BGS - Module - 1.ppt

BUSINESS, GOVERNMENT &
SOCIETY
Module – 1
BUSINESS AS A SOCIAL SYSTEM
Prepared by –
H. Ananthesh
MBA, K.SET, M.Com, PGDHRM,
PGDMM
Asst. Professor
Haranahalli Ramaswamy Institute of
Higher Education, Hassan

Business
Business may be understood as the organised efforts of
enterprises to supply consumers with goods & services for a
profit.
Businesses are vary in size, as measured by the number of
employees or by sales volume.
H.Ananthesh, HRIHE, Hassan

Business
Business may be for–
To earn profit.
Creation of job opportunities.
Offer better quality of life.
Economic growth of the country.
Convert concept into reality.

Nature of Business
Business goes beyond the profit.
Supply of goods & services to consumers.
Business is important for society
Creation of job opportunity
Improve the Standard of leaving
Economic growth of the country
Putting into global map.

Indian
Busin
ess
Competition
Opportunities
Globalization
Technology
Information
Transition
Characteristics of Indian Business

1. Business in Transition –
Business in India was conducted in sheltered markets covering up
inefficiencies, low productivity & high cost.
Emergence of Professional Management.
2. Pressures of competition :
Indian businesses are competing among themselves & are exposed
to competition from foreign firms.

3. Immense opportunities :
Plenty of opportunities which can be exploited to advantage are
BPO, IT, ITE’s, call centre, Private banks, pharmaceutical,
chemicals, textiles, metals, auto and ancillaries, Real Estate,
Hospitality, etc., are the new names doing rounds in business.
4. Globalisation :
Going international is another trend followed by modern business
houses.

5. Technology :
Business is characterised by increasing use of technology.
Technologies like ERP, Intelligence, CAD, e-commerce, Online
marketing, Cloud based technologies.
Technology has influence on -
Production functions.
Marketing of products.
Hiring and motivation of employees.
Financing pattern.
Communication, etc.,

6. Information :
Recognition and need for information is critical.
Retrieving and extending information are important - such as -
Data processing, Information system analysis, Preparation of effective
records and reports

1. Profit –
- Basis for allocation of resources - indicator of productivity,
growth and expansion, survival, etc,.
- Profit enables a businessman to realise his other objectives too .
2. Growth –
Business should grow in all directions over a period of time.
Strategies adapted to achieve growth -
*Add more products / markets
*Diversify into new areas.
*Integration – forward, backward
*Increase market share
*Cut down costs and increase productivity.
BusinessObjectives

3. Power –
Economic and political power.
Examples - influence by industries such Tata’s, Birla’s, Reliance, etc,.
4.Employee satisfaction and development –
- Implementing labour welfare measures
- Constituting safety and security measures
- Providing training and development facilities
5.Quality Products & Services -
- Quality of products creates brand faithfulness.
- Ready to pay premium for branded products.

6. Market Leadership -
- Innovation in product, advertising, distribution etc.
7. Challenging –
Business offer vast scope and poses challenges.
8. Joy of Creation -
New ideas and innovations - converted into products and services for
the benefits of customers.

9. Service To Society -
Business is a part of society & has several obligations towards it.
- Providing safe and quality goods at reasonable price
- Providing employment opportunities
- Encourage cultural and religious activities
- Supporting weaker sections of people in society like sc, st, Physically
handicapped, women.
10.Good corporate citizenship –
It implies that the business unit complies with the rules of land, pays
taxes to the government regularly, cares for its employee &
customers.

BusinessEnvironment
Business Environment consists of all those factors that have a
direct or indirect bearing on the activities of business.
There are broadly two types of environments –
1. Internal Environment.
2. External Environment
a. Micro Environment
b. macro Environment

INTERNAL Environment
These are factors internal to the firm.
These factors directly impact on the business operations.
The internal factors are generally regarded as controllable factors
because the company has control over these factors.

INTERNAL Environment
Internal factor includes (5M's) –
- Management
- Manpower
- Machine
- Material
- Money

EXTERNAL Environment
‘The external environment includes factors outside the firm which
lead to opportunities for or threats to the firm. Although there are
many factors, the most important are - socio-economic,
technological, supplier, competitors, and government’
– William F Gluek

EXTERNAL Environment
The factors are uncontrollable by the business organizations.
There are two types of external environment.
1. Micro Environment
2. Macro Environment

The micro environment is also known as the task environment and
operating environment because these external factors close to a business
that have a direct impact on its business operations and success.
Business
Suppliers
/ Service
Providers
Customer
s
Channel
Partners
Competito
rs
Financiers
Public

Micro Environment
1. Suppliers / Service Providers -
Those who supply the inputs like raw materials, stationeries & spare
components and rendering services to the company.
2. Customer -
“A customer is the most important visitor on our premises. He
is not dependent on us. We are dependent on him. He is not an
interruption in our work. He is the purpose of it. He is not an
outsider in our business. He is part of it. We are not doing him a
favor by serving him. He is doing us a favor by giving us an
opportunity to do so.”
- Mahatma Gandhi

3. Channel partners / Marketing Intermediaries –
Include middlemen such as agents and traders that help the company to
find customers or close sales with them.
4. Competitors –
5. Financiers –
6. Public -
A Public is any group that strive to protect their interests.
Public include citizens, groups & media.

