Business enterprises cannot function in isolation Open systems interact with their environment Business enterprises exist in and

are surrounded by an environment the business or organisational environment Society and business enterprises are mutually dependent Relationship between society and business enterprises takes place in a changing environment
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Business enterprises satisfy societal needs

Business is the organized efforts of enterprises to supply consumers with goods and services. Businesses vary in size as measured by number of employees or by sales volume. All businesses share the same purpose to earn Profits. However, the purpose of business goes beyond earning profits. It is an important institution in society and the role of business is crucial. Be it for the supply of goods and services Creation of job opportunities Offer of better quality of life Contributing to the economic growth of the country and putting it on the global map

Environment refers to all external forces which have a bearing on the functioning of business. Environment are largely if not totally external, and beyond the control of individual industrial enterprises and their management. These are essentially the givers within which firms and their managements must operate in a specific country and they vary, from country to country.

However, the term business environment refers to the External Factors. The external environment has two components ie business opportunities and threats to business. Simmilarly, the organisational environment has two components ie. strengths and weaknesses of the organisation. A SWOT analysis is thus the first step in strategy formulation

Factors influencing Business Decision

Internal Environment

Business Decision

External Environment

BUSINESS ENVIRONMENT Macro Environment Micro Environment

Internal Environment
Financiers Suppliers Customers Competitors Public Mktg Intermediaries Mission / Objectives Management Structure Internal Power Relationship Physical Assets & facilities
Economic Technological Global Demographic Socio-Cultural Political

Business Decision
Company image Human resources Financial Capabilities Technological Capabilities Marketing Capabilities

Any business has certain vision, mission and objectives and a strategy to achieve them. Formulation of strategy is defined as establishing a proper firm-environment fit. Indeed the objectives should be based on an assessment of the external environment and the organizational factors (internal environment). Vision Mission Objectives Management Structure Human Resources Financial Factors Company Image and Brand Equity

Micro Environment

The Micro environment consists of different types of stakeholders - customers, employees, suppliers, marketing intermediaries, competitors. It is also known as the Task Environment and Operating Environment and has a direct bearing on the operations of the firm. Changes in the micro environment will directly affect and impinge on the firm's activities.

The macro environment consists of factors which are beyond the control of the business. There is a symbiotic relationship between business and the environmental factors, environmental factors are dynamic and a particular business firm, by itself, may not be in a position to change its environment. Macro Environment includes:

Political Environment Economic Environment Technological Environment Socio-cultural Environment Global Environment.

The term business environment connotes external forces, factors and institutions that are beyond the control of the business and they affect the functioning of a business enterprise.
These include customers, competitors, suppliers, government, and the social, political, legal and technological factors etc. While some of these factors or forces may have direct influence over the business firm, others may operate indirectly. Thus, business environment may be defined as the total surroundings, which have a direct or indirect bearing on the functioning of business. It may also be defined as the set of external factors, such as economic factors, social factors, political and legal factors, demographic factors, technical factors etc., which are uncontrollable in nature and affects the business decisions of a firm.

Business environment is the sum total of all factors external to the business firm and that greatly influence their functioning.
It covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal conditions. The business environment is dynamic in nature, that means, it keeps on changing. The changes in business environment are unpredictable. It is very difficult to predict the exact nature of future happenings and the changes in economic and social environment. Business Environment differs from place to place, region to region and country to country. Political conditions in India differ from those in Pakistan. Taste and values cherished by people in India and China vary considerably.

Determining Opportunities and Threats Giving Direction for Growth: Continuous Learning Image Building Meeting Competition Identifying Firms Strength and Weakness

Confining business environment to uncontrollable external factors, it may be classified as (a) Economic environment; and (b) Non-economic environment.

Economic Environment
Economic Environment refers to all forces which have an economic impact on Business. The economic environment consists of the demand dynamics, supply situation, pricing factors, degree of competitiveness, and impact of profitability. It includes the fiscal policy, monetary policy and the taxation policy, the FDI norms, the investment criterion and financing decisions. Economic environment includes: . Growth strategy Industry Agriculture Infrastructure Money and Capital Markets Per capita and national income Population New Economic Policy

The survival and success of each and every business enterprise depend fully on its economic environment. The main factors that affect the economic environment are: Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.

