Business Environment

Business Environment [Pick the date]

Business Environment Enrollment Number: 112162510 Pratik Haldankar MBA IGNOU

Business Environment MBA IGNOU

Q1. Do a PESTEL Analysis on the following industry segment with respect to the particular company identified within that industry?

INDUSTRY SEGMENT Retail Auto Ancillary FMCG

COMPANY Future Group Sundram Fasteners Dabur

PESTLE ANALYSIS There are many factors in the macro-environment that affect the decisions of the managers of any organisation. Trade obstructions, tax modifications, new laws, demographic changes and government policy changes are all examples of macro environment changes.

Political

Legal

Economic

PESTEL Environmental

Social

Technological

PESTEL is an acronym for Political, Economic, Social, Technological, Environmental, and Legal factors wherein it studies the possible effects of these changes on the business environment at a macro level.

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Political Factors: These refer to government policy such as the degree of intervention in the economy. What goods and services does a government want to provide? To what extent does it believe in subsidising firms? Political decisions can impact on many vital areas for business such as the education of the workforce, the health of the nation and the quality of the infrastructure of the economy such as the road and rail system.

Economic Factors: These include interest rates, taxation changes, economic growth, inflation and exchange rates. Economic changes can have a major impact on a firm's behaviour. To understand the effect of changes due to such factors lets us discuss some points: 

Higher interest rates may discourage investments because of the general equation that it costs more to borrow.

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A strong currency may make exporting more complicated because it may raise the price in terms of foreign currency.

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Inflation which may provoke higher wage demands from employees and raise costs.

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Higher national income growth may boost demand for a firm's products.

Social factors: Changes in social trends can impact the demand for a firm's products and the availability and willingness of individuals to work. These changes also refer to the changes in the social conditions prevailing in the region or country.

Technological factors: New technologies create new products and new processes. MP3 players, computer games, online gambling and high definition TVs are all new markets created by technological advances. Technology can reduce costs, improve quality and thus lead to innovation. These developments can benefit consumers as well as the organisations providing the products.

Environmental factors: Environmental factors include the weather and climate change. Changes in temperature can impact on many industries including farming, tourism and insurance. With major climate changes occurring due to global warming and with greater environmental awareness this external factor is becoming a significant issue for firms to consider.

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Business Environment MBA IGNOU

Legal Factors: These are related to the legal environment in which firms operate. Legal changes can affect a firm's costs (e.g. if new systems and procedures have to be developed) and demand (e.g. if the law affects the likelihood of customers buying the good or using the service).

Retail Sector Company Name: Future Group

Industry Background: The Retail Sector is one of the leading pillars of the Indian Economy and currently accounts for 13% of the Gross Domestic Product of the country. This Retail industry is divided into two major components viz. Organised and Unorganised markets.

The Organised Sector refer to the activities of trading carried on between Retailers (who have authentic licenses) and include those who registered for Income Tax, Sales Tax etc. these include hypermarkets and retail chains of companies like Reliance, Future Group, Aditya Birla Group, Mahindra Group, Bharti Enterprises etc. The Unorganised Sector on the other hand, refer to the low-end retailing and mainly include the local kirana shops, paan beedi shops, convenience stores, pavement vendors etc.

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Business Environment MBA IGNOU

India has the maximum number of outlets per person (7 per thousand) whereas the Indian Retail space at 2 sq ft per person is the lowest in the world. (EPW 2011)

Company Brief: Future Group founded and headed by Mr. Kishore Biyani, runs some of the most popular retail set-ups in India some of which include Big Bazaar, Food Bazaar, KB’s Fairprice, Pantaloons, Planet Sports, Central, Fashion Station, Brand Factory, Depot, aLL, E-Zone etc. Through over 15 million sq. ft. of retail space, the Future Group cater to customers in 85 cities and 60 rural locations across the country. Future group employs 35,000 employees directly from every section of the society. (future group). In the value and lifestyle segments, Future Group operates on a multi-format retail strategy to provide for complete consumption needs of the Indian consumers. While the retail sector is at the heart of Future Group’s business activity, group subsidiaries are also present in leisure and entertainment, brand development, retail real estate development, retail media and logistics Future Group enjoys high brand equity and has in place sound infrastructure in the form of Big Bazaar. But the Future Group has been unable to meet store opening targets which have in turn resulted in falling revenues when measured in terms of per square feet. With big and global competitors planning to foray into the market, Future Group faces a stiff competition in the years to come.

