Business Environment
By:- Ranjana Singh
Asst. Prof. of Mgmt, UWSL
Business
• Business may be understood as the organized
efforts of enterprises to supply consumers with
goods
and
services
for
a
profit.
~ Aswathappa & Reddy
Purpose of Business
• Business may be in simple words understood as organized
efforts of enterprise to supply consumers with goods
and services for a profit.
• However the purpose of business is not earning profits only.
• Business is an important institution in society for the supply of
goods and services.
• Business helps in Creation of job opportunities.
• Business offers better quality of life.
• Business contributes to the economic growth of the country.
Scope of Business
• Business includes all the activities connected
with:
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Production
Trade
Banking
Insurance
Finance
Agency
Advertising
Packaging
Business Environment
• “Environment factors of constraints are largely if not totally external
and beyond the control of individual industrial enterprises and their
arrangements. These are essentially the ‘givers’ within which firms
and their managements must operate in a specific country and they
vary, often greatly from country to country”.
~ Barry M. Richman and Melvyn Copen
• “ The environment includes outside the firm which can lead to
opportunities for or threats to the firm. Although, there are many
factors, the most important of the sectors are socio–economic,
technical, supplier, competitors, and government.”
~ Glueck and Jauch
Importance of Business Environment:•
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Determining Opportunities and Threats
Giving Direction for Growth
Continuous Learning
Image Building
Meeting Competition
Identifying Firm’s Strength and Weakness
Features of Business Environment:•
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Totality of external forces
Specific and general forces
Dynamic nature
Uncertainty
Inter-related components
Types/Components of Business
Environment-
• Business Environment has two components:
1. Internal Environment
2. External Environment
Internal Environment
“The internal environment is the environment that
has a direct impact on the business and are
generally controllable because the company has
control over these factors”.
Internal Factors
• The factors which directly effect the internal
environment of the business are:1. Value System
2. Mission, Vision & Objectives
3. Management structure and Nature
4. Human Resource
5. Company Image and Brand Equity
6. The financial strength of the organization
7. The assets owned by the company
8. The Marketing resources & setup
9. The focus on research & development
Features of External Environment
• Include the factors external to the environment
which are not in the control of the business.
• Two types External Environment on the basis of
impact on the firm:1. Micro Environment
2. Macro Environment
Micro Environment
• Also known
Environment.
as
Task
Environment
or
Operating
• Consists of factors in the Company’s immediate
environment that affect the performance of the company:1. Supplier
2. Competitor
3. Customers
4. Distributors
5. Public
• Micro forces not necessarily affect all the firms in a
particular industry in the same way.
Suppliers
• Uncertainty regarding the supply often compel
companies to:1. Maintain high inventories causing cost increase.
2.Vendor development.
3.Vertical Integration. E.g. Nirma
4.Multiple sources of supply
Supply chain in the business
Customers
• Company may have different categories of customers like
individuals, industries and government institutions.
• Depending upon single customer is often too risky.
• Choice of the customer segment should be based on various factors
like relative profitability, dependability, stability of demand.
Growth prospects and extent of competition.
• Loyalty cards, frequent flyer programmes and frequent shopper
incentives are all aimed at rewarding customers who buy a firm's
product regularly
• Growing globalization has made the customer’s more “global” in
their shopping.
Competitors
• Competitors of a firm is not only the firm producing same
or substitute product but has enlarged.
• The competition shrinks from Generic competition to
Product form competition and the ultimately to Brand
Competition.
• Whenever entering in new market firm should study and
ensure proper knowledge on five forces Model given by
Micheal Porter.
Porters Five Forces Model
Distributors
• The distributors used will determine the final price of the
product and how it is presented to the end customer.
• E.g.
1.Dell computers and Amazon (Reduced Cost by direct
selling)
2.Retailer has control over where the products are
displayed, how they are priced and how much they are
promoted in-store.
• To get proper deal with distributors requires good
negotiating skills and offering appropriate incentives.
Public
• The group which help organization to generate the
financial resources, creating the image, examining the
company policy and developing the attitude towards the
product.
• Types of Public are:1. Media Public
2. General Public
3. Citizen Action Group
Macro Environment:• The factors which can have a major impact on
the actors in the Micro/Task environment.
• According to Philip Kotler“Macro Environment includes forces that create
opportunities and pose threats to the business units.
It includes economic, demographic, natural,
technological,
political
and
cultural/social
environment”
Political Environment
• Two basic Political Philosophies –
1.
Democracy- Political arrangement in which supreme
power is vested in the people. (E.g. India)
2. Totalitarianism Also called Authoritarianism.
 Individual freedom is completely subordinated to the
power of the state & concentrated in the hands of one
person or in a small group.
 (E.g. Hitler’s Nazi’s rule Germany, and in current North
Korea, Cuba)
Three vital institutions in India political System:-
• Legislature (Vested with powers of policy making,
law making)
• Executive or Government (Maintenance of order,
Money and credit, Orderly growth, Infrastructure,
Assistance to Sick Industries etc.)
