Business Environment

Nature, Components, Dynamics & Importance of Business Environment.

Business

is an economic activity because it includes all those activities whose purpose is to earn profit by transfer of goods & services.

Business, Like weather is with us everyday.

-Wheeler

Business may be defined as human activity directed towards producing or acquiring wealth through buying or selling of goods.
-C.H.Haney

Environment consists atoms & molecules agglomeration of things in motion, alive of men emotions, or force & resistances. There numbers are infinite & they are always present; they are always changing. -Chester Bernard

Nature
1. Interdependence 2. Dynamic 3. Unlimited effect of uncontrollable factors. 4. Media & Social Change 5. Uncertainties & Restrictions. 6. Adverse conditions 7. To keep regular vigil on the changing environment. 8. Danger of casual change

Business Environment

Business Environment
Internal Environment Strengths Weakness External Environment Opportunities Threats

Components of Business Environment

The process by which strategist monitors the economic, legal, governmental, market, competitive supplier, technological, geographic & social setting to determine opportunities & threats of their firm.
-William F Gluicck

Internal Environment

Business Decisions

External Environment

VALUE SYSTEM

MISSION & OBJECTIVE

MANAGEMENT STRUCTURE & NATURE

ATTITUDES

INTERNAL BUSINESS ENVIRONMENT

INTERNAL POWER RELATIONSHIP

OTHER FACTORS

COMPANY IMAGE & BRAND EQUITY

HUMAN RESOURCE

Internal Environment
Miscellaneous Factors
Physical Assets & Facilities R&D Technological Capabilities Marketing Resources Financial Factors

External Environment

External Environment
Micro Environment Macro Environment

Micro Environment
Micro or task environment is more specific and immediate environment in which an organization conducts its business. -Dunham & Pierce

1. Supplier
Reliability Multiple Supplier

2. Customer
Types of Customers
Industrial Customers Institutional Customer Foreign Customer Retail Customer

Multiple Customer Globalization Customer Segmentation

3. Market Intermediates
Types of Market Intermediates
Middlemen Marketing Agencies Financial Institution Physical Intermediates

4. Public
Media Publics Local Public

MACRO ENVIRONMENT
Economic Political Social-Cultural Technological Natural Demographic International

 MACRO ENVIRONMENT means general

environment of business. Macro factors are uncontrollable in comparison to the micro forces of environment. The growth and survival of business depend upon its adaptability to macro environment factor which include

1. ECONOMIC ENVIRONMENT
Economic Conditions
Boom Depression

Economic System
Capitalist Socialist Mixed Economy

Economic Policies
Monetary Policy Fiscal Policy Foreign Trade Policy Foreign Investment Industrial Policy

2. POLITICAL ENVIRONMENT
Political Ideology of Govt.
Political stability in the Economy. Foreign Policy of Govt. Defence & Military Policy. Centre state relationship.

Political Environment
Politcal Environment
Political System Constitution Environment Preamble
Fundamental Rights

Legislature
Executive

Judiciary

Directives Principles of State Policy

3. Socio-Cultural Environment
Urbanization Religion Tastes & Preferences Customs & Tradition in Society Health & Quality of Life Language

4. Technological Environment
Innovation Research & Development Inflow of foreign Technology etc.

5. Natural Environment
Climatic & weather condition. Availability of Natural resources. Topographical factors: Physical features of place. Pollution Control

6. Demographic Environment
Age Composition Sex Composition Education Level Family size & structure Urban-rural population

7. International Environment
Globalization Oil Price hike International Terrorism Cultural Exchange

Dynamics of Business Environment

Factors Effecting
Business Environment
1. Global Scenario

2. Indian Scenario

1.Global Scenario

Political & Economic Environment Privatization Globalization & Internationalism

2. Indian Scenario
Change in Govt. Policies Variation in Growth Performance Corrective Policy Actions Change in Market Structure & Competition Future Expectations & Business Speculation Change in Consumer attitudes, taste & Preference Infrastructure

