business environment

1. Unit-1
BUSINESS ENVIRONMENT
Understanding the environment within which the business has to operate is very
important for running a business unit successfully at any place. Because, the environmental
factors influence almost every aspect of business, be it its nature, its location, the prices of
products, the distribution system, or the personnel policies. Hence it is important to learn
about the various components of the business environment, which consists of the economic
aspect, the socio-cultural aspects, the political framework, the legal aspects and the
technological aspects etc. In this chapter, we shall learn about the concept of business
environment, its nature and significance and the various components of the environment.
In addition, we shall also acquaint ourselves with the concept of social responsibility of
business and business ethics.
OBJECTIVES
After studying this lesson, you will be able to:
• explain the meaning of business environment;
• identify the features of business environment;
• describe the importance and types of business environment;
• describe the recent developments in Indian Economy that have greatly influenced
the
working of business units in India;
• explain the concept of social responsibility of business;
• state the social responsibility of business towards different interest groups; and
• explain the concept of business ethics.
MEANING OF BUSINESS ENVIRONMENT
As stated earlier, the success of every business depends on adapting itself to the environment
within which it functions. For example, when there is a change in the government polices,
FEATURES OF BUSINESS ENVIRONMENT
On the basis of the above discussion the features of business environment can be
summarised as follows.
(a) Business environment is the sum total of all factors external to the business firm and
that greatly influence their functioning.
(b) It covers factors and forces like customers, competitors, suppliers, government, and
the social, cultural, political, technological and legal conditions.
Business
Decisions
Economic
Factors
Social factors
Political
Factors
Technological
Factors
Demographic
Factors
Legal
Factors

2. IMPORTANCE OF BUSINESS ENVIRONMENT
There is a close and continuous interaction between the business and its environment.
This interaction helps in strengthening the business firm and using its resources more
effectively.
As stated above, the business environment is multifaceted, complex, and dynamic in nature
and has a far-reaching impact on the survival and growth of the business. To be more
specific, proper understanding of the social, political, legal and economic environment
helps the business in the following ways:
(a) Determining Opportunities and Threats: The interaction between the business
and its environment would identify opportunities for and threats to the business. It
helps the business enterprises for meeting the challenges successfully.
(b) Giving Direction for Growth: The interaction with the environment leads to opening
up new frontiers of growth for the business firms. It enables the business to identify the
areas for growth and expansion of their activities.
(c) Continuous Learning: Environmental analysis makes the task of managers easier in
dealing with business challenges. The managers are motivated to continuously update
their knowledge, understanding and skills to meet the predicted changes in realm of
business.
(d) Image Building: Environmental understanding helps the business organisations in
improving their image by showing their sensitivity to the environment within which they
are working. For example, in view of the shortage of power, many companies have
set up Captive Power Plants (CPP) in their factories to meet their own requirement of
power.
(e) Meeting Competition: It helps the firms to analyse the competitors’ strategies and
formulate their own strategies accordingly.
(f) Identifying Firm’s Strength and Weakness: Business environment helps to identify
the individual strengths and weaknesses in view of the technological and global
developments.
TYPES OF BUSINESS ENVIRONMENT
Confining business environment to uncontrollable external factors, it may be
classified as
(a) Economic environment; and (b) Non-economic environment. The economic environment
includes economic conditions, economic policies and economic system of the country.
Non-economic environment comprises social, political, legal, technological, demographic
and natural environment. All these have a bearing on the strategies adopted by the firms
and any change in these areas is likely to have a far-reaching impact on their operations.
Let us have a brief idea about each of these areas of business environment.
ECONOMIC ENVIRONMENT
The survival and success of each and every business enterprise depend fully on its economic
environment. The main factors that affect the economic environment are:
(a) Economic Conditions: The economic conditions of a nation refer to a set of economic
factors that have great influence on business organisations and their operations. These
include gross domestic product, per capita income, markets for goods and services,
availability of capital, foreign exchange reserve, growth of foreign trade, strength of
capital market etc. All these help in improving the pace of economic growth.
(b) Economic Policies: All business activities and operations are directly influenced by
the economic policies framed by the government from time to time. Some of the
important economic policies are:

3. (i) Industrial policy
(ii) Fiscal policy
(iii) Monetary policy
(iv) Foreign investment policy
(v) Export –Import policy (Exim policy)
Important Economic Policies
(i) Industrial policy: The Industrial policy of the government covers
all those principles, policies, rules, regulations and procedures,
which direct and control the industrial enterprises of the country
and shape the pattern of industrial development.
(ii) Fiscal policy: It includes government policy in respect of public
expenditure, taxation and public debt.
(iii) Monetary policy: It includes all those activities and interventions
that aim at smooth supply of credit to the business and a boost
to trade and industry.
(iv) Foreign investment policy: This policy aims at regulating the
inflow of foreign investment in various sectors for speeding up
industrial development and take advantage of the modern
technology.
(v) Export–Import policy (Exim policy): It aims at increasing exports
and bridge the gap between expert and import. Through this
policy, the government announces various duties/levies. The
focus now-a-days lies on removing barriers and controls and
lowering the custom duties.
(c) Economic System: The world economy is primarily governed by three types of
economic systems, viz., (i) Capitalist economy; (ii) Socialist economy; and (iii) Mixed
economy. India has adopted the mixed economy system which implies co-existence
of public sector and private sector.
NON-ECONOMIC ENVIRONMENT
The various elements of non-economic environment are as follow:
(a) Social Environment
The social environment of business includes social factors like customs, traditions, values,
beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a
society cherishes have a considerable influence on the functioning of business firms. For
example, during festive seasons there is an increase in the demand for new clothes, sweets,
fruits, flower, etc. Due to increase in literacy rate the consumers are becoming more
conscious of the quality of the products. Due to change in family composition, more nuclear
families with single child concepts have come up. This increases the demand for the different
types of household goods. It may be noted that the consumption patterns, the dressing
and living styles of people belonging to different social structures and culture vary
significantly.
• Capitalist
Economy:
Emphasis on
private ownership.
• Socialist
Economy:
Resources are
owned and

4. managed by the
state.
• Mixed Economy:
Co-existence of
public and private
sectors.
(b) Political Environment
This includes the political system, the government policies and attitude towards the business
community and the unionism. All these aspects have a bearing on the strategies adopted
by the business firms. The stability of the government also influences business and related
activities to a great extent. It sends a signal of strength, confidence to various interest
groups and investors. Further, ideology of the political party also influences the business
organisation and its operations. You may be aware that Coca-Cola, a cold drink widely
used even now, had to wind up operations in India in late seventies. Again the trade union
activities also influence the operation of business enterprises. Most of the labour unions in
India are affiliated to various political parties. Strikes, lockouts and labour disputes etc.
also adversely affect the business operations. However, with the competitive business
environment, trade unions are now showing great maturity and started contributing positively
to the success of the business organisation and its operations through workers participation
in management.
(c) Legal Environment
This refers to set of laws, regulations, which influence the business organisations and their
operations. Every business organisation has to obey, and work within the framework of
the law. The important legislations that concern the business enterprises include:
(i) Companies Act, 1956
(ii) Foreign Exchange Management Act, 1999
(iii) The Factories Act, 1948
(iv) Industrial Disputes Act, 1972
(v) Payment of Gratuity Act, 1972
(vi) Industries (Development and Regulation) Act, 1951
(vii) Prevention of Food Adulteration Act, 1954
(viii) Essential Commodities Act, 2002
(ix) The Standards of Weights and Measures Act, 1956
(x) Monopolies and Restrictive Trade Practices Act, 1969
(xi) Trade Marks Act, 1999
(xii) Bureau of Indian Standards Act, 1986
(xiii) Consumer Protection Act, 1986
(xiv) Environment Protection Act
(xv) Competition Act, 2002
Besides, the above legislations, the following are also form part of the legal environment of
business.
(i) Provisions of the Constitution: The provisions of the Articles of the Indian
Constitution, particularly directive principles, rights and duties of citizens, legislative
powers of the central and state government also influence the operation of business
enterprises.
(ii) Judicial Decisions: The judiciary has to ensure that the legislature and the government
function in the interest of the public and act within the boundaries of the constitution.
The various judgments given by the court in different matters relating to trade and
industry also influence the business activities.
(d) Technological Environment
Technological environment include the methods, techniques and approaches adopted for

