BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 BUSINESS ENVIRONMENT Business Environment mainly refers to external forces that

impact business. Such forces include political-legal ,technological ,cultural ,economic and physical.

Factors under External Environment All the factors that provides opportunities or pose threats to an organization m ake up its external environment. DEMOGRAPHIC ENVIRONMENT SOCIAL ENVIRONMENT CULTURAL ENVIRONMENT POLIT NMENT ECONOMIC ENVIRONMENT FINANCIAL ENVIRONMENT TRADE ENVIRONMENT TECHNOLOGICAL ENVIRONMENT LEGAL ENVIRONMENT REGULATORY ENVIRONMENT TAX ENVIRONMENT ETHICAL EN VIRONMENT External environment consists of 1. Micro Environment 2. Macro Environment 1. Mi cro Environment Micro environment is called as the task environment and operatin g environment. Micro environment forces have a direct bearing of the operation o f the firm. These factors are present in companies environment and affect on the performance of the companies. Includes suppliers ,marketing intermediaries .com petitors,customers and public. Micro environment are more intimately linked to company than macro. Suppliers : o Those who supply inputs,raw material and components o Uncertainty in supply co mpels high inventory cost. o India maintains stocks of 3 to 4 months were as Jap an maintains for few hours. o Eg : Nirma believes of the logic that captive produ ction plant for raw material is best for cost control.(backward integration) o C o feel outsourcing is more beneficial o Risk to depend on single supplier o Glob ally companies are resorting to partenering relationship marketing. 1

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 Customers: o Business exists because of customers o Monitoring customers sensiti vity is perquisite o The choice of customer by the firm can be on a. Relative pr ofitability b. Dependability c. Stability of demand d. Growth prospects o Today customer is global customer as exposed to global products. Competitions: o Compe tition includes not only with competitors of same product but all those who comp ete for discretionary income of consumers. o Eg : the competiton for T V firm ma y not be only from other T V manufacturing but also from 2wheelers , refrigerato rs,cooking ranges,stereo sets etc,bank schemes. o To influence basic desire of c ustomer o Generic competition: If the customer decides to spend discretionary in come on recreation , he come across alternatives like, TV ,stereo ,2 in 1,3 in 1 P C etc. o It is competition among alternative. Marketing Intemediary: o Firms that aid the company in promoting,selling and distributing its grads to final bu yers. o Includes middlemen,agents,merchants,distribution firms,warehouses,transp ortation firms,marketing,financial intermediaries ,insurances etc. Financiers o Financiers of the company o Their financial capability,policies, strategies.atti tudes,ability to provide non financial assistance. Public o Public is any group that has actual or potential interest I or impact on organizations ability to ac hieves its interest. o Media publics,citizens action publics,local publics etc,c onsumers publics o Issues against companies o Tarnishing the image by media o En vironmental pollution o Chills labour,sweat labour,cruelty against animals. 2

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 2. Macro Environment Macro environment consists of larger societal forces that a ffect on companies micro environment. Micro environment forces have a direct bea ring of the operation of the firm. These factors are present in companies enviro nment and affect on the performance of the companies. Includes suppliers ,market ing intermediaries .competitors,customers and public.

Factors under Internal Environment The internal environment comprises the resources ,synergy and distinctive compet encies of a firm.These together determine its organizational capability in terms of its strengths and weaknesses existing in the different functional areas mark eting, operations,personnel,financial,technical,etc. Needless to mention that in ternal environment is constantly influenced by the external environment. STRATEGY STRUCTURE MARKETING CAPABILITY OPERATION CAPABILITY PERSONNEL CAPABILI Y FINANCIAL CAPABILITY TECHNICAL CAPABILITY The factor which have bearing on the strategy and decision making are Value syst em Value system by founder has important bearing on o Choice of business o The m ission o Objective of the organization o Business policies and practices If valu e system is shared by all in firm contributes to the success. The value system o f JRD TATA and its acceptance ,voluntarily incorporated to social responsibility to consumer,employees,shareholder,society and people. EID PARRY group was taken over by MURUGAPPA group,profitable liquor business sold off to PARRY ;did not f it into value system of the MURUGAPPA GROUP. VALUE system and ethical standards are evaluated by many companies in selection of suppliers,distributors and colla borations Value ,governance , and excellance of Infosys ltd o I nfosys tech ltd ,IT consulting and software services to future 1000 Co,employ more than 3000 peo ple key growth principle of the corporate governance a. Best practices b. Financ ial markets c. Human capital 3

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 o Core values: to achieve objective in an fair environment,honesty,transperancy, courtesy towards customers,employers,vendors and society. o Activities benchmake d to Global practices o Firms quality control and project management helped in a chieving total quality management accredation o Feedback from process audit help ed foe reengineering the internal processes. o International accounting practice s followed o Infosys published all financial reports according to US and Indian accounting practices. o Best practices captured through knowledge management sys tems and gives experience. o The 1st Indian registered direct listing on US mark et o NASDAQ trading began in Maech 1999. o Viewed it as to achieve more liquid c urrency through stock options (ESOP) o Attracting best employee and future acqui sition o Presence on NASDAQ would give comfort and confidence to customers. o Pr ovides innovative compensation and benefits o Pioneered the concept of employee stock qwnership plan in India. o Offer benefits of traning ,asset acquisition ,l oans,housing,personnel assistance services. o Combination of stock options and b emnefits allows infosys to attract top talent to contribute to the growh. o Won 1st national corporate governance award 1999 instituted by ministry of finance a nd sponsered by the UTI. Mission and Objective Mission and objective guides o Th e business domain of the Co . o Priorities o Direction of development o Business philosophy o Business policy o Eg Ranbaxy thrust in foreign market and developm ent is driven by mission To become a research based international paramaceutical company. o Eg : Arvind mills Mission:- To achieve global dominance in select bus iness to build core competencies through continuous product and technical innova tion and focus on cost effectiveness. Management structure and nature o Compositi on of board of directors o Extent of professionalism o Quality of the board in c ritical factors o Shareholding pattern could have important managerial implicati on 4

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 o Eg WIPRO majority of shares held by promoters o Financial institution have lar ge share holding o The stand of nominees of financial institution can be decisiv e factors Internal power relationships o The amount of support the top managemen t enjoys from Employees of different level Share holders Board of directors Has impact on decision making. Relationship between members of BOD and between chief executive and the board is important. Human Resources o Characters like skills quality morals commitment attitude etc. o The involvement ,initiative of people varies in different organization o The organization culture and qverall environm ent is responsible. o John towers M.D of Rovers group found Japanese firm with 3 0000 employees and 30000 process improvers. o Western firms 2000 process improve rs and 2800 workers o India? Company image and brand equity o Co image matters w hile raising finance,forming joint venture alliance ,soliciting,marketing interm ediaries.entering purchase or sale contracts,launching new product. Miscellaneou s Factors o Other factors contribute to the success failure of business or influ ence decision making are Physical asset and facilities :-production capacity,tec hnology,distribution logistics,quality production. R & D of technological Capabi lities:-to innovate and compete Marketing resources Financial factors:- financia l policies ,financial position,capital structure etc. Environmental study confer several benefits: Broad strategies are developed Acti on plans to cope with technological changes may be evolved Counter strategies to outsmart competitors Keep managers on toes. 5

