NMBA-014

BUSINSSS
ENVIRONMENT
BY: Prateek Kumar Bansal

Chapter 1
Business and Environment

INTRODUCTION TO
BUSINESS

Business is an economic activity

with the object of earning of
income i.e. Profit and thereby
accumulate wealth. It involves
production of goods and services
with a view to selling them at the
profit or merely purchasing of
goods and services to resell at the
profit. Objective of any business is
to create the customer and to
ensure repeat sale. The customer is
the master and to serve him well is
the only purpose
of business.
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Features Of Business
Enterprises
Sale ,Transfer or Exchange for the
Satisfaction of Human Needs
Dealing in Goods and Services
Regularity or Continuity of Dealing
Profit Motive
Risks and Uncertainties
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Business in the 21st century eInformation

commerce

technology has had a

reversionary impact on all aspects
of human life all over the world. As
the world become increasingly
interconnected
particularly
through the Internet forwardlooking businessman will be able to
make their products available to a
global market the largest possible
markets without having to create
an maintain their own private
network or sales of the delivery and
consumer support. E-commerce is
poised toprateek
take
over the parental
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Objectives of e-commerce

The development of business

relationship- witness development
being the primary and the basic
objective can be done through the ecommerce.
Better customer
service-and it is
done around the clock the customer
will always have on time help
regarding the product. As all the
information is furnished to the
consumer it becomes easy for him to
choose the best product among all
Getting more
in these days
thecustomersalternatives.
it becomes the mandate of the
companies to double the customers and
this can be done by rendering the value
added services and maintaining the
quality.
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bansal

The of
term
business
Concept
environment

environment
means
the totality of all
individuals,
institutions and other
forces
that
are
outside a business but
that potentially affect
its performance.
Cont
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Environment referred to the

sum total of all factors
economic political social and
cultural which are external to
and beyond the control of the
indivisible
business
enterprises
and
their
management.
Environment
furnishes the macro contexts
while the business unit Is the
micro unit.
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BUSINESS
ENVIRONMENT
BUSINESS ENVIRONMENT can be define
as the aggregate of all those factors
,Conditions ,Situations Which directly
affect the working of a business enterprise.

BUSINESS ENVIRONMENT is the

aggregate of the conditions ,event and
influences that surround and affect it.
.Keith Davis
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Business environment can be

.characterized in terms of
(a) Totality of external
forces
(b) specific and general
forces
(c) Interrelatedness
(d) dynamic nature
(e) uncertainty
(f) complexity
(g) relativity
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(1) Totality of External Forces: Business

environment is the sum totals of all those
factors/forces which are available outside the
business and over which the business has no
control. It is the group of many such forces that
is why, its nature is of totality.
(2) Specific and General Forces: The forces
present outside the business can be divided into
two parts specific and general.
(i) Specific: These forces affect the firms of an
industry separately, e.g., customers, suppliers,
competitive firms, investors, etc.
(ii) General: These forces affect all the firms of
an industry equally, e.g., social, political, legal
and technical situations
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(3) Interrelatedness: The different factors of

business
environment
are
co-related.
For
example, let us suppose that there is a change in
the import-export policy with the coming of a new
government.
In this case, the coming of new govt. to power
and change in the import-export policy are
political and economic changes respectively.
Thus, a change in one factor affects the other
factor.
(4) Dynamic Nature: As is clear that environment
is a mixture of many factors and changes in some
or the other factors continue to take place.
Therefore, it is said that business environment is
dynamic.
(5) Uncertainty: Nothing can be said with any
amount of certainty
about the factors of the
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(6) Complexity: Environment comprises of many

factors. All these factors are related to each
other. Therefore, their individual effect on the
business cannot be recognized. This is perhaps
the reason which makes it difficult for the
business to face them.
(7) Relativity: Business environment is related to
the local conditions and this is the reason as to
why the business environment happens to be
different in different countries and different even
in the same country at different places.

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Dimensions of business
environment
Demo
graph
ic
Internatio
nal

Politic
al
Econ
omic
Busines
s
Environ
ment

Natur
al

Techn
ologica
l

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Social

Economic Environment
Among
the
various
factors
of
macro
environment, the economic environment has a
special significance. Economic environment can
be divided into three parts. We shall now study
their effect on business. They are as under:
(i) Economic system,
(ii) Economic policies,
(iii) Economic conditions.

