3-1

Business Environment

•Concept
•Significance
•nature
 3-2

Business Environment
 The term business environment implies those external
forces/factors and institutions that are beyond the
control of individual business organizations & their
management and affect the business enterprise. It
implies all external forces within which a business
enterprise operates.
 According to Arthur M. Weimer, “ Business

environment encompasses the ‘climate’ or set of

conditions – economic, social, political or
institutional in which business operations are
conducted.
 3-3

Business Environment
(Nature)
 It is the sum total of all factors external to business
firm and that greatly influence their functioning.
 It is dynamic in nature i.e. it keeps on changing.

 The changes in business environment are

unpredictable.
 Business environment differs from place to place,

region to region and country to country.

 Different elements of business environment are

closely interrelated and interdependent.

 3-4

Business Environment
(Significance)
 Determining opportunities and threats
 Identifying firm’s strength & weakness

 Giving direction for growth

 Continuous learning

 Image building

 Meeting competition
 3-5

Factors/Forces of Business
Environment

The business environment may be considered

at the following three levels :
 Internal environment

 External environment- (i) Micro environment

(ii) Macro environment

 3-6
BUSINESS ENVIRONMENT
Macro
Environment

Micro
environment

Internal
Environment
Firm
 3-7
Forces in the External Business Environment

General/Macro
Environment
Technological Task/Micro Sociocultural
Environment
Forces Forces
Competitors

Global Suppliers Firm Customers Economic

Forces Forces

Distributors

Political & Demographic

Legal Forces Forces
 3-8

Internal Environment
Various factors of internal environment are as follows :
 Value system
 Mission & Objectives
 Management structure and nature
 Internal power relationship
 Human resources
 Company image and brand equity
 Miscellaneous factors – 1. Physical assets & facilities

2. R & D Technological capabilities

3. Marketing resources
4. Financial factors
 3-9

Task / Micro Environment

Task Environment: forces from suppliers,
distributors, customers, and competitors.
Suppliers: provide organization with inputs
 Managers need to secure reliable input sources.
 Suppliers provide raw materials, components, and even
labor.
 Working with suppliers can be hard due to shortages,
unions, and lack of substitutes.
 Suppliers with scarce items can raise the price and are
in a good bargaining position.
 Managers often prefer to have many, similar suppliers
of each item.
 3-10

Task Environment – contd.

Distributors: organizations that help others to sell
goods.
 Compaq Computer first used special computer stores to
sell their computers but later sold through discount stores
to reduce costs.
 Some distributors like Wal-Mart have strong bargaining
power.
 They can threaten not to carry your product.

Customers: people who buy the goods.

 Usually, there are several groups of customers.
 For Compaq, there are business, home, & government
buyers.
 3-11

Task Environment – contd.

Competitors: other organizations that produce
similar goods.
 Rivalry between competitors is usually the most serious
force facing managers.
 High levels of rivalry often means lower prices.
 Profits become hard to find.

 Barriers to entry keep new competitors out and result

from:
 Economies of scale: cost advantages due to large scale

production.
 Brand loyalty: customers prefer a given product.
 3-12

The General/ Macro Environment

Consists
of the wide economic, technological,
demographic and similar issues.
 Managers usually cannot impact or control these.
 Forces have profound impact on the firm.

Economic forces: affect the national economy

and the organization.
 Economic system, economic conditions, economic
policies, economic resources, also includes interest rate
changes, unemployment rates, economic growth
 When there is a strong economy, people have more
money to spend on goods and services.
 3-13

Demographic forces: result from changes in

the nature, composition and diversity of a
population.
 These include gender, age, education level, ethnic origin,
etc.
 For example, during the past 20 years, women have

entered the workforce in increasing numbers.

