Business

Environment

Dr Gurwinder Singh Badal (PDF)

Assistant Professor, Faculty of
Economics,
Chitkara Business School,
Chitkara University, Punjab
 Learning Objective

– What is Business
– What is Environment
– Business Environment- Nature, Objective, Significance
– Types of Business Environment
– Interaction between Internal and External Environment
– Environment Scanning- SWOT, QUEST, Competitor and
PESTLE Analysis
– Economic Environment of Business
– Economic Planning in India
– Economic Policies and Reforms
 What do we understand by
the term ‘Business’
Business:
Business can be defined as an organized economic activity where goods and
services are exchanged for value, typically in the form of money, with the primary
objective of earning profits while fulfilling societal needs.
Dr L.H. Haney: Narrow Definition
"Business may be defined as human activity directed towards producing or acquiring
wealth through buying and selling of goods.”
Dr Keith Davis:
"Business is an economic activity involving the production and sale of goods and services
undertaken with a motive of earning profit by satisfying human needs in society."
Dr F. C. Hooper: Broader Definition
"Business means the whole complex field of commerce and industry, the basic
industries, processing and manufacturing industries, and the network of ancillary
services, distribution, banking, insurance, transport, and so on, which serve and
interpenetrate the world of business as a whole.“
 Moving towards Business
Environment
Business Environment:
The business environment refers to the external and internal
factors that influence a company’s operations, decision-making, and
overall performance. It includes economic, political, legal, technological, and
social forces that shape how businesses operate and grow.
Keith Davis:
"Business environment is the aggregate of all conditions, events, and influences
that surround and affect a business.“
Arthur M. Weimer:
"Business environment encompasses the climate or set of conditions—
economic, social, political, or institutional—in which business operations are
conducted."
 Basic Concept of Business
Environment
The forces that constitute the business environment are its
suppliers, competitors, consumer groups, media,
government, customers, economic conditions, market
conditions, investors, technologies, trends, and multiple
other institutions working externally of a business
constitute its business environment. These forces influence
the business even though they are outside the business
boundaries.
 Why Studying Business Environment is
Vital?

– Knowledge of Information:

Every businessman should be aware of the current environment of the business to change
accordingly.
– Basis of Decision:

It contains all the information which is needed for making good decisions.

e.g. If a business knows about its competitors, suppliers and customers they decide price, purchase, salary
etc.
– Helpful in making of policies:

For making good business policies one needs to know and scan business through the business
environment.
– Technological Planning:

In today's environment, the business houses need to keep themselves changing according to
the technological changes in the market.
– Survive in the business:

Sometimes industry may face a recession. In such condition, only those businesses will survive
What is major Significances of
Business Environment
1. Enables to Identify Business Opportunities
The business environment provides many opportunities for firms
to improve their performance. If understood and evaluated, they
can be the reason for the success of a business.
2. Helping in the identification of Threats
Businesses may be subject to threats from competitors and others.
Environment understanding helps an enterprise to recognize
qualitative information in advance, which can be used for facing
these threats.
What is major Significances of
Business Environment
3. Helps in Tapping Useful Resources
Business requires many resources like raw materials, tools, equipment,
finance, labour etc. for performing business activities. These resources are
known as inputs. The business environment provides all these inputs to the
business firms for carrying out their activities.
4. Coping with the Rapid Changes
The business must be aware of the ongoing changes in the business
environment, whether it be changes in customer requirements, emerging
trends, new government policies, or technological changes. If the business
is aware of these regular changes then it can bring about a response to deal
with those changes.
What is major Significances of
Business Environment
5. Assisting in Planning and Policy Formulation
When the Business Environment presents a problem or an opportunity, it is up to the
business to decide what plans and policies it has to formulate to address the future.
6. Helps in Improving Performance
Enterprises that monitor their environment closely can adopt suitable business
practices not only to improve their performance but also to become leaders in the
industry.
7. Public Image
A business firm can improve its image by showing that it is sensitive to its
environment and responsive to the aspirations of the public. Leading firms have built
good image by being sensitive and responsive to environmental forces.
Nature of Business
Environment
 Complex
The environment consists of several factors, events, conditions and
influences arising from different sources which impact business thus making
the business complex.
 Interdependence
The environment of the business is made of social, economic, legal, cultural,
technological, and political factors. These factors of the environment are
inter-dependable.
 Dynamic
The business environment is the product of various dynamic factors, I.e.,
economic social, political, geographical religious and technological. All these
factors are dynamic and beyond the control of a firm; its success will depend
to a very large extent on its adaptability to the environment.
Nature of Business
Environment
 Impact
The business environment has both long-term and short-term impacts.
Environment therefore has different effects on different firms in the same
industry.
 Uncertainty
The business environment is largely uncertain as it is very difficult to predict
future happenings, especially when environmental changes are taking place
too frequently.
 Relativity
It is a relative concept since it differs from country to country and region to
region.
 Elements of Business Environment

Organizations have an External and Internal Environment Elements

– External/Exogenous Environment:
– Micro Environment
– Macro Environment.
– Internal/Endogenous Environment
Elements of Business Environment
(Micro Environment)

1. Business Environment Overview

• Business environment refers to all external and internal factors that influence business operations.

