INDIAN BUSINESS

P R E PA R E D B Y: M S . H I R V A G O S W A M I
 WHAT IS BUSINESS ?

• We live in a business environment. It is an

indispensable part of society. It satisfies our
wants by providing variety of goods and services
through wide networking of business activities.
 DEFINITION

• James Stephenson:

Every human activity which is engaged in for the

sake of earning profit may be called business.
 NATURE OF BUSINESS
Entrepreneur
Economic Activities
Deals with goods and services
Profit
Sales
Risk
Production
Utility
Consumer Satisfaction
Planning
 REASONS TO GO INTO BUSINESS FOR YOURSELF

• Your Life Needs The Flexibility

• Create Your Own Career Opportunity
• There's Demand For What You're Selling
• You Want To Make Money
• Hate Your Day Job
• Want To Help Other People
• You Want To Make A Difference
 ADVANTAGES OF BUSINESS OWNERSHIP

• Independence. As a business owner, you’re your own boss.

You can’t get fired. More importantly, you have the freedom
to make the decisions that are crucial to your own business
success.

• Lifestyle. Owning a small business gives you certain lifestyle

advantages. Because you’re in charge, you decide when and
where you want to work. If you want to spend more time on
non work activities or with your family, you don’t have to ask
for the time off. If it’s important that you be with your family
all day, you might decide to run your business from your
home. Given today’s technology, it’s relatively easy to do.
Moreover, it eliminates commuting time.
• Financial rewards. In spite of high financial risk,
running your own business gives you a chance to
make more money than if you were employed by
someone else. You benefit from your own hard work.

• Learning opportunities. As a business owner, you’ll

be involved in all aspects of your business. This
situation creates numerous opportunities to gain a
thorough understanding of the various business
functions.
• Creative freedom and personal satisfaction.
As a business owner, you’ll be able to work in a
field that you really enjoy. You’ll be able to put
your skills and knowledge to use, and you’ll gain
personal satisfaction from implementing your
ideas, working directly with customers, and
watching your business succeed.
 DISADVANTAGES OF BUSINESS OWNERSHIP

• Financial risk. The financial resources needed to start

and grow a business can be extensive. You may need to
commit most of your savings or even go into debt to get
started. If things don’t go well, you may face substantial
financial loss. In addition, there’s no guaranteed income.
There might be times, especially in the first few years,
when the business isn’t generating enough cash for you
to live on.
• Stress. As a business owner, you are the business.
There’s a bewildering array of things to worry about—
competition, employees, bills, equipment breakdowns,
customer problems. As the owner, you’re also
responsible for the well-being of your employees.
• Time commitment. People often start businesses so that they’ll
have more time to spend with their families. Unfortunately,
running a business is extremely time-consuming. In theory, you
have the freedom to take time off, but in reality, you may not be
able to get away. In fact, you’ll probably have less free time than
you’d have working for someone else. For many entrepreneurs
and small business owners, a forty-hour workweek is a myth; see 
Figure 5.6 "The Entrepreneur’s Workweek" . Vacations will be
difficult to take and will often be interrupted. In recent years, the
difficulty of getting away from the job has been compounded by
cell phones, iPhones, Internet-connected laptops and iPad, and
many small business owners have come to regret that they’re
always reachable.
• Undesirable duties. When you start up, you’ll
undoubtedly be responsible for either doing or
overseeing just about everything that needs to be
done. You can get bogged down in detail work
that you don’t enjoy. As a business owner, you’ll
probably have to perform some unpleasant tasks,
like firing people.
 WHAT IS SCOPE ?

• Scope is a term used in project management.

