ENVIRONMENT IN BUSINESS Basically there are 3 types of environment in business. 1.

Internal environment This type of environment is fully controllable by any organization. The internal environment controllability will be based on the organization operational effectiveness. Following are the elements which can be controlled in the internal environment of the business. a) Moral system: this refers to the beliefs, attitudes, values followed by the business when operating in an environment. b) Co- ordination of power: power relationship is an important factor for the smooth and efficient functioning of the business. c) Nature and style of management: management style and the composition of the management team are vital for the success of the business. The vision of the top management leads to the organization to further level. d) Management vision: the thinking of the top management and their vision towards the future plays an important role for the existence of the organization. 2. Micro environment The micro environment is partially controllable by the organization. Following are the elements of micro environment. a) Customers: in a buyers market the customer has a bigger say for the success of the business. The modern concept of business is to provide utmost customer satisfaction and more emphasis is on retaining customers rather than targeting for new customers. b) Suppliers: they are the constituents for the conversion of raw materials into finished goods. Selecting financially sound and reliable suppliers is very important for the smooth functioning of the business. c) Marketing middlemen: the distances between the manufacturer and the consumer created the importance for middlemen in the era. It is the essential function of a manufacturer to keep their middlemen motivated. d) Non-government organization (NGO): NGO play an important role for the operation of business in the society. Every business has to adhere to the ethical business practices. e) Competitors: competitors refer to all potential rival offerings. The efficiency of the business lies in tackling its competitors. 3. Macro environment This is an environment which is uncontrollable by any business organization. A business can only adapt to this situation. Following are the different elements of macro environment. a) Political environment: this refers to the ideologies of the political parties involved in the ruling of the government.

b) Economic environment: it refers to the policies of the government in regard to export import policies, taxation policies etc. inflation rates, balance of payments also affect the economic environment of the business. c) Social environment: this refers to the standard of living of the people in the society. Social environment also refers to the culture, income level, unemployment etc in the society. d) Technological environment: keeping in pace with the technological developments is important for the success of a business. The research and development wing for any business has to be strong to cope up with technological advancements. FOREIGN CAPITAL Foreign capital and technology play a very important role in the economic development of a nation. Foreign investment plays an important role in the economic development thereby protecting the interests of a nation. Foreign capital helps to increase the countrys export and reduce import requirements. Following are the areas where foreign investment can be of importance. a) Domestic labor: domestic labor can get high real wages because of increasing the productivity. b) Consumers: foreign investment in a particular industry facilitates lower product prices because of mass production. c) Government: the increasing production and foreign trade increases the revenue of the government. d) External economies: foreign capital brings in indirect gains through the realization of external economies. LIMITATIONS OF FOREIGN CAPITAL Following are the criticisms leveled against foreign capital. a) Private foreign capital tends to flow to the high profit areas rather than to the priority sectors. b) The technologies brought in by the foreign investor may not be adapted to the condition of domestic market. c) Through their power facility the multinational cooperators can undermine economic autonomy and control. d) Foreign investment has unfavorable effect on the Balance of Payment. The drain of foreign exchange is more than the investment made by the foreign concern. e) Foreign capital sometimes interferes in the national politics of the country. f) Foreign investors sometimes engage in unfair and unethical trade practices. g) Foreign investment can create the dangerous situation of minimizing or eliminating competition. h) Foreign direct investment can displace domestic produces by destroying their investment opportunity.

FACTORS AFFECTING INTERNATIONAL INVESTMENT a) Rate of interest: one of the most important stimuli to international capital movement is the difference in the rate of interest at different places. Capital has a tendency to move from a country where it is higher to a place where lower rate of interest is prevalent. b) Speculation: short term capital movements may be influenced by speculations related to changes in the opportunities or place. c) Private foreign capital is influenced by profit motive. Foreign capital will flow to countries where the return on investment will be comparatively higher. d) Economic conditions: economic condition particularly the market potential and infrastructural facilities influence private foreign institutions. The size of the population and the income level of the country influences market opportunity. e) Cost of production: private foreign capital movements are encouraged by lower cost of production in foreign countries. This relates to availability of raw materials. Some materials may be either unavailable or available at a higher cost. Even labor constitutes to the cost of production. f) Government policies: government policies towards foreign investment like remittances, taxation are important factors that influence foreign investment. g) Political factors: political factors like political stability, bilateral relations with other countries also influence capital movements. INNOVATION Innovation is very important to the economic development of a nation. Innovation may be defined as introduction of a new product or the use of a new method of production, opening of a new market, new source of raw material etc. TYPES OF INNOVATION Betz classified innovation into 3 different types. a) Radical innovation: this is a basic technological innovation that establish as a new function. b) Incremental innovation: this is a change in an existing technology system that does not alter functionality but incrementally improves performance. c) Next generation technology innovation: this is the change in the existing technological system that does not alter functionality but dramatically improves performance. FAILURES OF INNOVATION All innovations need not be commercially successful. Many new products commercially fail due to variety of reasons. They are as follows. a) The better mouse trap no one wanted: there are products which have a uniqueness or some superiority but failed to generate enough demand. This is not because of any technical problem with the product or inadequacy of marketing effort. They are not guided by proper marketing research or identification of customer requirements.

