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Business environment book
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| UNIT 4
Basics of Business Environment
ee
1.1. __BUSINESS ENVIRONMENT
1.1.1. Concept of Business Environment
Business environment may be considered as a set of factors that influence the functioning and effectiveness of a
business. Interacting and transacting with the environment is the basic need of every business organisation
Th ‘mutual interdependence between business and the environment.
there
According to Keith Davis, “Business environment is the aggregate of all conditions, events and influence that
surrounds and affect it
According to Andrews,
life and development”
“The environment of a company as the pattern of all external influences that affect its
According to W.F. Glueck and Lawrence R, Jauch, “The environment includes factors outside the firm,
‘which can lead to opportunities or threats to the firm. Although there are many factors, the most important of
these factors are socio-economic, technological, supplier, competitors and government”.
‘The nature of business environment is ever changing and unstable. The future of any business enterprise is
) Social Welfare: One of the important objectives of socialism is social welfare. This is attained by proper
uulisation of resources and satisfying the needs and wants of the society. It looks after the benefits of the
economy as a whole rather wants of few entities. Unlike capitalism, where means of production is carried
out to eam only profits, in socialism, productive resources are used to develop goods and services so as to
achieve social welfare. Here, production of necessity goods is given more emphasis rather than luxury
ods.
3) Central Planning: Under socialist economy, all productive activities and its related objectives and plans
are formulated by the Central Planning Authority or Planning Commission. Based on these plans, various
~ targets and programmes are executed by the government.
4) Equality of Income and Opportunity: Socialism aims at removing or reducing inequalities of income an¢
wealth and provides equal opportunity to every individual. Social ownership and production for social
welfare of the community eliminates unequal distribution of income and wealth. It also provides equal
opportunity to every individual-in form of free education, professional training, etc. Although, absolute
equality is not possible because individuals differ in their capabilities.
5) Classless Society: Socialism is a classless society in contrast to capitalism, where society is not divided
into classes like elite class and labour class. Here, all the production activities are undertaken by the
community as a whole and, hence conflict between the classes is less likely to occur.
1.3.3.2. Variants of Socialism
The major types of socialism include:
|) Market Socialism: This is a type of socialism where the means of production is owned by workers. Goos
produced are distributed among the workers, while any excess production is sold on the free market. In this ki
f socialism, production and consumption are controlled and regulated by market forces instead of the state.
2) Democratic Socialism: This type of socialism results from the merging of the democratic system wit
Socialist goals. A government that is chosen through popular election manages the means of production.
3) Authoritarian State Socialism: ‘This is an extreme type of socialism where all means of production at
owned and controlled by the state. Authoritarian state socialism advocates for strict obedience to state 6!
the people, even if that means they should forego their rights. Marxism-Leninism is an example °
authoritarian state socialism.
Revolutionary Socialism: This is a socialist doctrine that believes that it is impossible to instil soc
change peacelully. Revolutionary socialism believes that the transition from capitalism to socialism ¢*
only be effected through a revolution.
5) Utopian Socialism: This term is used to refer to the first wave of modern socialist thought as pustied by '*
works of people such as Robert Owen, Charles Fourier, Henri de Saint-Simon and Etienne Cabet. Th’
‘cology is referred to as utopian because it is more of a. vision than a concrete plan, Utopian social
cannot be achieved in reality. Rawes of Business Bavaronment (Unit |) .
bertarian Socialism:
“ ; This term refers to anti-authoritarian socialist philosophies that believe centralized
state ownership
and control of the economy is not necessary for socialism to be achieved.
Religious Socialism: This refers to forms of socialist ideology that are based on religious values. Many
‘elsious values about human society are aligned with socialist ideas and have been used to advocate for
sestalism, Any form of socialism that developed within a religion can be termed as religious socialism.
S\ Green Socialism: This is a type of socialism that merges socialist thought with green politics. Green
socialism advocates for preservation of natural resources.
