Study material of b com partI Business ECONOMICS

Study material of b. com part-I Business ECONOMICS & Environment Prepared by: Dr. mohammed pervej Assistant professor Sbss college, begusarai

Concept of business environment

Economic Environment � Environmental economics is a sub-field of economics that is concerned with environmental issues. � The totality of economic factors, such as employment, income, inflation, interest rates, productivity, and wealth, that influence the buying behavior of consumers and institutions. l

Economic Business Environment Economic Conditions Economic Policies: Economic System

Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organizations and their operations. These include gross domestic product v per capita income v markets for goods and services v availability of capital, foreign exchange reserve v growth of foreign trade, strength of capital market etc. v

Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are: (i) Industrial policy (ii) Fiscal policy (iii) Monetary policy (iv) Exim policy (v) Foreign investment policy

Economic System The world economy is primarily governed by three types of economic systems, viz. , (i) (iii) Capitalist economy; (ii) Socialist economy; and (iii) Mixed economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector.

Characteristics of Economic environment � Political instability � Civil Wars � Lack of an educated middle class � Government corruption � Governmental policies unfavorable to trade and investment � Restrictions on inflow of capital and technology � Unavailability of foreign exchange � Protectionist policies

IMPORTANCE OF ECONOMIC ENVIRONMENT � Managers assess economic environment and forecast market trends in the effort to make better investment choices and competitive strategies. • Economic analysis look at several indicators of an economic environment with emphasis given to how local conditions require adjusting analysis and interpretation. • The economic environments of foreign companies and markets can help managers predict events that might affect the company’s future performance

ELEMENTS OF ECONOMIC ENVIRONMENT • GROSS NATIONAL INCOME � Rate Of Exchange • GDP growth � Standard of Living • Business opportunities � Human Development Index-3 dimensions are Life expectancy at birth, Adult Literacy Rate and Health and living condition.

Political Environment Ø This includes the political system, their government policies and attitude towards the business community and the unionism. Ø The stability of the government also influences business and related activities to a great extent. Ø It sends a signal of strength, confidence to various interest groups and investors. Ø Further, ideology of the political party also influences the business organization and its operations. Ø Again the trade union activities also influence the operation of business enterprises.

Characteristics of political environment � Political decisions affect the economic environment. � Political decisions influence the country’s socio-cultural environment. � Politicians can influence the rate of emergence of new technologies. � Politicians can influence acceptance of new technologies. � least predictable elements � As political systems in different areas vary, the political impact differs.

Socio-Cultural Environment The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. � � The social structure and the values have a considerable influence on the functioning of business firms. Due to increase in literacy rate and nuclear family concepts, the consumers are becoming quality conscious and there is an increases in the demand for the different types of household goods. It may be noted that the consumption patterns, the dressing and living styles of people belonging to different social structures and culture vary significantly For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc.

Characteristics of social environment � Important role of the society � Modern society is complex. � Society is never static. � The efforts required by an individual for readjustment. � Alertness in consumers. � Employees/ Workers Awareness: � Greater impact of globalization

Legal Environment This refers to set of laws, regulations, which influence the business organizations and their operations. They have to obey and work within the framework of the law. (i) Companies Act, 1956 (ii) Foreign Exchange Management Act, 1999 (iii) The Factories Act, 1948 (iv) Industrial Disputes Act, 1972 (v) Payment of Gratuity Act, 1972 (vi) Industries (Development and Regulation) Act, 1951 (vii) Prevention of Food Adulteration Act, 1954 (viii) Essential Commodities Act, 2002 (ix) The Standards of Weights and Measures Act, 1956 (x) Monopolies and Restrictive Trade Practices Act, 1969 (xi) Trade Marks Act, 1999 (xii) Bureau of Indian Standards Act, 1986 (xiii) Consumer Protection Act, 1986 (xiv) Environment Protection Act (xv) Competition Act, 2002

Characteristics of the legal environment � Changes in the legal environment often lead to changes in the all other environmental factors. � The legal environment sets the basic rules for how a business can operate in society and it may severely limit some choices, but changes in laws and how they are interpreted also create new opportunities � Aims to encourage competition like antimonopoly law so that Businesses are subject to both criminal and civil laws � Aims to protect the consumer’s interest � Example: Food and Drugs are controlled by the FDA � Product safety is controlled by the Consumer Product Safety Act � State and Local laws vary in relation to maximum/minimum prices

Technological Environment � It include the methods, techniques and approaches adopted for production of goods and services and its distribution. � The varying technological environments of different countries affect the designing of products. � In the modern competitive age, the pace of technological changes is very fast. � Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time. � Therefore, scientific research for improvement and innovation in products and services is a regular activity in most of the big industrial organizations.

Characteristics of technological environment � Purposefulness and technological practice � Extending human capability� Technological and other outcomes � A socially embedded activity � Creative and critical thinking, functional and practical reasoning � Expect the unexpected � Codified knowledge � Collaboration

Natural Environment � It includes geographical and ecological factors that influence the business operations. � These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. � Business is greatly influenced by the nature of natural environment. � Further, government’s policies to maintain ecological balance, conservation of natural resources etc. put additional responsibility on the business sector.

Characteristics of Natural environment � Shows changes slowly � Affected by human capability and activvities � Affected by Technological and other outcomes. � Long lasting effect � Cannot be easily reversed. � Global impact � Affects government policies and rules

Global Business Environment � Global business environment is multiple sovereign nations outside of the organization's home environment influencing how the organization makes decisions for how to use its resources. � The modern economy is globally connected, and growing more every day. Weighing the pros and cons of international expansion is a key strategic consideration in this environment.

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