BUSINESS ENVIRONMENT

Unit 1:
An Introduction to Business Environment
 Business Environment implies the external environment.
 Environment refers to those aspects of the surroundings of the business organisation
which determines it’s effectiveness and influences it’s operations, is called as
environment.
[The efficiency is dependent on the availability of raw materials, and effectiveness is
dependent on the impact of the factors on the organisation.]
 Business environment refers to all the external factors which have a bearing on it’s
activities.
 Environment refers to the totality of facts that are external and beyond the control of
individual enterprises and their management.
 External environment is an uncontrollable factor for the organisation. They do not
have any control over it as it is outside their perspective.
Characteristics Of Environment
1. It is dynamic in nature.
The environmental factors keep on changing, and are not stable.
2. Environment is complex.
It constitutes of a lot many environment factors, which are in turn dependant on each
other. Therefore, it is complex. For example, a change in the legal factor effects the
customers, competitors, etc. it is complex due to the inter-relatedness of these factors.
3. It is multi-faceted.
This means that the factors might have a positive impact on the organisation, or might
have a negative impact on the organisation. Positive impact is called an opportunity,
and negative one is termed as a threat. The same factor might be an opportunity for
one, but threat for another.
4. It has a far-reaching impact.
The business environment factor is either going to be good, or disastrous (threat).
Whether it is an opportunity or threat, the impact is going to be far reaching.

Classification of Environment
1. Internal: The environment within the organisation. – the organisational structure,
stakeholders, relationships between different stakeholders, physical assets, technological
environment, skills of the employees, expertise, financial resources, objectives of the
organisation, value system, ideational resources, etc.
2. External: The environment outside the organisation. – Business Environment.
a. Micro-environment: It is also called as the operational environment.
Organisation interacts with them on a regular basis. Changes in these factors
affects the organisation much more, as they are more frequent than the macro
environmental factors.
They include suppliers, customers, intermediaries, competitions, public at
large.
b. Macro-environment: it is also called as the Remote Environment.
Organisational does not interact on a regular basis as these changes are not
much frequent.
 They include economic, social, national, international, technological, legal,
etc.
Microenvironment
1. Suppliers: We purchase the raw materials required to manufacture. The cost,
availability, and quality of raw materials are important. The organisation is
favourable places if the cost of the raw material is low, and it is abundant, otherwise
unfavourable. The organisation wants raw material at continuous intervals, at the
same price as was quoted.
We say that a larger organisation which buys more raw materials, the supplier gives
more weightage to him, and material will be available to him even during scarcity.
Bulk purchasers are in advantage therefore. The supplier gives you a difference place
in his business activities.

2. Intermediaries: They are external agencies which help in performing our business
activities. Distributors, marketing or advertising firms/banks, etc. they assist the main
organisation but are independent.

3. Public: All those people who are not customers/competitors/suppliers from whom
you do not purchase the products/ other retailers/ wholesalers, etc.

4. Customers: Different types of customers, like individual, industrial, organisational,

firms, government, wholesalers, retailers, etc.
On the basis of loyalty and satisfaction:

1. Apposites – this group is made up of customers who are satisfied or completely

satisfied. They also buys product from you repeatedly and stay loyal. They are one of
the most valuable assets you can earn, as not only they guarantee your company gets
regular revenues, but also they spread a positive word about your brand, giving you
free and genuine advertisement.

2. Mercenaries –are satisfied customers, but they switch between brands. They are
usually price sensitive, looking for bargains and best offers, buying on impulse,
pursuing fashion trends. They don’t feel any attachment to particular brands. They
usually expensive to acquire and difficult to keep. If the competitor comes up with
another product with higher value, then they will shift towards the competitors brand.

3. Hostages – They are not satisfied, but they keep repurchasing from your company.
Why? They are usually stuck with a company because of monopoly situation on the
market or high switching costs. They may easily turn into defectors. The quality
might not be great, but have more features. They do not shift to the competitor even if
they have a better product, thinking that the company will also come up with a similar
variant.

4. Terrorists – They are probably the biggest nuisance to your company. They are
neither satisfied nor loyal and very often spread negative word-of-mouth about your
brand, ruining your reputation.
The Consumer Protection Act, 1986.
Section 6 identifies 6 rights of consumers:

(i) Right to Safety: It gives the customer protection against any hazardous product,
which is dangerous to his life. for example: Pressure Cooker/ Hazardous
chemicals in substandard drugs, etc.

(ii) Right to be Informed: to be informed about the quality and quantity of goods being
sold. They must be informed about the price of the product and have access to
other information specific to the product that they wish to consume. He should
know the ingredients, date of manufacture, expiry, etc. for example: Eatable
products/ Directions of how to use medicines/ etc.