 Currently, most industrial countries are aging.
 This will change the opportunities for firms competing

in these areas.
 New demand for health care, assisting living can be

forecast.
 3-14

Political-legal forces: result from changes in

the political arena.
 These are often seen in the laws of a society.
 Today, there is increasing deregulation of many state-
run firms.
Global forces: result from changes in
international relationships between countries.
 Perhaps the most important is the increase in economic
integration of countries.
 Free-trade agreements (GATT, NAFTA, EU) decreases
former barriers to trade.
 Provide new opportunities and threats to managers.
 3-15

Socio-Cultural forces : includes –

• Society's basic values & beliefs
• Perceptions, preferences and behaviors
• Core cultural values and beliefs
• Secondary cultural values
• Sub cultures
Impact : the type of products to be manufactured and
marketed,
the marketing strategies to be employed,
the way the business should be organized and governed,
the values and norm it should adhere to etc,
are all influenced by the social – cultural forces
 3-16

Technological Environment
Consists of forces that affect new technology,
new product development and market
opportunities
• Faster pace of technological change

• Shorter PLC

• Higher R&D budgets

• Concentration on minor improvements

• Increased regulations
 3-17

SWOT Analysis
(Amazon.com Inc.
 Amazon’s Strengths :
1. Strong brand

2. Moderate and expanding business diversification

3. High capability for rapid technological innovation,

especially in online services

 Amazon’s Weaknesses :
1. Imitable business model

2. Limited penetration in developing markets

3. Limited brick-and-mortar presence

 3-18
 Opportunities for Amazon.com Inc. :
1. Expansion in developing markets

2. Expansion of brick-and-mortar business operations

3. New partnerships with other firms, especially in

developing markets

 Threats Facing Amazon :

1. Aggressive competition with online and non-online firms

2. Cybercrime

3. Imitation of business model and products

 3-19
Amazon.com Inc. Five Forces Analysis
(Porter’s Model)
 The
following are the intensities of the external factors affecting
Amazon, based on Porter’s Five Forces Analysis model:

1. Competitive rivalry or competition (strong force)

2. Bargaining power of buyers or customers (strong force)

3. Bargaining power of suppliers (moderate force)

4. Threat of substitutes or substitution (strong force)

5. Threat of new entrants or new entry (weak force)

 3-20
Competitive Rivalry or Competition with
Amazon.com Inc. (Strong Force)

 Amazon competes against strong competitors. This aspect

of Porter’s Five Forces Analysis model tackles the effects
of firms on each other.

 High aggressiveness of firms (strong force)

• High availability of substitutes (strong force)
• Low switching costs (strong force)
 3-21
Bargaining Power of Amazon’s
Customers/Buyers (Strong Force)
 Amazon.com Inc.’s vision statement and mission stateme
nt
highlight the company’s customer-centric approach to e-
commerce business. This aspect of Porter’s Five Forces
Analysis model determines the influence of consumers on
firms and the industry environment.

 High quality of information (strong force)

• Low switching costs (strong force)
• High availability of substitutes (strong force)
 3-22
Bargaining Power of Amazon’s Suppliers
(Moderate Force)
 Suppliers control the availability of supplies or materials
Amazon.com Inc. needs for its e-commerce operations,
such as hardware components for information systems.
The influence of suppliers on the online retail industry
environment is outlined in this aspect of Porter’s Five
Forces Analysis model.

 Small population of suppliers (strong force)

• Moderate forward integration (moderate force)
• Moderate size of suppliers (moderate force)
 3-23
Threat of Substitutes or Substitution
(Strong Force)
 Amazon.com Inc. competes with substitutes in the online
retail market. This aspect of Porter’s Five Forces Analysis
model identifies how substitutes affect the industry
environment.

 Low switching costs (strong force)

• High availability of substitutes (strong force)
• Low cost of substitutes (strong force)
 3-24
Threat of New Entrants or New Entry
(Weak Force)
 New firms potentially reduce Amazon’s market share in
online retail. The effects of new entrants are considered in
this aspect of Porter’s Five Forces Analysis model.

 Low switching costs (strong force)

• High cost of brand development (weak force)
• High economies of scale (weak force)
3-25
 3-26

Amazon.com Inc.’s Generic Strategy,

Intensive Growth Strategies
 Amazon uses cost leadership as its generic strategy for
competitive advantage. Minimization of operational costs
is the objective in this generic competitive strategy.
 Amazon.com’s Intensive Strategies (Intensive Growth

Strategies)
 Market Development.

 Market Penetration.

 Product Development.

 Diversification.
 3-27

Thank you…..