PESTEL Analysis a. Political The Indian political system is like a triangle consisting of the Municipal Corporation belonging to the Indira Congress, the MLA which belongs to the Shivsena and BJP, and the MP which belongs to the national congress. The growth of Big Bazaar can be largely contributed to perks provided by the municipal corporations handled by the Congress Party. Some of the perks can be detailed out as:  Subsidy received in respect of the Octroi, different taxes like land tax and water tax.  Huge help provided in matters pertaining to the acquisition of land properties and real estate.  Granting of concession in Labour Laws. b. Economical India’s inflation rate (annual basis) had climbed up to 11.42 % in the mid-June and analysts had expected it to remain in double digits until the year end. As the food

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prices are on a rise, urban and also the rural population which spends nearly half of their income on food is looking ways to trim their shopping bills. Entry to retailer outlets like Big Bazaar is therefore reported to be on an upswing. In a furher bid to reduce costs, Big Bazaar is opting for retail private labels on staples. Big Bazaar claims that retailers claim almost double the profit on private labels as compared to branded labels. (Retail angle) c. Social The overall development of a country depends largely on the development of all the sections of the society. In a country like India where the development rural population is a major area of negligence, future group has made efforts to collaborate with different communities in the rural pockets of the nation to achieve harmonious growth. The company has spread its roots in to the rural India. The company constantly engages in activities of community mobilization and capacity building and help measures to reach the untouched and isolated communities. d. Technological In the world technological advancement and globalisation, where people are constantly connected to each other, retailers like Big Bazaar have to make sure that the understand the pulse of the consumers on a continuous basis and design their offerings accordingly. Big Bazaar keeps a check on what goods are purchased off the shelf also tracking the bill of consumers to know the composition of their purchases. In another up gradation from the Bar Code Scanner system, Big Bazaar has now moved on to using the RFID (Radio Frequency Identification Technology) in its retail outlets namely the Pantaloons and Big Bazaar. This helps to prevent security breach for products or misplacement from its warehouses or storehouses. e. Environmental As the world today is witnessing adverse effects in the form of the global warming and the climate change, it becomes an important aspect to take care and reduce environmental impact and optimize energy consumption. Future group has made serious attempts to address this issue by implementing corrective measure in its stores and strengthening green considerations in logistics operations. The company claims that it endeavours to promote eco-friendly products and raise awareness issue both internally and externally. Future group has taken up to developing green products based on the grounds of environmental concerns, also taking into considerations the design and packaging. f. Legal Big Bazaar which is a retail set-up of Future Group has been in the legal frame for issues pertaining to the prices charged by the stores. In a recent issue, the District Consumer Redressal Forum (Ambala) had ordered Big Bazaar to pay Rs. 2000 as compensation for charging more than the MRP of the product. In a complaint filed by one of the consumer, Big

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Business Environment MBA IGNOU Bazaar had allegedly charged Rs. 103.95 as against the printed retail price of Rs. 89 on the purchase of a shampoo bottle. (Retail Angle)

Auto Ancillary Sector Company Name: Sundram Fasteners

Industry Background: The Indian Auto ancillary sector has been steering through an epoch of rapid changes with great flair. Forced by competition on a global scale and due to the recent swing in focus of the global automobile manufacturers, rules of the business are changing and the word liberalisation has got an all together different meaning for the Auto Ancillary industry in India. The Indian auto ancillary industry is one of the very the minority sectors in the economy that has a unique competitive advantage in terms of cost and quality. The Indian auto component sector has been growing at 20% per annum since 2000 and is projected to maintain the high growth phase of 15-20% till 2015. (D&B: Emerging SME’s of India) Today, India has come to be the outsourcing hub of several global automobile manufacturers.

Company Brief: Sundram Fasteners, a flagship company of TVS Group is headquartered in Chennai, India. The company is a manufacturer of automotive and engineering components and its product range includes the high tensile gears, cold extruded parts, water pumps, power metal parts etc. to name a few.(Sundram.products) With a diversified product line, Sundram Fasterners has become the most vouched supplier for leading customers in the automotive and industrial segments. During its course of 49 years of operations, Sundram Fasterners, has achieved technological competencies in forging, metal forming, close-tolerance machining, heat treatment, surface finishing and assembly. (Sundram.about us) Sundram Fasterners Ltd (SFL) which is a part of the US$3 billion TVS group was incorporated in 1962. SFL earned a net profit of Rs. 18160 million and recorded a net profit of Rs. 1054 million (both year ending March 2011). (info.shine)

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Business Environment MBA IGNOU