2. MACRo Environment
Macro environment are generally more uncontrollable than micro
environment factors & it have directly / indirectly impact on
business operations.
When the macro factors become uncontrollable, the success of
company depends upon its flexibility to the environment.
It includes -
Political factors
Economical factors
Socio – cultural factors
Technological factors
Legal Environment factors

1. Political factors –
Attitude of political parties.
Government policy or party in power.
Role of Legislative, Executive.
Constitution of India
Nature and level of administration influence of business
organizations.,

2. Legal Factors –
Includes flexibility and rigidity of law and other legal rules
governing the business.
It may include the exact rulings and decision of the courts.

3. Economic Factors -
It refers to the sum total of all the economic systems of the country.
Business cycles
Socio-economic infrastructure.
Growth strategy
Economic system and Economic Policy
Agriculture
Money and capital markets
Per capita and national income GDP and GNP

4. Socio – Cultural factors -
Culture creates and binds people.
It determines the value system of the society which, in turn affects
the functioning of the business.
These factors includes –
Traditions and principle
Culture determines goods and services
People attitude to business and work
Caste system
Spirit of collectivism and individualisation
Education
Ethics in management H.Ananthesh, HRIHE, Hassan

5. Technological factors –
The business in a country is greatly influenced by the technological
development.
Technology reaches end users through business.
Need to spend on R & D
Fast changing technology
Rise and decline of products (Reducing Product life cycle)
High expectations of consumers
System complexity
Social change H.Ananthesh, HRIHE, Hassan

Global Environment –
 Increasing opportunities in abroad
 Improving quality competition from MNC’s
 Capital, technology, process, business models transfers
 Deciding which markets to enter and how to enter
 Adjusting the management process
 India and WTO

Natural Environment –
 Manufacturing depends on physical inputs.
 Mining and drilling depend on availability of natural resources.
 Trade between two regions depends on geographical factors.
 Agriculture depends on Nature.
 Transport and communication depends on geographical factors.

A person, group or organization that has direct or indirect stake in an
organization.
These stakeholders can affect or be affected by the organization's actions,
objectives, and policies.
Key stakeholders in a business organization include creditors, customers,
directors, employees, government (and its agencies), owners
(shareholders), suppliers, unions, and the community from which the
business draws its resources.
Stakeholder Map of Business

Types of Stake Holders –
Internal stakeholders -
- Managers
- Shareholders
- Employees

Types of Stake Holders –
External stakeholders –
- Suppliers
- Local administration
- Customers
- Trade unions
- Public
- Government agencies

Before 1991 -
Policies that were followed by India were not conducive for
industrialisation. Only domestic companies were encouraged.
Protected economy, environment.
India followed Commanding policies (Socialistic economic model) –
which was followed by former USSR. But US, Germany, Japan, etc.,
had flexible policies (Capitalistic economic model).
Role of Government in Indian Economic
activity

India engaging in Business activities from more than 2000
years.
Indian business characterized by –
Cottage & small scale
Informal organizational structure & no employment relationships
Family centric, unprofessional & low educated labours
Limited market, & Domestic operations
Low Profit & Profit sharing
Inferior quality
No prescribed business models
In some situations, Barter System was followed.

India exported products like –
Spices, perfumes, jewels, diamond, fine textiles, etc,.
Dyestuffs such as lac and indigo.
Live animals such as elephant, lions, tigers, peacocks, etc,.
India imported -
Gold
Pottery and glassware.
Wine, tin, lead, coral etc,.
Live animals – Horse

Industrialization happened in 1850s, which lead to the entry of British
companies into India.
In 19th century, many International firms started business with India.
By 1940, many MNC’s were present in India – Bata, Philips, Lever.
In 1984, FERA – foreign exchange regulation act was introduced. This act
led to bringing MNC’s equity to below 40%. Joint companies such as ITC,
Hindustan Lever, etc, took birth.

Many new ventures – Nirma, Godrej, Kelvinator, etc,.
Companies such Levi’s, Kellogs, McDonalds, KFC, Sony, etc.,
Investment inflow is not very good.

