INTENDED LEARNING OUTCOMES (ILO)

At the end of this presentation, the students would

be able to:
1. Examine how different factors and trends in the
external environment are likely to impact upon a
proposed business venture.
2. Conduct a business analysis of the local and national
environment.
3. Analyze the forms and economic roles of business
organizations.
OUTLINE OF TOPICS TO BE STUDIED IN THE
PRESENTATION:

o Business Environment
o Micro- Environment
o Macro-Environment
o PEST analysis
o SWOT analysis
o Environmental Scanning
o Economic Development
BUSINESS ENVIRONMENT
MEANING OF BUSINESS ENVIRONMENT

 The sum total of all individuals, institutions and other forces that are outside the control
of a business enterprise but the business still depends upon them as they affect the
overall performance and sustainability of the business.”

 The forces which constitute the business environment are its suppliers, competitors,
consumer groups, media, government, customers, economic conditions, market
conditions, investors, technologies, trends, and multiple other institutions working
externally of a business constitute its business environment. These forces influence the
business even though they are outside the business boundaries.
IMPORTANCE OF BUSINESS ENVIRONMENT
1. Enables to Identify Business Opportunities

All changes are not negative. If understood and evaluated them, they can be the reason for
the success of a business. It is very necessary to identify a change and use it as a tool to solve the
problems of the business.

2. Helps in Tapping Useful Resources

Careful scanning of the Business Environment helps in tapping the useful resources
required for the business. It helps the firm to track these resources and convert them into goods
and services.

3. Coping with Changes

The business must be aware of the ongoing changes in the business environment,
whether it be changes in customer requirements, emerging trends, new government policies,
technological changes. If the business is aware of these regular changes then it can bring about a
response to deal with those changes.
4. Assistance in Planning
This is another aspect of the importance of the business
environment. Planning purely means what is to be done in the
future. When the Business Environment presents a problem or an
opportunity, it is up to the business to decide what plan would it have
to come up with in order to address the future and solve the problem
or utilise the opportunity. After analyzing the changes presented, the
business can incorporate plans to counteract the changes for a secure
future.

5. Helps in Improving Performance

Enterprises that are thoroughly scanning their environment not
only deal with the changes presented but also flourish with them.
Adapting to the external forces help the business to improve the
performance and survive in the market.
 The micro
Micro Environment environment is the
operating
environment of the
firm. This is because
the functioning of the
micro environment
has a direct and
immediate bearing on
the company. They
are more interlinked
with the company
than macro
environmental
factors.
 Customers
The main purpose for the existence of
most organizations is to satisfy the
needs and wants of the customers.
The enterprise aims to please the
customer and earn a profit in return.
So, the ultimate aim is to provide the
best products/services to the customer
at the best prices. Failure to do so may
result in failure of the business. This is
why it has become increasingly
important to listen to customers and
value their feedback. This is why
customer consumer surveys have
increasing importance in today’s
markets.
. Competitors
There are no pure monopolies in the
world. Every organization, whether
big or small, has competition and
competitors. So, the company has
to keep a constant check on their
competitors. The company must
ensure that their products have a
USP that makes them different and
unique in the market. The products
offered must also be better and
cheaper than those of the
competition
 Employees
Employees or labor is one of the
most important factor of production
for a company. Human resources
are a significant factor in the
success (or failure) of a firm. Hence
employing the correct people, best
suited to your firm is of vital
importance. And training and
development of these employees is
also essential. If care is not taken in
this matter the organization can
never succeed, because employees
are the back bone of every
organization.
Shareholders
Shareholders invest in the company, but
they are not merely investors. They own
shares of the company, so they are
actually owners of the company in a way.
This means they get a say in the running
of a company. Shareholders will also
demand a return on their investment. So,
it is the company’s duty to earn profits
and pass on this benefits to the
shareholders. They have to create wealth
for these shareholders. To keep their
interest dividends also have to be paid.
So the company must find the right
balance between the health of the
company and the benefits to the
shareholders.
 Suppliers
Suppliers provide the firm with the
materials and factors of production
they need to run the business. The
relation between the company and the
suppliers is a power equation. Both
depend on each other for their
survival. So, it is necessary for the
company to have healthy and
amenable relations with their suppliers.
This is essential to the smooth running
of the organization. For example, if the
company has a falling out with one raw
material supplier it could delay their
whole production process by days.
Media
Every company is going to need
media to promote their brand and
market their products. So it is
necessary that the company
maintain their relationship and
their status quo with the media.
Any negative coverage in the
media can lead to huge losses for
the company. This is why
companies hire PR managers to
help them use the media to a
positive effect.
 When a firm operates in an
Macro Environment economy and a society, there are
factors in its environment that it has
no control over. These are elements
of its macro environment or its
general external environment.

Macro environment is the

remote environment of the firm, i.e
the external environment in which it
exists. As a rule, this environment
is not controllable by the firm, it is
too huge and too unpredictable to
control.

