CHAPTER I Definition of business : The term business is understood and explained in different ways by different people.

For some, business is an activity, for some it is a method of transacting, for sonic others, it is a method of money making and some people argue that business is an organized activity to achieve certain pre-determined goals or objectives. Dictionary meaning of business is: the act of buying and selling of goods and services, commerce and trade. Based on all these meanings of justness, we may define business as: gainful activity through which various elements of society conduct exchanges of the desirable things. In the olden days, the people engaged in different activities in a society were classified into four groups : Brahmnas, Shatriyas, Vysyas and Sudras, Of these our fold classification of social activities, the activities of vysyas included basically, facilitating exchange. Hence, business as an exchange activity remained since the days of exchange started. It could also be recalled that business as a social activity became popular only when the wants of different people in a society were to be met with the available resources. In other words, whenever there was a scope for producing something, which is wanted, then business activity automatically emerged. But now a days, business is viewed more as a profession or occupation. From the days of family owned business, we have reached a stage of professionals and experts starting and running business. It could also be noted that business administration and business management have emerged as the most prospective field of study and occupation. Persons with educational background in business, enter business or join business organizations to make them successfully function. Unlike the olden days, a number of interests are involved in business today, viz. owners, investors in business, suppliers, customers, employees, government, stake holders, administrators, managers, strategists, executives, and so many others. Hence, every business activity has to meet the goals or aims or objectives of these various groups of people. That in fact, has made business a most complicated activity. Modern business has a number of features. Understanding of these would help to appreciate and organize business activities in a highly professional way. 1. Business is an economic activity: Business involves organizing activities to satisfy human plants. These activities may result in the manufacture or production of a commodity or extension of a service. When a good or service is produced, resources are involved. Resources like human resources, physical resources and financial resources are all required to realize output to meet human needs. These resources are limited in supply, and so business involves identification of resources, evaluation of resource qualities, buying these resources and utilizing these resources. These resources being scarce in relation to their demand, the resources carry some value [i.e., price]. They cannot be procured at any cost to produce anything to meet human wants. So automatically selection among various resources come up which is made on the basis of requirement and cost. Once they are procured, then they are used in a very judicious manner so that there is no waste. That is optimal utilization-of resources is to be achieved. In this context, several decisions like resource selection, resource procurement, resource mix, resource utilization, etc. are all involved. As in all these stages, choice among alternatives is involved; every business activity is to be treated as economic in nature. Depending upon the business activity, the approach to selection among alternatives would differ. For

example, in a manufacturing business, the choice is about input selection to supply quality output, in a service organization the choice is about-inputs and delivery process, in a government organization it is about production and equitable distribution of output, in an institution like bank, provision of various investment opportunities of short term and long term to the public, etc. 2. A business organization is an economic unit: Every business organization is engaged in transforming inputs into output to meet the requirements of the people. The selection of input and size of procurement will depend upon, the size of the organization. This would also depend upon the nature or product or service extended/by the business unit. All these are attended with the objective of making profit or surplus. Only when there is surplus achieved, can the business units grow. Hence creation of surplus in a business becomes the focal point and this is best achieved through optimal utilization of resources. That way, all business units have to achieve the maximum output with minimum inputs which in other words is the effort to achieve economic efficiency. Only economic efficiency can enable firms to be efficient in every other sense. Therefore, business organizations are only economic units in nature. 3. Business decisions making is essentially an economic process: All business decisions involve selection from alternatives. In other words, the rational choice of inputs is implied in every business decision. Hence, to be rational, a business unit goes through the process of: determining objectives, identifying opportunities, generating alternatives, classifying these alternatives as feasible and infeasible alternatives, then rank the feasible alternatives on some criteria and then select those alternatives fulfilling the constraints. For example, if the objective of a business unit is to maximize profits, then this would call for minimizing cost and maximizing revenue. On the cost side, the business units have to identify, procure and utilize resources in the optimal way and on the revenue side, the business unit should determine the price which would facilitate maximization of revenue. Price determination again would depend on various factors like demand, supply, competitive scenario, government interference, statutory compulsions, conflicting interests of the stake holders of the business, etc. Therefore, every decision made in a business would automatically depend on the economic process. Changing concept of business It has been stated already that the concept of business has undergone a vast change. From a producer driven stage business has become consumer centered and driven stage. While the earliest concept was to sell what is produced' the modern concept is 'produce what is wanted' so every business depends on consumers and their ever changing needs. Any business unit which has successfully understood its customers and offers the product or service meeting their requirements alone is successful. But in this process, business units have to manage pressures from its owners and other stake holders. It should take into account the requirements of the workers and the trade unions. It should abide by the rules and regulations of a number of government agencies and institutions. It should meet the challenges and threats from competitors. Most important, it has to fulfill its social obligations. To survive every business unit has to also consider: the revolutionary changes in technology, market expansion, information explosion, competitor strategies. These are days when the consumers are better informed and so no business unit can afford to ignore consumer awareness and preferences. Technological development

has brought with it the compulsion to use modern methods and techniques. Social obligations have made business units to meet pollution norms, etc. Trade union pressures have made them to design satisfactory service conditions for the work force. Then there is compulsion to provide for development of human resources in the organization to achieve organizational development. All these have made modern business tight rope walking. BUSINESS ENVIRONMENT Business involves activities, which links an organization with outside world. Within an organization, a business is governed by the behaviour of its employees, management or decision makers. But externally a business is influenced by a score of factors, which range from customers to competitors and government. Therefore, a business cannot be independent of (he influence of these external factors. It should also be noted that a business has absolute control over all the internal factors; it has no control over the external factors. So often it becomes necessary for business houses to modify their internal decisions and policies, on the basis of the pressure from external factors. This highlights the need to be ever- cognizant of changes and influences of external factors so as to conduct business on healthy lines. It is in this context that business environment assumes all significance. Business environment therefore refers to the influences and pressures exerted by external factors on the business. Environment of a business means the external forces influencing the business decisions. They can be forces of economic, social, political and technological factors. These factors are outside the control of the business. The business can do little to change them. Following features: 1. Totality of external forces: Business environment is the sum total of all things external to business firms and, as such, is aggregative in nature. 2. (Specific and general forces: Business environment includes both specific and general forces. Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day-to-day working. General forces (such as social, political, legal and technological conditions) have impact on all business enterprises and thus may affect an individual firm only indirectly. 3. Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market. 4. Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries. 5. Relativity: Business environment is a relative concept since it differs from country to country and even region to region. Political conditions in the USA, for instance, differ from those in China or Pakistan. Similarly, demand for sarees may be fairly high in India whereas it may be almost non-existent in France. Importance of Business Environment 1. Firm to identify opportunities and getting the first mover advantage: Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors. For example, Maruti Udyog became the leader in the small car market because it was the first to recognize the

need for small cars in India. Recently, Nano (compact car by Tata) is based on the need assessment of medium and small size family. 2. Firm to identify threats and early warning signals: If an Indian firm finds that a foreign multinational is entering the Indian market it should gives a warning signal and Indian firms can meet the threat by adopting by improving the quality of the product, reducing cost of the production, engaging in aggressive advertising, and so on. 3. Coping with rapid changes: All sizes and all types of enterprises are facing increasingly dynamic environment. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suitable courses of action. 4. Improving performance: the enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period. The following Figure would help to understand the various factors which constitute the business environment. From the Figure: 1, it would be clear that business organizations function in an environment subject to the influence of various constituents. Earh one of the constituents have in turn a number of factors influencing them. For example, economic environment has micro and macro environmental factors affecting it. To develop a right perspective about business environment, let us discuss briefly about each one of the external environment constituents.

1. Demographic environment: This refers to the size and behaviour of population in a country. Suppose a country has a huge size of population, then, the country would provide extensive business or marketing opportunities for all types of business organizations. On the other hand, a country with low size of population would force the business organizations to seek external market for their products or services. Similarly, if the population in a country is well - tuned to 'use and throw concept [like most of the Western countries] then there

would be limited scope for repair shops and employment scope in that segment would be almost nil. But alternatively this would give wide marketing opportunities for manufacturing organizations. On the other hand, if the population is averse to 'use and throw' concept, then the business opportunities would be limited for manufacturing organizations but the repair shops, self-employed technical persons and spares manufacturers, would have roaring business. Hence, the size and quality of population emerges as a vital factor influencing business environment. Example: India most of the population is youth, that why focus is on youth and fashion products while in US where population is ageing focus is on security products like insurance, pensions plans, reverse mortgage. 2. Economic environment: Economic environment refers to the overall economic factors like economic philosophy of the country, economic structure, planning, economic policies, controls and regulations, etc. All these have a serious impact on the functioning of business organizations in a country. For example, in a Capitalistic economic system, business organizations would be subjected to limited government regulations and controls. They would be more governed by market forces [demand and supply] rather than by other factors. On the other hand, in a Socialist system, the government would determine everything on behalf of the country. In a Communist set up, the government has absolute control over every aspect over production that private enterprises may not exist at all. In a Mixed economic system, government would be selective in allowing die presence of private enterprises in certain activities, reserving some spheres completely for governmental operations. Hence, the economic philosophy of the country directly determines the scope and functions of business organizations in that country. 3. Geographical and ecological environment: Geographical environment refers to climatic conditions and natural resources, which determines flu manufacturing scope and the nature of the products that could be marketed. For example, a country like Kenya has to manufacture more of products based on forest resources, while the Gulf countries can produce only crude, Japan can have business in fish, fruits, etc., Countries in the tropical region would have organizations specializing in products from geographical resources available in abundant in that region, while organizations in Mediterranean countries have a Different business scope, Scandinavian countries have scope for dairy product manufacturing, etc. Similarly ecological imbalance is taking place at an alarming rate in the world today, that deforestation and hunting of rare species of animals for food are all prohibited now. Hence, while identifying the business opportunities, business organizations have to be conscious of the limitations posed by the geographical and ecological considerations. In North India people eat wheat and corn while in west they love to have rice, reason being these different area have different environment to produce different crops 4. Legal environment: It is well known that every country has a number of legal regulations to ensure that the interests of business organizations do not run counter to national interests. Right from the stage of incorporation of organizations, their listing in stock exchange, reprisal of customer complaints, payment of tax to government, manufacturing practices, human resources development to pricing of products and services, a number of legal regulations have to be fulfilled. For example, in USA and several western countries, consumer protection is

