BUSINESS ENVIRONMENT

UNIT 1

INTRODUCTION TO BUSINESS ENVIRONMENT

Business refers to a set of organised activities for production and exchange  

of goods and services.

Activities, which are performed with an objective to earn money, are known as  economic
activities.

Activities, which are not performed to earn money but to get some satisfaction,  are called
non-economic activities.

Employment refers to an occupation in which a person works regularly for  

another and gets wages/salary in return.

Profit is the lifeblood of business, without which no business can survive in a  competitive
market

3. AIMS AND OBJECTIVES OF BUSINESS  

All the business activities are performed with some objectives. The objectives of  business
may be classified as –  Economic Objectives  

Economic objectives of business refer to the objective of earning profit and also  other
objectives that are necessary to be pursued to achieve the profit objective,  which includes
creation of customers, regular innovations and best possible use of  available resources.  

Profit Earning  Profit is the lifeblood of business, without which no business can survive in a
competitive market. Thus, profit making is the primary objective for which a  business unit is
brought into existence. Profits help businessmen not only to earn  their living but also to
expand their business activities by reinvesting a part of the profits.

In order to achieve this primary objective, certain other objectives are also  
necessary to be pursued by business, which are as follows :  
i) Creation of Customers : A business unit cannot survive unless there are  customers to buy
the products and services. Again a businessman can earn  profits only when he/she provides
quality goods and services at a reasonable  price. For this it needs to attract more customers
for its existing as well as  new products. This is achieved with the help of various marketing
activities.  
ii) Continuous Innovations : Business is highly dynamic and an enterprise can  continue to be
successful only by adopting itself to change in its  environment. Innovation means changes,
which bring about improvement in  products, process of production and distribution of goods.
Reduction in cost  and increase in sales gives more profit to the businessman. Use of power
looms in place of handlooms, use of tractors in place of hand implements in  farms etc. are
the results of innovation.  
iii) Best Possible Use of Resources : As you know, to run any business you must have
sufficient capital or funds. The amount of capital may be used to  buy machinery and raw
materials, to employ men and have cash to meet day-  to-day expenses. Thus, business
activities require various resources like  men, materials, money and machines. This objective
can be achieved by  employing efficient workers, making full use of machines and
minimizing  wastage of raw materials.  
Social Objectives  
Social objectives are those objectives of business, which are desired to be  achieved for the
benefit of the society.
Human objectives refer to the objectives aimed at the well-being as well as fulfilment of
expectations of employees as also of people who are disabled, handicapped and deprived of
proper education and training.
According to Bayard O Wheeler, business environment refers to the total of all  things
external to firms and industries, which affect their organisation and operation. 
Micro environment means that environment which includes those factors  with which
business is closely related.
Macro Environment has major external and uncontrollable factors that influence an
organisation’s decision-making and affects its performance and  strategies.
Economic Environment consists of Gross Domestic Product, Income level at  national level
and per capita level, Profit earning rate, Productivity and Employment  rate, Industrial,
monetary and fiscal policy of the government etc.
Social Environment consists of the customs and traditions of the society in  
which business is existing. It includes the standard of living, taste, preferences and  education
level of the people living in the society where business exists.
International Environment  It includes rules and regulations of WTO, IMF, WB, SAARC,
G20 and other  international bodies which duly effect the business organisation operating
their  business in any particular country.
Political environment constitutes all the factors related to government affairs  such as type of
government in power, attitude of government towards different  groups of societies, policy
changes implemented by different governments etc.
Legal environment constitutes the laws and various legislations passed in the  parliament.
Technological environment refers to changes taking place in the method of  production, use
of new equipment and machineries to improve, the quality of  product.
Demography refers to studying human populations in terms of size, density,  location, age,
gender, race, and occupation
External environment is generally classified into micro environment and macro  environment.
Micro environment includes those players whose decisions and actions have a  direct impact
on the company.
The people who buy and use a firm’s product and services are an important part  of external
micro environment.
Economic environment includes all those forces which have an economic impact  on
business.
The political-legal environment includes the activities of three political institutions, namely,
legislature,executive and judiciary which usually play a useful role in shaping, directing,
developing and controlling business activities.
Technology implies systematic application of scientific or other organised knowledge  to
practical tasks or activities.
Social and cultural environment also influences the business environment indirectly. These
includes people’s attitude to work and wealth, ethical issues, role of  family, marriage,
religion and education and also social responsiveness of business.
The demographic environment includes the size and growth of population, life  expectancy of
the people, rural-urban distribution of population, the technological  skills and educational
levels of labour force.
With  the liberalisation and globalisation of the economy, business environment of an
economy has become totally different wherein it has to bear all shocks and benefits  arising
out of global environment.  
Natural environment influences business in diverse ways. Business in modern  times is
dictated by nature.
According to Stephen Robbins, “Environment scanning entails scrutinising  the
environment to identify action by competitors, government, union and the like  that might
impinge on the organisation’s operations.” 
A detailed analysis of the macro-environment or the environment as a whole is
