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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

BUSINESS ENVIRONMENT
Business Environment mainly refers to external forces that impact
business. Such forces include political-legal ,technological ,cultural ,economic and physical.

Factors under External Environment


All the factors that provides opportunities or pose threats to an organization make up
its external environment.
• DEMOGRAPHIC ENVIRONMENT
• SOCIAL ENVIRONMENT
• CULTURAL ENVIRONMENT
• POLITICAL ENVIRONMENT
• ECONOMIC ENVIRONMENT
• FINANCIAL ENVIRONMENT
• TRADE ENVIRONMENT
• TECHNOLOGICAL ENVIRONMENT
• LEGAL ENVIRONMENT
• REGULATORY ENVIRONMENT
• TAX ENVIRONMENT
• ETHICAL ENVIRONMENT

External environment consists of 1. Micro Environment 2. Macro Environment

1. Micro Environment
• Micro environment is called as the task environment and operating
environment.
• Micro environment forces have a direct bearing of the operation of the firm.
• These factors are present in companies environment and affect on the
performance of the companies.
• Includes – suppliers ,marketing intermediaries .competitors,customers and
public.

Micro environment are more intimately linked to company than macro.


 Suppliers :
o Those who supply inputs,raw material and components
o Uncertainty in supply compels high inventory cost.
o India maintains stocks of 3 to 4 months were as Japan
maintains for few hours.
o Eg : Nirma –believes of the logic that captive production plant
for raw material is best for cost control.(backward integration)
o Co feel outsourcing is more beneficial
o Risk to depend on single supplier
o Globally companies are resorting to partenering relationship
marketing.

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

 Customers:
o Business exists because of customers
o Monitoring customers sensitivity is perquisite
o The choice of customer by the firm can be on
a. Relative profitability
b. Dependability
c. Stability of demand
d. Growth prospects
o Today customer is global customer as exposed to global
products.

 Competitions:
o Competition includes not only with competitors of same
product but all those who compete for discretionary income of
consumers.
o Eg : the competiton for T V firm may not be only from other
T V manufacturing but also from 2wheelers ,
refrigerators,cooking ranges,stereo sets etc,bank schemes.
o To influence basic desire of customer
o Generic competition: If the customer decides to spend
discretionary income on recreation , he come across
alternatives like, TV ,stereo ,2 in 1,3 in 1 P C etc.
o It is competition among alternative.

 Marketing Intemediary:
o Firms that aid the company in promoting,selling and
distributing its grads to final buyers.
o Includes middlemen,agents,merchants,distribution
firms,warehouses,transportation firms,marketing,financial
intermediaries ,insurances etc.

 Financiers
o Financiers of the company
o Their financial capability,policies, strategies.attitudes,ability to
provide non financial assistance.

 Public
o Public is any group that has actual or potential interest I or
impact on organizations ability to achieves its interest.
o Media publics,citizens action publics,local publics
etc,consumers publics
o Issues against companies
o Tarnishing the image by media
o Environmental pollution
o Chills labour,sweat labour,cruelty against animals.

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

2. Macro Environment
• Macro environment consists of larger societal forces that affect on companies
micro environment.
• Micro environment forces have a direct bearing of the operation of the firm.
• These factors are present in companies environment and affect on the
performance of the companies.
• Includes – suppliers ,marketing intermediaries .competitors,customers and
public.

Factors under Internal Environment


The internal environment comprises the resources ,synergy and distinctive
competencies of a firm.These together determine its organizational capability in terms of its
strengths and weaknesses existing in the different functional areas – marketing,
operations,personnel,financial,technical,etc.

Needless to mention that internal environment is constantly influenced by the external


environment.
• STRATEGY
• STRUCTURE
• MARKETING CAPABILITY
• OPERATION CAPABILITY
• PERSONNEL CAPABILITY
• FINANCIAL CAPABILITY
• TECHNICAL CAPABILITY

The factor which have bearing on the strategy and decision making are
• Value system
 Value system by founder has important bearing on
o Choice of business
o The mission
o Objective of the organization
o Business policies and practices

 If value system is shared by all in firm contributes to the success.


 The value system of JRD TATA and its acceptance ,voluntarily
incorporated to social responsibility to
consumer,employees,shareholder,society and people.
 EID PARRY group was taken over by MURUGAPPA
group,profitable liquor business sold off to PARRY ;did not fit into
value system of the MURUGAPPA GROUP.
 VALUE system and ethical standards are evaluated by many
companies in selection of suppliers,distributors and collaborations
 Value ,governance , and excellance of Infosys ltd
o I nfosys tech ltd ,IT consulting and software services to future
1000 Co,employ more than 3000 people key growth principle
of the corporate governance
a. Best practices
b. Financial markets
c. Human capital
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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

o Core values: to achieve objective in an fair


environment,honesty,transperancy,courtesy towards
customers,employers,vendors and society.
o Activities benchmaked to Global practices
o Firms quality control and project management helped in
achieving total quality management accredation
o Feedback from process audit helped foe reengineering the
internal processes.
o International accounting practices followed
o Infosys published all financial reports according to US and
Indian accounting practices.
o Best practices captured through knowledge management
systems and gives experience.
o The 1st Indian registered direct listing on US market
o NASDAQ trading began in Maech 1999.
o Viewed it as to achieve more liquid currency through stock
options (ESOP)
o Attracting best employee and future acquisition
o Presence on NASDAQ would give comfort and confidence to
customers.
o Provides innovative compensation and benefits
o Pioneered the concept of employee stock qwnership plan in
India.
o Offer benefits of traning ,asset acquisition
,loans,housing,personnel assistance services.
o Combination of stock options and bemnefits allows infosys to
attract top talent to contribute to the growh.
o Won 1st national corporate governance award 1999 instituted by
ministry of finance and sponsered by the UTI.

• Mission and Objective


 Mission and objective guides
o The business domain of the Co .
o Priorities
o Direction of development
o Business philosophy
o Business policy
o Eg Ranbaxy thrust in foreign market and development is driven
by mission “ To become a research based international
paramaceutical company.
o Eg : Arvind mills Mission:- “To achieve global dominance in
select business to build core competencies through continuous
product and technical innovation and focus on cost
effectiveness”.
• Management structure and nature
o Composition of board of directors
o Extent of professionalism
o Quality of the board in critical factors
o Shareholding pattern could have important managerial implication

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

o Eg WIPRO majority of shares held by promoters


o Financial institution have large share holding
o The stand of nominees of financial institution can be decisive factors
• Internal power relationships
o The amount of support the top management enjoys from
 Employees of different level
 Share holders
 Board of directors
Has impact on decision making.

Relationship between members of BOD and between chief executive and


the board is important.
• Human Resources
o Characters like skills quality morals commitment attitude etc.
o The involvement ,initiative of people varies in different organization
o The organization culture and qverall environment is responsible.
o John towers M.D of Rovers group found Japanese firm with 30000 employees
and 30000 process improvers.
o Western firms 2000 process improvers and 2800 workers
o India?

• Company image and brand equity


o Co image matters while raising finance,forming joint venture alliance
,soliciting,marketing intermediaries.entering purchase or sale
contracts,launching new product.

• Miscellaneous Factors
o Other factors contribute to the success failure of business or influence
decision making are
 Physical asset and facilities :-production
capacity,technology,distribution logistics,quality production.
 R & D of technological Capabilities:-to innovate and compete
 Marketing resources
 Financial factors:- financial policies ,financial position,capital
structure etc.

