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Wednesday, August 16, 2017

Theoretical Framework of Business Environment

Unit – 1: Theoretical Framework of Business Environment
Concept: Business Environment
Business is any activity undertaken for the purpose of producing or selling a particular commodity r service and earns a profit. The business has several dimensions such as purchasing the inputs, converting the inputs into the output, selling that output at a profitable price. Every dimension of a business depends upon several factors. Hence a business is influenced by several factors, all them put together are described as Business Environment. A business can grow and prosper in a particular environment just as a plant can grow in a particular soil, climate, water supply etc.  Hence the entrepreneur has to pay attention to the environment in which he has to conduct his business activities. If he is able to adapt his business to the environment effectively and efficiently the business can make higher profits. This makes the study of business environment important.
According to Keith Davis, “Business environment is the aggregate of all conditions, events and influences that surrounds and affects the business.”
According to wheeler, “Business environment is the total of all things external to business firms and industries which affect their organisation and operations.”
Following are the features of Business environment:
Business Environment means a collection of all individuals, entities and other factors, which may or may not be under the control of the organisation, but can affect its performance, profitability, growth and even survival. Every business organisation operates in a distinctive environment, as it cannot exist in isolation. Such an environment influence business and also gets affected by its activities. Some of the important features of business environment are given below:

1.       Totality of internal and external forces: Business environment means the surrounding situation within which business organization has to operate. It is a sum total of cultural, political, economical, social, physical, technological, legal and global forces which move around the business organization. These forces collectively create a socio-economic-political situation called business environment. Environment is an inseparable part of business which can not operate in vacuum.
2.       Specific and general forces: Business environment includes both specific and general forces. Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day-to-day working. General forces (such as social, political, legal and technological conditions) have impact on all business enterprises and thus may affect an individual firm only indirectly.
3.       Dynamic nature: Business environment is dynamic and perpetually evolving. It changes frequently due to various external forces i.e. economic, political, social, international, technological and demographic. Such dynamism in the environment brings continuous change in its character. Business enterprises have no alternative but to operate under such dynamic environment. The only remedy is adjusting business as per environmental changes.
4.       Complex: Business environment has now become extremely complex and the government intervention has become more frequent. Business environment is a complex phenomenon and also difficult to grasp and face in its totality. This is because it is governed by external factors. Environment develops by chance and not by choice. In addition, the environment factors vary from country to country. The business environment in India and in USA may not be identical.
5.       Multi Faceted: Environmental changes are frequent but their shape and character depends on the knowledge & experience of the observer. A particular change in the environment may be viewed differently by different businessmen. This change is welcomed as an opportunity by some organizations while some others take it as a threat for their survival. 
6.       Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries.
7.       Relativity: Business environment is a relative concept since it differs from country to country and even region to region. Political conditions in the USA, for instance, differ from those in China or Pakistan. Similarly, demand for sarees may be fairly high in India whereas it may be almost non-existent in France.
8.       Environment Influences Business Organization: Business organizations have limited capacity to influence business environment as it is the result of government policies and social and technological changes which are basically external variables.
Importance of Business Environment
There is a close and continuous interaction between the business and its environment. This interaction helps in strengthening the business firm and using its resources more effectively. As stated above, the business environment is multifaceted, complex, and dynamic in nature and has a far-reaching impact on the survival and growth of the business. To be more specific, proper understanding of the social, political, legal and economic environment helps the business in the following ways:
1.       Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises to exploit business opportunities and face the threat associated with such opportunities. For example, Maruti Udyog became the leader in the small car market because it was the first to recognize the need for small cars in India.


2.       Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in realm of business.
3.       Image Building: Environmental understanding helps the business organisations in improving their image by showing their sensitivity to the environment within which they are working. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own requirement of power.
4.       Ensures Optimum Utilization of Resources: The study of business environment is needed as it ensures optimum use of resources available. For this, the study of economic and technological environment is useful. Such study enables organization to take full benefit of government policies, concessions provided, and technological developments and so on.
5.       Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.
