The term business environment consists of two words which are 'Business' and 'Environment'. Both these words separately have different meanings. The word Business in its economic sense means any activity which is performed by the humans like production of goods and services, sale and purchase of goods and services with some profit motive in mind.
The word environment means all the conditions which are surrounding. Therefore, the word business environment means all the conditions like political, social, legal, cultural, infrastructure conditions which are surrounding a business.
Business environment has two components which are External environment or the Macro Environment and Internal Environment or the micro Environment.
According to Keith Davis " The aggregate of all conditions, events, and influences that suuround and affect it". There are two sets of factors- internal and external.
Internal environment means all those factors which affect a business internally. These factors affect the working of a business internally and generally outside forces don't have any part to play in the same. Internal factors generally include men, money, material, machinery, management etc.
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External environment include all those factors which are beyond the control of a business. These factors can be Governmental factors, Geo-Physical factors, Economic factors, Political factors, Social external factors and generally it has to adjust itself according to these factors to survive in the market.
Changes in the macro environment is of a great importance for a business because if the change in any of the factors is favourable then it will help a business to flourish better and if the changes in the macro environment are unfavourable then it can retard the growth of any business and in some extreme cases may even result in closure of a business.
Figure 1: Internal and External environment with factors.
Mahindra and Mahindra
Mahindra and Mahindra group was started in the year 1945 in Ludhiana when K C Mahindra, one of the founding fathers of the Mahindra group visited United States of America as the chairman of the Indian Supply Mission. In America Mr. K C Mahindra met Barney Roos inventor of the general purpose rugged vehicle or known by the name of Jeep and had a flash of inspiration: a vehicle which has proved itself useful and reliable in the world war is the ideal kind of wheels which India needs for its rural Indian roads and for taking the country on the road for development and progress. Soon after action followed thought and Mahindra brothers joined hands with a gentleman called Ghulam Mohammed ad as a result on October 2nd 1945 Mahindra and Mohammed was set up as a franchise for assembling Jeeps from Willys, USA. Later, after two years India became independent, Ghulam Mohammed migrated to Pakistan, and became the first finance minister of Pakistan and Mahindra and Mohammed was changed to Mahindra and Mahindra as Mr. K C Mahindra joined hands with his brother Mr. J C Mahindra.
Mahindra and Mahindra are now present in all the sectors of the economy. They are in the Automobile sector, Commercial vehicles industry, Information technology (IT) sector, Steel Sector, Defence sector, Hospitality sector and Insurance sector. Mahindra group also manufactures special transport vehicles for Indian Defence forces. Mahindra and Mahindra has become a global company and they have acquired many foreign companies and assets in foreign countries. The recent example of the same is the acquisition of ssangyong motors of Korea by Mahindra and Mahindra. This shows that Mahindra group has not only reached heights in India but has also left a mark in the global business environment. The diversification of Mahindra and Mahindra into other sectors also shows that Mahindra group does not want itself confined only to the automobile sector.
The growth of the group has been such a phenomena and the same is reflected in its turnover which has rose to 7.1 billion dollars at present. This shows that Mahindra group is slowly helping in the nation building process. Mahindra and Mahindra have been providing wheels to the nation from the last five decades and have tried to play one of the pivot roles as nation builder.
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Table 1: Mahindra and Mahindra Gross sales for the Financial Year 2010-2009 and 2009-2008.
Table 2: Mahindra and Mahindra domestic sales for the year 2010 and 2009.
Pestle analysis for Mahindra and Mahindra:
Pestle analysis for Mahindra and Mahindra will try to analyze all the situations which have been, or which are responsible for success or failure of the Mahindra group in the Indian business environment or the global business environment. Pestle environment will take into consideration the macro factors of business environment. There are many factors that will affect the business in an economy.
Political Factors: Political factors include the government policies like degree of intervention by the government in the business. What kind of goods / services the government wants the producers to produce? Does the government want to subsidize the business? Is there political stability in the country?
When the Mahindra and Mahindra started their operations in the country in 1945, at that time there was political instability in the country, as India gained its independence in 1947 and India was also unsafe. Government was giving subsidies to business, but private participation was discouraged and the government controlled the industrial sector. There were regulations by the government which each and every business had to follow as the government wanted to control almost all the industries.There is no such problem now as India is a politically stable country and the government has liberalised its industrial policy through LPG policy i.e. Liberalization, Privatization and Globalization. Government has also relaxed conditions, rules and regulations for licensing.
Economic Factors: The Indian economy at the time of independence was a very weak economy at it was growing at a growth rate of 1.5% and 2%. That was not a good time for the Indian industry and also Mahindra group. Indian masses were not able to buy jeeps manufactured by Mahindra and Mahindra as people of the country were poor and helpless and also due to the slow growth rate of the country. Mahindra and Mahindra were able supply jeeps to the defence forces during the times of wars with Pakistan and China, and displayed the reliability of the products of Mahindra and Mahindra. The profits of Mahindra and Mahindra has been increasing every year and this is shown by the following figure.
Figure 2: Showing the increase in the PAT (Profit after Tax) of Mahindra and Mahindra.
Social Factors: The social conditions in India have been changing and these have changed a lot after independence. There is a lot of young population in the country and so they need a lot of transportation for commuting from one place or the other. So there has been an increase in the demand for the various jeeps and vehicles produced by Mahindra and Mahindra. Thus Mahindra and Mahindra has launched a new venture for providing wheels to the youth of the nation by manufacturing bikes and scooters as the demand of two wheelers is increasing day by day in India due changing social environment of the country. Mahindra and Mahindra has also ventured out in the hospitality sector and set up their resorts by the name of Mahindra holiday resorts and these resorts are proving fruitful for the group as more and more people are getting the benefit of world class facilities at affordable prices. Social factors are in favor of Mahindra and Mahindra and these might lead to more successes for Mahindra and Mahindra in the future. This is shown by the following table showing an increase in the sales turnover of Mahindra group.
