Global Economic Environment

As a student dealing with business, it is necessary to acquire full knowledge about the behaviour of the economy. The macro system determines the operational conditions under which the business operates. Therefore right decisions can be taken by understanding and adapting to the changes in the business environment.

Objectives

Knowledge about the national and international issues/happenings. Impact of the governments decisions/ policies on business. How the business operates in the general and institutional framework of the whole economy. To equip the students with analytical tools to understand the global economic situation. To evaluate critically the emerging economic problems & their implications for trade and commerce.

What the students will learn:

The students will learn about the economic growth of an economy in terms of output, income & employment. Understand the macro economic variables like consumption, saving, investment, interest rates, balance of payment & their relationships. They will also try to understand how these relationships will determine the production behaviour of the countries.

By understanding the macro economic variables, students will be able to understand the macro economic issues like Inflation & Employment. How the uncertainties can constrain the effectiveness of economic policies in the real world.

Factors to be covered under Economic Environment

General economic conditions Economic conditions of different segments of the population; their disposable income, purchasing power, etc. Rate of growth of the economy; rate of growth of each sector of the economy. Income, prices and consumption expenditure Credit availability and interest rates Saving rate/capital formation

Inflation rate Behaviour of capital markets Foreign exchange reserves Exchange rate Tax rates Infrastructure Labour scene etc.

CASES
Where Raymond wants to be. Oil Prices up, Inflation down. The Anatony of a Currency Crisis : The Collapse of the Mexican Peso (1994). Central Bank Independence and Inflation in Industrial Countries. (US, Germany, Switzerland Vs UK, Spain, Italy, France & NZ) Mckinseys Agenda for Indias Economic Reform. Asian Financial Crisis of the late 1990s.

Suggested Readings :
Text Book Dornbusch, Fischer & Startz , Macro Economics, TMH,2000. Reference Books

Aswathappa, K, Essentials of Business Environment, Himalaya Publishing House, 2000. Cherunilam, Francis, Business Environment : Text & Cases, Himalaya Publishing House, 2002. Bhalla, V.K. & Ramu, S. Shiva, International Business: Environment & Management, Anmol Publications, 2000.

Adhikary, M, Economic Environment of Business, Sultan Chand & sons, 2001. Kotabe,Masaaki & Helsen, Kristiaan, Global Marketing Management, John Wiley & Son ,2004. Gupta, Suraj B, Monetary Economics, S. Chand & Co. Ltd,2003. Jalan, Bimal(ed.), The Indian economy: Problems & Prospects, Penguin Books,1992. Nayar, Baldev Raj, The Geopolitics of Globalization, Oxford,2005 Economic Survey, Government of India

Evaluation Assignment Project Mid-TermTest EndTermExamination

: : : 10% 15% 15%

: : 60%

Project Topics-Global Economic Environment

Economic Reforms in India and their impact Role of Infrastructure in growth and development Monetary and Credit Policy Economic Implications of population Information revolution Tourism: Potentials and problems Inflation: Causes, effects and remedies

EmergingInternationalEconomicEnvironment BalanceofPayment ForeignDirectInvestment BudgetDeficitsandPublicDebt EconomicPlanninginIndia RoleofMultinationalCorporations(MNCs) IssueofDisinvestments SavingandCapitalformation Bankingsystem:Roleandfunctions

IndianTaxStructure South-EastAsianCrisis RegionalTradingArrangement:Anoverview CapitalMarketReforms GlobalizationandDevelopment ChinasEconomicMiracle

Business Environment Thesurvival&successofafirmdependontwosetsof factors i.e. the internal factors - the internal environment and the externalfactors-theexternalenvironment. The external environment has broadly two components i.e. business opportunities and threats to business. Similarly, the organizational environment has two components: Strengths & weaknessesofthefirm/organization.

Strategyformulationisproperlyputtingtheorganizationalfactors (theinternalenvironment)againsttheopportunities&threatsin theexternalenvironment.Inotherwords,businessdecisionsare conditioned by two broad sets of factors i.e. the internal environmentandtheexternalenvironment. Formulation of strategy is sometimes defined as establishing a proper firm-environment fit. The mission/goal/ objectives themselves should be based on an assessment of the external environment & the organizational factors (i.e. the internal environment).

Strategy formulation is properly putting the organizational factors (theinternalenvironment)againsttheopportunities&threatsinthe external environment. In other words, business decisions are conditioned by two broad sets of factors i.e. the internal environmentandtheexternalenvironment. Formulation of strategy is sometimes defined as establishing a proper firm-environment fit. The mission/goal/ objectives themselves should be based on an assessment of the external environment & the organizational factors (i.e. the internal environment). Therefore, SWOT analysis is one of the first steps in the strategic management process. Business dynamics, to a large extent, is a dependent factor it depends on, inter alia, the environmental dynamics. Hence, the importance of ENVIRONMENTAL ANALYSIS.