PESTEL Analysis: a. Political The company is reportedly mulling over the acquisition of high-end aircraft part makers in countries such as the US and is negotiating to supply components to aeroengine maker General Electric Co. and European plane maker Airbus SAS. However, entry barriers in the aircraft parts business are high and it takes three to five years to qualify as an aircraft parts manufacturer. Moreover, plane makers, too, are bringing down production amid weak demand for air travel. The company may set up a new factory in India to manufacture aircraft fasteners but media reports did not reveal the company's investment plans. b. Economical The company's operating profits during this period fell by 1.7% YoY due to higher raw material and employee costs as well as a pressure on realisations from customers due to declining volumes across the automobile segment. Staff expenses grew by 4.3% YoY in 1QFY02 and material costs went up by 1.4% YoY during this period. However, as the company was able to curtail its other expenditure which fell by 3.6% YoY and its stores and tools costs which fell by 8% YoY it has managed to report an improvement in its operating margins from 16.8% in 1QFY01 to 17.1% in 1QFY02. It seems that the higher export growth too has added to the improvement in its margins. (Equity Master) c. Social The company’s factory unit is located at Krishnapuram, Virudhunagar Dist., of Tamil Nadu is located in an economically backward area. The company strongly recommends the upliftment of the area which in turn shall follow economic wellbeing. In order to support the cause, the company is planning to introduce high quality education for the rural children, especially girl children, over a sustained period of time. The company is actively supporting the English medium higher secondary coeducational school run under the auspices of Krishna Educational Society by offering subsidised education to 351 students. (IIFL) Apart from this the company offers medical facilities free of cost to villages near the factory plant at Krishnapuram. The company has adopted eight villages situated near the plant thereby benefiting about 2500 families by the virtue of this program. d. Technological Sundram Fasteners is planning to make its biggest capital investment in 2011-12 in an attempt to foray in with its new products and target the wind energy and automotive segments. The company’s CMD Suresh Krishna said Sundram Fasteners (SFL) is tapping the know-how of two of its overseas arms to launch these products. While it would use the technology of its German subsidiary Peiner

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Business Environment MBA IGNOU

Umformtechnik GmBH to make the wind turbine fasteners, its UK arm will transfer technology for the manufacture of bevel gears. (ET Bureau) e. Environmental Consumers, investors and employees have started showing increasing concerns towards the management of the environment. Nowadays companies are more interested in understanding real business opportunities and risks associated with the climate change. At Sundram Fasteners, the company’s commitment to behaving ethically and contributing to economic development of the society has found expression through various initiatives. Sundram Fasteners tries to address the importance of ‘gree’ business practices with utmost care. The company’s manufacturing facilities across the globe are all ISO 14001 certified and adhere to the most stringent environment management standards. The products at Sundram Fasteners and for that matter the processes are engineered to promote green technologies and are in compliance with the latest international norms for environment-friendly operations. The environmental policy at Sundram Fasteners can be explained as follows:  Aim for Zero Pollution  Continually improve methods and processes towards zero pollution and pursue waste management through recycling and reuse.  Abide by with and exceed Local & National Environmental Legislations and Regulations.  Spread the culture of environmental protection across the unit.  Spread the policy to interested parties f. Legal

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Business Environment MBA IGNOU

Fast Moving Consumer Goods Company Name: Dabur

Industry Background: The Fast Moving Consumer Goods commonly referred to as FMCG is a name given to those products which have a quick turnover and are relatively low cost products. These are the products that get replaced within a time of one year. Products like toiletries, soap, cosmetics, tooth cleaning products, shaving products and detergents, as well as other non-durable products like paper products, plastic goods, glassware, batteries etc. can be summarised under this category of FMCG. India’s FMCG sector is the fourth largest sector in the country’s economy and employs more than three million people in downstream activities. This 85,000 Cr. market is growing at a double digit figure and is expected to maintain a high growth rate.(IBEF)

Company Brief: Dabur India, was set up in 1984 when Dr. S.K. Burman, a physician by profession, launched his mission of making health care products, in a small Kolkata (Calcutta) pharmacy. Dabur started off as a visionary endeavour with a misson to provide effective and affordable cure for ordinary people in far-flung villages. Today Dabur stands as one of India’s leading FMCG companies with proceeds of about US$ 910 million (Rs.4110 Crore) and strong market capitalisation of US$ 4 billion (Rs. 20000 Crore). (Dabur Media centre) Dabur operates in key consumer products categories like Hair Care, Oral Care, Health Care, Skin Care, Home Care and Foods. The company enjoy a high penetration rate in both the urban and rural markets. The company initially began as family business but has now successfully transformed itself from being a family-run business to become a professionally managed enterprise.

