Business Environment MBA

Unit 1 to Unit 5
as per AKTU syllabus

1. Business Environment MBA IInd Sem Dr Zubair Ahmad JIT Barabanki

2. Business Meaning: An organization or economic system where goods and services are exchanged for one another or for money. Every  business  requires some form of investment and enough customers to whom its output can be sold on a consistent basis in order to make a profit.  Businesses  can be privately owned, not-for-profit or state-owned .

3. Nature and Scope of Business I n your day-to-day life you may be engaged in several activities. However, when some one asks you as to what you want to become in your life or what you want to do in future, your answer may be – “I want to join a suitable job or I want to become a doctor, an engineer, a dancer or a musician”, or you may say, “I want to do my own business”. But why do you want to do any of such activities? Obviously, it is mainly to earn your livelihood. Broadly speaking, every human activity in which one is engaged for the purpose of earning one’s livelihood is known as economic activity. In this lesson we shall learn about all such activities, their categorisation and some other related aspects.

4. Types of Business Organisations Sole Proprietorship: A sole proprietorship is a business owned by only one person . The sole proprietorship form is usually adopted by small business entities . Partnership A partnership is a business owned by two or more persons who contribute resources into the entity. The partners divide the profits of the business among themselves. Corporation A corporation is a business organization that has a separate legal personality from its owners. Ownership in a stock corporation is represented by  shares of stock .

5. Business A  business  is an organization or enterprising entity engaged in commercial, industrial or professional activities. A  company  transacts  business  activities through the production of a good, offering of a service or retailing of already manufactured products

6. Business Environment Meaning:   The term ' business environment ' connotes external forces, factors and institutions that are beyond the control of the  business  and they affect the functioning of a  business  enterprise. These include customers, competitors, suppliers, government, and the social, political, legal and technological factors etc. Characteristics: (a) Business environment is the sum total of all factors external to the business firm and that greatly influence their functioning. (b) It covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal conditions.

7. Characteristics of Business Environment (c) The business environment is dynamic in nature, that means, it keeps on changing. (d) The changes in business environment are unpredictable. It is very difficult to predict the exact nature of future happenings and the changes in economic and social environment. . (e) Business Environment differs from place to place, region to region and country to country. Political conditions in India differ from those in Pakistan. Taste and values cherished by people in India and China vary considerably.

8. Significance of BE Determining Opportunities and Threats Giving Direction for Growth Continuous Learning Image building Meeting Competition Identifying Firms strength & Weaknesses (Significance points)

9. Scope of Business Environment

10. Unit- II- Economic, Political, Legal Environments Legislature: a body of persons having the power to  legislate ;  specifically   :   an organized body having the authority to make laws for a political unit. For example: Our  legislature  passed a law requiring people to wear safety belts. Executive: the part of a government that is responsible for making  certain that laws and decisions are put into action Judiciary: The  judiciary  (also known as the  judicial system  or  court system ) is the system of courts that interprets and applies the  law  in the name of the state. The judiciary also provides a mechanism for the resolution of disputes. In some nations, under doctrines of separation of powers, the judiciary generally does not make law (which is the responsibility of the legislature) or enforce law (which is the responsibility of the executive), The Judiciary is often tasked with ensuring  equal justice under law .

11. Legal Framework in India Rules and Regulations which facilitate Business Rules and Regulations which restricts the Business A modern Legal Framework: Intellectual Property: Paris Convention and TRIPS Modern IP laws: Copyright Act 1957, Patents Act Trademarks Act 1999, Designs Act 2000 IP owners entitled to civil and criminal remedies Employment Laws: Laws mainly regulate blue collar sector, white collar sector: contractual Generally not as strong as European Employment laws but in particular PSUs has strong labour representation

12. Legal Framework in India Competition law Competition Act 2002 replaces MRTP Act Merger control rules in force Dispute resolution developed by court system

13. Economic System Communism: Form of government based on the concept of the classless society where all the major factors of production are owned by the government and shared by all the people rather than profit seeking enterprises for the benefit of the society. Socialism: A form of government where basic and heavy industries are operated by the government so as to ensure social welfare objectives wherein small businesses may be privately owned Capitalism: An economic system which provides complete freedom of private ownership of productive resources and industries

14. Economic Policies- New Economic Policy It refers to ongoing economic liberalization or relaxation started in 1991 of the countries economic policies It was introduced with the goal of making the economy more market oriented and expanding the role of the private and foreign investment Branches of New Economic Policy i ). Liberalization ii). Privatisation iii). Globalisation Liberalization of an economy means removing or relaxing government controls and restrictions on economic activities Example: Relief of foreign investors, revaluation of Indian currency, new industrial policy, new trade policy, import technology

