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Business Environment


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Title: Business Environment

  • Professor
  • Department of Mgt. Studies
  • Christ College of Engg. Tech.
  • Puducherry, India.
  • Mobile 91 99443 42433
  • E-mail

  • Privatisation generally means the transfer of
    ownership and/or management of an enterprise from
    the public sector to the private sector.
  • It also means the withdrawal of the state from
    an Industry or Sector, partially or fully.
  • The fundamental reason for the reversal of
    policy from nationalisation to privatisation is
    the growing disappointment with the functioning
    of the public sector undertakings and State owned

  • The term "privatization" also has been used to
    describe two unrelated transactions. The first is
    a buyout, by the majority owner, of all shares of
    a public corporation or holding company's stock,
    privatizing a publicly traded stock, and often
    described as private equity. The second is a
    demutualization of a mutual organization or
    cooperative to form a joint stock company.

  • There are four main methods of privatization
  • 1. Share issue privatization (SIP) - selling
    shares on the stock market
  • 2. Asset sale privatization - selling an entire
    organization (or part of it) to a strategic
    investor, usually by auction.
  • 3. Voucher privatization - distributing shares of
    ownership to all citizens, usually for free or at
    a very low price.
  • 4. Privatization from below - Start-up of new
    private businesses in formerly socialist

  • 1. Sale of Enterprise
  • 2. Lease of entity (with short-term purpose)
  • 3. Joint Ventures
  • 4. Public Share offers (example, Initial Public

  • 1. To Reduce the Burden on Government
  • 2. To Strengthen Competition and Efficiency
  • 3. To Improve Public Finances
  • 4. To Fund Infrastructure Growth
  • 5. Accountability to Shareholders
  • 6. To Reduce Unnecessary Interference
  • 7. More Disciplined Labour Force

  • A short definition of globalization is the
    growing liberalization of international trade and
    investment, and the resulting increase in the
    integration of national economies.
  • Globalization refers to the process of
    reducing barriers between countries and
    encourages closer economic, social and political
  • It emphasizes cross border flows of goods,
    money, etc.

  • Globalization may be considered at two levels.
  • 1. Macro Level (i.e., globalization of the
  • economy) and
  • 2. Micro Level (i.e., globalization of the
  • and the firm)
  • Globalization of the world economy is achieve,
    quite obviously, by globalizing the national
    economies. Globalization of the economies and
    globalization of business are very much

  • The rapid reduction of time and distance across
    the globe thank to faster communication, speedier
    transportation, growing financial flows and rapid
    technological changes.
  • The domestic markets are no longer adequate
    rich. It is necessary to search for
    international markets and to set up overseas
    production facilities.
  • Companies may choose for going international
    market to find political stability, which is
    relatively good in other countries.
  • To get technological and managerial know-how.
  • Companies often set up overseas plans to reduce
    high transportation costs.

  • Some companies set up plans overseas so as to
    be close to their raw materials supply and to the
    markets for their finished products.
  • The US, Canada and Mexico have signed the North
    American Free Trade Agreement (NAFTA), which will
    remove all barriers to trade among these
  • The creation of the World Trade Organization
    (WTO) is stimulating increased cross-border trade.

  • 1. Free Flow of Capital
  • 2. Free Flow of Technology
  • 3. Increase in Industrialization
  • 4. Spread up of Production Facilities Throughout
  • the Globe
  • 5. Balanced Development of World Economics
  • 6. Increase in Production and Conception
  • 7. Lower Prices with High Quality

  • 1. Globalization Kills Domestic Business
  • 2. Decline in Demand for Domestic Products
  • 3. Decline in Income

  • 1. Business Freedom
  • 2. Facilities
  • 3. Government support
  • 4. Resources
  • 5. Competitiveness

  • Economic liberalization is a very broad term that
    usually refers to fewer government regulations
    and restrictions in the economy in exchange for
    greater participation of private entities.
  • Liberalization refers to relaxation of previous
    government restrictions usually in areas of
    social and economic policies. Thus, when
    government liberalizes trade it means it has
    removed the tariff, subsidies and other
    restrictions on the flow of goods and services
    between countries.

