Unit - I

Business Environment
Human Activities:

Human Activities

Economic Activities Non Economic Activities

Business

Profession

Employment

Economic Activities:
The human activities that are undertaken with an objective to earn money or livelihood are called economic
activities.
Non-Economic Activities:
Whereas the other types of activities that are undertaken to derive self-satisfaction, are called non-economic
activities.
BASIS ECONOMIC NON-ECONOMIC
ACTIVITIES ACTIVITIES

(1) Activity performed to That activity is performed

Meaning earn a livelihood. out oflove, sympathy,
sentiments, patriotism,etc.

(2) Undertaken to earn Undertaken to satisfy

Purpose money and satisfy psychological or emotional
physiological needs. needs.

(3) Types Business, profession, and Social responsibility,

employment. religious responsibility,
personal satisfaction, etc.

(4) Money and wealth. Self-satisfaction.

Benefits

(5) A worker working in a A boy helping an old man to

Examples factory. cross the road.

Classification of Economic Activities:

1.Business
Business may be defined as an activity involving regular production or purchase of goods and services for
sale, transfer and exchange with the object of earning profit.
2.Profession
All those economic activities which involves the rendering of personal service of specialised and expert
nature based on professional training and skill and require the observance of certain rules and regulations
(code of conduct) are termed as Professions.
3.Employment
The economic activity, rendered by one person to another, under a contract of service, for some
remuneration, is called employment.

Comparison of Business, Profession and Employment:

Basis Business Profession Employment
(a) Decision to start Membership of Enter into
Establishment the business and aprofessional servicecontract
compliance of bodyis essential. with
legal formalities theemployer.
like registration,
wherever
required.
(b) Specific Professional As per the
Qualification qualification is knowledge and needs of
not required. training in the theemployer
same field is and the
essential. jobinvolved.
(c) Capital Capital Some amount No capital
investment isa ofcapital investment
must. Its investmentis isrequired.
amountdepends required
on the natureand forestablishment.
scale of
businessoperation.
(d) Nature of Production or Expert service. Performance of
work purchase and sale job.
of goods or
services.
(e) Return or Profit. Professional fee. Wage or
reward Salary.
(f) Risk There is risk of Risk of not No risk, so long
loss. getting sufficient asbusiness
fee. /officecontinues
its operations.
(g) Motive Profit motive. Service motive, Motive is to
though fee is earn
charged. alivelihood.
Business
Definition:
“Business may be defined as human activity directed towards or acquiring wealth through buying
and selling of goods.” – Lewis H. Haney
“Business may be defined as an activity in which different persons exchange something of value,
whether goods or services, for mutual gain or benefit” – Peterson and Plowman
“Business is an enterprise engaged in the production and distribution of goods for sale in the market
or rendering service for a price.” – R. N. Owens
Meaning:
Business refers to an economic system in which goods & services are exchanged for one another or
money, on the basis of their perceived worth.
 Business refers to all those economic activities which are concerned with the production or purchase
of goods & services for the purpose of sale at a profit.
Scope of Business:
1. Improvement in standard of living:-
Business helps people in general to improve their standard of living.
2. Proper utilization of resources:-
It leads to effective utilization of the scare resources of society. It provided facility of mass
production.

3. Better Quality & large variety of goods & service:-

It involves production, purchase & sale of goods & service for price. Customer satisfaction is the
backbone of modern business. Services such as supply of water, electricity etc, may be considered highly
significant for the community.
4. Creates utilities:-
Business makes goods more useful to satisfy human wants. It adds to products the utilities of person,
time, place, form, knowledge etc. Thus, people are able to satisfy their wants effectively & economically.
5. Employment Opportunities:-
It provides employment opportunities to large number of people in society.
6. Workers welfare:-
Business organisation these days take care of various welfare activities for workers. They provide
safer & healthier work environment for employees.