(a)

(b) Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are:

(i) Industrial policy (ii) Fiscal policy (iii) Monetary policy (iv) Foreign investment policy (v) Export Import policy (Exim policy)

(c) Economic System: The world economy is primarily governed by three types of economic systems, viz.,
Capitalist economy; Socialist economy; and Mixed economy.

India has adopted the mixed economy system which implies co-existence of public sector and private sector.

The various elements of non-economic environment are as follow: Social Environment Political Environment Technological Environment Demographic Environment Natural Environment Legal Environment

(c) Legal Environment

(i) Companies Act, 1956 (ii) Foreign Exchange Management Act, 1999 (iii) The Factories Act, 1948 (iv) Industrial Disputes Act, 1972 (v) Payment of Gratuity Act, 1972 (vi) Industries (Development and Regulation) Act, 1951 (vii) Prevention of Food Adulteration Act, 1954 (viii) Essential Commodities Act, 2002 (ix) The Standards of Weights and Measures Act, 1956 (x) Monopolies and Restrictive Trade Practices Act, 1969

The micro-environment refers to the forces that are close to the company and affect its ability to serve its customers. It includes the company itself, its suppliers, marketing intermediaries, customer markets, competitors, and public. The macro-environment refers to all forces that are part of the larger society and affect the micro-environment. It includes concepts such as demography, economy, natural forces, technology, politics, and culture.

Technological is the systematic application of scientific or other organized knowledge to practical tasks. Technological environment hold new technological innovation, new products, the state of technology, the utilization of technology for maximum inputs and outputs, the obsolescence of technology and the dynamic changes that frequently occur in technologies which enable firms to get a competitive advantage Technology reaches people through business Helps in increased productivity Business needs to spend on R & D and keep up with the technological advances around them Technology leads to introduction of new products and older products becoming outdated and redundant. Technological advances leads to high expectations of consumers in terms of quality Leads to system complexity Demand for capital

Political Environment refers to the influence exerted by the three political institutions ie. legislature, executive and judiciary in shaping, directing, developing and controlling business activities.

The constitution of a country Political Organisation Political Stability Image of the country and its leaders Foreign Policy Laws governing business Flexibility and adaptability of laws The Judicial System

Global Environment:

The global environment refers to those factors which are relevant to business, such as the WTO principles and agreements; other international conventions/ treaties / agreements / sentiments in other countries etc. For eg hike in crude oil prices has a global impact etc. World is becoming one market Improving quality Competition from MNCs Capital and technology transfers Deciding which markets to enter and what products to manufacture Adjusting the management process

Socio-Cultural Environment:

Culture creates people Culture and globalization Culture determines peoples attitude to business and work. Caste system Spirit of collectivism Education Ethics in business Social responsibility Social audit Corporate governance

External Environmental Analysis Environmental Analysis has three goals: Provides an understanding of current and potential changes taking place Environmental Analysis should provide input for strategic decision making. Facilitate and lead to strategic decisions within an organization.

Environmental Analysis and diagnosis give strategists time to anticipate opportunities and to plan to take optional responses to these opportunities. It also helps strategists to develop an early warning system to prevent threats or to develop strategies which can turn a threat to a firms advantage. Firms which systematically analyse and diagnose the environment are more effective than those which do not.
Process of Environmental Analysis: The analysis consists of four steps: Scanning : Detect early signals of possible environmental change and detect environmental change already underway. Monitoring : Purpose of monitoring is to assemble sufficient data to discern whether certain trends are emerging, identification of the trends and identification of areas for further scanning. Forecasting : It is concerned with developing projections of the direction, scope and intensity of environmental change. Assessment : To determine implications for the organisations current and potential strategy.

Defining Business Mission and Objectives

SWOT Analysis Environmental Analysis + Self Appraisal

Strategic Alternatives and Choice of Strategy

Implementation of Strategy

Evaluation and Control of Strategy

SWOT Analysis
SWOT stands for Strengths, Weaknesses, Opportunities and Threats
Identification of the threats and opportunities in the external environment and strengths and weaknesses in the internal environment of the firms are the cornerstone of business policy formulation. It is the SWOT analysis which determines the course of action to ensure the growth / survival of the firm.

