Unit 1: Economic

Environment of Business
The concept of Business
•Definition
•Nature
•Scope
•Principles
BUSINESS : Meaning
Primarily to earn profit.

Business is an economic activity that involves the exchange,

purchase, sale or production of goods and services with a
motive to earn profits and satisfy the needs of customers.

Businesses can be both profit or non-profit organizations

that function to gain profits or achieve a social cause
respectively.
Definitions by different authors:

L.H. Haney : “ Business may be defined as human activity

directed towards providing or acquiring wealth through
buying and selling activities.”

Wheeler : “ An institution organized and operated to

provide goods and services to the society under the
incentive of private gain.”

Peterson and Plowman: “ Business may be defined as an

activity in which different persons exchange something of
value , whether goods or services for mutual gain or profit.”
Characteristics of Business
Entrepreneur

Economic Activity

Exchange or sale of goods and services

Profit Motive

Risk of uncertainty with return

Continuity of transactions

Creation of Utility
1. Entrepreneur: One who visualizes a business and
combines all factors of production and puts them into a
going concern

2. Economic Activity:
It includes the purchase & sale of goods or rendering of
services to earn money.
It is not concerned with the achievement of social and
emotional objectives.
 3.Exchange of goods and services:
Every business activity includes an exchange or transfer of services
and goods to earn value.
Producing goods for the goal of personal consumption is not
included in business activity.
So, there should be the process of sale or exchange of goods or
services exits among the seller and the buyer.

4. Profit motive: The purpose to conduct the business is to earn profits and minimise
the cost.
5. Risk of Uncertainty :
Factors affecting business are largely uncertain.
Shift in demand, strikes, floods, inflation, fall in prices etc. cannot be
anticipated always

6. Continuity of transactions:
A one time sale is not considered a business activity.
e.g. If a person sells his old car through OLX even at a profit will not
be considered as a business activity. But if he is engaged in regularly
trading of cars at his showroom will be considered as business
activity.
7.Creation of Utility:
Form Utility Place Utility Time Utility

• Raw • Goods are • Storage of

materials transported goods for
into finished from the future
goods places of business
production
to the end
consumers.
 ECONOMIC

NATIONAL
HUMAN
OBJECTIVES
OF
BUSINESS

ORGANIC
SOCIAL
 Economic Objectives:
 Profit earnings:
 Is needed not only for existence but also for expansion and
diversification
 for investors return on their investments
 for wages to workers and
 for reinvesting

 Production of Goods :
Businessman creates form, place and time utilities so tangible form of
wealth is produced in the form of goods.

 Market generation:
Businessman aims not only at retaining his old customers but also exploring new market in
order to expand its business.

 Technological improvement:
HUMAN OBJECTIVES:

• Employee welfare:
• Provide physical comforts, material benefits, appreciation and appropriate conditions for
working to keep them motivated to give their best.

• Consumer satisfaction:
• Maintaining standards of quality and service besides reasonable price

• Shareholders satisfaction:
• Adequate return on investment to shareholders
SOCIAL OBJECTIVES
 Availability of Goods :
◦ Production should be made on the basis of demand of goods to meet
requirements of society

 Supply of quality foods:

 Unadulterated goods at reasonable prices should be made available to the consumer

 Co-operation with government:

Should abide by the policies and laws laid down by the
government for businesses

 Generation of new employment

 Utilization of national resources

ORGANIC OBJECTIVES
 SURVIVAL:
Business activities which generate profits and are beneficial to
the society can only survive.

 GROWTH:
Just like Human body which grows from Infancy to Childhood to
Adolescence to Adulthood to Maturity, a business passes through
several stages for expansion and diversification

 TO SEEK RECOGNITION AND PRESTIGE

National Objectives
•Increase of National wealth

•Development of Small entrepreneurs

•Development of skilled personnel

•National self sufficiency

 Scope or component of
business

INDUSTRY COMMERCE
Business Environment
M.B.A. Department
Baderia Global Institute of Engineering and Management
Learning Objective
What is Business
What is Environment
Business Environment- Nature, Objective
Types of Business Environment
Interaction between Internal and External
Environment
 Business:
Business is a human activity carried out by the unified efforts of
different categories of people is an economic activity which
facilitate production, distribution and exchange of goods and
services to produce the wealth .

