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UNIT 1Introduction to Business Environment Q1) Explain the Concept of Business.A2) A business is defined as a corporation or enterprising entity engaged in commercial, industrial, or professional activities. Businesses are often for-profit entities or they can be non-profit organizations that operate to satisfy a charitable mission or further a social cause.The term "business" also refers to the organized efforts and activities of people to produce and sell goods and services for profit. Businesses home in scale from a sole proprietorship to a global corporation. Several lines of theory are engaged with understanding business administration including organizational behaviour, organization theory, and strategic management. Q2) Explain the characteristics of a business.A2) Economic activity:Business is an economic activity of production and distribution of products and services. It provides employment opportunities in several sectors like banking, insurance, transport, industries, trade etc. it is an economic activity corned with creation of utilities for the satisfaction of human wants.It provides a source of income to the society. Business results into generation of employment opportunities thereby resulting in growth of the economy. It brings about industrial and economic development of the country. Buying and Selling: The basic activity of any business is trading. The business involves buying of material, plants and machinery, stationary, property etc. On the other hand, it sells the finished products to the consumers, wholesaler, retailer etc. Business makes available various goods and services to the various sections of the society. 2. Continuous process:Business is not one-time activity. it is endless process of production and distribution of goods and services. One transaction of trade cannot be termed as a business. A business should be conducted regularly so as to grow and gain regular returns.Business should continuously involve in research and developmental activities to achieve competitive advantage. a continuous improvement strategy helps to increase profitability of the firm. 3. Profit MotiveProfit is an indicator of success and failure of business. it is the difference between income and expenses of the business. the primary goal of a business is typically to get the highest possible level of profit through the production and sale of goods and services. it is a return on investment. Profit acts as a driving force behind all business activities.Profit is required for survival, growth and expansion of the business. it is clear that each business operates to earn profit. Business has many goals but profit making is that the primary goal of every business. it is required to develop economic growth. 4. Risk and Uncertainties: Risk is defined as the effect of uncertainty arising on the objectives of the business. Risk is related to every business. Business is exposed to two kinds of risk, Insurable and Non-insurable. Insurable risk is predictable. 5. Creative and Dynamic:Modern business is creative and dynamic in nature. firm has to start with creative ideas, approaches and concepts for production and distribution of goods and services. It means to bring things in fresh, new and inventive way. One has to be innovative because the business operates under constantly changing economic, social and technological environment. Business should also start with new products to satisfy the growing needs of the consumers. 6. Customer satisfaction: The phase of business has changed from traditional concept to modern concept. Now a day, business adopts a consumer-oriented approach. Customer satisfaction is the ultimate aim of all economic activities.Modern business believes in satisfying the customers by providing quality product at an inexpensive price. It emphasizes not only on profit but also on customer satisfaction. Consumers are satisfied only when they get real value for his or her purchase.The purpose of the business is to make and retain the customers. the power to identify and satisfy the customers is the prime ingredient for the business success. 7. Social Activity: Business may be a socio-economic activity. Both business and society are interdependent. Modern business runs within the area of social responsibility. Business has some responsibility towards the society and successively it needs the support of various social groups like investors, employees, customers, creditors etc. by making goods available to various sections of the society, business performs a crucial social event and meets social needs. Business needs support of various section of the society for its proper functioning. 8. Government control:Business organizations are subject to government control. they need to follow certain rules and regulations enacted by the government. Government ensures that the business is conducted for social good by keeping effective supervision and control by enacting and amending laws and rules from time to time.Some important acts framed by the government include:-The Competition Act, 2002-Foreign Exchange Management Act, 1999-The Environment Act, 1986-Indian Companies Act, 1956-Consumer Protection Act 9. Optimum utilization of resources:Business facilitates optimum utilization of nation’s material and non-material resources and achieves economic progress. The scarce resources are delivered to its fullest use for concentrating economic wealth and satisfying the requirements and needs of the consumers. Q3) Explain the Functions of Business. A3)Production function: The Production function undertakes the activities necessary to produce the organization’s products or services. Its main responsibilities are: production planning and scheduling control and supervision of the production workforce managing product quality (including process control and