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INTRODUCTION


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MEANINGOF BUSINESS ENVIRONMENT

Business Environment consists of all those factorsthat have a bearing on the business, such as thestrengths, weaknesses, internal power relationshipsand orientations of the organisation; government

policies and regulations; nature of the economy andeconomic conditions; socio-cultural factors;demographic trends; natural factors; and, globaltrends and cross-border developments


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NATUREOF BUSINESS ENVIRONMENT

Business Environment can be considered at 3levels

1. Internal Environment2. Micro Environment

3. Macro environment


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INTERNAL ENVIRONMENT

Value System

Mission and objectives

Management Structure and Nature

Internal power Relationship Human resource

Company Image and Brand Equity

Miscellaneous factors


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MICRO ENVIRONMENT

Suppliers

Customers

Competitors

Marketing Intermediaries Financiers

Publics


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MACRO ENVIRONMENT

Economic Factors

Social Factors

Demographic

Political National

Technological

Global


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IMPORTANCEOF BUSINESS ENVIRONMENT


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IMPORTANCEOF BUSINESS ENVIRONMENT

It helps an organization to develop its broadstrategies and long term policies

Enables an organization to analyze its competitors

strategies and there by formulate the effectivestrategies

Knowledge about the changing environment willkeep the organization dynamic in approach

Enables to foresee the impact of socio-economicchanges at the national and international level onits stability


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BUSINESS ENVIRONMENT


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ECONOMIC ENVIRONMENT


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MEANING

The economic environment is an amalgamation ofvarious economic factors, such as total

employment, productivity, income, wealth, inflationand interest rates. These factors influence thespending patterns of individuals and firms.
http://www.economywatch.com/economics-theory/economic-environment.htmlhttp://www.economywatch.com/economics-theory/economic-environment.html


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COMPONENTSOF ECONOMIC ENVIRONMENT

Income and wealth: Income in an economy ismeasured by GDP, GNP and per capita income.High values of these factors show a progressiveeconomic environment.

Employment levels: High employment represents apositive picture of the economy. However, there aremany forms of unemployment, including partialemployment and disguised unemployment.

Productivity: This is the output generated from agiven amount of inputs. High levels of productivitysupport the economic environment.


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FACTORS AFFECTINGTHE ECONOMICENVIRONMENT

Inflation and deflation:

Inflationary and deflationary pressures alter the purchasingpower of money. This has a direct impact on consumerspending, business investment, employment rates,government programs and tax policies.

Interest rates:

Interest rates determine the cost of borrowing and the flow ofmoney towards businesses.

Exchange rates

This impacts the price of imports, the profits made by

exporters and investors and employment levels (also throughthe impact on the tourism industry).

Monetary and fiscal policy:

This helps in attaining full employment, price stability andeconomic growth


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ECONOMIC SYSTEM

An economic system is the system of production,distribution and consumption of goods and servicesof an economy.

Set of principles and techniques by which problemsof economics are addressed, such as the economicproblem of scarcity through allocation of finiteproductive resources.

Composed of people and institutions, including their

relationships to productive resources


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CLASSIFICATIONOF ECONOMICSYSTEM

Economic system can be broadly divided into

1. Laissez- Faire

2. Capitalism3. Socialism

4. Mixed Economy


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LAISSEZ- FAIRE

Laissez faire means, 'allow to do'.

Government abstention from interference in the actionsof individuals, especially. in commerce; general non-interference or indifference.

Laissez faire was a synonym for strict free marketeconomics during the early and mid-19th century. Fromthe French diction, laisser-faire, laissez faire, laissezaller and laissez passer, means "let do, let go or letpass.

laissez faire is an injunction against governmentinterference.

Laissez faire is an economic doctrine that governmentshould not interfere in the economic or social regulationof society unless absolutely necessary.


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Laissez faire assumes that the competitive system

of free markets is the best means of allocation ofscarce resources between alternative uses.

Government intervention in the market place toregulate economic activity is seen as illegitimateand inefficient.

The Laissez faire doctrine lost popularity in themiddle of the twentieth century, with the rise of thewelfare state and extensive public ownership of

parts of the economy, but has regained favor in the

1980's and 1990's.


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CAPITALISM

It is an economic system in which the means ofproduction, are privately owned and utilization ofproductive resources ,Individual freedom to makeproduction and consumption decisions and minimalstate.

It is also known as Free Enterprise economy andMarket Economy.

It is categorized into two i.e. is

1. Laissez-Faire capitalism where governmentintervention in the economy is absent or negligible

2. Modern ,Regulated or Mixed Economy wherethere is a large amount of intervention.


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FEATURES

Private Ownership

Free Enterprise

Consumers sovereignty

Freedom of choice of occupation Freedom to save and invest

The market system

Competition

Absence of central plan

Limited role of government


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MODERNCAPITALISM

Modern capitalist economies are mixed or regulatedsystems.

Such regulated market economies include the U.S.,Canada, Australia, U.K, Italy, France, Germany andmany more.