  • Liberalization for industrial licensing
  • Freedom for expansion and production to
  • Increase in the investment limit of a small
  • Freedom to import the capital goods and raw
  • material.
  • Freedom to import technology
  • Liberalization of export and import
  • Liberalization of taxation policy.
  • Liberalization of capital markets
  • Liberalization of banking sector

  • Increase the foreign investments
  • Increase the foreign exchange
  • Increase in consumption
  • Control over price
  • Reduction in dependence on external
  • Commercial borrowings.

  • Increase in unemployment
  • Loss of domestic units
  • Increase dependence on foreign nations
  • Unbalanced development

  • The General Agreement on Tariffs and Trade
    (typically abbreviated GATT) was negotiated
    during the UN Conference on Trade and Employment
    and was the outcome of the failure of negotiating
    governments to create the International Trade
    Organization (ITO).
  • The fundamental principles of such an Agreement
    are (i) Most favoured treatment in a
    non-discriminatory manner. This is of great
    benefit as all countries whether rich or poor,
    strong or weak, would be given same treatment by
    all signatory members and (ii) The second
    principle is National Treatment which means that
    imported goods and domestically-produced goods
    will be treated alike, except for the payment of
    customs duty at the time of import.

  • GATT was signed in 1947 and lasted until 1993,
    when it was replaced by the World Trade
    Organization in 1995. The original GATT text
    (GATT 1947) is still in effect under the WTO
    framework, subject to the modifications of GATT
    1994. GATT membership now includes more than
    110 countries.

GATT-The Twenty Three original Signatories
  • Australia, Belguim, Brazil, Burma, Canada,
    Ceylon, Chile, China, Cuba, Czechoslovakia,
    France, India, Lebanon, Luxembourg, The
    Netherlands, New Zealand, Norway, Pakistan,
    Southern Rhodesia, Syria, South Africa, United
    Kingdom and United States.

Road from GATT to WTO
  • 1947 Geneva 23
  • 1949 Annecy 13
  • 1951 Torquay 38
  • 1956 Geneva 26
  • 1960-61 Geneva 62
  • 1964-67 Geneva-Kennedy Round 62
  • 1973-79 Geneva-Tokyo round 102
  • 1986-94 Punta Del Esta to Geneva 123

Year Place No. of Countries
  • The World Trade Organization (WTO) was formed in
    1995 with GATT with the objective to help
    producers of goods and services, exporters, and
    importers conduct their businesses
    internationally. WTO is the only global
    organisation that deals with the rules of trade
    between nations.
  • Ministerial Conference held at least once in two
    years, would be the primary decision-making body
    of the WTO. The General Council of the WTO is
    responsible for overseeing regulatory operations
    and acts as the body for dispute settlement

  • WTOs agreements are negotiated and signed by a
    large majority of the nations and ratified in
    their parliaments. These agreements are the
    legal ground rules for international business.
    Essentially, they are contracts guaranteeing
    member countries important trade rights. They
    also bind governments to formulate their trade
    policies within the framework for the benefit of
    business firms.

  1. WTO rules make life easier for all. Do you agree
    with the statement? Why?
  2. Discuss the arguments for and against Indias
    membership of WTO.

  • That the BSE sensex crashed by 140 points,
    causing a fall in the investor wealth by
    Rs.25,000 crore due to the fall in the market
    capitalization the day the Economic Survey
    2001-02 which indicated the possibility of an
    economic slow down, was presented in the
    Parliament is an indication of the importance of
    economic factors to business. It is interesting
    to note that four days later when the Finance
    Minister presented the Union budget for 2001-02.
    Which was widely regarded business friendly and
    which claimed to initiate the second generation
    economic reforms, the sensex soared by 177
    points. However, on the second day the sensex
    nose-dived by 176 points reacting to the news of
    sustained weaknesses in technology stocks across
    the globe and certain vicious rumours.

  • The stock markets all over the world took a
    severe beating following the terrorist attack on
    the world Trade Centre and the consequent
    military actions. Although the sensex made some
    recovery for about a week around mid October 2001
    largely because of positive Government measures
    and sustained purchases by FIIs. However, the
    mounting fears triggered by the spread of the
    deadly anthrax disease and concerns about
    bio-terrorism triggered panic selling in most
    European and Asian markets, leading the chain
    reactions on Indian bourses. The bellwether
    Sensex tumbled 62points or 2 per cent to close
    below the psychologically important 3,000 mark at
    2,981 on 18 th October, putting an end to the
    seven day 279 point rally which had led to a 10

  • Of the sensex. However, on the next day,
    equities staged a smart recovery, once again
    lifting the sensex above the psychological mark
    of 3000 to about 3017 encouraged by Governments
    liberalization share buyback conditions.
  • While the anthrax scare caused a set back to the
    stock market in general, shares of pharmaceutical
    companies which produce anthrax antidote
    ciprofloxacin like Ranbaxy, Dr. Reddys and Cipla
    gained significantly. The rice of Bayer India
    scrip increased by 52 percent in 10 days ended
    17th October following the news that the Chennai
    based Indian syntans group was increasing its
    stake in Bayer through open market purchases.

