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ENVIRONMENT AND BUSINESS Module 1.pptx
1. ENVIRONMENT
AND
BUSINESS
D R . K . S A N K A R G A N E S H
P R O F & D E A N A C A D M I C S
L E A D C O L L E G E O F M A N A G E M E N T
2. REFERENCES
• Business Environment by Vivek Mittal
• Business Environment – Managing in a Strategic Context by John Kew & John
Stredwick
• International Business Environment- Francis Cherunilam
• Business Environment – Misra & Puri
• Essentials of Business Environment – K. Aswathappa
• Business Environment - Francis Cherunilam
3. BUSINESS
• “A business is defined as an organization or enterprising entity engaged
in commercial, industrial, or professional activities. Businesses can be
for-profit entities or non-profit organizations that operate to fulfil a
charitable mission or further a social cause”.
• “A business is defined as an organization or enterprising entity engaged
in commercial, industrial, or professional activities. Businesses can be
for-profit entities or non-profit organizations that operate to fulfil a
charitable mission or further a social cause.”
5. ENVIRONMENT
• The surroundings or conditions in which a person, animal, or plant lives
or operates "survival in an often hostile environment"
6. BUSINESS ENVIRONMENT
• The combination of internal and external factors that influence a
company's operating situation. The business environment can include
factors such as: clients and suppliers; its competition and owners;
improvements in technology; laws and government activities; and
market, social and economic trends.
The environment of any organization is “ the aggregate of all conditions,
events and influences that surround and affect it.”
7. OBJECTIVES OF BUSINESS ENVIRONMENT
WHY TO ANALYSE ?
1. Knowledge of Information
2. Basis of Decisions
3. Helpful in making of Policies
4. Technological Planning
5. Survive in the Business
8. CHARACTERISTICS OF BUSINESS
ENVIRONMENT
1) Totality of External Forces:
(2) Specific and General Forces:
(i) Specific:
(ii) General:
(3) Interrelatedness:
(4) Dynamic Nature:
(5) Uncertainty:
(6) Complexity:
(7) Relativity:
9.
10. IMPORTANCE OF STUDYING BUSINESS
ENVIRONMENT - PROPER UNDERSTANDING OF THE SOCIAL , POLITICAL , LEGAL ,
AND ECONOMIC ENVIRONMENT HELPS THE BUSINESS IN THE FOLLOWING WAY S:
DETERMINING OPPORTUNITIES AND THREAT
Determining
Opportunities
and Threats.
1.Identifying
Firms’ Strengths
and weaknesses.
1.Meeting
Competition.
1.Image Building
1.Continuous
Learning.
Giving Direction
for Growth /
Strategy
Formulation
Change Agent
Early Warning
Signal
11.
12. OVERVIEW OF BUSINESS ENVIRONMENT
MACRO ENVIRONMENT
ECONOMIC
Environment
MICRO ENVIRONMENT
BUSINESS
Internal Environment
Values,
Mission & Objectives.
Human Resources,
Co. Image & Brand Equity
TECHNOLOGICAL
FACTORS
MARKETING
INTERMEDIARIES
DEMOGRAPHIC
FACTORS
SOCIAL
CULTURAL
FACTORS
Non - Economic
Environment
13. TOOLS FOR ANALYZING THE ENVIRONMENT
PEST Analysis
PESTLE
STEEPLE
–S - Social
–T - Technological
–E - Economic
–E - Environmental
–P - Political
–L - Legal
–E - Ethical
14. ASSIGNMENT
• Choose a company of your choice and conduct environmental analysis wising
PESTLE (3 pages)
• Narrate Strength, weakness, opportunities and threats to Indian Business due to
Globalisation.
15. MICRO ENVIRONMENT OF A TYPICAL CAR MANUFACTURER
Car
Manufacturer
Components
Supplier
Customers
Car Dealers
Competitors
Stakeholders
Pressure
Groups
Government
Local
Communities
For
Supplies
For
Customers
Potential
Dealers
Potential
Customers
Potential
Supplier
16. ENVIRONMENTAL ANALYSIS PROCESS
• Environmental analysis is the study of the organizational environment to pinpoint
environmental factors that can significantly influence organizational operations
Steps:
1. Scanning
It involves general surveillance of all environmental factors and their interactions in
order to:
• Identify early signals of possible environmental change
• Detect environmental change already underway
2. Monitoring
It involves tracking the environmental trends, sequences of events, or streams of
activities. It frequently involves following signals or indicators unearthed during
environmental scanning.