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Economic Environment
(i) Economic System:
It is necessary to know about the economic
system prevailing in a country in order to
understand the economic environment.
Economic system influences the freedom or
openness of business. Economic system is
mainly of three kinds:
(a)Socialistic Economic System
(b)Capitalistic Economic System
(c)Mixed Economic System.

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Economic Environment
(a) Socialistic Economic System:
Under this system, business is directed and
controlled by the government. In other words,
individuals have no freedom to run business. The
government owns all the means of productions.
No individual has the right to have private
property. All persons enjoy the benefits of
centrally planned economy. All have equal rights.
This system of economy is mainly adopted by
Russia, China, Hungary and Poland.

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Economic Environment
(b) Capitalistic Economic System:
Under this system, private ownership of business
is given importance. Hence, business gets
extended. It is also known as free market
economy.
Under this, all means of production (such as
labor, land, capital, etc.) are owned by private
people. What to produce, how to produce and by
whom it will be produced-all such considerations
are determined by the market forces.
Hence, it can be said that there is a complete
freedom of consumption, production, savings,
investment, etc. Such type of economic system is
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kumar
bansal
prevailing in USA
and
Canada

Economic Environment
(c) Mixed Economic System:
Under this system, business is owned both by the
government and individuals. Under this, several
basic industries are run under the control and
ownership of the government.
As far as the private sector is concerned, it is run
by the private persons, but to save the interest of
the country government regulates its activities.
India is a good example of countries following
these concepts of economy.

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Economic Environment
(ii) Economic Policies: Economic policies deeply
influence the business of a country. The
economic policies are laid down to direct the
economic activities.
(a) Export-Import Policy (b) Employment Policy
(c) Taxation Policy (d) Industrial Policy
(e) Public Expenditure Policy (f) Public Debt
Policy
(g) Agriculture Policy (h) Foreign Investment
Policy.
All these policies influence business. For
example,
under
the
import-export
policy,
bansal
restrictions prateek
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imports
will
benefit
the

Economic Environment

(iii) Economic Conditions: Economic conditions

are those conditions which are related with the
possibilities of economic development of a
country. On the basis of the economic conditions
the government starts various programmes for the
welfare of the people.
These
programmes
influence
business.
Businessmen are influenced by these programmes
and they start their own programmes like the
advertisement policy, discovery of new market,
bringing new products in the market, new
methods of production, etc. Some of the examples
of economic conditions are as under: (a) Flow of
Foreign Capital (b) Supply of Natural Resources
(c) Level of Economic Development (d) Rate of
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Interest (e) prateek
National
Income (f) Industrial

Political Environment
Political environment is the outcome of a
combination of various ideologies advocated
by different political parties.
Factors connected with the activities of the
government are included in it, e.g., the type
of government (single-party government or
multi-party government), the attitude of the
government towards different industries,
progress in passing different laws.
The platforms of the political parties, the
tendency of the applicants for different
posts, efforts by various groups to get
effective support
for bansal
themselves, etc. Every
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Political Environment
The following are some of the examples of the
impact of the political environment on business:
(i) In 1977, the Janata Government adopted a
stringent attitude towards the multinational
companies. As a result of this attitude, the
multinational companies like the IBM and the
Coca-Cola had to ignore India.
(ii)
The
new
government
encouraged the
multinational companies for investment in India.
This led to the opening of the doors of the Indian
market
for
the
multinational
companies.
Consequently, the Coca-Cola entered the Indian
market once again.
(iii) It was only because of the political interest
that Hyderabad came to be known as Cyberabad In

Social Environment
Business originates and develops in
society. Therefore, the effect of
various social factors on business is
but natural.
Social factors include customs,
fashions, traditions, wishes, hopes,
level
of
education,
population,
standard of living of the people,
religious values, distribution of
income, corruption, family set-up,
consumers
consciousness,
etc.
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kumar bansal

