Business Environment

Definition:
Business Environment means a collection
of all individuals, entities and other
factors, which may or may not be under
the control of the organisation, but can
affect its performance, profitability, growth
and even survival.
• Salient Features of Business Environment
• The salient features of the business
environment are given hereunder:
• Dynamic: The environment in which the business
operates changes continuously because there is a
wide variety of factors that exist in the environment,
causing it to change its shape and character.
• Complex: There are many forces, events and
conditions that constitute business environment,
arising from various sources. So, it is a bit difficult to
understand the relative influence of a particular
factor, on the operation of the organisation.
• Uncertain: Uncertainty is an inherent characteristic
of the business environment because no one can
predict what is going to happen in future.
• Multi-faceted: A single change in the business
environment, can be viewed differently by different
observers because their perceptions vary.
• Far-reaching Impact: The survival, growth and
profitability, of a business enterprise, depends
largely on the environment in which it exists. A
small change in the environment has a far-reaching
impact on the organisation in different ways.
• Relative: The notion of a business environment is
relative since it varies from one location to another.
• Components of Business Environment
• The Business Environment is broadly classified, into
two categories:
• Internal Environment:
• Survival of a business depends upon its strengths and
adaptability to the environment. The internal strengths
represent its internal environment. It consists of
financial, physical, human and technological resources.
Financial resources represent financial strength of the
company. Funds are allocated over activities that
maximise output at minimum cost, that is, optimum
allocation of financial resources.
• Physical resources represent physical assets such as
plant, machinery, building etc. that convert inputs into
outputs. Human resources represent the manpower
with specialised knowledge that performs the business
activities.
• External Environment:
• The external environment consists of legal, political,
socio-cultural, demographic factors etc. These are
uncontrollable factors and firms adapt to this
environment. They adjust internal environment
with the external environment to take advantage of
the environmental opportunities and strive against
environmental threats. Business decisions are
affected by both internal and external environment.
The external environment consists of the micro
environment and macro environment
1. Micro Environment:
The micro environment consists of factors in the
company’s immediate environment”. These factors
affect the performance of a company and its ability
to serve the customers. Micro environment consists
of customers, suppliers, competitors, public and
market intermediaries.
(i) Customers:
Customers constitute important segment of the micro
environment. Business exists to serve its customers. Unless
there are customers, business has no meaning. A company
can have different types of customers like, households,
producers, retailers, Government and foreign buyers.
(ii) Suppliers:
They supply inputs (money, raw material, fuel, power and
other factors of production) and help in smooth conduct of
the business. Firms should remain aware of the policies of
suppliers as increase in prices of inputs will affect their
sales and profits. Shortage of supplies also affects the
production schedules. Firms should have more than one
supplier so that change in policies of one supplier does not
affect their production schedules.
(iii) Competitors:
Competitors form important part of the micro environment.
Firms compete to capture big share of the market. They
constantly watch competitors’ policies and adjust their policies
to gain customer confidence.
(iv) Public:
“A public is any group that has an actual or potential interest in
or impact on an organisation’s ability to achieve its interest”.
Public can promote or demote company’s efforts to serve the
market. The term ‘public’ consists of financial public (banks,
financial institutions etc.), media public (newspapers, radio,
television etc.), Government public, customer organisations,
internal public (workers and managers), local public
(neighbourhood or community residents) and general public
(buyers at large). Companies observe the behaviour of these
groups to make functional policies.
(v) Market intermediaries:
They are the links that help to promote, sell and
distribute the products to final consumers. They
are the physical distribution firms (transport
firm), service agencies (media firms), financial
intermediaries (banks, insurance companies) etc.
that help in producing, marketing and insuring
the goods against loss of theft, fire etc. Firms
maintain good relations with them to carry their
activities smoothly. All these factors are largely
controllable by the firms but they operate in the
larger macro environment beyond their control.
2. Macro Environment:
The macro environment consists of the economic
and non- economic variables that provide
opportunities and threats to firms. This is largely
uncontrollable and, therefore, firms adjust their
operations to these environmental factors.
A) Economic Environment :
• The economy that exists around the industry
which is common for the business, as well as its
competition, is termed
as economic environment. There can be
different phases of the economy like growth or
decline which can impact the working of the
organization. The economic environment is
largely affected by the government of the
respective country and it may present
opportunities and threats are restrictions to the
industries.
• The framework within which the businesses have to
work is provided by the economic system. Largely
there are two factors which affect the economic
system that is the public sector and the private
sector. While Public sector is largely government
influenced, Private sector is with private firms and
investors. Foreign exchange also forms an important
part of the economic environment. The fluctuations
in the currency on a global scale can affect the
economies of different countries drastically. Also,
import-export forms another important aspect of the
economic environment. For a positive economic
environment, it is desired that the exports of a
country should be more than the imports.
• Socio-Cultural Environment:
A firm is a socio-economic, open and adaptive
system and, therefore, has to respond to changes
in the socio-cultural environment. It has to adapt
itself according to changes in social values,
attitudes, life-styles, traditions, beliefs, culture,
ethics, etc.
• Political and Legal Environment:
Political system, form of government, ideology of
the ruling party, political stability, etc., play a very
important role in determining the nature, scope
and functioning of a firm. Besides, in order to
regulate business and labour the government
enacts a number of Acts which affect the working
of a firm to a very great extent. For example, in
India the government has passed a large number
of Acts and regulations which a firm is supposed
to abide by.
