CONTENTS
Unit No. Title Page No.
SEMESTER - I
Module 1
1 Business 1
2. Objectives of Business 19
3.New Trends in Business 35
Module 2
4. Business Environment 53
5. International Environment 70
Module 3
6. Project Planning 84
7. Business Unit Promotion 95
Module 4
8. Entrenpreneurship 105
9. Aspect of Entrepreneurs 118
munotes.in
1
Unit -1
BUSINESS
Unit Structure :
1.0 Objectives
1.1 Introduction
1.2Meaning of Business
1.3Nature/Feature of Business
1.4Functions of Business
1.5Scope of Business
1.6Significance of Business
1.7Traditional and Modern concept of Business.
1.8Summary
1.9Questions for Self -Assessment
1.0 OBJECTIVES
After studying the unit the students will be able to:
Know an overview of business.
Understand the meaning, nature/features of business.
Study the various functions of business.
Elaborate the scope of business.
Know the importance of business to the various parties .
Understand the changing concept of business.
1.1 INTRODUCTION
Business is derived from the English word “bisig” literally
means a state of being “busy”. It is a part of social system. Ev ery
action taken in a business is related to the external world around it.
Every individual in a society is related to the business activity. It is a
gainful human activity. It is concerned with creation, exchange and
possession of wealth.
Business is an economic activity. It is concerned with the
use of resources to produce goods or services. It also involves
exchange of things. Every individual has to satisfy the wants of
food, clothing and shelter for survival, No one can produce all the
things which h e or she wants to use. Therefore we have to depend
upon others i.e. businessmen. Even a businessman has to buy
goods from other businessmen for his own consumption. Thus,munotes.in
2
business activities are concerned with production, and distribution
of goods and serv ices.
1.2MEANING OF BUSINESS
According to B.O. Wheelar, “Business is an institution
organised and operated to provide goods and services to society
under the incentive of pr ivate gain.”
According to L.H. Haney, “ Business is a human activity
directed towards producing or acquiring wealth through buying and
selling activities.”
1.3NATURE/FEATURES OF BUSINESS
The main important fea tures of business are as follow:
1.Economic activity :
Business is a form of an economic activity. It is the fruitful
occu pation for millions of people around the world like tr aders,
bankers, industrialists, manufacturers and many more including
professiona ls and those employed.
2.Regularity in dealing :
Business activity is carried out regularly. It is not merely sale
or ex change but the regularity or continuity of such dealings that
constitutes business. A single transaction does not constitute
business. The production or exchange of goods or services for a
price is undertaken regularly and continuously in business.
3.Profit motives :
Business is an income oriented activity. Every businessman
expects profit from the transactions. The main object of business is
to earn profit. Businessman earns profit from the business
transactions and the buyer satisfies his wants of goods an d
services.
4.Organized activity :
Business is an organised activity concerned with production
and distribution of goods and services. A firm must conduct
consumer research to identify consumer needs and wants. There is
a constant need to monitor customer n eeds and wants, and
accordingly produce and distribute goods and Service. Business
has to be conducted systematically with continuous research and
development. It should be organized in a systematic manner so that
business objectives can be achieved succes sfully .
5.Degree of scale :
Business can be undertaken at varied degree of seals of
operation. Some firm like Sole trading concerns may undertakemunotes.in
3
business on a small scale and that too in a local area. However,
some firms, like joint stock companies may und ertake business on
a large scale, even at a global level.
6.Risk and Uncertainties :
Business activities are always risky and uncertain. A
business is likely to suffer huge loss due to a number of possible
reasons such as change in fashion, tastes, pref erences,
government policies, technology, recession in the economy, natural
calamities etc. All business risks can’t be insured. A business,
however, can minimise risks through proper foresight and planning.
7.Societal Interest :
At present, business firms plac e emphasis on “societal
concept” of business. Business make efforts to pres erve and
promote customers’ and society’s well -being. Business unit try to
achieve a b alance between profit + Consumer sati sfaction + public
Interest. Therefore, increasing efforts are made to produce eco -
friendly products to satisfy consumer.
8.Social Respo nsibility :
Professional business firms are conscious of their social
responsibility. The firm try to fulfill their social responsibility towards
various groups. It needs the suppo rt of the groups i.e. investers,
employees, consumers, creditors and so on. It can’t function
without an active participation from these social groups. This
feature of business in getting more importa nce in today’s era of a
globaliz ation.
9.Customer Satisfa ction :
Modern business world is a consumer oriented. Customer is
the King and Centre of all marketing activities. Professional
business firms adopt customer oriented approach in their business
operations. Business firms give importance not only to profit
earning but also to customer satisfaction. Customers would be
satisfied only when they get real value for their purchases.
Business firms have to take care of not only customer satisfaction
but also have to delight the customers by providing better and
additional services.
10.Creative :
Modern business is creative in nature. These days,
consumers can’t be satisfied with the same type of goods and
services. Hence business organizations have to be innovative or
constantly search new ideas and proposals.
11.Dynamic :
Business is a dynamic activity. There is a certainty of change
in business Dynamic forces are at work from day to day. Within
business new products, methods, innovations in management
cause ever changing adjustment of policies and administration.munotes.in
4
From outside forces such as government regulation, war, changing
consumer income and new development in science and an art.
12.Government Control :
Business organizations are subject to government control.
The government of each country enacts laws and regulation s to
control and regulate business activities. Business organisations are
expected to adhere to such laws.
13.Buying and Selling :
All business activities are directly or indirectly connected with
transfers or buying and selling of goods and services. Busine ss is
useful to buyers and sellers. Businessmen as Seller of goods and
services, provide convenience and satisfaction to buyers through
provision of form utility, place utility and time utility. In return for the
supply of utilities, businessmen receive pr ofit benefit from the
buyers.
1.4FUNCTIONS OF BUSINESS
Functions refer to series of activities or tasks performed to
achieve pre determined objectives. For the smooth conduct of
business activities, there is a need to perform certain important
function s. These functions are as follows.
1.Purchase and store keeping :
Business firms have to make a series of purchases for
conducting business activities. Such purchases include the buying
of raw materials, components, spare parts, movable and
immovable, ass ets relating to the functioning of the business
activity. Traders purchase finished goods in order to sell these.
An allied function would be to store the raw materials
purchased for which a separate and speci al facility has to be
provided. Care must be taken to maintain proper inventory of
materials. Over stocking of material block the working capital on the
other hand, under -stocking blocks the production cycle. Further,
there must be a proper stock of finished goods so as to distribute
them as per the delivery schedules.
2.Production :
Production means conversion of raw material in to semi
finished or finished product. The production department deals with
activities like design of the operations system (product design,
process design, and location of fa cilities, facilities layout and
capacity planning) and operation and control decisions (routing,
loading, scheduling, dispatching andexpediting ).
3.Marketing Function :
This function is concerned with, Controlling the level and
composition of demand. If d eals with creating and maintainingmunotes.in
5
demand for goods and services produced by the production
department. It determines physical attributes of the product, fixes its
price, motivates consumers to buy the same through
advertisement, personal selling and Sales promotion and
determines the path through which goods will be transferred from
sellers to buyers.
4.Finance Function :
This function deals with obtaining and effectively utilising
funds necessary for efficient Operations. It ensures that right
amount of f inance, at right cost and at right time is available for
carrying out business Operations. It also deals with investment of
funds in long -term assets and short -term assets to ensure smooth
business functioning.
5.Personnel Function :
This function deals wi th effective utilisation of human
resource. It aims at selecting right persons at the right place i.e.
jobs and motivating them to work through team work a nd co -
operate to achieve organiz ational goal. They have to do the work
with commitment and loyalty.
6.Research and Development:
Research and Development plays an important role in
product development. It helps to bring out product modifications
and product innovations. Business firms need to spend a good
amount of time on research and development activiti es. Many
professional business firms set up a separate department for
research and development activities to make change in the
business as per the requirement.
7.Public Relations :
There is a need to maintain good public relations with the
various section s of the public. Therefore, it makes a good sense to
maintain separate department to look after public relations,
especially in the case of large firms. It handles public queries,
media queries, interviews, complaints etc. It develops the good
public relat ion and bring positive image in the minds of the
customer about the business, firm.
8.Sales Function :
The Sales department works in close co -ordination with the
marketing department. The sales department is concerned with the
Selling activities of the fir m. It books orders from the customers and
thendistributes the goods through the distribution channels. This is
one of the most important functions of business, through which
satisfied the consumers needs and wants.munotes.in
6
1.5SCOPE OF BUSINESS
Business has a very wide scope. It includes large number of
activities. These activities may be grouped under Two broad
categories i.e. Industry and commerce.
The Scope of business shown in the following table.
Mercantile
AgentsBusiness
Industry Commerce
primary
Genetic
Extractive
Manufacturing
Construction
ServiceAids to Trade Trade
Internal External
Wholesale
RetailImport
Export
EntrepotWare
housing
Transport
Communic
ation
Insurance
Banking
Advertising
Salesmans
hipmunotes.in
7
I. Industry :
The term industry ref ers to that part of business activity
which directly concerns itself with production, processing or
fabrication of goods and services. It creates form utility. In industry,
raw materials are converted in to finished products, which can be
used for consumpt ion. Some industries manufacture consumer
goods while others manufacture capital goods.
Following are the various types of industries -
a) Primary Industries -
These industries are engaged in the production of primary
goods, such as rice, cotton, fish e tc.
The best examples of this type of industries are Agriculture,
fishing etc.
b) Genetic Industries :
`Genetic industry involves breeding and reproduction of
plants and animals for the purpose of sale. Poultry, Plant nurseries,
sericulture etc. are e xamples of genetic industry. The price of
products available from such activities is generally less.
c) Extractive Industries :
Extractive industries extract valuable minerals, ores etc. from
the natural elements like soil, water and air. These industri es are
concerned with the discovery and utilisation of natural resources
such as minerals and forests.
d) Manufacturing Industries :
Manufacturing industries are concerned with the conversion
of raw material into finished goods. They create form utility . The
products of primary and extractive industries such as cotton, iron -
ore, crude oil, etc. are used as a raw material in these industries.
e) Construction Industries :
Construction industries are concerned with the construction
work like constructio n of bridges, dams, canals, roads, harbours,
building etc. These industries do not operate in factory buildings but
at the site allotted. .munotes.in
8
f) Service Industries :
Service industries produce intangible goods i.e. goods which
can’t be seen or touches for example transport, insurance, banking
etc. These services are essential and useful for the expansion of
business.
II. Commerce :
Commerce involves all those activities which facilitate
transfer of ownership and movement of goods from the centers of
production to the centers of consumption. In other word it involves
all forms of trade and the services that assist trading. Commerce
include trade and aids to trade.
A) Trade :
Trade means buying and selling of goods and services. It
involves transfer of ownership of goods from the seller to buyer
against money. In other words, trade is an exchange of goods and
services for a price which the consumers are ready to pay .
Consumers may be an individuals, government and industries who
need raw materials.
1.Internal Trade :
Internal trade is also known as home trade. It is conducted
within the country. It can be at local level, re gional level or national
level.
a) Wholesale trade :
It involves buying in large quantities from producers and
selling in smaller lots to retailers. The wholesaler is a link between
manufacture rs and retaile rs.
b) Retail Trade :
Retail trade involves buying in smaller lots from the
wholesaler’s and Selling in very small quantities to the consumers
for personal consumption. The re tailer is the last link in the chain of
distribution. He established a link between wholesaler and
Consumers.munotes.in
9
2.External Trade :
The trade carried on between the traders of two different
countries is called external trade. It is also called as Internatio nal
trade or foreign trade. It includes following trade.
a) Export Trade :
Export trade involves selling of goods from one country to
another. For example, when goods are sold from India to America.
b) Import trade :
Import trade involves buying of g oods from a Seller of
another country. For example, a buyer from India purchases goods
from a seller of china.
c) Entrepot trade :
When goods are imported from one country and then re -
exported to some other country, it is called entrepot. For example
anIndian trader may buy goods from Bangladesh and the nsell it to
Pakistan.
B) Aids -To-Trade
Aids to trade constitute another component of commerce.
Aids to trade include various agencies which are useful for the
conduct of trading activities. There are as follows.
a) Warehousing :
There is a time gap between production and consumption.
However, goods which are produced at one time are not consumed
at the same time. Hence, it becomes necessary to make
arrangement for storage or warehousing. Agricultur al commodity
like wheat and rice are seasonal in nature but are consumed
throughout the year. On the other hand goods such as Umbrellas
and woolen cloths are produced throughout the year but are
demanded only during particular seasons. Therefore goods need to
be stored in warehouses till they are demanded.
b) Transport :
There is a place gap from the place of production to the
place of consumption. Goods are produced in one part of the
country and Consumption in other parts of the nation. Transport fills
the place gap. It meets out the gap between producer andmunotes.in
10
consumer. It helps the manufacturer to expand their markets from
local to regional, regional to national and national to global.
c) Communication :
Communications facilitates transfer of informat ion. It involves
transfer of messages from one person to another and from one
place to another. It can be in oral or writing form of information. Oral
communication can take place through telephone or personally.
Written communication is possible through l etter, fax, e -mail etc. It
facilitates quick transfer of messages to take important decisions
quickly.
d) Insurance :
Insurance reduces the problem of risks. Business is subject
to risks and uncertainties. These are inevitable in the field of
business. Risks may be due to fire, theft, accident or any other
natural calamity. Insurance companies who act as risk bearer cover
risks. Insurance tries to reduce risks by spreading them out over a
greater number of people. The rate of premium depends upon the
type of risks and the period for which the risk is covered.
e) Banking :
Banking solves the problem of payment and facilitates
exchange between buyers and sellers. Lending and borrowing the
funds are the traditional functions of the banks. Banks provide
short, medium and long term loans to the needy people. Other
functions have started gaining importance such as merchant
banking, development banking, credit cards etc. This has further
facilitated to trade.
f) Advertising :
Advertising as a powerful marke ting tool of communication is
highly useful to the manufacturer, retailers, consumers and the
society at large. Advertising is basically designed to inform, create
interest and induce people to act in a particular way. It can be used
for communicating both commercial and non -commercial
messages. It creates awareness of the product and builds a good
brand image in the minds of consumer and society at large.
g) Salesmanship :
Salesmanship refers to personal presentations by the firm’s
sales force for the p urpose of making sales and building customer
relationships. It facilitates personal selling. The salesmen provide
information to the buyers. They convince and persuade buyers to
buy goods.munotes.in
11
h) Mercantile Agents :
In the process of distribution, producers and consumers are
unable to have direct contact, as consumers are spread over a vast
area; mercantile agents remove this difficulty of personal contact.
Mercanti le agents are the intermediaries who form a link between
the buyers and the sellers. They do no t carry business in their own
name. These are several types of mercantile agents such as
brokers, commission agents, auctioneers, underwriters , insurers,
etc.
Check your Progress
1. Define the following terms
a.Business
b.Trade
c.Entrepot trade
d.Aids-To-Trade
e.Mercantile Agents
f.Internal Trade
g.Production
2. Draw the table showing the Scope of business.
3. Enlist the main feathers of business.
4. Explain the following functions of business:
a. Store keeping
b.Marketing
c.Finance
d.Personnel
1.6 SIGNIFICANCE OF BUSINESS
Business is useful to the society in general and the business
firms and consumers in particular as it create utilities. Let us see
the benefits it offers to various groups. There are as follows.
I. Significance of Business to the Firms :
Business pla ys very important role to business firms. The
manufacturer, marketers, traders and even service providers get
benefit from business.munotes.in
12
Following are the significance of business to business firms.
a) Accomplishment of objectives :
Business helps the firms to achieve its various objectives. It
creates utility by creating goods and services. These goods and
services are consumed by the people for the satisfaction of needs
and wants. Thus with increased sales firms can achieve the
objectives, like increa se in sales, increase in profit etc. Besides
earning profits firms are able to achieve its other objectives such as
increase in market share, growth and expansion, creating goodwill
etc.
b) Improvement of knowledge and skill :
Managing business, interac ting with people, trying to
develop new methods and techniques etc. It helps in improving the
knowledge and skills of the employer and employees involved in
business. This ultima tely benefits to the business organisation as
the overall functioning of the b usiness firm improves.
c)Expansion of business :
Healthy and sound business practices help the organisation
to grow and expand its activities. Firm can introduce new and better
products in the market and can expand its activities. Firm can also
expand its area of market operations. Market expansion can be
right from local to international level.
d) Product Development :
Business undertakes marketing research and product
research activities regularly for the purpose of product
development. Due to thes e research and development activities,
firms are able to introduce new, innovative and better products in
the market. Thus advanced products benefit to the consumers as
well as business firms.
e) Improve Relations :
Sound business practices improve rela tions of a firm with
various sections of the society. Business firms need to maintain
good relations with dealers, suppliers, customers, government
authorities, media people, and society in general. The survival and
success of business is depends upon the business relations with
the stakeholders.munotes.in
13
f)Corporate Image :
Business helps the organisation to create and improve
corporate image in the market. Business can create a good
reputation about itself in the minds of employees, shareholders,
investors, consumers, government and general public. Corporate
image is vital to any organisation, as it enhances marketing,
financial and social value of a firm. Corporate image helps the
forms for long term Survival.
g) Optimum Utilisation of Resources :
Resourc es are the basic inputs which are necessary to
produce goods and services. The resources are limited and in short
supply. Hence, it should be used in such a way that it will ensure
minimum use and maximum output. In achieving its goals business
ensures opt imum use of scarce resources by utilising it in most
profitable areas. Sound business practices enable a firm to make
optimum use of resources.
h) Increase in market Share :
Every organisation desire of increasing its share in the
market. Increase in ma rket share brings in more profits, more
respect, better image and increase in market value of shares.
Sound business practices enable a firm to increase in market share
and create more goodwill in the market.
i) Increase in profit :
Every business is su bject to risk and uncertainties. Profit is
the reward for their risks undertaken by the businessman with the
help of business activities a business firm able to earn profits.
Profits play a role of return on the investment done by
businessman.
II) Signif icance of Business to Consumer:
Business plays a significant role in respect of consumer .
Following are the significance of business to consumers.
a) Better quality of goods and services :
Now a days , competition has increased tremendously. To
face this competition, firms try to make every possible effort to
improve the quality of goods and services. Business firms make
available quality goods and services required by consumers.
Business provides better quality of goods and services to the
prospective buyers.munotes.in
14
b) Reasonable price :
Today’s market is a consumers’ market where supply
exceeds demand for products. In order to attract consumers,
business firms offer quality goods and services at competitive
prices. They try to offer value for money. Busines s provides goods
and services at right prices.
c) Better facilities and Services :
Every business wants to survive in the competitive business
world. It tries to provide better facilities and services to the
customers at low cost. The services like afte r sale -service, free
home delivery, extended warranties, Sale on installment basis, zero
rate of Interest etc. are provided by the business firms. Due to
these facilities and services customers are benefited to a great
extent.
d) Customer Satisfaction :
Modern business has become consumer oriented. Moreover,
in order to survive and grow, business organisations thrive to
provide consumer satisfaction. Their objective is to retain the old
customers as well as to find new customer. Some professional
busines s firms go a step forward to delight its customers by
providing additional facilities.
e) Higher Standard of Living :
Business generate employment in areas of production,
distribution, banking, transport and so on. This increases the level
of income and create additional demand for product in the market.
This in how business generate demand which in turn result in more
jobs and income which finally result in satisfying the number of
human wands and increase their standard of living.
III) Significance o f business to society :
Business plays a significance role towards the society.
Following are the signi ficance of business to the society.
a) Economic Growth :
Business activities facilitate economic growth in the country.
Itundertakes expans ion and diversification activities. New products
and services are offered to consumers constantly. New business
firms are set up thereby leading to accelerated rate of growth.munotes.in
15
b) Regional Development :
Business firms facilitate to bring about regional developm ent.
Government encoura ges business firms to start operations in under
developed areas by giving tax b enefits, duty concessions and so
on. This leads to a balanced regional development.
c) Revenue to the Government :
Business firms provide substantial r evenue to the
government. Business sector provides revenue through taxes,
duties, customs duty, sales tax, corporate tax, Octroi etc. contribute
to the income of the government. The government can also
generate revenue by way of profits earned by public se ctor units.
e) Employment Opportunity :
Business provides employment to number of people. It
provides employment in the activities such as production,
distribution, marketing, promotion of products, and so on. It is thus
a source of employment to the pe ople. A large section of the
population of the world earns its regular income by means of
business.
e) Social Welfare :
Business helps in social welfare of the society. It can be in
the form of starting schools and Colleges, providing donations for
starting hospitals, sponsoring various sports and cultural events
and so on. In other words they undertake various social welfare
programmes and there by reduce the burden of the government.
f) Capital Formation :
Business facilitates capital formation in t he country. Capital
formation takes place as a result of savings and investment in the
country. All those connected with business i.e. business firms,
employees, traders, service providers and other save part of their
income earned from business. These sav ings are put into
investments. These investments lead to capital formation in the
country.
g) Global Relations :
Business helps to maintain good and cordial relations with
other countries. This is because of foreign trade. Foreign trade
enables countrie s to be dependent on each other, which in turn
helps to develop good and friendly relations among participating
countries. Sound business tries to build a cordial relation with other
countries.munotes.in
16
1.7TRADITIONAL AND MODERN CONCEPT OF
BUSINESS
Traditional C oncept of
businessModern concept of
business
a) Meaning
As per the traditional concept,
business means production and
marketing of goods and services
for private gain.As per the modern concept,
business means provision of
goods and services for the
satisfaction and welfare of
consumers and the society at
large.
b) Scope
The Scope of business was
restricted to local market.The scope of business covers
national and even global market.
c) Objectives
The Objectives of business was
profit. Business was treated as
the end in itself. It was
production and distribution for
earning profit.The Objectives of business is
consumer satisfaction and
service to society. Business is
treated as a means to serve the
society and rise social welfare.
d) Position of Consumer
Consumers were neglected and
were taken for granted. They
were exploited for profiteering.
No attention was given to
consumer welfare.Consumers are given priority
and business is adjusted as per
the needs and expectations of
consumers. Consum er welfare
is given special attention.
e) Social Orientation
Social orientation to business
was absent.Business is treated as social
institution with social obligation.
f) Social Responsibility
The concept of social
responsibility was absent.
Business was not socially
responsible.Business accepts and honors
social responsibilities. It is
treated as an integral part of
social system.
g) Nature of concept
It is treated as old, outdated and
narrow concept as business is
treated merely as profit making
activity.It is treated as dynamic and
broad concept as it is given
social orientation. It is for the
satisfaction of human wants.munotes.in
17
h) Role of profit
Profit was the sole purpose in
business. Profit alone was the
guiding principle in business.Profit is given secondary
position. Profit through service is
the guiding principle in business.
i) Type of Orientation
Traditional concept was
businessman oriented i.e. profit
oriented. Limited importance
was given to consumers and
social welfare.Modern concept is social
oriented i.e. consumer oriented.
Special importance to consumer
satisfaction and social welfare
and not merely to profit making.
1.8SUMMARY
From this chapter it is clear that business is an economic
activity which mainly aims at profit makin g. Modern concept of
business tries to have balance between profit making, customer
satisfaction and social Interest. Business activity is important to
various parties like business, customer, employees, society as well
as nation. Thus modern business trie s to become a social entity
because business is a social system.
