BUSINESS and its

ENVIRONMENT
Jessa Mae S. Banse, CPA, MBA

Business Environment:

Definition
beyond the control

of individual
industrial enterprises and their
managements

external forces, factors, and

institutions which have a bearing on the

all

functioning of business

Business and Its Environment:

Relationship

Business Environment
Relationship
business is influenced by its environment (vice versa)

1 23

a particular business firm, by itself, may not be in a

position to forces
changeare
its dynamic.
environment
These environmental
They keep on changing as years roll by, so
doesbusiness

Features of Business
Environment

1
2
3
4

Sum total of all factors that

can affect the business
DYNAMIC; it keeps on
changing

changes are
UNPREDICTABLE; I nature,
and impact
COMPLEX, MULTI
FACETED,
FAR REACHING IMPACT
changes vary from region
to region

Types of Business
Environment

Internal

External

External

External

External

Micro
Macro
Economic
Non - economic

INTERNAL ENVIRONMENT
factors that are within an organization which impart
strengths or cause weaknesses of strategic nature
Value
Value system
system
Mission
Mission and
and Objectives
Objectives
Management
Management Structure
Structure
and
and Nature
Nature

Human Resources
Company Image and Brand Equity
Other Factors
Physical Assets and Facilities
R
&
D
and
Technological
Capabilities
Marketing Resources
Financial Resources

EXTERNAL ENVIRONMENT:
MACRO
MICRO
general trends
trends and
and forces
forces that
that may
may not
not immediately
immediately affect
affect the
the
general
factors
in but
thesooner
companys
environment
organization
but
sooner
or later
later will
willimmediate
alter the
the way
way organization
organization
operates
organization
or
alter
operates

that affect the performance of the company

ECONOMIC
NON - ECONOMIC
Suppliers
Customers
Marketing
Intermediaries
Competitors
Publics
Financial Community

economic

CONDITIONS

Gross domestic product (GDP)

Per Capita Income
ForEx and growth of foreign Trade

Fiscal and Monetary Policies

Industrial Policies
ExIm Policies

Foreign Investment Policy

economic

SYSTEMS
MACRO:

economic

POLICIES

Capitalist Economy
Socialist Economy
Mixed Economy

ECONOMIC ENVIRONMENT

 Social (Socio Cultural)

Demographic
Political
Legal
Technological
Natural

MACRO:

NON - ECONOMIC ENVIRONMENT

Social (Socio Cultural)

Social Customs & Rituals and practices

Customs, traditions, values, beliefs
Lifestyle patterns
Literacy
Family structure
Role & position of men, women, children and
aged in family & society

NON - ECONOMIC ENVIRONMENT:

Socio - Cultural

Demographic

Growth of population
Density and distribution
Age Composition
Life Expectancy
Sex Ratio
Fertility and Mortality rates
Inter-state migration

NON - ECONOMIC ENVIRONMENT:

Demographic

Political

Political parties in power

Political Philosophy
Stability of government
Trade union activities

NON - ECONOMIC ENVIRONMENT:

Political

Legal

Constitutional framework (provisions of the

Constitution)
Policies relating to pricing and foreign investment
Policies related to the public sector, and
development of backward areas and control of
environmental pollution
Laws and regulations
Judicial Decisions

NON - ECONOMIC ENVIRONMENT:

Legal

Technological

Sources of technology
Technological development
Impact of technology
Methods, techniques and approaches adopted
in the production and distributions of goods

NON - ECONOMIC ENVIRONMENT:

Technological

Natural

Geographic and ecological factors

Availability of natural resources
Weather and climatic conditions
Location aspect
Topographical factors

It has always been BETTER to establish a

MANUFACTURING UNIT near the SOURCE OF INPUT.

NON - ECONOMIC ENVIRONMENT:

Natural

Importance of Business
Environment
Identifying companys STRENGTH & WEAKNESSES (broad
strategies and long-term policies of the firm)
Determining OPPORTUNITIES & THREATS
Giving DIRECTION for growth
(action plans to deal with technological advancements; foresee
the impact of socio-economic changes at the national and
international levels on the firms stability)
Continuous Learning (to keep oneself DYNAMIC)
Image Building
Meeting Competition (analysis of competitors strategies and
developing countermeasures)

ENVIRONMENTAL ANALYSIS
PROCESS

Scanning

Monitorin
g

Forecasti
ng

Assessme
nt

concerned
Itsurveillance
involves
tracking
with
developing
the
environmental
plausible
trends,
projections
sequences
of of
of
the in
eneral
neralthe
the
surveillance
frame of
of
reference
of
of
all
all environmental
environmental
moves
from
understanding
factors
factors
and
and their
their
theinteractions
interactions
environmentin order
order tt
concerned
It
involves
tracking
with
developing
the
environmental
plausible
trends,
projections
sequences
of
the
frame
reference
moves
from
understanding
the
environmentdirection,
scope,
and
intensity
ofIt
environmental
change
the
focus
ofscanning,
monitoring
and
forecasting
tofollowing
identify what
what
events,
orofscanning,
streams
ofof
activities.
It
frequently
involves
following
direction,
scope,
and
intensity
of
environmental
change
Identify
dentify
early
early
signals
signals
of
possible
possible
environmental
environmental
change
change
the
focus
monitoring
and
forecasting
to
identify
events,
or
streams
of
activities.
frequently
involves
the
understanding
means already
for the
the organization.
organization.
Assessment,scanning.
tries to
to
the
understanding
means
for
Assessment,
tries
signals
or indicators
indicators
unearthed
during environmental
environmental
scanning.
Detect
Detect
environmental
environmental
change
change
already
underway
underway
signals
or
unearthed
during
answer questions
questions such
such as
as what
what are
are the
the key
key issues
issues presented
presented by
by
answer
the environment,
environment, and
and what
what are
are the
the implications
implications of
of such
such
the
issues for
for the
the organization
organization
issues