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ASSIGNMENT SOLUTIONS GUIDE (2014-2015)

M.C.O.-4
Business Environment
Disclaimer/Special Note: These are just the sample of the Answers/Solutions to some of the Questions given in the
Assignments. These Sample Answers/Solutions are prepared by Private Teacher/Tutors/Auhtors for the help and Guidance
of the student to get an idea of how he/she can answer the Questions of the Assignments. We do not claim 100% Accuracy
of these sample Answers as these are based on the knowledge and cabability of Private Teacher/Tutor. Sample answers
may be seen as the Guide/Help Book for the reference to prepare the answers of the Question given in the assignment. As
these solutions and answers are prepared by the private teacher/tutor so the chances of error or mistake cannot be denied.
Any Omission or Error is highly regretted though every care has been taken while preparing these Sample Answers/
Solutions. Please consult your own Teacher/Tutor before you prepare a Particular Answer & for uptodate and exact
information, data and solution. Student should must read and refer the official study material provided by the university.
Q. 1. Distinguish between the internal and external environments of business. How does socio-cultural environment influence the business?
Ans. There are two types of environmental factors: internal environmental factors and external environmental factors. Internal environmental factors are events that occur within an organization. Generally speaking, internal environmental factors are easier to control than external environmental factors. Some examples of internal environmental factors
are as follows:
Management changes
Employee morale
Culture changes
Financial changes and/or issues
External environmental factors are events that take place outside of the organization and are harder to predict and
control. External environmental factors can be more dangerous for an organization given the fact they are unpredictable,
hard to prepare for, and often bewildering. Some examples of external environmental factors are noted below:
Changes to the economy
Threats from competition
Political factors
Government regulations
The industry itself
Understanding the difference between internal and external business environments is very important. These environments have a major effect on the operations and performance of the company. To fully understand the difference between
internal and external business environments and how they apply to your company, you need to establish what each
environment represents. As the name suggests, internal business environment refers to internal factors and resources
that affect the running of the business. This primarily includes the workforce. The employees play a vital role in affecting
the company's performance. If you have well trained, motivated employees, you are more likely to get good output from
them.
Another factor is the company assets available, such as plants and machinery, motor vehicles, and any other equipment used in production. If you have adequate assets in good condition, your production will be better than if you don't.
Another component of the internal business environment is your available finances. This includes your capital, if you're
just starting out. In an established business, this includes all the money available to facilitate the day-to-day running of the
business.
The external business environments include factors: political, technological, economical, legal, demographic and
socio-cultural. These factors may not have an immediate direct effect on your business, but they will play a role in shaping
your business with time. For instance, if your country faces economic hardships, your business may not do so well. Your
market's spending habits will change accordingly, your raw materials costs will also change, and you may end up reduc-