(iii) Right to Choose: The customer should be in a position to buy the variant of the
product which the customer wants to buy. The consumer must have the right to
choose between different products at competitive prices. Thus, the concept of a
competitive market where many sellers sell similar products must be established
to ensure that the consumer can actually choose what to consume and in what
quantity. This is to avoid monopoly in the market. If the customer wants to buy
the toothpaste, he can. The retailer should not put conditions to it.
(iv) Right to be Heard: the consumer should be made aware that if he has any
problem, it will be addressed. The purpose of this right is to ensure that the
consumer gets due recognition in consumer courts or redressal forums. Basically,
when a consumer feels exploited, he has the right to approach a consumer court to
voice his complaint. This right gives him/her due respect that his/her complaint
will be duly heard. The right empowers consumers to fearlessly voice their
concerns and seek justice in case they are exploited.
(v) Right to Seek Redressal: this is a right against unfair trade practices. if there is a
defect in a products, the customer can go to the shopkeeper and ask for redressal.
When a consumer feels exploited, he/she has the right to approach a consumer
court to file a complaint. A consumer court is a forum that hears the complaint
 and provides justice to the party that has been hurt. Thus, if the consumer feels
he/she has been exploited, they can approach the court using this right.
(vi) Right to Consumer Education: Consumers must be aware of their rights and must
have access to enough information while making consumption decisions. Such
information can help them to choose what to purchase, how much to purchase and
at what price. Many consumers in India are not even aware that they are protected
by the Act. Unless they know, they cannot seek justice when they are actually hurt
or exploited. Example: Magazine called Upbhokta Jagaran// TV Program:
Sangrakshan Upbhogta ka.

5. Competitors:
(i) Direct competitors are manufacturing the same products as the organisation. Like
Pepsi and Coca-Cola.
(ii) Indirect competitors manufacture substitute products: Juice and aeriated drinks.
(iii) Form Competitors: offer the same product in different packaging. They change
the form. Like shampoo bottle or sachet.
(iv) Brand: They are similar to direct competitors.
(v) Desire Competitors: The need is there, and you try to cater to that requirement
which no one else has catered to. Like, action fragrance shoes. They cater to the
unmet requirements.
(vi) Generic Competitors: Those competitors that satisfy the same need of the
customer through different ways. Like: Toothbrush with zig-zag bracelets.

Exercise: Identify the environmental factors which are affecting Bisleri.

 SPEAK FROM ENVIRONMENTAL POINT OF VIEW, NOT BISLERI.
 2 important things: Competitors, and who all constitue the target market segment for
the group.
 Competitors: Aquafina, Kinley, Bailey, Tata Water Plus, Kingfisher, Himalyan (direct
competitors) and aerated drinks/ fruit drink manufacturers (indirect competitors).
Premium Mineral Water/ Flavoured Mineral Water. Whether the competitors form a
strategic group or not? Are they are actual competitors or are we wasting our
resources unnecessarily? Here, strategic group will be only direct competitors.
 Target Market: individual and organisational; Tourists, Marriages, Catering
companies, middle class and upper class, families going to restaurant; touristy places,
 The source from where they’re getting water, distribution channels, suppliers.
 Customers as the environmental facts: FPA, hilly people like sweet water,
 Competitors: strengths, weaknesses, strategies of competitors.
 Customers: how the custmers are behving towards bislery, how is Bislery affected by
consumer behaviour?
 Micro environmental factors
 COVID-19, people have become more cautious. They prefer taking water from home
– or pefer packaged water instead of normal at restaurants.
 Strong distribution network of competitors: Competitors like coca cola and pepsi,
because they’re already in the business have a stronger distribution network than
bisleri, and this poses a problem. Coca-cola can distribute it’s water to even the
remotest of areas, and Bislery cannot.
 Plastic pollution: Activists want to get rid of single use plastics. Rail neer is working
on this right now. – bottles for change initiative.
 Lifestyle changes: more people go on vacations and to eat out.
 Increase in sales of RO and water filters has decreased sales.
 It’s a fast-growing industry.
 Increase in disposable income.
 Packaged water is a sign of prosperity by people around.
 Threats: presence of unorganised competitors who repackages used bottles.
 Regulatory agencies are there like BIS, FSSAI license, - find out new provisions
they’re coming up for bottled water.
 Unavailability of clean drinking water.
 Awareness for water-borne diseases. Therefore they prefer to buy quality product.
 Lot of social gatherings, busines meetings, festivals, airlines.
 Lack of product differentiation: increase in promotional activities. You cannot leave
the decision on the target market segment to know better. This is a threat for bislery as
it does not spend a lot on advertisement.
 Comfortable size:
 Legislative changes: mineral content in water.
 Counterfeit products.
 Individual and organisational customers.
 Mineral water is demanded on highways.
 People are shifting towards flavoured water – threat.
 Presence of premium bottled water in the market.
 Low entry barriers: threat
 POLITICAL ENVIRONENT AND IT’S RELATION WITH THE BUSINESS

Relevence of prevailing political environment in which it plans to do busines:

 Jaggan Mohan Reddy’s example for Amravati Project
 18002587170 – unit serial number – window corrupt – cloud recovery – pen drive –
window – 8CG910HSV0 – 32 GB VOOTABLE PENDRIVE – DOCUMENT ID –
C06162205 –
 Military concerns across orders also sometimes impacts.
 India intended to prevent UAE entry into India which was potential for development
of 5G network in India, for Jio.
 Amazon CEO had inclination to expand operations in India in Jan 2020.
 In 1980’s, the government had taken a decision by stating that the cycle tyre
manufacturing unit should be covered under small scale industries. Negative impact
on the business.

