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Business EnvironmentWhat is Business?
Business is an activity which involves buying and selling of goods
& services.
Modern business covers a complex field of industry and commerce whichinvolve activitiesrelated to both production anddistribution.
These activities on the one hand satisfy societal need and desires and on theother hand bring profits to business firms.
All the business activities are normally motivated by profits, in case , any ofthese activities is carried out by some organization for the purpose other thanprofit seeking, it cannot be justifiably considered as business.
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NATURE OF MODERN BUSINESS
Large size
Oligopolistic character
Diversification
Global reach of modern business
Technological orientationChange
Government control
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NATURE OF MODERN BUSINESS.
Business that matters today is large in size.
Indian companies in terms of revenues,profits,assetsandstockholders equityare relatively small as compared to thecompanies in developed countries.
Reliance industries
Hindustan Lever
Telco
Larsen and Toubro Tata Motors
Maruti Udyog
Hero Honda
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Nature of Modern Business
Only Four companies figure in the Fortune list of 2003.
Indian Oil Bharat Petroleum Hindustan petroleum
Reliance industries
Most of the fortune 500 companies are located in theUSABiggest capitalist economy, 189 of the worlds largestCos belong to US
Japan - second largest with 104 of the Fortune 500EuropeWestern Europe holds 138 of the worldslargest companies.
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Nature of Modern Business.
Present day business is Oligopolistic in its nature.
Small No. of firms selling a homogeneous /differentiated
product. Interdependence among the sellers.
Any change in its price & sales or in the quality of its
product, or any other variable whose value under is
control is likely to evoke retaliationfrom other other firms
in the same line of business.
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Nature of modern of business
DIVERSIFICATION:
Today not many corporate confine their activities to productionof a single commodity.
Some business firms prefer related products to their existing
production. This is called concentric diversification.
Ex: Maruti Udyog
Adding new unrelated products or services for existing customersis known as conglomerate diversification.
Ex: JK Group has interest in textiles, engineering, Computers
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Business Environment
Big business houses usually expand their activity by
establishing new companies which undertake production ofunrelated new products or services. This is conglomeratediversification.
Ex: TATAs
However, diversification may not always contribute togrowth of a business enterprise.
In the recessionary phase, it is quite risky to aspire forgrowth by going for unplanned diversification.
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Nature of modern business
Technology Orientation:
Modern business is technology oriented. People expect that the quality
of products should improve overtime and the real cost.
All this can be accomplished by the business if It pays attention to
sophistication of technology.
Modern companies regard technological research strategic to their
future, They carry out their R & D activities very close to their
headquarters.
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Nature of Modern Business
Change: Today a business firm clearly needs to move faster if the fear of
irrevalance is not to become a reality.
A modern firm must bevigilant all the time and be ready for change.
Improvement in quality, packaging or product design is not sufficient to
retain customers, the firm should promptly introduce new products and
create demand for them.
The business through its innovative moves can always
Create synthetic wants and thus find space to produce new goodsTo satisfy them.
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Nature of Modern Business
Government control:Since the late 1980s role of
the government in both developed and
underdeveloped economies has diminished.
Advantage of Government in business isrequired
to correct market failure manifested in the form
of monopoly & pollution.
Government through monetary & fiscal
regulation
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Business Environment
Environment by definition is something external of an
individual or an organization.
Therefore in strict sense, business environment refers to anexternal factorswhich have a direct or indirect bearing on
the activities of business.
Certain aspects of both internal and external environmentpose a threat to business, other aspects provide
opportunities for business growth.
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ENVIRONMENTAL SCANNING What do you mean by Environmental
scanning?
It is the process of monitoring &
collecting the information about the
various current and potential changestaking place in the environment to
facilitate in decision making and
problem solving.
