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Chapter 3
ENVIROMENT

BUISNESS

All individuals, forces , factors and institutions that are outside the control of a business
enterprise , but effect its performance considered as the , Business Environment.
The Complete awareness and understanding of Business Environment is known as
Environment Scanning.

FEATURES / CHARACTERISTICS / NATURE OF BUISNESS ENVIROMENT

External Forces: Business Environment includes all outside forces which directly
and indirectly effect the business organisation

Specific Forces: All forces which directly affect business on day to day basis
FOR EXAMPLE - Consumers, Suppliers, Investors etc.

General Forces: All forces which effect industries directly and business
organisations indirectly.
FOR EXAMPLE - Changes in Political, social, legal and technological
conditions.

Inter relatedness: Most of the external forces are inter related with each other ,
like change in general forces leads to changes in specific forces.
FOR EXAMPLE : changes in technology in mobiles from android to
windows, changes the demand of costumers for more preference inn
those companies who make windows phones

Dynamic : External forces keep changes due to taste & preference of costumer ,
technology . they are not static , are highly flexible .

Uncertainty : due to continuous changes in external factors, it is very difficult to

predict the changes in business environment.
Complex : Business environment consist of various inter related forces , a
business may able to predict its business environment , but its too difficult to
understand how they will influence . making the business environment too
complex.

Relativity : The impact of Business environment differ from country to country ,

company to company , making it a relative concept. FOR EXAMPLE : change in
fashion affects consumers taste and preferences at a greater degree in European
countries than Asian countries

IMPORTANCE OF BUSINESS ENVIROMENT

It Enables The Firm To Identify Opportunities & Getting The First Mover
Advantage
A clear & timely identification of opportunities in external changes enables the
business organisation to improve its performance and can increase their market share
.
FOR EXAMPLE Samsung identified the popularity and scope of smartphones and
rode on the popular and advanced Google developed android , whereas nokia failed to
identify this scope & continued to use Symbian OS. As a result market share ofnokia fell
from 55 % to 27.7% in 2014

IT Helps The Firm To Identify Threats And Early Warning Signals .

Changes in external factors act as threats to the business. Having a proper
understanding of their negative changes can help the managers to prepare strategies to
convert these threats into opportunities.
FOR EXAMPLE - If a competitor existing enterprises to update their product or is
planning to import the latest technology products at cheaper rates than its is a warning
signal to existing enterprise to update their product and if they do not act on time they
might lose their customers.

IT Help In Tapping And Assembling Resources

a) Activities of business are highly dependent on the environment.
b) its is important for a business to scan its environment, as they are the source for
business to get all inputs like finance, machines, raw material etc. business was
totally dependent on aviability of resources in environment
c) A business have to acquire there inputs for making products according to output
demanded in the market.
FOR EXAMPLE : With the demand of high bass headphones. Manufactures of
headphones are concentrating on assembling all such resources which help them to
make good quality headphones with high base.

Help To Adjust And Adapt With Rapid Changes

As the external forces are rapidly changing , these have a great impact on
business . Business environmental scanning help the manager to cope with these
changes and developing such strategies to use the environment as their strength to
improve their share in the market.
FOR EXAMPLE : BY scanning business environment the ambani brothers recognised
that todays environment demands quick decisions so shifted from centralisation to
decentralisation.

Assisting In Planning And Policy Making

As the plans and polices are implemented in presence of external factors. A clear
understanding of business environment helps business to formulate it plans & polices to
cope up with all the external forces.
FOR EXAMPLE : If country is going through political change, business enterprises can
analyse the beliefs of new leaders and prepare themselves for the change.

It Helps In Improving The Performance

With proper understanding , continuous business scan of business environment
companies can easily improve their performance , by eliminating all threats and capture
all the opportunities, through making internal changes matching the external
environment.

DIMENSIONS OF BUISNESS ENVIROMENT

General environment consist of :ECONOMICAL ENVIRONMENT

It consist of factors like interest rates , value of rupee , exchange rate , gross
domestic product, income etc.
The economic factors directly influence the profitability and management practices
in a business enterprise.

Aspects Of Economical Environment

1) Role of private sector & public sector.
2) Rate of growth of GDP, GNP, per capita income.
3) Rate of saving & investment.

4)
5)
6)
7)
8)

Balance OF trade.
Balance of Payment
Transport and communication system.
Money supply in economy
International debt.
SOCIAL ENVIRONMENT

It consists of factors like customs, traditions, values, social, trends and

society expectation from business etc.
These social factors doesnt have immediate impact on business but in long
run they have a great impact on business.

