Business Environment

Section -A
Economic environment of business: The term economic environment refers to all the external
economic factors that influence buying habits of consumers and businesses and therefore affect
the performance of a company. These factors are often beyond a company’s control, and may be
either large-scale (macro) or small-scale (micro).
While companies often can’t control their economic environment, they can evaluate economic
conditions before choosing to enter a particular market or industry or pursue other strategies.

The economic environment consists of external factors in a business market and the broader

economy that can influence a business. You can divide the economic environment into the
microeconomic environment, which affects business decision making - such as individual actions
of firms and consumers - and the macroeconomic environment, which affects an entire economy
and all of its participants.
The economic environment refers to all the economic factors that affect commercial and
consumer behavior. The economic environment consists of all the external factors in the
immediate marketplace and the broader economy. These factors can influence a business, i.e.,
how it operates and how successful it might become.
The economic environment consists of different things for different people. For example, for a
farmer, the weather and price of fertilizers are important factors.
For a TV channel on the other hand, the growth in Internet advertising matters a great deal, but
not the weather. Internet advertising matters to a TV station because the Internet competes for
advertising business. For a farmer, however, advertising media is not important.
Non-Economic Environment: means those surroundings or factors or elements under which the
business institutions of any country have to function. In other words, the non-economic
environment includes all those elements or factors, which the business organization have to keep
in view to establish and operate. These are physical, social, cultural, political, legal, technical,
educational, historical, moral, environmental and international, etc.
The various elements of non-economic environment are as follow:
(a) Social Environment:-
The social environment of business includes social factors like customs, traditions, values,
beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a
society cherishes have a considerable influence on the functioning of business firms. For
example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits,
flower, etc. Due to increase in literacy rate the consumers are becoming more conscious of the
quality of the products. Due to change in family composition, more nuclear families with single
child concepts have come up. This increases the demand for the different types of household
goods. It may be noted that the consumption patterns, the dressing
and living styles of people belonging to different social structures and culture vary significantly.

(b) Political Environment:-

This includes the political system, the government policies and attitude towards the business
community and the unionism. All these aspects have a bearing on the strategies adopted by the
business firms. The stability of the government also influences business and related activities to a
great extent. It sends a signal of strength, confidence to various interest groups and investors.
Further, ideology of the political party also influences the business organization and its
operations. You may be aware that Coca-Cola, a cold drink widely used even now, had to wind
up operations in India in late seventies. Again the trade union activities also influence the
operation of business enterprises. Most of the labour unions in
India are affiliated to various political parties. Strikes, lockouts and labour disputes etc. also
adversely affect the business operations. However, with the competitive business environment,
trade unions are now showing great maturity and started contributing positively to the success of
the business organization and its operations through workers participation in management.

(c) Legal Environment:-

This refers to set of laws, regulations, which influence the business organizations and their
operations. Every business organization has to obey, and work within the framework of the law.
The important legislations that concern the business enterprises include:
(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
(xi) Trade Marks Act, 1999
(xii) Bureau of Indian Standards Act, 1986
(xiii) Consumer Protection Act, 1986
(xiv) Environment Protection Act
(xv) Competition Act, 2002
Besides, the above legislations, the following are also form part of the legal environment of
business.
(i) Provisions of the Constitution: The provisions of the Articles of the Indian
Constitution, particularly directive principles, rights and duties of citizens, legislative powers of
the central and state government also influence the operation of business enterprises.
(ii) Judicial Decisions: The judiciary has to ensure that the legislature and the government
function in the interest of the public and act within the boundaries of the constitution. The
various judgments given by the court in different matters relating to trade and industry also
influence the business activities.

(d) Technological Environment:-

Technological environment include the methods, techniques and approaches adopted for
production of goods and services and its distribution. The varying technological environments of
different countries affect the designing of products. For example, in USA and many other
countries electrical appliances are designed for 110 volts. But when these are made for India,
they have to be of 220 volts. In the modern competitive age, the pace of technological changes is
very fast. Hence, in order to survive and grow in the market, a business has to adopt the
technological changes from time to time. It may be noted that scientific research for
improvement and innovation in products and services is a regular activity in most of the big
industrial organizations. Now a days infact, no firm can afford to persist with the outdated
technologies.