6.       Coping with rapid changes: All sizes and all types of enterprises are facing increasingly dynamic environment. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suitable courses of action.
7.       Improving performance and meeting competition: the enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.
8.       Identifying Firm’s Strength and Weakness: Business environment helps to identify the individual strengths and weaknesses in view of the technological and global developments.
9.       Keeping Business Enterprise Alert: Environment study is needed as it keeps the business unit alert in its approach and activities. In the absence of environmental changes, the business activities will be dull and lifeless. The problems & prospects of business can be understood properly through the study of business environment. This enables an enterprise to face the problems with confidence and secure the maximum benefits of business opportunities available.
10.   Understanding Future Problems and Prospects: The study of business environment enables to understand future problems and prospects of business in advance. This enables business organizations to face the problems boldly and also take the benefit of favorable situation.
Environmental Scanning
Environmental scanning  is a process by which organizations monitor their relevant environment so that they can consider the impact of different events, trends, issues, expectations on its strategic management process. Environment scanning is one component of the global environmental analysis. Environmental monitoring, environmental  forecasting  and environmental assessment complete the global environmental analysis.
Environmental scanning can also be defined as ‘the study and interpretation of the political, economic, social and technological events and trends which influence a business, an industry or even a total market’. The factors which need to be considered for environmental scanning are events, trends, issues and expectations of the different interest groups.
Importance of Environmental Scanning: Following are main importance of environment scanning:
1. Identification of strength: Strength of the business firm means capacity of the firm to gain advantage over its competitors. Analysis of internal business environment helps to identify strength of the firm. After identifying the strength, the firm must try to consolidate or maximise its strength by further improvement in its existing plans, policies and resources.
2. Identification of weakness: Weakness of the firm means limitations of the firm. Monitoring internal environment helps to identify not only the strength but also the weakness of the firm. A firm may be strong in certain areas but may be weak in some other areas. For further growth and expansion, the weakness should be identified so as to correct them as soon as possible.
3. Identification of opportunities: Environmental analyses help to identify the opportunities in the market. The firm should make every possible effort to grab the opportunities as and when they come.
4. Identification of threat: Business is subject to threat from competitors and various factors. Environmental analyses help them to identify threat from the external environment. Early identification of threat is always beneficial as it helps to diffuse off some threat.
5. Optimum use of resources: Proper environmental assessment helps to make optimum utilisation of scare human, natural and capital resources. Systematic analyses of business environment helps the firm to reduce wastage and make optimum use of available resources, without understanding the internal and external environment resources cannot be used in an effective manner.
6. Survival and growth: Systematic analyses of business environment help the firm to maximise their strength, minimise the weakness, grab the opportunities and diffuse threats. This enables the firm to survive and grow in the competitive business world.


7. To plan long-term business strategy: A business organisation has short term and long-term objectives. Proper analyses of environmental factors help the business firm to frame plans and policies that could help in easy accomplishment of those organisational objectives. Without undertaking environmental scanning, the firm cannot develop a strategy for business success.
8. Environmental scanning aids decision-making: Decision-making is a process of selecting the best alternative from among various available alternatives. An environmental analysis is an extremely important tool in understanding and decision­ making in all situation of the business. Success of the firm depends upon the precise decision making ability. Study of environmental analyses enables the firm to select the best option for the success and growth of the firm.
Factors of Environmental Scanning: Following are main factors of environment scanning:
a)      Events: In environment scanning, business organisation study past events. Past events are the one of the important factors of environment scanning. For example, gas leakage in Bhopal union carbide factory is a past event which will helps for environment scanning.
b)      Trends: Trends also are the main factor of environment scanning. Business Organisation must see what is the trend of past event or trend of action after happening any event in past.
c)       Issues: Environment scanning also keep eye on important issue of business environment. For example, pollution is one of important issue.
d)      Expectations of People: Business organisations also check the expectations of peoples. For more expectations, Organisations will have to enable their product according to their expectations for surviving in business. That is the reason, why organisations are interested to know the expectations of people in environment scanning.
