ENVIRONMENT OF BUSINESS-INDUSTRY

1. ENVIRONMENT OF BUSINESS-INDUSTRY

2. INTRODUCTION : • Future of any enterprise is determined on the constant development of the enterprise. • Analysis/study of environment is necessary. • Various types of opportunities and dangers are included in the environment. • Every business enterprise can run its business activities by keeping in mind the goals, by remaining alert to remove the dangers.

3. Business activity starts with the estimation of environment. • An entrepreneur has to observe daily changes of environment. • If the changes of business environment can be known in time, an enterprise can be made long lasting and prosperous by arranging business strategies accordingly. • Success of an enterprise depends on its capacity to establish cordial relationship between internal capacities, available factors, financial factors and the environment of the enterprise.

4. Meaning, Analysis and Environmental Diagnosis : • Meaning of environment related to business-industry : • Conditions, Circumstances and factors affecting capacity of an enterprise to pass through the business deals effectively and efficiently.

5. (2) Environmental analysis related to business : • Emerging opportunities and danger points for an enterprise are determined. • Examination of strategical governmental, financial, legal, technological, competitive and social factors is done. • These factors influence future of enterprise. • So it can be assumed in advance

6. (3) Environmental Diagnosis : • Managerial decisions which are taken from the basis of information analysis are called environmental diagnosis. • Business opportunities and dangers are analyzed in detail while taking those decisions. • Information regarding environment is very necessary for the continuous development and existence of the enterprises.

7. As the success in personal life depends on capacity, skill and capability of a person to create cordial relations with the environment. • In d same way success of a business enterprise depends, in its internal strength, available factors, financial factors and enterprising capability to create cordial relations with the environmnet.

8. BUSINESS ENVIRONMENT • BE includes enterprises own environment. • Which includes supreme management of the enterprise, financial system, production system, control on accounts research and development etc. • Co-ordination and strength of various departments = success of enterprise. • If various departments of enterprise are not strong and its co-operation is not available, an entrepreneur cant complete its activity successfully. • So BE is important for its existence and development.

9. ENVIRONMENT RELATED TO BUSINESS-INDUSTRY : • Depends upon the size of enterprise. • Environmental factors are important for an enterprise and entrepreneurship. • Environment related to business industry can be classified as: • Economic environment • Social environment • Technological environment • Competition-oriented environment

10. IMPORTANCE OF ENVIRONMENT RELATED TO BUSINESS-INDUATRY : • Study of social, political and economic environment is important from social and economic point of view. • An enterprise has to work being in structure of political atmosphere, industrial policy, licence policy, policy regarding foreign exchange, banking policy, technology development and social changes. • So, the planning of every business should be framed keeping in mind the surrounding environment. • If not accordingly than it cannot be given a final form and it cannot be put into practice. • BE has direct relationship with entrepreneurship development.

11. ANALYSIS RELATED TO EXTERNAL ENVIRONMENT : Factors related to Economic, Social, Technological and competition related environment business can be kept in mind in following manner while analysing the external environment:

12. 1. Economic Environment : • It is determined by economic condition, economic policies and economic system of a country. • It has a deep effect on business. • Necessary for entrepreneur to keep in mind economic environment. • Following matters are included in economic environment :-

13. (a) National income : • Increase in national income is a convenient factor for business. • Proportion of national income is not equal in every country. • Real income does not increase though financial income also increases with the increase in national income. • Increase in national income increases the purchasing capacity of the public and so demand of various commodities increases. • For a business having public with purchasing capacity is important.

14. The main thing is the proportion of present income of the public having cash or liquidityof finance, their propensity to save price level of commodities and available credit for use. • So, with the increase in national income, purchasing capacity of people increases and development of industry is encouraged. • Entrepreneurs are encouraged for new capital investment.

15. (b) Per Capita Income : • Increase in national income increases per capita income of that nation, but depends upon its population. • More population, per capita growth rate low. Low per capita income, demand of consumer goods increases. • Demand of consumer goods and services are increasing as per capita income is less in underdeveloped countries,

16. When per capita income is more , demand of commodities of primary need certainly increases, but demand of commodities of facility and comfort increases comparatively. • As per capita income is less in underdeveloped countries, demand of primary requirements is increasing rapidly. • So, an entrepreneur gets good opportunity in production and selling and in production field respectively. • Many various opportunities are found in developing countries in various fields such as electronic appliances, costly vehicles, modern residence, etc.

17. (c) Income that can be spent according to desire : • It is that when all the requirements of goods of a person or class are satisfied than desire/preference takes place. • Two uses- it can be saved or can be used to make life more comfortable and highly qualitative.

18. (d) Propensity to save : • It is an important factor affecting people’s consumption cost. • Higher the propensity to save, less would be the consumption cost. Whereas, reduction in propensity to save increases consumption cost. • Income is the factor that affects propensity to save. • If propensity to save reduces, demand of various commodities increases and so, development and expansion of enterprise becomes possible.

19. If more attractive, comfortable and reasonable products are available, that propensity to save will reduce. • Propensity to consume increases, and convenient economic environment is created for development of enterprise.