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ENVIRONMENTAL SCANNING
Objectives of Environmental scanning:
1. To provide and understanding of current andpotential changes taking place in theenvironment.
2. To provide inputs for strategic decision-making.
3. To facilitate and foster strategic thinking in
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Benefits of Environmental scanning
Firms which systematically analyze and diagnose the environmentare more effective than those which dont
1. Development of broad strategies and long term policies ofthe firm.
2. Development of action plans to deal with technologicaladvancements.
3. To foresee the impact of socio-economic changes at thenational & international level.
4. To analyze the competitors strategies and formulation ofeffective counter-measures.
5. TO keep oneself dynamic.
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Business Environment-Internal Factors
Internal Environment:
Value system, Goals and objectives,Management structure,
Relationship among the various
constituents, Physical assets,
Technological capabilities
Human, financial and marketing 17
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Business Environment-Internal Factors
Internal Environment:
Persons holding top positions in certain modern enterprises havesome values which influence their policies, practices and overallinternal environment.
Ex: JRD TATAValue systemresponsibilities towards hisemployees did some some commendable work in the field of laborwelfare.
Attitude of TATAs to employ 8 disabled persons out of their totalworkforce of more than sixty thousand.
The company value system need not be always positive. It can be
totally negative.
Cases of pharmaceutical companies selling banned drugs worldover.
Rational firms attempt maximize long-run profit.
B i E i t I t F t
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Business Environment-Interna Fact
There are often differences in the goals and objectives of thevarious firms, which in turn, lead to differences in the overall
internal environment and also in priorities, policies and directionof development.
Ex: Corporate enterprise professionally managedor familycontrolled.
Board of Directors - dynamic entrepreneurs capable of takingquick decisions or the BOD may be dominated by persons withconservative or bureaucratic outlook.
Nominees of Financial institutions having large holdings theirdecision making.
Conflicts among BODs, Erosion of shareholders confidence in theBODs
Serious differences among the senior executives officers on criticalmatters are critical factors in the Cos internal working conditions.
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Business Environment-Internal Factors
Functioning & Competitiveness of a company are very much
influenced by physical resources, Production technology,
R&D work and distribution logistics.
Cos R&D activity and the speed at which technologicalchanges occur determine Cos internal environment which
in turn influence Business decisions.
Quality of Human Resources of a Company, Depends on Commitment, attitude and morale of the
employees also have an impact on business as an internal
factor.
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Business Environment-External Factors
External Environmentof Business consists of institutions,Organizations and forces operating outside the company.
External Environment of business may be classified into :
A) Micro Environment
B) Macro Environment
Micro environment refers to such players whose decisions
and actions have a direct bearing on the company. Since
modern business broadly has two aspects, Viz, Production
and selling of goods,
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Micro Environment of Business
The micro environment of business can be
divided :
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BUSINESS
Customers
Input Suppliers
Competitors
Workers & their unions Publics
Marketing
Intermediaries
Mi E i t f
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Micro Environment ofBusiness
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Micro Environment has great relevance on Cos business
operations.
The players in micro-environment do not effect all the
companies in an industry in the same way. Their decisions
and actions often differ in accordance with the size,
capability and strategies of each company.
Ex: 1. Suppliers of inputs are more accommodating ifthe Company is large.
2. Competitor does not mind starting price war if the
rival co. is small
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Business Environment Suppliers of inputs: Important factor in Cos success is low
cost of production of goods.
Availability of raw materials without any interruptionespecially raw materials thru out the year lessen the financialburden on the company.
Sometimes monopolistic suppliers manages to securemonopoly control over the supply of some strategic rawmaterial, such as iron ore or copper, it starts regulating itssupply to generate maximum possible monopoly profits.
No Co. should depend for the supply of some input on singlesource.
Supply management should be high on agenda of thecompany.
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Business Environment-Internal factors
Workers and their Unions:
Labor is an important input in production.
Any policy that disturbs labor peace at the company levelmay adversely affect its competitiveness.
Also constant conflict between labor and management willnot allow the company to grow and overtime maytransform into a sick unit.
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Business Environment-Internal factors
Customers: Demand for product individuals,business enterprises, institutions thegovernment.
loyalty depicts customer satisfaction. Universally accepted fact that the satisfaction of
customers is the ultimate bench mark of the Cossuccess.
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Business Environment-Internal factors
arketing intermediaries: Wholesalers, retailers, distribution firmsagents etc constitute an important element .
Co. lacking its own distribution channels cant afford to have conflict or
strained business relations.
Some Cos adopt direct mail or data base marketing.