  1. Discuss the factors affecting sensex.
  2. Share market is risk, beware of investors.

  • Natural resources include land, water resources,
    fisheries, mineral resources, forests, marine
    resources, climate, rainfall and topography.
  • But nature possess more in its bosom and in order
    to discover what it hides, man is required to
    develop techniques of knowing the undiscovered
    resources. Some times the discovery of the use of
    a resource can immediately increase its use

  • Economic use of resources to achieve minimum
  • Sustained use of economic resources through
    conservation of renewable resources and economic
    use of exhaustible resources
  • Multi-purpose use of resources if a certain
    resource has a number of uses, it is necessary to
    have all the uses
  • Integrated planning in the use of natural
  • Location of industries with a view to reducing
    transport costs to the minimum
  • Abundant supply of energy resources, specially
    electric power so as to utilize other resources
    in the best possible manner

  • The total geographical area of India is about 329
    million hectares of which 42 million hectares or
    14 of the total reporting area in India is
    classified as
  • Barren land, such as mountains, deserts, etc.
    which cannot be brought under cultivation and
  • Area under non-agricultural uses, that is,
    lands occupied by buildings, roads and railways,
    rivers and canals, and other lands put to uses
    other than agricultural.
  • The rest of the land is put under three major
    uses, viz., forests, pastures and agriculture.

  • Forests are important natural resources of India.
    They help control floods and thus they protect
    the soil against erosion. They supply timber,
    fuel wood, fodder and a wide range of non-wood
    products. Forests, thus, play an important role
    in environmental and economic sustainability.
    Under land utilization pattern, the Government of
    India estimated the total area under forests as
    68 million hectares or 22 of the total
    geographical area. In our country, forests have
    generally been undervalued in economic and social

Forest Policy, 1952
  • Appreciating the necessity of developing forests,
    the government of India declared its first forest
    policy in 1952. According to this policy, it was
    decided to raise steadily the area under forests
    to 100 million hectares or 33 for the country
    as a whole. The target area was to provide green
    cover over two thirds of the land area in the
    hills and mountains. The main objectives of
    forest policy under the Five-Year Plans were
  • To increase the productivity of forests
  • To link up forest-development with various
    forest-based industries and
  • To develop forests as a support to rural

  • India is one of the wettest countries of the
    world but it is not able to hold all the water it
    receivers. Because of deforestation and
    denudation, a large portion of the monsoon water
    disappears into the sea as surface run-off.
    Community resources such as ponds, tanks and
    rivers are misused and continuously neglected.
  • Rivers are increasingly getting polluted as urban
    and industrial wastes are dumped into them. In
    some areas, there is serious pollution danger to
    ground water due to industrial wastes.

  • India is the sixth largest producer of fish in
    the world and perhaps, second largest in inland
    fish production. Fisheries sector plays important
    role in the socio-economic development of India,
    generating employment for a large coastal
    population- about one million fishermen draw
    their livelihood from fisheries, but they
    generally live on the verge of extreme poverty.
    It is not only an important source of direct
    employment but generates employment in downstream
    industries. It is estimated that about six
    million people are employed in the fisheries

  • The development and management resources play a
    major role in the industrial growth of a nation.
    Coal and iron, for instance, are the basic
    minerals needed for the growth of iron and steel
    industry, which in turn, is vitally necessary for
    the countrys development. Similarly, there are
    other minerals like mica and manganese, copper,
    lead and zinc, which are of economic importance.
  • Then we have mineral fuels like petroleum, coal,
    thorium and uranium, which are of national
    importance. Thorium and uranium the atomic energy
    minerals promise to be tremendous source of
    power. Besides these, we have a number of minor
    minerals with varying degrees of utility to the