• Judiciary (To settle down legal disputes)
Government plays four important role:-
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The Regulatory Role
The Promotional Role
The Entrepreneurial Role
The Planning Role
Political/Government Environment
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Political Ideology of the Government
Political Stability in the country
Relation of our nation with other country
Defense and military policy
Welfare activities of the government
Centre State relationships
Social/Cultural Environment
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Attitude of people towards work
Family System
Caste System
Religion
Education
Habits and preferences
Languages
Urbanization
Customs and Traditions
Value System
Business Ethics
Technological Environment
The impact of technology can be
heads:-
found under three
a) Technology and Social Change (Technology reaches people
through business, High expectations of Consumers, social
change etc)
b) Economic effects of technology (Increased productivity,
Expenditure on R&D, Increased regulation and stiff
opposition, Business boundaries redefined etc)
c) Technology & plant level changes (Organization structure
change, TQM, E-commerce, FMS etc)
Technological Environment
The important factors that determine the technological
dynamics of a company includes:•
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Innovative drive of the company
Customer needs/expectations
Demand Conditions
Suppliers’ offerings
Competitive Dynamics
Substitutes
Social Forces
Research Organizations (ICSR,CFTRI,DFRL etc)
Demographic Environments
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Size of population and population growth
Age Composition
Gender Mix
Educational Level
Family Size and Structure
Economic Stratification of population.
Urban-Rural Population.
Natural Environment
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Climatic conditions
Availability of Natural Resources
Topographical Factors
Pollution Controls
International Environments
• Globalization ( E.g. LPG in 1992 in India)
• Global financial Crisis ( E.g. Financial Crisis in USA)
• International Agreements and declarations
(E.g.
Declarations by WTO, BASEL-I,II,III Etc)
• International Terrorism
( E.g. Attack on World Trade Centre in
America leading )
• Cultural Exchange
(E.g. Learning Foreign Language and knowing
foreign language is a must)
Multinational Corporations
A multinational corporation (MNC) is a business
with extensive international operations in more
than one foreign country.
Environmental Analysis for Business
• Four step process:a) Scanning
 Identify early signals of possible environmental
change
 Detect environmental change already under way.
 Fundamental challenge for analysis in scanning is
to make sense out of vague, ambiguous and
unconnected data.
Environmental Analysis for Business
b) Monitoring:Three outcomes emerge out of monitoring- Specific description of environmental trends and
patterns to be forecast.
 The identification of trends for further
monitoring.
 The identification of areas for further scanning.
These outputs become inputs for forecasting.
Environmental Analysis for Business
c) Forecasting: Concerned with developing plausible projections
of the direction, scope & intensity of
environmental change.
 It tries layout the evolutionary path of
anticipated change.
 Eg.
- How long will it take the new technology to
reach the market place?
- Are current life style trends likely to continue?
Environmental Analysis for Business
d) Assessment: Involves identifying & evaluating how & why
current & projected environmental changes
affect or will affect strategic management of the
organization.
 Tries to answer question such as what are the key
issues presented by the environment, and what
are the implications of such issues for the
organization?
PESTEL Model
• PESTEL stands for Political, Economic, Social,
Technical, Environment and Legislative.
• It is a strategic planning technique that provides a
useful framework for analyzing the environmental
pressures on a team or an organization.
Diagrammatic Representation
SWOT Analysis
• The SWOT model is based on identifying the
organizations internal strengths and weaknesses
and external threats and opportunities and
consequently
identifying
the
companies’
distinctive capabilities and competencies and key
success areas.
SWOT Analysis
Corporate Social Responsibility
 Corporate Social Responsibility is the continuing
commitment by business to behave ethically and contribute
to economic development while improving the quality of life
of the workforce and their families as well as of the local
community and society at large.
~By Lord Holme and Richard Watts
 A concept whereby companies decide voluntarily to
contribute to a better society and a cleaner environment. A
concept whereby companies integrate social and
environmental concerns in their business operations and in
their interaction with their stakeholders on a voluntary
basis.
~ By European Commission
Areas of Social Responsibility
Arguments in favor of Social Responsibility
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Long term self-interest of business
Ascertain law and order
Maintenance of free enterprise
Creation of society
Moral justification
Arguments against Social Responsibility
• Cost of social action is passed on to consumers
• Lack of Standard
• Undue use of power
Business Ethics
• ‘Ethics’ can be defined as Moral principles that
govern a person’s behavior or the conducting of
an activity.
~ Oxford Dictionaries
• Business Ethics is the applied ethics discipline that
addresses the moral features of commercial
activity.
• The significant principles included in business
ethics are: Fairness
 Integrity
 Commit to agreements
 Broad-mindedness
 Considerateness
 Importance to human esteem and self-respect
 Responsible citizenship
Encouraging Ethical Behavior
• Government’s role. (E.g. Enforcing stringent legislations)
• Trade Associations. (E.g. Providing Guidelines)
• Individual Companies. (Establishing code of ethics,
Comprehensive ethics programme to improve organizations
ethical climate)