17. ENVIRONMENTAL ANALYSIS PROCESS
3. Forecasting
Strategic decision-making requires a future orientation. Naturally, forecasting is an
essential element in environmental analysis. Forecasting is concerned with developing
plausible projections of the direction, scope, and intensity of environmental change.
4. Assessment
In assessment, the frame of reference moves from understanding the environment- the
focus of scanning, monitoring and forecasting – to identify what the understanding
means for the organization. Assessment, tries to answer questions such as what are
the key issues presented by the environment, and what are the implications of such
issues for the organization.
18.
19. INDIAN COMPANIES – FORTUNE 500
• 8 Indian companies have made it to Fortune 500 list in 2010. These are:
Indian Oil Corporation
Reliance Industries
Tata Steel
Tata Motors
Bharat Petroleum
Hindustan Petroleum
State Bank of India
ONGC
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.
A total of 54 Chinese companies made it onto the list this year. Out of which
three are in fortune 10 list.
20.
21. GLOBALISATION
• Globalization may be defined as “ the growing economic
interdependence of countries worldwide through increasing
volume and variety of cross border transactions in goods and
services and of international capital flows, and also through
the more rapid and widespread diffusion of technology”.
• Globalization may be considered at two levels Viz,
i. macro level (i.e., globalization of the world economy)
ii. micro level (i.e., globalization of the business and the firm).
23. REASONS FOR GLOBALISATION
• The rapid shrinking of time and distance across the globe thanks 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 of
international markets and to set up overseas production facilities.
• Companies may choose for going international to find political stability, which is
relatively good in other countries.
• To get technology and managerial know-how.
• Companies often set up overseas plants to reduce high transportation costs.
• Some companies set up plants overseas so as to be close to their raw materials supply
and to the markets for their finished products.
• Other developments also contribute to the increasing international of business.
• 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.
24. STAGES OF GLOBALISATION
• There are five different stages in the development of a firm into global corporations.
First stage
markets overseas by linking up with local dealers and distributors.
Second stage
In the stage two, the company takes over these activities on its own.
Third stage
In the next stage, the domestic based company begins to carry out its own manufacturing, marketing
and sales in the key foreign markets.
Four stage
In the stage four, the company moves to a full insider position in these markets, supported by a
complete business system including R & D and engineering. This stage calls on the managers to replicate
in a new environment the hardware, systems and operational approaches that have worked so well at
home.
Fifth stage
In the fifth stage, the company moves toward a genuinely global mode of operation.
The first stage is the arm’s length service activity of essentially domestic company, which moves into new
25. GLOBALIZATION STRATEGIES
1. Exporting
Exporting, the most traditional mode of entering the foreign market is quite a
common one even now.
2. Licensing and Franchising
Under international licensing, a firm in one country (the licensor) permits a firm
in another country (the licensee) to use its intellectual property (such as patents,
trademarks, copyrights, technology, technical know-how, marketing skill or some other
specific skill). Franchising is “a form of licensing in which a parent company (the
franchiser) grants another independent entity (the franchisee) the right to do business in
a prescribed manner.
3. Contract manufacturing
A company doing international marketing, contracts with firms in foreign
countries to manufacture or assemble the products while retaining the responsibilities of
marketing the product.
26. GLOBALIZATION STRATEGIES
4. Management contracting
• In a management contract the supplier brings together a package of skills that will
provide an integrated service to the client without incurring the risk and benefit of
ownership.
• 5. Turnkey contracts
• A turnkey operation is an agreement by the seller to supply a buyer with a facility fully
equipped and ready to be operated by the buyer’s personnel, who will be trained by
the seller. Turnkey contracts are common in international business in the supply,
erection and commissioning of plants, as in the case of oil refineries, steel mills, cement
cement and fertilizer plants etc.
6. Wholly Owned Manufacturing Facilities
• Companies with long term and substantial interest in the foreign market normally
establish fully owned manufacturing facilities there. This method demands sufficient
financial and managerial resources on the part of the company.
27. GLOBALIZATION STRATEGIES
7. Assembly operations
A manufacturer who wants many of the advantages that are associated with overseas
manufacturing facilities and yet does not want to go that far may find it desirable to establish
overseas assembly facilities in selected markets. The establishment of an assembly operation
represents a cross between exporting and overseas manufacturing.
