SOLUTION OF BUSINESS ENVIRONMENT

ANS.1 Business environment

Business environment is the sum total of all external and internal
factors that influence a business. You should keep in mind that external
factors and internal factors can influence each other and work together to
affect a business. For example, a health and safety regulation is an external
factor that influences the internal environment of business operations.
Additionally, some external factors are beyond your control. These factors
are often called external constraint

Business Environment encompasses the -climate or set of conditions,

economic, social, political or institutional in which business operations are
Conducted.Arthur M. Weimer

Environment contains the external factors that create opportunities and

threats to the business. This includes socio-economic conditions, technology
and political conditions. William Gluck and Jauch

Business environment is the aggregate of all conditions, events and

influences that surround and affect it.Keith Davis

The environment of business consists of all those external things to which it

is exposed and by which it may be influenced directly or indirectly.
Reinecke and Schoell. The total of all things external to firms and industries
that affect the function of the organisation is called business environment.
Wheeler

Civilisations require challenges to survive. Thus environment also contains

hostilities and dangers that may be overcome by individuals and
organisations.Arnold J. Toynbee

On the basis of the above definitions, it is very clear that the business
environment is a mixture of complex, dynamic and uncontrollable external
factors within which a business is to be operated.

Nature of Business Environment:

The nature of Business Environment is simply and better explained by the

following approaches:

(i) System Approach:

In original, business is a system by which it produces goods and services for
the satisfaction of wants, by using several inputs, such as, raw material,
capital, labour etc. from the environment.

(ii) Social Responsibility Approach:

In this approach business should fulfill its responsibility towards several

categories of the society such as consumers, stockholders, employees,
government etc.

(iii) Creative Approach:

As per this approach, business gives shape to the environment by facing the
challenges and availing the opportunities in time. The business brings about
changes in the society by giving attention to the needs of the people.

Significance of Business Environment:

Business Environment refers to the Sum total of conditions which surround

man at a given point in space and time. In the past, the environment of man
consisted of only the physical aspects of the planet Earth (air, water and
land) and the biotic communities. But in due course of time and
advancement of society, man extended his environment through his social,
economic and political function.

(i) Help to understand internal Environment:

It is very much important for business enterprise to understand its internal

environment, such as business policy, organisation structure etc.

(ii) Help to Understand Economic System:

The different kinds of economic systems influence the business in different

ways. It is essential for a businessman and business firm to know about the
role of capitalists, socialist and mixed economy.

(iii) Help to Understand Economic Policy:

Economic policy has its own importance in business environment and it has
an important place in business. The business environment helps to
understand government policies such as, export-import policy, price policy;
monetary policy, foreign exchange policy, industrial policy etc. have much
effect on business.
(iv) Help to Understand Market Conditions:

It is necessary for an enterprise to have the knowledge of market structure

and changes taking place in it. The knowledge about increase and decrease
in demand, supply monopolistic practices, government participation in
business etc., is necessary for an enterprise.

ANS2 INTERNALNADEXTERNALENVIRONMENT

1.. Internal environment

It is defined as all the forces or conditions that are available within an
environment that affects on organization and business. It is also known as
controllable factors because business can control them. It includes

I. Employees :Business hires employees. It is the major internal factor. It

works inside the business. It can be controlled by the business. Employees
differ in skill, knowledge, morality, and attitude and so on. When managers
and employees have difference in goals an beliefs then conflict may arise.

Ii. Shareholders: Management deals with many shareholders.

Shareholders have the right of ownership, power of management and voting
right. The actual management of organization is carried out by elected
representative of shareholders jointly known as boar of directors. Boards of
directors have the responsibility of overseeing the management of
organization.

Iii. Organization structure: It is located inside the organization. The

arrangement of various facilities, pattern of relationships among the various
department, responsibility, authority and communication is the organization
structure. It also included specialization and span of control.

Iv. Organization culture: The sets of values that help the members to
understand what organization stand for how it does work, what it considers,
cultural values of business forces of business and so on. It helps in direction
of activities.

2. External environment All the forces and condition that cannot be

controlled by the business is called external environment. . It is also known
as uncontrollable factors because business cant control them. It is located
outside the business. It affects on organizational performance.

It includes:

I. Economic environment.It indicates the condition of economy in which

business organization operates. It has continuous and great impact on
business. It includes national income, production, inflation, savings,
investment, price, government activities. Business person must have
constant watch on this factor.

