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BUSINESS AS A SYSTEM

Which of the following represent the ‘ Integrated


Whole Thing “ :

Digestive System Digestive Method


Digestive Process
Sound System Sound Method Sound
Process
Music System Music Method Music Process
Computer System Computer Method Computer Process

Political System
Social System
Cultural system
Economic System
Technological
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System Surana College PG_Centre,
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Legal System
BUSINESS AS A SYSTEM
System will:
Draw Input
Process it Internally and
Releases output into environment

Business
Draw Input – Material , Energy , Information
Process it Internally - Into different Material , energy
and Information
Releases output into environment – Tangible,
Intangible and
Information

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Business & Environment
Interface
Interaction of Business & its
Surroundings
 Micro environment of business.
3) Suppliers
Supply raw materials and other
components (Inputs)

Importance
- Reliable supply – continuous supply
for smooth functioning
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Business & Environment Interface
Micro environment of business.

1) CUSTOMERS
Different categories of customers
i. Industrial customers
ii. Wholesale customers
iii. Retail customers
iv. Government customers
v. Foreign customers
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Business & Environment Interface
Micro environment of business.
 Market intermediaries
i. Middlemen.
ii. Physical distribution Firms:
(warehouses and transport firms)
iii. Marketing service agencies
(Advertising agencies market
research firms, media firms,
consulting firms)
iv. Financial intermediaries
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Business & Environment Interface
Micro environment of business.
 4. Competitors:

 The Threat of entry of new firms


 The Power of Buyers
 The Power of Suppliers
 The Power of Substitutes
 The Intensity of Rivalry among existing
firms

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Business & Environment Interface
Micro environment of business.
• Economies of Scale
 Competitors:
• Unit cost Inverse to units
produced
1. The Threat of entry of Measured by ‘ Minimum
new firm Efficient Scale ‘
1. Economies of scale Or Market share
2. Capital Requirement MES volume is necessary to
3. Access to Channel compete
4. Absolute cost at minimum cost.
advantage Strategy : ‘Just in time ‘ &
5. Expected Retaliation Lean
5. Government Policy manufacturing to counter
7. Differentiation economies of scale

• Capital requirement
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Business & Environment Interface
Micro environment of business.
Absolute cost advantage
 Competitors: ‘Learning curve effect’ – Cost
1. The Threat of entry of advantage
new firm Expected Retaliation
1. Economies of scale GSM Players like Airtel ,Spice
2. Capital Requirement retaliated entry of CMDA
3. Access to Channel player Reliance
Communication to operate in
4. Absolute cost GSM field
advantage
Government Policy
5. Expected Retaliation
Import of sugar, Edible oils,
5. Government Policy Steel , Liberation of
7. Differentiation Insurance & other sectors
Access to Channel Differentiation
Self help groups / Social Existing company – Strong
networks – New channels brand image, wide range of
of distribution products to cover all
segments
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Business & Environment Interface
Micro environment of business.
Concentration of buyers
 Competitors: Small no. of buyer + High
Volume purchase – High
2. The Power of Buyers: buyer power
1. Concentration of Coca-Cola – cannot bargain with
buyers Malls
2. Alternative source of Alternative source of supply
supply More supply source – high buyer
3. Component cost as a power
percentage of total cost Bajaj Scooter – Honda, Suzuki,
4. Possibility of backward TVS etc
integration Component cost as a % of
total cost
High proportion of
component/material
cost
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Business & Environment Interface
Micro environment of business.
Concentration of Sellers
 Competitors: Small no. of Sellers– High seller
power
3. The Power of Sellers: Like Monopoly & Oligopoly
1. Concentration of Sellers Switching Costs
2. Switching costs High switching cost to other
3. Brand power seller source - Seller power
increase
4. Possibility of forward
integration High-Tec & Specialised goods -
SAP
5. Dependence on
customers Brand Power
Dependence on customers High brand power – High power
Not depending on High Ariel , Rin - Supermarkets have
volume small no.of buyers – to sell it
more seller power Possibility of forward
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Business & Environment Interface
Micro environment of business.
Relative performance &
 Competitors: Price of Substitutes
4. Threat of Substitution: Substitutes with same cost –
Non-essential goods where High threat – Email replaced
there is the Post Offices
ultimate substitute of doing Switching costs
without The Cheaper switching cost -
That: High threat
1. Relative Price & Pet foods , Fast foods , Malls
Performance of substitutes Buyer’s Willingness to
2. Switching Costs substitute
3.Buyer’s willingness to Low-cost articles & infrequent
substitute purchase of articles – little
effort made to go for
substitutes
Match box – Lighter
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Business & Environment Interface
Micro environment of business.
High fixed costs
 Competitors: High Fixed cost – High break
5. Competitive Rivalry: even point
1. Industry Growth In depression times – Price war
2.High Fixed costs to
3. Volatile Demand maintain turnover
4.Product Differentiation 1990 – UK & USA accused each
of dumping Steel on Export
5. Extra Capacity in large
market
increments
Volatile Demand
6. Balance of firms
May lead to intermittent Over-
7. High exit barriers
capacity
Industry Growth:
Steel war -1990
Rapid Growth – Competition
Product Differentiation
need not be intense
Homogeneous products – More
Maturity Phase- Intense
intense the rivalry - Steel
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competition
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Business & Environment Interface
Micro environment of business.
Balance of firms
 Competitors: If the no. of firms is large /
5. Competitive Rivalry: similar size the rivalry will be
1. Industry Growth intensive. Clear market
leader can bring discipline
2.High Fixed costs
High exit barriers
3. Volatile Demand
High exit barriers – Excess
4.Product Differentiation
capacity to persist and
5. Extra Capacity in large rivalry to be intense
increments
6. Balance of firms
7. High exit barriers

