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business environment PDF

792 Pages·2015·5.59 MB·English
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B USINESS E NVIRONMENT TEXT AND CASES Francis Cherunilam M.A., M.B.A., D.D.P., Ph.D. Dean Viswajyothi School of Management Studies, Viswajyothi College of Engineering and Technology, Vazhakulam, Kerala Pin: 686670 (Formerly Professor and Chairman, Marketing Area, IIMK; Director, School of Management Studies, Cochin University of Science & Technology; Director, Albertian Institute of Management, Cochin; Director, Kochi Business School, Cochin; Managalam Management Studies, Kottayam) E-mail: [email protected] ISO 9001:2008 CERTIFIED © Author No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of the publisher. First Edition : 1985 Eighth Edition : 1997 Eleventh Revised Edition : 2000 Reprint : 2001 Twelfth Revised Edition : 2002 Thirteenth Revised Edition : 2003 Fourteenth Revised Edition : 2003 Fifteenth Edition : 2004 Sixteenth Revised Edition : 2005 Seventeenth Revised Edition : 2006 Reprint : 2007 Eighteenth Revised Edition : 2008 Nineteenth Revised Edition : 2009 Reprint : 2010 Twentieth Revised Edition : 2011 Twenty-first Revised Edition : 2012 Twenty-second Revised Edition : 2013 Twenty-third Revised Edition : 2014 Twenty-fourth Revised Edition : 2015 Twenty-fifth Revised Edition : 2016 Published by : Mrs. Meena Pandey for Himalaya Publishing House Pvt. Ltd., “Ramdoot”, Dr. Bhalerao Marg, Girgaon, Mumbai - 400 004. Phone: 022-23860170/23863863, Fax: 022-23877178 E-mail: [email protected]; Website: www.himpub.com Branch Offices : New Delhi : “Pooja Apartments”, 4-B, Murari Lal Street, Ansari Road, Darya Ganj, New Delhi - 110 002. Phone: 011-23270392, 23278631; Fax: 011-23256286 Nagpur : Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur - 440 018. Phone: 0712-2738731, 3296733; Telefax: 0712-2721216 Bengaluru : Plot No. 91-33, 2nd Main Road Seshadripuram, Behind Nataraja Theatre, Bengaluru-560020. Phone: 08041138821, 9379847017, 9379847005 Hyderabad : No. 3-4-184, Lingampally, Besides Raghavendra Swamy Matham, Kachiguda, Hyderabad - 500 027. Phone: 040-27560041, 27550139; Mobile: 09390905282 Chennai : New-20, Old-59, Thirumalai Pillai Road, T. Nagar, Chennai - 600 017. Mobile: 9380460419 Pune : First Floor, "Laksha" Apartment, No. 527, Mehunpura, Shaniwarpeth (Near Prabhat Theatre), Pune - 411 030. Phone: 020-24496323/24496333; Mobile: 09370579333 Lucknow : House No 731, Shekhupura Colony, Near B.D. Convent School, Aliganj, Lucknow - 226 022. Phone: 0522-4012353; Mobile: 09307501549 Ahmedabad : 114, “SHAIL”, 1st Floor, Opp. Madhu Sudan House, C.G. Road, Navrang Pura, Ahmedabad - 380 009. Phone: 079-26560126; Mobile: 09377088847 Ernakulam : 39/176 (New No: 60/251) 1st Floor, Karikkamuri Road, Ernakulam, Kochi - 682011, Phone: 0484-2378012, 2378016; Mobile: 09344199799 Bhubaneswar : 5 Station Square, Bhubaneswar - 751 001 (Odisha). Phone: 0674-2532129, Mobile: 09338746007 Kolkata : 108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank, Kolkata - 700 010, Phone: 033-32449649, Mobile: 09883055590, 07439040301 DTP by : Asha Printed at : Geetanjali Press Pvt. Ltd., On behalf of HPH. PREFACE TO THE TWENTY-FIFTH EDITION It is with great joy and gratitude that I present the 25th edition of the pioneering comprehensive Indian book on Business Environment. It was indeed adventurous to attempt such a work at a fairly young age, more than three decades ago, when there was no model book to help conceptualise the scope and structure, no internet to source information, word processing by computer was strange, printing technology was crude, courier service was absent and had to encounter a host of other handicaps of those days. The experience, however, was exciting and the response of the academic community has been overwhelming. That this work filled an important academic void is indicated by the fact that it was after its publication that universities and institutes started including Business Environment as a subject in the curricula of Management and Commerce courses. This book is an expanded version of my first book Business and Government which was very well received by the academia. After the advent of the book Business Environment, many universities and institutes replaced the course Business and Government with Business Environment. Over the last three decades, the book was thoroughly modified and revised a number of times, zeroing in the changes in the business environment and needs of the academic community. Almost every year, there was either a new edition or reprint. I recall here that the confidence bestowed on me and the constant encouragement by late Sri D.P. Pandey, the founder of Himalaya Publishing House Pvt. Ltd., were greatly instrumental in bringing me up as an