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What is Business?
Business Environment
Business is an activity which involves buying and selling of goods & services.
Modern business covers a complex field of industry and commerce which involve activities related to both production and distribution.
These activities on the one hand satisfy societal need and desires and on the other hand bring profits to business firms. All the business activities are normally motivated by profits, in case , any of these activities is carried out by some organization for the purpose other than profit seeking, it cannot be justifiably considered as business.
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Provides all kinds of goods and services which we need for consumption
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Profit Growth Market Leadership Customer satisfaction Employee satisfaction Quality Products & Services Service to Society
Business that matters today is large in size. Indian companies in terms of revenues, profits, assets and stockholders equity are relatively small as compared to the companies in developed countries. Reliance industries Hindustan Lever Telco Larsen and Toubro Tata Motors Maruti Udyog Hero Honda
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Tata Motors
Bharat Petroleum Hindustan Petroleum State Bank of India ONGC
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Contd..
The league of 500 elite companies for 2010 is topped by U.S. retailer Wal-Mart Stores, followed by oil giant Royal Dutch Shell and another oil major, Exxon Mobil, in that order.
Rank
Company
Revenues ($ millions)
408214 285129 284650
Profits ($ millions)
14335 12518 19280
1 2 3
4
5 6 7 8 9 10
BP
Toyota Motor Japan Post Holdings
246138
204106 202196 187518 184496 175257 165496
16578
2256 4849 5756 -343 5012 10272
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Today not many corporate confine their activities to production of a single commodity. Some business firms prefer related products to their existing production. This is called concentric diversification.
Adding new unrelated products or services for existing customers is known as conglomerate diversification.
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Business Environment
Big business houses usually expand their activity by establishing new companies which undertake production of unrelated new products or services. This is conglomerate diversification. Ex: TATAs However, diversification may not always contribute to growth of a business enterprise. In the recessionary phase, it is quite risky to aspire for growth by going for unplanned diversification.
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Business Environment
Environment by definition is something external of an individual or an organization.
Therefore in strict sense, business environment refers to an external factors which have a direct or indirect bearing on the activities of business. Certain aspects of both internal and external environment pose a threat to business, other aspects provide opportunities for business growth.
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Environment :
Value system, Goals and objectives, Management structure, Relationship among the various constituents, Physical assets, Technological capabilities Human, financial and marketing resources make the internal environment of business.
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Internal Environment :
Persons holding top positions in certain modern enterprises have some values which influence their policies, practices and overall internal environment. Ex: JRD TATA Value system responsibilities towards his employees did some some commendable work in the field of labor welfare. Attitude of TATAs to employ 8 disabled persons out of their total workforce of more than sixty thousand. The company value system need not be always positive. It can be totally negative. Cases of pharmaceutical companies selling banned drugs world over. Rational firms attempt maximize long-run profit.
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There are often differences in the goals and objectives of the various firms, which in turn, lead to differences in the overall internal environment and also in priorities, policies and direction of development. Ex: Corporate enterprise professionally managed or family controlled. Board of Directors - dynamic entrepreneurs capable of taking quick decisions or the BOD may be dominated by persons with conservative or bureaucratic outlook. Nominees of Financial institutions having large holdings their decision making. Conflicts among BODs, Erosion of shareholders confidence in the BODs Serious differences among the senior executives officers on critical matters are critical factors in the Cos internal working conditions.
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Functioning & Competitiveness of a company are very much influenced by physical resources, Production technology, R&D work and distribution logistics.
Cos R&D activity and the speed at which technological changes occur determine Cos internal environment which in turn influence Business decisions. Quality of Human Resources of a Company, Depends on Commitment, attitude and morale of the employees also have an impact on business as an internal factor.
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Customers
Competitors
Marketing Intermediaries
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External Environment of Business consists of institutions, Organizations and forces operating outside the company. External Environment of business may be classified into : A) Micro Environment B) Macro Environment Micro environment refers to such players whose decisions and actions have a direct bearing on the company. Since modern business broadly has two aspects, Viz, Production and selling of goods,
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Business Environment
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Customers: Demand for product individuals, business enterprises, institutions & the government.
loyalty depicts customer satisfaction.
