concept of business environment unit 1--2-47

CONTENT Unit - 1: Concept of Business Environment………………………………………….

UNIT - 1: CONCEPT OF BUSINESS ENVIRONMENT STRUCTURE 1.1 Learning Objectives 1.2 Introduction 1.3 Business 1.3.1 Concept 1.3.2 Characteristics 1.3.3 Division 1.4 Business Environment, 1.4.1 Concept 1.4.2 Interrelationship between business and environment 1.4.3 Nature of a business environment 1.4.4 Characteristics of a business environment 1.4.5 Significance of Business Environment 1.5 Types of Business Environment 1.5.1 Internal Business Environment 1.5.2 External Business Environment 1.5 Environmental Analysis 1.6.1 Process of Environmental Analysis

1.6.2 SWOT Analysis 1.7 Summary 1.8 Self-Assessment Questions 1.9 Suggested Readings 1.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Explain the concept of Business Environment and highlights its significance.  Identify the interaction of different elements of Business Environment  Differentiate between Internal and External Business Environment  Describe the process of Environmental Analysis 1.1 INTRODUCTION Environment means external things like climate, infrastructure, roads, mountains, sun, rain i.e. the surroundings in which we exist. Similarly, business also exists in an environment where it establishes, grows or operates and dies. It exchanges resources with the environment in the form of inputs that is collected from surroundings like man money, materials, machines etc. and provides output like goods and services in the environment. For existence, success and growth business need to recognize different elements of environment, manage and influence them. The factors, circumstances and events which occurs and influence the way a business operates, either in a positive or a negative way and are called as an 'environmental factors.' The environmental factors are classified as: internal environmental factors and external environmental factors. The occurrences of activities or events which are easily manageable are categorized under internal environmental factors. The occurrence of activities or events outside the organization which are not easy to manage and anticipate will be categorized as external environmental factors. External environment is an attempt to understand the outside forces of the organizational boundaries and also provide both facilitating and inhibiting influences on organizational performance. Some examples of external environmental factors are noted below:

 Changes to the economy  Government regulations  The industry itself  Threats from competition  Political factors Different factors of external environment exert different influence on businesses and industries and plays significant role in defining the implications of business environment for future strategies. Environment Analysis and scanning becomes crucial method for any competitive business to identify, appraise and respond to various opportunities and threats in business environment. The need of the hour is that the businesses need to be proactive and agile to cope up with the rapid changes, improve the performances, tap useful resources, evolve as a strong competitor and ensure sustainable development. 1.2 BUSINESS 1.2.1 Concept: A commercial or economic activity engaged in as a means of livelihood or profit, or an entity which engages in such activities or which is related with continuous and regular production and distribution of goods and services for satisfying human wants is known as business. All of us need food, clothing, shelter and many other household requirements that needs to be satisfied in our daily lives. We fulfil these requirements from the shopkeeper or departmental store. These shopkeepers and the departmental store get the products from wholesaler and wholesaler gets it from manufacturer. Thus, the shopkeeper, the wholesaler and the manufacturer are doing business. Stephenson defines business as, ―The regular production or purchase and sale of goods undertaken with an objective of earning profit and acquiring wealth through the satisfaction of human wants.‖

According to Dicksee, ―Business refers to a form of activity conducted with an objective of earning profits for the benefit of those on whose behalf the activity is conducted.‖ Lewis Henry defines business as, ―Human activity directed towards producing or acquiring wealth through buying and selling of goods.‖ Thus, the term business means continuous production and distribution of goods and services with the aim of earning profits under uncertain market conditions. It can be privately owned, not-for-profit or state-owned. An example of a corporate business is PepsiCo, while a National Thermal Power Corporation is a Public Sector undertaking. 1.2.2 Characteristics Of Business: Features of Regularity of Exchange of goods Risk anduncertainty enterprise transactions and services Main Objective is Economic activities Element of Creation Profit related to production of utilities and distribution Fig 1.2.1: Characteristics of Business

Features of enterprise: The driving force behind any business is the courage of entrepreneur or group of investors who anticipates and visualizes business, organizes resources for production such as land, labour and capital, supervises , undertakes risks and bears liabilities. Main Objective is Profit: Profit motive is the most essential characteristic of business that acts as an incentive to be engaged in it. All business activities are directed towards reaping more than what has been invested. If an enterprise fails to make profit in one line of business, it is natural that it will turn to another field before it decides to fold up. Economic activities related to production and distribution: Profit objective can be realized through production and distribution of goods and services. Regularity of transactions: When transactions are regular and continuous, then such transactions are treated as business. Recurrence of transactions, therefore, is a hallmark of business. Interchange of goods and services: Business is all about working with commodities and products. The goods produced by the primary sectors are termed as Commodities i.e. agriculture and mining while the goods produced by the secondary sector are termed as products i.e. manufactured or processed goods. Business also provides services like IT enabled sector, Hospitality sector, Banking sector, etc that are invisible and intangible. Risk and uncertainty: The dynamic nature of business environment and uncontrollable external environment makes its very unpredictable. Unpredictability increases the level of risk for businesses. Interaction and interplay of different elements ensures the vigilant and proactiveness in business. Risk Management, Environmental Analysis, Scanning and Forecasting Methods become important skill set for people in business at different level. Element of creation of utilities: Adding value to the products and services is the main function of any business that leads to creation of utility. Utility is the satisfaction experienced by the consumers from goods or services. Business is always engaged in offering different kind of utilities from products and services like time utility, form utility and place utility. When professionals like doctor or an engineer offers their services then service utility is created. 1.2.3 Divisions Of Business

IndustryDivision of Business Commerce Trade Fig 1.2.2: Division of Business Business activity creates industry, commerce and trade. Industry refers to the activity of production, processing and transforming raw materials into goods and services. It adds values to the output by changing the form or shape, thus creating form utility . It requires infrastructure and huge fixed and working capital. The demand sides of goods and services are termed as Commerce. Interchange of goods and services is the main function of Commerce. Commerce is engaged in creating place and time utility by preserving, storing and moving goods from one place to another place. Trade is all about exchange of goods and services between buyers and sellers, thus creating place utility. Domestic and International trade are also the forms of trade. 1.3BUSINESS ENVIRONMENT 1.3.1 : Concept and Meaning To survive and succeed in any type of industry and in any region, business needs to anticipate and adapt to the changes in th e environment. The different dimension of business-like type of business, business location, products pricing, supply chain and

logistics or the organizational policies is affected by the elements of environment. The capability of any business to modify and reshape itself to the changes in the environment ensures its successful existence. For instance, when new government is elected in central or there is amendment in any economic policies, then businesses need to analyze and adapt to such changes. Like a change in the fashion or customers taste may shift the demand in the market for a particular product, e.g., the demand for jeans reduced the sale of other traditional wear. When there is a change in technology, then also the business has to make necessary up gradation to cope up with the new advancement for its survival, as we have seen that the introduction of computer has replaced the typewriters; the colour television has made the black and white television out of fashion. All these aspects are external factors that are beyond the control of the business. So, it is essential for business units to adapt themselves to these changes in order to survive and succeed in business. Business can develop such ability after having a clear understanding of business environment and the nature of its various factors. The term ‗business environment‘ connotes all those factors, external forces and institutions like customers, competitors, suppliers, government, social factors, technological factors, political factors and legal factors, etc. which acts on business operations and which are not manageable by business. Such elements exert direct or indirect influence over the business firm. Thus, business environment may be termed as the set of elements in the surroundings that has a direct or indirect bearing on the performance of the business. It may also be defined as collective action of the external factors, such as economic factors, social factors, political and legal factors, demographic factors, and technical factors etc., that affects the decision-making process of an environment. 1.3.2 Interrelationship Between Business And Environment: Business dynamics is dependent on environmental dynamics. The inter-relation of business organization and its environment is obvious from the point of analysis of strengths, weakness, opportunity and threats of business. The organization has certain vision, mission, objectives and goals and a strategy to achieve them. An organization‘s internal strategy and policy should be in sync with environment as business environment has relevance on various dimension of business. Organizations align resources and strategies to design the vision, mission, objectives to ensure perfect blend of all elements. Organization environment consists of internal environment and external environment. Internal environment factors are easily controllable and manageable in the organization whereas external environment factors are uncontrollable. An organizational structure and functions of business