Table 3 : Increase in the turnover of Mahindra and Mahindra.
Technological Factors: The technological factors have also played an important role in the success story of Mahindra and Mahindra. Mahindra and Mahindra have continuously tried to bring technological changes and up gradation in their products and manufacturing facilities. This zeal for innovations in technology has led to the production of Scorpio, one of the best selling vehicles of the Mahindra and Mahindra, not only in India but around the world. Moreover, the competitors in the country and in the industry were bringing in new technology every day so the Mahindra group also had to raise the level of technological infusion. The technological factors have forced the Mahindra group to venture out in the IT sector and which led to the establishment of TECH MAHINDRA and the acquisition of Satyam Computers by the TECH MAHINDRA as masses are becoming techno-savvy and there is a huge potential in this sector. Moreover the dependence of businesses on technology has also increased a lot.
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Legal Factors: Legal factors play a very crucial role in determining the survival of a business in an economy. The Government of India has relaxed many of the rules and regulations after the opening up of the Indian economy during the beginning of the 1990's with advent of LPG policy i.e. (Liberalisation, Privatisation and Globalisation). Government has relaxed many of the regulations to reduce legal hassels for the corporates, but at the same time some other laws have been strengthened like consumer protection laws which will prevent exploitation of consumers by the companies and have also passed some new acts like Copy right Act 1957, Industrial and Labour Laws 1957, Micro small and Medium Enterprises Development Act 2006, Companies Act 1956, Monopolistic and Restrictive Trade Practices Act etc. all these laws have an impact on the working of a business. The government has also strengthened the employment laws of the country. Mahindra and Mahindra has not faced any problems on this front also as whatever business they are into they follow rules and regulations.
Environmental Factors: Environmental factors are taken care of the Mahindra and Mahindra and as a result Mahindra and Mahindra have started to manufacture vehicles of international pollution norms. Mahindra Navistar trucks are the latest example of the same. These trucks meet all the international pollution norms. Moreover all the vehicles manufactured by the Mahindra and Mahindra meet all the current international and Indian pollution norms. As the governments throughout the world are taking tough stands on the environmental issues it become quite important for Mahindra and Mahindra to follow the same. The government of India has also passed certain rules and regulations for the industries in the wake of environmental degradation to bring in new advancement in their products and in their manufacturing processes to reduce wastage and pollution. Some of the Acts which have been by the government of India for the protection of environment are:
Environment (Protection) Act 1986.
Air (Prevention and Control of pollution) Act 1981.
Water (Prevention and control of pollution) Act 1974.
Forest (conservation) Act 1980.
Biological Diversity Act 2002.
Another kind of analysis through which we can analyse the business environment for Mahindra and Mahindra is the Michael porter's five forces model and the five forces are:
Micheal Porters five forces model.
The Threat of Entry of New Competitors:
Mahindra and Mahindra faces the challenge of entry of new competitors in the market. New automobile manufacturers have come to the Indian automobile industry and many are waiting in the line for .e.g. Hyundai Motors and Ford Motors and Kia Motors. To face the challenge with force, Mahindra and Mahindra is positioning its brands very strongly and competitively in the market. It is investing very huge capital in the new and existing businesses and is also diversifying at the same time for e.g. acquisition of Satyam computers by tech Mahindra and venturing out by the Mahindra group in hospitality industry with Mahindra holidays.
Mahindra and Mahindra have big competitors in each and every key sector in which they are present. Their main competition is in the form of the TATA group which is present in almost every sector where Mahindra and Mahindra is directly or indirectly involved, whether that sector is defence, Information Technology, Hospitality, Automobiles, Insurance etc. Apart from TATA, Mahindra group also have small and big competitors in other sectors also. Mahindra and Mahindra is advertising very aggressively to showcase its products, offering the same at very competitive rates, offering better value to the consumer and providing world class products at affordable rates to survive in this cut-throat competition. Competitive rivalry can also be handled by bringing in innovation in the business environment.
Threat of Substitute Products / Services:
The threat of substitute products or services also creates sometimes big problems for a business and thus can affect business environment of a country as a whole. Sometimes a business fails due to substitute goods and services offered by its competitors. Mahindra group has faced all the challenges put across them against their products by substitute goods as products of Mahindra and Mahindra provide value for their users at competitively low costs.
Bargaining Power of Consumers:
The consumers buying power in case of Mahindra and Mahindra is very low as the products or services provided by Mahindra and Mahindra are unique in themselves and there are not many substitutes in the market for the same. Mahindra and Mahindra has become the third largest tractor manufacturing company in the world and so in this case a farmer wanting to purchase the tractor will purchase the same without any negotiations as he knows that he is purchasing the world's best tractor at a very competitive price.
Bargaining Power of Suppliers:
Mahindra and Mahindra does not believe in extracting money from the users of its products but charges for cost of inputs like innovation, labour, technical innovation and other raw materials. Mahindra and Mahindra does not bargain with the consumers but charges only according to the value of the products or services provided to the customers or the end users.
The above analysis leads us to the conclusion that Mahindra and Mahindra have transformed themselves into a very successful business enterprise and have evolved themselves as a very important constituent of the Indian and the global economy. Mahindra and Mahindra have expanded themselves into various industrial sectors like defence, automobile, hospitality etc. and have diversified at the same time. Mahindra and Mahindra has shown that how the various changes in the business environment can be explored and exploited by any business for its own gain and the gain of the economy as a whole.