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14 December 2008

PESTLE Analysis

Environmental Factors

The managers should identify their relevant environment so that they can analyze the various
elements in order to relate their organizations with the environment. However, there may be a number of such factors and can be classified in various ways. Since the orientation towards relevant environmental factors differs for organizations because of the reasons noted earlier, there may be back of unanimity on such factors. Similar is the case with management literature.

For example, Duncan has classified the relevant components of environment for an organisation into five categories:
  • consumer component,
  • supplier component,
  • competitor component,
  • socio-political component and
  • technological component.

On the other hand, Glueck has grouped the environmental factors in six broad categories:
  • economic,
  • government-legal,
  • market competitive,
  • supplier -technological,
  • geographic, and
  • social.

D .R. Singh, while analyzing environmental issues taken up by multinationals in the host country, has emphasized the following factors:
  • economic situation,
  • political situation, and
  • financial situation.
He has further classified the political situation into
  • industrial development policy,
  • foreign investment policy,
  • corporate taxation policy,
  • import-export policy,
  • industrial licensing,
  • foreign exchange control, and
  • capital issue control.
These classifications suggest that the environmental factors may be classified in various ways. However, the classification of these factors must be in such a way that it presents some framework by which to view the total situation with which the managers confront. This provides managers a sharp focus on the relevant factors of the environment. They make decisions in the light of the various environmental forces as perceived by them. This requires the classification of environmental forces which distinguishes each element from others so that managers can
pinpoint the impact of each on their organizations. However, it can be emphasized here that
  • environmental factors are intertwined;
  • they affect each other and are affected by others.
For example, the economic factors of a country are likely to be affected by the political and legal aspect of the country. In the same way, economic aspect may determine technological factor but is affected by the latter. This international feature makes the classificatory scheme even more flexible. However, an analytical classification of various environmental factors may be:
1. Economic environment,
2. Political-legal environment,
3. Technological environment,
4. Socio-cultural environment, and
5. International environment.

These environmental factors would ultimately determine- the
nature of an industry and its competitive environment which is
more relevant to an organisation.


1. Economic Environment

Economic environment is by far the most important environmental factor which the business organizations take into account. In fact, a business organisation is an economic unit of operation. Since the measurement of organizational performance is mostly in the form of financial terms, often managers concentrate more on economic factors. The economic environment is also important for non-business organizations too because such organizations depend on the environment for their resource procurement which is greatly determined by the economic factors. As such, the understanding of economic environment is of crucial importance to strategic management.

Economic environment covers those factors, which give shape and form to the development of economic activities and may include factors like nature of economic system, general economic
conditions, various economic policies, and various production factors.

From analytical point of view, various economic factors can be divided into two broad categories:
  • general economic conditions and
  • factor market.
The discussion of these factors will bring out the nature of total economic environment.

General Economic Conditions
General economic conditions of a country determine the extent to which various organizations find the economic forces. favorable or unfavorable. Many forces such as economic system
monetary policy fiscal policy and industrial policy of the country shape general economic conditions. However, the general economic conditions are also affected by the political and social
factors too. These economic conditions affect national income, distribution of income, level of employment, factor market and product market. In turn, all these factors affect the business
organizations. An analysis of these will give a picture of the conditions in which the organizations have to operate.

(i) Economic System

The economic system of a country determines the extent to which the organizations have to face different constraints and controls by the economic factors. In three alternative economic
systems- capitalistic, mixed, and socialistic-organizations have to face different types of control ranging from total freedom to total control. An economic system puts certain restrictors over
the functioning of the organisation. Second, it provides lot of protection to an organisation depending on its nature.
For example, public sector organizations are protected from private organizations, local organizations from foreign organizations, small organizations from large organizations, and so on.

(ii) National Income and its Distribution
National income is defined as the money value of economic activities of a country during a particular / period, normally one year. National income determines the purchasing power of
people and consequently the demand for products. Distribution of national income determines the types of products that may be demanded by the people.

(iii) Monetary Policy
Monetary policy regulates the economic growth through the expansion or contraction of money supply. There are three basic objectives of Indian monetary policy:

a. To provide necessary finance to the industries, particularly in private sector,
b. To control the inflationary pressure in the economy and
c. To generate and maintain high employment.

(iv) Fiscal Policy
Fiscal policy deals with the tax structure and governmental expenditure. Generally the fiscal policy is adopted for

a. Mobilizing maximum possible resources
b. Optimal allocation of resources so as to attain rapid growth
c. Attainment of greater equality in the distribution of income; and
d. Maintenance of reasonably possible stability of prices.

