Business Environment


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Business Environment

  1. 1. BUSINESS ENVIRONMENT ANANDA KUMAR Department of Mgt. Studies Christ College of Engg. & Tech. Puducherry, India. Mobile: +91 99443 42433 E-mail:
  2. 2. PRIVATISATION • Privatisation generally means the transfer of ownership and/or management of an enterprise from the public sector to the private sector. • It also means the withdrawal of the state from an Industry or Sector, partially or fully. • The fundamental reason for the reversal of policy from nationalisation to privatisation is the growing disappointment with the functioning of the public sector undertakings and State owned enterprises.
  3. 3. PRIVATISATION • The term "privatization" also has been used to describe two unrelated transactions. The first is a buyout, by the majority owner, of all shares of a public corporation or holding company's stock, privatizing a publicly traded stock, and often described as private equity. The second is a demutualization of a mutual organization or cooperative to form a joint stock company.
  4. 4. TYPES There are four main methods of privatization: 1. Share issue privatization (SIP) - selling shares on the stock market 2. Asset sale privatization - selling an entire organization (or part of it) to a strategic investor, usually by auction. 3. Voucher privatization - distributing shares of ownership to all citizens, usually for free or at a very low price. 4. Privatization from below - Start-up of new private businesses in formerly socialist countries.
  5. 5. MODES OF PRIVATISATION 1. Sale of Enterprise 2. Lease of entity (with short-term purpose) 3. Joint Ventures 4. Public Share offers (example, Initial Public Offer)
  6. 6. REASONS FOR PRIVATISATION 1. To Reduce the Burden on Government 2. To Strengthen Competition and Efficiency 3. To Improve Public Finances 4. To Fund Infrastructure Growth 5. Accountability to Shareholders 6. To Reduce Unnecessary Interference 7. More Disciplined Labour Force
  7. 7. GLOBALIZATION • A short definition of globalization is “the growing liberalization of international trade and investment, and the resulting increase in the integration of national economies. • “Globalization refers to the process of reducing barriers between countries and encourages closer economic, social and political interaction”. • It emphasizes cross border flows of goods, money, etc.
  8. 8. LEVELS OF GLOBALIZATION Globalization may be considered at two levels. Viz, 1. Macro Level (i.e., globalization of the world economy) and 2. Micro Level (i.e., globalization of the business and the firm) Globalization of the world economy is achieve, quite obviously, by globalizing the national economies. Globalization of the economies and globalization of business are very much inter-dependent.
  9. 9. REASONS FOR GLOBALIZATION  The rapid reduction of time and distance across the globe thank to faster communication, speedier transportation, growing financial flows and rapid technological changes.  The domestic markets are no longer adequate rich. It is necessary to search for international markets and to set up overseas production facilities.  Companies may choose for going international market to find political stability, which is relatively good in other countries.  To get technological and managerial know-how.  Companies often set up overseas plans to reduce high transportation costs.
  10. 10. REASONS FOR GLOBALIZATION  Some companies set up plans overseas so as to be close to their raw materials supply and to the markets for their finished products. The US, Canada and Mexico have signed the North American Free Trade Agreement (NAFTA), which will remove all barriers to trade among these countries.  The creation of the World Trade Organization (WTO) is stimulating increased cross-border trade.
  11. 11. ADVANTAGES OF GLOBALISATION 1. Free Flow of Capital 2. Free Flow of Technology 3. Increase in Industrialization 4. Spread up of Production Facilities Throughout the Globe 5. Balanced Development of World Economics 6. Increase in Production and Conception 7. Lower Prices with High Quality
  12. 12. DISADVANTAGES OF GLOBALIZATION 1. Globalization Kills Domestic Business 2. Decline in Demand for Domestic Products 3. Decline in Income
  13. 13. ESSENTIAL CONDITIONS FOR GLOBALIZATION 1. Business Freedom 2. Facilities 3. Government support 4. Resources 5. Competitiveness
  14. 14. LIBERALIZATIONS Economic liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy in exchange for greater participation of private entities. Liberalization refers to relaxation of previous government restrictions usually in areas of social and economic policies. Thus, when government liberalizes trade it means it has removed the tariff, subsidies and other restrictions on the flow of goods and services between countries.
