INDIAN BUSINESS ENVIRONMENT
Business Environment: Business Meaning: All creative human activities relating to the production of good goodss or servic services es for satisf satisfyin ying g wants wants are known known as Business. According to Peterson and Plowman: “Busin “Business ess may may be defin defined ed as an activ activity ity in which which different persons exchange something of value, whether goods or services for mutual gain or profit” According to W.R. Spiegel: “All the activities included in the production and sale of goods or services may be classified as business activities” According to F.C Hooper: “Whole complex field of commerce and industry, the basic industries, process process and manufacturing manufacturing and the network of ancillary services, distribution, banking, insurance, transport, and so on which serve and interpenetrate the world of business as whole. Thus, business may be understood as the “Organized efforts of enterprise supply consumers with goods and services for a profit” “Business is an activity that carried out for the purpose of supplying goods and services to consumers to satisfy their felt needs”.
Business is an activity that involves many activities like production production finance marketing trade insurance agency packaging packaging etc. all business carried out to earn a profit by fulfillin fulfilling g the needs needs of consume consumers. rs. In other other words words busines businesss involves people they occupy central place around whom by whom whom and and for for whom whom a busi busine ness ss is run. run. BUSI BUSINE NESS SS IS PEOPLE. Nature of Business: 1. Vary Vary in size size 2. To earn earn a pro profi fitt 3. Supplyin Supplying g of goods goods and and servic services es 4. Creation Creation of job opportun opportunities ities 5. Offer Offer to bett better er quali quality ty of life life 6. Contribu Contributing ting econo economic mic growth growth of count country. ry. 7. Society Society can can not not do witho without ut busine business ss Scope of Business : Busi Busine ness ss incl includ udes es all all acti activi viti ties es conn connec ecte ted d with with production, production, trade, banking, finance, insurance, insurance, agency, advertising, packaging and numerous other related activities. Business also includes all efforts to associate with restrictions and governm government ent requirem requirements ents and obligati obligation on of consumer consumers’ s’ employees’ owners’ and to other interest groups.
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INDIAN BUSINESS ENVIRONMENT
Business Environment: No business organizatio organizations ns functions in a vacuum. vacuum. Every business needs needs to take decisions decisions and strategies strategies purveying under under the many internal internal and external external factors. factors. The sum all those those factors and forces which have a greater impact on the business decisions are collectively called as Environment. Business Environment Meaning: Business environment refers to all those internal and external factors which impact the functioning/performance functioning/performance of a firm and/or its decision making particularly strategies. strategies. According to Gerald Bell: “An organiza organization tion external external environm environment ent consists consists of those those things things outsi outside de an organi organiza zatio tion n such such as custo custome mers, rs, competitors, government units, suppliers, financial firms and labour pools that are relevant to an organization’s operations” Thus, it can be said environment as “the set of external factors such as the economic economic factors, socio-cultural factors, and government factors demographic factors geophysical factors, which which are uncontr uncontrolla ollable ble in nature nature and affects the busines businesss decisions of a firma or company.
Political Environment Environment : It refers to the influence exerted by the three political institutio institutions ns viz., viz., legislat legislature, ure, executiv executivee and the judiciar judiciary y in shapin shaping g direc directin ting g deve develop loping ing and and contr controll olling ing busine business ss activities.
Technological environment: It is the systematic application of scientific or other organized knowledge to practical tasks. Its is through business technology reaches people. Economic environmen environment t : It refers to all forces, which have an economic impact on business industrial production, agriculture, planning, basic econom economic ic philosop philosophy, hy, infrastru infrastructur cture, e, national national income, income, per capita income, money supply, population savings etc, Social cultural environment: Such factors are out of company’s gate include peoples attitu attitude de to work work and and wealth wealth,, role role of family family,, relati relation on and education, education, ethical issues, and social responsibilities of business. Natural environment: environment: Business cannot bear the effects of natural hazards for example drought, poverty and earthquake. Businesses still find himself helpless before mighty nature. Global environment: It refers refers to intern internati ationa onall trade trade where wherein in curre currency ncy diffentiation, diffentiation, language, language, international international markets etc. The business is reckoned t view as a global perspective.
