: 1 : SUBJECT: Business Environment COURSE CODE: MC-103 Author: Dr. Karam Pal LESSON: 01 Vetter : Dr. B S Bodla BUSINESS AND ENVIRONMENT Objective : The students will be able to understand the concept of business environment its meaning, scope and importance. Structure : 1.1 Introduction to Business 1.2 Business Environment: Emerging Order 1.3 Technological Environment 1.4 Economic Environment 1.5 Political Environment 1.6 Socio-Economic Environment 1.7 Natural Environment 1.8 Summary 1.9 Self Assessment Exercise 1.10 Suggested Readings 1.1. INTRODUCTION TO BUSINESS Business is an important institution in society. Be it for the supply of goods or services, creation of employment opportunities, offer of better : 2 : quality life, or contribution to the economic growth of a country, the role of business is crucial. So the first question arises in anyone’s mind is what really a business is ? The following definition is an attempt to provide appropriate answer. “A Business is nothing more than a person or group of persons properly organized to produce or distribute goods or services. The study of business is the study of activities involved in the production or distribution of goods and services-buying, selling, financing, personnel and the like”. Practically the above said definition is true but in theoretical sense it is incorrect. Before any activities can be considered in the business, there must exist both the goal of profit and the risk of loss. Thus Business can be accurately defined by K. Ashwathapa as “Complex field of commerce and industry in which goods and services are created and distributed in the hope of profit within a framework of laws and regulations”. Understanding the Business : To understand any business the critical step is to explore all the factors related to business and properly judging its impact on the business. There are many factors and forces which have considerable impact on any business. All these forces come under one word called environment. Hence understanding the business means understanding its environment. Environment refers to all external forces which have a bearing on the functioning of business. From the micro point of view, a business is an economic institution, as it is concerned with production and/or distribution of goods and : 3 : services, in order to earn profits and acquire wealth. Different kinds of organizations (i.e., sole tradership, partnership, joint stock company and co-operative organization) are engaged in business and are operating from small scale, as in case of grocry in a start, to large scale, as in case of Tata Iron and Steel Co., Bajaj Auto, Maruti Udyog, and Reliance Industries. Whatever may be the nature and scale of operations, a business enterprise possesses the following characteristics : 1. Dealings in Goods and Services : The first basic characteristic of a business is that it deals in goods and services. Goods produced or exchanged, may be consumers' goods, such as bread, rice, cloth, etc. or producers' goods such as machines, tools, etc. The consumer goods are meant for direct consumption, either immediately, or after undergoing some processes, whereas the producers' goods are meant for being used for the purposes of further production. Producers’ goods are also known as capital goods. Services include supply of electricity, gas, water finance, insurance, transportation, warehousing, etc. 2. Production and/or Exchange : Every business is concerned with production and exchange of goods and services for value. Thus, goods produced or purchased for personal consumption or for presenting to others as gifts do not constitute business, because there is no sale or transfer for value. For example, if a person cooks at home for personal consumption, it is not business activity. But, if he cooks for others in his 'dhaba', or restaurant and receives payment from them, it becomes his business. : 4 : 3. Creation of form, time and place utility : All business activities create utilities for the society. Form utility is created, when raw materials are converted into finished goods and services. Place utility is created, when goods are transported from the place of production to the place of consumption. Storage of goods creates time utility. This helps in preserving the goods, when not required and making them available, when demanded by the consumers. 4. Regularity and Continuity in Dealings : Regularity of economic transactions is the essence of business. There should be continuity, or regularity of exchange of goods and services for money. An isolated transaction cannot be called a business. For example, if a person sells his flat and earns some profits, it cannot be called a business. But, if he purchases and sells flats regularly to earn his livelihood, it will be called his business. 5. Profit Motive : Another important feature of a business activity is its objective. The chief objective of a business is to earn reasonable profits or 'surplus' as it is called in case of public enterprises. The survival of a business depends upon its ability to earn profits. Every businessman wants to earn profits, to get return on his capital and to reward himself for his services. Actually, profit is the spur that helps in the continuation of the business. Profit is also essential for growth. Recreation clubs and religious institutions cannot be called business enterprises, as they have nothing to do with the profit motive. : 5 : The scope of business is very wide. It should not be confused with trade. 'Trade' simply denotes purchase and sale of goods, whereas 'business' includes all activities from production to distribution of goods and services. It embraces industry, trade and other activities like banking, transport, insurance, and warehousing which facilitate production and distribution of goods and services. According to F.C. Hooper, "The whole complex field of commerce and industry, the basic industries, processing and manufacturing industries, the network of ancillary services : distribution, banking, insurance, transport and so on, which serve and inter-penetrate the world of business as a whole, are business activities." The business activities may be grouped under two broad headings, viz., (1) Industry and (2) Commerce. A business undertaking, which deals with growing, extracting, manufacturing, or construction is called an industrial enterprise. On the other hand, a business undertaking, which is concerned with exchange (buying and selling) of goods and services, or with activities that are incidental to trade, like transport, warehousing, banking, insurance and advertising, is called a commercial enterprise. Industry : The activities of extraction, production, conversion, processing of products are described as industry. The products of industry may fall in any one of the following three categories : (a) Consumers' Goods : Goods used by final consumers are called consumers' goods. Edible Oils, Cloth, Jam, Television, Radio, Scooter, Refrigerator, etc. come under this category. : 6 : (b) Producers' Goods : Goods used for the production of other goods are described as producers' goods. Machine tools and machinery used for manufacturing other products come under this heading. These are also called capital goods. (c) Intermediate Goods : There are certain materials, which are the finished products of one industry and become the intermediate products of other industries. A few examples of this kind are the copper industry, aluminum industry, and plastic industry, the finished products of which are used in manufacturing electrical appliances, electricity wires, toys, baskets, containers, and buckets. Broadly speaking, industrial activities may be classified into primary and secondary industries. Primary industry may be either extractive, or genetic, and secondary industry may be either manufacturing, or construction. (i) Extractive Industries : They extract, or draw out products from natural sources, such as earth, sea, air. The products of such industries are generally used by manufacturing and construction industries, for producing finished goods. Farming, mining, lumbering, hunting, fishing, etc, are some of the examples of extractive industries. (ii) Genetic Industries : Genetic means parentage, or heredity. Genetic industries are engaged in breeding plants and animals, for their use in further reproduction. For breeding plants, the nurseries are typical examples of genetic industries. In addition, : 7 : the activities of cattle-breeding farms poultry farms and fish hatchery come under the category of genetic industries. (iii) Manufacturing Industries : These are engaged in producing goods through the creation of form utility. Such industries are engaged in the conversion, or transformation of raw materials, or semi-finished products into finished products. The products of extractive industries generally become the raw materials of manufacturing industries. Factory production is the outcome of manufacturing industry. (iv) Construction Industries : They are concerned with the making or construction of buildings, bridges, dams, roads, canals, etc. These industries use the products of manufacturing industries, such as iron and steel, cement lime, mortar, etc. and also the products of extractive industries, such as stone, marble etc. The remarkable feature of these industries is that their products are not sold in the sense of being taken to the markets. They are constructed and fabricated at fixed sites. (v) Service Industry : There are several services such as transport,