1.9QUESTIONS FOR SELF -ASSESSMENT
a) Define business. Explain its features.
b) Explain the functions of a business.
c) Explain briefly the scope of business.
d) Discuss the significance of business to the firm.
e) What are the significance of business to the customer?
f) Explain the Significance of business to the society.
g) Distinguish between traditional and modern concept of
business.
munotes.in
19
Unit-2
OBJECTIVES OFBUSINESS
Unit Structure
2.0 Objectives
2.1 Introduction
2.2Definition of Business Objective
2.3Steps in Setting Business Objectives
2.4Classification of Business Objectives
2.5Reconciliation of Economic and Social Objectives
2.6Distinguish between economic and social Objectives
2.7Summary
2.8 Questions for Self -Assessment
2.0 OBJECTIVES
After studying the unit the students will be able to :-
Understand business Objective
Define business Objective
Explain the steps insettingbusiness Objectives.
Study in detailed the classification of business Objectives.
Know the reconciliation of economic and social Objectives.
2.1 INTRODUCTION
Every business unit should have certain well -defined
Objectives. It should conduct various a ctivities in order to achieve
such objectives. Profit making, social recognition and business
growth are some universal business Objectives. Objectives indicate
the destination towards which the business unit desire to move.
Running a business unit without well-defined objectives is like
travelling without fixed destination. Objectives are the end points
towards which the organisation has to move forward. They provide
the spotlights over the route along which business activities are to
be organized and effo rts are to be directed. Business Objectives
are not stable over a long period. In fact, they are redefined from
time to time as per the environmental changes.munotes.in
20
2.2DEFINITION
According to D. E. Mc. Farland,
“Objectives are the goal, aims or purposes th at organisations
wish to achieve over varying period of time.”
2.3STEPS IN SETTING BUSINESS OBJECTIVES
Following are the steps involved in formulating business
Objectives.
1) Analys eInternal Environment :
Ananalysis of internal environment helps i n fixing realistic
Objectives. Internal environmental factors include human
resources, financial resources, physical facilities, management
structure, internal relationship etc. must be studied, such an
analysis helps in understanding strengths and weaknes ses of the
organisation. The Organisation needs to make every possible
efforts to correct weaknesses and to improve the strengths of the
organisation.
2) Analys eExternal Environment :
The Or ganisation also needs to analys ethe external
environment. It includes customers, suppliers, competitors, political,
economic, social, technological, natural and so on. Such an
analysis reveals the opportunities and threats created by the
environment such analysis would help the organisation to grab the
opportunities and to minimize or defuse the threats.
3) Considering resources of the Organisation :
Setting objectives of business depends on the availability of
human and non -human resources with inthe business. These
resources should be properly considered. The p roper consideration
of these resources results into optimum utilization of resources,
reduction in wastages, reduction in cost and increase in profitability.
4) Consider value System :
Thevalues system followed influences the functioning of the
busines s organisation to a great extent. Value System is a set of
consistent ethical values followed by an individual or anmunotes.in
21
organisation. While setting objectives, value system must be
considered.
5) Consider management philosophy :
Management philosophy also affects setting of business
objectives. A management that adopts on orthodox approach uses
traditional and old fashioned practices to carry on its business.
Objectives set by such a management would differ from those set
by professional management.
6) Awa reness of past Objectives :
Past Objectives and achievements of the organisation serve
as guidelines for formulating future objectives. Normally an
organisation does not deviate too much from the past objectives
while setting objectives.
7) Setting of o bjectives :
After analysing the internal and external environment, the
firm should set the objectives in all the areas. Long term and short
term objectives must be set. Further, these must be set on the
basis of priority. Once the objectives are decided, it must be inform
to the all personnel.
2.4CLASSIFICATION OF BUSINESS OBJECTIVES
Business objectives are many and varied in nature. The
success of any organisation depends on how well these are
balanced. Business objectives can be broadly classified i nto five
major categories. These have been depicted by a chart given
below.
Classification of
Business Objectives
Organic
ObjectivesEconomic
ObjectivesSocial
ObjectivesHuman
ObjectivesNational
Objectivesmunotes.in
22
A) Organic Objectives or Threefold Objectives of
business :
The organic objectives also called as three -fold objectives of
business. Organic objectives are the primary objec tives relating to a
firm. Every firm has to give attention to three basic objectives.
These Objectives are as follows -
1) Survival :
Survival is the basic objective of every organisation. Other
objectives can be thought of only if the organisation survi ves. Due
to globalization, liberalization and privatization, the business
environment has become extremely competitive. Further,
technological advancements and changing consumer behaviour
has made the business environment complex. This has made
survival ex tremely difficult. Constant monitoring of the business
situation and strategic planning are necessary for survival in the
competitive business environment.
2) Growth :
Growth is the second major organic business Objective.
Business should grow in all di rections over period of time. Growth
takes place through expansion or diversification. Expansion
involves increase in business by introducing a product which is
similar to the existing product line of the business. While
diversification involves introducin g a product which is totally
different.
Growth brings more profit, opportunities for advancement,
better utilisation of resources, reputation and goodwill etc. In fact,
growth is required for survival ‘Grow or Perish’ is the requirement of
the day which means if the organisation is not able to grow it will be
droop outfrom the market.
3) Recognition and Prestige :
Every business organisation desires to have social
recognition and prestige. This objective is partly economic and
partly social. Prestige of an organisation is due to standard quality
of its products, regularity in their supply, reasonable prices and
satisfactory service to customers. Recognition indicates public
confidence on an organisation. Such recognition is possible only
after a long p eriod of useful service to the society.munotes.in
23
Business organisations are not satisfied only with profit and
growth. It desire to create goodwill and good image in the market. It
has publicity and promotional value. A business organisation wants
popularity amon g consumer’s, dealers, employees and local
community. For this, it has to provide financial support to social,
cultural and other activities. In addition, it must be fair and liberal
with different social groups.
B) Economic Objectives of business :
The main economic objective of business is profit. To earn
profit, there are several other economic objectives, which are to be
accomplished. The important -economic objectives of business are
as follows.
1)Profit :
The main economic objective of business is to earn profit.
Business activity is primarily undertaken for earning profit. It
enables a business to realise other objectives of business. Profit is
the main motive of all business activities and is necessary for
survival, growth and prestige of an e nterprise. Profit is an indicator
of business performance and a sign of efficiency. It is a reward for
bearing risk and uncertainty in business. It is a lubricant which
keeps the wheels of business moving.
2) Creation of Wealth :
Creation of wealth is o ne of the important objectives of
business. Creating wealth involves increasing the wealth of the
shareholders. It happens only if the business grows steadily
whereby the shareholders get higher dividends and there is an
appreciation in the market value ofthe shares.
3)Creation of Customer :
The purpose of business is to create a customer. Customer
is the foundation of a business. Business has a important human
obligation. Profit can’t be earned only by producing the goods.
Every businessman has to fin d customers for high goods or
services. Thus, the objective of the business should be to identify
the customer for the ir goods and services. This requires creation of
customer in the market and distributes goods and services.munotes.in
24
4) Innovation :
Innovation means to bring new methods, new ideas and
concepts and modern efficient techniques. It mean something new
and creative. It is useful in improving quality, reducing costs and
satisfying the customer better. It is a continuous process. In order
to survive a nd succeed in today’s competitive business
environment, a business organisation needs to be innovative.
5) Utilisation of Resources :
Effective utilization of resources is the most important
economic objective of a business enterprise, It is expected to utilise
available resources fully i.e. to the optimum level. The resources
available with an enterprise may be limited but they must be utilized
fully. The production capacity of plant, machinery, and equipment
must be used fully wastages of all kinds sho uld be avoided or
minimized . Modern technology should be used for more production
and Superior quality production. It leads to bring down the cost of
production.
6) Expansion of Market :
A business firm may aim at entering in to new market. i.e.
domesti c as well as ininternational market. This would enable the
firm to survive during recession grow and also gain reputation not
only in the domestic markets but also in the international market. A
business enterprise may increase its market share by effecti ve
distribution network, maintaining good relations with dealers,
effective advertising and publicity, providing effective and efficient
after-sale-service, effective sales promotion etc.
7) Growth of business :
Growth of business activities is one of t he economic
objectives of business. Growth is desirable for more production and
turnover in business. Business expansion also gives advantages of
large scale operations. Introduction of new products, setting new
production unit, and use modern techniques o f production are some
methods useful for the growth of business activities. Such growth is
necessary for meeting market competition.
8) New product Introduction :
A firm may aim at introducing new product lines or brands.
The introduction of new product s or brands would help the
organisation in several ways i.e. increase its overall market share,munotes.in
25
face the competition effectively in the market, earn good amount of
profit and so on.
C) Social Objectives Business :
Business is a part of a social System. A social system
involves people and their Organisations in mutual relationship to
each other. Business is an integral part of society.
Following are the social objectives of business
1) Social Objectives towards Customers :
The Survival and success o f any business organisation
depends on its cusumers. One universally accepted social objective
of business is to satisfy consumers by providing goods and
services as per their needs and expectations. Business activities
are essential for meeting the needs of consumers. Business have
to supplied quality good at reasonable price to the customer.
2) Social Objectives towards Employ ees :
The Social Objective of a busi ness firm towards its
employees i s to treat them with respect and provide them with the
rightcompensation and facilities. Business should provide better
wages, working conditions, good treatment to the employees. It
also provide monetary and non -monetary benefits for satisfaction of
the employees. This also ensures industrial peace and harmony.
3) Social Objectives towards shareholders :
Shareholders invest their money in the business in the form
of shares, debentures bonds etc. The basic objective is that the
shareholder should receive a fair, return on their investment. The
Objective of the business is to utilise efficiently the money of the
shareholder and give them fair return on their investment in the
form of dividend a interest.
4) Social Objectives towards Government :
A business organisation can’t function smo othly without the
suppo rt and co -operation of the Government. Hence, it becomes
necessary on the part of the organisation to fulfill its social duties
towards the government. These include payment of taxes and
duties, following the rules and regulations framed by themunotes.in
26
governme ntfrom time to time, contributing towards the welfare
activities of the government and so on.
5) Social Objectives towards Suppliers :
The suppliers can play an important role in the success of an
organisation by Supplying the right quality and quantity o f material
at the right time. Therefor e, a business firm needs to have social
objectives towards supplier in respect of timely payment of dues.
Helping the suppliers in their financial requirements by making
advance payments.
6) Social objectives towards Dealers :
Dealers assist business firm by promoting and pushing
goods and services in the market at the righ ttime at the right place.
It is one of the basic social objectives that goods of special quality
be produced and supplied. I fthis basic demand o f the society is
met, the business may survive in the long run.
7) Social Objectives towards Society :
Business organisation gain profit because of the support of
the society. Naturally, they are expected to provide financial
support for various social, educational and cultural activities. This is
also necessary for maintaining cordial relations with the society.
Business organi zations must also support social welfare
programmes.
D) Human Objectives of business :
One of the objectives of business is to look after the interest
of the people who make business successful. It has been widely
recognised that human beings should be treated as anindividual.
Businessman should have parental approach towards human
being.
Following are the human Objectives o f business.
1) Fair wages :
Employees should be treated as human beings first and then
as workers. The employe es should be paid fair wages. A part from
this, they should also be given other monetary and non -monetary
benefits, incentives and other facilit ies.munotes.in
27
2) Better working condition :
The working conditions provided to the employees must be
hygienic. Good lighting ventilation, good recreation facilities, better
labour management relations etc. provide a healthy work
atmosphere. This is necessary so that the health of the workers is
not adversely affected.
3) Workers participation in the management :
Workers participation in the management has been
recognised. Their representation in the management may create
healthy co -operation. The problems and disputes can be solved on
human grounds. This enables both employees and man agers to
understand each other’s problems and improve relations.
4) Human Resources Development :
The management must undertake human resource
development programmes. Necessary training should be given to
the employees to improve their skills. Suitable conditions should be
created to enable them to use their latest talents like creativity ,
communication skills, decision -making ability etc. This develops
their overall personality, which ultimately benefits tothe
organisation.
5) Job Satisfaction :
Business enterprise should provide challenging and
interesting job opportunities to the employees. If Jobs are routine
and less challenging, then it brings boredom and may le ad to
labour turnover and absenteeism. Jobs can be made more
challenging and interesting through techniques like job
enlargement, job enrichment, Job rotation etc. Some times
promotions and transfers can also be used to bring job satisfaction.
6) Motivation :
The employees should be motivated to work hard. This can
be done by offering monetary and non -monetary benefits to them.
Monetary rewards includes high salaries, housing all owance, car
allowance etc. wh ile non -monetary incentives includes
appreciation, recog nition, promotions, Job title etc.munotes.in
28
7) Welfare facilities :
The Organisation should provide to its employees proper
welfare facilities like canteen facilities, transport facilities, sports
and recreation facilities, education facilities and so on.
E) National Objectives of business :
National objectives are the more Specific objectives of
business. These are aimed at fulfillment of national needs and
aspirations. The government has to implement the national plans
and policies in accordance with the accepted priorities. Business
organisation should consider these priorities, policies and plans
making business decisions.
Following are the important national objectives of business.
1) Social Justice:
Social justice means providing equal opportuniti es to all,
protecting the interest of neglected, unorganised and economically
backward sections of the society and prevention of any sort of
exploitation. For example, a business organisation should do social
justice to its handicapped workers, and women e mployees.
2)Development of small scale industries :
Small scale industries are those that require less capital and
generate more employment. In the present eraof globaliz ation, this
sector is adversely affected; In order to boost thi s industry, big
business organiz ations should assist the growth of small scale
industries by purchasing raw material from them.
3) Self Sufficiency :
Every business organisation should make use of available
natural resources and human resources for economic development.
It should reduce the countries dependence on foreign countries by
producing goods indigenously or by promoting exports and
reducing imports.
4) Production as per National Priorities :
Business organizations must make efforts to provide the
basic require ment of life i.e. food, clothing and shelter at
reasonable prices. In other words, every business organisationmunotes.in
29
should set its objectives after considering national priorities.
Secondly, efforts should be made to reduce the nation’s
dependence on foreign co untries. This could be done by
undertaking production indigenously, promoting exports and
reducing imports.
5) Social welfare :
Business Organisation may also support directly or indirectly
welfare schemes in the society. The welfare schemes that busine ss
has to adopted i.e. adopting schools in backward areas, providing
funds for rural development activities such as construction of roads,
irrigation etc. organiz ing health camps etc.
6) Development of Backward Areas :
Business organisation can contribu te towards development
of backward areas of the nation. This can be done by setting up
industries in such areas. Also, financial and technical assistance
can be provided to units in such backward areas. The government,
too, encourages the development of ba ckward areas by providing
lots of incentives such as tax holidays, low rates of taxation, tax
exemptions and so on.
7) National Integration and communal Harmony :
Business organisation is referred as corporate citizens.
Therefore, they should work for n ational integration and communal
harmony. They should not support anti -social elements or
communal forces who work against national integration. This is one
of the most important national objectives of business.
8) Creation of Employment opportunities :
Business creates employment opportunities either directly or
indirectly. In a country like India where unemployment and
disguised employment are at a very high level, it is advisable for the
industries to adopt wherever possible labour intensive technique s
so as to employ more number of people and thereby reduce the
number of people below the poverty line.munotes.in
30
Check y our Progress
1.Define the following terms:
a.Objectives
b.Three fold objectives of Business
c.Economic Objectives
2.Draw the chart showing the classif ication of Business
Objectives.
3.Enlist the steps in the process of setting of the business
objectives.
4.Fill in the blanks:
a.National objectives of business are aimed at fulfillment of ----
------------ and---------------- .
b.Motivation can be done by offerin g------------ and---------------
---benefits to the employees.
c.Workers participation in the management is the ---------------
objective of business.
d.Effective utilization of resources is the most important ---------
------ objective of a business enterpri se.
e.The organic objectives also called as ---------------------
objectives of business.
2.5 RECONSILIATION OF ECONOMIC AND SOCIAL
OBJECTIVES
Business is a part of society and therefore, it has to meet its
social obligations along with its economic obj ectives. It has to
balance its economic and social objectives in order to satisfy the
various parties or groups i.e. consumers, employees, shareholders ,
Government, Suppliers, Competitors and society.
The economic and social objectives can be reconciled as
under -
1) Profit and consumer price :
An important economic objective is to earn more profit. This
could be done not by charging high price but by increasing
efficiency, reducing wastages, putting the available resources to
optimum use, innovations e tc. such strategies on the part of the
management would enable them to charge reasonable price for the
products. This is how a balance can be brought about between themunotes.in
31
economic objective of earning profit and the social objective of
charging a reasonable p rice.
2) Profit and Research and Development :
A Business organisation needs to earn profit. A part of the
profit needs to be invested in research and development. This
would help the organisation to improve the quality. Improvement in
quality would not only bring customer satisfaction but also higher
sales to the business organisation.
3) Business expansion and social Interest :
Business organisation should bring expansion of business
activities not merely for profit maximisation but for serving the
customer better. However, expansion of business for securing the
benefits of large -scale operations and passing on same portion of
benefit to consumers is desirable. Expansion for generation of
employment opportunities is also economically and socially
desirable.
4) Profit and After -Sale-Service :
Business organisation needs to focus on after sale service,
especially in the case of consumer d urables. A part of the profit
must be spent in training the after -sale-service work force.
Additional after -sale-service work force may be appointed by the
firm to provide better service to the customers.
5) Profit and shareholders’ Interest :
Shareholders expect higher dividend, which is possible only
if the profit are high. When the organisation earns higher prof its, the
employees may demand higher wages. Business organisation need
to accept this fact and pay higher wages to the employees by co -
relating their performance with the pay. This would motivate the
employees to put in their best efforts. Simultaneously, the
organisation should also pay higher dividend to the shareholders
for the risk undertaken by them by investing in the company. Thus
reconciliation between the two objectives could be brought out.
6) Profit and Employees welfare :
Business organisatio n makes profits due to the efficiency of
its work force. Therefore business organisation needs to spend amunotes.in
32
part of its profits for the welfare of its employees by providing better
facilities such as improved working conditions, additional welfare
facilities ,and increase in salaries etc.
7) Profit and Social Development :
Business organisation spends some part of profit for the
social development activities. such as donations to schools,
colleges, trusts etc. contributions to government at the time of
natural climaties, floods, famines etc,. and for such other social
activit ies.
8) Business expansion and Suppliers :
Business organisation needs support of suppliers for its
business expansion plans. It should not try to exploit the suppli ers.
There are a good number of cases, where large business
organisation exploits suppliers by delaying payment, demanding
unreasonable higher discount etc.
2.6 DISTINGUISH BETWEEN ECONOMIC AND
SOCIAL OBJECTIVES
Economic objectives Social objectives
1) Meaning
Economi c objectives relate to
financial aspects and are directly
related to the survival, stability
and growth of business.Social objectives relate to social
responsibilities and are directly
related to welfare of different
social groups.
2) Coverage
Economic objectives include
reasonable profit making,
growth, introduction of
innovation, reduction in the cost
of production and marketing,
business stability , prestige and
recognition.Social objectives include regular
and continuous supply of goods
and services , raising social
welfare, support to community,
pollution control and justice to
investors, consumers and
employees.
3) Closer to enterprise s
Economic objectives are closer
to enterprise sas they are useful
for their survival.Social objectives are close r to
thesociety at large as they are
useful for raising social welfare .munotes.in
33
4) Priority
Economic objectives are treated
as primary objectives by
business organisation.Social objectives are treated as
secondary objectives by
business organisation.
5) His torical background
Economic objectives have a
long history and are universally
accepted by the business
community since long.Social objectives are recent in
origin but are not accepted in
the right spirit by the business
community.
6) Effects/Benefits
Economic objectives bring
industrial growth and create
employment opportunities .Social objectives raise social
welfare and offer justice to
different social groups.
7) Role
Economic objectives bring
financial soundness to business
organisation.Social o bjectives bring social
support and recognition to
business organisation.
8) Scope
Economic objectives are limited
in scope as they are related to
an individual enterprise .Social objectives are wide in
scope as they are related to
different social group s.
9) Effect of neglect
Neglect of economic objectives
brings financial difficulties. Even
the survival of an enterprise may
come in danger.Neglect of social objectives
leads to non -co-operation from
social groups. This may also
lead to social criticism and social
control.
2.7SUMMARY
The chapter business objectives explain that every
organisation needs aims and targets which are to be achieved by
conducting business activities successfully. Objectives give
guidelines to the organisation for its acti vities. Every organisation
has to keep eye on its objectives. The same time, organisation
does not have only profit making as an objective but also social,
national and human objective. Every Organisation has to keep
balance between all the types of object ives while carrying on its
activities. Modern business is considered as a socio -economic
business activity.munotes.in
34
2.8QUESTIONS FOR SELF -ASSESSMENT
a) Discuss the steps involved in setting business objectives.
b) Bring out the classification of business objectives.
c) What are types of organic objectives?
d) Explain the classification of economic objectives.
e) Discuss various types of social objectives.
f) Evaluate important types of Human objectives.
g) Evaluate different types of National objectives.
h) How would you reconcile eco nomic objectives with social
objectives?
i) Distinguish between economic and social objects.
munotes.in
35
Unit -3
NEW TRENDS IN BUSINESS
Unit Structure
3.0 Objectives
3.1 Introduction
3.2Impact of Liberaliz ation
3.3Impact of Privatiz ation
3.4Impact of Globali zation
3.5Strategy Alternatives in the changing Scenario.
3.6Restructuring Strategies
3.7Need for Restruct uring
3.8Turnaround
3.9 Summary
3.10 Questions for Self -Assessment
3.0 OBJECTIVES
After studying the unit the students will be able to:
Understand the new economic reforms adopted by India.
Know the positive and negative impact of Libera lization,
Privatization and Globalization.
Evaluate the strategy alternatives in the changing scenario.
Explain the restructuring strategies and its need.
Discuss the Turnaround
3.1 INTRODUCTION
Indian economy had experienced major policy changes in
early 1990’s. The new economic reform, popularly known as
Liberalization, Privatisation and Globalization i.e. LPG model aimed
at making the Indian economy as fastest growing economy and
globally competitive. The impact of these is explained as under -munotes.in
36
3.2IMPACT OF LIBERALIZATION
Liberalization means reduction of Government controls on
the private sector. In 1991, the Government of India took several
decisions about industrial development which indicated tendency
towards more and more privatisation.
Theimpact of liberalization is explained as follows : -
A)Positive impact :
1) Increase in investment
Liberalization has greatly increased investment in private
sector. The massive size of the investment plans of the companies
becomes evident when they are c ompared with the total investment
in the industrial sector.
2) Increase in Economic growth :
Indian economy during the last decade has witnessed a
growth of around 8%. Even though in last couple of years the
growth had showed down to around 5% to 6%, it is still relatively
high as compared to pre liberalized area where Indian economy
was growing at around 2% to 3%.
3) Increase in FDI
One of the positive outcome of liberalization has been higher
in flow of foreign direct investment (FDI) in India. Fore igninvestors
findchina more investor -friendly. They still think India npolicy and
procedural system is time consuming.
4) Increase in competition :
Liberalization have brought in an environment of healthy
competition in the market place with more numb er of players, both
national and international. The competition in turn has generated
wider choice of products, competitive prices and better quality of
goods and services. Thus, liberalization has benefited the Indian
consumer in a big way.munotes.in
37
5) Delicensi ng :
Before liberalization starting an industry in India was a
tedious process. Number of compliances in the forms of
permissions and licenses were required. This invariable delayed
the project and escalated the cost. The focus of liberalization was
on reducing these procedural delays caused by var ious licenses.
This has facilitated the quick formation of the companies.
6) Impact on Indian Business :
Business activities in India are very much affected due to
liberalization. Indian markets are now opene d up to foreign
companies. Imports are freely allowed. As a result, foreign goods
are now easily available to Indian consumers. The demand for
foreign goods, certainly affects the market for domestic goods. Our
industries can now keep hold on Indian marke ts only by improving
the quality and making the goods competitive in terms of quality
price etc. The scope of Indian business improved after
liberali zation.
B) Negative Impact :
On the negative side however there are some serious
problems arising out o f our New Industrial policy i.e. liberalization.
