business environment
TRANSCRIPT
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UNIT ONE
BUSINESS ENVIRONMENT
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UNIT ONE: SYLLABUS Components and Significance of Business
Environment, Factors effecting environment of Business
Economic factors and its Components Cultural factors and its impact on business Social Environment and its impact on Purchasing and
Consumption Political Stability, Sovereignty and its impact on the
returns of Business Technological and its impact on internationalizing the
business activities Legal environment and External Factors Influencing
Business Environment Dimensions of International Business Environment
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Components and Significance of Business Environment
A business environment comprises a number of environmental factors which have to be considered while making business policy.
Any change in those factors of the environment is bound to lead to corresponding changes in the business policy of the organization.
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Internal factors of business
The internal environment consists of large number of factors which contribute to success or failure of an organization. These comprises of strength and weakness of the organization.
These important factors are Organizational resources Research and development / technological
capabilities Financial capability Marketing capability Operational capability
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External factors affecting business
The environment includes the factors outside the firm
which can lead to opportunities or threat to the
firm
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MY BUSINESS
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Cultural factors and
its impact on business
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Culture and business
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Culture and business
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Culture and business
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Culture and business
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Culture and business
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Culture and business
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What is culture?????
Now are we in the position to define
culture?
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Cultural factors and business
Communicable knowledge, learned behavior passed on from generation to generation is called as Culture.
Culture enables people to live together in a society within a given geographic environment, at a given state of technical development and at a particular moment in time
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Components of Culture
Language
ReligionSocial
Organization
Technology and
Material Culture
Politics Law
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Dealing with different cultures
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Examples of Cultural Factors across the world• Never touch the head of a Thai or pass an object over it.
The head is considered sacred in Thailand
• Avoid using triangular shapes in Hong Kong, Korea and Taiwan. It is considered a negative shape.
• The number 7 is considered bad luck in Kenya, good luck in Czech Republic and has magical association in Benin, Africa
•Think about windows 7
• The number 10 is bad luck in Korea
• The number 4 is means Death in Japan
• Red represents witchcraft and death in many African countries
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Cultural Differences between Japanese and American Business
American Business
Game concept: Business is a game in pursuit of profits under the rules of laws and contracts
Efficiency-oriented and approximate accuracy simplicity, clarity, and quickness
Quantity-oriented
Short-term performance evaluationEasy layoffs, dismissals of employees, and selling of businesses
Japanese Business
Mutual trust-oriented business: business is based on trusting relationship among people rather than the rules of gameHighly precision-oriented and perfectionism-high dependency on human awareness
Quality-oriented
Mid-to-long term evaluations
Job security
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Cultural Differences between Japanese and American Business
American Business Japanese Business
Top down management
Low mutual dependence between employers and employees
Control of business by stockholders and the management
Management by “force”
Heavy dependence on machinery and technology, vs. Light dependence on human resources
Excellent software-based technology development
Heavy dependence on human resources bottom-up management and teamworkHigh mutual dependence between employers and employees
Joint management of business by Employees and Employees
Management by “motivation”
Heavy dependence on human resources
Inadequate software development ability
Strong loyalty and fewer incentivesLimited loyalty and incentive-oriented work ethics
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SOCIAL ENVIRONMENT &
ITS IMPACT ON PURCHASING AND CONSUMPTION
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Social Environment
SOCIAL SECTOR
REFERS TO SERVICES AVAILABLE
IN THE GIVENFIELDS
Poverty
Labour / employme
nt
Development of
women and
children
Education
Health
Population
Empowerment of socially
disadvantaged
Public amenities
in rural/urba
n areas
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Social environment
A country is ranked on its ability to provide to its citizens the three basic amenities of life belonging to social sector
Longevity and health
Education
Decent standard of living
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Social factors and business
Sentiments and emotions attached to custom affect business.
People in different cultures form definite attitudes towards what is desirable and what is undesirable.
Even the eating habits of people and time on which the food has to be taken is a part of custom/caste.
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Social Environment and influence on business structure Industrialization and urbanization has
caused the change in the taste of the people causing fast disappearance of cottage industries.
The break ups in joint family the joint family business is also fast disappearing.
With the emergence of nuclear family, the saving and investment has also increased facilitating the growth in company form of business.
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Social factorscorporate social responsibility
'CSR is about business giving back to society'
Business is a social institution, people work and live together in business organization.
Every business organization has a social responsibility and has to operate within the norms of the society and survive only if it fulfills the need and wants of the society.