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 Limitations of Environmental Analysis Environmental analysis often has debilitat ing impact on business Fails to foresee future accurately Does not guarantee org anizational effectiveness Too much reliance on analysis makes a manager become c omplacent. Domestic Environment Economic conditions o Good export market o But r ecession in other country can increase the impot threat and dumping Internationa l political factors can affect business like o War o Political tensions o Uncert ainties o Strained political relations o All may eliminate sanction Development in info and common technology facilities o Cross border spread of culture o Infl uence attitude o Aspirations o Tastes,preferences ,customs. o Traditions and val ues. Global Environment Domestic business is affected by global factors Global e nvironment refers to o WTO principles and agreements o International environment o Treaties o Agreements o Declaration o Protocols o Economic and business condi tions o Sentiments in others countries o Developments like hike in oil prices o WTO principles and regulation have for reaching impact on Indian business Prod uct patent acceptance impact on pharma industry The import and investment ,liber alization have charges competitive environment in India. o Global interdependenc e 6

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 Eg American Co CISCO,LUCENT,INTEL have impact on INFOSYS,WIPRO,HCL o Hit on shar e market affects Job market Reduction in job Less intake by institution 2-3 % ea rning dip. COMPETITIVE STRUCTURE OF INDUSTRIES MICHAEL PORTERS MODEL OF STRUCTURAL ANALYSIS OF INDUSTRIES 5 BASIC FORCES o Rivalry among existing firms Firms in industries are mutually d ependent Common competitive actions Price changes Promotional measures Customer service Warranties Product improvement New product launch Channel promotion Nos o f factors which influence rivalry No s of firms ,their market share,strength Stat e of growth of industries Fixed and storage exists Indivisibility of capacity au gmentation o Efforts to increase sales to achieve capacity utilization,during ec onomies of scale

Product standardization and switching cost When product of different firms are s tanderdised-price ,distribution ,after sales service,credit are important variab le of competition. 7

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 Absence of switching cost are important

Strategic stake More rivalry of no of firms have high stake inachieving success Exit barriers High compensation of labour Emotional attachment etc Switching cos ts: Cost of retaining employees Cost of new ancillary equipment Expected retalia tion Potential entrants expection about the reaction of existing competitors. o Threat of new entrants Growing industry face threat of new entrant But can hav e entry barriers Competition is high if industry is more profitable Entry barrie rs are as follows Govt policy o Prior to liberalization o Reservation of industr ies o Product for public sector o Industrial licensing o Regulations under MRTP ACT o Import restriction o Restriction on foreign capital and technology Economi es of scale o Keeps out small players o Restricts large players because of risk of large stake Cost disadvantage and learning and experience curve o Cost advant age by established firms o Proprietory product technology,experience and learnin g curve,removable access to material.location.govt subsidies. Product differenti ation o Brand image ,customer loyalty,product attributes. Monopoly elements o Pr oprietary product /technology 8

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 o Monopolization / control on raw materials ,distribution channels etc. Capital requirement o High capital intensive is barrier to small firm. o Threat of substitutes Important forces power of substitute Direct impact on th e price Low manufacturing cost / sub standard quality o Bargaining power of supp liers Determinants are Extent of concentration and demination in supplier indust ries Importance of product to the buyer and vice versa Extent of substitutabilit y Switching costs o Bargaining power of buyers Buyers are potential competitors May intergrate backwards environmental awareness Buyers compete by Forcing down p rices Bargain for high quality and more service LIMITATION OF PORTERIAN MODEL Pr ovides useful framework for analysis of nature of competition in the industry bu t have shortfalls if competition is driven by innovation. COMPETITORS ANALYSIS Necessary for formulating right strategies and determining position of the firm Basic questions of competitors analysis are o Who are competitors of the firm? o What are their current strategies? o What are their future goals and strategies ? o What drives the competition? o Where is the competitor vulnerable? o How oth ers are likely to respond to the strategies of different firms o Porters framewo rk suggestion Future goals Current strategies Assumptions Capabilities 9

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 VALUE CHAIN Porter: value chain important determinant of competitive advantage. Value is amo unt buyer willing to pay for product Value chain displays total value activities and margins Primary activities o Inbound logistics o Operations o Marketing and sales o Services Support activities o Procurement o Tech development o HRM o Fi rm infrastructure and Management ENVIRONMENTAL ANALYSIS AND STRATEGIC MANAGEMENT SWOT (STRENGTH WEAKNESSES OPPORTUNITIES and THREATS) plays vital role in environ mental analysis and strategic management. Strategy is defined by Glueck as Unifie d ,comprehensive and integrated plan relating to strategic advantage of firm to challenge environment Strategic management is defined as Set of decisions and act ion which leads to development of an objective strategy to help achieve corporat e objective Strategic management process is explained as under Implementation Evaluation and Control Choice of strategy Determination of vision Consideration of strategic alternatives SWOT analysis Establishing Objective 10

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 Eg where the Raymond wants to be : o Gautam Hari Singhania CMD o Turnover 1374 C rores o SWOT analysis o Sold filament yarn, cement ,steel o Strengthen with buy back shares Rs 158 Crores o 27% - 31% holding o Claims among top 3 fabric bonds of the world Well international product life cycle Japan started exporting to US o Compact fuel efficient cars o Small screen TV o Low horse power tractors P & G Vs Hindustan Lever. Strategic Alternatives Question o Why should Co go for this Business? o If same Business what way? Manu facturing completely Establish manufacturing in free areas EPZ ,SEZ Establish in foreign country Manufacturing components at home and assemble foreign Enter int o licencing / franchising etc Strategy development process. Implementation Formulation of good strategy o Corporate level strategy o SBU level strategy(ope rating division) o Functional level strategy Evaluation . 11

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 ENVIRONMENTAL ANALYSIS AND FORECASTING Strategic business decisions need o Clear identification odf relevant variables o Detailed and indepth analysis of them Eg what impact and implication of libera lization on organization Means what are the threats and opportunities posed by t he liberalization So through analysis of environment is needed Stages of environ mental analysis o Scanning the environment to detect warning signals Scanning is process of analyzing environment for the identification of the factors which im pact on business Identification of emerging trends Identifying the process or in dicators of potential environment changes and issues Drawing attention to possib le changes and events well before occurrence Scanning is exploratory and involve s wide examination. o Monitoring specific environment trends Entails perspective follow up and indepth analysis of relevant environmental changes or trends More focused and systematic effort than scanning Eg emergent lifestyle pattern may i nclude Changes in entertainment Education Consumption Wok habit Domicile- locati on preference Output of monitoring A specific description of environmental patte rn forecast Identification of trends for further monitoring Identification of pa ttern requiring further analysis. o Forecasting the direction of future environm ent changes Anticipating the future for threats and opportunities and formulatin g strategic plan. o Assessing current and future environment changes for organiz ational implication. To assess the impact of environmental factors on organizati on business Involves drawing up implication possible impacts. 12