Environmental study confer several benefits:


• Broad strategies are developed
• Action plans to cope with technological changes may be evolved
• Counter strategies to outsmart competitors
• Keep managers on toes.

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

Limitations of Environmental Analysis


Environmental analysis often has debilitating impact on business
• Fails to foresee future accurately
• Does not guarantee organizational effectiveness
• Too much reliance on analysis makes a manager become complacent.

Domestic Environment
• Economic conditions
o Good export market
o But recession in other country can increase the impot threat and dumping
• International political factors can affect business like
o War
o Political tensions
o Uncertainties
o Strained political relations
o All may eliminate sanction
• Development in info and common technology facilities
o Cross border spread of culture
o Influence attitude
o Aspirations
o Tastes,preferences ,customs.
o Traditions and values.

Global Environment
• Domestic business is affected by global factors
• Global environment refers to
o WTO principles and agreements
o International environment
o Treaties
o Agreements
o Declaration
o Protocols
o Economic and business conditions
o Sentiments in others countries
o Developments like hike in oil prices

o WTO principles and regulation have for reaching impact on Indian business
 Product patent acceptance – impact on pharma industry
 The import and investment ,liberalization have charges competitive
environment in India.
o Global interdependence

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

 Eg American Co CISCO,LUCENT,INTEL have impact on


INFOSYS,WIPRO,HCL
o Hit on share market affects
 Job market
 Reduction in job
 Less intake by institution
 2-3 % earning dip.

COMPETITIVE STRUCTURE OF INDUSTRIES

MICHAEL PORTERS MODEL OF


STRUCTURAL ANALYSIS OF INDUSTRIES

• 5 BASIC FORCES
o Rivalry among existing firms
 Firms in industries are mutually dependent
 Common competitive actions
• Price changes
• Promotional measures
• Customer service
• Warranties
• Product improvement
• New product launch
• Channel promotion
 No’s of factors which influence rivalry
• No ‘s of firms ,their market share,strength
• State of growth of industries
• Fixed and storage exists
• Indivisibility of capacity augmentation
o Efforts to increase sales to achieve capacity
utilization,during economies of scale

 Product standardization and switching cost


• When product of different firms are standerdised-price
,distribution ,after sales service,credit are important variable of
competition.

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

• Absence of switching cost are important

 Strategic stake
• More rivalry of no of firms have high stake inachieving
success
 Exit barriers
• High compensation of labour
• Emotional attachment etc
 Switching costs:
• Cost of retaining employees
• Cost of new ancillary equipment
 Expected retaliation
• Potential entrants expection about the reaction of existing
competitors.

o Threat of new entrants


 Growing industry face threat of new entrant
 But can have entry barriers
 Competition is high if industry is more profitable
 Entry barriers are as follows
• Govt policy
o Prior to liberalization
o Reservation of industries
o Product for public sector
o Industrial licensing
o Regulations under MRTP ACT
o Import restriction
o Restriction on foreign capital and technology

• Economies of scale
o Keeps out small players
o Restricts large players because of risk of large stake
• Cost disadvantage and learning and experience curve
o Cost advantage by established firms
o Proprietory product technology,experience and learning
curve,removable access to material.location.govt
subsidies.
• Product differentiation
o Brand image ,customer loyalty,product attributes.
• Monopoly elements
o Proprietary product /technology

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

o Monopolization / control on raw materials ,distribution


channels etc.
• Capital requirement
o High capital intensive is barrier to small firm.

o Threat of substitutes
 Important forces power of substitute
 Direct impact on the price
 Low manufacturing cost / sub standard quality

o Bargaining power of suppliers


 Determinants are
• Extent of concentration and demination in supplier industries
• Importance of product to the buyer and vice versa
• Extent of substitutability
• Switching costs

o Bargaining power of buyers


 Buyers are potential competitors
 May intergrate backwards –environmental awareness
 Buyers compete by
• Forcing down prices
• Bargain for high quality and more service

LIMITATION OF PORTERIAN MODEL


• Provides useful framework for analysis of nature of competition in the industry but
have shortfalls if competition is driven by innovation.

COMPETITORS ANALYSIS
Necessary for formulating right strategies and determining position of the firm
• Basic questions of competitors analysis are
o Who are competitors of the firm?
o What are their current strategies?
o What are their future goals and strategies?
o What drives the competition?
o Where is the competitor vulnerable?
o How others are likely to respond to the strategies of different firms
o Porters framework suggestion
 Future goals
 Current strategies
 Assumptions
 Capabilities

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

VALUE CHAIN
• Porter: value chain important determinant of competitive advantage.
• Value is amount buyer willing to pay for product
• Value chain displays total value activities and margins
• Primary activities
o Inbound logistics
o Operations
o Marketing and sales
o Services

• Support activities
o Procurement
o Tech development
o HRM
o Firm infrastructure and Management

ENVIRONMENTAL ANALYSIS AND STRATEGIC MANAGEMENT


• SWOT (STRENGTH WEAKNESSES OPPORTUNITIES and THREATS) plays
vital role in environmental analysis and strategic management.
• Strategy is defined by Glueck as “Unified ,comprehensive and integrated plan relating
to strategic advantage of firm to challenge environment”
• Strategic management is defined as “ Set of decisions and action which leads to
development of an objective strategy to help achieve corporate objective “
• Strategic management process is explained as under

Evaluation and
Implementation
Control

Determination
Choice of
of vision
strategy

Consideration
Establishing
of strategic
Objective
alternatives

SWOT
analysis

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

• Eg where the Raymond wants to be :


o Gautam Hari Singhania CMD
o Turnover 1374 Crores
o SWOT analysis
o Sold filament yarn, cement ,steel
o Strengthen with buy back shares Rs 158 Crores
o 27% - 31% holding
o Claims among top 3 fabric bonds of the world

• Well international product life cycle


• Japan started exporting to US
o Compact fuel efficient cars
o Small screen TV
o Low horse power tractors

• P & G Vs Hindustan Lever.

Strategic Alternatives
• Question
o Why should Co go for this Business?
o If same Business what way?
 Manufacturing completely
 Establish manufacturing in free areas EPZ ,SEZ
 Establish in foreign country
 Manufacturing components at home and assemble foreign
 Enter into licencing / franchising etc

Strategy development process.

Implementation
• Formulation of good strategy
o Corporate level strategy
o SBU level strategy(operating division)
o Functional level strategy

Evaluation .

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

ENVIRONMENTAL ANALYSIS AND FORECASTING

• Strategic business decisions need


o Clear identification odf relevant variables
o Detailed and indepth analysis of them
 Eg what impact and implication of liberalization on organization
 Means – what are the threats and opportunities posed by the
liberalization
 So through analysis of environment is needed
• Stages of environmental analysis
o Scanning the environment to detect warning signals
 Scanning is process of analyzing environment for the identification of
the factors which impact on business
 Identification of emerging trends
 Identifying the process or indicators of potential environment changes
and issues
 Drawing attention to possible changes and events well before
occurrence
 Scanning is exploratory and involves wide examination.
o Monitoring specific environment trends
 Entails perspective follow up and indepth analysis of relevant
environmental changes or trends
 More focused and systematic effort than scanning
 Eg emergent lifestyle pattern may include
• Changes in entertainment
• Education
• Consumption
• Wok habit
• Domicile- location preference
 Output of monitoring
• A specific description of environmental pattern forecast
• Identification of trends for further monitoring
• Identification of pattern requiring further analysis.

o Forecasting the direction of future environment changes


 Anticipating the future for threats and opportunities and formulating
strategic plan.

o Assessing current and future environment changes for organizational


implication.
 To assess the impact of environmental factors on organization business
 Involves drawing up implication possible impacts.
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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

APPROACHES TO ENVIRONMENTAL ANALYSIS

BROADLY 2 APPROACHES

OUTSIDE – IN (MACRO) APPROACH


• Take broad view of business environment
• Useful when many variable play a role
• Scenarios allow integration of multiple variables
• Scenario is description of events may occur in future and their consequences for the
organization. STEPS TO DEVELOP SCENARIOS
o Identify strategic environmental issue,prioritise it according to importance
o Select most important issues
 List organizational assumptions to these issues
 Identify possible assumptions variations
o Prepare preliminary description of these issues ,include the key
economic,social ,political and cultural influences that affect them.
o Draw out implication of the issues for organizational perfoemance
 What firm has done and what can be done for these issues ?
 Identify where management has control and which management cannot
control?
o Develop detailed description of future with present scenarios
o Discuss the scenarios with top management and refine them?
o Develop contingency action plans for each scenario?