5. production of goods and services and its distribution. The varying technological
environments
of different countries affect the designing of products. For example, in USA and many
other countries electrical appliances are designed for 110 volts. But when these are made
for India, they have to be of 220 volts. In the modern competitive age, the pace of
technological changes is very fast. Hence, in order to survive and grow in the market, a
business has to adopt the technological changes from time to time. It may be noted that
scientific research for improvement and innovation in products and services is a regular
activity in most of the big industrial organisations. Now a days infact, no firm can afford to
persist with the outdated technologies.
(e) Demographic Environment
This refers to the size, density, distribution and growth rate of population. All these factors
have a direct bearing on the demand for various goods and services. For example a
country where population rate is high and children constitute a large section of population,
then there is more demand for baby products. Similarly the demand of the people of cities
and towns are different than the people of rural areas. The high rise of population indicates
the easy availability of labour. These encourage the business enterprises to use labour
intensive techniques of production. Moreover, availability of skill labour in certain areas
motivates the firms to set up their units in such area. For example, the business units from
America, Canada, Australia, Germany, UK, are coming to India due to easy availability of
skilled manpower. Thus, a firm that keeps a watch on the changes on the demographic
front and reads them accurately will find opportunities knocking at its doorsteps.
(f) Natural Environment
The natural environment includes geographical and ecological factors that influence the
business operations. These factors include the availability of natural resources, weather
and climatic condition, location aspect, topographical factors, etc. Business is greatly
influenced by the nature of natural environment. For example, sugar factories are set up
only at those places where sugarcane can be grown. It is always considered better to
establish manufacturing unit near the sources of input. Further, government’s policies to
maintain ecological balance, conservation of natural resources etc. put additional
responsibility on the business sector.
RECENT DEVELOPMENTS IN INDIAN ECONOMY
The economic environment of business in India has been changing at a fast rate mainly due
to the changes in the economic policies of the government. At the time of independence,
the Indian economy was basically agrarian with a weak industrial base. To speed up the
industrial growth and solve various economic problems, the government took several steps
like state ownership on certain categories of industries, economic planning, reduced role
of private sector, etc. The Government adopted several control measures on the functioning
of private sector enterprises. All these efforts resulted a mixed response. There was growth
in net national product, per capita income and development of capital goods sector and
infrastructure. But rate of industrial growth was slow, inflation increased and government
faced a serious foreign exchange crisis during eighties. As a result, the government of India
introduced a radical change in economic policies in 1991. This policy abolished industrial
licensing in most of the cases, allowed private participation in most industries, disinvestment
was carried out in many public sector industrial enterprises and opened up the economy
considerably. Foreign Investment Promotion Board was set up to channelise foreign capital
investment in India. Let us discuss the developments under three heads, viz., (a)
Liberalisation, (b) Privatisation, and (c) Globalisation.
(A) LIBERALISATION
Liberalisation refers to the process of eliminating unnecessary controls and restrictions on

6. the smooth functioning of business enterprises. It includes:
(i) abolishing industrial licensing requirement in most of the industries;
(ii) freedom in deciding the scale of business activities;.
(iii) freedom in fixing prices of goods and services;
(iv) simplifying the procedure for imports and exports;
(v) reduction in tax rates; and
(vi) simplified policies to attract foreign capital and technology to India.
Through this liberalisation process, Indian Economy has opened up and started interacting
with the world in a big way. This has resulted in easy entry of foreign business organisations
in India. This has further resulted in stiff competition and efficiency. Ultimately,
liberalisation
has helped us in achieving a high growth rate, easy availability of goods at competitive
rates, a healthy and flourishing stock market, high foreign exchange reserve, low inflation
rate, strong rupee, good industrial relations, etc.
(B) PRIVATISATION
Privatisation refers to reducing the role of public sector by involving the private sectors in
most activities. Due to the policy reforms announced in 1991, the expansion of public
sector has literally come to a halt and the private sector registered fast growth in the
postliberalised
period. The issues of privatisation include:
(i) reduction in the number of industries reserved for the public sector from 17 to 8
(reduced further to 3 later on) and the introduction of selective competition in the
reserved area;
(ii) disinvestment of shares of selected public sector industrial enterprises in order to raise
resources and to encourage wider participation of general public and workers in the
ownership in business;
(iii) improvement in performance through an MOU system by which managements are to
be granted greater autonomy but held accountable for specified results.
In India, as a result of these steps, the post liberalisation phase has witnessed a massive
expansion of the private sector business in India. You can have an idea of their expansion
from the fact that the total capital employed in top 500 private sector companies rose from
Rs. 1,39,806 crores in 1992-93 to Rs. 2, 34, 751 crores in 1994-95 (an expansion of
68% in just two years).
(C) GLOBALISATION
Globalisation means ‘integrating’ the economy of a country with the world economy. This
implies free flow of goods and services, capital, technology and labour across national
boundaries. To achieve these objectives of globalisation, the government has adopted
various measures such as reduction in custom duties, removal of quantitative restrictions
or quotas on exports and imports, facilitating foreign investment and encouragement of
foreign technology. These measures are expected to achieve a higher rate of growth,
enlargement of employment potential, and reduction of regional disparities.
SOCIAL RESPONSIBILITY OF BUSINESS
Every business enterprise is an integral part of the society. It uses the scarce resources of
the society to continue and grow. Hence, it is important that no activity of business is
injurious to the long run interests of the society. However, it is observed that, in practice,
there are a few socially undesirable aspects of business such as, polluting the environment,
non-payment of taxes, manufacturing and selling adulterated products, giving misleading
advertisement and so on. This has resulted in the development of the concept of social
responsibility of business whereby the owners and managers of business are made conscious
about the responsibilities of their business towards the community and its customers, workers

7. etc.
MEANING OF SOCIAL RESPONSIBILITY
Social responsibility of business refers to the obligation of business enterprises to adopt
policies and plans of actions that are desirable in terms of the expectation, values and
interest of the society. It ensures that the interests of different groups of the public are not
adversely affected by the decisions and policies of the business.
SOCIAL RESPONSIBILITIES TOWARDS DIFFERENT GROUPS
It needs to be noted that the responsibilities of those who manage the business cannot be
limited to the owners. They have to take into account the expectations of other stakeholders
like the workers, the consumers, the government and the community and public at large.
Let us now look at the responsibilities of the business towards all these groups.
(a) Responsibility towards the shareholders or owners: The shareholders or owners
are those who invest their money in the business. They should be provided with a fair
return on their investment. You know that in case of companies it takes the form
dividends. It has to be ensured that the rate of dividend is commensurable with the risk
involved and the earnings made. Besides dividends, the shareholders also expect an
appreciation in the value of shares. This is governed primarily by company’s
performance.
(b) Responsibility towards the Employees: A business enterprise must ensure a fair
wage or salary to the workers based on the nature of work involved and the prevailing
rates in the market. The working conditions must be good in respect of safety, medical
facilities, canteen, housing, leave and retirement benefits etc. They should also be paid
reasonable amount of bonus based on the business earnings. Preferably, there should
also be a provision for their participation in management
(c) Responsibility towards the Consumers: A business enterprise must supply quality
goods and services to the consumers at reasonable prices. It should avoid adulteration,
poor packaging, misleading and dishonest advertising, and ensure proper arrangement
for attending to customer complaints and grievances.
(d) Responsibility towards the Government: A business enterprise must follow the
guidelines of the government while setting up the business. It should conduct the business
in lawful manner, pay the taxes honestly and on time. It should not indulge in any
corrupt practices or unlawful activities.
(e) Responsibility towards the Community: Every business is a part and parcel of
our community. So it should contribute towards the general welfare of the community.
It should preserve and promote social and cultural values, generate employment
opportunity and contribute towards the upliftment of weaker sections of the society. It
must take every step to protect the physical and ecological environment of the society.
It should contribute to the community development programmes like public health
care, sports, cultural programmes.
Looking at the importance of the social responsibilities of business towards various groups,
it would have been better if the companies act provided for the reporting of the social
activity in the annual report of the companies. However, a few large companies have been
voluntarily reporting their social performances in their Annual Reports regularly. The
prominent among them are Cement Corporation of India, Indian Oil Corporation, Tata
Iron and Steel Company, Asian paints and ITC. These reports reveal that companies are
becoming eco-friendly and conscious of their role in community development.
Social Responsibility undertaken as reported by some
companies
Larsen and Toubro Ltd. (L&T)
L & T addresses social issues of health and environment with the same

8. professional vigour that it adopts for business issues. L & T believes in the
merits of detailed analysis, planning, implementation and evaluation of results.
Broadly, its corporate social responsibility covers health, safety,
environment and education, surrounding its establishments.
Oil and Natural Gas Corporation Ltd. (ONGC)
ONGC as a responsible corporate citizen is focused on promotion of
vocational education, health care and entrepreneurship in the community
coupled with initiatives in water management and disaster relief in the
country. In recognition of these initiatives, the world council of corporate
governance conferred the Golden Peacock Award to ONGC for
‘Corporate Social Responsibility in Emerging Economies-2006’ at the 7th
International Conference on Corporate Governance held in May 2006 in
London.
Reliance Industries Ltd. (RIL)
Towards community assistance and social development, RIL provides
financial as well as administrative support for supplying drinking under to
villages in the vicinity of its manufacturing site and also established primary
health centers. RIL also helps local school children through distribution of
books annually and offers financial assistance to the cultural functions of
the villagers, and organises medical camps and sports events.
Grasim Industries Ltd. (GIL)
Grasim’s social projects in India’s hinterland are carried out under the
aegis of the Aditya Birla Centre for community initiatives and Rural
Development. Its work is based on the felt needs of the communities. Its
social vision is to make a qualitative difference to the lives of the weaker
sections of the society in proximity to its plants and improve the human
development index of the nation. During the year 2005-06 it reached out
to nearly 6 lakh persons and provided services like health care, child
care, education, mass marriage programme, infrastructure development,
etc. In these humanitarian endeavors, the company partners with the
government, district authorities, village panchayats and other like minded
NGO’s.
BUSINESS ETHICS
The word ‘Ethics’ originated from the Greek word ‘ethos’ meaning character, conduct
and activities of the people based on moral principles. It is concerned with what is right
and what is wrong in human behaviour on the basis of standard behaviour or conduct
accepted by the society. Honesty, truthfulness, compassion, sympathy, feeling of
brotherhood etc. are considered ethical.
Similarly, ethics from business point of view or business ethics are the moral principles,
which guide the behaviour of businessmen or business activities in relation to the society. It
provides certain code of conduct to carry on the business in a morally justified manner.
Running the business without adopting unfair practices, being honest and truthful about
Business Ethics
originated in USA in
1970’s. It
highlighted the
social values
concerning
business and forced
the companies from
practices against
consumer interest

