UNIT I BUSINESS ENVIRONMENT Introduction: In your day-to-day life you may be engaged in several activities.

However, when someone asks you as to what you want to become in your life or what you want to do in future, your answer may be I want to join a suitable job or I want to become a doctor,an engineer, a dancer or a musician, or you may say, I want to do my own business. But why do you want to do any of such activities? Obviously, it is mainly to earn your livelihood. Broadly speaking, every human activity in which one is engaged for the purpose of earning ones livelihood is known as economic activity. In this lesson we shall learn about all such activities, their categorization and some other related aspects. NATURE AND PURPOSE OF BUSINESS The nature of business is best understood on the basis of its characteristics or features which are as follows: 1. Business is an economic activity 2. It includes the activities of production or purchase and distribution. 3. It deals in goods and services. 4. It implies regularity of transactions. 5. It aims at earning profits through the satisfaction of human wants. 6. It involves risk; it is not certain that adequate profit will be earned. 7. It creates utilities. 8. It serves a social purpose by improving peoples standard of living. COMPARISON OF BUSINESS, PROFESSION AND EMPLOYMENT Basis Business Profession Employment Decision to start the Membership of a Enter into service contract business and compliance of professional body is with the employer. legal formalities like essential. Establishment registration, Wherever required. Specific qualification is not Professional As per the needs of the required. knowledge and employer and the job Qualification training in the same involved. field is essential. Capital investment is a Some amount of No capital investment is must. Its amount depends capital investment is required. Capital on the nature and scale of required for business operation. establishment. Production or purchase and Expert service. Performance of job. Nature of sale of goods or services. work Profit. Professional fee. Wage or Salary. Return or reward There is risk of loss. Risk of not getting No risk, as long as business Risk sufficient fee. /office continues its operations. Profit motive. Service motive, Motive is to earn a Motive though fee is livelihood. charged.

CLASSIFICATION OF BUSINESS ACTIVITIES: INDUSTRY, COMMERCE AND TRADE CLASSIFICATION OF INDUSTRIES (Based on nature of activity) Primary Industries Secondary Industries Tertiary Industries

Extractive Industries

Genetic Industries

Manufacturing Industries

Construction Industries

Transportation Warehousing Insurance Banking Communication Advertising

TRADE It involves actual buying and selling of goods; On the basis of area of operation, trade can be classified as under (a) Internal Trade; and (b) External Trade. CLASSIFICATION OF COMMERCE Commerce

Trade

Auxiliaries to Trade 1. Transportation 2. Warehousing 3. Insurance 4. Banking 5. Communication

Internal Trade

External Trade

Wholesale

Retail

Import Export

Entrepot

OBJECTIVE OF BUSINESS Business objectives need to be aimed at contributing to national goals and aspirations as well as towards international well-being. Thus, the objectives of business may be classified as Economic objectives Social objectives Human objectives National objectives Global objectives SIGNIFICANCE OF BUSINESS IN MODERN SOCIETY 1. Improvement in standard of living 2. Proper utilization of resources 3. Better quality and large variety of goods and services 4. Creates utilities 5. Employment opportunities 6. Workers' welfare

