TOPIC 1

Introduction: ‘business’
and its ‘environments’

Prepared by Dr. Nguyen Nhat Tan

Topic 05 Learning objectives

 Recognize different uses of the term business, and

understand the different forms of business in terms of, for
example, private, public and not-for-profit organizations.

 Understand controversy concerning the nature and purpose

of private sector business.

 Describe the complexity of the external environment in

which business operates and explain the idea of
environmental uniqueness.
Topic 05 Learning objectives

 Understand how businesses must respond to changing

environmental factors in order to operate successfully, but
also how they seek to influence the environment.

 Use analysis tools such as PEST or SWOT to examine the

business environment.

 Understand the approach to the business environment of

this book and how to use it in your studies.
Topic 05 Key themes

 Diversity of business: business is a diverse category

 Internal/external: the environment is both inside and outside

organizations

 Complexity of the environment: the external environment is multi-

Tính đa chiều và phức tạp
dimensional or complex
Cấp độ không gian
 Variety of spatial levels: from the local to the global

 Dynamic environment: the environment of business does not stand still

 Interaction between business and the environment: there is

interaction between business organizations and their environments

 Stakeholders: individuals and groups that are affected by business

decisions

 Values: business decisions involve ethical questions

Topic 05 Key themes

 Diversity
• Business does not refer only to private sector, profit
making companies. Public and voluntary (or third)
sector organizations may also be regarded as businesses.
• Within the dominant private sector, businesses vary in a
number of ways, such as legal structure, industry, size and
market power, and geographical reach.
• Each business operates in an environment that is, to some
extent, unique.
Topic 05 Key themes

 Internal/external:
Điều kiện xung quanh
• The surrounding conditions and processes in the world
outside the organization.
• The ability of an organization to operate successfully within
its external environment depends, in large part, on the
effectiveness of internal systems and procedures.
• The internal environment has to be managed and
adapted to the demands and opportunities of the external
environment
Topic 05 Key themes

 Complexity SPATIAL LEVELS: organizational->nation->region->global

• The external environment in which business operates is

more complex and needs to be analysed also in terms of
its political-legal, social-cultural, and technological
aspects.
• The way of conceptualizing a complex environment of
business is captured by the analytical framework of PEST
(Political-Economic-Social-Technological) or PESTLE
(Political-Economic-Social-Technological-Legal-
Environmental).
Topic 05 Key themes

 Spatial levels
• Spatial level or scale refers to the geographical or territorial
unit of analysis that we use to conceptualize and analyse the
business environment
• It is more appropriate to think of business and its environment at
a more local level (an urban area or region). Also, it has
become increasingly important to think of business environment
on a much larger spatial level, such as European or global.
Interdependent+integrated
• Globalization refers, roughly, to the tendency of business and
other economic, social, and political processes and relationships
to move across or beyond the borders of nation-states.
Topic 05 Key themes

 Dynamic
• Businesses have to respond and adapt to changes in their
environment, and deal with uncertainty about the future
• Business organizations are themselves powerful agents of
change, as shown by the example of technological
innovation which is driven largely by business
capitalism
• Indeed the dynamism of western societies is deeply rooted
Command econoly >< markert
economy
in basic features of their market economies -
competition and the profit motive.
Topic 05 Key themes

 Interaction
• There is two-way interaction between business
organizations and their environment: Businesses
influence and are influenced by their environments.
• Business organizations are not passive but seek to shape
environmental factors to their own advantage
• Firms do not simply respond to changes in lifestyles and
consumer behaviour that are happening automatically
‘out there’ in society but seek to influence and even create
such changes through persuasive advertising
Topic 05 Key themes

 Stakeholders
• Business decisions have to be made in a context of
multiple stakeholder interests and demands.
• A stakeholder is any individual or group that is affected
by, and thus has a stake in, business decisions, and can
be defined very widely to include society as a whole
• Consumers may support boycotts of businesses judged to
be unethical; shareholders may campaign to influence the
remuneration of board members; and employees may
negotiate with employers through trade unions
Topic 05 Key themes

 Values
• There are competing perspectives and values concerning
the nature and purpose of business in society - relating to its
power, responsibilities, performance and ethics.
• Business finds itself at the centre of many other value-based
debates in contemporary society concerned with issues such
as environmental protection and climate change, fair trade,
the responsibility of western companies for working
conditions in developing countries, discrimination, and the
social usefulness of some business activities and products
(e.g. unhealthy foods).
Topic 05 Key themes

 Values
• There are competing perspectives and values
concerning the nature and purpose of business in society
- relating to its power, responsibilities, performance and
ethics.
• The western business model or capitalist system -
based on private enterprise, competition, and profit -
was challenged by socialism as an alternative model of
economic organization based on state control and
planning.
Topic 05 What is business? Broad and narrow definitions

