Business Environment

• The business environment refers to all those factors that can influence the functioning of an organization. This outcome can be positive or negative. It is very essential for the organizations to analyze the environmental influences which will, therefore, assist them in evaluating the market conditions. The business environment can be further segregated into -

Internal Environment
• The internal environment consists of all those factors that associated very closely to the business activities and are, by and large, controlled by the actions of top management. It has to be noted that although these internal environment factors are very much in control of the company but sill a lot of attention has to be devoted for their appropriate management since they can have an impact on the profitability of the company.

Internal Environment
• Brand Image The image that is associated with the brand, to a large extent, is in the hands of the company itself. For instance, Infosys, a big name in the aura of IT, is well known for its ethical standards whereas Satyam computers – a company in the same sector has lost the faith of the customers through its deceptive actions. The love, trust, faith and loyalty of the customers, more or less, are shaped through the actions, policies and procedures of the company. Even in the matters of financing of a project or going public by raising of funds through IPO’s, company’s brand image plays a vital role.

• Employees The employees or the human resource of an organization are an asset. A precise selection of an efficient workforce can be a decisive factor in the overall profitability of a company. A high morale, skills, quality, attitude and commitment of the employees towards the organization can act as strength. By providing a good work culture, the morale of the work force can be boosted which in turn can lead to a positive environment inside the organizations.

• Production facilities & quality The establishment of production plants, technology, supply chain network, production capacity etc have a major influence on the quality of the product. A customer buys a product when he feels that it is a bundle of utilities for him. A high quality can lead to a satisfaction and a poor quality can lead to frustrations amongst the consumers. Therefore, it is the ethical and moral responsibility of an organization to provide standardized products to its customers which can enhance loyalty and increase satisfaction.

• R&D In a high tech era that is characterized by an intense competition, it becomes imperative for any firm to innovate and transform according to the changing environment. The R & D department of a firm is not only responsible for innovating new ideas and concept but also transforming these ideas into new products with appropriate quality. An efficient R & D department can act as a sustainable competitive advantage for an organization.

External Environment
• The external environment of a business is further divided into – • The Micro environment • The Macro environment

Micro Environmental Factors
• These are the factors close to the company that have a direct impact on the organizations strategy. These factors includes

• 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. The customers contribute very heavily towards the profitability of a company.

• 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 all the industries.

• Increase in raw material prices will have a knock on affect on the marketing mix strategy of an organisation. Prices may be forced up as a result. Closer supplier relationships is one way of ensuring competitive and quality products for an organisation. At the same time, the timely supply of the raw materials is very essential for an organisation.

• As organisation 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 organisations. Satisfying shareholder needs may result in a change in tactics employed by an organisation. 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.

• Positive or adverse media attention on an organisations product or service can in some cases make or break an organisation.. Consumer programmes with a wider and more direct audience can also have a very powerful and positive impact, inforcing organisations to change their tactics.

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

Macro Environment
• There are many factors in the macroenvironment that will effect the decisions of the managers of any organisation. Tax changes, new laws, trade barriers, demographic change and government policy changes are all examples of macro change. To help analyse these factors managers can categorise them using the PEST model. This classification distinguishes between:

• By using the PEST framework we can analyse the many different factors in a firm's macro environment. In some cases particular issues may fit in several categories. For example, the creation of the Monetary Policy Committee by the Labour government in 1997 as a body that was independent of government but had the ability to set interest rates was a political decision but has economic consequences; meanwhile government economic policy can influence investment in technology via taxes and tax credits. If a factor can appear in several categories managers simply make a decision of where they think it best belongs

However, it is important not to just list PEST factors because this does not in itself tell managers very much. What managers need to do is to think about which factors are most likely to change and which ones will have the greatest impact on them i.e. each firm must identify the key factors in their own environment. For some such as pharmaceutical companies government regulation may be critical; for others, perhaps firms that have borrowed heavily, interest rate changes may be a huge issue. Managers must decide on the relative importance of various factors and one way of doing this is to rank or score the likelihood of a change occurring and also rate the impact if it did. The higher the likelihood of a change occurring and the greater the impact of any change the more significant this factor will be to the firm's planning.