monitoring2. Research and Development function:The Research and Development (R&D) function is concerned with developing new products or processes and improving existing products/processes. R&D activities must be closely coordinated with the organization's marketing activities to make sure that the organization is providing exactly what its customers want within the most efficient, effective and economical way.3. Marketing function:Marketing is concerned with identifying and satisfying customers' needs at the right price. Marketing involves researching what customers want and analyzing how the organization can satisfy these wants. Marketing activities is concerned with the selection of product markets, producing literature like Product catalogues and brochures, placing advertisements within the appropriate media and so on. A fundamental activity in marketing is managing the Marketing Mix consisting of the ‘4Ps’: Product, Price, Promotion and Place.• Product: Having the right product in terms of advantages that customer’s value.• Price: Setting the right price which is in line with potential customers’ perception of the worth offered by the product.• Promotion: Promoting the product in a way which creates maximum customer awareness and persuades potential customers to form the decision to purchase the product.• Place: Making the product available in the right place at the right time – including choosing appropriate distribution channels.4. Human Resources function:The Human Resources function includes with the following:- Recruitment and selection.- Training and development.- Employee relations.- Grievance procedures and disciplinary matters.- Health and Safety matters- Redundancy procedures5. Finance function:The Accounting and Finance function is concerned with the following:- Financial record keeping of transactions involving monetary inflows or outflows.- Preparing financial statements (the profit-and-loss statement, balance sheet and cash flow statement) for reporting to external parties like shareholders. The financial statements are the start line for calculating any tax due on business profits.- Payroll administration Paying wages and salaries and maintaining appropriate tax and national insurance records.- Preparing management accounting information and analysis to assist managers to plan, control and make decisions.6. Sales function:In large firms the sales activities are performed by the sales division. The sales department works in close coordination with the marketing department. The sales department is concerned with the selling activities of the firm. It receives or book orders from dealers or customers, then distribute the products through the channel. The sales department may need to undertake follow up of sales, special in the case of durables or industrial goods.7. Public relations:There is a need to maintain good relation with the public. Therefore, it makes a good sense to maintain separate department to look after public relations, especially in big organizations. It is the work of the PR department to manage corporate image of the firm and to develop quality relations with the various section of the society.8. Inventory management:Inventory management refers to the management of inventory such as raw materials, semi-finished goods, finished goods and other items of inventory. It involves the following activities:- Planning of materials- acquiring material and other inputs- Store keeping, etc. Q4) Explain the Importance of Business organization.A4) Importance to consumers• Improves standard of living• Better quality products• Satisfaction of wants• Better services• Reasonable pricesImportance to business firms• Increase in revenue• Increase in profits• Increase in market share• Build goodwill• Helps to achieve good will• Improvement in skillsImportance to society and Economy• Provides employment• Brings revenue to the government• Regional development• Economic growth• Undertakes social services Q5) Write a short note on sole trading concern.A5) Sole Trading Concern is the oldest type of business organization. A business organization which is owned and controlled by one person, with or without the help of his family members or a few employees, is called Sole trading concern. It also called as one-man show business and the owner is called Sole Proprietor or Sole Trader. Sole trader is a person who invests capital and acts as owner, organizer, manager and supervisor of his business and who shares entire profits or losses of the business. Sole proprietorship is a form of business organization in which an individual introduces his own capital, uses his own skill and intelligence and is solely responsible for results of its operations. FEATURES OF SOLE TRADING CONCERN:1) Minimum Government Regulations: This is the only form of business which is not governed by any specific Act. The sole trader has to observe the general law of the country. There are no legal formalities required at the time of formation. They only follow the local govt. rules. E.g. Gumasta license, Labour laws.2) Unlimited Liability: The Liability of the trader is unlimited, which means, there is no distinction between Private and business property. For payment of business liabilities even private property is taken away in case the business property is not sufficient to pay off business liabilities.3) Freedom in Selection of Business: A Sole Trader can select any business as per his desire. There is no restriction on the type of business, which may be conducted by a proprietary concern. Any legal business can be conducted by the concern. Any method of keeping of books of accounts may be followed by him. 4) Secrecy: Secrecy plays the most important role in the sole trading concern. The information about all the important matters concerning the business rests only the owner and no outside party can take any undue advantage