Non-Economic Environment of

Business
 Structure of Economic Environment
• What is the nature of the economic system and
how does it provide opportunities to
businesses?
• How does macro-economic scenario determine
prospects of businesses?
• How do various phases of business cycles offer
scope for business activity?
• What is the role of the financial system in
business?
• Do economic policies of the Government play
any role in determining economic environment
of businesses?
 Economic policies
• Industrial policy
• Trade policy
• Monetary policy
• Fiscal policy
 Non-economic environment
• Political and legal environment
• Socio-cultural environment
• Demographic environment
• Technological environment
• Natural environment
 Political environment
• Capitalist system favorable to business
• Government ideology
• Political stability promotes business
• Adam Smith – role of markets, State as the
provider of public goods, and law & order
• World wars – socialist system in Russia
• Great depression – loss of faith in capitalism
• Welfare state
 Political environment
• Mixed public-private economy as desirable
• Need for coordinated macroeconomic policy
• Social security and welfare benefits

• Change in policies of both developed and

developing countries
• In India, Government became active in
agriculture sector. The State exercised control
over industrial finance, foreign investment and
trade, and industry
 Political environment
• During the last two decades, role of market
has evolved; role of State curtailed
• Influenced by World Bank – IMF policies
• Adverse impacts on a few countries

• In India, shift to a liberalized business

environment
• Mixed economy with Government balancing
pressures of businesses and social welfare
 Legal environment
Legal environment
• Legislations defining property and business
organizations
• Laws of contracts and bankruptcy
• Mutual obligations of labor and management
• Laws and regulations constraining the way in
which business is conducted
 Socio-Cultural environment
Social environment
• Attitudes, desires, expectations, degrees of
intelligence and education, beliefs and customs of
people
Cultural environment
• Culture - The way members interact with one another
and with outsiders – and how they achieve what they
do
• Organizational culture – customary or traditional
ways on thinking and doing things, which are shared
to a greater or lesser extent by all members of the
organization and which new members must learn and
atleast partially accept in order to be accepted into
the service of the firm
 Socio-Cultural environment
• Socio-cultural environment refers to the
attitudes, desires, expectations, beliefs,
faiths, customs of people besides their set
of material practices through which people
produce goods and services that they need
for satisfying their wants
• Globalization of culture
• Multiculturalism
 Demographic environment
• Demographic factors
– Size and growth of population
– Life expectancy
– Age and sex composition of population
– Work participation rate
– Employment status
– Rural-Urban distribution
– Educational levels
– Religion, caste, ethnicity and language
 Technological environment
• Technology
– Nature and specification of what is produced and how it is
produced
– Production, Managerial, Marketing techniques
• Development of businesses rests on the constant
introduction of new technologies and on the capacity to
generate and absorb technical change
• Technology can lead to greater output, shorter working
hours, creation of skilled jobs in design, maintenance and
engineering, safer working conditions, production of new
and better goods of standardized quality with more efficient
use of raw materials
• Technological environment affects business from the
demand side as well
 Natural environment
• Natural environment
– Supports life
– Supplies natural resources
– Absorbs waste products
– Supplies amenity resources
• Business activities can be harmful to the
natural environment
• Environmental damage can reduce
economic productivity