UNIT ONE

02/18/10
BUSINESS
sumeet khurana
ENVIRONMENT 1
 UNIT ONE: SYLLABUS
 Components and Significance of Business
Environment, Factors effecting
environment of Business
 Economic factors and its Components
 Cultural factors and its impact on business
 Social Environment and its impact on
Purchasing and Consumption
 Political Stability, Sovereignty and its impact on
the returns of Business
 Technological and its impact on
internationalizing the business activities
 Legal environment and External Factors
Influencing Business Environment
 Dimensions of International Business
Environment
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 Components and Significance of
Business Environment
 A business environment
comprises a number of
environmental factors
which have to be
considered while making
business policy.
 Any change in those
factors of the
environment is bound to
lead to corresponding
changes in the business
policy of the
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 Internal factors of business
 The internal environment consists of large
number of factors which contribute to
success or failure of an organization.
These comprises of strength and
weakness of the organization.
 These important factors are
 Organizational resources
 Research and development / technological
capabilities
 Financial capability
 Marketing capability
 Operational capability
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 External factors affecting business

 The environment includes the

factors outside the firm which
can lead to opportunities or
threat to the firm


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 Cultural factors
and
its impact on business

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 Culture and business

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 Culture and business

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 Culture and business

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 Culture and business

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 Culture and business

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 Culture and business

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 What is culture?????

 Now are we in the

position to define
culture?

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 Cultural factors and
business
 Communicable knowledge, learned
behavior passed on from generation to
generation is called as Culture.
 Culture enables people to live together in
a society within a given geographic
environment, at a given state of
technical development and at a
particular moment in time


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 Components of Culture

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Dealing with different cultures

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 Examples of Cultural Factors across the world
•Never touch the head of a Thai or pass an object over it.
The head is considered sacred in Thailand
•Avoid using triangular shapes in Hong Kong, Korea and
Taiwan. It is considered a negative shape.
•The number 7 is considered bad luck in Kenya, good luck in
Czech Republic and has magical association in Benin, Africa
•Think about windows 7

•The number 10 is bad luck in Korea

•Red represents witchcraft and death in many African countries

•The number 4 is means Death in Japan

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 Cultural Differences between Japanese and American Business

American Business Japanese Business

Game concept: Business is a game in Mutual trust-oriented business:

pursuit of profits under the rules of laws business is based on trusting
and contracts relationship among people rather than the
rules of game

Efficiency-oriented and approximate Highly precision-oriented and

accuracy simplicity, clarity, and quickness perfectionism-high dependency on human
awareness

Quantity-oriented Quality-oriented
Short-term performance evaluation Mid-to-long term evaluations
Easy layoffs, dismissals of employees, and Job security
selling of businesses

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 Cultural Differences between Japanese and American Business

American Business Japanese Business

Top down management Heavy dependence on human resources bottom-
up management and teamwork

Low mutual dependence between employers High mutual dependence between employers and
and employees employees

Control of business by stockholders and the Joint management of business by Employees and
management Employees

Management by “force” Management by “motivation”

Heavy dependence on machinery and

technology, vs. Light dependence on human Heavy dependence on human resources
resources

Limited loyalty and incentive-oriented work

ethics Strong loyalty and fewer incentives
Excellent software-based technology
development Inadequate software development ability

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 SOCIAL ENVIRONMENT
&
ITS IMPACT ON PURCHASING AND
CONSUMPTION

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 Social Environment

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 Social environment

 A country is ranked on its ability to provide to its

citizens the three basic amenities of life
belonging to social sector

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 Social factors and business
 Sentiments and emotions attached to
custom affect business.
 People in different cultures form definite
attitudes towards what is desirable and
what is undesirable.
 Even the eating habits of people and time
on which the food has to be taken is a
part of custom/caste.

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 Social Environment and
influence on business
structure
 Industrialization and urbanization has
caused the change in the taste of the
people causing fast disappearance of
cottage industries.
 The break ups in joint family the joint
family business is also fast
disappearing.
 With the emergence of nuclear family, the
saving and investment has also
increased facilitating the growth in
company form of business.
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 Social factors
corporate social responsibility
'CSR is about business giving back to society'
 Business is a social
institution, people work
and live together in
business organization.
 Every business
organization has a social
responsibility and has to
operate within the
norms of the society and
survive only if it fulfills
the need and wants of
the society.
 Examples
 Providend fund schemes
for employees
 Sweat shares
 Hospitals/ schools/
charitable trusts
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 SOCIAL ENVIRONMENT AND ITS IMPACT
ON PURCHASING AND CONSUMPTION

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Need for social responsibilities
of business
 The iron law of responsibility
 Those who do not use power in the manner
which society considers responsible will
tend to loose it.
 To fulfill long run self interest
 To establish a better public image
 To avoid government regulation or control
 To avoid misuse of national resources and
economic power
 To reduce conflict between management
and trade unions

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 Social factors and today’s
business

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 Question for assignment
 Sachar committee recommendation on
social responsibility of business.

