2. Why it is important for business enterprises to understand their environment? Explain briefly.

Transcription

1 1. What do you understand by business environment? The term business environment means the total of all institutions, organizations, individuals and other forces which affects the business enterprise. This is totally outside the organization. As one writer has put it Just take the universe, subtract from it the subset that represents the organization, and the remainder is environment. External forces includes political, economical, social, technological, etc and Institutions include (competitors, customers, suppliers, etc). These factors are outside the control of the business. Depending upon the environment of the business, the management has to take decisions. 2. Why it is important for business enterprises to understand their environment? Explain briefly. All the business enterprise should be cautious regarding the external issues. They have to know how to identify, evaluate, react and control these external issues. The managers have to know about the important of the business environment. The following are the importance of the business environment. It enables the firm to identify opportunities and getting the first mover Advantage The managers have to identify the opportunities and they can able to know the market environment. Environment provides numerous opportunities for business success. By conducting market survey the companies came to know about the tastes and preferences of the customer. It helps the firm to identify threats and early warning signals Threats refer to the external environment that will change the performance of the Indian companies. The company has to identify the threats and they have to take preventive actions against the external forces. This kind of environment awareness will help the businessmen to take preventive actions. It helps in tapping useful resources Environment is considered as an important source for the smooth functioning of a business. There are various resources are required to start a business. Resources such as Men, Money, Materials, Machines and Methods and external sources such as financiers, government and suppliers. These resources are considered as an input of the business. From these resources, the businessmen has to get return from the enterprise. Depending upon the external environment, the business men will able to make profitability in the enterprise. 3. Mention the various dimensions of business environment. Factors constituting the business environment are as follows: 1

2 The above are the important factors that will help the business for taking decisions. Technologies, social, political, legal factors will change the business. As we already discussed about the opportunities and threats of business, these factors will help the mangers to take wise decisions. 4. Briefly explain the following: (a) Liberalization (b) Privatization (c) Globalization a) Liberalization The economic policy has opened up the Indian Economy as never before. Liberalization of procedures, licensing and free trade which advocates open flows of capital and goods across borders. Liberalization of the Indian industry has taken place with respect to: (i) In most of industries they abolish the license requirement. (ii) Deciding the scale of business activities. (iii) Easy movement of goods and services. (iv) Free to fix prices of goods and services. (v) To reduce the tax rates and unnecessary controls over the economy, (vi) simplify the procedures for exports ad imports. 2

3 (vii) Easier to attract foreign capital and technology to India b) Privatization The main concept of privatization is to give important role for private sector. The new set of economics reforms focused to build social integrity and reduced the role of the public sector. Privatization may be defined as the transfer of ownership and control from the public sector to the private sector. It involves greater role of private capital and the enterprise in the functioning of the company. The term disinvestments used here means transfer in the public sector enterprises to the private sector. c) Globalization Globalization means the various economics of the world joint together and leading towards the development of the economy. Till 1991, government followed the strict norms for in terms of value and volume. The regulations were respect to the following; (i) Licensing of imports (ii) Tariff Restrictions (iii) Quantitative restrictions. Globalization means increased level of interaction and interdependence among the various nations of the global economy. 5. Briefly discuss the impact of Government policy changes on business and industry. Impact of government policy changes of Business and Industry India is undergoing a process of economic rapid economic reforms since 1991, aimed at modernizing our industrial system, removing unproductive controls and eliminating the burden of public sector eating away the tax payers money. The following are some of the effect of change in government policy: a) Destabilization of protected environment The arrival of new players in the market brought in fresh competition. No longer can the outdated technology be dumped on the Indian consumers, on the strength of government protection. Profit could no longer be secured by securing a license and setting up a production unit. For example, the Indian automobile industry came under extreme competition due to arrival of current technology in India. The traditional players like Hindustan Motors (HM), and Premier Automobiles Limited had to chalk out survival strategy due to competition from Honda Toyota, Ford, Mitsubishi, Daewoo and Hyundai. b) Threat from MNCs Massive entry of multi nationals in Indian marker constitutes new challenge. The Indian subsidiaries of multi-nationals gained strategic advantage. Many of these companies could get limited support in technology from their foreign partners due to restrictions in ownerships. Once these restrictions have been limited to reasonable levels, there is increased technology transfer from the foreign partners. c) All round competition Indian companies now face large scale competition from Indian players as well as from the new 3

