TOPIC- 1

Business Environment

Types of Environment
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 Learning Outcomes
S.No LEARNING OUTCOMES PO CO KL

1. To make students gain Understanding of the PO1 CO1 K2

concept Business environment

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 Business Environment
• Business Environment refers to all the external forces which have
a bearing on the functioning of business.
• The meaning of Business Environment means the surroundings,
external objects influences etc.,
• Business Environment is the aggregate of all conditions, events
and influences that surrounds and affects a business
unit.
• Business Environment poses certain threats to a business unit.
• Business Environment gives immense opportunities for market
exploitation.
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 Definitions:
According to William F. Glucck and Lawrance R. Jauch
“The Business Environment includes factors outside the firm, which can lead to opportunities
for or threats to the firms. Although there are many factors, the most important of the
factors are socio-economic, technological, suppliers, competitors and government.”
According to Barry M. Richman and Melvyn Copen
“Environmental factors or constraints are largely, if not totally, external and beyond the
control of individual industrial enterprise and their managements. These are essentially the
“givens” within which the firms and their managements must operate in a specific country and
they vary, often greatly from country – to – country.”

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 Types of Business
Environment
Business
Environment

External Internal

Macro Micro
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 Types of Business Environment

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 Internal Environment
• Internal environment includes internal factors of the business.

• It includes plans and policies, human resource, financial resource,

corporate image, plant and machinery, labor-management relationship,
promoter’s vision etc.

• The components of internal environment are controllable. They are:

1. Strengths of the Organization
2. Weaknesses of the Organization

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 Factors of the internal environment:
• Value System: Value system consists of all those components that are a part of regulatory
frameworks, such as culture, climate, work processes, management practices and norms of
the organization. The employees should perform the activities within the purview of this
framework.

• Vision, Mission and Objectives: The company’s vision describes its future position,
mission defines the company’s business and the reason for its existence and objectives
implies the ultimate aim of the company and the ways to reach those ends.

• Human Resources: Human resource is the most valuable asset of the organization, as the
success or failure of an organization highly depends on the human resources of the
organization.
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 Factors of the internal environment:
• Physical Resources and Technological Capabilities: Physical resources refers to the
tangible assets of the organization that play an important role in ascertaining the
competitive capability of the company. Further, technological capabilities imply the technical
know-how of the organization.

• Corporate Culture: Corporate culture or otherwise called an organizational culture refers to

the values, beliefs and behavior of the organization that ascertains the way in which employees
and management communicate and manage the external affairs.

• Organizational Structure: The structure of the organization determines the way in which
activities are directed in the organization so as to reach the ultimate goal. These activities
include the delegation of the task, coordination, the composition of the board of directors, level
of professionalization, and supervision.
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 External Environment
• External Business environment comprises of all the extrinsic factors,
influences, events, entities and conditions, often existing outside the
company’s boundaries but they have a significant influence on the
operation, performance, profitability and survival of the
organization.
• The components of external environment are incontrollable. These
are:
1. Business opportunities
2. Threats to Business
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 ELEMENTS OF EXTERNAL
ENVIRONMENT
• The elements of the external environment are divided into two categories:
1. Micro Environment: Otherwise called as task environment, these factors
directly influence the company’s operations, as it covers the immediate
environment that surrounds the company. The factors are somewhat
controllable in nature.
2. Macro Environment: Otherwise called as general environment, macro
environment affects the entire industry and not the firm specifically. That is why
these factors are completely uncontrollable in nature. The firm needs to adapt
itself according to the changes in the macro-environment, so as to survive and
grow.
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 External Environment: Micro Environment

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 External Environment: Micro Environment

• Competitors: Competitors are the business rivals, which operate in the

same industry, offering the same product and services, and cater to the
same audience.

• Suppliers: To carry out the production process, the raw material is

required which is provided by the suppliers. The behavior of the supplier
has a direct impact on a company’s business operations.

• Customers: Customers are the target audience, i.e. the one who
purchases and consumes the product.
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 External Environment:
Micro Environment
• Intermediaries:
• There are a number of individuals or firms that help the business enterprise in
the promotion, selling, distribution and delivery of the product to the end
buyer, which are called as marketing intermediaries.
• It includes agents, distributors, dealers, wholesalers, retailers, delivery boys, etc.
• Shareholders:
• Shareholders are the actual owners of the company, as they invest their money in
the company.
• They get their share in the profits also, in the form of a dividend. In fact, they
have the right to vote at the company’s general meeting.
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 External Environment: Macro Environment

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 External Environment: Macro Environment
1.Sociological and cultural:
Sociological and cultural environment refers to influence of the factors which are
beyond the company’s gate/capacity.
People’s attitude towards the role of family, marriage, role of women in the
society, cultural aspects in society, the education level of the people, the
ethical issues involved, social responsiveness etc., are the important components
of Business Environment.
Socio-cultural environment is highly relevant for a business unit.
The reason is the variety of goods produced, the type of people it gets and its
social obligation depend on the cultural environment(milieu) in which the firm
operates.
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 External Environment: Macro Environment
2.Technological: A business unit, which keeps pace with new
technology always succeeds. Technological factors exercise
considerable influence on business.