Ii. Political or legal environment :It is defined as rules and regulations

determined by the government. Business must fulfill demand of government.
There should be non violation of rules and regulation of government..

Iii. Social environment. :Business must have good environment where a

business can be established neatly. Business also helps in employment
opportunities generation. There should be socio cultural understanding and
application of anti pollution measures.

CHARACTERISTICS

Inter-Relatedness: Various elements of business environment are very closely

related to each other.

1.Dynamic Nature: Business environment is dynamic in nature i.e. it keeps

on changing. For example, change in government policies, change in taste
and choice of the consumer, change in technology etc. Such changes could
be triggered by internal or external factors.

2. Uncertainty: Business environment is very uncertain as one cannot

predict as to what will happen in future especially in case of fashion industry,
film industry and information technology. Its dynamic nature makes it all
more challenging to handle uncertainty.

3. Complexity: Many forces constitute the business environment. Thus, it

becomes very difficult to know exactly the relative influence of a particular
force (social, economic, technological etc.) on the functioning of a business
enterprise as all these factors are related to one another.

4 Relativity: Different countries and different regions have different

business environment. Thus, business environment is a relative concept. For
example, technology in Japan differs from that in India or say Pakistan, China
etc. Hence, a multinational enterprise has to keep this aspect in mind while
formulating its policies for different countries.

ANS3 Foreign Exchange Management Act (FEMA):

The Indian government has formulated the Foreign Exchange Management
Act (FEMA), which relates to the foreign direct investment in the country.
Foreign Exchange Management Act (FEMA) has assisted the country by
encouraging external payment and trade.

Formulation of Foreign Exchange Management Act (FEMA):

The Indian government formulated the Foreign Exchange Management Act
(FEMA) in 1999. On the 1st of June, 2000, FEMA came into existence
replacing the Foreign Exchange Regulation Act (FERA), which was formulated
in 1973.
Extent of Foreign Exchange Management Act (FEMA):
Foreign Exchange Management Act (FEMA) is applicable to the entire country.
Agencies, offices and branches, outside India, which are owned by Indian
residents, also fall under the jurisdiction of this act.
Objectives of Foreign Exchange Management Act (FEMA):
Among the various objectives of the Foreign Exchange Management Act
(FEMA), an important one is to unite and revise all the laws that relate to
foreign exchange. Further foreign Exchange Management ACT (FEMA) aims
to promote foreign payments and trade in the country.

Implementation of Foreign Exchange Management Act (FEMA):

Extensive efforts have been undertaken to ensure the effective
implementation of FEMA in India. Proper implementation and efficient
supervision are the significant preconditions for the success of the Foreign
Exchange Management Act (FEMA).

Main features of FEMA are:

(a) Any person may sell or draw foreign exchange, without prior permission
and can later on inform RBI. This makes it a more positive feature.

(b) Under this act Enforcement Directorate (F, D) will be more investigating
in nature.

(c) FEMA recognized the possibility of even the Capital Account convertibility
i.e. It classifies foreign exchange transaction and current account
transactions.

(d) The violation of FEMA is a civil offence.

ANS 4 Economic Planning

Economic Planning is the making of major economic decisions. What and

how is to be produced and to whom it is to be allocated by the conscious
decision of a determinate authority, on the basis of a comprehensive survey
of the economic system as a whole.In an economy like India, the basis
socioeconomic problems like poverty, unemployment, stagnation in
agricultural and industrial production and inequality in the distribution of
income and wealth can hardly be solved within the framework of an
unplanned economy planning is required to remove these basic maladies.

Characteristic features of economic planning:

Fixation of definite socio-economic targets;
Prudent efforts to achieve these targets within a given time period;

Existence of a central planning authority;

Complete knowledge about the economic resources of the country;

Efficient utilization of limited resources to get maximum output and

welfare.

National Planning Committee

The first attempt to develop a national plan for India came up in 1938. In
that year, Congress President Subhash Chandra Bose had set up a National
Planning Committee with Jawaharlal Nehru as its president. However the
reports of the committee could not be prepared and only for the first time in
1948 -49 some papers came out. Bombay Plan In 1944 Eight Industrialists of
Bombay viz.

Mr. JRD Tata, GD Birla, Purshottamdas Thakurdas, Lala Shriram, Kasturbhai

Lalbhai, AD Shroff , Ardeshir Dalal, & John Mathai working together prepared
A Brief Memorandum Outlining a Plan of Economic Development for India.
This is known as Bombay Plan.