SWOT analysis
SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis. It is applicable to either the corporate level or the business unit level and frequently appears in marketing plans.
 SWOT (sometimes referred to as TOWS) stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis consists of the following two activities: 
a)      An assessment of the organization’s internal Strengths and Weaknesses and
b)      An assessment of the Opportunities and Threats posed by its external environment
a)      Assessing the Internal Environment
Internal scan or assessment of the internal environment of the organization involves identification of its strengths and weaknesses i.e., those aspects that help or hinder accomplishment of the organization’s mission and fulfillment of its mandate with respect to the following Four Ps:
1)      People (Human Resources)
2)      Properties (Buildings, Equipments and other facilities)
3)      Processes (Such as student placement services, M.I.S etc.)
4)      Products (Students, Publications etc.)
b)      Assessing the External Environment
External scan refers to exploring the environment outside the organisation in order to identify the opportunities and threats it faces. This involves considering the following:
1)      Events, trends and forces in the Social, Technological, Economical, Environmental and Political areas (STEEP).
2)      Identifying the shifts in the needs of customers and potential clients and
3)      Identification of competitors and collaborators.
Techniques of SWOT analysis
An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is given below:
1)      Strengths: Strengths are the qualities that enable us to accomplish the organization’s mission. These are the basis on which continued success can be made and continued/sustained. Strengths can be either tangible or intangible. These are what you are well-versed in or what you have expertise in, the traits and qualities your employees possess (individually and as a team) and the distinct features that give your organization its consistency. Strengths are the beneficial aspects of the organization or the capabilities of an organization, which includes human competencies, process capabilities, financial resources, products and services, customer goodwill and brand loyalty.
Examples of STRENGTHS under SWOT Analysis
a)      Specialist marketing expertise
b)      Exclusive access to natural resources
c)       New, innovative product or service
d)      Location of your business
e)      Strong brand or reputation
f)       Quality processes and procedures
2)      Weaknesses: Weaknesses are the qualities that prevent us from accomplishing our mission and achieving our full potential. These weaknesses deteriorate influences on the organizational success and growth. Weaknesses are the factors which do not meet the standards we feel they should meet. Weaknesses in an organization may be depreciating machinery, insufficient research and development facilities, narrow product range, poor decision-making, etc. Weaknesses are controllable. They must be minimized and eliminated.
Examples of WEAKNESS under SWOT Analysis
a)      Lack of marketing expertise
b)      Undifferentiated products and service (i.e. in relation to your competitors)
c)       Competitors have superior access to distribution channels
d)      Poor quality goods or services
e)      Damaged reputation
f)       Lost brand value
3)      Opportunities: Opportunities are presented by the environment within which our organization operates. These arise when an organization can take benefit of conditions in its environment to plan and execute strategies that enable it to become more profitable. Organizations can gain competitive advantage by making use of opportunities. Organization should be careful and recognize the opportunities and grasp them whenever they arise. Selecting the targets that will best serve the clients while getting desired results is a difficult task. Opportunities may arise from market, competition, industry/government and technology. Increasing demand for telecommunications accompanied by deregulation is a great opportunity for new firms to enter telecom sector and compete with existing firms for revenue.
Examples of OPPORTUNITIES under SWOT Analysis
a)      Developing market (China, the Internet)
b)      Loosening of regulations
c)       Removal of international trade barriers
d)      A market led by a weak competitor
4)      Threats: Threats arise when conditions in external environment jeopardize the reliability and profitability of the organization’s business. They compound the vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and survival can be at stake. Examples of threats are - unrest among employees; ever changing technology; increasing competition leading to excess capacity, price wars and reducing industry profits; etc.
Examples of THREATS under SWOT Analysis
a)      A new competitor in your home market
b)      Competitor has a new, innovative substitute product or service
c)       New regulations
d)      Increased trade barriers
e)      Taxation may be introduced on your product or service
Advantages of SWOT Analysis: SWOT Analysis helps in strategic planning in following manner:
a)      It is a source of information for strategic planning which helps in achieving desired objectives at a minimum cost.
b)      SWOT analysis plays a big role in forecasting as it provides important information that might be required in making forecast for the future.
c)       SWOT analysis builds organization’s strengths.
d)      Reverse its weaknesses by identifying weak areas.
e)      Maximize its response to opportunities.
f)       Overcome organization’s threats.
g)      It helps in identifying core competencies of the firm.


