UNIT II: BUSINESS ENVIRONMENT AND

ENTREPRENEURSHIP

BUSINESS ENVIRONMENT
BUSINESS ETHICS AND SOCIAL RESPOSIBILITY.
BUSINESS AND SOCIAL ENTERPRENEURSHIP

- B S DIPA
(ASSISTANT
PROFESSOR)
BUSINESS ENVIRONMENT

The word ‘Business Environment’ has been defined by various authors as

follows:

‘‘Business environment is the aggregate of all conditions, events and

influences that surround and affect it.”—Keith Davis

“The environment of business consists of all those external things to which

it is exposed and by which it may be influenced directly or indirectly”. —
Reinecke and Schoell.

“The total of all things external to firms and industries that affect the
function of the organisation is called business environment.”—Wheeler.
On the basis of the above definitions, it is very clear that the business
environment is a mixture of complex, dynamic and uncontrollable
external factors within which a business is to be operated.

Nature of Business Environment

Business environment consists of the external forces which affect the functioning
of a business enterprise. These forces may be divided under two categories,
namely: (i) General environment; and (ii) Specific environment. It should be
noted that every business unit also has internal environment which include
production, finance, marketing, personnel, legal, etc.
General environment forces exercise their influence on a business unit in an
indirect manner, i.e., by influencing the specific external forces. These include
economic, political, social, technological and global or international forces as of
the business enterprises are not influenced directly by the general forces. But big
enterprises are many a time directly influenced by the general external
environment forces such as, introduction of new technology, trends in
international business, trade policies of foreign governments, etc.

Specific external environment forces influence the working of a business firm

directly. These include customers, owners and investors, suppliers, creditors,
employees, trade unions, competitors, governments, etc.

The environment of a business enterprise may be static or dynamic. When the

environmental forces do not show a significant change, they are termed as
stable or static environment. But the environment of modern organization is
dynamic because of frequent changes. The nature and degree of change is not
predictable.

The examples are invention of new technique of production, replacement of a

minister in the Government, changed in industrial policy, revision of borrowing
and lending rates by the Reserve Bank of India, and so on. Such factors create
turbulent environment for the business. As a result, the business has to face
greater uncertainty n the environment.

We can sum up the characteristics of environment of modern business as

follows:

(i) Total External Forces: Business environment is aggregative in nature. It

represents the sum total of all the external forces that have influence on the
working of a business system.

(ii) Specific and General Forces: Business environment covers both specific
and general environment. Specific environment (such as investors, customers,
competitors, suppliers, etc.) affects the business directly. But general
environment (such as social, political, international, economic forces, etc.)
affects the business both directly and indirectly.

(iii) Dynamic: It is dynamic in nature; it keeps on changing.

(iv) Uncertain: It creates uncertainty for the business firms as it is very
difficult to predict the trend of any environmental force with full accuracy.

(v) Relative Influence: Business environment is relative in nature. For

example, a change in economic environment may be unfavorable for one
business and unfavorable for another.

(vi) Contextual: Business environment provides the macro framework within

which a business enterprise or a micro entity operates. The management of a
business has to work within the framework of business environment.

(vii) Inter-temporal: Various dimensions of business environment change in

the long-run. For instance, economic environment in India in the pre 1991 era
and the post 1991 era can be distinguished clearly. The post 1991era is
characterized by liberal economic policies and globalization.

Understanding the Importance of Business Environment

Points that would help us to understand the importance of business
environment are: 1. enabling the identification of opportunities and getting
the first mover advantage 2. Helping in the identification of threats and early
warning signals or Radar effect 3. Tapping useful resources 4. Coping with the
rapid changes 5. Assisting in planning and policy formulation 6. Improvement
in performance 7. Image building.

Each business firm has to exist, survive and grow in relation to the various
forces of the business environment. Since business firms have no control on
these forces, it has to adapt itself according to these forces.

1. Enabling the identification of opportunities and getting the first mover

advantage:
Business environment provides many opportunities to the firms to improve
their performance. The firms which are able to scan these opportunities at an
early stage get maximum benefit and can leave their competitors behind.

For example, scientific research has come out with an energy efficient light
bulb which lasts at least 20 times more than a normal bulb. General Electric
and Phillips had identified this discovery and are coming up with their new
bulbs.

2. Helping in the identification of threats and early warning signals or

Radar effect:
Environment understanding helps an enterprise to recognize qualitative
information in advance, which can be used to prepare it for facing likely
challenges.

For example, if any new multinational company is entering the Indian market,
the manager of an Indian firm dealing with same product as that of the
multinational company, should take it as a warning signal. He should handle
this threat proactively & well ahead of the launch of MNC’s product, take
measures like improving the quality of his product, heavy advertisement etc.

3. Tapping useful resources:

Business requires many resources like raw materials, tools, equipments,
finance, labour etc. for performing business activities. These resources are
known as inputs. Business environment provides all these inputs to the
business firms for carrying out their activities and also expects something in
return.

The firms supply their output to the environment, for example goods and
services to the customer, payment to investors on account of money invested
by them, payment of wages to the workers and so on. Thus, we can say that
business firms depend fully on the environment, for supplying inputs and for
receiving their outputs.

4. Coping with the rapid changes:

Business environment is very dynamic. One can see changes like new
technologies, fragmented markets, more demanding customers, heavy global
competition and so on. Thus, in order to efficiently cope with these changes,
managers must understand the environment and should adopt appropriate
courses of action at the right time. It helps management become more
sensitive to ever changing needs of customers. As a result, they are able to
respond to such changes effectively.
5. Assisting in planning and policy formulation:
Business environment brings both threats and opportunities to a business.
Hence, understanding of environment helps the management in future
planning and decision making. For example, competition increases with the
entry of new firms in the market.

The management has to draft new plans and policies to deal with new
competitors. Environmental awareness provides intellectual stimulation to
planners in their decision making. They can make changes in their plans
efficiently and effectively.

6. Improvement in performance:
Environmental awareness provides a continuing, broad based education for
management. Objective qualitative information generated by such
understanding provides a strong basis for strategic thinking. The enterprises
that monitor their environment closely can adopt suitable business practices
not only to improve their performance but also to become leaders in the
industry.

7. Image building:
Environmental understanding generates a feeling among public that business
is sensitive and responsive to its environment. This helps in building the
image or reputation of the firms.

The understanding of its business environment helps an organization to make

realistic plans and ensure their effective implementation. It also helps the
business enterprise in identification of opportunities and threats.
Consequently, such an enterprise is likely to succeed in achieving its goals
smoothly & consistently.
LAYERS OF BUSINESS ENVIRONMENT

INTERNAL ENVIRONMENT

The factors in internal environment of business are to a certain extent

controllable because the firm can change or modify these factors to improve
its efficiency. However, the firm may not be able to change all the factors. The
various internal factors are:

Value system:
The value system of an organization means the ethical beliefs that guide the
organisation in achieving its mission and objectives. It is a widely
acknowledged fact that the extent to which the value system is shared by all in
the organisation is an important factor contributing to its success.
Mission and objectives:
The business domain of the company, direction of development, business
philosophy, business policy etc are guided by the mission and objectives of the
company. The objective of all firms is assumed to be maximization
of profit. Mission is defined as the overall purpose or reason for its existence
which guides and influences its business decision and economic activities.
Organisation structure:
The organisational structure, the composition of the board of directors, the
professionalism of management etc are important factors influencing business
decisions. The nature of the organisational structure has a significant
influence over the decision making process in an organisation. An efficient
working of a business organisation requires that the organisation structure
should be conducive for quick decision-making.
Corporate culture:
Corporate culture is an important factor for determining the internal
environment of any company. In a closed and threatening type of
corporate culture the business decisions are taken by top level managers
while the middle level and lower level managers have no say in
business decision-making. This leads to lack of trust and confidence among
subordinate officials of the company and secrecy pervades throughout the
organisation. This results in a sense of alienation among the lower level
managers and workers of the company. In an open and participating culture,
business decisions are taken by the lower level managers and top
management has a high degree of confidence in the subordinates. In this
type of culture, participation of workers in managerial tasks is encouraged.
Development of work culture and the growing involvement of the workers or
employees in company affairs and the sympathetic attitude of the
management towards its employees are all equally responsible for
maintaining a healthy internal environment in the business.
Quality of human resources:
Quality of employees that is of human resources of a firm is an important
factor of internal environment of a firm. The characteristics of the human
resources like skill, quality, capabilities, attitude and commitment of its
employees etc could contribute to the strength and weaknesses of an
organisation. Some organisations find it difficult to carry out restructuring or
modernization plans because of resistance by its employees. Due to the
importance of human resources for the success of the company, now-a-days
there are special courses for managers so as to be able to select and manage
efficiently the human resources of a company.
Labour unions:
Labour unions collectively bargains with the managers for better wages and
better working conditions of the different categories of workers. For the
smooth working of business firm good relations between management and
labour unions is required.
Physical resources and technological capabilities:
Physical resources such as, plant and equipment and technological
capabilities of a firm determine its competitive strength which is an important
factor for determining its efficiency and unit cost of production. Research and
development capabilities of a company determine its ability to introduce
innovations which enhances productivity of workers. It is, however, important
to note that the rapid technological growth and the growth of information
technology in recent years have increased the relative
Importance of intellectual capital and human resources as compared to
physical resources of a company.
The growth of Bill Gates’ Microsoft Company and Murthy’s Infosys
technologies is mostly due to the quality of human resources and intellectual
capital than to any superior physical resource