 Discussion
• In your opinion, Which one is a business? Amazon or
Police force organization?
• To support your argument, provide evidences with
justifications
The organization engaged in commercial, industrial, professional activities.\
Topic 05 What is business? Broad and narrow definitions

 Ways of thinking about ‘business’

• A specific business organization or firm

• Type of economic activity engaged in—type of goods or

service produced

• Legal form Department of government still seemed to be the business

• The business system

• The business community

Topic 05 What is business? Broad and narrow definitions

 Discussion
• Amazon is a specific business organization

• Amazon’s business is a specific activity: on-line retailing of

books and CDs which, in the UK Standard Industrial
Classification of Economic Activities (SIC 2007).

• Amazon is a specific legal form of business—it is a PLC

(public limited company) which is a form of private ownership
and part of the ‘private sector’ of the economy. As a private
sector business Amazon strives to operate profitably
through sales of its products in competition with other
companies in the same market (specialized stores, supermarkets)
Topic 05 What is business? Broad and narrow definitions

 Discussion
• Business system such as ‘the market system’ or
‘capitalism’, not just in terms of economic organizations
such as businesses but the whole range of organizations
that interact to shape the pattern of economic activity,
including trade unions, professional bodies, consumer
groups, regulatory agencies, and other governmental bodies.

• Business community: businesses constitute a distinctive

group within society and that, for some purposes, individual
business organizations may find it advantageous to work
together to pursue shared interests or goals.
Topic 05 What is business? Broad and narrow definitions

 Broad view of business Joint stock bank

• A broad view of business is based on thinking of business

as an activity

• Amazon’s activity of production—the transformation of

various inputs (or ‘factors of production’) into diverse
outputs in the form of goods and services to meet
particular wants or needs of people in society.

• Why is Amazon in the private sector and the police in

the public sector?
Topic 05 What is business? Broad and narrow definitions

 Broad view of business Customer service orientate

Operate within the framwork of law
• Protection of the public as a primary duty of government and a right
of citizens rather than something that should depend on their ability to
pay, whereas in the former we are generally happy that consumption
of books and CDs can be left to individual choice and ability to pay.

• Controversy: governments cannot guarantee to protect their citizens

from threats to their lives and property, Many large stores employ
their own security guards, so the protection of their property does
depend to some extent on ability to pay. Although the market is very
good at meeting most people’s wants for books and CDs, if you are
poor and cannot afford to buy books, Amazon will not respond to your
Private business just serve individuals when they keep for their profit
wants or needs?
Public business always service under all situation
Topic 05 What is business? Broad and narrow definitions

Scarcity
 Dealing with the problem of scarcity
: shortage
• This broad definition of business in terms of production can
be related to the need of all societies to decide how to
allocate the available productive resources between all
the possible types of production of goods and services
for which they can be used.

• What economists call the basic economic problem is

scarcity —resources are limited and the large, and even
open-ended, set of wants, needs, and goals that make
demands on those resources can’t all be satisfied at once
Topic 05 What is business? Broad and narrow definitions

 Centralized and decentralized systems

• Centralised allocation of resources is undertaken by

government or the state
Cơ chế
• The market is a decentralized mechanism.

• Other decentralized mechanisms are: voluntary agencies

and charities (third sector), and the ‘informal economy’
(example of health care?).
Topic 05 What is business? Broad and narrow definitions

 Centralized and decentralized systems

• The market or capitalist system operates on the basis of

private property, voluntary exchange, competition, and
the profit motive.

• Government or the state provides an alternative

mechanism to the market for allocating resources.
Government can use its tax-raising powers to provide
public services to citizens on the basis of criteria other than
ability to pay.
Topic 05 What is business? Broad and narrow definitions

 Centralized and decentralized systems

• The voluntary, or third, sector provides an alternative

decentralized mechanism for allocating resources
where the purpose is to meet certain categories of need
rather than to make a profit.

• Funding is provided by voluntary donations, and

services are provided often on a last resort basis where
individuals have no access to services provided through
the market or government.
Topic 05 What is business? Broad and narrow definitions

 Centralized and decentralized systems

• The informal economy includes both paid and unpaid work.

• Informal paid work can be defined as ‘the paid production

and sale of goods or services which are unregistered by, or
hidden from the state for tax, benefit and/or labour law
purposes, but which are legal in all other respects’ (Katungi,
Neal, and Barbour 2006), such as businesses supplying
goods and services and/or hiring workers on a cash-in-
hand basis.