h)      It helps in setting of objectives for strategic planning.
i)        It helps in knowing past, present and future so that by using past and current data, future plans can be chalked out.
Limitations of SWOT Analysis: There are certain limitations of SWOT Analysis which are not in control of management. These include:
a)      Price increase;
b)      Inputs/raw materials;
c)       Government legislation;
d)      Economic environment;
e)      Searching a new market for the product which is not having overseas market due to import restrictions; etc.
Internal limitations may includes
a)      Insufficient research and development facilities;
b)      Faulty products due to poor quality control;
c)       Poor industrial relations;
d)      Lack of skilled and efficient labour; etc
Factors (Components) of business environment
On the basis of extent of intimacy with the firm, the environmental factors may be classified into different levels or types. There are broadly two types of environment, the internal environment, i.e. factors internal to the firm and the external environment i.e. factors external to the firm which have relevance to it.
The internal factors are generally regarded as controllable factors because the company has control over these factors; it can alter or modify such factors as its personnel, physical facilities, organisation and functional means such as marketing mix to suit the environment.
The external factors on the other hand are, by and large, beyond the control of a company. The external or environmental factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors etc., are therefore generally regarded as uncontrollable factors.
Some of the external factors have a direct and intimate impact on the firm (like the suppliers and distributors of the firm). These factors are classified as micro environment, also known as task environment and operating environment. There are other external factors which affect an industry very generally (such as industrial policy, demographic factors etc.). They constitute what is called macro environment, general environment or remote environment. We may therefore consider the business environment at three levels:
1.       Internal environment
2.       Micro environment/ task environment/ operating environment
3.       Macro environment/ general environment/ remote environment
Although business environment consists of both internal and external environments, many people often confine the term to the external environment of business.
1. Internal Environment: The factors in internal environment of business are to a certain extent controllable because the firm can change or modify these factors to improve its efficiency. However, the firm may not be able to change all the factors. The various internal factors are:
a)      Value system : The value system of an organisation means the ethical beliefs that guide the organisation in achieving its mission and objectives.  It is a widely acknowledged fact that the extent to which the value system is shared by all in the organisation is an important factor contributing to its success.
b)      Mission and objectives : The business domain of the company, direction of development, business philosophy, business policy etc are guided by the mission and objectives of the company.  The objective of all firms is assumed to be maximisation of profit.  Mission is defined as the overall purpose or reason for its existence which guides and influences its business decision and economic activities.
c)       Organisation structure : The organisational structure, the composition of the board of directors, the professionalism of management etc are important factors influencing business decisions. The nature of the organisational structure has a significant influence over the decision making process in an organisation.  An efficient working of a business organisation requires that the organisation structure should be conducive for quick decision-making. 
d)      Corporate culture : Corporate culture is an important factor for determining the internal environment of any company.  In a closed and threatening type of corporate culture the business decisions are taken by top level managers while the middle level and lower level managers have no say in business decision-making.  This leads to lack of trust and confidence among subordinate officials of the company and secrecy pervades throughout the organisation.  This results in a sense of alienation among the lower level managers and workers of the company. In an open and participating culture, business decisions are taken by the lower level managers and top management has a high degree of confidence in the subordinates. 
e)      Quality of human resources  :  Quality of employees that is of human resources of a firm is an important factor of internal environment of a firm.  The characteristics of the human resources like skill, quality, capabilities, attitude and commitment of its employees etc could contribute to the strength and weaknesses of an organisation.  Some organisations find it difficult to carry out restructuring or modernisation plans because of resistance by its employees. 
f)       Labour unions : Labour unions collectively bargains with the managers for better wages and better working conditions of the different categories of workers. For the smooth working of a business firm, good relations between management and labour unions are required.
g)      Physical resources and technological capabilities : Physical resources such as, plant and equipment and technological capabilities of a firm determine its competitive strength which is an important factor for determining its efficiency and unit cost of production.  Research and development capabilities of a company determine its ability to introduce innovations which enhances productivity of workers. It is, however, important to note that the rapid technological growth and the growth of information technology in recent years have increased the relative importance of intellectual capital and human resources as compared to physical resources of a company. 
