An Overview of Business Environment

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An Overview Of Business

Environment

BY

GAZAL GANDHI

ASSISTANT PROFESSOR

MBA, RDIAS


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Business environment includes the climate or set of

conditions: economic, social, political or institutional

which have a direct or indirect bearing on the

functioning of businessIt signifies external forces, factors and institutions that are

beyond the control of the business and they affect the

functioning of a business enterprise.


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Concept Of Business Environment

Business Environment means the

aggregate of all the forces, factors andinstitutions which are external to and

beyond the control of an individual

business enterprise but which exercise asignificant influence on the functioning and

growth of individual enterprises.


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Nature of Business Environment

Aggregative:totality of all the external forceswhich influence the working and decision

making of an enterprise.

Inter-related:various elements are closelyinterdependent and any change in one element

affects the other elements.

Relative:it differs from country to country andeven region to region.


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Contd.

Inter-temporal: it changes over time,specially in long run, it changes certainly.

Uncertain: business environment is

volatile so it becomes very difficult toforecast.

Contextual: business environment

provides the macro framework withinwhich the business firm (a micro unit)operates.


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Significance of Business

Environment

First mover advantage

Early warning signal Customer focus

Strategy formulation

Change agent

Public image

Continuous learning


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Types of environment

Internal environment External environment

Micro environment Macro environment

ENVIRONMENT OF BUSINESS


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Important internal factors which have a bearing on

the decisions of a business firm and which are

generally controllable because the company has

control over these factors.

The internal environment is the environment that has a direct impact on the

business.


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Factors of Internal Environment

Factors

culture

Mission & objectives

Top management structure

Power structure

Company image & brand equity

Human & other resources


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Ranbaxys mission:

to become a research based internationalpharmaceutical company- has driven it to enter the foreign

markets and development.

Thus the business domain of the company, priorities,

direction of development, business philosophy, business policy

etc,

are guided by the vision, mission

and objectives of the company.


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Organizational structure, composition of board of directors, extent of

professionalization of management sometime delay decision making while some

others facilitate quick decision making.

Board of directors is the highest decision making body and it overseas

performance of the organization and so its quality is very important.

The share holding pattern can also have important managerial implications.


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The amount of support the top management enjoys from differentlevels of employees, shareholders and board of directors have

important influence on the decisions and their implementation.

For example: relationship between the

members of the board of director and

between CEO.


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The characteristics of human resources like skill, quality, morale,

commitment, attitude etc. could contribute to the strength and

weakness of an organization

Ex: Some organizations find it difficult to carry out restructuring or

modernization because of resistance by employees whereas they are

smoothly done in some others.


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While raising finance, forming joint ventures or other alliances,

soliciting marketing intermediaries, entering purchase or sale

contracts, launching new products etc. the image of the company

matters the most.


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Micro environment consists of the factors in

the companys immediate environment that

affect the performance of the company. They

are more intimately linked with the company.

Macro environment consists of larger societal

forces that affect all the factors in thecompanys micro environment.


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o Micro environment Suppliers

Customers

Competitors

Marketing intermediaries

Financiers

Public


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Inputsuppliers

Workers &

their unions

Public

Competitors

Marketing

intermediaries

Customers

BUSINESS


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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. Theimportance of reliable source/sources of

supply to the smooth functioning of the

business is obvious.


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Customers:

The major task of a business is to create and

sustain customers. A business exists

only because of its customers. The choice of

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.

The business firm should not be dependent on a

single customer


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Competitors:Competition not only include the other firms that produce same

product but also those firms which compete for the income of

the consumers the competition here among these products may

be said as desire competition as the primary task here is to fulfill

the desire of the customers.


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Marketing Intermediaries The marketing intermediaries include middlemen such as agents

and merchants that help the company find customers or close

sales with them. The marketing intermediaries are vital links

between the company and the final consumers .


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Financiers:

The financiers are also important factors ofinternal environment. Along with financingcapabilities of the company their policies

and strategies, attitudes towards risk ,ability to provide non-financial assistanceetc. are very important.


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Public : A public is any group that has an actual or potential

interest in or impact on an organizations ability to

achieve its interests. Ex-media, citizens, local public etc.

NGOs have been protesting against child labour, cruelty

against animals, environmental problems,

deindustrialization resulting from imports etc.


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Macro environment Economic environment

Political environment

Technological environment

Social environment

Global environment


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BUSINESS

Macro environment


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Consists of larger societal forces that affect all the actors

in companys macro environment-namelythe demographic,

economic,

natural,

technological,political and

cultural forces

Also known as Societal Environment

The Societal Environment includes general forces that do

not directly touch on short-run activities of the

organization but that can, and often do, influence its long-

run decisions.


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Important factors are:

Economic conditions

Economic policies

Economic systems

Economic conditionThe economic conditions of a countryfor

example, the nature of the economy, the stage of

development of the economy, economic resources,

the level of income, the distribution of income andassets, etc.- are among the very important

determinants of business strategies.

In a developing country, the low income may be

the reason for the very low demand for the


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Economic policies

Some types or categories of business are favourably

affected by government policy, some adversely affected,

while it is neutral to some others.

E.g. a restrictive import policy may greatly help the import

competing industries, while a liberalisation of the import

policy may create difficulties for such industries

Economic System

The scope of the private business depends on the

economic system.

The freedom of the private enterprise is the greatest in the

free market economy.


