TYBBA SEM - 5

Subject -Business Environment

Unit -1 Introduction to Business Environment

1. Definition of Business Environment :

Business environment refers to a combination of all those factors which influence the
business. The survival and development of a business unit depends on two sets of factors, (i)
the internal factors such as financial and human resources of the firm, its management,
internal power relationship, image and brand of the company, research and development
capability. (i) mission and objective of the company and (ii) external factors such as
economic factors, social and cultural factors, government and legal factors, demographic
factors and physical factors etc. Accordingly business environment is divided into two
categories : internal environment and external environment. In fact, however, most of the
authors confine the term business environment to external environment only. This is because
given the organizational strength of the business unit, its survival and growth depends on its
adaptability to the external environment on the one hand and extent to which external
environment is favorable on it, on the other.
We know that in modern times every business enterprise is faced with the complex and
intricate problem of 'decision making and forward planning. The enterprise with its research
and analytical tools oçcupies a prominent place in the hierarchy of industry, trade and
commerce. The term business environment' refers to the conditions and atmosphere
prevailing in the economy for the speedy growth and developmènt of the business. These
conditions may prove to be conductive or obstructive to business development depending
upon a number of factors which we shall discuss later on. However, suffice it to say here that
the business environment offers the following two challenges to the enterprise :
(a) The first is the challenge to cope up with the environmental threat, such as the
growing competition in the market, decline in the market share of the enterprise etc.
(b) The second challenge is to exploit the business opportunities. It should be noted
here that the environmental factors exercise a deep and profound impact on the business.
Thus, a proper and well thought environmental analysis and diagnosis is regarded as key and
crucial factor in strategic management process.
Prof. William F. Gluck has defined environmental analysis as "the process by which the
strategists monitor the economic, legal, competitive, technological, geographic and social
settings to determine opportunities and threats to their firms." Likewise, it may also be said
that, 'environmental diagnosis consists of managerial decisions made by analyzing the
significance of the data (opportunities and threats) of the environmental analysis.'
In short, environmental analysis is the corner stone of the new business opportunity
analysis, and is an essential pre-requisite for strategic management decision making. As in
the case of an individual, his life and success depends on his innate qualities including

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physiological factors, his skill and knowledge to cope up with the environment, likewise the
survival and success of a business enterprise depends on its innate strength like the physical
resources, financial resources and human resources at its command and its adaptability to the
environment.

2. Scope of Business Environment:

On the basis of the extent of intimacy with the firm, the environmental factors may be
divided into different types or levels. For example, we have already referred to the factors
internal to the firm and factors externals to the firm which do have relevance to the firm
however. The internal factors are described as controllable factors because the firm has
control over these factors. It can change them, for example, it can change the product mix to
suit the environment. On the other hand, external factors are regarded as uncontrollable
factors because these factors are beyond the control of the firm, e.g. demographic factors and
socio-cultural factors.
It should be noted however that sometimes some of the internal factors may be
beyond the control of the firms, while it may sometimes be possible to change some of the
external factors.
The external factors are further divided into micro factors of micro- environment and
macro factors or macro-environment. Micro factors are the factors which have a direct and
intimate impact on the firm, for example, suppliers and distributors of the firm. Macro factors
are the factors which affects and industry very generally. The examples are industrial polícy
and changes in population.
The table given below gives a glimpse of the components of the internal and external
business environment.

Business Environment

External Environment Internal Environment

Micro Environment Macro Environment 1. Shareholder’s values

2. Objectives
3. Management Structure
4. Internal Power Relation
1. Economic Factors 5. Image and Brand
1. Customers
2. Socio-Cultural Factors 6. Physical Assets
2. Suppliers
3. Demographic Factors 7. Technological Capacity
3. Competitors
4. Political Factors 8. Human Resources
4. Public
5. Natural Factors 9. Marketing Skills
5. Investors
6. Technological Factors 10. Financial Strength
6. Marketing Intermediaries
7. Global Factors