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INDIAN BUSINESS ENVIRONMENT
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Types of Business Environment: Environment: The business business environ environmen mentt can be divided divided into two ways. (A) THE MICRO ENVIRONMENT ENVIRONMENT OF BUSINESS BUSINESS and (B) THE MACRO ENVIRONMENT OF BUSINESS THE MICRO ENVIRONMENT OF BUSINESS BUSINESS
The micro environm environment ent of business business consists consists of the forces in the company’s immediate environment that affects the performance performance of the company. company. These forces are more closely linked with the business than the macro factors. According to Philip Kotler: “The micro environment consists of the actors in the comp compan any’ y’ss imme immedi diat atee envi enviro ronm nmen entt that that affe affect ctss the the performance performance of the company. These include the suppliers, marketin marketing g intermed intermediarie iaries, s, competito competitors, rs, custome customers rs and the public. The micro micro envir environ onmen mentt factor factorss are discu discusse ssed d in detai detaill as follows. Suppliers: The important important force in the micro environmen environmentt of a company is the suppliers i.e., those who supply the inputs like raw materials and components to the company. Importance;
For the smooth functioning of the business it is very important to have reliable source of supply.
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Uncer Uncertai tainty nty regard regarding ing the supply supply or other other suppl supply y
problems will compel the companies companies to maintain high inventories inventories which will cause increase in costs. It is very risky to depend on a single supplier because a strike, strike, lock out or any other production production problem problem with that supplier may seriously affect the company, similarly a change in the attitude of behavior of the supplier may also affect the company. Hence, multiple sources of supply often help reduce such risks. Many Many compa companie niess go for pertan pertanisi ising ng/re /relat lation ionshi ship p marketi marketing ng because because of scarcity scarcity of resource resourcess and to maintain maintain healthy supply from the suppliers in international level. Customers: The customers have a direct impact on the business, companies go to create and sustain customers for continuity of business. A company may have different categories of customers viz,
Industrial customers
Retailers customers’ customers’
Wholesalers customers
Government bodies customer’
Foreign customers
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INDIAN BUSINESS ENVIRONMENT
Labour: In big organiza organization tionss where where hundred hundredss of workers workers are employed, the labour force is organized in the form of trade unions. unions. The trade unions unions interact interact with the management management for higher wages and bonus, better working conditions etc. They pressurize the management management for the fulfillment of their demands demands and resort to go slow tactics, strikes gherao. Competitors: Competitors play a vital role in running the business enterprise; business has to adjust its various business activities according to the behavior of the competitors. They are various types of competitors: 1. Desire Desire Competiti Competition. on. This type of competi competition tion general generally ly found in where the countries having low income and the unsatisfied customers. Such a countries the basic Task of buying products go to either he or she has to buy T V or refrigerator or washing machine. This type of comp competi etitio tion n among among desire desiress is terme termed d as desir desiree competition. 2. Generic Generic competiti competition: on: generic generic competiti competition on arises where where the consume consumers rs has many optio option n in single single line of products. For example one may have options in investing investing the money either either in UTI or post office or banks. It is called called generic competition. competition.