author. I would like to place on record my indebtedness to the entire Himalaya family, particularly to Mr. Anuj Pandey and Mr. Niraj Pandey, for the enduring encouragement. I am very grateful to the academic community for the great encouragement. And no words to thank the Almighty for the profuse blessings! Cochin, DR. FRANCIS CHERUNILAM 21st June 2016. PREFACE TO FIRST EDITION The modern business is placed in a very complex and intricate environment. The constraints and opportunities provided by the nature of the economy and the economic system, political and legal framework, social system, geographical and ecological conditions, demographic factors, etc. have profound impact on the business. The type of product to be manufactured and marketed, the marketing strategies to be employed, the way the business should be organised, the technology to be adopted etc. are all influenced by the environmental factors. For formulating appropriate business strategies, one should, therefore, have proper understanding of the business environment. This book is a humble attempt to sketch the various important aspects of the business-environment interface. A major part of the work is devoted to deal with the socio-economic and political and legal environment of the business in India. I am very grateful to Prof. N. Somasekhara, Chairman, Department of Industrial Management, Indian Institute of Science, Bangalore, who was kind enough to write a Foreword to this book. I should also like to record my gratitude to all those who helped me, in one way or other, in my endeavour. I must particularly thank Mr. D.P. Pandey and the Himalaya Publishing House Pvt. Ltd. for their constant encouragement. It may be pointed out here that as the business environment changes quite frequently, any work on this subject can be hardly up-to-date. In fact, when this book was in press, some modifications in Government policy have taken place. Some of these policy modifications are stated in the Postscript given at the end of the book. Constructive criticisms and suggestions will be most welcome. FRANCIS CHERUNILAM CONTENTS PART 1 : AN OVERVIEW OF BUSINESS ENVIRONMENT 1-137 1. A GLIMPSE OF BUSINESS ENVIRONMENT 3-32 Types of environment; internal environment; external environment; micro environment; macro environment; competitive structure of industries; competitor analysis; environmental analysis and strategic management; summary. 2. NATURE, SCOPE AND OBJECTIVES OF BUSINESS 33-60 Business system/process; classification of business; classification of industries; characteristics of business; goals of business; summary. 3. ENVIRONMENTAL ANALYSIS AND FORECASTING 61-73 Techniques for environmental analysis; steps in/approaches to environmental analysis; types of environmental forecasting; techniques for environmental forecasting; benefits/importance of environmental analysis; limitations of environmental forecasting; summary. 4. ECONOMIC ENVIRONMENT 74-83 Nature of the economy; structure of the economy; economic policies; economic conditions; summary. 5. POLITICAL AND GOVERNMENT ENVIRONMENT 84-105 Functions of State; economic roles of government; government and legal environment; economic roles of government in India; the Constitutional environment; summary. 6. NATURAL AND TECHNOLOGICAL ENVIRONMENT 106-129 Natural environment; technological environment; innovation; technological leadership and followership; technology and competitive advantage; sources of technological dynamics; time lags in technology introduction/absorption; appropriate technology and technology adaptation; impact of technology on globalisation; IT and marketing; transfer of technology; summary. 7. DEMOGRAPHIC ENVIRONMENT 130-137 Population size; falling birth rate and changing age structure; migration and ethnic aspects; summary. PART 2 : BUSINESS AND SOCIETY 139-221 8. SOCIETAL ENVIRONMENT 141-165 Business and society; objectives and importance of business; professionalisation; business ethics; business and culture; religion; language; culture and organisational behaviour; other social/cultural factors; technological development and social change; summary. 9. SOCIAL RESPONSIBILITY OF BUSINESS 166-187 Classical and contemporary views; social orientations of business; factors affecting social orientation; responsibilities to different sections; the Indian situation; arguments for and against social involvement; social audit; recent developments in India; Companies Act 2013 and CSR; summary. 10. CONSUMER RIGHTS, CONSUMERISM AND BUSINESS 188-206 Consumer rights; exploitation of consumers; consumerism; consumer protection; UN guidelines for consumer protection; consumer protection and consumerism in India; Consumer Protection Act; summary. 