Business Environment

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Learning
Objective
 What is Business
 What is Environment
 Business Environment- Nature, Objective
 Types of Business Environment
 Interaction between Internal and External
Environment
 Importance of Business Environment
 Business:
Business is an economic activity carried out
by the unified efforts of different categories of people, to
produce the wealth through production and distribution of
the goods and services.
According to Malvin Anshen :
“ Business is the way by which men make
their living.”
According to Bayard O’Wheeler :
“ Business is an institution organized and
operated to provide goods and services to society under
the incentive of private gain.”
 Environment:

The environment includes factors outside the

firm which can lead to opportunities for or threat to a
firm. The environment consists of all those external
things which influences directly and indirectly.

Two dimensions of nature of Environment

Complexity
Variability
Business Environment:
Business Environment refers to those aspects
of the surroundings of business enterprise, which affect
or influence its operations and determine its
effectiveness.

According to Keith Davis:

“Business environment is the aggregate of all
conditions, events and influence that surrounds and
affects it”
 Nature of Business Environment
 Complex:
Environment consists of a number of factors, events, conditions
arising from different sources which impact business thus making the
business complex.

 Interdependence :
Factors affecting business environment like social, economic, legal,
cultural etc are inter dependent.
E.g. A rich country can make sufficient expenditure on the research and
development.

 Dynamic:
Business environment is dynamic as it keeps on changing in terms of
technological improvement, changes in consumer preferences, entry of
new competitors.
 Uncertainty:
Business environment is largely uncertain as it is very difficult to
predict future happenings.

 Relativity:
Business environment is a relative concept as it differs from
country to country and region to region.
e.g. Demand of saree is high in India comparative to other countries.

 Specific and General forces:

Specific forces affects individual enterprises directly and
immediately whereas general forces have impact on all business
enterprises.

 Forecasting is not possible for all developments:

Many developments such as interest rate fluctuations, the rate of
inflation etc are difficult to predict on long term basis which makes
difficult to maintain business environment.
 Objectives of study of Business
Environment
 Knowledge of Information:
Every businessman should be aware about the current
environment of the business to change accordingly.

 Basis of Decision:
It contains all the information which is needed for taking good
decision.
e.g. If a business knows about its competitors, suppliers and customers
they take decision about price, purchase, salary etc.

 Helpful in making of policies:

For making good business policies one needs to know and scan
business through business environment.
 Technological Planning:
In today's environment it is really important for the business
houses to keep themselves changing according to the technological
changes in the market.

 Survive in the business:

Sometimes industry may face recession. In such condition only
those business will survive who estimate this entire situation in
advance through business environment study.
 Types of Business Environment

Internal Environment External Environment

• Financial Resources
• Physical and Micro Environment Macro Environment
human Resources
• Objectives of
Business
• Work Environment
• Corporate Image
• Labour management
• Relationship
Technological
Capabilities
 Internal Environment:
Internal environment refers to factors existing within a business firm.These
factors are generally regarded as controllable factors because the
company has control over these factors.

 Financial Factors:
Factors like financial policies, financial procedures and capital structure
are also important internal environment affecting business performance,
strategies and decisions.

 Physical and Human Resources:

The characteristics of the human resources like skill, quality, moral,
commitment etc., contribute to the strength and weakness of an
organization.

 Objectives of Business:
The business domain of the company, direction of development,
business policy etc., are guided by the objectives of the company
 Work Environment:
The organisational structure, company policies, extent of
professionalism in management etc., are important factors influencing
business decisions.

 Company Image and Brand:

The image of the company matters while raising finance, forming
joint ventures, entering purchase or sales contract etc.

 Labour Management Relationship:

Factors like the amount of support top management enjoys from
different level of employees, and other participants influences company
decisions and their implementations.

 R&D and Technological Capabilities:

It determines a company’s ability to innovate and compete.
 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.

o 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.
E.g. Maruti Udyog became leader in small car

 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.
E.g. Apps in mobile
 Strategy Formulation:
Environmental monitoring provieds relevant information about the
business opportunities on the basis of which firms makes their
stratrgies.
e.g. ITC in travel and tourism sector

 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.