BUSINESS ENVORINMENT

Mohsina Hayat
CMS,JMI
 Introduction of Business
• Business may be understood as the organised efforts of enterprises to earn profit.
Business may be small or big in size, but all of them aim at making profit.
• Businesses vary in size, as measured by the number of employees or by sales volume.
• Most businesses in our country are small units-independently owned and managed and
employing fewer than twenty employees each.
Purpose of business goes beyond earning profit.
• It is an important institution in society.
• It supply of goods and services.
• It helps in creation of job opportunities.
• It offer of better quality of life.
• It is contributing to the economic growth of the country and putting it on the global
map.
Importance of BE
SCOPE OF BUSINESS
• The scope of business is vast. The various different activities that
bring raw materials to the factory and the end product from there to
the market constitute business.
Transition

Bigger role

• CHARACTERISTICS OF BUSINESS
Waning
for
Trust
Government

Competitio
Technology Business n

Globalisatio Opportuniti
n es

Predomina
nce
Meaning and definition of Business Environment
Business Environment can be defined as the combination of internal and external factors
that influence a company's operating situation.
The business environment can include factors such as:
• clients and suppliers;
• its competition and owners;
• improvements in technology;
• laws and government activities; and
• market, social and economic trends.
Business Environment literally means all those aspects that have a bearing on the
business
• Strengths, weaknesses, internal power relationships and orientations of the organization;
• Government policies and regulations;
• Nature of the economy and economic conditions: socio-cultural factors: demographic trends;
• Natural factors; and, global trends and cross-border developments.
Business environment plays a key role in shaping the business decisions and strategies of
a firm.
• The opportunities and threats for a business come mainly from its
external environment which includes factors like economic, political,
technological and social.
• The internal factors like managerial capabilities, efficiency in resource
utilization etc make an organization strong or weak.
Characteristics of Business Environment
1. Environment is Complex
• Business environment is complex because it is continuously exposed to countless challenges, like
• technological disruptions,
• global competition,
• leadership change,
• shifting economic,
• social, and
• regulatory conditions etc.
It is very stressful for a firm to survive and prosper in an environment.
2. Environment is Dynamic
• Both the internal and external environments of business are highly dynamic or vibrant owing to the following:
• customer preferences keep evolving,
• New competitors enter the market.
• Arise of novel technology.
• New marketing channels.
• New resources.
• New policies.
• Changing demography.
3. Relativity
• Business environment is related to the local conditions and this is the reason as to why the business environment occurs to be
diverse in different countries and different even in the same country at different places.
4. Environment is uncertain.
• Not anything can be assumed with any degree of certainty about the factors of the business
environment because they continue to change quickly.
• The dimensions of uncertainty include the following:
• Macro-environmental uncertainty: This is the uncertainty in the organization’s general
environment, including political, regulatory, statutory, and economic conditions. This uncertainty
has the capacity to reduce an organization’s capability for mapping out and pursuing strategic
choices (Miller and Friesen 1984).
• Competitive uncertainty: This is the uncertainty regarding the assessment of relative powers of
competitors, their future courses of action, and strategies.
• Market (and demand) uncertainty: This uncertainty stems from lack of clarity in the dynamics of
the market and their effects on the organization’s operations, and demand and supply conditions
in the industry.
• Technology uncertainty: This uncertainty owes to change in the industry’s technological resources
and capabilities.
5. Interrelatedness
• The different factors of business environment are co-related.
For example, let us suppose that there is a change in the import-export policy with the coming of a
new government. In this case, the coming of new government to power and change in the import-
export policy are political and economic changes respectively. Thus, a change in one factor affects
the other factor.
 Significances of Business Environment
The business environment is complex, multifarious and vibrant in nature and has an in-depth Impact on the
endurance and development of the business

• Revealing opportunities and threats: Keen observation on the firm’s environment will bring out the
opportunities and threats hidden in the environment, so that the firm can meet challenges triumphantly.
• Providing guidance for growth: Firms will be directed towards new edges of growth if it has some proper
communication and involvement with its environment.
