Business Environment

PG AND RESEARCH DEPARTMENT OF COMMERCE, GOVERNMENT ARTS COLLEGE, KARUR.
BUSINESS ENVIRONMENT
Unit: I
Introduction to Business Environment
A business is an economic establishment. It is concerned with production and

distribution of goods and provided that services to earn profit and acquire wealth of the
business concern.
A business can be established, but to successfully sustain a business, the business

needs resources like finance, for which it has to depend on financial institutions. Acceptance
of social norms, for which it has to depend on society.
Business Environment is the most significant aspect of any business. The forces
which create the business environment are its suppliers, competitors, media, government,
customers, economic conditions, investors and multiple other institutions working externally.
Meaning of Business Environment
The definition of Business Environment, “The sum total of all individuals, institutions
and other forces that are outside the control of a business enterprise but the business still
depends upon them as they affect the overall performance and sustainability of the business.”
The forces which constitute the business environment are its suppliers, competitors,
consumer groups, media, government, customers, economic conditions, market conditions,
investors, technologies, trends, and multiple other institutions working externally of a
business constitute its business environment. These forces influence the business even though
they are outside the business boundaries.
Definition:
H.Haney “ Business may be defined as a human activity directed towards producing or

acquiring wealth through buying and selling of goods”.
Peterson and Plowman “A single isolated transaction of sales and purchase will not
constitute business. Repeated transactions of sale and purchase alone mean business”.
The main objective of business
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The main objective of business is to earn profit. It includes all those activities which are
connected with production or purchase of goods and services with the object of selling them
at a profit. It is not related with the non-economic activities of person.
Classification of Objectives of Business
It is generally believed that a business has a single objective, that is, to make profit.
But it cannot be the only objective of business. While pursuing the objective of earning
profit, business units do keep the interest of their owners in view. However, any business unit
cannot ignore the interests of its employees, customers, the community, as well as the
interests of society as a whole.
For instance, no business can prosper in the long run unless fair wages are paid to the
employees and customer satisfaction is given due importance. Again a business unit can
prosper only if it enjoys the support and goodwill of people in general. Business objectives
also need to be aimed at contributing to national goals and aspirations as well as towards
international well-being. Thus, the objectives of business may be classified as -
1. Economic Objectives
2. Social Objectives
3. Human Objectives
4. National Objectives
5. Global Objectives
Type of Business objective
1. Economic objectives
2. Social objectives
3. Human Objectives
4. National objectives
5. Global objectives
Economic objectives
1. Profit earning
2. Creation of customers
3. Regular innovation
4. Best possible use of resources
Social objectives
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1. Production and supply of quality goods and services

2. Adoption of fair trade practices
3. Contribution to general welfare of the society
Human Objectives
1. Economic well being of the employees

2. Social and psychological satisfaction of employees
3. Development of human resources
4. Economic well being of socially and economically backward people
National Objectives
1. Creation of employment
2. Promotion of social justice
3. Production according to national priority
4. Contribution to the revenue of the country
5. Self-sufficiency and export promotion
Global objectives
1. Raise general standard of living

2. Reduce disparities among nations
3. Make available globally competitive goods and services.
4. Conditions or situations that affect business activities may be regarded as business
environment.
The various external factors which influence or affect business activities and operations
are:
1. Economic factors
2. Social factors
3. Political factors
4. Technological factors
Importance of Business Environment:
1. Enables to Identify Business Opportunities
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All changes are not negative. If understood and evaluated them, they can be the
reason for the success of a business. It is very necessary to identify a change and use it as a
tool to solve the solve the problems of the business or populous.
For example, Mr. Phanindra Sama was troubled by the ticket booking condition in India. He
used to travel a long distance to his travel agent to book his ticket but even after traveling this
distance he was not sure if his seat was confirmed. He saw the opportunity to establish an app
in the face of the problem and co-founded the online ticket booking app called ‘red Bus’.
2. Helps in Tapping Useful Resources
Careful scanning of the Business Environment helps in tapping the useful resources
required for the business. It helps the firm to track these resources and convert them into
goods and services.
3. Coping with Changes
The business must be aware of the ongoing changes in the business environment,
whether it be changes in customer requirements, emerging trends, new government policies,
technological changes. If the business is aware of these regular changes then it can bring
about a response to deal with those changes.
For example, when the Android OS market was blooming and the customers were preferring
Android devices for its easy interface and apps, Nokia failed to cope with the change by not
implementing Android OS on Nokia devices. They failed to adapt and lost tremendous
market value.
4. Assistance in Planning
This is another aspect of the importance of the business environment. Planning purely
means what is to be done in the future. When the Business Environment presents a problem
or an opportunity, it is up to the business to decide what plan would it have to come up with
in order to address the future and solve the problem or utilise the opportunity. After analysing
the changes presented, the business can incorporate plans to counteract the changes for a
secure future.
5. Helps in Improving Performance
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Enterprises that are thoroughly scanning their environment not only deal with the
changes presented but also flourish with them. Adapting to the external forces help the
business to improve the performance and survive in the market.
MICRO ENVIRONMENT
The micro environment is the operating environment of the firm. This is because the
functioning of the micro environment has a direct and immediate bearing on the company.
They are more interlinked with the company than macro environmental factors.
Let us take a look at some of the most important and common elements of the micro
environment. These elements are different for different organizations.
1] Customers
The main purpose for the existence of most organizations is to satisfy the needs and
wants of the customers. The enterprise aims to please the customer and earn a profit in return.
So, the ultimate aim is to provide the best products/services to the customer at the best prices.
Failure to do so may result in failure of the business.
2] Competitors
There are no pure monopolies in the world. Every organization, whether big or small,
has competition and competitors. So the company has to keep a constant check on their
competitors.
The company must ensure that their products have a USP that makes them different and
unique in the market. The products offered must also be better and cheaper than those of the
competition.
3] Employees
Employees or labour is one of the most important factor of production for a company.
Human resources are a significant factor in the success (or failure) of a firm. Hence
employing the correct people, best suited to your firm is of vital importance.
And training and development of these employees is also essential. If care is not taken in this
matter the organization can never succeed, because employees are the back bone of every
organization.
4] Shareholders
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Shareholders invest in the company, but they are not merely investors. They own
shares of the company, so they are actually owners of the company in a way. This means they
get a say in the running of a company.
Shareholders will also demand a return on their investment. So it is the company’s duty to
earn profits and pass on this benefits to the shareholders. They have to create wealth for these
shareholders. To keep their interest dividends also have to be paid. So the company must
find the right balance between the health of the company and the benefits to the shareholders.
5] Suppliers
Suppliers provide the firm with the materials and factors of production they need to
run the business. The relation between the company and the suppliers is a power equation.
Both depend on each other for their survival.
So, it is necessary for the company to have healthy and amenable relations with their
suppliers. This is essential to the smooth running of the organization. For example if the
company has a falling out with one raw material supplier it could delay their whole
production process by days.
6] Media
Every company is going to need media to promote their brand and market their
products. So it is necessary that the company maintain their relationship and their status quo
with the media.
Any negative coverage in the media can lead to huge losses for the company. This is why
companies hire PR managers to help them use the media to a positive effect.
MACRO ENVIRONMENT
When a firm operates in an economy and a society, there are factors in its
environment that it has no control over. These are elements of its macro environment or its
general external environment.
Macro environment is the remote environment of the firm, i.e the external
environment in which it exists. As a rule, this environment is not controllable by the firm, it is
to huge and to unpredictable to control.
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Hence the success of the company, to a large extent will depend on the company’s
ability to adapt and react to the changes in the macro environment.
Primarily the company has to closely monitor the various elements of macro
environment. This will help them understand the dynamic nature of the macro environment.
It also helps them adapt to the constant changes in the environment.
The most important factors of the macro environment are as follows:
1] Socio-Cultural Environment
The social values and culture of an environment play a huge role in the functioning of
the company. So, when the social environment changes it can have a direct or indirect effect
on the company.
For example, in recent time society has seen a shift, and people no longer retire at 60. They
work five to ten years more after sixty. So, this has had a huge impact on companies.
Cultural forces also have a significant impact on the success of a company in the long run.
Especially in a country like India where the cultural influences are strong and complicated.
2] Technological Environment
In the times we live in, technology is constantly changing it is important that the
business can keep up with the changes. Technology does not only confine to computers and
IT services. It includes products, manufacturing processes, techniques etc.
The technological developments can be a huge advantage for a firm. But at the same
time of the technology used by the firm becomes obsolete due to such developments, then it
can also be a threat to the firm.
3] Economic Conditions of the Market
The economic conditions of the economy and the performance of a business have a
very close relationship. A business depends on the economy for all its inputs and factors of
production. It also sells its products and services in the same market.
A market is never in one stable condition. It is always in a flux. If there is a boom in

the market then all businesses will benefit from the favourable conditions. The income will
be higher, rate of interests will be low, new capital will be available etc. Also, the opposite is
also true in case of a bust.
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4] Ecology and Physical Environment
Ecology and physical environment play a huge part in the performance of any
business. This is especially true for manufacturing/production companies. Let us take the
example for global warming.
This change in our physical environment has started affecting the rainfall in certain
regions. This in turn may affect the crops and cause a shortage in raw materials such as jute,
cotton, rubber etc. Weather conditions, topographical elements, geographical location,
climate changes and other ecological factors are a very important element in the macro
environment of a business.
5] Political and Legal Factors
The political environment of a country is the combination of three branches of the

government – legislature, executive and the judiciary. The political environment of a country
will mainly depend on the political beliefs and ideologies of the party in power at the state
and central levels.
The legal environment refers to the rules, laws, regulations, and judgments etc. that
affect the functioning of a business. And this will also include the taxation laws and the
Budget for the given year. So stable legal and political government is really important if the
business and the economy as a whole has to succeed.
Business Environment Types / Classifications (External Micro and External Macro)
1. Suppliers of Inputs
2. Customers
3. Marketing Intermediaries
4. Competitors
5. Publics
6. Economic Environment
7. Social and Cultural Environment
8. Political and Legal Environment
Question Answer:
What is the term business?
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A business is an economic institution. It is concerned with production and distribution of

goods and providing services to earn profits and acquire wealth. The term business covers all
activities which are connected with the production or trade of goods and services in profitable
manner.
What is the meaning of business environment?
The definition of business environment means all of the internal and external factors
that affect how the company functions including employees, customers, management, supply
and demand and business regulations. An example of a part of a business environment is how
well customers' expectations are met.
What are the main components of business environment?
Major Components of Business Environment or Business Studies
1. Economic Environment
2. Social Environment
3. Political Environment:
4. Legal Environment:
5. Technological Environment
What are the features of business environment?
All the external forces: Business Environment includes all the forces, institutions and
factors which directly or indirectly affect the Business Organizations.
Specific and general forces:
1. Inter-relation
2. Uncertainty
3. Dynamic
4. Complex
5. Relativity
What are characteristics of environment?
Conditions are observed on the basis of five environmental characteristics:
1. safety
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2. amenity
3. accessibility
4. sociability and
5. attractiveness.
What are the advantages of business environment?
1. Enables the Firm to Identify Opportunities and Getting First Mover Advantage
2. Helps the Firm to Identify the Threats and Early Warning Signal
3. Helpful in Tapping and Assembling Resources
4. Help to Adjust and Adapt with the Rapid Changes
5. Assisting in Planning and Policy Making
6. Improvement in Performance
7.
What are the business environments categories?
The external forces that affect business into the following six categories:
1. Economic environment.
2. Legal environment.
3. Competitive environment.
4. Technological environment.
5. Social environment.
6. Global environment.
Following are Two types of business environment:

Primarily the types of business environment are classified under two categories.
1. Internal Business Environment
2. External Business environment
I. Internal Business Environment
As the name suggests, the internal business environment includes physical assets,
human, financial and marketing resources, technological supports, the management etc.
Financial resources represent the financial capabilities of the organization, while physical
resources are an indicator of physical assets which include machinery, production plant, and
buildings etc which convert the input into output.
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Human resources are a very crucial factor in the internal business environment. The
managerial decisions are taken by human resources while technological resources represent
the technical knowledge which is used in the manufacturing of goods and services. Internal
environment consists of the factors which are controllable and which can be changed
according to the requirements of the external environment. There’s been a drastic change in
the internal environment in the last decade or so. The contemporary work environment does
not help the employees to be more productive and the Internet is your organization that
suffers.
That is the reason why organizations have started to adopt a more flexible way of
working by making necessary changes in the internal environment. Write from given liberty
of wearing informal clothes at the workplace to having Gyms and even work from home
facilities, the internal environment has become more employee friendly rather than work
friendly because organizations have realized that the true potential lies in the human factor.
Google is the benchmark of one of the best companies providing the best internal
environment to their employees.
II. External environment:
The external environment is relatively watched compared to the internal business

environment. It is composed of various organizations institutions and other forces which
operate beyond the control of the organization. It is further classified into external micro and
external macro environment.
External Micro Business Environment: Microbusiness forces have a major impact on
the operations of a business. For example, suppliers have a huge impact on the pricing of the
products. Also, a competitive firm will start a price war in an industry which is relatively
small but if the rival firm is a big one then the competitive firm will hesitate to initiate the
price war. Following are important factors of micro external environment
A) Suppliers of Inputs:
This is a very important part of the external type of business environment which
include supplier of its inputs such as components and raw materials. For the smooth
functioning of an organization, it is very essential that the inputs such as raw material should
be regular. If the supply of the same is not certain then it is recommended that organization
should have a large stock of raw materials so that the process is continued uninterrupted. This
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will result in an increase in the cost of production and a reduction in profit margin or the
customers will have to bear the increased price.
Many of the organizations have adapted to set up a phone production plant for
procuring of raw materials. Similarly, energy is also an important input in the business of
manufacturing. Many industries have adapted to set up their own power generating plants so
as to ensure an uninterrupted supply of electricity for their businesses. However small
organizations cannot adopt the strategies and have to depend on external sources for the
supply of these inputs.
It is not recommended to depend on a single supplier for any of these inputs because
of there is any destruction due to workers strike or lockout or similar things on the supplier’s
end, then it will affect the production work of the organization negatively. Hence to reduce
the risk and uncertainty it is advised that organizations go ahead with multiple suppliers.
B) Customers:
The entity who buys products or uses services of the organization in exchange for
money is called a customer. They form an important part of the external environment and of
the business because all of the profits depend on customers.
It is necessary that your organization focuses on sales and to cater the customers via
customer service which are two important factors for customer satisfaction. An organization
may have different kinds of customers. For example, Audi cars we have individual
customers, government, companies, institutions etc. Although all of them are separate entities
and the deals with them will be on different levels all of them can be classified as customers
for the organization.
The organization will always be in competition with rival firms to get more customers
thereby to increase the market share of the organization. It does so by increasing the demand
in the market by spending on advertisements and promotions. The usual strategy of most of
the organization is to get new customers and retain the old ones.
A part of retaining customers is giving more customer satisfaction. Recently customer

satisfaction has become of Paramount importance because of the fact that customers are
provided with multiple options for buying the products. If a customer is not satisfied with a
certain product or service, we can always opt for competitive one it was not the case about
half a century ago.
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C) Marketing Intermediaries:
Marketing intermediaries play a very important role in distributing and sometimes of

selling the products to the final buyers. These include merchants and agents which are
distribution firms, retailers, wholesalers etc. They are responsible for transporting of goods
from the production site to the destination and to the final customer.
Organizations can take help of different agencies such as market research

consultancies, advertising agencies, management consultancies, which help the organizations
in promoting targeting and selling the products to the correct markets. Therefore marketing is
considered an important link between customers and organizations.
D) Competition:
Absolute Monopoly is a concept which is long gone from the market. Competition is
prevalent and seen in every sector of business. Organizations compete with each other and
not only to get customers but also a lot of other aspects. Although the majority competition is
on price there is a non-price competition in advertising sponsoring in the event or even and
recruiting the best talents in the market.
A well-known famous example of recruiting the best talent is that of Steve Jobs
recruiting John Sculley an executive from Pepsi. To get John onboard Steve Jobs sad the
famous line, ‘Do you want to sell sugar water for the rest of your life or do you want to come
with me and change the world?’ Google is known to pay millions of dollars to get the best of
the talent.
Competition can also be seen in terms of CSR activities. Following the footsteps of
Coca-Cola Pepsi has started save water campaign which estimates about 30 million tons of
water will be saved because of manufacturing process changes of Pepsi.
Intense competition can also be seen in the procurement of raw materials from the
suppliers. Since the sources of raw materials are limited businesses often compete with each
other. Competition is not only limited itself to your competitors but the global competition is
also on the rise. With globalization, global competition and price wars not only disturb the
economy is but also customers. For example, an organization in the United States will
compete with an organization from Japan or China or India.
E) Public:
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These are a very important part of external microenvironment in the type of business
environment. Any group which has interest or impact on the ability of the organization to
achieve its objective is termed as public.
Associations of citizens, local groups, consumer protection organizations,

environmentalists, Women Associations, Media, groups of youth are few of the important
examples of the public which have an impact on the organization. Environmentalists have a
huge impact on the working of the organizations which pollute the environment. Many
citizen groups actively campaign against cigarette manufacturers and alcohol manufacturers
for manufacturing in a false way to lure more and more youth. Hence public as an important
aspect which can make or break the organization.
2) External Macro Business Environment:
The microenvironment factors are the environmental forces which are faced by the
organization and determine the opportunities to exploit in order to promote its business and
also present a threat so that it can put restrictions on the expansion of Business and its related
activities.
The macro environment has both negative and positive aspects to it. A very crucial
part of macro environmental forces is that they cannot be controlled by the management of
the organization and because of its own controllability the firm or the organization has to
adjust itself in order to adapt to these external macro forces.
It is further classified into different types of business environment which will be discussed as
follows:
A) Economic Environment:
Growing plant on row of coin money, csr in business
The economy that exists around the industry which is common for the business, as
well as its competition, is termed as economic environment. There can be different phases of
the economy like growth or decline which can impact the working of the organization. The
economic environment is largely affected by the government of the respective country and it
may present opportunities and threats are restrictions to the industries.
The framework within which the businesses have to work is provided by the
economic system. Largely there are two factors which affect the economic system that is the
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public sector and the private sector. While Public sector is largely government influenced,
Private sector is with private firms and investors. Foreign exchange also forms an important
part of the economic environment. The fluctuations in the currency on a global scale can
affect the economies of different countries drastically. Also, import-export forms another
important aspect of the economic environment. For a positive economic environment, it is
desired that the exports of a country should be more than the imports.
B) Social and Cultural Business Environment:
While we saw that Customers and Public affect Microenvironment of the

