 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
Scope of Business
◦ Business included all activities connected with production, trade,
banking, insurance, finance, agency, advertising, packaging and
numerous other related activities. Businesses include all efforts to
comply with legal restrictions and government requirements and
discharging obligations to consumers, employees, owners and to other
interest groups which have stakes in business directly or indirectly.
  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.
 Similarly, the organizational environment has two components ie.
strengths and weaknesses of the organization. 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 Mission / Objectives
Suppliers Management Structure Economic
Customers Internal Power Relationship Technological
Competitors Physical Assets & facilities Global
Public Demographic
Mktg Intermediaries Socio-Cultural
Business Political
Decision
Company image
Human resources
Financial Capabilities
Technological Capabilities
Marketing Capabilities
 Business decisions are influenced by two sets of factors
 Internal factors (The Internal Environment
 External Factors( The External Environment)

 Business Environment presents two challenges to the enterprise

 The challenge to combat the environmental threats
 Exploit the business opportunities
1) INTERNAL ENVIRONMENT
2) EXTERNAL ENVIRONMENT

INTERNAL BUSINESS EXTERNAL

FACTORS DECISION FACTORS
Important internal factors are
1) Value System
The value system of founders and those at the helm of affairs has
important bearing on the choice of business, the mission and
objectives of the organization, business policies and practices.

2) Mission and Objectives

The business domain of the company , priorities , direction of
development, business philosophy, business policy etc. are guided
by the mission and objectives of the company.
3) Management Structure and Nature
The organizational structure, the composition of the Board of Directors,
extent of professionalization of management etc. are important factors
influencing business decisions.

4) Internal Power Relationship

Factors like the amount of support the top management enjoys from lower
levels and workers, share holders and Board of Directors have important
influence on the decisions and their implementation.
The relationship between the members of Board of Directors is also a
critical factor.
5) Human Resources
The characteristics of the human resources like skill, quality, morale,
commitment, attitudes etc. could contribute to the strength and weakness
of the organization.
The involvement, initiative etc. of the people at different levels may vary
from organization to organization.
6) Company Image and Brand Equity
The image of the company matters while raising finance, forming joint
ventures or other alliances, soliciting market intermediaries, entering
purchase or sale contracts , launching new products etc.
OTHER FACTORS
1.Physical Assets and Facilities
2.R& D and Technological Capabilities
3.Marketing Resources
4.Financial Factors
Two Types
a)Micro Environment
Consists of actors in the company’ s immediate environment,
that affects the performance of the company.
a)Macro Environment
Consists of larger societal forces that affect all the actors in
company’ s micro environment.
 Also known as task environment and operating environment
 Include
 The suppliers
 Marketing intermediaries
 Competitors
 Customers
 Publics
 More intimately linked with the company than macro factors
 The micro forces need not necessarily affect all the firms in a particular
industry in the same way.
 Some of the micro factors are particular to a firm
 Those who supply the inputs to the company.
 Source/Sources should be Reliable
 Uncertainty regarding the supply or other supply constraints
compel companies to maintain high inventories causing
cost increases.
 Very risky to depend on a single supplier
 The purchasing department should “ market” itself to
suppliers, to obtain favourable treatment during the periods
of shortages.
 Major task of business is to create and sustain customers
 Different categories of consumers
 Individuals
 Households
 Industries and other commercial establishments
 Government and other institutions
 Depending on single customer is too risky
 Choice of customer should be done by considering
 Relative profitability
 dependability
 stability of demand
 growth prospectus
 extent of competition
 A firm’ s competitors include not only the other
firms which market the same or similar product but
also all those who compete for the income of the
consumers
Desire competition
Generic competition
Product form competition
Brand competition
 Firms that aid the company in promoting, selling and distributing its
goods to final buyers.
 Include
 the middlemen and merchants who “ help the company find customers or close
sales with them”
 Physical distribution firms which “ assist the company in stocking and moving
goods from their origin to their destinations”
 Marketing service agencies which “ assist the company in targeting and
promoting its products to the right markets”
 Financial intermediaries which “ finance marketing activities and insure business
risks”
 Vital links between the company and the final consumers.
 Any group that has an actual or potential interest in or impact on
an organization’ s ability to achieve its interests
 E.g. Media publics, citizens action publics, local publics
 Media attack on any company can influence the government
decisions affecting the company.
 Environmental pollution is an issue often taken up by number of
local publics
 Publics are not always threat to the business.
 Fruitful cooperation between a company and the local publics
may be established for the mutual benefit.
Consists of larger societal forces that affect all the actors in company’ s
micro environment-namely
 the demographic,
 economic,
 natural,
 technological,
 political and
 cultural forces
Also known as So cie tal Enviro nme nt
The Societal Environment includes general forces that do not directly
touch on short-run activities of the organization but that can, and often
do, influence its long-run decisions.
 Important factors are:
Economic conditions
Economic policies
Economic systems
 Economic condition
The economic conditions of a country –for example, the nature of
the economy, the stage of development of the economy, economic
resources, the level of income, the distribution of income and assets,
etc.- are among the very important determinants of business
strategies.
In a developing country, the low income may be the reason for the
very low demand for the product.
Economic policies
 Some types or categories of business are favourably affected by
government policy, some adversely affected, while it is neutral to some
others.
 E.g. a restrictive import policy may greatly help the import competing
industries, while a liberalisation of the import policy may create difficulties
for such industries

