DEFINITIONS OF BUSINESS ENVIRONMENT

Business Environment has been defined by Bayard O. Wheeler as the

total of all things external to firms and industries which affect their
organization and operation.
According to Arthur M. Weimer, business environment encompasses the
climate or set of conditions, economic, social, political or institutional
in which business operations are conducted.
Concept of Business Environment
A business firm is an open system. It gets resources from the
environment and supplies its goods and services to the environment.
There are different levels of environmental forces. Some are close and
internal forces whereas others are external forces. External forces may
be related to national level, regional level or international level. These
environmental forces provide opportunities or threats to the business
community. Every business organization tries to grasp the available
opportunities and face the threats that emerge from the business

environment. Business organizations cannot change the external

environment but they just react. They change their internal business
components (internal environment) to grasp the external opportunities
and face the external environmental threats. It is, therefore, very
important to analyze business environment to survive and to get success
for a business in its industry. It is, therefore, a vital role of managers to
analyze business environment so that they could pursue effective
business strategy. A business firm gets human resources, capital,
technology, information, energy, and raw materials from society. It
follows government rules and regulations, social norms and cultural
values, regional treaty and global alignment, economic rules and tax
policies of the government. Thus, a business organization is a dynamic
entity because it operates in a dynamic business environment.

INTERNAL AND EXTERNAL ENVIRONMENT OF BUSINESS

I.

INTERNAL ENVIRONMENT FACTORS

1. Value system: The value systems of the founders and those at the helm
of affairs have important bearing on the choice of business, the
mission and objectives of the organization, business policies and
practices. It is a widely acknowledged fact that the extent to which the
value system is shared by all in organization is an important factor
contributing to success.
2. Mission and Objectives: The business domain of the company,
priorities, direction of the development, business philosophy business
policy etc are guided by the mission and objective of the company.
Example: Ranbaxys thrust in to the foreign markets and developments
have been driven by its mission to become a researcher based
international pharmaceutical company.

3. MANAGEMENT STRUCTURE AND NATURE

The organizational structure, the composition of board of directors,
extent of professionalization of management etc, are important factors
influencing business decisions. Some management structures and styles
delay decision making while some other facilitate quick decision
making.

The Board of Directors being the highest decision making body

which sets the direction for the development of the organization and
which oversees the performance of organization, the quality of the Board
is a very critical factor for the development and performance of
company.

4. INTERNAL POWER RELATION

Factors like the amount of support the top management enjoys
from the different levels of employees, share holders, and Board of
Directors have important influence on the decision and their
implementation. The relationship between the members of the board and
between chief executive and the Board are also critical factors.
5. HUMAN RESOURCES
The characteristics of the human resources like skill, quality,
morale, commitment, attitude etc., could contribute to the strength and
weakness of the organization.
6. COMPANY IMAGE AND BRAND EQUITY
The image of the company matters while raising finance, forming
joint ventures or other alliances, soliciting marketing intermediaries,

entering purchase on sale contracts, launching new products etc. Brand

equity is also relevant in several of these cases.

7. OTHER FACTORS
A) Research and development determine a companys ability to
innovate and compete.
B) Marketing quality of marketing men, brand equity, distribution
network have direct effect on marketing.
C) FINANCE 0 financial policies; financial position and capital
structure are also affecting business performances.
D) Physical Assets production capacity, technology, distribution
logistics

EXTERNAL ENVIRONMENT FACTORS

It consists of 2 types.
1. Micro environment
2. Macro environment

I. Micro Environment
The micro environment is also known as the task environment and
operating environment became the micro environment forces have a
direct bearing on the operations of the firm.
These include the factors like

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.

8. Research organization
The technological environment of business is enriched by
researched organizations which develops new technologies and provide
other technical inputs.

9. 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.