organization, their social and Cultural aspects affect the macro environment. This is true
especially in case of multinational firms which bring the culture from their own country in
the countries of businesses. The organizations have to understand the cultural aspects and
social aspects of the country that the business is being done in.
The products of businesses can have a large impact on society. For example, there are
cultural dimensions in Asian countries which prevent them from eating certain foods. Care
should be taken by the organization was introducing the food options and they should be
customized for the customers in the local areas. For example, McDonald’s has customized
their menu for Asian markets because of the religious factors by the communities from the
Middle East and Asian countries.
Beef is not accepted in the Asian market and countries like India while pork is not
accepted in Middle Eastern countries. Hence McDonald’s and KFC and other food chains had
to come up with customized menu options respecting the local and cultural barriers. New
concept code social responsiveness has been developed by management science.
The ability of the organizations to get its businesses to the social environment in a
way that is mutually beneficial to both society and the organization is called social
responsiveness. Social responsibility and social responsiveness are a part of Business ethics.
It is essential that every business does its mode of operation within ethical limits.
C) Political and Legal Environment:
Each and every business is closely related to the government in the operating country.
The political influence of the government affects business to a large scale in a positive or
negative way. It is very important to take the political and legal nature into consideration for
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operating any business. Businesses come in constant clashes with these two and get affected
from time to time.
For example, Facebook has always come under the constant radar over its data leaks
in the US and abroad. Going to the data leaks, many countries have banned Facebook in their
countries. A similar threat is eminent with Google which is why Google search engine is
banned in China. Because of social media rumours spread what is here and fast the news and
that is why curbing social media has become an important aspect in every country.
That is the reason why new and new laws are emerging to control social media and
make it safer and secure for the people. On the other hand, there are policies which affect
companies and businesses in a positive way.
For example, in 2017, there was a demonetization in India as a part of the war against
black money. Due to the immediate and overnight Ban of currency, digital currency grew in a
proliferative way. Thus, the political and legal aspect proved to be a boon for many
businesses.
D) Technological Environment:
Technology is evolving by leaps and bounds and is it is essential for the businesses to
keep in touch with the ever-growing technology to update them and be in the race. New
technology is now being used for the production of goods and services.
Use of machines to standardize processes is now the regular way of doing things
because it reduces the cost as well as enhances productivity. The use of latest technology also
gives the organization a competitive advantage over the competition due to which it gets a
better market share. Has globalization has increased the organizations now compete with
each other in international markets for the sale of their products which is why they have to
standardize themselves according to the international standards.
Right from manufacturing after sales, many aspects of the organization depend on
technology which is why Technology plays a vital role in conducting the business. While in
some industries technological advancement is helpful not every industry will agree with the
same. For example, sales are an aspect where technological aid is necessary for Technology
cannot entirely replace it.
E) Demographic environment:
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As the name suggests demography includes the growth of the population and the size of the
population along with life expectancy of the people, the distribution of population among
rural and urban settings and technological skills and education levels of the people.
These factors have an important impact on the functioning of organizations since

many workers are recruited from external sources; demographic factors are considered an
important aspect. The skills of the workers of the organization affect and determine how well
the organization can achieve its targets.
The businesses we have to adjust the requirements so as to adapt themselves to the

requirements of the labour forces. For example, having a labour welfare programme or child
care services for their employees. The demographic environment impacts the supply and
demand equality in any business.
The organizations get their labour force from external sources. The technical
education skills of employees are important for the functioning of the organization which is
where the demographic environment comes into the picture. Demography also comes into the
picture when foreign investors look to make the investment. For example, India is considered
as one of the largest English speaking countries in the world which is to its advantage and
that is why the global economies like the US and UK prefer to outsource work to India other
than China which is cheaper but English is not a language of choice over there.
The growth rate of the population age and even the composition of the population
determine the demand of the goods and services for a particular population. When the
population of a country is growing its child population will be on the higher side why the
stable population will have a geriatric population in higher side. This means that organization
will have to plan their offerings accordingly.
For example, while China is the most populous country in the world, the growth rate
of population in India is the highest in the world. On the other hand, in countries like Japan
and Norway, the population is growing negatively. Which means that requirement for
products related to infants and childcare will be on higher demand in India well mortuaries
and geriatric requirements will be higher in Japan or Norway?
F) Natural Environment:
The natural environment is the ultimate external environment which affects the
business. Availability of natural resources and the setting up of business depends largely on
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the natural environment. It is desirable that the natural environment is to be kept relatively
unharmed.
The environment of a business has a great impact on the functioning of the firm. It
offers opportunities and threats along with limitations and pressures influencing the structure
and functioning of the business. In order to understand the relationship between an
organization and its environment, we will look at the interactions between them in some
primary areas.
Exchanging Resources
Apart from exchanging information, an organization and its environment also exchange
resources. A firm needs inputs like finance, manpower, equipment, etc. from its environment.
Typically, the resources required by an organization are categorized into 5 M’s:
1. Men or Manpower
2. Money
3. Method
4. Machine
5. Material
An organization uses these inputs to produce goods or services or both. Acquisition of
these inputs usually requires an interaction between the firm and the markets. This interaction
can be in the form of competition or collaboration. Nevertheless, the purpose is to ensure a
constant supply of inputs.
On the other hand, the organization depends on its environment for the sale of its
goods and services. This process also requires interaction between the firm and its
environment. Further, the firm must; Perceive the needs of the environment and develop
products or services to meet those needs.
Satisfy the demands and expectations of the clientele groups. These groups are:
1. Consumers
2. Employees
3. Shareholders
4. Creditors
5. Suppliers
6. Local Community
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7. The general public, etc.
Exchanging Influence and Power
The third important interaction between an organization and its environment is the
exchange of influence and power. By now, we understand that the external environment
holds considerable power over a firm due to the following reasons:
The business environment is inclusive. It has a command over the resources, information, etc.
which the firm requires. It offers opportunities for growth on one hand and threats and
constraints on the other
Hence, the environment can impose its will on the organization. On the other hand,
there are times and scenarios when an organization holds a position wherein it can wield
considerable power and influence over some aspects of the external environment. This
usually happens when the firm has command over resources and information.
An organization with a higher degree of power over its environment has more
autonomy and freedom of action. Also, the firm can dictate terms to its environment and
mould them to its will.
Organization and Its Environment
An Organization’s Response to its Environment
In order for an organization to respond well to its environment, it must be able to

monitor and make sense of its environment and have an internal capacity to develop effective
responses. An organization’s response to its environment can be of the following three types:
Administrative: These are either proactive or reactive responses to specific

environments leading to forming or redefining the organization’s purpose and key tasks.
Competitive: A change in the competitive environment can force an organization to respond

with actions that can help it gain a competitive advantage over its rivals.
Collective: Many organizations cope with environmental dependence problems through

strategic collective responses including methods like co-opting, bargaining, alliances, etc.
Characteristics of Business Environment.
1. Business environment is compound in nature.
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2. Business environment is constantly changing process.

3. Business environment is different for different business units.
4. It has both long-term and short-term impact.
5. Unlimited influence of external environment factors.
6. It is very uncertain.
7. Inter-related components.
8. It includes both internal and external environment.
9. Importance of business environment.
There is a close and continuous interaction between a business and its environment.
This interaction helps in strengthening the business firm and using its resources more
effectively. The business environment is multifaceted, complex, and dynamic in nature and
has a far-reaching impact on the survival and growth of the business. To be more specific,
proper understanding of the social, political, legal, and economic environment helps the
business in the following ways:
Determining Opportunities and Threats.

The interaction between the business and its environment would identify opportunities
for and threats to the business. It helps the business enterprises in meeting the challenges
successfully.
Giving Direction for Growth.

The interaction with the environment leads to opening up new frontiers of growth for
the business firms. It enables the business to identify the areas for growth and expansion of
their activities.
Continuous Learning.
Environmental analysis makes the task of managers easier in dealing with business
challenges. The managers are motivated to continuously update their knowledge,
understanding, and skills to meet the predicted changes in realm of business.
Image Building
Environmental understanding helps the business organisations in improving their
image by showing their sensitivity to the environment within which they are working. For
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example, in view of the shortage of power, many companies have set up Captive Power
Plants (CPP) in their factories to meet their own requirement of power.
Meeting Competition.
It helps the firms to analyse the competitors’ strategies and formulate their own
strategies accordingly.
Identifying Firms’ Strengths and weaknesses.
Business environment helps to identify the individual strengths and weaknesses in
view of the technological and global developments.
Micro Environment.
There exist two types of external environment and they are:
Micro Environment and Mega Environment.
Micro environment is the environment which is close to business and affects its
capacity to work. It consists of Suppliers, Customers, Market Intermediaries, Competitors
and Public.
Suppliers.
They are the persons who supply raw material and required components to the
company. They must be reliable and business must have multiple suppliers i.e. they should
not depend upon only one supplier.
Customers.
Customers are regarded as the king of the market. Success of every business depends
upon the level of their customers’ satisfaction.
The types of customers are:

1. Wholesalers
2. Retailers
3. Industries
4. Government and other institutions
5. Foreigners
6. Market Intermediaries.
They work as a link between business and final customers.
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The types of market intermediaries are:

1. Middleman
2. Marketing Agencies.
3. Financial Intermediaries
4. Physical Intermediaries
5. Competitors
Every move of the competitors affects the business. Business has to adjust itself
according to the strategies of the competitors.
Public
Any group who has actual interest in business enterprise is term as public e.g. media
and local public. They may be the users or non-users of the products.
Mega Environment.
Mega environment is usually referred to as the macro environment. It refers to the
conditions that exist in the economy as a whole, rather than in a particular sector or region. In
general, the macro environment will include trends in gross domestic product (GDP),
inflation, employment, spending, and monetary and fiscal policy. The macro environment is
closely linked to the general business cycle, as opposed to the performance of an individual
business sector
The macro environment in which a company or sector operates will influence its
performance, and the amount of the influence will depend on how much of the company’s
business is dependent on the health of the overall economy. Cyclical industries, for example,
are heavily influenced by the macro environment, while consumer staples are less so.
Components of mega environment.

Confining business environment to uncontrollable external factors, it may be
classified as
(a) Economic environment; and
(b) Non-economic environment.
The economic environment includes economic conditions, economic policies and
economic system of the country.
Non-economic environment comprises social, political, legal, technological,
demographic and natural environment. All these have a bearing on the strategies adopted by
the firms and any change in these areas is likely to have a far-reaching impact on their
operations.
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Let us have a brief idea about each of these areas of business environment.
Economic Environment.
The survival and success of each and every business enterprise depend fully on its
economic environment. The main factors that affect the economic environment are:
Economic Conditions:
The economic conditions of a nation refer to a set of economic factors that have great
influence on business organisations and their operations. These include gross domestic
product, per capita income, markets for goods and services, availability of capital, foreign
exchange reserve, growth of foreign trade, strength of capital market etc. All these help in
improving the pace of economic growth.
(b) Economic Policies:

All business activities and operations are directly influenced by the economic policies
framed by the government from time to time. Some of the important economic policies are:
1. Industrial policy
2. Fiscal policy
3. Monetary policy
4. Foreign investment policy
5. Export -Import policy
The government keeps on changing these policies from time to time in view of the
developments taking place in the economic scenario, political expediency and the changing
requirement. Every business firm has to function strictly within the policy framework and
respond to the changes therein.
1. Important Economic Policies
2. Industrial policy:
The Industrial policy of the government covers all those principles, policies, rules,
regulations and procedures, which direct and control the industrial enterprises of the country
and shape the pattern of industrial development.
Fiscal policy:
It includes government policy in respect of public expenditure, taxation and public
debt.
Monetary policy:
It includes all those activities and interventions that aim at smooth supply of credit to
the business and a boost to trade and industry.
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Foreign investment policy:

This policy aims at regulating the inflow of foreign investment in various sectors for
speeding up industrial development and take advantage of the modern technology.
Export-Import policy:
It aims at increasing exports and bridging the gap between export and import.
Through this policy, the government announces various duties/levies. The focus nowadays
lies on removing barriers and controls and lowering the custom duties.
(c) Economic System:

The world economy is primarily governed by three types of economic systems:
1. Capitalist economy.
2. Socialist economy; and
3. Mixed economy.
India has adopted the mixed economy system which implies co-existence of public
sector and private sector.
Social Environment.
The social environment of business includes social factors like customs, traditions,
values, beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values
that a society cherishes have a considerable influence on the functioning of business firms.
For example, during festive seasons there is an increase in the demand for new clothes,
sweets, fruits, flower, etc. Due to increase in literacy rate the consumers are becoming more
conscious of the quality of the products. Due to change in family composition, more nuclear
families with single child concepts have come up. This increases the demand for the different
types of household goods. It may be noted that the consumption patterns, the dressing and
living styles of people belonging to different social structures and culture vary significantly.
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Political Environment.
This includes the political system, the government policies and attitude towards the
business community and the unionism. All these aspects have a bearing on the strategies
adopted by the business firms. The stability of the government also influences business and
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related activities to a great extent. It sends a signal of strength, confidence to various interest
groups and investors. Further, ideology of the political party also influences the business
organisation and its operations.
You may be aware that Coca-Cola, a cold drink widely used even now, had to wind
up operations in India in late seventies. Again the trade union activities also influence the
operation of business enterprises. Most of the labour unions in India are affiliated to various
political parties. Strikes, lockouts and labour disputes etc. also adversely affect the business
operations. However, with the competitive business environment, trade unions are now
showing great maturity and started contributing positively to the success of the business
organisation and its operations through workers participation in management.
Legal Environment.
This refers to set of laws, regulations, which influence the business organisations and
their operations. Every business organisation has to obey, and work within the framework of
the law.
The important legislations that concern the business enterprises include:
1. Companies Act, 1956
2. Foreign Exchange Management Act, 1999
3. The Factories Act, 1948
4. Industrial Disputes Act, 1972
5. Payment of Gratuity Act, 1972
6. Industries (Development and Regulation) Act, 1951
7. Prevention of Food Adulteration Act, 1954
8. Essential Commodities Act, 2002
9. The Standards of Weights and Measures Act, 1956
10. Monopolies and Restrictive Trade Practices Act, 1969
11. Trade Marks Act, 1999
12. Bureau of Indian Standards Act, 1986
13. Consumer Protection Act, 1986
14. Environment Protection Act
15. Competition Act, 2002
Besides, the above legislations, the following are also form part of the legal environment of
business.
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(i) Provisions of the Constitution:

The provisions of the Articles of the Indian Constitution, particularly directive
principles, rights and duties of citizens, legislative Constitution, particularly directive
principles, rights and duties of citizens, legislative powers of the central and state government
also influence the operation of business enterprises.
(ii) Judicial Decisions:
The judiciary has to ensure that the legislature and the government function in the
interest of the public and act within the boundaries of the constitution. The various judgments
given by the court in different matters relating to trade and industry also influence the
business activities.
Technological Environment.
Technological environment include the methods, techniques and approaches adopted
for production of goods and services and its distribution. The varying technological
environments of different countries affect the designing of products. For example, in USA
and many other countries electrical appliances are designed for 110 volts. But when these are
made for India, they have to be of 220 volts. In the modern competitive age, the pace of
technological changes is very fast.
Hence, in order to survive and grow in the market, a business has to adopt the
technological changes from time to time. It may be noted that scientific research for
improvement and innovation in products and services is a regular activity in most of the big
industrial organisations. Nowadays in fact, no firm can afford to persist with the outdated
technologies.
Demographic Environment.
This refers to the size, density, distribution and growth rate of population. All these
factors have a direct bearing on the demand for various goods and services. For example a
country where population rate is high and children constitute a large section of population,
then there is more demand for baby products.
Similarly, the demand of the people of cities and towns are different than the people
of rural areas. The high rise of population indicates the easy availability of labour. These
encourage the business enterprises to use labour intensive techniques of production.
Moreover, availability of skill labour in certain areas motivates the firms to set up their units
in such area. For example, the business units from America, Canada, Australia, Germany,
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UK, are coming to India due to easy availability of skilled manpower. Thus, a firm that keeps
a watch on the changes on the demographic front and reads them accurately will find
opportunities knocking at its doorsteps.
Natural Environment.
The natural environment includes geographical and ecological factors that influence
the business operations. These factors include the availability of natural resources, weather
and climatic condition, location aspect, topographical factors, etc. Business is greatly
influenced by the nature of natural environment. For example, sugar factories are set up only
at those places where sugarcane can be grown. It is always considered better to establish
manufacturing unit near the sources of input. Further, government’s policies to maintain
ecological balance, conservation of natural resources etc. put additional responsibility on the
business sector.
"POLLUTION"
The term "pollution" refers to any substance that negatively impacts the environment
or organisms that live within the affected environment. The five major types of pollution
include: air pollution, water pollution, soil pollution, light pollution, and noise pollution.
What are the major types of pollution?
The different types of pollution include:
1. Air pollution.
2. Water pollution.
3. Land or Soil pollution.
4. Radioactive pollution.
5. Noise pollution.
What is a simple definition of pollution?
Pollution is something introduced into the environment that is dirty, unclean or has a harmful
effect. Toxic waste dumped into the water is an example of pollution.
What is the nature of pollution?
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Pollution is understood to mean the natural or anthropogenic pollution of the living

environment by polluting Nature with harmful substances such as toxins, microorganisms and
radioactive substances. Man is exposed to both cosmic as well as terrestrial natural radiation.
How does natural environment affect the business?
Business activity has an impact on the natural environment: resources such as timber,
oil and metals are used to manufacture goods. manufacturing can have unintended spill over
effects on others in the form of noise and pollution. land is lost to future generations when
new houses or roads are built on greenfield sites
What are environmental factors in business?
Environmental factors can be explained as identifiable elements within the cultural,

economic, demographic, physical, technological or political environment which impacts the
growth, operations and survival of an organization. Environmental factors can be both
internal as well external for the business.
References:
1. www.pdfdrive.com. The Business Environment 554 Pages·2006·2.95 MB·24,229

Downloads Visit the The Business Environment, fifth edition, Companion Website at
Self- test questions
2. www.toppr.com/guides/business-environment.
3. www.marketing91.com/business-environment
4. ncert.nic.in/textbook/pdf/lebs103.pdf
5. Business environment by Dr. C.D.Balaji, Margham Publicaions.
Prepared by: N.Shanmugam.
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Unit II
POLITICAL ENVIRONMENT
Meaning:
Government actions which affects the operations of a company or business. These

actions may be on local, regional, national or international level. Business owners and
managers pay close attention to the political environment to gauge how government actions
will affect their company.
Definition:
Political environment comprises those elements that are related to government affairs in the
type of government in power.
What is the political environment in business?
The political environment in international business consists of a set of political factors

and government activities in a foreign market that can either facilitate or hinder a business'
ability to conduct business activities in the foreign market.
How does politics affect the environment?
Politics determine the laws citizens passively act by, and politics can create active
action too. And thus, varying impacts on the environment. Controversy, law, along with
many other factors from politics, can easily alter numerous environments through altering the
decisions of the audience/citizen.
What are political changes?
Political change occurs when the rulers in a country lose power or the type of
governance in the country changes. Political change is a normal function of internal and
external politics. Rulers will be voted out, retire, or die while in power, and the new leader
will make changes.
What do you mean by political instability?
Political instability is defined as the potential for sudden and significant change in the
leadership. policies, or condition of a country. The most dramatic manifestation of instability
is the revolutionary.
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What is political environment example?
The political environment can be studied in terms of the central government, the
citizens of a country, rules, and regulations or international relations. Examples of political
factors related to the central government of a country are levels of bureaucracy, corruption,
and government stability.
What is meant by political environment of business?
The political environment of business refers to the political or government actions that
impact business operations. Political decisions ultimately affect the economic, social and
cultural environments as a whole.
What are examples of political impacts?
There are many external environmental factors that can affect your business. It is
common for managers to assess each of these factors closely. The aim is always to take better
decisions for the firm’s progress. Some common factors are political, economic, social and
technological. Companies also study environmental, legal, ethical and demographical factors.
The political factors affecting business are often given a lot of importance. Several
aspects of government policy can affect business. All firms must follow the law. Managers
must find how upcoming legislations can affect their activities.
The political environment can impact business organizations in many ways. It could
add a risk factor and lead to a major loss. You should understand that the political factors
have the power to change results. It can also affect government policies at local to federal
level. Companies should be ready to deal with the local and international outcomes of
politics.
Changes in the government policy make up the political factors. The change can be
economic, legal or social and cultural factors. It could also be a mix of these factors.
Increase or decrease in tax could be an example of a political element. Your

government might increase taxes for some companies and lower it for others. The decision
will have a direct effect on your businesses. So, you must always stay up-to-date with such
political factors. Government interventions like shifts in interest rate can have an effect on the
demand patterns of company.
1. Certain factors create Inter-linkages in many ways. Some examples are:
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2. Political decisions affect the economic environment.