There are two types of scope which are product
scope and project scope. Project
management involves the planning and
organization of a company's resources to
complete a specific task, event, or action and is
usually a one-time event. Scope describes the
required processes and resources to complete a
project or produce a product.
 SCOPE/MOTIVE OF BUSINESS

• Profit Earning
• Production of goods
• Creating Markets
• Technological improvement
  OBJECTIVES OF BUSINESS

• Economic Objectives:
• Economic objectives of business refer to the
objective of earning profit and also other
objectives that are necessary to be pursued to
achieve the profit objective, which include,
creation of customers, regular innovations and
best possible use of available resources.
 PROFIT EARNING:

• (i) Profit Earning:

• Profit is the lifeblood of business, without which no
business can survive in a competitive market. In fact
profit making is the primary objective for which a
business unit is brought into existence. Profits must be
earned to ensure the survival of business, its growth and
expansion over time.
• Profits help businessmen not only to earn their living but
also to expand their business activities by reinvesting a
part of the profits. In order to achieve this primary
objective, certain other objectives are also necessary to
be pursued by business, which are as follows
• (a) Creation of customers:

• A business unit cannot survive unless there are customers to buy the products
and services. Again a businessman can earn profits only when he/she provides
quality goods and services at a reasonable price. For this it needs to attract
more customers for its existing as well as new products. This is achieved with
the help of various marketing activities.

• (b) Regular innovations:

• Innovation means changes, which bring about improvement in products,
process of production and distribution of goods. Business units, through
innovation, are able to reduce cost by adopting better methods of production
and also increase their sales by attracting more customers because of
improved products.
• Reduction in cost and increase in sales gives more profit to the businessmen.
Use of power looms in place of handlooms, use of tractors in place of hand
implements in farms etc. are all the results of innovation.
• (c) Best possible use of resources:
• As we all know, to run any business we must have
sufficient capital or funds. The amount of capital may
be used to buy machinery, raw materials, employ
men and have cash to meet day-to-day expenses.
Thus, business activities require various resources
like men, materials, money and machines.
• The availability of these resources is usually limited.
Thus, every business should try to make the best
possible use of these resources. Employing efficient
workers. Making full use of machines and minimizing
wastage of raw materials, can achieve this objective.
 SOCIAL OBJECTIVES

• B. Social Objectives:
• Social objective are those objectives of business, which
are desired to be achieved for the benefit of the society.
Since business operates in a society by utilizing its scarce
resources, the society expects something in return for its
welfare. No activity of the business should be aimed at
giving any kind of trouble to the society.
• If business activities lead to socially harmful effects, there
is bound to be public reaction against the business sooner
or later. Social objectives of business include production
and supply of quality goods and services, adoption of fair
trade practices and contribution to the general welfare of
society and provision of welfare amenities.
• (i) Production and Supply of Quality Goods and
Services:
• Since the business utilizes the various resources of the
society, the society expects to get quality goods and services
from the business he objective of business should be to
produce better quality goods and supply them at the right
time and at a right price It is not desirable on the part of the
businessman to supply adulterated or inferior goods which
cause injuries to the customers.
• They should charge the price according to the quality of
goods and services provided to the society. Again, the
customers also expect timely supply of all their requirements.
So it is important for every business to supply those goods
and services on a regular basis.
• (ii) Adoption of Fair Trade Practices:
• In every society, activities such as hoarding, black- marketing and
over-charging are considered undesirable. Besides, misleading
advertisements often give a false impression about the quality of
products. Such advertisements deceive the customers and the
businessmen use them for the sake of making large profits.

• This is an unfair trade practice. The business unit must not create
artificial scarcity of essential goods or raise prices for the sake of
earning more profits. All these activities earn a bad name and
sometimes make the businessmen liable for penalty and even
imprisonment under the law. Therefore, the objective of business
should be to adopt fair trade practices for the welfare of the
consumers as well as the society.
• (iii) Contribution to the General Welfare of
the Society:
• Business units should work for the general
welfare and upliftment of the society. This is
possible through running of schools and colleges
better education opening of vocational training
centres to train the people to earn their
livelihood, establishing hospitals for medical
facilities and providing recreational facilities for
the general public like parks, sports complexes
etc.
 HUMAN OBJECTIVES

