WHAT IS ENVIRONMENT ?

Environment refers to sum total of all factorseconomic, political, social and cultural; which
are external and beyond the control of
individual business enterprises and their
management.
Environment furnishes the macro contents,
while business firm is micro unit.

COMPONENTS OF ENVIRONMENT
A

business firm cannot operate in vacuum ; it

has to work in certain economic and noneconomic constraints.
So it may be divided in two parts

The micro environment or

Immediate environment.

The macro environment or

exterior environment

MICRO ENVIRONMENT FACTORS

Customers
Suppliers
Labours
Business partner
Competitors

MACRO ENVIRONMENT FACTORS

ECONOMIC ENVIRONMENT FACTOR
Political environment and role of the
government
Socio-cultural environment
Natural environment
Demographic environment
Technological environment
The international environment

WHAT IS ECONOMIC
ENVIRONMENT?
Economic environment is those economic
factors which have their affect on the
working of the business.
Economic environment is affected by other
micro and macro environmental factors.

Elements of the Economic Environment

GDP: the total value of all final goods and services produced in a country
in a given year.

Inflation : rise in the general level of prices of products over a period of

time. Thus, it is a measure of the increase in the cost of living

Unemployment is a measure of the number of workers who want to work

but do not have jobs

VARIOUS FACTORS OF
ECONOMIC ENVIRONMENT
Economicsystem
Economicconditions
Economicpolicies
International economic environment

DESCRIPTION OF ECONOMIC FACTORS

ECONOMIC FACTORS- The most important element of the
economic environment is economic system.

There are three different types of economic system:

1. CAPITALIST 2.SOCIALIST 3. MIXED ECONOMY

Continue
CAPITALIST:- A capitalist system is one
where resources are allotted through the
price or price mechanism.
SOCIALIST:- In this system resources are
allotted not through price mechanism but
through a central plan.
MIXED ECONOMY:- This is the system
between the capitalist and socialist where
free enterprises and regulated sectors work
side by side.

Economic Policies
1.) Industrial Policy
2.) Monetary Or Credit Policy
3.) Fiscal Policy
4.) Foreign Trade Policy

Industry policy

The Industrial policy of the government

covers
all those principles, policies, rules and
procedures, which direct and control the
industrial enterprises of the country.

Indian Industrial Policy

o
o
o

Up to 1991it was characterized by the

followingDominance of Public Sector
Entry and Growth Restrictions
Restrictions on Foreign Capital and
Technology

Indian Industrial Policy

1991
The New Policy introduced the 3 features:
-Liberalization;
-Privatization,
-Globalization

Fiscal policy
It includes government policy in respect of
public expenditure.
Example:
Tax
Public Debt.

Monetary policy
It includes all those activities and
interventions that aim at smooth supply of
credit to the business and a boost to trade
and industry.
Example:
Interest rates.
Bank reserves. Etc

Foreign investment policy

This policy aims at regulating the inflow of

foreign investment in various sectors for a
firm.

CHANGES IN ECONOMIC
POLICY & GROWTH RATE
Since independence India followed democratic
socialismGrowth rate - 1951-56 - 3.6%
War period - 1961 -66 - 2.5%
Always remains below
- 5%
1991 onwards liberalized economic policy
8th plan 1992-97
- 6.7% growth rate
and then afterwards always remains more than 5%.
In 2008 India was worlds second fastest growing
major economy even in world slowdown-2009 growth rate 6.1%
And became fastest growning economy in 2015 The

Indian government reported GDP 7.5% in 2015, which is more

than the 6.9% GDP that china

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Economic Conditions

Any improvement in the economic conditions such as standard of living,

purchasing power of public, demand and supply, distribution of income etc.
largely affects the size of the market.

Following are mainly included in

Economic Conditions of a country:Stages of Business Cycle
National Income, Per Capita Income and
Distribution of Income
Rate of Capital Formation
Demand and Supply Trends
Inflation Rate in the Economy
Industrial Growth Rate, Exports Growth Rate
Interest Rate prevailing in the Economy
Growth of Primary and Secondary Capital Markets
Size of Market

 INTERNATIONAL
ECONOMIC
ENVIROINMENT
It includes international economic condition,
economic trends in policy and certain others
economic-political environment that has a
great impact on business for export-import
policy, technology transfer and raw
material etc.

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FUTURE PROSPECT OF
INDIAN ECONOMY/A

As per Goldman sachs report that there are

50,000 crorepatis in India and the number are
still increasing.
India will be economic super power by 2050.
Indian economy has highest saving rate in the
world.
Indian economy is mostly domestic demand
driven that insulated India up to a large extent
from global economic turmoil.
As per recent estimate India will surpass china
by 2020 as a fastest growing economy.
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FUTURE PROSPECT OF
INDIAN ECONOMY /B

Indian economy is directed towards

inclusive growth that is majorly driven by
affirmative action like- Food security bill,
MGNREGA, Right to education bill,
employment guarantee bill etc.

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FAVORABILITY TOWARDS COUNTRYS

BUSINESS ENVIRONMENTS
very favorable view of business environment
Lowest unfavorable rating

Source: Edelmans India Media Audit, 2015

Ch

In

Mx

Pl

Br

Ru

Ch

In

Mx

Pl

Br

Ru

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Political Environment
This includes the political system, the
government policies and attitude towards
the business community and the unionism.
Eg: Labour Union.

POLITICAL
ENVIRONMENT
It refers to:
Public Institutions:
Government.
Government
Agencies.
Government owned
Business.
Non public
Institutions:
Interest Groups.

POLITICAL SYSTEM
A political system integrates the parts of a
society into a viable functioning unit.
Challenge: integration of people of diff. ethnic or
cultural backgrounds.
It is influenced by forces within & outside the
country.
Internal Forces: Nature of population, size
& influence of corporations & governmental
bureaucracies, & the strength of the politicians.
External Forces: International agreements,
NGOs, Governmental organizations, etc.

POLITICAL SYSTEM

Political process functions:

Interest articulation.
Interest aggregation (bringing together
different points of view)
Policy making.
Policy implementation and adjudication.

TYPES OF POLITICAL SYSTEMS

Democracy
Totalitarianism
Mixed

Representative Republic

TOTALITARIANISM
Limited rights and freedoms
Government (one or few) makes decisions
People have no right to interfere in the laws

MIXED

Characteristics of both systems

Almost all political systems are mixed

Political environment in
international Business

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Thank you