Social Environment
All social factors influence business in some way
or the other. For example, the production of
things should be according to the fashion.
Similarly,
religious
values
also
influence
business. For example, some years ago the
manufacturers of Vanaspati Ghee used to import
animal fat for manufacturing ghee.
On the basis of the strong public protests, the
government cancelled the import license of these
manufacturers. Similarly, with the news that
some popular cold drinks contain pesticide
elements, people protested against it and
minimised the consumption of these cold drinks.
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Legal Regulatory
Environment
Many Acts are passed from time to time in order
to control and regulate business activities.
The sum total of all these Acts creates legal
regulatory environment. Acts are mossy passed
to regulate such business activities as salepurchase, industrial disputes, labor, regulating
partnership
business,
regulating
company
business, foreign exchange, etc.
In India, the following Acts have been passed in
connection with the above business activities: (i)
Sale of Goods Act (ii) Industrial Disputes Act (iii)
Minimum Wages Act (iv) Indian Partnership Act
(v) Companies Act (vi) Trademark Act (vii)
Essential Commodities Act (viii) Consumer

Legal Regulatory
Environment
The following are the examples of the impact of
the legal regulatory environment on business:
(i) By removing control on the capital market, a
huge amount of capital was collected by issuing
various new issues in the primary market.
(ii) With introduction of relaxation in Foreign
Direct Investment (FDI) and Foreign Exchange,
many multinational companies entered the
Indian market. Consequently, there has been a
tremendous increase in the foreign exchange
reserves in the country.

Technological Environment
Technological
environment
includes
the
discovery of new methods and implements for
the
production
of
goods
and
services.
Technological changes make available better
methods of production and that makes the
optimum use of the raw material possible.
The technological changes offer both the
possibilities and threats for business. In case a
company understands these things well in time it
can achieve its objective, otherwise the very
existence of the company is threatened.
For example, it becomes a technological change
for the automobile industry to produce vehicles
which consume
less petrol in view of the ever
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Technological Environment
Only that company will be able to survive which
can move with the changes taking place in the
environment. Therefore, the companies should
constantly watch the technological changes so
that they are able to exploit the business
opportunities.
The following are the examples of impact of
technological environment on business:
(i) With the advent of television in the market,
the cinema and the radio industry were adversely
affected.
(ii) With the entry of synthetic thread in the
market, the cotton cloth industry was badly
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affected.

Global or International
Environment
The Global environment plays an important role
in
shaping
business
activity.
With
the
liberalisation and globalisation of the economy,
business environment of an economy has become
totally different wherein it has to bear all shocks
and benefits arising out of global environment.

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Natural Environment
The Natural environment influences business in
diverse ways. The natural environment is the
ultimate source of many inputs such as raw
materials and energy, which firms use in their
productive activity. In fact, the availability of
natural resources in the region or country is the
basic factor in determining business activity in
it. The natural environment which includes
geographical and ecological factors such as
minerals and oil reserves, water and forest
resources, weather and climatic conditions and
port facilities are all highly significant for
various business activities.

Natural Environment
For example,
Steel producing industries are set up near the
coalmines to save cost of transporting coal to
distant locations. The natural environment also
affects the demand for goods.
In places where temperatures are high the
demand for coolers and air conditioners are
high. Similarly, weather and climatic conditions
influence the demand pattern for clothing,
building materials for housing etc. Natural
calamities like floods, droughts, earthquake etc.
are devastating for business activities.

Ecological environment
Due
to
the
efforts
of
environmentalists and international
organizations such as the World
Bank the people have now become
conscious of the adverse effects of
depletion of exhaustible natural
resources
and
pollution
of
environment by business activity.
Accordingly, laws have been passed
for conservation of natural resources
and
prevention
of
environment
pollution. These laws have imposed

Relevance of Business
environment to business

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There is a close and continuous interaction

between the business and its environment. This
interaction helps in strengthening the business
firm and using its resources more effectively.
As stated above, the business environment is
multifaceted, complex, and dynamic in nature
and has a far-reaching impact on the survival
and growth of the business. To be more specific,
proper understanding of the social, political,
legal and economic environment helps the
business
in
the
following
ways:
(a) Determining Opportunities and Threats: The
interaction between the business and its
environment would identify opportunities for and
threats to the business. It helps the business
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enterprises
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meeting
the
challenges

