Page 13 - DMGT401Business Environment

Business Environment

Notes India is in a process of laying down a gas pipeline from Iran via Pakistan. All this is just a
glimpse of the present international environment. Every new bilateral and multilateral
agreement opens new vistas for business and also brings a new threat in the form of
global competition.
7. Economic Environment: The economic environment consists of macro level factors related
to the means of production and distribution of wealth, which have an impact on the
business of an organization.
The economic structure of a country, whether it is socialist, mixed or capitalist, has a
drastic impact on the economy. Economic policies such as foreign trade policy, industrial
policy, fiscal policy, GDP growth rate, policy of licensing, monetary policy, development
of financial institutions, development of money and stock market, and the extent of
globalization are some of the aspects of an economy that reflect on business in an economy.
A slight change in monetary policy can release crores of rupees into the economy that may
result in a decrease in interest rate, which further increases investment as well as inflation.
Also, banks' lending rates decide the level of investment in any country. The higher the
interest rate, the lower the level of investment.

Example: In most industrialised nations like the US, this interest rate is between 4% to
6%. In India in 1991, the PLR (prime lending rate) was 17% to 18%, which was reduced to 8% to
10% by 2000 because of a change in the country's economic policy. The current Prime Lending
Rate (PLR) with effect from Jan 1, 2009 is 14.75% p.a.
8. National Competitive Advantage: Despite globalisation, industrialization is clustered in
a small and specific number of countries. Most successful computer and biotechnology
firms are based in the US, the successful chemical and engineering industry is based in
Germany, and the cream of the electronics industry is based in Japan.

Similarly, the successful call centers are clustered in India as are many of the customised
software companies. This suggests that the nation and its environment in which a company
is based may have an important bearing on the competitive position of that company in
the global marketplace.

Task Collect some data pertaining to the political and legal framework, that has
bought significant changes in India's business environment.

Importance of Environment

1. Environment is complex: The environment consists of a number of factors, events,
conditions and influences arising from different sources. All these interact with each other
to create entirely new sets of influences.

2. Environment is dynamic: The environment is constantly changing in nature. Due to many
and varied influences operating there is dynamism in the environment causing it to
change its shape and character continually.

3. Environment is multi faceted: The same environment trend can have different effects on
different industries. As the GATS is an opportunity for some companies and threat for
some companies.
4. Environment has a far reaching impact: The environment has far reaching impact on the
organization. The growth and profitability of an organization depends critically on the
environment in which it exists.

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