EXTERNAL ENVIRONMENT
External environment consists of those factors that affect a business enterprise
from outside. External environment includes shareholders, competitors,
customers, society, government laws and regulations, policies and
technology. External environment is generally classified into micro environment
and macro environment. The micro environment consists of factors in the
company's immediate environment that affects the performance of the
company. These include the suppliers, marketing intermediaries, competitors,
customers and the public. On the other hand, macro external environment
includes larger factors such as economic, demographic, technological, political,
natural and cultural factors. We will explain below micro and macro types of
external environment of business. Different players in the microenvironment
normally do not affect all the companies of a particular industry in a similar
way. However, sometimes micro environment of the various firms of an industry
remains almost same

External Micro- Environment

Micro environment includes those players whose decisions and actions have a
direct impact on the company. Production and selling of commodities are the
two important aspects of modern business. Accordingly, the micro environment
of business can be divided. The various constituents of micro environment are as
under:
Suppliers of inputs:
An important factor in the external micro environment of a firm is the supplier
of its inputs such as raw materials and components. Normally, most firms do not
depend on a single supplier of inputs. To reduce risk and uncertainty business
firms prefer to keep multiple suppliers of inputs.

Customers:
The people who buy and use a firm’s product and services are an important part
of external micro environment. Since sales of a product or service is critical for a
firm's survival and growth, it is necessary to keep the customers satisfied. A
concern for customers’ Satisfaction is essential for the success of a business
firms. Besides, a business firm has to compete with rival firms to attract
customers and thereby increase the demand and market for its product.
Marketing intermediaries:
In the firm's external micro environment, marketing intermediaries play an
essential role of selling and distributing its products to the final
customers. Marketing provides an important link between a business firm and
its ultimate customers.
Competitors:
Different firms in an industry compete with each other for sale of their products.
This competition may be on the basis of pricing of their products and also non-
price competition through competitive advertising such as sponsoring some
events to promote the sale of different varieties and models of their products. As
a consequence of liberalization and globalization of the Indian economy since
the adoption of economic reforms there has been a significant increase in the
competitive environment of business firms. Now, Indian firms have to compete
not only with each other but also with foreign firms whose products can be
imported. In America, American firms faced a lot of competition from the
Japanese firms producing electronic goods and automobiles.
Publics:
Finally, publics are an important force in external microenvironment.
Environmentalists, media groups, women’s associations,
consumer protection groups, local groups, Citizens Association are some
important examples of publics which have an important bearing on the business
decisions of the firm. The existence of various types of publics influences the
working of business firms and compels them to be socially responsible.
External Macro Environment
Apart from micro environment, business firms face large external
environmental forces. An important fact about external macro environmental
forces is that they are uncontrollable by the management. Because of the
uncontrollable nature of macro forces a firm has to adjust or adapt it to these
external forces. These factors are:
Economic Environment:
Economic environment includes all those forces which have an economic impact
on business. Accordingly, total economic environment consists of agriculture,
industrial production, infrastructure, and planning, basic economic philosophy,
stages of economic development, trade cycles, national income, per capita
income, savings, money supply, price level and population. Business and
economic environment is closely related. Business usually collects all its required
inputs from the economic environment available and also absorbs the output of
business units. Thus, the important forces operating in the economic
environment are:
the stage of economic development through which a country is passing at
a given point of time;
the economic system which a country has adopted such as capitalism,
socialism, or a mixed economy;
the nature of economic policies which the country has adopted such as
industrial policy, monetary and fiscal policies;
the type of economic planning such as centralized or decentralized
planning, perspective or long term plans, five year plans, annual plans or
budgets, etc.;
the nature of infrastructure available in the country such as means of
transportation, communication network, banking and financial
institutions, power supply, insurance, etc.; and
the important economic indices such as national income, per capita
income, rate of growth of Gross National Product, distribution of income,
rate of savings and investments, rate of growth of imports and exports,
balance of trade, balance of payments, poverty rates, etc.
Political-legal Environment:
Business firms are closely related to the government. The political- legal
environment includes the activities of three political institutions, namely,
legislature, executive and judiciary which usually play a useful role in shaping,
directing, developing and controlling business activities. The legislature takes
decisions on a particular course of action, the executive implements those
decisions through government agencies and the judiciary serves as a watch-dog
for ensuring public interest in all the activities of legislature and executive. In
order to attain a meaningful business growth, a stable and dynamic political-
legal environment is very important.
Technological Environment:
Technological environment is exercising considerable influence on business.
Technology implies systematic application of scientific or other organized
knowledge to practical tasks or activities. Business makes it possible for
technology to reach the people in proper format. As technology is changing fast,
businessmen should keep a close look on those technological changes for its
adaptation in their business activities.
Global or International Environment:
Global environment plays an important role in shaping business activity. With
the liberalization and globalization of the economy, business environment of an
economy has become totally different wherein it has to bear all shocks and
benefits arising out of global environment.
Socio-cultural Environment:
Social and cultural environment also influences the business
Environment indirectly. These includes people’s attitude to work and wealth,
ethical issues, Role of family, marriage, religion and education and also social
responsiveness of business. The social and cultural environment also influences
the demand for a variety of goods and the type of employees the industry
require. Moreover, the obligation of business to society also depends on the
cultural milieu in which the firm is operating.
Demographic Environment:
The demographic environment includes the size and growth of population, life
expectancy of the people, rural-urban distribution of population, the
technological skills and educational levels of labour force. All these demographic
features have an important bearing on the functioning of business firms. The
labour force in the country is always changing. This will cause changes in
the work force of a firm. The business firms have to adjust to the requirement of
their employees. They have to provide child care services, labour welfare
programmes etc. The demographic environment affects both the supply and
demand sides of business organisations. The technological and educational skills
of the workers of a firm are determined by the human resources available in the
economy which is part of the demographic environment. The size of the
population and its rural- urban distribution determines the demand for the
products of industrial firms. The growth rate and the age composition of the
population determine the demand pattern of goods. If the child population is
high then the demand for baby foods and baby clothes will be high. On the other
hand, if the life expectancy of the people is high then the demand for goods will
be those that will cater to the tastes and needs of elderly people. The
demographic environment is also important for business firms as it determines
the choice of technology by them.
Natural Environment:
Natural environment influences business in diverse ways. Business in modern
times are dictated by nature. The natural environment is the ultimate source of
many inputs such as raw materials and energy, which firms use in their
productive activity. In fact, the availability of natural resources in the region or
country is the basic factor in determining business activity in it. The natural
environment which includes geographical and ecological factors such as
minerals and oil reserves, water and forest resources, weather and climatic
conditions are all highly significant for various business activities. For example,
steel producing industries are set up near the coalmines to save cost of
transporting coal to distant locations. The natural environment also affects the
demand for goods. For example, in places where temperatures are high, the
demand for coolers and air conditioners are high. Similarly, weather and
climatic conditions influence the demand pattern for clothing, building
materials for housing etc.
Natural calamities like floods, droughts, earthquake etc. are devastating
for business activities.
Ecological Environment:
Due to the efforts of environmentalists and international organisations such as
the World Bank the people have now become conscious of the adverse effects of
depletion of exhaustible natural resources and pollution of environment by
business activity. Accordingly, laws have been passed for conservation of natural
resources and prevention of environment pollution. These laws have imposed
additional responsibilities and costs for business firms. But it is socially desirable
that these costs are borne by business firms if we want sustainable economic
growth and also healthy environment for human beings.

BUSINESS AND ENVIRONMENT INTERFACE

IMPACT OF ENVIRONMENT ON BUSINESS

Environment is closely related with business. There is a constant ‘give and

take’ relationship between environment and business. The business receives
inputs, information and technology from the environment and gives it back in
the form of outputs (goods and services).