©) Fabian Socialism: This type of socialism advocates for achievement of democratic socialism through
«sradual reforms and other peaceful means, rather than through revolution,
13.33. Merits of Socialism
The merits of socialism are as follows:
1) Greater Economic Efficiency: Through proper management of research and production activities, the
economy can achieve high rate of productivity. This can also be stimulated by producing necessity goods
like food, cloth and housing which satisfy the needs and wants of the consumers,
2) Greater Welfare due to Less Inequality of Income: Under socialism, inequality of income does not exist.
‘The citizens of the country work for the economic welfare and are paid according to their skills and capabilities.
‘There is no private ownership and the economy regulates under the guidelines of the government. The revenue
collected through interests, profits and taxes is spent on public welfare by the government. This is done by
facilitating free primary education, social security and cheap housing and health facilities to the public.
5) Absence of Monopolistic Practices: In a socialist economy, the business and trade related practices are
government-owned. Therefore, the scope of monopolistic practices and competition is removed. Rather there
is a government monopoly, under which factories produce useful economic commodities with good quality.
4) Absence of Business Fluctuations: A socialist economy experiences economic stability. The production
and consumption of goods and services is controlled by the planning authority with respect to the goals and
priorities of the economic plan. As a result, business fluctuations do not occur and the situations of
overproduction and unemployment are eliminated,
1.3.3.4. Demerits of Socialism
A socialist economy also has certain demerits, which are as follows:
1) Loss of Consumers’ Sovereignty: One of the major demerits of socialism is the loss of consumer's
sovereignty. Consumers have no freedom of choice because they have to buy those commodities only which
available in the market. Sometimes, the quantity of purchasing a product is also fixed by the government.
Fixed Occupation: In a socialist economy, the occupation of an individual is also fixed by the government.
‘The government not only selects the occupation but also allots the place of work and its related activities,
Misallocation of Resources: In socialism, the allocation of resources is done by the central planning
suthority. Generally, trial and error method is used to allocate productive resources for the means of
production. Consequently, the resources are allocated randomly due to which mistakes occur.
4) Bureaucratic: In socialism, people work under bureaucratic control. Here, people work due to the pressure
rnd fear of the higher officials. Therefore, people do not take any initiative and find their work boring less
interest in their work
Concept of Mixed Economy
‘onomy emerges with joint characteristies of capitalist and socialist economy. It is the combination of
public ownership as well as private ownership. A mixed economy allows the private enterprises the freedom to
Unction and prosper but also permits the government to interfere in the matters in order to maintain economic
tives. ‘The participation of private sector and government interference differs'from country to country.
India is a mixed economy and encompasses all the relevant features of capitalism and socialism to control and
egulate the economy * MBA Pirst Semester (Business Ravironmenty M4,
‘The decisions concemed with the economic planning and allocation of resources is undertaken by the Plannin,
Commcion and! the Central Government. The overall growth and development of the economy is to achieve
vals through integrated efforts of both the public and private enterprises. Ina mixed economy, certain area ai.
jopecated by the private enterprises whereas specific areas are reserved for the public enterprises. Also, there ar,
few areas, where public and private sector both work together,
and private institution,
According to Samuelson, “Mixed economy is that economy in which both pul
exercise eeenomie control”
According to Pickersaill, “The primary difference between the mixed economy and market socialism is the
relatively greater importance of individual decision-making. private property, and the reliance on marke;
Metermines! prices ti gtinde the allocation of resources. The mixed economy differs from competitive capitalism
‘wath respect to the share of collective decision-making in the economy”.
1.34.1. Features of Mixed Economy
The main charactenshcs of a mixed economy are as follows:
1) Co-Kxistence of Public and Private Sectors: In a mixed economy, public and private sectors work
separately bot aim to achieve a single goal, Public sectors function for the welfare of the society while
povate sector 1s profit-oriented in nature, Therefore, to govern and control the economic activities of the
private sector, the government has formulated various economic policies. These policies include price
policy. taxation policy. licensing policy, monetary policy and fiscal policy.
