Business and Its Environment: An

Introduction

Dhaarna Rathore

Learning Objectives

The nature and scope of business• Shortlist characteristics of contemporary business• Define vision, mission and goals of business• Describe criticisms of business• Understand the nature of environment• Understand the process of environmental analysis• Suggest a suitable organisational arrangement for scanning the

environment.

Nature and Scope of Business

- Business may be understood as the organized efforts of enterprise to earn profit. Business may be small of big but all of them aim at making profit.

- The scope of business is vast. The various activities that bring raw material to the factory and the end product from the end product from there to the market constitute business.

Characteristics of Indian Business

Competetion

Competetion: - Defines new ways of doing business - Help build new capabilities- Build new customer satisfaction standard, and - Makes business leaders become positive.

Commodity Czars

Company Product Annual Capacity RankMittal Steel Steel 70 million tonnes 1

Birla Viscose Viscose fibre 251,850 tonnes 1Basell (Chatterjee/Access)* Polypropylene 8 million tonnes 1

Reliance Industries Polyester 1.8 million tonnes 1Hero Cycles Cycles 5.2 million units 1

Essel Propack Laminated Packaging 4 billion units 1Bharat Forge Forgings102,900 tonnes 2

Moser Baer Optical media storage 2.5 billion units 3Hero Honda Two-wheelers 2.6 million units 1Jubilant Organosys Pyridine 22,500 tonnes 2

Orchid ChemicalsCephalosporin 1,100 tonnes 5

*Deal yet to be concluded

Company Product Annual Capacity RankMittal Steel Steel 70 million tonnes 1Birla Viscose Viscose fibre 251,850 tonnes 1Basell (Chatterjee/Access)* Polypropylene 8 million tonnes 1Reliance Industries Polyester 1.8 million tonnes 1Hero Cycles Cycles 5.2 million units 1Essel Propack Laminated Packaging 4 billion units 1Bharat Forge Forgings102,900 tonnes 2Moser Baer Optical media storage 2.5 billion units 3Hero Honda Two-wheelers 2.6 million units 1Jubilant Organosys Pyridine 22,500 tonnes 2

Orchid ChemicalsCephalosporin 1,100 tonnes 5

*Deal yet to be concluded

Business Objectives Business Critics

Environment

Environment refers to all external forces which have a bearing on the functioning of business. Such forces include political, legal, technological, cultural, economical and physical.

Environment of Business Linkages among the Stages for environmental analysis

Limitation of Environmental Analysis

• Environmental Analysis does not foretell the future, nor does it eliminates uncertainty for any organization.

• Environmental analysis on and off itself, is not a sufficient guarantor of organizational effectiveness. It is only one of the inputs in strategy development and testing.

• The potential of environmental analysis is often not realized because of how it is a practiced. It is sometimes used as a crutch for post-hoc reflections. At times, managers place uncritical faith in the data without thinking about the data’s verifiability or occurrences.

• Too much reliance is often placed on the information collected through environmental scanning.

Globalisation Strategies

International Attacks by Region (1995-2000)

1995 1996 1997 1998 1999 2000Africa 10 11 11 21 53 55Asia 16 11 21 49 72 98Eurasia 5 24 42 14 35 31Latin America 92 84 128 111 121 193Middle East 45 45 37 31 25 16N.America 0 0 13 0 2 0Western Europe 272 121 52 48 85 30

International Terrorist Attacks (1981-2000)

1981 4891985 6351990 4371991 5651992 3631993 4351994 3221995 4401996 2261997 3031998 2741999 3922000 423

Political Risk-Scores

2006 2007Hungery 77 78S.Korea 75 76Poland 72 74Bulgaria 69 70Mexico 67 67China 61 66Brazil 64 66Turkey 64 65Argentina 66 65S.Africa 65 64Russia 61 63India 62 62Thailand 60 61Egypt 58 60Algeria 59 59S.Arabia 57 57Indonesia 55 57Colombia 55 56Ukraine 57 56Philippines 56 55Iran 49 51Venezuela 52 50Nigeria 47 48Pakistan 50 45

Entry Strategies

Ways of Managing Political Risk

Types of Environment

Strategic Management Process

Thank You

Seminar Question for Group Discussion

1. Do you think Tata Steels’s acquisition of Corus and Tata Motor’s take over of Jaguar and Land Rover are right decisions?

2. Why has Strategic Alliance between Bharti and Wal- Mart failed?

Tata to Corus

1. Reasons;• To tap European mature market. • Cost of acquisition is lower than setting up of green field plant and marketing and distribution channel. • TATA manufactures low value, long and flat steel products while Corus produced high value stripped

products. • Helped to feature in top 10 players in the world. • Technology benefit. CORUS holds number of patents and R&D facilities. 2. Reason for corus to be sold• A chance to bail out of debt and financial crisis. Total debt of CORUS was 1.6bn GBP. • Access to cheap high quality iron ore from India. • Corus facilities were relatively old with high cost of production.• Corus needed supply of raw material at lower cost. • Though Corus has revenues of $18.06bn, its profit was just $626mn (Tata’s revenue was $4.84 bn &

profit $ 824mn).

TATA steel acquisition of CORUS was a bold and smart move. Complementarities in scale, market geography, financials, technology and raw materials offered a strong rationale for the deal. The acquisition of CORUS has been timely done. Given the rising momentum of consolidation in the industry and rising valuations of steel companies, had TATA steel not acted when it did, the opportunity could have been lost forever.

TATA’S IMPLEMENTATION OF THE DEAL • Big boost to the Indian economy, as TATA was acquiring a company 3 times its size • The R&D Unit of Corus complements that of TATA’s • Links low cost Indian production and raw materials and growth markets to high margin markets and high technology in the West • Help from financing institutions as $8 billion was raised through debt

Tata and Jaguar

Why was Ford selling?• The US auto major put the two marquees on the market in 2007 after

posting losses of $12.6billion in 2006 - the heaviest in its 103-year history

• Jaguar was not able to provide any profit for ford because of the high manufacturing costs provided in the United Kingdom.

• The strong boy Land Rover's profit, on the other hand, was driven by the record sale of 2.26 lakh vehicles, an 18% YoY growth in 2007.

• Ford was combining both the brands since the products and manufacturing of vehicles for Land Rover and Jaguar was so intertwined.

Benefits • Tata wanted to make a global impact and it thinks that buying these

brands at a lower rate now, will give better value later on.• This acquisition also eases the entry of Tata in European market which

it has been eyeing for long. A previous JV with FIAT took place, this will further help them penetrate EU market.

• Reduce the company dependence on the Indian market which accounted for 90% of its sales

• Increase sales in emerging markets

Bharti vs Walmart

The partnership between Bharti Enterprises and Walmart has been dissolved. Formed in 2007, the joint venture’s purpose was to build and operate cash and carry superstores in India under the name Best Price Modern Wholesale