Business Environment For Mbas

Business Environment for MBAs

Presented By: Sonia Sardana

Nature, Components, Dynamics & Importance of Business Environment.

“Business

is an economic activity because it includes all those activities whose purpose is to earn profit by transfer of goods & services.”

“Business, Like weather is with us everyday.” -Wheeler

“Business may be defined as human activity directed towards producing or acquiring wealth through buying or selling of goods. -C.H.Haney

“Environment consists atoms & molecules agglomeration of things in motion, alive of men emotions, or force & resistances. There numbers are infinite & they are always present; they are always changing. -Chester Bernard

Nature 1. 2. 3. 4. 5. 6. 7.

Interdependence Dynamic Unlimited effect of uncontrollable factors. Media & Social Change Uncertainties & Restrictions. Adverse conditions To keep regular vigil on the changing environment. 8. Danger of casual change

Business Environment

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Components of Business Environment

“The process by which strategist monitors the economic, legal, governmental, market, competitive supplier, technological, geographic & social setting to determine opportunities & threats of their firm.” -William F Gluicck

Internal Environment

Business Decisions

External Environment

VALUE SYSTEM

MISSION & OBJECTIVE

MANAGEMENT STRUCTURE & NATURE

ATTITUDES

INTERNAL BUSINESS ENVIRONMENT

INTERNAL POWER RELATIONSHIP

OTHER FACTORS

COMPANY IMAGE & BRAND EQUITY

HUMAN RESOURCE

Internal Environment Miscellaneous Factors Physical Assets & Facilities R&D Technological Capabilities Marketing Resources Financial Factors

External Environment

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Micro Environment “Micro or task environment is more specific and immediate environment in which an organization conducts its business.” -Dunham & Pierce

1. Supplier  Reliability  Multiple Supplier

2. Customer  Types of Customers – Industrial Customers – Institutional Customer – Foreign Customer – Retail Customer

Multiple Customer Globalization Customer Segmentation

3. Market Intermediates  Types of Market Intermediates • • • •

Middlemen Marketing Agencies Financial Institution Physical Intermediates

4. Public • Media Publics • Local Public

MACRO ENVIRONMENT  Economic  Political  Social-Cultural  Technological  Natural  Demographic  International

• MACRO ENVIRONMENT means general environment of business. Macro factors are uncontrollable in comparison to the micro forces of environment. The growth and survival of business depend upon its adaptability to macro environment factor which include

1. ECONOMIC ENVIRONMENT Economic Conditions •Boom •Depression

Economic System •Capitalist •Socialist •Mixed Economy

Economic Policies •Monetary Policy •Fiscal Policy •Foreign Trade Policy •Foreign Investment •Industrial Policy

2. POLITICAL ENVIRONMENT Political Ideology of Govt. Political stability in the Economy. Foreign Policy of Govt. Defense & Military Policy. Centre state relationship.

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3. Socio-Cultural Environment  Urbanization  Religion  Tastes & Preferences  Customs & Tradition in Society  Health & Quality of Life  Language

4. Technological Environment  Innovation  Research & Development  Inflow of foreign Technology etc.

5. Natural Environment  Climatic & weather condition.  Availability of Natural resources.  Topographical factors: Physical features of place.  Pollution Control

6. Demographic Environment  Age Composition  Sex Composition  Education Level  Family size & structure  Urban-rural population

7. International Environment  Globalization  Oil Price hike  International Terrorism  Cultural Exchange

Dynamics of Business Environment

Factors Effecting Business Environment 1. Global Scenario 2. Indian Scenario

1.Global Scenario

 Political & Economic Environment  Privatization  Globalization & Internationalism

2. Indian Scenario  Change in Govt. Policies  Variation in Growth Performance  Corrective Policy Actions  Change in Market Structure & Competition  Future Expectations & Business Speculation  Change in Consumer attitudes, taste & Preference  Infrastructure

