Introduction to Business Environment

Session - 1 Semester- III July 2010

Instructions


15 sessions Semester End Exam - 60 marks Class Participation and Attendance - 10 Marks Class Test & Case Study - 20 marks Individual Presentations and Vivas - 10 marks

Course Content


Introduction to Business Environment  Nature of Modern Business  Economic Factors  Sociocultural Factors  Technological Factors  SWOT Analysis  Porters Five Forces Model Macroeconomic Environment of Business : National  Economic System  Economic Fluctuations  Economic Indicators  Macroeconomic Policies: Fiscal & Monetary

Course Content


Financial Environment of Business: National

  

Indian Financial System Financial Markets Current trends in Banking

Industrial Environment: National

   

New Industrial Policy-1991 Privatization & Disinvestment Industrial sickness Role of Small Scale Industries

Course Content


Global Environment  Technology Transfer & Multinational Companies  Strategies for going global  Foreign Investments  India & BOP  India & WTO  Economic Integration Business & Society  Ecology & Business  Corporate Social Responsibility  Business Ethics  Corporate Governance  Family Business Houses

References
 

 

Business Environment by Vivek Mittal Business Environment Managing in a Strategic Context by John Kew & John Stredwick International Business Environment- Francis Cherunilam Business Environment Misra & Puri Essentials of Business Environment K. Aswathappa Business Environment - Francis Cherunilam

What is Business???
Business may be understood as the organized efforts of enterprises to supply consumers with goods and services for a profit

Contemporary Business goals

Profit Growth Power

Service to Society

Business goals

Quality Products & Services

Market Leadership

Employee satisfaction

Characteristics of Business
Change Government Interference Large Size

Competition

Characteristics of Business

Diversification

Information Technology

Globalization

Porters five generic descriptions of industries:  Fragmented  Emerging  Mature  Declining  Global

Large Indian companies Fortune 500

7 Indian companies have made it to Fortune 500 list Indian Oil Corporation Reliance Industries Tata Steel Bharat Petroleum Hindustan Petroleum State Bank of India Oil & Natural Gas IOC has the highest rank of 105 among the featured Indian companies, followed by Tata Steel at the 258th spot, RIL (264), BPCL (289), HPCL (311), SBI (363) and ONGC (402). The league of 500 elite companies for 2009 is topped by oil giant Royal Dutch Shell, followed by another oil major Exxon Mobil and US retailer Wal-Mart Stores in that order.

BUSINESS CHALLENGES
      

Managing Bottom line Meeting stakeholders expectations Developing and retaining top talent Creating a customer responsive organisation Diminishing time to market Market agility Pricing and quality

What do you mean by Business Environment???

The environment of any organization is the aggregate of all conditions, events and influences that surround and affect it. Characteristics of Business Environment:  Complex  Dynamic  Multi-faceted  Far- reaching impact

Why Study Business Environment



Development of broad strategies To foresee the impact of socio-economic changes at the national and international levels on firms ability Analysis of competitors strategies and formulation of effective counter measures To keep oneself dynamic

Types of Environment


Internal Environment External Environment

 

Micro environment Macro environment  Economic  Non Economic

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

Contd.
  

Human Resources Company Image and Brand Equity Other Factors

   

Physical Assets and Facilities R & D and Technological Capabilities Marketing Resources Financial Resources

External Environment


Includes all factors outside the organization which provide opportunities or pose threats to the organization Uncontrollable factors Consists of Micro and Macro environment

Micro Environment
It consists of the factors in the companys

immediate environment that affect the performance of the company.

Micro Environment Factors

Suppliers Customers Marketing Intermediaries Competitors Publics Financial Community

Micro Environment of a typical car manufacturer

Potential Supplier Components Supplier Local Communities Stakeholders Pressure Groups Car Manufacturer Customers Potential Customers

Government

Competitors

Car Dealers Potential Dealers

For Customers

For Supplies

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. Macro Environment : Economic  Non Economic

Economic Environment
    

 

Economic stages that exists at a given time in a country Economic system that is adopted by a country for example. Capitalistic, Socialistic or Mixed Economy Economic planning, such as five year plans, budgets, etc. Economic policies for example, monetary, industrial and fiscal policies Economic Indices such as National Income, Per Capital Income, Disposable Income, Rate of growth of GNP, Distribution of Income, Rate of savings, Balance of Payments etc. Economic Problems Functioning of economy