called PESTLE analysis,
It is a systematic identification or analysis of Strengths (S) Weaknesses (W)  Opportunities
(O) and Threats (T) in the environment that exist internal or external  to the organisation and
the strategy that reflects the best match between them.
Strengths are the qualities that enable us to accomplish the organization’s  
mission.
Weaknesses are the qualities that prevent us from accomplishing our mission  and achieving
our full potential.
Opportunities are presented by the environment within which our organization  operates.
Threats arise when conditions in external environment jeopardize the reliability  and
profitability of the organization’s business.
Forces in the microenvironment result from the actions of five main elements or  groups,
namely suppliers, distributors, customers, competitors and society. 
Suppliers are individuals or organisations that provide (supply) an enterprise  with the various
inputs (such as raw materials, component parts, or employees)  required for production.
Distributors are organisations that help other organisations sell their goods and  services to
customers.
Customers are the individuals and groups that buy the goods and services that an enterprise
produces, changes in the numbers and types of customers or  changes in customers’ tastes and
needs result in opportunities and threats
Competitors are businesses that produce goods and services that are similar to a  particular
organisation’s goods and services.
The internal environment is the environment that has a direct impact on the  business.
Mission and Objectives  
An organization's mission statement describes what the organization stands for  and why it
exists. It explains the overall purpose of the organization and includes the  attributes that
distinguish it from other organizations of its type.
Effective mission statements lead to effective efforts.
Values are the basic beliefs that define employees' successes in an organization. 
The characteristics of the human resources like skill, quality, morale,  commitment, attitudes
etc. could contribute to the strength and weakness of the  organization.
Economic environment refers to the purchasing power of potential customers  and the ways
in which people spend their money. It consists of Gross Domestic  Product, Income level at
national level and per capita level, Profit earning rate,  Productivity and Employment rate,
Industrial, monetary and fiscal policy of the  government etc.
Technological environment refers to changes taking place in the method of  production, use
of new equipment and machineries to improve, the quality of  product.
Social Environment consists of the customs and traditions of the society in  
which business is existing. It includes the standard of living, taste, preferences and  education
level of the people living in the society where business exists.
Demography refers to studying human populations in terms of size, density,  location, age,
gender, race, and occupation. This helps to divide the population  into market segments
which can be beneficial to a marketer in deciding how to tailor  their marketing plan to attract
that demographic.
3. Shifts of secondary cultural values through time  
Although core values are fairly persistent, cultural swings do take place. Today,  young
people are influenced by new heroes and new activities: Tiger Woods, and  extreme sports.
Pepsi has been a traditional part of the U.S. culture. If people's values  change and society
becomes more vehemently anti-sugar, Pepsi would need to  change its marketing policy and
practices, and perhaps even reformulate its product.  It can also launch healthy drink as a
product line under Pepsi. The company must  continue to make its product one of the central
features of U.S. society. It must also  
continue to monitor the cultural environments of the other countries in which it  does
business.  
4. DEMOGRAPHIC ENVIRONMENT  
Demography refers to studying human populations in terms of size, density,  location, age,
gender, race, and occupation. This helps to divide the population  into market segments
which can be beneficial to a marketer in deciding how to tailor  their marketing plan to attract
that demographic. This is a very important factor to  study for marketers and helps to divide
the population into market segments and  target markets.  
An example of demography is classifying groups of people according to the year  they were
born. These classifications can be referred to as baby boomers, who are  born between 1946
and 1964, generation X, who are born between 1965 and 1976,  and generation Y, who are
born between 1977 and 1994. Each classification has  different characteristics and causes
they find important. This can be beneficial to a  marketer as they can decide who their
product would benefit most and tailor their  marketing plan to attract that segment.
Demography covers many aspects that are  important to marketers including family
dynamics, geographic shifts, work force  changes, and levels of diversity in any given area.
In the demographic environment, marketers must be aware of worldwide  population growth;
changing mixes of age; ethnic composition, and educational  levels; the rise of non-traditional
families; large geographic shifts in population; and  
the move to micromarketing and away from mass marketing. A growing population  does not
mean growing markets unless these markets have sufficient purchasing  power. Nonetheless,
companies that carefully analyze their markets can find major  opportunities.  
For example, Pepsi-Cola has been traditionally a young people's drink; Pepsi will  have to
stimulate consumption by older members of the society. If Pepsi-Cola were  to enter Japan,
they may have cultural setbacks too. The reason being might be their  habits of drinking tea
instead of soft drinks.  
5. NATURAL ENVIRONMENT  
Ecological / natural factors include the natural resources that a company uses as  inputs. As
raw materials become increasingly scarce, the ability to create a company's  product gets
much harder. 
Political macro environment factors include things like tax policies, government-  issued
safety regulations, the availability of government contracts, and even shifts in  the controlling
political party.
Legal environment constitutes the laws and various legislations passed in the  parliament. The
businessman cannot overlook the legislations because he has to  perform his business
transactions within the framework of legal environment.
INTERNATIONAL ENVIRONMENT  
It includes rules and regulations of WTO, IMF, WB, SAARC, G20 and other  
international bodies which duly effect the business organisation operating their  business in
any particular country.