3. Product Product form form competiti competition: on: in this type type of competiti competition on the consumer has to choose between different forms of the product. For example if the consumer decides to go for a washing machine the next question which form of the washing machine semi automatic or fully automatic front loading or top loading etc. 4. Brand Brand comp competi etitio tion: n: this this type type of competi competitio tion n arises arises where consumers has many brands in similar products. The marketer in this regarding needs to create brand demand for the products. Marketing intermediaries : The marketing intermediaries are those firms aid the company in promoting, selling, and distributing its goods to final buyers. The marketing intermediaries include middlemen such as agen agents ts and and merc mercha hant ntss who who “hel “help p the the comp compan any y find find cust custom omer erss or clos closee sale saless with with them them”. ”. Ther Theree are are thre threee intermediaries intermediaries called Physical distribution firms firms which which assist assist the the compa company ny in stoc stocki king ng an movi moving ng good goodss from from thei theirr orig origin in to thei their r destination” such as warehouses and transportation firms Marketing services agents whic which h assi assist st the the comp compan any y in targeting and promoting its products to the right markets such as advertising agencies, marketing research firms media firms and consulting firms
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INDIAN BUSINESS ENVIRONMENT
Financial intermediaries intermediaries:: Which finance marketing activities and insure business risks. Financiers: Another Another importan importantt micro micro environm environment ent factor factor is the financiers of the company. Besides the financing capabilities their their polici policies es and strate strategi gies es attitu attitude dess (inclu (includin ding g attitu attitude de towards risk) ability to provide non financial assistance etc. are very important Public: A compa company ny may may encou encounte nterr certa certain in public publicss in its envir environ onmen ment. t. A publi publicc is any any group group that has has an actua actuall or potential interest in or impact on an organization’s organization’s ability to achieve its interests. Media public, citizen action publics and local publics are some examples.
Micro environment: The macro environment of business includes activities which which are uncontro uncontrollab llable le and need need proper proper nourishm nourishment ent and attention on the part of a business enterprise. According to Hill and Jones “The macro environment consists of the broader economic social demographic demographic political legal and techno technolog logica icall settin setting g withi within n which which the indust industry ry and and the company are placed”.
According According to Elbing “Macro environment environment is the indirect action environment as it may not have an immediate direct effect on the operation but nevertheless have influence”. The important macro environmental factors are explained as follows: 1. Econo Economic mic envir environ onme ment: nt: Business fortunes and strategies are influenced by the economic economic characteristics characteristics and economic policy dimensions. The economic environment includes the structure and nature of the economy the stage of development of he economy, economic resources the level of income, the distribution of income and assets global economic linkages economic etc. Nature of economy : The The natu nature re of econ econom omy y is wide widely ly clas classi sifi fied ed the the economies on the basis of the per capita income. Countries are broadly classified classified as Low income economies: are economies with very low level of per capita income. income. High income economies: are countries with very rich income per capita. Middle income economies: are economies falling between low income and high income economies. Structure of the economy: The structure of economy is classified on the basis of contribution from many sectors like
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INDIAN BUSINESS ENVIRONMENT
Primary sector sector mostly mostly agriculture Secondary sector secto r are large, medium and small scale industries. Economic Policies : There are several economic policies which can have a very great impact on business. Industrial policy. Trade policy Foreign exchange policy Foreign investment and technology policy Fiscal policy Monetary policy: Economic Conditions: Genera Generall econo economic mic condi conditio tions ns affec affectt the busin business ess.. Economic Economic pass through through periods of boom boom and recession. recession. A boom is characterized characterized by high level level of output, employment employment and rising demand and prices. A recession has the opposite of these characteristics.
2. Political Political and and Governm Government ent Environ Environment ment:: Political environment refers to the influence exerted by the three political institutions: 1. Legi Legisl slat atur uree 2. Exe Executive tive 3. Jud Judicia iciary ry The legislature legislature decides decides on a particul particular ar course course of action. action. Govern Governme ment nt is the exec executi utive ve and and its job is to implem implemen entt
whateve whateverr was decided decided by parliame parliament. nt. The judiciary judiciary has to ensure that both the legislature and executive function in public interest and within the boundaries of constitution. The political legal environment of a business depends on: 1. Lega Legall rule ruless for for busi busine ness ss for for its its form formul ulat atio ion n and and implementation, implementation, its efficiency and effectiveness. 2. Defe Defens nsee and and mili milita tary ry poli policy cy impa impact ct of defi define ness on industrial enterprise in terms of trading with potential enem enemies ies,, purcha purchasin sing g polic policies ies strate strategic gic indust industria riall development etc. 3. Politi Political cal stabili stability ty impact impact of factor factorss like like civil civil war, war, the declaration of presidents rule and emergency changes in the form and structure of government administration. 4. Poli Politi ticcal orga organ niza izatio tion ide ideolog logy of the the ruli rulin ng government philosophy of the political parties’ degree and extent of the bureaucratic delays, red tapism, the influence of premier groups the question of donation by business houses houses to political political parties. 5. Flex Flexib ibil ilit ity y and and adap adapta tabi bili lity ty of law law cons consti titu tuti tion onal al amendments their urgency and frequency, velocity of public policies. policies. 6. Fore Foreig ign n poli policy cy alig alignm nmen entt or nonnon-al alig ignm nmen entt tari tariff ffss customers’ unions’ etc image of the country and its leaders.