(e) Demographic Environment:-

This refers to the size, density, distribution and growth rate of population. All these factors have
a direct bearing on the demand for various goods and services. For example a country where
population rate is high and children constitute a large section of population, then there is more
demand for baby products. Similarly the demand of the people of cities and towns are different
than the people of rural areas. The high rise of population indicates the easy availability of
labour. These encourage the business enterprises to use labour intensive techniques of
production. Moreover, availability of skill labour in certain areas motivates the firms to set up
their units in such area. For example, the business units from
America, Canada, Australia, Germany, UK, are coming to India due to easy availability of
skilled manpower. Thus, a firm that keeps a watch on the changes on the demographic front and
reads them accurately will find opportunities knocking at its doorsteps.
(f) Natural Environment:-
The natural environment includes geographical and ecological factors that influence the business
operations. These factors include the availability of natural resources, weather and climatic
condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature
of natural environment. For example, sugar factories are set up only at those places where
sugarcane can be grown. It is always considered better to establish manufacturing unit near the
sources of input. Further, government’s policies to maintain ecological balance, conservation of
natural resources etc. put additional responsibility on the business sector.

Non-economic Environment

The non-economic environment consists of socio -cultural, demographic, natural, physical,

technological, political and legal environment that influence and are, influenced by the economic
environment. A large number of variables affect the non-economic environment.

(i) Political-legal environment:

It refers to the legislative, executive and judicial environment of ht environment of the country
that shapes and controls its business activities. The legislature describes the course of action to
be followed by firms, the executive implements the decisions taken by the legislature
(parliament) and the judiciary ensures that legislature and executive function in the interest of the
society. A stable political environment is conducive to business growth.

(ii)Socio -cultural environment;

It represents the values, culture, beliefs, norms and ethics of the society in which business
enterprises operate. People are important to business organizations both as human resource and
customers. Their buying habits, buying capacities, tasted, preferences and education affect
business enterprises. Business firms change their production and marketing plans according to
consumers’ demand. the social environment consists to he social values; concern for social
problems like protection of  environment against pollution removal of unemployment, health
care for the aged and old etc.; consumerism, that ism indulging in fair trade practices for
satisfaction of human wants.
The cultural environment represents values and beliefs of the society. These beliefs mould the
attitudes of people and help business enterprises determine their need perception.
The socio- cultural environment helps business firms support the social and cultural values of
society by encouraging fine arts projects, sports, communication media, making donations to
educational, religious and charitable institutions, opening counseling centers, vocational and
technical training centers etc.

(iii) Technical environment:

Technology refers to application of scientific and organized knowledge to organizational tasks. It
included inventions and innovations regarding techniques of production. Technology today is
changing at a fast pace and technical environment is dramatically affecting the business
environment. The technological advances have introduced products like air condition, robots,
telecommunication facilities, medicines, equipments etc. Business firms adapt to the fast
changing technical environment. Though technological changes can produce harmful effects also
for business enterprises, the firms try to reduce these effects and use the technological changes in
the best interests of firms and society. Not adopting technological changes is not possible; the
technical threats have to be converted into opportunities and gainfully employed in the business
operation.

(iv) Demographic environment:

It consists of people or population in its varied forms, such as gender, age, income, growth rate,
language, religion, etc. Increase in population will increase the demand for business products.
Increasing population also provides labour at low wage rate
A largely populated country can adopt labour- intensive technology to keep its labour force
employed. The age composition helps firms produce goods to meet the needs of that group.
Production is also affected by gender composition. More females will promote business
enterprises to produce goods used by females.
Labour mobility (from rural to urban areas and vice versa), their educational level, nationality,
religion, etc. also affect policies of the organizations.

(v) Natural environment:

The natural environment consist of the renewable an non- renewable resources used by the firm
in their production processes’ The renewable resources are air, water and solar energy which can
be replenished and non-renewable resources are oil, coal, wood etc. which cannot be replenished.
Though air, water and solar energy can be replenishes, firms are bearing these resources by
dumping industrialization is affecting the natural environment by disposing off chemical wastes
in land, air and water. It also agents the food supply which can be harmful on consumption. “The
environment damage to water, earth and air caused by industrial activity of mankind is harmful
for future generation.”
Business enterprises should use these resources wisely and adopt methods to restrict
environmental pollution. Legislative measures are also enforced by the renewable resources have
to be used properly so that their rate of consumption does not exceed the rate of replenishment.

What is Socio-Cultural Environment

Socio-Cultural consist of two words. Socio means social environment. Cultural means the culture
of the society. The social values and culture of an environment. When the social environment
changes it can effect on the firm.
Business must have a social purpose; business concerns must discharge social responsibility and
social obligations and have social commitment. Otherwise, business cannot enjoy social
sanction. This makes it necessary for us to understand the social environment of business.

Attitude and Beliefs

Beliefs of a person relate from which society he came from. Attitude means how a person
behaves.