According to R.S.Musgrave and P.B.Musgrave a

substantial share of the nations product goes to

satisfy public wants, a substantial part of the private

income originates in the public budget, and publictax and transfer payments significantly influence thestate of private income distribution.


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MERITS

Freedom of enterprise

Encourages initiative and entrepreneurship

Encourages R&D and innovation Encourages fast economic development


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DEMERITS

Severe competition brought about by capitalism as itsmajor drawback.

Capitalist economy can give rise to unfair competition.

Capitalism may lead to a depletion of the resources on

Earth, as it requires continuous economic growth. Capitalism makes an economy money-oriented.

Business corporations look at the economy with amaterialistic point of view.

Profitability remains their only primary business goal.

Business giants take over smaller companies.

Employment rights are compensated with the sole aimof higher productivity


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SOCIALISM

A theory or system of social organization that advocates the vesting of the ownership and controlof the means of production and distribution, of land, capital etc., in the community as a whole.

Features:

1. Government Control

2. Central Authority

3.

Restriction on consumption4. Fixation of wages and prices

5. Distribution of Income


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MERITS

Democratic socialism strives to achieve the trade-off between free enterprise system and statecapitalism.

It seeks to prevent concentration of economicpower and achieve fair distribution of wealth andincome.

Use of national resources for the benefit of thesociety as a whole.

National Planning and resource allocation with aview to clearly defined objectives and priorities.

Government direction and control to serve theinterest of the society.


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DEMERITS

Socialism is unrealistic. Virtually impossible to achieve equality within modern

societies.

Socialism might redistribute some of the wealth of therichest members of society yet it does not eliminate

poverty. Instead of improving the living standards for all socialism

actually lowers the income of the richest to be nearerthe income levels of the poorest.

Socialism is actually economically inefficient as it puts of

f entrepreneurs from generating wealth because they usually have to pay higher taxes.

As socialism provides the poorest with higher levels ofincome via social security payments it deters them fromworking hard, if at all.


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SOCIALISTCOMMANDECONOMY

The primary feature of command economy is thecentralization of decision making.

There is no horizontal communication betweenproducing and consuming unite.

All the communication is vertical i.e betweenindividual economic unit and planning agency


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DEMERITS

No consumer sovereignty

No innovation and talents utilized as privateenterprises are not allowed.

Central planning done so limited scope foraccommodating different views and and makingcritical evaluation.

People may lack incentive to work hard in theabsence of private property

The absence of freedom of choice of occupation isunfair


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MIXEDECONOMY

Mixed economy is an economic system that includes avariety of private and government control, or a mixtureof capitalism and socialism.

Features: Coexistence of Public, private, joint & cooperative sector

Effective government control of the economy throughpolicies, guidelines and laws.

Substantial presence of public sector in importantindustries/sectors.

competition


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MERITS

Achieve faster growth

Countervailing force

Prevent concentration economic power

Fostering economic development Public sector plays special role in the development

of priority sectors and backward areas

Public sector plays an important role in

infrastructure developement


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MONETARY POLICY

Historically, the Monetary Policy is announced twicea year - a slack season policy (April-September)and a busy season policy (October-March) inaccordance with agricultural cycles. These cycles

also coincide with the halves of the financial year. The Monetary Policy regulates the supply of money

and the cost and availability of credit in theeconomy.

It deals with both the lending and borrowing rates of

interest for commercial banks It brings about a change in the economy by

changing money supply and interest rate


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MEASURESOF MONEY STOCK

A knowledge of the measures of money stock in aneconomy would help us to understand monetarypolicy better.

The Reserve Bank of India employs four measuresof money stock, namely, M1, M2, M3 and M4.


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M1: The measure of money stock designated by

M1 is usually described as the money supply.

M2: M2 is M1 + Post Office Savings Bank Deposits.

M3: M3 is M1 + Time Deposits with the banks. Inother words, M3 is money supply plus fixed

deposits with the banks. M3 is usually referred to asaggregate monetary resources.

M4: M4 is M3 plus the total Post Office Deposits.


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INSTRUMENTSOF MONETARY POLICY

The instruments of monetary policy (methods of creditcontrol) may be broadly divided into:

General (Quantitative) methods :

It affects the total quantity of credit and affect theeconomy generally

Selective (Qualitative) methods:

a. It affects to the certain sectors only. Alsocertain qualitative distinctions are madebetween different sectors and segments of theeconomy .

b. It is applied in regulating the flow of credits.


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GENERAL CREDIT CONTROLS

There are three general or quantitative instrumentsof credit control, namely,

1. The Bank Rate

2. Open Market Operations

3. Variable Reserve Requirements.


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THE BANK RATE

It is also known as the discount rate and is theoldest instruments of monetary policy.

The term Bank Rate refers to the minimum rate atwhich the central bank provides financial

accommodation to commercial banks in thedischarge of its function as the lender of the lastresort.

It affects both the cost and availability of credits.

The importance of Bank rate lies in the fact that itact as a pace setter to all the other rates ofinterests.


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VARIABLE RESERVE RATIOS

The central bank has the power to vary this reserverequirement; and the variation in the reserverequirements affect the credit creating capacity ofcommercial banks.

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