BBA (A & AM)- 3rd Semester

Subject Name- Business Environment

Semester: 3rd

Business Environment

Dr. Rakhi Kumari Jha

Assistant Professor ,AVGSCMC
Swami Vivekanand Subharti University
 Business Environment
Content
Meaning of Business Environment
 Factors affecting environment to the
business
 Internal and external environment
 Micro environment, macro environment.
Types of environment.
Business
 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.
 Forms of business organisation
 Solo proprietorship:-business owned by one person.

 Partnership:-business owned by two or more persons who

contribute resources into the entity.

 Corporation:-corporation is a legal person separate &

distinct from its owners & it has many of the rights, duties
& privileges of an actual person.
Business Environment

 Business environment means all the internal and external

factors that affects the functions of the business.
 Characteristics of Business Environment

ENVIRONMENT HAS
ENVIRONMENT IS ENVIRONMENT IS ENVIRONMENT IS
FAR REACHING
COMPLEX DYNAMIC MULTIFACETED
IMPACT

• EVENTS • DEPENDS ON
• CONDITIONS
• PERCEPTION OF •
INFLUENCES • GROWTH AND
• CONSTANTLY OBSERVER
EASIER TO • PROFITABILITY
CHANGING IN NEW
UNDERSTAND IN DEPENDS ON
SHAPE AND DEVELOPMENT MAY
PARTS ORGANIZATIONAL
• STRUCTURE BE OPPURTUNITY
DIFFICULT TO ENVIRONMENT
FOR ONE AND
UNDERSTAND IN
THREAT FOR OTHER
TOTALITY
 Importance of Business Environment
Business environment is complicated and active in nature and
has a far-reaching impact on the survival and growth of the
business.

 Determining Opportunities and Threats

 Giving Direction for Growth
 Continuous Learning
 Image Building
 Meeting Competition
 Identifying Firm’s Strength and Weakness
Contemporary Business Environment
 It consists the Micro & Macro environment of a business.

Micro environment
 It is the nearby environment under which the firm operates.
 It is controllable.
 organization itself, employees, technology etc.

Macro environment
 It refers to the general environment that can effect the working
of all business enterprises.
 It is uncontrollable.
 Suppliers, market intermediaries , Population, demographic,
economic, socio- cultural, technological, legal & political
environment.
Types Of Environment
 Internal Environment - Components
Internal environment has direct impact on business. Important internal
factors which have a bearing on the decisions of a business firm and
which are generally controllable because the company has control over
these factors:

 Value system
 Vision, Mission and Objectives
 Management Structure and Nature
 Internal Power Relationship
 Human Resources
 Company Image
 Internal Environment - Components
Value System - The value system of 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.

Vision, Mission, and Objectives - The business domain of the

company , priorities, direction of development, business
philosophy, business policy etc. are guided by the mission and
objectives of the company

Management Structure and Nature - The organizational

structure, the composition of the Board of Directors, extent of
professionalization of management etc. are important factors
influencing business decisions. Board of directors is the highest
decision making body and it overseas performance of the
 Internal Environment - Components

Internal Power Relationship - Factors like the amount of support the top
management enjoys from lower levels and workers, share holders and Board of
Directors have important influence on the decisions and their implementation. The
relationship between the members of Board of Directors, and CEO is also a critical
factor.

Human Resources - The characteristics of the human resources like skill, quality,
morale, commitment, attitudes etc. could contribute to the strength and weakness of
the organization. The involvement, initiative etc. of the people at different levels may
vary from organization to organization. Ex: Some organizations find it difficult to carry
out restructuring or modernization because of resistance by employees whereas they
are smoothly done in some others.
 Internal Environment - Components

Company Image and Brand Equity - The image of the company

matters while raising finance, forming joint ventures or other
alliances, soliciting market intermediaries, entering purchase or
sale contracts , launching new products etc.

