, many services paid for by government: health, education, welfare
• Current World Examples:
England Germany Sweden Egypt
France Italy Hungary Mexico
• Political System: Socialist democracy, political parties voted in
Mixed Economic System
• Strengths and Weakness vary by country
• Generally these countries experience the same ups and downs that market economies like the United States experience
Historical Perspective on public control of business
• Civilization• Monarchy• Tax Collection• Monarchy to Parliamentary Set-up• Societal control• Parliamentary dynamics resulting in
inclination towards rich candidate • Resultant entrepreneurship promotion• Low labour internsive units
CONSTITUTIONAL FRAMEWORK OF STATE CONTROL OF BUSINESS.
Characteristics of Indian Constitution
1) Sovereignty: India is an independent republic and not subordinate to any other nation.
2) Democracy: govt. is run by representatives who are elected by the people of the nation.
3) Secularism: complete freedom to its citizen to preach & practice their religion.
Contd.
4) The parliamentary system: ministers and the prime minister are answerable to the parliament.
5) Separation of powers:
Federal System of the Govt.
• Meaning: where the powers of the central govt. and State govt. are well-defined.
• Division of powers between the Central & State govt. has been done through three lists : – The Union List– The State List – The Concurrent List
Functions of the State
Functions of State
The basic functionsActivities that are Undertaken only by the State
Intermediate FunctionsGovt. can work in collaboration with civil Society & markets
Activist functionsActive participation of Govt. for promoting markets
The Basic Functions
i. Providing pure public goods
ii. Defense
iii. Law & order
iv. Property rights
v. Public health
vi. Protecting the poor
vii. Macroeconomic stability
viii. Antipoverty programmes
ix. Disaster relief
Intermediate Functions
i. Addressing externalities:- basic education, environmental protection
ii. Regulating monopolies:- consumer protection, financial regulations.
iii. Providing Social Insurance:- pensions, family allowances, unemployment insurance.
Activist Functions
i. Coordinating private activity
ii. Fostering markets
iii. Asset redistribution
Economic Roles of the Govt.
Economic roles of Govt.
Regulatory roles
Promotional roles
Entrepreneurial roles
Planning roles
Regulatory Roles
i. Grant of license, restriction on location of industry
ii. Regulating the conduct of business ventures
iii. Controlling the accrual & disposal of business income
iv. Regulating the relationship with its stakeholders
Promotional Roles
i. Development of infrastructure
ii. Assistance by way of subsidies
iii. Allocation of scarce resources
iv. Fiscal, monetary and other incentives
Entrepreneurial Roles
• Govt.’s participation in business through public ownership and management of industrial and commercial undertakings.
• Balanced regional development
• Promotion of capital intensive industries
Planning Roles
• Socio-economic development
• Social justice
• Balanced regional development
• Rapid industrialization
• Employment generation
• Development of agriculture & small scale industries
Rationale of State Intervention
1) Legal framework
2) Imperfect competition
3) Externalities
4) Social objectives
5) Industrial base
6) Balanced regional development
7) Self reliance
Thank You