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3. Economic Environment and Non- Economic Environment:
An important classification of the mIcro environment is economic environment and non-
economic environment The economi environment of business has reference to the broad
characteristics o the economic system in which the business operate, while non economie
environment of business refers to such factors as political set-up government control and
policy, social factors such civilization, culture and education, demographic factor such as size
and structure of population etc. The business environment is too complex to be divided
between economic and non-economic environment. Therefore. generally, non- economic
environment is treated as given and constant factor and analysis is focused on the economic
environment only.
In fact, it is difficult to separate economic environment from non economic
environment This classification is arbitrary and unrealistic. All environmental factors interact
with each other Economic environment affects non-economic environment and non-
economic environment influences economic environment In other words, economic
environment is exogenous and endogenous at the same time It determines non economic
environment, and it is determined only by non economic environment.
For example, take the case of interaction between social and economic environment,
If business gets social sanction as a respectable profession, there will be a sizable category of
entrepreneurs and managers in total population of the country. On the other hand, more and
more people join business and management, social attitude will change in its favor.
Take also the case of educational and economic environment. A poor country cannot
afford to impart costly higher education in science and technology On the other hand, lake of
vocational and technical education or training will be responsible for unemployment among
the educated youth.
Take finally the example of interaction between political environment and economic
environment. It is observed that political stability is necessary for economic environment But
political stability or lack of it is a function of economic conditions in the country Poverty,
inflation and unemployment create instability and insecurity which in turn discourage
savings, investments and economic growth.

4. Importance of Business Environment:

The strengths and weaknesses of a firm on the one hand, the opportunities threats of
the environment on the other, play a very important role in the management of business. The
management has to analyse the environmental opportunities and threats. Then it
should'evaluate the strengths and weaknesses of the organisation to tap the opportunities or to
combat the threats. On the basis of this exercise, the management can devise a strategy to
achieve its objective. In other words, identification of opportunities and threats in the
environment as also the strength and weaknesses of the firm is the cornerstone of business
policy It is this analysis which determines the course of action to ensure the survival and
growth of the firm.

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 The environment may present opportunities but the firm may not have strengths to
exploit them. Similarly, the environment may pose threats, but the firm may not have enough
strength to cope with them. In such cases, it will be prudent for the firm to give up a
particular line of business and concentrate on that business for which the firm is most
competent. In India, for example, economic liberalisation policy unheard in 1991, has
changed the business environment drastically and may companies have exited their
businesses and now they are concentrating on their core business. Many firms have entered
new businesses, and many firms have expanded organically through acquisitions.
Sometimes, environmental changes may be favourable and may make the achievement of a
firm's objective easier. For example, under the impact of globalisation, industrial scenario of
nations across the world has changed significantly. The USA had a very dominant position in
the electronic products and had been exporting them in the beginning, but later on, countries
like Japan started exporting then to the USA and replacing it in other markets also. The
success of Japan in the world market is attributed to the right choice of the products and
markets, based on a proper understanding of the environment and internal strengths both.

5. Internal and External Business Environment:

There are two important factors influencing Business Environment (a) Internal Factors (b)
External Factors
(a) Internal Factors :
The internal factors are within the scope and ambit of the firm hence, these are within
its control. In other words, the internal factors are generally regarded as controllable
factors because the concerned business enterprise has almost complete control over
these factors T firm can alter or modify such factors like its personnel, physical
facilities organizational and functional means such as production mix, marketing mix
etc. to adapt the environment. These factors are also known "business operations."
For example, the decision of the business enterprise regarding what, where
and how to produce, how much to produce, where to invest, how many managerial
staff and workers should be employed and at what wage rate or at what level the price
of the product should be fixed etc. are matters about which the concerned business
enterprise can take independent decisions of its own and hence, these are called
internal factors.

(b) External Factors:

The external factors affect the business decisions from outside and so these factors are
outside the control of the firm. In other words, the external factors are not within the
ambit of the firm. Thus, for example, economic factors, socio-cultural factors,
governments economic policy, legal factors, demographic factors are external factors
and are practically outside the control of the business enterprise. The decisions of the
firm are to be taken within the framework and parameters of a particular business
environment and that is why while taking its decisions, the firm has to take into
account government economic policies as also the action and reaction of its rival
firms. These are external factors which a business enterprise has to borne in mind
while taking its decisions. These factors are known as 'business environment.'