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Trade Factors

Anything that effects imports and exports is atrade factor.

A tariffis a tax on imports, this increases thecost of the goods brought by the importer. The

tax goes to the Government. A tariff being

introduced on imports will reduce supply.

A quota is a limit on the amount that can be

imported, this reduces supply


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Trade Factors The exchange rate may also have an impact

on supplyThe exchange rate is the value of one currency in

relation to the currency of another country.

Foreign Exchange rate changes will effect theprice of exports and imports

World market prices will effect Domesticprices so an increase in the payout to Dairy

Farmers will almost certainly lead to higher

prices in NZ for dairy products.


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Has close relationship with the economic systemand economic policy.

In many countries regulations to protect

consumer interests have become stronger.Some governments specify certain standards for

the products to be marketed in the country; someeven prohibit the marketing of certain products.

Promotional activities are subject to various typesof controls.

Eg: In India, Advertisement of alcoholic product

is prohibited.


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Political Factors

Any policy decision made by Governmentis a Political Factor e.g. the Government

decides that alcohol is a demerit good

(bad for you) and they will increases tax

on it, this is a political decision.

Subsidies are a payment given to firms

by the government in order to encourage

the production of a particular good orservice.

Subsidies represent a decrease in costs by

the producer so they will increase supply


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Political Factors

Sales Taxes is a payment to the

government for every unit consumed for a

particular good the government may think

is bad for society. Taxes increase the costs to the producer so

will result in a decrease of supply


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Major factors are:

the buying and consumption habits of people,

their language beliefs and values,

customs and traditions,

tastes and preferences,

Education

Strategy should be appropriate in the socio-cultural environment.

Eg: nestle brews a very large variety of instant

coffee to satisfy different national tastes


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Even when people of different cultures use

the same product; the mod of consumption,

conditions of use, purpose of use or the

perceptions of the product attributes mayvary so much so that the product attributes,

method of presentation, positioning or method

of promoting the product may have to bevaried to suit the characteristics of different

markets.

E.g.: Vicks Vaporub, the popular pain balm is used

as mos uito re ellent in some tro ical countries


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Language difference pose a serious problem.e.g.Preet-> Prestige for overseas market

In Japanese, General Motors body by Fisher means Corpse byfisher

ColourBlue: feminine and warm in Holland ; but masculine

and cold in Sweden

Green: favourite in Muslim world; but representsillness in Malaysia

Red: popular in communist countries; but representsdisaster in Africa

White: death and mourning in China and Korea; but itex resses ha iness in some countries. Also it is the


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Factors:

Size, growth rate, age composition, sex

composition of population, family size,

educational levels, economic stratification of

the population, language, caste, religion, etc.

E.g.

Decline in birth rates in USA have affected the

demand for baby products. So Johnson

&Johnson repositioned their products like

baby shampoo and baby oil, to the adult

segment, particularly to females.


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Geological and ecological factors, such as naturalresources endowments, weather and climatic conditions,

topographical factors, location aspects in the globalcontext, port facilities etc., are relevant to business.

Differences in geographical conditions between marketsmay some times call for changes in the marketing mix.Geographical and Ecological factors also influence the

location of certain industries. E.g. industries with highmaterial index tend to be located near the raw materialsources.

Topographical factors may affect the demand pattern

E.g.. In hilly areas with difficult terrain, jeeps may be in

a greater demand than cars.Ecological factors have recently assumed great

importance. The depletion of natural resources,environmental pollution and the disturbance of ecological

balance have caused great concern.


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Environmental Factors There are two aspects of environmentalissues that may affect supply.

1. Factors that are beyond the control of

the business

E.g. acts of nature (Flood, would decrease

supply)

2. How a producer views the environment

will effect there production decisions

e.g. if a producer wants to be environmentally

friendly they may recycle all waste. This may

be more costly and time consuming than just

dumping it. This will mean they are lessroductive and less rofitable at existin rices


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Business prospects demands availability of certainphysical facilitiesE.g. demand for electrical appliances is affected by the extent of

electrification and the reliability of power supply.

Demand for LPG stoves depend on rate of growth of gas connections

differing technological environment of different marketsmay call for product modificationsE.g. Many appliances are designed for 110 V in USA. They should be

converted for 240v in India

Technological developments may increase or decreasethe demand for some existing productsE.g. voltage stabilizers help increase in sale of electrical appliances

in markets characterised by frequent voltage fluctuations

Introduction of TVs, Refrigerators, etc. with in-built stabilizersadversely affects the demand for voltage stabilizers.


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Particularly important for the industriesdirectly depending on imports or exports andimport-competing industries

Recession, economic boom, liberalizationMajor international developments have their

spread effects on domestic business.

E.g. Oil price hikes increased the cost ofproduction and the prices of certain products suchas fertilizers , synthetic fibres. So usually, thedemand for natural fibres and manures increased.

Also demand for automobiles that economiseener consum tion ot increased.


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The oil crisis also promoted some companies

to resort to demarketing

demarketing refers to the process of cutting

consumer demand for a product back to thelevel that can be supplied by the firm.

E.g. The Indian Oil Corporation have

publicised tips on how to cut oil consumption


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Legal Factors

Any law that a producer must comply

with is a legal factor e.g. Health and

Safety. Complying with these laws will

often increase cost of production

Some times the law may directly reduce

supply e.g. hours that businesses can be

open such at pubs


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THANK YOU.

Documents

An Overview of Business Environment