BUSINESS

ENVIRONMENT

BUSINESS

IS AN ECONOMIC
ACTIVITY BECAUSE IT
INCLUDES ALL THOSE
ACTIVITIES WHOSE PURPOSE
IS TO EARN PROFIT BY
TRANSFER OR EXCHANGE OF
GOODS & SERVICES.
Business may be defined as human
activity directed towards producing or
acquiring wealth through buying or
selling of goods.
-C.H.Haney

-ENVIRONMENT MEANS THE

SURROUNDINGS OR CONDITIONS IN
WHICH A PERSON, ANIMAL, OR PLANT
LIVES OR OPERATES.
-ENVIRONMENT MEANS THE
SURROUNDINGS, EXTERNAL
OBJECTS, INFLUENCES OR
CIRCUMSTANCES UNDER WHICH
SOMEONE OR SOMETHING EXISTS.

Business Environment is that group of

factors which provide new opportunities for
business or create new challenges for the
same.

The environment includes factors outside the

firm which can lead to opportunities for or threats
to firm. Although there are many factors, the
most important of the sectors are socialeconomic, technological, supplier, competitors,
and government.
-William F. Glueck and
Lawrence R. Jauch

FEATURES OF BUSINESS ENVIRONMENT

Business

environment is the sum total of all

factors external to the business firm and that
greatly influence their functioning.

It

covers factors and forces like customers,

competitors, suppliers, government, and the
social, cultural, political, technological and
legal conditions.

The

business environment is dynamic in

nature, that means, it keeps on changing.

FEATURES OF BUSINESS ENVIRONMENT

The

changes in business environment are

unpredictable. It is very difficult to predict the
exact nature of future happenings and the
changes in economic and social environment.

Business

Environment differs from place to

place, region to region and country to country.
Political conditions in India differ from those
in Pakistan. Taste and values cherished by
people in India and China vary considerably.

IMPORTANCE OF BUSINESS
ENVIRONMENT
Determining Opportunities and Threats
Giving Direction for Growth
Continuous Learning
Image Building
Meeting Competition
Identifying Firms Strength and Weakness

TYPES OF BUSINESS ENVIRONMENT

Internal
Environment

Business
Environment

External
Environment

TYPES OF BUSINESS ENVIRONMENT

BUSINESS ENVIRONMENT

Internal
Environment

-Value System

-Mission and
Objectives

External Environment

Micro(Task/
Operating )
Environment
-Suppliers

Macro (General/
Remote)
Environment
-Economic Factors

-Management
structure/ Nature

-Customers

-Internal Power

-Competitors

-Company Image/Brand
equity

-Marketing
Intermediaries

-Political/ Govt. Factors

-Publics

-Natural Factors

-Financiers

-Technological Factors

-Human Resource
-Miscellaneous Factors

-Social/culture Factors
-Demographic Factors

-Global Factor

Internal
Environment

INTERNAL ENVIRONMENT

Value System

The value system of the founders and those at the helm of affairs has
important bearing on the choice of business, mission and objectives of the
organization, business policies and practices.

The value system of the organization influence its portfolio strategy, HRM,
marketing strategy and CSR.

What are the core values of your business?

Examples of values like:
Timeliness, Reliability, Convenience , Driving internal efficiency,
Customer satisfaction, Customer intimacy, Transparency, Accountability,
Brand and business reputation, Quality, Innovation, etc.

INTERNAL ENVIRONMENT

Value System

Example:
After the EID Parry group was taken over by the murugappa group,
one of the most profitable (liquor) of the ailing parry group was sold
off as the liquor business did not fit into the value system of the
Murugappa group.

INTERNAL ENVIRONMENT

Mission and objectives:

The business domain of the company, priorities, direction of
development, business philosophy, business policy, etc. are guided
by the mission and objective of the company.

Example:
Ranbaxys thrust- To become a research based international pharmaceutical
company.
Arvind Mills mission To achieve global dominance in select businesses built
around our core competencies through continuous product and technical
innovation, customer orientation and focus on cost effectiveness

INTERNAL ENVIRONMENT

Management Structure and Nature

The organizational structure, the composition of the Board of
Directors, extent of professionalization of management etc., are
important factors influencing business decisions.