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 It may be noted here that in view of the fact that the external factors, that is,
the environmental factors are beyond the control of the firm, its success, to a very
large extent, will depend on the adaptability of the firm to the environment, that is, its
capacity to properly design and adjust the internal factors to avail of the benefits of
the opportunities and to meet with the challenges in the environment.

Besides, it may also be pointed out here that although the term 'business
environment' generally refers to the external environment of the business, yet in
practice, a business enterprise has to face two kinds of environment:

(a) Internal Environment (b) External Environment

The process of Business decision making is very often influenced by both the internal
environment as well as external environment

6. Internal Enviornment:
A large number of internal factors affect the strategy and decision making process of a
business enterprise. We discuss, in brief, some of the main factors:
(1) Nature and Form of Value System :
The nature and form of the value system established by the founders of the business
enterprise and those working at the top has an important say in the choice of the business,
the mission and objectives of the organization as also the various business policies and
practices to be pursued. It is now a well-recognized fact that the established value system
and ethical norms when shared by all, that is, from top to bottom, in the organization, are
important factors which contribute to the success of the enterprise.
(2) Mission and Objectives :
The mission and objectives of the firm determine to a very large extent its business
domain, priorities, direction of development as also its business philosophy and business
policy.
(3) Nature and Form of Management Structure:
The nature form of organizational structure, composition of the Board of Directors, the
extent of professionalism etc, are also the key factors which affect the decision making
process of the enterprise.
(4) Co-operation with the Top Management offered by the Employees and the
Shareholders :
The extent of co-operation and support which the top management enjoys from the
different categories of its employees as also shareholders and the Board of Directors are
also the factors which influence business decisions and their execution.
(5) Quality of Human Resources :
The quality of human resources like the skill, knowledge, training. morale, attitude,
commitment, their robust health etc. play a very important part in imparting strength and

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vigour to the organization. Likewise, the involvement and participation of the employees
in the key decision – making process contribute a lot to the success of the enterprise. It is,
perhaps, for this reason that while some enterprises are able to carry out smoothly their
restructuring or modernization process while others find it rather difficult to do the same
in view of the stiff resistance from the staff.
(6) Image of the Company in the Market and its Brand Equity:
The image which the company enjoys in the market is an important contributory factor
while raising finance through equity capital or otherwise, forming joint ventures,
launching of new products, entering into purchase and sale contracts etc. Similarly, Brand
Equity too plays an important part in many of these cases.
(7) Miscellaneous Factors:
Apart from the above factors, there are certain miscellaneous factors too which account
for the success or failure of the enterprise and affect its decision making process. Some of
the important such factors are as follows :
(i) The quantum of physical assets and facilities available like the production capacity, the
level of technology and efficiency of productive mechanism, distribution system etc. are
the factors which affect the competitiveness of the enterprise in the market.
(ii) Research and Development facilities available with the firm are main determinants of
the firms' ability to innovate and compete.
(iii) Marketing resources like market organization, market research, market survey,
quality and strength of the marketing personnel, company's distribution net work etc. are
factors which directly affect market efficiency. These are also considered important from
the viewpoint of launching a new product, brand extension etc.
(iv) Financial factors like the financial position of the company, its capital structure, its
financial policies etc. are also regarded as important internal environmental factors which
to a large extent have a bearing on business performance, business strategy and business
decision.