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 APPROACHES TO ENVIRONMENTAL ANALYSIS BROADLY 2 APPROACHES OUTSIDE IN (MACRO) APP ROACH Take broad view of business environment Useful when many variable play a role Sc enarios allow integration of multiple variables Scenario is description of event s may occur in future and their consequences for the organization. STEPS TO DEVE LOP SCENARIOS o Identify strategic environmental issue,prioritise it according t o importance o Select most important issues List organizational assumptions to t hese issues Identify possible assumptions variations o Prepare preliminary descr iption of these issues ,include the key economic,social ,political and cultural influences that affect them. o Draw out implication of the issues for organizati onal perfoemance What firm has done and what can be done for these issues ? Iden tify where management has control and which management cannot control? o Develop detailed description of future with present scenarios o Discuss the scenarios w ith top management and refine them? o Develop contingency action plans for each scenario? INSIDE OUT (MICRO) APPROACH Takes narrow view of environment Forecast immediate future of the environment De termine the implication of it for industry and firm. TECHNIQUES FOR ENVIRONMENT ANALYSIS WILLIAM GLUECK o Verbal and written info o Search and scanning o Spying o Formal forecasting. 13

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 STEPS IN ENVIRONMENT FORECASTING Identification of relevant environmental variables o Not relevant to all industr ies and firms o Pearce and Robinson point out to limit the variables Include all variables that have significant impact .delete variable with little impact. Dis regards major disaster Aggregate when possible into gross variables eg bank loan s If value of one variable is dependant on value of other. Collection of informa tion o After determination of key variables o Connect the information o Involves identification of sources of info o Determining type of info to be collected o Selection of method of data collection o Collection Selection of forecasting tec hnique o Depends on usefulness of forcast o Technique depends on Consideration o f nature of forecast decision Amount of accuracy of info available Accuracy requ ired Time available Quantitative technique Vs qualitative technique. TYPES OF FORECAST Economic forecast o Important economic factors are General economic condition GD P growth rate Per capita income Distribution of income Structural changes in GDP Investment and output trends in sectors / industries Prices trends Trade and BO P trends 14

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 o The macro economic forecasts serve base for the industry and company forecast o Sources are for short ,median and long term forecast International organizatio n like World Bank ,IMF,UN,WTO. Regional organizations Asian development bank o W hen reliable forecast is not available from secondary source,firm has to make ow n forecast. o Reliable forecast give useful picture of future scenario o Eg powe r development would indicate Scope of investment in power sector Prospects of re lated industries like generators ,transformers ,cables switchgears, electric goo ds etc Rural electrification will indicate demand for pump set and consumer dura bles o Short term economic forecast useful for demand and sales forecast and mar keting strategies formulation o Quanti method ,econometric method,time series,tr ends.judgement method used. SOCIAL FORECAST Important factors o Population growt h / decline o Age structure of population o Ethnic composition of population o O ccupation of population o Rural urban distribution of population o Migration o F actors related to family o Lifestyle,income levels,expenditure paterns o Social attitudes o A wealth of published and unpublished data of forecast and social tr end is available o UN and its organs,WORLD BANK,academic organization govt organ ization are sources. o Data is available regarding future trends in birth / deat h rate,population size,age structure o Social trends are vital for business stra tegies o Social trends are vital for business strategies o Quantitative techniqu es- series analysis , econometric methods,dolphin methods are used o Scenario bu ilding is useful. POLITICAL FORECAST o Political shift (1980-USSR and Eastern Eu rope) o Change in internal political power structure (China) o Political allianc e and political structure,ideologies has implications on business o Political fo recast covers 15

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 o o Industrial policy Commercial policy Fiscal policy TECHNOLOGICAL FORECAST Innovation and technical development alter usiness environment Technological for ecast includes Innovation Pace and extent of diffusion and penetration of techno logy Technology is one component in world competitive report Technology vision 2 020 for India Technology info ,forecasting and assessment council (TIFAC) establ ished in 1988 in India. Brainstorming and Delphi methods are popular o o o o TECHNIQUES FOR ENVIRONMENT FORECASTING ECONOMETRIC TECHNIQUE o Establishing relationship between 2 or more variables Mu ltiple regression analysis Time series analysis TREND EXTRAPOLATION o Time serie s models o Past is prologue to the future o Simple linear relationship o Non-lin ear relations SCENARIO DEVELOPMENT o Royal Dutch Shells anticipation of crash in oil prices in future o If projects emergence of future conditions and it consequ ences o Eg Developing alternative scenario by planning commission of India o Dra wn different alternative scenarios for Growth rates of different sectors Poverty ratio METHODS OF SCENARIO BUILDING PREMISSING METHOD o Series of premises are drawn up from which projectionof futu re o Scenarios is made o This consist basic assumptions about certain variables, current trends etc o Focus on few tendencies,its evolution SYSTEM DIAGRAM METHOD o It explores policy and strategy options based on present system. o Eg newspap er firm think of entering other media CRITICAL SITE METHOD 16

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 o Based on scenario projection on the policy making structure of organization o Focus on the critical sites related to the business Eg meeting of board of co Na tional convention Meeting of policy decision making body of political party Meet ing of bodies like OPEC or WTO. NEWS PAPER HEADLINE METHOD o Scenario writer pos t one or more hypothetical headlines for future date o Writes possible developme nt and chart out strategy. LOGICAL POSSIBILITY METHOD o Based on already develop ed scenario o This is supplement to the earlier JUDGEMENT METHOD o On opinions BRAIN STORMING o Creative method of generating id eas and forecast o Group of knowledge people are asked to generate ideas ,discus s and make forecast o Popular techniques for technological forecasting DELPHI ME THOD o More systematic than brain stroming o Panels of experts opines on subject o Can be semi structure quetionaire or interview o RAND corporation formed this tech of for formation of OPEC on oil supplies and prices STATEGIC ISSUES ANALYS IS o Qualitative tech f used for assessing emerging atrtegies environment issues o Consists systematically monitoring ,social ,regulatory,political changes. 17

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 ECONOMIC ENVIRONMENT INCLUDE: STRUCTURE AND NATURE OF ECONOMY THE STAGES OF DEVELOPMENT OF ECONOMY EC ONOMIC RESOURCES THE LEVEL OF INCOME DISTRIBUTION OF INCOME AND ASSETS GLOBAL EC ONOMIC LINKAGES ECONOMIC POLICIES THE NATURE OF THE ECONOMY Countries different regions within country show great difference General level of economic developme nt has lot of implication on business Has significant bearing of nature and size demand ,government policies etc Widely used method of classification of economi es is on the basis of per capita income (ie average annual income of peron) Low income and middle income economies are developing All oil eporters are not devel oped economies.UAE,KUWAIT, they are high income economies. Industrial economies are developed economies. Some criteria for developed economy a. Sectorial distri bution of income b. Employment generation c. Social development indicators d. Us e of modern and sophisticated tech etc e. Innovation f. Diffusion of new ideas a nd technology g. Low share of primary sector h. Market friendly economic policie s i. Open trade and investment policy 18