enterprise is influenced from an external environment that offers wide range of opportunities, problems, threats and pressures. Business enterprises are the subsets of external environment as it is always engaged in procuring resource, it. These inputs are transformed into outputs in the form of products and services, goals and satisfactions and exchange of proper ideas which is transmitted to the business enterprise. Environment Exchange Business Exchange of of Exchange Informatio of influences n and power Resources

Fig 1.3.1: Inter-relationships between Business and its Environment Figure 1.3.1 indicates the relation between organization and its environment as listed below: • Exchange of Information • Exchange of Resource • Exchange of Influence and Power Exchange of Information It refers to information or data that is exchanged with business enterprise and its internal and external environment. Exchange of information takes place in the following ways as given below: • Business organization accesses the internal and external environment components and their behaviour, changes and thereby generates important information. This information is very valuable for business which helps in decision making, proper planning and control of environment variables in an organization. • Business organization structure and functions are adjusted according to the external environment information. • Generation of external environment information is complex process and it is one of the major problems which involve uncertainty to business organization. • A business project looks for current and future information which is related to demography, competition, and technical, legal, political and government policies and procedures. A business organization not only gathers the information, a business organization itself also provides its information in the following ways:  Organization transfers its own information to several external agencies either voluntarily, inadvertently or legally.  An organization‘s information is accessible in different formats like annual reports, occasional advertisements and media reports etc.  Some organizations and interested individuals also approaches business organization to obtain the valuable information which is related with functions, products, services and social responsibility towards stakeholders of the company.

 A business organization is legally bound to supply valuable information to its stakeholders like government, society, shareholders, financial institution, investors, creditors, debtors, employees, trade unions, business bodies etc. Exchange of Resource The important relation that establishes the integration between any business enterprises its environment is interchange of resources which includes following aspects as:  Business organization procures different forms of like capital, machine, labour and raw material by suppliers, contractors or producer of raw materials.  Transformation of these inputs (raw material) into products and services i.e. output takes place in an organization and employees plays very important and crucial role in it.  For uninterrupted supply of inputs, Organization always maintains good relation with the suppliers. For this purpose, an organization generally collaborates with few other organizations to ensure a consistent supply of quality raw materials (inputs) and it does not depend on single supplier to avoid any interruption in the supply.  An organization supply its output to large consumer base in the form of products and services in the environment. To maintain accessibility of business offerings in the consumer market and maintaining profit levels continuous scanning is important. Business needs to identify the wants and needs of consumer and provide best utility options through their offerings, continuous interaction is must with the environment. Business is responsible to meet the expectation of different stakeholders along with consumers like clients, customers, employees, shareholders, creditors, suppliers, local community, and general public and so on.  These stakeholder pressurizes the organization to meet their expectations, needs and demands and for upholding their value and interests in the organization resources. Exchange of Influence and Power: Exchange of power and influences takes place in the following ways:  Organizations always try to strategize their operations and functions to survive in the dynamic environment.  The stakeholder has various expectations like they expect good dividend and increased profitability from the organization. So they keep on influencing the organization and sometime uses their powers to ensure that the

organization meet their expectations. It became important on the part of Organizations to maintain cordial relationship with the stakeholders and society.  Also, the employees too expect good working conditions, challenging career path, growth opportunities, rewards and recognition, training and development programs. They influence the organization and use their power of Labour union to fulfil their demands.  Organization influences employees by creating attractive rewards and recognition programs to improve their efficiency and productivity.  Organization influences society by creating and maintaining good brand, supplying quality products and services and carrying out impressive CSR (corporate social responsibility) activities. 1.3.3 Nature ofa Business Environment: The nature of Business Environment is simply and better explained by the following approaches. Creative Approach Nature of Business Environment Sustainable System Development Approach Approach Fig 1.3.2 Different approaches to the Nature of Business Environment

Creative Approach: Business needs to understand the expectations, preference and change in the demands of consumers. To corelate the expectations with product and service designing needs integration of R&D with available opportunities and tackling the challenges in the environment. System Approach: Business is like a system consists of interlinked parts that utilizes inputs in the form of raw material, labour, capital and process it with the help of methods and machineries to produce goods and services that offer different forms of utilities. Sustainable Development Approach: In this approach the emphasis is on designing and implementing such business strategies that effectively manages the expectations of stakeholders and contributes in protecting and nurturing the human and natural resource for future. 1.3.4 Characteristics ofa Business Environment: The characteristics of business environment are as follows: (1) Totality of External Forces: Business Environment is the summation of all those factors/forces that are available outside the business and over which the business has no control. It is the group of many such forces that is why, its nature is of totality. (2) Specific and General Forces: The external elements to the business can be categorized as – specific and general. (i) Specific: These are those elements which are industry -specific like customers, investors, suppliers, competitive firms, etc. (ii) General: These are those elements which have general impact on all industries like social, political, legal and technical. (3) Interrelatedness:

There exists inter-relation between the different factors of business environment. For instance, a new Government got elected in the center and they approved new amendments in Import-Export Policy. The new central government in power is an important political change and amendments in Import-Export Policy are economical change. Thus, changes in one element of business environment either introduce changes or influence another factor. (4) Dynamic Nature: Change is only constant. So, it‘s obvious that different elements in the environment are not stable one, they keep on changing and as they are inter-related so they create domino effect on another factor. (5) Unpredictability: There are so many techniques utilized for environmental scanning and forecasting but still there is a scope of unexpected changes that can influence business environment factor. As these factors are dynamic in nature, so the changes introduced in them are quick. For instance, a specific technology that is mostly utilized by organization like SAP module got outdated or new application got introduced with more features. Then within a day or within few hours SAP technology got outdated and if businesses do not respond to this change then they can suffer losses. Even after studying trends and anticipating future status of business environment, unpredictability exists. (6) Entanglement: Business Environment is like a web of factors that not only affect businesses but also each other as well. That‘s why their dynamic nature, unpredictability and inter- relation make them very complex for businesses to deal with them smoothly. (7) Multi-faceted: Different kind of environmental changes and development is being perceived differently by different organization based on their existing resources, competitive advantage and capability to withstand the future challenges. For example, Ayurveda is an opportunity for Indian herbal companies while it is a threat for foreign cosmetic brands. (8) Far-reaching impact: Any change in an environment has a direct impact on organization in different ways because an organization is critically dependent on the environment in which it exists.