  15. 15. MEASURE TAKEN FOR LIBERALIZATIONS • Liberalization for industrial licensing • Freedom for expansion and production to industries • Increase in the investment limit of a small industries • Freedom to import the capital goods and raw material. • Freedom to import technology • Liberalization of export and import transactions • Liberalization of taxation policy. • Liberalization of capital markets • Liberalization of banking sector
  16. 16. BENEFITS OF LIBERALIZATIONS • Increase the foreign investments • Increase the foreign exchange • Increase in consumption • Control over price • Reduction in dependence on external • Commercial borrowings.
  17. 17. LIMITATIONS OF LIBERALIZATIONS • Increase in unemployment • Loss of domestic units • Increase dependence on foreign nations • Unbalanced development
  18. 18. GATT The General Agreement on Tariffs and Trade (typically abbreviated GATT) was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). The fundamental principles of such an Agreement are: (i) Most favoured treatment in a non-discriminatory manner. This is of great benefit as all countries whether rich or poor, strong or weak, would be given same treatment by all signatory members and (ii) The second principle is National Treatment which means that imported goods and domestically-produced goods will be treated alike, except for the payment of customs duty at the time of import.
  19. 19. GATT  GATT was signed in 1947 and lasted until 1993, when it was replaced by the World Trade Organization in 1995. The original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994. GATT membership now includes more than 110 countries.
  20. 20. GATT-The Twenty Three original Signatories Australia, Belguim, Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, The Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, United Kingdom and United States.
  21. 21. Road from GATT to WTO 1947 Geneva 23 1949 Annecy 13 1951 Torquay 38 1956 Geneva 26 1960-61 Geneva 62 1964-67 Geneva-Kennedy Round 62 1973-79 Geneva-Tokyo round 102 1986-94 Punta Del Esta to Geneva 123 Year Place No. of Countries Participated
  22. 22. WTO The World Trade Organization (WTO) was formed in 1995 with GATT with the objective to help producers of goods and services, exporters, and importers conduct their businesses internationally. WTO is the only global organisation that deals with the rules of trade between nations. Ministerial Conference held at least once in two years, would be the primary decision-making body of the WTO. The General Council of the WTO is responsible for overseeing regulatory operations and acts as the body for dispute settlement mechanism.
  23. 23. WTO WTO’s agreements are negotiated and signed by a large majority of the nations and ratified in their parliaments. These agreements are the legal ground rules for international business. Essentially, they are contracts guaranteeing member countries important trade rights. They also bind governments to formulate their trade policies within the framework for the benefit of business firms.
  24. 24. QUESTIONS 1. WTO rules make life easier for all. Do you agree with the statement? Why? 2. Discuss the arguments for and against India’s membership of WTO.
  25. 25. CASE STUDY That the BSE sensex crashed by 140 points, causing a fall in the investor wealth by Rs.25,000 crore due to the fall in the market capitalization the day the Economic Survey 2001-02 which indicated the possibility of an economic slow down, was presented in the Parliament is an indication of the importance of economic factors to business. It is interesting to note that four days later when the Finance Minister presented the Union budget for 2001-02. Which was widely regarded business friendly and which claimed to initiate the second generation economic reforms, the sensex soared by 177 points. However, on the second day the sensex nose- dived by 176 points reacting to the news of sustained weaknesses in technology stocks across the globe and certain vicious rumours.
  26. 26. The stock markets all over the world took a severe beating following the terrorist attack on the world Trade Centre and the consequent military actions. Although the sensex made some recovery for about a week around mid October 2001 largely because of positive Government measures and sustained purchases by FIIs. However, the mounting fears triggered by the spread of the deadly anthrax disease and concerns about bio-terrorism triggered panic selling in most European and Asian markets, leading the chain reactions on Indian bourses. The bellwether Sensex tumbled 62points or 2 per cent to close below the psychologically important 3,000 mark at 2,981 on 18 th October, putting an end to the seven day 279 point rally which had led to a 10 % rise
  27. 27. Of the sensex. However, on the next day, equities staged a smart recovery, once again lifting the sensex above the psychological mark of 3000 to about 3017 encouraged by Governments liberalization share buyback conditions. While the anthrax scare caused a set back to the stock market in general, shares of pharmaceutical companies which produce anthrax antidote ciprofloxacin like Ranbaxy, Dr. Reddy’s and Cipla gained significantly. The rice of Bayer India scrip increased by 52 percent in 10 days ended 17th October following the news that the Chennai based Indian syntans group was increasing its stake in Bayer through open market purchases.
