Business Environment

 By-
Prof. Dr. Pavnesh Kumar
Dean of Deptt. of Management Sciences
MGCUB
Email. id- pavneshkumar@mgcub.ac.in
Mob.- 9415582480
 INTRODUCTION
 The word ‘Business Environment’ is a combination of
the words Business + Environment.
Let us discuss the meaning of business and
Environment.
 Meaning of business:
Business includes all activities connected with
production, trade, banking, insurance, finance,
agency, advertising, packaging, and numerous other
related activities.
 DEFINITION & MEANING
 According to Musselman and Hughes, Business
represents the “ organized efforts of enterprise to
supply consumers with goods and services.”Business
may be understood as the organized efforts of
enterprise to supply consumers with goods and
services and to make profit in the process.
 Meaning of environment: Environment refers to all
external forces which have a bearing on the
functioning of business: :
 DEFINITION & MEANING
 William F. Glueck and Lawrence R. Jauch,
“ The environment includes factors outside the firm which can
lead to opportunities for or threats to the firm. Although there
are many factors, the most important of these factors are socio-
economic, technological, supplier, competitors, and
government.”

 Meaning and definition of business environment:

As the environmental factors are beyond the control of a firm,
its success will depend to a very large extent on its adaptability to
the environment, i.e., its ability to properly design and adjust
internal (the controllable) variables to take advantage of the
opportunities and to combat the threats in the environment.
 DEFINITION & MEANING
Economists have defined business environment in
different ways:
 Reinecke & schoell:
“ The environment of business consists of all those
external things to which it is exposed and by which it
may be influenced, directly or indirectly.”
 Arthur M. Weimer:
“Business environment is the climate or set of
conditions-economic, social, political or institutional
in which business operations are conducted.”
CONNECTION BETWEEN BUSINESS & ENVIRONMENT

POLITICAL + LEGAL

SOCIO
ECONOMICAL
CULTURAL
BUSINESS
ENVIRONMENT
Nature of Business Environment
 (1.)Internal and External Environment:
Every business enterprise is surrounded with internal
and external environment.
 (2.)Dynamic Factor:
The business environment is the product of various
dynamic factor, i.e., economic, social, political,
geographical, religious and technological.
Nature of Business Environment
 (3.)Resources:
The business enterprise gets its resources such as raw
material, capital etc. from the external environment.
(4.)Inter-dependence:
There is a relationship among the environmental factors.
Business is influenced by its environment and in turn, to a
certain degree, it will influence the external forces.
 (5.)Communication:
Every business enterprise exchanges the information
with other enterprises regarding external environment. It
helps the firm in policy making.
Nature of Business Environment
 (6.)Wide Market:
The environment is a wide market for the firm. The goods and
services produced by the firm are sold to the consumers in the
society that is its external environment.

 (7.)Creation of Utility by Change in Form:

The resources provided by the external environment to the firm
are returned by the firm to the society by making them useful
through creating utility.

 (8.)Fulfill Needs:
External environment (society) expects from the firm to fulfill
its needs. The firm which cannot fulfill the requirements of the
society cannot survive for a long period.
Nature of Business Environment
 (9.)Uncertainty:
The success of the firm depends on its ability to take
advantage of the opportunities and to combat the threats
in the environment
 (10.)Change according to Changes:
For the success of the firm it is essential that it will change
itself according to the changes taking place in the
environment.
 (11.)Responsible for All Factors:
The firm should take decision by safeguarding interests of
the various groups in the environment
Nature of Business Environment
 (12.)Effect of Uncontrollable Factors:
External factors are uncontrollable and they affect
firm’s operations to a large extent. The main
uncontrollable factors are government policies, legal
provisions, research and development, technology,
social conditions, political conditions, external
relations and pressures etc.
(13.)To Identify Major Changes:
It is the responsibility of the firm to identify major
changes taking place in the environment and adjust
itself accordingly.
 Need and Importance of Business
Environment
 Firm to Identify Opportunities and Getting the
First Mover Advantage:
Early identification of opportunities helps an
enterprise to be the first to exploit them instead of
losing them to competitors. 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
 Need and Importance of Business
Environment
 Firm to Identify Threats and Early Warning Signals:
If an Indian firm finds that a foreign multinational is
entering the Indian market it should gives a warning signal
and Indian firms can meet the threat by adopting by
improving the quality of the product, reducing cost of the
production, engaging in aggressive advertising, and so on.

 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
 Need and Importance of Business
Environment
 Improving Performance:
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.
 Basis of strategy:
Strategists can gather qualitative information regarding
business environment and utilizing them in formulating
effective plants.
 Intellectual stimulation:
 Knowledge of environment changes provides intellectual
stimulation to planners and decision-making authorities.
 Need and Importance of Business
Environment
 Image building:
Environmental understanding by the management
builds image of the company in the minds of the
people. They feel that the company is sensitive and
responsive to their needs and problems.
 Activating management to changing needs:
The knowledge of environmental changes sensitizes
the management to make strategy to cope with the
emerging problems.
 PLANNING COMMISSION
 The Planning Commission of India was a non-
constitutional and non-statutory body, which was
responsible to formulate India’s five years plans for
social and economic development in India. Prime
minister of India is the Ex-officio chairman of the
planning commission. It was established on 15 March,
1950 in accordance with article 39 of the constitution
which is a part of directive principles of state policy.

