BUSINESS ENVIRONMENT - UNIT-I

(Business & Meaning of Business, Scope & Objective, Micro & Macro Business Environment, Internal
& External Factors Affecting Business, Environmental Analysis For Business Decision Making)

Business is an economic activity involving the production and sale of goods and services undertaken
with a motive of earning profit by satisfying human needs in society.

A business is defined as an organization or enterprising entity engaged in commercial, industrial, or

professional activities. The term “business" also refers to the organized efforts and activities of
individuals to produce and sell goods and services for profit.

Characteristics of Business

Characteristics or features of the business are discussed in the following points: -

1. EXCHANGE OF GOODS AND SERVICES: All business activities are directly or indirectly
concerned with the exchange of goods or services for money or money's worth. Directly or
indirectly, business involves transfer or exchange of goods and services for value. If goods are
produced not for the purpose of sale but say for personal consumption, it cannot be called a
business activity. Dealings in goods and services on a regular basis: Business involves dealing
in goods or services on a regular basis. One single transaction of sale or purchase, therefore.
Does not constitute business. Ex: If he or she sells musical system either through a shop or
from his/ her residence, it will be regarded as a business activity.
2. DEALS IN NUMEROUS TRANSACTIONS: In business, the exchange of goods and services is a
regular feature. A businessman regularly deals in several transactions and not just one or two
transactions.
3. PROFIT IS THE MAIN OBJECTIVE: The business is carried on with a motive to earn a profit. The
profit is a reward for the services of a businessman. One of the main purposes of business is
to earn income by way of profit. No business can survive for long without earning profit.
4. BUSINESS SKILLS FOR ECONOMIC SUCCESS: Anyone cannot run a business. To be a good
businessman, one needs to have good business qualities and skills. A businessman needs
experience and skill to run a business.
5. RISKS AND UNCERTAINTIES: Business is subject to risks and uncertainties. Some risks, such as
risks of loss due to fire and theft can be insured. Risk is uncertainty associated with an exposure
to loss. It is caused by some unfavourable or undesirable event. The risks are related with
certain factors like changes in consumer tastes and fashions, changes in methods of
production, strike or lockout in the workplace, increased competition in the market, fire, theft,
accidents, natural calamities, etc. Uncertainty of return refers to the lack of knowledge relating
to the amount of money that the business is going to earn in each period. Every business
invests money(capital) to run its activities with the objective of earning profit. There are also
uncertainties, such as loss due to change in demand or fall in price cannot be insured and must
be borne by the businessman.
6. BUYER AND SELLER: Every business transaction has a minimum of two parties that is a
buyer and a seller. Business is nothing but a contract or an agreement between buyer and
seller.
 7. CONNECTED WITH PRODUCTION: Before goods are offered to people for consumption,
these must be either produced or procured by business enterprise. Services may include
facilities offered to consumers, business firms and organizations in the form of
transportation, banking, electricity, etc.
The business activity may be connected with the production of goods or services. In this case,
it is called as industrial activity. The industry may be primary or secondary.
8. MARKETING AND DISTRIBUTION OF GOODS: The business activity may be concerned with
marketing or distribution of goods in which case it is called a commercial activity.
9. DEALS IN GOODS AND SERVICES: In business there has to be dealings in goods and service.
Goods may be divided into following two categories:-
Consumer goods: Goods which are used by final consumer for consumption are called
consumer goods e.g. T.V., Soaps, etc.
Producer goods: Goods used by producer for further production are called producers
goods e.g. Machinery, equipment’s, etc. Services are intangible but can be exchanged
for value like providing transport, warehousing and insurance services, etc
10. TO SATISFY HUMAN WANTS: The businessman also desires to satisfy human wants through
the conduct of business. By producing and supplying various commodities, businessmen try to
promote consumer's satisfaction.
11. SOCIAL OBLIGATIONS: Modern business is service-oriented. Modern businessmen are
conscious of their social responsibility. Today's business is service-oriented rather than profit-
oriented.
12. AN ECONOMIC ACTIVITY: Business is considered to be an economic activity because it is
undertaken with the object of earning money or livelihood and not because of love,
affection, sympathy or any other sentimental reason.

Dynamics of Modern Business

1. STRATEGIC ORIENTATION: Strategic management may be defined as establishing a proper

firm environment fit.A firm may have certain strengths and weaknesses and the business
environment presents opportunities and threats.
2. GLOBAL ORIENTATION: International firms are increasing their global reach and business and
more and more of them are becoming global. The liberalization and the resultant global
competitive dimensions have made global orientation inevitable for survival.
3. PROFESSIONALISATION: The growth of management education and training has contributed
to the growing professionalization which in turn has contributed to the growing social
orientations of business.
4. STRATEGIC OPERATIONS MANAGEMENT: In an intensive competitive market, on;ly those
firms who wins the race in satisfying the consumers vis a vis product features and
performance, price, delivery, services, etc. can survive.
5. TECHNOLOGY OVERLAPS AND INTEGRATED SYSTEM: There is an increasing overlapping
and integration of technologies in a growing number of products/ industries. For Example:
A modern motor car is characterized by integration of mechanical, electrical and
electronic technologies. The digital technology is finding fast expanding applications in
very diverse fields.
6. RESTRUCTURING: The environmental changes make firms to restructure their business
portfolio, product mix, markets, finance and organization. Restructuring may be confined to
any one of them or may pervade some or all.
7. COEXISTENCE OF DIFFERENT SECTOR: Most industries are characterized by different sectors
like tiny, small, medium and large scale units. It is common to speak of the organized
and unorganized sectors. The competitive strategies of these sectors may differ.