If these outputs are accepted by the environment, the environment-business

interaction continues but if they are unacceptable to the environment, firms
adapt to the environmental requirements and change their operations.

The organisation has to look after the interest of stakeholders like

shareholders, consumers, workers, suppliers etc. The environment also offers
threats and opportunities to which organisations have to respond positively.

Business and environment interaction takes place in the following ways:

1. Business is affected by economic conditions of the environment. During
recessionary conditions, for example, firms reduce the production or pile their
inventories to sell during normal or boom conditions. Business, on the other
hand, can create artificial scarcity of goods by piling inventories and force the
economic conditions to show signs of adversity while it is not actually so. Both
business and environment, thus, affect and are affected by each other.

2. When financial institutions increase the lending rates, firms may resort to
other sources of funds, like bank loans or internal savings (reserves). This
may force the financial institutions to lower the interest rates. The financial
environment and the business system, thus, act and interact with each other.

3. The firm’s micro environment consisting of workers, suppliers,

shareholders etc. affects the business activities and is, affected by them.
Workers demand high wages, suppliers demand high prices and shareholders
demand high dividends.

Firms reconcile the interests of diverse groups and satisfy their demands. If
management resolves these demands, it will be positively affected by the
environmental forces but if it fails to satisfy these demands, it becomes a
victim of the environment. Growing firms pay high wages and dividends to
their workers and shareholders to maintain harmonious industrial relations
and a positive business-environment interface.
4. Business receives useful information from the environment regarding
consumers’ tastes and preferences, technological developments, Government
policies, competitors’ policies etc. and provides useful information to the
environment regarding its goals, policies and financial returns. This
information is transmitted to environment through annual reports as a
requirement of disclosure practices.

5. The basic function of a business enterprise, input-output conversion, is

carried through active interaction with the environment. It receives inputs
from the environment, converts them into outputs through productive
facilities which are also received from the environment and sends them back
to the environment. A constant feedback is received from the environment to
improve its performance.

6. The environment offers threats and opportunities to business systems

which they overcome and exploit through their strengths and weaknesses.
SWOT analysis helps in integrating external environment with the internal
environment.

The business and environment, thus, have much to give and take from each
other. The economy is structured by effective interaction of the business and
its environment.

Managerial Response to Environment Challenges

The management of a business may choose form the following strategies to
deal with changing environment:

(i) Anticipating and Adapting: Sometimes, managers can anticipate

changes in environmental conditions and adapt appropriately tot eh expected
changes. With information gleaned from forecasting, managers can help their
organizations adapt internally to anticipated environmental demands. For
instance, hotels and restaurants in populate hill stations can antipasti the
tourist season and increase their supplies of fool, liquor and various other
customer services.
(ii) Smoothing or Leveling: This strategy aims at smoothing the sales
throughout the year. During periods of low demand, an organization may offer
inducements, such as price reductions, to encourage consumers to buy its
products. During peak periods, it may charge a premium rate to make up for
lean season. Smoothing explains why geysers are cheaper during the summer
and air-conditioners during the winter.

(iii) Competitive Advertising: In order to meet competition in the market,

business firms may resort to competitive advertising. For instance, Prepsico
and Coca Cola companies have often used this strategy to either increase or
maintain their market share.

(iv) Brand Building: Often, multinational companies have invested huge

amounts on building brands, such as LG, Samsung. Hyundai. During the cricket
World Cup 2003, LG was always at the forefront to build its brand throughout
the world.

(v) Strengthening of Distribution Network: Several companies like

Hindustan Lever, Coca Cola, Pepsi, Titan, ITC, etc. have strengthened their
distribution network in India. They have been concentrating on marketing in
rural markets by launching law priced models of their products. Rural
markets in India have a great potential. Direct marketing companies like
Amway and Tupperware have also been successful in pushing up their sales
directly to the customers.

(vi) Up gradation of Technology: Use of latest technology can provide a

competitive edge to their users. That is why, most of the big companies spend
huge budgets to develop new technology or acquire new technology from
multinational corporations. Technology transfer to India has now become
easier because of Government Policy of economic liberalization.

(vii) Diversification Strategy: Many companies have undertaken

diversification programmers to strengthen their position in the market.
Reliance has diversified into textiles, petrochemicals, financing, information
technology, communication, etc. Eureka Forbes, known for vacuum cleaner,
has entered into water purifier, food processor, electric iron, etc.

(viii) Joint Venture: Many companies in India have entered into joint
venture arrangements with foreign motional corporations for the supply of
latest technology. For instance, Mahindra and Mahindra entered into joint
venture with Ford and SIEL with Honda. This has helped them to offer
improved models in the market.

(ix) Merger and Acquisition: Two or more competing firms may merge
together to create to create a bigger unit or one firm may acquire another firm
to increase its competitive strength. For instance, Hindustan Lever took over
Tata Oil Mills (TOMCO)to take on competition from proctor and Gamble. It has
also acquired Kissan and Kwality. Similarly Coke acquired Parle Drinks (the
manufacturer of Limca and Thumps Up) to take on Pepsi.

GOVERNMENT POLICY CHANGES AND BUSINESS

ECONOMIC REFORMS AND NEW INDUSTRIAL POLICY,1991

In order to introduce economic reforms, the Central Government announced a
new industrial policy in July 1991. It was a landmark in the history of
economic development of India.
The economic reforms initiated by the Central Government are as follows:
Liberalization of establishment and growth of Industrial units, industrial
licensing has been abolished for all industrial projects except for a few
industries.
Automatic clearance for foreign technology agreements in high priority
industries.
Easy approval of foreign direct investment (FDI) in high priority
industries.
Opening the power, oil, banking, insurance and communication sectors
to private enterprises. These areas were earlier reserved for the public
sector.
Disinvestment in public, sector units through the sale of their equity
shares to the private sector.
Removal of restrictions on imports and export of goods and services.
Tax concessions and cheaper bank loans to export-oriented units.
Special package of incentives for small scale industries (SSI)units.
Liberalization

The term ’liberalisation’ means removal of entry and growth

restrictions on the private sector enterprises. This has been done by the
Indian government through; (a) abolishing licensing requirement in
most of the industries except a short list, (b) simplifying procedures for
imports and exports, and (c) making it easier to attract foreign capital
and technology to India.
Economic liberlisation is a precondition for globalization of business for
speedy growth of the national economy. The measures taken by the
government for liberalisation include the following:
1. Removal of industrial licensing for all industries except three
industries notified by the central government.
2. De-reservation of industries in the public sector. Private sector
can start and operate units in all but four sectors of strategic
importance which have been reserved for the public sector.
3. Relaxation in the upper limit of foreign direct investment in
specified areas.
4. Automatic permission for foreign direct investment in specified
areas.
5. Automatic permission for import of capital goods if it is arranged
through foreign equity.
6. Replacement of FERA (Foreign Exchange Regulation Act) by
FEMA ( Foreign Exchange Management Act) to liberalise the
dealings in foreign exchange.
7. Removal of restriction on import of goods except those in the
negative list.

Privatisation
Privatization means transfer of ownership, management and
control of public sector enterprises to the entrepreneurs in the
private sector. It implies greater role of the private sector in the
economic activities of the country. To encourage privatization ,
the government followed two steps:
1. Planned disinvestment of the public sector, i.e., dilution of
government’s stake in public sector companies to less than
51%.
 2. Revival of sick public sector units. The government sset up
the Board of Industrial and Financial Reconstruction (BIFR)
to revive sick units in the public sector.

Globalization
The term ‘globalization’ means the process of integration of
the world economy into one huge market through the
removal of all trade barriers or restrictions among
countries. Globalization involves an increased level of
interaction and interdependence among various countries.
There is free exchange of not only good and services, but
also of technology, culture and management practices. The
driving forces enhancing the pace of globalization are rapid
advances in technology and trade liberalisation. Technology
has been able to shrink the distance of time and space
between people and countries. Physical geographical gap is
no longer a barrier for a firm to service a customer in a
distant geographical market.
Over the last few years, the Indian government has followed
the policy of economic liberalisation. The impact of this
policy has been :
Reduction of barriers in international trade(e.g.,
reduction of import duty and liberal permission to
imports)
Increased flow of capital from foreign countries and
vice versa,
Free flow of latest technology.
These have encouraged the process of globalization.

