Business Environment

• Learning objectives:

Business Environment
Environmental scanning-meaning,nature and scope
Economic and non-economic environment
Interaction between internal and external environments
Overview of political, socio-cultural, legal technological
Global environment
 Business Environment
What is Business?

Business is an activity which involves buying and selling of goods

& services.

Modern business covers a complex field of industry and commerce which

involve activities related to both production and distribution.

These activities on the one hand satisfy societal need and desires and on the
other hand bring profits to business firms.

All the business activities are normally motivated by profits, in case , any of
these activities is carried out by some organization for the purpose other than
profit seeking, it cannot be justifiably considered as business.
 Business Environment
What are the contribution from business?

Economic growth

creates employment opportunities

Provides all kinds of goods and services

which we need for consumption
 NATURE OF MODERN BUSINESS

Large size
Oligopolistic character
Diversification
Global reach of modern business
Technological orientation
Change
Government control
 Business Environment
Environment by definition is something external of an
individual or an organization.

Therefore in strict sense, business environment refers to an

external factors which have a direct or indirect bearing on
the activities of business.

Certain aspects of both internal and external environment

pose a threat to business, other aspects provide
opportunities for business growth.
 ENVIRONMENTAL SCANNING
• What do you mean by Environmental
scanning?

• It is the process of monitoring & collecting

the information about the various current
and potential changes taking place in the
environment to facilitate in decision
making and problem solving.
 ENVIRONMENTAL SCANNING
• Objectives of Environmental scanning:

1. To provide and understanding of current and

potential changes taking place in the environment.

2. To provide inputs for strategic decision-making.

3. To facilitate and foster strategic thinking in

organization.
 Benefits of Environmental scanning
• “Firms which systematically analyze and diagnose the environment
are more effective than those which don’t”

1. Development of broad strategies and long –term policies of

the firm.

2. Development of action plans to deal with technological

advancements.

3. To foresee the impact of socio-economic changes at the

national & international level.

4. To analyze the competitors strategies and formulation of

effective counter-measures.

5. TO keep oneself dynamic.

 Business Environment-Internal Factors

• Internal Environment :

• Value system, Goals and objectives,

Management structure,
• Relationship among the various
constituents,
• Physical assets,
• Technological capabilities
• Human, financial and marketing
resources make the internal environment
of business.
Business Environment-Internal Factors
• Internal Environment :
• Persons holding top positions in certain modern enterprises have
some values which influence their policies, practices and overall
internal environment.

• Ex: JRD TATA –Value system – responsibilities towards his

employees did some some commendable work in the field of labor
welfare.

• Attitude of TATA’s to employ 8 disabled persons out of their total

workforce of more than sixty thousand.

• The company value system need not be always positive. It can be

totally negative.

• Cases of pharmaceutical companies selling banned drugs world

over.

• Rational firms attempt maximize long-run profit.

 Business Environment-Internal Fact
• There are often differences in the goals and objectives of the
various firms, which in turn, lead to differences in the overall
internal environment and also in priorities, policies and direction
of development.

• Ex: Corporate enterprise professionally managed or family

controlled.

• Board of Directors - dynamic entrepreneurs capable of taking

quick decisions or the BOD may be dominated by persons with
conservative or bureaucratic outlook.
• Nominees of Financial institutions having large holdings – their
decision making.
• Conflicts among BOD’s, Erosion of shareholders confidence in the
BOD’s

• Serious differences among the senior executives officers on critical

matters are critical factors in the Co’s internal working conditions.
 Business Environment-Internal Factors

• Functioning & Competitiveness of a company are very much

influenced by physical resources, Production technology,
R&D work and distribution logistics.

• Co’s R&D activity and the speed at which technological

changes occur determine Co’s internal environment which
in turn influence Business decisions.

