Assignment Code: MCO-04/ASST/TMA/2022-23

Course Code: MCO-04

Assignment Name: Business Environment

Year: 2022-2023

Verification Status: Verified by Professor

Attempt all the questions

1) What do you understand by business environment? Discuss its importance for the business. (20)

Ans) The overall surrounds that have an impact on business operations, either directly or indirectly, are referred to as the business environment. In this context, the term "business environment" refers to all external elements that may have an impact on how a business operates. The phrase "business environment" has, nevertheless, been employed by certain specialists in a very broad sense. According to them, a company organization's internal environment, which includes the resources at its disposal, its management's goal and objectives, its value system, and other factors, influences business activities just as much as external environmental factors do.

The business may benefit from different opportunities provided by the external environment, which includes the economic, sociocultural, political, technological, ecological, legal, and regulatory context in which it operates, or it may face risks or difficulties. However, the internal environment, with its physical and psychological resources, aids management in adjusting to and coping with the external environment. Therefore, internal and external environmental factors are both necessary for the existence and development of every business. The word "business environment," however, typically refers to the external forces and causes that are independent of the corporation and differ from one country to another.

The business environment can be divided into two categories: economic and non-economic. Economic environment variables include things like fiscal and monetary policy, industrial policy, kind of economic system, rate of economic growth, etc. On the other side, the non-economic environment includes socio-cultural, politico-legal, technological, and ecological aspects. It should be recognised that the economic and non-economic environments cannot be distinguished or named solely. Both interact with one another, making it impossible and insignificant to treat them separately. The noneconomic environment influences the economic environment while also influencing the economic environment.

For instance, sociological issues and social norms have an impact on the economic situation, and values are influenced by people's financial levels. As a result, every important component of the economic environment interacts with every important component of the non-economic environment. Any company's capacity to predict the nature, extent, and dimensions of changes that are anticipated to occur in both sets of environmental factors, as well as the extent to which those changes will affect each set of environmental factors, is essential to its success. By making the required adjustments to its strategies, business adjusts to the changes that are anticipated to occur.

Significance of Business Environment

Business environment is dynamic: The various elements that make up the corporate environment are always changing. As a result, their influence on the company is constantly evolving. You are aware that due to advancements in the economy, society, and technology, the marketplaces for a lot of products have seen remarkable changes throughout time. In order to handle the new difficulties, management must keep track of these developments and make the appropriate adjustments to its strategies in a timely manner.

Business environment is complex: The environment is made up of numerous elements that come from various situations, occurrences, conditions, and influences. These causes, occurrences, circumstances, and effects do not exist in a vacuum; rather, they interact to produce a new set of influences. Individual environmental elements can be understood quite simply, but it can be challenging to fully grasp the cumulative effect because different environmental conditions call for a variety of contradictory and complex reactions.

Business environment is multifaceted: The observer's perspective affects how the business environment is seen. Some people may view a certain environmental change as an opportunity, while others may see it as a threat. Because of this, the corporate environment is likewise complex.

Business environment has a far reaching impact: The existence, continuation, and expansion of the firm are all significantly impacted by the environmental changes. Any environmental change may have an impact on the demand for the company's goods and services and, consequently, its profitability.

Every business organisation must understand and constantly monitor its environment since the nature of the business environment is dynamic, complex, and multifaceted and has a significant impact on its survival, continuity, and growth. This will allow company strategists to adjust to developments and utilise their internal resources most effectively at a particular time. These environmental changes, whether they are actual or hypothetical, provide the essential information for making strategic decisions. Simply keeping an eye on the environment is insufficient. The data gathered in this way must be applied to future planning and the development of suitable strategies at various levels.

2) How does socio-cultural environment affect business decision-making? Give a brief ketch of the nature of socio-cultural environment prevailing in India. (20)

Ans) Socio-cultural factors can involve social attitudes, beliefs, education, legal structure and political ideology. However, as society and culture change, our responsibility as a business owner or leader is to adapt and stay ahead of our competitors and remain relevant in the minds of our consumers. One of the major socio-cultural factors influencing businesses and business decisions is changing consumer preferences. What was popular and fashionable 20 years ago may not be popular today or 10 years down the road. Different styles and priorities can undermine long successful products and services. For example, a clothing company must constantly be aware of changing preferences when creating new products or it will quickly become outdated.