4 multinational companies operating in India. Liberalized import policies added another dimension to this problem. d)buyer s Market Lifting of restriction in industrial licensing brought in more competition the market. The customer started having more choices, which naturally reduced price of goods and improved quality. e) Export a matter of survival The domestic industries started finding out the export an essential part of their business policy. Export becomes essential to generate foreign exchange for import. Liking of export with import for taking advantage of market driven exchange rates compelled many companies to turn to export as an important part of business operations. f) World class technology Freedom given to international companies to operate in Indian substantially enhanced the quality of goods available in the country. Indian companies have been compelled to look into the quality of their products as a matter of survival. Technical collaborations and import of technology resulted in diversity of options available to Indian consumers. g) Different set of problems for companies Indian companies suddenly started facing problems which they never experienced in the past. Their experience is worth tackling the problems that they have faced before. Presence of multi-nationals with professional strategies and world wide experience suddenly posed new problems to Indian companies. 6. How would you characterize business environment? Explain, with examples, the difference between general and specific environment. Features of Business Environment Environment means economic, social, political, technological factors which affects the economy. Individuals, business people, retail sector, fast moving consumer goods, governments competitors, media, court, food malls and other institutions have to look after the changes in the environment. For example- Due to advent of technology, customers tastes and preferences changing form time to time. Changes in the policies of the government and changes in the fashions, political uncertainty may cause some changes in the environment. Government may levy heavy taxes for certain goods, that may cause consumption lower for the particular product. Due to political uncertainty, investors are not in the position to invest in the stock market. These are called external forces. The following are the features of business environment: Totality of external forces Business environment means total of all the external forces that affects the business Firms and individuals. It is aggregative in nature. Specific and general forces There are two types of forces which affects the individuals and business firms. They are called as specific forces and general forces. Specific forces includes the investors, customers, competitors and suppliers which affects the individual 4

5 enterprises in day to day working directly. General forces includes social, egal political and technological changes which affects the business enterprises indirectly. Inter-relatedness Different parts of business environment are closely inter-related. For example- increased awareness of health care will increase the demand for Life insurance Products and health products. One product is inter-related with another product. Dynamic nature Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market. Uncertainty Future is uncertain. It is very difficult to predict the future. Especially in case of global crisis, technological changes etc., even the business people cannot able to predict the future. Sometimes they can prevent themselves from such kind of uncertainties. Complexity Business environment consists of numerous activities which arise from various sources, in such kind of situation it is very difficult to analyze the given environment. In other words, environment is a complex phenomenon that is relatively easier to understand in parts but difficult to grasp in its totality. For example, it may be difficult. 7. How would you argue that the success of a business enterprise is significantly influenced by its environment? Importance of Business Environment All the business enterprise should be cautious regarding the external issues. They have to know how to identify, evaluate, react and control these external issues. The managers have to know about the important of the business environment. The following are the importance of the business environment. It enables the firm to identify opportunities and getting the first mover Advantage The managers have to identify the opportunities and they can able to know the market environment. Environment provides numerous opportunities for business success. By conducting market survey the companies came to know about the tastes and preferences of the customer. For example, Now-a-days all the manufacturers are producing sachet for shampoos. Manufactures will be able to cover the entire population. Maruti Udyog became the leader in the small car market. There was a more demand for the cars on that time. 5

