Bgs Chapter 2

Module-2
The Dynamic Environment

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Topics under second module
Historical forces changing the Business
environment-Key environments of business-
power dimensions of business-Theoritical
perspective-Sociological perspective
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Business environment: Business environment is
an environment in which business is conducted.
Business environment encompasses all those
factors that affect a companys operations:
including customers,competitors,suppliers,
distributors, industry trends, substitutes,
regulations, government activities, the economy,
demographics, social and cultural factors,
innovations, and technological developments.
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Key environments/Dimensions of
business environment
Business environment is the combination of
internal and external factors that influence a
companys operating situation.
The business environment can include factors
such as: clients and suppliers; its competition
and owners; improvements in technology; laws
and government activities ;and market, social
and economic trends
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Environment of a business means the external
forces influencing the business decisions. They can
be forces of economic,social,political and
technological factors. these factors are outside the
control of business.
Economic environment
Political environment
Socio-cultural environment
Natural environment
Demographic environment
Technological environment
International environment

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1.Economic environment: under this the
below constraints are taken into account.
Economic conditions: it comprises of
national income, per capita income, economic
resources, distribution of income and assets,
economic developments are important
determinants of the business strategies.
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The economic system: the economic system
could be capitalist,socialist,communist or mixed.
The economic policies: the government
decides the economic environment of business
through budgets, industrial relations, economic
planning, import and export regulations,
business laws, industrial policy, control on
prices and wages, trade and transport policies,
the size of the national income, demand and
supply of various goods.
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Economic Growth: it has direct impact on the
business strategies.
Increased economic growth rate and increase in
consumption expenditure, lower the general
pressure within an industry and offers more
opportunities than threats.
Rate of interest: it affects the demand for the
products in the economy. Low interest rates provide
opportunities to the industries to expand whereas
rising interest rates pose a threat to such
institutions.
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Currency exchange: it has direct impact on
the business environment.ex: Rupee v/s Dollar
rate fluctuations in international market.
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Impact of Economic Environment on
business
The impact of economic environment on business
considers the following concepts:
Demand and offer-it affects the working
associated with a business design. The need is
the will as well as capability of shoppers to buy a
specific item and to provide may be the ability of
the company to provide for the need for
customers.
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Marginal and complete power:
The utility derived from the production of extra
unit. It often results into short term or even long
term fall of sales. There could also be
diminishing marginal utility.
Cash as well as Finance:
Financial allows for financial and financial
policies which impact company as well as the
clients from the business.
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Financial Development and growth:
Income and employment: another important
aspect is degree of work as well as rate of
earnings.
Industry cycles: trade cycles modify the
changes in the price levels.
Ex: Inflation. During inflation the price level of
the products may increase due to changes in
industry cycles.
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2.Global/International economic
environment
If any business enterprise is involved in foreign
trade, then it is influenced by not only its own
country economic environment but also the
economic environment of the country from/to
which it is importing or exporting goods.
There are various guidelines for these trades
which are issued by many organizations like
world bank,WTO, and united nations.
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International trade relates to the exchange of
capital and goods in the global markets.
Imports and exports are the aspects of
international trade countries and corporations
for producing goods and services.
Investing on an international level allows
companies and financial organizations to
participate in projects in different areas in the
world depending on profitability and market
situation.
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The globalization of economic activity includes
the integration of people willing to work in
foreign economies.

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Among the various constituents of business
environment discussed. We concentrate on the
below constituents.
The constituents are now elaborated:

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3.Effects of the political environment
on business organizations
The political environment in a country affects
organizations and could introduce a risk factor that
could cause them to suffer loss.
Businesses need to be prepared to deal with the
fallouts of government policies:
Impact on the economy:
The political environment in a country affects its
economic environment. The economic environment,
in turn, affects the performance of a business
organization.ex: taxes and government spending.
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Changes in regulation: Governments could
change their rules and regulations, and this
could have an effect on a business.
Ex: changes in government regulations.
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Political stability: particularly for businesses
that operates internationally a lack of political
stability in any country has an effect on its
operations.
Mitigation of Risk:
One way to manage political risk is to buy political
risk insurance.
For instance, an index of economic freedom ranks
countries based on how political interference
impacts business decisions in each country.
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4. Socio cultural environment
It is related to the social and cultural
practises,beliefs and traditions within a
particular society.
It consists of language, education, religion and
superstitions,attitudes,values,material culture,
technology.
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Impact of socio cultural environment
in business
The relationship among business, culture and
society involves a two way interaction.
The impact of socio cultural environment can be
summarized as follows:
In estimating the demand for the product the
consumer behaviour and their consumption
pattern are to be understood apart from their
purchasing power.

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The product features are designed by
understanding the cultural background of
consumers.
Products containing vegetable fats impacts on
the business as against the products containing
artificial foods.
The sales promotion techniques based on the
understanding of cultural values of people
becomes more successful.
Workers in different region behave differently. If
this is understood conflicts with workers may be
reduced.
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5.Technological environment
Technological environment includes the level of
technology available in a country.
Technology provides capital intensive but cost
effective alternative to traditional labor intensive
methods.
A firm which is not able to adopt to changing
technologies not able to survive.
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Importance of technology
Technology played a key role in the development
of commerce & business.
Computer revolution changed everything from
paper work to computerization.
Without the technology the idea of globalization
would not have become a reality.
It is impossible for any companies to conduct
business without the help of technology.

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Benefits of technology in business
The days when the(CIO) chief information offer
took implementation decisions and passed the
responsibility down the line are passed.
Today CIO is an individual who possesses
business as well as well as technical skills.
Today technology is an integral part of any
business right from the purchase of computers
and software implementation of network and
security tools

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Benefits of technology in
communication
Speed
Clarity
Sharing

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Benefits of technology in education
Personalized learning experience.
Immediate response
Self paced(learners can interpret the results
through charts and other pictorial way)
Greater access(in remote locations the
technology is reaching)

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Benefits of technology in healthcare

Flexibility
Cost and time saving
Medical devices

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Natural environment and demographic
environment
It comprises of natural
resources,weather,climatic conditions, port
facilites,topographical factors such as
soil,sea,rivers,
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Historical forces changing the business
environment
Social forces: the aspects of culture that guide
and influence relationships among people. Need
to consider social contrasts
Political forces: the influence of politics depends
on the structure of the organization.
Economic forces: forces that affect the
availability production and distribution of
resources.
Legal forces
Technological forces
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There are nine deep historical forces,
Industrial revolution refers to a series of
changes that create industrial economies. World
GDP between 1950 and 2000 exceeded all that
came previously in human history. This
industrial growth places social institutions under
great strain.
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Inequality is a timeless motive force in all
political systems. Income inequality between
industrialized and undeveloped nations is
pronounced and growing. However, although
income inequality is slowly rising, the
percentage of people living in poverty worldwide
is declining. And the Human Development
Index, a statistical tool used by the United
Nations to measure human progress, shows
increases in overall human welfare since 1900.

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Module-2

The Dynamic Environment

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