Indian Business Environment-1

8/12/2019 Indian Business Environment-1

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Business The organized efforts of enterprises to supply consumers

with goods and services for a profit

Purpose-To earn profit

Business may be defined as human activity directedtowards producing or acquiring wealth through buying andselling goods

- Lewis H. Haney

Business represents the organized efforts of enterprises tosupply consumer with goods and services

- Musselman and Hughes


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Characteristics of Business1. Dynamism2. Vastness3. Diversification

i) Concentric Diversificationii) Horizontal Diversificationiii) Conglomerate Diversification4. Globalization

5. Science6. Information7. Government interference8. Competition


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Environment The aggregate of all conditions, events and influences

that surround and affect it

Environment factors or constraints are largely if nottotally, external and beyond the control of individualindustrial enterprises and their managements. Theseare essentially the givers within which firms and their

managements must operate in a specific country andthey vary, often greatly, from country to country.

- Barry M. Richman and Melvyn Copen


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Characteristics of environment1. Complex

2. Dynamic

3. Multi-faceted4. Has a far reaching impact


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Business environment Refers to those aspects of the surroundings of business

enterprise, which affect or influence its operations anddetermine its effectiveness

Business environment is the aggregate of all conditions,events and influence that surrounds and affect it

- Kieth Davis

The environment includes factors outside the firm, which

can lead to opportunities for or threats to the firm.Although there are many factors, the most important ofthese factors are socio economic, technological, supplier,competitors and the government

- W.F. Glueck and Lawrence R. Jauch


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Nature of Business environment1. Aggregative

2. Inter-related

3. Relative4. Inter-temporal

5. Uncertain

6. Contextual


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Scope of the business environment Production

Trade

Banking Insurance

Finance

Advertising


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Types of business environment1. Internal environment

2. External environment


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Composition of business environmentComponents of Business environment

Internal environment External environment

1. Financial resources2. Physical and human resources3. Objectives of business4. Managerial policies5. Morale and commitment of

Human resources

6. Value system7. Brand and corporate image8. Labor management relationship9. Technological and R&D capabilities10. Marketing resources

Micro/ OperatingEnvironment

Macro/ GeneralEnvironment

1. Suppliers2. Customers3. Marketintermediaries4. Competitors5. Public

1. Economic2. Political

3. Socio-Cultural4. Technological5. Natural6. Demographic7. International/

Global


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Internal environment Refers to factors existing within a business firm

Generally regarded as controllable factors


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Elements of internal environment1. Value system2. Mission and objectives3. Management structure and nature

4. Internal power relationship5. Human resources6. Company image and brand equity7. Other factorsi)

Physical assets and liabilitiesii) R & D and Technological capabilitiesiii) Marketing resourcesiv) Financial factors


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External environment

Refers to factors existing outsidethe business firm

Uncontrollable in nature Includes economic factors, socio-

cultural factors, government andlegal factors, demographic factors,

geo-physical factors etc,.


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Elements of External environment1. Micro environmenti) Suppliersii) Customersiii) Competitorsiv) Marketing intermediaries

v) Public2. Macro environmenti) Economic environmentii) Political environment

iii) Legal environmentiv) Social environmentv) Demographic environmentvi) Natural environmentvii) Physical and technological environment

viii) International environment


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Interaction between Internal and

External environment Closed systems

Open systems


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Relationship between Internal and

External environment

InputsThe Internal Environment

The organization Outputs

Economic Political Technological

Competitive Social Physical

External Environments

External Environments

Employees

Customers


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Interaction matrix of different

environmental factors

Interaction Matrix 1Economic

environmentEconomic

systemEconomicstructure

(Anatomy)

Functioning of the

economy(Sectors)

Economicplanning

(Longterm)

Economicprogram

mes(Shortterm)

EconomicPolicies-

Fiscal andMonetary

Economiccontrol

andregulation

Economicgrowth

anddevelopm

entNon Economicenvironment

Sociological + + + + + + + +

Educational + + + + + + + +

Political/ Legal + + + + + + + +

Historical + + + + + + + +

Physical/

Geographical

+ + + + + + + +


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Interaction Matrix II

NationalEnvironment

NationalEconomicEnvironment

National NonEconomicEnvironment

Non National

Environment

Local Economic + +

Non-economic + +

Regional Economic + +

Non-economic + +International Economic + +

Non-economic + +


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Interaction Matrix 3PresentEnvironment

