Meaning & Features
- What is meant by business environment?
The term business environment means the totality of all individuals, institutions and other forces that are outside a business but that potentially affect its performance.
- Which are the different environments?
- Case Study
- Eat India Company is a recently established food manufacturer in India.
- The company’s activities are controlled by many outside factors.
- When AO LED developed its cake packing machine ALD-250D in 2010, the company bought three machines which increased its production by ten times. (Technological environment)
- In 2019 the Congress Government returned and reduced GST to 5% for food products. This boosted production. (Political environment)
- The company began to manufacture various types of 100% vegetarian cakes. Due to this, the demand for EIC Cakes increased in states like Rajastan, Himachal Pradesh, etc. (Social environment)
- When the government introduced GST in 2017, it had a little inconvenience. (Economical)
- In 2020, Supreme Court made strict orders to prosecute food companies in the event of food adulteration. Several companies were forced to shut down but EIC survived. (Legal environment)
- What are the features of business environment?
- Totality of external forces
- Specific and general forces
- Specific forces – Customers, investors, competitors, suppliers
- General forces – Political, social, legal, technological
- Dynamic nature
Importance of business environment
- Enabling the identification of opportunities and getting the first mover advantage,
- Helping in the identification of threats and early warning signals,
- Coping with the rapid changes,
- Assisting in planning and policy
- Improving the performance.
Dimension / Elements
- Economic environment
- It includes such factors as interest rates, inflation rates, changes in disposable income of people, stock market indexes and the value of rupee.
- Social environment
- It includes social forces like traditions, values, social trends, society’s expectations of business, and so on.
- Technological environment
- It includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.
- Political environment
- It includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold toward business.
- Legal environment
- It includes various legislation passed by the government, administrative orders issued by government authorities, court judgments as well as decisions rendered by various commissions and agencies at every level of the government—center, state or local.
Economic environment in India
- The economic environment in India consists of various macro-level factors related to the means of production and distribution of wealth which have an impact on business and industry. The economic environment of business in India has been steadily changing since Independence mainly due to government policies. In order to solve economic problems of our country at the time of Independence, the government took several steps including control by the state of key industries, central planning and reduced importance of the private sector.
- These steps delivered mixed results until 1991 when Indian economy happened to face serious foreign exchange crisis, high government deficit and a rising trend of prices despite bumper crops.
Liberalization, Privatization and Globalization (LPG)
- What is the meaning of liberalization?
- As a part of economic reforms, the Government of India announced a new industrial policy in July 1991 which sought to liberate the industry from the shackles of the licensing system. This is called liberalization.
- Case Study
- Mr. Sidharth Gupta (the founder of EIC) started founding the company in 1989.
- Due to licencing issues, he could not get a licence for his new company.
- In 1991, the government of India introduced liberalization that made licencing easy.
- That same year Mr. Sidharth got his licence and founded EIC.
- What is privatization?
- Case Study
- In the 1980s, there was no permission given to private sector for starting food manufacturing. (Warning – This is not factual)
- Due to this, Mr. Sidharth could not start his business.
- In 1991, when the government introduced privatization, the role of the public sector decreased drastically.
- Thus, this gave Mr. Sidharth an opportunity to start his company.
- What is globalization?
- Case Study
- Initially EIC could sell its products only in India.
- In 1991, when the government introduced globalization to encourage foreign private participation in industrial development, EIC started exporting its products worldwide.
- At the same time, KENT America opened its first unit in India.
Impact of LPG
The government policy of liberalisation, privatisation and globalisation has made a definite impact on the working of enterprises in business and industry.
- Increasing competition.
- More demanding customers.
- Rapidly changing technological environment.
- Necessity for change.
- Need for developing human resource.
- Market orientation.
- Loss of budgetary support to the public sector.
In the new economic environment, the Indian enterprises have developed various strategies to meet the challenge of competition.