9. and environment
protection.
Importance of Business Environment:
The interaction between the business and its environment helps in identifying the
opportunities for and threats to the business. It open up new frontiers of growth for the
business firms. Environmental analysis makes the task of managers easier in dealing with
business challenges. It helps the firms to analyse the competitors’ strategies and formulate
their own strategies accordingly keeping in mind its own strength and weakness.
Types of Business Environment
(a) Economic environment
(i) Economic Conditions
(ii) Economic Policies
(iii) Economic System
(b) Non-economic environment.
(i) Social Environment
(ii) Political Environment
(iii) Legal Environment
(iv) Technological Environment
(v) Demographic Environment
(vi) Natural Environment
• Recent Developments in Indian Economy
(a) Liberalisation: Liberalisation refers to the process of eliminating unnecessary
controls and restrictions on the smooth functioning of business enterprises.
(b) Privatisation: Privatisation refers to reducing the role of public sector by involving
the private sectors in most activities.
(c) Globalisation: Globalisation means ‘integrating’ the economy of a country with
the world economy. This implies free flow of goods and services, capital,
technology and labour across national boundaries.
• Social Responsibility of Business
Social responsibility of business refers to the obligation of business enterprises to
adopt policies and plans of actions that are desirable in terms of the expectation,
values and interest of the society. It ensures that the interests of different groups of the
public are not adversely affected by the decisions and policies of the business.
• Social Responsibilities Towards Different Groups
(a) Responsibility towards the shareholders or owners
(b) Responsibility towards the Employees
(c) Responsibility towards the Consumers
(d) Responsibility towards the Government
(e) Responsibility towards the Community
• Business Ethics
Business ethics are the moral principles, which guide the behaviour of businessmen or
business activities in relation to the society. It provides certain code of conduct to
carry on the business in a morally justified manner.

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Classificationof BusinessEnvironment:Internal andExternal
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Afterreadingthisarticle youwill learnaboutthe internalandexternal businessenvironment.
Internal Environment:
Survival of a businessdependsuponitsstrengthsandadaptabilitytothe environment.The internal
strengthsrepresentitsinternal environment.Itconsistsof financial,physical,humanand
technological resources.Financial resourcesrepresentfinancial strengthof the company.Fundsare
allocatedoveractivitiesthatmaximise outputatminimumcost,thatis,optimumallocationof
financial resources.
Physical resourcesrepresentphysical assetssuchasplant,machinery,buildingetc.thatconvert
inputsintooutputs.Humanresourcesrepresentthe manpowerwithspecialisedknowledgethat
performsthe businessactivities.
The operative andmanagerial decisionsare takenbythe humanresources.Technological resources
representthe technical know-howusedtomanufacture goodsandservices.Internal environment
consistsof controllable factorsthatcan be modifiedaccordingtoneedsof the external environment.
External Environment:
The external environmentconsistsof legal,political,socio-cultural,demographicfactorsetc.These
are uncontrollable factorsandfirmsadaptto thisenvironment.Theyadjustinternal environment
withthe external environmenttotake advantage of the environmentalopportunitiesandstrive

11. againstenvironmental threats.Businessdecisionsare affectedbybothinternal andexternal
environment.
ADVERTISEMENTS:
The external environmentconsistsof the microenvironmentandmacro environment
1. Micro Environment:
ADVERTISEMENTS:
“The microenvironmentconsistsof factorsinthe company’simmediate environment”.These
factors affectthe performance of acompanyand itsabilitytoserve the customers.Micro
environmentconsistsof customers,suppliers,competitors,publicandmarketintermediaries.
A brief discussionof the firm’smicroenvironmentisasfollows:
(i) Customers:
Customersconstitute importantsegmentof the microenvironment.Businessexiststoserve its
customers.Unlessthere are customers,businesshasnomeaning.A companycanhave different
typesof customerslike,households,producers,retailers,Governmentandforeignbuyers.
ADVERTISEMENTS:
(ii) Suppliers:
Theysupplyinputs(money,rawmaterial,fuel,powerandotherfactorsof production) andhelpin
smoothconductof the business.Firmsshouldremainaware of the policiesof suppliersasincrease in
pricesof inputswill affecttheirsalesandprofits.Shortage of suppliesalsoaffectsthe production
schedules.Firmsshouldhave more thanone suppliersothatchange in policiesof one supplierdoes
not affecttheirproductionschedules.
(iii) Competitors:
Competitorsformimportantpartof the micro environment.Firmscompete tocapture bigshare of
the market.Theyconstantlywatchcompetitors’policiesandadjusttheirpoliciestogaincustomer
confidence.
ADVERTISEMENTS:
(iv) Public:
“A publicisanygroup that has an actual or potential interestinorimpacton an organisation’sability
to achieve itsinterest”.Publiccanpromote or demote company’seffortstoserve the market.The
term‘public’consistsof financial public(banks,financial institutionsetc.),mediapublic(newspapers,

12. radio,televisionetc.),Governmentpublic,customerorganisations,internal public(workersand
managers),local public(neighbourhoodorcommunityresidents) andgeneral public(buyersat
large).Companiesobservethe behaviourof these groupstomake functional policies.
(v) Market intermediaries:
Theyare the linksthathelpto promote,sell anddistribute the productstofinal consumers.Theyare
the physical distributionfirms(transportfirm),service agencies(media firms),financial
intermediaries(banks,insurance companies) etc.thathelpinproducing,marketingandinsuringthe
goodsagainstlossof theft,fire etc.Firmsmaintaingoodrelationswiththemtocarrytheiractivities
smoothly.All thesefactorsare largelycontrollable bythe firmsbuttheyoperate inthe largermacro
environmentbeyondtheircontrol.
2. Macro Environment:
The macro environmentconsistsof the economicandnon- economicvariablesthatprovide
opportunitiesandthreatstofirms.This islargelyuncontrollable and,therefore,firmsadjusttheir
operationstothese environmental factors.
The macro-environmentconsistsof the following:
(a) EconomicEnvironment:
The economicenvironmentconsistsof economicforcesthataffectbusinessactivities.Industrial
production,agriculture,infrastructure,national income,percapitaincome,moneysupply,price
level,monetaryandfiscal policies,population,businesscycles,economicpolicies,infrastructural
facilities,financial facilitiesetc. constitutethe economicenvironment.
The economicenvironmentinfluencesthe activitiesof businessenterprises.Inthe capitalist
economies,firmshave the freedomtochoose the occupation.The economicdecisionstoinvest,
produce and sell are guidedby profitmotives.The factorsof productionare privatelyownedand
productionactivitiesare initiatedbythe private entrepreneurs.
In socialisteconomies,these decisionsare takenbythe publicsectorwhichisguidedmore bysocial
welfare thanprofitmaximisation.The economyiscontrolledbythe central masterplanpreparedby
the State.In a mixedeconomy,publicandprivate sectorsco-existandsinglyorjointlyownthe
factors of production.
Scarce economicresourcesare allocatedovervariousbusinessactivities.Decisionsregarding
allocationof resourceswhichrespecttowhattoproduce,how to produce and forwhomto produce;
nature of technologyandthe techniquesof production,timingof productionetc.differindifferent
economies.Thisconstituteseconomicenvironmentof the economy.
The economicenvironmentaffectsbusinessinthe followingways:
(i) Complete capitalisationorsocialismdoesnotexist.Freemarketeconomyandcentralised
planningexisttogether,thoughinvaryingdegrees.In the worldof liberalisationandglobalisation,
state planningiscombinedwithfree pricingtomake macro-economicdecisionsforbusiness
entrepreneursandwelfare of society.

13. “The economyinwhicha businessoperatesisnotexclusivelyafree enterprise economyusingprices
and markets,butto some extentdirectedorin-directedbyasystemof planning,control,regulation
and coordination.”
(ii) State controlsthe economy(orthe businessenterprises) throughplanningandregulation.It
enforcesuponbusinessenterprisesthe responsibilityof social responsiveness(responsibility
towardssociety) bywelfare-stateprinciplesenactedthroughlegislationthatenforce minimum
wages,commoditycontrol,fairtrade practicesetc.Legislative machinerypromoteseconomic
growth,efficiencyandequity.Socialresponsibilityisthe outcome of businessinteractionwith
economicenvironment.
(iii) Some businessfirmsare positivelyaffectedbythe Governmentpolicywhileothersare negatively
affected.A restrictive importpolicy,forexample,protectshome industriesbutliberal importpolicy
can harm the domesticindustries.
(iv) The incentivesanddisincentivesprovidedbythe Governmentaffectbusinessenterprisesin
manyways.To enjoythe economiesof scale,firms establishthe businessinlarge citiesbutthe
Governmentpromotesthemtoestablishtheirunitsinbackwardareasbyprovidingvarioustax
incentives.The economicenvironmentof acountry,thus, removesregionaldisparitiesandpromotes
equitable growth of the economy.
(v) By providingincentivesinthe prioritysectorthatproduce essential goodsforthe economy,the
Governmentpromotesindustrialsectorof the economy.
(vi) Moderneconomiesare opensystems.The economicenvironmentof one countryaffectsthe
economicenvironmentof anothercountry.Multinationalcorporationsoperateworld-wideand
provide anumberof benefitstohostcountriesandhome countries.Thishasdevelopedscienceand
technologyandunifiedthe worldeconomy.
The economicsystemhelpsinansweringquestionslike:
1. Is it the righttime to setup the business?
1. Can newproductsbe addedtothe productline?
2. Is the market size large enoughtoprovide desiredrate of returns?
3. Is the environmentconducive intermsof availabilityof manpower,infrastructure,raw material,
finance,building,plantandmachineryetc.?
The economicenvironment,thus,playsvitalrole inshapingthe culture of the economy.Market
forcesand State planningprovide the constraintswithinwhichbusinessenterprisescarryouttheir
functions.“Progressive managementmustkeepitselfcontinuouslyinformedaboutthe magnitude
and directionof changesinnational aswell asinternational economicenvironment.”
(b) Non-EconomicEnvironment:

14. It consists of socio-cultural,demographic,natural,physical,technological,political andlegal
environmentthatinfluence andare influencedbythe economicenvironment.A large numberof
variablesaffectthe non-economicenvironment.
Some of the importantareasof non-economicenvironmentare discussedbelow:
(i) Political-legalenvironment:
It isthe legislative,executiveandjudicial environmentof the countrythatshapesandcontrols
businessactivities.The legislature describesthe lawsandcoursesof actiontobe followedbyfirms,
the executive implementsthe decisionstakenbythe legislature (Parliament) andthe judiciary
ensuresthatlegislatureandexecutivefunctioninthe interestof the society.A stable political
environmentisconducive tobusinessgrowth.
A businessoperatesinthe environmentof Governmentregulations.Variouslawsare made to
regulate the functionsof businessenterprises.Theyrelate tostandardsof product,packagingof
products,protectionof environmentalandecological balance,banonadvertisementof certain
products(liquor),advertisementof certainproductswithstatutorywarning(cigarette) etc.
There are lawsto preventrestrictive trade practicesandconcentrationof economicpowerinfew
hands.Regulationspromote entryof firmsinbackwardareasand productsare reservedforsmall-
scale sector.Liberalisationpolicieshave allowedthe Indianindustriestooperate ininternational
marketsand foreigncompaniestooperate inIndianmarkets.Thisallowsgrowthanddiversification
of marketsandaccess to advancedscience andtechnologyforIndianentrepreneurs.Atthe same
time,itthreatensthe small Indiancompaniesthatcannotcompete withlarge foreigncompanies.
The political-legalenvironmentprovidesahostof lawsandregulationsthataffectthe business
affairs.Itprovidesopportunities,threatsandchallengesforthe businessenterprises.The
Governmentinteractswithbusinessenterprisesatthe local level,State level andthe Central level
and regulatestheirfunctionsthroughvariousrulings.
Governmentinteractswiththe businessinthe followingways:
1. As a regulator:
It regulatesthe affairsof the businessbypromotingactivitiesincertainareasandrestrictingin
others.These regulationsprevent unhealthycompetitionamongstfirmsandprotectconsumers’
interestsagainstfalse advertisingandunfairtrade practices.
The political andlegal environment,thus,performstwoimportantroles:
(a) Promotionrole:
It stimulatesbusinessenterprisesby providingincentiveseithertosmall-scalesectorintermsof
reservinggoodsforthemwhichcannotbe producedbylarge-scale businesshouses,bigindustrial
housestosetup in backwardareas,providingdevelopmentfacilitiestoindustries(industrial estates,
financingfacilityetc.).
(b) Restrainingrole:

15. Businessorganisationshave toworkwithinthe legal frameworkof the country.Lawshave tobe
obeyedandjudicial interpretationshave tobe followed.
2. As a supplier:
It suppliesresourcestobusinessconcerns.
3. As a competitor:
It competeswithprivate entrepreneursinareaslike telecommunication,electricity,constructionetc.
4. As a customer:
It supportsbusinesshousesbybuyingtheirproducts.
Firmsshouldhave healthyinteractionwiththe Government.Theyshouldindulgeinactivitiesthat
promote economicgrowthandknowthe legal system.
Some of the lawsthatexistinthe countryfor smoothoperationof businessenterprisesare as
follows:
EconomicLaws [Air(PreventionandControl of Pollution) Act,1981; ConsumerProtectionAct,1986;
Essential CommoditiesAct,1955; ForeignExchange ManagementAct,1999; ForeignTrade
(Development&Regulation) Act,1992; Industries(Development&Regulation) Act,1951; Patents
Act, 1970; Standardsof WeightsandMeasuresAct, 1976; Trade Marks Act,1999],
The political-legalsystemhelpsinansweringquestionslike:
a) Is the political climatestable inthe countrysothatgovernmentpoliciesdonotchange time and
again?
b) Do the political organisationspromotebusinessactivities,thatis,processingof paperworkis
done withoutmuchdelaybecause of bureaucracyandredtapism?
c) Is the judiciaryeffectiveindecision-makingtodeal withbusinessconflictsandlaw suits?
d) Are the governmentpoliciesconducivetobusinessgrowthintermsof incentives,markets,
taxationetc.
e) Are the licensingproceduresforenteringintoanew businesslenientorstrict?
f) How conducive are the exportandimportpoliciestopromote the importsandexports,etc.?
(ii) Socio-cultural environment:
It representsthe values,culture,beliefs,normsandethicsof the societyinwhichbusiness
enterprisesoperate.People are importanttoorganisationsbothashumanresource andcustomers.
Theirbuyinghabits,buying capacities,tastes,preferencesandeducationaffectbusinessenterprises.
Firmschange theirproductionandmarketingplansaccordingtoconsumerdemand.The social
environmentconsistsof the social values;concernforsocial problemslike protectionof

16. environmentagainstpollution,providingemploymentopportunities,healthcare forthe aged and
oldetc.; consumerism, thatis,indulginginfairtrade practicesto satisfyhumanwants.
The cultural environmentrepresentsvaluesandbeliefsof the society. These beliefsmouldthe
attitudesof people andhelpbusinessenterprisesdetermine theirneedperception.The socio-
cultural environmenthelpsfirmssupportthe social andcultural valuesof societybyencouragingfine
arts projects,sports,communicationmedia,donationstoeducational,religiousandcharitable
institutions,counselingcenters,vocational andtechnicaltrainingcentresetc.
The socio-cultural environment,thus,affects:
(a) Businessobjectives:
Social objectivesare framedalongwitheconomicobjectivesasthe societydemandsbusiness
organisationstolookaftertheirinterests.
(b) Organisational processes:
Variousorganisationalprocesseslikemotivation,leadership,control policiesetc.are framedwithin
the constraintsof cultural systemof the country.Workforce diversityispromoted,participative
decision-makingisencouraged,democraticleadershipstyle isadoptedasthe employeesdemandso
to promote theircommitmenttowardsthe organisation.
(c) Goods and servicestobe produced:
Thoughbusinesshousesproduce goodsthatearnthemprofits,itisequallyimportantthatthese
goodsare desiredbythe society.Sociallyacceptablegoodspromote bothbusinessimageand
profits.
The socio-cultural systemhelpsinansweringquestions like:
i.What are the expectationsof societyfromthe business?
ii.Can the businessmeetthese expectations?
iii.Are social objectivespartof the overall objective frameworkof the company?
iv.Do the businessoperationsmeetthe ethical andvalue systemof the societyandif not,isthe
change possible etc.?
(iii) Technical environment:
Technologyreferstoapplicationof scientificandorganisedknowledgetoorganisationaltasks.It
includesinventionsandinnovationsregardingtechniquesof production.Technologyischangingata
fastpace and technical environmentisdramaticallyaffectingthe businessenvironmenteither
because of easyimportpoliciesorbecause of technologyupgradationasaresultof researchand
developmentwithinthe country.
The technological advanceshave introducedproductslike robots,telecommunicationfacilities,
medicines,equipment’setc.Businessfirmsadapttothe fast changingtechnical environment.

17. Thoughtechnological changescanproduce harmful effectsalsoforthe enterprises,firmstryto
reduce these effectsanduse technological changesinthe bestinterestof firmsandsociety.Not
adoptingtechnological changesisnotpossible;technical threatshave tobe convertedinto
opportunitiesandgainfullyemployedin businessoperations.
The technical environmenthelpsinansweringquestionslike:
a) What type of technologyisavailableinthe environmentandwhattype of technologyisneededby
the firm?
b) If the technologyavailable isnotsuitableforthe firm’soperations,doesitneedtoimportthe
technologyorupgrade the indigenoustechnology?
c) At whatrate are changestakingplace intechnologyandhow fastare theylikelytoresultin
technological obsolescence?
d) What isthe firm’sfinancial strengthinkeepingitself updatedregardingtechnological changes?
etc.
(iv) Demographicenvironment:
It consistsof populationinitsvariedforms,suchasgender,age,income,growthrate,language,
religion,etc.Increasingpopulationincreasesthe demandforbusinessproductsandalsoprovides
labourat lowrate. A largelypopulatedcountrycanadoptlabour-intensivetechnologytokeepthe
labourforce employed.
The age compositionhelpstoproduce goodstomeetthe needsof that group.Productionisalso
affected bygendercomposition.More femaleswill promotethe enterprisestoproduce goodsused
by females.Labourmobility(fromrural tourban areasand vice versa),theireducational level,
nationality,religion,etc.alsoaffectpoliciesof the organisations.
The demographicenvironmenthelpsinansweringquestionslike:
(a) What is the genderandage compositionof the market?
(b) What isthe income andeducationlevel of the consumers?
(c) How stronglydoconsumersbelieve inbrandloyalty?
(d) How can the firmcreate patronage?etc.
(v) Natural environment:
The natural environmentconsistsof the renewable andnonrenewable resourcesusedinthe
productionprocesses.The renewable resourcesare air,waterandsolar energywhichcanbe
replenishedandnon-renewable resourcesare oil,coal,woodetc.whichcannotbe replenished.
Thoughair, waterand solarenergycan be replenished,firmsare harmingthese resourcesby
dumpingindustrialwastesinwaterandpollutingthe airandaffectingthe ozone layer.Increasing
industrializationisaffectingthe natural environmentbydisposingoff chemical wastesinland,air

