The Business Environment

Key points

Introduction
The Business Environment types
The Business environment analysis
The Business environment process
 SWOT and PEST analysis
conclusion
 What is business environment

It refers to different forces or surroundings that

affect business operations. Such forces include
customers, competitors, suppliers, distributors,
industry trends, regulations, government activities,
the economy, demographics, and social and cultural
factors. Others are innovations and technological
developments
 Types of business environment

Business environment has two component :

1. Internal Environment: It includes 5 Ms i.e. man ,material ,
money, machinery and management, usually within the control
of business. Business can make changes in these factors
according to the change in the functioning of enterprise.
2. External Environment: Those factors which are beyond the
control of business enterprise are included in external
environment. These factors are : Government and Legal factors
,Political Factors, Cultural Factors, Demo-Graphical factors etc.
It is of two Types:
1. Micro/Operating Environment
2. Macro/General Environment
 Micro/Operating Environment:

The environment which is close to business and affects

its capacity to work is known as Micro or Operating
Environment. It consists of Suppliers ,Customers ,
Market Intermediaries, Competitors and Public.
(1) Suppliers: They are the persons who supply raw
material and required components to the company.
They must be reliable and business must have multiple
suppliers i.e. they should not depend upon only one
supplier.
(2) Customers: Customers are regarded as the king of
the market. Success of every business depends upon
the level of their customer’s satisfaction.
Types of Customers:
 (i) Wholesalers (ii) Retailers (iii)
Industries (iv) Government and Other Institutions
(v) Foreigners

(3) Market Intermediaries: They work as a link

between business and final consumers.
 Types:-
(i) Middleman (ii) Marketing Agencies
(iii) Financial Intermediaries
(4) Competitors: Every move of the competitors affects
the business. Business has to adjust itself according
to the strategies of the Competitors.

(5) Public: Any group who has actual interest in

business enterprise is termed as public e.g. media
and local public. They may be the users or non-users
of the product.
 Macro/General Environment:

It includes factors that create opportunities and

threats to business units.
Following are the elements of Macro Environment:
(1) Economic Environment: It is very complex and
dynamic in nature that keeps on changing with the
change in policies or political situations.
(2) Non-Economic Environment: Following are
included in non-economic environment
(i) Political Environment: It affects different
business units extensively
(ii) 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 , religion, education,
marriage etc
 (iii) Technological Environment: A systematic
application of scientific knowledge to practical task is
known as technology .Every day there has been vast
changes in products, services ,life styles and living
conditions, these changes must be analyzed by every
business unit and should adapt these changes.
(iv) Natural Environment: It includes natural
resources , weather , climatic conditions, topographical
factors such as soil, sea, rivers, rainfall etc. Every
business unit must look for these factors before
choosing the location for their business.
 (v) 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 need and produce
accordingly.
(vi) 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
 Characteristics

1. Business environment is compound in nature.

2. Business environment is constantly changing process.
3. Business environment is different for different business
units.
4. It has both long term and short term impact.
5. Unlimited influence of external environment factors.
6. It is very uncertain.
7. Inter-related components.
8. It includes both internal and external environment.
 What is environmental analysis ??

is the study of the organizational environment to

determine environmental factors that can
significantly influence organizational operations
How ? By measuring the weaknesses &
strengths of the internal environment of the
organization and the opportunities & threats of the
external environment .
The purpose and limitations of this analysis

Purpose :
to identify the potential influence of particular
aspects of the general and operating environments
on business operations.
The environmental analysis then influences
corporate planning and policy decisions.
Limitations :
 The analysis does not guarantee business success
and the benefit of the analysis is also limited by the
reliability and timeliness of data used in the analysis
 Business Environmental process

It includes 3 steps

1. Company must identify the environmental factors
that affect the business .
2. then gathers information about the selected set of
environmental factors that are most likely to
impact business operations
3. This information serves as input to expect the
impact of each environmental factor on the
business
 Modules of environmental analysis

# PEST analysis : (Political, Economic, Social and

Technological) focuses on the external, macro-
environment in which your business operates
Why it is important ?
1. avoid taking actions that are likely to fail, because
of factors beyond your control.
2. It is a useful tool to use when considering
expansion into new countries or regions
3. guide you and your company to make the most
appropriate decisions about the future direction
of your business
Uber is a rapidly growing taxi service provider in the
world. People like its features such as easy
accessibility with the app and taxi sharing. However,
there are controversies such as minimum wage
complications and banning that are not helping its
cause.
And now let us find out more about this company
through a Pestle Analysis example.
 # SWOT analysis : Because the PEST model looks at
external macro factors, it is useful to use before a SWOT
Analysis. A SWOT (Strengths, Weaknesses,
Opportunities, Threats) Analysis is more micro-
environment .
Why it is important ?
1. It is versatile and can be used for both personal and
business issues
2. by understanding the weaknesses of your business,
you can manage or eliminate threats that otherwise
could have come as a surprise to you.
 ANY
QUESTIONS ??