OTHER FACTORS

1. Physical Assets and Facilities

2. R&D and Technological Capabilities
3. Marketing Resources
4. Financial Factors
 External Environment
•Demog •Consu
raphic MA mer / MI
•Econo
mic
CR Custo
mer CR
•Gover
nment
O •Compe
titors
O
•Legal
•Politic
EN •Organi
zation
EN
al VIR •Market
•Suppli
VIR
•Cultur
al ON ers
•Interm
ON
•Techn
ologic ME ediarie ME
s
al
•Global
NT •Publics NT
 Microenvironment
 Also known as task environment and operating environment

 It includes

 Consumers / Customers

 Competitors

 Organization

 Market

 Suppliers

 Intermediaries

 More intimately linked with the company than macro factors

 The micro forces need not necessarily affect all the firms in a particular industry

in the same way.

 Some of the micro factors are particular to a firm.
 Consumers /Customers
 Major task of business is to create and sustain customers

 Different categories of consumers / Benefits looking for /

Buying Patterns
 Individuals
 Households
 Industries and other commercial establishments
 Government and other institutions

 Depending on single customer is too risky

 Choice of customer should be done by considering

 Relative profitability
 Dependability
 Stability of demand
 Growth prospectus
 Extent of competition
 Competitors
 A firm’s competitors include not only the other firms which

market the same or similar product but also all those who
compete for the income of the consumers.
 Desire competition

 Generic competition

 Product form competition

 Brand competition

 The competition here among these products may be said as

desire competition as the primary task here is to fulfil the

desire of the customers.
 Who are the competitors

 What is their present strategy and business objectives

 Who are the most aggressive and powerful competitors.

 Organization
 Individuals occupying different positions, working in different

capacities, having different interests.

 It is self analysis of organization (both strengths and weakness)

 The groups that are likely to influence an organization are:

 Owners – Individuals, Share holders, Groups have vested

interest of well being of the company.

 Board of Directors (Companies Act 956) – Elected by share

holders, they oversee the general management of the

organization and protect share holders interests.
 Employees - They should embrace same values and goals as

the organization or else the organization will suffer.

 Market
 Market is larger than Customers.

 Market is studied for its actual potential size, its growth

prospects, and its attractiveness.

 Important Issues are:

 Cost Structure of Market

 The Price sensitivity of Market

 Technological structure of the Market

 The Existing distribution system of the market

 Is the Market Mature

 Suppliers
 Those who supply the inputs (raw materials, equipments and

services to the company.

 Source/Sources should be Reliable

 Uncertainty regarding the supply or other supply constraints

or compel s companies to maintain high inventories causing

cost increases.
 Very risky to depend on a single supplier

 The purchasing department should “market” itself to

suppliers, to obtain favourable treatment during the periods of

shortages.
 Organizational decisions about “Outsourcing” or “In-house

Production” is very important

 Marketing Intermediaries
 Firms that aid the company in promoting, selling and distributing

its goods to final buyers. They are important link between

company and customers.
 It Includes:

 The middlemen and merchants who “help the company find

customers or close sales with them”

 Physical distribution firms which “ assist the company in

stocking and moving goods from their origin to their

destinations”
 Marketing service agencies which “assist the company in

targeting and promoting its products to the right markets”

 Financial intermediaries which “finance marketing activities

and insure business risks”

 Publics

 Any group that has an actual or potential interest in or impact on an

organization’s ability to achieve its interests. E.g. Media publics,

citizens action publics, local publics
 Media attack on any company can influence the government decisions

affecting the company.

 Environmental pollution is an issue often taken up by number of local

publics
 Publics are not always threat to the business.

 Fruitful cooperation between a company and the local publics may be

established for the mutual benefit.

