Transcript ENVIRONMENT OF BUSINESS

ENVIRONMENT OF
BUSINESS-INDUSTRY
INTRODUCTION :
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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.
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.
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Meaning, Analysis and Environmental
Diagnosis :
(1)
Meaning of environment related to
business-industry :
o Conditions, Circumstances and factors
affecting capacity of an enterprise to pass
through the business deals effectively and
efficiently.
(2) Environmental analysis related to
business :
o Emerging opportunities and danger points
for an enterprise are determined.
o Examination of strategical governmental,
financial, legal, technological, competitive and
social factors is done.
o These factors influence future of enterprise.
o So it can be assumed in advance
(3) Environmental Diagnosis :
o Managerial decisions which are taken from
the basis of information analysis are called
environmental diagnosis.
o Business opportunities and dangers are
analyzed in detail while taking those decisions.
o Information regarding environment is very
necessary for the continuous development
and existence of the enterprises.
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.
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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.
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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:
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o Economic environment
o Social environment
o Technological environment
o Competition-oriented environment
IMPORTANCE OF ENVIRONMENT
RELATED TO BUSINESS-INDUATRY :
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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.
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:
1. Economic Environment :
It is determined by economic condition,
economic policies and economic system
of a country.
o It has a deep effect on business.
o Necessary for entrepreneur to keep in
mind economic environment.
o Following matters are included in
economic environment :o
(a) National income :
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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.
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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.
(b) Per Capita Income :
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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,
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.
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(c) Income that can be spent
according to desire :
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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.
(d) Propensity to save :
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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.
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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.
(e) Price rise or trends related to
inflation:
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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.
(f) Availability of loan for
consumption purpose :
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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.
(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.
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2. Social Environment :
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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.
3. Technology Environment :
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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.
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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.
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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.
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 :
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 Develops rapidly.
 Total change comes in the prevailing or current
business or it stops.
 Industries that are not related directly with
technology also develop.
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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.
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.
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(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.
(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.
 Things
produced by monopoly is the
thing having “permanent speciality”.
 He gets an extra-ordinary profit to a
certain extent.
(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 nonprice 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.
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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.
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 Variety
ways :
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can be created in things in three
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.
(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.”
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- George Stigler
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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)
Environment related to population,
natural environment, political
environment and international
environment also affects Business
Enterprise.
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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.
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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 :
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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.
- Registeration of small scale industries is
done in two stages :
i. Provisional Registeration
ii. Permanent Registeration
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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.
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 :
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 :
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 N.S.I.C. Registeration
 G.S.I.C. Registeration
 Policy regarding purchase and registeration of
various commodities
