Business and Legal Environment

Course Content
Unit I 08 hours
Meaning of Business Environment, Economic and Non-economic factors influencing business and their interaction, Economic systems, Historical Perspective on public control of business, Constitutional framework of state control of business.

Unit II
Planning and Economic Policies

12 hours 24 hours 12 hours

Unit III
Business Legislation

Unit IV
Overview of Economic Legislation

Books Recommended
Kuchhal, M.C., Prakash, Deepa(2009), Business Legislation for Management, Vikas Publishing House Saleem, Shaikh (2010). Business Environment, 2nd edition, Pearson Education. Tulsian, P C(2009) , Business Laws, Tata Mc Graw Hill, New Delhi

UNIT - I

Meaning of Business Environment

A set of surrounding factors/ conditions that affects (helps/ hinder) the functioning/ development of the business/ organization.

Why Study Business Environment

Development of broad strategies to ensure sustainability To foresee the impact of socio-economic changes at the national and international levels on firms ability Analysis of competitors strategies and formulation of effective counter measures To keep oneself dynamic

What do you Environment???

mean

by

Business

The environment of any organization is the aggregate of all conditions, events and influences that surround and affect it. Characteristics of Business Environment: Complex Dynamic Multi-faceted Far- reaching impact

Nature of Business Environment

Aggregative: totality of all the external forces
which influence the working and decision making of an enterprise.

Inter-related: various elements are closely

interdependent and any change in one element affects the other elements.

Relative: it differs from country to country and

even region to region.

Contd.
Inter-temporal: it changes over time, specially in long run, it changes certainly. Uncertain: business environment is volatile so it becomes very difficult to forecast. Contextual: business environment provides the macro framework within which the business firm (a micro unit) operates.

Significance of Business Environment

First mover advantage Early warning signal Customer focus Strategy formulation Change agent Public image

Continuous learning

Types of Environment
Internal Environment External Environment
Micro environment Macro environment Economic Non Economic

Internal Environment
Refers to all the factors that are within an organization which impart strengths or cause weaknesses of strategic nature. Controllable factors. These include: Value system Mission and Objectives Management Structure and Nature

Components of Internal Environment

Human Resources Company Image and Brand Equity Other Factors Physical Assets and Facilities R & D and Technological Capabilities Marketing Resources Financial Resources

Factors of Internal Environment

Factors
culture Mission & objectives Top management structure Power structure Company image & brand equity Human & other resources

External Environment
Includes all factors outside the organization which provide opportunities or pose threats to the organization Uncontrollable factors Consists of Micro and Macro environment

Micro Environment

It consists of the factors in the companys

immediate environment that affect the performance of the company.

Micro Environment Factors

Suppliers Customers Marketing Intermediaries Competitors Publics Financial Community

Elements of Micro Environment

Micro Environment customers Competitors suppliers Marketing intermediaries financiers publics

Micro Environment of a typical car manufacturer

Potential Supplier Components Supplier Local Communities Stakeholders Pressure Groups Car Manufacturer Customers Potential Customers

Government

Competitors

Car Dealers Potential Dealers

For Customers

For Supplies

Macro Environment
It comprises general trends and forces that may not immediately affect the organization but sooner or later will alter the way organization operates. Macro Environment : Economic Non Economic

Economic and Non-economic factors influencing business and their interaction

Economic & Financial Environment

Nature of economic system Economic structure Economic policies Economic infrastructure

Economic Environment
Economic stages that exists at a given time in a country Economic system that is adopted by a country for example. Capitalistic, Socialistic or Mixed Economy Economic planning, such as five year plans, budgets, etc. Economic policies for example, monetary, industrial and fiscal policies Economic Indices such as National Income, Per Capital Income, Disposable Income, Rate of growth of GNP, Distribution of Income, Rate of savings, Balance of Payments etc. Economic Problems Functioning of economy

Non Economic Environment

Regulatory Environment Socio- Cultural Environment Demographic Environment Technological Environment Political Environment

Non- Economic Environment

Legal and Regulatory Environment People are willing to start new businesses if they believe that the risk of losing their money isnt too great. Part of that decision is affected by how governments work with businesses. Governments can do a lot to lessen the risk of starting and running a business through laws