  • Adequate quantity, quality and reliability of
    infrastructure are key to the growth of any
    economy. Infrastructure facilities often
    referred to as economic and social overheads
    consists of
  • Irrigation, including flood control and command
    area development
  • Energy coal, electricity, oil and
    non-conventional sources
  • Transport Railways, Roads, and Shipping
  • Communications Posts and Telegraphs,
    Telephones, Telecommunications, etc
  • Banking, Finance, and Insurance
  • Science and Technology
  • Social overheads health and hygiene and

  • Energy is the most important determinant of a
    countrys economic growth. In fact, per capita
    consumption of energy is taken as an indicator of
    a countrys prosperity. Energy is created through
    several sources.
  • Commercial energy is so-called as it commands a
    price and the user are expected to pay it for its
    use. Non-commercial energy commands no price and
    the user can take it as a free good gifted by

  • Transport sector includes railways, roads,
    shipping and civil aviation. The Indian Railways
    have a long history. They consist of an extensive
    network spread over 62,462 kms- comprising board
    gauge (36,824 kms), meter gauge (20,653kms) and
    narrow gauge (3,985kms). Electrified networks
    with 11,793 kms account for 18.8 of the total
    route kilometerage.
  • The thrust areas identified for the eight-plan
    period include replacement and renewal of
    averaged assets argumentation of terminal and
    rolling stock capacities, gauge conversion and
    electrification. Railways can claim foe having
    connected most of the country with the conversion
    of gauges and creating more routes.

  • In order to improve the road transport system,
    the government announced several measures.
    Private participation has been allowed in the
    construction and maintenance of roads. In
    addition, road transport has been declared as an
    industry, which enables it to borrow finance from
    financial institutions. National Highway Act is
    to be amended so as to enable the levy of a toll
    on road users.

  • The government has recently approved a scheme,
    which envisages voluntary cargo support of the
    shippers to Indian shipping lines, up to 40 of
    the value of linear cargo transacted in the
    foreign trade in a phased manner.
  • Steps have been initiated by the government to
    frame guidelines for Indian shipping companies as
    per the International Safety Management (ISM)
    code, which was adopted by the International
    Maritime Organization (IMO) in November 1993.

  • The communication system comprises posts and
    telegraphs, telecommunication systems,
    broadcasting, television and information
    services. By providing necessary information
    about the markets and also supplying necessary
    motivation, the communication system helps to
    bring buyers and sellers together effectively and
    helps to accelerate the growth of the economy.
    Accordingly, the modern communication system has
    become an integral part of the development

Postal system in India
  • Since 1950-51, the postal network has been
    expanded throughout the country, and in recent
    years, wit special emphasis on the rural, hilly
    and remote tribal areas. The postal department
    has given a new thrust to its programme of
    modernization for providing new value added
    services to customers. This include
  • A programme of computerized services of such
    postal operations as mail processing, savings
    bank and material management
  • Introduction of Metro channel Service linking 6

  • Introduction of Raidhani channel linking Delhi
    with most of the state Capitals and
  • A business channel with exclusive treatment to
    pin coded business mail

Indian telegraphs
  • Indian Telegraph is one of the oldest government
    owned public utility organizations in the world.
    The number of telegraph offices has increased
    from 8,200 in 1951 to over 30,000 now. The
    phonogram service for sending and receiving
    telegram by telephone, telex service to send and
    receive printed message directly from one centre
    to another, the tremendous expansion of telephone
    facilities and direct trunk dialing all these
    facilities are available to the general public.

  • Telecommunication is a vital input for global
    competition and for Indias success in the
    international markets. It is important not only
    because of its role in bringing the benefits of
    communication to every corner of India but also
    in serving the new policy objectives of improving
    the global competitiveness of the Indian economy
    and stimulating and attracting foreign direct

  • Large number of villages are now covered
    through Wireless in Local Loop (WLL)
  • The national internet backbone (NIB) was
  • Since long distance (National and
    international) has been opened up to competition,
    long distance tariffs have come down.
  • To enhance telecom services in rural and remote
    areas, the Telecom Department has issued
    guidelines for implementing Universal Service
    Obligation (USO)
  • According to the new telecom policy every
    village in India is expected to be provided with
    one public telephone.