Importance of Business Environment

 For incorporating dynamic behavior of environment Complete knowledge of internal environment To understand international events, pressures& impact Economic policies of the govt. To face business problems &challenges Vigilant regarding dangers Administrative system Optimum utilization of resources Market conditions Scientific & industrial advancement Development & success of business

COUNTRY RISK & POLITICAL RISK

BUSINESS ENVIRONMENT

BUSINESS ENVIRONMENT RISK

Risk is a state in which the number of possible future events or outcomes is larger than the number of events or outcomes which will actually take place Risk is manifested in the probability of loss or damage to a business firm

TYPES OF BUSINESS ENVIRONMENT RISK

LEGAL RISK : Changes in Law REGULATORY RISK : Regulatory design & changes POLITICAL RISK : Resulting from political changes SOCIAL RISK : From Social Attitudes NATURAL RISK : Natural Disasters ECONOMIC RISK : Economic Changes

COUNTRY RISK ANALYSIS

Country risk analysis is basically concerned with the performance of an economy and the behavior of the Government and the institutions which determine the Business Environment

MAJOR SOURCES OF COUNTRY RISK

Monetary Policy Fiscal Policy Import controls TRIMs Price Control Labour Policy Exchange controls

POLITICAL RISK ANALYSIS

Political environment is set by the POLITICAL SYSTEM, THE CONSTITUTIONAL FRAMEWORK, EXTERNAL POLITICAL RELATIONS, FUNCTIONING OF THE GOVERNMENT, ROLE AND BEHAVIOR OF VARIOUS POLITICAL PRESSURE GROUPS

TYPES OF POLITICAL RISK

1. GENERAL INSTABILITY RISK Due to change in the political system with a change in Govt. Due to social revolution, normal election process etc Due to poor Governance, poverty and exploitation
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2. OPERATIONAL RISK Restriction on the production, marketing, finance, human resource management or international business 3. OWNERSHIP RISK It arises from the probability that the govt. might take actions that may lead to erosion in ownership or control in the business firm.

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TYPES OF OWNERSHIP RISK

Confiscation

OWNERSHIP RISK Expropriation Domestication

4. TRANSFER RISK This risk applies to MNCs having ventures in foreign countries or to the domestic firms having business operations or subsidiaries Transactions Transfer of profits, Funds or Assets

HOW A COMPANY MANAGES ENVIRONMENT RISK ?

1. RISK AVOIDING STRATEGIES Avoiding politically sensitive products Avoiding sensitive regions Contractual agreements Tie-up with other Firms 2. RISK SHIFTING STRATEGIES Risk can be shifted to other parties Cntnd through Insurance

3. RISK REDUCTION STRATEGIES Establishing a risk-assessment system Developing the local economy Local Equity participation Good Corporate Citizenship Maintaining Good Political Relations

METHODS FOR ASSESSING ENVIRONMENT RISK

CHECKLISTS EXPERT-BASED SCORING SYSTEM ECONOMIC METHODS RATING AND RANKING SYSTEMS ASSESSMENT OF COUNTRYS CREDITWORTHINESS RISK BENCHMARKING RISK PREMIUM ON INTEREST

MEANING
Balance of payments refers to the recording of all economic transactions of a given country. Such transactions includes receives payments from and makes payments to other countries.

Definitions
According to Benham, balance of payments of a country is a record of the monetary transactions over a period with the rest of the world. According to James O Ingram, the balance of payments is a summary record of all economic transactions between residents of one country and the rest of the world during a given period of time.

Balance of payments
Visible Invisible

Capital Transfers

Features
Fixed Period of Time Comprehensiveness Systematic Record Double Entry System All items Government and NonGovernment

Structure
Balance of payments = (Exports of goods + Capital receipts + Services) (Imports of goods + Capital payments + Services)

Disequilibrium in balance of payments

Balanced Balance of Payments B=R-P=0 Favourable Balance of Payments Bf=R-P>0 Unfavourable Balance of Payments BU=R-P<0

Causes Of Unfavourable Balance Of Payments

Import Of Machinery. Import Of War Equipments. Price Disequilibrium. Embassies. Foreign Competition. Payments Of Interest On Foreign Debts. Less Growth In Exports.

