What is Business Environment?

A business organization does not exist in a vacuum. It exists in a world of concrete places and things, natural resources and living persons. The sum of all these factors and forces is called the Business Environment. Business Environment consists of both Internal and External factors. Business Environment in the present era of LPG is becoming increasingly complex. Business Environment can be further classified into two major categories: the economic environment and the non-economic environment. The economic environment includes factors likethe Fiscal Policy, the Monetary Policy, the Industrial Policy, the price and Income equation, Nature of the Economic System, the pace of Economic Development etc. The Non-economic environment includes factors likesocial, cultural, political, legal, technological factors etc.

Leading determinants of the Environment for Business

The state of the World Economy and Distribution of World Output. International Economic Cooperation. Role of Multilateral Economic Institutions. International Economic Laws, Treaties, Agreements, Practices. Political system and conditions in different countries. Cultural factors across countries. Growth and spread of Multinational Corporations. Technology growth and Transfer. Corporate Governance standards and ethical practices across countries. International market structure and competition. Barriers to International Trade and Investment. National Economic policies of different countries.

The Micro and Macro Environment

Macro Business Environment Model
Socio-Cultural Factors Political and Govt. Factors

Micro Business Environment Model

Suppliers Labour Customers

Regulating Agencies

Demographic Factors

Natural Factors

Competitors

Business

Business Associates Economic Factors Technological Factors International Factors

Macro Environment
1. a. b. c. ECONOMIC ENVIRONMENT Economic Conditions Economic Systems Economic Policies

(i) Budgets, (ii) Industrial Regulations, (iii) Economic Planning, (iv) Import & Export Regulations, (v) Business laws, (vi) Industrial Policy, (vii) Control on Prices and Wages, (viii) Trade and Transport Policies, (ix) The size of the National Income, (x) Demand and Supply of various goods The important acts are (i) Factories Act, (ii) Industrial Disputes Act, (iii) FERA, (iv) Imports and Exports Act, (v) Companies Act, (vi) Industries Act.

d. Economic Growth e. Interest Rates f. Currency Exchange Rates g. Inflation Rates

2. a. b. c. 3. a. b. c. d. e. f. g. 4. a. b. c. d. e.

POLITICAL AND GOVERNMENT ENVIRONMENT Legislature Executive Judiciary SOCIO CULTURAL ENVIRONMENT peoples attitude to work and health Role of family Marriage Religion Education Ethical issues Social responsibility of business NATURAL ENVIRONMENT includes Natural resources endowments Weather & climate conditions Topographical factors Location aspects Port facilities etc.

Almost every aspect of business depends upon natural environment. For example.
(i) (ii) (iii) (iv) (v) (vi) Manufacturing depends on physical inputs Mining and drilling depends on natural deposits Agriculture depends on nature Trade between two nations depends on geographical factors Transport and communication depends on geographical factors Topographical factors may affect the demand pattern

5. a. b. c. d. e.

DEMOGRAPHIC ENVIRONMENT includes Size, growth rate, age composition, sex composition etc. of population Family size Economic stratification of population Educational level Caste, religion etc.

Areas of Concern for MNCs

Protection of IPRS Advertising and Sales promotion M Contracts N

Product liability and safety

Computation laws

Cs

Shipping of Goods

Bribery and Corruption Environmental Laws

Labor laws

6.

TECHNOLOGICAL ENVIRONMENT
Technology

A. Social Implications

B. Economic Implications Increased productivity Need to spend on R&D Jobs become intellectual Increased regulation

C. Plant level Changes Organization structure Resistance to change Fear of Risk

High expectations Of consumers System complexity Social changes Social systems

Rise and decline of products Boundaries redefined. Technology Transfer

7. 1. 2.

INTERNATIONAL ENVIRONMENT

3.

4. 5. 6.
7.

Due to liberalization, Indian companies are forced to view business issues from the global perspective. Safe and protected markets are no longer there. World is becoming small in size due to advanced means of transport and communication facilities. Learning of foreign languages is a must for every business manager. Acquiring familiarity with foreign currencies is also a must. Facing political and legal uncertainties is inevitable. To survive amidst intense competition every businessman should try to adapt his products to different customer needs and tastes. Mobilization of resources, particularly financial is an essential starting point in the process of international environment.

Micro Environment
1. SUPPLIERS Suppliers are the persons who supply the inputs like raw materials and components to the business. IMPORTANCE: (i) For the smooth functioning of the business it is very important to have a reliable source of supply. (ii) Uncertainty regarding the supply or other supply problems will compel the companies to maintain high inventories which will cause increase in costs. WHY MULTIPLE SOURCES OF SUPPLY? (i) It is very risky to depend on a single supplier because a strike, lockout or any other production problem with that supplier may seriously affect the company. (ii) A change in the attitude or behavior of the supplier may also affect the company.

2. (i) (ii) (iii) (iv) (v) 3. 4. 5. (I) (II) (III) 6.

CUSTOMERS Industrial Customers Retail Customers Wholesale Customers Government as Customer Foreign Customers LABOUR BUSINESS ASSOCIATES COMPETITORS Generic Competition: Competition in the same line of business. Product form Competition Brand Competition REGULATING AGENCIES

SCOPE OF BUSINESS ENVIRONMENT

USE OF LATEST SCIENTIFIC & TECHNICAL KNOW-HOW. CHALLENGES AND DIFFICULTIES ENCOUNTERED IN CONVERTING RAW MATERIALS INTO SALEABLE PRODUCTS. PROBLEMS CONFRONTED IN RAISING AND SPENDING MONEY FOR THE GOOD OF BUSINESS. THE UPHILL TASK OF BRINGING EMPLOYESS TOGETHER AND MOTIVATING THEM TO ACHIEVE HIGHER PRODUCTIVITY. SLEEPLESS NIGHTS SPENT FOR R&D AND FOR BETTER MARKETING OF THE PRODUCTS. THE TASK OF COMPLYING WITH LEGAL RESTRICTIONS AND GOVERNMENT REQUIREMENTS AND DISCHARGING OBLIGATIONS TO CONSUMERS, EMPLOYEES, OWNERS, AND TO OTHER INTEREST GROUPS WHICH HAVE A STAKE IN BUSINESS DIRECTLY OR INDIRECTLY.