b) The me too product meeting a competitive brick wall: products which are mere imitation of competitors products may find it difficult to succeed in the market because of intense competition from firms with established market share and customer loyalty. c) Competitive one up man ship: new product failures of this type result from factors such as efficiencies of the marketing management. Even if a product is good it may not succeed in the market if not marketed effectively. d) The promotion including the lounge or a positioning, distribution and pricing play and important role in the marketing of products. Competitors often try to come out with better products and may steal the show. Even if the product is not good, efficient marketing can make a difference. e) Environmental ignorance: product failures also emerge from the ignorance of the environment leading to wrong decisions. Ignorance including neglect of environmental factors, regulatory factors, technological factors etc. f) Technological dog products: these are the products which fail to increase up to the expectation of the customer. In most of these cases companies fail to deliver the product of required quality or good attributes. g) Price crunch: new products also fail because of mismatch between price of the product and the value of it seen by the customers. Over estimation of the value of the product to the customer often results in pricing the product high. INDUSTRIAL SICKNESS Industrial sickness is understood, interpreted and measured differently according to situation. To a layman a sick unit is one which is not healthy. To an investor it is the one that skips dividend. To an industrialist it is a unit which is making losses and its near to closure. To a banker it is a unit which ahs incurred cash losses in the previous years and is likely to repeat the performance in the current and following years. CAUSES OF SICKNESS Industrial units may become sick in different stages and due to different reasons. Following are the types of sickness. 1. Born sickness Following are the factors which cause born sickness. a) Lack of experience of the promoters, wrong selection of the project, faulty project planning give birth to sick units. b) Pavity of funds and faulty financial management can also cause the birth of sick units. c) Time and cost overrun sometimes prove to be more disastrous. d) Sickness can arise from location problems too. e) Technological factors like selection of absolute technology or technology becoming outdated due to innovation also cause sickness. f) The wrong assessment of market potential or faulty demand forecasting, changes in the market conditions also cause the birth of sickness.

2. Achieved sickness Industries which achieve sickness are those which fail after becoming operational due to internal causes. Following are the internal causes. a) Bad management which takes the form of poor production management, poor labor management, lack of professionalism are important causes of industrial sickness. b) Unwarranted expansion and diversification of resources result in sickness. c) Poor inventory management in respect of inputs as well as finished goods put a unit in trouble. d) Failure to change the product mix to suit the changing environment is an important cause of industrial sickness. e) Poor labor management relationship and poor work morale and productivity ruins the health of a unit. 3. Sickness thrust upon Sickness may also be caused due to factors beyond the industrial unit. Following are the causes. a) Energy crisis arising out of power cuts or shortage of raw materials has been a serious problem for many industrial units. b) Some units are unable to achieve optimum capacity due to environmental issues. c) Infrastructural problems like transport, bottlenecks can also sometimes invite serious problems. d) Economic and political issues can make industrial units sick. PRICE CONTROL Controlling the price is a very important factor in the economy. There are 2 measures to control price. 1. Indirect control: indirect control can be exercised mainly through the monetary policy, fiscal policy and commercial policy. a) Monetary policy: the term refers to the policy of the central bank on the country in respect of cost and availability of credit. This policy is used to control prices because there is no relationship between money supply and the prices. An increase in money supply results in an increase in price and vice versa. b) Fiscal policy: this is a policy that should go in hand with the monetary policy to make it affective. Fiscal policy refers to the government policy in respect of public revenue and public expenditure. Fiscal policy can influence the price level by increasing or reducing the purchasing power of the public. c) Commercial policy: this policy is also used to stabilize the domestic economy. Prices can be kept under control by increasing the supply by importing goods which are in short supply. 2. Direct control: Following are the methods the government of an economy exercise direct control a) Administered prices: administered price refers to the price which is set continuously by a single decision making body. When the market forces of supply and demand are free to interact and can result in rise of commodity prices. When the supply falls short than the demand the prices increase and prices decline when the supply exceed demand. But under

administered price the prices are fixed at a particular level. Fluctuation in demand and supply do not cause any price fluctuation. The principle aim of the administered pricing system is the protection of interest of both producers and consumer. b) Dual pricing: the system of dual pricing has been designed to allow the weaker sections of the people to buy commodities at a lower price. Privilege of buyers is offered a different price. Under dual pricing a part of the output of the industry is acquired by the government and the prices fixed by it which is usually lower than the market price and are the remaining parts of the output is sold by the industry at the market price. c) Subsidization: the prices of certain commodities are directly affected by a policy of subsidization. The prices of important commodities are deliberately kept low by the government. Food grains, fertilizers are examples of subsidization.