ENVIRONMENT ANALYSIS

The word ‘corporate’ generally implies any activity which creates utilities for the
people, i.e., masses, or some target group of people, i.e., classes and being limited in
supply in relation to its demand- commands a price.

Types of Business Organisation

Business activities may be organised in different forms depending on the

promoters / entrepreneurs, their business plan and their resources. The three major forms
of business are: Sole trading concern, partnership firms and Joint-Stock companies - both
private limited and public limited. The scope of the present work is restricted to the
context of public limited companies only, and the entire text revolves around this form of
business alone. The terms used in the text like ‘firm’, ‘Company’ or ‘Corporation’ refer
to only the public limited company, both widely or closely held.
Internal Environment
At the present time the world is tending to become a global village due to
knowledge explosion and its instantaneous relay thanks to latest means of communication
through sunrise industries like information technology, vocal and visual channels like
television, phone, e-mail, websites, etc. The English language, attire, music, the arts,
literature and sport etc., have emerged as a common link between people of different
countries, thus giving a big push to universalization of culture and business practices
throughout the World. As such the entire world is becoming sensitized to the need for
adopting a generally accepted code of business ethics and practices at their earliest, lest
those who lag behind miss the bus in the race for attaining excellence in their respective
field of business.

Constituents of Business Environment

The easiest way to understand the business environment is to decipher it as follows:

Middle Management
Internal Environment

Corporate Environment

External Environment
 Board/CMD & CEO Middle Management

Senior Management Junior Management

Senior Management Workmen Staff

Finance
Assistants / Subordinate Staff
Marketing Production Typists /
Personnel Computer
and HRD Operator

Figure 6.1 The Corporate Organizational Structure

To scan the business environment within the organization as well as without and
take full care for each and every microscopic part of both internal and external factors so
as to remain relevant and in tune with the ever- changing business realities is sine qua
non for the survival and growth of any firm.
Environmental Analysis

The environment of any business refers to all those factors, which are external to
the firm. As shown in Figure 6.1, the external environment comprises technological,
economic, political, socio-cultural and global or international environment. To succeed in
business, the chief executive officer and managers are required to scan their business
environment very carefully using SWOT analysis and classify the factors which can offer
opportunities for growth and those that possibly pose threats. Keeping the organizatiion’s
strength and weakness in view, it may be in order to refer briefly to various types of
environment of a firm.

1. Economic Environment: It refers to the stage of economic development of the

country like developed or developing, state of agriculture, industry and service
sectors, level of national income, its composition or source - mix, i.e., percentage
of national income derived form agriculture or industry and the service sector.
Similarly, what is the sector wise distribution of population? In India for example,
about 2/3rd population is dependent on agriculture, while industry and service may
be employing 15 to 18 percent each. But in 2001-02 agriculture contributed only
about 26.1 percent of national income while industry and services contributed
22.3 percent and 51.6 percent respectively. It may be interesting to note that the
share of agriculture and allied activities in India in the gross domestic product was
as high as 45.8 percent in 1970-71 and 39.6 percent in 1980-81 which declined to
as low as only marginally highly than one-fourth.

2. Technological Environment: Every country has its own outlook and approach
towards technology and innovation. In the new world countries like Canada, the
United States, Australia or New Zealand, people are more innovation friendly.
But in older civilised societies like India and other South Asian countries. People
are generally conservative at adopting innovations in one go. However, it is an
accepted fact that technology- friendly societies may record accelerated growth in
their incomes and standard of living than older civilisation countries. With faster
means of communication, the world is now becoming a global village. Things are
getting universalized quickly everywhere, with greater degree of openness by
almost all the countries, spread of education, increased prosperity and greater
inter-country-interaction, very active world trade and regional-trade
organizations, etc.

3. Political Environment: In modern times almost all the countries with a few
exceptions, generally, seen in the Islamic countries of Afro-Asia are having
democratic system of governance, comprising judiciary, executive and legislature.
The legislatures (Parliament or Assemblies) pass legislation, the executive or
government implements whatever is passed by the parliament and the judiciary
 functions as a watchdog to ensure that government functions in public interest
within the boundaries of law and the constitution.