Theseareasfollows -
1) Demand for foreign product :
Our markets have been flooded with cheap foreign goods.
This have also adversely affected our domestic industries in a big
way. People prefer foreign brands and labels, and ignore domestic
products, resulting in closure of small medium local manufacturers.
2) Unemployment :
Liberalisation has introduced efficient and improved
technologies which has made manpower surplus. In a country
where manpower i s an asset many people have been rendered
jobless because of the recent changes.
3) Industrial Location :
The Government has given freedom to locate industries
anywhere in the country as per the choice of the business firms.
This would affect the develo pment of backward areas, as
industrialists may not be inclined to set up their units in backward
areas due to lack of infrastructure facilities.munotes.in
38
4)Unreliable investments :
Foreign Direct Investments are the first ones to withdraw
their money if they hav e even some apprehension about
government policies. This has been experienced in India recently
when nearly one lakh crores have been withdrawn by foreign
investors after Vodafone controversy and down grading of Indian
economy by glob alrating agency.
5)Problem of Deliensing :
The New Industrial Policy 1991 recommended autonomic
expansion without Government permission. This has resulted in
heavy expansion of capacities in the 1990’s in all sectors of the
industry. This in turn has resulted in recession, especially between
1996 -2003.
3.3 Impact of Privatization
Privatisation refers to a process that reduces the
involvement of the government or public sector in the economic
activities of a nation. It involves disinvestment of public sector
partially or fully by selling its equity to private parties.
The impact of privatisation is explained as follows.
A) Positive Impact :
1)Improved infrastruct ure:
Private Sector focuses on providing better work
environment. For this, huge investment is made in i mproving
infrastructure facilities provided to the employees of the
organisation. Better infrastructure in turn increases the overall
efficiency of the organisation.
2)Increase in efficiency :
Most government industries and services are inefficient and
are running in losses. Due to privatization, their efficiency is likely to
improve as private sector focuses more on increasing productivity,
efficiency and lowering or minimises wastages.munotes.in
39
3)Use of Latest Technology :
Private domestic investors and foreign investors make use of
latest technology and know -how for increasing the out put and their
profits. Better technology helps in reducing the cost of production.
4) Less political interference :
Public sector enterprises are owned and managed by
government with growth of private enterprises, government
participation in industry is reducing by the day. This has also
reduced the political interference in the day to day administration of
companies to a great exte nt.
5) Increase in foreign Investment :
Many private companies seek funds through foreign direct
investment (FDI) route. It increases foreign investment in the
country. A country like India which has a shortage of foreign
exchange benefits immensely due to such investment. An increase
in for eign investment leads to an improvement in the foreign
exchange reserves of the country.
B)Negative Impact
1) Problem of Dereservation :
TheGovernment has dereserved the public sector. This has
allowed the entry of private sector in those areas which we re earlier
reserved for public sector. The entry of private sector has resulted
in over expansion of capacities, which in turn has resulted in
recession, especially, from 1996 to 2003.
2) Lack of social Responsibility :
Business is a socio -economic acti vity. However, in their
eagerness to earn maximum profits, private businessmen’s;
invariably ignore their social responsibilities towards government,
employees, shareholders, society etc. This creates discont ent
among various stakeholders.
3) High prices :
Private businessmens are in a position to Spend huge
amount on research and development. If they succeed in
developing unique product, they are likely to recover the cost from
theconsumers by charging high prices for the product which they
produced .munotes.in
40
4) Exploitation of Employees :
It has been observed that private businessmens are not
hesitant to violate various laws especially pertaining to workers.
They may not even pay the minimum wage as prescribed by law.
Furthermore, the working conditions are n ot conducive. This
adversely affects not only the performance but also the health of
employees.
3.4 IMPACT OF GLOBALIZATION
Globalisation is a wider term and treats world as one
economy. Globalisation leads to integration of economies of
different count ries in a new global economic order. Globalisation of
business is the process of linking a country’s economy with the
world economy.
Meaning :
“Globalisaton as the process of integrating country’s
economy with global economy with a view to capturing glo bal
opportunities for long -term growth and development.”
The impact of Globalisation are as following -
A) Positive Impact
1) Integration of countries :
Globalisation leads to integration of countries of the world for
business purpose. Trade is made f ree and there is free movement
of goods and services among all countries. The isolation of
countries from world trade is removed and this is beneficial to all
participating countries.
2) Rapid economic growth :
Globalization provides opp ortunities to participating countries
to grow and expand production and marketing activities. Concerned
countrig promotes exports and earns substantial foreign exchange.
This is again invested in the economy in order to provide higher
standard of living to people within t he country -munotes.in
41
3) Reduction of custom Duties :
The custom duties on imports have been reduced
considerably, especially, since 1995. In 1995, the peak customs
duty was 40%, which has been reduced to 10% current level due to
WTO. Also the quantitative rest riction on imports have been
reduced. This has resulted in import of quality goods, which has
improved standard of living, and also resulted good competition
with the domestic industry.
4) Transfer of capital and Technology :
Globalisation facilitates e asy transfer of capital from one
country to the other due to free convertibility. This is lead to flow of
funds to poor and developing countries. Along with capital,
technology is also move from developed to developing countries.
Such transfer of technolog y leads to modernization of industries.
5) Liberalisation of foreign Investment :
Government has liberalised foreign investment in Indian
companies. At present, foreign investment is allowed even upto
100% in select industries. This has not only generat ed more foreign
capital but also has resulted in up gradation of technology in Indian
companies.
B) Negative Impact
1) Problem for Domestic companies :
Domestic companied is come in difficulties due to
globalisation. They have to face competition from t he foreign
companies which are superior with regard to quality and cost. The
business of domestic companies come in difficulties due to
competition from foreign companies. Even small scale and agro
industries may come in danger due to liberal policies wit h regard to
globalisation.
2) Problem of Foreign Investment :
The New Industrial Policy 1991 liboralised foreign
investment in India. At present FDI is allowed in several Sectors.
However, the MNCs are not very much interested in infrastructural
develop ment projects involving long gestation period. Also FDI
results in outflow of foreign exchange due to payment of dividents
and royalties.munotes.in
42
3) Problem to the national economy :
Globalisation lead to privatisation, disinvestment in the case
of public secto r, free entry of foreign goods / companies and limited
participation of government in industry and commerce. All such
changes may prove harmful to the national economy of developing
and poor countries.
4) Problem of Foreign Technology :
Globalisation le ad to extensive use of capital intensive
technology. However, computer technology / automation / modern
technology is not create large -scale employment opportunities
which are urgently required in developing countries. Thus,
unemployment problem is likely to become more serious due to
rapid progress towards globalisation. Again there is a possibility to
overdependence on foreign technology.
Check Your Progress
1.Define the following terms
a.Globalisation
b.Privatisation
c.Libralisation
2.Enlist the positive effects of Globalisation
3.Enlist the negative impacts of Privatisation.
3.5 STRATEGY ALTERN ATIVES IN THE CHANGING
SCENARIO
Organisation need to adopt certain strategy William F.
Glueck in his book “strategic man agement ”has identified the
strategic alternativ es into four broad groups.
1) Stability strategy :
Stability strategy refers to maintaining status quo of existing
business operations. It implies continuing the current activities of
the firm without any significant change. It aims at slow growth rate.
A firm is said to be following a stability strategy .If it is satisfied with
the same consumer groups and maintaining the same market
share, satisfied with incremental improvements of functional
performance and the management does not want to take any ris k
that might be associated with expansion or growth. Stability
strategy is preferred by small businesses or firms in a mature stagemunotes.in
43
of development stability strategy is pursues doing well. It is less
risky, easier and more co mfortable.
2) Gorwth strategy :
‘Growth strategy’ refers to a strategic plan formulated and
implemented for expanding a firm’s business. Growth strategy is
the much -talked and publiced strategy in the present Indian
environment. Growth means an increase in the size or scale of
operat ions of a firm usually accompanied by increase in its
resources and output. Business growth is a natural process of
adaptation and development that occurs under favo urable
conditions. In life of any organisation, growth is necessary at some
point of time. As a matter of fact, growth is precondition for the
survival of a business firm.
Growth strategies can be divided into two broad categories
i.e. Internal growth and external growth.
a) Internal growth :
It is growth within the organisation with the h elp of its internal
resources. It is planned and slow increase in the size and
resources of the firm. Internal growth is slow and involves
comparatively little change in the existing organisation structure.
Internal growth strategies include.
i) Intensifi cation / expansion
ii) Diversification
iii) Moderniz ation
b) External Growth :
External growth is fast and allows immediate utilisation of
acquired assets. External gro wth strategies include:
i) Merger and amalgamations
ii) Acquisitions and takeovers
iii) Foreign Collaboration and Joint ventures .
3) Retrenchment Strategy :
Retrenchment strategy, though less frequently used has
been pursued by various companies successfully. In retrenchment
stretegy, unattractive and unwanted areas of business aremunotes.in
44
sequenced gradually. It is a planned exer cise to get rid of
unprofitable parts of business which helps the organisation to focus
on most profitable and promising areas of business.
Retrenchment strategies can be divided in to two board
categories i.e. dive stment strategy and liquidation strategy.
a) Divestment strategy :
Divestment involves the sale or li quidation of a portion or a
major division, or segment of the business unit. It is usually a part
of revi val, rehabilitation and restructuring plan.
b)Liquidation strategy :
Aretrenchment strategy considered the most extreme and
unattractive is liquida tion, Strategy, which involves closing down a
firm and selling its assets. It is considered as the last resort
because it leads to serious consequences such as loss of
employment, termination of opportunities where a firm could pursue
any future activities and the stigma of failure.
4) Combination Strategy :
Combination strategy refers to the combination of stability,
expansion and retrenchment strate gy applied either simultaneously
or sequentially. In every combination, two or more business units
come together and adopt uniform policies for achieving common
objectives. Combinations are useful for eliminating risks and
uncertainties of business. A comb ination is a “revolution against
risks.” Combination strategies involves.
1) Horizental combinations
2) Vertical combinations
3) Allied combinations
4) Service combinations
5) Mixed combinations
3.6RESTRUCTURING STRATEGIES
Restructuring refers to reb uilding or reo rganising a business
firm. It’s a strategy that may be found useful in all the different
phases of the firm’s life cycle initial period, growth, maturity and
decline. It may also be found useful in postponing the death of the
firm i.e. the di ssolution or liquidation of the company.munotes.in
45
The following are the various strategies of corporate
restructuring.
1) Merger :
A merger refers to a combination of two or more companies
into one company. It may involve absorption or consolidation. In
absorpt ion, one company acquires another company, and in a
consolidation, two or more companies join to form a new company.
Mergers may be classified as follows -
a) A horizontal merger
b) A vertical merger
c) A conglomerate.
2) Amalgamation :
Amalgamation i s a restructuring process in which two or
more companies are liquidated and new company is formed to
acquire business. In simpler terms, it means that a new company is
formed that buys the business of minimum two companies.
Amalgamations are considered to be a safe route for sick units who
want to save their existence. Many other companies facing possible
bankruptcy also opt for amalgamation.
3) Acquisitins / Takeovers :
Acquisitions refers to a situation where one firm acquires the
assets and liabilitie s of another firm. The shareholders of the
dissolved firm are paid either cash or given shares in acquiring
company. Takeover is a form of acquisition which requires to
acquiring of controlling interest of a company with or without the
consent of the owner s.
4) Joint ventures :
Joint venture is a form of business combination. Here, two or
more companies form a temparary partnership for a special
purpose. Here, two companies arrive at an agreement on certain
issues of mutual interest. New company is not c reated but suitable
working arrangements are agreed upon. Such agreements are
beneficial to combining units. It is a fast and economic route for
gaining increase competitiveness to combining units.munotes.in
46
5) Portfolio restructuring :
Portfolio restructuring m eans making additions to or
disposals from company’s business. In simple words, it is
decomposition of a portfolio’s asset mix by selling off undesired
asset types i.e. equities, debt or cash. Simultaneously, other types
of securities are bought. Portfolio restructuring can be done by
divestitures and demergers. It is basically involves modifying the
business portfolio through d ivestitures and demergers.
6) Financial restructuring :
Financial restructuring involves a significant change in the
financial s tructure of the firm and / or the pattern of ownership and
control. Some of the ways of financial restructuring are going
public, Debt -equity swap, leveraged buyout, buyback of shares and
so on.
7) Organisational restructuring :
Organisational restructu ring has become a common practice
amongst firms in order to match the growing competition in market.
It denotes changing the organization structure of the company for
the betterment of business. Some of the forms of organisational
restructuring are regroup ing of business, business process re
engineering, downsizing and out sourcing.
8) Rehabilitation schemes :
A sick firm can be revived to improve its financial position by
adopting revival schemes some of the important revival schemes
are settlement with creditors, divestment, strict control over costs,
streamlining of operations , provision of additional capital and so on.
9) Privatisation :
Privatisation refers to a process that reduces the
involvement of the government or public sector in the economi c
activities of a nation. It involves disinvestment of public sector
partially or fully by selling its equity to private parties.
CHECK YOUR PROGRESS
1.Define the following terms
a.Stability strategy
b.Growth Strategy
c.Retrenchment strategymunotes.in
47
d.Combination strategy
e.Restructuring
f.Merger
g.Amalgamation
h.Portfolio restructuring
2.Fill in the blanks
a.--------------------- involves disinvestment of public sector
partially or fully by selling its equity to private parties.
b.Growth strategies can be divided into two broad ----------
-------------- growth and --------------- growth.
c.Merger and amalgamations is --------------------- growth
strategy.
d.Diversification and Modernization are the examples of ----
---------------- growth strategy.
e.------------------------ means a situation w here one firm
acquires the assets and liabilities of another firm.
f.Joint venture is a form of business ------------------------ .
g.Going public, Debt -equity swap, leveraged buyout,
buyback of shares etc are the ways of ------------------ .
h.------------------- ------denotes changing the organization
structure of the company for the betterment of business.
3.7 NEED FOR RESTRUCTURING
Following are important reasons for restructuring the
business enterprise.
1) Sickness of the unit :
Whenever a unit becomes s ick and is found economically
unstable the nthere is a need for restructuring. Sick unit interested
to revive take efforts to restructure.
2) Disinvestment :
Asameasure of restructuring some companies sell a part of
their assets in order to get rid of loss making unit or to invite new
partner. Alternatively, a company may dispose of some part of
equity holding in favour of foreign collaboration.munotes.in
48
3) Inte ntion to retire :
The existing promoters may be tried of carrying on with the
same business. So they may think of retiring and changing the line
of business by either entering into export business or any other
promising area. Any such move may result into restucturing.
4)To avoid competition :
Competition for small companies reduces the margin of profit
affecting the normal growth. So, in order to avoid competition the
competing units pref er to join hands. Thus restructuring helps to
face or avoid competition.
5) Perceived opportunity :
Some promoters have strong financial resource which they
want to invest in a profitable business such investments give great
opportunity to both, the new promoter and the old one. This
happens to be a restructuring programme for the old promoter.
6)Fast growth :
Whenever there is increase in sales, production , profit and
assets of the company .It is said that the company is growing .
Sometimes technical and structural limitations act as hardles for
internal growth. In such as situation companies have an option for
external growth by taking over or joining hands with other
companies.
7) Finance :
Restructuring in the form of merger or takeover can be used
to solve the problem of finance. A company lacking financial
resource can join hands with a stable and financially sound
company. The funds can be used for m odernisation and revive
back.
8)Economic of scale :
When two companies join together their scale of operation
increases. They can make a better and optimum utilisation of all
available resources development facilities, marketing and
distributi on activi ties etc. This helps them to reduce the overhead
cost and production cost. Reduction in overall cost eventually helps
to face competition in the market.munotes.in
49
3.8 TURNAROUND
Turnaround strategy can be referred as converting a loss -
making unit into a profitab le one. According to dictionary of
marketing (by D.H. collin) “Tournaround means making the
company profitable again.”
Turnaround is possible only when the company restructure
its business operations. Turnaround strategy is a broader strategy
and it can include divestment strategy -where a firm decides to
divest or get out of certain business and sells off units or divisions.
Normally, the turnaround strategy aims at improvement in
declining sales or market share and profits. The declining sales or
mark et share may be due to serveral factors both internal and
external to the firm. Some of these factors may include high cost of
materials, lower price utilization for the goods and services,
increased competition, recession, managerial inefficiency, etc.
3.8.1 Essentials of a successful Turnaround strategy :
A bu siness can’t be turned around without proper planning
and the support of the employees, shareholders etc. Following are
the essentials of a successful turnaround strategy.
1) Effective leadership :
To make turnaround successful, there is a need to have
good leadership at all levels, especially at the top level
management. The CEO needs to be committed and dedicated to
the organisation. He needs to be a dynamic person with creative
skills to hand le the turnaround situation. If need tobe, the Board of
Directors may change the CEO, and appoint a new leader to
handle the situation.
2) Change of managerment :
The present management should accept the responsibility of
the present state of affairs o f the company. A new CEO with
experience and maturity should be appointed for executing the
turnaround strategy effectively. A change in management may
bring in new and better ideas which would help the company to
come out of red.
3) Relevant to the enter prise :
Turnaround strategy prepared should be directly related to
the problems faced by the enterprise. A good turnaround strategy
should be able to deal with the difficulties directly and effectively.munotes.in
50
For this, the reasons responsible for the sickness of the enterprise
should be studied in depth so as to find out suitable remedial
measures.
4) Availability of Resouces :
There must be availability of required resources to make
turnaround effective. The turnaround strategy would require proper
amount o f cash to meet working capital needs and certain fixed
capital needs. The business unit may also require skilled manpower
to handle newly introduced technical Jobs.
5)Proper planning and execution :
A good turnaround strategy should contain comprehensi ve
remedial plan and arrangements for its execution. The strategy
prepared should have solutions to the basic problems before the
enterprise. In addition, necessary funds should be given to those
concerned with the execution of the strategy. This facilitat es
execution of the strategy within a time frame .
6) Proper communication :
It is essential that the management takes into confidence
various groups like the employees, creditors, shareholders and
others connected with the sick unit. This is possible th rough
effective communication with these groups. Any information
regarding turnaround strategy must be quick, clear and complete.
An effective and prompt communication is necessary in order to
reduce and remove their objection and reluctance to the turnaro und
programme.
7) Viability of business :
The nature of business needs careful consideration before
the introduction of turnaround strategy. Sometimes, the business
activity may not have bright future due to changed business
environment. A business ente rprise engaged in such activity is
bound to face difficulties from time to time. In short, viability of
business activity is an essential requirement of a good turnaround
strategy.
8) Good management :
Turnaround would be successful if it is handled by
determined and motivating managers. The top managers must be
objective oriented. Self confident, positive in outlook, innovative and
creative in thinking and highly active with a good foresight to
foresee whether their strategies would be positive in futur e or not.munotes.in
51
3.8.2 Steps in turnaround strategy :
To manage turnaround strategy and to make it successful,
the following are the steps that may be followed by business firms.
1) Setting up of a turnaround committee :
The business firm may set up a turnar ound committee or a
team to deal with the turnaround strategy. The committee may
involve top management personnel, consultant and may include
employees’ representative. At time, business firms appoint a new
CEO to deal with turnaround strategy. The CEO may take the help
of some top management personnel to manage the turnaround
strategy.
2) Identify problematic areas :
The problematic areas should be analysed. It could be
obsolete technology used by the company, under utilization of
production capacity, o r continuous decline in sale of some product
etc. Only when the problems are identified properly, then
organisation can work for proper solutions.
3)Detailed Investigation of problem :
The turnaround team needs to make a detailed investigation
of the v arious problems. The turnaround team may undertake the
activities i.e. discuss with workers to know the problems, conduct
consumer research, conduct dealers’ survey etc.
4)Enlist critical areas :
The critical areas which have been identified should be
investigated further and list covering those should be prepared. On
the basis of their intensity the most important problem should be
given top priority and remaining ones should be enlisted in
descending order.
5) Prep are restructuring plan :
A compreh ensive restructuring plan should be prepared.
While doing so, the strengths and weaknesses of the organisation
should be taken into account.
6) Implement the plan :
Thereafter, the plan must be implemented. For example if
the company wants to restructur e human resource, it must first
identify surplus employees. If possible they must be retained. If not,munotes.in
52
they should be retrenched. For this the company must make
available necessary fund’s in the form of gratuity, pension,
provident fund etc. to be paid to them.
7) Review :
The turnaround strategy needs to be monitored at different
phases. Monitoring of implementation is a must to ensure early
revival. It required, the company may adopt additional measures to
overcome the turnaround strategy.
3.9SUMMARY
In July, 1991 India adopted new economic reforms
consisting of privatization. Liberalization and Globalization. The
Government of India took several decisions about industrial
development which indicated tendency towards more and more
privatisation.
Restructuring and Growth strategies adopted by the
companies are for exploration of potential opportunities, with
strength, weaknesses and core competencies. It is endorsed to
understand various diagnostic tools that are used to identify and
evaluate applic able strategies and use of alternatives stategies. A
through study of the internal and external strategies is done for
corporate excellency.
Application of expansion and diversification plans of the
companies helps them to face competition, revitalized t heir
operations, increase their market share and advance their
creditability. Merger, Amalgamations, Takeover. Turnaround etc.
are several forms of strategic alternatives adopted by companies to
enhance and strengthen their corporate image and increase the ir
financial position.
3.10 QUESTIONS FOR SELF -ASSESSMENT
1.Explain the concepts of Liberalisation, privatisation and
Globalisation.
2.Discuss the impact of Liberalisation.
3.What is privatisation? Explain its impact.
4.Discuss the impact of Globalisation.
5.Expla in the forms of strategic Alternatives.
6.Discuss the various strategies of corporate restructuring.
7.What are the essentials of a successful turnaround strategy?
8.Discuss the steps in a turnaround strategy .
munotes.in
53
Unit -4
BUSINESS ENVIRONMENT
Unit Structure :
4.0 Objectives
4.1 Introduction
4.2 Feature of Business Environment
4.3 Importance of Business Environment
4.4 Interrelationship between Business and Environment
4.5 Components of Business Environment
4.6 Internal Environment
4.7 External Environment
4.8 Educational Environment
4.9 Measure to improve educational standards
4.10 Impact of Education on Business
4.11 Impact of Business on Education
4.12 Summary
4.13 Questions for Self -Assessment
4.0 OBJECTIVES
After studying the unit the student will be able :
To know the term business environment.
To understand the features of business environment.
To elaborate the importance of business environment.
To discuss interrelationship between busines s and
environment.
To explain internal and external environment.
To evaluate the measures to improve educational standard.
To understand the impact of education on business.
4.1 INTRODUCTION
Business environment consists of all those forces o rfacto rs
both internal and external that affects the working of a business.
Business environment refers to the socio -economic surrounding
under which business activities are to be conducted. Suchmunotes.in
54
environment is the net result or sum total of various political,
economic, social, technological, natural and other factors.
Environmental factors are largely beyond the control of business
enterprises. These are essentially the “give rs” within which
business enterprises have to operate. The internal factors
comprises of firm’s plans and policies, resources like manpower,
capital, machineries etc. The external environment comprises of the
micro factors such as customers, competitors, suppliers etc. and
the macro factors such as economic, political, social, technical and
other factors. Analysis of the internal environment helps the firm to
identify its strengths and weaknesses and the analysis of external
environment helps to identify opportunities and threats. Thus
environmental analysis helps to undertake the SWOT analysi s i.e.
strengths, weaknesses, opportunities and Threats.
4.2 DEFINITION AND FEATURES OF BUSINESS
ENVIRONMENT
The environmental factors vary from country to country, even
region to region. For example, Social environment in US is different
as compare d to India. Therefore Multinational Corporation like
McDonald’s has modified their products to suit India’s consumption
habits.
