Economic

Environment &
Global Environment
Mrs. Shruti Vinay Kachvimath
Indian Economy:
The state of a country or region in terms of the production and
consumption of goods/services and the supply of money.
Indian economy has welcomed international companies to
invest in it with open arms since liberalisation 1990.

India’s GDP @ current prices is estimated to be Rs 232.15 trillion

India is the 3rd largest unicorn base in the world with 83 unicorns
collectively Rs. 3.5 Billion.
Nature/Characteristics of Indian
Economy:
• Low per capita Income: When compared to other developed
nations, the per capita income of India appears to be less.
• High population density: Uncontrolled growth of population is a
severe problem of Indian economy. Standard of living comes down.
• Dominance of Agricultural sector: The large portion of the total
population is engaged in agriculture.
• Low rate of capital formation: The rate of capital formation
depends on the value of capital per head and saving capacity.
• Backwardness of Social & Institutional framework: Social customs
& traditions prevent the entrepreneurs from going beyond culture.
• Poor-Utilization of Resources: Indian economy is not able to
effectively utilise the available resources.
• Market Imperfections: Increasing prices makes it difficult for the
common man to maintain a decent living standard.
Structure of Indian Economy:
• As per Central Statistical Organization, there are three major sectors
in Indian Economy i.e., primary, secondary and tertiary sectors.

1. Primary Sector: Major contribution to India’s economy goes from

this sector so called as Primary sector. Natural resources are
directly used or they become raw materials to be used in other
industries.
a. Agriculture: Out of total population, 60% are in agricultural
sector.
b. Fishing: It is the major industry in the coastal parts of India.
c. Mining: It refers to the process of drawing out valuable matter
from the rocks, mines, ores etc., Valuable minerals like iron,
nickel, coal, uranium, diamond, petroleum, oil etc can be
extracted through this process.
2. Secondary Sector: This sector provides finished products to
be used in industries. Secondary sector mainly depends upon
primary sector for raw materials. About 24% share of economy
comes from this sector.
a. Industry: Here the raw materials are transformed into
valuable goods with the help of machines/human beings.
b. Construction: Assembling and erecting the infrastructure
such as roadways, buildings, railways etc.

3. Tertiary/Service Sector: Industries which offer different types

of services to the end customers. Personal services like Nursing,
Teaching, Medicinal treatment and commercial services like
banking, insurance, transport etc.
Emerging sectors of Indian Economy:

1. Food Processing: India is the second largest food producer, after China.
We’re the largest producers of Sugarcane, tea and milk. ‘Ready to eat’ food
segment are emerging at a faster rates.
2. Healthcare: Factors like growing income level, rise average life expectancy
and growing awareness about health insurance facility.
3. Tourism: Factors like supporting govt. policies, campaigns, rising foreign
tourists with high spending capability are playing the crucial role in the
development and growth of the tourism.
4. Retail: The topmost industry of India is retailing. It contributes over 10% of
GDP and helps in generating about 8% of the job opportunities.
5. Manufacturing Sector: ‘Make in India’ programme launched by PM of
India, the manufacturing sector is being seen as a tool of economic growth.
6. Entertainment: Recent digitization & improved internet facilities act as a
supporting factors for the growth of the sector.
a. Films: Indian Film Industry provides employment to approx. 5 million people.
b. Television: Major source of entertainment for many urban people of India.
7. Gems & Jewellery: It is responsible for generating significant foreign
exchange.
a. Gold: Gold predominates 80% of Indian Jewellery trade.
b. Diamonds: The diamonds are exported to other countries.
Importance of Indian Economy:

• Rapidly rising economy

• High demographic dividend
• Strong consumer market
• Rising trends in FDI flow
Problems of Indian Economy:

• INFLATION: Domestic products become more costlier compared to foreign

products.

• POOR EDUCATIONAL STANDARDS: More than 50% of women fail to acquire

education.

• POOR INFRASTRUCTURE: Basic facilities- sewage system, clean drinking water

etc.

• FALL IN BOP: Scarcity of funds – Fall in rupee value.

• INCREASED LEVEL OF INEQUALITY: Skilled and affluent classes are at advantage,

people in rural areas still fail to experience any benefit from economic growth.

• LARGE BUDGET DEFICIT: Scarcity of funds.

• RIGID LABOUR LAWS: Severity of labour laws stands as a major hurdle.