Economic System
 The scope of the private business depends on the economic system.
 The freedom of the private enterprise is the greatest in the free market
economy.
 Has close relationship with the economic system and economic
policy.
 In many countries regulations to protect consumer interests have
become stronger.
 Some governments specify certain standards for the products to
be marketed in the country; some even prohibit the marketing of
certain products.
 Promotional activities are subject to various types of controls.
 E.g.: In India, Advertisement of alcoholic product is prohibited
and the packages must carry “ injurious to health” warnings
 Major factors are:
the buying and consumption habits of people,
their language beliefs and values,
customs and traditions,
tastes and preferences,
Education
 Strategy should be appropriate in the socio-cultural
environment.
Eg: nestle brews a very large variety of instant coffee to satisfy
different national tastes
Colour
Blue: feminine and warm in Holland ; but masculine and cold
in Sweden
Green: favourite in Muslim world; but represents illness in
Malaysia
Red: popular in communist countries; but represents disaster in
Africa
White: death and mourning in China and Korea; but it
expresses happiness in some countries.
 Factors:
 Size, growth rate, age composition, sex composition of
population, family size, educational levels, economic
stratification of the population, language, caste, religion,
etc.
 E.g. Decline in birth rates in USA have affected the
demand for baby products. So Johnson & Johnson
repositioned their products like baby shampoo and baby oil,
to the adult segment, particularly to females.
 Business prospects demands availability of certain physical facilities
 E.g. demand for electrical appliances is affected by the extent of electrification and the
reliability of power supply.
 Demand for LPG stoves depend on rate of growth of gas connections
 Differing technological environment of different markets may call for product
modifications
 E.g. Many appliances are designed for 110 V in USA. They should be converted for 240v
in India
 Technological developments may increase or decrease the demand for some
existing products
 E.g. voltage stabilizers help increase in sale of electrical appliances in markets
characterised by frequent voltage fluctuations
 Introduction of TVs, Refrigerators, etc. with in-built stabilizers adversely affects the
demand for voltage stabilizers.
 Particularly important for the industries directly depending
on imports or exports and import-competing industries
 Recession, economic boom, liberalization
 Major international developments have their spread effects
on domestic business.
E.g. Oil price hikes increased the cost of production and the prices
of certain products such as fertilizers , synthetic fibres. So usually,
the demand for natural fibres and manures increased.
 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

•Strengths—internal to the unit; are a unit’ s 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 unit’ s 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

•Weaknesses—internal 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
•Opportunities—any 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?
 POSITIVE/ NEGATIVE/
HELPFUL HARMFUL
to achieving the to achieving the
goal goal

Strengths
INTERNAL Origin Things that are Weaknesses
facts/ factors of the good now, Things that are bad
o rg anizatio n maintain them, now, remedy,
build on them change or stop
and use as them.
leverage
Opportunities
EXTERNAL Origin Things that are Threats
facts/ factors of the good for the Things that are bad
environment in future, prioritize for the future,
which the them, capture put in plans to
organization them, build on manage them or
operates them and counter them
optimize
 The competitive structure of industries is a very important business environment.
Identification of forces affecting the competitive dynamics of an industry is very useful
in formulation of strategies.
As per Michael Porter’ well known model of structural analysis of industries, the state of
competitions depends on:

