Business and Legal Environment

By:Dr.Divya Chowdhry MBA Ist Semester

Course Content
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Unit I
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08 hours

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Meaning of Business Environment Economic and Non-economic factors influencing business and their interaction Economic systems Historical Perspective on public control of business Constitutional framework of state control of business

Unit II
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12 hours 24 hours 12 hours

Planning and Economic Policies Business Legislation Overview of Economic Legislation

Unit III
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Unit IV
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Books Recommended
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Kuchhal, M.C., Prakash, Deepa(2009), Business Legislation for Management, Vikas Publishing House Saleem, Shaikh (2010). Business Environment, 2nd edition, Pearson Education. Tulsian, P C(2009) , Business Laws, Tata Mc Graw Hill, New Delhi

SESSION OVERVIEW
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Meaning of Business Environment SALIENT FEATURES IMPORTANCE OF STUDY NATURE OF BUS ENV TYPES OF B ENV
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An Overview Of Business Environment

Introduction to Business
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Business is the organized efforts of enterprises to supply consumers with goods and services. Businesses vary in size as measured by number of employees or by sales volume. All businesses share the same purpose to earn Profits. However, the purpose of business goes beyond earning profits. It is an important institution in society and the role of business is crucial. n Be it for the supply of goods and services n Creation of job opportunities n Offer of better quality of life n Contributing to the economic growth of the country and putting it on the global map

Society cannot do without business and vice versa.

Scope of Business n Business included all activities connected with production, trade, banking, insurance, finance, agency, advertising, packaging and numerous other related activities. Businesses include all efforts to comply with legal restrictions and government requirements and discharging obligations to consumers, employees, owners and to other interest groups which have stakes in business directly or indirectly.

Change - Transition Competition Business

Opportunities

Technology

Diversification

Information

Globalisation

Characteristics of Todays Business

Concept Of Business Environment

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Environment refers to all external forces which have a bearing on the functioning of business. Environment are largely if not totally external, and beyond the control of individual industrial enterprises and their management. These are essentially the givers within which firms and their managements must operate in a specific country and they vary, from country to country.

Meaning of Business Environment

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A set of surrounding factors/ conditions that affects (helps/ hinder) the functioning/ development of the business/ organization.

Scope of The Business Environment

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The multidimensional activities involved in bringing raw material to the factory and the end product from there to the market constitute the scope of the Business Environment.

Environment

However, the term business environment refers to the External Factors. The external environment has two components ie business opportunities and threats to business. Simmilarly, the organisational environment has two components ie. strengths and weaknesses of the organisation. A SWOT analysis is thus the first step in strategy formulation
Factors influencing Business Decision

Internal Environment

Business Decision

External Environment

Why Study Business Environment

Development of broad strategies to ensure sustainability To foresee the impact of socio-economic changes at the national and international levels on firms ability Analysis of competitors strategies and formulation of effective counter measures To keep oneself dynamic

Nature of Business Environment

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Aggregative: totality of all the external

forces which influence the working and decision making of an enterprise.

Inter-related: various elements are

closely interdependent and any change in one element affects the other elements.
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Relative: it differs from country to country

and even region to region.

Contd.
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Inter-temporal: it changes over time, specially in long run, it changes certainly. Uncertain: business environment is volatile so it becomes very difficult to forecast. Contextual: business environment provides the macro framework within which the business firm (a micro unit) operates.

Need and Importance Of Business Environment

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An analysis of business environment helps to identify strength, weakness, opportunities & threats. Analysis is very necessary for the survival and growth of the business enterprise. The importance of business environment is briefly explained in an analysis below. (1) Identification of Strength: (2) Identification of Weakness: (3) Identification of Opportunities: (4) Identification of Threats: (5) Exploitation of Business Opportunities: (6) Keeping Business Enterprise Alert:

Cont..
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(7) Keeping Business Flexible and Dynamic (8) Understanding Future Problems and Prospects: (9)Making Business Socially Acceptable: (10) Ensures Optimum Utilization of Resources: (11) Ensures Survival and Growth: (12) Maintaining adaptability to changes (13) Image Building:

Types of Business Environment

Business environment

Internal environment

External environment

Micro environment

Macro environment

BUSINESS ENVIRONMENT Macro Environment Micro Environment

Internal Environment
Financiers Suppliers Customers Competitors Public Mktg Intermediaries Mission / Objectives Management Structure Internal Power Relationship Physical Assets & facilities Economic Technological Global Demographic Socio-Cultural Political

Business Decision
Company image Human resources Financial Capabilities Technological Capabilities Marketing Capabilities

Business Environment has a direct relation with the environment. Effectiveness of interaction of an enterprise with its environment primarily determines the success or failure of a business.

