What is Business???

Business is the organized efforts of enterprises to

supply consumers with goods and services for a
profit

Contemporary Business
goals

Profit (Bottom-line)
Growth
Market Leadership
Customer satisfaction
Employee satisfaction
Quality Products & Services
Service to Society

What do you mean by Business

Environment???
All the factors within the control of business
and beyond the control of individual business.
Or
BE means surroundings , conditions ,
situations, trends within which business has
to operate.
Or
The environment of any organization is the
aggregate of all conditions, events and
influences that surround and affect it.

Classification of Business Enviornment

1.External ( Macro )

External Environment
Includes all factors outside the organization
which provide opportunities or pose threats
to the organization
Uncontrollable factors
Consists
of
environment

Macro

and

Micro

Macro Environment
It comprises general trends and
forces that may not immediately
affect the organization but
sooner or later will alter the way
organization operates.

Micro Environment

It consists of the factors in the

companys immediate environment

that affect the performance of the
company.

Internal Environment
Refers to all the factors that are within an organization which
impart strengths or cause weaknesses of strategic nature.
Controllable factors. These include:
Value system
Mission and Objectives
Management Structure and Nature

Components of Internal
Environment
Human Resources
Company Image and Brand Equity
Other Factors

Physical Assets and Facilities

R & D and Technological Capabilities

Marketing Resources

Financial Resources

Overview of Business Environment

MACRO ENVIRONMENT

ECONOMIC
Environment
MICRO ENVIRONMENT
BUSINESS

Internal Environment

TECHNOLOGICAL
FACTORS

Values,
Mission & Objectives.
Human Resources,
Co. Image & Brand Equity

DEMOGRAPHIC
FACTORS
MARKETING
INTERMEDIARIES

Non - Economic

Environment

SOCIAL
CULTURAL
FACTORS

Environmental Analysis
Environmental Scanning
The process by which organizations monitor
their opportunities and threats affecting
their business is known as environmental
scanning

SWOT Analysis

 Task Environmentof an organization

is the environment which directly affects
the organization from attaining business
goals.
It is the set of conditions originating
from suppliers, distributors, customers
and competitors which directly affects
the organization from achieving its
goals.

Examples of how task environmental factors influence

the business

Customers
Customers decide the fate of any company and hence companies try their level
best to lure them.
Suppliers
Suppliers have high bargaining power if the raw materials being supplied are
rare or if there are less number of suppliers in the market.
So its important to hold on the suppliers and maintain good relationship with
them.
Acting intelligently, companies often maintain more number of suppliers to
reduce risk of deserting by anyone.
Wholesalers & Retailers
They play a vital role in a task environment.
Competitors
Direct competitors & Indirect Competitors
E.g. Pharmaceutical Companies
Health clubs , Gyms

 Characteristics of Business
Environment
Interrelatedness
A change in one element can cause
changes in others
e.g. Social pressures led to anti pollution
laws
( In Delhi new registrations of the SUVs
above 2000 cc capacity are banned)
i.e. High End diesel cars
Higher prices of Diesel leads
to increase in prices of the

2. Volatility
Unpredictable shifts in the economy
Rapid changes in the customer preferences
Rapidly changing technology
Hence business environment is volatile
3. Complexity
Firms require to obtain a great deal of sophisticated
Knowledge/information for decision making
4. Dependence
The extent to which an organization is dependent on its
environment.
The degree of dependence depends upon the
organizations need for vital resources from outside.
e.g. A firm requiring higher amount of finance from
external sources like banks , then prevailing interest
rates ( cost of credit) will be a crucial aspect.

 Uncertainty
The business environment is less
predictable
Decision making becomes difficult due
to environmental uncertainty.
The business environment is more
uncertain & unpredictable due to
Rapid changes
Interrelatedness between its various
components
Resources constraints
Environmental uncertainty is due to its

Factors affecting Internal Environment

Objectives of the firm
What are the goals of the company ?
e.g. Sales , Profit & Growth objectives
Organizational Resources
1.Financial Resources
a. Acquisition of financial resources
What sources of finance?
Internal ( retained earnings)
Equity shares
Banks
b. Allocation of financial resources
Allocation of the funds to different units/projects
c. Controlling financial resources
By using ratio analysis
Fund flow
Ensuring the effective utilization of the funds & relative returns