Exemption from power control to the
exporting enterprise
 Priority in telephone facility
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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.
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 :
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1) Ownership fund
2) Sinking fund
1) Ownership Fund :
Initial stage capital or equity is required.
 Instead of distributing all the profits to
the owners, certain part of profit is reinvested.
 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.
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Total equity capital of a company is
classified into equal small parts which are
called shares.
 Characteristics of equity share capital are:
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o They are permanent finance, so not returned
during the existence of business.
o 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.
o 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.
2. Sinking fund :
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Sources for raising external sinking fund
are :
 Debentures
 Term loan
 Public deposits
 Inter-company deposits
 Commercial banks
 Other assisting institutes
1)
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.
2) Term Loan :- In India national and state development
banks have been established to provide
long term credit to the industrial
enterprise.
- Banks give term loans for 7 to 15 years.
- Corporation working under national
and state level are following :
(A) National
financial institutes :
Industrial Development Bank of India
(IDBI) :
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Established in 1964.
It is also at the supreme place for other
industrial credit institutes.
It was a subordinate institute to Reserve
Bank from 1964 to 1976.
The Governor and deputy governor of
Reserve Bank used to be the governor of
this bank.
But it was made autonomous body by
separating it from the Reserve Bank in 1976.
Now, it works under the observation of
managing committee appointed by the
central government in which
representatives of government, banks and
other financial institutes have been
appointed.
 Providing industrial finance on a large
scale and provide leadership for industrial
development.
 Following direct or indirect help is
provided to industrial enterprises by this
bank :
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Direct Help :
Gives loan and credit to the industrial
units.
Provides finance by purchasing shares,
debentures of the industry.
Underwrites shares, debentures.
Provides guarantee of loan to the
industrial units of the private sector.
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 Indirect
Help :
- Gives recredit on the credit given to
industrial enterprises by industrial finance
institutes.
- Gives recredit against the loans of
commercial banks and co-operative banks.
- Provides recredit against the export credit
given by commercial banks and co-operative
banks.
- By investing in the shares, debentures of
state finance corporation and other financial
institutes, it increases financial factors so that
they can give more credit.
Special Help :
Undertaking research for industrial
development in backward areas and gives
them help on liberal conditions.
Give soft loans for the updation of textile
and Jute industry.
Provide seed capital to technically
capable entrepreneurs so that they can
start business.
Provide capital at a cheaper rate if units
are able to get capital by creating
development fund in other way.
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IDBI working method is thus varietyful.
They have got liberty in industrial help.
For other financial institutes standards for
sanctioning loans are strict, while for IDBI, no
such limit has been decided.
It has done praiseworthy activity in various fields.
Shown special interest in development of
backward areas.
Provided low rate of interest to various
industries.
To get more credit for small and cottage
industrial units, it provides liberal help to National
Small Industries Corporation.
It also provides help to small transport
operators too.
Thus, IDBI also carries out important
activity of achievement of planning goals
beside being helpful In the quick industrial
development.
 Like IDBI, small industries development
bank of india was also established on 25th
October 1989 to provide financial help to
small industries.
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2. Small Industries Development
Bank of India : (SIDBI)
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Established on 25th October 1989 on the lines of
IDBI keeping in view the strategic importance
small industries.
Provides assistance to small industries.
It works according to the standard of IDBI
With the establishment of this institute, there is a
plan of merging Small Industrial Development
Fund 1986 and National Equity Fund-1987 with
IDBI.
It is the plan of this institute to increase its share
capital upto Rs. 1000 crore which was started
with the share capital of Rs. 250 crore by IDBI.
3. Industrial Finance Corporation of
India – IFCI :
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Established in 1948 with the aim of providing
medium and long term financial help to private,
public, co-operative and joint sector units.
Till 1964 when IDBI was established, this
corporation worked as an important financial
institute of the nation.
Since 1964, it works as a subordinate institute of
IDBI.
Even then its importance in industrial credit is still
intact.
It also stands as a guarantee for loan issued by
the units of private sector.
Does underwriting of shares-debentures.
Also arranges for the training of managers
in order to provide trained and skilled
managers.
 Cotton, textile, sugar, iron and chemical
industries have priority in getting loan
from this corporation.
 Rate of interest is very high.
 This corporation is criticized and blamed
that it has a partial attitude towards good
industrial houses and developed area.
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4. Industrial Credit and Investment
Corporation of India – ICICI :
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This corporation was formed in 1955 with the
co-operation of world Bank and government.