Impact of government policy changes on the business

1. Increasing Competition: Delicensing and entry of foreign firms in Indian

market has increased the level of competition for Indian firms.
2. More Demanding Customers: Now customers are more aware and they keep
maximum information of the market as the result of which, now market is
customer/buyer oriented. Now products are produced keeping in mind the
demands of the customers.
 3. Rapid Changing Technological Environment: Rapid Technological
advancement has changed/improved the production process as a result of which
maximum production is possible at minimum cost but it leads to tough
challenges in front of small firms.
4. Necessity for Change: after New Industrial Policy, the market forces (demand
& supply) are changing at a very fast rate. Change in the various components of
business environment has made it necessary for the business firms to modify
their policies & operations from time to time.
5. Need for Developing Human Resources: The changing market conditions
require people with higher competence and greater commitment. Hence there is
a need for developing human resources which could increase their effectiveness
and efficiency.
6. Market Orientation: Earlier selling concept was famous in the market now its
place is taken by the marketing concept. Today firms produce those goods &
services which are required by the customers. Marketing research, educational
advertising, after sales services have become more significant.
7. Reduction in budgetary Support to Public Sector: The budgetary support
given by the government to the public sector is reducing thus the public sector
has to survive and grow by utilizing their own resources efficiently.
CONCEPT OF BUSINESS ETHICS

Ethics is a branch of social science. It deals with moral principles and social
values. It helps us to classify, what is good and what is bad? It tells us to do good
things and avoid doing bad things.

In short, business ethics means to conduct business with a human touch in order
to give welfare to the society.

Definition of Business Ethics

According to Andrew Crane,

"Business ethics is the study of business situations, activities, and decisions

where issues of right and wrong are addressed."

According to Raymond C. Baumhart,

"The ethics of business is the ethics of responsibility. The business man must
promise that he will not harm knowingly."

Every business is expected to carry its operations in an ethical manner or

socially desirable way. A few examples of ethical business practices are:

To charge fair prices from the customers.

To use fair weights for measurement of commodities.
To pay taxes to the government honestly.
To charge reasonable profits from the customers
To ensure genuine (not duplicate) and safe products for the public.
To give fair treatment to the workers.
 Nature of Business Ethics

The characteristics or features of business ethics are:-

Code of conduct: Business ethics is a code of conduct. It tells what to do and

what not to do for the welfare of the society. All businessmen must follow this
code of conduct.
Based on moral and social values: Business ethics is based on moral and
social values. It contains moral and social principles (rules) for doing
business. This includes self-control, consumer protection and welfare, service
to society, fair treatment to social groups, not to exploit others, etc.
Gives protection to social groups: Business ethics give protection to
different social groups such as consumers, employees, small businessmen,
government, shareholders, creditors, etc.
Provides basic framework: Business ethics provide a basic framework for
doing business. It gives the social cultural, economic, legal and other limits of
business. Business must be conducted within these limits.
Voluntary: Business ethics must be voluntary. The businessmen must accept
business ethics on their own. Business ethics must be like self-discipline. It
must not be enforced by law.
Requires education and guidance: Businessmen must be given proper
education and guidance before introducing business ethics. The businessmen
must be motivated to use business ethics. They must be informed about the
advantages of using business ethics. Trade Associations and Chambers of
Commerce must also play an active role in this matter.
Relative Term: Business ethics is a relative term. That is, it changes from one
business to another. It also changes from one country to another. What is
considered as good in one country may be taboo in another country.
New concept: Business ethics is a newer concept. It is strictly followed only in
developed countries. It is not followed properly in poor and developing
countries.

ETHICAL ISSUES FACED BY MANAGERS

WITH RESPECT TO EMPLOYEES: feedback about performance,

employment security, and appropriate working conditions.
WITH RESPECT TO PEERS AND SUPERIORS: truth-telling, loyalty and
support.
 WITH RESPECT TO CUSTOMERS: Fair treatment, truth-telling,
questionable practices, collusion.
WITH RESPECT TO SUPPLIERS: Fair/impartial treatment, balanced
relationship, and unfair pressure tactics, truth-telling.
WITH RESPECT TO OTHER STAKEHOLDERS: Respecting legal constraints,
truth-telling in public relations, shareholders’ interests.

IMPORTANCE OF BUSINESS ETHICS

1. Ethics lays the strategic decision-making. Leaders and workers of a
business characterized by ethical behavior make decisions that are socially
acceptable. They allow all the stakeholders to participate in the decision-making
process.

2. They increase employee retention. Employees always want to stay longer in

a business where the employers value their rights and opinions. To them, their
basic needs are satisfied.

3. An ethical business attracts investors. A business that promotes ethics in

its management and operations create an investment-friendly environment.
Investors like putting their money where they are sure it is safe.

4. Ethics minimizes costs. Fewer funds are spent in employee recruitment since
most employees are retained in the business.

5. Ethical practices help in building and maintaining reputation. A large

part of ensuring business success is down to maintaining a good reputation
among your customers. One of the main things that customers will scrutinize
when they decide whether they trust or want to engage with a business or not is
that business’s ethics. If you can brand yourself explicitly as an ethical business,
so much the better!

6. An ethically oriented company is bound to avoid fines. They comply with

the law, file their tax returns in time, ensure quality of products and services, etc.

7. Ethics in a business attracts more employees. When your company is

reputable, more people will be interested to work for you.
8. Good Business ethics is the key to enhancing productivity. People will
work harder at their jobs if they believe that what they are doing is ethical. They
will not be held back by moral qualms, and they may feel extra motivated to
work because they feel that by doing so they are making the world a better
place. So if you want to make a normal profit rise and rise until you are making
big bucks, you need to keep your business totally ethical.

9. Ethics create customer loyalty. A reputation build on good ethics helps

create a positive image in the marketplace. This, in turn, makes customers trust
your products and services. They also pass information to their friends and
family, hence, creating more customers for you.

10. Ethics encourage teamwork. Employers and employees who trust one
another work together harmoniously and effectively.

11. A business that values ethics attracts more suppliers. A business without
suppliers is as good as a failed enterprise. Suppliers are attracted to a company
that appreciates what they supply and pay for them promptly.

12. Ethics in enhances partnerships. Partnerships in the business world are

very crucial. They help expand your marketplace and improve business relations.
In order to get a good partner(s), your reputation must be built on a strong
business ethics foundation.

13. Ethics reduces business risks. As trust and loyalty are built on ethics,
chances of losing potential customers, suppliers, employees and even the
company itself are minimal.

14. It improves a company’s bottom line (last line that shows profit or
loss). The bottom line of your business will increase since costs and risks are
reduced.

15. Ethics increases business profits. The decrease in risks and costs mean
that the output is likely to be higher than the input hence the company makes a
profit.
16. Ethics lead to sustainable growth in sales. An increase in customers leads
to an increase in demand. Therefore, more goods and services are sold. It may
seem that a little selfishness might help your business, however this is never the
case. Selfish or unethical actions may seem to give your business a temporary
boost, but they will thwart your long term goals. Ethical action is the key to
sustainability and success in business.

17. Good ethics in a business boosts the morale of the employees. Good
business ethics involves rewarding your employees. When an employee is
rewarded, he/she works harder leading to more profits.

18. Ethics helps in building consumer confidence. Other than customer

loyalty, business ethics makes consumers believe in you even during difficult
times. For example, when a company’s product is found to be faulty and the
company takes full responsibility, consumers are bound to trust that it was just a
mistake.

19. Ethics enable a company to make good use of the limited

resources. Instead of wasting the company’s resources on themselves, company
leaders can put them to good use.

20. Ethics in business allows for healthy competitions. It is common to find

two or more companies that offer similar services and goods. A company
characterized with ethical behavior will not engage in malpractices such as
spreading false information about the other company or lowering their prices.
Instead, they will allow the customers to choose where they like.

21. Ethics lead to long-term gains. A company that values ethics believes in
small, but long-term benefits rather than big, but short-term returns.

22. Ethics helps in maintaining quality. An ethical company will strive to

deliver goods and services of high quality to their customers even in times when
the demand is higher than supply.

23. Ethics offers extra asset protection. Employees who abide by the business
ethics are in a position to respect and protect the business’s assets. For instance,
they will not make long personal calls using the business line.
24. Ethical practices foster community improvement. Ethics teaches the art
of giving back. Ethically oriented companies will help a community to be better
through things like road construction or schools construction.

25. Good business ethics is an end in itself. Both inside and outside of
business, having good ethics is an end in itself, and something that we can derive
satisfaction from in its own right. So, if you want employees, vendors and
consumers to feel satisfied, then running an ethical business is very important.
That way, when people go to work they will feel a sense of satisfaction at doing
something that is morally sound. And, when people buy your products or
services, they can do so safe in the knowledge that what they are doing is ethical.