2.Physical resources
a.Plant
Efficiency of the mfg. plant
Warehouses
Office buildings
b. Location of the plant
Closeness to the suppliers, consumer
markets
Accessibility to the transportation
Availability of labors
c.Raw material resources
Availability

3. Human Resources ( People)

People are the key resource for any business firm
Scientists
Engineers
Computer operators
Professional managers
a. Abilities
Knowledge & skills of the employees
Fulfilling training needs of the employees for
development
b. Needs
Weather business org. is taking care & satisfying
individual personal needs to keep them highly
motivated ?

c. Aptitudes
A persons potential capacity to perform certain task.
Unless people with the right aptitude are selected , training will be a waste.
d. Expectations
Ability of management to fulfill the reasonable expectations of the
employees
e. Perceptions
Perceptions of the employees strongly influence their expectation&
behavior.
f. Attitudes
It means likes & dislikes
Attitude affects the perceptions & behavior of the people
Attitude of the employee towards the work influence the performance at
work
7. Values
Values are general belief about what is good or bad,
right or wrong
Ethics , Morality
Leadership styles also influence the behavior & performance of the people
in an organization.

4.System and Technological resources

This is related to the manner in which
the goods & services are produced.
Technology
a. System capabilities :
Refer to the process aspect
Quality control
Reward policies
Distribution system
Organizational structure

b.Technological Capabilities
Technology includes combination of skills ,
equipments, facilities , tools & relevant
technical knowledge.
Patents
Customer brand loyalty
E.g. SAP
The management has control over the internal
environment of the org. to a great extent.
Strengths & weaknesses of the resources have
to be identified
Strength areas of the org. are its competencies
Constraints are the weaknesses.

Factors affecting External Environment

Economic Factors
a. Economic conditions
b.Economic policies
c. Economic Systems
a. Economic conditions
Changes in demand pattern
e.g.
Developed Economy : Demand for luxury goods
is more , High spending power of the people
Developing Economy: People are willing to buy
luxurious goods at lower costs.

b.Economic policies
Economic policies are decided by the
government.
They have great impact on the businesses.
e.g. Monetary & Fiscal policies
e.g. Restrictive import policy is beneficial for
protecting domestic industries.
While additional incentives to exporters will
boost the export oriented businesses.
e.g. Banning exports of agricultural commodity
like onion, sugar have great impact on the
respective businesses.
e.g. Flexible FDI policy will be having adverse
effect on the domestic industry.

c. Economic Systems
Free Market Economy or Capitalist
System
do not utilize price controls or subsidies
and prefer less regulation of industry
and production.
Market decisions rely on supply and
demand for pricing.
Market economies are based on
consumers and their buying decisions
rather than under government control.

 Command /Restrictive/ Planned economy,

(Communism)
The government controls all economic activity. In a
government-directed economy, the market plays
little to no role in production decisions.
They are less flexible than market economies and
react slower to changes in consumer purchasing
patterns and fluctuations in supply and demand.
Other Key Variables/Indicators
Inflation
Interest Rates
GDP
Stock Market
Currency Exchange Rate
Balance of Payments

 Mixed Economy
A mixed economy combines qualities of
market and restrictive systems into one.
In many countries where neither the
government nor the business entities
can maintain the economy alone, both
sectors are integral to economic
success.

 2. Political Factors
Government is belonging to the political parties
Country's economic , legal policies are
influenced by leading political parties.
There has to be perfect coordination between
the govt. & the business community.
Business community should actively participate
in policy making process by advising, giving
necessary suggestions, , information to the
govt.
Political influence may affect the prospects of
the business.
Business should not adopt malpractices in order
to grow & survive.

