BUSINESS ENVIRONMENT

Business doesnt function in vaccum. Organisation can grow and survive when it adapts to changing environment. Rapid changes are involved due to coming up of new ideas, new technology, political changes and economic changes.

 Business environment is aggregate of all the functions, events that affects the business. Surroundings of business enterprise which have influence on the functioning of business.

BUSINESS (affected by)

INTERNAL ENVIRONMENTAL FACTORS

EXTERNAL ENVIRONMENTAL FACTORS

Internal environment
REFERS TO INTERNAL FACTORS WITHIN THE ORGANISATION INCLUDES 5 MS (men, machine, material, management, money) ALL FACTORS ARE CONTROLLABLE IN NATURE

Components of Internal Environment

Brand Image
Working conditions in organization Infrastructure availability

Objectives of business
Financial Resources

Labor Management Relationship

R & D Activities

Human Resources

External Environment
Surroundings of business enterprise which have influence on the functioning of the business. Business Environment may be defined as a set of external factors such as economic factors, socio-cultural factors, government and legal factors, demographic factors which are uncontrollable in nature and which affect the business decisions of a firm or industry.

External Environment
External aspects of surroundings of business enterprise External Factors are Uncontrollable in nature Success of business lies in their awareness and adaptability Like socio-cultural factors, government and legal factors, demographic factors etc

Types of External Environment

Two types:A. Micro Environment. B. Macro Environment.

Micro Environment
Also known as Operating Environment / Task environment of business. It consists of company s immediate environment that affects the performance of the company. These includes customers, suppliers, market intermediaries, competitors and public. Definition by Philip Kotler

1. Suppliers
Suppliers are persons who supply raw materials and components to business. If supplier is reliable, business will run smoothly & it will have to stock less which will decrease its inventory cost. Business must depend upon multiple suppliers which would reduce its risk of non-supply by one supplier on time.

2. Customers
Central point of any business. Customers are of different types such as retail customers, industrial customers, govt. institutions. Success of business depends upon identifying customers needs, likings and enhancing customer satisfaction. Business houses should conduct consumer research and design the product as per the needs of consumers.

3.Market Intermediaries
Link b/w company and final consumer. Help the company to promote, sell and distribute the product to final consumers. Includes :A.Middlemen like wholesalers, retailers. B. Marketing Agencies- like advertising agencies, media firms, market research firms. C. Financial Intermediaries- like banks, insurance companies. D.Physical Intermediaries- like warehouses, transport agencies.

4. Competitors
Business has to adjust its various activities according to actions and reactions of competitors. Business has to analyze the strategies of competitors and make counter strategies. Business need to identify the weaknesses of its competitors and use such weaknesses to strengthen its own business.

5. Public
It is any group which has actual or potential interest in the business. It includes:A. Media public- newspapers, magazines which publishes remarks about the company. B. Local public- people living in the area where business is set-up.

Macro Environment
General environment of the business. Macro forces are uncontrollable in nature. Growth and survival of the business depend upon adaptability to macro economic factors. Includes political environment, economic environment, technological environment, socio-cultural environment, demographic environment and international environment.

Definition of Macro Environment

Macro environment includes forces that create opportunities and pose threat to business units. It includes economic, demographic, natural, technological, political and cultural environments. By Philip Kotler

Components of Macro Environment

1. Economic Environment
It includes the economic factors which have impact on the working of the business. Complex and Dynamic in nature. This environment changes with changes in govt. policies and political situations. It includes 3 elementsA. Economic conditions. B. Economic policies. C. Economic system.

Economic conditions
Includes income level, distribution of income, demand and supply trends , trade cycles and industrial growth. For example - Improvement in economic conditions will improve quality of life of the people and increase the purchasing power. For example - If economy is in boom, it positively affects demand and market share.

Economic policies
Economic policies are framed by the govt. These policies establish the relationship b/w business and govt. Various economic policies includes- Monetary policy, Fiscal policy, Industrial policy, ExportImport policy. These policies may grant tax holidays, provide subsidies, custom duty or increase the same for business houses.

Economic system
Economic system of the country may be1.Capitalism dominated by private sector. 2.Socialism the govt. plays important role in economic development of such economies. 3.Mixed- both public and private sector co-exist.

2. Political Environment
It includes the following components:A. Political stability in the country. B. Political Ideology of the country. C. Welfare activities of the govt. D. Relation of the govt. with other countries. E. Centre State Relationship.

3. Socio-cultural Environment
It includes social and cultural factors such as:a) Caste system. b) Family system. c) Religion. d) Education. e) Marriage. f) Habits and preferences. g) Urbanization. h) Customs and traditions. i) Social responsibility of business.

4. Technological Environment
Technology is dynamic. Fast changes in technology render plants and products obsolete quickly. Success of business depends upon innovation and research. Their should be rapid technology upgradation on the part of businesses.

5. Demographic Environment
It is the study of features of population Important demographic factors are:a. b. c. d. e. f. g. Population size and growth rate Age composition Gender composition Income-level Education level Family size Urban Rural population

6. International Environment
This type of environment is important for the industries depending upon imports and exports. Factors of International Environment are:a. b. c. d. Globalization Liberalization Global Financial Crisis International Terrorism

7. Natural Environment
It includes geographical and ecological factors such as: Natural resources Weather and climatic conditions Port facilities Topographical factors such as soil, sea, rivers, rainfall Environmental pollution Natural calamities