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A Presentation On

Types Of Business Environment

Concept Of Business:

Business may be understood as the organized efforts to enterprise to supply consumers with goods & services for a profit
The term Business encompasses all those economic activities related to production & exchange of goods & services for money or any of an economic return.

Characteristics / Elements Of Business:

Business defined as any of activity carried out with the intention of making financial benefits. It has following characteristics : 1. Exchange of goods & services for income & customer satisfaction. 2. Recurring activity. 3. Profit motive. 4. Risk.

Goals Of Business:

Vision is a broad explanation of why the firm exists where it is trying to march ahead.

Mission statement seeks to take a definite meaning to vision. If vision seeks to answer the question where do we go for here, mission answer what business we are in right now.

It may be defined as the long term result that an organization seek to achieve in pursuing its basic mission.

The goals are short term (1 yr or less) milestone or bench mark that organization must achieve in order for long term objective so be achieved.

Specific goals are sometimes referred as targets.


Objective Goals Target


Business Objectives

Profit Power- To hold position in market, & power. Quality product or services. Challenging. Joy of creation. Service to society. Market leadership. Employee satisfaction & development.

Definition Of Business Environment:


refers to all internal & external which have the direct or indirect bearing of the activities of business. Environment consists of all those factors that have a bearing on the business such as strength, weakness, internal power relationship & orientation of the org., govt. policies & regulations, nature of the economy, socio-cultural factors, demographic trends, natural factor & global trends & cross border development.


Factors Influencing Business Decision

Features / Characteristics Of Business Environment:

1. Totality Of External Forces:
Business Environment is the sum total of all those things external to business firms & are aggregative in nature.

2. Specific General Forces:

B.E includes both specific & general forces. Gen. forces (such as investors, customers, competetitors & suppliers) which affect individual enterprise directly & immediately in their day to day working. General forces

(such as social, political, legal, & technological conditions) have impact on all business enterprise & thus may have an affect an individual firm only indirectly.

3. Dynamic Nature:
B.E is dynamic as it keeps on changing whether in terms of technological improvement, shift in consumer preferences or entry of new competition in the market.

4. Uncertainity:
B.E is largely uncertain as it is very difficult to predict future happenings specially when environment changes are taking place too frequently.

Importance Of Business Environment:

1. Firms To Identify Opportunities & Getting The First Mover Advantage :
Early identification of opportunities help an enterprise to be the first to exploit then instead of loosing them to competitors.

2. Firms To Identify Threat & Early Warning Signals:

Indian firms finds that a foreign multinational is entering in the Indian market, it should give a warning signals & Indian firms can meet the threat by adopting strategies like improving the quality of the product, reducing cost of production, engaging in aggressive advertising & so on.

3. Coping With Rapid Changes:

All sizes & types of enterprise are facing increasingly dynamic environment in order to effectively cope with these significant changes, managers must understand & examine the environment & develop suitable course of action.

4. Improving Performance:
The enterprises that continuously monitor their environment & adopt suitable business practices are the once which not only improve their present performance but also continue to succeed in the market for a longer period.

Types of Environment

Types Of Environment:
The environmental factors may be classified in two types:

1. Internal Environment: i.e. factors internal to the firm. 2. External Environment: i.e. factors external to the firm.
The Internal factors are generally regarded as Controllable factors because the company has control over these factors, it can alter or modify such factors as its personnel, physical facilities, organization & functional means such as marketing mix to suit the environment.

The External factors on the other hand are by & large beyond the control of a company. The external or environmental factors such as the economic factors, socioculture factors, govt. & legal factors, demographic factors etc. are generally regarded as uncontrollable factors.
NOTE: A firm may not sometimes have complete control over all the internal factors. On the other hand, it sometimes possible to change certain external factors. Some of the external factors have a direct & intimate impact on the firm (like the suppliers & the distributors of the firm).