out of it. The proprietor can ensure maximum business secrecy.5) Single Ownership: The business is owned by a single person. All the property and assets of the business is owned by him. There is no another owner or partner in his business.6) Direct contacts with customers and Employees: Since a proprietor usually deal directly with his customers and employees, he can maintain good relations with his employees and provide personal attention to his customers.7) Suitable for some special Business: There are some special business concerns and trades which require individual attention and service and can only be started as a sole trade for example, Beauty Parlour, Cake shop and Agricultural Product.8) No sharing of profits and risks: A sole trader enjoys entire profit of the business. He also bears the full responsibility in the business. Therefore, he alone has to bear all the risks and losses of the business. The risk of the sole trading is entirely bear by the sole trader. If there is any loss that will bear by sole trader only.9) Local Business: A sole trading concern operates in a local market. Sole trader normally runs the business in residential location.10) Complete Control: In sole trading concern, the owner, manager and controller is the same. The sole trader has to control and supervise the working of his own organization. He is the sole planner and executor. Q6) Write a note on GOVERNMENT COMPANY.A6) The company which is registered under Companies Act,2013 having minimum 51% of paid-up share capital held by the central government or any state government or partly by central government and partly by one or more state governments is known as Government Company.Examples - 1) National Thermal Power Corporation (NTPC)2) Bharat Heavy Electricals Limited (BHEL)3) Hindustan Machines Tools (HMT) The shares of Government Company are purchased in the name of The President of India or in the name of Governor of a State. FEATURES:Registration Under the Companies Act: A Government company is formed through registration under the Companies Act, 2013 and is subject to the provisions of this Act, like any other company. However, the Central Government may direct that any of the provisions of the Companies Act shall not apply to a Government company or shall apply with certain modifications.2. Separate Legal Entity:A Government company is a legal entity separate from the Government. It can acquire property can make contracts and can file suits in its own name.3. Majority of Government Directors:In Government company major capital is held by Government. So in Board of Directors maximum directors are appointed by respective Government.4. Own Staff:A Government company has its own state except Government officials who are sent on deputation. Its employees are not governed by civil service rules.5. Free from Procedural Controls:A Government company is free from budgetary, accounting and audit controls which are applicable to Government undertakings. Q6) Explain the Concept and Importance of Business Environment.A6) Business environment consists of all the internal and external forces or factors that influence the working of a business firm.The internal factors consist of firm’s strategy and policies, management-labour relations, resources like manpower, capital, machines, etc.The internal forces consist of the micro factors like, economic, political, social, technical and other factors.Features of Business Environment: The main features of the Business Environment are as follows:1. Dynamic in Nature: Changes takes place in the external environment. For Instance, - Customers taste and preference may change any time.- Competitors might introduce new product designs, may change pricing, etc.- Government may introduce policy changes in respect to taxation, foreign trade, foreign investment, etc.2. Direct & Indirect Impact: Business Environment may have direct and indirect impact in the cycle of business. For example,- Micro external factors like competition, government policies, customer preference, etc., can have a direct and immediate effect on the working of a business firm.- The macro external factors like social, economic and political factors may have indirect effect on the working of the business firm.3. Internal and External Factors: Activities of business firms an influenced by internal and external factors. The internal factors are controllable in nature. It includes machinery, manpower, management-labour relations, etc. For instance, a company can replace old machinery with new, if so required. The external factors are beyond the control of a business firm. External factors include Government policies competitor’s strategies, customer preferences, etc. A business firm needs to adjust its strategies depending upon the changes in external factors.4. Inseparable Part of Business: Environment is an integral part of business. Business firms cannot operate without environment. For instance, business firms cannot operate without customers, suppliers and dealers. Also, business firms depend upon natural environment for is resources such as raw materials. The technological and other factors also influence the working of the business.5. Complex in Nature: Environment of modern business is more complex and unpredictable. In olden days, business environment was stable - customers' preferences were few, competition was limited, government policies were stable, and so on. Nowadays, the business environment is more complex due to heavy competition, growing customers' expectations, drastic changes in government policies, and so on. 6. Creates Opportunities and Obstacles: Environment provide opportunities and creates obstacles in the working of an Opportunities may be turned as favourable situations which facilitates higher profits and growth of the business. Obstacles are the unfavourable situations, which may adversely affect the organisation's profitability and organisation growth.7. Regulates Scope of Business: Environment regulates the scope of business activities. For instance, Government regulations such as restrictions on advertising of liquor and cigarettes, restricts advertising of socially undesirable products. 