ENVIRONMENT AND

BUSINESS
DR.C.V.LOLITHA
Business
A business is an organization or enterprising entity engaged in commercial, industrial or
professional activities. A company transacts business activities through the production
of a good, offering of a service or retailing of already manufactured products
Business Environment
Davis Keith defines the business environment as the aggregate of all conditions,events
and influences that surround and affect it.

Business Environment can be defined as the combination of internal and external

factors that influence a company's operating situation. It can include factors such as:
clients and suppliers ; its competition and owners; improvements in technology; laws
and government activities; and market, social and economic trends etc.
 Characteristics of Business Environment
(a) 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.
(b) The business environment is dynamic in nature, that means, it keeps on changing.
(c) 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.
(d) 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.
(e) The different factors of business environment are co-related. For example, let us suppose that there
is a change in the import-export policy with the coming of a new government. In this case, the
coming of new government to power and change in the import-export policy are political and
economic changes respectively. Thus, a change in one factor affects the other factor.
Types of Business Environment
Internal Environment The factors which can be controlled by company or Primary factors which
directly affects the growth of organization….. man, material, money, machinery and
management.
External Environment • Those factors which are beyond the control of business enterprise are
included in external environment.
Internal Environment
1. Vision, mission and objectives
key role in deciding business province, preferences, course of development, business philosophy,
business policy etc.
2. Values.
Endorsing and dissemination of strong values by the whole organization leads to its success while
weak value base ends up in its failure.
3. Management structure
organizational structure, the composition of the board of directors, level of professionalization of
management etc have a sway upon business decisions and strategies. Quick decision making is easily
enabled by some management structures while some others cause delay in it.
4. Human Resources
The attributes of the employees like soft and hard skills, eminence, quality, morale, commitment self-
esteem, dedication, attitude and aptitude etc could add to the strength and weaknesses of an
organization
5. Owners
Owner can be an individual or a group of persons who created the company; or who purchased the
shares from the share market. They have the right to change the company policies at any time.
6.Financial Capability
Factors relating to availability, usage & management of funds like financial policies, capital structure
,accounting system, audit procedure and tax planning effects business performance.
7.Marketing Capability
Factors relating to price, promotion, distribution of products &services have bearing on organisation.
8. Research and development
Good research activities undertaken by an organization is a strong internal component that can
contribute to its prosperity as such a venture will enhance its reputation and can exploit first mover
advantage and determines the organisations ability to innovate & compete.
 External Environment
Micro Environment
The micro environment or task environment encompasses those forces in the close surrounding area
of an organization that influence it’s functioning.
Macro Environment
The macro environment consists The macro forces are generally more uncontrollable and the success
of a company depends on its adaptability to the environment.
Micro Environment
• Suppliers
• Customers – Wholesalers – Retailers – Industries – Government and Other Institutions –
Foreigners
• Competitors
• Market Intermediaries – Middleman – Marketing Agencies – Financial Intermediaries –
Physical Intermediaries
• Public
Macro Environment
1. Economic environment
The Economic environment includes broad factors like structure and nature of the economy, the stage
of development of the economy, economic resources, the level of income of the economy, the
distribution of income and assets among citizens, linkages with global economy, economic policies
etc.
2. Political Environment
It primarily comprises of the country’s government’s actions which may influence the operations of a
company or business. These actions can be on different levels like local, regional, national or
international.it includes tax policies, industrial policy, fiscal policy, foreign trade policy, Import
restrictions on quality and quantity of product etc.
3. Technological environment
Factors like the type of technology in use, the level of technological developments, the speed with
which new technologies are adopted and diffused, the type of technologies that are appropriate, the
technology policy etc has deep implications on the prospects of the business.
4. Socio-Cultural Environment
Influence exercised by social and cultural factors, not within the control of business, is known as
Socio-Cultural Environment. These factors include: attitude of people to work, family system,
consumption pattern, caste system, religion, education, marriage, beliefs, taste and preferences,
life styles etc.
5. Demographic Environment
It is a study of perspective of population i.e. its size, standard of living, growth rate, age-sex
composition, family size, income level (upper level, middle level and lower level), education level
etc. Every business unit must see these features of population and recognize their various needs
and produce accordingly.
6. Legal Environment
This includes a set of laws and regulations, which influence the business organisations and their
operations. Every business organisation has to abide by, and work within the framework of the law.
The important legislations that concern the business enterprises include:
(i) Companies Act, 2013.
(ii) Foreign Exchange Management Act, 1999
(iii) The Factories Act, 1948
(iv) Industrial Disputes Act, 1972
(v) Payment of Gratuity Act, 1972
(vi) Industries (Development and Regulation) Act, 1951
(vii) Prevention of Food Adulteration Act, 1954
(viii) Essential Commodities Act, 2002
7. Natural Environment
It includes natural resources, weather, climatic conditions, port facilities, topographical factors
such as soil, sea, rivers, rainfall etc. Every business unit must look for these factors before
choosing the location for their business.
8.International Environment
It is particularly important for industries directly depending on import or exports. The factors
that affect the business are Globalization, Liberalization, Foreign business policies, Cultural
exchange
Significance of BE
Determining Opportunities and Threats
Giving Direction for Growth
Continuous Learning
 Image building
 Meeting Competition
Identifying Firms strength & Weaknesses
Environmental Analysis
Environmental analysis refers to the process of identifying the external and internal elements,
which can affect the performance of an organisation.
Stages of Environmental Analysis
Scanning the environment
 To identify early signals of possible environmental change
 To detect the factors which may have implications on the business
Monitoring
 A specific description of environmental trends and patterns to be forecast
 Identification of areas for further scanning
Forecasting
To anticipate the future threats and opportunities for formulating strategic plans
Estimating the intensity, nature, and timing of the external forces that may affect the
performance of a firm, disrupt its plans, or force a change in its strategies