20. (e) Price rise or trends related to inflation: • Price rise has adverce effect on consumption cost and saving of public. • If inflation, that people might purchase less or even postpone purchasing products. • If prices go on increasing, there is trend of purchasing more than requirement. • Price rise has an adverce effect on demand. So, the possibility of increase in production of a business unit reduces.

21. (f) Availability of loan for consumption purpose : • Banking and other financial institutes give loan to consumers for buying durable things on certain conditions. • If loan given at low rate of interest for long term, customers are inspired to get such loan. • As a result, demand for consumer durables increases. • Many standard companies sell durables in installments. • At present, loan at zero interest rate is available in TV, fridge, vehicles, etc • So, demand for consumer durables has increased in underdeveloped countries.

22. (g) Distribution of national income : • If the distribution of national income is unequal, demand of commodities of comfort and things, which are status symbol increases. • On one hand, scarcity of primary commodities is seen and on other hand, production possibilities of commodities of comfort and entertainment are available on large scale. • Distribution of national income in India is unequal, so supply of things of basic needs is less, while business-industries get big market for things of comfort. • Distribution of national income is very important.

23. 2. Social Environment : • Social environment includes people’s choice, dislikes and social traditions or customs. • Entrepreneurs should be aware of prevailing social values and should study them very minutely so that its effects can be known on the demand of various products. • Values change with time and generation, new generation does not follow certain traditions and beliefs of old generation. • Previously people lived with economy, and had propensity to save. Today’s generation spends what they earn. • Increase in education, number of working women have increased, spread of education, etc.

24. 3. Technology Environment : • Brings rapid changes in all the fields and has deep influence on business-industry. • Technology has a widespread effect on business. • Business environment cannot neglect technology or technological environment. • Entrepreneur should identify the changes of technology quickly so that he can make a strategy which is suitable to the production or bring change in it.

25. Entrepreneur who doesnot make necessary and timely changes in his product planning and strategy regarding technology, has to face economic problems. • Technology changes is not to gain prosperity but to maintain existence in market. • It is creative but at the same time it is destruction too. • Eg. With the arrival of television and video, there has been adverse effect on film industry.

26. Technology has proved fruitful to ordinary mass to modern enterprise. • It is for creative diversification in the business. • In the present time, scientists are doing research in various fields as a result of which the possibility of production of new products increases and entrepreneurs get vast opportunities. • Public and private enterprises spare a good proportion of financial factors for research in various fields.

27. Developed countries spend approximately 3% of national income for research while underdeveloped countries like India, this proportion is less than even ½%. • By importing technology from developed countries, they get benefit of technological changes. • It is the long term interest of the whole society instead of private interest. • Technology is important in 3 ways in industrial enterprise : • Develops rapidly. • Total change comes in the prevailing or current business or it stops. • Industries that are not related directly with technology also develop.

28. If comfort increases, risks too emerge on other hand. • Various legal matters should be kept in mind while adopting technological changes. • An entrepreneur should establish, extend and plan diversification strategy and decision making in his business.

29. 4. Environment related to competition : • Entrepreneurs should have knowledge about prevailing competitions. • Competition always means more than two sellers or two or more than two purchasers of certain market. • Every seller behaves independently from the other seller and vice versa.

30. (a) Perfect competition : • It is rarely seen in real market. • When the price of same thing is equal after deducting the transport expense, we can say that there is perfect competition in the market. • Numerous buyers and sellers and none of them affect market value. • Customers have complete knowledge about the price quality. Therefore, no need of selling cost. • Quantity of production and sale have to be decided because the price is decided by the total demand and supply in the industry which has to be accepted by individual firm.

31. (b) Monopoly : • “Mono” means one and “Poly” means the act of selling. • Wherever selling is done by one person or a seller, it is said that there is monopoly. • Where there is one seller(producer) in market, and if he doesnot have to face competition, monopoly that emerges is called perfect or pure monopoly. • Imperfect or limited monopoly can be seen in the real world.

32. Things produced by monopoly is the thing having “permanent speciality”. • He gets an extra-ordinary profit to a certain extent.

33. (c) Monopolistic Competition : • Market with mixed elements of competition i.e. perfect and monoploy. • Not perfect competition but things with close substitutes is monopolistic competition. • E.g. t.v., fridge, soap, toothpaste, washing powder, etc. • An entrepreneur can compete by price or non-price competition. • Usually they don’t enter into price competition. • Wrong notion of customers that if the price of commodity reduces than the quality have ruduced.

34. In the present time, certain firm follow the policy of price reduction. E.g. Maruti company follow the policy of price reduction of its motorcar. • Non-price competition means the competition is done through quality of thing or service, after sales service, advertisements and art of selling. • Diversification means by changing the size, appearance, colour and shape, non-price competition exists here. • In perfect competition the firm produces same type of things having same properties, whereas in imperfect competition, it produces no variety of goods. • In monopolistic competition, every firm produces one thing but in the eyes of a customer, it produces different things.