There are two aspects of fiscal policy’ relevant to strategic management.
First, how tax structure is affecting the growth of individual organizations & the industry as a whole.
Second, how ‘government’s spending affects economic activities.


Factor Market or Supplier Component


Organizations employ many factors of production-land, labour, capital, managerial personnel, etc. The management should appraise the availability of these factors so that suitable strategies can be adopted for their procurement and utilization. The easy availability of these resources facilitates the organizational functioning. While analyzing the factor market aspect of economic environment, following considerations should be taken into account.

1. Natural Resources
The availability of natural resources-land, minerals, fuel, etc. becomes a strategic planning factor for organizations requiring such resources in the production process. Normally location pattern is decided on the basis of availability of these factors. In our country, there are plenty of natural resources-land, water and minerals of various types. However, in the absence of their proper exploitation and uses, these resources are not able to give adequate benefits. Moreover, there is lack of certain critical factors, for example, electricity, fuel, etc. which affect the organizational efficiency adversely.

2. Infrastructure Facilities
Infrastructure provides the various supporting elements for the efficient functioning of the organizations. These may include transportation, communication, banking services, financial
services, insurance, and so on. In our country, while these facilities are available in plenty and at satisfactory level at some places, there is total absence or inadequacy at other places.
For example, in urban areas, these facilities are available to a reasonably satisfactory level but these are lacking in rural areas where the scope for opening more business operations is quite
high. The government is emphasizing the development of backward areas by giving various concessions to the organizations and through creating the provisions for infrastructure.

3. Raw Materials and Supplies
An organization requires continuous flow of raw materials and other things to maintain its operations. The price of materials, frequency and regularity of supply and other terms and
conditions are important considerations in this respect. All these factors, in turn depend on the availability of natural resources infrastructure facilities and general economic development
of the country.

4. Plant and Equipment
An organisation invests money in plant and equipment because it expects a positive rate of return over cost in future. The revenue from the use of the plant and equipment should be
sufficient so as to cover the invested money, operating costs, and generate enough profit to satisfy the organisation. Greater uncertainty in these would make the cost of plant and equipment a more important strategic factor. The availability of plant and equipment is dependent on the technical development of the country and the government’s approach towards foreign technical collaboration.

5. Financial Facilities
Financial facilities are required to start and operate the organisation. The external sources of finance are share capital, banking and other financial institutions, and unorganized capital markets. The recent changes in the Indian capital market indicate the availability of plenty of finance both from the financial institutions as well as from general public. In fact the organisation and working of Indian capital market can be compared favorably with many industrially advanced countries. The availability of finance coupled with various incentives attached is a facilitating factor. However, such facilities have been utilized by” the few large scale and medium scale organizations.

6. Manpower and Productivity
While the availability of factors of production affects the development of the country as well as individual organizations, the level of productivity affects the organizational efficiency and
profitability. The productivity of both human and physical factors is dependent on many factors, for example, the type of technology used, the production process applied, the organizational
processes, and the use of managerial techniques.

“While analyzing the economic environment, the organization intending to enter a particular business sector may ask the following questions:

  • Does the economic system allow to enter the business sector sought? Communist countries’ economic systems have lot of such barrier.
  • What is the stage of economic growth and what is the rate of growth? “Is it maturing, declining, or at take-off stage?
  • What is the level of income-national and per capita? Does it offer market of large size?
  • What are the incidents of taxes, both direct and indirect, in general and on specific products?
  • What are the infrastructure facilities available and what are bottlenecks therein?
  • Are critical raw materials and components available and at what costs?
  • What are the sources of financial resources and what are their costs?
  • Is adequate manpower-managerial, technical and workers available and what are their salary and wage structures? What is the level of their productivity?


2. Political – Legal Environment

Political-legal environment is an important factor particularly in a mixed economy like ours, and affects the working of business organizations significantly. Political-legal environment of a
country includes the following elements:

  • Political system such as political processes, political organizations-political parties and their ideologies, political stability, and extent of bureaucratic delays and redtapism;
  • Defence and foreign policies like defence expenditure, maintenance of external relationships with other countries, defining most favoured countries from business point of view, etc.; and
  • Legal rules of the game of business-their formulation, implementation, efficiency, and effectiveness.