Non Economic Environment



Regulatory Environment Socio- Cultural Environment Demographic Environment Technological Environment Political Environment

Non- Economic Environment



Cultural Environment


Social Customs & Rituals and practices Lifestyle patterns Family structure Role & position of men, women, children and aged in family & society

Non- Economic Environment



Demographic Environment


Growth of population Age Composition Life Expectancy Sex Ratio Fertility and Mortality rates Inter-state migration

Macro Environment


Technological Environment
  

Sources of technology Technological development Impact of technology

Political Environment
 

Political parties in power Political Philosophy

Macro Environment


Regulatory Environment
  

Constitutional framework Policies relating to pricing and foreign investment Policies related to the public sector, SSIs, development of backward areas and control of environmental pollution

International environment
Important factors that operate impact on organization are:  Growth of world economy
   

at

global level which

have an

Distribution of world GDP International institutions IMF,WTO ILO Economic relations between nations

Global human resource-nature and quality of skills, mobility of labor Global technology and quality standards Global demographic patterns

 

WTO and its relevance for Indian companies

The main guidelines of WTO are:  Trade without discrimination  Growing market access  Promotion of fair competition The response of Indian government to WTO constitutes the following actions  Reduction of tariffs  Opening Indian markets for Global Players  Rationalizing industrial licensing and removal of controls on the size of operations

WTO and its relevance for Indian companies

The impact of WTO on Indian companies is likely to include the following :  Increasing competition  Consolidation of activities in core competence areas  Improvements in infrastructure to negate structural disadvantages.  Shake out of minor players and M&As to gain global scale.

Overview of Business Environment

MACRO ENVIRONMENT

ECONOMIC Environment
MICRO ENVIRONMENT BUSINESS

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

TECHNOLOGICAL FACTORS

DEMOGRAPHIC FACTORS MARKETING INTERMEDIARIES SOCIAL CULTURAL FACTORS

Non - Economic

Environment

Environmental Analysis & Strategic Management

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

SWOT Analysis

Tools for Analyzing the Environment

  

PEST Analysis PESTLE STEEPLE

      

S - Social T - Technological E - Economic E - Environmental P - Political L - Legal E - Ethical

Critical Success Factors (CSFs)



CSFs are those areas in which good results will help ensure an organizations success against competition and where poor results usually lead to declining performance A strategy is defined as a unified, comprehensive and integrated plan relating the strategic advantages of the firm to the challenge of the environment.

Competitive Environment- Michael

Porters Five Forces Model

Competitive Environment- Michael

Porters Five Forces Model

Threat of the entry of new competitors  Existence of Barriers to Entry
      

Economies of scale Product differentiation Brand Equity Capital requirements Access to distribution channels Absolute cost advantages Government policies

Contd..
The intensity of competitive rivalry
Number of Firms and their Relative Market Share, Strengths Rate of industry growth Demand conditions High Fixed cost Exit barriers Product Standardization Informational complexity and asymmetry

Threat of Substitutes

Contd
Bargaining power of customers:
      

buyer concentration to firm concentration ratio buyer volume buyer switching cost relative to firm switching costs buyer information availability ability to integrate backward availability of existing substitute products buyer price sensitivity price of total purchase

Contd
Bargaining power of suppliers


   

supplier switching costs relative to firm switching costs degree of differentiation of inputs presence of substitute inputs supplier concentration to firm concentration ratio threat of forward integration by suppliers relative to the threat of backward integration by firms cost of inputs relative to selling price of the product

Sixth Force in Michael Porter Model



According to Andrew Grove- former CEO of Intel sixth force are complementary goods

Michael Porters International Competitiveness Model- PORTER

DIAMOND


Why a nation achieves success in a particular industry?

Why Japan -- automobile, cameras  Why Germany -- engineering



Porter Diamond
 Four

broad attributes of a nation shape the environment in which local firms compete, and these attributes promote or impede the creation of competitive advantage (Diamond of four mutually reinforcing factors)

Porter Diamond
Endowments A nations position in factors of production such as skilled labor, capital, infrastructure necessary to compete in a given industry 2. Demand Conditions 3. Related and Supporting Industries 4. Firm Strategy, Structure, Rivalry the conditions in the nation that govern how companies are created, organized and managed and the nature of domestic rivalry
1. Factor

Thank You