Book 1 Chapter 3: Business Environment Flashcards
Business Environment
Sum total of all individuals, institutions and other forces that are outside the control of the business but may affect its performance
Features of Business Environment
CID RUST
The C in CID RUST
Complexity
The I in CID RUST
Inter-relatedness
The D in CID RUST
Dynamic Nature
The R in CID RUST
Relativity
The U in CID RUST
Uncertainty
The S in CID RUST
Specific & General Forces
The T in CID RUST
Totality of External Forces
Specific Forces
Specific Forces affect individual enterprises directly and immediately in their day to day working
For Example, Investors, Customers, Competitors, Suppliers etc.
General Forces
General Forces have impact on all business enterprises and thus may affect an individual firm only indirectly
For Example, Social, Legal, Political and Technological conditions
Business Environment differs from country to country and even region to region
Relativity
It is very difficult to predict future happenings in the Business Environment
Uncertainty
The Business environment is a complex phenomenon that is relatively easier to understand in parts but difficult to grasp in totality
Complexity
The Business Environment keeps on changing
Dynamic in Nature
Business Environment is aggregative in nature
Totality of External Forces
Different elements or parts of business environment are closely inter-related
Inter-relatedness
Importance of Business Environment
IIT CAP
The I in IIT CAP
Identify Opportunities and getting First mover Advantage
Identify Threats and early warning signals
The I in IIT CAP
Identify Threats and early warning signals
Identify Opportunities and getting First mover Advantage
The T in IIT CAP
Tapping Useful Resources
The C in IIT CAP
Coping with Rapid Changes
The A in IIT CAP
Assists in Planning and Policy formulation
The P in IIT CAP
improves Performance
Opportunities
They refer to the positive external trends or changes that will help a firm to improve its performance
Environment provides numerous opportunities for Business Success
Identify Opportunities and getting first mover advantage
Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them competitors
First mover Advantage
Threats
They refer to the external environment trends and changes that will hinder a firm’s performance
Environment is a source of various resources for running a business
Tapping Useful Resources
Inputs
They refer to the various resources required by a business enterprise to engage in any type of activity
For example, finance, raw materials, labour etc.
Outputs
They refer to the end products that the business enterprise supplies (such as goods and services) after applying the necessary inputs
The business enterprise depends on the environment as a source of inputs or resources and as an outlet for outpus
Tapping Useful Resources
The future of an enterprise is closely bound up with what is happening in the environment
improves Performance
Managers must understand and examine the environment and develop suitable courses of action
Coping with Rapid Changes
Dimensions of Business Environment
SLEPT
The S in SLEPT
Social
The L in SLEPT
Legal
The E in SLEPT
Economic
The P in SLEPT
Political
The T in SLEPT
Technological
Examples of Economic Environment
Interest rates and Inflation Rates
Value of Currency
Changes in Disposable Income of the People
Examples of Social Environment
Consumer Tastes and Preferences
Consumer Expectations
Literacy Rates
Life Expectancy
Examples of Technological Environment
Scientific Improvements
New Inventions and Innovations
New ways of Production
Examples of Political Environment
Constitution of the Country
Prevailing Political System
Political Unrests
Foreign Political Relationships
Examples of Legal Environment
New Legislations passed by the Government
Court Judgements
Administrative Orders by Government Authorities
NIP
New Industrial Policy, 1991
FIPB
Foreign Investment Promotion Board
Was set up to promote and channelise Foreign Investment
When was NIP announced?
July 1991
Disinvestment
It refers to dilution of stake of the Government in the Public Sector Enterprises and giving greater control to the Private sectors
FDI
Foreign Direct Investment
Enabled Foreign Companies to directly invest in the Country
Liberalisation
Freeing industries from the shackles of the licensing system and removing unnecessary controls and restrictions
End of Licence-Permit-Quota Raj
Liberalisation
Privatisation
Giving greater role to the Private sector enterprises as opposed to the public sector enterprises
Diluting industries who were regularly incurring losses
BIFR
Board of Industrial and Financial Reconstruction
Aimed at assisting viable industries and shutting down other industries who were regularly incurring losses
Globalisation
Increasing the level of interaction and interdependence among various nations to remove physical geographical boundaries and gaps