CHARACTERISTICS OF BUSINESS ENVIRONMENT

CHANGE MASS PRODUCTION

GOVT.
INTERFEENCE

& MASS MARKETING.

DIVERSIFICATION COMPETITION BUSINESS

INFORMATION
SCIENCE

GLOBALIZATION

OBJECTIVES OF BUSINESS ENVIRONMENT

POWER PROFIT QUALITY PRODUCTS & SERVICES GROWTH BUSINESS EMPLOYEE SATISFACTION & DEVELOPMENT OBJECTIVES JOY OF CREATION CHALLENGES

MARKET LEADERSHIP

CORPORATE RELATIONSHIP

SERVICE TO SOCIETY

OBJECTIVES OF BUSINESS ENVIRONMENT

ECONOMIC OBJECTIVES---SURVIVAL, ROI, GROWTH, INNOVATION, MARKET SHARE.

SOCIAL OBJECTIVES---PROTECT CONSUMER INTEREST, WORKERS INTEREST , SOCIETYS INTEREST.

PRIMARY OBJECTIVES---BUILDING FINANCIAL INDEPENDENCE, FAIR& REGULAR DIVIDENDS TO SHAEHOLDERS, PAYMENT OF FAIR WAGES, CHARGING FAIR PRICES. SECONDARY OBJECTIVES---BONUS FOR THE WORKERS, PROVIDING AMENITIES TO THE LOCALITIES. SHORT RUN OBJECTIVES--LONG RUN OBJECTIVES---TO INCREASE MARKET SHARE.

ENVIRONMENTAL ANALYSIS
ENVIRONMENTAL ANALYSIS MEANS TO FIND OUT THE IMPLICATIONS OF THE POLICIES OF THE COUNTRY AND COUNTRIES FOR THE COMPANY- THREATS, OPPORTUNITIES etc.

STAGES OF ENVIRONMENTAL ANALYSIS

1. 2. SCANNING THE ENVIRONMENT TO DETECT WARNING SIGNALS. MONITORING SPECIFIC ENVIRONMENTAL TRENDS-CULTURAL, TECHNOLOGICAL, ECONOMIC etc. FORECASTING THE DIRECTION OF FUTURE ENVIRONMENTAL CHANGES-WHERE TO MOVE AND IN WHICH DIRECTION. ASSESSING CURRENT AND FUTURE ENVIRONMENTAL CHANGES FOR THE ORGANISATION.

3.

4.

TYPES OF FORECASTING-TO CATER PEST ENVIRONMENT

1. ECONOMIC FORECAST -PUBLICATIONS WITH REGARD TO VARIOUS ECONOMIC PAREMETERS BY VARIOUS INSTITUTIONS.

2.

SOCIAL FORECASTS -FAMILY SET UP, EDUCATION, POPULATION GROWTH, MIGRATION, RURAL-URBAN, INCOME LEVELS etc.
POLITICAL FORECASTS CHANGES IN VARIOUS POLICIES, STABILITY OF THE GOVT. TECHNOLOGICAL FORECAST CHANGES IN TECHNOLOGY, R & D etc.

3.

4.

ENVIRONMENT TYPES

Macro

Political

Conventional Competitors
Environmental

Economic

Micro

Suppliers

Internal

Buyers Social

New New Substitutes Entrants Legal Technological

ENVIRONMENT MEGATRENDS
Rise of BRIC countries Faster technological advance Shorter product life cycles

Increasing industrial concentration

Global branding More strategic alliances Liberalisation and decentralisation

ENVIRONMENT MEGATRENDS
Peace dividend Rising real incomes Ageing population

Physical resource depletion

Green concerns Economic turbulence Clash of Civilisations

The Organisation and the Environment

MACRO

MICRO

INTERNAL
Organisational

Marketing
Financial Personnel Production R & D

INDUSTRY ANALYSIS
FIVE FORCES
(1) BARRIERS TO ENTRY
Economies of Scale Technology Patents R&D spend Controlled Supply Government Protection Specialist Knowledge

INDUSTRY ANALYSIS
FIVE FORCES

(2) INTENSITY OF RIVALRY

Number

(3) SUBSTITUTES

of Existing Competitors Similarity Exit Barriers Slow Industry Growth Type and Diversity of Competitors Strategic Stakes

INDUSTRY ANALYSIS
FIVE FORCES

(4) POWER OF BUYERS Buyers Low Profits Buyers Low Switching Costs Buyers Total Material Costs

(5) POWER OF SUPPLIERS Concentration Few Substitutes Customer Importance Crucial Product

INDUSTRY ANALYSIS
FIVE MORE FORCES

POTENTIAL RATE OF GROWTH

STRUCTURE OF DEMAND

TECHNOLOGICAL SOPHISTICATION
RATE OF INNOVATION

MANAGERIAL CAPABILITY

SWOT ANALYSIS
1

Strengths are capabilities that provide

a definite benefit in a given situation

Weaknesses are absent resources or

things you do badly

3 4

Opportunities open up possibilities Threats undermine performance and/or

close off future possibilities