• Quality of Human Resources of a Company,

• Depends on Commitment, attitude and morale of the
employees also have an impact on business as an internal
factor.
 Business Environment-External Factors

• External Environment of Business consists of institutions,

Organizations and forces operating outside the company.
• External Environment of business may be classified into :
• A) Micro Environment
• B) Macro Environment
• Micro environment refers to such players whose decisions
and actions have a direct bearing on the company. Since
modern business broadly has two aspects, Viz, Production
and selling of goods,
 Micro Environment of Business
• The micro environment of business can be
divided : Input Suppliers

Workers & their unions Publics

BUSINESS

Customers Competitors

Marketing
Intermediaries
 Micro Environment of Business

Micro Environment has great relevance on Co’s business

operations.

The players in micro-environment do not effect all the

companies in an industry in the same way. Their decisions
and actions often differ in accordance with the size,
capability and strategies of each company.

Ex: 1. Suppliers of inputs are more accommodating if

the Company is large.
2. Competitor does not mind starting price war if the
rival co. is small
 Business Environment
• Suppliers of inputs: Important factor in Co’s success is low
cost of production of goods.

• Availability of raw materials without any interruption

especially raw materials thru out the year lessen the financial
burden on the company.

• Sometimes monopolistic suppliers manages to secure

monopoly control over the supply of some strategic raw
material, such as iron ore or copper, it starts regulating its
supply to generate maximum possible monopoly profits.

• No Co. should depend for the supply of some input on single

source.

• Supply management should be high on agenda of the

company.
Business Environment-Internal factors

• Workers and their Unions:

• Labor is an important input in production.

• Any policy that disturbs labor peace at the company level

may adversely affect its competitiveness.

• Also constant conflict between labor and management will

not allow the company to grow and overtime may
transform into a sick unit.
 Business Environment-Internal factors

• Customers: Demand for product – individuals, business

enterprises, institutions & the government.
• loyalty depicts customersatisfaction.
• Universally accepted fact that the satisfaction of customers
is the ultimate bench mark of the Co’s success.
 Business Environment-Internal factors
• Marketing intermediaries: Wholesalers, retailers, distribution firms agents etc
constitute an important element .
• Co. lacking its own distribution channels can’t
afford to have conflict or strained business
relations.
• Some Co’s adopt direct mail or data base
marketing.
• EX; nestle –slump in demand for baby products
– France
CO. could have responded to this situation by lowering production laying-of
• •workers.
 Business Environment-Internal factors
• Competitors: Brand Competition: affect sales operations of the business
firms.
• A Company which
competition encounters variousproducts
a company’s forms offaces
competition. The most common
is from differentiated
products of other companies.
• Ex: In the Air conditioner market Voltas air conditioner faces competition
from other branded air conditioner such as Videcon, Elgi, Samsung
companies.
• Public : Environmentalists, consumers protection groups & media
persons may influence both Production & Sales.
 Macro environment
• Macro environment of business consist of the
following factors:
• A. Economic Environment
• National
• Global
• B. Non –Economic Environment
• Political
• Socio Cultural
• Demographic
• Technological
• Natural
 Economic Environment of the Business (National)
• Business enterprise is essentially an economic institution. It conducts its activities
in the market system with the objective profit maximisation.

• In Modern economy there are five sectors contribute to the development of the
economy they are:
• The Business sector
• The household sector
• The capital market
• The Government
• These factors determine the prospects of business activity.

In a recessionary situation business firms encounter steep fall in effective demand

leads to business slowdown. Developed financial system –precondition for the
efficient mobilization of financial resources for the business.
 Global Environment
• Globalization- expansion of business
activities across boundaries of the nation
states.

• It refers to a process of increasing economic

openness growing economic
interdependence and deepening economic
integration between countries in the world
economy.
 Global Environment

• Over the past ten years the Indian economy

is integrates into the global economy.
• The three policy measures initiated to realize
the objectives of globalization are:

• 1. Exchange rate adjustment and rupee

• convertibility.
• 2. Import liberalisation &
• 3. Opening upto foreign capital