  28. 28. QUESTIONS 1. Discuss the factors affecting sensex. 2. Share market is risk, beware of investors. Explain.
  29. 29. NATURAL RESOURCES Natural resources include land, water resources, fisheries, mineral resources, forests, marine resources, climate, rainfall and topography. But nature possess more in its bosom and in order to discover what it hides, man is required to develop techniques of knowing the undiscovered resources. Some times the discovery of the use of a resource can immediately increase its use value.
  30. 30. PRINCIPLES OF RESOURCE DEVELOPMENT  Economic use of resources to achieve minimum waste  Sustained use of economic resources through conservation of renewable resources and economic use of exhaustible resources  Multi-purpose use of resources: if a certain resource has a number of uses, it is necessary to have all the uses  Integrated planning in the use of natural resources  Location of industries with a view to reducing transport costs to the minimum  Abundant supply of energy resources, specially electric power so as to utilize other resources in the best possible manner
  31. 31. LAND RESOURCES The total geographical area of India is about 329 million hectares of which 42 million hectares or 14% of the total reporting area in India is classified as:  Barren land, such as mountains, deserts, etc. which cannot be brought under cultivation and  Area under non-agricultural uses, that is, lands occupied by buildings, roads and railways, rivers and canals, and other lands put to uses other than agricultural.  The rest of the land is put under three major uses, viz., forests, pastures and agriculture.
  32. 32. FOREST RESOURCES Forests are important natural resources of India. They help control floods and thus they protect the soil against erosion. They supply timber, fuel wood, fodder and a wide range of non-wood products. Forests, thus, play an important role in environmental and economic sustainability. Under land utilization pattern, the Government of India estimated the total area under forests as 68 million hectares or 22 % of the total geographical area. In our country, forests have generally been undervalued in economic and social terms.
  33. 33. Forest Policy, 1952 Appreciating the necessity of developing forests, the government of India declared its first forest policy in 1952. According to this policy, it was decided to raise steadily the area under forests to 100 million hectares or 33 % for the country as a whole. The target area was to provide green cover over two thirds of the land area in the hills and mountains. The main objectives of forest policy under the Five-Year Plans were:  To increase the productivity of forests  To link up forest-development with various forest- based industries and  To develop forests as a support to rural economy.
  34. 34. WATER RESOURCES India is one of the wettest countries of the world but it is not able to hold all the water it receivers. Because of deforestation and denudation, a large portion of the monsoon water disappears into the sea as surface run-off. Community resources such as ponds, tanks and rivers are misused and continuously neglected. Rivers are increasingly getting polluted as urban and industrial wastes are dumped into them. In some areas, there is serious pollution danger to ground water due to industrial wastes.
  35. 35. FISHERIES India is the sixth largest producer of fish in the world and perhaps, second largest in inland fish production. Fisheries sector plays important role in the socio- economic development of India, generating employment for a large coastal population- about one million fishermen draw their livelihood from fisheries, but they generally live on the verge of extreme poverty. It is not only an important source of direct employment but generates employment in downstream industries. It is estimated that about six million people are employed in the fisheries sector.
  36. 36. MINERAL RESOUCES The development and management resources play a major role in the industrial growth of a nation. Coal and iron, for instance, are the basic minerals needed for the growth of iron and steel industry, which in turn, is vitally necessary for the country’s development. Similarly, there are other minerals like mica and manganese, copper, lead and zinc, which are of economic importance. Then we have mineral fuels like petroleum, coal, thorium and uranium, which are of national importance. Thorium and uranium the atomic energy minerals promise to be tremendous source of power. Besides these, we have a number of minor minerals with varying degrees of utility to the country.