Universally accepted fact that the satisfaction of customers is the ultimate bench mark of the Cos success.
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Marketing intermediaries: Wholesalers, retailers, distribution firms agents etc constitute an important element .
Co. lacking its own distribution channels cant afford to have conflict or strained business relations.
Ex: In the Air conditioner market Voltas air conditioner faces competition from other branded air conditioner such as Videcon, Elgi, Samsung companies.
groups & media persons may influence both Production & Sales.
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Government
Competitors
For Customers
For Supplies
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Macro environment
Macro environment of business consist of the following factors: A. Economic Environment National Global B. Non Economic Environment Political Socio Cultural Demographic Technological Natural
Business enterprise is essentially an economic institution. It conducts its activities in the market system with the objective profit maximisation.
In Modern economy there are five sectors contribute to the development of the economy they are: The Business sector The household sector The capital market The Government These factors determine the prospects of business activity. In a recessionary situation business firms encounter steep fall in effective demand leads to business slowdown. Developed financial system precondition for the efficient mobilization of financial resources for the business.
Global Environment
Globalization- expansion of business activities across boundaries of the nation states. It refers to a process of increasing economic openness growing economic interdependence and deepening economic integration between countries in the world economy.
Global Environment
Over the past ten years the Indian economy is integrates into the global economy. The three policy measures initiated to realize the objectives of globalization are: 1. Exchange rate adjustment and rupee convertibility. 2. Import liberalisation & 3. Opening upto foreign capital
Political Enviroment
A stable & dynamic political environment due influences business growth. In a capitalist economic system corporate firms are very powerful, yet they have to operate within the parameters which are determined by the broad policies of the government. Ex: MRTP Act, FERA because of the experiences of the colonial era, Foreign capital & the multinationals corporations were suspects.
Legal enviornment
Govt. sets the legal framework within which business firms operate. Legislations defining: property and business organizations, laws of contracts bankruptcy( one whos assets are used to repay debts), Mutual obligations of labour & management Laws and regulations, the way the business are carried out constitute legal environment of business.
Legal enviornment
Economic legislations can be classified into two categories: 1. legislations facilitatory role in business. Ex: contract act rules for systematic exchange transactions. 2. legislations- restrictive role in business Ex: Sherman anti-trust act in 1890, Clayton anti-trust act 1914 Federal trade commission act 1914 of USA to prevent unfair monopolistic unfair practices. In India MRTP-Monopolies & restrictive Trade Practice ACT-1969. Foreign Exchange Regulation Act (FERA) -1973 directly regulated the foreign exchange related transactions of the indian business. Both MRTP & FERA diluted stringent & restrictive in nature.
SOCIO-CULTURAL ENVIRONMENT
Business firms operate in a socio-cultural environment & their strategies needs to be formulated keeping this factor in view. Ex: western countries are modern & liberal. People-more receptive to new products & no prejudice against any kind of advertising. Health conscious-product injurious to health of the people cant be successfully introduced.
SOCIO-CULTURAL ENVIRONMENT
Muslim societies conservative. Womens still under Purdah. Demand for cosmetics & western cloths are limited. Business firm aiming at capturing markets for its products in these diversified societies has to be careful about the cultural sensitivities of these societies.
India- liberal outlook, modeling by young women for advertising fashionable products, wine & beer is acceptable in Indian society.
Technological environment
Technology- Knowledge about machines & processes. Any business- cannot survive with outdated techniques in international competition.
Four decades ago technology of Fiat was unsophisticated. Users had no choice & thus product survived for a long period. Setting up of Maruti udyog Ltd., the situation changed due to superior technology.
Technological environment affects business from the demand side as well. Ex: In a country where power is scarce, demand for electrical appliances will be limited. Erratic power supply and frequent load shedding creates market for inverters.
MACRO ENVIRONMENT
ECONOMIC Environment
MICRO ENVIRONMENT BUSINESS
Internal Environment
Values, Mission & Objectives. Human Resources, Co. Image & Brand Equity
TECHNOLOGICAL FACTORS
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