BE and LAW unit 1.pdf and legal aspects of business

UNIT 1
Introduction to Business
Environment

Business- Meaning, Nature and Scope
A business firm is an open system. It gets resources from the environment and supplies its goods and
services to the environment. There are different levels of environmental forces. Some are close and
internal forces whereas others are external forces. External forces may be related to national level,
regional level or international level. These environmental forces provide opportunities or threats to
the business community. Every business organization tries to grasp the available opportunities and
face the threats that emerge from the business environment.

Nature of Business
The nature of business is best understood on the basis of its characteristics or features which are as follows:
1. Business is an economic activity
2. It includes the activities of production or purchase and distribution.
3. It deals in goods and services.
4. It implies regularity of transactions.
5. It aims at earning profits through the satisfaction of human wants.
6. It involves risk; it is not certain that adequate profit will be earned.
7. It creates utilities.

Goals of Business
1. Profit - Making profit is the primary goal of any business enterprise.
2. Growth - Business should grow in all directions over a period of time.
3. Power - Business houses have vast resources at its command. These resources confer enormous economic
and political power.
4. Employee satisfaction and development - Business is people. Caring for employee satisfaction and
providing for their development has been one of the objectives of enlightened business enterprises.
5. Quality Products and Services - Persistent quality of products earns brand loyalty, a vital ingredient of
success.
6. Market Leadership- To earn a niche for oneself in the market , innovation is the key factor.
7. Challenging- Business offers vast scope and poses formidable challenges.
8. Joy of creation- It is through business strategies new ideas and innovations are given a shape and are
converted into useful products and services .
9. Service to society - Business is a part of society and has several obligations towards it .

Objectives of business
Business objectives are something which a business organization wants to achieve or accomplish over a
specified period of time. These may be to earn profit for its growth and development, to provide quality goods to
its customers, to protect the environment etc. Thus the Objectives of business may be classified as
a. Economic Objectives
b. Social Objectives
c. Human Objectives
d. National Objectives
e. Global Objectives

a. Economic Objectives
Economic objectives of business refer to the objective of earning profit and also other objectives that are necessary
to be pursued to achieve the profit objective, which include, creation of customers, regular innovations and best
possible use of available resources. Let us learn about these.
i. Profit earning
Profit is the lifeblood of business, without which no business can survive in a competitive market. In fact profit making
is the primary objective for which a business unit is brought into existence. Profits must be earned to ensure the
survival of business, its growth and expansion over time. In order to achieve this primary objective, certain other
objectives are also necessary to be pursued by business, which are as follows:
a) Creation of customers- A business unit cannot survive unless there are customers to buy the products and services.
Again a businessman can earn profits only when he/she provides quality goods and services at a reasonable price. For
this it needs to attract more customers for its existing as well as new products. This is achieved with the help of various
marketing activities.
b) Regular innovations- Innovation means changes, which bring about improvement in products, process of
production and distribution of goods. Business units, through innovation, are able to reduce cost by adopting better
methods of production and also increase their sales by attracting more customers because of improved products.
c) Best possible use of resources - Business activities require various resources like men, materials, money and
machines. The availability of these resources is usually limited. Thus, every business should try to make the best
possible use of these resources. This objective can be achieved by employing efficient workers, making full use of
machines and minimizing wastage of raw materials.

b.Social Objectives
Social objectives are those objectives of business, which are desired to be achieved for the benefit of the society. Since
business operates in a society by utilizing its scarce resources, the society expects something in return for its welfare. No
activity of the business should be aimed at giving any kind of trouble to the society.
• i. Production and supply of quality goods and services Since the business utilizes the various resources of the
society, the society expects to get quality goods and services from the business. The objective of business should be to
produce better quality goods and supply them at the right time and at a right price
• ii. Adoption of fair trade practices In every society, activities such as hoarding, black-marketing and over-charging
are considered undesirable. Besides, misleading advertisements often give a false impression about the quality of
products. Such advertisements deceive the customers and the businessmen use them for the sake of making large
profits. This is an unfair trade practice. The business unit must not create artificial scarcity of essential goods or raise
prices for the sake of earning more profits. All these activities earn a bad name and sometimes make the businessmen
liable for penalty and even imprisonment under the law
• iii. Contribution to the general welfare of the society Business units should work for the general welfare and
upliftment of the society. This is possible through running of schools and colleges for better education, opening of
vocational training centres to train the people to earn their livelihood, establishing hospitals for medical facilities and
providing recreational facilities for the general public like parks, sports complexes etc.