Objectives of Business

a) Earn Profits: One of the objectives of business is to earn profits on the capital
employed. Profitability refers to profit in relation to capital investment.
b) Productivity: It is ascertained by comparing the value of output with the value of
inputs. It is used as a measure of efficiency. In order to ensure continuous survival
and progress, every enterprise must aim at greater productivity through the best use of
available resources.
c) Innovation: Marketing and Innovation produce results: all the rest are costs –
According to Peter F Drucker, there is only one valid definition of business purpose: “ to
create a customer and because its purpose is to create a customer, the business
enterprise has two-and only two-basic functions” Hence, marketing and innovation
produces result of an organization.
d) Social Responsibility: It refers to the obligation of business firms to contribute
resources for solving social problems such as waste management, unemployment
problems, etc and work in a socially desirable manner.
e) Survival: The primary business of the every business is to stay in business. A business
cannot achieve its objectives unless it survives and hence survival is basic objective
necessary to achieve other objectives.
f) Return on Investment: A return on investment is undoubtedly an important economic
objective not only for private enterprises but also for many public sector enterprises.
Private business is often profit motivated. Organisation needs to calculate how quickly
returns can be reaped.
g) Market share: An increase in or maintenance of its market share is an important
objective of many companies. Several companies also strive for market leadership.
Sometimes non-economic factors like the industry recognition associated with
market leadership may be a more prominent factor than the economic factor which
drives company towards market leadership.
h) Growth: Growth over time is also economic objective of most of the business
enterprises. A business may grow either vertically, horizontally or by diversification into
unrelated areas. Growth may benefit not only the promoters and shareholders but also
the consumers, suppliers and the national economy.

Economic Objectives:

I. Profit earning: A business needs profit not only for its existence but also for expansion &
diversification. A Profit motive does not mean exploiting the consumers by charging
higher prices or selling low quality goods. The businessman should charge reasonable
profit and it will be beneficial both to the business and the society.
 II. Production of goods: The profit can be earned by only when exchange of goods
and services takes place. So is to produce more goods and sell them to their preference,
taste& paying capacity ,etc .Thus tangible form of wealth is produced in the form of goods.
III. Creating Markets: The aim of the businessman is to sell products at the right place, etc.
The businessman searches for new consumers for increasing his sales, the new market,
are also exploited to keep a steady demand for goods.
IV. Technological Improvement: In the world of communication everybody try to sell its
product by offering good quality products at lower price this is possible when least
technology is used for producing goods.

Human Objective:

I. Welfare Of Employee: Production should be linked to various incentive schemes, the

workers should be linked to various incentive schemes, the workers should be rewarded
to their hard work, the business man should be provided with physical comfortable,
material, Incentive, appreciation, dignity of labour and conditions which will motivate the
workers to give their best.
II. Satisfaction Of Consumers: The consumers should be provided quality goods at reasonable
prices. The taste ,likings and requirements of the consumers should be given due weightage
.The business is meant for consumers and their satisfaction should be the main objective of
the business.
III. Satisfaction of shareholders: In the present world ownership and management are two
different hands .The shareholders are spread all over the country and they do not have day –
to-day working of the business. The management should give reasonable return on
investment money to the share holders.

Social objective:

I. Availability of Goods: The business should ensure that the supply of goods to meet the
requirements of the society ,it should estimate the total demand for various commodity and
produce accordingly .
II. Supply of Quality Goods: Goods must be given and must be in reasonable price for
satisfying the consumer. Every business must follow its business ethics and ensure that they
don’t indulge in any activities such as adulterated goods, poor quality that will affect
the consumers.
III. Co-operation with the government: Business should co-operate with the government to
achieve the socialistic pattern of society. Business community must adapt and have a positive
approach towards the policy of the government and help in solving national problems.
IV. Create more employment: Business must plough profit which will enhance in the future
expansion of the business activities and ultimately create new job opportunity.
V. Utilising Natural Resource: The use of improved technological methods for the production of
goods can be helpful in raising production and reduce a cost.

ORGANIC OBJECTIVE:
A business enterprise consists of people and its organized to meet the social needs.
 I. Survival: The main & first object for a business to survive. The business must have or
take up activity which are beneficial to he society .It must also create demand for its product.
So that its able to earn profit.
II. Growth: A business enterprise may be compared to human anatomy .As a human body
grows through various stages, that is ,from infancy to childhood, from childhood to
adolescence, from adolescence adulthood and from adulthood to maturity, a business
also passes through various phases during existence. A business unit tries to utilize its
resources properly so that it plough back its profits.
III. Earn recognition and Prestige: A business enterprise always aims to get recognition from those
with whom it deals. This is possible only if it serves them well. It should have good
relationship with the suppliers and dealers by keeping proper schedules of payments supply
of goods. The consumers should be supplied good quality products at reasonable prices. The
supplied good quality products at reasonable prices.