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Corporate social responsibility


 Case study of IBM

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 Arguments against social
responsibility of business
 Businesses are owned by their
shareholders - any money they spend
on so-called social responsibility is
effectively theft from those
shareholders who can, after all, decide
for themselves if they want to give to
charity.

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 Economic environment and
business

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 Economic environment and
business
 The purpose, or reason, for developing an
economic analysis of a region or
specific country, is directly related to
the ability to subsequently make
managements decisions about whether
to do, or not do certain business things
in that country or with that country.

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 Economic environment and
business
What is economics?
 Why is the govt.?

 What are basic economic problems?

 What are the solutions to those problems?

 Who will solve these problems?

Answers to these questions will

automatically give the relationship

between economic and environment.

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 Economic factors its
components & business

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 How to do economic
analysis
 The factors which make us think which
affect business:
 Income distribution & flexible income

 Productivity: Unit labour costs and labour

compensation costs compared

 relates to how much it costs in various
regions for our competitors to
manufacture stuff, or how much it costs
us for labour to have products made .
 We are labour intensive or capital intensive.

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 How to do economic
analysis
 Major international debtors and debts
 relates to the financial burden on govt. to
tax us and companies (trade surplus,
trade deficit, bond debt)
 Inflation, interest rates, availability of
credit
 Age distribution
 effects lifestyle things such as
transportation, food consumption,
entertainment, living accommodations
 Increased risk of violence and terrorism
on a national and international scale.
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 How to do economic
analysis
 Education And Literacy Rates
 Population Density
 Rural - Urban Population Shifts
 Economic Analysis In A Management
Context
 When You gather information, according to
the above headings, keep in mind, the
"So what" factor,*
meaning So what if 71% of the people
have cell phones, 
- how does knowing this help me make a
decision about my company's product
colour, shape, pricing, promotional mix,
distribution etc.
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Economic issue
 Do you think that poorer countries should
have higher level of literacy rate???
 Isn't it better to have a "supply" of
uneducated people for cheap labour
intensive tasks?

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 Economic environment
affecting business
 Business can not control the economic forces
rather economic forces affect the
business.
 Every day there are individuals, businesses
and governments engaged in economic
activity. i.e. buying and selling
 Decisions about what to buy and when from
individuals, government and businesses
drives the whole economy.
 Every act of buying and selling - no matter
how large or small - contributes to what
we call 'the economy'.
 The overall effect depends on how many
people make decisions on whether to buy
or sell.
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 Various Economic system
across the world
 Capitalism Economy: Private
ownership of production and
distribution facilities is there as in
USA, JAPAN, UK.
 Communalism economy: State/Govt.
owns all the factors of production
and distribution as in CUBA.
 Mixed economy as of India, Holland,
France .
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 Economic and business
environment in India
 India and six other countries viz.
Bangladesh, Bhutan, Maldives, Nepal,
Srilanka and Pakistan launched the
south Asian association for regional
cooperation called as SAARC in 1985 to
accelerate the economic development
in the region.
 The main purpose of the cooperation is to
look onto welfare of peoples of south
Asia and improving their quality of life
and to promote and strengthen
collective self reliance among these
countries.
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 Economic and business
environment in India
 Our economy is rural in nature.
 Agriculture plays a important role apart from
service sector also playing the major role.
 Now a days major contribution in GDP of
agriculture sector has gone down.
 Looking onto the need of an hour we are now
concentrating onto the manufacturing
sector.
 Government control has reduced on foreign
trade and investment.
 Since 1990 the growth rate of 6% has been
observed in Indian economy.

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 Economic and business
environment in India
 Because of large numbers of well
educated people we have become a
major exporter of software services.
 Despite strong growth the worry is about
the continuing public sector budget
deficit aprox. to 10% GDP.

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 Geographic factors

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 Climate affecting business
 Overall the poorest countries are in the tropics,
where it is hot, the land is less fertile, water is
more scarce, where diseases flourish.
 Europe and North America profit from huge tracts of
very fertile land, a temperate climate, and good
rainfall.
 In extremes of climate, either hot or cold, too much
energy goes into the simple business of survival
for there to be much leftover energy for
development.
 One have to work twice as hard to get enough to eat
out of the ground, you have to irrigate where
others can depend on rainfall.
 Rain patterns may give a short growing season, while
others can get two harvests in one year. Some
countries are just at a natural disadvantage.