Some management structures and styles delay decision making

while some other facilitate quick decision making.

For example: Flat organizational structure and tall organizational structure.

Centralization and decentralization, etc.

INTERNAL ENVIRONMENT

Internal Power Relationship

Factors like the amount of support the top management enjoys

from different levels of employees, shareholders and board of
directors have important influence on the decisions and their
implementation.

Example:
-Issue of Hero Honda company.

INTERNAL ENVIRONMENT

Human Resources
The characteristics of the human resources like skill,
quality, morale, commitment, attitude, etc., could
contribute to the strength and weakness of the
organizations.
Some organization find it difficult to carry out restructuring
or modernization because of resistance by employees
whereas they are smoothly done in some others.
Example:
Employees of Tata group.

INTERNAL ENVIRONMENT

Company Image and Brand Equity

The image of the company matters while raising finance,
forming joint venture, soliciting marketing intermediaries,
entering purchase or sale contracts, launching new products
etc.
Brand equity is also relevant in several of these cases.

Example:
- scandal of Satyam company,
- coke & pepsi( pesticide issue).
- Lakme company

INTERNAL ENVIRONMENT

Miscellaneous Factors

Physical Assets & Facilities

R&D Technological Capabilities
Marketing Resources
Financial Factors

EXTERNAL ENVIRONMENT

E x te r n a l E n v ir o n m e n t
M ic r o
E n v ir o n m e n t

M acro
E n v ir o n m e n t

MICRO ENVIRONMENT
Micro or task environment is more
specific and immediate environment in
which an organization conducts its
business.
-Dunham & Pierce

1. SUPPLIER

Those who supply the inputs like raw material and components to
the company.

The importance of Reliable Source/Sources of supply to the smooth

functioning of the business is obvious.

Uncertainty regarding the supply or other supply constraints compel

companies to maintain high inventories causing cost increases.

Example: India and Japan

Because of the sensitivity of the supply, many companies give high

importance to Vendor development. Vertical integration, where
feasible, helps solve the supply problem.

For example,
-Nirma company has always been a believer of the logic
that captive production plants for raw materials is the best
way to production costs in check .In many cases, however,
outsourcing is more beneficial.
- HATHI CEMENT

Very risky to depend on a single supplier

2. CUSTOMER

The major task of a business is to create and sustain customers.

A business exits only because of its customers. Monitoring the customer sensitivity is, therefore, a
prerequisite for the business success.

Different categories of consumers

Individuals
Industries and other commercial establishments
Government and other institutions.
Example: the customers of tyre company-Individual automobile owners,automblie manufacturers, public sector transport
undertakings and other transport operators.

Depending on single customer is too risky

In Choosing the customer segments, a company should consider such factors as

Relative profitability
dependability
stability of demand
extent of competition

3. COMPETITORS
A firms competitors include not only
the other firms which market the
same or similar product but also all
those who compete for the income of
the consumers.
like
oDesire competition
oGeneric competition
oProduct form competition
oBrand competition

4. MARKET INTERMEDIATES
o

Firms that aid the company in promoting, selling and distributing

its goods to final buyers.

Include
o
o

o
o

the middlemen and merchants who help the company find customers
or close sales with them such as
Physical distribution firms which assist the company in stocking and
moving goods from their origin to their destinations such as ware
houses and transportation firms, etc.
Marketing service agencies which assist the company in targeting
and promoting its products to the right markets such as marketing
research firms, media firms and consulting firms, etc.
Financial intermediaries which finance marketing activities and insure
business risks

They are vital links between the company and the final
consumers.

5. FINANCIERS

Another important micro environmental factor is the

financiers of the company. Besides the financing
capabilities, their policies and strategies, attitudes
(including attitude towards risk), ability to provide nonfinancial assistance etc. are very important.

6. PUBLIC

A company may encounter certain publics in its

environment. A public is any group that has an actual or
potential interest in or impact on an organization's ability
to achieve its interests.
It includes:
Media public, local publics, Government publics,
financial publics, general public , etc.
Some companies are seriously affected by such publics.

For example, one of the leading companies in India was frequently

under attack by the media public, particularly by a leading daily
which was allegedly bent on bringing down the share prices of the
company by tarnishing its image.