c. Human Objectives
Human objectives refer to the objectives aimed at the well-being as well as fulfillment of expectations of employees as
also of people who are disabled, handicapped and deprived of proper education and training
i.Economic well being of the employees In business employees must be provided with fair remuneration and incentives
for performance, benefits of provident fund, pension and other amenities like medical facilities, housing facilities etc. By
this they feel more satisfied at work and contribute more for the business.
ii.Social and psychological satisfaction of employees It is the duty of business units to provide social and psychological
satisfaction to their employees. This is possible by making the job interesting and challenging, putting the right person in
the right job and reducing the monotony of work. Opportunities for promotion and advancement in career should also be
provided to the employees
iii.Development of human resources Employees as human beings always want to grow. Their growth requires proper
training as well as development. Business can prosper if the people employed can improve their skills and develop their
abilities and competencies in course of time. Thus, it is important that business should arrange training and development
programmes for its employees.
iv.Well being of socially and economically backward people Business units being inseparable parts of society should
help backward classes and also people those are physically and mentally challenged. This can be done in many ways. For
instance, vocational training programme may be arranged to improve the earning capacity of backward people in the
community. While recruiting it staff, business should give preference to physically and mentally challenged persons.
Business units can also help and encourage meritorious students by awarding scholarships for higher studies.

d.National Objectives
Being an important part of the country, every business must have the objective of fulfilling national goals and
aspirations
i.Creation of employment One of the important national objectives of business is to create opportunities for
gainful employment of people. This can be achieved by establishing new business units, expanding markets,
widening distribution channels, etc.
ii. Promotion of social justice As a responsible citizen, a businessman is expected to provide equal opportunities
to all persons with whom he/she deals. He/She is also expected to provide equal opportunities to all the employees
to work and progress. Towards this objective special attention must be paid to weaker and backward sections of
the society.
iii.Production according to national priority Business units should produce and supply goods in accordance
with the priorities laid down in the plans and policies of the Government. One of the national objectives of
business in our country should be to increase the production and supply of essential goods at reasonable prices.
iv.Contribute to the revenue of the country The business owners should pay their taxes and dues honestly and
regularly. This will increase the revenue of the government, which can be used for the development of the nation.
v.Self-sufficiency and Export Promotion To help the country to become self-reliant, business units have the
added responsibility of restricting import of goods. Besides, every business units should aim at increasing exports
and adding to the foreign exchange reserves of the country.

e. Global Objectives
Earlier India had a very restricted business relationship with other nations. There was a very rigid policy for import
and export of goods and services. But, now-a-days due to liberal economic and export–import policy, restrictions on
foreign investments have been largely abolished and duties on imported goods have been substantially reduced. This
change has brought about increased competition in the market. Today because of globalisation the entire world has
become a big market. Goods produced in one country are readily available in other countries. So, to face the
competition in the global market every business has certain objectives in mind, which may be called the global
objectives.
i.Raise general standard of living Growth of business activities across national borders makes available quality
goods at reasonable prices all over the world. The people of one country get to use similar types of goods that people
in other countries are using. This improves the standard of living of people.
ii. Reduce disparities among nations Business should help to reduce disparities among the rich and poor nations of
the world by expanding its operation. By way of capital investment in developing as well as underdeveloped
countries it can foster their industrial and economic growth.
iii. Make available globally competitive goods and services Business should produce goods and services which are
globally competitive and have huge demand in foreign markets. This will improve the image of the exporting country
and also earn more foreign exchange for the country

TYPES OF BUSINESS
ORGANIZATIONS

Meaning of Business Environment
Conditions or situations that affect business activities may be regarded as the environment of business. In other words, business
environment refers to the surroundings and circumstances, which influence business operations. This environment consists of
forces and factors internal or external to a business firm.
The skill and ability of employees, their attitude to work, relations between managers and subordinates etc. may be regarded as
internal environment of business. These are important factors, which may affect business operations. But these are within the
control of the businessman. By taking suitable steps the conditions can be improved.
On the other hand, external environment refers to all those aspect of the surrounding of business, which are not within the control
of the managers and may affect business activities to a great extent. You may have noticed that sometimes there is less demand of
goods produced by a particular firm. It may be due to better quality substitutes which customers find more useful. Again, if the
government policy changes so as to allow foreign goods to be imported at lower rates of customs duty, similar good produced in
India may not sell, as the prices of imported goods may be lower. These conditions are generally not within the control of the
businessmen.
Definition:
According to Arthur M. Weimer, “Business environment is the climate or set of conditions -i.e. economic, social, legal,
technological and political situations in which business activities are conducted”.