4.2.1 DEFINITION :
According to Keith Davis, -
“Environment of the business means the aggregate of all
conditions, events a nd influences that surround and affect it”.
4.2.2 FEATURES
The following are the important features / characteristics of
business environment.
1) Dynamic in nature :
Business environment is flexible and perpetually evolving. It
changes frequently du e to various external forces i.e. economic,
political, social, international, technological , and demographic.
Business enterprises have to operate under such dynamic
environmental conditions.
2) Direct and Indirect Impact :
Business environment may have direct and indirect impact
on the working of a business like competition, government policies,
customer, etc. can have a direct and immediate effect on the
working of a business enterprise. The macro -external factors likemunotes.in
55
social, economic and political fa ctors may have indirect effect on
the working of the business enterprise.
3) Inseparable part of business :
Business environment refers to the socio -economic
surrounding under which business activities are conducted.
Business can’t work in isolation. Bo th, business and its environment
are interdependent on each other. Business is not only influenced
by its environment but also can’t function without it.
4) Internal and External Factors :
Activities of business enterprises are affected by internal and
external factors. The internal factors are controllable in nature. It
includes manpower, machinery, management labour relations, etc.
The external factors are beyond the control of a business
enterprise. But it can adjust its strategies depending upon the
changes in external factors.
5) Complex in nature :
Business environment is also complicated and
unpredictable. Technological changes are taking place at a rapid
pace, new legislations are enacted every day and not only are
consumers becoming aware of t heir rights but economies are
become global. Such factors have made the environment complex.
6) Regulates scope of business :
Environment provides the frame -work within which business
enterprises have to operate. Business activities have to be adjusted
as per the prevailing environment. For example, manufacturers of
product like cigarettes and alcoholic drinks can’t advertise on
television. Such regulations must be taken into account.
7) Opportunities and Obstacles :
Environment provides opportunities and creates obstacles in
the working of the enterprise. Opportunities may be termed as
favourable situations which can help to make more profit and
growth. On the other hand, obstacles imply unfavourable
environment, which affect the enterprises profitabi lity and growth.
Both the situation must be accepted by business enterprise with
confidence.
8) Environment and planning :
Business environment and business planning are closely
related concepts. In fact, planning is necessary in order to derive
maximum benefit from favourable environment. Similarly , planning
is useful for dealing with the problems created by unfavourable
business environment.munotes.in
56
9) Multi -Dimensional :
Changes in environment may have positive and negative
impact on the working of busi ness, enterprises. Environment al
change may be favourable to some enterprises and unfavourable to
others. For example, Government of India has liberal isedthe entry
of foreign countries into India. The foreign firms consider it as on
opportunity, whereas, Indian firms consider it as a threat.
4.3 IMPORTANCE OF BUSINESS ENVIRONMENT
The following are the importance of business environment.
1) Identification of Strengths :
The analysis of the internal environment helps to identify the
strengths of the f irm. Strength is an inherent capacity of an
organization which can used to gain strategic advantage over its
competitors. Every organization must strive to maintain and
improve on its strengths.
2) Identification of weaknesses :
The analysis of the inte rnal environment also helps to
identify weakness of the firm. A weakness is an inherent limitation
of the organization which creates a strategic disadvantage.
Therefore, the firm should identify its weaknesses and correct them
as early as possible.
3) Identification of Opportunities :
The analysis of the external environment helps to identify the
opportunities in the market. An opportunity is a favourable condition
in the organisation’s environment, which enables it to strengthen its
position as we see h ow liberalization has brought global
opportunities for Indian business houses.
4) Identification of Threats :
Environmental analysis helps to identify threats from the
environment. A threat is an unfavourable condition in the
organization’s environment that creates a risk or damage to the
organization like rapid technological changes that have made
technologies used by organizations obsolete. Identification of threat
helps to defuse the same.
5) Effective planning :
A business organization should have short term as well as
long-term plans . Proper environmental analysis about the various
environmental factors affecting the business organizations helps
such planning effectively.munotes.in
57
6) Facilit ates Organising of Resources :
Proper analysis of environment enables a firm to know the
demand potential in the market. Accordingly, the firm can plan and
organize the right amount of resources to handle the activities of
the organization.
7) Optimum utilization of Resources :
The study of business environment is needed as it ensures
optimum use of resources available with the business organization.
Such study enables an enterprise to take full benefits of policies
framed by the government.
8) Flexibility in operations :
A study of environment enables a firm to adjust its activities
depending upon the changing situation. For example, the
environmental analysis may indicate that the nearest competitor
adopts flexible credit policy, depending upon the nature of
customers. Therefore, the business firm may also do t he same to
win the trust of the customer.
9) Business Expansion :
The environment analysis provides opportunities for
expansion and diversification of business activities. Because
environment analysis helps to discover and exploit such
opportunities ful ly when the environment is favourable, new ideas,
ventures and schemes may be put into action.
10) Understand future problems :
The study of business environment is needed in order to
understand future problems and prospects of business well in
advance. This enables a business enterprise to face problems
boldly and also take the benefit of favourable business situation.
4.4 INTERR ELATIONSHIP BETWEEN BUSINESS
AND ENVIRONMENT
Interrelationship is a meeting point between two subjects.
Business and en vironment are like the two sides of the same coin
i.e. one can’t survive without the other. Business and environment
are independent but interdependent on each other for survival and
growth. Environment supplies resources to the business
organizations for undertaking production activities. At the same
time, products manufactured are sol dto the people who are the
part of demographic environment. Growth and profitability of
business depend on the environment under which business has to
operate. Business will be successful when it is adjusted as per the
requirements of environmental forces. “To manage business means
to manage the environment around the business”. This suggests
the close relationships between business and its environment. Themunotes.in
58
interface between business and the various types of environment
can be briefly explained as follows -
1) Business and natural environment :
Business firms depend on natural environment for the supply
of resources like ra w materials, water, etc. The natural environment
also benefits from business. This is because of developments in the
field of technology; there is availability of alternative sources of
energy. Business firms have also come up with innovations that
can substitute natural resources or materials. Such technol ogical
developments and innovations help to preserve and protect the
environment
2) Business and Economic Environment :
Business is influenced by the economic policies relating to
taxation, money supply, import -export etc. A change in economic
policy has both positive and negative effect of industry. A positive
change in the policy provides opportunities for growth and
expansion.
Business has limited scope to influence the economic
environment. However, the Joint efforts through trade association
representation to the government, there can be some positive
changes in the economic policies affecting the business activities.
3) Business and Political environment :
Political environment factors affect the functioning of a
business as it has to modif y its policies according to the decisions
taken by the government. Moreover these changes can have a
lasting impact. For example, when the congress Government
headed by Mr. Rao decided to liberalise and open our economy in
1991, small business units were c ompelled to close down while
many were taken over by the multinationals.
Business organizations too influence the political
environment. For example, there are some organizations that funds
political parties. It is possible that such organizations benef it when
the party they fund comes to power.
4) Business an ddemographic environment :
Demographic environment factors such as age, sex, male,
female, rural -urban population, education etc. influence business
decisions. The business firms can take busi ness decisions
depending on demographic features of population. For example,
the income of the people in India is quite low. This affects the
purchasing power and has to be taken into account by the
manufacturers while fixing the price of their products. O n the other
hand, business organization also affect demographic environment.
For example, business organizations often undertake variousmunotes.in
59
community welfare programmes like health camps, literacy drives
etc. They thus contribute towards upliftment of the peo ple.
5) Business and regulatory environment :
The legal environment has a good influence on business
decisions. Business firms need to follow the provisions of various
laws or acts affecting their business decisions. It should carry on
their business wi thin the frame work given by the legal
environment. Business firms can influence legal environment. They
can support government in framing various laws and acts. Through
proper representations, business firms can influence the framing of
laws and acts in t he country.
6) Business and Technological environment :
Technological environment can influence business
decisions. Development in the field of technology can benefit the
firms by way of improvement in quality and quantity of goods.
Business can als o influence technological developments.
Business firms can invest a good amount in research and
development to develop new and better technology. Technological
development may help firms to come up with new and better type of
goods at lower cost of product ion.
7) Business and socio -cultural environment :
Business firms need to monitor closely the socio -cultural
environment. The social and cultural environment greatly influences
business decisions. An analysis of socio -cultural environment
would enable th e business firm to design and promote i ts products
and services effectively. For example, in India, people are
emotionally attached to their festivals, dance, music and so on.
Business firms can dramatise the socio -cultural elements in their
advertisements .
8) Business and international environment :
Business firms, especially those dealing in foreign trade are
affected by international environment. The international
environment is affected by international forums like WTO ,trading
block like NAFTA, ASEA N etc. Due to globalization and
liberalization business organization are forced to view business
issues from a global perceptive. Hence, business policies and
practices may be adjusted to survive in the global environment.
Business organizations also have a capacity to influence the
international environment but to a limited extent. The business
community can influence their government to represent it effectively
at various international forums.munotes.in
60
4.5 COMPONENTS OF BUSINESS ENVIRONMENT
A proper classifi cation of the various environmental factors
facilit ates the study of business environment. The business
environment can be broadly divided into two group’s i.e.
1.Internal Environment
2.External Environment
4.6 INTERNAL ENVIRONMENT
Internal Environment refers to all the factors within an
organization which affect its functioning. These factors are
generally regarded as controllable i.e. the organization can alter or
modify such factors. A firms’ internal environment consists of its
plans, policies, reso urces, relations and other internal factors which
affect its working.
Factors of Internal Environment :
The following are some of the important factors of internal
environment.
1) Vision, mission and objectives :
A vision statement highlights the long term goals of the
organization. It is broad based and provides necessary directions to
the business. On the other hand, short term targets are referred to
as mission statement. A mission statement provides directions in
setting objectives and framing policies of the organization. There
must be consistency between the vision statement, the mission
statements and the objectives of the organization.
2) Plans and Policies :
A knowledge of internal environment and how it affect the
functioning of the org anization is important to understand the use of
business plan and policies. Broadly, plan and policies cover
functional areas i.e. production, marketing, finance and human
resource development. Business plan and policies provide the
broad guidelines within which an organization has to work.
3) Human Resource :
A successful business is known by its efficient human
resources and not by the building and machines. Human resource
makes or breaks a business. Care should be taken to recruit result
oriental empl oyees.munotes.in
61
4) Physical Resources :
Physical resources includes machines, equipment, buildings,
office premises, furniture and fixture etc. Analysis of the internal
environment may indicate the weaknesses of the physical
resources, and as such the firm can take an appropriate measure
to correct such weaknesses. For example, the obsolete machines
may be replaced.
5) Financial Resources :
Finance is the life blood of all business activities. Every
organization requires adequate fixed and working capital. Th e
organization must have a sound financial policy where the inflow of
funds is more than the outflow. In such a case, the organization
does not fall into a liquidity trap.
6) Corporate Image :
Every organization enjoys an image among the employees.
Some refer to their employers as progressive whereas others refer
to them as conservative. To make the business acceptable to the
society, every business must try to improve its image. Objectives
base on en lightened lines certainly help to improve corporate
image.
7) Labour -management relations :
Both labour and management should try to maintain
pleasant relations at workplace. It is important to keep clear line of
communication. Differences and conflicts can be settled across the
table. Work environment s hould attract labours to their work.
8) R&D Facilities :
Research and Development is the strength of the business.
It helps the business to go ahead of the competitors by introducing
new products and by improving the existing ones.
Check Your Progre ss
1.Enlist the characteristics of business environment.
2.Define the following terms
a.Business Environment
b.Internal environment
3.“Business and environment are independent but
interdependent on each other for survival and growth”.
Explain.
4.Enlist the importa nt factors of internal environment.munotes.in
62
4.7 EXTERNAL ENVIRONMENT
External environment includes all those factors and forces,
which are external to the business organization such as economic,
socio -cultural, demographic etc. These external factors are b eyond
the control of the company. Hence they are regarded as
uncontrollable factors especially as they are dynamic and keep on
changing continuously. There is a constant need to analyse the
external environment so as to find out the opportunities and threa ts.
A proper analysis of external environment will enable the firm to
grab the opportunities and to defuse the threats. The external
environment is broadly divided into Micro Environment and Macro
Environment.
4.7.1 Micro Environment :
The micro envir onment consists of all those factors in the
firm’s immediate environment. The micro environment can have
direct impact on the working of a firm.
Factors of Micro Environment :
The following are the most important factors of Micro
Environment :
1) The c ustomer :
The key to success in marketing of goods depends on
consumer -oriented approach. It is important to consider
customer’s likes, dislikes, needs, preferences, buying motives and
expectations. Higher customer patronage brings increased profit to
the business.
2) The competitors :
A firm has to analyse its competitors’ activities. Information
about competitors must be analysed with respect to their product
designs, pricing, promotion, distribution, etc. Such analysis will
enable the firm to desig n effective marketing -mix.
3) The Suppliers :
Suppliers include those who supply inputs like raw materials,
and components to the organization. An organization can’t function
without a smooth supply of its stocks and raw materials. Therefore,
it becom es essentials to ensure a good relationship with its
suppliers to get quality goods at the right price and at right time.
4) Channel Intermediaries :
Now-a-days, dealer recommendations play an important role
to convince buyers to buy products, especiall y in the case of
consumer durables. The firm has to motivate the dealers to pushmunotes.in
63
and promote its products and also to obtain timely feedback about
consumers’ tastes, preferences, likes, dislikes, etc.
5) Society :
The society may also affect company’s d ecisions. The
society can either facilitate or make it difficult for a company to
achieve its objectives. Business has not only to earn profits but also
to serve the society. Society consists of general public, media,
government, financial institutions and organised group. Like trade
unions, shareholders associations etc. Society directly influences
the decisions of a business.
6) Corporate Resources :
Corporate resources include employees, funds, materials,
machinery and management. These resources are controllable.
They can be used as per the guidelines provided by business
policies.
4.7.2 Macro Environment :
The macro environment consists of the larger factors that
affect the day to day functioning of a firm. It relates to demographic,
economic, n atural, technologica l, political, cultural, international and
legal factors.
Factors of macro environment :
The following are the important factors of macro
environment.
1) Economic Environment :
Economic environment is one components of total busine ss
environment. It is the outcome of economic policies. Economic
events within and outside the country also affect economic
environment.
2) Political Environment :
Political environment refers to the situation created by
political factors and forces. It suggests the influence exerted by the
three political institutions i.e., legislature, executive and judiciary, in
shaping, directing, developing and controlling business activities.
3) Legal Environment :
The legal environment is comparatively new comp onent of
total business environment. Legal environment is the net result of
various laws, rules, procedures and regulations made by the
government in regard to the formation and operations of business
enterprises.munotes.in
64
4) Socio -cultural environment :
Cultur al environment is the result of social forces. Society
includes different social groups i.e. customers, investors, local
community and employees. The expectations of these groups
create cultural environment for business.
5) Demographic Environment :
Dem ographic environment relates to the population and its
division on the basis of age, sex, standard of living, size of the
family, employment, etc. Market demand, requirements of
consumers, etc are based on demographic environment. The study
of demographic environment has priority over other areas of
business environment as business depends on people.
6) Natural Environment :
Natural Environment relates to natural resources like land,
water, minerals, port facilities, etc. Business firms are use natural
resources like water, land, iron -ore, crude oil, etc. In doing so, two
things happen i.e. Erosion of natural resources and pollution of
resources. Business firms should understand these two effects and
take necessary measures to control erosion and pollutio n of natural
resources.
7) Technological Environment :
Technological environment implies the level of technology
available in a country. Technology is the systematic application of
scientific or other organised knowledge to practical tasks.
Technologica l advancement make it possible to improve the quality
of products, increase the output and decrease the cost of the
product. Technological changes are rapid and to keep pace with it,
businessmen need to be alert and flexible in order to quickly
incorporate them in their business organizations.
8) Financial Environment :
Now-a-days, financial environment greatly influences the
working of the firm. For example, poor financial climate in the
country dampens the spirit of stock markets. Therefore, corporate
firms find it difficult to raise funds from the primary market. The non -
availability of right funds affects the growth prospects of corporate
firms.
9) International environment :
Business firms engaged in foreign trade are more affected
by changes in t he international environment. Business firms, which
cater to foreign trade, must constantly monitor implications of
international environment on their business.munotes.in
65
4.8 EDUCATIONAL ENVIRONMENT
Education is not st uffing mind with information but to make
people enlightened, creative and honest. Education brings flexibility
in life and we agree to disagree. Education prepares us to face the
challenges of tomorrow and work in the direction to make this world
a better place to live in. Education has bridged t he gap between
people and nations.
The educational environment like business environment is
fast changing throughout the world. Now, it is necessary to redefine
and restructure education system particularly higher education so
as to make it competitive, effective and market friendly.
Meaning :
According to the census of 2011 , “every person above the
age of 7 years who can read and write in any one language is said
to be literate”.
4.9 MEASURES TO IMPROVE EDUCATIONAL
STANDARDS
The following measure s are suggested to improve education
in order to face the challenges of business, globalization and the
society.
1) Quality of education :
There is an urgent need to redefine policies and priorities in
education, much importance need to be given to impr ove the
quality of education at all levels i.e. right from primary to the
professional education.
2) Role of private sector :
Considering the financial crunch, the government should
gradually withdraw from higher education and allow professionally
manag ed private institutions to take up the job of providing higher
education. However, the government must monitor and supervise
the working of private institutions to protect interest of the learners.
It leads to improve quality of education.
3) Granting of Autonomy :
Functional autonomy should be granted to the colleges to
design and develop employment oriented curriculum. This would
improve the quality of education in India.munotes.in
66
4) Infrastructural Facilities :
The present inadequacy of infrastructure and financial
resources and the increase in demand for higher education. It is
suggested to expand distance education system and establish a
network of open universities in India.
5) Reduction in subsidy :
Subsidy on higher education is to be reduced gradu ally. This
is because higher education benefits only a small percentage of
population. The money saved by reducing subsidy on higher
education can be effectively utilized for primary education.
6) Revision of curriculum :
Proper steps should be taken to revise curriculum
knowledgeable persons should be included in the syllabus framing
committee. Assistance must also be taken from the industry at the
time of course revision. The revision must take place on regular
basis, say in every three years. Also exa mination reforms to be
introduced.
7) Relation between industries and institutions :
Business or management schools have to play constructive
role in developing managerial talent with competitive skills. There
must be an relation between educational ins titutions and industry.
8) Learning methods :
New learning techniques like individualized instructions,
group discussion, case study, brain storming sessions, seminars,
paper presentation should be incorporated to make courses
effective and practical.
9) Social and Cultural Development :
The education system must bring social development in the
society. It must contribute to character building. Otherwise,
education at whatever cost is meaningless. Therefore education
should be socially and culturally oriented.
10) Training to Teachers :
Teachers must be trained on a regular basis. Teachers
should develop new skills to impart education. They need to be
student oriented i.e. they should understand the students well and
accordingly train and assess the m. The teacher should have the
right concern and attitude towards the students. Teacher should
develop new skills by attending orientation and refresher
programmes.munotes.in
67
4.10 IMPACT OF EDUCATION ON BUSINESS
Following are the impact of education on busine ss.
1) Rise of professionalism :
Now-a-days, there has been a good deal of arguments in
favour of developing professional managers in India. Advanced
education, managerial competence, commitment to national
objectives and concern for workers and society are cited as
qualities of a professional manager. The shift from owners
management to professional management has come to stay in
India. Managing a large business today needs educated
personnel’s.
2) Technical Knowledge :
Education enable managers to b ecome technology friendly
in using computers, e -mail, internet, palm top and so on. Business
is always information based. The use of advance technology helps
managers to work out result oriented decisions.
3) Improve productivity :
Education improves th e quality of the workforce. Better
quality of work force leads to better quality and quantity of output.
This improves the overall efficiency of the organization.
4) Work culture :
Work culture means devotion and dedication to work. I t
ensures commitmen t and sincerity in work. The basic purpose is to
use available capacity both physical and mental to the fullest
extent. Education and training communicates to the workers the
message of work is worship and dignity of labour.
5) Reduction in cost :
Educa ted employees generally keep on developing new
tools and techniques of performing the work. This leads to
reduction in the cost of production. Consequently it enabled the
business organisaion to sell products at reduced prices.
6) Creativity :
Business provide ample opportunities to display individual
creativity. One need not do what others have done in the past. Top
management gives many chances to the managers to use their
innovative and creative ideas and plans and bring success to the
business. Educa tion facilitates use of creative talents.
7) Optimum Utilisation of Resources :
By appointing professionally qualified managers business
ensures that there is optimum utilization of resources both humanmunotes.in
68
and physical. Wastages of all types are either eli minated or
minimized. This results into progress and prosperity of the
business.
4.11 IMPACT OF BUSINESS ON EDUCATION
Following are the impact of business on education.
1) Need for different courses :
Business has grown manifold. Different function s have to be
performed day in and day out. This requires people possessing
various skills. For imparting these skills new courses have to be
started. So growth of business has necessitated the need for
different courses by education institutions.
2) Domi nance of private sector :
The economic reform gives birth to privatization. Importance
to private sector is a global phenomenon. Private sector can take
only those educated youth who have been trained to meet the
challenges of this business.
3) Vast pot entiality in service sector :
Service sector is the fastest growing sector in India.
Educated personnel’s are needed in consultancy, finance, banking,
healthcare, communication, maintenance, travel and tourism.
4) Information revolution :
The widesprea d use of computers has made information
only a click away. Data bank has become extremely popular where
information is collected, stored and made available on demand.
Education has to meet this need.
5) Specialisation :
Specialisation is the need of the business. A specialist is a
person who knows too little of a little thing. Education provides
talented specialists by coaching them in specific areas of business
like finance, marketing, production, R & D and so on.
6) Practical knowledge :
Now a days many educational organizations invite people
from the industry as faculty members as they have practical
knowledge about functioning of the business enterprises. This
helps students to get practical insight to the subject and makes
them better equipped to face the market realities.munotes.in
69
4.12 SUMMARY
The chapter Business Environment deals with the
environmental factors which affects the business working. Today’s
business world is highly complicated in nature. Every organization
has to operate under these environmental factors. These factors
are dynamic in nature. Before finalizing business decisions
organization has to observe and study the environmental factors. In
today’s globalised world international environmental factors have a
very important role to play. The survive and success of a business
unit is depends upon the quality of educational environment.
4.13 QUESTIONS
1.Define Business Environment. Explain its features.
2.What are the importances of business Environment?
3.Explain the interrelationsh ip between business and
environment.
4.Explain the factors of Inter nal environment.
5.Discuss the factors of external environment.
6.Write a note on Educational Environment.
7.What are the measures to improve educational standards in
India?
8.Explain the impact o f education on business.
9.Evaluate the impact of business on education.
munotes.in
70
Unit-5
INTERNATIONAL ENVIRONMENT
Unit Structure
5.0 Objectives
5.1 Introduction
5.2 Current Trends in the International Trade
5.3 World Trade Organisation (WTO)
5.4 Trading Blocks
5.5 European Union (EU)
5.6 North American Free Trade Agreement (NAFTA)
5.7 Association of South East Asian Nations (ASEAN)
5.8 South Asian Association for Regional co -operation (SAARC)
5.9Oil and Petroleum Exporting countries (OPEC)
5.10 Positive impact of Trading Blocs
5.11 Summary
5.12 Questions for Self -Asses sment
5.0OBJECTIVES
After studying thisunit the students will be able to :
Identify the global Envi ronment.
Understand the current trends in the International Trade.
Explain the functions and impa ct of WTO in the international
trade.
Know in detail a bout the trading blocs i.e. EU, NAFTA,
ASEAN, SAARC & OPEC
Discuss the positive impact of trading blocs.