Reasons for poor flow (Poor FDI) :
Democracy is an impediment to the flow of FDI.
Issues such as religion, caste, language.
Foreign investors are enthusiastic to invest in India.
India is not able to attract foreign capital.
Ex : Bangalore airport - more than decade, China has built atleast
12 major airports.

NRIs complain – red tape and demanding officials trying to extract
money at every stage.
Innumerable labour laws coming in the way of improved labour
productivity and firm’s profitability. Sick companies are not permitted
to close and have to pay wages.
Caps on the percentage of equity holding. FDI exceeding US$ 120
million require permission from cabinet committee.
Dismissals of errant employee is difficult / impossible

For Ex - A typical power project requires about 43 clearances from the
central government and 57 from local state and municipal governments.
Communal riots, unhygienic conditions, severe poverty, linguistic barriers,
caste conflicts discourage foreign investments.
Different political parties approaches are different and discourage inflow.
For Attracting foreign capital / FDI -
Govt. Of India has introduced Liberalization Policy in the year
1991. H.Ananthesh, HRIHE, Hassan

Year Investment (Rs. Crore)
1991 185
1992 326
1994 13026
1998 18520
2000 27150
2005 85812
2010 280556
2014 (Till June) 90875
2018 (Till October) 1,53,527

Before 1991 LPG Policy, Indian industry experienced-
High cost
Junk machinery
Outdated technology
Inferior quality
High sickness
Low competitive spirits
Protected environment

After the implementation of 1991 LPG, Implications
on Indian Industry –
Introduction of Industrial policy (1991)
Challenges -
1. Customer satisfaction
2. Attitude of the Indian business
3. Improve quality - international standards
4. TQM
Stages of attaining TQM –
Conforming product specification
Meet customer needs
Compare with the best
TQM H.Ananthesh, HRIHE, Hassan

6. Family controlled and secretive system in India TO broad based
control. About 96 % of top 500 companies are controlled by
family business.
7. Companies should think global but act local
Destination India : India is fast emerging as the most attractive
country for foreign investment.

Business Ethics / Corporate Ethics
“Ethics” refers to a system of moral principles- a set of right and
wrong, goodness and badness of actions and their motives and
consequences.
“Business Ethics” applies to the application of ethics into
business.
Business ethics is extension of values of personal value to
business. H.Ananthesh, HRIHE, Hassan

A set of principles of right conduct.
The value of what should be done and what should not be done from
the business point of view.
EX - Dishonesty with employees, Customers, shareholders or competitors
/ Unfair Trade Practices is considered unethical in business.
“Commerce without Morality”. - Mahatma Gandhiji
The rules or standards governing the conduct of a person or the
members of a profession

‘The theory of moral unity’ – advocates the principles that
business actions should be judged by the general ethical standards
of society. Standards for business and non-business situations are
common.

Importance of Business Ehtics –
Ethics corresponds to basic human needs -
Human trait that man desires to be ethical, not only in his private life but
also in his business affairs.
Creates credibility with the public -
Company observe by the public to be ethically & socially responsive will be
honoured & respected.
It gives management credibility with employees -
Values are supposed to be common language to bring leaderships & its
people together.

Better decision making -
Ethical attitude helps the mgt make decisions – decisions which are interest of
the public, employees & company
Ethics, profit ethics & profit go together -
Company which is inspired by ethical conduct is also profitable one.
Laws cannot protect society, but ethics can -
Ethics is important because the govt, law & lawyers cannot do everything to
protect society.

Principles of Business Ethics
1. Honesty
2. Integrity.
3. Loyalty
4. Promise-keeping & Building Trustworthiness.
5. Fairness.
6. Concern for Others
7. Respect for Others
8. Law Abiding.
9. Commitment to Excellence
10. Accountability

Good Ethics & Good Business
Good Ethics = Good Business

Unethical Business Practices -
Adulteration in edible items
Product Safety/ Unequal Standards
Improper Product storage and logistics irresponsibility
Treating Customers as a quantity of consumption
Surrogate Advertising / Treacherous Campaigns / Misleading adds
Not providing after sales services.
Less expenditure on social causes/wellbeing

Unethical Business Practices -
Child labor
Forced labor
Unfair wages
Unfair Labor practices / Exploitation of workers
Animal testing
Dumping toxic waste into the environment.
Misleading advertisements
Lack of accountability

Corporate Social Responsibility
(CSR)
CSR is about how companies manage the business processes to
produce an overall positive impact on society.
It has some principles that declare that an Business organization has
a responsibility towards society.
Why should a company follow CSR?
 Public image, Consumer movement.
 Tax benefits
 Better relations with Stake holders, Employee satisfaction & sense of
self-importance.

How to fulfill responsibility towards customers?
Give proper and valid information
Give them quality goods
Innovate and develop advanced products.
Give customers proper education, support and guidance.
How to fulfill responsibility towards suppliers?
Give them timely payments.
Give them information about changing trends in the market so that
they may develop themselves establish long term relations.

