BB0033 BBA103- Business Environment

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Bachelor of Business Administration-BBA Semester 1

BB0033/BBA103- Business Environment - 4 Credits

(Book ID: B1499)

Assignment Set- 1

Q.1 List the important Directive Principles of state Policy that are pertaining to

Economy?

ANSWER: The directive principles of State Policy are a unique feature of India’s Constitution. These are directions to the Legislature and Executive that they should exercise their authority in accordance with these principles. The important Directives pertaining to economy are that the

Government shall:

a) Promote the welfare of all the people by ensuring a just social economic and political order in all walks of national life.

b) Strive to minimize the inequalities of income.

c) Strive to eliminate inequalities in status, abilities and opportunities not only among individuals but among groups as well.

d) Secure adequate means of livelihood for all citizens.

e) Ensure distribution of material resources for common good.

f) Ensure equal pay for equal work for both men and women.

g) The health and strength of workers, be it men, women or children are not abused.

h) Provide equal opportunities to all citizens.

i) Provide access to legal justice to all.

j) Ensure right to work, education and public assistance within the limits of economic capacity.

k) Provide for humane conditions of work and for maternity relief.

l) Enact suitable laws to ensure the participation of workers in the management of business organizations.

m) Article 301 grants freedom of trade, commerce and intercourse throughout the territory of India. However, the Government has also the power to restrict this freedom vide Articles 302 to 305.

n) Make plans for inclusive economic development.

All these constitutional provisions combined with other stipulations govern how business is run in India. Over the last six decades India’s economic policy has evolved to keep pace with the changing scenario of the world’s economies. It started with socialism and has slowly moved into an open and liberal economic system that has helped to give a boost to Business and has made India a thriving market.

Q.2 what are the features of a well-developed financial system?

ANSWER:The Financial System of a country consists of financial markets, financial intermediaries, financial instruments and financial services. The word ‘system’ implies a set of complex and closely connected or interlinked institutions, agents, practices, markets, transactions, claims, and liabilities in the economy. The main concerns of a financial system are finance, money and credit. You need to understand the subtle distinctions between these intimately related terms.

The term ‘finance’ is often wrongly used as a synonym for ‘Money’. Finance is the source of providing funds for a particular activity. Thus public finance does not mean the money with the Government. It refers to the sources of raising revenue for the activities and functions of a Government, an individual, a business or a corporate house. Finance can be defined as:

1. "The science of the management of money and other assets."

2. "The management of monetary resources and funds, especially those of a government or corporate body."

 ‘Money’ acts as the medium of exchange or transaction. It facilitates exchange of goods and services. It also functions as a measure of value. The currency notes and coins in circulation and all demand deposits that can be readily converted into cash are referred to as money. On a broader plane, any asset that can be easily converted into ready cash such as savings accounts can be called money.

‘Credit’ refers to money loaned by a lender to an individual or a company. It also stands for the limit up to which money may be loaned to a prospective borrower.

In any economy, there are areas or people with surplus funds and there are those with a deficit. A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit. A Financial System is a composition of various institutions, markets, regulations and laws, practices, money managers, analysts, transactions and claims and liabilities.

Thus, financial system is the institutional arrangement, whereby, surplus funds are efficiently transferred from savers (predominantly the household sector) to the seekers of funds (generally the business sector and the government). The functions of a financial system are carried out by various financial institutions through a number of financial instruments using well established financial procedures and practices. The main function of the financial system is to act as a financial intermediary between widely dispersed savers and seekers of funds. The institutions that facilitate this function are known as financial intermediaries.

Q.3 What were the major measures undertaken under the New Economic Policy1991 to reform the public sector enterprises ?

ANSWER:A substantial programme of economic reforms has been underway in India since 1991. Almost all segments of the economy are being restructured in order to make them more productive and competitive than they have been in the past.  As is true of most economies undergoing such transition, the initial reforms con­sisted of fiscal consolidation accompanied by changes at the policy and regulatory levels in the trade, industrial and finan­cial sectors.  For these macro level reforms to achieve their objective it is necessary for enterprises to restructure in order to bring about higher levels of efficiency and competitiveness.  An important area of policy concern is the establishment of an institutional framework which facilitates the restructuring of enterprises.  This is required for both the public and private sectors: public sector reform is then seen merely as a special subject of the general framework needed for enterprise or corpo­rate restructuring.  Many issues are common, as are laws and regulations which are applicable to both the public and private sectors, but government ownership of productive resources throws up its own set of special issues.

