BUSINESS ENVIRONMENT

The “environment”
 Contributes resources, i.e. materials we need for production of goods and services and
labor.
 Offers a market place for businesses to sell its products and services.

What are we looking out for when we doing our environmental analysis?

External - Opportunities
- Threats

Internal - Strengths
- Weaknesses

Internal environments are the factors and processes that are directly related with the
operations of our business. Managers are able and should able to control the outcome of
these factors. In other words, managers should be able to optimize their strengths and
eliminate their weaknesses.

External environments are factors that are indirectly related to the business. Managers do
not have control over their outcome. Hence, managers can only choose to operate in
environment where there are maximum opportunities and minimum threats.

INTERNAL ENVIRONMENT

Customers
- Need to create customers/customer base
- Win customers, the market belongs to them (they have the choice
who to buy from)
- Seek information on market on the products and services they
desire

Suppliers
- Resources need for production
- Valuable information on future trends

Competitors
- Benchmarking against performance – quality, service, price
- Bringing out the best of you
- Strive towards excellence

Shareholders
- Decisions how business is to be carried out
- Policies making and procedures setting
 - Profit/returns expectations

Financial Institutions
- Availability of funds
- Cost of funds
- Mode of financing

Employees
- Key resource
- Good work environment
- Job satisfaction
- Availability of work force of required skills
- Reward and motivation systems

EXTERNAL ENVIRONMENT

Physical
- Supply of availability of resources and raw material
- Infrastructure and facilities

Political-Legal
- Laws and regulations
- Government policies
- Taxation

Economic
- Unemployment rate
- Inflation
- Interest rates
- Special trading and business arrangement (Memorandum of Understanding)

Social
- Composition/demographics of populations
- Culture, beliefs and values
- Ethnic and religion

Technology
- availability of required technology
- pace of improvement
- possibility of upgrading

SOCIAL RESPONSIBILITY
General focus of businesses
- primarily economic nature
- make profits
There is a need for business to take on social responsibility – their resources are from the
environment/society they operate in; they sell their product and service to the
environment/society they operate in. By taking on social responsibility, they are creating
a conducive environment for themselves.

Note, being socially responsible does not necessary means contributing to charity and
sponsoring programs. Here we are referring contribution to the society in a positive way.

 Employees relation
- Education and training
- Work environment
- Job satisfaction

 Consumer/customers
- product quality
- product safety
- misleading A & P programs
- ways complaints are handled

 Environment
- Pollution control
- Noise reduction
- Restoration of land and nature
- Recycle

 Financial Honesty & Openness

- Fight against bribery & corruption

- Company control and ownership policy

 Support for Government

- Support for policies
- Support towards campaign

Conflicting view point on Social Responsibility and Profits

- Effort are money from profits

- Shareholders may not be agreeable because it eats into their profits
- Managers may not be willing to take up the responsibility as their
performance is evaluated based on performance, i.e. profits

Study Questions (Possible questions asked during exams)

1. What are the external environmental factor managers would consider before
setting up their businesses?
2. What internal factor would manager analyze when they want to improve their
competitive edge?
3. How managers make their decisions based on external/internal factors?

4. Why is there a need for business to take on social responsibility?

5. Explain and discuss on the conflicts between profitability and being socially
responsible.