Meaning of Business Environment Environment of a business means the external forces influencing the business decisions.

They can be forces of economic, social, political and technological factors. These factors are outside the control of the business. The business can do little to change them. Following features: 1. Totality of external forces: Business environment is the sum total of all things external to business firms and, as such, is aggregated in nature. 2. (Specific and general forces: Business environment includes both specific and general forces. Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day-to-day working. General forces (such as social, political, legal and technological conditions) have impact on all business enterprises and thus may affect an individual firm only indirectly. 3. Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market. 4. Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries. 5. Relativity: Business environment is a relative concept since it differs from country to country and even region to region. Political conditions in the USA, for instance, differ from those in China or Pakistan. Similarly, demand for sarees may be fairly high in India whereas it may be almost non-existent in France. Importance of Business Environment 1. Firm to identify opportunities and getting the first mover advantage: Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors. For example, Maruti Udyog became the leader in the small car market because it was the first to recognize the need for small cars in India. 2. firm to identify threats and early warning signals: If an Indian firm finds that a foreign multinational is entering the Indian market it should gives a warning signal and Indian firms can meet the threat by adopting by improving the quality of the product, reducing cost of the production, engaging in aggressive advertising, and so on. 3. Coping with rapid changes: All sizes and all types of enterprises are facing increasingly dynamic environment. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suitable courses of action. 4. Improving performance: the enterprises that continuously monitor their environment and adopt suitable

business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period. Components of Business Environment The following are the key components of general environment of a business. 1. Economic environment economic environment consists of economic factors that influence the business in a country. These factors include gross national product, corporate profits, inflation rate, employment, balance of payments, interest rates consumer income etc. 2. Social environment It describes the characteristics of the society in which the organization exists. Literacy rate, customs, values, beliefs, lifestyle, demographic features and mobility of population are part o the social environment. It is important for managers to notice the direction in which the society is moving and formulate progressive policies according to the changing social scenario. 3. Political environment It comprises political stability and the policies of the government. Ideological inclination of political parties, personal interest on politicians, influence of party forums etc. create political environment. For example, Bangalore established itself as the most important IT centre of India mainly because of political support. 4. Legal environment This consists of legislation that is passed by the parliament and state legislatures .Examples of such legislation specifically aimed at business operations include the Trade mark Act 1969, Essential Commodities Act 1955, Standards of Weights and Measures Act 1969 and Consumer Protection Act 196. 5. Technological environment It includes the level of technology available in a country. It also indicates the pace of research and development and progress made in introducing modern technology in production. Technology provides capital intensive but cost effective alternative to traditional labor intensive methods. In a competitive business environment technology is the key to development.

ENVIRONMENTAL FACTORS 1. SUPPLIERS An important force in the micro environment of a company is the suppliers, i.e. those who supply the inputs like raw materials and components to the company. The importance of reliable source of supply is for the smooth functioning of business. It is very risky to depend on a single supplier became of skills, lock out or any other production problem with that supplier may seriously affect the company. Hence multisource of supply often helps reduce risks. 2. CUSTOMERS

A business exist only became and its customers. A company may have different categories of customers like individuals, households, industries and other commercial establishment and govt. and other institution. 3. COMPETITORS A firms competitors include not only other firms which market the same products but also all those who compete for the discretionary income of the consumers. 4. MARKETING INTERMEDIARIES The immediate environment of the company may consist of number of marketing intermediaries which are firms that aid the company in promoting, selling and distributing its goods to final buyers. The marketing intermediaries includes middlemen such as agents and merchants who help the company find customers or close sales with them. 5. FINANCIERS Another important micro environmental factor is the financier of the company. Besides the financing capabilities, their policies and strategies, attitudes, ability to provide non financial assistance etc are very important. 6. PUBLICS A public is any group that has an actual or potential interest in an impact on an organizations ability to achieve its interests. Media publics, citizen action publics and local publics are some examples. MACRO ENVIRONMENT It is also called as general environment and remote environment. The macro environment is generally uncontrollable than micro environment, the success of the company depends on its adaptability to the environment. The important macro environment factors as follows: I. TECHNOLOGICAL ENVIRONMENT Technology is one of the important determinants of success of a firm as well as economic and social development of nation. It includes both hardware and software to solve problems and promote progress. 1. Innovative drive of company The term innovation means introduction of new product, the use of new method of production. The technical, industrial and commercial steps which leads to marketing of new products and to commercial use of new technical process and equipment. 2. Customers Needs / Expectation Technological orientation and R&D effects of a company may also be influenced by the customer needs and expectation. In several cases the customer and the supplier have a collaborative relationship to develop the product or solutions. If the customers are highly demanding, companies would be compelled to be innovative.