Another example is the marketing industry. Ten years ago, consumers wanted businesses to market their products and services on TV, radio and in newspapers. But after the introduction of the iPhone and the emergence of social media, consumer preferences changed. Audiences have now become more mobile, which means that to reach them, companies have had to develop mobile marketing strategies. Changes in demographics are also a significant factor in the business world. As populations age, for example, markets for popular music and fashions may shrink while markets for luxury goods and health products may increase. Additionally, changes in the proportion of genders and different racial, religious and ethnic groups within a society may also have a significant impact on the way a company does business.

This is especially true when it comes to marketing products and services to a younger generation. For example, clothing styles are always changing, but the most significant change occurs in the demographics of prospective buyers. It used to be that business owners in the clothing industry could cast a wide net and reel in customers, but with audiences so segmented, understanding the growing power of Generation Z, for example, is vital. This audience is often categorized as buyers born in 1995 onwards, and they have emerged over the past five years as a motivated consumer group. In addition to a company's interactions with the market and its customers, socio-cultural factors also impact a company's internal decision-making process. For example, changing gender roles and increasing emphasis on family life have led to increased respect for maternity and paternity leave with organizations. Additionally, attitudes toward racial discrimination and sexual harassment have changed drastically over the years as a result of a socio-cultural change.

More recently, sexual harassment has become an explosive issue, driven by the countless number of powerful corporate leaders that have run afoul of harassment charges. As a result, societal attitudes about how women should be treated in the workplace have dramatically shifted. In the past, an “old boys network” was tolerable if only because women didn’t feel empowered to push back against entrenched ideas about their work roles. But as women have begun speaking up and telling their stories regarding harassment, company leaders have taken note. It’s no longer acceptable for you to take a laissez-faire attitude about how your female employees are treated by male colleagues. Business leaders that maintain this type of work environment not only risk breaking the law; they risk the reputation of a permissive, hostile workplace that will ultimately damage their brand.

Socio-Culture Environment in India

1. high prevalence of impersonal, bureaucratic social interactions and mistrust of others due to the idea that people are inherently bad. a highly centralised administrative structure, an emphasis on hierarchical position in decision-making that is excessive, bureaucratic delays, a lack of delegation, an unsatisfied workforce, and an accentuation of indifference in both individuals and groups.

2. Genre and pervasive apathy, separation of work from its outcomes due to the conviction that those outcomes are predetermined. Work is done without much interest. commitment or ride

3. Poor connections between superiors and subordinates, a general lack of discipline at all levels.

4. Human inequality, persistent mistrust of others, and excessive self-centred behaviour that discourages cooperation and teamwork

5. generally uninterested and quite conflicted

3) What is an industrial license? Enumerate the circumstances under which it is necessary. (20)

Ans) Industrial License means the exclusive worldwide marketing, distribution and licensing rights for the treatment of industrial waste water in industries such as the oil and gas industry. The Licensor will grant to the Licensee all of the patent and intellectual rights of the Licensor used in the business of the sale, marketing and distribution of the Licensor’s water sterilization technology, a high voltage electrolysis device that transforms water, solely for industrial applications, including the right to sublicense pursuant to written consent from Licensor, whereby Licensee’s rights are sole and entire and operate to exclude all others, except as otherwise expressly provided herein. 

The main aim of the licensing policy is to regulate the industrial sector are  Encouraging small scale industry,  Encouraging new entrepreneurs for setting industries, Regulating location of industrial units, To ensuring balanced regional development, Promoting technological advancements in industries and  Development and control of Industrial Investment and production.

Present Position of Licensing Policy

Compulsory Licensing: According to the New Industrial Policy of 1991, it is necessary to obtain license only in case of 15 industries which are engaged in the field of defence-equipment’s, luxury goods and hazardous commodities. In the wake of liberalization this number has been reduced to 5.The five industries for which licensing is compulsory are  Alcoholic Products Industrial Explosives Aerospace and defence equipment Hazardous Chemicals, Tobacco products

Protection to Small Industries: In order to protect the small scale industries and save them from competition with large industries, the production of certain products was reserved for the small industries. Only 239 items are reserved for small scale industries.

