BUSINESS

ENVIRONMENT
 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 a human 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.
Business is the activity of making one's living
or making money by producing or buying and
selling products (such as goods and services).
According to Melvin 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 surroundings or conditions in

which a person, animal, or plant lives or
operates.

the natural world, as a whole or in a

particular geographical area, especially as
affected by human activity
 The birth, growth and
continuous development of
organization are influenced by a
wide range of variables like
employees, customers, suppliers,
producers, competition etc.
 BUSINESS ENVIRONMENT:
Business Environment refers to those
aspects of the surroundings of business
enterprise, which affect or influence its
operations and determine its effectiveness.
Business environment means all of the
internal and external factors that affect how
the company functions including
employees, customers, management,
supply and demand and business
regulations.
 NATURE OF BUSINESS
 Complex:
ENVIRONMENT
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 interdependent.
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 log term basis which makes difficult
to maintain business environment.
 OBJECTIVES 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.
Importance of Business
Environment
1. Enables to Identify Business
Opportunities
2. Identify threats and early warning
3. Helps in Tapping Useful
Resources
4. Coping with Changes
5. Assistance in Planning
6. Helps in Improving Performance
 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
7) 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.

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 provide 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 image by showing that it is sensitive
to its environment and responsive as 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.
 ENVIRONMENT SCANNING
 The word scanning means to look carefully into or to examine. The
term Environmental Scanning in business means to “Carefully
analyze the various factors influencing the business”.

 Environmental Scanning is a continuous process. It is a process by

which the organizations monitor their relevant environment to
identify opportunities and threats affecting their business.

According to B.W.Denning “The advocates of systematic corporate

planning (strategic management process) base their case on
the view that the determination of the future can be improved by
a systematic analytical approach which reviews the business as
a
whole in relation to the environment.”
NEED OF ENVIRONMENT SCANNING
 Effective Utilization of Resources:
The key to business success is the most effective utilization of
resources. Companies which fails to do so are doomed to failure.

 Helps in Converting threats into Opportunities:

Environmental scanning allows the strategies to anticipate
opportunities and plan alternative responses to these opportunities.
Environmental scanning helps in preventing the threats or develop
strategies that can turn threats to opportunities for the benefits of
organization. If all the companies were able to do that, then every
company would have earned good profits, growth and reputation.

 Useful for the managers:

A business manager should be able analyze the environment to
grasp the
 SWOT ANALYSIS
A SWOT ANALYSIS IS STRUCTURED PLANNING METHOD
USED TO EVALUATE THE STRENGTHS, WEAKNESSES,
OPPORTUNITIES AND THREATS INVOLVED IN A PROJECT OR
IN A BUSINESS VENTURE. IT INVOLVES SPECIFYING THE
OBJECTIVE OF THE BUSINESS VENTURE OR PROJECT AND
IDENTIFYING THE INTERNAL AND EXTERNAL FACTORS
THAT ARE FAVORABLE AND UNFAVORABLE TO ACHIEVE
THAT OBJECTIVE.
Group Activity
External Forces
1.Rapid Technological Changes
2.Changes in Government Economic
Policies
3.Political Uncertainty
4.Social Changes
5.Changes in Fashion and Taste of
Consumers
6.Labour Unrest
7.Increased competition in the Market