National Objectives:

Helping National Efforts: Its must improve the economic position of the society. Business men must
set up new units in backward underdeveloped areas so that people living there get employment
opportunities and resources are properly utilized.

Development of the small enterprise: Business houses should help in the development of small
undertakings and they must not consider small scale industry has their competitors.

National Self- Sufficiency& Export development: Produce goods which are imported sell the goods in
the foreign country were there is ready market which will help to increase to earn foreign
exchange.

Development of skilled personal: Business houses must provide technological knowledge and training.
To their employees, This helps in skill information to the country’s growth and development.
 # Economics Human Social Organic National
Helping
Welfare Of Helping National
1 Profit Earning Availability Of Goods National
Employee Efforts
Efforts
Production Satisfaction Of Supply Of Quality Developing
2 Growth
Of Goods Consumers Goods Entrepreneur
Creating Satisfaction Of Co-Operation With
3 Recognition Self Sufficiency
Market Share Holders Government.
Helpful To Creation Of Development Of
4 Technology
Government Employment Personal
Utilising The
5
Resources

NATURE AND SCOPE OF BUSINESS: Nature Of Economic And Non-Economic Activities Economic
Activities:-

ECONOMIC ACTIVITIES:

It is concerned with the production and distribution of goods and services either for own consumption
or for sale to others at profit. They are influenced mainly by material or economic
considerations. Buying and selling of goods by traders , manufacturing and sale of goods by industrialist
, production and sale of crops by farmers , specialized personal services rendered by doctors , lawyers
,charted accountant ,etc….

Characteristics of economic activities:

I. Economic activities are undertaken to produce wealth.

II. The main aim of economic activities is to satisfy human needs.
III. All economic activities help in earning money income.
IV. Economic activities become a basis for economic development.

NON-ECONOMIC ACTIVITIES:

These activities which are pursued because of social, religious, cultural, psychological or sentimental
reasons. These activities have no economic motive but are undertaken to have self-satisfaction. These
activities are voluntary in nature and are undertaken at leisure or pleasure of the person pursuing
them. The examples of such activities may be: A housewife working at home, a person engaged in
social work, etc., All these are done for own satisfaction.

# Basis Economic Activities Non-Economic Activities

1 Meaning These activities are undertaken to earn These activities are of social and
income to meet material needs religious nature
2 Purpose These are activities with economic These are activities undertaken
motive. They are under taken for with social, cultural, religious &
generation of income and wealth recreational motives
3 Scope Activities may take between employees Non-economic activities may be
and employers or between producers among the members of the family
and consumers or between service ,social works and those things
providers and clients, etc being served
4 Satisfaction Economic needs of the people are These satisfy social and
satisfied psychological needs of the people
5 Money These activities are measured in terms These activities have no money
measurement of money measurement
6 Examples People engaged in manufacture, trade, People who are engaged in
profession(doctor, lawyers) service ,etc household activities, social work,
religious activities

Types Of Economic Activities

ECONOMIC ACTIVITIES ARE CLASSIFIED AS FOLLOWS:

1. Profession
2. Employment
3. Business

PROFESSION: Its an occupation which involves rendering of personal service of specialized

nature. Specialized service is provided for professional fee charged from the clients. The
professionals are member of professional bodies of those lines and conduct , their activities occurring
to the standards set by those bodies . The person entering the law profession as to obey the guide
lines and regulations of bar council of India.

Features of profession:

1. A person entering a particular profession should have specialized knowledge and training
prescribed for entering that profession. One must have specialized degree such has C.A,
L.L.B, M.B.B.S. etc. For entering a particular profession.
2. Every professional body has a code of conduct which every member should follow.
3. Professionals charge fees from clients for providing their service.
4. A professional cannot advertise himself if its banded by the professional body.

EMPLOYMENT: When a person undertakes to render personal service under an agreement of

employment , he is to be in service or employment .The service is rendered for salary or wage. The
service may be in private or in government organization .

Features of employment:

1. An employment commences when a person joins some organizations for providing

personal service.
2. There is a relationship of employers and employee. A person taking up a job is an
employee and the person who provides the service is called employer.
3. The employer assigns duties to the employee.
4. An employee is not required to make capital investment.
5. The employee will have to follow the rules and regulations prescribed by the employer.

BUSINESS: Its defined has an activity concerned with the production and exchange of goods and
service with the objective of earning profit.
Importance of Business:

1. Revenue Generation: It is the key to revenue generation for the business owner since it brings
in profit and proves to be a source of income for the owner.
2. Economic Growth: It is essential for the economic growth of a country since high
revenue means higher tax collection.
3. Improves Standard of Living: A country with more industrial units and companies
experience a higher rate of employment and better living standards.
4. Bulk Production: Manufacturing units involve large-scale production, which ultimately
reduces the cost of production, and people get a continuous supply of goods at a reasonable
price.
5. Innovation: It involves brainstorming and generation of new ideas which opens up the way for
innovation and creativity.
6. Generates Employment: It is a long-term process which requires the human resource to
function correctly. Therefore, it creates job opportunities.
7. Market Expansion: A good strategy and high customer satisfaction lead to a strong
customer base aiming at market expansion.