Such exposures or campaigns by the media might even influence

the government decisions affecting the company.

6. PUBLIC

Many companies are also affected by local publics.

For example: Environmental pollutions is an issue often taken up by

a number of local publics. Actions by local publics on this issue
have caused some companies to suspend operations and/or take
pollution abatement measures.

Publics are not always threat to the business.

Fruitful cooperation between a company and the local

publics may be established for the mutual benefit.

MACRO ENVIRONMENT

MACRO ENVIRONMENT

means general
environment of business. Macro factors are
uncontrollable in comparison to the micro forces
of environment. The growth and survival of
business depend upon its adaptability to macro
environment factor which include

MACRO ENVIRONMENT

Economic
Political
Social-Cultural
Technological
Natural
Demographic
International

1. ECONOMIC ENVIRONMENT
Economic Conditions
The economic conditions of a nation refer to a set of economic factors that have great
influence on business organizations and their operations. These includes nature of the
economy, the stage of development of the economy, economic resource, the level of income,
National income, Per capita income, Distribution of income, etc.
National Income: The total net value of all goods and services produced within a nation
over a specified period of time, representing the sum of wages, profits, rents, interest, and
pension payments to residents of the nation.

Economic System
Capitalist:
The economic system in which business units or factors of production are privately
owned and governed is called capitalism. For example: US, England, etc.
Socialist:
Under socialism economic system, all the economic activities of the country are
controlled and regulated by the Government in the interest of the public.
For example :Russia
Mixed Economy:
The economic system in which both public and private sectors co-exist is known as
Mixed Economy. For example: India.

1. ECONOMIC ENVIRONMENT
Economic Policies
Industrial Policy
Industrial policy of a country promotes and regulates the industrialization in
the country. It is framed by government. The government from time to time
issues principals and guidelines under the industrial policy of the country.
Monetary Policy
The policy formulated by the central bank of a country to control the supply
and the cost of money (rate of interest), in order to attain
some specified objectives is known as Monetary Policy.
Fiscal Policy
It may be termed as budgetary policy. It is related with the income and
expenditure of a country. Fiscal Policy works as an instrument in economic
and social growth of a country. It is framed by the government of a country
and it deals with taxation, government expenditure, borrowings, deficit
financing and management of public debts in an economy.

1. ECONOMIC ENVIRONMENT
Economic Policies
Trade Policy
It also affects the different business units differently. E.g. if restrictive import
policy has been adopted by the government then it will prevent the domestic
business units from foreign competition and if the liberal import policy has been
adopted by the government then it will affect the domestic products in other way.

Foreign Investment
The policy related to the investment by the foreigners in a country is
known as Foreign Investment Policy. If the government has adopted
liberal investment policy then it will lead to more inflow of foreign capital
in the country which ultimately results in more industrialization and
growth in the country.

2. POLITICAL ENVIRONMENT

Political Ideology of Govt.

Political stability in the Economy.
Foreign Policy of Govt.
Defence & Military Policy.
Centre state relationship.

POLITICAL ENVIRONMENT
P o litc a l E n v ir o n m e n t
P o lit ic a l S y s t e m

C o n s t it u t io n
E n v ir o n m e n t

L e g is la tu r e

P r e a m b le

E x e c u tiv e

F u n d a m e n ta l R ig h ts

J u d ic ia r y

D ir e c tiv e s
P r in c ip le s o f S ta te P o lic y

3. SOCIO-CULTURAL
ENVIRONMENT

Major factors are:

the buying and consumption habits of people,
their language beliefs and values,
customs and traditions,
tastes and preferences, (e.g.: Blue pepsi )

Strategy should be appropriate in the sociocultural environment.

Eg: Nestle brews a very large variety of instant

coffee to satisfy different national tastes.
Companies have to change their product portfolio
because of cultural differences as McDonald and
KFC did when they launched their restaurant chain
in India.

3. SOCIO-CULTURAL
ENVIRONMENT

Even when people of different cultures use

the same
product;
the
mode of
consumption, conditions of use, purpose of
use or the perceptions of the product
attributes may vary so much so that the
product attributes, method of presentation,
positioning or method of promoting the
product may have to be varied to suit the
characteristics of different markets.