• С. Human Objectives:
• Human objectives refer to the objectives aimed at
the well-being as well as fulfilment of
expectations of employees as also of people who
are disabled, handicapped and deprived of proper
education and training. The human objectives of
business may thus include economic well-being of
the employees, social and psychological
satisfaction of employees and development of
human resources.
• (i) Economic Well-being of the Employees:
• In business employees must be provided with remuneration and
incentive for performance benefits of provident fund, pension and
other amenities like medical facilities, housing facilities etc. By this
they feel more satisfied at work and contribute more for the business.
• (ii) Social and Psychological Satisfaction of Employees:
• It is the duty of business units to provide social and psychological
satisfaction to their employees. This is possible by making the job
interesting and challenging, putting the right person in the right job
and reducing the monotony of work Opportunities for promotion and
advancement in career should also be provided to the employees.
• Further, grievances of employees should be given prompt attention
and their suggestions should be considered seriously when decisions
are made. If employees are happy and satisfied they can put then
best efforts in work.
• (iii) Development of Human Resources:
• Employees as human beings always want to grow. Their growth requires
proper training as well as development. Business can prosper if the
people employed can improve their skills and develop their abilities and
competencies in course of time. Thus, it is important that business
should arrange training and development programmes for its
employees.
• (iv) Well-being of Socially and Economically Backward People:
• Business units being inseparable parts of society should help backward
classes and also people those are physically and mentally challenged.
This can be done in many ways. For instance, vocational training
programme may be arranged to improve the earning capacity of
backward people in the community. While recruiting its staff, business
should give preference to physically and mentally challenged persons.
Business units can also help and encourage meritorious students by
awarding scholarships for higher studies.
 NATIONAL OBJECTIVES

• D. National Objectives:
• Being an important part of the country, every
business must have the objective of fulfilling national
goals and aspirations. The goal of the country may be
to provide employment opportunity to its citizen,
earn revenue for its exchequer, become self-sufficient
in production of goods and services, promote social
justice, etc. Business activities should be conducted
keeping these goals of the country in mind, which
may be called national objectives of business.
• The following are the national objectives of business.
• (i)Creation of Employment:
• One of the important national objectives of business is to create
opportunities for gainful employment of people. This can be
achieved by establishing new business units, expanding markets,
widening distribution channels, etc.

• (ii) Promotion of Social Justice:

• As a responsible citizen, a businessman is expected to provide
equal opportunities to all persons with whom he/she deals. He/ She
is also expected to provide equal opportunities to all the employees
to work and progress. Towards this objectives special attention must
be paid to weaker and backward sections of the society.
• (iii) Production According to National Priority:
• Business units should produce and supply goods in accordance with the priorities laid
down in the plans and policies of the government. One of the national objectives of
business in our country should be to increase the production and supply of essential
goods at reasonable prices.

• (iv) Contribute to the Revenue of the Country:

• The business owners should pay their taxes and dues honestly and regularly. This will
increase the revenue of the government, which can be used for the development of
the nation.

• (v) Self-sufficiency and Export Promotion:

• To help the country to become self-reliant, business units have the added
responsibility of restricting import of goods. Besides, every business units should aim
at increasing exports and adding to the foreign exchange reserves of the country.
 GLOBAL OBJECTIVES

• E. Global Objectives:
• Previously India had very restricted business relationship with
other nations. There was a very rigid policy for import and
export of goods and services. But, now-a-days due to liberal
economic and export-import policy, restrictions on foreign
investments have been largely abolished and duties on
imported goods have been substantially reduced.
• This change has brought about increase in competition in the
market. Today because of globalisation the entire world has
become a big market. Goods produced in one country are
readily available in other countries. So, to face the competition
in the global market every business has certain objectives in
mind, which may be called the global objectives. Let us learn
about them.
• (i) Raise General Standard of Living
• Growth of business activities across national borders
makes quality goods available at reasonable prices all
over the world. The people of one country get to use
similar types of goods that people in other countries are
using. This improves the standard of living of people.
• (ii) Reduce Disparities among Nations:
• Business should help to reduce disparities among the
rich and poor nations of the world by expanding its
operation. By way of capital investment in developing
as well as underdeveloped countries it can foster their
industrial and economic growth.
• (iii) Make Available Globally Competitive
Goods and Services:
• Business should produce goods and services
which are globally competitive and have huge
demand in foreign markets. This will improve the
image of the exporting country and also earn
more foreign exchange for the country.
 COMMERCE AND INDUSTRY