Welspun CEO DANCE WITH THE EMPLOYEES
https://youtu.be/58YJ7uFxi_8

Types of Environment
On the basis of the extent of intimacy with the firm, the environmental factors may be classified in to different types or levels. As indicated
below, there are, broadly, two types of environment, the internal environment, i.e., factors internal to the firm and external environment, i.e.,
factors external to the firm which have relevance to it.
‘Environment = External Environment + Internal Environment’
The internal factors are generally regarded as controllable factors because the company has control over these factors; it can alter or
modify such factors as its personnel, physical facilities, organization and functional means, such as marketing mix, to suit the environment.
The external factors, on the other hand, are, by and large, beyond the control of a company. The external or environmental factors such as
the economic factors, socio-cultural factors, government and legal factors, demographic factors, geographical factors etc; are, therefore, generally
regarded as uncontrollable factors. It may, however, be noted that a firm may not sometimes have complete control over all the internal factors.
Also, it is sometimes possible to change certain external factors.

Environment of the Firm
Some of the external factors have a direct and intimate impact on the firm (like the suppliers and distributors of the firm). These factors are
classified as micro environment, also known as task environment and operating environment. There are other external factors which affect an
industry very generally (such as industrial policy demographic factors etc). They constitute what is called macro environment, general
environment or remote environment.

Components of Business Environment

PAYTM CASE
https://youtu.be/ioj9iJLp7OU?si=zt8LhWoNvs_G8Yf7
1.Digital Payment
2.Paytm Wallet
3.Paytm Payments
Bank -2017
4.Paytm Mall
5.Financial Services
6.Travel Booking
7.Entertainment
8.Utilities and Bill
Payment
9.Merchant
Services-POS point,
QR based Payments
10.Gaming-Paytm
First Games

2. MACRO-ENVIRONMENT: It is also known as General environment/ remote environment. These factors are uncontrollable. When the macro
environment is uncontrollable, the success of a company depends on its adaptability to the environment. The macro environment consists of larger
societal forces that affect all the actors in the company's micro environment namely, the demographic, economic, natural, technical, political and
cultural forces.
Important macro environment factors include economic environment, political and regulatory environment, social/cultural environment, demographic
environment, technological environment, natural environment, and global environment. The factors are discussed below.
Demographic Environment: The demographic factors of the market in which an organization operates, and which are used to segment the target
population for effective marketing. It denotes characteristics of the population in area. Demographic factors such as size of the population, race,
education, population growth rates, age composition, asset ownership, employment status, ethnic composition, density of population, rural-urban
distribution, family size, nature of the family, income levels etc. have very significant implications for business.
Economic Environment: There is close relationship between business and its economic environment. Business obtains all its needed inputs from the
economic environment and it absorbs the output of business units. It refers to aggregate of the nature of the economic system of the country, business
cycles, socio-economic infrastructure etc.
Economic Conditions: The economic conditions of a country –nature of the economy, the stage of development of the economy, economic resources,
the level of income, the distribution of income and assets, etc.
Economic Policies: Policies of the government. Some types of business are favourably affected by government policy, some adversely affected, while
it is neutral to some others.
Economic System: system of production, exchange of goods and services as well as allocation of resources in a society.
Important Facts

Political-legal Environment: It refers to the influence exerted by the three political institutions viz., legislature executive and the
judiciary in shaping, directing, developing and controlling business activities. A stable and dynamic political environment is
indispensable for business growth. Political environment of a country is influenced by philosophy of political parties, ideology of
government or party in power etc. Legal environment includes flexibility and adaptability of law and other legal rules governing the
business. It includes;
a.General state of political development
b.Law & order situation
c.Political stability
d.Political Ideology
e.Practices of ruling party
f.Efficiency of government agencies
g.Government policies
h.Specific legal enactments & implementation
Important Facts

Socio-Cultural Environment:
The socio cultural environment includes social customs, values, code of conduct, traditions,etc.Every business is
influenced by the socio cultural environment.. A social dimension of the nation determines the value system of the
society that affects the functioning of the business. Company strategy should align with socio-cultural dimensions.
Meaning of Socio-Cultural Environment
Culture is the very important part of any business.There should be proper understanding of the cultural dimensions for
taking key business decisions.
Important Facts

Some examples of different cultural perceptions of the same product/message/item are given as follows-

