Business Environment

Concept Of Business Environment:-

● The concept of ‘business environment’ refers to the sum total of
individuals, institutions and other forces that surround and affect a
business environment.
● Business environment is the aggregate of all conditions, events and
influences that surround and affect the business organisation.
Main Features Of Business Environment:-
● Totality of external forces:- Business Environment is aggregative in
nature because it is the sum total of all factors and external to a
business enterprise.
● General and specific forces:- Business environment includes both
general and specific forces. General forces such as economic, social,
political, legal and technological conditions indirectly influence all
business enterprises. But specific forces such as investors, customers,
competitors and suppliers influence individual enterprise directly.
● Interrelatedness:- Different elements of business environment are
closely interrelated. For example, growing awareness for health care
has led to increase in the demand for healthy foods and health
resorts. New health products and services, in turn, are changing
lifestyles of people.
● Complexity:- Business environment is complex because it consists of
several interrelated elements which keep on changing. For example, it
is difficult to know the impact of economic, social, political,
technological, and other forces on changes in demand for a product or
service.
● Dynamic:- Business environment is not static, rather it keeps on
changing. Entry of new competitors in the market, development of
new technology, shifts in the preferences of consumers are all
examples of environmental changes.
● Uncertainty:- Business environment is largely uncertain because it is
very difficult to predict future events, particularly changes in
technology, and fashion, which occur fast and frequently.
● Relativity:- Business environment is a relative concept as it differs
from country to country and even from region to region. For example,
demand for sarees is quite high in India, but almost non-existent in
Japan. Similarly, political conditions in India differ from those in Iraq.
● Multidimensional:- Business environment has several dimensions
such as micro and macro. Both of these in turn have many aspects.
 ● Mutual Dependence:- Different components of business environment
are interdependent. For example, economic forces affect non-economic
forces.
● Diversity:- Business environment is multifaceted in nature.
● Non Controllable:- The factors in forces that constitute a business
environment are largely beyond the control of a single business
organisation.
Benefits of understanding the business Environment:-
● A business firm can obtain this knowledge through
ENVIRONMENTAL SCANNING.
● Environmental scanning is the process by which organisations
monitor their relevant environment to identify opportunities and
threats affecting their business.
● First Mover Advantage:- Awareness of environment helps an
enterprise to take advantage of early opportunities instead of losing
them to competitors. For example, Maruti Udy became the leader in
small car market because it was the first to recognise the need for a
small car on account of rising petroleum prices and a large meal class
in India.
● Early Warning Signal:- Environmental awareness makes a firm aware
of the impending threat of crisis so that the firm can take timely
actions to minimise the adverse effects If any.
● Customer Focus:- Environmental understanding makes the
management sensitive to the changing needs and expectations of
consumers. For example, Hindustan Lever and several other FMCG
companies launched small sachets of shampoo and other products
realising the wishes of customers this helped the firms to increase
sales.
● Strategic Formulation:- Environmental monitoring provides relevant
information about the business.Such information serves as the basis
for planning and policy making. For example, ITC realised that there
is a vast scope for growth in the travel and tourism industry in India
and the government scheme to promote this industry because of its
employment potential. With the help of this knowledge, ITC planned
new hotels both in India and abroad.
● Coping with change:- Business leaders are expected to cope with
rapid changes in the environment. In order to decide the direction and
nature of change the leaders need to understand the aspirations of
people and other environmental forces through environmental
scanning. For example contemporary environment requires prompt
decision making and power to people.Therefore business leaders are
 increasingly delegating authority to empower the staff and two
aluminate procedural delays.
● Public Image:- A business firm can improve its image by showing
that it is sensitive to its environment and responsive to the aspirations
of public.Leading firms like Reliance Industries, ICICI bank and others
have built good image by being sensitive and responsive to
environmental forces. Environment and standing enables business
firms to be responsive to their environment.
● Continuous Learning:- Environmental analysis serves as broad based
and ongoing education for business executives. It keeps them in
touch with the changing scenario so that they are never caught
unaware.With the help of environmental learning managers can react
in an appropriate manner thereby increase the success of their
organisation.
MICRO ENVIRONMENT:-
1) Internal Factors
2) External Factors
Internal Factors:-
● Internal environment refers to all the factors existing within the
business firm. The internal factors are considered controllable
because the enterprise has control over these factors.
● A strength is an inherent capability of an enterprise which can be
used to gain strategic advantage over its competitors. On the other
hand, weakness means an inherent limitation or constraint of an
enterprise which creates a strategic disadvantage.
Main Internal factors:-
1. Corporate Culture:- The values, beliefs and attitudes of the founders
and top management of the company exercise a strong influence on
what the company stands for, how it does things and what it
considers important.
2. Mission and Objectives:- The business philosophy and purpose of a
company guide its priorities, business strategies, product, market
scope, and development process.
3. Top Management Structure:- The composition of the board of
directors, the degree of professional professionalisation of
management and the organisational structure of a company have
important bearing on its business decisions. Companies having highly
qualified and responsible board members out perform those lacking
such board of directors.
 4. Power Structure:- The internal power relationship between the board
of directors and the chief executive is an important factor. The extent
to which management enjoys the support of shareholders and
employees at different levels, also has an important bearing on
decision making and working of the company.
5. Company Image and Brand Equity:- the image and brand equity of
the company, place a significant role in raising finance, forming
alliances, choosing dealers and suppliers, launching new products,
entering foreign markets, etc.
6. Human and Other Resources:- The competence, morale, and
motivation of employees play a vital role in the success of the firm.
External Factors:-
● The external factors or forces referred to those individuals and groups
or agencies with which a particular business organisation comes into
direct and frequent contact in the course of its functioning.
● They exist and operate in the organisation's immediate operating
environment.
● The micro forces may not influence all the firms in a particular
industry in the same manner.
Main External Factors:-
1. Customers:- The people who buy a firm’s product and services are its
customers. A business exists to create and satisfy customers. A firm
may have different types of customers like individuals, households,
government departments, commercial establishments, etc.
2. Competitors:- A company may have both direct and indirect
competitors. Direct competitors are the other firms which offer the
same or similar products and services. Indirect competition comes
from firms buying for discretionary income.
3. Suppliers:- Suppliers referred to the people and groups who supply
raw materials and components to the company. Reliable sources of
supply and enable the company to carry on uninterrupted operations
and to minimise inventory carrying costs.
4. Marketing Intermediaries (Middlemen):- several marketing
intermediaries help a company in promoting selling and distributing
its product to consumers. Middlemen like agents, wholesalers, and
retailers, serve as a link between the company and its customers.
Transportation firms and warehouses assist in the physical
distribution of products, advertising agencies, marketing, research
agencies, and insurance companies are types of marketing
intermediaries.
 5. Financiers:- The shareholders, financial institutions, debenture
holders and banks provide finance to a company. Financial capacity,
policies and attitudes of financiers are important factors for the
company.
6. Publics:- Public include all those groups who have an actual or
potential interest in the company, or who influence the company’s
ability to achieve its objectives. Media groups, environmentalists,
non-government organisations, and local communities are examples
of publics.
MACRO ENVIRONMENT:-
1. Economic Environment
2. Social environment
3. Technological environment
4. Political environment
5. Legal environment
Economic Environment:-
● Economic environment consists of the factors and forces concerning
means of production and distribution of wealth.
Main Components Of Economic Environment:-
1. Organisation and development of the capital market
2. Economic policies, industrial policy, monetary policy, fiscal policy, and
trade policy
3. Stage and pace of economic growth in the country
4. Industrial infrastructure, transportation, communication, power, etc
5. Market conditions, degree of competition
Social Environment:-
● The social environment consists of all the social and cultural forces
within which business forms operate.
Main Components Of Social Environment:-
1. Demographic trend - size and distribution of population, age,
compositions, male, female ratio, rural urban mobility, income,
distribution, life expectancy, etc.
2. Social attitudes, customs, traditions, rituals, culture, lifestyles, etc
3. Family structure and values
4. Social concerns regarding pollution, corruption, status of women and
minorities, role of media
 ● Social and cultural forces exercise a significant influence on
business. Population and income levels affect pattern of
demand. Growing awareness about health has led to greater
demand for nutritious foods, exercise equipment, and slimming
centres.DOINKIS (Double Income No Kids) has emerged as an
influential customer group in Metropolitan cities.
Technological Environment:-
● Technological environment refers to the state of science and
technology in the country and related aspects, such as the rate of
technology change.
● Technological environment depends upon several factors such as
spirit of invention and innovation among people, facilities for research
and development, incentives and concessions for development and
application of new technology, legal protection for intellectual property
rights, access to foreign technology, etc.
● Technological environment exercises, a significant influence on
industry and commerce
● Advancement in technology helps to improve productivity and quality.