11. CORPORATE GOVERNANCE 207-221 Meaning; reasons for the growing demand for corporate governance; importance of corporate governance; prerequisites; regulatory and voluntary actions; recommendations of Birla Committee; legal environment of corporate governance in India; summary. PART 3 : INDUSTRIAL POLICIES AND REGULATIONS 223-388 12. INDUSTRIAL POLICY 225-231 Industrial policy up to 1991; the new industrial policy; an evaluation of the new policy; summary; Annexure 12.1: Schedule to Industrial Policy Resolution, 1956; summary. 13. IDRA AND INDUSTRIAL LICENSING 232-237 Industries (Development & Regulation) Act; industrial licensing; the new policy; summary. 14. PUBLIC, PRIVATE, JOINT AND COOPERATIVE SECTORS 238-270 Public sector; growth and performance of public sector; the new public sector policy; organisation of public enterprises; government and parliamentary control over public enterprises; pricing policy in public enterprises; Department of Public enterprises; nationalisation; private sector; joint sector; the concept of national sector; cooperative sector; summary. 15. PRIVATISATION AND DISINVESTMENT 271-282 Expansion of public sector and its defects; privatisation reaction; ways of privatisation; obstacles; conditions for success of privatisation; benefits of privatisation; arguments against privatisation; sins and pitfalls of privatisation; Rangarajan Committee and disinvestment; privatisation in India; evolution of disinvestment policy; summary. 16. MICRO, SMALL AND MEDIUM ENTERPRISES (MSME) SECTOR 283-302 The VSI sector; definitions; SMEs in other countries; importance; development of VSI under the Plans; promotional measures; institutional support structure; State industrial policies; khadi and village industries; ancillary industries; drawbacks and problems; summary. 17. INDUSTRIAL SICKNESS 303-309 Definition; magnitude; causes of sickness; preventive and curative measures; Sick Industrial Companies Act; summary. 18. PRICE AND DISTRIBUTION CONTROLS 310-321 Objectives of price and distribution controls; price policy in India; price controls; indirect controls; direct controls; administered prices; dual pricing; subsidisation; Essential Commodities Act; other laws to control production, distribution and prices; the public distribution system; summary. 19. INDIAN COMPANY LAW 322-360 A brief history of company law in India; Companies Act 2013 — a synoptic note; objectives of the Companies Act: classification of companies; incorporation of company; Memorandum of Association; Articles of Association; prospectus and allotment of securities; share capital and debentures; management and administration; declaration and payment of dividend; board of directors; inspection, inquiry and investigation; revival and rehabilitation of sick companies; winding of companies; National Company Law Tribunal and Appellate Tribunal; miscellaneous; summary 20. PATENTS AND TRADE MARKS 361-372 Patents; trade marks; the Trade Marks Act, 1999; summary; Annexure 20.1: Falsifying and falsely representing trade marks; falsely representing trade marks as registered; registration of trade marks as associated trade marks. 21. COMPETITION POLICY AND LAW 373-388 Competition policy and law – nature and scope; government policies and distortions to competition; interface of FDI and competition law; pre-requisites for a competition policy; contours of competition law; Competition Act, 2002; summary; Annexure 21.1: MRTP Act. PART 4 : THE FINANCIAL SYSTEM 389-501 22. MONETARY AND FISCAL POLICIES 391-406 Monetary policy; measures of money stock; monetary policy and money supply; instruments of monetary policy; fiscal policy; the Union budget; State budgets; finances of the Union and States; the Finance Commission; importance of the budget; summary. 23. FINANCIAL MARKET STRUCTURE 407-416 Credit market; foreign exchange market; debt market; derivatives market; bancassurance; summary. 24. MONEY AND CAPITAL MARKETS 417-429 Meaning of money market; constituents of a money market; functions of money market; the Indian money market; money market instruments and constituents; capital market—nature and constituents; importance of capital market; capital market in India; nature of the Indian capital market; development of the market; summary. 25. STOCK EXCHANGE AND ITS REGULATION 430-459 Meaning; importance and functions; dealings on stock exchange; speculation on the stock exchange, organisation of stock exchanges in India; OTCEI; National Stock Exchange of India; Stock Holding Corporation of India; regulation of stock exchange—Securities Contracts (Regulation) Act; SEBI; capital market reforms and developments; summary; Annexure 25.1: Derivatives; Annexure 25.2: BSE Sensex. 26. INDUSTRIAL FINANCE 460-474 Short term finance; medium term finance; long term finance; ownership securities; creditorship securities: new issues—marketing of securities; underwriting of securities; internal financing (ploughing back of profits) public deposits; commercial banks; summary; Annexure 26.1: Leasing. 