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Business Environment MBA IGNOU

PESTEL Analysis: a. Political As Dabur has its operations not only in India but also in some foreign countries, it has to face political issues pertaining to those countries. In 2008, following the political unrest in the neighbouring markets of Pakistan and Nepal, home-grown FMCG Company Dabur India had to rethink its strategy for the sub-continent. In 2007 Dabur saw flat sales in Pakistan largely due to political instability and the change in the import policy which led to higher duties, which in turn impacted both the revenue and the margins. (Business Standard) b. Economical Dabur India has maintained its growth rate in the recent past. Even though the economy has been trying to steer off the effects of recession, Dabur has been successful enough to combat the recession and still maintain a fair level of profits for year ends. c. Social Dabur believes in a growth plan which will do good to the society and create a better world. The company continually strives for achieving and fulfilment such a responsibility towards the society. Dabur strongly states its commitments to good governance, ethical conduct and social responsibility and considers them as their way of doing business. They strongly align this thought process with their drive to creating and increasing value for all stakeholders. Dabur has set up a state-of-art Greenhouse facility to facilitate the process of providing modern technology for cultivation of required medicinal herbs of Himalayas to the farmers. Besides fulfilling the purpose of preserving the natural resources, this initiative has also help generate employment and income to the people of the region. d. Technological Dabur is one of India’s leading FMCG Company and to cater to the population of the country which is growing in literacy and becoming internet savvy requires lot of advancements. With this in mind Dabur invested Rs. 15 Cr. in hardware and software which now aids its godown e. Environmental Rare Herbs and medicinal plants are our most precious supply from which all the products of Dabur are manufactured. Due to the overexploitation and over usage, these resources are fast reaching the point where none would be left. With a view to counter this situation, Dabur has set off significant programs where they would try and restore this ecological generation and protect these rare but endangered species of plants.

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f. Legal Few years ago Pharma giant Cadila Health Care took Dabur India to court for the infringement of its ‘sugar free’ trademark in one of the health enhancement manufactured by Dabur. Cadila Health Care alleged that Dabur tried to take advantage of the former’s goodwill and reputation by using the same words famously on its product ‘Chyawanprakash’.

References:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

http://info.shine.com/company/Sundram-Fasteners-Limited/812.aspx http://www.sundram.com/aboutus.php http://www.sundram.com/products.php http://www.equitymaster.com/detail.asp?date=08/06/2001&story=4&title=SundramFasteners-Exports-stem-slide http://www.indiainfoline.com/Markets/Company/Fundamentals/ManagementDiscussions/Sundram-Fasteners-Ltd/500403 http://articles.economictimes.indiatimes.com/2011-03-18/news/29141782_1_wind-turbinesundram-fasteners-sundaram-fasteners RFID – Radio Frequency Identification at http://www.rfidzones.com/ Kishore Biyani and Dipayan Baishya, It Happened in India, Rupa Publishers, 2007. http://www.retailangle.com/Newsdetail.asp?Newsid=1009&Newstitle=Inflation_brings_dou ble_cheer_to_value_based_retailers http://www.retailangle.com/Newsdetail.asp?Newsid=897&Newstitle=Big_Bazaar_to_pay_fo r_charging_above_MRP

Bibliography:

http://info.shine.com/company/Sundram-Fasteners-Limited/812.aspx www.sundramfasterners.com http://www.sundram.com/aboutus.php http://www.sundram.com/products.php http://www.equitymaster.com/detail.asp?date=08/06/2001&story=4&title=SundramFasteners-Exports-stem-slide 6. http://www.stockwatch.in/supreme-court-instructs-tvs-motor-stop-fresh-booking-tvsflame-2155 7. http://agneyablog.wordpress.com/2011/01/27/bringing-sustainability-in-indian-autoancillary-sector/

1. 2. 3. 4. 5.

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8. http://www.indiainfoline.com/Markets/Company/Fundamentals/ManagementDiscussions/Sundram-Fasteners-Ltd/500403 9. http://articles.economictimes.indiatimes.com/2011-03-18/news/29141782_1_wind-turbinesundram-fasteners-sundaram-fasteners 10. http://www.dabur.com/media-corporate%20profile 11. Unrest forcesDabur to rethink Pak, Nepal plans, Survi Dogra / New Delhi August 13, 2008 http://www.business-standard.com/india/news/unrest-forces-dabur-to-rethink-pak-nepalplans/331257/ 12. http://markets.ft.com/research/Markets/Tearsheets/Directors-and-dealings?s=DABUR:NSI 13. http://www.retailangle.com/Newsdetail.asp?Newsid=897&Newstitle=Big_Bazaar_to_pay_fo r_charging_above_MRP 14. http://www.in.kpmg.com/TL_Files/Pictures/Indian_Retail_Mar09.pdf 15. http://www.retailangle.com/Newsdetail.asp?Newsid=1009&Newstitle=Inflation_brings_dou ble_cheer_to_value_based_retailers

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