EX; nestle slump in demand for baby products France
CO. could have responded to this situation by lowering productionlaying-off workers.
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Business Environment-Internal factors
Competitors: Brand Competition: affect sales operations ofthe business firms.
A Company encounters various forms of competition. The
most common competition which a companys products facesis from differentiated products of other companies.
Ex: In the Air conditioner market Voltas air conditioner facescompetition from other branded air conditioner such as
Videcon, Elgi, Samsung companies.
Public: Environmentalists, consumers protection groups &media persons may influence both Production & Sales.
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Macro environment
Macro environment of business consist of thefollowing factors:
A. Economic Environment
National
Global
B. NonEconomic Environment
Political
Socio Cultural
Demographic
Technological
Natural
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Economic Environment of the Business (National)
Business enterprise is essentially an economic institution. It conducts its activities
in the market system with the objective profit maximisation.
In Modern economy there are five sectors contribute to the development of the
economy they are:
The Business sector
The household sector
The capital market
The Government
These factors determine the prospects of business activity.
In a recessionary situation business firms encounter steep fall in effective demand
leads to business slowdown. Developed financial systemprecondition for the
efficient mobilization of financial resources for the business.
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Global Environment
Globalization- expansion of businessactivities across boundaries of the nation
states.
It refers to a process of increasing economic
openness growing economic
interdependence and deepening economic
integration between countries in the world
economy.
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Global Environment
Over the past ten years the Indianeconomy is integrates into the globaleconomy.
The three policy measures initiated torealize the objectives of globalization are:
1. Exchange rate adjustment and rupee convertibility.
2. Import liberalisation &
3. Opening upto foreign capital
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Political Enviroment
A stable & dynamic political environment dueinfluences business growth.
In a capitalist economic system corporate firms are
very powerful, yet they have to operate within theparameters which are determined by the broad
policies of the government.
Ex: MRTP Act, FERA because of the experiences ofthe colonial era, Foreign capital & the multinationals
corporations were suspects.
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Legal enviornment
Govt. sets the legal framework within whichbusiness firms operate.
Legislations defining:
property and business organizations, laws of contracts
bankruptcy( one whos assets are used to repay
debts), Mutual obligations of labour & management
Laws and regulations, the way the business arecarried out constitute legal environment ofbusiness.
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Legal enviornment
Economic legislations can be classified into two categories: 1. legislationsfacilitatory role in business.
Ex: contract actrules for systematic exchange transactions.
2. legislations- restrictive role in business
Ex: Sherman anti-trust act in 1890, Clayton anti-trust act 1914 Federal trade commission act 1914 of USA to prevent unfair
monopolistic unfair practices.
In IndiaMRTP-Monopolies & restrictive Trade Practice ACT-1969.
Foreign Exchange Regulation Act (FERA) -1973directly regulated the foreignexchange related transactions of the indian business.
Both MRTP & FERAdilutedstringent & restrictive in nature.
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SOCIO-CULTURAL ENVIRONMENT
Business firms operate in a socio-culturalenvironment & their strategies needs to be
formulated keeping this factor in view.
Ex: western countries are modern & liberal.
People-more receptive to new products & noprejudice against any kind of advertising.
Health conscious-product injurious to health of
the people cant be successfully introduced.
SOC O C O
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SOCIO-CULTURAL ENVIRONMENT
Muslim societiesconservative. Womens still under Purdah.
Demand for cosmetics & western cloths are limited.
Business firm aiming at capturing markets for its products inthese diversified societies has to be careful about the cultural
sensitivities of these societies.
India- liberal outlook, modeling by young women foradvertising fashionable products, wine & beer is acceptable in
Indian society.
h l l
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Technological environment
Technology- Knowledge about machines & processes.
Any business- cannot survive with outdated techniques ininternational competition.
Four decades agotechnology of Fiat was unsophisticated.
Users had no choice & thus product survived for a long period.
Setting up of Maruti udyog Ltd., the situation changed due to
superior technology.
Technological environment affects business from the demand side as well.
Ex: In a country where power is scarce, demand for electrical appliances will be
limited.
Erratic power supply and frequent load shedding creates market for inverters.
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