Characteristics of Business:

• Economic Activity: Business is an economic activity, as it is conducted with the primary objective of
earning money, i.e. for an economic motive.
• Production/purchase of goods and services: Goods and services are produced or procured by business
entities, so as to add value and sell them to the consumer. Goods are either manufactured by the company or
procured from the supplier, with the aim of selling it further to the consumer, for profit.
• Selling of goods and services: Business must involve the transfer of goods to the customer for value,
through selling, meaning that if the goods are acquired for personal consumption, then the transaction will
not amount to business activity.
• Continuity in dealings: Every business requires regularity in transactions, i.e. an isolated transaction of
exchange of goods or services will not be considered as business. So, to constitute business, the dealings
must be carried out on a regular basis.
• Profit earning: The basic purpose of business is to make the profit from its activities. It is the spine of
business, which keeps the business going, in the long term.
• Element of risk: Risk is the key element of every business, concerned with exposure to loss. Efforts are
made to forecast future events and plan the business strategies accordingly. However, the factors that affect
business are uncertain and so does the business opportunities, which can be a shift in demand, floods, fall in
prices, strikes, lockout, money market fluctuation, etc.
• Uncertain return: In business, the return is never predictable and guaranteed, i.e. the amount of money
which the business is going to reap is not certain. It may be possible that the business earns a huge profit or
suffer heavy losses.
• Legal and Lawful: No matter, in which type of business the company is engaged, it should be legal in the
eyes of the law, or else it will not be considered as business.
• Consumer satisfaction: The aim of business is to supply goods and services to consumers, so as to satisfy
their wants, as when the consumer (final user) is satisfied, he/she will purchase the goods or services. But, if
they are not, there are chances that they will look for substitutes.
The consumer is regarded as the king, and so all the activities of the business are aligned towards the
satisfaction of consumers. This can be done by making available quality-riched goods easily available to
them, at reasonable prices.
Objectives of Business:
(a) Economic objectives
(b) Social objectives
(c) Human objectives
(d) National objectives
(e) Global objectives
(a) Economic objectives of a business refer to the objective of earning profit and those which have a direct
impact on the profit-earning objective of business. Some of the main economic objectives of business are:
(i) earning of adequate profits;
(ii) exploring new markets and creation of more customers;
(iii) growth and expansion of business operation;
(iv) making innovations and improvements in goods and services; and
(v) making use of available resources in the best possible manner.
(b) Social objectives of business are those, which are desired to be achieved for the benefit of the society.
Some of the major social objectives are:
(i) production and supply of quality goods and services to the society; (ii) making goods available at
reasonable prices;
(iii) avoidance of unfair practices like hoarding, black-marketing, over-charging, etc.;
(iv) contributing towards the general welfare and upliftment of the society;
(v) ensuring fair return to the investors;
(vi) taking steps in the direction of consumer education; and
(vii) conserving natural resources and wild life and protecting the environment.
(c) Human objectives of business primarily refer to the objectives aimed at safeguarding the interest of its
employees and their welfare. Some of the major human objectives are:
(i) providing fair remuneration and incentives to the employees;
(ii) arrangement of better working conditions and proper work environment for the employees;
(iii) providing job satisfaction by making the jobs interesting and challenging, putting the right persons in
right job;
(iv) providing the employees with more and more promotional opportunities;
(v) organising training and development programmes for the growth of the employees; and
(vi) providing employment to the backward classes of the society and people who are physically and
mentally challenged.
(d) National objectives of business are the objectives of fulfilling the national goals and aspirations like:
(i) creation of employment opportunities;
(ii) promotion of social justice;
(iii) produce and supply goods in accordance with the national interest and priorities;
(iv) payment of taxes and other dues honestly and regularly;
(v) helping the state in maintaining law and order by promoting good industrial relations; and
(vi) implementing government’s economic and financial policies framed from time to time.
(e) Global objectives of business are the objectives of facing the challenges of global market. Some of the
global objectives are:
(i) making available globally competitive goods and services; and
(ii) reducing disparities among rich and poor nations by expanding its operations.
Classification of Business Activities / Branches or components of Business:
Business Activities can be classified into two categories-
I.Industry
II. Commerce
I. Industry
The sector where raw material gets transformed into beneficial products is called industry. An industry may
create capital goods or consumer goods such as cloth, radio, bread, butter, etc. The industry can be classified
into three categories.
1. Primary industry
2. Secondary industry
3. Tertiary industry
1.Primary Industry
Primary industry is known as extractive industries. It involves activity connected with the production of