UNIT 2

POLITICAL AND LEGAL ENVIRONMENT

Political institutions are organizations which create, enforce, and apply laws;  
that mediate conflict; make (governmental) policy on the economy and social  
systems; and otherwise provide representation for the populous. Examples of such  
political institutions include political parties, trade unions, and the (legal) courts.  
The term 'Political Institutions' may also refer to the recognized structure of rules  
and principles within which the above organizations operate, including such concepts  
as the right to vote, responsible government, and accountability. 

There are  three distinct activities in every government through which the will of the  
people are expressed. These are the legislative, executive and judicial functions  
of the government. Corresponding to these three activities are three organs of  
the government, namely the legislature, the executive and the judiciary. 

Checks and balances (rights of mutual control and influence) make sure that the  
three powers interact in an equitable and balanced way.
The legislature is the most powerful political institution with boost powers such  
as law-making, budget, Policy making, Budget approving, Executive control, etc.  
A legislature is a decision-making organization, usually associated with national  
government. 
Judiciary provides the business, a manner in which the work of the business has  
to be fulfilled. The judiciary in India is influenced by its political system.
The legislature is the most powerful political institution with boost powers such  
as law-making, budget, Policy making, Budget approving, Executive control, etc.  
A legislature is a decision-making organization, usually associated with national  
government. It has the power to enact, amend, and repeal laws. 
The executive branch has the task of implementing laws. The executive may be  
defined as that branch of the State which formulates policy and is responsible for its  
execution.
Government is the central authority  that has the power to regulate the business and control its
operations.
Judiciary provides the business, a manner in which the work of the business has  
to be fulfilled.
Legal aspects are an indispensable part of a successful business environment in  
any country. They reflect the policy framework and the mindset of the Governmental  
structure of that country.
The Indian Contract Act, 1872, is another legislation which  regulates all the transactions of
a company. It lays down the general  principles relating to the formation and enforceability of
contracts; rules  governing the provisions of an agreement and offer; the various types of
contracts including those of indemnity and guarantee, bailment and pledge  and agency. It
also contains provisions pertaining to breach of a contract. 
The most  important is the Industries (Development and Regulation) Act, 1951  
(IDRA). The main objectives of the Act is to empower the Government to  take necessary
steps for the development of industries; to regulate the  pattern and direction of industrial
development; and to control the activities,  performance and results of industrial undertakings
in the public interest. 
The Industrial Disputes Act, 1947 is the main legislation for  investigation and settlement of
all industrial disputes.
he  legislation regulating these trade unions is the Indian Trade Unions Act,  
1926. 

