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M.B.A 2 All right are reserved with CU-IDOL BUSINESS ENVIRONMENT AND REGULATORY FRAMEWORK Course Code: MBA605 Semester: First SLM UNITS : 1&2 E- LESSON NO : 1 www.cuidol.in Unit-1 (MBA605)

BUSINESS ENVIRONMENT AND 33 REGULATORY FRAMEWORK OBJECTIVES INTRODUCTION Student will be able to : The survival and success of a business firm Understand the meaning of business environment depends on its innate strength and its adaptability to the environment Comprehend the implications of business environment on business decision making The extent to which the environment is favorable for the development of an Learn the meaning and process of business organization environment analysis The extent to which internal and external To get an idea of the techniques for environmental factors influence business forecasting . www.cuidol.in Unit-1 (MBA605) INSTIATlUl TrEigOhFt DarISeTrAeNsCeErvAeNdDwOitNhLCINUE-ILDEOALRNING

TOPICS TO BE COVERED 4 > Macroeconomic Environment of Business > Financial Environment of Business > Industrial Environment > India & The World > Economic Integration www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

BUSINESS GOALS 5 ❖Profit / income ❖Growth ❖Market Leadership ❖Customer satisfaction ❖Employee satisfaction ❖Quality Products & Services ❖Service to Society www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

CHARACTERISTICS OF BUSINESS 6 Change Government Large Size Control Competition Characteristics Diversification of Business Information Globalization Technology All right are reserved with CU-IDOL www.cuidol.in Unit-1 (MBA605)

BUSINESS CHALLENGES 7  Managing the activities  Meeting stakeholders expectations  Developing and retaining top talent  Creating a customer responsive organization  Diminishing time to market  Market agility  Pricing and quality www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

BUSINESS ENVIRONMENT “Business environment consists of all those factors that have a impact on the business, such as the strengths, 8 weakness, internal power relationship and orientation of the organization, government policies and regulations, nature of the economy and economic conditions, socio cultural factors, demographic trends, natural resources, global trends and cross border development”. . The environment of any organization is “the aggregate of all conditions, events and influences that surround and affect it.” Thus, Business Environment is: Unit-1 (MBA605) All right are reserved with CU-IDOL ▪ Complex ▪ Multi-faceted ▪ Decision making oriented ▪ It affects different firms differently ▪ Dynamic ▪ Far- reaching impact ▪ Uncertainty assessment www.cuidol.in

WHY IS THERE A NEED TO STUDY 9 BUSINESS ENVIRONMENT?  Development of broad strategies to ensure sustainability  To foresee the impact of socio-economic changes at the national and international levels on firm’s ability  Analysis of competitor’s strategies and formulation of effective counter measures  To keep oneself dynamic Unit-1 (MBA605) All right are reserved with CU-IDOL www.cuidol.in

NATURE OF BUSINESS ENVIRONMENT 10 • Aggregative: Business Environment is the totality of all the external forces which influences the working as well as decision making of an enterprise • Inter-Related: Different elements of Business Environment are Inter-related and inter-dependent. A change in one element affects the other elements. For instance, Economic Environment affects the Non Economic Environment and vice versa • Relative: Business Environment is a Relative Concept. It differs from country to country and even region to region www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

NATURE OF BUSINESS ENVIRONMENT 11 • Inter-Temporal: Business Environment is also an inter- temporal concept as it changes overtime. In the short run, Business Environment may remain static but in the long run, it does change • Uncertain: Business Environment is largely uncertain because it is very difficult to forecast the future environment. Further, when the environment changes very fast, uncertainty increases www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

TYPES OF BUSINESS ENVIRONMENT 12 2. EXTERNAL 1. INTERNAL www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

TYPES OF BUSINESS ENVIRONMENT 13 Internal Environment Internal Environment refers to the factors existing within a business firm. These internal factors are considered to be controllable. The main internal factors which influences Business Decisions are: • Culture: The values, beliefs and attitudes of the founder and top management of the company exercises a strong influence on what the company stands for, how it does things and what it considers important • Mission And Objectives: The Objectives of all the firms is assumed to be Profit Maximization in the long run. Mission is defined as the overall purpose or reason for existence which guides and influences a firm decisions and economic activities www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

TYPES OF BUSINESS ENVIRONMENT 14 • Top Management Structure: The structure of the organization also influences the business decisions. The composition of the board of directors, the degree of professionalization of management and the organizational structure of a company have a important bearing on its business decisions • Power Structure: The internal power relationship between the board of directors and the Chief Executive Officer is an important factor. The extent to which the top management enjoys the support of shareholders and employees at different levels, also has an important bearing on decision making. www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

TYPES OF BUSINESS ENVIRONMENT 15 External Environment : External Environment refers to the factors existing outside a business firm. These are considered to be uncontrollable because the enterprise has No or Partial control over these factors. These are divided into two types: www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

