Business environment is the constraints and opportunities that surround our businesses. This is about exploring the nature of the business in which it is being carried out.
The analysis in this essay will be on business environment in which Reliance Industries Limited operates.
Reliance Industries Limited or RIL is commonly known as Reliance. The company was founded by Shri. Dhirubhai H. Ambani in 1977 the company was initially started as a textile company and led its evolution as a world leader in materials and the energy value chain
The Company’s operations can be classified into four segments namely:
- Petroleum Refining and Marketing business
- Petrochemicals business
- Oil and Gas Exploration & Production business
There are two types of business environment INTERNAL and EXTERNAL environment
Before coming on to the external forces, the internal forces should be made clear.
The internal forces are those forces which are controlled by the organisation itself such as the resources knowledge and decision making
Reliance in the above context has a wide variety of resources such as well qualified employees and infrastructure
As far as knowledge and decision making is concerned Because Reliance recruits very well qualified persons thereby it reflects when it comes to the decision making process of the company
External business environment comprises of Political, Economic, Social and Technological factors. These factors can have appositive as well as a negative impact on the company. There are two types of external business environment i.e. micro and macro
- External micro factors are company’s suppliers, transporters, agents, distributers, and wholesalers.
- External macro factors comprises of Political, Economic, Social and Technological factors.
The external micro factors can be influenced by the organisation whereas macro factors cannot be influenced by the organisation
Polypropylene market in India
Over the past forty years polypropylene growth has exceeded that of other major plastics and has become the largest volume commodity resin. Throughout the history of PP through research efforts of various companies, PP has continued to rapidly evolve with new generation of catalyst and post reactor technology. Because of the improvements made to process and application technology, this polymer has developed into one of the cost-effective bulk thermoplastic. Polypropylene is the world’s fastest growing polymer with an average growth rate of about 7-8%.
It is very important for a company to understand and try to manage the external micro factors i.e. PEST forces as discussed above
Political factors include government policies relating to the industry, tax policies, laws and regulations, trade restrictions and tariffs etc. As in any part of the world, political influence is highly essential to start a business in India. Especially if you are planning to start a multi-billion business, some sort of political patronage is an absolute necessity. Not only for safeguarding the interest of the company but even to begin the process of getting the required sanctions, one requires hold in the high echelons of politics and administrative circles.
Reliance industries also hold a high echelon of political and administrative circles so as to safeguard the interest of a company and for getting the required sanctions.
The economic factors relate to changes in the wider economy such as economic growth, interest rates, exchange rates and inflation rate, etc. These factors comprise of Government intervention in the free market, infrastructure quality, economic growth rate, availability of labour, wage rate of labour.
Social factors often look at the cultural aspects and include health consciousness, population growth rate, age distribution, changes in tastes and buying patterns, etc.
Safety of a person overrides all the production targets’ is the Health, Safety and Environment Policy of Reliance.
Occupational Health Centres (OHCs) have been established to provide education on health and awareness issues, diagnostic camps and health exhibitions are also arranged. RIL also offers periodic medical examination of all the employees (including Contractors’ employees) along with their family members. In case of any hospitalisation RIL employees are supported by consistent co-operation and cashless hospitalisation amenities from one corner of a country to another. The company also provides fully equipped hospitals in all its major townships. The company also helps conduct Periodic potable water sampling analysis and health audits for the canteens and guest houses.
A new initiative was launched by RIL called (CASHe) programme i.e. Change Agents for Safety, Health & workplace Environment. This initiative was launched to promote healthy workplaces and reduce health and safety risks. It has also facilitated the Syndicate to advance its enactment on the occupational health and safety front.
The company’s long term objective is to address all environmental initiatives as they want to become more positive about water conservation, carbon neutral and conduct the maximum possible recycling and reuse of wastes. The company has further been reinforced in context of company’s management framework with roles responsibilities, group standards and defined structures.
RIL’s Patlganga plant has changed over to use of a cleaner fuel. This resulted in substantial reduction of suspended particulate substance and sulphur dioxide releases in the air.
RIL has indoctrinated a practice to be in coordination with nature and in this circumstance, afforestation, upkeep of green belts and promoting lush green surroundings as they have decided to planted around 1,00,000 plants at the OT, gardens, vermin-compost of waste and its use as manure, they also reuse treated water for horticulture activities as a routine.
The technological factors relate to the application of new inventions and ideas such as R&D activity, automation, technology incentives and the rate of technological change.
RIL has always laid emphasis on R&D, technology development and innovation. The reliance Group (RTG) undergoes various research and technology functions which help them produce improved value supply by leveraging all the abilities, and creating new prospects at the interfaces.
At the time of recession also RIL did not even step back their zeal to innovate helped them convert the adversity into an opportunity. The company launched a ground-breaking initiative called “mission kurukshetra” which was aimed at emerging the organisation to rise to the occasion and also help the company to emerge stronger.
This initiative not only helped in combatting the challenges with a win but also identified serial ideators; the enterprise facilitated them by rewarding them for their leadership. The Leading Expert Access Programme (LEAP). The people at RIL are inspired by leaders and also provide them access to global thought.
The RIL draws an agenda on innovation with the help of The Reliance Innovation Leadership Centre (RILC) which helps the company to stay amongst one of the most innovative companies in the world. RIL continues its journey to make improvement a way of life and want to confirm that the growth of the next generation are led by innovation.
Advantages of PEST analysis:
PEST analysis is an effective and efficient tool, which provides a framework to an organisation for effective decision making. By making effective use of PEST analysis, one can ensure affirmative orientation of the business organisation. PEST analysis also helps an organisation in avoiding decisions which should not be taken. PEST analysis helps in making lawful decisions for the companies which are willing to enter into a new market.
Disadvantages of PEST analysis:
PEST analysis considers only the external business factors, but in reality all the factors should be considered in order to make effective decisions for an organisation. Most of the data gathered through this analysis is based on assumptions, which sometimes may not prove to be fruitful for an organisation. The rapid changes in the world economy can also make it difficult in analysing PEST factors for an organisation.
Another factor which comes under consideration is the SWOT analysis of the company SWOT stands for strengths weakness opportunities and threats.
RIL’s SWOT analysis is as follows:
There are only two main players of in petrochemicals and a solid consolidation has been seen in last few years as 85% of polymer capacity is with these companies namely reliance and haldia
Low bargaining power from the suppliers:
The input prices form nearly 50-60% of the raw material costs. Reliance being a petrochemical player does not have much of a negotiating power counter to the suppliers. Therefore they always remain unprotected to the prices of the raw material.
Low bargaining to from the customers:
As there is an increase in the input cost therefore the companies are not able to offer any price reductions or bargains to the customers.
Low per capita income:
Currently, domestic per person polymer consumption is nearly 4 kgs while if we see the global average it is nearly 20 kgs. This tells the fact that there is huge scope of volume expansion in INDIA as the market to be selected is very massive.therefore there is a massive scope of product development. Also, currently, India has a chemicals trade deficit of about US$ 1.5 bn a year, which leaves enough investment opportunities in the industry.
The polymer industry has a protection from overseas competition by leveraging high import duties imposed by the government. However, of late, Import duty on polymers has been steadily reduced and is currently at 20%. As part of its commitment to various multilateral and bilateral trade agreements, the government is likely to reduce duties.
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