Strengths Strengthsinternal to the unit; are a units resources and capabilities that can be used as a basis for developing a competitive advantage; strength should be realistic and not modest. Your list of strengths should be able to answer: What are the units advantages? What does the unit do well? What relevant resources do you have access to? What do other people see as your strengths? What would you want to boast about to someone who knows nothing about this organization and its work?
Examples: good reputation among customers, resources, assets, people, : experience, knowledge, data, capabilities Think in terms of: capabilities; competitive advantages; resources, assets, people (experience, knowledge); marketing; quality; location; accreditations qualifications, certifications; processes/systems

Weaknesses Weaknessesinternal force that could serve as a barrier to maintain or achieve a competitive advantage; a limitation, fault or defect of the unit; It should be truthful so that they may be overcome as quickly as possible Your list of weaknesses should be able to answer: What can be improved? What is done poorly? What should be avoided? What are you doing as an organization that you feel could be done more effectively/efficiently? What is this organization NOT doing that you feel it should be doing? If you could change one thing that would help this department function more effectively, what would you change? Examples: gaps in capabilities, financial, deadlines, morale lack of competitive

Opportunities Opportunitiesany favorable situation present now or in the future in the external environment.

Examples: unfulfilled customer need, arrival of new technologies, loosening of regulations, global influences, economic boom, demographic shift
Where are the good opportunities facing you? What are the interesting trends you are aware of? Think of: market developments; competitor; vulnerabilities; industry/ lifestyle trends;; geographical; partnerships

Threats External force that could inhibit the maintenance or attainment of a competitive advantage; any unfavorable situation in the external environment that is potentially damaging now or in the future. Examples: shifts in consumer tastes, new regulations, political or legislative effects, environmental effects, new technology, loss of key staff, economic downturn, demographic shifts, competitor intent; market demands; sustaining internal capability; insurmountable weaknesses; financial backing Your list of threats should be able to answer: What obstacles do you face? What is your competition doing? Are the required specifications for your job/services changing? Is changing technology threatening your position? Do you have financial problems? Could any of your weaknesses seriously threaten your unit?

POSITIVE/ HELPFUL to achieving the goal

NEGATIVE/ HARMFUL to achieving the goal

INTERNAL Origin facts/ factors of the organization

Strengths Things that are good now, maintain them, build on them and use as leverage

Weaknesses Things that are bad now, remedy, change or stop them.

EXTERNAL Origin facts/ factors of the environment in which the organization operates

Opportunities Things that are Threats good for the Things that are bad future, prioritize for the future, them, capture put in plans to them, build on manage them or counter them them and optimize

SWOT Analysis of Indian Economy

Weaknesses Strengths
Huge pool of labor force High percentage of cultivable land Diversified nature of the economy Availability of skilled manpower Extensive higher education system High growth rate of economy Rapid growth of IT / ITes Sector Abundance of natural resources High percentage of workforce involved in agriculture Approx a quarter of population below the poverty line High unemployment rate Inequality in prevailing socio economic conditions, rural urban divide Low productivity Huge population leading to scarcity of resources Low level of mechanization Red tapism, Bureaucracy Low literacy rates

Opportunities

Threats
High fiscal deficit Threat of government intervention in some states Growing import bill Population explosion, rate of growth of population Agriculture excessively dependent on monsoon

Scope for entry of private firms in various sectors of business Inflow of FDI Huge foreign exchange prospects in IT / ITeS Investment in R & D Area of infrastructure Huge domestic market : Opportunity for MNCs Huge agricultural resources

LIBERALISATION refers to the process of eliminating unnecessary controls and restrictions on the smooth functioning of business enterprises. It includes:

abolishing industrial licensing requirement in most of the industries; freedom in deciding the scale of business activities;. freedom in fixing prices of goods and services; simplifying the procedure for imports and exports; reduction in tax rates; and simplified policies to attract foreign capital and technology to India.