3. Demand conditions The size of demand influences the choice of the technology . The size of demand influences the choice of the technological scale. Fast growing trend of demand would encourage development of technology of large scale. 4. Suppliers offering Many times technological changes are encouraged by the suppliers of a company, like a capital goods supplier etc. 5. Competitive dynamics Competition compels the adoption of the best technology and constant endeavor to innovate. 6. Substitutes Emergence of new substitutes or technological improvements or substitutes which alter technological change. 7. Social forces Certain social forces like pretext against environment pollution or other ecological problems demand for eco-friendly products. Research organization The technological environment of business is enriched by researched organizations which develops new technologies and provide other technical inputs. Govt. policy The govt. contributes to the development to the technology by its own direct involvement by establishing research organization and funding R & D. The govt. may encourage private R & D by various incentives. II. DEMOGRAPHIC ENVIRONMENT The importance of demographic factors to business is clear from the facts that Management is men & Market is people. i.e., Management in Men, Material, Machinery and Money, and market is people in the sense that the demand depends on the people and their characteristics the number, income levels, tastes and preferences, beliefs, attitudes and sentiments. Important demographic bases of market segmentation include the following: Age structure Gender Income distribution Family size Occupation Education Social class Religion

Race Nationality Demographic factors such as size of population, growth rate, age composition, ethnic, density of population, rural urban distribution, nature of family have very significant implication for business. III. ECONOMIC ENVIRONMENT Business partners and strategies are influenced by the economic characteristics. The economic environment includes the structure and nature of the economy, the stage of development of economy, economic resources, level of income, global economic linkages, economic policies etc. 1. Nature of the Economy The general level of development of the economy has lot of implication for business it has significant bearing on the nature and size demand, govt. policies affecting business. The widely used method of classification of the economies is on the basis of per capita income. Accordingly the low income, middle and high income economies. Low income economies are economies with very low per capita income. High income economies are economies with very rich income per capita. Middle income economies are sub divided into lower middle and upper middle income where income per capita is neither very high nor low. 2. Structure of the economy Factors such as contribution of different structure like primary (agricultural), secondary (industrial) & tertiary (secondary) sectors, large, medicine, small sectors to economy. These factors and the nature of each sector have business implication. For example, India is one of the largest producers of agricultural products, because of the small and fragmented nature of land holdings, efficient collection and processing of products become difficult. The land holding pattern also makes productivity improvements difficult. 3. Economic policies There are several economic policies which can have very great impact on business. Important economic policies are

a) Industrial policy It defines the scope and role of different sectors like private, public, joint and cooperative. It may influence the location of industrial undertakings. Choice of technology, state of operation, product mixes etc. b) Trade policy It can affect the fortunes of firms. For example a policy of protecting the home industry may greatly help the import competing industries, while liberation of the impart policy may create difficulties for such industries. This mean the firm should come up with quality, cost, and marketing and after sales service etc.