INSIDE –OUT (MICRO) APPROACH


• Takes narrow view of environment
• Forecast immediate future of the environment
• Determine the implication of it for industry and firm.

TECHNIQUES FOR ENVIRONMENT ANALYSIS


• WILLIAM GLUECK
o Verbal and written info
o Search and scanning
o Spying
o Formal forecasting.

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

STEPS IN ENVIRONMENT FORECASTING

• Identification of relevant environmental variables


o Not relevant to all industries and firms
o Pearce and Robinson point out to limit the variables
 Include all variables that have significant impact .delete variable with
little impact.
 Disregards major disaster
 Aggregate when possible into gross variables eg bank loans
 If value of one variable is dependant on value of other.

• Collection of information
o After determination of key variables
o Connect the information
o Involves identification of sources of info
o Determining type of info to be collected
o Selection of method of data collection
o Collection

• Selection of forecasting technique


o Depends on usefulness of forcast
o Technique depends on
 Consideration of nature of forecast decision
 Amount of accuracy of info available
 Accuracy required
 Time available
 Quantitative technique Vs qualitative technique.

TYPES OF FORECAST
• Economic forecast
o Important economic factors are
 General economic condition
 GDP growth rate
 Per capita income
 Distribution of income
 Structural changes in GDP
 Investment and output trends in sectors / industries
 Prices trends
 Trade and BOP trends

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

o The macro economic forecasts serve base for the industry and company
forecast
o Sources are for short ,median and long term forecast
 International organization like World Bank ,IMF,UN,WTO.
 Regional organizations
 Asian development bank
o When reliable forecast is not available from secondary source,firm has to
make own forecast.
o Reliable forecast give useful picture of future scenario
o Eg power development would indicate
 Scope of investment in power sector
 Prospects of related industries like generators ,transformers ,cables
switchgears, electric goods etc
 Rural electrification will indicate demand for pump set and consumer
durables
o Short term economic forecast useful for demand and sales forecast and
marketing strategies formulation
o Quanti method ,econometric method,time series,trends.judgement method
used.

• SOCIAL FORECAST
Important factors
o Population growth / decline
o Age structure of population
o Ethnic composition of population
o Occupation of population
o Rural urban distribution of population
o Migration
o Factors related to family
o Lifestyle,income levels,expenditure paterns
o Social attitudes
o A wealth of published and unpublished data of forecast and social trend is
available
o UN and its organs,WORLD BANK,academic organization govt organization
are sources.
o Data is available regarding future trends in birth / death rate,population
size,age structure
o Social trends are vital for business strategies
o Social trends are vital for business strategies
o Quantitative techniques- series analysis , econometric methods,dolphin
methods are used
o Scenario building is useful.

• POLITICAL FORECAST
o Political shift (1980-USSR and Eastern Europe)
o Change in internal political power structure (China)
o Political alliance and political structure,ideologies has implications on
business
o Political forecast covers
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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

 Industrial policy
 Commercial policy
 Fiscal policy

• TECHNOLOGICAL FORECAST
o Innovation and technical development alter usiness environment
o Technological forecast includes
 Innovation
 Pace and extent of diffusion and penetration of technology
o Technology is one component in world competitive report
o Technology vision 2020 for India
o Technology info ,forecasting and assessment council (TIFAC) established in 1988 in India.
o Brainstorming and Delphi methods are popular

TECHNIQUES FOR ENVIRONMENT FORECASTING


• ECONOMETRIC TECHNIQUE
o Establishing relationship between 2 or more variables
 Multiple regression analysis
 Time series analysis

• TREND EXTRAPOLATION
o Time series models
o Past is prologue to the future
o Simple linear relationship
o Non-linear relations

• SCENARIO DEVELOPMENT
o Royal Dutch Shell’s anticipation of crash in oil prices in future
o If projects emergence of future conditions and it consequences
o Eg Developing alternative scenario by planning commission of India
o Drawn different alternative scenarios for
 Growth rates of different sectors
 Poverty ratio

METHODS OF SCENARIO BUILDING


• PREMISSING METHOD
o Series of premises are drawn up from which projectionof future
o Scenarios is made
o This consist basic assumptions about certain variables,current trends etc
o Focus on few tendencies,its evolution

• SYSTEM DIAGRAM METHOD


o It explores policy and strategy options based on present system.
o Eg newspaper firm think of entering other media

• CRITICAL SITE METHOD

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

o Based on scenario projection on the policy making structure of organization


o Focus on the critical sites related to the business
 Eg meeting of board of co
 National convention
 Meeting of policy decision making body of political party
 Meeting of bodies like OPEC or WTO.

• NEWS PAPER HEADLINE METHOD


o Scenario writer post one or more hypothetical headlines for future date
o Writes possible development and chart out strategy.

• LOGICAL POSSIBILITY METHOD


o Based on already developed scenario
o This is supplement to the earlier

• JUDGEMENT METHOD
o On opinions

• BRAIN STORMING
o Creative method of generating ideas and forecast
o Group of knowledge people are asked to generate ideas ,discuss and make
forecast
o Popular techniques for technological forecasting

• DELPHI METHOD
o More systematic than brain stroming
o Panels of experts opines on subject
o Can be semi structure quetionaire or interview
o RAND corporation formed this tech of for formation of OPEC on oil supplies
and prices

• STATEGIC ISSUES ANALYSIS


o Qualitative tech f used for assessing emerging atrtegies environment issues
o Consists systematically monitoring ,social ,regulatory,political changes.