(c) Continuous Learning: Environmental analysis

makes the task of managers easier in dealing with
business challenges. The managers are motivated
to
continuously
update
their
knowledge,
understanding and skills to meet the predicted
changes
in
realm
of
business.
(d) Image Building: Environmental understanding
helps the business organizations in improving
their image by showing their sensitivity to the
environment within which they are working. For
example, in view of the shortage of power, many
companies have
set up Captive Power Plants
(CPP) in their factories to meet their own
requirement
of
power.
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(e) Meeting Competition: It helps the firms to

analysis the competitors strategies and formulate
their
own
strategies
accordingly.
(f) Identifying Firms Strength and Weakness:
Business environment helps to identify
the
individual strengths and weaknesses in view of
the
technological
and
global
developments.

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Types of Business
Environment

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.CONT
The various components of business environment
are
(i) External Environment
(ii) Internal Environment
External Environment : External environment
consists of those factors that affect a business
enterprise from outside. External environment
includes shareholders, competitors, customers,
society,
government
laws
and regulations,
policies and technology. External environment is
generally classified into micro environment and
macro environment. We will explain below micro
and macro types of external environment of
business.
Different
players
in
the
micro
environment normally do not affect all the

.CONT
A. External Micro- Environment :Micro environment includes those players whose
decisions and actions have a direct impact on the
company. Production and selling of commodities
are the two important aspects of modern
business. The various constituents of micro
environment are as under:
a. Suppliers of inputs : An important factor in the
external micro environment of a firm is the
supplier of its inputs such as raw materials and
components.
b. Customers : The people who buy and use a
firms product and services are an important part
of external micro environment. Since sales of a
product or service is critical for a firms survival
and growth, it is necessary to keep the customers

.CONT
c. Marketing intermediaries : In the firms
external
micro
environment,
marketing
intermediaries play an essential role of selling
and distributing its products to the final
customers. Marketing is an important link
between a business firm and its ultimate
customers.
d. Competitors : Different firms in an industry
compete with each other for sale of their
products. This competition may be on the basis of
pricing of their products and also non- price
competition through competitive advertising
such as sponsoring some events to promote the
sale of different varieties and models of their
products.

.CONT
e. Publics : Finally, publics are an important force
in external micro environment. Public, according
to Philip Kotler, is any group that has an actual
or potential interest in or impact on the
companys ability to achieve its objective.
Environmentalists, media groups, womens
associations, consumer protection groups, local
groups, citizens association are some important
examples of publics which have an important
bearing on the business decisions of the firm.

.CONT
B. External macro environment :
Apart from micro environment, business firms
face large external environmental forces. An
important fact about external macro
environmental forces is that they are
uncontrollable by the management. Because of
the uncontrollable nature of macro forces a firm
has to adjust or adapt it to these external forces.
These factors are:
.Already Discussed

Internal Environment
: The factors in internal environment of
business are to a certain extent controllable
because the firm can change or modify these
factors to improve its efficiency. However, the
firm may not be able to change all the factors.

The various internal factors are:

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a. Value system
The value system of an organisation means the
ethical beliefs that guide the organisation in
achieving its mission and objectives. It is a
widely acknowledged fact that the extent to
which the value system is shared by all in the
organisation is an important factor contributing
to its success b. Mission and objectives : The
business domain of the company, direction of
development, business philosophy, business
policy etc are guided by the mission and
objectives of the company. The objective of all
firms is assumed to be maximisation of profit.
Mission is defined as the overall purpose or
reason for its existence which guides and
influences its business decision and economic
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activities.

b. Organisation structure
The organizational structure, the composition of
the board of directors, the professionalism of
management
etc
are
important
factors
influencing business decisions. An efficient
working of a business organisation requires that
the organisation structure should be conducive
for quick decision-making.