  37. 37. INFRASTRUCTURE Adequate quantity, quality and reliability of infrastructure are key to the growth of any economy. Infrastructure facilities – often referred to as economic and social overheads – consists of: • Irrigation, including flood control and command area development • Energy: coal, electricity, oil and non-conventional sources • Transport: Railways, Roads, and Shipping • Communications: Posts and Telegraphs, Telephones, Telecommunications, etc • Banking, Finance, and Insurance • Science and Technology • Social overheads: health and hygiene and education.
  38. 38. ENERGY Energy is the most important determinant of a country’s economic growth. In fact, per capita consumption of energy is taken as an indicator of a country’s prosperity. Energy is created through several sources. Commercial energy is so-called as it commands a price and the user are expected to pay it for its use. Non-commercial energy commands no price and the user can take it as a free good gifted by mature.
  39. 39. RAIL TRANSPORT Transport sector includes railways, roads, shipping and civil aviation. The Indian Railways have a long history. They consist of an extensive network spread over 62,462 kms- comprising board gauge (36,824 kms), meter gauge (20,653kms) and narrow gauge (3,985kms). Electrified networks with 11,793 kms account for 18.8 % of the total route kilometerage. The thrust areas identified for the eight-plan period include replacement and renewal of averaged assets; argumentation of terminal and rolling stock capacities, gauge conversion and electrification. Railways can claim foe having connected most of the country with the conversion of gauges and creating more routes.
  40. 40. ROAD TRANSPORT In order to improve the road transport system, the government announced several measures. Private participation has been allowed in the construction and maintenance of roads. In addition, road transport has been declared as an industry, which enables it to borrow finance from financial institutions. National Highway Act is to be amended so as to enable the levy of a toll on road users.
  41. 41. SEA TRANSPORT The government has recently approved a scheme, which envisages voluntary cargo support of the shippers to Indian shipping lines, up to 40% of the value of linear cargo transacted in the foreign trade in a phased manner. Steps have been initiated by the government to frame guidelines for Indian shipping companies as per the International Safety Management (ISM) code, which was adopted by the International Maritime Organization (IMO) in November 1993.
  42. 42. COMMUNICATIONS The communication system comprises posts and telegraphs, telecommunication systems, broadcasting, television and information services. By providing necessary information about the markets and also supplying necessary motivation, the communication system helps to bring buyers and sellers together effectively and helps to accelerate the growth of the economy. Accordingly, the modern communication system has become an integral part of the development process.
  43. 43. Postal system in India Since 1950-51, the postal network has been expanded throughout the country, and in recent years, wit special emphasis on the rural, hilly and remote tribal areas. The postal department has given a new thrust to its programme of modernization for providing new value added services to customers. This include: • A programme of computerized services of such postal operations as mail processing, savings bank and material management • Introduction of Metro channel Service linking 6 metros
  44. 44. • Introduction of Raidhani channel linking Delhi with most of the state Capitals and • A business channel with exclusive treatment to pin coded business mail
  45. 45. Indian telegraphs Indian Telegraph is one of the oldest government – owned public utility organizations in the world. The number of telegraph offices has increased from 8,200 in 1951 to over 30,000 now. The phonogram service for sending and receiving telegram by telephone, telex service to send and receive printed message directly from one centre to another, the tremendous expansion of telephone facilities and direct trunk dialing – all these facilities are available to the general public.
  46. 46. Telecommunications Telecommunication is a vital input for global competition and for India’s success in the international markets. It is important not only because of its role in bringing the benefits of communication to every corner of India but also in serving the new policy objectives of improving the global competitiveness of the Indian economy and stimulating and attracting foreign direct investment.
  47. 47. RECENT DEVELOPMENTS IN TELECOM SECTOR • Large number of villages are now covered through Wireless in Local Loop (WLL) • The national internet backbone (NIB) was commissioned • Since long distance (National and international) has been opened up to competition, long distance tariffs have come down. • To enhance telecom services in rural and remote areas, the Telecom Department has issued guidelines for implementing Universal Service Obligation (USO) • According to the new telecom policy every village in India is expected to be provided with one public telephone.