• Business is an economic activity, concerned with

the provision of goods and services with an aim of
earning a profit. There is two major classification
of business activities, i.e. industry and commerce.
The industry is all about the production of
goods, whereas commerce focuses on their
distribution of goods and services.
 COMPARISON CHART
BASIS FOR COMPARISON INDUSTRY COMMERCE

Meaning Industry is an economic Commerce is a business

activity, concerned with the activity, wherein exchange for
procurement and processing of goods and services for value,
raw materials into finished is done on a large scale.
products, that reaches the
customer.

Capital Required High Comparatively low

Involves Conversion of resources into Activities essential for

useful goods. facilitating the buying and
selling of goods.

Represent Production part of business Distribution part of business

activities. activities.

Risk High Comparatively low

 TYPES OF INDUSTRIES

• Primary Industry: Industry concerned with

obtaining and providing natural raw materials like
mining, agriculture or forestry.
• Secondary Industry: Industry engaged in
conversion activities, i.e. converting raw material
provided by primary industry, into finished
products.
• Tertiary Industry: Industry that provides
support services to the primary and secondary
industry.
 TYPES OF COMMERCE

• Trade: The process of buying and selling of goods

and services for money.
• Auxiliaries to trade: All the activities which
assist trade directly or indirectly are auxiliaries to
trade. It includes transportation, warehousing,
banking & finance, advertising, insurance and so
on
 EVOLUTION OF COMMERCE AND
INDUSTRY
• Hunting stage
• In ancient times people lived in caves and fulfilled their basic needs of food an
clothes through hunting the wild animals in forest. They were not civilized and
hovered here and there. Their needs were also limited.
 
• B. Pastoral stage
• The stage of further development of human from barbarism is called pastoral
stage. This stage is basically called the age of keeping animals. Animals were
used for milk, meat, wool, skin and so on beyond food and clothes. The wants
went on increasing and development also started.
 
• C. Agriculture stage
• Slowly, human beings became a little bit civilized and got idea about farming
and keeping cattle. This stage was the major stage of development of industry.
In this stage people started to do agriculture and live in river banks. They
started to cultivate crops and domesticate the animals. Development of
agriculture is divided into 5 stages they are
 Handicraft stage:
• It is the beginning of industrial era. It is the stage of development of industry. Simple
hands made tools were also developed. Local resources were the major source of raw
materials. In the beginning of this stage people were only limited to their own needs
but later own surplus products were used to exchange the goods with the roods
basically called barter system. Products were exchanged with product and market
was starting to develop. Capital invested was minimized.
 
Guild stage:
• It was the beginning of organized activities. Organized groups of traders, craftsmen,
artisans used to collect various resources from the local areas and produced goods
using them.
 
Age of domestic system
• After the stage of guild the age of domestic system was initiated. Crafts men were
not able to fulfil unlimited and increasing wants of people by using the limited
resource. So, use of hands and tools for producing quality goods was introduced.
People were employed and were paid according to the units of goods produced.
However salary was very low because the value of money was much higher at that
time.
 
 Industrial revolution:
• It began with the replacement of old system. It is the turning point of
modern industrialization. Domestic system of production was
replaced by large scale factory system. There was invention,
innovation .development of scientific techniques which encouraged
mass production and distribution. There were numerous job
opportunities. Salary was increased and quality was maintained.