Importance of Business Environment

 For incorporating dynamic behavior of environment  Complete knowledge of internal environment  To understand international events, pressures& impact  Economic policies of the govt.  To face business problems &challenges  Vigilant regarding dangers  Administrative system  Optimum utilization of resources  Market conditions  Scientific & industrial advancement  Development & success of business

COUNTRY RISK & POLITICAL RISK BUSINESS ENVIRONMENT

BUSINESS ENVIRONMENT RISK • Risk is a state in which the number of possible future events or outcomes is larger than the number of events or outcomes which will actually take place • Risk is manifested in the probability of loss or damage to a business firm

TYPES OF BUSINESS ENVIRONMENT RISK • LEGAL RISK : Changes in Law • REGULATORY RISK : Regulatory design & changes • POLITICAL RISK : Resulting from political changes • SOCIAL RISK : From Social Attitudes • NATURAL RISK : Natural Disasters • ECONOMIC RISK : Economic Changes

COUNTRY RISK ANALYSIS • Country risk analysis is basically concerned with the performance of an economy and the behavior of the Government and the institutions which determine the Business Environment

MAJOR SOURCES OF COUNTRY RISK • • • • • • •

Monetary Policy Fiscal Policy Import controls TRIMs Price Control Labour Policy Exchange controls

POLITICAL RISK ANALYSIS • Political environment is set by the POLITICAL SYSTEM, THE CONSTITUTIONAL FRAMEWORK, EXTERNAL POLITICAL RELATIONS, FUNCTIONING OF THE GOVERNMENT, ROLE AND BEHAVIOR OF VARIOUS POLITICAL PRESSURE GROUPS

TYPES OF POLITICAL RISK 1. GENERAL INSTABILITY RISK Due to change in the political system with a change in Govt. Due to social revolution, normal election process etc Due to poor Governance, poverty and exploitation Cntnd

2. OPERATIONAL RISK Restriction on the production, marketing, finance, human resource management or international business 3. OWNERSHIP RISK It arises from the probability that the govt. might take actions that may lead to erosion in ownership or control in the business firm.

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TYPES OF OWNERSHIP RISK Confiscation

OWNERSHIP RISK Expropriation

Domestication

4. TRANSFER RISK This risk applies to MNCs having ventures in foreign countries or to the domestic firms having business operations or subsidiaries Transactions Transfer of profits, Funds or Assets

HOW A COMPANY MANAGES ENVIRONMENT RISK ? 1. RISK AVOIDING STRATEGIES Avoiding politically sensitive products Avoiding sensitive regions Contractual agreements Tie-up with other Firms 2. RISK SHIFTING STRATEGIES Risk can be shifted to other parties through Insurance Cntnd

3. RISK REDUCTION STRATEGIES Establishing a risk-assessment system Developing the local economy Local Equity participation Good Corporate Citizenship Maintaining Good Political Relations

METHODS FOR ASSESSING ENVIRONMENT RISK • • • • •

CHECKLISTS EXPERT-BASED SCORING SYSTEM ECONOMIC METHODS RATING AND RANKING SYSTEMS ASSESSMENT OF COUNTRY’S CREDITWORTHINESS • RISK BENCHMARKING • RISK PREMIUM ON INTEREST

MEANING Balance of payments refers to the recording of all economic transactions of a given country. Such transactions includes receives payments from and makes payments to other countries.

Definitions • According to Benham, ”balance of payments of a country is a record of the monetary transactions over a period with the rest of the world.” • According to James O Ingram, “the balance of payments is a summary record of all economic transactions between residents of one country and the rest of the world during a given period of time.”