5.1INTRODUCTION
The present International environment is favourable for
business growth and expansion. The world economy offers
unlimited but chal lenging opportunities. Business units particularly
connected with import -export should continuously monitor the
international environment, identify and make use of opportunities
for the betterment of company and country. Business unit engaged
in import or export trade or domestic units using imported rawmunotes.in
71
materials, technology or machinery are affected more by a m inor
change in international environment. Futher, business units
engaged in export marketing are influenced by depression or boom
in international market.
The international environment of business comprises of a
country’s foreign policy, bilateral relations, international
agreements, the policies of trading blocks, import -export policy,
monetary policies etc. Other factors like war, civil disturban ces
political instability etc., ha ve also an effect on international
environment. In recent years, the international environment has
changed significantly. The developments in transport and
communication systems have brought countries closer to each
other. Today, global market is emerging out as one single market.
Under such situations, companies like multinationals are likely to
dominate the world market.
5.2CURRENT TRENDS IN THE INTERNATIONAL
TRADE
There was sudden and sharp decline in world trade fr om
US$ 16 trillion in 2008 to US$ 12.4 trillion in 2009. This was mainly
on account of recession in the world markets in 2009 triggeved by
sub prime crisis of USA In 2008. However, there was an impressive
recovery in 2010. World trade reached US$ 7 trillio n in the first half
of 2010, with a value growth of 24 per cent.
World trade volumes which fell by 10.7% in 2009 have
recovered with a growth of 12% on 2010 as shown in the following
table.
Trends in Growth in Trade volumes (per cent cha nge)
2008 2009 2010
World Trade Volume (Goods & Services) 2.8 (-) 10.7 12.0
Imports
Advanced Economies
Energing & Developing Economies0.5
8.9(-) 12.4
(-) 8.011.1
13.8
Export
Advanced Economies
Energing & Developing Economies1.8
4.4(-) 11.9
(-) 7.511.4
12.8
Source : IMF (World Economic outlook) Jan, 2011.munotes.in
72
5.3WORLD TRADE ORGANISATION (WTO)
In 1947, 23 countries including India signed the General
Agreement on Tariffs and Trade (GATT). GATT was created to
reduce global depression and to liberalise and re gulate the world
trade by reducing tariff barriers. GATT has been replaced by WTO
in 1995.
WTO is wider in scope as it includes not only regulation of
world trade of goods, but also it regulates trade in services,
intellectual property rights and investm ent.It is concerned with not
only reducing or eliminating tariff barriers but also non -tariff barriers
such as quotas. In January, 2010, the membership of WTO was
153 countries.
5.3.1OBJECTIVES OF WTO :
WTO desires to achieve the o bjectives as decide d by GATT.
These are as follow -
1) Free trade i.e. trade without discrimination.
2) Growth of less developed countries.
3) Protection and preservation of environment.
4) Optimum utilisation of available world’s resources.
5) Raising living standard of cit izens of member countries.
6) Settlement of trade disputes among member countries through
consultation and dispute settlement precedure.
7) Generating employment opportunities at global.
8) Enlargement of production and trade.
5.3.2 FUNCTIONS OF WTO :
WTO performs important functions to increase world trade
and development. The main functions are as follows -
1) Administration of agr eement :
It looks after the administration of the 29 agr eements (signed
at the conclusion of Uruguay round in 1994), plu s a number of other
agreements, entered into after the Uruguay round.
2) Implementation of reduction of trade barriers :
It checks the implementation of the tariff cuts and reduction
of non -tariff measures agreed upon by the member nations at the
conclusion of the Uruguay round.munotes.in
73
3)Examination of members’ trade policies :
It regularly examined the foreign trade policies of the
member nations, to see that such policies are in line with WTO
guidelines.
4) Collection of foreign trade information :
Itcollects information in respect of export -import trade,
various trade measures and other trade sta tistics of member
nations.
5) Settlement of dispute :
It provides conciliation mechanism for arriving at and
amicable solution to trade conflicts among me mber nations. The
WTO dispute settlement body adjudicates the trade dispute that
can’t be solved through be lateral talks between member nations.
6) Consultancy services :
It keeps a watch on the development in the world economy
and it provides consulta ncy services to its member nations.
7) Forum for negotiation :
WTO is a forum where member nations continuously
negotiate the exchange of trade concessions. The member nations
also discuss trade restrictions in areas of goods, services,
intellectual pro perty, etc.
8) Assistance of IMF and IBRD :
It assists International Monitory Fund (IMF) and International
Bank for Reconstruction and Development (IBR) i.e. world Bank for
establishing coherence in universal economic policy administration.
5.3.3 POSI TIVE IMPACT OF WTO :
The positive impact of WTO on developing countries like
India can be described as follows.
1) Growth in Merchandise Exports :
The exports of developing countries like India, China, Brazil
etc. have increased since the setting up o f WTO. The increase in
exports of developing countries is due to reduction in trade barriers
i.e. tariff and non -tariff. For example, India’s merchandise exportsmunotes.in
74
have increased by 7.8 times since 1995. In 1995 it was 32 US $
Billion and it was 251 US$ Billi on in 2010 -11.
2) Growth in services exports :
The WTO has also introduced an agreement on services
called GATS. Under this agreement, the member nations have to
liberalise the services sector. Certain developing countries like
India would benefit from such an agreement. For example, India’s
services exports have increased from about 5 billion US$ in 1995 to
133 US$ billion in 2010 -11. The software services accounted for
about 42% of the services exports of India in 2010 -11.
3) Foreign Direct Investment :
As per the TRIMs agreement, restri ctions on foreign
investment have been withdrawn by member nations of WTO
including developing countries. Therefore, the developing countries
like Brazil, India, China, etc have been benefited by way of foreign
direct investment as we ll as by Euro equities and port folio
investment in 2010 -11, foreign direct investment in India was 26
US$ billion.
4) Textiles and clothing :
It is estimated that the textiles sector would be one of the
major beneficiaries of the impact ofUruguay Round. At the
Uruguay Round, it was agreed upon by member countries to phase
outMFA by 2005. Under MFA, the developed countries like France,
USA, UK, Canada etc used to import quotas on textile exporting
countries. The MFA has been withdrawn w ith effect from 1stJan,
2005, and therefore, it would benefit the developing countries
including India by way of increase in export of textiles and clothing.
5) Benefits of TRIP’s Agreement :
The TRIP’s agreements have benefited the developing
countrie s like Brazil, India, China and others. The firms in
developing countries have also developed new products and got
them patented. Developing countries have also benefited by way of
GIs status. For example, India has obtained GIs for products like
Darjeelin g Tea, Goa Feni and so on.
Therefore, it can be concluded that the WTO has created
both a positive and negative impact on developing countries. It is
expected that the developing countries like Brazil , India, China,
South Korea would greatly benefit from WTO agreements in the
coming year, provided they make efforts to improve efficiency and
international competitiveness.munotes.in
75
5.4TRADING BLOCKS
A trading block is a group of countries within a geographical
region that associate to promote and manage trade ac tivities.
Trading blocs are formed to encourage trade of goods and services
among members and to establish a collective bargaining force
against non members.
This kind of regional economic integration has inte nsified
over the years. European Union, NAFTA , OPEC, ASEAN, SAARC
etc. are some of the prominent trading blocs.
5.4.1 Objectives of trading blocs :
The main objectives of trading blocs are -
1) To reduce or if possible to eliminate trade barriers among
member nations.
2) To promote free transfer of labour, capital and other factors
of production.
3) To maintain better cultural, social and political ties with each
other.
4) To assist member nations in any possible way with special
reference to international trade.
5) To promote growth of the reg ion through mass production
and marketing of goods.
6) To bargain collectively with the non -members by means of
their collective strength.
7) To impose common external tariff and non tariff barriers on
non-members.
5.5 EUROPEAN UNION (EU)
5.5.1 INTRO DUCTION
This was orginally established as European Common market
by the treaty of Rome in 1957, and come into operation in 1959.
The founder members of the community were France, west
Germany, Italy, Belgium, Netherlands and Luxembourg. In 1973 UK
joined the community. Today it is known as EU, and Comprises
Belgium, Denmark, France, Greece, Ireland, Italy, Nether lands,
Portugal, Spain, United Kingdom, Germany, Luxembourg, Finland,
Austria and Sweden.
The association has advanced to the extent of removi ng
most trade barriers and allowing free movement of persons and
goods within the union. They have also established a European
Parliament for which member are selected from each country onmunotes.in
76
proportionate basis, and are given powers to legislate may issues
which are them ratified by the government at percent there are 27
member nations of E uropean Union.
5.5.2 OBJECTIVE OF EUROPEAN UNION :
The main objectives of European union are as follows :
1.To eliminate trade barriers on member nations.
2.To assist membe r nations during the times of emergencies.
3.To develop cultural and social relations.
4.To promote free transfer of labour and capital among member
nations.
5.To bargain collectively with the non -members by means of
collective strength.
6.To impose common ext ernal barriers on non -members.
5.6 NORTH AMERICAN FREE TRADE AGREEMENT
(NAFTA)
5.6.1 INTRODUCTION
The North American Free Trade Agreement (NAFTA) is the
most powerful trade bloc in the world. The member of the bloc are
USA, Canada, and Mexico. This bloc came into operation in 1994.
The NAFTA is basically a trade and investment agreement with a
view to reduce barriers on the flow of goods, services and people
among the three countries. The agreement covers only goods and
services manufactured / produc ed in North America or if imported
goods and services that meet certain local content requirements,
the nationality of ownership does not matter, as long as such local
content requirements are net.
NAFTA has a total population of 360 millions. Its formu lation
is an attempt to gain comparative advantage against the enlarged
European Union and to at pace the EEA. This trade agreement is
quite comprehensive and covers many areas such as tariff
reduction, free movement of professional among the member
countr ies, free movement of professionals among the member
countries, financial and direct investment matters and consumer
safety. There are “side agreements” relating to protection of labour
and protection of the natural environment. The NAFTA treaty
envisages elimination of all trade and investment restrictions
among the member countries over a period of 15 year.munotes.in
77
5.6.2 OBJECTIVES OF NAFTA :
The main objectives of NAFTA are as follows :
1.To eliminate trade barriers on trade and facilitate movement of
goods an d services.
2.To develop cultural and social relations.
3.Toremove restrictions on transfer of technology to member
nations.
4.Tonegotiate collectively with non -members on certain foreign
trade matters.
5.To promote fair competition in FTA.
6.To provide protec tion and enforcement of intellectual property
rights.
7.To develop industries in Mexico in order to create employment
and to reduce migration from Mexico to USA.
8.To assist Mexico in earning additional foreign exchange to meet
foreign debts burden measures undertaken by NAFTA.
a.Residents of NAFTA nations can invest freely in other
NAFTA countries.
b.Protection of intellectual property rights of the members
countries.
c.Free movement of labour from one country to another.
d.Pollution control along the USA -Mexic o border.
e.Standard isation of product standards in member
countries.
5.7 ASSOCIATION OF SOUTH EAST ASIAN
NATIONS (ASEAN)
5.7.1 INTRODUCTION
The ASEAN was established on 8thAugust, 1967 in Bangkok
by five original member nations that include Malaysi a, Indonesia,
Philipines, Thailand and Singapur. At present there are 10
members who also include Brun ei, Combodia, Laos, Myanmar and
Vietnam.
ASEAN original purpose was to preserve peace among its
member nations and to respond to the communist threat i n the
region from china. During the first nine years of its existence,
ASEAN’s primary focus was political.munotes.in
78
The economic co -operation began at the first ASEAN
Summit in Bali in 1976, when the declaration of ASEAN accord was
signed. The ASEAN countries ag reed to co -operate in the supply
and purchase of basic commodities, the establishment of
preferential trading arrangements, and the stabilization of prices in
the region and promotion of export earnings from production of
regional commodities.
The ASEAN countries formed the ASEAN free Trade Area
(AFTA) in September, 1994. The AFTA initially set to function for 10
years in order to develop inter ASEAN trade.
5.7.2 OBJECTIVE OF ASEAN :
The main objectives of ASEAN are as follows :
1.To accelerate economic growth, social progress and cultural
development of member countries.
2.To promote active collaboration and mutual assistance in
matters of common interest.
3.To maintain close co -operation with the existing international
and regional organization with simi lar aims.
4.To ensure the stability of the South East Asian Region.
Check Your Progress
1.Define the following terms
a.Trading blocs
b.WTO
c.NAFTA
d.European Union
e.ASEAN
2.Enlist the functions of WTO
5.8 SOUTH ASIAN ASSOCIATION FOR REGIONAL
CO-OPERATION (SAARC)
5.8.1 INTRODUCTION
Seven nations in the Indian subcontinent region have joined
hands to form the South Asian Association for Regional Co -
operation (SAARC) in 1985. The SAARC members include India,
Pakistan, Srilanka, Bangladesh, Nepal, Bhutan and Maldive s. Its
headquarter has been established at Kathmandu. A conference of
heads of the countries is held every year but conferences were
generally delayed for the one reasons or the other.munotes.in
79
Among the SAARC countries, concessional tariff rates have
been introd uced for 226 trade items. These concessional rates
range between 10% to 100%. India gave this concession to 106
items, which is the highest among all SAARC countries. Similarly,
other member countries also gave concessional rates.
To explore trade possi bilities among SAARC nations, first
SAARC trade fair was held at Pragati Maidan in New Delhi on
January 9 -14, 1996. The theme of the fair was co -operation for
growth. SAARC nations displayed their various products and also
their export capacities in this f air.
5.8.2 OBJECTIVES OF SAARC :
The main objectives of SAARC are as follows :
1.To promote welfare of the people of the region and to improve
the quality of life.
2.To accelerate economic growth in the region through regional
co-operation.
3.To accelerate social progress and cultural development.
4.To promote and strengthen collective self -reliance among the
member nations.
5.To contribute to mutual trust, understanding and appreciation of
each others problems.
6.To strengthen co -operation with other developin g countries.
7.To strengthen co -operation amongst member nations at
international forums (such as WTO) on matters of common
interests.
8.To co -operate with international and regional organizations with
similar objectives.
5.9 OIL AND PETROLEUM EXPORTING C OUNTRIES
(OPEC)
5.9.1 INTRODUCTION
OPEC i t is an organization of petroleum exporting countries.
It was founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and
Venezuela. It is basic objectives were to unify and co -ordinate
member’s petroleum policies and to provide member states with
technical and economic aid. The member countries coordinate their
oil production policies in order to help stabilize the oil market and to
help oil producers achieve a reasonable rate of return on their
investment. This po licy is also designed to ensure that oilmunotes.in
80
consumers continue to receive stable supplies of oil. At present, it
has 11 member countries.
OPEC member nations currently supply about 40% of the
world’s crude oil and 16% of natural gas.
OPEC helps oil prod ucers to achieve a reasonable rate.
Further, it aims to mange the supply of oil in an effort to set the
price of oil on the world market. This helps in avoiding fluctuations
that might affect the economi esof both producing and purchasing
countries.
There has been a continuous increase in India’s share of
export to OPEC countries. Saudi Arabia is the main market for
Indian goods in the OPEC region.
5.10 POSITIVE IMPACT OF TRADING BLOCS
Trading blocs and free international trading do not go
togethe r. In fact, trading blocs are against the growth of free global /
international trade. They adversely affect the process of trade
liberalization at the global level. however, trade blocs are also
useful for integration of economi es of member countries. EU is one
popular and successful trade blocs which has brought the
integration of economi es of member countries. All member
countries are getting benefits from this trading bloc. In brief trading
blocs have positive and negative aspect. It is mixed blessing. Let
us, now briefly note the impact of trading blocs.
1) Trade Creation :
Economists argue that economic integration leads to trade
creation. This is because a trading bloc may remove tariff on
member nations. As a result a high cost producing country of the
bloc can import goods from low cost producing member nation. Due
to formation of a free trade area, there is proper allocation of
resources, and the nations can take advantage of comparative
cost. Due to the comparative cost advantage, trade creatio n takes
place.
2) Competition :
The formation of a trading bloc leads to intense competition
between firms of the entire bloc. Due to intense competition, the
efficiency of the firms improves. This leads to reduction in prices
and improvement in qualit y.munotes.in
81
3) Economies of large scale :
Due to economic integration, there can be economies of
large scale production and distribution. Firms in the region will try to
specialize in these goods and services which they are more
capable of producing. This lead s to large scale production and
distribution, which in turn brings economies of large scale. The
economies of large scale are partly passed on to the consumers in
the form of lower prices.
4) Economic Growth :
The formation of a trading bloc can increa se economic
growth of the region. Due to reduction of trade barriers, firms in the
region would be in a position to produce goods at a lower price.
This would increase demand, which in turn would lead to large
scale production. The increase in production o f goods and services
may lead to economic growth in the region.
5) Employment :
Due to large scale production and distribution of goods, the
employment also increases. There can be direct and indirect effect
on employment. The direct effect in the indu stries producing goods
and services. The indirect effect is due to the increase in
employment in the supporting industries such as ancillary units,
banking, insurance etc.
6) Technological Developments :
Due to economic integration, there can be improv ements in
technology. As the firms grow they would go for higher
technological developments. A part of the increased profits can be
utilized for research and developments for the purpose of improving
technology that will help to reduce prices, and improve quality.
7) Investment :
There can be higher investment. The member nations may
reduce or remove restriction on investment. Therefore, there can be
an increase in intra regional investments, which in turn would
increase the economic development of the region. Also, the region
would be in a position to attract more investment from other
countries due to its growth potential.
8) Social and Cultural relations :
Due to integration, there can be betterment of social and
cultural relations in the region. The member countries can improvemunotes.in
82
their relations with each other through the exchange and social
programmes. This will indirectly help for the peace and prosperity of
the region.
9) Better utilization of resources :
The economic integration would help to make better
utilization of resources. Due to the growth of the region, there would
be optimum use of physical resources, human resources and
financial resources.
The optimum use of resources would in turn lead to higher
efficiency and productivity of the various firms in the region.
10) Consumers welfare :
A trading bloc facilities consumer welfare in the region. Due
to economic growth the employment opportunities increase, which
in turn increase purchasing power, and the people can enjoy higher
standard of living. Also, due to trading bloc, the consumers may
have to pay lower prices, and at the same time enjoy higher quality
products.
5.11SUMMARY
In today’s globalised world, international environmental
factors have a very important role to p lay. The international
institutions like OPEC, WTO, E U, SAARC, ASEAN, NAFTA etc. are
the important factors affecting international business.
A trading bloc is a group of countries, which is formed for the
purpose of economic, social and cultural develop ments in the
region. EU, NAFTA, ASEAN, SAARC are some of the main trading
blocs.
Trade blocs are against the growth of free international
trade. However, trade blocs are also useful for integration of
economies of member countries. Trade creation, Large Scale
Production and distribution, economic growth, employment,
technological development, higher investment, betterment of social
and cultural relations, better utilization of resources, consumer
welfare these are the positive points of impact of trading blocs.munotes.in
83
5.12 QUESTIONS
1.Write a note on International Environment.
2.Explain the functions of WTO.
3.Discuss the positive impact of WTO.
4.Write a detailed note on EU.
5.Write a detailed note on NAFTA.
6.Write a detailed note on SAARC.
7.Write a detailed note on ASE AN
8.Write a detailed note on OPEC.
9.What is the positive impact of trading blocs?
10.Give the full forms of:
a.WTO
b.EU
c.NAFTA
d.SAARC
e.OPEC
f.ASEAN
munotes.in
84
Unit-6
PROJECT PLANNING
Unit Structure :
6.0 Objective s
6.1 Introduction of business planning
6.2 Meaning
6.3 Steps in Business Planning Process
6.4 Project Planning
6.5 Importance of project planning
6.6 Project Report
6.7 Contents of Project Re port
6.8 Importance of project Report
6.9 Feasibility study
6.10 Types / Areas of feasibility study
6.11 Importance of feasibility study
6.12 Summary
6.13 Questions for Self -Assessment
6.0 OBJECTIVES
After studying this unit the students will be a ble to :
Know the concept and meaning of business planning.
Understand the steps in business planning process.
Evaluate importance of project planning.
Know the concept, contents and importance of project
report.
Explain types and importance of feasibil ity study.
6.1 INTRODUCTION
A Business plan is a document that is designed to serve as
an overview of how a company will operate and grow its business.
A typical business plan contains an executive summary, product or
services description, the makeup of the company’s management
team, market and competition breakdown, marketing and sales
strategy and financial planning and forecasting.munotes.in
85
6.2 MEANING
Business planning is a process that involves the creation of
a mission or goal for a company as well a s defining the strategies
that will be used to meet those goals or mission. The process of
business planning can be very broad, encompassing each aspect
of the operation, or be focused on particular functions within the
overall corporate structure.
Business planning refers to a process of deciding in advance
in respect of business activities.
6.3 STEPS IN BUSINESS PLANNING PROCESS
The following are the important steps in business planning
process.
1) Analysis of Internal Environment :
In this st age the entrepreneur must analyse the internal
environment prevailing in his firm. He must analyse the qualit y of
manpower, machines, etc. He must also analyse management and
labour relations, working conditions, management policies a nd
practices, etc. Suc h analysis indicates strengths and weaknesses
of the organization.
2) Analyse the external environment :
The next stage in business planning process is analyse the
external environment. In include analysis of government policies,
competitors’ strategies , customer preferences etc. Such analysis
indicates opportunities and threats to the firm. Therefore the
entrepreneur must analyse the external environment.
3) Set Corporate Objectives :
The entrepreneur must set corporate objective in line with
mission and vision of the organization. The objectives may be short
term, medium term and long term i.e. one year, 3 to 5 year and
more than five year respectively. The objectives must be specific,
realistic, measurable, attainable, and time bound.
4) Formulate Strategy :
The entrepreneur and his management team must formulate
strategies. A strategy is a long term plan to achieve long term
objectives. The corporate strategies are framed by the top
management, the divisional heads, the departmental heads and
lower level managers.munotes.in
86
5) Analysis of Strategies & Plans :
The management must analyse the strategies and plans.
Cost benefit analysis must be conducted of each and every
strategy on plan. Costs can be analysed in terms of production,
distribution, and ad ministration expenses. Benefits can be analysed
in terms profits, market share, sales, goodwill, etc.
6) Selection of best Strategy :
The information from the research will lead to formation of
the strategy you choose for your business. Revisit the stra tegy you
created even before your research and dig deeper into decisions on
appropriate marketing. Operations, and hiring for the first five years
of the company’s life. The entrepreneur must select the best
strategy or plan.
7) Implementation :
The ent repreneur must make suitable arrangement to
implement the strategy. Implementation of strategy involves
organising and allocation of resources to various activities.
Directing and motivating the subordinates to perform effectively.
8) Review :
Revisit t he entire plan to look for any ideas or wording that is
confusing, redundant or irre levant to the points you are ma king
within the plan. There must be periodic review of performance. The
review is required to find out whether the organization is on the
right trac k to achieve objectives. If required necessary modifications
may be made in the strategy.
6.4 PROJECT PLANNING
Project planning is a process of designing a project in an
orderly manner. It means determining the route or the manner in
which the project is to be ex ecuted. The systematic execution of a
project is just not possible without accurate project planning.
Project planning starts with the discovery of a business opportunity
and comes to an end with the completion of all details required f or
execution.
Project planning is the result of detailed investigation of
various aspects i.e. technical, managerial, marketing and financial
of the proposed business activity. Project planning is essential in
the case of new project as it gives basic d ata required for the
scrutiny of the proposed project and also for the execution of the
project. It brings safety to the project and inures orderly completion.munotes.in
87
6.5 IMPORTANCE OF PROJECT PLANNING
Project planning provides the blue print for starti ng and
managing the project.
Following are the importance of project planning.
