WELCOME TO 2ND SEM

MBA

INDIAN BUSINESS
ENVIRONMENT
INDIAN BUSINESS ENVIRONMENT

BY SRI HARI.V
Lecturer
M.COM.,M.B.A., M.PHIL
 MODULE1

 Business Environment: Environmental

scanning – meaning nature and scope,
Economic and non-economic environment,
interaction between internal and external
environments, overview of Political, socio-
cultural, legal, technological and global
environment.
 Introduction:
 Business is as old as civilization itself but the formal
study of business is relatively new. Before the
industrial revolution , economies were essentially
static & profit4 seeking activity was considered as
business.
 [The term business is used to mean trade, profession
(or) occupation, dealings, commercial activity of a
commercial (or) industrial concern.]
 Business is the product of environment. Business and
environment . Business & environment interact with
each other
 Business is an institution organized & operated to
provide goods & services to society under the
incentive of private gain. Profit is the absolute
necessity for every enterprise.

 {‘No profit no loss’ cannot be the basis of business.}

 Those who have a limited idea of business may call
profit-making a sin. The sins that a business
organization can commit are:
 The sin of making losses & wasting the valuable
resources of the society.
 The sin of slow & painful death of a enterprise.
 The sin of business expansion with no concern for
efficiency
 Nature of Business:

What is business?
= The term business comes from busyness (or)
the state of being busy-any activity a man is
busy about.
 It involves

 Production of goods & services at profit.

 To trade goods & services at profit.

 Commerce.
 TRADING

COMMERCE PRODUCTION
BRANCHES OF BUSINESS
 CONCEPT OF ENVIRONMENT
Environment refers to the sum total of all
factors-economic , political, social & cultural –
which are external to & beyond the control of
the individual business enterprises & their
management. Environment furnishes the
macro contexts, while the business firm is the
micro unit. The environmental factors are a
given within the business firm is the micro
unit.
Environment may be local, national & international.

Environment may be market environment & non-market

environment. When the business environment is
influenced by market forces like demand, supply (or)
competition, it is referred to as market environment.
when business environment is influenced by social
customs, government laws, it is known as non-market
environment.

It is also classified into economic & non-economic

factors. Economic environment is shaped by the
monetary policies, tax policies, economic policies,
industrial policies etc., of the country concerned.
The non-economic environment is shaped by political,
social, cultural & historical factors.
 MACRO SOCIO-CULTURAL POLITICAL
ENVIRONMENT ENVIRONMENT ENVIRONEMT
ECONOMIC
ENVIRONMENT CUSTOMERS
SUPPLIERS

BUSINESS COMPETITIORS
LABOUR
FIRM
REGULATORY
BUSINESS PARTNERS AGENCIES

MICRO
ENVIRONMENT
TECHNOLOGICAL
ENVIRONMENT
DEMOGRAPHIC INTERNATIONAL
ENVIRONMENT ENVIRONMENT
 ENVIRONMENT

MICRO/INTERNAL MACRO/EXTERNAL
ENVIRONMENT ENVIRONMEMT
 SUPPLIERS
SUPPLIERS

REGULATORY
REGULATORY CUSTOMERS
CUSTOMERS
AGENCIES
AGENCIES

MICRO
MICRO
ENVIRONMEMT
ENVIRONMEMT

COMPETITORS
COMPETITORS LABOUR
LABOUR

BUSINESS
BUSINESS
PARTNERS
PARTNERS
 SUPPLIERS: Since they provide raw materials, components
& other provisions that enable it to function. Suppliers are so
important, companies rarely depend on only one supplier, in
such a situation companies are forced to maintain huge
inventories of stocks & components.
 CUSTOMERS: Customers are the single most important
reason why a company is in business, apart from its own
profitability. A firm could have customers spread across a
variety of segments such as governmental, foreign buyers,
industrial users, wholesalers, retailers, domestic buyers &
soon.
 LABOUR: In large organizations where the labour force may
number in thousands, they are usually organized into unions
that periodically negotiate with the management in order to
increase wages, facilities & retirement benefits.
 Business Partners: An organization’s business allies can be
valuable sources of support, whether in coming out in support
of their policies, helping out in times of financial crisis.

 COMPETITORS: Directly as well as indirectly, competitors

play a crucial role any organization’s performance & progress.