18. and water.It alsoaffectsthe foodsupplywhichcanbe harmful onconsumption.“The environment
damage to water,earthand air causedbyindustrial activityof mankindisharmful forfuture
generations.”
Businessenterprisesshoulduse these resourceswiselyandadoptmethodstorestrictenvironmental
pollution.Legislative measuresare alsoenforcedbythe Government(PollutionControlBoard) to
protectthe natural environment.Eventhe renewable resourcesshouldbe usedwiselysothatrate
of consumptiondoesnotexceedthe rate of replenishment.
The natural environmenthelpsinansweringquestionslike:
(a) Are businessactivitiesconducive tonatural environment?
(b) If not, are suitable measurestakentoprotectthe environment?
(c) How far can the businessfollowthe legislativemeasuresinprotectingthe natural environment,
etc.?
(vi) International environment:
It representsthe global environmentcharacterisedbythe “borderlessworld”.The Indianeconomy
enteredthe global worldin1991 throughitsliberalisationpolicies.There have beensignificant
economicandpolitical changesandincreasingrole forthe private sectorto playsince then.
The global businessenvironmentissignificantlyinfluencedbythe principlesandagreementsof
WorldTrade Organisation(WTO).WTOmonitorsandregulatesthe businesstransactedinthe
international environment.
It has createdsignificant impactinthe followingareas:
1. Liberalisationof imports.
2. OpportunitiesforIndianfirmstoenterintoforeignmarketsthroughexportsandinvestments.
3. SeekforeignequityparticipationandforeigntechnologyinIndianfirmstoexpandbusinessand
improve competitiveness.
4. Facilitate global sourcingbyIndianfirms.
5. Benefitfromglobal sourcingbyforeignfirms.
6. Improve efficiencyanddynamismof the firmstosurvive inthe global competition.Inefficient
firmshave to leave the market.
RelatedArticles:
Dimensionsof BusinessEnvironmentthatInfluencesthe Performance of ManyFirms
BusinessEnvironment:The Elementsof BusinessEnvironment(1968 Words)

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Unit-3
New Industrial Policy of the Government:
liberalization, deregulation and privatisation
The Industrial Policy specifies the relevant roles of the public, private, joint and co-operative
sectors; small, medium and large scale industries. It emphasises the national significances and the
financial development strategy. It also explains the Government’s policy towards industries, their
establishment, functioning, progress and management; foreign capital and technology, labour policy,
and tariff policy. The Industrial Policy of India has determined the pattern of financial and industrial
development of the economy. The Industrial Policy revealed the socio-economic and political
philosophy of development (Gupta, 1995).
Main objectives of New Economic Policy -1991
The mainobjectivestolaunchneweconomicpolicy(NEP) in1991 are as follows:
The main objective wastoplunge Indianeconomyintothe fieldof ‘Globalizationandtogive ita
newdrive onmarketorientation.
The neweconomicpolicyintendedtoreduce the rate of inflationandtoremove imbalancesin
payment.
It intendedtomove towards highereconomicgrowthrate andto buildsufficientforeignexchange
reserves.
Neweconomicpolicyaimedtoaccomplisheconomicstabilizationandtoconvertthe economic
policiesintoa marketeconomybyremovingall kindsof unnecessaryrestrictions.
New economicpolicywantedtopermitthe international flowof goods,services,capital,human
resourcesandtechnology,withoutmanyrestrictions
NewEconomic Policies: Liberalization, deregulation, Privatization
In 20th century, there has been a wave of economic policy transformations in the developing
world, with one country after another taking the liberalization cure, often imposed by the
international financial institutions. This wave of reform had been preceded by a quarter century of
state directed effort at economic development, during which time the goals of economic self-reliance
and import substitution industrialization were the trademarks of development strategies in
developing countries. These goals seemed particularly justified, given the long experience of these

24. countries with colonialism and the agricultural nature of their economies. However, all this seemed
to be overtaken by the successive flow of liberalization (Gupta, 1995).
Privatization: Privatization is strongly related with the phenomena of globalization and
liberalization. Management scholars described Privatization as the transfer of control of ownership
of economic resources from the public sector to the private sector. It means a decline in the role of
the public sector as there is a shift in the property rights from the state to private ownership.
Privatization is a managerial approach that has fascinated the interest of many groups of people,
academicians, politicians, government employee companies of the private sector and public. It is
observed that the public sector has several issues, since planning, such as low efficiency and
profitability, mounting losses, excessive political interference, lack of autonomy, labour problems
and delays in completion of projects. In order to overcome these issues, new industrial policy’1991,
initiated the process of privatization into the Indian economy.
Another term for privatization is Disinvestment. The objectives of disinvestment were to raise
resources through sale of PSUs to be directed towards social welfare expenditures, raising efficiency
of PSUs through increased competition, increasing consumer satisfaction with better quality of goods
and services, upgrading technology and most importantly removing political intervention.
Concept ofprivatization:
According to Steve H. Hanke, Privatization is the process whereby the public operations are
transferred to the private sector. Barbara Lee and John Nellis define the notion of privatization as the
general process of involving the private sector in the ownership or operation of a state-owned
enterprise. There this phrase to private purchase of all or part of a company. It cover “contractedly
out” and the privatization of management through management contracts leases or franchise
arrangements. Privatization refers to any process that reduces the involvement of the state,public
sector in economic activities of a nation.
Main objective ofprivatization:
The process of Privatization has been generated with the main intention of improving industrial
efficiency and to assist the inflow of foreign investments.
It also wants to make the public sector undertakings strong, able efficient companies. It recommends
a change in the role of the government from that of the “owner manager” to that of a mere
“controller” or regular'
It also has aim to ensure proficient utilization of all types of resources including human resources.
Privatization insists on the government to concentrate on the area such as education administration
and infrastructure and to give up the responsibility of looking after business and running industries.
It is expected to strengthen the capital market by following appropriate trade policies.
Privatization can be ofthree prominent types:
1. Delegation: Government keeps hold of responsibility and private enterprise handles fully or partly
the delivery of product and services.
2. Divestment: Government surrenders the responsibility.
3. Displacement: The private enterprise expands and gradually displaces the government entity.
Privatizationin India:
In India, Privatization has been acknowledged with a lot of confrontation and has been dormant
initially during the initiation of economic Liberalization in the country. Privatization is also one of the
aspects of the new economic policy which came to take shape in the decade 1990. In India, massive
Privatization was done in the decade of 1980s when Rajiv Gandhi assumed office as the Prime
minister of India. The issue of Privatization in India has to be understood in the context of the relative
incompetence of the public sector industries, lack of financial resources,defective competition
system, and continuous labour problem.
When India became independent, it embarked upon planned economic development. In order to
increase the economic development, it gave more importance to the public-sector on which the
Government had its control. The Industrial Policy Resolution of 1956 also gave importance to the
public sector industries. The growth of the public sector assume importance in the Indian economy. It

25. contributed to employment opportunities, capital formation, development of infrastructure, and
increase in exports over the years,and many other areas. But it failed in certain respects such as to
generate adequate surpluses to support sustained growth. The public sector was also a failure in
obtaining consistent revenues, fulfilling labour demands and interests, encouraging industrial
researches,reducing the cost of the production, achieving technical expertise, and in successfully
facing the competition at the hand of the private sector. Gradually, a new industrial policy started
taking its shape. The principle of this policy is marketed forces must be allowed to play their role in
shaping the economy.
The main aspects of privatization in India are as follows:
1. Autonomy to Public sector: There was more sovereignty to selected PSUs referred to as
‘Maharatnas’(CIL,ONGC,NTPC,SAIL & IOL) and ‘Navaratnas’(BEL,HPCL,BPCL,BHEL,
GAIL etc.) to take their own decisions.
2. De-reservation of Public Sector: The number of industries reserved for the public sector were
reduced in a phased manner from 17 to 8 and then to only 3 including Railways, Atomic energy,
Specified minerals. This offers opportunities for more areas of investment for the private sector and
increased competition for the public sector forcing greater accountability and efficiency.
3. Disinvestment Policies: Till 1999-2000 disinvestment was done basically through sale of minority
shares but since then the government has undertaken strategic sale of its equity to the private sector
handing over complete management control such as in the case of VSNL and BALCO.
Advantages ofprivatization: 1. Efficiency, Absences of political interference,Quality service,
Systematic marketing Use of freedom technology.
2. Accountability.
3. Innovation.
4. Research and development.
5. Infrastructure.
Arguments in favour of privatization:
1. Privatization is necessary to revitalize the state owned enterprises.
2. Privatization is necessary to face global competition.
3. Privatization is needed to create more employment opportunities in future.
4. Helpful for mobilizing and investing resources.
5. Recognition of talents and good performance of work.
Argument against privatization:
1. Profitability alone should not become the sole yardstick to measure efficiency
2. Role of public sector undertaking from the socio-economic angle also cannot be overlooked.
3. Protection of the interests of the weaker section.
4. Price fixing policy here is not profit oriented.
5. Argument that the private sector is more efficient than the public sector is not right.
Though privatization offers some advantages to companies such as increased efficiency, it has an
adverse impact on the employee morale and creates fear of dislocation or termination.
Private sector focuses more on profit maximization and less on social objectives unlike public sector
that initiates socially viable adjustments in case of emergencies and criticalities (Lokyo, S., 2012).
There is lack of transparency in private sector and stakeholders do not get the complete information
about the functionality of the enterprise (Ahmad, 2011). Privatization has provided the excessive
support to the corruption and illegitimate ways of accomplishments of licenses and business deals
amongst the government and private bidders. Lobbying and corruption are the common issues
tarnishing the practical applicability of privatization (Ahmad, 2011).
Privatization loses the task with which the enterprise was established and profit maximization agenda
boosts misconducts like production of lower quality products, elevating the hidden indirect costs,
price escalation etc. (Lokyo, S., 2012).
Privatization results in high employee turnover and a lot of investment is required to train the lesser-
qualified staff and even making the existing manpower of PSU abreast with the latest business
practices (Lokyo, S., 2012).