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

ECONOMIC ENVIRONMENT
INCLUDE:
• STRUCTURE AND NATURE OF ECONOMY
• THE STAGES OF DEVELOPMENT OF ECONOMY
• ECONOMIC RESOURCES
• THE LEVEL OF INCOME
• DISTRIBUTION OF INCOME AND ASSETS
• GLOBAL ECONOMIC LINKAGES
• ECONOMIC POLICIES

THE NATURE OF THE ECONOMY


• Countries different regions within country show great difference
• General level of economic development has lot of implication on business
• Has significant bearing of nature and size demand ,government policies etc
• Widely used method of classification of economies is on the basis of per capita
income (ie average annual income of peron)
• Low income and middle income economies are developing
• All oil eporters are not developed economies.UAE,KUWAIT, they are high income
economies.
• Industrial economies are developed economies.
• Some criteria for developed economy
a. Sectorial distribution of income
b. Employment generation
c. Social development indicators
d. Use of modern and sophisticated tech etc
e. Innovation
f. Diffusion of new ideas and technology
g. Low share of primary sector
h. Market friendly economic policies
i. Open trade and investment policy

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

j. Democratic rights
k. Competition and consumer choice

• Low income is indication of deprivation of people


• Prevents access to basis necessities and morden amenities
• Developing economy
a. Shows the inequality in distribution of income
b. Large portion of population lives in abject poverty
c. Characterized by high birth and population growth
d. High death rate than developed countries
e. Prevalence of rudimentary and traditional methods and obsolete technology

• Least developed economy


a. Low GNP per capita
b. Land locked remote insularity
c. Desertification
d. Natural disasters
e. Eg Bangladesh,Butan,Nepal,Maldives,Mali,Uganda,Myanmar,Sudan,Zambia,
Zimbabwe.
• Developing with rapid industrialisation
a. Eg Hong Kong ,South Korea,Singapore,Taiwan.

• New industrialized economy


a. Show high growth rate overlog series
b. High per capita income
c. Impressive export
d. These economies are in “Transition Economies”.
e. Former communist and socialist economies
f. USSR / CIS and East European countries

• Income is not only criterion for economic growth and development


• Increase in income is indication growth
• But development has qualitative dimensions
a. Distribution of income
b. Standard of living
c. Composition of output
d. Character of working condition
e. Overall economic welfare
f. Eg countries where income and investment are steady increasing the prospects
of business are bright.

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

STRUCTURE OF THE ECONOMY

PRIMARY ,SECONDARY AND TERTIARY SECTORS


LARGE ,MEDIUM,SMALL, TINY,SECTORS

INTEGRATION IS IMPORTANT WITH WORLD

• Some economies still based on primary sector


• But service sector contributes 60% of the world GDP
• Service sector of India grew at 6.9% and GDP growth was 46% in 2000
• The growth in the trade of service increased tremendously

ECONOMIC POLICIES HAVE GREAT IMPACT ON


• Industrial policy
• Trade policy
• Foreign exchange policy
• Monetary policy
• Fiscal policy
• Foreign investment
• Technology policy

• INDUSTRIAL POLICY
a. DEFINE the scope and role of different sectors like
private,public,joint and co operative or large ,medium,small,tiny
b. It may influence the location of industry
 Choice of technology
 Scale of operation
 Product mix etc

o India ,liberalization ushered in 1991

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

 Pre liberalization
a. The scope of large private sector was limited
b. The development of 17 most important industries was reserved for
state.
c. For another 12 major industries state had to play major role
d. Remaining industries,co operative,joint sector and SSI were getting
preferential treatment over large entrepreneurs
e. Production of large no of items was reserved for manufacturing of
SSI
f. In private sector entry and growth was regulated by licencing and
MRTP
g. Govt policies thus limited the scope of private business
h. Govt policy was constraint and registered growth
i. 1991 has wide open
j. But few industries for the private sectors
k. Changed the business environment
l. Expanded business opportunities
m. Increased competition
n. Thus was exist and entry of many old and new players.
• TRADE POLICY
a. Significantly affects the formation of the firm
b. Restrictive impot policy
c. Policy of protecting home firms
d. May help the impot competing firm
e. But liberalization of import may create difficulties to them
f. Trade policy often integrated with industrial policy
g. As part of economic liberalization ,WTO compliance ,India has liberalized
h. Companies face growing international competition in the domestic truf

• FOREIGN EXCHANGE POLICY


a. Exchange rate policy and policy on respect of cross border movement of capital
b. Abolition of exchange control allows cross border movement of capital.

• FOREIGN EXCHANGE AND TECHNOLOGIACAL POLICY


a. Till 1980- foreign capital and technology were under restriction in developing
and socialist/ communist countries
b. Restriction on foreign capital affect growth plan of firm ,establishing joint
ventures
c. Huge investment in infrastructure and vital sector can change environment eg:
China.
d. Liberal foreign investment and technology can increase domestic competition
e. Permits global sourcing of capital and technology
f. Increases quality / quantity domestic supply and services

• FISCAL POLICY
a. Govt strategy of public expenditure and revenue have impact on business.
b. Pattern of expenditure affects the development
c. In tax policy,govt can use tax incentive or disincentives to encourage activities
a. When industry suffers recession,reduction of taxes like excise duties,
sales tax may help improve demand.

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

b. Reduction of rate of direct tax ,personal income tax and corporate tax
may increase disposable income,result increase in demand .
d. Govt or State may offer different fiscal incentive to two industries.

• MONETARY POLICY
a. The Central bank ,by its policy towards cost and availability of credit can
influence
a. Savings
b. Investments
c. Consumer spendings

b. depending on the conditions of economy and general economic policy of Govt


RBI may adopt an expansionary or contractionary or neutral monetary policy
c. eg :1% point reduction Ithe cash reserve ratio or statutory reserve ratio will
signify increase in the ratio will have opposite effect
d. monetary policy also effects the exchange rate of the currency.

ECONOMIC CONDITIONS
• Economies pass through boom and recession
• Boom is 1. High level of output 2. Employment and rising demand and prices
• Economies of oil exporting countries depends on extent of crude oil prices
• Economic condition related to major crops
o Eg :1997-2000 fall in coconut prices
o Loss of 10000 crores
o Rubber farmers

• Steel prices south east asian crisis 100% surge by Indian companies in US and
Europe.
• U S economy account for ¼ of global economy
• Thus trends in US affects the growth trend of global economy
• The balance of payment position of the country influence the economic policies and
business environment.
• a/c surplus encourage the Govt to liberalise the import and capital movement.
• India export performance is affected by 2 kinds of factors
o EXTERNAL FACTORS
 The rate of growth of the economies of the importing countries
 The rate of growth of the world trade
 The rate change in the price level in the importing country
o INTERNAL FACTORS
 The rate of growth of the Indian economy
 The rate of change in the domestic price level

• Major factors real exchange rate of exports (RERX)

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

FACTORS OF ECONOMIC ENVIRONMENT


• STRUCTURE AND NATURE OF ECONOMY
a. Level of development of the economy
b. Sectoral comppsition of output
c. Intersectoral linkages

• ECONOMIC CONDITIONS
a. Income levels
b. Distribution of income
c. GDP trends
d. Sectoral growth trends
e. Demand and supply trends
f. Prices trends
g. Trade and BOP trends
h. Foreign exchanges reserve position
i. Global economic trends

• ECONOMIC POLICIES
a. Industrial policy
b. Trade policy
c. Monetary policy
d. Fiscal policy
e. Foreign policy
f. Foreign investment and technology policy

• GLOBAL LINKAGES
a. Magnitude and nature of cross border: trade flows : financial flows
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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

b. Membership of WTO ,IMF ,WORLD BANK,TRADE BLOCS ETC.