7. External Environment:
A business firm has to analyse and make a forecast about the external factors in the
context of general business conditions and environment prevailing in the economy. The
factors among others include include general price-level, national income and output,
volume of trade etc. These are of great importance and affect each and every firm in the
industry. For this, it is essential of have an in-depth study of the following:
(1) Government's Economic Policies and Regulations :
Government's economic policy includes monetary policy, fiscal policy and trade policy.
Thus, for example, monetary policy is an integral part of the overall economic policy of
the Government and in modern times, it plays an important role in the analysis of the
problems of economic stability and economic growth. Monetary policy includes all those
measures which affect the total volume and value of money in the economy. Monetary
policy, sometimes is also known as central banking policy because ultimately it is the

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central bank of the country which formulates monetary policy and is responsible for its
effective and efficient implementation. Monetary policy, thus, implies the diversion and
regulation of the flow of money and credit to attain certain set and pre-determined
objectives. These objectives among other include price- stability, full employment, rapid
economic growth etc. A suitable monetary policy by adjusting the supply of money and
credit to the changing needs and requirements of the economy can play a very important
role in making business environment favourable.
Likewise, fiscal policy too is an integral part of the overall economic policy. Fiscal
policy comprises of three main ingredients - public revenue, public expenditure and
public debt. Fiscal policy, thus, implies the integrated use of these three ingredients to
achieve the predetermined and well-defined objectives. Changes in the tax policy of the
government as also changes in its public expenditure policy largely affect the business
environment. A favourable and dynamic tax policy and a public expenditure policy for
the development of infrastructural facilities proves conducive to business environment,
while excessively high rates of taxation are a deterrent to business environment.
Similarly, the trade policy of the government also affects business environment.
Changes in the export import policy affect business environment. Thus, for example,
excessive controls and regulations on exports and imports adversely affect business
environment. Likewise, too much of control, regulations and restrictions on internal trade
hamper business environment.
(2) Changes in the Degree of Competition:
An increase in fair and just competition proves conductive to busine environment by
making it more efficient. A degree of fair competitio induces the firms to be more
efficient, while on the other hand decli or reduction in competition is likely to lead to
monopolistic trend with all its attendant evils. This is also an important factor which
affects business environment.
(3) Overall Economic State of the Country:
The over-all economic state of the country has its influence on business environment.
Thus, for example, increase in the country's gross domestic product and per capita income
as also a sustained increase in the volume of aggregate savings, investment, income and
employment and other macro-economic variables prove conducive to a favourable
business environment. Likewise, prevalence of boom conditions in the economy acts as a
stimulus to business environment. On the other hand, decline in gross domestic product
and per capita, income as also declining trends in macro economic variables and
recessionary trends in the economic have an adverse impact on business environment.
(4) Potentialities of Demand in the Existing Markets and New Markets:
Potentialities for the demand of the products in the existing markets as also in the newly
found markets tend to have a favourable impact on business environment. Likely increase
in the demand for the products both in the existing markets as well as in newly discovered
markets through aggressive marketing techniques proves very conducive to business
environment.
(5) Possibilities of Expansion and Opportunities and Consumer Opportunities:
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 In areas where there are immense possibilities of expansion of market opportunities and
consumer opportunities, business environment tends to be highly favourable; on the other
hand where such exhibit a declining trend, business environment is grim. Contraction of
Market opportunities
(6) Availability and Cost of Credit:
Easy availability of credit at reasonable cost has a favourable impact on business
environment, while hindrances in obtaining credit and that too at a high cost proves
detrimental to business environment.
(7) Money and Capital Market Conditions :
A boom in money market and capital market acts as a stimulus to business environment.
An all-around atmosphere of optimism in money nt. SS market and capital market is
highly conductive to business environment. while sluggishness in money and capital
market dampness business on ne h environment.
(8) Price Situation regarding Raw-materials and Finished Products:
Instability in the prices of raw materials and finished products cause uncertainly in
business environment. A relative price stability of these goods create a favourable
business environment. A correct analysis of the above points can help the management to
undertake the scope and direction of their business plans. A managerial economist with
his comprehensive study of these problems can provide the necessary guidance to the
management for taking rational business decisions.