8. Joint Ventures
• Any form of association, which implies collaboration for more than a transitory period is a
joint venture. Types of joint overseas operations are:
– Sharing of ownership and management in an enterprise.
– Licensing / franchising agreements.
– Contract manufacturing.
– Management contracts
9. Third country location
When there are no commercial transactions between two nations because of political reasons
or when direct transactions between two nations are difficult due to political reasons or the
like, a firm in one of these nations which wants to enter the other market will have to operate
from a third country base.
28. GLOBALIZATION STRATEGIES
9. Third country location
When there are no commercial transactions between two nations because of political reasons
or when direct transactions between two nations are difficult due to political reasons or the
like, a firm in one of these nations which wants to enter the other market will have to operate
from a third country base.
10. Mergers and acquisitions
Mergers and acquisitions (M & A) have been a very important market entry strategy as well as
expansion strategy. A number of Indian companies have also used this entry strategy.
11. Strategic alliance
This strategy seeks to enhance the long-term competitive advantage of the firm by forming
alliance with its competitors, existing or potential in critical areas, instead of competing with
each other. Strategic alliance is also sometimes used as a market entry strategy. For example,
a firm may enter a foreign market by forming an alliance with a firm in the foreign market.
29. GLOBALIZATION STRATEGIES
12. Counter trade
Counter trade refers to a variety of unconventional international trade practices which
link exchange of goods- directly or indirectly – in an attempt to dispense with currency
transactions. Counter trade is a form of international trade in which certain export and
and import transactions are directly linked with each other and in which import of goods
are paid for by export of goods, instead of money payments.
31. BENEFITS OF GLOBALISATION
1. Productivity grows more quickly when countries produce goods and services in
which they have comparative advantage.
2. Living standards can go up faster.
3. Global competition and imports keep a lid on prices, so inflation is less likely to
derail economic growth.
4. An open economy spurs innovation with fresh ideas from abroad.
5. Export jobs often pay more than other jobs.
6. Unfettered capital flows give access to foreign investment and keep interest rates
low.
32. DRAWBACKS OF GLOBALIZATION
1. Millions have lost jobs due to imports or production shifts abroad. Most find new
jobs that pay less.
2. Millions of others fear losing their jobs, especially at those companies operating
under competitive pressure.
3. Workers face pay cut demands from employers, which often threaten to export jobs.
4. Services and white-collar jobs are increasingly vulnerable to operations moving
offshore.
5. Employees can lose their comparative advantage when companies build advanced
factories in low-wage countries, making them as productive as those at home.
33. WORLD TRADE ORGANISATION
• The World Trade Organization is a Multi-lateral organization which
facilitates the free flow of goods and services across the world and
encourages fair trade among nations. The result is that the global
income increases due to increased trade and there is supposed to be
overall enhancement in the prosperity levels of the member nations.
• WTO - Some Basic Facts:
• Location: Geneva, Switzerland
Established: 1 January 1995
Created by : Uruguay Round negotiations (1986-94)
Membership: 148 countries (as of April 2005)
34. OBJECTIVES AND FUNCTIONS
• The overriding objective of the World Trade Organization is to help trade flow
smoothly, freely, fairly and predictably; to meet its objective WTO performs the
following functions
• Administering W.T.O Trade Agreements.
• Acting as a Forum for trade negotiations.
• Settling and Handling Trade disputes
• Monitoring and reviewing national trade policies,
• Assisting the member in trade policies through technical assistance and training
programmes
• Technical assistance and training for developing countries.
• Co-operation with other International Organization
35. IMPACT OF WTO ON MEMBER COUNTRIES
1. The system helps promote peace
2. Disputes are handled constructively
3. Rules make life easier for all
4. Freer trade cuts the costs of living
5. It provides more choice of products and qualities
6. Trade raises incomes
7. Trade stimulates economic growth
8. The basic principles make life more efficient
9. Governments are shielded from lobbying
10. The system encourages good government
37. MAJOR AGREEMENTS OF WTO
1. General Agreement on Tariffs & Trade (GATT)
• Reduction of peak and average tariffs on manufactured products
• Commitments to phase out the quantitative restrictions over a period as these were
considered non-transparent measure in any countries policy structure.