Meaning of Business Environment:

Business Environment consists of all those factors that have a bearing on the business such as
strengths, weaknesses, internal power relationships and orientations of the organization;
government policies and regulations; nature of the economy and economic conditions; socio-cultural
factors; demographic trends; natural factors; and global trends and cross border developments.

INTERNAL ENVIRONMENTAL FACTORS: These are the controllable factors. Internal environmental
factors can be divided as follows:

1. Value system: The value system of the founders, board of directors, managers, workers of the
organization has important bearing on the strategies of the organization. The value system of
the founders and those at the helm of affairs has important bearing on the choice of business,
the mission and objectives of the organization, business policies and practices.
2. Vision, Mission and objectives: The business domain of the company, priorities, direction
of development, business philosophy, etc./ are guided by the vision, mission and objectives
of the company. Mission and the objectives are the first steps in the development of the
organization.
3. Organizational / Management structure and nature: Organizational hierarchy is the authority
flows from top to bottom. Some management structures and styles delay decision making
and while others facilitate quick decision making. The board of directors being the highest
decision making which sets the direction for the development of the organization and which
oversees the performance of the organization, the quality of the board is a very critical
factor for the development and performance of company. The shareholding pattern could
have important managerial implications.
Internal Power Relationship: Factors like the amount of support the top management
enjoys different levels of employees, shareholders and board of directors and between the
chief executive and the board are also critical factors.
 4. Human resources: The characteristics of human resources are skill, quality, morale,
commitment, attitude, knowledge etc. could contribute to the strength and weakness of
an organization. Some organization finds it difficult to carry out restructuring because of
resistance by employees whereas they are smoothly done in some others.
5. Company reputation Image and Brand Equity: The goodwill of the company matters while
raising the finance, formatting joint ventures other alliances, selecting the marketing
intermediaries and launching new products etc.
Physical Assets and Facilities: Physical facilities like the production capacity, technology
and efficiency of productive apparatus , distribution logistics,etc are among the factors
which influence the competitiveness of a firm.For example.as quality is very important
in the pharmaceutical industry, particularly for a global player, in the case of core healthcare
not only there is no compromise on quality but also the company made the quality norms
stricter than international or other relevant standards.
R&D Technological capabilities: They determine a company’s ability to innovate and
compete.
Marketing Resources: Resources like the organization for marketing, quality of marketing
men, brand equity and distribution network have direct bearing on marketing efficiency.
6. Financial factors: Financial factors like financial policies, financial position and capital
structure etc. are affecting corporate strategies and decisions.

EXTERNAL ENVIRONMENTAL FACTORS: It is divided into two aspects:

The micro environment of business: It consists of the forces in the company’s immediate
environment that affects the performance about the company.

The following are the factors which has immediate effect with the business:

1. Suppliers
2. Customer
3. Channel intermediaries
4. Competitors

Suppliers: They are an important force to micro environment because they are the most efficient
resource who supply materials to the business for which the business has a smooth functioning.
It is very essential for business to have more than one supplier because there are lots of chances in
the availability of resources on the required time.

Customers: On the micro environment customer have direct impact to succeed in business. A
right strategy must be implemented to target the customers because it is a very big challenge for a
business to cope-up with the environmental attitudes, taste, style and preferences influence the
behavior of consumers which will have greatest impact towards the business. A company may have
different categories of consumers like individuals, households, industries and other commercial
establishments and governments and other institutions. For example, the customers of a tyre
company may include individual automobiles owners, automobile manufacturers, public sector
transport undertakings and other transport operators.

Marketing intermediaries: They link the company under final consumer. A dislocation or disturbance
of this link will have a greater impact on the company.
They include the following:

a) Middlemen: The agents and merchants who help the company to find the consumers
and finalize their sales are known as the middlemen.
b) Physical distribution of the firm: These includes warehouses and transport companies,
which asses the company in stocking the goods and moving the goods from place of
production to consumption.
c) Marketing service agencies: These include advertising agencies market research firms,
media firms who help in the promotion of sales.

Financiers: Another important micro environmental factor is the financiers of the company.
Besides the financial capabilities, their policies and strategies, attitudes including attitude towards
risk, ability to provide non financial assistance ,etc are very important.

Competitors: They play an important role in running the business enterprise; there are various
types of competitors.

a) Desire competition: Under this type of competition the primary task is to influence the
basic desire of the customers.
b) Firm competitor: A firm competitor includes not only the other firms which produce the
same or similar product but all those who compete for the discretionary income of the
consumer.

Public: The prosperity of a firm depends upon the society in which it has to work and sell its product,
it is very important for firm to get itself adapted based on the society’s expectation.

A business's macro environment is the broader economic conditions that affect the business indirectly,
but still significantly impact its decision-making and performance.

