Business environment refers “to a set of political, economic, social, technological, environmental and legal (PESTEL) forces that are largely outside the control and influence of a business and that can potentially have both a positive and negative impact on the business” (Varian,2003,p 4).
Today’s world is a rapidly changing place. Developments across a series of factors will have an impact on a business or industry. The standard PEST structure (political, economic, social, and technological) identifies four key categories of external factors that involve the capability of an organization to stay alive and show a profit. The reason for this framework is that business does not function in a vacuum. It has to act and react to what happens outside the factory and office walls. These factors that happen outside the business are known as external factors or influences and also known as the Macroenvironment. These will affect the main internal factors like Customers, Competitors, Suppliers and Share holders identified as a Microenvironment of the business and possibly the objectives of the business and its strategies. These will leads to a SWOT analysis and it is a strategic planning method used to evaluate the Strengths and Weaknesses internally to the organization and the Opportunities and Threats presented by the external environment to the organization. It involves specifying the objective the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective.
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To study the Business Environment and it’s all factor is satisfied by the example of the multinational company TATA Motors. The main purpose of select this company is to understand all significant factor like political, economic, social, technological, environmental and legal of the business environment and facing a lots of challenges in the last 5 years to develop a ‘TATA NANO – the world cheapest car’ by the TATA Motors – India’s largest automobile company.
Organization Description and Background
Tata Motors Limited is India’s largest automobile company, with consolidated revenues of Rs. 92,519 crores (USD 20 billion) in 2009-10. It is the leader in commercial vehicles in each segment, and among the top three in passenger vehicles with winning products in the compact, midsize car and utility vehicle segments. The company is the world’s fourth largest truck manufacturer, and the world’s second largest bus manufacturer.
The company’s 24000 employees are guided by the vision be ” Best in the manner in which we operate, best in the products we deliver, and best in our value system and ethics.”
Established in 1945 by J.R.D.TATA the chairman of the TATA Groups. Tata Motors’ presence indeed cuts across the length and breadth of India. Over 4 million Tata vehicles ply on Indian roads, since the first rolled out in 1954.Tata Motors, the first company from India’s engineering sector to be listed in the New York Stock Exchange (September 2004), has also emerged as an international automobile company. Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand, Spain, Brazil, Kenya, South Africa . Among them is Jaguar Land Rover, a business comprising the two iconic British brands that was acquired in 2008.
In January 2008, Tata Motors unveiled its People’s Car, the Tata Nano, which India and the world have been looking forward to. The Tata Nano has been subsequently launched, as planned, in India in March 2009. A development, which signifies a first for the global automobile industry, the Nano brings the comfort and safety of a car within the reach of thousands of families. The standard version has been priced at Rs.100,000 ($2,500) (excluding VAT and transportation cost).
TATA Motors Business Environment
TATA Motors has been faced a many challenges to developed a world cheapest car NANO from established a manufacturing plant to launch a car in market. Also it has been uncovered to PESTEL forces that are most important on the company’s performance, strategies, decision and achievement of the goal to develop a world cheapest car NANO. So, the main and significant factors described below.
1 . Political Factor
Political factors are how and to what degree a government intervenes in the business. Specifically, political factors include areas such as tax policy, political stability, legal framework for contract enforcement, trade regulation and tariffs, industrial safety regulation etc. It’s also included goods and services which the government wants to provide or be provided and those that the government does not ant to be provided.
TATA Motors faced a political issued between local state government and local farmers. The main scenario was the West Bangal state government (India) had allocated to 997 acres of fertile land to TATA Motors for establishing a manufacturing pant of TATA NANO car. But the main problem was faced after the starting of the construction of the manufacturing plant of NANO car and that time the local farmers and the local political leaders were demanded to return their land. Also the local public were tried to stop to construction of manufacturing pant of NANO car for the direction of the local political leaders.
Finally, September 2, 2008 -Mr. Ratan Tata the chairman of the TATA Motors was take a decision to stopped the construction of manufacturing plant of NANO car at Singur, West Bangal (India) and announced that to shifted a new placed . At that time the state governmement of Gujarat (India) to spread a carpet for established a manufacturing plant for manufactured NANO Car. Also provides a cheap land, all fundamental facility and safety for establishment of plant. Finally, October 7,2008 TATA Motors starts a construction of manufacturing plant for the world cheapest car TATA NANO at Singur, Gujarat (India).