3. Political decisions influence the country’s socio-cultural environment.
4. Politicians can influence the rate of emergence of new technologies.
5. Politicians can influence acceptance of new technologies.
The political environment is perhaps among the least predictable elements in the
business environment. A cyclical political environment develops, as democratic governments
have to pursue re-election every few years. This external element of business includes the
effects of pressure groups. Pressure groups tend to change government policies.
As political systems in different areas vary, the political impact differs. The country’s
population democratically elects open government system. In totalitarian systems,
government’s power derives from a select group.
Corruption is a barrier to economic development for many countries. Some firms

survive and grow by offering bribes to government officials. The success and growth of these
companies are not based on the value they offer to consumers.
List of political factors affecting business:
1. Bureaucracy
2. Corruption level
3. Freedom of the press
4. Tariffs
5. Trade control
6. Education Law
7. Anti-trust law
8. Employment law
9. Discrimination law
10. Data protection law
11. Environmental Law
12. Health and safety law
13. Competition regulation
14. Regulation and deregulation
15. Tax policy (tax rates and incentives)
16. Government stability and related changes
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17. Government involvement in trade unions and agreements

18. Import restrictions on quality and quantity of product
19. Intellectual property law (Copyright, patents)
20. Consumer protection and e-commerce
21. Laws that regulate environment pollution
There are 4 main effects of these political factors on business organizations. They are:
1. Impact on economy
2. Changes in regulation
3. Political stability
4. Justification of risk
Impact on economy
The political situation of a country affects its economic setting. The economic
environment affects the business performance.
For example, there are major differences in Democratic and Republican policies in the
US. This influences factors like taxes and government spending, which ultimately affect the
economy. A greater level of government spending often stimulates the economy.
Changes in regulation
Governments could alter their rules and regulations. This could in turn have an effect on a
business.
After the accounting scandals of the early 21st century, the US SEC became more
attentive on corporate compliance. The government introduced the Sarbanes-Oxley
compliance regulations of 2002. This was a reaction to the social environment. The social
environment urged a change to make public companies more liable.
Political Stability
Lack of political stability in a country effects business operations. This is especially

true for the companies which operate internationally.
For example, an aggressive takeover could overthrow a government. This could lead
to riots, looting and general disorder in the environment. These disrupt business operations.
Sri Lanka was in a similar state during a civil war. Egypt and Syria faced disturbances too.
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Justification of Risk
Buying political risk insurance is a way to manage political risk. Companies that have
international operations use such insurance to reduce their risk exposure.
There are some indices that give an idea of the risk exposure in certain countries. The
index of economic freedom is a good example. It ranks countries based on how politics
impacts business decisions there.
The importance of observing the political environment
Firms should track their political environment. Change in the political factors can
affect business strategy because of the following reasons:
1. The stability of a political system can affect the appeal of a particular local
market.
2. Governments view business organizations as a critical vehicle for social
reform.
3. Governments pass legislation, which impacts the relationship between the firm
and its customers, suppliers, and other companies.
4. The government is liable for protecting the public interest.
5. Government actions influence the economic environment.
6. Government is a major consumer of goods and services.
What Is the Political Environment in International Business?
The political environment in international business consists of a set of political factors

and government activities in a foreign market that can either facilitate or hinder a business'
ability to conduct business activities in the foreign market. There is often a high degree of
uncertainty when conducting business in a foreign country, and this risk is often referred to as
political risk or sovereign risk.
Common Political Factors
Let's look at some common political factors that influence the international business
landscape. The type of economic system a country builds is a political choice. Foreign
countries often will have different economic systems from your domestic market, and
adjustments often need to be made to take these differences into account.
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For example, a country may operate in a market economy where private individuals
own most of the property and operate most of the businesses. A market economy is usually
the best economic environment for a foreign business because of the protection of private
property and contract rights.
Some countries lean more towards a socialist economy where many industries and
businesses are owned by the state. Operating businesses in this environment will be more
difficult, but products can still be produced and sold as people still pick their jobs and earn
money.
A few countries operate under a communistic economic system where the state pretty
much controls all aspects of the economy. Conducting business in this environment ranges
from difficult to impossible.
Of course, the reality is that all economies are mixed economies that take parts from
two or more of the 'pure' economic systems. For example, you can conduct business in
communist China in Hong Kong and other special areas where a market economy is allowed
to operate.
Businesses also must often contend with different governmental systems. Examples
include democracies, authoritarian governments, and monarchies. Some governments are
easier to work with than others. Democracies, for example, are answerable to their citizens
and the rule of law.
Authoritarian regimes are usually answerable to no one, including the law. It is less
risky to conduct business in democracies and constitutional monarchies, a monarchy with a
constitution that protects the public and subjects the monarch to the rule of law, than in
countries with authoritarian regimes.
The next major factor is trade agreements. Countries often enter into trade agreements
to help facilitate trade between them. If your country has entered into a trade agreement with
another country, conducting business in that country will usually be easier and less risky
because the trade agreement will provide some predictability and protection. One great
advantage, for example, is that your products will be subjected to fewer trade barriers that
serve as obstacles to exporting your products into the country.
A trade barrier is simply anything that makes it harder for a company to export
products to a foreign country. Formal trade barriers are enacted by governments for the
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purpose of restricting imports to protect a country's domestic industries. Formal trade barriers
include tariffs, which are taxes on imports that help make domestic products more
competitive, and product quotas that limit the number of products imported into the country.
Explain political environment of business?
The political environment of business refers to the political or government actions that
impact business operations. The political factors usually go hand in hand with the legal ones
and are generally viewed as the non-market forces that impact businesses. Political decisions
ultimately affect the economic, social and cultural environments as a whole.
The political environment can be studied in terms of the central government, the
citizens of a country, rules, and regulations or international relations. Examples of political
factors related to the central government of a country are levels of bureaucracy, corruption,
and government stability. A culture of corruption in a country stifles business operation by
creating an unlevel playing field where corrupt individuals are more empowered to advance
their business goals than their non-corrupt counterparts. A highly unstable government is
unable to offer businessmen the security they need to trade peacefully, hence a highly volatile
trading environment. Examples of political factors tied to international relations are policies
on trade tariffs, policies on importation and exportation of goods and services and
international trade agreements. tied to international relations are policies on trade tariffs,
policies on importation and exportation of goods and services and international trade
agreements.
The political environment of business are the political factors that can affect the way
in which businesses operate, the businesses that are present, the obstacles that a business may
face, and the likelihood of success of different types of businesses. According to the
Business Dictionary the political environment is the government actions which affect the
operations of a company or business. These actions can be present on several different levels
including the local, state, regional, national, and international level. Those who own
businesses often pay close attention to these factors to deduce the way in which government
actions will affect their business.
The political environment of business is often a significant issue when discussing

international businesses. The political environment of business often affects the choice of
foreign market that a company will enter. This is due to the fact that it can affect the
regulations that the business may face, the amount of government interference that a
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company can expect, the profitability of the choice to enter this market and more. In
addition, the stability of the country's government and economic system are often very
important factors.
Political Environment
What is Political Environment?
Political Environment is the state, government and its institutions and legislations and
the public and private stakeholders who operate and interact with or influence the system.
The political atmosphere should be good and very stable for a firm to operate successfully.
Political Environment forms the basis of business environment in a country. If the policies of
government are stable and better then businesses would get impacted in a positive way and
vice versa. Changes in government often results in changes in policy.
Importance of Political Environment
Political Environment can be of utmost importance for a business. How a government

make policies and what kind of economic measures it takes can determine the success or a
failure of a business. Promoting a particular kind of business can lead to increased revenues
of industries and players in that sector but can lead to losses for others. Government also
considers all these risks and effects because the sudden or prolonged changes to the political
environment can lead to impact on GDP and overall economy. The other important aspect is
the foreign investment and companies in a country. If political environment is not good for
foreign investment then it can lead to loss of internal business and investments indirectly
affect domestic players. So overall Political environment should be stable and change as per
market demands or for safeguarding interests which are suitable for overall stabilization and
growth of economy.
Various Political Environment Related Factors & Elements
1. Stability : This is one of the most important factors. The stability of political environment
is very conducive to the economy and business in general. If a country is not stable and
government keeps changing frequently, the country can never be economically stable as well.
The GDP, stock exchange index all would go down leading to a vicious circle.
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2. Taxation : The taxation regime is very important when it comes to political environment. If
a government is balanced in terms of tax and budget, the companies are motivated to produce
more and grow.
3. Foreign Policies: Political Environment should also balance the foreign investments and
growth in a particular country. If there is no foreign investment, growth and technical
knowledge can be issues but if there is too much foreign investment inflow then it can lead to
loss of domestic players.
Examples of Political Environment affecting Business
The policies made by the government have a significant impact on any company’s
international market also the tax rates decided by the government impact the firms in
different ways Promotion of self-business by the government.
Impacts of foreign culture
What is the impact of culture on environment?

People have the greatest impact on the environment in the ways that they exploit
natural resources and dispose of waste. If these activities are not managed carefully,
environmental damage can affect people, animals, plants, waterways, and other parts of the
natural world.
How does culture affect international trade?
Categories: Global Business. International business deals not only cross borders, they
also cross cultures. Culture profoundly influences how people think, communicate, and
behave. It also affects the kinds of transactions they make and the way they negotiate them.
What are cultural effects?
the shared behaviours and customs we learn from the institutions in our society.
Henrik is interested in how children in different cultures select their playmates in terms of
matching gender, personality, age and size.
Why is it important to be culturally sensitive to international clients?
Cultural sensitivity involves being respectful of other cultures. Understanding and
knowing about different cultures and accepting the differences and similarities helps people
to communicate more effectively and build meaningful relationships.
What is the impact of culture to our society?
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In addition to its intrinsic value, culture provides important social and economic
benefits. With improved learning and health, increased tolerance, and opportunities to come
together with others, culture enhances our quality of life and increases overall well-being for
both individuals and communities.
THE IMPACT OF CULTURE ON INTERNATIONAL MARKETING PLANS:

1 Introduction
Companies like IBM, Coca Cola, Nike, Kellogg’s, Nestlé, McDonalds do business
around the world. An important challenge for the international marketing phase of a firm is
the need to understand the different environments the company needs to operate in. To
understand different cultural, economic, and political environments is necessary for the
success of a company. Culture is one of the most challenging elements of the international
marketplace.
2 The Impact of Culture on International Marketing Plans:
2.1 What is culture?
Culture is the “patterns of behaviour” and thinking that people living in social groups
learn, create, and share. Culture differentiates one human group from another. A people's
culture includes their beliefs, rules of behaviour, language, rituals, art, technology, styles of
dress, ways of producing and cooking food, religion, and political & economic systems.
2.1.1 THE ELEMENTS OF CULTURE

The important elements of culture are language, religion, values and attitudes, education,
social organisation, technology and material culture, law and politics, and aesthetics.
1) Language: Language can be verbal and non-verbal. Verbal means how the words are
spoken (tone of voice) and non-verbal includes gestures, body position and eye
contact. It is important to really understand how language is used by the people in
your target market. Consider the following examples: When the Pepsi slogan "Come
alive with the Pepsi Generation" was translated in Taiwanese, it came out as "Pepsi
will bring your ancestors back from the dead” or the Kentucky Fried Chicken slogan
"Finger-lickin’ good" in Chinese, came out as "Eat your fingers off."
(www.asianjoke.com). These can irritate and frustrate the customer and therefore
these misunderstandings should be avoided. It does not give the best impression of the
company that has produced it.
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2) Religion: Many international companies ignore the influence of religion. Most

cultures find in religion a reason for being. It is important to identify the difference
between the shared beliefs, for example, in Islam, Buddhism, or Christianity. An
example of the effect of religious beliefs on international marketing is the ban of pork
products and alcoholic beverages in the Middle East. The international market
manager must be aware of religious division in the countries of operation.
3) Values and attitudes: Values and attitudes can affect reaction to a product or to its
origins. For example, a firm using yellow flowers in its logo or on the packaging of a
product was well accepted in the United States but was a disaster in Mexico, where a
yellow flower symbolizes death or disrespect. An international company needs to
understand the differences in values and attitudes within the country.
4) Education: It is significant for international firms are to know about the educational
system of a country. The level and nature of education can have a major impact on
how receptive consumers are to foreign marketing activities.
5) Law and politics: Certain issues in the political environment are significant. Some
countries, such as Russia, have relatively unstable governments, whose policies may
change dramatically if new leaders come to power by democratic or other means.
Some countries have little tradition of democracy, and thus it may be difficult to
implement. When a company is going into a foreign market it is also important to
look at the ownership regulations, the employment law, health and safety system,
financial law and patent protection.
6) Social organisation: The social systems are different in every country, for example the
family relations, the social stratifications, the interest groups and the status in a
community group. Social organisation also determines the roles of managers and
subordinates and how they relate to one another.
7) Technology and material culture: Material culture results from technology and is
directly linked to how a society systematizes its economic activity. For example a
producer of microwave meals might not have much success selling into markets
where the penetration of microwave ovens is very low. It is important to look at the
work of the exporter within the existing technological infrastructure or how an
investment will have to be made in developing it or finding alternative solution.
Another good example is the potential of the internet user, which also can be limited
by technological infrastructure. The knowledge of this is helpful to a company that
plans to sell products over the internet.
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8) Aesthetics: The perception of brand names and labels, beauty, good taste or smell and
the symbolism of colours, forms and music can vary from country to country. For
example the perception of the colour of Cadbury’s was different in the UK to what it
was in Taiwan. The British associated Cadbury’s with the colour purple and the
Taiwanese linked it with brown. (Journal of Marketing Management, 1998) It is
important for an international company to know about the relationship between colour
associations and international branding in a cross-cultural context.
International managers has to understand this system. They need factual and interpretive
knowledge of culture. An international marketer should study deeply the particular culture of
a country the company is planning to act in.
The importance of culture
Culture is the lifeblood of a vibrant society, expressed in the many ways we tell our
stories, celebrate, remember the past, entertain ourselves, and imagine the future. Our
creative expression helps define who we are, and helps us see the world through the eyes of
others. Ontarians participate in culture in many ways—as audiences, professionals, amateurs,
volunteers, and donors or investors.
In addition to its intrinsic value, culture provides important social and economic
benefits. With improved learning and health, increased tolerance, and opportunities to come
together with others, culture enhances our quality of life and increases overall well-being for
both individuals and communities.
Individual and social benefits of culture
Intrinsic benefits
Participating in culture can benefit individuals in many different ways, some of which
are deeply personal. They are a source of delight and wonder, and can provide emotionally
and intellectually moving experiences, whether pleasurable or unsettling, that encourage
celebration or contemplation. Culture is also a means of expressing creativity, forging an
individual identity, and enhancing or preserving a community’s sense of place.
Cultural experiences are opportunities for leisure, entertainment, learning, and sharing
experiences with others. From museums to theatres to dance studios to public libraries,
culture brings people together.
These benefits are intrinsic to culture. They are what attracts us and why we participate.
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Improved learning and valuable skills for the future

In children and youth, participation in culture helps develop thinking skills, builds
self-esteem, and improves resilience, all of which enhance education outcomes. For example,
students from low-income families who take part in arts activities at school are three times
more likely to get a degree than those who do not. In the US, schools that integrate arts across
the curriculum have shown consistently higher average reading and mathematics scores
compared with similar schools that do not. Many jurisdictions make strong linkages between
culture and literacy and enhanced learning outcomes, in both public education and in the
development of valuable workforce skills.
Cultural heritage broadens opportunities for education and lifelong learning, including
a better understanding of history. Ontario’s cultural heritage sector develops educational
products and learning resources in museums and designed around built heritage and cultural
landscapes.
As trusted community hubs and centres of knowledge and information, public
libraries play an important role in expanding education opportunities and literacy,
overcoming the digital divide, supporting lifelong learning, and preparing people for work in
the knowledge economy. footnote 8[8] Participation in library activities has been shown to
improve literacy and increase cognitive abilities.
E-learning is on the rise in both academic and professional settings. Games are being
used to enhance math, writing, and other academic skills, and to motivate employees. There
are over 120 specialized e-learning companies in Ontario.
Better health and well-being

Participation in culture contributes to healthy populations in several ways. Creativity
and cultural engagement have been shown to improve both mental and physical health.
Culture is being integrated into health care, notably in the UK, but also increasingly in
other jurisdictions, including Canada.
A growing body of research also demonstrates that the arts can improve the health and
well-being of older adults. Participation in the arts can relieve isolation and promote identity
formation and intercultural understanding.
Vancouver’s Arts, Health and Seniors Project found that active participation in the
arts had positive health benefits, such as social cohesion and emotional and physical well-
being. Both the perceived health and chronic pain measures showed improvement over time
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In First Nation, Métis and Inuit communities, culture is “simultaneously art, creative
expression, religious practice, ritual models and markers of governance structures and
territorial heritage, as well as maps of individual and community identity and lineage.”
The link between past efforts to eradicate Indigenous cultures and health issues in
today’s Indigenous communities is increasingly recognized. Research has shown that
revitalization of Indigenous cultures plays a key role in supporting the health, well-being, and
healing of individuals and communities.
Vibrant communities
The benefits of culture for individuals can spill over to society as a whole.
Culture helps build social capital, the glue that holds communities together. By
bringing people together, cultural activities such as festivals, fairs, or classes create social
solidarity and cohesion, fostering social inclusion, community empowerment, and capacity-
building, and enhancing confidence, civic pride, and tolerance.
The social capital created through culture increases with regular participation in
cultural activities.
Cultural engagement also plays a key role in poverty reduction and communities-at-
risk strategies.
Culture is important to the vitality of all communities. footnote 20[20] Research in the
US has shown direct connections between culture and community revitalization in Chicago
neighbourhoods. Social networks created through arts initiatives based in the community
resulted in direct economic benefits for the neighbourhood, such as new uses of existing
facilities, and new jobs for local artists.
Our diverse cultural heritage resources tell the story of our shared past, fostering social
cohesion.
They are intrinsic to our sense of place. Investments in heritage streetscapes have
been shown to have a positive impact on sense of place. footnote 23[23] Benefits include
improved quality of life for local residents, a feeling of pride, identification with the past, and
a sense of belonging to a wider community.
Culture helps cities to develop compelling city narratives and distinctive brands, with
unique selling points for tourists and business investors. Culturally rich districts also enhance
competitiveness by attracting talent and businesses. Cultural heritage is also a factor in rural
development, supporting tourism, community renewal, and farmstead conservation.
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Economic benefits of culture:

The culture sector helps support the economy through direct and indirect job creation.
It also helps spur innovation in other sectors footnote 24[24] in the form of productivity
advancements, regional development, community branding, and increased local tourism.
Contribution to job creation