• It determines opportunities, threats, and the adaptability of a business in a dynamic market.

2. External Environment
– The external environment consists of factors that are outside the business but impact its operations. It
is divided into:

A. Micro Environment (Industry-Level Forces)

• Suppliers of Inputs: Businesses rely on suppliers for raw materials, machinery, and other essential
inputs. Any disruption can impact production.

• Customers: The success of a business depends on consumer demand, preferences, and purchasing
power.

• Marketing Intermediaries: Agents, wholesalers, retailers, and distributors who help in selling goods and
services.

• Competitors: Rival firms in the industry influence pricing, product innovation, and marketing strategies.

• Publics: Various stakeholders, such as media, pressure groups, and local communities, influence business
Elements of Business Environment
(Macro Environment)

B. Macro Environment (Broader National & Global Forces)

• Economic Environment: GDP growth, inflation, interest rates, and fiscal policies affect business
activities.

• Political-Legal Environment: Government policies, taxation laws, trade regulations, and political
stability influence business operations.

• Technological Environment: Innovation, digital transformation, and automation impact how

businesses function.

• Global Environment: International trade policies, foreign investments, and global economic trends
affect business competitiveness.

• Socio-Cultural Environment: Consumer lifestyles, cultural values, demographics, and education

levels impact market demand.

• Demographic Environment: Population size, age distribution, workforce availability, and urbanization
trends affect business growth.

• Natural Environment: Climate change, resource availability, and environmental sustainability

regulations shape business decisions.

• Ecological Environment: Issues like pollution control, green initiatives, and carbon footprint reduction
influence business strategies.
Elements of Business Environment
(Internal Environment)

3. Internal Environment
The internal environment consists of factors within the company that determine its efficiency
and decision-making.
• Value System: The core beliefs and ethical standards followed by the business, influencing
its reputation and practices.
• Mission and Objectives: The long-term vision and short-term goals guiding business
strategy.
• Organizational Structure: The hierarchy and communication system that define roles
and responsibilities within the company.
• Corporate Culture: The shared values, traditions, and work environment within the
organization.
• Quality of Human Resources: The skills, knowledge, and motivation of employees that
drive business success.
• Labour Unions: Employee associations that negotiate wages, working conditions, and
rights.
 Internal Environment

Forces conditions or surroundings within the boundary of the

organization are the elements of the internal environment of the
organization. It is also known as controllable factors because businesses
can control them. It includes
1. Employees
Business hires employees. Employees differ in skill, knowledge, morality,
attitude and so on They are the major internal factors. It can be
controlled by the business.
2. Shareholders
Management deals with many shareholders. Shareholders have the right
of ownership, power of management and voting rights. The actual
management of the organization is carried out by elected
representatives of shareholders jointly known as the board of directors.
Internal Environment

3. Organisation structure
The arrangement of various facilities, pattern of relationships among
the various departments, responsibility, authority and
communication is the organization structure. It also included
specialization and span of control.
4. Organizational culture
The sets of values help the members to understand what the
organization stand for how it works, what it considers, cultural
values of business forces of business and so on. It helps in the
direction of activities.
Changing Dimensions of
Business Environment
The Macro Environment consists of general factors that a business typically has
no control over. The success of the company depends on its ability to adapt. It
includes
1. Economic environment
It indicates the condition of the economy in which a business organization
operates. It has a continuous and great impact on business. It includes national
income, production, inflation, savings, investment, price, government activities
2. Political or legal environment
It is defined as rules and regulations determined by the government. There
should be no violation of the rules and regulations of the government.
Businesses should avoid unfair trade and should provide essential information to
the government.
3.Social Environment
Customs, mores, values and demographic characteristics of the
society in which the organization operates are what made up the
socio-cultural factors of the general environment. Socio-cultural
forces include culture, lifestyle changes, social mobility, attitudes
towards technology, and people’s values, opinion, beliefs, etc.
4.Technological Environment
Technological changes substantially affect a firm’s operations in
many ways. Technological factors include information technology,
the Internet, biotechnology, global transfer of technology and so
forth.
Meaning of Environmental
Scanning
Environmental scanning meaning is the gathering of information from
an organization’s internal and external environments, and careful
monitoring of these environments to identify future threats and
opportunities. It is the analysis of all factors that may affect the future of
the organization.
Information is collected by monitoring and forecasting any changes that
occur to the variables of the environment that have been identified earlier.
Environmental Scanning & Monitoring Techniques
 Environmental scanning and monitoring are essential for businesses to
identify opportunities and threats in their external and internal
environment. These techniques help in strategic decision-making
and allow firms to adapt to market changes.
 Components of Environment
Scanning
1. Environmental Scanning
– Environmental scanning refers to the systematic process of collecting, analyzing, and
interpreting information about external and internal factors that influence business operations. It
helps businesses to stay competitive by anticipating changes in the market.