The following are the factors which indirectly impact business decision-making and performance:

a) Economic Environment
b) Political Environment
c) Socio Cultural Environment
d) Natural Environment
e) Demographic /Legal Environment
f) Technological Environment
g) International Environment

Economic environment:

Economic factor: It consists of the economic factor that influences the business in a country.
These factors include the gross national product, co-operate profits, inflation rate, employment
levels, balance of payments, etc. Business also depends on not only with the needed inputs
(produce) but also to sell the finished goods.
Components of economic environment include:

I. Income and wealth- Gross national product (GNP), gross domestic products, per-capita
income.
II. Employment levels- Unemployment, partial employment, disguised employment and full
employment.
III. Productivity – Input and output

Importance of economic environment:

1. Economic conditions: They include all the national incomes, per capita income, economic
resources, distribution of income and assets, economic development, etc. are the
important determinants of the business strategies which defines the economic environment.
2. Eco –system (economic system): It includes all capitalist, socialist, mixed economy, communist,
etc. which is prevailing in our country that affects the business unit with their policies.
3. Economic policy: The government decides the economic environment or business through
budgets, industrial regulation, economic planning, import and export regulation, industrial
policies, control on prices and wages, demand and supply of various goods, etc.
4. Economic growth: Increase economic growth rate and increase in consumption
expenditures, lower the general pressure within an industry and offers more on the
opportunities and reduces threats.
5. Rate of interest: It affects the demands for the products in the economy when the goods are
purchased on borrowed finance.
6. Currency exchange: The foreign currency keeps fluctuating based on the market conditions
which indirectly affects the business that are dealing with international trade.
7. Economic policies: It affects different business in different ways. It may or may not have
favourable affect on the business unit. The government may grant subsidies to one business
or decrease the rate of excise (or custom duty or the government may increase the rates of
taxes based on business).

Different types of economic policies:

1. Monetary policy: The policies formed by the central bank of our country to control the supply
and cost of money (rate of interest) in order to maintain the specific objectives.
2. Fiscal policy: It is framed by the government and deals with taxation, government
expenditures, borrowings and management of public debts in an economy.
3. Foreign trade policy: The import policies and export policies that are restricted or adapted
by the government will affect the business indirectly.
4. Foreign investment policy: Related to the investment made by an the foreigners in a country
is known as foreign trade investment policy where the government has adapted the foreign
funds (inflow) to start the business or industry which will have growth in a country.
5. Industrial policy: Promotes and regulates the industrialization in the country.
Political environment:

Political environment comprises political stability and the policies of the government. Ideological
inclination of political parties, personal interest on politicians, influence of party forums etc, create
political environment. For example, Bangalore established itself as the most important IT centre
of India mainly because of political support.

Meaning: Political environment means that set of activities of the government which include
plans, policies, programs and controls which directly or indirectly involve with the business.

Political risk(Include fundamental rights –Indian Constitution) The impact of political change on the
firm’s operations and decision-making process is called as Political Risk. It is determined differently for
different companies.
For ex- industries requiring heavy capital investment are generally considered to be more vulnerable
to political risk than requiring less capital investment. Vulnerability stems from the extent of capital
invested in the export market, e.g. capital-intensive extracting or energy related business
operating in the foreign market are more vulnerable than manufacturing companies exporting from
a South African base.

Socio-Cultural Environment:

It describes the characteristics of the society in which the organization exist. It includes literacy rates,
customs, values, beliefs and mobility.

Elements of societies and its effects on business:

1. Family: Business must analyse different family needs and based on it the goods can be
produced.
2. Educational institution: They guide the students on the usage of products that are consumed;
hence it directly affects the business either on increasing the demand or decreasing the
demand.
3. Religion: Business plays an important role in the society; hence it needs to respect the
religion and belief on the people for a longer term.

Factors influencing socio-cultural environment:

1. Language: Language is not only a key to understand a group but it is the principal way of
communicating within it.
2. Material culture: The goods must be produced based on the taste preferences and the likes of
the customers.
3. Religious systems: It refers to the spiritual side of a culture or its approach to the
supernatural. Religious beliefs, attitudes, values and time are also the major factors
which affect the business.
4. Aesthetics: A culture’s aesthetics refer to its ideas concerning good taste and beauty as
expressed in fine arts and in the appreciation of color and form.
5. Social organization: It refers to the ways in which people relate to one another, form
groups and organize their activities, teach acceptable behavior and govern themselves.
Impact of socio-cultural environment in business:

1. Design the products based on the cultural background of the customers.

2. Develop human relations within the environment.
3. Business must undertake and respect the values and attitudes of the customers.
4. They also must understand the income level of the people i.e., purchasing capacity.
5. Business must introduce varieties and then innovate other products based on the
customer’s requirements.

