Chapter Content

Introduction to Business Environment

Contemporary Scenario of

Business Nature of Modern Business Economic Factors Socio cultural Factors Technological Factors

What is Business???
Business may be understood as the organized efforts of enterprises to supply consumers with goods and services for a profit According to Arthur M.Weiner: business is that complex field of commerce & industry in which goods & services are created & distributed in the hope of profit within a framework of laws & regulations.

Contemporary Business goals

Profit (Bottom-line) Growth Market Leadership Customer satisfaction Employee satisfaction Quality Products & Services Service to Society

Characteristics of Business
Change Govern ment Control

Large Size

Competi tion

Characteris tics of Business

Diversifi cation

Informa tion Technol ogy

Globaliz ation

Indian companies Fortune 500

8 Indian companies have made it to Fortune 500 list in 2010. These are:

Indian Oil Corporation Reliance Industries Tata Steel Tata Motors Bharat Petroleum Hindustan Petroleum State Bank of India ONGC

Contd..
The league of 500 elite companies for 2010 is topped by U.S. retailer Wal-Mart Stores, followed by oil giant Royal Dutch Shell and another oil major, Exxon Mobil, in that order. A total of 54 Chinese companies made it onto the list this year. Out of which three are in fortune 10 list List Of The World Largest Companies

OLIGOPOLISTIC CHARACTER

First : Some firms operate at a price that is too low from the point of view of other firms. Secondly : Economies of large scale production often allow some firms to corner the entire supply of a product. Thirdly : Financial capital requirements of modern business are quite large and these forestall entry of too many firms in the business. In modern oligopolistic business, COLLUSION is very common:

Collusion represents an attempt by firms to recognise their interdependence & act together rather than compete
There are 2 broad categories of Collusion

Contd

Cartel: it is combination of business firms constituted with the objective of limiting competition in the market so as to maximise profits There are 2 typical forms of cartels

Cartels aiming at joint profit maximization Cartels aiming at the sharing of the market

Price Leadership: it is tacit agreements amongst various firms giving rise to price leadership, price leadership is subject to much lesser form of collusion as compared to cartels

Contd
In oligopolistic market conditions, firms are often reluctant to lower the price of their products so to accomplish results they use Product Differentiation Non-price competition occurs in two major forms: 1. Advertising, & 2. Variation in quality and design of product.

Diversification as a growth strategy

Diversification strategies are used to expand firms' operations by adding markets, products, services, or stages of production to the existing business. When the new venture is strategically related to the existing lines of business, it is called Concentric diversification. Conglomerate diversification occurs when there is no relationship between the new and old lines of business; the new and old businesses are unrelated.

Diversification: Vertical or Horizontal?

Vertical integration occurs when firms undertake operations at different stages of production. When a firm diversifies closer to the sources of raw materials in the stages of production, it is following a backward vertical integration strategy. Forward diversification occurs when firms move closer to the consumer in terms of the production stages.

DIVERSIFICATION Examples

Conglomerate Diversification : Royal Philips Electronics Concentric Diversification : Maruti Udyog Limited Some Companies do not attempt to diversify and prefer takeover of companies in their own area Example Coca Cola : Parle Soft Drinks Whirlpool : Kelvinator Refrigerators

GLOBAL REACH

It is a phenomenon which permits mobility of factors of production across globe except land. Refers to a process of deepening economic integration, increasing economic and growing economic interdependence between countries in the world economy.

TECHNOLOGY ORIENTATION

On account of increasing competition the world over, technological change has become a pre-condition for the survival of a company Because modern corporations regard technological research strategic to their future, they carry out their R&D activities very close to their headquarters.

CHANGE
The business through its innovative moves can always create synthetic wants and thus find space to produce new goods to satisfy them. Example: APPLE

Government Control

First, the government interference in business is required to correct market failures manifested in the form of monopoly and pollution. Second, governments through monetary and fiscal regulation attempt to create stable business conditions. Third, Production of socially necessary public goods has to be undertaken by the government.