How to fulfill responsibility towards
employees?
Give them a great place to work
Allow them the undertake what they want to do
Allow them to be creative, independent, and a leader in one's
own sector fulfill their expectations in terms salary, growth,
learning, development, promotions etc.

Social Responsibility / Corporate Social
Responsibility (CSR)
Other CSR Practices in Indian companies -
Adopt a school in a village
Provide computers and free training for students in rural areas
Get affliiated with an NGO
Free medical camps for the backward regions
Blood Donation Camp
Social Forestry & Donations for maintaining wild animals
Providing Scholarships for Girls.

Social Responsibility / Corporate Social
Responsibility (CSR)
Other CSR Practices in Indian companies -
Donation of Sports Equipment in Schools
Adult Literacy Programmes
International Scholarships for students from backward regions
Food Camp
Donation to Orphanage centres
Conducting Training for Farmers & Unemployed youth.
Starting Hospitals.

Legal Provisions related to CSR

CSR Expenditure by Indian Companies

Indian Companies CSR initiatives
Dabur India Ltd. - Sustainable Development Society (SUNDESH) is sworn
to the mission of ensuring overall socio-economic development of the rural &
urban poor on a sustainable basis, through different participatory and need-
based initiatives.
ONGC - Education including vocational courses.
Health Care.
Entrepreneurship (self help and livelihood generation) schemes.
Infrastructure support near our operational areas.
Environment protection, ecological conservation, promotion.
Protection of heritage sites, UNESCO heritage monuments etc.
Promotion of artisans, craftsman, musicians, artists etc. for preservation of heritage, art and culture.
Women's empowerment, girl child development, gender sensitive projects.
Promoting sports/sports persons; supporting agencies promoting sports/sports persons.
Water management including ground water recharge.
Initiatives for physically and mentally challenged.
Sponsorship of seminars, conferences, workshops etc.

Indian Companies CSR initiatives
Cognizant -
Providing financial and technical support for enhancing Quality of Education.
Designing and implementing educational and healthcare improvement programs.
Partnering with Non-Government Organizations (NGOs), educational institutions,
healthcare institutions, government agencies and corporations to raise the quality of
life for peo
Pepsico India Ltd., -
Replenishing Water
Solid Waste Management Programme
Partnership With Farmers
Healthy Kids

Issues of corporate Governance
 It is the overall control of activities of a company or corporate
organization.
 Corporate Governance is defined as the process & structure by
which business & affairs of corporate sector is directed &
managed.
 It primarily focus on complete transparency, honesty,
responsibility of the management.

The objective of CG is socially responsible, accountable &
transparent management of the corporate, protecting &
promoting the interest of the stakeholder.
It is the interaction between various participants
(shareholders, board of directors, and company’s
management) in shaping corporation’s performance and the
way it is proceeding towards.

The relationship between the owners and the managers in an
organization must be healthy and there should be no conflict
between the two.
The owners must see that individual’s actual performance is
according to the standard performance.

This Concept originate in the Private Sector
due to –
Corporate failures :
- Weak management boards
- Over powerful chief executives
- Weak internal controls
Characterised by :
- lack of incorporation of chairman and chief executive
- lack of audit committee/internal audit functions
- weak control/override of controls

Benefits of Corporate Governance –
1. Good CG ensures corporate success and economic growth.
2. Strong CG maintains investors’ confidence, as a result of which,
company can raise capital efficiently and effectively.
3. There is a positive impact on the share price.
4. It provides proper growth to the owners as well as managers to achieve
objectives that are in interests of the shareholders and the organization.
5. Good CG also minimizes wastages, corruption, risks and
mismanagement.
6. It helps in brand formation and development.
7. It ensures organization is managed in a manner that fits the best interests
of all. H.Ananthesh, HRIHE, Hassan

Principles of Corporate Governance
1. Protect rights of Shareholders –
Protection of shareholders’ rights and the capability of shareholders.
2 . Equitable Treatment of Shareholders –
All shareholders - including foreign shareholders - should be treated
fairly by controlling shareholders, boards and management.
3. Recognize the Rights of Stakeholders -
Most stakeholders’ rights are protected by other laws (Labour law,
Environmental law, etc.)
The Principles urge transparency.

4. Timely and accurate Disclosure –
A strong financial and non financial disclosure system is the understanding of
corporate governance.
Financial and operating results
Company objectives
Ownership and control structure
Board and executive information and recommendation
Stakeholder information
Governance information
5. Responsibility of the Board -
The Board is the main system for monitoring management and developing
strategy.

Corporate Governance in India –
Companies such as ITC, Tata Motors, Ranbaxy, Infosys, Hero Honda
- examples with High governing standards.

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