Technological Environment: Technology is understood as the systematic application of scientific or other
organized knowledge to practical tasks. Technology changes fast and to keep pace with it, businessmen
should be ever alert to adopt changed technology in their businesses. Business in the country is affected by
the technological advancements & opportunities arising out of technological innovations. The technology
adopted by the industries determines;
a.Type and quality of goods and services to be produced.
b.Type and quality of plant and equipment to be used.
It influences the business in terms of investment in technology and consistent application of technology
Important Facts

Natural Environment: Business, an economic pursuit of man, continues to be dictated by nature. To what extend
business depends on nature and what is the relationship between the two constitutes an interesting study. It includes;
Geological & ecological factors are relevant to business.
natural resources
weather & climate conditions
location aspects
Port facilities etc.
Geological & ecological factors also influence the location of the business.
Topographical factors affect the demand pattern.
Important Facts

International/Global Environment: Due to liberalization, Indian companies were forced to view business
issues from a global perspective. Business responses and managerial practices must be fine-tuned to survive
in the global environment.
These are the factors which are relevant to business.
WTO principles & agreements
International conventions
Treaties
Agreements
Economic sentiments in other countries
Price of crude oil etc.
Particularly important for industries directly depending on imports & exports.
Major international developments have an impact on domestic business.

Difference between Micro and Macro Environment

Environmental Scanning:
Business decisions are influenced by two sets of factors
a.Internal factors (The Internal Environment)
b.External Factors (The External Environment)
Business Environment presents two challenges to the enterprise
a.The challenge to combat the environmental threats
b.Exploit the business opportunities
Environmental Scanning is one of the first steps in Strategic Management to determine development and forecasts of factors that will influence
organizational success. It helps the managers to decide the future path of the organization. Scanning must identify the threats and opportunities
existing in the environment. While strategy formulation, an organization must take advantage of the opportunities and minimize the threats. A
threat for one organization may be an opportunity for another.
Meaning of Environment Scanning:
It’s a careful monitoring of an organization's internal and external environments for detecting early signs of opportunities and threats that
may influence its current and future plans. In comparison, surveillance is confined to a specific objective or a narrow sector.
It is a concept from business management by which businesses gather information from the environment, to better achieve a sustainable
competitive advantage. Environmental scanning is a process of gathering, analyzing and dispensing information for tactical or strategic
purposes. The environmental scanning process entails obtaining both factual and subjective information on the business environments in
which a company is operating or considering entering.
To sustain competitive advantage the company must also respond to the information gathered from environmental scanning by altering its
strategies and plans when the need arises. Thus, Environmental scanning refers to possession and utilization of information about occasions,
patterns, trends and relationships within an organization’s internal and external environment.

Definitions
Environmental scanning is a concept from business management by which businesses gather information from
the environment, to better achieve a sustainable competitive advantage. In order to sustain competitive
advantage the company must also respond to the information gathered from environmental scanning by altering
its strategies and plans when the need arises.
According to Brown and Weiner (1985) “Environmental Scanning is a kind of radar to scan the world
systematically and signal the new, the unexpected, the major and the minor”
“Environmental diagnosis consists of managerial decisions made by analysing the significance of data
(opportunities and threats) of the environmental analysis”
Environmental Scanning is the monitoring, evaluating and disseminating of information from the external and
internal environments to key people within the corporation.

Objective of Environmental Scanning:
The following are the objectives of an environmental Scanning system:
1.Detecting scientific, technical, economic, social and political trends and events important to the business.
2.Defining the potential threats, opportunity, or change for the business implied by those tends and events.
3.Promoting a future orientation in the thinking of management and staff.
4.Alerting management and staff to trends that are converging, diverging, speeding up, slow down, or
interacting.

