Chapter-3 Business Environment Itis an external force which are affecting activity of business directly or indirectly. It involves consumer, competitor, Investor, Government, technology, society etc. Features of Business Environment. (1) Totality of External Forces - Business Environment is a sum of all external forces which are not part of business but they affect directly or indirectly routine activity of business. (2) General and specific forces - General forces involve factors which are indirectly affecting activity of business. It involves government, society, technology, political and legal factors. Specific forces always affect directly to the day-to-day activity of business. So, it involves consumer, investor and competitors. (3) Interrelatedness - All forces of business environment are interconnected. If there is change in one factor of business environment then other factors are automatically changes and they affect activity of business. (4) Dynamic - Business environment change very frequently it affects activity of business directly. There is a change in fashion, technology, political and legal etc. (5) Uncerta identified and s - Business Environment involve uncertain a not suitable for future decision making. ies. These activi s can not easily 6, Complexity - Study of Business Environment is very difficult task because its nature is dynamic and all events are uncertain. It involve mental exercise. Importance of Business Environment (A) It enables the firm to identify opportunities & getting first mover advantage. - with the help of business environment study, we can easily identify positive points related to the organisation. It provides new opportunities and business can get first mover advantage due to adopting new opportunity. (2).1thelps the firm to identify threats and early warning signal. - Study of business environment is helpful to identify negative aspects for the business. It is helpful to prepare in advance for the future threats arises in business environment. (3). Ithelps in tapping useful resources - Study of business environment is helpful to identify availability of resources which are required for a business. So, business can easily grap resources in comparison to other business. (4.) It helps in coping with rapid changes - Study of business environment is helpful to identify the change in business environment & we can easily adopt the changes in environment. Business makes their plan, and policies according to the future changes. (5) It helps in formulating plan & policies - Every organisation prepares their future plan and policies according to the future changes arises in environment. (6) Ithelps in Improving performance - Improve in business performance is a final result of study of business environment. It involves expansion in organisation and increase in turnover.Dimensions / Element of Business Environment (21) Economical Environment - It refers to the change in monetary policy and Fiscal policy (Finance Related) It shows change in earning or growth of business organisation. It involves following. activities © Change in Price Policy. change in Demand. Change in Foreign Exchange. * Change in interest. (2) Social Environment - It refers to the change in Society as per there welfare which is necessary for society. It involves following activities. * Production of Eco-friendly goods. © Reduction in Pollution. © Creation of Job opportunity ‘© Production of healthy Products ‘© It provides goods of minimum price and best quality (3). Legal Environment - It refers to the change in law or rules and regulation which are forcefully followed by all business organisation. It involves following activities Change in taxation policy. Fixation of Price ceiling and Price flooring + Change in Environment related law. (4), Political Environment, - It refers to the change in business environment due to change in political party on central and state government. (5) Technological Environment - It refers to the change in technology of working. It involves changes which are affecting every business directly or indirectly. It involves following activities © Use of Online payment system. © Use of Biomatrices. © Use of New software Economic Environment in India India is a developing economy. In 1991 Indian government introduce new Economic Policy which accelerate development of economy, it provides three major changes in Indian Economy. (2). Liberalisation: (2). Privatisation. (3). Globalisation. Liberalisation - It refers to the freedom of starting a business. It removes trade barriers and minimise legal formalities to start a business. Privatisation - It refers to the disinvestment in government sector and increase entrepreneur. But government hold some special sectors only for government like Arm Industry, Defence, Railway.Globalisation - It refers to remove foreign trade barriers. It reduces legal formalities to trade with foreign country. Itis helpful for increasing global reach of Indian business and also increase foreign investment in India. Impact or Benefits of Liberalisation © Easy to start business © Minimise legal formalities. ‘© Increases per capita Income, © Increase in GDP. ‘© Increase in Employment opportunity. © Decrease in Import. Benefits of Privatization * Increase in Market Competition. * Provide Cheap and best quality Product. * Decrease in Corruption Increase in Job opportunity. Optimum utilisation of Resources. © Increase in CYDP & Per capital Income. Benefits of Globalization + Increase in technology. * Decrease in Export and Import duties. Increase in Foreign Exchange Resource. Increase in foreign direct Investment, Increase in Port Folio Investment. Increase in GDP. Impact of Government Policy changes on Business and Industry. (1) Increasing competition - With the help of change in economic policy new firms entered in Indian market so that level of completion increases This change mostly affect service sector like telecom Industry, Banking, Insurance etc. (2) More Demanding Customer - Nowa days, customer become more demanding because they have information about changes in technology and fashion. With the help of globalization of Privatisation customers have more choice of products. (3.) Rapid Changes in technological Environment - With the help of new economic policy competition increases in our market so that all firms want to introduce Innovative technology and ideas for satisfying (4) Necessities for change - With the help of new economic policy growth of economy depends on increases rapidly and change in policy is need for the growth of economy. Without change we cannot explore our business and Economy on world level. (5) Needs for developing human resource - New economic. policy is helpful to increase or develop skill of employees and workers. It provides different training programmes for increasing skill of manpower.(6) Market Orientation - With the help of new economic policy every producer gets maximum, market reach. Producer can sell their goods with in geographical boundary of a country and rest of the world. (7) Loss of Budgetary support to the public sector- According to new economic policy government ive financial support to the companies those who Love not in condition of production of product and running in future. Government make reinvestment to start up close project. Demonetization - It isa situation where itis a situation where existing legal tendon of currency cancelled by issuing on legal tendon of currency. Decision related to demonetization is taken by panel of finance ministry & RBI. It is helpful to reduce corruption and increase balance of payment account of country, Features of Demonetization (A) Tax Administration Measure - With the help of demonetisation government can easily evaluate actual tax liability of the person those who are converting their currency form bank. (2) It reduces Tax Evasion. - Demonetization is helpful to reduce tax evasion because every person has to deposit their old currency in their bank & Government can easily identify taxes are deposited by the person or not. (3). Mobilisation of Saving - Demonetization is helpful to increase flow of currency in economy & it converts saving into bank saving. (4). Creating Digital Economy - Demonetization decreases use cash but it increases digital transfer of money. Managerial response to changes in Business Environment 1) Diversification - With the help of new economic policy companies’ management should diversi their working area. Company should increase their product in market. (2) Joint venture - Globalisation is helpful to increase direct Investment and portfolio Investment. It increases joint ventures by/o the domestic company and foreign comfort Ex: Maruti Suzuki (3) Brand Building - New Economic policy is helpful for the management to build their brand with Unique quality and according to competitive market. (4). increase in Managerial Skill - New Economic policy provide different trainings programmer the development of managers skill. It provides maximum interaction b/c Indians’ managers and foreign managers (6). increase in utilisation of Resources ~ With the help of new economic policy managers get different technologies to utilise their resources as per their maximum output. It involves utilisation of both man and material