Measures To Disequilibrium In Balance Of Payments

Promotion Of Exports. Increase In Production. Encouragement To Foreign Investments. Attraction Of Indian Currency. Restriction On Imports. Import Substitution.

FOREIGN DIRECT INVESTMENT

FDI
Foreign investment plays important role to accelerate the growth of any economy International capital flow gives boost to the various economic sector

TYPES OF FOREIGN INVESTMENT

PORTFOLIO INVESTMENT FOREIGN DIRECT INVESTMENT Wholly owned subsidiary Joint Ventures Acquisition

1. Wholly owned Subsidiary : Companies with long term and substantial interest in the foreign market go for the wholly owned subsidiary. It provides the firm with complete control over production and quality 2. Joint Ventures: Joint venture is a common strategy of entering the foreign market. Diverse types of joint overseas operations are :

 Sharing of ownership and management in an enterprise Licensing/Franchising agreement through intellectual property rights Patents Trade marks Copyrights Technical Know-How Marketing Skills

 FRANCHISING : is a form of licensing in which a parent company ( The Franchiser) grants another independent entity( The Franchise ) the right to do business in a prescribed manner. The major form of franchising are as follows: Manufacturer---retailer system Manufacturer---wholesaler Service firm-----retailer system

FACTORS LEADS TO THE FOREIGN DIRECT INVESTMENT

Rate of Interest Speculation Profitability Costs of Production Economic Conditions Government policies (Remittances, profits, taxation, Foreign exchange control, tariffs and monetary policy) Political Factors

ADVANTAGES OF FDI
Increase the level income and employment Increase the tax revenue of the Govt. It facilitate transfer of technology to the host country It provide professionalism It enables the country to increase exports and reduces imports Foreign investors encourages the domestic suppliers It increase competition and breaks monopoly Improves the quality and the cost of inputs incurred

DISADVANTAGES OF FDI
Flow of investment into high profit area Stage of development of the country Multinational can evade the economic power Unfavorable effect on balance of payments Interference in the national politics Engage in unfair and unethical trade practices Higher cost are involved to encourage FDI

TOP FIVE NATIONS IN INDIA FDI INFLOWS( IN US dollar)

MAURITIUS USA JAPAN NETHERLANDS UK 34.49 % 17.1 % 7.33 % 7.16 % 6.54 %

FIVE TOP STATES ATTRACTING MAJOR SHARE OF FDI

MAHARASHTRA DELHI TAMIL NADU KARNATKA GUJRAT 14.8 % 12.2 % 9.05 % 7.63 % 4.97 %

INDUSTRIAL POLICY
BUSINESS ENVIRONMENT

INDUSTRIAL POLICY
The concept of Industrial Policy covers all those procedures, principles, policies, rules and regulations which control the industrial undertaking of a country and shape the pattern of Industrialization.

WHY THE NEED ARISES TO CONSTITUTE THE INDUSTRIAL POLICY?

After independence Indian Industrial production lower down Inflation Increases Rehabilitation problem faced by Indian due to partition First phase of Industrialization started by constituting the first Industrial policy resolution,1948

INDUSTRIAL POLICY RESOLUTION,1948, MAIN FEATURES

The main emphasis of IP,1948 is on the mixed economy system The manufacture of ARMS & AMMUNITION, the production and control of atomic energy and the ownership and management of RAILWAY TRANSPORT were to be the exclusive monopoly of the central Govt. In second category, The COAL, IRON & STEEL,AIRCRAFT MANUFACTURE, SHIP BUILDING, MANUFACTURE OF TELEPHONE, TELEGRAPHS AND WIRELESS APPARATUS were undertaking by the state.

