Business Environment

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BUSINESS AS A SYSTEM : 

BUSINESS AS A SYSTEM Which of the following represent the ‘ Integrated Whole Thing “ : Digestive System Digestive Method Digestive Process Sound System Sound Method Sound Process Music System Music Method Music Process Computer System Computer Method Computer Process Political System Social System Cultural system Economic System Technological System Legal System Contd … 12/14/2008 1 manavazhaganr@bsnl.in

BUSINESS AS A SYSTEM : 

BUSINESS AS A SYSTEM System will: Draw Input Process it Internally and Releases output into environment Business Draw Input – Material , Energy , Information Process it Internally - Into different Material , energy and Information Releases output into environment – Tangible, Intangible and Information Contd … 12/14/2008 2 manavazhaganr@bsnl.in

Business & Environment Interface : 

Business & Environment Interface Interaction of Business & its Surroundings Micro environment of business. Suppliers Supply raw materials and other components (Inputs) Importance Reliable supply – continuous supply for smooth functioning Contd … 12/14/2008 3 manavazhaganr@bsnl.in

Business & Environment InterfaceMicro environment of business. : 

Business & Environment InterfaceMicro environment of business. CUSTOMERS Different categories of customers Industrial customers Wholesale customers Retail customers Government customers Foreign customers Contd … 12/14/2008 4 manavazhaganr@bsnl.in

Business & Environment InterfaceMicro environment of business. : 

Business & Environment InterfaceMicro environment of business. Market intermediaries Middlemen. Physical distribution Firms: (warehouses and transport firms) Marketing service agencies (Advertising agencies market research firms, media firms, consulting firms) Financial intermediaries Contd … 12/14/2008 5 manavazhaganr@bsnl.in

Business & Environment InterfaceMicro environment of business. : 

Business & Environment InterfaceMicro environment of business. 4. Competitors: The Threat of entry of new firms The Power of Buyers The Power of Suppliers The Power of Substitutes The Intensity of Rivalry among existing firms Contd … 12/14/2008 6 manavazhaganr@bsnl.in

Business & Environment InterfaceMicro environment of business. : 

Business & Environment InterfaceMicro environment of business. Competitors: 1. The Threat of entry of new firm 1. Economies of scale 2. Capital Requirement 3. Access to Channel 4. Absolute cost advantage 5. Expected Retaliation 5. Government Policy 7. Differentiation Economies of Scale Unit cost Inverse to units produced Measured by ‘ Minimum Efficient Scale ‘ Or Market share MES volume is necessary to compete at minimum cost. Strategy : ‘Just in time ‘ & Lean manufacturing to counter economies of scale Capital requirement Internet / Knowledge based services less costly 12/14/2008 7 manavazhaganr@bsnl.in

Business & Environment InterfaceMicro environment of business. : 

Business & Environment InterfaceMicro environment of business. Competitors: 1. The Threat of entry of new firm 1. Economies of scale 2. Capital Requirement 3. Access to Channel 4. Absolute cost advantage 5. Expected Retaliation 5. Government Policy 7. Differentiation Access to Channel Self help groups / Social networks – New channels of distribution Absolute cost advantage ‘Learning curve effect’ – Cost advantage Expected Retaliation GSM Players like Airtel ,Spice retaliated entry of CMDA player Reliance Communication to operate in GSM field Government Policy Import of sugar, Edible oils, Steel , Liberation of Insurance & other sectors Differentiation Existing company – Strong brand image, wide range of products to cover all segments 12/14/2008 8 manavazhaganr@bsnl.in

Business & Environment InterfaceMicro environment of business. : 

Business & Environment InterfaceMicro environment of business. Competitors: 2. The Power of Buyers: 1. Concentration of buyers 2. Alternative source of supply 3. Component cost as a percentage of total cost 4. Possibility of backward integration Concentration of buyers Small no. of buyer + High Volume purchase – High buyer power Coca-Cola – cannot bargain with Malls Alternative source of supply More supply source – high buyer power Bajaj Scooter – Honda, Suzuki, TVS etc Component cost as a % of total cost High proportion of component/material cost to finished goods leads to looking for alternatives. Possibility of backward integration Buyer’s own supply chain – more buyer power – Co-opratives , Self help groups, MLM 12/14/2008 9 manavazhaganr@bsnl.in

