BUSINESS ENVIRONMENT - University of Calicut

1 BUSINESS ENVIRONMENTSTUDY IPAPER I(2015 Admission Onwards) University OF CALICUTSCHOOL OF DISTANCE EDUCATIONCALICUT University , THENJIPALAM, MALAPPURAM-6736352021 School of Distance EducationBusiness EnvironmentPage2 University OF CALICUTSCHOOL OFDISTANCE EDUCATIONS tudy IPaper IBusiness Environment2015 Admission onwardsPrepared by:Dr. Thomas Paul KattookaranAssociate Professor and Head,Research and Post Graduate Department of CommerceSt. Thomas College(Autonomous), ThrissurScrutinised by:Dr. Yakoob . and Research Guide,SS COLLEGE, Setting and Layout:Computer Section, SDE ReservedSchool of Distance EducationBusiness EnvironmentPage3 PrefaceEnvironment or surrounding is crucial as far as every BUSINESS firm, irrespective of theirnature-small or medium, manufacturing or service-is concerned.

2 If a BUSINESS firm wants to sustain inits area of operations, it must be well adapted to the surroundings in which it is. Otherwise, as anentity, it may be unsuccessful as it fails to exploit opportunities in the external ENVIRONMENT , tackleproblems or threats, and toreinforceits strengths. BUSINESS decisions, in general and strategies inparticularare framedin accordance withthe BUSINESS ENVIRONMENT . external environmentalcomponents like nature of the economy, economic system, political and legal factors and internalelements like organizational structure, human resource, cost structure etc are playing a decisive rolein forming the destiny of a BUSINESS book is prepared with the intention of benefittingSDEstudents oftheCommerceandManagement Studies in University of Calicut .

3 The purpose of the book is to set a base in thepostgraduate students, on the subject BUSINESS ENVIRONMENT , by describing its various aspects such asinternal and external environmental factors, structure and profile of the economy of India, concept offoreign investment and major multinational economic associations. I have taken every effort to makethe content of this book simple, precise and acknowledge with thanks the supportprovided by my colleagues, especially the Doctoral Research Scholars, Mr. Hareesh Kumar , andMs. , in the preparation of this study expect the book will be helpful to students who are eager to learn the subject, but arerestrained due to lack of foundation in Economics and developthe contents of the book.

4 Suggestions are welcome at all Thomas Paul KattookaranThrissur02-01-2016 School of Distance EducationBusiness EnvironmentPage4 CONTENTUNIT NOUNIT NAMEPAGE NUMBER1 Introduction to BUSINESS Environment52 external ENVIRONMENT of Business103 Trade Unions and Quality Circles164 Indian Economy-An Overview225 Public sector in India286 Fiscal and Monetary Policy327 Indian Economy-Growth and Drivers388 Industrial Policy of India429 Challenges Faced by Indian Economy4610 Unemployment5411 Black Money inIndia6312 India and the Knowledge Economy7013 Foreign Direct Investment and Foreign Portfolio Investment7514 Classification/Types of FDI8015 FDI Policy8416 FDI in Indian retail Sector9117 WTO9718 Other International Forums for TradeFacilitations10119 Intellectual Property Rights10520 Foreign trade policy of India108 References110 Syllabus112 Model Question Paper113 School of Distance EducationBusiness EnvironmentPage5 MODULE IUnit1 INTRODUCTION TO BUSINESS ENVIRONMENTT heprogressof every BUSINESS dependslargelyonits abilitytobecome accustomed toenvironment.

5 Forinstance,if the government changes its economic policies, the firm shouldappropriately respond to that ,a firm should keenly observe and respond properly tothe technological changes capable ofrendering the existing products it can beidentified that the association between BUSINESS and its ENVIRONMENT is very close and the BUSINESS firmto reinforce its capabilitiesandallocateits resources if living beings, BUSINESS too has an survive in this vibrant ecology, a firmneeds its intrinsic abilities and definitionof BUSINESS EnvironmentBusiness Environmentcan be defined as thecombinationof internal andexternalfactorsthatinfluenceacompany' BUSINESS ENVIRONMENT canincludefactorssuchas:clientsandsuppli ers;itscompetitionandowners;improvements intechnology;lawsandgovernmentactivities ; andmarket, social andeconomic Environmentliterally meansall thoseaspectsthat have a bearing on the businesssuch asitsstrengths, weaknesses, internal power relationships and orientations of the organization;government policies and regulations.