Political-legal environment of a country can be bifurcated into two parts depending on the nature of their impact on business organizations:
a. Promoting environment and
b. Regulatory environment.

a. Promoting Environment
Promoting environment of political-legal aspect of business includes the stimulation of business through the provisions of’ various facilities and incentives, protecting home markets from the invasion of foreign competitors, taking direct role of promoting business organizations, and purchasing from business organizations. Government has provided all these in Indian economic system. It has involved itself in providing various facilities in the form of infrastructure - transport, electricity, banking and finance, postal and telecommunication, etc.
helping to promote
  • Indian business abroad;
  • promotion of business organizations in public and joint sectors;
  • provisions of concessions and benefits of various types for industries located in specified areas; and so on.
Though many features of these have changed over the period of time, they have contributed
a lot to the development of industries in India.

b. Regulatory Environment
Regulatory environment is just opposite to promoting environment; it puts certain restrictions on the operations of business organizations. However, these restrictions are not of arbitrary nature but are based on the nature of a social system.

In a social system, there is no freedom without clearly defined area of freedom. In fact, this is a very old story reaching down through the history of mankind: there is no freedom without laws.

In Indian context, regulatory environment consists of the factors related to the regulation of business operations of organizations by prescribing their freedom to operate in certain areas of business and the practices that they are required to follow in conducting their business. These have been prescribed by legislative measures in the form of various laws and policy formulation from time to time.

Though many changes have taken place in India’s regulatory environment, major regulations in force are as follows: -
1. Control through industrial policies and licensing,
2. Control of monopolies and restrictive trade practices,
3. Control through Foreign Exchange Management Act,
4. Control on import and export,
5. Control over foreign operations, collaboration, and joint ventures,
6. Control over distribution and pricing of certain -goods,
7. Control to protect consumer interest,
8. Control over environmental pollution, and
9. Control of procedural matters through the Companies Act.

All these controls are exercised within the framework of the Constitution of India which has provisions to put control over the arbitrary actions of the government.

In analyzing political-legal environment, an organisation may put the following questions:
  • How does the political system influence the business?
  • What are the approaches of the government towards business? Are they restrictive or facilitating?
  • What are facilities and incentives offered by the government?
  • What are the legal restrictions in entering a particular industry segment either because of licensing requirement or it being reserved to a specific sector such as public sector or small scale sector?
  • What are the restrictions in importing technology, capital goods, and raw materials?
  • What are the restrictions in ,exporting products and services? What are the export obligations?
  • What are the restrictions on pricing and distribution of goods?
  • What are the procedural formalities required in setting a business?

3. Technological Environment

Technological environment is important for business as it affects the type of conversion process that it may adopt for its purpose. The technological environment refers to the sum total
of knowledge providing ways to do things. It may include inventions and techniques, which affect the ways of doing things, that is designing, producing, and distributing products.
A given technology affects an organisation in the way it is organised and faces competition. From strategic management point of view, technology has following implications:

1. Technology is a major source of productivity increase.

Though human beings are primarily responsible for handling technology, their efficiency is determined by the type of technology being used.

2. Various jobs in an organisation being performed by
individuals are determined by the technology being used. If there is a change in technology, the jobs are changed because
technology determines the level of skills required.


3. Technology influences the social situation, that is, the size of groups, membership of group, patterns of interpersonal interactions, opportunity to control activities are influenced
in a variety of ways by technology.

4. Organizations become more secured by developing efficiency through the adoption of efficient technology. However, as ‘the technology becomes more complex, it becomes relatively more difficult for new organizations to enter the field.

5. There is a time gap in employing new technologies both within an organisation and among organizations in a field.

Time gap within the organisation means that adjustment to technological innovation will be spread over a number of years and is not amenable to a direct, one-change solution with the industry, it means that if a new technology is adopted by an organisation, others in the same industry will follow soon, however, because of time gap, the first organisation will have some sort of monopolistic advantages.

Petrov has analysed the strategic implication of technological environment as follows:
1. It can change relative competitive cost position within a business;
2. It can create new markets and new business segments; and
3. It can collapse or merge previously independent businesses by reducing or eliminating their segment cost barriers.

The technological environment of the country is fast changing because of import of technology from foreign countries or because of technology generated out of research and development
within the country. The Government is quite liberal in regard to the import of appropriate technology from foreign. It is also encouraging the development of internal technology though various incentives to the business organizations concerned as well as through other institutions and laboratories of Council of Scientific and Industrial Research and other technical institutions. Thus, the managers have to work in an environment where technological change - is the order of day.
Its result is that they have to be more conscious to take the advantages of such changes.