Examples Providend fund schemes for
employees Sweat shares Hospitals/ schools/ charitable
trusts
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SOCIAL ENVIRONMENT AND ITS IMPACT ON PURCHASING AND CONSUMPTION
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Need for social responsibilities of business
The iron law of responsibility Those who do not use power in the manner
which society considers responsible will tend to loose it.
To fulfill long run self interest To establish a better public image To avoid government regulation or
control To avoid misuse of national resources and
economic power To reduce conflict between management
and trade unions
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Social factors and today’s business
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Question for assignment
Sachar committee recommendation on social responsibility of business.
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Corporate social responsibility
Case study of IBM
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Arguments against social responsibility of business
Businesses are owned by their shareholders - any money they spend on so-called social responsibility is effectively theft from those shareholders who can, after all, decide for themselves if they want to give to charity.
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Economic environment and business
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Economic environment and business
The purpose, or reason, for developing an economic analysis of a region or specific country, is directly related to the ability to subsequently make managements decisions about whether to do, or not do certain business things in that country or with that country.
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Economic environment and business
What is economics? Why is the govt.? What are basic economic problems? What are the solutions to those
problems? Who will solve these problems?Answers to these questions will
automatically give the relationship between economic and environment.
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Economic factors its components & business
BUSINESS
Per capita income
National income
Available natural
resources
Infrastructure
development
Employment
generation
Industrial developmen
t
Interest rate
Exchange rate
Inflation rate
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How to do economic analysis
The factors which make us think which affect business:
Income distribution & flexible income Productivity: Unit labour costs and labour
compensation costs compared relates to how much it costs in various regions
for our competitors to manufacture stuff, or how much it costs us for labour to have products made .
We are labour intensive or capital intensive.
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How to do economic analysis
Major international debtors and debts relates to the financial burden on govt. to tax us
and companies (trade surplus, trade deficit, bond debt)
Inflation, interest rates, availability of credit Age distribution
effects lifestyle things such as transportation, food consumption, entertainment, living accommodations
Increased risk of violence and terrorism on a national and international scale.
Trade surplus and B O P structure.
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How to do economic analysis
Education And Literacy Rates Population Density
Rural - Urban Population Shifts Economic Analysis In A Management
Context When You gather information, according to the
above headings, keep in mind, the "So what" factor,* meaning So what if 71% of the people have cell phones, - how does knowing this help me make a decision about my company's product colour, shape, pricing, promotional mix, distribution etc.
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Economic issue
Do you think that poorer countries should have higher level of literacy rate???
Isn't it better to have a "supply" of uneducated people for cheap labour intensive tasks?
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Economic environment affecting business
Business can not control the economic forces rather economic forces affect the business.
Every day there are individuals, businesses and governments engaged in economic activity. i.e. buying and selling
Decisions about what to buy and when from individuals, government and businesses drives the whole economy.
Every act of buying and selling - no matter how large or small - contributes to what we call 'the economy'.
The overall effect depends on how many people make decisions on whether to buy or sell.
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Various Economic system across the world
Capitalism Economy: Private ownership of production and distribution facilities is there as in USA, JAPAN, UK.
Communalism economy: State/Govt. owns all the factors of production and distribution as in CUBA.
Mixed economy as of India, Holland, France .
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Economic and business environment in India
India and six other countries viz. Bangladesh, Bhutan, Maldives, Nepal, Srilanka and Pakistan launched the south Asian association for regional cooperation called as SAARC in 1985 to accelerate the economic development in the region.
The main purpose of the cooperation is to look onto welfare of peoples of south Asia and improving their quality of life and to promote and strengthen collective self reliance among these countries.
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Economic and business environment in India
Our economy is rural in nature. Agriculture plays a important role apart from
service sector also playing the major role. Now a days major contribution in GDP of
agriculture sector has gone down. Looking onto the need of an hour we are now
concentrating onto the manufacturing sector. Government control has reduced on foreign
trade and investment. Since 1990 the growth rate of 6% has been
observed in Indian economy.
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Economic and business environment in India
Because of large numbers of well educated people we have become a major exporter of software services.
Despite strong growth the worry is about the continuing public sector budget deficit aprox. to 10% GDP.
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Geographic factors
Geographic factors
Geographic
locations
Seasonal variations
Climatic condition
s
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Climate affecting business
Overall the poorest countries are in the tropics, where it is hot, the land is less fertile, water is more scarce, where diseases flourish.
Europe and North America profit from huge tracts of very fertile land, a temperate climate, and good rainfall.