Intellectual property (IP) is the creation of human intellect. It refers to the  

ideas, knowledge, invention, innovation, creativity, and researches all being  
the product of human mind and is similar to any property, whether movable  
or immovable, wherein the proprietor or the owner may exclusively use his  
property at will and has the right to prevent others from using it, without his  
permission.
The environmental regulatory requirements envisage a wide  legislative framework covering
every aspect of environment protection.  
Broadly, it includes the emission standards for air, noise, water, etc.
The major legislations relating to Occupational  Health and Safety in India are : – the
Factories Act, 1948; the Mines Act,  1952 and the Dock Workers (Safety, Health & Welfare)
Act, 1986. The Government of India has taken steps like announcing a  
competition policy, enacting Competition Act, 2002 and setting up of  Competition
Commission of India, in order to ensure a healthy and fair  competition in the market
economy.
For regulation of the export and import of goods and services an  entrepreneur has to abide
by the Foreign Trade (Development and Regulation) Act, 1992 and the EXIM policy
announced by the Government  from time to time.

The Securities Contracts (Regulation) Act, 1956, Securities and  Exchange Board of India
Act, 1992 and Depositories Act, 1996 have been  introduced by Securities and Exchange
Board of India (SEBI), with a view to  protect the interests of investors in the securities
markets as well as to  maintain the standards of corporate governance in the country. 
Traditional economies still produce products and services that are the direct  result of their
beliefs, customs, traditions and religions etc.
In terms of economic advancement, the command economic system is the next  
step up from a traditional economy.
A market economy is very similar to a free market.
A mixed economic system (also known as a Dual Economy) is just like it  sounds (a
combination of economic systems), but it primarily refers to a mixture of  a market and
command economy (for obvious reasons, a traditional economy does  not typically mix
well).
India‘s Economic Policy plays a major role in determining various government  
actions on the economic field.
In the year 1991, the Indian economic policy saw a major economic policy reform, which
resulted in shifting the direction of India economic policy from the post-independence era. 
Socialism is an economic system in which the means of production are socially owned and
used to meet human needs instead of to create profits.
A mixed economy is an economic system in which both the state and private sector direct the
economy, reflecting characteristics of both market economies and planned economies.
Infosys is a multinational private company that provides IT services to its clients in India as
well as abroad.
In India, a public sector company or undertaking is meant to refer any corporation or
company that is owned by government.
The joint  sector is an extension of the concept of mixed economy.
The concept of a joint sector is basically an extension of the idea of mixed  economy in which
the public and private sector units are separate and function  independently but are
nevertheless part of a national plan.
The Dutta Committee advocated conversion of some of the private sector units  into joint
sector enterprises as an important means of curbing the concentration of  economic power in
certain private groups.
The IT sector has been India's sunshine sector for quite some time now. 
The Indian healthcare industry also has advantages over other developing countries  
in becoming a global hub for medical tourism.
Hence eradication of poverty and unemployment is a major challenge before the economy. 
Another important concern before the government is the rising prices of commodities in the
market which is called inflation. 
The  government of India has taken few measures to provide education to all under The
Right of children to free and compulsory education Act 2009.
Due to lack of proper health care 254 females out of every  100,000 die while giving birth.
This is called maternal mortality rate (MMR)
In a simpler manner we can define economic growth as increase in our country’s  total
income and per capita income.
In  order to maintain the momentum of economic growth the government has  modified rules
and regulations so that people can easily participate in the  process of development. These
steps are known as economic reforms.

