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Contents A.Introduction, Definition and Nature The International Environment A.Macro Environment Domestic macro Environment C. Micro Environment External Public Relation Environment Internal Environment D. Significance of Business Environment
• The term environment refers to the totality of all the factors which are external to and beyond the control of individual business enterprises and their management.
• It differs not only over space but also over time within a country. • Future environment is the product of past and present environments. • It can be classified into economic and non economic factors.
• Business Environment for a firm is a multi layered structure. • Thus. it is necessary for every business to comprehend the nature and structure of business environment and factors causing change in it.Business Environment • Business Environment is the resultant of a number of interacting and constantly changing social and economic forces that affect a business either internally or externally. where some layers are favorable and some are adverse. .
Weimer. Social.Economic. political or Institutional in which business operations are conducted”.Definition According to Arthur M. “Business Environment is the climate or set of conditions. .
Nature of Business Environment Interdependent Dynamic Uncertain Unlimited effect of uncontrollable factors Keep a regular vigil on changing environment .
Different layers of Business Environment Public Relation Environment Domestic macro Environment Internal Environment of the firm International Environment .
Macro Environment –International Environment • Most volatile and Dynamic Change in Exchange Rate State of world Economy (Ex . Recession) Interdependence between National International Economic Policies International Economic laws and .
• Major Events affecting International Environment in the past years: o Formation of WTO in 1995 and ratification of the earlier agreements on trade and related issues. . (removal of import restrictions) o Emergence of European Union and intro of Euro as common currency o Increase in number of free trade areas (NAFTA). o Presence of MNCs the world over.Continued……….
e. tastes and preferences.Risks involved in International Environment • Political Risk: emanating from Political instability. changes in government. possibility of confiscation (elimination. nationalization. changes in competitive environment.g. • Cultural Risk: affecting consumer attitude towards foreign goods and changes in fashions. • Country Risk: It is basically concerned with the performance of an economy. Fiscal deficit and internal debt growth etc. . subtraction).
Macro Environment –Domestic Macro Environment Domestic Macro Environment Economic Environment Economic System Growth and Distribution Macro Economic Stability Economic policy Competitive Environment Non Economic Environment Political Legal Cultural Demographic .
It reflects the economic thinking of a country.Domestic Macro Environment-Economic Environment – 1. .)Economic System Economic System is a way in which a society is organized to decide 3 basic questions What to produce and in what quantities? How to produce? For whom to produce? It provides the framework in which an economy operates.
• The factors of production are privately owned and production occurs at the initiative of the private enterprise • Government plays little role in economic decision making.Continued…………… Major Economic Systems: • Capitalist economic system • A system which encourages private enterprises. . • Ex. Australia and almost all Developed countries. Canada. USA. free play of market forces.
– Govt. control and ownership. – Ex. but resource allocation. production and distribution decisions are based on the principle of Market.Continued………………… • Socialist Market Economy– Productive resources are organized. – Emphasis on equality of income. owned and manage by govt. China .
• Mixed Economy– None of the two elements (Market and Government) has dominating presence. – Ex.Continued………………………… ……. employment and trade. India and most other developing Countries – Role of Government is both regulatory and developmental. – Freedom of selection of profession.. . – Co – existence of both the public and private sectors.
• Measures of real output-GDP.Net Indirect Taxes NY.Depreciation NDP.)Growth and Distribution Environment • Economic Growth refers to increase in real out put over a period of time (usually a year). NDP. Disposable Income GDP C+I+G+(X-M) NDP NY DY GDP.Direct taxes .Domestic Macro Environment-Economic Environment 2. NY.
.)Macro Economic Stability • Stability of Price level • Exchange Rate • Money Supply • Aggregate Demand • Balance of Payment • Employment Rate All these variables are interdependent and interactive and one variable has the potential to upset the other.Domestic Macro Environment-Economic Environment 3.
economic stability. • The effect of these policies may be favorable for some categories of business or unfavorable for some other categories of business. stabilize BOP. increase employment.)Economic Policy • It refers to govt. e.g. policy towards economy as a whole. • Basic objective-maintain growth. correct regional imbalance. . incentives and subsidies.Domestic Macro Environment-Economic Environment4. make economy more competitive.
• Affect cost and availability of credit. – Fiscal Policy • Concerned with the use of taxes and government expenditure.Continued…………………… • Components of Economic Policy – Monetary Policy • It refers to all actions of central bank which affects directly or indirectly supply of money. . rate of interest and Banking system.
Import Substitution. Affect cost and availability of credit.Continued……………………… • Components of Economic Policy – Industrial Policy • • • • • promotes industrialization Correcting regional balances Developing sectoral linkages Promoting Export. – Trade Policy • Improve terms of trade • Enhance export competitiveness .
Once Monopoly or Oligopoly is attained. raise the prices – Price Discrimination .Cartel Formation-mutual business – Predatory Pricing-Charging less prices initially so that others move out of the market.)Competitive Environment • State of competition spells out – freedom of entry and exit in the market – Price – Scale of output • Decides on Competitive strategies. – Trust.Domestic Macro Environment-Economic Environment- 5.
Domestic Macro Environment-Non Economic Environment • 1. code of conduct.Provides a sense of security and safety. leave away black marketing.) Legal Environment . Consumer Protection Act. insider trading etc. . E. Patent (manufacturing goods/processes). Ex. Copyright.g international political relations (war) • 2. tax evasion. gray markets.) Political Environment – Whenever there is a change in the political scenerio of a country there will be a change in economic policies.
) Demographic – Population density. – Helps in market segmentation and Product Positioning . values and customs. • 4. burger etc. – Plays important role in after sale services. • 3. gender ratio (male-female ratio).Continued……………………. Industrial relations.) Cultural Environment– Culture is a set of socially accepted and shared traditional beliefs. wedding dress.. Composition. life expectancy.g. customer relationship and overall HRM – e. Age.
Micro Environment • Public Relations Environment • Internal Environment .
Micro Environment-Public Relations Environment Customers Distribution Channels Suppliers Rivals Others .
Organization exists for the customer and all activities must be customer focused. fairness in dealing. .. Firms should focus on Customer Relationship Management. appropriate quality.Continued……………………. ensure reasonable price. • Customers.provides inputs on regular basis. • Suppliers . rational delivery terms and Timely schedules. All these add to the firm’s competitiveness in the market.
packaging. • Rivals. The channel member must thoroughly understand the product’s competitive advantage and values and conveys the right message down the channel up to the customer. delivery. • Distribution Channel Members. .Continued……………………. quality..they are the link between firms and customers. after sale services etc.Firm competes with its rivals on price.
consumer protection groups. Government etc. All these helps firm gain better image in society. Anti-Pollution campaigners..Local Population Groups.Continued……………………. Human Right Activists. • Other entities. .
Micro Environment-Internal • • • • • • • Environment Mission and Vision Management Philosophy and strategy Industrial relations Corporate culture and values Quality control system Job design and coordination Compensation system and career progression of employees • Team spirit among employees .
Significance of Studying Business Environment • • • • • • • For Incorporating Dynamic behaviour To have complete knowledge of Internal Environment To understand international events To face business problems and challenges Keeps a Vigilance regarding dangers For Scientific and Industrial advantage For Overall success of business .
.Conclusion Careful Monitoring and Analysis of Business Environment helps a firm to do effective business planning and decision making.
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