3.Legal factors
Legal framework for the businesses is created by
govt.
e.g. Consumer protection act
Minimum wages act
Workmans compensation act
MRTP Act ( Monopolistic Restrictive Trade
Practices)
Income Tax Act
Company Act
Essential Commodity Act etc
Too stringent legal structure affects the growth &
survival of the businesses.
It should be easy to understand & operate

4.Human Factors
Public Relations
CSR
Social contributions
To ensure the positive image & the
rwputation of the company
e.g. TATA : Cancer Hospital
Donations by the corporate houses
to Prime Minister Relief Fund
( Natural Calamities)
NDTV : Save Tiger Mission

5.Cultural Factors
Culture is dominated by religion and customs.
India is having Several customs & traditions.
The business is for the society & the societys
consumption pattern is greatly affected by its
culture.
6. International Factors
Global business environment
Import & export rules & regulations of each
country
Separate tax & tariff rules
Political stability worldwide
Wars
Global recession

7. Technological Factors
Technology contributes towards the
success , growth & efficiency of the
business.
Rapid changes in the technology
e. g.Innovations in communication
technology
Technological changes in the automobile
industry.
Use of the latest technology is essential
for businesses to survive to succeed.
Positive as well as negative effects

8. Natural Factors
Plays vital role in the success & the growth of the business
Availability of Land , Water, Raw Material
Favorable climatic conditions
E.G. Agriculture sector
Cultivable land
Irrigation fascillities
Mining industry
e.g. Coal mines : Sufficint resources of coal
Aluminum Manufacturing Industry
Sufficient resources of Bauxite ( ore) is needed

Eastern Maharashtra : Cotton grown region

Textile Industry is dominant.
Western Maharashtra : Sugarcane grown region
Sugar Industry is dominant

9. Social Factors
Business has to work for the society & in the
society
Aspirations , demands of the society need to be
looked after by the business.
Quality products & services at the reasonable
prices
Ecological balance has to be maintained by the
business community
Businesses improve the life style
Focus on reducing consumer dissatisfaction levels
Avoiding unfair practices in the business
Building social awareness

10.Demographic Factors
Population
Age Composition
Gender
Income
Family Size
Educational Levels
Occupation
e.g. Discount retailers tend to focus more on lower-tomiddle income earnersby emphasizing value, affordability
or low-cost productsand services for people on a budget.
WAL-MART - EDLP
High-end retailers commonly target customers with higherlevel incomes ( Shoppers Stop)
e.g. Major occupation in rural India is Farming
hence it is a most attractive market for the products like
Tractors, Fertilizers, Pesticides, Seeds etc

Chapter 2
Problems of Growth

Growth is a sign of dynamic

organization
Growth can be measured by the
increase in sales ,profits , production.
If a business does not grow , it will be
difficult for it to survive in the long run.

Features of Growth
Gradual & Continuous process
Essential for profits & survival
Achievement through expansion , diversification
and merger
Growth is a sign of an active and living organization
Important objective of business
To ensure growth optimum utilization of resources is must
Measurement of Growth
Growth can be measured
( Increase in sales, Profits, Production of an enterprise)
Visibility
Growth is visible
( Increase in sales, Profits, Production of an enterprise)

Value of Assets
Growing value of assets
Total number of workers employed
But this indicator may not be accurate
E.g. Firm having Labor Intensive method &
Firm having capital intensive methods may
have same rate of growth
Quantity of power & materials used
An increase in the consumption of power ,
material , water etc by a firm is an indicator
of its growth.
Limitations : Increase might be due to wastage
& inefficient use of these materials.

Volume of Output
Increase in production
Value of output
If a firms value of output has
continuously increased due to a specific
period a firm is said to be growing.
Limitation : The volume of output may
remain same but the value may
increase due to increase in the price
level.
Here the increase in the value of output
does not indicate the real growth of the

Volume of Sale
Increase in volume of sales is an indicator of growth
Volume of sales is more important than the volume of output
An increase in volume of output will be useless without a
corresponding increase in total sales.
Sales are better indicator than output.
Total profit earned
The total profit increases with increase in sales
However sometimes a firm may increase price per unit which
lead to increases profits. But the overall output may be
same as before.
Capacity of plant
A firm may raise its plants production capacity or add a new
plant for higher production.
Consumption of resources
An increase in the annual consumption of resources like raw
material, electricity etc. indicates that the firm is growing.