(9) Relativity: Business environment is related to the local conditions and this is the reason as to why the business environment happens to be different in different countries and different even in the same country at different places. 1.3.5 Significance of Business Environment: Business and its environment co-exist, interact regularly and thus, emphasize to improve core-competency of an organization to ensure optimum utilization of resources. As the elements of business environment are inter-related then it became very essential to understand their implications. There is a close and continuous interaction between the business and its environment that helps in strengthening the business firm and using its resources more efficiently. The business environment is multifaceted, complex, and dynamic in nature and has a far-reaching impact on the survival and growth of the business. Proper anticipation of different factors like social, political, legal and economic environment will be beneficial to business in the following ways:  Management will be more effective if Dynamic Nature of Environment is considered: There is always some changes get introduced in different elements of business environment expecting to modify business accordingly. Like technological changes happens quickly, natural calamities like COVID-19 pandemic, etc.  Economic System: Business is an economic activity, so different types of economic system in different countries have different implications for domestic and international business. Capitalist economic system supports private business and free-will of wealthy entrepreneurs, socialist economic system supports Government controlled economy while mixed supports co-existence of public and private sector.  Identifying Opportunities and Threats: Scanning and analysis of environmental factors helps business to identify the opportunities and manages the threat effectively.  Optimum Utilization of Resources: Without the support of elements of business environment, effective utilization of resource is impossible.  Market Conditions: Business environment provides information about favourable or unfavourable market condition. New business start- up or expansion decision are affected by such market condition and their knowledge helps in improving such decisions.

 Attitude of customers: Demand and supply determines the quantity and quality ofgoods and services to be produced by the businesses. The demand and supply of particular products are dependent directly or indirectly on the needs and wants of the customers. Attitude of customer is very important to manage the demand and supply decision.  Giving Direction for Growth: Expansion plans and development of business is drive by the opportunities identified in the interaction with business environment.  Never-Ending Learning: Adaptability and Adjustment capabilities are boosted with proper implementation ofEnvironmental scanning. Environmental scanning also encourages managers to upgrade their understanding, knowledge base and competency to anticipate the changes.  Creating strong Business Image: Keeping track of elements of Business Environment and co-relating their impact on business helps business to respond efficiently to the changes and create positive and strong business image. Like many businesses have incorporated sustainability development in their culture and adopted environmentally friendly technologies and methods to maintain healthy atmospheric conditions.  Managing Competition: Core competency and competitive advantage is must for market success and for this it‘s important to analyse competitor‘s competitive advantage to improve the existing strategies. 1.4 TYPES OF ENVIRONMENT Business Environment is broadly categorized into internal and external environment as follows: Business Environment Different types of Internal External Business Environment Environment Environment Sub -categories of Micro- Macro- External Environment Environment Environment

Fig 1.4.1: Classification of Business Environment 1.4.1 Internal Environment: It is defined as all the forces or conditions that are available within the boundaries of an organization that affects its functions and performance. It is also known as controllable factors because business can control them. Managing resources like physical, monetary, labour, technology and other that helps business to perceive strategies are termed as Internal Environment. Elements like factory, machineries are tangible while some elements like culture, teamwork, coordination, efficiency level of employees are intangible. The competitive strategy should always be aligned with the resources of the internal environment. All these elements help the organization to add values to products and services that are being offered to customers. This value addition is the core-competency of an organization and it is reflected in its working culture, values and operations. Core competencies are built over a period of time by proper alignment of resources and planning. Some business offers quality products (like Apple), some offers great customer service (like Maruti Suzuki), some believe in extending real – time supports (Like Milk delivery apps) or prompt delivery services (Like Domino‘s), The competitive advantage is built by deploying the internal resources of business in response to the changes in external environment. If the import duty of raw material is increased then organization needs to alter the production method or increase the cost of finished goods. Constituents Of Internal Environment: The following figure describes the elements that make up the internal environment. Internal Environment Value System Management Human Organizational

Fig 1.4.2: Elements of Internal Business Environment Value System (Organizational Culture) The value system of an organization is like an organization‘s personality. Every organization is different from other organization even though it can be from same industry like traits of persons are different which defines distinct personality, of an indiv idual. So does each organization. The value system of an organization distinguishes it from others and shapes the actions of its members. There are four important components that of a Value system or Organizational Culture:  Values  Heroes  Ceremonials  Social network Values are the fundamental faith that defines employees' accomplishments in an organization. For instance, many organizations give importance to their employees who are engaged in some sports activities or cultural events. Even such organizations organize sports or cultural events among different branches to motivate and respect the hobbies of employees. In return, this organization enjoys employee‘s loyalty and increased productivity. So, arranging extra-curricular events reflects organizational values. The next component is heroes. A hero is an idealistic person who echoes the organization‘s attitudes, image or values and serves as an epitome to other employees. A hero is sometimes the initiator of the organization (think Steve Job of Apple and JRD of

Tata). However, the hero of a company can be daily wage worker and not the founder; like as hard‐ working paralegal Erin Brockovich, who had a tremendous impact on the organization. Ceremonials, another component, are programmes or ceremonies that are used as important recognizing and rewarding method for outstanding performance of the employees. Awards banquets, company gatherings, and quarterly meetings can acknowledge excellent employees for outstanding service. The honourees are treated as heroes who set an example and motivate all employees of the company. The final and informal component is the social networkthat acts as very important channel of communication. It is also referred as company grapevine that simultaneously shares the stories of success and failure. Social network shoulder‘s the responsibility of integrating employees into organization's culture and values. Hence concerted behaviour of human capital of an organization is termed as organization‘s value or culture. The extent to wh ich the culture of the organization is shared by all, leads to an important factor contributing to success. For example when the Murugappa group has taken over the EID parry group, one of the most profitable business of Parry group i.e. of liquor was sold off as it was against the value system of Murugappa group. So, value system is an important factor evaluated by many companies while selecting the suppliers, distributors and collaborators etc. Vision, Mission And Objectives: Vision means the ability to think about the future with imagination and wisdom. It is an important factor in achieving the objectives of the organization. An organization's mission statement reflects the core purpose of it‘s existence and what is their operations meant for.It highlights the core competency of an organization and differentiates it from other organizations of its type. The mission is the medium through which the objectives are achieved. A mission statement is not only text or content on the paper but communicates organization‘s beliefs and objectives. This declaration should be a habit which provides guidance and motivation to the employees of an organization. A mission statement is like an answer for, ―What are our beliefs?‘, ―What is our purpose?‖ This statement directs the strategies of an organization by re-grouping its employees to work collaboratively for common objectives.