Cross Culture:

It means the interaction of people from different backgrounds in the business world. Cross
culture is a vital issue in international business, as the success of international trade depends upon
the smooth interaction of employees from different cultures and regions. A growing number of
companies are consequently devoting substantial resources toward training their employees to
interact effectively with those of companies in other cultures in an effort to foment a positive
cross-cultural experience.
Cross culture can be experienced by an employee who is transferred to a location in another country.
The employee must learn the language and culture of those around him, and vice-versa. This can
be more difficult if this person is acting in a managerial capacity; someone in this position who cannot
effectively communicate with or understand their employees’ actions can lose their credibility.
In an ever-expanding global economy, cross culture and adaptability will continue to be important
factors in the business world.
Environment Within companies there are many facets in which cultural differences manifest. Some
key areas which cross cultural consultants deal with include, but are not exclusive to, the following:

1. Cross Cultural HR: HR covers a wide range of business critical areas that need cross
cultural analysis. Consultants may offer advice on a number of areas including
recruitment, relocation, international assignments, staff retention and training programmer.
2. Cross Cultural Team-Building: In order to have a well functioning business unit,
communication is critical. Cross cultural consultants will provide tools and methods to
promote staff integration, reduce cross cultural conflicts and build team spirit. This is
essentially done through highlighting differences and building on strengths to ensure they
are used properly.
3. Cross Cultural Synergy: International mergers, acquisitions and joint-ventures require
people from different cultural backgrounds to harmonize in order to succeed. Cross cultural
consultants counsel on group mechanics, communication styles, norms, values and
integration processes.
4. Cross Cultural Awareness Training: Working with colleagues, customers or clients from
different cultural backgrounds with different religions, values and etiquettes can
occasionally lead to problems. Cross cultural awareness training is usually a generic
introduction into a culture, country, region and religion. The aim is to equip the trainee with
the adequate knowledge to deal comfortably with people from different cultures, avoiding
misunderstandings and mistakes.
5. Cross Cultural Training for Expatriate Relocation: Staff that travel overseas need to
understand the cultural basics of the host country or region. Knowledge of the country’s
 history, culture, laws, traditions, business practices and social etiquettes all help to
minimize the impact of culture shock and hence smooth their transition overseas.
6. Cross Cultural Negotiations: Equipped with their knowledge of the two or more cultures that
can be meeting around the negotiation table, a cross cultural consultant advises on areas such
as negotiations strategies, styles, planning, closure and etiquette in order to increase the
chance of a successful outcome, free from misunderstandings, suspicions and general
cross cultural communication breakdown.
7. Cross Cultural PR Consultancy: Brand image, public relations and advertising are all areas
companies must be careful of when moving out of the national context. Tastes and values
change dramatically from continent to continent. It is crucial to understand whether the
brand name, image or advertising campaign is culturally applicable in the target country. Cross
cultural consultants examine words, images, pictures, colors, and symbols to ensure they
fit well with the target culture.
8. Cross Cultural Language Training: Language training is an area where little investment is
made by companies, but where the business advantages are great. Linguistic knowledge
goes a long away in bridging cultural gaps and smoothing lines of communication. Cross
cultural consultancies provide language training to business staff, molding their learning
to business environment in which they work.

Demographic /Legal Environment:

The demographic environment is a set of characteristics of a population that can impact a business's
success. Businesses can use demographic factors to identify target markets, understand customer
purchasing behaviors, and create marketing materials.

Some factors that make up a demographic environment include:

Age, Sex, Income, Education level, Occupation, Race, Population size, Geographical distribution, and
Ethnic mix.

Businesses can use demographic factors to:

1. Identify target markets: Companies can use demographics to identify who is most likely to buy
their products or services. This helps them avoid wasting money on marketing to people who
aren't interested.
2. Understand customer purchasing behaviours: Companies can use demographics to
understand their customers' product preferences and purchasing behaviours.
3. Create marketing materials: Companies can use demographics to create marketing materials
that are aligned with their target market.
4. Determine pricing, packaging, and service offers: Demographics can also affect other business
factors, such as pricing, packaging, and service offers.

Legal environment: The relevant laws and regulations under which the business operates are
called as legal environment. They include factors that provide rules, and penalties for violations,
designed to protect society and consumers from unfair business practices and business from
unfair competitive practices. It assures uniform application of the laws by regulating the behavior
and interactions of individuals with each other.

Needs:

A. Legal environment maintains status quo in society ensuring stability and security social
order, enable individuals, maximum of freedom to assert themselves and determine the
sphere within which the existence and activity of each individual will be secure and free
B. The principle of law provides uniformity and certainty to the administration of justice.
C. The existence of fixed principles of law avoids the dangers of arbitrary, biased and
dishonest decisions.
D. The fixed principles of law protect administrators of justice from the errors of individual
judgment.

Importance:

1. Laws on Production or Sales: The production of certain goods is prohibited or at least severely
restricted in many countries. This includes among others selling of dangerous drugs, guns
and explosives for instance. Aerosol cans containing CFCs which are harmful to environment
or more specifically the ozone layer depletion, are banned and no longer produced.
2. Consumer Production: Most countries have laws ensuring customers are being treated
fairly by business. According to act regulating weights and measurements ensuring that
goods sold actually are weight or measured. No faulty goods should be sold to consumer.
The return of goods and refunds, etc is also governed by laws.
3. Employee Protection: Laws to protect employees include laws against the unfair
discrimination based on race, color, religion, sex, or age; laws against sexual or other
harassment; health and safety laws. This is mandatory in many countries.
4. Tax and Financial Laws: These laws vary between countries, but generally regulate
accountancy practices, interest rates on loans, taxes etc. Business is expected to provide
sufficient documentation of income and expenditure, for insurance.