PresentEconomicEnvironment

PresentNon-Economic

Environment

Non-PresentEnvironment

PAST Economic + +

Non-Economic + +

FUTURE Economic + +

Non-Economic + +


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Significance of Business Environment

1. First Mover Advantage

2. Early warning signal

3. Customer Focus4. Strategy formulation

5. Change agent

6. Public image

7. Continuous learning


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Overview of political environment

Meaning of Politicalenvironment:

The politicalenvironment consists offactors related to themanagement of publicaffairs and their impacton the business of anorganization


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Political systemA system of politics and government

Definition-a political system is a complete set ofinstitutions, political organizations, interest groups(such as political parties, trade unions, lobby groups),the relationships between those institutions and thepolitical norms rules that govern their functions(constitution, election law)

A political system is composed of the members of asocial organization (group) who are in power


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Types of political systems1. Libertarian political system

2. Authoritarian political system

3. Totalitarian political system


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Types of political systems1. Anarchy2. Dictatorship3. Autocracy4.

Oligarchy5. Theocracy6. Monarchy7. Democracy8. Indirect democracy

9. Plutocracy10. Aristocracy11. Meritocracy12. Stratocracy13. Cleptocracy


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Political systems and societies

L

(Libertarian)Anarchist

Libertar-ianism

Classical

liberal

Conservative

Authoritar-ianism

Lascist Dynastic(Authoritarian)

Communist(Totalitarian)

Coercive society Authoritarian Society

Socialism

DemocraticSocialist

Welfareliberal

Exchange Society


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Business responsibilities towards

government Payment of tax

International business can bring the foreign exchange

Employment can be provided

Provide information relevant during budget-source ofinformation

Information in Policy formulation

For welfare of people, voluntary programs e.g. temple,shopping complex

Infrastructure development help government byhaving contracts form government Eg. Dams


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Governments responsibility

towards business To reduce excise duty

To provide loans and credits

Infrastructural development for the business eg. Electricity,

road transportation Technology, right types and at right time should be

provided

Govt. should take initiative in R & D

Crumbling competition

Restricting monopoly

Encouraging small scale industries

Increase export


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Overview of socio-cultural

environment Meaning of socio-cultural environment:

Society and culture primarily govern the lifestyle of anindividual


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Impact of Socio cultural

environment on business1. Family

2. Social class

3. Culture


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1. Family Often called as basic social institution

The minimal form of family consists of a husband, wifeand children

A family is a group of persons united by the ties ofmarriage, blood or adoption constituting a singlehousehold, interacting and inter-communicating, witheach other in their respective social role of husband

and wife, mother and father, son and daughter,brother and sister, cradling and maintaining acommon culture

- Burgess and Locke


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Characteristics of family Primarily based on mating relationship

Reckoning of descent either through father or motheris necessary

Child bearing and economic factors

Relationships are socially sanctioned and traditional innature

Living together


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2. Social class Used to describe the ranks of

people in a society

Relatively permanent andhomogenous divisions in a societyinto which individuals or familiessharing similar values, life styles,interests, wealth, status, education,economic position and behaviorcan be catagorized.

- Roger D. Blackwell


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Classification of social class1. Upper-Upper

2. Lower-Upper

3. Upper-Middle4. Lower-Middle

5. Upper-Lower

6. Lower-Lower


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Components of social class1. Occupation

2. Income

3. Possessions4. Associations

5. Level of influence


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Culture Culture is everything that is socially learned and shared by

the members of a society

Culture is the sum of learned beliefs, values, and customs

that serve to direct the consumer behavior of members of aparticular society

Beliefs-consist of the very large number of mental or verbalstatements that reflect a persons particular knowledge andassessment of something

Values-Are also beliefs Customs-are overt modes of behavior that constitute

culturally approved or acceptable ways of behaving inspecific situations


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Values-Criteria1. They are relatively few in number

2. They serve as a guide for culturally appropriatebehavior

3. They are enduring or difficult to change

4. They are not tied to specific objects or situations

5. They are widely accepted by the members of a

society


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Characteristics of culture1. Culture is inventedi) An ideological systemii) A technological system

iii) An organizational system2. Culture is learned3. Culture is socially shared4. Cultures are similar but different5. Gratifying and persistent6. Adaptive7. Organized and integrated8. Prescriptive


