Business Communication

Business
Communication in an
Environment

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Preface
Environment or surrounding is crucial as far as every business firm, irrespective of their nature-
small or medium, manufacturing or service- is concerned. If a business firm wants to sustain in its area
of operations, it must be well adapted to the surroundings in which it is. Otherwise, as an entity, it
may be unsuccessful as it fails to exploit opportunities in the external environment, tackle problems or
threats, and to reinforce its strengths. Business decisions, in general and strategies in particular are
framed in accordance with the business environment. External environmental components like nature
of the economy, economic system, political and legal factors and internal elements like organizational
structure, human resource, cost structure etc are playing a decisive role in forming the destiny of a
business organization.
This book is prepared with the intention of benefitting SDE students of the Commerce and
Management Studies in University of Calicut. The purpose of the book is to set a base in the post
graduate students, on the subject Business Environment, by describing its various aspects such as
internal and external environmental factors, structure and profile of the economy of India, concept of
foreign investment and major multinational economic associations. I have taken every effort to make
the content of this book simple, precise and instructive. I acknowledge with thanks the support
provided by my colleagues, especially the Doctoral Research Scholars, Mr. Hareesh Kumar A.G, and
Ms. Febina. K, in the preparation of this study material.
I expect the book will be helpful to students who are eager to learn the subject, but are
restrained due to lack of foundation in Economics and Commerce.
To enrich and develop the contents of the book, suggestions are welcome at all times.

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Unit 2
EXTERNAL ENVIRONMENT OF BUSINESS
External Environment
The external business environment of a firm can be classified in to micro and macro
environment.
Micro Environment
The micro environment or task environment encompasses those forces in the close
surrounding area of an organization that influence it’s functioning. Even if it is external to an
organization, micro factors need not affect all the firms in a particular industry in an equivalent
manner. Some of the micro factors may be unique to a firm. It embraces the following factors:
1. Suppliers
Suppliers of raw materials, components and semi-finished goods are very prominent for a
firm. They operate as an important force within the micro environment of the firm.
2. Marketing intermediaries
It includes the firms that assist the company in promoting, selling and distributing its goods to
final buyers. They are operating in the micro environment.
3. Customers
As far as any business firm is concerned, creation and maintenance of customers are of utmost
importance. Triumph of a business principally depends on realising the needs, desire and tastes
of customers.
4. Competitors
Every organization has a competitive environment. Activities of a business should be adjusted
according to the actions and reactions of competitors. An enterprise will be facing direct and
indirect competition from many rivalries. A firm should monitor the activities of the
competitors in its micro environment and should counteract accordingly.
5. Public
Public refers to any cluster that has actual or potential interest in the business activities. Such
clusters can exert influence on the business. e.g., growth of consumer groups may affect the
working of newly developed businesses.
6. Financiers
The term financiers include commercial banks, money lending institutions, private persons etc
who have lent money for business operations. In addition to the financing capabilities, their
policies and strategies, attitudes, ability to provide non-financial assistance etc are vital.
7. Regulators
Regulators are units in the task environment that have the authority to control, regulate or
influence an organization's policies and practices. Government agencies are the main player of
this environment.
8. Strategic Partners
They are the organizations and individuals with whom the firm is in an agreement or
understanding for the benefit of the organization. Such strategic partners may influence the
organizations activities in various ways.
Macro Environment
A company along with its micro environment situate in a bigger macro environment. This
micro environment provides opportunities and poses threats to a firm. The macro forces are generally
more uncontrollable and the success of a company depends on its adaptability to the environment. A
firm cannot exercise effective control on the factors of macro environment and only the degree of
adaptability it has to that particular environment can direct it to success.
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The macro environment of a firm consists of the following:

1. Economic environment
The Economic environment includes broad factors like structure and nature of the economy,
the stage of development of the economy, economic resources, the level of income of the economy,
the distribution of income and assets among citizens, linkages with global economy, economic
policies etc. Important economic factors are:
a) Degree of economic development.
Extent of development of a country’s economy can exert influence on the business prosperity
in many ways. Factors like nature and size of demand, government policies affecting business etc
derive basically from the level of economic development of a nation. Economies can be classified
in to three as low income, middle income and high income countries, on the basis of the degree of
development.
In a developing country, the low income may be the reason for the very low demand of the
product. Such a circumstance may even necessitate the development of a new low cost product.
For instance, Colgate devised a simple, hand driven, low-cost ($10) washing machine for low
income buyers in less developed countries.
On the other hand, businesses will prosper in those economies which are highly developed,
and where investment and income are swiftly rising.
b) Structure of the economy.
The structure of the economy encompasses factors such as contribution of different sectors
like primary (agricultural), secondary (industrial) and tertiary (service) sectors. Large, medium
and small sectors, integration of the domestic economy with the world economy etc are
imperative to business because these factors designate the prospectus for different types of
business.
The character of each sector and its various components has bearing on the business. For
instance, even if we are in the first place in the production of several agricultural products, we
cannot collect and process crops efficiently because of the small and scraped nature of the land
possession. Agricultural inputs business may be affected by this.
c) Economic policies.
Economic policies like industrial policy, trade policy, foreign exchange policy, monetary
policy, fiscal policy, and foreign investment and technology policy etc can exert high influence on
business operations. While some enterprises get benefits out of certain government policies,
others may suffer.
• Industrial policy
Policies on industries usually define the role and objectives of different sectors like
private and public, large, medium and small etc. Businesses would be compelled to change
their operations in accordance with the new policy regime.
• Trade policy
A preventive import policy of the government may do benefits to the home industries.
• Fiscal and monitory policies
Fiscal policy includes the government’s tactics on public expenditure and revenue. It
can restrain or foster business operations. Similarly, a policy of the Reserve bank to restrain
flow of credit can affect the savings, investments etc.

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d) Economic conditions
Economic conditions refer to the state of the economy in a country or region. Economic
conditions change over time. General economic conditions have an effect on business. Economies
pass through periods of boom and recession. A boom is attributed by high levels of output,
employment and rising demand and prices. A business can reap profits during the periods of
boom and the reverse happens during recession.
Thus it can be inferred that all these factors make the economic environment of a business
complex and it has to formulate its own policies for its survival.
2. Political Environment
It primarily comprises of the country’s government’s actions which may influence
the operations of a company or business. These actions can be on different levels like local, regional,
national or international. The decision makers should observe the movements of the government
keenly, so that they can make quick decisions.
Increase or decrease in tax level is one factor in political environment. Such decisions will
directly affect the business. Government interferences like shifts in interest rate can have an effect on
the demand patterns of company. The political environment is one among the least predictable
elements in the business environment. Major political factors affecting business are,
• Bureaucracy
• Corruption level
• Freedom of the press
• Tariffs
• Trade control
• Employment law
• Environmental Law
• Health and safety law
• Competition regulation
• Tax policy (tax rates and incentives)
• Government stability and related changes
• Government involvement in trade unions and agreements
• Import restrictions on quality and quantity of product
• Intellectual property law (Copyright, patents)
• Consumer protection and e-commerce
3. Technological environment
Along with determining the destiny of an organization, technology can contribute to the economic
and social development of a nation. Factors like the type of technology in use, the level of
technological developments, the speed with which new technologies are adopted and diffused, the
type of technologies that are appropriate, the technology policy etc has deep implications on the
prospects of the business.
Technology can be bifurcated in to the tools-both machines (Hard Technology) and ways of
thinking (Soft Technology) - accessible to crack problems and uphold progress between societies.
Technological environment of a firm includes the following.
• Innovation
It is the eminent economist, Joseph Schumpeter, who upheld the value of innovation in the
development of s business firm and society. There are three types of innovations as Radical
innovation (fundamental technological innovation that launches a new machinery like the
invention of steam engine or steam boat), incremental innovation (altering an existing technology
system that does not modify functionality but improve performance) and next generation
technology innovation (similar to incremental innovation but improve performance dramatically).
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• Technology leadership and followership