• It is also important when using PEST analysis to consider the level at which it is applied. When analysing companies such as Sony, Coca Cola, BP and Disney it is important to remember that they have many different parts to their overall business - they include many different divisions and in some cases many different brands. Whilst it may be useful to consider the whole business when using PEST in that it may highlight some important factors, managers may want to narrow it down to a particular part of the business (e.g. a specific division of Sony); this may be more useful because it will focus on the factors relevant to that part of the business. They may also want to differentiate between factors which are very local, other which are national and those which are global.

• Political factors. These refer to government policy such as the degree of intervention in the economy. What goods and services does a government want to provide? To what extent does it believe in subsidising firms? What are its priorities in terms of business support? Political decisions can impact on many vital areas for business such as the education of the workforce, the health of the nation and the quality of the infrastructure of the economy such as the road and rail system.

For instance: • consumer laws; these are designed to protect customers against unfair practices such as misleading descriptions of the product • competition laws; these are aimed at protecting small firms against bullying by larger firms and ensuring customers are not exploited by firms with monopoly power • employment laws; these cover areas such as redundancy, dismissal, working hours and minimum wages. They aim to protect employees against the abuse of power by managers • health and safety legislation; these laws are aimed at ensuring the workplace is as safe as is reasonably practical. They cover issues such as training, reporting accidents and the appropriate provision of safety equipment

The political environment includes – • Stability of the political scenario • Type of government • How the government laws and regulations influences the business. • Government’s policy on economy • FDI policy of the government • Consumer protection act • Labour laws

• The government policies – The government laws such as the zoning laws, environmental laws, provisions on Licensing and Franchising, Laws on recycling & Packaging materials, product safety laws, Warranties and guarantees, Sales tax, Restriction on pricing policies, minimum price laws, price discrimination, Restriction on lease agreements etc. can also influence the decisions.

Economic factors

These include interest rates, taxation changes, economic growth, inflation and exchange rates. As you will see throughout the "Foundations of Economics" book economic change can have a major impact on a firm's behaviour. For example: • - higher interest rates may deter investment because it costs more to borrow - a strong currency may make exporting more difficult because it may raise the price in terms of foreign currency - inflation may provoke higher wage demands from employees and raise costs - higher national income growth may boost demand for a firm's products

The economic environment includes – • GDP of the country • Rate of interest • Inflation rate • Past economic growth • Future prospect of growth • Monetary and Fiscal policy • Level of taxes imposed • Purchasing power

• The World Bank has categorized the economies into Low income (LIC), lower middle income (LMC), upper middle income (UMC), high income OECD and other high income countries. The LIC, LMC and UMC countries comes under the developing countries and the other rests under the developed countries.

Developing nations – The following are the characteristics of a developing nation. • Widespread poverty • High unemployment • Lower productivity • Disparity between urban and rural level of living • Dependence on overseas technology

Developed nations – The following are the characteristics of a developed nation. • High level of industrialization • Supreme quality of life • Sophisticated technology • Good standard of living • Excellent educational and health care facilities Depending on kind of economy, the fluctuations in the inflation rates, the living standards of the people, the GDP, per capita income of the people etc. have an impact on the retail business.

• Social and cultural factors. Changes in social trends can impact on the demand for a firm's products and the availability and willingness of individuals to work. In the UK, for example, the population has been ageing. This has increased the costs for firms who are committed to pension payments for their employees because their staff are living longer. It also means some firms such as Asda have started to recruit older employees to tap into this growing labour pool. The ageing population also has impact on demand: for example, demand for sheltered accommodation and medicines has increased whereas demand for toys is falling.

Culture is the set of values and attitudes that are acknowledged by a group of people and transferred from one generation to another. • • • • • • Characteristics of culture Culture is learned Transferred from one generation to another Different culture forms different perceptions about the same thing Culture is socially shared It is flexible and changes with the changing times. For instance, In 1980s the culture did not allowed the females to wear skirts. However, with changing times, today wearing skirts among girls is a fashion and is extensively accepted in the urban areas.

• The cultural factors mould the consumption patterns, dressing styles, eating habits and purchasing decisions of a country. They have to be analyzed very carefully for being competitive. For instance, in 1996, the Indian markets were flooded with a large number of fast food retailers like McDonalds from other countries. However, it was very surprising for them to know that a majority of the Indian people are vegetarian.