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Elements of culture1. Knowledge and beliefs

2. Ideals

3. Preferences


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Impact of culture on Business1. Culture creates people

2. Culture and globalization3. Culture determines goods and services

4. Peoples attitude to Business

5. Attitude to work

6. Collectivism and individualism

7. Ambitious or complacent

8. Education

9. Family10. Authority

11. View of scientific method

12. Ethics in business

13. Religion


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Contd..14. Marriage

15. Time dimension

16. Cultural resources


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Overview of legal environment Opportunities that are created by government:

1. Governments are large purchasers of goods andservices

2. Governments subsidize firms and industries andthus help them survive and prosper

3. Governments protect home industries against

unfair foreign competition


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Legislations Passed by the Govt.1. Industries act 1951

2. Indian companies Act 1956

3. Income tax act 19614. MRTP act 1969

5. Foreign exchange regulation act 1973

6. Sick industrial companies act 1985, and

7. Consumer Protection Act 1986


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SEBI Constituted in 1988 and made statutory in 1992

Objective/ Purpose of the SEBI Act:

To protect the interest of the investors To promote the development of the securities market

To regulate the securities market

For matters connected there with or incidental there to


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Overview of technological

environment Refers to the state of science and technology in the

country and related aspects such as rate oftechnological progress, institutional arrangements for

development and application of new technology etc. Systematic application of scientific or other organized

knowledge to practical tasks

- J.K. Galbraith


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Features of technological

environment1. Component of macro or indirect action environment

2. Dynamic which cause s Future shock

3. Has far reaching effects4. Self-reinforcing

5. Different from science


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Technology Knowledge of methods to perform certain tasks or

solve problems pertaining to products or services

Provides information about Product design,Production techniques, quality assurance measures,human resource development and managementsystems


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Features of technology Change

Widespread effect

Self-reinforcing


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Transfer of technology The process by which commercial technology is

disseminated

May or may not be legally binding contract butinvolves the communication, by the transferor, or therelevant knowledge to the recipient


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Types of transfer transactions The assignment, sale and licensing of all forms of

industrial property, except for trademarks, servicemarks and trade names when they are not part of

transfer of technology transactions The provision of know-how and technical expertise in

the form of feasibility studies, plans, diagrams,models, instructions, guides, formulae, basic ordetailed engineering designs, specifications,equipments, for training, services involving technicaladvisory and managerial personnel and personneltraining


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Contd.. The provision of technological knowledge

The provision of technological contents

M f i h l f i


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Manufacturing technology transfer matrixDocumentation Training

Type oftechnology

Manualsand

documents

Regularreports

Formal onthe job

training

Informalon the job

training

Conference and

seminars

Visits andexchanges

Equipmentselection

Communication

problems

Proposal andplanning

------ ----- ------- -------- ------- -------- -------

Product design ------ ------- --------- -------- -------- --------- --------

Manufacturingtechnology

------- -------- --------- --------- -------- ---------- ------------ ---------

Qualityassurance

-------- --------- --------- ---------- --------- --------- ---------- ------

Plant design &Construction

--------- -------- ---------- ---------- ---------- --------- --------- --------

Start up -------- ------ --------- --------- -------- -------- -------

Valueengineering

---------- ---------- ------- --------- -------- --------- --------

Productdevelopment

---------- --------- ------------ ---------- ------------ ---------- --------

Externalsupport

---------- ------- ------------- ---------- ---------- --------- ------

----- Indicates the requirement


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Factors for the choice of

technology1. Product competitiveness and market potential2. Customer preferences

3. Speed of introduction of new products and processes4. Comparative studies of technology gap betweenIndia and outside

5. Availability of technology for import in strategic

areas6. Suitability of technology in context to organizational

culture

7. Outflow of resources, foreign exchange etc.


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Impact of technology on

business Higher productivity

Global competitiveness

Changing job profile Need for multi skilling and multi tasking

Difficulty in motivation

Increasing need for capital

Increasing Obsolescence

Organizational restructuring

Resistance to change

Social implication


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Overview of global

environment Significantly influenced by WTO

Liberalization of trade


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Nature of global environment Should be accurate in providing the information