Economic opportunities created by culture have taken on greater importance as
economies transition from the industrial model, and work based on physical labour, to a new
model in which knowledge and creativity drive productivity and growth. Knowledge-based
economies favour ideas to stimulate innovation, and they develop specialized services and
highly customized products to create value.
Information, technology, and learning are central to their performance.
The culture sector is the foundation for Ontario’s growing creative economy sector.
culture contributed nearly $22 billion to Ontario’s GDP, representing 3.7% of the province’s
economy.
There were about 280,000 culture jobs in Ontario in 2010, or 4.1% of all jobs in the province.
Almost half of all culture jobs in Canada were located in Ontario as of 2010.
Interactive Digital Media (IDM) is poised to be a key driver of growth and
employment in Ontario’s cultural industries and the overall economy as cultural media
products such as games and interactive experiences become more prevalent. According to the
most recent Canadian Interactive Industry Profile, nearly one-third of the “core” IDM
industry, specifically companies engaged mainly in content creation, were located in Ontario.
They contributed estimated revenues of $1.1 billion in 2011 and accounted for over 17,000
jobs.
Ontario is the number one film and television production jurisdiction in Canada in
terms of production volume, revenue and employment and the third-largest film production
location in North America after California and New York.
Film and television production contributed $2.3 billion in expenditures in Ontario
(accounting for 40% of the national total) and supported 44,410 direct and indirect jobs in
2013-2014.
Film and television productions supported by the province contributed $1.3 billion in
expenditures, supporting over 28,000 full-time direct and spin-off jobs in 2014.
With leading computer animation, visual effects, and post-production facilities
engaged in cutting edge innovation, and a strong network of training and research centres
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such as the Canadian Film Centre and the Screen Industries Training Centre located at
Pinewood Studios, Ontario is positioned to remain one of the leading centres of film and
television production and post-production in North America.
Contribution to tourism
Culture makes a significant contribution to the tourism industry in Ontario, further supporting
job creation and encouraging infrastructure development. In 2010, cultural tourism generated
$3.7 billion in GDP and resulted in 67,700 jobs for Ontarians.
The many festivals and events hosted each year in every corner of Ontario, coupled
with the province’s museums, art galleries, and historic sites, are magnets for cultural
tourists. Almost 90% of the 21 million North Americans who visited Ontario among other
destinations over a two-year period sought out a cultural activity on their visit. footnote
38[38] Of visitors from outside the province who stayed at least one night (1.3 million
visitors), 25% attended festivals and sporting events.
There are significant opportunities to grow cultural tourism through marketing
cultural heritage assets. Historic sites in Ontario had over 3.7 million visits in 2011, placing
built heritage in the top five most popular tourist attractions in the province.
Music tourism offers Canadian artists a means of showcasing their talents and
promoting their work. Local music scenes can help brand communities to attract tourists from
Ontario and around the world. Three-quarters of those who attended the Jazz on the Mountain
at Blue in 2013, hosted by the town of Blue Mountain Village, travelled from over 100
kilometres away. In Ottawa, almost 12,000 travelled over 40 kilometres to attend the Ottawa
Folk Festival in 2014. In that year, the Folk Festival drew an audience of over 54,000, up
from only 2,500 in 2010.
Cultural planning:
Increasingly, municipalities are recognizing the contribution of culture to sense of

place, quality of life, and community and economic prosperity through a process called
“cultural planning.” Cultural planning is led by local governments and involves broad
community engagement to identify and leverage a community's cultural resources, strengthen
the management of those resources, and integrate them in all facets of local planning and
decision-making.
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The process is part of a global trend toward more place-based approaches to planning
and development that take into account four interdependent pillars of community
sustainability: economic prosperity, social equity, environmental responsibility, and cultural
vitality. Cultural planning helps create the environment for culture to flourish.
To date, 69 municipalities, representing nearly three-quarters of Ontario’s population,
have developed cultural plans and engaged in cultural mapping exercises to identify their
unique and valued cultural resources. Maps can include cultural resources both tangible (e.g.,
cultural workers, spaces and facilities, cultural heritage and natural heritage resources) and
intangible (e.g., stories and activities) that reflect the distinct cultural identity of the
community.
Cultural plans have contributed to downtown, waterfront, and neighbourhood
revitalization. They complement economic development and community growth plans, as
well as tourism and population retention strategies, and expand opportunities for youth. For
example, St. Catharines’s 2015 cultural plan strongly positions culture as a key economic
driver, crucial to combatting the loss of manufacturing jobs. It also positions culture as a
source of new business, youth retention, and a means of revitalizing downtown St.
Catharines.
The City of Ottawa’s 2013 cultural plan has already resulted in outcomes such as
development of an archaeology-related public awareness initiative, a pilot program providing
training for youth, support for First Nation, Métis, and Inuit cultural initiatives, investment in
local culture (e.g., Arts Court and Ottawa Art Gallery), and music industry development.
For First Nations and Métis communities, the focus of cultural mapping is typically
on conserving cultural heritage, traditions, and language. Cultural planning processes have
resulted in language plans and policies, place-name maps, videos of Elders’ stories, and the
recording of traditional knowledge, as well as cultural tourism and economic development
opportunities.
References:
www.enotes.com/homework-help/explain-political
bizfluent.com/info-8377458-effects-political...
www.ukessays.com/essays/marketing/how-does-culture-affect-international-business-
marketing-essay.php
Prepared by: N.Shanmugam
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Unit-III
ECONOMIC ENVIRONMENT-FINANCIAL ENVIRONMENT
Economic Environment
Meaning:
Economic environment has a close and important influence on business because

business is an economic institution. The economic environment provides all inputs to
business and also the market for its output.
The economic environment comprises of various economic factors that influence the
functioning of a business. It represents the current economic situations of the country within
business is conducted.
Definition:
“Factors that affect the consumer’s buying power and spending patterns”.
-Kotler
Factors in Economic Environment or impact of Economic Environment on business:
01) Types of economic system:
The economic system influence ownership of the means of production and

distribution of resources . The three major economic systems capitalism, socialism and mixed
economic.
02) Size of the economy:
Size of the economy indicates the market size and potential. India was the seventh
largest economy in the world with a GDP of $2.5 trillion for the year 2016. It is the third
largest economy in Asia.
03) GDP growth rates:
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It indicates the growth in national income. India and China had high GDP growth
rates in the last two decades and in the year 2015-16, India became the fastest growing
economy in the world.
04)Composition of the Economy:
It indicates the contribution of different sectors to the national income. In India

services sector contributes the maximum to national income followed by industry and then by
agriculture.
05) Percapita Income:
It indicates the average income earned by an individual living in a country in a

particular year.
06) Disposable Income:
It refers to the income available for spending and savings. Higher disposable demand
which is good for business growth.
07) Purchasing power:
It indicates the capacity to buy goods and services with the income earned. India is
the 3rd largest country in the world in terms of purchasing power with only US and Chaina
ahead of it.
08) Size, composition and growth of foreign trade:
This indicate the volume of trade, trade balance of payments position. India’s imports
have grown much higher than exports resulting in huge balance of payment deficits.
09) Inflation:
It indicates the increase in price levels an reduction in purchasing power of

consumers. High inflation rates results in lesser purchasing power and lower demand for
goods and services.
10) Interest rates:
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They influence the savings and borrowing activity in the economy. Most of the real
estate and consumer durable purchases are financed through loans.
11) Savings and investment:
A higher savings and investment rate is preferable since it leads to capital formation.
12) Economic policies:
Moneytary policy, Fiscal policy, Exim policy etc., have an important impact on
business. Monetary policy influences interest rates and availability of loan funds.
13) Unemployment Level:
High unemployment causes low purchasing power and fall in demand affecting
business. It may also lead to increase in crime rate discouraging new business investments.
1.28 crore job seekers in India enter the job market every year but jobs created are less
resulting in large scale unemployment. By the year 2020, India will have 500 million working
age people. This is an opportunity as well as a challenge.
14) Taxes:
High taxes results in lower disposable income and reduced purchasing power
affecting demand.
Economic system
Meaning:
Economic system is the organised way in which an economy satisfied the wants of its
population.
The term economic system refers to the system of production, distribution and
consumption of goods and services in an economy. As the countries try to allocate their
resources, they are faced with the questions of what, how and for whom to produce.
Types of economic systems:
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I.Capitalism
Meaning:
It is an economic system based on private ownership of factors of production. It is a

system of free enterprise with very minimum government interference. What to produce is
determined by consumers, how to producers and who gets the products depends upon the
purchasing power of consumers. Business firms enjoy the maximum freedom and there is
right to property.
Definition:
In the words of loucks, “ Capitalism is a system of economic organisation featured by

private profit ownership and use for private profit of man-made and nature-made capital.”
Features of capitalism:
01)Free enterprise:
Firms have the choice to dicide the type of enterprise, products to be produced, prices
and mode of sales. They have the freedom to operate without government imposed
restrictions.
02) Private ownership of factors of production:
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The factors of productions such as land, labour, capital and organisation are privately
owned. Therefore firms can use them according to their requirements. They can choose to
adopt labour intensive or capital intensive methods of production.
03) Right to property:
There is freedom to buy, use or dispose of property by private individuals or firms.

The owner can use his property according to his needs. The law protects the right to property.
04) Limited government interface:
The government has a very limited role to play in a capitalist economy. Its role is
restricted to ensuring national defence, providing basic education and administration of the
legal system.
05) Minimum government interference:
Government regulations and restrictions are very less in capitalism. Business firms
and consumers are free to decide according to their best interests.
06) Importance of market forces:
Production, pricing and distribution decisions are based on the market forces. The
level of demand, supply and profit margins decide the level of production and sales.
07) Competitive markets:
Markets are highly competitive in a capitalist economy. There is intense competition

among sellers and also among buyers. This forces films to improve efficiencies and deliver
better quality at attractive prices. Competition among firms benefits customers through better
quality at affordable prices.
08) Profit motive:
Profit is the prime motive of firms. Since factors of production are privately owned,
they are used in those business which promise high profits. Firms venture into business
yielding higher returns on their investments.
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09) Consumer choice:
Consumer is considered to be the king in a capitalist economy, Firms decide the type
of products to be produced based on consumer preferences. Consumers have the freedom to
choose from the wide variety of available products.
10) No control planning:
In a capitalist economy, production and resource allocation decisions are taken by

business firms. There is no economic planning or a central planning authority.
11) Capital accumulation:
Capital has prime importance among the factors of production. Firms aim to
maximise profits and a substantial portion of profits are reinvested. This capital
accumulation enables firms to grow and delivery.
12) Self interest:
Both the consumers and business firms are guided by their own self interest.
Decisions of the consumers and businesses are aimed to increase their self interest. Both of
them aim to get the best.
Merits :
⮚ Promotes entrepreneurship and growth of new enterprises.

⮚ Aids in faster economic growth.
⮚ Encourages efficiency and optimum usage of resources.
⮚ Enables stability of output.
⮚ Encourage individual initiative, innovative, innovation and technological
developments.
⮚ Expands employment opportunity.
Demerits:
⮚ Gives undue importance to individual interest ignoring social interest.
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⮚ Since business firms have the sole aim of profit maximisation, they may
includes indulge in cut throat competition, Monopolies can be created and
smaller firms wiped out from the market.
⮚ Business firms may reach a secret understanding among themselves to from
cartels and trusts. They may create artificial scarcity in the market and greatly
increase prices to earn huge profits. It is the consumer who is affected.
⮚ Firms may be interested to produce the luxuries required by the rich ignoring
the necessities needed by the poor.
⮚ The gap between the rich and the poor widens. The rich become richer and the
poor face a life of poverty and deprivation.
⮚ Growing exploitation of the proper planning may lead to over production and
wastage of resources. poorer sections are left to the mercy of market forces.
II. Socialism
Meaning:
Socialism is an economic theory or idea which states that the government or the state
should be in charge of economic planning, production and distribution of goods.
It is also known as a centrally planned economy. The Government owns controls and
operates the factors of production. The basic problems relating to what to produce, how to
produce and for whom to produce is decided by the Government. Resources allocation and
charge of production, pricing and distribution of goods. The basic necessities and essential
requirements such as food, housing, transport, and education are provided free of cost or at a
low price.
Definition:
According to samuelson, “the important essentials of Socialism are that all the great
industries and the land should be publicity or collectively owned and that they should be
conducted for the common good instead of private profit”.
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Features:
⮚ There is no right to private property. All property belongs to the government.

⮚ Resources allocation and investment decisions are made by the government.
⮚ There is no competition in a socialist economy.
⮚ Production, pricing and distribution decisions are taken by the government.
⮚ Socialism aims to bridge the gap between the rich and the poor, eliminate
inequalities in the distribution of income and wealth. Social welfare is the
prime motive.
⮚ Allocation of resources and investment decision are taken by the Central
planning Authority. Therefore, socialist countries are also known as Planned
Economics.
Merits:
⮚ Since Government allocates resources, it ensures that they reach all people.
⮚ Everyone in the country has access to the basic necessities of life and essential
requirements such as education and healthcare.
⮚ The economy is more stable. The negative impact of business cycles are
avoided.
⮚ All efforts are channelized towards achieved a just, equitable and classless
society.
⮚ Inequalities in income and wealth are sought to be reduced and eliminated.
The gap between the rich and the poor is the least when compared to other
economic system.
⮚ Since the government decides the level of production, the problem of over
production and wastage of resources is avoided.
⮚ Since production and price are controlled by the government , the problems of
high inflation and unemployment are avoided.
Demerits:
⮚ There is no incentive for individual initiative. This reduces motivated and

results in low innovation and technological development.
⮚ Economic progress and growth are quite low.
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⮚ Since all important decisions are taken by the central planning authority,
decision making is quite slow.
⮚ The central planning authority may not always estimate production
requirements correctly. This may result in surpluses of non essential items or
essential items.
⮚ Consumers do not have any choice. They have to accept whatever is produced
and supplied by the government.
⮚ The socialist economies lack the flexibility of capitalist economies. They do
not quickly respond to changes in demand and supply.
III. Mixed economy
Meaning:
Mixed economies are those which combine the features of the capitalist and socialist
economic system. It seeks to combine the benefits of capitalism and socialism while avoiding
their weakness. Certain sectors are under government socialism while private participation is
permitted in other sectors. The private sectors and the government owned and controlled
public sector co-exists and have distinct roles to play. They jointly contribute to economic
growth and development and solve the central problems of the economy together.
Definition:
According to J.W grove, “ one of the presuppositions of a mixed economy is that

private firms are less free to control major decisions about production and consumption than
they would be under capitalist free enterprise, and that public industry is free from
government restraints than it would be under centrally directed socialist enterprise”.
Features:
⮚ The factors of production are owned and operated both by the government and
the private sectors.
⮚ Decisions regarding what to produce and how to produce is partly based on
consumer preferences and partly by governed preference. Decision regarding
for whom to produce is determined by the purchasing power of consumers and
by government preferences.
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⮚ There is right to private property. Property is owned by the government and

also by individuals and firms.
⮚ There is freedom to undertake any occupation, earn profits, produce and
distribute goods. The government would intervene if consumer interests are
affected.
⮚ Resources allocation and investment decisions are made by the government
and business firms.
⮚ The government can influence production and consumption of goods through
taxes, incentives and subsidies.
⮚ The government encourage the development of the co-operative sector based
on co-operative principles.
Merits:
⮚ The government plays an important role in promoting economic growth and

development.
⮚ Since the mixed economy has the positive features of both capitalism and
socialism, resources are utilised in the best possible manner. In case of
misallocation of resources, government takes the necessary corrective
measures.
⮚ The prime objects of economic planning is to promote economic growth and
social welfare.
⮚ The government establishes institutions (In India RBI, SEBI, IRDA etc.) to
monitor regulate and ensure the orderly functioning of various sectors.
⮚ The right to property encourage individual initiative. There is focus on
innovation and technological developments to improve productivity and
profits.
⮚ Consumers have wide choice of products services while their interests are
protected by government agencies.
Demerits:
⮚ Though the public and private sector are expected to jointly contribute to
economic growth, they are not treated equally. The public sector receives
incentives and subsidies, which are not granted to the private sector. The
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private sector has to operate under serve restrictions imposed by the

government.
⮚ Public sector units may be run in an inefficient manner. Many of them incur
huge losses and government has to continuously provide founds for their
government.
⮚ There is government controlled monopoly in certain sectors. This leads to
inefficiency in production and distribution of goods and services.
⮚ Om the public sector, there are delays in decision making resulting in
inefficiencies.
⮚ Entrepreneurs operate under constant fear of nationalisation of their
businesses.
⮚ There is growing concentration of economic power. Bribery , tax evasion,
hoarding and black marketing and black marketing are common problems.
Comparison of Capitalism, Socialism and Mixed Economy:
S.No. Capitalism Socialism Mixed Economy
01. The factor of production The factors of production The factors of production
are owned and operated by are owned and operated by are owned operated both
the private sector. the government. by the government and
the private sector .
02. Decisions regarding what to Decisions regarding what to Decisions regarding what
produce is based on produce is taken by the to produce, is partly
consumer preferences. government. based on government
preferences and partly by
consumer preferences.
03. Decision regarding how to A decision regarding how Decision regarding how
produce is determined by to produce is taken by the to produce is partly taken
business firms. government. by business firms and
partly by the government.
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04. Decision regarding for Decisions regarding for Decision regarding for
whom to produce is whom to produce is whom to produce is
determined by the determined by government determined partly by
purchasing power of preferences. purchasing power of
consumers. consumers and partly by
government preferences.
05. There is right to private There is no right to private There is right to private
properly. property. All property property. Property can be
belongs to the government. owned by individuals and
firms.
06. Resource allocation and Resource allocation and Resources allocation and
investments decisions are investment decisions are investment decision are
taken are taken by business taken by the government. taken by teh government
firms. and business firms.
Economic Indicators
01. Gross domestic product (GDP)
GDP is defined as the total market value of all final goods and services produced in a
country in a given year, equal to total consumer’s investment and government spending, plus
the value of exports minus the value of imports.
02. Gross national product (GNP)
It is important to differentiate GDP from GNP. GDP includes only goods and services
produced within the geographic boundaries of India, regardless of the producer’s nationality.
GNP doesn’t include goods and services produced by Indian operating in foreign countries.
03. National income (NI)
National income is defined as the income earned by a country’s people, including

labour and capital investment. It represents the total amount of money that the factors of
production earn during the course of a year.
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04. Per capita income
The per capita income for a group of people may be defined as their total personal
income, divided by the total population. Per capita income is usually reported in units of
currency per year. It is a measure of wealth.
05. Disposable income
This denotes the income that is available for spending by the individual and
households in the country after paying tax. The whole of personal income is not available for
spending, as taxes have to be paid.
Dispose personal Income is available to the individuals for consumption. Since the
entire amount is not spent, there is a saving. So, we can also say.
Disposal personal Income = Consumption + Saving
06. Inflation
Inflation is an increase in the price of a basket of goods and services that is

representative of the economy as a whole. It is an upward movement in the average level of
prices. Its opposite is deflation, a downward movement in the average level of prices. The
boundary between inflation and deflation is price stability.
“Inflation is too many rupees chasing too few goods”
07. Balance of payments
The balance of payments (BOP) measures teh payments that flow between any
individual country and all other countries. It is used to summarise all international economic
transactions for that country during a specific time period, usually a year.
The BOP is determined by the country’s exports and imports of goods, services and
financial capital, as well as financial transfers. It reflects all payments all payments and
liabilities to foreigners (debits) and all payments and obligations received from foreigners
(credits).
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08. Fiscal Deficit
Fiscal Deficit is basically the difference between expenditure and receipts. In public
finance, it means the government is appending more than what it is earning. Government
expenditure and revenue can be split into capital and revenue.
09. Wholesale price index (WPI)
To calculate inflation, the inflation-computing agency has to collect prices of

identified commodities. The agency can take into account wholesale prices, retail prices or
factory prices. As the wholesale markets are few, it is easier to collect price of goods traded
here.
10. Consumer price index (CPI)
The CPI (Industrial Workers) takes into account the retail prices. The index that is
worked out by the Ministry of Labour and Employment is used to measure changes in the
cost of living. The index is also used to compute dearness allowance (D.A) for Government
employees, private sector employees, embassy staff, etc.
FINANCIAL ENVIRONMENT:
Finance is the lifeblood and foundation all economic activities and termed as the
science of money. Finance is the process by which money is transferred between business
firms, individuals and government.
Meaning:
The financial environment comprises of

1. The financial system
2. Financial institutions
3. Financial markets and
4. Investors and lenders
Who help an economy to operate in efficient manner.
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Functions:
1. Finance enables optimal risk allocation.