Competitor Analysis

Competitor analysis is necessary for formulating right strategies and positioning for the firm in
the industry. Competitor analysis seeks to find answers to certain basic questions such as:

1. Who are the competitors of the firm?

2. What are the current strategies of the competitors?
3. What are their future goals and likely strategies?
4. What drives the competitor?
5. Where is the competitor vulnerable?
6. How are the competitors likely to respond to the strategies of others?

Porter's Five Forces model is a strategic framework that helps identify and analyze the five main
competitive forces that affect a company's profitability in a given industry. The model was developed
by Harvard Business School professor Michael Porter in 1979.

The five forces are:

 1. Competitive rivalry: The number of competitors, their strengths and weaknesses, and the
degree of competition among them
2. Supplier's bargaining power: How easy or difficult it is for suppliers to increase their prices
3. Buyer's bargaining power: The impact powerful buyers have on prices
4. Threat of substitution: The availability of substitute products or services that limit a company's
ability to raise prices
5. Threat of new entry: The barriers to entry that act as a deterrent against new competitors

The model can be used to plan market investments and hedge bets based on insights into a market.
However, it has some limitations, including:

1. It doesn't focus on stakeholder relationships beyond government regulations

2. It may not be equally useful in all industries
3. It places too much weight on the macro-environment
4. It doesn't provide actions to help deal with high or low force threats

Competitor Response Profile: An analysis of these components will help to formulate what Porter calls
competitor's response profile, i.e., answers to critical questions such as: What moves or
developments will provoke the competitor and how is the competitor likely to respond or retaliate?

The competitor response profile seeks to predict the competitor's offensive moves and defensive
capabilities.

Future Goals: Analysis of future goals would be helpful to identify the attitude and behavior of the
competitor and likely strategies. As Porter observes, a knowledge of goals will allow predictions about
whether or not each competitor is satisfied with its present position and financial results and, thereby,
how likely that competitor is to change strategy and the vigour with which it will react to outside events
or to moves by other firms?
Knowledge of competitor's goals may help to predict its reactions to strategic changes.
Goals of both the business unit and corporate parent need to be examined.

Assumptions: It is critical to understand:

1. The competitor's assumptions about itself.

2. The competitor's assumptions about the industry and the other companies in it.

A firm may perceive itself as a socially conscious organization, the industry leader, quality conscious
firm, highly ethical etc. Such assumptions will, obviously, guide the way the firm behaves, including
reactions to competitors' moves.

A firm would also have assumptions about the industry and competitors like the industry
prospects; competitors' goals, capabilities and weaknesses competitors' possible behaviors and
reactions etc.

The strategies and moves of a firm will be influenced by the above two assumptions. The assumptions
may or may not be correct.

Current Strategy: Identification of the current strategies of the competitors is a very important
component of competitor analysis. A competitor's strategy is most usefully thought of as its key
operating policies in each functional area of the business and how it seeks to interrelate the functions.
Capabilities: The ability of a firm to accomplish its goals and to respond to competitor's moves
depends on its strengths and weaknesses. Analysis of the strengths and weaknesses of the competitors
is, therefore, very important.

Technological Environment:

It includes the level of technology available in a country. Also indicates the pace of research and
development and progress made in introducing modern technology in production. In this modern
world of business the technology is the most important aspect to development.

Technology: The method for converting inputs and outputs in accomplishing a specific task are
called technology. Thus the term ‘method’ refers to the skills and the means for accomplishing
a task. It is the application for scientific knowledge for practical purposes. Technology is the most
important factor which grows the business organization.

Benefits of Technology in Communication:

1. Speed: Time is no longer constraint in communication.

2. Clarity: With megapixel images and video and high fidelity audio system clarity in
communication has become a never-before experience.
3. Proximity: Technological advancements have made the world a smaller place to live in.

Features:

1. Technology continuously keeps changing. The time gap between idea and implementation
is falling rapidly and the time between introduction and peak production is shortening
considerably.
2. Effects of technology are widespread and are reaching beyond the immediate point of
technological impact.
3. Technology is self-reinforcing. It acts as a multiplier to its own faster development.
4. Technology transformed the living styles. Thus has brought a tremendous growth and
benefit to mankind.

Meaning of Technological Environment: The firm’s external environment in which changes in

technology affect the firm’s marketing effort. Thus changing it may leads to threats or opportunities.

