Introduction To Business and Its Environment
Introduction To Business and Its Environment
Introduction To Business and Its Environment
Gary Hamel and C.K.Prahalad observe: Substantial challenges face any organization intent on getting to the future first. The first challenge, how to navigate from here to there arises as both public and pvt. institutions struggle to plot a course thro an increasingly inconstant environment where experience is rapidly devalued and familiar landmarks no longer serve as guideposts. Never before has the institutional terrain been changing so quickly or have industry boundaries been so malleable. Never before have competitors, partners, suppliers and buyers been so indistinguishable. How then does one get to the future first even when there is no map?
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A critical challenge is to cope up with environmental dynamics of changes which may not follow a set pattern Business environment presents 2 challenges- ie to face environmental threats like competition, declining demand etc and to exploit business opportunities Hence need for environmental analysis and diagnosis in strategic mgt. process Environmental analysis is the process by which strategists monitor the economic, governmental/legal, mkt/competitive, supplier/technological, geographic and social settings to determine opportunities and threat to their firm
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4)Internal Power Relationship-support that top mgt. enjoys from different levels of employees, shareholders and Board of Directors influence decisions and their implementation 5)Human Resources-skill, quality, morale, commitment, attitude etc could contribute to the strength and weakness of an organization -a SWOT analysis is very much essential for business policy formulation
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Internal Environment
Influenced by organizational culture, involvement, initiative, companys image and brand equity etc Also influenced by factors like physical assets and facilities, R&D and technological facilities, mktg. resources and financial factors like financial policies, capital structure etc
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External Environment
External business environment consists of a micro environment and a macro environment Micro Environment -factors that influence companys immediate environment like suppliers, mktg. intermediaries, competitors, customers and the public Macro Environment -demographic, economic conditions and policies, natural (natural resources, weather and climatic conditions, locational aspects etc), technological, political and sociocultural forces like customs, traditions, taboos, tastes, preferences etc
International Environment
It effect industries that depend on imports/exports eg a protectionist policy adopted by a foreign country affect our exports to that country and vice versa. The Great Depression in the US affected all other countries that had trade relation with the US. The oil crises is another example A company which depends on export mkt. to a considerable extent is prone to face the impact of adverse developments in foreign mkts. Environmental forces like consumerism or consumer movement, social justice, govt. regulations and competitive environment compel companies to adopt the societal marketing concept
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Business environment is dynamic with several elements in the environment undergoing changes-technology, tastes, habits, preferences, competition, population size and composition, attitudes, values, income etc Business policy should be dynamic enough to successfully adapt to the changing environment Success of business depends on its ability to foresee the environmental changes and to modify its strategies appropriately SWOT analysis plays a very important role in the strategic mgt. process or formulation of business policy Strategic mgt. is defined as that set of decisions and actions that lead to the devt. of an effective strategy to help achieve corporate objectives
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After identification of the environmental opportunities and threats and the organizations strengths and weaknesses, consider the various strategic alternatives that are available and choose the most appropriate one Effective implementation of the chosen strategy is equally important. There are 3 levels of strategies applicable1)corporate level strategy 2)business level unit strategy (strategy to achieve specific objectives of the strategic business unit so as to achieve the overall corporate objectives) 3)functional level strategy-strategy for mktg.,finance, R&D etc
Evaluation of the implemented strategy is essential to determine whether it is meeting the objectives of the enterprise Thus key to business success lies in the most effective utilization of the companys resources given the companys strengths and weaknesses in the light of the environmental threats and opportunities
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Non-Economic Factors 1)Political environment 2)Legal environment 3)Socio-cultural environment-caste, race, ethics, religion, gender etc 4)Demography 5)Technology 6)Natural environment-availability of natural resources
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Tomorrows managers need not spent time on file pushing and paper-shuffling. IT will take care of most of that work Organizations will become flat- 8 to 10 layers will be replaced by 2-3 Employees will have no definite jobs. Most of the jobs will last for 2-5 years (short projects)-real growth will come from frequent changes of jobs and responsibility, acquisition of new skills and the ability to put those skills to use in entirely new environment
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WTO came into existence on 1-1-95 Since 1948 the General Agreement on Tariffs and Trade (GATT) had provided the rules for the system While GATT dealt mainly with trade in goods, WTO and its agreements cover trade in services and in traded inventions, creations and designs (intellectual property)