6 Nature of the economy and economic conditions: socio-culturalfactors: demographic trends; natural factors; and, global trends and cross-border ENVIRONMENT plays a key role in shaping the BUSINESS decisions and strategies of afirm. The opportunities and threats for a BUSINESS come mainly from its external ENVIRONMENT whichincludes factors like economic,political, technological and social. Similarly, the internal factors likemanagerial capabilities, efficiency in resource utilization etc make an organization strong or of BUSINESS EnvironmentBusiness environmenthas the is ComplexBusiness ENVIRONMENT is complex because it is continuously exposed to countless challenges, liketechnological disruptions, global competition, leadership change, shifting economic, social, andregulatory conditionsetc.

7 It is very stressful for a firm to survive and prosper in such is DynamicBoth the internal and external environments of BUSINESS are highly dynamic or vibrant owingto the following: customer preferences keep evolving, New competeters enter the market. Arise of novel technology. New marketingchannels. New resources. New policies. Changing of Distance EducationBusiness anything can be assumed with any degree of certainty about the factors of the businessenvironment because they continue to change dimensions of uncertainty include the following: Macro-environmental uncertainty:This istheuncertaintyin the organization s generalenvironment, including political, regulatory, statutory, and economic conditions.

8 This uncertaintyhas the capacity to reduce an organization s capability for mapping out and pursuing strategicchoices (Miller and Friesen 1984). Competitive uncertainty:This is theuncertainty regardingtheassessment ofrelative powers ofcompetitors, their future courses of action, and strategies. Market (and demand) uncertainty:This uncertainty stems from lack of clarity in the dynamics ofthe market and their effects on the organization s operations, and demand and supply conditions inthe industry. Technology uncertainty:This uncertaintyowesto change in the industry s technological resourcesand ENVIRONMENT is related to the local conditions and this is the reason as to why thebusiness environmentoccurs to bediversein different countries and different even in the samecountry at different different factors of BUSINESS ENVIRONMENT areco-related.

9 For example, let ussuppose thatthere is a change in the import-export policy with the coming of a new this case, thecoming of new government to power and change in the import-export policy are political andeconomic changes respectively. Thus, a change in one factor affects the other of BUSINESS EnvironmentThe BUSINESS ENVIRONMENT is complex,multifariousandvibrantin nature and hasanin-depthimpact on theenduranceanddevelopmentof the a worm s eye view on the firm senvironment can be beneficial in the following ways:a)Revealingopportunities and threats:Keen observation on the firm s ENVIRONMENT will bring outthe opportunities and threats hidden inthe ENVIRONMENT , so that the firm can meet )Providingguidanceforgrowth:Firms will be directed towards newedgesof growth if it hassome proper communication and involvement with its )Makes a firm strong or weak.

10 It is the internal factors of a BUSINESS like employee efficiency,efficiency in resource utilization, better management of costs etc make an organization strong orweak. To be robust and resilient, a firm should keep up its internal ENVIRONMENT )Continuous learning:The management can easily confront challenges with proper ENVIRONMENT inspiresmanagers torenew and revisetheiracquaintance andawarenessto meet theforeseenvariationsin )Fosterimpression:A firm becomes an icon among other firms in the industry if it positivelysusceptibleto the ENVIRONMENT within which they are. For example, in view of thecall out againstenvironmental pollution, many firms are producing eco friendly )Meetingrivalry:Numerous firms face cut throat competitionsin today s properenvironmental analysis will enable a firm toanalyze the competitors strategies )Retrospection.