FUNCTIONAL BUSINESS AREAS

Finance
Fundamentally, finance is a social science discipline.[35] The discipline
borders behavioral economics, sociology,[36] economics, accounting and
management. It concerns technical issues such as the mix of debt
and equity, dividend policy, the evaluation of alternative investment
projects, options, futures, swaps,

and

other derivatives, portfolio diversification and many others. It is often

mistaken[who?] to be a discipline free from ethical burdens. [35] The 2008
financial crisis caused critics to challenge the ethics of the executives in
charge of U.S. and European financial institutions and financial

regulatory bodies.[37] Finance ethics is overlooked for another reason

issues in finance are often addressed as matters of law rather than ethics.
Finance paradigm
Aristotle said, "the end and purpose of the polis is the good life".
[39]

Adam Smith characterized the good life in terms of material goods

and intellectual and moral excellences of character.[40] Smith in his The

Wealth of Nations commented, "All for ourselves, and nothing for other
people, seems, in every age of the world, to have been the vile maxim of
the masters of mankind."[41]
However, a section of economists influenced by the ideology
of neoliberalism, interpreted the objective of economics to be
maximization

of economic

growth through

acceleratedconsumption and production of goods

and

services. Neoliberal ideology promoted finance from its position as a

component of economics to its core.[citation

needed]

Proponents of the

ideology hold that unrestricted financial flows, if redeemed from the

shackles of "financial repressions",[43] best help impoverished nations to

grow. The theory holds that open financial systems accelerate economic
growth by encouraging foreign capital inows, thereby enabling higher
levels

of

savings,

investment,

employment,

productivity

and

"welfare",along with containing corruption.[48] Neoliberals recommended

that governments open their financial systems to the global market with
minimal regulation over capital flows. The recommendations however,
met with criticisms from various schools of ethical philosophy.
Somepragmatic ethicists, found these claims to unfalsifiable and a priori,
although neither of these makes the recommendations false or unethical
per se.[54][55][56] Raising economic growth to the highest value necessarily
means that welfare is subordinate, although advocates dispute this
saying that economic growth provides more welfare than known
alternatives. Since history shows that neither regulated nor unregulated
firms always behave ethically, neither regime offers an ethical panacea.
[58][59][60]

Neoliberal recommendations to developing countries to unconditionally

open up their economies to transnational finance corporations was

fiercely contested by some ethicists. The claim that deregulation and the
opening up of economies would reduce corruption was also contested.
Dobson observes, "a rational agent is simply one who pursues personal
material advantage ad infinitum. In essence, to be rational in finance is
to be individualistic, materialistic, and competitive. Business is a game
played by individuals, as with all games the object is to win, and
winning is measured in terms solely of material wealth. Within the
discipline this rationality concept is never questioned, and has indeed
become the theory-of-the-firm's sine qua non". [69][70] Financial ethics is in
this view a mathematical function of shareholder wealth. Such
simplifying assumptions were once necessary for the construction of
mathematically robust models. Howeversignalling theory and agency
theory extended the paradigm to greater realism.
Other issues
Fairness in trading practices, trading conditions, financial contracting,
sales practices, consultancy services, tax payments, internal audit,
external audit and executive compensation also fall under the umbrella

of finance and accounting.[38][73] Particular corporate ethical/legal abuses

include: creative accounting, earnings management, misleading financial
analysis insider trading, securities fraud,bribery/kickbacks
and facilitation payments. Outside of corporations, bucket
shops and forex scams are criminal manipulations of financial markets.
Cases include accounting scandals, Enron, WorldCom and Satyam

Considerations
Although environmental accounting has many benefits and is a good
idea in theory, it can be difficult to put into practice. When instituting
environmental and social accounting practices, it is necessary to
remember that many of the costs calculated in environmental accounting
are intangible and difficult to measure. The company must make sure it
applies the same standards and assigns the same values to resources
across the organization. Some values are subjective and vary with
individuals, so it can be difficult to come to a consensus on what to
measure and how. Social accounting can also be challenging, as social
values sometimes change quickly.

Potential
Environmental and social accounting have the potential to raise
awareness about public concerns. This can help us substantially reduce
pollution, protect wildlife habitats and save farmland from development.
Environmental and social costing can also help companies to set product
and service prices at levels that take into account the true costs. This
means that consumers will have to pay more for a product whose
production results in a lot of air pollution or whose manufacture required
the development of manufacturing plant facilities on farm land. If prices
are set in this manner, environmental accounting could possibly help
make environmentally costly products more expensive to purchase and
green products less so. The goal is to make damaging the environment
more costly and thereby less profitable while increasing awareness about
the environmental and social impacts of the products we produce and
consume.

