Business environment

• Business environment


  The sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance
• Business environment


  • Totality of external forces
  • Specific and general forces
  • Inter-relatedness
  • Dynamic nature
  • Uncertainty
  • Complexity
  • Relativity
• Dimensions of business environment

  • Economic
  • Social
  • Technological
  • Political
  • Legal
• Economic environment


  Interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee
• Social environment


  Customs and traditions, values, social trends, demographic changes, and level of education
• Technological environment


  New innovations, new production methods, new communication systems, and new distribution channels
• Political environment


  Government policies, political stability, and foreign relations
• Legal environment


  Laws, court decisions, and administrative actions that affect business
• Dimensions of Business Environment

  • Economic Environment
  • Social Environment
  • Legal Environment
  • Technological Environment
  • Political Environment
• Economic Environment


  • Existing structure of the economy in terms of relative role of private and public sectors
  • Rates of growth of GNP and per capita income at current and constant prices
  • Rates of saving and investment
  • Volume of imports and exports of different items
  • Balance of payments and changes in foreign exchange reserves
  • Agricultural and industrial production trends
  • Expansion of transportation and communication facilities
  • Money supply in the economy
  • Public debt (internal and external)
  • Planned outlay in private and public sectors
• Social Environment


  • Attitudes towards product innovations, lifestyles, occupational distribution and consumer preferences
  • Concern with quality of life
  • Life expectancy
  • Expectations from the workforce
  • Shifts in the presence of women in the workforce
  • Birth and death rates
  • Population shifts
  • Educational system and literacy rates
  • Consumption habits
  • Composition of family
• Technological Environment


  • Scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business
• Political Environment


  • Prevailing political system
  • The degree of politicisation of business and economic issues
  • Dominant ideologies and values of major political parties
  • The nature and profile of political leadership and thinking of political personalities
  • The level of political morality
  • Political institutions like the government and allied agencies
  • Political ideology and practices of the ruling party
  • The extent and nature of government intervention in business
  • The nature of relationship of our country with foreign countries
• Legal Environment


  • Constitutional Provisions
  • Companies Act 2013
  • Industries (Development and Regulations) Act 1951
  • Foreign Exchange Management Act
  • Imports and Exports (Control) Act 1947
  • Factories Act, 1948
  • Trade Union Act, 1926
  • Workmen's Compensation Act, 1923
  • Industrial Disputes Act, 1947
  • Consumer Protection Act, 1986
  • Competition Act, 2002
• Rationality in classical economic theory is a flawed assumption as people usually don't act rationally
• Shifts in demand


  • Vacuum tubes to transistors
  • Steam locomotives to diesel and electric engines
  • Fountain pens to ballpoint
  • Propeller airplanes to jets
  • Typewriters to computer based word processors
• Traditions define social practices that have lasted for decades or even centuries
• Values refer to concepts that a society holds in high esteem
• Social trends present various opportunities and threats to business enterprises
• Social trends


  • Health-and-fitness trend
  • Demand for organic food, gyms, bottled (mineral) water and food supplements
• Political stability builds up confidence among business people to invest in the long term projects for the growth of the economy
• Political instability can shake that confidence
• Attitudes of government officials towards business may have either positive or negative impact upon business
• Non-compliance of laws can land the business enterprise into legal problems
• Government regulations are required to be followed by advertisers
• At the time of Independence, the Indian economy was mainly agricultural and rural in character
• About 70% of the working population was employed in agriculture
• About 85% of the population was living in the villages
• Production was carried out using irrational, low productivity technology
• Communicable diseases were widespread, mortality rates were high. These was no good public health system
• Objectives of India's development plans

  • Initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty
  • Become self-reliant and set up a strong industrial base with emphasis on heavy and basic industries
  • Reduce inequalities of income and wealth
  • Adopt a socialist pattern of development — based on equality and prevent exploitation of man by man
• India's experience with economic planning has delivered mixed results
• Broad features of the new industrial policy announced in 1991

  • The Government reduced the number of industries under compulsory licensing to six
  • Many of the industries reserved for the public sector under the earlier policy, were dereserved
  • The role of the public sector was limited only to four industries of strategic importance
  • Disinvestment was carried out in case of many public sector industrial enterprises
  • Policy towards foreign capital was liberalised
  • Automatic permission was now granted for technology agreements with foreign companies
  • Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India
• Liberalisation


  • Abolishing licensing requirement in most of the industries
  • Freedom in deciding the scale of business activities
  • Removal of restrictions on the movement of goods and services
  • Freedom in fixing the prices of goods services
  • Reduction in tax rates and lifting of unnecessary controls over the economy
  • Simplifying procedures for imports and exports
  • Making it easier to attract foreign capital and technology to India
• Privatisation


  • Giving greater role to the private sector in the nation building process
  • Reduced role of the public sector
• Globalisation


  • Integration of the various economies of the world leading towards the emergence of a cohesive global economy
  • Liberalising imports in value and volume terms
• Major elements of the crisis situation which led the Government of India to announce economic reform in 1991
• Disinvestment


  Transfer of public sector enterprises to the private sector, resulting in dilution of government ownership beyond 51%
• Globalisation


  Integration of various economies of the world leading to a cohesive global economy
• Till 1991, the Government of India had followed a policy of strictly regulating imports in value and volume terms through licensing, tariff restrictions and quantitative restrictions