Unit 1 Economic Environment of Business

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After studying this unit, you should be able to :
• Define what you mean by “environment”
• Classify the complex environmental variable on the basis of objective criteria • Identify the critical elements of economic environment of business • Analyse the interactions between economic and non-economic environment • Explain the impact of economic environment on business management; and • Illustrate your understanding of economic environment with reference to the Indian business situation.

1.1 Introduction
1.2 Environment of Business
1.3 Some Basic Propositions
1.4 Economic Environment
1.5 Critical Elements
1.6 Indian Economic Environment
1.7 Economic Environment and Business Management 1.8 Economic and Non-Economic Environment : The Interaction Matrix 1.9 Summary
1.10 Key Words
1.11 Further Reading
1.12 Self-assessment Questions
You may have a variety of reasons for studying this course, but the main reason, we presume, is to become a successful manager. Your success or failure as a manager depends on a number of factors and these factors may not always be within your control; very often such factors constitute your work environment. These include your job, your department, your organisation, your nation and the world around you. After all, as a manager you do not function in a vacuum. You exist and operate within and not without, an environment. Therefore as a manger when you think, or take decisions, you cannot neglect the limitations of your environment. Just think for a while and then answer. Don’t you arrive at decisions after examining the possible reactions from the environment in which you are placed ? Say, as a marketing manager, would you not study your market environment before launching a new product ? Or, as a finance manager, wouldn’t you study how the capital and money markets of the country are structured and organised before deciding on the sources and uses of your funds ? Or, as a personnel managers wouldn’t you care to find the rules and regulations laid down by the government on subjects like reservation before undertaking recruitment and selection of your required staff? When you have answered these questions, you will discover that all your answers are in the affirmative : “Yes, I would”. You can’t do without thinking about your environment. As a business manager, you have to constantly evaluate your business environment.

This opening unit aims to set you thinking about thee ideas. It aims to help you to : precisely define “environment”, classify your business environment on tube basis of some criteria; identify some of the critical elements of economic environment of business establish the nature of interaction between economic environmental and business management; and analyse the interaction between economic and non-economic environment variables.

In pursuing these aims and objectives, our focus will primarily be on the Indian environment of business. We shall trey to identify, describe and analyse the Indian situation to understand its impact on our business. Our ultimate purpose is to train our business mangers to face the macro-level environment of business. As managers, wherever you are be it in the public or the private sector, you have to remain alive and alert to your environment so that you are successful in your day-to-day business operations. 1.2 ENVIRONMENT OF BUSINESS

The term “environment” refers to the totality of all the factors which are external to and beyond the control of individual business enterprises and their managements. Environment furnishes the macro-context, the business firm is the micro-unit. The environmental factors are essentially the “givens” within which firms and their managements must operate. For example, the value system of society, the rules and regulations laid down by the...
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