very active, that even a medical practitioner is subjected to huge liabilities in limes of deficiency in services. In India and other countries, very rigorous legal provisions arc in place to prevent hunting of rare species, that any organization, which manufactures products based on such species, have lo get legal sanctions. In case of failure to honor cheques issued, organizations are now a days made to pay hefty compensations. Hence, the deterrence in terms of legal provisions has become the order of the day. All organizations have to first of all address these provisions become coming in to steam. 5. Technological environment: This is a very significant external factor determining the destiny of business organizations. Supported by computerize operations, modem business organizations have succeeded in analyzing customers, minimizing the defects in products, ensuring service at the right time and place, etc. While communications use to take unduly long time in those days, business communications are instantaneous these days, thanks to modem satellite technology. Modern organizations have recognized that research and development alone can ensure organizational growth and stability. They have become more and more pro-active and remain as change agents of the economy. Governments have also become more technology conscious that right from police controls to registration of title deeds, computerizations has been adopted. Customer servicing through call centers is the latest necessity of organizations. Manufacturing activities have become more and more technically sophisticated. Therefore business environment has become highly dynamic. 6. Social environment: Social environment today has brought compulsions on business organizations to adhere to certain business ethics and morals. Social responsibility of business is an important force that modern business organizations cannot wriggle out of their duties and responsibilities towards the society. For example, every leather manufacturing or process unit is made to install pollution prevention system. Similarly, the expectations of various interests in the society have undergone a sea of change. The shareholders, promoters and owners expect a reasonable return on their investments. The workers expect security of service, terminal benefits, accident relief and various other compensations from the organizations. Government expects the business units to pay tax regularly and participate in social improvement. The distributors and agents expect the organizations to ensure smooth delivery process and demand more commission and compensation. Suppliers expect the organizations to give them continuous business and prompt payment of bills. Therefore each social group has a specific interest, the combination of all these, exerts enormous pressure on the business unit. A business unit which succeeds in meeting the interests of all these groups remains successful and grows. 7. Educational and cultural environment: Educational environment in a country determines the quality of population. A country with very high illiterate population would always experience political and economic instability. Similarly, lack of education may also give scope for the existence of superstitious beliefs, fatalistic attitude, etc. People's choice of goods and services would be more governed, by their religious faiths and beliefs. For instance, in the colonial days, the Indian population was a victim of the Britisher's divide and rule tactics. The economic development of a country completely depends on the literacy level which alone can pave the way for improvement in science and technology, modernization, industrialization, etc. In such a country, the business opportunities are plenty.

Cultural environment refers to the values, norms, customs, ethics, goals and other accepted behaviour pattern of people in a country. In olden days, religion was the basis of all activities in a society. The religious leaders and institutions determined what business should do and what people must consume. In India, the existence of caste system has done more damage than any good. Caste based politics has become the order of the day. Under the pretext of working for backward and downtrodden people, several persons have amassed fortune. This is worsened by political support and policies. A modern organization does not have the liberty to recruit people on merit but it has to follow strictly die reservation policy of the government. Another serious aspect of the cultural environment is the attitude and behaviour of the people in urban and rural areas. The urban - rural divide has created enormous problems for administrators and specifically business organizations prefer urban educated person to persons from rural areas. 8. Political environment: Political stability is one important factor winch determines the business growth or downfall. A country with relative political stability would witness inflow of foreign capital and collaboration. By political stability we mean that the policies of government remaining consistent. As the business decisions arc based on government policies, frequent changes in these policies would force business organizations to change their policies too which, makes functioning very difficult. Sometimes, when the policies determined by a party in power are reversed by the succeeding party forming the government, there would be far reaching changes in business environment For example, India was following a policy of protectionism till late" 1908's. Hence, the industrial development and economic development could not take place at a rapid rate. In the absence of competition, the business organizations, made people to accept inferior quality goods and services. Once, the liberalization policy is adopted in 90s, the scene has completely changed. Today, no business can survive unless it provides quality goods or services on par with the multinational corporations. Another aspect of political environment is the political ideology with which a party is wedded to, would make the government tow the lines of countries with similar ideologies. Until the disintegration of USSR, India was simply following USSR's lines, but after the disintegration, India has to literally fend for itself. With the pressures mounted by the Western countries, India had to accept various trade and monetary policies. This has brought about a complete change in business environment. NEED TO SCAN ENVIRONMENT Having discussed very briefly the features of each one of the constituents of business environment, let us discuss why the environment should be analyzed by the business organizations. It is well known that business enterprises cannot remain independent of the society and the institutions. So whatever decision they take as to be in tune with the requirements of society and the dictums of the institutions. A business organization has to continuously monitor the environment so as to identify the business opportunities and threats. By exploring its strengths and minimizing its weaknesses, if the organizations can capitalize these opportunities and effectively thwart the threats, then it would be able to grow. Let us elaborate this with an example. Suppose an organization wants to introduce a new consumer durable product in the market. Then it would study whether there would be demand for this product and the product would be accepted by the society. At the outset,

the organization would examine whether the product would suit the culture in the society. Suppose the product is 'use and throw' type. Then people would certainly be influenced by this feature of the product while evaluating the price of the product. In India, such a product would never be accepted as the culture here is to lengthen the life of every product by repairing it. Similarly suppose the product requires some critical component from abroad. Then unless the government policy is favourable the component has to be imported at a very high cost, which in turn would drive the price up. .Suppose the product is only one of its types, the organization would then emerge as a monopoly supplying the product. This may not be tolerated by the government. Suppose the manufacturing of the product involves advanced technology, then the type of human resources required would be well educated and trained. Obviously this will rule out the job 'opportunities for persons educated in rural areas. Further, if the manufacturing process involves scope for pollution, then the organization has to address it in relation to the provisions of the pollution control norms. Hence, in every decision of the organization, the external environment has an important role to play. Any future plans of expansion and forecasting of demand will depend upon the changes in the business environment. These changes may include both the current and expected changes. Unless these changes are also foreseen, decisions taken would turn out to be suicidal. In the case of organizations which have been pro-active, the changes in the environment do not affect them much. But those which fail to understand from their own experience or that of the other changes would remain challenges for ever. Among the various constituents of business environment discussed above briefly, we will focus on the following constituents and discuss them in greater detail. The constituents now elaborated are: Economic environment, political environment and cultural environment.

Economic Environment: The economic environment is composed of various set of economic policies,
economic system, strategy of economic growth and development, resource endowment, size of market and status of infrastructural facilities in a country. All these affect the business environment one way or the other. To understand the impact of these on business environment, let us discuss each one of these components in detail. Economic policies: Economic policies include fiscal policy, monetary policy, foreign trade policy, licensing policy, technology policy, price policy, etc. These policies lay the framework within which every organization has to function. A] By fiscal policy we mean, the government's tax efforts, public expenditure and public borrowing. Through these the government can effectively encourage consumption, investment and savings habits and also restrict them. For example, suppose there is inflation in a country. Inflation implies that the people have high purchasing power and so they demand goods. To curb this, the government may raise the personal tax and also the corporate tax. Consequently, individuals will be left with lesser disposable income and to minimize tax, they may start saving through various tax -saving schemes. As far as the corporate are concerned, they have to part with more by way of tax to the government and this would bring down the rate of profit and dividend declared. As a result the corporate would resort to upward price revision, which might lead to further fall in demand for their products

and services. During deflationary period, the government would reduce the tax so as to encourage more spending and investment. Even in tax policy, the government can be selective in taxing more of rich and exempting the poor completely. This would facilitate income re-distribution and improve the conditions of poor. Similarly, by altering its expenditure on various public projects, the government would be able to influence the prevailing economic condition. Government expenditures are incurred on infrastructural development, public utility services like hospitals, new industrial units of very huge size, etc. For instance, suppose there is inflation in a country. The government would reduce its level of expenditure, thereby reducing the income of the people. With lesser income, the demand would, go down and so the price. At the time of deflation, the government would expand its public expenditure by investing in a number of public projects, so that there will be income generation find demand generation which will revive the economy. Public borrowing is one more instrument in the hands of the government to influence the economic condition in a country. This involves government issuing bonds and encouraging common public and other institutions to buy them. By this, the government would be able to bring down the level of purchasing power in the economy and control the inflation. During deflation, the government would redeem the bonds and so with more purchasing power, the economy would be able to revive. B] Monetary policy refers to the set of policies determined and implemented by the central bank of a country to control the economic condition. The central bank of a country has the basic responsibility to maintain the price level and money supply in a country. This is possible only when the central bank has certain instruments. These instruments available with the central bank to control the money supply and price level are called monetary policy instruments. They are called Credit control policy. Credit controls can be of two types: Quantitative credit controls and Qualitative credit controls. The former aims at limiting the money supply, while the latter is used to channelize the available credit in the country. Quantitative credit control policy includes three tools: bank rate, open market operations and variable reserve ratio. Bank rate refers to the rate at which the central bank would re-discount the eligible bills already discounted by the commercial- banks. By revising the bank rate upwards, the central bank would be able to make the discounting by business organizations with commercial banks costly. This would discourage discounting and thereby money supply in the economy, would come down. Alternatively, by lowering the bank rate, the central bank makes credit available at a cheaper rate, and so the business organizations would go for a larger discounting of eligible bills with commercial banks. This liberal credit policy would have expansionary effects on the economy. Similarly, using open market operations, the central bank would buy or sell the securities in the open market and through that increase or contract money supply in the economy. For example, suppose there is inflation in an economy. To bring down the money supply, the central bank would sell the securities it has which will be bought by the commercial banks and other institutions. In this process the excess money with these institutions would be siphoned off, there by they have to restrict credit. Alternatively when there is deflation, the central bank would buy the securities and the money equivalent transferred to the banking system would facilitate adoption of liberal credit. Variable reserve ratio refers to the increase or decrease in the quantum