Freedom of ownership Contract laws Elimination of corruption

Chapter 1 Slide 25

Macro Environment
Regulatory Environment Constitutional framework Policies relating to pricing and foreign investment Policies related to the public sector, SSIs, development of backward areas and control of environmental pollution

Non- Economic Environment

Cultural Environment Social Customs & Rituals and practices Lifestyle patterns Family structure Role & position of men, women, children and aged in family & society

Non- Economic Environment

Demographic Environment Growth of population Age Composition Life Expectancy Sex Ratio Fertility and Mortality rates Inter-state migration

Non- Economic Environment

Technological Environment Technology refers to inventions or innovations from applied science or engineering research. The use and application of technology affects productivity. Productivity is the amount of output you generate given the amount of input. The more you can produce in any given period of time, the more money you are worth to companies. Sources of technology Technological development Impact of technology Political Environment Political parties in power Political Philosophy

International Environment
Important factors that operate at global level which have an impact on organization are: Growth of world economy Distribution of world GDP International institutions IMF,WTO ILO Economic relations between nations Global human resource-nature and quality of skills, mobility of labor Global technology and quality standards Global demographic patterns

WTO and companies

its

relevance

for

Indian

The main guidelines of WTO are: Trade without discrimination Growing market access Promotion of fair competition The response of Indian government to WTO constitutes the following actions Reduction of tariffs Opening Indian markets for Global Players Rationalizing industrial licensing and removal of controls on the size of operations

WTO and its relevance for Indian companies

The impact of WTO on Indian companies is likely to include the following : Increasing competition Consolidation of activities in core competence areas Improvements in infrastructure to negate structural disadvantages. Shake out of minor players and M&As to gain global scale.

Overview of Business Environment

MACRO ENVIRONMENT

ECONOMIC Environment
MICRO ENVIRONMENT BUSINESS

Internal Environment
Values, Mission & Objectives. Human Resources, Co. Image & Brand Equity

TECHNOLOGICAL FACTORS

DEMOGRAPHIC FACTORS MARKETING INTERMEDIARIES SOCIAL CULTURAL FACTORS

Non - Economic

Environment

Economic Systems

Meaning
It is a system designed by a nation to utilize its resources for the purpose of satisfying the needs and wants of its people.

Basic units of an Economic System

Household Firm Industry Government

Characteristics
National entity: economic system always covers the entire country. Institutional: it comprises various institutions which a nation has devised and adopted for satisfying the needs of its people. Such as firm, industry, govt., economic planning.

Functions of An Economic System

What to produce? How to produce? For whom to produce? Choice between current needs & future needs Economic growth

Problems All Economies Face

Scarcity forces all countries to answer these 3 questions

Scarcity leads to conflict

Do All Countries Answer These Questions The Same Way?

No
Conflicts arise in all economies

Different Countries Use Different Systems To Answer These Questions

Major Economic Systems Include:
Market /Capitalistic Command/ Socialistic Mixed Economic System

Types of Economic Systems

Capitalist: Socialism: Mixed Economy:

Contd.
Interdependence: different institutions are interdependent and interacting. Scarcity of resources: limited resources in comparison to the demand for these resources. Need satisfaction: Dynamic: some economic systems change slowly while others change fast.

Market Economic System

Also known as Capitalism, Free Market, or Free Enterprise Defined: ownership of resources and means of production by individuals, basically free of government control in deciding goods and services produced Ownership of Resources: Productive resources privately owned and operated

Market Economic System

Allocation of Resources: Resources are obtained through the lure of profits in the market Role of Government: Government only tries to make sure there is some competition and provides some public goods

 Goals: Profit for individuals, people are motivated by economic rewards Methods: Competition, supply and demand Characteristics: Private property, specialization, minimal government regulation Political System: Democracy/Parties Current World Examples:

Market Economic System

Switzerland Africa

Canada

Australia

Chile

Argentina

South

Command Economic System

Defined: An economy in which all of the major economic questions are answered by a central authority. The two main forms of Socialism are: Democratic Socialism:- All the economic activities are controlled and regulated by the government but the people have the freedom of choice of occupation and consumption. Totalitarian Socialism:- This form is also known as Communism. Under this, people are obliged to work under the directions of Government.

