01[1]. business environment
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Introduction
Business environment is becoming highly complex,unstable and unpredictable in the globalize economyof today.
The environment is the result of changing social and
economic and political forces which createschallenges, opens up new opportunities and affectsthe strength and weaknesses of various businesssegment.
Business contributes to economic growth, createsemployment opportunities and provide all kinds ofgoods and services for our consumption.
Business operates in a risky atmosphere.
It is an important institution in society.
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Meaning of Business
In general business refer to all activities that are beingorganized and carried on with an important purpose,viz; earn profit by supplying goods and services toconsumers to satisfy their felt needs.
Modern business covers a complex field of industryand commerce which involve activities related to bothproduction and distribution. Business include activitiesconnected with production, trade, transport, finance,banking, insurance, advertising, and certain otheractivities related to industry and commerce.
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Business Objectives Or Goals
Business Objectives
Maximize Total Profits Economic Self Sufficiency
Financial Soundness
Maximize Welfare andEmployee Satisfaction
Long Run SurvivalService to Society
Dominate Market
Maximize Sales Revenue
Minimize Cost
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What Is Business Environment ?
Business Environment is
a relationship between a
businesss actions andits environment.
Environment is the
surroundings of a
business by which
business is influenceddirectly or indirectly.
Business Environment
[P] Political/Legal Factors
[E] Economic Factors
[S] Social/Cultural Factors
[T] Technological Factors
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Nature of Business Environment
Risk and uncertainty Business firm works under risk and uncertainty,risk depends upon possibility and uncertainty is unmeasurable risk.
Profit Maximization Profit is the main incentive, motivator, strongsustainer, objective indicator. The main aim of business is profitmaximization and cost minimization.
Competition Competition in price, good quality, satisfaction ofconsumer, etc. competition in business protect the consumer. Itprovides best quality product at reasonable rate.
Technology oriented The rapid technological change has become a
pre-condition for the survival of a company.
Change The business has invented the strategy of making changes inproduct quality, design or packaging.
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Components of Business
Environment
Internal Environment
Business
External Environment
Micro Environment Macro Environment
Non-Economic EnvironmentEconomic Environment
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I. Internal Environment
The internal factors are generally regarded as controllable factorsbecause the company has control over these factors.
Determinants of internal environment :
Mission and vision of the organization
Management philosophy and strategy
Industrial relations
Corporate culture and values
Line and staff relations
Governance standards and codes
Quality central system
Team spirit among employees
Work culture and socio-economic background of employees
Job design and coordination
Quality of internal communication
Compensation system and career progression of employees
Central system of the organization
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II. External Environment
External environment of business consist of institutions,organizations and forces operating outside the Company. Broadlyexternal environment ofbusiness may be classified into (A) MicroEnvironment and (B) Macro Environment.
The micro environment refers to such players whose decisions
and action have a direct bearing on the Company.
The most prominent performs in the micro environment are thefollowing:
Suppliers of inputs
Workers and their unions
Customers Market intermediaries
Competitors
Public
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A. Micro Environment
Workers &
Their Unions
Customers
Market
Intermediaries
Competitors
Publics
Input
Suppliers
Business
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B. Macro Environment
Business
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Determinants Of Business
Environment
I. Economic policies : Industrial Policy
Trade Policy
Monetary Policy
Fiscal Policy
II. Political Conditions : Political Stability
Corruption, rule of law and governance includingbusiness law and regulations
III. Resources : Natural resources
Human resources
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1.1 Industrial Policy
The new Industrial Policy of 1991 has de-regulated the industrialeconomy in a substantial manner.
It has abolished all industrial licensing except for certainindustries related to strategic and social concerns.
The number of industries reserved for the public sector has been
reduced to 3 which implies that the public sectors role in futurewould be very much diminished.
On the recommendations of the Raghavan Committee thegovernment has decided to replace the MRTP Act by a newcompetition law.
The new industrial policy has also liberalized import of foreign
capital and technology. In the case of high investment priorityindustries, approval of foreign investment is automatic.