wealth directly from natural resources such as water, air, land etc. The primary sector involves activities like
processing and extraction of natural resources etc. These primary industries are further divided as:
• Extractive industry: Industries that draw out or extract products from natural sources are known as
Extractive Industry. Some of the examples of extractive industries involve lumbering, farming,
mining, hunting and fishing operation.
• Genetic industry: The industries that involve in the ventures of breeding and rearing of living
organisms, such as plants, birds, animals etc. are known as a genetic industry. For example, rearing
of cattle dairy farms or rearing of plants in the nursery is covered in the genetic industry.
2.Secondary Industry
The industry that uses raw materials as input and produces finished products as output is known as the
secondary industry. Secondary industries are divided into two parts:
• Manufacturing industries: These industries are involved in the process of transformation of semi-
finished goods or raw materials into finished goods. These enterprises build from the utility by
altering the form of raw materials into finished products.
• Construction industries: These industries are involved with the construction of dams, roads,
buildings, etc. These industries use the commodities of manufacturing industries such as iron and
steel, cement or lime.
3.Tertiary industry
Tertiary industries are regarded as providing services which promote the flow of services and goods. This
industry helps in the actions of the primary and secondary sector.
II. Commerce
Commerce generally relates to the exchange of goods, services or something of value, between entities.
Commerce is classified into two general sections:
1. Trade
2. Aids to trade
1.Trade
Trade is an essential part of commerce. It involves selling and buying of goods and services. There are two
classifications of trade - Internal and External Trade.
• Internal Trade: It is referred to selling and buying of goods or services within the geographical
contours of a country. The internal trade is also known as domestic trade or home trade. The internal
trade is divided into two types: Retail trade and Wholesale trade.
• External Trade: The external trade is referred to selling and buying of goods or services beyond the
geographical contours of the country. In external trade, the market is vast. External trade is of 3
types: export trade, import trade and entrepot trade.
2.Aids to Trade
The enterprises which help in the constant flow of trade are known as aids to trade. The common aids to
trade are:
• Transport and communication
• Warehousing
• Advertising
• Banking and finance
• Insurance
Environment
Meaning:
Environment is the sum of all living & non-living things that surround an organism or group of
organism. Environment includes all elements, factors & conditions that have some impact on the growth &
development of certain organism.
Business Environment
Definition:
Business Environment has been defined by Bayard O. Wheeler as “the total of all things external to
firms and industries which affect their organization and operation”.
According to Arthur M. Weimer, business environment encompasses the ‘climate’ or set of
conditions, economic, social, political or institutional in which business operations are conducted.
Acc. to William F Glucck “Business environment as the process by which strategists monitor the
economic, governmental market, supplier, technological geographic & social settings to determine
opportunities & threats to their firms”.
Meaning:
Business environment is an environment in which business is carried out.Business environment
encompasses all those factors that affect a company’s operations, including customers, competitors,
suppliers, distributors, industry trends, substitutes, regulations, government activities, the economy,
demographics, social & cultural factors innovation & technological developments.
NATURE OR FEATURES OF BUSINESS ENVIORNMENT:
1. Environment is Complex:-
A business environment has a plethora of factors events, conditions, & influences arising from a
variety of sources. Therefore, it is very difficult to understand all the factors affecting a given environment
at any time. Although we can understand it in parts, it is impossible to grasp it in totality.
2. Environment is Dynamic:-
Business also keeps a changing constantly. This is due to a wide range of influencing factors. These
factors create dynamism in the environment causing it to continuously change its shape & character.
3. Environment is Multi-faceted:-
Due to complexity & dynamism of a business environment, it continuously changes its shape &
character. However, different observes view the changes differently. Therefore a particular observer might
see a specific change in the environment as an opportunity while someone else might perceive it a threat.
4. Environment has long term impact on business:-
Environment has long lasting impact on functioning of business organisations. Their growth &
profitability depends upon the environment under which they have to operate. Environment influences
business enterprises. Such influences may be positive or negative & may affect the profitability, efficiency
& development of business.
5. Environment influences business organization :-
Businesses organisational have limited capacity to influence business environment as it is the result
of government policies & social & technological changes which are basically external variables.
6. Environment and business planning go together:-
Business environment & business planning are closely related concepts. In fact, planning is
necessary in order to derive maximum benefit from favourable environment. Similarly, planning is useful
for dealing with the problems created by unfavourable environment.