Balance of payments Visible

Invisible

Capital Transfers

Features • • • • •

Fixed Period of Time Comprehensiveness Systematic Record Double Entry System All items –Government and NonGovernment

Structure • Balance of payments = (Exports of goods + Capital receipts + Services) – (Imports of goods + Capital payments + Services)

Disequilibrium in balance of payments

• Balanced Balance of Payments B=R-P=0 • Favourable Balance of Payments Bf=R-P>0 • Unfavourable Balance of Payments BU=R-P<0

Indian Share in World Import Trade Trade Export 1950 1960 1970 1980 1990 1991 1992 1993 1994 1995 1996 1997

1.85 1.03 0.64 0.42 0.52 0.50 0.53 0.58 0.60 0.60 0.60 0.60

1.71 1.69 0.65 0.72 0.66 0.56 0.61 0.60 0.63 0.60 0.60 0.60

1.78 1.36 0.65 0.57 0.59 0.53 0.57 0.59 0.61 0.60 0.60 0.60

Foreign Trade in India Year Import Export Trade

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1950-51 1960-61 1970-71 1980-81 1990-91 1996-97 1997-98 1998-99 99-2000 2001-02 2003-04

608 1122 1634 12549 43198 138920 154176 178332 215236 230873 245199

606 642 1535 6711 32553 118817 130101 139753 159561 203571 209018

2 480 99 5838 10645 20103 24075 38579 55675 27302 36181

Causes Of Unfavourable Balance Of Payments

Import Of Machinery. Import Of War Equipments. Price Disequilibrium. Embassies. Foreign Competition. Payments Of Interest On Foreign Debts. • Less Growth In Exports. • • • • • •

Measures To Disequilibrium In Balance Of Payments

• Promotion Of Exports. • Increase In Production. • Encouragement To Foreign Investments. • Attraction Of Indian Currency. • Restriction On Imports. • Import Substitution.

FOREIGN DIRECT INVESTMENT

FDI • Foreign investment plays important role to accelerate the growth of any economy • International capital flow gives boost to the various economic sector

TYPES OF FOREIGN INVESTMENT • PORTFOLIO INVESTMENT • FOREIGN DIRECT INVESTMENT Wholly owned subsidiary Joint Ventures Acquisition

1. Wholly owned Subsidiary : Companies with long term and substantial interest in the foreign market go for the wholly owned subsidiary. It provides the firm with complete control over production and quality 2. Joint Ventures: Joint venture is a common strategy of entering the foreign market. Diverse types of joint overseas operations are :

• Sharing of ownership and management in an enterprise • Licensing/Franchising agreement through intellectual property rights Patents Trade marks Copyrights Technical Know-How Marketing Skills

• FRANCHISING : is a form of licensing in which a parent company ( The Franchiser) grants another independent entity( The Franchise ) the right to do business in a prescribed manner. The major form of franchising are as follows: Manufacturer---retailer system Manufacturer---wholesaler Service firm-----retailer system

FACTORS LEADS TO THE FOREIGN DIRECT INVESTMENT • • • • • •

Rate of Interest Speculation Profitability Costs of Production Economic Conditions Government policies (Remittances, profits, taxation, Foreign exchange control, tariffs and monetary policy) • Political Factors

ADVANTAGES OF FDI • Increase the level income and employment • Increase the tax revenue of the Govt. • It facilitate transfer of technology to the host country • It provide professionalism • It enables the country to increase exports and reduces imports • Foreign investors encourages the domestic suppliers • It increase competition and breaks monopoly • Improves the quality and the cost of inputs incurred

DISADVANTAGES OF FDI • • • • • • •

Flow of investment into high profit area Stage of development of the country Multinational can evade the economic power Unfavorable effect on balance of payments Interference in the national politics Engage in unfair and unethical trade practices Higher cost are involved to encourage FDI

TOP FIVE NATIONS IN INDIA FDI INFLOWS( IN US dollar) • • • • •

MAURITIUS USA JAPAN NETHERLANDS UK

34.49 % 17.1 % 7.33 % 7.16 % 6.54 %

FIVE TOP STATES ATTRACTING MAJOR SHARE OF FDI • MAHARASHTRA • DELHI • TAMIL NADU % • KARNATKA • GUJRAT %

14.8 % 12.2 % 9.05 7.63 % 4.97

INDUSTRIAL POLICY BUSINESS ENVIRONMENT

INDUSTRIAL POLICY • The concept of “ Industrial Policy” covers all those procedures, principles, policies, rules and regulations which control the industrial undertaking of a country and shape the pattern of Industrialization.