• Makes a firm strong or weak: It is the internal factors of a business like employee efficiency, efficiency in
resource utilization, better management of costs etc make an organization strong or weak.
• To be robust and resilient, a firm should keep up its internal environment solid.
• Continuous learning: The management can easily confront challenges with proper environment analysis. The
vibrant environment inspires managers to renew and revise their acquaintance and awareness to meet the
foreseen variations in business territory.
• Foster impression: A firm becomes an icon among other firms in the industry if it positively susceptible to the
environment within which they are.
• For example, in view of the call out against environmental pollution, many firms are producing eco friendly products.
• Meeting rivalry: Numerous firms face cut throat competitions in today’s scenario. But proper environmental
analysis will enable a firm to analyze the competitors’ strategies and counteract effectively.
• Retrospection: Proper analysis of environment keeps a firm retrospective as it can effectively spot its strengths,
weaknesses, opportunities and threats.
 Environmental Analysis
• Environmental analysis refers to the process of identifying the external and
internal elements, which can affect the performance of an organisation.
• The analysed facts will then be used for formulating strategies and taking
decisions, so as to exploit opportunities and enhance strengths, and to minimize
threats and weaknesses
• Environmental analysis has some advantages like better relationship between
environment and organization, recognition of opportunities, threats, strengths
and weaknesses by the organization, risk identification, efficiency in operation
etc.
• Its major drawbacks include wrong selection of variables for analysis, perceiving
environmental analysis as a solution rather than a way for success etc.
 Stages of Environmental Analysis
1. Scanning the environment.
• Environmental scanning is primarily done for identifying the factors which may have
implications on the business. This is the prime step to be done in environmental analysis. A
good scanning of environment can reveal so many hidden factors in the environment.
2. Monitoring particular factors spotted.
• In the process of scanning, some particular factors which need due attention might have
been identified. At this stage of analysis, such factors or trends evolving should be undergone
for keen understanding. The outputs of monitoring are therefore, a precise picture of the
environmental issues, identification of tendencies for additional scrutiny and recognition of
patterns demanding further scanning.
3. Forecasting
• It refers to anticipating the future threats and opportunities for formulating strategic plans. It
can be defined as Estimating the intensity, nature, and timing of the external forces that may
affect the performance of a firm, disrupt its plans, or force a change in its strategies.
4. Assessment
• Assessment refers to realizing implications or probable impacts of those factors which may
cause threats and provides opportunities.
SWOT Analysis
• An important form of business environment analysis
• A SWOT analysis (alternatively SWOT matrix) is a configured planning method used to assess the
strengths, weaknesses, opportunities and threats involved in a project or in a business venture.
• Proper Strength, Weaknesses, Opportunities, and Threats (SWOT) analysis may reveal that the
company is not efficient in particular fields of business.
• In SWOT analysis, one has to identify all the four factors. Strengths should be enhanced and
weaknesses should be eliminated for effectively reaping benefits of opportunities and avoiding
challenges of threats.
• Merits of SWOT analysis
• It is a source of information for strategic planning.
• Builds organization’s strengths.
• Helps to deplete firm’s weaknesses.
• Maximize organization’s response to opportunities.
• Overcome organization’s threats.
• It helps in identifying core competencies of the firm.
• It helps in setting of objectives for strategic planning.
• It gives a clear picture of the past, present and future aspects of the organization.
 Components of Business Environment
Internal Environment
• Value system
• Vision, mission and objectives
• Management structure and nature
• Human Resources
• Company image

External Environment
• Micro Environment Macro Environment
• 1. Suppliers 1. Economic environment
• 2. Customers 2. Political environment
• 3. Marketing intermediaries 3. Technological environment
• 4. Competitors 4. Social environment
• 5. Public 5.Cultural environment
 Recent Developments
• With the improvement in the economic scenario, there have been various investments in various sectors
of the economy. The M&A activity in India increased 53.3 per cent to US$ 77.6 billion in 2017 while private
equity (PE) deals reached US$ 24.4 billion. Some of the important recent developments in Indian economy
are as follows:
• Indian companies raised Rs 1.6 trillion (US$ 24.96 billion) through primary market in 2017.