26. There can be a clash of interest amongst stakeholders and the management of the buyer private
company and initial confrontation to change can impede the performance of the enterprise (Ahmad,
2011).
Privatization heightens price rise in general as privatized enterprises do not enjoy government
subsidies after the deal and the burden of this inflation affects the common man.
To summarize, it can be reviewed that economy of country depends on industrialization. Industrial
policy is meant for all those principles, rules, regulations, and procedures concerning the rate of
growth, the ownership, location pattern, and functions of industrial undertaking in the country in way
to industrialization.
Deregulation, competitive efficiency and globalization are three major factors of new industrial
policy. It is well established that Indian economy is a vibrant economy that exhibit remarkable
potential of growth. Globalization, liberalization and privatization are major strategic mandates for
economic policies. Market oriented reforms are sustainable and are gaining acceptance with
resistance to privatization going down due to the benefits like improved efficiency through target
oriented management and disposition of public funds into social and physical infrastructure of the
nation
Social Responsibilities of Business
You know that business is an economic activity, which is carried out on a regular basis to
earn profit. However, you must have seen businessmen spending money on different aspects,
which is not going to give them any profit straightway. For example, you must have seen
businessmen maintaining and developing gardens and parks on streets and squares in cities.
Some businessmen engage themselves in research for improving the quality of products;
some provide housing, transport, education and health care to their employees and their
families. In some places businessmen provide free medical facility to poor patients.
Sometimes
they also sponsor games and sports at national as well as international level. Did you ever
wonder why they do so?
Let us learn more about why businessmen engage themselves in such activities.
Objectives
After studying this lesson, you will be able to:
explain the concept of social responsibility of business;
appreciate the importance of social responsibility;
recognize the responsibility of business towards different interest groups;
explain the concept of social values and business ethics;
identify the causes of environmental pollution; and
describe the role of business in preventing and controlling environmental pollution.
What is Social Responsibility
In your daily life, you perform a number of activities. For example, brushing your teeth,
listening to your parents, showing respect to elders obeying traffic rules on road etc. Now
Business Studies
why do you perform all these activities? It is because you live in a family as well as in a
society and the members of your family as well as the society want you to do all of them.
They do several things for you and expect something from you, which you must do. The
expectations of the family or society become your obligations, which you need to fulfill. For
example, taking care of your parents or children, keeping the road clean by not throwing
garbage on it, etc. There are also obligations towards yourself, which you need to fulfill.

27. For example, taking food timely, going to sleep early at night, etc. that keep you fit and takes
care of your health. Now you fulfill all these obligations by performing certain activities
which are called your responsibilities. Any responsibility you have, particularly towards
members of the society with whom you interact or towards the society in general, are called
your social responsibility.
This is true in case of business also. As we know, every business operates within a society.
It uses the resources of the society and depends on the society for its functioning. This
creates an obligation on the part of business to look after the welfare of society. So all the
activities of the business should be such that they will not harm, rather they will protect and
contribute to the interests of the society. Social responsibility of business refers to all such
duties and obligations of business directed towards the welfare of society. These duties can
be a part of the routine functions of carrying on business activity or they may be an additional
function of carrying out welfare activity.
Let us take an example. A drug-manufacturing firm undertakes extensive research and
thus, produces drugs which are qualitatively superior. It also provides scholarships or
fellowships to the family members of its employees for studying abroad. We find, in both the
cases, the drug-manufacturing firm is carrying out its social responsibility. In case of the
former, it is a part of its routine business function while in the latter case it is a welfare
function.
Conceptof SocialResponsibility
We all know that people engage in business to earn profit. However, profit making is not
the sole function of business. It performs a number of social functions, as it is a part of the
society. It takes care of those who are instrumental in securing its existence and survival
like- the owners, investors, employees, consumers and government in particular and the
society and community in general. So, every business must contribute in some way or the
other for their benefit. For example, every business must ensure a satisfactory rate of return
to investors, provide good salary, security and proper working condition to its employees,
make available quality products at reasonable price to its consumers, maintain the
environment
properly etc.
However, while doing so two things need to be noted to view it as social responsibility of
business. First, any such activity is not charity. It means that if any business donates some
amount of money to any hospital or temple or school and college etc., it is not to be
considered
as discharge of social responsibility because charity does not imply fulfilling responsibility.
Secondly, any such activity should not be such that it is good for somebody and bad for
others. Suppose a businessman makes a lot of money by smuggling or by cheating customers,
and then runs a hospital to treat poor patients at low prices his actions cannot be socially
justified. Social responsibility implies that a businessman should not do anything harmful to
the society in course of his business activities.
The obligation of any
business to protect and
serve public interest is
known as social responsibility
of business
Social Responsibilities of Business
Thus, the concept of social responsibility discourages businessmen from adopting unfair
means like black-marketing, hoarding, adulteration, tax evasion and cheating customers
etc. to earn profit. Instead, it encourages them to earn profit through judicious management
of the business, by providing better working and living conditions to its employees, providing

28. better products, after sales-service, etc. to its customers and simultaneously to control
pollution and conserve natural resources.
Why should business be socially responsible
Social responsibility is a voluntary effort on the part of business to take various steps to
satisfy the expectation of the different interest groups. As you have already learnt, the interest
groups may be owners, investors, employees, consumers, government and society or
community. But the question arises, why should the business come forward and be
responsible
towards these interest groups. Let us consider the following points:
i. Public Image - The activities of business towards the welfare of the society earn goodwill
and reputation for the business. The earnings of business also depend upon the public
image of its activities. People prefer to buy products of a company that engages itself
in various social welfare programmes. Again, good public image also attracts honest
and competent employees to work with such employers.
ii. Government Regulation - To avoid government regulations businessmen should
discharge their duties voluntarily. For example, if any business firm pollutes the
environment it will naturally come under strict government regulation, which may
ultimately force the firm to close down its business. Instead, the business firm should
engage itself in maintaining a pollution free environment.
iii. Survival and Growth -Every business is a part of the society. So for its survival and
growth, support from the society is very much essential. Business utilizes the available
resources like power, water, land, roads, etc. of the society. So it should be the
responsibility of every business to spend a part of its profit for the welfare of the
society.
iv. Employee satisfaction - Besides getting good salary and working in a healthy atmosphere,
employees also expect other facilities like proper accommodation, transportation,
education and training. The employers should try to fulfill all the expectation of the
employees because employee satisfaction is directly related to productivity and it is
also required for the long-term prosperity of the organisation. For example, if business
spends money on training of the employees, it will have more efficient people to work
and thus, earn more profit.
v. Consumer Awareness - Now-a-days consumers have become very conscious about
their rights. They protest against the supply of inferior and harmful products by forming
different groups. This has made it obligatory for the business to protect the interest of
the consumers by providing quality products at the most competitive price.
Responsibility Towards Different Interest Groups
After getting some idea about the concept and importance of social responsibility of business
let us look into the various responsibilities that a business has towards different groups with
whom it interacts. The business generally interacts with owners, investors, employees,
suppliers, customers, competitors, government and society. They are called as interest groups
because by each and every activity of business, the interest of these groups is affected
directly or indirectly.
Business
Investors
Employees
Government
Competitors Society
Customers
Suppliers
Responsibility of Business Towards Different Interest Groups.
i. Responsibility towards owners

29. Owners are the persons who own the business. They contribute capital and bear the business
risks. The primary responsibilities of business towards its owners are to:
a. Run the business efficiently.
Owners
Social Responsibilities of Business
b. Proper utilisation of capital and other resources.
c. Growth and appreciation of capital.
d. Regular and fair return on capital invested.
ii. Responsibility towards investors
Investors are those who provide finance by way of investment in debentures, bonds, deposits
etc. Banks, financial institutions, and investing public are all included in this category. The
responsibilities of business towards its investors are :
a. Ensuring safety of their investment,
b. Regular payment of interest,
c. Timely repayment of principal amount.
iii. Responsibility towards employees
Business needs employees or workers to work for it. These employees put their best effort
for the benefit of the business. So it is the prime responsibility of every business to take care
of the interest of their employees. If the employees are satisfied and efficient, then the only
business can be successful. The responsibilities of business towards its employees include:
a. Timely and regular payment of wages and salaries.
b. Proper working conditions and welfare amenities.
d. Opportunity for better career prospects.
e. Job security as well as social security like facilities of provident fund, group
insurance, pension, retirement benefits, etc.
f. Better living conditions like housing, transport, canteen, crèches etc.
g. Timely training and development.
iv. Responsibility towards suppliers
Suppliers are businessmen who supply raw materials and other items required by
manufacturers and traders. Certain suppliers, called distributors, supply finished products
to the consumers. The responsibilities of business towards these suppliers are:
a. Giving regular orders for purchase of goods.
b. Dealing on fair terms and conditions.
c. Availing reasonable credit period.
d. Timely payment of dues.
v. Responsibility towards customers
No business can survive without the support of customers. As a part of the responsibility of
business towards them the business should provide the following facilities:
a. Products and services must be able to take care of the needs of the customers.
b. Products and services must be qualitative
c. There must be regularity in supply of goods and services
Business Studies
d. Price of the goods and services should be reasonable and affordable.
e. All the advantages and disadvantages of the product as well as procedure to use
the products must be informed do the customers.
f. There must be proper after-sales service.
g. Grievances of the consumers, if any, must be settled quickly.
h. Unfair means like under weighing the product, adulteration, etc. must be avoided.