WHY THE NEED ARISES TO CONSTITUTE THE INDUSTRIAL POLICY? • After independence Indian Industrial production lower down • Inflation Increases • Rehabilitation problem faced by Indian due to partition • First phase of Industrialization started by constituting the first Industrial policy resolution,1948

INDUSTRIAL POLICY RESOLUTION,1948, MAIN FEATURES

• The main emphasis of IP,1948 is on the mixed economy system • The manufacture of ARMS & AMMUNITION, the production and control of atomic energy and the ownership and management of RAILWAY TRANSPORT were to be the exclusive monopoly of the central Govt. • In second category, The COAL, IRON & STEEL,AIRCRAFT MANUFACTURE, SHIP BUILDING, MANUFACTURE OF TELEPHONE, TELEGRAPHS AND WIRELESS APPARATUS were undertaking by the state. Cntnd.

• In the third category the industries of such basic importance that the central govt. would feel it necessary to plan and regulate them. • In the fourth category the industries are left for the private enterprise, individual as well as co-operative Cntnd

IIIrd PHASE OF INDUSTRIALISATION • The third phase of Industrialization begins with the amendment of IP, 1956, in 1977, when the janta Govt. came into power • The main reasons for the change in policy are Unemployment Increases Rural-Urban Disparities Widened Rate of Investment Come Down Industrial Sickness Increases Cntnd

MAIN FEATURES OF IP, 1977 • Development of Small Scale Sector Cottage Industries Tiny Sectors Small Scale Industries • Area of Large-Scale Sector has defined Basic industries essential for providing infrastructure as well as development of SSI like Cement, Steel, Oil refineries Cntnd

• Capital goods industries for meeting the machinery requirements of basic industries • High technology industries which required large scale production, and which were related to agricultural and Small Scale industries development like Fertilizers, Pesticides, Petrochemicals

NEW INDUSTRIAL POLICY, 1991 • In June 1991, Narsimha Rao Govt. took over charge and a wave of economic reforms and Liberalization come in the economy • In this new atmosphere, the Govt. declared broad changes in IP on July Cntnd 24, 1991

MAIN FEATURES OF IP, 1991 • • • • •

To maintain the sustained growth in productivity To enhance gainful employment To achieve optimum utilization of resources To attain international competitiveness To transform India into a major partner and players in the global arena

POLICY MEASURES TO ATTAIN OBJECTIVES Liberalization of Industrial licensing policy Introduction of Industrial Entrepreneur’s Memorandum Liberalization of location policy Liberalized policy for small scale sectors NRI’s are allowed to invest up to 100 % Electronic Hardware technology park(EHTP) and Software technology park(STP) to be build to enhance exports • Liberalized FDI policy • • • • • •

INDUSTRIALISAITON PATTERN • Industrialization is the hallmark of economic growth • It is the process whereby industrial activity comes to play a dominant role in the economy of the country • Industrialization involves replacement of small scale cottage industry supplying limited local markets by the large units • Early years of the British Rule ( 1750-1850) cntnd

EFFECT OF WORLD WAR I(1914) ON INDUSTRIALISATION • Localization of Industries For Sugarcane North Bihar & Eastern UP-1904&1936 For Cotton Mumbai followed by Ahmedabad, Kanpur, Chennai, Madurai • Diversification of Industries Cotton-----Steal--------Coal--------Jute

MAIN FEATURES OF INDUSTRIALISATION DURING BRITISH RULE • Import Substitution • Increased disparity in the Indian economy • Lack of Integration • Minimal speed effect • Organizational Imperfections • Lack of Institutional finances

• Beginning of the modern factory system (1850-1947) • First Cotton textile mill by a Parsi Businessman C.N.Davar started in 1884 in Bombay • Development of Sugar,Paper and Steel Industries • Development of the railways and other public works and rise of modern industry after 1850 made India a large number of Iron and Steel in India • The first Iron Production started at Barkar Iron works in 1875 • This was followed by the setting up of the Tata Iron and Steel Company(TISCO) at Sakchi(Jamshedpur) in 1907