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 In the third category the industries of such basic importance that the central govt. would feel it necessary to plan and regulate them. In the fourth category the industries are left for the private enterprise, individual as well as co-operative

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IIIrd PHASE OF INDUSTRIALISATION

The third phase of Industrialization begins with the amendment of IP, 1956, in 1977, when the janta Govt. came into power The main reasons for the change in policy are Unemployment Increases Rural-Urban Disparities Widened Rate of Investment Come Down Industrial Sickness Increases
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MAIN FEATURES OF IP, 1977

Development of Small Scale Sector Cottage Industries Tiny Sectors Small Scale Industries Area of Large-Scale Sector has defined Basic industries essential for providing infrastructure as well as development of SSI like Cement, Steel, Cntnd Oil refineries

 Capital goods industries for meeting the machinery requirements of basic industries High technology industries which required large scale production, and which were related to agricultural and Small Scale industries development like Fertilizers, Pesticides, Petrochemicals

NEW INDUSTRIAL POLICY, 1991

In June 1991, Narsimha Rao Govt. took over charge and a wave of economic reforms and Liberalization come in the economy In this new atmosphere, the Govt. declared broad changes in IP on July 24, 1991
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 To maintain the sustained growth in productivity To enhance gainful employment To achieve optimum utilization of resources To attain international competitiveness To transform India into a major partner and players in the global arena

MAIN FEATURES OF IP, 1991

POLICY MEASURES TO ATTAIN OBJECTIVES

Liberalization of Industrial licensing policy Introduction of Industrial Entrepreneurs Memorandum Liberalization of location policy Liberalized policy for small scale sectors NRIs are allowed to invest up to 100 % Electronic Hardware technology park(EHTP) and Software technology park(STP) to be build to enhance exports Liberalized FDI policy

INDUSTRIALISAITON PATTERN
Industrialization is the hallmark of economic growth It is the process whereby industrial activity comes to play a dominant role in the economy of the country Industrialization involves replacement of small scale cottage industry supplying limited local markets by the large units Early years of the British Rule ( 1750-1850)
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EFFECT OF WORLD WAR I(1914) ON INDUSTRIALISATION

Localization of Industries For Sugarcane North Bihar & Eastern UP-1904&1936 For Cotton Mumbai followed by Ahmedabad, Kanpur, Chennai, Madurai Diversification of Industries Cotton-----Steal--------Coal--------Jute

MAIN FEATURES OF INDUSTRIALISATION DURING BRITISH RULE

Import Substitution Increased disparity in the Indian economy Lack of Integration Minimal speed effect Organizational Imperfections Lack of Institutional finances

 Beginning of the modern factory system (1850-1947) First Cotton textile mill by a Parsi Businessman C.N.Davar started in 1884 in Bombay Development of Sugar,Paper and Steel Industries Development of the railways and other public works and rise of modern industry after 1850 made India a large number of Iron and Steel in India The first Iron Production started at Barkar Iron works in 1875 This was followed by the setting up of the Tata Iron and Steel Company(TISCO) at Sakchi(Jamshedpur) in 1907

INDUSTRIALISATION DURING FIVE YEAR PLANS

1. FIRST FIVE YEAR PLAN(1951-56)
The first five year plan concentrated on the development of agriculture. Industrial activity was mostly directed towards the development of Infrastructure facilities like power and irrigation Development of consumer goods industries such as Jute, plywood, cotton textile, sugar, edible oil,paints etc Expansion of capital goods industries like iron and steel, aluminium, fertilizers, chemicals and heavy machine tools

2. Second Five Year Plan(1956-61) The second five year plan accorded a very high priority to industrial development. The major objectives were:
Increased output in the basic and heavy industries such as Fertilizer,chemicals,iron and steel, aluminium and heavy engineering Expansion of the capacity of cement,chemical,phosphatic fertilizer,bulk drugs

Modernization of traditional industries like sugar, cotton textile, jute,etc where the productivity had declined due to the age structure of these plants. Maximum utilization of installed capacity, especially in the public utilities and infrastructural services. During the second plan, investment in the PSUs was Rs.870 crores, whereas investment in the private sector was Rs. 675 crores

3. Third five year plan(1961-66)

The third five year plan was governed by the overriding need to complete on-going projects in basic heavy industries. The objectives of this plan were : Rapid completion of all projects. Increased emphasis on raw materials and producers input. Diversification of capacity in the capital and producer goods. The plan envisaged a total outlay of Rs.3000 crores in the organized industries and mining of which 1700 cr. For PSUs and 1300 cr in private sector.

