INTRODUCTION TO BUSINESS

Assoc. Prof. Yasemin BAL

ENVIRONMENT OF BUSINESS
 External environment creates threats and
opportunities for all businesses.

 Most of the managers have the tendency to focus on

the internal activities and underestimate the effect of
the external environment.

 Successful managers should learn the changes in the

external environment and adapt their organizations.
HOW ORGANIZATIONS INTERACT WITH THEIR
ENVIRONMENT?
OPEN SYSTEM
 Organization affected by, and that affect the
external environment.

 Inputs: Goods and services that organizations take in

and use to create products or services.

 Outputs: The products and services that organizations

create.
EXTERNAL ENVIRONMENT OF BUSINESS

 General elements in the external environment

that potentially can influence strategic
decisions.
 THE GENERAL OR MACROENVIRONMENT
OF BUSINESS

 Political-Legal

 Economic

 Socio-Cultural

 Demographic

 Technological

 International
THE GENERAL OR MACROENVIRONMENT
OF BUSINESS

 None of the companies in any industry can

control these segments.

 These segments influence the companies and

industries by providing both threats and
opportunities for them.
 THE GENERAL OR MACROENVIRONMENT
OF BUSINESS
 POLITICAL & LEGAL
ENVIRONMENT:
The political factors relate to the
use and/or allocation of power in
society.

The competition for gaining power

by the interest groups and
political groups affect society.

Government stability, power

bases, deregulation, taxation
laws, consumer protection laws,
foreign trade regulations, custom
regulations are the key factors.
 THE GENERAL OR MACROENVIRONMENT
OF BUSINESS

 ECONOMIC ENVIRONMENT:
Economical factors are vital for a
company’s success and survival.

The flow of money, information, energy,

products and services are important
factors to watch.

Indicators of the economy’s health

such as interest rates, inflation rate,
money supply, unemloyment rates,
trade, payment and budget deficits,
wage rates are important factors to be
considered.
 THE GENERAL OR MACROENVIRONMENT
OF BUSINESS

 DEMOGRAPHIC ENVIRONMENT:
Population size and density, age,
structure, geopraphic ditribution,
ethnic mix, education, income mix
are important demographic
factors.
 THE GENERAL OR MACROENVIRONMENT
OF BUSINESS

 SOCIO-CULTURAL ENVIRONMENT:
It includes the factors that influence the
way people live.

It is concerned with cultural values, social

norms and life style.

Companies should notice and understand

different cultures, values and norms.

Example: Diversity of the workforce

 THE GENERAL OR MACROENVIRONMENT
OF BUSINESS

 TECHNOLOGICAL ENVIRONMENT:
It is related to the development of
knowledge about machines, materials,
processes and tools.

Scientific and technological advancement

has a great impact over organizations,
their products, strategies and
competitiveness.
 THE GENERAL OR MACROENVIRONMENT
OF BUSINESS

 INTERNATIONAL ENVIRONMENT:
The world has become a global
market place.

All previously mentioned factors

should be analyzed in the terms of
globalization for organizations.
THE INDUSTRY ENVIRONMENT

 As a part of the external  The important factors in

environment, the industry the indutry environment
environment is closer to are;
business people and  Customers
organizations.  Suppliers
 Competitors
 So it has a direct effect on  Substitutes
organizations.  Labor Market
THE INDUSTRY ENVIRONMENT

 CUSTOMERS:
Customers are the potential
buyers of the products that
are supplied by the firms in
the industry.
3 major groups of customers
are;
 Consumers

 Retailers & Wholesalers

 Industrial buyers
THE INDUSTRY ENVIRONMENT

 SUPPLIERS:
Suppliers are the individuals
or organizations that provide
raw materials, semi-finished
and finished products that the
company uses to produce its
goods or services.

The quality of the outputs that

a firm produces is very much
dependent on suppliers.
THE INDUSTRY ENVIRONMENT

 COMPETITORS:
Competitors are other
individuals and organizations in
the same industry that produce
similar goods and services for
the same group of customers.
THE INDUSTRY ENVIRONMENT

 SUBSTITUTES:
Substitutes are the goods and
services that may replace or
can be used in company’s
products.

Due to any changes, customers

may change their demand and
prurchasing behavior from the
original products to substitutes.
THE INDUSTRY ENVIRONMENT

 LABOR MARKET:
Human resources are very
important for production.

Companies need to hire personnel

to achieve their goals.

People in the environment available

for hire by the organizations
describes labor market.
ENVIRONMENTAL UNCERTAINTY AND CHANGE

 Uncertainty occurs when business people do

not have sufficient information and knowledge
about the environmental factors.

 In this situation it is not easy for managers to

predict the needs and changes.
ENVIRONMENTAL UNCERTAINTY AND CHANGE

 Two important factors for uncertainty level;

 The number of factors in the environment that

affects the organization,

 Rate of change in these factors.

ENVIRONMENTAL UNCERTAINTY AND CHANGE

 When there are few factors in the environment

that affect the company and if these factors are
rather stable or do not change rapidly,
organizations faces a low uncertainty.
ENVIRONMENTAL UNCERTAINTY AND CHANGE

 When the external factors that affect the

company increase in number and if these
factors change very rapidly, organizations faces
a high uncertainty.
ENVIRONMENTAL UNCERTAINTY AND CHANGE
MANAGING THE ENVIRONMENTAL FACTORS
General Industry General Industry
Environment Environment Environment Environment

TECHNIQUES FOR ADAPTING TECHNIQUES FOR INFLUENCING THE

ENVIRONMENT ENVIRONMENT

- Coordinating and linking activities -Advertising and public relations

- Forecasting and planning activities - Trade associations and unions
- Flexible structures - Political activity
- Building mergers and joint ventures
HOMEWORK-2

 Find a company and analyze

its general and industry
environment by giving
examples.