8. Micro and Macro Business Environment:

Besides the above factors, it is worthwhile to point out here that the external business
environment comprises of : Micro environment, and Macro environment.
According to Philip Kotler - the world - renowned professor and author and also
christened as “Management Guru", 'the micro environment consists of the factors in the
company's immediate environment', that affect the performance of the business
enterprise.
These among others include suppliers, marketing intermediaries, competitors,
customers and the public.
On the other hand, "the macro environment consists of larger social forces that affect
all the actors in the company's micro environment - namely, the demographic, economic
natural, technological, political and cultural forces."

9. Micro External Environment:

At the outset, let it be pointed out that the micro environmental factors are more
closely linked with the Business firm than the macro factors. It is not necessary that the
micro forces affect all the firm in the industry in an equal manner. Thus, for example,
some of the micro factors may affect a particular firm while it may not affect other firms
in the industry. However, when the different competing firms in the industry have almost

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the same micro elements, the relative success of the business enterprise will depend on
their relative effectiveness in dealing with these elements.
(1) Suppliers :
The suppliers who provide the supply of inputs like raw materials, spare parts and
components to the business firm are an important organ in the micro environment of an
enterprise. Assurance of timely and adequate supply of these inputs at competitive prices
is one of the pre-requisites for the smooth functioning of the enterprise. An type of
uncertainty in this sphere compels the firms to build up high inventories resulting in cost
escalation.
Again, it is risky to rely on one single supplier for various inputs because a strike or a
lock out or any other production problem with the supplier may jeopardizes the interest of
the firm. Likewise, a change in the attitude or behaviour of the supplier may also affect
the Therefore, it is considered both desirable and advisable to have multiple sources of
supply which may help in reducing risk and uncertainty.
As to the significance of supply management particularly in a scarcity environment
Prof. Philip Kotler has aptly pointed out that, "Company's purchasing agents are learning
how to "wine and dine" with the suppliers to obtain favourable treatment during periods
of shortages. In other words, the purchasing department might have to *market' itself to
supplier. company.
(2) Customers :
It has been well said that one of the important task of a business enterprise is 'to
create and sustain its customers.' In fact, a business exists primarily because of its
customers. Thus, monitoring and caring for the customer sensitivity is an essential pre-
requisite for the success of a business enterprise.
A firm may have different categories of customers, say like, individuals, households,
industrial and commercial establishments, government and state - sponsored institutions,
etc. A business firm would be well advised to make an indepth study of the needs and
requirements of each category of these customers and devise an appropriate strategy. In
the case of individual customers, the level of their income, their tastes, preferences,
likings etc. alongwith their expectations regarding price fluctuations, availability of the
product and the like also have be considered and taken account by the firm.
Again, here also it is not advisable to depend on a single customer as it may place the
company in a weak bargaining position besides the risk of losing the business as a result
of the winding of the business by the customer or due to the fact that the customer has
switched over to other competitors of the firm.
(3) Competitors :
The competitors of a firm include not only the rival firms which produce and market
similar products but also those firms which compete for the disposable income of the
consumers. Thus, for example, the competition for a firm producing refrigerators other
refrigerator companies, but also from television manufacturing companies, two wheelers,
microwaves, stereo sets etc. Such type of competition among these products is generally