4. Fourth Five Year Plan(1969-74)

The objectives of the fourth five year plan were : Maximum utilization of installed capacity in industries To achieve self-reliance through import substitution and export expansion To curb monopolistic tendencies To channelise new investments in strict accordance with the plan priorities. Total outlay on the industrial sector was Rs.5300 crores.

5. Fifth Five Year Plan(1974-79)

The objectives of the fifth plan were: To achieve substantial increase in production capacity through technological expansion and improvement. Creation of new capacities in accordance with the plan priorities and initiation of advance action in cases of long gestation projects. To introduce a package of incentives to desire sectors of economy. Total outlay was Rs.10200.

6. Sixth Five Year Plan(1980-85)

The Plan had five fold strategy to achieve rapid industrialization : To increase manufacturing capacities of a variety of consumer goods and durables both in the public and private sectors. To support industrial growth through the supply of intermediate and capital goods. To attain technological excellence for encouraging exports of engineering goods. Total outlay was Rs.20407 crores.

7. Seventh five year plan(1985-90)

The objectives of this plan were: To integrate science and technology into the main stream of development To create conditions for and to promote modernization, efficiency and competition in industry To promote diversification of industrial production To ensure balanced regional dev. Total outlay was Rs.22460 crores

8. Eighth five year plan(1992-97)

The broader objective of the plan were: To ensure efficiency and competitiveness was of the industrial sector through modernization and technology upgradation Expansion and fuller utilization of installed capacities in power, transport, communication and water resources. Greater private participation

9. Ninth five year plan(1997-2002)

The objectives of plan were : Priority to agriculture and rural development Ensuring environment sustainability of the development process through social mobilization and participation of people at all levels. Strengthening efforts to build self-reliance.

GLOBALISATION
Globalization is the process by which a firms activity become worldwide in scope Doing, or planning to expand , business globally Giving distinction between the domestic market & foreign market Locating the production and other physical facilities of global business dynamics Basic product development and production planning on the global consideration Global sourcing of factors of production Global orientation of organizational structure and management culture

FEATURES OF GLOBALISATION
1. NEW MARKETS
Growing global markets in services

New financial markets Deregulation of antitrust laws of mergers Global Consumer markets with global brands
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2. NEW ACTORS Multinational corporations The World Trade Organization International Criminal Court System Regional Blocs More policy Coordination groupsG-77,G-7, OPEC, OECD 3. NEW RULES AND NORMS Multilateral agreements in trade new agendas on environment and social conditions

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New multilateral agreements for services property rights and communication Conventions and agreements on the Global environment 4. NEW TOOLS OF COMMUNICATION Internet and electronic communication Cellular phones Fax machines Faster and cheaper transport Computer aided design

FACTORS LEADS TO GLOBALISATION

Human Resources Wide Base Growing Entrepreneurship Growing Domestic Market Niche markets Expanding Markets Economic Liberalization Competition

OBSTACLES TO GLOBALISATION
Government Policy and Procedures High cost of basic inputs Poor Infrastructure Resistance to change Poor Quality Image Supply problems Small Size Lack of Experience Limited R&D and marketing research Growing Competition Trade barriers

Few situations that has arisen in India post liberalization

1. Shifting of Agriculture worker to industry sector 2. Urbanization People are shifting from rural to urban areas. 3. Opening up of trade market export import boom. 4. Big open saturated market for products 5. A growing market for high quality and low price product 6. Gradual increase of organized retail chain. 7. Growing number of Merger and Acquisitions. 8. Lucid license policies for overseas Multinational Corporation. 9. High growth rate is showing economic prosperity in India. 10. Indian Market leaders going global.

Certain negative impacts occurred aftermath the globalization in India

1) Unequal distribution of wealth disparity in income. 2) Rapid privatization government driven public sector units are on sale. 3) Uneven growth in respect of different sectors. 4) Extreme mechanization is reducing demand for manual labours. 5) Both employee and consumer exploitation are on rise by private sector.

