What do you mean by Business Environment??

 The environment of any organization is “ the aggregate of

all conditions, events and influences that surround and
affect it.”

 In other words , business environment is individual and

organisation that exists outside the business and have
influence direct and indirect to the business.
 Why study Business Environment??
The success of every business depends upon adapting itself to the environment
within which it functions.
For Example:
1. When there is a change in government policies, the business has to make the
necessary changes to adapt itself to the new policies.
2. Change in technology may render the existing products obsolete, introduction of
colour T.V television replaced the black and white T.V or introduction of
computers replaced type writers.
3. Introduction of Jeans affected traditional wear. Etc.
All these aspects are external factors that are beyond the control of business. Hence
it is very important to have a clear understanding of concepts of business
environment in order for business units to adapt themselves to the BE.
 Importance Of Business Environment

 Firm to identify Opportunities and getting the first mover advantage. E.g. Maruti for
small cars.
 Firms to identify threats and early warning signals. E.g.. Multinational entering
Indian market.
 Continuous learning: Environmental analysis makes the tasks of managers easier in
dealing with business challenges.
 Image Building: By showing their sensitivity towards the environment. E.g. Captive
power plants in factories.
 Meeting competition: It helps the firms to analyse the competitors strategies and
formulate their own strategies accordingly.
 Identifying firms strengths and weaknesses.
Features Of Business Environment
a) Business environment is the sum of all factors external to the business
firm and that greatly influence their functioning.
b) It covers factors and forces like customers, competitors, suppliers,
government and the social, cultural, political, technological and legal
conditions.
c) The business environment is dynamic in nature and it keeps on
changing.
d) The changes of business environment are unpredictable. It is very
difficult to predict the exact nature of future happenings and the changes
in economic and social environment.
e) Business environment differs from place to place, country to country.
Like political conditions in India will differ from those in Pakistan.
Political factors affecting business environment :
Political factors are the factors relating to policies and
nature of the government. Some of the factors are :
•Taxation Policy
•Regulatory framework
•Governmental stability
•Nature of government’s policies towards business- related
to taxation, regulation of business and industry
Examples :

Retrospective taxation and GAAR spooked investors as it

was thought that it was a disincentive for companies to do
business in India. Therefore, the implementation of GAAR
has been postponed to 2016 since the growth rates are
already low right now. And this policy might slump the
growth further by creating a negative business environment

Regulatory framework and red tapism

According to World Bank, India is at 132th position in terms of
ease of doing business (out of 180 countries) due to excessive
regulations and red-tapism
Recently POSCO and Arcelor mittal pulled out their projects out
of Orissa due to these reasons
Economic factors relate to the general conditions of the
economy within which a firm/business operates.

These factors can be :

•Inflation
•Interest rates
•Growth rates
•Unemployment levels
•Levels of disposable incomes
•Whether the country is experiencing boom/recession
Examples :

Increasing disposable incomes would mean that people would

have greater demand for products. Therefore, firms would respond
to such increasing incomes by expanding their businesses in such
areas.

An increase in interest rates would mean increase in borrowing costs for

both consumers and firms. Therefore, investments would be curtailed or
postponed resulting in lower growth rates for the entire economy
 SOCIO-CULTURAL ENVIRONMENT

1.A set of customs, beliefs, behaviour and practices that exists

within a population.

2.Companies often include an examination of socio-cultural

environment before entering their target markets.
Factors which affect socio-
cultural environment
1.Demographic factors
2.Attitude of people
3.Social responsibilities
4.Religion
5.Taste & Preference
6.Education
7.Family
8.Natural & Technological factors
9.Income & Lifestyle
Social culture adopted by Indians
1.Language : Sometimes a firm faces language problems like ford
faced when they introduced their truck brand named ‘fiera’ which
means ugly old woman in spanish.
2.Taste & Preference : Taste & preference of a consumer also affects
a product’s demand, so companies have to modify their product
accordingly.
3. Dressing & Lifestyle: These factors also impact the demand for a
product.
4.Religion : Religious aspects also play a important role in creating &
deteriorating the demand for a product.
 A company which benefited due to socio cultural environment

 McDonalds made segment according to the demographic

in Indian societies.
McDonalds made their food according to religions in
India.
McDonalds believed in Total Quality Management.
They offer food at affordable and convenience rates
which gives direct benefit to them.
 Legal Environment
This refers to the set of laws and regulations which influence the business
organisations. The important legislations that concern the business enterprises
include :
1.Companies act ,1956
2.Foreign exchange management act ,1999
3.Bureau of Indian standards act ,1986
4.Consumer protection act ,1986
5.Environment protection act
6.Prevention of food adulteration act, 1956
7.Minimum wages act,1948
8.Right to information act,2005
9.Indian income tax act,1961
Legal factors can limit or change how a business operates.
For example :
1.A company may have to hire additional supervisory staff or
purchase safety equipment after a new health and safety law is
passed.
2.Child labor laws often limit the hours a minor can work and
require set break periods. If an organization employs several minors,
it may have to hire additional help to cover the hours when the
minors cannot legally work.
Economic Environment
Major factors are:

