Chapter 1Chapter 1Business EnvironmentBusiness Environment

INTRODUCTIONINTRODUCTION► Every business organisation has to interact and Every business organisation has to interact and

transact with its environment. transact with its environment. ► Business environment has a direct relation with the Business environment has a direct relation with the

business organisation. business organisation. ► Effectiveness of interaction of an enterprise with its Effectiveness of interaction of an enterprise with its

environment primarily determines the success or environment primarily determines the success or failure of a business.failure of a business.

► Identify the environment in which it operates Identify the environment in which it operates ► Formulate its policies in accordance with the forces Formulate its policies in accordance with the forces ► Business organisation has to tackle its internal and Business organisation has to tackle its internal and

external environment. external environment. ► The economic activities are still considerably The economic activities are still considerably

controlled by the government. controlled by the government.

SALIENT FEATURESSALIENT FEATURESThe nature of the environment is likely to determine, The nature of the environment is likely to determine,

the role of the enterprisethe role of the enterprise► The salient and distinct features of the environment in which The salient and distinct features of the environment in which

the Enterprise operates determine the nature of its business the Enterprise operates determine the nature of its business policy.policy.

► Public policies must be consistent with and conducive to Public policies must be consistent with and conducive to creating confidence among business Enterprisescreating confidence among business Enterprises

► Government regulations need to motivate the business Government regulations need to motivate the business community to make use of opportunities for developing the community to make use of opportunities for developing the economyeconomy

► Rapid social change leads to a transformation of the societyRapid social change leads to a transformation of the society► Industrialization has given birth to a certain level of social Industrialization has given birth to a certain level of social

disorganization, disorganization, ► Industrial society has emerged in the place of a traditional Industrial society has emerged in the place of a traditional

social setup.social setup.

Taking care of the nature of business Taking care of the nature of business environment enables the corporate policymaker environment enables the corporate policymaker

toto

► Perform the critical function of matching the Perform the critical function of matching the needs of the society and the capacity of the needs of the society and the capacity of the goods and services to satisfy the needs of the goods and services to satisfy the needs of the peoplepeople

► Adapt the organisation itself to the dynamic Adapt the organisation itself to the dynamic conditions of the societyconditions of the society

►Match the organisational policies and Match the organisational policies and resources with the social needs, andresources with the social needs, and

► Contribute to the social responsibility of Contribute to the social responsibility of business.business.

ENVIRONMENTAL FACTORSENVIRONMENTAL FACTORS► Social FactorsSocial Factors► Economic FactorsEconomic Factors► Cultural FactorsCultural Factors►Geographical FactorsGeographical Factors► Technological FactorsTechnological Factors► Political FactorsPolitical Factors► Legal FactorsLegal Factors► Ecological FactorsEcological Factors► Labour FactorsLabour Factors► Locational FactorsLocational Factors

BUSINESS ENVIRONMENT AND STRATEGICBUSINESS ENVIRONMENT AND STRATEGICMANAGEMENTMANAGEMENT

► The process of globalisation has led Business corporations and The process of globalisation has led Business corporations and conglomerates to project themselves as global corporate conglomerates to project themselves as global corporate citizens.citizens.

► Any new bloc can come into existence at any time, which Any new bloc can come into existence at any time, which should be reviewed by the global manager today. Corporate should be reviewed by the global manager today. Corporate managers, who make policies and strategies, must account managers, who make policies and strategies, must account for the nature and environment of the bloc. for the nature and environment of the bloc.

► The concept of a single market has already gained ground. The concept of a single market has already gained ground. Since the EEC bloc has special standard specifications, all the Since the EEC bloc has special standard specifications, all the countries in the community follow the same standards.countries in the community follow the same standards.

► In a globalised business environment, business policymakers In a globalised business environment, business policymakers and strategic managers must formulate strategies and and strategic managers must formulate strategies and policies not only globally but locally.policies not only globally but locally.

► Preserving sustainable environment and answering the call for Preserving sustainable environment and answering the call for social responsibility of business would become a part of the social responsibility of business would become a part of the global corporate strategy.global corporate strategy.

Risk OverviewRisk OverviewThe risk factors are as follows:The risk factors are as follows:► Security risk. Security risk. (ind. vs pak.)(ind. vs pak.)► Political stability risk.Political stability risk.► Government effectiveness risk.Government effectiveness risk.► Legal and regulatory risk.Legal and regulatory risk.► Macro-economic risk.Macro-economic risk.► Foreign trade and payments risk.Foreign trade and payments risk.► Tax policy risk.Tax policy risk.► Labor market risk.Labor market risk.► Financial risk.Financial risk.► Infrastructure risk.Infrastructure risk.► Country risk.Country risk.