This paper primarily addresses the issue of public sector reform in India, but within the context of the overall programme of economic restructuring.  A wide degree of consensus has been achieved on the need for economic reform, although considerable debate continues on its sequencing, speed of change, and other details in each sector.  In the case of public sector reform, however, there is little consensus on objectives, instruments of change and sequencing.  As might be expected, much of the debate is carried out in ideological terms, which then loses sight of basic objectives and vitiates any approach towards achieving consensus.  Further, decisions with respect to the disposition of government owned resources are much more subject to perception of correct process, as much as that of achieving the desired out­comes.  Thus there is a great need to bring into much greater focus the basic objectives of public sector reform: the infusion of greater competition for achieving greater efficiency and better allocation of the scarce available resources.

This paper attempts to bring together the factual record of the place of the public sector within the Indian economy, documents the broad contours of its performance, reviews the state of policy reform as practised so far, and makes proposals for the direction in which the reform could proceed.  The process of reform is given as much importance as the outcome: greater attention is therefore devoted to understanding the processes of reform as distinguished from prescribing specific outcomes:

            Most of the discussion and analysis in this paper is of the public sector enterprises in the manufacturing sector.  The issues concerning the public sector enterprises in non-tradable sectors such as power, telecommunications, transport, urban infrastructure and the like are more complex and cannot be ad­dressed adequately here.  Reform in these areas is also critical to the efficient performance of the economy.  But these sectors exhibit greater degrees of monopolistic or oligopolistic market structures and thereby require more carefully designed regulatory frameworks.  The tradable sectors are easier to deal with since some of these latter issues do not arise in their case.

Q.4 What are the benefits of globalization?

ANSWER:Globalization has several advantages for a firm. They are as follows:

a) Increased competition: With the entry of foreign competition and removal of tariff barriers, domestic industry will be forced to reduce prices and improve quality of production. As the domestic companies have to fight out foreign competition, they are compelled to raise their standards and customer satisfaction levels in order to survive in the market. Besides, when a global brand enters a new country, it creates competition in the market and a ‘Survival of the fittest’ situation arises in the domestic market.

b) Generation of employment: Along with globalization, foreign companies have entered into the developing countries, and hence have generated employment for them. It has given an opportunity to tap the talents which are available there. In developing countries, there is often a lack of capital which hinders the growth of domestic companies and hence, employment. When this capital is provided by foreign companies, people of developing countries can obtain gainful employment opportunities.

c) Foreign trade: Comparative advantage has always been a factor even in old times. While trade originated in the times of early kingdoms, it has been promoted due to globalization. Previously, people had to resort to unfair means and destructions of kingdoms and countries to get what they wanted. Today, it is done in a more humane way, with mutual co-operation. WTO and other international organizations have been established with a view to controlling and regulating the trade activities of the countries.

d) Spread of Technical Knowledge: Due to stronger political ties, there is a flow of information both ways. Innovations which happen in the

Western world, come to developing countries due to globalization. In addition to spread of technical knowledge, it has also expanded economic and political knowledge. The most obvious example of spread of knowledge is that the Western world today is waking up to the benefits of Ayurveda and Yoga, while the Western antibiotics are flooding the Indian markets improving longevity of people in India.

e) Foreign capital flows and investment: One of the most visible effects of globalization is the flow of foreign capital. A lot of companies have directly invested in India and a lot of Indian companies are operating off shore. Foreign capital is being utilized by local skills and raw materials which results in manifold increase of production. Sometimes companies produce different components or different portions of their product line in different parts of the world to take advantage of low labour costs, capital, and raw materials. This is called rationalized production. In a new, global world, rationalized production is easier. Now organizations can outsource or can establish their own production units in those areas where it is more economical. For example, today, the Japanese are selling their cars made in America to American consumers, while Americans are selling American cars made in Japan. Asia manufactures sports shoes for all the major shoe manufacturers. After Liberalization in the economies of India and China, a great shift in location is going on, for labor-intensive operations in these locations.

f) Outsourcing and Sub-contracting Advantages: Globalization provides many sourcing advantages. They can outsource technology, distribution and even consumer research. The companies also negotiate sub-contracting arrangements which enhance operational efficiency and help in compressing costs. Due to these advantages, international outsourcing and sub-contracting has been on the rise in recent years.

g) International Economic Co-operation: Globally integrated economies reap the fruits of international economic co-operation. The co-operation comes in the form of trade agreements, investment treaties, standardization of commercial procedures, and so on. International co-operation also enables countries to harmonize their macroeconomic policies for their mutual benefits. This cooperation provides a good environment for the domestic companies to internationalize their operations.