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ing your production and letting go of some of your employees. Retrenchment is one of the biggest negative impacts of
economic problems.
Technology can have negative or positive impacts on a business. Technological developments can help make your
work easier and increase your productivity; it can also allow for the expansion of your business. However, it can lead to
the reduction of your workforce due machines which, therefore, means loss of jobs for some people. For instance, a job
that was previously done by ten people may now be done by one person who will be operating the machines. External
environments may also affect your ability to acquire loans from banks or other financial institutions. For instance, when
the economy goes down, financial institutions don't lend money easily. This is because they are also affected by the
economy; they may, therefore, have inadequate funds. Most institutions also consider these times very risky for lending
out money.
Many people and businesses may not be in a position to pay back the loans that they get. Economic crisis will also
affect the internal operations of a business. For instance, the business will not have a lot of financial resources due to the
loss of a ready market. Some businesses also end up retrenching some of their clients due to the reduction of work and
inability of the company to maintain the employees' payment packages. Sometimes external and internal environments
are intertwined. For instance, political and economic issues will affect the availability of a workforce and other resources.
They will also affect the availability of finances to the business. During political unrests, most businesses are not able to
operate normally and some end up shutting down all together.
Other external environments that can affect the internal environment include legal restrictions. Sometimes, laws are
passed that affect some businesses. For instance, some of the laws like the increase of taxes on some goods and services
affect the business. When tanning taxes were increased in America, a lot of Americans stopped going to tanning salons.
The business operations were reduced and the clients decreased in numbers.
Other factors that can be described as part of the external environment include natural disasters or calamities, such as
tornados, hurricanes and tsunamis. These calamities affect the operations of the business. They affect the workforce, the
market, and all other resources and, in most cases, they lead to the closure of the business due to property destruction. The
central difference between internal and external business environments is that, one can be controlled while the other one
can't. However, you have some control over your internal business environment. You can control your management and
resources to ensure that you realize good production levels at your company. External environments, on the other hand,
aren't easy to control or manage. In fact, some of these factors can lead to the closure of your business.
The main reason why the external environments are hard to control is because, at times, they can be unpredictable.
For instance, it may be hard to plan ahead for the occurrence of a natural disaster. Furthermore, you may not be in a
position to do anything about them when they occur, unlike internal environments that you may be able to control and
manage effectively. If you maintain a corporate risk assessment, you can put up measures to deal with any problems that
may occur as a result of issues with the internal environment. However, it's hard to prepare for external environments
since some of the issues that occur aren't predictable.
Q. 2. What is meant by monopolistic trade practices? How are these practices controlled?
Ans. A monopolistic trade practice is one, which has or is likely to have the effect of:
(i) maintaining the prices of goods or charges for the services at an unreasonable level by limiting, reducing or
otherwise controlling the production, supply or distribution of goods or services;
(ii) unreasonably preventing or lessening competition in the production, supply or distribution of any goods or
services whether or not by adopting unfair method or fair or deceptive practices;
(iii) limiting technical development or capital investment to the common detriment;
(iv) deteriorating the quality of any goods produced, supplied or distribute; and
(v) increasing unreasonably (a) the cost of production of any good; or
(b) charges for the provision, or maintenance, of any services; or
(c) the prices for sale or resale of goods; or
(d) the profits derived from the production, supply or distribution of any goods or services.
A monopolistic trade practice is deemed to be prejudicial to the public interest, unless it is expressly authorized under
any law or the Central Government permits to carry on any such practice.
The very mention of the word Monopolistic Trade Practices reminds one of the school lessons in economics which
always upheld the importance of free and fair competition as being a 'sine qua non' for growth of business and enterprise
in the country. These primary lessons stressing the importance of competition cannot be overlooked as mere rituals of
teaching the basics of economics since today the global laws are continually striving to curb anti-competitive trade

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practices or in other words the menace of 'monopolistic trade practices'. India is in the process of evolving a full fledged
law curbing such trade practices in the form of the Competition Bill 2001 which is likely to take the shape of a full fledged
Competition Law in the current session of the Parliament.
The thrust of the Competition Law would be to check the abuse of dominance or in other words the curbing of the
monopolistic and restrictive trade practices which are highly detrimental to public interest.! Also the interest of free
development of business. The MRTP Act, 1969 which presently regulates trade practices in the country also seeks to curb
'monopolistic trade practices'.
Section 2(i) of the Act defines(in a nutshell) a monopolistic trade practice as a trade practice which has or is likely to
have the effect of : (i) maintaining the prices of goods or charges of services at unreasonable levels by limiting, reducing
or other wise controlling the production, supply or distribution of such goods or services; (ii) unreasonably preventing or
lessening competition in the production, supply or distribution of goods or services; (iii) causing deterioration in the
quality of goods or provision of services or limiting technical development or capital investment in goods or services to
the common detriment; (iv)preventing or lessening competition by adoption of unfair or deceptive methods in the production, supply or distribution of goods or services. Section 10 of the MRTP Act empowers the MRTP Commission(MRTPC)
to inquire into such trade practices upon reference made to it by the Central Govt or on an application by the Director
General or upon its own knowledge and information.
Section 31 of the Act lays down the procedure for the conduct of investigation into such trade practices and powers
of the Central Govt to curb such trade practices. Section 32 states that all monopolistic trade practices ahall be deemed to
be opposed to public interests except.
The control over monopolistic trade practices under the MRTP Act is by a mechanism of enquiry and suitable orders
to remove the undesirable effects of a monopolistic trade practice.
Enquiry into Monopolistic Trade Practice: The MRTP Commission may inquire any monopolistic trade practice:
1. Upon a reference made to it by the Central Government;
2. Upon an application made to it by the Director General (Investigation & Registration);
3. Upon its own knowledge or information
In the case of (1) and (3) above, the Commission may order the DG to make a preliminary investigation and submit
the report known as Preliminary Investigation Report to the Commission to enable it to decide whether the matter requires
to be inquired into.
The MRTP Commission after receipt of the Preliminary Investigation Report, if any, from the DG, shall proceed with
the enquiry and make a report of its findings to the Central Government.
Remedial Orders: The power to prohibit carrying on of monopolistic trade practice is vested with the Central Government. The Central Government may, by an order under section 31, prohibit any undertaking or class of undertakings from
carrying on any monopolistic trade practice.
Q. 3. Explain the primary and secondary capital markets briefly. Describe the methods of making capital
issues.
Ans. A study on the primary vs. secondary market gives information on the various aspects of the capital market
trading. Both the primary market and secondary market are two types of capital market depending on the issuance of
securities. The primary markets deal with the trading of newly issued securities. The corporations, governments and
companies issue securities like stocks and bonds when they need to raise capital. The investors can purchase the stocks or
bonds issued by the companies.
Money thus earned from the selling of securities goes directly to the issuing company. The primary markets are also
called New Issue Market (NIM). Initial Public Offering is a typical method of issuing security in the primary market. The
functioning of the primary market is crucial for both the capital market and economy as it is the place where the capital
formation takes place. The Primary market refers to the market where new securities are issued for the purpose of obtaining capital. Firms and public or government institutions can raise funds from the primary market through making a new
issue of stock (to obtain equity financing) or bonds (to obtain debt financing). When a corporation is making a new issue,
it is called an Initial Public Offering (IPO), and the process is referred to as the 'underwriting' of the share issue. In the
primary market, the securities are issued by the company that wishes to obtain capital and is sold directly to the investor.
In exchange for the funds that the share holder contributes, a certificate is issued to represent the interest held in the
company.
The secondary market refers to the market where securities that have already been issued are traded. Instruments that
are usually traded on the secondary market include stocks, bonds, options and futures. Certain mortgage loans can also be
sold to investors on the secondary market. Once a security has been purchased for the first time by an investor on the