Importance of Environment Scanning:
Environmental analysis helps the firm to understand what is happening in both inside and outside the organization and to increase the probability that the organizational strategies developed will
appropriately reflect the organizational environment. Environmental scanning is necessary because there are rapid changes taking place in the environment that has a great impact on the
working of the business firm. The following is the need and importance of environmental scanning:
Identification of strength, weaknesses, opportunities & threats:
Strength of the business firm means capacity of the firm to gain advantage over its competitors. Analysis of internal business environment helps to identify strength of the firm. After
identifying the strength, the firm must try to consolidate or maximize its strength by further improvement in its existing plans, policies and resources.
Weakness of the firm means limitations of the firm. Monitoring internal environment helps to identify not only the strength but also the weakness of the firm. A firm may be strong in certain
areas but may be weak in some other areas. For further growth and expansion, the weakness should be identified so as to correct them as soon as possible.
Environmental analyses helps to identify the opportunities in the market. The firm should make every possible effort to grab the opportunities as and when they come. Business is subject to
threat from competitors and various factors.
Environmental analyses help them to identify threat from the external environment. Early identification of threat is always beneficial as it helps to diffuse off some threat.
Optimum use of resources: Proper environmental assessment helps to make optimum utilization of scare human, natural and capital resources. Systematic analyses of business environment
helps the firm to reduce wastage and make optimum use of available resources, without understanding the internal and external environment resources cannot be used in an effective manner.
Survival and growth: Systematic analyses of business environment help the firm to maximize their strength, minimize the weakness, grab the opportunities and diffuse threats. This enables the
firm to survive and grow in the competitive business world.
To plan long-term business strategy: A business organization has short-term and long-term objectives. Proper analyses of environmental factors help the business firm to frame plans and
policies that could help in easy accomplishment of those organizational objectives. Without undertaking environmental scanning, the firm cannot develop a strategy for business success.
Environmental scanning aids decision-making: Decision-making is a process of selecting the best alternative from among various available alternatives. An environmental analysis is an
extremely important tool in understanding and decision making in all situation of the business. Success of the firm depends upon the precise decision making ability. Study of environmental
analyses enables the firm to select the best option for the success and growth of the firm.
Constant Monitoring of the Environment: For success in business it is important to keep an eye on its changing environment. With environmental scanning firms can scan the important
updates of environment. Now, by studying these environmental changes, it is very easy to find the opportunities prevailing in the environment.

Modes of Scanning:
There are three modes of scanning:
Ad-hoc scanning – It is a short term scanning of the environment, usually initiated by a crisis. It is usually performed in
response to crisis. This is not a in-depth scanning and the forecasts are more for short-term. The results may address
immediate issues, but are less generalizable. If only conducted in response to crises, indicates lack of organized
institutional planning efforts and the planning response in this scanning are reactive in nature.
Regular scanning – It is a study done on a regular schedule (e.g. once a year). It is In-depth and the forecasts are for 5 to
10 years. The planning is proactive. The reaction to unforeseen changes in environment (e.g., onset of recession) may
require Ad Hoc scan to supplement information.
Continuous scanning (also called continuous learning) – It is a continuous structured data collection and processing
on a broad range of environmental factors. The data gathered is more comprehensive and it informs planners of critical
changes sooner. Plans can be adjusted or adopted more proactively. Though, it requires ongoing institutional
commitment of resources (funding, personnel and time).

Environmental Scanning:
Internal Scanning: Internal analysis of the environment is the first step of environment scanning. Organizations should
observe the internal organizational environment.
This includes employee interaction with other employees, employee interaction with management, manager interaction with
other managers, and management interaction with shareholders, access to natural resources, brand awareness, organizational
structure, main staff, operational potential, etc.
Also, discussions, interviews and surveys can be used to assess the internal environment. Analysis of internal environment
helps in identifying strengths and weaknesses of an organization.
An internal environmental scan involves looking at the present capabilities of the organization (infrastructure, hardware,
personnel, abilities, structure, etc) and that information can be compared to what the organization WILL need in the future to
achieve its strategic goals.
External Scanning: As business becomes more competitive, and there are rapid changes in the external environment,
information from external environment adds crucial elements to the effectiveness of long-term plans. As environment is
dynamic, it becomes essential to identify competitors’ moves and actions. Organizations have also to update the core
competencies and internal environment as per external environment. Environmental factors are infinite, hence, organization
should be agile to accept and adjust to the environmental changes. External analysis is the broader activity of understanding
the changing external environment that may impact the organization.

Environmental Scanning techniques:
There are four techniques in environmental scanning namely;
1.SWOT Analysis
2.PEST
3.Industry Analysis
4.Competitor Analysis

1.SWOT Analysis (Strength-Weakness-Opportunity-Threat)
SWOT is a technique for analyzing the internal and external environments of an organization through the
identification and assessment of its strengths, weaknesses, opportunities and threats (SWOT). According to
(Kotler and Armstrong, 2011), “SWOT analysis entails a distillation of the findings of an internal and external
audit that draws attention, from a strategic perspective, to the critical organizational strengths and weaknesses
and the opportunities and threats facing the organization”.
The SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations
in business and organizations. SWOT analysis groups key pieces of information into two main categories:
Internal factors – The strengths and weaknesses internal to the organization.
External factors – The opportunities and threats presented by the external environment.
Definition of SWOT:

STRENGTHS- Strengths are the characteristics of the business or a team that give it an advantage over others in the industry. It
can be both positive tangible and intangible attributes, internal to an organization. Examples - Abundant financial resources,
Well-known brand name, Economies of scale, Lower costs [raw materials or processes], Superior management talent, Better
marketing skills, Good distribution skills, Committed employees
WEAKNESSES- The characteristics that place the firm at a disadvantage relative to others. Detract the organization from its
ability to attain the core goal and influence its growth. However, weaknesses are controllable and they must be minimized and
eliminated by the firms. Examples - Limited financial resources, Weak spending on R&D, Very narrow product line, Limited
distribution, Higher costs, Out-of-date products / technology, Weak market image, Poor marketing skills, Limited management
skills, Under-trained employees.
OPPORTUNITIES- They are the chances to make greater profits in the environment- These are the external attractive factors
that represent the reason for an organization to exist & develop. Arise when an organization can take benefit of conditions in its
environment to plan and execute strategies that enable it to become more profitable. The organization should be careful and
recognize the opportunities and grasp them whenever they arise. Examples - Rapid market growth, Rival firms are complacent,
changing customer needs/tastes, new uses for product discovered, Economic boom, Government deregulation, Sales decline for a
substitute product.
THREATS- These are the external elements in the environment that could cause trouble for the business - External factors,
beyond an organization’s control. It arises when conditions in external environment jeopardize the reliability and profitability of
the organization’s business. Threats are uncontrollable. When a threat comes, the stability and survival can be at stake. Examples
- Entry of foreign competitors, Introduction of new substitute products, Product life cycle in decline, Changing customer
needs/tastes, rival firms adopt new strategies, Increased government regulation, Economic downturn.

Uses of SWOT Analysis
Corporate planning- It help the decision makers share and compare ideas.
Set objectives – Defining what the organization is intending to do and setting the objectives accordingly.
Environmental scanning- Internal appraisals of the organizations SWOT, this needs to include an assessment of the present situation as well
as a portfolio of products/services and an analysis of the product/service life cycle.
Analysis of existing strategies- This should determine relevance from the results of an internal/external appraisal. This may include gap
analysis (compare its actual performance with its potential performance which will look at environmental factors)
Strategic Issues defined– key factors in the development of a corporate plan which needs to be addressed by the organization
Develop new/revised strategies– revised analysis of strategic issues may mean the objectives need to change
Establish critical success factors– the achievement of objectives and strategy implementation
Preparation of operational, resource, projects plans for strategy implementation
Monitoring results – mapping against plans, taking corrective action which may mean amending objectives/strategies.
SWOT analysis is also used for business planning, strategic planning, competitor evaluation, marketing, business and product development
and research reports.
Drawbacks of SWOT Analysis:
1.Can be very subjective. Two people rarely come up with the same final version of a SWOT. Use it as a guide and not as a prescription.
2.Categorizing aspects as strengths, weaknesses, opportunities & threats might be very subjective as there is great degree of uncertainty in
market.
3.To be effective, SWOT needs to be conducted regularly. The pace of change makes it difficult to anticipate developments.
4.It lacks detailed structure, so key elements may get missed

How to conduct SWOT Analysis?
1.Analyse Internal & External Environment: It involves the analysis of the internal (strengths & weaknesses) and external factors
(opportunities & threats).
2.Perform SWOT Analysis & Document: It involves certain steps as mentioned below-
Setting the purpose for conducting SWOT.
Gathering information regarding the internal and external environment.
Listing the strengths, weaknesses, opportunities & threats.
Evaluating the strengths, weaknesses, opportunities & threats.
Carrying the findings forward - Making sure that the SWOT analysis is used in subsequent planning. Revisiting the findings at suitable
time intervals.
Documenting the results for future.
3.Prepare Action Plan: Once the SWOT analysis has been completed, marking each point with;
Things that must be addressed immediately
Things that can be handled now
Things that should be researched further
Things that should be planned for the future

2.PEST Analysis (Political, Economic, Social & Technological): A scan of the external macro-environment in which the firm operates can be expressed in
terms of the following factors:
Political
Economic
Social
Technological
The acronym PEST (or sometimes rearranged as "STEP") is used to describe a framework for the analysis of these macro environmental factors.
Political Factors- Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must
operate. Some examples include:
tax policy
employment laws
environmental regulations
trade restrictions and tariffs
political stability
Economic Factors- Economic factors affect the purchasing power of potential customers and the firm's cost of capital. The following are examples of factors
in the macro economy:
economic growth
interest rates
exchange rates
inflation rate
Social Factors- Social factors include the demographic and cultural aspects of the external macro-environment. These factors affect customer needs and the
size of potential markets. Some social factors include:
health consciousness
population growth rate
age distribution
emphasis on safety
Technological Factors- Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions.
Some technological factors include:
R&D activity
Automation
technology incentives,rate of technological change