The Economic Environment for Business Macroeconomic policy targets are: Growth Control of inflation Full employment External balance (or Balance of payments) The critical elements of macro-economic environment are: Economic system Nature of the economy Anatomy of the economy Functioning of the economy Economic planning and programmes Economic policy statements and proposals Economic controls and regulations Economic legislations Economic trends and structure, and Economic problems and prospects SCARCITY, CHOICE, AND OPPORTUNITY COST 1. All societies must answer three basic questions: What gets produced? How is it produced? Who gets what is produced? These three questions make up the economic problem. 2. One person alone on an island must make the same basic decisions that complex societies make. When a society consists of more than one person, questions of distribution cooperation and specialization arise. 3. Because resources are scarce relative to human wants in all societies, using resources to produce one good or service implies not using them to produce something else. This concept of opportunity cost is central to an understanding of economics. 4. Using resources to produce capital that will in turn produce benefits in the future implies not using those resources to produce consumer goods in the present. 5. Even if one individual or nation is absolutely more efficient at producing goods than another, all parties will gain if they specialize in producing goods in which they have a comparative advantage. 6. A production possibility frontier (ppf) is a graph that shows all the combinations of goods and services that can be pro-duced if all of societys resources are used efficiently. The ppf illustrates a number of important economic concepts: scarcity, unemployment, inefficiency, increasing opportunity cost, and economic growth. Opportunity Cost: The concepts of constrained choice and scarcity are central to the discipline of economics. They can be applied when discussing the behavior of individuals such as Bill and when analyzing the behavior of large groups of people in complex societies. BUSINESS GROWTH AND MEASUREMENT OF SIZE Methods of Measuring Business Size Turnover: The sales revenue or turnover of a business could be used to measure size. For example, BP, the UK oil company, is a very large business. Its turnover in 2008 was $361 billion. The number of employees: A business with thousands of employees may be considered large. For example, Ford the US car giant, employed over280, 000 people in 2008. The amount of capital employed: Capital employed is the amount of money invested in a business. The more money invested, the larger the business.

Market share: It could be argued that a business with a 43% market share is larger than one that has a 9% market share in the same industry. Coca-Cola, for example sells over 50% of all cola drinks worldwide. Methods of Growth Internal growth is when a firm expands without involving other businesses. Organic growth means that the firm expands by selling more of its existing products. This could be done by selling to a wider market. Internal growth is often a slow process. External growth is a faster method of growth. This can be by acquisition or takeover of other businesses or by merging with them. A takeover is when one company buys control of another. A merger usually means that two companies have agreed to join together and create a new company. BALANCE OF TRADE The record of only visible goods transaction completed between the residence of a country and the residence of the rest of the world, is known as Balance of Trade. Terms of Trade (TOT) Ratio between the value of exports and value of imports is known as terms of trade. Value of XTOT=Value of M Value of X = Prices of goods Export * Q of goods export Value of M = Prices of goods Import * Q of goods import Surplus/Favorable TOT: If value of X is greater than value of M the terms of trade is favorable. In other words when the receipts of a country is more than its payments the result is surplus in TOT. Value of X > Value of MOR Receipts > Payments Deficit/Unfavorable TOT: If value of M is greater than value of X the terms of trade is unfavorable. In other words when the payments of a country is more than its receipts the result is deficit in TOT. Value of M > Value of XOR Payments > Receipts TRADE DEFICITS The term Trade Deficit comes under the Balance of Trade and represents more import than export and referred as a negative balance or trade gap. Trade deficit is not good thing for any country and they should try to avoid or overcome such situation by promoting export. Here the export considered is in the term of Money i.e. Monetary Value and not just quantity. The amount by which the value of a country's visible imports exceeds that of visible exports; an unfavorable balance of trade BALANCE OF PAYMENTS (BOP) Definition: Balance of payments is systematic record of all economic transactions completed between the residence of a country and the residence of the rest of the world. Surplus in (BOP): If the receipts of a country are greater than its payments the result is Surplus. Receipts > Payments Balance in (BOP): If the receipts of a country and its payments are equal the result is Balance. Receipts = Payments Deficit in (BOP): If the receipts of a country are less than its payments the result is Deficit. Receipts < Payments Simply whenever, the foreign payments of a country are more than the foreign receipts of the country, the deficit in BOP rises. In other words, whenever the demand for foreign exchange is more than the supply of foreign exchange the deficit in BOP occurs.