 Present age:
• Today’s modern era with industrialization, use of technology,
computerization, modernization robotizing is the most developed
stage of industries. Goods are being produced meeting the demand
of large number of people. There are huge number of industries
producing large number of goods to meet large amount of needs and
wants by providing many jobs and salaries.
 EVOLUTION OF COMMERCE

Evolution of commerce:
• It is related with the distribution and exchange of goods and
services. It is related with transportation, communication,
Banking, warehousing import export, trade and so on. It links
between producer and consumer. It gradually develops along with
the development of human and society. There are many stages of
evolution of commerce
 
A. Self sufficiency stage
• It is the initial stage of commercial evolution. The wants are very
limited. In this stage people produced goods themselves to satisfy
their own basic needs. They survived through hunting and
gathering foods. There was no market. There was thus no
exchange of goods. They were independent.,
 
B. Barter system:
• The wants of people increased with development
of society. There was both advancement and
civilization of market. Self sufficiency stage didn’t
remain with advancement. They started to
exchange the goods they produced with goods
that other people produced to fulfil other
requirements. This is called barter system. There
was exchange of goods and services with goods
and services.
 C. Origin of money:
• From the beginning of barter, people felt that there was difficulty
in deferred payment, commerce, divisibility and place of exchange
.That’s why money was originated. People developed coins but
there was difficulty in large payment. So paper money was
introduced. Money was used as medium of exchange,
Measurement of value, deferred payment, redistribution of income
and wealth, credit system and many more. After the origin of
money, national and international trade started.
 
D. National economy:
• In this stage, buying and selling of goods and services was done
within the country. The local market converted into regional and
city market. There was division of work and specialization. Then
goods were produce not only for local people but also for national
market. There was also development in banking, advertising,
insurance, warehouse and other auxiliaries,.
E. International economy:
• International economy s called global economy. The
globalization of trade introduced to speed up the
activities of trade in the international level. It is not
possible for a country to produce all demanded
goods according to needs and wants. Therefore the
countries started to import the goods and other
countries exported. Slowly, import and export was
introduced in all counties. Trade started to extend in
world market. WTO (world trade organization) was
also established to control the level of import, export
and evils associated with them.
 INTER-RELATIONSHIP BETWEEN
INDUSTRY, TRADE AND COMMERCE
• All the three branches of business are closely related to
each other. Each depends upon the other for the
achievement of aims and objectives of business. For
example, industry is concerned with the production of
goods and services, trade is related with sale and
purchase of products, and commerce arranges for their
distribution. Industry can succeed only if goods are
marketed and without production of goods, there cannot
be commerce and trade. Hence, trade provides
necessary support to industry and commerce. Thus,
industry, trade and commerce are inter-dependent and
cannot operate in isolation. Service facilities also provide
necessary support to trade.
 BUSINESS SYSTEM

• It is an establishment or arrangement  of parts

for achieving the desired objectives. A system
may comprise of different sub-systems and it may
itself be a part of another broader system. All these
are inseparably related with each other like the gear in
a machine and has to operate in a coordinated way to
achieve the planned  objectives. For a clear
understanding of a system, it is necessary to know the
interrelationships of sub-systems in order to find out
how they are interrelated. When the study of a
phenomenon is undertaken in this manner, it is called
a ‘systems analysis’ or a systems approach’.
• EXAMPLE : The meaning of the term ‘system’ can
be best understood by taking the example of
human body system which in itself consists of
various sub-systems like digestive system,
respiratory system, nerves system etc. These
sub-systems have further sub-parts. All sub-
systems of the human body system must function
in a closely coordinated way. The interrelated sub-
systems form a unitary whole i.e., a human being
who is himself a part of the environment and the
society in which he lives.
•  A business system too consists of various sub-
systems like production, financing, marketing,
personnel etc. which operate in unison to make
the unitary whole i.e. a business system.
• These sub-systems may have further sub-
systems.
• For example, personnel sub-system is divided into
other sub-systems like selection, training,
remuneration, promotion etc.
• The success of any business system as a unitary
whole depends on the close coordination of these
sub-systems.
 BUSINESS ENVIRONMENT

• Meaning :
The combination of internal and external factors
that influence a company's operating situation. The
business environment can include factors such as:
clients and suppliers, its competition and owners,
improvements in technology, laws and government
activities, and market, social and economic trends.
 INTERNAL FACTORS

