Business Environment

Click to edit Master subtitle style BBA 1st year 2012-13

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Introduction

Business environment includes the climate or set of conditions: economic, social, political or institutional which have a direct or indirect bearing on the functioning of business signifies external forces, factors and institutions that are beyond the control of the business and they affect the functioning of a business enterprise.

It

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Features
Business

environment is the sum total of all factors internal & external to the business firm that greatly influence their functioning covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal conditions changes in business environment are unpredictable
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It

The

Importance
Business environment is complicated and active in nature and has a far-reaching impact on the survival and growth of the business.
Determining Giving

Opportunities and Threats

Direction for Growth Learning Building Competition

Continuous Image

Meeting

Identifying

Firms Strength and Weakness: 7/5/12 Business environment helps to identify

Types of environment

Internal environment

External environment

Micro environment

Macro environment

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Internal Environment
The

internal environment is the environment that has a direct impact on the business

Important internal factors which have a bearing on the decisions of a business firm and which are generally controllable because the company has control over these factors:

Value system The value system of founders and those at the helm of affairs has important bearing on the choice of business, the mission and objectives of the organization, business policies and practices.

Vision,

Mission and Objectives

The business domain of the company , priorities , direction of development, business philosophy, business 7/5/12

Internal Environment
Management

structure and nature

The organizational structure, the composition of the Board of Directors, extent of professionalization of management etc. are important factors influencing business decisions
Internal

power relationship

Factors like the amount of support the top management enjoys from lower levels and workers, share holders and Board of Directors have important influence on the decisions and their implementation. The relationship between the members of Board of Directors is also a critical factor
Human

resources

The characteristics of the human resources like skill, quality, morale, commitment, attitudes etc. could 7/5/12 contribute to the strength and weakness of the

External Environment
Micro

environment consists of the actors in the companys immediate environment that affect the performance of the company. They are more intimately linked with the company environment consists of larger societal forces that affect all the actors in the companys micro environment.

Macro

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Micro Environment
Suppliers
Those

who supply the inputs to the company. should be Reliable

Source/Sources Uncertainty

regarding the supply or other supply constraints compel companies to maintain high inventories causing cost increases. risky to depend on a single supplier purchasing department should market itself to suppliers, to obtain favourable treatment during the periods of shortages.

Very The

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Micro Environment
Customers
Major

task of business is to create and sustain customers categories of consumers

Individuals Households Industries

Different

and other commercial establishments and other institutions

Government

Depending Choice

on single customer is too risky

of customer should be done by considering

profitability
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Relative

Micro Environment
Competitors
A

firms competitors include not only the other firms which market the same or similar product but also all those who compete for the income of the consumers
Desire

competition competition form competition

Generic Product Brand

competition

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Micro Environment
Marketing
Firms

Intermediaries

that aid the company in promoting, selling and distributing its goods to final buyers.
The

Include

middlemen and merchants who help the company find customers or close sales with them distribution firms which assist the company in stocking and moving goods from their origin to their destinations service agencies which assist the company in targeting and promoting its products to the right markets intermediaries which finance marketing 7/5/12 activities and insure business risks

Physical

Marketing

Financial

Micro Environment
Public
Any

group that has an actual or potential interest in or impact on an organizations ability to achieve its interests attack on any company can influence the government decisions affecting the company. pollution is an issue often taken up by number of local public are not always threat to the business. cooperation between a company and the local public may be established for the mutual benefit.
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Media

Environmental Public

Fruitful

Macro Environment
Political
Has In

close relationship with the economic system and economic policy. many countries regulations to protect consumer interests have become stronger. governments specify certain standards for the products to be marketed in the country; some even prohibit the marketing of certain products. activities are subject to various types of controls

Some

Promotional Important

economic policies such as industrial policy, policy towards foreign capital and technology, fiscal policy and foreign trade policy 7/5/12

Macro Environment
Economic
Important
Economic Economic Economic Economic

factors are:
conditions policies systems condition

The

economic conditions of a country

The

nature of the economy, the stage of development of the economy, economic resources, the level of income, the distribution of income and assets, etc. are among the very important determinants of business strategies.