26. Ethics promote Corporate Governance in an organization. A good

corporate governance ensures that the company is working according to the
prescribed rules and regulations. The state of affairs of the company is
transparently reported to its stakeholders such as share holders, management,
creditors, and the government.

27. Ethical practices helps in setting up the internal control systems. It

helps in working according to the organizational goals, meet the project
deadlines, correct reporting of financial data, and compliance with the existing
laws and regulations. Without ethics in place, the internal control mechanisms
would fail to achieve a meaningful goal.

28. Ethics is necessary for equality at workplaces. An ethical working

environment provides equal work opportunities to all the employees. It is free for
gender-inequality and discrimination of any sort. Candidates are promoted solely on the
basis on their merit.

Conclusion.
Having an ethical business is essential if you want your business to be a real success in
the long term. Good business ethics keep your customers satisfied, they encourage
people to buy in to your business.

Business ethics and profit go hand in hand. An ethically oriented business with desire to
dominate its market niche is likely to reap a lot of benefits. Unethical company,
however, is doomed to fail even if they started with high profit records. Ethics are there
to make relations better and stronger.
Determinants of Business/Managerial Ethics
Business ethics develop as a result of constant interaction among a
multiplicity of factors. The following are the main factors influencing the
ethical behavior of those managing business:

(1) Social Factors. Ethics are basically concerned with social morality. In
other words, ethical business conduct is that which is socially moral.
Accordingly, it is the social values, norms, traditions and customs, etc., which
prescribe business ethics and govern business conduct. And as societal norms
and value undergo changes, business ethics are also adapted to the changed
social environment.

(2) Economic Factors. The level of economic development also influences

the nature and spread of business ethics. In general, business ethics assume
liberal character with the development in economic spheres, particularly
business activities. Consider, for example, the advertisement on mint: you
don’t have a hole in your head. So why have one in your mint?” (Indicating the
competitor’s product and its punch line ‘A mint with the hole’). Today, this
type of advertisement is not considered unethical but surely it would have
been an immoral advertisement had it been issued during the 1950s or 1970s.

(3) Cultural Factors. The code of conduct for individuals as well as

organizations develops under constant influence of cultural values. And the
sources of these cultural values are historical heritage, family system, religion,
education, government, etc.The constant influence of these factors determines
the form and nature of social ethics of behavior.

(4) Political Factors. Business ethics are also influenced by the ideology
and philosophy of the political party in power. Through appropriate
legislative measures, the government enforces business firms in respect of
such important aspects as business location, maintenance of quality, fair
prices, fair treatments to the workers, safety measures. Prevention of
pollution, etc.

(5) Organization Factors. Organizational factors like philosophy and policy

of the firms, attitudes of the managers and superior-subordinate relations
have great impact on ethical perception and judgment of business managers
and subsequent behavior.

(6) Institutional Codes. Business conduct is also governed by codes of

conduct prescribed by various sectoral institutions. The codes of ethical
behavior have been prescribed by the professional bodies like the Institute of
Chartered Accountants of India, the Institute of Costs and Works Accountants
of India, the Institute of Company Secretaries of India, and All India
Management Association for their respective members. Organizations like
Chambers of Commerce and Industry and Trade Associations have also
formulated codes of conduct for business enterprises. Such codes of conduct
act as trend-setters and create a conducive environment for business firms to
adopt ethical behavior.

Ethical Principles for Business Executives/Ideals of Business Ethics

1 . HONESTY. Ethical executives are honest and truthful in all their dealings
and they do not deliberately mislead or deceive others by misrepresentations,
overstatements, partial truths, selective omissions, or any other means.

2. INTEGRITY. Ethical executives demonstrate personal integrity and the

courage of their convictions by doing what they think is right even when there
is great pressure to do otherwise; they are principled, honorable and upright;
they will fight for their beliefs. They will not sacrifice principle for expediency,
be hypocritical, or unscrupulous.

3. PROMISE-KEEPING & TRUSTWORTHINESS. Ethical executives are

worthy of trust. They are candid and forthcoming in supplying relevant
information and correcting misapprehensions of fact, and they make every
reasonable effort to fulfill the letter and spirit of their promises and
commitments. They do not interpret agreements in an unreasonably technical
or legalistic manner in order to rationalize non-compliance or create
justifications for escaping their commitments.

4. LOYALTY. Ethical executives are worthy of trust, demonstrate fidelity and

loyalty to persons and institutions by friendship in adversity, support and
devotion to duty; they do not use or disclose information learned in
confidence for personal advantage. They safeguard the ability to make
independent professional judgments by scrupulously avoiding undue
influences and conflicts of interest. They are loyal to their companies and
colleagues and if they decide to accept other employment, they provide
reasonable notice, respect the proprietary information of their former
employer, and refuse to engage in any activities that take undue advantage of
their previous positions.

5. FAIRNESS. Ethical executives and fair and just in all dealings; they do not
exercise power arbitrarily, and do not use overreaching nor indecent means
to gain or maintain any advantage nor take undue advantage of another’s
mistakes or difficulties. Fair persons manifest a commitment to justice, the
equal treatment of individuals, tolerance for and acceptance of diversity, the
they are open-minded; they are willing to admit they are wrong and, where
appropriate, change their positions and beliefs.

6. CONCERN FOR OTHERS. Ethical executives are caring, compassionate,

benevolent and kind; they like the Golden Rule, help those in need, and seek to
accomplish their business objectives in a manner that causes the least harm
and the greatest positive good.

7. RESPECT FOR OTHERS. Ethical executives demonstrate respect for the

human dignity, autonomy, privacy, rights, and interests of all those who have a
stake in their decisions; they are courteous and treat all people with equal
respect and dignity regardless of sex, race or national origin.

8. LAW ABIDING. Ethical executives abide by laws, rules and regulations

relating to their business activities.

9. COMMITMENT TO EXCELLENCE. Ethical executives pursue excellence in

performing their duties, are well informed and prepared, and constantly
endeavor to increase their proficiency in all areas of responsibility.
10. LEADERSHIP. Ethical executives are conscious of the responsibilities and
opportunities of their position of leadership and seek to be positive ethical
role models by their own conduct and by helping to create an environment in
which principled reasoning and ethical decision making are highly prized.

11. REPUTATION AND MORALE. Ethical executives seek to protect and build
the company’s good reputation and the morale of its employees by engaging
in no conduct that might undermine respect and by taking whatever actions
are necessary to correct or prevent inappropriate conduct of others.

12. ACCOUNTABILITY. Ethical executives acknowledge and accept personal

accountability for the ethical quality of their decisions and omissions to
themselves, their colleagues, their companies, and their communities.

BUSINESS VALUES

Milton Rokeach has defined values as beliefs that guide actions and judgement
across a variety of situations. He further says that values represent basic
convictions that a specific mode of conduct is personally or socially preferable
to an opposite mode of conduct. For example, a businessman is expected to
supply true information rather than making false claims.

The distinctive features of values are as under:

Values are comprehensive standard that direct conduct of people in

different situations.
Values guide people to take specific position of societal issues.
Values provide standards of morality.
Values are relatively stable and enduring as these are passed from one
generation to another.
 ATTITUDES, BELIEFS AND VALUES

ATTITUDES

According to Gordon Allport, “An attitude is a mental and neural state of

readiness, organized through experience, exerting a directive or dynamic
influence upon the individual’s response to all objects and situations with
which it is related.”
Frank Freeman said, “An attitude is a dispositional readiness to respond to
certain institutions, persons or objects in a consistent manner which has been
learned and has become one’s typical mode of response.”
Thurstone said, “An attitude denotes the sum total of man’s inclinations and
feelings, prejudice or bias, preconceived notions, ideas, fears, threats, and
other any specific topic.”
Anastasi defined attitude as, “A tendency to react favorably or unfavorably
towards a designated class of stimuli, such as a national or racial group, a
custom or an institution.”
According to N.L. Munn, “Attitudes are learned predispositions towards
aspects of our environment. They may be positively or negatively directed
towards certain people, service or institution.”

BELIEFS

A belief is an idea that a person holds as being true.

A person can base a belief upon certainties (e.g. mathematical principles),

probabilities or matters of faith.