6 It helps the firm to identify threats and early warning signals Threats refer to the external environment that will change the performance of the Indian companies. The company has to identify the threats and they have to take preventive actions against the external forces. This kind of environment awareness will help the businessmen to take preventive actions. For example, if an Indian firm finds that a foreign multinational is entering the Indian market with new substitutes, it should act as a warning signal. Form this, Indian companies have to take some preventive actions against the external forces such as aggressive marketing, modifications in the product, reduced the prices, discount schemes, quality of the product and quantity has improved, engaging in Extensive advertising and so on. It helps in tapping useful resources Environment is considered as an important source for the smooth functioning of a business. There are various resources are required to start a business. Resources such as Men, Money, Materials, Machines and Methods and external sources such as financiers, government and suppliers. These resources are considered as an input of the business. From these resources, the businessmen has to get return from the enterprise. Depending upon the external environment, the business men will able to make profitability in the enterprise. It helps in coping with rapid changes There may be changes in the environment due to advent of technology, changes in the market conditions, new competitors, substitute products, less brand image, divisions and subdivisions of markets, taste and preference of customer, demanding customers are depicting today's business environment. In order to cope up with the changes the manager of the enterprise has to develop the suitable course of action. For example- Tata started working for a small budget car named as "Nano". 6

7 It helps in assisting in planning and policy formulation Planning means deciding in advance. Environment is considered as a source of threats and opportunities. If the environment shows the warning signal then the business enterprise has to think, analyze and develop the suitable course of action. If the environment shows opportunities then the enterprise has to use it to the maximum. It helps in improving performance From this, we came to conclusion that the environment really makes a difference in the performance of the enterprise? The answer for this question is there is a difference. Most of the studies reveal that from these external factors the business enterprise may prevent from the threats. If the enterprises monitors the external factors then they will be able to perform better in the present as well as future. Such kind of enterprises may succeed for a longer period of time. 8. Explain, with examples, the various dimensions of business environment. The above are the important factors that will help the business for taking decisions. Technologies, social, political, legal factors will change the business. As we already discussed about the opportunities and threats of business, these factors will help the mangers to take wise decisions. (a) Economic Environment Due to the Global crisis the following are declined such as the interest rate, inflation rate, job market, income of the people, stock market indices, value of the rupee, realty sectors, automobile sectors and so on. The companies are sacking their employees due to the crisis. Most of individuals are not buying properties in this kind of situation. That affects the realty sectors. Due to the financial crisis, most of the Foreign Institutional Investors taken back their money from the Indian Capital Market. This affects the stock market indices. If the individual income raises, then the purchasing power of individual, demand for the product will also be high. Example- Zimbabwe's inflation rate has just touched a stratospheric level of 11.2 million per cent! Yes, 11.2 million per cent, the highest in the world's history! Compare that to the rate of inflation in India -- which is hovering at the 5.6 per cent level and causing so much turmoil for Indians as the cost of commodities rises sharply -- and perhaps you can put things in proper perspective. In Zimbabwe money has no value, and hunger, poverty and death are constant companions. If a person wants to buy one loaf of bread, he has to spend nearly 1000 dollars. (b) Social Environment The social environment includes the social forces like customs, traditions, culture, values, trends, expectation from the society and business. Traditions define social practices that have lasted for decades or even centuries. We are celebrating Diwali, Id, Pongal and Christmas that will provide ample businesses to the textile shops, greeting card companies, confectionery manufacturers, tailoring outlets and so on. 7

8 It describes the characteristics of the society in which the organization exists. Literacy rate, age, customs, values, beliefs, lifestyle, demographic features and mobility of population are part of the social environment. Changes in social characters come as a slow process. The trend of change can be predicted well in advance. These social trend will provide opportunities and threats to the business. For example, Now-a days all the women are very cautious regarding the food. They need the help of Nutritionist. According to the words of Nutritionist, they are following the balanced diet. In such cases, there is no demand for the fat items. This has created a demand for products like organic food. (c) Technological Environment Technological changes means innovations that provides easy method of producing the articles and techniques of the business. For example, Due to the advent of Information Technology we can order for goods with the help of the computers called as on-line shopping. It has become possible for the investors to buy and sell the shares through Internet from home. Students will able to learn themselves with the help of digital content. These kind of materials are called as Self-Learning materials. Airline companies, Railways have Internet and websites where public can look for flight times, destination, air fare, railway fare and book their tickets on online. In all the fields such as lasers, bio-technology, food preservatives, medicine, telecommunications have provided threats and opportunities in business. This is the best example for Technological Environment 8