16 Micro Environment Macro Environment Micro Environment consists of the factors in the company's immediate environment. Macro Environment consists of the These are: Economic and Non-Economic variables • Customers: . A business has no meaning that provide opportunities and threats to firms. This is largely uncontrollable unless there are customers to serve. and consists of : • Political Environment • Suppliers: Suppliers are the person who supply various inputs such as money, raw • Economic Environment material, fuel, power etc. • Social And Cultural Environment • Competitors: Business Firms compete to capture a larger share in the market • Technological Environment • Company Image And Brand Equity: The • Legal Environment image and Brand Equity of the company plays a very important and significant role • Natural Environment in raising finance, forming alliances, choosing dealers and suppliers etc. All right are reserved with CU-IDOL www.cuidol.in Unit-1 (MBA605)

MACRO BUSINESS ENVIRONMENT Political Environment Economic Environment 17 Political Environment consists of the elements The Economic Environment consists of forces that relating to government affairs which provides the influence the buying behaviour and spending framework within which business functions. The patterns of consumers and institutions. main components of Political Environment are: The main components of Economic Environment are: • The Constitution of the Country • Political Organization: includes Philosophy of • Economic System: includes Capitalist, Socialist and Mixed Economic System political parties, ideology of the government, nature and extent of bureaucracy, influence of • Economic Policies: includes Monetary Policy, primary groups etc. Fiscal Policy, Supply side Policy etc. • Political Stability: includes structure of Military and police force, election system, Law and order • Economic Indices: includes Gross Domestic situation etc. Product, Consumer Price index, Per Capita • Image of the country and its leaders Income etc. • Foreign policy alignment or non-alignment • Law Governing Business • Financial Market: includes Share Market, Money Market, Derivative Market, Capital Market. Industrial Infrastructure etc. www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

MACRO BUSINESS ENVIRONMENT Social And Cultural Environment 18 Social Environment refers to the characteristics of the Technological Environment society in which a business firm exists and operates. The main components of social and Technology is changing at a fast pace and cultural environment are: technological environment is dramatically affecting • Demographic Forces: includes Size, Composition and Mobility of Population the business environment either due to easy import • Social Institutions and Groups policies or because of technology up- • Caste Structure and Family Organisation • Educational System and Literacy Rate gradation. The main components of • Customs, beliefs, values and life styles • Tastes and Preferences of People Technological Environment are: • Entrepreneurial Spirit • Rate of Technological change and Diffusion • New approaches to the production of goods and services • Use of New processes and equipment • Transfer of Foreign Technology • Impact of Technology on cost, quality and value chain www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

MACRO BUSINESS ENVIRONMENT 19 Legal Environment Natural Environment The Legal Environment consists of the The main components under Natural regulatory forces that will affect the business Environment are: activities and operations. The main components of Legal Environment are: • Climatic Conditions • Agriculture, Commercial, and other • Current Legislation • International Legislation Natural Resources • Regulatory bodies and processes • Ecological System • Tax Regulations • Levels of Pollution • Competitive Regulations • Industry Specific Regulations • Government Regulations www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

PROCESS OF BUSINESS ENVIRONMENT 20 Businesses are greatly influenced by their environment and thus, constantly analyse the trade environment and the market. The most popularly used detailed analysis of the environment is the PESTLE. Managers and strategy builders use this analysis to find where their market is currently and to foresee where the organization will be in the future. The letters in PESTLE, also called PESTEL, denote the following things: • Political factors • Economic factors • Social factors • Technological factors • Legal factors • Environmental factor www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

PROCESS OF BUSINESS ENVIRONMENT 21 PEST is also an environmental analysis. It is a shorter version of PESTLE analysis. STEP, STEEP, STEEPLE , STEEPLED, STEPJE and LEPEST: All of these are acronyms for the same set of factors. Some of them gauge additional factors like ethical and demographical factors. Some political factors are: • Government policies • Taxes laws and tariff • Stability of government • Entry mode regulations www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

PROCESS OF BUSINESS ENVIRONMENT 22 Economic factors that affect business are: • The inflation rate • The interest rate • Disposable income of buyers • Credit accessibility • Unemployment rates • The monetary or fiscal policies • The foreign exchange rate Social factors that affect business are: • The cultural implications • The gender and connected demographics • The social lifestyles • The domestic structures • Educational levels • Distribution of Wealth www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

PROCESS OF BUSINESS ENVIRONMENT Legal developments which influence business environments 23 Technological factors that influence how the are: • Product regulations consumers react to various trends are: • Employment regulations • New discoveries • Competitive regulations • Rate of technological obsolescence • Patent infringements • Rate of technological advances • Health and safety regulations • Innovative technological platforms Environmental factors influence business trades: • Geographical location • The climate and weather • Waste disposal laws • Energy consumption regulation • People’s attitude towards the environment www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