This corporation also got factors from
development banks of U.K. and West Germany.
Main act is to provide medium and long term
capital to private sector units.
Purchases shares of private companies, gives loan
and underwrites new shares and debentures.
This corporation also does the activity of bringing
foreign currency.
All the above institutes are active at national level.
(B) Financial Institutes at the State Level :
(1) Gujarat State Financial Corporation –
GSFC :
GSFC was established in May 1960 under
the State Finance Corporation Act of 1951.
 Its main office is situated at Ahmedabad
while its regional offices are at Ahmedabad,
Ankaleshwar, Mehsana,Valsad, Rajkot, Surat,
Vadodara and Bhavnagar.
 Gives financial help to any enterprise which
has been registered in other states than
Gujarat but its production unit is in Gujarat.
 Business enterprise gets financial assistance
by this corporation for following activities :
For the activity of production, process and
storage of material.
o For establishing industrial colonies in close
area.
o For mining industry.
o Creation and distribution of electricity or
energy source of other form.
o For repairing and service of every type of
vehicles, machineries, etc.
o Assembling and packing of repairs.
o For hotel industry.
o For transportation of material and purchase
of vehicle.
o For finishing activity, its preservation and
facilities.
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Co-operative societies and limited
companies get the help of maximum 240
lakh rupees, while sole proprietorship and
partnership firm get maximum assistance of
Rs. 90 lakh.
The help is provided to absolutely new
enterprise for establishment, innovation,
expansion and diversification.
This corporation provides help under many
schemes such as Scheme for NRI, Scheme
for hospital and nursing homes, star and
non-star hotels, help for amusement and
tourism, etc.
National equity fund scheme, lease and hire
purchase scheme and prise not under any of
the above schemes are included under
general loan scheme.
PROCESS OF GETTING LOAN :
 Apply in a prescribed form.
 Informs entrepreneur, conditions
regarding it are showed within 15 days of
getting loan approval.
 If loan is upto 15 lakh, all the information
is sent to regional manager.
 If more than it, information has to be sent
to joint manager of GSFC.
 Rs. 250 is to be paid as verification fees
for the approved loan of 1 lakh rupees &
its minimum limit is Rs. 5000 per unit.
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An equitable mortgage contract has to be
signed against fixed assets.
Hypothecation contract to be signed
against mechanical means.
In special case arrangement third party
security is done.
In this corporation, for returning loan, 6
years are decided as term loan.
New enterprise gets one year exemption
from repaying loan.
The amount of repaying of loan
instalment is decided on the base of
profitability and liquidity of the unit.
(2) Gujarat Industrial Investment
Corporation (GIIC) :
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Established as a limited company under
companies act on 1st April 1986.
For large and medium enterprises.
Development of backward areas is kept in mind.
Sole proprietorship, partnership firm, company or
enterprise can get help from here.
New or existing enterprises can get help in
extension, modernization, or diversification.
Also provides services of term loan, direct
investment in share-debenture, underwriting and
as a guaranter too.
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Special activities include establishment of
new enterprise by joint sector, projectadvisor, activity for development of
entrepreneurship and help regarding the
provision of equity finance to the
industrial enterprise.
(3) Gujarat Small Industries
Corporation (GSIC) :
Established under companies act as a
public limited company on 26th March,
1962.
 Help provided to small industries.
 Includes service of availability of raw
material and distribution for import of
foreign material, sale of ready material,
financial help for purchase of domestic
raw material, etc.
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(4) Gujarat Industrial Development
Corporation (GIDC) :
Infrastructural facilities like construction
of shed, roads, electricity, sanitation, etc
are created.
 Small industries are provided plot and
constructed shed according to hire
purchase or lease payment done in 8 to
10 years in convenient instalment
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3. Public Deposits :
In India, manufacturing companies invite
public for investment in public deposits.
 Get finance for 1-3 years.
 Interest rate has been fixed for 12% for one
and for three years it is 15%
 Advertisement is given in newspaper for
public deposits.
 Used more for short term working capital.
 Any company cannot get more than 25% of
joint amount of its equity and reserve in the
form of deposits.

Non-banking finance companies also use
public deposit.
 Company getting finance on credit against
public deposit is insecure because it does
not have right to mortgage on assets.

4. Intercompany Deposit :
The company who has surplus financial
factors gives financial factors to the other
company who has short term requirement
to fulfill its need.
 This type of financial give and take is seen
among the companies under one
management.
 Intercompany deposits are used to raise
working capital for a short term.
 Inter company rate on inter-company
deposits is higher in comparison to public
deposits.

5. Commercial Banks :





Its activities are noteworthy in the development
of small industries in India.
Provides long term credit to small industries for
purchasing fixed assets like land, house, machinery,
etc.
And provides finance for short term for purchase
of raw material, production cost, etc.
Commercial Banks gives short term credit of one
year for working assets by overdraft or cash
credit.
Besides this, it also gives long term credit for 5
years.
6. Other Assisting Industries :

Federation of small industries of India,
Indian council of industries, National
alliance of young entrepreneurs, small
industries association of state level, of
district level, etc also help small industries
in various fields.