Business & Environment InterfaceMicro environment of business. : 

Business & Environment InterfaceMicro environment of business. Competitors: 3. The Power of Sellers: 1. Concentration of Sellers 2. Switching costs 3. Brand power 4. Possibility of forward integration 5. Dependence on customers Dependence on customers Not depending on High volume small no.of buyers – more seller power Concentration of Sellers Small no. of Sellers– High seller power Like Monopoly & Oligopoly Switching Costs High switching cost to other seller source - Seller power increase High-Tec & Specialised goods - SAP Brand Power High brand power – High power Ariel , Rin - Supermarkets have to sell it Possibility of forward integration Seller’s own distribution operation – More power 12/14/2008 10 manavazhaganr@bsnl.in

Business & Environment InterfaceMicro environment of business. : 

Business & Environment InterfaceMicro environment of business. Competitors: 4. Threat of Substitution: Non-essential goods where there is the ultimate substitute of doing without That: 1. Relative Price & Performance of substitutes 2. Switching Costs 3.Buyer’s willingness to substitute Relative performance & Price of Substitutes Substitutes with same cost – High threat – Email replaced Post Offices Switching costs The Cheaper switching cost - High threat Pet foods , Fast foods , Malls Buyer’s Willingness to substitute Low-cost articles & infrequent purchase of articles – little effort made to go for substitutes Match box – Lighter 12/14/2008 11 manavazhaganr@bsnl.in

Business & Environment InterfaceMicro environment of business. : 

Business & Environment InterfaceMicro environment of business. Competitors: 5. Competitive Rivalry: 1. Industry Growth 2.High Fixed costs 3. Volatile Demand 4.Product Differentiation 5. Extra Capacity in large increments 6. Balance of firms 7. High exit barriers Industry Growth: Rapid Growth – Competition need not be intense Maturity Phase- Intense competition High fixed costs High Fixed cost – High break even point In depression times – Price war to maintain turnover 1990 – UK & USA accused each of dumping Steel on Export market Volatile Demand May lead to intermittent Over-capacity Steel war -1990 Product Differentiation Homogeneous products – More intense the rivalry - Steel Extra capacity in large increments Creates short term over capacity . Honda Nissan – plant in UK 12/14/2008 12 manavazhaganr@bsnl.in

Business & Environment InterfaceMicro environment of business. : 

Business & Environment InterfaceMicro environment of business. Competitors: 5. Competitive Rivalry: 1. Industry Growth 2.High Fixed costs 3. Volatile Demand 4.Product Differentiation 5. Extra Capacity in large increments 6. Balance of firms 7. High exit barriers Balance of firms If the no. of firms is large / similar size the rivalry will be intensive. Clear market leader can bring discipline High exit barriers High exit barriers – Excess capacity to persist and rivalry to be intense 12/14/2008 13 manavazhaganr@bsnl.in

Business & Environment InterfaceMacro environment of business. : 

Business & Environment InterfaceMacro environment of business. 1. Demography: Quantitative aspects of population. Qualitative aspects of population. 1. Population Growth 2. Drivers of Population Changes 3. Ethnicity of Population 4. Implications of Demographic Changes Population Growth: Year 1000 – Estimated 300 million Year 1750 – Actual 728 million Year 1900 – Actual 1500 million Year 1960 – Actual 3 billion Year 2000 – Actual 6 billion Drivers of Population Changes Birth Rate – No. of births per 1000 population Fertility Rate- Av. No. of birth per women Death Rate - No. of deaths per 1000 Migration – Country to Country movement Implication – Consumer, Labour , Employment participation 12/14/2008 14 manavazhaganr@bsnl.in

Business & Environment InterfaceMacro environment of business. : 

Business & Environment InterfaceMacro environment of business. 2. Economic environment Economic conditions- GDP, Business Cycle, Unemployment, Inflation, Balance of Payment, Fiscal Policy, Monetary Policy, Exchange rate Policy, Interest Rate. Economic policies Budget Industrial policy Trade policy Agricultural policy Economic system- Capitalistic, Socilalitic, Mixed Contd … 12/14/2008 15 manavazhaganr@bsnl.in