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Business & Environment Interface
Macro environment of business.
 1. Demography: Drivers of Population Changes
 Quantitative aspects of
population. Birth Rate – No. of births per 1000
 Qualitative aspects of population
Fertility Rate- Av. No. of birth per
population. women
Death Rate - No. of deaths per 1000
1. Population Growth Migration – Country to Country
2. Drivers of Population movement
Changes
3. Ethnicity of Population Implication – Consumer, Labour ,
4. Implications of Demographic Employment participation
Changes
Population Growth:
Year 1000 – Estimated 300 million
Year 1750 – Actual 728 million
Year 1900 – Actual 1500 million
Year 1960 – Actual 3 billion
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2000 – Actual 6 billion Surana College PG_Centre, 14
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Business & Environment
Interface
Macro environment of business.

2. Economic environment
Economic conditions- GDP, Business Cycle,
Unemployment, Inflation, Balance of Payment, Fiscal
Policy, Monetary Policy, Exchange rate Policy, Interest
Rate.
Economic policies
a) Budget
b) Industrial policy
c) Trade policy
d) Agricultural policy
Economic system- Capitalistic, Socilalitic, Mixed
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Business & Environment Interface
Macro environment of business.

3.Political environment
Legislature - Labour Laws like Factories Act,
EPF Act, ESI Act, Industrial Disputes Act, Minimum
Wages Act, Payment of Wages Act, etc
MRTP Act, Law of Contracts, Companies act, IDRA
Act, FERA, Import & Export Control act, Tax Laws

Executive- Administrators

Judiciary - District, High Courts, Supreme


Court, Tribunals

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Business & Environment Interface
Macro environment of business.
4. Socio cultural environment
 Attitude of people towards
work and health.
 Role of family.
 Marriage.
 Religion.
 Education
 Ethical issues
 Social responsibility
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of
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business
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Business & Environment
Interface
Macro environment of
business.
5. Natural environment
 Natural resources.
 Weather and climatic
conditions.
 Locational aspects.
 Nearness to port facilities.

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Business & Environment
Interface
Macro environment of
business.
6. Technological environment
i. Nature of technology
ii. Scope for innovation

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Contd
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Business & Environment
Interface
Macro environment of
business.
7. International environment
i. Economic
ii. Political
iii. Legal
iv. Demography
v. Technology

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Business & Environment Interface

Uses of environment studies


1) Awarness
2) Policy decisions
3) Demand forecasting
4) Competitor’s strategies.
5) To innovate

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Business & Environment Interface

Techniques for environmental


studies
i. Verbal and written information
ii. Search and scanning
iii.Forecasting and formal studie

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Business & Environment Interface

Limitations of environmental
analysis
a) Unexpected events
b) Future is not a guarantee
c) Too much of information.
d) Overcautions approach

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Business Sectors

Primary Sector – Agriculture, Mining


Secondary sector - Manufacturing
Industries
Manufacturing activities – Electricity Generation and
Construction