8. Reactive and Proactive Decisions: Due to environment, business firms take proactive and reactive decisions. Majority of the firms take reactive decisions, i.e., in reaction to decisions taken by others or competitors.Few firms take proactive decisions to launch new models/ schemes, to introduce price changes, to restructure business, etc., before others do it. Such firms gain competitive advantage in the market. Examples: Hero Motorcycles, TCS (software), Ultra Tech Cements, etc.9. Environment is Multi-dimensional: Changes in environment may have positive and negative impact on the working of business firms. Environmental changes may be favourable to some firms, and unfavourable to others.For instance, Government of India has liberalized the entry of foreign companies into India. A majority of Indian domestic firms consider the Govt.'s move as a threat because they have to face competition from the foreign firms. However, few of the Indian firms consider it as an opportunity as they can have a tie-up with the foreign firms, and also, they can learn techniques from the foreign firms.10. Environment Analysis and Planning: The relationship between planning and environment analysis is inseparable. The main purpose is to set the goals or objectives. Environmental analysis indicates strengths, weaknesses, opportunities and threats (SWOT. Depending on the SWOT analysis, a firm sets its objectives.For instance, if the SWOT analysis indicates opportunities, the firm can set higher targets. However, if the threats are identified, the firm may lower down its targets. Q7) Explain the Internal Environment of business.A7) The following are the factors on internal environment:Value System:The value system of an organisation means the ethical beliefs that guide the organisation in achieving its mission and objective. The value system of a business organisation also determines its behaviour towards its employees, customers and society at large. The value system of the promoters of a business firm has an important bearing on the choice of business and the adoption of business policies and practices. Due to its value system a business firm may refuse to produce or distribute liquor for it may think morally wrong 8to promote the consumption of liquor.Mission and Objectives:The objective of all firms is assumed to be maximization of long-run profits. But mission is different from this narrow objective of profit maximization. Mission is defined as the overall purpose or reason for its existence which guides and influences its business decision and economic activities. The-choice of a business domain, direction of its development, choice of a business strategy and policies are all guided by the overall mission of the company. For example, “to become a world-class company and to achieve global dominance has been the mission of ‘Reliance Industries of India’. Similarly, “to become a research based international pharma company” has been stated as mission of Ranbaxy Laboratories of India.Organization Structure:Organization structure means such things as composition of board of directors, the number of independent directors, the extent of professional management and share -holding pattern. The nature of organizational structure has a significant influence over decision making process in an organization. An efficient working of a business organization requires that its organization structure should be conducive to quick decision making. Delays in decision making can cost a good deal to a business firm.The board of directors is the highest decision-making body in a business organization. It takes general policy decisions regarding direction of growth of business of the firm and supervises its overall functioning. Therefore, the managerial capability of the board of directors is of crucial importance for the functioning of a business firm and for achievement of its overall mission and objectives.Corporate Culture and Style of Functioning of Top Management:Corporate culture and style of functioning of top managers is important factor for determining the internal environment of a company. Corporate culture is generally considered as either closed and threatening or open and participatory.In a closed and threatening type of corporate culture the business decisions are taken by top-level managers, while middle level and work-level managers have no say in business decision making. There is lack of trust and confidence in subordinate officials of the company and secrecy pervades throughout in the organisation. As a result, among lower-level managers and workers there is no sense of belongingness to the company.On the contrary, in an open and participatory culture, business decisions are taken at lower levels of management, and top management has a high degree of trust and confidence in the subordinates. Free communication between the top-level management and lower-level managers is the rule in this open and participatory type of corporate culture. In this open and participatory system, the participation of workers in managerial tasks is encouraged.Human Resources:Human Resources of a firm is an important factor of internal environment of a firm. The success of a business organisation depends to a great extent on the skills, capabilities, attitudes and commitment of its employees. Employees differ with regard to these characteristics.It is difficult for the top management to deal directly with all the employees of the business firm. Therefore, for efficient management of human resources, employees are divided into different groups. The