2. It provides the means of payment for exchange of goods and
services.
3. It enables transfer of economic resources across different places
and industries.
4. It enables rising of loan funds and also reduces the cost of
borrowings.
Financial System:
In an economy, there are people and institutions with surplus those who are facing
shortage of fund. A financial system is an intermediary channelizing funds from those with
surplus to those facing shortages.
Definition:
According to Van Home, “financial system allocates savings efficiently in an
economy to ultimate users either for investment in real assets or consumption.”
Global and Indian Financial System:
The Global Financial System comprises if institutions and regulations that operates
in the international level.
Indian Financial System comprises of institutions that operates in a national level or
regional level.
Features of Financial System:
1. The financial system plays an important role in supporting economic
growth.
2. It meets the financial needs of the economy.
3. The financial system facilitates funding, liquidity and price
discovery.
4. A financial system performs effectively when its participants act in a
fair manner.
5. It provides risk management, payment and monitoring services.
Functions of Financial System:
1. Savings and capital formation

2. Providing liquidity
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3. Enables payment
4. Risk management
5. Providing information
6. Global access to finance and returns
7. Innovation in instruments and practices
8. Advisory functions
Key Elements of an Efficiently functioning Financial System:
1. Efficient legal and regulatory environment

2. Strong Central Bank
3. Stable Money
4. Efficient Banking system
5. Sound public finance and public debt management
6. Up to date information system and
7. Efficiently functioning securities market.
Role and Important of financial system in economic development:
1. It helps to monitor corporate performance.

2. It enables transfer of resources across countries.
3. It offers portfolio adjustment facilities.
4. It promotes the process of capital formation.
Structure of Indian Financial System:
The Indian Financial System can be classified into organized financial system
and unorganized financial system. The formal financial system comprises of financial
institutions, financial markets, financial instruments and financial services. The informal
financial system consists of money lenders, pawn brokers, non-banking firms. The
constituents and components of Indian financial system are discussed below:
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1. Financial Institutions:
These are business organization dealing in financial resources. It comprises of

banking and Non –Banking institutions like SBI, Indian Bank, ICICI Bank, HDFC Bank,
IFCI, IDBI, IDFC, Cholamandalam finance, Muthoot Finance, Manappuram gold loan,
HDFC, National Housing Bank.
2. Financial Markets:
They enable buying and selling of financial securities and commodities at

market determined prices. There are two types of market they are money market and capital
market. Money market is a market for short term securities and Capital market is a market for
long term securities.
Financial market is also classified as primary market and secondary market.

Primary market deals with new issue of securities. Secondary market deals with secondary
securities which is brought over primary market and it is also known as stock exchange.
Functions:
1. Creation and allocation of credit and liquidity.
2. Promotes economic growth and development.
3. Reduces transaction costs.
Classification of Financial Market:
a. Classification on the basis of the type of financial claim:

1. Debt Market
2. Equity Market
b. Classification on the basis of maturity of claim:
1. Money market
2. Capital Market
c. Classification on the basis of seasoning claim:
1. Primary Market
2. Secondary Market
d. Classification on the basis of Structure:
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1. Organised Market
2. Unorganised Market
e. Classification on the basis of Timing of Delivery
1. Cash/Spot Market
2. Forward/Future Market
f. Other types of Financial Market:
1. Foreign Exchange Market
2. Derivatives
3. Financial Instruments:
These are marketable securities which are negotiable and tradeable. They refer
to paper wealth in the form of shares, debentures, bonds and other securities. They differ in
terms of marketability, liquidity, return, risks and transaction costs. Primary securities are
issued by the borrowers of funds to the savers of funds such as shares, debentures and bonds.
Secondary securities include bank deposit, mutual fund and insurance policies.
4. Financial Services:
Financial Services enable transfer of risk and protection from risk. They include
all types of activities relating
1. Channelizing of surplus funds into investment
2. Transfer of financial resources and
3. Financial innovation.
Classification of Financial Services:
1. Fund Based Activities:
a. Insurance
b. Mutual Fund
c. Housing finance
d. Real estate finance
e. Dealing in money market
f. Underwriting of Securities
g. Consumer financing
2. Non – Fund Based Activities:
a. Merchant Banking
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b. Portfolio Management
c. Broking and portfolio Investment Services
d. Risk Management
e. Bill Discounting
f. Factoring
g. Depository and Custodian services
h. Credit rating.
Banks:
Meaning:
The word ‘bank’ has its origin in Italy, where the moneychangers did business from
street benches. ‘Bench’ is known as ‘banco’ in Italian from which we have derived the word
‘bank’.
Definition:
Section 5(b) of thee banking companies Act, 1949, defines banking as “accepting for
the purpose of lending or investment of deposits from the public, repayable on demand and
withdrawal by cheque, draft, and order otherwise”.
Important role of Banks:
Banks are the custodians of the liquid capital of a country. They play an important role in
the development of the country. Banks provide:
● Short-term loans for buying seeds, fertilizers and pesticides to the farmer.
● Long-term loans for buying machinery for farming.
● Loans against agricultural produce that lies in the warehouse before selling.
● Loans for industry for purchase of machinery.
● Loans for starting industries in forward and backward areas.
● Short and long-term loans for facilitating foreign trade.
● Loans for the service sector like insurance, transport, marketing, trade, etc.
Thus, banks are important for all sectors of the economy. They foster growth and provide
a big impetus to creation of wealth.
Central bank:
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In every country there is a central bank, which is at the helm of affairs. It regulates,
supervises and controls the activities of all the other players in the organized financial sector.
In India, we have the “Reserve Bank of Indian”. On 1st January, 1949, the RBI came to be
fully owned by the government of India who gives it timely directions in consultation with
the governor of RBI, keeping in mind the public interest.
Functions:
1. Issue of bank notes:
RBI has the sole right to issue bank notes of all denominations. A ‘Minimum Reserve
system’ is followed for issue of bank notes. Notes are issued on the basis of the securities
held by the government in the form of foreign securities, bullion and Indian rupee securities.
2. Banker to the government:
The RBI acts as a banker and advisor to the central and state government.
3. Banker’s bank and lender of the last resort:
RBI is the banker to all the other banks of the country.
4. Controller of credit:
This is one of the primary functions of RBI. Even though credit is important for
industry to grow, excessive credit may lead to inflations. Also deficiency of credit may lead
to deflation. Hence, this needs to be monitored and regulated.
5. Custodian of foreign exchange reserves:
The RBI maintains the external value of the rupee. This keeps varying because of
extensive international trade and national economic growth. It buys and sells foreign
exchange on instructions from the government.
6. Supervision and regulation of banking:
The RBI possesses tremendous power to verse operations of the financial

institutions of the country.
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Commercial Banks
A commercial bank is a financial institution that provides credit to trade, commerce

and industry. It mobilises savings of the people by accepting various types of deposits.
Commercial bank have over 1, 00,000 branches spread all over the country.
Functions of Commercial Banks
Commercial banks perform a number of functions. These can be broadly

grouped as,
● Primary Functions- Banking Activities

● Secondary Functions – Non-Banking Activities
Primary functions— Banking activities are the main reason for existence of commercial
banks. They can be divided as follows:
1. Acceptances of deposits
● Savings banks account

● Current bank account
● Fixed deposit account
● Recurring deposit account
2. Discounting of bills
3. Granting of loan
● Loan
● Cash credit
● overdraft
Secondary functions:
Agency services
These help to build a relationship between the bank and its customer. The banker acts
according to the customer direction and provides services.
● The banker undertakes to collect cheques, bill and pronotes for its customers.
● Collecting dividends and interests on various securities.
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General utility services
These are general in nature and provide a value addition in the many services that
commercial banks provide.
● On permission of RBI they buy or sell foreign exchange.

● They issue letter of credit on behalf of the exporter.
● In accepts Income Tax.
● They help the government in mobilizing foreign exchange.
Agricultural Banks:
Countries like India, whose major employment area is agriculture, need adequate help
to promote it. Agricultural banks are established to help provide loans, long term and short
term for agriculture. These loans will help the borrower in the following ways:
● To purchase new land

● To purchase heavy agricultural machinery like tractors, harvesters, etc.
● To help repay old debts.
● To buy seeds.
● For purchasing fertilizers and pesticides.
National Bank for agriculture and Rural Development (NABARD)
In July, 1982 an Act was passed in parliament to set up NABARD with a share capital
of Rs.500 crores.
Functions of NABARD:
● Provides refinancing to agriculture. SSIs, and other village and cottage

industries by lending to commercial banks.
● It refinance rural development banks, which are set up in backward areas.
● It sponsors minor irrigation projects.
● It helps in R&D activities of rural industries.
Co-operative Banks
The have been established for the benefit of the economically weaker sections of the
society. The motto of these banks is more ‘service oriented’ than ‘profit oriented’. Co-
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operative banking as its origins in the co-operative movement, which began in India in
1904. It has now grown in size and volume and its very effective at present at three levels.
✔ Primary level—in villages

✔ Secondary level –in districts
✔ Higher level—in the state.
Functions
⮚ Agricultural finance.
⮚ Non-agricultural financial activity.
⮚ Promoting small scale industries (SSLs).
⮚ Promote industries in backward areas.
Exchange banks
These banks engage in foreign exchange transactions. They act as businessman in

buying and selling foreign currency. Exchange banks may grant loans to exporters and
importers. The famous exchange bank is the export import bank of India (EXIM Bank).
EXIM Bank is an exchange bank which was set up by an act of parliament in

September 1981 for providing financial assistance to exporters and importers. It
commenced operations in March 1982.
Functions:
1. Corporate Banking Group, which handles a variety of financing programs for Export
Oriented Units (EOUs). Importers, and overseas investment by Indian companies.
2. Agri business Group, to spearhead the initiative to promote and support Agri-exports.
The group handles projects and export transactions in the agricultural sector for financing.
3. Small and Medium Enterprises Group to the specific financing requirements of export
oriented SMEs. The group handles credit proposals from SMEs under various lending
programs of the bank.
DEVELOPMENT BANKS
Commercial banks serve the needs for short-term loans. For other long-term project of
high value, it is only the development banks, which come to the rescue of industry as well
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as agriculture. As the name denotes, the main objective of the development banks is to
promote industrial development in the country.
Functions
● To provide export finance

● To provide fixed capital to industry
● To help develop SSIs
● To encourage industries that have a high employment potential
● To help in ‘Research and Development’.
Development banks exist at both the national level and the state level.
Development banks
National level
State level
National Level Development Banks
These Institute help in the development of business enterprises by providing finances

and project guidance. They are established at the National Level and have branches in
various cities. They also provide refinance to state level Development organizations.
● Industrial Finance Corporation of India (IFCI)

● Industrial Development Bank of India (IDBI)
● Small Industries Development Bank of India (SIDBI)
● Industrial credit and Investment Corporation of India (ICICI)
● Industrial Reconstruction Bank of India (IRBI)
● National Bank for Agriculture and Rural Development (NABARD)
● State Bank of India (SBI)
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State Level Developments Banks
These institutions set up at the state levels by the various State Governments. Various
states of India also take up initiative to provide impetus for development. Industrial
financing, agricultural financing. Project guidance, project appraisals and other advice to
set up major industry and ancillary units. Many state cooperative Banks, developmental
banks have been established.
● State Financial Corporations (SFCs)

● State Industrial Development corporations (SIDCOs).
NON-BANKING FINANCIAL COMPANIES (NBFCs)
These are organizations, which perform similar function as banks, but are not
governed by the Banking companies Act. They accept deposits from the public and also
give loans for various purposes.
NBFC’s are usually one of the following:
1. Hire purchase Finance company
2. Housing Finance company.
3. Equipment leasing company
4. Loan and Investment Company
5. Mutual benefit financial company (MBFCs) or Nidhis
6. Residuary non-banking companies (RNBCs)
Supervision of NBFCs
The RBI conducts on-site inspection and off-site surveillance of NBFCs. Calling for
periodic returns does the latter. These are generally fortnightly, monthly or annual returns.
These returns help the RBI to compare performance levels at two different periods, increase
or decrease in the financial value of different items for ascertaining potential problem areas
and issues and look for any weakness getting into the health of NBFCs.
Unorganised Sector
This sector has a prominent existence in Indian. It is not governed or controlled by the
RBI, and functions in its own way. It exists parallel to the organized sector and has many
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customers who still have a fear of approaching a proper bank with all its paperwork and
formalities. Mostly the underprivileged and poor people in urban areas and some rural
folk approach the unorganized sector for financial needs.
This sector can be divided into three types:
● Indigenous Bankers
● Money lenders
● Pawnbrokers
Indigenous Bankers
According to the Indian central Banking Enquiry committee, “An, indigenous banker is
any individual or private firm receiving deposits and dealing in hands or lending money”.
Their area of operation is local and hence they know their customers personally. Normally
Indigenous Banking is a family business and is inherited from earlier generations.
Moneylenders
As the name implies, the only function of these people is to lend money to people in times
of need. This sector is highly disorganized and the money lenders charge high rates of
interest. They cannot be considered as being proper bankers. They do not accept deposits and
their only function is to lend money. They very often maintain false accounts and take
advantage of people who are illiterate.
Pawnbrokers
These are a dime-a-dozen. Even in big cities, pawnbrokers have their presence. They
open shops at buys areas and lend money to customer in times of need. As a security, they
accept some precious goods of the customer. They value it and according lend cash. Cash is
given only to the extent of the value of the goods kept as deposit. These goods can be in the
form of jewellery, household gadgets like television, mobile, phone, etc.
Reference Book:
Business environment – Dr. Namita Gopal
Tata McGraw Hill Education Private Limited, New Delhi.
Prepared by Dr.K.Vanathi – Guest Lecture of Commerce.
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Unit-IV
TECHNOLOGICAL & DEMOGRAPHIC ENVIRONMENT
Technological Environment:
Meaning:
The word ‘ technology’ was derived from the greek work ‘ technology’ which means
systematic treatment og an art, Technology is science applied in industry and industrial
processes. It is scientific knowledge used to provide things or the technique for converting
inputs.
Definition:
According to the Encyclopaedia Britannica, “Technology may be defined as the

systematic study of techniques for making and doing things”.
Technology Environment:
It refers to technological developments which influence business. It includes

introduction of new products and improvement in work techniques. Technological
environment impacts business success or failure. It influences economic growth and
development. Development pf computers, internet and space technology have led to the
growth of new businesses. Changes in the technological environment can have a great impact
on business.
Nature of Technological Environment;
01) Technological environment is dynamic in nature.

02) Changes in the technological environment provide opportunities as well as pose
threats to business.
03) It provides motivation and direction for research.
04) Technology environment influences industrial, economic, social and human
development.
Advantages of Technology:
01) Enables improvement in quality and aids in continuous quality improvement.
02)Helps in improving efficiency of operations.
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03) Advancements in technology aid in reduction of tim and cost of production.
04) Aids improvements in production and productivity.
05)Technology enables development of new business concepts and models , E-

commerce (Electronic commerce), M-commerce (Mobile commerce) and outstanding of IT
services are few instances.
06) Technology improves the standard of living of people and provides better quality
of life.
Disadvantage of Technology:
01) People become dependent on technology and it negatively affects their self
reliance. Any break down in technology disturbs their normal functioning.
02) Due to automation in many industries, the importance of the human element has
reduced.
03) Technology enables replacement of human labour by machines in many areas. In

many factories, robots perform jobs which were earlier done by humans. This reduces job
opportunities and may lead to loss of jobs. In Foxconn Company’s factory in China, most of
the jobs are performed by robots reducing the demand for human labour.
04) Technological developments require investments in research and development.

This may not be affordable for small firms.
05) Technology can have a negative impact on using one’s potential. For instance,
many people are not able to do simple calculations without a calculator.
Impact or Influence Technological Environment on Business:
a) Reduces the time taken to complete a task:
Technologies such as CAD (Computer Aid Design), CAM (Computer Aided

Manufacturing) CAE (Computer Aided Engineering) have reduced the time taken for
designing, manufacturing and engineering.
b) Increase productivity:
Technology can increase both production and productivity. Bajaj Auto
employs robots in its factory and enjoys high productivity.
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c) Replaces human labour in monotonous jobs:
Technology replaces human labour in monotonous jobs. For example IVRS

(Interactive Voice Response Systems) used by Indian Railways to answer passenger
queries has eliminated the need for telephone operators.
d) Handles large volume of work:
Technology enables companies to handle large volume of work in minimum time. For
instance, super computers can complete millions of transactions per second.
e) Improves accuracy:
By using technology, firms can improve the accuracy of their work, reduce defects
and wastages. Introduction of CNC (Computer Numerical Control) machines have improved
the accuracy and quality of manufacturing.
f) Improves quality:
Quality improvements can be achieved by employing the right technology.

Advancements in automobile technology have improved fuel efficiency, passenger safely and
driver comfort.
g) Reduces time and distance:
Developements in air travel and communication technologies such as video

conferencing, mobile phones, internet etc., have reduced time and distance. Internet has aided
outsourcing of IT and BPO services.
h) Enables Data Handling:
Technology such as data mining and data warehousing enable firms to collect, store,
retrieve and analyse large volume of data.
Factors Influencing Choice of Technology:
Technology provides a competitive edge to companies. Through technology,

companies can improve the quality of their products and services. Due to advancements in
research and development, there are many technologies available. Companies should consider
the following factors while choosing a particular technology:
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01) Availability:
The availability of factors determines the type of technology that will be suitable for a
company. Ot the required labour sources are available, labour intensive technology would be
suitable. In case of labour scarcity, capital intensive techniques should be selected.
02) Exiting level of technology:
If the technology chosen is supported by the existing technology, cost and

implementation time would be less. If it is not supported by the existing technology, the cost
and implementation time would be more.
03) Quality improvement:
Technology should enable firms to improve their quality of products and services.
The technology chosen should enable continuous improvement.
04) Resource Availability:
Technological choice depends on the availability of resources. Financial resources,

knowledge resources and physical resources are essential. The extent of the resource
availability determines the type of technology to be chosen.
05) Scale and scope of operations:
In large firms, the technology chosen should be able to support large volume of
transactions. If it operates in multiple locations, it should enable co-ordination of activities.
06) Installation cost:
Certain technologies involve higher cost of installation. Firms consider the installation
cost while choosing a particular technology. Firms with lesser financial capacity select
technologies with lower cost of installation.
TECHNOLOGY AND SOCIETY
Technology has become inseparable in our daily life and we depend on it to satisfy
our needs and wants. Technology has made our lives comfortable an convenient. It has
helped members of the society to do daily tasks, travel, learn, communicate and cure diseases
in a more efficient manner. Business can improve quality, speed of operations and increase
production and productivity through technology. Technology by itself does not cause positive
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of negative impacts on the society. Such impacts are caused by the way in which technology
is used.
POSITIVE IMPACT OF TECHNOLOGY ON SOCIETY:
Technology has enabled mechanisation of agriculture, introduction of modern

methods and use of high yielding varieties of seeds. This has resulted in higher agricultural
production and productivity.
Through application of modern technology, industrial production has increased.

