Chapter 3 Business Environment class 12th Commerce

1

General-   PESTLE –Political, Economics, Social, Technological, legal, Environmental forces which operate outside a business enterprise are part of its environment.

Other external factors could be the governments, courts, media etc

2

Specific force -are COMICS – Customers, organization , market, investors , Competitors, Suppliers etc The individual consumers or competing enterprises, consumer groups, competitors, and other institutions working outside an enterprise constitute its environment.

1

Incident

On what seemed like a regular day at work Dharamveer Kamboj, a rickshaw puller, was riding through the streets of Delhi when he met with a terrible accident. This was an event that would change his life forever. Knowing that he wouldn’t be able to go back to his work,

he made the decision of returning to his native village in the Yamunanagar district of Haryana to begin life anew. Being a school dropout with no technical training of any kind further restricted his scope in terms of employment.

2

His decision :

The desire to do something out of the ordinary kept stirring in his heart time and again. He was on the lookout for the right inspiration and opportunity. Such an opportunity crossed his path during one of his visits to the outskirts of Jaipur, Ajmer and Pushkar regions of Rajasthan, where he observed a number of women self help groups at work. A common sight was women in the process of making gooseberry laddoos. While this process appeared to be rather  simple,  the  grating  of  gooseberries  on slabs of stone manually with hands was an excruciatingly painful exercise.

3

Identified products

There were machines available that could process the gooseberrys but none of them proved to be cost effective. The industry was so small in scale and the owners so modest in means that it was impossible for them to buy machines and put them in use

4

Prototypes

Dharamveer Kamboj began to think of ways of making fruit and vegetable processing machines not only affordable, but also free of accidental health hazards. Observing that cutting, grating, juicing and pulverizing involved similar techniques made him come up with the idea of a multipurpose processing machine that could work equally well for all of these tasks. There was however a big hurdle in the way of Dharamveer. His limited education would prove his task to be an uphill battle. He however was not deterred. He knew problems would come his way, but to challenge and overcome them was his motto in life

5

Dhramveer developed unique machine :

This is the truism that Dharamveer Singh Kamboj has always lived by and was able to somehow convince him and obtain a funding of ` 25,000 for his project. He began work immediately. The first prototype of his machine was ready in March 2005.  An unexpected problem of overheating however cropped up. Even after Dharamveer’s constant trials for the elimination of this problem, the issue still persisted in the second prototype. But the thought of giving up never crossed Dharamveer’s mind. In his third prototype, he had successfully solved the problem of overheating at last. This prototype was bought by GIAN North and sent to Kenya on a pilot basis. Based on the feedback, GIAN asked him to modify it further incorporating provisions that would make it portable, including the incorporation of foldable legs. In the fourth machine he also incorporated a sieve to manage the flow of juice from the machine during the extraction process. The machine that Dharamveer developed is unique in a way that it has the capacity to process a wide variety of products without damaging the seed of the fruit or vegetable.

1

Dynamic nature:

2

Relativity:

3

Complex

4

Uncertainty:

5

Specific and general forces:

6

Totality of external forces:

7

Inter-relatedness:

1

Dynamic nature:

Business environment is dynamics (PESTLE AND COMICS). It keeps on changing whether in terms of technological improvement (WATCH THIS ADS ), shifts in consumer preferences (or entry of new competition in the market.

JIO AND AIRTEL

2

Relativity:

Business environment is a relative concept since it differs from country to country and even region to region.

Political conditions in the USA, for instance, differ from those in China or Pakistan. Similarly, demand for sarees may be fairly high in India whereas it may be almost non-existent in France.

(Jeans and sari)

3

Complexity:

Since business environment consists of numerous interrelated and dynamic conditions or forces which arise from different sources, it becomes difficult to comprehend at once what exactly constitutes a given environment. In other words, environment is a complex phenomenon

For example, it may be difficult to know the extent of the relative impact of the social, economic, political, technological or legal factors on change in demand of a product in the market.

4

Uncertainty:

Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries.

NOKIA VS SAMSUNG

5

Specific and general forces:

It is includes both specific and general forces. Specific forces ,COMICS .  Affect individual enterprises directly and immediately in their day-to-day working.