CHANGING BUSINESS ENVIRONMENT OF INDIA

• JULY 1991 GOI changed policy of macro economic crisis


• Serious economic imbalance before the period
• Imbalance due to
o Constant rise in fiscal deficit
o Higher export growth
o Constant balance of payment crisis
o Deficit in current account
o 1991 US – IRAQ war , India faced oil crisis
o Foreign exchange reserve down to Rs 2400 crores equivalent to 3 weeks
imports

• Actions by GOVT
o Govt pledged a part of gold reserve to meet foreign liabilities
o Govt arranged loan from IMF in short term
o Long term initiated for reaching reform programme include
 Changes in trade policy economic policy
 Structural reforms
 Restoration of fiscal balance to contain inflation

• The economic reforms changes undertaken as follows


o Abolition of licensing
o Abolition of FERA and leberalising MRTP
o High% of foreign holding
o Privatization of oil sector ,telecom, aviation,banking,mining.
o Move autonomy to public sector

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

o Lowering corporate taxes ,excise duties, import duties


o Taxing services
o Dechannelisation of imports
o No export subsidies
o Offering global patent protection
o Converstibility of rupee in stages
o Opportunity to Indian Co ‘s becoming global
o Financial sector with interest deregulation and capital market reforms
o Subsidy interest
o More liberalization on F II norms
o Privatization of various infrastructure
o Setting up of various regulatory bodies TRAI,SEBI.IDRA
o New sea port policies export import policies
o More financial sector reforms

THE ANALYSIS OF TYPES OF CHANGES BROUGHT IN THE


ECONOMIC MANAGEMENT

PRE REFORM STAGE ECONOMIC REFORM STAGE

CLOSED ECONOMY OPEN ECONOMY

PUBLIC SECTOR IN COMMANDING HEIGHT MARKET DETERMINED GROWTH

IMPORT SUSTITUTION EXPORT SUBSTITUTION

LICENSE DOMINATED DELICENCED ,DEREGULATED

STATE INTERVENTION SELECTIVE INTERVENTION

ADMINISTERED PRICE MARKET DETERMINED PRICE

DEFICIT HAS NO PERIL CONTAIN DEFICIT

NATURAL MONOPOLY COMPETITIVE ENVIRONMENT

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

RESTRICTION ON FDI AND MNC’S FDI AND MNC’S WELCOMED

HIGH TAX REGIME LOWER AND TAX REFORMS

CREDIT MARKET,STATE CONTROLLED DEREGULATED CREDIT NORMS

• Govt abolished the practice of multiplicity of agencies network


• Co act has been changed to create room for merger and amalgamation
• Banks and PSU’s have been more freedom
• Attempts to create vibrant capital market
• Easy access to ADR / GDR market
• Set up of various regulatory bodies to control unfair competition in trade and pricing
• Private agencies invited for infrastructure building.

GLOBALISATION AND ITS IMPACT ON INDIAN BUSINESS


Globalization
• International interaction
• Any international trade or exchange with massive dimension
• Removes dichotomy between domestic and international market
• Greater interaction,more robust,measurable development,superseding the national
economy and enmerging single economy

Globalization implies expansion of business internationally removal of domestic market and


foreign market,locating and positioning or organizing market,physical production facilities
with an eye on global business,whatever be the regional consideration.
• For this factors of production to be sourced
• Finance and technology to be outsourced
• Production planning should be on global market consideration
• Organizational ethos,management culture should follow global vision, international
norms etc
• European union ,atlantic and pacific economies have achieved full integration in
terms of
o Capital movement
o Trade movement
o Migration level
• Customer in globalization process are equidistant no customer as Japanese ,American
or Indian.

INDIAN SCENARIO
• Indian corporate sector needs proactive approach
• Should set up manufacturing unit abroad,sales office,staff
• Some firms are dishonest,do not disclose info
• Outlook is conservative
• Lack innovative ideas,proper ethics
• Need quality and cost improvement
• Should adopt Mckinseys 7 s framework
o Aditya Birla Group 1st established manufacturing abroad
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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

o Tata Tetley merger greater access to European makets


o Joint ventures by Dr Reddy’s La,Ranbaxy
o Investment in foreign market should be allowed after capital market is
matured

CORPORATE GOVERNANCE
The ways in which suppliers of finance to corporation exercise control and ensure
accountability of company so as to assure themselves best possible return on investment.

GOOD CORPORATE GOVERNANCE ASSURES


• Flourish the corporate
• More employment
• Wealth and satisfaction
• Improved std of living

HOW CORPORATE GOVERNANCE INTERACTS VARIOUS PARAMETERS

STRUCTURE
OF CHANNELS OF
FINANCIERS CONTROL OBJECTIVES LEGAL AND
REGULATORY
FRAMEWORK
EQUITY Board of Directors Share holders’ Ddisclosure rules
HOLDERS: managerial profit maximization Auditing rules
1.LARGE incentives 1 . profit Debt covenants
SHAREHOLDERS commitment and 2 . growth Bankruptcy rules
2.IDENTITY OF trust 3 . stability
SHAREHOLDERS Disciplines
1 . market for shares
DEBT 2 . takeover
HOLDERS : mechanism

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

1.LARGE DEBT
HOLDERS
2.IDENTITY OF
DEBT HOLDERS

According to Jayanti and Subrata Sarkar


• CG is concerned with
o Overseeing ,strategic direction ,socio economic ,cultural contact externalities
faced by institution

Has to be identified with


• Traditional and cultural heritage

CORPORATE GOVERNANCE got formal shape after MAY 1991


• Great Britian committee setup under chairmanship of Sir Ardian Cadbury
• Recommendation were about BOD
• Chairman and chief executive should not be same person
• Relation between BOD and executives should be professional
• Info about audit fee to be made open
• Regular retention of auditors
• Non executive directors should act independently on
strategies,performanceallocation of resources and designing code of conduct

India 1st organized step was taken by CII a committee was formed under Rahul Bajaj

RECOMMENDATION
• Any listed company with 100 Crs turnover should be professionally
competent,independent.
• Non executive board directors should be atleast 30%
• Key info should be reported about
o Quaterly results of Co
o Performance,inrenal audit reports etc
• Kumar Mangalam Birla report under aegis of SEBI
• 2002 finance minister –Jaswant Singh formed Naresh Chandra committee on audit
and governance

MAJOR RECOMMENDATION
• 50% Seats on BOD of Co with paid up capital 10 Crs and above ,turnover 50 Crs goto
to independent Directors
• Nominees of financial institution cannot be counted as independent directors
• Setting up of quality review boards for ICAI,ICSI,ICWAI
• Annual account of the Co should be certified by CEO or CFO
• Amendments in Co act to order compliance with audits and provide powers to attach
bank account
• Beefing up staff and infrastructure in D .Co affairs
• Prohibiting audit firms to provide non audit services

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

INDIA UNDER ECONOMIC REFORMS


INDIA economic reforms:-
OPENING OF THE ECONOMY
• Started in 1991 /economic reforms/liberalization
• Policies relating to industrial licensing,trade,foreign investment undergone changes
eg: BANKING SECTOR,CAPITAL MARKETS
• Structural adjustments
o Subsidies,price environment
o The public sectors changed

THE NEW ECONOMIC POLICIES


REFORMS CLASSIFIED INTO 2
• Liberalisation measures
• Macro economic reforms and structural adjustments

THE ECONOMIC POLICIES


• LIBERALISATION MEASURES
o NEW INDUSTRIAL POLICY
 Liberalisation of industrial licensing
 FERA liberalization
 MRTP liberalization
 Curtailment of public sector
o NEW TRADE POLICY
 Lowering of import tariffs
 Abolition of import license
 A more open exim regime
 Convertibility of rupee
 Encouragement to export
 Arrangement to foreign investment
 Integrating India economy with the global economy

• MICROECONOMIC REFORMS AND STREET ADJUSTMENTS


o MACRO ECONOMIC REFORMS AND STREET ADJUSTMENTS
 Fiscal and monetary reforms
 Banking sector reforms
 Capital market reforms

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

o STUCTURAL ADJUSTMENT
 Phasing out subsidies
 Dismantling of process controls
 Introduction of market driven price environment
 Public sector restructuring and disinvestment
 Exit policy

LIBERALISATION MEASURES
INDUSTRIAL POLICY LIBERALISATION

SUBSTANTIATE CHANGES INTRODUCED


• Foreign investment
• Technology import
• FERA AND MRTP relaxed
• Role of public sector curtailed

THE NEW INDUSTRIAL POLICY

LIBERALISATION OF INDUSTRIAL LICENSING


• DE-LICENSING
• DE-CONTROL
• DE-REGULATION
• BROAD BANDING
• ABOLITION OF REGISTRATION

INDUSTRIES needs license at present


 Alcohol
 Cigarettes
 Industrial explosives
 Hazardous chemicals
 Defence
 Atomic energy
Industrial registration scheme abolished.

