Business Environment & Legal

Aspect of Business
 Unit-2
Macro Cont: Economic, Socio-Cultural,
Competitive & International Environment –
Economy, Competition, Socio-cultural and
International); Business Environment with
reference to Global Integration; Comparative
Analysis of Business Environment: India and
Other Countries , Factors affecting international
business environment, Business Policy : LPG
model & International forces in business.
 Economic Environment
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.
 Conti…..
The economic environment relates to all the economic
determinants that influence commercial and consumer
compliance. The term economic environment indicates all
the external economic circumstances that affect the
purchasing practices of customers and markets.
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).
 Macro factors include:
• Employment/unemployment
• Income
• Inflation
• Interest rates
• Tax rates
• Currency exchange rate
• Saving rates
• Consumer confidence levels
• Recessions
 Micro factors include:

• The size of the available market

• Demand for the company’s products or
services
• Competition
• Availability and quality of suppliers
• The reliability of the company’s distribution
chain (i.e., how it gets products to customers)
 CHARACTERISTICS OF
ECONOMIC ENVIRONMENT

1. Related with Economic Activities: Economic

Environment is directly related to economic
activities of an economy. It includes all economic
activities like Government income and expenditure,
Industry, Business Commerce, Agriculture,
Transport, Insurance, Banking etc. The economic
environment existing in the country affects the
economic activities to a great extent.
 CONTI….
2.Effected by Non-economic Environment: The
non-economic environment like Geographical,
Social and Political environment affects economic
environment. It is also affected by national and
international conditions. Geographical environment
includes natural resources, weather and climatic
conditions, location aspects etc. Social environment
excludes social culture, education, health etc. and
political environment includes administrative
system, types of economy, economic policies and
other factors. All of these influence economic
environment.
 CONTI….
3.Operated and Guided by Government:
Economic environment works under control and
guidance of government. In capitalist economy,
government adopts the policy of minimum
interference but in Socialist economy,
Government itself operates all economic
activities. Thus, economic environment is
affected by Government policies, guidance,
assistance and control.
 CONTI…
3.Availability of Capital: Availability of sufficient
capital tends to effective utilization of available
natural and human resources which facilitates to
increase in income, investment, employment and
economic development of a country.
4.Infrastructure: Economic environment is
influence by the availability of infrastructure
facilities like electricity, power generation, water
resources, transport and communication, banking
and insurance. Presence of these facilities adds
economic development.
 CONTI….
5.Made up of Macro Level Factors:
The economic environment is made up of macro
level factors related to the areas of production and
distribution of wealth.
These factors are economics stages (under-
developed, developing or developed); economic
structure like Capitalistic, Socialistic or Mixed
economy; economic planning and policies;
economic indices like national income, per capita
income, growth rate, GNP, distribution of income,
rate of saving, balance of payments etc.
 OBJECTIVES OF ECONOMIC
ENVIRONMENT
To understand about economic environment for successful operation
and development of an economy. Thus, its objectives is economic
development and successful operation of economy.
• To know about the changes taking place in the economy.
• To introduce latest technologies, resources and use of opportunities.
• To study environmental elements so as to cope up with dynamic
conditions.
• To maintain the environment according to development
requirements of an economy.
• To ensure maximum utilization of resources for development of the
country.
• To understand global environment to cope up with our economic
environment to attract foreign capital and entrepreneurs.
 Sociocultural Environment