• Employees and Managers

• Unless you're a one-person show, your employees
are a major part of your company's internal
environment. Your employees have to be good at
their jobs, whether it's writing code or selling
products to strangers. Managers have to be good
at handling lower-level employees and overseeing
other parts of the internal environment. Even if
everyone's capable and talented, internal politics
and conflicts can wreck a good company.
Money and Resources
• Even in a great economy, lack of money can
determine whether your company survives or
dies. When your cash resources are too limited, it
affects the number of people you can hire, the
quality of your equipment, and the amount of
advertising you can buy. If you're flush with cash,
you have a lot more flexibility to grow and expand
your business or endure an economic downturn.
Company Culture
• Your internal culture consists of the values,
attitudes and priorities that your employees live
by. A cutthroat culture where every employee
competes with one another creates a different
environment from a company that emphasizes
collaboration and teamwork. Typically, company
culture flows from the top down. Your staff will
infer your values based on the type of people you
hire, fire and promote. Let them see the values
you want your culture to embody.
EXTERNAL MICRO ENVIRONMENT FACTORS

Suppliers 
• An important factor in the external environment
of a firm is the suppliers of its inputs such as raw
materials and components. A smooth and
efficient working of a business firm requires that
it should have ensured supply of inputs such as
raw materials. If supply of raw materials is
uncertain, then a firm will have to keep a large
stock of raw materials to continue its
transformation process uninterrupted. This will
unnecessarily raise its cost of production and
reduce its profit margin.
• To ensure regular supply of inputs such as raw
materials some firms adopt a strategy of backward
integration and set up captive production plants for
producing raw materials themselves.
• Reliance industries have their own power generating
plants so as to ensure regular supply of electricity for
their manufacturing business.
• If there is disruption in production of the supplier firm
due to labour strike or lock-out, it will adversely affect
the production work of a firm. Therefore, to reduce
risk and uncertainty business firms prefer to keep
multiple suppliers of inputs.
Customers
• The people who buy and use a firm’s product and
services are an important part of external micro-
environment. Since sales of a product or service is
critical for a firm’s survival and growth, it is necessary to
keep the customers satisfied. To take care of customer’s
sensitivity is essential for the success of a business firm.
• In the present day of intense competition a firm has to
spend a lot on advertisements to promote the sales of its
product by creating new customers and retaining the old
ones. For this purpose, a business firm has also to launch
new products or models.
Marketing Intermediaries
• In a firm’s external environment marketing
intermediaries play an essential role of selling and
distributing its products to the final buyers. Marketing
intermediaries include agents and merchants such
as distribution firms, wholesalers, retailers.
• A few years ago chemists and druggists in India
declared a collective boycott of a leading pharma
company because it was providing a low retail margin.
They succeeded in raising this margin. This shows that
a business firm must take care of its intermediaries if it
has to succeed in this age of intense competition
Competitors
• Business firms compete with each other not only
for sale of their products but also in other areas.
Absolute monopolies in case of which competition
is totally absent are found only in the sphere of
what are called public utilities such as power
distribution, telephone service, gas distribution in
a city etc. More generally, market forms of
monopolistic competition and differentiated
oligopolies exist in the real world.
•  This competition may be on the basis of pricing of their
products. But more frequently there is non-price
competition under which firms engage in competition
through competitive advertising, sponsoring some events
such as cricket matches for sale of different varieties and
models of their products, each claiming the superior
nature of its products.
• There is severe competition between the manufacturers
of Aerial and Surf washing powders, between
manufacturers of various brands of colour TV. This type
of competition is generally referred to as brand
competition as it relates to producing and selling
different brands of a product.
• For example, competition for a firm producing TVs
does not come only from other brands of TV
manufacturers but also from manufacturers of air
conditioners, refrigerators, cars, washing
machines etc. All these goods compete for
attracting disposable incomes of the final
consumers. Competition among these diverse
products is generally referred to as desire
competition as all these goods fulfil the various
desires of the consumers who have limited
disposable incomes.
• For example, in the USA American firms faced a
lot of competition from the Japanese firms
producing electronic goods and automobiles.
Similarly, the Indian firms are facing a lot of
