PART II: Case Study

A)
The term business environment refers to the combination of various factors and forces which
have direct and indirect influence on the functioning and growth of individual business. These
factors may be internal or external to a business unit.
According to Keith Davis “The environment of any organization is “the aggregate of all
conditions, events and influences that surround and affect it.”
Arthur M. Weimer explains, “Business environment encompasses the climate or set of
conditions- economic, social, political, or institutional- in which business is conducted”.

The term business environment refers to all those factors that are external to a business unit.
There are 2 components of business environment - Micro and Macro.

 Micro: Task Environment that refers to the immediate surroundings of the business
 Macro: General environment
A typical micro-environment for any international automobile manufacturer’s entry for the first
time in India would look like the following:
 Customers: When it comes to buying a new car, Indian consumers will root more for
mileage than engine power with the primary reasons of saving money as fuel prices seem
to be high and fluctuating most of the time. Secondary reason is of pollution reduction
since better mileage means lesser fuel consumption which implies less air pollution.
Bargaining Power of customers seem to be moderate in view of multiple options to
switch.
 Competitors: There are many competitors in the industry of both domestic and industrial
origin. There are typical automobile competitors like Maruti Suzuki, FIAT, Hyundai,
Honda, MG, Kia, Mitsubishi, etc. In view of the developing market, more and more
players seem to enter. However, players don’t tend to stick for long if they don’t make
profits. Threat of competitors is high for automobile companies.
 Suppliers: There are many supplies for automobile manufacturers in India. Some of the
renowned ones are Anand Group, Bosch, Bharat Forge, etc. Suppliers have a moderate
 bargaining power since there are many suppliers but in view of bulk orders and
compatibility issues, switching costs are medium for the automobile companies.
 Employees: Automobile industry being very tech driven employ skilled labors, engineers
and a great concern for job security is evident in automobile industries as hiring in
automobile industry is not very frequent unlike typical IT companies. Labour union also
plays a very important role.
 Shareholders: The shareholders for any industry are to be kept content at all types as they
are of prime importance especially in the stages of initiation and expansion in India.
 Media: Indian consumer being heavily dependent on the information available on various
sources of information like TV Media, Print Media, Internet, etc. This also plays an
important role in creation of goodwill and maintaining the same.

For any macro-environment analysis, PESTLE analysis needs to be done. A typical macro-
environment for any international automobile manufacturer’s entry for the first time in India
would look like the following:

 Political
 Economic
 Social
 Technological
 Environmental
 Legal

Political factors

Political factors like elections, smooth functioning of existing government, timely passage of
bills in both the houses thereby earliest law amendments, formulation, etc. play a key role in
functioning of automobile manufacturers in India. Recent issues like CAA-NRC, etc. have also
created doubts in the minds of the people about the political stability and hence are discouraged
from making auto purchases or any luxury purchases.
Economic factors

Middle class segment in India forms majority of the people who have purchasing power for
automobiles. Thus, they are extremely important for the same. Sustained economic growth
brings FDI which is essential for auto manufacturing. Prices of crude oil, petroleum, steel,
aluminium, etc. which play key role in auto manufacturing play a great role in pricing of
automobiles. This all also play an important role in deciding the sentiment of the potential
consumers.

Social factors

With rise in the population, middle class segment size and purchasing power, more and more
people aspire to upgrade to 4 wheelers from 2 wheelers. Indian consumer is typically price
conscious which is reflected in his purchase criteria as price and mileage centric. In India
society, purchase of a car is more of status display and thereby an aspiration to keep on
upgrading.

Technological factors

With the advent of technologies like AI Machine Learning, IoT, EV, etc., people are looking for
more technological factors as well. Features like Anti-Lock Braking System (ABS) is nowadays
not that of a premium anymore. A great example of AI based car was MG Hector which was first
of a kind in its segment. Indian consumer is becoming more technology oriented as time is
passing by which needs to be kept in cognizance by the incoming and existing auto
manufacturers.

Environmental factors

Manufacturers are more concerned with meeting environmental standards thereby keeping air
pollution in check. Hence, more variants of engines and exhausts upgrade are now being
provided by the government. These include, vehicles that consume less fuels and emit less
fumes. EV is now no longer a niche thing but every player is trying to get into it. BS-VI laws
have further set the norms to meet standards and thereby be compliant.
Legal factors

Legal factors like corporate taxes, subsidies to set up plants, incentivizing the auto players to set
up units, employing local workers, compliance with labour laws are to be considered by the
incoming auto manufacturers in India. 100% FDI is a nitro-booster for auto manufacturers.
Indian government encouraging more manufacturing in India and less of imported cars by
levying heavy duties on imported cars thereby increasing prices by more than 30% of the actual
prices of imported cars. Ease of doing business is very important at which India is currently
at 63rd out of the 190 countries. Source:
https://economictimes.indiatimes.com/news/economy/indicators/india-jumps-to-63rd-position-in-
world-banks-doing-business-2020-report/articleshow/71731589.cms?from=mdr