• GATT was only an agreement and there was no enforcing agency to strictly implement
the clauses and punish the country which breaks the clauses.
2. Trade Related Investment Measures (TRIMS)
• The agreement relates to investments originating from one country to another.
• The agreement prohibits the host country to discriminate the investment from abroad
with domestic investment, which implies that it favours national treatment of foreign
investment.
• These agreements have a direct impact on our Trade, Investment and foreign exchange
policy, domestic annual budgetary proposals and also on the industrial policy.
38. MAJOR AGREEMENTS OF WTO
3. Trade Related Intellectual Property Rights (TRIPS)
• This agreement includes several categories of property such as Patents, Copyrights,
Trademarks, Geographical indications, Designs, Industrial circuits and Trade secrets.
• Technology transfer from abroad is expected to become costly and difficult.
4. Agreement on Agriculture (AOA)
• The agreement on agreement deals with market access, Export subsidies and
government subsidies.
• the reduction of tariffs and subsidy in export and import items would open up
competition and give a better access to Indian products abroad.
39. MAJOR AGREEMENTS OF WTO
5. Agreement on Sanitary and psyto-sanitary measures (SPM):
This agreement refers to restricting exports of a country if they do not comply with the
international standards of germs/bacteria etc… if the country suspects that allowing of
such products inside the country would result in spread of disease and pest, then there is
every right given to the authorities to block the imports.
6. Multi-Fiber Agreement (MFA)
The result was removal of QR on the textile imports in several European countries. As a
consequence a huge textile market is opened up for developing countries textile industry
industry as well as for other countries that have competitive advantage in this area.
40. PRIVATISATION
• Privatization, which has become a universal trend, means transfer of ownership and/or
management of an enterprise from the public sector to the private sector.
• Privatization may be defined as the transfer of the public sector activities and functions
to the private sector.
• This applies to the commercial and industrial enterprises which are often owned,
managed and implemented by the public sector which could otherwise be operated
by the private sector.
41. OBJECTIVES
• The objects are:
• To improve the performance of PSUs (Public Sector Undertakings) so as to lessen the
financial burden on taxpayers.
• To increase the size and dynamism of the private sector, distributing ownership more
widely in the population at large.
• To encourage and to facilitate private sector investments, from both domestic and
foreign sources.
• To generate revenues for the state.
• To reduce the administrative burden on the state.
• Launching and sustaining the transformation of the economy from a command to a
market model.
42. PRIVATIZATION ROUTES
• The important ways of privatization are:
• Divestiture or privatization of ownership, through the sales of equity.
• Denationalization or reprivatisation.
• Contracting - under which government contracts out services to other organizations that
produce and deliver them.
• Franchising- authorizing the delivery of certain services in designated geographical areas-
is common in utilities and urban transport.
• Government withdrawing from the provision of certain goods and services leaving then
wholly or partly to the private sector.
• Privatization of management, using leases and management contracts
• Liquidation, which can be either formal or informal. Formal liquidation involves the closure
of an enterprise and the sale of its assets. Under informal liquidation, a firm retains its legal
status even though some or all of its operations may be suspended.
43. BENEFITS OF PRIVATIZATION
• The benefits of privatization may be listed down as follows:
• It reduces the fiscal burden of the state by relieving it of the losses of the SOEs (State
owned Enterprise) and reducing the size of the bureaucracy.
• Privatization of SOEs enables the government to mop up funds.
• Privatization helps the state to trim the size of the administrative machinery.
• It enables the government to concentrate more on the essential state functions.
• Privatization helps accelerate the pace of economic developments as it attracts more
resources from the private sector for development.
• It may result in better management of the enterprises.
• Privatization may also encourage entrepreneurship.
• Privatization may increase the number of workers and common man who are
shareholders. This could make the enterprises subject to more public vigilance.
44. CRITICISMS
• Some of the important argument against privatization is as follows:
• The public sector has been developed with certain noble objectives and privatization means discarding
them in one stroke.
• Privatization will encourage concentration of economic power to the common detriment.
• ]If privatization results in the substitution of the monopoly power of the public enterprises by the
monopoly power of private enterprises it will be very dangerous.
• Privatization many a time results in the acquisition of national firms by foreign firms.
• Privatization of profitable enterprises, including potentially profitable, means foregoing future streams
of income for the government.