Significance of Political Environment

 It refers to the political conditions, factors, courses, etc. which have a bearing on
busines activities. Such factors could comprise of competing political practices. It
could show the strength of the opposition parties, or the peace at the borders/
alignment with international political powers. Political parties provide a kind of
environment where the busines can be run and sync with the framework of policy
decisions made by the political party and they could serve the society.
 Political instability may be a vulnerable situation which could cause a law and order
problems., recurring and widespread crimes, etc. and dent the predictability of
business prospects.
 It could help the business proliferate in a particular geographical region.
 Generally, it is determined by the government. The government often tries to instil a
confidence in the business by providing certain policies in trade and industries,
whereby, the decisions taken by the government are discussed with other opposition
leaders. Therefore, it may try to build a decision-making framework where the
businesses have a direction.

4 Parts of the Political Environment/Framework

Political System
Indian polity has come into being because of the Indian Constitution. There are 2 houses. Etc.

Political Processes

They are the ones which emphasise on the various dimensions of the society. It showcase son
the aspects of what the’re going to do once they come in power. They try to fulfil their
manifesto. They draw the electoral votes, by the virtue of their manifesto. The parties try to
highlight poverty related isues, subsidies, unemployment issues, any benefits to the farmers,
litrecy, healthcare, women empowerment, infrastructure development, etc. Aspects like
education, salaries of employees, housing problems, power shortage, etc. are major problems.
Translating the manifesto into action is what the political process is all about. It’s not just
about the asurancs which they make, but what they actualise. They do an audit as well.
Therefore it is a significant one to bring a change. In doing so, the party ay engage in
transparency, involving people, empowering people, etc. It’s about the commitments they’ve
honoured and how have they.

Stability in Political Structure

This would mean that when a political party tries to engage in democratic prcesses, it needs
to have that stability, have a fair relation between the way in which they conduct themselves,
deal with the judiciary. They may have ties wth different ministries, etc. It is determined by
the beareucratic sructire which is present, the way they deal with depeartments. It is a
standalone structure which provdes the momentum to the political ovements and sabilit yin
the area in which the political parties rule. If there I a discord between a ruling political
member and the governr, it will have impact on the operatins, and therefore the business.
Exmpale: West Bengal protsts. Local unrest is a hurdle to business operations.

Centre State Relations

The regulatory role, promotional role, entrepreurian role, and the planning role. There are the
4 roles of which signify how the government will take an ective role in promting and
regulating the business activities. Therefoe, every government need sto maintain certain
important issues, which provide the basic structure for every busines to operate. The
government determines the scope of these 4 roles which has an impact on the businesses.
These are important for a balanced economic development.

Regulatory Role
The purpose of regulation is to ensure that the business conduct the busines sin a fair manner.
In order to do so, the business indulges into trade, industry, etc. It helps maintain proper socio
economic infrastructure. The government provides certain regulatory measures to ensure this.
Restrictions are put on private establishments to control monopoly.
The regulations may be direct or indirect. The emphasis of the government in order t regulate
the business is therefore two-fold.
Direct regulation provides discretionary measures. Restriction on imports and exports,
resource allocation, distributonn of energy like solar, wind, etc., controlling the distribution
of goods and services to cope up with scarcity, fixation of minimum prices, industrial
licensing, etc.
Example: in the recent data regime, TRAI could intervene to fix the data prices; Ration card
system in PDS – regulating essential good supply; import licensing to determine what could
be imported and what not could be imported – the ministry of commerce lists such
requirements. The government tries to intervene and sees what is of importance to the nation,
what are untoward business which ned not happen in the country, etc.
Control of monopoly: The current Monolopoly Act tries to ensure that the business houses
provide goods of customer’s interest at reasonable prices; Maggie Nestley masala case’
Snapdeal case against staff; Walmart example
Development of Public Enterprises as an alternate to government: Relevece of having a panel
between private establishment, government owned establishment, etc. The government wants
development of public enterprises because of it’ separate legal status, and public welfare
activicites, which is absent in private space. It ensurs that all rules and regulations re
followed. Departmental Undertaking [direct control of ministry] v. Public Corporations
[statutory undertakings]. It is establkshed to achieve the socio economic motives –
substiannability, service driven, government has a stake, lesser direct government control;
government’s responsibility lessens, heck and balance system; ensures competitiveness;
manages unfair play, domination, etc.
DIGITAL LOAN THROGH APPS – Should the government regulate it?