Types of Environmental Scanning:

1. Continuous Scanning – Ongoing monitoring of changes in the business environment.

2. Periodic Scanning – Conducted at fixed intervals to assess trends and factors.

3. Ad hoc Scanning – Carried out in response to a crisis or an unexpected event.

Major Components of Environmental Scanning:

• Political Factors (Government regulations, trade policies, taxation)
• Economic Factors (GDP growth, inflation, interest rates, consumer spending)
• Social Factors (Cultural trends, demographics, lifestyle changes)
• Technological Factors (Innovation, automation, digital transformation)
• Ecological & Legal Factors (Sustainability practices, environmental laws, CSR policies)
 Environmental Monitoring and Key
Monitoring Techniques

2. Environmental Monitoring
– Environmental monitoring is an advanced step after scanning, where businesses track
identified trends, policies, and market shifts over time to assess their impact on operations.
Key Monitoring Techniques:
1. SWOT Analysis – Evaluates Strengths, Weaknesses, Opportunities, and Threats
in the environment.
2. PESTLE Analysis – Examines Political, Economic, Social, Technological, Legal,
and Environmental factors affecting business.
3. Scenario Planning – Predicts future possibilities and prepares alternative strategies.
4. Benchmarking – Compares business performance with industry leaders.
5. Delphi Technique – Uses expert opinions to forecast market trends and changes.
6. Trend Analysis – Studies historical data to predict future developments.
7. Competitor Analysis – Evaluate strategies, market position, and strengths of
business rivals.
 SWOT

PEST Environmental QUEST

Scanning
&Monitoring
Techniques

Industry Competitor
Analysis Analysis
 SWOT Analysis

SWOT Analysis is a strategic planning tool used to identify an

organization's Strengths, Weaknesses, Opportunities, and
Threats. It helps businesses assess their internal and external
environment for better decision-making.
Strengths (Internal, Positive) Weaknesses (Internal,
Negative)
Strong brand reputation Poor financial management
Skilled workforce Lack of innovation
Advanced technology High employee turnover
Financial stability Limited market presence
High customer loyalty Inefficient supply chain
 SWOT Analysis

SWOT Analysis is a strategic planning tool used to identify an

organization's Strengths, Weaknesses, Opportunities, and
Threats. It helps businesses assess their internal and external
environment for better decision-making.
Opportunities (External, Positive) Threats (External, Negative)

Emerging markets Intense market competition

Technological advancements Economic downturns

Changing consumer preferences Changing regulations & legal constraints

Government incentives & subsidies Disruptive technologies

Strategic partnerships Political instability

 QUEST Analysis

QUEST Analysis
QUEST Analysis is a strategic business tool used to evaluate a company's internal and
external environment for decision-making. It stands for:
1. Q – Questioning: Identifying key business challenges and market trends.
2. U – Understanding: Analyzing industry conditions, competition, and customer
preferences.
3. E – Exploring: Identifying new opportunities and potential risks.
4. S – Strategizing: Developing actionable plans to address challenges and leverage
opportunities.
5. T – Testing: Implementing and monitoring strategies for effectiveness.
Application of QUEST Analysis
• Used in business strategy development.
• Helps in market research and competitive analysis.
 Competitor Analysis

Competitor Analysis is the process of identifying and evaluating competitors in a

market to understand their strengths, weaknesses, strategies, and market positioning.
It helps businesses develop effective strategies to gain a competitive advantage.
Steps in Competitor Analysis:
1. Identify Competitors 4. Study Market Positioning
1. Direct Competitors: Businesses offering •Brand Reputation
similar products/services in the same •Target audience
•Unique selling propositions (USPs)
market.
5. Evaluate Competitive Advantages
2. Indirect Competitors: Businesses offering •Cost leadership vs. differentiation
substitute products/services. •Operational efficiency
2. Analyze Competitor Strategies •Product innovation
1. Pricing strategies 6. Monitor Competitor Actions
•New product launches
2. Product differentiation •Strategic partnerships and acquisitions
3. Marketing and branding approaches •Changes in pricing or distribution
4. Customer service policies
3. Assess Competitor Strengths & Weaknesses
1. Market share and customer loyalty
2. Financial stability
3. Distribution channels
4. Innovation and technology adoption
 Industry Analysis