Economic

policies

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Macro Environment
Socio-cultural
Major
the

environment

factors are:
language beliefs and values, and traditions,

buying and consumption habits of people,

their

customs tastes

and preferences,

education

Strategy Even

should be appropriate in the sociocultural environment when people of different cultures use the same product; the mode of consumption, conditions of use, purpose of 7/5/12 or the use

Macro Environment
Demographic
Factors:
Size,

growth rate, age composition, sex composition of population, family size, educational levels, economic stratification of the population, language, caste, religion etc.

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Macro Environment
Legal
Legal

Environment has a permanent and lasting impact in shaping business Disputes Act, Minimum Wages Act, Law of Contract, Import & Export Control Act and Tax Law Act etc. have to be complied with

Industrial

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India at a Glance
A

Sub-continent endowed with huge natural resources and bio-diversity is protected by the mighty Himalayas on the north , the Arabian sea on the West, the Indian Ocean on the South and the Bay of Bengal on the East largest country in geographical area largest country in population (1.2 billion) democracy in the world

7th 2nd

Largest An

epitome of unity in diversity- a multiethnic, multi-religious, multi-cultural and multi-linguistic plural society
7/5/12 fastest growing economy in the world

2nd

Basic Economic Indicators

GDP: GDP GDP GDP

$1.73 trillion

Growth: 8.2% (2011-12)

per capita: $1,3 82(nomina:139th; 2011)/ $3,608 (PPP:128th; 2011) bySector:Agri(16.1%),Ind. (28.6%),Services (55.5) (2010). (CPI): 9.44% (June 2011) below poverty line: 37% (2010)

Inflation:

Population Labour

force: 478 million (2010, 2nd.).Labor 7/5/12 force by occupation:

Areas of Concern
High

rate of Inflation( 10-12%)

Extreme High

Poverty (37% , more than 300 million below poverty level) Unemployment and Education ( lack of quality education) of Health Care and Sanitation to the masses High Public Debt Black money, stashing in foreign
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Illiteracy Lack

Corruption,

banks.

Concept of National Income

GDP---Gross

Domestic Product: aggregate measure of total value of final products ( goods & services). National Product : GDP + External Factor Income. National Product : GNP Depreciation. capita Income : GNP / Total population. Income at current Prices and Constant Prices (Base Year: Index=100).
7/5/12 Income minus inflation and taxes

GNP---Gross NNP---Net PCI---Per National National

Circular Flow of Economy

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Economic Environment

Perhaps, the most important role in Business Environment is played by the economic environment of the country. Economic Environment refers mainly to the Economic system a country has opted for, under which flow the Economic policies of the Government, the Planning Process, if any, the Industrial Policy and the Budgetary announcements. An economic system may be either capitalism, Socialism or Mixed Economy.
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Economic Environment

The Economic System has evolved over centuries through a continuous struggle for betterment of human society monarchy, Aristocracy, Feudalism, Capitalism, Socialism, Communism and Mixed Economy. Capitalism is associated with laissezfaire Philosophy- that government is the best which governs the least. Features of Capitalism are: (i) Competition and free trade Right to private property, Profit motive, and
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(ii)
2525 (iii)

Economic Environment

This means the means of production and distribution should be in private hands and government intervention in the economy should be the minimum. In todays world (21st Century), there is no pure form of Capitalism or Socialism. All Economies are Mixed Economies. Even communist China has become largely capitalistic with maximum liberalization and opening of south China to private enterprises. Therefore, all countries have become Mixed Economies. In Scandinavian countries, public expenditure constitutes more than 60% of GDP, in 7/5/12 50%+ France

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Economic Environment

Capitalism is a much maligned word. It is better to describe it as Free Economy. But in practice, no free economy can survive without adequate regulations. Therefore, all economies (practically all mixed) are regulated or controlled with a set of independent regulators.