2. Economic Factor
Economic factors refer to the character and direction of the economic system within which the firm operates. Economic factors depend on an economic growth, interest and exchange rate, inflation rate, the state of the business cycle, the distribution of income within the population, and governmental monetary and fiscal policies. The impact of economic factors may also differ between industries. For example, Purchases of many durable goods (appliances, furniture, and automobiles) can be postponed during periods of recession and depression, as can purchases of new equipment and plant expansions.
TATA Motors has been seen a two main factors to impacted company’s economical environment. The first challenge was continuously fall down the stock prise during the political issue of established a NANO manufacturing plant as mentioned above in political factor. During this period, the issue between the company and government has been affected directly on company’s stock prise and it was dropped by more than 50 percentages as shown in graph.
Global recession has shocked the global auto industry with pinching effects on the Indian auto industry. India is a strong and growing economy but the hit of recession has put red marks on the entire balance sheet of the Indian economy. So, the second challenge was the world has been facing a recession that started in 2008-09 when the TATA Motors has been started to develop a TATA NANO the dream project of the RatanTata to make a world cheapest car. The effect of the recession was directly affected the future of the project and how to deal the cost of nano to decreased at Rs.100,000 ($25000).
Tata Motors functions with a global economic perspective while focusing on each individual market. Because Tata is in a rapid growth period, expanding or forming a joint venture in over five continents world-wide since 19994, a global approach enables Tata Motors to adapt and learn from the many different regions within the whole automotive industry. For example, if the price of aluminum required to make an engine blocks goes up in Kenya, Tata has the option to get the aluminum from other suppliers in Europe or Asia who they would normally get from for
production in Ukraine or Russia.
3. Social Factor
The social dimensions of the environment consist of customs, lifestyles, and values that characterize the society in which the firm operates and it’s influences the buying behavior of consumers are inclusive of culture, social class, reference group, family, education, demographics and geography. Social factors include anything within the context of society that has the potential to affect an organization. Population demographics, rising educational levels, norms and values, and attitudes toward social responsibility are examples of social variables.
Undoubtedly, the beliefs, opinions, and general attitude of all the stakeholders in a
company will affect how well a company performs. This includes every stakeholder from the
CEO and President, down to the line workers who screw the door panel into place, from the
investor to the customer, the culture and attitude of all these people will ultimately determine the
future of a company and whether they will be profitable or not. For this reason, Tata Motors
tends to use an integration and rarely separation technique with foreign companies they acquire.
On the other hand, some social issues that Tata Motors faced must also be looked at from a more localized perspective. For instance, the market in India for cars is much different than the market for cars in Italy. For one, India has over one billion more people than Italy does,thus the market is much larger or not as limited. Second, you must also take into affect the demographics and the average income of each market. Italians have a higher average income per capita than Indians and Italian citizens tend to drive larger and fancier cars. For this reason, the Tata Nano might not do so well in the Italian market.
According to the founder of the TATA Motors J.R.D TATA says “In a free enterprise the community or society is not just another stakeholders in business but the purpose of its very existence.”
Therefore, TATA Groups established a TATA charity trust in 1972 for fulfilled Corporate – Social responsibility that works in health, education, employment, rural development and many social and community activity. In November-2008 itself, simultaneously with the construction of the NANO car plant, TATA Motors also began its community development activities in this area. These initiatives, encompassing 20 villages in a 20-mile radius, are on health, education, employability and environment enhancement for its social responsibility.
3. Technological Factor
Technology factors are the scientific advances, which influence the competitive position of the enterprise. Maintaining awareness of new technologies decreases the probability of becoming obsolete and promotes innovation. Advancements in technology can impact the transformation plan in many ways. “New technology as cited in Develop Vision and Strategy can change the demand for a product, render current manufacturing processes obsolete, reduce costs to undercut competitors, produce new products and a host of other possibilities” (Worthington, 2001,p 437).
According to the Pune (India) based R & D team of NANO says “Drawing entirely upon indigenous talent and skills, the Nano was no small challenge to conceive, design and build, it’s the journey of turning the Rs 100,000 ($2500) dream car into a reality without compromising on aesthetics, value to the customer, or safty and environments laws”.
The target price itself became the source of innovation in technology because at that time NANO has been talk of the town around the globe and also the big names in the automobile industry commented that it was a just rubbished and fake claims and it was impossible to make a car at that price. However, this was made possible through series of innovative ideas and developed technologies which led to achievement of 37 patents by Tata Motors.