In analyzing technological environment, the organisation may ask the following questions:
  • What is the level of technological development in the country as a whole and specific business sectors?
  • What is the pace of technological changes and technological obsolescence?
  • What are the sources from which technology can be acquired?
  • What are the restrictions and facilities for technology transfer and time taken for absorption of technology?

4. Socio Cultural Environment

Social and cultural environment is quite comprehensive because it may include the total social factors within which an organisation operates. In fact, the political and legal environment
is closely intertwined with social and cultural environment because laws are passed as a result of social pressures and problems. The socio-cultural environment of business can be defined as follows:
Social and cultural environment consists of attitudes, beliefs, desires, expectations; education and customs of the society at a given point of time. Thus, social and cultural environment, in its broad sense, includes many - aspects of society and its various -constituents.

From business organization’s point of view, it may include:
(i) expectations of the society from the business;
(ii) attitudes of society towards business and its management;
(iii) views towards achievement of work;
(iv) views towards authority structure, responsibility and organizational positions;
(v) views towards customs, traditions, and conventions;
(vi) class structure and labour mobility; and
(vii) level of education.

The various elements of social and cultural environment affect the working of the organizations mainly in three ways:
  • organizational objective setting,
  • organizational processes and
  • the products to be offered by the organisation.

Through these, they affect the total functioning of the organisation. The social and cultural factors affect the basic objectives of the organisation by prescribing the norms within which the organizational objectives are formulated. For example, to what extent, social responsibility will be an organizational objective is determined by the various social factors in which organisation functions.
Similarly organizational processes are also designed keeping in view the various social and cultural factors otherwise they will not work. For example, the various control and decision
processes in our social organizations are based on the basic values of joint family system and caste system. Similar is the case with other organizational processes. Social and cultural
factors also affect the goods and services that can be offered by the organisation. Since the organisation works as mediator for converting inputs into outputs, and these outputs are given to the society, it can produce only those things, which are accepted by the society.
Often the managers in formulating or implementing their strategies do not consider the social and cultural factors adequately. The result is that their sound strategies in all other aspects may fail. Many products, even by well-established manufacturers, have failed because these could not match the social values. Similarly many products, which may not seem to be economically well may succeed because of their social and cultural values. Further the organizations have to follow social expectations in their objective setting and working. However, the social and cultural factors are also subject to change, though the change is gradual and steady which can be forecast with comparative ease once the managers get an insight of these factors.

In analyzing social and cultural factors, the organisation can ask the following questions:
  • What are approaches of the society towards business in general and in specific areas?
  • How do social, cultural and religious factors affect acceptability or otherwise, of product?
  • What is the life style of people and what products fit that life style?
  • What is the level of acceptance of, or resistance to, change?
  • What are .the values attached to a particular product? Do people: see possessive value or functional value in the product?
  • Do people buy specific products for specific occasions necessitated by social and religious requirements?
  • What is the propensity to consume and to save?


5. International Environment

Today’s economy has globalize in which geographical boundaries of a country have only political relevance; the economic relevance has extended beyond these. Today, market classification
does not take into account only national parameters but global parameters. In this globalization, many multinationals like Exxon, Mobil Oil, Coca-Cola, Avon, Unisys, etc. derive more than half of their revenues from their overseas operations.
This is true for many Indian companies particularly in information technology sector such as Infosys Technologies, Wipro, Satyam Computer, Penta Media Graphics; Hughes Software, etc. These companies drive more than 70 per cent of their revenues from overseas operations. Therefore, there is a need for scanning international environment. From strategic management point of view, the analysis is required from two angles: to open operations abroad and to understand the implications of entry of multinational corporations in the country and the freedom of importing products and services from abroad.

For operation abroad, the analysis of the following factors is important:

Economic Factors

1. Rate of economic growth.
2. Income distribution pattern
3. Size of market for company’s products.
4. Infrastructure and physical facilities.
5. Sources of funds and their cost.
6. Availability of foreign exchange for remittances.

Tax Factors
1. Tax rate trends on various types of taxes-corporate, indirect taxes such as custom, excise, sales, local, etc.
2. Joint tax treaties with home country and other countries.
3. Duty and tax drawbacks on exports.
4. Availability of tariff protection.

Political-Legal Factors
1. Political system and stability of political process.
2. Government’s approach towards foreign investment.
3. Restrictions imposed on foreign investment.
4. Incentives provided on foreign investment.

Human Resource Factors
1. Local availability of human resources of various types.
2. Degree of skills and competence of different types of personnel.
3. Attitudes towards work and productivity.
4. Status of unionization and its approach towards management.
5. Availability of amenities for expatriate personnel and their families.