Factors of Internal Environment

Factors
culture Mission & objectives Top management structure Power structure Company image & brand equity Human & other resources

Elements of Micro Environment

Micro Environment customers Competitors suppliers Marketing intermediaries financiers publics

Various components of Macro Environment

Macro Environment
The macro environment consists of factors which are beyond the control of the business. There is a symbiotic relationship between business and the environmental factors, environmental factors are dynamic and a particular business firm, by itself, may not be in a position to change its environment. Macro Environment : Economic Non Economic

Economic and Non-economic factors influencing business and their interaction

ECONOMIC ENVIRONMENT
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Economic environment influences the business to great extent. Economic environment consists of macro level patterns related to the areas of production and distribution of wealth that have an impact on the business organization. Following factors constitute environment of business-: of an economic

Economic system Economic planning Industry Agriculture Human resource

Economic Environment
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Economic stages that exists at a given time in a country Economic system that is adopted by a country for example. Capitalistic, Socialistic or Mixed Economy Economic planning, such as five year plans, budgets, etc. Economic policies for example, monetary, industrial and fiscal policies Economic Indices such as National Income, Per Capital Income, Disposable Income, Rate of growth of GNP, Distribution of Income, Rate of savings, Balance of Payments etc. Economic Problems Functioning of economy

Non Economic Environment

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Political & Legal Environment Socio- Cultural Environment Technological & Physical Environment Natural Environment Demographic Environment Global Environment

Political & Legal Environment

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The constitution of the country Political organization Political stability Defence & military policy Laws governing business The judicial system

Social & Cultural Environment

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Demographic forces Caste structure & family organization Educational system & literacy rates Customs, beliefs & life styles Taste & preference of people.

Technological & Physical Environment

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Rate of technological change Approaches to production of goods & services Research & development systems New approaches & equipments

Natural Environment
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Climatic conditions Agricultural, commercial & other natural resources Ecological system Levels of pollution

Demographic Environment
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Growth of population Age Composition Life Expectancy Sex Ratio Fertility and Mortality rates Inter-state migration

Global Environment
Important factors that operate at global level which have an impact on organization are:

Growth of world economy Distribution of world GDP International institutions IMF,WTO ILO Economic relations between nations

Global human resource-nature and quality of skills, mobility of labor Global technology and quality standards Global demographic patterns

Economic Systems

Meaning
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It is a system designed by a nation to utilize her resources for the purpose of satisfying the needs and wants of its people.

Basic units of an Economic System

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Household Firm Industry Government

Characteristics
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National entity: economic system always covers the entire country. Institutional: it comprises various institutions which a nation has devised and adopted for satisfying the needs of its people. Such as firm, industry, govt., economic planning.

Contd.
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Interdependence: different institutions are interdependent and interacting. Scarcity of resources: limited resources in comparison to the demand for these resources. Need satisfaction: Dynamic: some economic systems change slowly while others change fast.

Functions of An Economic System

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What to produce? How to produce? For whom to produce? Choice between current needs & future needs Economic growth

Problems All Economies Face

Scarcity forces all countries to answer these 3 questions

Scarcity leads to conflict

Do All Countries Answer These Questions The Same Way?

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No
Conflicts arise in all economies

Different Countries Use Different Systems To Answer These Questions

Major Economic Systems Include:
Market /Capitalistic v Command/ Socialistic v Mixed Economic System
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CAPITALISM:
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Also known as free enterprise economy. Capitalism is a system of economic organisation featured by the private ownership and use for the private profit of man made and nature made capital. Current World Examples:
Chile

Switzerland Canada Australia Argentina South Africa USA

CHARACTERISTICS
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FREEDOM OF ENTERPRISE PRIVATE OWNERSHIP PROFIT MOTIVE CONSUMER SOVEREIGNTY FREEDOM OF CONTRACTS