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Economic Environment
(i)

Features of Socialism are: Government resources. Planning Redistribution of Income. Social welfare and Peaceful and democratic evolution. ownership of productive

(ii) (iii) (iv) (v) ()

In socialism or communism, the means of production and distribution would be 2828 7/5/12

Economic Environment

The mixed economy is a compromise between capitalism and Socialism, while the economy world be left to private initiatives and free play of economic forces, there would be substantial presence of the public sector and the economy would be subjected to government intervention whenever necessary.

Mixed economy is also known as controlled economy, originating from Keynes theory of public investment and state intervention to fight the Great Depression. 2929 7/5/12

The Five- Year Plans

Economic Planning is viewed as an instrument of Social transformation and rapid economic development. Planning induces coordinated efforts for a steady and balanced growth in all sectors and all regions, which would not have been possible in a freeenterprise regime.

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List of Five Year Plans

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

First Five-Year Plan, 19511956 Second Five-Year Plan, 19561961 Third Five-Year Plan, 19611966 Fourth Five-Year Plan, 19691974 Fifth Five-Year Plan, 19741979 Sixth Five-Year Plan, 19801985 Seventh Five-Year Plan, 19851990 Period between 19891991 Eighth Five-Year Plan, 19921997 Ninth Five Year Plan, 19972002 Tenth Five-Year Plan, 20022007 Eleventh Five-Year Plan, 20072012
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First Five-Year Plan, 1951 - 1956

The plan addressed, mainly, the agrarian sector, including investments in dams and irrigation. The agricultural sector was hit hardest by the partition of India and needed urgent attention. The total planned budget of 206.8 billion (US$23.6 billion in the 1950 exchange rate) was allocated to seven broad areas: irrigation and energy (27.2 percent), agriculture and community development (17.4 percent), transport and communications (24 percent), industry (8.4 percent), social services (16.64 percent), land rehabilitation (4.1 percent), and for other sectors and services (2.5 percent). The most important feature of this phase was active role of state in all economic sectors. The target growth rate was 2.1 percent annual gross domestic product (GDP) growth; the achieved growth rate was 3.6 percent. During the first five-year plan the net domestic product went up by 15 percent. The monsoon was good and there were relatively high crop yields, boosting exchange reserves and the per capita income, which increased by 8 percent. National income increased more than the per capita income due to rapid population growth. Many irrigation projects were initiated during this period, including the Bhakra Dam and Hirakud Dam. The World Health Organization, with the Indian government, addressed children's health and reduced infant mortality, indirectly contributing to population growth. At the end of the plan period in 1956, five Indian Institutes of Technology (IITs) were started as major technical institutions. University Grant Commission was set up to take care of funding and take measures to strengthen the higher 7/5/12 education in the country.

Second Five-Year Plan, 1956 - 1961

The second five-year plan focused on industry, especially heavy industry. Unlike the First plan, which focused mainly on agriculture, domestic production of industrial products was encouraged in the Second plan, particularly in the development of the public sector. The plan attempted to determine the optimal allocation of investment between productive sectors in order to maximize long-run economic growth . It used the prevalent state of art techniques of operations research and optimization as well as the novel applications of statistical models developed at the Indian Statistical Institute. The plan assumed a closed economy in which the main trading activity would be centered on importing capital goods. Hydroelectric power projects and five steel mills at Bhilai, Durgapur, and Rourkela were established. Coal production was increased. More railway lines were added in the north east. The Atomic Energy Commission was formed in 1958 with Homi J. Bhabha as the first chairman. The Tata Institute of Fundamental Research was established as a research institute. In 1957 a talent search and scholarship program was begun to find talented young students to train for work in nuclear power. The total amount allocated under the second five year plan in India was Rs. 4,800 crore. This amount was allocated among various sectors

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Third Five-Year Plan, 1961 - 1966

