Post on 21-Jan-2016
Business and Legal Environment
By:-Dr.Divya ChowdhryMBA Ist Semester
Course Contentn Unit – I 08 hours
n Meaning of Business Environmentn Economic and Non-economic factors influencing
business and their interactionn Economic systemsn Historical Perspective on public control of business
Constitutional framework of state control of businessn Constitutional framework of state control of businessn Unit – II 12 hours
n Planning and Economic Policiesn Unit – III 24 hours
n Business Legislationn Unit – IV 12 hours
n Overview of Economic Legislation
Books Recommended
n Kuchhal, M.C., Prakash, Deepa(2009),Business Legislation for Management,Vikas Publishing HouseVikas Publishing House
n Saleem, Shaikh (2010). BusinessEnvironment, 2nd edition, PearsonEducation.
n Tulsian, P C(2009) , “Business Laws,”Tata Mc Graw Hill, New Delhi
SESSION OVERVIEW
n Meaning of Business Environmentn SALIENT FEATURESn SALIENT FEATURESn IMPORTANCE OF STUDYn NATURE OF BUS ENVn TYPES OF B ENV
4
An Overview Of Business Environment
Introduction to Businessn Business is the organized efforts of enterprises to supply consumers with goods
and services. Businesses vary in size as measured by number of employees or by sales volume.
n All businesses share the same purpose to earn Profits. However, the purpose of business goes beyond earning profits.
n It is an important institution in society and the role of business is crucial.n Be it for the supply of goods and servicesn Creation of job opportunitiesn Offer of better quality of lifen Contributing to the economic growth of the country and putting it on the n Contributing to the economic growth of the country and putting it on the
global map
Scope of Businessn Business included all activities connected with production, trade,
banking, insurance, finance, agency, advertising, packaging and numerous other related activities. Businesses include all efforts to comply with legal restrictions and government requirements and discharging obligations to consumers, employees, owners and to other interest groups which have stakes in business directly or indirectly.
Society cannot do without business and vice versa.
Business
Information
Competition
Change - TransitionOpportunities
Diversification
Globalisation
Technology
Characteristics of Today’s Business
Information Globalisation
Concept Of Business Environment
n Environment refers to all external forces which have a bearing on the functioning of business. ”Environment are largely if not totally external, and ”Environment are largely if not totally external, and beyond the control of individual industrial enterprises and their management. These are essentially the givers within which firms and their managements must operate in a specific country and they vary, from country to country”.
Meaning of Business Environment
n A set of surroundingfactors/ conditions thataffects (helps/ hinder)affects (helps/ hinder)the functioning/development of thebusiness/ organization.
Scope of The Business Environment
n The multidimensional activities involved in bringing raw material to the factory and the end product from there to the market constitute the scope of the there to the market constitute the scope of the Business Environment.
Environment
n However, the term business environment refers to the External Factors. The external environment has two components ie business opportunities and threats to business.
n Simmilarly, the organisational environment has two components ie. strengths and weaknesses of the organisation. A SWOT analysis is thus the first step in strategy formulation
Business DecisionInternal Environment External Environment
Factors influencing Business Decision
Why Study Business Environment
n Development of broad strategies to ensure sustainability
n To foresee the impact of socio-economic changes at the To foresee the impact of socio-economic changes at the national and international levels on firm’s ability
n Analysis of competitor’s strategies and formulation of effective counter measures
n To keep oneself dynamic
Nature of Business Environment
n Aggregative: totality of all the external forces which influence the working and decision making of an enterprise.
n Inter-related: various elements are closely interdependent and any change in one element affects the other elements.
n Relative: it differs from country to country and even region to region.
Contd.
n Inter-temporal: it changes over time, specially in long run, it changes certainly.Uncertain: business environment is n Uncertain: business environment is volatile so it becomes very difficult to forecast.
n Contextual: business environment provides the macro framework within which the business firm (a micro unit) operates.
Need and Importance Of Business Environment
n An analysis of business environment helps to identify strength, weakness, opportunities & threats. Analysis is very necessary for the survival and growth of the business enterprise. The importance of business environment is briefly enterprise. The importance of business environment is briefly explained in an analysis below.
n (1) Identification of Strength: n (2) Identification of Weakness: n (3) Identification of Opportunities: n (4) Identification of Threats: n (5) Exploitation of Business Opportunities: n (6) Keeping Business Enterprise Alert:
Cont……..
n (7) Keeping Business Flexible and Dynamicn (8) Understanding Future Problems and Prospects: n (9)Making Business Socially Acceptable:
(10) Ensures Optimum Utilization of Resources: n (10) Ensures Optimum Utilization of Resources: n (11) Ensures Survival and Growth: n (12) Maintaining adaptability to changesn (13) Image Building:
Types of Business Environment
Business environment
Internal environment External environment
Micro environment Macro environment
Internal Environment
Mission / ObjectivesManagement StructureInternal Power RelationshipPhysical Assets & facilities
FinanciersSuppliersCustomersCompetitors
Micro Environment
EconomicTechnologicalGlobal
Macro Environment
BUSINESS ENVIRONMENT
BusinessDecision
Physical Assets & facilities
Company imageHuman resourcesFinancial CapabilitiesTechnological CapabilitiesMarketing Capabilities
CompetitorsPublicMktg Intermediaries
GlobalDemographicSocio-CulturalPolitical
n Business Environment has a direct relation with the environment.
n Effectiveness of interaction of anenterprise with its environment primarilydetermines the success or failure of abusiness.