These factors are classified as Micro Environment also known as Task or Operating environment. There are other external factors which affect an industry very generally (such as industrial policies, demographic factors, etc.). These are classified as Macro/General or Remote Environment. Thereby we classify B.E in 2 types:
1. External environment. 2. Internal environment A. Micro/Task/Operating environment B. Macro/General/Remote environment

Internal Environment
The important Internal factors which have a bearing on the strategy & other decisions are outlined below:

1. Value System:
The value system of the founders & those at the helm of affairs has important bearing on the choice of business, the mission & objectives of organization, business policies & practices. It is widely acknowledge fact that the extent to which the value system is shared by all in the org. is an important factor contributing to success.

2. Mission & Objectives:

The business domain of the company, priorities, direction of development, business policy, etc., are guided by the mission & the objectives of the company. Ranbaxy's thrust in the foreign markets & developments have been driven by its mission to become a research based international pharmaceutical company. ARVIND MILLS mission- to achieve global dominance in select businesses built around our core competencies through continuous product & technical innovation, customer orientation & focus on cost effctiveness.

3. Management Structure & Nature:

The organizational structure, the composition of the Board of Directors, extent of professionalization of management etc., are important factors influencing business decision. Some management structures & styles delay decision making while some other facilities quick decision making. The Board of directors being the highest decision making body which sets the direction for the development of the organization & which overseas the performance of the organization, the quality of the Boards is a very critical factor for the development & performance of the company.

At one end there are companies with highly qualified & responsible Board & at the other end there are companies which do not possess these qualities. The share-holding could have important managerial implications. There are very large companies where majority of the share is held by promoters(like WIPRO) & there are large firms where the promoters position is very dangerous (like the TATA group of companies).

4. Internal Power Relationships:

Factors like the amount of support the top management enjoys from different levels of employees, shareholders & Board of Directors have important influence on the decisions & their implementation.

The relationship between the members of Board of Directors & b/w the chief executive & the Board are also a critical factor.

5. Human Resources:
The characteristics of the human resources like skill, quality, morale, commitment, attitude, etc., could contribute to the strength & weaknesses of an organization. Some organizations find it difficult to carry out restructuring or modernization because of resistance by employees where they are smoothly done in some others. The involvement, initiative etc., of people at different levels may vary from organization to organization.

6. Company Image & Brand Equity:

The image of the company matters while raising finance, forming joint ventures or other alliances, soliciting marketing intermediaries , entering purchase or sale contracts, launching new products etc., Brand equity is also relevant in several of these cases. Miscellaneous Factors:

There are number of other internal factors which contribute to the business success/failures or influence the decisionmaking. They includes the following:

1. Physical Assets & Facilities Like the production capacity, technology & efficiency of the productive apparatus, distribution logistic etc., are among the factors which influence the competitiveness of a firm. 2. R & D And Technological Capabilities among other things, determines a companys ability to innovate & complete. 3. Marketing Resources like the org. for marketing, quality of the marketing men, brand equity & distribution network have direct bearing on marketing efficiency. They are important also for brand extensions, new product introduction etc. 4. Financial Factors like financial policies, financial Position & capital structure are also important internal Environment affecting business performances, strategies &

External Environment
As stated earlier, the external business environment consists of a micro environment and a macro environment.

The micro environment is also known as the Task Environment and Operating Environment because the micro environment forces have a direct bearing on the operations of the firm. The micro environment consists of the actors in the companys immediate environment that affect the performance of the company. These includes the suppliers, marketing intermediaries, competitors, customers and the publics.

1. Suppliers :
An important force in the micro environment of a company is the suppliers, i.e. those who supply the inputs like raw materials and components to the company. The importance of reliable source/sources of supply to the smooth functioning of the business is obvious. Uncertainty regarding the supply or other supply constraints often compel companies to maintain high inventories causing cost increases. It is very risky to depend on a single supplier because a strike, lock out or any other production problem with that supplier may seriously affect the company. Similarly, a change in the attitude or behavior of the suppliers may also affect the company. Hence, multiple sources of supply often help reduce such risks.