  48. 48. EDUCATION, SCIENCE AND TECHNOLOGY Science and Technology are ideas and the means with which man seeks to change his environment. While Science represents “ accumulation of knowledge”, Technology represents “ refinement in tools”. Over last two hundred years or so, science and technology have helped to improve the quality of human life. For rapid economic progress, the application of science and technology (S and T) to agriculture, industry, transports and to all other economic and non- economic activities has become essential.
  49. 49. EDUCATION, SCIENCE AND TECHNOLOGY The Indian government has been giving special support to S and T since Independence and the large network of national laboratories and universities have been training a strong cadre of scientists, engineers, technologists, etc. Public and private sector organizations have established over 600 inhouse Research and Development (R&D) laboratories to meet their internal technological requirements. The rapid growth of engineering consultancy organizations to provide design and consultancy services and act, as the bridge between research institutions and industry is really commendable.
  50. 50. Social Infrastructure  The health care system, including hospitals, the financing of health care, including health insurance, the systems for regulation and testing of medications and medical procedures, the system for training, inspection and professional discipline of doctors and other medical professionals, public health monitoring and regulations, as well as coordination of measures taken during public health emergencies such as epidemics  The educational and research system, including elementary and secondary schools, universities, specialised colleges, research institutions, the systems for financing and accrediting educational institutions  Social welfare systems, including both government support and private charity for the poor, for people in distress or victims of abuse
  51. 51. Education Infrastructure With more than 55 percent of its 110 million population is under the age of 25 by 2010, is the indicator of potential educational market in India. India has around 370 universities and 18000 colleges with 12 million students on their rolls, and half a million teachers teaching in all disciplines. India currently has around 115 universities and 2,100 colleges, which teach various engineering disciplines. Engineering colleges in the country have been growing at 20 per cent a year, while business schools have grown at 60 per cent.
  52. 52. Education Infrastructure India produced around 9,00,000 number of engineering graduates in the year 2009-10, out of which 30 per cent were computer engineers. Compared to India and China, the United States produces only 70,000 engineering graduates every year. All of Europe produces just 100,000. China is today the largest producer of engineering graduates in the world, with some 600,000 passing out of its colleges and universities last year.
  53. 53. Demographic Issues Demographic impacts include the number of new permanent residents or seasonal residents associated with the development, the density and distribution of people and any changes in the composition of the population, (e.g., age, gender, ethnicity, wealth, income, occupational characteristics, educational level, health status).
  54. 54. Demographic Issues Development invites growth in new jobs in a community and draws new workers and their families into the community, either as permanent or temporary residents. When this occurs, the incoming population affects the social environment in various ways including increased demand for housing and social services (e.g., health care, day care, education, recreational facilities). Because residents’ needs depend on a wide range of variables (e.g., age, gender, employment status, income level and health status), the diversity of service needs are determined not only by the absolute size of the incoming population but also by the old and new populations’ demographic and employment profiles.
  55. 55. Electoral Issues India is a constitutional democracy with a parliamentary system of government, and at the heart of the system is a commitment to hold regular, free and fair elections. These elections determine the composition of the government, the membership of the two houses of parliament, the state and union territory legislative assemblies, and the Presidency and vice-presidency.
  56. 56. Democracy in India India is a constitutional republic consisting of 28 states and seven center-controlled union territories with New Delhi as the nation's capital. It is the seventh largest and second most populous country with roughly one sixth of the world’s population, making it the world's largest democratic country. It is one of the world's oldest civilizations with a rich and varied cultural heritage. It has achieved widespread socio-economic progress during the last 64 years of its independence.
  57. 57. Indian Constitution The government of India is framed according to the Constitution. The architects of India’s constitution, though drawing on many external sources, were most heavily influenced by the British model of parliamentary democracy. In addition, a number of principles were adopted from the United States Constitution, including the separation of powers among the major branches of government, the establishment of a supreme court, and modified form, of a federal structure (a constitutional division of power between the union [central] and state governments).
  58. 58. Indian Constitution The mechanical details for running the central government, however, were largely carried over from the Government of India Act of 1935, passed by the British Parliament, which served as India’s governing document. The new constitution took effect on 26 January 1950 and proclaimed India “a sovereign socialist secular democratic republic.”