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primary market, the same security can be sold to another investor in the secondary market, which may be at a higher or
lower price depending on the performance of the security during its period of trading. There are many secondary markets
worldwide, and famous few include the New York Stock Exchange, The NASDAQ, the London Stock exchange, the
Tokyo stock exchange and the Shanghai Stock Exchange.
Capital market is one of the most important segments of the Indian financial system. It is the market available to the
companies for meeting their requirements of the long-term funds. It refers to all the facilities and the institutional arrangements for borrowing and lending funds. In other words, it is concerned with the raising of money capital for purposes of
making long-term investments. The market consists of a number of individuals and institutions (including the Government) that canalise the supply and demand for long -term capital and claims on it.
Q. 4. Differentiate between the following:
(a) Internal Environment and External Environment
Ans. The culture of your organization is built on internal communication; this includes interpersonal relationships,
training materials, newsletters, philosophical statements and policies. Your employees are happier when they are courteous and respectful of one another. They want their achievements to be recognized. When you provide sufficient instructions to your subordinates, you enable them to do their jobs effectively. When you help employees identify with your
company's mission and goals, you are likelier to keep them long-term. The internal business environment includes factors
within the organization that impact the approach and success of your operations. The external environment consists of a
variety of factors outside your company doors that you typically don't have much control over. Managing the strengths of
your internal operations and recognizing potential opportunities and threats outside of your operations are keys to business success.
The role of company leadership is an important internal business factor. Your leadership style and the styles of other
company management impact organizational culture. The positive or negative nature, level of family-friendliness, effectiveness of communication and value of employees are cultural implications that result from leadership approaches.
Companies often provide formal structure or direction with mission and vision statements. These are forward-looking
statements that provide the business for company decisions and activities. The strength of your employees is another
crucial internal business factor. Motivated, hard-working and talented workers generally produce better results than
unmotivated, less-talented employees. Your business processes and relationships within and between departments and
employees also significantly impact business effectiveness and efficiency. In a high-performing workplace, employees
not only have talent, but they work well together and collaborate on ideas and resolutions.
One of the most critical external business factors is competition. Whether you operate in a concentrated industry with
a few major competitors or a large industry with many competitors, you need to know the competition. Many companies
do competitive analysis to compare their offerings and prices to those of competitors. When developing business philosophies and products, it is helpful to use your strength in quality production, customer service or operational efficiency to
build competitive advantages that benefit your customers. Other common external factors fall into several categories,
including socio-economic, legal or ethical, political and technological. Socio-economic factors relate to the values, attitudes and concerns of your target customers and their economic abilities to afford your products.
(b) MTP and RTP
Ans. This answer attempts to give you an overview of the Monopolies and Restrictive Trade Practices Act, 1969
(MRTP Act) that governs such practices in India and the various tenets of the Act in brief. This way, while concluding
any agreement or transaction pertaining to the sale of goods or provision of services, the companies concerned can
examine the same for any violation of the MRTP Act. In many cases, depending on the structure of the transaction,
territorial restrictions, exclusivity, non-compete, price control mechanisms, freebies, lotteries, discounts, the agreement
or practice could mean a violation of the MRTP Act. However, we must add here that there is a proposal currently to
replace the MRTP Act with a new legislation called the Draft Competition Regulation Bill (Bill). Before we move onto
the act and its tenets, let me emphasize here that though the MRTP Act can be said to be the Competition law of India, as
it defines a restrictive trade practice to mean a trade practice, which has, or may have the effect of preventing, distorting
or restricting competition in any manner, it can be said that the same is inadequate for boosting healthy competition and
regulating anti-competitive practices.
A restrictive trade practice is a trade practice, which prevents, distorts or restricts competition in any manner; or
Obstructs the flow of capital or resources into the stream of production; or Which tends to bring about manipulation of
prices or conditions of delivery or which affects the flow of supplies in the market of any goods or services, imposing on
the consumers unjustified cost or restrictions.