Strategies For Growth of Business

1.Internal Growth Strategies

When strategies that bring growth
from within the enterprise .
A.Expansion
B. Diversification
Horizontal
Vertical
Concentrate
Conglomerate

2.External Growth Strategies

Merger
Amalgamation
Acquisition
Joint Ventures

1.Internal Growth Strategies

A.Expansion
Business expansion refers to raising
the market share, sales revenue and
profit of the firm.
. Market penetration
. Market Development
. Product Development
To market existing products in new
markets
New Products in existing markets
Achieving economies of Scale

B. Diversification
Concentric
Concentric diversification involves adding new
products or services that are related to your current
offerings.
Concentric diversity aims for synergy
E.g.
M&M
Tractor business
SUVs business
Two Wheelers business
(Automobile Industry)
Colgate : Toothpaste, Tooth brush, Mouth wash
( Dental Care segment)

 Conglomerate diversification:
When a firm diversifies into business, which is not related to its existing
business it is called conglomerate diversification.
It refers to diversification by entering entirely new and unrelated lines
of business.
It involves totally a new area of business. There is no relation between
the new product and the existing product.
In business, a conglomerate is a company involved in multiple lines
of business.
e.g.
Reliance Big TV
Reliance Communication
Reliance Digital
Reliance Capital
Tata Motors
Tata Chemicals
Tata Communication
Tata Consultancy Services
Tata Steel
This strategy helps to reduce risk in the business.

 Horizontal Diversification
This diversification strategy involves the
creation of products that may not be directly
related to current products offered to
consumers, but that are highly likely to still
appeal to the companys existing client base.
It involves addition of parallel products to the
existing product line.
A company, manufacturing refrigerator may
enter into manufacturing air conditioners.
E.g. A retail organization involved in selling
quality jewelry have decided to offer the
range of perfumes

Backward integration:
In backward integration, the company expands its business
activities in such a way that it moves backward of its
present line of business.
Example:
Despite of being the leaders in Textiles, to strengthen his
Position, Dhirubhai Ambani decided to integrate backwards
and produce fibres.
ii. Forward integration:
In forward integration, the company expands its activities in
such a way that it moves ahead of its present line of
business.
Example:
New Zealand based Natural health care products company
Comvita purchased its Hong Kong distributor Green Life Ltd.
And thus achieved forward integration by having access to
greenlifes retail stores, sales staff and in store promoters.

 An example would be a supermarket

firm that, instead of contracting with
freight companies, purchases its own
trucks and distribution facilities that it
uses to get food items and household
products out to its various locations.

2.External Growth Strategies

Merger
Merger is fusion of two or more entities and it is a process
in which the identity of one or more entities is lost.
Merger refers to a friendly joining together of two
organizations
Mergers are usually based on the core competencies of
firms.
Acquisition.
Acquisition can be friendly or hostile.
Outright purchase of one firm by another.
Surviving firm is acquirer; & acquired is target.
Why acquire?
expanding product line, gaining access to distribution
channels, achieving competitive economies of scale,
expanding the companys geographic reach.

 Joint Venture
Acontractualagreementjoining together two or
morepartiesfor the purpose of executing a particular
businessundertaking.
All partiesagreetosharein theprofitsand losses of the
enterprise.
Example
Sony-Ericssonis a joint venture
Japanese consumer electronics company Sony
Corporation and
Swedish telecommunications companyEricssonto
make mobile phones.
The reason for this venture is to combine Sony's
consumer electronics expertise with Ericsson's
technological leadership in the communications sector.
Both companies have stopped making their own mobile
phones.

 Centurion bank of Punjab is merged

with HDFC bank
Tata Steels Acquired Corus,
October 2006
Deal size: $12.98 billion, Country:
United Kingdom
TOMCO merged with HUL (1993)

 In amalgamation, two or more

companies join forces to form a single
entity.
Amalgamation is blending together of
two or more business entities in a
fashion that both lose their identities
and a new separate entity is born.
Example

 Internal Growth Strategies are

defensive in nature.
They ensure survival & progress in
planned manner ensuring stability and
expansion of the enterprise.
External Growth Strategies are
offensive in nature.
Useful in order to achieve significant
market share, growth & profit.

Unemployment

It is a situation when any one who is

not gainfully employed in a productive
activity.
An unemployed person is one who is
seeking any work for wages but is
unable to find any job suited to his
capacity.
Unemployment is often used as a
measure of the health of the economy.