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c. Corporate culture
Corporate culture is an important factor for
determining the internal environment of any
company. In a closed and threatening type of
corporate culture the business decisions are
taken by top level managers while the middle
level and lower level managers have no say in
business decision making. This leads to lack of
trust
and
confidence
among
subordinate
officials of the company and secrecy pervades
throughout the organisation. This results in a
sense of alienation among the lower level
managers and workers of the company. In an
open
and
participating
culture,
business
decisions are taken by the lower level managers
and top management has a high degree of
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confidence in the subordinates.

d. Quality of human
:resources
Quality of employees that is of human resources
of a firm is an important factor of internal
environment of a firm. The characteristics of the
human resources like skill, quality, capabilities,
attitude and commitment of its employees etc
could
contribute
to
the
strength
and
weaknesses
of
an
organisation.
Some
organisations find it difficult to carry out
restructuring or modernisation plans because of
resistance by its employees f. Labour unions :
Labour unions collectively bargains with the
managers for better wages and better working
conditions of the different categories of workers
etc. For the smooth working of a business firm
good relations between management and labour
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unions
is
required.

e. Physical resources and

:technological capabilities
Physical resources such as plant and equipment
and technological capabilities of a firm
determine its competitive strength which is an
important factor for determining its efficiency
and unit cost of production. Research and
development
capabilities
of
a
company
determine its ability to introduce innovations
which enhances productivity of workers.

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competitive structure of
industries
Porter five forces analysis is a framework
for
industry
analysis
and
business
strategy development. It draws upon
industrial organization to derive five
forces that determine the competitive
intensity and therefore attractiveness of a
market. Attractiveness in this context
refers to the overall industry profitability.
An "unattractive" industry is one in which
the combination of these five forces acts
to drive down overall profitability. A very
unattractive industry would be one
approachingprateek
"pure
competition", in which
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competitive structure of
industries
Porter five forces analysis is a framework
for
industry
analysis
and
business
strategy development. It draws upon
industrial organization to derive five
forces that determine the competitive
intensity and therefore attractiveness of a
market. Attractiveness in this context
refers to the overall industry profitability.
An "unattractive" industry is one in which
the combination of these five forces acts
to drive down overall profitability. A very
unattractive industry would be one
approachingprateek
"pure
competition", in which
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INTRODUCTION
The Five Forces model of Porter is an
outside-in business unit strategy tool that
is used to make an analysis of the
attractiveness (value...) of an industry
structure.
It captures the key elements of industry
competition.

PORTERs FIVE FORCES

MODEL
Potential
entrants

Threat of
new entrants

Bargaining
power
of suppliers Industry competitors
Suppliers

Rivalry among
existing firms
Threat of
substitutes
Substitute
products

Buyers

Bargaining
power
of buyers

PORTERs FIVE FORCES

MODEL
Threat
Threat of
of New
New
Entrants
Entrants

Threat of New Entrants

Economies of Scale
Barriers
to Entry

Product Differentiation
Capital Requirements
Customer Switching Costs
Access to Distribution Channels
Government Policy
Expected Retaliation

PORTERs FIVE FORCES

MODEL
Threat
Threat of
of New
New
Entrants
Entrants

Bargainin
g Power
of
Suppliers

Bargaining Power of Suppliers

Suppliers exert
power in the
industry by:
* Threatening to raise
prices or to reduce
quality
Powerful suppliers
can squeeze
industry
profitability if firms
are unable to
recover cost
increases

Suppliers are likely to be powerful if:

Supplier industry is dominated
by a few firms
Suppliers products have few
substitutes
Buyer is not an important
customer to supplier
Suppliers product is an
important input to buyers
product
Suppliers products are
differentiated
Suppliers products have high
switching costs

PORTERs FIVE FORCES

MODEL
Threat
Threat of
of New
New
Entrants
Entrants

Bargainin
g Power
of
Suppliers

Bargaini
ng
Power
of
Buyers

Bargaining Power of Buyers

Buyer groups are likely to be powerful if:
Buyers are concentrated

Buyers compete
with the
supplying
industry by:

Purchase accounts for a

significant fraction of suppliers
salesare undifferentiated
* Bargaining down prices
Products
Buyers face few switching
costs
Buyer presents a credible threat
of backward integration
Buyer has full information

* Forcing higher quality

* Playing firms off of
each other

PORTERs FIVE FORCES

MODEL
Threat
Threat of
Threat
of
New of
New
Entrants
Entrants

Bargainin
g Power
of
Suppliers

Bargainin
g Power of
Buyers

Threat of
Substitute
Products

Threat of Substitute Products

Keys to evaluate substitute products:

Products with
similar
function limit
the prices
firms can
charge

Products
with
improving
price/performance
tradeoffs
relative to present industry
products

