Business

 The term "business" refers to an

organized effort by individuals or
entities to produce and sell goods or
services for profit. It encompasses a
wide range of activities, structures,
and purposes, but at its core, a
business is any entity or activity
engaged in commercial, industrial, or
professional operations.
 Key Aspects of Business:
1. Economic Activity:
1.Business involves the exchange of goods or
services for money or other forms of value. This
exchange is driven by the goal of generating
profit.
2. Profit Motive:
1.The primary purpose of most businesses is to
earn profit. This profit can be reinvested in the
business, distributed to owners or shareholders,
or used for other purposes.
3. Goods and Services:
1.Businesses can produce tangible goods (e.g.,
clothing, electronics, food) or provide intangible
services (e.g., consulting, education, healthcare).
 Organizational Structure:
 Businesses can take various forms, including sole proprietorships, partnerships,
corporations, and cooperatives. The structure chosen affects aspects such as liability,
tax obligations, and decision-making processes.
  Risk and Uncertainty:
 Engaging in business involves taking risks, as the outcomes of business activities are
not guaranteed. Entrepreneurs and business owners must navigate market fluctuations,
competition, and other uncertainties.
  Customer Focus:
 A successful business typically focuses on understanding and meeting the needs and
desires of its customers or clients. This involves marketing, sales, customer service,
and product development.



  Legal and Ethical Considerations:

 Businesses operate within a framework of laws and regulations that govern their
activities. They must also consider ethical issues, such as fair trade practices,
environmental impact, and corporate social responsibility. (Recent examples from
some companies' fund diversions’, Non-Compliance with MCA, Breaking of
FEMA rules, Monopoly practices etc)
  Global and Local Contexts:
 Businesses can operate at various scales, from local small businesses serving a
community to large multinational corporations with a global reach. The context in
which a business operates influences its strategy, operations, and impact.
Modern Business is only next to
the state in importance.
Business contributes to
economic growth.
It generates employment
opportunities.
It provides all kinds of goods
and services for consumption.
Modern Business covers a
complex field of industry and
commerce involving activities
related to both production and
distribution.
Business includes activities
connected with production, trade,
transport, finance, banking,
insurance, advertising and other
activities.
Nature of Modern Business.
1) Today’s business operates on a
large scale: sales, revenue,
profits and assets.
2) Oligopolistic character.
 Interdependence is recognized.
 Firms having cost advantages over
rivals.
 Economies of scale being massive.
 Financial requirements are large.
 Mergers and Acquisitions are common.
 Collusion is very common: Cartels and
3) Diversification:
Concentric diversification which
means adding new related products
to their existing production.
Horizontal diversification which
means adding new unrelated
products or services for existing
customers.
Conglomerate diversification which
means big business houses are
expanding their activities by
establishing new companies for
producing unrelated new products.
However diversification may not
4) Global reach.
Companies that matter have
expanded their revenue and assets.
Cross border flows of capital, goods
and know how.
In WTO era, cross border trade is
mainly in services. There is General
Agreement in Trade and Services
(GATS). GATS covers all traded
services, professional services,
computer related services, education
and training services, environment
services, financial services,
5) Technology orientation and
sophistication of technology.
Modern firms have to invest in
R&D. Examples of USA, Japan and
Switzerland. Among Asian
countries South Korea has the
credit.
E.g. Samsung Electronics.
6) Readiness to change.
Strategy of offering
differentiated products.
Business being vigilant all the
time.
Synthetic products being
produced.
Change in using raw materials.
7) Government control: Reasons
Market failures
Market imperfections
Externalities
Public goods
 Environment of Business
Environment by definition is
external to an organisation. But
in practice internal environment
is distinguished from external
environment
 External Environment

Internal Environment

Values Human
Resources
Goals
Modern Financial
Micro Manangement
Busines Resources Macro
Power s Marketing
Relationships
Resources
Capabilities
 Components of
Internal Environment
Value system may be positive or
negative.
Goals: Profit maximization, sales
maximization, maximizing
balanced rate of growth and
satisficing behaviour.
 Management : A corporate enterprise
may be professionally managed or
family controlled. Impact on decision
making.
 Power relationships: It means internal
power relationships. The strength of
management depends largely on the
relationship between the company’s
shareholders, Board of Directors and
the seniour executive officers.
 Capabilities:Two views : 1. Rapid
technological progress is destroying
the relative importance of tangible
assets vs human assets. 2.
Technology as the potent force of
change.
 Financial resources : 1. Internal resources
2. external resources and 3. FDI.