The sociocultural environment of a business is customs

and value, which directs business practices. It is created
by the demographic characteristics of its leaders as well
as their leaders.
The sociocultural environment refers to trends and
developments in changes in attitudes, behavior, and
values in society. 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.
 Example
For example, a company with a strong family-focused
culture will provide more employee benefits-focused on
this value. This company can offer flex-time, maternity
leave, and daycare services or discounts for both its
employees, flex-time, both father and mother.
The business environment of the business market also
influences the company’s business practices. For
example, when McDonald’s started opening stores in
India, then he had to keep in mind the sociocultural
environment because most of his new customers did not
eat beef and had many vegetarians. So they had to
consider menu changes to meet the needs of their new
customer base.
 Conti….
For example, changes in age composition affect
changes in patterns of demand for goods and
services. As the elderly population begins to
dominate, the need for health services and
pensions increases.
 Sociocultural variables are:
• Culture. Individual values and habits can change individuals through
contact with specific cultures.
• Habits that represent how to behave in response to a given
situation.
• Beliefs and values. Belief refers to how we feel about something or
someone. Meanwhile, values are relatively long-standing beliefs
and serve as guidelines for culturally appropriate behavior.
• Number and growth of population. Increasing the population
indeed provides more labor and demand for goods and services. On
the other hand, it can lead to social problems such as crime and
poverty, especially when employment is inadequate.
 Conti…
• Age composition. In some countries, productive age
populations dominate and provide opportunities for
economic growth and demand for goods and services.
However, countries like Japan, the elderly population
dominates. It presents opportunities as well as challenges
for the economy and companies there.
• Geography. Populations may be concentrated in some
geographical regions, for example, on arable agricultural
land or in industrial areas.
• Ethnicity. A country, like Indonesia, consists of a variety of
different ethnic and ethnic groups. It has implications for
various aspects such as language, culture, habits, and
tastes.
 Conti….
• Household and family structure. The
population of a community can be broken
down based on the number of children.
• Employment, for example, the composition of
white-collar workers vs. blue-collar workers.
• Wealth and social class. People from different
social classes can have different values that
reflect their position in society.
 Competitive Environment
A competitive environment is a system where
different businesses compete with each other
by using various marketing channels,
promotional strategies, pricing methods, etc.
This system has regulations within it that
companies should follow.
 Types of Competitive
Environment
Pure Competition -In a perfectly competitive
environment, many small companies produce
similar products, and many consumers buy them.
These manufacturers are small, and thus they can't
influence the price, defined by supply and product
demand. For example, when a farmer brings dairy
products to the local market, this person can't
change the market price and agrees with the going
one.
 CONTI…
Monopolistic competition.
In this environment, many manufacturers produce
different products, although they might serve the same
purpose. Customers can distinguish the products because
of the differences in quality, features, etc. Businesses
actively use advertising to promote their products and
convince consumers that they are not like other products
and have better quality. Companies in monopolistic
competition are price makers, which means that they can
influence the product price. However, to justify the price
increase of their products, they should offer something
exclusive to be unlike other businesses, for example,
improve the quality of their goods.
 Example
The service provided by the hairdressers in the market provides one of
the most famous types of the example of the monopolistic
competition. There are certainly lots of hairdressers and each of the
hairdressers has a slightly different type of skill and thus each one of
them sells a slightly differentiated product to the consumer in the
market. Also, they have different premises situated in a different
location where they provide the services. These things differentiate
the product in the eyes of the consumers.
There are certainly a lot of bakeries in any town and each one of them
sells a slightly differentiated product to the consumer in the market.
But if in a particular area of the town there exists only one bakery,
then it can demand a slightly higher amount of price for its products.
The firms under monopolistic competition with their ability can gain a
greater degree of market share due to which it can increase the prices
of its products.
 Conti….
One can see that there are many restaurants in any town and
each one of them competes on the quality of food and prices
of the product offered in the market. In every area, it can be
seen that some restaurant charges $ 50 for one product and
for the same product another restaurant is charging $ 80. The
price of the product of the restaurant depends on many of the
factors such as the quality of the food, place of the restaurant,
other services they are offering to the consumers, etc. This is
the product differentiation among the different restaurants
which is the key element of any business. These products
offered are similar in nature but are not a substitute for each
other. Also, there is a low barrier in setting up of new
restaurant and exiting from it which is also an important
feature of the monopolistic structure.
 Types conti…..
Oligopoly. Oligopoly is the form of market
which is characterized by market in which a very
few number of firms hold a large share of the
market. A good example of an Oligopoly is the
cold drinks industry.
Monopoly. There's one company that produces
a unique product. This manufacturer doesn't
face any competition, and the product doesn't
have any substitutes.
International Business Environment
International business is a facet of the modern economy by which the
technical advancement also made it possible for organizations to
execute their business on a global basis. International business refers
to as trading of goods and services in a worldwide market, therefore
the international business can also recognize as the globalization of
trade. Moreover, the major learning objective is to be familiar with the
complex factors that may impact an organization’s strategic decision to
enlarge it internationally.
International Business is quite an essential term for a country’s
economy. All of the world’s strongest as well as wisest economies like
Germany, Japan, Switzerland, etc as per the Operation for Economic
Co-operation and Development (OECD) are concerned in international
trade practices and have the highest standards of living.
Advantages of International Business
Environment
• Helps in expanding the business,
• Exposure to more customers
• Helps in the proper management of the
product life cycle and
• Helps in mutual growth.
 Global Integration
