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The term business environment generally refers to the external environment and includes factors outside the firm which can lead to opportunities for or threats to the firm. Although there are many external factors, the most important factors are social, economic, cultural, geographical, technological, political, legal, ecological factors; in addition to government policies, labour factors, competitive market condition, local factors, emerging globalisation, and so on.
Before analysing the various external environmental factors, let us consider the importance of the study of the business environment;
1 It helps an organisation to develop its broad strategies and long term policies.
2 It enables an organisation to analyse its competitor's strategies and, thereby, formulate effective counter strategies.
3 Knowledge about the changing environment will keep the organisation dynamic in its approach.
4 such a study enables the organisation to foresee the impact of socio - economic changes at the national and international level on its stability.
5 Executives are able to adjust to the prevailing conditions and, thus, influence he environment in order to make it congenial for business.
One classic example of ITC LIMITED shows that 'the agility and ability of a firm to adapt to its external environmental variables is the strategic key to its long-term and sustained success"
About the company
ITC was incorporated in 1910, 24 august under the name Imperial Tobacco Company of india Limited. As the Company's ownership progressively Indianised, the name of the Company was changedÂ from Imperial Tobacco Company of India Limited to India Tobacco Company Limited in 1970Â and then to I.T.C. Limited in 1974. In recognition of the Company's multi-business portfolio giving a wide range of products - Cigarettes & Tobacco, Hotels, , Packaging, Information Technology Paperboards & Specialty Papers, , Lifestyle Retailing , Foods ,Agri-business, Education & Stationery and Personal Care - the full stops in the Company's name were removed effective September 18, 2001.Â The Company now stands rechristened 'ITC Limited.
The inspirational journey of ITC
The ITC story is one of transformation from a single product company to one of India's largest multi-business corporate enterprises in the private sector.
In 1910 when the British owned company set foot in Calcutta, high quality Virginia tobaccos was never been grown in this subcontinent. In 1908 even before registration it had already set up India's first cigarette factory at munger and started trading tobacco leaf in Andhra Pradesh (1909). The focus was to locate cultivation land so a working blend of farmers and experts could take place, communicating in a dozen different languages across a patchwork of cultures, it honed to grow its market share. At the time of independence ITC achieved the self sufficiency in raw material, further which reduced the imports by the late 50s as a part of cost cutting, so all the raw materials were manufactured within the country.
The early 70s was a major turning point. The foreign exchange regulation act of 1973 came into action under first Indian chairman shri ajit narain haksar who promoted to build an Indian enterprise to build a strong economic environment after independence. It triggered ITC's first major diversification into the hospitality industry, followed by entry into the Paperboards business. The hotel industry would open new sources for foreign exchange earnings by encouraging tourism. The engagement with the paperboard industry made a mark of ITC's core sector, with an opportunity to create livelihoods in rural areas.
In mid 80s and 90s ITC also entered into financial services, agro business and also made a mark by setting its foot in the food industry, opened restaurant Bukhara, which got globally recognition by people.
In 1996 ITC was stunned by the 803 cr excise duty on its core cigarette business, on the other hand their recent diversified businesses were new and were making losses. This made a negative impact on the reputation of the company; simultaneously the economic liberalisation time of the country changed the whole business structure.
To retain its market value ITC took a major step to rationalise, restructuring and repositioning including internal changes introducing the model of trusteeship, transparency and leadership. Â The Company restructured its portfolio of businesses based on the strategic fit between market opportunities and its core capabilities.
As globalisation took place with the economic reforms in the 90s, ITC saw this crucial turning point in the country's economic structure as an opportunity of investing in the businesses for future. Further which realised and analysed the new emerging market opportunities and its competencies, today to become the country's leading FMCG Company, ITC created a chain of businesses which spawned many brands that are presently popular. The expansion strategy in FMCG saw ITC making an entry into, branded packaged foods lifestyle apparel, education & safety matches, stationery products, and incense sticks and more recently personal care products. Core competencies and group effort strengths their businesses taking them to leadership positions in a short period of time.
In 2000, ITC launched the revolutionary e-Choupal, bringing Information Technology to farmers and providing them efficient access to markets and inputs.
ITCÂ EchoupalÂ creatively leverages information technology to set up a meta-market in favour of India's small and poor farmers, who would otherwise continue to operate and transact in 'un-evolved' markets.
As of July 2010, services through 6500Â EchoupalÂ across 10 states, reach more than 4 million farmers in about 40,000 villages. Free access to Internet is also opening windows ofÂ ruralÂ India to the world at large.
ITC eChoupalÂ e-choupalÂ is now being regarded as a reliable delivery mechanism for resource development initiatives. Its potential is being tested through pilot projects in healthcare, educational services,Â water managementÂ andÂ cattle healthÂ management with the help of several service providers includingÂ non-governmental organizations.
The journey so far has indeed been inspiring. World-class manufacturing assets have been created. ITC steps into the next 100, inspired to create enduring value for all stakeholders, inspired to preserve and protect its deep-rooted Indian identity, and inspired to create value for the nation. Indeed, the best is yet to come.
External environmental variables as a part of ITC long term sustainability.
Political factor plays an important role in the stability of a firm, in this scenario the philosophy and approach of the political party in power substantially in fluencies the business environment. India is in the phase of political instability which has resulted in slow industrial progress, price instability, high inflation rates, foreign exchange crises, and more.
ITC after independence (1947) when changed from a British company to Indian realised that in indian culture smoking is discouraged , so under mr. ajit narain haksar the first chairman of foreign exchange act made ITC to think about new upcoming opportunities and then ITC made a diversification in to hotel and paperboard business.