Guidelines have also been announced for the expeditiousapproval of foreign direct investment in other industries.
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1.2 Trade Policy
Trade policy is an important factor in the economic environmentofbusiness.
The basic objectives of trade policy are to promote exports,regulate imports, improve terms of trade, enhance exportcompetitiveness and create conditions of export-led growth.
Export promotion is generally attempted through internationalmarket research support, credit facilities, infrastructure facilities,fiscal concessions and incentives to exporters, informationservices, international trade fairs and exhibitions, importentitlements, foreign exchange facilities, transportation prioritiesand procedural simplification.
Import regulation is monitored through a structure of tariff rates,quotas, anti-dumping and counter vailing duties and productquality and safety norms.
The policy is substantially conditioned by WTO agreements andcommitments and unilateral and multilateral trade relations.
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1.3 Monetary Policy
By monetary policy we mean the regulation of the money supply and thecontrol of the cost and availability of credit by the central bank of thecountry through the use of deliberate and discretionary action forachieving the objectives of general economic policy.
The main objectives of monetary policy are:
Maximum feasible output
High rate of economic growth
Fuller employment
Price stability
Greater equality in the distribution of income and wealth
Healthy balance of payments
Instruments of monetary policy are the following:
Open market operations Bank rate policy
Reserve requirement charges
Selective credit controls
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1.4 Fiscal Policy
This policy refers to the process of shaping taxationand public expenditure in order to dampen the swingsof the business cycle and the contribute to rapideconomic growth with high employment and stable
prices. This policy when mismanaged leads to fiscal
imbalances which at times become unsustainable.
At present Indias fiscal situation is mostunsatisfactory.
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2.1 Political Stability
Firms will be directly affected by the actions ofgovernment and other political events.
The kind of political environment is conducive tobusiness activity. Besides, the factor of political
stability is important. In Countries like Afganistan and Iraq, business activity
has suffered a lot due to political instability.
Political system in India is far more stable than in
these countries. In India, due to criminalization of politics in certain
states, the business activity relatively unsafe in them.
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2.2 Corruption, rule of law and governance
including business law and regulations
Production in a market economy take place in a wide variety ofbusiness organizations. However, the bulk of economic activity inthe industrial sector takes place in corporations which are set upunder the provisions of the Company Law.
The Contract Act provides the rule for systematic exchange
transactions. The country has legislations like the Monopolies and Restrictive
Trade Practices Act (MRTP Act) and the Foreign ExchangeRegulation Act (FERA). Both are restrictive in nature. Theindustries Act passed in 1951 aimed at both the development andregulation of industries in private sector.
The SEBI Act now empowers SEBI to regulate the securitiesmarket. It is thus clear that even in a market economy like oursthe modern corporate business is not entirely free. Its activitiesare governed by various legislations which may be eitherfacilitatory or restrictive in their nature.
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3.1 Natural Resources
Natural resources covering available land, forests, minerals,fuels, rivers and water bodies and environment quality are amajor determinant of a countrys potential output.
These are the gifts or endowments of nature.
The availability of natural resources by itself does not guarantee
growth; it is their utilization by other factors of production likelabour and capital that leads to growth.
Availability and use of natural resources has had a great impacton the growth of such countries as Canada, USA, Norway andAustralia.
Countries like Japan, which have deficient or little natural
resources, have to spend heavily on the import of necessary rawmaterials or make foreign investment for their economic growth.
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3.2 Human Resources
Human resources refer collectively to the quantum andquality of the workforce and are among the keydeterminants of economic growth.
The number of people in the work force directly
depends on the population size and structure as wellon the flows of migration and immigration.
The quality of human resources depends uponeducation, training, skills, attitudes towards work,desire for self-improvement and even cultural outlookand is reflected in its efficiency and productivity.
Productivity of human resources further depends uponthe organizational culture and system, managerialeffectiveness, motivation and the overall workenvironment.