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 j. Democratic rights k. Competition and consumer choice Low income is indication of deprivation of people Prevents access to basis necessities and morden amenit ies Developing economy a. Shows the inequality in distribution of income b. Larg e portion of population lives in abject poverty c. Characterized by high birth a nd population growth d. High death rate than developed countries e. Prevalence o f rudimentary and traditional methods and obsolete technology Least developed economy a. Low GNP per capita b. Land locked remote insularity c . Desertification d. Natural disasters e. Eg Bangladesh,Butan,Nepal,Maldives,Mal i,Uganda,Myanmar,Sudan,Zambia, Zimbabwe. Developing with rapid industrialisation a. Eg Hong Kong ,South Korea,Singapore,Taiwan. New industrialized economy a. Sh ow high growth rate overlog series b. High per capita income c. Impressive expor t d. These economies are in Transition Economies. e. Former communist and socialis t economies f. USSR / CIS and East European countries Income is not only criteri on for economic growth and development Increase in income is indication growth B ut development has qualitative dimensions a. Distribution of income b. Standard of living c. Composition of output d. Character of working condition e. Overall economic welfare f. Eg countries where income and investment are steady increasi ng the prospects of business are bright. 19

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

STRUCTURE OF THE ECONOMY PRIMARY ,SECONDARY AND TERTIARY SECTORS LARGE ,MEDIUM,SMALL, TINY,SECTORS INTEGR ATION IS IMPORTANT WITH WORLD Some economies still based on primary s ervice sector contributes 60% of the world GDP Service sector of India grew at 6 .9% and GDP growth was 46% in 2000 The growth in the trade of service increased tremendously ECONOMIC POLICIES HAVE GREAT IMPACT ON Industrial policy Trade policy Foreign exchange policy Monetary policy Fiscal po licy Foreign investment Technology policy INDUSTRIAL POLICY a. DEFINE the scope and role of different sectors like private,public,joint and co operative or larg e ,medium,small,tiny b. It may influence the location of industry Choice of tech nology Scale of operation Product mix etc o India ,liberalization ushered in 199 1 20

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 Pre liberalization a. The scope of large private sector was limited b. The devel opment of 17 most important industries was reserved for state. c. For another 12 major industries state had to play major role d. Remaining industries,co operat ive,joint sector and SSI were getting preferential treatment over large entrepre neurs e. Production of large no of items was reserved for manufacturing of SSI f . In private sector entry and growth was regulated by licencing and MRTP g. Govt policies thus limited the scope of private business h. Govt policy was constrai nt and registered growth i. 1991 has wide open j. But few industries for the pri vate sectors k. Changed the business environment l. Expanded business opportunit ies m. Increased competition n. Thus was exist and entry of many old and new pla yers. TRADE POLICY a. Significantly affects the formation of the firm b. Restric tive impot policy c. Policy of protecting home firms d. May help the impot compe ting firm e. But liberalization of import may create difficulties to them f. Tra de policy often integrated with industrial policy g. As part of economic liberal ization ,WTO compliance ,India has liberalized h. Companies face growing interna tional competition in the domestic truf FOREIGN EXCHANGE POLICY a. Exchange rate policy and policy on respect of cross border movement of capital b. Abolition o f exchange control allows cross border movement of capital. FOREIGN EXCHANGE AND TECHNOLOGIACAL POLICY a. Till 1980- foreign capital and technology were under r estriction in developing and socialist/ communist countries b. Restriction on fo reign capital affect growth plan of firm ,establishing joint ventures c. Huge in vestment in infrastructure and vital sector can change environment eg: China. d. Liberal foreign investment and technology can increase domestic competition e. Permits global sourcing of capital and technology f. Increases quality / quantit y domestic supply and services FISCAL POLICY a. Govt strategy of public expendit ure and revenue have impact on business. b. Pattern of expenditure affects the d evelopment c. In tax policy,govt can use tax incentive or disincentives to encou rage activities a. When industry suffers recession,reduction of taxes like excis e duties, sales tax may help improve demand. 21

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 b. Reduction of rate of direct tax ,personal income tax and corporate tax may in crease disposable income,result increase in demand . d. Govt or State may offer different fiscal incentive to two industries. MONETARY POLICY a. The Central ban k ,by its policy towards cost and availability of credit can influence a. Saving s b. Investments c. Consumer spendings b. depending on the conditions of economy and general economic policy of Govt RBI may adopt an expansionary or contractio nary or neutral monetary policy c. eg :1% point reduction Ithe cash reserve rati o or statutory reserve ratio will signify increase in the ratio will have opposi te effect d. monetary policy also effects the exchange rate of the currency. ECONOMIC CONDITIONS Economies pass through boom and recession Boom is 1. High level of output 2. Emp loyment and rising demand and prices Economies of oil exporting countries depend s on extent of crude oil prices Economic condition related to major crops o Eg : 1997-2000 fall in coconut prices o Loss of 10000 crores o Rubber farmers Steel p rices south east asian crisis 100% surge by Indian companies in US and Europe. U S economy account for of global economy Thus trends in US affects the growth tr end of global economy The balance of payment position of the country influence t he economic policies and business environment. a/c surplus encourage the Govt to liberalise the import and capital movement. India export performance is affecte d by 2 kinds of factors o EXTERNAL FACTORS The rate of growth of the economies o f the importing countries The rate of growth of the world trade The rate change in the price level in the importing country o INTERNAL FACTORS The rate of growt h of the Indian economy The rate of change in the domestic price level Major fac tors real exchange rate of exports (RERX) 22

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 FACTORS OF ECONOMIC ENVIRONMENT STRUCTURE AND NATURE OF ECONOMY a. Level of development of the economy b. Sector al comppsition of output c. Intersectoral linkages ECONOMIC CONDITIONS a. Income levels b. Distribution of income c. GDP trends d. Sectoral growth trends e. Dem and and supply trends f. Prices trends g. Trade and BOP trends h. Foreign exchan ges reserve position i. Global economic trends ECONOMIC POLICIES a. Industrial p olicy b. Trade policy c. Monetary policy d. Fiscal policy e. Foreign policy f. F oreign investment and technology policy GLOBAL LINKAGES a. Magnitude and nature of cross border: trade flows : financial flows 23

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 b. Membership of WTO ,IMF ,WORLD BANK,TRADE BLOCS ETC. CHANGING BUSINESS ENVIRONMENT OF INDIA JULY 1991 GOI changed policy of macro economic crisis Serious economic imbalance before the period Imbalance due to o Constant rise in fiscal deficit o Higher e xport growth o Constant balance of payment crisis o Deficit in current account o 1991 US IRAQ war , India faced oil crisis o Foreign exchange reserve down to Rs 2400 crores equivalent to 3 weeks imports Actions by GOVT o Govt pledged a part of gold reserve to meet foreign liabilities o Govt arranged loan from IMF in sh ort term o Long term initiated for reaching reform programme include Changes in trade policy economic policy Structural reforms Restoration of fiscal balance to contain inflation The economic reforms changes undertaken as follows o Abolitio n of licensing o Abolition of FERA and leberalising MRTP o High% of foreign hold ing o Privatization of oil sector ,telecom, aviation,banking,mining. o Move auto nomy to public sector 24