1) Achievement of strategic goals :
Every successful project delivers your future organization
and helps it to accomplish its strategic goals. It organizations must
flouri sh and keep up with competitive, its members must be
effective at project management. Appropriate, careful planning will
ensure that projects will not over run deadlines and pile on
unexpected costs. Such a situation would only endanger the
anticipated cor porate benefits of the Organisation.
2) Time management :
It estimates the time required for a project to finish through
the time management plan. It is essential to complete the project
within specified time in order to achieve the predetermined
object ives. Project planning specifies the time required for each and
every activity right from establishing the enterprise to undertaking
production activity.
3) Innovation :
Project planning may encourage creativity or innovation. For
example, if the projec t planning targets are highly challenging, the
employees of the company need to come up with innovative ideas
to face the challenges and achieve the target.
4) Identifies Risk :
It identifies possible risks during the course of the project
and makes pre parations in case those risks may happen through
the risk management plan. It is always better to have an insight
about the possible financial, social, physical etc. risk involved in
promoting and developing the project.
5) Motivation :
Project planning may motivate employees. Due to project
planning, the company may achieve higher performance in terms of
profits, market shares, etc. Therefore, the company management
may motivate the employees by providing additional incentives
such as increase in pay, h igher bonus etc.
6) Better coordination :
It coordinates multiple resources within time and cost
restraints almost accurately. For any production activity to be
commenced various factors of production are required. Projectmunotes.in
88
planning brings clarity in acq uiring and utilization of finds thereby
ensuring proper coordination.
7) Investment Decision :
Project plan supplies vital information about the cost of
raising funds, operating cost, expected rate of proposed project,
etc. Therefore, project plan can b e used by promoters to take
investment decisions such as debt equity ratio.
8) Specifies Quality :
It gives a clear detail on the standards of the projects and
what should be expected from the project through quality
management plan. People working down the hierarchy become
aware of the standard that is expected about the product and their
performance.
9) Project Evaluation :
Project plan acts as a controlling device to check the project
progress and the project expenditure. Corrective measures can be
taken to correct if there any deviations between planned
expenditure and actual expenditure of the project.
6.6 PROJECT REPORT
A project report is a written document containing complete
information about the proposed project in summary form. It serve s
as the base for feasibility studies and actual execution of the
project. It is generally prepared by the company’s own technical
experts and professionals, or by outside experts or consultants like
Consulting Engineer, Management Consultants, and Charter ed
Accountants. A project report is very useful to know in detail the
technical, marketing and other issues relating to the proposed
business proposal. It is useful while submitting proposal for
government license and permission. It can be prepared in a
standard form or as per specific needs of the clients it should be
drafted with proper care. It must be self -explanatory for which
tables, charts, engineering maps and drawing etc. can be attached
to the report. Bank and other financial institutions insist o n such
project report along with the loan application for the project. Many
banks have their printed project report forms. The concerned party
has to supply information in this form and attach the completed
form to the loan application. Financial instituti ons need project
report because the lending institution certainly desires to study the
soundness of the proposed project before granting a loan. The
financial institution appoints experts staff for the scrutiny of project
reports.munotes.in
89
6.7 CONTENTS OF PROJ ECT REPORT
1.Name, address and other details of the sponsoring agency.
2.Brief history and summary of proposed project.
3.Salient features of the project with particular reference to
land, buildings ,plant and machinery and raw materials,
availability of labo ur etc.
4.Technical details of the project which include the details of
plant layout, location, manufacturing process, products, etc.
5.Manpower requirement of the project.
6.Financial aspects of the project.
7.Cost of production and profitability.
8.Total inco me, operative profit and net profit.
9.Information regarding marketing.
10.Importance of the project to the national economy .
6.8 IMPORTANCE / ADVANTAGES / USES OF
PROJECT REPORT
Following are the importance of project report.
1) Useful as a reference do cument :
Project report is a complete and comprehensive document. It
is useful for quick reference during the process of execution of the
project.
2) Facilitates feasibility study :
Project report is useful as a base for feasibility study of
proposed project. It helps the entrepreneur to evaluate the
soundness of the project on technical and on commercial lines.
Every project is subject to risk. The e ntrepreneur will conduct cost
benefit analysis of the project. Only if the project is feasible, then
only the entrepreneur may decide to venture in the proposed
project.
3) Useful for securing bank loan :
Project report is useful for taking bank loan for the execution
of the project. It is useful for obtaining loans and advances from
banks and financial institutions. Bank swould provide loans only
after careful analysis of the project report.munotes.in
90
4) Facilitates modification in the proposed project :
Project report is useful for modifications or improvement in
the proposed project during the course of f easibility study or
appraisal of the project.
5) Securing Government permission :
Project report is useful while submitting the proposal for
government permission, licence, etc. Project report is also required
to be submitted to the government authorit ies for obtaining
government licen ce, permission and various government
clearances.
6) Acts as a controlling device :
Project report is useful as a controlling device. It is useful for
monitoring the project while under execution. It acts as a controll ing
device to check the project progress and the project expenditure.
Corrective measures can be taken if there are any deviations
between planned expenditure and actual expenditure of the project.
7) Facilitates investment decisions :
Project report i s useful to the promoter to take investment
decisions as regards the project to be executed. It is also useful for
the investors who provide capital to the proposed project by
subscribing to the shares and debentures. The investors may
analyse the project report to decide whether or not to invest in such
a proposed project.
8) Facilitates Suppliers :
Project report is useful to the suppliers of raw material on
credit, technical supports and workshop etc. The suppliers of
equipment on credit or on hire -purchase basis may also require
project report to understand the soundness of the project. They
may provide the equipment on rent / credit only when the project
has potential in generating funds to repay the credit amount.
Check Your Progress
1.“Business p lanning refers to a process of deciding in
advance in respect of business activities”. Discuss.
2.Define the following terms
a.Business planning
b.Project planning
c.Project report
3.“Project planning provides the blue print for starting and
managing the project”. D iscuss.
4.Enlist the importance of project report.munotes.in
91
6.9 FEASIBILITY STUDY
Feasibility study of a project refers to finding out the practical
utility or the future prospects of a project. It is an impartial and a
scientific study of the project before it s final selection. Feasibility
study is undertaken by experts. It may also be undertaken
independently by banks or financial institutions. Even the
government agency may conduct feasibility study before granting
licence, permission or financial assistance to a new project. Such a
study is necessary and useful especially in case of large projects
which need huge financial investment. The basic purpose of
feasibility study is to find out whether the project is technically,
economically, financially and manage rially sound. Although every
feasibility analysis is different and is tailored to suit the product, its
goal is to identify the strengths and weaknesses of a project.
6.10 TYPES / AREAS OF FEASIBILITY STUDY
Following are the important types / areas o f feasibility study.
1) Technical feasibility study :
Technical feasibility relates to the technical aspects of the
project. Location, size, layout and technology are the important
aspects which are considered in the technical feasibility study.
Certain basic requirements of the project such as water supply,
fuel, transport, waste disposal are also considered while conducting
technical feasibility study. Location is an important consideration,
because project fails when located at an inconvenient place.
Similarly, an uneconomic size suggested in the project may bring
financial loss to the project. In the same way, old and outdated
technology affects the quality and cost of production adversely. It is
also possible to alter or improve the project from such technical
feasibility study.
2) Economic / Market feasibility study :
Economic feasibility study relates to the market and
marketing of proposed product . This feasibility study begins with an
estimate of market demand which should be as accurate as
possible. Over -estimation of demand results in over -investment and
low return on the investment made. The success and profit of a
project largely depend on the market available for the product both
at present and in future. The market potential is extremely
complicated due to rival producers, market competition and
substitutes available. Even the export market for the product should
be estimated if the product is suitable for export trade.munotes.in
92
3) Commercial / Financial feasibility study :
Commercial feasibilit y study relates to thefinancial aspects
of the project. This study is concerned with capital cost estimates,
working capital needs, sales revenue, earning estimates, cash -flow
studies and availability of funds for the execution of the project.
Financing a gencies like banks and financial institutions are
interested in the profitability of the project as recovery of loan given
is directly related to profitability of the project. The commercial
feasibility study is important to the sponsors of the project as one
basic purpose while executing the whole project is to earn profit.
4) Managerial Feasibility Study :
Managerial feasibility study needs to be studies while
preparing the techn ological and economic feasibility study. It is
advisable to ensure that al l ingredients of efficient management are
taken into consideration in the proposed project. The managerial
personnel at all levels need careful consideration in this study. In
addition attention should be given to other points like organizational
structure envisaged for the project, requirement of different
categories of personnel and so on. The success and profitability of
the project partly depend on managerial competence.
5) Legal Feasibility Study :
Legal feasibility study not necessarily last, but a ll projects
must face legal scrutiny. When an organization has either internal
or external legal counsel, such reviews are typically standard.
However, a project may face legal issues after completion.
6.11 IMPORTANCE / ADVANTAGES OF FEASIBILITY
STUDY
Following are the importance / advantages of feasibility
study.
1) Facilitates selection of best project :
The sponsors may have two or three project in hand. They
may undertake feasibility study of all the three and compare their
feasibility reports. They can easily select the best project or the
most promising project and execute the same on priority basis.
2) Suggests future prospects :
Feasibility study is a complete check -up of the proposed
project. It tells clearly its worth, its future success and its
practicability and future prospects. This is beneficial to the sponsors
of the project. The sponsors know the possible success or failure of
the proposed project well in advance.munotes.in
93
3) Avoids wastages :
Feasibility study is an effective way to safeguard against
wastage of further investment resource. Wastage of resources on
unsound / defective project is avoided due to timely feasibility
study.
4) Ensure Safety :
Feasibility study gives more safety and security to the
sponsors of the project. I t provides the stakeholders with evidence
that the project will be viable. Therefore, it helps in securing funding
from lending institutions and other investors.
5) Changes possible :
The sponsors can introduce suitable modifications / changes
in the ex isting project so as to make it more promising, safe and
secured.
6) Execution of unsound project avoided :
Execution of unsound / defective project is avoided due to
detailed feasibility study. This also avoids the failure of the project
after executio n.
7) Provide information :
Feasibility study provide necessary information for decision
making relating to the operations of the proposed project and other
activities in the organization.
8) Cost of business plan reduce :
The research and informatio n of the feasibility study will
support the business planning stage and reduce the research time.
Hence, the cost of the business plan will also be reduced.
6.12 SUMMARY
Project report is a summary of the entire project planning in
a written format. It serves as the base for feasibility studies and the
actual execution of the project. It contains all necessary data which
helps the financial institutions / banks to appraise the project when
the entrepreneur approaches them for financial assistance. Usu ally
the project report contains the name, address and brief history of
the proposed project. It highlights the salient features like land,
building, plant and machinery, raw material etc. Technical details
like plant layout, location manufacturing process , product etc. are
also included. The financial aspect of the project which includes
cost of the project, fixed assets, working capital and the source of
finance in detailed. It evaluates the cost of production and
profitability, total income, operative an d net profit etc. Themunotes.in
94
marketing information related to present and future demand, nature
of competition and marketing strategies are also explained.
Feasibility study of a project means to find out its future
prospects i.e. it viability. It is a critica l evaluation of all details of the
project as given in the project report. It includes technical,
economic, commercial, legal and managerial evaluation of the
project. Technical feasibility evaluates the location, size, layout, and
technology and the impor tant technical aspects of the projects.
Economic ormarket -feasibility evaluate the market demand for the
product / services both at present and the future. The commercial
financial feasibility study estimates the capital, working capital,
needs, sales r evenue, earning estimates, cash -flow and the
availability of fund and also the break -even point study. Managerial
feasibility looks into the organizational structure, managerial
competence required and the requirements of different categories
ofpersonnels .
6.13 QUESTIONS
1.What is business planning? Explain the steps in business
planning.
2.Discuss the importance of project planning.
3.Explain the importance of project report.
4.Discuss the various types / areas of feasibility study.
5.What is a feasibility study? Explain its importance?
6.Write short notes:
a.Feasibility study
b.Steps in business planning process.
c.Project report
d.Project planning
munotes.in
95
Unit-7
BUSINESS UNIT PROMOTION
Unit Structure
7.0 Objectives
7.1 Introduction
7.2 Stages of business unit promotion.
7.3 Factors determining location of business unit.
7.4 Role of Government in business promotion.
7.5 Licensing and Registratio n of companies.
7.6 Filling Returns and other Documents.
7.7 Important Legal provisions
7.8 Summary
7.9 Questions for Self -Assessment
7.0 OBJECTIVES
After studying the unit the students will be able to:
Elaborate the concept of business promotion.
Know stages or steps of business unit promotion.
Understand the factors determining the location of setting up
of a business unit.
Provide you with an overview of the role of government in
business promotion.
Explain licensing and registration of comp anies.
Know about filling returns ,other documents and important
legal provisions.
7.1 INTRODUCTION
Business unit promotion refers to all those activities relating
to setting up and promotion of business units.
Business promotion simply refers to all those activities that
are required to be undertaken to establish a new business unit formunotes.in
96
manufacturing or distributio n of any product or provide any service
to the people. It starts with conceiving an idea of business or
discovering an opportunity for doing a business, assess its
feasibility and then take the necessary steps to launch the business
unit. This involves ascertaining as to whether all the basic
requirements such as land, building, raw materials, machine,
equipments etc. are available or no t. If they are available one can
assemble them, arrange the necessary funds and set up the
business unit to give shape to the initial idea of establishing the
business.
7.2 STAGES OF BUSINESS UNIT PROMOTION
The following are the main stages in setting up of a business
unit.
1) Discovery of business opportunity :
The task of a promoter starts with his conception of a
business activity. Here, the promoter considers available business
opportunities and selects the one which is most promising and can
beused with limited risk. The promoter also considers the capital
requirement for the proposed business activity.
2) Size of the business firm :
The decision about the size of the firm i.e. the scale of
operations needs to be taken after finalizing a spe cific promising
opportunity for setting a business unit. The size of the firm is
influenced by a variety of factors such as financial, technical,
marketing, managerial and so on. The size decided should be most
appropriate or ideal.
3) Location of a busi ness unit :
Deciding suitable location is one major step in the setting up
of a new business unit. Location means the selection of the region,
area and the specific site where the proposed unit is to be located.
Selection of the wrong location may prove c ostly for the business.
The various factors that should be taken into consideration are
easy availability of raw material and labour, nearness market,
supply of power and water, availability of banking, warehousing and
communication, transport facilities. One should consider alternate
location and select the best among them.
4) Selection of form of organization :
In this step, the decision is taken as regards the form of
organization of the proposed enterprise. It may be organised as a
sole proprietorshi p, partnership, Joint Stock Company or a co -
operative society. While deciding a suitable form, various factors
such as capital requirement, managerial skill requirement, size of
the business and market available need careful consideration.munotes.in
97
5) Financial andTax Planning :
Adequate capital is essential for starting an enterprise and
also for its smooth working. Appropriate financial planning ensures
financial stability. The promoter should estimate the total financial
layout which includes both fixed and w orking capital requirement
and decide its sources. Tax planning helps to minimize tax liability.
It depends on the form of organization, the areas where business is
to be started as tax holiday and tax concession is given for units in
hilly and backward ar eas.
6) Physical Facilities :
In this stage, the promoters have to decide the manner in
which the physical facilities are to be arranged for a new enterprise.
Promoters are expected to give attention to infrastructure facilities
required by a new enterp rise. Such as water, electricity, disposal of
waste material, machinery, raw material, manpower, training of
employees etc.
7) Legal formalities :
Setting up of a new enterprise particularly a large enterprise
involves various legal formalities. Here, promoters have to study
the legal provisions made by the government and local authorities
for setting up of new business enterprises.
8) Organisation Structure :
Suitable internal organization structure is necessary for the
conduct of business activitie s of an enterprise in an orderly manner.
This avoids confusion, duplication of work and wastages of all
kinds. While deciding organization structure, attention needs to be
given to departmentation, delegation of authority and co -ordination
among department s.
9) Manpower requirements :
In this stage, the promoters estimate the manpower
requirement. It includes skilled and unskilled employees,
supervisors, junior executives, managers, professionals and so on.
Manpower is essential for efficient working of an organization,
similarly, manpower requirement needs to be estimated correctly as
the recruitment, selection, training and other human resources
development activities are undertaken as per the manpower
requirement estimated.
10) Launching the Enterpri se :
At this final stage, the major portion of promotional work
before starting a business enterprise comes to an end, and the
actual work of starting the business activity starts. This includes the
acquisition of land, the necessary construction work, pu rchase of
machinery, tools and equipment, hiring of manpower, conducting
production on trial basis etc.munotes.in
98
7.3 FACTORS DETERMING LOCATION FOR
SETTING UP A BUSINESS UNIT
Business firms need to select the best suitable location for
setting up a business u nit. Some of the important factors that affect
location include the following.
1) Nearness to raw material :
Generally, raw material constitute around 50% to 60% of the
total cost. Hence it would be advisable for the plant to be located
near the source of raw materials. Nearness to the source of raw
materials is of special importance when the material is bulky in
relation to its value a when the volume & weight are greatly
reduced during its processing.
2) Nearness to market :
Market is a place where products are sold. Nearness to
market helps in reducing c ost of transporting finished goods. It is
possible to make goods available at the right time. I tenables to
render quick service and after sale service. Nearness to market is
preferred when the prod uct is fragile, perishable or bulky.
3) Infrastructure facilities :
Availability of infrastructure facilities like power, water,
transport & communication, banking facilities etc. are important
determinants for business location. Unavailability or irre gular supply
or shortage of above factors could adversely affect the production
process. Availability of infrastructure facilities increases the
efficiency of an enterprise.
4) Skilled Labour :
The need for adequate supply of labour is obvious. A good
number of industries require skilled labour force such as engineers,
managers, computer programmers etc. A business firm should
consider the availability of competent and skilled labour in a
particular state. However, nowadays, due to mobility of skilled
labour, this factor is losing importance. Even though skilled labour
is a basic need of an enterprise.
5) Law and order situation :
This is one of the most important factors, which business
firm consider in locating a business unit in any region. For th e
smooth functioning of business activities, proper law and order
situation is essential. In India, business firms are reluctant to set up
business units in the North -Eastern States such as Bihar because
of law and order problems.munotes.in
99
6) Government policies :
The policies of the government like taxation policies,
licensing policies, incentives such as subsidies provided etc. go a
long way in deciding the location of the plant. For example
government may announce tax exemptions to certain industries if
they a re started in certain areas. This may influence the location
decision.
7) Natural Factors :
Natural factors affect the location of those industries which
require a particular climate or weather conditions. For example,
climate is an important factor in tea, coffee, rubber plantation.
8) Safety Requirement :
Certain factories may affect the health of the public in
neighboring areas where the plant is located. Therefore, such
industries must be located in remote areas away from residential
areas. For ex ample, explosive factors must be located away from
residential areas.
9) Financial Facilities :
Finance is the basic need of each and every industries.
Industries require huge capital. It gets attracted to those regions
where income of the people is hig h and they are willing to invest for
industrial activities.
10) Social infrastructure :
Social infrastructure is required for the development of
employees and their families. It adds to the welfare of employees.
Social infrastructure facilities include residential complexes,
educational institutions, hospitals and health care centres,
recreation facilities and so on. Some companies such as TISCO
have created such facilities of their own.
11) Other Factors :
Thereare several other factors that may be considered in
locating plant such as land cost, drainage and waste disposal
facilities, community attitudes, sound industrial relations, expansion
potential etc. The business firm considers other factors which
decided the location of a business unit.
7.4 ROLE OF GOVERNMENT IN BUSINESS
PROMOTION
The department of industrial policy & promotion was
established in 1995. Ithas been reconstituted in the year 2000 with
the merger of the Department of Industrial Development. Earlier
Separate Ministries for Sm all Scale Industries and Agro and Ruralmunotes.in
100
Industries. Heavy Industries and Public Enterprise swere created in
October, 1999.
The role and functions of the Department of Industrial Policy
and Promotion primarily include as follows :
1) Formulation and impl ementation of industrial policy and
strategies for industrial development in conformity with the
development needs and national objectives.
2) Monitoring the industrial growth, in general and performance
of industries specifically assigned to it, in part icular, including
advice on all industrial and technical matters.
3) Formulation of Foreign Direct Investment (FDI) policy and
promotion, approval and facilitation of FDI.
4) Encouragement to foreign technology collaborations at
enterprise level and fo rmulating policy parameters for the
same.
5) Formulation of policies relating to intellectual property rights in
the field of patents Trademarks, Industrial Designs and
Geographical Indications of Goods and administration of
regulations, rules made there under.
6) Promoting industrial development of industrially backward
areas and the North Eastern Region including International
Co-operation for industrial partnerships.
7) Promotion of productivity quality and technical cooperation.
7.5 LICENSING A ND REGISTRATION
A business enterprise has to follow legal provisions before
starting the operations. At present licensing is required only for six
industries i.e. alcohol, cigarettes, industrial explosives, defence,
drugs and pharma and hazardous chemic als. The various legal
provisions relating to licensing and registration of companies
include the following.
1) Registration under the Indian Companies Act. 1956 :
A Joint Stock Company needs to register under Indian
Companies Act, 1956. The promoter mu st obtain the incorporation
certificate from the Registrar of companies. To obtain the
incorporation certificate, a number of documents must be prepared
and submitted to Registrar of companies these are memorandum of
Association, Articles of Association, L ist of Directors, writtenmunotes.in
101
consent of Directors, statutory declaration and other relevant
documents.
2) Registration under Indian P artnership Act, 1932 :
A partnership firm may have to register under Indian
Partnership Act, 1932. The partnership deed alo ng with other
relevant documents must be filed with the Registrar of firms. In
Maharashtra, a copy containing Marathi translation of partnership
deed must be filed. On registration, the partnership firm gets legal
status.
3) Registration under the Bombay Shops and
Establishment Act, 1948 :
The promoter of every establishment shall send to the
inspector of the local area concerned, a statement in prescribed
form together with prescribed fees, containing name of the
promoter and the manager, postal address , name of the
establishment, category ,fee etc. The registration certificate is then
issued to the establishment, which shall be prominently displayed
at the establishment.
4) Registration ofMicro andSmall Enterprises :
Manufacturing units with invest ment in plant and machinery
upto Rs. 25 lakh is known as micro enterprises. Manufacturing units
with investment in plant and machinery upto Rs. 5 crore come
under small enterprises. Both types of units must be registered with
District industries centre (DI C). Such registration is required to avail
of benefits or assistance meant for MSE s.
5) Obtaining Food and Drugs Administration Licence :
Promoters of business units dealing in hotels, food and
drugs need to obtain FDA Licence, before starting operations .
Separate FDA Licence are required for wholesale trade and retail
trade in food and drugs items. To obtain FDA licence, application
must be made to local FDA authorities, supported by relevant
documents together with licence fees.
6) Clearance from Poll ution Control Board :
If a business unit is engaged in manufacturing process which
may pollute the environment, then in such a case, clearance is
required from state Pollution Control Board. The promotes have to
make an application supported by relevant documents to obtain
clearance from pollution control board..
7) VAT and Excise Registration :
The business firm subject to VAT/CENVAT must register
under Bombay Sales Tax, Act. and Central Sales Tax, Act,. Those
firms not subject to VAT such as textile d ealer need to notobtain
BST and CST Registration. The business unit may also requiremunotes.in
102
excise registration. For this purpose, registration may be done with
the excise authorities.
8) Registration with Directorate General of Foreign Trade
(DGFT) :
Busines s firm intending to deal in foreign must register with
Directorate General of Foreign Trade (DGFT) and obtain Importer -
Exporters code number. For this purpose, application must be
made to the local DGFT office, along with relevant documents.