In the words of L. H. Haney – “ Business is a human activity

directed towards production and acquisition of wealth through
buying and selling of goods.”

Davis Keath – “ Business is an organized effort by individuals to

produce goods and services, to sell these goods and services in
market and to get rewarded for these efforts.”
 Business Environment:
• Business Environment means a collection of all individuals, entities and
other factors, which may or may not be under the control of the
organisation, but can affect its performance, profitability, growth and even
survival.

• Every business organisation operates in a distinctive environment, as it

cannot exist in isolation. Such an environment influence business and also
gets affected by its activities.

• Business Environment is sum or collection of all internal and external factors

such as employees, customers needs and expectations, supply and demand,
management, clients, suppliers, owners, activities by government,
innovation in technology, social trends, market trends, economic changes,
etc.
Definitions

• According to Keith Davis: “Business environment is the aggregate of

all conditions, events and influence that surrounds and affects it”

• According to Philip Kotler – “ A company’s environment consists of

factors and forces that are external to the business management
functions of the firm, and the impinge on the management’s ability to
develop and maintain successful transactions with its customers.
 Salient Features of Business Environment
• The salient features of the business environment are given hereunder:
• Dynamic: The environment in which the business operates changes
continuously because there is a wide variety of factors that exist in the
environment, causing it to change its shape and character.
• Complex: There are many forces, events and conditions that constitute
business environment, arising from various sources. So, it is a bit difficult to
understand the relative influence of a particular factor, on the operation of
the organisation.
• Uncertain: Uncertainty is an inherent characteristic of the business
environment because no one can predict what is going to happen in future.
• Multi-faceted: A single change in the business environment, can be
viewed differently by different observers because their perceptions
vary.
• Far-reaching Impact: The survival, growth and profitability, of a
business enterprise, depends largely on the environment in which it
exists. A small change in the environment has a far-reaching impact
on the organisation in different ways.
• Relative: The notion of a business environment is relative since it
varies from one location to another.
 Scope Of Business Environment
1. Identifies Business Opportunities And Threats
• Business environment helps business in identification of various
opportunities and threats. When business is able to detect market
opportunities timely, they can easily take advantages of such opportunity at
earliest. They can earn maximum returns by availing such opportunity before
the competitors. By proper interaction between business and its
environment all threats can be easily detected. It will enable business in
taking corrective measures timely.
• 2. Helps In Planning And Policy Formulation
• Proper understanding of business environment helps in formulating better
policies and strategies. It conveys all current information regarding market
conditions to business. All opportunities and threats are scanned through
the study of the business environment. Businessmen are properly aware of
environment and thereby take all decisions according to it. Their entire plan
can be changed effectively and efficiently through environmental awareness.
3. Provides Useful Resources
• Business depends on the environment in which they operate for several
resources. Business environment supplies several inputs like raw materials,
capital and labour which are used by the business for its operations. These
inputs are converted into goods and services for satisfying the needs of the
market. Without proper supply of inputs, business cannot continue its
operations. It is fully dependent upon environment for taking inputs and
delivering the required goods or services.
• 4. Improves Performance
• Business environment has an effective role in accelerating the overall
performance of business organisations. Through continuous environmental
awareness, managers update their knowledge and skills. Environmental
study serves as the medium of educating management. Monitoring of
environment provides qualitative information which helps in developing
strategic thinking. It enables managers to adopt suitable management
practices to control and improve the performance of business.
5. Helps In Coping With Rapid Changes
• Factors which constitute business environment are dynamic in
nature. They keep on changing continuously from time to time. These
changes include changes in customer’s preferences, fashion,
technology, economic conditions etc.
6. Enhances Business Image
• Business through proper understanding of its environment are able
to improve its public image. They are more responsive and sensitive
to the environmental needs through proper knowledge of business
environment. Study of environment provides them information for
making realistic plans and implementing them effectively. Businesses
are able to provide better service and serve the interest of entire
society.
7. Assist In Facing Competition
• Business environment communicates all details about competitors in market
to business. Awareness regarding the actions and strategies of competitors
is crucial for every business for meeting competition effectively. It helps
business in formulating plans and policies in accordance with the
competitor’s actions. Businesses are able to face challenges and competition
in market through systematic planning in an efficient way.
 Types of Business Environment