• Moody’s upgraded India’s sovereign rating after 14 years to Baa2 with a stable economic outlook.
• India received net investments of US$ 17.412 million from FIIs between April-October 2017.
• The top 100 companies in India are leading in the world in terms of disclosing their spending on corporate
social responsibility (CSR), according to a 49-country study by global consultancy giant, KPMG.
• The bank recapitalisation plan by Government of India is expected to push credit growth in the country to
15 per cent, according to a report by Ambit Capital.
• India has improved its ranking in the World Bank's Doing Business Report by 30 spots over its 2017 ranking
and is ranked 100 among 190 countries in 2018 edition of the report.
• India's ranking in the world has improved to 126 in terms of its per capita GDP, based on purchasing power
parity (PPP) as it increased to US$ 7,170 in 2017, as per data from the International Monetary Fund (IMF).
• The Government of India has saved US$ 10 billion in subsidies through direct benefit transfers with the use of technology,
Aadhaar and bank accounts, as per a statement by Mr Narendra Modi, Prime Minister of India.
• India is expected to have 100,000 startups by 2025, which will create employment for 3.25 million people and US$ 500 billion
in value, as per Mr T V Mohan Das Pai, Chairman, Manipal Global Education.
• The total projected expenditure of Union Budget 2018-19 is Rs 23.4 lakh crore (US$ 371.81 billion), 9 per cent higher than
previous year's budget, as laid out in the Medium Term Expenditure Framework (MTEF).
• India received the highest ever inflow of equity in the form of foreign direct investments (FDI) worth US$ 43.4 billion in 2016-
17 and has become one of the most open global economies by ushering in liberalisation measures, as per the mid-year
economic survey of India.
• The World Bank has stated that private investments in India is expected to grow by 8.8 per cent in FY 2018-19 to overtake
private consumption growth of 7.4 per cent, and thereby drive the growth in India's gross domestic product (GDP) in FY 2018-
19.
• The Niti Aayog has predicted that rapid adoption of green mobility solutions like public transport, electric vehicles and car-
pooling could likely help India save around Rs 3.9 trillion (US$ 60 billion) in 2030.
• Indian impact investments may grow 25 per cent annually to US$ 40 billion from US$ 4 billion by 2025, as per Mr Anil Sinha,
Global Impact Investing Network's (GIIN’s) advisor for South Asia.
• The Union Cabinet, Government of India, has approved the Central Goods and Services Tax (CGST), Integrated GST (IGST),
Union Territory GST (UTGST), and Compensation Bill.
• Indian merchandise exports in dollar terms registered a growth of 30.55 per cent year-on-year in November 2017 at US$ 26.19
billion, according to the data from Ministry of Commerce & Industry
• The Nikkei India manufacturing Purchasing Managers’ Index increased at the fastest pace in December 2017 to reach 54.7,
signaling a recovery in the economy.
Reviving Khadi in India: A case study
• "Khadi has fallen to disrepair. It had to be repackaged, upgraded,
cleaned up.“ - Vasundhara Raje, Minister for Small Scale Industries,
2001.
• "Khadi is a natural fabric and unique. The rustic, no machine look of
the fabric is both sophisticated and bohemian.“ - Ritu Kumar,
Fashion Designer.
• "If the supply chain and production can be streamlined, the
potential for khadi is high.“ - B.S.Nagesh, CEO, Shoppers' Stop.
Reviving Khadi in India: A case study
• Reviving Khadi in India: Khadi Loses its Sheen
Khadi1, which symbolized self reliance and emancipation during the freedom struggle in India 2 has lost its sheen over the years. And there are several
reasons for the same. Post 1947, India opted for state led large scale industrialization.
With many Indian industrialists setting up huge textile mills, the mass production of fine cloth led to the availability of cloth at lower prices. People began
to buy machine made textiles and thus Khadi began losing out to the mill fabric. In January 1953, the All India Khadi and Village Industries Board was set
up to provide employment to thousands of spinners all over India.