2) Individual Freedom: Government imposes restrictions to maintain the welfare of the society. Hence
producers have to follow these rules and guidelines. For example, government may put restrictions on
producing harmful goods. But individuals are free to purchase any product. Hence, in spite of all types of
‘overnment control. individuals have the freedom to choose the occupation of their own choice.
Economic Welfare: The basic aim of mixed economy is to achieve the economic welfare. This can be
‘stimulated by reducing regional imbalances and by providing employment opportunities. The government
hhas also taken Various measures towards the upliftment of the society. The monetary and fiscal policies are
formulated to regulate the economic activities of private sector.
Economic Planning: The Planning Commission and Central Government formulate economic plans ané
direct the functions of public and private enterprises accordingly. The activities of public sector are directly
soverned by the government whereas several incentives and subsidies are provided to the private sector for
‘working in accordance with the economic targets.
Price Mechanism: Price mechanism of the economy is controlled by the price policy formulated by the
ment. So as to provide commodities at reasonable rates to the weaker sections of the society
‘vernment ensures economic and financial support to the producers. It provides price subsidies to the
target groups and also avails material inputs below market price or free of cost to several enterprises.
Hence, under mixed economy, people enjoy large amount of benefits and government support.
6) Free and Controlled Economic Development: Mixed economy is considered as the best alternative
against the capitalist and socialist economy. It eliminates all the shortcomings and issues related to the
economic development and sustainable growth. It allows freedom of choice and occupation while on the
other hand controls the economic activities as well.
7) Government Intervention: In a mixed economy, the government can interfere to stabilise the economy
especially during economic crisis. For example, during the global crisis of 2008, the U.S. and government:
of other countries intervened into the economic affairs so as to control the effect of the crisis.
1.34 Merits of Mixed Economy
‘The following are the merits of the mixed economy:
1) Speedy Economic Development: Mixed economy is considered appropriate for the underdevelops
economies. Under this type of economy, government and private enterprises integrate and work together 10
the economic development. These activities include infrastructural development, social security measure
programmes for the upliftment of weaker sections of the society, ete. Basics of Business Environment (Unit 1) »
2) Optimum Allocation of Resources: Maximum utilisation of resources is made under mixed economy. The
characteristics of capitalism and socialism ensure effective allocation of resources. This can be done by
encouraging profit motive, price mechanism, freedom of production and consumption, etc,
Balance between the Private and Public Sectors: A reasonable balance between public and private
sector is very important to administer the mixed economy. The high rate of economic growth and
capital formation can be attained only through the considerable level of competition and cooperation
between the two sectors. However, the performance evaluation of the sectors decides their success and
failure.
Welfare State: A mixed economy acts as a welfare’ state. It does not involve exploitation of labour or
consumers. There are no fixed occupations and workers are free to decide whether to work or not. Various
incentives like cash rewards and bonus are provided to workers for their outstanding performance. In case
of health issues and medical emergencies, benefits of social security are also provided to the workers. The
government restricts production of harmful goods and emphasises on the production of essential
‘commodities. In favour of public interest, several legislative measures are taken to eliminate the economic
Power of rich people and reduce the inequalities of income and wealth.
Economic Planning: Economic planning plays a significant role in the mixed economy. It helps the
government to combat with the economic fluctuations and meet out with the economic slowdown and
challenges.
3)
4)
5)
13.4.3. Demerits of Mixed Economy
‘The following are the demerits of mixed economy:
1) Non-Cooperation between the Two Sectors: The discrimination between the two sectors creates non-
cooperation and non- coordination among each other. The public sector is controlled by the government
therefore it is given more liberty and preference in comparison to the private sector. Private sector is
sidelined by imposing high taxes and restrictions against its economic activities. This creates as a
discriminatory gap between the two sectors.
