Answer the following.
1) What is business environment? Explain the importance of business environment.
(A) Business Environment: A business is defined as buying and selling activity to generate income. The business consists of several interrelated and interacting elements. Business is an economic and social activity of the society. Society is an integral part of the business and its interest cannot be ignored. The business environment consists of the economic, social, legal, technological, and political situation. The business obtains money, material, machinery and manpower, and other resources from the environment.
According to B. O. Wheeler- A business environment is “the total of all things external to firms and individuals which effect their organisation and operations”.
According to the Oxford English Dictionary- “Business Environment refers to those aspects of the surroundings of a business enterprise which influence or affect its Operations and determine its effectiveness.”
Basically business environment consists of all internal and external factors that influence the nature and scope of business activity.
(B) Importance of Business Environment:
(1) Flexible and Dynamic: Changing environmental factors should be appraised from time to time. So as to keep the business flexible and dynamic. The new opportunities and threats created by the environment can be appraised by the corporate planners to make the most of it. Turbulent market conditions, less brand loyalty, more demanding customers, and intense global competition are some of the images of today’s business environment. In order to cope with these significant changes, the organization must understand and examine the environment and develop a suitable course of activity.
(2) Opportunities and Threats: Study of business environment enables a business enterprise to visualize future problems that can arise as also future business prospects in advance. Deriving benefit from honorable business opportunities is possible as also it can face the problems boldly. Awareness of the environment helps an organisation to take advantage of such opportunities instead of losing them to the competition. It helps the organisation to identify various threats on time and serves as an early signal.
(3) Competition: Understanding the business environment helps to obtain qualitative information which in turn is useful in formulating business plans, policies, and strategies for the future course of action.
(4) Utilization of Resources Optimally: Optimum use of available resources for the business enterprise is possible by studying the business environment. It enables the enterprise to take full advantage of the policies implemented by the government.
(5) Strength and Weakness Identification: With the change of technology and global development it helps to analyze individual strengths and weaknesses of the business understanding the challenges, appropriate decisions are taken on a timely basis.
(6) Knowledge: Study of the environment is necessary to discover and exploit new opportunities for business expansion broad strategies and long term planning enables the development of a formidable business wait.
(7) Image Building: Environment-study makes it possible for the business to expand and to make it acceptable and agreeable to different social groups. By fulfilling its social obligations towards different groups of society, a business can create goodwill and reputation for itself.
(8) Adaptability to Socio-Economic Changes: A business organization needs to show its keen intentions towards adapting to the socio-economic changes.
2) Explain the new economic policy in details.
ew economic policy was introduced by the Government on 24th July, 1991, on the failure of the earlier Industrial policy prevailing in India. The new policy was known as LPG i.e. Liberalisation, privatisation and Globalisation. This was the brain child of Prime Minister P. V. Narasimha Rao and the finance minister Dr. Manmohan Singh.
(1) Liberalisation: It means to liberate the industry, trade, and commerce from the unnecessary restrictions and regulations that curtailed the freedom of enterprise. Liberalisation has helped the Indian economy to open up and allowed the entry e Interaction with the world has happened after the 1991 policy. Liberalisation policy has brought about the following measures:
(a) Encouraging Direct Foreign Investment.
(b) Wide choice of products and services enjoyed by the customers.
(c) Reduction in control of Foreign Exchange.
(d) Cost of products, price, and quality in tune to the global markets.
(e)Changing the approach towards industrial sickness.
(f) Production of quality products to meet the competitive markets.
(g)Freedom to choose the scale of business.
(h) Reduction in tax rates, tax holidays, etc.
(i) Encouraging g new technology, technological up-gradation, and foreign collaboration.
(j) Import of machinery, goods, and other services on easy terms.
(k) Abolishing licensing system for most of the industries.
(l) Opening the telecommunication sector. Liberalisation has thus made the country achieve a high growth rate, made the rupee stronger and helped good industrial relations.
(2) Privatisation: Privatisation is a process of transferring ownership of the business, enterprise agency, or public service from the public sector (government) to the private sector. Features of Privatisation are:
(a) To provide a variety of business units to consumers.
(b)To ensure less political interference in running the business.
(c)To bring about more accountability.
(d)To reduce labour problem.
(e)To bring about a market-oriented approach.
(f)To make the competition more intense.
(g)To bring about more efficiency.
(h)To maintain capital market discipline. The government of the country has followed a disinvestment policy. Disinvestment means: When there is a sale of a public undertaking in full or part of the private sector without transferring the ownership to the private sector. The management and control are transferred to public undertaking e.g. Maruti Udyog Ltd., SAIL, ONGC, etc. Improvement in the performance of the industries through Memorandum of Understanding (MOU). Privatisation helps the private sector to be efficient result oriented, productive, and active. Capitalist countries like America and Japan have followed privatisation.
(3) Globalisation: When the operation and organization of business activities are on a global scale, it is called Globalisation. It is the integration of business activities by considering the entire world is one market. In short, globalisation means a boundary-less world, where there would be a free flow of goods, services information, capital, and people across nations. Globalisation has an effect on the socio-economic and political sphere of life. Features of Globalisation:
(a) Buying and selling goods from/to any country is possible due to globalisation.
(b) Establishing manufacturing, production, and distribution facilities in any part of the world.
(c) Freedom to set up and operate a business in any part of the world.
(d) Render faster economic development of any country.
(e) Exchange of new ideas and technology across nations.
(f) Narrowing differences between domestic and international markets.
(g) Direct foreign private participation in the industrial development of any country. Thus it could be seen that globalisation is an evolutionary concept. Through the policy of 1991, the government moved the country to this globalisation pattern.