INDUSTRIALISATION DURING FIVE YEAR PLANS 1. FIRST FIVE YEAR PLAN(1951-56) • The first five year plan concentrated on the development of agriculture. Industrial activity was mostly directed towards the development of Infrastructure facilities like power and irrigation Development of consumer goods industries such as Jute, plywood, cotton textile, sugar, edible oil,paints etc Expansion of capital goods industries like iron and steel, aluminium, fertilizers, chemicals and heavy machine tools

2. Second Five Year Plan(1956-61) The second five year plan accorded a very high priority to industrial development. The major objectives were: Increased output in the basic and heavy industries such as Fertilizer,chemicals,iron and steel, aluminium and heavy engineering Expansion of the capacity of cement,chemical,phosphatic fertilizer,bulk drugs

Modernization of traditional industries like sugar, cotton textile, jute,etc where the productivity had declined due to the age structure of these plants. Maximum utilization of installed capacity, especially in the public utilities and infrastructural services. During the second plan, investment in the PSU’s was Rs.870 crores, whereas investment in the private sector was Rs. 675 crores

3. Third five year plan(1961-66) The third five year plan was governed by the overriding need to complete on-going projects in basic heavy industries. The objectives of this plan were : Rapid completion of all projects. Increased emphasis on raw materials and producer’s input. Diversification of capacity in the capital and producer goods. The plan envisaged a total outlay of Rs.3000 crores in the organized industries and mining of which 1700 cr. For PSU’s and 1300 cr in private sector.

4. Fourth Five Year Plan(1969-74) The objectives of the fourth five year plan were : Maximum utilization of installed capacity in industries To achieve self-reliance through import substitution and export expansion To curb monopolistic tendencies To channelise new investments in strict accordance with the plan priorities. Total outlay on the industrial sector was Rs.5300 crores.

5. Fifth Five Year Plan(1974-79) The objectives of the fifth plan were: To achieve substantial increase in production capacity through technological expansion and improvement. Creation of new capacities in accordance with the plan priorities and initiation of advance action in cases of long gestation projects. To introduce a package of incentives to desire sectors of economy. Total outlay was Rs.10200.

6. Sixth Five Year Plan(1980-85) The Plan had five fold strategy to achieve rapid industrialization : To increase manufacturing capacities of a variety of consumer goods and durables both in the public and private sectors. To support industrial growth through the supply of intermediate and capital goods. To attain technological excellence for encouraging exports of engineering goods. Total outlay was Rs.20407 crores.

7. Seventh five year plan(1985-90) The objectives of this plan were: To integrate science and technology into the main stream of development To create conditions for and to promote modernization, efficiency and competition in industry To promote diversification of industrial production To ensure balanced regional dev. Total outlay was Rs.22460 crores

8. Eighth five year plan(1992-97) The broader objective of the plan were: To ensure efficiency and competitiveness was of the industrial sector through modernization and technology upgradation Expansion and fuller utilization of installed capacities in power, transport, communication and water resources. Greater private participation

9. Ninth five year plan(1997-2002) The objectives of plan were : Priority to agriculture and rural development Ensuring environment sustainability of the development process through social mobilization and participation of people at all levels. Strengthening efforts to build self-reliance.

GLOBALISATION • Globalization is the process by which a firms activity become worldwide in scope • Doing, or planning to expand , business globally • Giving distinction between the domestic market & foreign market • Locating the production and other physical facilities of global business dynamics • Basic product development and production planning on the global consideration • Global sourcing of factors of production • Global orientation of organizational structure and management culture

FEATURES OF GLOBALISATION 1. NEW MARKETS Growing global markets in services New financial markets Deregulation of antitrust laws of mergers Global Consumer markets with global brands Cntnd

2. NEW ACTORS Multinational corporations The World Trade Organization International Criminal Court System Regional Blocs More policy Coordination groupsG-77,G-7, OPEC, OECD 3. NEW RULES AND NORMS Multilateral agreements in trade new agendas on environment and social conditions