FERA LIBERALISATION

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

• LIBERALISATION OF FOREIGN
• INVESTMENT
• IMPORT

MRTP LIBERALISATION
• ABOLITION OF THRESHOLD
• ASSETS LIMIT
• NO MRTP CLEARANCE

CURTAILMENT OF PSU’S
• NEED FOR EXPANSION,MERGERS
• SEVERAL INDUSTRIES RESERVED FOR PSU OPEN TO PRIVATE
• ONLY 8 CRORE INDUSTRIES REMAIN RESERVED
• PURVIEW OF BIFR EXTENDED TO THE PUBLIC SECTOR

FERA LIBERALISATION / FERA ENCOURAGEMENT


(a) Automatic clearance for foreign equity upto 51%
100% equity holding allowed in select project
Electronic hardware technology park attract FDI

(b) Expansion of automatic clearance route


48 industries become eligible for 51% equity
Foreign equity FDI for drugs and pharma raised to 74%

(c) Automatic clearance for capital goods and tech imports and royalty payments
Govt withdrew restrictions on divedend repatriation by foreign investors

(d)removal of restriction on functioning of Indian co boards


Eg overseas investments liberalized
Investment through ADR/GDR without govt approval
Indian co may invest abroad upto 50 millions annually

(f)ECB liberalized: liberalization commercial borrowings for corporates


(g)FEMA replace FERA:at the end of 1999:FEMA bill,preservation of money laundering bill
(h)MRTP liberalization
• No MRTP clearance required for investment applications
• No approval for new undertaking /expansion /takeover.

(i)Curtailment of PSU and enlargement of private


PSU –arms and ammunition,atomic energy,railways,mining and coal.
SICA-sick industrial company act extended to public sector

TRADE POLICY LIBERALISATION / NTP


• Free trade and more open exim regime
• Import liberalized and de-channelised
• Licenses abolished,tariffs lowered
• Phasing out or relying on exchange of exchange roles
• Tariffs and exchange rate will e instruments of control
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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

• Exports encouraged
o Incentives for exports
o Abolition of export duties
o Cheaper export credit and cuts in import duties
o Duty draw back scheme
• Rupee made convertible: full convertibility on trade account 1993-94
• EPCGS /EOU/EPI/FTZ : export promotion capital goods scheme

MACRO ECONOMIC REFORMS AND STRUCTURAL ADJUSTMENTS

MACRO ECONOMIC REFORMS STRUCTURAL ADJUSTMENTS


CAPITAL MARKET
FISCAL BANKING MARKET DRIVEN PUBLIC SECTOR EXIT
REFORMS REFORMS REFORMS PRICE RESTRUCTURING POLICY
 Reduction of  banks to operate  abolition of  phasing out of  no new PSU  Support to
fiscal as commercial CCI and subsidies  no ex pension of PSU VRS
deficit institution introduction  dismantling with govt equity
 Reforms of  phasing out of free of price  budgetary support for
tax system priority sector pricing controls PSU to be phased out
 Interest rate lending  strengthening  axe on  preference to PSU ingovt
reforms  deregulation of of SEBI fertilizer tenders abolished
 Inflation deposit  opening up of subsidies  disinvestment of govt
control interest rates Indian  abolition of equity in PSU
 operational capital sugar  Sick PSUs to be reffered
freedom in market to FII subsidies to BIFR
lending rates  allowing privte  axe on petrol
 adherence to sector into prod
norms on mutual funds subsidies
capital  allowing  partial
adequacy Indian decontrol

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

,recognition NBFCS to and parallel


and provision align with markets of
for bad debt global kerosene
 disinvestment in finance Co and LPG
public safir  allowing  abolition of
banks Indian firms export
permission for to raise subsidy
new private sector capital  steel price
banks abroad decontrol

ENVIRONMENT PROTECTION AND ENVIRONMENT LAW

 1972 – United Nation Conference on Human Environment At stockhold


 UN- Secretary General –declared that “ inhibitants of the world have perhaps ten years left
to improve human environment.
 Bhopal Gas Tragedy gave impetus to this issue through (air (P an CP)act and water CP and
CPD Act were existed
 Environment protection enacted as response to gas tragedy.

1992-THE EARTH SUMMIT – THE RIO DECLARATION


 Problems of ozone depletion

 Global warming

 Water pollution

ENVIRONMENT GOVERNANCE IN INDIA – SINCE 1972


nd
 The 42 amendment 1976 article 48A was added to directive principles of the state policy
 To protect and improve environment and forecasts

 Article S I S (8) – fundamental duties- impose responsibility on citizens

 Article 253 states- parliament has power to make law for whole or any part of India

OTHER ACTS

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

 The Indian forecast act 1927


 The factories act 1948
 The atomic energy act 1962
 The insecticides act 1968
 Wildlife (protection)act 1972
 The water (P and CP) act 1974
 The water (P and CP) cess act 1977
 The forest conservation act 1980

FOR ADEQUATE ENVIRONMENT PROTECTION WE SHOULD HAVE


1) ENVIRONMENT PROTECTION AGENCY
 Social control over environment pollution
 2C all areas of pollution each area separate department.
 Agency lay down uniform national standards
 Every industry should prepare environment impact statement

2) EFFECT SANCTION BY LAW TO ENFORCE AGENCY


3) PEOPLE PARTICIPATION AS WATCH DOG
 The environment protection act permits individual to file criminal action in court
of law.
 National environment engineering institutute (NEERI)
 National institute of occupational health (NIOH)
4) ENVIRONMENT COURT :- A forum where activist and polluters come together and
enforcement can be brought by

NATIONAL EFFORTS AT ENVIRONMENT PROTECTION


1) 42ND AMENDMENT : ARTICLE 48A-CONSTITUTIONAL OBLIGATION,51A –
FUNDAMENTAL DUTY.
2) National committee on environment planning and co ordination NCEPC – after
Stockholm conference on planning,projects,ecosystem etc.
3) Tiwari committee – 1980 by government
a. Review of Acts
b. New legislation
c. Introduction of environmentin concurrent list
i. Suggested :nodal agency formation
ii. Carrying environment appraisal for projects
iii. Conservation of eco-systems
4) 1980 – formation of institution and board
a. Central pollution board and state pollution board
b. Central forestry board
c. Forest survey of India,wildlife institute of India
d. National wasteland development board
e. National museum of natural history

ISO 14000 AND ENVIRONMENT MANAGEMENT SYSTEM


INTERNATIONAL STANDARDS ON ENVIRONMENT MANAGEMENT COVERS
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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

 Environment management systems


 Environment auditing
 Environment labeling
 Environment performance evaluation
 Life cycle assessment

ISO 14000 SINGLE SHOULD MANAGEMENT SYSTEM ALLOWS


 Effective management of environment responsibilities

o Liabilities
o Costs
o Documents to government
o Promote concern for society.

