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Business Environment

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INTRODUCTION

Business enterprises cannot function in isolation systems interact with their environment enterprises exist in and are surrounded by an environment the business or organisational environment and business enterprises are 22

Open

Business

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Society

Business

Business is the organized efforts of enterprises to supply consumers with goods and services. Businesses vary in size as measured by number of employees or by sales volume. All businesses share the same purpose to earn Profits. However, the purpose of business goes beyond earning profits. It is an important institution in society and the role of business is crucial.
Be it for the supply of goods and services Creation of job opportunities

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Environment

Environment refers to all external forces which have a bearing on the functioning of business. Environment are largely if not totally external, and beyond the control of individual industrial enterprises and their management. These are essentially the givers within which firms and their managements must operate in a specific country and they vary, from country to country.

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Business environment

However, the term business environment refers to the External Factors. The external environment has two components ie business opportunities and threats to business. Simmilarly, the organisational environment has two components ie. strengths and weaknesses of the organisation. A SWOT analysis is thus the first step in strategy formulation

Factors influencing Business Decision Internal Environment

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Busines s Decisio

External Environment

BUSINESS ENVIRONMENT Macro Environment Micro Environment

Financiers Suppliers Customers Competitors Public Mktg Intermediaries

Internal Mission / Objectives Environment

Management Structure Internal Power Relationship Physical Assets & facilities

Busi ness

Company image Human resources Deci Financial Capabilities Technological sion Capabilities Marketing Capabilities

Economic Technologic al Global Demographi c SocioCultural Political

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Internal Environment

Any business has certain vision, mission and objectives and a strategy to achieve them. Formulation of strategy is defined as establishing a proper firm-environment fit. Indeed the objectives should be based on an assessment of the external environment and the organizational factors (internal environment). Vision Mission Objectives Management Structure Human Resources Financial Factors

7/15/12 Company Image and Brand Equity

Micro Environment

The Micro environment consists of different types of stakeholders - customers, employees, suppliers, marketing intermediaries, competitors. It is also known as the Task Environment and Operating Environment and has a direct bearing on Macro Environment the operations of the firm. Changes in the micro The macro environment consists of factors which are environment will directly affect and impinge on the beyond the control of the business. There is a symbiotic firm's activities. relationship between business and the environmental
factors, environmental factors are dynamic and a particular business firm, by itself, may not be in a position to change its environment. Macro Environment includes:

Political Environment 7/15/12

Business Environment
The

term business environment connotes external forces, factors and institutions that are beyond the control of the business and they affect the functioning of a business enterprise.

include customers, competitors, suppliers, government, 7/15/12 and the social, political, legal and

These

FEATURES OF BUSINESS ENVIRONMENT

Business

environment is the sum total of all factors external to the business firm and that greatly influence their functioning.

covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal 7/15/12 conditions.

It

IMPORTANCE OF BUSINESS ENVIRONMENT

Determining

Opportunities and

Threats
Giving

Direction for Growth: Learning Building Competition Firms Strength and

Continuous Image

Meeting

Identifying

Weakness
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TYPES OF BUSINESS ENVIRONMENT

Confining business environment to uncontrollable external factors, it may be classified as (a) Economic environment; and (b) Non-economic environment.

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Economic Environment

Economic Environment refers to all forces which have an economic impact on Business. The economic environment consists of the demand dynamics, supply situation, pricing factors, degree of competitiveness, and impact of profitability. It includes the fiscal policy, monetary policy and the taxation policy, the FDI norms, the investment criterion and financing decisions. Economic environment includes: Growth strategy Industry Agriculture Infrastructure Money and Capital Markets Per capita and national income Population

l l l l l l

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ECONOMIC ENVIRONMENT
The

survival and success of each and every business enterprise depend fully on its economic environment. The main factors that affect the economic environment are: Conditions:

(a)Economic

The economic conditions of a 7/15/12 nation refer to a set of

ECONOMIC ENVIRONMENT
(b) Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are:
(i)
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Industrial policy Fiscal policy

(ii)

ECONOMIC ENVIRONMENT
(c) Economic System: The world economy is primarily governed by three types of economic systems, viz.,

Capitalist economy; Socialist economy; and Mixed economy.

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NON-ECONOMIC ENVIRONMENT
The

various elements of noneconomic environment are as follow: Social Environment Political Environment Technological Environment Demographic Environment Natural Environment Legal Environment

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NON-ECONOMIC ENVIRONMENT
(c) Legal Environment
(i) Companies Act, 1956 (ii) Foreign Exchange Management Act,

1999

(iii) The Factories Act, 1948 (iv) Industrial Disputes Act, 1972 (v) Payment of Gratuity Act, 1972 (vi) Industries (Development and
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Regulation) Act, 1951

Micro Environmental Factor/Stakeholder Analysis

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Differences Between Micro Environment And Macro Environment?

