��BUSINESS ENVIRONMENT
All living creatures including human beings live within an environment.
Apart from the natural environment, the environment of humans includes family, friends, peers, and neighbors.
It also includes man-made structures such as buildings, furniture, roads, and other physical infrastructure.
The individuals do not live in a vacuum. They continuously interact with their environment to live their lives.
Just like human beings, the business also does not function in an isolated vacuum.
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Businesses function within the environment and have to negotiate their way through it.
The extent to which the business thrives depends on the manner in which it interacts with its environment.
A business, which continuously remains passive to the relevant changes in the environment, gradually fades away from the market.
To be a successful business one not only have to recognize different elements of the environment but also respect, adapt to or have to manage and influence them.
The business must continuously monitor and adapt to the environment if it is to survive and prosper.
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Disturbances in the environment may spell extreme threats or open up new opportunities for the firm.
A successful business has to identify, appraise, and respond to the various opportunities and threats in its environment.
As stated above, the success of every business depends on adapting itself to the environment within which it functions.
For example, when there is a change in government policies, the business has to make the necessary changes to adapt to the new policies.
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Similarly, a change in technology may make the existing product useless or of no importance.
Also, the introduction of computers has replaced typewriters.
The color television has made black and white television out of fashion
Again a change in the fashion or customers’ taste may shift the demand in the market for a particular product.
For example, the demand for jeans reduced the sale of other traditional wear.
All these aspects are external factors that are beyond the control of the business.
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So the business units must have to adapt themselves to these changes in order to survive and succeed in business.
Hence, it is very necessary to have a clear understanding of the concept of the business environment and the nature of its various components.
Definitions of Business Environment
The term ‘business environment’ connotes external forces, factors, and institutions that are beyond the control of the business and they affect the functioning of a business enterprise.
These include customers, competitors, suppliers, government, social, political, legal, and technological factors, etc.
DEFINITION CONT.
While some of these factors or forces may have a direct influence over the business firm, others may operate indirectly.
Thus, the business environment may be defined as the total surroundings, which have a direct or indirect bearing on the functioning of the business.
It may also be defined as a set of external factors, such as economic factors, social factors, political and legal factors, demographic factors, technical factors, etc.
These factors are uncontrollable in nature and affect the business decisions of a firm.
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These forces are customers, creditors, competitors, government, socio-cultural organizations, improvements in technology, national and international organizations, etc.
Some of these forces affect the business directly while some others have a direct effect on the business.
Concept of Business Environment
A business firm is an open system. It gets resources from the environment and supplies its goods and services to the environment.
There are different levels of environmental forces. Some are close and internal forces whereas others are external forces.
External forces may be related to the national level, regional level or international level.
These environmental forces provide opportunities or threats to the business community.
Every business organization tries to grasp the available opportunities and face the threats that emerge from the business environment.
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Business organizations cannot change the external environment but they just react.
They change their internal business components (internal environment) to grasp the external opportunities and face external environmental threats.
It is, therefore, very important to analyze the business environment to survive and to get success for a business in its industry.
It is, therefore, a vital role of managers to analyze the business environment so that they could pursue an effective business strategy.
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A business firm gets human resources, capital, technology, information, energy, and raw materials from society.
It follows government rules and regulations, social norms and cultural values, regional treaty and global alignment, economic rules and tax policies of the government.
Thus, a business organization is a dynamic entity because it operates in a dynamic business environment.
Features of Business Environment
On the basis of the above discussion the features of business environment can be summarized as follows.
Business environment is the sum totals of all factors external to the business firm and that greatly influence their functioning.
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Understanding the environment within which the business has to operate is very important for running a business unit successfully at any place.
Because, environmental factors influence almost every aspect of business, be it its nature, its location, the prices of products, the distribution system, or personnel policies.
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Hence it is important to learn about the various components of the business environment, which consists of the economic aspect, the sociocultural aspects, the political framework, the legal aspects, and the technological aspects, etc.
The success o every business depends on adapting itself to the environment within which it functions.
For example, when there is a change in government policies, the business has to make the necessary changes to adapt itself to the new policies.
Similarly, a change in technology may render the existing products obsolete, as we have seen that the introduction of computers has replaced typewriters; the color television has made the black and white television out of fashion.
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IMPORTANCE OF ANALYSING BUSINESS THE ENVIRONMENT
1. Identification of strength –
a. employees are competent
b. personnel policies are an employee –organization oriented
c. working conditions generate job satisfaction
2. Identification of weaknesses-
identify its weaknesses and correct it as early as possible
e.g. Machines are outdated, employees lack competence
3. Identification of opportunities –
governmentt reduces excise duties –reduce prices so that sales may
go up.