2. External Environment: The external environment is made up of micro and macro environment.
Micro Environment: This refers to the factors which influence the prospects of a particular firm; the firm can influence them with certain efforts. They are as follows:
a) Customers: The type and the nature of the customers influence the rate of growth of any firm. The firm has to be very particular about choosing the inputs and transforming them in to the output. The cost factor is subsidiary if the firm is dealing with such customers. If the customers are more commoners the quality of the commodity if less important than the cost of production. The customers want the commodity at a lower price so the firm will have to conscious about the cost in purchasing the inputs, in employment of labour, in packing and such other factors influencing the cost.
b) Competitors:  In modern age an absolute monopoly is a very rare thing. Most of the FIRMS have to work in some type of competition such as Monopolistic Competition or Oligopoly. A Firm has to be particular about the intensity of the competition. If the competition is severe the firm will have to be very particular about keeping the costs at the lowest level so that it can sell the commodity at a competitive price.
c) Suppliers:  The quality of the commodity and the cost of production are considerably influenced by the supplies of the inputs. If the inputs are supplied at economical prices, are of standard quality and if the supply is uninterrupted and timely the firm can produce a standard quality of a commodity and sell it at reasonable prices. Often the firms employ more than one supplier so as to ensure an uninterrupted supply of inputs. If the supplies of inputs are regular, consistent and reliable there is no need to keep a larger quantity in stock.
d) Channel Intermediaries: They refer to the different levels in the chain from the production unit to the final customer. The chain incorporates the stockists, the wholesalers, the distributors, the retailer etc. If there is a high level of efficiency maintained at every part of the chain the commodity can reach the final consumer in good condition and at a reasonable price. So the Firm has to select and maintain efficient intermediaries. The firm has to offer them proper terms
e) Society: The prospects of a firm depend upon the society in which it has to work and sell its products. In a homogenous society the job of the firm is easy. The people have almost the same habits likes and dislikes, values and ethical norms. In a heterogeneous society the job of the firm is difficult. A particular product may be acceptable to a particular section of the society but not acceptable to some other sections. In a country like India a firm has to into consideration all types of sections of the community such as the religious sections, the caste, the sect, language, region etc.
Conclusion: All these forces influence the chances available to a firm to survive and develop.
Macro Environment: The macro environment comprises of those forces which influence all business firms operating in an economy. They can be studied under the following categories: economic environment, political and regulatory environment, social/ cultural environment, demographic environment and technological. The components of these environments are discussed as below:
a) Economic Environment:  The survival and success of each and every business enterprise depend fully on its economic environment. The main factors that affect the economic environment are:
(i) Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.
(ii) Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are: Industrial policy, Fiscal policy, monetary policy, foreign investment policy and Export –Import policy. The government keeps on changing these policies from time to time in view of the developments taking place in the economic scenario.
(ii) Economic System: The world economy is primarily governed by three types of economic systems, viz. Capitalist economy; Socialist economy; and Mixed economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector.
b) Political Environment: This includes the political system, the government policies and attitude towards the business community and the unionism. All these aspects have a bearing on the strategies adopted by the business firms. The stability of the government also influences business and related activities to a great extent. It sends a signal of strength, confidence to various interest groups and investors.
c) Legal Environment:  This refers to set of laws, regulations, which influence the business organisations and their operations. Every business organisation has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include: Companies Act, 1956, Foreign Exchange Management Act, 1999, The Factories Act, 1948, Industrial Disputes Act, 19112, Payment of Gratuity Act, 19112, Industries (Development and Regulation) Act, 1951 etc. Besides, the above legislations, the following are also form part of the legal environment of business:


(i) Provisions of the Constitution
(ii) Judicial Decisions.
d)  Social Environment: The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc.
e) Technological Environment:  Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. The varying technological environments of different countries affect the designing of products. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time.
f) Demographic Environment:  This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services.
g) Natural Environment:  The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the sources of input.
