Business Environment

Category: Education

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BUSINESS ENVIRONMENT “Complex internal and external factor, directly and indirectly influence the performance of company.” Element of Business Environment : Economic Non economic Objectives of Environmental Study: Measurement of Profitability Firms develops broad strategies & long term policies Measurement of Economic Progress Helpful in formulation of eco-policy Helpful in understanding of eco-policy Management can force impact of socio-economic changes

Contd… : 

Contd… Analysis of competition strategies Help in analysis& Trade cycle Better understanding of internal environment Best utilization of resources, Better Planning & Development Better investments plans Better input in growth of economy Stable Employment Study of technology Better collaboration & Seeking International opportunities Helps on self dynamic & innovations

Limitation of Environment Analysis : 

Limitation of Environment Analysis Unexpected & unanticipated events Not a sufficient guarantee of effectiveness in organization Potential not realized because not practicing properly Cost of information Uncritical faith Over cautions approach Broad classification of Business Environment based on Time: Past, Present, future Place: Local, regional, National , international Factors: Internal, external Activities: Eco or non eco Focus: Market, non market.

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ECONOMIC SYSTEM “Rules, ideologies, framework, Sum total of devises involving complex human relationship, consciously utilize scarce resources, up gradation of a nation” Types: Capitalism Socialism Mixed Economy Characteristics of Economic System: A group of people Organization of the process of consumption Flexibility

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Scarcity of Resources: Organization of Production Institutions: Assemblies of economic Instructions Co-ordinate System Capitalism: Free reign or Free enterprise or Private ownership Characteristics: Private Ownership Freedom of choice Motive of profit Freedom of Enterprise Price Mechanism Unplanned Economy Freedom of Savings & investments

Merits: : 

Merits: Increase in production, High standard of living Technological Progress Flexibility, Liberty Personal Car Risk taking Full utilization of resources Capital Formation Personal Care Liberty of work Demerits: Inequitable distribution of wealth Creation of monopoly Unemployment Unstable Nature

Cond… : 

Cond… Wastage of Resources Lower welfare of society Class conflict, Regional inequalities Materialistic opportunities Absence of maximum satisfaction Socialism: Marx is the father of scientific socialism Meaning Material means owned by society  equal opportunities & responsible to community, to increase national income of country

Characteristics: : 

Characteristics: Emphasis on equality – Economic & Social Ownership of the means of production Welfare of the society Economic Planning Reduction in class distinction Elimination of competition Prices decided by the Govt. Removal of social exploitation Employment Opportunities Lack of commercialization Merits: Utilization of Economic Resources Social Welfare Economics Equality

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Removal of unemployment Economic stability No class struggle Greater eco-efficiency R & D Emphasis on quality production Demerits: Misallocation of resources Unreal Nature Loss of efficiency Loss of spirit & enthusiasm Bureaucracy & Red Tapisim Loss of freedom Administrative complexities Difficulties of Management Lack of consumer sovereignty

Mixed Economy: : 

Mixed Economy: “Two Sectors Private + Public Sector undertaking  Advantages of capitalism + Socialism” Characteristics: Free Market + Centrally planned Economy Production activities  Private + Govt. Prices – Individuals goods( Market force) & Govt. produced goods(Govt. decided) Govt. aim  Social Welfare. Importance of eco planning State regulation of private sector Allocation of resources then price mechanism & Govt. Distribution

Merits: : 

Merits: Eco Stability & proper allocation & Resources Advantage of free initiatives & enterprise Rapid Eco development Social welfare Equal opportunities Controlled price mechanism Strong/vigilant govt. policies Demerits: Conflict between two sectors Unrealistic Sign of weakness Endangers freedom Excess is , bureaucracy Lack of incentives Misuse of resources

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Backdrop: : 

Backdrop: Need for reforms: In 1980s- Monetary losses– public sector industries, growing inefficiency of resources (+)Consumption (+) Expenditure > revenue  high govt. borrowings, Overprotection to industry, mismanagement of firm, Poor Technical development, shortage of Foreign exchange, imprudent borrowings  mismanagement of foreign funds. In 1991- 3 weeks of Foreign exchange reserves left – imports, National debt – 60% of GNP, Gulf war hike administration. prices  excess liquidity, Higher rate of inflation, Wholesale prices = 12 % of annual average rate

Major areas of Economic Reforms: : 

