UNIT 1

INTRODUCTION TO
BUSINESS
ENVIRONMENT

Dr. Parveen Kaur Nagpal

 Business Environment
Organizations do not exist in a vacuum.
Many factors enter into the forming of a company’s strategy.
The forces, conditions, situations, events etc. that impacts
the organization are referred to collectively as the
organization’s environment.
The environment of any organization consists of aggregate of
all conditions, events and influences that surround and
affect it.
Business Environment is complex as well as dynamic in
nature.
Dr. Parveen Kaur Nagpal
 Business Environment
Business Environment is the sum total of all external and
internal factors that affect the functioning of organization. It
refers to the conditions, forces, events and situations within
which business enterprises have to operate.

Business environment refers to different forces or

surroundings that affect business operations. Such forces
include customers, competitors, suppliers, distributors,
industry trends, substitutes, regulations, government
activities, the economy, demographics, and social and
cultural factors. Others are innovations and technological
developments. Dr. Parveen Kaur Nagpal
 Business Environment
A firm’s environment consists of internal environment
(controllable) and external environment (uncontrollable).
Important decisions of the business such as:
• What business to do?
• Which customer segments to be targeted?
• Where and When to do the business?
• How to do the business?
• How to expand the business?
All these factors are influenced by the business environment

Dr. Parveen Kaur Nagpal

 Features of Business Environment
■ Environment is inseparable part of business
■ Environment is dynamic
■ Business lacks control over environment
■ Internal and external factors
■ Environment is complex
■ Environment is multifaceted
■ Opportunities and obstacles
■ Regulates the scope of business
■ Long lasting impact
■ Uncertainty Dr. Parveen Kaur Nagpal
 Significance of Analyzing Business Environment
■ Determining Opportunities and Threats
■ Giving Direction for Growth
■ Continuous Learning
■ Image Building
■ Meeting Competition
■ Identifying Firm’s Strength and Weakness

Dr. Parveen Kaur Nagpal

 Types of Business Environment
1. Internal Environment: It includes the factors that are
controllable and hence can be modified and altered by
the organization. Business can make changes in these
factors according to the change in the functioning of
enterprise.
2. External Environment: It includes the forces outside the
organizational boundaries that are helping to shape it.
It is of two types:
a. Micro/Operating Environment
b. Macro/General Environment
Dr. Parveen Kaur Nagpal
Dr. Parveen Kaur Nagpal
 Analysis of Internal Environment

Human
Plans and
Resources
Policies
Objectives Financial
Resources

Physical
Mission
Resources

Management Factors of Labour –

Philosophy and Internal management
Values Environment Relations

Dr. Parveen Kaur Nagpal

 Analysis of External Environment

Competitors Society

Suppliers Market

Factors of
Customers
External Intermediaries
Environment
(Micro Factors)
Dr. Parveen Kaur Nagpal
 Analysis of External Environment

Technological
Socio – Environment
Legal
Cultural
Environment
Environment

Ecological/
Economic
Natural
Environment
Environment

Factors of
External
Political Demographic
Environment Environment Environment
(Macro
Factors)
Dr. Parveen Kaur Nagpal
 Case Study: MICROMAX
Micromax was founded in the year 1991 by Rajesh Agarwal. It
was originally formed to supply computer hardware to
companies like Dell, HP and Sony. In 1999, Rajesh Agarwal was
joined by Rahul Sharma, Sumeet Kumar and Vikas Jain.
Perched at the dawn of the dot com boom, the four
entrepreneurs found themselves surrounded by opportunities.
The software business was blossoming and Micromax ventured
into this sphere. In fact, they originally went under the name,
Micromax Softwares.
One of their first contracts was a partnership with Nokia. Here,
they were introduced to the concept of fixed wireless terminals.
Micromax started manufacturing wireless public phones which
used SIM cards. Dr. Parveen Kaur Nagpal
 Case Study: MICROMAX
This allowed accessibility even in areas with no landline
connectivity and revolutionised the telecom sector. Soon
afterwards, Nokia departed from this business. Micromax
continued to milk these profits for a while, and grew several-fold.
It is a necessity for any successful business to adapt to the
changes in its surroundings and identify opportunities before
they become obvious to everyone around. The founders of
Micromax were staunch believers in this fact and continued to
search for ways to increase their business.
Once when Rahul Sharma was passing through rural Bengal, he
witnessed a public telephone office which had been powered by
using the battery from a truck.
Dr. Parveen Kaur Nagpal
 Case Study: MICROMAX
Sharma could not understand how the villagers managed to
charge the battery without access to any electricity. The truck
driver later revealed that he actually earned his living by driving
the battery to another nearby village, charging it overnight and
then bringing it back again the next morning.
Sharma was amazed at this astonishingly clever arrangement and
started to understand the benefits of a battery-powered portable
phone. He convinced his partners that it was the right time for
Micromax to venture into the mobile phone industry, already
dominated by Nokia, Samsung and others.
Sharma, however, had understood the power presented by a
long-life portable battery. He realised that what the market really
needed was a lowDr.budget phone
Parveen Kaurwhich
Nagpalhad a long battery life.
 Case Study: MICROMAX
Micromax launched its first mobile phone, the Micromax X1i.
Priced modestly, this phone offered a 30-day battery life and
became a huge hit across the country in 2008. Sharma’s instinct
paid off and this phone proved to be very popular in rural India
where people did not have regular access to electricity.
The entrée into the mobile phone industry proved to be a turning
point for Micromax. From 2008 onwards, the company increased
exponentially. From a 10 crore yearly business, it grew to a 100
crore yearly business in the span of a few months.
In 2010, the company introduced a line of tablets, namely, the
Funbook series. Soon after, with the advent of the android
software, Micromax launched its android powered smartphone,
the Micromax A60. Dr. Parveen Kaur Nagpal
 Case Study: MICROMAX
Micromax got Hugh Jackman, the Hollywood star to advertise
their brand, thus becoming the first Indian smartphone company
to sign an international brand ambassador.
By 2015, Micromax was the second-largest smartphone company
in India, after Samsung. Unfortunately, Micromax’s hard-earned
fame was not there to last.
One of the major reasons for its downfall was the launch of the
Reliance Jio 4G.
The second major factor which played a role in deciding
Micromax’s fate was the advent of Chinese smartphones into the
market. Micromax took inspiration from Chinese companies to
manufacture their designs and equipment.
Dr. Parveen Kaur Nagpal
 Case Study: MICROMAX
Soon, however, Chinese companies like Oppo, Gionee, Vivo and
Xiaomi realised the opportunity presented by the huge consumer
base in India and decided that it was time to enter into this
market.
The third reason for Micromax’s downfall was the fact that it did
not focus on innovation and development of technology.
Thus we conclude that a successful business has to have a
significant comparative advantage in order to survive in the long
run. Micromax’s only comparative advantage was its low price.