In terms of NANO is define that –
NANO – small size
NANO – small price
NANO – small income
The Key features to developed the series of innovation in technologies to developed a world cheapest car are
Engine was packaged on the rear side.
2 cylinder engine (conventionally there are 3-4 cylinder engines).
Identical handles and mechanisms for left and right side doors.
Instruments cluster in the middle of the dashboard.
Interior space was maximized by pushing wheels to the corners and power train below the rear seat.
High fuel efficient.
Exceeds the current safety requirements and current emission requirements.
To talk about the Research & Development, the TATA Motors has a team of1400 Scientist, Design Engineers and Development officers those are a high emphasis on thorough research that provides the much-needed inspiration for the birth of new ideas, which in turn breathes new life into products. Tata Motors has several research and development centers in India. The Research Center at Jamshedpur (India) and the Engineering Research Center in Pune (India) are among the finest in the country . They possess forums to develop and test durability, engine performance, emission, safety, design and style, noise, hydraulics, tracks, and instrumentation. Also the TATA Motors has a R & D centre in Spain to satisfied the European car manufacturing, safety and environmental law for international market.
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Nowadays, Environment’ is one of the plays an important role in the management strategy, most generally understood to be referring to ‘something outside’. But common usage today often interprets the Environment as referring to the planetary ecosystem. On that basis the Environment factors such as global warming, climate change, the state of the ozone layer, deforestation and the means of energy generation. Company or firms need to coexist with their environment, responding to that which they experience from it and being responsible for that which they export into it. This unit will focus upon the interactions between the commercial environment and the green environment.
The Issue of the environment is having an impact on many industries such as the travel and transportation industries (for example, more taxes being placed on air travel and the success of hybrid cars) and the general move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunities.
As a result, TATA Motors declared in its annual reports-2008, the motto of Restoring, Ecological and Balance Environment, its spend a 20% of its profit for R&D of the developing a eco-friendly product and Hybrid Car. TATA Motors has set up effluent treatment facilities in its plants, to avoid release of polluted water into the ecosystem. In Pune (India) based plant, the treated water is conserved in lakes attracting various species of birds from around the world thus turning the space into a green belt.
Also, TATA Motors has worked on new Hybrid Car called as OneCAT and it’s made by fiberglass and virtually powered by air and is emission free. This car an run between 200 to 300 Km on one euro of compressed air. According to the chef Technical officer of TATA Motors says “The engine is efficient, cost-effective, scalable, and capable of satisfying to the concept of Hybrid car. This car is truly a representation of the next step in green automobiles.”(Aotopartswwwarehouse.blog.com)
After the demonstration of the case study of TATA Motors through the using of the various Business Environment factors, The TATA Motors has faced a many challenges to developed the ‘TATA NANO – the world cheapest car’ and the challenges are: Firstly, The challenged was during the establishment of manufacturing plant of NANO to generated a political situation regards to the local farmers agriculture land was allocated by government to TATA Motors. In that issue to stop the construction of plant and in that critical condition, TATA Motors to take the decision to pulled out or shifted the plant on another place and reestablished the plant of NANO.
Secondly, The TATA Motors was started to worked on its dream project and that time the economic crises or recession was came and that situation company’s stock prices was fall down more than 50 %.But the companies strong fundamental power and experience to deal the various economic problem, TATA Motors was passed to the recession. Also, It’s made a new marketing strategy to take the advantage of the NANO of the of the prices of Rs. 100,000 ($2500) and to provide a world cheapest car to customer in recession period.
Thirdly, How to reduce the cost of NANO at $2500? This was the big challenged for company to make the world cheapest car. And the TATA Motors has developed or changed through the series of innovation in Technology and to reduce the cost in all area without the compromised to the customer satisfaction, safety, and environment law.
Nowadays, In Globalization Business Environment, any business or organization has become a fundamental strong in its managements and its planning, strategies, scope and objectives and also the awareness of the future challenges and how to faced them to achieving a goals of the organization. Also, To change or innovate in companies policies in terms of the customer, product, competitor, stake holders regards to the surrounding business environment .
The organization has to reach its goals and to establishing a brand name or expand a business, It must to innovate a technologies, to identify customer needs, to develop a standard product and quality life and knowledge of the business environments s to take a advantages of a future opportunities. For the manager role is to identify the various business environmental factors are affecting the organization and how to deal them for success or achieve the goal of business.
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