Check Your P rogress
1.Fill in the blanks
a.A Joint Stock Company needs to register under -----------
b.Manufacturing unit with investment in plant and machinery
upto Rs. 25 lakh is known as --------------------- .
c.Manufacturing unit with investment in plant and machinery
upto Rs. 5 crore is known as --------------------- .
d.Micro and Small Enterprises must be registered with ----------
----------------------- .
e.The business firm subject to ------------------ must register
under Bombay Sales Tax, Act. and Central Sales Tax, Act.
f.Business firm intending to deal in foreign must register with -
------------------------------------- .
2.Enlist the main stages in setting up of a business unit.
7.6 FILLING RETURNS AND OTHER DOCUMENTS
1) Permanent Account Number (PAN) :
After incorpora tion, the company must obtain its Permanent
Account Number (PAN). For this purpose, an application needs to
be filed with the Income Tax Department in Form 49A with the
necessary documents. PAN is mandatory for opening of Bank
Account, filling of Income Ta x returns and various other financial
transactions.
2) Tax Deduction Account Number (TAN) :
After incorporation, the company must also obtain a Tax
Deduction Account Number (TAN). For this purpose, an application
needs to be filed with the Income Tax De partment in Form 49B with
necessary documents. TAN is required for depositing of TDS/TCS.
3) Value Added Tax (VAT) :
Value Added Tax (VAT) registration is required for a trading
business. This is to be applied for the local Sales Tax Departmentmunotes.in
103
in the pr escribed forms along with specified fees and necessary
documents. On completion of the formalities, a Tax Identification
Number (TIN) is granted.
4) Professional Tax :
Professional tax is a tax on profession. It is applicable in
same states in India and the rate of tax also varies from state to
state.
5) Service Tax :
Service tax is applicable on an entity which is engaged in
providing prescribed services. There are more than 100 services on
which services tax is currently applicable. The rate of serv ice tax
presently is 10%.
6) Filling Annual Return :
The Secretary must file annual return with Registrar of
companies within 60 days of Annual General Meeting.
7) Filling of Forms :
The Secretary has to file certain forms with the Registrar of
compan ies. For example the Secretary has to file Form 29 and
Form 32.
8) Filling of Annual Accounts :
The Secretary must file annual accounts with Registrar of
companies. Section 220 of the companies Act, requires every
company to file with Registrar of compan ies, 3 copies of balance
sheet and Profit & Loss A/c of the company, along with 3 copies of
relevant documents annexed thereto. The annual accounts must be
filed within 30 days of the Annual General Meeting.
9) Filling of Corporate Tax Returns :
Compani es i.e. domestic or foreign companies operating in
India have to file corporate tax return within a certain period of time.
The corporate tax is payable on the domestic or foreign companies
any income which is income received in India, income arises in
India and income arises outside India.
7.7 IMPORTANT LEGAL PROVISIONS :
Companies must follow various legal provisions relating to
various Acts such as :
1)The workmen compensation Act.
2)The Trade Unions Act, 1926.
3)The Bonus Act, 1926.
4)The payment of wages Act, 1936.munotes.in
104
5)The Factories Act, 1948.
6)The Minimum Wages Act, 1948.
7)The Employees State Insurance Act, 1948.
8)The Indian Companies Act, 1956.
9)The Micro, Small and Medium Enterprise Development Act,
2006.
10)The foreign Exchange Management Act, 1999.
11)The Industri al Disputes Amendment Act, 2010.
7.8 SUMMARY
Setting up means, ‘the act of taking steps for the formation of
something’, here in this chapter it means the business unit. The
number of stags involved in business unit promotion i.e. discovery
of business opportunity, size of the business firm, location,
selection of form of organization, financial & Tax planning, physical
facilities, legal formalities, organization structure, manpower
requirements and launching the enterprise. While promotion of a
busines s unit number of factors also responsible for setting up of an
enterprise i.e. raw material ,market, infrastructure skilled labour.
Law and order situation, Government policies, Natural factors,
Safety requirement, finance ,social infrastructure and other factors.
Government plays an important role in business promotion.
A business enterprise shas to follow legal provisions i.e. get
licences and make registration before starting the operations.
Company also fill the returns forms for its income received in India,
income arises in India and income arises outside India from the
domestic or foreign companies.
7.9 QUESTIONS FOR SELF -ASSESSMENT
1)What are the steps or stages involved in setting up of a
business unit?
2)Explain the factors affecting business lo cation.
3)Discuss the role of government in business promotion.
4)Explain the licencing and registration procedure of a
business unit.
5)Write short note
a.Filling returns and other documents.
b.Licencing and Registration
c.Role of government in Business promoti on.
d.Business location
munotes.in
105
Unit-8
ENTREPRENEURSHIP
Unit Structure
8.0 Objectives
8.1 Concept of Entrepreneurship
8.2 Nature and Characteristics of Entrepreneurship
8.3 Importance of Entrepreneurship
8.4 Factors contributing to the growth of entrepreneurship
8.5 Differences be tween the Entrepreneur and the manager.
8.6 Intrapreneur
8.7 Characteristics of Intrapreneur
8.8 Differences between Entrepreneur and Intrapreneur
8.9 Summary
8.10 Questions for Self -Assessment.
8.0 OBJECTIVES
After studying the unit students will be able:
To understand the concept of entrepreneurship.
To know the importance of entrepreneurship.
To elaborate the factors contributing to the growth of
entrepreneurship.
To distinguish between the entrepreneur and the manager.
To know the concept of I ntrapreneur.
To diffe renntiate between Entrepreneur and Intrapreneur.
8.1 INTRODUCTION
The term “entrepreneurship” is often used synonymously
with “entrepreneur”. Though they are two sides of the same coin,
conceptually they are different. The entrep reneur is a business
leader and the function performed by him is entrepreneurship.munotes.in
106
8.2 DEFINITION AND NATURE OF
ENTREPRENEURSHIP
8.2.1DEFINITION OF ENTREPRENEURSHIP :
According to Robert Hisrich “Entrepreneurship is the
process of creating something new and assuming the risks and
rewards”.
According to Peter P. Drucker “ Entrepreneurship is
neither a science nor an art. It is a practice. It has a knowledge
base. Knowledge in entrepreneurship is a means to an end; that is,
by the practice”.
8.2.2 CHA RACTERSTICS OF ENTREPRENEURSHIP :
The above definitions bring out the nature and
characteristics of Entrepreneurship :
1) Innovation :
A businessman, who simply behaves in traditional ways,
cannot be an entrepreneur. Innovation involves problem solving
and the entrepreneur is a problem solver. According to Schumpeter
entrepreneurship is a creative activity. An entrepreneur is basically
an innovator who introduces something new in the economy.
2) Risk and Rewards :
Entrepreneurship activity is underta ken to assume risks and
rewards. Any innovative activity is always subject to risks and
uncertainties. If the innovative activity is successful, the
entrepreneur will reap rewards, otherwise, the entrepreneur has to
assume risks of failure. Therefore, an e ntrepreneur needs guts to
assume risks, and he gets glory when there is success.
3) Managerial skill and leadership :
Managerial skill and leadership are the most important facets
of entrepreneurship. Financial skills are only of secondary
importance. A person who is to become an industrial entrepreneur
must have more than the drive to earn profit. He must have the
ability to lead and manage.
4) Exploits change into an opportunity :
An entrepreneur always looks for a change. If there is a
potential fo r a change, he responds to it. He exploits the change as
an opportunity for different business. Seeking change and
converting into an opportunity is the hallmark of entrepreneurship.munotes.in
107
5) Group Level Pattern :
Entrepreneurial characteristics are found i nclusters which
may qualify themselves as entrepreneurial groups. Entrepreneurial
activity is generated by the particular family background,
experience as a member of certain groups and as a reflection of
general values.
6) Organisation Building :
Entre preneurship implies the skill to build an organization.
Organization building ability is the most critical skill required for
industrial development. This skill means the ability to multiply one
self by effectively delegating responsibility to other.
7) Gap Filling Functions :
The most significant feature of entrepreneurship is gap
filling. It is the Job of the entrepreneur to fill the gap or to make up
the deficiencies which always exist in the knowledge above the
production function. Some inputs like m otivation and leadership are
vague and their output is indeterminate. An entrepreneur has to
marshall all the inputs to realize the final product.
8) Social and Economic Development :
Entrepreneurship activity facilitates social and economic
development . Due to entrepreneurship, the production of better
quality goods and services take place, which in turn facilities
economic growth of the nation. Also entrepreneurs play an
important ro le in social development by supporting social
development activities l ike health, education, community
development, etc.
9) High Achievement :
People having high need for achievement are more likely to
succeed as entrepreneurs. The achievement motive is, by
assumption a relatively stable enduring characteristic of an
individual. Achievement motive can be increased by deliborate
efforts. Various studies an psychological roots of entrepreneurship
reveal the presence of high achievement among successful
entrepreneurs.
8.3 IMPORTANCE OF ENTREPRENEURSHIP
The importance o f entrepreneurship in a developing
economy lies in the fact, that an entrepreneur as a change agent is
alone responsible for the development. Following are the
importance of Entrepreneurship.
1) Economic Development :munotes.in
108
Economic development is a highly dyn amic process
characterized by continual and of ten changes. As industry grows
and income rises, pattern of demand shifts, new product are
needed, new opportunities appear for the production of goods
within the country, resulting in growth within the countr y, resulting in
growth and development of the nation. Entrepreneurship activity
contributes to the economic development of a nation.
2) Social Development :
Entrepreneurs play an important role in social development
of a nation. He contribute funds towa rds social development
activities like health, education, and community development
activities. They also generate new and innovative ideas to enhance
social development in the society.
3) Regional Development :
The growth of industry and business leads to a lot of benefits
to the society. When the industries are concentrated in selected
cities, development gets limited to these cities. When the new
entrepreneurs grow at a faster rate, in view of increasing
competition in and around cities, they are forc ed to set up their
enterprises in the smaller town away from big cities. This helps in
the development of backward regions.
4) Create wealth :
All individuals who search business opportunities usually,
create wealth by entering into entrepreneurship. Th e wealth created
by the same play a considerable role in the development of nation.
The business as well as the entrepreneur contributes in some or
other way to the economy, may be in the form of products or series
or boosting the GDP ra tes or tax contribu tion. Their ideas, thoughts
and inventions are also a great help to the nation.
5) Employment Generation :
Unemployment is the major problem of our country. The
available employment opportunities can cater only 5% to 10% of
the unemployed. Entrepreneurs generate employment both directly
and indirectly. Directly create employment through self employment
as an entrepreneur and indirectly by starting many industrial units
they offer jobs to millions. Thus entrepreneurship is the best way to
fight the evil o f unemployment.
6) Capital Formation :
Entrepreneurs facilitate capital formation in the country. The
entrepreneur provide employment to people. The employees save
a part of their income. The entrepreneurs also save a part of their
profits. These savings lead to investment. Investment in term
facilitates capital formation, i.e. production of capital goods, which
can be used for further production of consumer goods and services.munotes.in
109
7) National Income :
National Income consist of the goods and services produ ced
in the country and imported. The goods an services produced are
for consumption within the country as well as to me et the demand
of exports. The domestic demand increases with increase in
population and increase in standard of living. The export demand
also increases to meet the needs of growing imports due to various
reasons. An increasing number of entrepreneurs are required to
meet this increasing demand for goods and services. Thus
entrepreneurs increase the national income.
8) Revenue to the Gove rnment :
The entrepreneurs provide revenue to the government. They
provide revenue in the form of direct and indirect taxes. The direct
revenue comes in the form of personal income tax and corporate
tax paid by entrepreneurs. The indirect revenue comes in the form
ofexcise duty, custom duty, service tax etc., paid by the
entrepreneurs. The entrepreneurs paid revenue to the government
in the various forms of taxes.
9) Consumer welfare :
Entrepreneurship activity facilitates consumer welfare. Due
to inno vative ideas, consumers can enjoy new and better types of
goods and services. Also due to employment, purchasing power of
the people increases, resulting in more demand for new and better
type of goods. Therefore, the standard of living of the society
improves.
10) Provides Satisfaction :
Although entrepreneurship is a challenging task but in most
of the cases the rewards it gives are much more than what one
anticipates. It does not only reward an entrepreneur at financial
levels but also an personal lev el. It provides satisfaction to the
entrepreneur.
8.4 FACTORS CONTRIBUTION TO THE GROWT OF
ENTREPRENEURSHIP
The emergence of entrepreneur i na society depends upon
closely interlinked economic, social, cultural, psychological, political
and personalit y factors. The factors contributing to the growth of
entrepreneurship are as follows :
1) Economic Policies :
The economic policies of the government and other financial
institutions and the opportunities available in a society as a result of
such polici es play a crucial role in exerting direct influence onmunotes.in
110
entrepreneurship in view of the haphazard development of
economic zones.
2) Government Incentives :
Government is encouraging the entrepreneurs to establish
their business in backward and tribal are as. This is primarily to
arrest the migration of people from the villages to cities and to
create employment opportunities locally. Government is promoting
such development by giving incentives like tax holidays, subsidized
power tariff, raw materials, tra nsportation cost etc.
3) Social Factors :
A society that is rational in decision making would be
favourable to entrepreneurship growth. Several less developed
countries characterized by the presence of a social set up which is
generally hostile to entre preneurship. Education research and
training are given very little importance. The process of division of
labour comes to be decided upon by the hereditary principle rather
than by aptitudes, skills and attainments of individuals.
4) Cultural factors :
If the culture is economically or monetarily oriented,
entrepreneurship would be applauded and praised. In the less
developed countries, people are not economically motivated.
Monetary incentives have relatively less attraction. People have
ample opportuni ties of attaining social distinction by non -economic
pursuits. Men with organizational abilities are therefore not dragged
into business.
5) Psychological Factors :
The psychological factors like high need for achievement,
determination of unique accomp lishment, self confidence, creativity,
vision, leadership etc. promote entrepreneurship among individuals.
On the other hand psychological factors like security, conformity
and compliance, need for affiliation etc. restrict promotion of
entrepreneurship.
6) Political Factors :
The political scenario and also the political stability of
country influence the growth of entrepreneurship. The political
system, which promotes free market, individual freedom and private
enterprise, will promote entrepreneurship . It means
entrepreneurship growth is depends upon the political factors.
7) Personality Factors :
In our country the entrepreneurship is looked upon with
suspicion. The result is the personality of the entrepreneur has got
greatly affected. Public opin ion in the developing nations sees in
the entrepreneur only a profit maker and exploiter. Many of themunotes.in
111
developing nations were exploited by foreigners for centuries. The
people and their leaders therefore tend to see in the entrepreneur a
suspect personalit y.
Check Your Progress
1.“An entrepreneur as a change agent is alone responsible for the
development”. Explain.
2.Enlist the factors contributing to the growth of entrepreneurship .
3.Define entrepreneurship.
8.5 DIFFERENCES BETWEEN THE
ENTREPRENEUR AND THE MANAGER
1) Motive :
Entrepreneur is characterized by concepts such as creativity,
innovation and soon, indicators of the desire to create “something
from nothing”
A manager is characterized by concepts such as order,
organization, procedures and so on indicating the desire to
organize and maintain what exists.
2) Activity :
Entrepreneur gets directly involved in he business activity.
Major areas of the venture are looked after by the entrepreneur
himself.
A manager may delegate and supervise the a ctivities of his
subordinates. There may less direct involvement in the activities of
the organization.
3) Status :
An Entrepreneur is not concerned about status symbols in
his organization. He may not be influenced by titles or position
symbols in the organization.
A manager is concerned about status symbols or titles in the
organization. The titles / symbols fulfill ego needs of a manager.
4) Risk :
The myths describe entrepreneur as “wild risk takers ”,
although many studies have shown that in fa ct the typical
entrepreneur is very good at assessing risks.munotes.in
112
On the other hand, the manager, who sees his task as
strengthening and maintaining the company, is naturally afraid of
risks and tries to maintain the status quo.
5) Responsibility :
An ent repreneur take sup personal responsibility for failures.
This is because, he is directly involved in decision -making and
action.
A manager may try to avoid responsibility. He may blame
internal and external environment for failure. He may even collect
selective dates to substantiate the failure.
6) Decision making :
The entrepreneurial organization is characterized by its
informal, flexible structure, which allows it to adopt to changes
required by its rapid growth.
A manager makes decisions afte r collecting detailed
information and reaching operative conclusions, while relying on
experts both from within and outside the organization.
7) Innovation :
Entrepreneurs always need to be innovative and dynamic.
Creative ideas may enable them to succee d in the competitive
world.
The manager also needs to be innovative, but not always.
Especially managers at lower maintain status quo.
8) Failures and mistakes :
Entrepreneur undertakes risky activities .He accepts
responsibility for failures. He dea ls with mistakes and failures.
A manager is cautious in his approach and therefore, he
tries to avoid mistakes and surprises.
9) Approvals :
An entrepreneur makes his own decisions. No need for
approval from others.
A manager at lower and middle l evel has to obtain approval
for decision making from higher authorities.
10) Corporate culture :
Entrepreneur believe in dynamic corporate culture. They
favour creativity, flexibility in decision making.munotes.in
113
A manager does try to establish a well defined corporate
culture, based on corporate values on one hand and commercial
aims on the other.
11) Ownership and control :
Entrepreneur possesses direct ownership and control of
resources. Entrepreneur may not have to depend on others for the
allocation an d utilization of resources.
A manager may lack ownership but they have control over
resources of the organization. At times, there is need for allocation
of resources from higher authorities.
12) Organisation Structure :
The entrepreneurial organizat ion is characterized by its
informal, flexible structure, which allow it to adopt to change
required by its rapid growth.
The manager, on the other hand, requires a formal and fairly
rigid organizational structure, which leaves no room for rapid
reactio ns to business opportunities, but protects the organization
from sudden collapse.
8.6 INTRAPRENEUR
In 1985, Gifford Pinchot introduced the term
Intrapreneurship. Pinchot states that Intrepreneur is an
entrepreneur within an already existing organizat ion. The prime
motive of intrapreneurship is independence and to get rewarded for
performance. Due to high technology, increasing global competitive
pressures, new market opportunities, need for innovation and
timely action in rapidly changing business env ironment a rare new
breed of corporate heroes have come to the fore in large
organizations called intrapreneurs.
Intrapreneurs are entrepreneurs who stay at home, who
catch hold of a new idea for a product, process or service and work
to bring their vis ion to fruition within the framework of the
organization.
8.6.1 Meaning :
An Intrapreneur is defined as “any of the dreamers who do”.
Those who take hand on responsibility for creating innovation of
any kind within the organization.
The intrapreneur may be a creator or inventor but he is
always dreamer who finds out how to turn an idea into a profitablemunotes.in
114
reality. Without them innovation remain merely a potential for the
future.
8.7 CHARACTERISTICS OF INTRAPRENEUR
The following are the important ch aracteristics of
intrapreneur.
1) Self Motivated :
Intrapreneurs are not only self motivated and goal oriented
but also respond to corporate recognition and rewards. They need
freedom and access to corporate resources.
2) Self-confidents and courageou s :
Many intrapreneurs are cynical about the system, but
optimistic about their ability to out -wit it. They are bold, self -
confident and courageous.
3) Freedom :
Intrapreneurs consider traditional status symbol as a Joke
but he treasures symbols of fre edom.
4) Education :
Intrapreneur is often highly educated particularly in technical
field but sometimes not.
5) Systems :
The intrapreneur dislikes systems but learns to manipulate it.
He works out the problems within the system or bypasses it witho ut
learning.
6) Very like an entrepreneur.
7) Focus on customer.
8) Patient and willing to compromise.
9) Better relation with father but still stormy.
10) Transaction within hierarchy.
8.8 DIFFERENCES BETWEEN ENTREPRENEUR
AND INTRAPRENEUR
1) Meanin g :
Entrepreneur is a person who undertakes business venture
and assumes risks and rewards.
Intrapreneur is a person who acts like an entrepreneur within
an existing organization.munotes.in
115
2) Flexibility :
Entrepreneurship is flexible and agile, focused on
establishment and growth.
Corporations have a tendency to be bogged down in self -
preservation, the demands of stock holders and senior members
dedicated to maintaining the status quo.
3) Motive :
The primary motives of an entrepreneur are independenc e,
innovation and to get rewarded for performance by operating a
business venture. The primary motives of an intrapreneur are
independence, innovation and to get corporate reward from the
organization in which he works.
4) Reward :
All progress, patent rights and profits are available to the
entrepreneur.
The employing company owns the progress patents rights,
and profits, which may or may not be sh ared with the intrapreneur.
5) Activity :
Entrepreneur gets directly involved in the business activit y.
Major areas are looked after by the entrepreneur himself.
For an Intrapreneur, there is direct involvement in the
project, and there is less of delegation.
6) Goals :
Business goals, culture, and operational rules are the sole
discretion of the en trepreneur.
Intrapreneur must remain within the boundaries of the
business goals, culture, and operational rules.
7) Ownership and control :
Entrepreneurs possess direct ownership and control of
resources. Entrepreneur may not have to depend on other for the
allocation and utilization of resources.
An intrapreneur lacks ownership as he works in an existing
organizations, but he has control over allocated resource.
8) Failure and mistakes :
Entrepreneur does not hide failures or mistakes. He takes up
the responsibility for failures or mistakes.munotes.in
116
An Intrapreneur may make an attempt to hide mistakes or to
hide risky projects before they are ready.
9) Approvals :
An Entrepreneur makes his own decisions. No need for
approval from others.
An Int rapreneur may have to take approval for major
decisions from top management.
10) Decision making :
Corporate agreements, investments and distribution of
profits are at the sole discretion of the entrepreneur. This would
include any political or social b acking.
Corporate agreements, investments, and distribution of
profits are the employing company’s business, and may include
items in opposition to the Intrapreneur’s beliefs and preferences.
11) Resources :
An entrepreneur makes use of his own resou rces, whether
owned or borrowed.
An Intrapreneur makes use of resources of the firm in which
he is working.
8.9 SUMMARY
Entrepreneurship according to Pete Ducker is neither a
science, nor an art. It is a practice. An entrepreneur should have
the fo llowing characteristics, innovative, risk and reward, goal -
oriented, should have managerial skills, ready to face challenges,
must have vision and able to take initiative. He should also have
physical and mental staming. The government should support
entre preneur through incentive and assistances in the form of
concession and subsidies. They are needed to ensure balanced
regional development, overcoming inadequate infrastructure,
promoting survival and growth and creating employment
opportunities. Some of t he incentives given by the central
government. Entrepreneurship plays an important role in economic
development, social development regional development and so on,
entrepreneur provide revenue to the government. The emergence
of entrepreneurs in a society depends upon closely interlinked
economic, social, cultural, psychological, political and personality
factors.
In the light of the foregoing, we can summarise that there is
a world of difference between the entrepreneur the manager andmunotes.in
117
the intrapreneur, and indeed this was true until the last decade. But,
it has become clear in recent years that the ideal manager will be
one who knows how to combine certain traits of the manager, such
as order and discipline with entrepreneur characteristics such as
quick reaction to business opportunities, creativity and the ability to
fill employees with a sense of vision and challenge.
8.10 QUESTIONS
1)Explain the nature and characteristics of entrepreneurship.
2)Define the term entrepreneurship and explain the impor tance
of entrepreneurship.
3)What are the factors contributing to the growth of
entrepreneurship?
4)Distinguish between entrepreneur and manager.
5)Distinguish between entrepreneur and intrapreneur.