Assessment
to realize implications or probable impacts of those factors which may cause threats and
provides opportunities.
Globalisation
Globalisation may be defined as “ the growing economic interdependence of countries
worldwide through increasing volume and variety of cross border transactions in goods and
services and of international capital flows, and also through the more rapid and widespread
diffusion of technology.
Globalisation Strategies
Exporting
Exporting, the most traditional mode of entering the foreign market, products manufactured in
the home country are exported to foreign markets.
Licensing
Under international licensing, a firm in one country (the licensor) permits a firm in another
country (the licensee) to use its intellectual property (such as patents, trademarks, copyrights,
technology, technical know-how, marketing skill or some other specific skill).
Franchising
Franchising is “a form of licensing in which a parent company (the franchiser) grants another
independent entity (the franchisee) the right to do business in a prescribed manner.
.
Globalisation Strategies
Contract Manufacturing
A company doing international marketing, contracts with firms in foreign countries to manufacture
or assemble the products while retaining the responsibilities of marketing the product
Management Contracting
In a management contract the supplier brings together a package of skills that will provide an
integrated service to the client without incurring the risk and benefit of ownership. The
arrangement is especially attractive if the contracting firm is given an option to purchase some
shares in the managed company within a stated period
Turnkey Contracts
A turnkey operation is an agreement by the seller to supply a buyer with a facility fully equipped
and ready to be operated by the buyer’s personnel, who will be trained by the seller. Turnkey
contracts are common in international business in the supply, erection and commissioning of
plants, as in the case of oil refineries, steel mills, cement and fertilizer plants etc
Entry strategies
Joint Ventures
Any form of association with foreign companies , which implies collaboration for more than a
transitory period, to produce or market the products or services is a joint venture.
A contractual joint venture is an arrangement between two or more companies in which certain
assets and liabilities are shared for a specific purpose and time.
An equity joint venture is a capital sharing arrangement between an MNC and a local company or
another MNC.
Direct Investment
Developing ,manufacturing or assembling facilities in foreign countries through direct business
investment or portfolio investment.
Direct business investment involves investment by branches of foreign companies, investment by
subsidiaries of foreign companies, investment by other foreign controlled companies.
Portfolio investment represents the investment made by foreign institutional investors ,individuals
and non resident citizens in host countries’ stock markets.