Governments create the rules and frameworks in which businesses are capable to contend against each other. From time to time, the government will modify these systems and frameworks forcing businesses to transform the method they operate. Business is thus eagerly affected by government policy.
Impact of Government Policy Changes on Business and Industry
The policy of liberalization, privatization, and globalization of the Government has made a significant impact on the working of enterprises in business and industry.
These challenges can be explained as follows:
- Increasing competition
As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector. As a result of the policies such as relaxation of the licensing policy and decrease of import duties, the competition faced by the home firms increases.
- More demanding customers
Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers a wider choice in purchasing better quality of goods and services.
- Rapidly changing technological environment
Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products, and services. The rapidly changing technological environment creates tough challenges before smaller firms.
- Need for developing human resource
Indian enterprises have suffered for long with inadequately trained personnel. The new market conditions require people with higher competence and greater commitment. Hence the need for developing human resources.
- Market orientation
Earlier firms used to produce first and go to the market for sale later. In other words, they had production oriented marketing operations.
- Taxation policy
Taxation policy affects business costs. For example, a rise in company tax (on business profits) has a similar outcome as an increase in costs. Businesses can exceed some of this tax on to customers in higher prices, but it will also influence the bottom line. Other business taxes are environmental taxes (e.g. landfill tax), and VAT (value added tax). A VAT is essentially accepted behind the line to the ultimate customer but the management of the VAT method is a cost for business.
- Globalization
It refers to integrating our financial system with the world’s financial system. It is the method of communication among countries of the world in order to develop the global financial system. Physical geographical gap or political boundaries no longer stay behind barriers for a business venture to serve in an isolated geographical market.
- Rapid Changing Technological Environment
Rapid Technological progression has changed/improved the manufacturing procedure as a result of which utmost production is probably at smallest amount cost but it leads to tough challenges in front of little firms.
- The political environment
The political environment is perhaps among the least expected elements in the business environment. Lack of political constancy in a country effects business operations. This is particularly true for the companies which control globally. A repeated political environment develops, as democratic governments have to practice re-election every few years. This external element of business includes the effects of pressure groups. Pressure groups tend to change government policies.
In a fast-changing world, there is a shift to market orientation in as much as the firms have to study and analyze the market first and produce goods accordingly.