35. Variety can be created in things in three ways : • By creating difference in the quality of a thing. • By changing the condition of selling. • By bringing change in the selling cost of a thing. • Following things are found in non-price competition : • Attractive advertisement and propaganda • Durability of commodity. • After sales service at residence • Credit facility • Better marketing system than the rival • Market research and market development • Improve the quality of a thing and make it stronger and more durable. Non-price competition is more profitable for an entrepreneur.

36. (d) Oligoploy : • It is an imperfect competition in which a few firms produce and thus produced commodities are close substitutes to each other. Of course, these things are not complete substitute to each other. • “Oligopoly is that condition of market in which the firm frames its market related policy on the basis of estimated behaviour of a few close rivals.” - George Stigler

37. The seller has to keep in mind the reactions of rivals while deciding the price of a thing. • Thus, an entrepreneur has to take support of price and non-price competition in monopolistic competition and oligopolistic circumstances concerning environment related to competition. • An entrepreneur should try to get a place for product in market by using four “c” (Customers, Channel, Competitors and Company)

38. Environment related to population, natural environment, political environment and international environment also affects Business Enterprise.

39. Environmental Changes : • Elements present in environment are changeable. • Technological changes, people’s preferances, interests and priorities go on changing. • Competitive conditions, Government policies, laws also change. • Business policy should be dynamic. • Presumptions should be made. • Pre-supposition is possible concerning factors related to population, income level, technology, etc. • Internal environment is necessary, but along with it external environment should also be studied for the existence and development of the enterprise.

40. Establishment of a New Industrial Unit • To raise financial funds, an enterprise has to pass through certain legal process. • A new Industrial unit has to get registration. • It has to get municipal licence. • Financial assistance can be received from various institutes for raising funds which can be discussed in detail in following manner :

41. Establishment of New Industrial Unit : 1. Registration of small scale Industry : - Its registeration is done in the District Industries Centre (DIC) - Its office is situated in the headquarters of every district. - Application is sent to the general manager in a prescribed form. - Certain industries don’t required registeration such as wooden, flour mill, hotel, baby food, etc.

42. - Registeration of small scale industries is done in two stages : • Provisional Registeration • Permanent Registeration • Provisional Registeration : Provisional registeration is obtained before starting the enterprise, and provisional registeration number is given at that time. Small scale registeration period is given for 5 years. This number is necessary to get cash assistance and registeration number.

43. ii. Permanent Registeration : Permanent registeration is done only after the industrial enterprise starts production. They get spared from getting licence regarding priority in raw material, import and paying deposit for government tender. An enterprise has to present proofs like receipt of possession of industrial shed or house if they own place. If on rented place than, receipt of rent payment, electricity connection etc. It is not necessary to register small scale industry, though it is desirable in order to get certain benefits. Benefits are as under :

44. Recommendation for changing agricultural land into uncultivated land • Exemption from octroi • Exemption from electricity taxes • Help in the purchase of raw material • Purchase of machines on hire purchase • Recommendation for necessary material for construction • Verification subsidy • Assistance regarding purchase-sale : • N.S.I.C. Registeration • G.S.I.C. Registeration • Policy regarding purchase and registeration of various commodities

45. Exemption from power control to the exporting enterprise • Priority in telephone facility 2. Municipal licence : • After registeration of small scale industry it is desirable to get licence too. • By contacting the related department licence can be obtained. • An entrepreneur should get information about the accounting process and submit return regarding it regularly.

46. Financial Funds for New Industrial Unit : • For any business enterprise four Ms are important : Men, Machines, Material and Money. • With the help of money, other three factors can be got. • And so, money or finance is known as the blood or lubricant of the business.. • Industrial enterprise can raise finance in following two forms : • Ownership fund • Sinking fund

47. 1) Ownership Fund : • Initial stage capital or equity is required. • Instead of distributing all the profits to the owners, certain part of profit is re-invested. • Re-investment increases the capital of owner. • In sole proprietorship or partnership firm equity fund is showed as contribution of owners while in company, it is showed as share capital.

48. Total equity capital of a company is classified into equal small parts which are called shares. • Characteristics of equity share capital are: • They are permanent finance, so not returned during the existence of business. • If loss in business, than no return is to be paid on equity, but if profits, remaining profit goes to owners. Ofcource, certain profit is distributed as dividend on equity fund. • Equity shareholders have total control on the management. Thus, equity funds provided by owners are in 2 forms : (i) Equity share capital and (ii) Re-investment of profit.

49. 2. Sinking fund : • Sources for raising external sinking fund are : • Debentures • Term loan • Public deposits • Inter-company deposits • Commercial banks • Other assisting institutes

50. Debentures : - All the debts of the company are distributed in equal, small parts like share capital. This part is called debenture. - Issued through public issues or private placement by a company. - Debenture is a debt with fixed interest rate, and they are to be returned after the determined period. - As debenture is a debt, if enterprise bears loss or has less proportion of profit, it becomes inevitable to pay interest according to decided rate. - As debenture is a long term debt, they are used to raise fixed assests.