Due to political issues ITC is facing
1 Huge pressure by valve added tax (VAT) by the government.
2 An increase in excise duty by 5% in union budget.
3 Imposed luxury tax in 10 states also affect the ITC revenue.
4 allowed FDI 100%
Economic factors, such as per capita, national income, resources mobilisation, exploitation of natural resources, infrastructure development, capital formation, employment generation, propensity to consume, industrial development, and so on, influence the business environment. ITC contributes a major part in it by
1 Providing direct employment to over 29,000 people as a part of employment generation.
2 The new FMCG businesses support the competitiveness, technology up gradation and market reach ofÂ over 150 Small and Medium Enterprises (SMEs).
3 Total Shareholder Returns, measured in terms of increase in market capitalisation and dividends, growing at aÂ compound rate of over 24% per annum over the last 15 years.
4 TurnoverÂ ofÂ US$ 6 billionÂ and aÂ market capitalisationÂ ofÂ nearly US$ 30 billion.
5 Multiple drivers of growthÂ encompassing FMCG, Paperboards & Packaging, Agri Business, Hotels and Information Technology.
Every business organisation operates within the norms of the society and exists primarily to satisfy its needs. A business organisation has important position in the social system. It has a social responsibility. While social factors influence the policy and strategy of business, the organisation strives to satisfy the needs and wants of the society.
1 ITC businesses generates livelihoods of over 5.5 million people
2 E choupal initiative by ITC is the world's largest rural digital infrastructure benefiting millions of farmers.
3 ITC's Watershed Development initiative brings precious water toÂ over 54,000 hectares of drylands and moisture-stressed areas.
4 ITC's Sustainable Community Development initiatives include women's empowerment, supplementary education and integrated animal husbandry programmes.
Technology is considered to be one of the most important factors of any business environment. That is why the government, in its industrial policy resolutions, industrial licensing policies, MRTP and FERA regulations, even in liberalisation policies, has assigned a great importance. Foreign investment upto 100 % is allowed in industries with sophisticated technology.
ITC believes in technology promotion
1 State of the art factories and adopted technology to construct Green buildings that conform to best in class world standards.
2 Development of IQMS.
3 ITC is also adapting other concepts like QC, TQM, KSS, 5S AND 6 sigma.
4 ITC has invested extensively in R&D to create disease resistant clonal saplings and a comprehensive package of plantation management services under its social and farm forestry initiatives.
5 An afforestation project of ITC has also been registered as a Clean Development Mechanism (CDM) project under the United Nations Framework Convention on Climate Change (UNFCCC).
1 Carbon Positive' - five years in a rowÂ (sequestering / storing twice the amount of CO2 that the Company emits).
2 Water Positive' - for eight consecutive yearsÂ (creating three times more rainwater harvesting potential than ITC's net consumption).
3 Waste Recycling Positive for the last three years.
4 Nearly 31% of total energyÂ consumed is fromÂ renewable sources.
5 ITC Royal Gardenia and ITC Green CentreÂ are two of theÂ world's largest LEED Platinum ratedÂ green buildings.
6 Environment, Health and Safety Management SystemsÂ inÂ ITC conform to international standards.
Every aspects of business is regulated by a law in india. Hence, the legal environment plays a very vital role in business. Laws relating to industrial licensing, company formation, factory administration, industrial disputes, payment of wages, trade unionism, monopoly control, foreign exchange regulation, shops and establishments, and so on.
ITC regulations and taxation
1 The excessively high rate of taxation has led to a massive growth in tax and duty evaded cigarettes. Tax-evaded cigarettes account for more than 8 % of the Indian market.Â
2 In addition, non-uniform tax rates prevailing between States have not only led to trade diversion compromising the industry's ability to service the market effectively but also resulted in sub-optimisation of cigarette tax revenues to the State Exchequers. The move to a GST regime will have to address the imperative need for uniformity of taxes between states.
3 Responding to cyclical issues such as inflation, frequent changes have taken place in policies that govern India's agricultural sector. These impact the scale, risk and profitability of ITC's e-Choupal operations. Policies that distort markets (eg. export bans, subsidies) or impose restrictions on smooth operations (viz. stock controls, prohibition of futures) adversely impact companies engaged in the agri-sector. In addition, the slow reform of Agricultural Produce Marketing (Regulation) Act (APMC Act) that enables direct transactions between the farmers and the agri-businesses is another area of concern.
ITC strategy is to promote their brands through well extensive survey advertisements campaign as well as door to door promotion. ITC is also focus on building good relation with Retailers and Wholesalers to create a healthy and managed distribution channel. The demand of their product is recently growing, because people are getting aware of their brands very well. ITC knows their strength and weakness in the personal care market, so ITC is applying new concept and plan building to overcome their weaknesses. ITC now offering more margins, exiting offers and long credit period to retailers and wholesalers.
The key of long term success of ITC is to see the market opportunities nationally and internationally. Realising the need to grow fast, the company formulated its policies. It paid off well they formulated plans to develop and grow in a foreign market. As soon as the company came to know that global market could prove to be potential markets, plans began to be made accordingly. The company is confident of meeting all such requirements according to its latest sustainability report 2010. The govt. liberalisation policy will also be helpful. The company's new policies have taken into account the various external variables factors that influences, relevant to strategic decisions, operates in an industry.
ITC assessed all the opportunities I the market as well as the impact of external environment on their strategic planning before expanding the production. In recent decade ITC showed a significant improvement compared to other private sector companies