BUSINESS

ENVIRONMENT

The Pay Model

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 CONCEPT OF BUSINESS ENVIRONMENT

Business environment is the sum total of all

external and internal forces that influence the
business decisions.

Business environment is the direct relationship

between successful management and the
influence and impact of environmental changes

Components of Business Environment :

External Environment

Internal Environment
 EXTERNAL BUSINESS ENVIRONMENT

External business environment is a set of

political, economic, social and technological
(PEST) forces that are largely outside the control
and influence a business and that can potentially
have both positive and negative impact on the
business.
Factors influencing the business environment:
Technological innovation
Globalization
Growth of poverty
Collapse of emerging market
Shift from manufacturing jobs to service jobs
New methods of manufacturing
 INTERNAL BUSINESS ENVIRONMENT

Internal business environment is a set of

elements or forces which affects a organizations
or firms behavior

Example : finance, marketing, production,

operational research and so on
 FEATURES OF BUSINESS ENVIRONMENT

Totality of external force : Business environment

is the sum total of all things external to business
firms and is aggregative in nature

Specific and general force: Business environment

includes both specific and general force. Specific
forces affect enterprises in their day to day
working. General forces have impact on all
enterprises and affect an individual firm only
indirectly.
 FEATURES OF BUSINESS ENVIRONMENT

Dynamic Nature : It keeps on changing whether

in terms of technological improvement, shifts in
consumer preferences or entry of new competition
in the market

Uncertainty: BE is uncertain as it is very difficult

to predict future of happenings
 MICRO ENVIRONMENT

Micro environment is the environment that an

organization can influence. It may not be able to
correct all flaws in the microenvironment, but it
has a much better control over the macro
environment
 FACTORS INFLUENCE MICRO-ENVIRONMENT

Consumers- needs, purchasing power and

behavior
Suppliers
Market Intermediaries
Competitors
 MICRO ENVIRONMENT OF BUSINESS

Suppliers :
Supply raw materials and other components
(inputs)

Importance :

- Reliable Supply : continuous supply for smooth

functioning
 MICRO ENVIRONMENT OF BUSINESS

Customers :

Industrial Customers
Wholesale customers
Retail Customers
Government customers
Foreign Customers
 MICRO ENVIRONMENT OF BUSINESS

Market Intermediaries :

Middleman
Physical distribution firms( warehouse and
transport firms)
Marketing service agencies ( advertising
agencies, market research firms, media firms)
Financial intermediaries
 MICRO ENVIRONMENT OF BUSINESS

Competitors :

The threat of entry of new firms

The power of buyers
The power of suppliers
The power of substitutes
The intensity of rivalry among existing firms
 MACRO ENVIRONMENT
Macro Environment are major external and
uncontrollable factors that influence an
organizations decision making and affect its
performance and strategies
These factors include:

Sociological factors

Political factors

Legal factors

Educational factors

Technological factors

Economical factors
 MACRO ENVIRONMENT
Sociological Factors : It concern with society as a
whole, it covers health , media, education, women,
organized labor, legal system and demographics.
The biggest challenge to firms is the societys
changing demands

Political Factors: Political environment gives

shapes to business. Political stability, government
administration, philosophy of the political parties
are some of the political factor which affects the
business environment
 MACRO ENVIRONMENT
Legal Factors : Legal environment has a
permanent and lasting impact in shaping
business. Labor law act, Industrial dispute act,
Minimum wages act, Law of contract, Import and
Export control are few legal factors

Educational factors : Educational cum cultural

environment affects business activities and
managerial skills. These factor include literacy,
attitude, toward training and skill required for a
business like specialized, vocational and technical
training
 MACRO ENVIRONMENT

Technological Factors: Technology is about

application of tools, methods and techniques to
improve production and processes. Technology is
life for growth and competitiveness of Business

Economical Environment: Economic environment

such as business cycle, unemployment, inflation,
monitory policies, industrial policies etc also affect
the business environment