Dr. Parveen Kaur Nagpal

 PESTLE Analysis
PESTLE analysis consists of components that influence the
business environment and each letter in the acronym
denotes a set of factors that directly or indirectly affect every
industry. Political Factors

Economic Factors

Social Factors

Technological Factors

Legal Factors

Environmental Factors
Dr. Parveen Kaur Nagpal
 Environmental Scanning - SWOT Analysis
■ Strategic Management is concerned with establishing the
proper “organization – environment fit” or matching the
organizational factors with the environmental factors.
■ It involves an analysis of organizational factors (strengths
and weaknesses of the organization) and the
environmental factors (threats and opportunities in the
business environment).
■ SWOT is the acronym for strengths, weaknesses,
opportunities and threats.
■ It is also known as TOWS or SCOT (Strength, Contains,
Opportunities, and Threats) or ETOP (Environment Threat
Dr. Parveen Kaur Nagpal
 Environmental Scanning - SWOT Analysis
❖ Strength
Strength is an inherent capacity, which can be used for
developing strategic advantage.
It is the positive competencies of a firm as compared to its
competitors in the different functional areas
Examples:
• Adequate financial resources

• Superior technological skills

• Robust distribution system

• Loyal customer base

• Better manufacturing capability

Dr. Parveen Kaur Nagpal
 Environmental Scanning - SWOT Analysis
❖ Weakness
Weakness is an inherent constraint, which creates
disadvantage for firms.
It is the negative competencies of a firm as compared to its
competitors in all functional areas of the organization.
Examples:
• Lack of managerial talent

• Poor image of the firm

• Weak distribution network

• Under utilization of capacity

• Narrow product line

Dr. Parveen Kaur Nagpal
 Environmental Scanning - SWOT Analysis
❖ Opportunities
Opportunity is a favourable situation, which enables an
organization to strengthen its present position.

Examples:
• Changing customer preferences

• Technological advances

• New markets

• Online distribution channels

• Population life style changes (like the Vegan market)

Dr. Parveen Kaur Nagpal

 Environmental Scanning - SWOT Analysis
❖ Threats
Threat is an unfavourable situation which results in risk and
damage to an organization.

Examples:
• Slower market growth

• Rising sales of substitute products

• Technological advances

• Changes in customer tastes and needs

Dr. Parveen Kaur Nagpal

 Benefits of SWOT Analysis
▪ It identifies the core competencies of the firm
▪ It helps in setting objectives or strategic plan
▪ Simple to use
▪ Flexible and can be adapted to varying situations
▪ Development of goal – oriented alternatives
▪ Useful as a starting point for strategic analysis
▪ A source of information for strategic planning
▪ It builds an organization strengths
▪ It reverses organizational weakness
▪ It prepares organization to be proactive and face threats
▪ It helps to know the past, present and future
Dr. Parveen Kaur Nagpal
 Limitations of SWOT Analysis
▪ Time consuming and expensive
▪ Insufficient research and development facilities
▪ Faulty products due to poor quality control
▪ It does not provide solutions or offer alternative decisions
▪ It can generate too many ideas but does not helping in
choosing which one is best
▪ It can produce a lot of information, but not all of it is
useful
▪ Poor industrial relations
▪ Lack of skilled and efficient labour etc.
Dr. Parveen Kaur Nagpal
Example – Apple SWOT Analysis

Dr. Parveen Kaur Nagpal

 References
1. Ian Wirthington and Chris Britton, The Business
Environment, Pearson Education Ltd, England 2006.
2. Strategic Management - Fred R. David, Published by
Prentice Hall International.
3. Nagpal, Sharma: Strategic Management, SYBMS (Sem. 3),
Sheth Publishers
4. Nagpal, Shelankar, Sharma: Strategic Management,
M.Com (Sem. 3), Sheth Publishers
5. Nagpal, Sharma: Business Environment, BMS (Sem 4),
Vipul Prakashan.
Dr. Parveen Kaur Nagpal
 Dr. Parveen Nagpal
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Dr. Parveen Kaur Nagpal