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New multilateral agreements for services property rights and communication Conventions and agreements on the Global environment 4. NEW TOOLS OF COMMUNICATION Internet and electronic communication Cellular phones Fax machines Faster and cheaper transport Computer aided design

FACTORS LEADS TO GLOBALISATION • • • • • • • •

Human Resources Wide Base Growing Entrepreneurship Growing Domestic Market Niche markets Expanding Markets Economic Liberalization Competition

OBSTACLES TO GLOBALISATION • • • • • • • • • • • •

Government Policy and Procedures High cost of basic inputs Poor Infrastructure Obsolescence Resistance to change Poor Quality Image Supply problems Small Size Lack of Experience Limited R&D and marketing research Growing Competition Trade barriers

PUBLIC SECTOR ENTERPRISES REFORMS 

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PSE’s includes Government companies in the Central and State Sectors These industries covers a wide spectrum of activities in basic and strategic industries like: Steal Heavy Eng. Tourism Coal Chemicals Financial Minerals Fertilizers Trading Petroleum Transp. Marketing

WHY THE PSE’S ?  

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Public enterprises help in rapid economic growth It creates the necessary infrastructure for economic development To earn return on investment and generate resources for development To promote redistribution of income and wealth To generate employment opportunities To promote balanced regional development To assist the development of small-scale ind. To earn foreign exchange for the economy

Investment in the PSE,s during plans Five year Investment No.of PSE,s Plan (in crores) 

Ist plan 29 2nd 81 21 3rd 953 48 4rth 3902 85 5th 6237 122 6th 18,225 7th 42,811 8th 1,18,492 9th 2,01,500 1999 2,73,700 2002 3,24,614 2003 3,33,475

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186 221 237 238 235 240 240

NEED FOR PUBLIC SECTOR ENTERPRISES REFORMS        

Lack of Competition Over employment Long Gestation period Over capitalization Inefficient Management Absence of Appropriate pricing policy Social Objectives Lack of Efficient and Trained Staff

HIGHLIGHTS OF PUBLIC ENTERPRISES SURVEY (20022003) 

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Gross turnover of all 240 PSU’s during 2002-03 has been Rs.544390 crore against Rs.478732 crore during 2001-02 Net profit of all 240 PSU’s during 200203 has been Rs. 32141 crore against Rs. 25978 in 2001-02 During 2002-03 profit earning PSU’s earned net profit of Rs. 43085 crore while loss making PSU gave net loss of cntnd Rs. 10944 crore.

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PSU earning highest turnover is Indian Oil Corporation with Rs.123628 crore. Second, third & fourth places gone to HPCL, BPCL and ONGC respectively. PSU earning highest net profit is ONGC with Rs. 10529 crore. PSU showing highest deficit is FCI with Rs.1166 crore. Hindustan Fertilizer stand second with Rs.1058 crore deficit during 2002-03

IDENTIFICATION OF PUBLIC SECTOR ENTERPRISE AS NINE GEMS      

SAIL VSNL BPCL BHEL IPCL MTNL

IOCL HPCL ONGC NTPC GAIL

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Two of these namely IPCL and VSNL have since been privatized and as on July 2003 there are only 9 NAVRATNA PSEs. The profitability of these 9 ratna was Rs.15508 crore during 2001-02 Besides granting the status of Gems of the country, the Government also announced on October 3, 1997 to grant the status of Mini-Gems to 97 selected public sector profit earning enterprises.

