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BUSINESS ENVIRONMENT

UNIT – 1BUSINESS AS A SOCIAL SYSTEM
Business is an integral part of social system and it is influenced by
other elements of society which, in term, is affected by the business.
Today

the

wholesociety

is

a

business

environment.D a v i s

and

Blomstorm point out that in taking an ecological view
o f b u s i n e s s i n a s y s t e m s r e l a t i o n s h i p w i t h s o c i e t y ; t hr e e i d e a s
are

significant

i n addition

to

the

systems

idea.The

three

ideas

are:1 . V a l u e s 2 . V i a b i l i t y 3 . P u b l i c v i s i b i l i t y
1. VALUES:
Business like other social institutions, develops certain belief systems
andv a l u e s f o r w h i c h t h e y s t a n d , a n d t h e r e b e l i e f s a n d
v a l u e s a r e a s o u r c e o f institutional drive. These values drive from a
multitude source, such as the missionof business as a social institution, the
nation in which business is located, the typeof industry in which it is active and
the nature of employees. These values becomeguides for employee’s decisions
in the interface of business. Second, they becomestrong motivators for people in
a business.
2. VIABILITY
Davis and Blomstorms define viability as the drive to line and grow,
toaccomplish the potential not yet reached, and to achieve all that a living
system isc a p a b l e o f b e c o m i n g . I f a b u s i n e s s i s t o b e a v i a b l e ,
v i g o r o u s , i n s t i t u t i o n i n s o c i e t y, i t m u s t i n i t i a t e i t s s h a r e o f
f o r c e s i n i t s o w n e n v i r o n m e n t r a t h e r t h a n merely adjust to outside
forces. Every business needs a drive and spirit all its ownto make it as a positive
actor on the social stage rather than reactor or a reflector.
3. PUBLIC VISIBILITY

while are known. business policies and practices. d i r e c t i o n o f the development. The term public image refers to what people think about anorganizations act. It is a social organ to help accomplish the social goals. 2. business philosophy business policy etc a r e guided by the mission and objective of the company.” . t h e m i s s i o n a n d objectives of the organization. discussion and judgment.These are became business is integral part of social system. INTERNAL AND EXTERNAL ENVIRONMENT OF BUSINESS [TYPESOF ENVIRONEMTN]I . The importance of public visibility is that it subjects business activities to public examination. I N T E R N A L ENVIRONMENT FACTORS 1.Mission and Objectives : Th e b u s i n e s s d o ma i n o f t h e c o mp a n y. p r i o r i t i e s .Example: Ranbaxy’s thrust in to the foreign markets and developments have beendriven by its mission – “to become a researcher based international pharmaceuticalcompany.Value system : Th e v a l u e s y s t e m s o f t h e f o u n d e r s a n d t h o s e a t t h e h e l m o f a ffa i r s h a v e i m p o r t a n t b e a r i n g o n t h e c h o i c e o f b u s i n e s s .The term public visibility refers to the extent that organizations activitiesare known to person outside the organization. Public visibility is different fromidea of public image. It is a widelyacknowledged fact that the extent to which the value system is shared by all inorganization is an important factor contributing to success.

C O M PAN Y I M A G E AN D B R A N D E Q U I T Y . 6 . commitment.HUMAN RESOURCES T h e c h a r a c t e r i s t i c s o f t h e h u ma n r e s o u r c e s l i k e s k i l l . q u a l i t y. 5. the composition of board of directors. 4 . are important factors i n f l u e n c i n g business decisions. attitude etc.3. a n d B o a r d o f D i r e c t o r s h a v e important influence on the decision and their implementation. s h a r e h o l d e r s ..MANAGEMENT STRUCTURE AND NATURE The organizational structure. I N T E R N A L P O W E R R E L ATI O N Factors like the amount of support the top management enjoys from thed i f f e r e n t l e v e l s o f e m p l o y e e s . the quality of the Board is a very critical factor for the development and performance of company. Some management structures and styles delay decision makingwhile some other facilitate quick decision making. m o r a l e . could contribute to the strength and weakness of theorganization. The relationship between the members of the board and between chief executive and the Board arealso critical factors. extento f professionalization of management etc.The Board of Directors being the highest decision making body which setst h e d i r e c t i o n f o r t h e d e v e l o p me n t o f t h e o r ga n i z a t i o n a n d w h i c h o v e r s e e s t h e performance of organization.