 Industry analysis is a market assessment tool used by

businesses and analysts to understand the
competitive dynamics of an industry.
 It helps them get a sense of what is happening in an
industry, i.e., demand-supply statistics, degree of
competition within the industry, state of competition
of the industry with other emerging industries,
prospects of the industry taking into account
technological changes, credit system within the
industry, and the influence of external factors on the
industry.
 PESTLE Analysis

PESTLE Analysis is a strategic tool used to analyze external macro-environmental factors that
influence an organization's operations and decision-making. It helps businesses understand
market trends and anticipate future challenges.
Components of PESTLE Analysis:

 Political Factors  Social Factors

• Government policies and • Demographic trends (age, gender,
regulations population growth)
• Political stability and instability • Cultural attitudes and consumer behavior
• Tax policies and trade tariffs
• • Education and literacy rates
Labor laws and employment
regulations • Health and lifestyle trends
• International trade agreements • Social movements and ethical concerns
 Economic Factors  Technological Factors
• Economic growth rates and GDP • Innovations and advancements in technology
• Inflation and interest rates
• • Automation and digital transformation
Exchange rates and currency
fluctuations • Research and development (R&D) investments
• Consumer spending and • Cybersecurity and data protection
purchasing power • Adoption of artificial intelligence (AI) and big
• Supply and demand trends data
 PESTLE Analysis

 Legal Factors:

Legal factors refer to laws, regulations, and legal frameworks that businesses must comply with.
These factors can affect operations, costs, and profitability.
 Key Legal Factors:

• Employment Laws: Minimum wages, working conditions, labor rights, and anti-discrimination laws.

• Consumer Protection Laws: Regulations regarding product safety, false advertising, and fair pricing.

• Intellectual Property Laws: Patents, copyrights, and trademarks to protect innovations and brands.

• Business Regulations: Licensing requirements, competition laws, and contract enforcement.

• Taxation Laws: Corporate tax policies, VAT/GST regulations, and international tax treaties.

• Health & Safety Laws: Workplace safety regulations (e.g., OSHA in the US, Factories Act in India).
 PESTLE Analysis

 Environment Factors:

Environmental factors refer to ecological and environmental issues that can impact businesses, including
sustainability policies, climate change, and natural resource management.
 Key Environmental Factors:

• Climate Change Regulations: Carbon emissions laws, Paris Agreement commitments.

• Waste Management & Recycling Policies: Government regulations on reducing plastic waste and
promoting recycling.

• Sustainability Initiatives: ESG (Environmental, Social, and Governance) compliance, green business
practices.

• Natural Disasters & Weather Conditions: Floods, hurricanes, and droughts affecting supply chains.

• Energy Consumption & Renewable Resources: Government incentives for using renewable energy
sources.

• Environmental Protection Laws: Rules on pollution control, biodiversity conservation, and

sustainable resource use.
Economic Environment of
Business
An economic environment is a set of all economic conditions that influence a
business. These vary by region, country and industry over time. The elements of
economic environment include:
– Demand and Supply
There are two great economic factors affecting business models work – demand
and supply. Demand is how willing and able a consumer is to purchasing what a
business offers and supply is how able the business is to make available what
the consumer needs.
– Interest rates
Interest rates greatly influence the cost of capital of all businesses. This
influences the capital spending and competition. When interest rates go down,
business may expand. When they go up, business may contract or fail at higher
rates.
– Inflation
Inflation usually occurs when the supply of money is too much in the
economic environment market while not equally supported by a similar
availably of goods and services. The prices of goods have to increase
in order to sustain the businesses. So there is an increase in the cost of
raw materials needed for production. The buying power of consumers
decreases, their incomes remain constant, but the prices of products
and services shoots up. This will definitely affect the businesses
– Recession
Companies usually make great losses and face dips in sales and profits
during recession. And in order to reduce their costs most of them
usually resort to staff cuts, retrenchment and firing, reducing capital
expenditure, advertising budgets, research and development
activities, and so on. Of course this affects companies
– Income and Employment
The rate of income and employment rate in a particular
country. The density of employment determines the rate of
demand in a company and even the country including the
purchasing power of individuals.
– Taxes
Business taxes in a particular country. A high tax rate will
discourage entrepreneurship and business investments.
– Consumer confidence level
consumers feel about their economic future also affects the
business. Confident consumers spend more, save less and
take out more debt. Pessimistic consumers save, pay off debts
and spend less
Thank You