 Cyclical Unemployment
It is the fluctuating rate of unemployment
resulting from swings in the business
cycle.
When business cycles are at their peak ,
Cyclical unemployment will be low.
Frictional Unemployment
Occurs because of the normal turnover in
the labor market & the time it takes for
workers to find new jobs.
It is the time period between jobs when a
worker is searching for or transitioning
from one job to another.

Structural Unemployment
when workers loose their jobs because their skills are obsolete or because their
jobs are transferred to other countries then they are structurally unemployed.
There is a mismatch between the skills of the unemployed workers and the
skills needed for the jobs that are available.
Structural unemployment occurs when a labor market is unable to provide jobs for
everyone who wants one because there is a mismatch between the skills of the
unemployed workers and the skills needed for the available jobs.
Reasons
Major advances in technology
Finding lower cost of labors overseas
Seasonal Unemployment
Occurs when there is limited need for a specific type of work to be
performed during a certain time of the year.
Industries where seasonal unemployment is common include farming, tourism etc
sugar mills and rice mills in which production activities are seasonal in
nature.So, they offer employment for only a certain period of time in a year.

Involuntary Unemployment
This is when people are unable to work
because there are insufficient jobs
available in an economy.
Voluntary Unemployment
In every society, there are some people
who are unwilling to work at the
prevailing wage rate.

Disguised unemployment.
When people do not have productive
full-time employment.
Example
People doing part-time work.
People forced to take early retirement and
redundancy

 Casual Unemployment:
In industries such as building construction, catering
or agriculture, where workers are employed on a
day- to-day basis, there are chances of casual
unemployment occurring due to short-term
contracts, which are terminable any time.
Technological Unemployment
A kind of structural unemployment may take place
in an economy as a result of technological
improvement. Such unemployment may be
described as technological unemployment. Due to
the introduction of new machinery, improvement in
methods of production, labour-saving devices etc.,
some workers tend to be replaced by machines.
Their unemployment is termed as technological
unemployment.

 In most underdeveloped/developing
countries Unemployment can be of 3
major types.
Open Unemployment
It refers to a situation where large no. of
labor force does not get employment
opportunities that may yield them
regular income.
The workers have willingness and
ability to work but they are not getting
the job.
Due to lack of capital resources.

2.Disguised Unemployment
When people do not have productive full-time
employment.
Disguised unemployment is basically due to
high population pressure in a particular sector
and lack of alternative job opportunities.
disguised unemployment may also be found
among workers employed on a wage basis.
Very common in Rural India. ( Agriculture
sector)
Also Industrially developed countries may
suffer due to cyclical unemployment
( slowdown of business cycle , recession)

 Underemployment
It can be defined in two ways.
a. A situation where a worker does not get
the type of work he is capable of doing.
He has the abilities & can yield greater
income but he is denied the opportunity
due to the lack of suitable job.
b. A worker does not get sufficient work
load to get him absorbed as a full time
employee. ( Seasonal unemployment)

 Nature of Unemployment in India

70% population lives in rural India.
They are directly or indirectly dependant on the
agricultural sector ( Agriculture & allied activities like
dairy , poultry farming etc)
Disguised unemployment is dominant in rural sector
( Rural unemployment)
Both unemployment & underemployment exist in
rural India.
Farming is a major occupation
Decline of handicrafts & village cottage industries
Slow development of advanced cultivation practices
Absence of alternative occupation
Introduction of agricultural machinery leads to
problem of more no. of unutilized labor or disguised
unemployment.

Problem of seasonal unemployment leads

to underemployment situation.
Lack of irrigation facilities
Hence rural unemployment is
characterized by the existence of
underemployment in the form of
disguised unemployment and seasonal
unemployment.

 Industrial unemployment or Urban

unemployment
Industrial unemployment is largely the
offshoot of rural unemployment .
Due to increasing pressure on land , a
large population is getting migrated to
the urban areas in search of employment.
They are unskilled & uneducated.
This type of migration swells the size of
labor force in the urban areas has in turn
adds to the number of unemployed army
of labor.