DISINVESTMENT PROGRAMMES IN PSE’S 

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The disinvestment process, which began in 1991-92 with the sale of minority stake in some public sector undertakings The new policy in this regard is that the government is committed to a strong and effective public sector whose social objectives are met by its commercial functioning The Govt. is committed to devolve full managerial and commercial autonomy to successful, profit making companies operating in a competitive environment

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Generally, profit making companies will not be privatized As per the National Common Minimum Programme (NCMP) the Government retain existing ‘Navratna’ Companies in the Public Sector Loss making companies either sold off or closed, after all workers get their legitimate dues and compensation The Government has approved the constitution of a National Investment Fund (NIF) comprising of proceeds from disinvestment of public sector units The Govt. has also given in principle approval for listing of currently unlisted profitable PSEs each with a net worth in excess of Rs.200 crore, through an initial public offer (IPO)

OBJECTIVES OF DISINVESTMENT 

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Modernization and up gradation of PSEs Creation of new assets Generation of Employment Retiring of Public Debt To ensure that disinvestments does not result in alienation of national assets, which through the process of disinvestments, remain where they cntnd are

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Setting up a Disinvestment Proceeds Fund Formulating the guidelines for the disinvestments of natural asset companies Preparing a paper on the feasibility and modalities of setting up of Asset Management company to hold, manage and dispose the residual holding of the government in the companies in which government equity has been disinvested to a strategic partner

THE WAVE OF ECONOMIC REFORM ♦ The wave of economic reforms was born out of the

crisis in the economy. Which climaxed in 1991. ♦ The main reasons which leads to economic reforms are : Increasing Fiscal deficit Internal debt Overall agricultural promotion, food grain product and industrial production showed negative growth.

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Foreign Exchange reserves fell Inflation rate increases to 14% Confidence of International financial institutions was badly shaken Due to Gulf war, the prices of oil rises

TYPES OF ECONOMIC REFORMS TYPES OF ECONOMIC REFORMS

PRIVATISATION

LIBERALISATION

GLOBALISATION

LIBERALISATION ♦ Liberalization of the economy means to free it from

direct or physical controls imposed by the Government. ♦ The various types of controls are as follows: Industrial licensing system Price control or financial control on goods Import license Foreign exchange control Restrictions on investment by big business houses

MEASURES FOR LIBERALISATION ♦ Abolition of Industrial Licensing and Registration ♦ Concession from monopolies Act ♦ Freedom for expansion and production to

Industries ♦ Increase in investment limit of SSI ♦ Freedom to import capital goods ♦ Freedom to import technology ♦ Free determination of Interest rate

ADVANTAGES OF LIBERALISATION ♦ Improvements in Industries & service sector ♦ Free flow of FDI & MNCs ♦ More availability of imported goods at cheaper

rates ♦ Quality education and careers to people ♦ Improvement of technology in the field of SSI & LSI ♦ Improvement in means of communication and Transport.

DISADVANTAGES OF LIBERALISAION ♦ Common man fails to enjoy the imported

goods as they lack purchasing power ♦ Danger in political independence ♦ Agricultural dominated countries ♦ Underdeveloped countries fail to increase their exports in comparison to imports

PRIVATISATION ♦ Privatization of Industries means opening the

gates of Public Sector to Private sector ♦ The term privatization is used in two sense ♦ Transferring the ownership of public sector to private sector ♦ Management and controlling of public sector by private sector without transferring the ownership

CAUSES OF PRIVATISATION ♦ Disintegration of Socialist Economies ♦ Inefficient public sector ♦ Uneconomic pricing policy ♦ Burden on the Government ♦ Inefficient management control

OBJECTIVE OF PRIVATISATION ♦ To increase the efficiency and competitive power. ♦ To reduce deficit financing and public deficit ♦ To strengthen industrial management ♦ To earn more and more foreign currency ♦ To make optimum use of economic resources ♦ To achieve rapid industrial development

MEASURES FOR PRIVATISATION ♦ Privatization covers three sets of measures

1. OWNERSHIP MEASURES Total denationalization Joint Venture Liquidation Management buy-out

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2. ORGANISATIONAL MEASURES A holding company structure Leasing Restructuring( Financial, Basic ) 3. OPERATIONAL MEASURES Grant of autonomy to PE s in decision making Provision of incentives to the employees Freedom to acquire certain inputs from the market Development of proper investment criteria

GLOBALISATION ♦ Globalization is the process by which a firms activity

become worldwide in scope ♦ Doing, or planning to expand , business globally ♦ Giving distinction between the domestic market & foreign market ♦ Locating the production and other physical facilities of global business dynamics ♦ Basing product development and production planning on the global consideration ♦ Global sourcing of factors of production ♦ Global orientation of organizational structure and management culture