SOCIALISM
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Socialism is an economic system where the means of production are either owned or managed by the means of production are either owned or managed by the state and where the investment structure, consumption are regulated and directed by the state
North Korea China Former Soviet Union

Current and Former World Examples

Cuba

CHARACTERISTICS
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EQUITABLE DISTRIBUTION OF INCOME GOVERNMENT OWNERSHIP ECONOMIC LAWS PLAN OF ACTION

No Pure System Is Perfect: Capitalistic

Strengths:
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Able to change gradually Individual freedom for all Lack of government Interference Variety of goods and services High consumer satisfaction Promotes economic freedom and growth

Weaknesses:
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Does not protect the young, sick, old who cannot work Market failures happen leading to lots of ups and downs Doesnt promote economic security, equity, or efficiency as well as other systems

No Pure System Is Perfect:

Socialistic
Strengths:
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Weaknesses:
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Things can be changed dramatically in a short time Promotes economic security, efficiency, and equity

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Does not meet the needs and wants of consumers Lacks effective incentives to get people to work Needs a large bureaucracy which consumes resources Inflexible for day-to-day changes New and different ideas discouraged, people cant be individuals Doesnt promote: economic growth or freedom

If No Pure System Is Perfect Then What?

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Most countries in the world are a blend of different elements They are called mixed or combination systems Market
Economies

Command

Mixed Economic System

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In mixed economy there is policy of compromise between capitalist and socialist system. There is an existence of public and private sector and overall government regulation of the economy..

Current World Examples:

England Germany Sweden Egypt

France

Italy

Hungary

Mexico

characteristics

PUBLIC SECTOR DECISIVE ROLE SOCIAL SECURITY ABOLITION OF FREE TRADE PRIVATE OWNERSHIP OF THE MEANS OF PRODUCTION

Historical Perspective on public control of business

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Civilization Monarchy Tax Collection Monarchy to Parliamentary Set-up Societal control Parliamentary dynamics resulting in inclination towards rich candidate Resultant entrepreneurship promotion Low labour intensive units

CONSTITUTIONAL FRAMEWORK OF STATE CONTROL OF BUSINESS.

Characteristics of Indian Constitution

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Sovereignty: India is an independent republic and not subordinate to any other nation. Democracy: govt. is run by representatives who are elected by the people of the nation. Secularism: complete freedom to its citizen to preach & practice their religion.

Contd.
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The parliamentary system: ministers and the prime minister are answerable to the parliament. Separation of powers:

Federal System of the Govt.

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Meaning: where the powers of the central govt. and State govt. are welldefined. Division of powers between the Central & State govt. has been done through three lists :
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The Union List The State List The Concurrent List

Functions of the State

Functions of State
The basic functions Activities that are Undertaken only by the State

Intermediate Functions
Govt. can work in collaboration with civil Society & markets

Activist functions Active participation of Govt. for promoting markets

The Basic Functions

i. ii. iii. iv. v. vi. vii. viii. ix.

Providing pure public goods Defense Law & order Property rights Public health Protecting the poor Macroeconomic stability Antipoverty programmes Disaster relief

Intermediate Functions
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Addressing externalities:- basic education, environmental protection Regulating monopolies:- consumer protection, financial regulations. Providing Social Insurance:pensions, family allowances, unemployment insurance.

Activist Functions
i. ii. iii.

Coordinating private activity Fostering markets Asset redistribution

Economic Roles of the Govt.

Economic roles of Govt. Regulatory roles

Promotional roles

Entrepreneurial roles

Planning roles

Regulatory Roles
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iii.

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Grant of license, restriction on location of industry Regulating the conduct of business ventures Controlling the accrual & disposal of business income Regulating the relationship with its stakeholders

Promotional Roles
i. ii. iii. iv.

Development of infrastructure Assistance by way of subsidies Allocation of scarce resources Fiscal, monetary and other incentives

Entrepreneurial Roles
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Govt.s participation in business through public ownership and management of industrial and commercial undertakings. Balanced regional development Promotion of capital intensive industries

Planning Roles
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Socio-economic development Social justice Balanced regional development Rapid industrialization Employment generation Development of agriculture & small scale industries

Rationale of State Intervention

1) 2) 3) 4) 5) 6) 7)

Legal framework Imperfect competition Externalities Social objectives Industrial base Balanced regional development Self reliance