TRADE PROTECTIONISM Protectionism is implemented to secure the domestic industries from international industries. Imported goods usually have high quality and are available at cheaper price then domestic goods. This increased the demand for imported goods and reduces the demand for the domestic goods. This leads to unemployment as some firms are not able to survive. This also means less revenue from the taxes for the government and low GDP of the country. To tackle this problem, the government takes some measures and a method to protect the domestic industries is known as protectionism. The methods are: 1. Tariff 2. Quota 3. Ban 4. Subsidies 5. To set certain packaging and quality standards 6. Administrative problems 7. Exchange Control BUSINESS ETHICS Publics interest in business ethics increased during the last four decades Publics interest in business ethics spurred by the media Ethics involves a discipline that examines good or bad practices within the context of a moral duty Moral conduct is behavior that is right or wrong Business ethics include practices and behaviors that are good or bad

Sources of Ethical Norms

Fellow Workers

Fellow Workers

Regions of Country

Family The Individual Conscience Friends

Profession

Employer

The Law

Religious Beliefs

Society at Large

UNIT II BUSINESS STRUCTURE AND ORGANIZATION Forms of Business Organization Business organization refers to all necessary arrangements required to conduct a business. It refers to all those steps that need to be undertaken for establishing relationship between men, material, and machinery to carry on business efficiently for earning profits. Sole Proprietorship Partnership Joint Stock Company Co-operative Society SOLE PROPRIETORSHIP Sole Proprietorship is a form of business organization in which a single person owns, manages and controls the business enterprise with all authority, responsibility and risk. The individual who owns and runs the business is called the Sole proprietor. A sole proprietor pools and organizes the resources in a systematic way and controls the activities with the sole objective of earning profit. Characteristics of Sole Proprietorship 1. Single Ownership 2. No sharing of Profit and Loss 3. One-mans Capital 4. One-man Control 5. Unlimited Liability 6. Less legal formalities PARTNERSHIP Partnership is the relation between two or more persons who have agreed to share the profits of a business carried on by all or any of them acting for all. It is a form of business in which two or more competent persons join together to carryon any lawful business after entering into an agreement to share the profit and loss of the business. Features of Partnership Form of Business Organization Two or more Members Agreement Lawful Business Competence of Partners Sharing of Profit Unlimited Liability Voluntary Registration No Separate Legal Existence Principal Agent Relationship Restriction on Transfer of Interest Continuity of Business JOIN STOCK COMPANIES A joint stock company is a company whose capital is divided into shares and the liability of whose shareholders is limited to the par value of the shares respectively held by them. A Joint stock company is an artificial person created by law, having separate legal entity, with perpetual succession and a common seal. The companies are governed by the Indian Companies Act, 1956.

Characteristics of Joint Stock Company Legal formation Artificial person Separate legal entity Common seal Perpetual existence Limited liability of members Democratic Management Types of companies On the basis of ownership 1. Private limited Companies 2. Public limited Companies 3. Government Companies On the basis of nationality 1. Indian Companies 2. Foreign Companies CO-OPERATIVE SOCIETIES A co-operative society is a voluntary association of individuals having common needs who join hands for the achievement of common economic interest. Its aim is to serve the interest of the poorer sections of society through mutual help. A co-operative society can be formed under the Co-operative Societies Act, 1912, with a minimum of ten members. Co-operative societies may be classified as follows: 1) Consumers co-operative society - formed to eliminate the role of middlemen and supply high quality goods and services at reasonable price to consumers. 2) Producers co-operative society - formed to help producers to procure raw material, tools, equipment etc. 3) Co-operative marketing society - formed to ensure a favorable market for small producers to sell the output and get a good return on sale. 4) Co-operative credit society - formed to provide financial help to members through loans at low interest rates. They encourage saving habit among members. 5) Co-operative farming society - formed to achieve economies of large scale farming and maximization of agricultural output. 6) Housing co-operative society- formed to provide residential houses to members by constructing them or providing loans to members to construct their own houses. PUBLIC ENTERPRISE Definition: A public sector enterprise may be defined as any commercial or industrial undertaking owned and managed by the government with a view to maximize social welfare and uphold the public interest. Characteristics of Public Enterprises Owned, managed and controlled by Government. Funded by Government Welfare oriented Concentrate on public utility services Responsible to parliament Observance of Government formality is necessary