Steps for Technological Development in India:

1. Establishment of technological and research institute: Indian has got established more
than 500 technological institutes for providing education and also 1080 research
institutes. Like space research centre, medical research centre and agricultural research
centre have developed India technically.
2. Positive Technical policy: India has strong and positive technical policy for technological
development. This allows importing technology from foreign countries.
3. High growth rate of information technology in India: IT sector is developing with 35%
growth rate. After China, India is the second largest country to use internet on large scale
4. Incentive for promoting technology in India: Indian government has given 100% income
tax exemption for expenses incurred in research of technology.
 Natural environment:

1. Atmosphere: Atmospheric gases scatter blue light more than other wavelength,
creating a blue halo when seen from space. The atmosphere helps in sustaining the
life on Earth. The thin layer of gases that envelopes the Earth is held in pace by planet’s
gravity. The pollutants emerging from the chimneys of industries results in the depletion
of OZONE LAYER which helps in protecting us from harmful ULTRA-VIOLET RADIATIONS
which can ultimately leads to skin cancer or some other diseases/illness, which again
will be responsible for the DESTRUCTION OF HUMAN LIFE. And away from this it
(Ozone Layer) balances the Earth’s temperature.
2. Global Warming: The reasons for global warming are being studied by the scientist.
These scientists are worried about the effects that global warming can cause. It is
basically said as “The rises in temperature of Earth’s surface globally mainly due
greenhouse effect in which some rays of the sun are trapped inside i.e. some rays are not
emitted”. This global warming is the main reason in the change of climatic conditions.
To overcome this aspect, afforestation (Planting of trees) must be done.
3. Ecosystems: It is an environment in which both living and non-living ones lives
together .This has two components:
a. Biotic Component: It includes all the plants, animals, humans and micro-
organisms. ‘Bio’ means ‘life’. Thus comprising of all the living beings.
b. Abiotic Component: It includes all the non-living components on this earth. ‘Abio’
means ‘non-living’. Ex- rocks, water, sand, air etc.

Global/ international economic environment: The role of international economic environment is

increasing day by day. If any business enterprise is involved in foreign trade, then it is influenced
by not its own country economic environment but also the economic environment of the
country from which it is importing and exporting goods. These are the various rules and guidelines for
these trades which are issued by many organizations like World Bank, WTO and United Nations.

The international trade seeks to explain the patterns and consequences of transactions and
interactions between the inhabitants of different countries, including trade, investment and
migration.

• International trade is the exchange of capital, goods and services across international
borders or territories.
• In most of the countries, such a trade represents the significant share of Gross Domestic
Product (GDP).
• International trade has been present throughout much of history, it’s economic, social and
political importance has been on the raise in recent centuries.
• Industrialization, advanced transportation, globalization, multinational corporations and
outsourcing are all having a major impact on the international trade system.
• Increasing international trade is crucial to the continuance of globalization.
Globalization: It is described as the process of merging between domestic, economies, business and
societies. The phrase relates to economic activity that involves the participation of companies
and corporations actively contributing to the integration of international business.

The features of the globalization of economic activity include an international development of

trade, production, investments and flow of workforce,

Globalization of Indian business environment: India’s economic development was limited due to
restrictive Economic Policy followed until 1991. With the new Economic Policy ushered in 1991,
there has, however, been a change. Globalization has in fact become a buzz-word with Indian
firms now, and many are expanding their overseas business by different strategies.

Factors Favouring Globalization:

1. Human Resource: Apart from low cost of labor, there are several other aspects of human
resources to India’s favor. India has the largest pool of scientific and technical manpower.
While many countries face the labor shortage, India presents the opposite picture. Cheap
labor has particular attraction for several industries
2. Wide Base: India has a very broad resource and industrial base which can support a variety of
business. Thus in India varied business can be started -up.
3. Niche Market: There are many marketing opportunities abroad present in the form of market
niches.
4. Growing Domestic Market: The growing domestic market enables the Indian companies
to consolidate their position and to gain mere strength to make foray into the foreign
market or to expand their foreign market.
5. Transnational of world economy: The integration of the national economies into a single
world economy s evinced by the growing interdependence and globalization of markets
is an external factor encouraging globalization of India Business.
6. Competition: The growing competition, both from within the country and abroad, provokes
many Indian companies to look to foreign markets seriously to improve their company’s
products, also competitive position and to increase the business.

Obstacles:

1. Government policy and procedures: Government policy and procedures in India are among
the most complex, confusing and cumbersome in the world. Even after much publicized
liberalization, they do not present as very conductive situation. Thus this is not very
encouraging in India.
2. High Cost: High cost of many vital inputs and other factors like raw materials and
intermediates, power, finance infrastructural facilities like port etc., tend to reduce the
international competitiveness of Indian Business.
3. Poor Infrastructure: Infrastructure in India is generally inadequate and inefficient and
therefore very costly.
4. Poor Quality Image: Due to various reasons, the quality of many Indian products is poor. Even
when the quality is good, the poor quality image India has become a handicap.
5. Trade Barriers: Although the tariff barriers to trade have been progressively reduced
thanks to GATT/WTO, the non-tariff barriers have been increasing particularly in the
 developed countries. Further, the trading blocs like the NAFTA, EC etc., could also
adversely affect India’s Business.
6. Supply problems- Due to various reasons like low production capacity, shortages of raw
materials and infrastructures like power and port facilities, Indian companies in many
instances are not able to accept large orders or to keep up delivery schedules.