General forces  PESTLE . Have impact on all business enterprises and thus may affect an individual firm only indirectly.

EXAMPLE CUSTOMER , HONDA AND HUNDAI SAME CASE STUDIES AS IN SM

6

Inter-relatedness:

Different elements or parts of business environment are closely interrelated.

environment are closely interrelated. For example, increased life expectancy of people and increased awareness for health care have increased the demand for many health products and services like soft drinks, fat-free cooking oil, and health resorts.

Ram dev example

SUDDEN RISE IN ORGANIC FARMING . MY FRIRNDS SEND THESE PRODCUT TO ME PIC MEIN

7

Totality of external forces:

Business environment is the sum total of all things external to business firms and, as such, is aggregative in nature.

1

 It helps in tapping Strength  useful resources:

2

 It helps in coping with rapid changes and weakness :

3

Opportunities identification for becoming  first mover advantage:

4

Threats identification as  early warning signals:

5

Helps in assisting in planning and policy formulation:

6

Helps in improving performance:

1

It helps in tapping Strength  useful resources:

Environment is a source of various resources for running a business. With environmental analysis company can identify  which resoucrece is strength of the company . As per the environment any resouces can be strength such as , man , (TATA), MONEY ( MUKESH BHAI ),Machine (Ashok Leyland )

raw materials (JSPL TAMNAR PLANR  ) etc.

The business enterprise supplies the environment with its outputs such as goods and services for customers, payment of taxes to government, return on financial investment to investors and so on

2

It helps in coping with rapid changes and weakness :

In order to effectively cope with significant changes in environment , managers must understand and examine the environment and develop suitable courses of action. Management must analyze environment to identify weakness and tale corrective action to minimize it.  

Today’s business environment is getting increasingly dynamic where changes are taking place at a fast pace.

It is not the fact of change itself that is so important as the pace of change.

Turbulent market conditions, less brand loyalty, divisions and sub-divisions (fragmentation) of markets, more demanding customers, rapid changes in technology and intense global competition are just a few of the images used to describe today’s business environment.

3

Opportunities identification and getting the first mover advantage:

Opportunity refers to favorable condition in organizational environment, which enable it to strengthen its position.

Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors.

PAY TM :

4

Threats identification for  early warning signals

Threats refers to un favorable condition in organizational environment, which creates damages and risk to position.

It helps the firm to identify threats and early warning signals: Threats refer to the external environment trends and changes that will hinder a firm’s performance. Besides opportunities, environment happens to be the source of many threats. Environmental awareness can help managers to identify various threats on time and serve as an early warning signal. For example, if an Indian firm finds that a foreign multinational is entering the Indian market with new substitutes, it should act as a warning signal. On the basis of this information, the Indian firms can prepare themselves to meet the threat by adopting such

 New entrants

5

It helps in assisting in planning and policy formulation:

Since environment is a source of both opportunities and threats for a business enterprise, its understanding and analysis can be the basis for deciding the future course of action (planning) or training guidelines for decision making (policy).

For example, entry of new players in the market, which means more competition may make an enterprise think afresh about how to deal with the situation.

6

It helps in improving performance:

The final reason for understanding business environment relates to whether or not it really makes a difference in the performance of an enterprise.

The answer is that it does appear to make a difference. Many studies reveal that the future of an enterprise is closely bound up with what is happening in the environment

the enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.

1

Political

2

Economics

3

Social

4

Technology

5

Legal

1

Political Environment:

Political ideology .

Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business.

The significance of political conditions in business success lies in the predictability of business activities under stable political conditions.

On the other hand, there may be uncertainty of business activities due to political unrest and threats to law and order.

Political stability, thus, builds up confidence among business people to invest in the long term projects for the growth of the economy. Political instability can shake that confidence.

Even after opening up of our economy in 1991 foreign companies found it extremely difficult to cut through the bureaucratic red tape to get permits for doing business in India .

2

Economic Environment:

Exchange Rate, Inflation Rate, GDP and GNP,  Taxes, Duties, Finance and Credit, Cost of Living.

Interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee are some of the economic factors that can affect management practices in a business enterprise.

Short and long term interest rates significantly affect the demand for product and services.

For example, in case of construction companies and automobile manufacturers, low longer-term rates are beneficial because they result in increased spending by consumers for buying homes and cars on borrowed money.

Similarly, a rise in the disposable income of people due to increase in the gross domestic product of a country creates increasing demand for products.

High inflation rates generally result in constraints on business enterprises as they increase the various costs of business such as the purchase of raw materials or machinery and payment of wages and salaries to employees.

3

Social Environment:

Belief, Value, Rule, Rituals, and  Relationship Customs, Tradition

Traditions define social practices that have lasted for decades or even centuries.

For example, the celebration of Diwali, Eid, Christmas, and Guru Parv in India provides significant financial opportunities for greetings card companies, sweets or confectionery manufacturers, tailoring outlets and many other related business.

In India, individual freedom, social justice, equality of opportunity and national integration are examples of major values cherished by all of us.

In business terms, these values translate into freedom of choice in the market, business’s responsibility towards the society and non-discriminatory employment practices.

Social trends present various opportunities and threats to business enterprises.

For example, the health-and-fitness trend has become popular among large number of urban dwellers. This has created a demand for products like organic food, gyms, bottled (mineral) water and food supplements.

4

Technological Environment:

Speed , accuracy, Efficiency, connectivity,  Automation, Internet, 3D technology

Technological environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.

For example, recent technological, advances in computers and electronics have modified the ways in which companies advertise their products. It is common now to see computerised information kiosks, and World Wide Web multimedia pages highlighting the virtues of products

Similarly, retailers have direct links with suppliers who replenish stocks when needed. Manufacturers have flexible manufacturing systems.

Airline companies have Internet and World Wide Web pages where customers can look for flight times, destinations and fares and book their tickets online.

In addition, continuing innovations in different scientific and engineering fields such as lasers, robotics, biotechnology, food preservatives, medicine, telecommunication and synthetic fuels have provided numerous opportunities and threats for many different enterprises.

5

Legal Environment:

Judiciary

Legal environment includes various legislations passed by the Government administrative orders issued by government authorities, court judgments as well as the decisions rendered by various commissions and agencies at every level of the government— centre, state or local.

an adequate knowledge of rules and regulations framed by the Government is a pre-requisite for better business performance.

Non-compliance of laws can land the business enterprise into legal problems.

For example, the advertisement of alcoholic beverages is prohibited. Advertisements, including packets of cigarettes carry the statutory warning ‘Cigarette smoking is injurious to health’.

Similarly, advertisements of baby food must necessarily inform the potential buyer that mothers milk is the best. All these regulations are required to be followed by advertisers.

1

Diversification spree :

The corporate scene now witnessed a spate of diversification. For example

AT & T served initially a wide range  of Telcom. Now it has entered into manufacturing of transmission equipment , switching equipment and wireless product. Similarly reliance has diversified into textile, petrochemicals, IT, communication etc.

2

Joint venture/consolidation of multi national:

Many multinationals enters India afresh through new joint ventures.

Examples

1. Ford enters with Mahindra and Mahindra

2. Honda enters with SIEL.

3. General motors enters with hindustan motors.

3

Brand building:

Expenditures were enhanced by companies in building brands. Often MNC’s have invested huge amounts on building brands such as LG, samsung, Hyundai.

4

Use of latest technology:

Use of latest technology has become slogan of the successful companies. The best example is that of cellular phones.

5

Sharply improved compensations level:

Sharply improved compensations level for special managerial technical services.

The starting salaries for engineering and management graduates have risen significantly.

Incentive scheme for various kinds to performance are becoming common.

6

Customer focus:

This refers to increasing attention to customer needs and satisfaction. There is a tremendous difference in the nature and quality of products, offered to consumers today. Marketing research, advertisements, sales promotion techniques like BOGOF ( Buy one Get one Free) , public relations programmes etc. have become more significant.

1

Reduction of industries under license

The Government reduced the number of industries under compulsory licensing to six.