Importance of Public Sector Enterprises 1. Balanced regional development 2. Boost the basic industries of an economy 3. Concentrate on public welfare activities 4. Promote export 5. Price control of essential goods 6. Limit the influence of private monopoly 7. Ensure security of the country 8. Minimize economic inequalities Merits Limitations (a) Simple procedure of establishment (a) Lack of initiative (b) Efficient working on Business lines (b) Lack of business experience (c) Efficient management (c) Change of policies and management (d) Healthy competition ROLE OF GOVERNMENT IN BUSINESS ACTIVITY Government prescribes the rules of the game for business. Purchases business products and services. Uses it contracting power to get business to do things it wants. It is a major promoter and subsidizer of business. It is an architect of economic growth and also a financier. It is the protector of various interests in society against business exploitation. Directly manages large areas of private business. It is the repository of the social conscience and redistributes resources to meet social objectives UNIT III ELEMENTS OF BUSINESS ACTIVITY Purchasing-Choosing Suppliers Successful companies do not limit their sourcing horizons to national borders but seek to find and establish sound working relationships with the best suppliers in the world, foreign and domestic. Success also requires intra-company linkages among purchasing, finance, and logistics that often do not exist in companies with purely domestic supply chains. Overview of Stock Control Stock Control System is a true Multi-Warehouse and Multi-Branch Store Module. Powerful Sophisticated Bar Graphs for Statistical Figures together with a variety of reports allows the user to either view on screen or print reports. Fully integrated General Accounting. General Features: Interface with Accounting System Export Import Transactions Enquiries Scale of Production Scale of production means size of plant; the number of plants and the technique of production adopted by the producer. Scale of production are 1. Small Scale Production 2. Large Scale Production

CONCEPT AND ROLE OF MARKETING The components of marketing concept are as under: 1. Satisfaction of Customers 2. Integrated marketing 3. Profitable sales volume Features of mass production: Continuous flow of material Special purpose machines & layout Mechanized Materials handling Less skilled labour Limited Work-in-progress Less flexibility in production schedules Features of job production system: 1. Machines and methods employed are of general purpose as product changes are quite frequent. 2. Planning and control system are flexible enough to deal with the frequent changes in product requirements. 3. A permanent staff of highly skilled employees is necessary in order to manufacture products of wide range as per the job orders collected. 4. Schedules are actually nonexistent in this system, as no definite data is available on the product. 5. In process inventory is usually high as accurate plans and schedules do not exist. 6. Product cost is normally high because of high material and labor costs. 7. Large storage space and adequate extra machines in the machine storerooms are required to meet customers requirements. 8. This system is very flexible as management has to manufacture varying product types. 9. Material handling systems are also flexible to meet changing product requirements. Features of Batch Production: 1. The machines and equipments are arranged according to the sequence of operations. 2. A large variety of products are manufactured in lots or batches. 3. The manufacturing plants should be well equipped with machines and equipments with capacity to undertake production of wide variety of products. 4. The general purpose machines and special purpose machines are used in the production process. 5. The production period required for each product/part is comparatively long as each batch has to wait before going over to the next machine for subsequent operation. 6. Stock of work in progress is high and the product design department is comparatively large. 7. The costing system need to be efficient in order to calculate the total cost of production for each piece work and each batch of the finished product. 8. The success of Batch production method depends upon the efficiency of the production planning and control department.