PUBLIC SECTOR ENTERPRISES REFORMS

PSEs includes Government companies in the Central and State Sectors These industries covers a wide spectrum of activities in basic and strategic industries like: Steal Heavy Eng. Tourism Coal Chemicals Financial Minerals Fertilizers Trading Petroleum Transp. Marketing

WHY THE PSES ?

Public enterprises help in rapid economic growth It creates the necessary infrastructure for economic development To earn return on investment and generate resources for development To promote redistribution of income and wealth To generate employment opportunities To promote balanced regional development To assist the development of small-scale ind. To earn foreign exchange for the economy

Investment in the PSE,s during plans Five year Investment No.of PSE,s Plan (in crores)

Ist plan 2nd 3rd 4rth 5th 6th 7th 8th 9th 1999 2002 2003

29 81 953 3902 6237 18,225 42,811 1,18,492 2,01,500 2,73,700 3,24,614 3,33,475

5 21 48 85 122 186 221 237 238 235 240 240

NEED FOR PUBLIC SECTOR ENTERPRISES REFORMS

Lack of Competition Over employment Long Gestation period Over capitalization Inefficient Management Absence of Appropriate pricing policy Social Objectives Lack of Efficient and Trained Staff

IDENTIFICATION OF PUBLIC SECTOR ENTERPRISE AS NINE GEMS

SAIL VSNL BPCL BHEL IPCL MTNL

IOCL HPCL ONGC NTPC GAIL

Two of these namely IPCL and VSNL have since been privatized and as on July 2003 there are only 9 NAVRATNA PSEs. The profitability of these 9 ratna was Rs.15508 crore during 2001-02 Besides granting the status of Gems of the country, the Government also announced on October 3, 1997 to grant the status of MiniGems to 97 selected public sector profit earning enterprises.

DISINVESTMENT PROGRAMMES IN PSES

The disinvestment process, which began in 1991-92 with the sale of minority stake in some public sector undertakings The new policy in this regard is that the government is committed to a strong and effective public sector whose social objectives are met by its commercial functioning The Govt. is committed to devolve full managerial and commercial autonomy to successful, profit making companies operating in a competitive environment

Generally, profit making companies will not be privatized As per the National Common Minimum Programme (NCMP) the Government retain existing Navratna Companies in the Public Sector Loss making companies either sold off or closed, after all workers get their legitimate dues and compensation The Government has approved the constitution of a National Investment Fund (NIF) comprising of proceeds from disinvestment of public sector units The Govt. has also given in principle approval for listing of currently unlisted profitable PSEs each with a net worth in excess of Rs.200 crore, through an initial public offer (IPO)

OBJECTIVES OF DISINVESTMENT

Modernization and up gradation of PSEs Creation of new assets Generation of Employment Retiring of Public Debt To ensure that disinvestments does not result in alienation of national assets, which through the process of disinvestments, remain where they are
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Setting up a Disinvestment Proceeds Fund Formulating the guidelines for the disinvestments of natural asset companies Preparing a paper on the feasibility and modalities of setting up of Asset Management company to hold, manage and dispose the residual holding of the government in the companies in which government equity has been disinvested to a strategic partner

THE WAVE OF ECONOMIC REFORM

The wave of economic reforms was born out of

the crisis in the economy. Which climaxed in 1991. The main reasons which leads to economic reforms are : Increasing Fiscal deficit Internal debt Overall agricultural promotion, food grain product and industrial production showed negative growth.
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Foreign Exchange reserves fell Inflation rate increases to 14% Confidence of International financial institutions was badly shaken Due to Gulf war, the prices of oil rises

TYPES OF ECONOMIC REFORMS TYPES OF ECONOMIC REFORMS

PRIVATISATION

LIBERALISATION

GLOBALISATION

LIBERALISATION
Liberalization of the economy means to free

it from direct or physical controls imposed by the Government. The various types of controls are as follows:
Industrial licensing system Price control or financial control on goods Import license Foreign exchange control Restrictions on investment by big business houses

MEASURES FOR LIBERALISATION

Abolition of Industrial Licensing and Registration

Concession from monopolies Act

Freedom for expansion and production to

Industries Increase in investment limit of SSI Freedom to import capital goods Freedom to import technology Free determination of Interest rate

ADVANTAGES OF LIBERALISATION
Improvements in Industries & service sector

Free flow of FDI & MNCs

More availability of imported goods at cheaper

rates Quality education and careers to people Improvement of technology in the field of SSI & LSI Improvement in means of communication and Transport.