Tertiary Sector – Services industries


Trade , Commerce, Insurance, Banking,Repair, Transport

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Classification of Business – Based on Scope
of Business
1. Business which Produce Goods:
Two categories of Goods:
 Commodities – Goods produced by Primary sector
- Will not undergo any processing
- Agriculture , Fisheries, Mining,
b. Products - Goods produced by Secondary
sector
– Conversion of Raw material into another
form
- Farms, Diaries,
-Manufacturing Enterprises – Machinery,
Materials for -other business, Producing
goods for consumption
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Classification of Business – Based on Scope
of Business
2. Business which Produce Services:
Transport , Telephone , Electric Light ,Hotels ,Entertainment
3. Business which Distribute Goods:
Wholesale merchants
Retail Merchants
Importers & Exporters
4. Business which Facilitates Distribution of Goods:
Warehouse, Auction Houses, Advertising, Financing
5. Business which Deals in Finance:
Commercial Banks, Co-Operative Banks, Development Bankd,
Insurance Stock Exchange

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Classification of Business – Based on the
Nature of Activity
1.Extractive Industries:
Extract goods from natural resources- Oil extraction, Farming,
Fishing
2. Genetic Industries:
Produce goods by breeding- Poultries, Bio Tech
3. Manufacturing Industries:
Process Raw materials into finished goods – 4 Types
1. Basic Industries : Iron, Steel
2. Capital goods Industries : Machines
3. Intermediate Industries : Tyre , Tubes
4.Consumer goods Industries : Soap
4. Construction Industries
Canals, Dams, Road, Buildings, Road
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5. Service & IT Industries Manavazhaganr@bsnl.in
Classification of Business – Based on Uses of
Goods Produced
1. Basic Industries :
Provide essential inputs to other industries
Iron, Steel, Fertilizer, Chemicals

2. Capital goods Industries :


Instrumental in producing goods and services
Do not directly produce goods for consumption
Capital intensive
Machines, Tools,

3. Intermediate Goods Industries :

Goods already had undergone manufacturing process but which forms input
for other industries for further processing

Tyre , Tubes

4.Consumer goods Industries : For consumption – Durable / Nondurable


goods

Durable – Usage for more than 3 years

Non-durable – Usage within 3 years


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Classification of Business – Based on
Competitive Structure
1. Monopoly :
Single –Firm Industry
Monopsony – Single Buyer
Bilateral Monopoly – single Buyer and Single seller
MRTP Act

2.Duopoly
Two sellers
3. Oligopoly
Only few firms holding 80 to 85 % market share
4.Monopolistic competition
Large sellers & similar but not Substitute products – Textile

5.Perfect competition

Large sellers & Homogeneous & free entry , exit & no single firm
has any control over the market & Perfect knowledge about market
& no transport cost &
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complete
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between industries.
Business Motives & Objectives

Objective:
The end actions

Motive:
The desire which stimulate action

Motive – Profit, Non-Profit


Objective – Supply Quality Products, Customer Satisfaction,
Exploit labour, Tax evation

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Business Motives & Objectives

Importance of Objectives

1. Justifies existance

2. Provide Direction

3. Help coordination

4.Provide standards for assesment &


control

5. Help decentralisation

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Business Motives & Objectives

I. Economic Objectives
a) Earning of adequate profit.
b) Creation of customers
c) Innovation
d) Generation of employment
e) Control of inflation
f) Economic development
g) Reduction of inequalities of income
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Manavazhaganr@bsnl.in Contd …
Business Motives & Objectives

I. Social Objectives
a) Supply of goods and services.
b) Good treatment of customers.
c) Fair treatment of employees.
d) Good working environment
e) Customer Counseling
f) Social responsibility.
g) Pollution control.
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Business Motives & Objectives

I. National Objectives
a) Implement of government laws.
b) Payment of taxes.
c) Democratic practices.

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Business Ethics

Study of good and evil


,right and wrong actions
of Business

Dishonesty – Unethical , then being


dishonest with employees, Customers
and shareholders is unethical.
Protecting others from harm – Ethical
then recalling defective products is
ethical action.

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Business Ethics

Sources of Business Ethics :


Religion
Culture &
Law
Religion : Advocate orderly social system
Culture : Rules and standards transmitted
among generations to produce
behaviours- Sathi, Child marriage,
Untouchability, Joint family
Law : Rules of conduct approved by
Legislators – Companies act , Labour
laws etc

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Business Ethics

Codes of Business Ethics :


Codes of conducts of business
FICCI
4. Business must maintain highest
standard of behaviour for the benefit of
industry, employees, customers,
shareholders
5. Goods and services must conform to
committed quality
6. Customers must be treated with respect
and fairness

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Business Ethics

UnEthical Actions :
1.Kentucky Fried Chicken ( KFC ) – Use
of Harmful hormons & Monosodium
glutamate to fatten the chicken
2. Neem – Oil : Ptent by U.S company
3. Women Harassment – Sacking of Chief
Executive of Infosys

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