manager may pay little attention to the technical details of the job done by a group and encourage group cooperation in the interests of a company. Due to the importance of human resources for the success of a company these days there is a special course for managers how to select and manage efficiently human resources of a company.Labour Unions:Labour unions are another factor determining internal environment of a firm. Unions collectively bargain with top managers regarding wages, working conditions of different categories of employees. Smooth working of a business organisation requires that there should be good relations between management and labour union.Each side must implement the terms of agreement reached. Sometimes, a business organisation requires restructuring and modernisation. In this regard, the terms and conditions reached with the labour union must be implemented in both letter and spirit if cooperation of workers is to be ensured for the reconstruction and modernisation of business.Physical Resources and Technological Capabilities:Physical resources such as plant and equipment, and technological capabilities of a firm determine its competitive strength which is an important factor determining its efficiency and unit cost of production. R and D capabilities of a company determine its ability to introduce innovations which enhance productivity of workers. The firm may take appropriate measures to correct weakness. For instance, the obsolete machines may be replaced.Corporate Image: A firm should develop and maintain good corporate image in the minds of the employees, investors, customers, and others. A firm should undertake analysis of its corporate image. If a firm finds problem in corporate image, then adequate measures need to be taken.Brand Equity:It is a value of the brand. More consumer awareness about the brand and loyalty towards brand increases brand value that’s why every organization does advertising and takes up promotional activities. Q8) Explain the External Environment of business.A8) The external environment consists of all the factors which provide opportunities or pose threats to an organization. In a wider sense, the external environment encompasses a variety of factors like international, national and local economy. Social changes, demographic variables, political system, technology, attitude towards business, energy sources, raw materials and other resources and many other macro level factors make up the external environment.We could designate such wide perception of the environment as a general environment. All organizations, in some way or the other, are concerned about the general environment but the immediate concerns of any organization are confined just to a part of the general environment which could be termed as a highly relevant environment and enables the organization to focus its attention on those factors which are intimately related to its mission, purpose, objects and strategies.Depending on its perception of the relevant environment, an organization takes into account those influences in its surroundings which have an immediate impact on its strategic management process. i. Micro Environment:Micro external factors have an important effect on business operations of a firm. However, all micro factors may not have the same effect on all firms in the industry. For example, suppliers, an important element of micro level environment, are often willing to provide the materials at relatively lower prices to big business firms. They do not have the same attitude towards relatively small business firms.Some important micro elements of the business environment are described here: a) Customer:The prime task for any business is to attract and retain customers. This is to ensure its own long-term profitability and existence in the market. It therefore follows that the need and the desire of the customer should be monitored minutely to ensure customer delight, which will lead to the firm having an increasing number of loyal customers.Changing tastes and preferences of the customer should not only be observed as they happen, but forecasted before, and necessary corrections should be made in the product/service profile by the company. Customers are the backbone of a company and the very reason for the company’s existence.b) Products:Product factors such as the demand, image, features, utility, function, design, life cycle, price, promotion, distribution, differentiation and availability of substitutes of products or services also form an intimate part of the business environment. The product/service features are the key to attract/retain customers.c) Marketing Intermediary:This includes all those who facilitate distribution of goods from the centres of production to the various centres of consumption. These are the middlemen who form part of the distribution channel and those who help reach the product/service to the ultimate consumer. They can be few or many in number, depending on the length of the distribution chain and type of distribution system that the company adopts. If this chain is hassle free and functions without many hurdles, it eventually helps the organisation.d) Competitors:The world has become a global market. There exists tremendous competition in each and every area. There are other business entities that manufacture similar products and compete with a company for market share and turnover. These have to be managed well and market intelligence is required to find out about their future plans. These can play a major role in making or marring the fortunes of any company.e) Suppliers:An important factor in the micro environment is the supplier, i.e., those who supply raw materials and components and machines to the company. The suppliers should be reliable and act as business partners, working in coordination to fulfil the ultimate consumer