Industries Reserved for Public Sector: Some industries had been reserved for the public sector. These industries  could  be  established in the public sector only and the private sector was not granted licenses for the establishment of these industries. Only 3 industries reserve for the public sector such as atomic minerals, atomic energy and railway.

Definition of Large Industrial Houses: In the new industrial policy of 1991, the limit on holding assets was completely abolished and there is no restrictions on size of large business houses. The new policy  lays greater stress on preventing unfair trade practices rather than on the size of business houses. In 2002 the government abolished MRTP Act.

Licensing for the Expansion of Production Capacity: According to  the new policy of 1991, No license is required for the expansion of production capacity of MRTP companies. In the present situation, there is no restriction on expansion of production-capacity except five licensed industries.

Necessary Industrial License in the Circumstances

As per the licensing policy, it is necessary to obtain license in the following circumstances:

1. For setting up New Industrial Units: If any industrial unit is to be set up in the category of licensing industries it has to obtain license under Industries Development and Regulation Act,1951.

2. For Expansion: Under  Industrial Licensing Policy,  if any industrial unit which is covered under licensing wants to expand its production capacity then it will have to obtain prior approval under this act.

3. Location of Industrial Units: Any Industrial Unit wants to change it location then it will have to take prior approval. An Industrial License is required for projects which are to be located in large cities with a population of more than 10 lakhs. Only after obtaining approval, the location can be changed.

4. For  producing Articles Reserved for Small Scale Industries: An  industrial  undertaking  wants  to manufacture an item reserved for small scale sector it is required to obtain industrial license. The list of items reserved for small scale industries is reviewed from time to time. At this time 239 items were reserved for small scale sector.

5. Registration of Existing Industrial Units: An existing Industrial Units which were existing before enforcement of this act and are covered under industrial licensing will have to obtain registration under this act

4) Why is Indian economy regarded an underdeveloped economy? State its basic characteristics. (20)

Ans) An underdeveloped economy is defined as an economy which has got unexploited natural resources and unutilized human resources. In other words, it is an economy, having a potentiality to grow. An underdeveloped economy shows the following features:

In the underdeveloped countries, natural resources remain unexploited and underexploited due to various reasons. Systematic utilisation of natural resources alone can lead to -economic development.

An underdeveloped country is basically a primary producing country, engaging its factors of production to produce only raw materials and foodstuffs. The percentage of population engaged in. agricultural sector is very high (70% in Indian context) and a major part of total national income comes from agriculture and activities allied to agriculture (around 30% in India).

In case of UDCs, the scarcity of capital is both the cause and effect of low productivity and underdevelopment. Due to scarcity of capital, a better technique of production cannot be adopted in India due to undeveloped technology total volume of production and productivity is low. Due to low production and productivity, level of income is less, and consequently, less amount of capital is available to adopt better technique of production. Thus, poverty is both the cause and the consequence.

A chief feature of an UDC like India is its high population pressure. The high birth-rate and low deathrate are responsible for a break-neck rise in Indian population. At present, the annual growth rate of population according to 2001 census stands at 2.13%. This rapid growth of population stands as an obstacle in the smooth development of the economy.

UDCs are characterized by low per capita income and grinding poverty scenario. In India, the per capita income is less than 1/3 of the per capita income of the developed western countries, and, according to the revised estimate of the Planning Commission about 50% of the total populations in India live below the poverty line.

The underdeveloped countries are also characterized by widespread unemployment, underemployment and disguised unemployment. In India large numbers of people engaged in the agricultural sector are underemployed or disguisedly unemployed, apart from the large number of white- coloured unemployed, existing in the register of Employment Exchanges.

The underdeveloped economies are also backward in the field of human resources. In these countries, the quality of people as productive agent is very low. There is low labour efficiency, lack of entrepreneurship and economic ignorance. People being illiterate are guided by blind beliefs, customs and traditions. People become fatalists and believe that man’s fortune is decided by fate and not by one’s own efforts.

In these economies, there is a lack of infrastructural facilities like transport, banking, health, power, education and information technology. People also adopt an outdated technique of production which results in low productivity.

Some of these features are as follows:

Low Income: In India GNP (Gross National Product) per capita was $1,180 in 2009 at current prices, roughly one third of the population is below the poverty line. On world scale, income inequalities between the developed and underdeveloped countries arc very large.