E.g.: Vicks Vaporub, the popular pain balm is

used as mosquito repellent in some tropical
countries

3. SOCIO-CULTURAL ENVIRONMENT

Language difference pose a serious problem.

e.g.

Pepsi: Not to be outdone by coke when

Pepsi started a marketing campaign in
Taiwan, the translation of the Pepsi slogan.
In Japanese, General Motors body by
Fisher means Corpse by fisher
General Motors: when GMs introduces the
Chevy Nova in south America, it was
apparently unaware that no va means
it wont go. After the company figured
out why it wasnt selling any cars, it
renamed the car in its Spanish markets to
the caribe.

3. SOCIO-CULTURAL ENVIRONMENT

Colour
Blue: feminine and warm in Holland ; but
masculine and cold in Sweden
Green: favourite in Muslim world; but represents
illness in Malaysia
Red: popular in communist countries; but
represents disaster in Africa
White: death and mourning in China and Korea;
but it expresses happiness in some countries.
Also it is the colour of bridal dress.

4. NATURAL ENVIRONMENT

Geological and ecological factors, such as natural resources endowments, weather

and climatic conditions, topographical factors, location aspects in the global context,
port facilities etc., are relevant to business.

Differences in geographical conditions between markets may some times call for
changes in the marketing mix.
Geographical and Ecological factors also influence the location of certain industries.
E.g. industries with high material index tend to be located near the raw material
sources.
Climate and weather conditions affect the location of certain industries like the cotton
textile industry.

Topographical factors (physical feature of place) may affect the demand pattern. E.g..
In hilly areas with difficult terrain, jeeps may be in a greater demand than cars.

Ecological factors have recently assumed great importance. The depletion of natural
resources, environmental pollution and the disturbance of ecological balance have
caused great concern.

5. DEMOGRAPHIC ENVIRONMENT

Factors include: Size, growth rate, age composition, sex

composition of population, family size, educational
levels, economic stratification of the population,
language, caste, religion, etc.

(a) Size & growth rate of population

Growing population: boon

Increase in productive forces

Bigger market for products

Growing population: bane

Adverse impact on per capita income & standard of living

Adverse impact on savings: unfavorable impact on capital

formation

Adverse impact on employment situation

Increasing pressure on agriculture

6. DEMOGRAPHIC ENVIRONMENT

E.g.:- Decline in birth rates in USA have affected the

demand for baby products. So Johnson &Johnson
repositioned their products like baby shampoo and
baby oil, to the adult segment, particularly to females.

(b) age structure of population

It determines:

Productivity level

Demand pattern
Young population
Elderly population

6. DEMOGRAPHIC ENVIRONMENT

(c) urban- rural population

Proportion of urban rural population increasing

Reasons
Pull factors:

Better employment opportunities in urban areas

Better income

Better education

Better health facilities

Push factors:

Low level of agriculture productivity

Disguised unemployment

Wide disparity between urban & rural levels of living

7. TECHNOLOGICAL
ENVIRONMENT

Business prospects depends also on the availability of certain physical

facilities
E.g. demand for electrical appliances is affected by the extent of
electrification and the reliability of power supply.
Demand for LPG stoves depend on rate of growth of gas
connections

differing technological environment of different markets may call for

product modifications
E.g. Many appliances are designed for 110 V in USA. They should
be converted for 240v in India

Technological developments may increase or decrease the demand for

some existing products
E.g. voltage stabilizers help increase in sale of electrical appliances
in markets characterised by frequent voltage fluctuations
Introduction of TVs, Refrigerators, etc. with in-built stabilizers
adversely affects the demand for voltage stabilizers.

7. TECHNOLOGICAL
ENVIRONMENT
Positive effects of technology:

Increased productivity

Production of new & better goods of standardized quality with more

efficient use of raw materials

Basis for fast growing urban & industrial system

Negative effects of technology:

Displacement of labour

Environmental pollution

Switching over might be costly

8. INTERNATIONAL
ENVIRONMENT
Globalization
Oil

Price hike
International Terrorism
Cultural Exchange

Thank
you