of Statutory liquidity ratio and the Cash reserve ratio which the commercial banks have to maintain as a proportion of their total deposits. By increasing the ratios, the commercial banks would be left with lesser volume of funds and so they can lend less. By reducing the ratio, the commercial banks would be left with more funds with which they can make lending liberal. All these policies would have a direct impact on the business organizations and their operations. Through qualitative credit controls, the central bank can : regulate consumer credit, alter the margin requirements, resort to persuasive efforts, take direct action on erring commercial banks, etc. Through these policies, the central bank would be able to regulate and direct the available credit to the priority sector and discourage credit for less priority or no priority sector. Hence, business organizations, which fall under priority sector, would be able to expand their business with cheap funds and assistance C] Foreign trade policy determines the scope for trade between countries. It would directly affect the business prospects of the business organizations. A liberal policy would extend the scope for exports and imports, while a restrictive policy would narrow the scope. Similarly, if protectionism is favored, then the business organizations will have lesser market threats from multinational corporations. Alternatively if liberalization is the policy, then every domestic business organization has to tune itself to every type of challenge posed by the business giants from abroad. Foreign trade policy also includes the exchange rate policy and exchange controls and customs duties. All these are fundamental to the growth of a business organization. For example, suppose there is full" convertibility, then the business organizations would be able to export and import and make payments with lesser restrictions. On the other hand, if there is only partial convertibility, the scope for trade is correspondingly less and the business organizations have to go through a sickening process of getting licenses for export or import and route all their payments through proper channel. Customs duties also play a vital role in determining the volume of external trade. A rise in customs duties would discourage domestic demand because the price of imported goods and services would go up find remain at a high level compared to the domestically produced goods and services, A reduction in customs duties would encourage imports and be favourable to the domestic manufacturers. Government frequently changes the foreign trade policy, keeping in view the requirements of the country and the economic condition. To tide over the Glance of payments difficulties, government may resort to various policy measures like devaluation, exchange clearing agreements, tariffs and duties, exchange control regulations, etc. These tools would be suitably modified to achieve the desired goals. For example, to encourage exports and discourage imports, the government may devalue the currency, by which the imports of Indian goods abroad become cheaper and the imports of foreign goods in India become costlier. Hence the business organizations have to continuously monitor the changes in the trade policies so as to position themselves accordingly. D] Licensing policy: In the pre-liberalization days, India adopted licensing policy in regulate the growth of industries in India. Since the days of independence, India adopted licensing policy, which in effect made the government control the growth of independence in accordance with the national priorities. For example, in India,

till 1985, the industries in India were classified into four categories: industries completely owned by public sector, industries where both public and private sector participation was permitted, small scale industries and collage industries. Except the first category in all the other categories, private sector presence was permitted through licensing. This was resulted in several adverse effects, which were all explained in detail by the Dutt committee report. But till 1985, liberalization was never accepted as a part of growth strategy. But after 1985, the situation slowly changed that by 1991 India adopted a policy of liberalization. Consequently, the business scope and prospects of the Indian business organization changed since 1991. As has been already pointed out they were exposed to market competition and threats after liberalization. Performance has become a necessity for survival. By about the end of 20th century, the government also proceeded to disinvest several public sector units thereby opening up the challenges all the more for Indian industries. Therefore, the licensing policy and its direction have a lot of impact on the business organizations. E] Technology policy: One of the most important economic policies is the technology policy. Improvement in technology is a condition for growth and survival in any organization. From a stage of man-dependent environment, the business organizations are all fast becoming machine-dependent [computer dependent]. Right from the stage of enquiries down up to planning the logistics, computers are widely used. Only from the mid 1990's the government started adopting a favorable technology policy. Apart from permitting free imports of computers and components as well as telecommunication equipments, the government has devised a number of schemes like Software Technology Park, to give a Phillip to the technology in India. Computerization has come to stay in telecommunication, railways, roadways, postal services, educational services, medical services, engineering, financial services, etc. This liberal technology policy has resulted in the growth of new industrial segment, viz., and information technology. Millions of youngsters get trained and are gainfully employed. Indian software engineers are considered as the best in the world and several of the multinational corporations depend on Indian supply of trained software and hardware professionals. The business environment has completely transformed over the past five to six years that unless organizations also accordingly change themselves, their survival will become a serious question. F] Price policy refers to the controls that government has on the price in a country. This is necessary, because unless price is controlled, there is bound to be inflation and then economic instability. Further in Indian context, nearly 35% of the population is living below the poverty line. They do not have any permanent employment. Especially the rural poverty is very serious. To overcome this situation, the government resorts to price control policy. All the essential and basic necessary goods are subjected to price control. While the poor and downtrodden are provided the essential goods at a controlled and subsidized rate through public distribution, the others are expected to meet their requirements through open market. Through demand and supply management, the government makes all the efforts to keep the prices under--control. For instance, by building up buffer stocks, the government overcomes the shortage of food commodities during adverse period. Similarly, specific concessions are given to industrial units located in backward regions and rural areas. This helps them to run on sound basis. As regards the manufactured products, the government adopts the administered price mechanism to

control the prices. For example, the cooking gas is supplied to the public at one price, to the commercial establishments at a different price. This helps to minimize the strain of the population using LPG as cooking media. Similarly till April, 2002, petrol and diesel were subjected to administered price controls which now in 2010-2011 have been completely deregulated to match the purchasing cost. Sugar, cement, etc., are also subjected to administered price. Hence, through price policy the government protects the interests of the people and this policy has a direct impact on the functioning of the business organization in our country. Economic System: Having discussed the effect of Economic Policies on business environment let us examine how far the economic system is an important factor influencing business environment. Economic system refers to the organizations and institutions created for the purpose of satisfying the wants of human beings. In a country, available resources have to be utilized to manufacture and distribute goods and services, which would meet the needs of the people so that they are satisfied. These institutions and organizations function with their own rules and regulations. The economic system has certain broad characteristic. 1. The economic system always functions with scarcity of resources. How the system effectively and efficiently uses the resources will determine the extent to which the needs of the people are met. 2. An economic system comprises people. That is, a society of human beings alone can constitute economic system. 3. A set of institutions are created and used for the purpose of smooth functioning of an economic system. For example, banks, money, technology, government, price mechanism, planning etc., are all institutions through which the systems operate. 4. The basic objective with which an economic system functions is to satisfy the wants of the people. Unless there is want for a commodity or service, nothing can be produced. Hence, the economic system allocates the resources in such a way that the wants of the people are satisfied. On the basis of the above characteristics of an economic system, it should be clear that the economic system is very dynamic in nature. That is, the economic system undergoes changes with every change in the institutions, though the rate of change would differ from institution to institution. The economic system functions to answer three vital questions: a] what to produce b]how to produce and c] for whom to produce. Answering these questions assumes enormous significance as that would determine every activity within a country. The first question 'What to produce' depends on what is wanted. The economic system would throw signals through which the requirements of the people could be understood. But not all wants could be satisfied. This is because; a country may not be gifted with all the necessary resources to produce all the goods. Hence, depending upon the resource endowment a country would decide what it could produce. Then there is a problem of

prioritizing the available resources among the goods to be produced. Resources should not be used for the production of unwarranted goods. The production of goods, which are harmful to human beings, like narcotic drugs, should be prevented. Hence, considering the availability of resources, the economic system should opt to produce only goods that would satisfy the wants of human beings. In this context it is also necessary to weigh the individual requirements and the national requirements for goods. The latter should be given preference over the former. The second question How to produce addresses basically, issues relating to selection of right strategy, technology and investment. For example, a country like India, with very huge population should not prefer capital -intensive technology, as that would lead to more unemployment of human resources. Similarly, while selecting the technology, a country should weigh a number of considerations like relevance of technology, cost of technology, support in case of failures, consequences of the technology used, etc. Another vital aspect is the investment that a country has to make while selecting the strategy and the technology. A very important question is whether the available funds should be invested in sophisticated research and development or meeting the basic needs of the people. Hence, the second question would ultimately determine the efficiency with the available resources are utilized. For whom to produce implies that based on the resource utilization, the country as a whole should benefit and not a few segments. Hence, having produced the goods and services, how they could be equitably distributed is an important aspect. The distribution of national product would differ from country to country depending upon the economic system in vogue. It has been already pointed out that the way in which the above three questions are answered depends on the economic system which functions in a country. To understand how these answers differ among the economic systems, we should understand the different types of economic systems. In the next section, the details of different types of economic systems are discussed. Types of Economic system Economic systems may broadly be classified into three categories: Capitalism, Socialism and Mixed economy. A number of other types also emerged but all of them came close to any one of the above three types of systems. Such systems include: communism and Marxism Let us now discuss the features, strengths and weaknesses of each one of these systems. 1. Capitalism: Capitalism is an economic system based on the principle of free enterprise. Individual ownership of resources is an important feature. With control and command over resources, individuals can conduct any type of business. The object in such a system is to maximize private gains. Any type of enterprise or production of any commodity or service is permitted, so long it is wanted by the society. In such a system the market forces determine the resource allocation and price. That is, the demand and supply forces together determine what to produce, how to produce and for whom to produce. Price mechanism is the nucleus of the capitalistic society. The price mechanism clearly reflects the wants of the people. Once this is known, the producers would allocate

the resources to manufacture and sell the products in great demand. While doing so, there is no control or regulation over production. In other words, oligopoly environment prevails. But each producer differentiates his product that he would be able to stay in the market. Technology and innovation ensure the stability and growth of organizations. As a result only efficient organization would survive. The resources would be fully utilized. The system is so flexible that it can adjust itself for any economic condition. The workers get equal opportunities and those with skills would be able to command better wages and salaries. On the whole capitalism offers scope for growth of efficient individuals and organizations. But capitalism has a number of weaknesses. The important ones are discussed below. 1. Economic inequality is invariably found in capitalistic societies. Individuals and organizations with ownership of resources and hold over the market for (heir product or service, would be able to maximize their gains. Those who have no such property would remain poor and become poorer. So it is said that under capitalism, rich becomes richer and poor becomes poorer. The inequality in wealth and income widens over a period under capitalism. 2. The scope for the emergence of monopolies in capitalistic societies is very high. Organizations by virtue of their economic power would be able to easily eliminate rivals and competitors in the market. There is also possibility of such monopolies influencing the government in policy making and intervention. 3. Though it is said that capitalism would always lead to ideal allocation of resources and fuller utilization of resources, in reality the experience is that resources are held by individuals and organizations and under utilization is the result. Sometimes, products which are not really national priority are produced and forced on the public, through advertisements and sales promotion techniques. 4. Though it is expected that in capitalistic societies the output would increase to optimal level, in. practice this is never found. Producers always restrict output to maintain a high price and also maximize profit. So excess capacity would exist in many industries. 5. In a capitalistic society the divide between the haves and have-nots widen that over a period. Existence of poverty among the sophisticated sections of people is also seen. This results in built up of frustration in the society. Over a period this might lead to revolution and social upheaval. 2. Socialism: Socialism refers to an economic system in which the following features predominant: The resources are owned by the State or state owned institutions. Production takes place in the interest of the society and not for maximizing profits of individuals or organizations. Government decides the type of productive efforts to be permitted. In other words, in a socialist country, government can adopt licensing system and other types of regulations to prevent the emergence of monopolist and exploitative tendencies. Maximization of Community welfare is the objective than profit maximization. Another very important feature is the government ensures equitable distribution of national product. Public distribution system assumes enormous significance in such an economic system. On the whole, the socialistic society differs from capitalist society in every sense. In the broad spectrum of economic systems, socialism and capitalism occupy two extremes. In the