Methods of Assessing Methods of Assessing Environment RiskEnvironment Risk

►Developing the Local EconomyDeveloping the Local Economy►Good Corporate CitizenshipGood Corporate Citizenship►Tie-up and Collaboration with Other Tie-up and Collaboration with Other

FirmsFirms►Private InsurancePrivate Insurance►Avoiding Politically Sensitive ProductsAvoiding Politically Sensitive Products►Avoiding Sensitive RegionsAvoiding Sensitive Regions►Maintaining Good Political RelationsMaintaining Good Political Relations

MARKET OPPORTUNITIESMARKET OPPORTUNITIES► Low-average income levels have prevented India’s huge Low-average income levels have prevented India’s huge

population of more than one billion from becoming a lucrative population of more than one billion from becoming a lucrative market for consumer goods.market for consumer goods.

► India remains a predominantly agricultural society and is India remains a predominantly agricultural society and is home to around 40 per cent of the world’s poorest people.home to around 40 per cent of the world’s poorest people.

► The early enthusiasm of foreign companies that are eager to The early enthusiasm of foreign companies that are eager to tap India’s large market has been replaced by a more sober tap India’s large market has been replaced by a more sober assessment of potential sales.assessment of potential sales.

► Limited and unreliable supplies of water and electricity have Limited and unreliable supplies of water and electricity have forced foreign manufacturers to rethink their approach.forced foreign manufacturers to rethink their approach.

► Better quality products certainly appeal to India’s consumers, Better quality products certainly appeal to India’s consumers, but price remains the majorbut price remains the major

► determinant.determinant.

RECENT POLITICAL RECENT POLITICAL ENVIRONMENTENVIRONMENT

► In the run-up to the next general elections that are In the run-up to the next general elections that are likely to be held sometime in 2009, there have been likely to be held sometime in 2009, there have been significant changes in the political environment—both significant changes in the political environment—both within and around the country.within and around the country.(This was ast the time of going to press)(This was ast the time of going to press)

► India remains the leader among the SAARC nations—India remains the leader among the SAARC nations—not only because of its imposing size and population, not only because of its imposing size and population, which, of course, provides a lucrative market for which, of course, provides a lucrative market for industrialised countries, but also because of its industrialised countries, but also because of its mature political leadership and rapidly growing mature political leadership and rapidly growing economy which makes it a safe place for the economy which makes it a safe place for the investors to deal with.investors to deal with.

Domestic Developments in Domestic Developments in TradeTrade

► Another signifi cant development in the last Another signifi cant development in the last few years is the growing importance of a large few years is the growing importance of a large Indian consumer market, which has Indian consumer market, which has encouraged many foreign brands to enter into encouraged many foreign brands to enter into trade pacts with the Indian companies. trade pacts with the Indian companies.

► Retail has got particular attention, as it is the Retail has got particular attention, as it is the second-largest sector in India aft er agriculture. second-largest sector in India aft er agriculture.

►Organised retailers although are at a nascent Organised retailers although are at a nascent stage, they are bound to have a profound stage, they are bound to have a profound effect on the small retailers, even though the effect on the small retailers, even though the consumers will hopefully be benefitted.consumers will hopefully be benefitted.

RECENT ECONOMIC AND FINANCIALRECENT ECONOMIC AND FINANCIALENVIRONMENTENVIRONMENT

► India has undergone a profound shift in the economic management. India has undergone a profound shift in the economic management. Since the mid-1980s, successive reforms have progressively moved Since the mid-1980s, successive reforms have progressively moved the Indian economy towards a market-based system.the Indian economy towards a market-based system.

► State intervention and control over economic activity have been State intervention and control over economic activity have been reduced signifi cantly and the role of private sector entrepreneurship reduced signifi cantly and the role of private sector entrepreneurship has increased.has increased.

► Overall, reform has had a major beneficial impact on the economy. Overall, reform has had a major beneficial impact on the economy. The annual growth in GDP per capita has accelerated and is currently The annual growth in GDP per capita has accelerated and is currently estimated to be 8.5 per cent annually, and India is now the third estimated to be 8.5 per cent annually, and India is now the third largest economy in the world.largest economy in the world.

► Increased economic growth has helped to reduce poverty, which has Increased economic growth has helped to reduce poverty, which has begun to fall in absolute terms.begun to fall in absolute terms.

► Significant problems still remain unresolved and the next round of Significant problems still remain unresolved and the next round of reforms need to focus on a number of key areas.reforms need to focus on a number of key areas.

► The rapidly proliferating and much-heralded business prospects The rapidly proliferating and much-heralded business prospects arising from India, mask a fundamental development flaw facing the arising from India, mask a fundamental development flaw facing the country that would require a marked improvement in the country that would require a marked improvement in the infrastructural development.infrastructural development.