The essential components of Business Environments
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Published: Wed, 03 May 2017
SOCIAL FACTORS: Business environment have very important position in the social system every business have a social responsibility while the social factors influence the policies and strategist of the business. There are many social factors which affect the policy and strategies of business such as culture, values, tastes and preferences, social integration and disintegration.
ECONOMIC FACTORS: Economic factors include per capita income, national income, resource mobilization, exploitation of natural resources, infrastructure development, capital formation, employment generation these are the basic economic factor which influence the business environment.
CULTURAL FACTORS: Cultural factors include variables like social and religious practices, education, knowledge, rural community norms and beliefs and so on which are affecting the business on the cultural aspects.
GEOGRAPHICAL FACTORS: Geographical factors also plays an important role in business such as geographical locations, seasonal variations, climatic condition are some factors should be kept in mind before starting the business.
TECHNOLOGICAL FACTOR: It is one of the most important factors of the business environment that is why the government in its industrial policy resolution, industrial licensing policies, and even in liberalization policy has assigned a great importance to sophisticated technology.
POLITICAL FACTORS: Political parties in power substantially influence the business environment we can take the example of congress, at the time of congress rule, stock prices went up, where as the market crashed during unstable minority government of the National front.
LEGAL FACTORS: Every business in India is regulated by a law, hence a legal factors plays very important role in business, law relating to industrial licensing, company formation, factory administration etc.
ECOLOGICAL FACTORS: This factor deals with the study of environment it have two basic factors i.e. biotic and abiotic and their interaction with one another, one who is starting business is expected to preserve ecological factors for achieving a sustainable growth.
THE GOVERNMENT POLICIES: The government policies provide a basic environment for the business. Some of the government policies are industrial policies, licensing policies, trade policies, labour policies, fiscal policies, taxation policies etc are some policies for business in India.
LABOUR FACTORS: Labour in an organization constitute an internal factor, general labour policies and climate may form a part of external environment, in an organization labour play an important role in increasing the strength of an organization so we can say labour is also one of the most important factor in business.
COMPETITIVE MARKET CONDITION: This is also one of the most important factors effecting business, in this world of competition it is very difficult to survive in a business. In a socialistic economic environment market is controlled by the centralized authority-the government-whereas the competitive forces determine the market in a fully capitalist economy.
LOCATION FACTORS: Location is also a very important part in business, if you are doing your business in metropolitan cities and in perfect location business will reach profits whereas in backward areas it is difficult to run a business and maintain the pace.
INTRODUCTION OF ITC
ITC was setup in 1910 by the name of “Imperial Tobacco Company of India Limited”. It change its name in 1974 and the company is now known by the name of Indian Tobacco company Ltd, one of the most trusted companies in India.ITC has made its mark in the business of Hotels, Information Technology, Apparel, Cigarettes, Paper boards and speciality papers, Packing, Greeting cards Safety Matches and other FMCG products. ITC is market leader in Cigarettes, Hotels, Paper boards, Packing and Agri-Exports and is one of the foremost private sector companies in India with a market capitalization of nearly US $19 billion and the turnover of US $ 5.1 Billion. It is the highest foreign exchange earners which makes it very important company for India because it has been very benefitting in terms of economic upliftment as it is present in FMCG sector, Hospitality sector, Information Technology sector, and also in Agriculture sector.
In FMCG sector ITC is the market leader in cigarettes in India because of its wide range of invaluable brands. It has developed a leadership position in every segment of the market. It entered into the branded & packaged Foods business in August 2001 with the launching of the Kitchens of India brand and further launched Confectionery items; Staples and; Snack Foods products in 2002.It also started with Lifestyle Retailing Business and established a brand name of it by introducing Wills Lifestyle range and presence of exclusive apparel stores. It also introduced greeting cards, gifting products and other stationery items like the notebooks. Apart from cigarettes hitch were a part of its business strategy for creating multiple drivers of growth in the FMCG sector .With diversification in view the Company commenced marketing safety matches and Agarbattis (incense sticks) sourced from small-scale and cottage units.
HOTELS: ITC Welcome group has become a huge brand and is fast becoming India’s fastest growing hotel chains as it has grown upto a position where there are over 70 hotels across different destinations all over India and still growing.
PAPERBORDS AND PACKING: ITC packaging & Printing Business is the country’s largest converter of paperboard into packaging which is why making it the most trusted
AGRI BUSINESS:ITC’s International Business Division (IBD) is the country’s second largest exporter of agri-products. .
INFORMATION TECHNLOGY:ITC InfoTech India Ltd. Is a global IT services company which has established itself in the market growing at a cumulative annual growth rate (CAGR) of around 85%.
PERFORMANCE: The company has always been strong performer in whatever business it has done and its Gross Turnover for the this year has already grown by 20.2% to Rs.19505 Crores. Net Turnover at Rs.12369 crores grew by 26.3% driven by the non-cigarette FMCG businesses, higher agriculture business revenues and continuously strongly growing performance of the Hotel business. The non- cigarette portfolio grew by 37.6% during the year and now accounts for 52.3% of the Company’s Net Turnover. Pre-tax profit increased by 20.1% to Rs.3927 crores, while Post-tax profit at Rs.2700 crores registered a growth of 20.8%. Earnings per Share for the year stand at Rs. 7.19.
PESTEL OF ITC
POLITICAL ENVIRONMENT: Political framework concerns with the political environment and the stability of the governments well as the policies framed by government which affect the company. Policies which effected political environment of ITC are mentioned below.
Huge burden of Vat but this will help companies like ITC to cut costs and become more competitive in the long run.