world today, pure capitalistic society is not seen in any country. Even in USA, government interference in various economic activities is found. For example, in the field of national defense, atomic energy, space technology, social security, etc., the presence of government is almost complete. Government also retains the right to interfere in the market system, whenever there is deliberate and intentional attempt to monopolize the resource ownership or the market. Similarly, in the erstwhile Soviet Union, socialistic principles were followed. But even here, there were instances of private ownership of property, enterprises, etc., were reported. That is why it is very difficult to come across pure capitalistic or socialistic societies. The merits of socialism includes: 1. Collective ownership eliminate emergence and existence of monopolies. 2, Resources utilization is planned and achieved in the interest of the society. 3. Government with its control over the resources is able to use resources fully utilized and avoid wastage and production of unnecessary goods. 4. As equality in distribution is the fundamental feature of socialism, there is no scope for widening inequalities rind the government takes steps to narrow the gap between the rich and the poor through various measures. However, socialistic states suffer from the following limitations: 1. Excessive dependence on government decisions often result in delay in offering any public service. 2. Bureaucratic control becomes an integral part of the socialistic principles. As a result the benefits and its direction of flow is determined by the bureaucrats. 3. Government by undertaking excessive responsibility on its shoulders abets inefficiency and corruption in the society. 4. No incentive and motivation for individual excellence or achievements is possible in such a society and so innovations and inventions do not really lake place in large scale in such a society. 5. With governmental presence in every walk of life, efficiency and productivity suffer. 6. Lack of support for individual liberty kills initiative. 3. Mixed economy: There was no reference to the mixed economic system in Economic literature in the past. Economists were mainly familiar and advocated the Laissez faire or free enterprise system, as several countries could develop fast following the free enterprise system, in which there was no or little government intervention. The entire economic system operated with the price mechanism at its center point. The producers produced what the consumers wanted and this provided very little scope for the government to intervene in the system. The Classical economists and their ardent supporters believed that the invisible hand will direct the economy and with private initiative and enterprise, every country should be able to record a faster growth as proved in the case of UK, USA, Europe, Australia, and other countries. But over a period under the leadership of Karl Marx, a new economic system was developed called socialism, in which there is no scope for any private enterprise as everything owned and controlled by the government. The government decided the type of developmental activities and me requirements of the society and used the available resources in the provision of these requirements. Several countries like USSR, Communist China, Vietnam, Cuba and others preferred this socialist system in which government is made the custodian of the society. The main reason for Die emergence of this new economic system was the failure of capitalism during the 1929 depression to revive every economy from depression. Keynes himself thought that capitalism without

some of its evils could certainly help economic recovery. Hence, a time came when economists felt that cent per cent free enterprise or cent per cent government governed economic development cannot work satisfactorily. A compromise between these extremes was thought of as an ideal economic system. The new system called 'mixed economic system' contained the merits of both the capitalism and socialism and appeared to be full of promise. This mixed economic system is adopted by India as indicated by the First Industrial Policy Resolution 1948. Characteristics of mixed economy: i. Co-existence of public and private sectors: In a mixed economy, one will find the existence of both the private and public sectors. In such a system, the government will undertake the responsibility to build and develop certain sector activities and leave the other activities for the private initiative. In India, the government announced the adoption of the mixed economy system through its 1948 Industrial Policy Resolution. The government clearly earmarked the industries to be completely under the state control, the industries which are to owned and controlled by the state as well as the private sector and industries which are completely left for the private sector. In this way the Resolution provided for the simultaneous existence of both private and public sectors. ii. State participation in economic development: This is the second feature of mixed economy, according, to which the state reserves its right to design and decide the type of development to be achieved. In such a set up, the government strives to promote the welfare of the country by ensuring social order, social justice and establishing all the necessary institutions which are required to achieve the desired pattern of growth and development. iii. Distribution of ownership and control of resources: This is the next feature of mixed economy. In this system, the government itself enters the field of production so that the available resources are fully utilized. This will also help to avoid concentration of wealth in the hands of a few and enable distribution of ownership and control of productive activities. As a result there is no scope for exploitation of any group, say labor, by any other group. In this way the weaker section of the community is well protected and taken care of. Only the mixed economy will enable the government to attain the objectives of the Directive Principles of the Indian Constitution. iv. Directing the investment in socially desirable projects and channels: Mixed economy facilitates the flow of investment into channels which confers the society with several benefits. For example, the Indian government has invested huge amount in several projects to develop the infrastructural facilities. This forms the basis for the development of other sectors. The investment in these infrastructural areas will not come forth from the private sector as the return is nil. Hence, the government in a mixed economic set up provides the thrust by developing the necessary background and strength which will encourage the private sector to invest in profitable opportunities. In this way the government plays a key role in a mixed economic system. v. Scope for achieving balanced economic development: I Left to itself, the private sector would establish its enterprises only in urban or sub-urban areas and that too in already well developed states. This will mean other areas will have no scope for development. But in a mixed economy, the government will itself undertake the

initiative to set up industries in backward areas and encourage the private initiative to set up industries in such areas by offering several concessions and exemptions. In the absence of nixed economy, several states in India would have remained industrially backward. vi. Ultimate control and regulation in the hands of government: This feature of mixed economy clearly spells out that in every activity affecting the economy, the government will be the ultimate authority. Though the private sector is assigned its role to perform, the government will still monitor and control the way in which the private initiative is performing its role. Infact, according to the 1948 Industrial Policy Resolution, the government made it clear that the industries already established by the private sector belonging to that category in which new industries will be established by the government alone, the government would undertake the review of the working of these industries in private sector after a period of ten years and if found not satisfactory, they would be taken over by the government. Though this was criticized as a threat of nationalization, yet through such a provision the government underlines its authority. Similarly in the banking and insurance sectors, the government nationalized banks emphasizing its powers to control and regulate any sector. vii. Co-operation in the field of economic development: According to this feature of mixed economy, the government formulates the design for development and invites the private sector to participate in the development. It clearly spells out the guidelines which would govern such cooperative efforts and the limits of freedom granted to the private sector. In Indian case, the government prepares the plans for development and spells out the areas left for the private initiative and the areas that will be under state control. Hence, there is scope for the development of private sector, though only according to the design developed by the government. Planning process under mixed economy: As has been already stated, in a mixed economy there is a need to achieve a compromise between self-interest and social interest This is a very difficult task as the government has to carefully foresee the type of development it wants to achieve and closely monitor the activities of the private sector to ensure that the social interest is never at stake. Obviously, planning is a very difficult exercise in a mixed economy set up. The success of planning will depend upon; i) the extent to which the public sector is able to rise to achieve the social gains aimed for, ii) the success of the state in guiding and regulating the private sector activities towards social goals and iii) the extent lo which (lie state is able (o check the distortions taking place in investment by private sector affecting (he interest of the public sector. Hence in the planning process the state has taken up the following steps to ensure the accomplishment of the objectives of the mixed economy, a) By holding complete ownership of defense and heavy industries, the government has provided an industrial base with which the private sector is expected to plan its investment activities. b) The state also has made huge investments in economic infrastructures so as to help the extension of market for goods, raising the productivity in agricultural and industrial sectors, encouragement of further productive investment c) The government has complete control of the financial institutions including banks so that it can ensure that the banks and other institutions play a key role in the development activities of the state. The government could also realize the expected gains by encouraging the priority activities in every sector. The economic institutions are made to support the weaker sections of the community.

d) Through powerful legislations like MRTP Act, FERA, etc., the government could ensure that there is no scope for exploitation of the common people by the private enterprise. Such a legal framework lays down the rules of the game and ensures fair play in a mixed economic set up. e) As a method of protecting the weaker and downtrodden people, the government has policies like rationing, price controls, etc. Such regulations are built in the planning mechanism itself, so that the private sector cannot exploit the community. f) Towards the improvement of welfare in the economy, the state has undertaken several specific programs aimed at specific target groups. For example schemes aimed at the backward and schedule tribe providing them reservation in educational, employment and other opportunities, rural oriented schemes for the rural folks, health for all schemes, provision of free educational and medical facilities up to a certain level, etc. All these schemes aim at improving the social welfare. In all these activities the private sector is also welcome to play its role. g) The government makes effective use of the tools of fiscal policy viz. taxation and public expenditure, so as to achieve the objectives of economic planning. Distortions in the planning process: We have explained above that the fundamental objective of the mixed economy is to subordinate the self-interest for the national-interest whether this has been achieved in Indian situation is a moot question. In spite of various types of regulations and controls, the fruits of mixed economy have not appeared to have reached the common men. Even after four decades after the adoption of mixed economy principle, we come across glaring distortions which go to prove that mixed economy in practice has not been very effective. This is mainly because of the influence exercised by the private enterprise through political influence, corruptive activities, dishonest bureaucrats, powerful national and international lobbying, etc. The extent of distortions could be understood if we study the following points: a) One of the basic objectives of Indian planning is to eradicate poverty, but five decades after the adoption of planning strategy, the proportion of population below the poverty line has not significantly changed. b) The planning mechanism has failed to check the rise in price level. Inflation has come to stay in India with no policy being effective. When double digit inflation is controlled and results in single digit inflation, the country boasts of having achieved something very great. c) The emergence and existence of black money is yet another yardstick to prove the failure of the mixed economy. The high level of taxation has only resulted in effective tax evasion and tax avoidance. As a result the distance between the rich and the poor remains wide. d) Till date there has been no effective method to prevent the concentration of economic power in the hands of a few. The rich becomes richer and the poor, the poorer. e) In spite of five decades of planning, unemployment is very much on the increase and the backlog in every plan is assuming dangerous proportions. This is mainly because of the failure to control fee growth of population and the adoption of capital intensive production techniques.