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 o o o o o o o o o o o o o o Lowering corporate taxes ,excise duties, import duties Taxing services Dechannel isation of imports No export subsidies Offering global patent protection Convers tibility of rupee in stages Opportunity to Indian Co s becoming global Financial sector with interest deregulation and capital market reforms Subsidy interest Mo re liberalization on F II norms Privatization of various infrastructure Setting up of various regulatory bodies TRAI,SEBI.IDRA New sea port policies export impo rt policies More financial sector reforms THE ANALYSIS OF TYPES OF CHANGES BROUGHT IN THE ECONOMIC MANAGEMENT PRE REFORM S TAGE CLOSED ECONOMY PUBLIC SECTOR IN COMMANDING HEIGHT IMPORT SUSTITUTION LICENSE DOM INATED STATE INTERVENTION ADMINISTERED PRICE DEFICIT HAS NO PERIL NATURAL MONOPO LY ECONOMIC REFORM STAGE OPEN ECONOMY MARKET DETERMINED GROWTH EXPORT SUBSTITUTION DELICENCED ,DEREGULATE D SELECTIVE INTERVENTION MARKET DETERMINED PRICE CONTAIN DEFICIT COMPETITIVE ENV IRONMENT 25

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 RESTRICTION ON FDI AND MNCS HIGH TAX REGIME CREDIT MARKET,STATE CONTROLLED FDI AND MNCS WELCOMED LOWER AND TAX REFORMS DEREGULATED CREDIT NORMS Govt abolished the practice of multiplicity of agencies network Co act has been changed to create room for merger and amalgamation Banks and PSUs have been more freedom Attempts to create vibrant capital market Easy access to ADR / GDR marke t Set up of various regulatory bodies to control unfair competition in trade and pricing Private agencies invited for infrastructure building. GLOBALISATION AND ITS IMPACT ON INDIAN BUSINESS Globalization International interaction Any international trade or exchange with massive dimension Removes dichotomy between domestic and international market G reater interaction,more robust,measurable development,superseding the national e conomy and enmerging single economy Globalization implies expansion of business internationally removal of domestic market and foreign market,locating and posit ioning or organizing market,physical production facilities with an eye on global business,whatever be the regional consideration. For this factors of production to be sourced Finance and technology to be outsourced Production planning shoul d be on global market consideration Organizational ethos,management culture shou ld follow global vision, international norms etc European union ,atlantic and pa cific economies have achieved full integration in terms of o Capital movement o Trade movement o Migration level Customer in globalization process are equidista nt no customer as Japanese ,American or Indian. INDIAN SCENARIO Indian corporate sector needs proactive approach Should set up manufacturing unit abroad,sales o ffice,staff Some firms are dishonest,do not disclose info Outlook is conservativ e Lack innovative ideas,proper ethics Need quality and cost improvement Should a dopt Mckinseys 7 s framework o Aditya Birla Group 1st established manufacturing abroad 26

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 o Tata Tetley merger greater access to European makets o Joint ventures by Dr Re ddys La,Ranbaxy o Investment in foreign market should be allowed after capital ma rket is matured CORPORATE GOVERNANCE The ways in which suppliers of finance to corporation exercise control and ensur e accountability of company so as to assure themselves best possible return on i nvestment. GOOD CORPORATE GOVERNANCE ASSURES Flourish the corporate More employm ent Wealth and satisfaction Improved std of living HOW CORPORATE GOVERNANCE INTE RACTS VARIOUS PARAMETERS STRUCTURE OF FINANCIERS EQUITY HOLDERS: 1.LARGE SHAREHOLDERS 2.IDENTITY OF SHAREHOLDERS DEBT HOLDERS : CHANNELS OF CONTROL Board of Directors managerial incentives commitment and trust Disciplines 1 . ma rket for shares 2 . takeover mechanism OBJECTIVES Share holders profit maximization 1 . profit 2 . growth 3 . stability LEGAL AND REGULATORY FRAMEWORK Ddisclosure rules Auditing rules Debt covenants Bankruptcy rules 27

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 1.LARGE DEBT HOLDERS 2.IDENTITY OF DEBT HOLDERS According to Jayanti and Subrata Sarkar CG is concerned with o Overseeing ,strat egic direction ,socio economic ,cultural contact externalities faced by institut ion Has to be identified with Traditional and cultural heritage CORPORATE GOVERN ANCE got formal shape after MAY 1991 Great Britian committee setup under chairma nship of Sir Ardian Cadbury Recommendation were about BOD Chairman and chief exe cutive should not be same person Relation between BOD and executives should be p rofessional Info about audit fee to be made open Regular retention of auditors N on executive directors should act independently on strategies,performanceallocat ion of resources and designing code of conduct India 1st organized step was take n by CII a committee was formed under Rahul Bajaj RECOMMENDATION Any listed company with 100 Crs turnover should be professionally competent,independent. Non executive board directors should be atleast 30% Key info should be reported about o Quaterly results of Co o Performance,inrenal aud it reports etc Kumar Mangalam Birla report under aegis of SEBI 2002 finance mini ster Jaswant Singh formed Naresh Chandra committee on audit and governance MAJOR RECOMMENDATION 50% Seats on BOD of Co with paid up capital 10 Crs and above ,tur nover 50 Crs goto to independent Directors Nominees of financial institution can not be counted as independent directors Setting up of quality review boards for ICAI,ICSI,ICWAI Annual account of the Co should be certified by CEO or CFO Amend ments in Co act to order compliance with audits and provide powers to attach ban k account Beefing up staff and infrastructure in D .Co affairs Prohibiting audit firms to provide non audit services 28

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 INDIA UNDER ECONOMIC REFORMS INDIA economic reforms:OPENING OF THE ECONOMY Started in 1991 /economic reforms/ liberalization Policies relating to industrial licensing,trade,foreign investmen t undergone changes eg: BANKING SECTOR,CAPITAL MARKETS Structural adjustments o Subsidies,price environment o The public sectors changed THE NEW ECONOMIC POLICIES REFORMS CLASSIFIED INTO 2 Liberalisation measures Macr o economic reforms and structural adjustments THE ECONOMIC POLICIES LIBERALISATION MEASURES o NEW INDUSTRIAL POLICY Liberalisa tion of industrial licensing FERA liberalization MRTP liberalization Curtailment of public sector o NEW TRADE POLICY Lowering of import tariffs Abolition of imp ort license A more open exim regime Convertibility of rupee Encouragement to exp ort Arrangement to foreign investment Integrating India economy with the global economy MICROECONOMIC REFORMS AND STREET ADJUSTMENTS o MACRO ECONOMIC REFORMS AN D STREET ADJUSTMENTS Fiscal and monetary reforms Banking sector reforms Capital market reforms 29