In extremes of climate, either hot or cold, too much energy goes into the simple business of survival for there to be much leftover energy for development.
One have to work twice as hard to get enough to eat out of the ground, you have to irrigate where others can depend on rainfall.
Rain patterns may give a short growing season, while others can get two harvests in one year. Some countries are just at a natural disadvantage.
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Geographical Location Geographical location plays a part in access to markets. All the great empires have been based around trade routes. There are notable exceptions, the medieval Mongol empire was
based on the Silk Road from China to the west. Many of the world’s poorest countries are severely hindered
because they are landlocked; situated in high mountain ranges; or lack navigable rivers, long coastlines, or good natural harbors.’
China has three of the world’s busiest ports, and so does the US. With ports they can raise money through tolls and shipping services.
If you have no access to the coast, not only do you miss out on these services, you have to transport everything by land, which is much more expensive.
Countries like Afghanistan, Rwanda, Malawi, or Bolivia are all hindered by access to ports. Other countries, like Ethiopia or Lesotho, are not only landlocked, but mountainous as well, making trade even more expensive.
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Geographical Resources
Natural resources are one of the most important gift of God to any country either renewable or non renewable resources.
Oil is the most obvious. Nobody is any doubt about how Saudi Arabia or UAE make their money. Among other advantages, gold and diamonds have helped South Africa build the most successful economy on the continent. These are all non-renewable resources – once they’re gone, they’re gone, but while stocks last there is wealth to be made.
Besides these there are renewable resources – forests, fish, stocks that, if correctly managed, will refresh themselves. Much South American development has been based on the Amazon rainforest, in natural rubber and then timber.
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Geographical Resources
Finally, there are what are sometimes called ‘flow resources’. These are renewable that need no management, wind, tide and solar resources. The Earth Policy Institute describes the American Great Plains as ‘the Saudi Arabia of wind energy’, while sunshine-rich places like California, Sicily and Portugal are able to invest in solar power.
No natural resource is a license to print money, and there are plenty of poor countries who are rich in resources.
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Political Stability, Sovereignty and its impact on the returns of Business
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Political Stability, Sovereignty & Business
There can be various forms of Govt. Rule by one (monarchy) Rule by few (aristocracy) Rule by many (democracy) Today the world seemed to have agreed that
democracy is the best solution.
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Political Stability, Sovereignty & Business
The Government policies is affecting business in various ways. The Government policy creating economic risks can be seen affecting:
Policy on Exchange controls Stem from shortages of foreign exchange held by a country.
Local-content lawsCountries often require a portion of any product sold within the country to have local content.
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Political Stability, Sovereignty & Business
Import restrictionsSelective restrictions on the import of raw materials to force foreign industry to purchase more supplies within the host country and thereby create markets for local industry.
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Political Stability, Sovereignty & Business
Tax controlsA political risk when used as a means of controlling foreign investments.
Price controlsEssential products that command public interest.
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Political Stability, Sovereignty & Business
Labor unions have strong government support
that they use effectively in obtaining special concessions from business.
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Political Stability, Sovereignty & Business
One or a group of nations may boycott another nation,
thereby stopping all trade between the countries, or may issue sanctions against the trade of specific products.
U.S. boycotts of trade with Cuba/IranHistory indicates that sanctions are often unsuccessful inreaching desired goals, particularly when other majornations’ traders ignore them.
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Politically Sensitive Products and Issues
Products that have or are perceived to have an effect onthe environment, exchange rates, national and economic security, and the welfare of people and that are publicly visible or subject to public debate, are more likely to be politically sensitive.
Health is often the subject of public debate, and products that affect or are affected by health issues can be sensitive to political concern.
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Forecasting Political Risk
Political risk assessment is an attempt to forecast political instability to help management identify and evaluate political events and their potential influence on current and future international business decisions.
The greater the risk to international marketers is the threat of the government actually failing, causing chaos in the streets and markets.
Risk assessment is used to estimate the level of a risk acompany is assuming when making an investment and to help determine the amount of risk it is prepared to accept.
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Approach for better relationship
Relations between governments and MNCs are generally positive if the investment: Improves the balance of payments by
increasing exports or reducing imports through import substitution
Uses locally produced resources Transfers capital, technology, and/or skills Create jobs Make tax contributions
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Strategies that MNCs use to minimize political risk
-Joint
ventures- Expanding
the investment
base
- Licensing
- Planned domestica
tion
- Political bargainin
g
- Political payoffs
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Political environement
If a company is considered vital to achieving national economic goals, the host country often provides an umbrella of protection not extended to other