business environment

792 Pages·2015·5.59 MB·English

by  Francis Cherunilam

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]
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Eighteenth Revised Edition : 2008
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Twenty-fifth Revised Edition : 2016
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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