Geographic and Competitive Factors
1. Efficiency of transport system.
2. Proximity of site to export markets.
3. State of marketing and distribution system.
4. Profit margin on operations.
5. Competitive situation in the industry.

Socio-Cultural Factors
1. Attitudes of local population towards foreign companies and products.
2. Degree of acceptability of innovative products.
3. Life style of people and consumption pattern.
4. Peculiar socio-cultural differences affecting business prospects adversely.

In the case of analyzing international environment in the context of threats through import and operations of MNCs in the country, the important factors are:

1. Comparative cost advantages through technological advancement, high volume of production, or both.
2. Tariff structure affecting, favourably or unfavorably, imports.
3. Attitudes of exporting nations and companies in the form of dumping and other means to take advantages over local companies.
4. Degree of subsidies and incentives, both financial and nonfinancial, available to exporting companies.
Later type of factors have become more crucial in the liberalized Indian economy because it has opened its markets to MNCs almost in every sector and that too in unrestricted form.
Therefore, Indian companies have to be more cautious than what they used to be.

Changing Indian Business Environment
We have seen that environment is dynamic and changes take place in it continuously. In the Indian business scene, many changes have taken place in the liberalization process, which was
introduced in 1990s, and the process still continues. On the one hand, these changes have provided opportunities to Indian corporate sector; on the other hand, these have thrown many
challenges to it because of unrestricted imports and entry of MNCs. Some of the major changes are as follows:

Macro and Monetary Policy Changes

Fiscal and Monetary Policy Changes

1. Rationalization of corporate and income tax
2. Rationalization of excise duties
3. Rationalization and reduction in custom duties
4. Lowering of interest rates

Banking Sector Changes
1. Entry of private sector banks
2. Equity dilution in public sector banks
3. Phasing out of priority lending
4. Operational freedom in lending rates
5. Operational freedom in deposit rates
6. Adherence to capital adequacy norms and income recognition

Capital Market Changes
1. Abolition of Controller of Capital Issues
2. Creation of Securities Exchange Board of India (SEB!)
3. Free pricing of new equity issues
4. Opening of capital markets to foreign institutional investors
5. Entry of foreign broking houses
6. Freedom for Indian companies to raise funds through ADRs / GDRs
7. Index and scrip-based future and option trading

Structural Changes

Market driven Pricing
1. Phasing out of subsidies
2. Phasing out of administered price mechanism
3. Abolition of control on distribution system

Public Sector Policy Changes
1. Disinvestments in and divestment of public sector undertakings
2. Reduced role of public sector
3. Abolition of price preference to public sector
4. No new establishment in public sector

Exit Policy Changes
1. More freedom for closing industrial undertakings
2. Voluntary retirement scheme
3. Creation of National Renewal Fund
4. Abolition of Bureau of Industrial and Financial Reconstruction

Industrial Policy Changes

IDR and MRPT Changes

1. Abolition of licensing system except for few industries
2. Concept of asset limit under MRI’P Act abolished
3. Industries reserved from small-scale sector reduced
4. Capital and investment limits for small-scale sector raised’
5. Joint venture norms eased

Direct Foreign Investment Policy Changes
1. Replacement of FERA by FEMA
2. Convertibility of Rupee on current account
3. Hundred percent equity participation by overseas companies in selected sectors
4. Freedom for buying shares to increase the holding of MNCs in their subsidiaries in India
5. Counter guarantee by Central Government for certain sectors

Export-Import Policy Changes

Export Policy Changes

1. Emphasis on export but without financial subsidies
2. Export income tax free except in certain cases
3. Norms eased for opening offices/establishments abroad

Import Policy Changes
1. More and more items on open general license
2. De-emphasis on quota restrictions
3. De-canalization of imports
4. Import tariffs as per stipulation of WTO

Implications of Changes
It is not possible to discuss the details of the above changes owing to space limitations. However, we can analyze their implications from strategic management point of view. Post liberalization, most of the Indian companies have started feeling the heat of new competitive environment. Even two most prominent industrial groups of the country- Tata and Birla-have evoked similar views on these threats. However, at the same time, these changes have provided opportunities to Indian companies.
Therefore, let us see what opportunities and threats have been provided by these changes.