Nature of Competition

Monopoly Duopoly Monopolistic competition Oligopoly

BUSINESS CHALLENGES

Managing Bottom line Meeting stakeholders expectations Developing and retaining top talent

Creating a customer responsive organization

Diminishing time to market

Market agility
Pricing and quality

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. Business Environment: refers to those aspects of the surroundings of the business that affects in operations & determine its effectiveness. Characteristics of Business Environment: Complex Dynamic Multi-faceted Far- reaching impact

Why Study Business Environment

Development sustainability

of

broad

strategies

to

ensure

To foresee the impact of socio-economic changes at the national and international levels on firms ability Analysis of competitors strategies and formulation of effective counter measures To keep oneself dynamic

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
Structure and Nature

Management

Components of Internal Environment

Human Resources Company Image and Brand Equity Other Factors

Physical Assets and Facilities R & D and Technological Capabilities

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 companys

immediate environment that affect the performance of the company.

Micro Environment Factors

Suppliers Customers Marketing Intermediaries Competitors Publics

Micro Environment of a typical car manufacturer

Potential Supplier Components Supplier Local Communities Stakeholders Pressure Groups Car Manufacturer Customers Potential Customers

Government

Competitors

Car Dealers Potential Dealers

For Customers

For Supplies

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 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

Economic Environment

Economic system: An economic system provides the framework within which an economy operates & the various economic units & agents mould themselves to fit into the system. The economies of the world are divided into broad 3 categories:
Capitalistic

Economic system Socialistic Economic system Mixed Economic system

Economic Environment Contd..

Macro Economic scenario: it determines the prospects of business in the country. In an environment
A

rapid growth, Stable prices, High rates of savings & investment, Fiscal stability & Favorable BOP-Balance of payment.

When inflation is high

Economic Environment Contd..

Acc. To KEYNES, A Buss. Cycle is composed of a period of good trade characterized by rising prices & low employment percentage, alternating with a period of bad trade characterized by falling prices & high unemployment percentage.

Business Cycle: It is characterized by upward and downward movement of economic activities such as levels of income, employment, prices and output.

Features of Business Cycle

The phases of business cycle recur with some sort of regularity and are uniform in case of different cycles. Individual business cycles may vary greatly in duration and intensity. In case of developed countries the cycle length is short (around 4.5 years) than the developing countries (around 7.5 years) All economic variables are affected by the business cycles.

Causes of Fluctuations

Innovation Political events Random events Wars Seasonal fluctuations etc.

Phases of Business Cycle A Typical Business Cycle

Phases of Business Cycle

Peak / Prosperity

Recession

Expansion of bank credit. High capital investment in basic industries Increased production. High employment. High prices and profits Optimism is very high.

Collapse of firms creates panic. Banks withdraw loans. Construction activity slows down. Unemployment appears in basic capital goods industry => spreads to other industries. Fall in income, prices, profits

Phases of Business Cycle

Depression / Trough

Recovery

Business activity is far below normal.

Sharp reduction in production, mass unemployment, falling prices, falling profits, low wages, contraction of credit, high rate of business failure.
Construction activity comes more or less to a standstill. Food, clothing industry not much affected

Slight improvement in economic activity. Industrial production picks up. Slow but sure rise in prices & profits. Employment increases. Wages also rise. Banks expand credit Atmosphere of cautious hope.

Economic Environment Contd..

Financial System

Money Market Capital Market Monetary Policies: it refers to the all actions of the central bank of country, which affects, directly or indirectly supply of money, credit, rate of interest & the banking system Fiscal policy: it is basically concerned with the uses of taxes of government expenditure of achieving pre-determined objectives Industrial Policy: It specifies the relative role of domestic & multinational enterprises, large & small industries & public & private sector firms. Trade Policy: The main objective are to promote exports, regulate imports, improve terms of trade.

Economic Policies:

Outward oriented Inward oriented

Non Economic Environment Regulatory Environment

CHANGING POLITICAL ENVIRONMENT OF BUSINESS IN INDIA The Nehru Years 194764. Indias first Prime Minister, Jawaharlal Nehru, saw industrialization as the key to alleviating poverty Garibi Hatao, 1966-77. Under Prime Minister Indira Gandhi, two major shifts took place in the role of the State. The Spending Boom and Rising Fiscal Deficits, 1977-91. Between 1977 and 1991, most stringent controls on imports and industrial licensing were gradually relaxed, stimulating industrial growth. The Reform Phase, 1991 to the Present.

THE CONSTITUTIONAL ENVIRONMENT

The Preamble

JUSTICE, social, economic and political; LIBERTY of thought, expression, belief, faith and worship; EQUALITY of status and of opportunity; and to promote among them all FRATERNITY assuring the dignity of the individual and the unity and integrity of the nation.