C0ompanies are able to produce more at lower costs. This has improved access to products
and services.
Technology has enabled instant communication and spread of information to different

concerns of the world. Through electronic media, mobile phones and internet, members of the
society can exchange ideas, information and knowledge. Businesses are able to contact their
suppliers and market to customers across the world.
NEGATIVE IMPACT OF TECHNOLOGY ON SOCIETY:
01) Intensive farming and use of chemical fertilisers and pesticides have a negative
impact on the fertility of the soil.
02) Due to mass production, there is high demand for mineral resources. Large scale
mining leads to depletion of minerals resources.
03) The increase in life span due to developments in medical technology has led to
increase in population. Population explosion has led to poverty and deprivation.
IMPACTS OF TECHNOLOGY ON ECONOMY:
Developments in technology have improved efficiency and productivity in the

economy. They have increased foreign trade and improvements in quality and innovation.
They have led to improvements in the wealth of the nation, standard of living, employment
and international trade. The following points bring out the impact of technology on the
economy.
01) Technology has led to high improvements in production and productivity

resulting in higher production of goods and services.
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02) It has led to growth of industrialisation, increased employment and income

earning opportunities.
03) It has improved generation, distribution and access to information due to
developments in internet and communication technologies.
04) Technology has led to new business models such as E-commerce, online
payments etc., which have increased customer convenience and higher volume of
business.
05) It has enabled manufacturers to improve production, efficiency and quality and
reduce the cost of production.
06) Technological developments have led to automaton. Use of robots, self driving
cars etc would result in lower employment of manual labour. This would worsen
the unemployment problem of developing countries.
MANAGEMENT OF TECHNOLOGY
Meaning:
Technology management refers to applying managerial skills for discovering,

developing and optimally using technology. It involves creating value for
organisations through use of technology and resources to improve efficiency and
effectiveness. Technology management is focused on improving the future growth of
the company and the welfare of its stakeholders.
Definition:
The U.S. National Research Council defined management of technology as

linking “ engineering, science, and management disciplines to plan, develop, and
implement technological capabilities to shape and accomplish the strategic and
operational objectives of an organisation”.
Impact on Management of Technology:
01) Technological developments have reduced the cost of operating a

business, in many industries, robots operate machines reducing the
demand for human labour and salary costs.
02) Computers process large volume of transactions benefitting the
organisation in terms of lower time and costs. For instance in ICICI Bank
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nearly 10 lakh transactions are being processed everyday by software

robots.
03) Technology has enabled automation resulting in speedier operations and
improvement in quality.
04) Growth of telecommunication and spread of internet has enabled higher
volume of business through online business market places.
05) Companies can have access to suppliers and customers from different
parts of the world.
06) Technology has enabled companies to have global supply chains to
improve efficiency of their business processes.
07) Business firms are able to develop new products through investments in
technology.
08) Technology has provided the capacity to firms to create markets and entre
into new markets.
09) Firms are able to provide better quality of services to customers.
10) Technology enables firms to outsource their noncore operations and focus
on their core activities to win in market place.
TECHNOLOGY TRANSFER
Meaning:
It is the process that enables the flow of technology from a source to a receiver. The
source is the creator, owner or holder of technology and the receiver is the potential user. It is
the transfer of rights of scientific research to another party to use it for new inventions or
innovation. It involves the transfer of knowledge, technical knowhow and equipment
Definition;
According to Lane, “ Technology transfer is the process of changing ownership and

control over an invention from the creator to a party intending to generate a commercial
product or service”.
Methods of Technology Transfer:
The methods of technology transfer are:
a) Licensing
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b) Joint Venture
c) Franchising
d) Strategic alliances
e) Turnkey contracts
f) Management contract
g) Foreign Direct Investment (FDI)
h) Acquiring a Foreign company which has developed the required technology.
 Support contract
 Joint research
DEMOGRAPHIC ENVIRONMENT
Meaning:
Demographics refer to the socio-economic characteristics of a population that

businesses use to identify the product preferences and purchasing behaviours of customers.
With their target market’s traits, companies can build a profile for their customer base. They
can determine their key customers or target market and create marketing materials.
Definition:
Demographic environment refers to the human population characteristics that
surround a firm or nation and that greatly affect markets. The demographic environment
includes such factors as age distributions, births, deaths, immigration, marital status, sex,
education, religious affiliations, and geographic dispersion—characteristics that are often
used for segmentation purposes.
Demographic Variables
What are the traits that make an impact on a business strategy? Here are some of the
demographic variables used by businesses regardless of industry:
1 .Purchasing Power
In general, different products and services appeal to different income groups, and
value is a critical deciding factor on which products to buy or services to avail. High-end
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dining establishments cater to customers with higher incomes, while those with lower
incomes, and hence less disposable income, most likely go for affordable restaurants.
If your business is selling budget-friendly clothing items, it is best to attract people

with lower salaries through discount shops and wholesalers. On the other hand, reach out to
boutiques and specialty retail shops where people with higher incomes go.
2. Geographic Region
The location also affects the buying preferences and behaviours of customers.
Companies that aim to get higher sales and profits need to understand how the geographic
regions of their customers come into play. For instance, you should know where your
customers shop for specific food items, whether it be local markets or big supermarkets. If
you sell your products in areas where your target consumers usually go to for their food and
drink fix, you will most likely increase sales. Otherwise, you will lose such customers.
3. Age
Products and services appeal to different age groups. For instance, millennial or
people who are 35 years old and below are usually the critical customers of gadgets such as
the latest models of phones and laptops. The baby boomer generation, which refers to people
who were born between 1946 and 1964, are a large group as well. If your products are
designed for millennial, make sure to offer them in communities or areas where there are a lot
of young people.
4. Family Status
Does the community comprise a lot of families with children or young professionals
who are not yet married? Family status as a demographic variable exerts a significant impact
on a business strategy. Companies need to understand the overall status of the population in a
specific area to determine if their products or services will appeal to them.
5. Social Class
Social-class bands such as wealthy, middle, and lower classes. The rich, for instance, may
want different products than middle and lower classes, and may be willing to pay more.
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6.Gender
Males and females have different physical attributes that require different hygiene and
clothing products. They also tend to have distinctive male/female mindsets and roles in
the family and household decision making.
7.Religious affiliations
Religion is linked to individual values as well as holiday celebrations, often tied to
consumer preferences and spending patterns.
8.Income brackets
Indicating level of wealth, disposable income, and quality of life.
9.Education
Level of education is often tied to consumer preferences, as well as income.
Current Issues in Business Environment:
Apart from specifics in particular environments, there are a host of other aspects
that affect business practices and policies. It is indeed helpful and recommended that we
familiarise ourselves with these Important issues, which have come to occupy a
prominent place in business environment. Some of these are:
 Urbanisation
 Growing population and its effect on business
 The public distribution system in India
 Multinational corporations, etc.
URBANISATION
Meaning:
Urbanisation is the increase in the proportion of people living in towns and cities.
Urbanisation occurs because people move from rural areas (countryside) to urban areas
(towns and cities). This usually occurs when a country is still developing.
Definition:
Urbanisation is “the increase over time in the population of cities in relation to the region's
rural population”.
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Advantage and disadvantage of urbanisation:
Urbanization brings with it several consequences – both adverse and beneficial. They impact
on social and environmental areas.
Adverse effects of Urbanization:

There is increasing competition for facilities in urban areas, which results in several
negative effects. Many people mainly farmers who move to cities in search of a better life
and better occupational opportunities end up as casual labourers. This leads to menacing
problems of urbanization – the growth of slums. Slums are urban areas that are heavily
populated with substandard housing and very poor living conditions.
These result in several problems
 Land insecurity :
Slums are usually located on land, not owned by the slum dwellers. They can
be evicted at any time by the landowners.
 Poor living conditions :
Crowding and lack of sanitation. This often contributes to outbreak of diseases.
Utilities such as water, electricity and sewage disposal are also lacking in these areas.
 Unemployment :
Since the number of people aspiring for jobs is more than jobs available,
unemployment is a natural outcome of situation.
 Crime :
Slum conditions make maintenance of law and order difficult. Patrolling of slums is
often not on priority list of law enforcing officers. Unemployment and poverty force people
to engage in anti-social activities. Slums therefore, often become a breeding ground for
criminal activities.
Advantage:
Urbanization is not all bad, it has its benefits.
 Efficiency:
Cities are often more efficient than rural areas. Less effort is needed to supply basic
amenities such as fresh water and electricity. Research and recycling programs are possible
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only in cities. In most cities flats are prevalent. In flats many people can be accommodated
within a small land area.
 Convenience:
Access to education, health, social services and cultural activities is more readily
available to people in cities than in villages. Life in cities is much mored comfortable,
compared to life in villages. Cities have more advanced communication and transport
networks.
 Concentration of resources:
Since most major human settlements were established near natural resources from
ancient times, lot of resources are available in and around cities. Facilities to exploit these
resources optimally also exist only in cities.
 Concentration of Educational facilities:
More schools, colleges and universities are established in cities to train and develop
human resources. Variety of educational choices are available offering students a wide choice
for their future careers. In this age of knowledge society it has become more and more
important.
 Better Social integration:
People of many castes ,groups and religions live and work together in cities, which
creates better understanding and harmony and helps breakdown social and cultural barriers.
 New Markets:
Internet has opened up a new market world wide. Any one can sell in this market by
posting Free classifieds web from the comfort of the home.
 Economic Improvement:
High-tech industries earn valuable foreign exchange and lot of money for the
country.
Disadvantage:
 Temperature Increase:
Due to factors such as paving over formerly vegetated land, increasing number of
residences and high-rise apartments and industries, temperature increase due to increased
absorption of Sun’s energy and production of more and more heat due to very intense human
activity.
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 Air pollution:
Factories and automobiles are most visible symbols of urbanization. Due to emissions
of harmful gases and smoke from factories and vehicles, air pollution results. High amount
of suspended particulate matter in air, particularly in cities, which contributes to allergies and
respiratory problems becoming a huge health hazard.
 Changes in Natural Water Cycle :
When urbanization takes place, water cycle changes as cities have more precipitation
than surrounding areas. Due to dumping of sewage from factories in water bodies, water
pollution occur which often resulting in outbreaks of epidemics.
 Destruction of Natural Habitats of Flora and Fauna :
In making of an urban area, a lot of forested areas are destroyed which otherwise
would have been natural habitats to many birds and animals.
We have extended the urbanisation to the sea also. This tendency is damaging the
ocean ecosystem also.
POPULATION
MEANING:
IN BIOLOGY:
A population is a number of all the organisms of the same group of species who
live in a particular geographical area and are capable of interbreeding.
The area of sexual population is the area where interbreeding is possible

between any pair with in the area and more probable than crossbreeding with individuals
from other areas.
IN SOCIOLOGY:
Population refers to a collection of humans. Demography is a social science

which entails the statistical study of populations.
In simpler terms, is the the number of people in a city or town,region, country

or world; population is usually determined by a process called census (a process of collecting,
analyzing, compiling and
publishing data).
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DEFINITION:
“Population is defined as 'the number of people,the total amount in the country

in the particular period of time’.
POPULATION EXPLOSION:
Though a certain number of people are necessary for economic growth and
development,
too much of population growth will certainly retard economic progress.Afterindependance,

population accelerated
at a fast rate in india.1951-61 saw an increase of 781 lakh. We are now living in an eera of
population explosion
throughout the world, especially in the developing countries like

India,China,Brazil,Indonesia,etc.
There is sudden explosion in human numbers.
01) Population explosion surged from about 2.5 million people in 1950 to more than
6 billion in 1999.
02) According to recent predicatios a7 billion growth will be ecpected in 2014.
03) The majority (600 million) are predicted to be in the low income countries.
04) During these 15 years, the urban population will increse from 47% of the total
54%, a net growth
of 925 million, mostly due to migration.
REASONS FOR OVER POPULATION:
1.SUBSTANTIAL DROP IN DEATH RATE:
Because of the extensive research in medicine and modern surgical procedures,
the life span of human beings have gone up considerably. Treatments of previously incurable
disease that led to
death like T.B., cancer, etc., are no longer fatel. Where earlier life expectancy was about 60
years, it is not uncommon now to see a majority of people living past 80.
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2.LOW STANDARD OF LIVING:
A number of people especially in the Asian countries are still living in dire poverty.
They exist below poverty line (BPL). In these circumstances,it is natural that their
populations increses, as they are awareness of the need to control population.
3.PRACTICE OF EARLY MARRIAGE:
Early marriage, which is still seen in India, enables a women to have more children as
conceiving starts at a lower age and hence can produce more number of children.
4.LESS USAGE OF BIRTH CONTROL MEASURES:
Poverty, ignorance of the concept of birth control, unavailability of family planning

aidsand sheer laziness are some reasons why the population is increeasing at a rapid rate.
5.GRINDING POVERTY:
The unfortunate situation takes away the logical mind of a person and they do not
thinkbefore producing children. Poverty has a direct proportionate link with over population.
6.ILLITERACY:
Less education , less money and illitercy are major factors that cause the population of
any place to grow. Where people are not educated, they cannot visualise the impact ofr their
doing on the globe in general -be it
environmental or economic aspects.
7.INCREASE IN BIRTH RATE:
With family planning taking a back seat, this is bound to happen. More children are
born and older people do not expire as soon, as they did earlier. This gives extra load to the
earth, in terms of overpopulating it.
EFFECTS ON POPULATION GROWTH ON ECONOMIC DEVELOPMENT
Population growth is at once a stimulant as well as an impedimentto rapid economic

growth.But there are many drag effects that are caused, which can seriously hamper the
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developmental programmesthat are plannedby the governing authorities. Some of them are
the following:
1.LOW PER CAPITA INCOME:
As the population increases, it puts presure on the resources of the nation. In case,
people below the poverty line increases in huge numbers, the total resources being the same,
it results in a decrease in the per capita income of
a nation.
2.UNEMPLOYMENT:
The number of jobs cannot increase exponentialoly as the population,

especially in countries like India and China. Although the jobs in the information Technology
sector have gone up, they are not enough to provide employmenttoevery one. The result is
that there is massive unemployment in many countries.
3.LOWER STANDARD OF LIVING:
Unlimited and unchecked population increase, lowers the standard of

living in a nation where facilities and products are not able to keep pace with the population
growth.
4.INCREASE IN CRIME RATE:
When facilities are not enough and unemployment is on the rise, it gives rise to more
crime.
5.INCREASED PRESURE ON INFRASTRUCTURE AND RESOURCES:
Infrastructure and resources are limited. They can be expanded and better used
only to a limit. More than that,these get strained and are not able to fulfill the needs of the
growing population.
6.LESSER PLACE FOR AGRICULTURE AND CULTIVATION:
When the number of people increase, they need more houses and more
places to work. More industries come up to manufacture products for the increased
population. The result is that all this enroaches on the cultivable land and it becomes more
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difficult to do agriculture and cultivation. The present struggle of farmers in Nandigram and
West Bengal against the state government is an example of this situation.
The Public Distribution System (PDS)
Introduction
 The Public distribution system (PDS) is an Indian food Security

System established under the Ministry of Consumer Affairs, Food, and Public
Distribution.
 PDS evolved as a system of management of scarcity through distribution of food

grains at affordable prices.
o PDS is operated under the joint responsibility of the Central and the State
Governments.
The Central Government, through Food Corporation of India (FCI), has
assumed the responsibility for procurement, storage, transportation and bulk
allocation of food grains to the State Governments.
o The operational responsibilities including allocation within the State,

identification of eligible families, issue of Ration Cards and supervision of the
functioning of Fair Price Shops (FPSs) etc., rest with the State Governments.
 Under the PDS, presently the commodities namely wheat, rice, sugar and
kerosene are being allocated to the States/UTs for distribution. Some States/UTs also
distribute additional items of mass consumption through the PDS outlets such as
pulses, edible oils, iodized salt, spices, etc.
Evolution of PDS in India
 PDS was introduced around World War II as a war-time rationing measure. Before
the 1960s, distribution through PDS was generally dependant on imports of food
grains.
 It was expanded in the 1960s as a response to the food shortages of the time;
subsequently, the government set up the Agriculture Prices Commission and
the FCI to improve domestic procurement and storage of food grains for PDS.
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 By the 1970s, PDS had evolved into a universal scheme for the distribution of
subsidised food
 Till 1992, PDS was a general entitlement scheme for all consumers without any
specific target.
 The Revamped Public Distribution System (RPDS) was launched in June, 1992
with a view to strengthen and streamline the PDS as well as to improve its reach in
the far-flung, hilly, remote and inaccessible areas where a substantial section of the
underprivileged classes lives.
 In June, 1997, the Government of India launched the Targeted Public Distribution
System (TPDS) with a focus on the poor.
o Under TPDS, beneficiaries were divided into two categories:

Households below the poverty line or BPL; and Households above the
poverty line or APL.
 Antyodaya Anna Yojana (AAY):
AAY was a step in the direction of making TPDS aim at reducing hunger
among the poorest segments of the BPL population.
o A National Sample Survey exercise pointed towards the fact that about 5% of
the total population in the country sleeps without two square meals a day. In
order to make TPDS more focused and targeted towards this category of
population, the "Antyodaya Anna Yojana” (AAY) was launched in
December, 2000 for one crore poorest of the poor families.
 In September 2013, Parliament enacted the National Food Security Act, 2013. The
Act relies largely on the existing TPDS to deliver food grains as legal entitlements to
poor households. This marks a shift by making the right to food a justiciable right.
How PDS system functions?
 The Central and State Governments share responsibilities in order to provide food
grains to the identified beneficiaries.
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 The centre procures food grains from farmers at a minimum support price
(MSP) and sells it to states at central issue prices. It is responsible for transporting
the grains to godowns in each state.
 States bear the responsibility of transporting food grains from these godowns to each
fair price shop (ration shop), where the beneficiary buys the food grains at the
lower central issue price. Many states further subsidise the price of food grains
before selling it to beneficiaries.
Importance of PDS:
 It helps in ensuring Food and Nutritional Security of the nation.
 It has helped in stabilising food prices and making food available to the poor at
affordable prices.
 It maintains the buffer stock of food grains in the warehouse so that the flow of
food remain active even during the period of less agricultural food production.
 It has helped in redistribution of grains by supplying food from surplus regions of

the country to deficient regions.
 The system of minimum support price and procurement has contributed to the
increase in food grain production.
Issues Associated with PDS System in India
 Identification of beneficiaries:
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Studies have shown that targeting mechanisms such as TPDS are prone to large
inclusion and exclusion errors. This implies that entitled beneficiaries are not
getting food grains while those that are ineligible are getting undue benefits.
o According to the estimation of an expert group set up in 2009, PDS suffers

from nearly 61% error of exclusion and 25% inclusion of beneficiaries, i.e. the
misclassification of the poor as non-poor and vice versa.
 Leakage of food grains:
(Transportation leakages + Black Marketing by FPS owners) TPDS suffers from large
leakages of food grains during transportation to and from ration shops into the open market.
In an evaluation of TPDS, the erstwhile Planning Commission found 36% leakage of PDS
rice and wheat at the all-India level.
 Issue with procurement:
Open-ended Procurement i.e., all incoming grains accepted even if buffer stock is filled,
creates a shortage in the open market.
 Issues with storage:
A performance audit by the CAG has revealed a serious shortfall in the

government’s storage capacity.
o Given the increasing procurement and incidents of rotting food grains, the
lack of adequate covered storage is bound to be a cause for concern.
The provision of minimum support price (MSP) has encouraged farmers to

divert land from production of coarse grains that are consumed by the poor, to rice
and wheat and thus, discourages crop diversification.
 Environmental issues:
The over-emphasis on attaining self-sufficiency and a surplus in food grains,

which are water-intensive, has been found to be environmentally unsustainable.
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o Procuring states such as Punjab and Haryana are under environmental stress,
including rapid groundwater depletion, deteriorating soil and water
conditions from overuse of fertilisers.
o It was found that due to cultivation of rice in north-west India, the water table
went down by 33 cm per year during 2002-08.
PDS Reforms:
 Role of Aadhaar:
Integrating Aadhar with TPDS will help in better identification of

beneficiaries and address the problem of inclusion and exclusion
errors. According to a study by the Unique Identification Authority of India, using
Aadhaar with TPDS would help eliminate duplicate and ghost (fake) beneficiaries,
and make identification of beneficiaries more accurate.
 Technology-based reforms of TPDS implemented by states:
Wadhwa Committee, appointed by the Supreme court, found that certain

states had implemented computerisation and other technology-based reforms to
TPDS. Technology-based reforms helped plug leakages of food grains during TPDS.
o Tamil Nadu implements a universal PDS, such that every household is

entitled to subsidised food grains.
o States such as Chhattisgarh and Madhya Pradesh have implemented IT

