ENVIRONMENTAL ANALYSIS

The environment of any organisation is “the aggregate of all

conditions, events and influences that surround and affect it”.

Environment exhibits many characteristics e.g. (i) Environment is

complex, (ii) Environment is dynamic, (iii) Environment is multi-
faceted and (iv) Environment has a far-reaching impact.

Since the environment is complex, dynamic, multi-faceted and has a

far reaching impact, dividing it into external and internal components
enables us to understand it better. So the environment is broadly
divided into two parts: the external and the internal environment.

The external environment includes all the factors outside the

organisation which provide opportunities or pose threats to the
organisation. The internal environment refers to all the factors within
an organisation which impart strengths or cause weaknesses of a
strategic nature.

The environment in which an organisation exists can, therefore, be

described in terms of the opportunities and threats operating in the
external environment apart from the strengths and weaknesses
existing in the internal environment. The four environmental
influences could be described as follows:

1. An opportunity is a favourable condition in the

organisation’s environment which enables it to consolidate
and strengthen its position. An example of an opportunity is
a growing demand for the product or services that a
company provides.

2. A threat is an unfavourable condition in the organisation’s

environment which creates a risk for, or causes damage to,
the organisation. An example of a threat is the emergence of
strong new competitors who are likely to offer stiff
competition to the existing companies in an industry.

3. A strength is an inherent capacity which an organisation can

use to gain strategic advantage. An example of a strength is

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 superior research and development skills which can be used
for new product development so that the company can gain a
strategic advantage.

4. A weakness is an inherent limitation or constraint which

creates strategic disadvantages. An example of a weakness is
overdependence on a single product line, which is
potentially risky for a company in times of crisis.

An understanding of the external environment, in terms of

opportunities and threats, and the internal environment, in terms of
strengths and weaknesses, is crucial for the existence, growth, and
profitability of any organisation. A systematic approach to
understanding the environment is the SWOT analysis.

SWOT ANALYSIS

Business firms undertake SWOT analysis to understand their external

and internal environments. SWOT, which is the acronym for
‘strengths’, ‘weaknesses’, ‘opportunities’ and ‘threats’, is also known
as WOTS-UP or TOWS analysis. Through such an analysis, the
strengths and weaknesses existing within an organisation can be
matched with the opportunities and threats operating in the
environment so that an effective strategy can be formulated. An
effective organizational strategy, therefore, is one that capitalises on
the opportunities through the use of strengths and neutralizes the
threats by minimizing the impact of weaknesses.

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ENVIRONMENTAL INFLUENCES ON THE FOOD PROCESSING INDUSTRY IN INDIA

The food processing industry is one of the sunrise industries in India whose
potential has been well-recognised but not realized: it could easily be ranked as
one of India’s most underexploited industries. The business environment in which
the food processing industry exists could be explained in terms of the
opportunities and threats.

Opportunities are supported by factors like:

 A high demand potential, estimated at around Rs. 2,50,000 crore, is believed to
exist. Note that the potential was estimated as much less at Rs. 20,000 crore in
1988. The output from the organized sector is just Rs. 5,000 crore. Less than two
per cent of the total production of fruits and vegetables is processed.

 Rising personal incomes, emergence of nuclear families, and a rise in the number
of working women.

 A projected shift in Indian eating habits to mass-based, basic food like atta,
chicken, milk and others.

 Deep inroads made by the spread of television as an advertising medium and the
emergence of a retaining culture.

Threats arise owning to factors like:

 Conservative government policies, like, the reservation of several items
for the small-scale sector, and overregulation with multifarious
legislations governing the industry.

 High taxation on packaged items.

 Lack of private initiative.
 Lack of investment in cold chains comprising cold storages and
refrigerated vehicles for logistics and transport.

Besides these threats, there are some interesting myths related to the processed
food industry in India. For instance, it is perceived that Indians are largely
vegetarian while the fact is that 75 per cent Indians are non-vegetarians. And that
the food processing industry is a high-risk industry dominated by the MNCs. The
reality is that it is not a high-risk industry and is dominated worldwide by local
companies.(pp 99)

EXTERNAL ENVIRONMENT

The external environment consists of variety of factors like:

international, national and local economy, social changes,
demographic variables, political systems, technology, attitude towards

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business, energy sources, raw materials and other resources etc. These
macro level factors designated as the general environment. All
organisations, in some way or the other, are concerned about the
general environment. But the immediate concerns of any organisation
are confined to just a part of the general environment, which is of high
strategic relevance to the organisation. This part of the environment
could be termed as the immediate relevant environment, or simply, the
relevant environment. A conscious identification of the relevant
environment enables an organisation to focus its attention on those
factors which are intimately related to its mission, objectives and
strategies. Depending on its perception of the relevant environment,
an organisation takes into account those influences in its surrounding
which have an immediate impact on its strategic management process.
Having identified its relevant environment, an organisation can
systematically appraise it and incorporate the results of such an
appraisal in strategic planning.

The classification of the general environment into sectors helps

an organisation to cope with its complexity. Depending on a variety of
factors, such as, the size of the organisation, the level and scope of
activities, the geographical spread of markets, the nature of the
product, the type of technology used, and managerial philosophy, an
organisation may divide its environment into sectors capable of being
analysed conveniently. In general, following eight sectors are
considered: Market environment, Technological environment,
Supplier Environment, Economic environment, Regulatory
environment, Political Environment, Socio-cultural Environment,
International environment.

ENVIRONMENTAL SCANNING

The process by which organisations monitor their relevant

environment to identify opportunities and threats affecting their
business is known as environmental scanning.