Example:

Electronic security systems

in place of security guards
Fax machines in place of
overnight mail delivery

PORTERs FIVE FORCES

MODEL
Threat
Threat of
of New
New
Entrants
Entrants

Bargainin
g Power
of
Suppliers

Rivalry Among
Competing
Firms in Industry

Threat of
Substitute
Products

Bargainin
g Power of
Buyers

Rivalry Among Existing

Competitors

Intense rivalry often plays out in the following

ways:
Using price competition
Staging advertising battles
Increasing consumer warranties or service
Making new product introductions

Occurs when a firm is pressured or sees an

opportunity
Price competition often leaves the entire industry
worse off
Advertising battles may increase total industry
demand, but may be costly to smaller competitors

Coca-cola
Traditional competition:
Prices of Pepsi, local brands
Market share
Promotional actions of competition

New entrants:
New look-a-like manufacturers

Substitute products:
Fashionable new drinks, milk drinks,
coffee, beer, ...

Coca-cola
Suppliers:
Price and availability of ingredients on world
market
Quality speed safety, traceability, flexibility
of supply chain
Buyers/consumers:
High as a result of intense competition both
among branded and unbranded products.
Combined purchase power of shops, bars,
supermarkets

Competitive Advantage
The Competitive Advantage model of Porter learns
that competitive strategy is about taking offensive or
defensive action to create a defendable position in an
industry, in order to cope successfully with
competitive forces.
Companies can combat the pressure of the five forces
and create competitive advantages.
There are 2 basics types of Competitive Advantage :
Cost leadership (low cost)
Differentiation

Strengths of five forces

:model
The model is strong tool for competitive
analysis at industry level.
It provides useful input for performing a
SWOT analysis.

Limitations
Inside-out strategy is ignored (core competence)
It does not cope with synergies and interdependencies
within the portfolio of large corporations (parenting
advantage)
The environments which are characterized by rapid,
systemic and radical change require more flexible, dynamic
or emergent approaches to strategy formulation (disruptive
innovation)
Sometimes it may be possible to create completely new
markets instead of selecting from existing ones (blue ocean
strategy)

competitor analysis and

strategic management

Globalization
The
tendency
of
investment
funds
andbusinesses to move beyond domestic and
national markets to other markets around the
globe,
thereby
increasing
the
interconnectedness
of
different
markets.
Globalization has had the effect of markedly
increasing not only international trade, but also
cultural exchange.
Globalization is the system of interaction among
the countries of the world in order to develop
the global economy. Globalization refers to the
integration of economics and societies all over
the world. Globalization involves technological,
economic, political, and cultural exchanges

:- Features of Globalization
Rapid expansion of international trade
International of products and services by
large firms
Growing importance of Multinational
Corporation

:-Forces Of globalization
Increase and Expansion of Technology
Liberalization of cross-Border Trade and
resource movements
Development of services that support
International Business
Growing consumer Pressures
Increased Global Competition
Changing political situations
Expand Cross-National Cooperation

Factors Favouring
:- Globalisation
Although India has several handicaps, there are
also a number of favorable factors for
globalization of Indian Business.
(1) Human Resources:- In India, there is
abundant supply of labor and cheap labor has
particular attraction for several industries.
(2) Wide Base:- India has a very broad resources
and industrial base which can support a variety
of business.
(3) Growing Entrepreneurship :-Many of the
established industries are planning to go
international in a big way. Added to this is the
considerable growth of new and dynamic

Factors Favouring
:- Globalisation
(4) Growing Domestic Market:-The growing
domestic market enables the Indian companies
to consolidate their position and to gain more
strength to make foray into the foreign market
or to expand their foreign business.
(5) Expanding Markets:-The growing population
and disposable income and the resultant
expanding internal market provides enormous
business opportunities.
(6) NRIs:-The large number of non-resident
Indians who have resourceful in terms of capital,
skill, experience, ideas etc. is an asset which can
contribute to the globalization of Indian

Factors Favouring
:- Globalisation
(7) Economic liberalization:- In India is an
encouraging
factor
of
globalization.
The
delicensing of industries, removal of restrictions
on growth, opening up of industries earlier
reserved
for
the
public
sector,
import
liberalizations, etc. could courage globalization
of Indian business . Further liberalization in
other countries increases the foreign business
opportunities for Indian business.
(8) Competition:-The growing competition, both
from with the country and abroad, provide many
Indian Companies to look to foreign markets
seriously to improve their competitiveness
position & to increases the business.