30. vi. Responsibility towards competitors
Competitors are the other businessmen or organizations involved in a similar type of
business.
Existence of competition helps the business in becoming more dynamic and innovative so as
to make itself better than its competitors. It also sometimes encourages the business to
indulge in negative activities like resorting to unfair trade practices. The responsibilities of
business towards its competitors are
i. not to offer exceptionally high sales commission to distributers, agents etc.
ii. not to offer to customers heavy discounts and /or free products in every sale.
iii. not to defame competitors through false or ambiguous advertisements.
vii. Responsibility towards government
Business activities are governed by the rules and regulations framed by the government. The
various responsibilities of business towards government are:
a. Setting up units as per guidelines of government
b. Payment of fees, duties and taxes regularly as well as honestly.
c. Not to indulge in monopolistic and restrictive trade practices.
d. Conforming to pollution control norms set up by government.
h. Not to indulge in corruption through bribing and other unlawful activities.
viii. Responsibility towards society
A society consists of individuals, groups, organizations, families etc. They all are the
members
of the society. They interact with each other and are also dependent on each other in almost
all activities. There exists a relationship among them, which may be direct or indirect.
Business,
being a part of the society, also maintains its relationship with all other members of the
society. Thus, it has certain responsibilities towards society, which may be as follows:
a. to help the weaker and backward sections of the society
b. to preserve and promote social and cultural values
c. to generate employment
d. to protect the environment
e. to conserve natural resources and wildlife
f. to promote sports and culture
g. to provide assistance in the field of developmental research on education, medical
science, technology etc.
Social Responsibilities of Business
Social Values and Business Ethics
Every society generally views certain activities, conduct and behaviour of its members to be
undesirable or harmful to others. Similarly, desirable acts and conduct of people are
recognised
and appreciated in society. Social values refer to the general recognition in society about
which acts are good and desirable on the part of people and which acts are not. In relation
to business, social values of business may indicate:
a. the characteristics of good business;
b. objectives which are desirable for business to follow; and
c. the manner in which business activities should be conducted in the interest of
society.
For example, we consider it bad, if any business indulges itself in selling adulterated
goods

31. or charging higher price or polluting the environment. Thus, social values of the
business
form the base for social responsibilities.
Business Studies
Ethics refers to conduct and activities of people based on moral principles. Honesty,
truthfulness, compassion, sympathy, feeling of brotherhood etc. are considered ethical.
Business can also be guided by certain moral principles say, running the business without
adopting unfair practices, being honest and truthful about quality of goods, charging fair
prices, abiding to laws, paying taxes, duties and fees to the government honestly. The basic
question underlying business ethics is whether business should aim at earning profit by any
means? Obviously, not. Thus, businessmen should charge only fair price for the goods and
services supplied, never sell adulterated products as pure. Indeed business ethics suggest
certain principles to conduct business so as to be morally justified. Just like social values,
business ethics also play a major role while fulfulling social responsibilities.
Multinational Corporations of India :
Characteristics, Growth and Criticisms
Multinational Corporations of India : Characteristics, Growth and Criticisms!
Multinational Corporations (MNCs) or Transnational Corporation (TNC), or Multinational
Enterprise (MNE) is a business unit which operates simultaneously in different countries of the
world. In some cases the manufacturing unit may be in one country, while the marketing and
investment may be in other country.
In other cases all the business operations are carried out in different countries, with the strategic head
quarters in any part the world. The MNCs are huge business organisations which extend their
business operations beyond the country of origin through a network of industries and marketing
operations.
They are multi-process and multi-product enterprises. The few examples of MNCs, are, Sony of
Japan, IBM of USA, Siemens of Germany, Videocon and ITC of India, etc. There are over 40,000
MNCs with over 2, 50,000 overseas affiliates. The top 300 MNCs control over 25 percent of the
world economy.
Previously American based multinationals ruled the world, but today, many Japanese, Korean,
European and Indian multinational companies have spread their wings in many parts of the world.
Before entering into any country, at the headquarters of MNCs, experts from various fields such as
political science, economics, commerce international trade and diplomacy are analysing the business
environment of a country and advising the top management.

32. List of Multinational Corporations:
1. ABN-Amro
2.Aditya Birla
1.Honda
2.HSBC
3. Accenture 3. Huawei
4.. Airbus 4. Hutchison Whampoa
Limited
5. Apple Computer 5. IBM
6. AOL 6. ITC
7. Atari 7. Infosys
8. AXA 8. Ingersoll Rand
9. Bacardi 10. Jardine Matheson
11. Barrick Gold Corporation 12. KPMG
13. BASF 13. Krispy Kreme
14. Bayer 14. Kyocera
15. Billabong 15. LG
16. BMW 16. Lockheed Martin
17. Boeing 17. Maxis
18. Bombardier 18. Microsoft
19. BP 19. Monsanto
20. Brantano Footwear 20. Master foods
21. Cadbury 21. News Corporation
22. Citigroup 23. Nike, Inc.
23. CoCa Cola Co. 23. Nat west
24. Daimler-Chrysler 24. Nintendo
25. Dell 25. Nissan

33. 26. Dutch East India Company 26. Nokia
27. EA 27. Nortel Networks
28. Ernst & Young 28. Parmalat
29. Exxon 29. Pepsi Co
30. Epson 30. Petronas
31. Fiat 31. Pfizer
32. Fonterra 32. Philips
33. Ford 33. Proctor & Gamble
34. General Electric 34. Regus
35. General Motors 35. Shell
36. Google 36. Samsung
37. Halliburton 37. Schlumberger
38. Hearst Corporation 38. Siemens
39. Hewlett Packard (HP) 39. Sony
40. Hindustan Computers Limited 41. Square/Square Enix
41. Hitachi 41. Tata Consultancy Services
42. Toshiba 43. Wipro Ltd.
44. Toyota 44. The Walt Disney Company
45. Videocon 45. Xerox
46. Vodafone 46. Yahoo!
47. Wal-Mart Stores inc. 47. Yakult
Characteristics ofMultinationals:
MNCs will always look out for opportunities. They carry out risk analysis, and send their personnel
to learn and understand the business climate. They develop expertise understanding the culture,
politics, economy and legal aspects of the country that they are planning to enter.
The essential element that distinguishes the true multinational is its commitment to manufacturing,
marketing, developing R&D, and financing opportunities throughout the world, rather than just
thinking of the domestic situation.
Some of characteristics of MNCs are:
(i) Mode of Transfer:
The MNC has considerable freedom in selecting the financial channel through which funds or profits
or both are moved, e.g., patents and trademarks can be sold outright or transferred in return through
contractual binding on royalty payments.

34. Similarly, the MNC can move profits and cash from one unit to another by adjusting transfer prices
on intercompany sales and purchases of goods and services. MNCs can use these various channels,
singly or in combination, to transfer funds internationally, depending on the specific circumstances
encountered.
(ii) Value for Money:
By shifting profits from high-tax to low-tax nations, MNCs can reduce their global tax payments. In
addition, they can transfer funds among their various units, which allow them to circumvents
currency controls and other regulations and to tap previously inaccessible investment and financing
opportunities.
(iii) Flexibility:
Some to the internationally generated claims require a fixed payment schedule; other can be
accelerated or delayed. MNCs can extend trade credit to their other subsidiaries through open
account terms, say from 90 to 180 days. This give a major leverage to financial status. In addition,
the timing for payment of fees and royalties may be modified when all parties to the agreement are
related.
Strategic Approach to Multinationals:
To run a new and potentially profitable project, a good understanding of multinational strategies is
necessary.
The three broad categories of multinationals and their associated strategies are explained
below:
A. Innovation Based Multinationals:
Companies such as IBM, Philips and Sony create barriers to entry for others, by continually
introducing new products and differentiating existing ones. Both domestically and international
companies in this category spend large amounts on R&D and have a high ratio of technical to factory
personnel. Their products are typically designed to fill a need perceived locally that often exists
abroad as well.
B. The Mature Multinationals:
The primary approach in such companies is the presence of economies of scale. It exists whenever
there is an increase in the scale of production, marketing and distribution costs could be increased in
order to retain the existing position or more aggressive.
The existence of economics of scale means there are inherent costs advantages of being large. The
more significant these economies of scale are, the greater will be the costs disadvantage faced by a
new entrant in the same field in a given market.
(i) Reduction in Promotion Costs:
Some companies like Coca-Cola and Proctor and Gamble take advantage of the facts that potential
entrants are wary of the high costs involved in advertising and marketing a new product. Such firms
are able to exploit the premium associated with their strong brand names. MNCs can use single
campaign and visual aspects in all the countries simultaneously with different languages like
Nestle’s Nescafe.
(ii) Cost Advantage through Multiple Activities:

35. Other companies take advantage of economics of scope. Economies of scope exists whenever the
some investment can support multi-profitable activities, which are less expensive.
Examples abound of the cost advantages of producing and selling multiple products related to
common technology, production facilities and distribution network. For example, Honda has
increased its investment in small engine technology in the automobile, motorcycle, marine engine,
and generator business.
C. The Senescent Multinationals:
There are some product lines where the competitive advantage is very fast.
The strategies followed in such cases are given below:
1. One possibility is to enter new markets where little competition currently exists. For example
Crown Cork & Seal, the Philadelphia-based maker of bottle tops and cans, reacted to the slowing of
growth and heightened competition in business in the United States by expanding overseas, its set up
subsidiaries in such countries as Thailand, Malaysia, and Peru, estimating correctly that in these
developing and urbanizing societies, people would eventually switch from home grown produce to
food in cans and drinks in bottles.
2. Another strategy often followed when senescence sets in is to use the firm’s global scanning
capability to seek out lower cost production sites. Costs can then be minimized by integration of the
firm’s manufacturing facilities worldwide. Many electronics and textile firm in the United States
(US) shifted their production facilities to Asian locations such as Taiwan and Hong-Kong to take
advantage of the lower labour costs.
Reasons for the Growth of MNCs:
(i) Non-Transferable Knowledge:
It is often possible for an MNC to sell its knowledge in the form of patent rights and to licence
foreign producer. This relieves the MNC of the need to make foreign direct investment.
However, sometimes an MNC that has a Production Process or Product Patent can make a larger
profit by carrying out the production in a foreign country itself. The reason for this is that some kinds
of knowledge cannot be sold and which are the result of years of experience.
(ii) Exploiting Reputations:
In some situation, MNCs invest to exploit their reputation rather than protect their reputation. This
motive is of particular importance in the case of foreign direct investment by banks because in the
banking business an international reputation can attract deposits.
If the goodwill is established the bank can expand and build a strong customer base. Quality service
to a large number of customers is bound to ensure success. This probably explains the tremendous
growth of foreign banks such as Citibank, Grind-lays and Standard Chartered in India.
(iii) Protecting Reputations:
Normally, products, develop a good or bad name, which transcends international boundaries. It
would be very difficult for an MNC to protect in reputation if a foreign licensee does an inferior job.
Therefore, MNCs prefer to invest in a country rather than licensing and transfer expertise, to ensure
the maintenance of their good name.

36. (iv) Protecting Secrecy:
MNCs prefer direct investment, rather than granting a license to a foreign company if protecting the
secrecy of the product is important. While it may be true that a license will take precautions to
protect patent rights, it is equally true that it may be less conscientious than the original owner of the
patent.
(v) Availability of Capital:
The fact that MNCs have access to capital markets has been advocated as another reason why firms
themselves moved abroad. A firm operating in only one country does not have the same access to
cheaper funds as a larger firm. However, this argument, which has been put forward for the growth
of MNCs has been rejected by many critics.
(vi) Product Life Cycle Hypothesis:
It has been argued that opportunities for further gains at home eventually dry up. To maintain the
growth of profits, a corporation must venture abroad where markets are not so well penetrated and
where there is perhaps less competition.
This hypothesis perfectly explains the growth of American MNCs in other countries where they can
fully exploit all the stages of the life cycle of a product. A prime example would be Gillette, which
has revolutionized the shaving systems industry.
(vii) Avoiding Tariffs and Quotas:
MNCs prefer to invest directly in a country in order to avoid import tariffs and quotas that the firm
may have to face if it produces the goods at home and ship them. For example, a number of foreign
automobile and truck producers opened plants in the US to avoid restrictions on-selling foreign made
cars. Automobile giants like. Fiat, Volkswagen, Honda and Mazda are entering different countries
not with the products but with technology and money.
(viii) Strategic FDI:
The strategic motive for making investments has been advocated as another reason for the growth of
MNCs. MNCs enters foreign markets to protect their market share when this is being threatened by
the potential entry of indigenous firms or multinationals from other countries.
(ix) Symbiotic Relationships:
Some firms have followed clients who have made direct investment. This is especially true in the
case of accountancy and consulting firms. Large US accounting firms, which know the parent
companies special needs and practices have opened offices in countries where their clients have
opened subsidiaries.
These US accounting firms have an advantage over local firms because of their knowledge of the
parent company and because the client may prefer to engage only one firm in order to reduce the
number of people with access to sensitive information. Templeton, Goldman Sachs and Earnest and
Young are moving with their clients even to small countries like Sri Lanka, Panama and Mauritius.
Country Risk:
When making over direct investment it is necessary to allow for risk due to investments being made
in a foreign country. Country risk is one of the special issues faced by MNCs when investing abroad.
In involves the possibility of losses due to country-specific economic, political and social events.

37. Among the country risks that are faced by MNCs are those related to the local economy, those due to
the possibility of confiscation i.e. Government take over without any compensation, and those due to
expropriation i.e., Government takeover with compensation which at times can be generous. In
addition there are the political/social risks of wars, revolutions and insurrections.
Even though none of these latter events are specifically directed towards on MNC by the foreign
government, they can damage or destroy an investment. There are also risks of currency non-
convertibility and restriction the repatriation of income. International magazines like Euro Money
and the Economist regularly conduct country risk evaluations in order to facilitate MNCs.
Methods ofReducing Country Risk and Control:
1. Controlling Crucial Elements of Corporate Operations:
Most of the MNCs try to prevent operations in developing countries by other local entities without
their cooperation. This can be achieved if the company maintains control of an element of
operations.
For example, food and soft drink manufacturers keep their special ingredients secret. Automobile
companies may produce vital parts such as engines in some other country and refuse to supply these
parts if their operations are seized.
2. Programmed Stages of Planned Disinvestment:
There is an alternative technique to handover ownership and control to local people in future. This is
sometimes a requirement of the host government. There is a calculated move to involve themselves
in stages.
3. Joint Ventures:
Instead of promising shared ownership in future, an alternative technique for reducing the risk of
expropriation is to share ownership with private or official partners in the host country from the very
beginning.
Such shared ownerships, known as joint ventures rely on the reluctance of local partners, if private,
to accept the interference of their own Government as a means of reducing expropriation.
When the partner is the government itself, the disincentive to expropriation is concerned over the
loss of future investments. Multiple joint ventures in different countries reduce the risk of
expropriation, even if there is no local participation. If the government of one country does
expropriate the business, it faces the risk of being isolated simultaneously by numerous foreign
powers.
Problems from the Growth ofMNCs:
Much of the concern about MNCs stems from their size, which can be formidable. MNCs may
impose on their host governments to the advantages of their own shareholders and the disadvantages
of citizens and shareholders in the country of shareholders in the past.
It can be difficult to manage economics in which MNCs have extensive investments. Since MNCs
often have ready access to external sources of finance, they can blunt local monetary policy. When
the Government wishes to constrain any economic activity, MNCs may nevertheless expand through
foreign borrowing.

38. Similarly, efforts at economic expansion may be frustrated if MNCs move funds abroad in search of
advantages elsewhere. Although it is true that any firm can frustrate plans for economic expansion
due to integrated financial markets, MNCs are likely to take advantage of any opportunity to gain
profits.
As we have seen, MNCs can also shift profits to reduce their total ‘tax burden by showing larger
profits in countries with lower tax rates citizens and shareholders in the country of shareholders in
the past.
It can be difficult to manage economics in which MNCs have extensive investments. Since MNCs
often have ready access to external sources of finance, they can blunt local monetary policy. When
the host Government wishes to constrain any economic activity, MNCs may nevertheless expand
through foreign borrowing.
Similarly, efforts at economic expansion may be frustrated if MNCs move funds abroad in search of
advantages elsewhere. Although it is true that any firm can frustrate plans for economic expansion
due to integrated financial markets, MNCs are likely to take advantage of any opportunity to gain
profits. As we have seen, MNCs can also shift profits to reduce their total tax burden by showing
larger profits in countries with lower tax rates.
Multinational Corporations in India:
MNCs have been operating in India even prior to Independence, like Singer, Parry, Philips, Unit-
Lever, Proctor and Gamble. They either operated in the form of subsidiaries or entered into
collaboration with Indian companies involving sale of technology as well as use of foreign brand
names for the final products. The entry of MNCs in India was controlled by existing industrial policy
statements, MRTP Act, and FERA. In the pre-reform period the operations of MNCs in India were
restricted.
NewIndustrial Policy 1991 and Multinational Corporations:
The New Industrial Policy 1991, removed the restrictions of entry to MNCs through various
concessions. The amendment of FERA in 1993 provided further concession to MNCs in India.
At present MNCs in India can—
(i) Increase foreign equity up to 51 percent by remittances in foreign exchange in specified high
priority areas. Subsequently MNCs are free to own a majority share in equity in most products.
(ii) Borrow money or accept deposit without the permission of Reserve Bank of India.
(iii) Transfer shares from one non-resident to another non-resident.
(iv) Disinvest equity at market rates on stock exchanges.
(v) Go for 100 percent foreign equity through the automatic route in Specified sectors.
(vi) Deal in immovable properties in India.
(vii) Carry on in India any activity of trading, commercial or industrial except a very small negative
list.
Thus, MNCs have been placed at par with Indian Companies and would not be subjected to any
special restrictions under FERA.

39. Criticisms against MNCs in India:
The operations of MNCs in India have been opposed on the following grounds:
(i) They are interested more on mergers and acquisitions and not on fresh projects.
(ii) They have raised very large part of their financial resources from within the country.
(iii) They supply second hand plant and machinery declared obsolete in their country.
(i v) They are mainly profit oriented and have short term focus on quick profits. National interests
and problems are generally ignored.
(v) They use expatriate management and personnel rather than competitive Indian Management.
(vi) Though they collect most of the capital from within the country, they have repatriated huge
profits to their mother country.
(vii) They make no effort to adopt an appropriate technology suitable to the needs. Moreover,
transfer of technology proves very costly.
(viii) Once an MNC gains foothold in a venture, it tries to increase its holding in order to become a
majority shareholder.
(ix) Further, once financial liberalizations are in place and free movement is allowed, MNCs can
estabilize the economy.
(x) They prefer to participate in the production of mass consumption and non-essential items.