Economic conditions
Economic policies
Economic systems

Economic condition

The economic conditions of a country –for example, the nature of the

economy, the stage of development of the economy, economic resources,
the level of income, the distribution of income and assets, etc.- are among
the very important determinants of business strategies.
In a developing country, the low income may be the reason for the very
low demand for the product.
Economic Environment
 Economic policies
Some types or categories of business are favourably affected by
government policy, some adversely affected, while it is neutral
to some others.
E.g. a restrictive import policy may greatly help the import
competing industries, while a liberalisation of the import policy
may create difficulties for such industries

 Economic System
The scope of the private business depends on the economic
system.
The freedom of the private enterprise is the greatest in the free
market economy.
 Physical & technological environment
 Business prospects demands availability of certain physical facilities
 E.g. demand for electrical appliances is affected by the extent of electrification and the
reliability of power supply.
 Demand for LPG stoves depend on rate of growth of gas connections
 differing technological environment of different markets may call for product
modifications
 E.g. Many appliances are designed for 110 V in USA. They should be converted for
240v in India
 Technological developments may increase or decrease the demand for some existing
products
 E.g. voltage stabilizers help increase in sale of electrical appliances in markets
characterised by frequent voltage fluctuations
 Introduction of TVs, Refrigerators, etc. with in-built stabilizers adversely affects the
demand for voltage stabilizers.
 Microenvironment
 Microenvironment is an internal part of a company.
 These factors can be controlled by the company.
 Micro environmental factors have much more direct impact on a business
environment.
 Some factors are:
• Suppliers
• Employees
• Marketing Intermediaries
• Customers
• Competitors
 SUPPLIERS

 Suppliers provide products and services needed to add value to own product and services.
 These services must be provided on time and should meet ones specifications of quality.
 If requirements are not met then the production as well as the quality suffers. It also
changes the perception of a customer to some extent.

IMPORTANT
1) A supplier should be reliable.
2) There should be more than one supplier in a company.
 The ‘TOYOTA’ Case
 During 2009 – 2011 , Toyota had to recall nearly 10
million vehicles all around Europe as the
accelerators were not working properly.
 It was because the supplier had supplied faulty
mechanical accelerators.
 Due to the faulty accelerators there were many
accidents out of which nearly 37 were fatal and
ended in death.
 Out of 10 million cars nearly 7 million were Toyota
Camry and Corolla.
 Toyota repaired all these cars and sent them back to
their owners , but they lost the trust of the
customers.
 Market Intermediaries
 Firms that aid the company in promoting, selling and distributing its goods to final
buyers.
 Vital links between the company and the final consumers.
 Include
 The middlemen and merchants who “help the company find customers or close sales with
them”
 Physical distribution firms which “ assist the company in stocking and moving goods from
their origin to their destinations”
 Marketing service agencies which “assist the company in targeting and promoting its products
to the right markets”
 Customers
 The company must study its customer markets closely since each market has its
own special characteristics.
 The least controllable of all.
 New customers may be affected by any aspect of your business.
 E.g. Toyota cars in year 2002 had issues with its clutch system. They recalled the
faulty cars and resolved the issue. It was expected because of this the market
share will fall for Toyota but nothing happened. Why??? Because their previous
experience with Toyota products or services means they're more likely to opt for
Toyota after the problem is resolved.
 Competitors
Every company faces a wide range of competitors.
The competitors affect the business's profits by trying to take business away from them.
Their activities affect business’s profits.
No single competitive strategy is best for all companies.
 Companies must gain a strategic advantage by positioning their products and services against their
competitors in the minds of their customers.
It is all about positioning.  Companies have to differentiate itself from your competitors.
If a company provide better products for a lower cost -- and possibly faster -- than its competition,
then that company can compete with them in ways they may not be able to match.
 ASSESSING RISK IN BUSINESS ENVIRONMENT
ASSESSING RISK IN BUSINESS ENVIRONMENT
Political Risk – Typical risk events
 Expropriation of corporate assets without prompt and
adequate compensation

 Forced sale of equity to host-country nationals, usually at

or below depreciated book value

 Discriminatory treatment against foreign firms in the

application of regulations or laws

 Barriers to repatriation of funds (profits or equity)