 REGULATORY AGENCIES: These would include a variety

of government (or) independent agencies such as the Bureau
of Indian Standards, the ISO (international Standards
organization) Etc.,
MACRO ENVIRONMENT
1.ECONOMIC 2.POLITICAL
ENVIRONMENT ENVIRONMENT

7.INTERNATIONAL 3.SOCIO-CULTURAL
ENVIRONMENT ENVIRONMENT

6.TECHNOLOGICAL 4.THE NATURAL

ENVIRONMENT ENVIRONMENT

5.DEMOGRAPHIC
ENVIRONMENT
 The Macro Environment:
Extending far beyond the boundaries of the
firm’s internal. Many of these are beyond the
power of the firm to control all it can do is to
capitalize on opportunities.
Definition: According to Hill & Jones. “ The
macro environment consists of the broader
economic, social, demographic, political, legal
& technological setting within which the
industry & the company are placed.”
 Economic Environment

The economic framework within which the firm

functions plays a crucial role in its efforts to grow &
beat its competitors. Since business is fundamentally
an economic activity, the economic environment,
both within the country as wells as beyond its
national boundaries.
All the economic factors compel careful analysis before
decision (or) action.
Since a firm's long term survival depends upon correctly
reading the economic trends, it would be useful to
examine in some detail the various components of the
economic scenario,
 Currency Economic
Exchange policies
Rates

Interest Economic
Rates Growth

Economic
system
 Economic System: A country’s economic model,
i.e., socialist, capitalist, mixed economy, etc., has
a vital bearing on a firm’s capacity to exploit its
opportunities.
 Economic Policies: The government plays a
regulatory & supervisory role in the economic
system, by means of: Annual budgets, five year
plans, Industrial laws & statutory regulations,
Industrial policy, Licensing policy, Import &
export restrictions. Etc.,
 Economic Growth: GDP growth rate, Inflation ,
Sensex, Nifty etc.,
 Interest Rates: The reserve bank of India, the
apex bank that monitors & controls the economy,
uses interest rates as one of its prime means of
controlling money supply, Promoting savings as
wells as investment, & curbing inflation. This is
interest rates for deposits & loans.
 Currency Exchange Rates: National currencies
are valued against each other at certain rates of
exchange. This will impact the firms earnings
capacity.
The economic & political systems of a country are
mutually dependent, The two-party parliamentary
system of government modeled on the British pattern.
There is a ruling party & there is the opposition
(represented in parliament by opposition members
who have seats in parliament by virtue of having
being elected from their respective constituencies.)
 The Three pillars of the government
 The legislature enacts legislation, i.e., creates laws by
means of statutes (or) Acts, after issues are debated &
passed by majority vote in parliament & the bill.
 Executive branch of government, i.e., is entrusted with
the task of implementing these statutes.
 While the Judiciary adjudicates on issues arising from
non-compliance with these laws.
Every Society has a heritage of cultural values & beliefs
systems that plays a vital role in all decisions
concerning the way social life is organized.
This includes conventions about
 Dress,

 Food habits,

 Formal & informal relationships,

 Family traditions,

 Local customs,

 Marriage,

 Respect, Etc.,

Such factors impacts business & Industry.

Just as important as our cultural heritage, though we often
fail to recognize it, is our natural heritage. This includes
the land, its forests, water, minerals, and all resources.
The major factors involved in environment friendly business
operations can be grouped as follows:
 Natural resources & special features of the environment.

 Climatic conditions & whether patters.

 Topographic Variations.

 Infrastructural factors, such as roads , ports, etc., Finally

business is completely dependent on the environment.

While India may be trailing far behind the west in terms
of technological process, in the long run it will
overhaul the developed countries. Thus, when it
comes to survival, India will find that the developed
countries will be increasingly willing to cooperate in
sharing technology with us, which is not the case at
present. Time will tell that India & other developed
countries will regain their importance in coming
years. This depends on R & D Activities of the firm.
Given the globalization of the Indian economy, it has
now become more prone to react to international
economic events, something that it was earlier
insulated from.
Factors which impacts business are as follows.
 Increase number of global alliances.

 High rate of mergers & acquisitions in India.

 Greater difficulties in copping with diversified

cultures.
 More competition.

 Threats to the SSI’s & cottage industries.

 WTO restrictions on business operations.
 Political risk.
 Uncertainty & complex business operations.
Etc.,
 Environment Scanning means an analysis of the
environmental variables. A business manager
operates in an environment & does not operate in
a vacuum. At the same time, environmental
scanning points towards interaction among
environmental factors. Environment scanning is a
step towards corporate planning.

The techniques of Environment Scanning.

 SWOT ANALYSIS
 SWOT Environmental
ANALYSIS Opportunities

Internal Internal

weaknesses Strengths

Environmental
Threats
 Opportunities: An opportunity is a major favorable
situation in the firm’s environment.
 Threats: A threat is a major unfavorable situation in
the firm’s environment. Ex: a entry of new
competitor, slow market growth,etc.,
 Strength: A strength is a resource, skill (or) other
advantage to a firm. It gives competitive advantage.
Ex: Financial resources, technical resources, etc.,
 Weaknesses: A weakness is a limitation (or)
deficiency, skills & capabilities which leads to slow
performance.etc.,