Demographic
 Demographics is about the characteristics of the population. It includes the income of a family,
area, age, society and etc.
Religion
Which religion person belong effects the buying behavior. Religion influences food habits, dress,
and traveling.
Language
Language is a medium of communication. what you speak relates to your background. Language
effect your relations.
Education
Education leads to the person to communicate an idea and thought. An educated person knows
the value of discipline to do what is right.
Family Structure 
The family structure includes the people who are considered part of the family and the quality of
the relationships among them.
Social organization
In a Social organization, it made for fun and some small work. it may be in the form of the group
in the office. Circle of friends. The social groups are the most influencing power. Cause we get a
habit from our group. That also influences the Socio-Cultural Environment.
Class structure
It can be classified into upper, middle, lower. It reflects income, occupation, education an area of
residence. Upper class means high earning people. Lower class means low earning people.

The Rural Development in India is one of the most important factors for the growth of the
Indian economy. India is primarily an agriculture-based country. Agriculture contributes nearly
one-fifth of the gross domestic product in India. In order to increase the growth of agriculture,
the Government has planned several programs pertaining to Rural Development in India.
The Ministry of Rural Development in India is the apex body for formulating policies,
regulations and acts pertaining to the development of the rural sector. Agriculture, handicrafts,
fisheries, poultry, and diary are the primary contributors to the rural business and economy.
The introduction of Bharat Nirman, a project set about by the Government of India in
collaboration with the State Governments and the Panchayat Raj Institutions is a major step
towards the improvement of the rural sector. The National Rural Employment Guarantee Act
2005 was introduced by the Ministry of Rural Development, for improving the living conditions
and its sustenance in the rural sector of India.

Rural Development in India-Schemes

 Pradhan Mantri Gram Sadak Yojana (PMGSY):
 This is a scheme launched and fully sponsored by the Central Government of India. The
main objective of the scheme is to connect all the habitations with more than 500 individuals
residing there, in the rural areas by the means of weatherproof paved roads.

 Swarnjayanti Gram Swarozgar Yojana (SGSY):

 This was implemented as a total package with all the characteristics of self employment
such as proper training, development of infrastructure, planning of activities, financial aid,
credit from banks, organizing self help groups, and subsidies.

 Sampoorna Gramin Rozgar Yojana (SGRY):

This scheme aims at increasing the food protection by the means of wage employment in the
rural areas which are affected by the calamities after the appraisal of the state government and
the appraisal is accepted by the Ministry of Agriculture.

 Indira Awaas Yojana (Rural Housing):

This scheme puts emphasis on providing housing benefits all over the rural areas in the country.

Rural Development in India-Organizations

 Department of Rural Development in India:

This department provides services such as training and research facilities, human resource
development, functional assistance to the DRDA, oversees the execution of projects and schemes.

 Haryana State Cooperative Apex Bank Limited:

The main purpose of the Haryana State Cooperative Apex Bank Limited is to financially assist
the artisans in the rural areas, farmers and agrarian unskilled labor, small and big rural
entrepreneurs of Haryana.

 National Bank for Agriculture and Rural Development:

The main purpose of the National Bank for Agriculture and Rural Development is to provide
credit for the development of handicrafts, agriculture, small scaled industries, village industries,
rural crafts, cottage industries, and other related economic operations in the rural sector.

 Sindhanur Urban Souharda Co-operative Bank:

The main purpose of the Sindhanur Urban Souharda Co-operative Bank is to provide financial
support to the rural sector.
 Rural Business Hubs (RBH):

RBH was set up with the purpose of developing agriculture. The Rural Business Hubs Core
Groups helps in the smooth functioning of the Rural Business Hubs.

 Council for Advancement of People's Action and Rural Technology (CAPART):

The main purpose of this organization is to promote and organize the joint venture, which is
emerging between the Government of India and the voluntary organizations pertaining to the
development of the rural sector.

Social Responsibility of Business

A business enterprise is an important part of the society and it should do its operations and earn money in
ways that satisfy the expectations of the society. Social responsibility of a business refers to the obligations to
take those decisions and perform those actions which are desirable in terms of the objectives and values of
society. It is the idea that businesses should balance profit-making activities with activities that benefit
society; it involves developing businesses with a positive relationship with the society in which they operate.

Social responsibility of business implies the obligations of the management of a business enterprise to
protect the interests of the society.

According to the concept of social responsibility the objective of managers for taking business decisions
is not merely to maximize profits or shareholders’ value but also to serve and protect the interests of
other members of a society such as workers, consumers and the community as a whole.

1. Responsibility to Shareholders:

In the context of good corporate governance, a corporate enterprise must recognise the rights of
shareholders and protect their interests. It should respect shareholders’ right to information and respect
their right to submit proposals to vote and to ask questions at the annual general body meeting.