A belief can come from different sources, including:

a person’s own experiences or experiments

the acceptance of cultural and societal norms (e.g. religion)
 What other people say (e.g. education or mentoring).
VALUES
According to Zaleznik and David, “Values are the ideas in the mind of men
compared to norms in that they specify how people should behave. Values also
attach degrees of goodness to activities and relationships”
According to M. Haralambos, “A value is a belief that something is good and
desirable”.
According to R.K. Mukherjee, “Values are socially approved desires and goals
that are internalized through the process of conditioning, learning or
socialization and that become subjective preferences, standards, and
aspirations”
LEVELS OF BUSINESS VALUES

INDIVIDUAL VALUES: The members of business firm hold their own

values regarding their personal conduct in business. These values
constitute the base of business values.
GROUP VALUES: The values held by formal as well as informal groups
in the organization are of great importance in determining overall
organizational values. It is important to note that the group business
values may or may not be in agreement with individual values.
TOP MANAGEMENT VALUES: The business values at the organization
level emerge from objectives, policies, philosophy of the top
management and the culture of the organization.
ENVIRONMENTAL VALUES: The various environment constituents of
business also hold norms and values of good business. These
constituents of business also norms and values of good business. These
constituents are investors, lenders, customers, employees, suppliers,
government, and the society as a whole.
CONCEPT OF SOCIAL RESPONSIBILITY

The concept of social responsibility in relation to business means that the firm
functions to accomplish its financial objectives and serves the society as well. No
business exists in isolation. Every organ of the society contributes towards the
success of a business. Thus it becomes imperative that business too does
something for the society in return. This responsibility of business towards the
society is called social responsibility.

A socially responsible firm should not work solely for profit maximization but
should also seek the welfare of different sections of the society. Social
responsibility of business refers to its obligations to take those decisions and
perform those actions which are acceptable in terms of the objectives and
values of the society.
“Social responsibility of business refers to the obligations of businessmen’s
decisions and actions taken for reasons at least partially beyond the firm’s
direct economic and technical interest.” —Keith Davis
“Social responsibility is to pursue those policies, to make those decisions, or to
follow those lines of action which are desirable in terms of the objectives and
values of our society.” —Howard D. Bowen

In such a case, the following reasons have been laid down to explain the
significance of social responsibility for a business enterprise:

1. Long-Term Interest:
It is in the long-term interest of the business to discharge its social obligations
by serving different interest groups such as employees, consumers,
government and citizens. Wise business persons know that unless they serve
the society by fulfilling its needs, they will not be able to climb the success
ladder. Working for the society, stakeholders and government helps an
organization in establishing a strong public image. On the other hand, a
business organization with vested selfish interests may get ignored by the
society.
2. Indebted to Society:
A business uses the resources of the society for its functioning. Hence, it
becomes obligatory for it to pay back its dues by serving the society.
Businessmen should tend to the needs of the society and use its resources for
community welfare. This practice ultimately helps the organization in
establishing itself on the strong foundation of a pleased society and a
cooperative labour force.
3. Social Power:
Business persons are endowed with a lot of social power. They have the
potential to change the destiny of the population by collectively deciding for
the country on crucial issues such as rate of economic progress, distribution of
income among different income groups etc. Ideally, business persons should
take up social responsibilities in proportion to their social power.
If the business enterprise misuses its social powers for selfish motives, the
society can intervene via government controls and other laws. Therefore, it is
morally right for a business to embrace its social obligations and discharge
them loyally.
4. Public Image:
A business devoted towards fulfilling its social responsibilities is regarded
highly by the society. Good rapport with employees, suppliers, customers and
government helps in building a favourable public image of the business
enterprise. Moreover, a socially responsible organization is considered
trustworthy by the shareholders and investors.
5. Social Awareness:
These days, employees and customers are more informed about their rights.
While consumers expect the seller to abide by the fair trade practices,
workers want fair wages and other employee benefits. If the expectations of
these interest groups are not met, they may resort to either anti-social
activities or seek help from trade unions and consumer courts. This will lead
to industrial turmoil and unrest within the society which is harmful for proper
functioning of the business.
6. To Avoid Government Intervention:
If a business organization fails to acknowledge and perform its social duties, it
is bound to lose its freedom and flexibility in the long-run. The Consumer
Protection Act and other legislations passed by the government safeguard the
interest of the customers against business persons indulging in black-
marketing, adulteration, hoarding and many other illegal trade practices.
Since, government intervention is not welcomed by business enterprises,
social duties should be voluntarily carried out by all the organizations to avoid
such situations.
7. Law and Order:
A peaceful society is congenial to the expansion of business. Unable to
withstand exploitation by the business enterprises, the weaker sections can
rebel and take the law and order in their hands. As a result, the survival of the
business can be threatened.
8. Moral Justification:
A business possesses resources such as finance and talent pool to help bail out
troubled masses out of social issues like poverty, dowry, unemployment and
illiteracy by organizing special campaigns and programs. Additionally,
business houses can assist the government in solving many other issues like
lack of foreign exchange etc. Moreover, business organizations increase
pollution by releasing untreated sewage into the environment. Thus, it is a
moral obligation of the business to render its services in tackling these issues.
9. Socio-Cultural Norms:
India has a rich legacy of business values passed down by the legendary and
morally upright business owners like Ratan Tata, Azim Premji, etc. Only those
business persons who sincerely abide by the canon of business will get the
privilege of being honored by the citizens and the government. Hence, the
business should aim to promote equal opportunity and maintain healthy
inter-personal relations with all the stakeholders such as customers,
employees to carve a niche for itself as a honest enterprise.
10. Trusteeship:
The great socio-political leader Mahatma Gandhi propounded the philosophy
that owners of wealth and property should hold and use the wealth for the
welfare of the society. Therefore, company owners should operate the
business not only for their own benefit, but also for the prosperity of the
society. According to Keith Davis, since business has the resources to resolve
the mounting social problems, it should try and assume the social
responsibilities.
 CASE AGAINST ASSUMPTION OF SOCIAL RESPONSIBILITY

1. RELATION BETWEEN PROFIT AND RESPONSIBILITY: social responsibility

and profit have a sequential movement. Profit come first and corporate social
responsibility later. Therefore, before committing any cost towards social
cause an enterprise has to make sure that it has sufficient profits to meet the
obligation. No enterprises can take up social cause unless its cost is known
and cost is well within range of its earned/accumulated profits.
2. DIFFICULT TO ESTIMATE POSITIVE IMPACT: It is tough to ascertain the
impact of social responsibility on profit. Enterprise may commit its funds to
social causes, which may generate better feeling, good thinking about an
enterprise. But what impact these positive thinking in minds of people may
lead to is difficult to ascertain. Thus, cost of corporate social responsibility
may or may not always bring positive results for an enterprise.
3. COMPLIANCE OF LAW: Social sentiments, value-system, ethics are pure
persuasive matters and not binding on an enterprise. The only obligation an
enterprise owes is complying with laws made. It is,therefore,sufficient for
business enterprises if they abide by laws of land they operate in.
4. ROLE OF SOCIETY IN SAFEGUARDING ITS INTERESTS: society must create
its own safeguards. There is no system, which may compensate business for
harmful effects of social decisions. Merely making business liable for all ill-
effects on society is not the solution. Thus, the argument that society is a
powerful institution and it must safeguard its interests holds good.
5. EXTENT OF RESPONSIBILITY. Business can be socially responsible only to
the extent of contractual obligation it may owe. As the scope and definition of
corporate social responsibility is so large and unpredictable that society and
stakeholders try to relate all negative impacts on them to business enterprises.
6. COMPLEX ETHICAL ISSUES. Ethical issues and values system of society is so
complex that there is no unanimity as to the scope and extent of corporate
responsibility. It really becomes difficult for business to understand the social
concern in the manner it perceives.
Responsibility towards Different Interest Groups

The business generally interacts with owners, investors, employees, suppliers’

customers, competitors, government and society. They are called as interest
groups because by each, and Livery activity of business, the interest of these
groups is affected directly or indirectly. Responsibility of Business towards
Different Interest Groups
Responsibility towards owners
Owners are the persons who own the business. They contribute capital and bear
the business risks. The primary responsibilities of business towards its owners
are to:

1. Run the business efficiently.

2. Proper utilization of capital and other resources.
3. Growth and appreciation of capital.
4. Regular and fair return on capital invested.

Responsibility towards investors

Investors are those who provide finance by way of investment debentures, bonds,
deposits, etc. Banks, financial institutions, and investing public are all included
in this category. The responsibilities of business towards its investors are :

1. Ensuring safety of their investment,

2. Regular payment of interest,
3. Timely repayment of principal amount.

Responsibility towards employees

Business needs employees or workers to work for it. These employees put their
best effort for the benefit of the busing it is the prime responsibility of every
business to take care of the interest of their employees. If the employees are
satisfied and efficient, then only the business can be successful. The
responsibilities of business towards its employees include:

1. Timely and regular payment of wages and salaries.

2. Proper working conditions and welfare amenities.
 3. Opportunity for better career prospects.
4. Job security as well as social security like facilities of provident fund group
insurance, pension, retirement benefits, etc.
5. Better living conditions like housing, transport, canteen, cr6ches, etc.
6. Timely training and development.