:-Obstacles to Globalisation
The Indian business suffers from a number of
disadvantages in respect of globalization of
business. The important problems are the
following:1)Government Policy and Procedures:-in India
are among the most complex, confusing and
difficult in the world. Even after the much
publicized liberalization, they do not present a
very conducive situation. One pre requisite for
success in globalization is swift and efficient
action. Government policy and bureaucratic
culture in India in this respect are not that
encouraging.

:-Obstacles to Globalisation
2)High Cast:-of many vital inputs and other
factors like raw material and intermediates,
power, etc. tend to reduce the international
competitiveness of the Indian business.
3)Poor Infrastructure:- Infrastructure in India is
generally inadequate & inefficient & therefore
very costly. This is a serious problem affecting
the growth as well as competitiveness.
4)Obsolescence:- The Technology employed,
mode & style of operations etc, are in general,
obsolete
&
these
seriously
affect
the
competitiveness.
5)Lack

of

Experiences:-The

general

lack

of

:-Obstacles to Globalisation
6)Poor Quality Image:-Due to various reasons,
the quality of many Indian product is poor is
poor. Even when the quality is good, the poor
quality image India has become a handicap.
7)Small Size:-Due to various reasons like low
level of resources, in many cases Indian firms
are not able to complete with the giants of
other countries. Even the largest of Indian
companies
are
small
compared
to
the
multinational giants.
8)Supply problems:-Due to various reasons like
low production capacity, shortage of raw
material and infrastructures like power and
port facilities, Indian companies in many

Advantages and
Disadvantages of
:-Globalization
Free flow of capital
Free flow of technology

Heterogeneity of
problems

Increase in
industrialization

Reluctance of
developed countries

Spread-up of
production facilities
throughout the globe

Reluctance of
developing countries

Balanced development
of World economies

Non-economic hurdles

Increase in production
and consumption
Lower prices with high

Short term gains

Factor mobility
Big business

Impact of Globalization of Indian

Economy

Service sector is the lifeline for the social economic

growth of a country.
The real reason for the growth of the service sector is
due to the increase in urbanization, privatization and
more demand for intermediate and final consumer
services.
In advanced economies the growth in the primary and
secondary sectors are directly dependent on the
growth of services like banking, insurance, trade,
commerce, entertainment, etc.

The Bright Side of Globalization

The rate of growth of the Gross Domestic Product of
India has been on the increase from 5.6 per cent
during 1980-90 to 7% in the 1993-2001 period.
The foreign exchange reserves (as at the end of the
financial year) were $ 39 billion (2000-01), $ 107
billion (2003-04), $ 145 billion (2005-06) and $ 180
billion (in February 2007).
In respect of market capitalization India is in the
fourth position with $ 894 billion
As per the Forbes list for 2007, the number of
billionaires of India has risen to 40 (from 36 last year)
more than those of Japan (24), China (17), France (14)
and Italy (14) this year.

The Dark Side of Globalization

On the other side of the medal, there is a long list of
the worst of the times, the foremost casualty being
the agriculture sector.
Globalisation has lowered the per capita income of the
farmers and increased the rural indebtedness.
The agricultural growth of 3.2 per cent observed from
1980 to 1997 decelerated to two per cent
subsequently.
With more than half the population directly depending
on this sector, low agricultural growth has serious
implications for the inclusiveness of growth.

Conclusion
Indian economy has made rapid strides in the
process of globalisation.
Globalisation is increasing the integration of national
markets and the interdependence of countries world
wide for a wide range of goods, services, and
commodities.
The most important lesson that we must learn from
the crisis is that we must be self-reliant.
Indias trade reform programme resulted in strong
economic growth in the globalization age.
In particular, difficult decisions are to redress the
fiscal imbalance, by reducing subsidies, completing
the process of tariff and tax reform, and stepping-up
privatization of state-owned enterprises.
The efforts are needed to balance the trade and