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10 Step 1: Log on to Step 2: To book air tickets, click on airways Step 3: To fill the booking details and passenger details. Step 4: After filling the details, they have to search for the flights. For example- in this case the air tickets booked from Chennai to Mumbai. Step 5: Based upon the comfortability of the individuals they can choose their flights. (d) Political Environment Political instability will shake the confidence of the public and business. The stable government is required for the smooth functioning of business. It comprises political stability and the policies of the government. Ideological inclination of political parties, personal interest on politicians, influence of party forums etc. create political environment. (e) Legal Environment This consists of legislation that is passed by the parliament and state legislatures. This component sets the framework of law within which the business is free to operate. Examples of such legislation specifically aimed at business operations include the Trade mark Act 1969, Essential Commodities Act 1955, Standards of Weights and Measures Act 1969 and Consumer Protection Act For example- Liquor shops are closed at 10.00pm in the night because it is injurious to health. In the 10

11 packets of the cigarettes the statutory warning is mentioned 'Cigarette smoking is injurious to health'. 9. What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry? India is undergoing a process of economic rapid economic reforms since 1991, aimed at modernizing our industrial system, removing unproductive controls and eliminating the burden of public sector eating away the tax payers money. The following are some of the effect of change in government policy: a) Destabilization of protected environment The arrival of new players in the market brought in fresh competition. No longer can the outdated technology be dumped on the Indian consumers, on the strength of government protection. Profit could no longer be secured by securing a license and setting up a production unit. For example, the Indian automobile industry came under extreme competition due to arrival of current technology in India. The traditional players like Hindustan Motors (HM), and Premier Automobiles Limited had to chalk out survival strategy due to competition from Honda Toyota, Ford, Mitsubishi, Daewoo and Hyundai. b) Threat from MNCs Massive entry of multi nationals in Indian marker constitutes new challenge. The Indian subsidiaries of multi-nationals gained strategic advantage. Many of these companies could get limited support in technology from their foreign partners due to restrictions in ownerships. Once these restrictions have been limited to reasonable levels, there is increased technology transfer from the foreign partners. c) All round competition Indian companies now face large scale competition from Indian players as well as from the new multinational companies operating in India. Liberalized import policies added another dimension to this problem. d) Buyer s Market Lifting of restriction in industrial licensing brought in more competition the market. The customer started having more choices, which naturally reduced price of goods and improved quality. e) Export a matter of survival The domestic industries started finding out the export an essential part of their business policy. Export becomes essential to generate foreign exchange for import. Liking of export with import for taking advantage of market driven exchange rates compelled many companies to turn to export as an important part of business operations. f) World class technology Freedom given to international companies to operate in Indian substantially enhanced the quality of goods available in the country. Indian companies have been compelled to look into the quality of their products as a matter of survival. Technical collaborations and import of technology resulted in diversity of options available to Indian consumers. g) Different set of problems for companies Indian companies suddenly started facing problems which they never experienced in the past. Their experience is worth tackling the problems that they have faced before. Presence of multi-nationals with professional strategies and world wide experience suddenly posed new problems to Indian companies. 11

12 10. What are the essential features of (a) Liberalization, (b) Privatization and (c) Globalization? Liberalization The economic policy has opened up the Indian Economy as never before. Liberalization of procedures, licensing and free trade which advocates open flows of capital and goods across borders. Liberalization of the Indian industry has taken place with respect to: (i) In most of industries they abolish the license requirement. (ii) Deciding the scale of business activities. (iii) Easy movement of goods and services. (iv) Free to fix prices of goods and services. (v) To reduce the tax rates and unnecessary controls over the economy, (vi) simplify the procedures for exports ad imports. (vii) Easier to attract foreign capital and technology to India Privatization The main concept of privatization is to give important role for private sector. The new set of economics reforms focused to build social integrity and reduced the role of the public sector. Privatization may be defined as the transfer of ownership and control from the public sector to the private sector. It involves greater role of private capital and the enterprise in the functioning of the company. The term disinvestments used here means transfer in the public sector enterprises to the private sector. Globalization Globalization means the various economics of the world joint together and leading towards the development of the economy. Till 1991, government followed the strict norms for in terms of value and volume. The regulations were respect to the following; (i) Licensing of imports (ii) Tariff Restrictions (iii) Quantitative restrictions. Globalization means increased level of interaction and interdependence among the various nations of the global economy. 12