3.Competitor Analysis: Competitor analysis is necessary for formulating right strategies and positioning for the firm in the industry. It
refers to assessing the strengths and weaknesses of the competitors and involves both offensive and defensive strategies to identify the
opportunities & threats. Competitor analysis seeks to find answers to certain basic questions such as:
Who are the competitors of the firm? What are the current strategies of the competitors? What are their future goals and likely strategies?
What drives the competitor? Where is the competitor vulnerable? How are the competitors likely to respond to the strategies of others?
Porter has suggested a framework for competitor analysis, consisting of four diagnostic components, viz., future goals, current strategy,
assumptions and capabilities.
Future Goals: Analysis of future goals would be helpful to identify the attitude and behavior of the competitor and likely strategies. As
Porter observes, a knowledge of goals will allow predictions about whether or not each competitor is satisfied with its present position and
financial results and, thereby, how likely that competitor is to change strategy.
Assumptions: It is critical to understand:
1. The competitor's assumptions about itself.
2. The competitor's assumptions about the industry and the other companies in it.
A firm may perceive itself as a socially conscious organization, the industry leader, quality conscious firm, highly ethical etc. Such
assumptions will, obviously, guide the way the firm behaves, including reactions to competitors' moves. A firm would also have assumptions
about the industry and competitors like the industry prospects; competitors' goals, capabilities and weaknesses competitors' possible
behaviors and reactions etc.
Current Strategy: Identification of the current strategies of the competitors is a very important component of competitor analysis. A
competitor's strategy is most usefully thought of as its key operating policies in each functional area of the business and how it seeks to
inter-relate the functions.
Capabilities: The ability of a firm to accomplish its goals and to respond to competitor's moves depends on its strengths and weaknesses.
Analysis of the strengths and weaknesses of the competitors is, therefore, very important.

4. Industry analysis -Industry analysis is a tool that facilitates a Company's understanding of its
position relative to other companies that produce similar products or services.
• Understanding the forces at work in the overall industry is an important component of effective
strategic planning.
• Industry analysis enables small business owners to identify the threats and opportunities
facing their businesses, and to focus their resources on developing unique capabilities that
could lead to a competitive advantage

Michael Porter’s Five Forces Analysis
Industry Analysis: The Competitive structure of industries is a very important business environment. A corporation is most
concerned with the intensity of competition within its industry. Identification of forces affecting the competitive dynamics of an
industry will be very useful in formulating strategies. The level of this intensity is determined by basic competitive forces
Porter’s approach to Industry Analysis
According to Michael Porter’s well known model of structural analysis of industries, the state of competition in an industry
depends on five basic competitive forces, namely:
Rivalry among existing firms
Threat of new entrants
Threat of substitutes
Bargaining power of suppliers
Bargaining power of buyers.
Porter’s Five Force
Competitive Structure of
Industry

1.Threat of New Entrants: A growing industry often faces threat of new entrants that can alter the competitive environment. There
may, however be a number of barriers to entry. Potential competition tenor to be high if the industry is profitable or critical, entry
barriers are low and expected.
The following are some of the important common entry barriers:
Government Policy: In many cases government policy and regulation are important entry barriers. For example, prior to the
economic liberalization in India, government dictated entry barriers were rampant, like reservation of industries products for public
sector and small scale sector, industrial licensing, regulations under MRTP Act, import restrictions, restrictions on foreign capital
and technology etc.
Economies of Scale: Economies of scale can deter entry in two ways: it keeps out small players and discourages even potentially
large players because of the risk of large stakes.
Cost Disadvantages Independent of Scale: Entry barrier may also arise from the cost advantages, besides that of economies of
scale, enjoyed by the established firms which cannot be replicated by new firms, such as proprietary product technology, learning
or experience curve, favorable access to raw materials, favorable location, government subsides etc.
Product Differentiation: Product differentiation characterized by brand image, customer loyalty, product attributes etc. may form
an entry barrier forcing new entrants to spend heavily to overcome this barrier.
Monopoly Elements: Proprietary product / technology, monopolization / effective control over raw material -supplies, distribution
channels etc. are entry barriers which are insurmountable or difficult to overcome.
Capital Requirements: High capital intensive nature of the industry is an entry barrier to small firms. Further, the risk of huge
investment could be a discouraging factor even for other firms.