• Informal unpaid work includes informal care provided within

the household or community.
Topic 05 What is business? Broad and narrow definitions

 A broad definition of business

be bound up with meeting the requiremnet of sb
• Business is a mechanism for deciding the allocation of the
resources available to society between various possible uses
(or competing wants and needs), the methods of production
and the distribution of the output (who gets what), in a
situation of scarcity where not all wants can be satisfied. The
three basic forms of business are the market (private sector),
government (public sector), and the third sector. In each case
business success is bound up with meeting the requirements
of consumers. The character of the business system is
determined by the changing way in which the three forms are
combined and interact.
Topic 05 The private sector of business

 The private sector is made up of business organizations that

are owned and controlled as forms of private property

 The largest businesses take the form of public limited

companies (PLCs) which are owned by their shareholders.
These shareholders can be private individuals, although a
majority of shares is owned by financial institutions such as
pension: retiremnet
pension funds and insurance companies.
 Private sector businesses can take other legal forms, such as
Doanh nghiệp tư nhân
sole traders, partnerships, mutual organizations, and private
limited companies tổ chức tương hổ
Topic 05 The private sector of business

 Specific features:

• production of goods and services for sale

• the profit motive

• competition.
Topic 05 The private sector of business
Topic 05 The private sector of business

 Specific features:
Động lực
• The methods of production: Profit provides a motive,
and competition a pressure, for continual improvements in
efficiency. This is because greater efficiency means
lower costs of production and cheaper products.

• It is rational for profit-seeking firms to strive to improve

efficiency to keep up with or get ahead of their rivals.
Topic 05 Other sectors of business

 Differences between the private and public sectors:

• Revenue

• Accountability

• Competition

• Motivation and ethos

Topic 05 Other sectors of business

 Differences between the private and public sectors:

• Revenue:

 Public sector organizations are largely financed through

taxation rather than sales revenue generated by
customers paying a price in a market.

 In the market the principle, you get what you pay for,
the system of taxation and public spending disconnects
what individuals pay in and what they get out.
Topic 05 Other sectors of business

 Differences between the private and public sectors:

• Accountability Resonsibility

 Private sector organizations are accountable to

customers and shareholders. If they are not responsive
to their customers they risk losing business to their
more customer-focused competitors, and public
limited companies (PLCs) are legally required to
safeguard the interests of their shareholders.

 Political rather than market-based forms of

accountability are more important in the public sector
Topic 05 Other sectors of business

 Differences between the private and public sectors:

• Competition
compare the price and quality of product between other companies
 Consumers in the private sector can ‘shop around’
because firms operate in competitive markets. It is this
that keeps businesses customer-focused and is the
tối thượng
basis of consumer sovereignty

 Public sector organizations also face competition in

‘internal markets’ where ‘customers’ have some ability
to exercise choice between alternative service
providers such as schools, universities, or hospitals.
Topic 05 Other sectors of business

 Differences between the private and public sectors:

custom
• Motivation and ethos

 The public sector is characterized by a distinctive

public service ethic, meaning a commitment to public
service.

 In the private sector, serving customers is just a

means to an end, a way of making money
Topic 05 A transforming inputs into outputs model

incur: phát sinh

Procure: mua sắm
Topic 05 A transforming inputs into outputs model

 Porter’s ‘five forces’ model

Mặc cả

replace
Topic 05 A transforming inputs into outputs model

 Porter’s ‘five forces’ model

• Current competitors

• The possibility of new entrants into the market

• The availability of substitute products

• The power of buyers and

• The power of sellers.

Topic 05 Conceptualizing the environment of business

 Spatial level - local to global

 Immediate and general environments

 Environmental uniqueness
Topic 05 Conceptualizing the environment of business

 Spatial level - local to global

• The external context, comprised of the wider social, cultural,
economic, political, legal, technological, and other systems in which
businesses operate

• Global scale and MNCs: companies that have a global reach or span
of operations and undertake production in more than one country

• Small businesses may be affected by events at a national or global

level because of the way they are often linked in with supply chains
spanning several countries

• “Glocalization” has been coined to draw attention to the need for

global businesses to remain sensitive to the peculiarities of the local
contexts in which they operate specific faction
Topic 05 Conceptualizing the environment of business

 Immediate and general environments

• The ‘immediate’ environment involves those aspects which
may require day-to-day or regular decisions and actions (e.g.
relations with suppliers

• The ‘general’ environment is concerned with more distant or

remote, but nevertheless consequential, issues (e.g.
macroeconomic trends): events and systems that operate on
a large scale and form a backdrop to day-to-day business
decisions. The general environment also contains issues and
events which are more beyond the capacity of individual
organizations to influence or control.
Topic 05 Conceptualizing the environment of business

 Environmental uniqueness

• Each business organization operates within an

environment that is, to some extent, unique to it, and no
two organizations operate in exactly the same
environment.