Product Features Design Variety Quality Brand Name Packaging Sizes Services Warranties

MARKETING MIX Price Place List Price Location Discounts Transport Allowances Channels Payment Period Coverage Credit Terms

Promotion Advertising Personal Selling Sales Promotion Publicity Delivery Availability Inventory

CHANNELS OF DISTRIBUTION The following diagram (chart) is illustrative of the channel of distribution which may exist in a market. Direct Sale P R O D U C E R S Retailer Wholesaler Agent Agent Agent/dealer Agent/dealer Wholesaler Wholesaler Retailer Retailer Retailer Retailer Retailer C O N S U M E R S

FINANCE-SOURCES OF FINANCE Sources of long term finance 1) Shares 2) Debentures 3) Public Deposits 4) Retained earnings 5) Term loans from banks 6) Loan from financial institutions Sources of Short-term Finance 1) Trade credit 2) Bank credit a. Loans and advances b. Cash credit c. Overdraft d. Discounting of bills 3) Customers advances 4) Installment credit 5) Loans from co-operatives

Assessing Business Performance Following are the variables used to assess the business performance 1) Short-Term Profitability 2) Productivity 3) Product Leadership 4) Personnel Development 5) Employee Attitude 6) Public Responsibility 7) Balance Between Short Range Objectives and Long-Range Goals UNIT IV HUMAN RESOURCES Demographic trends reveal developments and changes in human population. More specifically, demographic trends relate to changes in a populations age, gender, geographical location, marital status, educational attainment, employment status, household income, race, religion, and health. Applying Demographics to Business Strategy 1. Self-employment 2. Part-time employment 3. Tele-commuting and home employment 4. Volunteering 5. Mentoring 6. Customized benefits Demographic Analysis: The Key Implications Policing: from reactive to preventative delivery approaches and from violent to property crime. Health care: from maternity to cardiology. Recreation: from hockey arenas to walking trails. Social welfare: from "child benefits" to pensions. Types of Unemployment 1) Structural Unemployment Causes Changes in Technology Changes in Tastes 2) Frictional Unemployment Sources of frictional unemployment include the following: People entering the workforce from school. People re-entering the workforce after raising children. People changing employers due to quitting or being fired People changing careers due to changing interests. People moving to a new city and being unemployed when they arrive. 3) Cyclical Unemployment 4) Seasonal Unemployment RECRUITMENT Recruitment is the process of identifying and attracting a group of potential candidates from within and outside the organization to evaluate for employment. Once these candidates are identified, the process of selecting appropriate employees for employment can begin.

Recruitment - Selection General Reference checks Applications-forms requesting standard, verifiable information (e.g., education or work experience) Resume screeningmanual Training and experience evaluations Resume screeningcomputerized Biographical data Testing and assessment Drug Tests Knowledge teststests that measure job-specific knowledge Ability testsmental, clerical, mechanical, physical, or technical Motivational fit inventoriescandidate preferences for the job, the organization, and location qualities Assessmentsrole plays and simulations Personality inventories Integrity tests Interviews Behavior-based interviewsasking candidates to describe their skills Situational interviewsasking candidates to respond to a hypothetical situation Computer-assisted interviewsa computer screens candidates based on their responses Training of Workers
3 Steps to Effective Worker Education and Training

1) Provide supervision and ongoing training for workers 2) Train young and new workers for their specific tasks 3) Provide safety orientation, and train workers on the basics MOTIVATION Key Concepts of Motivation Needs and Motives Goals Incentives Instincts Hierarchy of Needs a) Physiological Needs b) Safety Needs c) Love and Belongingness Needs d) The Esteem Needs e) Self-Actualization f) Self-Transcendence Contract of Work Statutory Statement The names of the employer and employee Date when the employment began Date when continuous employment began Terms relating to pay and the intervals at which the employee will be Hours of work Holiday entitlement

 Entitlement to sick leave, including any entitlement to sick pay Pensions and pension schemes The employers and employees entitlement to notice of termination Job title or a brief job description Health and safety standards in building trades and construction industry a) Condition of Contracts b) Compliance c) Repeated Violations Minimum Wage The smallest hourly wage that an employee may be paid as mandated by federal law is called minimum wages. Inflation and other factors necessitate periodic adjustments to the actual number. STATUTORY BENEFITS Family and Medical Leave Act (FMLA) The FMLA requires that covered employers provide eligible employees up to 12 weeks of unpaid leave per one-year period for certain reasons, including: Birth and care of child. Placement of adopted or foster child. Serious health condition. Caring for immediate family member with a serious health condition.