In 1957, the Khadi and Village Industries Commission (KVIC) was established to take over the work of the board. KVIC was formed as a nodal agency to
promote Khadi all over India through its exclusive outlets known as Khadi Bhandars3. The Government of India (GoI) has ever since continued its support
to Khadi.
• However, there were a few problems. According to designers, the production of Khadi was inconsistent and the cloth was prone to shrinkage and
fabric stretch. Besides, fabric colours in khadi were also limited. Red tapism and bureaucracy prevalent in the Indian system, further hampered the
growth of the Khadi sector. Inspite of having a wide distribution network, there were problems, especially middleman. Corruption was rampant. There
were many bogus Khadi units operating in the country, which made it extremely difficult to claim rebates from the Government of India (GoI).
KVIC received huge financial assistance from the GoI in the form of subsidies and rebates. In May 2000, the Ministry of Small Scale Industries,
announced a special package of Rs.12.16 billion to the industry. In order to face the challenges of globalization and strengthen its position in the
market, KVIC launched two separate brands, Sarvodaya and Khadi in August 2001. Sarvodaya comprised consumer goods like incense sticks, spices,
honey, and pickles
• The Khadi brand included products like essential oils, herbal oil & soaps, face scrubs, dry fruit honey, designer garments etc. The Khadi brand was
introduced exclusively for exports and upmarket. The fabric was being promoted as a fashion fabric. Many high profile fashion designers were roped in
to create garments using the fabric. KVIC allotted huge funds into research and development to improve the quality of Khadi. It allotted around Rs. 0.4
billion for promoting the fabric emphasizing its Unique Selling Proposition (USP), eco-friendliness
• Background Note
• Khadi has its roots in the freedom struggle of India. Khadi, the home spun cloth was central to Gandhi's vision of self- reliance and self- rule. Gandhi wanted Indians to spin their
own cotton thread and to weave Khadi, thereby, providing employment to many Indians and contributing to the country's self-sufficiency.
Post independence, Khadi fabrics were woven on handlooms from cotton, silk, and woollen yarn, which were hand-spun. The production of Khadi is labour intensive as the
weaving has to be done manually. The pure cotton collected from cotton farms is first ginned and bales are made.
These bales are then converted into rowings and distributed to different spinning units. In the spinning units, the cotton fibre is manually converted into yarn using charkas.4 The
yarn is then woven into fabric using handlooms
• During the post-independence era, Indian industrialists set up capital intensive textile mills. Due to mass production, these mills could offer fine cloth at lower prices. Synthetic
material like polyester was available at a very low price compared to Khadi. Thus despite all policy incentives to popularize Khadi, people bought machine made textiles.
In order to popularize khadi among the masses, in 1957, the government set up the KVIC. It had the following broad objectives:
- The social objective of providing employment
- The economic objective of producing saleable articles, and
- The wider objective of creating self-reliance amongst the poor and developing a strong rural community spirit.
• Besides Khadi, KVIC also dealt with other products such as toilet soaps, detergents, honey, pickles, spices, incense sticks, handmade paper, leather, ceramics, and many other
agro-based products (Refer Exhibit 1 for product range of KVIC). To keep the spirit of Khadi alive and promote it as a national fabric, KVIC has set up many outlets across India. As
a result thousands of spinners, who wove the fabric could sell their output through the vast network of KVIC retail outlets.
However, the situation did not improve much. The poor quality of garments sold through the KVIC outlets, resulted in customers' dissatisfaction. People even complained that the
quality of Khadi had deteriorated and hence it faded easily. In the 1990s, very few people bought Khadi. Khadi was bought only during the annual discount sale.
• Synthetic material was quickly replacing the hand made fabric. People who had got used to the high quality of imported materials, felt that Khadi was rough and coarse and
associated it with shapeless kurtas,5 mostly worn by politicians. And therefore, in spite of the GoI's financial assistance to thousands of traditional spinners in India, they had tough
time selling their product.