The information should be timely

Should be large in size Market segmentation

Should have more potential than the domesticmarkets


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Trends in world trade and

economic growth International trading has suffered from gross

inequalities and imbalances

The global economic environment is characterized byintermittent recessions during the last two decades

The GDP and exports of the developing countries areprojected to grow


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GATT Signed at Geneva on 30thNovember 1947

Came into force on 1stJanuary 1948

Objective of GATT: To raise standard of living

To ensure full employment

To ensure a large and steadily growing volume of real

income and effective demand To develop the full use of the resources of the world

To expand production and international trade


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WTO Established on 1stJan 1995

India is one of the founder members of WTO

Objectives: To improve standard of living of people in the member

countries

To ensure full employment and broad increase in

effective demand To enlarge production and trade of goods


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Other objectives of WTO To enlarge production and trade of services

To ensure optimum utilization of World resources

To accept the concept of sustainable development

To protect environment


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Environmental scanning Meaning and definition: Scanning-to look carefully into or examine

Environmental scanning- Carefully analyze thevarious factors influencing the business

Environmental analysis is the process by whichstrategists monitor the environmental factors todetermine opportunities for and threats to their firms.Environmental analysis also consists of managerialdecisions made by assessing the significance of thedata (opportunities and threats) of the environmentalanalysis

- Jauch and Glueck

h f


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Characteristics of

Environmental scanning1. Continuous process2. Exploratory process

3. Holistic exercise

S f i i


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Scope of environment scanning

Role of external analysis in strategic planning

External analysis

Scanning

Monitoring

Forecasting

Assessing

Internal analysis

Vision

Mission

Strengths

Weaknesses

Strategic

Directions

Strategic

Plans

A h E i l


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Approaches to Environmental

scanning1. Systematic approach2. Process information approach

3. Ad Hoc approach

S f i f i f


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Sources of information for

environmental scanning1. Documentary and secondary sources2. Mass media

3. Internal sources

4. External agencies

5. Formal studies

6. Spying and surveillance

F ff i i l


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Factors affecting environmental

appraisal1. Strategist-Related factors2. Age of the organization

3. Size and power of the organization

4. Geographic dimension of the organization

5. Type of business

6. Influence of business organization

7. Volatility of environment

8. Managerial caliber

Process of environmental


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Process of environmental

scanningAssess the nature of the environment

Audit environmental influences

Identify key competitive sourcesthrough structural analysis

Identify strategic position

Identify key opportunities and threats

Si ifi f i t l


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Significance of environmental

scanning1. Effective utilization of resources2. Helps in converting threats to opportunities

3. Changing color of environment

4. Narrowing down the alternatives

5. Strategic management starts with environmentalscanning

6. Constant monitoring of the environment7. Useful for the managers

8. Prediction of future

R l f i t l i


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Role of environmental scanning

in organizations1. Function-oriented role2. Integrated strategic planning role

3. Policy oriented role

T h i f i t l


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Techniques of environmental

analysis1. SWOT analysis2. ETOP analysis


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SWOT analysis Credited by Albert Humphrey

S W

O T

Helpful Harmful

Internalorigin

Externalorigin


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SWOT analysisA strength could be:

Your specialist marketing expertise.

A new, innovative product or service.

Location of your business.

Quality processes and procedures.

Any other aspect of your business that adds value to

your product or service.


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SWOT Analysis Dell Strengths Dell is the World's largest PC maker. Profits for the 3 months to July

2005 were in excess of $1 billion US, representing a growth of around28%. For the last couple of years it has held its position as marketleader (it took it from rivals Hewlett-Packard). The Dell brand is one of

the best known and renowned computer brands in the World. Dell cuts out the retailer and supplies directly to the customers. It uses

information technology, and Customer Relationship Management(CRM) approaches to capture data on its loyal consumers. So acustomer selects a generic PC model, and then adds items and

upgrades until the PC is kitted out to the customer's own specification.Components are made by suppliers, never by Dell. PC's are assembledusing relatively cheap labour. You can even keep track of your deliveryby contacting customer services, based in India. The finished goods arethen dropped off with the customer by courier. Dell has total command

of the supply chain.