Q.5 Mr.Ravi Upadhyay is the HR Manager of ADZ Company. Under his guidance,the HR Department plans to conduct income generation programs for tribal people.List the barriers to the social responsibility programs of the business.

ANSWER:Barriers to the social responsibility of the business may be as follows:

a) Urge to make profit

b) Desire to amass huge wealth.

c) Low profitability

d) Problems of exploitation

e) Frequent change of government

f) Problem of trade unions

g) Problems within the company and the like.

An important motive of the business is to make profit. The urge to make profit encourages businessmen to exploit the customers by black marketing, hoarding, reducing quality and hiking prices. Social responsibility never becomes a priority for these businessmen. Another barrier is low profitability or no profitability situations in business. If a business is struggling to survive in the competitive market, it would not be in a position to concentrate on social responsibility, even if it wants to do.

Trade unions very often exploit a business organization by draining out its profit and sometime even the capital. This is very common in Indian businesses. In order to realize their claims, trade unions by their collective strength hold the entire business organization to ransom. Some industrial units are forced to postpone the social responsibility needs because of their internal problems, capital problems, financial strains and the need for modernization.

The frequent change of government leads to instability and inconsistency in policies which affects the realm of business; e.g. during 1996-1998 three governments failed, resulting in instability in the nation and business crashed, and inflation increased which led to chaos and confusion everywhere. The social responsibility of business enterprises was the lowest during these years.

Limited resources force business firms to prioritize their commitments. Globalization of business leads to modernization of business. Business enterprises are forced to modernize their businesses by spending huge amounts of money. Resources and commitments to financial institutions remain unchanged for most of the business organizations. In such a situation it is difficult for any organization to divert its funds into social projects. Business organizations and industrial units are very often the target of extortion and corruption from many areas such as political pressures, anti-social elements, corrupt government officials and politicians. For their existence, business enterprises are forced to oblige to such elements. This is very common in Indian business organizations. Big corporate houses manage to set up special funds to meet the requirement of corrupt politicians and officials, but the small and medium enterprises (SMEs) find it difficult to survive in such situations. A lot of other problems like recession, depression, crashing of stock markets adversely affect the economic activity. The business organizations have to be careful while taking decisions in the matter of economic behavior and expenditure.

Q.6 State the factors that constitute the internal business environment?

ANSWER:Internally, an organization can be viewed as a resource conversion machine that takes inputs (labor, money, materials and equipment) from the external environment (i.e., the world outside the boundaries of the organization), converts them into useful products, goods, and services, and makes them available to customers as outputs. The organization must continuously monitor and adapt to the environment if it is to survive and prosper. Disturbances in the environment may spell profound threats or new opportunities. A successful organization will identify, appraise, and respond to the various opportunities and threats in its environment.

The internal environment is essentially all the factors that can be controlled by the organization. These factors are usually things like technology advancement, e-commerce, and business expansion.

Few of the factors that constitute the internal environment:

i) Value System: The value system of the founders of a business affects the choice of business, mission and objectives of the organization, business policies and practices. The ethical standards are also among the factors evaluated by many companies for the selection of suppliers, distributers, collaborators etc.

ii) Vision, Mission and Objectives: The business philosophy, policy, direction of development, priorities etc., are guided by the vision, mission and objectives of the company.

iii) Management Structure and Nature: Some management structures delay decision making while some others facilitate quick decision making. The organizational structure, extent of professionalism of management etc., are very important factors which influence business decisions.

iv) Internal Power Relationship: Within an organization we find that, many times, the relationship between the Board of Directors and the Chief executive is a critical factor. Also the support the top management gets from different levels of employees, shareholders etc., have very important repercussions on the decisions implemented.

v) Human Resources: This includes the characteristics of human resources such as their skills, morale, commitment, attitude etc. The initiative, resistance, involvement of people at different levels in an organization varies across organizations.

vi) Company Image and Brand Equity: The image of a firm or its brand equity matters a lot when you are trying to raise finance, to form joint ventures, to enter sale or purchase contracts.

vii) Miscellaneous Factors: Physical assets and facilities like technology, production facilities etc  are very important factors. Research and Development facilities usually decide how much the firm is ready to innovate and compete. Marketing Facilities and the Financial Factors are also very important parts of the internal business environment.

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