Political Environment:-
● The political environment consists of the forces concerning
management of public affairs and their impact on business.
Main Components Of Political Environment:-
1. Constitutional framework
2. The political structure- centre state relations
3. Political philosophy, and stability of the government
4. Foreign policy and defence policy of the country
5. Relations of the country with other countries
● India is a democratic nation wherein the government plays an
active role in business affairs. Political changes exercise a
significant influence on business. For example, Coca-Cola and
IBM were forced to leave India due to very strict policy of the
government during 1977 to 1980.
Legal (Regulatory) Environment:-
● Legal environment refers to the framework within which the business
is free to operate.
Main Components Of Legal Environment:-
1. Rights and duties of citizens as specified in the constitution
 2. Laws concerning promotion, operation, and expansion of business
3. Flexibility and adaptability of laws
4. Judicial system of the country and judicial decisions
● In recent years, substantive modification have taken place in
various laws and regulations governing business in India.
Removal of control over foreign exchange and liberalisation of
foreign direct investment have led to the entry of several
multinational corporations in the country. The regulation of
capital markets has created a surge in primary and secondary
capital markets. Now companies in foreign countries can
directly issue shares to Indian investors.
SWOT ANALYSIS:-
Strength (S) :- A strength is an inherent capability of the company, which it
can use to gain strategic advantage over its competitors.
Weakness (W):- A weakness is an inherent limitation or constraint of the
company which creates strategic disadvantage for it.
Opportunities (O):- an opportunity is a favourable condition in the
companies, external environment, which enables it to strengthen its
position.
Threat (T) :- a threat is an unfavourable condition in the companies,
external environment, which causes a damage or risk to its position.
● SWOT analysis is helpful in the formulation of an effective strategy
that can capitalise around the opportunities and neutralise the
threats faced by an organisation.
● SWOT analysis is a systematic and logical approach to understand the
internal and external environment of a business organisation.