15. New Economic Policy Privatization: Disinvestment, selling of govt. equity, partially or wholly, to private parties, Mergers, acquisition. Globalization: Outsourcing, reduction in trade barriers, free flow of technology, free movement of labour capital among different countries. Positive Effects of New Economic Policy: Increase in per capita income, Increase in foreign trade (Import, Export, FDI, FII, Merger)

16. Impact of Liberalization Positive Effects: Increase in Foreign investment. Increase in production, technological advancement, Increase in GDP growth rate Negative Effects: Increase in Unemployment, Decrease in tax receipt PRIVATIZATION: According to world bank Privatization is the transfer of state owned enterprises to the private sector by sale of going concerns or by sale of assets following their liquidation. Increasing inefficiency on part of public sector led to privatization

17. Concept of Capitalism Capitalism is the name given to the economic system in which the principal means of production, distribution and exchange are in private (individual or corporate) hands. Private ownership creates following rights of the owner: Rights of Control, Claim to value produced, Right to Exclusivity, Right to transfer ownership

18. Concept of Socialism A theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution of capital, land etc. Means of production are publicly owned Based on Co- op social relations and self management There is an attempt to distribute income equally Personal freedom do exist but to lesser than market economy

19. Mixed Economy Mixed Economy is an Economy system in which both the state and private sector direct the economy reflecting characteristics of both market economies and planned economies. One main characteristic of a mixed economy is the ownership of goods by both private and government/state-owned entities. Monopolies have the potential to occur in this type of economy, but the government closely monitors this. For the economy to be mixed, the government can control some parts but not all. For example, the government may control health care and/or welfare in some mixed economy countries.‘

20. Impact of business on Private Sector Private economic units generally operate as individual enterprises within an industry or sector in an economy with specific business conditions. This setup can be separated into four levels: ( i ) Individual enterprises. (ii) All enterprises within an industry. (iii) All enterprises within an economy. (iv) Business conditions within which private enterprises are created and operate. Employment Generation: Private sector plays a dominant role for generating employment opportunities inside the country. A huge number of large scale, small scale, cottage scale units are under the control of private sector. It proves that small scale and cottage scale industries contribute four times more employment in compare to large scale industries. According to 2001-02 statistics, as far as employment is concerned, the share of private sector was 51.2% against 44.3% of the public sector. 

21. Public Sector The government owned associations are termed as public sector undertakings (PSUs) in India In a PSU majority (51% or more) of the paid up share capital is held by central government or by any state government or partly by the central government and partly by one or more state governments. Arms and Ammunition, Atomic Energy, Railway transport, Air transport come under PSUs. Role of Public Sector Undertakings: Public sector banks play a crucial role in pushing the agricultural economy Example of a Pulic setor undertaking are ONGC, BHEL etc.

22. Joint Sector Joint sector industries are owned jointly by the government and private individuals who have contributed to the capital The concept of joint sector matches with the concept of joint economy. Joint sector is the combination of both private and public sector. In joint sector financial participation is 26% from the govt. , 25% from private enterprise and 49% from public and financial institutions. Example: Amul India, Indian Coffee house, Lijjat papad .

23. MRTP Act Monopolies Restrictive Trade Practices: This act checks the any monopolies, restrictive, unfair trade practices. This act came into existence in the year 1969 It controls the practices: Monopolies trade Practice (MTP), Restrictive Trade Practices (RTP), Unfair Trade Practices (UTP) The activities of MRTP act are controlled by MRTP commission. Competition Act 2002 replace MRTP act Example of MTP: Preventing or reducing competition, limiting technical development Example of RTP: To maximize profit and market power traders often attempts to indulge in certain trade practices which tends to obstruct the flow of capital into the stream of production the flow of capital into the stream of production. UTP: Misleading advertisement and false representation.

24. FEMA- Foreign Exchange Management Act The Foreign Exchange Regulation Act 1973 as amended by the foreign Exchange Management Act 1999 forms the statutory basis for exchange control in India FEMA: Consolidate and amend the law relating to foreign exchange, facilitating external trade and payments, promoting the orderly development and maintenance of foreign exchange market in India, 49 sections in the act. Important Terms: Authorized Person: Authorised under the act to deal in foreign exchange, Capital account transaction: alters the assets or liability, Currency: Currency notes, money order, Cheques , drafts, etc., Currency notes: Coin and bank notes, Currency account transaction: Transaction other than capital account transaction, Indian currency: Indian rupees

25. FEMA Export: Goods and services from India to Outside Foreign currency: Other than Indian currency Foreign Exchange: Means foreign currency Foreign Security: Security expressed in foreign currency Import: Goods and services from outside to India Security: Shares, Stock etc. as defined in the public debt act of 1994. Repatriate to India: Realized Foreign exchange to India Service: Banking, Financing, insurance etc. Transfer: Sale, purchase, Exchange etc. Non Resident Indian (NRI): Citizen of India residing outside Overseas Corporate body (OCB): A company firm etc. Owned at least 60% by NRI Covers three categories: Person, Person resident in India, Person resident outside India