Aspects Of Social Environment

a)
b)
c)
d)
e)
f)
g)
h)

Quality if life
Consumption habit
Population
Tradition, customs and habits of people
Education & literacy rates
Importance of women in workforce
Birth and death rates
Attitude of customers towards innovation, lifestyle etc.
Common Factors Of Indian Social Enviroment :-

Demand for reservation in jobs for minority and womens

Demand for equal status of women by paying equal wages for male and female
worker
Demand for automatic machines and luxury items in middle class families
The social movements to improve the education level of girl child
Health anf fitness trend has become popular
POLITICAL ENVIROMENT

It include the general stability of government, attitude of elected government

towards business and policy changes implemented by different government.
Business must have to carefully scan because Political environment has a
immediate and great impact on business.
Stability and positive attitude of government representatives bring certainty to
business and builds confidence among all investors.
Aspects Of Political Environment

a) Present political system

b)
c)
d)
e)
f)

Constitution of country profile of political leaders

Government intervention in business
Foreign policy of government
Values and ideology of political parties.
Profile of political leaders.
LEGAL ENVIROMENT

It consist of all the legislations pass, administrative orders issued , court

judgements etc.
A business man have to perform his business transactions under the legal
restrictions and has to meet all the legal compliances ( act according to
certain accepted standards)

Aspects Of Legal Environment

various laws and legislative acts

legal policies related to licensing and foreign trade
statutory warning essential to be printed on labels
foreign exchange regulation and management act
Laws to keep check on advertisements.

Some Important Acts In India For All Business Organisations : Companies Act, 1956
Industries ( Development And Regulation) Act, 1951
Trade Union Act, 1926
Consumer Protection Act, 1986
Workmen Compensation Act, 1923
TECHNOLOGICAL ENVIROMENT

It consist of changes taking place in the method of production, use of new

equipments and machines .
Technological changes always bring qualified Improvement and benefit for
costumers.
To remain in the competitive market, business man must have to implement
these changes by closely understanding them.

Aspects Of Technological Environment

a) Development of IT sector.
b) Various innovation and inventions
c) Scientific improvements
d) Import and export of technology
e) Technological advances in computers
f) Online services

NEW ECONOMICS POLICY 1991

LIBERALISATION
It refers to remove of unnecessary controls and restrictions in the form of licence ,
permits , quota and many more restrictions which were put on industries before
1991.
Main objectives
To restrict licensing requirement to only few core industries.
To remove all restrictions related to scale of operations , expansion &
contraction of business enterprise.
To remove restrictions on the movement of goods and services.
To provide freedom to fix prices
To simply procedure of exports and imports
To reduce taxes rates and remove unnecessary controls.
PRIVATISATION
It refers to provide greater role to private sector in nation building process rather
than public sector.
Following steps were taken to execute to this policy :

By introducing disinvestment of public sector

Board of industrial and financial reconstruction (BIFR) , was set up to revive sick
units in public sector suffering loss.
Dilute ( reduce the strength ) of the ownership stake in public sector companies to
less than 51% .
GLOBALISATION

It is an economics reform which was introduced to bring together the various

economies of world into , a World Economy.
It involves greater interactions and interdependence among the various nations of
global economy.

Globalisation is adopted by taking following measures :

Import liberalisation , many restrictions were removed from import of capital

goods.
Foreign exchange regulation act (FERA) was replaced by Foreign exchange
management act ( FEMA)
Promote export through rationalisation of tariff structure.
Abolition of export duty and reduction of import duty .

EFFECTS OF LIBERALISATION & GLOBALISATION

OR
IMPACT OF CHANGE IN ECONOMIC POLICY

INCREASING COMPETITION
Liberalisation , invited many foreign companies and increase number of private
firms.
Indian companies have to face competition with internal market and with MNc
( multinational companies )
Companies with latest technologies and having large number of resources can only
survive in the competition.
MORE DEMANDING COSTUMERS
Because of introduction of foreign companies in the market, nnew varities in
products were came, which increases the demand of costumers.
Due to increasing competition, new technologyies were adapted by companies to
increase their market which also influence costumer demand.
Due to globalisation, consumer have wider knowledge and choice, which increase
their demand for quality prducts.
RAPIDLY CHANGING TECHNOLOGICAL ENVIRONMENT
Fast changing technologies require company to adopt latest method of production
and produce better quality products with various processes.
Due to global competition, every company need to adopt to adopt the world class
technology, for survival and growth.
For this they have to increase their investment in Research and development
department.
NECESSITY TO CHANGE
Changes in market forces, forced the business enterprises to constantly modify
their police and practices for better and better output.
NEED FOR DEVELOPING HUMAN RESOURCES
New market conditions, require personnel with appropriate training, skill and
commitment. Therefore it is necessary for business enterprise to develop and train
human resources.

MARKET ORIENTATION
Business organisation has to shift from producer orientation to market orientation.
The producer needs to produce on the basis of market research, want & need of
costumer

LOSS OF BUDGETARY SUPPORT TO PUBLIC SECTOR

Public sector have to generate their own resources and be efficient and effective
to compete with private sector
Decline in financial support to public sector , due to privatisation
EXPORT A MATTER OF SURVIVAL
Due to increasing global competition ,Indian companies have to join export
business to earn more foreign exchange which become a matter for survival for
them .