Business & Environment InterfaceMacro environment of business. : 

Business & Environment InterfaceMacro environment of business. 3.Political environment Legislature - Labour Laws like Factories Act, EPF Act, ESI Act, Industrial Disputes Act, Minimum Wages Act, Payment of Wages Act, etc MRTP Act, Law of Contracts, Companies act, IDRA Act, FERA, Import & Export Control act, Tax Laws Executive- Administrators Judiciary - District, High Courts, Supreme Court, Tribunals Contd … 12/14/2008 16 manavazhaganr@bsnl.in

Business & Environment InterfaceMacro environment of business. : 

Business & Environment InterfaceMacro environment of business. Contd … 4. Socio cultural environment Attitude of people towards work and health. Role of family. Marriage. Religion. Education Ethical issues Social responsibility of business 12/14/2008 17 manavazhaganr@bsnl.in

Business & Environment InterfaceMacro environment of business. : 

Business & Environment InterfaceMacro environment of business. Contd … 5. Natural environment Natural resources. Weather and climatic conditions. Locational aspects. Nearness to port facilities. 12/14/2008 18 manavazhaganr@bsnl.in

Business & Environment InterfaceMacro environment of business. : 

Business & Environment InterfaceMacro environment of business. Contd … 6. Technological environment Nature of technology Scope for innovation 12/14/2008 19 manavazhaganr@bsnl.in

Business & Environment InterfaceMacro environment of business. : 

Business & Environment InterfaceMacro environment of business. Contd … 7. International environment Economic Political Legal Demography Technology 12/14/2008 20 manavazhaganr@bsnl.in

Business & Environment Interface : 

Business & Environment Interface Uses of environment studies Awarness Policy decisions Demand forecasting Competitor’s strategies. To innovate 12/14/2008 21 manavazhaganr@bsnl.in

Business & Environment Interface : 

Business & Environment Interface Techniques for environmental studies Verbal and written information Search and scanning Forecasting and formal studie 12/14/2008 22 manavazhaganr@bsnl.in

Business & Environment Interface : 

Business & Environment Interface Limitations of environmental analysis Unexpected events Future is not a guarantee Too much of information. Overcautions approach 12/14/2008 23 manavazhaganr@bsnl.in

Business Sectors : 

Business Sectors Primary Sector – Agriculture, Mining Secondary sector - Manufacturing Industries Manufacturing activities – Electricity Generation and Construction Tertiary Sector – Services industries Trade , Commerce, Insurance, Banking,Repair, Transport 12/14/2008 24 manavazhaganr@bsnl.in

Classification of Business – Based on Scope of Business : 

Classification of Business – Based on Scope of Business 1. Business which Produce Goods: Two categories of Goods: Commodities – Goods produced by Primary sector - Will not undergo any processing - Agriculture , Fisheries, Mining, b. Products - Goods produced by Secondary sector – Conversion of Raw material into another form - Farms, Diaries, -Manufacturing Enterprises – Machinery, Materials for -other business, Producing goods for consumption 12/14/2008 25 manavazhaganr@bsnl.in

Classification of Business – Based on Scope of Business : 

Classification of Business – Based on Scope of Business 2. Business which Produce Services: Transport , Telephone , Electric Light ,Hotels ,Entertainment 3. Business which Distribute Goods: Wholesale merchants Retail Merchants Importers & Exporters 4. Business which Facilitates Distribution of Goods: Warehouse, Auction Houses, Advertising, Financing 5. Business which Deals in Finance: Commercial Banks, Co-Operative Banks, Development Bankd, Insurance Stock Exchange 12/14/2008 26 manavazhaganr@bsnl.in

Classification of Business – Based on the Nature of Activity : 

Classification of Business – Based on the Nature of Activity 1.Extractive Industries: Extract goods from natural resources- Oil extraction, Farming, Fishing 2. Genetic Industries: Produce goods by breeding- Poultries, Bio Tech 3. Manufacturing Industries: Process Raw materials into finished goods – 4 Types 1. Basic Industries : Iron, Steel 2. Capital goods Industries : Machines 3. Intermediate Industries : Tyre , Tubes 4.Consumer goods Industries : Soap 4. Construction Industries Canals, Dams, Road, Buildings, Road 5. Service & IT Industries 12/14/2008 27 manavazhaganr@bsnl.in