The third plan stressed on agriculture and improving production of rice, but the brief Sino-Indian War of 1962 exposed weaknesses in the economy and shifted the focus towards the Defence industry. In 1965-1966, India fought a war with Pakistan. The war led to inflation and the priority was shifted to price stabilisation. The construction of dams continued. Many cement and fertilizer plants were also built. Punjab began producing an abundance of wheat. Many primary schools were started in rural areas. In an effort to bring democracy to the grassroots level, Panchayat elections were started and the states were given more development responsibilities. State electricity boards and state secondary education boards were formed. States were made responsible for secondary and higher education. State road transportation corporations were formed and local road building became a state responsibility. The target growth rate of GDP(gross domestic product) was 4.5 percent. The achieved growth rate was 4.3 percent

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Fourth Five-Year Plan, 1969 - 1974

At this time Indira Gandhi was the Prime Minister. The Indira Gandhi government nationalized 14 major Indian banks and the Green Revolution in India advanced agriculture. In addition, the situation in East Pakistan (now Bangladesh) was becoming dire as the IndoPakistani War of 1971 and Bangladesh Liberation War took place. Funds earmarked for the industrial development had to be diverted for the war effort. India also performed the Smiling Buddha underground nuclear test in 1974, partially in response to the United States deployment of the Seventh Fleet in the Bay of Bengal. The fleet had been deployed to warn India against attacking West Pakistan and extending the war Target Growth: 5.7% Actual Growth: 3.30%

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Fifth Five-Year Plan, 1974 - 1979

Stress was laid on employment, poverty alleviation, and justice. The plan also focused on self-reliance in agricultural production and defense. In 1978, the newly elected Morarji Desai government rejected the plan. Electricity Supply Act was enacted in 1975, which enabled the Central Government to enter into power generation and transmission leaders. The Indian national highway system was introduced for the first time and many roads were widened to accommodate the increasing traffic. Tourism also expanded Target Growth: 4.4% Actual Growth: 5.0

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Sixth Five-Year Plan, 1980 - 1985

The sixth plan also marked the beginning of economic liberalization. Price controls were eliminated and ration shops were closed. This led to an increase in food prices and an increase in the cost of living. This was the end of and Rajiv Gandhi was prime minister during this period. Family planning was also expanded in order to prevent overpopulation. In contrast to China's strict and binding one-child policy, Indian policy did not rely on the threat of force. More prosperous areas of India adopted family planning more rapidly than less prosperous areas, which continued to have a high birth rate. Target Growth: 5.2% Actual Growth: 5.4%

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Seventh Five-Year Plan, 1985 - 1990

The plan laid stress on improving the productivity level of industries by upgrading of technology The main objectives of the 7th five year plans were to establish growth in areas of increasing economic productivity, production of food grains, and generating employment opportunities As an outcome of the sixth five year plan, there had been steady growth in agriculture, control on rate of Inflation, and favourable balance of payments which had provided a strong base for the seventh five Year plan to build on the need for further economic growth. The 7th Plan had strived towards socialism and energy production at large. The thrust areas of the 7th Five year plan have been enlisted below:

Social Justice Removal of oppression of the weak Using modern technology Agricultural development Anti-poverty programs Full supply of food, clothing, and shelter Increasing productivity of small and large scale farmers

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Eighth Five-Year Plan, 1991 - 1996

Modernization of industries was a major highlight of the Eighth Plan. Under this plan, the gradual opening of the Indian economy was undertaken to correct the burgeoning deficit and foreign debt India became a member of the World Trade Organization on 1 January 1995 Major objectives included, controlling population growth, poverty reduction, employment generation, strengthening the infrastructure, Institutional building, tourism management, Human Resource development, Involvement of Panchayat raj, Nagar Palikas, N.G.O'S and Decentralization and people's participation. Energy was given priority with 26.6% of the outlay Target Growth: 5.6% Actual Growth: 6.7%

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Ninth Five-Year Plan, 1997 - 2002

Ninth Five Year Plan was formulated amidst the backdrop of India's Golden jubilee of Independence The main objectives of the Ninth Five Year Plan of India are:

to prioritize agricultural sector and emphasize on the rural development to generate adequate employment opportunities and promote poverty reduction to stabilize the prices in order to accelerate the growth rate of the economy to ensure food and nutritional security to provide for the basic infrastructural facilities like education for all, safe drinking water, primary health care, transport, energy to check the growing population increase to encourage social issues like women empowerment, 7/5/12 conservation of certain benefits for the Special Groups of the