IMPORTANCE OF BUSINESS ENVIRONMENT:

(a) Determining Opportunities and Threats:
The interaction between the business and its environment would identify opportunities for and
threats to the business. It helps the business enterprises for meeting the challenges successfully.
(b) Giving Direction for Growth:
The interaction with the environment leads to opening up new frontiers of growth for the business
firms. It enables the business to identify the areas for growth and expansion of their activities.
(c) Continuous Learning:
Environmental analysis makes the task of managers easier in dealing with business challenges. The
managers are motivated to continuously update their knowledge, understanding and skills to meet the
predicted changes in realm of business.
(d) Image Building:
Environmental understanding helps the business organisations in improving their image by showing
their sensitivity to the environment within which they are working. For example, in view of the shortage of
power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own
requirement of power.
(e) Meeting Competition:
It helps the firms to analyse the competitors’ strategies and formulate their own strategies
accordingly.
(f) Identifying Firm’s Strength and Weakness:
Business environment helps to identify the individual strengths and weaknesses in view of the
technological and global developments.
COMPONENTS OR TYPES OF BUSINESS ENVIRONMENT:

COMPONENTS OR TYPES OF BUSINESS ENVIRONMENT

INTERNAL ENVIRONMENT EXTERNAL ENVIRONMENT

MICRO
ENVIRONMENT

MACRO
ENVIRONMENT

A. INTERNAL ENVIRONMENT
Internal environment refers to environment within the organization. It includes internal factors of the
business which can be controlled by business.
It includes objective of business, managerial policies, management & employee of the organization,
labour management relationship, brand image & corporate image working conditions in the organisation,
technological & research & development capabilities.
Internal environment includes 5 M’s ie., Men, Material, Machinery, Money & Management available with
business organisation. These components usually within the control of business.
Some of the Internal Components are as follows:
1. Value system:-
The value system of the founders, Board of Directors, managers, workers of the organisation has
important bearing on the strategies of the organisation.

2. Mission & objectives of the business:-

Firm’s philosophies, priorities, development, policies are guided by the mission & objectives of the
organization.Mission& objective are the first steps in the development of the organisation.
3. Organisation Structure:-
Organisational hierarchy is the authority which flow of from top to bottom. Some management
structure & styles delay decision making & while other facilities quick decision making.
4. Financial capability:-
Financial factors like financial policies, financial positions & capital structure etc. affect corporate
strategies & decisions.
5. Human Resource Management:-
The characteristics of the Human resources like skill, quality, morale, commitment, attitude,
knowledge etc. could contribute to the strength & weakness of an organisation. Some organisations final
difficult to carry out restructuring or modernization because of resistance from employees.
6. Marketing capability

7. Operational capability

8. Managerial policies

9. Brand Image & corporate Image

10. Research & development capability

11. General management capability.

B. EXTERNAL ENVIRONMENT

External environment refer to external aspects of the surroundings of business enterprise which have
influence on the functioning of business. These factors are beyond the control of business. External
environment includes factors outside the firm can provide opportunities or pose threats to the firm.

External environment has two types

i. Micro environment

ii. Macro environment

i. Micro Environment:-
The micro environment of a company consists of elements that directly affect the company. It includes
suppliers, customers, market intermediaries, competitors & customers etc.
Micro environment includes
1. Customers:-
Customers are the people money to acquire an organisation’s products. A consumer occupies the
central position in the marketing environment. The marketer has to closely monitor & analyze changes in
consumer tastes & preferences & their buying habits.

2. Competitors

Competitors are the other business entities that compete for resources. A study of the competitive
scenario is essential for the marketer, particularly threats from competition. In modern age an absolute
monopoly is very rare thing. Most of the firms have to work in some type of competition such as
monopolistic competition or oligopoly.
3. Suppliers:-

Suppliers provide raw materials, equipment, services & so on. Suppliers with their own bargaining
power affect the cost structure of the industry. They constitute a major force, which shapes competition in
the industry. The quality of the commodity & the cost of production are considerably influence by the
supplies of the inputs.

4. Market Intermediaries:-

It includes agents & brokers who help the company to find customers. It is a link between the
company & the consumer. They refer to the different levels in the chain from the production unit to the final
customer. The chain incorporates the stockiest, the wholesalers, the distributors, the retailers etc.

5. Public:-

Public is any group that has actual or potential interest in the business. The prospects of firm depend
upon the society in which it has to work & sell its products. In a homogenous society, the job of the firm is
easy. The people have almost the same habits like & dislikes values & ethical norms. In a heterogeneous
society the job of the firm is difficult. A particular product may be acceptable to particular of the society but
not acceptable to some other sections.

ii. Macro Environment:-

Macro environment forces that creates opportunities & pose threats to the business units. The macro
environment consists of

1. Economic Environment:-

It refers to those economic factors which have impact on the working of business. It consists of
economic factors that influence the business in a country. These factors include gross national product,
corporate profit, inflation rate, employment, balance of payments, interest rates consumer income etc.