• Reviving Khadi: From Freedom Fabric to Fashion Fabric
• In 1985, designer Devika Bhojwani pioneered the Swadeshi label of Khadiensembles. Those were distributed through nearly 5000 Khadi Emporia. To display Khadi's potential,
KVIC organized a fashion show in Mumbai in 1989. Nearly 85 dazzling garments created by Devika Bhojwani were presented at the show. This was the first step towards changing
Khadi's earlier image of being unfashionable. Commenting on the poor state of Khadi, Devika Bhojwani said that failures in the Khadi sector were a result of red tapism and
bureaucracy prevalent in the Indian system. Even though the country had a wide distribution network, the middlemen, commissions and cuts had gradually weakened the system.
She further said that though the government was taking the initiative to revive Khadi, nothing much would improve until the implementation, and the cost per garment etc. were
controlled.
• In 1990, the Delhi based designer, Ritu Kumar presented her first Khadi collection, Tree of Life, which helped put Khadi in the fashion circuit. With increasing interest of the
western world in use of handloom and Khadi, many Indian designers began to use Khadi for their designs. The government also made efforts to promote Khadi. In September
2000, Vasundhara Raje, Minister for Small Scale Industries, initiated a movement to revive all the 7,000 KVIC shops in India and make Khadi more fashionable and affordable. The
KVIC Board hired the services of leading fashion designers to help create a new range and brand of Khadi wear.
In May 2001, KVIC set up the first air-conditioned shop in New Delhi. The décor was modern and the clothes were neat and fashionable. The outlet sold Khadi garments designed
by high profile designers. On the opening of this outlet, well-known fashion designer, Rohit Bal commented, "Khadi is the Indian alternative for linen. It is as comfortable and now,
we've proved that it is as fashionable"6. In January 2002, a high-profile textile exhibition, featuring Khadi ensembles designed by prominent Indian designers, was launched in New
Delhi to popularise the traditional hand-spun cotton.
• The idea of the exhibition was to promote wholly hand spun, hand woven and hand patterned fabric, as a unique luxury product. The exhibition displayed western as well as
traditional Indian attire made from the finest Khadi available in the country. Besides, nearly 110 varieties of the fabric (from the sheerest to the coarsest) were showcased.
Designer Rakesh Thakore, whose collection was showcased in the exhibition commented, "If packaged well, Khadi can be sold internationally."7The exhibition was sponsored by a
Swiss charitable trust, Volkart Foundation8 in association with the Indian National Trust for Art and Cultural Heritage (INTACH).9
With many designers experimenting with Khadi, the designs are no longer as simple as they used to be. A great deal of emphasis was given to the details of the designs and many
new colours were introduced. Eco-friendly vat dyes were used. In March 2002, Preyasi10, the official designer for KVIC, launched "The Khadi Range Collection-2002." In the
collection, Khadi was used to create apparel such as, casual shirts, waist coats, skirts, wrap-arounds, trousers, parallels, and tops for women.
• Government Support to Khadi
• The GoI had been providing huge subsidies and grants to the Khadi sector. Khadi was given a rebate11 of Rs. 1.49 billion and Rs. 1.4 billion in 1998-99 and 1999-2000 respectively.
In 2000-2001, funds to the tune of Rs. 1.29 billion were released for the same. During the same time, concerted efforts were made to root out corruption in the payment of
rebate. Regular vigilance raids were conducted in various parts of the country to detect malpractices in claiming of Khadi rebates and to distinguish between genuine and bogus
Khadi and village industries.
• In May 2000, the Ministry of Small Scale Industries announced a special package of Rs.12.15 billion for KVIC. Of this, Rs.0.3 billion had been allocated for renovation of the existing
outlets, while Rs 0.4 billion was sanctioned for promotional activities. Though the GoI provided huge financial assistance to KVIC, the funds did not produce the desired result. It
was also being felt that the structure of KVIC needed to be changed to enable it to face the challenges of globalization. Therefore, in 2000, the global consulting firm, Arthur
Anderson was hired to suggest restructuring strategies for KVIC. According to the report, submitted to the Ministry of Small Scale Industries, KVIC should be a policy-making body
and play a strategic role rather than being involved in the operations.