FUNDAMENTAL RIGHTS

Right to equality Right to freedom of speech and expression Right against exploitation, prohibiting all forms of forced labour, child labour and traffic in human beings. Right to freedom of conscience and free profession, practice and propagation of religion. Right of any section of citizens to conserve their culture, language or script and right of minorities to establish and administer educational institutions of their choice. Right to constitutional remedies for enforcement of Fundamental Rights.

DIRECTIVE PRINCIPLES OF STATE POLICY

The State shall strive to promote the welfare of people by securing and protecting as effectively as it may a social order in which justice
The State shall strive to minimise inequalities in income, and eliminate inequalities in status, facilities and opportunities, not only among individuals but also among group of people. The State shall direct its policy in such a manner as to secure the right of all men and women to an adequate means of livelihood and equal pay for equal work. The State shall endeavour to secure to workers a living wage, human conditions of work.

THE THREE INSTITUTIONS OF THE GOVERNMENT

Legislature (Parliament) Parliamentary Committees
Standing Committees Among the Standing Committees, the three Financial Committees Committee on Estimates, Public Accounts and Public Undertakings constitute a distinct group as they keep an unremitting vigil over government expenditure and performance. Adhoc Committees - Such Committees may be broadly classified under two heads: (i) Committees which are constituted from time to time either by the two Houses on a motion adopted in that behalf or by Speaker/Chairman to enquire into and report on specific subjects, and (ii) Select or Joint Committees which are appointed to consider and report on a particular Bill.

The Executive or Government

Maintaining law and order Development of infrastructure Strengthening the industrial base Guiding industrial development according to plan priorities Strengthening the capital market Setting up of industrial financing institutions Assistance to small-scale industries Providing assistance to exports Governments role as planner Promoting agricultural development Providing employment opportunities

The Judiciary

Judiciary is responsible for interpreting and applying the law. In India, at the apex of the entire judicial system exists Supreme Court of India. There is a High Court for each State or a group of States. Under High Courts, there is a hierarchy of subordinate courts.

LEGAL ENVIRONMENT OF BUSINESS

Legislations can be classified into two categories: (i) Legislations which have a facilitatory role in business, and (ii) Legislations which are restrictive in their nature. The important economic laws in India are as follows: Company Law Industries (Development and Regulation) Act, 1951 MRTP Act and Competition Act SICA, 1985 and Companies (Amendment) Act, 2002 FERA, 1973 and FEMA, 1999 Consumer Protection Act, 1986 The Securities Contracts (Regulation) Act, 1956 SEBI Labour Laws Environment Protection Act, 1986 Patents (Amendment) Bill 2005

NOW, WHAT EXACTLY IS SOCIOCULTURAL ENVIRONMENT

Socio-cultural Environment That part of the firm's external marketing environment in which social or cultural changes (that is, changes to the value system of a society) act to affect the firm's marketing effort. The changing socio-cultural environment may pose threats or present opportunities for the business.

Socio Cultural
Society

Culture

SOCIETY
o

Society or human society is the set of relations among people, including their social status and roles. A society is a body of individuals outlined by the bounds of functional interdependence, possibly comprising characteristics such as national or cultural identity, social solidarity, language or hierarchical organization.

CULTURE

Culture is the software of the mind- the social programming that

runs the way we think, act and perceive ourselves and others.

Culture is defined as a complex whole which consists of

customs, attitudes, beliefs and values of a society. The set of shared attitudes, values, goals, and practices that characterizes an institution, organization or group.

SOCIAL INSTITUTIONS AND SYSTEMS

CASTES AND COMMUNITIES

As we all know, Indian society, particularly the Hindu society, was divided into four categories on the basis of caste. Economic pressures, spread of education, and other developments have been breaking down slowly class distinctions and social barriers. Industrialization has created new social and political functions and new occupations. Vaishyas, Brahmins, and other castes are no longer confined to their original roles.

FAMILY SYSTEM

Earlier, Joint Family System was prevalent. Now, Nuclear family is being preferred. The joint family is being split into smaller units of nuclear family. Now, the impacts for Marketers: Increasing demand for Flats, Vehicles, Consumer Goods. Increasing demand for catering services (packed lunches), baby sitters, crches.

RELIGION AND RELIGIOUS GROUPS

Religious beliefs, convictions, customs, rituals and festivals differ from one group to another. Business firms can suffer heavy losses by ignoring religious sentiments of customers, employees and others. Religious groups exert considerable influence on activities of business groups. Thus, business must recognize and respect religious sentiments. Example, negative demand for beef products in India.