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 o STUCTURAL ADJUSTMENT Phasing out subsidies Dismantling of process controls Int roduction of market driven price environment Public sector restructuring and dis investment Exit policy LIBERALISATION MEASURES INDUSTRIAL POLICY LIBERALISATION SUBSTANTIATE CHANGES INTRODUCED Foreign investm ent Technology import FERA AND MRTP relaxed Role of public sector curtailed THE NEW INDUSTRIAL POLICY LIBERALISATION OF INDUSTRIAL LICENSING DE-LICENSING DE -CONTROL DE-REGULATION BROAD BANDING ABOLITION OF REGISTRATION INDUSTRIES needs license at present Alcohol Cigarettes Industrial explosives Hazardous chemicals Defence Atomic energy Industrial registration scheme abolished. FERA LIBERALISAT ION 30

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 LIBERALISATION OF FOREIGN INVESTMENT IMPORT MRTP LIBERALISATION ABOLITION OF THRESHOLD ASSETS LIMIT NO MRTP CLEARANCE CURTAI LMENT OF PSUS NEED FOR EXPANSION,MERGERS SEVERAL INDUSTRIES RESERVED FOR PSU OPEN TO PRIVATE ONLY 8 CRORE INDUSTRIES REMAIN RESERVED PURVIEW OF BIFR EXTENDED TO THE PUBLIC SECTOR FERA LIBERALISATION / FERA ENCOURAGEMENT (a) Automatic clearance for foreign equity upto 51% 100% equity holding allowed in select project Electronic hardware technology park attract FDI (b) Expansion of automatic clearance route 48 industries become eligible for 51% equity Foreig n equity FDI for drugs and pharma raised to 74% (c) Automatic clearance for capi tal goods and tech imports and royalty payments Govt withdrew restrictions on di vedend repatriation by foreign investors (d)removal of restriction on functioning of Indian co boards Eg overseas investm ents liberalized Investment through ADR/GDR without govt approval Indian co may invest abroad upto 50 millions annually (f)ECB liberalized: liberalization comme rcial borrowings for corporates (g)FEMA replace FERA:at the end of 1999:FEMA bil l,preservation of money laundering bill (h)MRTP liberalization No MRTP clearance required for investment applications No approval for new undertaking /expansion /takeover. (i)Curtailment of PSU and enlargement of private PSU arms and ammunit ion,atomic energy,railways,mining and coal. SICA-sick industrial company act ext ended to public sector TRADE POLICY LIBERALISATION / NTP Free trade and more open exim regime Import liberalized and de-channelised Licen ses abolished,tariffs lowered Phasing out or relying on exchange of exchange rol es Tariffs and exchange rate will e instruments of control 31

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 Exports encouraged o Incentives for exports o Abolition of export duties o Cheap er export credit and cuts in import duties o Duty draw back scheme Rupee made co nvertible: full convertibility on trade account 1993-94 EPCGS /EOU/EPI/FTZ : exp ort promotion capital goods scheme MACRO ECONOMIC REFORMS AND STRUCTURAL ADJUSTMENTS MACRO ECONOMIC REFORMS CAPITAL FISCAL BANKING MARKET REFORMS REFORMS REFORMS STRUCTURAL ADJUSTMENTS MARKET DRIVEN PUBLIC SECTOR EXIT PRICE RESTRUCTURING POLI CY

Reduction of fiscal deficit Reforms of tax system Interest rate reforms Inflatio n control

banks to operate as commercial institution phasing out priority sector lending d eregulation of deposit interest rates operational freedom in lending rates adher ence to norms on capital adequacy

abolition of CCI and introduction of free pricing strengthening of SEBI opening up of Indian capital market to FII allowing privte sector into mutual funds allo wing Indian

phasing out of subsidies dismantling of price controls axe on fertilizer subsidi es abolition of sugar subsidies axe on petrol prod subsidies partial decontrol

no new PSU no ex pension of PSU with govt equity budgetary support for PSU to be phased out preference to PSU ingovt tenders abolished disinvestment of govt equ ity in PSU Sick PSUs to be reffered to BIFR

Support to VRS 32

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 ,recognition and provision for bad debt ission for new private sector banks disinvestment in public safir banks perm

NBFCS to align with global finance Co allowing Indian firms to raise capital abr oad

and parallel markets of kerosene and LPG abolition of export subsidy steel price decontrol ENVIRONMENT PROTECTION AND ENVIRONMENT LAW

1972 United Nation Conference on Human Environment At stockhold UN- Secretary Ge neral declared that inhibitants of the world have perhaps ten years left to impro ve human environment. Bhopal Gas Tragedy gave impetus to this issue through (air (P an CP)act and water CP and CPD Act were existed Environment protection enact ed as response to gas tragedy. 1992-THE EARTH SUMMIT THE RIO DECLARATION Problems of ozone depletion Global war ming Water pollution ENVIRONMENT GOVERNANCE IN INDIA SINCE 1972 nd The 42 amendm ent 1976 article 48A was added to directive principles of the state policy To pr otect and improve environment and forecasts Article S I S (8) fundamental duties - impose responsibility on citizens Article 253 states- parliament has power to make law for whole or any part of India OTHER ACTS 33

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

The Indian forecast act 1927 The factories act 1948 The atomic energy act 1962 T he insecticides act 1968 Wildlife (protection)act 1972 The water (P and CP) act 1974 The water (P and CP) cess act 1977 The forest conservation act 1980 FOR ADEQUATE ENVIRONMENT PROTECTION WE SHOULD HAVE 1) ENVIRONMENT PROTECTION AGE NCY Social control over environment pollution 2C all areas of pollution each are a separate department. Agency lay down uniform national standards Every industry should prepare environment impact statement 2) 3) 4) EFFECT SANCTION BY LAW TO ENFORCE AGENCY PEOPLE PARTICIPATION AS WATCH DOG The e nvironment protection act permits individual to file criminal action in court of law. National environment engineering institutute (NEERI) National institute of occupational health (NIOH) ENVIRONMENT COURT :- A forum where activist and poll uters come together and enforcement can be brought by NATIONAL EFFORTS AT ENVIRONMENT PROTECTION 1) 2) 3) 4) 42ND AMENDMENT : ARTICLE 48A-CONSTITUTIONAL OBLIGATION,51A FUNDAMENTAL DUTY. Nat ional committee on environment planning and co ordination NCEPC after Stockholm conference on planning,projects,ecosystem etc. Tiwari committee 1980 by governme nt a. Review of Acts b. New legislation c. Introduction of environmentin concurr ent list i. Suggested :nodal agency formation ii. Carrying environment appraisal for projects iii. Conservation of eco-systems 1980 formation of institution and board a. Central pollution board and state pollution board b. Central forestry board c. Forest survey of India,wildlife institute of India d. National wastelan d development board e. National museum of natural history ISO 14000 AND ENVIRONMENT MANAGEMENT SYSTEM INTERNATIONAL STANDARDS ON ENVIRONMENT MANAGEMENT COVERS 34

