BUSINESS ENVIRONMENT

UNIT 1

Environment Economic and non-economic environments – Inter relation between economic

environments – Business and society; Professionals - Business ethics – Business culture –
Social responsibility of business – Social Audit.

There are to factors which affects the operation of the business. These can also be
classified into two categories. Internal factors and external factors.

INTERNAL FACTORS

The internal factors are generally regarded as controllable factors because the company has
control over these factors. It can alter or modify such factors as its personnel, physical
facilities, organisation and functional means, such as marketing mix, to suit the environment.

EXTERNAL FACTORS

The external factors, as on the other hand beyond the control of a company. The external or
environmental factors such as the economic factors, socio- cultural factors, government and
legal factors, demographic factors, geo-physical- factors etc.., are therefore generally regarded
as uncontrollable factors.

Some of the factors external factors have a direct and intimate impact on the firm (like the
suppliers and distributors of the firm). These factors are classified as micro environment also
known as task environment and operating environment. There are other external factors which
affect an industry very generally such as industrial policy, demographic factors etc.
They constitute what is called Macro Environment/ General Environment or Remote
Environment.
We can consider the business environment at three levels.
Internal Environment.
External Environment.
Micro Environment/ Task Environment /Operating Environment.
Macro environment/ General Environment /Remote Environment.
Business environment is studying of external environment which affects the business
operation and adaptability of those factors.

INTERNAL ENVIRONMENT
The important internals factors which have a bearing on the strategy and other decision are;

1. VALUE SYSTEM

The value system of the founders has important bearing on the choice of business. The
mission and objectives of the organisation, business policies and practices.
Ex. Infosys views its employees as its resources “Wealth creation for employees as one of
its stated objectives. It provides innovative compensation and benefit packages.

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.
Ex : Ranbaxy thrust in to the foreign markets and development have been driven by its
mission “to become a research based international pharma ceutical coy.

3. MANAGEMENT STRUCTURE AND NATURE

The organisational structure the composition of
Board of directors, extent of professionals of management etc are important factors
influencing business decision. Some management structures and styles delay decision making
while some others facilitate quick decision making.
4. INTERNAL POWER RELATIONSHIP
Factors like the amount of support the top management enjoys from different levels of
employees, Shareholders and Board of directors have important influence on the decision and
their implementation.

5. HUMAN RESOURCES
The characteristics of the human resources like skill quality, morale, commitment, attitude
etc., could contribute to the strength and weakness of the organisation, Some organisation find
it difficult to carry out restructuring or modernisation because of resistance by employees
whereas they are smoothly done in some others.

6.COMPANY IMAGE AND BRAND EQUITY:

The image of the company maters while raising finance, forming joint venture or other
alliance, soliciting marketing, intermediaries, entering purchases, sales contracts, launching
new products etc, Brand equity is also relevant in several of these cases.

7.MISCELLANOUS FACTORS
I Physical assets and facilities
II R& D technological Capabilities.
III Marketing resources and
IV Financial factors.

EXTERNAL ENVIRONMENT

(I) Micro environment

The micro environment consists of actors in the company immediate environment that effect
the performance of the company. These include the supplier marketing intermediate
competitor customer and the public.
 1. SUPPLIERS

An important force in the micro environment of a company is the suppliers (i.e) those
who supply the inputs like raw materials and components to the company (the
importance of reliable source / source of supply to the smooth functioning of business
is obvious)

AVERAGE STOCK

IN INDIA intergenious 3-4 month Imported 9 month

IN JAPAN Few hours two week

2. CUSTOMERS

The major task of the business creates and sustain customers (a company may have
different categories of the customers like individuals, households, industries and other
institutions. For an example the customer of a tyre company may include individuals
auto mobile owners, automobile manufactures, public sector transport in undertakings
and other operators. Depending on a single customer is often to risky because it may
place the company in a poor bargaining position, apart from the risk if losing business
consequent to the winding up of business by the customers.

3. Competitors:

A firm competitor includes not only the other firms which market the same or
similar products but also those who compete for the discretionary income of the
consumers. For the ex. The competition for a company’s televisions may come not only
from other tyre manufacturers but also from two-wheelers, refrigerators, cooking
ranges stereo sets and so on from firms offering saving and investment schemes like
banks, UTI.

4. Marketing intermediaries:

These are vital links between the company and the final consumers. A dislocation
or disturbance of the link, or wrong choice of the link may cost the company very
heavily. Retail chemist and druggists and India once decide to boycott the products of
a leading company and company have been in trouble.
 5. Financiers:

Another important micro environment factor is the financiers of the company.