BUSINESS ENVIRONMENT

Internal Environment Promoters/Shareholders values Mission/Objectives Management Structure Internal power relationship Co. image/Brand equity Physical assets/facilities R & D and technological capabilities Human Resources Marketing capabilities

External Environment

MICRO (Task/Operating) Environment Customers Suppliers Competitors Financiers Marketing intermediates

MACRO ( General /Remote) Environment Economic factors Social/cultural Demographic Political/Govt. Natural Technological Global

Theinternalfactorsaregenerallyregardedascontrollablefactors. Externalfactorswhichhaveadirect&intimateimpactonthefirm areclassifiedasMicroenvironment. Manyofthetimes,BusinessEnvironmentisconfinedtothe ExternalEnvironment.

VALUE SYSTEM ThevaluesystemofJRDTataandtheacceptanceofitbyothers whomatterwereresponsibleforthevoluntaryincorporationinthe Articles of Association of TISCO its social and moral responsibilities to Consumers, employees, shareholders, society andthepeople. InfosysTechnologiesLtd. Core Value: To achieve our objectives in an environment of fairness, honesty, transparency and courtesy towards our customers,employees,vendorsandsocietyatlarge.

MISSION & OBJECTIVES Thebusinessdomainofthecompany,priorities,directionof development,businessphilosophy,businesspolicyetc.areguidedby themissionandobjectivesoftheco. Ranabaxys thrust into the foreign markets and development have beendrivenbyitsmission: Tobecomearesearchbasedinternationalpharmaceuticalcompany Arvind Mills Mission To achieve global dominance in select businesses built around our core competencies through continuous product and technical innovation, customer orientation and focus on costeffectiveness.

Environmental Analysis And Strategic Management WhereRaymondwantstobe? Raymond has been a well-known fabric brand in India. The RaymondLtd.overtimehadmadesignificant,investmentsinprocess oriented business such as Cement, steel & polyester fibre, besides textiles. Gautam Hari Singhania,who tookoverfromVijaypatSinghaniaas Chairman&managingdirectorin1998,soughttoputRaymondona strongfooting,restructuringitsbusinessportfoliobasedonaSWOT analysis. So, in early 1999, says singhania, We started looking at our business portfolio, and decided where we wanted to be as comparedtowherewearetoday.Wedecidedtherewerethreeareas thatthecompanydidntwanttobein,inourlong-termstrategy.One wasfilamentyarn,thesecondwascementandthethirdsteel.

These business were either not giving adequate returns or were makinglosses.Thecompanyalsodidnthavetheexpertisetorun theseunits.Raymond,therefore,pulledoutofthesebusinessand decided to focus on the core business of dressing (textiles and readymadeapparel). ThedivestmentofthesethreebusinessesbroughtinaboutRs.1100 crore.Outofthis,291cr.wasusedtorapayoutstandingdebtand this helped to substantially reduce the interest burden. The companyalsospentaround158cr.forbuyingbacksharesandthis increasedthesinghaniasshareinRaymondfrom27to31percent. Thecompanyhasbeenleftwithlargeamountforinvestmentfor developingexistingcorebusinessorenteringnewbusinesses.

In Singhanias vision, Raymond must turn itself into a lean and efficient company, before striking out to conquer new territory overseas.WhileRaymondclaimstobeamongthetopthreefabric brandsintheworldinintegratedworsted(wool-blended)fabrics,it certainly isnt a household name anywhere except South Asia. THE ENDEAVOUR IS TO MAKE IT A TRULY GLOBAL BRAND,saysthechairman.
A

look at the strategic management process would make the importanceoftheexternal-internalfactorsnexusmoreclear. Strategy has been defined as unified, comprehensive, and integrated plan relatingthestrategicadvantagesofthefirmtothe challenges of the environment. It is designed to ensure that the basicobjectivesoftheenterpriseareachieved.

Strategic Management Process

Determination Evaluation and Control

of Mission

Establishment of objectives

Implementation

SWOT Analysis

Choice of Strategy

Consideration of Strategic Alternatives

SE Asian Crisis The Thai Melt Down

AppreciationofYen CheapThaiLabour HighReturninThailand JapaneseFDI Portfolio Investment Short-term funds

OverheatingofThailandEconomy

Over-building Ofindustries

Riseinlabour cost

Indiscriminate lending

Theseresultedin:
1.INFLATION 2.REALESTATEBUBBLE

CheapChinese exports Realestatecrash Bankfailures

Exportssuffer& Importsrise

LargecurrentA/c Deficit

PANIC

RunonBahtDepreciationofBaht.