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known as 'desire competition', because here the main task is to influence the basic desire
come out only from of the customers.
If the consumer, for example, decides to spend his disposable income on a foreign
tour or tour to visit different tourist centres with his family within the country, he will
have to choose from a number of alternatives like purchasing a refrigerator or a television
set or gold or diamond jewellery. The competition among such alternatives which caters
to the needs of a particular category of desire is known as 'generic competition'.
Again, if customer decides to purchase a refrigerator, the next question is about its
type, size and the company from which he would buy. Thus, here is a product form of
competition. The customer then is also faced with 'brand competition', that is,
competition between the different brands of the same product form.
The implication of all these different brands is that the firm should try to create
primary and selective demand for its products.
(4) Marketing Intermediaries :
Marketing intermediaries are an important link between the firm and the customers.
These include middle men such as agents, market representatives, market consultants etc.
They help the business firm in sales promotion and reaching out its products to the final
customers These intermediaries also provide assistance to the firm in stocking and
moving goods from their origin to their destination. A wrong choice of this link or a
dislocation or disturbance of this link may jeopardise the interest of the company. It is,
therefore, necessary that the business enterprise should exercise utmost care and caution
in selecting market - intermediaries and assigning them their duties and responsibilities.
(5) Public :
A public is any group that has an actual or potential interest in or impact on an
organisations ability to achieve its interests.' Some of the examples are media public,
citizens action forum, local public etc. The operations of a business enterprise are affected
by such publics. Thus, for example, media public may help in building up or furnishing
the image of the company in the society depending upon the nature and quality of the
operations and dealings of the enterprise. Such exposure by the media may even influence
the government decision affecting the company, Likewise, the local publics may take up
environmental pollution issues which may compel the firm to suspend its operations or
force it to adopt adequate anti-pollution measures.
Besides, media public may also be used to provide valuable and useful information
about the product of the company. Likewise, close co-operation and mutual trust and
goodwill between the company and the local public may prove to be highly conductive
for the mutual benefit of the company and the local residents leading to a healthy micro-
business environment.

10. Macro External Factors:

The micro environmental factors which we have discussed in the preceding pages operate
within the parameters of larger macro environmental factors. As said earlier, the macro
factors affect the business operations from outside and so these are, by and large, outside

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the control and ambit of the firm. We discuss below some of the main macro
environmental factors:

(1) Economic Environment:

The economic environment includes within its fold such elements like economic
conditions of the people, economic policies pursued by the Government and the existence
of the nature and form of economic system, and all these affect the economic
environment of a business unit.
Thus, for example, economic conditions within a country, say like the nature of the
economy, stage of economic development, level of income and the pattern of its
distribution are important determinants of business strategy.
In under-developed and developing countries, relatively low per capita income is the
main cause of the low demand for the product. However, with the initiation of the process
of economic development there is a rise in the level of income and as a result, the sale of
the product for which the demand is income - elastic increases. However, the firm is not
in position to increase the purchasing power of the people and generate a rising demand
for the product. Accordingly it has to take steps to reduce the price of the product in order
to increase its sales. This reduction in the price of the product would induce the firm to
reduce its cost of production and take other measures for cost cutting. The firm may also
go in to devise new low cost products to suit the low income market.
On the other hand, in developed and high income countries business prospects are
normally bright and more and more investments are encouraged. However, a large
number of economists and various experts are of the opinion that high income countries
are no longer worthwhile for investments in view of their low marginal propensity to
consume, that is, income elasticity of demand is less than unity and the marginal
efficiency of capital too shows a declining trend. In other words, high income economies
have reached to more or less saturation levels in certain aspects.
Again, the economic policy of the government has a direct bearing on the business
enterprises. Thus, for example, the government's economic policy may have a favourable
impact on certain types of business enterprises, while on some it may have an adverse
impact. A restrictive import policy or a protectionist policy may prove to be a boon to
import competing industries, while a liberal import policy may have an adverse impact on
such industries. Likewise, industries which fall under priority sector category in terms of
government policy may get preferential treatment, help and support from the government,
while industries falling under low priority may not get such concessions and benefits.
Similary, monetary policy in terms of cost and availability of the credit and fiscal
policy in terms of taxation measures, public expenditure and public debt policy also have
a direct impact on the business enterprise in different ways. Besides, the industrial and
commercial location policy of the government has also a bearing on the decision making
process of the firm. Industries located in under developed and backward regions are given