Changing Dimensions of Indian Business
Business Environment is the world around a company over which it has no direct control. It covers many dimensions impacting a company's activities & performance. It is an aggregate of all forces & factors external to the business enterprise, but which influence it's functioning. There is a mutual inter-dependence between business and its environment. A business enterprise is an open system and it continuously interacts with its environment. Businesses take inputs like raw material, capital, labour, energy, etc. from the environment, and transform them into goods & services, and then send them back into the environment. Interaction between business and environment is in various ways such as: exchange of information, resources, influence & power.
There are several layers of influences surrounding a business. The outermost layer, called the macro-environment, consists of dimensions that impact almost all companies in an economy. These factors are the six aspects of business environment - Political, Economical, Social, Technological, Environmental, & Legal.
Political environment: Political environment includes factors like a country's political system, type of government, centre-state relations, public opinion, law & order, nature of government policies towards business - particularly those related to taxation, industrial relations, regulation of business & industry, and foreign trade regulations. It also relates to the stability of the government in power, the risk of major political disturbances, or threats from anti-social elements, terrorists or other countries.
In the period prior to liberalisation, India's annual growth rate was low at around 3.5%, only a few licenses were given out for important sectors like steel, electrical power, energy and communication, and these licence owners built up powerful corporate empires. India at that time was a socialistic economy with excessive govt. control. Core industries were directly managed by the govt. as public sector enterprises and banking and airline industries were nationalised. A huge public sector emerged and state-owned enterprises made large losses. There was public sector monopoly and investment in infrastructure was poor. Licence Raj established the self-perpetuating bureaucracy that still exists in India and corruption flourished under this system.
GOI began the process of privatisation in 1991. Privatisation means having private ownership, management and control into public sector undertakings. The purpose of privatisation is to improve the efficiency of public undertakings and to raise funds for public investment. As a result financial institutions have become more active, working culture is improving and management is being professionalised, there is improvement in technology, better investment behaviour of Indian entrepreneurs and companies are aware of the significance of human capital. The banking, financial services & insurance (BFSI) and airline sectors have become extremely competitive, but are in need of reforms. There have been some negative effects like curtailed growth in some industries, reduced employment opportunities due to adoption of capital intensive technology, sell-outs & takeovers by foreign companies, losing markets and declining capacity utilisation.
Economic Factors: Economic factors relate to the general condition of the economy within which a business operates. It comprises of the factors and forces concerned with means of production and distribution of wealth. It refers to the nature of economic system, economic policies of the country, organisation of capital & money markets, GDP, income level, growth rate, inflation rate, interest rates, money supply, and unemployment rate. The Indian economy is currently the 9th largest in the world by nominal GDP and the 4th largest by purchasing power parity (PPP). Economic growth rates are projected at around 7.5%-8% for the financial year 2011-2012.
Economic Liberalisation was when India adopted free market principles and it included opening India for international trade and investment, deregulation, initiation of privatisation, tax reforms and inflation-controlling measures. The fruits of liberalisation reached their peak in the year 2007 as India reached its highest GDP growth rate of 9%. With this India became the 2nd fastest growing economy in the world, next only to China.
However dealing with powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies, are some areas that still need economic reforms. India will soon allow foreign direct investment (FDI) in the retail industry, as it has been passed by the cabinet.
Globalisation is a process of integration of business activities and growing economic inter-dependence between countries in the world economy. Growing similarities of countries in terms of availability of infrastructure led to globalisation. It has exposed firms to international competition, resulting in an increase in employment opportunities and widening of competition.