Tenth Five-Year Plan, 2002 - 2007

Attain 8% GDP growth per year. Reduction of poverty ratio by 5 percentage points by 2007. Providing gainful and high-quality employment at least to the addition to the labour force. Reduction in gender gaps in literacy and wage rates by at least 50% by 2007. 20 point program was introduced. Target growth:8.1% Growth achieved:7.7%

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Tenth Five-Year Plan, 2002 - 2007

To

transform the country into the fastest growing economy of the world an annual economic growth of 10% and social development and services:

targets Human The

social net

Industry Industry,

Minerals, Energy, Information Technology, Tourism, Real Estate, Construction, Internal trade and environment and technology
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Forests Science

Eleventh Five-Year Plan, 2007 - 2012

Main

objective - Inclusive Growth

Approach
Improve The

the quality of life of the mass of our people, especially the poor Eleventh Plan has an opportunity to restructure policies to achieve a new vision of growth that is much broader based and inclusive, about a faster reduction in poverty and helping in bridging the divides.

Bringing

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Eleventh Five-Year Plan, 2007 - 2012

OBJECTIVES
Income

& Poverty

Education and Children

Health Women

Infrastructure Environment

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Income & Poverty

Accelerate

GDP growth from 8% to 10% and then maintain at 10% in the 12th Plan in order to double per capita income by 2016-17 agricultural GDP growth rate to 4% per year to ensure a broader spread of benefits 70 million new work opportunities. educated unemployment to below 5%.

Increase

Create

Reduce Raise

real wage rate of unskilled workers by 20 percent. the headcount ratio of consumption poverty by 10 percentage points. 7/5/12

Reduce

Education
Reduce

dropout rates of children from elementary school from 52.2% in 2003-04 to 20% by 2011-12 minimum standards of educational attainment in elementary school, and by regular testing monitor effectiveness of education to ensure quality literacy rate for persons of age 7 years or above to 85% gender gap in literacy to 10 percentage the percentage of each cohort going 7/5/12 point

Develop

Increase Lower

Increase

Health
Reduce

infant mortality rate to 28 and maternal mortality ratio to 1 per 1000 live births clean drinking water for all by 2009 and ensure that there are no slip-backs malnutrition among children of age group 0-3 to half its present level anaemia among women and girls by 50% by the end of the plan

Provide Reduce Reduce

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Women and Children

Raise

the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17 that at least 33 percent of the direct and indirect beneficiaries of all government schemes are women and girl children that all children enjoy a safe childhood, without any compulsion to work

Ensure

Ensure

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Health Infrastructure
Connect

every village by telephone by November 2007 and provide broadband connectivity to all villages by 2012 Transport(108) and Health Information (104) Services: Free 108 (EMRI): to enable rural poor easy access to hospital services, free of cost, in times of emergency. Ensure all-weather road connection to all habitation with population 1000 and above (500 in hilly and 7/5/12

Emergency

Toll

Urban Development
Hyderabad

International Airport commenced work during 2005 and it is made operational in March,2008. Nehru National Urban Renewable Mission (JNNURM): Sub-Missions, viz., Urban Infrastructure & Governance (UI&G) and Basic Services to the Urban Poor(BSUP). Infrastructure Development Scheme for Small & Medium Towns (UIDSSMT) and Integrated Housing and Slum Development Programme(IHSDP) are also associated
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Jawaharlal Two

Urban

Rural Development
Four flagship programmes, namely,
National
Came

Rural Employment Guarantee Scheme (NREGS),

into force on 2nd February 2006
According

to this Act, workers are entitled to 100 days of wage employment for their households in a financial year.

Indira Awas Yojana (IAY)

Most

significant rural housing scheme among the central schemes.