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 Geographical Location
 Geographical location plays a part in access to markets.
 All the great empires have been based around trade
routes.
 There are notable exceptions, the medieval Mongol empire
was based on the Silk Road from China to the west.
 Many of the world’s poorest countries are severely
hindered because they are landlocked; situated in high
mountain ranges; or lack navigable rivers, long
coastlines, or good natural harbors.’
 China has three of the world’s busiest ports, and so does
the US. With ports they can raise money through tolls
and shipping services.
 If you have no access to the coast, not only do you miss
out on these services, you have to transport everything
by land, which is much more expensive.
 Countries like Afghanistan, Rwanda, Malawi, or Bolivia are
all hindered by access to ports. Other countries, like
Ethiopia or Lesotho, are not only landlocked, but
mountainous as well, making trade even more
expensive.
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 Geographical Resources
 Natural resources are one of the most important
gift of God to any country either renewable or
non renewable resources.
 Oil is the most obvious. Nobody is any doubt
about how Saudi Arabia or UAE make their
money. Among other advantages, gold and
diamonds have helped South Africa build the
most successful economy on the continent.
These are all non-renewable resources – once
they’re gone, they’re gone, but while stocks
last there is wealth to be made.
 Besides these there are renewable resources –
forests, fish, stocks that, if correctly managed,
will refresh themselves. Much South American
development has been based on the Amazon
rainforest, in natural rubber and then timber.
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 Geographical Resources
 Finally, there are what are sometimes
called ‘flow resources’. These are
renewable that need no management,
wind, tide and solar resources. The
Earth Policy Institute describes the
American Great Plains as ‘the Saudi
Arabia of wind energy’, while sunshine-
rich places like California, Sicily and
Portugal are able to invest in solar
power.
 No natural resource is a license to print
money, and there are plenty of poor
countries who are rich in resources.
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 Political Stability, Sovereignty
and its impact on the returns of
Business

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 Political Stability, Sovereignty &
Business

 There can be various forms of Govt.

 Rule by one (monarchy)
 Rule by few (aristocracy)
 Rule by many (democracy)
 Today the world seemed to have agreed
that democracy is the best solution.

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 Political Stability, Sovereignty &
Business
 The Government policies is affecting business
in various ways. The Government policy creating
economic risks can be seen affecting:
 Policy on Exchange controls
 Stem from shortages of foreign
exchange held by a country.
 Local-content laws

 Countries often require a portion of any

product sold within the country to have
local content.

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 Political Stability, Sovereignty &
Business

 Import restrictions
 Selective restrictions on the
import of raw materials to force
foreign industry to purchase
more supplies within the host
country and thereby create
markets for local industry.


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 Political Stability, Sovereignty &
Business

 Tax controls
 A political risk when used as a
means of controlling foreign
investments.
 Price controls

 Essential products that

command public interest.

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 Political Stability, Sovereignty &
Business

 Labor unions
 have strong government support
that they use effectively in
obtaining special concessions
from business.

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 Political Stability, Sovereignty
& Business
 One or a group of nations may boycott another
nation,
 thereby stopping all trade between the
countries, or may issue sanctions against the
trade of specific products.
 U.S. boycotts of trade with Cuba/Iran

 History indicates that sanctions are often

unsuccessful in
 reaching desired goals, particularly when other
major
 nations’ traders ignore them.

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 Politically Sensitive Products
and Issues
 Products that have or are perceived to have an
effect on
 the environment, exchange rates, national and
economic security, and the welfare of people and
that are publicly visible or subject to public
debate, are more likely to be politically sensitive.


 Health is often the subject of public debate, and

products that affect or are affected by health
issues can be sensitive to political concern.


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 Forecasting Political Risk
 Political risk assessment is an attempt to
forecast political instability to help
management identify and evaluate political
events and their potential influence on current
and future international business decisions.
 The greater the risk to international marketers is

the threat of the government actually failing,

causing chaos in the streets and markets.
 Risk assessment is used to estimate the level of

a risk a
 company is assuming when making an
investment and to help determine the amount of
risk it is prepared to accept.
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 Approach for better
relationship
 Relations between governments and
MNCs are generally positive if the
investment:
 Improves the balance of payments by
increasing exports or reducing imports
through import substitution
 Uses locally produced resources
 Transfers capital, technology, and/or skills
 Create jobs
 Make tax contributions

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 Strategies that MNCs use to minimize political
risk

-

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 Political environement
 If a company is considered vital to
achieving national economic goals, the
host country often provides an
umbrella of protection not extended to
other

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