The effectual mission statements will lead to constructive efforts. Business Environment is very dynamic and consumer are conscious more about quality products, so in such scenario efficacious mission statement's that is meant for catering the expectation of consumers effectively is must. A good mission statement is precise in identifying the following intents of a company: Customers — who are end-users Products/services — types and features of products or services. Location — where the production will take place Philosophy — what will be underlying principles Organization‘s Vision, mission and objectives guides its priorities, philosophies, policies etc. e.g., Ranbaxy‘s mission is to be recognized as world class pharmaceutical company that thrust upon R&D which influences it‘s growth strategy. Top Management Structure: The official structure of an organization is the hierarchical ordering of people and tasks. This structure ensures dissipation of information within the organization, what tasks will be carried out by different departments and the power level of decision‐ making power rests. Top management structure is the configuration of the board of directors, the organizational structure, and the quality of the board. Board Members are the highest decision-making authority of an organization so its quality is considered as a critical factor. Extent of professionalism, stand of nominee of financial institutions and the shareholding pattern could have important managerial implications. All these factors are of great importance from the point of view of the company‘s internal environment. Organization chart is referred by some companies to simplify the breakdown of its formal structure. This organizational chart helps to visualize the formal lines of authority and communication within an organization. In some organization promoters owns majority of share like Wipro, Tata group company and such promoter‘s stance is at risk. Internal Power Relationship: The internal power relationship between the board of directors and senior executive officers highly affect the decision making process of the organisation. The quality of human resources of a company depends largely on competence, commitment, attitude

and motivation which plays an important role in the success of an organisation. The top management enjoys the support from different level of employees and shareholders have an important impact over the decision and their implementation. Human Resources: The characteristics of human resource like quality, skills, attitude, morale, commitment, involvement and initiative influences organizational culture, strength and weakness and environment of the organization. Western countries treat their few employees as process improvers and others as workers, while Japanese companies treat their all employees as processimprovers. Company Image And Brand Equity: The image and brand equity of the company helps in raising finance, choosing dealers and suppliers, new product introduction, form alliances with marketing intermediaries, opting for joint ventures and other alliance and entering a sale or purchase contract, etc. Organizational Climate: One of the important outputs of the company's culture is the organizational climate. The whole theme of the organization and the self-esteem of its employees are components of daily climate. The optimistic or pessimistic outlook of employees affects ―climate‖ of the organization. The day-to-day co-relation and inter-activity of employees are emblematic of an organization's climate. Other Factors: Belief system of management is the manager's set of personal notions and values about people and work and as such, is something that the manager can dominate. According to McGregor, who emphasized that a manager's ideology creates a self‐ fulfilling prediction, which leads to two types of managers. The Theory X managers assumes employees as one who are not interested in their work naturally and need proper command for execution of task, while Theory Y managers assumes employees are responsible and self – motivated for their work so participative style of management is adopted. These managerial beliefs then have a succeeding result on employee behaviour, leading to more precise anticipation. As a result there is always modulation need to be maintained between organizational philosophies and managerial philosophies.

Empowerment means assigning the authority of decision‐ making to subordinates, that inculcates responsibility and confidence. Most of organizations and managers are adopting participative style of management that encourages engagement and team work. Additionally, element of guidance helps to increase the efficacy of the employees and thus contributing in cost reduction, quality improvement, better customer service and strong employee‘s commitment. Also, there will be considerable upgradation in response time as proper information is shared among different levels of management efficiently. Empowerment helps to resolve issue immediately as employees close to situation like machine breakdown in floor shop can immediately respond and resolve the issue than the manager who might be not present in that vicinity. Competency of an organization is also influenced by the production capability, technology, R & D work, supply chain and logistics etc. 1.4.2 External Environment: External environment refers to external aspects or forces of the surroundings of business enterprise, which have both facilitating and inhibiting influences on the functioning of the business. The key dimension of an external environment consists of a micro environment and a macro environment. The classification of External environment is as follows: External Environment Micro Environment Macro environment  Suppliers  Economic  Customers  Political  Market Intermediaries  Social and Cultural  Competitor  Technological  Financiers  Legal  Public  Natural  Financial

 Demography  Global Fig 1.4 : Elements of External Business Environment Micro Environment: Micro environment of business enterprise refers to analysis of small area or immediate periphery which comprises of those forces of the business organization that influence it‘s functioning. The micro environmental factors are intimately linked. There will be few micro factors that are more relevant for certain industries and even the impact of such factors will vary from industry to industry. Micro Environment analyzes the following important factors:  Human resource (Employees) of the firm, their characteristics and how they are organized in the firm.  It analyses the way fund is raised from the market.  It analyses the suppliers of raw materials and the supply chain network between the supplier and firm being developed.  It analyses the customer base of firm who are major and minor clients of business.  It analyses the local communities of firm where it‘s operating.  It analyses the direct competition from the competitors and how they perform in business. The most important performers in the micro environment are as follows:  Suppliers: Business enterprises require a number of suppliers, who supply raw materials and components to the company. Uncertainty regarding the supply, dependence on a single supplier and supplier‘s terms and conditions has an adverse effect on the cost and production. Because of this, vertical integration, supply management, outsourcing, partnering and relationship marketing has geared popularity in the recent times.

Company like Nirma has opted for backward integration because they believe that the captive production plants for the raw materials are the best way to keep a check on the production cost.  Customers: In today‘s scenario, Customer is a King and central point for any business as they influence business survival and success. All customers expect high quality products, speedy deliveries, comfortable return and exchange policies, offers and after sales service, proper 24 × 7 customer support which has drastically changed the business environment. Success of business largely depends on identifying the needs, desires, tastes liking etc. of a customer. Now days, online shopping portal has gained popularity in the Indian market which has opened new market for the Indian companies. It has not only created an opportunity for new companies but threat to existing shopping malls and retailers. Portals like flipkart, snapdeal, myntra, etc. are taking advantage of this new shift in the customer‘s lifestyle of purchasing goods from home i.e. through online websites.  Market Intermediaries: The firms which help the companies in promotions, sales and distribution of the goods to the final buyer are known as market intermediaries. It includes agents, brokers or merchants who act as a link between company and the final consumer. The firms which are in the business of warehouses and transportation, they assist the manufacturing companies to stock and move the goods from their origin to destination. Advertising, market research and media firms help their client companies to promote their product and target the market effectively. Any wrong choice or misunderstanding regarding market intermediaries can result in heavy losses. HUL has confronted issue like collective boycott in Kerala on the issue of trade margin.  Competitor: An opponent is a simple synonym for the competitor. Any business activities that produce same kind of products and services are in direct competition and other firms which are in production of other products and services are in indirect competition. Example a laptop manufacturing firm faces direct competition from other laptop manufacturing firms and indirect competition from mobile manufacturers, tablet manufacturers, smart TV‘s manufacturers, etc.

A firm also faces desire competition i.e., when customer has many choices for investing his income. In other words, when there is competition among such alternatives which satisfy a particular category of desire and it is very high in the countries with limited disposable incomes and many unsatisfied desires. A firm can face such competition from all those firms who are interested in the discretionary income of the consumers. For example, the direct rivalry for a laptop manufacturer would not be limited to the other laptop manufacturers but also can involve substitute for laptop as two-wheelers, refrigerators, cooking ranges, firms offering saving and investment schemes like deposits and issuing shares or debentures, etc. If the consumer decides to go in for a laptop, the next query is which type of laptop like with long batteries, advanced graphics and flexible laptop cum tablet and such competition is known as product form competition. Brand Competition is the competition between the different brands of the same product form. Thus, activities of a business adjust according to the actions and reactions of competitors.  Financers: The capability of the financiers is very important for any business organization but beside this, their policies and strategies, attitude (including attitude towards risks), ability to provide non-financial assistance, etc. are also of utmost important.  Public: There can be direct or indirect impact of group of individuals on the capability of an organization to achieve its goal is known as public. Some media public can seriously have an adverse or good impact on company‘s brand image, market shares and profit. Like McDonald in India is facing a media‘s adverse impact on their image currently as one of the McDonald‘s outlet has treated the poor kid badly when he asked for food. Sometimes, media coverage of such incidence also affect and influence the government decisions affecting the company. Many companies have undergone drastic change in their operation because of the local public awareness about the environmental pollution, child labour, cruelty against animals, etc. Like many cosmetic companies have stopped testing their products on animals because awareness has been spread by NGO‘s regarding the same among local public. Public is not only being assumed to be threat for businesses but also regarded as an opportunity as well. Like some companies use media public to disseminate useful information.