Classification of Business – Based on Uses of Goods Produced : 

Classification of Business – Based on Uses of Goods Produced 1. Basic Industries : Provide essential inputs to other industries Iron, Steel, Fertilizer, Chemicals 2. Capital goods Industries : Instrumental in producing goods and services Do not directly produce goods for consumption Capital intensive Machines, Tools, 3. Intermediate Goods Industries : Goods already had undergone manufacturing process but which forms input for other industries for further processing Tyre , Tubes 4.Consumer goods Industries : For consumption – Durable / Nondurable goods Durable – Usage for more than 3 years Non-durable – Usage within 3 years 12/14/2008 28 manavazhaganr@bsnl.in

Classification of Business – Based on Competitive Structure : 

Classification of Business – Based on Competitive Structure 1. Monopoly : Single –Firm Industry Monopsony – Single Buyer Bilateral Monopoly – single Buyer and Single seller MRTP Act 2.Duopoly Two sellers 3. Oligopoly Only few firms holding 80 to 85 % market share 4.Monopolistic competition Large sellers & similar but not Substitute products – Textile 5.Perfect competition Large sellers & Homogeneous & free entry , exit & no single firm has any control over the market & Perfect knowledge about market & no transport cost & complete mobility of factors of production between industries. 12/14/2008 29 manavazhaganr@bsnl.in

Business Motives & Objectives : 

Business Motives & Objectives Objective: The end actions Motive: The desire which stimulate action Motive – Profit, Non-Profit Objective – Supply Quality Products, Customer Satisfaction, Exploit labour, Tax evation 12/14/2008 30 manavazhaganr@bsnl.in

Business Motives & Objectives : 

Business Motives & Objectives Importance of Objectives 1. Justifies existance 2. Provide Direction 3. Help coordination 4.Provide standards for assesment & control 5. Help decentralisation 12/14/2008 31 manavazhaganr@bsnl.in

Business Motives & Objectives : 

Business Motives & Objectives Economic Objectives Earning of adequate profit. Creation of customers Innovation Generation of employment Control of inflation Economic development Reduction of inequalities of income Contd … 12/14/2008 32 manavazhaganr@bsnl.in

Business Motives & Objectives : 

Business Motives & Objectives Social Objectives Supply of goods and services. Good treatment of customers. Fair treatment of employees. Good working environment Customer Counseling Social responsibility. Pollution control. Contd … 12/14/2008 33 manavazhaganr@bsnl.in

Business Motives & Objectives : 

Business Motives & Objectives National Objectives Implement of government laws. Payment of taxes. Democratic practices. Contd … 12/14/2008 34 manavazhaganr@bsnl.in

Business Ethics : 

Business Ethics Study of good and evil ,right and wrong actions of Business Dishonesty – Unethical , then being dishonest with employees, Customers and shareholders is unethical. Protecting others from harm – Ethical then recalling defective products is ethical action. Contd … 12/14/2008 35 manavazhaganr@bsnl.in

Business Ethics : 

Business Ethics Sources of Business Ethics : Religion Culture & Law Religion : Advocate orderly social system Culture : Rules and standards transmitted among generations to produce behaviours- Sathi, Child marriage, Untouchability, Joint family Law : Rules of conduct approved by Legislators – Companies act , Labour laws etc Contd … 12/14/2008 36 manavazhaganr@bsnl.in

Business Ethics : 

Business Ethics Codes of Business Ethics : Codes of conducts of business FICCI Business must maintain highest standard of behaviour for the benefit of industry, employees, customers, shareholders Goods and services must conform to committed quality Customers must be treated with respect and fairness Contd … 12/14/2008 37 manavazhaganr@bsnl.in

Business Ethics : 

Business Ethics UnEthical Actions : 1.Kentucky Fried Chicken ( KFC ) – Use of Harmful hormons & Monosodium glutamate to fatten the chicken 2. Neem – Oil : Ptent by U.S company 3. Women Harassment – Sacking of Chief Executive of Infosys Contd … 12/14/2008 38 manavazhaganr@bsnl.in