This plan envisaged doubling the per capita income in 15 years and tripling
the national income during this period. Nehru did not officially accept the
plan, yet many of the ideas of the plan were inculcated in other plans which
came later.

Gandhian Plan This plan was drafted by Sriman Nayaran, principal of Wardha
Commercial College. It emphasized the economic decentralization with
primacy to rural development by developing the cottage industries.

Sarvodaya Plan Sarvodaya Plan (1950) was drafted by Jaiprakash Narayan.

This plan itself was inspired by Gandhian Plan and Sarvodaya Idea of Vinoba
Bhave. This plan emphasized on agriculture and small & cottage industries. It
also suggested the freedom from foreign technology and stressed upon land
reforms and decentralized participatory planning.

Planning and Development Department In August 1944, The British India

government set up Planning and Development Department under the
charge of Ardeshir Dalal. But this department was abolished in 1946.

Planning Advisory Board In October 1946, a planning advisory board was set
up by Interim Government to review the plans and future projects and make
recommendations upon them.

Planning Commission Immediately after independence in 1947, the Economic

Programme Committee (EPC) was formed by All India Congress Committee
with Nehru as its chairman. This committee was to make a plan to balance
private and public partnership and urban and rural economies. In 1948, this
committee recommended forming of a planning commission.

ANS 5 Securities and Exchange Board of India (SEBI)

Securities and Exchange Board of India (SEBI) was first established in

the year 1988 as a non-statutory body for regulating the securities market. It
became an autonomous body by The Government of India on 12 April 1992
and given statutory powers in 1992 with SEBI Act 1992 being passed by
the Indian Parliament. SEBI has its headquarters at the business district
of Bandra Kurla Complex in Mumbai, and has Northern, Eastern, Southern
and Western Regional Offices in New
Delhi, Kolkata, Chennai and Ahmedabad respectively. It has opened local
offices at Jaipur and Bangalore and is planning to open offices at Guwahati,
Bhubaneshwar, Patna, Kochi and Chandigarh in Financial Year 2013 - 2014.

Controller of Capital Issues was the regulatory authority before SEBI came
into existence; it derived authority from the Capital Issues (Control) Act,
1947.

Initially SEBI was a non statutory body without any statutory power.
However, in 1995, the SEBI was given additional statutory power by the
Government of India through an amendment to the Securities and Exchange
Board of India Act, 1992. In April 1988 the SEBI was constituted as the
regulator of capital markets in India under a resolution of the Government of
India.

FUNCTION AND RESPONSIBITIES

The Preamble of the Securities and Exchange Board of India describes the
basic functions of the Securities and Exchange Board of India as "...to protect
the interests of investors in securities and to promote the development of,
and to regulate the securities market and for matters connected there with
or incidental there to".

SEBI has to be responsive to the needs of three groups, which constitute the
market:

the issuers of securities

the investors

the market intermediaries.

SEBI has three functions rolled into one body: quasi-legislative, quasi-
judicial and quasi-executive. It drafts regulations in its legislative capacity, it
conducts investigation and enforcement action in its executive function and
it passes rulings and orders in its judicial capacity.

Powers

For the discharge of its functions efficiently, SEBI has been vested with the
following powers:

1. to approve bylaws of stock exchanges.

2. to require the stock exchange to amend their bylaws.
3. inspect the books of accounts and call for periodical returns from
recognized stock exchanges.
4. inspect the books of accounts of financial intermediaries.
5. compel certain companies to list their shares in one or more stock
exchanges.
6. registration brokers.

There are two types of brokers:

1. circuit broker

2. merchant broker

SEBI committees

1. Technical Advisory Committee

2. Committee for review of structure of market infrastructure institutions
3. Advisory Committee for the SEBI Investor Protection and Education
Fund
4. Takeover Regulations Advisory Committee
5. Primary Market Advisory Committee (PMAC)
6. Secondary Market Advisory Committee (SMAC)
 7. Mutual Fund Advisory Committee
8. Corporate Bonds & Securitization Advisory Committee

Objectives of SEBI:

The overall objectives of SEBI are to protect the interest of investors and to
promote the development of stock exchange and to regulate the activities of
stock market. The objectives of SEBI are:

1. To regulate the activities of stock exchange.

2. To protect the rights of investors and ensuring safety to their investment.

ANS 6 Globalization

Globalisation is the "process enabling financial and investment markets to

operate internationally, largely as a result of deregulation and improved
communications"

Globalisation is the action or procedure of international integration arising

from the interchange of world views, products, ideas, and other aspects
of culture.