Ownership of Resources: All Productive resources are owned and operated by the

Command Economic System

Allocation of Resources: Central planning group directs all resources Role of Government: Government makes all decisions

Command Economic System

Goals: Equal distribution of income Methods: Revolution to gain control, no opposition forces allowed Characteristics: no private property, one political party Political System: Totalitarian Current and Former World Examples:

Cuba Soviet Union

North Korea

China

Former

No Pure System Is Perfect: Market

Strengths: Able to change gradually Individual freedom for all Lack of government Interference Variety of goods and services High consumer satisfaction Promotes economic freedom and growth Weaknesses: Does not protect the young, sick, old who cannot work Market failures happen leading to lots of ups and downs Doesnt promote economic security, equity, or efficiency as well as other systems

No Pure System Is Perfect: Command

Strengths: Things can be changed dramatically in a short time Promotes economic security, efficiency, and equity
Weaknesses:
Does not meet the needs and wants of consumers Lacks effective incentives to get people to work Needs a large bureaucracy which consumes resources Inflexible for day-to-day changes New and different ideas discouraged, people cant be individuals Doesnt promote: economic growth or freedom

If No Pure System Is Perfect Then What?

Most countries in the world are a blend of different elements They are called mixed or combination systems Market Command
Economies

Mixed Economic System

Defined: A system in which economic questions are answered by a combination of command and market methods Ownership of Resources: Basic utilities, other important resources government owned and operated; the rest privately owned and operated

Mixed Economic System

Allocation of Resources: Government plans where resources go for key industries Role of Government: Government directs its plans for the biggest, key industries only

 Goals: Equal distribution of income Methods: High Taxes Characteristics: Limited competition, lots of government planning, many services paid for by government: health, education, welfare Current World Examples:

Mixed Economic System

England Egypt

Germany

Sweden

France Mexico

Italy

Hungary

Mixed Economic System

Strengths and Weakness vary by country Generally these countries experience the same ups and downs that market economies like the United States experience

Historical Perspective on public control of business

Civilization Monarchy Tax Collection Monarchy to Parliamentary Set-up Societal control Parliamentary dynamics resulting inclination towards rich candidate Resultant entrepreneurship promotion Low labour internsive units

in

CONSTITUTIONAL FRAMEWORK OF STATE CONTROL OF BUSINESS.

Characteristics of Indian Constitution

1) Sovereignty: India is an independent republic and not subordinate to any other nation. 2) Democracy: govt. is run by representatives who are elected by the people of the nation. 3) Secularism: complete freedom to its citizen to preach & practice their religion.

Contd.
4) The parliamentary system: ministers and the prime minister are answerable to the parliament. 5) Separation of powers:

Federal System of the Govt.

Meaning: where the powers of the central govt. and State govt. are well-defined. Division of powers between the Central & State govt. has been done through three lists :
The Union List The State List The Concurrent List

Functions of the State

Functions of State
The basic functions Activities that are Undertaken only by the State

Intermediate Functions
Govt. can work in collaboration with civil Society & markets

Activist functions Active participation of Govt. for promoting markets

The Basic Functions

i. ii. iii. iv. v. vi. vii. viii. ix. Providing pure public goods Defense Law & order Property rights Public health Protecting the poor Macroeconomic stability Antipoverty programmes Disaster relief

Intermediate Functions
i. Addressing externalities:basic education, environmental protection ii. Regulating monopolies:- consumer protection, financial regulations. iii. Providing Social Insurance:- pensions, family allowances, unemployment insurance.

Activist Functions
i. Coordinating private activity ii. Fostering markets iii. Asset redistribution

Economic Roles of the Govt.

Economic roles of Govt. Regulatory roles Promotional roles Entrepreneurial roles Planning roles

Regulatory Roles
i. Grant of license, restriction on location of industry ii. Regulating the conduct of business ventures iii. Controlling the accrual & disposal of business income iv. Regulating the relationship with its stakeholders

Promotional Roles
i. ii. iii. iv. Development of infrastructure Assistance by way of subsidies Allocation of scarce resources Fiscal, monetary and other incentives

Entrepreneurial Roles
Govt.s participation in business through public ownership and management of industrial and commercial undertakings. Balanced regional development Promotion of capital intensive industries

Planning Roles
Socio-economic development Social justice Balanced regional development Rapid industrialization Employment generation Development of agriculture & small scale industries

Rationale of State Intervention

1) 2) 3) 4) 5) 6) 7) Legal framework Imperfect competition Externalities Social objectives Industrial base Balanced regional development Self reliance

Thank You