PRIVATISATION refers to reducing the role of public sector by involving the private sectors in most activities. Due to the policy reforms announced in 1991, the expansion of public sector has literally come to a halt and the private sector registered fast growth in the postliberalised period. The issues of privatisation include: reduction in the number of industries reserved for the public sector from 17 to 8 (reduced further to 3 later on) and the introduction of selective competition in the reserved area;
disinvestment of shares of selected public sector industrial enterprises in order to raise resources and to encourage wider participation of general public and workers in the ownership in business; improvement in performance through an MOU system by which managements are to be granted greater autonomy but held accountable for specified results.

GLOBALISATION means integrating the economy of a country with the world economy. This implies free flow of goods and services, capital, technology and labour across national boundaries. To achieve these objectives of globalisation, the government has adopted various measures such as reduction in custom duties, removal of quantitative restrictions or quotas on exports and imports, facilitating foreign investment and encouragement of foreign technology. These measures are expected to achieve a higher rate of growth, enlargement of employment potential, and reduction of regional disparities.

Identification and forecasting phenomena in the environment Ongoing environmental scanning is essential for strategy formulation Enterprises continuously engage in identifying and forecasting opportunities and threats Enterprises need to proactively or reactively respond to changing conditions in the environment Various sources of information are available to assist with scanning

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Risk assessment is a step in a risk management procedure. Risk assessment is the determination of quantitative or qualitative value of risk related to a concrete situation and a recognized threat

How to Assess Risk : In operations, financial reporting and compliance, risks need to be identified and analyzed. Assessing risk enables you better achieve your group's goals by helping you determine how pitfalls should be managed.

Emerging sectors of Indian economy are those sectors which are going to see an upsurge in the coming decade are the energy sector, real estate sector, services sector, and the biofuel sector

A key characteristic of emerging and developing economies is the shift from agriculture to the industrial and services industries. While agriculture is often a vital component for an emerging economys GDP, most countries seek to diversify into more high-value industries. One example of this is China. In 2001, agriculture was responsible for 17.7 percent of Chinas GDP while industries and services sector made up 49.3 percent and 33 percent respectively. In less than ten years, the importance of Chinas agriculture has shrunk to 9.6 percent of GDP, while the services industry experienced massive growth to 43.6 percent of Chinas GDP in 2010.

Manufacturing Sector Food processing Textiles Healthcare Tourism Entertainment

The public sector, sometimes referred to as the state sector or the government sector, is a part of the statethat deals with either the production, delivery and allocation of goods and services by and for thegovernment or its citizens, whether national, regional orlocal/municipal. Examples of public sector activity range from deliveringsocial security, administering urban planning and organizing national defense.

The part of the economy concerned with providing basic government services.
The composition of the public sector varies by country, but in most countries the public sector includes such services as the police, military, public roads, public transit, primary education and healthcare for the poor. The public sector might provide services that non-payer cannot be excluded from (such as street lighting), services which benefit all of society rather than just the individual who uses the service (such as public education), and services that encourage equal opportunity.

To promote rapid economic development through creation and expansion of infrastructure To generate financial resources for development To promote redistribution of income and wealth To create employment opportunities To promote balanced regional growth To encourage the development of small-scale and ancillary industries, and To promote exports on the one side and import substitution, on the other.

Filling the Gaps in Capital Goods Emploment Balanced Regional Development Contribution to Public Exchequer - part from generation of internal resources and payment of dividend, public enterprises have been making substantial contribution to the Government exchequer through payment of corporate taxes, excise duty, custom duty etc. In this way they help in mobilizing funds for financing the needs for the planned development of the country. Export Promotion and Foreign Exchange Earnings Import Substitution Research and Development

Poor Project Planning Over-capitalization Excessive Overheads Overstaffing Under-utilisation of Capacity Lack of a Proper Price Policy Inefficient Management

Rate of Economic Development and Public Enterprises Pattern of Resource Allocation and Public Enterprises Removal of Regional Disparities through Public Enterprises Sources of Funds for Economic Development Socialistic Pattern of Society Limitations and Abuses of the Private Sector