Macro Environment: Macro environment includes major external and uncontrollable factors that influence an organization‘s decision-making and affects its performance and strategies. So, to survive and succeed, the company needs to develop its adaptability towards external environment. It principally consists of economic, technological, and political legal and socio-cultural factors. Macro Environment analyzes the following important factors:  It helps to detect the threats by analysing the competitors.  It helps to analyses the opportunities and threats linked with the technological changes in the market.  It helps to analyse the bargaining power of suppliers and customers.  It includes the following factors: Economic Environment: The economic environment of the country influences any business enterprise because it conducts its activities in the country‘ s market system with the objective of profit maximization and treated as economic entity. The economic environment consists of factors like structure and nature of economy, economic policies, economic conditions, global linkages, etc. The developed economies are generally service economies as the service sector generates huge employment opportunities and income. In the developing economies the inequality in the distribution of income is very high and as a result poverty is high. For example, if there is decrease in the percentage of Cash Reserve Ratio or Statutory Reserve Ratio then the loan funds with the commercial banking system will get increased. Basic Philosophy of Economy: The system through which resources, goods and services are organized and distributed around the country is termed as economic system. It includes economic structure of region that includes various entities, decision- making process and patterns of consumption. Important factors like land, capital, labor, production and physical resource are regulated by economic system. There are different types of economic system which are followed across the World. They are Capitalist, Socialist and Mixed Economy.

Capitalist economic system: Private ownership of assets and business is the main feature of this system. According to the laws of demand and supply, goods and services are distributed. Capitalism favors free market economy. Businesses always works to develop innovative ways of cutting on costs and improving the quality of products. Business enjoys more profits while consumers are provided with wider choice of products. E.g., Western European Countries follows Capitalist economic system. Socialist economic system: In this system, the amount of supply i.e., production and distribution, pricing levels of goods and services are determined by the government. Government collects heavy taxes to manage education and healthcare system. Equality and fairness are ensured as Government distributes the production and profit equally. E.g., China, North Korea and Cuba follows Socialist economic system. Political Environment: The economic and political systems of a country are mutually dependent, as one reflects the ideologies of the other. It comprises of the political stability and the policies of the government. Political environment consists of ideological inclination of political parties, personal interest of politicians, influence of party forums etc. For example, Mamta Banerjee the Chief Minister of Bengal had stopped the Tata‘s Nano car production plant in Bengal because of which Tata and its employees suffered a huge loss. Similarly, Narendra Modi had welcomed Tata‘s Nano Car production in Gujarat when he was the Chief Minister. The Government control over the Indian economy grew enormously in the first four decades since Independence. After 1991, since liberalization has been introduced, there has been a global trend towards decentralization of power and responsibility. Now the State is playing active role in the industrial development by creating conducive environment. Social and Cultural Environment: Socio-cultural environment includes value attitudes, beliefs and customs of people in a given group or society and its dimension like the literacy rate, lifestyle, demographic features and mobility of population influences an organizational performance. Managers need to be alert about the changes adopted by the society and implement progressive policies according to the changes. Technological Environment:

It is one of the important key determinants for the success of any firm as well as the economic and social development of a nation. The progress of business depends on the level of technology available in a country which gives a massive impetus to the economic revival. It also indicates the pace of research and development, progress rate of utilizing modern technology in production. Technology is treated as capital intensive and cost effective alternative to traditional labour intensive method. According to the Porter, technology helps the organization to gain the competitive advantage and also improves overall industry structure. Technology policy of the government plays a crucial role in the Technological environment. Like the absence of product patent in India has an adverse effect on pharmaceutical companies. When the new patent regime stipulated under the WTO, Indian Pharma companies like Ranbaxy and Dr. Reddy‘s laboratories started encouraging R & D. Legal Environment: Legal environment deals with establishment of codes and procedures for various types and aspects of business and deals with deviations or infringement law like bribery, product counterfeiting, grey markets, black markets, consumer deception and tax evasions that affects the functioning of an organization. The coverage, efficiency and efficacy of the legal system determine adequacy, cost and speed of economic justice and these factors are of great importance for the growth of business. In every country there exist business legislation that guides, controls and regulate business activity, such as The New Industrial Policy, 1991, MRTP Act, 1969, The Factory Act, 1950, India Trade Mark Act 1969, Essential Commodities Act 1955 and so on. Similarly, there are certain boards and councils came into existence to regulate the specific area of concern for various business categories like The Securities and Exchange board of India (SEBI) which regulates the capital market. Reserve Bank of India deals with the commercial banking sector was brought under its effective control with the help of the Banking Companies Act, 1949 and the amendments of the Act in 1956 and 1962 and the Banking Laws (Miscellaneous Provision)Act,1963, etc. Natural Environment: Business cannot get exception from nature. Business has broadly two relationships with natural environment. First, the environment is the source of resource as raw material required for production and secondly, the natural ca lamities like floods, earthquakes can cause damages to the process of production.

Financial Environment: Finance is the backbone of any business and it is concerned with decisions about the investments in the business. Companies can raise the required funds from bond markets, forex markets, stock markets, commodity markets, OTC markets, Real estate markets and cash or spot markets that constitutes financial environment. Demographic Environment: Demography refers to study of the population. Demographic factors are as below:  The population size  Growth rate of population  Age composition of the population  Family size  Economic stratification of the population  Education levels  Language  Caste  Religion  Race  Age  Income  Educational attainment  Asset ownership  Home ownership  Employment status and location Demographic factors also affect the demand for goods and service. The growth of population and income results in increases demand for goods and services. For instance, developing countries like India, China, etc.; with high population growth rate

indicates an enormous increase in labour supply. The occupational and spatial nobilities of population have implications for business. As labour being an important resource for business can opt for migration easily so it will affect the labour supply in the industry and also the existing wage rate of the industry. The tastes, preferences, beliefs, temperaments, etc. keeps on varying from group to group, region to region which is specific for the population in that locality and such difference leads to change in demand patterns that requires flexible marketing strategies to deal with. Diversity in workforce also complicates the Personal Management function in an organization. Like Holidays need to be given to employees on Diwali, Id, Christmas, Parsi New Year, etc. These factors are relevant to the business for formulating and implementing the strategies for controlling and accomplishment of the objectives of an organization. Global Environment: It comprises of rules and regulation across the borders of various countries that allows and participate in international trade and foreign investments. It also includes rules and regulations of WTO, IMF, WB, SAARC, G20 and other international conventions /treaties/agreements/declarations/ protocols, etc. which duly affect the business organization operating in any particular country. Like recession, economic conditions, war or political tensions or uncertainties in other countries have direct impact on import export market and also the global business and business in our country. Product patents play an important role in Indian Pharmaceutical Industry. Advent of Technological development in Information and Communication sector has created a huge opportunity for Indian IT industry. 1.5BUSINESS ENVIRONMENT WITH REFERENCE TO GLOBAL INTEGRATION In India, since independence, mixed economic structure that combines the advantage of both the socialist and capitalist economies is followed. Because of the external debt, India got caught in an economic crisis badly in the year 1991. The government was surrounded by problems like outstanding credit which is borrowed money from international organization or foreign countries, the foreign exchange reserves maintained for petrol and other commodities import dipped down at alarming rate to a level which was not sufficient to last even a fortnight and the escalating prices of essential goods. Because of all such