expectations. If the suppliers are reliable, there is no need to keep heavy inventory stocks that increases the risk of obsolescence and damage and also blocks to working capital of the company. ii. Macro Environment:The macro environment is the larger, uncontrollable environment consisting of societal forces that affect all other environments. They offer tremendous opportunities for any business and also present threats that can harm a business in a major way. This environment becomes crucially important to understand and study for the purpose of strategic planning and decision-making.It has broader dimensions than the micro environment. It consists of individuals, groups, agencies, events, conditions and forces with which the organisation comes into frequent contact in the course of its functioning. The macro environment is actually the real environmental factor that influences the growth and structure of any business to the greatest degree. It is made up of following components:A) Socio-Cultural Environment:This consists of the society and culture of a place where the organisation is doing its business. It is a general entity and influences almost all firms in a similar manner. Some of the important factors and influences operating in the social environment are the buying and consumption habits of people, their languages, beliefs and values, customs and tradition, tastes and preferences, education and ail factors that affect the business.b) Political Environment:The political environment consists of factors related to the management of public affairs and their impact on the business of an organization. Political environment has a close relationship with the economic system and economic policies. For Example, communist countries have a centrally planned economic system. In most countries apart from those laws that control investment and related matters, there are a number of laws that regulate the conduct of the business. These laws cover such matters as standard of product, packaging, promotion, etc. India is a democratic country having a stable political system where the Government plays an active role as a planner, promoter and regulator of economic activities. Businessmen therefore are conscious of the political environment that their organization faces. Most governmental decisions related to business are based on political considerations in line with the political philosophy followed by the ruling party at the center and the state level.c) Economic Environment:The economic environment consists of macro level patterns related to the areas of production and distribution of wealth that have an impact on the business of an organization.Some of the important factors and influences operating in economic environment are:I. Economic stages existing at a given time in a country.II. The economic structure adopted such as capitalistic, socialistic or mixed economy.III. Economic planning, such as 5 — year plans, annual budgets, etc.IV. Economic policies, such as industrial, monetary and fiscal policies.d) Technological Environment:The technological environment consists of those factors related to knowledge applied and the materials and machines used in the production of goods and services that have an impact on the business of an organization. For many enterprises, technology is the most dynamic of all environmental factors. An individual firm is concerned with its product and process technology. This environment consists of those factors that involve any type of technological advancement or lack of the same.e) Demographic Environment:This environment deals with the composition and characteristics of the population of a place. All the relevant descriptions of the population of a place with respect to its demographic profile will affect business decisions drastically. It would be in the interest of any firm to consider these aspects in detail before planning the strategy.It includes factors such as:I. Average family sizeII. Size of populationIII. Educational levelsIV. Economic stratification of the population, etc.f) Legal EnvironmentThis environment includes laws that define and protect the fundamental rights of Individuals and Organizations.Business in a country can be started, regulated, controlled and expanded only within the legal framework of a country. In this connection all countries of the world have a separate set of laws for the control and direction of business. All business managers should have the knowledge of law for taking decision.Some important laws influencing the business are:• Indian Contract Act, 1872 (2017)• Workmen’s Compensation Act, 1923 (2010)• Industrial Dispute Act, 1947 (2016)• Standards of Weight and Measures Act, 1969 (2016)• Consumer Protection Act, 1986 (2018 proposed)• Competition Act, 2002g) International EnvironmentThe international environment of business comprises of a country's foreign policy, bilateral relations, international agreements (like WTO), the policies of trading blocs (like European Union, NAFTA ASEAN, etc.), the import export policy, monetary policies etc., other factors like war, civil disturbances, political instability etc. have also an effect on international environment.Business units engaged in import or export trade or domestic units using imported raw materials, technology or machinery are affected more by a minor change in international environment. Further, business units engaged in export marketing are influenced by depression or boom in international market.In recent years, the international environment has changed significantly. The developments in transport and communication systems have brought countries closer to each other. Today, global market is emerging out together single market. Under such situations, companies like multinational corporations are likely to dominate the world market.
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