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various types of monetary and fiscal incentives; as also industries in special economic
zone' (SEZ) are offered different kinds of stimulus package.
Besides, the nature and form of economic system also to a large extent affects the
scope and operations of private business. Thus, for example, in the capitalist form of
economy, private sector is given full and free scope to develop; while in the socialist form
of economy means of production and distribution are largely owned and controlled by the
State and the private sector re-assigned only a subsidiary or a secondary role. In between
the capitalist and the socialist economies, there is a third economic system, known as
'mixed economy' (as is prevalent in India) where in both the public sector and the private
sector co-exist.
In short, the economic system prevalent in the country is an important determinant of the
scope and working of the private business units. The nature and form of economic system
us also government's economic policy have rightly been regarded as important macro
environmental factors that affect business operations.
(2) Political and Government Environment :
Political and governmental environment too have a direct bearing on the business
enterprise. Political stability with a strong and stable government ensures smooth
functioning of the business firms. Maintenance of law and order at home and ensuing the
defense of the country against foreign aggression as also ensuing the life and the citizens
have been rightly regarded as pre-requisite for the growth and development of business.
All these help in creating a favorable business environment conductive for its stable and
steady growth. On the other hand, if there is political instability resulting in frequent
changes in the government and the breakdown of law and order, communal tensions; the
smooth functioning of the business would be hampered.
Likewise, the government has to play a key role in creating a conductive environment
for the growth and development of the business. In this context the pursuit of right type of
economic policy, industrial policy, monetary policy, fiscal policy, trade policy occupies a
very important place. Frequent and ill thought out changes in these policies create an
atmosphere of uncertainty much to the detrimental of business growth and development.
(3) Socio-Cultural Environment:
While formulating its business policy and strategy, the firm has also to take into
account the socio-cultural environment. It has to take into consideration the social
customs and traditions as also the tastes, preferences, likings, habits etc. of the people.
The firm can ignore all this only at its peril. Likewise, the buying and consumption habits
of the people, their beliefs and values along with their customs, traditions, tastes,
preferences, liking, the level of their education etc. are important factors that affect the
decision making process of a business enterprise. Likewise, when we deal with social
environment, we must not forget to take into consideration the 'social environment of the
business which implies its social responsibility and the vigilance country. of the
consumers and of the society as a whole.
In the context of the importance of social environment in recent years Prof. R. F.
Barker very aptly points out that; "business traditionally has been held responsible for

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quantities for the supply of goods and jobs, for costs, prices, wages, hours of work, and
for standard of living. Today, however, business is being asked to 'take on responsibility
for the quality of life in our society. The expectation is that business, in addition to its
traditional accountability for economic performance and results, will concern itself with
the health of the society, that it will come up with cures for the ills that currently beset us
and indeed, will find ways of anticipating and preventing fun ire problems in these areas.
Similarly, Prof. Louis L. Stern rightly observes that, "More educated the society
becomes, the more independent it becomes and the more discretionary the use of its
resources, the more marketing will become enmeshed in social issues. Marketing
personnels are at interface between company and society. In this position, they have the
responsibility not merely for designing a competitive marketing strategy, but for
sensitizing business to the social, as well as the product demand of society.
(4) Demographic Environment:
Business decisions are also influenced by demographic factors by the size and growth
rate of population, its age composition, distribution, amongst the different regions of the
country, as also in rural and urban areas, and the composition of the population in terms
of male and female children and adults, rich and poor etc. Likewise, life expectancy, size
of the family, occupational status, employment pattern etc, affect the demand for goods
and services. This is because consumption habits differ from region to region and also
between rural and urban-areas. Thus, for example, in India, people take more coffee and
rice in the south than in the north; use of modern appliances is more in urban areas than in
rural areas; the demand for cosmetics is more from women than from men; baby f0od is
needed for children and not for adults; luxury and semi luxury items are. demanded more
by the rich than by the poor; electronic watches, L.C.D. and LED television sets, latest
type of mobile phones are first purchased by the wealthy and well to do class and so on.
It should also be noted here that a rapidly growing population implies an increasing
demand for various types of products and services. Likewise, a high growth rate of
population also indicates an increasing supply of labour. However, countries with low
birth rate and declining growth rate of population (as in western countries) experience
severe labour shortage which compels them to adopt labour saving techniques and
automation. However, many of the under-developed and developing countries at present
are experiencing rapid population growth and are passing through the second stage of the
theory of demographic transition with a high birth rate and falling death rate. This has led
to a situation of abundant labour surplus. The governments in under-developed and
developing economies, therefore, have to adopt 'labour intensive techniques of
production.' The growth rate of population, thus, is an important environmental factor
which impacts the business. It is because of the existence of cheap and abundant supply
of labour and an expanding market that has induced a number of multinational companies
to invest in developing countries.
Likewise, mobility of labour as a factor of production has an important implication for
the business. Thus, for example, if there is a free mobility of labour as between different
regions and different occupations, its supply to the business unit will be relatively
smooth. Again, if labour is highly heterogeneous regarding caste, religion, language,
custonrs and traditions etc. personnel management of the concerned business enterprise is