Globalisation came to be seen as more than simply a way of doing business,

or running financial markets - it became a process. From then on the word
took on a life of its own. Centuries earlier, in a similar manner, the
techniques of industrial manufacturing led to the changes associated with
the process of industrialisation, as former country dwellers migrated to the
cramped but booming industrial cities to tend the new machines.

So how does the globalised market work? It is modern communications that

make it possible; for the British service sector to deal with its customers
through a call centre in India, or for a sportswear manufacturer to design its
products in Europe, make them in south-east Asia and sell them in north
America.

Negative effects of globalizationfor developing country business

Critics of global economic integration warn that (Watkins, 2002, Yusuf, 2001):

The growth of international trade is exacerbating income inequalities,

both between and within industrialized and less industrialized nations
 Global commerce is increasingly dominated by
transnational corporations which seek to maximize profits without regard for
the development needs of individual countries or the local populations
Protectionist policies in industrialized countries prevent many
producers in the Third World from accessing export markets;
The volume and volatility of capital flows increases the risks of banking
and currency crises, especially in countries with weak financial institutions
Positive effects of globalization for developing country business
It creates greater opportunities for firms in less industrialized countries
to tap into more and larger markets around the world
This can lead to more access to capital flows, technology, human
capital, cheaper imports and larger export markets

ANS 7 Environmental analysis

Environmental analysis is a strategic tool. It is a process to identify all the

external and internal elements, which can affect the organization's
performance. The analysis entails assessing the level of threat or
opportunity the factors might present.

Environmental analysis is a strategic tool. It is a process to identify all the

external and internal elements, which can affect the organizations
performance. The analysis entails assessing the level of threat or opportunity
the factors might present.

The letters in PESTLE, also called PESTEL, denote the following things:

Political factors

Economic factors

Social factors

Technological factors

Legal factors

Environmental factor

Often, managers choose to learn about political, economic, social and

technological factors only. In that case, they conduct the PEST
analysis. PEST is also an environmental analysis. It is a shorter version
of PESTLE analysis. STEP, STEEP, STEEPLE, STEEPLED, STEPJE and LEPEST: All
of these are acronyms for the same set of factors. Some of them gauge
additional factors like ethical and demographical factors.

I will discuss the 6 most commonly assessed factors in environmental

analysis.

P FOR POLITICAL FACTORS

The political factors take the countrys current political situation. It also reads
the global political conditions effect on the country and business. When
conducting this step, ask questions like What kind of government leadership
is impacting decisions of the firm?

Some political factors that you can study are:

Government policies

Taxes laws and tariff

Stability of government

Entry mode regulations

E FOR ECONOMIC FACTORS

Economic factors involve all the determinants of the economy and its state.
These are factors that can conclude the direction in which the economy
might move. So, businesses analyze this factor based on the environment. It
helps to set up strategies in line with changes.

The inflation rate

The interest rate

Disposable income of buyers

Credit accessibility

Unemployment rates

The monetary or fiscal policies

The foreign exchange rate

S FOR SOCIAL FACTORS

Countries vary from each other. Every country has a distinctive mindset.
These attitudes have an impact on the businesses. The social factors might
ultimately affect the sales of products and services.

Some of the social factors you should study are:

The cultural implications

The gender and connected demographics

The social lifestyles

The domestic structures

Educational levels

Distribution of Wealth

T FOR TECHNOLOGICAL FACTORS

Technology is advancing continuously. The advancement is greatly

influencing businesses. Performing environmental analysis on these factors
will help you stay up to date with the changes. Technology alters every
minute.:

New discoveries

Rate of technological obsolescence

Rate of technological advances

Innovative technological platforms

L FOR LEGAL FACTORS

Legislative changes take place from time to time. Many of these changes
affect the business environment. If a regulatory body sets up a regulation for
industries, for example, that law would impact industries and business in that
economy. So, businesses should also analyze the legal developments in
respective environments.

I have mentioned some legal factors you need to be aware of:

Product regulations
 Employment regulations

Competitive regulations

Patent infringements

Health and safety regulations

E FOR ENVIRONMENTAL FACTORS

The location influences business trades. Changes in climatic changes can

affect the trade. The consumer reactions to particular offering can also be an
issue. This most often affects agri-businesses.

Some environmental factors you can study are:

Geographical location

The climate and weather

Waste disposal laws

Energy consumption regulation