AS A TOOL FOR ENVIRONMENTAL MANAGEMENT

With a view to promoting environmental management, Toshiba Group is
working to introduce an environmental accounting approach aimed at
collecting accurate data on investments and costs required for its
environmental conservation initiatives and analyzing the collected data
in order to reflect investment effects and cost-efficiency in managerial
decision making.
The figure below shows an outline of the environmental accounting of
Toshiba Group. Our environmental accounting assumes four basic
concepts: prevention of potential environmental risks, competitive
advantages, internal benefits and external benefits. We classify benefits
into four categories based on combinations of these concepts to develop
a comprehensive approach to environmental accounting: customer
benefits due to reduced power consumption of products, assumed
economic benefits estimated to result from reductions in air pollutant
emissions, benefits resulting from preventing potential risks, and actual
economic benefits resulting from reductions in the amount of waste and

energy consumed. These categories provide useful indices of

environmental management.
Environmental accounting as a tool for environmental management

Environmental costs and benefits

The environmental accounting for FY2010 covers Toshiba and 498
consolidated subsidiaries. Environmental costs are categorized and
calculated in accordance with the Environmental Accounting Guidelines
2005 of the Ministry of the Environment. Meanwhile, environmental
impact reduction benefits are calculated in terms of both physical
quantities and monetary values.
Total environmental costs increased by 1.7% from FY2009 to 55.2
billion yen. While costs required for climate change mitigation
decreased in general, those for the restoration of environmental damage
increased substantially because Toshiba Corp.s Himeji Operations and
group companies reported costs for restoring contaminated soil.
Environmental research and development costs account for 5.4% of the
total R&D costs during the fiscal year (5.8% in FY2009). Of different

business sections, the electronic device section, which manufactures

semiconductors and liquid crystal devices, accounts for the largest
percentage (42%) of total environmental costs, followed by the social
infrastructure section, which accounts for 27% of the total.
Total investments increased by 27% from FY2009 to 10.2 billion yen,
with environmental investments accounting for 4.4% of total
investments (3.8% in FY2009).
The total amount of environmental benefits decreased greatly, by 163%,
from the previous fiscal year to -58.1 billion yen. The largest reason for
this decrease is that emissions of environmental pollutants increased
upon Sigma Power Ariakes expansion of its thermal power generation
business, rendering the assumed economic benefits negative. Since
thermal power generation emits an extremely large amount of pollutants
compared to other business segments, we also chose to show the
assumed economic benefits excluding the effects of the power
generation business in the lower part of the chart below. Those benefits
decreased by 10% compared to the previous year, to 31.1 billion yen,

while actual benefits were down by 38%, to 9.5 billion yen. The reason
these decreases for FY2010 are less compared to FY2009 is due to the
increase in the amount of pollutants emitted due to the expansion of
production. On the other hand, customer benefits grew by 37% to 54.5
billion yen. Growth in sales of products, including energysaving home
appliances such as air conditioning systems and LED lamps, which
greatly reduce power consumption, contributed to the increase in
customer benefits.
We will continue to develop environmental conservation strategies
aimed at increasing environmental benefits based on a careful analysis
of environmental costs.

Environmental costs and benefits (FY2006-FY2010)

Breakdown of environmental costs by business segment (FY2010)

Cost benefits of environmental management measures

The figure on the right shows the changes in the cost benefits of
measures for climate change mitigation and waste disposal over the past
three years. We compared the costs incurred in taking measures to
mitigate climate change and dispose waste against the total amount of
reductions in payments related to energy consumption and waste
disposal compared to the previous year as well as sales of valuables
during the current year. In the table, costs are expressed as business area
costs and benefits as actual benefits. The cost benefits for FY2008 were
negative partly due to an increase in energy payments of 1.3 billion yen
compared to the previous year. On the other hand, this figure indicates
that in FY2009 and FY2010, the sum of cost reduction effects and sales
of valuables exceeded the costs incurred.
The major issue to be addressed going forward is how to overcome two
conflicting problems: an increase in emissions of environmental
pollutants as a result of business expansion and the need for cost

reductions. Toshiba Group will also analyze the cost benefits and other
financial aspects of environmental management measures in more detail.
Cost benefits of measures for climate change mitigation and waste
disposal

INDEX

Definitions Of Business Environment

Internal And External Environment Of Business
External Environment Factors
Macro Environment
Functional Business Areas
Considerations
Potential
As A Tool For Environmental Management
Environmental Costs And Benefits