Managing Political Risk

 Avoidance – either the avoidance or withdrawal of

investment in a particular country

 Adaptation – adjust to the political environment

 Dependency – keeping the host nation dependent on the

parent corporation
Economic Risk
 A country’s level of economic development generally
determines its economic stability

 Economic risk falls into 2 categories

 Government changes its fiscal policies

 Government modifies its foreign-investment policies

 Managers are constantly reassessing economic risk

The Legal Environment

 Manager’s will comply with the host country’s legal

system
 Common Law – past court decisions act as precedents
to the interpretation of the law
 Civil Law – comprehensive set of laws organized into
codes, interpretation is based on reference to codes and
statues
 Muslim law – based on religious beliefs, it dominates
all aspects of life
 The Technological Environment
 Corporations must consider the accelerating macro-environmental
phenomenon of techno-globalism (rapid developments in
information and communication technologies)

 Corporations must consider the appropriability of technology

Global E-Business

 E-business – the integration of systems, processes,

organizations, value chains and entire markets using
Internet-based and related technologies and concepts.

 E-commerce - refers directly to the marketing and sales

process via the Internet
 EMERGING SECTORS – INDIA
EMERGING SECTORS – INDIA
While the world may recognize India for its IT and biotechnology capabilities, there
are other sectors of interest to small to medium entrepreneurs which have made
impressive strides in the last few years. India has many fast emerging sectors that
present ample opportunity for entrepreneurs. Here's a look at a few of them:

FOOD PROCESSING
 The Indian food processing industry is a high priority sector and is poised for excellent
growth in the coming years because it holds the vital link between agriculture and
industry.
 India is the world's largest producer of food after China.
 With increasing impetus by the government on research, it is estimated that India's food
production is likely to double in the next decade.
 This opens up huge opportunities in food processing areas like canning, packaging,
frozen food and thermo processing.
HEALTHCARE
 India's healthcare sector has been growing rapidly driven by a
number of factors such as :
 Increasing the average life expectancy and average income level
and rising awareness for health insurance.
 The Indian healthcare industry, which comprises hospitals,
medicines, infrastructure, and medical devices, outsourcing
telemedicine, health insurance and medical equipments
 It is expected to reach US $100 billion by 2015 from the current US
$65 billion, growing at around 20 percent year of year as per rating
agency Fitch.
 Healthcare has become one of the India's largest sectors both in
terms of revenue and employment.
TOURISM
 India's tourism industry is experienced a strong period of growth, driven by the
burgeoning Indian middle class, growth in high spending foreign tourists, and
coordinated government campaigns to promote 'Incredible India.
 ' The tourism industry in India is substantial and vibrant, and the country is fast
becoming a major global destination.
 India's rich history and its culture and geographical diversity make its international
tourism appeal large and diverse.
 India is a country with diversified culture and traditions.
 The natural beauty of India, festivals, dresses, heritage, sites of India are very popular
among tourists.
 These things fascinate travelers to come here. India has so many science blesses
places like Kerala, Shimla.
 These places are prime attraction of travelers from across the world.
 India's travel and tourism industry is one of the most profitable industries in the
country, and also credited with contributing a substantial amount of foreign exchange
RETAIL
 The Indian Retail Industry is the largest among all the industries, accounting for over 10 per cent of
the country's GDP and around 8 per cent of the employment.
 Industry in India has come forth as one of the most dynamic and fast paced industries with several
players entering the market.
 But all of them have not yet tasted success because of the heavy initial investments that are required
to break even with other companies and compete with them.
 The India Retail Industry is gradually inching its way towards becoming the next boom industry.
 The total concept and idea of shopping has undergone an attention drawing change in terms of
format and consumer buying behavior, ushering in a revolution in shopping in India.
 Modern retailing has entered into the Retail market in India
 It is observed in the form of bustling shopping centers, multi-storied malls and the huge complexes
that offer shopping, entertainment and food all under one roof.
 A large young working population with median age of 24 years, nuclear families in urban areas,
along with increasing working women population and emerging opportunities in the services sector
are going to be the key factors in the growth of the organized Retail sector in India
 Presentation On

RELATIVE SIZE AND GROWTH OF

PUBLIC & PRIVATE SECTOR
IN INDIA
CONTENTS:

 Introduction

 Public sector: Objectives, Growth , Relative Size & Performance

 Private Sector: Objectives , Growth & Relative Size

 Introduction
Public Sector
A public sector enterprise is an organisation which is
•Owned by public authorities including Central, State or Local authorities, to the extent of
50% or more;
•Is under the top managerial control of owning public authorities
•Is established for the achievement of a definite set of public purpose
•Is consequently placed under a system of public accountability
•Is engaged in an activity of business character