27. INDUSTRIAL FINANCIAL INSTITUTIONS 475-501 Types of institutions; Types of Assistance; Industrial Development Bank of India; Industrial Finance Corporation of India; Industrial Credit and Investment Corporation of India; Industrial Investment Bank of India; Discount and Finance House of India; State Financial Corporations; State Industrial Development/ Investment Corporations; Investment Institutions; Institutions for small industry; commercial banks; summary; Annexure 27.1: Merchant Banking; Mutual Funds; Venture Capital. PART 5 : LABOUR ENVIRONMENT 503-583 28. LABOUR LEGISLATION 505-517 Principles of labour legislation; labour legislation in India—laws relating to weaker sections; laws relating to specific industries; laws relating to specific matters; laws relating to trade unions and industrial relations. 29. LABOUR WELFARE AND SOCIAL SECURITY 518-528 Welfare and amenities within the precincts of the establishment; welfare outside the establishment; social security; legislative enactments; workmen’s compensation; maternity benefits; employee’s state insurance; provident fund; lay-off and retrenchment compensation; family pension; gratuity scheme. 30. INDUSTRIAL RELATIONS 529-545 Industrial disputes; causes of industrial disputes; industrial disputes—preventive steps; employer-employee relations; Tripartite Machinery; Code of Discipline and Industrial Truce Resolution; settlement of disputes— voluntary arbitration; machinery under the Industrial Disputes Act; grievance settlement authority; Conciliation Officers; Boards of Conciliation; Courts of Inquiry; Labour Courts; Tribunals; National Tribunals; reference and awards; prohibition of strikes and lock-outs; other important provisions of the Act; Annexure: 30.1: Schedules to the Industrial Disputes Act. 31. TRADE UNIONS 546-556 Meaning; functions of trade union; social responsibilities of trade unions; trade union movement in India— factors contributing to growth; some important developments; limitations and problems of trade unionism in India; regulation of trade unions—The Trade Unions Act; definition of trade union; registration of unions; rights and liabilities of registered unions; amendments to Trade Unions Act; summary. 32. WORKERS’ PARTICIPATION IN MANAGEMENT 557-567 Meaning; objectives; problems and limitations; forms of participation; workers’ participation schemes in India; Works Committees/Joint Committees; Joint Management Councils; Shop/Department Councils and Joint Councils; summary. 33. EXIT POLICY 568-574 Need for exit policy; extent of overmanning; VRS and golden handshake, NRF; conclusion; summary. 34. QUALITY CIRCLES 575-583 Origin and development; meaning and nature of QC; structure of quality circles; Objectives/philosophy of QCs; the process of QCs; Conditions for success of QCs; reasons for failure of QCs; conclusion; summary; Annexure 34.1: Research findings on QCs. PART 6 : ECONOMIC PLANNING AND DEVELOPMENT 585-625 35. PLANNING IN INDIA 587-600 The Planning Commission; NITI Aayog; The NDC; State plans; formulation of the Plan; twelfth plan; performance; summary. 36. INDUSTRIAL DEVELOPMENT STRATEGY 601-610 Salient features of industrial planning and development; capital goods vs. consumer goods; roles of public and private sectors; village and small industries; comparative cost dynamics; import substitution and export contribution; capacity utilisation; regional disparities; an evaluation; summary. 37. PLANNING AND DEVELOPMENT OF AGRICULTURE 611-625 Phases of development; expansion and development of inputs and services; agricultural marketing; agricultural price policy; commodity exchange; summary. PART 7 : GLOBAL ENVIRONMENT 627-736 38. GATT/WTO AND GLOBAL LIBERALISATION 629-653 Objectives; an evaluation of GATT; the Uruguay Round Agreement; GATT and WTO; functions of WTO; salient features of UR agreement; evaluation of WTO; Doha Declaration; Bali Package; WTO and developing countries; WTO and India. 39. INTERNATIONAL INVESTMENTS 654-674 Significance of foreign investment; trade and investment; types of foreign investment; factors affecting international investment; growth of foreign investment; dispersion of FDI; portfolio investments; cross- border M&As; foreign investment in India; foreign investment by Indian companies; summary. 40. MULTINATIONAL CORPORATIONS 675-687 Definition and meaning; organisational models; dominance of MNCs; MNCs and international trade; merits of MNCs; demerits; perspectives; code of conduct; multinationals in India; summary. 41. GLOBALISATION 688-713 Globalisation of world economy; globalisation of business; meaning and dimensions; features of current globalisation; globalisation stages; essential conditions for globalisation; foreign market entry strategies; pros and cons of globalisation; policy options; globalisation of Indian business; summary. 