Economic Environment of Business

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Economic Environment of Business: Important Factors : 

Economic Environment of Business: Important Factors Dr. Sukumar Nandi Indian Institute of Management Lucknow

Principal Factors : 

11/29/2009 Economic Environment of business - SN 2 Principal Factors Government: Level of governance Law and order situation Monetary factors Fiscal factors Social factors

Government : 

11/29/2009 Economic Environment of business - SN 3 Government Perception of people at large about the law and order situation How the authority is handling the law and order situation Level of efficiency in government level The prevalence of corruption

Monetary policy : 

11/29/2009 Economic Environment of business - SN 4 Monetary policy The growth of money supply in economy The level of inflation overall Sectoral inflation The interest rate factor The structure of the money markets

Example: RBI monetary policy announcement in October, 2009 : 

11/29/2009 Economic Environment of business - SN 5 Example: RBI monetary policy announcement in October, 2009 Reserve Bank of India’s second quarter review of the monetary policy kept the key policy rates i.e. the repo rate (4.75%), reverse repo rate (3.25%) and cash reserve ratio (5 %) intact. The only policy action that was undertaken was the hiking of the statutory liquidity ratio (SLR) from 24% to 25%. The hike in SLR as such doesn’t make much sense in the present scenario. The commercial banks have already been investing heavily in government securities with investments in SLR investments hovering around 30.4% (of net demand and time liabilities (NDTL), October 2009) as compared to 25% last year. The hike in SLR can be considered only as a signal showing RBI’s concern for inflation and as a ‘soft’ tightening measure to combat the excess liquidity in the economy. However, the status quo has been maintained on the back of higher future inflationary expectations (WPI inflation) by the RBI by raising its inflationary projection at the end of the year to 6.5% from the earlier 5%.

Example:: Inflation in India in recent years : 

11/29/2009 Economic Environment of business - SN 6 Example:: Inflation in India in recent years

Fiscal policy : 

11/29/2009 Economic Environment of business - SN 7 Fiscal policy Position of the government budget___ how is budget deficit Whether budget deficit is monetized Taxation policy_ direct and indirect taxes

Macroeconomic factors : 

11/29/2009 Economic Environment of business - SN 8 Macroeconomic factors How open is the economy Attitude of the government towards business Overall GDP growth Employment situation Balance of payments situation

Countries in transition : 

11/29/2009 Economic Environment of business - SN 9 Countries in transition Regulatory and legal frameworks are major constraints on growth in transition countries In these countries, the domestic policy environment is hostile to private sector start-ups, investment, and innovation. Structural and economic policy reforms have accelerated in most countries. But reforms to date have barely changed most legal and regulatory constraints affecting private sector activity

Five ideal characteristics sought after : 

11/29/2009 Economic Environment of business - SN 10 Five ideal characteristics sought after Security (legal security, consistent respect for market solutions, predictable enforcement) Transparency (clear and simple rules, openness through the entire policy process, less corruption) Legitimacy (must protect safety, health, environment, consumers, public interests) Efficiency (low-cost rules, orderly and timely decisions, move swiftly to meet market needs) Expertise (good regulatory skills and understanding of complex markets and technologies)

Slide 11: 

11/29/2009 Economic Environment of business - SN 11 Market Characteristic of a Country Population - Households - Urbanization Income - Per capita GDP - Per capita Income - Per capita Discretionary Income - Purchasing power parity (PPP) Consumption Patterns - Per capita expenditures on basic needs, Transportation, Health, Education and leisure - Households owing of appliances, Autos, Computers,TVs - Household debt - Internet Infrastructure - Roadways, Railways, Airways, Water ways - Tele Communications Foreign Direct Investment in the economy

Quality of Regulations as perceived : 

11/29/2009 Economic Environment of business - SN 12 Quality of Regulations as perceived

State of some countries : 

11/29/2009 Economic Environment of business - SN 13 State of some countries How does India stand vis-à-vis some prominent nations regarding business environment

Mindshare Favorability Towards Country’s Business Environments : 

11/29/2009 Economic Environment of business - SN 14 Mindshare Favorability Towards Country’s Business Environments “very favorable” view of business environment Lowest “unfavorable” rating Ch In Mx Pl Br Ru Ch In Mx Pl Br Ru

India Most “Favorable” Five-Year Business Environment : 

11/29/2009 Economic Environment of business - SN 15 India Most “Favorable” Five-Year Business Environment Ch In Mx Pl Br Ru Ch In Mx Pl Br Ru

Slide 16: 

11/29/2009 Economic Environment of business - SN 16 Media are MORE Optimistic About India Than Any Other Country

Slide 17: 

11/29/2009 Economic Environment of business - SN 17 Important factors to consider

Slide 18: 

11/29/2009 Economic Environment of business - SN 18 Key Industrial Sectors in countries

How does India fair in Industrial Sectors: Survey results : 

11/29/2009 Economic Environment of business - SN 19 Excels Lags How does India fair in Industrial Sectors: Survey results

Decision model to enter a foreign market : 

11/29/2009 Economic Environment of business - SN 20 Decision model to enter a foreign market

Example: How American Recession has affected Spain [ IMF] : 

11/29/2009 Economic Environment of business - SN 21 Example: How American Recession has affected Spain [ IMF]