Internal Environment External Environment

• Financial Resources
• Physical and human
Resources
• Values and Purpose of Micro Environment Macro Environment
Business
• Leadership
• Technological Capabilities
and Innovation
 External Environment

The external environment refers to the factors existing outside the

business firm. The external factors are beyond the control of a company,
hence its success depends to the adaptability of the environment.

Again external environment is divided in two parts:

1) Micro Environment
2) Macro Environment
 Micro Environment
The factors which are close to the company and affects its ability to work
constitutes micro environment. It is known as the operating environment
of business.
When competing form in the industry have the same micro elements,
the success of the firm depends on their relative effectiveness in dealing
with these elements.
Suppliers:
Suppliers are those who supply the inputs like raw material and
components to the company. Uncertainties regarding the supply
constraints the company to maintain high inventories causing cost
increase.
Customers:
Success of any business depends upon identifying customers, their
needs, likes etc., and enhancing the level of customer satisfaction. The
major task of a business is to create and sustain customers.
 Competitors:
Competitors mans other business units which are marketing or
producing similar products or a very close substitute of our product.
Business has to adjust its various activities according to the action and
reactions of competitors.

Marketing Intermediaries:
These are the firms that aid the company in promoting , selling and
distributing its goods to final buyers. They are the vital links between the
company and the final consumers.

Public:
A public is any group that has an actual or potential interest in or impact
on an organization's ability to achieve its interest. Some companies are
seriously affected by such public.
E.g. Media
 Macro Environment
Macro environment means general environment of business. Macro
forces are uncontrollable in comparison to the micro forces of
environment. The growth and survival of business depends upon its
adaptability to macro environmental factors.
The important macro environment are: 1)Economic Environment
2) Non Economic Environment

Economic Environment:
To know the economic environment of a country or a business one has
to understand the economic policies of the nation. These policies put
direct impact on the working and success of the business. Economic
conditions, economic policies (Industrial policies, monetary and fiscal
policy etc) and the economic system are the important factors that
constitute economic environment of the business.
 Non Economic Environment
Socio cultural Environment:
The socio-cultural environmental factors consist of human relationship
and the development. Some of the important factors in the social
environment are the buying and consumption habit of people, their
languages, beliefs and values, custom and traditions, etc that effeccts
the business.

Legal Environment:
Every country follows its own system of law. The companies operatiing
in the global market have to take into account the provisions with rspect
to the legal environment prevalent in the countries which thy do
business. These law and regulations affect the day-to-day operations of
business.

International Environment:
The international environment is particularly important for industries
directly depending on imports or exports.
E.g. Import export policies of various countries.
Political Environment:
The political environment consists of factors related to the management of
public affairs that have a considerable impact on the business of an
organization. It impacts the legislations and government rules and
regulations under which business organizations operates in a country.

Technological Environment:
Technological environment comprises both machines (hard technology)
and scientific thinking (soft technology) used to solve problems and
promote progress. It also represents the degree of advancement of goods
and services that are prevalent in a country or a region.

Natural Environment:
Geographical factors such as natural resources endowments, weather and
climatic conditions, location aspects in the global context, port facilities
etc., are all relevant to business.
Significance of Business Environment
First Mover Advantage:
Awareness of environment helps an enterprise to take advantage of early
opportunities instead of loosing them to competitors.