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4. Identification of threats –
from competitors –innovative product
5. Effective planning –
after SWOT analysis list out specific objectives and accordingly
frame plans to achieve them.
6. Facilitates organizing of resources –
the analysis enables the firm to know the demand potential of the
market.
7. Optimum use of resources –
enable the firm to plan its activities and allocate the limited resources
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8. Flexibility in operations –
enables a firm to adjust its activities depending on the changing
situation.
9. Survival & Growth –
10. Corporate Image –
11. Innovation
12. Motivation to employees
INTERNAL ENVIRONMENT .
Every business enterprise consists of assets of internal factors discomforted with a set of external factors.
The internal factors are generally regarded as controllable, while the external factors are by and large beyond the control of the business.
As environmental/external factors are beyond the control of the firm, its success depends to a large extent on its adaptability to the environment.
i.e its ability to design and adjust the internal controllable variables to take advantage of the opportunities and combat the threats in the environment
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Thus the Business Environment Comprises Of Both a Micro and a macro environment.
The former consists of actors in the immediate environment that affect the performance of the firm, such as suppliers, competitors, marketing intermediaries, customers, etc.
The macro-environment consists of larger societal forces that affect the actors in the company’s micro-environment, such as demographic, economic, natural, legal, technical, political, and cultural forces.
Internal environment includes all those factors which influence business and which are present within the business itself.
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These factors are usually under the control of the business. They include:
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EXTERNAL ENVIRONMENT
The external environment is dived into Micro and Macro. The Micro Include:
1.Suppliers: those who supply inputs like raw materials and components to the organization. ensure quality goods at the right time and at the right price.
2.Customers: the major objective is to create and retain customers. type of customers -households, industries, government, individuals etc.
3. Competitors: In order to face competition it is necessary to monitor activities to assess their strengths and weaknesses.
4. Marketing Intermediaries: those who facilitate the distribution of goods from producer to consumer. E.g. wholesalers, retailers, agents, distributors, etc.
THE MACRO ENVIRONMENT
The macro-environment also includes:
(a). legislature -includes Parliament and legislative assemblies, which are the main decision and law-making bodies of the country.
(b).Executive –Government & bureaucracy
(c). Judiciary –Supreme Court , High Court and other courts.
2.ECONOMIC ENVIRONMENT
•Economic conditions in the market
•Economic policies of the government
•Economic system of the country –Socialist, Capitalist, Mixed Economy
•Exporters should know the economic system of the foreign markets
3.SOCIO –CULTURAL ENVIRONMENT
Consists of the culture, traditions, values, buying habits, consumption patterns, and lifestyles of society.
Culture determines the types of goods and services a business should produce.
4.TECHNOLOGICAL ENVIRONMENT
What is technology?- knowledge, tools, techniques, and actions used to transform the material, information, and other inputs into finished goods and services
It plays a pivotal role in creating and changing an organization’s task environment.
Today’s technology is tomorrow’s scrap
The manufacturer has to incorporate new techniques in his production process in order to ensure quality and innovation.
New and better technology helps in minimizing costs, reducing wastages and high cost on research and development to introduce new products.
5.NATURAL ENVIRONMENT
It includes geographical and ecological factors that influence business operations.
These factors include the availability of natural resources, weather, and climatic condition, location aspect, etc.
Transportation and communication depend to a large extent on geographical factors.
6.LEGAL ENVIRONMENT
It refers to set laws, and regulations that influence business organizations and their operations
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This environment aims at :
7.DEMOGRAPHIC ENVIRONMENT
It relates to the population such as size, density, distribution, growth rate, age, sex, family size, standard of living, educational level, language, etc.
The demands of the people of cities and towns are different from the people in rural areas.
The high rise in the population indicates the easy availability of labor.
��8. INTERNATIONAL ENVIRONMENT��
It is the result of international trade and the components are :
•EXIM policies of a country.
•Foreign exchange regulations like tariffs, quotas
•Trade cycles like boom, recession
The modern communication system, technology, entry of multinational companies, good relations between countries etc. has brought different countries closer.
OVERVIEW OF BUSINESS ENVIRONMENT
MACRO ENVIRONMENT
ECONOMIC Environment
MICRO ENVIRONMENT
BUSINESS
Internal Environment
Values,
Mission & Objectives.
Human Resources,
Co. Image & Brand Equity
Non -Economic Environment