 NGOs have been protesting against child labour, cruelty against

animals, environmental problems, deindustrialization resulting from

imports etc.
 Macro Environment
 Consists of larger societal forces that affect all the actors in

company’s micro environment-namely :

 Demographic
 Economic
 Political - Legal
 Socio – Cultural
 Technological
 Natural
 Global
 Also known as Societal Environment – It includes general forces

that do not directly touch on short-run activities of the

organization but that can, and often do, influence its long-run
decisions.
 Demographic Environment
Denotes characteristics of population in area (race, age, income, educational
attainment, asset ownership, employment status, Size, growth rate, age composition,
sex composition of population, family size, educational levels, economic stratification
of the population, language, caste, religion, and location).

POPULATIO GEOGRAPHIC ETHNIC INCOME

N SIZE DISTRIBUTION MIX DISTRIBUTION

• Change in birth
• Change in
rate, family
• Attractiveness product and
size of Companies service design • Individual and
• Increase and location • Demand of group
decline in total
• Availability of new products purchasing
population qualified work and services power
• Effect of Rapid force • Culturally • Consumption
population
• Concept of diverse work • Spending
growth on working from force • Saving pattern
natural home due to IT • Advantages of
resources revolution work force
heterogeneity
 Economic Environment

 Economic environment refers to the aggregate of the nature of economic

system of the country, business cycles, the socio-economic infrastructure

etc. The successful businessman visualizes the external factors affecting
the business, anticipating prospective market situations and makes it
suitable to get the maximum benefits with minimize cost. Important
factors are: Economic conditions, Economic policies, and Economic
systems
 Economic condition

 The economic conditions of a country – for example, the nature of the

economy, the stage of development of the economy, economic

resources, the level of income, the distribution of income and assets,
etc.- are among the very important determinants of business
strategies. In a developing country, the low income may be the reason
for the very low demand for the product.
 Economic Environment

India: Fastest Growing Free Market Democracy

 Economic Environment

 Economic Policies

 Some types or categories of business are favourably affected by

government policy, some adversely affected, while it is neutral to
some others.
 E.g. a restrictive import policy may greatly help the import
competing industries, while a liberalisation of the import policy
may create difficulties for such industries
 Economic System

 The scope of the private business depends on the economic

system.
 The freedom of the private enterprise is the greatest in the free
market economy.
 Political - Legal Environment
GOVERNEM
NT
AFFECTS
BUSINESS
DIRECTLY
(TAXES AND

It includes factors DUTIES)

like:
 General state of political
Development
 Degree of Politicization of
Business LEGAL
ORGANIZATION
MUST FOLLOW

 Level of Political Mortality

RELEVANT LAWS
(COMPANIES,
COMPETITION,
IP, FOREIG
 Law and Order Situation EXCHANGE ETC)
POLITICAL

 Political Stability
POLITCIAL PRESSURE
INFLUENCE AND
LIMIT ORGANIZATION.
 Political Ideology (CONSUMER RIGHTS,
MINORITY RIGHTS,
WOMAN RIGHTS AND
 Practices of Ruling Party LABOUR RIGHTS MUST
BE PROTECTED)
 Efficiency of Government
Agencies
 Government Intervention in
Business
 Government Policies (Fiscal,
Monitory, Industrial, Labour,
Export-Import Policy)
 Political - Legal Environment
 Has close relationship with the economic system and economic policy.

 It includes factors such as characteristics and policies of the political

parties, nature of Constitution and government system relating to

business policies and regulations.
 Important economic policies such as industrial policy, policy towards

foreign capital and technology, fiscal policy and foreign trade policy
are often political decisions.
 In many countries regulations to protect consumer interests have

become stronger. Some governments specify certain standards for

the products to be marketed in the country; some even prohibit the
marketing of certain products. Promotional activities are subject to
various types of controls. Eg: In India, Advertisement of alcoholic
product is prohibited and the packages must carry “injurious to
health” warnings
 Socio - Cultural Environment
 The social dimension or environment of a nation determines the value

system of the society which, in turn affects the functioning of the business.
 Sociological factors such as costs structure, customs and conventions,

mobility of labour etc. have far reaching impact on the business. These
factors determine the work culture and mobility of labour, work groups etc.
 Strategy should be appropriate in the socio-cultural environment. Eg:

nestle brews a very large variety of instant coffee to satisfy different

national tastes.
 Even when people of different cultures use the same product; the mod of

consumption, conditions of use, purpose of use or the perceptions of the

product attributes may vary so much so that the product attributes, method
of presentation, positioning or method of promoting the product may have
to be varied to suit the characteristics of different markets. E.g.: Vicks
Vaporub, the popular pain balm is used as mosquito repellent in some
tropical countries.
 Socio - Cultural Environment
It includes factors like:
 Buying and Consumption Pattern
 Values and Beliefs
 Literacy Level / Education
 Ethical Standard
 State of Society, Tastes &
Preferences
 Extent of Social Stratification
 Conflict and Cohesiveness
 Human Relationships
 Language, Belief, Norms in
Society
 Social Customs & Traditions
 Social Rituals
 Changing life Style Patterns
 Family Structure
 Work Ethics
 Media and Consumerism
Socio - Cultural Environment

 Language difference pose a serious problem.

 e.g. Preet- Prestige for overseas market

 In Japanese, General Motors’ “body by Fisher” means “Corpse by

fisher”
 Colour

 Blue: feminine and warm in Holland ; but masculine and cold in

Sweden
 Green: favourite in Muslim world; but represents illness in Malaysia

 Red: popular in communist countries; but represents disaster in Africa

 White: death and mourning in China and Korea; but it expresses

happiness in some countries. Also it is the colour of bridal dress.

Technological Environment

 The business in a country is greatly influenced by the technological

development and opportunities arising out of technological innovation.

 The technology adopted by the industries determines the type and

quality of goods and services to be produced and the type and quality of
plant and equipment to be used.
 Technological environment influences the business in terms of
investment in technology, consistent application of technology and the
effects of technology on markets. Access to information highway is key.
 The pull of technological change.

 Risk and Uncertainty of technological development.

 Role of R&D in the country and Government R&D Budget

Technological Environment
 Business prospects demands availability of certain physical

facilities. E.g. demand for electrical appliances is affected by the

extent of electrification and the reliability of power supply.
Demand for LPG stoves depend on rate of growth of gas
connections
 Differing technological environment of different markets may

call for product modifications. E.g. Many appliances are

designed for 110 V in USA. They should be converted for 240v in
India
 Technological developments may increase or decrease the

demand for some existing products. E.g. voltage stabilizers help

increase in sale of electrical appliances in markets characterised
 Natural
Environment
 Geological and ecological factors, such as natural resources
endowments, weather and climatic conditions, topographical factors,
location aspects in the global context, port facilities etc., are relevant
to business.
 Differences in geographical conditions between markets may some

times call for changes in the marketing mix. Geographical and

Ecological factors also influence the location of certain industries. E.g.
industries with high material index tend to be located near the raw
material sources.
 Topographical factors may affect the demand pattern

 E.g.. In hilly areas with difficult terrain, jeeps may be in a greater

demand than cars.

 Ecological factors have recently assumed great importance. The
depletion of natural resources, environmental pollution and the
disturbance of ecological balance have caused great concern.
International / Global Environment
 Positive and Negative Impact of

Significant International event.

 Identification of emerging global

markets and markets that are

changing.
 Difference between cultural and

institutional attributes of
individual global markets
 Acquisitions by Indian
Companies abroad (global
perspective is universal).
 International / Global Environment
The global environment refers to those factors which are relevant to business

such as: WTO principles and agreements, International conventions, Treaties,

agreements, declarations, protocols, economic sentiments in other countries,

hike in crude oil prices etc.

 Particularly important for the industries directly

depending on imports or exports and import-competing industries.

 Recession, economic boom, liberalization

 Major international developments have their spread effects on domestic

business. E.g. Oil price hikes increased the cost of production and the prices
of certain products such as fertilizers , synthetic fibres. So usually, the
demand for natural fibres and manures increased. Also demand for
automobiles that economise energy consumption got increased.
SWOT Analysis of Business Environment
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