instances, Indian government has opened its doors for liberalization, privatization and globalization. These measures are mainly together termed as Global Integration. 1.5.1 Measures Initiated By Indian Government Towards Liberalization: Deregulation of Industrial Sector: In India, regulatory mechanisms were prevalent like:  Industrial licensing - Under it, every entrepreneur seek for the permission from government to setup and start a new firm and the amount of goods that could be produced;  There was a restriction on the entry of Private sector in many industries;  Some goods could be produced only in small scale industries and  There was a control on price fixation and distribution of selected industrial products. Since 1991, the reform policies had removed many of these restrictions like Industrial licensing got abolished for almost all product categories except alcohol, cigarettes, hazardous chemicals industrial explosives, electronics, aerospace, drugs and pharmaceuticals. Many goods produced by small scale industries have now been de-reserved. The industries like defence equipments, atomic energy generation and railway transport reserved for the public sector. The market has been allowed to determine the prices in regards of many industries. Financial Sector Reforms:Financial institution such as commercial banks, investment banks, stock exchange operations and foreign exchange market, etc. all together forms the financial sector and that is controlled by the Reserve Bank of India (RBI). The role of RBI is like to decides the amount of money that the banks can keep with themselves, fixes interest rates, nature of lending to various sectors etc. To reduce the role of RBI from regulator to facilitator of financial sector was one of the major aims of the financial sector reforms. This implies that the financial sector independently allowed to take decision on many matters without consulting the RBI. The reform policies had promoted the establishment of private sector banks that consists of Indian as well as foreign banks. The limit of foreign Investment in bank was raised to around 50 percent. If the banks were able to fulfill certain conditions, so these banks can opt for setting up new branches irrespective of the approval of the RBI and rationalise their existing branch network. In order to generate resources from India and abroad banks have given permission but certain aspects

have been retained with the RBI to safeguard the interests of the account holders and the nation. Indian financial markets is also open for Foreign Institutional Investors (FII) such as merchant bankers, mutual funds and pension funds. Tax Reforms: It is concerned with the reforms in government‘s taxation and public expenditure policies which are collectively termed as its fiscal policy. Direct and Indirect Tax are two types of taxes prevalent in India Taxes on income of individual as well as profit of business enterprises is termed as Direct Taxes. Since 1991, to avoid the problem of tax evasion which is because of high income tax, there has been continuous reduction in the income tax. Also savings and voluntary disclosure of income is encouraged by the moderate rates of income tax. Also there is a reduction in the rates of corporation tax, which was quite high earlier. In order to facilitate the establishment of a common national market for goods and commodities efforts have been channelized to reform the indirect taxes and taxes levied on commodities. The reform policies have simplified many producers and rates have been substantially lowered to encourage better compliance on the part of tax payer. Foreign Exchange Reforms: Foreign exchange reforms are the first important reform in the external sector. The rupee was devalued against foreign currencies in 1991 as an immediate measure to resolve the balance of payment crisis which has increased inflow of foreign exchange. Based on demand and supply of foreign exchange, markets is allowed to determine exchange rates. Trade and Investment Policy Reforms: In order to increase international competitiveness of industrial production and also foreign investments and technology in the economy liberalization of trade and investment regime was initiated. The main purpose is to adopt the modern technologies and promote the efficiency of the local industries. India was following a regime of quantitative restrictions on imports by keeping the tariffs very high in order to protect domestic industries but that led to the problems of reduced efficiency and slow growth rate of the manufacturing sector. The trade policy reform aimed at  Dismantling of quantitative restrictions on imports and exports  Reduction of tariff rates and

 Removal of licensing procedures for imports. Except in case of hazardous and environmentally sensitive industries, import licensing was abolished. Since April 2001, quantitative restriction on imports of manufactured consumer goods and agricultural products were also fully removed. To increase the competitive position of Indian goods in the international market export duties have been removed. 1.5.2 Privatization: It is the process of transferring ownership of a business, enterprise, agency, public service, or public property from the public sector (a government) to the private sector, either to a business that operates for a profit or to a non-profit organization. It may also mean government outsourcing of services or functions to private firms, e.g. revenue collection, law enforcement, and prison management. Privatization has also been used to describe two unrelated transactions. The first is the buying of all outstanding shares of a publicly traded company by a single entity, making the company privately owned. This is often described as private equity. The second is a demutualization of a mutual organization or cooperative to form a joint-stock company. Types Of Privatization: 1. Disinvestment: The Industrial Policy Statement of 24th July, 1991, envisaged disinvestments of part of Government holdings in the equity share capital, in the case of selected public enterprises, with the following objectives in mind:  To raise resources  To encourage wider public participation, and  To promote greater accountability. From 1991 to 2000, the emphasis of Indian privatization was on disinvestment - the offloading of government‘s minority shares to the public or financial institutions. During this period, the government offloaded shares in as many as 39 public enterprises. However, since March 2000 emphasis has increasingly been on strategic sales of identified SOEs (State Owned Enterprises) .Strategic sale refers to outright transfer of control in SOEs to private management. This normally involves the sale of 26 percent or more of government equity to a private party. Modern Foods was the first SOE to be strategically sold. Ever since the sale of Modern Foods, every single disinvestment has followed the strategic sale route. The second strategic sale was of Bharat Aluminium Company (BALCO). Fifty one percent of

its shares were sold to Sterlite Industries for Rs 5,515 million. Following this sale, the government was quick to proceed with strategic sales in important firms by divesting 51 percent of the shares in Computer Maintenance Corporation to Tata Sons and 74 percent of the shares in HTL, PPL and Jessop (for Rs 550 mn, Rs.1520 mn, Rs. 180 mn) to Himachal Futuristic Corporations, M/s Zuari Industries & M/s Ruia Cotex Ltd respectively. So far 35 central SOEs have been strategically sold. Of these, nineteen are hotels of Indian Tourism Development Corporation (ITDC) and three are hotels of Hotel Corporation of India Ltd. (HCIL) Together, these hotels have contributed Rs. 6,866 million towards divestiture proceeds. For all the nineteen hotels, 100 percent of the equity was sold. In terms of individual sales, as shown in Fig 2, maximum proceeds (Rs.37 bn) were collected by selling 25 percent of the equity in VSNL , followed by the contribution made by selling 27.5 percent equity of Maruti Udyog-MUL (Rs19 bn), and by Indian Petrochemicals-IPCL( Rs 15 bn). In India the policy of disinvestment has been looked upon with skepticism. The strategic sale of BALCO in 2000, to a private party was met with a lot of resistance from the workers. They went on an indefinite strike, which lasted for over 60 days. They allowed Sterlite Industries (the new employers) entry into the premises only when the latter agreed not to retrench a single worker. Given this, the focus of this sub-section is specifically to examine the impact of disinvestment on employment levels in the Indian SOEs. Greenfield Privatization: Privatization as a process that aims at reducing the involvement of the State or the public sector in the nation‘s economic activities, by shifting the divide between public sector and private sector in favour of the latter (Greenfield Privatization) has made considerable progress since the introduction of the new economic policy (NEP) in 1991. The process of re-divide has been mainly through:  Delicensing of major industries  Decline in number of areas reserved for public sectors, and  Encouraging direct foreign investments Thus, the role of the public sector which was sought to be enlarged in the Industrial Policy Resolution (IPR) of 1956 is henceforth to be limited to essential infrastructure and defense and more and more areas are now being opened to the private sector. Encouraging private sector participation has been the main thrust of reforms in SOEs most of which are in the