The impact of these economic reforms was that total foreign investment in India grew manifold and cities like Ahmadabad, Bangalore, Chennai, Hyderabad, Pune, NOIDA, Gurgaon, Ghaziabad, Jaipur and Indore have risen in prominence and economic importance. They have become centres of rising industries and destination for foreign investment and firms. With GDP growth predicted to be around 8% over this decade, India is set to reap the benefits of development.
Socio-cultural environment: Socio-cultural environment covers factors such as social customs, traditions, culture, lifestyle, attitude of people, saving & spending patterns, size of population, demographic profile, education level, occupational structure, trade unions, and other factors that influence and describe the behavioural characteristics typical of the people. It would also include the Corporate Social Responsibility initiatives undertaken by companies.
CSR in India is in a nascent stage. It is still one of the least understood initiatives in the Indian development sector. A lack of understanding, inadequately trained personnel, non-availability of authentic data and specific information on the kinds of CSR activities, coverage, policy etc. further adds to the reach and effectiveness of CSR programmes. However the situation is changing as CSR is coming out of the purview of 'doing social good' and is becoming a 'business necessity'. The business case for CSR is gaining ground and corporate houses are realising that what is good for workers – their community, health and environment is also good for business.
Technological Environment: Technological dimension covers the nature of technology available and used by an economy. It also covers the extent to which development in technologies are likely to take place. This may be reflected in factors like expenditure on R&D and rate of obsolescence. Technical obsolescence occurs when a new product or technology supersedes the old, and it becomes preferred to utilize the new technology in place of the old. Some examples of technological obsolescence are telephone replacing the telegraph, and DVD replacing VCR. Products are becoming obsolete and getting replaced by newer versions. Not many people will remember the days of the floppy disk. Computers are becoming smaller but faster, and TVs are becoming sleeker with more features.
Environmental factor: Environmental factor refers to the physical or geographical environment affecting the business. It also includes the considerations like environmental pollution, climate change, carbon footprint, etc. Carbon footprint is the total set of greenhouse gas (GHG) emissions caused by an organization, event, product or person. Greenhouse gases can be emitted through transport, land clearance, and the production & consumption of food, fuels, manufactured goods, materials, wood, roads, buildings, and services. The mitigation of carbon footprints through the development of alternative projects, such as solar or wind energy or reforestation, represents one way of reducing a carbon footprint and is often known as carbon offsetting.
Carbon dioxide emissions into the atmosphere, and the emissions of other GHGs, are often associated with the burning of fossil fuels like natural gas, crude oil and coal. The Kyoto Protocol defines legally binding targets and timetables for cutting the GHG emissions of industrialized countries that ratified the Kyoto Protocol. Nations which have failed to deliver their Kyoto emissions reductions obligations can enter Emissions Trading to purchase instruments like Certified Emissions Reductions (CERs) and Emissions Reduction Units (ERUs) to be sold on international markets, in order to cover their treaty shortfalls. Within the next few years China, India and the United States are some of the nations scheduled to start participating in Emissions Trading Schemes.
Legal Environment: Legal or regulatory dimension describes the framework of legislation impacting business. It includes all the laws, legal system and judicial system of the country. A business has to work within the framework of a country's laws and regulations. Laws important to business relate to areas like monopolies & restrictive trade, consumer protection, employment, industrial relations, health & safety, and joint stock companies. Even today industry is subjected to harassment by at least 35-40 various inspectors of the GOI. Every city in Maharashtra has Octroi duty, which leads to long queues at the city borders causing delays of over 24 hours in deliveries. Excise & Customs duty is another area of concern. There is practically no internal mechanism to control corruption in govt. depts. which are manned by high-handed bureaucrats. There also exists massive political patronage & influence leading to corruption on unprecedented scale.

Inspite of dismantling licence raj, for every small thing corporates still need to use middlemen to lobby the govt. depts. Setting up manufacturing units in excise-free zones has been a popular option for business houses in India. However there has been random creation of excise-free zones as sops to backward states. Most of these states (with the exception of Uttarakhand) have not bothered to create any infrastructure. Baddi in Himachal Pradesh has no infrastructure to support industries and no sanitation either.

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