Business Environment

Dr. Hari Prapan

Sharma

Meaning of Business Environment

Business environment may be defined as the total
surroundings, which have a direct or indirect bearing on
the functioning of business.
Business Environment encompasses the -climate or set of
conditions, economic, social, political or institutional in
which business operations are Conducted.Arthur M.
Weimer
Environment contains the external factors that create opportunities
and threats to the business. This includes socio-economic
conditions, technology and political conditions. William Gluck
and Jauch
On the basis of the above discussion, it is very clear that the business
environment is a mixture of complex, dynamic and uncontrollable factors
within which a business is to be operated.

Features of Business Environment

Totality of External Forces: Business environment is the
sum total of all things external to business firms and, as
such, is aggregative in nature.
Specific and General Forces: Business environment
includes both specific and general forces. Specific forces
(such as investors, customers, competitors and suppliers)
affect individual enterprises directly and immediately in
their day-to-day working. General forces (such as social,
political, legal and techno-logical conditions) have impact
on all business enterprises.
Dynamic Nature: Business environment is dynamic in
nature. It keeps on changing whether in terms of
technological improvement, shifts in consumer preferences
or entry of new competition in the market.

Cont..

Uncertainty: Business environment is largely

uncertain as it is very difficult to predict future
happenings, especially when environment changes are
taking place too frequently as in the case of information
technology or fashion industries.

Relativity: Business environment is a relative concept

since it differs from country to country and even region
to region. Political conditions in the USA, for instance,
differ from those in China or Pakistan. Similarly, demand
for sarees may be fairly high in India whereas it may be
almost non-existent in France.

Multi-faceted: Business environment changes are

frequent and depend on knowledge and existence of
business person. Changes may be viewed differently by
different individuals. It may be an opportunity for some
or a threat for others.

Nature of business
environment

Cont

(i) System Approach: In original, business is a

system by which it produces goods and services for
the satisfaction of wants, by using several inputs, such
as, raw material, capital, labour etc. from the
environment.

(ii) Social Responsibility Approach: In this

approach business should fulfill its responsibility
towards several categories of the society such as
consumers, stockholders, employees, government etc.

(iii) Creative Approach: As per this approach,

business gives shape to the environment by facing the
challenges and availing the opportunities in time. The
business brings about changes in the society by giving
attention to the needs of the people.

Importance of Business
Environment
Determining
Giving

Opportunities and Threats

Direction for Growth

Continuous Learning

Image Building

Meeting Competition

Identifying Firms Strength and Weakness

Types of Business
Environment

Internal Environment

Internal environment contains the owner of the

business, the shareholders, the managing director, the
non-managers, employees, the customers, the
infrastructure of the business organization, and the
culture of the organization.

It includes 6 Ms i.e.

Man (Human Resource)

Money (Financial Factors)

Marketing Resources

Machinery (Physical Assets)

Management Structure and Nature

Miscellaneous Factors (Research and Development,

Company Image and Brand Equity, Value System,
Competitive Advantage)

External Factor
There are two types of external environment:

Micro/Operating Environment

Macro/General Environment

MICRO ENVIRONMENT The micro environment consists of the

factors in the companys immediate environment that affects the
performance and working of the company. The micro
environmental factors are more intimately linked with the
company than the macro factors. The micro forces need not
necessarily affect all the firms in a particular industry in the
similar ways.Micro environmental factors, internal factors close to
a business that have a direct impact on its strategy includes:

Customers

Employees

Suppliers

Shareholders

Media

Competitors

Cont..

Customers: Organizations survive on the basis of

meeting customer needs and wants and providing
benefits to their customers. Failure to do so will result
in a failed business strategy. This includes offering
customers the best quality products at reasonable
prices.

Employees: Employing the correct staff and keeping

staff motivated is an essential part of an organizations
strategic planning process. Training and development
play a critical role in achieving a competitive edge;
especially in service sector marketing.

Suppliers: Suppliers provide businesses with the

materials they need to carry out their manufacturing
and production activities. A suppliers behaviour will
directly impact the business it supplies.

Cont.

Shareholders: A shareholder is an individual that invests into

companys business. They own shares of the company thereby end
up owning the company itself. Therefore, they have the right to
vote on decisions that affect the operations of company. This
means that shareholders affect the functions of the business.

Media: Positive media attention can make an organisation (or its

products) and negative media attention can break. Organizations
need to mange the media so that it helps promote the positive
things about the organisation and conversely reduce the impact of
a negative event on their reputation. Some organizations will even
employ public relations (PR) consultants or gurus to help them
manage a particular event or incident.

Competitors: If a business is unaware of its competitors

activities, they will find it very difficult to beat them. The market
can move very quickly, whether that is a change in trading
conditions, consumer behaviour or technological developments. As
a business, it is important to examine competitors responses to
the changes, so that firm can maximize the benefits.

MACRO ENVIRONMENT

MACRO ENVIRONMENT: Macro environment is also

known as general environment and remote environment.
Macro factors are generally more uncontrollable than
micro environment factors. When the macro factors
become uncontrollable, the success of company depends
upon its adaptability to the environment.

The macro environment is primarily concerned with major

issues and upcoming changes in the environment. The
acronym for the macro analysis is STEEP. The five areas
of interest are:

Socio-Cultural and Demographics

Technology

Economic Conditions

Ecology and Physical Environment

Political and Legal

Cont

Socio Cultural and Demographics: Societal values and

lifestyles change over time, and the most important of these;
directly or indirectly leave an impact on the business
environment. For example, over the past generation, it has
become acceptable for women to work; people are not retiring at
65; and people are more aware of the environment etc.
The changes in culture and lifestyle may come from many
sources: medical (smoking, healthy eating, exercises); science
(global warming, going green); economic (people working longer,
women in the workforce); cultural diversity (music preferences,
foods, living accommodations, medicine); and technologies
(biodegradable plastic) are just a few examples.

Demographics refer to the size, density, distribution and growth

rate of population. All these factors have a bearing on the
demand for various goods and services. For example, a country
where population rate is high and children constitute a large
section of population, and then, there will be more demand for
such products.

Cont

Technology: Technology is understood as the

systematic application of scientific or other organized
knowledge to practical tasks. Technology changes fast
and to keep the pace with the dynamics of business
environment; organization must be on its toes to
adapt to the changed technology in their system.

Economic Conditions: The economy goes through a

series of fluctuations associated with general booms
and recessions in economic activity. In a boom nearly
all business are benefited whereas recession is a case
vice versa. Business is influenced by economic
aspects like interest rates, wage rates etc. The
survival and success of each and every business
enterprise depends fully on its economic
environment.

Cont.

Ecology and Physical Environment: The ecology and

physical environment plays a large part in many businesses
especially for those which carry out production and
manufacturing activities. In fact, business are affected on
daily basis due to environmental and ecological changes. For
example, sugar factories are set up only at those places
where sugarcane can be grown. It is always considered
better to establish manufacturing unit near the sources of
input.

Political and Legal: Political environment refers to three

political institutions viz. legislature, executive and the
judiciary in shaping, directing, developing and controlling
business activities. The political environment of the country
influences the business to a great extent. The political
environment includes the political system, the government
policies and their attitude towards the business community.