infrastructure sector. A wide spectrum of services such as transportation (railways, roads, civil aviation, ports and shipping), power generation, transmission and distribution and telecommunication services have now been opened to the private sector. In these areas, new schemes of Build Operate Lease Transfer (BOLT), Build Operate Transfer (BOT) and Build Own Operate Transfer (BOOT) have been introduced (Kaur 1999). Under the BOLT scheme the private entrepreneurs are invited to build the asset and then lease the constructed assets to the public sector. The public sector pays the private entrepreneur the lease charges for the asset. On the expiry of the lease period, the asset is transferred to the public sector for the remaining period of the economic life of the asset. Under the BOT scheme, the private operator builds the project at hand, operates it till it has broken even and then transfers it to the government, who takes care of the asset from then on. Similarly, BOOT is functionally the same as above, except for the fact that the ownership of the project/asset resides with the private operator. The main differences between these modes of private sponsor participation are indicated in Table 1 below. Arrangement Ownership of Assets Operator of the Facility Transfer of Assets after during the concession Period Concession Period BOO Private Private No To Government BOT Government Private Yes BOLT Private Government / Private Table 1.5.1:Differences between Modes of Private Sector Participation In the transport sector, schemes such as own your wagon, own your tourist train, maintenance of a railway station, privatizat ion of catering have also been initiated. Roads are also now open to the private sector. In fact, the Thane-Bhiwandi bypass in Maharashtra and the Udaipur bypass in Rajasthan have gone to private investors on BOT basis. In the case of ports, leasing out of existing assets of the port to the private sector has been introduced. In air transport the Indian skies have opened up to the private

sector to include two scheduled private airlines which provide regular domestic air services along with Indian Airlines. In addition there are 41 non-scheduled operators providing air taxi/non-scheduled air transport services. In the telecommunication sector, in both the basic and the value added services, private entry is now permitted. Various value added services such as cellular mobiles, radio paging, electronic mail and video conferencing are now provided by the private sector. In the power sector private participation is now allowed in both generation and transmission. Cold Privatization: The concept of Memorandum of Understanding (MOU), also referred to as Cold Privatization is a very simple one. It is supposed to be a ―freely‖ negotiated performance agreement between a public enterprise and the Government acting as an owner of the public enterprise, in which both parties clearly specify their commitments and responsibilities. The need for this device arose because no one, including the public enterprises knew what was expected of them. Different agencies of the Government - Planning Commission, Finance Ministry, Auditor General, Administrative Ministry and Parliament - had different and often conflicting expectations from these enterprises. Most frequently it is described as a problem resulting from the fact that public enterprises very often have ―multiple principals‖ with ―multiple goals‖ that are often conflicting. MOU was recommended by the Arjun Sengupta Committee as an instrument to reconcile these multiple objectives in a single document and send a consistent signal to public enterprises. Further, once the tasks of public enterprises have been specified in the MOU, these enterprises are to be evaluated only against them and given total operational freedom to achieve their goals. The idea is to simultaneously increase accountability and autonomy by moving towards management by objectives instead of exercising control through procedures. The MOUs have progressively covered an increasing number of SOEs. From just 4 SOEs that signed an MOU in 1987- 88, the number of SOEs that signed MOU in 2002 is 109. At the beginning of the period when the MOU is signed, not only is a weight assigned to each criterion but also a set of five criterion values, varying from 1 to 5, indicating excellent, very good, good, fair and poor performance is listed. At the end of the period, the actual performance is compared to the criterion value. Then, through the process of interpolation, a raw score is evaluated for each criterion. This raw score when multiplied by its weight gives the weighted raw score (WRS). Summation of all WRS gives a ―composite score‖ (Kaur 1998). The Bureau of Public Enterprise has given the MOU ratings as follows:

Composite Score Between Rating 1.00 - 1.50 Excellent 1.51 - 2.50 Very Good 2.51 - 3.50 Good 3.51 - 4.50 Average 4.51 - 5.00 Poor Table 1.5.2: MOU Ratings Based on the above scores, the percentage of SOEs getting a rating of either excellent or very good has always been higher than 70, being as high as 96 percent in 1990-91. However, the performance of SOE based on MOU rating should be analysed with caution, since despite a good ranking the SOE may not be performing well. This is because the possibility of fudging targets cannot be ruled out. 1.5.3 Globalization: Globalization is the process of international integration arising from the interchange of world views, products, ideas and other aspects of culture. Advances in transportation and telecommunications infrastructure, including the rise of the telegraph and its posterity the internet, are major factors in globalization, generating further interdependence of economic and cultural activities. Globalization is defined as the process whereby there are social, cultural, technological, exchanges across the border. It is a process of increasing economic integration and growing economic interdependence between countries in the world economy. Globalization of production refers to the integration of economic activities by units of private capital on awaked scale. 1.6 COMPARATIVE ANALYSIS OF BUSINESS ENVIRONMENT: INDIA AND OTHER COUNTRIES Per Capita Income

In 2014, the per capita income of an Indian was $1,560. This grew to $1,600 in 2015. Here is a quick comparison table: [Source:toppr.com] As we can observe, India‘s per capita GNI was lower than other major economies like the USA, UK, Japan, Germany, and China. Further, in 2015, the per capita GNI of USA was around 35 times that of India. On the other hand, the purchasing power parity rates of the USA was only 10 times that of India. In simple words, the official exchange rates showed an exaggerated disparity between the economies while the purchasing power parity figures balanced them. Having said this, the difference between the standard of living of an average American and Indian is large and significant. Unprecedented falls in GDP in most G20 economies in second quarter of 2020

Quarterly GDP, Total, Percentage change, previous period, Q2 2020 Total, Percentage change, previous period, Q2 2020 [Source: https://www.oecd.org/] Definition: The index of Political Stability and Absence of Violence/Terrorism measures perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically-motivated violence and terrorism. The index is an average of several other indexes from the Economist Intelligence Unit, the World Economic Forum, and the Political Risk Services, among others.

Construction of the political stability index The index is a composite measure as it is based on several other indexes from multiple sources including the Economist Intelligence Unit, the World Economic Forum, and the Political Risk Services, among others. The underlying indexes reflect the likelihood of a disorderly transfer of government power, armed conflict, violent demonstrations, social unrest, international tensions, terrorism, as well as ethnic, religious or regional conflicts. The methodology of the overall index is kept consistent so the numbers are comparable over time Political stability index (-2.5 weak; 2.5 strong) in Asia: The average for 2019 based on 48 countries was -0.4 points. The highest value was in Singapore: 1.53 points and the lowest value was in Yemen: -2.77 points. [Source: https://www.theglobaleconomy.com/]