7/5/12 pattern of 75:25 between the centre and

Sharing

Rural Development
National

Social Assistance Program(NSAP)

Sponsored Came With

by the Ministry of Rural Development (MoRD), Government of India, into effect from August 15, 1995 the purpose of providing social assistance to the rural poor in India. It aims at improving the quality of life of the rural poor

Four

components
Old Age Pension Scheme (NOAPS) Family Benefit Scheme (NFBS)
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National National Indira Indira

Gandhi Widow Pension Scheme (IGWPS) Gandhi Disability Pension (IGDP).

Drinking Water & Nutrition

Accelerated

(ARWSP)
72

Rural Water Supply Programme

% of water supply schemes are based on ground water as the source and 28% are covered by surface sources. there is no safe source in about 1,647 habitations, of which 1,064 are fluoride affected. osmosis for supplying safe drinking water under Bharat Nirman programme.

Further,

Reverse

Implemented 33,133

habitations during the last three years (2007-08 to 2009-10).

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Drinking Water & Nutrition

Jalayagnam
creating by

98.41 lakh acres of new irrigation potential and stabilizing 22.26 lakh acres constructing a total number of 86 irrigation project include 44 major, 30 medium projects, 4 flood banks --modernizing 8 projects has been mounted since 2004-05. projects have been completed and water released during 2004-05 to 2008-09. the 3 years (2007-08 to December, 2009) of the 11th Five Year Plan 12.26 lakh acres potential including stabilization of 2.20 lakh acres, 7/5/12

which

12

During

Drinking Water & Nutrition

The

National Rural Health Mission (NRHM) launched in the country during April 2005
Anganwadi Integrated

Helper (AWH) to manage the AWC. Child Development Services

Mid
a

Day Meal Scheme (MDMs)

minimum content of 450 calories

12

grams of protein content is provided per child (classes I to V ) calories and 20 grams of protein content is provided per child (classes VI to X).
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700

Environment
Increase Attain Treat

forest and tree cover by 5 percentage points. WHO standards of air quality in all major cities by 2011-12. all urban waste water by 2011-12 to clean river waters. energy efficiency by 20 percentage points by 2016-17.

Increase

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Resource Allocation
Sectors Allocation: 10th and 11th Five Year Plan
(in per cent to total Plan outlay)

S. N.
1 2 3 4 5 6 7 8 9

Sectors
Education Rural Devt. & Panchayati Raj Health & Family Welfare Agriculture and Irrigation Social Justice Physical Infrastructure Scientific Departments Energy

10th Plan (2002-07)

7.68 10.70 5.62 6.22 4.47 10.94 3.66 5.81 55.10 44.90 100.00 (8,13,778)

11th Plan (2007-12)

19.29 13.39 8.71 8.55 6.35 9.01 4.68 4.04 74.03 25.97 100.00 (14,21,711)

Total Priority Sectors

Others

Total

Note: (a) Figures in the parentheses are INR in Crore.

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Industrial Policy

Modern industrial enterprises developed only after 1850 construction of railways Madras Government, in 1900, started a policy of surveying industrial possibilities, assisting private enterprises, improving technical education and starting pioneer industries with state resources Industrial Commission was set up in 1916 to examine and report the possibilities of industrial development

The

Indian

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Objectives of the Government

Rapid Rapid

agricultural and industrial development

expansion of opportunities for gainful employment disparities reliance reduction of social & economic

Progressive Removal

of poverty and attainment of self-

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Role of the Government

Promoter, Promoting

caretaker and regulator and protecting the small scale the revival of sick units

sector

Facilitating Facilitating Promoting Promoting Promoting

the development of Indian companies for the global market inflow of foreign capital and technology and maintaining ecological balance the social role of business
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Developing

Objectives of the Industrial Policy (pre 1991)

Reduce Prevent Build

disparities in income and wealth

monopolies and concentration of economic power a large and heavy public sector and manage the same effectively heavy and machine making industries the rate of industrialization and economic growth employment generation on development of small scale sector 7/5/12

Develop

Accelerate Higher Focus

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