ECONOMIC SYSTEM 24 Economics • Economics is the social science that analyzes the production, distribution and consumption of goods & services. Economic System • Economic System is the system of production, distribution and consumption • An economic system is a mechanism (also defined as system or social institution) which deals with the production, distribution and consumption of goods and services in a particular society. • The economic system is composed of people, institutions and their relationships. It addresses the problems of economics like the allocation of the resources. www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

ECONOMIC SYSTEM 25 An economic system is the combination of the various agencies, entities that provide the economic structure that guides the social community www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

DIFFERENT ECONOMIC SYSTEMS There are four types of economic systems: traditional, command, market, and mixed economies. A traditional 2 6 economic system focuses exclusively on goods and services that are directly related to its beliefs and traditions. A command economic system is characterized by a dominant centralized power. A market economic system relies on free markets and does not allow any government involvement. Finally, a mixed economic system is any mixture of a market and a command economic system. A traditional economic system focuses • exclusively on goods and services that are directly related to its beliefs, customs, and traditions • It relies heavily on individuals and doesn’t usually show a significant degree of specialization and division of labour www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

DIFFERENT ECONOMIC SYSTEMS 27 A command economic system is characterized by: • a dominant centralized power (usually the government) that controls a large part of all economic activity. • this type of economy is most commonly found in communist countries. It is sometimes also referred to as a planned economic system because there is no free market at play. www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

DIFFERENT ECONOMIC SYSTEMS 28 A market economic system • relies on free markets and does not allow any government involvement in the economy, there is no real example of a pure market economy in the real world • the entire system is regulated by the people and the law of supply and demand. Therefore, this system is sometimes also referred to as laissez-faire capitalism. www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

DIFFERENT ECONOMIC SYSTEMS 29 A mixed economic system • refers to a mixture of a market and a command economic system. It is sometimes also referred to as a dual economy. • most western economies nowadays are considered mixed economies. Most industries in those systems are privately owned, whereas a small number of public utilities and services remain in government control. www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

CAPITALISM Capitalism is an economic system in which the means of production are privately owned and operated for profit, 3 0 usually in competitive markets. In other words, an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations. OR Capitalism is the social system which now exists in most countries of the world. Under this system, the means for producing and distributing goods (the land, factories, technology, transport system etc) are owned by a small minority of people. We refer to this group of people as the capitalist class. The majority of people must sell their ability to work in return for a wage or salary (who we refer to as the working class.) Examples of Capitalist countries - Germany, USA, Japan www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

CAPITALISM 31 All right are reserved with CU-IDOL Benefits of Capitalism • In years 1000–1820 world economy grew six-fold, in years 1820–1998 world economy grew 50-fold • Provides Choice to customers • Provides valuable goods and services • Capitalism actively rewards positive traits like hard work • Similarly, it punishes negative traits such as laziness and theft • Narrows the gap between common person and wealthy • Provides opportunity to realize dreams and desires • Capitalist societies usually do not have large black markets • Build on democracy • Social Good www.cuidol.in Unit-1 (MBA605)

CAPITALISM 32 Major limitations/ Criticism: • Downfall of work ethics • Free Market + Self Interest • Accumulation of wealth • Encourages inequality in a society • Business lobbying with government • Monopolistic tendency • Human resource exploitation • Results in great disparities between income of people owning the capital resources and others www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

SOCIALISM 33 All right are reserved with CU-IDOL Socialism is a term applied to an economic system in which property is held in common and not individually, and relationships are governed by a political hierarchy. Common ownership doesn't mean decisions are made collectively, instead, individuals in positions of authority make decisions in the name of the collective group. Socialists argue that socialism would allow for wealth to be distributed based on how much one contributes to society, as opposed to how much capital one holds. A primary goal of socialism is social equality and a distribution of Wealth based on one’s contribution to society and an economic arrangement that would serve the interests of society as a whole. Examples – Denmark, Norway www.cuidol.in Unit-1 (MBA605)

SOCIALISM 34 Benefits of Socialism • Better salaries • Stable Environment • Eliminates poverty • Better Products • Fulfills survival need www.cuidol.in • Opportunity for citizens to explore non- economically-productive pursuits Unit-1 (MBA605) All right are reserved with CU-IDOL

SOCIALISM 35 All right are reserved with CU-IDOL Criticism of Socialism • Distorted price signals • Suppression of economic democracy • Slow Technological advancements • Minimize self management • Reduced incentives www.cuidol.in Unit-1 (MBA605)