6)Write short notes:
a.Characteristics of entrepreneurship
b.Intrap reneur
munotes.in
118
Unit-9
ASPECT OF ENTREPRENEURS
UNIT STRUCTURE
9.0 Objectives
9.1 Introduction
9.2 Definition of Entrepreneur
9.3 Types of Entrepreneurs
9.4 Competencies of Entrepreneurs
9.5 Entrepreneurship Training and Development centers in India
9.6 Incentives to Entrepreneurs in India
9.7 Women Entrepreneurs
9.8 Problems faced by women entrepreneurs
9.9 Promotion of women entrepreneurs
9.10 Summary
9.11 Questions for Self -Assessment
9.0 OBJECTIVES
After studying the unit students will be able:
To under stand the concept and definition of entrepreneur.
To study the various types of entrepreneur.
To elaborate the competencies of entrepreneur.
To know the entrepreneurship training and development
centers in India.
To explain the various problems and pro motions of women
entrepreneurs.
9.1 INTRODUCTION
An entrepreneur is one of the important segments of
economic growth. Basically, he is a person responsible for setting
up a business unit. In fact, he is the one who has the initiative, skill
or innovat ion and who looks for high achievements. He undertakes
new projects that creates wealth, open up many employment
opportunities and leads to the growth of other sectors.munotes.in
119
Entrepreneurs are found in every economic system and in every
form of economic activity as well as in other social and cultural
activities. They are found amongst labourers, artisans, exporters,
importers, supervisors, engineers, bankers, professionals and also
amongst farmers, fisherman and tribals. We find entrepreneurs
even among philosop hers, politicians and bureaucrats.
9.2 DEFINITION OF ENTREPRENEUR
According to Peter Drucker “An Entrepreneurs one who
always searches for change, responds to it and exploits it as an
opportunity”.
Encarta world Dictionary defines entrepreneur as “(risk-
taking business person), somebody who sets up and finances new
commercial enterprises to make profit ”.
9.3 TYPES OF ENTREPRENEURS
The following are the different types of entrepreneurs.
A) According to the types of business.
1) Business Entre preneurs :
Business entrepreneur are individuals who conceive an idea
for a new product or service and then create a business to turn the
ideas into reality. They almost tap both the production and
marketing resources to develop a new business opportunit y. They
may set up a large size or a small size business.
2) Trading Entrepreneurs :
Trading entrepreneur is not concerned with manufacturing
work, he only undertakes trading activities. He is basically a
marketing person. He identifies potential market s, stimulates
demand for his product line and creates a desire and interest
among the buyers to purchase his product. He is engaged in both
domestic and international trade.
3) Industrial Entrepreneurs :
Industrial entrepreneur is a product oriented man who starts
an industrial unit for making some new product. He is a
manufactures who identifies the potential needs of customers and
tailors a product or a service to meet the marketing needs. He has
the ability to convert economic resources and technology into a
profitable venture.munotes.in
120
4) Corporate Entrepreneurs :
A corporate entrepreneur is a person who demonstrates his
innovative skill in organizing and managing a corporate
undertaking. He is an individual who plans, develop and manages a
corporate body.
5) Agricultural Entrepreneurs :
Agricultural entrepreneur is the one who is engaged in the
agricultural activities. He uses latest technology to increase the
productivity of agriculture and also adopts mechanization. He cover
a broad spectrum of the ag ricultural sector.
B) According to the use of technology :
1) Technical Entrepreneurs :
Technical entrepreneur is as good as a craftsman. Because
of his craftsmanship he develops improved quality of goods. He is
concerned and concentrates more in produ ction than marketing. He
demonstrates his innovative capabilities in the matter of production
of goods and rendering of services.
2) Non -Technical Entrepreneurs :
Non technical entrepreneurs are only concerned with
developing alternative marketing and distribution strategies in order
to promote their business. They are not concerned with the
technical aspect of the product in which they deal.
3) Professional Entrepreneurs :
Professional entrepreneur is a person who established a
business and sells o ut the running business and starts another
venture with the same proceeds. He is not interested in managing
or operating the business once it is established. He always
conceives new ideas to develop alternative projects.
C) According to Motivation :
1) Pure Entrepreneurs :
Pure entrepreneurs is one who may or may not possess an
aptitude for entrepreneurs but is tempted by the monetary re ward
or profit to be earned from the business venture. He is status
conscious and wants recognition.
2) Induced Entre preneurs :
An induced entrepreneur is one who is induced to take up
entrepreneurial task due to the various policy measures, incentives.
Concessions and tax benefits offered by the government to start a
venture. A person with a sound project is provided w ith package of
assistances for his project. Today government offers various
conc essions,incentives and financial assistances to small scalemunotes.in
121
industries that has induced many people to start a small scale
industry.
3) Motivated Entrepreneurs :
Motivated entrepreneur desire for self -fulfillment motivates
new entrepreneur. He come into being because of the possibility of
making and marketing some new product for the use of consumers.
He is further motivated by reward in terms of profit if the product
hasa good sale.
4) Spontaneous Entrepreneurs :
Spontaneous entrepreneurs are naturally talented. They are
persons with initiative, boldness and confidence in their ability that
motivates them to undertake entrepreneurial activity. They have a
strong convi ction and confidence in their inborn ability.
D) Other Types :
I) According to Growth :
1) Growth Entrepreneurs.
2) Super -growth entrepreneurs
II) According to stages of Development :
1) First Generation Entrepreneurs
2) Modern Entrepreneurs
3) Classic al Entrepreneurs.
III) According to Area :
1) Rural Entrepreneur.
2) Urban Entrepreneur
IV) According to Gender and Age :
1) Men Entrepreneurs.
2) Women Entrepreneurs.
V) According to Scale of Operation :
1) Small -scale Entrepreneurs.
2) Large -scale Entrepreneurs.
Check Your Progress
1.Define the following terms
a.Spontaneous entrepreneurs
b.Motivated entrepreneur
c.Induced entrepreneur
d.Pure entrepreneurs
e.Professional entrepreneur
f.Industrial entrepreneur
g.Trading Entrepreneurmunotes.in
122
2.Fill Pure entrepreneurs in th e blanks
a.According to stages of development types of Entrepreneur
are--------------------------------------- .
b.Small -scale Entrepreneurs and Large -scale Entrepreneurs
are the types according to ------------------------- .
c.--------------------- entrepre neur is as good as a craftsman.
d.----------------- entrepreneurs are only concerned with
developing alternative marketing and distribution strategies.
e.-------------------------- is the one who is engaged in the
agricultural activities.
f.--------------------- -is an individual who plans, develop and
manages a corporate body.
g.-------------------------- are individuals who conceive an idea for
a new product or service
9.4 COMPETENCIES OF ENTREPRENEURS
A successful entrepreneur needs to have an all round
personality, which comprises of the following elements :
1) Risk Taker :
An entrepreneur should have the capability to take moderate
risk in critical situation and learn quickly from the failure. It is t be
noted that entrepreneur take moderate risks, as c ompared to
gamblers who take extreme risks.
2) Organizer :
Entrepreneurs need to be clever at handling people and
situations. They not only need to be resourceful but need to be also
good at managing and organizing the resources for starting the
enterpr ise and kept it going. Therefore, entrepreneur requires
highest level of organizing abilities.
3) Innovator :
An entrepreneur must have innovative ideas. The key to
entrepreneurship is innovation. It is the capability to come out with
new ideas and make them work in a competitive and consumer -
oriented environment so an essential quality of an entrepreneur is
that he must be innovative.
4) Technical Knowledge :
An entrepreneur must have sufficient technical knowledge.
An entrepreneur with a high level of administrative ability, human
relations, communication skill, creative and technical knowledge
stand a much better chance of success. Technical knowledge alsomunotes.in
123
implies knowledge about the product, process or technology used
in manufacturing.
5) Energet ic :
An entrepreneur should have the ability to put in long hours
of work, for which his energy level must be high, physical and
mental fitness plays an important role. This means that there
cannot be any compromise on hard work if an entrepreneur has to
reach his goals. That is why he has to be perseverant and
committed to his goals.
6) Patience:
Patience means steadiness, endurance and perseverance in
the performance of a task. A good amount of patience is necessary
in any type of occupation. Patience does not mean just waiting or
tendency to stop working or delaying decisions. Patience means
doing the work and then waiting for the result. In other words an
entrepreneur should not wait for actions but can certainly wait for
result of his efforts.
7) Decision making skill :
An entrepreneur should have the ability to take and
implement decisions quickly but not hastily. He is required to take
minor or major decisions. A successful entrepreneur is one who
takes a right decisions at the right time and im plements if efficiently
and effectively.
8) Human Relation :
An entrepreneur must maintain good relations with his
customers. He must also maintain good relations with his
employees if he is to motivate them to perform their jobs at a high
level of effi ciency. In order to maintain good human relation he
should have emotional stability, personal relations, tact fullness and
consideration.
9) Open -mindedness :
Open -mindedness means a free and frank approach in
accepting one’s errors and then making efforts to rectify the same.
A successful entrepreneur is open to constructive criticisms. He is
willing to learn from his past experience and mistake and moulds
himself for better future.
10) Communication skill :
An entrepreneur should have the abilit y to communicate
effectively. Good communication means both the sender and the
receiver of the message understand each others. He is more likely
to succeed if he can communicate effectively with his employees,
creditors, suppliers and customers.munotes.in
124
11) Vision and foresight :
Every entrepreneur needs to be a visionary in order to turn
his dreams into realities. They must be able to visualize and
forecast future events and plan accordingly. Besides an
entrepreneur is one who can analyse future need and trends and
turn them into an advantage.
12) Motivator :
A entrepreneur should be a motivator. He has to influence
people and make them think in his ways and act accordingly. He
motivates his people to act to achieve the end result.
9.5 ENTREPRENEURSHIP TRAI NING AND
DEVELOPMENT CENTERS IN INDIA
In order to accelerate the speed of self employment and
entrepreneurship development, the government has established
various centres or institutes to impart training and development to
entrepreneurs. Some of these ar e as follows :
1) District Industries Centres (DICs) :
The focus of attention for industrial development was mainly
as large cities and state capital. Therefore, it was felt necessary to
provide all the services and facilities to village and small indust ries
under one roof. Accordingly, the DICs were established in 8thMay,
1978 in order to cater to the needs of small units in rural areas.
The head of the DICs are general managers who are
assisted by managers working under them. For every Taluka in the
District, industries inspectors are appointed by the government who
visit the office of the Panchayat Samiti once in a week. To guide the
entrepreneur in order to solve their problems.
Functions of DIC :
Identification and development of new entrepreneu rs.
Conducts training programmes.
Offer technical advice to new entrepreneurs.
Conducts industrial potential surveys.
Evaluates the proposals received from entrepreneurs.
Assists entrepreneurs in marketing their products.
Assists export promotion of products.
Undertakes product development for small industries.
2) Small Industries Development Organization (SIDO) :
Small Industries Development Organization (SIDO) was
established in 1954. It provides training for entrepreneurship. It
undertakes entr epreneurship development programmes through
small industries service centers. It also provides support in themunotes.in
125
areas of credit, marketing technology and infrastructure to small
industries. It provides number of facilities to small industries these
are as fo llows :
Quality control and testing.
Training for entrepreneurship development.
Preparation of project and product profiles.
Technical and managerial consultancy.
Assistance for exports.
Pollution and energy audits .
Economic and market survey.
3) Entrepreneurship Development Institute of India (EDIT) :
Entrepreneurship Development Institute of India (EDIT) was
established in 1983 at Ahmedabad in order to create the
institutional infrastructure for entrepreneurship development. It is
sponsored by a pex financial institutions, namely the industrial
Development Bank of India, the Industrial Finance Corporation of
India, the industrial credit and Investment Corporation of India, and
State Bank of India. It is committed to entrepreneurship education,
training and research. It strives to provide innovative training
techniques, competent faculty support, consultancy services,
Quality teaching and training material.
4) National Small Industries Corporation (NSIC) :
National small Industries Corporation (N SIC) was
established in February 1955. NSIC is an ISO 9001 : 2000 certified
company. It has been working to promote the growth of small scale
industries and industry -related small scale services in the country.
The main functions of the corporation ar e-
Higher purchase of machinery
Marketing.
Industrial Estates.
Exhibitions.
Production cum training.
5) Small Industries Service Institutions (SISIs) :
The SISIs are the field offices of SIDO. Set up in the early
1950s. These institutes give on the spot technical assistance and
guidance to small -scale units to solve their technical problems.
They also advice small units on new and improved techniques of
production and in the use of modern machinery and equipment.
There is a network of 28 SISIC in all the states to carry out its
functions. The following are the services provides by SISIs.
Technical advisory services.
Management consultancy services.
Economic advisory services.
Managerial services.munotes.in
126
Marketing
Entrepreneurial Development Programme.
6) National Institute for Entrepreneurship and Small
Business Development (NIESBUD) :
The National Institute for Entrepreneurship and small
Business Development (NIESBUD), located at Ahmedabad was set
up in 1983. Indian Central Government started an orga nization
called NIESUD with the main motto of co -ordinating activities
related to entrepreneurship and small business development. The
following are the major activities of the NIESBUD.
Developing model syllabus for training.
Facilitating and supporting c entral and state governments.
Conducting programmes.
Helps other entrepreneurs development.
7) Centre for Entrepreneurship Education and
Development (CEED) :
Centre for Entrepreneurship Education and Development
(CEED) ws launched in December, 1995, a s an innovation centre
that assist governments. Organizations and communities in helping
people to achieve their potential through entrepreneurship. The
following are the services of CEED.
Technical assistance.
Entrepreneurship consulting.
Entrepreneurs hip training courses.
Micro -finance systems.
Resources publications.
National Institute of Small Industry Extension Training
(NISIET).
Federation of Indian chamber of commerce and industry
(FICCI).
Rural Entrepreneurship Development Institute (REDI).
9.6INCENTIVES TO ENTREPRENEURS IN INDIA
Entrepreneurs in India are offered a number of incentives in
order to boost them to contribute to economic development. The
term “incentive” means encouraging productivity. The objective of
incentive is to motivat e an Entrepreneur to set up a new venture in
the larger interest of the nation and the society. Incentives include
concessions, subsidies and bounties. Subsidy denotes a lump sum,
which is given by the government to an entrepreneur to cover the
cost. The t erm ‘bounty’ denotes financial aid given to an industry to
help it to compete with other units in the country or in a foreign
market. These incentives push an entrepreneur towards decisive
decision and action.munotes.in
127
Following is the lit of incentives and sub sidies offered by the
government of India to entrepreneur :
9) Incentives in Operation :
Interest free loans.
Exemption from property tax.
Incentives to NRIs.
Special incentives to women entrepreneurs.
Exemption from income tax.
Interest free sales tax loans.
Sales tax exemptions.
Land and building at concessional rates.
Price preference to SSI units.
Exemption from stamp duty.
Provision of seed capital.
Allotment of developed / constructed shed.
Allotment of controlled or subsidized raw material s.
Concessional water.
Special facilities for import of raw materials.
Taxation benefits.
Excise concessions.
10) Subsidies in Operation :
Export / import subsidies and bounties.
Subsidy for research and development works.
Capital investment subsid y.
Transport subsidy.
Interest subsidy.
Subsidy for power generations.
Subsidies to artisans and traditional industries including
handlooms.
Subsidy for buying test equipment.
Subsidy for industrial housing.
Subsidy / assistance for technical consul tancy.
Subsidizing the cot of market studies / feasibility studies or
reports.
Subsidized consultancy services.
Subsidy for market studies.
Subsidy for quality standards.
9.7 WOMEN ENTREPRENEUR
In India, participation of women as industrial entrep reneur
has increased from 70s. Majority of them are engaged in the un -
organised sector like agro -based industries, handicrafts, handloom
and cottage based industries.munotes.in
128
The government of India has defined a women entrepreneur
as “an enterprise owned and c ontrolled by a woman having a
minimum financial interest of 51% of the capital and giving atleast
51% of the employment generated in the enterprise to women”.
9.8 PROBLEMS FACED BY WOMEN
ENTREPRENEURS
Women entrepreneurs face a series of problems ri ght from
the beginning till the enterprise functions some of the problems
faced by women entrepreneurs are as follows :
1) Problem of Finance :
Women entrepreneurs always suffer from inadequate
financial resources and working capital. They are lacking ac cess to
external funds due to absence of tangible security and credit in the
market. Women entrepreneurs also face the problem of obtaining
working capital for financing day to day operation of their
enterprise.
2) Marketing Problems :
Since women canno t run around for marketing, distribution
and money collection, they have to depend on middle men for the
above activities. These middlemen pocket large chunk of profit.
They exploit the women entrepreneurs. They also lack skills in
pricing and promotion.
3) Family Responsibilities :
In India, the involvement of a women in the family leaves
little time and energy for business. The success of a married
woman depends upon supporting husband and family. There arises
a role conflict prevent them from taking p rompt decisions in
business.
4) Lack of Education :
In India literacy among women is very low. Due to lack of
education majority of women are unaware of technological
development, marketing knowledge, etc. Lack of information and
experience creates furt her problems in setting up and running a
business enterprise.
5) Social Attitude :
One of the biggest problems women entrepreneurs is the
social attitude in which she has to live and work. There is
discrimination against women in India despite constitut ional
equality. Women do not get equal treatment in male -dominated
Indian society and male ego puts barriers in their progress.
Entrepreneurship has traditionally been seen as a male preserve.munotes.in
129
6) Problem of Raw material :
Women entrepreneur find it diffic ult to procure new material
and the necessary inputs. The failure of many women co -
operatives in 1971 such as those engaged in basket making were
mainly due to the inadequate availability of forest based raw
materials.
7) Low Risk Bearing Ability :
Norm ally, women entrepreneurs have low risk bearing
ability. This is because, women in India lead a protected life. They
are less self -dependent as compared to males. Secondly, they
have to balance between household life and business work.
Therefore, the risk bearing capacity of women gets reduced.
8) Competition :
Women entrepreneurs have to face severe competition from
organized industries and male entrepreneurs. Despite the fact that
women entrepreneurs are good in keeping their service prompt and
deliver y in time, due to lack of organizational skills compared to
male entrepreneurs women have to face constraints from
competition.
9) Limited mobility :
The women entrepreneurs have limited mobility as
compared to make entrepreneurs. Business women need a good
deal of traveling for conferences, meeting, negotiations, etc.
However, the attitude towards women is bit reserved in India. For
example, a single women asking for a room in a hotel is still looked
upon with suspicion.
10) Lack of self confidence :
Women entrepreneurs because of their inherent nature, lack
self-confidence which is essentially a motivating factor in running
an enterprise successfully. They have to strive ha rd to strike a
balance between managing a family and enterprise. Low level of
confidence leads to low level achievement and advancement
motivation to engage in business operations and running a
business concern.
11) Problems of Technology :
The women entrepreneurs face the problems of technology.
They often use outdated technolog y. This is mainly due to lack of
funds, and lack of awareness of modern technology. Therefore, the
overall performance of women enterprises gets affected.
12) Limited management skills :
Management has become a specialized job which only
efficient manag ers perform. Women entrepreneurs are not efficient
in managerial functions like planning, organizing, controlling,munotes.in
130
coordinating, staffing, directing, motivating etc. of an enterprise.
Therefore, less and limited managerial ability of women has
become a pro blem for them to run the enterprise successfully. It
means women entrepreneur face the problem of management of an
enterprise.
Check Your Progress
1.“A successful entrepreneur needs to have an all round
personality”. Explain.
2.Give the full forms and funct ions of the following:
a.NIESBUD
b.CEED
c.SISIs
d.DICs
e.NSIC
f.EDIT
g.SIDO
3.“Women entrepreneurs face a series of problems right from
the beginning till the enterprise functions”. Explain.
9.9 PROMOTION OF WOMEN ENTREPRENEURS
With a view that women entrepreneurs sh ould come forward
in industrial field and become self -sufficient, government and
financial institutions have announced many schemes of providing
assistance. Some of the important schemes for women
entrepreneurs are as follows :
1) Entrepreneurship Develop ment Programmes :
To upgrade skills of potential women entrepreneurs, various
institutions undertake Entrepreneurship development Programmes
(EDPs). The entrepreneurship development programme encourage
potential women entrepreneurs to set up small enterpr ises. Some
of the training and development institutins are NIESBUD, SIDO,
EDII & NISIET.
2) Seed capital scheme :
In order to start own business this scheme is undertaken by
the government. Government provides funds @ 10% to
unemployed youths and women. The seed capital provided is 10%
to 15% of the total cost of the project. The percentage of seed
capital is 22.5% for backward class c andidates. The women is
treated unemployed even if their husbands are doing business or
service.munotes.in
131
3) Training and Exten sion Services :
The programmes for training and extension services for
women entrepreneurs will be organized by IDBI through designated
/ approved agencies independently and / or in association with
other development agencies like. Entrepreneurship Develo pment
Institute of India, Technical consultancy Organisations (TCOs),
Central / State Social Welfare Boards and KVIC.
4) Income Generating Scheme :
The Department of women and child Development
implements this scheme. It provides assistance for setting u p
training -cum -income generating activities for needy women to
make them economically independent.
5) Scheme on Trade Related E ntrepreneurs hip Assistance
and Development (TREAD) for women :
The government of India launched a scheme entitled “Trade
Related Entrepreneurship Assistance and Development (TREAD)
during the 9thplan period. The scheme aims at economic
empowerment of women through trade related training information
andcounseling . This scheme provides for marketing development
and financial loans through NGOs. The assistance is provided for
Self-employment ventures by women.
6) District Industrial Centres :
The concept of District Industrial Centres, was proposed in
the 1977 Industrial Policy. The DICs become operational since
1979. the DI Cs provide special assistance to women entrepreneurs
of SSI units in respect of training, research, and marketing
assistance.
7) Mahila Arthik Vikas Mahamandal (MAVIM) :
The main object of this corporation is the economics and
personality development of needy women in state of Maharashtra.
This corporation gives necessary training and employment
opportunities to enable the women to earn and become self -
sufficient. The corporation will work as one of the institution for
economic development of women. Ever y activity of the corporation
shall be for making women economically stronger and self -
sufficient. The corporation will be always searching for self -
employment and group industries opportunities for women. MAVIM
will take a lead in organizing institute for women all over
Maharashtra state so that a strong organization for women can be
created.
8) Self -Employed Women Association (SEWA) :
Self-Employed Women Association (SEWA) is an
organization of poor, self -employed women workers. It is a trade
union r egistered in 1972. The women in this organization earn amunotes.in
132
living through their own labour and self businesses. They do not
obtain regular salaried employment with welfare benefits like
workers in the organized sector.
He main objective of SEWA is to orga nize women workers
for full employment where by workers can obtain job security,
income security, food security and social security. SEWA is both an
organization and a movement. It is a combination of three
movements labor movement, co -operative movement a nd women’s
movement.
9.10 SUMMARY
Entrepreneurs are found in every economic system and in
every form of economic activity as well as in other social and
cultural activities. They classified as per types of business, use of
technology, motivation, gr owth, stages of development, area,
gender, age, scale of operation, etc. A successful entrepreneur
need to have an all round personality. The government has set up
various centres or institutes to impart training and development to
entrepreneurs so as to i mprove their knowledge, attitude and skills.
In India, participating of women as industrial entrepreneurs
has increased from 70s majority of them are engaged in the un -
organised sector like agro -based industries, handicrafts, handloom
and cottage based industries. Women entrepreneurs face a series
of problems right from the beginning to till the enterprise functions.
Some of the problems are -problem of finance, lack of education,
social attitude, low risk -bearing capacity, limited mobility, etc. It is
possible to promote women entrepreneurs in India. With proper
governmental and societal support, these women can create
sustainable organized and growth -oriented enterprises with a
vision.
9.11 QUESTIONS
1)Explain the different types of entrepreneurs.
2)Discuss the role of entrepreneurship training and
development centres in India.
3)Write a note on competencies of an entrepreneur.
4)Write a note on incentives to entrepreneurs in India.
5)What are the problems faced by women entrepreneurs in
India.
6)Explai n the promotion of women entrepreneurs.
munotes.in