2. Responsibility to Employees:

The success of a business enterprise depends to a large extent on the morale of its employees.
Employees make valuable contribution to the activities of a business organisation. The corporate
enterprise should have good and fair employment practices and industrial relations to enhance its
productivity. It must recognise the rights of workers or employees to freedom of association and free
collective bargaining. Besides, it should not discriminate between various employees.

The most important responsibility of a corporate enterprise towards employees is the payment of fair
wages to them and provide healthy and good working conditions.
3. Responsibility to Consumers:

Some economists think that consumer is a king who directs the business enterprises to produce goods
and services to satisfy his wants.

Invoking the notion of social contract, the management expert Peter Drucker observes, “The customer is
the foundation of a business and keeps it in existence. He alone gives employment. To meet the wants
and needs of a consumer, the society entrusts wealth-producing resources to the business enterprise”.
In view of above, the business enterprises should recognise the rights of consumers and understand
their needs and wants and produce goods or services accordingly.

4. Obligation towards the Environment:

The foremost responsibility of business enterprises is to ensure that they should not damage the
environment and for this purpose they should reduce as much as possible air and water pollution by
their productive activities. They should not dump their toxic waste products in rivers and streams to
avoid their pollution.

5. Responsibility to Society in General:

Business enterprises function by public consent with the basic objective of producing goods and services
to meet the needs of the society and provide employment to the people.

Consumerism in India

Consumerism in India – Meaning

The term ‘consumerism’ was first coined by businessmen in the mid-1960s as they thought consumer
movement as another “ism” like socialism and communism threatening capitalism.

Consumerism is defined as social force designed to protect consumer interests in the

marketplace by organising consumer pressures on business.
Consumerism is a protest of consumers against unfair business practices and business injustices.
It aims to remove those injustices, and eliminate those unfair marketing practices, e.g., misbranding,
spurious products, unsafe products, planned obsolescence, adulteration, fictitious pricing, price
collusion, deceptive packaging, false and misleading advertisements, defective warranties, hoarding,
profiteering, black marketing, short weights and measures, etc.

Consumer organisations could provide united and organised efforts to fight against unfair marketing
practices and to secure consumer protection. The balance of power in the marketplace usually lies with
the seller. Consumerism is society’s attempt to redress this imbalance in the exchange transactions
between sellers and buyers.

Consumerism essentially means the growing wants and needs of an individual for goods and services.
India is one of the largest and fastest growing economies in the world. The consumer’s standard of life is
going higher and hence his needs are escalating as well. Consumerism in India, is in a new high, and
refuses to show signs of budging anymore. The Indian consumer, due to his exposure, of the global
market, strives to get the best of the goods in his home land.

Consumer tastes and preferences are definitely changing. Even children have their own preferences. The
retail sector- both organized and unorganized, strive hard to cater to the vast range of the Indian
consumers. The retail sector in India, with its present pace, is expected to grow at a rate of 25%- 30%
annually.

Being the fifth largest retail industry in the world, the trends of the retail industry in India is quite
remarkable. The consumer group can literally be divided into three clear groups:

The first group comprises of consumers who are extremely brand conscious and depend upon the high
end retail stores to satisfy their needs;

The second group is another extreme who satisfy their consumer needs from outlets that do not hold
popular brands and are also much cheaper;

The third group however follows the middle path- they satisfy their consumer needs either from high
end retail outlets or the less popular retail outlets, as and when necessary.

Food is one of the most in demand need in the Indian market. Simple things like groceries, fruits and
vegetables are sold in both organized as well as unorganized retail outlets. Therefore, at one end we
have the comfortable air conditioned super markets while at the other hand the typical ‘sabzi mandi’
too serves the Indian consumer.

The next item on demand is clothing. With the advent of international and national brands and easy
accessibility to designer wear, the very face of the retail clothing industry has changed. A need to be
street smart and fashionable is another requirement that has revolutionized this industry. Here too, we
find the high end stores displaying international brands and designer wear, climb the success ladder
with great gusto, as well as the stalls on the street side selling cheap clothes too making a niche for
themselves. It is the same story with accessories, shoes and cosmetics, electronics, sporting goods as
well.

The Indian retail industry gives an opportunity to everybody to shine- whether they are family stores, or
departmental stores, or convenience stores, e-tailers, or malls or specialty stores- such is the varied
range of consumers in India. Despite challenges like the tax structure, lack of infrastructure, shortage of
trained manpower, etc. the Indian retail industry is expected to generate an expected turnover of US$
833 billion by the year 2013.

The growth of India in the economic sector has resulted in Indians willing to invest in a life of luxury.
Such a wish is the major cause behind India’s growing consumerism and retail trends.