UNIT TWO

Understanding Business
Environment :
 Contents

1. Definition – Business Environment

2. Classification of Business Environment

3. Micro Environment – Suppliers, Business Associates,

Customers, Regulating Agencies, Competitors, Investors
and Stakeholders, Laborers

4. Macro Environment – Economic, Political, Socio-

Cultural, Natural, Technological, Demographic,
International
 Definition :
Business Environment

• Environment refers to all external factors which have a bearing on

the functioning of the business.

• It refers to those aspects of the surroundings of business

enterprise and circumstances of business unit which affect or
influence its activities and operations and decides its effectiveness.
 Micro Environment
• According to Charles Hill and Gareth Jones,

“ A company’s micro environment consists of elements that

directly affect the company such as competitors, customers and
suppliers.”

• Thus, Micro Environment consists of all those factors which

directly affect its functioning. It includes :

1. Suppliers
2. Competitors
3. Laborers
4. Business Associates
5. Customers
6. Investors and Stakeholders
7. Regulating Agencies
 Suppliers
• Suppliers are the people who supply the inputs to the
business.

• Suppliers hold an important value for a business as the

suppliers are responsible for helping a business meet its
business demands.

• A delay by suppliers would result in loss for the business

and it would result in customers moving to another
business.
 Business Associates

• Business Associates are allies of the business who

help the business during the time of the crisis.

• A business needs to have proper allies in order to

survive the times of crisis.
 Customers
• Customers are important for the business.

• Thus a business is very much influenced by the

customers’ taste and preference.

• A business needs to take into account the taste and

preference of the customers.
 Competitors
• Competitors play an important role for a business.

• A business needs to carefully analyze its competitors’

strategies in order to develop counter strategies and
deal with the competition well.

• A competitors strategy when carefully analyzed

becomes an opportunity.
 Laborers
• Laborers help a business in producing goods to meet
the demand.

• Laborers are responsible for production of quality goods

and thus are very important for the business

• A business needs to manage its laborers well and keep

them satisfied otherwise there would be strikes and
lockouts which would effect the business negatively.
 Regulating Agencies

• Regulating agencies are the government agencies

responsible for the implementation of the rules and
laws related to businesses.

• Regulating agencies ensures that a business

abides by all the laws of the state.
 Investors and Stakeholders

• Investors and stakeholders closely monitor each and

every activity of the business.

• For a business to function properly it needs Investors ,and

investors carefully monitor the activities and influence its
decisions since they would like to gain something out of
their investments.
 Macro Environment

• Macro Environment includes all those factors which

indirectly influence the business.

• It includes :

1. Economic Environment
2. Political Environment
3. Socio-Cultural Environment
4. Demographic Environment
5. Natural Environment
6. Technological Environment
7. International Environment
 Economic Environment
• Economic environment comprises of all those economic factors that
indirectly affect the business as the business has to keep in mind its
economic constraints and system.

• It includes:

1. Economic System ( Socialist, Capitalist or Mixed Economy)

2. Economic Condition (Inflation or Deflation)
3. Economic Growth
4. Economic Policies ( e.g.: Fiscal Policies, etc)
5. Exchange rates and interest rates
 Political Environment
• In India,, Political Environment comprises of :

1. Legislative: it is responsible for making laws

2. Executive: It implements laws

3. Judiciary: it enforces laws

A business needs to know its political environment well and has to

abide by all the rules and laws of the land it functions on.
 Socio-Cultural Environment
• It includes :

1. Social caste and class system

2. Religious beliefs
3. Linguistic Base
4. Racial diversity
5. Social evils

• A business needs to be well versed with the socio-cultural

environment because the socio-cultural environment decides the
taste and preferences of the people and would create opportunities
of threats for the business.
 Technological Environment

• It is the most dynamic environment of the business

since it keeps changing rapidly.

• A business needs to promote innovation and needs to

change itself with the changing technology to be able
to compete well with the competition and take all the
advantages over the competitors.
 Natural Environment
• It includes:

1. Climatic Conditions
2. Topographical Features
3. Kind of Soil
4. Weather
5. Natural resources

A business needs to know its natural environment well in

order to take advantage of its natural surroundings.
 Demographic Environment
• Demographic Environment includes:

1. Population of a country
2. Literacy Rate
3. Birth/Death rate
4. Age classes
5. Standard of living

• A business needs to know its demographic environment

well to tackle and meet its demand well and adjust itself
according to the populations’ demand.
 International Environment

• It includes all the laws related to the Export and Import

of commodities, various international policies, Bilateral
Treaties, special exchange treaties between countries,
international boundaries to trade, etc.