Early Warning Signal:

Environmental awareness serves as an early warning signal. It makes a
firm aware of the future threats or crisis so that the firm can take timely
action to minimize the adverse effects.

Customer Focus:
Environmental understanding makes the management sensitive to the
changing needs and expectations of the consumers.
Strategy Formulation:
Environmental monitoring provieds relevant information about the
business opportunities on the basis of which firms makes their
stratrgies.

Public Image:
A business firm can improve its imageby showing that it is sensitive to
its environment and responsiveas per the need of customers.

Continuous Learning:
Environmental analysis serves as broad and ongoing education for
business executive so that they can react in an appropriate manner to
the changing scenario and therby increase the success of their
organization.
Environmental scanning

• Environmental scanning is a process of gathering, analyzing, and

dispensing information for tactical or strategic purposes. The
environmental scanning process entails obtaining both factual and
subjective information on the business environments in which a
company is operating or considering entering into the new/existing
markets/products.
• Careful monitoring of an organization's internal and external
environments for detecting early signs of opportunities and threats that
may influence its current and future plans. In comparison, surveillance is
confined to a specific objective or a narrow sector.

• Environmental scanning usually refers just to the macro environment,

but it can also include industry, competitor analysis, marketing research
(consumer analysis), new product development (product innovations) or
the company's internals.
Need And Importance

1. Identification of strength: Strength of the business firm means capacity of

the firm to gain advantage over its competitors. Analysis of internal business
environment helps to identify strength of the firm. After identifying the
strength, the firm must try to consolidate or maximise its strength by further
improvement in its existing plans, policies and resources.
• 2. Identification of weakness:
• Weakness of the firm means limitations of the firm. Monitoring internal
environment helps to identify not only the strength but also the weakness
of the firm. A firm may be strong in certain areas but may be weak in some
other areas. For further growth and expansion, the weakness should be
identified so as to correct them as soon as possible.
• 3. Identification of opportunities:
• Environmental analyses helps to identify the opportunities in the market.
The firm should make every possible effort to grab the opportunities as and
when they come.
• 4. Identification of threat:
• Business is subject to threat from competitors and various factors.
Environmental analyses help them to identify threat from the external
environment. Early identification of threat is always beneficial as it helps to
diffuse off some threat.
• 5. Optimum use of resources:
• Proper environmental assessment helps to make optimum utilization of scarce
human, natural, and capital resources. Systematic analyses of the business
environment help the firm to reduce wastage and make optimum use of
available resources, without understanding the internal and external
environment resources cannot be used in an effective manner.
• 6. Survival and growth:
• Systematic analyses of business environment help the firm to maximise
their strength, minimise the weakness, grab the opportunities and diffuse
threats. This enables the firm to survive and grow in the competitive
business world.
• 7. To plan long-term business strategy:
• A business organisation has short term and long-term objectives. Proper
analyses of environmental factors help the business firm to frame plans
and policies that could help in easy accomplishment of those organisational
objectives. Without undertaking environmental scanning, the firm cannot
develop a strategy for business success.
• 8. Environmental scanning aids decision-making:
• Decision-making is a process of selecting the best alternative from
among various available alternatives. An environmental analysis is an
extremely important tool in understanding and decision making in all
situation of the business. Success of the firm depends upon the precise
decision making ability. Study of environmental analyses enables the
firm to select the best option for the success and growth of the firm.
Approach of Environmental scanning