Besides the financing capabilities, their policies and strategies, attitudes, ability to
provide non-financial assistance etc, are very important.

6. Public:
A company may encounter certain public in its environment. Media publics citizens
actions publics and local publics are some examples.

(II) MACRO ENVIRONMENT

The macro environment consists of
1. Economic environment.
2. Non-economic environment.

1.Economic environment:
Business fortunes and strategies are influenced by the economic characteristics and
economic policy dimensions. The economic environment includes
1. The structure and nature of economy.
The structure of the economy (i.e,) primary mostly agriculture. Secondary
industrial and territory sectors, large, medium, small and tiny sectors is the
company, and their linkages, integrations with the world economy etc. are
important to business. Because these factors indicate the prospects for different
types of business, certain factors which affects the business etc, for example if an
company is highly integrated with the global economy.

The nature of the economy is nothing but the classification of the

economics is on the basis of per capital income. Accordingly, these are broadly
classified low income, middle income, high income economies.
The difference in the income and development levels have important
implicates for business.
(II) ECONOMIC CONDITIONS:
The followings are some of the economic conditions of the country which affects the
operations of the business.
1. Income levels.
2. Distribution of income.
3. GDP trends.
4. Sectoral growth trend.
5. Demand and supply trends.
6. Price trends.
7. Foreign exchange reserve position.
8. Global economic trends.

(III) ECONOMIC POLICIES:

There are several economic policies which can have a very great impact on
business. Important economic policies are,

1. INDUSTRIAL POLICY
It can even define the scope and role of different sectors like private, public,
joint and co- operative, or large, medium and small industries. Choice of
technology, scale of operations, product risk and so on.

2 TRADE POLICY:
It can signified affect the fortunes of the firm
For examples restrictive import policies are a policy of producing the
home industry may greatly help the import competing industries, while a
literalisation of the import policy may create difficulties for such industries.

3 FOREIGN EXCHANGE POLICY

Exchange rate policy and the policy irrespective of cross border movement
of capital are important for business.
4. FOREIGN INVESTMET AND TECHNOLOGY POLICY:
Liberal foreign investment and technology policy will increase domestic
competition would put many domestic firms on account of foreign competition
in problems. But at the same times it would benefit many domestic firms by
permitting global sourcing of capital and technology by increasing in the
quantity and quality of domestic supply of many goods and security etc.,
 5. FISCAL POLICY

Government’s strategy irrespective of public expenditure and revenue

can have significant impact on the business. Example: Taxation policy.

6. MONETARY POLICY

The central bank by its policy towards the cost and availability of credit,
can significantly influence the savings investments and consumer spending in the economy.
Ex. a one percentage point reduction the cash ratio or statutory reserve ratio (SLR) will
significant increase the loanable funds with the commercial banking system and vice versa.

NON- ECONOMIC ENVIRONMENT:

1. POLITICAL AND GOVERNMENT ENVIRONMENT

The political environment includes factors such as characteristics and policies of the
political parties, the nature of the constitution and government system and the government
environment encompasses the economic and business policies and regulations

Ex. congrass government – 1950 - - socialistic – pattern of society – nationalisation – pubic

sector domination

1991 narasimroa government

Important economic policies such as industrial policies, policy towards foreign capital
and technology, fiscal policy and export import policy are often political decision.

Many political decisions have serious economic and business implication. The
economic policy of the ruling party is very important. In the past communist and other leftists
favoured state capitalism and were against private capital, particularly foreign.

CLASSIFICATION OF FUNCTION OF STATE

Functions of state varies from basic minimum requirement to active participation in

several other sectors.

BASIC FUNCTION
 These include the pure public goods such as the provisions of property rights macro
economic stability, control of infectious disease, safe water, roads and protection of the
destitute.

INTERMEDIATE FUNCTION

These includes matters such as it management of extent abilities (e.g.) pollution,

regulation of monopoly and the provision of social insurance.

ACTIVIST FUNCTION;

These includes measures to stabilized and promote markets and redistribute assets or
income.

The government plays an important role in almost every national economy of the world.

The government normally play four important rules in an economy.

Regulation

Promotion

Entrepreneurship

Planning

REGULATION ROLE

Regulation may cover a wide spectrum extending from entry into a business through the
contact of a business to final results of the business and also a exist. Regulation is very
important for a proper function of market economy.