2. Political Environment:-

Political environment affects the different business units. A stable & dynamic political environment
is necessary for business growth. Political environment includes political stability in the country, relation of
the government with other countries, welfare activities of government, centre-state relationship & views of
opposition parties towards business. If the political system is stable & efficient then the business grows.

3. Socio-cultural Environment:-

Socio-Cultural environment refers to social & cultural factors which are beyond the control of
business units. Such factors include attitude of people to work, family system, caste system, education
system, habits, language, religion has considerable components of business environment. Religion has
considerable effect on business. Some religious restrict their followers they do not allow its followers to
engage in leather industry, wine making etc. similarly, the social environment of business also includes
social factors like customer, traditions, values, beliefs, poverty literacy, life expectancy rate etc.

4.Technology Environment:-

It is the most important factor which affects the business enterprise. The faster changes in
technology create problems for business enterprises. Products have shorter life span than the past because of
rapid technological developments. Technology provides various advantages. Success in many industries
depends on innovation & research. To promote innovation & research some companies establish research &
development departments in their enterprises.
5. Legal Environment:-

It refers to the set of laws & regulations which influence the business organisation& their
operations. Every business organisationhas to obey & work within the framework of law. The legal
environment is derived partly from the political climate in a country & has three distinct dimensions to it: a.
The law of the home country b. The law of the foreign markets c. International law in general

6. Natural Environment:-

It refers to geographical & ecological factors which are beyond the control of the enterprise. It
includes natural resources, weather & climatic conditions, landforms, rainfall, environmental pollution etc.
Climate & weather conditions affect the location of certain industries like textile industries. Similarly
environmental pollution in the form of air pollution, have caused disturbances in ecological balance.

7. Demographic Environment:-

Demographic factor include size, growth rate, age composition, sex composition etc of population,
family size, economic stratification of population, educational level, caste, religion etc. all these
demographic factors are relevant to business. These factors affect the demand for goods & services. High
population growth rate indicates an enormous increase in labour supply. Population with varied tastes,
preferences, beliefs, temperaments etc. gives rise to differing demand pattern & calls for different marketing
strategies.

8. International Environment:-

A final component of the general environment is actions of other countries or groups of countries
that affect the organisation. Governments may act to reserve a portion of their industries for domestic firms
or may subsidize particular types of businesses to make them more competitive in the international market.

International Environment factors are

i. Due to liberalization, Indian companies are forced to view business issues from the global perspective.

ii. Safe & protected markets are no longer there. World is becoming small in size due to advanced means of
transport & communication facilities.

iii. Learning of foreign language is must for every business manager.

iv. Acquiring familiarity with foreign currencies is also must.

v.Facing political & legal uncertainties is inevitable.

Environment Analysis

Introduction:

Environmental Analysis is a process of identifying the relevant factors that have a direct or indirect
impact on the effective and efficient functioning of the business. In other words, Environmental analysis is a
strategic tool. It is a process to identify all the external and internal elements, which can affect the
organization’s performance.

The analysis entails assessing the level of threat or opportunity the factors might present. These
evaluations are later translated into the decision- making process. The analysis helps align strategies with
the firm’s environment.
Process of Environmental Analysis

Environment analysis is managerial decision-making based on the assessment of opportunities and threats in
the environment. The steps in the environmental analysis are:

1. Scanning: It involves information gathering for assessing the nature of the environment in terms of
uncertainty, complexity, and dynamics. It includes:
o Identifies early signs of future environmental changes. They are indicated by trends and
events.
o Detects changes already underway. They are happening
2. Monitoring: It involves tracking environmental trends and events. It is the auditing of the
environment. The likely impact of environmental influences on business performance is identified.
3. Forecasting: This step forecast what is likely to happen. Its layout of the path to anticipate changes.
This step provides:
o Key forces at work in the environment. They can be political-legal, economic, social,
cultural, and technological.
o Understanding of the nature of key influences and drivers of change.
o Projection of future alternatives paths available.
4. Assessment: This step identifies key opportunities and threats. The competitive position of business
analyzed in terms of how the organization stands in relation to other organizations competing for
some resources of customers.
o Opportunities are a favorable condition that creates risks and weakens the competitive
position.
o The threat is an unfavorable condition that strengths, organization’ s competitive position of
the organization.