26. Monetary Policy Monetary policy deals with the Credit. The process by which the monetary authority of a country controls the supply of money Two functions of Monetary policy Expansionary and Contractionary . It means increases the total supply of money in the economy more rapidly than usual. Expands the money supply more slowly than usual or even shrinks it. Problem: Unemployment, deflation, inflation Remedy: Induce an Expansion in the supply of money and therefore spending by reducing the interest rate. Means: Buy bonds in the open market

27. Fiscal Policy It deals with the revenue collection. Revenue collects through taxes. Fiscal policy governed by Union budget makes by the Central govt. in Delhi. Sources of Revenue for the State: Land revenue, including the assessment and collection of revenue, the maintenance of land records, Taxes on Agricultural income, Estate duty in respect of agricultural land, Taxes on land and buildings, taxes on the consumption or sale of electricity Concurrent List: Stamp duties other than duties or fees collected by means of judicial stamps but including rates of stamp duty. Fees in respect of any of the matters in this list but no including fees taken in any court.

28. Social Environment The  social environment ,  social  context, socio-cultural context or milieu refers to the immediate physical and  social  setting in which people live or in which something happens or develops. It includes the culture that the individual was educated or lives in, and the people and institutions with whom they interact. The social aspects cover the shape of the community of which we become members, and the norms and standards that we accept as our folkways, mores and customs. Graham Wallas states that, after socializing himself, man takes to his social heritage so closely and intently that, if he were to be removed from it, he would perhaps perish.

29. Cultural Environment Cultural Environment refers to the country’s environment in respect of its value system For example in Saudi Arabia the liquor and cosmetics products are not suitable for business So any company not to go for this type of business in these countries So in accordance to the community we have to do a business there.

30. Social Audit One important issue related to Social responsibility of business is how to evaluate the social performance. Bauer and Fenn Jr. define social audit as a commitment to systematic assessment of and activities on some meaningful, definable domain of the company’s activities that have social impact. In other words social audit involves: Identification of the firms activities having potential social impact Assessment and evaluation of the social costs and social benefits of such activities Measurement of the social costs and benefits Reporting that is presenting in a proper format and manner the social performance of the firm

31. Corporate Governance Corporate governance is concerned with holding the balance between economic and social goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interest of individuals, corporations and society

32. Social responsibility of Business Responsibility to Shareholders Responsibility to Employees Responsibility to Consumers Responsibility to the Community Responsibility to the Government

33. Competitive Environment A Competitive environment is the dynamic external system in which a business competes and functions. The more sellers of a similar products or service the more competitive the environment in which you compete. For example: Fast Food Restaurants- there are so many to choose from, the competition is high.

34. Porter’s Five Forces Analysis Supplier Power Buyer Power Competitive Rivalry Threat of Substitution Threat of New Entry

35. INNOVATION In the business context, Innovation may be defined as Technical, Industrial, Commercial steps which lead to the marketing of new manufactured products and to commercial use of new technical processes and equipment. Innovation Types: Radical Innovation Incremental Innovation

36. Technological Leadership and followership Technological leadership means- A firm seeks to be the first to introduce technological changes that support its generic strategy. Leadership can be established in technologies employed in any value activity. Technological followership refers to a conscious and active strategy in which a firm chooses not to be the first on innovations

37. Sources of Technological Dynamics Customer needs and Expectations Demand Conditions Suppliers offerings Integration of product and process technology Technology Advancements (Process improvement) Managing technology at the boundary/ border of the firm (Collaboration and Coordination with supply chain partners and customers Performance measurement of new technology (e.g. technology assessment, technology audit and feedback)

38. Technology Transfer Technology transfer is the process by which commercial technology is disseminated. The transaction may or not be a legally binding contract but it will involve the communication by the transferor of the relevant knowledge to the recipient. Forms of T.T. Internalised form: refers to investment associated TT where control resides with technology transferor Externalised form: Joint ventures with local control, licensing, strategic alliances etc.

39. Status of Technology in India The Annual sale of two wheelers in India is 17% of global sales India exports of automobiles is 5% of the total sales Electronics industry is 6% Present import content by value in automobile industry is about 7% STATUS: Highly skilled and technical resource available Minimum wage structure follows Service quality and operational efficiency Setting up of tech parks and implementation of E- governance projects

40. Management of Technology MOT is concerned with development, planning, implementation and assessment of technological capabilities to shape and accomplish the strategic and operational objectives of an organisation or central planning goals and priorities At two levels: At National Level At Enterprise level