1)
ECONOMIC ENVT.
Business is one
unit of the total economy. Economic environment refers to all those economic factors
which have a bearing on the functioning of a business. Business depends on the economic
environment for all the needed inputs and also to sell the finished goods. It
is supplementary to political environment as it is influenced by political
decisions and events. Economic environment is the net result of economic policies
of the govt.
Important factors and influences operating in the
economic environment:
1)
The
economic stage at which the
country exists at a given point of time:
i.e.
The rate at which the country grows, whether the country is going through
prosperity or recession or is moving towards recession or is in the revival
stages.
2)
The
economic structure adopted/economic system:
There
exists 3 distinct economic philosophies viz. Capitalism, socialism (Maxist-Lenin(communism)
& Non- Maxist-Lenin (mixed economy)) and communism.
The system of capitalism
believes in private ownership of all agents of production, in private sharing
of distribution process that determine the functional rewards of each
participant and in individual expression of consumer choice through a free
market place.
Mention should be made of the welfare
state concept which has developed in recent years, that provides for an
increasing degree of state regulation when certain deficiencies appear in the
economy eg.USA.
Under socialism, the tools
of production are to be organised, managed and owned by the government, with
the benefits accruing to the public. Strong public sectors, agrarian reforms,
control over private wealth and investment and national self reliance are the
other planks of socialism.
Communalism goes further to abolish all private property and
property rights to income. The state would own and direct all instruments of
production. Alternatively called Marxism, communism was followed in Russia till
1991.
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CAPITALIST
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COMMUNIST
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Positives
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encourages individual initiatives, free play of
market forces,
competitive spirit
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answers to problem of capitalism
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Negatives
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gross inequities of income,
recurrence of trade cycles since free play,
exploitation of poor,
negative effect on environment,
wasteful standard of living
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denial of individual freedom,
assumes total commitment of people to country’s
welfare (but people work for rewards),
rulers did not set examples,
lack of flexibility
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Socialism seems to fall between capitalism and communalism,
partaking the strong points of both the philosophies and avoiding their
weaknesses at the same time.
India chose mixed economy as our economic philosophy.
The economic set-up under this philosophy is split up into 3 parts:
(a) Sectors in which both production and distribution
are entirely managed and controlled by the state to the complete exclusion of
private enterprise.
(b) Sectors in which the state and private enterprise
jointly participate in production as well as in distribution.
(c) Sectors in which the private enterprise has
complete access subject only to the general control and regulation of the
state.
3)
Economic policies:
Industrial policy:
The
term “industrial policy” refers to government policies towards industries-their
establishment, functioning, growth and management. The industrial development
of a country will be shaped, guided, regulated and controlled by its industrial
policy.
Eg.
New industrial policy, 1991 (given in class).
Monetary policy:
In
its narrow sense, monetary policy refers to the steps taken by a central bank
to regulate the cost and supply of money and credit in order to achieve certain
socio-economic objectives like price stabilisation, full employment, exchange
regulations and faster economic growth.
The
RBI’s monetary policy has been one of controlled expansion i.e. Adequate
financing of economic growth and at the same time ensuring reasonable price
stability.
Fiscal policy:
Fiscal
policy refers to the policy of the govt. Regarding taxation, public expenditure
and public debt. Fiscal policy operates through the budget. Also known as
budgetary policy.
4)
Economic planning:
India is a planned economy.
It carries out its economic planning through Five Year Plans. The 11th
Five Year Plan (2007-2012) has laid down objectives in the following areas:
a)
Income
and Poverty
b)
Education
c)
Health
d)
Women
and Children
e)
Infrastructure
f)
Environment
Massive
investments are made in all the five- year plans to realise its objectives.
These plans are developed, executed and monitored by the Planning Commission.
5)
Economic Indices:
e.g. National Income, per
capita income, disposal personal income, rate of savings and investments,
balance of payments, GDP, etc.
6)
Infrastructural factors:
eg. FI’s, Banks, Modes of transport,
communications, energy sources, etc.
In order to
meet the challenges of rapid economic growth and international competitiveness,
there is an urgent need to achieve greater efficiency and accountability is
these sectors.
2)
POLITICAL ENVT.