 Educated unemployment or White Caller

Unemployment
In the urban areas.
The rate of unemployment is higher
among the educated than among the
uneducated people.
1961: Total educated unemployment
5.79 lacs
1971 : 22.9 lacs
1983: 211 lacs

 Causes of Unemployment
1. Backward Agriculture
Method of techniques & organization of agriculture
is primitive & outdated in most of the areas.
Low agricultural productivity per worker
Agriculture is seasonal occupation in non irrigated
areas.
Most of the area is largely depend on the monsoon
Gap widening between poor & rich farmers
2. Slow pace of growth
Size of employment depends on the level of
economic development.
Now Indias growth rate is picking up @ 7% .
Worlds fastest growing economy.

Explosive population growth

1.2 bn population
Poverty
Underdeveloped & developing countries have
higher level of poverty.
Inadequate and Defective employment
planning
More emphasis on capital intensive techniques
Adoption of advance technology
Modernization of plants
Despite of surplus availability of labor in
India , largely the capital intensive
techniques are used in industry.

Decay of cottage & Small Industries

The traditional handicraft was the main source of
employment for village craftsman, artisans as
well as non agricultural workers.
These businesses got hampered due to machine
made goods.
Regional disparities
Lack of balanced infrastructural & industrial
development across the various regions.
9. Defective education system
Lacks in developing manpower according to the
manpower requirement of the economy.
Academics & bookish knowledge oriented.
Requires skill development education system also.

10. Inappropriate means for self employment

11.Lack of vocational guidance & training facilities
Technical training , job oriented courses are required
12.Slow growth of tertiary sector
It is comprising Commerce, Trade, Transportation etc
Hence there is wide scale of unemployment among
engineers doctors, computer professionals etc.
13.Defective social system
e.g. lack of importance of education, family planning
14. Miscellaneous reasons :
Decline in exports
Underutilization of capacity
Slow growth of SSI
Lack of raw material, power availability
Lack of infrastructural facilities

 Measures for the eradication of unemployment &

Government Policy
1. Rapid Industrialization
Expansion of existing & the development of new
industries .
2. Reconstruction of Agriculture
Major occupation in India is farming.
Task of converting farming as a highly profitable
occupation.
Ensure the use of improved methods of cultivation
Ensuring 100% Irrigation across all agricultural land
Effective water management
Improving the production of agricultural comodities
Absorbing the surplus workforce in agriculture sector
in other trade & industries.

Adoption of labor intensive techniques

( For production)
Reorientation of education system
Job oriented
Professional courses
Skill development courses etc
Control over population
6. Encouragement to small enterprises
For boosting self employment ,
Entrepreneurship.
Making available liberal finance , technical
training, infrastructural facilities & marketing
support

 Rural Development Schemes

Rural & agriculture development
schemes/investments
Increasing investments in rural sector.
Guiding Centers & more employment
exchanges
Decentralization
Lack of proper opportunities of employment
in villages & small towns has led to the
migration of people to urban areas for jobs.
This has resulted in the problem of over
crowdedness & urbanization.
Hence it is required to encourage to set up
industries in small towns, villages.

Extension of Social Service

In the rural areas
In the areas of education & health
Government Policy Measures
National Rural Employment Programme( NREP)
Training Rural Youth For Self Employment
( TRYSEM)
Small Farmers Development Agency (SFDA)
Drought Prone Area Programme (DPAP)
Integrated Rural Development Programme( IRDP)
Jawahar Rozgar Yojna( JRY)
Mahatma Gandhi National Rural Employment
Guarantee Act( MGNREGA)

A new deal for Self Employment

Public Institutions can provide assistance for self

employment with respect to
Training
Credit
Marketing
General guidance for starting own ventures
Training Programmes
Initiative of TRYSEM ( The National Scheme of
Training Rural Youth for Self Employment)
For matriculates ( SSC )
Management accounting , Marketing
Short training courses by Handicraft Board, Dairy
Development Board

Credit Facilities
Finance by commercial banks
Marketing Fascilities
Providing support to the SSI in marketing
Market research
Sales Promotion
Guidance
Many unemployed persons are unaware of
the various facilities available for starting
their own ventures.
The university employment bureaus ,
Employment exchanges provide the
guidance.

Other Measures
A large no. of urban self-employed
consists of petty vendors, traders,
hawkers, home based producers.
The following steps will be taken to assist
such persons.
Municipal Corporations will survey the
population of self employed workers by
their occupation.
Determine their basic minimum needs
Providing work sheds within industrial
estates