DISADVANTAGES OF LIBERALISAION
Common man fails to enjoy the imported

goods as they lack purchasing power Danger in political independence Agricultural dominated countries Underdeveloped countries fail to increase their exports in comparison to imports

PRIVATISATION
Privatization of Industries means opening

the gates of Public Sector to Private sector The term privatization is used in two sense Transferring the ownership of public sector to private sector Management and controlling of public sector by private sector without transferring the ownership

CAUSES OF PRIVATISATION
Disintegration of Socialist Economies

Inefficient public sector

Uneconomic pricing policy

Burden on the Government

Inefficient management control

OBJECTIVE OF PRIVATISATION
To increase the efficiency and competitive power.

To reduce deficit financing and public deficit

To strengthen industrial management To earn more and more foreign currency To make optimum use of economic resources To achieve rapid industrial development

MEASURES FOR PRIVATISATION

Privatization covers three sets of measures

1. OWNERSHIP MEASURES Total denationalization Joint Venture Liquidation Management buy-out

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2. ORGANISATIONAL MEASURES A holding company structure Leasing Restructuring( Financial, Basic ) 3. OPERATIONAL MEASURES Grant of autonomy to PE s in decision making Provision of incentives to the employees Freedom to acquire certain inputs from the market Development of proper investment criteria

GLOBALISATION
Globalization is the process by which a firms

activity become worldwide in scope Doing, or planning to expand , business globally Giving distinction between the domestic market & foreign market Locating the production and other physical facilities of global business dynamics Basing product development and production planning on the global consideration Global sourcing of factors of production Global orientation of organizational structure and management culture

FEATURES OF GLOBALISATION
1. NEW MARKETS

Growing global markets in services New financial markets Deregulation of antitrust laws of mergers Global Consumer markets with global brands
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2. NEW ACTORS Multinational corporations The World Trade Organization International Criminal Court System Regional Blocs More policy Coordination groupsG-77,G-7, OPEC, OECD 3. NEW RULES AND NORMS Multilateral agreements in trade new agendas on environment and social conditions
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New multilateral agreements for services property rights and communication Conventions and agreements on the Global environment 4. NEW TOOLS OF COMMUNICATION Internet and electronic communication Cellular phones Fax machines Faster and cheaper transport Computer aided design

FACTORS LEADS TO GLOBALISATION

Human Resources Wide Base Growing Entrepreneurship Growing Domestic Market Niche markets Expanding Markets Economic Liberalization Competition

OBSTACLES TO GLOBALISATION

Government Policy and Procedures High cost of basic inputs Poor Infrastructure Obsolescence Resistance to change Poor Quality Image Supply problems Small Size Lack of Experience Limited R&D and marketing research Growing Competition Trade barriers

FINANCIAL ENVIRONMENT

FINANCIAL ENVIRONMENT

Financial environment consists of decision taken by the companies acc.to the Monetary Policy, Fiscal Policy, & Financial Market Structure. Monetary and Fiscal policy are important determinants of business prospects and investment decision These policies encourage investment and production in certain priority sectors and discourages them in non-priority sector. The Monetary, fiscal and financial market structure influence the aggregate supply and demand, level of employment etc.

MONETARY POLICY

Monetary policy refers to the use of instruments within the control of the RBI to influence the level of aggregate demand for goods and services Monetary policy is based on money supply and money stock Measures of money stock are : M1 = Currency with the public + Deposits with banks M2 = M1+ Post office savings bank deposits M3 = M2+ Fixed deposits with banks M4 = M3+ Total post of deposits.