2

Deresevation of industries from public sector

Many of the industries reserved for the public sector under the earlier policy, were dereserved. The role of the public sector was limited only to four industries of strategic importance.

3

Disinvestment in public sector

Disinvestment was carried out in case of many public sector industrial enterprises.

4

FDI

 Policy towards foreign capital was liberalised. The share of foreign equity participation was increased and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted.

5

Automatic permission

Automatic permission was now granted for technology agreements with foreign companies.

6

FIPB

Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.

1

Liberalisation:

The economic reforms that were introduced were aimed at liberalising the Indian business and industry from all unnecessary controls and restrictions.

They signalled the end of the licence-permit-quota raj. Liberalisation of the Indian industry has taken place with respect to:

abolishing licensing requirement in most of the industries except a short list.

2

Privatisation:

The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector.

This was a reversal of the development strategy pursued so far by Indian planners

To achieve this, the government redefined the role of the public sector in the New Industrial Policy of 1991, adopted the policy of planned disinvestments of the public sector and decided to refer the loss making and sick enterprises to the Board of Industrial and Financial Reconstruction.

The term disinvestments used here means transfer in the public sector enterprises to the private sector.

It results in dilution of stake of the Government in the public enterprise.

If there is dilution of Government ownership beyond 51 percent, it would result in transfer of ownership and management of the enterprise to the private sector.

3

Globalisation:

Globalisation means the integration of the various economies of the world leading towards the emergence of a cohesive global economy.

Till 1991, the Government of India had followed a policy of strictly regulating imports in value and volume terms.

These regulations were with respect to

licensing of imports,

tariff restrictions and

quantitative restrictions

The new economic reforms aimed at trade liberalisation were directed towards import liberalisation, export promotion through rationalisation of the tariff structure and reforms with respect to foreign exchange so that the country does not remain isolated from the rest of the world.

Globalisation involves an increased level of interaction and interdependence among the various nations of the global economy.

Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer in a distant geographical market.

This has been made possible by the rapid advancement in technology and liberal trade policies by Governments.

4

Demonetisation:

The Government of India, made an announcement on November 8, 2016 with profound implications for the Indian economy. The two largest denomination notes,

`500 `1,000, were ‘demonetised’ with immediate effect, ceasing to be legal tender except for a few specified purposes such as paying utility bills. This led to eighty six per cent of the money in circulation invalid. The people of India had to deposit the invalid currency in the banks which came along with the restrictions placed on cash withdrawals. In other words, restrictions were placed on the convertibility of domestic money and bank deposits.

The aim of demonetisation  was  to curb corruption, counterfeiting the use of high denomination notes for illegal activities; and especially the accumulation of ‘black money’ generated by income that has not been declared to the tax authority

1

Change Necessitated

2

Rapidly changing technological environment:

3

Increasing competition:

4

More demanding customers

5

Enhance Market orientation:

6

Need for developing human resource:

7

Loss of budgetary support to the public sector:

1

Change Necessitated

In a regulated environment of pre1991 era, the firms could have relatively stable policies and practices.

After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.

2

Rapidly changing technological environment:

Increased competition forces the firms to develop new ways to survive and grow in the market.

New technologies make it possible to improve machines, process, products and services. The rapidly changing technological environment creates tough challenges before smaller firms.

3

Increasing competition:

As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector.

4

More demanding customers:

Customers today have become more demanding because they are well-informed.

Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.

5

Enhance Market orientation:

Earlier firms used to produce first and go to the market for sale later

In other words, they had production oriented marketing operations.

In a fast changing world, there is a shift to market orientation in as much as the firms have to study and analyse the market first and produce goods accordingly.

6

Need for developing human resource:

Indian enterprises have suffered for long with inadequately trained personnel.

The new market conditions require people with higher competence and greater commitment. Hence the need for developing human resources.

7

Loss of budgetary support to the public sector:

The central government’s budgetary support for financing the public sector outlays has declined over the years.

The public sector undertakings have realised that, in order to survive and grow, they will have to be more efficient and generate their own resources for the purpose.