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007

Environment management systems Environment auditing Environment labeling Environ ment performance evaluation Life cycle assessment ISO 14000 SINGLE SHOULD MANAGEMENT SYSTEM ALLOWS Effective management of environ ment responsibilities o Liabilities o Costs o Documents to government o Promote concern for society. TECHNOLOGICAL ENVIRONMENT 1) 2) 3) 4) 5) 6) ENGINEERING INDUSTRY largest segment of Indian industry ,divided into a. Electri cal :- depends on investment in power industry b. Non electrical:- driven by ind ustrial investment Always demand for equipments in following sectors a. Cement b . Chemical c. Steel d. Textile e. Power f. Petrochem To sustain growth of 7.8% w e need investment of 10% o GDP or $50bn per year India strong base of engineerin g and capital goods base Both sectors serve wide cross section of industry a. Co nsumer durable ,chemical ,petrochem,fertilizers,defense equipment,power,oil and gas ,mining,nuclear etc. Deregulation in power derive higher growth eg ABB and B HEL derive 60% to 69% revenue from suppliers 35

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 7) 8) Govt increased focus on infrastructure helped L&T like 35% sales from infrastruc ture like engineering design and construction. i.e construction of hospital ,IT parks,express ways,SEZ,ports,bridges etc Recent budget govt had outlined Rs 100 bn for investing J K GALBRITH DEFINES TECHNOLOGY 1) Systematic application of scientific or other organized knowledge to practical tasks a. Technology has developed beyond anbod ys comprehension b. Enabled man to conquer i. Distance ii. Control birth rate iii . Save lives iv. Generate ,preserve and distribute energy v. Discovered new mate rials and substitute to the existing one vi. Substitute mental work to computers vii. Probe deep into seas and space research viii. Provide lot of leisure and i nfinitum 2) 1983-termed as year of scientific success a. Scientist put a billion dollar technology into space b. Produced worlds 1st test tube triplets c. Obtain ed evidence of another solar system d. Japan marketed artificial blood system e. Breakthrough of genetic engineering to cure dwarfism f. U S physicist stripped of electrons from uranium atom and exposed bare nucleus g. Doctors confronted wi th AIDS So technology for some is WONDER,HORRORS,BLESSINGS. Eg automobile ,T V h ave mixed reaction Hydrogen bomb ,nerve gas,submarine ,gun proved horror Pencill ium , open heart surgery,birth control pills proved wonders INTERFERENCE BETWEEN TECHNOLOGY AND BUSINESS TECH REACHES PEOPLE THROUGH BUSINESS INCREASED PRODUCTIVITY SPEND ON R&D CHANGING TECHNOLOGY RISE AND DECLINE OF PRODUCT EXPECTATION OF CONSUMERS BUSINESS SOCIAL CHANGE JOBS BECOME MORE INTELLECTUAL TECHNO STUCTURE PROFESSIONA L MANAGERS REGULATION AMD OPPOSITION SYSTEM COMPLEXITY DEMAND FOR CAPITAL THE SEMANTICS SCIENCE AND TECHNOLOGY 36

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 SCIENCE refers to systematic body of knowledge and when this knowledge is put in to practice,it becomes technology. Awareness in science develops new technology DIFFERENCES IN SCIENCE AND TECHNOLOGY FEATURES 1) IN PERSUIT OF 2) PEOPLE INVOLVED 3) AGENCIES INVOLVED 4) FUNDING 5) MOTIVATIO N 6) DOMAIN 7) IMPACT 8) TIME SPAN SCIENCE KNOWLEDGE SCIENTIST RESEARCH INSTITUTION AND UNIVERSITIES MOSTLY GOVERNMENT TO S ATISFY CURIOSITY PUBLIC DISCONTINUOUS UNCERTAIN TECHNOLOGY SOCIO-ECONOMIC GAINS ENGINEERS ESTABLISMENTS INDUSTRIES TO BRING OUT NEED SATISF YING PRODUCT PRIVATE /SECRET CONTINUOUS EVOLUTIONARY TECHNOLOGY REACHES PEOPLE THROUGH BUSINESS : Business is institution through whi ch man expects new discoveries to convert it into goods and services. Managers o f organization pool necessary resources,work on new discoveries to convert into products The new discoveries are ideas in mind sketches on papers ,mock models i n laboratories,but business for institution. All activities like printing ,housi ng , education , TV are dependent to work productivity. Society depends on busin ess for goods and services 50% growth of developed nations is because of technic al .progress achievements Increase productivity It head to spend on R & D Philli ps spends 6.9% of total turnover on R & D 15 Cr Siemens -9% of worlds sales Baye rs 6% of domestic sales Bosch group 6.7% of sales ONGC .5% OF NET TURNOVER BHEL 4.5% OF NET TURNOVER IOC 0.1% OF NET TURNOVER AERONAUTICS 3.5% OF NET TURNOVER T ECHNOLOGY IS CHANGING : DECLING GROWTH IN BASE BUSINESS WHAT DEVELOPMENT IN NEW TECHNOLOGY VITALITY OF V ENTURE MARKETS DEVELOPMENT OF INTERNATIONAL COMPETITION INCREASING EMPHASIS ON T ECHNOLOGICAL INVESTMENT BY COMPANIES WHERE HOW 37

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 High expectation of consumers Job trends to become more intellectual Increased r egulation and stiff opposition o By product technical advance attracts impositio n by govt and stiff opposition of public. o Govt is empowered to investigate and ban the products (harmful) which hurt the sentiments of society. FMRAI FEDERATI ON OF MEDICAL REPRESENTATIVE OF INDIA. o Gained result of banning the sale of ha rmful drugs and sales promotion of advertisement of infant formula through mass media. Technical advancement invites opposition as it is threat to society,priva cy and human race Opposition for high rise building ,plants ejects harmful efflu ents,setting up of hydroelectric plant STATUS OF TECHNOLOGY IN INDIA Govt of India set-up R & D establishments Space re search centres Medical research centers Agricultural research centers Oil explor ation research centers 4700 intermediate / junior colleges 144 universities 44 d eemed universities 500 or more science and technical institution 1080 inhouse R& D labs Dept of science and technology. POLITICAL AND GOVERNMENT ENVIRONMENT Politics often determines economic and business policies Demock observe 2 most i mportant institution (1) Business (2) Politics POLITICAL ENVIRONMENT INCLUDES FA CTORS 1) Characteristics of political parties 2) Policies of political parties 3 ) Nature of constitution and govt system 4) Govt environment encompassing econom ic,business policies and regulations Peter Druker Even within transational econom ic units,national politics over rule economic rationality. Major economic policie s are political decisions Economic policy of ruling party is important eg politi cians lobby over fixed vs mobile services. FUNCTIONS OF STATE: 38