measures to streamline TPDS, through the digitisation of ration cards, the use
of GPS tracking of delivery, and the use of SMS based monitoring by citizens.
Technology-based reforms to TPDS undertaken by some states
Type of Benefits of reform States

reform implementing
reforms
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Digitisation  Allows for online entry and Andhra Pradesh,

of ration verification of beneficiary data Chhattisgarh,
cards Tamil Nadu,
 Online storing of monthly
Madhya Pradesh,
entitlement of beneficiaries,
Karnataka,
number of dependants, offtake
Gujarat, etc.
of food grains by beneficiaries
from FPS, etc.
Computerised  Computerises FPS allocation, Chhattisgarh,

allocation to declaration of stock balance, Delhi, Madhya
FPS web-based truck challans, etc. Pradesh, Tamil
Nadu, etc.
 Allows for quick and efficient
tracking of transactions
Issue of smart  Secure electronic devices used Haryana, Andhra

cards in place to store beneficiary data Pradesh, Odisha
of ration etc.
 Stores data such as name,
cards
address, biometrics, BPL/APL
category and monthly
entitlement of beneficiaries and
family members
 Prevents counterfeiting
Use of GPS  Use of Global Positioning Chhattisgarh,

technology System (GPS) technology to Tamil Nadu
track movement of trucks
carrying food grains from state
depots to FPS
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SMS based  Allows monitoring by citizens Chhattisgarh, Uttar

monitoring so they can register their mobile Pradesh, Tamil
numbers and send/receive SMS Nadu
slerts during dispatch and
arrival of TPDS commodities
Use of web-  Publicises grievance redressal Chhattisgarh

based machinery, such as toll free
citizens' number for call centres to
portal register complaints or
suggestions
PDS vs. Cash Transfers
 National Food Security Act,2013 provides for reforms in the TPDS including schemes
such as Cash transfers for provisioning of food entitlements.
 Direct Benefit Transfer (DBT) aims to:
o reduce the need for huge physical movement of food grains
o provide greater autonomy to beneficiaries to choose their consumption basket
o enhance dietary diversity
o reduce leakages
o facilitate better targeting
o promote financial inclusion
Advantages and disadvantages of PDS and other delivery mechanisms
Machanism Advantages Disadvantages
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PDS  Insulates beneficiaries  Low offtake of food

from inflation and price grains from each
volatility household
 Ensures entitlement is  High leakage and

used for food grains only diversion of subsidised
food grain
 Well-developed network
of FPS ensures access to  Adulteration of food grain
food grains even in
 Lack of viability of FPS
remote areas
due to low margins
Cash  Cash in the hands of poor  Cash can be used buy

transfers increases their choicess non-food items
 Cash may relieve  May expose recipients to

financial constraints price volatility and
faced by the poor, make inflation
it possible to form thrift
 There is poor access to
societies and access
banks and post offices in
credit
some areas
 Administrative costs of
cash transfer programmes
may be significantly
lesser than that of other
schemes
 Potential for making

electronic transfer
Food  Household is given the  Food coupons are not

coupons freedom to choose where indexed for inflation; may
it buys food expose recipients to
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 Increases incentive for inflation

competitive prices and
 Difficult to administer;
assured quality of food
there have known to be
grains among PDS stores
delays in issuing food
 Ration shops get full food coupons and reimbursing
grains from the poor, no shops
incentive to turn the poor
away
Way Forward:
 PDS is one of the biggest welfare programmes of the government, helping farmers
sell their produce at remunerative prices as well as the poorer sections of society to
buy food grains at affordable rates.
 Its effectiveness can be enhanced with technology based solutions as is evident from
some of the states’ successes towards the same. Shifting towards DBT is another idea,
but with caution.
o In its report on State finances, the Reserve Bank of India (RBI) has advised
States that are planning to shift to cash transfer to be cautious while effecting
the migration.
o Economic survey 2016-17 also highlighted the need for more caution and
better infrastructure while replacing subsidised PDS supplies with DBT.
 Strengthening of the existing TPDS system by capacity building and training of the
implementing authorities along with efforts to plug leakages is the best way forward.
 It can be further strengthened by the increased public participation through social

audits and participation of SHGs, Cooperatives and NGOs in ensuring the
transparency of PDS system at ground level.
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 To enhance the nutritional level of masses, bio-fortified foods need to be distributed

through the PDS that will make it more relevant in the backdrop of prevalent
malnutrition in India.
MULTINATIONAL COMPANIES
(MNC's)
Meaning:
Multi National Companies or MNC's are large commercial organisation managed from one
country with operations in different countries. They derive significant portion of their
revenues from outside their home country.
They produce products and services for the global markets and have customers in many
countries. They set up factories in global locations which are cost effective. Purchases of raw
materials are from countries which provide superior quality at lower prices.
Features of MNC Companies:
1. Dispersed production:
MNC's do not produce their products from a single location. Factories are located in different
parts of the world.
2. Multi Country Sourcing:
MNC's do not depend on one supplier or a country for their raw material requirements. They
have purchase in different countries.
3. Global Supply Chain:
Components are produced in multiple locations and assembled in different locations. Then
they are shipped to customers spread across the world. MNC's have global supply chains.
4. Intense Global Competitions:
MNC's have to be equipped to face intense competition. In each country, there are local
competitors as well as global competitors.
5. Focus on efficiencies:
MNC's have to compete and win in highly competitive markets. Therefore they have to
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improve efficiencies of all their system and processes.
6. Investment in R&D:
MNC's have to satisfy changing needs of global customers. Therefore they need to invest on
research and development to produce better as well as new products.
7. Widespread investor base:
Investors from different parts of the world invest in MNC companies. Therefore MNC have
widespread global investor base.
Advantages of MNC Companies:
1. Efficient Sourcing:
MNC companies operate in many countries and have knowledge of the best places to
purchase raw materials. Therefore they can purchase superior quality raw materials at low
prices.
2. Cost Efficient Manufacturing:
They manufacture in those global locations where costs are lower. Many MNC's now
have a factory in china because of cheap labour and world class infrastructure (roads,
ports, electricity, warehouses, telecom etc.).
3. Superior quality:
MNC's buy raw materials from the best sources at cheap prices. They can invest in
research and have talented employees. This helps them to produce quality products at
competitive prices.
4. Economics of scale:
MNC's produce in large quantities because they need to satisfy their wide customers
base. They can spread fixed costs over large number of units resulting in lower cost
per unit.
5. Better return to investors:
MNC's earn revenues from many many countries. Therefore they are able to enjoy
higher sales and profits. Companies such as Microsoft, Toyota, Philips etc., have
customers throughout the world and earn high sales and profits. Thus, they are able
to provide better returns to their investors.
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6. Less risk of product failure:

A product with low sales in one country might sell well in other countries.
Therefore MNC's face lesser risk of product failure. Wagon R was only an average
success in India but was the top selling car for Suzuki in Japan.
7. Extended life of products:
A product which has become outdated in certain countries can be successfully
introduced in other markets. Thus MNC's can extend the life of their products and
continue to earn income. Qualis (from Toyota) which became outdated in US and
Europe was able to enjoy high sales in India for a certain period.
8. Strong brands:
MNC's have the capacity to spend more on advertising and brands buildings
activities. They can invest resources and create strong brands recognised globally
(Eg. Colgate, Cadbury's, Pepsi, Coke etc.,). Strong brands enable them to retain
customers, win over competitors and benefits from higher prices.
9. Improved financial stability:
The revenues and profits of MNC's are higher than local companies. They would
have better strength and financial stability. For instance, after meeting all its
expenses, Apple had a bank balance of $100 billion (Rs.6 lakhscrore) as on May
2015.
10. Contribution to Government revenues:
Governments are also benefited because of the revenue derived from MNC's. As
their profits increase, MNC's pay higher taxes to the government.
Risks and Challenges faced by MNC's:
1. Low skills levels:

MNC's may not find people with suitable skills in developing countries. They
have to spend lot of time and money on training.
2. Risk ofNationalisation:
MNC's face the problem of piracy. They invest huge amount of funds to develop new
products and services. Local competitors may just copy and sell them at lower prices.
3. Lack of protection to Intellectual property:

In many countries there is inadequate protection for intellectual property. The
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investment made in them might go waste if some other firm copies and benefits from
it.
4. Change in government and government policy:
Change in government and government policies might affect MNC's. A new
government might completely change the previous government's policy towards
MNC's.
5. Failureto understand foreign customers preferences:
Customer requirements and preferences are not the same in all countries. Not
understanding present and emerging customers requirements may result in huge
losses.
6. Change in rules and regulations:
Foreign country rules and regulations may change. A business which was legal
under a particular set of rules may become illegal with a change in rules.
7. Currency fluctuations:
Fluctuations in currency rates can upset calculations and make plans ineffective.
Appreciations or depreciations in currency values may affect sales and profits.
Criticisms against MNC's or Disadvantages of MNC's:
1. Outdated products:
Products which have become outdated in developed markets are introduced in
developing countries. Thus MNC's deny the usage of their latest products to developing
country customers.
2. Predatory pricing:
When they enter a country, MNC's sell their products at very cheap prices to attract
customers. They are even ready to incur losses. The objective is to kill local companies
and then increases prices to earn high profits.
3. High prices:
MNC's charge high prices for maximising profits in case of certain products.
Consumers welfare is completely ignored.
4. Double standards:
MNC's provide better quality and superior services to developed country customers.
However, for developing country customers, products and services are poor quality.
5. Explotation of labour:
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MNC's companies exploit the labour forces of host countries. They pay low wages
and force employees to work long hours in poor working conditions.
6. Environmental problems:
MNC's activities cause environmental problems. They cause pollution and wrongfully
exploit the natural resources of host countries.
7. Discriminatory treatment:
MNC's provide quicker promotions and better salaries to employees from their
home country. The host country employees are discriminated against.
8. Home country employees in key positions:
Top management positions are filled by employees from their home countries. Host
country employees may not be promoted to top management.
9. Interference in local government:
MNC's can interference government policies and rules using their money power.
They can bribe policy makers to frame policies favouring them and affecting
competitors.
10. High amount of royalty government:
MNC's subsidiaries pay huge amount of royalties to their parent companies. Royalties keep
increasing even if sales and profits are low. Profits are not reinvested in the host countries.
The Story of a successful MNC Brand in India
Horlicks, the health drink which has become a habit of many Indian families in a 142 years
old brand(as on 2015) and was first imported to India during 1900. It became very popular
and enjoyed good sales. It began to be manufactured in India from the year 1958 and is the
leading health drink till now (2015). In 1992, Horlicks biscuits was introduced and in 1995
to target the kid segment, Junior Horlicks launched. The company which was facing decline
in sales, came out with the path breaking Epang, Upang, Japang campaign in this year 2003.
The advertisement positioned the product for the young ones and the company introduced a
completely new packaging. The campaign did workers for the company, and the brand which
was once identified with the sick and elederly got a youthful flavor. Sales of Horlicks
increased significantly and the campaign was ashining example of successful repositioning.
To meet the need of the increasing diabetic population, it offered HorlicksLite in the year
2005. The hugely successful Women's Horlicks was launched in the year 2008. In order to
tap the growing demand for noodles, the company came out with Horlicks Noodles in the
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year of 2009.
Successful Indian MNC's
Bajaj Ltd., was started by Jamnalal Bajaj for trading in cotton in the year 1926. The
company is currently run by the fourth generation and one of its companies Bajaj auto is
managed by Rajiv Bajaj. Bajaj Auto is ranked as the world's fourth largest two and three
wheeler manufacture. The company was early known for its scooters(Bajaj Chetak, Bajaj
Super, Bajaj Cub) has stopped manufacturing scooters and is today a leader in manufacturing
of motorbikes(Pulsar, Platina, Discover, Avenger and Ninja) and autos.
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UNIT:V
International Environment
What is international business environment?
International Business Environment is multidimensional including the political risks,

cultural differences, exchange risks, legal & taxation issues. Therefore (IBE) International
Business Environment comprises the political, economic, regulatory, tax, social & cultural,
legal, & technological environments.
The International Environment
International managers face intense and constant challenges that require training and
understanding of the foreign environment. Managing a business in a foreign country requires
managers to deal with a large variety of cultural and environmental differences. As a result,
international managers must continually monitor the political, legal, sociocultural, economic,
and technological environments.
International Business Environment is multidimensional including the political risks,

cultural differences, exchange risks, legal & taxation issues. Therefore (IBE) International
Business Environment comprises the political, economic, regulatory, tax, social & cultural,
legal, & technological environments.
The main cultural and social factors that affect international business are language,
education, religion, values, customs, and social relationships. These relationships include
interactions among families, labor unions, and other organizations.
Components of international business environment
1. Political environment.
2. Legal environment.
3. Economic environment.
4. Socio-cultural environment.
5. Technological environment.
6. Natural environment.
7. Demographic environment.
www.quora.com/What-is-international-business-environment-definition
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Introduction and Types of International Business Environment
The (IBE) International Business Environment is multidimensional including the

political risks, cultural differences, exchange risks, legal & taxation issues. Therefore (IBE)
International Business Environment comprises the political, economic, regulatory, tax, social
& cultural, legal, & technological environments.
An international business environment is the surrounding in which international

companies run their businesses. It brings along it with many differences.
Thus, it is mandatory for the people at the managerial level to work on the factors that
make an International Business Environment.
The Difference – Business Environment and International Business
International business is an exchange of goods and services that conducts its

operations across national borders, between two or more countries. International business is
also known as Globalization whereas, a Business Environment is the surrounding in which
the international companies operate.
Forms of Business Environment

1. Import & Export
2. Licensing
3. Franchising
4. Joint venture
5. Foreign Direct Investment
6. Advantages of International Business Environment
7. Helps in expanding the business,
8. Exposure to more customers
9. Helps in the proper management of the product life cycle and
10. Helps in mutual growth
Political Environment
The political environment refers to the type of the government, the government
relationship with a business, & the political risk in the country. Doing business
internationally, therefore, implies dealing with a different type of government, relationships,
& levels of risk.
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There are many different types of political systems, for example, multi-party
democracies, one-party states, constitutional monarchies, dictatorships (military & non-
military). Therefore, in analyzing the political-legal environment, an organization may
broadly consider the following aspects:
1. The Political system of the business;

2. Approaches to the Government towards business i.e. Restrictive or facilitating;
3. Facilities & incentives offered by the Government;
4. Legal restrictions for instance licensing requirement, reservation to a specific sector like the
public sector, private or small-scale sector;
5. The Restrictions on importing technical know-how, capital goods & raw materials;
6. The Restrictions on exporting products & services;
7. Restrictions on pricing & distribution of goods;
8. Procedural formalities required in setting the business
Economic Environment
The economic environment relates to all the factors that contribute to a country’s
attractiveness for foreign businesses. The economic environment can be very different from
one nation to another. Countries are often divided into three main categories: the more
developed or industrialized, the less developed or third world, & the newly industrializing or
emerging economies.
Within each category, there are major variations, but overall the more developed
countries are the rich countries, the less developed the poor ones, & the newly industrializing
(those moving from poorer to richer). These distinctions are generally made on the basis of
the gross domestic product per capita (GDP/capita). Better education, infrastructure, &
technology, healthcare, & so on are also often associated with higher levels of economic
development.
Clearly, the level of economic activity combined with education, infrastructure, & so
on, as well as the degree of government control of the economy, affect virtually all facets of
doing business, & a firm needs to recognize this environment if it is to operate successfully
internationally. While analyzing the economic environment, the organization intending to
enter a particular business sector may consider the following aspects:
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1. An Economic system to enter the business sector.

2. Stage of economic growth & the pace of growth.
3. Level of national & per capita income.
4. Incidents of taxes, both direct & indirect tax.
5. Infrastructure facilities available & the difficulties thereof.
6. Availability of raw materials & components & the cost thereof.
7. Sources of financial resources & their costs.
8. Availability of manpower-managerial, technical & workers available & their salary & wage
structures.
Technological Environment
The technological environment comprises factors related to the materials & machines
used in manufacturing goods & services. Receptivity of organizations to new technology &
adoption of new technology by consumers influence decisions made in an organization.
As firms do not have any control over the external environment, their success depends
on how well they adapt to the external environment. An important aspect of the international
business environment is the level, & acceptance, of technological innovation in different
countries.
The last decades of the twentieth century saw major advances in technology, & this is
continuing in the twenty-first century. Technology often is seen as giving firms a competitive
advantage; hence, firms compete for access to the newest in technology, & international firms
transfer technology to be globally competitive.
It is easier than ever for even small business plan to have a global presence thanks to
the internet, which greatly grows their exposure, their market, & their potential customer
base. For the economic, political, & cultural reasons, some countries are more accepting of
technological innovations, others less accepting. In analyzing the technological environment,
the organization may consider the following aspects:
1. Level of technological development in the country as a whole & specific business sector.
2. The pace of technological changes & technological obsolescence.
3. Sources of technology.
4. Restrictions & facilities for technology transfer & time taken for the absorption of
technology.
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Cultural Environment
The cultural environment is one of the critical components of the international

business environment & one of the most difficult to understand. This is because the cultural
environment is essentially unseen; it has been described as a shared, commonly held body of
general beliefs & values that determine what is right for one group, according to Kluckhohn
& Strodtbeck.
National culture is described as the body of general beliefs & the values that are
shared by the nation. Beliefs & the values are generally seen as formed by factors such as the
history, language, religion, geographic location, government, & education; thus firms begin a
cultural analysis by seeking to understand these factors. The most well-known is that
developed by Hofstede in1980.
His model proposes four dimensions of cultural values including individualism,

uncertainty avoidance, power distance & masculinity.
Individualism is the degree to which a nation values & encourages individual action
& decision making.
Uncertainty avoidance is the degree to which a nation is willing to accept & deal with
uncertainty.
Power distance is the degree to which a national accepts & sanctions differences in
power.
This model of cultural values has been used extensively because it provides data for a
wide array of countries. Many academics & the managers found that this model helpful in
exploring management approaches that would be appropriate in different cultures.
For example, in a nation that is high on individualism one expects individual goals,
individual tasks, & individual reward systems to be effective, whereas the reverse would be
the case in a nation that is low on individualism.
1. While analyzing social & cultural factors, the organization may consider the following
aspects:
2. Approaches to society towards business in general & in specific areas;
3. Influence of social, cultural & religious factors on the acceptability of the product;
4. The lifestyle of people & the products used for them;
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5. Level of acceptance of, or resistance to change;

6. Values attached to a particular product i.e. the possessive value or the functional value of the
product;
7. Demand for the specific products for specific occasions;
8. The propensity to consume & to save.
Competitive Environment
The competitive environment also changes from country to country. This is partly
because of the economic, political, & cultural environments; these environmental factors help
determine the type & degree of competition that exists in a given country. Competition can
come from a variety of sources. It can be a public or a private sector, come from the large or
the small organizations, be domestic or global, & stem from traditional or new competitors,
GST registration. For a domestic firm, the most likely sources of competition might be well
understood. The same isn’t the case when a person moves to compete in the new
environment.
Sources: https://enterslice.com/learning/international-business-environment-ibe/
International Marketing Environment (With Diagram)
Article shared by : S.Jaideep
Environment consists of forces. Environment is made of such controllable and

uncontrollable forces. It is the environment that determines favourable or unfavourable
conditions, and hence, provides either opportunities or threats and challenges. Degree of
one’s success, to a large extent, depends on effect of marketing environment and ability of
the firm to respond effectively. International marketing environment covers all the relevant
global forces influencing international marketing decisions.
These forces may be internal (such as resource ability and management attitudes),
may be domestic (such as government policy toward international business and facilities),
and global (such as overall international business environment of relevant part of the world).
However, discussion of global forces is more relevant as they are major considerations in
international marketing.
Definitions:
We can define the word ‘international marketing environment as under:
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1. International marketing environment is a set of controllable (internal) and uncontrollable