The

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micro-environment refers to the forces that are close to the company and affect its ability to serve its customers. It includes the company itself, its suppliers, marketing intermediaries, customer markets, competitors, and public. The macro-environment refers to all forces that are part of the larger society and affect the micro-

Technological Environment

Technological is the systematic application of scientific or other organized knowledge to practical tasks. Technological environment hold new technological innovation, new products, the state of technology, the utilization of technology for maximum inputs and outputs, the obsolescence of technology and the dynamic changes that frequently occur in technologies which enable firms to get a competitive advantage Technology reaches people through business Helps in increased productivity Business needs to spend on R & D and keep up with the technological advances around them Technology leads to introduction of new products and older products becoming outdated and redundant. Technological advances leads to high expectations of consumers in terms of quality

7/15/12 Leads to system complexity

Political Environment

Political Environment refers to the influence exerted by the three political institutions ie. legislature, executive and judiciary in shaping, directing, developing and controlling business activities.

The constitution of a country Political Organisation Political Stability Image of the country and its leaders Foreign Policy Laws governing business Flexibility and adaptability of laws

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Global Environment:
The global environment refers to those factors which are relevant to business, such as the WTO principles and agreements; other international conventions/ treaties / agreements / sentiments in other countries etc. For eg hike in crude oil prices has a global impact etc.

World is becoming one market Improving quality Competition from MNCs Capital and technology transfers Deciding which markets to enter and what products to manufacture Adjusting the management process

Socio-Cultural Environment:
7/15/12 Culture creates people

External Environmental Analysis Environmental Analysis has three goals:

Provides an understanding of current and potential changes taking place Environmental Analysis should provide input for strategic decision making. Facilitate and lead to strategic decisions within an organization.

Environmental Analysis and diagnosis give strategists time to anticipate opportunities and to plan to take optional responses to these opportunities. It also helps strategists to develop an early warning system to prevent threats or to develop strategies which can turn a threat to a firms advantage. Firms which systematically analyse and diagnose the environment are more effective than those which do not.

Process of Environmental Analysis:

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Environmental Analysis and Strategic Management

Defining Business Mission and Objectives SWOT Analysis Environmental Analysis + Self Appraisal Strategic Alternatives and Choice of Strategy

Implementation of Strategy

Evaluation and Control of Strategy

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SWOT Analysis
SWOT stands for Strengths, Weaknesses, Opportunities and Threats
Identification of the threats and opportunities in the external environment and strengths and weaknesses in the internal environment of the firms are the cornerstone of business policy formulation. It is the SWOT analysis which determines the course of action to ensure the growth / survival of the firm.

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Strengths Strengthsinternal to the unit; are a units resources and capabilities that can be used as a basis for developing a competitive advantage; strength should be realistic and not modest. Your list of strengths should be able to answer: What are the units advantages? What does the unit do well? What relevant resources do you have access to? What do other people see as your strengths? What would you want to boast about to someone who knows nothing about this organization and its work? Examples: good reputation among customers, resources, assets, people, : experience, knowledge, 7/15/12

Weaknesses Weaknessesinternal force that could serve as a barrier to maintain or achieve a competitive advantage; a limitation, fault or defect of the unit; It should be truthful so that they may be overcome as quickly as possible Your list of weaknesses should be able to answer: What can be improved? What is done poorly? What should be avoided? What are you doing as an organization that you feel could be done more effectively/efficiently? What is this organization NOT doing that you feel it 7/15/12 be doing? should

Opportunities Opportunitiesany favorable situation present now or in the future in the external environment. Examples: unfulfilled customer need, arrival of new technologies, loosening of regulations, global influences, economic boom, demographic shift Where are the good opportunities facing you? What are the interesting trends you are aware of? Think of: market developments; competitor; vulnerabilities; industry/ lifestyle trends;;

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Threats External force that could inhibit the maintenance or attainment of a competitive advantage; any unfavorable situation in the external environment that is potentially damaging now or in the future. Examples: shifts in consumer tastes, new regulations, political or legislative effects, environmental effects, new technology, loss of key staff, economic downturn, demographic shifts, competitor intent; market demands; sustaining internal capability; insurmountable weaknesses; financial backing

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POSITIVE/ HELPFUL toachievingthe goal