• Technological factors: new technologies create new products and new processes. MP3 players, computer games, online gambling and high definition TVs are all new markets created by technological advances. Online shopping, bar coding and computer aided design are all improvements to the way we do business as a result of better technology. Technology can reduce costs, improve quality and lead to innovation. These developments can benefit consumers as well as the organisations providing the products.

• The contribution of technology is enormous in building a dynamic society. Today the people want advanced products with superior quality which are safe to use. For instance, when mobile phones were launched in India, they were mainly used as a medium of communication. But with the technological advancements, it is also used as a medium of entertainment. With MP3 & MP4 players, Quality cameras, Video recording, MMS and Games, a cell phone is a live example of technology. • In most of the areas, technology has replaced human beings and the work is done in a lesser time with more accuracy.

Technology has also positively affected the economic status of several countries. It is generally observed that the countries employing a high level technology is a well advanced nation. It has increased productivity and has contributed enormously in producing more quantity with quality. Some benefits of technology in production process are –
– – – – – – – – Reducing the inventory wastage Less waiting time Decreased over production Reduced shrinkage level Reduce costs on documentation Assists in production planning Reduces unnecessary movements of employees Reduce stock outs and ensures product availability

• The impact of technology is on all fields including education. The use of laptops, electronic sharing of notes and the popularity of multimedia boards etc. has provided a new direction to the field of education. • The increased utilization of e-commerce has transformed the world in a small market. Today people from different countries can trade with each other by a click of the mouse. • Technology has played a vital role in developing the transportation system. The jet aircrafts and super freights have enabled transportation without any obstacle.

An organisation has to answer the following questions to verify the viability of technology. • What is the level of technology? • What are the prospects of producing innovative products through sophisticated technology? • What is the impact of technology on the distribution channel? • How technology can improvise the process of product standardization?

• Environmental factors: environmental factors include the weather and climate change. Changes in temperature can impact on many industries including farming, tourism and insurance. With major climate changes occurring due to global warming and with greater environmental awareness this external factor is becoming a significant issue for firms to consider. The growing desire to protect the environment is having an impact on many industries such as the travel and transportation industries (for example, more taxes being placed on air travel and the success of hybrid cars) and the general move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunities.

Social Objectives

Human Objectives

National Objectives

Corporate Social Responsibility


-- shareholders -- employees -- consumers -- community

Responsibility to Shareholders:
• To protect the interests of the shareholders and employees and safeguard the capital of the shareholders. • To provide dividend, the company should earn sufficient profit. • To innovate and growth the company should consolidate and improve its position and help strengthen the share prices. • To improve and maintain the image of the company, such that the shareholders should feel proud of their company.

Responsibility to Employees:
• The payment of fair wages and appropriate salaries. • The provision of labor welfare facilities to the extent possible and desirable. • Arrangements for proper training and education of the workers. • Proper recognition, appreciation and encouragement of special skills and capabilities of the workers.

Responsibility to Consumers:
• To improve the efficiency of the functioning of the business so as to (a) increase productivity and reduce prices, (b) improve quality, and (c) smoothen the distribution system to make goods easily available. To do research and development, to improve quality and introduce better and new products at reasonable prices. To take appropriate steps to improve the imperfections in the distribution system, including black-marketing or profiteering by middlemen or anti-social elements.

• •

• To Provide the required after sales services. • To provide sufficient information about the products, including their adverse effects, risks, and care to be taken while using the products. • To avoid misleading the customers by improper advertisements or otherwise. • To provide an opportunity for being heard and to redress genuine grievances. • To understand customer needs and to take necessary measures to satisfy these needs.

Responsibility to Community:
• Taking appropriate steps to prevent environmental pollution and to preserve the ecological balance. • Rehabilitating the population displaced by the operation of the business, if any. • Development of backward areas. • Promotion of ancillarisation and small-scale industries. • Contributing to the national effort to build up a better society.

Arguments for Social Responsibility:
• • • • • • • • • • Changed Public Expectations of Business. Better Environment for Business. Public Image. Avoidance of Government Regulations. Balance of Responsibility with Power. Business has the Resources. Prevention is Better than Cure. Moral Responsibility. Citizenship Arguments. Duty of Gratitude.

Arguments against Social Responsibility
• • • • • Profit Maximization. Society has to pay the Cost. Lack of Social Skills. Business has enough Power. Social overhead Cost.

Economic Problems that makes India a developing country

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