2.Rivalry among Existing Competitors: What is important here is the number and capability of your competitors. If
firm’s have many competitors, and they offer equally attractive products and services, then firm’s most likely have little
power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the
other hand, if no-one else can do what one firm can do, then firm can often have tremendous strength.
There are a number of factors, which influence the intensity of rivalry. These include:
Number of Firms and their Relative Market Share, Strengths etc.: Rivalry is likely to be affected by the number
firms, their relative market shares, competitive strengths, etc.
State of Growth of Industry: In stagnant, declining and, to some extent, slow growth industries a firm is able to
increase its sales only by increasing its market share, i.e., at the expense of others.
Fixed or Storage Costs: When the fixed or storage costs are very high, firms are provoked to take measures to increase
sales for improving capacity utilization or reducing storage costs.
Strategic Stake: Rivalry in an industry becomes more volatile if a number of firms have high stakes in achieving
success there. For example, a firm which regards a particular industry as its core business will give great importance to
success in that industry.
Exit Barrier: High exit barriers. (For example, compensation for labor, emotional attachment to the industry etc.) tend to
keep firms competing in an industry even though the industry is not very attractive.
Diverse Competitors: Rivalry becomes more complex and unpredictable when competitors are very diverse in their
strategies, origins, personalities, relationships to their parents etc.

3.Threats from Substitutes: Substitutes limit the potential return of an industry by placing a ceiling on the prices firms in
the industry can profitably charge. Identifying substitute is searching for other products that can perform the same function as
the product of the industry. The impact of substitutes can be summarized as the industry’s overall elasticity of demand.
Substitutes limit the potential returns in an industry by placing a ceiling on the price firms in the industry can profitable
charge.
4.Bargaining Power of Buyers: For several industries, buyers are potential competitors they may integrate backward.
Besides, they have different degrees of bargaining power. Buyers compete with the industry forcing down prices, bargaining
for higher quality or more services, and playing competition against each other - all at the expense of industry profitability".
A buyer’s group is powerful if:
It purchases large volumes relative to seller sales
The products it purchases from the industry represent a significant fraction of the buyer’s cost of purchase (shop for good
price)
Profitability of the buyer (low profitability tends to pressure costs down).
Potential for backward integration by buyer.
Extent of buyer’s information.
5.Bargaining Power of Suppliers: Suppliers can exert bargaining power over participants in an industry by threatening to
raise prices or reduce the quality of purchased goods and services. A supplier group is powerful if:
Extent of concentration and domination in the supplier industry
Importance of the product to the buyer
Extent of substitutability of the product
Extent of differentiation or standardization of the product
Potential for forward integration by suppliers

Government as a force in industry competition:
Government role as supplier and buyer can be influenced by political factors
Government regulations can set limits on the behaviour of firms as suppliers or buyers
Government can affect the position of an industry with substitutes through regulations, subsidies etc.
Government can affect rivalry among competitors by influencing industry growth

Competitive Strategies
What is Competitive Strategy
Competitive Strategy is defined as the long term plan of a particular company in order to gain
competitive advantage over its competitors in the industry. It is aimed at creating defensive position
in an industry and generating a superior ROI (Return on Investment). Such type of strategies play a
very important role when industry is very competitive and consumers are provided with almost
similar products. One can take example of mobile phone market.
Before devising a competitive strategy, one needs to evaluate all strengths, weaknesses,
opportunities, threats in the industry and then go ahead which would give one a competitive
advantage. Understanding competition, studying customer needs, evaluating their strengths &
weakness etc are all an important aspect of marketing strategy. Companies can study & evaluate on
the basis of their market share, SWOT analysis etc, which would eventually help them drive business
& sales revenue.

Examples of Competitive Strategy
There can be several examples based on the four parameters given by Michael Porter. Some
examples are given below:
1. Cost leadership: Micromax smart phones and mobile phones are giving good quality products at
an affordable price which contain all the features which a premium phone like Apple or Samsung
offers
2. Differentiation leadership: BMW offers cars which are different from other car brands. BMW
cars are more technologically advanced, have better features and have got personalized services
3. Focus Strategy : It involves targeting your products to a niche market or targeted audience. The
idea behind focus strategy is developing, marketing and selling products or services to a niche
market, such as a particular type of consumer, a specific product line or a targeted geographical area

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