• It is important for an export and import business to

study the international environment well in order to
survive and grow in the market.
 II. Difference in culture
What is Culture

Culture is a system of values and

norms that are shared among a group
of people and that when taken
together constitute a design for
living.
• Values
– Values may include a society’s attitude towards
such concepts as
– Individual freedom- Democracy
– Truth - Justice
– Honesty - Loyalty
– Social obligations - Collective responsibility
– Role of Women - Marriages etc
Value for the foundation of culture
 What is Culture

• Norms
– Norms are social rules that govern people’s actions
towards one another.
– Types of Norms
• Folkways
– Attitude Towards Time
– Rituals and symbolic behavior
• Customs, Traditions
– Central to the functioning of society and includes:
» Indictment against theft
» Adultery
» Certain Customs have been made law
 Culture, Society and Nation

• Cultures may embrace many nations

– Islamic Culture
• A nation may contain several Cultures
– Canada - Anglo-culture, French speaking cultures
and Native American culture
The Determinants of Culture

Religion

Social Culture
Culture Political
Structure Norms
Norms & & Philosophy
Value
Value
System
System
Language Economic
Philosophy
Education
 The Determinants of Culture
• Social Structure

– Social structure refers to its basis social

organization
– Two relatively more important dimensions of
social structure:
• Degree of Individual vs. group as basic unit of social
organization
• Degree of social stratification
 The Determinants of Culture
• Social Structure – Individuals
– Individualism is more than an abstract political
philosophy
– Emphasis on individual performance
– Difficult to build teams
– High mobility of managers
– Create dynamism
– Adverse impact on managerial stability and
cooperation
 The Determinants of Culture
• Social Structure – Groups
– Social status of an individual is determined as much by the standing of
the group to which he or she belongs as by his or her individual
performance.
– Group has frequently come to be associated with the work team or
business organization to which an individual belongs
– In traditional Japanese society, group was the family or village to
which individual belonged.
– Results into wide-spread self-managing teams.
– Cooperation is driven by the need to improve the performance of the
group.
– Lifetime employment is a norm in such environments.
 The Determinants of Culture

• Social Stratification
– Societies are stratified on a hierarchical basis into
social categories i.e. into social strata
– Social Strata are defined on the basis of
characteristics such as
• Family background
• Occupation
• Income
• Better life chances
• Standard of living
• Work opportunities
• Religious & Ethical Systems
• Types of Major Religions/Philosophies
– Christianity 1.5 billion
– Islam 1 billion
– Hinduism 750 million
– Buddhism 300 million
– Confucianism200 million
 The Determinants of Culture
• Language – Spoken and Unspoken
Language
– Spoken Language
• Language does more than communication
• The nature of language structures the way we perceive
the world
• Define the culture
• English is the largest speaking language, followed by
French, Spanish & Chinese
• Local Language is an advantage
• Chevrolet Nova in Puerto Rican
 The Determinants of Culture
– Unspoken Language

• Nonverbal communication like

– Gestures
– Cues
– Personal Space

• A failure to understand non-verbal cues can cause

failure in international business
 The Determinants of Culture
• Education
– Formal education plays a key role in society
– Cultural norms like respect for others, obedience, being on time,
honesty are all part of hidden curriculum of schools.
– Grading system teaches children the value of personal achievement
and competition.
– Education is determinant of national competitive advantage- WIPRO
– Skilled and educated workers seems to be major determinant of
economic advantage-Egypt
– Location of business is also influenced by education
– The general education level is also a good index of the kind of four Ps
to be used for a society.
 Culture & Workplace
• ]A society’s culture affect the values found at workplace.
• Management process and practice need to vary according to
culturally determined work values.
• Geert Hofsted Study – A psychologist at
IBM
– Power Distance
– Individualism vs. Collectivism
– Uncertainty avoidance
– Masculinity vs. femininity
 Culture & Workplace
• Power distance
– How does a society deals with the fact that people are unequal in
physical and intellectual capabilities
– Inequalities in wealth and power led to high power distance
• Individualism vs. collectivism
– In individualistic societies, the ties between individuals were loose and
individual freedom and accomplishment are valued.
– In collective societies, individuals were born into collectives such as
extended families and they take care of each other for collective
interests.
 Culture & Workplace
• Uncertainty avoidance
– Measures the societies in terms of accepting
ambiguous situations and tolerating uncertainty.

• Masculinity vs. femininity

– The relationship between gender and work roles.
– In masculine societies sex roles are sharply
differentiated
– In feminine societies, sex roles are less
differentiated.
 Culture & Workplace
• The value system and norms affect the cost of doing business
in a country
• The cost of doing business establishes firm’s ability to
compete in the global business
• Japan could be one example of competitive advantage
• Japan’s cultural values like loyalty, reciprocal obligation,
honesty and education all boost the competitiveness of
Japanese companies.
• This tend to foster an ethic of hard work and cooperation
between labor and management for the good of the company
• The connection of culture and competitive advantage has
important implications for marketing and outsourcing.
THANK YOU