• Privatization of strategic and vital sectors is against national interests.
• There are well managed and ill-managed firms both in the public and private sectors. It is not sector
that matters, but the quality and commitment of the management.
• The capital markets of developing countries are not developed enough for efficiently carrying out
privatization.
• Privatization in many instances is a half-hearted measure and therefore it is not properly carried out.
As a result that the expected results may not be achieved.
• In many instance, there are vested interested behind privatization and it amounts deceiving the nation.
In many countries privatization often has been a “garage sale” to favored individuals and groups.
45. TYPES OF PRIVATISATION
• The following are the types of Privatization:
• By section – namely government sectors which are service based that had been
transferred to the private sector.
• By Choice- mainly government sectors that are partly privatized.
• Trade Oriented- whereby the government still holds the company but the capital
concepts are privatized.
• By Contract- whereby the private sector would prepare the services for the
government.
• By Mortgage- where by the facilities provided by the government would by rent by
private sector. Example: Malaysia Airlines and TV3
46. PUBLIC SECTOR
• In India, a public sector company is that company in which
the Union Government or State Government or any Territorial
Government owns a share of 51 % or more. Currently there
are just three sectors left reserved only for the government i.e.
Railways, Atomic energy and explosive material. Private
sectors/players are not allowed to operate in these sectors.
47. OBJECTIVES: THE PUBLIC SECTOR AIMS AT ACHIEVING THE
FOLLOWING OBJECTIVES:
To promote rapid economic development through creation and expansion of
infrastructure
• To generate financial resources for development
• To promote redistribution of income and wealth
• To create employment opportunities
• To promote balanced regional growth
• To encourage the development of small-scale and ancillary industries, and
• To accelerate export promotion and import substitution
48. ROLE OF PUBLIC SECTORS IN THE DEVELOPMENT OF THE COUNTRY
• Public Sector and Capital Formation:
• Employment Generation:
• Balanced Regional Development:
• Contribution to Public Exchequer:
• Export Promotion and Foreign Exchange Earnings:
• • Import Substitution:
• Promotion of Research and Development:
• Performance of Central Public Sector Undertakings
49. PROBLEMS OF PUBLIC SECTORS:
• Poor policy making and its execution
• Over staffing
• Wastage of resources or underutilization of resources
• Higher operating cost
• Lack of motivation for self-improvement
• Lack of proper price policy
50. INTELLECTUAL PROPERTY RIGHTS
• Intellectual Property rights has vital role in all sector and has become a crucial factor
for investment decisions by many companies.
• World Intellectual Property Organization describe Intellectual Property as "The
creations of the mind, inventions, literary and artistic works, and symbols, names,
images, and designs used in commerce". It is documented in literature that Intellectual
Property is any piece of work that is shaped by the skills and abilities of someone
called the author.
51. GENERAL TYPES OF IP INCLUDE:
• 1. Copyright: This protects written or published works such as books, songs, films, web
content and artistic works; Copyrights protect the dramatic arts.
• 2. Patents: Patents are a long-established way to motivate innovation. This property
right convenes to the holder the exclusive right of exploitation and enables them to
exploit the invention by manufacturing, using, or selling products or processes
incorporating the technology covered by the patent.
• 3. Designs: This protects designs, such as drawings or computer models.
• 4. Trademarks: This protects signs, symbols, logos, words or sounds that distinguish
products and services from those of competitors. Trademarks shield the names and
identifying marks of products and companies.
52. REQUIREMENT OF INTELLECTUAL PROPERTY RIGHTS:
1. Prevent plagiarism.
2. Prevent others using it.
3. Prevent using it for financial gains.
4. Fulfil obligation to funding agency.
5. Support income generation strategy.
53. CHRONOLOGICAL DEVELOPMENT OF IPR IN INDIA:
1947: Patents & Designs Act, 1911
1995: India joins WTO
1998: India joins Paris Convention/PCT
1999: Patent amendment provided EMR retrospectively from 1/1/95
2003: 2nd amendment in Patents Act
Term of Patent – 20 years after 18 months publication
Patent Tribunal Set up at Chennai
2005: Patents (Amendment) Act 2005
1999 - 2005: Plant Varieties and Farmers’ Rights Act & Biodiversity Act.
Designs, TM/Copyright Acts updated GI Registry set up at Chennai. IP Acts
TRIPS Compliant