ENTREPRENURAL ROLE

Direct participation of government in business was very common particularly a socialist

and developing countries reason include ideological and dearth of private entrepreneurship and
capital.

PLANNING ROLE

The national necessity for proper utilisation of scarce resources and priortisation of
development objectives and ideological resources have made this an important role of
governments in the developing and socialist countries.
PROMOTIONAL ROLE

This is also a more important in developing countries than in developed because speedy
development of the industry and commerce and the economy requires the development of the
infrastructure including facilitating organisation.

BUSINESS ETHICS

The term business ethics refers to system of moral principal and rules of conduct applied
to business that these showed be business ethics means that the business should be conducted
according to the self recognized moral standards business being a social organ shall not conduct
itself in a way determenental to the interest of socially under there business sector itself.

Important ethical principals that a business should follow

1. Do not deceive or cheat customer by selling substandard or defective products, by under

measurement or by any other means
2. Do nor resort to hoarding, breach marketing or profiteering
3. do not destroy or distort competition
4. Ensure sincerity and accuracy in advertising, labelling, packaging.
5. Do not tarnish the image competitors by unfair practice.
6. Make accurate business available to all authorities.
7. Pay taxes and discharge other obligations promptly.
8. Don’t form cartel agreements, even informal, to control products, price etc to the
common determent.
9. Refrain from secret kick bags or payoffs to customers.
10. Ensure payment of fair wages and fair treatment of employees

PROFESSIONALISATION :

The growth management education and training has contributed to the growing
professionalisation.

Professionalisation of a business management means that the business should be managed

by men.

1. Who have formally acquired the specialised and skill for management.
2. Who have authority and freedom to take the right decision.
3. Who have know ideological basis in the discharge of function.
4. Who decisions and actions are guided by certain ethical consideration.
SOCIAL RESPONSIBILITY OF BUSINESS

There is no uniformity of opinion as to what constitutes social responsibility of business.

Generally accepted responsibility of the business to different section of the society are
described below

(I) Responsibility to shareholders:

The responsibility of a company to its shareholders who are the owners is indeed a
primary one.

1. To safeguard the capital of the shareholders and to provide a reasonable dividend. The
company should earn sufficient profit and should build up adequate reserve.
2. If the company fails to cope with the changes in a changing and dynamic world. Its
position will be shaken and the shareholders interest will be affected. By innovation
and growth the company should consolidated and improve to position and help
strengthen the share prices.
3. The business has ensure the image of the company.

(II) responsibility to employees:

1. The payment of fair wages.

2. The provisions of the best possible working condition.
3. The establishment of fair work standard and norms.
4. The provision of labour welfare facilities to the extended possible and desirable.
5. Arrangements for proper training and education of the workers.
6. Reasonable chances and proper system for accomplishment and promotion.
7. Proper recognition, appreciation, encouragement of special skills and capabilities
of the workers.

(III) responsibility to consumers:

1. To improve the efficiency of the functioning of the business so as to

a) Increase productivity and reduce the prices’
b) Improve quality and
c) Smoothen the distribution system to the consumers.

(IV) responsibility to the community

1. Taking appropriate steps to prevent environmental pollution and to preserve
the ecological balances
2. Rehabilitating the population dispeaced by the operation of the business if
any
3. Taking steps to conserve scarce resources and developing alternatives
where ever possible
4. Improving the efficiency of the business operations
5. Contributing to research and development
6. Development of backward areas
7. Promotion of an cillarisation and small scale industries
8. Making possible contribution to furthering social cawes like the promotion
of education and population control

SOCIAL AUDIT

Social audit is a tool for evaluate how satisfactory a company has discharged its
social responsibilities. Social audit enables the public as well as the company to
evaluate the social performance of the company.

SOCIAL AUDIT INVOLVES:

1. Identification of the firm activities having potential social impact

2. Assessment and evaluation of the social cost and social benefits of such
activities
3. Measurement of the social cost and benefit
4. Reporting that is presenting in a proper format and manner the social
performance of the firm

OBJECTIVES AND BENEFITS OF SOCIAL AUDIT

1. The basic objective of social audit is to evaluate the social dimensions of

the performance of the company
2. Another principal objective which factor the objectives mentioned above is
to take necessary to improve the social performance of the company on the
basis of the feedback provided by the social audit.
3. Social audit increases the public visibility of the organisation
4. If the social audit reveals a socially commendable performance of the
company, it will help boost the public image of the company.