• Systematic approach:
• Under this approach, a systematic method is adopted for environmental
scanning. The information regarding market and customer, government
policy, economic and social aspects are continuously collected. In other
words, the environment is monitored in a regular way. The timeliness
and relevance of such information enhances the decision making
capacity of the management.
• Ad-hoc Approach:
• Under this, specific environmental components are only analyzed
through survey and study. Ad-hoc approach is useful for collecting
information for specific project, evaluating the strategic alternative or
formulating new strategies. It is not a continuous process.
• Processed form approach:
• Under this, the information collected from internal and external sources
are used after processing them. Normally, the information obtained
from secondary sources are processed and used as per the requirements
of the business.
Process of Environmental Analysis:
• Scanning:
• Environmental scanning involves the study of the general
environment. It helps to identify the early signals of potential changes
in the environment. It also detects changes that are already under way.
It normally reveals ambiguous, incomplete, or unconnected data and
information. The scanning system should be aligned with the
organizational context. Hence, a scanning system designed for a volatile
environment may be inappropriate for a stable environment. Many
organizations even use special software and internet for environmental
scanning.
• Monitoring:
• Monitoring involves observation of environmental changes to see the
trend. It detects meaning in different environmental events and trends.
• Scanning and monitoring are particularly important when a firm competes
in a highly volatile environment. They help gather knowledge about
markets and other components.
• Forecasting:
• Scanning and monitoring are concerned with events and trends in the
general environment at a point in time. Forecasting involves developing
feasible projections of what might happen and how quickly. It is done on
the basis of changes and trends. Forecasting is a challenging work.
• Assessing:
• Assessing determines the timing and significance of the effects of
environmental changes and trends that have been identified. It specifies
the implications of that understanding. Assessing connects the data and
information with competitive relevance. Equally important is
interpreting the data and information to determine the trend as
opportunity or threat for the organization.
PESTLE ANALYSIS
• India, officially known as the Republic of India, is the seventh largest
country by area, and the second most populous in the world with more
than 1.2 billion people. Attaining independence in 1947, the South Asian
country is known for its cultural diversity and is also among the world’s
leading democratic countries.
• For the past decade or so, India has been experiencing a constant
growth in its GDP, along with a continuous growth of liberalization from
1991 till date. The country has also been opening its doors to attract
investors and foreign companies to further promote growth. To get a
better understanding of the business environment in India
• What is Pestle Analysis?
• It’s basically a framework used for scanning and analyzing an
organization’s external macro environment by considering factors which
include political, economic, socio-cultural, technological, legal and
environmental
• 1. Political Factors
• Being one of the largest democracies in the world, India runs on a
federal form of government. The political environment is greatly
influenced by factors such as government’s policies, politician’s
interests, and the ideologies of several political parties. As a result, the
business environment in India is affected by multivariate political
factors. The taxation system is well-developed and several taxes, such as
income tax, services tax and sales tax are imposed by the Union
Government. Other taxes, such as octroi and utilities, are taken care of
by local bodies. Privatization is also influenced and the government
encourages free business through a variety of programs.
• 2. Economic Factors
• The economy of India has been significantly stable, since the
introduction of the industrial reform policies in 1991. As per the policy,
reductions in industrial licensing, liberalization of foreign capital,
formation of FIBP and so on, has resulted in a constant improvement of
India’s economic environment. The country registered a GDP of $5.07
trillion in 2013 following a further improved GDP growth rate of 5% in
2014 as compared to 4.35% in 2013.
• 3. Social Factors
• The social factors refer to any changes in trends which would impact a
business environment. For instance, the rise in India’s ageing population
is resulting in a considerable rise in pension costs and increase in the
employment of older workers. India has a population of more than 1.2
billion people with about 70% between the ages of 15 and 65.
Therefore, there are structures with percentages according to age. These
structures contain varying flexibility, in education, work attitudes,
income distribution, and so on.
• 4. Technological Factors
• Technology significantly influences product development and also
introduces fresh cost-cutting processes. India is served with both 3G and
4G technology which has facilitated several of their technological
projects. Furthermore, the country also possesses one of the strongest
IT sectors in the world, promoting constant IT development, software
upgrades and other technological advancements. Recently, India has
also attempted to launch their satellites into space.
• 5. Legal & Environmental Factors
• In the recent past, a number of legal changes have been implemented in
India, such as recycling, minimum wage increase and disability
discrimination, which has directly affected businesses there. However,
when it comes to environment the quality of air in India has been
adversely affected by industrialization and urbanization, also resulting in
health problems. As a result, there have been establishments of
environmental pressure groups, noise controls, and regulations on waste
control and disposal.
PESTLE ANALYSIS BY PEPSICO