f) The failure to achieve re-distribution of income is yet another glaring distortion. All the efforts to bridge the gap between the wages of rural and urban workers or increase the real wage of the working class has not succeeded. When we study the above points, it is clear, that mixed economy has not carried us in the desired direction. This is mainly because of the inability of the government as it is frequently yielding to the pressure exerted by the vested interests. Even the recent liberalization measure could be viewed from this angle. But a country cannot remain independent of the international pressures, especially when India is depending upon the IMF and EBRD, all its internal policies are indirectly governed by these lending agencies: Whether this is right or wrong is a question that could be answered only after we evaluate the gains of liberalization policy. But on the whole, the expected benefits of mixed economy have not been realized as is clearly proved by the distortions discussed above. 4. Marxism: Marxism is essentially socialism in different garb. The pure socialism is proved to be impractical and it made role of government the center point. Most of the government could not fit in this role effectively. Further capitalism with its explicit goals threatened the success of socialism. It was at this juncture that Karl Marx came up with his ideology, which led to the evolution of Marxian socialism. Marx succeeded through his logical reasoning that economics dominates every activity of a society. This leads to class struggle. When one struggle is tackled another one crop up. The continued onslaught of the capitalist on the society would result in the creation of haves and have-nots. This division of the society would widen with the continuance of capitalism, which ultimately will result in class struggle. Marx explained through his theory of value that every product should be valued in accordance with the value of labor contained in it. But the laborers are rewarded at a very much lesser rate than what they create. That is,, every laborer contribute more by way of his work to produce the product but he is paid a very low wages. The difference is the gain realized by the capitalists. The capitalists would accumulate profits this way at the cost of worsening labor condition. Over a period the divide between the proprietary class and the labor class would widen that much, that there would be social upheaval. Karl Marx predicted class war and argued that unless the capitalist class realizes this, there would be severe impact on production and economic condition of a country. His argument came true in the case of France that the French revolution broke out in 1789. There were similar problems in different parts of the globe, like in erstwhile USSR [Scissor's crisis], and China. China especially remained a closed economy till early I990's. But in China, the Marxism led to the emergence of communism. This is discussed in detail below. Though Marxism held sway over a number of countries for some time, yet it has inherent defects. Firstly, Marx's view that all activities in all countries are basically economic in nature is not true. Secondly, his argument that class struggle continuously takes place in every country did not hold water. A number of other reasons of economic, social and cultural nature led to the struggle and not the way Marx predicted. Thirdly, the theory of surplus value could not be applied in practice in service industry. Fourthly, Marx never took into the interference that a government could make in case of exploitation of society by the capitalists.

5. Communism: Communism is Marx's prediction at the fall of capitalism. Marx argued that the widening inequalities in a society coupled with class struggle should ultimately sound the death knell of capitalism. He is of the view that when capitalism falls, the communism will emerge in which, the laborers will lead the country. The government will own all the resources and determine the needs of the society. It will also decide various other issues of macro and micro importance. Government will turn out to be the custodian of the society and in a pure communistic society; people will lead a life where basic necessities are provided by the government. Unemployment will be very low as every one is occupied in some avocation or other. But the way in which communism was practiced in China created an impression that the government would be oppressive in its approach that the people will lead a life of slavery. One has to work to earn his bread. Military type of regimentation was enforced that common people were subjected to absolute control and regulation by government. The economy remained closed without any international relations, both economic and social. There were no two party systems that the nominated representatives of the Communist party attended to all the governmental responsibilities. Market mechanism is completely absent in such a system, as government determined everything on behalf of the country. As has been already pointed out depending upon the economic system, the business environment will change. In a capitalist system, the environment provides opportunities for every one who wants to maximize gains. In a socialist system, the government undertakes the responsibility of providing everything to the citizens. In a Marxist economy, it is ultimately the laborers who will hold the reins. In a Communist economy, it is the group of administrators who run the economy in the interest of the economy.

Political Environment:

It is well known that the business environment in a country is very much

interlinked with the political environment. The political environment simply means the political ideology which is adopted by the government. In a democratic country like India, this political ideology changes as and when there is a change in the party ruling the country at the Centre and the State level. A number of examples could be cited to prove how the political ideology has influenced the business environment of the country. Before independence, under the guidance of Mahatma Gandhi, India was wedded to the policy of Swadeshi. That is, Gandhi advocated the use of only Indian made goods and to completely abstain from imported goods, specifically British goods. As a result immediately after independence, Indian government followed a restrictive, trade policy imposing very heavy customs duty on imported goods. This was thought that such a policy would help to achieve both the political commitment as well as protection of domestic producers from the invasion of foreign-manufacture-s and traders. A deeper look into such a policy would reveal that India never wanted to entertain a policy of allowing foreign trading activities on Indian soil as this would lead to colonization. After all the British East India Company entered the Indian shores under the pretext of trading with India in 1600 AD and the country had to pay a heavy price for the next 350 years being a colony. Hence, a restrictive trade policy was very much favored by every one and in such an environment the business environment was such the domestic producers could operate under the umbrella protection of the government.

This is also evident from the Industrial policy of the government in 1948, which clearly posed a threat to foreign interests in India. At the same time, the Indian government was very much influenced by the Russian type of planning. Being a declared democratic socialist country, India adopted planning as the strategy of economic development. The First Five Year plan was formulated and implemented without relying much on industrial development, when at the end of the I Plan it was realized that growth is impossible without industrial development, a shift focus was necessitated that the government gave emphasis on industrial development. But here again, the government approached the issue with caution. It felt that a controlled and guided industrial development would yield better results than a free unrestricted industrial development. The consequence was the Licensing policy. Though imports were permitted, industrial development through collaborative efforts with entrepreneurs abroad was subjected to a very critical scrutiny. When the Licensing policy led only to concentration of economic power in the hands of a few private sector units like TATA, Birla, and others, the government brought in the Monopolies Restrictive Trade Practices Act, in 1970. This has on the one hand put a check on growth of monopolies in India, on the other hand the industrial development was not taking place at a desired pace. The seeds for liberalization were sown in 1985, when the government felt that India could achieve miraculous growth through this liberalization course, it proceeded in that direction. This culminated in the introduction of Liberalization policy in l99l. This resulted in a peculiar scenario in which democratic socialism with capitalistic ideologies existed. Throughout the four decades after independence, India's policies were more governed by the political factors rather than economic necessities or compulsions. Hence, at the beginning Indian government adopted a purely socialistic pattern of development strategy while by 1990s development by subscribing to capitalistic pattern has become the reality. This shift has a great impact on the business environment that domestic business today has to realign itself to survive and grow, in a competitive atmosphere.

Cultural environment: Culture refers to the behaviour, attitude, and way of living, belief, faith, law and
custom of people in a country. It; could be immediately understood that these aspects would differ from country to country and also in different regions of the same country. It is always said mat the culture determines the people's preferences, which directly determines the success or failure of business. Hence, cultural, environment has a direct impact on business. A number of examples could be cited to prove this. In olden days, eating in hotels was considered unhygienic and majority of the people never used to accept food from outside. But today, even the orthodox/ people freely take their requirements from fast food restaurant. This change has come about, because of the changing culture in the society. For instance, with the presence of a large of multi national corporations, the executives working in such organizations are very well paid that they rarely find time to spend on food. Such executives prefer working lunch rather than lunch. So provision of such working lunch should not take time and if food is made available readily without any time loss, then the executives would be able to save their time. Further when executives leave home very early, it is impossible for them to prepare some food and get for their lunch. So when their working lunch requirement is met nearby by

their work Spot in am ambient atmosphere it would be welcome. This has given a fillip to the growth of Fast food restaurants. In this manner, certain new cultural practices are transmitted to the society. Similarly, regarding the requirement of clothes, people are slowly switching on to ready made garments of different varieties and design. Sensing this, several international brands in ready garments are entering the market. This is how the business adapts itself to the cultural environment in a country. Business also conducts research continuously for the purpose of innovating and inventing new products and uses for the existing products. It is through this process that several consumer durable products like wet grinder, mixer, washing machine, geysers, etc., have been introduced in the market. Having created them, the business impress upon the people to use them as time saving devices. Hence, cultural environment can create business opportunities. Any organization which is able to sense the business opportunity and capitalize it, would be able to succeed and grow. But it should be noted that changes in culture do not affect every part of the country or people in the same way or at the same time. It is possible to observe certain^ regions/people lag in adopting a particular culture. This is what is referred to as cultural lag. For example, even to day in rural areas, certain practices like untouchability is found, though it is a crime. Such cultural lag is found mainly because of illiteracy, ignorance, conservatism, sentimental factors, political factors and vested interests. Business should be aware of this while addressing the requirements of people in different regions and nations. One more aspect of cultural is the change. While some of the changes are accepted very fast the others are resisted. While in some families divorce is accepted as a common feature, in others, divorce is viewed very seriously and extreme efforts are taken to pacify the parties in conflict. Another important example is the women's employment. While in olden days women were destined to domestic works, today women entrepreneur lead several fields. Attitude towards work is yet another area when Indian culture lags much behind the Western and Japanese culture. In the light of the above discussion, the following case studies would make sense and prove how business environment can either give a boost to an organization or cause a doom.

CASE STUDY: 1 WILLIAM HENRY GATES, III AND THE MICROSOFT MONEY MACHINE Several years ago, when his fortune was a mere several hundred million dollars, a weekly magazine labeled Bill Gates as Americas richest nerd.' In 1992, at age 36, he had passed Donald Trump, Ross Perot and others to be listed as America's wealthiest person by Forbes magazine; the value of his holdings had grown to an estimated $ 6.3 billion. How did the free enterprise system help him to attain such phenomenal wealth? After graduating from high school in Seattle in 1973, Gates went to Harvard. While there, he learned that the personal computer [PC] was in the development stage. He dropped out of school and threw himself completely into designing an operating system [the program that coordinates the hardware and software of the computer] for the PC. His system, [S - DOS the Microsoft Disk Opening System] was so good that IBM agreed to use it in their line of, personal computers. With IBM setting the industry standard, other computer manufacturers quickly adopted MS DOS as well. Today it is estimated that more than 80 per cent of all personal computers in the world use this system: Gate's firm, Microsoft, Inc., makes money on every computer sold with MS-DOS as the operating system.' In the 1992, the firm recorded $2.8 billion in revenue and $ 708 million in net profit. It ranks third in size in the industry, behind IBM and Hewlett - Packard. Gate's personal holdings of some 90 million shares of common stock represent about 33 per cent ownership share of the company. Microsoft also produces programs for word processing, spreadsheets, and a variety of other applications. One of Gate's latest ventures has been to purchase the electronic reproduction rights to thousands of art and photographic works from museums and libraries around the world. These will be used as a part of his plan for interactive home entertainment systems. With extremely hard work, a creative mind, and a willingness to take risks, Gates has demonstrated how the market rewards the successful entrepreneur. He was able to produce what consumers wanted at a price they were willing to pay the result was that both and they are better off ! This is the essence of free market economic system. From the above case study, it would be clear how a pro-active, imaginative and innovative entrepreneur can, carry the business with him. Though a school drop out. Gates has climbed the pinnacle of business world, merely by his ability to anticipate the changes, in the personal computer industry. Failure to read the business environment and initiate appropriate steps to protect the business, can lead to a serious threat to existence itself.