FEATURES OF GLOBALISATION 1. NEW MARKETS

Growing global markets in services New financial markets Deregulation of antitrust laws of mergers Global Consumer markets with global brands Cntnd

2. NEW ACTORS Multinational corporations The World Trade Organization International Criminal Court System Regional Blocs More policy Coordination groupsG-77,G-7, OPEC, OECD 3. NEW RULES AND NORMS Multilateral agreements in trade new agendas environment and social conditions

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New multilateral agreements for services property rights and communication Conventions and agreements on the Global environment 4. NEW TOOLS OF COMMUNICATION Internet and electronic communication Cellular phones Fax machines Faster and cheaper transport Computer aided design

FACTORS LEADS TO GLOBALISATION ♦ Human Resources ♦ Wide Base ♦ Growing Entrepreneurship ♦ Growing Domestic Market ♦ Niche markets ♦ Expanding Markets ♦ Economic Liberalization ♦ Competition

OBSTACLES TO GLOBALISATION ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦

Government Policy and Procedures High cost of basic inputs Poor Infrastructure Obsolescence Resistance to change Poor Quality Image Supply problems Small Size Lack of Experience Limited R&D and marketing research Growing Competition Trade barriers

FINANCIAL ENVIRONMENT

FINANCIAL ENVIRONMENT 

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Financial environment consists of decision taken by the companies acc.to the Monetary Policy, Fiscal Policy, & Financial Market Structure. Monetary and Fiscal policy are important determinants of business prospects and investment decision These policies encourage investment and production in certain priority sectors and discourages them in non-priority sector. The Monetary, fiscal and financial market structure influence the aggregate supply and demand, level of employment etc.

MONETARY POLICY 

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Monetary policy refers to the use of instruments within the control of the RBI to influence the level of aggregate demand for goods and services Monetary policy is based on money supply and money stock Measures of money stock are : M1 = Currency with the public + Deposits with banks M2 = M1+ Post office savings bank deposits M3 = M2+ Fixed deposits with banks M4 = M3+ Total post of deposits.

HOW THE RBI CONTRACT & CREATE THE CREDIT 

Different instruments have been used by the RBI to contract and create the credit in the market 1. Bank Rate : It is the minimum rate at which the RBI provides financial accomodation to the commercial banks 2. Open Market Operations : Purchase and sale of foreign exchange, Gold and company shares

3. Cash Reserve Ratio : The commercial banks has to keep their cash with RBI 4. Statutory Liquidity Ratio : Maintaining a minimum amount of liquid assets in terms of cash

SELECTIVE CREDIT CONTROL METHODS OR QUALITATIVE METHODS 

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Change in margin requirement of loans Rationing of credit Moral persuasion Credit Authorization Scheme Credit Monetary arrangements Loan system for delivery of bank credit

FISCAL POLICY 

Fiscal policy is related to income and expenditure of Govt. It refers to budgetary policy of Govt.

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Fiscal policy means the use of Public finances or expenditure, taxes, borrowings and its administration to further our national income

OBJECTIVES OF FISCAL POLICY       

Mobility of Resources Promotion of saving and investment Removal of poverty and unemployment Growth of Public Sector Economic stability To achieve favourable BoP To support private sectors

TECHNIQUES OF FISCAL POLICY 1. Taxation policy of Govt of India Mobilization of Resources Capital Formation Equality of Income and Wealth 2. Public Expenditure Policy Development of Public Enterprises Infrastructure Development Social Welfare 3. Public Debt Policy Internal Debt External Debt

DRAWBACKS OF FISCAL POLICY    

Instability Defective Tax Structure Inequality of Income Failure Public Sectors

SUGGESTIONS FOR THE REFORM OF FISCAL POLICY 

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Reduction in Non-Development Expenditure Agricultural Taxation Control over Black Money More Direct Taxes Reduction in Tax Evasion