Global integration refers to the process of
increasing the degree of economic and political
integration among countries around the world. This
can be done through a variety of means, including
treaties, trade agreements, and infrastructure
projects.
The business environment is the set of factors that
affect how businesses operate. This includes things
like the economic conditions, the legal and
regulatory environment, and the social and cultural
environment.
 Conti….
Global Integration meaning is how much the
organization can utilize similar items and
techniques in different nations. Nearby
responsiveness is how much the organization
must modify their items and techniques to meet
different nations' conditions.
 Advantages of Global Integration
There are three major advantages of Global
Integration, widely know as the LPG: Liberalization,
Privatization, and Globalization. There are a few
advantages of global integration. For instance,
numerous new business sectors like protection,
transportation, and banking administrations have
become because of it. Besides, individuals presently
approach more decisions and worldwide brands as
a result of streamlined commerce between nations.
 Element of Global Integration
The process of global integration of India’s
business environment began in 1991. The
following elements were largely responsible for
this:
• Liberalization
• Privatization
• Globalization
 Liberalization
Liberalization basically refers to the removal of
these restrictions. This happens when the
government removes unnecessary license
requirements, allows more freedom in conducting
business, dilutes regulation and reduces taxes.
Another way to do it is by making imports and
exports easier.
Liberalization has been responsible for several large
MNCs coming to India. The government has been
able to attract crores of Rupees as foreign capital
because of it.
 Privatization
Privatization simply means allowing private players and
companies to conduct business. This did not happen
commonly before 1991 because the government
controlled many industries. It also implies withdrawal of
the state’s interference in business.
The main objectives of privatization are to reduce the
burden on tax-payers, encourage private competition,
facilitate capital inflow, etc. Some common modes by
which a government indulge in privatization include
disinvestment, franchising, public-private partnerships
and liquidation of public sector undertakings.
 Conti…
Due to privatization, there are very few
government companies remaining in India now.
The ones that remain do not even enjoy a
monopoly. Government companies like Air India,
ONGC, LIC and HAL have to compete with
private companies and MNCs. As a result, India’s
economy has become more diverse and growth-
oriented.
 Globalization
Globalization, in simple words, means growing inter-
dependence between countries with regards to business
and trade. Modern means of communication and
transportation technology have made this possible. Even
international organizations and treaties between
countries have played a big role in globalization.
There are several benefits of globalization. For example,
many new markets like insurance, transportation, and
banking services have grown due to it. Furthermore,
people now have access to more choices and
international brands because of free trade between
countries.
 Factors affecting international business
environment
POSITIVE FACTORS
1.Electronic Fund Transfer
The inception of electronic fund transfer has impacted the growth of
international business. It means an improvement in the banking system,
which has accepted the digital movement of funds.
2.Technological Innovation
The global business planning became more successful, with the integration of
technology. The advancement of technology is seen with the effect of
globalization. It improved global communication and transportation. They are
great influencers or factors affecting international Business. The businesses
are integrating due to technology advancement.
 Conti….
3.Dissolution of Communist Markets
The effect of the dissolution of the communist markets has
led to the emergence of the global markets. With the
dissolution of communism, countries start expanding their
businesses. Due to this privatization occurs which would
create a positive effect on the country.
4.Legislations Evolving
The legislative changes of the country are the factors affecting
international business. The law of the country plays a pivotal
role in the development of business. The progressive
legislations like ease of formation of foreign company,
less corporate tax and relaxed security legislations would
affect companies established in the country.
 Conti….
5.Customer demands
The growth of Business in this digital age is dependent on the
needs of the customer. International brands established by
the big business houses in different countries are running
globally. Such are- BPO-Business Processing Units where
customer support is given for their product by the customer
support agent sitting in one country to the customer
purchasing from another country. There are businesses Like
Amazon, or all e-commerce websites running exclusively due
to customer demands. These big business houses have to
incorporate themselves in another country, due to the heavy
demand. The customer demands one of the factors affecting
international Business.
 Conti….
It can be seen as:
• Quality is the customer’s preference.
• The sales process is more and more under
customer control.
• The rise of middle-class customer.
• The rise of female power.
• Advancement of new technology.
 Conti….
6.Taxation Laws
The taxation regime of any country is the factor
influencing international Business.
 Factors affecting international business
Negative Factors
environment
1.Economic environment
The economic environment offered by one country is different
from another country. There are countries which are
developed, and some may be emerging. In each of these
nations, there will be a vast difference visible in their growth
and investors doing businesses internationally. This is one of
the factors affecting international Business. There may be a
difference from education to infrastructure. It may act as a
hindrance to the development of international business.
 Conti…
2.Cultural Environment
The cultural environment of one country is
different from another country.
3.Political Environment
The political environment of every country is
different. There may be problems which the
international business has to deal with.
 ENVIRONMENTAL ANALYSIS
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. Businesses are
greatly influenced by their environment, so they must
constantly analyze the trade environment and the
market.
 PESTEL FRAMEWORK
1.There are many strategic analysis tools that a firm can use, but some
are more common.
2. The most used detailed analysis of the environment is the PESTEL
analysis.
3.This is a bird’s eye view of the business conduct.
4. Managers and strategy builders use this analysis to find where their
market currently.
5. It also helps foresee where the organization will be in the future.
6.PESTEL analysis consists of various factors that affect the business
environment.
7.These factors can affect every industry directly or indirectly.
 PESTEL
• P Is for “Political.
• E Is for “Economic”.
• S Is for “Social”.
• T Is for “Technological”.
• E Is for “Environmental”.
• L Is for “Legal
 POLITICAL FACTORS