Political
environment includes management of public affairs and its impact on business.
Political
environment refers to the influence exerted by the 3 political institutions
viz. Legislature, Executive and Judiciary, in shaping, directing, developing and controlling
business activities.
The
Legislature lays down the framework through the enactment of laws, within which
the business houses can operate & take their decisions. The executive, i.e., the government
implements or enforces the laws passed by the legislature, & the judiciary
plays the role of watchdog to see that both the legislature & the executive
function within the constitutional limits.
Political
environment in any country at any time is the result of political system,
constitutional provisions, party system and the political events which take
place in the country from time-to-time.
Elections,
assurances given by political parties at the time of election, policies of the
ruling party, political developments, political scandals, corruption charges of
leading politicians, war and aggression are some major political factors which
affect the political environment.
The main
issues in political environment are: Political stability, Proper law and order
situation, strong party in power, responsible opposition and responsible role
of press and public media.
Business
responsibilities to govt.:
-
Tax
payment
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Voluntary
programmes
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Providing
information to help decision making
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Govt.
contracts
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Service
of business leaders to govt.
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Political
activity (corporate involvement in politics:
· Money contributions to political parties at the
time of elections
· Contest elections as independents or on party
labels
· Lobbying (securing favour for business)
Govt.’s responsibilities
to business:
-
Establishment
& enforcement of laws & a system of courts
-
Maintenance
of order
-
Regulate
money & credit
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Ensures
orderly growth – regional growth & prevents wide fluctuations
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Infrastructure
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Information
services of different departments
-
Assistance
to small industries
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Transfer
of technology
3)
REGULATORY/ LEGAL ENVT.
The objective
of regulatory environment is to prevent exploitation of consumers, employees,
investors, to protect firms from unfair competition, to ensure better
ecological balance, etc.
Some of the
important laws regulating business are:
§ The Factories Act, 1948
§ The Essential Commodities Act, 1955
§ FEMA,1999
§ Consumer Protection Act, 1986
§ Competition Act, 2002
§ Negotiable Instrument Act, 1881
§ Companies Act, 1956
A business
manager should keep an up-to-date & detailed information & knowledge of
the rules & regulations governing production, distribution &
consumption of goods & services. He should also possess good knowledge of
labour laws & laws relating to consumers.
4)
SOCIO-CULTURAL ENVT.
“Culture consists
of the thought and behaviour patterns that members of a society learn through language
and other forms of symbolic interaction – their customs, habits, beliefs and
values, the common viewpoints which bind them together as a social
entity.......Cultures change gradually, picking up new ideas and dropping old
ones, but many of the cultures of the past have been so persistent and
self-contained that the impact of such sudden change has torn them apart,
uprooting their people psychologically.”
-Elbert W. Steward and James A. Glynn
1. Culture
creates people
People are
a blend of heredity, cultural experiences, sub-cultural experience. Culture
trains people along particular lines, tending to put a personality stamp upon
them eg. Indian, Japanese etc. When people with different cultural background
promote, own and manage organizations, organizations themselves tend to acquire
distinct cultures. Thus the culture of the Tata group of co.’s is different
from the culture of Infosys.
2. Culture and globalisation
As business
units go international, the need for understanding and appreciating cultural
differences across countries is essential. Work motivation, profit motivation,
business goals, negotiating styles, greetings, significance of body gestures,
attitude towards development of business relationship, etc. vary from country
to country.
3.
Culture determines goods and services
Culture
broadly determines the type of goods and services a business should produce. The
type of food people eat, the clothes they wear, the beverages they drink and
the building materials they use to construct dwelling houses vary from culture
to culture and from time to time within the same culture. Business should
realise these cultural differences and bring out products accordingly.
4.
People’s Attitude to Business:
Attitude of people towards
business is largely determined by their culture. Indeed, their very existence
depends upon social philosophies which conduct and support various kinds of
business actions.
5.
People’s attitude to work:
Motivation, morale and other
related aspects of human resource management are based on the workers attitude
towards work which depends on his culture. Preoccupation with work is
considered a virtue in some parts of the world and a vice in others. As a result
different types of appeal, reward and penalty are effective in different
cultures.
6.