NEGATIVE/ HARMFUL toachievingthe goal

Strengths INTERNALOrigin Weaknesses Thingsthataregood facts/ factors of the Thingsthatarebad now,maintain organization now,remedy, them,buildon changeorstop themanduseas them. leverage Opportunities EXTERNALOrigin Threats Thingsthataregood facts/ factors of the Thingsthatarebad forthefuture, environment in forthefuture,put prioritizethem, which the inplansto capturethem, organization managethemor buildonthemand operates counterthem optimize 7/15/12

SWOT Analysis of Indian Economy

Weaknesses Strengths
Huge pool of labor force High percentage of cultivable land Diversified nature of the economy Availability of skilled manpower Extensive higher education system High growth rate of economy Rapid growth of IT / ITes Sector Abundance of natural resources

High percentage of workforce involved in agriculture Approx a quarter of population below the poverty line High unemployment rate Inequality in prevailing socio economic conditions, rural urban divide Low productivity Huge population leading to scarcity of resources Low level of mechanization Red tapism, Bureaucracy Low literacy rates

Scope for entry of private firms in various sectors of business Inflow of FDI Huge foreign exchange prospects in IT / ITeS Investment in R & D Area of infrastructure Huge domestic market : Opportunity for MNCs Huge agricultural resources

Opportunities

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High fiscal deficit Threat of government intervention in some states Growing import bill Population explosion, rate of growth of population Agriculture excessively dependent on monsoon

Threats

RECENT DEVELOPMENTS IN INDIAN ECONOMY

LIBERALISATION refers to the process of eliminating unnecessary controls and restrictions on the smooth functioning of business enterprises. It includes: industrial licensing requirement in most of the industries;

abolishing

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RECENT DEVELOPMENTS IN INDIAN ECONOMY

PRIVATISATION

refers to reducing the role of public sector by involving the private sectors in most activities. Due to the policy reforms announced in 1991, the expansion of public sector has literally come to a halt and the private sector registered fast growth in the postliberalised

period. The issues of privatisation include: 7/15/12

RECENT DEVELOPMENTS IN INDIAN ECONOMY

GLOBALISATION

means integrating the economy of a country with the world economy. implies free flow of goods and services, capital, technology and labour across national boundaries.

This

achieve these objectives of globalisation, the government has adopted various measures such as 7/15/12 reduction in custom duties, removal

To

ENVIRONMENTAL SCANNING
Identification Ongoing

and forecasting phenomena in the environment environmental scanning is essential for strategy formulation continuously engage in identifying and forecasting opportunities and threats need to proactively or reactively respond to changing 3636 conditions in the environment

Enterprises

Enterprises

Risk assessment is a step in a risk management procedure. Risk assessment is the determination of quantitative or qualitative value of risk related to a concrete situation and a recognized threat
How

to Assess Risk : In

Emerging sectors of Indian economy

Emerging

sectors of Indian economy are those sectors which are going to see an upsurge in the coming decade are the energy sector, real estate sector, services sector, and the biofuel sector

key characteristic of emerging and developing economies is the 7/15/12 shift from agriculture to the

EMERGING SECTORS IN INDIAN ECONOMY

Manufacturing Food Textiles Healthcare Tourism Entertainment

Sector

processing

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Public Sector
Thepublic

sector, sometimes referred to as thestate sectoror thegovernment sector, is a part of thestatethat deals with either the production, delivery and allocation of goods and services by and for thegovernmentor its citizens, whether national,regional orlocal/municipal. of public sector activity

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Examples

Public Sector

The part of theeconomy concerned with providing basic governmentservices. thepublic sectorvaries by country, but in most countries the public sector includes such services as the police,
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Thecompositionof

OBJECTIVES
To

promote rapid economic development through creation and expansion of infrastructure generate financial resources for development promote redistribution of income and wealth create employment opportunities To promote balanced regional growth

To To To

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Role of the Public Sector

Filling

the Gaps in Capital Goods Regional Development

Emploment Balanced

to Public Exchequer - part from generation of internal resources and payment of dividend, public enterprises have been making substantial contribution to the Government exchequer through 7/15/12

Contribution

Limitations
Poor

Project Planning Overheads of Capacity

Over-capitalization Excessive

Overstaffing Under-utilisation Lack

of a Proper Price Policy Management

Inefficient
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Causes for the expansion of public enterprise

Rate

of Economic Development and Public Enterprises of Resource Allocation and Public Enterprises of Regional Disparities through Public Enterprises of Funds for Economic Development Socialistic Pattern of Society

Pattern

Removal Sources 7/15/12