The political factors take the country’s current

political situation. It also reads the global
political condition’s effect on the country and
business.
Some of the factors considered for analysis are:
Government policies
Taxes laws and tariff Stability of government
Entry mode regulations
 ECONOMIC FACTORS

Economic factors involve all the determinants of

the economy and its state. These are factors that
can conclude the direction in which the
economy might move. So, businesses analyze
this factor based on the environment. It helps
to set up strategies in line with changes.
 Conti…
Some of the determinants considered for analysis
are:
The inflation rate
The interest rate
Disposable income of buyers
Credit accessibility
Unemployment rates
The monetary or fiscal policies
The foreign exchange rate
 SOCIAL FACTORS
Countries vary from each other. Every country has a
distinctive mindset. These attitudes have an impact on
the businesses. The social factors might ultimately affect
the sales of products and services.
Some of the social factors analyzed:
The cultural implications
The gender and connected demographics
The social lifestyles
The domestic structures
Educational levels
Distribution of Wealth
 TECHNOLOGICAL FACTORS

• Technology is advancing continuously

• The advancement is greatly influencing
businesses.
• Performing environmental analysis on these
factors will help you stay up to date with the
changes.
• Technological factors will help you know how the
consumers react to various trends.
• Social media has become a vital part of any
business now-a-days
 Business Policy : LPG model(ATTACH PDF )
New Economic Policy of India was launched in the
year 1991 under the leadership of P. V. Narasimha
Rao. This policy opened the door of the India
Economy for the global exposure for the first time.
In this New Economic Policy P. V. Narasimha Rao
government reduced the import duties, opened
reserved sector for the private players, devalued
the Indian currency to increase the export. This is
also known as the LPG Model of growth.
 Conti….
New Economic Policy refers to economic
liberalisation or relaxation in the import tariffs,
deregulation of markets or opening the markets
for private and foreign players, and reduction of
taxes to expand the economic wings of the
country.
New Economic Policy