Predominance of Agriculture: In India agriculture and allied sectors contribute nearly 14.2 percent of Gross Domestic Product (GDP) according to the 2010-11 estimates released by the Central Statistics Office (CSO). Moreover, in India agriculture provides employment to around .50 per cent of the workforce.

Rapid Population Growth Rate and High Dependency Ratio: High population growth rate is also an indicator of underdevelopment. India’s population growth rate was 1.93% per annum and 21.34 % per decade during 1991-2001, which is still very high as compared to developed economies. Dependency ratio refers to ratio of dependent population (non-working) to total population. In India dependency ratio is around 60% which is very high. This is because of high birth rate and social circumstances.

Mass Poverty: According to United Nations Development Programme’s (UNDP) Global Human Development index 2011. India is ranked 134th among 187 countries. The report says 53 per cent of Indians suffer from multidimensional poverty. The Planning Commission released the second India Human Development Report (HDR) 2011.

Unemployment and Underemployment: Unemployment is a phenomenon of all economies whether developed or underdeveloped. But nature and degree of unemployment is different in developed and underdeveloped economies. In developed economics most of the unemployment is cyclical which arises because of fluctuations in business cycles. In underdeveloped economies like India, chronic unemployment is found which results from the structural defects in the economy.

Inequality: Inequality in distribution of income and wealth is found in every country but this is wider in underdeveloped economies. In India bottom 40% of rural population possess only 5% of rural assets while 8% top households possess 46% of total rural assets. This disparity is more intensive in urban areas.

Scarcity of Capital: Capital is considered as the most important factor in the development of an economy. In underdeveloped economies like India, capital availability per person is very low which results in low productivity and low per capita income. Low per capita income again results in low savings, low investment and low capital formation.

5) Explain the concept of globalization as a national policy with particular references to the policy initiative taken by the Government of India since 1991. (20)

Ans) The word "globalisation" has several meanings. It might be taken to indicate unrestricted global movement of all resources, including people, capital, technology, and products and services. Since there would be no political boundaries between nations and no concept of individual sovereignty for those who live in various political systems, the precise meaning of this phrase is evidently speculative.

If the phrase is understood from the perspective of a huge firm, it could suggest that the world is seen as an open market with no distinction between domestic and international trade. The planning and implementation of manufacturing, distribution, marketing, financing, employment, etc. by a corporation with a worldwide vision may therefore be described as globalisation. This goes beyond the internationalisation that occurs when businesses from two or more different countries conduct business with one another. An illustration of the idea of globalisation as a global viewpoint can be found in the Japanese Honda Motor Company. The company's management intentionally works to set up the organisation so that all of its major clients are situated equally from the corporate headquarters. Instead of assuming that they are national operators expanding internationally, they consider themselves to be primarily global operators.

Globalization as a national policy may be regarded as an effort to liberalise cross-border trade in commodities, services, capital, technology, as well as in human and natural resources. In a strict sense, no government has adopted such a policy to date, although attempts are being made to reduce barriers to international commerce in products, services, and intangibles. The vast array of policy measures launched by the Indian government since 1991, particularly those pertaining to globalisation, privatisation, and liberalisation, may be cited in this context. As a part of economic reforms, globalisation may be construed to entail external sector liberalisation, or the easing of limitations on the flow of capital, technology, and goods across borders. This might be viewed as the economy's outward orientation. The following significant moves toward globalisation have been made, among other things:

1. The exchange rate management system has been updated, and the rupee is now convertible for all current account transactions at the going rate of exchange.

2. Bringing things under Open General Licence has raised the number of items that can be imported without a permit (OGL).

3. The maximum import tariff rate on items has been steadily decreased from 11% to 20%.

4. Capital goods and other inputs may be imported by exporters at reduced tariff rates.

5. In high priority industries, foreign direct investments (FDI) up to 51 percent equity are approved without any procedure bottlenecks.

6. Under certain conditions, automatic approval is given for foreign technological collaboration between Indian and foreign enterprises.

7. Securities traded on the primary and secondary capital markets may be purchased by foreign institutional investors.

8. Subject to a few restrictions, overseas corporate bodies (OBCs) and NRIs are permitted to invest up to 100 percent of their stock in high priority scheduled industries with full benefits of capital and income repatriation.

9. The corporate sector in India is urged to use the GDR and ADR mechanisms to reach the global financial markets.