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 VIEW :- Government that governs is the best. Countries transmitting from mark to m arket Adam Smith wealth of nations-says Economic growth and welfare are best achi eved by the free market mechanism and state should confined to core functions( l aw and order,defense). STATE AND GOVERNMENT SOME CONCERNS STATE : Set of institu tions possesses means of legitimate coercion over defined territory population , society.monopolies rule making through organized government. GOVT : process of g overning ,to exercise power condition of ordered rule. People who fill the posit ion of authority in the state . Manner ,method or system of governing in the soc iety. Government consists of 3 sets of power with assigned role. 1. Legislature role is to make law 2. Executive implementin the law 3. Judiciary responsible fo r interpreting and applying the law 1. PARLIAMENTORY SYSTEM a. Executive continu ance depends on support of legislature b. Member of executive are members of leg islature c. Prime minister powerful member d. Important decision are taken colle ctively 2. PRESIDENTIAL SYSTEM a. Executive position is independent of legislatu re b. Member of executive not normally members of legislature c. Ultimately deci sion making lies with one person the president 2nd CLASSIFICATION ON DISTRIBUTION OF POWER BETWEEN LEVELS OF GOVERNMENT 1) 2) 3) Unitary state : authority to make law is vested in the supreme legislature whose jurisdiction covers whole country. Local legislature may exist,but with the suf ferance of the national legislature. Federal state : local legislature are guara nteed measure of autonomous decision making authority. Confederation groupof sov ereign states each state remain sovereign POST WORLD WAR SCENARIO Importance of public policies Macro economic policy Oil shocks GDP Expenditure Communism FUNCTION OF STATE Addressing market failure Min imal Providing pure public goods Improving equity Protecting the poor 39

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 functions Intermediate Function Overcoming imperfect information Basic education Utility Insurance Environmental Regulation Financial protection Antitust regulation policy Consumer protection Activist Co ordinating private activity.fostering function markets,cluster initi atives (ADOPTED FROM WORLD BANK) Defence Law and order Property rights Macro economic management Public health Ad dressing Regulating externalities monopoly Antipoverty Programme Disaster relief Providing social insurance Redistributive pension Family allowance Unemployment insurance Redistribution asset.redistribut ion ECONOMC ROLE OF GOVERNMENT In any economy susbstantial share of any product goes to satisfy public wants Market mechanism cannot alone perform all economic func tion Public policy is needed to guide,correct and supplement it So it is realize d that public sector is a significant degree,a technical rather than ideological issues. GOVERNMENT PLAY AND IMPORTANT ROLE OF Regulation Promotion Entrepreneur ship Planning 1) REGULATORY ROLE a. Covers broad spectrum from entry into business to final re sults b. Reservation of industries to sectors c. Licensing system d. Regulation of product mix e. Promotional activities f. Celings on prfit margins,divedend et c g. Restriction on intra corporate investment,interlocking of directors,appoint ment of sole selling agents h. Control through fiscal monetary incentives 2) PRO MTIONAL ROLE a. Infrastructure facilities i. Power ,transport ,finance market,in stitutions for training ii. Various incentives through policies 3) Entrepreneurs ial role 40

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 a. Establishing and operating business interprises b. Public sector development i. Capital intensive projects,like steel ,capital goods,petrochem,fertilizers 4) PLANNING ROLE a. State as planner b. 5 year planning INDIAN ECONOMIC REFORMS RE GIME 1) NATIONAL DEMOCRATIC ALLIANCE (NDA) a. Measure in electricity bill b. Ame ndment in labour laws c. Mamta banarjee,self styled opposition d. Chandra Babu N aidu CO/ AP, vision and ideology 2) GOVERNMENT AND LEGAL ENVIRONMENT a. Laws rel ating to consumer interest b. Restraining children in commercial ads c. Cigarett e smoking d. Statutory controls. THE CONSTITUTIONAL ENVIRONMENT The socio econom ic and political objects of Indian republic Basic guiding principles of state fu nctioning are clearly laid down Impermeable to the constitution Fundamental righ ts Directive principles of state policies The responsibility is bestowed on stat e by constitution PREAMBLE- The people of India have solemnly resolved to constitute India into a Sovereign,socialist,secular,democratic republic to secure all its citizens justi ce, liberty,equality,fraternity. THE FUNDAMENTAL RIGHTS a. Right to equality b. Freedom c. Against exploitation d. To freedom of religion e. Cultural and educat ion f. Constitutional remedies FUNCTIONA AND POWERS OF PARLIAMENT As other parli amentary democracies,parliament of India has the caedinal functions of o Legisla tion o Overseeing administration o Passing of budget o Ventilation of public gri evances o Development of plans 41

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 o Internal relations o National policies Power distributed in between union and states Parliament is vested with powers t o impeach the president and remove judges,chief election commissioner,comptrolle r and auditor general according to laid down procedure Incase of money bill,will of lok sabha prevails The parliamentary committees for both houses The appointm ent ,term of office ,function and procedure of conducting business as per norms Parliamentary committee 2 kinds o Standing committees :Elected or appointed ever y year or periodically Committee on estimates Public accounts Public undertaking Keep vigil on government expenditure and performance o Ad hoc committee : appoi nted when need arises FUNDAMENTAL DUTIES 42ND amendment of the constitution,1976 for To abide by const itution To define the country and render national services To promote harmony an d spirit of brotherhood THE DIRECTIVE PRINCIPLE Unique feature of Indians constit ution They are in nature of directions to the legislature and expenditure These directions are not justiceable,but counts cannot avoid taking cognizance of it. They are imperative basis of state policy and constitution directs the state to apply it SIGNIFICANT DIRECTIVE PRINCPLES The state shall strive to promote the w elfare of people State shall minimize In equalities in income,facilitate opputun ities State shall direct policy towards securing o Rights of people o Equal oppo rtunity to material resources o Operation of economic system o Equal pay for all o Health and strength of workers Article 39 legal system to promote justce and equal opportunity, legal aid Artic le 40 village panchayat Right to work sickning and disablement act 41 Maternity relief 42 SEPARATION OF POWERS IDEA that that government functions must be bated on a trip artite division of legislature,executive and judiciary.tech organ should be sepa rate,distinct and sovereign in its own allocated sphere. 42

BUSINESS ENVIRONMENT BY PROF ANIL PANDE MFM2SEM1-2007 DIVISION OF POWERS ITEMS FOR LEGISLATION AMONG THREE LISTS 1) UNION LIST 2) STAT E LIST 3) CONCURRENT LIST THE CONSTITUTIONAL ENVIRONMENT CONSTITUTION JUDICIARY EXECUTIVE LEGISLATURE CENTRAL LIST CONCURRENT LIST CENTRAL GOVT BUDGET DIRECT INVOLMENT IN BUSINESS STATE LIST LOCAL GOVT REGULATORY ORGANISATIONS (EG SEBI,TRAI) STATE GOVT POLICIES GUIDELINES CODES LAWS DEVELOP/PROMOTIONAL ORGANISATIONS(EG DEVELOPMENTAL BANK EXPORT DEVELOPMENT AUTHO RITIES) GOVT EXPANDS CONTROL ON VARIOUS SEGMENTS OF ECONOMY THE industries (development and regulation)act The companies act Capital control act Securities (contract regulation act) Monopolies and restriction trad e act Essential commodities act Prevention of black marketing and maintaining of supplies of essential commodities act Foreign xchange regulation act FEMA 2000 I mports and export act Provides govt OTHER ACTS (INDUSTRIAL AND LABOUR LAWS) TO REGULATE Employer employee relations Working conditions Wages Bonus Labour welfare Social security etc COMMERCIAL BAN KING SECTOR ACT TO CONTROL EFFECTIVELY BY RBI BANKING CO ACT 1949 AMENDMENTS 195 6,62,63 SEBI 43

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