competition from Chinese products. It is
important to note that for successful competition
the Indian firms have to improve not only the
quality of the products but also to enhance their
productivity so that cost per, unit can be reduced.
Publics
• Finally, publics are an important force in external
micro environment. Public, according to Philip
Kotler “is any group that has an actual or
potential interest in or impact on a company’s
ability to achieve its objective”.
Environmentalists, media groups, women
associations, consumer protection groups, local
groups, citizens associations are some important
examples of publics which have an important
bearing on environment of the firms.
• For example, a consumer protection firm in Delhi
headed by Sunita Narain came out with an
amazing fact that cold drinks such as Coca Cola,
Pepsi Cola, Limca, Fanta had a higher contents of
pesticides which posed threat to human health
and life. This produced a good deal of adverse
effect on the sale of these products in 2003-04.
The Indian laws are being amended to ensure
that these drinks must not contain pesticides
beyond European safety standards.
• Similarly, environmentalists like Arundhi Roy have
been campaigning against industries which
pollute the environment and cause health
hazards. Women in some villages of Haryana
protested against liquor shops being situated in
their localities.
• Many citizen groups are actively campaigning
against cigarette manufactures for their
advertising campaigns luring the people to
indulge in smoking. Thus, the existence of various
types of publics influences the working of
business firms and compels them to be socially
responsible.
 EXTERNAL MACRO
ENVIRONMENT
An important fact about external macro-
environmental forces is that they are
uncontrollable by the management of a firm.
Because of the uncontrollable nature of macro
forces a firm has to adjust or adapt itself to these
external forces.
Economic Environment
• Economic environment includes the type of
economic system that exists in the economy, the
nature and structure of the economy, the phase
of the business cycle (for example, the conditions
of boom or recession), the fiscal, monetary and
financial policies of the Government, foreign trade
and foreign investment policies of the
government. These economic policies of the
government present both the opportunities as
well as the threats (i.e. restrictions) for the
business firms.
 Social and Cultural Environment
• By social responsiveness we mean “the ability of a
corporate firm to relate its operations and policies to
social environment in way that are mutually beneficial to
the company and society at large”.
• Members of a society wield important influence over
business firms. People these days do not accept the
activities of business firms without question. Activities of
business firms may harm the physical environment and
impose heavy social costs. Besides, business practices
may violate cultural ethos of a society. For example,
advertisement by business firms may be nasty and hurt
the ethical sentiments of the people.
Political and Legal Environment
• Businesses are closely related to the government.
The political philosophy of the government wields
a great influence over business policies. For
example, after independence under the
leadership of Jawahar Lal Nehru India adopted
‘democratic socialism as its goal.
Technological Environment
• The nature of technology used for production of
goods and services is an important factor
responsible for the success of a business firm.
Technology consists of the type of machines and
processes available for use by a firm and the way
of doing things. The improvement in technology
raises total factor productivity of a firm and
reduces unit cost of output.
 Demographic Environment
• Demographic environment includes the size and
growth of population, life expectancy of the
people, rural-urban distribution of population, the
technological skills and educational levels of
labour force. All these demographic features have
an important bearing on the functioning of
business firms. Since new workers are recruited
from outside the firm, demographic factors are
considered as parts of external environment.
Natural Environment
• Natural environment is the ultimate source of many
inputs such as raw materials, energy which business
firms use in their productive activity. In fact,
availability of natural resources in a region or
country is a basic factor in determining business
activity in it. Natural environment which includes
geographical and ecological factors such as
minerals and oil reserves, water and forest
resources, weather and climatic conditions, port
facilities are all highly significant for various
business activities.
 QUESTIONS

• Module 1 :-
1. What is business and state its Characteristics.
2. Define Business. Write its Nature and scope.
3. Define Commerce and Industry. Write types of Industry and
Commerce and objectives of business.
4. Define Business. How evolution of commerce and industry took
place?
5. Differentiate between commerce and industry and also write
inter relation between trade, commerce and industry.
6. What are the reasons to start a business state its pros and cons
also.
7. How Business was during 19th century in pre Independence era?
8. What is Business system and environment which are the factors
affecting it?