Responsibility towards suppliers

Suppliers are businessmen who supply raw materials and other items required
by manufacturers and traders. Certain suppliers, called distributors, supply
finished products to the consumers. The responsibilities of business towards
these suppliers are:

1. Giving regular orders for purchase of goods.

2. Dealing on fair terms and conditions.
3. Availing reasonable credit period.
4. Timely payment of dues.

Responsibility towards customers

No business can survive without the support of customers. As a part of the
responsibility of business towards them the business should provide the
following facilities:

1. Products and services must be able to take care of the needs of the
customers.
2. Product and services are must be qualitative
3. There must be regularity in supply of goods and services.
4. Price of the goods and services should be reasonable and affordable.
5. All the advantages and disadvantages of products as well as procedure to
use the products must be informed do the customers,
6. There must be proper after-sales service.
7. Grievances of the consumers, if any, must be settled quickly.
8. Unfair means like under weighing the product, adulteration, etc. must be
avoided.

Responsibility towards competitors

Competitors are the other businessmen, or organizations involved in a similar
type of business. Existence of competition helps the business in becoming more
dynamic and innovative so as to make itself better than its competitors. It also
sometimes encourages the business to indulge in negative activities like
resorting to unfair trade practices. The responsibilities of business towards its
competitors are

1. Not to offer exceptionally high sales commission to distributors, agents,

etc.
2. Not to offer to customers heavy discounts and, /or free products in every
sale.
3. Not to defame competitors through false or ambiguous advertisements.

Responsibility towards government

Business activities are governed by the rules and regulations framed by the
government. The various responsibilities of business towards-government are:

1. Setting up units as per guidelines of government

2. Payment of fees, duties and taxes regularly as well as honestly.
3. Not to indulge in monopolistic and restrictive trade practices.
4. Conforming to pollution control norms set up by government.
5. Not to indulge in corruption through bribing and other unlawful
activities.

Responsibility towards society

A society consists of individuals, groups, organizations, families, etc. They all are
the members of the society. They interact with each other and are also
dependent on each other in almost all activities. There exists a relationship
among them, which may be direct or indirect. Business, being a part of the
society, also maintains its relationship with all other members of the society.
Thus, it has certain responsibilities towards society, which may be as follows:

1. to help the weaker and backward sections of the society

2. to preserve and promote social and cultural values
3. to generate employment
4. to protect the environment
5. to conserve natural resources and wildlife
6. to promote sports and culture
7. To provide assistance in the field of developmental research on education,
medical science, technology, etc.
BUSINESS AND SOCIAL ENTREPRENEURSHIP

WHO IS AN ENTREPRENEUR?
An entrepreneur is an individual who creates a new business, bearing most of the
risks and enjoying most of the rewards. The entrepreneur is commonly seen as an
innovator, a source of new ideas, goods, services, and business/or procedures.

Merriam-Webster's definition that explains entrepreneur as "one who organizes,

manages, and assumes the risks of a business or enterprise."
“An entrepreneur as one who always searches for change, responds to it as an
opportunity”

WHAT IS ENTREPRENEURSHIP?

Entrepreneurship refers to the process of creating a new enterprise and bearing

any of its risks, with the view of making the profit.
It is an act of seeking investment and production opportunity, developing and
managing a business venture, so as to undertake production function, arranging
inputs like land, labour, material and capital, introducing new techniques and
products, identifying new sources for the enterprise.

ACCORDING to JOHN KASO and HOWARD STEVENSON, “Entrepreneurship is the

attempt to create value through recognition of business opportunity, the
management of risk-taking appropriate to the opportunity, to mobilize human,
financial and material resources necessary to bring a project to fruition”.
Characteristics of entrepreneurship
(1) Innovation: A businessman, who simply behaves in traditional ways,
cannot be an entrepreneur. Innovation involves problem solving and the
entrepreneur is a problem solver. According to Schumpeter entrepreneurship is
a creative activity. An entrepreneur is basically an innovator who introduces
something new in the economy.
(2) High Achievement: People having high need for achievement are more
likely to succeed as entrepreneurs. The achievement motive is, by assumption a
relatively stable enduring characteristic of an individual. Achievement motive
can be increased by deliberate efforts. Various studies on psychological roots of
entrepreneurship reveal the presence of high achievement among successful
entrepreneurs.
(3) Managerial Skill and Leadership: According to B.F. Hoselitz, managerial
skills and leadership are the most important facets of entrepreneurship.
Financial skills are only of secondary importance. A person who is to become an
industrial entrepreneur must have more than the drive to earn profit. He must
have the ability to lead and manage.
(4) Group Level Pattern: Entrepreneurial characteristics are found in clusters
which may qualify themselves as entrepreneurial groups. Entrepreneurial
activity is generated by the particular family background, experience as a
member of certain groups and as a reflection of general values.
(5) Organisation Building: According to Harbison entrepreneurship implies
the skill to build an organisation. Organisation building ability is the most
critical skill required for industrial development. This skill means the ability to
‘multiply one self’ by effectively delegating responsibility to others.
(6) Gap Filling Function: The most significant feature of entrepreneurship is
gap filling. It is the job of the entrepreneur to fill the gap or to makeup the
deficiencies which always exist in the knowledge above the production function.
Some inputs like motivation and leadership are vague and their output is
indeterminate. An entrepreneur has to Marshall all the inputs to realise the final
product.
(7) Status Withdrawal: According to Hagen ‘creative innovation’ or change is
the fundamental feature of economic growth. An entrepreneur is a creative
problem solver interested in things in practical and technological realm. He feels
a sense of increased pleasure when facing a problem and tolerates disorder
without discomfort. In traditional societies, position of authority was granted on
the basis of status, rather than individual ability. Hagen visualized an
“innovative personality” in contrast to such authoritarian personality.
(8) A Function of Social, Political and Economic Structure: Entrepreneurs
are not equally distributed in the population. Minorities have provided most of
the entrepreneurial talent but all the minorities are not important sources of
entrepreneurship. Entrepreneurial supply depends upon the four structure viz.
limitation structure, Demand structure, opportunity structure and labour
structure. However entrepreneurship depends on rather specific combinations of
circumstances which are difficult to create and easy to destroy.

DISTINCTION BETWEEN ENTREPRENEUR AND MANAGER

Who is an Entrepreneur?

Very basically speaking, an entrepreneur is a one-man show that runs

entrepreneurship. However, such a person usually has some unique attributes that
allow him to be successful in his endeavors. He is essentially an initiator and a
leader. He brings business ideas to fruition thus starting off his venture.

Who is a Manager?

A manager, on the other hand, is not an owner of an enterprise. Instead, he is the

one that is responsible for the management and administration of a group of
people or a department of the organization. His day to day job is to manage his
employees and ensure the organization runs smoothly.
 ENTREPRENEUR VS. MANAGER
Bases of Entrepreneur
Difference
1. Motive The main motive of an
entrepreneur is to start a
venture by setting up an
enterprise. He understands
the venture for his personal
gratification.
2. Status An entrepreneur is the
owner of the enterprise.
3. Risk Bearing An entrepreneur being the
owner of the enterprise
assumes all risks and
uncertainty involved in
running the enterprise.
4. Rewards The reward an
entrepreneur gets for
bearing risks involved in
the enterprise is profit
which is highly uncertain.
5. Innovation Entrepreneur himself
thinks over what and how
to produce goods to meet
the changing demands of
the customers. Hence, he
acts as an innovator also
Manager
But, the main motive of a
manager is to render his
services in an enterprise
already set up by someone
else i.e., entrepreneur.
A manager is the servant in
the enterprise owned by the
entrepreneur.
A manager as a servant does
not bear any risk involved in
the enterprise.
A manager gets salary as
reward for the services
rendered by him in the
enterprise. Salary of a
manager is certain and fixed.
But, what a manager does is
simply to execute the plans
prepared by the
entrepreneur. Thus, a
manager simply translates
the entrepreneur’s ideas into
 called a ‘change agent’ practice.

6. Qualifications An entrepreneur needs to On the contrary, a manager

possess qualities and
qualifications like high
achievement motive, origi-
nality in thinking,
foresight, risk -bearing
ability and so on.
needs to possess distinct
qualifications in terms of
sound knowledge in
management theory and
practice.