• It also suggested that KVIC should be made a market-oriented organization, and given the freedom to decide on the issues of rebate. In order to improve the marketing and
retailing aspects of the sector, it was proposed that an independent marketing company be formed, which would be disintegrated from the existing Khadi and village industries
structure.
• This company would also deal with improvements in the quality of products, packaging and marketing. It also recommended that the special rebate on Khadi products be made
available in the first week of every month, instead of the usual 90-day period after the month of October. The declining production, sales, rural employment opportunities and
share of Khadi in the total business of KVIC had become a matter of serious concern for the government (Refer tables I, II and III).
This had assumed greater significance as the population and per capita consumption of clothes in India had considerably increased over the years. Keeping this in view, the GoI
took many initiatives to promote the sector and exploit the full potential of Khadi as a product category in all its forms. As a part of these initiatives, KVIC registered Khadi as a
brand name, thereby, protecting it legally.
• In order to compete with other varieties of textile and make it more acceptable in the market, improvisation was needed and new products and designs had to be developed.
Keeping this objective in mind, in October 2001, KVIC signed a memorandum of understanding with the Ahmedabad-based National Institute of Design (NID) to provide it design
support in order to improve the diminishing market-share of Khadi.
Under the agreement, a special cell would be set up at NID (financed by the KVIC) to provide design support services in Khadi, village industries, packaging, marketing,
communication, publicity, disseminating materials and other design-related activities.
• Khadi Goes for a Facelift
• Over the years, the Khadi Boards of different states have been experimenting on
blending of Khadi with other materials and improving its quality. In July 2002, a collection
of ensembles in 'Tencel Khadi' (a blend of Tencel and Khadi in the ratio 30:70) was
created by Bangalore-based designer, Deepika Govind, in association with the Karnataka
Khadi Board. Tencel is a lyocell fiber natural in origin and hence, environment friendly. It
offers the comfort and luxury of a natural fiber as well as the performance and
practicality of a man-made fabric. Tencel Khadi showed lesser shrinkage (4-5%) as
compared to the high shrinkage seen in Khadi garments (about 7 %)
• Due to Tencel's softness, it would become easier to work with Khadi and lend better
drape quality to finished garments. Tencel Khadi would provide excellent scope for
exports. In 2002, the Austria-based company, Lenzing AG, proposed to make Khadi more
eco-friendly by blending the bio-degradable 'modal fibre'12 with Khadi. This blend would
absorb 50 per cent more humidity than cotton. The blend, besides strengthening the
Khadi yarn, would make it easy to wash and maintain.
• Future of Khadi
• The saleability of any textile depends on its USP and performance. For many years, the
promotion for Khadi had been on emotional and political grounds while its quality and
variety had been ignored completely. Khadi has very little to offer in terms of fabric
performance. It looks attractive when starched and kept in showrooms but, it does not
remain the same after washing. Even finer counts and blends of Khadi cannot withstand
many washes and thus, cannot be used for day-to-day purposes.
• It was becoming extremely difficult for Khadi to compete with the high-tech, colour-fast,
wrinkle-free, mill-made cottons and blends available today. According to analysts, Khadi
requires government sanction in every single activity and has therefore been stuck in a
bureaucratic swamp, unable to increase its output or raise the quality of the fabric.
In 2002, Khadi formed less than half per cent of India's textiles. In order to grow, the
production of Khadi needs to be decentralized. A research and development wing should
also be established by KVIC to experiment with new patterns and colours. Besides,
weavers can also be given grants to enable creating new designs.
• KVIC must allot a special advertising budget to promote the fabric.
KVIC plans to launch an advertising campaign in India and abroad to
create awareness among people about Khadi and its uses. For this, it
allocated an advertising and promotional budget of about Rs. 0.4
billion. It also plans to set up Khadi shops at all the international
airports in India. KVIC is also exploring the possibilities of using e-
commerce to market its products. However, Khadi, like any other craft
of India, would need to face the challenge of quality and produce
contemporary designs, which suit the tastes of the present
generation.