M i c r o e n v i r o n m e n t 2 .1 . 7. those who components supply the inputs like to raw materials and the .OTHER FACTORS A)Research and development determine a company’s ability to innovate andcompete. Brand equity is also relevant inseveral of these cases.The image of the company matters while raising finance. distribution logistics EXTERNAL ENVIRONMENT FACTORS It consists of 2 types. e . M a c r o e n v i r o n m e n t I. soliciting marketing intermediaries. SUPPLIERS An important force in the micro environment of a company is the suppliers.D)Physical Assets – production capacity. financial position and capital structure arealso affecting business performances. Micro Environment The micro environment is also known as the task e n v i r o n m e n t a n d operating environment became the micro environment forces have a direct bearingon the operations of the firm. entering purchaseon sale contracts. brand equity.B)Marketing – quality of marketing men. C) FINANCE 0 financial policies.These include the factors like … 1. launching new products etc. distribution network have direct effect on marketing. forming jointventures or other alliances.i . technology.

their policies and strategies. MARKETING INTERMEDIARIES T h e i m me d i a t e e n v i r o n me n t o f t h e c o m p a ny m a y c o n s i s t o f n u m b e r o f marketing intermediaries which are “firms that aid the company in promoting. Besides the financing capabilities. industries and other commercial establishment and govt.Hence multisource of supply often helps reduce risks. FINANCIERS A n o t h e r i mp o r t a n t m i c r o e n v i r o n me n t a l f a c t o r i s t h e f i n a n c i e r o f t h e company.”T h e m a r k e t i n g i n t e r m e d i a r i e s i n c l u d e s mi d d l e m e n s u c h a s a g e n t s a n d merchants who “help the company find customers or close sales with them.It is very risky to depend on a single supplier became of skills. 2. households.ability to provide non financial assistance etc are very important.company. and other institution.selling and distributing its goods to final buyers. attitudes. The importance of reliable source of s u p p l y i s f o r t h e s m o o t h functioning of business. A c o m p a n y m a y h a v e different categories of customers like individuals. lock out or any other production problem with that supplier may seriously affect the company. 4. . COMPETITORS A firm’s competitors include not only other firms which market the same p r o d u c t s but also all those who c o mp e t e for the d i s c r e t i o n a r y i n c o m e o f t h e consumers. 3.” 5. CUSTOMERS A b u s i n e s s e x i s t o n l y b e c a me a n d i t s c u s t o m e r s .

MACRO ENVIRONMENT It is also called as general environment and remote environment. the use of newmethod of production. It includes both hardware andsoftware to solve problems and promote progress.The important macro environment factors as follows: I. The macroenvironment is generally uncontrollable than micro environment. “The technical. TECHNOLOGICAL ENVIRONMENT Technology is one of the important determinants of success of a firm aswell as economic and social development of nation. the success of the company depends on its adaptability to the environment. 1. In several cases the customer a n d t h e s u p p l i e r h a v e a c o l l a b or a t i v e r e l a t i o n s h i p t o . PUBLICS “A public is any group that has an actual or potential interest in an impacton an organizations ability to achieve its interests. Innovative drive of company The term innovation means introduction of new product.” 2. citizen action publics and local publics are some examples.6. industrial and commercial steps which leadsto marketing of new products and to commercial use of new technical process andequipment. Customers Needs / Expectation Tec h n o l o g i c a l o r i e n t a t i o n a n d R & D e ffe c t s o f a c o m p a n y m a y a l s o b e influenced by the customer needs and expectation.” Media publics.

If the customers are highly demanding. companies would be compelledto be innovative.d e v e l o p t h e pr o d u c t o r solutions. 7. Fast growing trend of demand would encourage development of technology of large scale.Research organization T h e t e c h n o l o g i c a l e n v i r o n me n t o f b u s i n e s s i s e nr i c h e d by r e s e a r c h e d organizations which develops new technologies and provide other technical inputs. 9. Demand conditions The size of demand influences the choice of the technology . policy . 5. The size of demand influences the choice of the technological scale. like a capital goods supplier etc. Competitive dynamics C o m p e t i t i o n c o mp e l s t h e a d o p t i o n o f t h e b e s t t e c h n o l o g y a n d c o n s t a n t endeavor to innovate. Suppliers offering Many times technological changes are encouraged by the suppliers of acompany. 6. Social forces Certain social forces like pretext against environment pollution or other ecological problems demand for eco-friendly products. Substitutes Emergence of new substitutes or technological improvements or substituteswhich alter technological change.Govt. 3. 8. 4.