42. DEVELOPMENT AND REGULATION OF FOREIGN TRADE 714-729 Regulation of foreign trade; Foreign Trade (Development and Regulation) Act; foreign trade policy; export promotion; organisational set up; production assistance; marketing assistance; EPZs, EOUs, TPs and SEZs; export houses and trading houses; an evaluation; summary. 43. FOREIGN EXCHANGE MANAGEMENT ACT 730-736 Objectives; holding of foreign exchange etc.; current account transactions; capital account transactions; export of goods and services; realisation and repatriation of foreign exchange; contravention and penalties; administration of the Act; FERA and FEMA — a comparison; summary; Annexure 43.1: Definitions. PART 8 : CASES 737-775 1. McKinsey’s Agenda for India’s Economic Reforms 739-743 2. South-East Asian Economic Crisis 744-747 3. Remains of a Dream 748-750 4. The Costs of Delay 751-752 5. Natural Thrust 753-754 6. The Swap 755-756 7. A Question of Ethics 757-758 8. Different for Gamble 759-761 9. Ill-treatment 762-763 10. Human Rights Protection 764-765 11. Whose Basmati is It? 766-767 12. The Sensex 768-769 13. Globalisation of Pop Culture 770-771 14. The Environmental Services Business 772-775 INDEX 777-781 LIST OF BOXES 28.3. Postulates and evolution of labour policy in India 509 1.1. Values, governance and excellence 6 28.4. Labour regulations and rigidities in the labour 1.2. The 21st century international system 12 market 514 1.3. The contagion American flue 12 30.1. National commission on labour on strikes 539 1.4. Where Raymond wants to be? 23 31.1. Impact of political and social forces 550 5.1. Political environment and economic reforms 85 31.2. Second National Commission Labour on 5.2. State and government: Some concepts 87 Trade Unions 555 5.3. Functions and powers of Parliament 97 32.1. Imperatives of workers’ participation in management 565 5.4. Hurdles of controls 102 35.1. New environment, new role 592 5.5. The evolution of the role of the state in India 103 37.1. Fifty years of Indian agriculture 612 6.1. The core of social system 107 37.2. Thrust areas of development 613 6.2. India’s Innovative Potential 114 37.3. National agriculture policy 618 6.3. S&T policy 117 39.1. India vs. other nations 671 6.4. Global village 120 40.1. The prowess of MNCs 676 6.5. Technology, globalisation and inequality 121 41.1. Drivers of globalisation 690 7.1. Demographic Decline vs. Demographic Dividend 132 42.1. Foreign trade policy: objectives and targets 714 7.2. The surging Indian market 136 C.1.1 Reform proposals 743 8.1. Professionalisation of management of family owned business 144 C.14.1 Companies and the environment: wimby and nimby 774 8.2. Cultural environment and technology 149 9.1. Social expectations 167 LIST OF FIGURES 9.2. Business leaders on corporate social responsibility 169 1.1. Factors influencing business decision 5 9.3. Evolution of social responsibility at Tisco 172 1.2. Business environment 11 10.1. Responsibilities of consumers 190 1.3. Forces driving industry competition 14 10.2. Counterfeits and pass-offs 198 1.4. Strategic management process 26 11.1. The aim and purpose of corporate governance 208 1.5. Components of business environment 27 11.2. Public and private perspectives of corporate 2.1. Business system 34 governance 209 2.2. Business process 44 11.3. National corporate governance award 217 2.3. Mission, objectives, goals and targets – 14.1. Imperatives of public sector 239 sequence of formulation and achievement 47 16.1. Small enterprises, big part 286 2.4. Hierarchy of objectives 53 16.2. Reservations against reservation 299 3.1. Epitome of environmental forecasting 72 18.1. Performance appraisal of PDS 319 5.1. Functions of the state 88 21.1. Selected restrictive business practices 5.2. The constitutional environment 101 addressed by competition law 375 5.3. Functions and economic roles of government 105 21.2. Why a new law? 380 6.1. Impulsive and propulsive factors affecting 21.3. Policy paradox 388 business 107 22.1. ` 5,376 crore bonanza for corporate sector 392 6.2. Links between technology and human 22.2. Budget blues 404 development 107 24.1. Indian capital market in transition 426 6.3. Rates of product and process innovations 111 25.1. Objectives and role of stock exchange 431 6.4. Technology S-Curve 112 27.1. Venture capital fund, IDBI 501 6.5. Innovative drivers 116 28.1. Second National Commission on Labour 506 9.1. Responsibilities of business 170 28.2. ILO declaration on fundamental principles 9.2. Social orientations and involvement of business 171 and rights at work 507 9.3. Claimants of social responsibility of business 176

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