A firm seeking better technologies can either become a technology leader or follower.
Leadership refers to becoming the first in introducing a particular technology and followership
means a firm chooses not to become first on innovations.
• Technology may augment the competitive advantage of a firm in the following ways:
➢ Technological transformation may reduce cost and it will boost a firm’s differentiation
abilities with other similar firms.
➢ Initiating the technological change may give first mover advantage to a firm.
➢ Technological change will improve the overall industrial structure.
4. Social Environment
The social environment of business includes social factors like customs, traditions, values,
beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a society
cherishes have a considerable influence on the functioning of business firms. For example, during
festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc. Due
to increase in literacy rate the consumers are becoming more conscious of the quality of the
products. Due to change in family composition, more nuclear families with single child concepts
have come up. This increases the demand for the different types of household goods. It may be
noted that the consumption patterns, the dressing and living styles of people belonging to different
social structures and culture vary significantly.
Social responsibility of business
It signifies that all activities a business does over and above the statutory requirement comes
under corporate social responsibility. It depicts that the business has some more moral
responsibilities towards the society.
Archie. B. Caroll defines Corporate Social responsibility as the entire range of obligations
business has to society. He has derived four models of Corporate Social responsibility as follows:
1. Economic
Since the firm is primarily an economic entity, its activities should contribute to the prosperity
of the economy.
2. Legal
A company is legally bound in many aspects and it is ought to obey the law of the land.
3. Ethical
These are certain standards which the society expects the business to do though they are not
demanded by the law. Eg: Avoiding corruption and unfair trade practices.
4. Discretionary
These are the voluntary contributions of the business to the social affluence like participation
in the community development programmers.
Business ethics
Business ethics means the conduct of business according to some self-recognized moral standards.
What is expected from a business organization is that conduct of business in an advantageous way to
the interests of society and the business sector. The important ethical principles that a business
should follow are:
• Stay away from deceiving customers by selling sub-standard products or by under-measurement.
• Evade distortion of competition
• Keep away from unfair trade practices like hording, black-marketing etc.
• Keep activities like advertising, labeling, packaging etc. accurate and sincere.
• Disburse taxes and other obligations on time

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Corporate Social Responsibility Guidelines in Companies Act, 2013

The Ministry of Corporate Affairs has notified Section 135 and Schedule VII of
the Companies Act 2013 as well as the provisions of the Companies (Corporate Social Responsibility
Policy) Rules, 2014 to come into effect from April 1, 2014.
With effect from April 1, 2014, every company, private limited or public limited, which either has a
net worth of Rs 500 crore or a turnover of Rs 1,000 crore or net profit of Rs 5 crore, needs to spend at
least 2% of its average net profit for the immediately preceding three financial years on corporate
social responsibility activities. The CSR activities should not be undertaken in the normal course of
business and must be with respect to any of the activities mentioned in Schedule VII of the 2013 Act.
Contribution to any political party is not considered to be a CSR activity and only activities in India
would be considered for computing CSR expenditure.

Legal Environment
This includes a set of laws and regulations, which influence the business organisations and
their operations. Every business organisation has to abide by, and work within the framework of
the law. The important legislations that concern the business enterprises include:
(i) Companies Act, 2013.
(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 Regulation) Act, 1951
(vii) Prevention of Food Adulteration Act, 1954
(viii) Essential Commodities Act, 2002
In addition to the above legislations, the following are also form part of the legal environment of
business.
• Stipulations of the Constitution: The provisions of the Articles of the Indian Constitution,
principally directive principles, rights and duties of citizens, legislative powers of the central
and state government also influence the operation of business enterprises.
• Judicial Decisions: The judiciary has to make sure that the legislature and the government
function in the interest of the public and act within the boundaries of the constitution. The
various rulings given by the court in diverse matters relating to trade and industry also
influence the business activities.

5. Cultural environment
Culture of a particular region includes activities such as dance, drama, music and festivals. In
its exact sense culture is understood as that composite whole which includes knowledge, belief,
art, morals, law, customs and other capabilities and habits acquired by individual as a member of
a society. The culture has two main traits:
i) Shared value
ii) Passage of time Culture of a society is shared by its members.

Cultural philosophy is passed from one generation to other generation. It is not confined to
one particular period of time. The interface between business and culture can be summarized as
follows:

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a. Culture creates people.
b. Culture decides goods and services to be bought and sold in a particular region.
c. It defines people’s attitude to business and to work.
d. Explains the spirit of collectivism and individualism.
e. Defines whether people are Ambitions or complacent.
f. Education
g. Family
h. Authority
i. Marriage
j. Time Dimension
k. Cultural Resources.
All the above said factors influence the business in one or other way. Hence it is important to
understand all these factors for a successful business.
6. Labour Environment
The labour environment has some important roles in deciding business location and
functioning. The Factors such as availability of labourers of different skill levels, productivity and
cost of labour, flexibility of labour, attitude and behavioural pattern of labour, nature of trade
unionism, labour legislations and the effectiveness of their implementation etc are important to
business.
Labour standards which comprises of concerns like child labour, working conditions and
labour welfare, wage levels, labour legislation and their execution, have come out as important issues
in international business.
Factors like labour welfare norms, industrial relations of labourers etc can make far reaching
impact on the business activities.

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