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(c) Economic growth and economic development

Ans. Comparison chart
Economic Development

Economic Growth

Implications

Economic development implies changes in Economic growth refers to an increase in

income, savings and investment along with the real output of goods and services in the
progressive changes in socio-economic country.
structure of country (institutional and technological changes).

Factors

Development relates to growth of human

capital indexes, a decrease in inequality figures, and structural changes that improve
the general population's quality of life.

Measurement

Qualitative.HDI (Human Development In- Quantitative. Increases in real GDP.

dex), gender- related index (GDI), Human
poverty index (HPI), infant mortality, literacy rate etc.

Effect

Brings qualitative and quantitative changes Brings quantitative changes in the economy
in the economy

Relevance

Economic development is more relevant to Economic growth is a more relevant metmeasure progress and quality of life in de- ric for progress in developed countries. But
veloping nations.
it's widely used in all countries because
growth is a necessary condition for development.

Scope

Growth relates to a gradual increase in one

of the components of Gross Domestic Product: consumption, government spending,
investment, net exports.

Concerned with structural changes in the Growth is concerned with increase in the
economy
economys output

(d) Fiscal policy and monetary policy

Ans. Fiscal policy and monetary policy are the two tools used by the State to achieve its macro-economic objectives.
While for many countries the main objective of fiscal policy is to increase the aggregate output of the economy, the main
objective of the monetary policies is to control the interest and inflation rates. The IS/LM model is one of the models used
to depict the effect of policy interactions on aggregate output and interest rates. The fiscal policies have a direct impact on
the goods market and the monetary policies have an direct impact on the asset markets; since the two markets are connected to each other via the two macro-variables output and interest rates, the policies interact while influencing output
and interest rates.
Traditionally, both the policy instruments were under the control of the national governments. Thus traditional analyses were made with respect to the two policy instruments to obtain the optimum policy mix of the two to achieve macroeconomic goals, lest the two policy tools be aimed at mutually inconsistent targets. But more recently, owing to the
transfer of control with respect to monetary policy formulation to central banks, formation of monetary unions (like
European Monetary Unionformed via the Stability and Growth Pact), and attempts being made to form fiscal unions,
there has been a significant structural change in the way in which fiscal and monetary policies interact.
Another key policy tool used by the Federal Reserve is the purchase of longer-term securities. Since December 2008,
the Federal Reserve's target range for the federal funds rate has been near zero, and the Federal Reserve has undertaken
purchases of longer-term securities to provide additional monetary policy stimulus to the economy. The Federal Reserve's
purchases of longer-term securities are designed to help push longer-term interest rates lower. These actions encourage
household and business spending through essentially the same channels as short-term interest rate policy. It is worth
emphasizing that the monetary policy tool of purchases of longer-term securities is not comparable to ordinary government spending or other fiscal policy tools. In executing securities purchases, the Federal Reserve acquires financial assets
that can be sold, not goods and services; thus, these purchases do not add to the government's deficit or debt.
The monetary policymaking body within the Federal Reserve System is the Federal Open Market Committee (FOMC).
The FOMC currently has eight scheduled meetings per year, during which it reviews economic and financial develop-