3.Economical: Industrial production agriculture, planning, basic

economic philosophy, national income, per capita income, money
supply, price level, population, savings stages in economic
development, trade cycles are the major economic factors. These
economic factors have an economic impact on business.
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 External Environment: Macro Environment
4. Demographic:
• Companies with successful products and services evaluate the demographics of
their target market to ensure they meet the needs of those who benefit from their
offerings.
• They also perform tests to measure how well they serve their customers. This
helps them understand if their target market has changed and how they can
develop better ways to serve their loyal customers and earn new ones.
• Demographics that affect business decisions and processes include:
• Age Marital status Income
• Occupation Level of education
• Gender Race
• Nationality
• Belief system Anil Garg
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 External Environment: Macro Environment
5. Political: Political environment refers influence exerted by legislature executive
and judiciary. These three political institutions shape, direct and control business
activities.

6. Media: Media plays an important role in the life of every company because it has
the capability to make the company’s product popular overnight or it can also defame
them, in just one go.

7. Industrial/ business activity: It is dependent upon nature. Natural calamities like

floods, cyclones, earthquakes cause lot of loss to business units. The bad effects of
these natural environmental factors could not be mitigated by business units. Business
continues to be dictated by nature.
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 Difference
BASIS INTERNAL ENVIRONMENT EXTERNAL ENVIRONMENT

Internal Environment refers to all the External Environment is a set of all the
inlying forces and conditions present within exogenous forces that have the potential
Meaning the company, which can affect the to affect the organization's performance,
company's working. profitability, and functionality.

Nature Controllable Uncontrollable

Comprise of Strengths and weaknesses Opportunities and threats

Affects Company only All companies operating in the industry

Bearing on Business Strategy, functions and decisions Business survival, growth, reputation,
expansion, etc.

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 Socio-Cultural
Environment

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 Socio-cultural Environment
Socio-cultural = Social factors + Cultural factors
• The sociocultural environment refers to trends and developments in changes
in attitudes, behavior, and values in society.
• The socio-cultural environment consists of both the social system and the
culture of the people.
• It is closely related to population, lifestyle, culture, tastes, customs, and
traditions.
• These factors are created by the community and often are passed down
from one generation to another. The social structure and the culture of the
society has a great influence on the functioning of business.

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 COMPONENTS OF
SOCIO-CULTURAL:

-Attitude -Education
-Belief -Family Structure
-Social Organization -Class Structure
-Religion -Language

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 Three aspects in the current socio-cultural environment :
• Changes in our life-styles and social values : For example, changing role
of women, emphasis on quality of goods instead quantity of goods,
greater reliance on government, greater preference for recreation
activities.
• Major social problems : For example, concern for pollution of
environment, demand for socially responsible marketing policies, head
for safety in occupations and products, etc.
• Growing consumerism : It is indicating consumer dissatisfaction on a
large scale against unfair trade practices. Consumerism is becoming
increasingly important to marketing decision process. Social
environment in many countries is responsible for emphasizing social
responsibility of business and customer oriented marketing approach.
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 Affect of sociocultural environment on Business:
• Changes in age composition also affect recruitment policies. Companies must
face more elderly with reduced productivity.
• Different sociocultural factors also influence business practices, policies, and
activities.
• Culture influences taste and lifestyle. Therefore, culture also influences the
types of products and services that businesses must offer.
• Human resource management may need to overcome cultural differences in
recruitment. For example, some ethnic minorities have different body
language, which may be difficult for interviewers to interpret.

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 Conclusion
Business Environment consists of all those factors that have a bearing on the
business. The survival and success of a firm, thus, depend on two sets of
factors:
• The internal factors – the internal environment
• The external factors – the external environment

❑The external environment has, broadly, two components that is business opportunities and
threats to business.
❑The internal environment has two components: strengths and weaknesses of the organization.
❑Socio-cultural factors influence the choices and influence the customers.

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 Thank You
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