• INSUFFIENCY IN AGRICULTURE PRODUCTION: 51% of workers are engaged in

Economic Environment:
• EE consists of external factors economic policies, economic
condition & economic system.

• Different forms of economic system- Capitalist economies,

Free market economies, Communist, Centrally planned, Mixed
economy.

• Impact on creation and distribution of wealth.

Components of Economic Environment:

1. Economic Condition: Include purchasing power of

consumers, standard of living, Employment level, demand &
supply etc.
2. Economic Policies: Monetary & Fiscal policies.
3. International economic environment: For smooth
functioning of Export & Import, organisations like WTO, IMF,
World Bank etc. have issued various rules & regulations
4. Economic Legislations: Various legislations are formulated.
5. Economic System: Economic relations among people
controlled & maintained by set of rules, goals and incentives
form economic system.
Factors Affecting Economic Environment:

• Demand & Supply

• Marginal & Total Utility
• Money & Banking
• Economic growth & development
• Income & Employment
• General price level
• Trade cycles
Impact of Economic Environment on Business:

Changing Income: Purchasing power of the consumers directly

affects the economic environment and purchasing power
depends on the income capacity of the consumers. The factors
affecting the economic state of customers are economic
uncertainty, heavy taxation, high rate of unemployment,
inflation etc.

Changing Consumer Spending Patterns: Household expenses

involve food, transportation and housing. Changing income
changes consumption pattern and may cause variation in
demand.
Major Economic Policies:
Fiscal Policy
Monetary Policy
Foreign Trade Policy
Industrial Policy
Labour Policy
Agricultural Policy

Importance of Economic Policies:

Increased rate of economic growth
Removal of poverty & inequality
Improved efficiency of the public sectors
Price stability
Continuous development of Small scale industries
International Business Environment:

Defined as set of all the commercial activities such as sales,

logistics, investments, transportation, etc. performed by both
the firms across national borders.

International business environment consists of legal and political

systems, economic policies, environmental standards, language
and cultural differences, export and import regulations, etc.
International Forces in Business Environment:

1. International Economic Environment: Mainly 3 types of economies

are there in the world namely industrialised economies, less
developed economies and emerging economies.
2. International Social Environment: In a society, social class namely
upper, middle and lower class. Each class differs from one another on
the level of perception level and buying behaviour.
3. International Cultural Environment: Products which are not relevant
to prevailing cultural environment are avoided by the consumers.
4. International Political Environment: One party, dictatorships, multi-
party democracies, constitutional monarchies etc.
5. International Legal & Regulatory Environment: As businesses
expand their businesses operations to different countries in the
world, they have different legal systems.
6. International Technological Environment: Technology is a major
enabler in the area of International market.
7. International Ecological: Ecological environment of one country is
different from that of other country.
Importance of International Business Environment:

1. Dependency of Industries on Import/Export

2. Spread Effects of the International Development
3. Increasing complexities of Business Development
4. To anticipate and withstand changes of the Business World.
Globalisation of Business:

It is an international integration which involves exchange of

products, services, ideas, business practices and cultures.

Globalisation has played a significant role in transfer of

technology, exchange of technologies, migration, tourism,
capital flows, currency exchange etc. along with foreign trade in
terms of goods/services.
Features of Globalisaion:

• Improved Technology
• Movement of people and Capital
• Diffusion of Knowledge
• Talent Mobility & Integration
• Rise in Competition
Forms of Globalisation:

1. Economic Globalisation: Removing regulatory restrictions on a

country’s economic affairs and opening up the local economy to the
rest of the world.

2. Social Globalisation: Individual people’s identities were established

based on their family, race, tribe, village, religion etc.

3. Cultural Globalisation: The process through which a world-class of

commodities, ideas, and information is generated in one section of
the world.

4. Political Globalisation: The development and growing influence of

international organizations such as the UN or WHO means
governmental action takes place at an international level.