(external) forces or factors that affect international marketing. International marketing mix is
prepared in light of this environment.
2. International marketing environment consists of global forces, such as economic, social,

cultural, legal, and geographical and ecological forces, that affect international marketing
decisions.
3. International marketing environment for any marketer consists of internal, domestic, and
global marketing forces affecting international marketing mix.
Factors of International Marketing Environment:

Factors or forces involved in the international marketing environment can be
classified into three categories as stated in the figure 1. Manager dealing with international
marketing has to design his marketing mix and marketing (mix) strategies in accordance with
these forces.
He has to keep in mind the present them and expected impacts of such forces while
taking international marketing decisions. The environment determines the degree of
favourableness for any marketer for international marketing; determines level of
opportunities and threats.
1. Global Factors:
Such factors are related to the world economy. Broader picture of global phenomenon affects
every decisions of international marketing.
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Main global factors include:

i. Customer-related factors
ii. Political and legal factors
iii. Social factors
iv. Cultural factors
v. Competition
vi. Global relations among nations and degree of the worldwide peace.
vii. Geographic/ecological/climate-related factors
viii. Functioning of international organisations like UNO, World Bank, WTO, etc.
ix. Availability of marketing facilities and functioning of international agencies, etc.
2. Domestic Factors:
Domestic factors are related to the economy of the nation. Overall economic, social and
cultural, demographic, political and legal, and other domestic aspects constitute domestic
environment for international marketing. This environment affects international marketing
mix in several ways.
Important domestic factors include:
i. Political climate/stability/philosophy
ii. Government approach and attitudes toward international trade
iii. Legal system and business ethics
iv. Availability and quality of infrastructural facilities
v. Availability and quality of raw-materials
vi. Functioning of institutions and availability of facilities
vii. Technological factors
viii. Ecological factors, etc.
3. Internal or Organisational Factors:
These are internal and controllable factors. They are related to internal situation of the
company dealing with international trade. International marketer needs to use, adjust, and
organize these factors to satisfy needs and wants of the (international) target markets.
These factors include:
i. Objectives of company
ii. Managerial philosophy of company
iii. Personal factors related to management
iv. Managerial attitudes toward other nations, customers, social welfare, etc.
v. Company’s policies and rules
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vi. Resource ability of company and marketing mix

vii. Form of organisation and organisational structure.
viii. Nature and types of employees
ix. Internal relations with other departments
x. Company’s relations with other stakeholders and service providers.
Sources: https://www.yourarticlelibrary.com/marketing/international-marketing-
environment-with-diagram/48738
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IMF
What is the IMF at a glance?
The International Monetary Fund (IMF) is an organization of 189 countries, working to foster
global monetary cooperation, secure financial stability, facilitate international trade, promote
high employment and sustainable economic growth, and reduce poverty around the world.
What is the International Monetary Fund IMF? www.imf.org/en/About
The International Monetary Fund is an international organization that aims to promote global
economic growth and financial stability, to encourage international trade, and to reduce
poverty
How does the IMF differ from the World Bank? www.investopedia.com/terms/i/imf.asp
Because the Fund lends money, it's often confused with the World Bank. The World
Bank lends money to developing countries for specific projects that will fight poverty. Unlike
the World Bank and other development agencies, the IMF does not finance projects.
The International Monetary Fund is a 189-member organization that works to stabilize the
global economy.
Objectives:
The IMF meets its goal by targeting three objectives:
1. It monitors global conditions and identifies risks among its member countries.
2. It advises its members on how to improve their economies.
3. It provides technical assistance and short-term loans to prevent financial crises. The
IMF's goal is to prevent these disasters by guiding its members
GATT
General Agreement on Tariffs and Trade, an international treaty (1948–94) to

promote trade and economic development by reducing tariffs and other restrictions. It was
superseded by the establishment of the World Trade Organization in 1995.
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The General Agreement on Tariffs and Trade is a multilateral trade agreement aimed
at expanding international trade and the organization that oversees the agreement. The
purpose of GATT organization, based in Geneva, is to provide a forum for discussion of
world trade issues that allows for the disciplined resolution of trade disputes, based on the
founding principles of the GATT which include nondiscrimination, transparency, an the
most-favoured-nation (MFV) treatment. International negotiations known as Rounds are
conducted to lower tariffs and other barriers to trade, and a consultative mechanism that may
be invoked by governments seeking to protect their trade interests. The fundamental
principles of the GATT are:
Trade without discrimination. The first principal embodied in the famous most-favoured-
nation clause is that trade must be conducted on the basis of non discrimination. No country
is to give special trading advantages to another or to discriminate against it; all are on an
equal basis and all share the benefits of any moves towards lower trader barriers.
Protection through tariffs. Ensures that if protection to a domestic industry is given, it should
be extended through the customs tariff and not through other commercial measures.
Promotion fair competition. Concerns over dumping and subsidies are addressed by the Anti-
Dumping Code which provides rules under which governments may respond to dumping in
their domestic market by overseas competitors, and rules for the application of countervailing
duties which can be imposed to negate the effects of export subsidies.
Quantitative restrictions on imports. A basic clause of GATT is a general prohibition of
quantitative restrictions (import quotas). The main exception to the general rules against these
restrictions allows their use in balance of payments difficulties.
Possible emergency actions. Waiver procedures allow a country to seek release from
particular GATT obligations, when its economic or trade circumstances so warrant. The
safeguards rule permit members under carefully defined circumstances to impose import
restrictions or suspended tariff concessions on products that are being imported in such
increased quantities and under such conditions that they cause serious injury to competing
domestic producers.
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Regional trading arrangements. Regional trading groupings, as an exception to the general

most-favoured-nations treatment are permitted in the form of a custom union or free trade
area.
Settling trade disputes. Consultation, conciliation, and dispute settlement are fundamental
aspects of GATT´s work. Countries can petition GATT for a fair settlement of cases in which
they feel the rights under the General Agreement are being withheld or compromise by other
members.
What was the main objective of the GATT?
GATT's main objective was to reduce barriers to international trade through the reduction of
tariffs, quotas and subsidies. It has since been superseded by the creation of the World Trade
Organization (WTO)
What was the purpose of the GATT agreement?
It was the first worldwide multilateral free trade agreement. It was in effect from January 1,
1948 until January 1, 1995. It ended when it was replaced by the more robust World Trade
Organization . The purpose of GATT was to eliminate harmful trade protectionism.
How many countries signed the GATT agreement?
GATT remained one of the focal features of international trade agreements until it was
replaced by the creation of the World Trade Organization on January 1, 1995. By this time,
125 nations were signatories to its agreements, which covered about 90% of global trade.
What are the Main Objectives of GATT?

By reducing tariff barriers and eliminating discrimination in international trade, the
GATT aims at:
1. Expansion of international trade;
2. Increase of world production by ensuring full employment in the participating nations;
3. Development and full utilization of world resources; and
4. Raising standard of living of the world community as a whole.
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However, the articles of the GATT do not provide directives for attaining these
objectives. These are to be indirectly achieved by the GATT through the promotion of free
(unrestricted) and multilateral international trade.
As such, the rules adopted by GATT are based on the following fundamental principles:
1. Trade should be conducted in a non-discriminatory way;
2. The use of quantitative restrictions should be condemned; and
3. Disagreements should be resolved through consultations.
In short, members of GATT agree to reduce trade barriers and to eliminate discrimination in
international trade so that, multilateral and free trade may be promoted, leading to wider
dimensions of world trade and prosperity.
WTO
The World Trade Organization was established by the Uruguay Round in 1995 as successor
to the GATT (General Agreement o Tariffs and Trade), the WTO is the only global
organization dealing with the rules of trade among nations. It is responsible for monitoring
national trading policies, handling trade disputes and enforcing the GATT agreements. The
mission of the WTO is also reduce tariffs and other international barriers and eliminate
discriminatory treatment in international commerce. More than 150 countries belong to
WTO.
The WTO
The World Trade Organization (WTO) is the only global international organization dealing
with the rules of trade between nations. At its heart are the WTO agreements, negotiated and
signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is
to ensure that trade flows as smoothly, predictably and freely as possible.
Is India a member of WTO?
India is one of the founding members of WTO along with 134 other countries. India's
participation in an increasingly rule based system in governance of International trade, would
ultimately lead to better prosperity for the nation.
How does WTO affect tariffs in India?
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India has agreed to this agreement and substantially reduced tariffs. Only goods which are
exempted by the agreement are kept under control. Maximum tariff has been bonded as
required by WTO, under which a higher side of tariffs is fixed in percentage that should
never be surpassed.
What is social responsibility in business?
Social responsibility is a moral obligation on a company or an individual to take decisions or

actions that is in favour and useful to society. Social responsibility in business is commonly
known as Corporate Social Responsibility or CSR.
What is the environment of a business?
Environment. Social responsibility of business with respect to its surrounding environment

can't be sidelined at any cost. It must show a keen interest to safeguard and not harm the
vitality of the nature. A business must take enough care to check that its activities don't create
a negative impact on the environment.
What is the legal environment?
In every country, the government regulates business activities. These regulations of

government are considered as legal environment. In practice legal and regulatory goes hand
in hand. The limits for business operations are decided by regulatory environment & this is
also called legal environment.
What are the responsibilities of a business enterprise?
The foremost responsibility of business enterprises is to ensure that they should not damage
the environment and for this purpose they should reduce as much as possible air and water
pollution by their productive activities. They should not dump their toxic waste products in
rivers and streams to avoid their pollution.
What is the definition of Environment concept?
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Concept, Definition of Environment means everything around to a living being. Especially

the circumstances of life of people or society in their life conditions.
Business Legal Environment Definition

In the legal environment of a business, we are looking the key areas, particularly where law
changes and how legal aspects affect businesses. All these legal factors are contained in the
legal environment of a business.
Legal Factors Affecting Business Environment

Organizational Law
The organizational law is the first type of business law that we will talk about here. Any
business that is organized as a legal entity is subject to the state law that governs its operation
and conduct. There are different types of business entities. For example, corporations, limited
partnerships, partnerships, limited liability partnerships, limited liability limited partnerships
and limited liability companies all of which have different legal status and issues.
Securities Law
If a business is seeking to obtain financing through different types of investors, it may be
subject to legal issues such as security law. For instance, a decision to offer promissory notes,
a type of loan to your investors, will subject the legal factor affecting business to state and
federal regulations and security laws.
Every company issues securities and a growing body of law suggests that non-manager
interest in a limited liability company is also considered to be securities legal factors. As it is,
most small businesses should not worry about business legal factors like federal and state
security laws affecting them negatively. But if such a business has plans to raise capital
through platforms such as public offerings or online funding.
Contract Law
If the intention is to enter an agreement with another person or entity, then contract law is
binding. This also has a special area that is involved directly with factors affecting business,
for example, government contracts, which is also known as government procurement laws.
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Consumer Protection Laws

Some businesses act unfairly towards their consumers. For this reason, most countries have
consumer protection laws that are aimed at ensuring that consumers are protected. Here are
examples;
Weight and Measures Act: These laws ensure that the goods sold are weighed on
Standard weighting equipment.
Trade Description Act: This law ensures that it is illegal to deliberately give misleading
impression about products.
Consumer Credit Act: According to this Act, consumers should be given information of the
credit agreement and should be made aware of the interest rates, length of loan while taking a
loan.
Sale of Goods Act: This Act declares that It is illegal to sell products with flaws or problems
and that any goods sold conforms to standards.
Employees Protection laws
Different governments have passed laws to protect the interest of employees. These laws
protect them against unfair discrimination at work and when applying for jobs. It ensures that
no one is discriminated against on the basis of such things as race, religion, sex, age, or
colour.
Laws regarding health and safety at workplaces

Below are a few laws in regards to employees’ working conditions
Employees receive protection from dangerous machines.

At the workplace, employees should be given clothing and equipment that meet the highest
safety standards.
Employees should have a reasonable temperature at their workplaces.
The highest hygienic standards at the workplace and washing facilities should be met for the
sake of employees.
Employees to have enough breaking periods while working.
Security against haphazard termination of employees
It is illegal now for businesses to dismiss the employees for joining trade unions or for
expecting a baby unless you choose to ignore the new legal factors in business which will
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have repercussions on your business. Before dismissal of any worker, there has to be warning
with proper reasons, otherwise, the case may be treated as an unfair dismissal.
Immigration Laws
After a pestle analysis research, economists concluded on findings that aspects of
immigration positively contribute to a society. For instance, lately, American societies have
shifted to a more educated, high tech lifestyle. Therefore, only a few of these well-educated
citizens are willing to work at low paying jobs such as janitors and farm workers (The
Immigration Debate).
The immigrants that come to the United States are usually willing to work at these low wage
jobs that most Americans would not be comfortable doing. So, if it happened that the United
States did not have the immigrants willing to work these jobs, businesses would be limited to
two options; close their business or raise wages.
In this case, the immigrants provide a ready source of relatively affordable labour that keeps
the cost of business low and elevating profits. More labour leads to more output thereby
leading to consumers buying more products. All these legal factors affecting businesses
contribute greatly to the gross domestic product of the United States.
Government Procurement Laws

The government, through its contracting rules regulations and procedures, dictates the way
businesses work with it. It not only actively encourages small businesses to participate in
expressing interest when it purchases products and services, but it also goes to great lengths
and spends lots of money in outreach programs to find good, qualified small businesses to be
its suppliers in order to avoid legal factors that would affect their business. Normally, it
provides information that helps small businesses to bid with minimal risk, thereby managing
the legal factors in the business.
Just for the noting; you can find out how much the government bought the last 5 to 10 times,
who they bought from, and how much they paid. If you tried looking for such information
elsewhere as legal factors in business, it will be very hectic for you to get.
What is the legal environment of a business?
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The legal environment of a business includes the system of laws and regulations to which a
business is subject, as well as the related enforcement agencies and the judicial system. Since
she is starting a real estate investment company, Emmanuelle's legal environment will be
quite complex
The essential elements of CSR may be presented thus:
● CSR is a moral obligation to conduct operations ethically

● It strikes a happy balance between economic, ethical and social issues
● It demands every business to conduct the show in the best interests of society at large
● Businesses must make profits, but that cannot be at the cost of cus-tomers.
● It is a voluntary effort undertaken by every business that goes beyond what has been
dictated by law.
● It is, in short, a company’s sense of responsibility towards the community and
environment in which it operates. Now-a-days, the term is extended to include
philanthropy (love of humanity) and volunteering (actions undertaken without seeking
any gain).
Social responsibility is affected by the following barriers:
1. Managerial Perceptions:
If employees of the organisation want to assume social responsibility, their superiors may not
allow them to do so. In such situations, they may be forced to choose between personal
growth (and through it, organisational growth) and social growth. The inevitable choice is
personal growth even if it is at the cost of social values.
2. Comparison of Divisional Performance:

Overall performance of the organisation is judged by the performance of its various
departments. A department which discharges social responsibility may report lower profits
than its counterparts. This may not be acceptable to top managers unless the social
programmes are approved by them.
3. Overall Organisational Barriers:
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Low profits on account of social responsibility may not be acceptable to owners

(shareholders) or employees of the organisation if they lower dividends or wages. Catering to
values of one section of society at the cost of another is not justified.
4. International Barriers:
If a multinational corporation is buying supplies from the home industry and domestic
companies are selling their supplies at a higher price (because of social costs) vis-a-vis other
countries, they may lose sales in the international market. International business may, thus, be
a barrier to social responsiveness of business enterprises.
Social Responsibility of Business: Importance:

A growing body of evidence has identified a company’s role in its community as a factor in
increasing profitability, promoting company image, reducing costs, and elevating employee
morale and cus-tomer loyalty, among other benefits.
Interesting aspect of social responsibility in the modern era is that, being socially responsible
is not a matter of choice to a very large extent. It has become a business compulsion.
Behaving in a socially responsible manner gives business benefits to organizations. It may
involve costs in short run but has proved beneficial in the long run.
For companies operating on a multinational basis, community involvement can be helpful in

supporting efforts to enter new markets, attract potential employees, and establish or
strengthen the reputation of the company, its brand and products.
1. Increase Employee Morale, Retention, Attendance and Performance:

A company’s community involvement activities directly influence employees’ feelings about
their job. The more an employee knows about the company’s programs, the more likely he or
she will be loyal and positive about the company.
2. Develop Employee Skills:

Many company programs in the community can help foster employee skills. Volunteering
and other forms of employee involvement help developing a variety of competencies,
including teamwork, planning and implementation, communication, project management,
listening skills and cus-tomer focus.
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3. Enhance Company Reputation:

Active involvement in community activities builds a positive reputation with stakeholders in
the company.
4. Attract Investors:
Companies noted for their corporate citizenship may experience an advantage in attracting
investors, business partners, and new employees and in establishing customer preference.
5. Increase Customer Goodwill and Loyalty:

As the price and quality of products and services become increasingly standardized
throughout many industries, commu-nity involvement may help differentiate a company from
its competitors and increase brand loyalty.
6. Improve Relationships with The Community:

Many companies find that commu-nity involvement does not require sacrificing profits and,
in fact, can open new markets, reduce local regulatory obstacles, provide access to the local
political process, generate positive media coverage and increase company or brand awareness
within the community. Research has shown that the public expects companies to “give back”
more to their communities, and often views negatively the companies that are not perceived
as doing their fair share.
Prepared by: N.Shanmugam.
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PG AND RESEARCH DEPARTMENT OF COMMERCE, GOVERNMENT ARTS COLLEGE, KARUR.

Introduction to Business Environment

A business is an economic establishment. It is concerned with production and

A business can be established, but to successfully sustain a business, the business

Meaning of Business Environment

H.Haney “ Business may be defined as a human activity directed towards producing or

The main objective of business

Classification of Objectives of Business

1. Production and supply of quality goods and services

1. Economic well being of the employees

1. Raise general standard of living

Importance of Business Environment:

1. Enables to Identify Business Opportunities

2. Helps in Tapping Useful Resources

3. Coping with Changes

5. Helps in Improving Performance

The most important factors of the macro environment are as follows:

3] Economic Conditions of the Market

A market is never in one stable condition. It is always in a flux. If there is a boom in

4] Ecology and Physical Environment

5] Political and Legal Factors

The political environment of a country is the combination of three branches of the

Business Environment Types / Classifications (External Micro and External Macro)

What is the term business?

A business is an economic institution. It is concerned with production and distribution of

What is the meaning of business environment?

What are the main components of business environment?

Major Components of Business Environment or Business Studies

What are the features of business environment?

Specific and general forces:

What are characteristics of environment?

Conditions are observed on the basis of five environmental characteristics:

Following are Two types of business environment:

I. Internal Business Environment

II. External environment:

The external environment is relatively watched compared to the internal business

A part of retaining customers is giving more customer satisfaction. Recently customer

Marketing intermediaries play a very important role in distributing and sometimes of

Organizations can take help of different agencies such as market research

Associations of citizens, local groups, consumer protection organizations,

2) External Macro Business Environment:

Growing plant on row of coin money, csr in business

B) Social and Cultural Business Environment:

While we saw that Customers and Public affect Microenvironment of the

C) Political and Legal Environment:

These factors have an important impact on the functioning of organizations since

The businesses we have to adjust the requirements so as to adapt themselves to the

7. The general public, etc.

Exchanging Influence and Power

Organization and Its Environment

An Organization’s Response to its Environment

In order for an organization to respond well to its environment, it must be able to

Administrative: These are either proactive or reactive responses to specific

Competitive: A change in the competitive environment can force an organization to respond

Collective: Many organizations cope with environmental dependence problems through

Characteristics of Business Environment.

1. Business environment is compound in nature.

2. Business environment is constantly changing process.

Determining Opportunities and Threats.

Giving Direction for Growth.