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INDIAN BUSINESS ENVIRONMENT
3. Socio-C Socio-Cultu ultural ral Environ Environmen mentt : Socio cultural factors include people’s attitude to work and health, role of family, marriage, religion and education, ethical issues, social responsibility of business. 4. Natur Natural al envi environ ronme ment: nt: In natural natural environ environmen mentt we include include geograp geographica hicall and ecolo ecologic gical al factor factors. s. Both Both these these factor factorss are releva relevant nt to the business. These These factors include: include: 1. Natural Natural resource resourcess endow endowmen ment. t. 2. weather weather and climate climate conditio conditions ns 3. Topog Topograp raphic hical al factor factors. s. 4. loca locati tion on aspe aspect ctss 5. Port Port fac facili ilitie tiess etc. etc. 5. Demogra Demographic phic Environ Environmen ment: t: Demographic factors include: 1. Size, Size, growth rate, rate, age compositi composition, on, sex composi composition tion,, etc of population. 2. Fami Family ly size size 3. Economic Economic strati stratifica fication tion of populatio population n 4. Educa Educatio tional nal level level 5. Caste Caste,, relig religion ion etc. etc. 6. Tec Technol hnologic ogical al environ environmen mentt ;
In order to survive survive in today’s today’s competitive competitive world, world, a business has to adopt technological technological changes from time to time. It is the systematic application of scientific or other organized knowl knowledg edgee to practi practical cal tasks. tasks. In other other words words techn technolo ology gy include the tools both machines (hard technology) and ways of thinking thinking (soft technology technology)) –availa –available ble to solve solve problems problems and promote progress progress between among and between societies. societies. Its is through through business business technology technology reaches reaches people. people. There There are two functions of business in creation of customers those are Marketin Marketing g and innovati innovation. on. Marketin Marketing g needs needs research research based based decisions where the research identifies the consumer needs and provides information for target setting and programming programming the complete marketing effort. Innovati Innovation on may be defined defined as the technical technical industria industriall and comm commer erci cial al step stepss whic which h lead lead to the the mark market etin ing g of new new manufactured products and to commercial use of new technical processes an an equipment. equipment. 1. Radical Radical innovati innovation: on: a basic technolog technological ical innovati innovation on that estab establis lishes hes a new functi function onali ality ty (e.g., (e.g., steam steam engin enginee or steamboat) 2. Increme Incremental ntal innovati innovationon- a change change in an existing existing technol technology ogy system that does not alter functionality but incrementally improves performance features safety or quality or lowers cost. 3. Next Next genera generatio tion n techn technolo ology gy innov innovati ation on:: a chang changee in an existing technology system that does not alter functioning
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INDIAN BUSINESS ENVIRONMENT
but dramatically dramatically improves performance performance feature safety or quality or lowers cost and opens up new applications.
7. Internat Internationa ionall environ environmen mentt : Implications of global or international environment are as follows:
Due to liberalization Indian companies are forced to view business issues issues from the global global perspective. perspective.
Safe and protected protected markets are o longer longer there world is becoming becoming small in size due to advanced means of transport and communication facilities.
Learning of foreign languages is a must for every business manager.
Acquiring familiarity with foreign currencies is also mist
Facing political and legal uncertainties is inevitable.
To survive amidst intense competition every businessman should try to adapt his products to different customer needs and tastes.
Environmental Analysis of Business Decision Making
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