Thegovt. incomelevels.Nationality D e m o g r a p h i c distribution 6. M a c h i n e r y a n d M o n e y. M a t e r i a l . rural – urban distribution. density of population. ECONOMIC ENVIRONMENT Business partners and strategies are influenced by the e c o n o m i c characteristics.I m p o r t a n t d e m o g r a p h i c b a s e s o f m a r k e t s e g m e n t a t i o n i n c l u d e t h e following: 1. level of income. economic resources. the stage of development of economy. Nature of the Economy .Family 7. g r o w t h r a t e .Income 5.” i. beliefs.e. III. G e n d e r size 3.Occupation class 10. ethnic.T h e g o v t . DEMOGRAPHIC ENVIRONMENT The importance of demographic factors to business is clear from the factst h a t “Management is men” & “Market is people. The economic environment includes the structure and nature of the economy. a g e composition. 1.Agestructure 4. attitudes and sentiments. tastes and preferences. global economic linkages. economic policies etc. Management i n M e n . R a c e as size of p o p u l a t i o n . c o n t r i b ut e s t o t h e d e v e l o p m e n t t o t h e t e c h n o l o g y by i t s o w n direct involvement by establishing research organization and funding R & D. II.Education 8.Social 2 . may encourage private R & D by various incentives..Religion factors such 9 . nature of family have very significant implication for business. a n d m a r k e t i s p e o p l e i n t h e s e n s e t h a t t h e demand depends on the people and their characteristics – the number.

middle and highincome economies. It may influence the location of industrial undertakings. India is one of the largest producers of agricultural products. govt. Important economic policies are a) Industrial policy It defines the scope and role of different sectors like private. jointand cooperative. product mixes etc. Middleincome economies are sub divided into lower middle and upper middle income where income per capita is neither very high nor low. Choiceof technology. 2. s e c o n d a r y ( i n d u s t r i a l ) & t e r t i a r y ( s e c o n d a r y ) s e c t o r s . state of operation. High income economies are economies with very rich income per capita. public. 3. Economic policies There are several economic policies which can have very great impact on business. For example a policy of protecting thehome industry may greatly help the import competing industries. The widely used method of classification of the economies ison the basis of per capita income. medicine. while . These factors and the nature of each sector have business implication.Low income economies are economies with very low per capita income. because of the small and fragmented nature of land holdings. The land holding pattern also makes productivity improvements difficult. l a rge . Accordingly the low income. For example.The general level of development of the economy has lot of implication for business – it has significant bearing on the nature and size demand. Structure of the economy Factors such as contribution of different structure l i k e p r i m a r y ( a g r i c u l t ur a l ) . small sectors to economy. b) Trade policy It can affect the fortunes of firms. policiesaffecting business.efficient collection and processing of products become difficult.

by its policy towards the cost and availability of credit. For example – 1% reduction in cash reserve ratio will significantlyincrease loan able funds with commercial banking systems. investments and c o n s u m e r s p e n d i n g i n economy. For ex: when industry suffers fromrecession.liberationof the impart policy may create difficulties for such industries. e) Fiscal policy G o v t . by increasing the quantity and quality of domestic supply of many goods and services. NATURAL ENVIRONMENT . a reduction of taxes like excise duty or sales tax may help improve thedemand. IV. This mean the firmshould come up with quality. The pattern of public expenditure may affect thedevelop of industries.c a n significantly influence savings. Such as govt. and marketing and after sales service etc. cost. often use tax incentives or disincentives toencourage or discourage certain activities. d) Foreign investment and technology policy Foreign investment and technology policy will increase domesticcompetition at the same time it would benefit m a n y d o m e s t i c f i r m s – b y permitting global sourcing of capital and technology. s t r a t e g y i n r e s p e c t o f p u b l i c e x p e n d i t ur e a n d r e v e n u e c a n h a v e significant impact on business. f) Monetary policy The central bank. c) Foreign exchange policy Exchange rate policy and policy in respect of cross border movement of capita are important for business.

1. 3. topographic factors. in region where temperature is very high in summer.Thus geographical and ecological factors. life sustaining factor etc.Weather and climatic factors can affect the demand pattern of clothing. building materials.Geographical factors : d i ffe r e n c e s i n g e o g r a p h i c a l c o n d i t i o n b e t w e e n markets may sometimes call for changes in the market mix. Climatic and weather conditions : I t a ffe c t s t h e l o c a t i o n o f c e r t a i n industries like cotton textile industry.. Industries with material index tend to be located near the raw materialsources 2. Weather and climatic factors affect the demand of certain types of products.g. there is good demand for desert coolers.The natural environment ultimately is the source and support of everythingused by business – every raw material. packaging storage conditions etc. It influences the location of some industries. Ecological factors: It assumes great importance. in hilly areas Jeeps are greater demand than cars. medicines etc.g.g.weather and climatic conditions.E. Topographic factors may affect the demand pattern in some cases. govt. Resource availability is the fundamental factor is thedevelopment of business in the society. conservation . environmental pollution another disturbance of the ecological balancehave carried great concern. weather and climatic conditionsmay call for modification to the products. the d e p l e t i o n o f n a t u r a l resources. policies aimed as preservation of environment purity and ecological balance. food. energy resource.E. are all relevant to business. such as natural endowments. E. further.The natural environment determines what can be got done in a society andhow institution can function. vocational aspects in theglobal context etc.

of non-replenish able resources haveresulted additional responsibilities and problems for business. .