• PepsiCo is the largest selling beverage the world over, of course after
its arch rival Coca Cola. It accounts for a 37% share of the global
beverage market, and therefore they need to understand each and
every country’s market in order to stay in line with
their PESTLE situations.
• Pepsi is a big brand, currently holds the 23rd place in the Interbrands
report of the World’s Leading Brands. Their advertisements feature
major celebrities and athletes like David Beckham, Robbie Williams,
Britney Spears, and Michael Jackson etc.
• Their market reach is also very diverse, as they’re present in almost
every country from the US to New Zealand.
• Political:
• Pepsi is a non-alcoholic beverage and is therefore regulated by the
FDA(Food and Drug Administration). So, they’re supposed to maintain
a firm standard of the laws set out by the FDA with consistency. Also,
many different markets across the world have different set of
regulations that are either relaxed or are either stringent. There is
competitive pricing by Pepsi’s competitors and that is one factor that
Pepsi has to keep in mind at all times. The political scenario also matters
greatly as there can be some civil unrest in certain markets or due to
inflation the sales of the product can fall. Most importantly, cross border
situations are starkly different therefore Pepsi has to stay in line with all
those policies and changes so that they can adapt to all those changes
accordingly.
• Economic:
• As the recent economic downturn has plagued the economy, companies
had to restructure their sales and marketing campaigns greatly. Also,
with diminishing profits they had to undergo downsizing internally and
re-think upon how to penetrate the market. Economic conditions have
the highest influence on a business, regardless of what trade it is in.
Though, in Pepsi’s favor, the economic downturn that started in 2008
resulted in increased sales of its beverages mainly as people were being
laid off from jobs, they were spending time with friends and family or at
home.
• Social:
• Social factors greatly impact Pepsi, as it’s a non-alcoholic beverage it has
to remain in line with the strict and stark differences of cultures the
world over. Also, Pepsi has to communicate its image as a global brand
so that the people can associate it with themselves as something that
connects the world together. Usually, the social implications are seen in
marketing campaigns for example certain countries have religious
festivals, so Pepsi has to keep in line with all those festivals in order to
understand the psyche of their market and how they can cash upon the
opportunity.Eg Cricket matches
• Technological:
• With the advent of the new age in technology, companies have completely
integrated themselves with all the recent changes that have taken place.
To mention a recent trend that has greatly picked up and something that
almost every business is turning toward is Social Media. The social media
explosion has allowed for increasingly interactive engagement with the
consumers with real time results so Pepsi has to stay ahead of all the
developments that take place with keeping in view how the youth of today
utilizes technology for their benefit and how can Pepsi reach them in order
to keep on increasing brand recall and brand engagement.
• Legal:
• There can be many legal implications upon the beverage industry. One
very famous incident took place in India, where Pepsi was accused of
using contaminated water, given a lab test that was done upon the water
flowing into the Pepsi factory that was located nearby an industrial
estate. A massive recall was issued for the products from shelves and
then the product was tested costing the company many billions of
dollars upon the tests as India is a very major market.
• Environmental:
• These factors can affect Pepsi, but not immensely alter its trade and
profit generation as these factors affect agri-businesses much more
directly.
Pepsi plant indicted for polluting groundwater
in Kerala
• Pepsi pollutes and it's official now. A recent study by Kerala's
groundwater department has traced toxic chemicals in the
groundwater at the Pepsi plant in Pudussery panchayat in the arid
Palakkad district. The report says the factory has exploited
groundwater resources and it can't be allowed to draw more than
234,000 litres of groundwater per day. The present allotted water
intake is 600,000 litres.
The committee was formed in April 2007 under the direction of the
Kerala high court on a Pepsi petition against the panchayat's decision
to revoke its licence. The committee has asked the Kerala Pollution
Control Board (pcb) to take action to prevent the contamination.
Analysing water samples from the factory site, the committee has
found presence of calcium, magnesium, chloride and sodium in them.
Though the chemical content in the effluents released by the plant is
within pcb limits, the committee has found they seep into groundwater
due to unscientific management of effluents.
• The company says it disposes the solid waste according to the
directions of pcb. But the committee says the factory keeps the waste
in a temporary uncovered shelter and chemicals seep into the
groundwater during rain. Recently, a chemical analysis of
the pcb found the solid waste contained heavy metals such as lead
and cadmium.

