BUSINESS AS A SYSTEM

Which of the following represent the Integrated

Whole Thing :

Digestive System Digestive Method

Digestive Process
Sound System Sound Method Sound
Process
Music System Music Method Music Process
Computer System Computer Method Computer Process

Political System
Social System
Cultural system
Economic System
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 BUSINESS AS A SYSTEM
System will:
Draw Input
Process it Internally and
Releases output into environment

Business
Draw Input Material , Energy , Information
Process it Internally - Into different Material , energy
and Information
Releases output into environment Tangible,
Intangible and
Information

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 Business & Environment
Interface of
Interaction Business & its
Surroundings

I. Micro environment of business.

1) Suppliers
Supply raw materials and other
components (Inputs)

Importance
- Reliable supply continuous supply
for smooth functioning
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 Business & Environment Interface
Micro environment of business.

2) CUSTOMERS
Different categories of customers
i. Industrial customers
ii. Wholesale customers
iii. Retail customers
iv. Government customers
v. Foreign customers
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 Business & Environment Interface
Micro environment of business.
3) Market intermediaries
i. Middlemen.
ii. Physical distribution Firms:
(warehouses and transport firms)
iii. Marketing service agencies
(Advertising agencies market
research firms, media firms,
consulting firms)
iv. Financial intermediaries
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 Business & Environment Interface
Micro environment of business.
4. Competitors:

The Threat of entry of new firms

The Power of Buyers
The Power of Suppliers
The Power of Substitutes
The Intensity of Rivalry among existing
firms

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 Business & Environment Interface
Micro environment of business.
Economies of Scale
Competitors:
Unit cost Inverse to units
produced
1. The Threat of entry of Measured by Minimum Efficient
new firm Scale
1. Economies of scale Or Market share
2. Capital Requirement MES volume is necessary to
3. Access to Channel compete
4. Absolute cost at minimum cost.
advantage Strategy : Just in time &
5. Expected Retaliation Lean manufacturing to
5. Government Policy counter economies of scale
7. Differentiation
Capital requirement
Internet / Knowledge based
services less costly
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 Business & Environment Interface
Micro environment of business.
Absolute cost advantage
Competitors: Learning curve effect Cost
1. The Threat of entry of advantage
new firm Expected Retaliation
1. Economies of scale GSM Players like Airtel ,Spice
2. Capital Requirement retaliated entry of CMDA
3. Access to Channel player Reliance
4. Absolute cost advantage Communication to operate in
GSM field
5. Expected Retaliation
Government Policy
5. Government Policy
Import of sugar, Edible oils, Steel
7. Differentiation
, Liberation of Insurance &
Access to Channel other sectors
Self help groups / Social Differentiation
networks New channels of
distribution Existing company Strong
brand image, wide range of
products to cover all
segments
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 Business & Environment Interface
Micro environment of business.
Competitors:
2. The Power of Buyers:
1. Concentration of
buyers
2. Alternative source of
supply
3. Component cost as a
percentage of total cost
4. Possibility of backward
integration
Concentration of buyers
Small no. of buyer + High Volume
purchase High buyer power
Coca-Cola cannot bargain with Malls
Alternative source of supply
More supply source high buyer power
Bajaj Scooter Honda, Suzuki, TVS
etc
Component cost as a % of total
cost
High proportion of component/material
cost to finished goods leads to looking
for alternatives.
Possibility of backward
integration Buyers own supply
chain more buyer power Co-
opratives , Self help groups, MLM

