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Nature and Structure of Business Environment

Business environment is the aggregate of all conditions , events and influences that surround and affect a business firm . Business environment generally refers to the external factors affecting either positively or negatively for the operation of the firm.

Components of Business Environment

Internal Environment

External Environment

Internal Environment
Environment within the organization. Internal factors of the business which can be controlled by business. It includes 5Ms Men,Material,Money,Machinery,Management available with the business.

Internal . Environment

Human Resources

Financial Resources


Technological Capabilities

Work Environment

Managerial Policies

Objectives of Business

External Environment

Micro Environment

Macro Environment

Micro Environmental Factor/Stakeholder Analysis


Organizations survive on the basis of meeting the needs, wants and providing benefits for their customers. Failure to do so will result in a failed business strategy.

Employing the correct staff and keeping these staff motivated is an essential part of the strategic planning process of an organization. Training and development plays an essential role particular in service sector marketing in-order to gain a competitive edge. This is clearly apparent in the airline industry.


Increase in raw material prices will have a knock on affect on the marketing mix strategy of an organization. Prices may be forced up as a result. Closer supplier relationships is one way of ensuring competitive and quality products for an organization.

As organization require greater inward investment for growth they face increasing pressure to move from private ownership to public. However this movement unleashes the forces of shareholder pressure on the strategy of organizations. Satisfying shareholder needs may result in a change in tactics employed by an organization. Many internet companies who share prices rocketed in 1999 and early 2000 have seen the share price tumble as they face pressures from shareholders to turn in a profit. In a market which has very quickly become overcrowded many have failed.


. on an organizations Positive or adverse media attention

product or service can in some cases make or break an organization.. Consumer programs with a wider and more direct audience can also have a very powerful and positive impact, forcing organizations to change their tactics.

The name of the game in marketing is differentiation. What benefit can the organization offer which is better then their competitors. Can they sustain this differentiation over a period of time from their competitors?. Competitor analysis and monitoring is crucial if an organization is to maintain its position within the market.

Macro Environment
1. Economic (Economic conditions ,policies, system) 2.Political 3.Socio Cultural 4.Technological 5.Natural 6.Demographic 7.International 8.Legal 9.Sectoral 10.Public Relation

Economy System
It provides the framework within which an economy operates and the various economic units and agents mould themselves to fit into the system. Decides about the following: What products to produce , in what quantity.. How should the products be produced For whom the products be produced

Economic System .
Market Economy Command Economy

Mixed Economy Socialist Market Economy

Growth and distribution environment

Economic growth refers to the process of increase in real output over a period of time(usually a year) Three Basic measures of a countrys real output: 1. GDP 2.NDP 3. GNP

Macroeconomic stability
It is manifested in the stability of the price level , exchange rate ,interest rate ,money supply ,aggregate demand ,balance of payments , employment rate ,budgetary balance and eventually ,national income or output.

Economic Policy
Main objective of macroeconomic policy is to stimulate or maintain growth ,achieve economic stability , increase employment , stabilize balance of payments ,correct regional imbalances and make the economy more competitive.

Monetary Policy
Refers to all the actions of the govt. or the central bank of a country which affect , directly or indirectly , supply of money ,credit ,rate of interest of the banking system . It affects cost and availability of credit in the economy.

Fiscal Policy
Its concerned with the use of taxes and govt. expenditure , though the issues related to non-tax revenue , govt. borrowings and fiscal federalism are closely associated with these factors for achieving predetermined objectives.

Industrial Policy
Specifies the relative roles of domestic and multinational enterprise ,large and small industries and public and private sector firms . The central objectives of an industrial policy are to promote industrialization ,correcting regional imbalances , enhancing competitiveness of firms , developing intersectoral linkages , promoting exports and import substitution.

Trade Policy
To promote exports , regulate imports , improve terms of trade , enhance export competitiveness and create conditions for export led growth.

Risk in Business Environment

Legal Risk Regulatory risk Political Risk Social Risk Direct Environment risk Indirect environment risk Natural risk

Methods of assessing Environment risk

Checklists Expert Based scoring system Economic methods Rating and ranking systems Assessment of countrys creditworthiness Risk Benchmarking Risk Premium on interest

Country risk Analysis

Sources :Domestic Economic Sources Domestic Cultural and social sources External Sources

Impact of Country risk factors

Monetary Policy Swings Fiscal Policy variations Exchange Controls Import Controls Trade related investment measures Price controls Labour Policy and legislation

Political risk analysis

General instability risk Ownership risk Operation risk Transfer risk

Risk avoiding strategies

Avoiding Politically sensitive products Avoiding sensitive regions Contractual agreements Tie-ups with other firms

Risk reduction strategies

Establishing a risk assessment system Developing the local economy Local equity participation Good corporate citizenship Maintaining good political relations