4. Socio-cultural or Religious Environment: These environments are no less

important than those discussed earlier. For example, Indian culture and
civilization is one of the most ancient in the world. It’s socio-cultural-cum
religious milieu is a living example of ‘unity amidst diversity’. Society is divided
into four categories based on Varna the vertical stratification into classes or
‘castes’ based on functions- Brahmins (educated and knowledgeable); Kshatriyas
(warriors); Vaishyas; (Business class) and Shudras (engaged in various types of
services to society). Over time, this often-discriminatory stratification sometimes
led to social conflicts tension. But with the spread of universal education and
democratic values, these false and arbitrary barriers are gradually crumbling.
However, in ages past, this system was also a boon in disguise and sustained our
agro-based economy for centuries

Our people are, by nature docile, liberal, democratic, peace-loving believe in

universal brotherhood, are respectful of other religions, generous towards the
weakest of the weak, and ethical, cultured and generally helpful towards
everyone. They believe in universal brotherhood or “Vashudhaiv Kutumbkam”.
Indian are religious and philosophical people and harbour kind sentiments
towards one and all.

5. Economic Environment of India: The Indian economy opened up in 1990-91,

ushering in the LPG - Liberalisation, Privatisation, Globalisation - era. Since then
the economy has been liberalised considerably. Besides considerable
liberalisation on current account transaction, steps are on to liberatise capital
account transactions also in phases. Financial sector reforms have made
considerable progress in accordance with international standards and in
conformity with the Basle Committee recommendations.

As per new Industrial Policy of 24 July 1991, the new policy deregulates the
industrial economy in a substantial manner. The major objectives of the new policy are to
build on the gains already made, remove weaknesses, maintain sustained growth in
productivity and gainful employment, and attain international competitiveness.
Accordingly, the government announced the following policies:

i. Abolition of Industrial Licensing;

ii. Dilution of the Public sector’s role in the economy;
iii. MRTP limit abolished;
iv. Freer entry to foreign investment and technology;
v. Industrial policy liberalised;
vi. Abolition of phased manufacturing for new projects; and
vii. Removal of mandatory convertibility clause by Banks and Financial Institutions
in case of default in repayment of loan by the borrowing firms.

NEW TRADE POLICY AND TRADE LIBERALISAION

Post - 1991 Indian Trade Policy has been substantially liberalised. As India joined
WTO (World Trade Organisation) in 1995 as a founder member, it is under an obligation
to strike down all quantitative restrictions on imports and reduce import tariffs so as to
open up the economy to world trade. Till March 2000, tariff lines on 8066 items were
made free. Quantitative restrictions have been removed on all the 1420 items by
March 2002 in line with India’s commitment to the WTO.

Rationalisation of Tariff Structure

In its Final Report released in January 1993, Chelliah Committee had

recommended drastic cuts in import duties, in phases up to 1998-99 as Indian rupee had
depreciated by 57.45 percent during the 7-year period 1985-86 to 1992-93, so that parity
in prices of goods produced domestically and internationally could be established.
Accordingly, in all subsequent budgets till 2003-04, the peak rate of basic customs duty
has been reduced to 25 per cent from the earlier high of 110 per cent.

Decanalisation

A large number of exports and imports that were being canalised earlier through public
sector agencies in India, but now, except for six items (rice. Wheat, maize, petrol, diesel
and urea) all have been decanalised.

Similarly, the rupee has been made (a) fully convertible on trade account, and (b)
full convertibility on current account, which implies freedom to buy or sell foreign
exchange for following transactions: (I) all payments due to foreign trade in goods and
services, normal short- term banking and credit facilities, (ii) payments due as interest on
loans and as net income from other investments, (iii) payments of moderate amount for
amortisation of loans or for depreciation of direct investments, and (iv) moderate
remittances for family living expense. India achieved full convertibility on current
account on 19 August 1994 when the Reserve Bank of India further liberalised invisible
payments.