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 Business & Environment Interface
Micro environment of business.
Concentration of Sellers
Competitors: Small no. of Sellers High seller
power
3. The Power of Sellers: Like Monopoly & Oligopoly
Switching Costs
1. Concentration of Sellers
High switching cost to other seller
2. Switching costs source - Seller power increase
3. Brand power High-Tec & Specialised goods - SAP
4. Possibility of forward Brand Power
integration High brand power High power
5. Dependence on customers Ariel , Rin - Supermarkets have to
Dependence on customers sell it
Not depending on High Possibility of forward
volume small no.of buyers integration
more seller power Sellers own distribution operation
More power
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 Business & Environment Interface
Micro environment of business.
Relative performance &
Competitors: Price of Substitutes
4. Threat of Substitution: Substitutes with same cost
Non-essential goods where High threat Email replaced
there is the Post Offices
ultimate substitute of doing Switching costs
without The Cheaper switching cost -
That: High threat
1. Relative Price & Pet foods , Fast foods , Malls
Performance of substitutes Buyers Willingness to
substitute
2. Switching Costs
Low-cost articles & infrequent
3.Buyers willingness to
purchase of articles little
substitute
effort made to go for
substitutes
Match box Lighter
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 Business & Environment Interface
Micro environment of business.
High fixed costs
Competitors: High Fixed cost High break even
5. Competitive Rivalry: point
In depression times Price war to
1. Industry Growth maintain turnover
2.High Fixed costs 1990 UK & USA accused each of
3. Volatile Demand dumping Steel on Export market
Volatile Demand
4.Product Differentiation
May lead to intermittent Over-
5. Extra Capacity in large capacity
increments Steel war -1990
6. Balance of firms Product Differentiation
7. High exit barriers Homogeneous products More
intense the rivalry - Steel
Industry Growth:
Extra capacity in large
Rapid Growth Competition increments
need not be intense Creates short term over capacity .
Honda Nissan plant in UK
Maturity Phase- Intense Surana College PG_Centre,
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 Business & Environment Interface
Micro environment of business.
Balance of firms
Competitors: If the no. of firms is large /
5. Competitive Rivalry: similar size the rivalry will be
1. Industry Growth intensive. Clear market
leader can bring discipline
2.High Fixed costs
High exit barriers
3. Volatile Demand
High exit barriers Excess
4.Product Differentiation
capacity to persist and
5. Extra Capacity in large rivalry to be intense
increments
6. Balance of firms
7. High exit barriers

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 Business & Environment Interface
Macro environment of business.
1. Demography: Drivers of Population Changes
Quantitative aspects of
population. Birth Rate No. of births per 1000
population
Qualitative aspects of Fertility Rate- Av. No. of birth per
population. women
Death Rate - No. of deaths per 1000
1. Population Growth Migration Country to Country
2. Drivers of Population movement
Changes
3. Ethnicity of Population Implication Consumer, Labour ,
4. Implications of Demographic Employment participation
Changes
Population Growth:
Year 1000 Estimated 300 million
Year 1750 Actual 728 million
Year 1900 Actual 1500 million
Year 1960 Actual 3 billion
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 Business & Environment
Interface
Macro environment of business.
2. Economic environment
i. Economic conditions- GDP, Business Cycle,
Unemployment, Inflation, Balance of Payment, Fiscal
Policy, Monetary Policy, Exchange rate Policy, Interest
Rate.
ii. Economic policies
a) Budget
b) Industrial policy
c) Trade policy
d) Agricultural policy
iii. Economic system- Capitalistic, Socilalitic, Mixed
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 Business & Environment Interface
Macro environment of business.

3.Political environment
i. Legislature - Labour Laws like Factories Act,
EPF Act, ESI Act, Industrial Disputes Act, Minimum
Wages Act, Payment of Wages Act, etc
MRTP Act, Law of Contracts, Companies act, IDRA
Act, FERA, Import & Export Control act, Tax Laws

i. Executive- Administrators

ii. Judiciary - District, High Courts, Supreme

Court, Tribunals

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 Business & Environment Interface
Macro environment of business.
4. Socio cultural environment
i. Attitude of people towards
work and health.
ii. Role of family.
iii. Marriage.
iv. Religion.
v. Education
vi. Ethical issues
vii. Social responsibility
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 Business & Environment
Interface
Macro environment of
business.
5. Natural environment
i. Natural resources.
ii. Weather and climatic
conditions.
iii. Locational aspects.
iv. Nearness to port facilities.

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 Business & Environment
Interface
Macro environment of
business.
6. Technological environment
i. Nature of technology
ii. Scope for innovation

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 Business & Environment
Interface
Macro environment of
business.
7. International environment
i. Economic
ii. Political
iii. Legal
iv. Demography
v. Technology

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 Business & Environment Interface

Uses of environment studies

1) Awarness
2) Policy decisions
3) Demand forecasting
4) Competitors strategies.
5) To innovate

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 Business & Environment Interface

Techniques for environmental

studies
i. Verbal and written information
ii. Search and scanning
iii.Forecasting and formal studie

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 Business & Environment Interface

Limitations of environmental
analysis
a) Unexpected events
b) Future is not a guarantee
c) Too much of information.
d) Overcautions approach

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 Business Sectors

Primary Sector Agriculture, Mining

Secondary sector - Manufacturing
Industries
Manufacturing activities Electricity Generation and
Construction