Factors of Internal Environment
Factors
culture
Mission & objectivesMission & objectives
Top management structure
Power structure
Company image & brand equity
Human & other resources
Elements of Micro Environment
Micro Environment
customers
CompetitorsCompetitors
suppliers
Marketing intermediaries
financiers
publics
Various components of Macro EnvironmentEnvironment
Macro EnvironmentThe macro environment consists of factorswhich are beyond the control of thebusiness. There is a symbiotic relationshipbetween business and the environmentalfactors, environmental factors are dynamicand a particular business firm, by itself, mayand a particular business firm, by itself, maynot be in a position to change it’senvironment.
Macro Environment :-§ Economic§ Non Economic
Economic and Non-economic factors influencing business and their influencing business and their interaction
ECONOMIC ENVIRONMENT n Economic environment influences the business to great
extent. Economic environment consists of macro level
patterns related to the areas of production and distribution of
wealth that have an impact on the business of an
organization. Following factors constitute economic
environment of business-:environment of business-:
Ø Economic system
Ø Economic planning
Ø Industry
Ø Agriculture
Ø Human resource
Ø
Economic Environmentn Economic stages that exists at a given time in a countryn Economic system that is adopted by a country for
example. Capitalistic, Socialistic or Mixed Economyn Economic planning, such as five year plans, budgets, etc.n Economic policies for example, monetary, industrial and
fiscal policiesfiscal policiesn Economic Indices such as National Income, Per Capital
Income, Disposable Income, Rate of growth of GNP, Distribution of Income, Rate of savings, Balance of Payments etc.
n Economic Problemsn Functioning of economy
Non Economic Environment
n Political & Legal Environment
n Socio- Cultural Environment
n Technological & Physical Environment
n Natural Environment
n Demographic Environment
n Global Environment
Political & Legal Environment
n The constitution of the country
n Political organization n Political stability n Defence & military
policyn Laws governing
businessn The judicial system
Social & Cultural Environment
n Demographic forcesn Caste structure &
family organization n Educational system
& literacy ratesn Customs, beliefs &
life stylesn Taste & preference
of people.
Technological & Physical Environment
n Rate of technological change
n Approaches to production of goods production of goods & services
n Research & development systems
n New approaches & equipments
Natural Environment
n Climatic conditionsn Agricultural,
commercial & other natural resources natural resources
n Ecological systemn Levels of pollution
Demographic Environment
n Growth of population
n Age Composition
n Life Expectancy
n Sex Ratio
n Fertility and Mortality rates
n Inter-state migration
Global Environment
Important factors that operate at global level which havean impact on organization are:
¨ Growth of world economy
¨ Distribution of world GDP
¨ International institutions IMF,WTO ILO
Economic relations between nations¨ Economic relations between nations
¨ Global human resource-nature and quality of skills,mobility of labor
¨ Global technology and quality standards
¨ Global demographic patterns
Economic Systems
Meaning
n It is a system designed by a nation toutilize her resources for the purpose ofsatisfying the needs and wants of itssatisfying the needs and wants of itspeople.
Basic units of an Economic System
n Householdn Firm
Industryn Industryn Government
Characteristics
n National entity: economic systemalways covers the entire country.
n Institutional: it comprises variousn Institutional: it comprises variousinstitutions which a nation has devisedand adopted for satisfying the needs ofits people. Such as firm, industry, govt.,economic planning.
Contd.
n Interdependence: different institutions are interdependent and interacting.interacting.
n Scarcity of resources: limited resources in comparison to the demand for these resources.
n Need satisfaction:n Dynamic: some economic systems
change slowly while others change fast.
Functions of An Economic System
n What to produce?n How to produce?n For whom to produce?n For whom to produce?n Choice between current needs & future
needsn Economic growth
Problems All Economies Face
Scarcity forces all countries to answer these 3 questions
Scarcity leads to conflict
Do All Countries Answer These Questions The Same Way?
n NoConflicts arise in all economiesn Conflicts arise in all economies
Different Countries Use Different Systems To Answer These Questions
Major Economic Systems Include:
Market /Capitalisticv Market /Capitalisticv Command/ Socialistic v Mixed Economic System
CAPITALISM: n Also known as free enterprise economy.