Case study: 2

MARUTI UDYOG LTD.,

When Indian car market was opened for new private players, Maruti Udyog limited, which had till then enjoyed an enviable position in the market, suddenly faced severe market erosion. Even though Maruti is the market leader and has the largest range of products, cheaper cars, good service network and better cost structures, it has been steadily losing its market share for the last three years and the valuation of the company has halved in 4 years time from Rs. 80 bn in 1996 to Rs. 40 bn in 2000. A Marjti udyog rival: What MUL did to Premier Automobiles and Hindustan motors is now being done lo it. Empire under siege : Jagdish Khattar, MD MUL was a man in trouble. He was facing what was the biggest setback ever for the company. With all strategies backfiring, he seemed to be fighting a losing battle. Problems were aplenty - the Maruti 800 segment was facing demand - erosion, Zen and its arch-rival Santro were very close in terms of volumes, Esteem was losing ground, Baleno, Wagon R and Alto were yet to prove themselves, while Gypsy was snugly ensconced in its niche. [Gypsy was not generating many volumes needed for MUL]. Despite the fact the fact that MUL had the biggest range of products, the cheapest cars in the market and a service network and cost structures that were better than anyone else, it had steadily lost market share down from 82.62 percent in 1998 to 52 per cent in 2000. With the impending disinvestments, [Government's. policy of disinvestments in Public sector units includes MUL also along with other profit making PSUs.] MD was facing flak from the government as well. With market share declining, MULs valuation had also come down drastically. While it was valued at Rs. 80 bn in 1996, by December, 2000, the figure had touched Rs. 40 bn. The building blocks MUL was the largest car manufacturer in India with a market share of over 52 per cent. It was a joint sector corporation set up by the government of India and Suzuki Motor Corporation, Japan. MUL was incorporated in 1981 to take over the assets of the erstwhile MUL set up in June 1971 and wound up by a High Court order in 1978. The assets of MUL were then acquired buy the Government under MUL Acquisition and Transfer of Undertakings Act, 1980. In 1982, the Government signed a joint venture agreement with Suzuki of Japan. Suzuki's stake increased from 26 to 40% in 1987, and to 50.25% in 1992. The company was a significant exporter with exports to over 50 countries. The company manufactured passenger cars at its factor in Gurgaon, Haryana, with an installed capacity of 350,000 vehicles. The first product, Maruti 800 was launched in 1984, followed by the all-terrain vehicle Gypsy

in 1985. Over the years, MUL expanded its portfolio with the launch of the Maruti 1000 [1990]; the Zen and the Esteem [1993]; Zen Diesel [1998]p Baleno, Wagon R and the Alto [2000]. MUL was known for its value for money pricing strategy, which had been made possible due to the high levels of indigenization of its vehicles. While the Maruti 800, Zen, Esteem, and Omni were indigenized to the extent of over 90%, the Gypsy was indigenized to the extent of 82% and the Alto to the extent of 76%. The company had a network of about 375 vendors and had several joint ventures with some of them to source its raw material requirements It's sales [comprising 112 dealers and sales outlets in 86. locations] and service [comprising 1010 service workshops covering 412 locations] network was one of the largest in the country. The Stumbling blocks Till October 1998, MUL enjoyed a market share of 83.6% reacting to the increasing number, of players, its-MD commented, Obviously, our market share will decline with the entry of new manufacturers and models in percentage terms, but not in actual volumes. With cars ranging from Rs. 0.21 mn to s. 0.67 mn, problems associated with an ever-expanding product portfolio constantly plagued MUL. Besides the declining market share, cannibalization was another issue the company could ill-afford to ignore. Forced to take stock of what went wrong, MUL realized that it was dependent to a large extent on a single product - the Maruti 800. The 800, along with the Omrii [build on the same platform accounted for 75% of units sales in the car. market in 1998; it had always been the 'breadwinner' for MUL. One of the biggest success sagas in Indian automobile history, the 800 started losing its sheen in the 1990s as newer players emerged in the market. The entry-level segment ceased to be the center of action as easy car finance availability and the lure of new cars made the Rs. 0.3 inn to Rs. 0.4 mn segment the most attractive one. The fact that MUL made only minor changes in the models over the years led to the perception that MUL was selling old models. To tackle these problems, MUL adopted a two-pronged strategy. One, to introduce new models; two, it decided to increase the number of variants rapidly, offering a new model with every increase of Rs. 25000. MUL also revamped its engines and took the 800 to semi-urban and rural areas, to compensate for the declining urban sales. The company was aiming to move entry-level prices up without losing out on volumes by launching cars in the segment just above the 800. As part of this, Baleno, Wagon R and Alto were launched in quick succession. [Alto was launched in the same league as the 800. Industry observers contended that Alto's launch in the 800-cc category signaled the beginning of a gradual phasing out of the 800. However, MUL sources were quick to deny this- and-asserted that the 800 would be retained:] However, despite favourable reviews, these cars did not go on to become the saviors of MUL was hoping for. The engine-revamp exercise for the 800 had pushed its price close the base model of rival Daewoo's Matiz, eroding the price advantage on which the model survived. As a final resort, MUL decided to play what it thought was its trump card - price reduction. The move was also justified on the gorunds that the company was following Product Pyramid Profit model. [The Product Pyramid incorporated the distinct customer segments and their varied purchase -behaviour in terms of style, colour, feature and price preferences. The base of the Pyramid was occupied by low price, high volume product s. like

the 800, where the margins were slim. The apex of the Pyramid was occupied by high-price, low volume products such as the Maruti Esteem VX. Although -profits were concentrated near the top, the base played a crucial role as it created an entry-barrier for competitors, and insulated the profitable area near the top from competition. In the specific case of cars, the most common model was the new product profits model. Thus, the profits associated with a car followed the "s" curve of its life cycle, and declined as the product neared the end of the maturity. phase. MUL's decision to drop the prices of all the versions of the Maruti 800 came at this stage]. MUL reduced the prices of Maruti 800 and Zen by about Rs. 24000 and Rs. 51000 respectively in December, 1998, This resulted in a drop of Rs. 3 bn in net profit for the year 1998-99. The MD justified die price cuts, saying that MUL wanted to make up for the increase in the 800s price due to higher sales tax figures for the period. The move was described as an attempt to "redefine the price-value equation." MUL sources claimed that they expected lower prices to bring an incremental growth of 25% over the next 12 months. However, despite the price cuts, by March 1999, the company's market share decreased to 54.57% In early 2000, MUL announced that it would pass on the cost of installing Euro-II compliant engines with Multipoint fuel Injection [MPFI] to its customers. There was a rush in the market for the 800. as many first-time consumers who did not want to bear the hike, hastened their purchase. MUL had to increase the price of the 800 from. Rs. 0,18 mn to Rs. 0.22 mn. Around the same time, MUL decided to meet the competition head-on by having a model or variant with every increase of Rs. 25000. The idea was to give the customer the widest choice possible. By mid-2000, the company offered 43 models in a market, which had only 127 models. In June 2000, sales of the 800 stood at 5296 cars compared to the 11000 plus cars it had been selling per month for the previous few years. MUL had no option but to again slash prices of various models by Rs. 25000 to Rs. 30000, to bring back the sales to normal levels. Other changes initiated by the'-company included a transformation in its customer - interface and a revamped branding strategy with the new cars [Wagon R and Baleno] coming with the Suzuki prefix. The price cuts, however, only added to the declining bottom line problem. MUL reported a loss of Rs. 6792. II on every car sold between April and October 2000. MUL sources, however, attributed this to the fact that MUL had not passed on the cost of up-gradation to meet the Euro;I and Euro II emission norms to its customers. ' The industry strikes back : The Indian car market of the early 21s1 century was a burgeoning one with over 127 models on the roads, and many more in the pipeline. Increased competition had radically transformed the market, manifested clearly in carmaker's pricing strategy overhaul. Manufacturers were breaking the conventional rules of auto pricing by moving from cost-based to value-based pricing and the market soon, became a buyer's market. When the new players entered the market, there were no doubts that the main artillery for the companies in the car-wars would be the pricing strategies. It was not just a case of competition forcing a downward revision; the players were even ready to forego profits in the short run. Brand building and technology / feature driven campaign were to be add-ons to the above plan. Industry observers were quick to point out that MUL would have to get entangled in the price reducing game.

A Business India report pointed : No one is better equipped to fight a price war than Maruti. Its phenomenal profitability, cash reserves and efficiency in manufacturing will allow it to slash prices on all its models without feeling the pinch as much as others. However, Hyundai was the first company to introduce what came to be known as, pricing based on customer's value perceptions. It introduced the base model of Santro at Rs. 0.29 mn, while two other versions were priced at Rs. 0.34 and Rs. 0.37 mn. The basic version was targeted at buyers of the 800, and the other at the Zen. Thereafter, hunches in the Rs. 0.2 mn to Rs. 0.6 mn segment by Ford and Hyundai showed highly innovative pricing strategies being adopted. Soon after, Ind Auto dropped the price of the Fiat Uno Diesel by Rs. 64867 and Premier Automobiles Ltd lowered the prices of the four versions of the Premier Padmini by Rs. 5000 to make it Rs. 53000. MUL had adopted a skimming strategy for Esteem. Launched in 1993, it was positioned as a luxury car. This continued till the arrival of Daewoo's Cielo in 1996, which started eating into Esteem's share. In 1999, the segment saw the arrival of Fiat Siena, Opc-1 Corsa, Ford lko.n and the Hyundai Accent. MUL resorted to price slashing and brought the prices down. While the top end version's price was reduced to Rs. 0.52 mn, from Rs. 0.59 mn, the basic version was brought down to Rs. 0.44 mn from 0.46 mn. However, this was possible only because it enjoyed substantial margins over costs, being the first mover in the market. MUL also followed the- same modus operandi for Zen, albeit in a different manner. The company increased the number of Zen variants to 10, with prices ranging hom Rs. 0.3 mn to Rs. 0.43 mn. The price stood reduced for the Rs. 0.3 mn variant in terms of stripping down the models features. The competition responded with similar moves. Daewoo offered price-variants for Matiz, Ind Auto offered seven variants of Fiat Uno, ranging from Rs. 0.27 mn to Rs. 0.41 mn. Hyundai's Santro offered six variants between Rs. 0.29 mn and Rs. 0.37 mn; Telco's Indica came in the range of Rs. 0.25 mn to Rs. 0.38 mn with four models. NK Goila, VF Honda - Sicl cars, aptly summed up the situation : It is important to be present with grade - variation and a range to cover the range of potential customers being targeted. The price - points in the car market were replaced by price bands. The width of a price band was a function of the size of the segment being targeted besides the intensity of competition. The thumb rule being, the higher the intensity, the wider the price-band. Fords research, before the launch of the Ikon, a car made for the/Indian market, revealed that over the previous two three years, the 800 segment had graduated to the next level of Zen, Santro, Matiz, Uno and Indica. Ford's research on the existing market segments and the consumer response to new cars revealed that beyond the Zen segment, the choice of the consumer was limited. Models like the Esteem and Cielo had had a long innings outside the country and were not exactly contemporary. The other options were Escort, Lancer and Honda, which were priced above Rs. 0.7 mn Between them and the Rs. 0.45 - 0.5 run range of the Esteem and Cielo, thee was a vacuum. The gap was identified by General Motors' Corsa and Fiat's Siena as well. All three competitors plugged the gap by offering several versions at various price points. Ford first launched Ikon 1.6 but later came up with a lower engine capacity Ikon I.3CLXI at a lower price. GM and Fiat also followed the same approach.