Tertiary Sector Services industries

Trade , Commerce, Insurance, Banking,Repair, Transport

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 Classification of Business Based on Scope
of Business
1. Business which Produce Goods:
Two categories of Goods:
a. Commodities Goods produced by Primary sector
- Will not undergo any processing
- Agriculture , Fisheries, Mining,
b. Products - Goods produced by Secondary
sector
Conversion of Raw material into another
form
- Farms, Diaries,
-Manufacturing Enterprises Machinery,
Materials for -other business, Producing
goods for consumption
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 Classification of Business Based on Scope
of Business
2. Business which Produce Services:
Transport , Telephone , Electric Light ,Hotels ,Entertainment
3. Business which Distribute Goods:
Wholesale merchants
Retail Merchants
Importers & Exporters
4. Business which Facilitates Distribution of Goods:
Warehouse, Auction Houses, Advertising, Financing
5. Business which Deals in Finance:
Commercial Banks, Co-Operative Banks, Development Bankd,
Insurance Stock Exchange

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 Classification of Business Based on the
Nature of Activity
1.Extractive Industries:
Extract goods from natural resources- Oil extraction, Farming,
Fishing
2. Genetic Industries:
Produce goods by breeding- Poultries, Bio Tech
3. Manufacturing Industries:
Process Raw materials into finished goods 4 Types
1. Basic Industries : Iron, Steel
2. Capital goods Industries : Machines
3. Intermediate Industries : Tyre , Tubes
4.Consumer goods Industries : Soap
4. Construction Industries
Canals, Dams, Road, Buildings, Road
5. Service & IT Industries
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 Classification of Business Based on Uses of
Goods Produced
1. Basic Industries :
Provide essential inputs to other industries
Iron, Steel, Fertilizer, Chemicals

2. Capital goods Industries :

Instrumental in producing goods and services
Do not directly produce goods for consumption
Capital intensive
Machines, Tools,

3. Intermediate Goods Industries :

Goods already had undergone manufacturing process but which forms input
for other industries for further processing

Tyre , Tubes

4.Consumer goods Industries : For consumption Durable / Nondurable

goods

Durable Usage for more than 3 years

Non-durable Usage within 3 years

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 Classification of Business Based on
Competitive Structure
1. Monopoly :
Single Firm Industry
Monopsony Single Buyer
Bilateral Monopoly single Buyer and Single seller
MRTP Act

2.Duopoly
Two sellers
3. Oligopoly
Only few firms holding 80 to 85 % market share
4.Monopolistic competition
Large sellers & similar but not Substitute products Textile

5.Perfect competition

Large sellers & Homogeneous & free entry , exit & no single firm has
any control over the market & Perfect knowledge about market & no
transport cost & complete mobility of factors of production between
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 Business Motives & Objectives

Objective:
The end actions

Motive:
The desire which stimulate action

Motive Profit, Non-Profit

Objective Supply Quality Products, Customer Satisfaction,
Exploit labour, Tax evation

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 Business Motives & Objectives

Importance of Objectives

1. Justifies existance

2. Provide Direction

3. Help coordination

4.Provide standards for assesment &

control

5. Help decentralisation

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 Business Motives & Objectives

I. Economic Objectives
a) Earning of adequate profit.
b) Creation of customers
c) Innovation
d) Generation of employment
e) Control of inflation
f) Economic development
g) Reduction of inequalities of income
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 Business Motives & Objectives

II. Social Objectives

a) Supply of goods and services.
b) Good treatment of customers.
c) Fair treatment of employees.
d) Good working environment
e) Customer Counseling
f) Social responsibility.
g) Pollution control.
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 Business Motives & Objectives

III. National Objectives

a) Implement of government laws.
b) Payment of taxes.
c) Democratic practices.

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 Business Ethics

Study of good and evil

,right and wrong actions
of Business

Dishonesty Unethical , then being

dishonest with employees, Customers
and shareholders is unethical.
Protecting others from harm Ethical
then recalling defective products is
ethical action.

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 Business Ethics

Sources of Business Ethics :

Religion
Culture &
Law
Religion : Advocate orderly social system
Culture : Rules and standards transmitted
among generations to produce behaviours-
Sathi, Child marriage, Untouchability, Joint
family
Law : Rules of conduct approved by Legislators
Companies act , Labour laws etc

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 Business Ethics

Codes of Business Ethics :

Codes of conducts of business
FICCI
1. Business must maintain highest
standard of behaviour for the benefit of
industry, employees, customers,
shareholders
2. Goods and services must conform to
committed quality
3. Customers must be treated with respect
and fairness

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 Business Ethics

UnEthical Actions :
1.Kentucky Fried Chicken ( KFC ) Use
of Harmful hormons & Monosodium
glutamate to fatten the chicken
2. Neem Oil : Ptent by U.S company
3. Women Harassment Sacking of Chief
Executive of Infosys

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