Excise duty raised by union budget by 5 %
Luxury tax is also present in some of the states increasing the expense of ITC at those particular places
100% FDI is allowed in this sector which has led to increase in competition
Uplifting agriculture will also lead to rural India’s development hence may increase usage of FMCG products. Individual tax benefits too are a positive for the sector.
ITC is in making cigarettes so political environment is not good for tobacco in India, there are many states like Chandigarh where smoking is completely banned, in public places smoking is completely banned which effects the company.
According to factory act 1948 it is to ensure that health and safety measures to the employees working in a company, compulsory licensing of the company, working hours, annual leave provision for accidents and rights of employees.
ECONOMICAL ENVIRONMENT: Turnover of over $5 Billion and increasing market capitalization, generate the value for the shareholders with growing portfolio of the business. Tobacco occupies a prime place in the Indian economy on account of its considerable contribution to the agricultural, industrial and export sectors. Its Gold Flake tobacco brand is the largest FMCG brand in India – and this single brand alone holds 70% of the tobacco market. Gross Turnover grew by an
impressive rate of 20%.
SOCIAL ENVIRONMENT: ITC uses the best business practices and is committed to the welfare of the nation. It has started various programs for poor people in rural areas to teach them and provide employment to them by purchasing the raw materials from them. It uses best labour practices.ITC has started programs to reduce poverty in some of, the most under developed areas of this country.
CONCEPT OF e-CHOPAL: A powerful illustration of corporate strategy linking business purpose to larger societal purpose, e-Choupal leverages the Internet to empower small and marginal farmers – who constitute a majority of the 75% of the population
below the poverty line. By providing them with farming know-how and services, timely and relevant weather information, transparent price discovery and access to wider markets, e-Choupal enabled economic capacity to proliferate at the base of the rural economy. Today 4 million farmers use e- Choupal to advantage – bargaining as virtual buyers’ co-operatives, adopting best practices, matching up to food safety norms. Being linked to futures markets is helping small farmers to better manage risk. e-Choupal has been specially cited in the Government of India’s Economic Survey of 2006-07, for its transformational impact on rural lives.
The network of 6,500 e-Choupal centres spread across 40,000 villages has emerged as the gateway of an expanding spectrum of villages.
TECHNOLOGY:ITC manufacturing units have ISO quality certification. No doubt that the best technology provides best quality in product. ITC is well known for its technology some of its best technologies are:
QC (Quality control technology)
TQM (Total Quality Management)
KSS (Kaizen suggestion Scheme)
ENVIRONMENTAL: ITC is one of the kinds of organizations which continuously keep a check of its effect on nature. In order to study the extent of climate change it has formed a carbon committee which would suggest the measures so that ITC could become zero carbon emitting company. The company has adopted 4 goals towards the environmental welfare:
Zero solid waste.
Zero water discharge.
Carbon Free State.
Beyond compliance performance.
Besides these it has rain harvesting system to preserve the rain water. Also it uses the practices which are energy efficient.
Foe water saving and zero water discharge ITC is following various tricks to continue its eco friendliness For instance, the water was recently disconnected in the urinals in the men’s toilets, and replaced by a “bio block,” a device that basically looks like Odonil and is made out of microbes that absorbs liquid and odours. Also, you don’t need to use A-category water for a C-category function, Once the bio-block is installed in the entire Welcome group chain.
LEGAL ENVIRONMENT: The legal environment in India has affected the tobacco industry to a large extent but at the same time adjusted itself according to the legal conditions and they have done so through diversifications and by venturing out into other industries for example ITC group diversified from their core business into the hospitality industry through ITC group of hotels and into the premium sports accessories recently sector like ITC golf range
The ITC group they have also diversified into various other sectors like FMCG sector and all their diversifications are permissible under the law. they have also taken care of all the legal implications in their core business that is of tobacco.
MICHAEL PORTER FIVE FORCES MODEL
Michael Porter’s five force model has identified five forces on the basis of which a company or an organization can take full benefit of the opportunities present and also take in maximum profit from the market by making certain strategies which benefit the company as whole . The corporate strategies should be analyzed and accordingly amended. Porters model supports analysis of the driving forces of companies and hence industries. Based on the information derived which the company gets from these forces application, its management decides how to go further and improve particular characteristics of their industry.
COMPETITIVE RIVALRY: It is high because of presence of so many companies selling almost same products like shampoos, clothes, other FMCG products. More are the companies more will be the competition and hence more price variations would be there. If ITC is selling biscuits then there are so many other companies selling it like Parle etc.
BARGANING POWER OF CUSTOMER: If there are more companies selling almost same products and at different prices or prices close to each other so the customers have high choice and would take that product which suits them in terms of price or the trust they have on the brand like shampoos are sold by ITC and there are shampoos of HUL also so customer has a choice
SUBSTITUTES: Because there are so many companies the threat of substitutes is high as other companies may sell that very product at lower price and people can use the lower price item as a substitute
THREATS OF NEW ENTRIES: In a competitive market it is very difficult to enter as there are so many companies which can pose as a huge competition hence decreasing the demand of the product of the new company, besides it becomes very difficult to market and hence sell the product if players like ITC are present in the market
BARGAINING POWER OF SUPPLIERS: The bargaining power of the suppliers decreases with increase in the number of companies because companies have choice to take their input or raw material from any supplier hence in this case the bargaining power of the suppliers is less.
CONCLUSION: ITC is a company which is growing at very fast rate from the beginning and its graph is going up every year. . to maintain and increase its profits. ITC have done from last hundred years. So we can say ITC is one of the best companies and doing great business in its every sector like Hotels, Tobacco, FMCG products, Paperboards and packing, Agri Business and IT. ITC proactively changed itself accordingly change in the environment.
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