  • Science and Technology are ideas and the means
    with which man seeks to change his environment.
    While Science represents accumulation of
    knowledge, Technology represents refinement in
    tools. Over last two hundred years or so,
    science and technology have helped to improve the
    quality of human life. For rapid economic
    progress, the application of science and
    technology (S and T) to agriculture, industry,
    transports and to all other economic and
    non-economic activities has become essential.

  • The Indian government has been giving special
    support to S and T since Independence and the
    large network of national laboratories and
    universities have been training a strong cadre of
    scientists, engineers, technologists, etc.
  • Public and private sector organizations have
    established over 600 inhouse Research and
    Development (RD) laboratories to meet their
    internal technological requirements. The rapid
    growth of engineering consultancy organizations
    to provide design and consultancy services and
    act, as the bridge between research institutions
    and industry is really commendable.

Social Infrastructure
  • The health care system, including hospitals,
    the financing of health care, including health
    insurance, the systems for regulation and testing
    of medications and medical procedures, the system
    for training, inspection and professional
    discipline of doctors and other medical
    professionals, public health monitoring and
    regulations, as well as coordination of measures
    taken during public health emergencies such as
  • The educational and research system, including
    elementary and secondary schools, universities,
    specialised colleges, research institutions, the
    systems for financing and accrediting educational
  • Social welfare systems, including both
    government support and private charity for the
    poor, for people in distress or victims of abuse

Education Infrastructure
  • With more than 55 percent of its 110 million
    population is under the age of 25 by 2010, is the
    indicator of potential educational market in
    India. India has around 370 universities and
    18000 colleges with 12 million students on their
    rolls, and half a million teachers teaching in
    all disciplines.
  • India currently has around 115 universities and
    2,100 colleges, which teach various engineering
    disciplines. Engineering colleges in the country
    have been growing at 20 per cent a year, while
    business schools have grown at 60 per cent.

Education Infrastructure
  • India produced around 9,00,000 number of
    engineering graduates in the year 2009-10, out of
    which 30 per cent were computer engineers.
    Compared to India and China, the United States
    produces only 70,000 engineering graduates every
    year. All of Europe produces just 100,000. China
    is today the largest producer of engineering
    graduates in the world, with some 600,000 passing
    out of its colleges and universities last year.

Demographic Issues
  • Demographic impacts include the number of new
    permanent residents or seasonal residents
    associated with the development, the density and
    distribution of people and any changes in the
    composition of the population, (e.g., age,
    gender, ethnicity, wealth, income, occupational
    characteristics, educational level, health

Demographic Issues
  • Development invites growth in new jobs in a
    community and draws new workers and their
    families into the community, either as permanent
    or temporary residents. When this occurs, the
    incoming population affects the social
    environment in various ways including increased
    demand for housing and social services (e.g.,
    health care, day care, education, recreational
    facilities). Because residents needs depend on a
    wide range of variables (e.g., age, gender,
    employment status, income level and health
    status), the diversity of service needs are
    determined not only by the absolute size of the
    incoming population but also by the old and new
    populations demographic and employment profiles.

Electoral Issues
  • India is a constitutional democracy with a
    parliamentary system of government, and at the
    heart of the system is a commitment to hold
    regular, free and fair elections. These elections
    determine the composition of the government, the
    membership of the two houses of parliament, the
    state and union territory legislative assemblies,
    and the Presidency and vice-presidency.

Democracy in India
  • India is a constitutional republic consisting of
    28 states and seven center-controlled union
    territories with New Delhi as the nation's
    capital. It is the seventh largest and second
    most populous country with roughly one sixth of
    the worlds population, making it the world's
    largest democratic country. It is one of the
    world's oldest civilizations with a rich and
    varied cultural heritage. It has achieved
    widespread socio-economic progress during the
    last 64 years of its independence.

Indian Constitution
  • The government of India is framed according to
    the Constitution. The architects of Indias
    constitution, though drawing on many external
    sources, were most heavily influenced by the
    British model of parliamentary democracy. In
    addition, a number of principles were adopted
    from the United States Constitution, including
    the separation of powers among the major branches
    of government, the establishment of a supreme
    court, and modified form, of a federal structure
    (a constitutional division of power between the
    union central and state governments).

Indian Constitution
  • The mechanical details for running the central
    government, however, were largely carried over
    from the Government of India Act of 1935, passed
    by the British Parliament, which served as
    Indias governing document.
  • The new constitution took effect on 26 January
    1950 and proclaimed India a sovereign socialist
    secular democratic republic.
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