New Entrants
Threat of new entrants

Suppliers Bargaining power Rivalry among firms Bargaining power Buyers

Threat of substitutes
Porter’ s analysis determines the competitive intensity of the industry and the
Substitutes
attractiveness of the market. A highly competitive industry is one approaching “ Perfect
Competition” whereby businesses are only able to earn normal profits.
Rivalry Among Existing Firms:
Firms in an industry are mutually dependent – competitive motives of a firm
usually affects others and may be retaliated. Factors influencing the intensity of
rivalry are:
 Number of firms and their Relative market share
 State of Growth of Industry: In stagnant, declining and slow growth
industries, a firm is able to increase its sales by increasing the market share.
 Fixed or storage costs: In case of high fixed costs, strategy of firms is to
increase sales which in turn would improve on capacity utilization.
 Indivisibility of capacity augmentation : Where there are economies of
scale, capacity increases would be in large blocks necessitating, efforts to
increase sales to achieve capacity utilization norms.
 Product standardization
 New entrants are newcomers to an existing industry. They typically bring
new capacity. A desire to gain market share and substantial resources.
Therefore they are threats to an established corporation.
 The threat of entry depends on the presence of entry barriers and the
reaction that can be expected from existing competitors .
 An entry barrier is an obstruction that makes it difficult for a company
to enter an industry.
Threat of Entry
Potential competition tends to be high if the industry is profitable or
critical and entry barriers are low. Some of the common entry barriers
are:
 Government Policy: Government can limit entry into industry
through licensing requirements by restricting access to raw materials.
 Product Differentiation: Characterized by brand image, customer
loyalty etc. may deter new firms from entering the market.
 Capital Requirements : High capital intensive nature of the industry
is an entry barrier to small firms .
 Economies of Scale : Scale economies in production and sales of
microprocessors, gave Intel a significant cost advantage over any new
arrival.
 Switching Costs : Once a software program such as excel or word
becomes established in Office, office managers are reluctant to switch
to a new program because of high training costs.
 An industry which has close substitutes available is highly competitive in
nature. Existence of close substitutes increases the propensity of
consumers to switch to alternatives in response to price increases.
 Substitutes limit the potential returns of an industry by placing a ceiling
on the prices firms in industry can profitably charge.
 Buyers affect an industry through their ability to force down
prices , bargain for higher quality or more services and play
competitors against each other.

A buyer or distributor is powerful if some of the following factors is true :

 A buyer purchases a large proportion of sellers product or service (eg : oil filters
purchased by a major automaker)
 A buyer has the potential to integrate backward by producing the product itself
(eg: a newspaper chain could make its own paper)
 Alternate suppliers are plentiful because the product is standard or
undifferentiated.
 Changing suppliers cost title. (eg: office supplies are sold by many vendors)
 The purchased product is unimportant to the final quality or a price of a buyers
products (eg: electric wire bought for use in lamps)
Suppliers can affect an industry through their ability to raise prices
or reduce the quality of purchased goods and services.
A buyer or distributor is powerful if some of the following factors is true :
 Supplier industry is dominated by a few companies but it sells too many(eg:
petroleum industry)
 Service is unique or it has built up switching costs (eg: word processing
software)
 Substitutes are not readily available (eg: electricity)
 Suppliers are able to integrate forward and compete directly with their present
customers (eg: a microprocessor producer like Intel could make the complete
PC)
 A purchasing industry buys only a small portion of the suppliers groups goods
(eg: sales of lawn mower tires are less important to the tire industry than are
sales of auto tires)
 “ The pro ce ss by which strate g ists mo nito r the
e co no mic, g o ve rnme ntal/le g al,
marke t/co mpe titive , te chno lo g ical, g e o g raphic and
so cial se tting s to de te rmine o ppo rtunitie s and thre ats
to the ir firms”
Stages of Environmental Analysis:
The analysis consists of four steps:
Scanning : It is process of analyzing environment for the
identification of factors which impact or have implications for
business.
Monitoring : It involves more in-depth analysis of environmental
trends identified at the scanning stage . Purpose of monitoring is to
assemble sufficient data to discern whether certain patterns are
emerging.
Forecasting : Anticipating future is essential for identifying future
threats and opportunities and formulating strategic plans.
Assessment : It involves drawing up implications/possible
impacts
• The concept of strategic groups
– Within an industry, a competitor grouping using similar
strategies that differ from other industry groups.
• Implications of strategic groups
– The closest industry competitors are those in the group.
– The various industry groups are differentially and
competitively advantaged and positioned.
– Mobility barriers inhibit the movement of competitors
from one strategic group to another.
• Both models are static and ignore innovation.
• Their focus is on industry and group structures
rather than individual companies.
– Innovation creates change in
industry structures, altering the
competitive environment.
– Industry structure cannot
fully explain the performance
differences between industry
competitors.
 The demand for primary industry products
depends on the size of the total market for
complementary products.
◦ Network economics result in
positive feedback loops that
foster rapid demand increases.
◦ Market competitors are
protected by switching
cost entry barriers.
• Globalization
– Globally dispersed production lowers
costs and increases quality.
– Global markets are replacing
national markets.
• Trend implications
– No isolated national markets
– More competitors, more intense competition
– More rapid innovation and shorter product life cycles
 The determinants of competitive advantage:

Factor
endowments
THANK YOU….