MARRIAGE

Marriage is one of the basic elements of culture and peoples attitude towards marriage influences culture a lot. Marriage is a social event that concerns the whole society. In India, marriages are a family affair. The marriage season is a big opportunity for business. For e.g. Jewellery, Kitchen ware, Honeymoon Package, Household Furniture, Vehicles etc have huge demand during the marriage season.

SOCIAL VALUES AND MOVERS

CUSTOMS & SUPERSTITIONS

Many important business decisions in India are taken on the advise of astrologers. (Location of business, time of launch, name of enterprise, brand name etc.) Example, Business firms do brisk business on festivals such as Deepavali, Christmas, Id, Guru Purab etc. No purchase of Iron & Steel goods by people on Saturday as it is considered inauspicious.

SUPERSTITIONS

Barber Shops & Chicken Shops dont open on Tuesday due to religious reasons. (Lord Hanumans Day) In most countries Sunday is a weekly holiday, but in Islamic countries Friday is treated as a weekly holiday. Even acceptable colors depend on the culture sometimes.

SINGH IS KINNG The extra N in the word King in the title of movie Singh is Kinng was due to astrological & numerological reasons.

BALAJI TELEFILMS Balaji Telefilms names all its serials starting with the letter K. For e.g. Kyunki Saas Bhi Kabhi Bahu Thi, Kasauti Zindagi Kay etc both which were superhit serials and a common topic of discussion among the households.

ATTITUDES

Attitudes include things such as individual freedom, democracy, truth and honesty, justice love and marriage to name a few. Attitude towards work is important as it determines motivation, morale, job satisfaction, productivity etc. All sorts of attitudes exist, but the positive aspect of Indian attitude is that generally, no worker or employee touches his/her tools of work, without closing his/her eyes for a few minutes and thanking the almighty for having bestowed his blessings in the form of work. Sincerity, hard work, loyalty and honesty are other aspects of the Indian work culture.

ETHICS
o o

o o

Ethics in business deals with the ethical path business firms ought to adopt. Jacques Cory, a noted business ethicist observes, companies should behave ethically and be profitable in parallel, and even if ethics diminishes the profitability of the company, they should still behave ethically. Google Halts Censorship on Chinese Search Google announces a new approach to China, indicating that Chinas behavior toward human rights activists and other efforts to further limit free speech on the web in China had led Google to stop censoring its search services on the Google.cn site and instead redirect traffic to its Hong Kong-based servers.

EDUCATION AND ORGANISATIONAL CULTURE

EDUCATION

A person is said to be literate if he/ she is 15 years and above and can read and write Approximately 35% of illiterate world population is of India

In 2007, adult literacy rate is 66% from 12% in 1947

In 2009 Literacy rate for men was 76.9% for men and 54.5% for women

Kerala is the most literate state in India, with 90.86% literacy and Bihar is the least literate state with 47% literacy.
To promote Education Govt. launched Sarva Shiksha Abhiyan to provide free and compulsory education for age group 614 years, Mid Day Meal scheme etc.

EDUCATION
Countries rich in educational facilities vastly attract high wage industries. By investing in education, a country can attract Brain-Power Industries. Market Potential of a country depends on education. The level of literacy determines the nature of advertising, packaging, quality of marketing research and distribution system. Barack Obama has said in a recent address to the US Senate that, India is playing for the number one position. If they keep producing more engineers, doctors and scientists than us, we will not be number one for long.

WORK FORCE DIVERSITY

When people from different cultures converge in a workplace, Management will be required to manage diversity. Workforce diversity has important implications for Management practices. Managers will be required to shift their philosophy from treating everyone alike to recognising differences and responding to those differences in manners that will ensure employee retention and productivity.

OTHERS
LANGUAGE

India is multi linguistic. (18 officially recognized languages and the census of India identifies 1652 more.) Marketing plans become costlier and more complex due to this huge diversity. The advertising campaigns have to been launched in National as well as local languages. Pepsis come alive slogan was considered offensive in some places as to the locals it meant come out of the grave. Parker Pen Company faced similar problems as in some countries Ball Pen meant lie, Obscenity, fabrication, revolution etc. Reebok had to discontinue its INCUBUS brand as in medieval folklore, Incubus was a devil who terrorized women. Ford Motors truck named Fiera meant Ugly old women in Spanish.

Segmentation can be done on the basis of linguistic groups.

Thank You