Major areas of Economic Reforms: Fiscal- Reduce overall public sector deficit Control public expenditure Higher tax and non tax revenues Reduction of subsidies Administered prices Streamline work Budgetary support to central public enterprises Monetary- Inflationary pressures Support the targeted balance of payment broad money (M3) Reverse Money Lower growth of broad & reserve money will be sought

Price Policy- : 

Price Policy- Reducing Budgetary Subsidies Promoting flexible price structure Higher number of Administrative Prices Savings (rail, bus) Agriculture (sugar) Public sector greater freedom in setting prices External Policy – Strategies of Ex-Im compression measures Industrial Sector- Industrial licensing abolished15 industries Security & strategic MRTP Act

Foreign Investment Policy, Trade policy- : 

Foreign Investment Policy, Trade policy- Quantitative restrictions Public sector – Portfolio reviewed Provide greater degree to management Efficiency Sick industries revived Budgetary support reduced Major strategies – Allow privet sector freedom to run activities restricted Liberalization Capital markets

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MULTINATIONAL CORPORATIONS MNC “Headquarters at one country while the enterprise carries operations at a no. of other countries as well” Features: Produce rather than distribute abroad as well as in the headquarter country Operate in min. no. of nation (6eg) Derive min % of its income from foreign operation Min. ratio of foreign total no. of employee or foreign total value of assets Management team with geocentric orientations Directly control F.I.

Organizational Models: Multinational Corporations: : 

Organizational Models: Multinational Corporations: Pre war (1920’s & 1930’s) Europe declaration of assets and responsibilities, portfolio of International Business Characteristics: Grow in spontaneous manner Managerial headquarters in home countries Operations- Host countries Operate on the basis of internationally owned assets Free dominantly large size: Sustain by: Management skills big advertisement budgets modern technology BOD- Citizen of home country Control production activity with FDI in >1 Developed Country

Types: : 

Types: Service MNC Manufacturing MNC Trading MNC Role: Transfer of capital BOP Linkage effects Employment opportunities & HR capital Quality products at relative cheaper cost Others- Vehicles of peace, Political Relations Break domestic monopoly Rapid process of development Research & Development Exchange of cultural values

Demerits: : 

Demerits: Unfavorable effects on BOP- Foreign exchange Host country Profit home, Transfer of technology: Tech. transfer is capital incentive & import oriented not highly advanced Exploitation of resources - Price lower,higher Lab. Lower Production high Objectives: Raising standard of living Ensuring full employment Full use of resources Expansion of Production and International trade Consultation to developing country

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INDUSTRIAL SICKNESS “According to sick industrial companies act, 1985  sick – accumulates losses equal to or exceeding at the end of financial year. It’s entire net worth and also suffered cash losses in such financial year and also in the previous year” Features: Slow turn-over Frequent request for overdrafts Failure to honor bills on maturity Inexplicable delays in the submission of stock statements Slow off take of stock Over valuation of stocks Diversion of stocks

Types: : 

Types: Actual( 50% or >of capacity ) Incipient( <50%of capacity) Causes of industrial sickness- Internal Causes: Lack of managerial expertise and experience Wrong choice of location Poor planning Financial problem Wrong choice – tech Labour problem External Causes:- Declined in demand Lower market share

Cond… : 

Cond… Problem in availability of inputs Industrial and tone policy Excessive govt. control Natural calamities Competition In economic size Consequences:- Generation of unemployment Adverse climate for further industrial growth Adverse affect on living of working class Higher non-performing loans for banks, S.I.U  progress adverse  dependents of large units Adverse affect on industrial production and industrial climate Hardship for investors Pocket of public suffers

Remedial measures of industrial sickness: : 

Remedial measures of industrial sickness: Steps taken by banks Policy framework of the government Concessions by Govt. Steps for detecting sickness early The industrial investment Bank of India Board for industrial and financial reconstruction Objectives of licensing: To limit industrial capacity To direct investment in industries To regulate the location To prevent monopoly and concentration of wealth To protect small scale industries Technical and economic development To encourage new entrepreneurs

Current Licensing Policy: : 

Current Licensing Policy: Industries reserved for public sector, Industries retained under compulsory licensing, Items for manufacture reserved for small-scale sector Objectives of industrial licensing: To divert investments as per objectives of five year plans To help regional balance To check concentration of capacity in industry in a few hands To achieve optimum utilization of resources To encourage growth of small scale industries To encourage new entrepreneurs

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