Business &

economic
environment
What is Business ?
“Business comprises of diverse set of activities to be
carried out in planned manner and with a purpose like
to earn profit by selling goods and services, to satisfy
customers’ need/ want/ demand, to discharge
obligation to employees and stakeholders, to return
something worth to the society”

Business includes all activities which are concern with the

exchange of goods and services with the objective of
getting end results and satisfying its consumer.

“5 Ms”
Business Environment ?

 “ Consist of set of internal factors and of

external factors which affect an enterprise and
its management”

•Internal environment
•External environment
 Micro
 Macro
Internal Environment
 Generally regarded as the set of
controllable factors, because a good
management can alter or modify such
factors.
 A no. of such Internal factors
influence the organizational decision.
 Could be the potential source of
differentiation.
1.Value System

Value system of founders and directors

affect a business firm in following
ways-
 Nature of business

 Policies

 Objectives
2.Mission & Objectives

3. Management Structure & Nature

-Organizational Structure
-Responsibilities of BoD
(Including Independent directors)
-Extent of professionalism
-Share holding pattern
4.Internal power relationships

-Level of support enjoyed by the top

management
-BoD relationships

5.HR
-- Quality -- Quantity
6.Misc.

-R&D capabilities
-Marketing resources
-Financial resources
External Environment
 Micro Environment

 Macro Environment
MICRO ENVIRONMENT
• Consists of the factors in firm’s immediate
external environment affecting performance of
that firm.
 SuppliersIf uncertainty (regular supply,
quality, price) about suppliers exists, high
inventory cost.
Suppliers as partners
Vertical integration
 Public

Media, Consumer action groups, NGOs

Citizens
Customers

Competitors
Marketing Intermediaries
Distribution channels
Logistics, Warehouse
Ad agencies, Market research firm, Consultancy
Micro Env.is….

 More controllable than the macro

environment

 May be firm specific

 More intimately linked with firm than

the macro environment
MACRO ENVIRONMENT
 Part of external environment mainly
responsible for creating opportunities
as well as threats for the firm, and is
more uncontrollable than micro
environment.
 Elements
 Economic
 Sociocultural
 Politicolegal
Elements cont……….
 Natural
 Demographical
 Technological
 Global
 ECONOMIC ENVIRONMENT
 Economic conditions
Stage of economic cycle
National Income-GDP, GNP
Per capita Income
Income distribution
Growth rate

 Economic policies
Exim policies
Monetary policies- availability and cost of credit
Fiscal policies- taxation, public expenditure
SEZ policies
Socio-cultural Environment

“Customs, ethics, ethos, values, language, tastes,

preferences, habits, education, occupation,
beliefs, religion, caste system, family”

 Directly affects buying and consumption

behavior.

 Very deep impact on business-

 Organizational culture, Employee relations,
Competition, Employee attitude
Technological Environment

 Rate of tech change

 Techno Infrastructure
 Technical know how
 Strong driver of demand, especially
replacement
Political Environment
 Political system (forms of govt)- Pure
democracy, Republic, Theocracy,
Totalitarianism
 Political philosophy- LPG

 Regulations and laws for general

conduct of business
 Govt. policies

 Political stability

 Institutions
Natural Environment
 Climate condition
 Weather Pattern
 Feature of the Environment
 Location factor
 Infrastructural factor
Global Environment

 WTO principal and agreement

 Other international agreement
 Economic and business condition of
other country
Demographical Environment
 Size of the population
 Population growth rate
 Age
 Family size
 Life cycle
 Income level
IMPORTANCE OF BUSINESS
ENVIRONMENT
 Identification of Opportunities
 Identification of threats
 Coping with changes
 Tapping of resources
 Basic of Strategic Planning and policy
 Improvement in Performance
 Image building