Business Environment

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BUSINESS ENVIRONMENT

• Dr. ANANDA KUMAR
• Professor
• Department of Mgt. Studies
• Christ College of Engg. Tech.
• Puducherry, India.
• Mobile [phone]
• E-mail searchanandu_at_gmail.com

2
PRIVATISATION

• 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
  enterprises.

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PRIVATISATION

• 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.

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TYPES

• 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
  countries.

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MODES OF PRIVATISATION

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

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REASONS FOR PRIVATISATION

• 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

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GLOBALIZATION

• 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
  interaction.
• It emphasizes cross border flows of goods,
  money, etc.

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LEVELS OF GLOBALIZATION

• Globalization may be considered at two levels.
  Viz,
• 1. Macro Level (i.e., globalization of the
  world
• economy) and
• 2. Micro Level (i.e., globalization of the
  business
• 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
  inter-dependent.

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REASONS FOR GLOBALIZATION

• 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.

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REASONS FOR GLOBALIZATION

• 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
  countries.
• The creation of the World Trade Organization
  (WTO) is stimulating increased cross-border trade.

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ADVANTAGES OF GLOBALISATION

• 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
•  

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DISADVANTAGES OF GLOBALIZATION

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

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ESSENTIAL CONDITIONS FOR GLOBALIZATION

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

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LIBERALIZATIONS

• 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.

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MEASURE TAKEN FOR LIBERALIZATIONS

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

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BENEFITS OF LIBERALIZATIONS

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

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LIMITATIONS OF LIBERALIZATIONS

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

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GATT

• 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.

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GATT

• 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.

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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.

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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
Participated
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WTO

• 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
  mechanism.

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WTO

• 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.

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QUESTIONS

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.

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CASE STUDY

• 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.

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• 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
  rise

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• 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.

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QUESTIONS

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

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NATURAL RESOURCES

• 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
  value.

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PRINCIPLES OF RESOURCE DEVELOPMENT

• Economic use of resources to achieve minimum
  waste
• 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
  resources
• 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

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LAND RESOURCES

• 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.

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FOREST RESOURCES

• 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
  terms.

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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
  economy.

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WATER RESOURCES

• 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.

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FISHERIES

• 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
  sector.

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MINERAL RESOUCES

• 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
  country.

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INFRASTRUCTURE

• 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
  education.

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ENERGY

• 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
  mature.

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RAIL TRANSPORT

• 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.

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ROAD TRANSPORT

• 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.

41
SEA TRANSPORT

• 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.

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COMMUNICATIONS

• 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
  process.

43
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
  metros

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

45
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.

46
Telecommunications

• 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
  investment.

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RECENT DEVELOPMENTS IN TELECOM SECTOR

• Large number of villages are now covered
  through Wireless in Local Loop (WLL)
• The national internet backbone (NIB) was
  commissioned
• 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.

48
EDUCATION, SCIENCE AND TECHNOLOGY

• 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.

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EDUCATION, SCIENCE AND TECHNOLOGY

• 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.

50
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
  epidemics
• The educational and research system, including
  elementary and secondary schools, universities,
  specialised colleges, research institutions, the
  systems for financing and accrediting educational
  institutions
• Social welfare systems, including both
  government support and private charity for the
  poor, for people in distress or victims of abuse

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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.

52
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.

53
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
  status).

54
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.

55
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.

56
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.

57
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).

58
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.