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SWOT analysisA weakness could be:

Lack of marketing expertise.

Undifferentiated products or services (i.e. in relationto your competitors).

Location of your business.

Poor quality goods or services.

Damaged reputation.


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Weaknesses

The company has such a huge range of products andcomponents from many suppliers from a plethora ofcountries, that there is the occasional product recall thatcan cause Dell some embarrassment. In 2004 Dell had torecall 4.4 million laptop adapters because of a fear that

they could overheat, causing electric shocks or fires. Dell is a computer maker, not a computer manufacturer. It

buys from a group of concentrated hi-tech componentmanufacturers. Whilst this is a tremendous advantage in

terms of business operations, allowing Dell to focus onmarketing and logistics, the company is reliant on a fewlarge suppliers, and to an extent is locked in for periods oftime (i.e. unable to switch supply dues to the lack of large

suppliers in the World).


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SWOT analysisAn opportunity could be:

A developing market such as the Internet.

Mergers, joint ventures or strategic alliances.

Moving into new market segments that offer improvedprofits.

A new international market.

A market vacated by an ineffective competitor.


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Opportunities Kevin Rollins replaced Michael Dell in 2004 as Dell's Chief Executive Officer.

Dell remained the company's Chairman. Despite founder Dell's massivesuccess, new blood and a change in management thinking could lead thecompany into a new, even more profitable period. Dell was born in 1965, andfounded Dell in 1984 with $1000 whilst studying at the University of Texas. He

became the youngest Fortune 500 CEO in 1992, and will be a tough act tofollow.

Dell is pursuing a diversification strategy by introducing many new products toits range. This initially has meant good such as peripherals including printersand toners, but now also included LCD televisions and other non-computinggoods. So Dell compete against iPod and other consumer electronics brands.

Dell is making and selling low-cost, low-price computers to PC retailers in theUnited States. The PC's are unbranded and should not be recognised as beingDell when the consumer makes a purchase. Rebranding and rebadging forretailers, although a departure for Dell, gives the company new marketsegments to attack with the associated marketing costs.


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SWOT analysisA threat could be:

A new competitor in your home market.

Price wars with competitors.

A competitor has a new, innovative product or service.

Competitors have superior access to channels ofdistribution.

Taxation is introduced on your product or service.


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Threats The single biggest problem for Dell is the competitive rivalry that exists

in the PC market globally. As with all profitable brands, retaliationfrom competitors and new entrants to the market pose potentialthreats. Dell sources from Far Eastern nations where labour costsremain low, but there is nothing stopping competitors doing the same -

even sourcing the same or similar components from the same or similarsuppliers. Remember, Dell is a PC maker, not a PC manufacturer.

Dell, being global in its marketing and operations, is exposed tofluctuations in the World currency markets. Although it is a very leanorganization, orders do have to be placed some time ahead due to their

size or value. Changes in exchange rates could leave the companyexposed to potential loses in parts of its supply chain.


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Criteria1. Historical criteria2. Normative criteria

3. Competition equality criteria


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Applications of SWOT analysis Provides a logical framework guiding systematic

discussion of the business situation, alternativestrategies, and finally the choice of strategy

Key external opportunities and internal threats aresystematically compared to internal strengths andweakness in a structured approach

Application of SWOT analysis in


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Application of SWOT analysis in

the choice of strategyCell 3

Turnaround

Strategy

Cell 1

Aggressive growth-

Oriented strategy

Numerous environmental opportunities

Critical

Internal

WeaknessesCell 4

Defensive

Strategy

Cell 2

Diversification

Strategy

Major environmental threats

Substantial

Internal

Strengths


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ETOP Study

Involves dividing the environment into differentsectors and then analyzing the impact of each sectorETOP for a bicycle company

Environment Impact

Social Customer preference for sports cycles which arefashionable, easy to ride and durable

Political No significant impact

Economic Growing affluence among urban consumers, exportpotential high

Regulatory Bicycle industry a thrust area for exports

Market Industry growth rate for sports cycles is high at 30%

Technological Technological up gradation in progress

- Favorable impact - Neutral impact - Unfavorable impact


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Dimensions of ETOP1. Issue selection2. Accuracy of data

3. Impact studies

4. Flexibility in operations

Indian Business Environment-1

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