• Technological Environment:
Technological changes shape changes in the style
of living of consumers by giving to new products
and also affecting their prices. Technological
environment includes discoveries, innovations,
inventions, etc., which create a lot of competition
among producers by providing new opportunities
and also pose certain threats. A business firm has
to adapt itself to all such happening in the
technological environment.
• Demographic Environment:
A business firm is also affected to some extent
by the type, quality, potentiality, nature, sex
composition, age composition, etc., of the
population of the community or country in
which it is located.
• What Is a SWOT Analysis?
• SWOT stands for Strengths, Weaknesses,
Opportunities, and Threats, and so a SWOT Analysis
is a technique for assessing these four aspects of
your business.
• You can use SWOT Analysis to make the most of
what you've got, to your organization's best
advantage. And you can reduce the chances of
failure, by understanding what you're lacking, and
eliminating hazards that would otherwise catch you
unawares.
• Strengths
• Strengths are things that your organization does particularly well, or in a
way that distinguishes you from your competitors. Think about the
advantages your organization has over other organizations. These might
be the motivation of your staff, access to certain materials, or a strong set
of manufacturing processes.
• Your strengths are an integral part of your organization, so think about
what makes it "tick." What do you do better than anyone else? What
values drive your business? What unique or lowest-cost resources can you
draw upon that others can't? Identify and analyze your organization's 
Unique Selling Proposition  (USP), and add this to the Strengths section.
• Then turn your perspective around and ask yourself what your
competitors might see as your strengths. What factors mean that you get
the sale ahead of them?
• Remember, any aspect of your organization is only a strength if it brings
you a clear advantage. For example, if all of your competitors provide
high-quality products, then a high-quality production process is not a
strength in your market: it's a necessity.
• Weaknesses
• Now it's time to consider your organization's weaknesses.
Be honest! A SWOT Analysis will only be valuable if you
gather all the information you need. So, it's best to be
realistic now, and face any unpleasant truths as soon as
possible.
• Weaknesses, like strengths, are inherent features of your
organization, so focus on your people, resources, systems,
and procedures. Think about what you could improve, and
the sorts of practices you should avoid.
• Once again, imagine (or find out) how other people in your
market see you. Do they notice weaknesses that you tend
to be blind to? Take time to examine how and why your
competitors are doing better than you. What are you
lacking?
• Opportunities
• Opportunities are openings or chances for something positive to
happen, but you'll need to claim them for yourself!
• They usually arise from situations outside your organization, and
require an eye to what might happen in the future. They might
arise as developments in the market you serve, or in the
technology you use. Being able to spot and exploit opportunities
can make a huge difference to your organization's ability to
compete and take the lead in your market.
• Think about good opportunities you can spot immediately. These
don't need to be game-changers: even small advantages can
increase your organization's competitiveness. What interesting
market trends are you aware of, large or small, which could have an
impact?
• You should also watch out for changes in government policy related
to your field. And changes in social patterns, population profiles,
and lifestyles can all throw up interesting opportunities.
• Threats
• Threats include anything that can negatively affect
your business from the outside, such as supply chain
problems, shifts in market requirements, or a
shortage of recruits. It's vital to anticipate threats
and to take action against them before you become a
victim of them and your growth stalls.
• Think about the obstacles you face in getting your
product to market and selling. You may notice that
quality standards or specifications for your products
are changing, and that you'll need to change those
products if you're to stay in the lead. Evolving
technology is an ever-present threat, as well as an
opportunity!
• Emerging Business Environment in Nepal
• After the 90s great changes occurred in the political,
economic, socio-cultural and technological
environment in Nepal. The government has
adopted economic liberalization policy and many
public enterprises have been privatized. Nepal has
become a member of the World Trade Organization
(WTO) which has totally changed the economic
environment. The emerging business environment
in Nepal are:-
• The emergence of the open market
economy- Private enterprise and entrepreneurs have
the freedom to choose the line of business on the
basis of their interest with nominal administrative
formalities and scope. Also, the government has
privatized many public enterprises and also
withdrawn the monopoly power of public enterprises.
• The increasing role of private sectors- The open
market economy has increased the role of private
sectors in economic activities. They invest not only in
general lines but also involve in core areas of
economic activities. The government terminated the
monopoly power of public enterprises in hydropower,
telecommunication, water supply, airlines etc.
• Private investment in infrastructural
development- The free-market economic policy of the
government has also encouraged private investment in
infrastructure development of the nation. The
involvement of private entrepreneurs in infrastructure
development helps to boost the economic
development of the nation.
•  Development of information technology- The rapid
development of information technology (IT) has also
affected the Nepalese business. The use of IT resources
consisting of computer programs, e-mail, internet,
network system, etc. increases the working efficiency
of business organization. At present, information
technology has been taken as an important component
of economic activities in Nepal.
• Emergence of multinational companies- The economic
liberalization policy of the government has opened the door to
multinational companies to perform business activities in Nepal.
The development concept of globalization and agreement with
WTO has created a great scope of business to multinational
companies in Nepal.
• Emergence of consumerism- Liberalization policy has facilitated
free excess of foreign goods and services in the Nepalese market
and customers can purchase on the basis of their own choice.
Nowadays the luxurious goods of the past like computers,
refrigerators, motorcycles, cookers, washing machine, etc. has
become the basic needs.
• Growth of the service sector- The business is diverted from the
manufacturing business to service sectors. New private enterprises
have been evolved to perform business in the service sector. These
service sectors have attracted huge investment in recent years.