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WTO is based in Geneva. Its functions are 1)administering and implementing the multilateral and plurilateral trade agreements which together make up the WTO 2)acting as a forum for multilateral trade negotiations 3)seeking to resolve trade disputes 4)overseeing national trade policies 5)co-operating with other international institutions involved in global economic policy making
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The principles of the trading system should be 1)without discrimination-between trading partners 2)freer-with barriers coming down thro negotiation 3)predictable-foreign companies, investors and govts. should be confident that trade barriers shall not be raised arbitrarily 4)more competitive-by discouraging unfair trade practices like export subsidies and dumping products at below cost to gain mkt. share 5)more beneficial to less devd. countries-giving them more time to adjust, greater flexibility and special privileges
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WTO has more than 130 members accounting for over 90% of world trade and is based in Geneva The Uruguay Round of Negotiation (ie the 8th round of GATT) was held in 1986 at Ministerial level due to the drastic changes that world trade had undergone-a) share of agriculture in world trade decreased to 13% in 1987 from 46% in 1950 b) share of service sector in GDP of developed countries was rapidly increasing eg in USA service sector represents 2/3rd of GDP and employs 70% of work force. In commodity sector comparative cost advantage was in favour of Japan and several other newly industrialized countries
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Thus a need was felt to bring service sectors into trade negotiation-banking, insurance, telecommunication, tour operators, hotels, transport etc looking to do business abroad can now enjoy a freer and fairer trade that originally only applied to trade in goods The WTO also offers technical assistance to developing countries Negotiation on Trade Related Aspects of Intellectual Property Rights (TRIPS) was an highlight of the Uruguay Round of negotiation it provides the norms and standards of protection of intellectual property
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TRIPS puts the protection of private monopoly rights of the inventor as the main objective of the new international regime for protection of intellectual property rights TRIMS (Trade Related Investment Measures) which was also a part of the Uruguay negotiation was intended to bring liberalization in investment ie provide equal opportunity to all thro national treatment thereby overlooking the level playing field argument of developing countries
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Advantages from greater security and predictability of the international trading system due to the revamped settlement procedures and the agreements on Safeguards, Subsidies and Anti-dumping Measures Compulsion on India to be competitive in the world mkt.
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Some of the Dis-advantages Tariff reduction on goods of export interest to India are very small Meager prospects of increase in agricultural exports Not much benefits expected for the textile sector (which is primarily labor intensive) Increased pressure to liberalize the services industries Technology dependence on foreign firms will increase due to our paucity of resources in carrying out R&D Trend towards protectionism in developed countries against our exports
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The main objectives of regional integration are 1)to explore the economic and political debate surrounding regional economic integration, paying particular attention to the economic and political benefits and costs of integration 2)to review progress towards regional economic integration around the world 3to map the important implications of regional economic integration for the purpose of international business
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Economic Union-involves free flow of products and factors of production between member countries and adoption of a common external trade policy. It also requires common currency, harmonization of countries tax rates and a common monetary and fiscal policy Political Union-to make a coordinating bureaucracy accountable to the citizens of member nations eg the European Parliament is directly elected by the citizens of the EU countries. Besides the Council of Ministers is composed of ministers from each member country
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Asia Pacific Economic Cooperation (APEC) was founded in 1990 at the suggestion of Australia comprising of 18 countries including US, Japan and China South Asian Association for Regional Cooperation (SAARC) was started in 1985 at Dacca with members as India, Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka and Maldives. The objectives were 1)to achieve self reliance 2)promote welfare of people and improve life quality 3)accelerate economic growth, social progress and cultural devt. 4)provide individuals opportunity to live in dignity and realise their full potential
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Performance not upto expectation due to lack of economic cooperation, restrictive foreign trade regime, information gap in trade opportunities eg natural gas of Pakistan and Bangladesh can be exported to India, for products like jute, cotton and tea SAARC countries are competing the world mkt. etc
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The Unipolar World The collapse of Eastern Europe in 1989 and the USSR in 1991 marked the end of a bi-polar world and supremacy of USA Formation of European Union w.e.f.1/1/99 is seen as a major step towards economic and political integration of the biggest economic zone Due to weakening of asian currencies, dollar and euro likely to dominate world economy as reserve and key currencies
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Globalization Movement of the world economy towards and international economic integration ie expansion of economic activities across political boundaries of the nation-the process is driven by the lure of profit and threat of competition in the mkt. Three important dimensions of this process areinternational trade, international investment and international finance
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