Opportunities


Economic liberalization has thrown a number of opportunities to Indian companies. In general, these opportunities are in the following forms:

1. Entry into business has become easier than what it used to be in pre-liberalized era which was marked by industrial licensing and several types of clearances from various government agencies. On the situation prevailing earlier, T. Thomas, former Chairman of Hindustan Lever, has commented “trying to set up a new industrial unit in India is like running an obstacle race with one difference. In setting industrial unit obstacles incre91se both in number and complexity without prior warning. ‘We have estimated that it takes about seven years from the conceptual stage to the production stage for any significant investment to take place in India. Out of this at least fifty per cent of the time is spent to satisfy government regulations. This situation has
changed completely. Today, companies can implement projects in much lesser time because of lack of government regulations. For example, Reliance Group has taken less than four years in implementing its petroleum refinery, biggest in Asia, and paying dividend.

2. Liberalization has eased the process of business restructuring either by way of divesting some businesses by an organisation or acquiring other businesses. Business restructuring has become a common phenomenon in Indian business scene because of lesser entry and exit barriers. Noncore and weaker businesses have been passing to those organizations which have substantial strengths in these businesses. For example, much of the growth in Hindustan Lever has generated because of mergers and takeovers. Most of these ‘have taken place post-liberalization.

3. Liberalization has opened the path to private-sector organizations for the participation in management of public sector companies through acquisition of majority or controlling shareholding as the government has adopted the policy of disinvestments and divestment. This phenomenon provides lot of strategic advantages to acquiring companies.

For example, Sterile Industries which is in the business of cables has substantial cost advantages over its competitors by acquiring. Controlling interest in Bharat Aluminum Company (BALCO) as it supplies critical raw materials to cable industry.

4. Liberalization has paved the way for acquiring businesses abroad, which adds to competitive advantages to the acquiring companies. Such takeovers have become common in information technology sector, which add value to the acquiring companies by way of addition of IT professionals and business portfolio. In non-IT sector, takeover of Tetley by Tata Tea has provided it a plate form to become global player in tea bags.

5. Post-liberalization raising of funds has become much easier because of fewer restrictions on this process. With free pricing, companies can charge price of their shares based on intrinsic worth rather than the price to be flexed by the government agency (earlier, it was Controller of Capital Issues). Besides, Indian companies can raise funds overseas by way of Global Depository Receipts (GDRs), American Depository Receipts (ADRs) or long-term loans. Many Indian companies have raised funds through GDRs and ADRs. Similarly, many companies have raised funds through long-term loans at much cheaper cost.

For example, Reliance Industries has raised funds through bonds with a maturity period of 99 years, a phenomenon unheard, or even unconcealed, in Indian context.



Threats


Every action has a mixture of both positive and negative aspects. This is true with liberalization too. Though it is not possible to evaluate whether liberalization as a policy is good or bad because it has ideological contention and many persons have taken this exercise at the academic level, it is sufficient to say, here, that liberalization has thrown many challenges.
Though these challenges may affect all Indian companies but those companies would be badly affected which do not cope up with reality. Given below is the list of challenges that liberalization
has posed in the form of threats to Indian companies:

1. Liberalization has posed a kind of competition with which Indian companies have not confronted in the past. The competition has emerged in three forms.

First, because of delicensing of industries, many new companies have entered the business fields which Were considered to be safe.

Second, many foreign companies have entered Indian business scene and they have tilted the competition in their favour.

Third, because of -lesser restrictions on import, the Indian market is flooded with lot of imported goods. All these three factors taken together have changed the earlier seller market into the buyer market ‘in which many companies find it extremely difficult to compete which has eroded their profitability and, in- many cases, their basic survival.

2. Entry of many new players in business field has posed acute pressure on productive resources, both human and nonhuman. Since resources are scarce by nature, this scarcity has
raised the cost of procuring these resources. Just to take an example of human resources; most of these place their PGP students in management on the very first day of campus recruitment program and most of these students are grabbed by subsidiaries of MNCs. The cost of acquiring
these students is increasing on an average of 20-25 per cent. Similar is the case with other critical resources.

3. Foreign Institutional Investors (FIls), sometimes, interfere with the management process of companies in which these FIls have substantial shareholdings through stock market operations. Many times, they insist on the adoption of foreign management practices, which may not be applicable in Indian context in the same way.

4. With the increased limit of FIls holding up to 49 per cent, there may be threat of takeover of companies because promoters will not have controlling stake in shareholding.

Though such a case has not happened, the possible threat exists.In the light of these threats, the question that is raised is: what should the Indian companies do In order to overcome these threats.

A possible answer to his question may be that they should analyze the industry they operate in and evaluate the nature of competition therein. Based on this analysis, they can devise suitable courses of strategic action.

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