Pepsi holds about 22 hectares (ha) in the 300 ha industrial estate and
extracts 48 per cent of the groundwater in the area. Groundwater is
the only source of water for production for the company which has
dug seven bore wells. Studies show groundwater flow in the area is
directed towards the factory site. "We want Pepsi to close down its
factory because over 45,000 people in this panchayat are affected
and groundwater is our only water source," says K Suresh, panchayat
president. Chief minister V S Achuthanandan says the government is
looking into the report.
 Globalization and Business
-What Is Globalization?

 Definition:
Globalization is the growing integration of the world’s
economy. It is suggested that economic decision taken in
one part of the world will affect other parts of the worlds
so businesses need to base their business decision-making
on what is happening in the world market rather than the
national market.
There are three important features or aspects of globalization,
which can be seen as follows:
1. The increasing importance o f international trade
2. More and more multinational companies
3. More and more businesses thinking globally about their
 Globalization and Business
-Factors affecting globalization
There are many factors which have contributed to
the growth of globalization, such as:
• technological change,
• the reduction of transportation costs,
• the deregulation of business,
• the consumer taste changes,
• and the growth of new market and competition…
 Globalization and Business
-Factors affecting globalization
Factors which have contributed to globalization

Factors contributing
Explain how
to globalization
More powerful computers and internet have allowed the easy
Technological change transfer of data, which plays an important role in speeding up the
globalization.
The reduction of Air transportation and telephone costs have improved the
transportation costs developing environment for globalization. Discuss How?
Consumer taste More and more consumers today are willing to buy foreign or new
change products for fashion or new styles. Eg British Rule in India
New markets have been opened up in countries like India and
The growth of new
China. The growth of new markets has increased the trend of
markets
globalization.
More and more fierce competition has forced businesses to seek
Competition opportunities in the world markets. To compete successfully,
businesses today must develop a global strategy.
 The effects of Globalization on Businesses
• Globalization may have a great deal of influence on
many businesses throughout the world. The impact
may be stronger on some businesses, especially
large businesses, but weaker on others.
• There are a number of effects of globalization on
businesses. Some provide opportunities while
others may provide threats to businesses.
• Some major effects of globalization on businesses
are seen in the following table:
 Globalization and Business
-The effects of globalization on businesses
Effects of globalization on businesses
Effects of globalization on businesses
•Increasing competition
•Meeting consumer needs in more
effective ways
•Being able to enjoy economies of
scale
•Affecting the choice of location
•Increasing mergers or joint-
development opportunities in the
world market
HOW
More and more foreign businesses have entered
local markets so the competition has been
intensified.
Consumers have choices for products and services.
They can buy the best products for the best prices.
Businesses can enjoy as large scale of production
in the whole world. Their production costs can thus
be reduced.
Businesses can choose the most favorable place for
production or business operation. The production
of Motorola company in China can reduce the
production costs of labor and eliminate the tariff
restrictions of exports.
Businesses have more partners worldwide. They
can join together to produce goods and services or
to penetrate foreign markets.
Effects of Globalization to Business
1. Competition
2. Exchange of Technology
3. Rise In Opportunities
4. Rise In Investment level
5. Managing Consumer demands and Tests
6. Choice of Location
7. Increased merger and joint ventures
8. Multi National culture and Management