‘and business are owned by
ind corporate bodies,
country are owned and controlled
by the public
with government regulation.
It is a combination of capitalist and,
economy.
2) Unsuecessful in Eradieating Economic Fluctuations: Under mixed economy, the economic fluctuations
do exist. In spite ofthe preventive measures, situation arises due to the imbalance between the public and
private sectors.
3) Inefficient Public Sector: One of the crucial shortcomings of mixed economy is the bureaucratic control of
the government over the public sector. This has led to the inefficiency of public sector which resulted in the
fall of production activities. Further, it also involves redtapism, corruption, favouritism, bribery, ete.
‘Inefficient Planning: No planning can be perfect; there are some shortcomings to every complete plan. As
‘result, some sectors or areas remain untouched from the supervision of the government.
°) Endangers Freedom: The freedom of an individual starts decreasing with the increasing challenges
towards the economy. The rules and regulations are imposed on people to control and manage the economic
system which may leads to autocracy.
1.3.5. Comparison between Capitalism, Socialism and Mixed Economy
[ Pa apts en Spain use
[nas [captain Seca Mined Economy
Meaning, | Wis the economy where land | The economic activities of the | Trade and industry owned by private
|
‘reedom, free trad
chase for | High rates of taxes and focus on
Social and
Certain institutions are
|
| Economie
| Goa
happiness, and focus on
earning profits for the growth
| of the economy.
treating everyone equally
government (e.g., mail). Cor
and defence witness high 1
Focus on striking a
equality and freedom. MBA First Semester (Business Environment) jy,
Motivation | Hani and efficient work is
Private businesses have capitalist | Fewer incentives are given in governmen,
of Workers | granted incentives, incentives, Less emphasis on | owned enterprises. Incentive structure
| performance based rewards. ‘same asin capitalism,
High productivity of workers
is rewarded Incentives are limited because
‘wages are controlled by government
in public sector.
Control | Free trade inside and amongst | Government control exists in cerain | Limited control of government over trade
Over | various countries markets inside and amongst counts.
Markets
Restrictions in trade differ amongst
No government control of | countries. Free trade agreements
| markets exist among certain countries.
Choices in | Availabilty of wide range of | Every country has a different | Involvement of government in the market
| the Market | products variety of products (in the form of subsidies, et.) may lead to
abundance or scarcity of products. Hower,
| Marker is governed by supply | Choice depends on the involvement | choices are similar to that of capitalism,
and demand. Therefore, just | of government inthe markets.
| adequate amount of goods and
| services are present
Socal | Freedom of elections, | Government restrictions regarding | Limited freedom related to speech and
Freedoms | movement, choice of job, | choice of job, atending higher level | assembly. Religious practices in schools are
religion, assembly, press, | schools (ike colleges), moving | limited because of separation between state
| speech, from one country to another. etc. | and church
1.4.1.
Short Answer Type Questions
1) Discuss the concept of business environment.
3) Define environmental scanning.
4) Explain SWOT analysis.
2) What do you understand by internal environment?
5) White a short note on quick environmental scanning technique.
6) Discuss the meaning of economic system.
8) Explain the basic philosophy of socialism.
9) Enumerate the concept of mixed economy.
1.4.2.
) Outline any two important features of capitalism.
Long Answer Type Questions
1) Explain the nature and scope of business environment.
3) Elaborate the concept of micro and
2) Describe the structure of business environment in detail.
sro environment.
4) Discuss the interactions between internal and external environments. Also highlight the significance of busine»
environment.
5) Enumerate the nature and scope of environment scanning.
6) Explain the steps involved in the process of environmental scanning.
Give a detailed description on environmental scanning techniques.
State the significance of environment scanning. Also describe the problems in environment scanning,
Discuss the basic philosophy of capitalism. Explain the features and variants of capitalism.
10) Enumerate the variants of socialism. Also state the merits and demerits of socialism,
J) What are the features of mixed economy? Discuss its merits and demerits,
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