2. Customers:
As it is often exhorted, the major task of a business is to create and sustain customers. A business exists only because of its customers. Monitoring the customer sensitivity is, therefore, a prerequisite for the business success. A company may have different categories of consumers like individuals, households, industries and other commercial establishments and government and other institutions. Depending on a single customer is often too risky because it may place the company in a poor bargaining position, apart from the risks of losing business consequent to the winding up of business by the customer or due to the customers switching over to the competitors of the company. The choice of the customer segments should be made by considering a number of factors including the relative profitability, dependability, stability of demand, growth prospects and the extent of competition.

3. Competitors:

A firms competitors include not only the other firms which market the same or similar products but also all those who compete for the discretionary income of the consumers. For example, the competition for a companys televisions may come not only from other T.V. manufacturers but also two-wheelers, refrigerators, coking ranges, stereo sets and so on. The competition may be of four type:-

A. Desire Competition: It is the primary task to influence the

basic desire of the consumers.

B. Generic Competition: The competition among alternatives

which satisfy a particular category of desire is called generic competition.

3. Product Form Competition: The consumer decides to go in

for a T.V. black and white or color with remote control or without it etc. This is k/n as product form competition.

4. Brand competition: The competition between the different

brands of the same product form.

4. Marketing Intermediaries:
The immediate environment of a company may consist of a number of marketing intermediaries which are Firms that aid the company in promoting, selling and distributing its goods to final buyers. The marketing intermediaries include middlemen such as agent and merchants who help the company find customers or close sales with them, physical distribution firms which assist the company in stocking and moving goods from their origin to their destination such as warehouses and transportation firms; marketing service agencies which assist the company in targeting and promoting its products to the right markets such as advertising agencies, marketing research firms, media firms and consulting firms

and financial intermediaries which finance marketing activities and insure business risks. Marketing intermediaries are vital links between the company and the final consumers. A dislocation or disturbance of the link, or a wrong choice of the link, may cost the company very heavily.

5. Financiers:
Another important micro environmental factor is the financiers of the company. Besides the financing capabilities, their policies and strategies, attitude (including attitude towards risks), ability to provide non-financial assistance etc. are very important.

6. Publics:

A company may encounter certain publics in its environment. A public is any group that has an actual or potential interest in or impact on an organization's ability to achieve its interest. Media publics, citizens action and local publics are some examples.

The macro environment is known as General Environment and Remote Environment. The macro forces are, generally, more uncontrollable than the micro forces. When the macro environment is uncontrollable, the success of a company depends on its adaptability to the environment. Important macro environment factors are such as

1. Economic Environment:
It includes the structure and nature of the economy, the stage of development of the economy, economic resources, the level of income, the distribution of income and assets, global economic linkages, economic policies etc.

2. Political and Regulatory Environment:

The political environment includes factors such as the characteristics and policies of the political parties, the nature of the constitution and government system and the government environment encompassing the economic and business politices and regulation.

3. Social/Cultural Environment:
The type of products to be manufactured and marketed, the marketing strategies to be employed, the way the business should be organized and governed, the values and norms it should adhere to, are all influenced by the social structure and the culture of a society.

4. Demographic Environment:
Market is people in the sense that the demand depends on the people

and their characteristics-the number, income levels, tastes and preferences, beliefs, attitudes and sentiments and a host of other demographic factors.

5. Technological Environment:
This includes the tools- both machines (hard technology) and ways of thinking (soft technology)- available to solve problems and promote progress between, among and between societies.

6. Natural Environment:
The natural environment ultimately is the source and support of everything used by business (and almost any other human activity) every raw material, every energy source, every life sustaining factors, even every waste disposal site.

7. Global Environment:
It refers to those factors which are relevant to business, such as the WTO principles and agreements; other international convention/treaties/agreements/declaration/protocols etc; economic and business condition/ sentiments in other countries etc.