Capitalism is a system of economic organisation featured by the private ownership and use for the private profit of man made and nature made capital.Current World Examples:n Current World Examples:
Switzerland Canada Australia Chile Argentina South Africa USA
CHARACTERISTICS
n FREEDOM OF ENTERPRISE
n PRIVATE OWNERSHIPn PRIVATE OWNERSHIP
n PROFIT MOTIVE
n CONSUMER SOVEREIGNTY
n FREEDOM OF CONTRACTS
SOCIALISM
n Socialism is an economic system where the means ofproduction are either owned or managed by the means ofproduction are either owned or managed by the state andwhere the investment structure, consumption are regulatedand directed by the stateand directed by the state
n Current and Former World ExamplesCuba North Korea China Former Soviet Union
CHARACTERISTICS
q EQUITABLE DISTRIBUTION OF INCOME
q GOVERNMENT OWNERSHIPq GOVERNMENT OWNERSHIPq ECONOMIC LAWSq PLAN OF ACTION
No Pure System Is Perfect: Capitalistic
Strengths:n Able to change
graduallyn Individual freedom for
alln Lack of government
Weaknesses:n Does not protect the
young, sick, old who cannot work
n Market failures n Lack of government
Interferencen Variety of goods and
servicesn High consumer
satisfactionn Promotes economic
freedom and growth
n Market failures happen leading to lots of ups and downs
n Doesn’t promote economic security, equity, or efficiency as well as other systems
No Pure System Is Perfect: Socialistic
Strengths:
n Things can be changed dramatically in a short time
Weaknesses:n Does not meet the needs
and wants of consumersn Lacks effective
incentives to get people to work
n Needs a large n Promotes economic
security, efficiency, and equity
n Needs a large bureaucracy which consumes resources
n Inflexible for day-to-day changes
n New and different ideas discouraged, people can’t be individuals
n Doesn’t promote: economic growth or freedom
If No Pure System Is Perfect Then What?
n Most countries in the world are a blend of different elements
n They are called mixed or combination n They are called mixed or combination systems
n Market Command
Economies
Mixed Economic Systemn In mixed economy there is policy of compromise between capitalist
and socialist system. There is an existence of public and private
sector and overall government regulation of the economy..
n Current World Examples:England Germany Sweden EgyptEngland Germany Sweden Egypt
France Italy Hungary Mexico
characteristics
§ PUBLIC SECTOR
§ DECISIVE ROLE
§ SOCIAL SECURITY§ SOCIAL SECURITY
§ ABOLITION OF FREE TRADE
§ PRIVATE OWNERSHIP OF THE MEANS OF PRODUCTION
Historical Perspective on public control of business
n Civilizationn Monarchyn Tax Collection
Monarchy to Parliamentary Set-upn Monarchy to Parliamentary Set-upn Societal controln Parliamentary dynamics resulting in
inclination towards rich candidaten Resultant entrepreneurship promotionn Low labour intensive units
CONSTITUTIONAL FRAMEWORK OF STATE CONTROL OF OF STATE CONTROL OF BUSINESS.
Characteristics of Indian Constitution
1) Sovereignty: India is an independentrepublic and not subordinate to anyother nation.other nation.
2) Democracy: govt. is run byrepresentatives who are elected bythe people of the nation.
3) Secularism: complete freedom to itscitizen to preach & practice theirreligion.
Contd.
4) The parliamentary system:ministers and the prime minister are answerable to the parliament.answerable to the parliament.
5) Separation of powers:
Federal System of the Govt.
n Meaning: where the powers of thecentral govt. and State govt. are well-defined.defined.
n Division of powers between the Central& State govt. has been done throughthree lists :n The Union Listn The State Listn The Concurrent List
Functions of the StateFunctions of State
The basic functionsActivities that are Undertaken only by the State
Intermediate FunctionsGovt. can work in collaboration with civil Society & markets
Activist functionsActive participation of Govt. for promoting markets
The Basic Functionsi. Providing pure public goodsii. Defense iii. Law & order iv. Property rightsiv. Property rightsv. Public healthvi. Protecting the poorvii. Macroeconomic stabilityviii. Antipoverty programmesix. Disaster relief
Intermediate Functions
i. Addressing externalities:- basiceducation, environmental protection
ii. Regulating monopolies:- consumerii. Regulating monopolies:- consumerprotection, financial regulations.
iii. Providing Social Insurance:-pensions, family allowances,unemployment insurance.
Activist Functions
i. Coordinating private activityii. Fostering marketsiii. Asset redistributioniii. Asset redistribution
Economic Roles of the Govt.
Economic roles of Govt.
Regulatory roles
Promotional roles
Entrepreneurial roles
Planning roles
Regulatory Roles
i. Grant of license, restriction onlocation of industry
ii. Regulating the conduct of businessii. Regulating the conduct of businessventures
iii. Controlling the accrual & disposal ofbusiness income
iv. Regulating the relationship with itsstakeholders
Promotional Roles
i. Development of infrastructureii. Assistance by way of subsidiesii. Assistance by way of subsidiesiii. Allocation of scarce resourcesiv. Fiscal, monetary and other incentives
Entrepreneurial Roles
n Govt.’s participation in business through public ownership and management of industrial and commercial undertakings.industrial and commercial undertakings.
n Balanced regional development n Promotion of capital intensive industries
Planning Roles
n Socio-economic developmentn Social justicen Balanced regional developmentn Balanced regional developmentn Rapid industrializationn Employment generationn Development of agriculture & small
scale industries
Rationale of State Intervention
1) Legal framework2) Imperfect competition3) Externalities3) Externalities4) Social objectives5) Industrial base6) Balanced regional development7) Self reliance