TECHNOLOGICAL ENVIRONMENT
1) ENGINEERING INDUSTRY – largest segment of Indian industry ,divided into
a. Electrical :- depends on investment in power industry
b. Non electrical:- driven by industrial investment
2) Always demand for equipments in following sectors
a. Cement
b. Chemical
c. Steel
d. Textile
e. Power
f. Petrochem
3) To sustain growth of 7.8% we need investment of 10% o GDP or $50bn per year
4) India strong base of engineering and capital goods base
5) Both sectors serve wide cross section of industry
a. Consumer durable ,chemical ,petrochem,fertilizers,defense
equipment,power,oil and gas ,mining,nuclear etc.
6) Deregulation in power derive higher growth eg ABB and BHEL derive 60% to 69%
revenue from suppliers

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

7) Govt increased focus on infrastructure helped L&T like 35% sales from infrastructure
like engineering design and construction. i.e construction of hospital ,IT parks,express
ways,SEZ,ports,bridges etc
8) Recent budget govt had outlined Rs 100 bn for investing

J K GALBRITH DEFINES TECHNOLOGY


1) Systematic application of scientific or other organized knowledge to practical tasks
a. Technology has developed beyond anbody’s comprehension
b. Enabled man to conquer
i. Distance
ii. Control birth rate
iii. Save lives
iv. Generate ,preserve and distribute energy
v. Discovered new materials and substitute to the existing one
vi. Substitute mental work to computers
vii. Probe deep into seas and space research
viii. Provide lot of leisure and infinitum
2) 1983-termed as year of scientific success
a. Scientist put a billion dollar technology into space
b. Produced world’s 1st test tube triplets
c. Obtained evidence of another solar system
d. Japan marketed artificial blood system
e. Breakthrough of genetic engineering to cure dwarfism
f. U S physicist stripped of electrons from uranium atom and exposed bare
nucleus
g. Doctors confronted with AIDS

So technology for some is WONDER,HORRORS,BLESSINGS.


• Eg automobile ,T V have mixed reaction
• Hydrogen bomb ,nerve gas,submarine ,gun proved horror
• Pencillium , open heart surgery,birth control pills proved wonders

INTERFERENCE BETWEEN TECHNOLOGY AND BUSINESS

TECH REACHES
PEOPLE RISE AND EXPECTATION
THROUGH INCREASED CHANGING DECLINE OF OF
BUSINESS PRODUCTIVITY SPEND ON R&D TECHNOLOGY PRODUCT CONSUMERS

BUSINESS

SOCIAL CHANGE

JOBS BECOME TECHNO PROFESSIONAL REGULATION SYSTEM DEMAND FOR


MORE STUCTURE MANAGERS AMD COMPLEXITY CAPITAL
INTELLECTUAL OPPOSITION

THE SEMANTICS – SCIENCE AND TECHNOLOGY


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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

SCIENCE – refers to systematic body of knowledge and when this knowledge is put into
practice,it becomes technology. Awareness in science develops new technology

DIFFERENCES IN SCIENCE AND TECHNOLOGY

FEATURES SCIENCE TECHNOLOGY


1) IN PERSUIT OF KNOWLEDGE SOCIO-ECONOMIC GAINS
2) PEOPLE SCIENTIST ENGINEERS
INVOLVED
3) AGENCIES RESEARCH INSTITUTION AND ESTABLISMENTS
INVOLVED UNIVERSITIES
4) FUNDING MOSTLY GOVERNMENT INDUSTRIES
5) MOTIVATION TO SATISFY CURIOSITY TO BRING OUT NEED SATISFYING
PRODUCT
6) DOMAIN PUBLIC PRIVATE /SECRET
7) IMPACT DISCONTINUOUS CONTINUOUS
8) TIME SPAN UNCERTAIN EVOLUTIONARY

TECHNOLOGY REACHES PEOPLE THROUGH BUSINESS :


• Business is institution through which man expects new discoveries to convert it into
goods and services.
• Managers of organization pool necessary resources,work on new discoveries to
convert into products
• The new discoveries are ideas in mind sketches on papers ,mock models in
laboratories,but business for institution.
• All activities like printing ,housing , education , TV are dependent to work
productivity.
• Society depends on business for goods and services
• 50% growth of developed nations is because of technical .progress achievements
• Increase productivity
• It head to spend on R & D
• Phillips spends 6.9% of total turnover on R & D – 15 Cr
• Siemens -9% of worlds sales
• Bayers – 6% of domestic sales
• Bosch group 6.7% of sales
• ONGC .5% OF NET TURNOVER
• BHEL 4.5% OF NET TURNOVER
• IOC 0.1% OF NET TURNOVER
• AERONAUTICS 3.5% OF NET TURNOVER

TECHNOLOGY IS CHANGING :

DECLING GROWTH IN BASE BUSINESS


WHAT
DEVELOPMENT IN NEW TECHNOLOGY
INCREASING EMPHASIS
VITALITY OF VENTURE MARKETS ON TECHNOLOGICAL WHERE
INVESTMENT BY COMPANIES

DEVELOPMENT OF INTERNATIONAL HOW


COMPETITION

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

• High expectation of consumers


• Job trends to become more intellectual
• Increased regulation and stiff opposition
o By product technical advance attracts imposition by govt and stiff opposition
of public.
o Govt is empowered to investigate and ban the products (harmful) which hurt
the sentiments of society.

• FMRAI – FEDERATION OF MEDICAL REPRESENTATIVE OF INDIA.


o Gained result of banning the sale of harmful drugs and sales promotion of
advertisement of infant formula through mass media.
• Technical advancement invites opposition as it is threat to society,privacy and human
race
• Opposition for – high rise building ,plants ejects harmful effluents,setting up of
hydroelectric plant

STATUS OF TECHNOLOGY IN INDIA


Govt of India set-up R & D establishments
• Space research centres
• Medical research centers
• Agricultural research centers
• Oil exploration research centers
• 4700 intermediate / junior colleges
• 144 universities
• 44 deemed universities
• 500 or more science and technical institution
• 1080 inhouse R&D labs
• Dept of science and technology.

POLITICAL AND GOVERNMENT ENVIRONMENT


Politics often determines economic and business policies
Demock observe – 2 most important institution (1) Business (2) Politics

POLITICAL ENVIRONMENT INCLUDES FACTORS


1) Characteristics of political parties
2) Policies of political parties
3) Nature of constitution and govt system
4) Govt environment encompassing economic,business policies and regulations

Peter Druker – “Even within transational economic units,national politics over rule economic
rationality.”

Major economic policies are political decisions


Economic policy of ruling party is important eg politicians lobby over fixed vs mobile
services.

FUNCTIONS OF STATE:

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

VIEW :- “Government that governs is the best.”

Countries transmitting from mark to market

Adam Smith wealth of nations-says “Economic growth and welfare are best achieved by the
free market mechanism and state should confined to core functions( law and order,defense).

STATE AND GOVERNMENT SOME CONCERNS


STATE : Set of institutions possesses means of legitimate coercion over defined territory
population ,society.monopolies rule making through organized government.

GOVT : process of governing ,to exercise power condition of ordered rule. People who fill
the position of authority in the state . Manner ,method or system of governing in the society.

Government consists of 3 sets of power with assigned role.