Ambitions
or complacent: An individual’s ambition to grow or remain complacent depends on
his or her culture. An ambitious individual is highly motivated, has a strong urge
to excel, is prepared to change organisations & even take risks.
7.
Family
8.
Authority
9.
Ethics
in Business
10. Marriage and social beliefs and customs
11. Education
12. Social responsibility of business (section 3)
5)
TECHNOLOGICAL ENVT.
The technological environment consists of
those factors that are related to the knowledge applied and the materials and
the machines used in the production of goods and services which have an impact
on business.
Some of the
important factors & influences
operating in the technological environment are as follows:
1.
Sources
of technology like company sources, external sources & foreign sources;
cost of technology acquisition; collaboration & transfer of technology
2.
Technological
development, stages of development, change & rate of change of technology
& Research & development
3.
Impact
of technology on human beings, the man-machine system, &the environmental
effects o technology
4.
Communication
& infrastructural technology in management
Interface between Business and Technology:
1)
Technology reaches people through business
Business
is an institution through which man expects new discoveries to be converted
into goods and services. E.g. New discoveries in the television industries
means nothing to man until a business organisation works on the discoveries to
convert them into a product. E.g. LCD
TV’s, etc. The economic prosperity of a nation depends on the technical
progress it has achieved.
2)
Increased Productivity
The
most fundamental effect of technology is greater productivity in terms of both
quality and quantity. E.g. In a hospital the objective may be qualitative, such
as maintaining life with electronic monitoring equipment. In a factory, the
objective may be quantitative in terms of more production at less cost.
Technology results in better quality products at reduced prices.
3)
Need to spend on research and Development (R &
D)
Though
business organizations are the means through which new innovations are given
practical shape, it is the business which has to spend lots of money on discovering
new technology. It is essential for business to invest in R & D to be a
winner in the intensely competitive market.
4)
Fast changing Technology
Many
of today’s products were not even heard of years back. Business units and their
managers must always watch out for changes and developments taking place
around. New developments must be adapted and new ideas explored lest the
business units would expire early.
5)
Rise and decline of products and organisations
Schumpeter
saw technology as a force for ‘creative destruction’. A new technology may
spawn a major industry but it may also destroy an existing one. E.g. Typewriter
replaced by computers. Music systems have hurt the gramophone industry. This
poses problem to certain businesses. “Today’s growth product is tomorrow’s earthen
pot.”
6)
High expectations of consumers
High
expectations of consumers pose a challenge and an opportunity to the owners of
business institutions. Technology has resulted in an increase in standard of
living of people. People now demand more of many things than more of the same
things. Customers expect new varieties of products, superior in quality, free
from pollution, safer and more comfortable.
7)
Jobs tend to be more intellectual
With
the advent of technology, jobs tend to be more intellectual or upgraded. A job
hitherto handled by an illiterate and unskilled worker now requires the services
of an educated and competent worker.
Induction
of new technology dislocates some workers unless they are well equipped to work
on new machines (but for those who pick up and acquaint themselves with new
technology, the job is rewarding).
This
makes it obligatory on the part of business (& govt.) to retrain its
employees and to rehabilitate those displaced and who cannot be trainable.
8)
Need for multi-professional managers
9)
Problem of Technostructure
Management
is in a tight position to balance the ruffled feelings of technocrats and the
social consequences of business decisions.
10)
Increased regulation and stiff opposition
Government
has the powers to investigate and ban products that are directly harmful or
hurt the sentiments of a section of society e.g. Banning of certain drugs.
Technological
advancement is inviting opposition from those who fear that new innovations are
a threat to ecology, privacy, simplicity and even the human race. The public
must be enlightened that technology is not always unidirectional in its
effects. It can be corrective as well as curative.
Technology
has created antibiotics which give rise to side effects. The same technology
has also shown remedial measures for the side effects.
11)
Massive requirement of capital.
12)
Social change
An
invention may destroy the economic basis of a city, displace thousands of
workers, yet the same invention may result in creation of a new city somewhere
else with more jobs there. Besides uprooting population, technology directly
changes the patterns of their social life. An invention may open new employment
opportunities to women, radically change hours spent at work & with the
family. Status differences are also
created by technological advancements. The way we cook, communicate, work,
spend leisure time are affected by technology.