The latest data on the Indian economy is not a pretty picture. Economic growth is at its lowest in six years, while inflation is at its highest in five years. There are good reasons to believe that there will be a mild growth recovery in the coming months while inflation moves back closer to the official target. Yet, the signs of economic stress are undeniable. This is a good moment to take a look at the rest of the Asian region and especially at countries that are broadly at a comparable level of development as India. The data used for this column are World Bank estimates for economic activity in 2019. There are a lot of sobering lessons here. Four points are especially important. First, India is no longer the fastest growing economy in the region. There are eight regional economies that are growing faster than India is at this point in time, including China, Cambodia, Indonesia, Myanmar, the Philippines, Vietnam, Bangladesh and Nepal. This is a diverse bunch of countries with diverse economic structures. The fact that they are all growing faster than India is a hard fact that Indian policymakers should not ignore. The old hubris has to be abandoned. Third, most regional economies have macro stability indicators, fiscal and monetary, that are on par with India‘s. India is a clear outlier when it comes to fiscal balances. The only other comparable regional economy that has a fiscal deficit in excess of 5% of gross domestic product (GDP) is China, though the actual number is likely to be far higher than the Indian fiscal deficit. The International Monetary Fund says that China is running a fiscal deficit that is in double-digit territory as a proportion of GDP. China aside, most of the other regional Asian economies that have been considered in this analysis run relatively tight budgets, ranging from the Philippines (1.1%) and Cambodia (1.3%) to Vietnam (4.4%) and Bangladesh (4.8%). This essentially means that these countries have more policy space to increase public spending to support growth in case it falters. Fourth, it is well known that Vietnam and Bangladesh have got an early lead in the race to attract global supply chains that are moving away from China. They have been the principal beneficiaries of trade diversion. This column had pointed out in October 2018, using data from the United Nations Conference on Trade and Development, that greenfield foreign direct investment had a big role in the relocation of global supply chains. Too much of the Indian public discourse gave up on manufacturing too early in the game, either citing a unique growth model based on services or arguing that automation was anyway killing manufacturing jobs. There is some truth in both these views, but it is also undeniable that India is missing the opportunities from the ongoing rewiring of supply chains. There is still reason for hope.

Take a look at manufacturing as a percentage of value added in the eight Asian countries considered in this column. China is obviously the leader, with manufacturing accounting for 20% of gross value added. India is at 15%, which does not compare too badly with Cambodia (16%), Indonesia (20%), the Philippines (19%), Vietnam (16%) and Bangladesh (18%). Nepal has a very weak industrial sector. This data suggests that there is still an opportunity for India to take advantage of the trade war, rather than prematurely throwing in the towel. That will need a policy framework that plugs India into global supply chains, rather than moving back into a protectionist shell. 1.8 SUMMARY Business operates in a complex environment where various factors have direct and indirect implication on its operation. Business - A commercial or economic activity engaged in as a means of livelihood or profit, or an entity which engages in such activities or which is related with continuous and regular production and distribution of goods and services for satisfying human wants is known as business. Characteristics of a Business:Features of enterprise, Main Objective is Profit, Economic activities related to production and distribution, Regularity of transactions, Interchange of goods and services, Risk and uncertainty, Element of creation of utilities. Business Environment: may be termed as the set of elements in the surroundings that has a direct or indirect bearing on the performance of the business. The inter-relation of business organization and its environment is obvious from the point of analysis of strengths, weakness, opportunity and threats of business. Business is always involved in exchanging information, resources, influence and power with Environment. The characteristics of business environment are - Totality of External Forces, Specific and General Forces, Interrelatedness, Dynamic Nature, Unpredictability, Entanglement, Multi-faceted, Far-reaching impact, Relativity. Business and its environment co-exist, interact regularly and thus, emphasize to improve core-competency of an organization to ensure optimum utilization of resources. Business Environment is broadly categorized into internal and external environment.

Internal Environment- is defined as all the forces or conditions that are available within the boundaries of an organization that affects its functions and performance. External environment refers to external aspects or forces of the surroundings of business enterprise, which have both facilitating and inhibiting influences on the functioning of the business. Global Integration Promotes rapid economic growth that leads to better standard of living, decline the widespread of unemployment and poverty stalking the land;Encourages the countries to become self-reliant and helps in setting up a strong industrial base; Promotes industrial establishment across the country that in turn helps to reduce regional inequality and achieve balanced regional development; Decrease inequalities of income and wealth; Follows a socialist pattern of development — based on equality and prevent exploitation of man by man. 1.9 SELF-ASSESSMENT QUESTIONS A. Descriptive Types Questions 1. Explain the division of business with the help of examples. 2. Write in brief the characteristics of business. 3. What is Business Environment? State the relationship of business with environment 4. Describe the significance of Business Environment by stating example. 5. State and explain important factors of Internal Environment B. Scenario Based Questions 1. Explain the implication of Union Budget as External environment factor for Business in general. 2. Which approach highlights that Organizations always try to strategize their operations and functions to survive in the dynamic environment? 3. What is Global Integration? Explain the measure taken by the Government of India for Global Integration. 4. Similar to Airbus Swot Analysis, construct an example of SWOT Analysis on Pharmaceutical, Agricultural and Manufacturing sector of India. 5. Explain the importance of Technological and Legal Environment

C. Multiple Choice Questions 1. What takes place in the following way where Organization creates attractive rewards and recognition programs for employees? a. Exchange of Influence and Power b. Exchange of Information c. Exchange of Resources d. Exchange of Values 2. The demand side of goods and services is termed as ______ _ _ a. Industry b. Trade c. Economy d. Commerce 3. Select the characteristics of Business Environment a. Attitude of Customer b. Relativity c. Image Building d. Identifying weakness 4. ___ _ __ is treated as capital intensive and cost-effective alternative to traditional labour-intensive method. a. Legal stability b. Political stability c. Technology d. Environment

5. The percentage of SOEs getting a rating of either excellent or very good has always been higher than _____ a. 90 b. 20 c. 50 d. 70 Answers: 1- a, 2- d, 3 - b, 4 - c, 5 - d. 1.10 SUGGESTED READINGS Reference books:  W. Michael Hoffman, Robert Frederick (Editor), Edward S. Petry Jr. , Business, Ethics, and the Environment: The Public Policy Debate (National Conference on Business Ethics Proceedings), Praeger Publishers In  Bn Ghosh, Business Environment,Oxford University Press  Ian Worthington , Chris Britton, The Business Environment, Financial Times/ Prentice Hall  Justin paul and Parul gupta Economic Environment And Policies For Business , Turn the Page  Brown, D, Horizon scanning and the business environment – the implications for risk management. BT Technology Journal: London  Morrison J, The International Business Environment, Palgrave  MISHRA AND PURI, Indian Economy, Himalaya Publishing House, New Delhi  Raj Aggarwal, Business Environment, Excel Books, Delhi  Ramaswamy V , Strategic Planning for Corporate , McMillan, New Delhi  Lokanathan and Lakshmi Rajan , Business and society, Emerald Publishers.  M. Adhikary, Economic Environment of Business Sultan Chand & Sons. Textbook references

 K.Aswathappa, Essentials Of Business Environment Paperback , Himalaya Publishing House  A. C. Fernando Business Environment Kindle Edition, Pearson; 1st edition  Shaikh Saleem, BUSINESS ENVIRONMENT, 3/E , Pearson  Veena Keshav Pailwar, Business Environment Kindle Edition, PHI  Francis Cherunilam, Business Environment- Text and Cases, Himalaya Publications Open Sources:  Dhamija, Dr. Ashok (2009). Prevention of Corruption Act. LexisNexis India. p. 2049. ISBN 9788180385926.  Subrata K. Mitra and V.B. Singh. 1999. Democracy and Social Change in India: A Cross- Sectional Analysis of the National Electorate. New Delhi: Sage Publications. ISBN 81- 7036-809-X (India HB) ISBN 0-7619-9344-4 (U.S. HB).  Bakshi; P M (2010). Constitution Of India, 10/e. Universal Law Publishing Company Limited. pp. 48–.ISBN 978-81-7534-840-0.  International Journal of Scientific and Research Publications, Volume 2, Issue 12, December 2012 Website  https://www.economicsdiscussion.net  https://opentextbc.ca