Chapter 1 :A GLIMPSE OF BUSINESS

ENVIRONMENT
Meaning of Business
Environment
 Business Environment consists of all those
factors that have a bearing on the
business, such as the strengths,
weaknesses, internal power relationships
and orientations of the organisation;
government policies and regulations;
nature of the economy and economic
conditions; socio-cultural factors;
demographic trends; natural factors; and,
global trends and cross-border
developments
Factors Influencing
Business Decision
Types of Environment
Forces Driving Industry
Competition
The Common Entry
Barriers
1. Government Policy
2. Economies of Scale
3. Cost Disadvantages Independent of
Scale
4. Product Differentiation
5. Monopoly Elements
6. Capital Requirements
Rivalry among existing
competitors
 Number of firms and their relative
market share, strengths etc
 State of growth of industry
 Fixed or storage costs
 Indivisibility of capacity augmentation
Contd…
 Product standardization and switching
costs
 Strategic stakes
 Exit Barriers
 Diverse competition
 Switching costs
 Expected retaliation
Threat of substitutes
 “Substitutes limit the potential returns in
an industry by placing a ceiling on the
price firms in the industry can
profitability charge. The more attractive
the price performance alternative offered
by substitutes , the firmer the lid on
industry profits.
Bargaining power of
buyers
 The volume of purchase relative to the
total sale of the seller
 The importance of the product to the
buyer in terms of the total cost
 The extent of standardization o
differentiation of the product
 Switching costs
 Profitability
of the buyer
 Potential backward integration of the
buyer
 Extent of buyers’ information
 Bargaining power of
Suppliers
 Extent of concentration and domination in the
supplier industry
 Importance of the product to the buyer
 Importance of buyer to the supplier
 Extent of substitutability of the product
 Switching costs
 Extent of differentiation or standardization of the
product
 Potential for forward integration by suppliers
Strategic Management
Process