Unit 3
Social and Cultural Environment
Social Environment consists of the customs and traditions of the society in which business is
existing.
Cultural environment consists of institutions and the basic values and beliefs of  a group of
people.
Socio-cultural environment means the value attitudes, beliefs and customs of  people in a
given group or society.
Learned : Culture is not inherited or biologically based, it is acquired by  learning and
experience  
l Shared : People are member of a group, organisation, or society share  culture, it is not
specific individual.  
l Trans Generational : Culture is passed on from one generation to the next.  
l Symbolic : Culture is based on the human capacity to symbolic or use one  thing that
represents another.  
l Adaptive : Culture is based on the human capacity to change or adapt, as  opposed to the
more genetically driven adaptive process of animals. 
Your core values are a handful of rules you have clearly defined and your team live by
regularly.
A strong values culture will also encourage a strong corporate reputation that will yield
tangible benefits.
The social audit is a business statement published every year to present a set of information
about the social projects, benefits and actions addressed to employees,  
investors, market analysts, shareholders and the community at large.
Corporate Governance may be defined as a set of systems, processes and principles which
ensure that a company is governed in the best interest of all stakeholders.
Investors are those who provide finance by way of investment in debentures, bonds, deposits
etc. Banks, financial institutions, and investing public are all included in this category.
Suppliers are businessmen who supply raw materials and other items require  by
manufacturers and traders.
Business activities are governed by the rules and regulations framed by the  
government.

The competitive environment, also known as the market structure, is the dynamic system in
which your business competes.

Differentiating your product or service in a competitive environment entails developing an

element of your business that competitors can’t imitate. 

Technological innovation also affects the competitive environment, hindering those who

don’t adapt.

Competitive strategies are the method by which you achieve a competitive advantage in the
market. 

Cost Leadership  
The aim of this strategy is to be a low-cost producer relative to your competitors and is
particularly useful in markets where price is a deciding factor.

A differentiation strategy seeks to develop a competitive advantage through supplying and

marketing a product that is in some way different to what the  competition is doing.

Focus strategy  
This strategy recognises that marketing to a homogenous customer group may not be that
effective a strategy for the product the business is selling.
Porter’s five forces help to identify where power lies in a business situation.
 UNIT 4

INTERNATIONAL ENVIRONMENT

International Business environments are unfamiliar and different from the domestic

environment.
GATT's main objective was to reduce the barriers of international trade through the reduction
of tariffs, quotas and subsidies. 

The WTO's predecessor, the GATT, was established on a provisional basis after  
the Second World War in the wake of other new multilateral institutions dedicated  
to international economic cooperation - notably the “Bretton Woods” institutions  
now known as the World Bank and the International Monetary Fund. 

The Uruguay Round began in 1986. It was the most ambitious round to date, hoping to
expand the competence of the GATT to important new areas such as services, capital,
intellectual property, textiles, and agriculture. 123 countries took part in the round.
The Uruguay Round was also the first set of multilateral trade negotiations in which
developing countries had played an active role.  

The Agreement on Agriculture of the Uruguay Round continues to be the most substantial

trade liberalization agreement in agricultural products in the history of trade negotiations. 
The Uruguay round of GATT (1986-93) gave birth to World Trade Organization. 
The members of GATT singed on an agreement of Uruguay round in April 1994 in Morocco
for establishing a new organization named WTO.
Contrary to the temporary nature of GATT, WTO is a permanent organization which has
been established on the basis of an international treaty approved by participating countries. It
achieved the international status like IMF and IBRD, but it is not an agency of the United
Nations Organization (UNO). 

WTO system is based on rules rather than power and this makes life easier for all trading
nations. Through WTO trade barriers are lowered and this increases imports and exports thus
earning the country foreign exchange thus raising the country's income.  
The WTO’s General Agreement on Trade in Services, or GATS, includes a list of about 160
threatened services including elder and child care, sewage, garbage, park maintenance,
telecommunications, construction, banking, insurance, transportation, shipping, postal
services, and tourism.
The WTO's fierce defence of Trade Related Intellectual Property rights (TRIPs) patents
copyrights and trademark comes at the expense of health and human lives. 
The WTO is a permanent institution with its own secretariat.  
The WTO dispute settlement system is faster, more automatic, and thus much less susceptible
to blockages, than the old GATT system. The implementation of WTO dispute findings will
also be more easily assured. 