• Environmental analysis to be useful to an organization it

must be sensitive to the particular aspects of the
environment that affect it and to which it must respond.
Topic 05 Interaction between business and the environment

ability to supply
 Responsiveness

 Influence

 Choice of environment
Topic 05 Interaction between business and the environment

 Responsiveness

• The environment may be seen as presenting a range of

threats and opportunities.

• A successful business will be one that is able to deal

effectively with threats and take advantage of
opportunities or, at least, is able to do so as well as or
better than its competitors.
Topic 05 Interaction between business and the environment

 Influence

• Success may also depend on the ability of business to

influence the environment (advertising activity) in
which it operates to its own advantage

• The interaction between business and the environment

- responding to and seeking to influence consumer
preferences - has implications for how we understand the
working of a market system.
Topic 05 Interaction between business and the environment

 Choice of environment

• Businesses may be able to choose a favourable

environment in which to operate.

• Businesses may be able to shift the geographical basis

of their operations - moving into more favourable
environments and away from unfavourable ones: factors
such as culture, consumer tastes, and income levels
within the society
Topic 05 Interaction between business and the environment

 Choice of environment

• Locational advantage may derive from factors such as:

 the availability of skilled labour

 the cost of labour

 a favourable tax or regulatory environment

 the proximity of suppliers or consumers

 the quality of infrastructure such as transport

Topic 05 Environmental analysis

 Markets and uncertainty

 PEST

 SWOT

 Stakeholder analysis
Topic 05 Environmental analysis

 Markets and uncertainty

• Businesses can never have complete knowledge of how

the environment will change and therefore must operate in
a somewhat uncertain environment

• Market competition involves a continual process of

experimentation and innovation in which most
experiments fail but it is not possible to say in advance
which will succeed
Topic 05 Environmental analysis

 PEST

• Relationships with sellers or suppliers, competitors, and

buyers or consumers.

• Types of organizations, processes, and relationships

• Political, legal, social, cultural, technological, and other

factors and influences

• PEST is a simple framework for environmental analysis

that distinguishes four categories or areas: political,
economic, social and technological.
Topic 05 Environmental analysis

 SWOT
• SWOT analysis combines internal and external analyses - the
strengths and weaknesses of the organization coupled with the
opportunities and threats in the external environment
• The organization’s strengths and weaknesses, opportunities and
threats (SWOT) are typically analyzed during the strategy
formulation process.
• The capacity of a business to take advantage of opportunities and
resist threats will depend on its internal strengths and weaknesses
• An opportunity only really exists if an organization has the
necessary skills or resources. Thus an opportunity is not simply
a feature of the external environment
Topic 05 Environmental analysis

 Stakeholder analysis
• A stakeholder is any individual, group, or organization
that is affected by and therefore has an interest in the
decisions and behaviour of the business

• Internal members of a business are stakeholders,

including employees, directors, and shareholders.

• External stakeholders include customers, suppliers,

competitors, politicians and policy-makers, and the
community or general public.
Topic 05 Environmental analysis

 Stakeholder analysis
• In terms of environmental analysis, businesses need to
have an understanding of:

 who their stakeholders are

 the nature and level of their interest in the business

 their power to exert influence.

Topic 05 Environmental analysis

 Stakeholder analysis
Topic 05 Environmental analysis

 Stakeholder analysis
• For each of the internal and external stakeholders shown:
 a) identify the nature of their interests (e.g. the interests of
students might include high quality teaching)

 b) consider whether there are any conflicts between the

interests of different stakeholders (e.g. do students and
academics have the same interests?)

 c) consider in what way and to what extent each

stakeholder exercises power or influence (e.g. do you have
any influence over university decisions? Should you have?)
Topic 05 Summary

 Business can be defined broadly as the transformation of

inputs (or factors of production) into diverse outputs
(goods and services) to meet the needs and wants of
consumers. Business is a mechanism for deciding the
allocation of the scarce resources available to society
between various possible uses (or competing wants) in a
situation of scarcity where not all wants can be satisfied.
Topic 05 Summary

 In a narrow sense business is often used to refer to the

private sector and the key characteristics of private
ownership, competition, and profit. The broad meaning of
business includes organizations in the public and third
sectors.

 Businesses can be understood as open systems interacting

with their environments. Each business operates within an
environment that is, to some extent, unique.

 The external environment is complex or multi-faceted,

dynamic, and must be analysed in terms of a variety of
spatial levels or scales, from the local to the global.