Hence the success of the

company, to a large extent will
depend on the company’s ability to
adapt and react to the changes in
the macro environment.
PEST ANALYSIS

PEST Analysis is useful for four main reasons:

1. It helps you to spot business or personal opportunities, and it
gives you advanced warning of significant threats.
2. It reveals the direction of change within your business
environment. This helps you shape what you're doing, so
that you work with change, rather than against it.
3. It helps you avoid starting projects that are likely to fail, for
reasons beyond your control.
4. It can help you break free of unconscious assumptions when
you enter a new country, region, or market; because it helps
you develop an objective view of this new environment.
SWOT ANALYSIS
AIM OF SWOT ANALYSIS

a) To help decision makers share and compare ideas.

b) To bring a clearer common purpose and understanding of
factors for success.
c) To organize the important factors linked to success and failure
in the business world.
d) To provide linearity to the decision making process allowing
complex ideas to be presented systematically.
ENVIRONMENTAL SCANNING

 Environmental scanning
helps us not only identify the
potential trends but also
determine why these trends
are occurring.
The key to successful
scanning includes:
 identifying trends,
 understanding the reasons
behind the trends, and
taking action to respond to such
trends
 ECONOMIC FORCES
Social Forces
Play an important role in the
earnings and expenditures that affect
Social forces include running a business as well as a
the demographic household. The state of the economy
characteristics of the whether it is a recession period or
population and its boom period has implications on
values. Demographics is the businesses. In general,
study of the characteristics of macroeconomic conditions are
a human population such as concerned with the state of the
population size, population economy (inflationary or
growth rate, gender recessionary).
distribution, marital status,
ethnicity, income distribution,
etc.
 TECHNOLOGICAL FORCES COMPETITION
Technological change is developed Refers to the firms in the
as a result of research and it is same market providing similar
unpredictable for that reason. It would or substitute products. They
not be possible to think about wireless also target the same consumer
internet connectivity in the early 1900s. segments and try to satisfy a
Technology transforms markets and specific market's needs.
businesses world-wide. The impact of
technological change on marketing
may be illustrated by the use
of information and communication
technologies (ICTs). ICTs include
internet, intranet, and extranet. Intranet
and extranet are slightly different than
internet.
ECONOMIC DEVELOPMENT
generally, refers to the sustained, concerted actions of policymakers and communities that
promote the standard of living and economic health of a specific area. Economic
development can also be referred to as the quantitative and qualitative changes in the
economy.
Stage One: Traditional Society The first
stage of Rostow's model and the one in which
societies begin, is the traditional society. The
traditional society stage was prevalent prior to
the 1700s, when most societies operated in a
relatively stable state and productivity didn't
rise or fall dramatically. Trade existed, such as
the spice route between Asia and Europe, but
it was timely, costly, and more of a luxury than
a necessity. Technology was very limited.
Humans had access to little more than
handmade tools, transportation, and the
printing press. That meant that producing
goods was very human capital intensive,
which created large gaps in income inequality.
These societies also relied heavily on
agricultural labor because a tremendous
amount of labor was required to grow enough
food to sustain the societies.
Stage Two: Preconditions for Take-Off
There is a period of transition between
the traditional society and a society that
takes off, and for a certain time that
society is establishing the preconditions
for take-off. These preconditions are
mostly marked by an increase in
productivity, such as was found in
Europe during the 1700s and 1800s. A
number of factors came together to make
productivity increase; for example,
population hit a critical mass that made
agriculture take up such a high
percentage of labor, which provided
opportunities for the establishment of
educational institutions, banks, and a
market for luxury goods.
Stage Three: Take-Off When the
preconditions for take-off are met, a society
can take off. Educated individuals start
inventing new processes and tools, and
access to capital through financial markets
and banks make it possible to produce
goods and services on a larger scale. This
requires a different type of skill set from
human laborers, so the economy shifts from
agriculture to production. This increases
wages for everyone, taking the economic
structure from a structure of kings and
servants to a wealthy class, middle class,
and lower class. A lower class still exists at
this stage, either because of social norms
that discriminate against people or simply
because the number of middle-class jobs
are fewer than the total number of people.
Stage Four: Drive to Maturity The next of
Rostow's five stages has a general length of
time associated with it, the drive to maturity.
According to Rostow, the drive to maturity is
about a 60-year period between the take-off
and the final stage, the age of mass
consumption. During this short period, an
economy is able to reinvest 10- 20% of what
it creates into more production. Processes
are improved, quality of life is improved, and
technology and new ideas continue to
become more central to society, while the
cost of producing the needs for survival
becomes a smaller part of the economy.
More importantly, the middle class grows at
the quickest rate of any economic class.
Stage Five: Age of Mass Consumption
After the drive to maturity, an economy
reaches maturity and begins the final stage,
the age of mass consumption. Think of the
United States, much of Europe, and some
of Asia today, and you can see this stage of
development at work. The quantity and
quality of products and services increase. A
society or economy in this stage is able to
export production, bringing in money from
other countries that helps the economy
grow larger beyond actual consumption.
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