Globalization is the system of interaction among the countries of the world in order to
develop the global economy. Globalization refers to the integration of economics and
societies all over the world.

Negative integration is the breaking down of trade barriers or protective barriers such as
tariffs and quotas. The removal of barriers can be beneficial for a country if it allows for
products that are important or essential to the economy.

Positive integration on the other hand aims at standardizing international economic laws and
policies.
In the first stage (market entry), companies tend to enter new countries using business models
that are very similar to the ones they deploy in their home markets. 
In the second stage (product specialization), companies transfer the full production process of
a particular product to a single, low-cost location and export the goods to various consumer
markets.
The third stage (value chain disaggregation) represents the next step in the company’s
globalization of the supply-chain infrastructure.
In the fourth stage (value chain reengineering) companies seek to further increase their cost
savings by reengineering their processes to suit local market conditions, notably by
substituting lower-cost labor for capital. 
Finally, in the fifth stage (the creation of new markets), the focus is on market expansion.

The economy of India had undergone significant policy shifts in the beginning of the 1990s.
This new model of economic reforms is commonly known as the LPG or Liberalization,
Privatization and Globalization model. 

Liberalization  
It is defined as making economics free to enter in the market and establish their venture in the
country. Liberalization refers to relaxation of government restrictions in areas of economic
policies. 

Privatization is defined as when the control of economic is sifted from public to private hand
then the situation is known as privatization.

Globalization describes the process by which regional economies, societies, and  

cultures have become integrated through a global network of communication,  
transportation, and trade.

Direct exporting is selling directly into the market you have chosen using in the first instance
you own resources.

Licensing is a relatively sophisticated arrangement where a firm transfers the rights to the use
of a product or service to another firm.

Franchising is a typical North American process for rapid market expansion but it is gaining
traction in other parts of the world.
Partnering is almost a necessity when entering foreign markets and in some parts of the world
(e.g. Asia) it may be required.

Joint ventures are a particular form of partnership that involves the creation of a third
independently managed company.

Piggybacking is a particularly unique way of entering the international arena. If you have a
particularly interesting and unique product or service that you sell to large  
domestic firms that are currently involved in foreign markets you may want to  
approach them to see if your product or service can be included in their inventory for  
international markets.

Turnkey projects are particular to companies that provide services such as environmental
consulting, architecture, construction and engineering. Greenfield investments require the
greatest involvement in international business. 

A multinational corporation/company is an organisation doing business in more  

than one country. In other words it is an organisation or enterprise carrying on  
business in not only the country where it is registered but also in several other  
countries. It may also be termed as International Corporation, global giant and  
transnational corporation. 

A subsidiary, named as Microsoft Corporation India Private Limited, of the U. S.  

(United States) based Microsoft Corporation, one of the software giants has got  
their headquarter in New Delhi.
Ranbaxy Laboratories Limited, one of the biggest pharmaceutical companies in  
India, started their business in the country from the year 1961. PepsiCo. Inc. entered the
Indian market with the name of PepsiCo India from the year 1989. Sony India is a part of the
renowned brand name Sony Corporation, which started their business operation in the year
1946 in Japan. Vodafone Group Plc is an international telecommunication company, which
has  got it's headquarter based in London in the United Kingdom (U. K.). The biggest
automobile company in India, Tata Motors Limited, is among the  
leading commercial vehicles manufacturer in the country.
Foreign direct investment (FDI) is an investment in a business by an investor from another
country for which the foreign investor has control over the company  
purchased.
The Foreign Direct Investment (FDI) in any country abroad is the net inflow of  
investment (capital or other), in order to acquire management control and profit  
sharing or the whole ownership of an accredited company operating in the country  
receiving investment.
FDI is a major source of external finance which means that countries with limited amounts of
capital can receive finance beyond national borders from  
wealthier countries.
Skilled workforce is very important to a firm who is transferring its capital to  different
place/country because if a country's labour is unskilled, firms who want to invest will have to
spend a fortune on training and education of their workforce which costs a lot and will
outweigh the likely benefit of moving their production plant/capital to a new country.