 In the first Independence day speech in 2014, Prime

Minister Narendra Modi announced his intention to
dissolve the Planning Commission. It has since been
replaced by a new institution named NITI Aayog.
Functions of Planning Commission
 1) Planning Commission makes an assessment of the material, capital
and human resources of the country, including technical personnel,
and investigates the possibilities of augmenting such resources which
are found to be deficient in relation to the nation's requirements.
 2) formulates a plan for the most effective and balanced utilization of
country's
resources.
 3)' on a determination of priorities, defines the stages in which the plan
should be
 carried out and proposes the allocation of resources for the due
completion of each stage.
 4) indicate the factors which tend to retard economic development,
and determines.
 the conditions, which in view of the current social and political
situation, should be established for the successful execution of the
plan.
 5) determines the nature of the machinery which will be
necessary for securing the successful implementation of
each stage of the plan in all its aspects.
 6) appraises from time to time the progress achieved in the
execution of each stage of the plan and recommends the
adjustments of policy measures that such appraisal may
show to be necessary.
 7) makes such interim or ancillary recommendations as
appear to it to be appropriate either for facilitating the
discharge of the duties assigned to it or on a consideration
of prevailing economic conditions, current policies,
measures and development programmes or on an
examination of such specific problems as may be referred
to it for advice by the Central or state governments.
 LIBERALISATION, PRIVATISATION &
GLOBALISATION
 Liberalisation:
Liberalisation refers to relaxation of government restrictions in areas of
economic policies. Thus, when government liberalises trade it means it
has removed the tariff, subsidies and other restrictions on the flow of
goods and service between countries.
 Privatisation:
It refers to the transfer of assets or service functions from public to
private ownership or control and the opening of the closed areas to
private sector entry. Privatisation can be achieved in many ways
franchising, leasing, contracting, etc. Capital markets should be
sufficiently developed to be able to absorb the disinvested public sector
shares.
 Globalisation :
Economic globalization is the increasing economic interdependence
of national economies across the world through a rapid increase in
cross border movement of goods, service, technology and capital. It is a
process which draws countries out of their insulation and makes them
join rest of the world in its march towards a new world economic order.
 NEW TRADE POLICY -1991
 New Economic Policy of India was launched in the
year 1991 under the leadership of P. V. Narasimha
Rao. This policy opened the door of the India
Economy for the global exposure for the first
time. In this New Economic Policy P. V. Narasimha
Rao government reduced the import duties,
opened reserved sector for the private players,
devalued the Indian currency to increase the
export. This is also known as the LPG Model of
growth.
OBJECTIVES OF NEW TRADE POLICY -1991
1. The main objective was to plunge Indian Economy in to the
arena of ‘Globalization and to give it a new thrust on
market orientation.
2. The NEP intended to bring down the rate of inflation.
3. It intended to move towards higher economic growth rate
and to build sufficient foreign exchange reserves.
4. It wanted to achieve economic stabilization and to convert
the economy into a market economy by removing all kinds
of un-necessary restrictions.
5. It wanted to permit the international flow of goods,
services, capital, human resources and technology, without
many restrictions.
6. It wanted to increase the participation of private players in
the all sectors of the economy.
FEATURES OF NEW TRADE POLICY -1991
 Free Imports and Exports.
 Rationalisation of Tariff Structure.
 Decanalisation.
 Devaluation and Convertibility of Rupee on Current
Account.
 Trading Houses.
 Special Economic Zones.
 EOU Scheme.
 Agriculture Export Zones.
 Market Access Initiative Scheme.
 Focus on Service Exports.
 Concessions and Exemptions.
 Industrial Licensing in India
 New Industrial Licensing Policy 1991
The Industrial Policy announced on
July 24, 1991 heralded the economic
reforms in India and sought to
drastically alter the industrial scenario
in our country.
 OBJECTIVES
 To unshackle the country's industrial economy
from the cobwebs of unnecessary bureaucratic
control to shed the load of the public
enterprises which have shown a very low rate of
return or are incurring losses over the years.

 To remove restrictions on direct foreign

investment To free the domestic entrepreneur
from the restrictions of MRTP Act To introduce
liberalisation to integrate the Indian economy
with the world.
 BIBLIOGRAPHY
 INDIAN ECONOMY – SK MISHRA & V K
PURI
 BUSINESS ENVIRONMENT- FRANCIS
CHERUNILAM
  THANK YOU

 STAY HOME AND SAVE LIVES