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ments and determines the appropriate stance of monetary policy. In reviewing the economic outlook, the FOMC considers how the current and projected paths for fiscal policy might affect key macroeconomic variables such as gross domestic product growth, employment, and inflation. In this way, fiscal policy has an indirect effect on the conduct of monetary
policy through its influence on the aggregate economy and the economic outlook.
Q. 5. Write short notes on the following:
(a) Social Audit
Ans. Social audit is a process of reviewing official records and determining whether state reported expenditures
reflect the actual monies spent on the ground. Civil society organisations (CSOs), non-governmental Organisations (NGOs),
political representatives, civil servants and workers of Dungarpur district of Rajasthan and Anantapur district of Andhra
Pradesh collectively organise such social audits to prevent mass corruption under the Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA).
The process of evaluating a firm's various operating procedures, code of conduct, and other factors to determine its
effect on a society. The goal is to identify what, if any, actions of the firm have impacted the society in some way. A social
audit may be initiated by a firm that is seeking to improve its cohesiveness or improve its image within the society. If the
results are positive, they may be released to the public.
A formal review of a company's endeavours in social responsibility. A social audit looks at factors such as a company's
record of charitable giving, volunteer activity, energy use, transparency, work environment and worker pay and benefits
to evaluate what kind of social and environmental impact a company is having in the locations where it operates. Social
audits are optional--companies can choose whether to perform them and whether to release the results publicly or only
use them internally.
(b) Concept of Corporate Governance
Ans. Corporate governance is the acceptance by management of the inalienable rights of shareholders as the true
owners of the corporation and of their own role as trustees on behalf of the shareholders. It deals with conducting the
affairs of a company such that there is fairness to all stakeholders and that its actions benefit the greatest number of
stakeholders. In this regard, the management needs to prevent asymmetry of benefits between various sections of shareholders, especially between the owner-managers and the rest of the shareholders.
It is about commitment to values, about ethical business conduct and about making a distinction between personal
and corporate funds in the management of a company. Ethical dilemmas arise from conflicting interests of the parties
involved. In this regard, managers make decisions based on a set of principles influenced by the values, context and
culture of the organization. Ethical leadership is good for business as the organization is seen to conduct its business in
line with the expectations of all stakeholders.
The aim of Good Corporate Governance is to ensure commitment of the board in managing the company in a
transparent manner for maximizing long-term value of the company for its shareholders and all other partners. It integrates all the participants involved in a process, which is economic, and at the same time social.
The fundamental objective of corporate governance is to enhance shareholders' value and protect the interests of
other stakeholders by improving the corporate performance and accountability.
(c) Research and development scenario in India
Ans. Tremendous advances have been made in space research, agricultural research including dairy farming, oceanography but still a lot more needs to be done in many other areas. Most crucial one is development of fusion technology
for power generation, it takes about another 2 decades to go on trial but it's the future. Free of radiation and abundant fuel.
Then plutonium for power generation.
Indian Neutrino Observatory project by BARC
Development of military robo by DRDO
Development of Indigenous Drone at HAL.
Low cost AIDS medicine by companies like CIPLA
Expenditures for research and development are current and capital expenditures (both public and private) on creative
work undertaken systematically to increase knowledge, including knowledge of humanity, culture, and society, and the
use of knowledge for new applications. R&D covers basic research, applied research, and experimental development.
(d) Concept of technology transfer
Ans. Technology transfer is the process of transferring skills, knowledge, technologies, methods of manufacturing,
samples of manufacturing and facilities among governments or universities and other institutions to ensure that scientific
and technological developments are accessible to a wider range of users who can then further develop and exploit the

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technology into new products, processes, applications, materials or services. It is closely related to (and may arguably be
considered a subset of) knowledge transfer. Horizontal transfer is the movement of technologies from one area to another.
The process to commercially exploit research varies widely. It can involve licensing agreements or setting up joint ventures and partnerships to share both the risks and rewards of bringing new technologies to market. Other corporate
vehicles, e.g. spin-outs, are used where the host organization does not have the necessary will, resources or skills to
develop a new technology. Often these approaches are associated with raising of Venture Capital (VC) as a means of
funding the development process, a practice more common in the United States than in the European Union, which has a
more conservative approach to VC funding.

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