5. Environment Globalisation: The worldwide coordination of

environmental practices & policies in the form of international
Dimensions of Globalisation:

1. Disembedding
2. Acceleration
3. Standardisation
4. Interconnectedness
5. Movement
6. Mixing
7. Vulnerability
Stages of Globalisation:

Domestic Company

International Company

Multinational Company

Global Company

Transnational Company
Essential Conditions for Globalisation:

1. Business Freedom/Economic Liberalisation

2. Facilities
3. Government support
4. Resources
5. Competitive Advantage
6. Orientation
Merits/ Positive Impact of Globalisation on Indian Businesses:

• Boosts the Economy

• Increased rate of Employment
• Availability of advanced technology
• Availability of Goods/Services
• Boosts Industrialisation
• Balanced Development of World Economies
• Adaptation of Foreign taste and trend
Demerits of Globalisation:

• Reduced job and income

• Improper labour practices & environmental policies
• Cut throat competition
• Inequality
• Inflation
• Loss of culture
Foreign Market Entry Strategies:
The various means of entering the International Market:
• Exporting:
Indirect Exporting: Products are sold to intermediaries
who directly sell them to the foreign wholesalers/
customers.
Direct Exporting: Products are exported and sold directly to
foreign customers.
• Licensing:
Licensee is the firm to which the licensor gives authority to
use few of its technology, trademarks, patents, etc. in lieu of a
monetary consideration often called royalty/fee.
• Franchising:
When an owner of a brand name, patent, copyright,
trademark or property grants legal rights to use that property
for production of goods/services, in return for a fee.
• Contract Manufacturing:
Organisation (client) enters into a contract with another
organisation to manufacture its products/parts.
• Turnkey Projects:
It is a project which is constructed & sold to anonymous
purchasers as a finished product.
• Management Contracts:
Businesses which lack technology/managerial skills can
enter into an agreement with a foreign business for seeking
managerial assistance, guidance & technical expertise for a
fee.
• Joint Ventures:
When two or more independent businesses are
cooperatively joined together to form a new business identity.
• Strategic Alliances:
When two or more organisations enter into a contract to
perform a specific and achieve mutually set objectives in
the market.
• Merger:
A combination of two or more companies where one
company obtains the assets and liabilities of the other
company against cash/shares.
• Acquisition:
Buying or acquiring an existing venture.

• Wholly-Owned Subsidiaries:
Which is entirely owned by another entity.
Concept of MNC (Multinational Corporation):

Companies that have the production units in one or more

countries other than its home country.
The operations of these subsidiaries are managed by the
headquarters.
Features of MNCs:

• Huge Size
• International Operations
• Oligopolistic Power
• Transfer of Resources
• International Market
• Refined Technology
• Single Managerial Control
• Offers Economies of Scale
• Integrated Worldwide Business System
Classification of MNC’s:
1. Classification on the Basis of Corporate Structure:

Horizontally Integrated Multinational Enterprise- Establish their

franchise in the host countries and produce units as per interests of
local people. KFC, Pizza Hut etc.

Vertically Integrated Multinational Enterprises- Established in some

countries to manufacture inputs like raw materials to its production
units in different countries. Nike, Puma etc.

Diversified Multinational Enterprises- Situated in different countries

having no integrated activities, neither horizontally/vertically.
Microsoft etc.
2. Classification on the basis of behaviour:

a. Ethnocentric: The main focus is towards the home country.

b. Polycentric: Companies gives priority to the people of the

host countries, while keeping few key persons from the
home country.

c. Regiocentric and Geocentric: Aim to recruit the best

employees.
 Merits of MNCs:

Merits to Host Country Merits to Home Country

Subsidiaries send back their earnings

Better access to worldwide markets
to Home country

Learn & adapt new cultures,

New jobs for labours
markets, ideas etc.

Underdeveloped countries provide

Contribution to Exports
raw materials/labour at low rates

Better access to Managerial talent Creates employment

Better products for consumers at Local talents of foreign countries can

lower cost be used
 Demerits of MNCs:

Demerits of Host Country Demerits to Home Country

Drain of resources for profit

Loss of Employment
maximisation

Minimum Technology Transfer Repatriation Issues

Influence on Culture
Loosing competitive advantage

Monopoly Growth Transfer of superior tech.

MNCs outflow their money to other

Economic Threat
countries
Transnational Corporation:
Organisations which functions in more than one nation at a
particular point of time

Features:
• Resources & Capabilities are widely Distributed
• Structures are Flexible & Ever changing
• Subsidiary Managers Initiate Strategy & Innovations that
become Strategy for the Corporation as a whole
• Existence of Successful Coordination
Merits of TNCs:

• Benefits to Host Country

• Provides Employment
• Maintains & Retains Relationships
• Facilitates Cooperation & Learning

Demerits of TNCs:

• Not in Favour of Host Country

• Damages to the Environment
• Host Country Issues
• Effect on Host Country Market
Thank-You