c) Foreign exchange policy Exchange rate policy and policy in respect of cross border movement of capita are important for business. d) Foreign investment and technology policy Foreign investment and technology policy will increase domestic competition at the same time it would benefit many domestic firms by permitting global sourcing of capital and technology, by increasing the quantity and quality of domestic supply of many goods and services. e) Fiscal policy Govt. strategy in respect of public expenditure and revenue can have significant impact on business. The pattern of public expenditure may affect the develop of industries. Such as govt. often use tax incentives or disincentives to encourage or discourage certain activities. For ex: when industry suffers from recession, a reduction of taxes like excise duty or sales tax may help improve the demand. f) Monetary policy The central bank, by its policy towards the cost and availability of credit, can significantly influence savings, investments and consumer spending in economy. For example 1% reduction in cash reserve ratio will significantly increase loan able funds with commercial banking systems. IV. NATURAL ENVIRONMENT The natural environment ultimately is the source and support of everything used by business every raw material, energy resource, life sustaining factor etc. The natural environment determines what can be got done in a society and how institution can function. Resource availability is the fundamental factor is the development of business in the society. Thus geographical and ecological factors, such as natural endowments, weather and climatic conditions, topographic factors, vocational aspects in the global context etc., are all relevant to business. Geographical factors: differences in geographical condition between markets may sometimes call for changes in the market mix. It influences the location of some industries. E.g. Industries with material index tend to be located near the raw material sources. 2. Climatic and weather conditions: It affects the location of certain industries like cotton textile industry. Topographic factors may affect the demand pattern in some cases. E.g. in hilly areas Jeeps are greater demand than cars. Weather and climatic factors affect the demand of certain types of products. E.g. in region where temperature is very high in summer, there is good demand for desert coolers. Weather and climatic factors can affect the demand pattern of clothing, building materials, food, medicines etc. further, weather and climatic conditions may call for modification to the products, packaging storage conditions etc.

3. Ecological factors: It assumes great importance, the depletion of natural resources, environmental pollution another disturbance of the ecological balance have carried great concern, govt. policies aimed as preservation of environment purity and ecological balance, conservation of non-replenish able resources have resulted additional responsibilities and problems for business. 1. Responsibility to shareholders The responsibility of a company to its shareholders, who are owners is a primary one. The fact that the investments in the business should be recognized. To protect the interests of the shareholders and to provide a reasonable dividend, the company has to strengthen and consolidate its position. 2. Responsibility to employees The success of an organization depends to a very large extent on the morale of the employees and their whole hearted co-operation. The responsibility of the organization to the workers include The payment of fair wages The provision of best possible working condition Establishment of fair working standards and norms The provision of labor welfare facilities to the extent possible and desirable Arrangements for proper training and education of the workers Reasonable chances and proper system for accomplishment and promotion Proper recognition, appreciation and encouragement of special skills and capabilities of workers. The installation for efficient grievance handling system An opportunity for participating in managerial decisions to the extent desirable. 3. Responsibility to consumers The customer is the foundation of business and keeps it in existence. It has been widely recognized that customer satisfaction shall be the key to satisfying the organizational goals. Some important responsibilities of business to customers are To improve the efficiency of the functioning of business so as to increase productivity and reduce prizes, improve quality, smoothen the distribution system to make goods easily available. To do research and development, to improve quality and introduce better of new products. To take the steps to remove the imperfection in the distribution system including black marketing or antisocial elements. To supply goods at reasonable prizes To ensure that the product supplied has no adverse effect on the customer. To provide sufficient information about the product including adverse effects, risks and care to be taken while using the products. To avoid misleading the customers by improper advertisement. To provide opportunity for being heard and to redress genuine grievances. To understand customer needs and to make necessary measures to satisfy these needs.

4. Responsibility to community A business has a lot of responsibility to the community around its location and to society. The responsibilities include Taking appropriate steps to prevent environmental pollution and preserve ecological balance. Rehabilitating the population displaced by operate of the business Assisting in the overall development of locality Taking steps to conserve scares resources and developing alternatives Improving the efficiency of the business operation Contributing to research and development Develop of backward areas Promotion of small scale industries promotion of education and population control Contribution to the national effort to build up a better society