Human resources : The quality of human

resources of a company depends largely on
skill, commitment, attitude, and morale of the
employees.
Marketing resources :
 External Environment
a) Micro Environment and
b) Macro Environment
Performers in Micro Environment.
 Suppliers of inputs
 Trade Unions
 Customers
 Market intermediaries
 Competitors
 Public
 Input
Suppliers

Trade
Unions Public
Modern
Business

Customers Competito
Intermediarie rs
s
1) Input Suppliers
 Possibility of Monopoly
Control
 Uninterrupted supply to
be ensured
 Multiple sources needed.
2) Trade Unions – Different
approaches being
followed.
3) Customers constitute an
important element.
4) Marketing intermediaries
and the chain.
5) Competitors and their
policies.
Macro environment.
Macro environment of a
company refers to all
those economic and non-
economic factors which
exercise their influence
on the business activity in
general and thus
determine opportunities
that a company may have
Economic and Noneconomic
Environment.
 Economic environment may be
National or Global.
 Noneconomic environment
may be political and legal,
socio - cultural, demographic,
technological and natural.
Business enterprise is essentially
an economic institution. It conducts its
activities in the market system with
definite objective.
 The central problems of the economy
viz, what to produce, how to produce
and for whom to produce
 Capitalism: Price system
 Socialism: Central Planning Board
 Mixed Economy : Combination of
public and private sectors
 Factors influencing Business Environment: Growth
Rate
 : Stable Prices
 : Rates of saving and Investment
 : Fiscal Stability
 Inflation
 Interest Rate
 Rupee value
 GDP
 Per capita Income
 Disposal Income
 Exchange Rate
 Tax
 Economic Polices
 1) Industrial Policy :
 * Government Support for Automobile
Industry in USA, Japan and India.
 * 1956 Policy in India
 * Liberalization Policy in India
 * Delicesnsing
 * Industrial Policy of 1991.
 Trade Policy ;
 * Inward Looking Trade Policy
 * Outward Looking Trade Policy
 Monetary policy is an arm of macro
economic policy and as such its role
and importance are determined in
any economy by the overall
economic policy framework and the
various instruments available for
implementing the policy __ C
Rangarajan
 Fiscal Policy
 A policy under which the government
uses its expenditure and revenue
programmes to produce desirable
effects and avoid undesirable effects
on the national income production
and employment. It is Government’s
policy in relation to taxation , public
expenditure and public debt for the
explicit purpose of attaining one or
more specific objectives such as
 Global Economic
Environment
 China emerging as a super power and
becoming the engine of global growth
 Reasons:
 Higher savings
 Labour intensive small scale export
industries
 Massive infrastructure growth
 Liberalised foreign trade
 Market determined commodity prices
 Indiaas the fastest growing
economy.
 India with demographic dividend.
 Without opportunities demographic
dividend turning into demographic
disaster.
 Both China and India are the
engines of growth in the world.
 Trade agreements
 WTO with the goal of cutting trade barriers for encouraging multilateralism
 Now developing countries acquiring negotiating power

 USA and EU pushing forward regional trade agreements


Regional Trade Agreements
 Preferentialtrade agreements
 Free trade agreements
 Customs Union
 Common Market
 Protectionism

 Industrialised countries of the west

have been resorting to protection.
 Non - tariff barriers.
 The study of the staff in the World
Bank has indicated the gravity of non
--tariff barriers.
 There are strong protectionist
sentiments in the USA.
 Dominance of MNCs

 Developed countries: USA UK Japan

France, Germany and Switzerland
 Among developing countries South
Korea dominates
Non-Economic Environment
of Business
History reveals that there are many non
economic factors that influence
economic development as also business
environment.
Gunnar Myrdal in his Asian Drama
(1968) states that the attitude of the
people has much to do with the
economic progress of a nation. Indian
experience vividly shows the damage of
the caste factor.
 Political Environment
The capitalist class as ruling class spreads
its own political culture. Indian experience
reveals the impact of political instability on
business activities. State fundamentalism
has been replaced by market
fundamentalism. Now the latest political
situation is conducive to Public Private
Participation. Since 1991 all political
parties have been following policies
helpful to the business communities.
 Legal Environment
Legislations defining property and
business organisations, contract, relations
between employers and employees, social
obligations of employers and social
security constitute legal environment. The
Securities and Exchange Board of India
(SEBI) Act, 1992 empowers SEBI to
regulate the securities market. Even in the
market economy the modern corporate
business is governed by legislations.
Socio-Cultural Environment
Every society has its own culture
consisting of its own values, attitudes
and various forms of interactions
among people. The roles of the society,
state, market and planning are to be
conceived in the socio-cultural
environment. There is globalisation of
culture causing superimposition of alien
culture on local culture.
Multiculturalism is what the business
firms have to deal with.
 Demographic Environment
 The size and growth rate of population.
 Sex composition of population.
 Rural Urban distribution of population.
 Educational level.
 Work participation rate.
 Spread of urban culture.
 The burden of population on
environment.
 Technological Environment
 Inventions and innovations.
 Changes in techniques of production.
 Inventions and Innovations in the
western world are both cost reducing
and demand increasing.
 Technological advancements may
cause negative effect of
displacement of labour.
 Technical Progress may change socio
cultural environment.
 Natural Environment
 There are externalities in the form of
environmental hazards. Natural
environment performs following
functions:
a) It provides life support.
b) It supplies natural resources needed
for business.
c) Natural environment may facilitate
absorption of waste products.
d) It may provide or supply amenity
resources.