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likely to become a more complex and intricate task. So also, the heterogeneous
population with its different tastes, preferences, likings, beliefs ete, calls. forth different
marketing strategies on the part of the business firm.
(5) Natural Environment:
Natural environment, among other things, include geographical and ecological factors
like the existence of natural resources, climatic and weather conditions, topographical
factors, existence of port facilities etc. are all considered to be relevant to the process of
business decision making. Similarly, differences in geographical conditions as between
different markets necessitate changes in the 'marketing mix. affect the location of certain
industries. Thus, for example;
(a) Industries with a high 'Material index' exhibit a tendency to get located near the source
of raw-materials.
(b) Weather and climatic conditions influence the location of industries like the cotton
textile industry, jute industry, sugar industry etc.
(c) Topographical factors also influence the demand pattern, for instance, there is more
demand for jeeps than cars in the rockey and hilly areas with a difficult terrain.
In recent years, ecological factors have gained considerable importance. The fast
depletion of our natural resources and the growing environmental pollution have become
a matter of great and grave concern today. The governments policy is directed towards
preserving environmental purity and maintain ecological balance. This has resulted in
additional responsibility on the business in the sense that the business units are obliged to
undertake various anti-pollution measures which has an impact on their cost of
production. Thus; the preservation of natural environment has a direct bearing on the
operations of the. business.
(6) Physical and Technological Environment:
Physical and technological factors too have an impact on the operations of the
business units. Thus, for example, availability of certain physical facilities affect the
business prospects; for instance, many of the consumer durables possess certain use
facility features. The demand for refrigerators and other electrical appliances is influenced
among other factors also by the availability of regular and uninterrupted power supply:
likewise the demand for L. P. G. gas stoves depends among other things, on the growth
rate of L.P.G. gas connections.
Similarly, technological factors also affect the operations of the business enterprise.
The firm has to be in line and cope up as also adopt the latest technological devices just
for its survival or else it will be difficult for the firm to retain its position in the market for
long. Rapid advances in technology in various lines of production have facilitated product
movements and the introduction of many new products. The print and electronic media
has added new dimension to product promotion.
It should, however, be noted here that notwithstanding rapid changes in technology, it
has also led to the creation of certain problems for the business units. The ever changing
and on going alterations in technology has rendered certain plants and products obsolete.

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In other words, product market technology matrix has relatively much shorter life at
present than in the past. This is particularly so in case of electronic items like computers,
lap tops, mobile phones etc. and even in consumer durables like refrigerators, air
conditioners, washing machines, television sets etc. In all these lines of production, old
models are giving way to new models. The firm, therefore has to get itself updated in the
sphere of latest modern technology if it is to survive. Thus, technological environment, in
modern times, plays a key role in the business decision making of a firm.
(7) International Environment:
International environment also has its impact on certain types of business like export,
imports and import competing industries. Thus, for example, a recession or economic
slow-down in foreign countries or adoption of protectionist policy in the form of high
tariff rates, import quotas, restrictive import policy etc. adopted by foreign countries may
create problems for industries that depend on exports. On the other hand, a boom in the
export market or the liberalisation of protectionist policy may prove to be beneficial to the
export oriented industries of the country. Likewise, a liberal import policy is welcomed
by industries which are heavily dependent on imports, but it may adversely affect the
domestic import - competing industries.
Similarly, trends in global economic environment have their spread effects on
domestic business. Thus, for example, the recent global economic slowdown and
recession since 2008 onwards has practically affected all the world economies, including
India.

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End of Unit -1

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