UNIT V FOREIGN TRADE AND BANKING Features of Foreign Trade: More Share of GNP Less Percentage of World Trade Change in Composition of Exports Change in the Composition of Imports Dependence on Few Ports Balance of Trade Foreign Trade by Government Oceanic Trade Export Import Ratio Dependent Trade Export and Import Import Documentation 1) Import Declaration (Prepared, and signed by a Customs Broker) 2) Commercial Invoice (To be presented in English or Spanish in quadruplicate) 3) Airway Bill 4) Bill o Lading {To be presented in triplicate) 5) Commercial License Number 6) Phytosanitary Certificate (In case of meat products) 7) Certificate of Free Sale (if required)

Export Documentation 1) Commercial Invoice 2) Export Declaration (usually prepared and signed by a Custom Broker) 3) Certificate of Origin 4) Bill of Lading 5) Airway Bill 6) Veterinary, Sanitary or Phytosanitary Certificate (when applicable) MNC Multinational corporations (MNCs) are huge industrial organizations having a wide network of branches and subsidiaries spread over a number of countries. The two main characteristics of MNCs are their large size and the fact that their worldwide activities are centrally controlled by the parent companies. Such a company may enter into joint venture with a company in another country. The MNCs bring several benefits to the host country: (a) The domestic labour may benefit in the form of higher real wages. (b) The consumers benefits by way of lower prices and better quality products. (c) Investments by MNCs will also induce more domestic investment. For example, ancillary units can be set up to feed the main industries of the MNCs (d) MNCs expenditures on research and development (R&D), although limited is bound to benefit the host country. MNE M.N.E. (Multinational Enterprise): Large firms whose operations and functions span national borders. Operates in different countries and adjusts products and practices to each at a higher relative costs. Four main criteria to identifying a MNE: 1) Structure of Corporation 2) Behavior 3) Performance 4) Coordination FUNCTIONS OF COMMERCIAL BANKS The functions of commercial banks are divided into two categories: 1) Primary functions, and 2) Secondary functions including agency functions. Primary functions: a) Accepting deposits b) Granting loans and advances Secondary functions: Issuing letters of credit, travellers cheques, circular notes etc. Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers. Providing customers with facilities of foreign exchange. Transferring money from one place to another; and from one branch to another branch of the bank.

Standing guarantee on behalf of its customers, for making payments for purchase of goods, machinery, vehicles etc. Collecting and supplying business information. Issuing demand drafts and pay orders. Providing reports on the credit worthiness of customers. INSURANCE

Types of insurance 1) Agricultural insurance 2) Health insurance 3) Life insurance 4) Vehicle insurance Key Benefits of Life Insurance:Asset Protection:The core benefit of life insurance is that the financial interests of ones family remain protected from circumstances such as loss of income due to critical illness or death of the policyholder. Simultaneously, insurance products also have a strong inbuilt wealth creation proposition. The customer therefore benefits on two counts and life insurance occupies a unique space in the landscape of investment options available to a customer. Goal based savings:Each of us has some goals in life for which we need to save. For a young, newly married couple, it could be buying a house. Once, they decide to start a family, the goal changes to planning for the education or marriage of their children. s one grows older, planning for one s retirement will begin to take precedence. Seven Principles of Insurance 1) Principle of Uberrimae fidei (Utmost Good Faith), 2) Principle of Insurable Interest, 3) Principle of Indemnity, 4) Principle of Contribution, 5) Principle of Subrogation, 6) Principle of Loss Minimization, and 7) Principle of Causa Proxima (Nearest Cause)