1. Legislature – role is to make law
2. Executive – implementin the law
3. Judiciary – responsible for interpreting and applying the law

1. PARLIAMENTORY SYSTEM
a. Executive continuance depends on support of legislature
b. Member of executive are members of legislature
c. Prime minister powerful member
d. Important decision are taken collectively
2. PRESIDENTIAL SYSTEM
a. Executive position is independent of legislature
b. Member of executive not normally members of legislature
c. Ultimately decision making lies with one person the president

2nd CLASSIFICATION ON DISTRIBUTION OF POWER BETWEEN LEVELS OF GOVERNMENT

1) Unitary state : authority to make law is vested in the supreme legislature whose
jurisdiction covers whole country. Local legislature may exist,but with the sufferance of
the national legislature.
2) Federal state : local legislature are guaranteed measure of autonomous decision making
authority.
3) Confederation – groupof sovereign states each state remain sovereign

POST WORLD WAR SCENARIO


• Importance of public policies
• Macro economic policy
• Oil shocks
• GDP Expenditure
• Communism

FUNCTION OF STATE
Addressing market failure Improving equity
Minimal Providing pure public goods Protecting the poor
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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

functions Defence Antipoverty


Law and order Programme
Property rights Disaster relief
Macro economic management
Public health
Intermediate Addressing Regulating Overcoming Providing social
Function externalities monopoly imperfect insurance
information
Basic education Utility Insurance Redistributive
Environmental Regulation Financial pension
protection Antitust regulation Family allowance
policy Consumer Unemployment
protection insurance
Activist Co ordinating private activity.fostering Redistribution
function markets,cluster initiatives asset.redistribution
(ADOPTED FROM WORLD BANK)

ECONOMC ROLE OF GOVERNMENT


• In any economy susbstantial share of any product goes to satisfy public wants
• Market mechanism cannot alone perform all economic function
• Public policy is needed to guide,correct and supplement it
• So it is realized that public sector is a significant degree,a technical rather than
ideological issues.

GOVERNMENT PLAY AND IMPORTANT ROLE OF


• Regulation
• Promotion
• Entrepreneurship
• Planning

1) REGULATORY ROLE
a. Covers broad spectrum from entry into business to final results
b. Reservation of industries to sectors
c. Licensing system
d. Regulation of product mix
e. Promotional activities
f. Celings on prfit margins,divedend etc
g. Restriction on intra corporate investment,interlocking of directors,appointment of
sole selling agents
h. Control through fiscal monetary incentives

2) PROMTIONAL ROLE
a. Infrastructure facilities
i. Power ,transport ,finance market,institutions for training
ii. Various incentives through policies

3) Entrepreneursial role

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

a. Establishing and operating business interprises


b. Public sector development
i. Capital intensive projects,like steel ,capital goods,petrochem,fertilizers

4) PLANNING ROLE
a. State as planner
b. 5 year planning

INDIAN ECONOMIC REFORMS

REGIME
1) NATIONAL DEMOCRATIC ALLIANCE (NDA)
a. Measure in electricity bill
b. Amendment in labour laws
c. Mamta banarjee,self styled opposition
d. Chandra Babu Naidu CO/ AP, vision and ideology
2) GOVERNMENT AND LEGAL ENVIRONMENT
a. Laws relating to consumer interest
b. Restraining children in commercial ads
c. Cigarette smoking
d. Statutory controls.

THE CONSTITUTIONAL ENVIRONMENT


• The socio economic and political objects of Indian republic
• Basic guiding principles of state functioning are clearly laid down
• Impermeable to the constitution
• Fundamental rights
• Directive principles of state policies
• The responsibility is bestowed on state by constitution

PREAMBLE- The people of India have solemnly resolved to constitute India into a
Sovereign,socialist,secular,democratic republic to secure all its citizens – justice,
liberty,equality,fraternity.

THE FUNDAMENTAL RIGHTS


a. Right to equality
b. Freedom
c. Against exploitation
d. To freedom of religion
e. Cultural and education
f. Constitutional remedies

FUNCTIONA AND POWERS OF PARLIAMENT


• As other parliamentary democracies,parliament of India has the caedinal functions of
o Legislation
o Overseeing administration
o Passing of budget
o Ventilation of public grievances
o Development of plans

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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

o Internal relations
o National policies

• Power distributed in between union and states


• Parliament is vested with powers to impeach the president and remove judges,chief
election commissioner,comptroller and auditor general according to laid down procedure
• Incase of money bill,will of lok sabha prevails
• The parliamentary committees for both houses
• The appointment ,term of office ,function and procedure of conducting business as per
norms
• Parliamentary committee 2 kinds
o Standing committees :Elected or appointed every year or periodically
 Committee on estimates
 Public accounts
 Public undertaking
 Keep vigil on government expenditure and performance
o Ad hoc committee : appointed when need arises

FUNDAMENTAL DUTIES
42ND amendment of the constitution,1976 for
• To abide by constitution
• To define the country and render national services
• To promote harmony and spirit of brotherhood

THE DIRECTIVE PRINCIPLE


• Unique feature of Indian’s constitution
• They are in nature of directions to the legislature and expenditure
• These directions are not justiceable,but counts cannot avoid taking cognizance of it.
• They are imperative basis of state policy and constitution directs the state to apply it

SIGNIFICANT DIRECTIVE PRINCPLES


• The state shall strive to promote the welfare of people
• State shall minimize In equalities in income,facilitate opputunities
• State shall direct policy towards securing
o Rights of people
o Equal opportunity to material resources
o Operation of economic system
o Equal pay for all
o Health and strength of workers

• Article 39 legal system to promote justce and equal opportunity, legal aid
• Article 40 village panchayat
• Right to work sickning and disablement act 41
• Maternity relief 42

SEPARATION OF POWERS
IDEA that – that government functions must be bated on a tripartite division of
legislature,executive and judiciary.tech organ should be separate,distinct and sovereign in its
own allocated sphere.
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BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

DIVISION OF POWERS
ITEMS FOR LEGISLATION AMONG THREE LISTS
1) UNION LIST
2) STATE LIST
3) CONCURRENT LIST

THE CONSTITUTIONAL ENVIRONMENT

CONSTITUTION

JUDICIARY EXECUTIVE LEGISLATURE

CENTRAL LIST CONCURRENT LIST STATE LIST

CENTRAL GOVT STATE GOVT LOCAL GOVT

BUDGET DIRECT POLICIES DEVELOP/PROMOTIONAL REGULATORY


INVOLMENT IN GUIDELINES ORGANISATIONS(EG ORGANISATIONS
BUSINESS CODES DEVELOPMENTAL BANK (EG SEBI,TRAI)
LAWS EXPORT DEVELOPMENT
AUTHORITIES)

GOVT EXPANDS CONTROL ON VARIOUS SEGMENTS OF ECONOMY


• THE industries (development and regulation)act
• The companies act
• Capital issues control act
• Securities (contract regulation act)
• Monopolies and restriction trade act
• Essential commodities act
• Prevention of black marketing and maintaining of supplies of essential commodities act
• Foreign xchange regulation act –FEMA 2000
• Imports and export act
• Provides govt
OTHER ACTS (INDUSTRIAL AND LABOUR LAWS) TO REGULATE
• Employer employee relations
• Working conditions
• Wages
• Bonus
• Labour welfare
• Social security etc

COMMERCIAL BANKING SECTOR


ACT TO CONTROL EFFECTIVELY BY RBI
• BANKING CO ACT 1949
• AMENDMENTS 1956,62,63
• SEBI

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