Monetary and Fiscal Policies

Meaning and Objectives of Monetary Policy Monetary policy is concerned with the changes in the supply of money and credit. It refers to the policy measures undertaken by the central bank of the country to influence the availability, cost and use of money and credit with the help of monetary techniques to achieve specific objectives. It aims at influencing the economic activity through two major variables-a) money or credit supply, and b) the rate of interest. The various objectives of Monetary Policy are i) Neutrality of Money, ii) Exchange Stability, iii) Price Stability, iv) Full Employment, v) Economic Growth. Instruments of Credit Control 1. Quantitative or General 2. Qualitative or Selective

Quantitative or General : The Quantitative weapons of credit control consist of--a) bank rate policy; b) open market operations; and c) variable cash reserve ratios. 2. Qualitative or Selective: Qualitative or Selective credit control weapons area) margin requirements; b) regulation of customers credit; c) control through directives; d) rationing of credit; e) moral suasion and publicity; and f) direct action. a) margin requirements: The loan value of the security= The Market value of the securityThe Margin. Thus, the loan value of an equity share having market value of Rs. 120, at 24 percent margin requirement is : 120-24=96. Hence the maximum of loan of Rs. 96 can be granted on this security by a commercial bank. b) regulation of customers credit: The regulation of consumer credit consists in laying down rules regarding payments and maximum maturities of installment credit for the purchase of specified durable consumer goods. It includes-minimum down payment and maximum period of payment.
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c) control through directives: Directives may be in the form of oral or written statements, appeals or warnings, particularly to curb individual credit structures and to restrain the aggregate volume of loans. d) rationing of credit: The Central Bank may draw the ceiling on the aggregate portfolios of commercial banks so that loans and advances do not exceed this ceiling. e) moral suasion and publicity: It implies persuasion and request made by the central bank to the commercial banks to cooperate with the general monetary policy of the former. f) direct action: It is the most extensively used method of qualitative as well as quantitative credit control by the central bank. It is often used as an alternative to, or in relation with, the bank rate policy or open market operations.
1. 2.

The central bank may charge a penal rate of interest, over and above the bank rate, for the credit demanded, beyond a prescribed limit. The central bank may refuse to give any more credit to those banks whose borrowings are found to be in excess of their capital and reserves.

Fiscal Policy
1. 2. 3.

Taxation: Direct and Indirect-Impact, Shifting and Incidence. Proportional, Progressive, Regressive. Public Debt: Internal and External Public Expenditure: Recession and Inflation

HOW THE RBI CONTRACT & CREATE THE CREDIT

Different instruments have been used by the RBI to contract and create the credit in the market 1. Bank Rate : It is the minimum rate at which the RBI provides financial accomodation to the commercial banks 2. Open Market Operations : Purchase and sale of foreign exchange, Gold and company shares

3. Cash Reserve Ratio : The commercial banks has to keep their cash with RBI 4. Statutory Liquidity Ratio : Maintaining a minimum amount of liquid assets in terms of cash

SELECTIVE CREDIT CONTROL METHODS OR QUALITATIVE METHODS

Change in margin requirement of loans Rationing of credit Moral persuasion Credit Authorization Scheme Credit Monetary arrangements Loan system for delivery of bank credit

FISCAL POLICY

Fiscal policy is related to income and expenditure of Govt. It refers to budgetary policy of Govt. Fiscal policy means the use of Public finances or expenditure, taxes, borrowings and its administration to further our national income

OBJECTIVES OF FISCAL POLICY

Mobility of Resources Promotion of saving and investment Removal of poverty and unemployment Growth of Public Sector Economic stability To achieve favourable BoP To support private sectors

TECHNIQUES OF FISCAL POLICY

1. Taxation policy of Govt of India Mobilization of Resources Capital Formation Equality of Income and Wealth 2. Public Expenditure Policy Development of Public Enterprises Infrastructure Development Social Welfare 3. Public Debt Policy Internal Debt External Debt

DRAWBACKS OF FISCAL POLICY

Instability Defective Tax Structure Inequality of Income Failure Public Sectors

SUGGESTIONS FOR THE REFORM OF FISCAL POLICY

Reduction in Non-Development Expenditure Agricultural Taxation Control over Black Money More Direct Taxes Reduction in Tax Evasion