DIFFERENCE BETWEEN ENTREPRENEUR AND INTRAPRENEUR

Who is an Entrepreneur?

Very basically speaking, an entrepreneur is a one-man show that runs

entrepreneurship. However, such a person usually has some unique attributes that
allow him to be successful in his endeavors. He is essentially an initiator and a
leader. He brings business ideas to fruition thus starting off his venture.

Who is and Intrapreneur?

An intrapreneur is an employee who is tasked with developing an innovative

idea or project within a company. The intrapreneur may not face the outsized
risks or reap the outsized rewards of an entrepreneur. However, the
intrapreneur has access to the resources and capabilities of an established
company.
 ENREPRENEUR VS INTRAPRENEUR

Points of difference Entrepreneurship Intrapreneurship

1. .Definition Entrepreneurship is the
dynamic process of creating
incremental wealth.
2. Core objective To innovate something new
of socio-economic value.
3. Primary Innovation, financial gain tad
motives independence.
4. Activity Direct and total participation
in the process of innovation.
5. Risk Bears all types of risk
Intrapreneurship is the
entrepreneurship within an
existing organization.
To increase the competitive
strength and market
sustainability of the
organization.
Enhance the rewarding
capacity of the organization
and autonomy
Direct participation, which
is more than a delegation of
authority
Hears moderate risk.

6. Status The free and sovereign Organizational employees

person doesn’t bother with expecting freedom at work.
status.
7. Failure and Recognizes mistakes and Keep risky projects secret
mistakes failures so as to take new unless it is prepared due to
innovative efforts. high concern for failure and
mistakes.
8. Decisions Independent decisions to Collaborative decisions to
execute dreams. execute dreams.
9. Whom serves Customers and entrepreneur Organization and
himself. intrapreneur himself.
10. Family heritage Professional or small May not have or a little
business family heritage. professional post.
11. Relationship A basic relationship based on Authority structure
with others interaction and negotiation. delineates the relation.

12. Time There is no time-bound. Self-imposed or

orientation organizationally stipulated
time limits.
13. The focus of Increasing sales and on Technology and market
attention sustaining competition.
Business and Social Entrepreneurship

Business entrepreneur

Business or Commercial entrepreneurs are the individuals who create new

business or commercial enterprises to give practical shape to their ideas and
earn profits by providing new goods and services to the society.

Social entrepreneur

A social entrepreneur is a person who pursues novel applications that have the
potential to solve community-based problems. These individuals are willing to
take on the risk and effort to create positive changes in society through their
initiatives.

some examples of leading social entrepreneurs:

Susan B. Anthony (U.S.) – She fought for Women’s Rights in the United
States of America. Her fight included the right to control property and helped
spearhead the adoption of the 19th Amendment to the Constitution.

Vinoba Bhave (India) – He was the founder and leader of the Land Gift
Movement. Under this movement, he caused the redistribution of more than
7,000,000 acres of land to help India’s untouchables and landless.

Dr. Maria Montessori (Italy) – She developed the Montessori approach to

early childhood education.

Florence Nightingale (U.K.) – She was the founder of modern nursing.

Further, she established the first school for nurses and fought to improve
hospital conditions.

Margaret Sanger (U.S.) – She was the founder of the Planned Parenthood
Federation of America. Under this federation, she led the movement for
family planning efforts around the world.

John Muir (U.S.) – He was a naturalist and a conservationist. He established

the National Park system and also helped found The Sierra Club.
 Jean Monnet (France) – He was responsible for the reconstruction of the
French economy following World War II. Further, his work included the
establishment of the European Coal and Steel Community (ECSC).

DIFEERENCE BETWEEN BUSINESS ENTREPRENEURSHIP AND SOCIAL

ENTREPRENEURSHIP

BUSINESS ENTREPRENEURSHIP VS SOCIAL ENTREPRENEURSHIP

BASIS BUSINESS SOCIAL

ENTREPRENEURSHIP
1.OFFERING Business entrepreneurs offer
new products and services
2.MOTIVE Their motive is profit.
3.TYPE OF They change the face of the
CHANGE business.
4.SATISFACTION They feel satisfied by
establishing new businesses
and/or creating a new
market for their products.
5.VALUE Profit is the gauge of value
CREATION creation
ENTREPRENEURSHIP
Social entrepreneurs offer new
solutions to social problems
and implement them on a
large scale for the benefit of
the humanity at large.
Their motive is social impact.
They act as change agents for
the society by creating
sustainable solutions for the
social problems.
They feel satisfied by
generating value in the form
of transformational change
that benefits disadvantaged
people in the society.
Social impact is the gauge of
value creation.

TRAITS OF ENTREPRENEURS

1. Disciplined
These individuals are focused on making their businesses work, and eliminate
any hindrances or distractions to their goals. They have overarching strategies
and outline the tactics to accomplish them. Successful entrepreneurs are
disciplined enough to take steps every day toward the achievement of their
objectives.
2. Confidence
The entrepreneur does not ask questions about whether they can succeed or
whether they are worthy of success. They are confident with the knowledge that
they will make their businesses succeed. They exude that confidence in
everything they do.

3. Open Minded
Entrepreneurs realize that every event and situation is a business opportunity.
Ideas are constantly being generated about workflows and efficiency, people
skills and potential new businesses. They have the ability to look at everything
around them and focus it toward their goals.

4. Self Starter
Entrepreneurs know that if something needs to be done, they should start it
themselves. They set the parameters and make sure that projects follow that
path. They are proactive, not waiting for someone to give them permission.

5. Competitive
Many companies are formed because an entrepreneur knows that they can do a
job better than another. They need to win at the sports they play and need to
win at the businesses that they create. An entrepreneur will highlight their own
company’s track record of success.

6. Creativity
One facet of creativity is being able to make connections between seemingly
unrelated events or situations. Entrepreneurs often come up with solutions
which are the synthesis of other items. They will repurpose products to market
them to new industries.

7. Determination
Entrepreneurs are not thwarted by their defeats. They look at defeat as an
opportunity for success. They are determined to make all of their endeavors
succeed, so will try and try again until it does. Successful entrepreneurs do not
believe that something cannot be done.

8. Strong people skills

The entrepreneur has strong communication skills to sell the product and
motivate employees. Most successful entrepreneurs know how to motivate their
employees so the business grows overall. They are very good at highlighting the
benefits of any situation and coaching others to their success.

9. Strong work ethic

The successful entrepreneur will often be the first person to arrive at the office
and the last one to leave. They will come in on their days off to make sure that an
outcome meets their expectations. Their mind is constantly on their work,
whether they are in or out of the workplace.

10. Passion
Passion is the most important trait of the successful entrepreneur. They
genuinely love their work. They are willing to put in those extra hours to make
the business succeed because there is a joy their business gives which goes
beyond the money. The successful entrepreneur will always be reading and
researching ways to make the business better.

FUNTIONS OF AN ENTREPRENEUR

Scouting of Entrepreneurial opportunities.- Sensing

entrepreneurial opportunities is a process of perceiving the needs
and problems of people and society and arriving at creative
solutions.
Generation of business idea.- Another important function of a
dynamic entrepreneur is the generation of an idea that is new and
appears to be worthwhile for further use. This involves a lot of
creativity on the part of the entrepreneur.
Converting the idea into reality.- the entrepreneur takes steps to
convert the feasible idea into reality. For this,an entrepreneur has to
proceed for

o Gathering relevant information and expertise related to

the tools and techniques required to design the idea,
product or services.
o Acquiring necessary skills to handle the idea, product or
service.
o Studying the social-economic environment where the
idea, product or service is marketed.
o Arranging human, physical and other resources for
putting the idea into realty.
 Arranging Resources.-This entrepreneurial function is concerned
with the identification and assessment of various resources that are
put into the system which have a bearing on the quantity, cost and
continuity of the product or the service being offered. The types of
resources to be taken care of include:

o Human resources
o Money or capital
o Materials
o Machines
o Technology

Supply of capital- Entrepreneurs approach financial institutions to

raise ‘risk capital’ for their ventures or enter into partnership with those
who can contribute capital to the business.

Establishment of enterprise.-establishment of an enterprise is the

prime activity of the entrepreneur. Though he might have the knowledge,
technology and the resources available at his disposal, the new product
idea cannot be implemented unless the enterprise is established. The task
of establishing an enterprise calls for mobilization of various resources.
This needs an initial investment in fixed assests.

Management. - As a manager, the entrepreneur plans, organizes,

directs and controls the activities of the business. He loads the workers
coordinates their operations and motivates them for higher productivity.