About price reduction The fact that 82% of the Indian market was accounted for cars priced below Rs. 0.43 mn, proved how strongly price influenced volumes. Moreover, with domestic car sales dropping by 15.01% in November 1998 over November, 1997 manufacturers had to turn towards price to resuscitate demand. In the prevailing conditions, the 'Second P of aulo marketing' price reduction, seemed to be (he only factor able to rejuvenate the stagnant demand. However, not every player had the financial-muscle to play the price card. Instead of cutting the price of Matiz, Daewoo Motors introduced an enhanced version with product features like power steering, and product-plus features like better service and customer-care. Players like Hyundai and Telco did not opt for price reduction, as they simply did not have the economies of scale to profit from such moves. Such strategies worked best for companies with offering in several segments of the market. Higher volumes from the combined sales of products across segments enabled them to drive harder bargains with their suppliers; unit marketing and distribution costs decreased; and the higher margins on products positioned near the top compensated for the pared margins on the basic product. The players who chose to stay out of the race to cut prices had to convince their customers that the higher prices they charged were justified by the greater value they offered. A product and promotional mix had to be specifically designed to convey the above message. Most manufacturers of mid-size cars, including General Motors, Ford, Honda-Siel, adopted this strategy rather than cut costs to increase sales. They argued that because of the 'snob-value' of a costlier car, buyers in this segment were not those susceptible to be swayed by price cuts? They cited the Cielo price reduction fiasco as an example. When sales of Daewoo's Cielo went down from a peak of 2260 cars in September 1956 to 314 in December 1997, the company slashed the price of its base model Rs. 0.13 inn in January, 1998. Daewoo also introduced zero-interet finance schemes and its dealers gave unofficial discounts ranging from Rs. 0.08 mn to Rs. 0.10 mn, Sales increased by 300% to 906 and 1102 by March, 1998. However, this was far below the company's capacity of 6000 ears per month. Daewoo launched an upper end version, Cielo Executive and an upgraded versions, Nexia at higher price points. However, the market had discounted Daewoo by then and sales did not pick up further, falling to a low of 148 by February, 1999. Companies realized that only when competing brands were perceived to be equal in all other aspects, would price be a deciding issue. As the target segment became more affluent, upgrades as well as first time buyers did not necessarily start at the lowest price level. Applied as a brand level strategy, price helped the auto marketers win over only the entry level customer. The biggest price a manufacturer would have to pay for playing the price game continuously was undoubtedly the loss of customer loyalty. The world over, automobile brands succeed on the basis of their relationship with fiercely loyal customer communities, built around sharp brand images and unique value proportions. By choosing to shift the focus to price, MUL risked the loss of damaging its customer relations and brand valuation, as it ended up antagonizing the buyers who had bought MUL cars just before the

price reduction. This led to a feeling of betrayal among MUL loyalist. When these customers replaced their cars, it was doubtful whether they would turn back to MUL or go in for a rival car with a vengeance. Much ado about nothing ? As the Indian automobile market moved from monopoly to free competition, market share comparisons from the old era seemed to have lost relevance. The alarm over MUL's declining market share somehow did not seem fully justified. In its heyday, huge waiting lists for its products ensured that Marutis market share was directly linked to the supply side of the equation. In other words, if MUL had an 80% share of the market, that was also its share of the total industry capacity. By the late 1990s, things changed radically with over 12 car manufacturers having a presence in the country, with a total capacity of about 1,250,000 cars, of which MUL produced about 400,000 [33%]. Khattar commented tell me, if we have market share of 50% out of a capacity that is 33% [of the industry], are we doing badly? Why don't you ask the others who together have a capacity of 800,000, but cannot match our sales? All said and done, MUL was still the leader in early -2001. It still had its early mover advantages. Provided Khattar plays his cards right, MUL can still rule the roost for years to come. Whether this will happen for real, is a question too early to be answered. Case study: 3 DOORDARHSAN: BROADCASTING BLUES [DD India's national television network is one of the world's largest broadcasting organizations with respect to the infrastructure it possesses. It present telecasts programs on 19 channels. Over the years, DD has been losing its advertising revenues to its competitors [private channels]. The continuously falling Television Viewers Rating added to the problem. DD has also been facing many problems regarding its managements, right from the time when Prasar Bharati was created. In mid-90's, cable television reached many Indian homes and several private channels, were launched. All of a sudden DD had to content with a host of channels whose programs were better produced. Poor quality of transmission and program content prompted viewers, to switch to private channels. The case provides an overview of the problems faced by DD due to mismanagement and competition from private channels.] "DD needs an owner" - CEO, Carat Media Services India. IS DD DEAD? After, years of falling revenues, in 1999-2000 DD had a revenue growth of 50%. In 1999-2000, DD earned revenues of Rs, 6.1 bn compared to Rs. 3.99 bn in 1998-99. DD showed signs of revival with the launch of DD Worlds [a channel for NRIs] and had a certain measure of success with some of its regional channels [Table-1 DD Channels: A snapshot]. However, by the end of 2000-01, DD's revenues were projected to grow at 6 - 15 % while private channels such as Zee T V, Star and Sony had a projected 40 -50 % revenue growth. According to some analysts, DD's sagging revenues were only the tip of the iceberg. DD was plagued by several problems. By the late 1990's, most private producers and advertisers and a good part of the audience had deserted DD. Not even one car company advertised on DD and even two wheeler manufacturers kept away.

Advertisements of Pepsi and Coca - Cola were found only during sports telecasts. Only FMCG companies stuck to DD, because its terrestrial network would help them to reach the rural and semi urban audience. Despite having over 21000 employees, DD outsourced 50 % of its programs from private producers. In the late I990's, DD faced allegations of large scale scams and irregularities. Under-utilized infrastructure, improper investments and poor financial management adversely affected DD's performance. In 1992, when the Government opened the airwaves to private players, HD had to face competition from private satellite channels. In Cable and Satellite [C & S] homes it was found that DD programs had hardly any viewers. The depleting Television Viewer Ratings [TVRs] of the DD programs was also a cause of concern as advertisers deserted due to its low viewer ratings. According to analysts, DD would need a budgetary support of Rs. 5 bn during fiscal 2000-01 to sustain itself, as its revenues would not cover its expenditure. Many analysts felt that privatization would be the only solution. DD : THE INSIDE STORY : DD was launched in 1959 as the National Television Network with a modest 21 community sets in Delhi. In the year 1982, with the introduction of regular satellite link between Delhi and different transmitters, DD began the transmission of national programs. In the same year, DD switched to colour transmission. Soon it had penetrated every nook and corner of the country, cutting across demographic and geographic barriers. DD had a three-tier program service - national, regional and local. The national programs focused on the national culture and included news, programs on current affairs, and science, cultural magazines, serials, music and dance recitals, plays and feature films. At the regional level the programs were similar to the ones broadcast at the national level, the only difference being that they were broadcast in the regional language. In 1984, DD introduced a second channel [DD2] in cities like Delhi, Mumbai, Kolkata and Chennai. DD2 was targeted at urban viewers, particularly the young viewers. In 1995, DD launched DD - India, its international channel to cater to the NRI population. This service covered SAARC countries.. Gulf countries, West Asia, Central Asia, North Africa and Europe. In the same year, DD entered into an agreement with the Cable News Network [CNN] and launched a 24 - hours news and current affairs channel : DD News. In 1999, DD launched a separate channel for sports. In the early 1990s, about 479 mn people in Indian homes viewed DD and an additional 1.5 mn watched DD on community sets. DD was ahead of the private channels in terms of viewership with a 90% reach. However, in the late 1990s, it could not maintain the lead and phase channels were catching up in terms of revenue even though they lagged behind in viewership and reach. Cable onslaught: In 19S4, cable television entered India. For local entrepreneurs, cable television provided a good business opportunity, as investments required to install a cable network were low. In the early 1990s, many-private television channels were launched. Zee TV launched in 1992 led the pack. During 1992-94, there was rapid increase in the number of cable connection in Western and Northern India. In Tamil Nadu and Andhra