Private Sector
A private sector enterprise is an organisation which is owned, managed & controlled by private
individuals or a group of individuals or both.
It is also engaged in business activity but with the motive of profit maximisation rather than
public service like in case of public sector enterprise.
Objectives of Public Sector Enterprise:

 Helps in rapid economic growth & industrialisation of the country & creation of
necessary infrastructure for economic development,
 To earn return on investment & thus generate resources for development,
 To promote redistribution of income and wealth,
 To create employment opportunities,
 To promote balanced regional development,
 To promote import substitution, save and earn foreign exchange for the economy
 To gain control over the commanding heights of the economy.
 Growth of Public Sector Undertakings
Period Total Investment (Rs. Cr.) No. of Enterprises
(Owned By Central Gov.)
1st Plan (1951-1956) 29 5
2nd Plan (1956-1961) 81 21
3rd Plan (1961-1966) 953 48
Three Annual Plans 2410 73
(1966-69)
4th Plan (1969-1974) 3902 85
5th Plan (1974-1979) 6237 122
6th plan (1980-1985) 18225 186
7th plan (1985-1990) 42811 221
8th plan (1992-1997) 118492 237
9th Plan (1997-2002) 201500 238
10th Plan (2002-2007) 324632 240
11th plan (2007-2012) 4,21,089 244

Source: Business Environment by Francis Cherunilam (2008)

 Reasons of growth of Public Sector

The Industrial Policy Resolution of 1956 enlarged the role of the public sector.

 Schedule A to the Resolution enumerated 17 industries, the future development of which

would be the exclusive right of the state.
 Schedule B to the Resolution contained a list of 12 industries which would be progressively
state owned & in which the state would, therefore, generally take the initiative in
establishing new units.

The Industrial Policy of 1956 is the basic policy of India. It was more of a restrictive in nature for
setup of new private industries. The Public Sector flourished in the time being before the
introduction of new Industrial Policy of 1991 which was more liberal in nature.
Share of Public Sector
 At Current Prices it accounted for:
7.5% of Net Domestic Product in 1950-1951,
25% of Net Domestic Product in 2007-2008.

 It also accounts for:

One-fourth of Gross Domestic Product (GDP),
One-third of the Exports.
Six Indian Public Sector companies figure in the latest list of the 500 biggest
industrial corporations, released by Fortune International. They are:

Name of Company Ranking (Out of 500)

Indian Oil Corporation 144
Oil & Natural Gas Corporation 278
Steel Authority of India Ltd. 332
Hindustan Petroleum Corp. Ltd 371
Coal India Ltd. 371
Bharat Petroleum Corp. Ltd 474

Source: Essentials Of Business Environment by K. Ashwathappa (10th edition 2008)

 Private Sector
Objectives of private sector enterprise:

The government resorts to privatisation with the multiple objectives which are as follows:

 To reduce political interference in the management of enterprise, leading to improved

efficiency & productivity,
 To provide adequate competition to the public sector,
 To generate cash in order to fund the ever-increasing expenses,
 To reduce the concentration of economic power in the country.
 Growth of Private Corporate
Sector
1957 1971 2000
No. of Companies 29,357 30,322 5,42,308
• Government 74 314 1,257
• Private 29,283 30,008 5,41,051
Paid Up capital (Rs. Cr.)

All Companies 1,080 4,500 2,67,898

(100.00) (100.00) (100.00)
Government Companies 70 2,060 95,842

(6.8) (45.8) (35.8)

Private 1,010 2,440 1,72,056
Companies (93.2) (54.2) (64.2)
Note: Figures in brackets are percentage of total paid-up capital
Source: Tata Services Ltd, Statistical Outline of India (2001-2002)
Reasons for Growth of Private Sector

 Political will towards privatisation.

 Financial Reforms,
 Usage of more advanced technology,
 Young & large English Speaking class.
 Opening up of Indian Economy has led to free flow of FDIs along
with modern cutting edge technology.
Share of Private Sector

 Accounts for 75% of National Domestic Product in 2007-2008

 It is estimated that out of the total US $ 17 Billion KPO service

business around US $ 12 Billion of business have been outsourced
to India by the end of 2010
Top 10 Private Sector Companies IN INDIA

 Reliance Industries Limited

 Tata Consultancy Services (TCS)
 Infosys Technologies Ltd
 Wipro Limited
 Bharti Tele-Ventures Limited
 ITC Limited
 Hindustan Lever Limited
 ICICI Bank Limited
 Housing Development Finance Corp. Ltd.
 TATA Steel Limited