COMPARISON 36 www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

COMPARISON BASIS OF DIFFERENCE CAPITALIST ECONOMY SOCIALIST ECONOMY 37 Resources Ownership Privately owned State owned Foundation belief Earning of wealth competition brings out the best in cooperation is the best way for people to coexist Market Scenario people everyone works for his own wealth everyone works for wealth which is distributed Govt. interference equally to everyone Employees motivation Level playing field Protection to PSUs, Private enterprises are Merit permitted in few businesses only Demerit Only in situations where laws have Fully involved www.cuidol.in been broken Rarely motivated as performance is not rewarded Highly motivated on account of proportional benefits Equal distribution of income results in welfare of all Perception of better economic growth because of competition Few individuals/groups attain powers, Hard work is not rewarded, lazy employees also rest are exploited enjoy equal level of benefits Unit-1 (MBA605) All right are reserved with CU-IDOL

MIXED ECONOMIC SYSTEMS 38 ❖ A mixed economic system is a system that combines aspects of both capitalism and socialism A mixed economic system protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims. A mixed economy is an economy organized with some free market elements and some socialistic elements, which lies on a continuum somewhere between pure capitalism and pure socialism. Mixed economies typically maintain private ownership and control of most of the means of production, but often under government regulation. Mixed economies socialize select industries that are deemed essential or that produce public goods All known historical and modern economies are examples of mixed economies www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

MIXED ECONOMIC SYSTEMS Features 39 Resources are owned both by the government as well as private individuals. i.e. co-existence of both public sector and private sector. Market forces prevail but are closely monitored by the government. Monopolies may be existing but under close supervision of the government Advantages Producers and consumer have sovereignty to choose what to produce and what to consume but production and consumption of harmful goods and services may be stopped by the government. As compared to Market economy, a mixed economy may have less income inequality due to the role played by the government. A mixed economy represents an achievable balance between individual initiative and social goals. www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

MULTIPLE CHOICE QUESTIONS 1) Which of the following form one of the characteristics of business? 40 A) Government Controls C) Globalization B) Diversification D) All of the above 2) Which among the following is not a feature of Nature of Business? A) Independent Entity C) Relative B) Aggregative D) Uncertain 3) Which among the following is not a feature of Political Environment? A) Political Stability C) Financial Market B) Image of country D) Government Policies 4) The trade and market environment can analysed by A) PESTLE C) STEEPLE B) STEP D) All of the above 5) Business is influenced by C) Technological Factors All right are reserved with CU-IDOL A) Social Factors D) All B) Legal Factors Unit-1 (MBA605) Answer:1 (d) , 2 (a), 3 (c), 4(d) , 5(d) www.cuidol.in

SUMMARY 41 ❖ Macroeconomic Environment of Business - Financial Environment of Business, Industrial Environment, India and the world ❖ Business Goals - Profit / income, Growth, Market Leadership, Customer satisfaction, Employee satisfaction, Quality Products & Services, Service to Society ❖ Business Challenges - Meeting stakeholders expectations, Developing and retaining top talent, Creating a customer responsive organization, Diminishing time to market, Market agility, Pricing and quality ❖ Business Environment - Complex, Multi-faceted, Decision making oriented, Dynamic, Far- reaching impact, Uncertainty assessment ❖ Types of Business Environment - Political Environment, Economic Environment, Social And Cultural Environment, Technological Environment, Legal Environment, Natural Environment www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

FREQUENTLY ASKED QUESTIONS 42 Q1.Enumerate the various types of Economies. Ans: There are four types of economic systems: traditional, command, market, and mixed economies. A traditional economic system focuses exclusively on goods and services that are directly related to its beliefs and traditions. For further detail refer to the SLM unit-1,2 Q2. How you will differentiate between the various types of Business Environment. Ans: The different types of business environments are Political Environment, Economic Environment, Social And Cultural Environment, Technological Environment, Legal Environment, Natural Environment. For further detail refer to the SLM unit-1,2 www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

REFERENCES 43 ❖ Baumel, W.J.,A.S. Blinder and W.M.Scarth (1985), Economics:Principles and Policy, Academic Press Canada, Toronto, Chapters-26, 34, 38, 40 and 41. ❖ Planning Commission, (1997) Approach paper to the Ninth Five Year Plan, Government of India, New Delhi Chapter-1. ❖ Swamy, D.S. (1994), The Political Economy of Industrialization, Sage Publications, New Delhi, Introduction, Chapter-1, and Conclusion. ❖ Dasgupta, A and Sengupta, N.K. 1989 Government and Business, Vikas Pulishing House, New Delhi. ❖ Nadkarni, M.V., A.S. Seetharamu and Abdul Aziz, 1991, India – The Emerging Challlenges, Sage India. ❖ Krishna, Sumi, 1996, Environmental Politics, Sage India. www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL

44 THANK YOU For queries Email: [email protected] www.cuidol.in Unit-1 (MBA605) All right are reserved with CU-IDOL