Pradesh, a number of Tamil and Telugu channels came up in the mid-1990s. Though by 2000, DD had an incredible reach of 70 mn homes, in comparison to C & Ss reach of only 30 mn homes. It could not turn this network into an advantage [Table II for growth of cable and satellite penetration in India]. In urban households, DD programs had hardly any viewers. DD was also behind the private channels in terms of ad revenues, as its TVRs were very low compared to the TVRs of programs on private channels. Falling Revenues: During 1996-99, the TV advertisement market grew by 76%, but DD's revenue from advertisement registered a negative growth [Table III for fall in revenues of DD]. Though DD continued to be number one in overall audience share, it lost out on viewership segments that had the highest purchasing power. In 1998-99, DD's revenue from advertisements was Rs. 4 bn [25.8% of the market], Zee TV was close with Rs. 3.85 bn, Sony had Rs. 2.53 bn and Star channels grossed Rs. 2 bn. But the ad revenues of private channels have grown significantly, when compared to those of DD. During the period 1996-99, Zee registered a growth of 122% in ad revenues, Sony 299% and Star channels 206%. During the same period, DD's ad revenues went down by 70.17 %. DD's falling TVRs were a matter of concern for clients like Hindustan Lever - DD's largest advertiser. Said Ashutosh Srivastava, VP, HTA-Fulcrum, the media-buying arm of HLL, Our only source of reaching 40% of this country is going down. Till 1998-99, 70% of HLLs ad spend went to DD but by 2000-01, due to tailing TVRs HLL's ad spend to DD had gone down to 50%. During 1999-2000, producers and distributors stopped giving films to DD when it began to demand a minimum guarantee of Rs. 10 mn to broadcast a film. This forced DD to repeat the same old films that it had aired several times, and the RVRs went down further. According to some analysts, DD's revenues were going down because advertisers considered it a down market channel, which catered only to the lowest socio-economic groups, whose purchasing power was limited. The revenues earned by DD showed a negative growth during 1997-99. In 19992000, DD saw its revenue grow by 52.8%, but in 2000-01, it was projected to grow only at 6% [Table III] Identity Crisis DD's problems were largely attributed to what Kiran Karnik, former CEO, Discovery Communications; India called 'its loss of identity. Said Karnik, The channel has lost its identity, What is Doordharshan : Is it a public broadcaster or a commercial entity? Initially, DD officials had envisaged that the national channel would play the role of public broadcaster, while DD Metro would be the commercial channel. Private producers and advertisers pointed out that this attitude increased the confusion. They argued that no other network had two channels competing against each other. With the launch of the Star News Channel, [the first independent news channel] in 1998, DD News lost its viewers to Star news. The in-depth analysis of news itemsby Star News caught the imagination of the viewers [Table IV Comparative study of different news channel]. DD's image of being the propaganda machinery of the Government also went against it.

Some analysts said politica1 interference and corruption were another reason for DD's poor performance. In 1997, The Indian Broadcasting Bill was introduced in Parliament. The Bill was not passed, but it was enforced through an ordinance nearly a decade after it was enacted. DD was brought under a holding company called the Prasar Bharati. In 1998, the Government sacked Prasar Bharali CEO SS Gill and the Government made DD answerable to a parliamentary committee. Political interference at the top level made matters worse for DD. There were allegations that members of the Central Commissioning Unit of DD look bribes from producers to air their programs. In 1998, the CBI arrested two DD officials for taking bribes from a serial producer. This, incident focused attention on the rampant corruption in the organization and forced management to issue guidelines regarding acceptance of gifts by employees. DD had a poor track record in both payments to and collections-from private players. Over 50 companies owed Rs. 18.2 mn to DD, 45 on July 2001, Amitabh Bachchan Corporation Limited was DD's highest debtor with outstanding dues of Rs. 330 mn. Another allegation that DD faced was that it had allowed International Cricket Council's [ICC] ex-chief Jagmohan Dalmiya and World Tel's Mark Mascarenhas to defraud it of Rs. 160 mn over the telecast of 1998 tournament in Dhaka. The exorbitant prices that DD charged for advertisements slots also contributed to its poor performance. DD charged the producers around Rs. 1 lakh for 10 seconds, while some of the highest rated soaps on private channels charged half that price. DD did not have a marketing team, which could market the advertisements slots as a package. Private channels like ZEE and Star had their own marketing teams/ which provided the advertisers with a package of advertisement slots on their programs. But DD had 5o different producers with 56 different half-hour programs slots for four hours of prime time each week. Each producer sold commercial time separately, to the advertisers. But advertisers preferred package deals, which, would give them airtime across the programs for a whole week. Breathing fresh life into DD After SS Gill was sacked in 1998, Rajeeva Ratna Shah was appointed as new CEO of Prasar Bharti. Shah began overhauling the programs of the two DD channels and weeding out corruption in the network. He stopped commissioning programs on DD1 and DD2. He decided to auction programming hours to the private players who produced the programs for DD and market them. Shah also announced the setting up of a board comprising eminent film-makers, actors, poets, writers and people from different walk of life. This board was to be entrusted the task of revamping DD. In 2000, the government appointed a committed headed by Shunu Sen [CEO, Quadra Advisory, a strategic marketing Consultancy], NR Narayana Murthy [CEO, Infosys] and Kiran Karnik to work out a program for reviving DD. The committee considered three options. : Privatizing of DD, continuing to run it as a Public Service .Broadcaster [PSB], and running DD on both PSB and commercially viable lines. Of the three options, the committee recommended the third option. The committee felt that there was no need to privatize DD, but recommended drastic steps for reviving it.

Some of the important steps suggested by the committee were : Downsizing 25 % of DD's 21000 strong staff Getting into new media Setting up its own marketing department Developing a sharper programming focus.

One of the recommendations was to improve the quality of broadcast. DD sought the help of BBC to digitize its channels. Modi Entertainment Network began distributing the five DD channels via satellite. DD went in for a revenue sharing deal with B4U for showing movies, arid auctioned the 7:10 pm slot on DD Metro to the HFCL Nine networks. In addition to Rs. 1.21 bn that DD got from this deal, the move helped DD to penetrate urban homes as well as C & S homes to some extent. DD also entered into an agreement with Direct to Home platforms like Echostar and Astra to distribute DD - World in 79 countries. DD employed Accenture to advise it on how to go about revamping its financial, management and administrative systems. The National Institute of Design was employed to redesign the logo. In 2000, DD announced that it would start its own people meter project through a separate corporate entity in partnership with a few private channels and some advertisers. DD felt that its programs were not getting enough viewership ratings because the viewer samples used by the two firms doing the ratings -IMRB - AC Nielsen and ORG MARG were largely from C & S homes. Their ratings did not accurately reflect the viewing habits of the Indian populace. According to most, these steps were bound to have a positive effect on revenue. However, for real growth DD had to be freed from political interference.

TABLE I :DD CHANNELS : A SNAPSHOT DD 1 Primar y channel with national, regional, local and educational programs on a time sharing basis DD2 Metro entertainment channel targeted at urban viewers, particularly the young viewers. Programs relayed by the terrestrial transmitters in 47 cities DD4 to DD 13 Ten separate regional language channels : Malayalam, Tamil, Oriya, Bengali, Telugu, Kannada, Marathi, Gujarati, Kashmiri and

Assamese

DD 14 to DD 17 DD18 DD India [DD World] DD Sports DD News

Networking of the regional services of the four Hindi speaking states : UP, Bihar, MP and Himachal Pradesh Punjabi Regional Service International channels Sports channel 24 hours news channel

TABLE : II ; CABLE TV GROWTH IN URBAN INDIA YEAR NUMBER OF HOUSEHOLDS WITH CABLE TV [IN MILLION] 1.20 3.30 11.80 15.00 18.00 22.00 30.00

1992 1993 1994 1995 1996 2000 2001 TABLE III: FALL IN REVENUES OF DD YEAR 1995-96 1&96-97 1997-98 1998-99 1999-00 2000-01 [Estimate] REVENUE [RS. BN.] 4.30 5.72 4.90 3.99 6.10 6.50

GROWTH OVER PREVIOUS YEAR [%] 8.10 33.20 - 14.30 - 18.50 52.80 6.00

TABLE: IV COMPARISON OF THE NEWS CHANNELS

STAR NEWS Channel encrypted Decoders are required Content caters to the premium segment English predominant language Only premium brand's ad taken. Very selective regarding ads

ZEE NEWS Channel not encrypted Can be freely aired Content caters to the mass market Hindi predominant language All brands accepted. Not selective regarding ads.

DD NEWS Channel not encrypted Can be freely aired Content caters to the mass market Hindi predominant language No ads. Only social messages were broadcast

Economic Environment in India

In order to solve economic problems of our country, the government took several steps including control by the State of certain industries, central planning and reduced importance of the private sector. The main objectives of Indias development plans were: a) Initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty; b) Become self-reliant and set up a strong industrial base with emphasis on heavy and basic industries; c) Reduce inequalities of income and wealth; d) Adopt a socialist pattern of development based on equality and prevent exploitation of man by man. As a part of economic reforms, the Government of India announced a new industrial policy in July 1991. The broad features of this policy were as follows: 1. The Government reduced the number of industries under compulsory licensing to six. 2. Disinvestment was carried out in case of many public sector industrial enterprises. 3. Policy towards foreign capital was liberalized. The share of foreign equity participation was increased and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted. 4. Automatic permission was now granted for technology agreements with foreign companies. 5. Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India. Liberalization: The economic reforms that were introduced were aimed at liberalizing the Indian business and industry from all unnecessary controls and restrictions. They indicate the end of the licence-pemit-quota raj. Liberalization of the Indian industry has taken place with respect to: 1. Abolishing licensing requirement in most of the industries except a short list, 2. Freedom in deciding the scale of business activities i.e., no restrictions on expansion or contraction of business activities, 3. Removal of restrictions on the movement of goods and services, 4. Freedom in fixing the prices of goods services, 5. Reduction in tax rates and lifting of unnecessary controls over the economy, 6. Simplifying procedures for imports and experts, and 7. Making it easier to attract foreign capital and technology to india. Privatisation: The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector. To achieve this, the government redefined the role of the public sector in the New Industrial Policy of 1991 The purpose of the sale, according to the government, was mainly to improve financial discipline and facilitate modernization. It was also observe that private capital and managerial capabilities could be effectively utilized to improve the performance of the PSUs. The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions. Globalisation: Globalizations are the outcome of the policies of liberalisation and privatisation.

 Globalisation is generally understood to mean integration of the economy of the country with the world economy, it is a complex phenomenon. It is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration. It involves creation of networks and activities transcending economic, social and geographical boundaries. Globalisation involves an increased level of interaction and interdependence among the various nations of the global economy. Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer in a distant geographical market. Impact of Government Policy Changes on Business and Industry 1. Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector. 2. More demanding customers: Customers today have become more demanding because they are wellinformed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services. 3. Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services. The rapidly changing technological environment creates tough challenges before smaller firms. 4. Necessity for change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations. 5. Threat from MNC Massive entry of multi nationals in Indian marker constitutes new challenge. The Indian subsidiaries of multi-nationals gained strategic advantage. Many of these companies could get limited support in technology from their foreign partners due to restrictions in ownerships. Once these restrictions have been limited to reasonable levels, there is increased technology transfer from the foreign partners .